<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 28, 1999
FILE NO. 033-51294
FILE NO. 811-7140
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-1A
<TABLE>
<S> <C> <C>
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
POST-EFFECTIVE AMENDMENT NO. 27 /X/
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /
AMENDMENT NO. 29 /X/
</TABLE>
------------------------
VAN KAMPEN SERIES FUND, INC.
(Exact Name of Registrant as Specified in Charter)
1 PARKVIEW PLAZA, PO BOX 5555, OAKBROOK TERRACE, ILLINOIS 60181-5555
(Address of Principal Executive Office)
Registrant's Telephone Number (630) 684-6000
A. THOMAS SMITH III
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
VAN KAMPEN INVESTMENTS INC.
1 PARKVIEW PLAZA
PO BOX 5555
OAKBROOK TERRACE, ILLINOIS 60181-5555
(Name and Address of Agent for Service)
------------------------
COPIES TO:
WAYNE W. WHALEN, ESQ.
THOMAS A. HALE, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 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.
<TABLE>
<S> <C>
It is proposed that this filing be effective
(Check appropriate box)
/ / Immediately upon filing pursuant to paragraph (b)
/X/ On October 28, 1999 pursuant to paragraph (b)
/ / 75 days after filing pursuant to paragraph (a)(1)
/ / On October 28, 1999 pursuant to paragraph (a)(1)
/ / 60 days after filing pursuant to paragraph (a)(2) of Rule
485
If appropriate, check the following box:
/ / This post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
</TABLE>
------------------------
Title of securities being registered:
SHARES OF BENEFICIAL INTEREST, PAR VALUE $0.001 PER SHARE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This Post-Effective Amendment No. 27 to the Registration Statement contains
19 Prospectuses and one Statement of Additional Information, describing the 19
series of the Registrant (the "Funds"). The Registration Statement is organized
as follows:
Facing Page
Prospectuses relating to the Funds, in the following order:
Van Kampen American Value Fund
Van Kampen Asian Growth Fund
Van Kampen Emerging Markets Debt Fund
Van Kampen Emerging Markets Fund
Van Kampen Equity Growth Fund
Van Kampen European Equity Fund
Van Kampen Focus Equity Fund
Van Kampen Global Equity Allocation Fund
Van Kampen Global Equity Fund
Van Kampen Global Fixed Income Fund
Van Kampen Global Franchise Fund
Van Kampen Growth And Income Fund II
Van Kampen High Yield & Total Return Fund
Van Kampen International Magnum Fund
Van Kampen Japanese Equity Fund
Van Kampen Latin American Fund
Van Kampen Mid Cap Growth Fund
Van Kampen Value Fund
Van Kampen Worldwide High Income Fund
One Statement of Additional Information relating to all of the Funds of
the Registrant listed above.
Part C Information
Exhibits
<PAGE>
VAN KAMPEN
AMERICAN VALUE FUND
Van Kampen American Value Fund is a mutual fund with an investment objective to
seek to provide a high total return by investing in equity securities of small-
to medium-sized corporations.
Shares of the Fund have not been approved or disapproved by the Securities and
Exchange Commission (SEC) or any state regulator, and neither the SEC nor any
state regulator has passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
THIS PROSPECTUS IS DATED OCTOBER 28, 1999.
[LOGO]
<PAGE>
TABLE OF CONTENTS
Risk/Return Summary .....................................................3
Fees and Expenses of the Fund ...........................................5
Investment Objective, Policies and Risks ................................6
Investment Advisory Services ...........................................10
Purchase of Shares .....................................................12
Redemption of Shares ...................................................19
Distributions from the Fund ............................................20
Shareholder Services ...................................................21
Federal Income Taxation ................................................23
Financial Highlights ...................................................24
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations, other than those contained in this
prospectus, in connection with the offer contained in this prospectus and, if
given or made, such other information or representations must not be relied upon
as having been authorized by the Fund, the Fund's investment adviser or the
Fund's distributor. This prospectus does not constitute an offer by the Fund or
by the Fund's distributor to sell or a solicitation of an offer to buy any of
the securities offered hereby in any jurisdiction to any person to whom it is
unlawful for the Fund to make such an offer in such jurisdiction.
<PAGE>
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The Fund is a mutual fund with an investment objective to seek to provide a high
total return by investing in equity securities of small- to medium-sized
corporations.
INVESTMENT STRATEGIES
The Fund's investment adviser seeks to achieve the Fund's investment objective
by investing primarily in a portfolio of equity securities of small- to medium-
sized U.S. corporations that the Fund's investment adviser believes are
undervalued relative to the stock market in general at the time of investment.
Under normal market conditions, the Fund invests at least 65% of its total
assets in equity securities of small-to medium-sized corporations. The Fund
invests in equity securities including common and preferred stocks;
investment-grade convertible securities and equity-linked securities; and rights
and warrants to purchase common stocks and other equity interests, such as
partnership and trust interests.
The Fund emphasizes a "value" style of investing, seeking securities of
companies that the Fund's investment adviser believes are undervalued. Portfolio
securities are typically sold when the Fund's investment adviser no longer
believes such securities are undervalued. The Fund may invest from time to time
in securities of foreign issuers that are traded on U.S. exchanges or
over-the-counter markets either directly or through depositary receipts. The
Fund may purchase and sell certain derivative instruments (such as options,
futures, options on futures and forward contracts), which may subject the Fund
to additional risks.
Investment opportunities for undervalued small- to medium-sized companies may be
more limited than those in other sectors of the market. In order to facilitate
the management of the Fund's portfolio, the Fund may, from time to time, suspend
the continuous offering of its shares to new investors. As market conditions
permit, the Fund may reopen sales of its shares to new investors. Any such
limited offerings of the Fund may commence and terminate without any prior
notice.
INVESTMENT RISKS
An investment in the Fund is subject to investment risks, and you could lose
money on your investment in the Fund. There can be no assurance that the Fund
will achieve its investment objective.
MARKET RISK. Market risk is the possibility that the market values of securities
owned by the Fund will decline. Market risk may affect a single issuer,
industry, sector of the economy or the market as a whole. Investments in equity
securities generally are affected by changes in the stock markets, which
fluctuate substantially over time, sometimes suddenly and sharply.
The Fund emphasizes a "value" style of investing. This style of investing is
subject to the risk that the valuations never improve or that the returns on
value equity securities are less than returns on other styles of investing or
the stock market. Different types of stocks tend to shift in and out of favor
depending on market and economic conditions. Thus, the value of the Fund's
investments will vary and at times may be lower or higher than that of other
types of funds.
RISKS OF SMALL- AND MEDIUM-SIZED COMPANIES. The Fund invests primarily in small-
and medium-sized companies which often are newer or less established companies.
Investments in small- and medium-sized companies carry additional risks because
earnings of these companies tend to be less predictable; they often have limited
product lines, markets, distribution channels or financial resources; and the
management of such companies may be dependent upon one or a few key people.
Equity securities of small-and medium-sized companies may have market movements
that are more abrupt or erratic than those of stocks of larger, more established
companies or the stock market in general. Historically, small-and medium-sized
companies have sometimes gone through extended periods when they did not perform
as well as larger-sized companies. In addition, equity securities of small- and
medium-sized companies generally are less liquid than those of larger-sized
companies. This means that the Fund could have greater difficulty selling such
securities at the time and price that the Fund would like.
RISKS OF USING DERIVATIVE INVESTMENTS. In general terms, a derivative investment
is one whose value depends on (or is derived from) the value of an
3
<PAGE>
underlying asset, interest rate or index. Options, futures, options on futures
and forward contracts are examples of derivatives. Derivative investments
involve risks different from direct investment in underlying securities. These
risks include imperfect correlation between the value of the instruments and the
underlying assets; risks of default by the other party to certain transactions;
risks that the transactions may result in losses that partially or completely
offset gains in portfolio positions; risks that the transactions may not be
liquid; and manager risk.
MANAGER RISK. As with any managed fund, the Fund's investment adviser may not be
successful in selecting the best-performing securities or investment techniques
and the Fund's performance may lag behind that of similar funds.
INVESTOR PROFILE
In light of the Fund's investment objective and strategies, the Fund may be
appropriate for investors who:
- - Seek a high total return over the long term
- - Can withstand substantial volatility in the value of their Fund shares
- - Wish to add to their investment portfolio a fund that emphasizes a value style
of investing in equity securities of small- to medium-sized companies
An investment in the Fund is not a deposit of any bank or other insured
depository institution. Your investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
An investment in the Fund may not be appropriate for all investors. The Fund is
not intended to be a complete investment program, and investors should consider
their long-term investment goals and financial needs when making an investment
decision about the Fund. An investment in the Fund is intended to be a long-term
investment, and the Fund should not be used as a trading vehicle.
ANNUAL PERFORMANCE
One way to measure the risks of investing in the Fund is to look at how its
performance varies from year-to-year. The following chart shows the annual
returns of the Fund's Class A Shares over the five calendar years prior to the
date of this prospectus. Sales loads are not reflected in this chart. If these
sales loads had been included, the returns shown below would have been lower.
Remember that the past performance of the Fund is not indicative of its future
performance.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1994 2.02%
1995 19.34%
1996 22.33%
1997 36.39%
1998 9.69%
</TABLE>
The Fund's return for the nine-month period ended September 30, 1999 was 10.73%.
The annual return variability of the Fund's Class B Shares and Class C Shares
would be substantially similar to that shown for the Class A Shares because all
of the Fund's shares are invested in the same portfolio of securities; however,
the actual annual returns of the Class B Shares and Class C Shares would be
lower than the annual returns shown for the Fund's Class A Shares because of
differences in the expenses borne by each class of shares.
During the five-year period shown in the bar chart, the highest quarterly return
was 18.85% (for the quarter ended September 30, 1997) and the lowest quarterly
return was -15.75% (for the quarter ended September 30, 1998).
COMPARATIVE PERFORMANCE
As a basis for evaluating the Fund's performance and risks, the table below
shows how the Fund's performance compares with two broad-based market
4
<PAGE>
indices that the Fund's investment adviser believes are appropriate benchmarks
for the Fund: the Standard & Poor's 500 Index(*) and the Russell 2500 Small
Company Index.(**) The Fund's performance figures include the maximum sales
charges paid by investors. The indices' performance figures do not include any
commissions or sales charges that would be paid by investors purchasing the
securities represented by those indices. Average annual total returns are shown
for the periods ended December 31, 1998 (the most recently completed calendar
year prior to the date of this prospectus). Remember that the past performance
of the Fund is not indicative of its future performance.
<TABLE>
<CAPTION>
AVERAGE ANNUAL
TOTAL RETURNS
FOR THE
PERIODS ENDED PAST PAST 5 SINCE
DECEMBER 31, 1998 1 YEAR YEARS INCEPTION
- ----------------------------------------------------------
<S> <C> <C> <C>
Van Kampen American
Value Fund
- -- Class A Shares 3.41% 16.00% 15.38%(1)
Standard & Poor's
500 Index 28.57% 24.06% 23.06%(2)
Russell 2500 Small
Company Index 0.38% 14.13% 13.57%(1)
.........................................................
Van Kampen American
Value Fund
- -- Class B Shares 3.84% -- 19.11%(3)
Standard & Poor's
500 Index 28.57% -- 23.06%(3)
Russell 2500 Small
Company Index 0.38% -- 14.41%(3)
.........................................................
Van Kampen American
Value Fund
- -- Class C Shares 7.83% 16.48% 15.79(1)
Standard & Poor's
500 Index 28.57% 24.06% 23.06%(2)
Russell 2500 Small
Company Index 0.38% 14.13% 13.57%(1)
.........................................................
INCEPTION DATES: (1) 10/18/93, (2) 10/31/93,
(3) 8/1/95.
</TABLE>
* THE STANDARD & POOR'S 500 INDEX CONSISTS OF 500 WIDELY-HELD COMMON
STOCKS OF COMPANIES WITH MARKET CAPITALIZATIONS OF $1 BILLION OR MORE
THAT ARE A REPRESENTATIVE SAMPLE OF APPROXIMATELY 100 INDUSTRIES,
CHOSEN MAINLY FOR MARKET SIZE, LIQUIDITY AND INDUSTRY GROUP
REPRESENTATION (ASSUMES DIVIDENDS ARE REINVESTED). THE FUND'S
INVESTMENT ADVISER BELIEVES THE RUSSELL 2500 SMALL COMPANY INDEX** IS
MORE REPRESENTATIVE OF THE COMPANIES IN WHICH THE FUND INVESTS.
ACCORDINGLY, THE STANDARD & POOR'S 500 INDEX WILL NOT BE IN THE FUND'S
FUTURE PROSPECTUSES.
** THE RUSSELL 2500 SMALL COMPANY INDEX IS A SUBSET REPRESENTING THE
SMALLEST 2500 COMPANIES OF THE RUSSELL 3000 INDEX. THE RUSSELL 3000
INDEX IS AN INDEX OF THE 3000 LARGEST U.S. COMPANIES BASED ON TOTAL
MARKET CAPITALIZATION, REPRESENTING APPROXIMATELY 98% OF THE
INVESTABLE U.S. EQUITY MARKET.
FEES AND EXPENSES
OF THE FUND
The table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
- -----------------------------------------------------------
<S> <C> <C> <C>
</TABLE>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
- -----------------------------------------------------------
<S> <C> <C> <C>
Maximum sales charge
(load) imposed on
purchases (as a
percentage of
offering price) 5.75%(1) None None
..........................................................
Maximum deferred
sales charge (load)
(as a percentage of
the lesser of
original purchase
price or redemption
proceeds) None(2) 5.00%(3) 1.00%(4)
..........................................................
Maximum sales charge
(load) imposed on
reinvested dividends None None None
..........................................................
Redemption fees None None None
..........................................................
Exchange fee None None None
..........................................................
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
<TABLE>
<S> <C> <C> <C>
- -----------------------------------------------------------
Management Fees 0.85% 0.85% 0.85%
..........................................................
Distribution and/or
Service (12b-1)
Fees(5) 0.25% 1.00%(6) 1.00%(6)
..........................................................
Other Expenses 0.39% 0.39% 0.39%
..........................................................
Total Annual Fund
Operating Expenses 1.49% 2.24% 2.24%
..........................................................
</TABLE>
(1) REDUCED FOR PURCHASES OF $50,000 AND OVER. SEE "PURCHASE OF SHARES --
CLASS A SHARES."
(2) INVESTMENTS OF $1 MILLION OR MORE ARE NOT SUBJECT TO ANY SALES CHARGE
AT THE TIME OF PURCHASE, BUT A DEFERRED SALES CHARGE OF 1.00% MAY BE
IMPOSED ON CERTAIN REDEMPTIONS MADE WITHIN ONE YEAR OF THE PURCHASE.
SEE "PURCHASE OF SHARES -- CLASS A SHARES."
(3) THE MAXIMUM DEFERRED SALES CHARGE IS 5.00% IN THE FIRST YEAR AFTER
PURCHASE, DECLINING THEREAFTER AS FOLLOWS:
YEAR 1-5.00%
YEAR 2-4.00%
YEAR 3-3.00%
YEAR 4-2.50%
YEAR 5-1.50%
AFTER-NONE
SEE "PURCHASE OF SHARES -- CLASS B SHARES."
(4) THE MAXIMUM DEFERRED SALES CHARGE IS 1.00% IN THE FIRST YEAR AFTER
PURCHASE AND 0.00% THEREAFTER. SEE "PURCHASE OF SHARES -- CLASS C
SHARES."
(5) CLASS A SHARES ARE SUBJECT TO AN ANNUAL SERVICE FEE OF UP TO 0.25% OF
THE AVERAGE DAILY NET ASSETS ATTRIBUTABLE TO SUCH CLASS OF SHARES.
CLASS B SHARES AND CLASS C SHARES ARE EACH SUBJECT TO A COMBINED
ANNUAL DISTRIBUTION AND SERVICE FEE OF UP TO 1.00% OF THE AVERAGE
DAILY NET ASSETS ATTRIBUTABLE TO SUCH CLASS OF SHARES. SEE "PURCHASE
OF SHARES."
(6) BECAUSE DISTRIBUTION AND/OR SERVICE (12B-1) FEES ARE PAID OUT OF THE
FUND'S ASSETS ON AN ONGOING BASIS, OVER TIME THESE FEES WILL INCREASE
THE COST OF YOUR INVESTMENT AND MAY COST YOU MORE THAN PAYING OTHER
TYPES OF SALES CHARGES.
5
<PAGE>
EXAMPLE:
The following example is intended to help you compare the cost of investing in
the Fund with the costs of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same each year (except for the ten-year
amounts for Class B Shares which reflect the conversion of Class B Shares to
Class A Shares after eight years). Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
- ---------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $718 $1,019 $1,341 $2,252
..................................................
Class B Shares $727 $1,000 $1,350 $2,386*
..................................................
Class C Shares $327 $ 700 $1,200 $2,575
..................................................
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
- ---------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $718 $1,019 $1,341 $2,252
..................................................
Class B Shares $227 $ 700 $1,200 $2,386*
..................................................
Class C Shares $227 $ 700 $1,200 $2,575
..................................................
</TABLE>
* BASED ON CONVERSION TO CLASS A SHARES AFTER EIGHT YEARS.
INVESTMENT OBJECTIVE,
POLICIES AND RISKS
The Fund's investment objective is to seek to provide a high total return by
investing in equity securities of small- to medium-sized corporations. The
Fund's investment objective is a fundamental policy and may not be changed
without the approval of a majority of shareholders of the Fund's outstanding
voting securities, as defined in the Investment Company Act of 1940, as amended
(the "1940 Act"). There are risks inherent in all investments in securities;
accordingly, there can be no assurance that the Fund will achieve its investment
objective.
The Fund's investment adviser seeks to achieve the investment objective by
investing primarily in a portfolio of equity securities of small- to
medium-sized U.S. corporations that the Fund's investment adviser believes are
undervalued relative to the stock market in general at the time of investment.
Under normal market conditions, the Fund invests at least 65% of its total
assets in equity securities of small- to medium-sized corporations. Under
current market conditions, the Fund's investment adviser defines small- and
medium-sized corporations by reference to those companies with market
capitalizations in the range of companies represented in the Russell 2500 Index,
a small capitalization company index which consists of companies in the
capitalization range of approximately $7 million to $6.4 billion as of
October 18, 1999. The Fund also may invest in larger companies.
In selecting securities for investment, the Fund seeks to identify those
companies with strong fundamentals, promising growth prospects and attractive
valuations. The Fund generally focuses on undervalued companies with
characteristics for improved valuations. The Fund's investment adviser uses a
multi-factor stock selection process which is believed to provide a balance
between a company's valuation and its long-term prospects. The Fund emphasizes a
"value" style of investing. The Fund's investment style presents the risk that
the valuations may never improve or that the returns on value securities may be
less than the returns on other styles of investing or the overall stock market.
The Fund's investment adviser generally seeks such securities which it believes
are undervalued relative to market values and other traditional measures of
intrinsic worth, or are undervalued and have identifiable factors that might
lead to improved valuation. The Fund's investment adviser believes that
attractive values generally are offered by companies with improving near-term
business prospects relative to investor expectations. This catalyst could come
from within the company, such as cost reductions or more effective pricing, or
as a result of external factors, such as changing markets or industry
conditions. The selection process favors companies that offer value in terms of
6
<PAGE>
price-to-earnings ratio and earnings growth rate, seeking a rational trade-off
between a security's valuation, growth potential and near-term business
momentum. The Fund considers value to be achieved when investors' perceptions
improve and the securities of such companies achieve what the Fund's investment
adviser believes is fair valuation.
While the Fund primarily uses a "bottom-up" investment approach, the Fund's
investment adviser also factors in macroeconomic trends that generally influence
the outlook of certain industries. Such an approach allows the Fund's investment
adviser to identify companies within industries that may be positioned to
benefit from prevailing economic trends or that have attractive valuation
rankings. A combination of fundamental investment insights and quantitative
inputs may be used to focus research attention on the most attractive sectors of
the market in a timely fashion.
The Fund invests primarily in common stocks. Common stocks are shares of a
corporation or other entity that entitle the holder to a pro rata share of the
profits of the corporation, if any, without preference over any other class of
securities, including such entity's debt securities, preferred stock and other
senior equity securities. Common stock usually carries with it the right to vote
and frequently an exclusive right to do so.
While the Fund invests primarily in common stocks, it also may invest in
preferred stocks, investment-grade convertible securities and equity-linked
securities, and rights and warrants to purchase common stocks and other equity
interests, such as partnership and trust interests. Preferred stock generally
has a preference as to dividends and liquidation over an issuer's common stock
but ranks junior to debt securities in an issuer's capital structure. Unlike
interest payments on debt securities, preferred stock dividends are payable only
if declared by the issuer's board of directors. Preferred stock also may be
subject to optional or mandatory redemption provisions.
A convertible security is a bond, debenture, note, preferred stock or other
security that may be converted into or exchanged for a prescribed amount of
common stock or other equity security of the same or a different issuer or into
cash within a particular period of time at a specified price or formula. A
convertible security generally entitles the holder to receive interest paid or
accrued on debt securities or the dividend paid on preferred stock until the
convertible security matures or is redeemed, converted or exchanged. Before
conversion, convertible securities generally have characteristics similar to
both debt and equity securities. The value of convertible securities tends to
decline as interest rates rise and, because of the conversion feature, tends to
vary with fluctuations in the market value of the underlying equity securities.
Convertible securities ordinarily provide a stream of income with generally
higher yields than those of common stock of the same or similar issuers.
Convertible securities generally rank senior to common stock in a corporation's
capital structure but are usually subordinated to comparable nonconvertible
securities. Convertible securities generally do not participate directly in any
dividend increases or decreases of the underlying equity securities although the
market prices of convertible securities may be affected by any such dividend
changes or other changes in the underlying equity securities.
The Fund only invests in convertible debt securities considered to be
"investment grade" at the time of investment. Investment grade securities are
securities rated BBB or higher by Standard & Poor's ("S&P"), or rated Baa or
higher by Moody's Investors Service, Inc. ("Moody's") or comparably rated by any
nationally recognized statistical rating organization or, if unrated, are
considered by the Fund's investment adviser to be of comparable quality.
Securities rated BBB by S&P or Baa by Moody's are in the lowest of the four
investment grades and are considered by the rating agencies to be medium-grade
obligations which possess speculative characteristics so that changes in
economic conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than in the case of
higher-rated securities.
Equity-linked securities are instruments whose value is based upon the value of
one or more underlying equity securities, a reference rate or an index.
Equity-linked securities come in many forms and may include features, among
others, such as the following: (i) may be issued by the issuer of the underlying
equity security or by a company other
7
<PAGE>
than the one to which the instrument is linked (usually an investment bank),
(ii) may convert into equity securities, such as common stock, within a stated
period from the issue date or may be redeemed for cash or some combination of
cash and the linked security at a value based upon the value of the underlying
equity security within a stated period from the issue date, (iii) may have
various conversion features prior to maturity at the option of the holder or the
issuer or both, (iv) may limit the appreciation value with caps or collars of
the value of the underlying equity security and (v) may have fixed, variable or
no interest payments during the life of the security which reflect the actual or
a structured return relative to the underlying dividends of the linked equity
security. Investments in equity-linked securities may subject the Fund to
additional risks not ordinarily associated with investments in other equity
securities. Because equity-linked securities are sometimes issued by a third
party other than the issuer of the linked security, the Fund is subject to risks
if the underlying stock underperforms and if the issuer defaults on the payment
of the dividend or the common stock at maturity. In addition, the trading market
for particular equity-linked securities may be less liquid, making it difficult
for the Fund to dispose of a particular security when necessary and reduced
liquidity in the secondary market for any such securities may make it more
difficult to obtain market quotations for valuing the Fund's portfolio.
Rights and warrants entitle the holder to buy equity securities at a specific
price for a specific period of time. Rights are similar to warrants except that
they have a substantially shorter duration. Rights and warrants may be
considered more speculative and less liquid than certain other types of
investments in that they do not entitle a holder to dividends or voting rights
with respect to the underlying securities nor do they represent any rights in
the assets of the issuing company and may lack a secondary market.
DERIVATIVE INSTRUMENTS
The Fund may, but is not required to, use various investment strategic
transactions described below to earn income, facilitate portfolio management and
mitigate risks. Such strategic transactions are generally accepted under modern
portfolio management and are regularly used by many mutual funds and other
institutional investors. Although the Fund's investment adviser seeks to use the
practices to further the Fund's investment objective, no assurance can be given
that these practices will achieve this result.
The Fund may purchase and sell derivative instruments such as exchange-listed
and over-the-counter put and call options on securities, financial futures,
equity, fixed-income and interest rate indices, and other financial instruments,
futures contracts and options thereon (including but not limited to securities
index futures, foreign currency exchange futures, interest rate futures and
other financial futures), structured notes, swaps, caps, floors or collars and
enter into various currency transactions such as currency forward contracts,
currency futures contracts, currency swaps or options on currency or currency
futures. In addition, the Fund may invest in other derivative instruments that
are developed over time if their use would be consistent with the objective of
the Fund. Collectively, all of the above are referred to as "Strategic
Transactions." The Fund generally seeks to use Strategic Transactions as a
portfolio management or hedging technique to seek to protect against possible
adverse changes in the market value of securities held in or to be purchased for
the Fund's portfolio, protect the Fund's unrealized gains, facilitate the sale
of certain securities for investment purposes, protect against changes in
currency exchange rates or to adjust the exposure to a particular currency,
manage the effective maturity or duration of the Fund's portfolio, establish
positions in the derivatives markets as a substitute for purchasing or selling
particular securities, including, for example, when the Fund adjusts its
exposure to a market in response to changes in investment strategy, when doing
so provides more liquidity than the direct purchase of the securities underlying
such derivatives, when the Fund 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. The Fund may invest up to 33 1/3%
of its total assets in Strategic Transactions for non-hedging purposes (measured
by
8
<PAGE>
the aggregate notional amount of outstanding derivatives). In addition, the Fund
may invest up to 20% of its total assets in futures contracts and options on
futures contracts (measured by the aggregate notional amount of such outstanding
contracts).
Strategic Transactions have risks including the imperfect correlation between
the value of such instruments and the underlying assets, the possible default of
the other party to the transaction or illiquidity of the derivative instruments.
Furthermore, the ability to successfully use Strategic Transactions depends on
the Fund's investment adviser's ability to predict pertinent market movements,
which cannot be assured. Thus, the use of Strategic Transactions may result in
losses greater than if they had not been used, may require the Fund to sell or
purchase portfolio securities at inopportune times or for prices other than
current market values, may limit the amount of appreciation the Fund can
otherwise realize on an investment, or may cause the Fund to hold a security
that it might otherwise sell. The use of currency transactions can result in the
Fund incurring losses because of the imposition of exchange controls, suspension
of settlements or the inability of the Fund to deliver or receive a specified
currency. In addition, amounts paid as premiums or cash or other assets held in
margin accounts with respect to Strategic Transactions are not otherwise
available to the Fund for investment purposes.
A more complete discussion of Strategic Transactions and their risks is
contained in the Fund's Statement of Additional Information. The Statement of
Additional Information can be obtained by investors free of charge as described
on the back cover of this prospectus.
OTHER INVESTMENT PRACTICES AND RISK FACTORS
For cash management purposes, the Fund may engage in repurchase agreements with
broker-dealers, banks and other financial institutions in order to earn a return
on temporarily available cash. Such transactions are subject to the risk of
default by the other party.
The Fund may lend its portfolio securities in an amount up to 33 1/3% of its
total assets to broker-dealers, banks or other recognized institutional
borrowers of securities. The Fund may incur lending fees and other costs in
connection with securities lending, and securities lending is subject to the
risk of default by the other party.
The Fund may invest up to 15% of its net assets in illiquid and certain
restricted securities. Notwithstanding the foregoing, the Fund may not invest
more than 10% of its total assets in securities subject to legal or contractual
restrictions on resale. Such securities may be difficult or impossible to sell
at the time and the price that the Fund would like. Thus, the Fund may have to
sell such securities at a lower price, sell other securities instead to obtain
cash or forego other investment opportunities.
Further information about these types of investments and other investment
practices that may be used by the Fund is contained in the Statement of
Additional Information.
The Fund may sell securities without regard to the length of time they have been
held in order to take advantage of new investment opportunities or when the
Fund's investment adviser believes the potential for total return has lessened
or for other reasons. The Fund's portfolio turnover is shown under the heading
"Financial Highlights." The portfolio turnover rate may be expected to vary from
year to year. A high portfolio turnover rate (100% or more) increases the Fund's
transactions costs (including brokerage commissions or dealer costs) and a high
portfolio turnover rate may result in the realization of more short-term capital
gains than a lower portfolio turnover rate. Increases in the Fund's transaction
costs would adversely impact the Fund's performance. The turnover rate will not
be a limiting factor, however, if the Fund's investment adviser considers
portfolio changes appropriate.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Fund may on a temporary basis hold cash or invest a
portion or all of its assets in money-market instruments including obligations
of the U.S. government, its agencies or instrumentalities, obligations of
foreign sovereignties, other high-quality debt securities, including prime
commercial paper, repurchase agreements and bank obligations, such as bankers
9
<PAGE>
acceptances and certificates of deposit (including Eurodollar certificates of
deposit). Under normal market conditions, the potential for total return on
these securities will tend to be lower than the potential for total return on
other securities that may be owned by the Fund. In taking such a defensive
position, the Fund would not be pursuing and might not achieve its investment
objective.
YEAR 2000 RISKS. Like other mutual funds, financial and business organizations
and individuals around the world, the Fund could be adversely affected if the
computer systems used by the Fund's investment adviser, subadviser and other
service providers do not properly process and calculate date-related information
and data from and after January 1, 2000. This is commonly known as the "Year
2000 Problem." The Fund's investment adviser and subadviser are taking steps
that they believe are reasonably designed to address the Year 2000 Problem with
respect to computer systems that they use and to obtain reasonable assurances
that comparable steps are being taken by the Fund's other major service
providers. At this time, there can be no assurances that these steps will be
sufficient to avoid any adverse impact to the Fund. In addition, the Year 2000
Problem may adversely affect the markets and the issuers of securities in which
the Fund may invest which, in turn, may adversely affect the net asset value of
shares of the Fund. Improperly functioning trading systems may result in
settlement problems and liquidity issues. In addition, corporate and
governmental data processing errors may result in production problems for
individual companies or issuers and overall economic uncertainty. Earnings of
individual issuers will be affected by remediation costs, which may be
substantial and may be reported inconsistently in U.S. and foreign financial
statements. Efforts in foreign countries to remediate the potential Year 2000
Problem may not be as extensive as those in the U.S. As a result, the operations
of foreign markets and issuers may be disrupted by the Year 2000 Problem which
could adversely affect the Fund's portfolio. The risks are greater with respect
to certain developing or emerging market countries because there is an increased
likelihood that issuers of securities of such countries cannot anticipate or
effectively manage the effects of computer programs and the Year 2000 Problem.
Accordingly, the Fund's investments may be adversely affected. The statements
above are subject to the Year 2000 Information and Readiness Disclosure Act
which may limit the legal rights regarding the use of such statements in the
case of a dispute.
INVESTMENT ADVISORY
SERVICES
INVESTMENT ADVISER
Van Kampen Investment Advisory Corp. is the investment adviser (the "Adviser" or
"Advisory Corp.") and administrator of the Fund. The Adviser is a wholly owned
subsidiary of Van Kampen Investments Inc. ("Van Kampen Investments"). Van Kampen
Investments is a diversified asset management company with more than two million
retail investor accounts, extensive capabilities for managing institutional
portfolios, and more than $79 billion under management or supervision as of
September 30, 1999. Van Kampen Investments' more than 50 open-end and 39
closed-end funds and more than 2,500 unit investment trusts are professionally
distributed by leading authorized dealers nationwide. Van Kampen Funds Inc., the
distributor of the Fund (the "Distributor") and the sponsor of the funds
mentioned above, is also a wholly owned subsidiary of Van Kampen Investments.
Van Kampen Investments is an indirect wholly owned subsidiary of Morgan Stanley
Dean Witter & Co. The Adviser's principal office is located at 1 Parkview Plaza,
PO Box 5555, Oakbrook Terrace, Illinois 60181-5555.
ADVISORY AGREEMENT AND ADMINISTRATION AGREEMENT. The Fund retains the Adviser to
manage the investment of its assets and to place orders for the purchase and
sale of its portfolio securities. Under an investment advisory agreement between
the Adviser and the Fund (the "Advisory Agreement"), the Fund pays the Adviser a
monthly fee computed based upon an annual rate of 0.85% applied to the average
daily net assets of the Fund.
The Fund also retains the Adviser to provide administrative services for the
Fund's day-to-day operations. Under an administration agreement between
10
<PAGE>
the Adviser and the Fund, the Fund pays a monthly administration fee computed
based upon an annual rate of 0.25% applied to the average daily net assets of
the Fund.
The Adviser furnishes offices, necessary facilities and equipment, provides
administrative services, and permits its officers and employees to serve without
compensation as directors or officers of the Fund if elected to such positions.
The Fund pays all charges and expenses of its day-to-day operations, including
the compensation of directors of the Fund (other than those who are affiliated
persons of the Adviser, Distributor or Van Kampen Investments), the charges and
expenses of legal counsel and independent accountants, distribution fees,
service fees, custodian fees, the costs of providing reports to shareholders,
and all other ordinary business expenses not specifically assumed by the
Adviser.
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen Asset Management
Inc. ("Asset Management").
INVESTMENT SUBADVISER
Morgan Stanley Dean Witter Investment Management Inc. (the "Subadviser") is the
Subadviser of the Fund. The Subadviser is a wholly owned subsidiary of Morgan
Stanley Dean Witter & Co., and is an affiliate of the Adviser. The Subadviser
conducts a worldwide portfolio management business and provides a broad range of
portfolio management services to customers in the United States and abroad. At
June 30, 1999, the Subadviser, together with its affiliated institutional asset
management companies, managed assets of approximately $175.3 billion, including
assets under fiduciary advice. The Subadviser's principal office is located at
1221 Avenue of the Americas, New York, New York 10020. On December 1, 1998,
Morgan Stanley Asset Management Inc. changed its name to Morgan Stanley Dean
Witter Investment Management Inc. but continues to do business in certain
instances using the name Morgan Stanley Asset Management.
SUBADVISORY AGREEMENT. The Adviser has entered into a subadvisory agreement with
the Subadviser to assist the Adviser in performing its investment advisory
functions. The Adviser pays the Subadviser on a monthly basis a portion of the
net advisory fees the Adviser receives from the Fund.
GENERAL
From time to time, the Adviser, the Subadviser or the Distributor may
voluntarily undertake to reduce the Fund's expenses by reducing the fees payable
to them or by reducing other expenses of the Fund in accordance with such
limitations as the Adviser, the Subadviser or Distributor may establish.
PERSONAL INVESTMENT POLICIES. The Fund, the Adviser and the Subadviser have
adopted Codes of Ethics designed to recognize the fiduciary relationship among
the Fund, the Adviser and the Subadviser and their respective employees. The
Codes of Ethics permit directors, trustees, officers and employees to buy and
sell securities for their personal accounts subject to certain restrictions.
Persons with access to certain sensitive information are subject to
pre-clearance and other procedures designed to prevent conflicts of interest.
PORTFOLIO MANAGEMENT. Portfolio managers Gary G. Schlarbaum, William B. Gerlach
and Chris Leavy are responsible as comanagers for the day-to-day management of
the Fund's investment portfolio.
Mr. Schlarbaum, a Managing Director of Morgan Stanley Dean Witter & Co., joined
the Adviser's affiliate, Miller Anderson & Sherrerd, LLP ("MAS") in 1987. He
assumed responsibility for the MAS Funds' Equity and Small Cap Value Funds in
1987, MAS Funds' Balanced Fund in 1992 and MAS Funds' Multi-Asset-Class and Mid
Cap Value Funds in 1994. Mr. Schlarbaum also is a Director of MAS Fund
Distribution, Inc. He previously was with First Chicago Investment Advisers from
1984 to 1987 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 the University of Pennsylvania. Mr. Schlarbaum
has been comanager of the Fund since January 1997.
Mr. Gerlach joined the Subadviser in July 1996 and has worked with MAS since
1991. Mr. Gerlach also
11
<PAGE>
became a portfolio manager of MAS Funds' Small Cap Value and Mid Cap Value Funds
in 1996. Previously, he was with Alphametrics Corporation from 1987 to 1991 and
Wharton Econometric Forecasting Associates from 1984 to 1987. Mr. Gerlach holds
a B.A. in Economics from Haverford College. Mr. Gerlach has been comanager of
the Fund since November 1996.
Mr. Leavy joined MAS in 1997. He served as a Fund Manager for Capitoline
Investment Services from 1995-1997; a Fund Manager for Premier Trust Company
from 1994 to 1995; and as a Research Analyst for Leavy Investment Management
from 1993-1994. Mr. Leavy holds a B.A. in Economics from Trinity University. Mr.
Leavy has been comanager of the Fund since 1997.
PURCHASE OF SHARES
GENERAL
The Fund is currently not open to new investors. The Fund may, from time to
time, reopen and close the offering of its shares to new investors. Any such
offerings may commence and terminate at any time and without prior notice.
The Fund offers three classes of shares designated as Class A Shares, Class B
Shares and Class C Shares. By offering three classes of shares, the Fund permits
each investor to choose the class of shares that is most beneficial given the
amount to be invested and the length of time the investor expects to hold the
shares.
Initial investments must be at least $1,000 for each class of shares, and
subsequent investments must be at least $25 for each class of shares. Both
minimums may be waived by the Distributor for plans involving periodic
investments.
Each class of shares represents an interest in the same portfolio of investments
of the Fund and has the same rights except that (i) Class A Shares generally
bear the sales charge expenses at the time of purchase while Class B Shares and
Class C Shares bear the sales charge expenses at the time of redemption and any
expenses (including higher distribution fees and transfer agency costs)
resulting from such deferred sales charge arrangement, (ii) generally, each
class of shares has exclusive voting rights with respect to approvals of the
Rule 12b-1 distribution plan and service plan (each as described below) under
which its distribution fee or service fee is paid, (iii) each class of shares
has different exchange privileges, (iv) certain classes of shares are subject to
a conversion feature and (v) certain classes of shares have different
shareholder service options available.
The offering price of the Fund's shares is based upon the Fund's net asset value
per share (plus sales charges, where applicable). The net asset values per share
of the Class A Shares, Class B Shares and Class C Shares are generally expected
to be substantially the same. In certain circumstances, however, the per share
net asset values of the classes of shares may differ from one another,
reflecting the daily expense accruals of the higher distribution fees and
transfer agency costs applicable to the Class B Shares and Class C Shares and
the differential in the dividends that may be paid on each class of shares.
The net asset value per share for each class of shares of the Fund is determined
once daily as of the close of trading on the New York Stock Exchange (the
"Exchange") (currently 4:00 p.m., New York time) each day the Exchange is open
for trading except on any day on which no purchase or redemption orders are
received or there is not a sufficient degree of trading in the Fund's portfolio
securities such that the Fund's net asset value per share might be materially
affected. The Fund's Board of Directors reserves the right to calculate the net
asset value per share and adjust the offering price based thereon more
frequently than once daily if deemed desirable. Net asset value per share for
each class is determined by dividing the value of the Fund's portfolio
securities, cash and other assets (including accrued interest) attributable to
such class, less all liabilities (including accrued expenses) attributable to
such class, by the total number of shares of the class outstanding. Such
computation is made by using prices as of the close of trading on the Exchange
and (i) valuing securities listed or traded on a national securities exchange at
the closing price, or if no closing price is available, at the last reported
sale
12
<PAGE>
price, and if there has been no sale that day, at the mean between the last
reported bid and asked prices, (ii) valuing over-the-counter securities at the
last reported sale price from the National Association of Securities Dealers
Automated Quotations ("NASDAQ"), (iii) valuing unlisted securities and any
securities for which market quotations are not readily available at the average
of the mean between the current reported bid and asked prices obtained from
reputable brokers and (iv) valuing any other assets at fair value as determined
in good faith by the Adviser in accordance with procedures established by the
Fund's Board of Directors. Debt securities with remaining maturities of 60 days
or less are valued on an amortized cost basis, which approximates market value.
The Fund has adopted a distribution plan (the "Distribution Plan") with respect
to each class of its shares pursuant to Rule 12b-1 under the 1940 Act. The Fund
also has adopted a service plan (the "Service Plan") with respect to each class
of its shares. Under the Distribution Plan and the Service Plan, the Fund pays
distribution fees in connection with the sale and distribution of its shares and
service fees in connection with the provision of ongoing services to
shareholders of each class.
The amount of distribution and service fees varies among the classes offered by
the Fund. Because these fees are paid out of the Fund's assets on an ongoing
basis, these fees will increase the cost of your investment in the Fund. By
purchasing a class of shares subject to higher distribution and service fees,
you may pay more over time than on a class of shares with other types of sales
charge arrangements. Long-term shareholders may pay more than the economic
equivalent of the maximum front-end sales charges permitted by the rules of the
National Association of Securities Dealers, Inc. ("NASD"). The net income
attributable to a class of shares will be reduced by the amount of the
distribution fees and other expenses of the Fund associated with such class of
shares. To assist investors in comparing classes of shares, the tables under the
heading "Fees and Expenses of the Fund" provide a summary of sales charges and
expenses and an example of the sales charges and expenses of the Fund applicable
to each class of shares.
The shares are offered to the public on a continuous basis through the
Distributor as principal underwriter, which is located at 1 Parkview Plaza, PO
Box 5555, Oakbrook Terrace, Illinois 60181-5555. Shares also are offered through
members of the NASD who are acting as securities dealers ("dealers") and NASD
members or eligible non-NASD members who are acting as brokers or agents for
investors ("brokers"). "Dealers" and "brokers" are sometimes referred to herein
as "authorized dealers."
Shares may be purchased on any business day by completing the application
accompanying this prospectus and forwarding the application, directly or through
an authorized dealer, to the Fund's shareholder service agent, Van Kampen
Investor Services Inc. ("Investor Services"), a wholly owned subsidiary of Van
Kampen Investments. When purchasing shares of the Fund, investors must specify
whether the purchase is for Class A Shares, Class B Shares or Class C Shares.
Sales personnel of authorized dealers distributing the Fund's shares are
entitled to receive compensation for selling such shares and may receive
differing compensation for selling Class A Shares, Class B Shares or Class C
Shares.
The offering price for shares is based upon the next calculation of net asset
value per share (plus sales charges, where applicable) after an order is
received by Investor Services. Orders received by authorized dealers prior to
the close of the Exchange are priced based on the date of receipt provided such
order is transmitted to Investor Services prior to Investor Services' close of
business on such date. Orders received by authorized dealers after the close of
the Exchange or transmitted to Investor Services after its close of business are
priced based upon the date of the next computed net asset value per share
provided they are received by Investor Services prior to Investor Services'
close of business on such date. It is the responsibility of authorized dealers
to transmit orders received by them to Investor Services so they will be
received in a timely manner.
The Fund and the Distributor reserve the right to refuse any order for the
purchase of shares. The Fund also reserves the right to suspend the sale of the
Fund's shares in response to conditions in the securities markets or for other
reasons. Shares of the
13
<PAGE>
Fund may be sold in foreign countries where permissible.
Investor accounts will automatically be credited with additional shares of the
Fund after any Fund distributions, such as dividends and capital gain dividends,
unless the investor instructs the Fund otherwise. Investors wishing to receive
cash instead of additional shares should contact the Fund at (800) 341-2911 or
by writing to the Fund, c/o Van Kampen Investors Services Inc., PO Box 218256,
Kansas City, MO 64121-8256.
CLASS A SHARES
Class A Shares of the Fund are sold at net asset value plus an initial maximum
sales charge of up to 5.75% of the offering price (or 6.10% of the net amount
invested), reduced on investments of $50,000 or more as follows:
CLASS A SHARES
SALES CHARGE SCHEDULE
<TABLE>
<CAPTION>
AS % OF AS % OF
SIZE OF OFFERING NET AMOUNT
INVESTMENT PRICE INVESTED
- ----------------------------------------------------------------
<S> <C> <C>
Less than $50,000 5.75% 6.10%
...............................................................
$50,000 but less than $100,000 4.75% 4.99%
...............................................................
$100,000 but less than $250,000 3.75% 3.90%
...............................................................
$250,000 but less than $500,000 2.75% 2.83%
...............................................................
$500,000 but less than $1,000,000 2.00% 2.04%
...............................................................
$1,000,000 or more * *
...............................................................
</TABLE>
* NO SALES CHARGE IS PAYABLE AT THE TIME OF PURCHASE ON INVESTMENTS OF
$1 MILLION OR MORE, ALTHOUGH FOR SUCH INVESTMENTS THE FUND MAY IMPOSE
A CONTINGENT DEFERRED SALES CHARGE OF 1.00% ON CERTAIN REDEMPTIONS
MADE WITHIN ONE YEAR OF THE PURCHASE. THE CONTINGENT DEFERRED SALES
CHARGE IS ASSESSED ON AN AMOUNT EQUAL TO THE LESSER OF THE THEN
CURRENT MARKET VALUE OR THE COST OF THE SHARES BEING REDEEMED.
ACCORDINGLY, NO SALES CHARGE IS IMPOSED ON INCREASES IN NET ASSET
VALUE ABOVE THE INITIAL PURCHASE PRICE.
No sales charge is imposed on Class A Shares received from reinvestment of
dividends or capital gain dividends.
Under the Distribution Plan and Service Plan, the Fund may spend up to a total
of 0.25% per year of the Fund's average daily net assets with respect to the
Class A Shares of the Fund. From such amount, under the Service Plan, the Fund
may spend up to 0.25% per year of the Fund's average daily net assets with
respect to the Class A Shares for the ongoing provision of services to Class A
shareholders by the Distributor and by brokers, dealers or financial
intermediaries and for the maintenance of such shareholders' accounts.
CLASS B SHARES
Class B Shares of the Fund are sold at net asset value and are subject to a
contingent deferred sales charge if redeemed within five years of purchase as
shown in the table as follows:
CLASS B SHARES
SALES CHARGE SCHEDULE
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE
AS A PERCENTAGE OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
- --------------------------------------------------------------------------------
<S> <C>
First 5.00%
...............................................................................
Second 4.00%
...............................................................................
Third 3.00%
...............................................................................
Fourth 2.50%
...............................................................................
Fifth 1.50%
...............................................................................
Sixth and After None
...............................................................................
</TABLE>
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gain dividends. It
is presently the policy of the Distributor not to accept any order for Class B
Shares in an amount of $500,000 or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
The amount of the contingent deferred sales charge, if any, varies depending on
the number of years from the time of payment for the purchase of Class B
14
<PAGE>
Shares until the time of redemption of such shares. Solely for purposes of
determining the number of years from the time of any payment for the purchase of
shares, all payments during a month are totaled and deemed to have been made on
the last day of the month.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed shares being redeemed first are any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge followed by shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
Fund's average daily net assets with respect to the Class B Shares of the Fund.
In addition, under the Service Plan, the Fund may spend up to 0.25% per year of
the Fund's average daily net assets with respect to the Class B Shares for the
ongoing provision of services to Class B shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CLASS C SHARES
Class C Shares of the Fund are sold at net asset value and are subject to a
contingent deferred sales charge of 1.00% of the dollar amount subject to charge
if redeemed within one year of purchase.
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gain dividends. It
is presently the policy of the Distributor not to accept any order for Class C
Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed shares being redeemed first are any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge followed by shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
Fund's average daily net assets with respect to the Class C Shares of the Fund.
In addition, under the Service Plan, the Fund may spend up to 0.25% per year of
the Fund's average daily net assets with respect to the Class C Shares for the
ongoing provision of services to Class C shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CONVERSION FEATURE
Class B Shares purchased on or after June 1, 1996, and any dividend reinvestment
plan Class B Shares received on such shares, automatically convert to Class A
Shares eight years after the end of the calendar month in which the shares were
purchased. Class B Shares purchased before June 1, 1996, and any dividend
reinvestment plan Class B Shares received on such shares, automatically convert
to Class A Shares seven years after the end of the calendar month in which the
shares were purchased. Such conversion will be on the basis of the relative net
asset values per share, without the imposition of any sales load, fee or other
charge. The conversion schedule applicable to a share of the Fund acquired
through the exchange privilege from another Van Kampen fund participating in the
exchange program is determined by reference to the Van Kampen fund from which
such share was originally purchased.
The conversion of such shares to Class A Shares is subject to the continuing
availability of an opinion of counsel to the effect that (i) the assessment of
the higher distribution fee and transfer agency costs with respect to such
shares does not result in the Fund's dividends or capital gain dividends
constituting "preferential dividends" under the federal income tax law and
(ii) the conversion of shares does not constitute a taxable event under federal
income tax law. The conversion may be suspended if such an opinion is no longer
available and such shares might continue to be subject to the higher aggregate
fees applicable to such shares for an indefinite period.
15
<PAGE>
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge is waived on redemptions of Class B Shares
and Class C Shares (i) within one year following the death or disability (as
disability is defined by federal income tax law) of a shareholder, (ii) for
required minimum distributions from an individual retirement account ("IRA") or
certain other retirement plan distributions, (iii) for withdrawals under the
Fund's systematic withdrawal plan but limited to 12% annually of the initial
value of the account, (iv) if no commission or transaction fee is paid to
authorized dealers at the time of purchase of such shares and (v) if made by
involuntary liquidation by the Fund of a shareholder's account as described
under the heading "Redemption of Shares." Subject to certain limitations, a
shareholder who has redeemed Class C Shares of the Fund may reinvest in Class C
Shares at net asset value with credit for any contingent deferred sales charge
if the reinvestment is made within 180 days after the redemption. For a more
complete description of contingent deferred sales charge waivers, please refer
to the Fund's Statement of Additional Information or contact your authorized
dealer.
QUANTITY DISCOUNTS
Investors purchasing Class A Shares may, under certain circumstances described
below, be entitled to pay reduced or no sales charges. Investors, or their
authorized dealers, must notify the Fund at the time of the purchase order
whenever a quantity discount is applicable to purchases. Upon such notification,
an investor will receive the lowest applicable sales charge. Quantity discounts
may be modified or terminated at any time. For more information about quantity
discounts, investors should contact their authorized dealer or the Distributor.
A person eligible for a reduced sales charge includes an individual, his or her
spouse and children under 21 years of age and any corporation, partnership or
sole proprietorship which is 100% owned, either alone or in combination, by any
of the foregoing; a trustee or other fiduciary purchasing for a single trust or
for a single fiduciary account, or a "company" as defined in Section 2(a)(8) of
the 1940 Act.
As used herein, "Participating Funds" refers to certain open-end investment
companies advised by Asset Management or Advisory Corp. and distributed by the
Distributor as determined from time to time by the Fund's Board of Directors.
VOLUME DISCOUNTS. The size of investment shown in the Class A Shares sales
charge table applies to the total dollar amount being invested by any person in
shares of the Fund, or in any combination of shares of the Fund and shares of
other Participating Funds, although other Participating Funds may have different
sales charges.
CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the Class A Shares
sales charge table may also be determined by combining the amount being invested
in shares of the Participating Funds plus the current offering price of all
shares of the Participating Funds which have been previously purchased and are
still owned.
LETTER OF INTENT. A Letter of Intent provides an opportunity for an investor to
obtain a reduced sales charge by aggregating the investments over a 13-month
period to determine the sales charge as outlined in the Class A Shares sales
charge table. The size of investment shown in the Class A Shares sales charge
table includes purchases of shares of the Participating Funds over a 13-month
period based on the total amount of intended purchases plus the value of all
shares of the Participating Funds previously purchased and still owned. An
investor may elect to compute the 13-month period starting up to 90 days before
the date of execution of a Letter of Intent. Each investment made during the
period receives the reduced sales charge applicable to the total amount of the
investment goal. The initial purchase must be for an amount equal to at least 5%
of the minimum total purchase amount of the level selected. If trades not
initially made under a Letter of Intent subsequently qualify for a lower sales
charge through the 90-day backdating provisions, an adjustment will be made at
the time of the expiration of the Letter of Intent to give effect to the lower
charge. Such adjustment in sales charge will be used to purchase additional
shares for the shareholder at the applicable discount category. The Fund
initially will escrow shares totaling 5% of the dollar
16
<PAGE>
amount of the Letter of Intent to be held by Investor Services in the name of
the shareholder. In the event the Letter of Intent goal is not achieved within
the specified period, the investor must pay the difference between the sales
charge applicable to the purchases made and the reduced sales charge previously
paid. Such payments may be made directly to the Distributor or, if not paid, the
Distributor will liquidate sufficient escrowed shares to obtain the difference.
OTHER PURCHASE PROGRAMS
Purchasers of Class A Shares may be entitled to reduced or no initial sales
charges in connection with the unit investment trust reinvestment program and
purchases by registered representatives of selling firms or purchases by persons
affiliated with the Fund or the Distributor. The Fund reserves the right to
modify or terminate these arrangements at any time.
UNIT INVESTMENT TRUST REINVESTMENT PROGRAM. The Fund permits unitholders of unit
investment trusts to reinvest distributions from such trusts in Class A Shares
of the Fund at net asset value per share and with no minimum initial or
subsequent investment requirement, if the administrator of an investor's unit
investment trust program meets certain uniform criteria relating to cost savings
by the Fund and the Distributor. The total sales charge for all other
investments made from unit investment trust distributions will be 1.00% of the
offering price (1.01% of net asset value). Of this amount, the Distributor will
pay to the authorized dealer, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the terms and conditions that apply to the program,
should contact their authorized dealer or the Distributor.
The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during each distribution period by all investors who choose to invest in
the Fund through the program and (2) provide Investor Services with appropriate
backup data for each investor participating in the program in a computerized
format fully compatible with Investor Services' processing system.
In order to obtain these special benefits, all dividends and other distributions
by the Fund must be reinvested in additional shares and there can not be any
systematic withdrawal program. There will be no minimum for reinvestments from
unit investment trusts. The Fund will send account activity statements to such
participants on a quarterly basis only, even if their investments are made more
frequently. The Fund reserves the right to modify or terminate this program at
any time.
NET ASSET VALUE PURCHASE OPTIONS. Class A Shares of the Fund may be purchased at
net asset value, upon written assurance that the purchase is made for investment
purposes and that the shares will not be resold except through redemption by the
Fund, by:
(1) Current or retired trustees or directors of funds advised by Morgan Stanley
Dean Witter & Co. and any of its subsidiaries and such persons' families
and their beneficial accounts.
(2) Current or retired directors, officers and employees of Morgan Stanley Dean
Witter & Co. and any of its subsidiaries; employees of an investment
subadviser to any fund described in (1) above or an affiliate of such
subadviser; and such persons' families and their beneficial accounts.
(3) Directors, officers, employees and, when permitted, registered
representatives, of financial institutions that have a selling group
agreement with the Distributor and their spouses and children under 21
years of age when purchasing for any accounts they beneficially own, or, in
the case of any such financial institution, when purchasing for retirement
plans for such institution's employees; provided that such purchases are
otherwise permitted by such institutions.
(4) Registered investment advisers who charge a fee for their services, trust
companies and bank trust departments investing on their own behalf or on
behalf of their clients. The Distributor may pay authorized dealers through
which purchases are made an amount up to 0.50% of the amount invested, over
a 12-month period.
17
<PAGE>
(5) Trustees and other fiduciaries purchasing shares for retirement plans which
invest in multiple fund families through broker-dealer retirement plan
alliance programs that have entered into agreements with the Distributor
and which are subject to certain minimum size and operational requirements.
Trustees and other fiduciaries should refer to the Statement of Additional
Information for further details with respect to such alliance programs.
(6) Beneficial owners of shares of Participating Funds held by a retirement
plan or held in a tax-advantaged retirement account who purchase shares of
the Fund with proceeds from distributions from such a plan or retirement
account other than distributions taken to correct an excess contribution.
(7) Accounts as to which a bank or broker-dealer charges an account management
fee ("wrap accounts"), provided the bank or broker-dealer has a separate
agreement with the Distributor.
(8) Trusts created under pension, profit sharing or other employee benefit
plans qualified under Section 401(a) of the Internal Revenue Code of 1986,
as amended (the "Code"), or custodial accounts held by a bank created
pursuant to Section 403(b) of the Code and sponsored by nonprofit
organizations defined under Section 501(c)(3) of the Code and assets held
by an employer or trustee in connection with an eligible deferred
compensation plan under Section 457 of the Code. Such plans will qualify
for purchases at net asset value provided, for plans initially establishing
accounts with the Distributor in the Participating Funds after February 1,
1997, that (1) the initial amount invested in the Participating Funds is at
least $500,000 or (2) such shares are purchased by an employer sponsored
plan with more than 100 eligible employees. Such plans that have been
established with a Participating Fund or have received proposals from the
Distributor prior to February 1, 1997 based on net asset value purchase
privileges previously in effect will be qualified to purchase shares of the
Participating Funds at net asset value for accounts established on or
before May 1, 1997. Section 403(b) and similar accounts for which Van
Kampen Trust Company serves as custodian will not be eligible for net asset
value purchases based on the aggregate investment made by the plan or the
number of eligible employees, except under certain uniform criteria
established by the Distributor from time to time. Prior to February 1,
1997, a commission will be paid to authorized dealers who initiate and are
responsible for such purchases within a rolling twelve- month period as
follows: 1.00% on sales to $5 million, plus 0.50% on the next $5 million,
plus 0.25% on the excess over $10 million. For purchases on February 1,
1997 and thereafter, a commission will be paid as follows: 1.00% on sales
to $2 million, plus 0.80% on the next $1 million, plus 0.50% on the next
$47 million, plus 0.25% on the excess over $50 million.
(9) Individuals who are members of a "qualified group." For this purpose, a
qualified group is one which (i) has been in existence for more than six
months, (ii) has a purpose other than to acquire shares of the Fund or
similar investments, (iii) has given and continues to give its endorsement
or authorization, on behalf of the group, for purchase of shares of the
Fund and Participating Funds, (iv) has a membership that the authorized
dealer can certify as to the group's members and (v) satisfies other
uniform criteria established by the Distributor for the purpose of
realizing economies of scale in distributing such shares. A qualified group
does not include one whose sole organizational nexus, for example, is that
its participants are credit card holders of the same institution, policy
holders of an insurance company, customers of a bank or broker-dealer,
clients of an investment adviser or other similar groups. Shares purchased
in each group's participants account in connection with this privilege will
be subject to a contingent deferred sales charge of 1.00% in the event of
redemption within one year of purchase, and a commission will be paid to
authorized dealers who initiate and are responsible for such sales to each
individual as follows: 1.00% on sales to $2 million, plus 0.80% on the next
$1 million and 0.50% on the excess over $3 million.
The term "families" includes a person's spouse, children under 21 years of age
and grandchildren, parents, and a person's spouse's parents.
18
<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 above
on purchases made under options (3) through (9) above. The Fund may terminate,
or amend the terms of, offering shares of the Fund at net asset value to such
groups at any time.
REDEMPTION OF
SHARES
Generally shareholders may redeem for cash some or all of their shares without
charge by the Fund (other than applicable sales charge) at any time. As
described under the heading "Purchase of Shares," redemptions of Class B Shares
and Class C Shares may be subject to a contingent deferred sales charge. In
addition, certain redemptions of Class A Shares for shareholder accounts of $1
million or more may be subject to a contingent deferred sales charge.
Redemptions completed through an authorized dealer or a custodian of a
retirement plan account may involve additional fees charged by the dealer or
custodian.
Except as specified below under "Telephone Redemption Requests," payment for
shares redeemed generally will be made by check mailed within seven days after
receipt by Investor Services of the request and any other necessary documents in
proper form as described below. Such payment may be postponed or the right of
redemption suspended as provided by the rules of the SEC. Such payment may,
under certain circumstances, be paid wholly or in part by a distribution-in-kind
of portfolio securities which may result in brokerage costs and a gain or loss
for federal income tax purposes when such securities are sold. If the shares to
be redeemed have been recently purchased by check, Investor Services may delay
the payment of redemption proceeds until it confirms the purchase check has
cleared, which may take up to 15 days. A taxable gain or loss will be recognized
by the shareholder upon redemption of shares.
WRITTEN REDEMPTION REQUESTS. Shareholders may request a redemption of shares by
written request in proper form sent directly to Van Kampen Investor Services
Inc., PO Box 218256, Kansas City, MO 64121-8256. The request for redemption
should indicate the number of shares to be redeemed, the class designation of
such shares and the shareholder's account number. The redemption request must be
signed by all persons in whose names the shares are registered. Signatures must
conform exactly to the account registration. If the proceeds of the redemption
exceed $50,000, or if the proceeds are not to be paid to the record owner at the
record address, or if the record address has changed within the previous 30
days, signature(s) must be guaranteed by one of the following: a bank or trust
company; a broker-dealer; a credit union; a national securities exchange,
registered securities association or clearing agency; a savings and loan
association; or a federal savings bank.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption to be in proper form. In some
cases, however, additional documents may be necessary. In the case of
shareholders holding certificates, the certificates for the shares being
redeemed properly endorsed for transfer must accompany the redemption request.
In the event the redemption is requested by a corporation, partnership, trust,
fiduciary, executor or administrator, and the name and title of the
individual(s) authorizing such redemption is not shown in the account
registration, a copy of the corporate resolution or other legal documentation
appointing the authorized signer and certified within the prior 120 days must
accompany the redemption request. IRA redemption requests should be sent to the
IRA custodian to be forwarded to Investor Services. Contact the IRA custodian
for further information.
19
<PAGE>
In the case of written redemption requests sent directly to Investor Services,
the redemption price is the net asset value per share next determined after the
request in proper form is received by Investor Services.
AUTHORIZED DEALER REDEMPTION REQUESTS. Shareholders may place redemption
requests through an authorized dealer. Orders sent through authorized dealers
must be at least $500 (unless transmitted by your authorized dealer via the
FUNDSERV network). The redemption price for such shares is the net asset value
per share next calculated after an order in proper form is received by an
authorized dealer provided such order is transmitted to the Distributor prior to
the Distributor's close of business on such day. It is the responsibility of
authorized dealers to transmit redemption requests received by them to the
Distributor so they will be received prior to such time. Redemptions completed
through an authorized dealer may involve additional fees charged by the dealer.
TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. A shareholder
automatically has telephone redemption privileges unless the shareholder
indicates otherwise by checking the applicable box on the application form
accompanying the prospectus. To redeem shares, contact the telephone transaction
line at (800) 421-5684. Van Kampen Investments, Investor Services and the Fund
employ procedures considered by them to be reasonable to confirm that
instructions communicated by telephone are genuine. Such procedures include
requiring certain personal identification information prior to acting upon
telephone instructions, tape-recording telephone communications and providing
written confirmation of instructions communicated by telephone. If reasonable
procedures are employed, none of Van Kampen Investments, Investor Services or
the Fund will be liable for following telephone instructions which it reasonably
believes to be genuine. Telephone redemptions may not be available if the
shareholder cannot reach Investor Services by telephone, whether because all
telephone lines are busy or for any other reason; in such case, a shareholder
would have to use the Fund's other redemption procedure previously described.
Requests received by Investor Services prior to 4:00 p.m., New York time, will
be processed at the next determined net asset value per share. These privileges
are available for all accounts other than retirement accounts or accounts with
shares represented by certificates. If an account has multiple owners, Investor
Services may rely on the instructions of any one owner.
For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check and amounts of at least
$1,000 up to $1 million may be redeemed daily if the proceeds are to be paid by
wire. The proceeds must be payable to the shareholder(s) of record and sent to
the address of record for the account or wired directly to their predesignated
bank account. This privilege is not available if the address of record has been
changed within 30 days prior to a telephone redemption request. Proceeds from
redemptions payable by wire transfer are expected to be wired on the next
business day following the date of redemption. The Fund reserves the right at
any time to terminate, limit or otherwise modify this redemption privilege.
OTHER REDEMPTION INFORMATION. The Fund may redeem shares of any shareholder
account that has a value on the date of the notice of redemption less than the
minimum initial investment as specified in this prospectus. At least 60 days
advance written notice of any such involuntary redemption will be provided to
the shareholder and such shareholder will be given an opportunity to purchase
the required value of additional shares at the next determined net asset value
without sales charge. Any involuntary redemption may only occur if the
shareholder account is less than the minimum initial investment due to
shareholder redemptions.
DISTRIBUTIONS FROM
THE FUND
In addition to any increase in the value of shares which the Fund may achieve,
shareholders may
20
<PAGE>
receive distributions from the Fund of dividends and capital gain dividends.
DIVIDENDS. Dividends from stocks and interest earned from other investments are
the Fund's main source of income. The Fund's present policy, which may be
changed at any time by the Board of Directors, is to distribute all or
substantially all of this income, less expenses, at least quarterly as dividends
to shareholders. Dividends are automatically applied to purchase additional
shares of the Fund at the next determined net asset value unless the shareholder
instructs otherwise.
The per share dividends on Class B Shares and Class C Shares may be lower than
the per share dividends on Class A Shares as a result of the higher distribution
fees and transfer agency costs applicable to such classes of shares.
CAPITAL GAIN DIVIDENDS. The Fund may realize capital gains or losses when it
sells securities, depending on whether the sales prices for the securities are
higher or lower than purchase prices. Net realized capital gain represents the
total profits from sales of securities minus total losses from sales of
securities (including any losses carried forward from prior years) other than
net short-term capital gain from sales of securities held for one year or less.
The Fund distributes any taxable net realized capital gain to shareholders as
capital gain dividends at least annually. As in the case of dividends, capital
gain dividends are automatically reinvested in additional shares of the Fund at
the next determined net asset value unless the shareholder instructs otherwise.
SHAREHOLDER SERVICES
Listed below are some of the shareholder services the Fund offers to investors.
For a more complete description of the Fund's shareholder services, such as
investment accounts, share certificates, retirement plans, automated clearing
house deposits, dividend diversification and the systematic withdrawal plan,
please refer to the Statement of Additional Information or contact your
authorized dealer.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gain dividends in shares of the
Fund. Such shares are acquired at net asset value per share (without sales
charge) on the applicable payable date of the dividend or capital gain
dividends. Unless the shareholder instructs otherwise, the reinvestment plan is
automatic. This instruction may be made by telephone by calling (800) 341-2911
((800) 421-2833 for the hearing impaired) or by writing to Investor Services.
The investor may, on the initial application or prior to any declaration,
instruct that dividends be paid in cash and capital gain dividends be reinvested
at net asset value, or that both dividends and capital gain dividends be paid in
cash.
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under which
a shareholder can authorize Investor Services to charge a bank account on a
regular basis to invest predetermined amounts in the Fund. Additional
information is available from the Distributor or your authorized dealer.
EXCHANGE PRIVILEGE. Shares of the Fund may be exchanged for shares of the same
class of any Participating Fund based on the next computed net asset value per
share of each fund after requesting the exchange without any sales charge,
subject to certain limitations. Shares of the Fund may be exchanged for shares
of any Participating Fund only if shares of that Participating Fund are
available for sale; however, during periods of suspension of sales, shares of a
Participating Fund may be available for sale only to existing shareholders of a
Participating Fund. Shareholders seeking an exchange into a Participating Fund
should obtain and read the current prospectus for such fund prior to
implementing an exchange. A prospectus of any of the Participating Funds may be
obtained from any authorized dealer or the Distributor.
To be eligible for exchange, shares of the Fund must have been registered in the
shareholder's name for at least 30 days prior to an exchange. Shares of the Fund
registered in a shareholder's name for less than 30 days may only be exchanged
upon receipt of prior approval of the Adviser. It is the policy of the Adviser,
under normal circumstances, not to approve such requests.
21
<PAGE>
When shares that are subject to a contingent deferred sales charge are exchanged
among Participating Funds, the holding period for purposes of computing the
contingent deferred sales charge is based upon the date of the initial purchase
of such shares from a Participating Fund. When such shares are redeemed and not
exchanged for shares of another Participating Fund, the shares are subject to
the contingent deferred sales charge schedule imposed by the Participating Fund
from which such shares were originally purchased.
Exchanges of shares are sales of one Participating Fund and purchases of another
Participating Fund. The sale may result in a gain or loss for federal income tax
purposes. If the shares sold have been held for less than 91 days, the sales
charge paid on such shares is carried over and included in the tax basis of the
shares acquired.
A shareholder wishing to make an exchange may do so by sending a written request
to Investor Services or by contacting the telephone transaction line at
(800) 421-5684. A shareholder automatically has telephone exchange privileges
unless the shareholder indicates otherwise by checking the applicable box on the
application form accompanying the prospectus. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated by telephone are genuine. Such procedures
include requiring certain personal identification information prior to acting
upon telephone instructions, tape-recording telephone communications, and
providing written confirmation of instructions communicated by telephone. If
reasonable procedures are employed, none of Van Kampen Investments, Investor
Services or the Fund will be liable for following telephone instructions which
it reasonably believes to be genuine. If the exchanging shareholder does not
have an account in the fund whose shares are being acquired, a new account will
be established with the same registration, dividend and capital gain dividend
options (except dividend diversification) and authorized dealer of record as the
account from which shares are exchanged, unless otherwise specified by the
shareholder. In order to establish a systematic withdrawal plan for the new
account or reinvest dividends from the new account into another fund, however,
an exchanging shareholder must submit a specific request. The Fund reserves the
right to reject any order to acquire its shares through exchange. In addition,
the Fund and other Participating Funds may restrict exchanges by shareholders
engaged in excessive trading by limiting or disallowing the exchange privileges
to such shareholders. For further information on these restrictions see the
Statement of Additional Information. The Fund may modify, restrict or terminate
the exchange privilege at any time on 60 days' notice to its shareholders of any
termination or material amendment.
For purposes of determining the sales charge rate previously paid on Class A
Shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchanged security was acquired through reinvestment, that
security is deemed to have been sold with a sales charge rate equal to the rate
previously paid on the security on which the dividend or distribution was paid.
If a shareholder exchanges less than all of such shareholder's securities, the
security upon which the highest sales charge rate was previously paid is deemed
exchanged first.
Exchange requests received on a business day prior to the time shares of the
funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares of the fund which the
shareholder is redeeming will be redeemed at the net asset value per share next
determined on the date of receipt. Shares of the new fund that the shareholder
is purchasing will also normally be purchased at the net asset value per share,
plus any applicable sales charge, next determined on the date of receipt.
Exchange requests received on a business day after the time shares of the funds
involved in the request are priced will be processed on the next business day in
the manner described herein.
INTERNET TRANSACTIONS. In addition to performing transactions on your account
through written instruction or by telephone, you may also perform certain
transactions through the internet. Please refer to our web site at
www.vankampen.com for further instruction. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by
22
<PAGE>
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, none of Van Kampen Investments, Investor
Services or the Fund will be liable for following instructions received through
the internet which it reasonably believes to be genuine. If an account has
multiple owners, Investor Services may rely on the instructions of any one
owner.
FEDERAL INCOME
TAXATION
Distributions of the Fund's net investment income (consisting generally of
taxable income and net short-term capital gain) are taxable to shareholders as
ordinary income to the extent of the Fund's earnings and profits, whether paid
in cash or reinvested in additional shares. Distributions of the Fund's net
realized capital gain (which is the excess of net long-term capital gain over
net short-term capital loss) as capital gain dividends, if any, are taxable to
shareholders as long-term capital gains, whether paid in cash or reinvested in
additional shares, and regardless of how long the shares of the Fund have been
held by such shareholders. The Fund expects that its distributions will consist
primarily of ordinary income and capital gain dividends. Distributions in excess
of the Fund's earnings and profits will first reduce the adjusted tax basis of a
holder's shares and, after such adjusted tax basis is reduced to zero, will
constitute capital gains to such holder (assuming such shares are held as a
capital asset). Although distributions generally are treated as taxable in the
year they are paid, distributions declared in October, November or December,
payable to shareholders of record on a specified date in such month and paid
during January of the following year will be treated as having been distributed
by the Fund and received by the shareholders on the December 31st prior to the
date of payment. The Fund will inform shareholders of the source and tax status
of all distributions promptly after the close of each calendar year.
The sale or exchange of shares is a taxable transaction for federal income tax
purposes. Shareholders who sell their shares will generally recognize gain or
loss in an amount equal to the difference between their adjusted tax basis in
the shares sold and the amount received. If the shares are held as a capital
asset, the gain or loss will be a capital gain or loss. Any capital gains may be
taxed at different rates depending on how long the shareholder held such shares.
The Fund is required, in certain circumstances, to withhold 31% of dividends and
certain other payments, including redemptions, paid to shareholders who do not
furnish to the Fund their correct taxpayer identification number (in the case of
individuals, their social security number) and certain required certifications
or who are otherwise subject to backup withholding.
Foreign shareholders, including shareholders who are non-resident aliens, may be
subject to U.S. withholding tax on certain distributions (whether received in
cash or in shares) at a rate of 30% or such lower rate as prescribed by an
applicable treaty. Prospective foreign investors should consult their tax
advisers concerning the tax consequences to them of an investment in shares.
The Fund intends to qualify as a regulated investment company under federal
income tax law. If the Fund so qualifies and distributes each year to its
shareholders at least 90% of its net investment income, the Fund will not be
required to pay federal income taxes on any income it distributes to
shareholders. If the Fund distributes less than an amount equal to the sum of
98% of its ordinary income and 98% of its capital gain net income, then the Fund
will be subject to a 4% excise tax on the undistributed amounts.
The federal income tax discussion set forth above is for general information
only. Prospective investors should consult their own tax advisers regarding the
specific federal tax consequences of purchasing, holding, disposing, exchanging
or selling of shares, as well as the effects of state, local and foreign tax law
and any proposed tax law changes.
23
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the periods indicated. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report, along with the Fund's financial statements, is
included in the Statement of Additional Information and may be obtained by
shareholders without charge by calling the telephone number on the back cover of
this prospectus. This information should be read in conjunction with the
financial statements and notes thereto included in the Statement of Additional
Information.
<TABLE>
<CAPTION>
CLASS A
YEAR ENDED JUNE 30,
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period......... $ 21.339 $ 17.59 $ 14.63 $ 12.89 $ 11.70
-------- -------- ------- ------- -------
Income From Investment Operations
Net Investment Income/Loss................. 0.006 (0.02) 0.20 0.27 0.27
Net Realized and Unrealized Gain/Loss...... 3.437 4.84 4.05 1.94 1.44
-------- -------- ------- ------- -------
Total from Investment Operations........... 3.443 4.82 4.25 2.21 1.71
-------- -------- ------- ------- -------
Distributions
Net Investment Income...................... -- (0.03) (0.20) (0.27) (0.28)
In Excess of Net Investment Income......... -- (0.00)++ (0.00)++ (0.01) --
Net Realized Gain.......................... (1.200) (1.04) (1.09) (0.19) (0.24)
-------- -------- ------- ------- -------
Total Distributions........................ (1.200) (1.07) (1.29) (0.47) (0.52)
-------- -------- ------- ------- -------
Net Asset Value, End of Period............... $ 23.582 $ 21.34 $ 17.59 $ 14.63 $ 12.89
======== ======== ======= ======= =======
Total Return (1)............................. 17.41% 28.26% 30.68% 17.41% 15.01%
======== ======== ======= ======= =======
Ratios and Supplemental Data
Net Assets, End of Period (000's)............ $343,004 $220,100 $34,331 $19,674 $20,675
Ratio of Expenses to Average Net Assets...... 1.49% 1.50% 1.50% 1.50% 1.50%
Ratio of Net Investment Income/Loss to
Average Net Assets........................... 0.03% (0.09)% 1.25% 1.90% 2.29%
Portfolio Turnover Rate...................... 283% 207% 73% 41% 23%
- ------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During
the Period
Per Share Benefit to Net Investment
Income/Loss.............................. $ -- $ 0.02 $ 0.04 $ 0.04 $ 0.05
Ratios Before Expense Limitation:
Expenses to Average Net Assets............. -- 1.58% 1.76% 1.81% 1.96%
Net Investment Income/Loss to Average Net
Assets..................................... -- (0.18)% 0.98% 1.59% 1.83%
- ------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
YEAR ENDED JUNE 30, AUGUST 1, 1995+
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# 1997 TO JUNE 30, 1996
<S> <C> <C> <C> <C>
- --------------------------------------------- ----------------------------------------------------
Net Asset Value, Beginning of Period......... $ 21.196 $ 17.59 $ 14.63 $ 13.37
-------- -------- ------- -------
Income From Investment Operations
Net Investment Income/Loss................. (0.142) (0.17) 0.09 0.15
Net Realized and Unrealized Gain/Loss...... 3.371 4.83 4.05 1.46
-------- -------- ------- -------
Total from Investment Operations........... 3.229 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.......................... (1.200) (1.04) (1.09) (0.19)
-------- -------- ------- -------
Total Distributions........................ (1.200) (1.05) (1.18) (0.35)
-------- -------- ------- -------
Net Asset Value, End of Period............... $ 23.225 $ 21.20 $ 17.59 $ 14.63
======== ======== ======= =======
Total Return (1)............................. 16.50% 27.30% 29.77% 12.29%*
======== ======== ======= =======
Ratios and Supplemental Data
Net Assets, End of Period (000's)............ $341,908 $269,836 $15,331 $ 2,485
Ratio of Expenses to Average Net Assets...... 2.24% 2.25% 2.25% 2.25%
Ratio of Net Investment Income/Loss to
Average Net Assets........................... (0.72)% (0.84)% 0.40% 1.18%
Portfolio Turnover Rate...................... 283% 207% 73% 41%*
- --------------------------------------------- ----------------------------------------------------
Effect of Voluntary Expense Limitation During
the Period
Per Share Benefit to Net Investment
Income/Loss.............................. $ -- $ 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%
- --------------------------------------------- ----------------------------------------------------
<CAPTION>
CLASS C
YEAR ENDED JUNE 30,
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- --------------------------------------------- -----------------------------------------------------
Net Asset Value, Beginning of Period......... $ 21.205 $ 17.59 $ 14.64 $ 12.89 $ 11.69
-------- -------- ------- ------- -------
Income From Investment Operations
Net Investment Income/Loss................. (0.142) (0.17) 0.08 0.16 0.17
Net Realized and Unrealized Gain/Loss...... 3.373 4.83 4.05 1.94 1.44
-------- -------- ------- ------- -------
Total from Investment Operations........... 3.231 4.66 4.13 2.10 1.61
-------- -------- ------- ------- -------
Distributions
Net Investment Income...................... -- (0.01) (0.09) (0.15) (0.17)
In Excess of Net Investment Income......... -- (0.00)++ (0.00)++ (0.01) --
Net Realized Gain.......................... (1.200) (1.04) (1.09) (0.19) (0.24)
-------- -------- ------- ------- -------
Total Distributions........................ (1.200) (1.05) (1.18) (0.35) (0.41)
-------- -------- ------- ------- -------
Net Asset Value, End of Period............... $ 23.236 $ 21.20 $ 17.59 $ 14.64 $ 12.89
======== ======== ======= ======= =======
Total Return (1)............................. 16.55% 27.28% 29.67% 16.50% 14.13%
======== ======== ======= ======= =======
Ratios and Supplemental Data
Net Assets, End of Period (000's)............ $165,351 $127,401 $32,425 $21,193 $13,867
Ratio of Expenses to Average Net Assets...... 2.24% 2.25% 2.25% 2.25% 2.25%
Ratio of Net Investment Income/Loss to
Average Net Assets........................... (0.72)% (0.84)% 0.49% 1.17% 1.54%
Portfolio Turnover Rate...................... 283% 207% 73% 41% 23%
- --------------------------------------------- -----------------------------------------------------
Effect of Voluntary Expense Limitation During
the Period
Per Share Benefit to Net Investment
Income/Loss.............................. $ -- $ 0.02 $ 0.04 $ 0.04 $ 0.05
Ratios Before Expense Limitation:
Expenses to Average Net Assets............. -- 2.33% 2.47% 2.58% 2.71%
Net Investment Income/Loss to Average Net
Assets..................................... -- (0.92)% 0.22% 0.84% 1.08%
- --------------------------------------------- -----------------------------------------------------
</TABLE>
* NON-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.
# CHANGES PER SHARE ARE BASED UPON MONTHLY AVERAGE SHARES OUTSTANDING.
24
<PAGE>
BOARD OF DIRECTORS
AND OFFICERS
BOARD OF DIRECTORS
<TABLE>
<S> <C>
J. Miles Branagan Don G. Powell*
Jerry D. Choate Phillip B. Rooney
Richard M. DeMartini* Fernando Sisto
Linda Hutton Heagy Wayne W. Whalen*
R. Craig Kennedy Suzanne H. Woolsey
Jack E. Nelson Paul G. Yovovich
</TABLE>
OFFICERS
Richard F. Powers, III*
PRESIDENT
Dennis J. McDonnell*
EXECUTIVE VICE PRESIDENT & CHIEF INVESTMENT OFFICER
A. Thomas Smith III*
VICE PRESIDENT AND SECRETARY
Edward C. Wood III*
VICE PRESIDENT
Michael H. Santo*
VICE PRESIDENT
Peter W. Hegel*
VICE PRESIDENT
Stephen L. Boyd*
VICE PRESIDENT
Joseph P. Stadler*
VICE PRESIDENT
John L. Sullivan*
VICE PRESIDENT, CHIEF FINANCIAL OFFICER & TREASURER
Curtis W. Morell*
VICE PRESIDENT & CHIEF ACCOUNTING OFFICER
Tanya M. Loden*
CONTROLLER
* "Interested Persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2911
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders, or
redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call
(800) 421-2833
FUNDINFO-REGISTERED TRADEMARK-
For automated telephone services, call (800) 847-2424
WEB SITE
www.vankampen.com
VAN KAMPEN AMERICAN VALUE FUND
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
INVESTMENT ADVISER AND ADMINISTRATOR
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
INVESTMENT SUBADVISER
MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC.
1221 Avenue of the Americas
New York, NY 10020
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
TRANSFER AGENT
VAN KAMPEN INVESTOR SERVICES INC.
PO Box 218256
Kansas City, MO 64121-8256
Attn: Van Kampen American Value Fund
CUSTODIAN
THE CHASE MANHATTAN BANK
3 MetroTech Center
Brooklyn, NY 11245
Attn: Van Kampen American Value Fund
LEGAL COUNSEL
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
INDEPENDENT ACCOUNTANTS
PRICEWATERHOUSECOOPERS LLP
200 East Randolph Drive
Chicago, IL 6060
<PAGE>
VAN KAMPEN
AMERICAN VALUE FUND
PROSPECTUS
OCTOBER 28, 1999
A Statement of Additional Information, which contains more details about the
Fund, is incorporated by reference in its entirety into this prospectus.
You will find additional information about the Fund in its annual and semiannual
reports to shareholders. The annual report explains the market conditions and
investment strategies affecting the Fund's performance during its last fiscal
year.
You can ask questions or obtain a free copy of the Fund's reports or its
Statement of Additional Information by calling (800) 341-2911 from 7:00 a.m. to
7:00 p.m., Central time, Monday through Friday. Telecommunications Device for
the Deaf users may call (800) 421-2833. A free copy of the Fund's reports can
also be ordered from our web site at www.vankampen.com.
Information about the Fund, including its reports and Statement of Additional
Information, has been filed with the Securities and Exchange Commission (SEC).
It can be reviewed and copied at the SEC's Public Reference Room in Washington,
DC or on the EDGAR database on the SEC's internet site (http://www.sec.gov).
Information on the operation of the SEC's Public Reference Room may be obtained
by calling the SEC at 1-202-942-8090. You can also request copies of these
materials, upon payment of a duplicating fee, by electronic request at the SEC's
e-mail address ([email protected]), or by writing the Public Reference Section
of the SEC, Washington, DC, 20549-0102.
[LOGO]
THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-7140.
MSAV PRO 10/99
<PAGE>
VAN KAMPEN
ASIAN GROWTH FUND
Van Kampen Asian Growth Fund is a mutual fund with an investment objective to
seek long-term capital appreciation through investment primarily in equity
securities of Asian issuers, excluding Japan.
Shares of the Fund have not been approved or disapproved by the Securities and
Exchange Commission (SEC) or any state regulator, and neither the SEC nor any
state regulator has passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
THIS PROSPECTUS IS DATED OCTOBER 28, 1999.
[LOGO]
<PAGE>
TABLE OF CONTENTS
Risk/Return Summary .....................................................3
Fees and Expenses of the Fund ...........................................6
Investment Objective, Policies and Risks ................................7
Investment Advisory Services ...........................................14
Purchase of Shares .....................................................15
Redemption of Shares ...................................................23
Distributions from the Fund ............................................24
Shareholder Services ...................................................25
Federal Income Taxation ................................................27
Financial Highlights ...................................................28
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations, other than those contained in this
prospectus, in connection with the offer contained in this prospectus and, if
given or made, such other information or representations must not be relied upon
as having been authorized by the Fund, the Fund's investment adviser or the
Fund's distributor. This prospectus does not constitute an offer by the Fund or
by the Fund's distributor to sell or a solicitation of an offer to buy any of
the securities offered hereby in any jurisdiction to any person to whom it is
unlawful for the Fund to make such an offer in such jurisdiction.
<PAGE>
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The Fund is a mutual fund with an investment objective to seek long-term capital
appreciation through investment primarily in equity securities of Asian issuers,
excluding Japan. Any income received from the investment of portfolio securities
is incidental to the Fund's investment objective.
INVESTMENT STRATEGIES
Under normal market conditions, the Fund's investment adviser seeks to achieve
the Fund's investment objective by investing at least 65% of the Fund's total
assets in a portfolio of equity securities of companies that are: organized in
and whose business is conducted principally in Asia (other than Japan); or whose
securities are principally traded on a recognized stock exchange in Asia (other
than Japan). Equity securities include common and preferred stocks, convertible
securities, rights and warrants to purchase common stock and depositary receipts
of Asian issuers traded on U.S. stock exchanges.
The Fund's investment adviser uses a disciplined, value-oriented approach to
security selection, focusing on larger companies with strong management teams.
The Fund's investment adviser uses a "bottom-up" research-driven investment
strategy that emphasizes security selection and disposition on an individual
company basis. The Fund generally seeks to invest in large companies located in
emerging Asian markets but also may invest in smaller companies with the
potential for growth. The Fund evaluates top-down country risk factors and
opportunities when determining position sizes and overall exposure to individual
markets. The Fund may invest the remaining 35% of its total assets in debt
securities. The Fund may purchase and sell certain derivative instruments (such
as options, futures, options on futures and, to the extent available,
currency-related transactions involving options, futures, forward contracts and
swaps) for various portfolio management purposes.
INVESTMENT RISKS
An investment in the Fund is subject to investment risks, and you could lose
money on your investment in the Fund. There can be no assurance that the Fund
will achieve its investment objective.
MARKET RISK. Market risk is the possibility that the market values of securities
owned by the Fund will decline. Market risk may affect a single issuer,
industry, sector of the economy or the market as a whole. Investments in common
stocks and other equity securities generally are affected by changes in the
stock markets, which fluctuate substantially over time, sometimes suddenly and
sharply. In general, market values of equity securities are more volatile than
those of debt securities. Investments in debt securities generally are affected
by changes in interest rates and the creditworthiness of the issuer. The prices
of debt securities tend to fall as interest rates rise, and such declines tend
to be greater among debt securities with longer maturities. Foreign markets may,
but often do not, move in tandem with U.S. markets, and foreign markets,
especially developing or emerging market countries, may be more volatile than
U.S. markets. At times, securities of Asian issuers may underperform relative to
other sectors of the market. Historically, securities of Asian issuers have
sometimes gone through extended periods when they did not perform as well as
securities of issuers of countries in more developed regions. Thus, the value of
the Fund's investments will vary and at times may be lower or higher than that
of other types of investments. During an overall market decline, securities
prices of smaller companies often fluctuate more and may fall more than the
securities prices of larger companies.
FOREIGN, EMERGING MARKET COUNTRIES AND ASIAN REGION RISKS. Because the Fund owns
securities of foreign issuers, it is subject to risks not usually associated
with owning securities of U.S. issuers. These risks include fluctuations in
foreign currencies, foreign currency exchange controls, political and economic
instability, differences in financial reporting, differences in securities
regulation and trading and foreign taxation issues. The risks of investing in
developing or emerging market countries are greater than the risks generally
associated with foreign investments, including investment and trading
limitations, greater credit and liquidity concerns, greater
3
<PAGE>
political uncertainties, an economy's dependence on international development
assistance, greater foreign currency exchange risk and currency transfer
restrictions, greater delays and disruptions in settlement transactions and
greater risks associated with computer programs and the Year 2000 problem.
The Fund is subject to additional risks associated with investing in securities
of companies that are subject to economic and financial factors and conditions
of Asia. Securities markets in Asian countries have suffered significant
downturns and volatility and currencies have lost value in relation to the U.S.
dollar. Because the Fund's investments are focused in a single region, its
portfolio is more susceptible to factors adversely affecting issuers located in
that region than a more geographically diverse portfolio of investments.
RISKS OF USING DERIVATIVE INVESTMENTS. In general terms, a derivative investment
is one whose value depends on (or is derived from) the value of an underlying
asset, interest rate or index. Options, futures, options on futures and
currency-related transactions involving options, futures, forward contracts and
swaps are examples of derivatives. Derivative investments involve risks
different from direct investment in underlying securities. These risks include
imperfect correlation between the value of the instruments and the underlying
assets; risks of default by the other party to certain transactions; risks that
the transactions may result in losses that partially or completely offset gains
in portfolio positions; risks that the transactions may not be liquid; and
manager risk.
MANAGER RISK. As with any managed fund, the Fund's investment adviser may not be
successful in selecting the best-performing securities or investment techniques
and the Fund's performance may lag behind that of similar funds.
INVESTOR PROFILE
In light of the Fund's investment objective and strategies, the Fund may be
appropriate for investors who:
- - Seek capital appreciation over the long term
- - Do not seek current income from their investment
- - Are willing to take on the increased risks associated with investing primarily
in issuers of securities from Asian countries
- - Can withstand substantial volatility in the value of their Fund shares
- - Wish to add to their investment portfolio a fund that invests primarily in
equity securities of Asian issuers
An investment in the Fund is not a deposit of any bank or other insured
depository institution. Your investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
An investment in the Fund may not be appropriate for all investors. The Fund is
not intended to be a complete investment program, and investors should consider
their long-term investment goals and financial needs when making an investment
decision about the Fund. An investment in the Fund is intended to be a long-term
investment, and the Fund should not be used as a trading vehicle.
ANNUAL PERFORMANCE
One way to measure the risks of investing in the Fund is to look at how its
performance varies from year-to-year. The following chart shows the annual
returns of the Fund's Class A Shares over the five calendar years prior to the
date of this prospectus. Sales loads are not reflected in this chart. If these
sales loads had been included, the returns
4
<PAGE>
shown below would have been lower. Remember that the past performance of the
Fund is not indicative of its future performance.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Annual Return
1994 -14.22%
1995 6.36%
1996 2.99%
1997 -49.22%
1998 -5.78%
</TABLE>
The Fund's return for the nine-month period ended September 30, 1999 was 35.81%.
The annual return variability of the Fund's Class B Shares and Class C Shares
would be substantially similar to that shown for the Class A Shares because all
of the Fund's shares are invested in the same portfolio of securities; however,
the actual annual returns of the Class B Shares and Class C Shares would be
lower than the annual returns shown for the Fund's Class A Shares because of
differences in the expenses borne by each class of shares.
\
During the five-year period shown in the bar chart, the highest quarterly return
was 26.13% (for the quarter ended December 31, 1998) and the lowest quarterly
return was -37.23% (for the quarter ended December 31, 1997).
COMPARATIVE PERFORMANCE
As a basis for evaluating the Fund's performance and risks, the table below
shows how the Fund's performance compares with the Morgan Stanley Capital
International ("MSCI") All Country Far East Free Ex-Japan Index*, a broad-based
market index (currently consisting of over 450 stocks traded in several Asian
markets, excluding Japan) that the Fund's investment adviser believes is an
appropriate benchmark for the Fund. The Fund's performance figures include the
maximum sales charges paid by investors. The index performance figures do not
include any commissions or sales charges that would be paid by investors
purchasing the securities represented by the index. Average annual total returns
are shown for the periods ended December 31, 1998 (the most recently completed
calendar year prior to the date of this prospectus). Remember that the past
performance of the Fund is not indicative of its future performance.
<TABLE>
<CAPTION>
AVERAGE ANNUAL
TOTAL RETURNS
FOR THE
PERIODS ENDED PAST PAST 5 SINCE
DECEMBER 31, 1998 1 YEAR YEARS INCEPTION
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Van Kampen Asian Growth
Fund -- Class A Shares -11.24% -15.78% -7.52%(1)
MSCI All Country Far East
Free Ex-Japan Index -4.82% -11.95% -2.37%(3)
..................................................................................
Van Kampen Asian Growth
Fund -- Class B Shares -11.03% - -19.81%(2)
MSCI All Country Far East
Free Ex-Japan Index -4.82% - -14.56%(2)
..................................................................................
Van Kampen Asian Growth
Fund -- Class C Shares -7.53% -15.41% -7.21%(1)
MSCI All Country Far East
Free Ex-Japan Index -4.82% -11.95% -2.37%(3)
..................................................................................
INCEPTION DATES: (1) 6/23/93, (2) 8/1/95, (3) 6/30/93.
* THE MSCI ALL COUNTRY FAR EAST FREE EX-JAPAN INDEX IS AN UNMANAGED INDEX OF COMMON
STOCKS AND CURRENTLY INCLUDES INDONESIA, HONG KONG, THE PHILIPPINES, KOREA,
TAIWAN AND THAILAND (ASSUMES DIVIDENDS ARE REINVESTED).
</TABLE>
5
<PAGE>
FEES AND EXPENSES
OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
- -----------------------------------------------------------
Maximum sales charge
(load) imposed on
purchases (as a
percentage of
offering price) 5.75%(1) None None
..............................................................
Maximum deferred
sales charge (load)
(as a percentage of
the lesser of
original purchase
price or redemption
proceeds) None(2) 5.00%(3) 1.00%(4)
..............................................................
Maximum sales charge
(load) imposed on
reinvested dividends None None None
..............................................................
Redemption fees None None None
..............................................................
Exchange fee None None None
..............................................................
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
<TABLE>
<S> <C> <C> <C>
- -----------------------------------------------------------
Management Fees(5) 1.00% 1.00% 1.00%
..........................................................
Distribution and/or
Service (12b-1)
Fees(6) 0.25% 1.00%(7) 1.00%(7)
..........................................................
Other Expenses(5) 0.78% 0.78% 0.78%
..........................................................
Total Annual Fund
Operating Expenses(5) 2.03% 2.78% 2.78%
..........................................................
</TABLE>
(1) REDUCED FOR PURCHASES OF $50,000 AND OVER. SEE "PURCHASE OF
SHARES -- CLASS A SHARES."
(2) INVESTMENTS OF $1 MILLION OR MORE ARE NOT SUBJECT TO ANY SALES
CHARGE AT THE TIME OF PURCHASE, BUT A DEFERRED SALES CHARGE OF
1.00% MAY BE IMPOSED ON CERTAIN REDEMPTIONS MADE WITHIN ONE
YEAR OF THE PURCHASE. SEE "PURCHASE OF SHARES -- CLASS A
SHARES."
(3) THE MAXIMUM DEFERRED SALES CHARGE IS 5.00% IN THE FIRST YEAR
AFTER PURCHASE, DECLINING THEREAFTER AS FOLLOWS:
YEAR 1-5.00%
YEAR 2-4.00%
YEAR 3-3.00%
YEAR 4-2.50%
YEAR 5-1.50%
AFTER-NONE
SEE "PURCHASE OF SHARES -- CLASS B SHARES."
(4) THE MAXIMUM DEFERRED SALES CHARGE IS 1.00% IN THE FIRST YEAR
AFTER PURCHASE AND 0.00% THEREAFTER. SEE "PURCHASE OF
SHARES -- CLASS C SHARES."
(5) THE FUND'S INVESTMENT ADVISER IS CURRENTLY WAIVING OR
REIMBURSING A PORTION OF THE FUND'S MANAGEMENT FEES AND OTHER
EXPENSES SUCH THAT THE ACTUAL TOTAL ANNUAL FUND OPERATING
EXPENSES WERE 1.90% FOR CLASS A SHARES. 2.65% FOR CLASS B
SHARES AND 2.65% FOR CLASS C SHARES FOR THE FISCAL YEAR ENDED
JUNE 30, 1999. THE FEE WAIVERS OR EXPENSE REIMBURSEMENTS CAN BE
TERMINATED AT ANY TIME.
(6) CLASS A SHARES ARE SUBJECT TO AN ANNUAL SERVICE FEE OF UP TO
0.25% OF THE AVERAGE DAILY NET ASSETS ATTRIBUTABLE TO SUCH
CLASS OF SHARES. CLASS B SHARES AND CLASS C SHARES ARE EACH
SUBJECT TO A COMBINED ANNUAL DISTRIBUTION AND SERVICE FEE OF UP
TO 1.00% OF THE AVERAGE DAILY NET ASSETS ATTRIBUTABLE TO SUCH
CLASS OF SHARES. SEE "PURCHASE OF SHARES."
(7) BECAUSE DISTRIBUTION AND/OR SERVICE (12b-1) FEES ARE PAID OUT
OF THE FUND'S ASSETS ON AN ONGOING BASIS, OVER TIME THESE FEES
WILL INCREASE THE COST OF YOUR INVESTMENT AND MAY COST YOU MORE
THAN PAYING OTHER TYPES OF SALES CHARGES.
EXAMPLE:
The following example is intended to help you compare the cost of investing in
the Fund with the costs of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same each year (except for the ten-year
amounts for Class B Shares which reflect the conversion of Class B Shares to
Class A Shares after eight years). Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
- ---------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $769 $1,175 $1,605 $2,798
..................................................
Class B Shares $781 $1,162 $1,619 $2,930*
..................................................
Class C Shares $381 $ 862 $1,469 $3,109
..................................................
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
- ---------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $769 $1,175 $1,605 $2,798
..................................................
Class B Shares $281 $ 862 $1,469 $2,930*
..................................................
Class C Shares $281 $ 862 $1,469 $3,109
..................................................
</TABLE>
* BASED ON CONVERSION TO CLASS A SHARES AFTER EIGHT YEARS.
6
<PAGE>
INVESTMENT OBJECTIVE,
POLICIES AND RISKS
The Fund's investment objective is to seek long-term capital appreciation
through investment primarily in equity securities of Asian issuers, excluding
Japan. Any income received from the investment of portfolio securities is
incidental to the Fund's investment objective. The Fund's investment objective
is a fundamental policy and may not be changed without the approval of a
majority of shareholders of the Fund's outstanding voting securities, as defined
in the Investment Company Act of 1940, as amended (the "1940 Act"). There are
risks inherent in all investments in securities; accordingly there can be no
assurance that the Fund will achieve its investment objective.
Under normal market conditions, the Fund's investment adviser seeks to achieve
the Fund's investment objective by investing at least 65% of the Fund's total
assets in a portfolio of equity securities of Asian companies, other than Japan.
These include securities of companies (i) which are organized under the laws of
an Asian country and whose business is conducted principally in Asia or
(ii) for which the principal securities trading market is in an Asian country.
The Fund emphasizes investments in the emerging Asia markets countries. The
Fund's investment adviser considers emerging markets to be those countries that
major international financial institutions, such as the International Bank for
Reconstruction and Development (commonly referred to as the "World Bank")
considers to be less economically mature than developed nations. Investments in
emerging markets may provide the potential for above-average capital
appreciation but also are subject to special risks not typically associated with
investing in more established economies or securities markets. As a result, the
Fund's portfolio may experience greater price volatility, which may be
heightened by currency fluctuations relative to the U.S. dollar.
Allocation of the Fund's investments will depend upon the relative
attractiveness of the Asian markets and particular issuers. Currently, the Fund
intends to invest in issuers of the following Asian countries: Hong Kong
(China), Singapore, Malaysia, Thailand, the Philippines, Indonesia, mainland
China, Taiwan, South Korea, India, Pakistan, Sri Lanka or any country in the
Asian region (other than Japan) that is open to foreign investment. There are no
prescribed limits on geographic distribution of the Fund's investments;
accordingly, the Fund may invest significant assets in any single Asian country.
Such investment practices subject the Fund to greater risks impacting any single
country. In addition, because of the Fund's policy of concentrating its
investments in a single region, it is more susceptible than a fund without such
a policy to any single economic, political or regulatory occurrence affecting
issuers located in that region.
The Fund's investment adviser employs a disciplined, value-oriented approach to
security selection, focusing on larger companies with strong management teams.
The Fund's investment adviser uses a "bottom-up" research-driven investment
strategy that emphasizes security selection on an individual company basis. The
Fund's investment program emphasizes internal research of leading companies as
the basis for stock selection, calling on a team of market specialists
strategically based throughout Asia. This research process encompasses analysis
of historical financial statements, identification of the potential for future
earnings and cash flows, valuation of key assets, discussions with analysts to
determine consensus expectations and an evaluation of the strength and depth of
management. Visits with management from members of the research team are central
to this process.
The Fund's investment adviser considers valuation on an absolute basis and
relative to market average and comparable companies in the region and emphasizes
stocks where a catalyst can be identified which will correct undervaluation.
Depending on the type of company, factors considered in selecting securities for
investment include price-to-sales, price-to-earnings, price-to-cash flow,
price-to-book value and price-to-replacement value of assets ratios. The Fund's
investment adviser evaluates top-down country risk factors and opportunities
when determining position sizes and overall exposure to individual markets. The
Fund's research team evaluates macroeconomic and political factors when
determining overall exposures within individual countries.
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The Fund invests primarily in common stocks. Common stocks are shares of a
corporation or other entity that entitle the holder to a pro rata share of the
profits of the corporation, if any, without preference over any other class of
securities, including such entity's debt securities, preferred stock and other
senior equity securities. Common stock usually carries with it the right to vote
and frequently an exclusive right to do so.
While the Fund invests primarily in common stocks, it also may invest in
preferred stocks, convertible securities, warrants or rights to purchase common
stock and depository receipts. Preferred stock generally has a preference as to
dividends and liquidation over an issuer's common stock but ranks junior to debt
securities in an issuer's capital structure. Unlike interest payments on debt
securities, preferred stock dividends are payable only if declared by the
issuer's board of directors. Preferred stock also may be subject to optional or
mandatory redemption provisions. The ability of common stocks and preferred
stocks to generate income is dependent on the earnings and continuing
declaration of dividends by the issuers of such securities.
A convertible security is a bond, debenture, note, preferred stock, or other
security that may be converted into or exchanged for a prescribed amount of
common stock or other equity security of the same or a different issuer or into
cash within a particular period of time at a specified price or formula. A
convertible security generally entitles the holder to receive interest paid or
accrued on debt or the dividend paid on preferred stock until the convertible
security matures or is redeemed, converted or exchanged. Before conversion,
convertible securities generally have characteristics similar to both debt and
equity securities. The value of convertible securities tends to decline as
interest rates rise and, because of the conversion feature, tends to vary with
fluctuations in the market value of the underlying equity securities.
Convertible securities generally rank senior to common stock in a corporation's
capital structure but are usually subordinated to comparable nonconvertible
securities. Convertible securities generally do not participate directly in any
dividend increases or decreases of the underlying equity securities although the
market prices of convertible securities may be affected by any such dividend
changes or other changes in the underlying securities.
The Fund only invests in convertible debt securities considered to be
"investment grade" at the time of investment. Investment grade securities are
securities rated BBB or higher by Standard & Poor's ("S&P") or rated Baa or
higher by Moody's Investors Services, Inc. ("Moody's") or comparably rated by
any other internationally recognized statistical rating organization ("IRSRO")
or, if unrated, are considered by the Fund's investment adviser to be of
comparable quality. Securities rated BBB by S&P or Baa by Moody's are in the
lowest of the four investment grade categories and are considered by the rating
agencies to be medium-grade obligations which possess speculative
characteristics so that changes in economic conditions or other circumstances
are more likely to lead to a weakened capacity to make principal and interest
payments than in the case of higher-rated securities.
Rights and warrants entitle the holder to buy equity securities at a specific
price for a specific period of time. Rights are similar to warrants except that
they have a substantially shorter duration. Rights and warrants may be
considered more speculative and less liquid than certain other types of
investments in that they do not entitle a holder to dividends or voting rights
with respect to the underlying securities nor do they represent any right in the
assets of the issuing company and may lack a secondary market.
The Fund may invest up to 35% of its total assets in debt securities, including
bills and bonds issued by U.S. or Asian governmental entities; notes, debentures
and bonds of Asian companies; and U.S. money market instruments. The Fund's
investment adviser believes it is likely that many of the debt securities of
Asian issuers in which the Fund will invest will be unrated, and whether or not
rated, may have speculative characteristics. The market prices of debt
securities generally fluctuate inversely with changes in interest rates so that
the value of investments in such securities can be expected to decrease as
interest rates rise and increase as interest rates fall. Debt securities with
longer maturities may increase or decrease in value more than debt securities of
shorter maturities. The credit risks and market prices of lower-grade securities
generally are
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more sensitive to negative issuer developments, such as reduced revenues or
increased expenditures, or adverse economic conditions, such as a recession,
than are higher-grade securities.
The Fund may invest in equity securities of Asian issuers indirectly through
investment in other investment companies. Such investments are commonly used
when direct investment in certain countries is not permitted by foreign
investors. Investment in other investment companies may involve duplication of
management fees and certain other expenses.
While the Fund focuses primarily on larger companies, it also may invest in
smaller- to medium-sized companies. The securities of smaller- or medium-sized
companies may be subject to more abrupt or erratic market movements than
securities of larger-sized companies or the market averages in general. In
addition, such companies typically are subject to a greater degree of change in
earnings and business prospects than are larger companies. Thus, to the extent
the Fund invests in smaller- or medium-sized companies, it may be subject to
greater investment risk than that assumed through investment in the equity
securities of larger companies.
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.
RISKS OF INVESTING
IN SECURITIES OF FOREIGN ISSUERS
The Fund invests in securities of foreign issuers. Such securities may be
denominated in U.S. dollars and in currencies other than U.S. dollars. The
percentage of assets invested in securities of a particular country or
denominated in a particular currency will vary in accordance with the investment
adviser's assessment of the relative yield, appreciation potential and the
relationship of a country's currency to the U.S. dollar, which is based upon
such factors as fundamental economic strength, credit quality and interest rate
trends. Investments in foreign securities present certain risks not ordinarily
associated with investments in securities of U.S. issuers. These risks include
fluctuations in foreign currency exchange rates, political, economic or legal
developments (including war or other instability, expropriation of assets,
nationalization and confiscatory taxation), the imposition of foreign exchange
limitations (including currency blockage), withholding taxes on dividend or
interest payments or capital transactions or other restrictions, higher
transaction costs (including higher brokerage, custodial and settlement costs
and currency translation costs) and possible difficulty in enforcing contractual
obligations or taking judicial action. Also, foreign securities may not be as
liquid and may be more volatile than comparable domestic securities.
In addition, there often is less publicly available information about many
foreign issuers, and issuers of foreign securities are subject to different,
often less comprehensive, auditing, accounting, financial reporting and
disclosure requirements than domestic issuers. There is generally less
government regulation of stock exchanges, brokers and listed companies abroad
than in the U.S., and, with respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investment in those countries. Because there is
usually less supervision and governmental regulation of exchanges, brokers and
dealers than there is in the U.S., the Fund may experience settlement
difficulties or delays not usually encountered in the U.S.
Delays in making trades in foreign securities relating to volume constraints,
limitations or restrictions, clearance or settlement procedures, or otherwise
could impact returns and result in temporary periods when assets of the Fund are
not fully invested or attractive investment opportunities are foregone.
In addition to the increased risks of investing in foreign securities, there are
often increased transactions costs associated with investing in foreign
securities including the costs incurred in connection with converting
currencies, higher foreign brokerage or dealer costs, and higher settlement
costs or custodial costs.
Since the Fund invests in securities denominated or quoted in currencies other
than the U.S. dollar, the
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Fund will be affected by changes in foreign currency exchange rates (and
exchange control regulations) which affect the value of investments in the Fund
and the accrued income and unrealized appreciation or depreciation of the
investments. Changes in foreign currency exchange ratios relative to the U.S.
dollar will affect the U.S. dollar value of the Fund's assets denominated in
that currency and the Fund's return on such assets as well as any temporary
uninvested reserves in bank deposits in foreign currencies. In addition, the
Fund will incur costs in connection with conversions between various currencies.
The Fund may purchase and sell foreign currency on a spot basis in connection
with the settlement of transactions in securities traded in such foreign
currency. The Fund also may enter into contracts with banks, brokers or dealers
to purchase or sell securities or foreign currencies at a future date ("forward
contracts"). A foreign currency forward contract is a negotiated agreement
between the contracting parties to exchange a specified amount of currency at a
specified future time at a specified rate. The rate can be higher or lower than
the spot rate between the currencies that are the subject of the contract.
The Fund may attempt to protect against adverse changes in the value of the U.S.
dollar in relation to a foreign currency by entering into a forward contract for
the purchase or sale of the amount of foreign currency invested or to be
invested, or by buying or selling a foreign currency option or futures contract
for such amount. Such strategies may be employed before the Fund purchases a
foreign security traded in the currency which the Fund anticipates acquiring or
between the date the foreign security is purchased or sold and the date on which
payment therefor is made or received. Seeking to protect against a change in the
value of a foreign currency in the foregoing manner does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Furthermore, such transactions reduce or
preclude the opportunity for gain if the value of the currency should move in
the direction opposite to the position taken. Unanticipated changes in currency
prices may result in poorer overall performance for the Fund than if it had not
entered into such contracts. Because of the lack of hedging facilities available
in the currency markets of Asia, no active currency hedging strategy is
anticipated currently.
Investors should consider carefully the risks of foreign investments before
investing in the Fund.
ADDITIONAL RISKS OF INVESTING IN EMERGING MARKET COUNTRIES. The risks of foreign
investment are heightened when the issuer is from an emerging market country.
The extent of economic development, political stability and market depth of such
countries varies widely and investments in the securities of issuers in such
countries typically involve greater potential gain or loss than investments in
securities of issuers in more developed countries. Emerging market countries
tend to have economic structures that are less diverse and mature and political
systems that are less stable than developed markets. Emerging market countries
may be more likely to experience political turmoil or rapid changes in economic
conditions than more developed markets and the financial condition of issuers in
emerging market countries may be more precarious than in other countries.
Certain countries depend to a larger degree upon international trade or
development assistance and, therefore, are vulnerable to changes in trade or
assistance which, in turn, may be affected by a variety of factors. The Fund may
be particularly sensitive to changes in the economies of certain countries
resulting from any reversal of economic liberalization, political unrest or the
imposition of sanctions by the U.S. or other countries.
The Fund's purchase and sale of portfolio securities in emerging market
countries may be constrained by limitations as to daily changes in the prices of
listed securities, periodic or sporadic trading or settlement, or limitations on
aggregate holdings by foreign investors. Such limitations may be computed based
on the aggregate trading volume by or holdings of the Fund, the Fund's
investment adviser, its affiliates or their respective clients or other service
providers. The Fund may not be able to sell securities in circumstances where
price, trading or settlement volume limitations have been reached. Foreign
investment in the securities markets of certain emerging market countries is
restricted or controlled to varying degrees which may limit investment in such
countries or increase the administrative costs of such investments. For example,
certain countries may
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require governmental approval prior to investments by foreign persons or limit
investment by foreign persons to only a specified percentage of an issuer's
outstanding securities or a specific class of securities which may have less
advantageous terms (including price) than securities of the issuer available for
purchase by nationals. In addition, certain countries may restrict or prohibit
investment opportunities in issuers or industries deemed important to national
interests. Such restrictions may affect the market price, liquidity and rights
of securities that may be purchased by the Fund. The repatriation of both
investment income and capital from certain emerging market countries is subject
to restrictions such as the need for governmental consents. Due to restrictions
on direct investment in securities in certain countries, it is anticipated that
the Fund may invest in such countries through other investment funds in such
countries.
Many emerging market countries have experienced currency devaluations and
substantial (and, in some cases, extremely high) rates of inflation, which have
had a negative effect on the economies and securities markets of such countries.
Economies in emerging market countries generally are dependent heavily upon
commodity prices and international trade and, accordingly, have been and may
continue to be affected adversely by the economies of their trading partners,
trade barriers, exchange controls, managed adjustments in relative currency
values and other protectionist measures or negotiated by the countries with
which they trade.
Many emerging market countries are subject to a substantial degree of economic,
political and social instability. Governments of some emerging market countries
are authoritarian in nature or have been installed or removed as a result of
military coups, while governments in other emerging market countries have
periodically used force to suppress civil dissent. Disparities of wealth, the
pace and success of political reforms, and ethnic, religious and racial
disaffection, among other factors, have also led to social unrest, violence
and/or labor unrest in some emerging market countries. Unanticipated political
or social developments may result in sudden and significant investment losses.
Settlement procedures in emerging market countries are frequently less developed
and reliable than those in developed markets. In addition, significant delays
are common in certain markets in registering the transfer of securities.
Settlement or registration problems may make it more difficult for the Fund to
value its portfolio securities and could cause the Fund to miss attractive
investment opportunities, to have a portion of its assets uninvested or to incur
losses due to the failure of a counterparty to pay for securities the Fund has
delivered or the Fund's inability to complete its contractual obligations. The
creditworthiness of the local securities firms used by the Fund in emerging
market countries may not be as sound as the creditworthiness of firms used in
more developed countries. As a result, the Fund may be subject to a greater risk
of loss if a securities firm defaults in the performance of its
responsibilities.
The small size and inexperience of the securities markets in certain emerging
market countries and the limited volume of trading in securities in those
countries may make the Fund's investments in such countries less liquid and more
volatile than investments in countries with more developed securities markets.
The Fund's investments in emerging market countries are subject to the risk that
the liquidity of a particular investment, or investments generally, in such
countries will shrink or disappear suddenly and without warning as a result of
adverse economic, market or political conditions or adverse investor
perceptions, whether or not accurate. Because of the lack of sufficient market
liquidity, the Fund may incur losses because it will be required to effect sales
at a disadvantageous time and only then at a substantial drop in price.
Investments in emerging market countries may be more difficult to price
precisely because of the characteristics discussed above and lower trading
volumes.
The Fund's use of foreign currency management techniques in emerging market
countries may be limited. Due to the limited market for these instruments in
emerging market countries, the Fund's investment adviser does not currently
anticipate that a significant portion of the Fund's currency exposure in
emerging market countries, if any, will be covered by such instruments.
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Investors are strongly advised to consider carefully the special risks involved
in investing in emerging market countries, which are in addition to the risks of
investing in foreign securities generally.
DERIVATIVE INSTRUMENTS
The Fund may, but is not required to, use various investment strategic
transactions described below to earn income, facilitate portfolio management and
mitigate risks. Such strategic transactions are generally accepted under modern
portfolio management and are regularly used by many mutual funds and other
institutional investors. Although the Fund's investment adviser seeks to use the
practices to further the Fund's investment objective, no assurance can be given
that these practices will achieve this result.
The Fund may purchase and sell derivative instruments such as exchange-listed
and over-the-counter put and call options on securities, financial futures,
equity, fixed-income and interest rate indices, and other financial instruments,
futures contracts and options thereon (including but not limited to securities
index futures, foreign currency exchange futures, interest rate futures and
other financial futures), structured notes, swaps, caps, floors or collars and
enter into various currency transactions (to the extent available) such as
currency forward contracts, currency futures contracts, currency swaps or
options on currency or currency futures. In addition, the Fund may invest in
other derivative instruments that are developed over time if their use would be
consistent with the objective of the Fund. Collectively, all of the above are
referred to as "Strategic Transactions." The Fund generally seeks to use
Strategic Transactions as a portfolio management or hedging technique to seek to
protect against possible adverse changes in the market value of securities held
in or to be purchased for the Fund's portfolio, protect the Fund's unrealized
gains, facilitate the sale of certain securities for investment purposes,
protect against changes in currency exchange rates or to adjust the exposure to
a particular currency, manage the effective maturity or duration of the Fund's
portfolio, establish positions in the derivatives markets as a substitute for
purchasing or selling particular securities, including, for example, when the
Fund adjusts its exposure to a market in response to changes in investment
strategy, when doing so provides more liquidity than the direct purchase of the
securities underlying such derivatives, when the Fund 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. The Fund may invest up to
33 1/3% of its total assets in Strategic Transactions for non-hedging purposes
(measured by the aggregate notional amount of outstanding derivatives). In
addition, the Fund may invest up to 20% of its total assets in futures contracts
and options on futures contracts (measured by the aggregate notional amount of
such outstanding contracts).
Strategic Transactions have risks including the imperfect correlation between
the value of such instruments and the underlying assets, the possible default of
the other party to the transaction or illiquidity of the derivative instruments.
Furthermore, the ability to successfully use Strategic Transactions depends on
the Fund's investment adviser's ability to predict pertinent market movements,
which cannot be assured. Thus, the use of Strategic Transactions may result in
losses greater than if they had not been used, may require the Fund to sell or
purchase portfolio securities at inopportune times or for prices other than
current market values, may limit the amount of appreciation the Fund can
otherwise realize on an investment, or may cause the Fund to hold a security
that it might otherwise sell. The use of currency transactions can result in the
Fund incurring losses because of the imposition of exchange controls, suspension
of settlements or the inability of the Fund to deliver or receive a specified
currency. In addition, amounts paid as premiums or cash or other assets held in
margin accounts with respect to Strategic Transactions are not otherwise
available to the Fund for investment purposes.
When conducted outside the U.S., Strategic Transactions may not be regulated as
rigorously as in the U.S., may not involve a clearing mechanism and related
guarantees, and are subject to the risk of governmental actions affecting
trading in, or the prices of, foreign securities, currencies and other
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instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions,
(iii) delays in the Fund's ability to act upon economic events occurring in
foreign markets during non-business hours in the U.S., (iv) the imposition of
different exercise and settlement terms and procedures and margin requirements
than in the U.S. and (v) lower trading volume and liquidity.
A more complete discussion of Strategic Transactions and their risks is
contained in the Fund's Statement of Additional Information. The Statement of
Additional Information can be obtained by investors free of charge as described
on the back cover of this prospectus.
OTHER INVESTMENTS AND RISK FACTORS
For cash management purposes, the Fund may engage in repurchase agreements with
banks and broker-dealers and other financial institutions in order to earn a
return on temporarily available cash. Such transactions are subject to the risk
of default by the other party.
The Fund may lend its portfolio securities in an amount up to 33 1/3% of its
total assets to broker-dealers, banks or other recognized institutional
borrowers of securities. The Fund may incur lending fees and other costs in
connection with securities lending, and securities lending is subject to the
risk of default by the other party.
The Fund may invest up to 15% of the Fund's net assets in illiquid securities
and certain restricted securities. Notwithstanding the foregoing, the Fund may
not invest more than 10% of its total assets in securities subject to legal or
contractual restrictions on resale. Such securities may be difficult or
impossible to sell at the time and the price that the Fund would like. Thus, the
Fund may have to sell such securities at a lower price, sell other securities
instead to obtain cash or forego other investment opportunities.
Further information about these types of investments and other investment
practices that may be used by the Fund is contained in the Statement of
Additional Information.
The Fund may sell securities without regard to the length of time they have been
held in order to take advantage of new investment opportunities or when the
Fund's investment adviser believes the potential for capital appreciation has
lessened or for other reasons. The Fund's portfolio turnover is shown under the
heading "Financial Highlights." The portfolio turnover rate may be expected to
vary from year to year. A high portfolio turnover rate (100% or more) increases
the Fund's transactions costs, (including brokerage commissions or dealer
costs), and a high portfolio turnover rate may result in the realization of more
short-term capital gains than if the Fund had a lower portfolio turnover rate.
Increases in the Fund's transaction costs would adversely impact the Fund's
performance. The turnover rate will not be a limiting factor, however, if the
Fund's investment adviser considers portfolio changes appropriate.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Fund may on a temporary basis hold cash or invest a
portion or all of its assets in money-market instruments including obligations
of the U.S. government, its agencies or instrumentalities, obligations of
foreign sovereignties, other high-quality debt securities, including prime
commercial paper, repurchase agreements and bank obligations, such as bankers'
acceptances and certificates of deposit (including Eurodollar certificates of
deposit). Under normal market conditions, the potential for capital appreciation
on these securities will tend to be lower than the potential for capital
appreciation on other securities that may be owned by the Fund. In taking such a
defensive position, the Fund would not be pursuing and may not achieve its
investment objective.
YEAR 2000 RISKS. Like other mutual funds, financial and business organizations
and individuals around the world, the Fund could be adversely affected if the
computer systems used by the Fund's investment adviser, subadviser and other
service providers do not properly process and calculate date-related information
and data from and after January 1, 2000. This is commonly known as the "Year
2000 Problem." The Fund's investment adviser and subadviser
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are taking steps that they believe are reasonably designed to address the Year
2000 Problem with respect to computer systems that they use and to obtain
reasonable assurances that comparable steps are being taken by the Fund's other
major service providers. At this time, there can be no assurances that these
steps will be sufficient to avoid any adverse impact to the Fund. In addition,
the Year 2000 Problem may adversely affect the markets and the issuers of
securities in which the Fund may invest which, in turn, may adversely affect the
net asset value of shares of the Fund. Improperly functioning trading systems
may result in settlement problems and liquidity issues. In addition, corporate
and governmental data processing errors may result in production problems for
individual companies or issuers and overall economic uncertainty. Earnings of
individual issuers will be affected by remediation costs, which may be
substantial and may be reported inconsistently in U.S. and foreign financial
statements. Efforts in foreign countries to remediate the potential Year 2000
Problem may not be as extensive as those in the U.S. As a result, the operations
of foreign markets and issuers may be disrupted by the Year 2000 Problem which
could adversely affect the Fund's portfolio. The risks are greater with respect
to certain developing or emerging market countries because there is an increased
likelihood that issuers of securities of such countries cannot anticipate or
effectively manage the effects of computer programs and the Year 2000 Problem.
Accordingly, the Fund's investments may be adversely affected. The statements
above are subject to the Year 2000 Information and Readiness Disclosure Act
which may limit the legal rights regarding the use of such statements in the
case of a dispute.
INVESTMENT ADVISORY
SERVICES
INVESTMENT ADVISER
Van Kampen Investment Advisory Corp. is the investment adviser (the "Adviser" or
"Advisory Corp.") and administrator of the Fund. The Adviser is a wholly owned
subsidiary of Van Kampen Investments Inc. ("Van Kampen Investments"). Van Kampen
Investments is a diversified asset management company with more than two million
retail investor accounts, extensive capabilities for managing institutional
portfolios, and more than $79 billion under management or supervision as of
September 30, 1999. Van Kampen Investments' more than 50 open-end and 39
closed-end funds and more than 2,500 unit investment trusts are professionally
distributed by leading authorized dealers nationwide. Van Kampen Funds Inc., the
distributor of the Fund (the "Distributor") and the sponsor of the funds
mentioned above, is also a wholly owned subsidiary of Van Kampen Investments.
Van Kampen Investments is an indirect wholly owned subsidiary of Morgan Stanley
Dean Witter & Co. The Adviser's principal office is located at 1 Parkview Plaza,
PO Box 5555, Oakbrook Terrace, Illinois 60181-5555.
ADVISORY AGREEMENT AND ADMINISTRATION AGREEMENT. The Fund retains the Adviser to
manage the investment of its assets and to place orders for the purchase and
sale of its portfolio securities. Under an investment advisory agreement between
the Adviser and the Fund (the "Advisory Agreement"), the Fund pays the Adviser a
monthly fee computed based upon an annual rate of 1.00% applied to the average
daily net assets of the Fund.
The Fund also retains the Adviser to provide administrative services for the
Fund's day-to-day operations. Under an administration agreement, between the
Adviser and the Fund, the Fund pays a monthly administration fee computed based
upon an annual rate of 0.25% applied to the average daily net assets of the
Fund.
The Adviser furnishes offices, necessary facilities and equipment, provides
administrative services, and permits its officers and employees to serve without
compensation as directors or officers of the Fund if elected to such positions.
The Fund pays all charges and expenses of its day-to-day operations, including
the compensation of directors of the Fund (other than those who are affiliated
persons of the Adviser, Distributor or Van Kampen Investments), the charges and
expenses of legal counsel and independent accountants, distribution fees,
service fees, custodian fees, the costs of providing reports to shareholders,
and all other ordinary business expenses not specifically assumed by the
Adviser.
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The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen Asset Management
Inc. ("Asset Management").
INVESTMENT SUBADVISER
Morgan Stanley Dean Witter Investment Management Inc. (the "Subadviser") is the
Subadviser of the Fund. The Subadviser is a wholly owned subsidiary of Morgan
Stanley Dean Witter & Co. and is an affiliate of the Adviser. The Subadviser
conducts a worldwide portfolio management business and provides a broad range of
portfolio management services to customers in the United States and abroad. At
June 30, 1999, the Subadviser, together with its affiliated institutional asset
management companies, managed assets of approximately $175.3 billion, including
assets under fiduciary advice. The Subadviser's principal office is located at
1221 Avenue of the Americas, New York, New York 10020. On December 1, 1998,
Morgan Stanley Asset Management Inc. changed its name to Morgan Stanley Dean
Witter Investment Management Inc. but continues to do business in certain
instances using the name Morgan Stanley Asset Management.
SUBADVISORY AGREEMENT. The Adviser has entered into a subadvisory agreement with
the Subadviser to assist the Adviser in performing its investment advisory
functions. The Adviser pays the Subadviser on a monthly basis a portion of the
net advisory fees the Adviser receives from the Fund.
GENERAL
From time to time, the Adviser, the Subadviser or the Distributor may
voluntarily undertake to reduce the Fund's expenses by reducing the fees payable
to them or by reducing other expenses of the Fund in accordance with such
limitations as the Adviser, the Subadviser or Distributor may establish.
PERSONAL INVESTMENT POLICIES. The Fund, the Adviser and the Subadviser have
adopted Codes of Ethics designed to recognize the fiduciary relationship among
the Fund, the Adviser and the Subadviser and their respective employees. The
Codes of Ethics permit directors, trustees, officers and employees to buy and
sell securities for their personal accounts subject to certain restrictions.
Persons with access to certain sensitive information are subject to
pre-clearance and other procedures designed to prevent conflicts of interest.
PORTFOLIO MANAGEMENT. Timothy Jensen and Ashutosh Sinha are responsible as
comanagers for the day-to-day management of the Fund's investment portfolio.
Mr. Jensen joined the Subadviser in 1998. He is a Principal of the Subadviser
and Morgan Stanley Dean Witter & Co. and a senior member of the Subadviser's
Emerging Markets Equity Group, focusing primarily on Asian markets other than
Japan. Prior to joining the Subadviser, Mr. Jensen was a Partner at Ardsley
Partners for four years, where he managed a portion of the emerging markets
assets and, prior to that time, he was Vice President at Bankers Trust Company
for one year where he was responsible for a Latin American equity portfolio.
Mr. Jensen graduated from Harvard College with a B.A. in History and received an
M.B.A. in Finance from UCLA.
Mr. Sinha joined the Subadviser in 1995. He is a Vice President of the
Subadviser and Morgan Stanley Dean Witter & Co. and a member of the Subadviser's
Emerging Markets Equity Group, focusing primarily on Asian markets other than
Japan. Prior to joining the Subadviser, Mr. Sinha spent two years at SBI Funds
Management Ltd., as an analyst for the India Magnum Fund and, prior to that
time, he was a consultant for three years for Citicorp Overseas Software Ltd.
Mr. Sinha graduated from the Indian Institute of Technology, Kanpur, with a
degree in Electrical Engineering and received an M.B.A. from the Indian
Institute of Management, Calcutta.
PURCHASE OF SHARES
GENERAL
The Fund offers three classes of shares designated as Class A Shares, Class B
Shares and Class C Shares. By offering three classes of shares, the Fund permits
each investor to choose the class of shares that is
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most beneficial given the amount to be invested and the length of time the
investor expects to hold the shares.
Initial investments must be at least $1,000 for each class of shares, and
subsequent investments must be at least $25 for each class of shares. Both
minimums may be waived by the Distributor for plans involving periodic
investments.
Each class of shares represents an interest in the same portfolio of investments
of the Fund and has the same rights except that (i) Class A Shares generally
bear the sales charge expenses at the time of purchase while Class B Shares and
Class C Shares bear the sales charge expenses at the time of redemption and any
expenses (including higher distribution fees and transfer agency costs)
resulting from such deferred sales charge arrangement, (ii) generally, each
class of shares has exclusive voting rights with respect to approvals of the
Rule 12b-1 distribution plan and service plan (each as described below) under
which its distribution fee or service fee is paid, (iii) each class of shares
has different exchange privileges, (iv) certain classes of shares are subject to
a conversion feature and (v) certain classes of shares have different
shareholder service options available.
The offering price of the Fund's shares is based upon the Fund's net asset value
per share (plus sales charges, where applicable). The net asset values per share
of the Class A Shares, Class B Shares and Class C Shares are generally expected
to be substantially the same. In certain circumstances, however, the per share
net asset values of the classes of shares may differ from one another,
reflecting the daily expense accruals of the higher distribution fees and
transfer agency costs applicable to the Class B Shares and Class C Shares and
the differential in the dividends that may be paid on each class of shares.
The net asset value per share for each class of shares of the Fund is determined
once daily as of the close of trading on the New York Stock Exchange (the
"Exchange") (currently 4:00 p.m., New York time) each day the Exchange is open
for trading except on any day on which no purchase or redemption orders are
received or there is not a sufficient degree of trading in the Fund's portfolio
securities such that the Fund's net asset value per share might be materially
affected. The Fund's Board of Directors reserves the right to calculate the net
asset value per share and adjust the offering price based thereon more
frequently than once daily if deemed desirable. Net asset value per share for
each class is determined by dividing the value of the Fund's portfolio
securities, cash and other assets (including accrued interest) attributable to
such class, less all liabilities (including accrued expenses) attributable to
such class, by the total number of shares of the class outstanding. Such
computation is made by using prices as of the close of trading on the Exchange
and (i) valuing securities listed or traded on a national securities exchange at
the closing price, or if no closing price is available, at the last reported
sale price, and if there has been no sale that day, at the mean between the last
reported bid and asked prices, (ii) valuing over-the-counter securities at the
last reported sale price from the National Association of Securities Dealers
Automated Quotations ("NASDAQ"), (iii) valuing unlisted securities and any
securities for which market quotations are not readily available at the average
of the mean between the current reported bid and asked prices obtained from
reputable brokers and (iv) valuing any other assets at fair value as determined
in good faith by the Adviser in accordance with procedures established by the
Fund's Board of Directors. Debt securities with remaining maturities of 60 days
or less are valued on an amortized cost basis, which approximates market value.
Trading in securities on many foreign securities exchanges (including Far
Eastern securities exchanges) and over-the-counter markets is normally completed
before the close of business on each U.S. business day. In addition, securities
trading in a particular country or countries may not take place on all U.S.
business days or may take place on days which are not U.S. business days.
Changes in valuations on certain securities may occur at times or on days on
which the Fund's net asset value is not calculated and on which the Fund does
not effect sales, redemptions and exchanges of its shares.
The Fund calculates net asset value per share, and therefore effects sales,
redemptions and exchanges of its shares, as of the close of trading on the
Exchange each day the Exchange is open for trading. Such
16
<PAGE>
calculation does not take place contemporaneously with the determination of the
prices of certain foreign portfolio securities used in such calculation.
If events materially affecting the value of foreign portfolio securities or
other portfolio securities occur between the time when their price is determined
and the time when the Fund's net asset value is calculated, such securities may
be valued at fair value as determined in good faith by the Adviser based in
accordance with procedures established by the Fund's Board of Directors.
The Fund has adopted a distribution plan (the "Distribution Plan") with respect
to each class of its shares pursuant to Rule 12b-1 under the 1940 Act. The Fund
also has adopted a service plan (the "Service Plan") with respect to each class
of its shares. Under the Distribution Plan and the Service Plan, the Fund pays
distribution fees in connection with the sale and distribution of its shares and
service fees in connection with the provision of ongoing services to
shareholders of each class.
The amount of distribution and service fees varies among the classes offered by
the Fund. Because these fees are paid out of the Fund's assets on an ongoing
basis, these fees will increase the cost of your investment in the Fund. By
purchasing a class of shares subject to higher distribution and service fees,
you may pay more over time than on a class of shares with other types of sales
charge arrangements. Long-term shareholders may pay more than the economic
equivalent of the maximum front-end sales charges permitted by the rules of the
National Association of Securities Dealers, Inc. ("NASD"). The net income
attributable to a class of shares will be reduced by the amount of the
distribution fees and other expenses of the Fund associated with such class of
shares. To assist investors in comparing classes of shares, the tables under the
heading "Fees and Expenses of the Fund" provide a summary of sales charges and
expenses and an example of the sales charges and expenses of the Fund applicable
to each class of shares.
The shares are offered to the public on a continuous basis through the
Distributor as principal underwriter, which is located at 1 Parkview Plaza, PO
Box 5555, Oakbrook Terrace, Illinois 60181-5555. Shares also are offered through
members of the NASD who are acting as securities dealers ("dealers") and NASD
members or eligible non-NASD members who are acting as brokers or agents for
investors ("brokers"). "Dealers" and "brokers" are sometimes referred to herein
as "authorized dealers."
Shares may be purchased on any business day by completing the application
accompanying this prospectus and forwarding the application, directly or through
an authorized dealer, to the Fund's shareholder service agent, Van Kampen
Investor Services Inc. ("Investor Services"), a wholly owned subsidiary of Van
Kampen Investments. When purchasing shares of the Fund, investors must specify
whether the purchase is for Class A Shares, Class B Shares or Class C Shares.
Sales personnel of authorized dealers distributing the Fund's shares are
entitled to receive compensation for selling such shares and may receive
differing compensation for selling Class A Shares, Class B Shares or Class C
Shares.
The offering price for shares is based upon the next calculation of net asset
value per share (plus sales charges, where applicable) after an order is
received by Investor Services. Orders received by authorized dealers prior to
the close of the Exchange are priced based on the date of receipt provided such
order is transmitted to Investor Services prior to Investor Services' close of
business on such date. Orders received by authorized dealers after the close of
the Exchange or transmitted to Investor Services after its close of business are
priced based on the date of the next computed net asset value per share provided
they are received by Investor Services prior to Investor Services' close of
business on such date. It is the responsibility of authorized dealers to
transmit orders received by them to Investor Services so they will be received
in a timely manner.
The Fund and the Distributor reserve the right to refuse any order for the
purchase of shares. The Fund also reserves the right to suspend the sale of the
Fund's shares in response to conditions in the securities markets or for other
reasons. Shares of the Fund may be sold in foreign countries where permissible.
17
<PAGE>
Investor accounts will automatically be credited with additional shares of the
Fund after any Fund distributions, such as dividends and capital gain dividends,
unless the investor instructs the Fund otherwise. Investors wishing to receive
cash instead of additional shares should contact the Fund at (800) 341-2911 or
by writing to the Fund, c/o Van Kampen Investors Services Inc., PO Box 218256,
Kansas City, MO 64121-8256.
CLASS A SHARES
Class A Shares of the Fund are sold at net asset value plus an initial maximum
sales charge of up to 5.75% of the offering price (or 6.10% of the net amount
invested), reduced on investments of $50,000 or more as follows:
CLASS A SHARES
SALES CHARGE SCHEDULE
<TABLE>
<CAPTION>
AS % OF AS % OF
SIZE OF OFFERING NET AMOUNT
INVESTMENT PRICE INVESTED
- ------------------------------------------------
<S> <C> <C>
Less than $50,000 5.75% 6.10%
...............................................
$50,000 but less than
$100,000 4.75% 4.99%
...............................................
$100,000 but less than
$250,000 3.75% 3.90%
...............................................
$250,000 but less than
$500,000 2.75% 2.83%
...............................................
$500,000 but less than
$1,000,000 2.00% 2.04%
...............................................
$1,000,000 or more * *
...............................................
</TABLE>
* NO SALES CHARGE IS PAYABLE AT THE TIME OF PURCHASE ON INVESTMENTS OF
$1 MILLION OR MORE, ALTHOUGH FOR SUCH INVESTMENTS THE FUND MAY IMPOSE
A CONTINGENT DEFERRED SALES CHARGE OF 1.00% ON CERTAIN REDEMPTIONS
MADE WITHIN ONE YEAR OF THE PURCHASE. THE CONTINGENT DEFERRED SALES
CHARGE IS ASSESSED ON AN AMOUNT EQUAL TO THE LESSER OF THE THEN
CURRENT MARKET VALUE OR THE COST OF THE SHARES BEING REDEEMED.
ACCORDINGLY, NO SALES CHARGE IS IMPOSED ON INCREASES IN NET ASSET
VALUE ABOVE THE INITIAL PURCHASE PRICE.
No sales charge is imposed on Class A Shares received from reinvestment of
dividends or capital gain dividends.
Under the Distribution Plan and Service Plan, the Fund may spend up to a total
of 0.25% per year of the Fund's average daily net assets with respect to the
Class A Shares of the Fund. From such amount, under the Service Plan, the Fund
may spend up to 0.25% per year of the Fund's average daily net assets with
respect to the Class A Shares for the ongoing provision of services to Class A
shareholders by the Distributor and by brokers, dealers or financial
intermediaries and for the maintenance of such shareholders' accounts.
CLASS B SHARES
Class B Shares of the Fund are sold at net asset value and are subject to a
contingent deferred sales charge if redeemed within five years of purchase as
shown in the table as follows:
CLASS B SHARES
SALES CHARGE SCHEDULE
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE
AS A PERCENTAGE OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
- -----------------------------------------------
<S> <C>
First 5.00%
..............................................
Second 4.00%
..............................................
Third 3.00%
..............................................
Fourth 2.50%
..............................................
Fifth 1.50%
..............................................
Sixth and After None
..............................................
</TABLE>
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gain dividends. It
is presently the policy of the Distributor not to accept any order for Class B
Shares in an amount of $500,000 or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
The amount of the contingent deferred sales charge, if any, varies depending on
the number of years from the time of payment for the purchase of Class B Shares
until the time of redemption of such shares. Solely for purposes of determining
the number of years from the time of any payment for the purchase of shares, all
payments during a month are totaled and deemed to have been made on the last day
of the month.
18
<PAGE>
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed shares being redeemed first are any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge followed by shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
Fund's average daily net assets with respect to the Class B Shares of the Fund.
In addition, under the Service Plan, the Fund may spend up to 0.25% per year of
the Fund's average daily net assets with respect to the Class B Shares for the
ongoing provision of services to Class B shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CLASS C SHARES
Class C Shares of the Fund are sold at net asset value and are subject to a
contingent deferred sales charge of 1.00% of the dollar amount subject to charge
if redeemed within one year of purchase.
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gain dividends. It
is presently the policy of the Distributor not to accept any order for Class C
Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed shares being redeemed first are any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge followed by shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
Fund's average daily net assets with respect to the Class C Shares of the Fund.
In addition, under the Service Plan, the Fund may spend up to 0.25% per year of
the Fund's average daily net assets with respect to the Class C Shares for the
ongoing provision of services to Class C shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CONVERSION FEATURE
Class B Shares purchased on or after June 1, 1996, and any dividend reinvestment
plan Class B Shares received on such shares, automatically convert to Class A
Shares eight years after the end of the calendar month in which the shares were
purchased. Class B Shares purchased before June 1, 1996, and any dividend
reinvestment plan Class B Shares received on such shares, automatically convert
to Class A Shares seven years after the end of the calendar month in which the
shares were purchased. Such conversion will be on the basis of the relative net
asset values per share, without the imposition of any sales load, fee or other
charge. The conversion schedule applicable to a share of the Fund acquired
through the exchange privilege from another Van Kampen fund participating in the
exchange program is determined by reference to the Van Kampen fund from which
such share was originally purchased.
The conversion of such shares to Class A Shares is subject to the continuing
availability of an opinion of counsel to the effect that (i) the assessment of
the higher distribution fee and transfer agency costs with respect to such
shares does not result in the Fund's dividends or capital gain dividends
constituting "preferential dividends" under the federal income tax law and
(ii) the conversion of shares does not constitute a taxable event under federal
income tax law. The conversion may be suspended if such an opinion is no longer
available and such shares might continue to be subject to the higher aggregate
fees applicable to such shares for an indefinite period.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge is waived on redemptions of Class B Shares
and Class C Shares (i) within one year following the death or disability (as
disability is defined by federal income tax law) of a shareholder, (ii) for
required minimum distributions from an individual retirement account ("IRA")
19
<PAGE>
or certain other retirement plan distributions, (iii) for withdrawals under the
Fund's systematic withdrawal plan but limited to 12% annually of the initial
value of the account, (iv) if no commission or transaction fee is paid to
authorized dealers at the time of purchase of such shares and (v) if made by
involuntary liquidation by the Fund of a shareholder's account as described
under the heading "Redemption of Shares." Subject to certain limitations, a
shareholder who has redeemed Class C Shares of the Fund may reinvest in Class C
Shares at net asset value with credit for any contingent deferred sales charge
if the reinvestment is made within 180 days after the redemption. For a more
complete description of contingent deferred sales charge waivers, please refer
to the Fund's Statement of Additional Information or contact your authorized
dealer.
QUANTITY DISCOUNTS
Investors purchasing Class A Shares may, under certain circumstances described
below, be entitled to pay reduced or no sales charges. Investors, or their
authorized dealers, must notify the Fund at the time of the purchase order
whenever a quantity discount is applicable to purchases. Upon such notification,
an investor will receive the lowest applicable sales charge. Quantity discounts
may be modified or terminated at any time. For more information about quantity
discounts, investors should contact their authorized dealer or the Distributor.
A person eligible for a reduced sales charge includes an individual, his or her
spouse and children under 21 years of age and any corporation, partnership or
sole proprietorship which is 100% owned, either alone or in combination, by any
of the foregoing; a trustee or other fiduciary purchasing for a single trust or
for a single fiduciary account, or a "company" as defined in Section 2(a)(8) of
the 1940 Act.
As used herein, "Participating Funds" refers to certain open-end investment
companies advised by Asset Management or Advisory Corp. and distributed by the
Distributor as determined from time to time by the Fund's Board of Directors.
VOLUME DISCOUNTS. The size of investment shown in the Class A Shares sales
charge table applies to the total dollar amount being invested by any person in
shares of the Fund, or in any combination of shares of the Fund and shares of
other Participating Funds, although other Participating Funds may have different
sales charges.
CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the Class A Shares
sales charge table may also be determined by combining the amount being invested
in shares of the Participating Funds plus the current offering price of all
shares of the Participating Funds which have been previously purchased and are
still owned.
LETTER OF INTENT. A Letter of Intent provides an opportunity for an investor to
obtain a reduced sales charge by aggregating the investments over a 13-month
period to determine the sales charge as outlined in the Class A Shares sales
charge table. The size of investment shown in the Class A Shares sales charge
table includes purchases of shares of the Participating Funds over a 13-month
period based on the total amount of intended purchases plus the value of all
shares of the Participating Funds previously purchased and still owned. An
investor may elect to compute the 13-month period starting up to 90 days before
the date of execution of a Letter of Intent. Each investment made during the
period receives the reduced sales charge applicable to the total amount of the
investment goal. The initial purchase must be for an amount equal to at least 5%
of the minimum total purchase amount of the level selected. If trades not
initially made under a Letter of Intent subsequently qualify for a lower sales
charge through the 90-day backdating provisions, an adjustment will be made at
the time of the expiration of the Letter of Intent to give effect to the lower
charge. Such adjustment in sales charge will be used to purchase additional
shares for the shareholder at the applicable discount category. The Fund
initially will escrow shares totaling 5% of the dollar amount of the Letter of
Intent to be held by Investor Services in the name of the shareholder. In the
event the Letter of Intent goal is not achieved within the specified period, the
investor must pay the difference between the sales charge applicable to the
purchases made and the reduced sales charge previously paid. Such payments may
be made directly to the Distributor or, if not paid, the Distributor will
20
<PAGE>
liquidate sufficient escrowed shares to obtain the difference.
OTHER PURCHASE PROGRAMS
Purchasers of Class A Shares may be entitled to reduced or no initial sales
charges in connection with the unit investment trust reinvestment program and
purchases by registered representatives of selling firms or purchases by persons
affiliated with the Fund or the Distributor. The Fund reserves the right to
modify or terminate these arrangements at any time.
UNIT INVESTMENT TRUST REINVESTMENT PROGRAM. The Fund permits unitholders of unit
investment trusts to reinvest distributions from such trusts in Class A Shares
of the Fund at net asset value per share and with no minimum initial or
subsequent investment requirement, if the administrator of an investor's unit
investment trust program meets certain uniform criteria relating to cost savings
by the Fund and the Distributor. The total sales charge for all other
investments made from unit investment trust distributions will be 1.00% of the
offering price (1.01% of net asset value). Of this amount, the Distributor will
pay to the authorized dealer, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the terms and conditions that apply to the program,
should contact their authorized dealer or the Distributor.
The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during each distribution period by all investors who choose to invest in
the Fund through the program and (2) provide Investor Services with appropriate
backup data for each investor participating in the program in a computerized
format fully compatible with Investor Services' processing system.
In order to obtain these special benefits, all dividends and other distributions
by the Fund must be reinvested in additional shares and there can not be any
systematic withdrawal program. There will be no minimum for reinvestments from
unit investment trusts. The Fund will send account activity statements to such
participants on a quarterly basis only, even if their investments are made more
frequently. The Fund reserves the right to modify or terminate this program at
any time.
NET ASSET VALUE PURCHASE OPTIONS. Class A Shares of the Fund may be purchased at
net asset value, upon written assurance that the purchase is made for investment
purposes and that the shares will not be resold except through redemption by the
Fund, by:
(1) Current or retired trustees or directors of funds advised by Morgan Stanley
Dean Witter & Co. and any of its subsidiaries and such persons' families
and their beneficial accounts.
(2) Current or retired directors, officers and employees of Morgan Stanley Dean
Witter & Co. and any of its subsidiaries; employees of an investment
subadviser to any fund described in (1) above or an affiliate of such
subadviser; and such persons' families and their beneficial accounts.
(3) Directors, officers, employees and, when permitted, registered
representatives, of financial institutions that have a selling group
agreement with the Distributor and their spouses and children under 21
years of age when purchasing for any accounts they beneficially own, or, in
the case of any such financial institution, when purchasing for retirement
plans for such institution's employees; provided that such purchases are
otherwise permitted by such institutions.
(4) Registered investment advisers who charge a fee for their services, trust
companies and bank trust departments investing on their own behalf or on
behalf of their clients. The Distributor may pay authorized dealers through
which purchases are made an amount up to 0.50% of the amount invested, over
a 12-month period.
(5) Trustees and other fiduciaries purchasing shares for retirement plans which
invest in multiple fund families through broker-dealer retirement plan
alliance programs that have entered into agreements with the Distributor
and which are subject to certain minimum size and operational requirements.
Trustees and other fiduciaries
21
<PAGE>
should refer to the Statement of Additional Information for further details
with respect to such alliance programs.
(6) Beneficial owners of shares of Participating Funds held by a retirement
plan or held in a tax-advantaged retirement account who purchase shares of
the Fund with proceeds from distributions from such a plan or retirement
account other than distributions taken to correct an excess contribution.
(7) Accounts as to which a bank or broker-dealer charges an account management
fee ("wrap accounts"), provided the bank or broker-dealer has a separate
agreement with the Distributor.
(8) Trusts created under pension, profit sharing or other employee benefit
plans qualified under Section 401(a) of the Internal Revenue Code of 1986,
as amended (the "Code"), or custodial accounts held by a bank created
pursuant to Section 403(b) of the Code and sponsored by nonprofit
organizations defined under Section 501(c)(3) of the Code and assets held
by an employer or trustee in connection with an eligible deferred
compensation plan under Section 457 of the Code. Such plans will qualify
for purchases at net asset value provided, for plans initially establishing
accounts with the Distributor in the Participating Funds after February 1,
1997, that (1) the initial amount invested in the Participating Funds is at
least $500,000 or (2) such shares are purchased by an employer sponsored
plan with more than 100 eligible employees. Such plans that have been
established with a Participating Fund or have received proposals from the
Distributor prior to February 1, 1997 based on net asset value purchase
privileges previously in effect will be qualified to purchase shares of the
Participating Funds at net asset value for accounts established on or
before May 1, 1997. Section 403(b) and similar accounts for which Van
Kampen Trust Company serves as custodian will not be eligible for net asset
value purchases based on the aggregate investment made by the plan or the
number of eligible employees, except under certain uniform criteria
established by the Distributor from time to time. Prior to February 1,
1997, a commission will be paid to authorized dealers who initiate and are
responsible for such purchases within a rolling twelve- month period as
follows: 1.00% on sales to $5 million, plus 0.50% on the next $5 million,
plus 0.25% on the excess over $10 million. For purchases on February 1,
1997 and thereafter, a commission will be paid as follows: 1.00% on sales
to $2 million, plus 0.80% on the next $1 million, plus 0.50% on the next
$47 million, plus 0.25% on the excess over $50 million.
(9) Individuals who are members of a "qualified group." For this purpose, a
qualified group is one which (i) has been in existence for more than six
months, (ii) has a purpose other than to acquire shares of the Fund or
similar investments, (iii) has given and continues to give its endorsement
or authorization, on behalf of the group, for purchase of shares of the
Fund and Participating Funds, (iv) has a membership that the authorized
dealer can certify as to the group's members and (v) satisfies other
uniform criteria established by the Distributor for the purpose of
realizing economies of scale in distributing such shares. A qualified group
does not include one whose sole organizational nexus, for example, is that
its participants are credit card holders of the same institution, policy
holders of an insurance company, customers of a bank or broker-dealer,
clients of an investment adviser or other similar groups. Shares purchased
in each group's participants account in connection with this privilege will
be subject to a contingent deferred sales charge of 1.00% in the event of
redemption within one year of purchase, and a commission will be paid to
authorized dealers who initiate and are responsible for such sales to each
individual as follows: 1.00% on sales to $2 million, plus 0.80% on the next
$1 million and 0.50% on the excess over $3 million.
The term "families" includes a person's spouse, children under 21 years of age
and grandchildren, parents, and a person's spouse's parents.
Purchase orders made pursuant to clause (4) may be placed either through
authorized dealers as described above or directly with Investor Services by the
investment adviser, trust company or bank trust department, provided that
Investor Services receives federal funds for the purchase by the close of
business on the next business day following acceptance
22
<PAGE>
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 above on purchases made under options (3) through (9) above. The
Fund may terminate, or amend the terms of, offering shares of the Fund at net
asset value to such groups at any time.
REDEMPTION OF
SHARES
Generally shareholders may redeem for cash some or all of their shares without
charge by the Fund (other than applicable sales charge) at any time. As
described under the heading "Purchase of Shares," redemptions of Class B Shares
and Class C Shares may be subject to a contingent deferred sales charge. In
addition, certain redemptions of Class A Shares for shareholder accounts of $1
million or more may be subject to a contingent deferred sales charge.
Redemptions completed through an authorized dealer or a custodian of a
retirement plan account may involve additional fees charged by the dealer or
custodian.
Except as specified below under "Telephone Redemption Requests," payment for
shares redeemed generally will be made by check mailed within seven days after
receipt by Investor Services of the request and any other necessary documents in
proper form as described below. Such payment may be postponed or the right of
redemption suspended as provided by the rules of the SEC. Such payment may,
under certain circumstances, be paid wholly or in part by a distribution-in-kind
of portfolio securities which may result in brokerage costs and a gain or loss
for federal income tax purposes when such securities are sold. If the shares to
be redeemed have been recently purchased by check, Investor Services may delay
the payment of redemption proceeds until it confirms the purchase check has
cleared, which may take up to 15 days. A taxable gain or loss will be recognized
by the shareholder upon redemption of shares.
WRITTEN REDEMPTION REQUESTS. Shareholders may request a redemption of shares by
written request in proper form sent directly to Van Kampen Investor Services
Inc., PO Box 218256, Kansas City, MO 64121-8256. The request for redemption
should indicate the number of shares to be redeemed, the class designation of
such shares and the shareholder's account number. The redemption request must be
signed by all persons in whose names the shares are registered. Signatures must
conform exactly to the account registration. If the proceeds of the redemption
exceed $50,000, or if the proceeds are not to be paid to the record owner at the
record address, or if the record address has changed within the previous 30
days, signature(s) must be guaranteed by one of the following: a bank or trust
company; a broker-dealer; a credit union; a national securities exchange,
registered securities association or clearing agency; a savings and loan
association; or a federal savings bank.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption to be in proper form. In some
cases, however, additional documents may be necessary. In the case of
shareholders holding certificates, the certificates for the shares being
redeemed properly endorsed for transfer must accompany the redemption request.
In the event the redemption is requested by a corporation, partnership, trust,
fiduciary, executor or administrator, and the name and title of the
individual(s) authorizing such redemption is not shown in the account
registration, a copy of the corporate resolution or other legal documentation
appointing the authorized signer and certified within the prior 120 days must
accompany the redemption request. IRA redemption requests should be sent to the
IRA custodian to be forwarded to Investor Services. Contact the IRA custodian
for further information.
In the case of written redemption requests sent directly to Investor Services,
the redemption price is the net asset value per share next determined after the
request in proper form is received by Investor Services.
AUTHORIZED DEALER REDEMPTION REQUESTS. Shareholders may place redemption
requests through an authorized dealer. Orders sent through authorized
23
<PAGE>
dealers must be at least $500 (unless transmitted by your authorized dealer via
the FUNDSERV network). The redemption price for such shares is the net asset
value per share next calculated after an order in proper form is received by an
authorized dealer provided such order is transmitted to the Distributor prior to
the Distributor's close of business on such day. It is the responsibility of
authorized dealers to transmit redemption requests received by them to the
Distributor so they will be received prior to such time. Redemptions completed
through an authorized dealer may involve additional fees charged by the dealer.
TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. A shareholder
automatically has telephone redemption privileges unless the shareholder
indicates otherwise by checking the applicable box on the application form
accompanying the prospectus. To redeem shares, contact the telephone transaction
line at (800) 421-5684. Van Kampen Investments, Investor Services and the Fund
employ procedures considered by them to be reasonable to confirm that
instructions communicated by telephone are genuine. Such procedures include
requiring certain personal identification information prior to acting upon
telephone instructions, tape-recording telephone communications and providing
written confirmation of instructions communicated by telephone. If reasonable
procedures are employed, none of Van Kampen Investments, Investor Services or
the Fund will be liable for following telephone instructions which it reasonably
believes to be genuine. Telephone redemptions may not be available if the
shareholder cannot reach Investor Services by telephone, whether because all
telephone lines are busy or for any other reason; in such case, a shareholder
would have to use the Fund's other redemption procedure previously described.
Requests received by Investor Services prior to 4:00 p.m., New York time, will
be processed at the next determined net asset value per share. These privileges
are available for all accounts other than retirement accounts or accounts with
shares represented by certificates. If an account has multiple owners, Investor
Services may rely on the instructions of any one owner.
For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check and amounts of at least
$1,000 up to $1 million may be redeemed daily if the proceeds are to be paid by
wire. The proceeds must be payable to the shareholder(s) of record and sent to
the address of record for the account or wired directly to their predesignated
bank account. This privilege is not available if the address of record has been
changed within 30 days prior to a telephone redemption request. Proceeds from
redemptions payable by wire transfer are expected to be wired on the next
business day following the date of redemption. The Fund reserves the right at
any time to terminate, limit or otherwise modify this redemption privilege.
OTHER REDEMPTION INFORMATION. The Fund may redeem shares of any shareholder
account that has a value on the date of the notice of redemption less than the
minimum initial investment as specified in this prospectus. At least 60 days
advance written notice of any such involuntary redemption will be provided to
the shareholder and such shareholder will be given an opportunity to purchase
the required value of additional shares at the next determined net asset value
without sales charge. Any involuntary redemption may only occur if the
shareholder account is less than the minimum initial investment due to
shareholder redemptions.
DISTRIBUTIONS FROM
THE FUND
In addition to any increase in the value of shares which the Fund may achieve,
shareholders may receive distributions from the Fund of dividends and capital
gain dividends.
DIVIDENDS. Dividends from stocks and interest earned from other investments are
the Fund's main sources of income. The Fund's present policy, which may be
changed at any time by the Board of Directors is to distribute all or
substantially all of this income, less expenses, at least annually as dividends
to shareholders. Dividends are automatically applied
24
<PAGE>
to purchase additional shares of the Fund at the next determined net asset value
unless the shareholder instructs otherwise.
The per share dividends on Class B Shares and Class C Shares may be lower than
the per share dividends on Class A Shares as a result of the higher distribution
fees and transfer agency costs applicable to such classes of shares.
CAPITAL GAIN DIVIDENDS. The Fund may realize capital gains or losses when it
sells securities, depending on whether the sales prices for the securities are
higher or lower than purchase prices. Net realized capital gain represents the
total profits from sales of securities minus total losses from sales of
securities (including any losses carried forward from prior years), other than
net short-term capital gain from sales of securities held for one year or less.
The Fund distributes any taxable net realized capital gain to shareholders as
capital gain dividends at least annually. As in the case of dividends, capital
gain dividends are automatically reinvested in additional shares of the Fund at
the next determined net asset value unless the shareholder instructs otherwise.
SHAREHOLDER SERVICES
Listed below are some of the shareholder services the Fund offers to investors.
For a more complete description of the Fund's shareholder services, such as
investment accounts, share certificates, retirement plans, automated clearing
house deposits, dividend diversification and the systematic withdrawal plan,
please refer to the Statement of Additional Information or contact your
authorized dealer.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gain dividends in shares of the
Fund. Such shares are acquired at net asset value per share (without sales
charge) on the applicable payable date of the dividend or capital gain dividend.
Unless the shareholder instructs otherwise, the reinvestment plan is automatic.
This instruction may be made by telephone by calling (800) 341-2911
((800) 421-2833 for the hearing impaired) or by writing to Investor Services.
The investor may, on the initial application or prior to any declaration,
instruct that dividends be paid in cash and capital gain dividends be reinvested
at net asset value, or that both dividends and capital gain dividends be paid in
cash.
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under which
a shareholder can authorize Investor Services to charge a bank account on a
regular basis to invest predetermined amounts in the Fund. Additional
information is available from the Distributor or your authorized dealer.
EXCHANGE PRIVILEGE. Shares of the Fund may be exchanged for shares of the same
class of any Participating Fund based on the next computed net asset value per
share of each fund after requesting the exchange without any sales charge,
subject to certain limitations. Shares of the Fund may be exchanged for shares
of any Participating Fund only if shares of that Participating Fund are
available for sale; however, during periods of suspension of sales, shares of a
Participating Fund may be available for sale only to existing shareholders of a
Participating Fund. Shareholders seeking an exchange into a Participating Fund
should obtain and read the current prospectus for such fund prior to
implementing an exchange. A prospectus of any of the Participating Funds may be
obtained from any authorized dealer or the Distributor.
To be eligible for exchange, shares of the Fund must have been registered in the
shareholder's name for at least 30 days prior to an exchange. Shares of the Fund
registered in a shareholder's name for less than 30 days may only be exchanged
upon receipt of prior approval of the Adviser. It is the policy of the Adviser,
under normal circumstances, not to approve such requests.
When shares that are subject to a contingent deferred sales charge are exchanged
among Participating Funds, the holding period for purposes of computing the
contingent deferred sales charge is based upon the date of the initial purchase
of such shares from a Participating Fund. When such shares are redeemed and not
exchanged for shares of another Participating Fund, the shares are subject to
the contingent deferred sales charge schedule
25
<PAGE>
imposed by the Participating Fund from which such shares were originally
purchased.
Exchanges of shares are sales of one Participating Fund and purchases of another
Participating Fund. The sale may result in a gain or loss for federal income tax
purposes. If the shares sold have been held for less than 91 days, the sales
charge paid on such shares is carried over and included in the tax basis of the
shares acquired.
A shareholder wishing to make an exchange may do so by sending a written request
to Investor Services or by contacting the telephone transaction line at
(800) 421-5684. A shareholder automatically has telephone exchange privileges
unless the shareholder indicates otherwise by checking the applicable box on the
application form accompanying the prospectus. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated by telephone are genuine. Such procedures
include requiring certain personal identification information prior to acting
upon telephone instructions, tape-recording telephone communications, and
providing written confirmation of instructions communicated by telephone. If
reasonable procedures are employed, none of Van Kampen Investments, Investor
Services or the Fund will be liable for following telephone instructions which
it reasonably believes to be genuine. If the exchanging shareholder does not
have an account in the fund whose shares are being acquired, a new account will
be established with the same registration, dividend and capital gain dividend
options (except dividend diversification) and authorized dealer of record as the
account from which shares are exchanged, unless otherwise specified by the
shareholder. In order to establish a systematic withdrawal plan for the new
account or reinvest dividends from the new account into another fund, however,
an exchanging shareholder must submit a specific request. The Fund reserves the
right to reject any order to acquire its shares through exchange. In addition,
the Fund and other Participating Funds may restrict exchanges by shareholders
engaged in excessive trading by limiting or disallowing the exchange privileges
to such shareholders. For further information on these restrictions see the
Statement of Additional Information. The Fund may modify, restrict or terminate
the exchange privilege at any time on 60 days' notice to its shareholders of any
termination or material amendment.
For purposes of determining the sales charge rate previously paid on Class A
Shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchanged security was acquired through reinvestment, that
security is deemed to have been sold with a sales charge rate equal to the rate
previously paid on the security on which the dividend or distribution was paid.
If a shareholder exchanges less than all of such shareholder's securities, the
security upon which the highest sales charge rate was previously paid is deemed
exchanged first.
Exchange requests received on a business day prior to the time shares of the
funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares of the fund which the
shareholder is redeeming will be redeemed at the net asset value per share next
determined on the date of receipt. Shares of the new fund that the shareholder
is purchasing will also normally be purchased at the net asset value per share,
plus any applicable sales charge, next determined on the date of receipt.
Exchange requests received on a business day after the time shares of the funds
involved in the request are priced will be processed on the next business day in
the manner described herein.
INTERNET TRANSACTIONS. In addition to performing transactions on your account
through written instruction or by telephone, you may also perform certain
transactions through the internet. Please refer to our web site at
www.vankampen.com for further instruction. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated through the internet are genuine. Such
procedures include requiring use of a personal identification number prior to
acting upon internet instructions and providing written confirmation of
instructions communicated through the internet. If reasonable procedures are
employed, none of Van Kampen Investments, Investor Services or the Fund will be
liable for following instructions received
26
<PAGE>
through the internet which it reasonably believes to be genuine. If an account
has multiple owners, Investor Services may rely on the instructions of any one
owner.
FEDERAL INCOME
TAXATION
Distributions of the Fund's net investment income (consisting generally of
taxable income and net short-term capital gain) are taxable to shareholders as
ordinary income to the extent of the Fund's earnings and profits, whether paid
in cash or reinvested in additional shares. Distributions of the Fund's net
realized capital gain (which is the excess of net long-term capital gain over
net short-term capital loss) as capital gain dividends, if any, are taxable to
shareholders as long-term capital gains, whether paid in cash or reinvested in
additional shares, and regardless of how long the shares of the Fund have been
held by such shareholders. The Fund expects that its distributions will consist
primarily of ordinary income and capital gain dividends. Distributions in excess
of the Fund's earnings and profits will first reduce the adjusted tax basis of a
holder's shares and, after such adjusted tax basis is reduced to zero, will
constitute capital gains to such holder (assuming such shares are held as a
capital asset). Although distributions generally are treated as taxable in the
year they are paid, distributions declared in October, November or December,
payable to shareholders of record on a specified date in such month and paid
during January of the following year will be treated as having been distributed
by the Fund and received by the shareholders on the December 31st prior to the
date of payment. The Fund will inform shareholders of the source and tax status
of all distributions promptly after the close of each calendar year.
The sale or exchange of shares is a taxable transaction for federal income tax
purposes. Shareholders who sell their shares will generally recognize gain or
loss in an amount equal to the difference between their adjusted tax basis in
the shares sold and the amount received. If the shares are held as a capital
asset, the gain or loss will be a capital gain or loss. Any capital gains may be
taxed at different rates depending on how long the shareholder held such shares.
The Fund is required, in certain circumstances, to withhold 31% of dividends and
certain other payments, including redemptions, paid to shareholders who do not
furnish to the Fund their correct taxpayer identification number (in the case of
individuals, their social security number) and certain required certifications
or who are otherwise subject to backup withholding.
Foreign shareholders, including shareholders who are non-resident aliens, may be
subject to U.S. withholding tax on certain distributions (whether received in
cash or in shares) at a rate of 30% or such lower rate as prescribed by an
applicable treaty. Accordingly, investment in the Fund is likely to be
appropriate for a foreign shareholder only if such person can utilize a foreign
tax credit or corresponding tax benefit in respect of such U.S. withholding tax.
Prospective foreign investors should consult their tax advisers concerning the
tax consequences to them of an investment in shares.
The Fund intends to qualify as a regulated investment company under federal
income tax law. If the Fund so qualifies and distributes each year to its
shareholders at least 90% of its net investment income, the Fund will not be
required to pay federal income taxes on any income it distributes to
shareholders. If the Fund distributes less than an amount equal to the sum of
98% of its ordinary income and 98% of its capital gain net income, then the Fund
will be subject to a 4% excise tax on the undistributed amounts.
The federal income tax discussion set forth above is for general information
only. Prospective investors should consult their own tax advisers regarding the
specific federal tax consequences of purchasing, holding, disposing, exchanging
or selling of shares, as well as the effects of state, local and foreign tax law
and any proposed tax law changes.
27
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the periods indicated. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report, along with the Fund's financial statements, is
included in the Statement of Additional Information and may be obtained by
shareholders without charge by calling the telephone number on the back cover of
this prospectus. This information should be read in conjunction with the
financial statements and notes thereto included in the Statement of Additional
Information.
<TABLE>
<CAPTION>
CLASS A SHARES
YEAR ENDED JUNE 30,
1999# 1998# 1997 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period...... $ 6.529 $ 16.62 $ 17.15 $ 16.42 $ 15.50
------- -------- -------- -------- --------
Income From Investment
Operations
Net Investment
Income/Loss............ 0.022 (0.04) (0.06) (0.04) --
Net Realized and
Unrealized Gain/Loss... 4.933 (10.03) (0.14) 0.77 1.43
------- -------- -------- -------- --------
Total From Investment
Operations............... 4.955 (10.07) (0.20) 0.73 1.43
------- -------- -------- -------- --------
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................... $11.484 $ 6.53 $ 16.62 $ 17.15 $ 16.42
======= ======== ======== ======== ========
Total Return (1)......... 75.69% (60.57)% (1.10)% 4.45% 9.50%
======= ======== ======== ======== ========
Ratios and Supplemental
Data
Net Assets, End of Period
(000's).................. $88,808 $ 47,128 $175,440 $248,009 $178,667
Ratio of Expenses to
Average Net Assets....... 1.95% 1.90% 1.84% 1.88% 1.90%
Ratio of Net Investment
Income/Loss to Average
Net Assets............... 0.28% (0.39)% (0.31)% (0.16)% 0.04%
Portfolio Turnover
Rate..................... 138% 130% 74% 38% 34%
- ----------------------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation During
the Period
Per Share Benefit to
Net Investment
Income/Loss............ $ 0.01 $ 0.01 $ -- $ -- $ --
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets................. 2.03% 2.21% -- -- --
Net Investment
Income/Loss to Average
Net Assets............. 0.20% (0.53)% -- -- --
Ratio of Net Expenses to
Average Net Assets
excluding country tax
expense and interest
expense.................. 1.90% 1.90% -- -- --
- ----------------------------------------------------------------------------------------
<CAPTION>
CLASS B SHARES
YEAR ENDED JUNE 30,
AUGUST 1, 1995+
1999# 1998# 1997 TO JUNE 30, 1996
- ------------------------- ------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period...... $ 6.306 $ 16.17 $ 16.81 $ 16.51
------- -------- ------- -------
Income From Investment
Operations
Net Investment
Income/Loss............ (0.033) (0.10) (0.16) (0.03)
Net Realized and
Unrealized Gain/Loss... 4.734 (9.74) (0.15) 0.33
------- -------- ------- -------
Total From Investment
Operations............... 4.701 (9.84) (0.31) 0.30
------- -------- ------- -------
Distributions
Net Realized Gain...... -- -- (0.33) --
In Excess of Net
Realized Gain.......... -- (0.02) -- --
------- -------- ------- -------
Total Distributions...... -- (0.02) (0.33) --
------- -------- ------- -------
Net Asset Value, End of
Period................... $11.007 $ 6.31 $ 16.17 $ 16.81
======= ======== ======= =======
Total Return (1)......... 74.48% (60.89)% (1.79)% 1.82%*
======= ======== ======= =======
Ratios and Supplemental
Data
Net Assets, End of Period
(000's).................. $42,905 $ 26,126 $62,786 $52,853
Ratio of Expenses to
Average Net Assets....... 2.70% 2.65% 2.59% 2.61%
Ratio of Net Investment
Income/Loss to Average
Net Assets............... (0.44)% (1.01)% (1.04)% (0.52)%
Portfolio Turnover
Rate..................... 138% 130% 74% 38%*
- -------------------------
Effect of Voluntary
Expense Limitation During
the Period
Per Share Benefit to
Net Investment
Income/Loss............ $ 0.01 $ 0.02 $ -- $ --
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets................. 2.78% 2.96% -- --
Net Investment
Income/Loss to Average
Net Assets............. (0.52)% (1.15)% -- --
Ratio of Net Expenses to
Average Net Assets
excluding country tax
expense and interest
expense.................. 2.65% 2.65% -- --
- -------------------------
<CAPTION>
CLASS C SHARES
YEAR ENDED DECEMBER 31,
1999# 1998# 1997 1996 1995
- ------------------------- -------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period...... $ 6.290 $ 16.14 $ 16.78 $ 16.19 $ 15.40
------- -------- -------- -------- --------
Income From Investment
Operations
Net Investment
Income/Loss............ (0.035) (0.12) (0.21) (0.13) (0.12)
Net Realized and
Unrealized Gain/Loss... 4.718 (9.71) (0.10) 0.72 1.42
------- -------- -------- -------- --------
Total From Investment
Operations............... 4.683 (9.83) (0.31) 0.59 1.30
------- -------- -------- -------- --------
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................... $10.973 $ 6.29 $ 16.14 $ 16.78 $ 16.19
======= ======== ======== ======== ========
Total Return (1)......... 74.13% (60.88)% (1.79)% 3.64% 8.71%
======= ======== ======== ======== ========
Ratios and Supplemental
Data
Net Assets, End of Period
(000's).................. $40,706 $ 28,823 $114,460 $168,070 $139,497
Ratio of Expenses to
Average Net Assets....... 2.70% 2.65% 2.59% 2.63% 2.63%
Ratio of Net Investment
Income/Loss to Average
Net Assets............... (0.48)% (1.17)% (1.06)% (0.94)% (0.77)%
Portfolio Turnover
Rate..................... 138% 130% 74% 38% 34%
- -------------------------
Effect of Voluntary
Expense Limitation During
the Period
Per Share Benefit to
Net Investment
Income/Loss............ $ 0.01 $ 0.01 $ -- $ -- $ --
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets................. 2.78% 2.96% -- -- --
Net Investment
Income/Loss to Average
Net Assets............. (0.56)% (1.31)% -- -- --
Ratio of Net Expenses to
Average Net Assets
excluding country tax
expense and interest
expense.................. 2.65% 2.65% -- -- --
- -------------------------
</TABLE>
* NON-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.
# CHANGES PER SHARE ARE BASED UPON MONTHLY AVERAGE SHARES OUTSTANDING.
28
<PAGE>
BOARD OF DIRECTORS
AND OFFICERS
BOARD OF DIRECTORS
J. Miles Branagan Don G. Powell*
Jerry D. Choate Phillip B. Rooney
Richard M. DeMartini* Fernando Sisto
Linda Hutton Heagy Wayne W. Whalen*
R. Craig Kennedy Suzanne H. Woolsey
Jack E. Nelson Paul G. Yovovich
OFFICERS
Richard F. Powers, III*
PRESIDENT
Dennis J. McDonnell*
EXECUTIVE VICE PRESIDENT & CHIEF INVESTMENT OFFICER
A. Thomas Smith III*
VICE PRESIDENT AND SECRETARY
Edward C. Wood III*
VICE PRESIDENT
Michael H. Santo*
VICE PRESIDENT
Peter W. Hegel*
VICE PRESIDENT
Stephen L. Boyd*
VICE PRESIDENT
Joseph P. Stadler*
VICE PRESIDENT
John L. Sullivan*
VICE PRESIDENT, CHIEF FINANCIAL OFFICER & TREASURER
Curtis W. Morell*
VICE PRESIDENT & CHIEF ACCOUNTING OFFICER
Tanya M. Loden*
CONTROLLER
* "Interested Persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE
INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2911
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders, or
redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call
(800) 421-2833
FUNDINFO-REGISTERED TRADEMARK-
For automated telephone services, call (800) 847-2424
WEB SITE
www.vankampen.com
VAN KAMPEN ASIAN GROWTH FUND
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
INVESTMENT ADVISER AND ADMINISTRATOR
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
INVESTMENT SUBADVISER
MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC.
1221 Avenue of the Americas
New York, NY 10020
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
TRANSFER AGENT
VAN KAMPEN INVESTOR SERVICES INC.
PO Box 218256
Kansas City, MO 64121-8256
Attn: Van Kampen Asian Growth Fund
CUSTODIAN
THE CHASE MANHATTAN BANK
3 MetroTech Center
Brooklyn, NY 11245
Attn: Van Kampen Asian Growth Fund
LEGAL COUNSEL
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
INDEPENDENT ACCOUNTANTS
PRICEWATERHOUSECOOPERS LLP
200 East Randolph Drive
Chicago, IL 60601
<PAGE>
VAN KAMPEN
ASIAN GROWTH FUND
PROSPECTUS
OCTOBER 28, 1999
A Statement of Additional Information, which contains more details about the
Fund, is incorporated by reference in its entirety into this prospectus.
You will find additional information about the Fund in its annual and semiannual
reports to shareholders. The annual report explains the market conditions and
investment strategies affecting the Fund's performance during its last fiscal
year.
You can ask questions or obtain a free copy of the Fund's reports or its
Statement of Additional Information by calling (800) 341-2911 from 7:00 a.m. to
7:00 p.m., Central time, Monday through Friday. Telecommunications Device for
the Deaf users may call (800) 421-2833. A free copy of the Fund's reports can
also be ordered from our web site at www.vankampen.com.
Information about the Fund, including its reports and Statement of Additional
Information, has been filed with the Securities and Exchange Commission (SEC).
It can be reviewed and copied at the SEC's Public Reference Room in Washington,
DC or on the EDGAR Database on the SEC's internet site (http://www.sec.gov).
Information on the operation of the SEC's Public Reference Room may be obtained
by calling the SEC at 1-202-942-8090. You can also request copies of these
materials, upon payment of a duplicating fee, by electronic request at the SEC's
e-mail address ([email protected]), or by writing the Public Reference Section
of the SEC, Washington, DC, 20549-0102.
[LOGO]
THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-7140.
MSAG PRO 10/99
<PAGE>
VAN KAMPEN
EMERGING MARKETS
DEBT FUND
Van Kampen Emerging Markets Debt Fund is a mutual fund with an investment
objective to seek high total return. The Fund's investment adviser seeks to
achieve the Fund's investment objective by investing primarily in a portfolio of
debt securities of government, government-related and corporate issuers located
in emerging market countries.
Shares of the Fund have not been approved or disapproved by the Securities and
Exchange Commission (SEC) or any state regulator, and neither the SEC nor any
state regulator has passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
THIS PROSPECTUS IS DATED OCTOBER 28, 1999.
[LOGO]
<PAGE>
TABLE OF CONTENTS
Risk/Return Summary .....................................................3
Fees and Expenses of the Fund ...........................................5
Investment Objective, Policies and Risks ................................6
Investment Advisory Services ...........................................18
Purchase of Shares .....................................................19
Redemption of Shares ...................................................27
Distributions from the Fund ............................................28
Shareholder Services ...................................................29
Federal Income Taxation ................................................31
Appendix--Description of Securities Ratings ...........................A-1
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations, other than those contained in this
prospectus, in connection with the offer contained in this prospectus and, if
given or made, such other information or representations must not be relied upon
as having been authorized by the Fund, the Fund's investment adviser or the
Fund's distributor. This prospectus does not constitute an offer by the Fund or
by the Fund's distributor to sell or a solicitation of an offer to buy any of
the securities offered hereby in any jurisdiction to any person to whom it is
unlawful for the Fund to make such an offer in such jurisdiction.
<PAGE>
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The Fund is a mutual fund with an investment objective to seek high total
return.
INVESTMENT STRATEGIES
Under normal market conditions, the Fund's investment adviser seeks to achieve
the Fund's investment objective by investing primarily in a portfolio of debt
securities of government, government-related and corporate issuers located in
emerging market countries. Under normal market conditions, the Fund invests at
least 65% of the Fund's total assets in debt securities of government and
government-related issuers in emerging market countries (including loans and
loan participations between governments and financial institutions) and of
entities organized to restructure outstanding debt of such issuers. Under normal
market conditions, 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 market countries.
The Fund buys and sells securities to seek high total return through a portfolio
of emerging market countries debt that offers a low correlation to many other
asset classes. Using macroeconomic and fundamental analysis, the Fund's
investment adviser seeks to identify developing or emerging market countries
that are undervalued and have attractive or improving fundamentals. After the
country allocations are determined, the Fund's investment adviser makes sector
and security selections within each country.
A significant portion of the Fund's total assets will be invested in securities
rated lower-grade or unrated debt securities of comparable quality, commonly
known as "junk bonds" (see sidebar for an explanation of quality ratings). The
Fund's investments in securities of emerging market countries and lower-grade
securities involve greater risks as compared to investments in developed
countries or higher-grade securities. The Fund may purchase and sell securities
on a when-issued or delayed delivery basis. The Fund may purchase and sell
certain derivative instruments (such as options, futures and options on futures,
currency-related transactions involving options, futures and forward contracts,
and interest rate swaps or other interest rate-related transactions) for various
portfolio management purposes.
UNDERSTANDING
QUALITY RATINGS
Debt securities ratings are based on the issuer's ability to pay interest
and repay the principal. Securities with ratings above the line are
considered "investment-grade," while those with ratings below the line are
regarded as "noninvestment grade," or "junk bonds." A detailed explanation
of these ratings can be found in the appendix to this prospectus.
<TABLE>
<CAPTION>
<C> <S> <C>
S&P MOODY'S MEANING
- ----------------------------------------------------------------------------
AAA Aaa Highest quality
...........................................................................
AA Aa High quality
...........................................................................
A A Above-average quality
...........................................................................
BBB Baa Average quality
- ----------------------------------------------------------------------------
BB Ba Below-average quality
...........................................................................
B B Marginal quality
...........................................................................
CCC Caa Poor quality
...........................................................................
CC Ca Highly speculative
...........................................................................
C C Lowest quality
...........................................................................
D -- In default
...........................................................................
</TABLE>
INVESTMENT RISKS
An investment in the Fund is subject to investment risks, and you could lose
money on your investment in the Fund. There can be no assurance that the Fund
will achieve its investment objective.
EMERGING MARKET COUNTRIES RISKS. Because the Fund owns securities of foreign
issuers, it is subject to risks not usually associated with owning securities of
U.S. issuers. These risks can include fluctuations in foreign currencies,
foreign currency exchange controls, political and economic instability,
differences in financial reporting, differences in securities regulation and
trading and foreign taxation issues. The risks of investing in emerging market
countries are greater than the risks generally associated with foreign
investments, including investment and trading limitations, greater credit and
liquidity concerns, greater political uncertainties, an economy's dependence on
international trade or development assistance, greater foreign currency exchange
risks and currency transfer restrictions, greater delays and disruptions in
settlement transactions and greater risks associated
3
<PAGE>
with computer programs and the Year 2000 problem. To the extent the Fund focuses
its assets in a single country or region, its portfolio would be more
susceptible to factors adversely affecting issuers in that country or region.
CREDIT RISK. Credit risk refers to an issuer's ability to make timely payments
of interest and principal. Because a significant portion of the Fund's total
assets will be invested in lower-grade securities, the Fund is subject to a
higher level of credit risk than a fund that buys only investment-grade
securities. The credit quality of "noninvestment-grade" securities is considered
speculative by recognized rating agencies with respect to the issuer's
continuing ability to pay interest and principal. Lower-grade securities may
have less liquidity and a higher incidence of default than higher-grade
securities. The Fund may incur higher expenditures to protect the Fund's
interest in such securities. The credit risks and market prices of lower-grade
securities generally are more sensitive to negative issuer developments, such as
reduced revenues or increased expenditures, or adverse economic conditions, such
as a recession, than are higher-grade securities.
MARKET RISK. Market risk is the possibility that the market values of securities
owned by the Fund will decline. The prices of debt securities tend to fall as
interest rates rise, and such declines tend to be greater among debt securities
with longer maturities. The Fund has no policy limiting the maturities of its
investments. To the extent that the Fund owns securities with longer maturities,
the Fund will be subject to greater market risk than a fund that owns shorter-
term securities. Lower-grade securities, especially those with longer maturities
or those that do not make regular interest payments, may be more volatile and
may decline more in response to negative issuer or general economic news than
higher-grade securities. Foreign markets may, but often do not, move in tandem
with U.S. markets, and foreign markets, particularly emerging market countries,
may be more volatile than U.S. markets.
Market risk is often greater among certain types of debt securities, such as
zero-coupon bonds or pay-in-kind securities. As interest rates change, these
securities often fluctuate more in price than traditional debt securities and
may subject the Fund to greater market risk than a fund that does not own these
types of securities.
When-issued and delayed delivery transactions are subject to changes in market
conditions from the time of the commitment until settlement. This may adversely
affect the prices or yields of the securities being purchased, as well as any
portfolio securities held for payment of such commitments. The greater the
Fund's outstanding commitments for these securities, the greater the Fund's
exposure to market price fluctuation.
INCOME RISK. The income you receive from the Fund is based primarily on interest
rates, which can vary widely over the short- and long-term. If interest rates
drop, your income from the Fund may drop as well.
CALL RISK. If interest rates fall, it is possible that issuers of debt
securities with high interest rates will prepay or "call" their securities
before their maturity dates. In this event, the proceeds from the called
securities would most likely be reinvested by the Fund in securities bearing the
new, lower interest rates, resulting in a possible decline in the Fund's income
and distributions to shareholders.
RISKS OF USING DERIVATIVE INVESTMENTS. In general terms, a derivative investment
is one whose value depends on (or is derived from) the value of an underlying
asset, interest rate or index. Options, futures and options on futures,
currency-related transactions involving options, futures and forward contracts,
and interest rate swaps or other interest rate-related transactions are examples
of derivatives. Derivative investments involve risks different from direct
investment in underlying securities. These risks include imperfect correlation
between the value of the instruments and the underlying assets; risks of default
by the other party to certain transactions; risks that the transactions may
result in losses that partially or completely offset gains in portfolio
positions; risks that the transactions may not be liquid; and manager risk.
NON-DIVERSIFICATION RISKS. The Fund is classified as a "non-diversified" fund,
which means the Fund may invest a greater portion of its assets in a more
limited number of issuers than a "diversified" fund. As a result, the Fund may
be subject to greater risk than a diversified fund because changes in the
financial condition or market assessment of a single issuer may cause greater
fluctuations in the value of the Fund's shares.
4
<PAGE>
MANAGER RISK. As with any managed fund, the Fund's investment adviser may not be
successful in selecting the best-performing securities or investment techniques
and the Fund's performance may lag behind that of similar funds.
INVESTOR PROFILE
In light of the Fund's investment objective and strategies, the Fund may be
appropriate for investors who:
- - Seek a high level of current income while at the same time seek the potential
for capital appreciation
- - Are willing to take on the increased risks associated with investing in
emerging market countries securities and lower-grade debt securities in
exchange for potentially higher total return
- - Can withstand volatility in the value of their Fund shares
- - Wish to add to their investment portfolio a fund that invests primarily in
debt securities of government, government-related and corporate issuers in
emerging market countries
An investment in the Fund is not a deposit of any bank or other insured
depository institution. Your investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
An investment in the Fund may not be appropriate for all investors. The Fund is
not intended to be a complete investment program, and investors should consider
their long-term investment goals and financial needs when making an investment
decision about the Fund. An investment in the Fund is intended to be a long-term
investment, and the Fund should not be used as a trading vehicle.
FEES AND EXPENSES
OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
- ----------------------------------------------------------------
Maximum sales charge
(load) imposed on
purchases (as a
percentage of offering
price) 4.75%(1) None None
...............................................................
Maximum deferred sales
charge (load) (as a
percentage of the
lesser of original
purchase price or
redemption proceeds) None(2) 4.00%(3) 1.00%(4)
...............................................................
Maximum sales charge
(load) imposed on
reinvested dividends None None None
...............................................................
Redemption fees None None None
...............................................................
Exchange fee None None None
...............................................................
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------
Management Fees 1.25% 1.25% 1.25%
...........................................................
Distribution and/or
Service (12b-1)
Fees(5) 0.25% 1.00%(6) 1.00%(6)
...........................................................
Other Expenses(7) 0.55% 0.55% 0.55%
...........................................................
Total Annual Fund
Operating Expenses 2.05% 2.80% 2.80%
...........................................................
</TABLE>
(1) REDUCED FOR PURCHASES OF $100,000 AND OVER. SEE "PURCHASE OF SHARES --
CLASS A SHARES."
(2) INVESTMENTS OF $1 MILLION OR MORE ARE NOT SUBJECT TO ANY SALES CHARGE
AT THE TIME OF PURCHASE, BUT A DEFERRED SALES CHARGE OF 1.00% MAY BE
IMPOSED ON CERTAIN REDEMPTIONS MADE WITHIN ONE YEAR OF THE PURCHASE.
SEE "PURCHASE OF SHARES -- CLASS A SHARES."
(3) THE MAXIMUM DEFERRED SALES CHARGE IS 4.00% IN THE FIRST AND SECOND
YEAR AFTER PURCHASE, DECLINING THEREAFTER AS FOLLOWS:
YEAR 1-4.00%
YEAR 2-4.00%
YEAR 3-3.00%
YEAR 4-2.50%
YEAR 5-1.50%
AFTER-NONE
SEE "PURCHASE OF SHARES -- CLASS B SHARES."
(4) THE MAXIMUM DEFERRED SALES CHARGE IS 1.00% IN THE FIRST YEAR AFTER
PURCHASE AND 0.00% THEREAFTER. SEE "PURCHASE OF SHARES -- CLASS C
SHARES."
(5) CLASS A SHARES ARE SUBJECT TO AN ANNUAL SERVICE FEE OF UP TO 0.25% OF
THE AVERAGE DAILY NET ASSETS ATTRIBUTABLE TO SUCH CLASS OF SHARES.
CLASS B SHARES AND CLASS C SHARES ARE EACH SUBJECT TO A COMBINED
ANNUAL DISTRIBUTION AND SERVICE FEE OF UP TO 1.00% OF THE AVERAGE
DAILY NET ASSETS ATTRIBUTABLE TO SUCH CLASS OF SHARES. SEE "PURCHASE
OF SHARES."
(6) BECAUSE DISTRIBUTION AND/OR SERVICE (12b-1) FEES ARE PAID OUT OF THE
FUND'S ASSETS ON AN ONGOING BASIS, OVER TIME THESE FEES WILL INCREASE
THE COST OF YOUR INVESTMENT AND MAY COST YOU MORE THAN PAYING OTHER
TYPES OF SALES CHARGES.
(7) "OTHER EXPENSES" ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT FISCAL
YEAR.
5
<PAGE>
EXAMPLE:
The following example is intended to help you compare the cost of investing in
the Fund with the costs of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same each year. Although your actual costs
may be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
ONE THREE
YEAR YEARS
- -------------------------------------------------
<S> <C> <C>
Class A Shares $673 $1,087
................................................
Class B Shares $683 $1,168
................................................
Class C Shares $383 $ 868
................................................
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
ONE THREE
YEAR YEARS
- -------------------------------------------------
<S> <C> <C>
Class A Shares $673 $1,087
................................................
Class B Shares $283 $ 868
................................................
Class C Shares $283 $ 868
................................................
</TABLE>
Because the 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.
INVESTMENT OBJECTIVE,
POLICIES AND RISKS
The Fund's investment objective is to seek high total return. The Fund's
investment objective is a fundamental policy and may not be changed without the
approval of a majority of shareholders of the Fund's outstanding voting
securities, as defined in the Investment Company Act of 1940, as amended (the
"1940 Act"). There are risks inherent in all investments in securities;
accordingly there can be no assurance that the Fund will achieve its investment
objective.
Under normal market conditions, the Fund's investment adviser seeks to achieve
the Fund's investment objective by investing primarily in a portfolio of debt
securities of government, government-related and corporate issuers located in
emerging market countries. Under normal market conditions, the Fund invests at
least 65% of the Fund's total assets in debt securities of government and
government-related issuers in emerging market countries (including loans and
loan participations between governments and financial institutions) and of
entities organized to restructure outstanding debt of such issuers. Under normal
market conditions, 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 market countries.
As used in this Prospectus, the term "emerging market country" applies to any
country which, in the opinion of the Fund's investment 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 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 loans and loan participations 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.
The Fund's investment adviser seeks high total return by investing in a
portfolio of emerging market debt that offers low correlation to many other
asset classes. Using macroeconmic and fundamental analysis the Fund's investment
adviser seeks to identify developing or emerging market countries that are
6
<PAGE>
undervalued and have attractive or improving fundamentals. After the country
allocations are determined, the sector and security selections are made within
each country.
The Fund's investment adviser global allocation team analyzes the global
economic environment and its impact on emerging market countries. The Fund's
investment adviser focuses on investing in countries that show signs of positive
fundamental change. This analysis considers macroeconmic factors, such as GDP
growth, inflation, monetary policy, fiscal policy and interest rates and
sociopolitical factors, such as political risk, leadership, social stability and
commitment to reform. In selecting securities, the Fund's investment adviser
first examines yield curves with respect to a country and then considers
instrument-specific criteria, including (i) spread duration; (ii) real interest
rates; and (iii) liquidity. The Fund's holdings may range in maturity from
overnight to 30 years or more and will not be subject to any minimum credit
rating standard.
The Fund's investment adviser intends to invest the Fund's assets in emerging
market 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 credit-worthiness 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. Currently, investing in
certain emerging market country securities is not feasible or may involve
unacceptable political risks; the Fund's investment adviser monitors such
countries and may invest in such emerging market countries as conditions
improve. 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 market country debt securities in which the Fund
may invest generally are subject to higher risks than investments in domestic
securities or securities of developed markets. See "Risks of Investing in
Securities of Foreign Issuers" below.
The Fund may invest in debt securities of any maturity and denominated in any
currency. The types of debt securities in which the Fund may invest include, but
are not limited to, the following: fixed or variable rate bonds, notes, bills or
debentures; mortgage-backed and asset-backed securities; discount, zero coupon
or payment-in-kind securities; convertible securities; warrants; bank debt
obligations; short-term commercial paper; loans, loan participations and
assignments; assignments and interests issued by entities organized and operated
for the purpose of restructuring the investment characteristics of other debt
securities; and securities whose principal or interest payments are indexed to
changes in the values of currencies, interest rates, commodities or an index.
The value of debt securities generally varies inversely with changes in
prevailing interest rates. If interest rates rise, debt security prices
generally fall; if interest rates fall, debt security prices generally rise.
Shorter-term securities are generally less sensitive to interest rate changes
than longer-term securities; thus, for a given change in interest rates, the
market prices of shorter-maturity debt securities generally fluctuate less than
the market prices of longer-maturity debt securities. Debt securities with
shorter maturities generally offer lesser yields than debt securities with
longer maturities assuming all other factors, including credit quality, being
equal. The Fund has no policy limiting the maturities of the individual debt
securities in which it may invest.
Credit risk refers to an issuer's ability to make timely payments of interest
and principal. Under normal market conditions, the Fund invests primarily in
lower-grade debt securities. The Fund may purchase unrated lower-grade
securities and rated lower-grade securities with no minimum quality standard
limitation, including securities that are in default. Lower-grade securities
tend to offer higher yields than higher-grade securities with the same
maturities, but generally involve greater risks of default and of volatility in
price than higher-grade securities. Rated lower-grade securities are regarded by
recognized rating organizations as predominantly speculative with respect to the
issuer's continuing ability to pay interest and principal. Ratings agencies
assign ratings based upon their opinions of the quality of the debt securities
they undertake to rate, but they do not
7
<PAGE>
base their assessment the market value risk of such securities. It should be
emphasized that ratings are general and are not absolute standards of quality.
Many foreign securities, and particularly securities of issuers from emerging
market countries, may not be rated for creditworthiness by any recognized rating
organization. See "Risks of Investing in Lower-Grade Securities" below.
Certain types of debt securities are subject to additional market, credit or
other risks not associated with traditional debt securities, see "Additional
Information Regarding Certain Debt Securities" below.
RISKS OF INVESTING
IN SECURITIES OF FOREIGN ISSUERS
The Fund invests in securities of foreign issuers. Such securities may be
denominated in U.S. dollars and in currencies other than U.S. dollars. The
percentage of assets invested in securities of a particular country or
denominated in a particular currency will vary in accordance with the investment
adviser's assessment of the relative yield, appreciation potential and the
relationship of a country's currency to the U.S. dollar, which is based upon
such factors as fundamental economic strength, credit quality and interest rate
trends. Investments in foreign securities present certain risks not ordinarily
associated with investments in securities of U.S. issuers. These risks include
fluctuations in foreign currency exchange rates, political, economic or legal
developments (including war or other instability, expropriation of assets,
nationalization and confiscatory taxation), the imposition of foreign exchange
limitations (including currency blockage), withholding taxes on dividend or
interest payments or capital transactions or other restrictions, higher
transaction costs (including higher brokerage, custodial and settlement costs
and currency translation costs) and possible difficulty in enforcing contractual
obligations or taking judicial action. Also, foreign securities may not be as
liquid and may be more volatile than comparable domestic securities.
In addition, there often is less publicly available information about many
foreign issuers, and issuers of foreign securities are subject to different,
often less comprehensive, auditing, accounting, financial reporting and
disclosure requirements than domestic issuers. There is generally less
government regulation of stock exchanges, brokers and listed companies abroad
than in the U.S., and, with respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investment in those countries. Because there is
usually less supervision and governmental regulation of exchanges, brokers and
dealers than there is in the U.S., the Fund may experience settlement
difficulties or delays not usually encountered in the U.S.
Delays in making trades in foreign securities relating to volume constraints,
limitations or restrictions, clearance or settlement procedures, or otherwise
could impact yields and result in temporary periods when assets are not fully
invested or attractive investment opportunities are foregone.
In addition to the increased risks of investing in foreign securities, there are
often increased transactions costs associated with investing in foreign
securities including the costs incurred in connection with converting
currencies, higher foreign brokerage or dealer costs, and higher settlement
costs or custodial costs.
Since the Fund invests in securities denominated or quoted in currencies other
than the U.S. dollar, the Fund will be affected by changes in foreign currency
exchange rates (and exchange control regulations) which affect the value of
investments in the Fund and the accrued income and unrealized appreciation or
depreciation of the investments. Changes in foreign currency exchange ratios
relative to the U.S. dollar will affect the U.S. dollar value of the Fund's
assets denominated in that currency and the Fund's return on such assets as well
as any temporary uninvested reserves in bank deposits in foreign currencies. In
addition, the Fund will incur costs in connection with conversions between
various currencies.
The Fund may purchase and sell foreign currency on a spot basis in connection
with the settlement of transactions in securities traded in such foreign
currency. The Fund also may enter into contracts with banks, brokers or dealers
to purchase or sell securities or foreign currencies at a future date ("forward
contracts"). A foreign currency forward contract is a
8
<PAGE>
negotiated agreement between the contracting parties to exchange a specified
amount of currency at a specified future time at a specified rate. The rate can
be higher or lower than the spot rate between the currencies that are the
subject of the contract.
The Fund may attempt to protect against adverse changes in the value of the U.S.
dollar in relation to a foreign currency by entering into a forward contract for
the purchase or sale of the amount of foreign currency invested or to be
invested, or by buying or selling a foreign currency option or futures contract
for such amount. Such strategies may be employed before the Fund purchases a
foreign security traded in the currency which the Fund anticipates acquiring or
between the date the foreign security is purchased or sold and the date on which
payment therefor is made or received. Seeking to protect against a change in the
value of a foreign currency in the foregoing manner does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Furthermore, such transactions reduce or
preclude the opportunity for gain if the value of the currency should move in
the direction opposite to the position taken. Unanticipated changes in currency
prices may result in poorer overall performance for the Fund than if it had not
entered into such contracts.
Investors should carefully consider the risks of foreign investments before
investing in the Fund.
ADDITIONAL RISKS OF INVESTING IN EMERGING MARKET COUNTRIES. The risks of foreign
investment are heightened when the issuer is from an emerging market country.
The extent of economic development, political stability and market depth of such
countries varies widely and investments in the securities of issuers in such
countries typically involve greater potential gain or loss than investments in
securities of issuers in more developed countries. Emerging market countries
tend to have economic structures that are less diverse and mature and political
systems that are less stable than developed markets. Emerging market countries
may be more likely to experience political turmoil or rapid changes in economic
conditions than more developed markets and the financial condition of issuers in
emerging market countries may be more precarious than in other countries.
Certain countries depend to a larger degree upon international trade or
development assistance and, therefore, are vulnerable to changes in trade or
assistance which, in turn, may be affected by a variety of factors. The Fund may
be particularly sensitive to changes in the economies of certain countries
resulting from any reversal of economic liberalization, political unrest or the
imposition of sanctions by the U.S. or other countries.
The Fund's purchase and sale of portfolio securities in emerging market
countries may be constrained by limitations as to daily changes in the prices of
listed securities, periodic or sporadic trading or settlement, or limitations on
aggregate holdings by foreign investors. Such limitations may be computed based
on the aggregate trading volume by or holdings of the Fund, the Fund's
investment adviser, its affiliates or their respective clients or other service
providers. The Fund may not be able to sell securities in circumstances where
price, trading or settlement volume limitations have been reached. Foreign
investment in the securities markets of certain emerging market countries is
restricted or controlled to varying degrees which may limit investment in such
countries or increase the administrative costs of such investments. For example,
certain countries may require governmental approval prior to investments by
foreign persons or limit investment by foreign persons to only a specified
percentage of an issuer's outstanding securities or a specific class of
securities which may have less advantageous terms (including price) than
securities of the issuer available for purchase by nationals. In addition,
certain countries may restrict or prohibit investment opportunities in issuers
or industries deemed important to national interests. Such restrictions may
affect the market price, liquidity and rights of securities that may be
purchased by the Fund. The repatriation of both investment income and capital
from certain emerging market countries is subject to restrictions such as the
need for governmental consents. Due to restrictions on direct investment in
securities in certain countries, it is anticipated that the Fund may invest in
such countries through other investment funds in such countries.
Many emerging market countries have experienced currency devaluations and
substantial (and, in some cases, extremely high) rates of inflation, which have
had a negative effect on the economies and securities
9
<PAGE>
markets of such countries. Economies in emerging market countries generally are
dependent heavily upon commodity prices and international trade and,
accordingly, have been and may continue to be affected adversely by the
economies of their trading partners, trade barriers, exchange controls, managed
adjustments in relative currency values and other protectionist measures or
negotiated by the countries with which they trade.
Many emerging market countries are subject to a substantial degree of economic,
political and social instability. Governments of some emerging market countries
are authoritarian in nature or have been installed or removed as a result of
military coups, while governments in other emerging market countries have
periodically used force to suppress civil dissent. Disparities of wealth, the
pace and success of political reforms, and ethnic, religious and racial
disaffection, among other factors, have also led to social unrest, violence
and/or labor unrest in some emerging market countries. Unanticipated political
or social developments may result in sudden and significant investment losses.
Settlement procedures in emerging market countries are frequently less developed
and reliable than those in developed markets. In addition, significant delays
are common in certain markets in registering the transfer of securities.
Settlement or registration problems may make it more difficult for the Fund to
value its portfolio securities and could cause the Fund to miss attractive
investment opportunities, to have a portion of its assets uninvested or to incur
losses due to the failure of a counterparty to pay for securities the Fund has
delivered or the Fund's inability to complete its contractual obligations. The
creditworthiness of the local securities firms used by the Fund in emerging
market countries may not be as sound as the creditworthiness of firms used in
more developed countries. As a result, the Fund may be subject to a greater risk
of loss if a securities firm defaults in the performance of its
responsibilities.
The small size and inexperience of the securities markets in certain emerging
market countries and the limited volume of trading in securities in those
countries may make the Fund's investments in such countries less liquid and more
volatile than investments in countries with more developed securities markets.
The Fund's investments in emerging market countries are subject to the risk that
the liquidity of a particular investment, or investments generally, in such
countries will shrink or disappear suddenly and without warning as a result of
adverse economic, market or political conditions or adverse investor
perceptions, whether or not accurate. Because of the lack of sufficient market
liquidity, the Fund may incur losses because it will be required to effect sales
at a disadvantageous time and only then at a substantial drop in price.
Investments in emerging countries may be more difficult to price precisely
because of the characteristics discussed above and lower trading volumes.
The Fund's use of foreign currency management techniques in emerging market
countries may be limited. Due to the limited market for these instruments in
emerging market countries, the Fund's investment adviser does not currently
anticipate that a significant portion of the Fund's currency exposure in
emerging market countries, if any, will be covered by such instruments.
Investors are strongly advised to consider carefully the special risks involved
in investing in developing or emerging market countries, which are in addition
to the risks of investing in foreign securities generally.
RISKS OF INVESTING IN
LOWER-GRADE SECURITIES
Securities which are in the lower-grade categories generally offer higher yields
than are offered by higher-grade securities of similar maturities, but they also
generally involve greater risks, such as greater credit risk, greater market
risk and volatility, greater liquidity concerns and potentially greater manager
risk. Investors should carefully consider the risks of owning shares of a
portfolio which invests in lower-grade securities before investing in the Fund.
Credit risk relates to the issuer's ability to make timely payment of interest
and principal when due. Lower-grade securities are considered more susceptible
to nonpayment of interest and principal or default than higher-grade securities.
Increases in interest rates or changes in the economy may significantly affect
the ability of issuers of lower-grade debt securities to pay interest and to
repay principal, to
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meet projected financial goals or to obtain additional financing. In the event
that an issuer of securities held by the Fund experiences difficulties in the
timely payment of principal and interest and such issuer seeks to restructure
the terms of its borrowings, the Fund may incur additional expenses and may
determine to invest additional assets with respect to such issuer or the project
or projects to which the Fund's securities relate. Further, the Fund may incur
additional expenses to the extent that it is required to seek recovery upon a
default in the payment of interest or the repayment of principal on its
portfolio holdings, and the Fund may be unable to obtain full recovery on such
amounts.
Market risk relates to changes in market value of a security that occur as a
result of variation in the level of prevailing interest rates and yield
relationships in the debt securities market and as a result of real or perceived
changes in credit risk. The value of the Fund's investments can be expected to
fluctuate over time. When interest rates decline, the value of a portfolio
invested in fixed income securities generally can be expected to rise.
Conversely, when interest rates rise, the value of a portfolio invested in fixed
income securities generally can be expected to decline. Debt securities with
longer maturities, which may have higher yields, may increase or decrease in
value more than debt securities with shorter maturities. However, the secondary
market prices of lower-grade debt securities generally are less sensitive to
changes in interest rate and are more sensitive to general adverse economic
changes or specific developments with respect to the particular issuers than are
the secondary market prices of higher-grade debt securities. A significant
increase in interest rates or a general economic downturn could severely disrupt
the market for lower-grade securities and adversely affect the market value of
such securities. Such events also could lead to a higher incidence of default by
issuers of lower-grade securities as compared with higher-grade securities. In
addition, changes in credit risks, interest rates, the credit markets or periods
of general economic uncertainty can be expected to result in increased
volatility in the market price of the lower-grade securities in the Fund and
thus in the net asset value of the Fund. Adverse publicity and investor
perceptions, whether or not based on rational analysis, may affect the value,
volatility and liquidity of lower-grade securities.
The markets for lower-grade securities may be less liquid than the markets for
higher-grade securities. Liquidity relates to the ability of a fund to sell a
security in a timely manner at a price which reflects the value of that
security. To the extent that there is no established retail market for some of
the lower-grade securities in which the Fund may invest, trading in such
securities may be relatively inactive. Prices of lower-grade securities may
decline rapidly in the event a significant number of holders decide to sell.
Changes in expectations regarding an individual issuer of lower-grade securities
generally could reduce market liquidity for such securities and make their sale
by the Fund more difficult, at least in the absence of price concessions. The
effects of adverse publicity and investor perceptions may be more pronounced for
securities for which no established retail market exists as compared with the
effects on securities for which such a market does exist. An economic downturn
or an increase in interest rates could severely disrupt the market for such
securities and adversely affect the value of outstanding securities or the
ability of the issuers to repay principal and interest. Further, the Fund may
have more difficulty selling such securities in a timely manner and at their
stated value than would be the case for securities for which an established
retail market does exist.
The Fund's investment adviser is responsible for determining the net asset value
of the Fund, subject to the supervision of the Fund's Board of Directors. During
periods of reduced market liquidity or in the absence of readily available
market quotations for lower-grade securities held in the Fund's portfolio, the
ability of the Fund's investment adviser to value the Fund's securities becomes
more difficult and the judgment of the Fund's investment adviser may play a
greater role in the valuation of the Fund's securities due to the reduced
availability of reliable objective data.
The Fund may invest in securities not producing immediate cash income, including
securities in default, zero-coupon securities or pay-in-kind securities, when
their effective yield over comparable instruments producing cash income make
these investments attractive. Prices on non-cash-paying instruments may be more
sensitive to changes in the issuer's financial condition, fluctuation in
interest
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rates and market demand/supply imbalances than cash-paying securities with
similar credit ratings and thus may be more speculative. In addition, the
accrued interest income earned on such instruments is included in investment
company taxable income, thereby increasing the required minimum distributions to
shareholders without providing the corresponding cash flow with which to pay
such distributions. The Fund's investment adviser will weigh these concerns
against the expected total returns from such instruments.
The Fund's investments may include securities with the lowest-grade assigned by
the recognized rating organizations and unrated securities of comparable
quality. Securities assigned such ratings include those of companies that are in
default or are in bankruptcy or reorganization. Securities of such companies are
regarded by the rating agencies as having extremely poor prospects of ever
attaining any real investment standing and are usually available at deep
discounts from the face values of the instruments. A security purchased at a
deep discount may currently pay a very high effective yield. In addition, if the
financial condition of the issuer improves, the underlying value of the security
may increase, resulting in capital appreciation. If the company defaults on its
obligations or remains in default, or if the plan of reorganization does not
provide sufficient payments for debtholders, the deep discount securities may
stop generating income and lose value or become worthless. The Fund's investment
adviser will balance the benefits of deep discount securities with their risks.
While a broad portfolio of investments may reduce the overall impact of a deep
discount security that is in default or loses its value, the risk cannot be
eliminated.
Many lower-grade debt securities are not listed for trading on any national
securities exchange, and many issuers of lower-grade debt securities choose not
to have a rating assigned to their obligations by any recognized rating
organization. As a result, the Fund's portfolio may consist of a higher portion
of unlisted or unrated securities as compared with an investment company that
invests primarily in higher-grade securities. Unrated securities are usually not
as attractive to as many buyers as are rated securities, a factor which may make
unrated securities less marketable. These factors may have the effect of
limiting the availability of the securities for purchase by the Fund and may
also limit the ability of the Fund to sell such securities at their fair value
either to meet redemption requests or in response to changes in the economy or
the financial markets. Further, to the extent the Fund owns or may acquire
illiquid or restricted lower-grade securities, these securities may involve
special registration responsibilities, liabilities and costs, and liquidity and
valuation difficulties.
The Fund will rely on its investment adviser's judgment, analysis and experience
in evaluating the creditworthiness of an issue. The amount of available
information about the financial condition of certain lower-grade issuers may be
less extensive than other issuers. In its analysis, the Fund's investment
adviser may consider the credit ratings of recognized rating organizations in
evaluating securities although the investment adviser does not rely primarily on
these ratings. Ratings evaluate only the safety of principal and interest
payments, not the market value risk. In addition, ratings are general and not
absolute standards of quality, and credit ratings are subject to the risk that
the creditworthiness of an issuer may change and the rating agencies may fail to
change such ratings in a timely fashion. A rating downgrade does not require the
Fund to dispose of a security. The Fund's investment adviser continuously
monitors the issuers of securities held in the Fund. Additionally, since most
foreign debt securities are not rated, the Fund will invest in such securities
based on the Fund's investment adviser's analysis without any guidance from
published ratings. Because of the number of investment considerations involved
in investing in lower-grade securities and foreign debt securities, achievement
of the Fund's investment objectives may be more dependent upon the investment
adviser's credit analysis than is the case with investing in higher-grade
securities.
New or proposed laws may have an impact on the market for lower-grade
securities. The Fund's investment adviser is unable at this time to predict what
effect, if any, legislation may have on the market for lower-grade securities.
Special tax considerations are associated with investing in certain lower-grade
securities, such as zero-coupon or pay-in-kind securities. The Fund accrues
income on these securities prior to the receipt of
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cash payments. The Fund must distribute substantially all of its income to its
shareholders to qualify for pass-through treatment under federal income tax law
and may, therefore, have to dispose of its portfolio securities to satisfy
distribution requirements.
ADDITIONAL INFORMATION REGARDING
CERTAIN DEBT SECURITIES
DISCOUNT, ZERO-COUPON AND PAYMENT-IN-KIND SECURITIES. The Fund may invest in
securities sold at a substantial discount from their value at maturity, such as
zero-coupon and payment-in-kind securities, when the Fund's investment adviser
believes the effective yield on such securities over comparable instruments
paying current cash income makes these investments attractive. Zero-coupon
securities are debt obligations that do not entitle the holder to any periodic
payment of interest prior to maturity or a specified date when the securities
begin paying current interest. They are issued and traded at a discount from
their face amounts or par value, which discount varies depending on the time
remaining until cash payments begin, prevailing interest rates, liquidity of the
security and the perceived credit quality of the issuer. Because such securities
do not entitle the holder to any periodic payments of interest prior to
maturity, this prevents the reinvestment of such interest payments if prevailing
interest rates rise. On the other hand, because there are no periodic interest
payments to be reinvested prior to maturity, "zero-coupon" securities eliminate
the reinvestment risk and may lock in a favorable rate of return to maturity if
interest rates drop. Payment-in-kind securities are securities that pay interest
through the issuance of additional securities. Prices on non-cash-paying
instruments may be more sensitive to changes in the issuer's financial
condition, fluctuations in interest rates and market demand/supply imbalances
than cash-paying securities with similar credit ratings, and thus may be more
speculative than are securities that pay interest periodically in cash. In
addition, the amount of non-cash interest income earned on such instruments is
included, for federal income tax purposes, in the Fund's calculation of income
that is required to be distributed to shareholders for the Fund to maintain its
desired federal income tax status (even though such non-cash paying securities
do not provide the Fund with the cash flow with which to pay such
distributions). Accordingly, the Fund may be required to borrow or to liquidate
portfolio securities at a time that it otherwise would not have done so in order
to make such distributions. The Fund's investment adviser will weigh these
concerns against the expected total returns from such instruments.
BRADY BONDS. The Fund may invest in Brady Bonds and other sovereign debt of
countries that have restructured or are in the process of restructuring
sovereign debt pursuant to the Brady Plan. Brady Bonds are typically from a
debtor nation restructuring outstanding external commercial bank indebtedness.
Brady Bonds generally are based on issuers with a history of defaults with
respect to commercial bank loans and therefore are often viewed as speculative.
A more complete description of Brady Bonds is contained in the Fund's Statement
of Additional Information.
SOVEREIGN DEBT. In addition to Brady Bonds, the Fund may invest in sovereign or
sovereign-related debt obligations, including obligations of supranational
entities. Sovereign debt differs from debt obligations of private entities in
that, generally, remedies for defaults must be pursued in the courts of the
defaulting party and the legal recourse in enforcing a sovereign debt is often
limited. At certain times, certain countries (particularly emerging market
countries) have declared a moratoria on the payment of principal and interest on
external debt. Such investments may include participations and assignments of
sovereign bank debt, restructured external debt that has not undergone a
Brady-style debt exchange, and internal government debt.
LOANS. The Fund may invest in fixed and floating rate loans arranged through
private negotiations between an issuer of sovereign or corporate debt
obligations and one or more financial institutions. The Fund's investments in
loans are expected in most instances to be in the form of participations in
loans and assignments of all or a portion of loans from third parties. In the
case of participations, the Fund will have the right to receive payments of
principal, interest and any fees to which it is entitled only from the lender
selling the participations and only upon receipt by the lender of the payments
from the borrower. In the event of the insolvency of
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the lender selling a participation, the 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. The Fund will acquire participations only if the lender
interpositioned between the Fund and the borrower is determined by the Fund's
investment adviser to be creditworthy. When the 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 the 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 Fund anticipates 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
the 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 the Fund to assign a value to these securities
for purposes of valuing the Fund's portfolio and calculating its net asset
value.
PRIVATE PLACEMENTS. The Fund may invest in income securities that are sold in
private placement transactions between their issuers and their purchasers and
that are neither listed on an exchange nor traded in the over-the-counter
secondary market. A significant portion of the high yield, high risk bond market
is privately placed securities or restricted securities sold to qualified
institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as
amended. In many cases, privately placed securities will be subject to
contractual or legal restrictions on transfer. As a result of the absence of a
public trading market, privately placed securities may in turn be less liquid
and more difficult to value than publicly traded securities. In addition,
issuers whose securities are not publicly traded may not be subject to the
disclosure and other investor protection requirements that may be applicable if
their securities were publicly traded. The Fund monitors the liquidity of such
securities and securities not considered liquid are subject to the Fund's
limitation on illiquid securities. Certain of the Fund's direct investments,
particularly in emerging market countries, may include investments in smaller,
less seasoned companies, which may involve greater risks. These companies may
have limited product lines, markets or financial resources, or they may be
dependent on a limited management group.
STRUCTURED INVESTMENTS. The Fund may invest a portion of its assets in
"structured investments" which are interests in entities organized and operated
for the purpose of restructuring the investment characteristics of other
securities. This type of restructuring involves the deposit with or purchase by
an entity of debt securities (such as mortgages, bank loans or Brady Bonds) and
the issuance by that entity of one or more classes of securities, backed by, or
representing interests in, the underlying instruments. The cash flow on the
underlying instruments may be apportioned among the newly issued securities to
create different investment characteristics such as varying maturities, payment
priorities and interest rate provisions.
OTHER INVESTMENTS
AND RISK FACTORS
DERIVATIVE INSTRUMENTS. The Fund may, but is not required to, use various
investment strategic transactions described below to earn income, facilitate
portfolio management and mitigate risks. Such strategic transactions are
generally accepted under modern portfolio management and are regularly used by
many mutual funds and other institutional investors. Although the Fund's
investment adviser seeks to use the practices to further the Fund's investment
objective, no assurance can be given that these practices will achieve this
result.
The Fund may purchase and sell derivative instruments such as exchange-listed
and over-the-counter put and call options on securities, financial futures,
equity, fixed-income and interest rate indices, and other financial instruments,
futures contracts and options thereon (including but not limited to securities
index futures, foreign currency exchange futures, interest rate futures and
other financial futures),
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structured notes, swaps, caps, floors or collars and enter into various currency
transactions (to the extent available) such as currency forward contracts,
currency futures contracts, currency swaps or options on currency or currency
futures. In addition, the Fund may invest in other derivative instruments that
are developed over time if their use would be consistent with the objective of
the Fund. Collectively, all of the above are referred to as "Strategic
Transactions." The Fund generally seeks to use Strategic Transactions as a
portfolio management or hedging technique to seek to protect against possible
adverse changes in the market value of securities held in or to be purchased for
the Fund's portfolio, protect the Fund's unrealized gains, facilitate the sale
of certain securities for investment purposes, protect against changes in
currency exchange rates or to adjust the exposure to a particular currency,
manage the effective maturity or duration of the Fund's portfolio, establish
positions in the derivatives markets as a substitute for purchasing or selling
particular securities, including, for example, when the Fund adjusts its
exposure to a market in response to changes in investment strategy, when doing
so provides more liquidity than the direct purchase of the securities underlying
such derivatives, when the Fund 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. The Fund may invest up to 50% of
its total assets in Strategic Transactions (measured by the aggregate notional
amount of outstanding derivatives), provided that no more than 33 1/3% of the
Fund's total assets are invested, for non-hedging purposes, in derivatives other
than futures and options on futures (measured by the aggregate notional amount
of such outstanding contracts).
Strategic Transactions have risks including the imperfect correlation between
the value of such instruments and the underlying assets, the possible default of
the other party to the transaction or illiquidity of the derivative instruments.
Furthermore, the ability to successfully use Strategic Transactions depends on
the Fund's investment adviser's ability to predict pertinent market movements,
which cannot be assured. Thus, the use of Strategic Transactions may result in
losses greater than if they had not been used, may require the Fund to sell or
purchase portfolio securities at inopportune times or for prices other than
current market values, may limit the amount of appreciation the Fund can
otherwise realize on an investment, or may cause the Fund to hold a security
that it might otherwise sell. The use of currency transactions can result in the
Fund incurring losses because of the imposition of exchange controls, suspension
of settlements or the inability of the Fund to deliver or receive a specified
currency. In addition, amounts paid as premiums or cash or other assets held in
margin accounts with respect to Strategic Transactions are not otherwise
available to the Fund for investment purposes.
When conducted outside the U.S., Strategic Transactions may not be regulated as
rigorously as in the U.S., may not involve a clearing mechanism and related
guarantees, and are subject to the risk of governmental actions affecting
trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions,
(iii) delays in the Fund's ability to act upon economic events occurring in
foreign markets during non-business hours in the U.S., (iv) the imposition of
different exercise and settlement terms and procedures and margin requirements
than in the U.S., and (v) lower trading volume and liquidity.
A more complete discussion of Strategic Transactions and their risks is
contained in the Fund's Statement of Additional Information. The Statement of
Additional Information can be obtained by investors free of charge as described
on the back cover of this prospectus.
OTHER PRACTICES. For cash management purposes, the Fund may engage in repurchase
agreements with banks and broker-dealers and other financial institutions in
order to earn a return on temporarily available cash. Such transactions are
subject to the risk of default by the other party.
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The Fund may purchase and sell securities on a "when-issued" and "delayed
delivery" basis. The Fund accrues no income on such securities until the Fund
actually takes delivery of such securities. These transactions are subject to
market fluctuation; the value of the securities at delivery may be more or less
than their purchase price. The value or yield generally available on comparable
securities when delivery occurs may be higher than the value or yield on the
securities obtained pursuant to such transactions. Because the Fund relies on
the buyer or seller to consummate the transaction, failure by the other party to
complete the transaction may result in the Fund missing the opportunity of
obtaining a price or yield considered to be advantageous. The Fund will engage
in when-issued and delayed delivery transactions for the purpose of acquiring
securities consistent with the Fund's investment objective and policies and not
for the purpose of investment leverage.
The Fund may lend its portfolio securities in an amount up to 33 1/3% of its
total assets to broker-dealers, banks or other recognized institutional
borrowers of securities. The Fund may incur lending fees and other costs in
connection with securities lending, and securities lending is subject to the
risk of default by the other party.
The Fund may invest up to 15% of the Fund's net assets in illiquid securities.
Such securities may be difficult or impossible to sell at the time and the price
that the Fund would like. Thus, the Fund may have to sell such securities at a
lower price, sell other securities instead to obtain cash or forego other
investment opportunities.
The Fund is authorized to borrow money from banks and engage in reverse
repurchase agreements in an aggregate amount up to 33 1/3% of the Fund's total
assets (including the amount borrowed) for investment purposes. The use of such
transactions to purchase additional securities is known as "leverage." Leverage
transactions create an opportunity for increased net income but, at the same
time, may increase the volatility of the Fund's net asset value as a result of
fluctuations in market interest rates and increase the risk of the Fund's
portfolio. The principal amount of these transactions is fixed when the
transaction is opened, but the Fund's assets may change in value during the time
these transactions are outstanding. As a result, interest expenses and other
costs from these transactions may exceed the interest income and other revenues
earned from portfolio assets, and the net income of the Fund may be less than if
these transactions were not used. Borrowing may be done on a secured or
unsecured basis. The Fund may pay various fees and expenses in connection with
the borrowing, and the loan agreements may contain covenants or restrictions on
certain investment practices in which the Fund may otherwise be permitted to
engage.
Reverse repurchase agreements are transactions in which the Fund sells certain
securities concurrently with an agreement to repurchase the same securities at a
later date at a fixed price. During the reverse repurchase agreement period, the
Fund continues to receive principal and interest payments on such securities.
Reverse repurchase agreements involve the risk that the market value of the
securities retained by the Fund may decline below the price of the securities
the Fund has sold but is obligated to repurchase under the agreement.
The Fund may, from time to time, make short sales without limitation of
securities it owns or has the right to acquire through conversion or exchange of
other securities it owns. A short sale is a transaction in which the Fund sells
a security it does not own in anticipation that the market price of that
security will decline. A short sale is "against the box" to the extent that the
Fund contemporaneously owns or has the right to obtain, at no added cost,
securities identical to those sold short. When the Fund makes a short sale, it
must borrow the security sold short and deliver it to the broker-dealer through
which it made the short sale in order to satisfy its obligation to deliver the
security upon conclusion of the sale. The Fund is obligated to collateralize its
obligation to replace the borrowed security with cash or other liquid
securities. The Fund may have to pay a fee to borrow particular securities and
is often obligated to pay over any payments received on such borrowed
securities. If the price of the security sold short increases between the time
of the short sale and the time the Fund replaces the borrowed security, the Fund
will incur a loss; conversely, if the price declines, the Fund will realize a
capital gain. Although the Fund's gain is limited to the price at which it sold
the security short, its potential loss is
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theoretically unlimited. The short sale of a security is considered a
speculative investment technique.
The Fund may invest in securities indirectly through investment in other
investment companies. Such investments are commonly used when a direct
investment in certain countries is not permitted by foreign investors.
Investments in other investment companies may involve duplication of management
fees and certain other expenses.
Further information about these types of investments and other investment
practices that may be used by the Fund is contained in the Statement of
Additional Information.
The Fund may sell securities without regard to the length of time they have been
held in order to take advantage of new investment opportunities or when the
Fund's investment adviser believes the potential for income or capital growth
has lessened or for other reasons. The portfolio turnover rate may be expected
to vary from year to year. A high portfolio turnover rate (100% or more)
increases the Fund's transactions costs, (including brokerage commissions or
dealer costs), and a high portfolio turnover rate may result in the realization
of more short-term capital gains than if the Fund had a lower portfolio turnover
rate. Increases the Fund's transaction costs would adversely impact the Fund's
performance. The turnover rate will not be a limiting factor, however, if the
Fund's investment adviser considers portfolio changes appropriate.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Fund may invest on a temporary basis a portion or all
of its assets in securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities, obligations of foreign sovereignties, prime
commercial paper, certificates of deposit, bankers' acceptances and other
obligations of domestic banks and in investment grade corporate debt securities.
Under normal market conditions, the potential for high total return on these
securities will tend to be lower than the potential for high total return on
other securities that may be owned by the Fund. In taking such a defensive
position, the Fund would not be pursuing and may not achieve its investment
objective.
YEAR 2000 RISKS. Like other mutual funds, financial and business organizations
and individuals around the world, the Fund could be adversely affected if the
computer systems used by the Fund's investment adviser, subadviser and other
service providers do not properly process and calculate date-related information
and data from and after January 1, 2000. This is commonly known as the "Year
2000 Problem." The Fund's investment adviser and subadviser are taking steps
that they believe are reasonably designed to address the Year 2000 Problem with
respect to computer systems that they use and to obtain reasonable assurances
that comparable steps are being taken by the Fund's other major service
providers. At this time, there can be no assurances that these steps will be
sufficient to avoid any adverse impact to the Fund. In addition, the Year 2000
Problem may adversely affect the markets and the issuers of securities in which
the Fund may invest which, in turn, may adversely affect the net asset value of
shares of the Fund. Improperly functioning trading systems may result in
settlement problems and liquidity issues. In addition, corporate and
governmental data processing errors may result in production problems for
individual companies or issuers and overall economic uncertainty. Earnings of
individual issuers will be affected by remediation costs, which may be
substantial and may be reported inconsistently in U.S. and foreign financial
statements. Efforts in foreign countries to remediate the potential Year 2000
Problem may not be as extensive as those in the U.S. As a result, the operations
of foreign markets and issuers may be disrupted by the Year 2000 Problem which
could adversely affect the Fund's portfolio. The risks are greater with respect
to certain developing or emerging market countries; because there is an
increased likelihood that issuers of securities of such countries cannot
anticipate or effectively manage the effects of computer programs and the Year
2000 Problem. Accordingly, the Fund's investments may be adversely affected. The
statements above are subject to the Year 2000 Information and Readiness
Disclosure Act which may limit the legal rights regarding the use of such
statements in the case of a dispute.
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INVESTMENT ADVISORY
SERVICES
INVESTMENT ADVISER
Van Kampen Investment Advisory Corp. is the investment adviser (the "Adviser" or
"Advisory Corp.") and administrator of the Fund. The Adviser is a wholly owned
subsidiary of Van Kampen Investments Inc. ("Van Kampen Investments"). Van Kampen
Investments is a diversified asset management company with more than two million
retail investor accounts, extensive capabilities for managing institutional
portfolios, and more than $79 billion under management or supervision as of
September 30, 1999. Van Kampen Investments' more than 50 open-end and 39
closed-end funds and more than 2,500 unit investment trusts are professionally
distributed by leading authorized dealers nationwide. Van Kampen Funds Inc., the
distributor of the Fund (the "Distributor") and the sponsor of the funds
mentioned above, is also a wholly owned subsidiary of Van Kampen Investments.
Van Kampen Investments is an indirect wholly owned subsidiary of Morgan Stanley
Dean Witter & Co. The Adviser's principal office is located at 1 Parkview Plaza,
PO Box 5555, Oakbrook Terrace, Illinois 60181-5555.
ADVISORY AGREEMENT AND ADMINISTRATION AGREEMENT. The Fund retains the Adviser to
manage the investment of its assets and to place orders for the purchase and
sale of its portfolio securities. Under an investment advisory agreement between
the Adviser and the Fund (the "Advisory Agreement"), the Fund pays the Adviser a
monthly fee computed based upon an annual rate of 1.25% applied to the average
daily net assets of the Fund.
The Fund also retains the Adviser to provide administrative services for the
Fund's day-to-day operations. Under an administration agreement between the Fund
and the Adviser, the Fund pays a monthly administration fee computed based upon
an annual rate of 0.25% applied to the average daily net assets of the Fund.
The Adviser furnishes offices, necessary facilities and equipment, provides
administrative services, and permits its officers and employees to serve without
compensation as directors or officers of the Fund if elected to such positions.
The Fund pays all charges and expenses of its day-to-day operations, including
the compensation of directors of the Fund (other than those who are affiliated
persons of the Adviser, Distributor or Van Kampen Investments), the charges and
expenses of legal counsel and independent accountants, distribution fees,
service fees, custodian fees, the costs of providing reports to shareholders,
and all other ordinary business expenses not specifically assumed by the
Adviser.
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen Asset Management
Inc. ("Asset Management").
INVESTMENT SUBADVISER
Morgan Stanley Dean Witter Investment Management Inc. (the "Subadviser") is the
Subadviser of the Fund. The Subadviser is a wholly owned subsidiary of Morgan
Stanley Dean Witter & Co., and is an affiliate of the Adviser. The Subadviser
conducts a worldwide portfolio management business and provides a broad range of
portfolio management services to customers in the United States and abroad. At
June 30, 1999, the Subadviser, together with its affiliated institutional asset
management companies, managed assets of approximately $175.3 billion, including
assets under fiduciary advice. The Subadviser's principal office is located at
1221 Avenue of the Americas, New York, New York 10020. On December 1, 1998,
Morgan Stanley Asset Management Inc. changed its name to Morgan Stanley Dean
Witter Investment Management Inc. but continues to do business in certain
instances using the name Morgan Stanley Asset Management.
SUBADVISORY AGREEMENT. The Adviser has entered into a subadvisory agreement with
the Subadviser to assist the Adviser in performing its investment advisory
functions. The Adviser pays the Subadviser on a monthly basis a portion of the
net advisory fees the Adviser receives from the Fund.
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<PAGE>
GENERAL
From time to time, the Adviser, the Subadviser or the Distributor may
voluntarily undertake to reduce the Fund's expenses by reducing the fees payable
to them or by reducing other expenses of the Fund in accordance with such
limitations as the Adviser, the Subadviser or Distributor may establish.
PERSONAL INVESTMENT POLICIES. The Fund, the Adviser and the Subadviser have
adopted Codes of Ethics designed to recognize the fiduciary relationship among
the Fund, the Adviser and the Subadviser and their respective employees. The
Codes of Ethics permit directors, trustees, officers and employees to buy and
sell securities for their personal accounts subject to certain restrictions.
Persons with access to certain sensitive information are subject to
pre-clearance and other procedures designed to prevent conflicts of interest.
PORTFOLIO MANAGEMENT. Stephen F. Esser and Abigail L. McKenna have been
responsible as comanagers for the day-to-day management of the Fund's investment
portfolio since October 1998.
Mr. Esser, a Managing Director of Morgan Stanley Dean Witter & Co., joined the
Subadviser in 1996 and has been a Portfolio Manager with Miller Anderson &
Sherrerd LLP since 1998. Mr. Esser is a member of the New York Society of
Security Analysts and has a B.S. (Summa Cum Laude; Phi Beta Kappa) from the
University of Delaware.
Ms. McKenna is a Principal of the Subadviser and Morgan Stanley Dean Witter &
Co. She focuses primarily on the trading and management of the emerging markets
debt portfolios. Prior to joining the Subadviser, Ms. McKenna was a Senior
Portfolio Manager at MIMCO from 1995 to 1996 and a Limited Partner at Weiss Peck
& Greer from 1991 to 1995, where she was responsible for the portfolio
management of Corporate Bond Portfolios. Ms. McKenna holds a B.A. in
International Relations from Georgetown University and is a Chartered Financial
Analyst.
PURCHASE OF SHARES
GENERAL
The Fund offers three classes of shares designated as Class A Shares, Class B
Shares and Class C Shares. By offering three classes of shares, the Fund permits
each investor to choose the class of shares that is most beneficial given the
amount to be invested and the length of time the investor expects to hold the
shares.
Initial investments must be at least $1,000 for each class of shares, and
subsequent investments must be at least $25 for each class of shares. Both
minimums may be waived by the Distributor for plans involving periodic
investments.
Each class of shares represents an interest in the same portfolio of investments
of the Fund and has the same rights except that (i) Class A Shares generally
bear the sales charge expenses at the time of purchase while Class B Shares and
Class C Shares bear the sales charge expenses at the time of redemption and any
expenses (including higher distribution fees and transfer agency costs)
resulting from such deferred sales charge arrangement, (ii) generally, each
class of shares has exclusive voting rights with respect to approvals of the
Rule 12b-1 distribution plan and service plan (each as described below) under
which its distribution fee or service fee is paid, (iii) each class of shares
has different exchange privileges, (iv) certain classes of shares are subject to
a conversion feature and (v) certain classes of shares have different
shareholder service options available.
The offering price of the Fund's shares is based upon the Fund's net asset value
per share (plus sales charges, where applicable). The net asset values per share
of the Class A Shares, Class B Shares and Class C Shares are generally expected
to be substantially the same. In certain circumstances, however, the per share
net asset values of the classes of shares may differ from one another,
reflecting the daily expense accruals of the higher distribution fees and
transfer agency costs applicable to the Class B Shares and Class C Shares and
the differential in the dividends that may be paid on each class of shares.
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<PAGE>
The net asset value per share for each class of shares of the Fund is determined
once daily as of the close of trading on the New York Stock Exchange (the
"Exchange") (currently 4:00 p.m., New York time) each day the Exchange is open
for trading except on any day on which no purchase or redemption orders are
received or there is not a sufficient degree of trading in the Fund's portfolio
securities such that the Fund's net asset value per share might be materially
affected. The Fund's Board of Directors reserves the right to calculate the net
asset value per share and adjust the offering price based thereon more
frequently than once daily if deemed desirable. Net asset value per share for
each class is determined by dividing the value of the Fund's portfolio
securities, cash and other assets (including accrued interest) attributable to
such class, less all liabilities (including accrued expenses) attributable to
such class, by the total number of shares of the class outstanding. Such
computation is made by using prices as of the close of trading on the Exchange.
Securities listed 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 not
readily available are valued at the average of the mean of 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 by the Adviser at fair value
using methods determined by the Fund's Board of Directors.
Trading in securities on many foreign securities exchanges (including European
and Far Eastern securities exchanges) and over-the-counter markets is normally
completed before the close of business on each U.S. business day. In addition,
securities trading in a particular country or countries may not take place on
all U.S. business days or may take place on days which are not U.S. business
days. Changes in valuations on certain securities may occur at times or on days
on which the Fund's net asset value is not calculated and on which the Fund does
not effect sales, redemptions and exchanges of its shares.
The Fund calculates net asset value per share, and therefore effects sales,
redemptions and exchanges of its shares, as of the close of trading on the
Exchange each day the Exchange is open for trading. Such calculation does not
take place contemporaneously with the determination of the prices of certain
foreign portfolio securities used in such calculation.
If events materially affecting the value of foreign portfolio securities or
other portfolio securities occur
20
<PAGE>
between the time when their price is determined and the time when the Fund's net
asset value is calculated, such securities may be valued at fair value as
determined in good faith by the Adviser based in accordance with procedures
established by the Fund's Board of 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.
The Fund has adopted a distribution plan (the "Distribution Plan") with respect
to each class of its shares pursuant to Rule 12b-1 under the 1940 Act. The Fund
also has adopted a service plan (the "Service Plan") with respect to each class
of its shares. Under the Distribution Plan and the Service Plan, the Fund pays
distribution fees in connection with the sale and distribution of its shares and
service fees in connection with the provision of ongoing services to
shareholders of each class.
The amount of distribution and service fees varies among the classes offered by
the Fund. Because these fees are paid out of the Fund's assets on an ongoing
basis, these fees will increase the cost of your investment in the Fund. By
purchasing a class of shares subject to higher distribution and service fees,
you may pay more over time than on a class of shares with other types of sales
charge arrangements. Long-term shareholders may pay more than the economic
equivalent of the maximum front-end sales charges permitted by the rules of the
National Association of Securities Dealers, Inc. ("NASD"). The net income
attributable to a class of shares will be reduced by the amount of the
distribution fees and other expenses of the Fund associated with such class of
shares. To assist investors in comparing classes of shares, the tables under the
heading "Fees and Expenses of the Fund" provide a summary of sales charges and
expenses and an example of the sales charges and expenses of the Fund applicable
to each class of shares.
The shares are offered to the public on a continuous basis through the
Distributor as principal underwriter, which is located at 1 Parkview Plaza, PO
Box 5555, Oakbrook Terrace, Illinois 60181-5555. Shares also are offered through
members of the NASD who are acting as securities dealers ("dealers") and NASD
members or eligible non-NASD members who are acting as brokers or agents for
investors ("brokers"). "Dealers" and "brokers" are sometimes referred to herein
as "authorized dealers."
Shares may be purchased on any business day by completing the application
accompanying this prospectus and forwarding the application, directly or through
an authorized dealer, to the Fund's shareholder service agent, Van Kampen
Investor Services Inc. ("Investor Services"), a wholly owned subsidiary of Van
Kampen Investments. When purchasing shares of the Fund, investors must specify
whether the purchase is for Class A Shares, Class B Shares or Class C Shares.
Sales personnel of authorized dealers distributing the Fund's shares are
entitled to receive compensation for selling such shares and may receive
differing compensation for selling Class A Shares, Class B Shares or Class C
Shares.
The offering price for shares is based upon the next calculation of net asset
value per share (plus sales charges, where applicable) after an order is
received by Investor Services. Orders received by authorized dealers prior to
the close of the Exchange are priced based on the date of receipt provided such
order is transmitted to Investor Services prior to Investor Services' close of
business on such date. Orders received by authorized dealers after the close of
the Exchange or transmitted to Investor Services after its close of business are
priced based on the date of the next computed net asset value per share provided
they are received by Investor Services prior to Investor Services' close of
business on such date. It is the responsibility of authorized dealers to
transmit orders received by them to Investor Services so they will be received
in a timely manner.
The Fund and the Distributor reserve the right to refuse any order for the
purchase of shares. The Fund also reserves the right to suspend the sale of the
Fund's shares in response to conditions in the securities markets or for other
reasons. Shares of the Fund may be sold in foreign countries where permissible.
21
<PAGE>
Investor accounts will automatically be credited with additional shares of the
Fund after any Fund distributions, such as dividends and capital gain dividends,
unless the investor instructs the Fund otherwise. Investors wishing to receive
cash instead of additional shares should contact the Fund at (800) 341-2911 or
by writing to the Fund, c/o Van Kampen Investors Services Inc., PO Box 218256,
Kansas City, MO 64121-8256.
CLASS A SHARES
Class A Shares of the Fund are sold at net asset value plus an initial maximum
sales charge of up to 4.75% of the offering price (or 4.99% of the net amount
invested), reduced on investments of $100,000 or more as follows:
CLASS A SHARES
SALES CHARGE SCHEDULE
<TABLE>
<CAPTION>
AS % OF AS % OF
SIZE OF OFFERING NET AMOUNT
INVESTMENT PRICE INVESTED
- ---------------------------------------------------------
<S> <C> <C>
Less than $100,000 4.75% 4.99%
........................................................
$100,000 but less than $250,000 3.75% 3.90%
........................................................
$250,000 but less than $500,000 2.75% 2.83%
........................................................
$500,000 but less than $1,000,000 2.00% 2.04%
........................................................
$1,000,000 or more * *
........................................................
</TABLE>
* NO SALES CHARGE IS PAYABLE AT THE TIME OF PURCHASE ON INVESTMENTS OF
$1 MILLION OR MORE, ALTHOUGH FOR SUCH INVESTMENTS THE FUND MAY IMPOSE
A CONTINGENT DEFERRED SALES CHARGE OF 1.00% ON CERTAIN REDEMPTIONS
MADE WITHIN ONE YEAR OF THE PURCHASE. THE CONTINGENT DEFERRED SALES
CHARGE IS ASSESSED ON AN AMOUNT EQUAL TO THE LESSER OF THE THEN
CURRENT MARKET VALUE OR THE COST OF THE SHARES BEING REDEEMED.
ACCORDINGLY, NO SALES CHARGE IS IMPOSED ON INCREASES IN NET ASSET
VALUE ABOVE THE INITIAL PURCHASE PRICE.
No sales charge is imposed on Class A Shares received from reinvestment of
dividends or capital gain dividends.
Under the Distribution Plan and Service Plan, the Fund may spend up to a total
of 0.25% per year of the Fund's average daily net assets with respect to the
Class A Shares of the Fund. From such amount, under the Service Plan, the Fund
may spend up to 0.25% per year of the Fund's average daily net assets with
respect to the Class A Shares for the ongoing provision of services to Class A
shareholders by the Distributor and by brokers, dealers or financial
intermediaries and for the maintenance of such shareholders' accounts.
CLASS B SHARES
Class B Shares of the Fund are sold at net asset value and are subject to a
contingent deferred sales charge if redeemed within five years of purchase as
shown in the table as follows:
CLASS B SHARES
SALES CHARGE SCHEDULE
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE
AS A PERCENTAGE OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
- -------------------------------------------------------
<S> <C>
First 4.00%
......................................................
Second 4.00%
......................................................
Third 3.00%
......................................................
Fourth 2.50%
......................................................
Fifth 1.50%
......................................................
Sixth and After None
......................................................
</TABLE>
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gain dividends. It
is presently the policy of the Distributor not to accept any order for Class B
Shares in an amount of $500,000 or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
The amount of the contingent deferred sales charge, if any, varies depending on
the number of years from the time of payment for the purchase of Class B Shares
until the time of redemption of such shares. Solely for purposes of determining
the number of years from the time of any payment for the purchase of shares, all
payments during a month are totaled and deemed to have been made on the last day
of the month.
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<PAGE>
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed shares being redeemed first are any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge followed by shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
Fund's average daily net assets with respect to the Class B Shares of the Fund.
In addition, under the Service Plan, the Fund may spend up to 0.25% per year of
the Fund's average daily net assets with respect to the Class B Shares for the
ongoing provision of services to Class B shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CLASS C SHARES
Class C Shares of the Fund are sold at net asset value and are subject to a
contingent deferred sales charge of 1.00% of the dollar amount subject to charge
if redeemed within one year of purchase.
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gain dividends. It
is presently the policy of the Distributor not to accept any order for Class C
Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed shares being redeemed first are any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge followed by shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
Fund's average daily net assets with respect to the Class C Shares of the Fund.
In addition, under the Service Plan, the Fund may spend up to 0.25% per year of
the Fund's average daily net assets with respect to the Class C Shares for the
ongoing provision of services to Class C shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CONVERSION FEATURE
Class B Shares and any dividend reinvestment plan Class B Shares received on
such shares, automatically convert to Class A Shares eight years after the end
of the calendar month in which the shares were purchased. Such conversion will
be on the basis of the relative net asset values per share, without the
imposition of any sales load, fee or other charge. The conversion schedule
applicable to a share of the Fund acquired through the exchange privilege from
another Van Kampen fund participating in the exchange program is determined by
reference to the Van Kampen fund from which such share was originally purchased.
The conversion of such shares to Class A Shares is subject to the continuing
availability of an opinion of counsel to the effect that (i) the assessment of
the higher distribution fee and transfer agency costs with respect to such
shares does not result in the Fund's dividends or capital gain dividends
constituting "preferential dividends" under the federal income tax law and
(ii) the conversion of shares does not constitute a taxable event under federal
income tax law. The conversion may be suspended if such an opinion is no longer
available and such shares might continue to be subject to the higher aggregate
fees applicable to such shares for an indefinite period.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge is waived on redemptions of Class B Shares
and Class C Shares (i) within one year following the death or disability (as
disability is defined by federal income tax law) of a shareholder, (ii) for
required minimum distributions from an individual retirement account ("IRA") or
certain other retirement plan distributions, (iii) for withdrawals under the
Fund's systematic withdrawal plan but limited to 12% annually of the initial
value of the account, (iv) if no commission or transaction fee is paid to
authorized dealers at the
23
<PAGE>
time of purchase of such shares and (v) if made by involuntary liquidation by
the Fund of a shareholder's account as described under the heading "Redemption
of Shares." Subject to certain limitations, a shareholder who has redeemed
Class C Shares of the Fund may reinvest in Class C Shares at net asset value
with credit for any contingent deferred sales charge if the reinvestment is made
within 180 days after the redemption. For a more complete description of
contingent deferred sales charge waivers, please refer to the Fund's Statement
of Additional Information or contact your authorized dealer.
QUANTITY DISCOUNTS
Investors purchasing Class A Shares may, under certain circumstances described
below, be entitled to pay reduced or no sales charges. Investors, or their
authorized dealers, must notify the Fund at the time of the purchase order
whenever a quantity discount is applicable to purchases. Upon such notification,
an investor will receive the lowest applicable sales charge. Quantity discounts
may be modified or terminated at any time. For more information about quantity
discounts, investors should contact their authorized dealer or the Distributor.
A person eligible for a reduced sales charge includes an individual, his or her
spouse and children under 21 years of age and any corporation, partnership or
sole proprietorship which is 100% owned, either alone or in combination, by any
of the foregoing; a trustee or other fiduciary purchasing for a single trust or
for a single fiduciary account, or a "company" as defined in Section 2(a)(8) of
the 1940 Act.
As used herein, "Participating Funds" refers to certain open-end investment
companies advised by Asset Management or Advisory Corp. and distributed by the
Distributor as determined from time to time by the Fund's Board of Directors.
VOLUME DISCOUNTS. The size of investment shown in the Class A Shares sales
charge table applies to the total dollar amount being invested by any person in
shares of the Fund, or in any combination of shares of the Fund and shares of
other Participating Funds, although other Participating Funds may have different
sales charges.
CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the Class A Shares
sales charge table may also be determined by combining the amount being invested
in shares of the Participating Funds plus the current offering price of all
shares of the Participating Funds which have been previously purchased and are
still owned.
LETTER OF INTENT. A Letter of Intent provides an opportunity for an investor to
obtain a reduced sales charge by aggregating the investments over a 13-month
period to determine the sales charge as outlined in the Class A Shares sales
charge table. The size of investment shown in the Class A Shares sales charge
table includes purchases of shares of the Participating Funds over a 13-month
period based on the total amount of intended purchases plus the value of all
shares of the Participating Funds previously purchased and still owned. An
investor may elect to compute the 13-month period starting up to 90 days before
the date of execution of a Letter of Intent. Each investment made during the
period receives the reduced sales charge applicable to the total amount of the
investment goal. The initial purchase must be for an amount equal to at least 5%
of the minimum total purchase amount of the level selected. If trades not
initially made under a Letter of Intent subsequently qualify for a lower sales
charge through the 90-day backdating provisions, an adjustment will be made at
the time of the expiration of the Letter of Intent to give effect to the lower
charge. Such adjustment in sales charge will be used to purchase additional
shares for the shareholder at the applicable discount category. The Fund
initially will escrow shares totaling 5% of the dollar amount of the Letter of
Intent to be held by Investor Services in the name of the shareholder. In the
event the Letter of Intent goal is not achieved within the specified period, the
investor must pay the difference between the sales charge applicable to the
purchases made and the reduced sales charge previously paid. Such payments may
be made directly to the Distributor or, if not paid, the Distributor will
liquidate sufficient escrowed shares to obtain the difference.
OTHER PURCHASE PROGRAMS
Purchasers of Class A Shares may be entitled to reduced or no initial sales
charges in connection
24
<PAGE>
with the unit investment trust reinvestment program and purchases by registered
representatives of selling firms or purchases by persons affiliated with the
Fund or the Distributor. The Fund reserves the right to modify or terminate
these arrangements at any time.
UNIT INVESTMENT TRUST REINVESTMENT PROGRAM. The Fund permits unitholders of unit
investment trusts to reinvest distributions from such trusts in Class A Shares
of the Fund at net asset value per share and with no minimum initial or
subsequent investment requirement, if the administrator of an investor's unit
investment trust program meets certain uniform criteria relating to cost savings
by the Fund and the Distributor. The total sales charge for all other
investments made from unit investment trust distributions will be 1.00% of the
offering price (1.01% of net asset value). Of this amount, the Distributor will
pay to the authorized dealer, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the terms and conditions that apply to the program,
should contact their authorized dealer or the Distributor.
The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during each distribution period by all investors who choose to invest in
the Fund through the program and (2) provide Investor Services with appropriate
backup data for each investor participating in the program in a computerized
format fully compatible with Investor Services' processing system.
In order to obtain these special benefits, all dividends and other distributions
by the Fund must be reinvested in additional shares and there can not be any
systematic withdrawal program. There will be no minimum for reinvestments from
unit investment trusts. The Fund will send account activity statements to such
participants on a quarterly basis only, even if their investments are made more
frequently. The Fund reserves the right to modify or terminate this program at
any time.
NET ASSET VALUE PURCHASE OPTIONS. Class A Shares of the Fund may be purchased at
net asset value, upon written assurance that the purchase is made for investment
purposes and that the shares will not be resold except through redemption by the
Fund, by:
(1) Current or retired trustees or directors of funds advised by Morgan Stanley
Dean Witter & Co. and any of its subsidiaries and such persons' families
and their beneficial accounts.
(2) Current or retired directors, officers and employees of Morgan Stanley Dean
Witter & Co. and any of its subsidiaries; employees of an investment
subadviser to any fund described in (1) above or an affiliate of such
subadviser; and such persons' families and their beneficial accounts.
(3) Directors, officers, employees and, when permitted, registered
representatives, of financial institutions that have a selling group
agreement with the Distributor and their spouses and children under 21
years of age when purchasing for any accounts they beneficially own, or, in
the case of any such financial institution, when purchasing for retirement
plans for such institution's employees; provided that such purchases are
otherwise permitted by such institutions.
(4) Registered investment advisers who charge a fee for their services, trust
companies and bank trust departments investing on their own behalf or on
behalf of their clients. The Distributor may pay authorized dealers through
which purchases are made an amount up to 0.50% of the amount invested, over
a 12-month period.
(5) Trustees and other fiduciaries purchasing shares for retirement plans which
invest in multiple fund families through broker-dealer retirement plan
alliance programs that have entered into agreements with the Distributor
and which are subject to certain minimum size and operational requirements.
Trustees and other fiduciaries should refer to the Statement of Additional
Information for further details with respect to such alliance programs.
(6) Beneficial owners of shares of Participating Funds held by a retirement
plan or held in a tax-advantaged retirement account who purchase shares of
the Fund with proceeds from distributions from such a plan or retirement
account
25
<PAGE>
other than distributions taken to correct an excess contribution.
(7) Accounts as to which a bank or broker-dealer charges an account management
fee ("wrap accounts"), provided the bank or broker-dealer has a separate
agreement with the Distributor.
(8) Trusts created under pension, profit sharing or other employee benefit
plans qualified under Section 401(a) of the Internal Revenue Code of 1986,
as amended (the "Code"), or custodial accounts held by a bank created
pursuant to Section 403(b) of the Code and sponsored by nonprofit
organizations defined under Section 501(c)(3) of the Code and assets held
by an employer or trustee in connection with an eligible deferred
compensation plan under Section 457 of the Code. Such plans will qualify
for purchases at net asset value provided, for plans initially establishing
accounts with the Distributor in the Participating Funds after February 1,
1997, that (1) the initial amount invested in the Participating Funds is at
least $500,000 or (2) such shares are purchased by an employer sponsored
plan with more than 100 eligible employees. Such plans that have been
established with a Participating Fund or have received proposals from the
Distributor prior to February 1, 1997 based on net asset value purchase
privileges previously in effect will be qualified to purchase shares of the
Participating Funds at net asset value for accounts established on or
before May 1, 1997. Section 403(b) and similar accounts for which Van
Kampen Trust Company serves as custodian will not be eligible for net asset
value purchases based on the aggregate investment made by the plan or the
number of eligible employees, except under certain uniform criteria
established by the Distributor from time to time. Prior to February 1,
1997, a commission will be paid to authorized dealers who initiate and are
responsible for such purchases within a rolling twelve- month period as
follows: 1.00% on sales to $5 million, plus 0.50% on the next $5 million,
plus 0.25% on the excess over $10 million. For purchases on February 1,
1997 and thereafter, a commission will be paid as follows: 1.00% on sales
to $2 million, plus 0.80% on the next $1 million, plus 0.50% on the next
$47 million, plus 0.25% on the excess over $50 million.
(9) Individuals who are members of a "qualified group." For this purpose, a
qualified group is one which (i) has been in existence for more than six
months, (ii) has a purpose other than to acquire shares of the Fund or
similar investments, (iii) has given and continues to give its endorsement
or authorization, on behalf of the group, for purchase of shares of the
Fund and Participating Funds, (iv) has a membership that the authorized
dealer can certify as to the group's members and (v) satisfies other
uniform criteria established by the Distributor for the purpose of
realizing economies of scale in distributing such shares. A qualified group
does not include one whose sole organizational nexus, for example, is that
its participants are credit card holders of the same institution, policy
holders of an insurance company, customers of a bank or broker-dealer,
clients of an investment adviser or other similar groups. Shares purchased
in each group's participants account in connection with this privilege will
be subject to a contingent deferred sales charge of 1.00% in the event of
redemption within one year of purchase, and a commission will be paid to
authorized dealers who initiate and are responsible for such sales to each
individual as follows: 1.00% on sales to $2 million, plus 0.80% on the next
$1 million and 0.50% on the excess over $3 million.
The term "families" includes a person's spouse, children under 21 years of age
and grandchildren, parents, and a person's spouse's parents.
Purchase orders made pursuant to clause (4) may be placed either through
authorized dealers as described above or directly with Investor Services by the
investment adviser, trust company or bank trust department, provided that
Investor Services receives federal funds for the purchase by the close of
business on the next business day following acceptance of the order. An
authorized dealer may charge a transaction fee for placing an order to purchase
shares pursuant to this provision or for placing a redemption order with respect
to such shares. Authorized dealers will be paid a service fee as described above
on purchases made under options (3) through (9) above. The Fund may terminate,
or
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amend the terms of, offering shares of the Fund at net asset value to such
groups at any time.
REDEMPTION OF
SHARES
Generally shareholders may redeem for cash some or all of their shares without
charge by the Fund (other than applicable sales charge) at any time. As
described under the heading "Purchase of Shares," redemptions of Class B Shares
and Class C Shares may be subject to a contingent deferred sales charge. In
addition, certain redemptions of Class A Shares for shareholder accounts of $1
million or more may be subject to a contingent deferred sales charge.
Redemptions completed through an authorized dealer or a custodian of a
retirement plan account may involve additional fees charged by the dealer or
custodian.
Except as specified below under "Telephone Redemption Requests," payment for
shares redeemed generally will be made by check mailed within seven days after
receipt by Investor Services of the request and any other necessary documents in
proper form as described below. Such payment may be postponed or the right of
redemption suspended as provided by the rules of the SEC. Such payment may,
under certain circumstances, be paid wholly or in part by a distribution-in-kind
of portfolio securities which may result in brokerage costs and a gain or loss
for federal income tax purposes when such securities are sold. If the shares to
be redeemed have been recently purchased by check, Investor Services may delay
the payment of redemption proceeds until it confirms the purchase check has
cleared, which may take up to 15 days. A taxable gain or loss will be recognized
by the shareholder upon redemption of shares.
WRITTEN REDEMPTION REQUESTS. Shareholders may request a redemption of shares by
written request in proper form sent directly to Van Kampen Investor Services
Inc., PO Box 218256, Kansas City, MO 64121-8256. The request for redemption
should indicate the number of shares to be redeemed, the class designation of
such shares and the shareholder's account number. The redemption request must be
signed by all persons in whose names the shares are registered. Signatures must
conform exactly to the account registration. If the proceeds of the redemption
exceed $50,000, or if the proceeds are not to be paid to the record owner at the
record address, or if the record address has changed within the previous 30
days, signature(s) must be guaranteed by one of the following: a bank or trust
company; a broker-dealer; a credit union; a national securities exchange,
registered securities association or clearing agency; a savings and loan
association; or a federal savings bank.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption to be in proper form. In some
cases, however, additional documents may be necessary. In the case of
shareholders holding certificates, the certificates for the shares being
redeemed properly endorsed for transfer must accompany the redemption request.
In the event the redemption is requested by a corporation, partnership, trust,
fiduciary, executor or administrator, and the name and title of the
individual(s) authorizing such redemption is not shown in the account
registration, a copy of the corporate resolution or other legal documentation
appointing the authorized signer and certified within the prior 120 days must
accompany the redemption request. IRA redemption requests should be sent to the
IRA custodian to be forwarded to Investor Services. Contact the IRA custodian
for further information.
In the case of written redemption requests sent directly to Investor Services,
the redemption price is the net asset value per share next determined after the
request in proper form is received by Investor Services.
AUTHORIZED DEALER REDEMPTION REQUESTS. Shareholders may place redemption
requests through an authorized dealer. Orders sent through authorized dealers
must be at least $500 (unless transmitted by your authorized dealer via the
FUNDSERV network). The redemption price for such shares is the net asset value
per share next calculated after an order in proper form is received by an
authorized dealer provided such order is transmitted to the
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Distributor prior to the Distributor's close of business on such day. It is the
responsibility of authorized dealers to transmit redemption requests received by
them to the Distributor so they will be received prior to such time. Redemptions
completed through an authorized dealer may involve additional fees charged by
the dealer.
TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. A shareholder
automatically has telephone redemption privileges unless the shareholder
indicates otherwise by checking the applicable box on the application form
accompanying the prospectus. To redeem shares, contact the telephone transaction
line at (800) 421-5684. Van Kampen Investments, Investor Services and the Fund
employ procedures considered by them to be reasonable to confirm that
instructions communicated by telephone are genuine. Such procedures include
requiring certain personal identification information prior to acting upon
telephone instructions, tape-recording telephone communications and providing
written confirmation of instructions communicated by telephone. If reasonable
procedures are employed, none of Van Kampen Investments, Investor Services or
the Fund will be liable for following telephone instructions which it reasonably
believes to be genuine. Telephone redemptions may not be available if the
shareholder cannot reach Investor Services by telephone, whether because all
telephone lines are busy or for any other reason; in such case, a shareholder
would have to use the Fund's other redemption procedure previously described.
Requests received by Investor Services prior to 4:00 p.m., New York time, will
be processed at the next determined net asset value per share. These privileges
are available for all accounts other than retirement accounts or accounts with
shares represented by certificates. If an account has multiple owners, Investor
Services may rely on the instructions of any one owner.
For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check and amounts of at least
$1,000 up to $1 million may be redeemed daily if the proceeds are to be paid by
wire. The proceeds must be payable to the shareholder(s) of record and sent to
the address of record for the account or wired directly to their predesignated
bank account. This privilege is not available if the address of record has been
changed within 30 days prior to a telephone redemption request. Proceeds from
redemptions payable by wire transfer are expected to be wired on the next
business day following the date of redemption. The Fund reserves the right at
any time to terminate, limit or otherwise modify this redemption privilege.
OTHER REDEMPTION INFORMATION. The Fund may redeem shares of any shareholder
account that has a value on the date of the notice of redemption less than the
minimum initial investment as specified in this prospectus. At least 60 days
advance written notice of any such involuntary redemption will be provided to
the shareholder and such shareholder will be given an opportunity to purchase
the required value of additional shares at the next determined net asset value
without sales charge. Any involuntary redemption may only occur if the
shareholder account is less than the minimum initial investment due to
shareholder redemptions.
DISTRIBUTIONS FROM
THE FUND
In addition to any increase in the value of shares which the Fund may achieve,
shareholders may receive distributions from the Fund of dividends and capital
gain dividends.
DIVIDENDS. Interest earned from investments is the Fund's main source of income.
The Fund's present policy, which may be changed at any time by the Board of
Directors is to distribute all or substantially all of this income, less
expenses, at least annually as dividends to shareholders. Dividends are
automatically applied to purchase additional shares of the Fund at the next
determined net asset value unless the shareholder instructs otherwise.
The per share dividends on Class B Shares and Class C Shares may be lower than
the per share dividends on Class A Shares as a result of the higher
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distribution fees and transfer agency costs applicable to such classes of
shares.
CAPITAL GAIN DIVIDENDS. The Fund may realize capital gains or losses when it
sells securities, depending on whether the sales prices for the securities are
higher or lower than purchase prices. Net realized capital gain represents the
total profits from sales of securities minus total losses from sales of
securities (including any losses carried forward from prior years), other than
net short-term capital gain from sales of securities held for one year or less.
The Fund distributes any taxable net realized capital gain to shareholders as
capital gain dividends at least annually. As in the case of dividends, capital
gain dividends are automatically reinvested in additional shares of the Fund at
the next determined net asset value unless the shareholder instructs otherwise.
SHAREHOLDER SERVICES
Listed below are some of the shareholder services the Fund offers to investors.
For a more complete description of the Fund's shareholder services, such as
investment accounts, share certificates, retirement plans, automated clearing
house deposits, dividend diversification and the systematic withdrawal plan,
please refer to the Statement of Additional Information or contact your
authorized dealer.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gain dividends in shares of the
Fund. Such shares are acquired at net asset value per share (without sales
charge) on the applicable payable date of the dividend or capital gain
dividends. Unless the shareholder instructs otherwise, the reinvestment plan is
automatic. This instruction may be made by telephone by calling (800) 341-2911
((800) 421-2833 for the hearing impaired) or by writing to Investor Services.
The investor may, on the initial application or prior to any declaration,
instruct that dividends be paid in cash and capital gain dividends be reinvested
at net asset value, or that both dividends and capital gain dividends be paid in
cash.
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under which
a shareholder can authorize Investor Services to charge a bank account on a
regular basis to invest predetermined amounts in the Fund. Additional
information is available from the Distributor or your authorized dealer.
EXCHANGE PRIVILEGE. Shares of the Fund may be exchanged for shares of the same
class of any Participating Fund based on the next computed net asset value per
share of each fund after requesting the exchange without any sales charge,
subject to certain limitations. Shares of the Fund may be exchanged for shares
of any Participating Fund only if shares of that Participating Fund are
available for sale; however, during periods of suspension of sales, shares of a
Participating Fund may be available for sale only to existing shareholders of a
Participating Fund. Shareholders seeking an exchange into a Participating Fund
should obtain and read the current prospectus for such fund prior to
implementing an exchange. A prospectus of any of the Participating Funds may be
obtained from any authorized dealer or the Distributor.
To be eligible for exchange, shares of the Fund must have been registered in the
shareholder's name for at least 30 days prior to an exchange. Shares of the Fund
registered in a shareholder's name for less than 30 days may only be exchanged
upon receipt of prior approval of the Adviser. It is the policy of the Adviser,
under normal circumstances, not to approve such requests.
When shares that are subject to a contingent deferred sales charge are exchanged
among Participating Funds, the holding period for purposes of computing the
contingent deferred sales charge is based upon the date of the initial purchase
of such shares from a Participating Fund. When such shares are redeemed and not
exchanged for shares of another Participating Fund, the shares are subject to
the contingent deferred sales charge schedule imposed by the Participating Fund
from which such shares were originally purchased.
Exchanges of shares are sales of one Participating Fund and purchases of another
Participating Fund. The sale may result in a gain or loss for federal income tax
purposes. If the shares sold have been
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<PAGE>
held for less than 91 days, the sales charge paid on such shares is carried over
and included in the tax basis of the shares acquired.
A shareholder wishing to make an exchange may do so by sending a written request
to Investor Services or by contacting the telephone transaction line at
(800) 421-5684. A shareholder automatically has telephone exchange privileges
unless the shareholder indicates otherwise by checking the applicable box on the
application form accompanying the prospectus. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated by telephone are genuine. Such procedures
include requiring certain personal identification information prior to acting
upon telephone instructions, tape-recording telephone communications, and
providing written confirmation of instructions communicated by telephone. If
reasonable procedures are employed, none of Van Kampen Investments, Investor
Services or the Fund will be liable for following telephone instructions which
it reasonably believes to be genuine. If the exchanging shareholder does not
have an account in the fund whose shares are being acquired, a new account will
be established with the same registration, dividend and capital gain dividend
options (except dividend diversification) and authorized dealer of record as the
account from which shares are exchanged, unless otherwise specified by the
shareholder. In order to establish a systematic withdrawal plan for the new
account or reinvest dividends from the new account into another fund, however,
an exchanging shareholder must submit a specific request. The Fund reserves the
right to reject any order to acquire its shares through exchange. In addition,
the Fund and other Participating Funds may restrict exchanges by shareholders
engaged in excessive trading by limiting or disallowing the exchange privileges
to such shareholders. For further information on these restrictions see the
Statement of Additional Information. The Fund may modify, restrict or terminate
the exchange privilege at any time on 60 days notice to its shareholders of any
termination or material amendment.
For purposes of determining the sales charge rate previously paid on Class A
Shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchanged security was acquired through reinvestment, that
security is deemed to have been sold with a sales charge rate equal to the rate
previously paid on the security on which the dividend or distribution was paid.
If a shareholder exchanges less than all of such shareholder's securities, the
security upon which the highest sales charge rate was previously paid is deemed
exchanged first.
Exchange requests received on a business day prior to the time shares of the
funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares of the fund which the
shareholder is redeeming will be redeemed at the net asset value per share next
determined on the date of receipt. Shares of the new fund that the shareholder
is purchasing will also normally be purchased at the net asset value per share,
plus any applicable sales charge, next determined on the date of receipt.
Exchange requests received on a business day after the time shares of the funds
involved in the request are priced will be processed on the next business day in
the manner described herein.
INTERNET TRANSACTIONS. In addition to performing transactions on your account
through written instruction or by telephone, you may also perform certain
transactions through the internet. Please refer to our web site at
www.vankampen.com for further instruction. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated through the internet are genuine. Such
procedures include requiring use of a personal identification number prior to
acting upon internet instructions and providing written confirmation of
instructions communicated through the internet. If reasonable procedures are
employed, none of Van Kampen Investments, Investor Services or the Fund will be
liable for following instructions received 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.
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FEDERAL INCOME
TAXATION
Distributions of the Fund's net investment income (consisting generally of
taxable income and net short-term capital gain) are taxable to shareholders as
ordinary income to the extent of the Fund's earnings and profits, whether paid
in cash or reinvested in additional shares. Distributions of the Fund's realized
net capital gain (which is the excess of net long-term capital gain over net
short-term capital loss) as capital gain dividends, if any, are taxable to
shareholders as long-term capital gains, whether paid in cash or reinvested in
additional shares, and regardless of how long the shares of the Fund have been
held by such shareholders. The Fund expects that its distributions will consist
primarily of ordinary income and capital gain dividends. Distributions in excess
of the Fund's earnings and profits will first reduce the adjusted tax basis of a
holder's shares and, after such adjusted tax basis is reduced to zero, will
constitute capital gains to such holder (assuming such shares are held as a
capital asset). Although distributions generally are treated as taxable in the
year they are paid, distributions declared in October, November or December,
payable to shareholders of record on a specified date in such month and paid
during January of the following year will be treated as having been distributed
by the Fund and received by the shareholders on the December 31st prior to the
date of payment. The Fund will inform shareholders of the source and tax status
of all distributions promptly after the close of each calendar year.
The sale or exchange of shares is a taxable transaction for federal income tax
purposes. Shareholders who sell their shares will generally recognize gain or
loss in an amount equal to the difference between their adjusted tax basis in
the shares sold and the amount received. If the shares are held as a capital
asset, the gain or loss will be a capital gain or loss. Any capital gains may be
taxed at different rates depending on how long the shareholder held such shares.
The Fund is required, in certain circumstances, to withhold 31% of dividends and
certain other payments, including redemptions, paid to shareholders who do not
furnish to the Fund their correct taxpayer identification number (in the case of
individuals, their social security number) and certain required certifications
or who are otherwise subject to backup withholding.
Foreign shareholders, including shareholders who are non-resident aliens, may be
subject to U.S. withholding tax on certain distributions (whether received in
cash or in shares) at a rate of 30% or such lower rate as prescribed by an
applicable treaty. Accordingly, investment in the Fund is likely to be
appropriate for a foreign shareholder only if such person can utilize a foreign
tax credit or corresponding tax benefit in respect of such U.S. withholding tax.
Prospective foreign investors should consult their tax advisers concerning the
tax consequences to them of an investment in shares.
The Fund intends to qualify as a regulated investment company under federal
income tax law. If the Fund so qualifies and distributes each year to its
shareholders at least 90% of its net investment income, the Fund will not be
required to pay federal income taxes on any income it distributes to
shareholders. If the Fund distributes less than an amount equal to the sum of
98% of its ordinary income and 98% of its capital gain net income, then the Fund
will be subject to a 4% excise tax on the undistributed amounts.
The federal income tax discussion set forth above is for general information
only. Prospective investors should consult their own tax advisers regarding the
specific federal tax consequences of purchasing, holding, disposing, exchanging
or selling of shares, as well as the effects of state, local and foreign tax law
and any proposed tax law changes.
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APPENDIX -- DESCRIPTION OF SECURITIES RATINGS
STANDARD & POOR'S -- A brief description of the applicable Standard & Poor's
(S&P) rating symbols and their meanings (as published by S&P) follow:
A S&P corporate or municipal debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees.
The debt rating is not a recommendation to purchase, sell, or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished by the issuer or obtained
by S&P from other sources it considers reliable. S&P does not perform an audit
in connection with any rating and may, on occasion, rely on unaudited financial
information. The ratings may be changed, suspended, or withdrawn as a result of
changes in, or unavailability of, such information, or based on other
circumstances.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of payment -- capacity and willingness of the obligor to meet its
financial commitment on an obligation in accordance with the terms of the
obligation:
2. Nature of and provisions of the obligation:
3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditor's rights.
1. LONG-TERM DEBT -- INVESTMENT GRADE
AAA: Debt rated "AAA" has the highest rating assigned by S&P. Capacity to meet
its financial commitment on the obligation is extremely strong.
AA: Debt rated "AA" differs from the highest rated issues only in small degree.
Capacity to meets its financial commitment on the obligation is very strong.
A: Debt rated "A" is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than obligations in higher rated
categories. Capacity to meet its financial commitment on the obligation is still
strong.
BBB: Debt rated "BBB" exhibits adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to meet its financial commitment on the obligation.
SPECULATIVE GRADE
BB, B, CCC, CC, C: Debts rated "BB", "B", "CCC", "CC" and "C" are regarded as
having significant speculative characteristics. "BB" indicates the least degree
of speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
BB: Debt rated "BB" is less vulnerable to nonpayment than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
B: Debt rated "B" is more vulnerable to nonpayment than obligations rated "BB",
but the obligor currently has the capacity to meet its financial commitment on
the obligation. Adverse business, financial, or economic conditions will likely
impair the obligor's capacity or willingness to meet its financial commitment on
the obligation.
CCC: Debt rated "CCC" is currently vulnerable to nonpayment, and is dependent
upon favorable business, financial, and economic conditions for the obligor to
meet its financial commitment on the obligation. In the event of adverse
business, financial, or economic conditions, the obligor is not likely to have
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the capacity to meet its financial commitment on the obligation.
CC: Debt rated "CC" is currently highly vulnerable to nonpayment.
C: the "C" rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments on this obligation
are being continued.
D: Debt rated "D" is in payment default. The "D" rating category is used when
payments on an obligation are not made on the date due even if the applicable
grace period has not expired, unless S&P believes that such payments will be
made during such grace period. The "D" rating also will be used upon the filing
of a bankruptcy petition or the taking of a similar action if payments on an
obligation are jeopardized.
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
r: This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk -- such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
DEBT OBLIGATIONS OF ISSUERS OUTSIDE THE UNITED STATES AND ITS TERRITORIES are
rated on the same basis as domestic corporate and municipal issues. The ratings
measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.
BOND INVESTMENT QUALITY STANDARDS: Under present commercial bank regulations
issued by the Comptroller of the Currency, bonds rated in the top four
categories ("AAA", "AA", "A", "BBB", commonly known as "investment grade"
ratings) are generally regarded as eligible for bank investment. In addition,
the laws of various states governing legal investments impose certain ratings or
other standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.
2. COMMERCIAL PAPER
A S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.
Ratings are graded into several categories, ranging from "A-1" for the highest
quality obligations to "D" for the lowest. These categories are as follows:
A-1: The highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
A-3: Issues carrying this designation have adequate capacity for timely payment.
They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B: Issues rated "B" are regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
C: This rating is assigned to short-term debt obligations currently vulnerable
to nonpayment and is dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on the obligation.
D: Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired,
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unless S&P believes that such payments will be made during such grace period.
The "D" rating also will be used upon the filing of a bankruptcy petition or the
taking of a similar action if payments on an obligation are jeopardized.
A commercial paper rating is not a recommendation to purchase, sell or hold a
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained from other sources it considers reliable. S&P does
not perform an audit in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed, suspended or
withdrawn as a result of changes in, or unavailability of, such information, or
based on other circumstances.
3. PREFERRED STOCK
A S&P preferred stock rating is an assessment of the capacity and willingness of
an issuer to pay preferred stock dividends and any applicable sinking fund
obligations. A preferred stock rating differs from a bond rating inasmuch as it
is assigned to an equity issue, which issue is intrinsically different from, and
subordinated to, a debt issue. Therefore, to reflect this difference, the
preferred stock rating symbol will normally not be higher than the bond rating
symbol assigned to, or that would be assigned to, the senior debt of the same
issuer.
The preferred stock ratings are based on the following considerations:
i. Likelihood of payment-capacity and willingness of the issuer to meet the
timely payment of preferred stock dividends and any applicable sinking fund
requirements in accordance with the terms of the obligation.
ii. Nature of, and provisions of, the issuer.
iii. Relative position of the issue in the event of bankruptcy, reorganization,
or other arrangements under the laws of bankruptcy and other laws affecting
creditors' rights.
AAA: This is the highest rating that may be assigned by S&P to a preferred stock
issue and indicates an extremely strong capacity to pay the preferred stock
obligations.
AA: A preferred stock issue rated "AA" also qualifies as a high-quality, fixed
income security. The capacity to pay preferred stock obligations is very strong,
although not as overwhelming as for issues rated "AAA".
A: An issue rated "A" is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
BBB: An issue rated "BBB" is regarded as backed by an adequate capacity to pay
the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the "A" category.
BB, B and CCC: Preferred stock rated "BB", "B", and "CCC" are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay preferred stock obligations.
"BB" indicates the lowest degree of speculation and "CCC" the highest. While
such issues will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
CC: The rating "CC" is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments, but that is currently paying.
C: A preferred stock rated "C" is a nonpaying issue.
D: A preferred stock rated "D" is a nonpaying issue with the issuer in default
on debt instruments.
NR: This indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy. PLUS (+) or MINUS (-): To provide more
detailed indications of preferred stock quality, ratings
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from "AA" to "CCC" may be modified by the addition of a plus or minus sign to
show relative standing within the major rating categories.
A preferred stock rating is not a recommendation to purchase, sell, or hold a
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained by S&P from other sources it considers reliable.
S&P does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended, or withdrawn as a result of changes in, or unavailability of, such
information, or based on other circumstances.
MOODY'S INVESTORS SERVICE -- a brief description of the applicable Moody's
Investors Service (Moody's) rating symbols and their meanings (as published by
Moody's Investors Service) follows:
1. LONG-TERM DEBT
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than the Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payment
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
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 market shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the issue ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.
A-4
<PAGE>
ABSENCE OF RATING: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not rated as a
matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published in
Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
2. SHORT-TERM DEBT
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations. These obligations have an original maturity
not exceeding one year unless explicitly noted.
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issues:
Issuers rated Prime-1 (or supporting institutions) have a superior ability for
repayment or senior short-term debt obligations. Prime-1 repayment ability will
often be evidenced by many of the following characteristics:
- -- Leading market positions in well-established industries.
- -- High rates of return on funds employed.
- -- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
- -- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- -- Well-established access to a range of financial markets and assured sources
of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability for
repayment of senior short-term debt obligations. This will normally be evidenced
by many of the characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or supporting institutions) have an acceptable ability
for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes of the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
3. PREFERRED STOCK
Preferred stock rating symbols and their definitions are as follows:
AAA: An issue which is rated "AAA" is considered to be a top-quality preferred
stock. This rating indicates good asset protection and the least risk of
dividend impairment within the universe of preferred stocks.
AA: An issue which is rated "AA" is considered a high-grade preferred stock.
This rating indicates that there is a reasonable assurance the earnings and
asset protection will remain relatively well maintained in the foreseeable
future.
A: An issue which is rated "A" is considered to be an upper-medium-grade
preferred stock. While risks are judged to be somewhat greater than in the "AAA"
and "AA" classifications, earnings and asset protections are, nevertheless,
expected to be maintained at adequate levels.
A-5
<PAGE>
BAA: An issue which is rated "BAA" is considered to be a medium-grade preferred
stock, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any great
length of time.
BA: An issue which is rated "BA" is considered to have speculative elements and
its future cannot be considered well assured. Earnings and asset protection may
be very moderate and not well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.
B: An issue which is rated "B" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
CAA: An issue which is rated "CAA" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future status
of payments.
CA: An issue which is rated "CA" is speculative in a high degree and is likely
to be in arrears on dividends with little likelihood of eventual payment.
C: This is the lowest rated class of preferred or preference stock. Issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Moody's applies numerical modifiers 1, 2 and 3 in each rating classification.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category, the modifier 2 indicates a mid-range ranking, and the
modifier 3 indicates that the issue ranks in the lower end of its generic rating
category.
A-6
<PAGE>
BOARD OF DIRECTORS
AND OFFICERS
BOARD OF DIRECTORS
<TABLE>
<S> <C>
J. Miles Branagan Don G. Powell*
Jerry D. Choate Phillip B. Rooney
Richard M. DeMartini* Fernando Sisto
Linda Hutton Heagy Wayne W. Whalen*
R. Craig Kennedy Suzanne H. Woolsey
Jack E. Nelson Paul G. Yovovich
</TABLE>
OFFICERS
Richard F. Powers, III*
PRESIDENT
Dennis J. McDonnell*
EXECUTIVE VICE PRESIDENT & CHIEF INVESTMENT OFFICER
A. Thomas Smith III*
VICE PRESIDENT AND SECRETARY
Edward C. Wood III*
VICE PRESIDENT
Michael H. Santo*
VICE PRESIDENT
Peter W. Hegel*
VICE PRESIDENT
Stephen L. Boyd*
VICE PRESIDENT
Joseph P. Stadler*
VICE PRESIDENT
John L. Sullivan*
VICE PRESIDENT, CHIEF FINANCIAL OFFICER & TREASURER
Curtis W. Morell*
VICE PRESIDENT & CHIEF ACCOUNTING OFFICER
Tanya M. Loden*
CONTROLLER
* "Interested Persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2911
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders, or
redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call
(800) 421-2833
FUNDINFO-REGISTERED TRADEMARK-
For automated telephone services, call (800) 847-2424
WEB SITE
www.vankampen.com
VAN KAMPEN EMERGING MARKETS DEBT FUND
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
INVESTMENT ADVISER AND ADMINISTRATOR
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
INVESTMENT SUBADVISER
MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC.
1221 Avenue of the Americas
New York, NY 10020
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
TRANSFER AGENT
VAN KAMPEN INVESTOR SERVICES INC.
PO Box 218256
Kansas City, MO 64121-8256
Attn: Van Kampen Emerging Markets Debt Fund
CUSTODIAN
THE CHASE MANHATTAN BANK
3 MetroTech Center
Brooklyn, NY 11245
Attn: Van Kampen Emerging Markets Debt Fund
LEGAL COUNSEL
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
INDEPENDENT ACCOUNTANTS
PRICEWATERHOUSECOOPERS LLP
200 East Randolph Drive
Chicago, IL 60601
<PAGE>
VAN KAMPEN
EMERGING MARKETS
DEBT FUND
PROSPECTUS
OCTOBER 28, 1999
A Statement of Additional Information, which contains more details about the
Fund, is incorporated by reference in its entirety into this prospectus.
You will find additional information about the Fund in its annual and semiannual
reports to shareholders. The annual report explains the market conditions and
investment strategies affecting the Fund's performance during its last fiscal
year.
You can ask questions or obtain a free copy of the Fund's reports or its
Statement of Additional Information by calling (800) 341-2911 from 7:00 a.m. to
7:00 p.m., Central time, Monday through Friday. Telecommunications Device for
the Deaf users may call (800) 421-2833. A free copy of the Fund's reports can
also be ordered from our web site at www.vankampen.com.
Information about the Fund, including its reports and Statement of Additional
Information, has been filed with the Securities and Exchange Commission (SEC).
It can be reviewed and copied at the SEC's Public Reference Room in Washington,
DC or on the EDGAR Database on the SEC's internet site (http://www.sec.gov).
Information on the operation of the SEC's Public Reference Room may be obtained
by calling the SEC at 1-202-942-8090. You can also request copies of these
materials, upon payment of a duplicating fee, by electronic request at the SEC's
e-mail address ([email protected]), or by writing the Public Reference Section
of the SEC, Washington, DC, 20549-0102.
[LOGO]
THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-7140.
<PAGE>
VAN KAMPEN
EMERGING MARKETS FUND
Van Kampen Emerging Markets Fund is a mutual fund with an investment objective
to seek to provide long-term capital appreciation by investing primarily in
equity securities of emerging country issuers.
Shares of the Fund have not been approved or disapproved by the Securities and
Exchange Commission (SEC) or any state regulator, and neither the SEC nor any
state regulator has passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
THIS PROSPECTUS IS DATED OCTOBER 28, 1999.
[LOGO]
<PAGE>
TABLE OF CONTENTS
Risk/Return Summary .....................................................3
Fees and Expenses of the Fund ...........................................6
Investment Objective, Policies and Risks ................................7
Investment Advisory Services ...........................................14
Purchase of Shares .....................................................15
Redemption of Shares ...................................................22
Distributions from the Fund ............................................24
Shareholder Services ...................................................24
Federal Income Taxation ................................................26
Financial Highlights ...................................................28
Appendix -- Description of Securities Ratings .........................A-1
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations, other than those contained in this
prospectus, in connection with the offer contained in this prospectus and, if
given or made, such other information or representations must not be relied upon
as having been authorized by the Fund, the Fund's investment adviser or the
Fund's distributor. This prospectus does not constitute an offer by the Fund or
by the Fund's distributor to sell or a solicitation of an offer to buy any of
the securities offered hereby in any jurisdiction to any person to whom it is
unlawful for the Fund to make such an offer in such jurisdiction.
<PAGE>
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The Fund is a mutual fund with an investment objective to seek to provide
long-term capital appreciation by investing primarily in equity securities of
emerging country issuers. Any income received from the investment of portfolio
securities is incidental to the Fund's investment objective.
INVESTMENT STRATEGIES
Under normal market conditions, the Fund's investment adviser seeks to achieve
the Fund's investment objective by investing at least 65% of the Fund's total
assets in a portfolio of equity securities of emerging country issuers. Equity
securities include common and preferred stocks, convertible securities, rights
and warrants to purchase common stock and depositary receipts. The Fund's
investment adviser seeks to maximize returns by investing in growth-oriented
equity securities of emerging country issuers. The Fund's investment adviser
combines top-down country criteria to allocate the Fund's assets among countries
(based on relative economic, political and social fundamentals, stock
valuations, and investor sentiment) with bottom-up fundamental analysis of
issuers (seeking to identify issuers with strong earnings growth potential).
Portfolio securities are typically sold when any one or more of these
assessments materially changes. The Fund may invest up to 35% of its total
assets in debt securities, including up to 10% of its total assets in
lower-grade debt securities (commonly referred to as "junk bonds"), which
involve special risks. The Fund may purchase and sell certain derivative
instruments (such as options, futures, options on futures and, to the extent
available, currency-related transactions involving options, futures, forward
contracts and swaps) for various portfolio management purposes.
INVESTMENT RISKS
An investment in the Fund is subject to investment risks, and you could lose
money on your investment in the Fund. There can be no assurance that the Fund
will achieve its investment objective.
MARKET RISK. Market risk is the possibility that the market values of securities
owned by the Fund will decline. Market risk may affect a single issuer,
industry, sector of the economy or the market as a whole. Investments in common
stocks and other equity securities generally are affected by changes in the
stock markets, which fluctuate substantially over time, sometimes suddenly and
sharply. In general, market values of equity securities are more volatile than
those of debt securities. Investments in debt securities generally are affected
by changes in interest rates and creditworthiness of the issuer. The prices of
debt securities tend to fall as interest rates rise, and such declines tend to
be greater among debt securities with longer maturities. Foreign markets may,
but often do not, move in tandem with U.S. markets, and foreign markets,
especially developing or emerging market countries, may be more volatile than
U.S. markets. In addition, securities of emerging country issuers may
underperform relative to other sectors of the market. Thus, the value of the
Fund's investments will vary and at times may be lower or higher than that of
other types of investments. During an overall stock market decline, stock prices
of smaller companies often fluctuate more and may fall more than the stock
prices of larger companies.
RISKS OF INVESTING IN EMERGING COUNTRY ISSUERS. Because the Fund owns securities
of foreign issuers, it is subject to risks not usually associated with owning
securities of U.S. issuers. These risks include fluctuations in foreign
currencies, foreign currency exchange controls, political and economic
instability, differences in financial reporting, differences in securities
regulation and trading and foreign taxation issues. The risks of investing in
emerging countries are greater than the risks generally associated with foreign
investments, including investment and trading limitations, greater credit and
liquidity concerns, greater political uncertainties, an economy's dependence on
international development assistance, greater foreign currency exchange risks
and currency transfer restrictions, greater delays and disruptions in settlement
transactions and greater risks associated with computer programs and the Year
2000 problem. To the extent the Fund focuses more of its assets in a single
country or region, its portfolio would be more susceptible to factors adversely
affecting issuers in that country or region.
3
<PAGE>
RISKS OF USING DERIVATIVE INVESTMENTS. In general terms, a derivative investment
is one whose value depends on (or is derived from) the value of an underlying
asset, interest rate or index. Options, futures, options on futures and
currency-related transactions involving options, futures, forward contracts and
swaps are examples of derivatives. Derivative investments involve risks
different from direct investment in underlying securities. These risks include
imperfect correlation between the value of the instruments and the underlying
assets; risks of default by the other party to certain transactions; risks that
the transactions may result in losses that partially or completely offset gains
in portfolio positions; risks that the transactions may not be liquid; and
manager risk.
NON-DIVERSIFICATION RISKS. The Fund is classified as a "non-diversified" fund,
which means the Fund may invest a greater portion of its assets in a more
limited number of issuers than a "diversified" fund. As a result, the Fund may
be subject to greater risk than a diversified fund because changes in the
financial condition or market assessment of a single issuer may cause greater
fluctuations in the value of the Fund's shares.
MANAGER RISK. As with any managed fund, the Fund's investment adviser may not be
successful in selecting the best-performing securities or investment techniques
and the Fund's performance may lag behind that of similar funds.
INVESTOR PROFILE
In light of the Fund's investment objective and strategies, the Fund may be
appropriate for investors who:
- - Seek capital appreciation over the long term.
- - Do not seek current income from their investment.
- - Are willing to take on the substantially increased risks associated with
investing in securities of emerging country issuers.
- - Can withstand substantial volatility in the value of their Fund shares.
- - Wish to add to their investment portfolio a fund that invests primarily in a
non-diversified portfolio of equity securities of emerging country issuers.
An investment in the Fund is not a deposit of any bank or other insured
depository institution. Your investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
An investment in the Fund may not be appropriate for all investors. The Fund is
not intended to be a complete investment program, and investors should consider
their long-term investment goals and financial needs when making an investment
decision about the Fund. An investment in the Fund is intended to be a long-term
investment, and the Fund should not be used as a trading vehicle.
ANNUAL PERFORMANCE
One way to measure the risks of investing in the Fund is to look at how its
performance varies from year-to-year. The following chart shows the annual
returns of the Fund's Class A Shares over the four calendar years prior to the
date of this prospectus. Sales loads are not reflected in this chart. If these
sales loads had been included, the returns shown below would have been lower.
Remember that the past performance of the Fund is not indicative of its future
performance.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1995 -7.11%
1996 6.32%
1997 -1.96%
1998 -26.33%
</TABLE>
The Fund's return for the nine-month period ended September 30, 1999 was 33.67%.
4
<PAGE>
The annual return variability of the Fund's Class B Shares and Class C Shares
would be substantially similar to that shown for the Class A Shares because all
of the Fund's shares are invested in the same portfolio of securities; however,
the actual annual returns of the Class B Shares and Class C Shares would be
lower than the annual returns shown for the Fund's Class A Shares because of
differences in the expenses borne by each class of shares.
During the four-year period shown in the bar chart, the highest quarterly return
was 15.33% (for the quarter ended December 31, 1998) and the lowest quarterly
return was -24.34% (for the quarter ended September 30, 1998).
COMPARATIVE PERFORMANCE
As a basis for evaluating the Fund's performance and risks, the table below
shows how the Fund's performance compares with the IFC Global Total Return
Composite Index*, a broad-based market index that the Fund's investment adviser
believes is an appropriate benchmark for the Fund. The Fund's performance
figures include the maximum sales charges paid by investors. The index
performance figures do not include any commissions or sales charges that would
be paid by investors purchasing the securities represented by the index. Average
annual total returns are shown for the periods ended December 31, 1998 (the most
recently completed calendar year prior to the date of this prospectus). Remember
that the past performance of the Fund is not indicative of its future
performance.
AVERAGE ANNUAL
TOTAL RETURNS
FOR THE
PERIODS ENDED PAST SINCE
DECEMBER 31, 1998 1 YEAR INCEPTION
- ---------------------------------------------------------------------------
Van Kampen Emerging Markets Fund
- -- Class A Shares -30.60% -10.13%(1)
IFC Global Total Return Composite
Index -21.07% -8.00%(3)
..........................................................................
Van Kampen Emerging Markets Fund
- -- Class B Shares -30.48% -10.50%(2)
IFC Global Total Return Composite
Index -21.07% -10.59%(2)
..........................................................................
Van Kampen Emerging Markets Fund
- -- Class C Shares -27.52% -9.60%(1)
IFC Global Total Return Composite
Index -21.07% -8.00%(3)
..........................................................................
INCEPTION DATES: (1) 7/6/94, (2) 8/1/95, (3) 6/30/94.
* THE IFC GLOBAL TOTAL RETURN COMPOSITE INDEX IS AN UNMANAGED INDEX OF
COMMON STOCKS (ASSUMES DIVIDENDS ARE REINVESTED) FROM DEVELOPING
COUNTRIES IN LATIN AMERICA, EAST AND SOUTH ASIA, EUROPE, THE MIDDLE EAST
AND AFRICA.
5
<PAGE>
FEES AND EXPENSES
OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
<S> <C> <C> <C>
- ---------------------------------------------------------
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
- ---------------------------------------------------------
Maximum sales charge
(load) imposed on
purchases (as a
percentage of
offering price) 5.75%(1) None None
........................................................
Maximum deferred
sales charge (load)
(as a percentage of
the lesser of
original purchase
price or redemption
proceeds) None(2) 5.00%(3) 1.00%(4)
........................................................
Maximum sales charge
(load) imposed on
reinvested dividends None None None
........................................................
Redemption fees None None None
........................................................
Exchange fee None None None
........................................................
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
<TABLE>
<S> <C> <C> <C>
- ---------------------------------------------------------
Management Fees(5) 1.25% 1.25% 1.25%
........................................................
Distribution and/or
Service (12b-1)
Fees(6) 0.25% 1.00%(7) 1.00%(7)
........................................................
Other Expenses(5) 1.06% 1.06% 1.06%
........................................................
Total Annual Fund
Operating Expenses(5) 2.56% 3.31% 3.31%
........................................................
</TABLE>
(1) REDUCED FOR PURCHASES OF $50,000 AND OVER. SEE "PURCHASE OF SHARES --
CLASS A SHARES."
(2) INVESTMENTS OF $1 MILLION OR MORE ARE NOT SUBJECT TO ANY SALES CHARGE
AT THE TIME OF PURCHASE, BUT A DEFERRED SALES CHARGE OF 1.00% MAY BE
IMPOSED ON CERTAIN REDEMPTIONS MADE WITHIN ONE YEAR OF THE PURCHASE.
SEE "PURCHASE OF SHARES -- CLASS A SHARES."
(3) THE MAXIMUM DEFERRED SALES CHARGE IS 5.00% IN THE FIRST YEAR AFTER
PURCHASE, DECLINING THEREAFTER AS FOLLOWS:
YEAR 1-5.00%
YEAR 2-4.00%
YEAR 3-3.00%
YEAR 4-2.50%
YEAR 5-1.50%
AFTER-NONE
SEE "PURCHASE OF SHARES -- CLASS B SHARES."
(4) THE MAXIMUM DEFERRED SALES CHARGE IS 1.00% IN THE FIRST YEAR AFTER
PURCHASE AND 0.00% THEREAFTER. SEE "PURCHASE OF SHARES -- CLASS C
SHARES."
(5) THE FUND'S INVESTMENT ADVISER IS CURRENTLY WAIVING OR REIMBURSING A
PORTION OF THE FUND'S MANAGEMENT FEES AND OTHER EXPENSES SUCH THAT THE
ACTUAL TOTAL ANNUAL FUND OPERATING EXPENSES WERE 2.15% FOR CLASS A
SHARES, 2.90% FOR CLASS B SHARES AND 2.90% FOR CLASS C SHARES FOR THE
FISCAL YEAR ENDED JUNE 30, 1999. THE FEE WAIVERS OR EXPENSE REIMBURSE-
MENTS CAN BE TERMINATED AT ANY TIME.
(6) CLASS A SHARES ARE SUBJECT TO AN ANNUAL SERVICE FEE OF UP TO 0.25% OF
THE AVERAGE DAILY NET ASSETS ATTRIBUTABLE TO SUCH CLASS OF SHARES.
CLASS B SHARES AND CLASS C SHARES ARE EACH SUBJECT TO A COMBINED
ANNUAL DISTRIBUTION AND SERVICE FEE OF UP TO 1.00% OF THE AVERAGE
DAILY NET ASSETS ATTRIBUTABLE TO SUCH CLASS OF SHARES. SEE "PURCHASE
OF SHARES."
(7) BECAUSE DISTRIBUTION AND/OR SERVICE (12b-1) FEES ARE PAID OUT OF THE
FUND'S ASSETS ON AN ONGOING BASIS, OVER TIME THESE FEES WILL INCREASE
THE COST OF YOUR INVESTMENT AND MAY COST YOU MORE THAN PAYING OTHER
TYPES OF SALES CHARGES.
EXAMPLE:
The following example is intended to help you compare the cost of investing in
the Fund with the costs of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same each year (except for the ten-year
amounts for Class B Shares which reflect the conversion of Class B Shares to
Class A Shares after eight years). Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------
Class A Shares $819 $1,326 $1,857 $3,304
................................................................
Class B Shares $834 $1,318 $1,876 $3,334*
................................................................
Class C Shares $434 $1,018 $1,726 $3,604
................................................................
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------
Class A Shares $819 $1,326 $1,857 $3,304
................................................................
Class B Shares $334 $1,018 $1,726 $3,334*
................................................................
Class C Shares $334 $1,018 $1,726 $3,604
................................................................
</TABLE>
* BASED ON CONVERSION TO CLASS A SHARES AFTER EIGHT YEARS.
6
<PAGE>
INVESTMENT OBJECTIVE,
POLICIES AND RISKS
The Fund's investment objective is to seek to provide long-term capital
appreciation by investing primarily in equity securities of emerging country
issuers. Any income received from the investment of portfolio securities is
incidental to the Fund's investment objective. The Fund's investment objective
is a fundamental policy and may not be changed without the approval of a
majority of shareholders of the Fund's outstanding voting securities, as defined
in the Investment Company Act of 1940, as amended (the "1940 Act"). There are
risks inherent in all investments in securities; accordingly there can be no
assurance that the Fund will achieve its investment objective.
Under normal market conditions, the Fund's investment adviser seeks to achieve
the Fund's investment objective by investing at least 65% of the Fund's total
assets in a portfolio of equity securities of emerging country issuers. These
include securities of companies (i) whose securities are traded principally on a
stock exchange or over-the-counter in an emerging country (ii) organized under
the laws of and have a principal office(s) in an emerging country or (iii) that
derive 50% or more of their total revenues from either goods produced, sales
made or services performed in an emerging country. The Fund's investment adviser
will base determinations as to a company's eligibility on publicly available
information and inquiries made to the company. Investments in securities of
companies in emerging countries may provide the potential for above-average
capital appreciation but also are subject to special risks not typically
associated with investing in more established economies or securities markets.
As a result, the Fund's portfolio may experience greater price volatility, which
may be heightened by currency fluctuations relative to the U.S. dollar.
The Fund's investment adviser considers emerging countries to be those that the
international financial community, including the International Bank for
Reconstruction and Development (more commonly known as The World Bank) and the
International Finance Corporation, consider to be emerging or developing
countries on the basis of such factors as trade initiatives, per capita income
and level of industrialization. Allocation of the Fund's investments will depend
upon the relative attractiveness of emerging markets countries and particular
issuers. There are no prescribed limits on the geographic distribution of the
Fund's investments.
Currently, investing in issuers in many emerging markets is not feasible or may
involve unacceptable political risks. The Fund emphasizes investment in those
emerging markets countries whose economies are developing strongly and whose
markets are becoming more sophisticated.
The Fund's investment adviser employs an investment strategy which combines
"top-down" country allocation with "bottom-up" stock selection. In selecting
securities for investment, the Fund focuses on those companies that offer
attractive growth characteristics, reasonable valuations and managements with a
strong shareholder value orientation. The Fund's investment adviser works with a
team of investment professionals who individually represent expertise in
emerging countries in which the Fund invests, and who together analyze the
overall global economic environment and its impact on such markets. Within a
market, the Fund's investment adviser allocates the Fund's assets based on a
variety of factors, including relative economic, political and social
fundamentals, stock valuations, investor sentiment and the research and analysis
of its team specialists. The Fund's investment adviser attempts to manage the
overall risk of its investments through its emphasis on thorough macroeconomic
and fundamental research.
The Fund invests primarily in common stocks. Common stocks are shares of a
corporation or other entity that entitle the holder to a pro rata share of the
profits of the corporation, if any, without preference over any other class of
securities, including such entity's debt securities, preferred stock and other
senior equity securities. Common stock usually carries with it the right to vote
and frequently an exclusive right to do so.
While the Fund invests primarily in common stocks, it also may invest in
preferred stocks, convertible securities, warrants or rights to purchase common
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stock and depository receipts. Preferred stock generally has a preference as to
dividends and liquidation over an issuer's common stock but ranks junior to debt
securities in an issuer's capital structure. Unlike interest payments on debt
securities, preferred stock dividends are payable only if declared by the
issuer's board of directors. Preferred stock also may be subject to optional or
mandatory redemption provisions. The ability of common stocks and preferred
stocks to generate income is dependent on the earnings and continuing
declaration of dividends by the issuers of such securities.
A convertible security is a bond, debenture, note, preferred stock, or other
security that may be converted into or exchanged for a prescribed amount of
common stock or other equity security of the same or a different issuer or into
cash within a particular period of time at a specified price or formula. A
convertible security generally entitles the holder to receive interest paid or
accrued on debt or the dividend paid on preferred stock until the convertible
security matures or is redeemed, converted or exchanged. Before conversion,
convertible securities generally have characteristics similar to both debt and
equity securities. The value of convertible securities tends to decline as
interest rates rise and, because of the conversion feature, tends to vary with
fluctuations in the market value of the underlying equity securities.
Convertible securities generally rank senior to common stock in a corporation's
capital structure but are usually subordinated to comparable nonconvertible
securities. Convertible securities generally do not participate directly in any
dividend increases or decreases of the underlying equity securities although the
market prices of convertible securities may be affected by any such dividend
changes or other changes in the underlying securities.
Rights and warrants entitle the holder to buy equity securities at a specific
price for a specific period of time. Rights are similar to warrants except that
they have a substantially shorter duration. Rights and warrants may be
considered more speculative and less liquid than certain other types of
investments in that they do not entitle a holder to dividends or voting rights
with respect to the underlying securities nor do they represent any right in the
assets of the issuing company and may lack a secondary market.
The Fund may invest up to 35% of its total assets in (i) debt securities
denominated in the currency of or issued or guaranteed by a company or the
government of an emerging country, (ii) equity or debt securities of corporate
or government issuers located in industrialized countries or (iii) money-market
instruments. The Fund invests in debt securities when the Fund's investment
adviser believes such investments offer opportunities for capital appreciation.
The market prices of debt securities generally fluctuate inversely with changes
in interest rates so that the value of investments in such securities can be
expected to decrease as interest rates rise and increase as interest rates fall.
Debt securities with longer maturities may increase or decrease in value more
than debt securities of shorter maturities. The Fund may invest up to 10% of its
net assets in below investment grade debt securities (commonly referred to as
"junk bonds") which involve, among other things, greater credit risk, greater
market risk and volatility, greater liquidity concerns and potentially greater
manager risk. For a description of securities ratings, see the appendix to this
prospectus. The credit risks and market prices of lower-grade securities
generally are more sensitive to negative issuer developments, such as reduced
revenues or increased expenditures, or adverse economic conditions, such as a
recession, than are higher-grade securities. 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. For a further
description of the risks of lower-grade securities, see the Fund's Statement of
Additional Information.
The Fund may invest in securities of certain issuers indirectly through
investment in other investment companies. Such investments are commonly used
when direct investments in certain countries are not permitted to foreign
entities. Investment in other investment companies may involve duplication of
management fees and certain other expenses.
The Fund may invest in issuers of any capitalization range. The securities of
smaller- to medium-sized companies may be subject to more abrupt or erratic
market movements than securities of larger companies or the market averages in
general. In addition, such companies typically are subject to a greater degree
of change in earnings and business prospects
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than are larger companies. Thus, to the extent the Fund invests in smaller- or
medium-sized companies, the Fund may be subject to greater investment risk than
that assumed through investment in the equity securities of larger companies.
RISKS OF INVESTING IN
SECURITIES OF FOREIGN ISSUERS
The Fund invests in securities of foreign issuers. Such securities may be
denominated in U.S. dollars and in currencies other than U.S. dollars. The
percentage of assets invested in securities of a particular country or
denominated in a particular currency will vary in accordance with the investment
adviser's assessment of the relative yield, appreciation potential and the
relationship of a country's currency to the U.S. dollar, which is based upon
such factors as fundamental economic strength, credit quality and interest rate
trends. Investments in foreign securities present certain risks not ordinarily
associated with investments in securities of U.S. issuers. These risks include
fluctuations in foreign currency exchange rates, political, economic or legal
developments (including war or other instability, expropriation of assets,
nationalization and confiscatory taxation), the imposition of foreign exchange
limitations (including currency blockage), withholding taxes on dividend or
interest payments or capital transactions or other restrictions, higher
transaction costs (including higher brokerage, custodial and settlement costs
and currency translation costs) and possible difficulty in enforcing contractual
obligations or taking judicial action. Also, foreign securities may not be as
liquid and may be more volatile than comparable domestic securities.
In addition, there often is less publicly available information about many
foreign issuers, and issuers of foreign securities are subject to different,
often less comprehensive, auditing, accounting, financial reporting and
disclosure requirements than domestic issuers. There is generally less
government regulation of stock exchanges, brokers and listed companies abroad
than in the U.S., and, with respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investment in those countries. Because there is
usually less supervision and governmental regulation of exchanges, brokers and
dealers than there is in the U.S., the Fund may experience settlement
difficulties or delays not usually encountered in the U.S.
Delays in making trades in foreign securities relating to volume constraints,
limitations or restrictions, clearance or settlement procedures, or otherwise
could impact returns and result in temporary periods when assets of the Fund are
not fully invested or attractive investment opportunities are foregone.
In addition to the increased risks of investing in foreign securities, there are
often increased transactions costs associated with investing in foreign
securities including the costs incurred in connection with converting
currencies, higher foreign brokerage or dealer costs, and higher settlement
costs or custodial costs.
Since the Fund invests in securities denominated or quoted in currencies other
than the U.S. dollar, the Fund will be affected by changes in foreign currency
exchange rates (and exchange control regulations) which affect the value of
investments in the Fund and the accrued income and unrealized appreciation or
depreciation of the investments. Changes in foreign currency exchange ratios
relative to the U.S. dollar will affect the U.S. dollar value of the Fund's
assets denominated in that currency and the Fund's return on such assets as well
as any temporary uninvested reserves in bank deposits in foreign currencies. In
addition, the Fund will incur costs in connection with conversions between
various currencies.
The Fund may purchase and sell foreign currency on a spot basis in connection
with the settlement of transactions in securities traded in such foreign
currency. The Fund also may enter into contracts with banks, brokers or dealers
to purchase or sell securities or foreign currencies at a future date ("forward
contracts"). A foreign currency forward contract is a negotiated agreement
between the contracting parties to exchange a specified amount of currency at a
specified future time at a specified rate. The rate can be higher or lower than
the spot rate between the currencies that are the subject of the contract.
The Fund may attempt to protect against adverse changes in the value of the U.S.
dollar in relation to
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<PAGE>
a foreign currency by entering into a forward contract for the purchase or sale
of the amount of foreign currency invested or to be invested, or by buying or
selling a foreign currency option or futures contract for such amount. Such
strategies may be employed before the Fund purchases a foreign security traded
in the currency which the Fund anticipates acquiring or between the date the
foreign security is purchased or sold and the date on which payment therefor is
made or received. Seeking to protect against a change in the value of a foreign
currency in the foregoing manner does not eliminate fluctuations in the prices
of portfolio securities or prevent losses if the prices of such securities
decline. Furthermore, such transactions reduce or preclude the opportunity for
gain if the value of the currency should move in the direction opposite to the
position taken. Unanticipated changes in currency prices may result in poorer
overall performance for the Fund than if it had not entered into such contracts.
Investors should carefully consider the risks of foreign investments before
investing in the Fund.
ADDITIONAL RISKS OF INVESTING IN EMERGING COUNTRIES ISSUERS. The risks of
foreign investment are heightened when the issuer is from an emerging country.
The extent of economic development, political stability and market depth of such
countries varies widely and investments in the securities of issuers in such
countries typically involve greater potential gain or loss than investments in
securities of issuers in more developed countries. Emerging countries tend to
have economic structures that are less diverse and mature and political systems
that are less stable than developed markets. Emerging countries may be more
likely to experience political turmoil or rapid changes in economic conditions
than more developed markets and the financial condition of issuers in emerging
countries may be more precarious than in other countries. Certain countries
depend to a larger degree upon international trade or development assistance
and, therefore, are vulnerable to changes in trade or assistance which, in turn,
may be affected by a variety of factors. The Fund may be particularly sensitive
to changes in the economies of certain countries resulting from any reversal of
economic liberalization, political unrest or the imposition of sanctions by the
U.S. or other countries.
The Fund's purchase and sale of portfolio securities in emerging countries may
be constrained by limitations as to daily changes in the prices of listed
securities, periodic or sporadic trading or settlement, or limitations on
aggregate holdings by foreign investors. Such limitations may be computed based
on the aggregate trading volume by or holdings of the Fund, the Fund's
investment adviser, its affiliates or their respective clients or other service
providers. The Fund may not be able to sell securities in circumstances where
price, trading or settlement volume limitations have been reached. Foreign
investment in the securities markets of certain emerging countries is restricted
or controlled to varying degrees which may limit investment in such countries or
increase the administrative costs of such investments. For example, certain
countries may require governmental approval prior to investments by foreign
persons or limit investment by foreign persons to only a specified percentage of
an issuer's outstanding securities or a specific class of securities which may
have less advantageous terms (including price) than securities of the issuer
available for purchase by nationals. In addition, certain countries may restrict
or prohibit investment opportunities in issuers or industries deemed important
to national interests. Such restrictions may affect the market price, liquidity
and rights of securities that may be purchased by the Fund. The repatriation of
both investment income and capital from certain emerging countries is subject to
restrictions such as the need for governmental consents. Due to restrictions on
direct investment in securities in certain countries, it is anticipated that the
Fund may invest in such countries through other investment funds in such
countries.
Many emerging countries have experienced currency devaluations and substantial
(and, in some cases, extremely high) rates of inflation, which have had a
negative effect on the economies and securities markets of such countries.
Economies in emerging countries generally are dependent heavily upon commodity
prices and international trade and, accordingly, have been and may continue to
be affected adversely by the economies of their trading partners, trade
barriers, exchange controls, managed adjustments in relative currency values and
other protectionist measures or negotiated by the countries with which they
trade.
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Many emerging countries are subject to a substantial degree of economic,
political and social instability. Governments of some emerging countries are
authoritarian in nature or have been installed or removed as a result of
military coups, while governments in other emerging countries have periodically
used force to suppress civil dissent. Disparities of wealth, the pace and
success of political reforms, and ethnic, religious and racial disaffection,
among other factors, have also led to social unrest, violence and/or labor
unrest in some emerging countries. Unanticipated political or social
developments may result in sudden and significant investment losses.
Settlement procedures in emerging countries are frequently less developed and
reliable than those in developed markets. In addition, significant delays are
common in certain markets in registering the transfer of securities. Settlement
or registration problems may make it more difficult for the Fund to value its
portfolio securities and could cause the Fund to miss attractive investment
opportunities, to have a portion of its assets uninvested or to incur losses due
to the failure of a counterparty to pay for securities the Fund has delivered or
the Fund's inability to complete its contractual obligations. The
creditworthiness of the local securities firms used by the Fund in emerging
countries may not be as sound as the creditworthiness of firms used in more
developed countries. As a result, the Fund may be subject to a greater risk of
loss if a securities firm defaults in the performance of its responsibilities.
The small size and inexperience of the securities markets in certain emerging
countries and the limited volume of trading in securities in those countries may
make the Fund's investments in such countries less liquid and more volatile than
investments in countries with more developed securities markets. The Fund's
investments in emerging countries are subject to the risk that the liquidity of
a particular investment, or investments generally, in such countries will shrink
or disappear suddenly and without warning as a result of adverse economic,
market or political conditions or adverse investor perceptions, whether or not
accurate. Because of the lack of sufficient market liquidity, the Fund may incur
losses because it will be required to effect sales at a disadvantageous time and
only then at a substantial drop in price. Investments in emerging countries may
be more difficult to price precisely because of the characteristics discussed
above and lower trading volumes.
The Fund's use of foreign currency management techniques in emerging countries
may be limited. Due to the limited market for these instruments in emerging
countries, the Fund's investment adviser does not currently anticipate that a
significant portion of the Fund's currency exposure in emerging countries, if
any, will be covered by such instruments.
Investors are strongly advised to consider carefully the special risks involved
in investing in emerging countries, which are in addition to the risks of
investing in foreign securities generally.
DERIVATIVE INSTRUMENTS
The Fund may, but is not required to, use various investment strategic
transactions described below to earn income, facilitate portfolio management and
mitigate risks. Such strategic transactions are generally accepted under modern
portfolio management and are regularly used by many mutual funds and other
institutional investors. Although the Fund's investment adviser seeks to use the
practices to further the Fund's investment objective, no assurance can be given
that these practices will achieve this result.
The Fund may purchase and sell derivative instruments such as exchange-listed
and over-the-counter put and call options on securities, financial futures,
equity, fixed-income and interest rate indices, and other financial instruments,
futures contracts and options thereon (including but not limited to securities
index futures, foreign currency exchange futures, interest rate futures and
other financial futures), structured notes, swaps, caps, floors or collars and
enter into various currency transactions (to the extent available) such as
currency forward contracts, currency futures contracts, currency swaps or
options on currency or currency futures. In addition, the Fund may invest in
other derivative instruments that are developed over time if their use would be
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<PAGE>
consistent with the objective of the Fund. Collectively, all of the above are
referred to as "Strategic Transactions." The Fund generally seeks to use
Strategic Transactions as a portfolio management or hedging technique to seek to
protect against possible adverse changes in the market value of securities held
in or to be purchased for the Fund's portfolio, protect the Fund's unrealized
gains, facilitate the sale of certain securities for investment purposes,
protect against changes in currency exchange rates or to adjust the exposure to
a particular currency, manage the effective maturity or duration of the Fund's
portfolio, establish positions in the derivatives markets as a substitute for
purchasing or selling particular securities, including, for example, when the
Fund adjusts its exposure to a market in response to changes in investment
strategy, when doing so provides more liquidity than the direct purchase of the
securities underlying such derivatives, when the Fund 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. The Fund may invest up to
33 1/3% of its total assets in Strategic Transactions for non-hedging purposes
(measured by the aggregate notional amount of outstanding derivatives). In
addition, the Fund may invest up to 20% of its total assets in futures contracts
and options on futures contracts (measured by the aggregate notional amount of
such outstanding contracts).
Strategic Transactions have risks including the imperfect correlation between
the value of such instruments and the underlying assets, the possible default of
the other party to the transaction or illiquidity of the derivative instruments.
Furthermore, the ability to successfully use Strategic Transactions depends on
the Fund's investment adviser's ability to predict pertinent market movements,
which cannot be assured. Thus, the use of Strategic Transactions may result in
losses greater than if they had not been used, may require the Fund to sell or
purchase portfolio securities at inopportune times or for prices other than
current market values, may limit the amount of appreciation the Fund can
otherwise realize on an investment, or may cause the Fund to hold a security
that it might otherwise sell. The use of currency transactions can result in the
Fund incurring losses because of the imposition of exchange controls, suspension
of settlements or the inability of the Fund to deliver or receive a specified
currency. In addition, amounts paid as premiums or cash or other assets held in
margin accounts with respect to Strategic Transactions are not otherwise
available to the Fund for investment purposes.
When conducted outside the U.S., Strategic Transactions may not be regulated as
rigorously as in the U.S., may not involve a clearing mechanism and related
guarantees, and are subject to the risk of governmental actions affecting
trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions,
(iii) delays in the Fund's ability to act upon economic events occurring in
foreign markets during non-business hours in the U.S., (iv) the imposition of
different exercise and settlement terms and procedures and margin requirements
than in the U.S. and (v) lower trading volume and liquidity.
A more complete discussion of Strategic Transactions and their risks is
contained in the Fund's Statement of Additional Information. The Statement of
Additional Information can be obtained by investors free of charge as described
on the back cover of this prospectus.
OTHER INVESTMENTS AND RISK FACTORS
For cash management purposes, the Fund may engage in repurchase agreements with
banks and broker-dealers and other financial institutions in order to earn a
return on temporarily available cash. Such transactions are subject to the risk
of default by the other party.
The Fund may lend its portfolio securities in an amount up to 33 1/3% of its
total assets to broker-dealers, banks or other recognized institutional
borrowers of securities. The Fund may incur lending fees and other costs in
connection with securities lending, and securities lending is subject to the
risk of default by the other party.
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The Fund may invest up to 15% of the Fund's net assets in illiquid securities
and certain restricted securities. Notwithstanding the foregoing, the Fund may
not invest more than 10% of its total assets in securities subject to legal or
contractual restrictions on resale. Such securities may be difficult or
impossible to sell at the time and the price that the Fund would like. Thus, the
Fund may have to sell such securities at a lower price, sell other securities
instead to obtain cash or forego other investment opportunities.
Further information about these types of investments and other investment
practices that may be used by the Fund is contained in the Statement of
Additional Information.
The Fund may sell securities without regard to the length of time they have been
held in order to take advantage of new investment opportunities or when the
Fund's investment adviser believes the potential for capital appreciation has
lessened or for other reasons. The Fund's portfolio turnover is shown under the
heading "Financial Highlights." The portfolio turnover rate may be expected to
vary from year to year. A high portfolio turnover rate (100% or more) increases
the Fund's transactions costs (including brokerage commissions or dealer costs)
and a high portfolio turnover rate may result in the realization of more
short-term capital gains than if the Fund had a lower portfolio turnover rate.
Increases in the Fund's transaction costs would adversely impact the Fund's
performance. The turnover rate will not be a limiting factor, however, if the
Fund's investment adviser considers portfolio changes appropriate.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Fund may on a temporary basis hold cash or invest a
portion or all of its assets in money-market instruments including obligations
of the U.S. government, its agencies or instrumentalities, obligations of
foreign sovereignties, other high-quality debt securities, including prime
commercial paper, repurchase agreements and bank obligations, such as bankers'
acceptances and certificates of deposit (including Eurodollar certificates of
deposit). Under normal market conditions, the potential for capital appreciation
on these securities will tend to be lower than the potential for capital
appreciation on other securities that may be owned by the Fund. In taking such a
defensive position, the Fund would not be pursuing and may not achieve its
investment objective.
YEAR 2000 RISKS. Like other mutual funds, financial and business organizations
and individuals around the world, the Fund could be adversely affected if the
computer systems used by the Fund's investment adviser, subadviser and other
service providers do not properly process and calculate date-related information
and data from and after January 1, 2000. This is commonly known as the "Year
2000 Problem." The Fund's investment adviser and subadviser are taking steps
that they believe are reasonably designed to address the Year 2000 Problem with
respect to computer systems that they use and to obtain reasonable assurances
that comparable steps are being taken by the Fund's other major service
providers. At this time, there can be no assurances that these steps will be
sufficient to avoid any adverse impact to the Fund. In addition, the Year 2000
Problem may adversely affect the markets and the issuers of securities in which
the Fund may invest which, in turn, may adversely affect the net asset value of
shares of the Fund. Improperly functioning trading systems may result in
settlement problems and liquidity issues. In addition, corporate and
governmental data processing errors may result in production problems for
individual companies or issuers and overall economic uncertainty. Earnings of
individual issuers will be affected by remediation costs, which may be
substantial and may be reported inconsistently in U.S. and foreign financial
statements. Efforts in foreign countries to remediate the potential Year 2000
Problem may not be as extensive as those in the U.S. As a result, the operations
of foreign markets and issuers may be disrupted by the Year 2000 Problem which
could adversely affect the Fund's portfolio. The risks are greater with respect
to certain developing or emerging market countries because there is an increased
likelihood that issuers of securities of such countries cannot anticipate or
effectively manage the effects of computer programs and the Year 2000 Problem.
Accordingly, the Fund's investments may be adversely affected. The statements
above are subject to the Year 2000 Information and Readiness Disclosure Act
which may limit the legal rights regarding the use of such statements in the
case of a dispute.
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INVESTMENT ADVISORY
SERVICES
INVESTMENT ADVISER
Van Kampen Investment Advisory Corp. is the investment adviser (the "Adviser" or
"Advisory Corp.") and administrator of the Fund. The Adviser is a wholly owned
subsidiary of Van Kampen Investments Inc. ("Van Kampen Investments"). Van Kampen
Investments is a diversified asset management company with more than two million
retail investor accounts, extensive capabilities for managing institutional
portfolios, and more than $79 billion under management or supervision as of
September 30, 1999. Van Kampen Investments' more than 50 open-end and 39
closed-end funds and more than 2,500 unit investment trusts are professionally
distributed by leading authorized dealers nationwide. Van Kampen Funds Inc., the
distributor of the Fund (the "Distributor") and the sponsor of the funds
mentioned above, is also a wholly owned subsidiary of Van Kampen Investments.
Van Kampen Investments is an indirect wholly owned subsidiary of Morgan Stanley
Dean Witter & Co. The Adviser's principal office is located at 1 Parkview Plaza,
PO Box 5555, Oakbrook Terrace, Illinois 60181-5555.
ADVISORY AGREEMENT AND ADMINISTRATION AGREEMENT. The Fund retains the Adviser to
manage the investment of its assets and to place orders for the purchase and
sale of its portfolio securities. Under an investment advisory agreement between
the Adviser and the Fund (the "Advisory Agreement"), the Fund pays the Adviser a
monthly fee computed based upon an annual rate of 1.25% applied to the average
daily net assets of the Fund.
The Fund also retains the Adviser to provide administrative services for the
Fund's day-to-day operations. Under an administration agreement, between the
Adviser and the Fund, the Fund pays a monthly administration fee computed based
upon an annual rate of 0.25% applied to the average daily net assets of the
Fund.
The Adviser furnishes offices, necessary facilities and equipment, provides
administrative services, and permits its officers and employees to serve without
compensation as directors or officers of the Fund if elected to such positions.
The Fund pays all charges and expenses of its day-to-day operations, including
the compensation of directors of the Fund (other than those who are affiliated
persons of the Adviser, Distributor or Van Kampen Investments), the charges and
expenses of legal counsel and independent accountants, distribution fees,
service fees, custodian fees, the costs of providing reports to shareholders,
and all other ordinary business expenses not specifically assumed by the
Adviser.
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen Asset Management
Inc. ("Asset Management").
INVESTMENT SUBADVISER
Morgan Stanley Dean Witter Investment Management Inc. (the "Subadviser") is the
Subadviser of the Fund. The Subadviser is a wholly owned subsidiary of Morgan
Stanley Dean Witter & Co., and is an affiliate of the Adviser. The Subadviser
conducts a worldwide portfolio management business and provides a broad range of
portfolio management services to customers in the United States and abroad. At
June 30, 1999, the Subadviser, together with its affiliated institutional asset
management companies, managed assets of approximately $175.3 billion, including
assets under fiduciary advice. The Subadviser's principal office is located at
1221 Avenue of the Americas, New York, New York 10020. On December 1, 1998,
Morgan Stanley Asset Management Inc. changed its name to Morgan Stanley Dean
Witter Investment Management Inc. but continues to do business in certain
instances using the name Morgan Stanley Asset Management.
SUBADVISORY AGREEMENT. The Adviser has entered into a subadvisory agreement with
the Subadviser to assist the Adviser in performing its investment advisory
functions. The Adviser pays the Subadviser on a monthly basis a portion of the
net advisory fees the Adviser receives from the Fund.
GENERAL
From time to time, the Adviser, the Subadviser or the Distributor may
voluntarily undertake to reduce
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the Fund's expenses by reducing the fees payable to them or by reducing other
expenses of the Fund in accordance with such limitations as the Adviser, the
Subadviser or Distributor may establish.
PERSONAL INVESTMENT POLICIES. The Fund, the Adviser and the Subadviser have
adopted Codes of Ethics designed to recognize the fiduciary relationship among
the Fund, the Adviser and the Subadviser and their respective employees. The
Codes of Ethics permit directors, trustees, officers and employees to buy and
sell securities for their personal accounts subject to certain restrictions.
Persons with access to certain sensitive information are subject to
pre-clearance and other procedures designed to prevent conflicts of interest.
PORTFOLIO MANAGEMENT. Robert L. Meyer and Andy Skov are responsible as
comanagers for the day-to-day management of the Fund's investment portfolio.
Mr. Meyer joined the Subadviser in 1989, is a Managing Director of the
Subadviser and Morgan Stanley Dean Witter & Co. and comanager of the
Subadviser's emerging markets group and head of the Subadviser's Latin American
team. Mr. Meyer 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 and is also a Chartered Financial Analyst. Mr. Meyer has been comanager
of the Fund since September of 1997 and has been affiliated with the Fund since
its inception.
Mr. Skov joined the Subadviser in 1994 as a Portfolio Manager. Currently, he is
a Principal of the Subadviser and Morgan Stanley Dean Witter & Co. Mr. Skov
graduated from the University of California at Berkeley with a B.A. (PHI BETA
KAPPA) in Political Science and Economic Development. Mr. Skov has been
co-manager of the Fund since October 1998.
PURCHASE OF SHARES
GENERAL
The Fund offers three classes of shares designated as Class A Shares, Class B
Shares and Class C Shares. By offering three classes of shares, the Fund permits
each investor to choose the class of shares that is most beneficial given the
amount to be invested and the length of time the investor expects to hold the
shares.
Initial investments must be at least $1,000 for each class of shares, and
subsequent investments must be at least $25 for each class of shares. Both
minimums may be waived by the Distributor for plans involving periodic
investments.
Each class of shares represents an interest in the same portfolio of investments
of the Fund and has the same rights except that (i) Class A Shares generally
bear the sales charge expenses at the time of purchase while Class B Shares and
Class C Shares bear the sales charge expenses at the time of redemption and any
expenses (including higher distribution fees and transfer agency costs)
resulting from such deferred sales charge arrangement, (ii) generally, each
class of shares has exclusive voting rights with respect to approvals of the
Rule 12b-1 distribution plan and service plan (each as described below) under
which its distribution fee or service fee is paid, (iii) each class of shares
has different exchange privileges, (iv) certain classes of shares are subject to
a conversion feature and (v) certain classes of shares have different
shareholder service options available.
The offering price of the Fund's shares is based upon the Fund's net asset value
per share (plus sales charges, where applicable). The net asset values per share
of the Class A Shares, Class B Shares and Class C Shares are generally expected
to be substantially the same. In certain circumstances, however, the per share
net asset values of the classes of shares may differ from one another,
reflecting the daily expense accruals of the higher distribution fees and
transfer agency costs applicable to the Class B Shares and Class C Shares and
the differential in the dividends that may be paid on each class of shares.
15
<PAGE>
The net asset value per share for each class of shares of the Fund is determined
once daily as of the close of trading on the New York Stock Exchange (the
"Exchange") (currently 4:00 p.m., New York time) each day the Exchange is open
for trading except on any day on which no purchase or redemption orders are
received or there is not a sufficient degree of trading in the Fund's portfolio
securities such that the Fund's net asset value per share might be materially
affected. The Fund's Board of Directors reserves the right to calculate the net
asset value per share and adjust the offering price based thereon more
frequently than once daily if deemed desirable. Net asset value per share for
each class is determined by dividing the value of the Fund's portfolio
securities, cash and other assets (including accrued interest) attributable to
such class, less all liabilities (including accrued expenses) attributable to
such class, by the total number of shares of the class outstanding. Such
computation is made by using prices as of the close of trading on the Exchange
and (i) valuing securities listed or traded on a national securities exchange at
the closing price, or if no closing price is available, at the last reported
sale price, and if there has been no sale that day, at mean between the last
reported bid and asked prices, (ii) valuing over-the-counter securities at the
last reported sale price from the National Association of Securities Dealers
Automated Quotations ("NASDAQ"), (iii) valuing unlisted securities and any
securities for which market quotations are not readily available at the average
of the mean between the current reported bid and asked prices obtained from
reputable brokers and (iv) valuing any other assets at fair value as determined
in good faith by the Adviser in accordance with procedures established by the
Fund's Board of Directors. Debt securities with remaining maturities of 60 days
or less are valued on an amortized cost basis, which approximates market value.
Trading in securities on many foreign securities exchanges (including European
and Far Eastern securities exchanges) and over-the-counter markets is normally
completed before the close of business on each U.S. business day. In addition,
securities trading in a particular country or countries may not take place on
all U.S. business days or may take place on days which are not U.S. business
days. Changes in valuations on certain securities may occur at times or on days
on which the Fund's net asset value is not calculated and on which the Fund does
not effect sales, redemptions and exchanges of its shares.
The Fund calculates net asset value per share, and therefore effects sales,
redemptions and exchanges of its shares, as of the close of trading on the
Exchange each day the Exchange is open for trading. Such calculation does not
take place contemporaneously with the determination of the prices of certain
foreign portfolio securities used in such calculation.
If events materially affecting the value of foreign portfolio securities or
other portfolio securities occur between the time when their price is determined
and the time when the Fund's net asset value is calculated, such securities may
be valued at fair value as determined in good faith by the Adviser based in
accordance with procedures established by the Fund's Board of Directors.
The Fund has adopted a distribution plan (the "Distribution Plan") with respect
to each class of its shares pursuant to Rule 12b-1 under the 1940 Act. The Fund
also has adopted a service plan (the "Service Plan") with respect to each class
of its shares. Under the Distribution Plan and the Service Plan, the Fund pays
distribution fees in connection with the sale and distribution of its shares and
service fees in connection with the provision of ongoing services to
shareholders of each class.
The amount of distribution and service fees varies among the classes offered by
the Fund. Because these fees are paid out of the Fund's assets on an ongoing
basis, these fees will increase the cost of your investment in the Fund. By
purchasing a class of shares subject to higher distribution and service fees,
you may pay more over time than on a class of shares with other types of sales
charge arrangements. Long-term shareholders may pay more than the economic
equivalent of the maximum front-end sales charges permitted by the rules of the
National Association of Securities Dealers, Inc. ("NASD"). The net income
attributable to a class of shares will be reduced by the amount of the
distribution fees and other expenses of the Fund associated with such class of
shares. To assist investors in comparing classes of shares, the tables under the
heading "Fees and Expenses of the Fund" provide a summary of
16
<PAGE>
sales charges and expenses and an example of the sales charges and expenses of
the Fund applicable to each class of shares.
The shares are offered to the public on a continuous basis through the
Distributor as principal underwriter, which is located at 1 Parkview Plaza, PO
Box 5555, Oakbrook Terrace, Illinois 60181-5555. Shares also are offered through
members of the NASD who are acting as securities dealers ("dealers") and NASD
members or eligible non-NASD members who are acting as brokers or agents for
investors ("brokers"). "Dealers" and "brokers" are sometimes referred to herein
as "authorized dealers."
Shares may be purchased on any business day by completing the application
accompanying this prospectus and forwarding the application, directly or through
an authorized dealer, to the Fund's shareholder service agent, Van Kampen
Investor Services Inc. ("Investor Services"), a wholly owned subsidiary of Van
Kampen Investments. When purchasing shares of the Fund, investors must specify
whether the purchase is for Class A Shares, Class B Shares or Class C Shares.
Sales personnel of authorized dealers distributing the Fund's shares are
entitled to receive compensation for selling such shares and may receive
differing compensation for selling Class A Shares, Class B Shares or Class C
Shares.
The offering price for shares is based upon the next calculation of net asset
value per share (plus sales charges, where applicable) after an order is
received by Investor Services. Orders received by authorized dealers prior to
the close of the Exchange are priced based on the date of receipt provided such
order is transmitted to Investor Services prior to Investor Services' close of
business on such date. Orders received by authorized dealers after the close of
the Exchange or transmitted to Investor Services after its close of business are
priced based on the date of the next computed net asset value per share provided
they are received by Investor Services prior to Investor Services' close of
business on such date. It is the responsibility of authorized dealers to
transmit orders received by them to Investor Services so they will be received
in a timely manner.
The Fund and the Distributor reserve the right to refuse any order for the
purchase of shares. The Fund also reserves the right to suspend the sale of the
Fund's shares in response to conditions in the securities markets or for other
reasons. Shares of the Fund may be sold in foreign countries where permissible.
Investor accounts will automatically be credited with additional shares of the
Fund after any Fund distributions, such as dividends and capital gain dividends,
unless the investor instructs the Fund otherwise. Investors wishing to receive
cash instead of additional shares should contact the Fund at (800) 341-2911 or
by writing to the Fund, c/o Van Kampen Investors Services Inc., PO Box 218256,
Kansas City, MO 64121-8256.
CLASS A SHARES
Class A Shares of the Fund are sold at net asset value plus an initial maximum
sales charge of up to 5.75% of the offering price (or 6.10% of the net amount
invested), reduced on investments of $50,000 or more as follows:
CLASS A SHARES
SALES CHARGE SCHEDULE
<TABLE>
<CAPTION>
AS % OF AS % OF
SIZE OF OFFERING NET AMOUNT
INVESTMENT PRICE INVESTED
<S> <C> <C>
- -----------------------------------------------------------
Less than $50,000 5.75% 6.10%
..........................................................
$50,000 but less than $100,000 4.75% 4.99%
..........................................................
$100,000 but less than $250,000 3.75% 3.90%
..........................................................
$250,000 but less than $500,000 2.75% 2.83%
..........................................................
$500,000 but less than $1,000,000 2.00% 2.04%
..........................................................
$1,000,000 or more * *
..........................................................
</TABLE>
* NO SALES CHARGE IS PAYABLE AT THE TIME OF PURCHASE ON INVESTMENTS OF
$1 MILLION OR MORE, ALTHOUGH FOR SUCH INVESTMENTS THE FUND MAY IMPOSE
A CONTINGENT DEFERRED SALES CHARGE OF 1.00% ON CERTAIN REDEMPTIONS
MADE WITHIN ONE YEAR OF THE PURCHASE. THE CONTINGENT DEFERRED SALES
CHARGE IS ASSESSED ON AN AMOUNT EQUAL TO THE LESSER OF THE THEN
CURRENT MARKET VALUE OR THE COST OF THE SHARES BEING REDEEMED.
ACCORDINGLY, NO SALES CHARGE IS IMPOSED ON INCREASES IN NET ASSET
VALUE ABOVE THE INITIAL PURCHASE PRICE.
No sales charge is imposed on Class A Shares received from reinvestment of
dividends or capital gain dividends.
17
<PAGE>
Under the Distribution Plan and Service Plan, the Fund may spend up to a total
of 0.25% per year of the Fund's average daily net assets with respect to the
Class A Shares of the Fund. From such amount, under the Service Plan, the Fund
may spend up to 0.25% per year of the Fund's average daily net assets with
respect to the Class A Shares for the ongoing provision of services to Class A
shareholders by the Distributor and by brokers, dealers or financial
intermediaries and for the maintenance of such shareholders' accounts.
CLASS B SHARES
Class B Shares of the Fund are sold at net asset value and are subject to a
contingent deferred sales charge if redeemed within five years of purchase as
shown in the table as follows:
CLASS B SHARES
SALES CHARGE SCHEDULE
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
AS A PERCENTAGE OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
- ----------------------------------------------------------
<S> <C>
First 5.00%
.........................................................
Second 4.00%
.........................................................
Third 3.00%
.........................................................
Fourth 2.50%
.........................................................
Fifth 1.50%
.........................................................
Sixth and After None
.........................................................
</TABLE>
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gain dividends. It
is presently the policy of the Distributor not to accept any order for Class B
Shares in an amount of $500,000 or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
The amount of the contingent deferred sales charge, if any, varies depending on
the number of years from the time of payment for the purchase of Class B Shares
until the time of redemption of such shares. Solely for purposes of determining
the number of years from the time of any payment for the purchase of shares, all
payments during a month are totaled and deemed to have been made on the last day
of the month.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed shares being redeemed first are any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge followed by shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
Fund's average daily net assets with respect to the Class B Shares of the Fund.
In addition, under the Service Plan, the Fund may spend up to 0.25% per year of
the Fund's average daily net assets with respect to the Class B Shares for the
ongoing provision of services to Class B shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CLASS C SHARES
Class C Shares of the Fund are sold at net asset value and are subject to a
contingent deferred sales charge of 1.00% of the dollar amount subject to charge
if redeemed within one year of purchase.
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gain dividends. It
is presently the policy of the Distributor not to accept any order for Class C
Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
18
<PAGE>
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed shares being redeemed first are any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge followed by shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
Fund's average daily net assets with respect to the Class C Shares of the Fund.
In addition, under the Service Plan, the Fund may spend up to 0.25% per year of
the Fund's average daily net assets with respect to the Class C Shares for the
ongoing provision of services to Class C shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CONVERSION FEATURE
Class B Shares purchased on or after June 1, 1996, and any dividend reinvestment
plan Class B Shares received on such shares, automatically convert to Class A
Shares eight years after the end of the calendar month in which the shares were
purchased. Class B Shares purchased before June 1, 1996, and any dividend
reinvestment plan Class B Shares received on such shares, automatically convert
to Class A Shares seven years after the end of the calendar month in which the
shares were purchased. Such conversion will be on the basis of the relative net
asset values per share, without the imposition of any sales load, fee or other
charge. The conversion schedule applicable to a share of the Fund acquired
through the exchange privilege from another Van Kampen fund participating in the
exchange program is determined by reference to the Van Kampen fund from which
such share was originally purchased.
The conversion of such shares to Class A Shares is subject to the continuing
availability of an opinion of counsel to the effect that (i) the assessment of
the higher distribution fee and transfer agency costs with respect to such
shares does not result in the Fund's dividends or capital gain dividends
constituting "preferential dividends" under the federal income tax law and
(ii) the conversion of shares does not constitute a taxable event under federal
income tax law. The conversion may be suspended if such an opinion is no longer
available and such shares might continue to be subject to the higher aggregate
fees applicable to such shares for an indefinite period.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge is waived on redemptions of Class B Shares
and Class C Shares (i) within one year following the death or disability (as
disability is defined by federal income tax law) of a shareholder, (ii) for
required minimum distributions from an individual retirement account ("IRA") or
certain other retirement plan distributions, (iii) for withdrawals under the
Fund's systematic withdrawal plan but limited to 12% annually of the initial
value of the account, (iv) if no commission or transaction fee is paid to
authorized dealers at the time of purchase of such shares and (v) if made by
involuntary liquidation by the Fund of a shareholder's account as described
under the heading "Redemption of Shares." Subject to certain limitations, a
shareholder who has redeemed Class C Shares of the Fund may reinvest in Class C
Shares at net asset value with credit for any contingent deferred sales charge
if the reinvestment is made within 180 days after the redemption. For a more
complete description of contingent deferred sales charge waivers, please refer
to the Fund's Statement of Additional Information or contact your authorized
dealer.
QUANTITY DISCOUNTS
Investors purchasing Class A Shares may, under certain circumstances described
below, be entitled to pay reduced or no sales charges. Investors, or their
authorized dealers, must notify the Fund at the time of the purchase order
whenever a quantity discount is applicable to purchases. Upon such notification,
an investor will receive the lowest applicable sales charge. Quantity discounts
may be modified or terminated at any time. For more information about quantity
discounts, investors should contact their authorized dealer or the Distributor.
A person eligible for a reduced sales charge includes an individual, his or her
spouse and children under 21 years of age and any corporation, partnership or
sole proprietorship which is 100% owned, either alone or in combination, by any
of the foregoing; a trustee or other fiduciary purchasing for a single
19
<PAGE>
trust or for a single fiduciary account, or a "company" as defined in
Section 2(a)(8) of the 1940 Act.
As used herein, "Participating Funds" refers to certain open-end investment
companies advised by Asset Management or Advisory Corp. and distributed by the
Distributor as determined from time to time by the Fund's Board of Directors.
VOLUME DISCOUNTS. The size of investment shown in the Class A Shares sales
charge table applies to the total dollar amount being invested by any person in
shares of the Fund, or in any combination of shares of the Fund and shares of
other Participating Funds, although other Participating Funds may have different
sales charges.
CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the Class A Shares
sales charge table may also be determined by combining the amount being invested
in shares of the Participating Funds plus the current offering price of all
shares of the Participating Funds which have been previously purchased and are
still owned.
LETTER OF INTENT. A Letter of Intent provides an opportunity for an investor to
obtain a reduced sales charge by aggregating the investments over a 13-month
period to determine the sales charge as outlined in the Class A Shares sales
charge table. The size of investment shown in the Class A Shares sales charge
table includes purchases of shares of the Participating Funds over a 13-month
period based on the total amount of intended purchases plus the value of all
shares of the Participating Funds previously purchased and still owned. An
investor may elect to compute the 13-month period starting up to 90 days before
the date of execution of a Letter of Intent. Each investment made during the
period receives the reduced sales charge applicable to the total amount of the
investment goal. The initial purchase must be for an amount equal to at least 5%
of the minimum total purchase amount of the level selected. If trades not
initially made under a Letter of Intent subsequently qualify for a lower sales
charge through the 90-day backdating provisions, an adjustment will be made at
the time of the expiration of the Letter of Intent to give effect to the lower
charge. Such adjustment in sales charge will be used to purchase additional
shares for the shareholder at the applicable discount category. The Fund
initially will escrow shares totaling 5% of the dollar amount of the Letter of
Intent to be held by Investor Services in the name of the shareholder. In the
event the Letter of Intent goal is not achieved within the specified period, the
investor must pay the difference between the sales charge applicable to the
purchases made and the reduced sales charge previously paid. Such payments may
be made directly to the Distributor or, if not paid, the Distributor will
liquidate sufficient escrowed shares to obtain the difference.
OTHER PURCHASE PROGRAMS
Purchasers of Class A Shares may be entitled to reduced or no initial sales
charges in connection with the unit investment trust reinvestment program and
purchases by registered representatives of selling firms or purchases by persons
affiliated with the Fund or the Distributor. The Fund reserves the right to
modify or terminate these arrangements at any time.
UNIT INVESTMENT TRUST REINVESTMENT PROGRAM. The Fund permits unitholders of unit
investment trusts to reinvest distributions from such trusts in Class A Shares
of the Fund at net asset value per share and with no minimum initial or
subsequent investment requirement, if the administrator of an investor's unit
investment trust program meets certain uniform criteria relating to cost savings
by the Fund and the Distributor. The total sales charge for all other
investments made from unit investment trust distributions will be 1.00% of the
offering price (1.01% of net asset value). Of this amount, the Distributor will
pay to the authorized dealer, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the terms and conditions that apply to the program,
should contact their authorized dealer or the Distributor.
The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during
20
<PAGE>
each distribution period by all investors who choose to invest in the Fund
through the program and (2) provide Investor Services with appropriate backup
data for each investor participating in the program in a computerized format
fully compatible with Investor Services' processing system.
In order to obtain these special benefits, all dividends and other distributions
by the Fund must be reinvested in additional shares and there can not be any
systematic withdrawal program. There will be no minimum for reinvestments from
unit investment trusts. The Fund will send account activity statements to such
participants on a quarterly basis only, even if their investments are made more
frequently. The Fund reserves the right to modify or terminate this program at
any time.
NET ASSET VALUE PURCHASE OPTIONS. Class A Shares of the Fund may be purchased at
net asset value, upon written assurance that the purchase is made for investment
purposes and that the shares will not be resold except through redemption by the
Fund, by:
(1) Current or retired trustees or directors of funds advised by Morgan Stanley
Dean Witter & Co. and any of its subsidiaries and such persons' families
and their beneficial accounts.
(2) Current or retired directors, officers and employees of Morgan Stanley Dean
Witter & Co. and any of its subsidiaries; employees of an investment
subadviser to any fund described in (1) above or an affiliate of such
subadviser; and such persons' families and their beneficial accounts.
(3) Directors, officers, employees and, when permitted, registered
representatives, of financial institutions that have a selling group
agreement with the Distributor and their spouses and children under 21
years of age when purchasing for any accounts they beneficially own, or, in
the case of any such financial institution, when purchasing for retirement
plans for such institution's employees; provided that such purchases are
otherwise permitted by such institutions.
(4) Registered investment advisers who charge a fee for their services, trust
companies and bank trust departments investing on their own behalf or on
behalf of their clients. The Distributor may pay authorized dealers through
which purchases are made an amount up to 0.50% of the amount invested, over
a 12-month period.
(5) Trustees and other fiduciaries purchasing shares for retirement plans which
invest in multiple fund families through broker-dealer retirement plan
alliance programs that have entered into agreements with the Distributor
and which are subject to certain minimum size and operational requirements.
Trustees and other fiduciaries should refer to the Statement of Additional
Information for further details with respect to such alliance programs.
(6) Beneficial owners of shares of Participating Funds held by a retirement
plan or held in a tax-advantaged retirement account who purchase shares of
the Fund with proceeds from distributions from such a plan or retirement
account other than distributions taken to correct an excess contribution.
(7) Accounts as to which a bank or broker-dealer charges an account management
fee ("wrap accounts"), provided the bank or broker-dealer has a separate
agreement with the Distributor.
(8) Trusts created under pension, profit sharing or other employee benefit
plans qualified under Section 401(a) of the Internal Revenue Code of 1986,
as amended (the "Code"), or custodial accounts held by a bank created
pursuant to Section 403(b) of the Code and sponsored by nonprofit
organizations defined under Section 501(c)(3) of the Code and assets held
by an employer or trustee in connection with an eligible deferred
compensation plan under Section 457 of the Code. Such plans will qualify
for purchases at net asset value provided, for plans initially establishing
accounts with the Distributor in the Participating Funds after February 1,
1997, that (1) the initial amount invested in the Participating Funds is at
least $500,000 or (2) such shares are purchased by an employer sponsored
plan with more than 100 eligible employees. Such plans that have been
established with a Participating Fund or have received proposals from the
Distributor prior to February 1, 1997 based on net asset value purchase
privileges previously in effect will be qualified to purchase shares of the
Participating Funds at net asset value for accounts established on or
before May 1, 1997. Section 403(b) and similar accounts for which Van
Kampen Trust Company serves as custodian will not be eligible for net
21
<PAGE>
asset value purchases based on the aggregate investment made by the plan or
the number of eligible employees, except under certain uniform criteria
established by the Distributor from time to time. Prior to February 1,
1997, a commission will be paid to authorized dealers who initiate and are
responsible for such purchases within a rolling twelve- month period as
follows: 1.00% on sales to $5 million, plus 0.50% on the next $5 million,
plus 0.25% on the excess over $10 million. For purchases on February 1,
1997 and thereafter, a commission will be paid as follows: 1.00% on sales
to $2 million, plus 0.80% on the next $1 million, plus 0.50% on the next
$47 million, plus 0.25% on the excess over $50 million.
(9) Individuals who are members of a "qualified group." For this purpose, a
qualified group is one which (i) has been in existence for more than six
months, (ii) has a purpose other than to acquire shares of the Fund or
similar investments, (iii) has given and continues to give its endorsement
or authorization, on behalf of the group, for purchase of shares of the
Fund and Participating Funds, (iv) has a membership that the authorized
dealer can certify as to the group's members and (v) satisfies other
uniform criteria established by the Distributor for the purpose of
realizing economies of scale in distributing such shares. A qualified group
does not include one whose sole organizational nexus, for example, is that
its participants are credit card holders of the same institution, policy
holders of an insurance company, customers of a bank or broker-dealer,
clients of an investment adviser or other similar groups. Shares purchased
in each group's participants account in connection with this privilege will
be subject to a contingent deferred sales charge of 1.00% in the event of
redemption within one year of purchase, and a commission will be paid to
authorized dealers who initiate and are responsible for such sales to each
individual as follows: 1.00% on sales to $2 million, plus 0.80% on the next
$1 million and 0.50% on the excess over $3 million.
The term "families" includes a person's spouse, children under 21 years of age
and grandchildren, parents, and a person's spouse's parents.
Purchase orders made pursuant to clause (4) may be placed either through
authorized dealers as described above or directly with Investor Services by the
investment adviser, trust company or bank trust department, provided that
Investor Services receives federal funds for the purchase by the close of
business on the next business day following acceptance of the order. An
authorized dealer may charge a transaction fee for placing an order to purchase
shares pursuant to this provision or for placing a redemption order with respect
to such shares. Authorized dealers will be paid a service fee as described above
on purchases made under options (3) through (9) above. The Fund may terminate,
or amend the terms of, offering shares of the Fund at net asset value to such
groups at any time.
REDEMPTION OF
SHARES
Generally shareholders may redeem for cash some or all of their shares without
charge by the Fund (other than applicable sales charge) at any time. As
described under the heading "Purchase of Shares," redemptions of Class B Shares
and Class C Shares may be subject to a contingent deferred sales charge. In
addition, certain redemptions of Class A Shares for shareholder accounts of $1
million or more may be subject to a contingent deferred sales charge.
Redemptions completed through an authorized dealer or a custodian of a
retirement plan account may involve additional fees charged by the dealer or
custodian.
Except as specified below under "Telephone Redemption Requests," payment for
shares redeemed generally will be made by check mailed within seven days after
receipt by Investor Services of the request and any other necessary documents in
proper form as described below. Such payment may be postponed or the right of
redemption suspended as provided by the rules of the SEC. Such payment may,
under certain circumstances, be paid wholly or in part by a distribution-in-kind
of portfolio securities which may result in brokerage costs and a gain or loss
for federal income tax purposes when such securities are sold. If the shares to
be redeemed have been recently purchased by check, Investor Services
22
<PAGE>
may delay the payment of redemption proceeds until it confirms the purchase
check has cleared, which may take up to 15 days. A taxable gain or loss will be
recognized by the shareholder upon redemption of shares.
WRITTEN REDEMPTION REQUESTS. Shareholders may request a redemption of shares by
written request in proper form sent directly to Van Kampen Investor Services
Inc., PO Box 218256, Kansas City, MO 64121-8256. The request for redemption
should indicate the number of shares to be redeemed, the class designation of
such shares and the shareholder's account number. The redemption request must be
signed by all persons in whose names the shares are registered. Signatures must
conform exactly to the account registration. If the proceeds of the redemption
exceed $50,000, or if the proceeds are not to be paid to the record owner at the
record address, or if the record address has changed within the previous 30
days, signature(s) must be guaranteed by one of the following: a bank or trust
company; a broker-dealer; a credit union; a national securities exchange,
registered securities association or clearing agency; a savings and loan
association; or a federal savings bank.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption to be in proper form. In some
cases, however, additional documents may be necessary. In the case of
shareholders holding certificates, the certificates for the shares being
redeemed properly endorsed for transfer must accompany the redemption request.
In the event the redemption is requested by a corporation, partnership, trust,
fiduciary, executor or administrator, and the name and title of the
individual(s) authorizing such redemption is not shown in the account
registration, a copy of the corporate resolution or other legal documentation
appointing the authorized signer and certified within the prior 120 days must
accompany the redemption request. IRA redemption requests should be sent to the
IRA custodian to be forwarded to Investor Services. Contact the IRA custodian
for further information.
In the case of written redemption requests sent directly to Investor Services,
the redemption price is the net asset value per share next determined after the
request in proper form is received by Investor Services.
AUTHORIZED DEALER REDEMPTION REQUESTS. Shareholders may place redemption
requests through an authorized dealer. Orders sent through authorized dealers
must be at least $500 (unless transmitted by your authorized dealer via the
FUNDSERV network). The redemption price for such shares is the net asset value
per share next calculated after an order in proper form is received by an
authorized dealer provided such order is transmitted to the Distributor prior to
the Distributor's close of business on such day. It is the responsibility of
authorized dealers to transmit redemption requests received by them to the
Distributor so they will be received prior to such time. Redemptions completed
through an authorized dealer may involve additional fees charged by the dealer.
TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. A shareholder
automatically has telephone redemption privileges unless the shareholder
indicates otherwise by checking the applicable box on the application form
accompanying the prospectus. To redeem shares, contact the telephone transaction
line at (800) 421-5684. Van Kampen Investments, Investor Services and the Fund
employ procedures considered by them to be reasonable to confirm that
instructions communicated by telephone are genuine. Such procedures include
requiring certain personal identification information prior to acting upon
telephone instructions, tape-recording telephone communications and providing
written confirmation of instructions communicated by telephone. If reasonable
procedures are employed, none of Van Kampen Investments, Investor Services or
the Fund will be liable for following telephone instructions which it reasonably
believes to be genuine. Telephone redemptions may not be available if the
shareholder cannot reach Investor Services by telephone, whether because all
telephone lines are busy or for any other reason; in such case, a shareholder
would have to use the Fund's other redemption procedure previously described.
Requests received by Investor Services prior to 4:00 p.m., New York time, will
be processed at the next determined net asset value per share. These privileges
are available for all accounts other than retirement accounts or accounts with
shares represented by certificates. If an account
23
<PAGE>
has multiple owners, Investor Services may rely on the instructions of any one
owner.
For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check and amounts of at least
$1,000 up to $1 million may be redeemed daily if the proceeds are to be paid by
wire. The proceeds must be payable to the shareholder(s) of record and sent to
the address of record for the account or wired directly to their predesignated
bank account. This privilege is not available if the address of record has been
changed within 30 days prior to a telephone redemption request. Proceeds from
redemptions payable by wire transfer are expected to be wired on the next
business day following the date of redemption. The Fund reserves the right at
any time to terminate, limit or otherwise modify this redemption privilege.
OTHER REDEMPTION INFORMATION. The Fund may redeem shares of any shareholder
account that has a value on the date of the notice of redemption less than the
minimum initial investment as specified in this prospectus. At least 60 days
advance written notice of any such involuntary redemption will be provided to
the shareholder and such shareholder will be given an opportunity to purchase
the required value of additional shares at the next determined net asset value
without sales charge. Any involuntary redemption may only occur if the
shareholder account is less than the minimum initial investment due to
shareholder redemptions.
DISTRIBUTIONS FROM
THE FUND
In addition to any increase in the value of shares which the Fund may achieve,
shareholders may receive distributions from the Fund of dividends and capital
gain dividends.
DIVIDENDS. Dividends from stocks and interest earned from other investments are
the Fund's main sources of income. The Fund's present policy, which may be
changed at any time by the Board of Directors, is to distribute all or
substantially all of this income, less expenses, at least annually as dividends
to shareholders. Dividends are automatically applied to purchase additional
shares of the Fund at the next determined net asset value unless the shareholder
instructs otherwise.
The per share dividends on Class B Shares and Class C Shares may be lower than
the per share dividends on Class A Shares as a result of the higher distribution
fees and transfer agency costs applicable to such classes of shares.
CAPITAL GAIN DIVIDENDS. The Fund may realize capital gains or losses when it
sells securities, depending on whether the sales prices for the securities are
higher or lower than purchase prices. Net realized capital gain represents the
total profits from sales of securities minus total losses from sales of
securities (including any losses carried forward from prior years), other than
net short-term capital gain from sales of securities held for one year or less.
The Fund distributes any taxable net realized capital gain to shareholders as
capital gain dividends at least annually. As in the case of dividends, capital
gains dividends are automatically reinvested in additional shares of the Fund at
the next determined net asset value unless the shareholder instructs otherwise.
SHAREHOLDER SERVICES
Listed below are some of the shareholder services the Fund offers to investors.
For a more complete description of the Fund's shareholder services, such as
investment accounts, share certificates, retirement plans, automated clearing
house deposits, dividend diversification and the systematic withdrawal plan,
please refer to the Statement of Additional Information or contact your
authorized dealer.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gain dividends in shares of the
Fund. Such shares are acquired at net asset value per share (without sales
charge) on the applicable payable date of the dividend or capital gain dividend.
Unless the shareholder instructs otherwise, the reinvestment plan is automatic.
This instruction may be made by telephone by calling (800) 341-2911
24
<PAGE>
((800) 421-2833 for the hearing impaired) or by writing to Investor Services.
The investor may, on the initial application or prior to any declaration,
instruct that dividends be paid in cash and capital gain dividends be reinvested
at net asset value, or that both dividends and capital gain dividends be paid in
cash.
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under which
a shareholder can authorize Investor Services to charge a bank account on a
regular basis to invest predetermined amounts in the Fund. Additional
information is available from the Distributor or your authorized dealer.
EXCHANGE PRIVILEGE. Shares of the Fund may be exchanged for shares of the same
class of any Participating Fund based on the next computed net asset value per
share of each fund after requesting the exchange without any sales charge,
subject to certain limitations. Shares of the Fund may be exchanged for shares
of any Participating Fund only if shares of that Participating Fund are
available for sale; however, during periods of suspension of sales, shares of a
Participating Fund may be available for sale only to existing shareholders of a
Participating Fund. Shareholders seeking an exchange into a Participating Fund
should obtain and read the current prospectus for such fund prior to
implementing an exchange. A prospectus of any of the Participating Funds may be
obtained from any authorized dealer or the Distributor.
To be eligible for exchange, shares of the Fund must have been registered in the
shareholder's name for at least 30 days prior to an exchange. Shares of the Fund
registered in a shareholder's name for less than 30 days may only be exchanged
upon receipt of prior approval of the Adviser. It is the policy of the Adviser,
under normal circumstances, not to approve such requests.
When shares that are subject to a contingent deferred sales charge are exchanged
among Participating Funds, the holding period for purposes of computing the
contingent deferred sales charge is based upon the date of the initial purchase
of such shares from a Participating Fund. When such shares are redeemed and not
exchanged for shares of another Participating Fund, the shares are subject to
the contingent deferred sales charge schedule imposed by the Participating Fund
from which such shares were originally purchased.
Exchanges of shares are sales of one Participating Fund and purchases of another
Participating Fund. The sale may result in a gain or loss for federal income tax
purposes. If the shares sold have been held for less than 91 days, the sales
charge paid on such shares is carried over and included in the tax basis of the
shares acquired.
A shareholder wishing to make an exchange may do so by sending a written request
to Investor Services or by contacting the telephone transaction line at
(800) 421-5684. A shareholder automatically has telephone exchange privileges
unless the shareholder indicates otherwise by checking the applicable box on the
application form accompanying the prospectus. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated by telephone are genuine. Such procedures
include requiring certain personal identification information prior to acting
upon telephone instructions, tape-recording telephone communications, and
providing written confirmation of instructions communicated by telephone. If
reasonable procedures are employed, none of Van Kampen Investments, Investor
Services or the Fund will be liable for following telephone instructions which
it reasonably believes to be genuine. If the exchanging shareholder does not
have an account in the fund whose shares are being acquired, a new account will
be established with the same registration, dividend and capital gain dividend
options (except dividend diversification) and authorized dealer of record as the
account from which shares are exchanged, unless otherwise specified by the
shareholder. In order to establish a systematic withdrawal plan for the new
account or reinvest dividends from the new account into another fund, however,
an exchanging shareholder must submit a specific request. The Fund reserves the
right to reject any order to acquire its shares through exchange. In addition,
the Fund and other Participating Funds may restrict exchanges by shareholders
engaged in excessive trading by limiting or disallowing the exchange privileges
to such shareholders. For further information on these restrictions see the
Statement of Additional Information. The
25
<PAGE>
Fund may modify, restrict or terminate the exchange privilege at any time on 60
days' notice to its shareholders of any termination or material amendment.
For purposes of determining the sales charge rate previously paid on Class A
Shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchanged security was acquired through reinvestment, that
security is deemed to have been sold with a sales charge rate equal to the rate
previously paid on the security on which the dividend or distribution was paid.
If a shareholder exchanges less than all of such shareholder's securities, the
security upon which the highest sales charge rate was previously paid is deemed
exchanged first.
Exchange requests received on a business day prior to the time shares of the
funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares of the fund which the
shareholder is redeeming will be redeemed at the net asset value per share next
determined on the date of receipt. Shares of the new fund which the shareholder
is purchasing will also normally be purchased at the net asset value per share,
plus any applicable sales charge, next determined on the date of receipt.
Exchange requests received on a business day after the time shares of the funds
involved in the request are priced will be processed on the next business day in
the manner described herein.
INTERNET TRANSACTIONS. In addition to performing transactions on your account
through written instruction or by telephone, you may also perform certain
transactions through the internet. Please refer to our web site at
www.vankampen.com for further instruction. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated through the internet are genuine. Such
procedures include requiring use of a personal identification number prior to
acting upon internet instructions and providing written confirmation of
instructions communicated through the internet. If reasonable procedures are
employed, none of Van Kampen Investments, Investor Services or the Fund will be
liable for following instructions received through the internet which it
reasonably believes to be genuine. If an account has multiple owners, Investor
Services may rely on the instructions of any one owner.
FEDERAL INCOME
TAXATION
Distributions of the Fund's net investment income (consisting generally of
taxable income and net short-term capital gain) are taxable to shareholders as
ordinary income to the extent of the Fund's earnings and profits, whether paid
in cash or reinvested in additional shares. Distributions of the Fund's net
realized capital gain (which is the excess of net long-term capital gain over
net short-term capital loss) as capital gain dividends, if any, are taxable to
shareholders as long-term capital gains, whether paid in cash or reinvested in
additional shares, and regardless of how long the shares of the Fund have been
held by such shareholders. The Fund expects that its distributions will consist
primarily of ordinary income and capital gain dividends. Distributions in excess
of the Fund's earnings and profits will first reduce the adjusted tax basis of a
holder's shares and, after such adjusted tax basis is reduced to zero, will
constitute capital gains to such holder (assuming such shares are held as a
capital asset). Although distributions generally are treated as taxable in the
year they are paid, distributions declared in October, November or December,
payable to shareholders of record on a specified date in such month and paid
during January of the following year will be treated as having been distributed
by the Fund and received by the shareholders on the December 31st prior to the
date of payment. The Fund will inform shareholders of the source and tax status
of all distributions promptly after the close of each calendar year.
The sale or exchange of shares is a taxable transaction for federal income tax
purposes. Shareholders who sell their shares will generally recognize gain or
loss in an amount equal to the difference between their adjusted tax basis in
the shares sold and the
26
<PAGE>
amount received. If the shares are held as a capital asset, the gain or loss
will be a capital gain or loss. Any capital gains may be taxed at different
rates depending on how long the shareholder held such shares.
The Fund is required, in certain circumstances, to withhold 31% of dividends and
certain other payments, including redemptions, paid to shareholders who do not
furnish to the Fund their correct taxpayer identification number (in the case of
individuals, their social security number) and certain required certifications
or who are otherwise subject to backup withholding.
Foreign shareholders, including shareholders who are non-resident aliens, may be
subject to U.S. withholding tax on certain distributions (whether received in
cash or in shares) at a rate of 30% or such lower rate as prescribed by an
applicable treaty. Accordingly, investment in the Fund is likely to be
appropriate for a foreign shareholder only if such person can utilize a foreign
tax credit or corresponding tax benefit in respect of such U.S. withholding tax.
Prospective foreign investors should consult their tax advisers concerning the
tax consequences to them of an investment in shares.
The Fund intends to qualify as a regulated investment company under federal
income tax law. If the Fund so qualifies and distributes each year to its
shareholders at least 90% of its net investment income, the Fund will not be
required to pay federal income taxes on any income it distributes to
shareholders. If the Fund distributes less than an amount equal to the sum of
98% of its ordinary income and 98% of its capital gain net income, then the Fund
will be subject to a 4% excise tax on the undistributed amounts.
The federal income tax discussion set forth above is for general information
only. Prospective investors should consult their own tax advisers regarding the
specific federal tax consequences of purchasing, holding, disposing, exchanging
or selling of shares, as well as the effects of state, local and foreign tax law
and any proposed tax law changes.
27
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the periods indicated. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report, along with the Fund's financial statements, is
included in the Statement of Additional Information and may be obtained by
shareholders without charge by calling the telephone number on the back cover of
this prospectus. This information should be read in conjunction with the
financial statements and notes thereto included in the Statement of Additional
Information.
<TABLE>
<CAPTION>
CLASS A
YEAR ENDED JUNE 30,
JULY 6, 1994* TO
1999# 1998# 1997 1996 JUNE 30, 1995
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD........................ $7.984 $ 13.47 $ 12.06 $ 10.61 $ 12.00
------ -------- ------- ------- ---------------
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME/LOSS................................ 0.032 -- 0.01 0.05 0.05
NET REALIZED AND UNREALIZED GAIN/LOSS..................... 1.853 (4.49) 1.57 1.44 (1.44)
------ -------- ------- ------- ---------------
TOTAL FROM INVESTMENT OPERATIONS............................ 1.885 (4.49) 1.58 1.49 (1.39)
------ -------- ------- ------- ---------------
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.............................. (0.004) (0.27) -- -- --
RETURN OF CAPITAL........................................... (0.000)++ -- -- -- --
------ -------- ------- ------- ---------------
TOTAL DISTRIBUTIONS......................................... (0.004) (1.00) (0.17) (0.04) --
------ -------- ------- ------- ---------------
NET ASSET VALUE, END OF PERIOD.............................. $9.865 $ 7.98 $ 13.47 $ 12.06 $ 10.61
====== ======== ======= ======= ===============
TOTAL RETURN(1)............................................. 23.92% (34.31)% 13.54% 14.16% (11.58)%**
====== ======== ======= ======= ===============
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (000'S)........................... $63,273 $ 74,959 $119,022 $114,850 $ 26,091
RATIO OF EXPENSES TO AVERAGE NET ASSETS..................... 2.34% 2.27% 2.21% 2.16% 2.33%
RATIO OF NET INVESTMENT INCOME/LOSS TO AVERAGE NET ASSETS... 0.44% 0.04% (0.06)% 0.93% 0.81%
PORTFOLIO TURNOVER RATE..................................... 132% 99% 82% 42% 32%**
- ------------------------------------------------------------------------------------------------------------------
EFFECT OF VOLUNTARY EXPENSE LIMITATION DURING THE PERIOD
PER SHARE BENEFIT TO NET INVESTMENT INCOME/LOSS............. $ 0.02 $ 0.03 $ 0.03 $ 0.02 $ 0.04
RATIOS BEFORE EXPENSE LIMITATION:
EXPENSES TO AVERAGE NET ASSETS.............................. 2.56% 2.60% 2.41% 2.56% 3.10%
NET INVESTMENT INCOME/LOSS TO AVERAGE NET ASSETS............ 0.22% (0.24)% (0.27)% 0.53% 0.04%
RATIO OF EXPENSES TO AVERAGE NET ASSETS EXCLUDING COUNTRY
TAX EXPENSE AND INTEREST EXPENSE.......................... 2.15% 2.15% 2.15% 2.15% 2.15%
<CAPTION>
CLASS B
YEAR ENDED JUNE 30,
AUGUST 1, 1995+
1999# 1998# 1997 TO JUNE 30, 1996
<S> <C> <C> <C> <C>
- ------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 7.784 $ 13.24 $ 11.94 $ 10.91
-------- -------- -------- ------------------
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME/LOSS................................ (0.021) (0.07) (0.03) 0.01
NET REALIZED AND UNREALIZED GAIN/LOSS..................... 1.794 (4.39) 1.50 1.02
-------- -------- -------- ------------------
TOTAL FROM INVESTMENT OPERATIONS............................ 1.773 (4.46) 1.47 1.03
-------- -------- -------- ------------------
NET INVESTMENT INCOME....................................... -- -- -- --
IN EXCESS OF NET INVESTMENT INCOME.......................... -- -- (0.04) --
NET REALIZED GAIN........................................... -- (0.73) (0.13) --
IN EXCESS OF NET REALIZED GAIN.............................. (0.004) (0.27) -- --
RETURN OF CAPITAL........................................... (0.000)++ -- -- --
-------- -------- -------- ------------------
TOTAL DISTRIBUTIONS......................................... (0.004) (1.00) (0.17) --
-------- -------- -------- ------------------
NET ASSET VALUE, END OF PERIOD.............................. $ 9.553 $ 7.78 $ 13.24 $ 11.94
======== ======== ======== ==================
TOTAL RETURN(1)............................................. 22.99% (34.76)% 12.67% 9.45%**
======== ======== ======== ==================
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (000'S)........................... $ 38,313 $ 36,423 $ 35,966 $ 10,416
RATIO OF EXPENSES TO AVERAGE NET ASSETS..................... 3.09% 3.02% 2.96% 2.91%
RATIO OF NET INVESTMENT INCOME/LOSS TO AVERAGE NET ASSETS... (0.29)% (0.67)% (0.64)% 0.30%
PORTFOLIO TURNOVER RATE..................................... 132% 99% 82% 42%**
- ------------------------------------------------------------
EFFECT OF VOLUNTARY EXPENSE LIMITATION DURING THE PERIOD
PER SHARE BENEFIT TO NET INVESTMENT INCOME/LOSS............. $ 0.02 $ 0.03 $ 0.01 $ 0.02
RATIOS BEFORE EXPENSE LIMITATION:
EXPENSES TO AVERAGE NET ASSETS.............................. 3.31% 3.35% 3.17% 3.31%
NET INVESTMENT INCOME/LOSS TO AVERAGE NET ASSETS............ (0.51)% (0.97)% (0.87)% (0.10)%
RATIO OF EXPENSES TO AVERAGE NET ASSETS EXCLUDING COUNTRY
TAX EXPENSE AND INTEREST EXPENSE.......................... 2.90% 2.90% 2.90% 2.90%
<CAPTION>
CLASS C
YEAR ENDED JUNE 30,
JULY 6, 1994* TO
1999# 1998# 1997 1996 JUNE 30, 1995
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 7.791 $ 13.26 $ 11.93 $ 10.53 $12.00
-------- -------- -------- -------- ----------------
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME/LOSS................................ (0.023) (0.08) (0.08) (0.01) --
NET REALIZED AND UNREALIZED GAIN/LOSS..................... 1.805 (4.39) 1.55 1.41 (1.47)
-------- -------- -------- -------- ----------------
TOTAL FROM INVESTMENT OPERATIONS............................ 1.782 (4.47) 1.47 1.40 (1.47)
-------- -------- -------- -------- ----------------
NET INVESTMENT INCOME....................................... -- -- -- -- --
IN EXCESS OF NET INVESTMENT INCOME.......................... -- -- (0.01) -- --
NET REALIZED GAIN........................................... -- (0.73) (0.13) -- --
IN EXCESS OF NET REALIZED GAIN.............................. (0.004) (0.27) -- -- --
RETURN OF CAPITAL........................................... (0.000)++ -- -- -- --
-------- -------- -------- -------- ----------------
TOTAL DISTRIBUTIONS......................................... (0.004) (1.00) (0.14) -- --
-------- -------- -------- -------- ----------------
NET ASSET VALUE, END OF PERIOD.............................. $ 9.569 $ 7.79 $ 13.26 $ 11.93 $10.53
======== ======== ======== ======== ================
TOTAL RETURN(1)............................................. 23.09% (34.73)% 12.66% 13.30% (12.25)%**
======== ======== ======== ======== ================
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (000'S)........................... $ 21,882 $ 28,680 $ 57,958 $ 43,601 $22,245
RATIO OF EXPENSES TO AVERAGE NET ASSETS..................... 3.09% 3.01% 2.96% 2.91% 3.08%
RATIO OF NET INVESTMENT INCOME/LOSS TO AVERAGE NET ASSETS... (0.32)% (0.76)% (0.79)% (0.11)% 0.06%
PORTFOLIO TURNOVER RATE..................................... 132% 99% 82% 42% 32%**
- ------------------------------------------------------------
EFFECT OF VOLUNTARY EXPENSE LIMITATION DURING THE PERIOD
PER SHARE BENEFIT TO NET INVESTMENT INCOME/LOSS............. $ 0.02 $ 0.03 $ 0.02 $ 0.03 $0.04
RATIOS BEFORE EXPENSE LIMITATION:
EXPENSES TO AVERAGE NET ASSETS.............................. 3.31% 3.34% 3.17% 3.34% 3.90%
NET INVESTMENT INCOME/LOSS TO AVERAGE NET ASSETS............ (0.54)% (1.03)% (1.00)% (0.54)% (0.76)%
RATIO OF EXPENSES TO AVERAGE NET ASSETS EXCLUDING COUNTRY
TAX EXPENSE AND INTEREST EXPENSE.......................... 2.90% 2.90% 2.90% 2.90% 2.90%
</TABLE>
* COMMENCEMENT OF OPERATIONS
** NON-ANNUALIZED
+ THE FUND BEGAN OFFERING CLASS B SHARES ON AUGUST 1, 1995.
++ AMOUNT IS LESS THAN $0.001 PER SHARE.
(1) TOTAL RETURN IS CALCULATED EXCLUSIVE OF SALES CHARGES OR DEFERRED
SALES CHARGES.
# CHANGES PER SHARE ARE BASED UPON MONTHLY AVERAGE SHARES OUTSTANDING.
28
<PAGE>
APPENDIX -- DESCRIPTION OF SECURITIES RATINGS
STANDARD & POOR'S -- A brief description of the applicable Standard & Poor's
(S&P) rating symbols and their meanings (as published by S&P) follow:
A S&P corporate or municipal debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees.
The debt rating is not a recommendation to purchase, sell, or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished by the issuer or obtained
by S&P from other sources it considers reliable. S&P does not perform an audit
in connection with any rating and may, on occasion, rely on unaudited financial
information. The ratings may be changed, suspended, or withdrawn as a result of
changes in, or unavailability of, such information, or based on other
circumstances.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of payment -- capacity and willingness of the obligor to meet its
financial commitment on an obligation in accordance with the terms of the
obligation:
2. Nature of and provisions of the obligation:
3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditor's rights.
1. LONG-TERM DEBT -- INVESTMENT GRADE
AAA: Debt rated "AAA" has the highest rating assigned by S&P. Capacity to meet
its financial commitment on the obligation is extremely strong.
AA: Debt rated "AA" differs from the highest rated issues only in small degree.
Capacity to meets its financial commitment on the obligation is very strong.
A: Debt rated "A" is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than obligations in higher rated
categories. Capacity to meet its financial commitment on the obligation is still
strong.
BBB: Debt rated "BBB" exhibits adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to meet its financial commitment on the obligation.
SPECULATIVE GRADE
BB, B, CCC, CC, C: Debts rated "BB", "B", "CCC", "CC" and "C" are regarded as
having significant speculative characteristics. "BB" indicates the least degree
of speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
BB: Debt rated "BB" is less vulnerable to nonpayment than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
B: Debt rated "B" is more vulnerable to nonpayment than obligations rated "BB",
but the obligor currently has the capacity to meet its financial commitment on
the obligation. Adverse business, financial, or economic conditions will likely
impair the obligor's capacity or willingness to meet its financial commitment on
the obligation.
CCC: Debt rated "CCC" is currently vulnerable to nonpayment, and is dependent
upon favorable business, financial, and economic conditions for the obligor to
meet its financial commitment on the obligation. In the event of adverse
business, financial, or economic conditions, the obligor is not likely to have
A-1
<PAGE>
the capacity to meet its financial commitment on the obligation.
CC: Debt rated "CC" is currently highly vulnerable to nonpayment.
C: the "C" rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments on this obligation
are being continued.
D: Debt rated "D" is in payment default. The "D" rating category is used when
payments on an obligation are not made on the date due even if the applicable
grace period has not expired, unless S&P believes that such payments will be
made during such grace period. The "D" rating also will be used upon the filing
of a bankruptcy petition or the taking of a similar action if payments on an
obligation are jeopardized.
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
r: This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk -- such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
DEBT OBLIGATIONS OF ISSUERS OUTSIDE THE UNITED STATES AND ITS TERRITORIES are
rated on the same basis as domestic corporate and municipal issues. The ratings
measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.
BOND INVESTMENT QUALITY STANDARDS: Under present commercial bank regulations
issued by the Comptroller of the Currency, bonds rated in the top four
categories ("AAA", "AA", "A", "BBB", commonly known as "investment grade"
ratings) are generally regarded as eligible for bank investment. In addition,
the laws of various states governing legal investments impose certain ratings or
other standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.
2. COMMERCIAL PAPER
A S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.
Ratings are graded into several categories, ranging from "A-1" for the highest
quality obligations to "D" for the lowest. These categories are as follows:
A-1: The highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
A-3: Issues carrying this designation have adequate capacity for timely payment.
They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B: Issues rated "B" are regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
C: This rating is assigned to short-term debt obligations currently vulnerable
to nonpayment and is dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on the obligation.
D: Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired,
A-2
<PAGE>
unless S&P believes that such payments will be made during such grace period.
The "D" rating also will be used upon the filing of a bankruptcy petition or the
taking of a similar action if payments on an obligation are jeopardized.
A commercial paper rating is not a recommendation to purchase, sell or hold a
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained from other sources it considers reliable. S&P does
not perform an audit in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed, suspended or
withdrawn as a result of changes in, or unavailability of, such information, or
based on other circumstances.
3. PREFERRED STOCK
A S&P preferred stock rating is an assessment of the capacity and willingness of
an issuer to pay preferred stock dividends and any applicable sinking fund
obligations. A preferred stock rating differs from a bond rating inasmuch as it
is assigned to an equity issue, which issue is intrinsically different from, and
subordinated to, a debt issue. Therefore, to reflect this difference, the
preferred stock rating symbol will normally not be higher than the bond rating
symbol assigned to, or that would be assigned to, the senior debt of the same
issuer.
The preferred stock ratings are based on the following considerations:
i. Likelihood of payment-capacity and willingness of the issuer to meet the
timely payment of preferred stock dividends and any applicable sinking fund
requirements in accordance with the terms of the obligation.
ii. Nature of, and provisions of, the issuer.
iii. Relative position of the issue in the event of bankruptcy, reorganization,
or other arrangements under the laws of bankruptcy and other laws affecting
creditors' rights.
AAA: This is the highest rating that may be assigned by S&P to a preferred stock
issue and indicates an extremely strong capacity to pay the preferred stock
obligations.
AA: A preferred stock issue rated "AA" also qualifies as a high-quality, fixed
income security. The capacity to pay preferred stock obligations is very strong,
although not as overwhelming as for issues rated "AAA".
A: An issue rated "A" is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
BBB: An issue rated "BBB" is regarded as backed by an adequate capacity to pay
the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the "A" category.
BB, B and CCC: Preferred stock rated "BB", "B", and "CCC" are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay preferred stock obligations.
"BB" indicates the lowest degree of speculation and "CCC" the highest. While
such issues will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
CC: The rating "CC" is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments, but that is currently paying.
C: A preferred stock rated "C" is a nonpaying issue.
D: A preferred stock rated "D" is a nonpaying issue with the issuer in default
on debt instruments.
NR: This indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy. PLUS (+) or MINUS (-): To provide more
detailed indications of preferred stock quality, ratings
A-3
<PAGE>
from "AA" to "CCC" may be modified by the addition of a plus or minus sign to
show relative standing within the major rating categories.
A preferred stock rating is not a recommendation to purchase, sell, or hold a
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained by S&P from other sources it considers reliable.
S&P does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended, or withdrawn as a result of changes in, or unavailability of, such
information, or based on other circumstances.
MOODY'S INVESTORS SERVICE -- a brief description of the applicable Moody's
Investors Service (Moody's) rating symbols and their meanings (as published by
Moody's Investors Service) follows:
1. LONG-TERM DEBT
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than the Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payment
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
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 market shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the issue ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.
A-4
<PAGE>
ABSENCE OF RATING: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not rated as a
matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published in
Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
2. SHORT-TERM DEBT
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations. These obligations have an original maturity
not exceeding one year unless explicitly noted.
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issues:
Issuers rated Prime-1 (or supporting institutions) have a superior ability for
repayment or senior short-term debt obligations. Prime-1 repayment ability will
often be evidenced by many of the following characteristics:
- -- Leading market positions in well-established industries.
- -- High rates of return on funds employed.
- -- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
- -- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- -- Well-established access to a range of financial markets and assured sources
of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability for
repayment of senior short-term debt obligations. This will normally be evidenced
by many of the characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or supporting institutions) have an acceptable ability
for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes of the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
3. PREFERRED STOCK
Preferred stock rating symbols and their definitions are as follows:
AAA: An issue which is rated "AAA" is considered to be a top-quality preferred
stock. This rating indicates good asset protection and the least risk of
dividend impairment within the universe of preferred stocks.
AA: An issue which is rated "AA" is considered a high-grade preferred stock.
This rating indicates that there is a reasonable assurance the earnings and
asset protection will remain relatively well maintained in the foreseeable
future.
A: An issue which is rated "A" is considered to be an upper-medium-grade
preferred stock. While risks are judged to be somewhat greater than in the "AAA"
and "AA" classifications, earnings and asset protections are, nevertheless,
expected to be maintained at adequate levels.
A-5
<PAGE>
BAA: An issue which is rated "BAA" is considered to be a medium-grade preferred
stock, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any great
length of time.
BA: An issue which is rated "BA" is considered to have speculative elements and
its future cannot be considered well assured. Earnings and asset protection may
be very moderate and not well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.
B: An issue which is rated "B" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
CAA: An issue which is rated "CAA" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future status
of payments.
CA: An issue which is rated "CA" is speculative in a high degree and is likely
to be in arrears on dividends with little likelihood of eventual payment.
C: This is the lowest rated class of preferred or preference stock. Issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Moody's applies numerical modifiers 1, 2 and 3 in each rating classification.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category, the modifier 2 indicates a mid-range ranking, and the
modifier 3 indicates that the issue ranks in the lower end of its generic rating
category.
A-6
<PAGE>
BOARD OF DIRECTORS
AND OFFICERS
BOARD OF DIRECTORS
<TABLE>
<S> <C>
J. Miles Branagan Don G. Powell*
Jerry D. Choate Phillip B. Rooney
Richard M. DeMartini* Fernando Sisto
Linda Hutton Heagy Wayne W. Whalen*
R. Craig Kennedy Suzanne H. Woolsey
Jack E. Nelson Paul G. Yovovich
</TABLE>
OFFICERS
Richard F. Powers, III*
PRESIDENT
Dennis J. McDonnell*
EXECUTIVE VICE PRESIDENT & CHIEF INVESTMENT OFFICER
A. Thomas Smith III*
VICE PRESIDENT AND SECRETARY
Edward C. Wood III*
VICE PRESIDENT
Michael H. Santo*
VICE PRESIDENT
Peter W. Hegel*
VICE PRESIDENT
Stephen L. Boyd*
VICE PRESIDENT
Joseph P. Stadler*
VICE PRESIDENT
John L. Sullivan*
VICE PRESIDENT, CHIEF FINANCIAL OFFICER & TREASURER
Curtis W. Morell*
VICE PRESIDENT & CHIEF ACCOUNTING OFFICER
Tanya M. Loden*
CONTROLLER
* "Interested Persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2911
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders, or
redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call
(800) 421-2833
FUNDINFO-REGISTERED TRADEMARK-
For automated telephone services, call (800) 847-2424
WEB SITE
www.vankampen.com
VAN KAMPEN EMERGING MARKETS FUND
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
INVESTMENT ADVISER AND ADMINISTRATOR
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
INVESTMENT SUBADVISER
MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC.
1221 Avenue of the Americas
New York, NY 10020
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
TRANSFER AGENT
VAN KAMPEN INVESTOR SERVICES INC.
PO Box 218256
Kansas City, MO 64121-8256
Attn: Van Kampen Emerging Markets Fund
CUSTODIAN
THE CHASE MANHATTAN BANK
3 MetroTech Center
Brooklyn, NY 11245
Attn: Van Kampen Emerging Markets Fund
LEGAL COUNSEL
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
INDEPENDENT ACCOUNTANTS
PRICEWATERHOUSECOOPERS LLP
200 East Randolph Drive
Chicago, IL 60601
<PAGE>
VAN KAMPEN
EMERGING MARKETS FUND
PROSPECTUS
OCTOBER 28, 1999
A Statement of Additional Information, which contains more details about the
Fund, is incorporated by reference in its entirety into this prospectus.
You will find additional information about the Fund in its annual and semiannual
reports to shareholders. The annual report explains the market conditions and
investment strategies affecting the Fund's performance during its last fiscal
year.
You can ask questions or obtain a free copy of the Fund's reports or its
Statement of Additional Information by calling (800) 341-2911 from 7:00 a.m. to
7:00 p.m., Central time, Monday through Friday. Telecommunications Device for
the Deaf users may call (800) 421-2833. A free copy of the Fund's reports can
also be ordered from our web site at www.vankampen.com.
Information about the Fund, including its reports and Statement of Additional
Information, has been filed with the Securities and Exchange Commission (SEC).
It can be reviewed and copied at the SEC's Public Reference Room in Washington,
DC or on the EDGAR Database on the SEC's internet site (http://www.sec.gov).
Information on the operation of the SEC's Public Reference Room may be obtained
by calling the SEC at 1-202-942-8090. You can also request copies of these
materials, upon payment of a duplicating fee, by electronic request at the SEC's
e-mail address ([email protected]), or by writing the Public Reference Section
of the SEC, Washington, DC, 20549-0102.
[VAN KAMPEN FUNDS LOGO]
THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-7140.
MSEM PRO 10/99
<PAGE>
VAN KAMPEN
EQUITY GROWTH FUND
Van Kampen Equity Growth Fund is a mutual fund with an investment objective to
seek to provide long-term capital appreciation by investing primarily in
growth-oriented equity securities of medium- and large-capitalization companies.
Shares of the Fund have not been approved or disapproved by the Securities and
Exchange Commission (SEC) or any state regulator, and neither the SEC nor any
state regulator has passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
THIS PROSPECTUS IS DATED OCTOBER 28, 1999.
[LOGO]
<PAGE>
TABLE OF CONTENTS
Risk/Return Summary .....................................................3
Fees and Expenses of the Fund ...........................................4
Investment Objective, Policies and Risks ................................5
Investment Advisory Services ...........................................10
Purchase of Shares .....................................................12
Redemption of Shares ...................................................19
Distributions from the Fund ............................................20
Shareholder Services ...................................................21
Federal Income Taxation ................................................22
Financial Highlights ...................................................24
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations, other than those contained in this
prospectus, in connection with the offer contained in this prospectus and, if
given or made, such other information or representations must not be relied upon
as having been authorized by the Fund, the Fund's investment adviser or the
Fund's distributor. This prospectus does not constitute an offer by the Fund or
by the Fund's distributor to sell or a solicitation of an offer to buy any of
the securities offered hereby in any jurisdiction to any person to whom it is
unlawful for the Fund to make such an offer in such jurisdiction.
<PAGE>
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The Fund is a mutual fund with an investment objective to seek to provide
long-term capital appreciation by investing primarily in growth-oriented equity
securities of medium- and large-capitalization companies.
INVESTMENT STRATEGIES
Under normal market conditions, the Fund's investment adviser seeks to achieve
the Fund's investment objective by investing at least 65% of the Fund's total
assets in a portfolio of equity securities, including common and preferred
stocks, convertible securities and equity-linked securities, rights and warrants
to purchase common stocks, depository receipts, equity-related futures and
options and other specialty securities having equity features. The Fund invests
primarily in a portfolio of growth-oriented companies that exhibit strong or
accelerating earnings growth. The Fund invests primarily in medium- and
large-sized companies with market capitalizations of $1 billion or more at the
time of investment, but also may invest in smaller companies.
The Fund emphasizes individual security selection and may focus its investments
in a smaller number of companies within the limits permissible for a diversified
fund. Portfolio securities are typically sold when the Fund's investment
adviser's assessments for growth of such securities materially change. The Fund
may invest up to 25% of its total assets in securities of foreign issuers. The
Fund may purchase and sell certain derivative instruments (such as options,
futures, options on futures and forward contracts), which may subject the Fund
to additional risks.
INVESTMENT RISKS
An investment in the Fund is subject to investment risks, and you could lose
money on your investment in the Fund. There can be no assurance that the Fund
will achieve its investment objective.
MARKET RISK. Market risk is the possibility that the market values of securities
owned by the Fund will decline. Market risk may affect a single issuer,
industry, sector of the economy or the market as a whole. Investments in equity
securities generally are affected by changes in the stock markets, which
fluctuate substantially over time, sometimes suddenly and sharply.
The Fund emphasizes securities of growth-oriented companies. The market values
of such securities may be more volatile than those of other types of
investments. The returns on growth securities may or may not move in tandem with
the returns on other styles of investing or the stock markets. Different types
of stocks tend to shift in and out of favor depending on market and economic
conditions. Thus, the value of the Fund's investments will vary and at times may
be lower or higher than that of other types of funds. During an overall stock
market decline, stock prices of smaller companies (in which the Fund may invest)
often fluctuate more and may fall more than the prices of larger companies.
FOREIGN RISKS. Because the Fund may own securities of foreign issuers, it may be
subject to risks not usually associated with owning securities of U.S. issuers.
These risks can include fluctuations in foreign currencies, foreign currency
exchange controls, political and economic instability, differences in financial
reporting, differences in securities regulation and trading, and foreign
taxation issues.
RISKS OF USING DERIVATIVE INVESTMENTS. In general terms, a derivative investment
is one whose value depends on (or is derived from) the value of an underlying
asset, interest rate or index. Options, futures, options on futures and forward
contracts are examples of derivatives. Derivative investments involve risks
different from direct investment in underlying securities. These risks include
imperfect correlation between the value of the instruments and the underlying
assets; risks of default by the other party to certain transactions; risks that
the transactions may result in losses that partially or completely offset gains
in portfolio positions; risks that the transactions may not be liquid; and
manager risk.
MANAGER RISK. As with any managed fund, the Fund's investment adviser may not be
successful in selecting the best-performing securities or investment
3
<PAGE>
techniques and the Fund's performance may lag behind that of similar funds.
INVESTOR PROFILE
In light of the Fund's investment objective and strategies, the Fund may be
appropriate for investors who:
- - Seek capital appreciation over the long term
- - Do not seek current income from their investment
- - Can withstand substantial volatility in the value of their Fund shares
- - Wish to add to their investment portfolio a fund that emphasizes growth style
of investing in a portfolio of equity securities
An investment in the Fund is not a deposit of any bank or other insured
depository institution. Your investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
An investment in the Fund may not be appropriate for all investors. The Fund is
not intended to be a complete investment program, and investors should consider
their long-term investment goals and financial needs when making an investment
decision about the Fund. An investment in the Fund is intended to be a long-term
investment, and the Fund should not be used as a trading vehicle.
PERFORMANCE INFORMATION
The Fund commenced investment operations on May 29, 1998. The Fund did not have
a full calendar year of performance as of the date of this prospectus and thus
has no historical calendar year annual performance or comparative performance
tables.
FEES AND EXPENSES
OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
Class A Class B Class C
Shares Shares Shares
- -----------------------------------------------------------
<S> <C> <C> <C>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<CAPTION>
- -----------------------------------------------------------
<S> <C> <C> <C>
Maximum sales charge
(load) imposed on
purchases (as a
percentage of
offering price) 5.75%(1) None None
..........................................................
Maximum deferred
sales charge (load)
(as a percentage of
the lesser of
original purchase
price or redemption
proceeds) None(2) 5.00%(3) 1.00%(4)
..........................................................
Maximum sales charge
(load) imposed on
reinvested dividends None None None
..........................................................
Redemption fees None None None
..........................................................
Exchange fee None None None
..........................................................
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
<TABLE>
<S> <C> <C> <C>
- -----------------------------------------------------------
Management Fees(5) 0.80% 0.80% 0.80%
..........................................................
Distribution and/or
Service (12b-1)
Fees(6) 0.25% 1.00%(7) 1.00%(7)
..........................................................
Other Expenses(5) 0.93% 0.92% 0.95%
..........................................................
Total Annual Fund
Operating Expenses(5) 1.98% 2.72% 2.75%
..........................................................
</TABLE>
(1) REDUCED FOR PURCHASES OF $50,000 AND OVER. SEE "PURCHASE OF SHARES --
CLASS A SHARES."
(2) INVESTMENTS OF $1 MILLION OR MORE ARE NOT SUBJECT TO ANY SALES CHARGE AT
THE TIME OF PURCHASE, BUT A DEFERRED SALES CHARGE OF 1.00% MAY BE
IMPOSED ON CERTAIN REDEMPTIONS MADE WITHIN ONE YEAR OF THE PURCHASE. SEE
"PURCHASE OF SHARES -- CLASS A SHARES."
(3) THE MAXIMUM DEFERRED SALES CHARGE IS 5.00% IN THE FIRST YEAR AFTER
PURCHASE, DECLINING THEREAFTER AS FOLLOWS:
YEAR 1-5.00%
YEAR 2-4.00%
YEAR 3-3.00%
YEAR 4-2.50%
YEAR 5-1.50%
AFTER-NONE
SEE "PURCHASE OF SHARES -- CLASS B SHARES."
(4) THE MAXIMUM DEFERRED SALES CHARGE IS 1.00% IN THE FIRST YEAR AFTER
PURCHASE AND 0.00% THEREAFTER. SEE "PURCHASE OF SHARES -- CLASS C
SHARES."
(5) THE FUND'S INVESTMENT ADVISER IS CURRENTLY WAIVING OR REIMBURSING A
PORTION OF THE FUND'S MANAGEMENT FEES AND OTHER EXPENSES SUCH THAT THE
ACTUAL TOTAL ANNUAL FUND OPERATING EXPENSES WERE 1.50% FOR CLASS A
SHARES, 2.25% FOR CLASS B SHARES AND 2.25% FOR CLASS C SHARES FOR THE
FISCAL YEAR ENDED JUNE 30, 1999. THE FEE WAIVERS OR EXPENSE REIMBURSE-
MENTS CAN BE TERMINATED AT ANY TIME.
(6) CLASS A SHARES ARE SUBJECT TO AN ANNUAL SERVICE FEE OF UP TO 0.25% OF
THE AVERAGE DAILY NET ASSETS ATTRIBUTABLE TO SUCH CLASS OF SHARES.
CLASS B SHARES AND CLASS C SHARES ARE EACH SUBJECT TO A COMBINED ANNUAL
DISTRIBUTION AND SERVICE FEE OF UP TO 1.00% OF THE AVERAGE DAILY NET
ASSETS ATTRIBUTABLE TO SUCH CLASS OF SHARES. SEE "PURCHASE OF SHARES."
(7) BECAUSE DISTRIBUTION AND/OR SERVICE (12b-1) FEES ARE PAID OUT OF THE
FUND'S ASSETS ON AN ONGOING BASIS, OVER TIME THESE FEES WILL INCREASE
THE COST OF YOUR INVESTMENT AND MAY COST YOU MORE THAN PAYING OTHER
TYPES OF SALES CHARGES.
4
<PAGE>
EXAMPLE:
The following example is intended to help you compare the cost of investing in
the Fund with the costs of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same each year (except for the ten-year
amounts for Class B Shares, which reflect the conversion of Class B Shares to
Class A Shares, after eight years). Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
One Three Five Ten
Year Years Years Years
- ---------------------------------------------------------------
Class A Shares $764 $1,161 $1,581 $2,749
..............................................................
Class B Shares $775 $1,144 $1,590 $2,873*
..............................................................
Class C Shares $378 $ 853 $1,454 $3,080
..............................................................
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
One Three Five Ten
Year Years Years Years
- ---------------------------------------------------------------
Class A Shares $764 $1,161 $1,581 $2,749
..............................................................
Class B Shares $275 $ 844 $1,440 $2,873*
..............................................................
Class C Shares $278 $ 853 $1,454 $3,080
..............................................................
</TABLE>
* BASED ON CONVERSION TO CLASS A SHARES AFTER EIGHT YEARS.
INVESTMENT OBJECTIVE,
POLICIES AND RISKS
The Fund's investment objective is to seek to provide long-term capital
appreciation by investing primarily in growth-oriented equity securities of
medium- and large-capitalization companies. Any income received from the
investment of portfolio securities is incidental to the Fund's investment
objective. The Fund's investment objective is a fundamental policy and may not
be changed without the approval of a majority of shareholders of the Fund's
outstanding voting securities, as defined in the Investment Company Act of 1940,
as amended (the "1940 Act"). There are risks inherent in all investments in
securities; accordingly, there can be no assurance that the Fund will achieve
its investment objective.
Under normal market conditions, the Fund's investment adviser seeks to achieve
the Fund's investment objective by investing at least 65% of the Fund's total
assets in a portfolio of equity securities, including common and preferred
stocks, convertible securities and equity-linked securities, rights and warrants
to purchase common stocks, depositary receipts, equity-related futures and
options and other specialty securities having equity features. The Fund invests
primarily in a portfolio of growth-oriented medium-and large-sized companies
with market capitalizations of $1 billion or more at the time of investment, but
also may invest in smaller-sized companies. The Fund's investment adviser
emphasizes a "bottom-up" stock selection process, seeking unusually attractive
growth investments on an individual company basis. In selecting securities for
investment, the Fund's investment adviser seeks those companies with the
potential for consistent or rising earnings growth and compelling business
strategies. Investments in growth-oriented equity securities may have above-
average volatility of price movement. Because prices of equity securities
fluctuate, the value of an investment in the Fund will vary based upon the
Fund's investment performance. The Fund attempts to reduce overall exposure to
risk by adhering to a disciplined program of intensive research, careful
security selection and the continual monitoring of the Fund's investments.
The Fund generally follows a flexible investment program seeking attractive
growth opportunities on an individual company basis. Fundamental research drives
the investment process. The Fund emphasizes companies that the Fund's investment
adviser believes are positioned to deliver surprisingly strong earnings growth
versus consensus expectations. The Fund's investment adviser continually and
rigorously studies company developments including business strategy, management
focus and financial results, and closely monitors analysts' consensus
expectations seeking to identify such companies. The Fund's
5
<PAGE>
investment adviser expects that many of the companies in which the Fund invests
will, at the time of investment, be experiencing high rates of earnings growth.
The securities of such companies may trade at higher prices to earnings ratios
relative to more established companies and rates of earnings growth may be
volatile. Valuation is of secondary importance in the Fund's investment program
and is viewed in context of prospects for sustainable earnings growth and the
potential for positive earnings surprises in relation to consensus expectations.
The Fund focuses its investments in a smaller number of companies within the
limits permissible for a diversified fund. While the Fund invests its assets in
a number of issuers, the Fund may invest between 5% and 10% of its assets in
selected issuers. The Fund's investment adviser believes that an effective way
to maximize return and reduce the risks associated with its focused investment
approach is through a program of intensive research, careful selection of
individual securities and continual supervision of the Fund's portfolio.
The Fund invests primarily in common stocks. Common stocks are shares of a
corporation or other entity that entitle the holder to a pro rata share of the
profits of the corporation, if any, without preference over any other class of
securities, including such entity's debt securities, preferred stock and other
senior equity securities. Common stock usually carries with it the right to vote
and frequently an exclusive right to do so.
While the Fund invests primarily in common stocks, it also may invest in
preferred stocks, convertible securities and equity-linked securities, rights
and warrants to purchase common stocks, depositary receipts, equity-related
futures and options and other specialty securities having equity features.
Preferred stock generally has a preference as to dividends and liquidation over
an issuer's common stock but ranks junior to debt securities in an issuer's
capital structure. Unlike interest payments on debt securities, preferred stock
dividends are payable only if declared by the issuer's board of directors.
Preferred stock also may be subject to optional or mandatory redemption
provisions.
A convertible security is a bond, debenture, note, preferred stock or other
security that may be converted into or exchanged for a prescribed amount of
common stock or other equity security of the same or a different issuer or into
cash within a particular period of time at a specified price or formula. A
convertible security generally entitles the holder to receive interest paid or
accrued on debt securities or the dividend paid on preferred stock until the
convertible security matures or is redeemed, converted or exchanged. Before
conversion, convertible securities generally have characteristics similar to
both debt and equity securities. The value of convertible securities tends to
decline as interest rates rise and, because of the conversion feature, tends to
vary with fluctuations in the market value of the underlying equity securities.
Convertible securities ordinarily provide a stream of income with generally
higher yields than those of common stock of the same or similar issuers.
Convertible securities generally rank senior to common stock in a corporation's
capital structure but are usually subordinated to comparable nonconvertible
securities. Convertible securities generally do not participate directly in any
dividend increases or decreases of the underlying equity securities although the
market prices of convertible securities may be affected by any such dividend
changes or other changes in the underlying equity securities.
Equity-linked securities are instruments whose value is based upon the value of
one or more underlying equity securities, a reference rate or an index.
Equity-linked securities come in many forms and may include features, among
others, such as the following: (i) may be issued by the issuer of the underlying
equity security or by a company other than the one to which the instrument is
linked (usually an investment bank), (ii) may convert into equity securities,
such as common stock, within a stated period from the issue date or may be
redeemed for cash or some combination of cash and the linked security at a value
based upon the value of the underlying equity security within a stated period
from the issue date, (iii) may have various conversion features prior to
maturity at the option of the holder or the issuer or both, (iv) may limit the
appreciation value with caps or collars of the value of the underlying equity
security and (v) may have fixed, variable or no interest payments during the
life of the security which reflect the actual or a structured return
6
<PAGE>
relative to the underlying dividends of the linked equity security. Investments
in equity-linked securities may subject the Fund to additional risks not
ordinarily associated with investments in other equity securities. Because
equity-linked securities are sometimes issued by a third party other than the
issuer of the linked security, the Fund is subject to risks if the underlying
stock underperforms and if the issuer defaults on the payment of the dividend or
the common stock at maturity. In addition, the trading market for particular
equity-linked securities may be less liquid, making it difficult for the Fund to
dispose of a particular security when necessary and reduced liquidity in the
secondary market for any such securities may make it more difficult to obtain
market quotations for valuing the Fund's portfolio.
Rights and warrants entitle the holder to buy equity securities at a specific
price for a specific period of time. Rights are similar to warrants except that
they have a substantially shorter duration. Rights and warrants may be
considered more speculative and less liquid than certain other types of
investments in that they do not entitle a holder to dividends or voting rights
with respect to the underlying securities nor do they represent any rights in
the assets of the issuing company and may lack a secondary market.
Although the Fund generally invests in medium- and large-sized companies, it
also may invest in smaller-sized companies. The securities of medium- and
smaller-sized companies may be subject to more abrupt or erratic market
movements and may have lower trading volumes or more erratic trading than
securities of large-sized companies or the market averages in general. To the
extent the Fund invests in medium- and smaller-sized companies it will be
subject to greater investment risk than that assumed through investment in the
securities of large-sized companies.
RISKS OF INVESTING IN SECURITIES
OF FOREIGN ISSUERS
The Fund may invest up to 25% of its total assets in securities of foreign
issuers. Securities of foreign issuers may be denominated in U.S. dollars or in
currencies other than U.S. dollars. Investments in foreign securities present
certain risks not ordinarily associated with investments in securities of U.S.
issuers. These risks include fluctuations in foreign currency exchange rates,
political, economic or legal developments (including war or other instability,
expropriation of assets, nationalization and confiscatory taxation), imposition
of foreign exchange limitations (including currency blockage), withholding taxes
on dividend or interest payments or capital transactions or other restrictions,
higher transaction costs (including higher brokerage, custodial and settlement
costs and currency translation costs) and possible difficulty in enforcing
contractual obligations or taking judicial action. Also, foreign securities may
not be as liquid and may be more volatile than comparable domestic securities.
In addition, there often is less publicly available information about many
foreign issuers, and issuers of foreign securities are subject to different,
often less comprehensive, auditing, accounting, financial reporting and
disclosure requirements than domestic issuers. There is generally less
government regulation of stock exchanges, brokers and listed companies abroad
than in the U.S., and, with respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investment in those countries. Because there is
usually less supervision and governmental regulation of exchanges, brokers and
dealers than there is in the U.S., the Fund may experience settlement
difficulties or delays not usually encountered in the U.S.
Delays in making trades in foreign securities relating to volume constraints,
limitations or restrictions, clearance or settlement procedures, or otherwise
could impact returns and result in temporary periods when assets of the Fund are
not fully invested or attractive investment opportunities are foregone.
The Fund's investments in securities of developing or emerging market countries
are subject to greater risks than the Fund's investments in securities of
developed countries since emerging market countries tend to have economic
structures that are less diverse and mature and political systems that are less
stable than developed countries.
7
<PAGE>
In addition to the increased risks of investing in foreign securities, there are
often increased transactions costs associated with investing in foreign
securities including the costs incurred in connection with converting
currencies, higher foreign brokerage or dealer costs, and higher settlement
costs or custodial costs.
Investors should carefully consider the risks of foreign investments before
investing in the Fund.
DERIVATIVE INSTRUMENTS
The Fund may, but is not required to, use various investment strategic
transactions described below to earn income, facilitate portfolio management and
mitigate risks. Such strategic transactions are generally accepted under modern
portfolio management and are regularly used by many mutual funds and other
institutional investors. Although the Fund's investment adviser seeks to use the
practices to further the Fund's investment objective, no assurance can be given
that these practices will achieve this result.
The Fund may purchase and sell derivative instruments such as exchange-listed
and over-the-counter put and call options on securities, financial futures,
equity, fixed-income and interest rate indices, and other financial instruments,
futures contracts and options thereon (including but not limited to securities
index futures, foreign currency exchange futures, interest rate futures and
other financial futures), structured notes, swaps, caps, floors or collars and
enter into various currency transactions such as currency forward contracts,
currency futures contracts, currency swaps or options on currency or currency
futures. In addition, the Fund may invest in other derivative instruments that
are developed over time if their use would be consistent with the objective of
the Fund. Collectively, all of the above are referred to as "Strategic
Transactions." The Fund generally seeks to use Strategic Transactions as a
portfolio management or hedging technique to seek to protect against possible
adverse changes in the market value of securities held in or to be purchased for
the Fund's portfolio, protect the Fund's unrealized gains, facilitate the sale
of certain securities for investment purposes, protect against changes in
currency exchange rates or to adjust the exposure to a particular currency,
manage the effective maturity or duration of the Fund's portfolio, establish
positions in the derivatives markets as a substitute for purchasing or selling
particular securities, including, for example, when the Fund adjusts its
exposure to a market in response to changes in investment strategy, when doing
so provides more liquidity than the direct purchase of the securities underlying
such derivatives, when the Fund 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. The Fund may invest up to 50% of
its total assets in Strategic Transactions (measured by the aggregate notional
amount of outstanding derivatives) provided that no more than 33 1/3% of the
Fund's total assets are invested, for non-hedging purposes, in Strategic
Transactions other than futures and options on futures.
Strategic Transactions have risks including the imperfect correlation between
the value of such instruments and the underlying assets, the possible default of
the other party to the transaction or illiquidity of the derivative instruments.
Furthermore, the ability to successfully use Strategic Transactions depends on
the Fund's investment adviser's ability to predict pertinent market movements,
which cannot be assured. Thus, the use of Strategic Transactions may result in
losses greater than if they had not been used, may require the Fund to sell or
purchase portfolio securities at inopportune times or for prices other than
current market values, may limit the amount of appreciation the Fund can
otherwise realize on an investment, or may cause the Fund to hold a security
that it might otherwise sell. The use of currency transactions can result in the
Fund incurring losses because of the imposition of exchange controls, suspension
of settlements or the inability of the Fund to deliver or receive a specified
currency. In addition, amounts paid as premiums or cash or other assets held in
margin accounts with respect to Strategic Transactions are not otherwise
available to the Fund for investment purposes.
8
<PAGE>
A more complete discussion of Strategic Transactions and their risks is
contained in the Fund's Statement of Additional Information. The Statement of
Additional Information can be obtained by investors free of charge as described
on the back cover of this prospectus.
OTHER INVESTMENT PRACTICES AND RISK FACTORS
For cash management purposes, the Fund may engage in repurchase agreements with
broker-dealers, banks and other financial institutions in order to earn a return
on temporarily available cash. Such transactions are subject to the risk of
default by the other party.
The Fund may lend its portfolio securities in an amount up to 33 1/3% of its
total assets to broker-dealers, banks or other recognized institutional
borrowers of securities. The Fund may incur lending fees and other costs in
connection with securities lending, and securities lending is subject to the
risk of default by the other party.
The Fund may invest up to 15% of its net assets in illiquid and certain
restricted securities. Such securities may be difficult or impossible to sell at
the time and the price that the Fund would like. Thus, the Fund may have to sell
such securities at a lower price, sell other securities instead to obtain cash
or forego other investment opportunities.
Further information about these types of investments and other investment
practices that may be used by the Fund is contained in the Statement of
Additional Information.
The Fund may sell securities without regard to the length of time they have been
held in order to take advantage of new investment opportunities or when the
Fund's investment adviser believes the potential for capital appreciation has
lessened or for other reasons. The Fund's portfolio turnover is shown under the
heading "Financial Highlights." The portfolio turnover rate may be expected to
vary from year to year. A high portfolio turnover rate (100% or more) increases
the Fund's transactions costs (including brokerage commissions or dealer costs)
and a high portfolio turnover rate may result in the realization of more
short-term capital gains than a lower portfolio turnover rate. Increases in the
Fund's transaction costs would adversely impact the Fund's performance. The
turnover rate will not be a limiting factor, however, if the Fund's investment
adviser considers portfolio changes appropriate.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Fund may on a temporary basis hold cash or invest a
portion or all of its assets in money-market instruments including obligations
of the U.S. government, its agencies or instrumentalities, obligations of
foreign sovereignties, other high-quality debt securities, including prime
commercial paper, repurchase agreements and bank obligations, such as bankers'
acceptances and certificates of deposit (including Eurodollar certificates of
deposit). Under normal market conditions, the potential for capital appreciation
on these securities will tend to be lower than the potential for capital
appreciation on other securities that may be owned by the Fund. In taking such a
defensive position, the Fund would not be pursuing and may not achieve its
investment objective.
YEAR 2000 RISKS. Like other mutual funds, financial and business organizations
and individuals around the world, the Fund could be adversely affected if the
computer systems used by the Fund's investment adviser, subadviser and other
service providers do not properly process and calculate date-related information
and data from and after January 1, 2000. This is commonly known as the "Year
2000 Problem." The Fund's investment adviser and subadviser are taking steps
that they believe are reasonably designed to address the Year 2000 Problem with
respect to computer systems that they use and to obtain reasonable assurances
that comparable steps are being taken by the Fund's other major service
providers. At this time, there can be no assurances that these steps will be
sufficient to avoid any adverse impact to the Fund. In addition, the Year 2000
Problem may adversely affect the markets and the issuers of securities in which
the Fund may invest which, in turn, may adversely affect the net asset value of
shares of the Fund. Improperly functioning trading systems may result in
settlement problems and liquidity issues. In addition, corporate and
governmental data processing errors may result in production problems for
individual companies or issuers
9
<PAGE>
and overall economic uncertainty. Earnings of individual issuers will be
affected by remediation costs, which may be substantial and may be reported
inconsistently in U.S. and foreign financial statements. Efforts in foreign
countries to remediate the potential Year 2000 Problem may not be as extensive
as those in the U.S. As a result, the operations of foreign markets and issuers
may be disrupted by the Year 2000 Problem which could adversely affect the
Fund's portfolio. The risks are greater with respect to certain developing or
emerging market countries because there is an increased likelihood that issuers
of securities of such countries cannot anticipate or effectively manage the
effects of computer programs and the Year 2000 Problem. Accordingly, the Fund's
investments may be adversely affected. The statements above are subject to the
Year 2000 Information and Readiness Disclosure Act which may limit the legal
rights regarding the use of such statements in the case of a dispute.
INVESTMENT ADVISORY
SERVICES
INVESTMENT ADVISER
Van Kampen Investment Advisory Corp. is the investment adviser (the "Adviser" or
"Advisory Corp.") and administrator of the Fund. The Adviser is a wholly owned
subsidiary of Van Kampen Investments Inc. ("Van Kampen Investments"). Van Kampen
Investments is a diversified asset management company with more than two million
retail investor accounts, extensive capabilities for managing institutional
portfolios, and more than $79 billion under management or supervision as of
September 30, 1999. Van Kampen Investments' more than 50 open-end and 39
closed-end funds and more than 2,500 unit investment trusts are professionally
distributed by leading authorized dealers nationwide. Van Kampen Funds Inc., the
distributor of the Fund (the "Distributor") and the sponsor of the funds
mentioned above, is also a wholly owned subsidiary of Van Kampen Investments.
Van Kampen Investments is an indirect wholly owned subsidiary of Morgan Stanley
Dean Witter & Co. The Adviser's principal office is located at 1 Parkview Plaza,
PO Box 5555, Oakbrook Terrace, Illinois 60181-5555.
ADVISORY AGREEMENT AND ADMINISTRATION AGREEMENT. The Fund retains the Adviser to
manage the investment of its assets and to place orders for the purchase and
sale of its portfolio securities. Under an investment advisory agreement between
the Adviser and the Fund (the "Advisory Agreement"), the Fund pays the Adviser a
monthly fee computed based upon an annual rate applied to the average daily net
assets of the Fund as follows:
<TABLE>
<CAPTION>
<S> <C>
Average Daily Net Assets % Per Annum
-----------------------------------------------
First $500 million 0.80 of 1.00%
..............................................
Next $500 million 0.75 of 1.00%
..............................................
Over $1 billion 0.70 of 1.00%
..............................................
</TABLE>
Applying this fee schedule, the Fund paid the Adviser an advisory fee at the
effective rate of 0.80% of the Fund's average daily net assets for the Fund's
fiscal year ended June 30, 1999.
The Fund also retains the Adviser to provide administrative services for the
Fund's day-to-day operations. Under an administration agreement between the
Adviser and the Fund, the Fund pays a monthly administration fee computed based
upon an annual rate of 0.25% applied to the average daily net assets of the
Fund.
The Adviser furnishes offices, necessary facilities and equipment, provides
administrative services, and permits its officers and employees to serve without
compensation as directors or officers of the Fund if elected to such positions.
The Fund pays all charges and expenses of its day-to-day operations, including
the compensation of directors of the Fund (other than those who are affiliated
persons of the Adviser, Distributor or Van Kampen Investments), the charges and
expenses of legal counsel and independent accountants, distribution fees,
service fees, custodian fees, the costs of providing reports to shareholders,
and all other ordinary business expenses not specifically assumed by the
Adviser.
10
<PAGE>
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen Asset Management
Inc. ("Asset Management").
INVESTMENT SUBADVISER
Morgan Stanley Dean Witter Investment Management Inc. (the "Subadviser") is the
Subadviser of the Fund. The Subadviser is a wholly owned subsidiary of Morgan
Stanley Dean Witter & Co., and is an affiliate of the Adviser. The Subadviser
conducts a worldwide portfolio management business and provides a broad range of
portfolio management services to customers in the United States and abroad. At
June 30, 1999, the Subadviser, together with its affiliated institutional asset
management companies, managed assets of approximately $175.3 billion, including
assets under fiduciary advice. The Subadviser's principal office is located at
1221 Avenue of the Americas, New York, New York 10020. On December 1, 1998,
Morgan Stanley Asset Management Inc. changed its name to Morgan Stanley Dean
Witter Investment Management Inc. but continues to do business in certain
instances using the name Morgan Stanley Asset Management.
SUBADVISORY AGREEMENT. The Adviser has entered into a subadvisory agreement with
the Subadviser to assist the Adviser in performing its investment advisory
functions. The Adviser pays the Subadviser on a monthly basis a portion of the
net advisory fees the Adviser receives from the Fund.
GENERAL
From time to time, the Adviser, the Subadviser or the Distributor may
voluntarily undertake to reduce the Fund's expenses by reducing the fees payable
to them or by reducing other expenses of the Fund in accordance with such
limitations as the Adviser, the Subadviser or Distributor may establish.
PERSONAL INVESTMENT POLICIES. The Fund, the Adviser and the Subadviser have
adopted Codes of Ethics designed to recognize the fiduciary relationship among
the Fund, the Adviser and the Subadviser and their respective employees. The
Codes of Ethics permit directors, trustees, officers and employees to buy and
sell securities for their personal accounts subject to certain restrictions.
Persons with access to certain sensitive information are subject to
pre-clearance and other procedures designed to prevent conflicts of interest.
PORTFOLIO MANAGEMENT. The Fund's portfolio managers are comprised of Margaret K.
Johnson, Philip W. Friedman and William S. Auslander.
Ms. Johnson is a Principal of the Subadviser and Morgan Stanley Dean Witter &
Co. and a Fund Manager in the Institutional Equity Group. She joined the
Subadviser in 1984 and worked as an Analyst in the Marketing and Fiduciary
Advisor areas. Ms. Johnson became an Equity Analyst in 1986 and a Fund Manager
in 1989. She holds a B.A. degree from Yale College and is a Chartered Financial
Analyst. Ms. Johnson has had primary responsibility for managing the Fund since
May 1998.
Mr. Friedman is a Managing Director of the Subadviser and of Morgan Stanley Dean
Witter & Co. and leads its Institutional Equity Group. Prior to joining the
Subadviser in 1997, he was the North American Director of Equity Research at
Morgan Stanley Dean Witter & Co. From 1990 to 1995, he was a member of Morgan
Stanley Dean Witter & Co.'s Equity Research team. Mr. Friedman graduated from
Rutgers University with a B.A. (Phi Beta Kappa; Summa Cum Laude) in Economics.
He also holds an M.B.A. from J.L. Kellogg School of Management at Northwestern
University. Mr. Friedman has been comanager of the Fund since September 1998.
Mr. Auslander is a Principal of Morgan Stanley Dean Witter & Co. and the
Subadviser and a Portfolio Manager in Morgan Stanley Dean Witter & Co.'s
Institutional Equity Group. He joined Morgan Stanley Dean Witter & Co. in 1995
as an equity analyst in the Institutional Equity Group. Prior to joining Morgan
Stanley Dean Witter & Co. 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.
Mr. Auslander has been comanager of the Fund since September 1998.
11
<PAGE>
PURCHASE OF SHARES
GENERAL
The Fund offers three classes of shares designated as Class A Shares, Class B
Shares and Class C Shares. By offering three classes of shares, the Fund permits
each investor to choose the class of shares that is most beneficial given the
amount to be invested and the length of time the investor expects to hold the
shares.
Initial investments must be at least $1,000 for each class of shares, and
subsequent investments must be at least $25 for each class of shares. Both
minimums may be waived by the Distributor for plans involving periodic
investments.
Each class of shares represents an interest in the same portfolio of investments
of the Fund and has the same rights except that (i) Class A Shares generally
bear the sales charge expenses at the time of purchase while Class B Shares and
Class C Shares bear the sales charge expenses at the time of redemption and any
expenses (including higher distribution fees and transfer agency costs)
resulting from such deferred sales charge arrangement, (ii) generally, each
class of shares has exclusive voting rights with respect to approvals of the
Rule 12b-1 distribution plan and service plan (each as described below) under
which its distribution fee or service fee is paid, (iii) each class of shares
has different exchange privileges, (iv) certain classes of shares are subject to
a conversion feature and (v) certain classes of shares have different
shareholder service options available.
The offering price of the Fund's shares is based upon the Fund's net asset value
per share (plus sales charges, where applicable). The net asset values per share
of the Class A Shares, Class B Shares and Class C Shares are generally expected
to be substantially the same. In certain circumstances, however, the per share
net asset values of the classes of shares may differ from one another,
reflecting the daily expense accruals of the higher distribution fees and
transfer agency costs applicable to the Class B Shares and Class C Shares and
the differential in the dividends that may be paid on each class of shares.
The net asset value per share for each class of shares of the Fund is determined
once daily as of the close of trading on the New York Stock Exchange (the
"Exchange") (currently 4:00 p.m., New York time) each day the Exchange is open
for trading except on any day on which no purchase or redemption orders are
received or there is not a sufficient degree of trading in the Fund's portfolio
securities such that the Fund's net asset value per share might be materially
affected. The Fund's Board of Directors reserves the right to calculate the net
asset value per share and adjust the offering price based thereon more
frequently than once daily if deemed desirable. Net asset value per share for
each class is determined by dividing the value of the Fund's portfolio
securities, cash and other assets (including accrued interest) attributable to
such class, less all liabilities (including accrued expenses) attributable to
such class, by the total number of shares of the class outstanding. Such
computation is made by using prices as of the close of trading on the Exchange
and (i) valuing securities listed or traded on a national securities exchange at
the closing price, or if no closing price is available, at the last reported
sale price, and if there has been no sale that day, at the mean between the last
reported bid and asked prices, (ii) valuing over-the-counter securities at the
last reported sale price from the National Association of Securities Dealers
Automated Quotations ("NASDAQ"), (iii) valuing unlisted securities and any
securities for which market quotations are not readily available at the average
of the mean between the current reported bid and asked prices obtained from
reputable brokers and (iv) valuing any other assets at fair value as determined
in good faith by the Adviser in accordance with procedures established by the
Fund's Board of Directors. Debt securities with remaining maturities of 60 days
or less are valued on an amortized cost basis, which approximates market value.
The Fund has adopted a distribution plan (the "Distribution Plan") with respect
to each class of its shares pursuant to Rule 12b-1 under the 1940 Act. The Fund
also has adopted a service plan (the "Service Plan") with respect to each class
of its shares. Under the Distribution Plan and the Service Plan, the Fund pays
distribution fees in connection with the sale and distribution of its shares and
service fees in connection with the provision of ongoing services to
shareholders of each class.
12
<PAGE>
The amount of distribution and service fees varies among the classes offered by
the Fund. Because these fees are paid out of the Fund's assets on an ongoing
basis, these fees will increase the cost of your investment in the Fund. By
purchasing a class of shares subject to higher distribution and service fees,
you may pay more over time than on a class of shares with other types of sales
charge arrangements. Long-term shareholders may pay more than the economic
equivalent of the maximum front-end sales charges permitted by the rules of the
National Association of Securities Dealers, Inc. ("NASD"). The net income
attributable to a class of shares will be reduced by the amount of the
distribution fees and other expenses of the Fund associated with such class of
shares. To assist investors in comparing classes of shares, the tables under the
heading "Fees and Expenses of the Fund" provide a summary of sales charges and
expenses and an example of the sales charges and expenses of the Fund applicable
to each class of shares.
The shares are offered to the public on a continuous basis through the
Distributor as principal underwriter, which is located at 1 Parkview Plaza, PO
Box 5555, Oakbrook Terrace, Illinois 60181-5555. Shares also are offered through
members of the NASD who are acting as securities dealers ("dealers") and NASD
members or eligible non-NASD members who are acting as brokers or agents for
investors ("brokers"). "Dealers" and "brokers" are sometimes referred to herein
as "authorized dealers."
Shares may be purchased on any business day by completing the application
accompanying this prospectus and forwarding the application, directly or through
an authorized dealer, to the Fund's shareholder service agent, Van Kampen
Investor Services Inc. ("Investor Services"), a wholly owned subsidiary of Van
Kampen Investments. When purchasing shares of the Fund, investors must specify
whether the purchase is for Class A Shares, Class B Shares or Class C Shares.
Sales personnel of authorized dealers distributing the Fund's shares are
entitled to receive compensation for selling such shares and may receive
differing compensation for selling Class A Shares, Class B Shares or Class C
Shares.
The offering price for shares is based upon the next calculation of net asset
value per share (plus sales charges, where applicable) after an order is
received by Investor Services. Orders received by authorized dealers prior to
the close of the Exchange are priced based on the date of receipt provided such
order is transmitted to Investor Services prior to Investor Services' close of
business on such date. Orders received by authorized dealers after the close of
the Exchange or transmitted to Investor Services after its close of business are
priced based upon the date of the next computed net asset value per share
provided they are received by Investor Services prior to Investor Services'
close of business on such date. It is the responsibility of authorized dealers
to transmit orders received by them to Investor Services so they will be
received in a timely manner.
The Fund and the Distributor reserve the right to refuse any order for the
purchase of shares. The Fund also reserves the right to suspend the sale of the
Fund's shares in response to conditions in the securities markets or for other
reasons. Shares of the Fund may be sold in foreign countries where permissible.
Investor accounts will automatically be credited with additional shares of the
Fund after any Fund distributions, such as dividends and capital gain dividends,
unless the investor instructs the Fund otherwise. Investors wishing to receive
cash instead of additional shares should contact the Fund at (800) 341-2911 or
by writing to the Fund, c/o Van Kampen Investors Services Inc., PO Box 218256,
Kansas City, MO 64121-8256.
CLASS A SHARES
Class A Shares of the Fund are sold at net asset value plus an initial maximum
sales charge of up to 5.75% of the offering price (or 6.10% of the net
13
<PAGE>
amount invested), reduced on investments of $50,000 or more as follows:
CLASS A SHARES
SALES CHARGE SCHEDULE
<TABLE>
<CAPTION>
As % of As % of
Size of Offering Net Amount
Investment Price Invested
- -----------------------------------------------
<S> <C> <C>
Less than $50,000 5.75% 6.10%
..............................................
$50,000 but less than
$100,000 4.75% 4.99%
..............................................
$100,000 but less than
$250,000 3.75% 3.90%
..............................................
$250,000 but less than
$500,000 2.75% 2.83%
..............................................
$500,000 but less than
$1,000,000 2.00% 2.04%
..............................................
$1,000,000 or more * *
..............................................
</TABLE>
* NO SALES CHARGE IS PAYABLE AT THE TIME OF PURCHASE ON INVESTMENTS OF $1
MILLION OR MORE, ALTHOUGH FOR SUCH INVESTMENTS THE FUND MAY IMPOSE A
CONTINGENT DEFERRED SALES CHARGE OF 1.00% ON CERTAIN REDEMPTIONS MADE
WITHIN ONE YEAR OF THE PURCHASE. THE CONTINGENT DEFERRED SALES CHARGE IS
ASSESSED ON AN AMOUNT EQUAL TO THE LESSER OF THE THEN CURRENT MARKET
VALUE OR THE COST OF THE SHARES BEING REDEEMED. ACCORDINGLY, NO SALES
CHARGE IS IMPOSED ON INCREASES IN NET ASSET VALUE ABOVE THE INITIAL
PURCHASE PRICE.
No sales charge is imposed on Class A Shares received from reinvestment of
dividends or capital gain dividends.
Under the Distribution Plan and Service Plan, the Fund may spend up to a total
of 0.25% per year of the Fund's average daily net assets with respect to the
Class A Shares of the Fund. From such amount, under the Service Plan, the Fund
may spend up to 0.25% per year of the Fund's average daily net assets with
respect to the Class A Shares for the ongoing provision of services to Class A
shareholders by the Distributor and by brokers, dealers or financial
intermediaries and for the maintenance of such shareholders' accounts.
CLASS B SHARES
Class B Shares of the Fund are sold at net asset value and are subject to a
contingent deferred sales charge if redeemed within five years of purchase as
shown in the table as follows:
CLASS B SHARES
SALES CHARGE SCHEDULE
<TABLE>
<CAPTION>
Contingent
Deferred
Sales Charge
as a Percentage of
Dollar Amount
Year Since Purchase Subject to Charge
- -------------------------------------------------------
<S> <C>
First 5.00%
......................................................
Second 4.00%
......................................................
Third 3.00%
......................................................
Fourth 2.50%
......................................................
Fifth 1.50%
......................................................
Sixth and After None
......................................................
</TABLE>
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gain dividends. It
is presently the policy of the Distributor not to accept any order for Class B
Shares in an amount of $500,000 or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
The amount of the contingent deferred sales charge, if any, varies depending on
the number of years from the time of payment for the purchase of Class B Shares
until the time of redemption of such shares. Solely for purposes of determining
the number of years from the time of any payment for the purchase of shares, all
payments during a month are totaled and deemed to have been made on the last day
of the month.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed shares being redeemed first are any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge followed by shares held the longest in the shareholder's account.
14
<PAGE>
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
Fund's average daily net assets with respect to the Class B Shares of the Fund.
In addition, under the Service Plan, the Fund may spend up to 0.25% per year of
the Fund's average daily net assets with respect to the Class B Shares for the
ongoing provision of services to Class B shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CLASS C SHARES
Class C Shares of the Fund are sold at net asset value and are subject to a
contingent deferred sales charge of 1.00% of the dollar amount subject to charge
if redeemed within one year of purchase.
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gain dividends. It
is presently the policy of the Distributor not to accept any order for Class C
Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed the shares being redeemed first are any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge followed by shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
Fund's average daily net assets with respect to the Class C Shares of the Fund.
In addition, under the Service Plan, the Fund may spend up to 0.25% per year of
the Fund's average daily net assets with respect to the Class C Shares for the
ongoing provision of services to Class C shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CONVERSION FEATURE
Class B Shares and any dividend reinvestment plan Class B Shares received on
such shares, automatically convert to Class A Shares eight years after the end
of the calendar month in which the shares were purchased. Such conversion will
be on the basis of the relative net asset values per share, without the
imposition of any sales load, fee or other charge. The conversion schedule
applicable to a share of the Fund acquired through the exchange privilege from
another Van Kampen fund participating in the exchange program is determined by
reference to the Van Kampen fund from which such share was originally purchased.
The conversion of such shares to Class A Shares is subject to the continuing
availability of an opinion of counsel to the effect that (i) the assessment of
the higher distribution fee and transfer agency costs with respect to such
shares does not result in the Fund's dividends or capital gain dividends
constituting "preferential dividends" under the federal income tax law and
(ii) the conversion of shares does not constitute a taxable event under federal
income tax law. The conversion may be suspended if such an opinion is no longer
available and such shares might continue to be subject to the higher aggregate
fees applicable to such shares for an indefinite period.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge is waived on redemptions of Class B Shares
and Class C Shares (i) within one year following the death or disability (as
disability is defined by federal income tax law) of a shareholder, (ii) for
required minimum distributions from an individual retirement account ("IRA") or
certain other retirement plan distributions, (iii) for withdrawals under the
Fund's systematic withdrawal plan but limited to 12% annually of the initial
value of the account, (iv) if no commission or transaction fee is paid to
authorized dealers at the time of purchase of such shares and (v) if made by
involuntary liquidation by the Fund of a shareholder's account as described
under the heading "Redemption of Shares." Subject to certain limitations, a
shareholder who has redeemed Class C Shares of the Fund may reinvest in Class C
Shares at net asset value with credit for any contingent deferred sales charge
if the reinvestment is made
15
<PAGE>
within 180 days after the redemption. For a more complete description of
contingent deferred sales charge waivers, please refer to the Fund's Statement
of Additional Information or contact your authorized dealer.
QUANTITY DISCOUNTS
Investors purchasing Class A Shares may, under certain circumstances described
below, be entitled to pay reduced or no sales charges. Investors, or their
authorized dealers, must notify the Fund at the time of the purchase order
whenever a quantity discount is applicable to purchases. Upon such notification,
an investor will receive the lowest applicable sales charge. Quantity discounts
may be modified or terminated at any time. For more information about quantity
discounts, investors should contact their authorized dealer or the Distributor.
A person eligible for a reduced sales charge includes an individual, his or her
spouse and children under 21 years of age and any corporation, partnership or
sole proprietorship which is 100% owned, either alone or in combination, by any
of the foregoing; a trustee or other fiduciary purchasing for a single trust or
for a single fiduciary account, or a "company" as defined in Section 2(a)(8) of
the 1940 Act.
As used herein, "Participating Funds" refers to certain open-end investment
companies advised by Asset Management or Advisory Corp. and distributed by the
Distributor as determined from time to time by the Fund's Board of Directors.
VOLUME DISCOUNTS. The size of investment shown in the Class A Shares sales
charge table applies to the total dollar amount being invested by any person in
shares of the Fund, or in any combination of shares of the Fund and shares of
other Participating Funds, although other Participating Funds may have different
sales charges.
CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the Class A Shares
sales charge table may also be determined by combining the amount being invested
in shares of the Participating Funds plus the current offering price of all
shares of the Participating Funds which have been previously purchased and are
still owned.
LETTER OF INTENT. A Letter of Intent provides an opportunity for an investor to
obtain a reduced sales charge by aggregating the investments over a 13-month
period to determine the sales charge as outlined in the Class A Shares sales
charge table. The size of investment shown in the Class A Shares sales charge
table includes purchases of shares of the Participating Funds over a 13-month
period based on the total amount of intended purchases plus the value of all
shares of the Participating Funds previously purchased and still owned. An
investor may elect to compute the 13-month period starting up to 90 days before
the date of execution of a Letter of Intent. Each investment made during the
period receives the reduced sales charge applicable to the total amount of the
investment goal. The initial purchase must be for an amount equal to at least 5%
of the minimum total purchase amount of the level selected. If trades not
initially made under a Letter of Intent subsequently qualify for a lower sales
charge through the 90-day backdating provisions, an adjustment will be made at
the time of the expiration of the Letter of Intent to give effect to the lower
charge. Such adjustment in sales charge will be used to purchase additional
shares for the shareholder at the applicable discount category. The Fund
initially will escrow shares totaling 5% of the dollar amount of the Letter of
Intent to be held by Investor Services in the name of the shareholder. In the
event the Letter of Intent goal is not achieved within the specified period, the
investor must pay the difference between the sales charge applicable to the
purchases made and the reduced sales charge previously paid. Such payments may
be made directly to the Distributor or, if not paid, the Distributor will
liquidate sufficient escrowed shares to obtain the difference.
OTHER PURCHASE PROGRAMS
Purchasers of Class A Shares may be entitled to reduced or no initial sales
charges in connection with the unit investment trust reinvestment program and
purchases by registered representatives of selling firms or purchases by persons
affiliated with the Fund or the Distributor. The Fund reserves the right to
modify or terminate these arrangements at any time.
16
<PAGE>
UNIT INVESTMENT TRUST REINVESTMENT PROGRAM. The Fund permits unitholders of unit
investment trusts to reinvest distributions from such trusts in Class A Shares
of the Fund at net asset value per share and with no minimum initial or
subsequent investment requirement, if the administrator of an investor's unit
investment trust program meets certain uniform criteria relating to cost savings
by the Fund and the Distributor. The total sales charge for all other
investments made from unit investment trust distributions will be 1.00% of the
offering price (1.01% of net asset value). Of this amount, the Distributor will
pay to the authorized dealer, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the terms and conditions that apply to the program,
should contact their authorized dealer or the Distributor.
The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during each distribution period by all investors who choose to invest in
the Fund through the program and (2) provide Investor Services with appropriate
backup data for each investor participating in the program in a computerized
format fully compatible with Investor Services' processing system.
In order to obtain these special benefits, all dividends and other distributions
by the Fund must be reinvested in additional shares and there can not be any
systematic withdrawal program. There will be no minimum for reinvestments from
unit investment trusts. The Fund will send account activity statements to such
participants on a quarterly basis only, even if their investments are made more
frequently. The Fund reserves the right to modify or terminate this program at
any time.
NET ASSET VALUE PURCHASE OPTIONS. Class A Shares of the Fund may be purchased at
net asset value, upon written assurance that the purchase is made for investment
purposes and that the shares will not be resold except through redemption by the
Fund, by:
(1) Current or retired trustees or directors of funds advised by Morgan Stanley
Dean Witter & Co. and any of its subsidiaries and such persons' families
and their beneficial accounts.
(2) Current or retired directors, officers and employees of Morgan Stanley Dean
Witter & Co. and any of its subsidiaries; employees of an investment
subadviser to any fund described in (1) above or an affiliate of such
subadviser; and such persons' families and their beneficial accounts.
(3) Directors, officers, employees and, when permitted, registered
representatives, of financial institutions that have a selling group
agreement with the Distributor and their spouses and children under 21
years of age when purchasing for any accounts they beneficially own, or, in
the case of any such financial institution, when purchasing for retirement
plans for such institution's employees; provided that such purchases are
otherwise permitted by such institutions.
(4) Registered investment advisers who charge a fee for their services, trust
companies and bank trust departments investing on their own behalf or on
behalf of their clients. The Distributor may pay authorized dealers through
which purchases are made an amount up to 0.50% of the amount invested, over
a 12-month period.
(5) Trustees and other fiduciaries purchasing shares for retirement plans which
invest in multiple fund families through broker-dealer retirement plan
alliance programs that have entered into agreements with the Distributor
and which are subject to certain minimum size and operational requirements.
Trustees and other fiduciaries should refer to the Statement of Additional
Information for further details with respect to such alliance programs.
(6) Beneficial owners of shares of Participating Funds held by a retirement
plan or held in a tax-advantaged retirement account who purchase shares of
the Fund with proceeds from distributions from such a plan or retirement
account other than distributions taken to correct an excess contribution.
17
<PAGE>
(7) Accounts as to which a bank or broker-dealer charges an account management
fee ("wrap accounts"), provided the bank or broker-dealer has a separate
agreement with the Distributor.
(8) Trusts created under pension, profit sharing or other employee benefit
plans qualified under Section 401(a) of the Internal Revenue Code of 1986,
as amended (the "Code"), or custodial accounts held by a bank created
pursuant to Section 403(b) of the Code and sponsored by nonprofit
organizations defined under Section 501(c)(3) of the Code and assets held
by an employer or trustee in connection with an eligible deferred
compensation plan under Section 457 of the Code. Such plans will qualify
for purchases at net asset value provided, for plans initially establishing
accounts with the Distributor in the Participating Funds after February 1,
1997, that (1) the initial amount invested in the Participating Funds is at
least $500,000 or (2) such shares are purchased by an employer sponsored
plan with more than 100 eligible employees. Such plans that have been
established with a Participating Fund or have received proposals from the
Distributor prior to February 1, 1997 based on net asset value purchase
privileges previously in effect will be qualified to purchase shares of the
Participating Funds at net asset value for accounts established on or
before May 1, 1997. Section 403(b) and similar accounts for which Van
Kampen Trust Company serves as custodian will not be eligible for net asset
value purchases based on the aggregate investment made by the plan or the
number of eligible employees, except under certain uniform criteria
established by the Distributor from time to time. Prior to February 1,
1997, a commission will be paid to authorized dealers who initiate and are
responsible for such purchases within a rolling twelve- month period as
follows: 1.00% on sales to $5 million, plus 0.50% on the next $5 million,
plus 0.25% on the excess over $10 million. For purchases on February 1,
1997 and thereafter, a commission will be paid as follows: 1.00% on sales
to $2 million, plus 0.80% on the next $1 million, plus 0.50% on the next
$47 million, plus 0.25% on the excess over $50 million.
(9) Individuals who are members of a "qualified group." For this purpose, a
qualified group is one which (i) has been in existence for more than six
months, (ii) has a purpose other than to acquire shares of the Fund or
similar investments, (iii) has given and continues to give its endorsement
or authorization, on behalf of the group, for purchase of shares of the
Fund and Participating Funds, (iv) has a membership that the authorized
dealer can certify as to the group's members and (v) satisfies other
uniform criteria established by the Distributor for the purpose of
realizing economies of scale in distributing such shares. A qualified group
does not include one whose sole organizational nexus, for example, is that
its participants are credit card holders of the same institution, policy
holders of an insurance company, customers of a bank or broker-dealer,
clients of an investment adviser or other similar groups. Shares purchased
in each group's participants account in connection with this privilege will
be subject to a contingent deferred sales charge of 1.00% in the event of
redemption within one year of purchase, and a commission will be paid to
authorized dealers who initiate and are responsible for such sales to each
individual as follows: 1.00% on sales to $2 million, plus 0.80% on the next
$1 million and 0.50% on the excess over $3 million.
The term "families" includes a person's spouse, children under 21 years of age
and grandchildren, parents, and a person's spouse's parents.
Purchase orders made pursuant to clause (4) may be placed either through
authorized dealers as described above or directly with Investor Services by the
investment adviser, trust company or bank trust department, provided that
Investor Services receives federal funds for the purchase by the close of
business on the next business day following acceptance of the order. An
authorized dealer may charge a transaction fee for placing an order to purchase
shares pursuant to this provision or for placing a redemption order with respect
to such shares. Authorized dealers will be paid a service fee as described above
on purchases made under options (3) through (9) above. The Fund may terminate,
or amend the terms of, offering shares of the Fund at net asset value to such
groups at any time.
18
<PAGE>
REDEMPTION OF
SHARES
Generally shareholders may redeem for cash some or all of their shares without
charge by the Fund (other than applicable sales charge) at any time. As
described under the heading "Purchase of Shares," redemptions of Class B Shares
and Class C Shares may be subject to a contingent deferred sales charge. In
addition, certain redemptions of Class A Shares for shareholder accounts of $1
million or more may be subject to a contingent deferred sales charge.
Redemptions completed through an authorized dealer or a custodian of a
retirement plan account may involve additional fees charged by the dealer or
custodian.
Except as specified below under "Telephone Redemption Requests," payment for
shares redeemed generally will be made by check mailed within seven days after
receipt by Investor Services of the request and any other necessary documents in
proper form as described below. Such payment may be postponed or the right of
redemption suspended as provided by the rules of the SEC. Such payment may,
under certain circumstances, be paid wholly or in part by a distribution-in-kind
of portfolio securities, which may result in brokerage costs and a gain or loss
for federal income tax purposes when such securities are sold. If the shares to
be redeemed have been recently purchased by check, Investor Services may delay
the payment of redemption proceeds until it confirms the purchase check has
cleared, which may take up to 15 days. A taxable gain or loss will be recognized
by the shareholder upon redemption of shares.
WRITTEN REDEMPTION REQUESTS. Shareholders may request a redemption of shares by
written request in proper form sent directly to Van Kampen Investor Services
Inc., PO Box 218256, Kansas City, MO 64121-8256. The request for redemption
should indicate the number of shares to be redeemed, the class designation of
such shares and the shareholder's account number. The redemption request must be
signed by all persons in whose names the shares are registered. Signatures must
conform exactly to the account registration. If the proceeds of the redemption
exceed $50,000, or if the proceeds are not to be paid to the record owner at the
record address, or if the record address has changed within the previous 30
days, signature(s) must be guaranteed by one of the following: a bank or trust
company; a broker-dealer; a credit union; a national securities exchange,
registered securities association or clearing agency; a savings and loan
association; or a federal savings bank.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption to be in proper form. In some
cases, however, additional documents may be necessary. In the case of
shareholders holding certificates, the certificates for the shares being
redeemed properly endorsed for transfer must accompany the redemption request.
In the event the redemption is requested by a corporation, partnership, trust,
fiduciary, executor or administrator, and the name and title of the
individual(s) authorizing such redemption is not shown in the account
registration, a copy of the corporate resolution or other legal documentation
appointing the authorized signer and certified within the prior 120 days must
accompany the redemption request. IRA redemption requests should be sent to the
IRA custodian to be forwarded to Investor Services. Contact the IRA custodian
for further information.
In the case of written redemption requests sent directly to Investor Services,
the redemption price is the net asset value per share next determined after the
request in proper form is received by Investor Services.
AUTHORIZED DEALER REDEMPTION REQUESTS. Shareholders may place redemption
requests through an authorized dealer. Orders sent through authorized dealers
must be at least $500 (unless transmitted by your authorized dealer via the
FUNDSERV network). The redemption price for such shares is the net asset value
per share next calculated after an order in proper form is received by an
authorized dealer provided such order is transmitted to the Distributor prior to
the Distributor's close of business on such day. It is the responsibility of
authorized dealers to transmit redemption requests received by them to the
Distributor so they will be
19
<PAGE>
received prior to such time. Redemptions completed through an authorized dealer
may involve additional fees charged by the dealer.
TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. A shareholder
automatically has telephone redemption privileges unless the shareholder
indicates otherwise by checking the applicable box on the application form
accompanying the prospectus. To redeem shares, contact the telephone transaction
line at (800) 421-5684. Van Kampen Investments, Investor Services and the Fund
employ procedures considered by them to be reasonable to confirm that
instructions communicated by telephone are genuine. Such procedures include
requiring certain personal identification information prior to acting upon
telephone instructions, tape-recording telephone communications and providing
written confirmation of instructions communicated by telephone. If reasonable
procedures are employed, none of Van Kampen Investments, Investor Services or
the Fund will be liable for following telephone instructions which it reasonably
believes to be genuine. Telephone redemptions may not be available if the
shareholder cannot reach Investor Services by telephone, whether because all
telephone lines are busy or for any other reason; in such case, a shareholder
would have to use the Fund's other redemption procedure previously described.
Requests received by Investor Services prior to 4:00 p.m., New York time, will
be processed at the next determined net asset value per share. These privileges
are available for all accounts other than retirement accounts or accounts with
shares represented by certificates. If an account has multiple owners, Investor
Services may rely on the instructions of any one owner.
For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check and amounts of at least
$1,000 up to $1 million may be redeemed daily if the proceeds are to be paid by
wire. The proceeds must be payable to the shareholder(s) of record and sent to
the address of record for the account or wired directly to their predesignated
bank account. This privilege is not available if the address of record has been
changed within 30 days prior to a telephone redemption request. Proceeds from
redemptions payable by wire transfer are expected to be wired on the next
business day following the date of redemption. The Fund reserves the right at
any time to terminate, limit or otherwise modify this redemption privilege.
OTHER REDEMPTION INFORMATION. The Fund may redeem shares of any shareholder
account that has a value on the date of the notice of redemption less than the
minimum initial investment as specified in this prospectus. At least 60 days
advance written notice of any such involuntary redemption will be provided to
the shareholder and such shareholder will be given an opportunity to purchase
the required value of additional shares at the next determined net asset value
without sales charge. Any involuntary redemption may only occur if the
shareholder account is less than the minimum initial investment due to
shareholder redemptions.
DISTRIBUTIONS FROM
THE FUND
In addition to any increase in the value of shares which the Fund may achieve,
shareholders may receive distributions from the Fund of dividends and capital
gain dividends.
DIVIDENDS. Dividends from stocks and interest earned from other investments are
the Fund's main source of income. The Fund's present policy, which may be
changed at any time by the Board of Directors', is to distribute all or
substantially all of this income, less expenses, at least annually as dividends
to shareholders. Dividends are automatically applied to purchase additional
shares of the Fund at the next determined net asset value unless the shareholder
instructs otherwise.
The per share dividends on Class B Shares and Class C Shares may be lower than
the per share dividends on Class A Shares as a result of the higher distribution
fees and transfer agency costs applicable to such classes of shares.
20
<PAGE>
CAPITAL GAINS DIVIDENDS. The Fund may realize capital gains or losses when it
sells securities, depending on whether the sales prices for the securities are
higher or lower than purchase prices. Net realized capital gain represents the
total profits from sales of securities minus total losses from sales of
securities (including any losses carried forward from prior years), other than
net short-term capital gain from sales of securities held for one year or less.
The Fund distributes any taxable net realized capital gain to shareholders as
capital gain dividends at least annually. As in the case of dividends, capital
gain dividends are automatically reinvested in additional shares of the Fund at
the next determined net asset value unless the shareholder instructs otherwise.
SHAREHOLDER SERVICES
Listed below are some of the shareholder services the Fund offers to investors.
For a more complete description of the Fund's shareholder services, such as
investment accounts, share certificates, retirement plans, automated clearing
house deposits, dividend diversification and the systematic withdrawal plan,
please refer to the Statement of Additional Information or contact your
authorized dealer.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gain dividends in shares of the
Fund. Such shares are acquired at net asset value per share (without sales
charge) on the applicable payable date of the dividend or capital gain dividend.
Unless the shareholder instructs otherwise, the reinvestment plan is automatic.
This instruction may be made by telephone by calling (800) 341-2911
((800) 421-2833 for the hearing impaired) or by writing to Investor Services.
The investor may, on the initial application or prior to any declaration,
instruct that dividends be paid in cash and capital gain dividends be reinvested
at net asset value, or that both dividends and capital gain dividends be paid in
cash.
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under which
a shareholder can authorize Investor Services to charge a bank account on a
regular basis to invest predetermined amounts in the Fund. Additional
information is available from the Distributor or your authorized dealer.
EXCHANGE PRIVILEGE. Shares of the Fund may be exchanged for shares of the same
class of any Participating Fund based on the next computed net asset value per
share of each fund after requesting the exchange without any sales charge,
subject to certain limitations. Shares of the Fund may be exchanged for shares
of any Participating Fund only if shares of that Participating Fund are
available for sale; however, during periods of suspension of sales, shares of a
Participating Fund may be available for sale only to existing shareholders of a
Participating Fund. Shareholders seeking an exchange into a Participating Fund
should obtain and read the current prospectus for such fund prior to
implementing an exchange. A prospectus of any of the Participating Funds may be
obtained from any authorized dealer or the Distributor.
When shares that are subject to a contingent deferred sales charge are exchanged
among Participating Funds, the holding period for purposes of computing the
contingent deferred sales charge is based upon the date of the initial purchase
of such shares from a Participating Fund. When such shares are redeemed and not
exchanged for shares of another Participating Fund, the shares are subject to
the contingent deferred sales charge schedule imposed by the Participating Fund
from which such shares were originally purchased.
Exchanges of shares are sales of one Participating Fund and purchases of another
Participating Fund. The sale may result in a gain or loss for federal income tax
purposes. If the shares sold have been held for less than 91 days, the sales
charge paid on such shares is carried over and included in the tax basis of the
shares acquired.
A shareholder wishing to make an exchange may do so by sending a written request
to Investor Services or by contacting the telephone transaction line at
(800) 421-5684. A shareholder automatically has telephone exchange privileges
unless the shareholder indicates otherwise by checking the applicable box
21
<PAGE>
on the application form accompanying the prospectus. Van Kampen Investments,
Investor Services and the Fund employ procedures considered by them to be
reasonable to confirm that instructions communicated by telephone are genuine.
Such procedures include requiring certain personal identification information
prior to acting upon telephone instructions, tape-recording telephone
communications, and providing written confirmation of instructions communicated
by telephone. If reasonable procedures are employed, none of Van Kampen
Investments, Investor Services or the Fund will be liable for following
telephone instructions which it reasonably believes to be genuine. If the
exchanging shareholder does not have an account in the fund whose shares are
being acquired, a new account will be established with the same registration,
dividend and capital gain dividend options (except dividend diversification) and
authorized dealer of record as the account from which shares are exchanged,
unless otherwise specified by the shareholder. In order to establish a
systematic withdrawal plan for the new account or reinvest dividends from the
new account into another fund, however, an exchanging shareholder must submit a
specific request. The Fund reserves the right to reject any order to acquire its
shares through exchange. In addition, the Fund and other Participating Funds may
restrict exchanges by shareholders engaged in excessive trading by limiting or
disallowing the exchange privileges to such shareholders. For further
information on these restrictions see the Statement of Additional Information.
The Fund may modify, restrict or terminate the exchange privilege at any time on
60 days' notice to its shareholders of any termination or material amendment.
For purposes of determining the sales charge rate previously paid on Class A
Shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchanged security was acquired through reinvestment, that
security is deemed to have been sold with a sales charge rate equal to the rate
previously paid on the security on which the dividend or distribution was paid.
If a shareholder exchanges less than all of such shareholder's securities, the
security upon which the highest sales charge rate was previously paid is deemed
exchanged first.
Exchange requests received on a business day prior to the time shares of the
funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares of the fund which the
shareholder is redeeming will be redeemed at the net asset value per share next
determined on the date of receipt. Shares of the new fund that the shareholder
is purchasing will also normally be purchased at the net asset value per share,
plus any applicable sales charge, next determined on the date of receipt.
Exchange requests received on a business day after the time shares of the funds
involved in the request are priced will be processed on the next business day in
the manner described herein.
INTERNET TRANSACTIONS. In addition to performing transactions on your account
through written instruction or by telephone, you may also perform certain
transactions through the internet. Please refer to our web site at
www.vankampen.com for further instruction. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated through the internet are genuine. Such
procedures include requiring use of a personal identification number prior to
acting upon internet instructions and providing written confirmation of
instructions communicated through the internet. If reasonable procedures are
employed, none of Van Kampen Investments, Investor Services or the Fund will be
liable for following instructions received through the internet which it
reasonably believes to be genuine. If an account has multiple owners, Investor
Services may rely on the instructions of any one owner.
FEDERAL INCOME
TAXATION
Distributions of the Fund's net investment income (consisting generally of
taxable income and net short-term capital gain) are taxable to shareholders as
ordinary income to the extent of the Fund's earnings and profits, whether paid
in cash or reinvested in additional shares. Distributions of the
22
<PAGE>
Fund's net realized capital gain (which is the excess of net long-term capital
gain over net short-term capital loss) as capital gain dividends, if any, are
taxable to shareholders as long-term capital gains, whether paid in cash or
reinvested in additional shares, and regardless of how long the shares of the
Fund have been held by such shareholders. The Fund expects that its
distributions will consist primarily of ordinary income and capital gain
dividends. Distributions in excess of the Fund's earnings and profits will first
reduce the adjusted tax basis of a holder's shares and, after such adjusted tax
basis is reduced to zero, will constitute capital gains to such holder (assuming
such shares are held as a capital asset). Although distributions generally are
treated as taxable in the year they are paid, distributions declared in October,
November or December, payable to shareholders of record on a specified date in
such month and paid during January of the following year will be treated as
having been distributed by the Fund and received by the shareholders on the
December 31st prior to the date of payment. The Fund will inform shareholders of
the source and tax status of all distributions promptly after the close of each
calendar year.
The sale or exchange of shares is a taxable transaction for federal income tax
purposes. Shareholders who sell their shares will generally recognize gain or
loss in an amount equal to the difference between their adjusted tax basis in
the shares sold and the amount received. If the shares are held as a capital
asset, the gain or loss will be a capital gain or loss. Any capital gains may be
taxed at different rates depending on how long the shareholder held such shares.
The Fund is required, in certain circumstances, to withhold 31% of dividends and
certain other payments, including redemptions, paid to shareholders who do not
furnish to the Fund their correct taxpayer identification number (in the case of
individuals, their social security number) and certain required certifications
or who are otherwise subject to backup withholding.
Foreign shareholders, including shareholders who are non-resident aliens, may be
subject to U.S. withholding tax on certain distributions (whether received in
cash or in shares) at a rate of 30% or such lower rate as prescribed by an
applicable treaty. Prospective foreign investors should consult their tax
advisers concerning the tax consequences to them of an investment in shares.
The Fund intends to qualify as a regulated investment company under federal
income tax law. If the Fund so qualifies and distributes each year to its
shareholders at least 90% of its net investment income, the Fund will not be
required to pay federal income taxes on any income it distributes to
shareholders. If the Fund distributes less than an amount equal to the sum of
98% of its ordinary income and 98% of its capital gain net income, then the Fund
will be subject to a 4% excise tax on the undistributed amounts.
The federal income tax discussion set forth above is for general information
only. Prospective investors should consult their own tax advisers regarding the
specific federal tax consequences of purchasing, holding, disposing, exchanging
or selling of shares, as well as the effects of state, local and foreign tax law
and any proposed tax law changes.
23
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the periods indicated. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report, along with the Fund's financial statements, is
included in the Statement of Additional Information and may be obtained by
shareholders without charge by calling the telephone number on the back cover of
this prospectus. This information should be read in conjunction with the
financial statements and notes thereto included in the Statement of Additional
Information.
<TABLE>
<CAPTION>
Class A Class B Class C
Year Ended May 29, 1998* Year Ended May 29, 1998* Year Ended
Selected Per Share Data and Ratios June 30, 1999# to June 30, 1998 June 30, 1999# to June 30, 1998 June 30, 1999#
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period..... $10.291 $ 10.00 $10.284 $ 10.00 $10.284
------- ------- ------- ------- -------
Income From Investment Operations
Net Investment Income/Loss... (0.062) -- (0.144) -- (0.141)
Net Realized and Unrealized
Gain/Loss... 2.317 0.29 2.312 0.28 2.302
------- ------- ------- ------- -------
Total From Investment
Operations... 2.255 0.29 2.168 0.28 2.161
------- ------- ------- ------- -------
Distributions
Net Realized Gain... (0.003) -- (0.003) -- (0.003)
------- ------- ------- ------- -------
Net Asset Value, End of Period... $12.543 $ 10.29 $12.449 $ 10.28 $12.442
======= ======= ======= ======= =======
Total Return (1)... 21.90% 2.90%** 21.14% 2.80%** 21.04%
======= ======= ======= ======= =======
Ratios and Supplemental Data
Net Assets, End of Period
(000's).... $17,185 $ 2,057 $23,978 $ 1,543 $ 7,435
Ratio of Expenses to Average Net
Assets..... 1.50% 1.50% 2.25% 2.25% 2.25%
Ratio of Net Investment
Income/Loss to Average Net
Assets..... (0.57)% 0.51% (1.34)% (0.25)% (1.32)%
Portfolio Turnover Rate... 126% 19%** 126% 19%** 126%
Effect of Voluntary Expense
Limitation During the Period Per
Share Benefit to Net Investment
Income/Loss... $ 0.05 $ 0.02 $ 0.05 $ 0.02 $ 0.05
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets... 1.98% 4.06% 2.72% 4.81% 2.75%
Net Investment Income/Loss to
Average Net Assets... (1.05)% (2.05)% (1.81)% (2.81)% (1.81)%
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
Class C
May 29, 1998*
Selected Per Share Data and Ratios to June 30, 1998
- ---------------------------------- ----------------
<S> <C>
Net Asset Value, Beginning of
Period..... $ 10.00
-------
Income From Investment Operations
Net Investment Income/Loss... --
Net Realized and Unrealized
Gain/Loss... 0.28
-------
Total From Investment
Operations... 0.28
-------
Distributions
Net Realized Gain... --
-------
Net Asset Value, End of Period... $ 10.28
=======
Total Return (1)... 2.80%**
=======
Ratios and Supplemental Data
Net Assets, End of Period
(000's).... $ 1,543
Ratio of Expenses to Average Net
Assets..... 2.25%
Ratio of Net Investment
Income/Loss to Average Net
Assets..... (0.25)%
Portfolio Turnover Rate... 19%**
Effect of Voluntary Expense
Limitation During the Period Per
Share Benefit to Net Investment
Income/Loss... $ 0.02
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets... 4.81%
Net Investment Income/Loss to
Average Net Assets... (2.81)%
- ---------------------------------------------------------------------
</TABLE>
* COMMENCEMENT OF OPERATIONS
** NON-ANNUALIZED
(1) TOTAL RETURN IS CALCULATED EXCLUSIVE OF SALES CHARGES OR DEFERRED SALES
CHARGES.
# CHANGES PER SHARE ARE BASED UPON MONTHLY AVERAGE SHARES
OUTSTANDING.
24
<PAGE>
BOARD OF DIRECTORS
AND OFFICERS
BOARD OF DIRECTORS
J. Miles Branagan Don G. Powell*
Jerry D. Choate Phillip B. Rooney
Richard M. DeMartini* Fernando Sisto
Linda Hutton Heagy Wayne W. Whalen*
R. Craig Kennedy Suzanne H. Woolsey
Jack E. Nelson Paul G. Yovovich
OFFICERS
Richard F. Powers, III*
PRESIDENT
Dennis J. McDonnell*
EXECUTIVE VICE PRESIDENT & CHIEF INVESTMENT OFFICER
A. Thomas Smith III*
VICE PRESIDENT AND SECRETARY
Edward C. Wood III*
VICE PRESIDENT
Michael H. Santo*
VICE PRESIDENT
Peter W. Hegel*
VICE PRESIDENT
Stephen L. Boyd*
VICE PRESIDENT
Joseph P. Stadler*
VICE PRESIDENT
John L. Sullivan*
VICE PRESIDENT, CHIEF FINANCIAL OFFICER & TREASURER
Curtis W. Morell*
VICE PRESIDENT & CHIEF ACCOUNTING OFFICER
Tanya M. Loden*
CONTROLLER
* "Interested Persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2911
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders, or
redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call
(800) 421-2833
FUNDINFO-REGISTERED TRADEMARK-
For automated telephone services, call (800) 847-2424
WEB SITE
www.vankampen.com
VAN KAMPEN EQUITY GROWTH FUND
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
INVESTMENT ADVISER AND ADMINISTRATOR
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
INVESTMENT SUBADVISER
MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC.
1221 Avenue of the Americas
New York, NY 10020
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
TRANSFER AGENT
VAN KAMPEN INVESTOR SERVICES INC.
PO Box 218256
Kansas City, MO 64121-8256
Attn: Van Kampen Equity Growth Fund
CUSTODIAN
THE CHASE MANHATTAN BANK
3 MetroTech Center
Brooklyn, NY 11245
Attn: Van Kampen Equity Growth Fund
LEGAL COUNSEL
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
INDEPENDENT ACCOUNTANTS
PRICEWATERHOUSECOOPERS LLP
200 East Randolph Drive
Chicago, IL 60601
<PAGE>
VAN KAMPEN
EQUITY GROWTH FUND
PROSPECTUS
OCTOBER 28, 1999
A Statement of Additional Information, which contains more details about the
Fund, is incorporated by reference in its entirety into this prospectus.
You will find additional information about the Fund in its annual and semiannual
reports to shareholders. The annual report explains the market conditions and
investment strategies affecting the Fund's performance during its last fiscal
year.
You can ask questions or obtain a free copy of the Fund's reports or its
Statement of Additional Information by calling (800) 341-2911 from 7:00 a.m. to
7:00 p.m., Central time, Monday through Friday. Telecommunications Device for
the Deaf users may call (800) 421-2833. A free copy of the Fund's reports can
also be ordered from our web site at www.vankampen.com.
Information about the Fund, including its reports and Statement of Additional
Information, has been filed with the Securities and Exchange Commission (SEC).
It can be reviewed and copied at the SEC's Public Reference Room in Washington,
DC or on the EDGAR Database on the SEC's internet site (http://www.sec.gov).
Information on the operation of the SEC's Public Reference Room may be obtained
by calling the SEC at 1-202-942-8090. You can also request copies of these
materials, upon payment of a duplicating fee, by electronic request at the SEC's
e-mail address ([email protected]), or by writing the Public Reference Section
of the SEC, Washington, DC, 20549-0102.
[LOGO]
THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-7140.
EQG PRO 10/99
<PAGE>
VAN KAMPEN
EUROPEAN EQUITY FUND
Van Kampen European Equity Fund is a mutual fund with an investment objective to
seek long-term capital appreciation. Under normal market conditions, the Fund's
investment adviser seeks to achieve the Fund's investment objective by investing
primarily in a portfolio of equity securities of European issuers based on
individual stock selection.
Shares of the Fund have not been approved or disapproved by the Securities and
Exchange Commission (SEC) or any state regulator, and neither the SEC nor any
state regulator has passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
THIS PROSPECTUS IS DATED OCTOBER 28, 1999.
[LOGO]
<PAGE>
TABLE OF CONTENTS
Risk/Return Summary .....................................................3
Fees and Expenses of the Fund ...........................................4
Investment Objective, Policies and Risks ................................5
Investment Advisory Services ...........................................11
Purchase of Shares .....................................................12
Redemption of Shares ...................................................20
Distributions from the Fund ............................................21
Shareholder Services ...................................................22
Federal Income Taxation ................................................23
Financial Highlights ...................................................25
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations, other than those contained in this
prospectus, in connection with the offer contained in this prospectus and, if
given or made, such other information or representations must not be relied upon
as having been authorized by the Fund, the Fund's investment adviser or the
Fund's distributor. This prospectus does not constitute an offer by the Fund or
by the Fund's distributor to sell or a solicitation of an offer to buy any of
the securities offered hereby in any jurisdiction to any person to whom it is
unlawful for the Fund to make such an offer in such jurisdiction.
<PAGE>
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The Fund is a mutual fund with an investment objective to seek long-term capital
appreciation. Any income received from the investment of portfolio securities is
incidental to the Fund's investment objective.
INVESTMENT STRATEGIES
Under normal market conditions, the Fund's investment adviser seeks to achieve
the Fund's investment objective by investing primarily in a portfolio of equity
securities of European issuers based on individual stock selection. The Fund's
investment adviser uses a bottom-up, value-driven approach to investing that
seeks to identify securities that it believes are undervalued relative to their
market values and other financial measurements with an emphasis on cash flow and
the intrinsic value of company assets. Portfolio securities are typically sold
when they reach the investment adviser's fair value target or reappraised fair
value. Equity securities include common and preferred stocks, convertible
securities, rights and warrants to purchase common stock and depositary
receipts. Under normal market conditions, the Fund invests at least 65% of its
total assets in equity securities of European issuers. The Fund may purchase and
sell certain derivative instruments (such as options, futures, options on
futures and currency-related transactions involving options, futures, forward
contracts and swaps) for various portfolio management purposes.
INVESTMENT RISKS
An investment in the Fund is subject to investment risks, and you could lose
money on your investment in the Fund. There can be no assurance that the Fund
will achieve its investment objective.
MARKET RISK. Market risk is the possibility that the market values of securities
owned by the Fund will decline. Market risk may affect a single issuer,
industry, sector of the economy or the market as a whole. Investments in common
stocks and other equity securities generally are affected by changes in the
stock markets, which fluctuate substantially over time, sometimes suddenly and
sharply. Foreign markets may, but often do not, move in tandem with U.S.
markets, and foreign markets, especially developing or emerging market
countries, may be more volatile than U.S. markets. Thus, the value of the Fund's
investments will vary and at times may be lower or higher than that of other
types of investments. During an overall stock market decline, stock prices of
smaller- or medium-sized companies (in which the Fund may invest) often
fluctuate more and may fall more than the stock prices of larger companies.
FOREIGN RISKS AND EUROPEAN REGION RISKS. Because the Fund owns securities of
foreign issuers, it is subject to risks not usually associated with owning
securities of U.S. issuers. These risks include fluctuations in foreign
currencies, foreign currency exchange controls, political and economic
instability, differences in financial reporting, differences in securities
regulation and trading and foreign taxation issues. The risks of investing in
developing or emerging market countries are greater than the risks generally
associated with foreign investments, including investment and trading
limitations, greater credit and liquidity concerns, greater political
uncertainties, an economy's dependence on international development assistance,
greater foreign currency exchange risks and currency transfer restrictions,
greater delays and disruptions in settlement transactions and greater risks
associated with computer programs and the Year 2000 problem. Because the Fund's
investments are focused in a single region, its portfolio is more susceptible to
factors adversely affecting issuers located in that region than a more
geographically diverse portfolio of invesments.
RISKS OF USING DERIVATIVE INVESTMENTS. In general terms, a derivative investment
is one whose value depends on (or is derived from) the value of an underlying
asset, interest rate or index. Options, futures and options on futures and
currency-related transactions involving options, futures, forward contracts and
swaps are examples of derivatives. Derivative investments involve risks
different from direct investment in underlying securities. These risks include
imperfect correlation between the value of the instruments and the underlying
assets; risks of default by the other party to certain transactions; risks that
the transactions may result in losses that partially or completely offset gains
in portfolio positions; risks that the transactions may not be liquid; and
manager risk.
MANAGER RISK. As with any managed fund, the Fund's investment adviser may not be
successful in selecting the best-performing securities or investment techniques
and the Fund's performance may lag behind that of similar funds.
3
<PAGE>
INVESTOR PROFILE
In light of the Fund's investment objective and strategies, the Fund may be
appropriate for investors who:
- - Seek capital appreciation over the long term
- - Do not seek current income from their investment
- - Are willing to take on the increased risks associated with investing in
foreign securities from countries in a single region
- - Can withstand substantial volatility in the value of their Fund share
- - Wish to add to their investment portfolio a fund that invests primarily in
equity securities of European issuers
An investment in the Fund is not a deposit of any bank or other insured
depository institution. Your investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
An investment in the Fund may not be appropriate for all investors. The Fund is
not intended to be a complete investment program, and investors should consider
their long-term investment goals and financial needs when making an investment
decision about the Fund. An investment in the Fund is intended to be a long-term
investment, and the Fund should not be used as a trading vehicle.
ANNUAL PERFORMANCE
The Fund commenced investment operations on September 25, 1998. The Fund did not
have a full calendar year of performance as of the date of this prospectus and
thus has no historical calendar year annual performance or comparative
performance tables.
FEES AND EXPENSES
OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
- -----------------------------------------------------------
<S> <C> <C> <C>
</TABLE>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<S> <C> <C> <C>
- -----------------------------------------------------------
Maximum sales charge
(load) imposed on
purchases (as a
percentage of
offering price) 5.75%(1) None None
..........................................................
Maximum deferred
sales charge (load)
(as a percentage of
the lesser of
original purchase
price or redemption
proceeds) None(2) 5.00%(3) 1.00%(4)
..........................................................
Maximum sales charge
(load) imposed on
reinvested dividends None None None
..........................................................
Redemption fees None None None
..........................................................
Exchange fee None None None
..........................................................
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- -----------------------------------------------------------
Management Fees(5) 1.00% 1.00% 1.00%
..........................................................
Distribution and/or
Service (12b-1)
Fees(6) 0.25% 1.00%(7) 1.00%(7)
..........................................................
Other Expenses(5) 4.95% 4.61% 5.33%
..........................................................
Total Annual Fund
Operating Expenses(5) 6.20% 6.61% 7.33%
..........................................................
</TABLE>
(1) REDUCED FOR PURCHASES OF $50,000 AND OVER. SEE "PURCHASE OF SHARES --
CLASS A SHARES."
(2) INVESTMENTS OF $1 MILLION OR MORE ARE NOT SUBJECT TO ANY SALES CHARGE AT
THE TIME OF PURCHASE, BUT A DEFERRED SALES CHARGE OF 1.00% MAY BE IMPOSED
ON CERTAIN REDEMPTIONS MADE WITHIN ONE YEAR OF THE PURCHASE. SEE "PURCHASE
OF SHARES -- CLASS A SHARES."
(3) THE MAXIMUM DEFERRED SALES CHARGE IS 5.00% IN THE FIRST YEAR AFTER
PURCHASE, DECLINING THEREAFTER AS FOLLOWS:
YEAR 1-5.00%
YEAR 2-4.00%
YEAR 3-3.00%
YEAR 4-2.50%
YEAR 5-1.50%
AFTER-NONE
SEE "PURCHASE OF SHARES -- CLASS B SHARES."
(4) THE MAXIMUM DEFERRED SALES CHARGE IS 1.00% IN THE FIRST YEAR AFTER PURCHASE
AND 0.00% THEREAFTER. SEE "PURCHASE OF SHARES -- CLASS C SHARES."
(5) THE FUND'S INVESTMENT ADVISER IS CURRENTLY WAIVING OR REIMBURSING A PORTION
OF THE FUND'S MANAGEMENT FEES AND OTHER EXPENSES SUCH THAT THE ACTUAL TOTAL
ANNUAL FUND OPERATING EXPENSES WERE 1.70% FOR CLASS A SHARES, 2.45% FOR
CLASS B SHARES AND 2.45% FOR CLASS C SHARES FOR THE FISCAL YEAR ENDED
JUNE 30, 1999. THE FEE WAIVERS OR EXPENSE REIMBURSEMENTS CAN BE TERMINATED
AT ANY TIME.
(6) CLASS A SHARES ARE SUBJECT TO AN ANNUAL SERVICE FEE OF UP TO 0.25% OF THE
AVERAGE DAILY NET ASSETS ATTRIBUTABLE TO SUCH CLASS OF SHARES. CLASS B
SHARES AND CLASS C SHARES ARE EACH SUBJECT TO A COMBINED ANNUAL
DISTRIBUTION AND SERVICE FEE OF UP TO 1.00% OF THE AVERAGE DAILY NET ASSETS
ATTRIBUTABLE TO SUCH CLASS OF SHARES. SEE "PURCHASE OF SHARES."
(7) BECAUSE DISTRIBUTION AND/OR SERVICE (12b-1) FEES ARE PAID OUT OF THE FUND'S
ASSETS ON AN ONGOING BASIS, OVER TIME THESE FEES WILL INCREASE THE COST OF
YOUR INVESTMENT AND MAY COST YOU MORE THAN PAYING OTHER TYPES OF SALES
CHARGES.
4
<PAGE>
EXAMPLE:
The following example is intended to help you compare the cost of investing in
the Fund with the costs of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same each year (except for the ten-year
amounts for Class B Shares which reflect the conversion of Class B Shares to
Class A Shares after eight years). Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $1,156 $2,297 $3,410 $6,080
...............................................................
Class B Shares $1,156 $2,236 $3,325 $6,035*
...............................................................
Class C Shares $ 824 $2,123 $3,457 $6,530
...............................................................
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $1,156 $2,297 $3,410 $6,080
...............................................................
Class B Shares $ 656 $1,936 $3,175 $6,035*
...............................................................
Class C Shares $ 724 $2,123 $3,457 $6,530
...............................................................
</TABLE>
* BASED ON CONVERSION TO CLASS A SHARES AFTER EIGHT YEARS.
INVESTMENT OBJECTIVE,
POLICIES AND RISKS
The Fund's investment objective is to seek long-term capital appreciation. Any
income received from the investment of portfolio securities is incidental to the
Fund's investment objective. The Fund's investment objective is a fundamental
policy and may not be changed without the approval of a majority of shareholders
of the Fund's outstanding voting securities, as defined in the Investment
Company Act of 1940, as amended (the "1940 Act"). There are risks inherent in
all investments in securities; accordingly there can be no assurance that the
Fund will achieve its investment objective.
Under normal market conditions, the Fund's investment adviser seeks to achieve
the Fund's investment objective by investing primarily in a portfolio of equity
securities of European issuers based on individual stock selection. European
issuers include issuers from Germany, France, Switzerland, Belgium, Italy,
Finland, Sweden, Denmark, Norway and the United Kingdom and issuers located in
the developing or emerging markets of Europe. The Fund's investments in equity
securities include common and preferred stocks, convertible securities, rights
and warrants to purchase common stock and depositary receipts. Under normal
market conditions, the Fund invests at least 65% of its total assets in equity
securities of European issuers.
The Fund's investment adviser selects securities from a universe of all listed
European companies. The Fund's investment process is value-driven and based on
individual stock selection. In assessing investment opportunities, the Fund's
investment adviser considers value criteria with an emphasis on cash flow and
the intrinsic value of company assets. Securities which appear undervalued
according to these criteria are then subjected to in-depth fundamental analysis.
The Fund's investment adviser conducts a thorough investigation of the issuer's
balance sheet, cash flow and income statement and assesses the company's
business franchise, including product competitiveness, market positioning and
industry structure. The investment adviser makes company visits, reviews the
quality of management and considers meetings with senior company management as a
factor in the investment process.
While the Fund is not subject to any specific geographic diversification
requirements, it currently intends to diversify investments among European
countries. To the extent the Fund focuses more of its assets in a single
country, it will be more susceptible to factors adversely affecting issuers in
that country. Investments will be made primarily in equity securities of
companies domiciled in developed countries, but may be made in the securities of
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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 to
the Fund. The Fund will not, in normal circumstances, invest in the equity
securities of U.S. issuers. Because of the Fund's policy of concentrating its
investments in a single region, it is more susceptible than a fund without such
a policy to any single economic, political or regulatory occurrence affecting
issuers located in that region.
The Fund invests primarily in common stocks. Common stocks are shares of a
corporation or other entity that entitle the holder to a pro rata share of the
profits of the corporation, if any, without preference over any other class of
securities, including such entity's debt securities, preferred stock and other
senior equity securities. Common stock usually carries with it the right to vote
and frequently an exclusive right to do so.
While the Fund invests primarily in common stocks, it also may invest in
preferred stocks, convertible securities, warrants or rights to purchase common
stock and depository receipts. Preferred stock generally has a preference as to
dividends and liquidation over an issuer's common stock but ranks junior to debt
securities in an issuer's capital structure. Unlike interest payments on debt
securities, preferred stock dividends are payable only if declared by the
issuer's board of directors. Preferred stock also may be subject to optional or
mandatory redemption provisions. The ability of common stocks and preferred
stocks to generate income is dependent on the earnings and continuing
declaration of dividends by the issuers of such securities.
A convertible security is a bond, debenture, note, preferred stock, or other
security that may be converted into or exchanged for a prescribed amount of
common stock or other equity security of the same or a different issuer or into
cash within a particular period of time at a specified price or formula. A
convertible security generally entitles the holder to receive interest paid or
accrued on debt or the dividend paid on preferred stock until the convertible
security matures or is redeemed, converted or exchanged. Before conversion,
convertible securities generally have characteristics similar to both debt and
equity securities. The value of convertible securities tends to decline as
interest rates rise and, because of the conversion feature, tends to vary with
fluctuations in the market value of the underlying equity securities.
Convertible securities generally rank senior to common stock in a corporation's
capital structure but are usually subordinated to comparable nonconvertible
securities. Convertible securities generally do not participate directly in any
dividend increases or decreases of the underlying equity securities although the
market prices of convertible securities may be affected by any such dividend
changes or other changes in the underlying securities.
Rights and warrants entitle the holder to buy equity securities at a specific
price for a specific period of time. Rights are similar to warrants except that
they have a substantially shorter duration. Rights and warrants may be
considered more speculative and less liquid than certain other types of
investments in that they do not entitle a holder to dividends or voting rights
with respect to the underlying securities nor do they represent any right in the
assets of the issuing company and may lack a secondary market.
The Fund may invest in securities of certain issuers indirectly through
investment in other investment companies. Such investments are commonly used
when direct investments in certain countries are not permitted to foreign
entities. Investment in other investment companies may involve duplication of
management fees and certain other expenses.
The Fund may invest in small-, medium- or large-sized companies. The securities
of smaller- or medium-sized companies may be subject to more abrupt or erratic
market movements than securities of larger-sized companies or the market
averages in general. In addition, such companies typically are subject to a
greater degree of change in earnings and business prospects than are larger
companies. Thus, to the extent the Fund invests in smaller- and medium-sized
companies, the Fund may be subject to greater investment risk than that assumed
through investment in the equity securities of larger companies.
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RISKS OF INVESTING IN SECURITIES
OF FOREIGN ISSUERS
The Fund invests in securities of foreign issuers. Such securities may be
denominated in U.S. dollars and in currencies other than U.S. dollars. The
percentage of assets invested in securities of a particular country or
denominated in a particular currency will vary in accordance with the investment
adviser's assessment of the relative yield, appreciation potential and the
relationship of a country's currency to the U.S. dollar, which is based upon
such factors as fundamental economic strength, credit quality and interest rate
trends. Investments in foreign securities present certain risks not ordinarily
associated with investments in securities of U.S. issuers. These risks include
fluctuations in foreign currency exchange rates, political, economic or legal
developments (including war or other instability, expropriation of assets,
nationalization and confiscatory taxation), the imposition of foreign exchange
limitations (including currency blockage), withholding taxes on dividend or
interest payments or capital transactions or other restrictions, higher
transaction costs (including higher brokerage, custodial and settlement costs
and currency translation costs) and possible difficulty in enforcing contractual
obligations or taking judicial action. Also, foreign securities may not be as
liquid and may be more volatile than comparable domestic securities.
In addition, there often is less publicly available information about many
foreign issuers, and issuers of foreign securities are subject to different,
often less comprehensive, auditing, accounting, financial reporting and
disclosure requirements than domestic issuers. There is generally less
government regulation of stock exchanges, brokers and listed companies abroad
than in the U.S., and, with respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investment in those countries. Because there is
usually less supervision and governmental regulation of exchanges, brokers and
dealers than there is in the U.S., the Fund may experience settlement
difficulties or delays not usually encountered in the U.S.
Delays in making trades in foreign securities relating to volume constraints,
limitations or restrictions, clearance or settlement procedures, or otherwise
could impact returns and result in temporary periods when assets of the Fund are
not fully invested or attractive investment opportunities are foregone.
The Fund's investments in securities of developing or emerging market countries
are subject to greater risks than investments in securities of developed markets
since emerging market countries tend to have economic structures that are less
diverse and mature and political systems that are less stable than developed
markets. Emerging market countries may be more likely to experience political
turmoil or rapid changes in economic conditions than more developed markets and
the financial condition of issuers in emerging market countries may be more
precarious than in other countries.
In addition to the increased risks of investing in foreign securities, there are
often increased transactions costs associated with investing in foreign
securities including the costs incurred in connection with converting
currencies, higher foreign brokerage or dealer costs, and higher settlement
costs or custodial costs.
Since the Fund invests in securities denominated or quoted in currencies other
than the U.S. dollar, the Fund will be affected by changes in foreign currency
exchange rates (and exchange control regulations) which affect the value of
investments in the Fund and the accrued income and unrealized appreciation or
depreciation of the investments. Changes in foreign currency exchange ratios
relative to the U.S. dollar will affect the U.S. dollar value of the Fund's
assets denominated in that currency and the Fund's return on such assets as well
as any temporary uninvested reserves in bank deposits in foreign currencies. In
addition, the Fund will incur costs in connection with conversions between
various currencies.
The Fund may purchase and sell foreign currency on a spot basis in connection
with the settlement of transactions in securities traded in such foreign
currency. The Fund also may enter into contracts with banks, brokers or dealers
to purchase or sell securities or foreign currencies at a future date ("forward
contracts"). A foreign currency forward contract is a negotiated agreement
between the contracting parties to exchange a specified amount of currency at a
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specified future time at a specified rate. The rate can be higher or lower than
the spot rate between the currencies that are the subject of the contract.
The Fund may attempt to protect against adverse changes in the value of the U.S.
dollar in relation to a foreign currency by entering into a forward contract for
the purchase or sale of the amount of foreign currency invested or to be
invested, or by buying or selling a foreign currency option or futures contract
for such amount. Such strategies may be employed before the Fund purchases a
foreign security traded in the currency which the Fund anticipates acquiring or
between the date the foreign security is purchased or sold and the date on which
payment therefor is made or received. Seeking to protect against a change in the
value of a foreign currency in the foregoing manner does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Furthermore, such transactions reduce or
preclude the opportunity for gain if the value of the currency should move in
the direction opposite to the position taken. Unanticipated changes in currency
prices may result in poorer overall performance for the Fund than if it had not
entered into such contracts.
Investors should carefully consider the risks of foreign investments before
investing in the Fund.
ADDITIONAL INFORMATION REGARDING INVESTING IN EUROPEAN ISSUERS. In connection
with efforts to create a single market, eleven of the fifteen member countries
of the European Union established 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 in Europe and world-wide.
Governments across Europe have 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.
DERIVATIVE INSTRUMENTS
The Fund may, but is not required to, use various investment strategic
transactions described below to earn income, facilitate portfolio management and
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mitigate risks. Such strategic transactions are generally accepted under modern
portfolio management and are regularly used by many mutual funds and other
institutional investors. Although the Fund's investment adviser seeks to use the
practices to further the Fund's investment objective, no assurance can be given
that these practices will achieve this result.
The Fund may purchase and sell derivative instruments such as exchange-listed
and over-the-counter put and call options on securities, financial futures,
equity, fixed-income and interest rate indices, and other financial instruments,
futures contracts and options thereon (including but not limited to securities
index futures, foreign currency exchange futures, interest rate futures and
other financial futures), structured notes, swaps, caps, floors or collars and
enter into various currency transactions such as currency forward contracts,
currency futures contracts, currency swaps or options on currency or currency
futures. In addition, the Fund may invest in other derivative instruments that
are developed over time if their use would be consistent with the objective of
the Fund. Collectively, all of the above are referred to as "Strategic
Transactions." The Fund generally seeks to use Strategic Transactions as a
portfolio management or hedging technique to seek to protect against possible
adverse changes in the market value of securities held in or to be purchased for
the Fund's portfolio, protect the Fund's unrealized gains, facilitate the sale
of certain securities for investment purposes, protect against changes in
currency exchange rates or to adjust the exposure to a particular currency,
manage the effective maturity or duration of the Fund's portfolio, establish
positions in the derivatives markets as a substitute for purchasing or selling
particular securities, including, for example, when the Fund adjusts its
exposure to a market in response to changes in investment strategy, when doing
so provides more liquidity than the direct purchase of the securities underlying
such derivatives, when the Fund 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. The Fund may invest up to 33 1/3%
of its total assets in Strategic Transactions for non-hedging purposes (measured
by the aggregate notional value of outstanding derivatives). In addition, the
Fund may invest up to 20% of its total assets in futures contracts and options
on futures contracts (measured by the aggregate notional amount of such
outstanding contracts).
Strategic Transactions have risks including the imperfect correlation between
the value of such instruments and the underlying assets, the possible default of
the other party to the transaction or illiquidity of the derivative instruments.
Furthermore, the ability to successfully use Strategic Transactions depends on
the Fund's investment adviser's ability to predict pertinent market movements,
which cannot be assured. Thus, the use of Strategic Transactions may result in
losses greater than if they had not been used, may require the Fund to sell or
purchase portfolio securities at inopportune times or for prices other than
current market values, may limit the amount of appreciation the Fund can
otherwise realize on an investment, or may cause the Fund to hold a security
that it might otherwise sell. The use of currency transactions can result in the
Fund incurring losses because of the imposition of exchange controls, suspension
of settlements or the inability of the Fund to deliver or receive a specified
currency. In addition, amounts paid as premiums or cash or other assets held in
margin accounts with respect to Strategic Transactions are not otherwise
available to the Fund for investment purposes.
When conducted outside the U.S., Strategic Transactions may not be regulated as
rigorously as in the U.S., may not involve a clearing mechanism and related
guarantees, and are subject to the risk of governmental actions affecting
trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions,
(iii) delays in the Fund's ability to act upon economic events occurring in
foreign markets during non-business hours in the U.S., (iv) the imposition of
different exercise and settlement terms and procedures and margin requirements
than in the U.S., and (v) lower trading volume and liquidity.
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A more complete discussion of Strategic Transactions and their risks is
contained in the Fund's Statement of Additional Information. The Statement of
Additional Information can be obtained by investors free of charge as described
on the back cover of this prospectus.
OTHER INVESTMENTS AND RISK FACTORS
For cash management purposes, the Fund may engage in repurchase agreements with
banks and broker-dealers and other financial institutions in order to earn a
return on temporarily available cash. Such transactions are subject to the risk
of default by the other party.
The Fund may lend its portfolio securities in an amount up to 33 1/3% of its
total assets to broker-dealers, banks or other recognized institutional
borrowers of securities. The Fund may incur lending fees and other costs in
connection with securities lending, and securities lending is subject to the
risk of default by the other party.
The Fund may invest up to 15% of the Fund's net assets in illiquid securities
and certain restricted securities. Notwithstanding the foregoing, the Fund may
not invest more than 10% of its total assets in securities subject to legal or
contractual restrictions on resale. Such securities may be difficult or
impossible to sell at the time and the price that the Fund would like. Thus, the
Fund may have to sell such securities at a lower price, sell other securities
instead to obtain cash or forego other investment opportunities.
Further information about these types of investments and other investment
practices that may be used by the Fund is contained in the Statement of
Additional Information.
The Fund may sell securities without regard to the length of time they have been
held in order to take advantage of new investment opportunities or when the
Fund's investment adviser believes the potential for capital appreciation has
lessened or for other reasons. The Fund's portfolio turnover is shown under the
heading "Financial Highlights." The portfolio turnover rate may be expected to
vary from year to year. A high portfolio turnover rate (100% or more) increases
the Fund's transactions costs, (including brokerage commissions or dealer
costs), and a high portfolio turnover rate may result in the realization of more
short-term capital gains than if the Fund had a lower portfolio turnover rate.
Increases in the Fund's transaction costs would adversely impact the Fund's
performance. The turnover rate will not be a limiting factor, however, if the
Fund's investment adviser considers portfolio changes appropriate.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Fund may on a temporary basis hold cash or invest a
portion or all of its assets in money-market instruments including obligations
of the U.S. government, its agencies or instrumentalities, obligations of
foreign sovereignties, other high-quality debt securities, including prime
commercial paper, repurchase agreements and bank obligations, such as bankers'
acceptances and certificates of deposit (including Eurodollar certificates of
deposit). Under normal market conditions, the potential for capital appreciation
on these securities will tend to be lower than the potential for capital
appreciation on other securities that may be owned by the Fund. In taking such a
defensive position, the Fund would not be pursuing and may not achieve its
investment objective.
YEAR 2000 RISKS. Like other mutual funds, financial and business organizations
and individuals around the world, the Fund could be adversely affected if the
computer systems used by the Fund's investment adviser, subadviser and other
service providers do not properly process and calculate date-related information
and data from and after January 1, 2000. This is commonly known as the "Year
2000 Problem." The Fund's investment adviser and subadviser are taking steps
that they believe are reasonably designed to address the Year 2000 Problem with
respect to computer systems that they use and to obtain reasonable assurances
that comparable steps are being taken by the Fund's other major service
providers. At this time, there can be no assurances that these steps will be
sufficient to avoid any adverse impact to the Fund. In addition, the Year 2000
Problem may adversely affect the markets and the issuers of securities in which
the Fund may invest which, in turn, may adversely affect the net asset value of
shares of the Fund. Improperly functioning
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trading systems may result in settlement problems and liquidity issues. In
addition, corporate and governmental data processing errors may result in
production problems for individual companies or issuers and overall economic
uncertainty. Earnings of individual issuers will be affected by remediation
costs, which may be substantial and may be reported inconsistently in U.S. and
foreign financial statements. Efforts in foreign countries to remediate the
potential Year 2000 Problem may not be as extensive as those in the U.S. As a
result, the operations of foreign markets and issuers may be disrupted by the
Year 2000 Problem which could adversely affect the Fund's portfolio. The risks
are greater with respect to certain developing or emerging market countries
because there is an increased likelihood that issuers of securities of such
countries cannot anticipate or effectively manage the effects of computer
programs and the Year 2000 Problem. Accordingly, the Fund's investments may be
adversely affected. The statements above are subject to the Year 2000
Information and Readiness Disclosure Act which may limit the legal rights
regarding the use of such statements in the case of a dispute.
INVESTMENT ADVISORY
SERVICES
INVESTMENT ADVISER
Van Kampen Investment Advisory Corp. is the investment adviser (the "Adviser" or
"Advisory Corp.") and administrator of the Fund. The Adviser is a wholly owned
subsidiary of Van Kampen Investments Inc. ("Van Kampen Investments"). Van Kampen
Investments is a diversified asset management company with more than two million
retail investor accounts, extensive capabilities for managing institutional
portfolios, and more than $79 billion under management or supervision as of
September 30, 1999. Van Kampen Investments' more than 50 open-end and 39
closed-end funds and more than 2,500 unit investment trusts are professionally
distributed by leading authorized dealers nationwide. Van Kampen Funds Inc., the
distributor of the Fund (the "Distributor") and the sponsor of the funds
mentioned above, is also a wholly owned subsidiary of Van Kampen Investments.
Van Kampen Investments is an indirect wholly owned subsidiary of Morgan Stanley
Dean Witter & Co. The Adviser's principal office is located at 1 Parkview Plaza,
PO Box 5555, Oakbrook Terrace, Illinois 60181-5555.
ADVISORY AGREEMENT AND ADMINISTRATION AGREEMENT. The Fund retains the Adviser to
manage the investment of its assets and to place orders for the purchase and
sale of its portfolio securities. Under an investment advisory agreement between
the Adviser and the Fund (the "Advisory Agreement"), the Fund pays the Adviser a
monthly fee computed based upon an annual rate of 1.00% applied to the average
daily net assets of the Fund.
The Fund also retains the Adviser to provide administrative services for the
Fund's day-to-day operations. Under an administration agreement between the Fund
and the Adviser, the Fund pays a monthly administration fee computed based upon
an annual rate of 0.25% applied to the average daily net assets of the Fund.
The Adviser furnishes offices, necessary facilities and equipment, provides
administrative services, and permits its officers and employees to serve without
compensation as directors or officers of the Fund if elected to such positions.
The Fund pays all charges and expenses of its day-to-day operations, including
the compensation of directors of the Fund (other than those who are affiliated
persons of the Adviser, Distributor or Van Kampen Investments), the charges and
expenses of legal counsel and independent accountants, distribution fees,
service fees, custodian fees, the costs of providing reports to shareholders,
and all other ordinary business expenses not specifically assumed by the
Adviser.
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen Asset Management
Inc. ("Asset Management").
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INVESTMENT SUBADVISER
Morgan Stanley Dean Witter Investment Management Inc. (the "Subadviser") is the
Subadviser of the Fund. The Subadviser is a wholly owned subsidiary of Morgan
Stanley Dean Witter & Co., and is an affiliate of the Adviser. The Subadviser
conducts a worldwide portfolio management business and provides a broad range of
portfolio management services to customers in the United States and abroad. At
June 30, 1999, the Subadviser, together with its affiliated institutional asset
management companies, managed assets of approximately $175.3 billion, including
assets under fiduciary advice. The Subadviser's principal office is located at
1221 Avenue of the Americas, New York, New York 10020. On December 1, 1998,
Morgan Stanley Asset Management Inc. changed its name to Morgan Stanley Dean
Witter Investment Management Inc. but continues to do business in certain
instances using the name Morgan Stanley Asset Management.
SUBADVISORY AGREEMENT. The Adviser has entered into a subadvisory agreement with
the Subadviser to assist the Adviser in performing its investment advisory
functions. The Adviser pays the Subadviser on a monthly basis a portion of the
net advisory fees the Adviser receives from the Fund.
GENERAL
From time to time, the Adviser, the Subadviser or the Distributor may
voluntarily undertake to reduce the Fund's expenses by reducing the fees payable
to them or by reducing other expenses of the Fund in accordance with such
limitations as the Adviser, the Subadviser or Distributor may establish.
PERSONAL INVESTMENT POLICIES. The Fund, the Adviser and the Subadviser have
adopted Codes of Ethics designed to recognize the fiduciary relationship among
the Fund, the Adviser and the Subadviser and their respective employees. The
Codes of Ethics permit directors, trustees, officers and employees to buy and
sell securities for their personal accounts subject to certain restrictions.
Persons with access to certain sensitive information are subject to
pre-clearance and other procedures designed to prevent conflicts of interest.
PORTFOLIO MANAGEMENT. Margaret Naylor and Alastair Anderson are responsible as
comanagers for the day-to-day management of the Fund's investment portfolio.
Ms. Naylor is a Managing Director of the Subadviser and Morgan Stanley Dean
Witter & Co. Prior to joining the Subadviser in 1987, she spent three years at
the Trade Policy Research Centre, an independent research unit. Ms. Naylor is a
graduate of the University of York, Toronto, Canada. Ms. Naylor has been
comanager of the Fund since April 1999.
Mr. Anderson joined the Subadviser in June 1994 and became a Vice President in
December 1996. Prior to joining the Subadviser, he worked from 1992 to 1994 at
Deloitte & Touche LLP as a trainee chartered accountant. Mr. Anderson is a
commerce graduate of the University of Cape Town, South Africa. Mr. Anderson has
assisted in managing the Fund's assets since May 1998 and has been comanager of
the Fund since January 1998.
PURCHASE OF SHARES
GENERAL
The Fund offers three classes of shares designated as Class A Shares, Class B
Shares and Class C Shares. By offering three classes of shares, the Fund permits
each investor to choose the class of shares that is most beneficial given the
amount to be invested and the length of time the investor expects to hold the
shares.
Initial investments must be at least $1,000 for each class of shares, and
subsequent investments must be at least $25 for each class of shares. Both
minimums may be waived by the Distributor for plans involving periodic
investments.
Each class of shares represents an interest in the same portfolio of investments
of the Fund and has the same rights except that (i) Class A Shares generally
bear the sales charge expenses at the time of purchase while Class B Shares and
Class C Shares bear the sales charge expenses at the time of
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redemption and any expenses (including higher distribution fees and transfer
agency costs) resulting from such deferred sales charge arrangement,
(ii) generally, each class of shares has exclusive voting rights with respect to
approvals of the Rule 12b-1 distribution plan and service plan (each as
described below) under which its distribution fee or service fee is paid,
(iii) each class of shares has different exchange privileges, (iv) certain
classes of shares are subject to a conversion feature and (v) certain classes of
shares have different shareholder service options available.
The offering price of the Fund's shares is based upon the Fund's net asset value
per share (plus sales charges, where applicable). The net asset values per share
of the Class A Shares, Class B Shares and Class C Shares are generally expected
to be substantially the same. In certain circumstances, however, the per share
net asset values of the classes of shares may differ from one another,
reflecting the daily expense accruals of the higher distribution fees and
transfer agency costs applicable to the Class B Shares and Class C Shares and
the differential in the dividends that may be paid on each class of shares.
The net asset value per share for each class of shares of the Fund is determined
once daily as of the close of trading on the New York Stock Exchange (the
"Exchange") (currently 4:00 p.m., New York time) each day the Exchange is open
for trading except on any day on which no purchase or redemption orders are
received or there is not a sufficient degree of trading in the Fund's portfolio
securities such that the Fund's net asset value per share might be materially
affected. The Fund's Board of Directors reserves the right to calculate the net
asset value per share and adjust the offering price based thereon more
frequently than once daily if deemed desirable. Net asset value per share for
each class is determined by dividing the value of the Fund's portfolio
securities, cash and other assets (including accrued interest) attributable to
such class, less all liabilities (including accrued expenses) attributable to
such class, by the total number of shares of the class outstanding. Such
computation is made by using prices as of the close of trading on the Exchange
and (i) valuing securities listed or traded on a national securities exchange at
the closing price, or, if no closing price is available, at the last reported
sale price and, if there has been no sale that day, at the mean between the last
reported bid and asked prices, (ii) valuing over-the-counter securities at the
last reported sale price from the National Association of Securities Dealers
Automated Quotations ("NASDAQ"), (iii) valuing unlisted securities and any
securities for which market quotations are not readily available at the average
of the mean between the current reported bid and asked prices obtained from
reputable brokers and (iv) valuing any other assets at fair value as determined
in good faith by the Adviser in accordance with procedures established by the
Fund's Board of Directors. Debt securities with remaining maturities of 60 days
or less are valued on an amortized cost basis, which approximates market value.
Trading in securities on many foreign securities exchanges (including European
securities exchanges) and over-the-counter markets is normally completed before
the close of business on each U.S. business day. In addition, securities trading
in a particular country or countries may not take place on all U.S. business
days or may take place on days which are not U.S. business days. Changes in
valuations on certain securities may occur at times or on days on which the
Fund's net asset value is not calculated and on which the Fund does not effect
sales, redemptions and exchanges of its shares.
The Fund calculates net asset value per share, and therefore effects sales,
redemptions and exchanges of its shares, as of the close of trading on the
Exchange each day the Exchange is open for trading. Such calculation does not
take place contemporaneously with the determination of the prices of certain
foreign portfolio securities used in such calculation.
If events materially affecting the value of foreign portfolio securities or
other portfolio securities occur between the time when their price is determined
and the time when the Fund's net asset value is calculated, such securities may
be valued at fair value as determined in good faith by the Adviser based in
accordance with procedures established by the Fund's Board of Directors.
The Fund has adopted a distribution plan (the "Distribution Plan") with respect
to each class of its shares pursuant to Rule 12b-1 under the 1940 Act.
13
<PAGE>
The Fund also has adopted a service plan (the "Service Plan") with respect to
each class of its shares. Under the Distribution Plan and the Service Plan, the
Fund pays distribution fees in connection with the sale and distribution of its
shares and service fees in connection with the provision of ongoing services to
shareholders of each class.
The amount of distribution and service fees varies among the classes offered by
the Fund. Because these fees are paid out of the Fund's assets on an ongoing
basis, these fees will increase the cost of your investment in the Fund. By
purchasing a class of shares subject to higher distribution and service fees,
you may pay more over time than on a class of shares with other types of sales
charge arrangements. Long-term shareholders may pay more than the economic
equivalent of the maximum front-end sales charges permitted by the rules of the
National Association of Securities Dealers, Inc. ("NASD"). The net income
attributable to a class of shares will be reduced by the amount of the
distribution fees and other expenses of the Fund associated with such class of
shares. To assist investors in comparing classes of shares, the tables under the
heading "Fees and Expenses of the Fund" provide a summary of sales charges and
expenses and an example of the sales charges and expenses of the Fund applicable
to each class of shares.
The shares are offered to the public on a continuous basis through the
Distributor as principal underwriter, which is located at 1 Parkview Plaza, PO
Box 5555, Oakbrook Terrace, Illinois 60181-5555. Shares also are offered through
members of the NASD who are acting as securities dealers ("dealers") and NASD
members or eligible non-NASD members who are acting as brokers or agents for
investors ("brokers"). "Dealers" and "brokers" are sometimes referred to herein
as "authorized dealers."
Shares may be purchased on any business day by completing the application
accompanying this prospectus and forwarding the application, directly or through
an authorized dealer, to the Fund's shareholder service agent, Van Kampen
Investor Services Inc. ("Investor Services"), a wholly owned subsidiary of Van
Kampen Investments. When purchasing shares of the Fund, investors must specify
whether the purchase is for Class A Shares, Class B Shares or Class C Shares.
Sales personnel of authorized dealers distributing the Fund's shares are
entitled to receive compensation for selling such shares and may receive
differing compensation for selling Class A Shares, Class B Shares or Class C
Shares.
The offering price for shares is based upon the next calculation of net asset
value per share (plus sales charges, where applicable) after an order is
received by Investor Services. Orders received by authorized dealers prior to
the close of the Exchange are priced based on the date of receipt provided such
order is transmitted to Investor Services prior to Investor Services' close of
business on such date. Orders received by authorized dealers after the close of
the Exchange or transmitted to Investor Services after its close of business are
priced based on the date of the next computed net asset value per share provided
they are received by Investor Services prior to Investor Services' close of
business on such date. It is the responsibility of authorized dealers to
transmit orders received by them to Investor Services so they will be received
in a timely manner.
The Fund and the Distributor reserve the right to refuse any order for the
purchase of shares. The Fund also reserves the right to suspend the sale of the
Fund's shares in response to conditions in the securities markets or for other
reasons. Shares of the Fund may be sold in foreign countries where permissible.
Investor accounts will automatically be credited with additional shares of the
Fund after any Fund distributions, such as dividends and capital gain dividends,
unless the investor instructs the Fund otherwise. Investors wishing to receive
cash instead of additional shares should contact the Fund at (800) 341-2911 or
by writing to the Fund, c/o Van Kampen Investors Services Inc., PO Box 218256,
Kansas City, MO 64121-8256.
CLASS A SHARES
Class A Shares of the Fund are sold at net asset value plus an initial maximum
sales charge of up to 5.75% of the offering price (or 6.10% of the net
14
<PAGE>
amount invested), reduced on investments of $50,000 or more as follows:
CLASS A SHARES
SALES CHARGE SCHEDULE
<TABLE>
<CAPTION>
AS % OF AS % OF
SIZE OF OFFERING NET AMOUNT
INVESTMENT PRICE INVESTED
- -------------------------------------------------------
<S> <C> <C>
Less than $50,000 5.75% 6.10%
......................................................
$50,000 but less than
$100,000 4.75% 4.99%
......................................................
$100,000 but less than
$250,000 3.75% 3.90%
......................................................
$250,000 but less than
$500,000 2.75% 2.83%
......................................................
$500,000 but less than
$1,000,000 2.00% 2.04%
......................................................
$1,000,000 or more * *
......................................................
</TABLE>
* NO SALES CHARGE IS PAYABLE AT THE TIME OF PURCHASE ON INVESTMENTS OF $1
MILLION OR MORE, ALTHOUGH FOR SUCH INVESTMENTS THE FUND MAY IMPOSE A
CONTINGENT DEFERRED SALES CHARGE OF 1.00% ON CERTAIN REDEMPTIONS MADE
WITHIN ONE YEAR OF THE PURCHASE. THE CONTINGENT DEFERRED SALES CHARGE IS
ASSESSED ON AN AMOUNT EQUAL TO THE LESSER OF THE THEN CURRENT MARKET
VALUE OR THE COST OF THE SHARES BEING REDEEMED. ACCORDINGLY, NO SALES
CHARGE IS IMPOSED ON INCREASES IN NET ASSET VALUE ABOVE THE INITIAL
PURCHASE PRICE.
No sales charge is imposed on Class A Shares received from reinvestment of
dividends or capital gain dividends.
Under the Distribution Plan and Service Plan, the Fund may spend up to a total
of 0.25% per year of the Fund's average daily net assets with respect to the
Class A Shares of the Fund. From such amount, under the Service Plan, the Fund
may spend up to 0.25% per year of the Fund's average daily net assets with
respect to the Class A Shares for the ongoing provision of services to Class A
shareholders by the Distributor and by brokers, dealers or financial
intermediaries and for the maintenance of such shareholders' accounts.
CLASS B SHARES
Class B Shares of the Fund are sold at net asset value and are subject to a
contingent deferred sales charge if redeemed within five years of purchase as
shown in the table as follows:
CLASS B SHARES
SALES CHARGE SCHEDULE
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE
AS A PERCENTAGE OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
- ---------------------------------------
<S> <C>
First 5.00%
......................................
Second 4.00%
......................................
Third 3.00%
......................................
Fourth 2.50%
......................................
Fifth 1.50%
......................................
Sixth and After None
......................................
</TABLE>
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gain dividends. It
is presently the policy of the Distributor not to accept any order for Class B
Shares in an amount of $500,000 or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
The amount of the contingent deferred sales charge, if any, varies depending on
the number of years from the time of payment for the purchase of Class B Shares
until the time of redemption of such shares. Solely for purposes of determining
the number of years from the time of any payment for the purchase of shares, all
payments during a month are totaled and deemed to have been made on the last day
of the month.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed shares being redeemed first are any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge followed by shares held the longest in the shareholder's account.
15
<PAGE>
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
Fund's average daily net assets with respect to the Class B Shares of the Fund.
In addition, under the Service Plan, the Fund may spend up to 0.25% per year of
the Fund's average daily net assets with respect to the Class B Shares for the
ongoing provision of services to Class B shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CLASS C SHARES
Class C Shares of the Fund are sold at net asset value and are subject to a
contingent deferred sales charge of 1.00% of the dollar amount subject to charge
if redeemed within one year of purchase.
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gain dividends. It
is presently the policy of the Distributor not to accept any order for Class C
Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed shares being redeemed first are any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge followed by shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
Fund's average daily net assets with respect to the Class C Shares of the Fund.
In addition, under the Service Plan, the Fund may spend up to 0.25% per year of
the Fund's average daily net assets with respect to the Class C Shares for the
ongoing provision of services to Class C shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CONVERSION FEATURE
Class B Shares and any dividend reinvestment plan Class B Shares received on
such shares, automatically convert to Class A Shares eight years after the end
of the calendar month in which the shares were purchased. Such conversion will
be on the basis of the relative net asset values per share, without the
imposition of any sales load, fee or other charge. The conversion schedule
applicable to a share of the Fund acquired through the exchange privilege from
another Van Kampen fund participating in the exchange program is determined by
reference to the Van Kampen fund from which such share was originally purchased.
The conversion of such shares to Class A Shares is subject to the continuing
availability of an opinion of counsel to the effect that (i) the assessment of
the higher distribution fee and transfer agency costs with respect to such
shares does not result in the Fund's dividends or capital gain dividends
constituting "preferential dividends" under the federal income tax law and
(ii) the conversion of shares does not constitute a taxable event under federal
income tax law. The conversion may be suspended if such an opinion is no longer
available and such shares might continue to be subject to the higher aggregate
fees applicable to such shares for an indefinite period.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge is waived on redemptions of Class B Shares
and Class C Shares (i) within one year following the death or disability (as
disability is defined by federal income tax law) of a shareholder, (ii) for
required minimum distributions from an individual retirement account ("IRA") or
certain other retirement plan distributions, (iii) for withdrawals under the
Fund's systematic withdrawal plan but limited to 12% annually of the initial
value of the account, (iv) if no commission or transaction fee is paid to
authorized dealers at the time of purchase of such shares and (v) if made by
involuntary liquidation by the Fund of a shareholder's account as described
under the heading "Redemption of Shares." Subject to certain limitations, a
shareholder who has redeemed Class C Shares of the Fund may reinvest in Class C
Shares at net asset value with credit for any contingent deferred sales charge
if the reinvestment is made
16
<PAGE>
within 180 days after the redemption. For a more complete description of
contingent deferred sales charge waivers, please refer to the Fund's Statement
of Additional Information or contact your authorized dealer.
QUANTITY DISCOUNTS
Investors purchasing Class A Shares may, under certain circumstances described
below, be entitled to pay reduced or no sales charges. Investors, or their
authorized dealers, must notify the Fund at the time of the purchase order
whenever a quantity discount is applicable to purchases. Upon such notification,
an investor will receive the lowest applicable sales charge. Quantity discounts
may be modified or terminated at any time. For more information about quantity
discounts, investors should contact their authorized dealer or the Distributor.
A person eligible for a reduced sales charge includes an individual, his or her
spouse and children under 21 years of age and any corporation, partnership or
sole proprietorship which is 100% owned, either alone or in combination, by any
of the foregoing; a trustee or other fiduciary purchasing for a single trust or
for a single fiduciary account, or a "company" as defined in Section 2(a)(8) of
the 1940 Act.
As used herein, "Participating Funds" refers to certain open-end investment
companies advised by Asset Management or Advisory Corp. and distributed by the
Distributor as determined from time to time by the Fund's Board of Directors.
VOLUME DISCOUNTS. The size of investment shown in the Class A Shares sales
charge table applies to the total dollar amount being invested by any person in
shares of the Fund, or in any combination of shares of the Fund and shares of
other Participating Funds, although other Participating Funds may have different
sales charges.
CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the Class A Shares
sales charge table may also be determined by combining the amount being invested
in shares of the Participating Funds plus the current offering price of all
shares of the Participating Funds which have been previously purchased and are
still owned.
LETTER OF INTENT. A Letter of Intent provides an opportunity for an investor to
obtain a reduced sales charge by aggregating the investments over a 13-month
period to determine the sales charge as outlined in the Class A Shares sales
charge table. The size of investment shown in the Class A Shares sales charge
table includes purchases of shares of the Participating Funds over a 13-month
period based on the total amount of intended purchases plus the value of all
shares of the Participating Funds previously purchased and still owned. An
investor may elect to compute the 13-month period starting up to 90 days before
the date of execution of a Letter of Intent. Each investment made during the
period receives the reduced sales charge applicable to the total amount of the
investment goal. The initial purchase must be for an amount equal to at least 5%
of the minimum total purchase amount of the level selected. If trades not
initially made under a Letter of Intent subsequently qualify for a lower sales
charge through the 90-day backdating provisions, an adjustment will be made at
the time of the expiration of the Letter of Intent to give effect to the lower
charge. Such adjustment in sales charge will be used to purchase additional
shares for the shareholder at the applicable discount category. The Fund
initially will escrow shares totaling 5% of the dollar amount of the Letter of
Intent to be held by Investor Services in the name of the shareholder. In the
event the Letter of Intent goal is not achieved within the specified period, the
investor must pay the difference between the sales charge applicable to the
purchases made and the reduced sales charge previously paid. Such payments may
be made directly to the Distributor or, if not paid, the Distributor will
liquidate sufficient escrowed shares to obtain the difference.
OTHER PURCHASE PROGRAMS
Purchasers of Class A Shares may be entitled to reduced or no initial sales
charges in connection with the unit investment trust reinvestment program and
purchases by registered representatives of selling firms or purchases by persons
affiliated with the Fund or the Distributor. The Fund reserves the right to
modify or terminate these arrangements at any time.
17
<PAGE>
UNIT INVESTMENT TRUST REINVESTMENT PROGRAM. The Fund permits unitholders of unit
investment trusts to reinvest distributions from such trusts in Class A Shares
of the Fund at net asset value per share and with no minimum initial or
subsequent investment requirement, if the administrator of an investor's unit
investment trust program meets certain uniform criteria relating to cost savings
by the Fund and the Distributor. The total sales charge for all other
investments made from unit investment trust distributions will be 1.00% of the
offering price (1.01% of net asset value). Of this amount, the Distributor will
pay to the authorized dealer, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the terms and conditions that apply to the program,
should contact their authorized dealer or the Distributor.
The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during each distribution period by all investors who choose to invest in
the Fund through the program and (2) provide Investor Services with appropriate
backup data for each investor participating in the program in a computerized
format fully compatible with Investor Services' processing system.
In order to obtain these special benefits, all dividends and other distributions
by the Fund must be reinvested in additional shares and there can not be any
systematic withdrawal program. There will be no minimum for reinvestments from
unit investment trusts. The Fund will send account activity statements to such
participants on a quarterly basis only, even if their investments are made more
frequently. The Fund reserves the right to modify or terminate this program at
any time.
NET ASSET VALUE PURCHASE OPTIONS. Class A Shares of the Fund may be purchased at
net asset value, upon written assurance that the purchase is made for investment
purposes and that the shares will not be resold except through redemption by the
Fund, by:
(1) Current or retired trustees or directors of funds advised by Morgan Stanley
Dean Witter & Co. and any of its subsidiaries and such persons' families
and their beneficial accounts.
(2) Current or retired directors, officers and employees of Morgan Stanley Dean
Witter & Co. and any of its subsidiaries; employees of an investment
subadviser to any fund described in (1) above or an affiliate of such
subadviser; and such persons' families and their beneficial accounts.
(3) Directors, officers, employees and, when permitted, registered
representatives, of financial institutions that have a selling group
agreement with the Distributor and their spouses and children under 21
years of age when purchasing for any accounts they beneficially own, or, in
the case of any such financial institution, when purchasing for retirement
plans for such institution's employees; provided that such purchases are
otherwise permitted by such institutions.
(4) Registered investment advisers who charge a fee for their services, trust
companies and bank trust departments investing on their own behalf or on
behalf of their clients. The Distributor may pay authorized dealers through
which purchases are made an amount up to 0.50% of the amount invested, over
a 12-month period.
(5) Trustees and other fiduciaries purchasing shares for retirement plans which
invest in multiple fund families through broker-dealer retirement plan
alliance programs that have entered into agreements with the Distributor
and which are subject to certain minimum size and operational requirements.
Trustees and other fiduciaries should refer to the Statement of Additional
Information for further details with respect to such alliance programs.
(6) Beneficial owners of shares of Participating Funds held by a retirement
plan or held in a tax-advantaged retirement account who purchase shares of
the Fund with proceeds from distributions from such a plan or retirement
account other than distributions taken to correct an excess contribution.
18
<PAGE>
(7) Accounts as to which a bank or broker-dealer charges an account management
fee ("wrap accounts"), provided the bank or broker-dealer has a separate
agreement with the Distributor.
(8) Trusts created under pension, profit sharing or other employee benefit
plans qualified under Section 401(a) of the Internal Revenue Code of 1986,
as amended (the "Code"), or custodial accounts held by a bank created
pursuant to Section 403(b) of the Code and sponsored by nonprofit
organizations defined under Section 501(c)(3) of the Code and assets held
by an employer or trustee in connection with an eligible deferred
compensation plan under Section 457 of the Code. Such plans will qualify
for purchases at net asset value provided, for plans initially establishing
accounts with the Distributor in the Participating Funds after February 1,
1997, that (1) the initial amount invested in the Participating Funds is at
least $500,000 or (2) such shares are purchased by an employer sponsored
plan with more than 100 eligible employees. Such plans that have been
established with a Participating Fund or have received proposals from the
Distributor prior to February 1, 1997 based on net asset value purchase
privileges previously in effect will be qualified to purchase shares of the
Participating Funds at net asset value for accounts established on or
before May 1, 1997. Section 403(b) and similar accounts for which Van
Kampen Trust Company serves as custodian will not be eligible for net asset
value purchases based on the aggregate investment made by the plan or the
number of eligible employees, except under certain uniform criteria
established by the Distributor from time to time. Prior to February 1,
1997, a commission will be paid to authorized dealers who initiate and are
responsible for such purchases within a rolling twelve- month period as
follows: 1.00% on sales to $5 million, plus 0.50% on the next $5 million,
plus 0.25% on the excess over $10 million. For purchases on February 1,
1997 and thereafter, a commission will be paid as follows: 1.00% on sales
to $2 million, plus 0.80% on the next $1 million, plus 0.50% on the next
$47 million, plus 0.25% on the excess over $50 million.
(9) Individuals who are members of a "qualified group." For this purpose, a
qualified group is one which (i) has been in existence for more than six
months, (ii) has a purpose other than to acquire shares of the Fund or
similar investments, (iii) has given and continues to give its endorsement
or authorization, on behalf of the group, for purchase of shares of the
Fund and Participating Funds, (iv) has a membership that the authorized
dealer can certify as to the group's members and (v) satisfies other
uniform criteria established by the Distributor for the purpose of
realizing economies of scale in distributing such shares. A qualified group
does not include one whose sole organizational nexus, for example, is that
its participants are credit card holders of the same institution, policy
holders of an insurance company, customers of a bank or broker-dealer,
clients of an investment adviser or other similar groups. Shares purchased
in each group's participants account in connection with this privilege will
be subject to a contingent deferred sales charge of 1.00% in the event of
redemption within one year of purchase, and a commission will be paid to
authorized dealers who initiate and are responsible for such sales to each
individual as follows: 1.00% on sales to $2 million, plus 0.80% on the next
$1 million and 0.50% on the excess over $3 million.
The term "families" includes a person's spouse, children under 21 years of age
and grandchildren, parents, and a person's spouse's parents.
Purchase orders made pursuant to clause (4) may be placed either through
authorized dealers as described above or directly with Investor Services by the
investment adviser, trust company or bank trust department, provided that
Investor Services receives federal funds for the purchase by the close of
business on the next business day following acceptance of the order. An
authorized dealer may charge a transaction fee for placing an order to purchase
shares pursuant to this provision or for placing a redemption order with respect
to such shares. Authorized dealers will be paid a service fee as described above
on purchases made under options (3) through (9) above. The Fund may terminate,
or amend the terms of, offering shares of the Fund at net asset value to such
groups at any time.
19
<PAGE>
REDEMPTION OF
SHARES
Generally shareholders may redeem for cash some or all of their shares without
charge by the Fund (other than applicable sales charge) at any time. As
described under the heading "Purchase of Shares," redemptions of Class B Shares
and Class C Shares may be subject to a contingent deferred sales charge. In
addition, certain redemptions of Class A Shares for shareholder accounts of $1
million or more may be subject to a contingent deferred sales charge.
Redemptions completed through an authorized dealer or a custodian of a
retirement plan account may involve additional fees charged by the dealer or
custodian.
Except as specified below under "Telephone Redemption Requests," payment for
shares redeemed generally will be made by check mailed within seven days after
receipt by Investor Services of the request and any other necessary documents in
proper form as described below. Such payment may be postponed or the right of
redemption suspended as provided by the rules of the SEC. Such payment may,
under certain circumstances, be paid wholly or in part by a distribution-in-kind
of portfolio securities which may result in brokerage costs and a gain or loss
for federal income tax purposes when such securities are sold. If the shares to
be redeemed have been recently purchased by check, Investor Services may delay
the payment of redemption proceeds until it confirms the purchase check has
cleared, which may take up to 15 days. A taxable gain or loss will be recognized
by the shareholder upon redemption of shares.
WRITTEN REDEMPTION REQUESTS. Shareholders may request a redemption of shares by
written request in proper form sent directly to Van Kampen Investor Services
Inc., PO Box 218256, Kansas City, MO 64121-8256. The request for redemption
should indicate the number of shares to be redeemed, the class designation of
such shares and the shareholder's account number. The redemption request must be
signed by all persons in whose names the shares are registered. Signatures must
conform exactly to the account registration. If the proceeds of the redemption
exceed $50,000, or if the proceeds are not to be paid to the record owner at the
record address, or if the record address has changed within the previous 30
days, signature(s) must be guaranteed by one of the following: a bank or trust
company; a broker-dealer; a credit union; a national securities exchange,
registered securities association or clearing agency; a savings and loan
association; or a federal savings bank.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption to be in proper form. In some
cases, however, additional documents may be necessary. In the case of
shareholders holding certificates, the certificates for the shares being
redeemed properly endorsed for transfer must accompany the redemption request.
In the event the redemption is requested by a corporation, partnership, trust,
fiduciary, executor or administrator, and the name and title of the
individual(s) authorizing such redemption is not shown in the account
registration, a copy of the corporate resolution or other legal documentation
appointing the authorized signer and certified within the prior 120 days must
accompany the redemption request. IRA redemption requests should be sent to the
IRA custodian to be forwarded to Investor Services. Contact the IRA custodian
for further information.
In the case of written redemption requests sent directly to Investor Services,
the redemption price is the net asset value per share next determined after the
request in proper form is received by Investor Services.
AUTHORIZED DEALER REDEMPTION REQUESTS. Shareholders may place redemption
requests through an authorized dealer. Orders sent through authorized dealers
must be at least $500 (unless transmitted by your authorized dealer via the
FUNDSERV network). The redemption price for such shares is the net asset value
per share next calculated after an order in proper form is received by an
authorized dealer provided such order is transmitted to the Distributor prior to
the Distributor's close of business on such day. It is the responsibility of
authorized dealers to transmit redemption requests received by them to the
Distributor so they will be received prior to such time. Redemptions completed
20
<PAGE>
through an authorized dealer may involve additional fees charged by the dealer.
TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. A shareholder
automatically has telephone redemption privileges unless the shareholder
indicates otherwise by checking the applicable box on the application form
accompanying the prospectus. To redeem shares, contact the telephone transaction
line at (800) 421-5684. Van Kampen Investments, Investor Services and the Fund
employ procedures considered by them to be reasonable to confirm that
instructions communicated by telephone are genuine. Such procedures include
requiring certain personal identification information prior to acting upon
telephone instructions, tape-recording telephone communications and providing
written confirmation of instructions communicated by telephone. If reasonable
procedures are employed, none of Van Kampen Investments, Investor Services or
the Fund will be liable for following telephone instructions which it reasonably
believes to be genuine. Telephone redemptions may not be available if the
shareholder cannot reach Investor Services by telephone, whether because all
telephone lines are busy or for any other reason; in such case, a shareholder
would have to use the Fund's other redemption procedure previously described.
Requests received by Investor Services prior to 4:00 p.m., New York time, will
be processed at the next determined net asset value per share. These privileges
are available for all accounts other than retirement accounts or accounts with
shares represented by certificates. If an account has multiple owners, Investor
Services may rely on the instructions of any one owner.
For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check and amounts of at least
$1,000 up to $1 million may be redeemed daily if the proceeds are to be paid by
wire. The proceeds must be payable to the shareholder(s) of record and sent to
the address of record for the account or wired directly to their predesignated
bank account. This privilege is not available if the address of record has been
changed within 30 days prior to a telephone redemption request. Proceeds from
redemptions payable by wire transfer are expected to be wired on the next
business day following the date of redemption. The Fund reserves the right at
any time to terminate, limit or otherwise modify this redemption privilege.
OTHER REDEMPTION INFORMATION. The Fund may redeem shares of any shareholder
account that has a value on the date of the notice of redemption less than the
minimum initial investment as specified in this prospectus. At least 60 days
advance written notice of any such involuntary redemption will be provided to
the shareholder and such shareholder will be given an opportunity to purchase
the required value of additional shares at the next determined net asset value
without sales charge. Any involuntary redemption may only occur if the
shareholder account is less than the minimum initial investment due to
shareholder redemptions.
DISTRIBUTIONS FROM
THE FUND
In addition to any increase in the value of shares which the Fund may achieve,
shareholders may receive distributions from the Fund of dividends and capital
gain dividends.
DIVIDENDS. Dividends from stocks and interest earned from other investments are
the Fund's main sources of income. The Fund's present policy, which may be
changed at any time by the Board of Directors, is to distribute all or
substantially all of this income, less expenses, at least annually as dividends
to shareholders. Dividends are automatically applied to purchase additional
shares of the Fund at the next determined net asset value unless the shareholder
instructs otherwise.
The per share dividends on Class B Shares and Class C Shares may be lower than
the per share dividends on Class A Shares as a result of the higher distribution
fees and transfer agency costs applicable to such classes of shares.
CAPITAL GAIN DIVIDENDS. The Fund may realize capital gains or losses when it
sells securities, depending on whether the sales prices for the securities are
21
<PAGE>
higher or lower than purchase prices. Net realized capital gain represents the
total profits from sales of securities minus total losses from sales of
securities (including any losses carried forward from prior years), other than
net short-term capital gain from sales of securities held one year or less. The
Fund distributes any taxable net realized capital gain to shareholders as
capital gain dividends at least annually. As in the case of dividends, capital
gain dividends are automatically reinvested in additional shares of the Fund at
the next determined net asset value unless the shareholder instructs otherwise.
SHAREHOLDER SERVICES
Listed below are some of the shareholder services the Fund offers to investors.
For a more complete description of the Fund's shareholder services, such as
investment accounts, share certificates, retirement plans, automated clearing
house deposits, dividend diversification and the systematic withdrawal plan,
please refer to the Statement of Additional Information or contact your
authorized dealer.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gain dividends in shares of the
Fund. Such shares are acquired at net asset value per share (without sales
charge) on the applicable payable date of the dividend or capital gain dividend.
Unless the shareholder instructs otherwise, the reinvestment plan is automatic.
This instruction may be made by telephone by calling (800) 341-2911
((800) 421-2833 for the hearing impaired) or by writing to Investor Services.
The investor may, on the initial application or prior to any declaration,
instruct that dividends be paid in cash and capital gain dividends be reinvested
at net asset value, or that both dividends and capital gain dividends be paid in
cash.
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under which
a shareholder can authorize Investor Services to charge a bank account on a
regular basis to invest predetermined amounts in the Fund. Additional
information is available from the Distributor or your authorized dealer.
EXCHANGE PRIVILEGE. Shares of the Fund may be exchanged for shares of the same
class of any Participating Fund based on the next computed net asset value per
share of each fund after requesting the exchange without any sales charge,
subject to certain limitations. Shares of the Fund may be exchanged for shares
of any Participating Fund only if shares of that Participating Fund are
available for sale; however, during periods of suspension of sales, shares of a
Participating Fund may be available for sale only to existing shareholders of a
Participating Fund. Shareholders seeking an exchange into a Participating Fund
should obtain and read the current prospectus for such fund prior to
implementing an exchange. A prospectus of any of the Participating Funds may be
obtained from any authorized dealer or the Distributor.
To be eligible for exchange, shares of the Fund must have been registered in the
shareholder's name for at least 30 days prior to an exchange. Shares of the Fund
registered in a shareholder's name for less than 30 days may only be exchanged
upon receipt of prior approval of the Adviser. It is the policy of the Adviser,
under normal circumstances, not to approve such requests.
When shares that are subject to a contingent deferred sales charge are exchanged
among Participating Funds, the holding period for purposes of computing the
contingent deferred sales charge is based upon the date of the initial purchase
of such shares from a Participating Fund. When such shares are redeemed and not
exchanged for shares of another Participating Fund, the shares are subject to
the contingent deferred sales charge schedule imposed by the Participating Fund
from which such shares were originally purchased.
Exchanges of shares are sales of one Participating Fund and purchases of another
Participating Fund. The sale may result in a gain or loss for federal income tax
purposes. If the shares sold have been held for less than 91 days, the sales
charge paid on such shares is carried over and included in the tax basis of the
shares acquired.
A shareholder wishing to make an exchange may do so by sending a written request
to Investor Services or by contacting the telephone transaction line at
(800) 421-5684. A shareholder automatically has
22
<PAGE>
telephone exchange privileges unless the shareholder indicates otherwise by
checking the applicable box on the application form accompanying the prospectus.
Van Kampen Investments, Investor Services and the Fund employ procedures
considered by them to be reasonable to confirm that instructions communicated by
telephone are genuine. Such procedures include requiring certain personal
identification information prior to acting upon telephone instructions,
tape-recording telephone communications, and providing written confirmation of
instructions communicated by telephone. If reasonable procedures are employed,
none of Van Kampen Investments, Investor Services or the Fund will be liable for
following telephone instructions which it reasonably believes to be genuine. If
the exchanging shareholder does not have an account in the fund whose shares are
being acquired, a new account will be established with the same registration,
dividend and capital gain dividend options (except dividend diversification) and
authorized dealer of record as the account from which shares are exchanged,
unless otherwise specified by the shareholder. In order to establish a
systematic withdrawal plan for the new account or reinvest dividends from the
new account into another fund, however, an exchanging shareholder must submit a
specific request. The Fund reserves the right to reject any order to acquire its
shares through exchange. In addition, the Fund and other Participating Funds may
restrict exchanges by shareholders engaged in excessive trading by limiting or
disallowing the exchange privileges to such shareholders. For further
information on these restrictions see the Statement of Additional Information.
The Fund may modify, restrict or terminate the exchange privilege at any time on
60 days' notice to its shareholders of any termination or material amendment.
For purposes of determining the sales charge rate previously paid on Class A
Shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchanged security was acquired through reinvestment, that
security is deemed to have been sold with a sales charge rate equal to the rate
previously paid on the security on which the dividend or distribution was paid.
If a shareholder exchanges less than all of such shareholder's securities, the
security upon which the highest sales charge rate was previously paid is deemed
exchanged first.
Exchange requests received on a business day prior to the time shares of the
funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares of the fund which the
shareholder is redeeming will be redeemed at the net asset value per share next
determined on the date of receipt. Shares of the new fund that the shareholder
is purchasing will also normally be purchased at the net asset value per share,
plus any applicable sales charge, next determined on the date of receipt.
Exchange requests received on a business day after the time shares of the funds
involved in the request are priced will be processed on the next business day in
the manner described herein.
INTERNET TRANSACTIONS. In addition to performing transactions on your account
through written instruction or by telephone, you may also perform certain
transactions through the internet. Please refer to our web site at
www.vankampen.com for further instruction. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated through the internet are genuine. Such
procedures include requiring use of a personal identification number prior to
acting upon internet instructions and providing written confirmation of
instructions communicated through the internet. If reasonable procedures are
employed, none of Van Kampen Investments, Investor Services or the Fund will be
liable for following instructions received through the internet which it
reasonably believes to be genuine. If an account has multiple owners, Investor
Services may rely on the instructions of any one owner.
FEDERAL INCOME
TAXATION
Distributions of the Fund's net investment income (consisting generally of
taxable income and net short-term capital gain) are taxable to shareholders as
ordinary income to the extent of the Fund's
23
<PAGE>
earnings and profits, whether paid in cash or reinvested in additional shares.
Distributions of the Fund's net realized capital gain (which is the excess of
net long-term capital gain over net short-term capital loss) as capital gain
dividends, if any, are taxable to shareholders as long-term capital gains,
whether paid in cash or reinvested in additional shares, and regardless of how
long the shares of the Fund have been held by such shareholders. The Fund
expects that its distributions will consist primarily of ordinary income and
capital gain dividends. Distributions in excess of the Fund's earnings and
profits will first reduce the adjusted tax basis of a holder's shares and, after
such adjusted tax basis is reduced to zero, will constitute capital gains to
such holder (assuming such shares are held as a capital asset). Although
distributions generally are treated as taxable in the year they are paid,
distributions declared in October, November or December, payable to shareholders
of record on a specified date in such month and paid during January of the
following year will be treated as having been distributed by the Fund and
received by the shareholders on the December 31st prior to the date of payment.
The Fund will inform shareholders of the source and tax status of all
distributions promptly after the close of each calendar year.
The sale or exchange of shares is a taxable transaction for federal income tax
purposes. Shareholders who sell their shares will generally recognize gain or
loss in an amount equal to the difference between their adjusted tax basis in
the shares and the amount received. If the shares are held as a capital asset,
the gain or loss will be a capital gain or loss. Any capital gains may be taxed
at different rates depending on how long the shareholder held such shares.
The Fund is required, in certain circumstances, to withhold 31% of dividends and
certain other payments, including redemptions, paid to shareholders who do not
furnish to the Fund their correct taxpayer identification number (in the case of
individuals, their social security number) and certain required certifications
or who are otherwise subject to backup withholding.
Foreign shareholders, including shareholders who are non-resident aliens, may be
subject to U.S. withholding tax on certain distributions (whether received in
cash or in shares) at a rate of 30% or such lower rate as prescribed by an
applicable treaty. Accordingly, investment in the Fund is likely to be
appropriate for a foreign shareholder only if such person can utilize a foreign
tax credit or corresponding tax benefit in respect of such U.S. withholding tax.
Prospective foreign investors should consult their tax advisers concerning the
tax consequences to them of an investment in shares.
The Fund intends to qualify as a regulated investment company under federal
income tax law. If the Fund so qualifies and distributes each year to its
shareholders at least 90% of its net investment income, the Fund will not be
required to pay federal income taxes on any income it distributes to
shareholders. If the Fund distributes less than an amount equal to the sum of
98% of its ordinary income and 98% of its capital gain net income, then the Fund
will be subject to a 4% excise tax on the undistributed amounts.
The federal income tax discussion set forth above is for general information
only. Prospective investors should consult their own tax advisers regarding the
specific federal tax consequences of purchasing, holding, disposing, exchanging
or selling of shares, as well as the effects of state, local and foreign tax law
and any proposed tax law changes.
24
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the periods indicated. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report, along with the Fund's financial statements, is
included in the Statement of Additional Information and may be obtained by
shareholders without charge by calling the telephone number on the back cover of
this prospectus. This information should be read in conjunction with the
financial statements and notes thereto included in the Statement of Additional
Information.
<TABLE>
<CAPTION>
CLASS A CLASS B
SELECTED PER SHARE DATA AND RATIOS SEPTEMBER 25, 1998* TO JUNE 30, 1999# SEPTEMBER 25, 1998* TO JUNE 30, 1999#
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of Period.... $10.000 $10.000
------- -------
Income From Investment Operations
Net Investment Income/Loss............ 0.133 0.078
Net Realized and Unrealized
Gain/Loss........................... 0.541 0.548
------- -------
Total From Investment Operations........ 0.674 0.626
------- -------
Distributions
Net Investment Income................. (0.025) (0.006)
------- -------
Net Asset Value, End of Period.......... $10.649 $10.620
======= =======
Total Return (1)........................ 6.75%** 6.26%**
======= =======
Ratios and Supplemental Data
Net Assets, End of Period (000's)....... $ 2,020 $ 3,082
Ratio of Expenses to Average Net
Assets.................................. 1.70% 2.45%
Ratio of Net Investment Income/Loss to
Average Net Assets...................... 1.64% 0.96%
Portfolio Turnover Rate................. 51%** 51%**
- ----------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation
During the Period
Per Share Benefit to Net Investment
Income/Loss............................. $ 0.36 $ 0.34
Ratios Before Expense Limitation:
Expenses to Average Net Assets........ 6.20% 6.61%
Net Investment Income/Loss to Average
Net Assets.......................... (2.87)% (3.20)%
<CAPTION>
CLASS C
SELECTED PER SHARE DATA AND RATIOS SEPTEMBER 25, 1998* TO JUNE 30, 1999#
- ---------------------------------------- -------------------------------------
<S> <C>
Net Asset Value, Beginning of Period.... $10.000
-------
Income From Investment Operations
Net Investment Income/Loss............ 0.065
Net Realized and Unrealized
Gain/Loss........................... 0.534
-------
Total From Investment Operations........ 0.599
-------
Distributions
Net Investment Income................. (0.006)
-------
Net Asset Value, End of Period.......... $10.593
=======
Total Return (1)........................ 5.96%**
=======
Ratios and Supplemental Data
Net Assets, End of Period (000's)....... $ 1,457
Ratio of Expenses to Average Net
Assets.................................. 2.45%
Ratio of Net Investment Income/Loss to
Average Net Assets...................... 0.81%
Portfolio Turnover Rate................. 51%**
- ----------------------------------------
Effect of Voluntary Expense Limitation
During the Period
Per Share Benefit to Net Investment
Income/Loss............................. $ 0.40
Ratios Before Expense Limitation:
Expenses to Average Net Assets........ 7.33%
Net Investment Income/Loss to Average
Net Assets.......................... (4.13)%
</TABLE>
* COMMENCEMENT OF OPERATIONS
** NON-ANNUALIZED
(1) TOTAL RETURN IS CALCULATED EXCLUSIVE OF SALES CHARGES OR DEFERRED SALES
CHARGES.
# CHANGES PER SHARE ARE BASED UPON MONTHLY AVERAGE SHARES OUTSTANDING.
25
<PAGE>
BOARD OF DIRECTORS
AND OFFICERS
BOARD OF DIRECTORS
<TABLE>
<S> <C>
J. Miles Branagan Don G. Powell*
Jerry D. Choate Phillip B. Rooney
Richard M. DeMartini* Fernando Sisto
Linda Hutton Heagy Wayne W. Whalen*
R. Craig Kennedy Suzanne H. Woolsey
Jack E. Nelson Paul G. Yovovich
</TABLE>
OFFICERS
Richard F. Powers, III*
PRESIDENT
Dennis J. McDonnell*
EXECUTIVE VICE PRESIDENT & CHIEF INVESTMENT OFFICER
A. Thomas Smith III*
VICE PRESIDENT AND SECRETARY
Edward C. Wood III*
VICE PRESIDENT
Michael H. Santo*
VICE PRESIDENT
Peter W. Hegel*
VICE PRESIDENT
Stephen L. Boyd*
VICE PRESIDENT
Joseph P. Stadler*
VICE PRESIDENT
John L. Sullivan*
VICE PRESIDENT, CHIEF FINANCIAL OFFICER & TREASURER
Curtis W. Morell*
VICE PRESIDENT & CHIEF ACCOUNTING OFFICER
Tanya M. Loden*
CONTROLLER
* "Interested Persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2911
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders, or
redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call
(800) 421-2833
FUNDINFO-REGISTERED TRADEMARK-
For automated telephone services, call (800) 847-2424
WEB SITE
www.vankampen.com
VAN KAMPEN EUROPEAN EQUITY FUND
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
INVESTMENT ADVISER AND ADMINISTRATOR
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
INVESTMENT SUBADVISER
MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC.
1221 Avenue of the Americas
New York, NY 10020
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
TRANSFER AGENT
VAN KAMPEN INVESTOR SERVICES INC.
PO Box 218256
Kansas City, MO 64121-8256
Attn: Van Kampen European Equity Fund
CUSTODIAN
THE CHASE MANHATTAN BANK
3 MetroTech Center
Brooklyn, NY 11245
Attn: Van Kampen European Equity Fund
LEGAL COUNSEL
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
INDEPENDENT ACCOUNTANTS
PRICEWATERHOUSECOOPERS LLP
200 East Randolph Drive
Chicago, IL 60601
<PAGE>
VAN KAMPEN
EUROPEAN EQUITY FUND
PROSPECTUS
OCTOBER 28, 1999
A Statement of Additional Information, which contains more details about the
Fund, is incorporated by reference in its entirety into this prospectus.
You will find additional information about the Fund in its annual and semiannual
reports to shareholders. The annual report explains the market conditions and
investment strategies affecting the Fund's performance during its last fiscal
year.
You can ask questions or obtain a free copy of the Fund's reports or its
Statement of Additional Information by calling (800) 341-2911 from 7:00 a.m. to
7:00 p.m., Central time, Monday through Friday. Telecommunications Device for
the Deaf users may call (800) 421-2833. A free copy of the Fund's reports can
also be ordered from our web site at www.vankampen.com.
Information about the Fund, including its reports and Statement of Additional
Information, has been filed with the Securities and Exchange Commission (SEC).
It can be reviewed and copied at the SEC's Public Reference Room in Washington,
DC or on the EDGAR Database on the SEC's internet site (http://www.sec.gov).
Information on the operation of the SEC's Public Reference Room may be obtained
by calling the SEC at 1-202-942-8090. You can also request copies of these
materials, upon payment of a duplicating fee, by electronic request at the SEC's
e-mail address ([email protected]), or by writing the Public Reference Section
of the SEC, Washington, DC, 20549-6009.
[LOGO]
THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-7140.
EEQ PRO 10/99
<PAGE>
VAN KAMPEN
FOCUS EQUITY FUND
Van Kampen Focus Equity Fund, formerly known as Van Kampen Aggressive Equity
Fund, is a mutual fund with an investment objective to seek to provide capital
appreciation by investing primarily in a non-diversified portfolio of corporate
equity and equity-linked securities.
Shares of the Fund have not been approved or disapproved by the Securities and
Exchange Commission (SEC) or any state regulator, and neither the SEC nor any
state regulator has passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
THIS PROSPECTUS IS DATED OCTOBER 28, 1999.
[LOGO]
<PAGE>
TABLE OF CONTENTS
Risk/Return Summary .....................................................3
Fees and Expenses of the Fund ...........................................5
Investment Objective, Policies and Risks ................................6
Investment Advisory Services ...........................................11
Purchase of Shares .....................................................12
Redemption of Shares ...................................................19
Distributions from the Fund ............................................21
Shareholder Services ...................................................22
Federal Income Taxation ................................................23
Financial Highlights ...................................................25
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations, other than those contained in this
prospectus, in connection with the offer contained in this prospectus and, if
given or made, such other information or representations must not be relied upon
as having been authorized by the Fund, the Fund's investment adviser or the
Fund's distributor. This prospectus does not constitute an offer by the Fund or
by the Fund's distributor to sell or a solicitation of an offer to buy any of
the securities offered hereby in any jurisdiction to any person to whom it is
unlawful for the Fund to make such an offer in such jurisdiction.
<PAGE>
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The Fund is a mutual fund with an investment objective to seek to provide
capital appreciation by investing primarily in a non-diversified portfolio of
corporate equity and equity-linked securities.
INVESTMENT STRATEGIES
Under normal market conditions, the Fund's investment adviser seeks to achieve
the Fund's investment objective by investing at least 65% of the Fund's total
assets in a portfolio of equity and equity-linked securities, including common
and preferred stocks, convertible securities, rights and warrants to purchase
common stocks, depositary receipts, equity-related futures and options and other
specialty securities having equity features. The Fund invests primarily in a
portfolio of growth-oriented companies that exhibit strong or accelerating
earnings growth. The Fund invests primarily in companies with market
capitalizations of $1 billion or more at the time of investment but also may
invest in smaller-sized companies.
The Fund emphasizes individual security selection. The Fund generally focuses
its investments in a relatively small number of companies and may invest up to
25% of its total assets in a single issuer. Portfolio securities are typically
sold when the Fund's investment adviser's assessments for growth of such
securities materially change. The Fund may invest up to 25% of its total assets
in the securities of foreign issuers. The Fund may purchase and sell certain
derivative instruments (such as options, futures, options on futures and forward
contracts), which may subject the Fund to additional risks.
INVESTMENT RISKS
An investment in the Fund is subject to investment risks, and you could lose
money on your investment in the Fund. There can be no assurance that the Fund
will achieve its investment objective.
MARKET RISK. Market risk is the possibility that the market values of securities
owned by the Fund will decline. Market risk may affect a single issuer,
industry, sector of the economy or the market as a whole. Investments in equity
and equity-linked securities generally are affected by changes in the stock
markets, which fluctuate substantially over time, sometimes suddenly and
sharply.
The Fund emphasizes securities of growth-oriented companies. The market values
of such securities may be more volatile than those of other types of
investments. The returns on growth securities may or may not move in tandem with
the returns on other styles of investing or the stock markets. Different types
of stocks tend to shift in and out of favor depending on market and economic
conditions. Thus, the value of the Fund's investments will vary and at times may
be lower or higher than that of other types of funds. During an overall stock
market decline, stock prices of smaller companies (in which the Fund may invest)
often fluctuate more and may fall more than the prices of larger companies.
FOREIGN RISKS. Because the Fund may own securities of foreign issuers, it may be
subject to risks not usually associated with owning securities of U.S. issuers.
These risks can include fluctuations in foreign currencies, foreign currency
exchange controls, political and economic instability, differences in financial
reporting, differences in securities regulation and trading, and foreign
taxation issues.
RISKS OF USING DERIVATIVE INVESTMENTS. In general terms, a derivative investment
is one whose value depends on (or is derived from) the value of an underlying
asset, interest rate or index. Options, futures, options on futures and forward
contracts are examples of derivatives. Derivative investments involve risks
different from direct investment in underlying securities. These risks include
imperfect correlation between the value of the instruments and the underlying
assets; risks of default by the other party to certain transactions; risks that
the transactions may result in losses that partially or completely offset gains
in portfolio positions; risks that the transactions may not be liquid; and
manager risk.
NON-DIVERSIFICATION RISKS. The Fund is classified as a "non-diversified" fund,
which means the Fund may invest a greater portion of its assets in a more
limited number of issuers than a "diversified" fund. As a result, the Fund may
be subject to greater risk than a diversified fund because changes in the
financial condition or market assessment of a single issuer may cause greater
fluctuations in the value of the Fund's shares. In addition, as a result of the
Fund's stock selection process, a significant portion of the
3
<PAGE>
Fund's assets may be invested in companies within the same industries or sectors
of the market. To the extent the Fund focuses its investments in this way, it
may be more susceptible to economic, political, regulatory and other occurrences
influencing those industries or market sectors.
MANAGER RISK. As with any managed fund, the Fund's investment adviser may not be
successful in selecting the best-performing securities or investment techniques
and the Fund's performance may lag behind that of similar funds.
INVESTOR PROFILE
In light of the Fund's investment objective and strategies, the Fund may be
appropriate for investors who:
- - Seek capital appreciation over the long term
- - Do not seek current income from their investment
- - Can withstand substantial volatility in the value of their Fund shares
- - Seek a fund with an investment strategy focused on a relatively small number
of companies
- - Wish to add to their investment portfolio a fund that emphasizes a growth
style of investing in a focused portfolio of equity and equity-linked
securities
An investment in the Fund is not a deposit of any bank or other insured
depository institution. Your investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
An investment in the Fund may not be appropriate for all investors. The Fund is
not intended to be a complete investment program, and investors should consider
their long-term investment goals and financial needs when making an investment
decision about the Fund. An investment in the Fund is intended to be a long-term
investment, and the Fund should not be used as a trading vehicle.
ANNUAL PERFORMANCE
One way to measure the risks of investing in the Fund is to look at how its
performance varies from year-to-year. The following chart shows the annual
returns of the Fund's Class A Shares over the three calendar years prior to the
date of this prospectus. Sales loads are not reflected in this chart. If these
sales loads had been included, the returns shown below would have been lower.
Remember that the past performance of the Fund is not indicative of its future
performance.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
<S> <C>
Annual Return
1996 37.64%
1997 31.70%
1998 14.02%
</TABLE>
The Fund's return for the nine-month period ended September 30, 1999 was 22.37%.
The annual return variability of the Fund's Class B Shares and Class C Shares
would be substantially similar to that shown for the Class A Shares because all
of the Fund's shares are invested in the same portfolio of securities; however,
the actual annual returns of the Class B Shares and Class C Shares would be
lower than the annual returns shown for the Fund's Class A Shares because of
differences in the expenses borne by each class of shares.
During the three-year period shown in the bar chart, the highest quarterly
return was 25.50% (for the quarter ended December 31, 1998) and the lowest
quarterly return was -19.05% (for the quarter ended September 30, 1998).
COMPARATIVE PERFORMANCE
As a basis for evaluating the Fund's performance and risks, the table below
shows how the Fund's performance compares with the Standard & Poor's 500 Index,*
a broad-based market index that the Fund's investment adviser believes is an
appropriate benchmark for the Fund, and with the Lipper Capital Appreciation
Fund Index,** an index of funds with similar investment objectives. The Fund's
performance figures include the maximum sales charges paid by investors. The
indices' performance figures do
4
<PAGE>
not include any commissions or sales charges that would be paid by investors
purchasing the securities represented by those indices. Average annual total
returns are shown for the periods ended December 31, 1998 (the most recently
completed calendar year prior to the date of this prospectus). Remember that the
past performance of the Fund is not indicative of its future performance.
<TABLE>
<CAPTION>
AVERAGE ANNUAL
TOTAL RETURNS
FOR THE
PERIODS ENDED PAST SINCE
DECEMBER 31, 1998 1 YEAR INCEPTION
- ------------------------------------------------------
<S> <C> <C>
Van Kampen Focus Equity
Fund
- -- Class A Shares 7.45% 24.93%(1)
Standard & Poor's 500
Index 28.57% 27.95%(2)
Lipper Capital
Appreciation
Fund Index 19.99% 18.19%(2)
.....................................................
Van Kampen Focus Equity
Fund
- -- Class B Shares 8.18% 25.90%(1)
Standard & Poor's 500
Index 28.57% 27.95%(2)
Lipper Capital
Appreciation
Fund Index 19.99% 18.19%(2)
.....................................................
Van Kampen Focus Equity
Fund
- -- Class C Shares 12.19% 26.49%(1)
Standard & Poor's 500
Index 28.57% 27.95%(2)
Lipper Capital
Appreciation
Fund Index 19.99% 18.19%(2)
.....................................................
</TABLE>
<TABLE>
<S> <C>
INCEPTION DATES: (1) 1/2/96, (2) 12/31/95.
* THE STANDARD & POOR'S 500 INDEX CONSISTS OF 500 WIDELY HELD COMMON
STOCKS OF COMPANIES WITH MARKET CAPITALIZATIONS OF $1 BILLION OR MORE
THAT ARE A REPRESENTATIVE SAMPLE OF APPROXIMATELY 100 INDUSTRIES
CHOSEN MAINLY FOR MARKET SIZE, LIQUIDITY AND INDUSTRY GROUP
REPRESENTATION (ASSUMES DIVIDENDS ARE REINVESTED).
** THE LIPPER CAPITAL APPRECIATION FUND INDEX IS A COMPOSITE OF MUTUAL
FUNDS MANAGED FOR MAXIMUM CAPITAL GAINS.
</TABLE>
FEES AND EXPENSES
OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
- ----------------------------------------------------------------
Maximum sales charge
(load) imposed on
purchases (as a
percentage of offering
price) 5.75%(1) None None
...............................................................
Maximum deferred sales
charge (load) (as a
percentage of the
lesser of original
purchase price or
redemption proceeds) None(2) 5.00%(3) 1.00%(4)
...............................................................
Maximum sales charge
(load) imposed on
reinvested dividends None None None
...............................................................
Redemption fees None None None
...............................................................
Exchange fee None None None
...............................................................
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------
Management Fees(5) 0.90% 0.90% 0.90%
...........................................................
Distribution and/or
Service (12b-1)
Fees(6) 0.25% 1.00%(7) 1.00%(7)
...........................................................
Other Expenses(5) 0.46% 0.46% 0.46%
...........................................................
Total Annual Fund
Operating Expenses(5) 1.61% 2.36% 2.36%
...........................................................
</TABLE>
(1) REDUCED FOR PURCHASES OF $50,000 AND OVER. SEE "PURCHASE OF
SHARES -- CLASS A SHARES."
(2) INVESTMENTS OF $1 MILLION OR MORE ARE NOT SUBJECT TO ANY SALES
CHARGE AT THE TIME OF PURCHASE, BUT A DEFERRED SALES CHARGE OF
1.00% MAY BE IMPOSED ON CERTAIN REDEMPTIONS MADE WITHIN ONE
YEAR OF THE PURCHASE. SEE "PURCHASE OF SHARES -- CLASS A
SHARES."
(3) THE MAXIMUM DEFERRED SALES CHARGE IS 5.00% IN THE FIRST YEAR
AFTER PURCHASE, DECLINING THEREAFTER AS FOLLOWS:
YEAR 1-5.00%
YEAR 2-4.00%
YEAR 3-3.00%
YEAR 4-2.50%
YEAR 5-1.50%
AFTER-NONE
SEE "PURCHASE OF SHARES -- CLASS B SHARES."
(4) THE MAXIMUM DEFERRED SALES CHARGE IS 1.00% IN THE FIRST YEAR
AFTER PURCHASE AND 0.00% THEREAFTER. SEE "PURCHASE OF
SHARES -- CLASS C SHARES."
(5) THE FUND'S INVESTMENT ADVISER IS CURRENTLY WAIVING OR
REIMBURSING A PORTION OF THE FUND'S MANAGEMENT FEES AND OTHER
EXPENSES SUCH THAT THE ACTUAL TOTAL ANNUAL FUND OPERATING
EXPENSES WERE 1.50% FOR CLASS A SHARES, 2.25% FOR CLASS B
SHARES AND 2.25% FOR CLASS C SHARES FOR THE FISCAL YEAR ENDED
JUNE 30, 1999. THE FEE WAIVERS OR EXPENSE REIMBURSEMENTS CAN BE
TERMINATED AT ANY TIME.
(6) CLASS A SHARES ARE SUBJECT TO AN ANNUAL SERVICE FEE OF UP TO
0.25% OF THE AVERAGE DAILY NET ASSETS ATTRIBUTABLE TO SUCH
CLASS OF SHARES. CLASS B SHARES AND CLASS C SHARES ARE EACH
SUBJECT TO A COMBINED ANNUAL DISTRIBUTION AND SERVICE FEE OF UP
TO 1.00% OF THE AVERAGE DAILY NET ASSETS ATTRIBUTABLE TO SUCH
CLASS OF SHARES. SEE "PURCHASE OF SHARES."
(7) BECAUSE DISTRIBUTION AND/OR SERVICE (12b-1) FEES ARE PAID OUT
OF THE FUND'S ASSETS ON AN ONGOING BASIS, OVER TIME THESE FEES
WILL INCREASE THE COST OF YOUR INVESTMENT AND MAY COST YOU MORE
THAN PAYING OTHER TYPES OF SALES CHARGES.
5
<PAGE>
EXAMPLE:
The following example is intended to help you compare the cost of investing in
the Fund with the costs of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same each year (except for the ten-year
amounts for Class B Shares which reflect the conversion of Class B Shares to
Class A Shares after eight years). Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $729 $1,054 $1,401 $2,376
...............................................................
Class B Shares $739 $1,036 $1,410 $2,510*
...............................................................
Class C Shares $339 $ 736 $1,260 $2,696
...............................................................
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $729 $1,054 $1,401 $2,376
...............................................................
Class B Shares $239 $ 736 $1,260 $2,510*
...............................................................
Class C Shares $239 $ 736 $1,260 $2,696
...............................................................
</TABLE>
* BASED ON CONVERSION TO CLASS A SHARES AFTER EIGHT YEARS.
INVESTMENT OBJECTIVE,
POLICIES AND RISKS
The Fund's investment objective is to seek to provide capital appreciation by
investing primarily in a non-diversified portfolio of corporate equity and
equity-linked securities. Any income received from the investment of portfolio
securities is incidental to the Fund's investment objective. The Fund's
investment objective is a fundamental policy and may not be changed without the
approval of a majority of shareholders of the Fund's outstanding voting
securities, as defined in the Investment Company Act of 1940, as amended (the
"1940 Act"). There are risks inherent in all investments in securities;
accordingly, there can be no assurance that the Fund will achieve its investment
objective.
Under normal market conditions, the Fund's investment adviser seeks to achieve
the Fund's investment objective by investing at least 65% of the Fund's total
assets in a portfolio of equity and equity-linked securities, including common
and preferred stocks, convertible securities, rights and warrants to purchase
common stocks, depositary receipts, equity-related futures and options and other
specialty securities having equity features. The Fund invests primarily in a
portfolio of growth-oriented companies with market capitalizations of $1 billion
or more at the time of investment, but also may invest in smaller-sized
companies. The Fund's investment adviser emphasizes a "bottom up" stock
selection process, seeking unusually attractive growth investments on an
individual company basis. In selecting securities for investment, the Fund's
investment adviser seeks to identify those companies with the potential for
consistent or rising earnings growth and compelling business strategies. The
Fund generally focuses its investments in a relatively small number of issuers,
which may result in greater volatility of the value of the Fund's shares.
Investments in growth-oriented securities may have above average volatility of
price movement. Because prices of equity securities fluctuate, the value of an
investment in the Fund will vary based upon the Fund's investment performance.
The Fund attempts to reduce overall exposure to risk by adhering to a
disciplined program of intensive research, careful security selection and the
continual monitoring of the Fund's investment portfolio.
The Fund generally follows a flexible investment program seeking attractive
growth opportunities on an individual company basis. Fundamental research drives
the investment process. The Fund emphasizes companies that the Fund's investment
adviser believes are positioned to deliver surprisingly strong earnings growth
versus consensus expectations. The Fund's investment adviser continually and
rigorously studies company developments including business strategy, management
focus and financial results, and
6
<PAGE>
closely monitors analysts' consensus expectations seeking to identify such
companies. The Fund's investment adviser expects that many of the companies in
which the Fund invests will, at the time of investment, be experiencing high
rates of earnings growth. The securities of such companies may trade at higher
prices to earnings ratios relative to more established companies and rates of
earnings growth may be volatile. Valuation is of secondary importance in the
Fund's investment program and is viewed in context of prospects for sustainable
earnings growth and the potential for positive earnings surprises in relation to
consensus expectations.
The Fund emphasizes a strategy that focuses on large investments in a few select
companies rather than smaller investments in a larger number of issuers. To the
extent the Fund focuses its investments in this way, it may be subject to more
risk than a diversified fund because changes affecting a single issuer may cause
greater fluctuations in the value of the Fund's shares. The Fund's investment
adviser believes that an effective way to maximize return and reduce the risks
associated with its focused investment approach is through a program of
intensive research, careful selection of individual securities and continual
supervision of the Fund's portfolio. In addition, the Fund's stock selection
process may result in a significant portion of the Fund's assets invested in
companies in the same industry or sector of the market. To the extent the Fund's
investments are invested in this way, it may be more susceptible to economic,
political, regulatory and other occurrences influencing those industries or
market sectors.
The Fund invests primarily in common stocks. Common stocks are shares of a
corporation or other entity that entitle the holder to a pro rata share of the
profits of the corporation, if any, without preference over any other class of
securities, including such entity's debt securities, preferred stock and other
senior equity securities. Common stock usually carries with it the right to vote
and frequently an exclusive right to do so.
While the Fund invests primarily in common stocks, it also may invest in
preferred stocks, convertible securities and equity-linked securities, rights
and warrants to purchase common stocks, depositary receipts, equity-related
futures and options and other speciality securities having equity features.
Preferred stock generally has a preference as to dividends and liquidation over
an issuer's common stock but ranks junior to debt securities in an issuer's
capital structure. Unlike interest payments on debt securities, preferred stock
dividends are payable only if declared by the issuer's board of directors.
Preferred stock also may be subject to optional or mandatory redemption
provisions.
A convertible security is a bond, debenture, note, preferred stock or other
security that may be converted into or exchanged for a prescribed amount of
common stock or other equity security of the same or a different issuer or into
cash within a particular period of time at a specified price or formula. A
convertible security generally entitles the holder to receive interest paid or
accrued on debt securities or the dividend paid on preferred stock until the
convertible security matures or is redeemed, converted or exchanged. Before
conversion, convertible securities generally have characteristics similar to
both debt and equity securities. The value of convertible securities tends to
decline as interest rates rise and, because of the conversion feature, tends to
vary with fluctuations in the market value of the underlying equity securities.
Convertible securities ordinarily provide a stream of income with generally
higher yields than those of common stock of the same or similar issuers.
Convertible securities generally rank senior to common stock in a corporation's
capital structure but are usually subordinated to comparable nonconvertible
securities. Convertible securities generally do not participate directly in any
dividend increases or decreases of the underlying equity securities although the
market prices of convertible securities may be affected by any such dividend
changes or other changes in the underlying equity securities.
Equity-linked securities are instruments whose value is based upon the value of
one or more underlying equity securities, a reference rate or an index.
Equity-linked securities come in many forms and may include features, among
others, such as the following: (i) may be issued by the issuer of the underlying
equity security or by a company other than the one to which the instrument is
linked (usually an investment bank), (ii) may convert into equity securities,
such as common stock, within a stated period from the issue date or may be
7
<PAGE>
redeemed for cash or some combination of cash and the linked security at a value
based upon the value of the underlying equity security within a stated period
from the issue date, (iii) may have various conversion features prior to
maturity at the option of the holder or the issuer or both, (iv) may limit the
appreciation value with caps or collars of the value of the underlying equity
security and (v) may have fixed, variable or no interest payments during the
life of the security which reflect the actual or a structured return relative to
the underlying dividends of the linked equity security. Investments in
equity-linked securities may subject the Fund to additional risks not ordinarily
associated with investments in other equity securities. Because equity-linked
securities are sometimes issued by a third party other than the issuer of the
linked security, the Fund is subject to risks if the underlying stock
underperforms and if the issuer defaults on the payment of the dividend or the
common stock at maturity. In addition, the trading market for particular
equity-linked securities may be less liquid, making it difficult for the Fund to
dispose of a particular security when necessary and reduced liquidity in the
secondary market for any such securities may make it more difficult to obtain
market quotations for valuing the Fund's portfolio.
Rights and warrants entitle the holder to buy equity securities at a specific
price for a specific period of time. Rights are similar to warrants except that
they have a substantially shorter duration. Rights and warrants may be
considered more speculative and less liquid than certain other types of
investments in that they do not entitle a holder to dividends or voting rights
with respect to the underlying securities nor do they represent any rights in
the assets of the issuing company and may lack a secondary market.
Although the Fund generally invests in medium- and large-sized companies, it
also may invest in smaller-sized companies. The securities of medium- and
smaller-sized companies may be subject to more abrupt or erratic market
movements and may have lower trading volumes or more erratic trading than
securities of large-sized companies or the market averages in general. To the
extent the Fund invests in medium- and smaller-sized companies it will be
subject to greater investment risk than that assumed through investment in the
securities of large-sized companies.
RISKS OF INVESTING IN SECURITIES
OF FOREIGN ISSUERS
The Fund may invest up to 25% of its total assets in securities of foreign
issuers. Securities of foreign issuers may be denominated in U.S. dollars or in
currencies other than U.S. dollars. Investments in foreign securities present
certain risks not ordinarily associated with investments in securities of U.S.
issuers. These risks include fluctuations in foreign currency exchange rates,
political, economic or legal developments (including war or other instability,
expropriation of assets, nationalization and confiscatory taxation), imposition
of foreign exchange limitations (including currency blockage), withholding taxes
on dividend or interest payments or capital transactions or other restrictions,
higher transaction costs (including higher brokerage, custodial and settlement
costs and currency translation costs) and possible difficulty in enforcing
contractual obligations or taking judicial action. Also, foreign securities may
not be as liquid and may be more volatile than comparable domestic securities.
In addition, there often is less publicly available information about many
foreign issuers, and issuers of foreign securities are subject to different,
often less comprehensive, auditing, accounting, financial reporting and
disclosure requirements than domestic issuers. There is generally less
government regulation of stock exchanges, brokers and listed companies abroad
than in the U.S., and, with respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investment in those countries. Because there is
usually less supervision and governmental regulation of exchanges, brokers and
dealers than there is in the U.S., the Fund may experience settlement
difficulties or delays not usually encountered in the U.S.
Delays in making trades in foreign securities relating to volume constraints,
limitations or restrictions, clearance or settlement procedures, or otherwise
could impact returns and result in temporary periods when assets of the Fund are
not fully invested or attractive investment opportunities are foregone.
The Fund's investments in securities of developing or emerging market countries
are subject to greater risks than the Fund's investments in securities of
8
<PAGE>
developed countries since emerging market countries tend to have economic
structures that are less diverse and mature and political systems that are less
stable than developed countries.
In addition to the increased risks of investing in foreign securities, there are
often increased transactions costs associated with investing in foreign
securities including the costs incurred in connection with converting
currencies, higher foreign brokerage or dealer costs, and higher settlement
costs or custodial costs.
Investors should carefully consider the risks of foreign investments before
investing in the Fund.
DERIVATIVE INSTRUMENTS
The Fund may, but is not required to, use various investment strategic
transactions described below to earn income, facilitate portfolio management and
mitigate risks. Such strategic transactions are generally accepted under modern
portfolio management and are regularly used by many mutual funds and other
institutional investors. Although the Fund's investment adviser seeks to use the
practices to further the Fund's investment objective, no assurance can be given
that these practices will achieve this result.
The Fund may purchase and sell derivative instruments such as exchange-listed
and over-the-counter put and call options on securities, financial futures,
equity, fixed-income and interest rate indices, and other financial instruments,
futures contracts and options thereon (including but not limited to securities
index futures, foreign currency exchange futures, interest rate futures and
other financial futures), structured notes, swaps, caps, floors or collars and
enter into various currency transactions such as currency forward contracts,
currency futures contracts, currency swaps or options on currency or currency
futures. In addition, the Fund may invest in other derivative instruments that
are developed over time if their use would be consistent with the objective of
the Fund. Collectively, all of the above are referred to as "Strategic
Transactions." The Fund generally seeks to use Strategic Transactions as a
portfolio management or hedging technique to seek to protect against possible
adverse changes in the market value of securities held in or to be purchased for
the Fund's portfolio, protect the Fund's unrealized gains, facilitate the sale
of certain securities for investment purposes, protect against changes in
currency exchange rates or to adjust the exposure to a particular currency,
manage the effective maturity or duration of the Fund's portfolio, establish
positions in the derivatives markets as a substitute for purchasing or selling
particular securities, including, for example, when the Fund adjusts its
exposure to a market in response to changes in investment strategy, when doing
so provides more liquidity than the direct purchase of the securities underlying
such derivatives, when the Fund 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. The Fund may invest up to 33 1/3%
of its total assets in Strategic Transactions for non-hedging purposes (measured
by the aggregate notional amount of outstanding derivatives). In addition, the
Fund may invest up to 20% of its total assets in futures contracts and options
on futures contracts (measured by the aggregate notional amount of such
outstanding contracts).
Strategic Transactions have risks including the imperfect correlation between
the value of such instruments and the underlying assets, the possible default of
the other party to the transaction or illiquidity of the derivative instruments.
Furthermore, the ability to successfully use Strategic Transactions depends on
the Fund's investment adviser's ability to predict pertinent market movements,
which cannot be assured. Thus, the use of Strategic Transactions may result in
losses greater than if they had not been used, may require the Fund to sell or
purchase portfolio securities at inopportune times or for prices other than
current market values, may limit the amount of appreciation the Fund can
otherwise realize on an investment, or may cause the Fund to hold a security
that it might otherwise sell. The use of currency transactions can result in the
Fund incurring losses because of the imposition of exchange controls, suspension
of settlements or the inability of the Fund to deliver or receive a specified
currency. In addition, amounts paid as premiums or cash or
9
<PAGE>
other assets held in margin accounts with respect to Strategic Transactions are
not otherwise available to the Fund for investment purposes.
A more complete discussion of Strategic Transactions and their risks is
contained in the Fund's Statement of Additional Information. The Statement of
Additional Information can be obtained by investors free of charge as described
on the back cover of this prospectus.
OTHER INVESTMENT PRACTICES AND RISK FACTORS
For cash management purposes, the Fund may engage in repurchase agreements with
broker-dealers, banks and other financial institutions in order to earn a return
on temporarily available cash. Such transactions are subject to the risk of
default by the other party.
The Fund may lend its portfolio securities in an amount up to 33 1/3% of its
total assets to broker-dealers, banks or other recognized institutional
borrowers of securities. The Fund may incur lending fees and other costs in
connection with securities lending and securities lending is subject to the risk
of default by the other party.
The Fund may invest up to 15% of its net assets in illiquid and certain
restricted securities. Notwithstanding the foregoing, the Fund may not invest
more than 10% of its total assets in securities subject to legal or contractual
restrictions on resale. Such securities may be difficult or impossible to sell
at the time and the price that the Fund would like. Thus, the Fund may have to
sell such securities at a lower price, sell other securities instead to obtain
cash or forego other investment opportunities.
Further information about these types of investments and other investment
practices that may be used by the Fund is contained in the Statement of
Additional Information.
The Fund may sell securities without regard to the length of time they have been
held in order to take advantage of new investment opportunities or when the
Fund's investment adviser believes the potential for capital appreciation has
lessened or for other reasons. The Fund's portfolio turnover is shown under the
heading "Financial Highlights." The portfolio turnover rate may be expected to
vary from year to year. A high portfolio turnover rate (100% or more) increases
the Fund's transactions costs (including brokerage commissions or dealer costs)
and a high portfolio turnover rate may result in the realization of more
short-term capital gains than a lower portfolio turnover rate. Increases in the
Fund's transaction costs would adversely impact the Fund's performance. The
turnover rate will not be a limiting factor, however, if the Fund's investment
adviser considers portfolio changes appropriate.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Fund may on a temporary basis hold cash or invest a
portion or all of its assets in money-market instruments including obligations
of the U.S. government, its agencies or instrumentalities, obligations of
foreign sovereignties, other high-quality debt securities, including prime
commercial paper, repurchase agreements and bank obligations, such as bankers
acceptances and certificates of deposit (including Eurodollar certificates of
deposit). Under normal market conditions, the potential for capital appreciation
on these securities will tend to be lower than the potential for capital
appreciation on other securities that may be owned by the Fund. In taking such a
defensive position, the Fund would not be pursuing and may not achieve its
investment objective.
YEAR 2000 RISKS. Like other mutual funds, financial and business organizations
and individuals around the world, the Fund could be adversely affected if the
computer systems used by the Fund's investment adviser, subadviser and other
service providers do not properly process and calculate date-related information
and data from and after January 1, 2000. This is commonly known as the "Year
2000 Problem." The Fund's investment adviser and subadviser are taking steps
that they believe are reasonably designed to address the Year 2000 Problem with
respect to computer systems that they use and to obtain reasonable assurances
that comparable steps are being taken by the Fund's other major service
providers. At this time, there can be no assurances that these steps will be
sufficient to avoid any adverse impact to the Fund. In addition, the Year 2000
Problem may adversely affect the markets and the issuers of securities in which
the Fund may invest
10
<PAGE>
which, in turn, may adversely affect the net asset value of shares of the Fund.
Improperly functioning trading systems may result in settlement problems and
liquidity issues. In addition, corporate and governmental data processing errors
may result in production problems for individual companies or issuers and
overall economic uncertainty. Earnings of individual issuers will be affected by
remediation costs, which may be substantial and may be reported inconsistently
in U.S. and foreign financial statements. Efforts in foreign countries to
remediate the potential Year 2000 Problem may not be as extensive as those in
the U.S. As a result, the operations of foreign markets and issuers may be
disrupted by the Year 2000 Problem which could adversely affect the Fund's
portfolio. The risks are greater with respect to certain developing or emerging
market countries because there is an increased likelihood that issuers of
securities of such countries cannot anticipate or effectively manage the effects
of computer programs and the Year 2000 Problem. Accordingly, the Fund's
investments may be adversely affected. The statements above are subject to the
Year 2000 Information and Readiness Disclosure Act which may limit the legal
rights regarding the use of such statements in the case of a dispute.
INVESTMENT ADVISORY
SERVICES
INVESTMENT ADVISER
Van Kampen Investment Advisory Corp. is the investment adviser (the "Adviser" or
"Advisory Corp.") and administrator of the Fund. The Adviser is a wholly owned
subsidiary of Van Kampen Investments Inc. ("Van Kampen Investments"). Van Kampen
Investments is a diversified asset management company with more than two million
retail investor accounts, extensive capabilities for managing institutional
portfolios, and more than $79 billion under management or supervision as of
September 30, 1999. Van Kampen Investments' more than 50 open-end and 39
closed-end funds and more than 2,500 unit investment trusts are professionally
distributed by leading authorized dealers nationwide. Van Kampen Funds Inc., the
distributor of the Fund (the "Distributor") and the sponsor of the funds
mentioned above, is also a wholly owned subsidiary of Van Kampen Investments.
Van Kampen Investments is an indirect wholly owned subsidiary of Morgan Stanley
Dean Witter & Co. The Adviser's principal office is located at 1 Parkview Plaza,
PO Box 5555, Oakbrook Terrace, Illinois 60181-5555.
ADVISORY AGREEMENT AND ADMINISTRATION AGREEMENT. The Fund retains the Adviser to
manage the investment of its assets and to place orders for the purchase and
sale of its portfolio securities. Under an investment advisory agreement between
the Adviser and the Fund (the "Advisory Agreement"), the Fund pays the Adviser a
monthly fee computed based upon an annual rate of 0.90% applied to the average
daily net assets of the Fund.
The Fund also retains the Adviser to provide administrative services for the
Fund's day-to-day operations. Under an administration agreement between the
Adviser and the Fund, the Fund pays a monthly administration fee computed based
upon an annual rate of 0.25% applied to the average daily net assets of the
Fund.
The Adviser furnishes offices, necessary facilities and equipment, provides
administrative services, and permits its officers and employees to serve without
compensation as directors or officers of the Fund if elected to such positions.
The Fund pays all charges and expenses of its day-to-day operations, including
the compensation of directors of the Fund (other than those who are affiliated
persons of the Adviser, Distributor or Van Kampen Investments), the charges and
expenses of legal counsel and independent accountants, distribution fees,
service fees, custodian fees, the costs of providing reports to shareholders,
and all other ordinary business expenses not specifically assumed by the
Adviser.
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen Asset Management
Inc. ("Asset Management").
11
<PAGE>
INVESTMENT SUBADVISER
Morgan Stanley Dean Witter Investment Management Inc. (the "Subadviser") is the
Subadviser of the Fund. The Subadviser is a wholly owned subsidiary of Morgan
Stanley Dean Witter & Co., and is an affiliate of the Adviser. The Subadviser
conducts a worldwide portfolio management business and provides a broad range of
portfolio management services to customers in the United States and abroad. At
June 30, 1999, the Subadviser, together with its affiliated institutional asset
management companies, managed assets of approximately $175.3 billion, including
assets under fiduciary advice. The Subadviser's principal office is located at
1221 Avenue of the Americas, New York, New York 10020. On December 1, 1998,
Morgan Stanley Asset Management Inc. changed its name to Morgan Stanley Dean
Witter Investment Management Inc. but continues to do business in certain
instances using the name Morgan Stanley Asset Management.
SUBADVISORY AGREEMENT. The Adviser has entered into a subadvisory agreement with
the Subadviser to assist the Adviser in performing its investment advisory
functions. The Adviser pays the Subadviser on a monthly basis a portion of the
net advisory fees the Adviser recieves from the Fund.
GENERAL
From time to time, the Adviser, the Subadviser or the Distributor may
voluntarily undertake to reduce the Fund's expenses by reducing the fees payable
to them or by reducing other expenses of the Fund in accordance with such
limitations as the Adviser, the Subadviser or Distributor may establish.
PERSONAL INVESTMENT POLICIES. The Fund, the Adviser and the Subadviser have
adopted Codes of Ethics designed to recognize the fiduciary relationship among
the Fund, the Adviser and the Subadviser and their respective employees. The
Codes of Ethics permit directors, trustees, officers and employees to buy and
sell securities for their personal accounts subject to certain restrictions.
Persons with access to certain sensitive information are subject to
pre-clearance and other procedures designed to prevent conflicts of interest.
PORTFOLIO MANAGEMENT. Philip W. Friedman and William S. Auslander are
responsible as comanagers for the day-to-day management of the Fund's investment
portfolio.
Mr. Friedman is a Managing Director of the Subadviser and of Morgan Stanley Dean
Witter & Co. and leads Morgan Stanley Dean Witter & Co.'s Institutional Equity
Group. Prior to joining the Subadviser in 1997, he was the North American
Director of Equity Research at Morgan Stanley Dean Witter & Co. From 1990 to
1995, he was a member of Morgan Stanley Dean Witter & Co.'s Equity Research
team. Mr. Friedman graduated from Rutgers University with a B.A. (Phi Beta
Kappa, Summa Cum Laude) in Economics. He also holds an M.B.A. from J.L. Kellogg
School of Management at Northwestern University. Mr. Friedman has been a
comanager of the Fund since September 1998.
Mr. Auslander is a Principal of Morgan Stanley Dean Witter & Co. and the
Subadviser and a Portfolio Manager in Morgan Stanley Dean Witter & Co.'s
Institutional Equity Group. He joined Morgan Stanley Dean Witter & Co. in 1995
as an equity analyst in the Institutional Equity Group. Prior to joining Morgan
Stanley Dean Witter & Co., Mr. Auslander had a nine-year career as an equity
analyst at Icahn & Co. 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. Mr. Auslander has been a comanager of the Fund since September 1998.
PURCHASE OF SHARES
GENERAL
The Fund offers three classes of shares designated as Class A Shares, Class B
Shares and Class C Shares. By offering three classes of shares, the Fund permits
each investor to choose the class of shares that is most beneficial given the
amount to be invested and the length of time the investor expects to hold the
shares.
Initial investments must be at least $1,000 for each class of shares, and
subsequent investments must be at least $25 for each class of shares. Both
minimums may be waived by the Distributor for plans involving periodic
investments.
12
<PAGE>
Each class of shares represents an interest in the same portfolio of investments
of the Fund and has the same rights except that (i) Class A Shares generally
bear the sales charge expenses at the time of purchase while Class B Shares and
Class C Shares bear the sales charge expenses at the time of redemption and any
expenses (including higher distribution fees and transfer agency costs)
resulting from such deferred sales charge arrangement, (ii) generally, each
class of shares has exclusive voting rights with respect to approvals of the
Rule 12b-1 distribution plan and service plan (each as described below) under
which its distribution fee or service fee is paid, (iii) each class of shares
has different exchange privileges, (iv) certain classes of shares are subject to
a conversion feature and (v) certain classes of shares have different
shareholder service options available.
The offering price of the Fund's shares is based upon the Fund's net asset value
per share (plus sales charges, where applicable). The net asset values per share
of the Class A Shares, Class B Shares and Class C Shares are generally expected
to be substantially the same. In certain circumstances, however, the per share
net asset values of the classes of shares may differ from one another,
reflecting the daily expense accruals of the higher distribution fees and
transfer agency costs applicable to the Class B Shares and Class C Shares and
the differential in the dividends that may be paid on each class of shares.
The net asset value per share for each class of shares of the Fund is determined
once daily as of the close of trading on the New York Stock Exchange (the
"Exchange") (currently 4:00 p.m., New York time) each day the Exchange is open
for trading except on any day on which no purchase or redemption orders are
received or there is not a sufficient degree of trading in the Fund's portfolio
securities such that the Fund's net asset value per share might be materially
affected. The Fund's Board of Directors reserves the right to calculate the net
asset value per share and adjust the offering price based thereon more
frequently than once daily if deemed desirable. Net asset value per share for
each class is determined by dividing the value of the Fund's portfolio
securities, cash and other assets (including accrued interest) attributable to
such class, less all liabilities (including accrued expenses) attributable to
such class, by the total number of shares of the class outstanding. Such
computation is made by using prices as of the close of trading on the Exchange
and (i) valuing securities listed or traded on a national securities exchange at
the closing price, or if no closing price is available, at the last reported
sale price, and if there has been no sale that day, at the mean between the last
reported bid and asked prices, (ii) valuing over-the-counter securities at the
last reported sale price from the National Association of Securities Dealers
Automated Quotations ("NASDAQ"), (iii) valuing unlisted securities and any
securities for which market quotations are not readily available at the average
of the mean between the current reported bid and asked prices obtained from
reputable brokers and (iv) valuing any other assets at fair value as determined
in good faith by the Adviser in accordance with procedures established by the
Fund's Board of Directors. Debt securities with remaining maturities of 60 days
or less are valued on an amortized cost basis, which approximates market value.
The Fund has adopted a distribution plan (the "Distribution Plan") with respect
to each class of its shares pursuant to Rule 12b-1 under the 1940 Act. The Fund
also has adopted a service plan (the "Service Plan") with respect to each class
of its shares. Under the Distribution Plan and the Service Plan, the Fund pays
distribution fees in connection with the sale and distribution of its shares and
service fees in connection with the provision of ongoing services to
shareholders of each class.
The amount of distribution and service fees varies among the classes offered by
the Fund. Because these fees are paid out of the Fund's assets on an ongoing
basis, these fees will increase the cost of your investment in the Fund. By
purchasing a class of shares subject to higher distribution and service fees,
you may pay more over time than on a class of shares with other types of sales
charge arrangements. Long-term shareholders may pay more than the economic
equivalent of the maximum front-end sales charges permitted by the rules of the
National Association of Securities Dealers, Inc. ("NASD"). The net income
attributable to a class of shares will be reduced by the amount of the
distribution fees and other expenses of the Fund associated with such class of
shares. To assist investors in comparing classes of shares, the tables under the
heading "Fees and Expenses of the Fund" provide a summary of sales charges and
expenses and an example of the sales charges and expenses of the Fund applicable
to each class of shares.
13
<PAGE>
The shares are offered to the public on a continuous basis through the
Distributor as principal underwriter, which is located at 1 Parkview Plaza, PO
Box 5555, Oakbrook Terrace, Illinois 60181-5555. Shares also are offered through
members of the NASD who are acting as securities dealers ("dealers") and NASD
members or eligible non-NASD members who are acting as brokers or agents for
investors ("brokers"). "Dealers" and "brokers" are sometimes referred to herein
as "authorized dealers."
Shares may be purchased on any business day by completing the application
accompanying this prospectus and forwarding the application, directly or through
an authorized dealer, to the Fund's shareholder service agent, Van Kampen
Investor Services Inc. ("Investor Services"), a wholly owned subsidiary of Van
Kampen Investments. When purchasing shares of the Fund, investors must specify
whether the purchase is for Class A Shares, Class B Shares or Class C Shares.
Sales personnel of authorized dealers distributing the Fund's shares are
entitled to receive compensation for selling such shares and may receive
differing compensation for selling Class A Shares, Class B Shares or Class C
Shares.
The offering price for shares is based upon the next calculation of net asset
value per share (plus sales charges, where applicable) after an order is
received by Investor Services. Orders received by authorized dealers prior to
the close of the Exchange are priced based on the date of receipt provided such
order is transmitted to Investor Services prior to Investor Services' close of
business on such date. Orders received by authorized dealers after the close of
the Exchange or transmitted to Investor Services after its close of business are
priced based upon the date of the next computed net asset value per share
provided they are received by Investor Services prior to Investor Services'
close of business on such date. It is the responsibility of authorized dealers
to transmit orders received by them to Investor Services so they will be
received in a timely manner.
The Fund and the Distributor reserve the right to refuse any order for the
purchase of shares. The Fund also reserves the right to suspend the sale of the
Fund's shares in response to conditions in the securities markets or for other
reasons. Shares of the Fund may be sold in foreign countries where permissible.
Investor accounts will automatically be credited with additional shares of the
Fund after any Fund distributions, such as dividends and capital gain dividends
unless the investor instructs the Fund otherwise. Investors wishing to receive
cash instead of additional shares should contact the Fund at (800) 341-2911 or
by writing to the Fund, c/o Van Kampen Investors Services Inc., PO Box 218256,
Kansas City, MO 64121-8256.
CLASS A SHARES
Class A Shares of the Fund are sold at net asset value plus an initial maximum
sales charge of up to 5.75% of the offering price (or 6.10% of the net amount
invested), reduced on investments of $50,000 or more as follows:
CLASS A SHARES
SALES CHARGE SCHEDULE
<TABLE>
<S> <C> <C>
AS % OF
AS % OF NET
SIZE OF OFFERING AMOUNT
INVESTMENT PRICE INVESTED
- -----------------------------------------------------
<S> <C> <C>
Less than $50,000 5.75% 6.10%
....................................................
$50,000 but less than
$100,000 4.75% 4.99%
....................................................
$100,000 but less than
$250,000 3.75% 3.90%
....................................................
$250,000 but less than
$500,000 2.75% 2.83%
....................................................
$500,000 but less than
$1,000,000 2.00% 2.04%
....................................................
$1,000,000 or more * *
....................................................
</TABLE>
* NO SALES CHARGE IS PAYABLE AT THE TIME OF PURCHASE ON INVESTMENTS OF $1
MILLION OR MORE, ALTHOUGH FOR SUCH INVESTMENTS THE FUND MAY IMPOSE A
CONTINGENT DEFERRED SALES CHARGE OF 1.00% ON CERTAIN REDEMPTIONS MADE
WITHIN ONE YEAR OF THE PURCHASE. THE CONTINGENT DEFERRED SALES CHARGE IS
ASSESSED ON AN AMOUNT EQUAL TO THE LESSER OF THE THEN CURRENT MARKET
VALUE OR THE COST OF THE SHARES BEING REDEEMED. ACCORDINGLY, NO SALES
CHARGE IS IMPOSED ON INCREASES IN NET ASSET VALUE ABOVE THE INITIAL
PURCHASE PRICE.
No sales charge is imposed on Class A Shares received from reinvestment of
dividends or capital gain dividends.
14
<PAGE>
Under the Distribution Plan and Service Plan, the Fund may spend up to a total
of 0.25% per year of the Fund's average daily net assets with respect to the
Class A Shares of the Fund. From such amount, under the Service Plan, the Fund
may spend up to 0.25% per year of the Fund's average daily net assets with
respect to the Class A Shares for the ongoing provision of services to Class A
shareholders by the Distributor and by brokers, dealers or financial
intermediaries and for the maintenance of such shareholders' accounts.
CLASS B SHARES
Class B Shares of the Fund are sold at net asset value and are subject to a
contingent deferred sales charge if redeemed within five years of purchase as
shown in the table as follows:
CLASS B SHARES
SALES CHARGE SCHEDULE
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE
AS A PERCENTAGE OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
- -------------------------------------------
<S> <C>
First 5.00%
..........................................
Second 4.00%
..........................................
Third 3.00%
..........................................
Fourth 2.50%
..........................................
Fifth 1.50%
..........................................
Sixth and After None
..........................................
</TABLE>
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gain dividends. It
is presently the policy of the Distributor not to accept any order for Class B
Shares in an amount of $500,000 or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
The amount of the contingent deferred sales charge, if any, varies depending on
the number of years from the time of payment for the purchase of Class B Shares
until the time of redemption of such shares. Solely for purposes of determining
the number of years from the time of any payment for the purchase of shares, all
payments during a month are totaled and deemed to have been made on the last day
of the month.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed shares being redeemed first are any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge followed by shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
Fund's average daily net assets with respect to the Class B Shares of the Fund.
In addition, under the Service Plan, the Fund may spend up to 0.25% per year of
the Fund's average daily net assets with respect to the Class B Shares for the
ongoing provision of services to Class B shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CLASS C SHARES
Class C Shares of the Fund are sold at net asset value and are subject to a
contingent deferred sales charge of 1.00% of the dollar amount subject to charge
if redeemed within one year of purchase.
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gain dividends. It
is presently the policy of the Distributor not to accept any order for Class C
Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
15
<PAGE>
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed shares being redeemed first are any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge followed by shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
Fund's average daily net assets with respect to the Class C Shares of the Fund.
In addition, under the Service Plan, the Fund may spend up to 0.25% per year of
the Fund's average daily net assets with respect to the Class C Shares for the
ongoing provision of services to Class C shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CONVERSION FEATURE
Class B Shares purchased on or after June 1, 1996, and any dividend reinvestment
plan Class B Shares received on such shares, automatically convert to Class A
Shares eight years after the end of the calendar month in which the shares were
purchased. Class B Shares purchased before June 1, 1996, and any dividend
reinvestment plan Class B Shares received on such shares, automatically convert
to Class A Shares seven years after the end of the calendar month in which the
shares were purchased. Such conversion will be on the basis of the relative net
asset values per share, without the imposition of any sales load, fee or other
charge. The conversion schedule applicable to a share of the Fund acquired
through the exchange privilege from another Van Kampen fund participating in the
exchange program is determined by reference to the Van Kampen fund from which
such share was originally purchased.
The conversion of such shares to Class A Shares is subject to the continuing
availability of an opinion of counsel to the effect that (i) the assessment of
the higher distribution fee and transfer agency costs with respect to such
shares does not result in the Fund's dividends or capital gain dividends
constituting "preferential dividends" under the federal income tax law and
(ii) the conversion of shares does not constitute a taxable event under federal
income tax law. The conversion may be suspended if such an opinion is no longer
available and such shares might continue to be subject to the higher aggregate
fees applicable to such shares for an indefinite period.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge is waived on redemptions of Class B Shares
and Class C Shares (i) within one year following the death or disability (as
disability is defined by federal income tax law) of a shareholder, (ii) for
required minimum distributions from an individual retirement account ("IRA") or
certain other retirement plan distributions, (iii) for withdrawals under the
Fund's systematic withdrawal plan but limited to 12% annually of the initial
value of the account, (iv) if no commission or transaction fee is paid to
authorized dealers at the time of purchase of such shares and (v) if made by
involuntary liquidation by the Fund of a shareholder's account as described
under the heading "Redemption of Shares." Subject to certain limitations, a
shareholder who has redeemed Class C Shares of the Fund may reinvest in Class C
Shares at net asset value with credit for any contingent deferred sales charge
if the reinvestment is made within 180 days after the redemption. For a more
complete description of contingent deferred sales charge waivers, please refer
to the Fund's Statement of Additional Information or contact your authorized
dealer.
QUANTITY DISCOUNTS
Investors purchasing Class A Shares may, under certain circumstances described
below, be entitled to pay reduced or no sales charges. Investors, or their
authorized dealers, must notify the Fund at the time of the purchase order
whenever a quantity discount is applicable to purchases. Upon such notification,
an investor will receive the lowest applicable sales charge. Quantity discounts
may be modified or terminated at any time. For more information about quantity
discounts, investors should contact their authorized dealer or the Distributor.
A person eligible for a reduced sales charge includes an individual, his or her
spouse and children under 21 years of age and any corporation, partnership or
sole proprietorship which is 100% owned, either alone or in combination, by any
of the foregoing; a trustee or other fiduciary purchasing for a single
16
<PAGE>
trust or for a single fiduciary account, or a "company" as defined in Section
2(a)(8) of the 1940 Act.
As used herein, "Participating Funds" refers to certain open-end investment
companies advised by Asset Management or Advisory Corp. and distributed by the
Distributor as determined from time to time by the Fund's Board of Directors.
VOLUME DISCOUNTS. The size of investment shown in the Class A Shares sales
charge table applies to the total dollar amount being invested by any person in
shares of the Fund, or in any combination of shares of the Fund and shares of
other Participating Funds, although other Participating Funds may have different
sales charges.
CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the Class A Shares
sales charge table may also be determined by combining the amount being invested
in shares of the Participating Funds plus the current offering price of all
shares of the Participating Funds which have been previously purchased and are
still owned.
LETTER OF INTENT. A Letter of Intent provides an opportunity for an investor to
obtain a reduced sales charge by aggregating the investments over a 13-month
period to determine the sales charge as outlined in the Class A Shares sales
charge table. The size of investment shown in the Class A Shares sales charge
table includes purchases of shares of the Participating Funds over a 13-month
period based on the total amount of intended purchases plus the value of all
shares of the Participating Funds previously purchased and still owned. An
investor may elect to compute the 13-month period starting up to 90 days before
the date of execution of a Letter of Intent. Each investment made during the
period receives the reduced sales charge applicable to the total amount of the
investment goal. The initial purchase must be for an amount equal to at least 5%
of the minimum total purchase amount of the level selected. If trades not
initially made under a Letter of Intent subsequently qualify for a lower sales
charge through the 90-day backdating provisions, an adjustment will be made at
the time of the expiration of the Letter of Intent to give effect to the lower
charge. Such adjustment in sales charge will be used to purchase additional
shares for the shareholder at the applicable discount category. The Fund
initially will escrow shares totaling 5% of the dollar amount of the Letter of
Intent to be held by Investor Services in the name of the shareholder. In the
event the Letter of Intent goal is not achieved within the specified period, the
investor must pay the difference between the sales charge applicable to the
purchases made and the reduced sales charge previously paid. Such payments may
be made directly to the Distributor or, if not paid, the Distributor will
liquidate sufficient escrowed shares to obtain the difference.
OTHER PURCHASE PROGRAMS
Purchasers of Class A Shares may be entitled to reduced or no initial sales
charges in connection with the unit investment trust reinvestment program and
purchases by registered representatives of selling firms or purchases by persons
affiliated with the Fund or the Distributor. The Fund reserves the right to
modify or terminate these arrangements at any time.
UNIT INVESTMENT TRUST REINVESTMENT PROGRAM. The Fund permits unitholders of unit
investment trusts to reinvest distributions from such trusts in Class A Shares
of the Fund at net asset value per share and with no minimum initial or
subsequent investment requirement, if the administrator of an investor's unit
investment trust program meets certain uniform criteria relating to cost savings
by the Fund and the Distributor. The total sales charge for all other
investments made from unit investment trust distributions will be 1.00% of the
offering price (1.01% of net asset value). Of this amount, the Distributor will
pay to the authorized dealer, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the terms and conditions that apply to the program,
should contact their authorized dealer or the Distributor.
The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single
17
<PAGE>
remittance for all investments in the Fund during each distribution period by
all investors who choose to invest in the Fund through the program and
(2) provide Investor Services with appropriate backup data for each investor
participating in the program in a computerized format fully compatible with
Investor Services' processing system.
In order to obtain these special benefits, all dividends and other distributions
by the Fund must be reinvested in additional shares and there can not be any
systematic withdrawal program. There will be no minimum for reinvestments from
unit investment trusts. The Fund will send account activity statements to such
participants on a quarterly basis only, even if their investments are made more
frequently. The Fund reserves the right to modify or terminate this program at
any time.
NET ASSET VALUE PURCHASE OPTIONS. Class A Shares of the Fund may be purchased at
net asset value, upon written assurance that the purchase is made for investment
purposes and that the shares will not be resold except through redemption by the
Fund, by:
(1) Current or retired trustees or directors of funds advised by Morgan Stanley
Dean Witter & Co. and any of its subsidiaries and such persons' families
and their beneficial accounts.
(2) Current or retired directors, officers and employees of Morgan Stanley Dean
Witter & Co. and any of its subsidiaries; employees of an investment
subadviser to any fund described in (1) above or an affiliate of such
subadviser; and such persons' families and their beneficial accounts.
(3) Directors, officers, employees and, when permitted, registered
representatives, of financial institutions that have a selling group
agreement with the Distributor and their spouses and children under 21
years of age when purchasing for any accounts they beneficially own, or, in
the case of any such financial institution, when purchasing for retirement
plans for such institution's employees; provided that such purchases are
otherwise permitted by such institutions.
(4) Registered investment advisers who charge a fee for their services, trust
companies and bank trust departments investing on their own behalf or on
behalf of their clients. The Distributor may pay authorized dealers through
which purchases are made an amount up to 0.50% of the amount invested, over
a 12-month period.
(5) Trustees and other fiduciaries purchasing shares for retirement plans which
invest in multiple fund families through broker-dealer retirement plan
alliance programs that have entered into agreements with the Distributor
and which are subject to certain minimum size and operational requirements.
Trustees and other fiduciaries should refer to the Statement of Additional
Information for further details with respect to such alliance programs.
(6) Beneficial owners of shares of Participating Funds held by a retirement
plan or held in a tax-advantaged retirement account who purchase shares of
the Fund with proceeds from distributions from such a plan or retirement
account other than distributions taken to correct an excess contribution.
(7) Accounts as to which a bank or broker-dealer charges an account management
fee ("wrap accounts"), provided the bank or broker-dealer has a separate
agreement with the Distributor.
(8) Trusts created under pension, profit sharing or other employee benefit
plans qualified under Section 401(a) of the Internal Revenue Code of 1986,
as amended (the "Code"), or custodial accounts held by a bank created
pursuant to Section 403(b) of the Code and sponsored by nonprofit
organizations defined under Section 501(c)(3) of the Code and assets held
by an employer or trustee in connection with an eligible deferred
compensation plan under Section 457 of the Code. Such plans will qualify
for purchases at net asset value provided, for plans initially establishing
accounts with the Distributor in the Participating Funds after February 1,
1997, that (1) the initial amount invested in the Participating Funds is at
least $500,000 or (2) such shares are purchased by an employer sponsored
plan with more than 100 eligible employees. Such plans that have been
established with a Participating Fund or have received proposals from the
Distributor prior to February 1, 1997 based on net asset value purchase
privileges previously in effect will be qualified to purchase shares of the
Participating Funds at net asset value for accounts established on or
before
18
<PAGE>
May 1, 1997. Section 403(b) and similar accounts for which Van Kampen Trust
Company serves as custodian will not be eligible for net asset value
purchases based on the aggregate investment made by the plan or the number
of eligible employees, except under certain uniform criteria established by
the Distributor from time to time. Prior to February 1, 1997, a commission
will be paid to authorized dealers who initiate and are responsible for
such purchases within a rolling twelve- month period as follows: 1.00% on
sales to $5 million, plus 0.50% on the next $5 million, plus 0.25% on the
excess over $10 million. For purchases on February 1, 1997 and thereafter,
a commission will be paid as follows: 1.00% on sales to $2 million, plus
0.80% on the next $1 million, plus 0.50% on the next $47 million, plus
0.25% on the excess over $50 million.
(9) Individuals who are members of a "qualified group." For this purpose, a
qualified group is one which (i) has been in existence for more than six
months, (ii) has a purpose other than to acquire shares of the Fund or
similar investments, (iii) has given and continues to give its endorsement
or authorization, on behalf of the group, for purchase of shares of the
Fund and Participating Funds, (iv) has a membership that the authorized
dealer can certify as to the group's members and (v) satisfies other
uniform criteria established by the Distributor for the purpose of
realizing economies of scale in distributing such shares. A qualified group
does not include one whose sole organizational nexus, for example, is that
its participants are credit card holders of the same institution, policy
holders of an insurance company, customers of a bank or broker-dealer,
clients of an investment adviser or other similar groups. Shares purchased
in each group's participants account in connection with this privilege will
be subject to a contingent deferred sales charge of 1.00% in the event of
redemption within one year of purchase, and a commission will be paid to
authorized dealers who initiate and are responsible for such sales to each
individual as follows: 1.00% on sales to $2 million, plus 0.80% on the next
$1 million and 0.50% on the excess over $3 million.
The term "families" includes a person's spouse, children under 21 years of age
and grandchildren, parents, and a person's spouse's parents.
Purchase orders made pursuant to clause (4) may be placed either through
authorized dealers as described above or directly with Investor Services by the
investment adviser, trust company or bank trust department, provided that
Investor Services receives federal funds for the purchase by the close of
business on the next business day following acceptance of the order. An
authorized dealer may charge a transaction fee for placing an order to purchase
shares pursuant to this provision or for placing a redemption order with respect
to such shares. Authorized dealers will be paid a service fee as described above
on purchases made under options (3) through (9) above. The Fund may terminate,
or amend the terms of, offering shares of the Fund at net asset value to such
groups at any time.
REDEMPTION OF
SHARES
Generally shareholders may redeem for cash some or all of their shares without
charge by the Fund (other than applicable sales charge) at any time. As
described under the heading "Purchase of Shares," redemptions of Class B Shares
and Class C Shares may be subject to a contingent deferred sales charge. In
addition, certain redemptions of Class A Shares for shareholder accounts of $1
million or more may be subject to a contingent deferred sales charge.
Redemptions completed through an authorized dealer or a custodian of a
retirement plan account may involve additional fees charged by the dealer or
custodian.
Except as specified below under "Telephone Redemption Requests," payment for
shares redeemed generally will be made by check mailed within seven days after
receipt by Investor Services of the request and any other necessary documents in
proper form as described below. Such payment may be postponed or the right of
redemption suspended
19
<PAGE>
as provided by the rules of the SEC. Such payment may, under certain
circumstances, be paid wholly or in part by a distribution-in-kind of portfolio
securities, which may result in brokerage costs and a gain or loss for federal
income tax purposes when such securities are sold. If the shares to be redeemed
have been recently purchased by check, Investor Services may delay the payment
of redemption proceeds until it confirms the purchase check has cleared, which
may take up to 15 days. A taxable gain or loss will be recognized by the
shareholder upon redemption of shares.
WRITTEN REDEMPTION REQUESTS. Shareholders may request a redemption of shares by
written request in proper form sent directly to Van Kampen Investor Services
Inc., PO Box 218256, Kansas City, MO 64121-8256. The request for redemption
should indicate the number of shares to be redeemed, the class designation of
such shares and the shareholder's account number. The redemption request must be
signed by all persons in whose names the shares are registered. Signatures must
conform exactly to the account registration. If the proceeds of the redemption
exceed $50,000, or if the proceeds are not to be paid to the record owner at the
record address, or if the record address has changed within the previous 30
days, signature(s) must be guaranteed by one of the following: a bank or trust
company; a broker-dealer; a credit union; a national securities exchange,
registered securities association or clearing agency; a savings and loan
association; or a federal savings bank.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption to be in proper form. In some
cases, however, additional documents may be necessary. In the case of
shareholders holding certificates, the certificates for the shares being
redeemed properly endorsed for transfer must accompany the redemption request.
In the event the redemption is requested by a corporation, partnership, trust,
fiduciary, executor or administrator, and the name and title of the
individual(s) authorizing such redemption is not shown in the account
registration, a copy of the corporate resolution or other legal documentation
appointing the authorized signer and certified within the prior 120 days must
accompany the redemption request. IRA redemption requests should be sent to the
IRA custodian to be forwarded to Investor Services. Contact the IRA custodian
for further information.
In the case of written redemption requests sent directly to Investor Services,
the redemption price is the net asset value per share next determined after the
request in proper form is received by Investor Services.
AUTHORIZED DEALER REDEMPTION REQUESTS. Shareholders may place redemption
requests through an authorized dealer. Orders sent through authorized dealers
must be at least $500 (unless transmitted by your authorized dealer via the
FUNDSERV network). The redemption price for such shares is the net asset value
per share next calculated after an order in proper form is received by an
authorized dealer provided such order is transmitted to the Distributor prior to
the Distributor's close of business on such day. It is the responsibility of
authorized dealers to transmit redemption requests received by them to the
Distributor so they will be received prior to such time. Redemptions completed
through an authorized dealer may involve additional fees charged by the dealer.
TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. A shareholder
automatically has telephone redemption privileges unless the shareholder
indicates otherwise on the application form accompanying the prospectus. To
redeem shares, contact the telephone transaction line at
(800) 421-5684. Van Kampen Investments, Investor Services and the Fund employ
procedures considered by them to be reasonable to confirm that instructions
communicated by telephone are genuine. Such procedures include requiring certain
personal identification information prior to acting upon telephone instructions,
tape-recording telephone communications and providing written confirmation of
instructions communicated by telephone. If reasonable procedures are employed,
none of Van Kampen Investments, Investor Services or the Fund will be liable for
following telephone instructions which it reasonably believes to be genuine.
Telephone redemptions may not be available if the
20
<PAGE>
shareholder cannot reach Investor Services by telephone, whether because all
telephone lines are busy or for any other reason; in such case, a shareholder
would have to use the Fund's other redemption procedure previously described.
Requests received by Investor Services prior to 4:00 p.m., New York time, will
be processed at the next determined net asset value per share. These privileges
are available for all accounts other than retirement accounts or accounts with
shares represented by certificates. If an account has multiple owners, Investor
Services may rely on the instructions of any one owner.
For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check and amounts of at least
$1,000 up to $1 million may be redeemed daily if the proceeds are to be paid by
wire. The proceeds must be payable to the shareholder(s) of record and sent to
the address of record for the account or wired directly to their predesignated
bank account. This privilege is not available if the address of record has been
changed within 30 days prior to a telephone redemption request. Proceeds from
redemptions payable by wire transfer are expected to be wired on the next
business day following the date of redemption. The Fund reserves the right at
any time to terminate, limit or otherwise modify this redemption privilege.
OTHER REDEMPTION INFORMATION. The Fund may redeem shares of any shareholder
account that has a value on the date of the notice of redemption less than the
minimum initial investment as specified in this prospectus. At least 60 days
advance written notice of any such involuntary redemption will be provided to
the shareholder and such shareholder will be given an opportunity to purchase
the required value of additional shares at the next determined net asset value
without sales charge. Any involuntary redemption may only occur if the
shareholder account is less than the minimum initial investment due to
shareholder redemptions.
DISTRIBUTIONS FROM
THE FUND
In addition to any increase in the value of shares which the Fund may achieve,
shareholders may receive distributions from the Fund of dividends and capital
gain dividends.
DIVIDENDS. Dividends from stocks and interest earned from other investments are
the Fund's main source of income. The Fund's present policy, which may be
changed at any time by the Board of Directors, is to distribute all or
substantially all of this income, less expenses, at least quarterly as dividends
to shareholders. Dividends are automatically applied to purchase additional
shares of the Fund at the next determined net asset value unless the shareholder
instructs otherwise.
The per share dividends on Class B Shares and Class C Shares may be lower than
the per share dividends on Class A Shares as a result of the higher distribution
fees and transfer agency costs applicable to such classes of shares.
CAPITAL GAIN DIVIDENDS. The Fund may realize capital gains or losses when it
sells securities, depending on whether the sales prices for the securities are
higher or lower than purchase prices. Net realized capital gain represents the
total profits from sales of securities minus total losses from sales of
securities (including any losses carried forward from prior years), other than
net short-term capital gain from sales of securities held for one year or less.
The Fund distributes any taxable net realized capital gain to shareholders as
capital gain dividends at least annually. As in the case of dividends, capital
gain dividends are automatically reinvested in additional shares of the Fund at
the next determined net asset value unless the shareholder instructs otherwise.
21
<PAGE>
SHAREHOLDER SERVICES
Listed below are some of the shareholder services the Fund offers to investors.
For a more complete description of the Fund's shareholder services, such as
investment accounts, share certificates, retirement plans, automated clearing
house deposits, dividend diversification and the systematic withdrawal plan,
please refer to the Statement of Additional Information or contact your
authorized dealer.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gain dividends in shares of the
Fund. Such shares are acquired at net asset value per share (without sales
charge) on the applicable payable date of the dividend or capital gain dividend.
Unless the shareholder instructs otherwise, the reinvestment plan is automatic.
This instruction may be made by telephone by calling (800) 341-2911
((800) 421-2833 for the hearing impaired) or by writing to Investor Services.
The investor may, on the initial application or prior to any declaration,
instruct that dividends be paid in cash and capital gain dividends be reinvested
at net asset value, or that both dividends and capital gain dividends be paid in
cash.
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under which
a shareholder can authorize Investor Services to charge a bank account on a
regular basis to invest predetermined amounts in the Fund. Additional
information is available from the Distributor or your authorized dealer.
EXCHANGE PRIVILEGE. Shares of the Fund may be exchanged for shares of the same
class of any Participating Fund based on the next computed net asset value per
share of each fund after requesting the exchange without any sales charge,
subject to certain limitations. Shares of the Fund may be exchanged for shares
of any Participating Fund only if shares of that Participating Fund are
available for sale; however, during periods of suspension of sales, shares of a
Participating Fund may be available for sale only to existing shareholders of a
Participating Fund. Shareholders seeking an exchange into a Participating Fund
should obtain and read the current prospectus for such fund prior to
implementing an exchange. A prospectus of any of the Participating Funds may be
obtained from any authorized dealer or the Distributor.
To be eligible for exchange, shares of the Fund must have been registered in the
shareholder's name for at least 30 days prior to an exchange. Shares of the Fund
registered in a shareholder's name for less than 30 days may only be exchanged
upon receipt of prior approval of the Adviser. It is the policy of the Adviser,
under normal circumstances, not to approve such requests.
When shares that are subject to a contingent deferred sales charge are exchanged
among Participating Funds, the holding period for purposes of computing the
contingent deferred sales charge is based upon the date of the initial purchase
of such shares from a Participating Fund. When such shares are redeemed and not
exchanged for shares of another Participating Fund, the shares are subject to
the contingent deferred sales charge schedule imposed by the Participating Fund
from which such shares were originally purchased.
Exchanges of shares are sales of one Participating Fund and purchases of another
Participating Fund. The sale may result in a gain or loss for federal income tax
purposes. If the shares sold have been held for less than 91 days, the sales
charge paid on such shares is carried over and included in the tax basis of the
shares acquired.
A shareholder wishing to make an exchange may do so by sending a written request
to Investor Services or by contacting the telephone transaction line at
(800) 421-5684. A shareholder automatically has telephone exchange privileges
unless the shareholder indicates otherwise by checking the applicable box on the
application form accompanying the prospectus. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated by telephone are genuine. Such procedures
include requiring certain personal identification information prior to acting
upon telephone instructions, tape-recording telephone communications, and
providing written confirmation of instructions communicated by telephone. If
reasonable procedures
22
<PAGE>
are employed, none of Van Kampen Investments, Investor Services or the Fund will
be liable for following telephone instructions which it reasonably believes to
be genuine. If the exchanging shareholder does not have an account in the fund
whose shares are being acquired, a new account will be established with the same
registration, dividend and capital gain dividend options (except dividend
diversification) and authorized dealer of record as the account from which
shares are exchanged, unless otherwise specified by the shareholder. In order to
establish a systematic withdrawal plan for the new account or reinvest dividends
from the new account into another fund, however, an exchanging shareholder must
submit a specific request. The Fund reserves the right to reject any order to
acquire its shares through exchange. In addition, the Fund and other
Participating Funds may restrict exchanges by shareholders engaged in excessive
trading by limiting or disallowing the exchange privileges to such shareholders.
For further information on these restrictions see the Statement of Additional
Information. The Fund may modify, restrict or terminate the exchange privilege
at any time on 60 days' notice to its shareholders of any termination or
material amendment.
For purposes of determining the sales charge rate previously paid on Class A
Shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchanged security was acquired through reinvestment, that
security is deemed to have been sold with a sales charge rate equal to the rate
previously paid on the security on which the dividend or distribution was paid.
If a shareholder exchanges less than all of such shareholder's securities, the
security upon which the highest sales charge rate was previously paid is deemed
exchanged first.
Exchange requests received on a business day prior to the time shares of the
funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares of the fund which the
shareholder is redeeming will be redeemed at the net asset value per share next
determined on the date of receipt. Shares of the new fund that the shareholder
is purchasing will also normally be purchased at the net asset value per share,
plus any applicable sales charge, next determined on the date of receipt.
Exchange requests received on a business day after the time shares of the funds
involved in the request are priced will be processed on the next business day in
the manner described herein.
INTERNET TRANSACTIONS. In addition to performing transactions on your account
through written instruction or by telephone, you may also perform certain
transactions through the internet. Please refer to our web site at
www.vankampen.com for further instruction. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated through the internet are genuine. Such
procedures include requiring use of a personal identification number prior to
acting upon internet instructions and providing written confirmation of
instructions communicated through the internet. If reasonable procedures are
employed, none of Van Kampen Investments, Investor Services or the Fund will be
liable for following instructions received through the internet which it
reasonably believes to be genuine. If an account has multiple owners, Investor
Services may rely on the instructions of any one owner.
FEDERAL INCOME
TAXATION
Distributions of the Fund's net investment income (consisting generally of
taxable income and net short-term capital gain) are taxable to shareholders as
ordinary income to the extent of the Fund's earnings and profits, whether paid
in cash or reinvested in additional shares. Distributions of the Fund's net
realized capital gain (which is the excess of net long-term capital gain over
net short-term capital loss) as capital gain dividends, if any, are taxable to
shareholders as long-term capital gains, whether paid in cash or reinvested in
additional shares, and regardless of how long the shares of the Fund have been
held by such shareholders. The Fund expects that its distributions will consist
primarily of ordinary income and capital gain dividends.
23
<PAGE>
Distributions in excess of the Fund's earnings and profits will first reduce the
adjusted tax basis of a holder's shares and, after such adjusted tax basis is
reduced to zero, will constitute capital gains to such holder (assuming such
shares are held as a capital asset). Although distributions generally are
treated as taxable in the year they are paid, distributions declared in October,
November or December, payable to shareholders of record on a specified date in
such month and paid during January of the following year will be treated as
having been distributed by the Fund and received by the shareholders on the
December 31st prior to the date of payment. The Fund will inform shareholders of
the source and tax status of all distributions promptly after the close of each
calendar year.
The sale or exchange of shares is a taxable transaction for federal income tax
purposes. Shareholders who sell their shares will generally recognize gain or
loss in an amount equal to the difference between their adjusted tax basis in
the shares sold and the amount received. If the shares are held as a capital
asset, the gain or loss will be a capital gain or loss. Any capital gains may be
taxed at different rates depending on how long the shareholder held such shares.
The Fund is required, in certain circumstances, to withhold 31% of dividends and
certain other payments, including redemptions, paid to shareholders who do not
furnish to the Fund their correct taxpayer identification number (in the case of
individuals, their social security number) and certain required certifications
or who are otherwise subject to backup withholding.
Foreign shareholders, including shareholders who are non-resident aliens, may be
subject to U.S. withholding tax on certain distributions (whether received in
cash or in shares) at a rate of 30% or such lower rate as prescribed by an
applicable treaty. Prospective foreign investors should consult their tax
advisers concerning the tax consequences to them of an investment in shares.
The Fund intends to qualify as a regulated investment company under federal
income tax law. If the Fund so qualifies and distributes each year to its
shareholders at least 90% of its net investment income, the Fund will not be
required to pay federal income taxes on any income it distributes to
shareholders. If the Fund distributes less than an amount equal to the sum of
98% of its ordinary income and 98% of its capital gain net income, then the Fund
will be subject to a 4% excise tax on the undistributed amounts.
The federal income tax discussion set forth above is for general information
only. Prospective investors should consult their own tax advisers regarding the
specific federal tax consequences of purchasing, holding, disposing, exchanging
or selling of shares, as well as the effects of state, local and foreign tax law
and any proposed tax law changes.
24
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the periods indicated. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report, along with the Fund's financial statements, is
included in the Statement of Additional Information and may be obtained by
shareholders without charge by calling the telephone number on the back cover of
this prospectus. This information should be read in conjunction with the
financial statements and notes thereto included in the Statement of Additional
Information.
<TABLE>
<CAPTION>
CLASS A SHARES
---------------------------------------------------
YEAR ENDED JUNE 30,
-------------------------------- JANUARY 2, 1996*
SELECTED PER SHARE DATA AND RATIOS 1999 # 1998 # 1997 TO JUNE 30, 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.............. $20.007 $ 16.98 $ 14.40 $12.00
------- ------- ------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss...................... (0.141) (0.07) 0.01 0.06
Net Realized and Unrealized Gain/Loss........... 4.712 5.03 3.95 2.40
------- ------- ------- ------
Total From Investment Operations................ 4.571 4.96 3.96 2.46
------- ------- ------- ------
DISTRIBUTIONS
Net Investment Income........................... -- -- (0.03) (0.06)
Net Realized Gain............................... (1.594) (1.93) (1.35) --
------- ------- ------- ------
Total Distributions............................. (1.594) (1.93) (1.38) (0.06)
------- ------- ------- ------
NET ASSET VALUE, END OF PERIOD.................... $22.984 $ 20.01 $ 16.98 $14.40
======= ======= ======= ======
TOTAL RETURN (1).................................. 25.57% 30.93% 28.93% 20.52%**
======= ======= ======= ======
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)................. $73,829 $64,035 $22,521 $5,382
Ratio of Expenses to Average Net Assets........... 1.50% 1.50% 1.57% 2.03%
Ratio of Net Investment Income/Loss to Average Net
Assets............................................ (0.73)% (0.37)% (0.04)% 1.22%
Portfolio Turnover Rate........................... 282% 308% 241% 204%**
- -------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the
Period
Per Share Benefit to Net Investment
Income/Loss..................................... $ 0.02 $ 0.04 $ 0.02 $ 0.06
Ratios Before Expense Limitation:
Expenses to Average Net Assets.................. 1.61% 1.71% 2.38% 3.26%
Net Investment Income/Loss to Average Net
Assets.......................................... (0.84)% (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% 1.50%
- -------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B SHARES
-----------------------------------------------------
YEAR ENDED JUNE 30,
---------------------------------- JANUARY 2, 1996*
SELECTED PER SHARE DATA AND RATIOS 1999 # 1998 # 1997 TO JUNE 30, 1996
- -------------------------------------------------- -----------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.............. $ 19.670 $ 16.85 $ 14.38 $12.00
-------- -------- ------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss...................... (0.282) (0.21) (0.02) 0.03
Net Realized and Unrealized Gain/Loss........... 4.586 4.96 3.86 2.39
-------- -------- ------- ------
Total From Investment Operations................ 4.304 4.75 3.84 2.42
-------- -------- ------- ------
DISTRIBUTIONS
Net Investment Income........................... -- -- (0.02) (0.04)
Net Realized Gain............................... (1.594) (1.93) (1.35) --
-------- -------- ------- ------
Total Distributions............................. (1.594) (1.93) (1.37) (0.04)
-------- -------- ------- ------
NET ASSET VALUE, END OF PERIOD.................... $ 22.380 $ 19.67 $ 16.85 $14.38
======== ======== ======= ======
TOTAL RETURN (1).................................. 24.59% 29.94% 28.01% 20.18%**
======== ======== ======= ======
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)................. $176,189 $130,497 $34,382 $2,426
Ratio of Expenses to Average Net Assets........... 2.25% 2.25% 2.32% 2.67%
Ratio of Net Investment Income/Loss to Average Net
Assets............................................ (1.50)% (1.11)% (0.83)% 0.43%
Portfolio Turnover Rate........................... 282% 308% 241% 204%**
- -------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the
Period
Per Share Benefit to Net Investment
Income/Loss..................................... $ 0.02 $ 0.04 $ 0.02 $ 0.07
Ratios Before Expense Limitation:
Expenses to Average Net Assets.................. 2.36% 2.47% 2.88% 3.79%
Net Investment Income/Loss to Average Net
Assets.......................................... (1.61)% (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% 2.25%
- -------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS C SHARES
--------------------------------------------------
YEAR ENDED JUNE 30,
------------------------------- JANUARY 2, 1996*
SELECTED PER SHARE DATA AND RATIOS 1999 # 1998 # 1997 TO JUNE 30, 1996
- -------------------------------------------------- --------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.............. $19.655 $ 16.83 $14.37 $12.00
------- ------- ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss...................... (0.278) (0.21) (0.06) 0.03
Net Realized and Unrealized Gain/Loss........... 4.580 4.97 3.89 2.38
------- ------- ------ ------
Total From Investment Operations................ 4.302 4.76 3.83 2.41
------- ------- ------ ------
DISTRIBUTIONS
Net Investment Income........................... -- -- (0.02) (0.04)
Net Realized Gain............................... (1.594) (1.93) (1.35) --
------- ------- ------ ------
Total Distributions............................. (1.594) (1.93) (1.37) (0.04)
------- ------- ------ ------
NET ASSET VALUE, END OF PERIOD.................... $22.363 $ 19.66 $16.83 $14.37
======= ======= ====== ======
TOTAL RETURN (1).................................. 24.67% 29.90% 28.04% 20.10%**
======= ======= ====== ======
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)................. $27,189 $24,872 $9,410 $2,582
Ratio of Expenses to Average Net Assets........... 2.25% 2.25% 2.32% 2.67%
Ratio of Net Investment Income/Loss to Average Net
Assets............................................ (1.48)% (1.13)% (0.77)% 0.44%
Portfolio Turnover Rate........................... 282% 308% 241% 204%**
- -------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the
Period
Per Share Benefit to Net Investment
Income/Loss..................................... $ 0.02 $ 0.04 $ 0.02 $ 0.07
Ratios Before Expense Limitation:
Expenses to Average Net Assets.................. 2.36% 2.25% 3.23% 3.80%
Net Investment Income/Loss to Average Net
Assets.......................................... (1.59)% (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% 2.25%
- -------------------------------------------------------------------------------------------------------
</TABLE>
* COMMENCEMENT OF OPERATIONS
** NON-ANNUALIZED
(1) TOTAL RETURN IS CALCULATED EXCLUSIVE OF SALES CHARGES OR DEFERRED SALES
CHARGES.
# CHANGES PER SHARE ARE BASED UPON MONTHLY AVERAGE SHARES OUTSTANDING.
25
<PAGE>
BOARD OF DIRECTORS
AND OFFICERS
BOARD OF DIRECTORS
<TABLE>
<S> <C>
J. Miles Branagan Don G. Powell*
Jerry D. Choate Phillip B. Rooney
Richard M. DeMartini* Fernando Sisto
Linda Hutton Heagy Wayne W. Whalen*
R. Craig Kennedy Suzanne H. Woolsey
Jack E. Nelson Paul G. Yovovich
</TABLE>
OFFICERS
Richard F. Powers, III*
PRESIDENT
Dennis J. McDonnell*
EXECUTIVE VICE PRESIDENT & CHIEF INVESTMENT OFFICER
A. Thomas Smith III*
VICE PRESIDENT AND SECRETARY
Edward C. Wood III*
VICE PRESIDENT
Michael H. Santo*
VICE PRESIDENT
Peter W. Hegel*
VICE PRESIDENT
Stephen L. Boyd*
VICE PRESIDENT
Joseph P. Stadler*
VICE PRESIDENT
John L. Sullivan*
VICE PRESIDENT, CHIEF FINANCIAL OFFICER & TREASURER
Curtis W. Morell*
VICE PRESIDENT & CHIEF ACCOUNTING OFFICER
Tanya M. Loden*
CONTROLLER
* "Interested Persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2911
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders, or
redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call (800)
421-2833
FUNDINFO-REGISTERED TRADEMARK-
For automated telephone services, call (800) 847-2424
WEB SITE
www.vankampen.com
VAN KAMPEN FOCUS EQUITY FUND
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
INVESTMENT ADVISER AND ADMINISTRATOR
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
INVESTMENT SUBADVISER
MORGAN STANLEY DEAN WITTER INVESTMENT
MANAGEMENT INC.
1221 Avenue of the Americas
New York, NY 10020
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
TRANSFER AGENT
VAN KAMPEN INVESTOR SERVICES INC.
PO Box 218256
Kansas City, MO 64121-8256
Attn: Van Kampen Focus Equity Fund
CUSTODIAN
THE CHASE MANHATTAN BANK
3 MetroTech Center
Brooklyn, NY 11245
Attn: Van Kampen Focus Equity Fund
LEGAL COUNSEL
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
INDEPENDENT ACCOUNTANTS
PRICEWATERHOUSECOOPERS LLP
200 East Randolph Drive
Chicago, IL 60601
<PAGE>
VAN KAMPEN
FOCUS EQUITY FUND
PROSPECTUS
OCTOBER 28, 1999
A Statement of Additional Information, which contains more details about the
Fund, is incorporated by reference in its entirety into this prospectus.
You will find additional information about the Fund in its annual and semiannual
reports to shareholders. The annual report explains the market conditions and
investment strategies affecting the Fund's performance during its last fiscal
year.
You can ask questions or obtain a free copy of the Fund's reports or its
Statement of Additional Information by calling (800) 341-2911 from 7:00 a.m. to
7:00 p.m., Central time, Monday through Friday. Telecommunications Device for
the Deaf users may call (800) 421-2833. A free copy of the Fund's reports can
also be ordered from our web site at www.vankampen.com.
Information about the Fund, including its reports and Statement of Additional
Information, has been filed with the Securities and Exchange Commission (SEC).
It can be reviewed and copied at the SEC's Public Reference Room in Washington,
DC or on the EDGAR Database on the SEC's internet site (http://www.sec.gov).
Information on the operation of the SEC's Public Reference Room may be obtained
by calling the SEC at 1-202-942-8090. You can also request copies of these
materials, upon payment of a duplicating fee, by electronic request at the SEC's
e-mail address ([email protected]), or by writing
the Public Reference Section of the SEC,
Washington, DC, 20549-0102.
[LOGO]
THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-7140.
MSAE PRO 10/99
<PAGE>
VAN KAMPEN
GLOBAL EQUITY
ALLOCATION FUND
Van Kampen Global Equity Allocation Fund is a mutual fund with an investment
objective to seek 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 Fund's investment adviser and with stock selection within each
country designed to replicate a broad market index.
Shares of the Fund have not been approved or disapproved by the Securities and
Exchange Commission (SEC) or any state regulator, and neither the SEC nor any
state regulator has passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
THIS PROSPECTUS IS DATED OCTOBER 28, 1999.
[LOGO]
<PAGE>
TABLE OF CONTENTS
Risk/Return Summary .....................................................3
Fees and Expenses of the Fund ...........................................5
Investment Objective, Policies and Risks ................................6
Investment Advisory Services ...........................................12
Purchase of Shares .....................................................13
Redemption of Shares ...................................................20
Distributions from the Fund ............................................22
Shareholder Services ...................................................23
Federal Income Taxation ................................................24
Financial Highlights ...................................................26
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations, other than those contained in this
prospectus, in connection with the offer contained in this prospectus and, if
given or made, such other information or representations must not be relied upon
as having been authorized by the Fund, the Fund's investment adviser or the
Fund's distributor. This prospectus does not constitute an offer by the Fund or
by the Fund's distributor to sell or a solicitation of an offer to buy any of
the securities offered hereby in any jurisdiction to any person to whom it is
unlawful for the Fund to make such an offer in such jurisdiction.
<PAGE>
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The Fund is a mutual fund with an investment objective to seek 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 Fund's investment adviser
and with stock selection within each country designed to replicate a broad
market index. Any income received from the investment of portfolio securities is
incidental to the Fund's investment objective.
INVESTMENT STRATEGIES
The Fund's investment adviser seeks to achieve the Fund's investment objective
by applying a "top-down" investment approach. This approach emphasizes country
and/or sector selection and weighting rather than individual security selection.
Within a particular country or sector, the Fund's investment adviser selects
equity securities of issuers designed to track the markets of that country or
sector.
Under normal market conditions, the Fund invests at least 65% of its total
assets in securities of issuers located in at least three countries (including
the U.S.). The composition of the Fund's portfolio will vary over time based
upon the Fund's investment adviser's evaluation of economic and market trends
and the anticipated relative capital appreciation available from particular
countries, sectors and securities. The Fund may invest in any country, including
emerging or developing countries. Portfolio securities are typically sold when
the Fund's investment adviser's assessments for capital appreciation of
countries or sectors materially change.
Equity securities include common and preferred stocks, convertible securities,
rights and warrants to purchase common stock and depositary receipts. The Fund
may purchase and sell certain derivative instruments (such as options, futures,
options on futures and currency-related transactions involving options, futures,
forward contracts and swaps) for various portfolio management purposes.
INVESTMENT RISKS
An investment in the Fund is subject to investment risks, and you could lose
money on your investment in the Fund. There can be no assurance that the Fund
will achieve its investment objective.
MARKET RISK. Market risk is the possibility that the market values of securities
owned by the Fund will decline. Market risk may affect a single issuer,
industry, sector of the economy or the market as a whole. Investments in common
stocks and other equity securities generally are affected by changes in the
stock markets, which fluctuate substantially over time, sometimes suddenly and
sharply.
Foreign markets may, but often do not, move in tandem with changes in U.S.
markets, and foreign markets, especially developing or emerging market
countries, may be more volatile than U.S. markets. During an overall stock
market decline, stock prices of smaller companies often fluctuate more and may
fall more than the stock prices of larger companies.
FOREIGN RISKS. Because the Fund owns securities of foreign issuers, it is
subject to risks not usually associated with owning securities of U.S. issuers.
These risks include fluctuations in foreign currencies, foreign currency
exchange controls, political and economic instability, differences in financial
reporting, differences in securities regulation and trading and foreign taxation
issues. The risks of investing in developing or emerging market countries are
greater than the risks generally associated with foreign investments, including
investment and trading limitations, greater credit and liquidity concerns,
greater political uncertainties, an economy's dependence on international
development assistance, greater foreign currency exchange risk and currency
transfer restrictions, greater delays and disruptions in settlement transactions
and greater risks associated with computer programs and the Year 2000 problem.
To the extent the Fund focuses its assets in a single country or region, its
portfolio would be more susceptible to factors adversely affecting issuers in
that country or region.
RISKS OF USING DERIVATIVE INVESTMENTS. In general terms, a derivative investment
is one whose value depends on (or is derived from) the value of an underlying
asset, interest rate or index. Options,
3
<PAGE>
futures and options on futures and currency-related transactions involving
options, futures, forward contracts and swaps are examples of derivatives.
Derivative investments involve risks different from direct investment in
underlying securities. These risks include imperfect correlation between the
value of the instruments and the underlying assets; risks of default by the
other party to certain transactions; risks that the transactions may result in
losses that partially or completely offset gains in portfolio positions; risks
that the transactions may not be liquid; and manager risk.
MANAGER RISK. As with any managed fund, the Fund's investment adviser may not be
successful in selecting the best-performing securities or investment techniques
and the Fund's performance may lag behind that of similar funds.
INVESTOR PROFILE
In light of the Fund's investment objective and strategies, the Fund may be
appropriate for investors who:
- - Seek capital appreciation over the long term
- - Do not seek current income from their investment
- - Are willing to take on the increased risks associated with investing in
foreign securities
- - Can withstand volatility in the value of their Fund shares
- - Wish to add to their investment portfolio a fund that invests in a global
portfolio of equity securities
An investment in the Fund is not a deposit of any bank or other insured
depository institution. Your investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
An investment in the Fund may not be appropriate for all investors. The Fund is
not intended to be a complete investment program, and investors should consider
their long-term investment goals and financial needs when making an investment
decision about the Fund. An investment in the Fund is intended to be a long-term
investment, and the Fund should not be used as a trading vehicle.
ANNUAL PERFORMANCE
One way to measure the risks of investing in the Fund is to look at how its
performance varies from year-to-year. The following chart shows the annual
returns of the Fund's Class A Shares over the six calendar years prior to the
date of this prospectus. Sales loads are not reflected in this chart. If these
sales loads had been included, the returns shown below would have been lower.
Remember that the past performance of the Fund is not indicative of its future
performance.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ANNUAL RETURN
<S> <C>
1993 22.72%
1994 0.27%
1995 19.65%
1996 13.01%
1997 16.45%
1998 19.38%
</TABLE>
The Fund's return for the nine-month period ended September 30, 1999 was 4.57%.
The annual return variability of the Fund's Class B Shares and Class C Shares
would be substantially similar to that shown for the Class A Shares because all
of the Fund's shares are invested in the same portfolio of securities; however,
the actual annual returns of the Class B Shares and Class C Shares would be
lower than the annual returns shown for the Fund's Class A Shares because of
differences in the expenses borne by each class of shares.
During the six-year period shown in the bar chart, the highest quarterly return
was 15.98% (for the quarter ended December 31, 1998) and the lowest quarterly
return was -11.46% (for the quarter ended September 30, 1998).
4
<PAGE>
COMPARATIVE PERFORMANCE
As a basis for evaluating the Fund's performance and risks, the table below
shows how the Fund's performance compares with the Morgan Stanley Capital
International ("MSCI") World Index with net dividends* (in U.S. dollar terms), a
broad-based market index that the Fund's investment adviser believes is an
appropriate benchmark for the Fund. The Fund's performance figures include the
maximum sales charges paid by investors. The index performance figures do not
include any commissions or sales charges that would be paid by investors
purchasing the securities represented by the index. Average annual total returns
are shown for the periods ended December 31, 1998 (the most recently completed
calendar year prior to the date of this prospectus). Remember that the past
performance of the Fund is not indicative of its future performance.
<TABLE>
<CAPTION>
AVERAGE ANNUAL
TOTAL RETURNS
FOR THE
PERIODS ENDED PAST PAST 5 SINCE
DECEMBER 31, 1998 1 YEAR YEARS INCEPTION
- ----------------------------------------------------------
<S> <C> <C> <C>
Van Kampen Global
Equity Allocation
Fund
- -- Class A Shares 12.55% 12.18% 13.90%(1)
MSCI World Index
with net dividends 24.34% 15.68% 16.92%(3)
.........................................................
Van Kampen Global
Equity Allocation
Fund
- -- Class B Shares 13.58% -- 15.63%(2)
MSCI World Index
with net dividends 24.34% -- 17.20%(2)
.........................................................
Van Kampen Global
Equity Allocation
Fund
- -- Class C Shares 17.53% 12.68% 14.19%(1)
MSCI World Index
with net dividends 24.34% 15.68% 16.92%(3)
.........................................................
INCEPTION DATES: (1) 1/4/93, (2) 8/1/95, (3) 12/31/92.
</TABLE>
* THE MSCI WORLD INDEX WITH NET DIVIDENDS IS AN UNMANAGED INDEX THAT
INCLUDES SECURITIES LISTED ON THE STOCK EXCHANGES OF THE U.S., EUROPE,
CANADA, AUSTRALIA, NEW ZEALAND AND THE FAR EAST AND ASSUMES DIVIDENDS
ARE REINVESTED NET OF WITHHOLDING TAX.
FEES AND EXPENSES
OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
- -----------------------------------------------------------
Maximum sales charge
(load) imposed on
purchases (as a
percentage of
offering price) 5.75%(1) None None
..............................................................
Maximum deferred
sales charge (load)
(as a percentage of
the lesser of
original purchase
price or redemption
proceeds) None(2) 5.00%(3) 1.00%(4)
..............................................................
Maximum sales charge
(load) imposed on
reinvested dividends None None None
..............................................................
Redemption fees None None None
..............................................................
Exchange fee None None None
..............................................................
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
<TABLE>
<S> <C> <C> <C>
- -----------------------------------------------------------
Management Fees(5) 1.00% 1.00% 1.00%
..........................................................
Distribution and/or
Service
(12b-1) Fees(6) 0.25% 1.00%(7) 1.00%(7)
..........................................................
Other Expenses(5) 0.48% 0.49% 0.48%
..........................................................
Total Annual Fund
Operating Expenses(5) 1.73% 2.49% 2.48%
..........................................................
</TABLE>
(1) REDUCED FOR PURCHASES OF $50,000 AND OVER. SEE "PURCHASE OF SHARES --
CLASS A SHARES."
(2) INVESTMENTS OF $1 MILLION OR MORE ARE NOT SUBJECT TO ANY SALES CHARGE
AT THE TIME OF PURCHASE, BUT A DEFERRED SALES CHARGE OF 1.00% MAY BE
IMPOSED ON CERTAIN REDEMPTIONS MADE WITHIN ONE YEAR OF THE PURCHASE.
SEE "PURCHASE OF SHARES -- CLASS A SHARES."
(3) THE MAXIMUM DEFERRED SALES CHARGE IS 5.00% IN THE FIRST YEAR AFTER
PURCHASE, DECLINING THEREAFTER AS FOLLOWS:
YEAR 1-5.00%
YEAR 2-4.00%
YEAR 3-3.00%
YEAR 4-2.50%
YEAR 5-1.50%
AFTER-NONE
SEE "PURCHASE OF SHARES -- CLASS B SHARES."
(4) THE MAXIMUM DEFERRED SALES CHARGE IS 1.00% IN THE FIRST YEAR AFTER
PURCHASE AND 0.00% THEREAFTER. SEE "PURCHASE OF SHARES -- CLASS C
SHARES."
(5) THE FUND'S INVESTMENT ADVISER IS CURRENTLY WAIVING OR REIMBURSING A
PORTION OF THE FUND'S MANAGEMENT FEES AND OTHER EXPENSES SUCH THAT THE
ACTUAL TOTAL ANNUAL FUND OPERATING EXPENSES WERE 1.70% FOR CLASS A
SHARES, 2.45% FOR CLASS B SHARES AND 2.45% FOR CLASS C SHARES FOR THE
FISCAL YEAR ENDED JUNE 30, 1999. THE FEE WAIVERS OR EXPENSE REIMBURSE-
MENTS CAN BE TERMINATED AT ANY TIME.
(6) CLASS A SHARES ARE SUBJECT TO AN ANNUAL SERVICE FEE OF UP TO 0.25% OF
THE AVERAGE DAILY NET ASSETS ATTRIBUTABLE TO SUCH CLASS OF SHARES.
CLASS B SHARES AND CLASS C SHARES ARE EACH SUBJECT TO A COMBINED
ANNUAL DISTRIBUTION AND SERVICE FEE OF UP TO 1.00% OF THE AVERAGE
DAILY NET ASSETS ATTRIBUTABLE TO SUCH CLASS OF SHARES. SEE "PURCHASE
OF SHARES."
(7) BECAUSE DISTRIBUTION AND/OR SERVICE (12b-1) FEES ARE PAID OUT OF THE
FUND'S ASSETS ON AN ONGOING BASIS, OVER TIME THESE FEES WILL INCREASE
THE COST OF YOUR INVESTMENT AND MAY COST YOU MORE THAN PAYING OTHER
TYPES OF SALES CHARGES.
5
<PAGE>
EXAMPLE:
The following example is intended to help you compare the cost of investing in
the Fund with the costs of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same each year (except for the ten-year
amounts for Class B Shares, which reflect the conversion of Class B Shares to
Class A Shares after eight years). Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $741 $1,089 $1,460 $2,499
...............................................................
Class B Shares $752 $1,076 $1,476 $2,639*
...............................................................
Class C Shares $351 $ 773 $1,321 $2,816
...............................................................
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $741 $1,089 $1,460 $2,499
...............................................................
Class B Shares $252 $ 776 $1,326 $2,639*
...............................................................
Class C Shares $251 $ 773 $1,321 $2,816
...............................................................
</TABLE>
* BASED ON CONVERSION TO CLASS A SHARES AFTER EIGHT YEARS.
INVESTMENT OBJECTIVE,
POLICIES AND RISKS
The Fund's investment objective is to seek 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 Fund's investment adviser and with stock
selection within each country designed to replicate a broad market index. Any
income received from the investment of portfolio securities is incidental to the
Fund's investment objective. The Fund's investment objective is a fundamental
policy and may not be changed without the approval of a majority of shareholders
of the Fund's outstanding voting securities, as defined in the Investment
Company Act of 1940, as amended (the "1940 Act"). There are risks inherent in
all investments in securities; accordingly there can be no assurance that the
Fund will achieve its investment objective.
Under normal market conditions, the Fund's investment adviser seeks to achieve
the Fund's investment objective by applying a "top-down" investment approach
that emphasizes country and/or a sector selection and weighting rather than
individual security selection. Within a particular country or sector, the Fund's
investment adviser selects equity securities of issuers designed to track the
markets. Under normal market conditions, the Fund invests at least 65% of its
total assets in securities of issuers located in at least three different
countries (including the U.S.). This investment approach reflects the investment
adviser's philosophy for this Fund that a broad selection of securities
representing exposure to world markets based upon the economic outlook and
current valuation levels for each country and certain sectors is an effective
way to maximize the return and minimize the risk associated with global
investment. The Fund's investments may be shifted among the world's various
capital markets, including developing or emerging market countries, and among
different types of securities in accordance with the investment adviser's
ongoing analysis of economic or market trends, developments affecting the
markets and securities in which the Fund may invest and the anticipated relative
capital appreciation available from particular countries or sectors.
Accordingly, the composition of the Fund's portfolio will vary over time.
Achieving the Fund's investment objective depends on the ability of the Fund's
investment adviser to assess the effect of such economic and market trends on
different countries and sectors of the market. Because of the managed approach
of the Fund, portfolio turnover of the Fund may be greater than portfolio
turnover of other mutual funds. The Fund's portfolio turnover is shown under the
heading "Financial Highlights." A high portfolio turnover rate (100% or more)
increases the Fund's transactions costs (including brokerage commissions or
dealer costs) and a high portfolio turnover rate
6
<PAGE>
may result in the realization of more short-term capital gains than if the Fund
had a lower portfolio turnover rate. Increases in the Fund's transaction costs
would adversely impact the Fund's performance.
The Fund's investment adviser determines country and sector allocations for the
Fund on an ongoing basis. The Fund invests primarily in those countries
(including the U.S. and other industrialized countries throughout the world)
that comprise the MSCI World Index. In addition, the Fund may invest a portion
of its assets in securities of developing or emerging market countries whose
economies are developing strongly and whose markets are becoming more
sophisticated.
By analyzing a variety of macroeconomic and political factors, the Fund's
investment 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 Fund's investment
adviser believes to be a fair value for the securities market of each country.
Discrepancies between actual value and fair value, as determined by the Fund's
investment adviser, provide an expected return for each securities market. The
expected return is adjusted by currency return expectations derived from the
investment adviser's purchasing-power parity exchange rate model to arrive at an
expected total return in U.S. dollars. The final country and sector allocation
decision is then reached by considering the expected total return in light of
various considerations such as market size, volatility, liquidity and country
risk.
Within a particular country or sector, investments are made through the purchase
of equity securities which, in the aggregate, are designed to track the markets
for that particular country or sector.
The investment adviser's sell decisions are based on a country or
industry/sectors relative attractiveness as judged by the three major
components: valuations, fundamentals and market sentiment. The investment
adviser sells a country or sector when the rationale for the purchase has been
realized or the investment advisor expects the country/sector fundamentals (such
as economic growth and government policy) or market sentiment to disappoint. The
investment adviser does not establish pre-specified targets for sell points
given the relative nature of the process. It ranks country/sector attractiveness
and looks to identify alternatives prior to initiating or soon after a sale.
The Fund invests primarily in common stocks. Common stocks are shares of a
corporation or other entity that entitle the holder to a pro rata share of the
profits of the corporation, if any, without preference over any other class of
securities, including such entity's debt securities, preferred stock and other
senior equity securities. Common stock usually carries with it the right to vote
and frequently an exclusive right to do so.
While the Fund invests primarily in common stocks, it also may invest in
preferred stocks, convertible securities, warrants or rights to purchase common
stock and depository receipts. Preferred stock generally has a preference as to
dividends and liquidation over an issuer's common stock but ranks junior to debt
securities in an issuer's capital structure. Unlike interest payments on debt
securities, preferred stock dividends are payable only if declared by the
issuer's board of directors. Preferred stock also may be subject to optional or
mandatory redemption provisions. The ability of common stocks and preferred
stocks to generate income is dependent on the earnings and continuing
declaration of dividends by the issuers of such securities.
A convertible security is a bond, debenture, note, preferred stock, or other
security that may be converted into or exchanged for a prescribed amount of
common stock or other equity security of the same or a different issuer or into
cash within a particular period of time at a specified price or formula. A
convertible security generally entitles the holder to receive interest paid or
accrued on debt or the dividend paid on preferred stock until the convertible
security matures or is redeemed, converted or exchanged. Before conversion,
convertible securities generally have characteristics similar to both debt and
equity securities. The value of convertible securities tends to decline as
interest rates rise and, because of the conversion feature, tends to vary with
fluctuations in the market value of the underlying equity securities.
Convertible securities generally rank senior
7
<PAGE>
to common stock in a corporation's capital structure but are usually
subordinated to comparable nonconvertible securities. Convertible securities
generally do not participate directly in any dividend increases or decreases of
the underlying equity securities although the market prices of convertible
securities may be affected by any such dividend changes or other changes in the
underlying securities.
The Fund only invests in convertible debt securities considered to be
"investment grade" at the time of investment. Investment grade securities are
securities rated BBB or higher by Standard & Poor's ("S&P") or rated Baa or
higher by Moody's Investors Service, Inc. ("Moody's") or comparably rated by any
other internationally recognized statistical rating organization ("IRSRO") or,
if unrated, are considered by the Fund's investment adviser to be of comparable
quality. Securities rated BBB by S&P or Baa by Moody's are in the lowest of the
four investment grade categories and are considered by the rating agencies to be
medium-grade obligations which possess speculative characteristics so that
changes in economic conditions or other circumstances are more likely to lead to
a weakened capacity to make principal and interest payments than in the case of
higher-rated securities.
Rights and warrants entitle the holder to buy equity securities at a specific
price for a specific period of time. Rights are similar to warrants except that
they have a substantially shorter duration. Rights and warrants may be
considered more speculative and less liquid than certain other types of
investments in that they do not entitle a holder to dividends or voting rights
with respect to the underlying securities nor do they represent any right in the
assets of the issuing company and may lack a secondary market.
The Fund may invest in securities of certain issuers indirectly through
investment in other investment companies. Such investments are commonly used
when direct investments in certain countries are not permitted to foreign
entities. Investment in other investment companies may involve duplication of
management fees and certain other expenses.
The Fund may invest in issuers of small-, medium-or large-capitalization
companies. The securities of smaller companies may be subject to more abrupt or
erratic market movements than securities of larger companies or the market
averages in general. In addition, smaller companies typically are subject to a
greater degree of change in earnings and business prospects than are larger
companies. Thus, to the extent the Fund invests in smaller companies, the Fund
may be subject to greater investment risk than that assumed through investment
in the equity securities of larger companies.
RISKS OF INVESTING IN SECURITIES
OF FOREIGN ISSUERS
The Fund invests in securities of foreign issuers. Such securities may be
denominated in U.S. dollars and in currencies other than U.S. dollars. The
percentage of assets invested in securities of a particular country or
denominated in a particular currency will vary in accordance with the investment
adviser's assessment of the relative yield, appreciation potential and the
relationship of a country's currency to the U.S. dollar, which is based upon
such factors as fundamental economic strength, credit quality and interest rate
trends. Investments in foreign securities present certain risks not ordinarily
associated with investments in securities of U.S. issuers. These risks include
fluctuations in foreign currency exchange rates, political, economic or legal
developments (including war or other instability, expropriation of assets,
nationalization and confiscatory taxation), the imposition of foreign exchange
limitations (including currency blockage), withholding taxes on dividend or
interest payments or capital transactions or other restrictions, higher
transaction costs (including higher brokerage, custodial and settlement costs
and currency translation costs) and possible difficulty in enforcing contractual
obligations or taking judicial action. Also, foreign securities may not be as
liquid and may be more volatile than comparable domestic securities.
In addition, there often is less publicly available information about many
foreign issuers, and issuers of foreign securities are subject to different,
often less comprehensive, auditing, accounting, financial reporting and
disclosure requirements than domestic issuers. There is generally less
government regulation of stock exchanges, brokers and listed companies abroad
than in the U.S., and, with respect to certain
8
<PAGE>
foreign countries, there is a possibility of expropriation or confiscatory
taxation, or diplomatic developments which could affect investment in those
countries. Because there is usually less supervision and governmental regulation
of exchanges, brokers and dealers than there is in the U.S., the Fund may
experience settlement difficulties or delays not usually encountered in the U.S.
Delays in making trades in foreign securities relating to volume constraints,
limitations or restrictions, clearance or settlement procedures, or otherwise
could impact returns and result in temporary periods when assets of the Fund are
not fully invested or attractive investment opportunities are foregone.
Investments in securities of developing or emerging market countries are subject
to greater risks than investments in securities of developed market countries
since emerging markets tend to have economic structures that are less diverse
and mature and political systems that are less stable than developed markets.
In addition to the increased risks of investing in foreign securities, there are
often increased transactions costs associated with investing in foreign
securities including the costs incurred in connection with converting
currencies, higher foreign brokerage or dealer costs, and higher settlement
costs or custodial costs.
Since the Fund invests in securities denominated or quoted in currencies other
than the U.S. dollar, the Fund will be affected by changes in foreign currency
exchange rates (and exchange control regulations) which affect the value of
investments in the Fund and the accrued income and unrealized appreciation or
depreciation of the investments. Changes in foreign currency exchange ratios
relative to the U.S. dollar will affect the U.S. dollar value of the Fund's
assets denominated in that currency and the Fund's return on such assets as well
as any temporary uninvested reserves in bank deposits in foreign currencies. In
addition, the Fund will incur costs in connection with conversions between
various currencies.
The Fund may purchase and sell foreign currency on a spot basis in connection
with the settlement of transactions in securities traded in such foreign
currency. The Fund also may enter into contracts with banks, brokers or dealers
to purchase or sell securities or foreign currencies at a future date ("forward
contracts"). A foreign currency forward contract is a negotiated agreement
between the contracting parties to exchange a specified amount of currency at a
specified future time at a specified rate. The rate can be higher or lower than
the spot rate between the currencies that are the subject of the contract.
The Fund may attempt to protect against adverse changes in the value of the U.S.
dollar in relation to a foreign currency by entering into a forward contract for
the purchase or sale of the amount of foreign currency invested or to be
invested, or by buying or selling a foreign currency option or futures contract
for such amount. Such strategies may be employed before the Fund purchases a
foreign security traded in the currency which the Fund anticipates acquiring or
between the date the foreign security is purchased or sold and the date on which
payment therefor is made or received. Seeking to protect against a change in the
value of a foreign currency in the foregoing manner does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Furthermore, such transactions reduce or
preclude the opportunity for gain if the value of the currency should move in
the direction opposite to the position taken. Unanticipated changes in currency
prices may result in poorer overall performance for the Fund than if it had not
entered into such contracts.
Investors should carefully consider the risks of foreign investments before
investing in the Fund.
DERIVATIVE INSTRUMENTS
The Fund may, but is not required to, use various investment strategic
transactions described below to earn income, facilitate portfolio management and
mitigate risks. Such strategic transactions are generally accepted under modern
portfolio management and are regularly used by many mutual funds and other
institutional investors. Although the Fund's investment adviser seeks to use the
practices to further the Fund's investment objective, no assurance can be given
that these practices will achieve this result.
9
<PAGE>
The Fund may purchase and sell derivative instruments such as exchange-listed
and over-the-counter put and call options on securities, financial futures,
equity, fixed-income and interest rate indices, and other financial instruments,
futures contracts and options thereon (including but not limited to securities
index futures, foreign currency exchange futures, interest rate futures and
other financial futures), structured notes, swaps, caps, floors or collars and
enter into various currency transactions such as currency forward contracts,
currency futures contracts, currency swaps or options on currency or currency
futures. In addition, the Fund may invest in other derivative instruments that
are developed over time if their use would be consistent with the objective of
the Fund. Collectively, all of the above are referred to as "Strategic
Transactions." The Fund generally seeks to use Strategic Transactions as a
portfolio management or hedging technique to seek to protect against possible
adverse changes in the market value of securities held in or to be purchased for
the Fund's portfolio, protect the Fund's unrealized gains, facilitate the sale
of certain securities for investment purposes, protect against changes in
currency exchange rates or to adjust the exposure to a particular currency,
manage the effective maturity or duration of the Fund's portfolio, establish
positions in the derivatives markets as a substitute for purchasing or selling
particular securities, including, for example, when the Fund adjusts its
exposure to a market in response to changes in investment strategy, when doing
so provides more liquidity than the direct purchase of the securities underlying
such derivatives, when the Fund 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. The Fund may invest up to 33 1/3%
of its total assets in Strategic Transactions for non-hedging purposes (measured
by the aggregate notional amount of outstanding derivatives). In addition, the
Fund may invest up to 20% of its total assets in futures contracts and options
on futures contracts (measured by the aggregate notional amount of such
outstanding contracts).
Strategic Transactions have risks including the imperfect correlation between
the value of such instruments and the underlying assets, the possible default of
the other party to the transaction or illiquidity of the derivative instruments.
Furthermore, the ability to successfully use Strategic Transactions depends on
the Fund's investment adviser's ability to predict pertinent market movements,
which cannot be assured. Thus, the use of Strategic Transactions may result in
losses greater than if they had not been used, may require the Fund to sell or
purchase portfolio securities at inopportune times or for prices other than
current market values, may limit the amount of appreciation the Fund can
otherwise realize on an investment, or may cause the Fund to hold a security
that it might otherwise sell. The use of currency transactions can result in the
Fund incurring losses because of the imposition of exchange controls, suspension
of settlements or the inability of the Fund to deliver or receive a specified
currency. In addition, amounts paid as premiums or cash or other assets held in
margin accounts with respect to Strategic Transactions are not otherwise
available to the Fund for investment purposes.
When conducted outside the U.S., Strategic Transactions may not be regulated as
rigorously as in the U.S., may not involve a clearing mechanism and related
guarantees, and are subject to the risk of governmental actions affecting
trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions,
(iii) delays in the Fund's ability to act upon economic events occurring in
foreign markets during non-business hours in the U.S., (iv) the imposition of
different exercise and settlement terms and procedures and margin requirements
than in the U.S. and (v) lower trading volume and liquidity.
A more complete discussion of Strategic Transactions and their risks is
contained in the Fund's Statement of Additional Information. The Statement of
Additional Information can be obtained by investors free of charge as described
on the back cover of this prospectus.
10
<PAGE>
OTHER INVESTMENTS AND RISK FACTORS
For cash management purposes, the Fund may engage in repurchase agreements with
banks and broker-dealers and other financial institutions in order to earn a
return on temporarily available cash. Such transactions are subject to the risk
of default by the other party.
The Fund may lend its portfolio securities in an amount up to 33 1/3% of its
total assets to broker-dealers, banks or other recognized institutional
borrowers of securities. The Fund may incur lending fees and other costs in
connection with securities lending, and securities lending is subject to the
risk of default by the other party.
The Fund may invest up to 15% of the Fund's net assets in illiquid securities
and certain restricted securities. Notwithstanding the foregoing, the Fund may
not invest more than 10% of its total assets in securities subject to legal or
contractual restrictions on resale. Such securities may be difficult or
impossible to sell at the time and the price that the Fund would like. Thus, the
Fund may have to sell such securities at a lower price, sell other securities
instead to obtain cash or forego other investment opportunities.
Further information about these types of investments and other investment
practices that may be used by the Fund is contained in the Statement of
Additional Information.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Fund may on a temporary basis hold cash or invest a
portion or all of its assets in money-market instruments including obligations
of the U.S. government, its agencies or instrumentalities, obligations of
foreign sovereignties, other high-quality debt-securities including prime
commercial paper, repurchase agreements and bank obligations, such as bankers'
acceptances and certificates of deposit (including Eurodollar certificates of
deposit). Under normal market conditions, the potential for capital appreciation
on these securities will tend to be lower than the potential for capital
appreciation on other securities that may be owned by the Fund. In taking such a
defensive position, the Fund would not be pursuing and may not achieve its
investment objective.
YEAR 2000 RISKS. Like other mutual funds, financial and business organizations
and individuals around the world, the Fund could be adversely affected if the
computer systems used by the Fund's investment adviser, subadviser and other
service providers do not properly process and calculate date-related information
and data from and after January 1, 2000. This is commonly known as the "Year
2000 Problem." The Fund's investment adviser and subadviser are taking steps
that they believe are reasonably designed to address the Year 2000 Problem with
respect to computer systems that they use and to obtain reasonable assurances
that comparable steps are being taken by the Fund's other major service
providers. At this time, there can be no assurances that these steps will be
sufficient to avoid any adverse impact to the Fund. In addition, the Year 2000
Problem may adversely affect the markets and the issuers of securities in which
the Fund may invest which, in turn, may adversely affect the net asset value of
shares of the Fund. Improperly functioning trading systems may result in
settlement problems and liquidity issues. In addition, corporate and
governmental data processing errors may result in production problems for
individual companies or issuers and overall economic uncertainty. Earnings of
individual issuers will be affected by remediation costs, which may be
substantial and may be reported inconsistently in U.S. and foreign financial
statements. Efforts in foreign countries to remediate the potential Year 2000
Problem may not be as extensive as those in the U.S. As a result, the operations
of foreign markets and issuers may be disrupted by the Year 2000 Problem which
could adversely affect the Fund's portfolio. The risks are greater with respect
to certain developing or emerging market countries because there is an increased
likelihood that issuers of securities of such countries cannot anticipate or
effectively manage the effects of computer problems and the Year 2000 problem.
Accordingly, the Fund's investments may be adversely affected. The statements
above are subject to the Year 2000 Information and Readiness Disclosure Act
which may limit the legal rights regarding the use of such statements in the
case of a dispute.
11
<PAGE>
INVESTMENT ADVISORY
SERVICES
INVESTMENT ADVISER
Van Kampen Investment Advisory Corp. is the investment adviser (the "Adviser" or
"Advisory Corp.") and administrator of the Fund. The Adviser is a wholly owned
subsidiary of Van Kampen Investments Inc. ("Van Kampen Investments"). Van Kampen
Investments is a diversified asset management company with more than two million
retail investor accounts, extensive capabilities for managing institutional
portfolios, and more than $79 billion under management or supervision as of
September 30, 1999. Van Kampen Investments' more than 50 open-end and 39
closed-end funds and more than 2,500 unit investment trusts are professionally
distributed by leading authorized dealers nationwide. Van Kampen Funds Inc., the
distributor of the Fund (the "Distributor") and the sponsor of the funds
mentioned above, is also a wholly owned subsidiary of Van Kampen Investments.
Van Kampen Investments is an indirect wholly owned subsidiary of Morgan Stanley
Dean Witter & Co. The Adviser's principal office is located at 1 Parkview Plaza,
PO Box 5555, Oakbrook Terrace, Illinois 60181-5555.
ADVISORY AGREEMENT AND ADMINISTRATION AGREEMENT. The Fund retains the Adviser to
manage the investment of its assets and to place orders for the purchase and
sale of its portfolio securities. Under an investment advisory agreement between
the Adviser and the Fund (the "Advisory Agreement"), the Fund pays the Adviser a
monthly fee computed based upon an annual rate of 1.00% applied to the average
daily net assets of the Fund.
The Fund also retains the Adviser to provide administrative services for the
Fund's day-to-day operations. Under an administration agreement, between the
Adviser and the Fund, the Fund pays a monthly administration fee computed based
upon an annual rate of 0.25% applied to the average daily net assets of the
Fund.
The Adviser furnishes offices, necessary facilities and equipment, provides
administrative services, and permits its officers and employees to serve without
compensation as directors or officers of the Fund if elected to such positions.
The Fund pays all charges and expenses of its day-to-day operations, including
the compensation of directors of the Fund (other than those who are affiliated
persons of the Adviser, Distributor or Van Kampen Investments), the charges and
expenses of legal counsel and independent accountants, distribution fees,
service fees, custodian fees, the costs of providing reports to shareholders,
and all other ordinary business expenses not specifically assumed by the
Adviser.
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen Asset Management
Inc. ("Asset Management").
INVESTMENT SUBADVISER
Morgan Stanley Dean Witter Investment Management Inc. (the "Subadviser") is the
Subadviser of the Fund. The Subadviser is a wholly owned subsidiary of Morgan
Stanley Dean Witter & Co., and is an affiliate of the Adviser. The Subadviser
conducts a worldwide portfolio management business and provides a broad range of
portfolio management services to customers in the United States and abroad. At
June 30, 1999, the Subadviser, together with its affiliated institutional asset
management companies, managed assets of approximately $175.3 billion, including
assets under fiduciary advice. The Subadviser's principal office is located at
1221 Avenue of the Americas, New York, New York 10020. On December 1, 1998,
Morgan Stanley Asset Management Inc. changed its name to Morgan Stanley Dean
Witter Investment Management Inc. but continues to do business in certain
instances using the name Morgan Stanley Asset Management.
SUBADVISORY AGREEMENT. The Adviser has entered into a subadvisory agreement with
the Subadviser to assist the Adviser in performing its investment advisory
functions. The Adviser pays the Subadviser on a monthly basis a portion of the
net advisory fees the Adviser receives from the Fund.
GENERAL
From time to time, the Adviser, the Subadviser or the Distributor may
voluntarily undertake to reduce
12
<PAGE>
the Fund's expenses by reducing the fees payable to them or by reducing other
expenses of the Fund in accordance with such limitations as the Adviser, the
Subadviser or Distributor may establish.
PERSONAL INVESTMENT POLICIES. The Fund, the Adviser and the Subadviser have
adopted Codes of Ethics designed to recognize the fiduciary relationship among
the Fund, the Adviser and the Subadviser and their respective employees. The
Codes of Ethics permit directors, trustees, officers and employees to buy and
sell securities for their personal accounts subject to certain restrictions.
Persons with access to certain sensitive information are subject to
pre-clearance and other procedures designed to prevent conflicts of interest.
PORTFOLIO MANAGEMENT. Ann D. Thivierge and Barton M. Biggs are responsible as
comanagers for the day-to-day management of the Fund's investment portfolio.
Ms. Thivierge and Mr. Biggs have shared primary responsibility for managing the
Portfolio's assets since June 1995.
Ms. Thivierge is a Managing Director of the Subadviser and Morgan Stanley Dean
Witter & Co. and is a member of the Subadviser's Asset Allocation Committee.
Ms. Thivierge joined the Subadviser in 1986 and has worked in global asset
allocation since 1990. She 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 has been Chairman and a Director of the Subadviser since 1980 and a
Managing Director of Morgan Stanley Dean Witter & Co. since 1975. He is also a
Director and Chairman of various registered investment companies to which the
Subadviser 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.
PURCHASE OF SHARES
GENERAL
The Fund offers three classes of shares designated as Class A Shares, Class B
Shares and Class C Shares. By offering three classes of shares, the Fund permits
each investor to choose the class of shares that is most beneficial given the
amount to be invested and the length of time the investor expects to hold the
shares.
Initial investments must be at least $1,000 for each class of shares, and
subsequent investments must be at least $25 for each class of shares. Both
minimums may be waived by the Distributor for plans involving periodic
investments.
Each class of shares represents an interest in the same portfolio of investments
of the Fund and has the same rights except that (i) Class A Shares generally
bear the sales charge expenses at the time of purchase while Class B Shares and
Class C Shares bear the sales charge expenses at the time of redemption and any
expenses (including higher distribution fees and transfer agency costs)
resulting from such deferred sales charge arrangement, (ii) generally, each
class of shares has exclusive voting rights with respect to approvals of the
Rule 12b-1 distribution plan and service plan (each as described below) under
which its distribution fee or service fee is paid, (iii) each class of shares
has different exchange privileges, (iv) certain classes of shares are subject to
a conversion feature and (v) certain classes of shares have different
shareholder service options available.
The offering price of the Fund's shares is based upon the Fund's net asset value
per share (plus sales charges, where applicable). The net asset values per share
of the Class A Shares, Class B Shares and Class C Shares are generally expected
to be substantially the same. In certain circumstances, however, the per share
net asset values of the classes of shares may differ from one another,
reflecting the daily expense accruals of the higher distribution fees and
transfer agency costs applicable to the Class B Shares and Class C Shares and
the differential in the dividends that may be paid on each class of shares.
13
<PAGE>
The net asset value per share for each class of shares of the Fund is determined
once daily as of the close of trading on the New York Stock Exchange (the
"Exchange") (currently 4:00 p.m., New York time) each day the Exchange is open
for trading except on any day on which no purchase or redemption orders are
received or there is not a sufficient degree of trading in the Fund's portfolio
securities such that the Fund's net asset value per share might be materially
affected. The Fund's Board of Directors reserves the right to calculate the net
asset value per share and adjust the offering price based thereon more
frequently than once daily if deemed desirable. Net asset value per share for
each class is determined by dividing the value of the Fund's portfolio
securities, cash and other assets (including accrued interest) attributable to
such class, less all liabilities (including accrued expenses) attributable to
such class, by the total number of shares of the class outstanding. Such
computation is made by using prices as of the close of trading on the Exchange
and (i) valuing securities listed or traded on a national securities exchange at
the closing price, or if no closing price is available, at the last reported
sale price, and if there has been no sale that day, at the mean between the last
reported bid and asked prices, (ii) valuing over-the-counter securities at the
last reported sale price from the National Association of Securities Dealers
Automated Quotations ("NASDAQ"), (iii) valuing unlisted securities and any
securities for which market quotations are not readily available at the average
of the mean between the current reported bid and asked prices obtained from
reputable brokers and (iv) valuing any other assets at fair value as determined
in good faith by the Adviser in accordance with procedures established by the
Fund's Board of Directors. Debt securities with remaining maturities of 60 days
or less are valued on an amortized cost basis, which approximates market value.
Trading in securities on many foreign securities exchanges (including European
and Far Eastern securities exchanges) and over-the-counter markets is normally
completed before the close of business on each U.S. business day. In addition,
securities trading in a particular country or countries may not take place on
all U.S. business days or may take place on days which are not U.S. business
days. Changes in valuations on certain securities may occur at times or on days
on which the Fund's net asset value is not calculated and on which the Fund does
not effect sales, redemptions and exchanges of its shares.
The Fund calculates net asset value per share, and therefore effects sales,
redemptions and exchanges of its shares, as of the close of trading on the
Exchange each day the Exchange is open for trading. Such calculation does not
take place contemporaneously with the determination of the prices of certain
foreign portfolio securities used in such calculation.
If events materially affecting the value of foreign portfolio securities or
other portfolio securities occur between the time when their price is determined
and the time when the Fund's net asset value is calculated, such securities may
be valued at fair value as determined in good faith by the Adviser based in
accordance with procedures established by the Fund's Board of Directors.
The Fund has adopted a distribution plan (the "Distribution Plan") with respect
to each class of its shares pursuant to Rule 12b-1 under the 1940 Act. The Fund
also has adopted a service plan (the "Service Plan") with respect to each class
of its shares. Under the Distribution Plan and the Service Plan, the Fund pays
distribution fees in connection with the sale and distribution of its shares and
service fees in connection with the provision of ongoing services to
shareholders of each class.
The amount of distribution and service fees varies among the classes offered by
the Fund. Because these fees are paid out of the Fund's assets on an ongoing
basis, these fees will increase the cost of your investment in the Fund. By
purchasing a class of shares subject to higher distribution and service fees,
you may pay more over time than on a class of shares with other types of sales
charge arrangements. Long-term shareholders may pay more than the economic
equivalent of the maximum front-end sales charges permitted by the rules of the
National Association of Securities Dealers, Inc. ("NASD"). The net income
attributable to a class of shares will be reduced by the amount of the
distribution fees and other expenses of the Fund associated with such class of
shares. To assist investors in comparing classes of shares, the tables under the
heading "Fees and Expenses of the Fund" provide a summary of
14
<PAGE>
sales charges and expenses and an example of the sales charges and expenses of
the Fund applicable to each class of shares.
The shares are offered to the public on a continuous basis through the
Distributor as principal underwriter, which is located at 1 Parkview Plaza, PO
Box 5555, Oakbrook Terrace, Illinois 60181-5555. Shares also are offered through
members of the NASD who are acting as securities dealers ("dealers") and NASD
members or eligible non-NASD members who are acting as brokers or agents for
investors ("brokers"). "Dealers" and "brokers" are sometimes referred to herein
as "authorized dealers."
Shares may be purchased on any business day by completing the application
accompanying this prospectus and forwarding the application, directly or through
an authorized dealer, to the Fund's shareholder service agent, Van Kampen
Investor Services Inc. ("Investor Services"), a wholly owned subsidiary of Van
Kampen Investments. When purchasing shares of the Fund, investors must specify
whether the purchase is for Class A Shares, Class B Shares or Class C Shares.
Sales personnel of authorized dealers distributing the Fund's shares are
entitled to receive compensation for selling such shares and may receive
differing compensation for selling Class A Shares, Class B Shares or Class C
Shares.
The offering price for shares is based upon the next calculation of net asset
value per share (plus sales charges, where applicable) after an order is
received by Investor Services. Orders received by authorized dealers prior to
the close of the Exchange are priced based on the date of receipt provided such
order is transmitted to Investor Services prior to Investor Services' close of
business on such date. Orders received by authorized dealers after the close of
the Exchange or transmitted to Investor Services after its close of business are
priced based on the date of the next computed net asset value per share provided
they are received by Investor Services prior to Investor Services' close of
business on such date. It is the responsibility of authorized dealers to
transmit orders received by them to Investor Services so they will be received
in a timely manner.
The Fund and the Distributor reserve the right to refuse any order for the
purchase of shares. The Fund also reserves the right to suspend the sale of the
Fund's shares in response to conditions in the securities markets or for other
reasons. Shares of the Fund may be sold in foreign countries where permissible.
Investor accounts will automatically be credited with additional shares of the
Fund after any Fund distributions, such as dividends and capital gain dividends,
unless the investor instructs the Fund otherwise. Investors wishing to receive
cash instead of additional shares should contact the Fund at (800) 341-2911 or
by writing to the Fund, c/o Van Kampen Investors Services Inc., PO Box 218256,
Kansas City, MO 64121-8256.
CLASS A SHARES
Class A Shares of the Fund are sold at net asset value plus an initial maximum
sales charge of up to 5.75% of the offering price (or 6.10% of the net amount
invested), reduced on investments of $50,000 or more as follows:
CLASS A SHARES
SALES CHARGE SCHEDULE
<TABLE>
<CAPTION>
AS % OF AS % OF
SIZE OF OFFERING NET AMOUNT
INVESTMENT PRICE INVESTED
- ---------------------------------------------------------
<S> <C> <C>
Less than $50,000 5.75% 6.10%
........................................................
$50,000 but less than $100,000 4.75% 4.99%
........................................................
$100,000 but less than $250,000 3.75% 3.90%
........................................................
$250,000 but less than $500,000 2.75% 2.83%
........................................................
$500,000 but less than $1,000,000 2.00% 2.04%
........................................................
$1,000,000 or more * *
........................................................
</TABLE>
* NO SALES CHARGE IS PAYABLE AT THE TIME OF PURCHASE ON INVESTMENTS OF
$1 MILLION OR MORE, ALTHOUGH FOR SUCH INVESTMENTS THE FUND MAY IMPOSE
A CONTINGENT DEFERRED SALES CHARGE OF 1.00% ON CERTAIN REDEMPTIONS
MADE WITHIN ONE YEAR OF THE PURCHASE. THE CONTINGENT DEFERRED SALES
CHARGE IS ASSESSED ON AN AMOUNT EQUAL TO THE LESSER OF THE THEN
CURRENT MARKET VALUE OR THE COST OF THE SHARES BEING REDEEMED.
ACCORDINGLY, NO SALES CHARGE IS IMPOSED ON INCREASES IN NET ASSET
VALUE ABOVE THE INITIAL PURCHASE PRICE.
No sales charge is imposed on Class A Shares received from reinvestment of
dividends or capital gain dividends.
15
<PAGE>
Under the Distribution Plan and Service Plan, the Fund may spend up to a total
of 0.25% per year of the Fund's average daily net assets with respect to the
Class A Shares of the Fund. From such amount, under the Service Plan, the Fund
may spend up to 0.25% per year of the Fund's average daily net assets with
respect to the Class A Shares for the ongoing provision of services to Class A
shareholders by the Distributor and by brokers, dealers or financial
intermediaries and for the maintenance of such shareholders' accounts.
CLASS B SHARES
Class B Shares of the Fund are sold at net asset value and are subject to a
contingent deferred sales charge if redeemed within five years of purchase as
shown in the table as follows:
CLASS B SHARES
SALES CHARGE SCHEDULE
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE
AS A PERCENTAGE OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
- -------------------------------------------------------
<S> <C>
First 5.00%
......................................................
Second 4.00%
......................................................
Third 3.00%
......................................................
Fourth 2.50%
......................................................
Fifth 1.50%
......................................................
Sixth and After None
......................................................
</TABLE>
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gain dividends. It
is presently the policy of the Distributor not to accept any order for Class B
Shares in an amount of $500,000 or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
The amount of the contingent deferred sales charge, if any, varies depending on
the number of years from the time of payment for the purchase of Class B Shares
until the time of redemption of such shares. Solely for purposes of determining
the number of years from the time of any payment for the purchase of shares, all
payments during a month are totaled and deemed to have been made on the last day
of the month.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed shares being redeemed first are any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge followed by shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
Fund's average daily net assets with respect to the Class B Shares of the Fund.
In addition, under the Service Plan, the Fund may spend up to 0.25% per year of
the Fund's average daily net assets with respect to the Class B Shares for the
ongoing provision of services to Class B shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CLASS C SHARES
Class C Shares of the Fund are sold at net asset value and are subject to a
contingent deferred sales charge of 1.00% of the dollar amount subject to charge
if redeemed within one year of purchase.
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gain dividends. It
is presently the policy of the Distributor not to accept any order for Class C
Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
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<PAGE>
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed shares being redeemed first are any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge followed by shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
Fund's average daily net assets with respect to the Class C Shares of the Fund.
In addition, under the Service Plan, the Fund may spend up to 0.25% per year of
the Fund's average daily net assets with respect to the Class C Shares for the
ongoing provision of services to Class C shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CONVERSION FEATURE
Class B Shares purchased on or after June 1, 1996, and any dividend reinvestment
plan Class B Shares received on such shares, automatically convert to Class A
Shares eight years after the end of the calendar month in which the shares were
purchased. Class B Shares purchased before June 1, 1996, and any dividend
reinvestment plan Class B Shares received on such shares, automatically convert
to Class A Shares seven years after the end of the calendar month in which the
shares were purchased. Such conversion will be on the basis of the relative net
asset values per share, without the imposition of any sales load, fee or other
charge. The conversion schedule applicable to a share of the Fund acquired
through the exchange privilege from another Van Kampen fund participating in the
exchange program is determined by reference to the Van Kampen fund from which
such share was originally purchased.
The conversion of such shares to Class A Shares is subject to the continuing
availability of an opinion of counsel to the effect that (i) the assessment of
the higher distribution fee and transfer agency costs with respect to such
shares does not result in the Fund's dividends or capital gain dividends
constituting "preferential dividends" under the federal income tax law and
(ii) the conversion of shares does not constitute a taxable event under federal
income tax law. The conversion may be suspended if such an opinion is no longer
available and such shares might continue to be subject to the higher aggregate
fees applicable to such shares for an indefinite period.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge is waived on redemptions of Class B Shares
and Class C Shares (i) within one year following the death or disability (as
disability is defined by federal income tax law) of a shareholder, (ii) for
required minimum distributions from an individual retirement account ("IRA") or
certain other retirement plan distributions, (iii) for withdrawals under the
Fund's systematic withdrawal plan but limited to 12% annually of the initial
value of the account, (iv) if no commission or transaction fee is paid to
authorized dealers at the time of purchase of such shares and (v) if made by
involuntary liquidation by the Fund of a shareholder's account as described
under the heading "Redemption of Shares." Subject to certain limitations, a
shareholder who has redeemed Class C Shares of the Fund may reinvest in Class C
Shares at net asset value with credit for any contingent deferred sales charge
if the reinvestment is made within 180 days after the redemption. For a more
complete description of contingent deferred sales charge waivers, please refer
to the Fund's Statement of Additional Information or contact your authorized
dealer.
QUANTITY DISCOUNTS
Investors purchasing Class A Shares may, under certain circumstances described
below, be entitled to pay reduced or no sales charges. Investors, or their
authorized dealers, must notify the Fund at the time of the purchase order
whenever a quantity discount is applicable to purchases. Upon such notification,
an investor will receive the lowest applicable sales charge. Quantity discounts
may be modified or terminated at any time. For more information about quantity
discounts, investors should contact their authorized dealer or the Distributor.
A person eligible for a reduced sales charge includes an individual, his or her
spouse and children under 21 years of age and any corporation, partnership or
sole proprietorship which is 100% owned, either alone or in combination, by any
of the foregoing; a trustee or other fiduciary purchasing for a single
17
<PAGE>
trust or for a single fiduciary account, or a "company" as defined in Section
2(a)(8) of the 1940 Act.
As used herein, "Participating Funds" refers to certain open-end investment
companies advised by Asset Management or Advisory Corp. and distributed by the
Distributor as determined from time to time by the Fund's Board of Directors.
VOLUME DISCOUNTS. The size of investment shown in the Class A Shares sales
charge table applies to the total dollar amount being invested by any person in
shares of the Fund, or in any combination of shares of the Fund and shares of
other Participating Funds, although other Participating Funds may have different
sales charges.
CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the Class A Shares
sales charge table may also be determined by combining the amount being invested
in shares of the Participating Funds plus the current offering price of all
shares of the Participating Funds which have been previously purchased and are
still owned.
LETTER OF INTENT. A Letter of Intent provides an opportunity for an investor to
obtain a reduced sales charge by aggregating the investments over a 13-month
period to determine the sales charge as outlined in the Class A Shares sales
charge table. The size of investment shown in the Class A Shares sales charge
table includes purchases of shares of the Participating Funds over a 13-month
period based on the total amount of intended purchases plus the value of all
shares of the Participating Funds previously purchased and still owned. An
investor may elect to compute the 13-month period starting up to 90 days before
the date of execution of a Letter of Intent. Each investment made during the
period receives the reduced sales charge applicable to the total amount of the
investment goal. The initial purchase must be for an amount equal to at least 5%
of the minimum total purchase amount of the level selected. If trades not
initially made under a Letter of Intent subsequently qualify for a lower sales
charge through the 90-day backdating provisions, an adjustment will be made at
the time of the expiration of the Letter of Intent to give effect to the lower
charge. Such adjustment in sales charge will be used to purchase additional
shares for the shareholder at the applicable discount category. The Fund
initially will escrow shares totaling 5% of the dollar amount of the Letter of
Intent to be held by Investor Services in the name of the shareholder. In the
event the Letter of Intent goal is not achieved within the specified period, the
investor must pay the difference between the sales charge applicable to the
purchases made and the reduced sales charge previously paid. Such payments may
be made directly to the Distributor or, if not paid, the Distributor will
liquidate sufficient escrowed shares to obtain the difference.
OTHER PURCHASE PROGRAMS
Purchasers of Class A Shares may be entitled to reduced or no initial sales
charges in connection with the unit investment trust reinvestment program and
purchases by registered representatives of selling firms or purchases by persons
affiliated with the Fund or the Distributor. The Fund reserves the right to
modify or terminate these arrangements at any time.
UNIT INVESTMENT TRUST REINVESTMENT PROGRAM. The Fund permits unitholders of unit
investment trusts to reinvest distributions from such trusts in Class A Shares
of the Fund at net asset value per share and with no minimum initial or
subsequent investment requirement, if the administrator of an investor's unit
investment trust program meets certain uniform criteria relating to cost savings
by the Fund and the Distributor. The total sales charge for all other
investments made from unit investment trust distributions will be 1.00% of the
offering price (1.01% of net asset value). Of this amount, the Distributor will
pay to the authorized dealer, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the terms and conditions that apply to the program,
should contact their authorized dealer or the Distributor.
The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single
18
<PAGE>
remittance for all investments in the Fund during each distribution period by
all investors who choose to invest in the Fund through the program and
(2) provide Investor Services with appropriate backup data for each investor
participating in the program in a computerized format fully compatible with
Investor Services' processing system.
In order to obtain these special benefits, all dividends and other distributions
by the Fund must be reinvested in additional shares and there can not be any
systematic withdrawal program. There will be no minimum for reinvestments from
unit investment trusts. The Fund will send account activity statements to such
participants on a quarterly basis only, even if their investments are made more
frequently. The Fund reserves the right to modify or terminate this program at
any time.
NET ASSET VALUE PURCHASE OPTIONS. Class A Shares of the Fund may be purchased at
net asset value, upon written assurance that the purchase is made for investment
purposes and that the shares will not be resold except through redemption by the
Fund, by:
(1) Current or retired trustees or directors of funds advised by Morgan Stanley
Dean Witter & Co. and any of its subsidiaries and such persons' families
and their beneficial accounts.
(2) Current or retired directors, officers and employees of Morgan Stanley Dean
Witter & Co. and any of its subsidiaries; employees of an investment
subadviser to any fund described in (1) above or an affiliate of such
subadviser; and such persons' families and their beneficial accounts.
(3) Directors, officers, employees and, when permitted, registered
representatives, of financial institutions that have a selling group
agreement with the Distributor and their spouses and children under 21
years of age when purchasing for any accounts they beneficially own, or, in
the case of any such financial institution, when purchasing for retirement
plans for such institution's employees; provided that such purchases are
otherwise permitted by such institutions.
(4) Registered investment advisers who charge a fee for their services, trust
companies and bank trust departments investing on their own behalf or on
behalf of their clients. The Distributor may pay authorized dealers through
which purchases are made an amount up to 0.50% of the amount invested, over
a 12-month period.
(5) Trustees and other fiduciaries purchasing shares for retirement plans which
invest in multiple fund families through broker-dealer retirement plan
alliance programs that have entered into agreements with the Distributor
and which are subject to certain minimum size and operational requirements.
Trustees and other fiduciaries should refer to the Statement of Additional
Information for further details with respect to such alliance programs.
(6) Beneficial owners of shares of Participating Funds held by a retirement
plan or held in a tax-advantaged retirement account who purchase shares of
the Fund with proceeds from distributions from such a plan or retirement
account other than distributions taken to correct an excess contribution.
(7) Accounts as to which a bank or broker-dealer charges an account management
fee ("wrap accounts"), provided the bank or broker-dealer has a separate
agreement with the Distributor.
(8) Trusts created under pension, profit sharing or other employee benefit
plans qualified under Section 401(a) of the Internal Revenue Code of 1986,
as amended (the "Code"), or custodial accounts held by a bank created
pursuant to Section 403(b) of the Code and sponsored by nonprofit
organizations defined under Section 501(c)(3) of the Code and assets held
by an employer or trustee in connection with an eligible deferred
compensation plan under Section 457 of the Code. Such plans will qualify
for purchases at net asset value provided, for plans initially establishing
accounts with the Distributor in the Participating Funds after February 1,
1997, that (1) the initial amount invested in the Participating Funds is at
least $500,000 or (2) such shares are purchased by an employer sponsored
plan with more than 100 eligible employees. Such plans that have been
established with a Participating Fund or have received proposals from the
Distributor prior to February 1, 1997 based on net asset value purchase
privileges previously in effect will be qualified to purchase shares of the
Participating Funds at net asset value for accounts established on or
before
19
<PAGE>
May 1, 1997. Section 403(b) and similar accounts for which Van Kampen Trust
Company serves as custodian will not be eligible for net asset value
purchases based on the aggregate investment made by the plan or the number
of eligible employees, except under certain uniform criteria established by
the Distributor from time to time. Prior to February 1, 1997, a commission
will be paid to authorized dealers who initiate and are responsible for
such purchases within a rolling twelve- month period as follows: 1.00% on
sales to $5 million, plus 0.50% on the next $5 million, plus 0.25% on the
excess over $10 million. For purchases on February 1, 1997 and thereafter,
a commission will be paid as follows: 1.00% on sales to $2 million, plus
0.80% on the next $1 million, plus 0.50% on the next $47 million, plus
0.25% on the excess over $50 million.
(9) Individuals who are members of a "qualified group." For this purpose, a
qualified group is one which (i) has been in existence for more than six
months, (ii) has a purpose other than to acquire shares of the Fund or
similar investments, (iii) has given and continues to give its endorsement
or authorization, on behalf of the group, for purchase of shares of the
Fund and Participating Funds, (iv) has a membership that the authorized
dealer can certify as to the group's members and (v) satisfies other
uniform criteria established by the Distributor for the purpose of
realizing economies of scale in distributing such shares. A qualified group
does not include one whose sole organizational nexus, for example, is that
its participants are credit card holders of the same institution, policy
holders of an insurance company, customers of a bank or broker-dealer,
clients of an investment adviser or other similar groups. Shares purchased
in each group's participants account in connection with this privilege will
be subject to a contingent deferred sales charge of 1.00% in the event of
redemption within one year of purchase, and a commission will be paid to
authorized dealers who initiate and are responsible for such sales to each
individual as follows: 1.00% on sales to $2 million, plus 0.80% on the next
$1 million and 0.50% on the excess over $3 million.
The term "families" includes a person's spouse, children under 21 years of age
and grandchildren, parents, and a person's spouse's parents.
Purchase orders made pursuant to clause (4) may be placed either through
authorized dealers as described above or directly with Investor Services by the
investment adviser, trust company or bank trust department, provided that
Investor Services receives federal funds for the purchase by the close of
business on the next business day following acceptance of the order. An
authorized dealer may charge a transaction fee for placing an order to purchase
shares pursuant to this provision or for placing a redemption order with respect
to such shares. Authorized dealers will be paid a service fee as described above
on purchases made under options (3) through (9) above. The Fund may terminate,
or amend the terms of, offering shares of the Fund at net asset value to such
groups at any time.
REDEMPTION OF
SHARES
Generally shareholders may redeem for cash some or all of their shares without
charge by the Fund (other than applicable sales charge) at any time. As
described under the heading "Purchase of Shares," redemptions of Class B Shares
and Class C Shares may be subject to a contingent deferred sales charge. In
addition, certain redemptions of Class A Shares for shareholder accounts of $1
million or more may be subject to a contingent deferred sales charge.
Redemptions completed through an authorized dealer or a custodian of a
retirement plan account may involve additional fees charged by the dealer or
custodian.
Except as specified below under "Telephone Redemption Requests," payment for
shares redeemed generally will be made by check mailed within seven days after
receipt by Investor Services of the request and any other necessary documents in
proper form as described below. Such payment may be postponed or the right of
redemption suspended as provided by the rules of the SEC. Such payment
20
<PAGE>
may, under certain circumstances, be paid wholly or in part by a
distribution-in-kind of portfolio securities which may result in brokerage costs
and a gain or loss for federal income tax purposes when such securities are
sold. If the shares to be redeemed have been recently purchased by check,
Investor Services may delay the payment of redemption proceeds until it confirms
the purchase check has cleared, which may take up to 15 days. A taxable gain or
loss will be recognized by the shareholder upon redemption of shares.
WRITTEN REDEMPTION REQUESTS. Shareholders may request a redemption of shares by
written request in proper form sent directly to Van Kampen Investor Services
Inc., PO Box 218256, Kansas City, MO 64121-8256. The request for redemption
should indicate the number of shares to be redeemed, the class designation of
such shares and the shareholder's account number. The redemption request must be
signed by all persons in whose names the shares are registered. Signatures must
conform exactly to the account registration. If the proceeds of the redemption
exceed $50,000, or if the proceeds are not to be paid to the record owner at the
record address, or if the record address has changed within the previous 30
days, signature(s) must be guaranteed by one of the following: a bank or trust
company; a broker-dealer; a credit union; a national securities exchange,
registered securities association or clearing agency; a savings and loan
association; or a federal savings bank.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption to be in proper form. In some
cases, however, additional documents may be necessary. In the case of
shareholders holding certificates, the certificates for the shares being
redeemed properly endorsed for transfer must accompany the redemption request.
In the event the redemption is requested by a corporation, partnership, trust,
fiduciary, executor or administrator, and the name and title of the
individual(s) authorizing such redemption is not shown in the account
registration, a copy of the corporate resolution or other legal documentation
appointing the authorized signer and certified within the prior 120 days must
accompany the redemption request. IRA redemption requests should be sent to the
IRA custodian to be forwarded to Investor Services. Contact the IRA custodian
for further information.
In the case of written redemption requests sent directly to Investor Services,
the redemption price is the net asset value per share next determined after the
request in proper form is received by Investor Services.
AUTHORIZED DEALER REDEMPTION REQUESTS. Shareholders may place redemption
requests through an authorized dealer. Orders sent through authorized dealers
must be at least $500 (unless transmitted by your authorized dealer via the
FUNDSERV network). The redemption price for such shares is the net asset value
per share next calculated after an order in proper form is received by an
authorized dealer provided such order is transmitted to the Distributor prior to
the Distributor's close of business on such day. It is the responsibility of
authorized dealers to transmit redemption requests received by them to the
Distributor so they will be received prior to such time. Redemptions completed
through an authorized dealer may involve additional fees charged by the dealer.
TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. A shareholder
automatically has telephone redemption privileges unless the shareholder
indicates otherwise by checking the applicable box on the application form
accompanying the prospectus. To redeem shares, contact the telephone transaction
line at (800) 421-5684. Van Kampen Investments, Investor Services and the Fund
employ procedures considered by them to be reasonable to confirm that
instructions communicated by telephone are genuine. Such procedures include
requiring certain personal identification information prior to acting upon
telephone instructions, tape-recording telephone communications and providing
written confirmation of instructions communicated by telephone. If reasonable
procedures are employed, none of Van Kampen Investments, Investor Services or
the Fund will be liable for following telephone instructions which it reasonably
believes to be genuine. Telephone redemptions may not be available if the
21
<PAGE>
shareholder cannot reach Investor Services by telephone, whether because all
telephone lines are busy or for any other reason; in such case, a shareholder
would have to use the Fund's other redemption procedure previously described.
Requests received by Investor Services prior to 4:00 p.m., New York time, will
be processed at the next determined net asset value per share. These privileges
are available for all accounts other than retirement accounts or accounts with
shares represented by certificates. If an account has multiple owners, Investor
Services may rely on the instructions of any one owner.
For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check and amounts of at least
$1,000 up to $1 million may be redeemed daily if the proceeds are to be paid by
wire. The proceeds must be payable to the shareholder(s) of record and sent to
the address of record for the account or wired directly to their predesignated
bank account. This privilege is not available if the address of record has been
changed within 30 days prior to a telephone redemption request. Proceeds from
redemptions payable by wire transfer are expected to be wired on the next
business day following the date of redemption. The Fund reserves the right at
any time to terminate, limit or otherwise modify this redemption privilege.
OTHER REDEMPTION INFORMATION. The Fund may redeem shares of any shareholder
account that has a value on the date of the notice of redemption less than the
minimum initial investment as specified in this prospectus. At least 60 days
advance written notice of any such involuntary redemption will be provided to
the shareholder and such shareholder will be given an opportunity to purchase
the required value of additional shares at the next determined net asset value
without sales charge. Any involuntary redemption may only occur if the
shareholder account is less than the minimum initial investment due to
shareholder redemptions.
DISTRIBUTIONS FROM
THE FUND
In addition to any increase in the value of shares which the Fund may achieve,
shareholders may receive distributions from the Fund of dividends and capital
gain dividends.
DIVIDENDS. Dividends from stocks and interest earned from other investments are
the Fund's main sources of income. The Fund's present policy, which may be
changed at any time by the Board of Directors, is to distribute all or
substantially all of this income, less expenses, at least annually as dividends
to shareholders. Dividends are automatically applied to purchase additional
shares of the Fund at the next determined net asset value unless the shareholder
instructs otherwise.
The per share dividends on Class B Shares and Class C Shares may be lower than
the per share dividends on Class A Shares as a result of the higher distribution
fees and transfer agency costs applicable to such classes of shares.
CAPITAL GAIN DIVIDENDS. The Fund may realize capital gains or losses when it
sells securities, depending on whether the sales prices for the securities are
higher or lower than purchase prices. Net realized capital gain represents the
total profits from sales of securities minus total losses from sales of
securities (including any losses carried forward from prior years), other than
net short-term capital gain from sales of securities held for one year or less.
The Fund distributes any taxable net realized capital gain to shareholders as
capital gain dividends at least annually. As in the case of dividends, capital
gain dividends are automatically reinvested in additional shares of the Fund at
the next determined net asset value unless the shareholder instructs otherwise.
22
<PAGE>
SHAREHOLDER SERVICES
Listed below are some of the shareholder services the Fund offers to investors.
For a more complete description of the Fund's shareholder services, such as
investment accounts, share certificates, retirement plans, automated clearing
house deposits, dividend diversification and the systematic withdrawal plan,
please refer to the Statement of Additional Information or contact your
authorized dealer.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gain dividends in shares of the
Fund. Such shares are acquired at net asset value per share (without sales
charge) on the applicable payable date of the dividend or capital gain dividend.
Unless the shareholder instructs otherwise, the reinvestment plan is automatic.
This instruction may be made by telephone by calling (800) 341-2911
((800) 421-2833 for the hearing impaired) or by writing to Investor Services.
The investor may, on the initial application or prior to any declaration,
instruct that dividends be paid in cash and capital gain dividends be reinvested
at net asset value, or that both dividends and capital gains dividends be paid
in cash.
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under which
a shareholder can authorize Investor Services to charge a bank account on a
regular basis to invest predetermined amounts in the Fund. Additional
information is available from the Distributor or your authorized dealer.
EXCHANGE PRIVILEGE. Shares of the Fund may be exchanged for shares of the same
class of any Participating Fund based on the next computed net asset value per
share of each fund after requesting the exchange without any sales charge,
subject to certain limitations. Shares of the Fund may be exchanged for shares
of any Participating Fund only if shares of that Participating Fund are
available for sale; however, during periods of suspension of sales, shares of a
Participating Fund may be available for sale only to existing shareholders of a
Participating Fund. Shareholders seeking an exchange into a Participating Fund
should obtain and read the current prospectus for such fund prior to
implementing an exchange. A prospectus of any of the Participating Funds may be
obtained from any authorized dealer or the Distributor.
To be eligible for exchange, shares of the Fund must have been registered in the
shareholder's name for at least 30 days prior to an exchange. Shares of the Fund
registered in a shareholder's name for less than 30 days may only be exchanged
upon receipt of prior approval of the Adviser. It is the policy of the Adviser,
under normal circumstances, not to approve such requests.
When shares that are subject to a contingent deferred sales charge are exchanged
among Participating Funds, the holding period for purposes of computing the
contingent deferred sales charge is based upon the date of the initial purchase
of such shares from a Participating Fund. When such shares are redeemed and not
exchanged for shares of another Participating Fund, the shares are subject to
the contingent deferred sales charge schedule imposed by the Participating Fund
from which such shares were originally purchased.
Exchanges of shares are sales of one Participating Fund and purchases of another
Participating Fund. The sale may result in a gain or loss for federal income tax
purposes. If the shares sold have been held for less than 91 days, the sales
charge paid on such shares is carried over and included in the tax basis of the
shares acquired.
A shareholder wishing to make an exchange may do so by sending a written request
to Investor Services or by contacting the telephone transaction line at
(800) 421-5684. A shareholder automatically has telephone exchange privileges
unless the shareholder indicates otherwise by checking the applicable box on the
application form accompanying the prospectus. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated by telephone are genuine. Such procedures
include requiring certain personal identification information prior to acting
upon telephone instructions, tape-recording telephone communications, and
providing written confirmation of instructions communicated by telephone. If
reasonable procedures
23
<PAGE>
are employed, none of Van Kampen Investments, Investor Services or the Fund will
be liable for following telephone instructions which it reasonably believes to
be genuine. If the exchanging shareholder does not have an account in the fund
whose shares are being acquired, a new account will be established with the same
registration, dividend and capital gain dividend options (except dividend
diversification) and authorized dealer of record as the account from which
shares are exchanged, unless otherwise specified by the shareholder. In order to
establish a systematic withdrawal plan for the new account or reinvest dividends
from the new account into another fund, however, an exchanging shareholder must
submit a specific request. The Fund reserves the right to reject any order to
acquire its shares through exchange. In addition, the Fund and other
Participating Funds may restrict exchanges by shareholders engaged in excessive
trading by limiting or disallowing the exchange privileges to such shareholders.
For further information on these restrictions see the Statement of Additional
Information. The Fund may modify, restrict or terminate the exchange privilege
at any time on 60 days' notice to its shareholders of any termination or
material amendment.
For purposes of determining the sales charge rate previously paid on Class A
Shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchanged security was acquired through reinvestment, that
security is deemed to have been sold with a sales charge rate equal to the rate
previously paid on the security on which the dividend or distribution was paid.
If a shareholder exchanges less than all of such shareholder's securities, the
security upon which the highest sales charge rate was previously paid is deemed
exchanged first.
Exchange requests received on a business day prior to the time shares of the
funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares of the fund which the
shareholder is redeeming will be redeemed at the net asset value per share next
determined on the date of receipt. Shares of the new fund that the shareholder
is purchasing will also normally be purchased at the net asset value per share,
plus any applicable sales charge, next determined on the date of receipt.
Exchange requests received on a business day after the time shares of the funds
involved in the request are priced will be processed on the next business day in
the manner described herein.
INTERNET TRANSACTIONS. In addition to performing transactions on your account
through written instruction or by telephone, you may also perform certain
transactions through the internet. Please refer to our web site at
www.vankampen.com for further instruction. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated through the internet are genuine. Such
procedures include requiring use of a personal identification number prior to
acting upon internet instructions and providing written confirmation of
instructions communicated through the internet. If reasonable procedures are
employed, none of Van Kampen Investments, Investor Services or the Fund will be
liable for following instructions received through the internet which it
reasonably believes to be genuine. If an account has multiple owners, Investor
Services may rely on the instructions of any one owner.
FEDERAL INCOME
TAXATION
Distributions of the Fund's net investment income (consisting generally of
taxable income and net short-term capital gain) are taxable to shareholders as
ordinary income to the extent of the Fund's earnings and profits, whether paid
in cash or reinvested in additional shares. Distributions of the Fund's net
realized capital gain (which is the excess of net long-term capital gain over
net short-term capital loss) as capital gain dividends, if any, are taxable to
shareholders as long-term capital gains, whether paid in cash or reinvested in
additional shares, and regardless of how long the shares of the Fund have been
held by such shareholders. The Fund expects that its distributions will consist
primarily of ordinary income and capital gain dividends.
24
<PAGE>
Distributions in excess of the Fund's earnings and profits will first reduce the
adjusted tax basis of a holder's shares and, after such adjusted tax basis is
reduced to zero, will constitute capital gains to such holder (assuming such
shares are held as a capital asset). Although distributions generally are
treated as taxable in the year they are paid, distributions declared in October,
November or December, payable to shareholders of record on a specified date in
such month and paid during January of the following year will be treated as
having been distributed by the Fund and received by the shareholders on the
December 31st prior to the date of payment. The Fund will inform shareholders of
the source and tax status of all distributions promptly after the close of each
calendar year.
The sale or exchange of shares is a taxable transaction for federal income tax
purposes. Shareholders who sell their shares will generally recognize gain or
loss in an amount equal to the difference between their adjusted tax basis in
the shares sold and the amount received. If the shares are held as a capital
asset, the gain or loss will be a capital gain or loss. Any capital gains may be
taxed at different rates depending on how long the shareholder held such shares.
The Fund is required, in certain circumstances, to withhold 31% of dividends and
certain other payments, including redemptions, paid to shareholders who do not
furnish to the Fund their correct taxpayer identification number (in the case of
individuals, their social security number) and certain required certifications
or who are otherwise subject to backup withholding.
Foreign shareholders, including shareholders who are non-resident aliens, may be
subject to U.S. withholding tax on certain distributions (whether received in
cash or in shares) at a rate of 30% or such lower rate as prescribed by an
applicable treaty. Accordingly, investment in the Fund is likely to be
appropriate for a foreign shareholder only if such person can utilize a foreign
tax credit or corresponding tax benefit in respect of such U.S. withholding tax.
Prospective foreign investors should consult their tax advisers concerning the
tax consequences to them of an investment in shares.
The Fund intends to qualify as a regulated investment company under federal
income tax law. If the Fund so qualifies and distributes each year to its
shareholders at least 90% of its net investment income, the Fund will not be
required to pay federal income taxes on any income it distributes to
shareholders. If the Fund distributes less than an amount equal to the sum of
98% of its ordinary income and 98% of its capital gain net income, then the Fund
will be subject to a 4% excise tax on the undistributed amounts.
The federal income tax discussion set forth above is for general information
only. Prospective investors should consult their own tax advisers regarding the
specific federal tax consequences of purchasing, holding, disposing, exchanging
or selling of shares, as well as the effects of state, local and foreign tax law
and any proposed tax law changes.
25
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the periods indicated. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report, along with the Fund's financial statements, is
included in the Statement of Additional Information and may be obtained by
shareholders without charge by calling the telephone number on the back cover of
this prospectus. This information should be read in conjunction with the
financial statements and notes thereto included in the Statement of Additional
Information.
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------
YEAR ENDED JUNE 30,
-----------------------------------------------------
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $ 16.670 $ 16.57 $ 14.75 $ 12.60 $ 11.99
-------- -------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss................................ 0.075 0.21 0.10 0.19 0.12
Net Realized and Unrealized Gain/Loss..................... 1.211 2.07 2.76 2.82 0.67
-------- -------- ------- ------- -------
Total From Investment Operations............................ 1.286 2.28 2.86 3.01 0.79
-------- -------- ------- ------- -------
DISTRIBUTIONS
Net Investment Income..................................... (0.073) (0.35) (0.55) (0.39) --
In Excess of Net Investment Income........................ (0.150) -- -- -- (0.05)
Net Realized Gain......................................... (0.874) (1.83) (0.49) (0.47) (0.13)
-------- -------- ------- ------- -------
Total Distributions....................................... (1.097) (2.18) (1.04) (0.86) (0.18)
-------- -------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD.............................. $ 16.859 $ 16.67 $ 16.57 $ 14.75 $ 12.60
======== ======== ======= ======= =======
TOTAL RETURN (1)............................................ 8.41% 16.17% 20.61% 24.62% 6.69%
======== ======== ======= ======= =======
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)........................... $240,121 $261,633 $72,704 $63,706 $42,586
Ratio of Expenses to Average Net Assets..................... 1.70% 1.61% 1.70% 1.70% 1.70%
Ratio of Net Investment Income/Loss to Average Net Assets... 0.47% 1.30% 0.59% 0.71% 1.01%
Portfolio Turnover Rate..................................... 84% 108% 45% 44% 39%
- -------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the Period
Per Share Benefit to Net Investment Income/Loss............. $ 0.00++ $ 0.02 $ 0.03 $ 0.10 $ 0.04
Ratios Before Expense Limitation:
Expenses to Average Net Assets............................ 1.73% 1.62% 1.90% 2.06% 2.03%
Net Investment Income/Loss to Average Net Assets.......... 0.44% 1.30% 0.40% 0.35% 0.68%
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
---------------------------------------------------
YEAR ENDED JUNE 30,
------------------------------ AUGUST 1, 1995+ TO
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# 1997 JUNE 30, 1996
- ------------------------------------------------------------ ---------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $ 16.144 $ 16.15 $ 14.46 $ 13.01
-------- -------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss................................ (0.043) 0.09 (0.05) 0.30
Net Realized and Unrealized Gain/Loss..................... 1.164 2.01 2.73 1.98
-------- -------- ------- -------
Total From Investment Operations............................ 1.121 2.10 2.68 2.28
-------- -------- ------- -------
DISTRIBUTIONS
Net Investment Income..................................... (0.035) (0.28) (0.50) (0.35)
In Excess of Net Investment Income........................ (0.073) -- -- --
Net Realized Gain......................................... (0.874) (1.83) (0.49) (0.48)
-------- -------- ------- -------
Total Distributions....................................... (0.982) (2.11) (0.99) (0.83)
-------- -------- ------- -------
NET ASSET VALUE, END OF PERIOD.............................. $ 16.283 $ 16.14 $ 16.15 $ 14.46
======== ======== ======= =======
TOTAL RETURN (1)............................................ 7.50% 15.33% 19.64% 18.08%*
======== ======== ======= =======
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)........................... $232,644 $225,797 $38,962 $14,786
Ratio of Expenses to Average Net Assets..................... 2.45% 2.35% 2.45% 2.45%
Ratio of Net Investment Income/Loss to Average Net Assets... (0.27)% 0.60% (0.11)% 0.45%
Portfolio Turnover Rate..................................... 84% 108% 45% 44%*
- -------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the Period
Per Share Benefit to Net Investment Income/Loss............. $ 0.00++ $ 0.02 $ 0.09 $ 0.22
Ratios Before Expense Limitation:
Expenses to Average Net Assets............................ 2.49% 2.36% 2.65% 2.81%
Net Investment Income/Loss to Average Net Assets.......... (0.30)% 0.60% (0.30)% 0.09%
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS C
-----------------------------------------------------
YEAR ENDED JUNE 30,
-----------------------------------------------------
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# 1997 1996 1995
- ------------------------------------------------------------ -----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $ 16.298 $ 16.24 $ 14.49 $ 12.43 $ 11.90
-------- -------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss................................ (0.043) 0.08 (0.03) 0.12 0.04
Net Realized and Unrealized Gain/Loss..................... 1.187 2.05 2.73 2.75 0.65
-------- -------- ------- ------- -------
Total From Investment Operations............................ 1.144 2.13 2.70 2.87 0.69
-------- -------- ------- ------- -------
DISTRIBUTIONS
Net Investment Income..................................... (0.035) (0.24) (0.46) (0.33) --
In Excess of Net Investment Income........................ (0.072) -- -- -- (0.03)
Net Realized Gain......................................... (0.874) (1.83) (0.49) (0.48) (0.13)
-------- -------- ------- ------- -------
Total Distributions....................................... (0.981) (2.07) (0.95) (0.81) (0.16)
-------- -------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD.............................. $ 16.461 $ 16.30 $ 16.24 $ 14.49 $ 12.43
======== ======== ======= ======= =======
TOTAL RETURN (1)............................................ 7.61% 15.37% 19.69% 23.65% 5.84%
======== ======== ======= ======= =======
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)........................... $101,013 $108,650 $78,199 $63,025 $40,460
Ratio of Expenses to Average Net Assets..................... 2.45% 2.55% 2.45% 2.45% 2.45%
Ratio of Net Investment Income/Loss to Average Net Assets... (0.28)% 0.52% (0.16)% (0.04)% 0.25%
Portfolio Turnover Rate..................................... 84% 108% 45% 44% 39%
- -------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the Period
Per Share Benefit to Net Investment Income/Loss............. $ 0.00++ $ 0.02 $ 0.03 $ 1.16 $ 0.05
Ratios Before Expense Limitation:
Expenses to Average Net Assets............................ 2.48% 2.56% 2.65% 2.81% 2.78%
Net Investment Income/Loss to Average Net Assets.......... (0.30)% 0.52% (0.34)% (0.40)% (0.08)%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* NON-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 SALE CHARGES OR DEFERRED SALES
CHARGES.
# CHANGES PER SHARE ARE BASED UPON MONTHLY AVERAGE SHARES OUTSTANDING.
26
<PAGE>
BOARD OF DIRECTORS
AND OFFICERS
BOARD OF DIRECTORS
J. Miles Branagan Don G. Powell*
Jerry D. Choate Phillip B. Rooney
Richard M. DeMartini* Fernando Sisto
Linda Hutton Heagy Wayne W. Whalen*
R. Craig Kennedy Suzanne H. Woolsey
Jack E. Nelson Paul G. Yovovich
OFFICERS
Richard F. Powers, III*
PRESIDENT
Dennis J. McDonnell*
EXECUTIVE VICE PRESIDENT & CHIEF INVESTMENT OFFICER
A. Thomas Smith III*
VICE PRESIDENT AND SECRETARY
Edward C. Wood III*
VICE PRESIDENT
Michael H. Santo*
VICE PRESIDENT
Peter W. Hegel*
VICE PRESIDENT
Stephen L. Boyd*
VICE PRESIDENT
Joseph P. Stadler*
VICE PRESIDENT
John L. Sullivan*
VICE PRESIDENT, CHIEF FINANCIAL OFFICER & TREASURER
Curtis W. Morell*
VICE PRESIDENT & CHIEF ACCOUNTING OFFICER
Tanya M. Loden*
CONTROLLER
* "Interested Persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2911
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders, or
redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call
(800) 421-2833
FUNDINFO-REGISTERED TRADEMARK-
For automated telephone services, call (800) 847-2424
WEB SITE
www.vankampen.com
VAN KAMPEN GLOBAL EQUITY ALLOCATION FUND
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
INVESTMENT ADVISER AND ADMINISTRATOR
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
INVESTMENT SUBADVISER
MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC.
1221 Avenue of the Americas
New York, NY 10020
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
TRANSFER AGENT
VAN KAMPEN INVESTOR SERVICES INC.
PO Box 218256
Kansas City, MO 64121-8256
Attn: Van Kampen Global Equity Allocation Fund
CUSTODIAN
THE CHASE MANHATTAN BANK
3 MetroTech Center
Brooklyn, NY 11245
Attn: Van Kampen Global Equity Allocation Fund
LEGAL COUNSEL
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
INDEPENDENT ACCOUNTANTS
PRICEWATERHOUSECOOPERS LLP
200 East Randolph Drive
Chicago, IL 60601
<PAGE>
VAN KAMPEN
GLOBAL EQUITY
ALLOCATION FUND
PROSPECTUS
OCTOBER 28, 1999
A Statement of Additional Information, which contains more details about the
Fund, is incorporated by reference in its entirety into this prospectus.
You will find additional information about the Fund in its annual and semiannual
reports to shareholders. The annual report explains the market conditions and
investment strategies affecting the Fund's performance during its last fiscal
year.
You can ask questions or obtain a free copy of the Fund's reports or its
Statement of Additional Information by calling (800) 341-2911 from 7:00 a.m. to
7:00 p.m., Central time, Monday through Friday. Telecommunications Device for
the Deaf users may call (800) 421-2833. A free copy of the Fund's reports can
also be ordered from our web site at www.vankampen.com.
Information about the Fund, including its reports and Statement of Additional
Information, has been filed with the Securities and Exchange Commission (SEC).
It can be reviewed and copied at the SEC's Public Reference Room in Washington,
DC or on the EDGAR Database on the SEC's internet site (http://www.sec.gov).
Information on the operation of the SEC's Public Reference Room may be obtained
by calling the SEC at 1-202-942-8090. You can also request copies of these
materials, upon payment of a duplicating fee, by electronic request at the SEC's
e-mail address ([email protected]) or by writing the Public Reference Section
of the SEC, Washington, DC, 20549-0102.
[LOGO]
THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-7140.
MSGE PRO 10/99
<PAGE>
VAN KAMPEN
GLOBAL EQUITY FUND
Van Kampen Global Equity Fund is a mutual fund with an investment objective to
seek long-term capital appreciation by investing primarily in equity securities
of issuers throughout the world, including U.S. issuers.
Shares of the Fund have not been approved or disapproved by the Securities and
Exchange Commission (SEC) or any state regulator, and neither the SEC nor any
state regulator has passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
THIS PROSPECTUS IS DATED OCTOBER 28, 1999.
[LOGO]
<PAGE>
TABLE OF CONTENTS
Risk/Return Summary .....................................................3
Fees and Expenses of the Fund ...........................................5
Investment Objective, Policies and Risks ................................6
Investment Advisory Services ...........................................11
Purchase of Shares .....................................................13
Redemption of Shares ...................................................20
Distributions from the Fund ............................................22
Shareholder Services ...................................................22
Federal Income Taxation ................................................24
Financial Highlights ...................................................26
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations, other than those contained in this
prospectus, in connection with the offer contained in this prospectus and, if
given or made, such other information or representations must not be relied upon
as having been authorized by the Fund, the Fund's investment adviser or the
Fund's distributor. This prospectus does not constitute an offer by the Fund or
by the Fund's distributor to sell or a solicitation of an offer to buy any of
the securities offered hereby in any jurisdiction to any person to whom it is
unlawful for the Fund to make such an offer in such jurisdiction.
<PAGE>
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The Fund is a mutual fund with an investment objective to seek long-term capital
appreciation by investing primarily in equity securities of issuers throughout
the world, including U.S. issuers. Any income received from the investment of
portfolio securities is incidental to the Fund's investment objective.
INVESTMENT STRATEGIES
Under normal market conditions, the Fund's investment adviser seeks to achieve
the Fund's investment objective by investing in a portfolio of global equity
securities. Equity securities include common and preferred stocks, convertible
securities, rights and warrants to purchase common stock, depositary receipts
and equity-linked securities. The Fund's investment adviser uses a "bottom-up"
investment approach that is value driven and emphasizes security selection and
disposition on an individual company basis. The Fund selects securities of
issuers from a broad range of countries, including emerging market countries.
The Fund's investment adviser seeks to identify securities of issuers that it
believes are undervalued relative to their market values and other measurements
of intrinsic worth with an emphasis on company assets and cash flow. Under
normal market conditions, the Fund invests at least 65% of its total assets in
securities of issuers from at least three countries (including the U.S.) and
expects to invest at least 20% of its total assets in equity securities of U.S.
issuers. The Fund may purchase and sell certain derivative instruments (such as
options, futures, options on futures and currency-related transactions involving
options, future, forward contracts and swaps) for various portfolio management
purposes.
INVESTMENT RISKS
An investment in the Fund is subject to investment risks, and you could lose
money on your investment in the Fund. There can be no assurance that the Fund
will achieve its investment objective.
MARKET RISK. Market risk is the possibility that the market values of securities
owned by the Fund will decline. Market risk may affect a single issuer,
industry, sector of the economy or the market as a whole. Investments in common
stocks and other equity securities generally are affected by changes in the
stock markets, which fluctuate substantially over time, sometimes suddenly and
sharply. Foreign markets may, but often do not, move in tandem with
U.S. markets, and foreign markets, especially developing or emerging market
countries, may be more volatile than U.S. markets. A "value" style of investing
emphasizes undervalued companies with characteristics for improved valuations.
This style of investing is subject to the risk that the valuations never improve
or that the returns on such securities are less than returns on other styles of
investing or the overall markets. Different types of stocks tend to shift in and
out of favor depending on market and economic conditions. Thus, the value of the
Fund's investments will vary and at times may be lower or higher than that of
other types of investments. During an overall stock market decline, stock prices
of smaller companies often fluctuate more and may fall more than the stock
prices of larger companies.
FOREIGN RISKS. Because the Fund owns securities of foreign issuers, it is
subject to risks not usually associated with owning securities of U.S. issuers.
These risks include fluctuations in foreign currencies, foreign currency
exchange controls, political and economic instability, differences in financial
reporting, differences in securities regulation and trading and foreign taxation
issues. The risks of investing in developing or emerging market countries are
greater than the risks generally associated with foreign investments, including
investment and trading limitations, greater credit and liquidity concerns,
greater political uncertainties, an economy's dependence on international
development assistance, greater foreign currency exchange risk and currency
transfer restrictions, greater delays and disruptions in settlement transactions
and greater risks associated with computer programs and the Year 2000 problem.
To the extent the Fund focuses its assets in a single country or region, its
portfolio would be more susceptible to factors adversely affecting issuers in
that country or region.
3
<PAGE>
RISKS OF USING DERIVATIVE INVESTMENTS. In general terms, a derivative investment
is one whose value depends on (or is derived from) the value of an underlying
asset, interest rate or index. Options, futures, options on futures and
currency-related transactions involving options, futures, forward contracts and
swaps are examples of derivatives. Derivative investments involve risks
different from direct investment in underlying securities. These risks include
imperfect correlation between the value of the instruments and the underlying
assets; risks of default by the other party to certain transactions; risks that
the transactions may result in losses that partially or completely offset gains
in portfolio positions; risks that the transactions may not be liquid; and
manager risk.
MANAGER RISK. As with any managed fund, the Fund's investment adviser may not be
successful in selecting the best-performing securities or investment techniques
and the Fund's performance may lag behind that of similar funds.
INVESTOR PROFILE
In light of the Fund's investment objective and strategies, the Fund may be
appropriate for investors who:
- - Seek capital appreciation over the long term
- - Do not seek current income from their investment
- - Are willing to take on the increased risks associated with investing in
foreign securities
- - Can withstand volatility in the value of their Fund shares
- - Wish to add to their investment portfolio a fund that emphasizes a "value"
style of investing in equity securities of global issuers
An investment in the Fund is not a deposit of any bank or other insured
depository institution. Your investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
An investment in the Fund may not be appropriate for all investors. The Fund is
not intended to be a complete investment program, and investors should consider
their long-term investment goals and financial needs when making an investment
decision about the Fund. An investment in the Fund is intended to be a long-term
investment, and the Fund should not be used as a trading vehicle.
ANNUAL PERFORMANCE
One way to measure the risks of investing in the Fund is to look at how its
performance varies from year-to-year. The following chart shows the annual
return of the Fund's Class A Shares over the calendar year prior to the date of
this prospectus. Sales loads are not reflected in this chart. If these sales
loads had been included, the return shown below would have been lower. Remember
that the past performance of the Fund is not indicative of its future
performance.
ANNUAL RETURN
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1998 13.49%
</TABLE>
The Fund's return for the nine-month period ended September 30, 1999 was 0%.
The annual return variability of the Fund's Class B Shares and Class C Shares
would be substantially similar to that shown for the Class A Shares because all
of the Fund's shares are invested in the same portfolio of securities; however,
the actual annual returns of the Class B Shares and Class C Shares would be
lower than the annual returns shown for the Fund's Class A Shares because of
differences in the expenses borne by each class of shares.
During the one-year period shown in the bar chart, the highest quarterly return
was 15.47% (for the
4
<PAGE>
quarter ended December 31, 1998) and the lowest quarterly return was -12.41%
(for the quarter ended September 30, 1998).
COMPARATIVE PERFORMANCE
As a basis for evaluating the Fund's performance and risks, the table below
shows how the Fund's performance compares with the Morgan Stanley Capital
International ("MSCI") World Net Dividends Index*, a broad-based market index
that the Fund's investment adviser believes is an appropriate benchmark for the
Fund. The Fund's performance figures include the maximum sales charges paid by
investors. The index performance figures do not include any commissions or sales
charges that would be paid by investors purchasing the securities represented by
the index. Average annual total returns are shown for the periods ended
December 31, 1998 (the most recently completed calendar year prior to the date
of this prospectus). Remember that the past performance of the Fund is not
indicative of its future performance.
<TABLE>
<CAPTION>
AVERAGE ANNUAL
TOTAL RETURNS
FOR THE
PERIODS ENDED PAST SINCE
DECEMBER 31, 1998 1 YEAR INCEPTION
<S> <C> <C>
- -----------------------------------------------------------------
Van Kampen Global Equity Fund -- Class A
Shares 7.01% 5.25%(1)
MSCI World Net Dividends Index 24.34% 25.88%(2)
................................................................
Van Kampen Global Equity Fund -- Class B
Shares 7.56% 6.44%(1)
MSCI World Net Dividends Index 24.34% 25.88%(2)
................................................................
Van Kampen Global Equity Fund -- Class C
Shares 11.56% 9.80%(1)
MSCI World Net Dividends Index 24.34% 25.88%(2)
................................................................
INCEPTION DATES: (1) 10/29/97, (2) 10/31/97.
* THE MSCI WORLD NET DIVIDENDS INDEX IS AN UNMANAGED INDEX THAT
INCLUDES SECURITIES LISTED ON STOCK EXCHANGES OF THE U.S.,
EUROPE, CANADA, AUSTRALIA, NEW ZEALAND AND THE FAR EAST AND
ASSUMES DIVIDENDS ARE REINVESTED NET OF WITHHOLDING TAX.
</TABLE>
FEES AND EXPENSES
OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
<S> <C> <C> <C>
- -----------------------------------------------------------
</TABLE>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<S> <C> <C> <C>
- -----------------------------------------------------------
Maximum sales charge
(load) imposed on
purchases (as a
percentage of
offering price) 5.75%(1) None None
..........................................................
Maximum deferred
sales charge (load)
(as a percentage of
the lesser of
original purchase
price or redemption
proceeds) None(2) 5.00%(3) 1.00%(4)
..........................................................
Maximum sales charge
(load) imposed on
reinvested dividends None None None
..........................................................
Redemption fees None None None
..........................................................
Exchange fee None None None
..........................................................
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
<TABLE>
<S> <C> <C> <C>
- -----------------------------------------------------------
Management Fees 1.00% 1.00% 1.00%
..........................................................
Distribution and/or
Service (12b-1)
Fees(5) 0.25% 1.00%(6) 1.00%(6)
..........................................................
Other Expenses 0.40% 0.40% 0.40%
..........................................................
Total Annual Fund
Operating Expenses 1.65% 2.40% 2.40%
..........................................................
</TABLE>
(1) REDUCED FOR PURCHASES OF $50,000 AND OVER. SEE "PURCHASE OF SHARES --
CLASS A SHARES."
(2) INVESTMENTS OF $1 MILLION OR MORE ARE NOT SUBJECT TO ANY SALES CHARGE
AT THE TIME OF PURCHASE, BUT A DEFERRED SALES CHARGE OF 1.00% MAY BE
IMPOSED ON CERTAIN REDEMPTIONS MADE WITHIN ONE YEAR OF THE PURCHASE.
SEE "PURCHASE OF SHARES -- CLASS A SHARES."
(3) THE MAXIMUM DEFERRED SALES CHARGE IS 5.00% IN THE FIRST YEAR AFTER
PURCHASE, DECLINING THEREAFTER AS FOLLOWS:
YEAR 1-5.00%
YEAR 2-4.00%
YEAR 3-3.00%
YEAR 4-2.50%
YEAR 5-1.50%
AFTER-NONE
SEE "PURCHASE OF SHARES -- CLASS B SHARES."
(4) THE MAXIMUM DEFERRED SALES CHARGE IS 1.00% IN THE FIRST YEAR AFTER
PURCHASE AND 0.00% THEREAFTER. SEE "PURCHASE OF SHARES -- CLASS C
SHARES."
(5) CLASS A SHARES ARE SUBJECT TO AN ANNUAL SERVICE FEE OF UP TO 0.25% OF
THE AVERAGE DAILY NET ASSETS ATTRIBUTABLE TO SUCH CLASS OF SHARES.
CLASS B SHARES AND CLASS C SHARES ARE EACH SUBJECT TO A COMBINED
ANNUAL DISTRIBUTION AND SERVICE FEE OF UP TO 1.00% OF THE AVERAGE
DAILY NET ASSETS ATTRIBUTABLE TO SUCH CLASS OF SHARES. SEE "PURCHASE
OF SHARES."
(6) BECAUSE DISTRIBUTION AND/OR SERVICE (12b-1) FEES ARE PAID OUT OF THE
FUND'S ASSETS ON AN ONGOING BASIS, OVER TIME THESE FEES WILL INCREASE
THE COST OF YOUR INVESTMENT AND MAY COST YOU MORE THAN PAYING OTHER
TYPES OF SALES CHARGES.
5
<PAGE>
EXAMPLE:
The following example is intended to help you compare the cost of investing in
the Fund with the costs of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same each year (except for the ten-year
amounts for Class B Shares which reflect the conversion of Class B Shares to
Class A Shares after eight years). Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------
Class A Shares $733 $1,065 $1,420 $2,417
..........................................................................
Class B Shares $743 $1,048 $1,430 $2,550*
..........................................................................
Class C Shares $343 $ 748 $1,280 $2,736
..........................................................................
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------
Class A Shares $733 $1,065 $1,420 $2,417
..........................................................................
Class B Shares $243 $ 748 $1,280 $2,550*
..........................................................................
Class C Shares $243 $ 748 $1,280 $2,736
..........................................................................
</TABLE>
* BASED ON CONVERSION TO CLASS A SHARES AFTER EIGHT YEARS.
INVESTMENT OBJECTIVE,
POLICIES AND RISKS
The Fund's investment objective is to seek long-term capital appreciation by
investing primarily in equity securities of issuers throughout the world,
including U.S. issuers. Any income received from the investment of portfolio
securities is incidental to the Fund's investment objective. The Fund's
investment objective is a fundamental policy and may not be changed without the
approval of a majority of shareholders of the Fund's outstanding voting
securities, as defined in the Investment Company Act of 1940, as amended (the
"1940 Act"). There are risks inherent in all investments in securities;
accordingly there can be no assurance that the Fund will achieve its investment
objective.
The Fund's investment adviser seeks to achieve the Fund's investment objective
by investing in a portfolio of equity securities of issuers in the U.S. and
foreign countries. Under normal market conditions, the Fund invests at least 65%
of its total assets in securities of issuers from at least three countries
(including the U.S.), and expects to invest at least 20% of its total assets in
equity securities of U.S. issuers. The Fund's investment adviser uses a
"bottom-up" investment approach that is value driven and emphasizes security
selection on an individual company basis. The Fund selects securities of issuers
from a broad range of countries, including emerging market countries.
Investments in foreign companies may offer greater opportunities for capital
appreciation, but also may involve special risks not typically associated with
investments in domestic companies. As a result, the Fund's portfolio may
experience greater price volatility, which may be heightened by currency
fluctuations relative to the U.S. dollar.
In selecting securities for investment, the Fund emphasizes a "value" style of
investing focusing on companies with strong fundamentals, promising growth
prospects and attractive valuations. The Fund seeks to identify those companies
that are undervalued relative to their market values and other financial
measurements of intrinsic worth with an emphasis on company assets and cash
flow. The Fund's investment style presents the risk that the valuations never
improve or that the returns on "value" securities are less than returns on other
styles of investing or the overall market.
The Fund's investment adviser determines investments for the Fund on an ongoing
basis. The Fund's primary approach is to seek securities that the Fund's
investment adviser believes are selling below their intrinsic values and offer
attractive growth opportunities. The Fund's investment adviser believes
securities have unrecognized intrinsic value when they sell at a substantial
discount relative to an issuer's assets and cash flow. Securities which appear
6
<PAGE>
undervalued are then subjected to in-depth fundamental analysis. The Fund's
investment adviser conducts a thorough investigation of the company's balance
sheet, cash flow and income statement and assesses the company's business
franchise, including product competitiveness, market positioning and industry
structure. Visits with senior management are integral to the investment process.
The Fund invests primarily in common stocks. Common stocks are shares of a
corporation or other entity that entitle the holder to a pro rata share of the
profits of the corporation, if any, without preference over any other class of
securities, including such entity's debt securities, preferred stock and other
senior equity securities. Common stock usually carries with it the right to vote
and frequently an exclusive right to do so.
While the Fund invests primarily in common stocks, it also may invest in
preferred stocks, convertible securities, warrants or rights to purchase common
stock, depository receipts and equity-linked securities. Preferred stock
generally has a preference as to dividends and liquidation over an issuer's
common stock but ranks junior to debt securities in an issuer's capital
structure. Unlike interest payments on debt securities, preferred stock
dividends are payable only if declared by the issuer's board of directors.
Preferred stock also may be subject to optional or mandatory redemption
provisions. The ability of common stocks and preferred stocks to generate income
is dependent on the earnings and continuing declaration of dividends by the
issuers of such securities.
A convertible security is a bond, debenture, note, preferred stock, or other
security that may be converted into or exchanged for a prescribed amount of
common stock or other equity security of the same or a different issuer or into
cash within a particular period of time at a specified price or formula. A
convertible security generally entitles the holder to receive interest paid or
accrued on debt or the dividend paid on preferred stock until the convertible
security matures or is redeemed, converted or exchanged. Before conversion,
convertible securities generally have characteristics similar to both debt and
equity securities. The value of convertible securities tends to decline as
interest rates rise and, because of the conversion feature, tends to vary with
fluctuations in the market value of the underlying equity securities.
Convertible securities generally rank senior to common stock in a corporation's
capital structure but are usually subordinated to comparable nonconvertible
securities. Convertible securities generally do not participate directly in any
dividend increases or decreases of the underlying equity securities although the
market prices of convertible securities may be affected by any such dividend
changes or other changes in the underlying securities.
Rights and warrants entitle the holder to buy equity securities at a specific
price for a specific period of time. Rights are similar to warrants except that
they have a substantially shorter duration. Rights and warrants may be
considered more speculative and less liquid than certain other types of
investments in that they do not entitle a holder to dividends or voting rights
with respect to the underlying securities nor do they represent any right in the
assets of the issuing company and may lack a secondary market.
Equity-linked securities are instruments whose value is based upon the value of
one or more underlying equity securities, a reference rate or an index.
Equity-linked securities come in many forms and may include features, among
others, such as the following: (i) may be issued by the issuer of the underlying
equity security or by a company other than the one to which the instrument is
linked (usually an investment bank), (ii) may convert into equity securities,
such as common stock, within a stated period from the issue date or may be
redeemed for cash or some combination of cash and the linked security at a value
based upon the value of the underlying equity security within a stated period
from the issue date, (iii) may have various conversion features prior to
maturity at the option of the holder or the issuer or both, (iv) may limit the
appreciation value with caps or collars of the value of underlying equity
security and (v) may have fixed, variable or no interest payments during the
life of the security which reflect the actual or a structured return relative to
the underlying dividends of the linked equity security. Investments in
equity-linked securities may subject the Fund to additional risks not ordinarily
associated with investments in convertible securities. Because equity-linked
securities are sometimes issued by a third party other than the issuer of the
linked
7
<PAGE>
security, the Fund is subject to risks if the underlying stock underperforms and
if the issuer defaults on the payment of the dividend or the common stock at
maturity. In addition, the trading market for particular equity-linked
securities may be less liquid, making it difficult for the Fund to dispose of a
particular security when necessary and reduced liquidity in the secondary market
for any such securities may make it more difficult to obtain market quotations
for valuing the Fund's portfolio.
The Fund may invest in securities of certain issuers indirectly through
investment in other investment companies. Such investments are commonly used
when direct investments in certain countries are not permitted to foreign
entities. Investment in other investment companies may involve duplication of
management fees and certain other expenses.
The Fund may invest in issuers of small-, medium-or large-capitalization
companies. The securities of smaller- or medium-sized companies may be subject
to more abrupt or erratic market movements than securities of larger companies
or the market averages in general. In addition, such companies typically are
subject to a greater degree of change in earnings and business prospects than
are larger companies. Thus, to the extent the Fund invests in smaller- or
medium-sized companies, the Fund may be subject to greater investment risk than
that assumed through investment in the equity securities of larger companies.
RISKS OF INVESTING IN SECURITIES
OF FOREIGN ISSUERS
The Fund invests in securities of foreign issuers. Such securities may be
denominated in U.S. dollars and in currencies other than U.S. dollars. The
percentage of assets invested in securities of a particular country or
denominated in a particular currency will vary in accordance with the investment
adviser's assessment of the relative yield, appreciation potential and the
relationship of a country's currency to the U.S. dollar, which is based upon
such factors as fundamental economic strength, credit quality and interest rate
trends. Investments in foreign securities present certain risks not ordinarily
associated with investments in securities of U.S. issuers. These risks include
fluctuations in foreign currency exchange rates, political, economic or legal
developments (including war or other instability, expropriation of assets,
nationalization and confiscatory taxation), the imposition of foreign exchange
limitations (including currency blockage), withholding taxes on dividend or
interest payments or capital transactions or other restrictions, higher
transaction costs (including higher brokerage, custodial and settlement costs
and currency translation costs) and possible difficulty in enforcing contractual
obligations or taking judicial action. Also, foreign securities may not be as
liquid and may be more volatile than comparable domestic securities.
In addition, there often is less publicly available information about many
foreign issuers, and issuers of foreign securities are subject to different,
often less comprehensive, auditing, accounting, financial reporting and
disclosure requirements than domestic issuers. There is generally less
government regulation of stock exchanges, brokers and listed companies abroad
than in the U.S., and, with respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investment in those countries. Because there is
usually less supervision and governmental regulation of exchanges, brokers and
dealers than there is in the U.S., the Fund may experience settlement
difficulties or delays not usually encountered in the U.S.
Delays in making trades in foreign securities relating to volume constraints,
limitations or restrictions, clearance or settlement procedures, or otherwise
could impact returns and result in temporary periods when assets of the Fund are
not fully invested or attractive investment opportunities are foregone.
Investments in securities of developing or emerging market countries are subject
to greater risks than investments in securities of developed markets since
emerging market countries tend to have economic structures that are less diverse
and mature and political systems that are less stable than developed markets.
In addition to the increased risks of investing in foreign securities, there are
often increased transactions costs associated with investing in foreign
securities including the costs incurred in connection with
8
<PAGE>
converting currencies, higher foreign brokerage or dealer costs, and higher
settlement costs or custodial costs.
Since the Fund invests in securities denominated or quoted in currencies other
than the U.S. dollar, the Fund will be affected by changes in foreign currency
exchange rates (and exchange control regulations) which affect the value of
investments in the Fund and the accrued income and unrealized appreciation or
depreciation of the investments. Changes in foreign currency exchange ratios
relative to the U.S. dollar will affect the U.S. dollar value of the Fund's
assets denominated in that currency and the Fund's return on such assets as well
as any temporary uninvested reserves in bank deposits in foreign currencies. In
addition, the Fund will incur costs in connection with conversions between
various currencies.
The Funds may purchase and sell foreign currency on a spot basis in connection
with the settlement of transactions in securities traded in such foreign
currency. The Fund also may enter into contracts with banks, brokers or dealers
to purchase or sell securities or foreign currencies at a future date ("forward
contracts"). A foreign currency forward contract is a negotiated agreement
between the contracting parties to exchange a specified amount of currency at a
specified future time at a specified rate. The rate can be higher or lower than
the spot rate between the currencies that are the subject of the contract.
The Fund may attempt to protect against adverse changes in the value of the U.S.
dollar in relation to a foreign currency by entering into a forward contract for
the purchase or sale of the amount of foreign currency invested or to be
invested, or by buying or selling a foreign currency option or futures contract
for such amount. Such strategies may be employed before the Fund purchases a
foreign security traded in the currency which the Fund anticipates acquiring or
between the date the foreign security is purchased or sold and the date on which
payment therefor is made or received. Seeking to protect against a change in the
value of a foreign currency in the foregoing manner does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Furthermore, such transactions reduce or
preclude the opportunity for gain if the value of the currency should move in
the direction opposite to the position taken. Unanticipated changes in currency
prices may result in poorer overall performance for the Fund than if it had not
entered into such contracts.
Investors should carefully consider the risks of foreign investments before
investing in the Fund.
DERIVATIVE INSTRUMENTS
The Fund may, but is not required to, use various investment strategic
transactions described below to earn income, facilitate portfolio management and
mitigate risks. Such strategic transactions are generally accepted under modern
portfolio management and are regularly used by many mutual funds and other
institutional investors. Although the Fund's investment adviser seeks to use the
practices to further the Fund's investment objective, no assurance can be given
that these practices will achieve this result.
The Fund may purchase and sell derivative instruments such as exchange-listed
and over-the-counter put and call options on securities, financial futures,
equity, fixed-income and interest rate indices, and other financial instruments,
futures contracts and options thereon (including but not limited to securities
index futures, foreign currency exchange futures, interest rate futures and
other financial futures), structured notes, swaps, caps, floors or collars and
enter into various currency transactions such as currency forward contracts,
currency futures contracts, currency swaps or options on currency or currency
futures. In addition, the Fund may invest in other derivative instruments that
are developed over time if their use would be consistent with the objective of
the Fund. Collectively, all of the above are referred to as "Strategic
Transactions." The Fund generally seeks to use Strategic Transactions as a
portfolio management or hedging technique to seek to protect against possible
adverse changes in the market value of securities held in or to be purchased for
the Fund's portfolio, protect the Fund's unrealized gains, facilitate the sale
of certain securities for investment purposes, protect against changes in
currency exchange rates or to adjust the exposure to a particular currency,
manage the effective maturity or duration of the Fund's portfolio, establish
positions in
9
<PAGE>
the derivatives markets as a substitute for purchasing or selling particular
securities, including, for example, when the Fund adjusts its exposure to a
market in response to changes in investment strategy, when doing so provides
more liquidity than the direct purchase of the securities underlying such
derivatives, when the Fund 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. The Fund may invest up to 50% of its total assets in
Strategic Transactions (measured by the aggregate notional amount of outstanding
derivatives) provided that no more than 33 1/3% of the Fund's total assets are
invested, for non-hedging purposes, in Strategic Transactions (measured by the
aggregate notional amount of outstanding derivatives) other than futures and
options on futures.
Strategic Transactions have risks including the imperfect correlation between
the value of such instruments and the underlying assets, the possible default of
the other party to the transaction or illiquidity of the derivative instruments.
Furthermore, the ability to successfully use Strategic Transactions depends on
the Fund's investment adviser's ability to predict pertinent market movements,
which cannot be assured. Thus, the use of Strategic Transactions may result in
losses greater than if they had not been used, may require the Fund to sell or
purchase portfolio securities at inopportune times or for prices other than
current market values, may limit the amount of appreciation the Fund can
otherwise realize on an investment, or may cause the Fund to hold a security
that it might otherwise sell. The use of currency transactions can result in the
Fund incurring losses because of the imposition of exchange controls, suspension
of settlements or the inability of the Fund to deliver or receive a specified
currency. In addition, amounts paid as premiums or cash or other assets held in
margin accounts with respect to Strategic Transactions are not otherwise
available to the Fund for investment purposes.
When conducted outside the U.S., Strategic Transactions may not be regulated as
rigorously as in the U.S., may not involve a clearing mechanism and related
guarantees, and are subject to the risk of governmental actions affecting
trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions, (iii)
delays in the Fund's ability to act upon economic events occurring in foreign
markets during non-business hours in the U.S., (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
U.S., and (v) lower trading volume and liquidity.
A more complete discussion of Strategic Transactions and their risks is
contained in the Fund's Statement of Additional Information. The Statement of
Additional Information can be obtained by investors free of charge as described
on the back cover of this prospectus.
OTHER INVESTMENT POLICIES AND RISK FACTORS
For cash management purposes, the Fund may engage in repurchase agreements with
banks and broker-dealers and other financial institutions in order to earn a
return on temporarily available cash. Such transactions are subject to the risk
of default by the other party.
The Fund may lend its portfolio securities in an amount up to 33 1/3% of its
total assets to broker-dealers, banks or other recognized institutional
borrowers of securities. The Fund may incur lending fees and other costs in
connection with securities lending, and securities lending is subject to the
risk of default by the other party.
The Fund may invest up to 15% of the Fund's net assets in illiquid securities
and certain restricted securities. Such securities may be difficult or
impossible to sell at the time and the price that the Fund would like. Thus, the
Fund may have to sell such securities at a lower price, sell other securities
instead to obtain cash or forego other investment opportunities.
Further information about these types of investments and other investment
practices that may be used by
10
<PAGE>
the Fund is contained in the Statement of Additional Information.
The Fund may sell securities without regard to the length of time they have been
held in order to take advantage of new investment opportunities or when the
Fund's investment adviser believes the potential for capital appreciation has
lessened or for other reasons. The Fund's portfolio turnover is shown under the
heading "Financial Highlights." The portfolio turnover rate may be expected to
vary from year to year. A high portfolio turnover rate (100% or more) increases
the Fund's transactions costs (including brokerage commissions or dealer costs)
and a high portfolio turnover rate may result in the realization of more
short-term capital gains than if the Fund had a lower portfolio turnover rate.
Increases in the Fund's transaction costs would adversely impact the Fund's
performance. The turnover rate will not be a limiting factor, however, if the
Fund's investment adviser considers portfolio changes appropriate.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Fund may on a temporary basis hold cash or invest a
portion or all of its assets in money-market instruments including obligations
of the U.S. government, its agencies or instrumentalities, obligations of
foreign sovereignties, other high-quality debt securities, including prime
commercial paper, repurchase agreements and bank obligations, such as bankers'
acceptances and certificates of deposit (including Eurodollar certificates of
deposit). Under normal market conditions, the potential for capital appreciation
on these securities will tend to be lower than the potential for capital
appreciation on other securities that may be owned by the Fund. In taking such a
defensive position, the Fund would not be pursuing and may not achieve its
investment objective.
YEAR 2000 RISKS. Like other mutual funds, financial and business organizations
and individuals around the world, the Fund could be adversely affected if the
computer systems used by the Fund's investment adviser, subadviser and other
service providers do not properly process and calculate date-related information
and data from and after January 1, 2000. This is commonly known as the "Year
2000 Problem." The Fund's investment adviser and subadviser are taking steps
that they believe are reasonably designed to address the Year 2000 Problem with
respect to computer systems that they use and to obtain reasonable assurances
that comparable steps are being taken by the Fund's other major service
providers. At this time, there can be no assurances that these steps will be
sufficient to avoid any adverse impact to the Fund. In addition, the Year 2000
Problem may adversely affect the markets and the issuers of securities in which
the Fund may invest which, in turn, may adversely affect the net asset value of
shares of the Fund. Improperly functioning trading systems may result in
settlement problems and liquidity issues. In addition, corporate and
governmental data processing errors may result in production problems for
individual companies or issuers and overall economic uncertainty. Earnings of
individual issuers will be affected by remediation costs, which may be
substantial and may be reported inconsistently in U.S. and foreign financial
statements. Efforts in foreign countries to remediate the potential Year 2000
Problem may not be as extensive as those in the U.S. As a result, the operations
in foreign markets and issuers may be disrupted by the Year 2000 Problem which
could adversely affect the Fund's portfolio. The risks are greater with respect
to certain developing or emerging market countries because there is an increased
likelihood that issuers of securities of such countries cannot anticipate or
effectively manage the effects of computer programs and the Year 2000 Problem.
Accordingly, the Fund's investments may be adversely affected. The statements
above are subject to the Year 2000 Information and Readiness Disclosure Act
which may limit the legal rights regarding the use of such statements in the
case of a dispute.
INVESTMENT ADVISORY
SERVICES
INVESTMENT ADVISER
Van Kampen Investment Advisory Corp. is the investment adviser (the "Adviser" or
"Advisory Corp.") and administrator of the Fund. The Adviser is a wholly owned
subsidiary of Van Kampen Investments Inc. ("Van Kampen Investments"). Van
11
<PAGE>
Kampen Investments is a diversified asset management company with more than two
million retail investor accounts, extensive capabilities for managing
institutional portfolios, and more than $79 billion under management or
supervision as of September 30, 1999. Van Kampen Investments' more than 50
open-end and 39 closed-end funds and more than 2,500 unit investment trusts are
professionally distributed by leading authorized dealers nationwide. Van Kampen
Funds Inc., the distributor of the Fund (the "Distributor") and the sponsor of
the funds mentioned above, is also a wholly owned subsidiary of Van Kampen
Investments. Van Kampen Investments is an indirect wholly owned subsidiary of
Morgan Stanley Dean Witter & Co. The Adviser's principal office is located at 1
Parkview Plaza, PO Box 5555, Oakbrook Terrace, Illinois 60181-5555.
ADVISORY AGREEMENT AND ADMINISTRATION AGREEMENT. The Fund retains the Adviser to
manage the investment of its assets and to place orders for the purchase and
sale of its portfolio securities. Under an investment advisory agreement between
the Adviser and the Fund (the "Advisory Agreement"), the Fund pays the Adviser a
monthly fee computed based upon an annual rate of 1.00% applied to the average
daily net assets of the Fund.
The Fund also retains the Adviser to provide administrative services for the
Fund's day-to-day operations. Under an administration agreement between the
Adviser and the Fund, the Fund pays a monthly administration fee computed based
upon an annual rate of 0.25% applied to the average daily net assets of the
Fund.
The Adviser furnishes offices, necessary facilities and equipment, provides
administrative services, and permits its officers and employees to serve without
compensation as directors or officers of the Fund if elected to such positions.
The Fund pays all charges and expenses of its day-to-day operations, including
the compensation of directors of the Fund (other than those who are affiliated
persons of the Adviser, Distributor or Van Kampen Investments), the charges and
expenses of legal counsel and independent accountants, distribution fees,
service fees, custodian fees, the costs of providing reports to shareholders,
and all other ordinary business expenses not specifically assumed by the
Adviser.
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen Asset Management
Inc. ("Asset Management").
INVESTMENT SUBADVISER
Morgan Stanley Dean Witter Investment Management Inc. (the "Subadviser") is the
Subadviser of the Fund. The Subadviser is a wholly owned subsidiary of Morgan
Stanley Dean Witter & Co., and is an affiliate of the Adviser. The Subadviser
conducts a worldwide portfolio management business and provides a broad range of
portfolio management services to customers in the United States and abroad. At
June 30, 1999, the Subadviser, together with its affiliated institutional asset
management companies, managed assets of approximately $175.3 billion, including
assets under fiduciary advice. The Subadviser's principal office is located at
1221 Avenue of the Americas, New York, New York 10020. On December 1, 1998,
Morgan Stanley Asset Management Inc. changed its name to Morgan Stanley Dean
Witter Investment Management Inc. but continues to do business in certain
instances using the name Morgan Stanley Asset Management.
SUBADVISORY AGREEMENT. The Adviser has entered into a subadvisory agreement with
the Subadviser to assist the Adviser in performing its investment advisory
functions. The Adviser pays the Subadviser on a monthly basis a portion of the
net advisory fees the Adviser receives from the Fund.
GENERAL
From time to time, the Adviser, the Subadviser or the Distributor may
voluntarily undertake to reduce the Fund's expenses by reducing the fees payable
to them or by reducing other expenses of the Fund in accordance with such
limitations as the Adviser, the Subadviser or Distributor may establish.
PERSONAL INVESTMENT POLICIES. The Fund, the Adviser and the Subadviser have
adopted Codes of Ethics designed to recognize the fiduciary relationship among
the Fund, the Adviser and the Subadviser and their respective employees. The
Codes of Ethics permit directors, trustees, officers and employees to buy and
sell securities for their personal accounts subject
12
<PAGE>
to certain restrictions. Persons with access to certain sensitive information
are subject to pre-clearance and other procedures designed to prevent conflicts
of interest.
PORTFOLIO MANAGEMENT. Frances Campion, Richard Boon and Paul Boyne are
responsible as comanagers for the day-to-day management of the Fund's investment
portfolio.
Ms. Campion joined the Subadviser in 1990 as the Fund's Manager and is now a
Managing Director of the Subadviser and Morgan Stanley Dean Witter & Co. Her
responsibilities include day-to-day management of the global equity products.
Ms. Campion has ten years' global investment experience. She is a graduate of
University College, Dublin.
Mr. Boon joined the Subadviser's Global Equity team in September 1995 and became
a Principal in December 1998. In addition to portfolio management, his
responsibilities include security analysis of North American equities. Prior to
joining the Subadviser, Mr. Boon spent seven years in investment banking working
on privatizations in both the U.K. and New Zealand. He is a graduate of both
Canterbury and Victoria Universities, New Zealand.
Mr. Boyne joined the Subadviser in 1993 and became a Principal in December 1998.
At the Subadviser, he assists with portfolio management on the Global Equity
Program and security analysis of North American equities. Prior to joining the
Subadviser, Mr. Boyne was a Chartered Accountant with Grant Thornton
International in Dublin.
PURCHASE OF SHARES
GENERAL
The Fund offers three classes of shares designated as Class A Shares, Class B
Shares and Class C Shares. By offering three classes of shares, the Fund permits
each investor to choose the class of shares that is most beneficial given the
amount to be invested and the length of time the investor expects to hold the
shares.
Initial investments must be at least $1,000 for each class of shares, and
subsequent investments must be at least $25 for each class of shares. Both
minimums may be waived by the Distributor for plans involving periodic
investments.
Each class of shares represents an interest in the same portfolio of investments
of the Fund and has the same rights except that (i) Class A Shares generally
bear the sales charge expenses at the time of purchase while Class B Shares and
Class C Shares bear the sales charge expenses at the time of redemption and any
expenses (including higher distribution fees and transfer agency costs)
resulting from such deferred sales charge arrangement, (ii) generally, each
class of shares has exclusive voting rights with respect to approvals of the
Rule 12b-1 distribution plan and service plan (each as described below) under
which its distribution fee or service fee is paid, (iii) each class of shares
has different exchange privileges, (iv) certain classes of shares are subject to
a conversion feature and (v) certain classes of shares have different
shareholder service options available.
The offering price of the Fund's shares is based upon the Fund's net asset value
per share (plus sales charges, where applicable). The net asset values per share
of the Class A Shares, Class B Shares and Class C Shares are generally expected
to be substantially the same. In certain circumstances, however, the per share
net asset values of the classes of shares may differ from one another,
reflecting the daily expense accruals of the higher distribution fees and
transfer agency costs applicable to the Class B Shares and Class C Shares and
the differential in the dividends that may be paid on each class of shares.
The net asset value per share for each class of shares of the Fund is determined
once daily as of the close of trading on the New York Stock Exchange (the
"Exchange") (currently 4:00 p.m., New York time) each day the Exchange is open
for trading except on any day on which no purchase or redemption orders are
received or there is not a sufficient degree of trading in the Fund's portfolio
securities such that the Fund's net asset value per share might be materially
affected. The Fund's Board of Directors reserves the right to calculate the net
asset value per share and adjust the offering price based thereon
13
<PAGE>
more frequently than once daily if deemed desirable. Net asset value per share
for each class is determined by dividing the value of the Fund's portfolio
securities, cash and other assets (including accrued interest) attributable to
such class, less all liabilities (including accrued expenses) attributable to
such class, by the total number of shares of the class outstanding. Such
computation is made by using prices as of the close of trading on the Exchange
and (i) valuing securities listed or traded on a national securities exchange at
the closing price, or if no closing price is available, at the last reported
sale price, and if there has been no sale that day, at the mean between the last
reported bid and asked prices, (ii) valuing over-the-counter securities at the
current reported sale price from the National Association of Securities Dealers
Automated Quotations ("NASDAQ"), (iii) valuing unlisted securities and any
securities for which market quotations are not readily available at the average
of the mean between the current reported bid and asked prices obtained from
reputable brokers and (iv) valuing any other assets at fair value as determined
in good faith by the Adviser in accordance with procedures established by the
Fund's Board of Directors. Debt securities with remaining maturities of 60 days
or less are valued on an amortized cost basis, which approximates market value.
Trading in securities on many foreign securities exchanges (including European
and Far Eastern securities exchanges) and over-the-counter markets is normally
completed before the close of business on each U.S. business day. In addition,
securities trading in a particular country or countries may not take place on
all U.S. business days or may take place on days which are not U.S. business
days. Changes in valuations on certain securities may occur at times or on days
on which the Fund's net asset value is not calculated and on which the Fund does
not effect sales, redemptions and exchanges of its shares.
The Fund calculates net asset value per share, and therefore effects sales,
redemptions and exchanges of its shares, as of the close of trading on the
Exchange each day the Exchange is open for trading. Such calculation does not
take place contemporaneously with the determination of the prices of certain
foreign portfolio securities used in such calculation.
If events materially affecting the value of foreign portfolio securities or
other portfolio securities occur between the time when their price is determined
and the time when the Fund's net asset value is calculated, such securities may
be valued at fair value as determined in good faith by the Adviser based in
accordance with procedures established by the Fund's Board of Directors.
The Fund has adopted a distribution plan (the "Distribution Plan") with respect
to each class of its shares pursuant to Rule 12b-1 under the 1940 Act. The Fund
also has adopted a service plan (the "Service Plan") with respect to each class
of its shares. Under the Distribution Plan and the Service Plan, the Fund pays
distribution fees in connection with the sale and distribution of its shares and
service fees in connection with the provision of ongoing services to
shareholders of each class.
The amount of distribution and service fees varies among the classes offered by
the Fund. Because these fees are paid out of the Fund's assets on an ongoing
basis, these fees will increase the cost of your investment in the Fund. By
purchasing a class of shares subject to higher distribution and service fees,
you may pay more over time than on a class of shares with other types of sales
charge arrangements. Long-term shareholders may pay more than the economic
equivalent of the maximum front-end sales charges permitted by the rules of the
National Association of Securities Dealers, Inc. ("NASD"). The net income
attributable to a class of shares will be reduced by the amount of the
distribution fees and other expenses of the Fund associated with such class of
shares. To assist investors in comparing classes of shares, the tables under the
heading "Fees and Expenses of the Fund" provide a summary of sales charges and
expenses and an example of the sales charges and expenses of the Fund applicable
to each class of shares.
The shares are offered to the public on a continuous basis through the
Distributor as principal underwriter, which is located at 1 Parkview Plaza, PO
Box 5555, Oakbrook Terrace, Illinois 60181-5555. Shares also are offered through
members of the NASD who are acting as securities dealers ("dealers") and NASD
members or eligible non-NASD members who are acting as brokers or agents for
14
<PAGE>
investors ("brokers"). "Dealers" and "brokers" are sometimes referred to herein
as "authorized dealers."
Shares may be purchased on any business day by completing the application
accompanying this prospectus and forwarding the application, directly or through
an authorized dealer, to the Fund's shareholder service agent, Van Kampen
Investor Services Inc. ("Investor Services"), a wholly owned subsidiary of Van
Kampen Investments. When purchasing shares of the Fund, investors must specify
whether the purchase is for Class A Shares, Class B Shares or Class C Shares.
Sales personnel of authorized dealers distributing the Fund's shares are
entitled to receive compensation for selling such shares and may receive
differing compensation for selling Class A Shares, Class B Shares or Class C
Shares.
The offering price for shares is based upon the next calculation of net asset
value per share (plus sales charges, where applicable) after an order is
received by Investor Services. Orders received by authorized dealers prior to
the close of the Exchange are priced based on the date of receipt provided such
order is transmitted to Investor Services prior to Investor Services' close of
business on such date. Orders received by authorized dealers after the close of
the Exchange or transmitted to Investor Services after its close of business are
priced based on the date of the next computed net asset value per share provided
they are received by Investor Services prior to Investor Services' close of
business on such date. It is the responsibility of authorized dealers to
transmit orders received by them to Investor Services so they will be received
in a timely manner.
The Fund and the Distributor reserve the right to refuse any order for the
purchase of shares. The Fund also reserves the right to suspend the sale of the
Fund's shares in response to conditions in the securities markets or for other
reasons. Shares of the Fund may be sold in foreign countries where permissible.
Investor accounts will automatically be credited with additional shares of the
Fund after any Fund distributions, such as dividends and capital gain dividends,
unless the investor instructs the Fund otherwise. Investors wishing to receive
cash instead of additional shares should contact the Fund at (800) 341-2911 or
by writing to the Fund, c/o Van Kampen Investors Services Inc., PO Box 218256,
Kansas City, MO 64121-8256.
CLASS A SHARES
Class A Shares of the Fund are sold at net asset value plus an initial maximum
sales charge of up to 5.75% of the offering price (or 6.10% of the net amount
invested), reduced on investments of $50,000 or more as follows:
CLASS A SHARES
SALES CHARGE SCHEDULE
<TABLE>
<CAPTION>
AS % OF AS % OF
SIZE OF OFFERING NET AMOUNT
INVESTMENT PRICE INVESTED
<S> <C> <C>
- ------------------------------------------------------------------------
Less than $50,000 5.75% 6.10%
.......................................................................
$50,000 but less than $100,000 4.75% 4.99%
.......................................................................
$100,000 but less than $250,000 3.75% 3.90%
.......................................................................
$250,000 but less than $500,000 2.75% 2.83%
.......................................................................
$500,000 but less than $1,000,000 2.00% 2.04%
.......................................................................
$1,000,000 or more * *
.......................................................................
</TABLE>
* NO SALES CHARGE IS PAYABLE AT THE TIME OF PURCHASE ON INVESTMENTS OF
$1 MILLION OR MORE, ALTHOUGH FOR SUCH INVESTMENTS THE FUND MAY IMPOSE
A CONTINGENT DEFERRED SALES CHARGE OF 1.00% ON CERTAIN REDEMPTIONS
MADE WITHIN ONE YEAR OF THE PURCHASE. THE CONTINGENT DEFERRED SALES
CHARGE IS ASSESSED ON AN AMOUNT EQUAL TO THE LESSER OF THE THEN
CURRENT MARKET VALUE OR THE COST OF THE SHARES BEING REDEEMED.
ACCORDINGLY, NO SALES CHARGE IS IMPOSED ON INCREASES IN NET ASSET
VALUE ABOVE THE INITIAL PURCHASE PRICE.
No sales charge is imposed on Class A Shares received from reinvestment of
dividends or capital gain dividends.
Under the Distribution Plan and Service Plan, the Fund may spend up to a total
of 0.25% per year of the Fund's average daily net assets with respect to the
Class A Shares of the Fund. From such amount, under the Service Plan, the Fund
may spend up to 0.25% per year of the Fund's average daily net assets with
respect to the Class A Shares for the ongoing provision of services to Class A
shareholders by the Distributor and by brokers, dealers or financial
intermediaries and for the maintenance of such shareholders' accounts.
15
<PAGE>
CLASS B SHARES
Class B Shares of the Fund are sold at net asset value and are subject to a
contingent deferred sales charge if redeemed within five years of purchase as
shown in the table as follows:
CLASS B SHARES
SALES CHARGE SCHEDULE
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE
AS A PERCENTAGE OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
<S> <C>
- ---------------------------------------------------------------------------
First 5.00%
..........................................................................
Second 4.00%
..........................................................................
Third 3.00%
..........................................................................
Fourth 2.50%
..........................................................................
Fifth 1.50%
..........................................................................
Sixth and After None
..........................................................................
</TABLE>
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gain dividends. It
is presently the policy of the Distributor not to accept any order for Class B
Shares in an amount of $500,000 or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
The amount of the contingent deferred sales charge, if any, varies depending on
the number of years from the time of payment for the purchase of Class B Shares
until the time of redemption of such shares. Solely for purposes of determining
the number of years from the time of any payment for the purchase of shares, all
payments during a month are totaled and deemed to have been made on the last day
of the month.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed shares being redeemed first are any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge followed by shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
Fund's average daily net assets with respect to the Class B Shares of the Fund.
In addition, under the Service Plan, the Fund may spend up to 0.25% per year of
the Fund's average daily net assets with respect to the Class B Shares for the
ongoing provision of services to Class B shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CLASS C SHARES
Class C Shares of the Fund are sold at net asset value and are subject to a
contingent deferred sales charge of 1.00% of the dollar amount subject to charge
if redeemed within one year of purchase.
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gain dividends. It
is presently the policy of the Distributor not to accept any order for Class C
Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed shares being redeemed first are any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge followed by shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
Fund's average daily net assets with respect to the Class C Shares of the Fund.
In addition, under the Service Plan, the Fund may spend up to 0.25% per year of
the Fund's average daily net assets with respect to the Class C
16
<PAGE>
Shares for the ongoing provision of services to Class C shareholders by the
Distributor and by brokers, dealers or financial intermediaries and for the
maintenance of such shareholders' accounts.
CONVERSION FEATURE
Class B Shares and any dividend reinvestment plan Class B Shares received on
such shares, automatically convert to Class A Shares eight years after the end
of the calendar month in which the shares were purchased. Such conversion will
be on the basis of the relative net asset values per share, without the
imposition of any sales load, fee or other charge. The conversion schedule
applicable to a share of the Fund acquired through the exchange privilege from
another Van Kampen fund participating in the exchange program is determined by
reference to the Van Kampen fund from which such share was originally purchased.
The conversion of such shares to Class A Shares is subject to the continuing
availability of an opinion of counsel to the effect that (i) the assessment of
the higher distribution fee and transfer agency costs with respect to such
shares does not result in the Fund's dividends or capital gain dividends
constituting "preferential dividends" under the federal income tax law and
(ii) the conversion of shares does not constitute a taxable event under federal
income tax law. The conversion may be suspended if such an opinion is no longer
available and such shares might continue to be subject to the higher aggregate
fees applicable to such shares for an indefinite period.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge is waived on redemptions of Class B Shares
and Class C Shares (i) within one year following the death or disability (as
disability is defined by federal income tax law) of a shareholder, (ii) for
required minimum distributions from an individual retirement account ("IRA") or
certain other retirement plan distributions, (iii) for withdrawals under the
Fund's systematic withdrawal plan but limited to 12% annually of the initial
value of the account, (iv) if no commission or transaction fee is paid to
authorized dealers at the time of purchase of such shares and (v) if made by
involuntary liquidation by the Fund of a shareholder's account as described
under the heading "Redemption of Shares." Subject to certain limitations, a
shareholder who has redeemed Class C Shares of the Fund may reinvest in Class C
Shares at net asset value with credit for any contingent deferred sales charge
if the reinvestment is made within 180 days after the redemption. For a more
complete description of contingent deferred sales charge waivers, please refer
to the Fund's Statement of Additional Information or contact your authorized
dealer.
QUANTITY DISCOUNTS
Investors purchasing Class A Shares may, under certain circumstances described
below, be entitled to pay reduced or no sales charges. Investors, or their
authorized dealers, must notify the Fund at the time of the purchase order
whenever a quantity discount is applicable to purchases. Upon such notification,
an investor will receive the lowest applicable sales charge. Quantity discounts
may be modified or terminated at any time. For more information about quantity
discounts, investors should contact their authorized dealer or the Distributor.
A person eligible for a reduced sales charge includes an individual, his or her
spouse and children under 21 years of age and any corporation, partnership or
sole proprietorship which is 100% owned, either alone or in combination, by any
of the foregoing; a trustee or other fiduciary purchasing for a single trust or
for a single fiduciary account, or a "company" as defined in Section 2(a)(8) of
the 1940 Act.
As used herein, "Participating Funds" refers to certain open-end investment
companies advised by Asset Management or Advisory Corp. and distributed by the
Distributor as determined from time to time by the Fund's Board of Directors.
VOLUME DISCOUNTS. The size of investment shown in the Class A Shares sales
charge table applies to the total dollar amount being invested by any person in
shares of the Fund, or in any combination of shares of the Fund and shares of
other Participating Funds, although other Participating Funds may have different
sales charges.
17
<PAGE>
CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the Class A Shares
sales charge table may also be determined by combining the amount being invested
in shares of the Participating Funds plus the current offering price of all
shares of the Participating Funds which have been previously purchased and are
still owned.
LETTER OF INTENT. A Letter of Intent provides an opportunity for an investor to
obtain a reduced sales charge by aggregating the investments over a 13-month
period to determine the sales charge as outlined in the Class A Shares sales
charge table. The size of investment shown in the Class A Shares sales charge
table includes purchases of shares of the Participating Funds over a 13-month
period based on the total amount of intended purchases plus the value of all
shares of the Participating Funds previously purchased and still owned. An
investor may elect to compute the 13-month period starting up to 90 days before
the date of execution of a Letter of Intent. Each investment made during the
period receives the reduced sales charge applicable to the total amount of the
investment goal. The initial purchase must be for an amount equal to at least 5%
of the minimum total purchase amount of the level selected. If trades not
initially made under a Letter of Intent subsequently qualify for a lower sales
charge through the 90-day backdating provisions, an adjustment will be made at
the time of the expiration of the Letter of Intent to give effect to the lower
charge. Such adjustment in sales charge will be used to purchase additional
shares for the shareholder at the applicable discount category. The Fund
initially will escrow shares totaling 5% of the dollar amount of the Letter of
Intent to be held by Investor Services in the name of the shareholder. In the
event the Letter of Intent goal is not achieved within the specified period, the
investor must pay the difference between the sales charge applicable to the
purchases made and the reduced sales charge previously paid. Such payments may
be made directly to the Distributor or, if not paid, the Distributor will
liquidate sufficient escrowed shares to obtain the difference.
OTHER PURCHASE PROGRAMS
Purchasers of Class A Shares may be entitled to reduced or no initial sales
charges in connection with the unit investment trust reinvestment program and
purchases by registered representatives of selling firms or purchases by persons
affiliated with the Fund or the Distributor. The Fund reserves the right to
modify or terminate these arrangements at any time.
UNIT INVESTMENT TRUST REINVESTMENT PROGRAM. The Fund permits unitholders of unit
investment trusts to reinvest distributions from such trusts in Class A Shares
of the Fund at net asset value per share and with no minimum initial or
subsequent investment requirement, if the administrator of an investor's unit
investment trust program meets certain uniform criteria relating to cost savings
by the Fund and the Distributor. The total sales charge for all other
investments made from unit investment trust distributions will be 1.00% of the
offering price (1.01% of net asset value). Of this amount, the Distributor will
pay to the authorized dealer, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the terms and conditions that apply to the program,
should contact their authorized dealer or the Distributor.
The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during each distribution period by all investors who choose to invest in
the Fund through the program and (2) provide Investor Services with appropriate
backup data for each investor participating in the program in a computerized
format fully compatible with Investor Services' processing system.
In order to obtain these special benefits, all dividends and other distributions
by the Fund must be reinvested in additional shares and there can not be any
systematic withdrawal program. There will be no minimum for reinvestments from
unit investment trusts. The Fund will send account activity statements to such
participants on a quarterly basis only, even if their investments are made more
frequently. The Fund reserves the right to modify or terminate this program at
any time.
18
<PAGE>
NET ASSET VALUE PURCHASE OPTIONS. Class A Shares of the Fund may be purchased at
net asset value, upon written assurance that the purchase is made for investment
purposes and that the shares will not be resold except through redemption by the
Fund, by:
(1) Current or retired trustees or directors of funds advised by Morgan Stanley
Dean Witter & Co. and any of its subsidiaries and such persons' families
and their beneficial accounts.
(2) Current or retired directors, officers and employees of Morgan Stanley Dean
Witter & Co. and any of its subsidiaries; employees of an investment
subadviser to any fund described in (1) above or an affiliate of such
subadviser; and such persons' families and their beneficial accounts.
(3) Directors, officers, employees and, when permitted, registered
representatives, of financial institutions that have a selling group
agreement with the Distributor and their spouses and children under 21
years of age when purchasing for any accounts they beneficially own, or, in
the case of any such financial institution, when purchasing for retirement
plans for such institution's employees; provided that such purchases are
otherwise permitted by such institutions.
(4) Registered investment advisers who charge a fee for their services, trust
companies and bank trust departments investing on their own behalf or on
behalf of their clients. The Distributor may pay authorized dealers through
which purchases are made an amount up to 0.50% of the amount invested, over
a 12-month period.
(5) Trustees and other fiduciaries purchasing shares for retirement plans which
invest in multiple fund families through broker-dealer retirement plan
alliance programs that have entered into agreements with the Distributor
and which are subject to certain minimum size and operational requirements.
Trustees and other fiduciaries should refer to the Statement of Additional
Information for further details with respect to such alliance programs.
(6) Beneficial owners of shares of Participating Funds held by a retirement
plan or held in a tax-advantaged retirement account who purchase shares of
the Fund with proceeds from distributions from such a plan or retirement
account other than distributions taken to correct an excess contribution.
(7) Accounts as to which a bank or broker-dealer charges an account management
fee ("wrap accounts"), provided the bank or broker-dealer has a separate
agreement with the Distributor.
(8) Trusts created under pension, profit sharing or other employee benefit
plans qualified under Section 401(a) of the Internal Revenue Code of 1986,
as amended (the "Code"), or custodial accounts held by a bank created
pursuant to Section 403(b) of the Code and sponsored by nonprofit
organizations defined under Section 501(c)(3) of the Code and assets held
by an employer or trustee in connection with an eligible deferred
compensation plan under Section 457 of the Code. Such plans will qualify
for purchases at net asset value provided, for plans initially establishing
accounts with the Distributor in the Participating Funds after February 1,
1997, that (1) the initial amount invested in the Participating Funds is at
least $500,000 or (2) such shares are purchased by an employer sponsored
plan with more than 100 eligible employees. Such plans that have been
established with a Participating Fund or have received proposals from the
Distributor prior to February 1, 1997 based on net asset value purchase
privileges previously in effect will be qualified to purchase shares of the
Participating Funds at net asset value for accounts established on or
before May 1, 1997. Section 403(b) and similar accounts for which Van
Kampen Trust Company serves as custodian will not be eligible for net asset
value purchases based on the aggregate investment made by the plan or the
number of eligible employees, except under certain uniform criteria
established by the Distributor from time to time. Prior to February 1,
1997, a commission will be paid to authorized dealers who initiate and are
responsible for such purchases within a rolling twelve- month period as
follows: 1.00% on sales to $5 million, plus 0.50% on the next $5 million,
plus 0.25% on the excess over $10 million. For purchases on February 1,
1997 and thereafter, a commission will be paid as follows: 1.00% on sales
to $2 million, plus 0.80% on the next $1 million, plus 0.50% on
19
<PAGE>
the next $47 million, plus 0.25% on the excess over $50 million.
(9) Individuals who are members of a "qualified group." For this purpose, a
qualified group is one which (i) has been in existence for more than six
months, (ii) has a purpose other than to acquire shares of the Fund or
similar investments, (iii) has given and continues to give its endorsement
or authorization, on behalf of the group, for purchase of shares of the
Fund and Participating Funds, (iv) has a membership that the authorized
dealer can certify as to the group's members and (v) satisfies other
uniform criteria established by the Distributor for the purpose of
realizing economies of scale in distributing such shares. A qualified group
does not include one whose sole organizational nexus, for example, is that
its participants are credit card holders of the same institution, policy
holders of an insurance company, customers of a bank or broker-dealer,
clients of an investment adviser or other similar groups. Shares purchased
in each group's participants account in connection with this privilege will
be subject to a contingent deferred sales charge of 1.00% in the event of
redemption within one year of purchase, and a commission will be paid to
authorized dealers who initiate and are responsible for such sales to each
individual as follows: 1.00% on sales to $2 million, plus 0.80% on the next
$1 million and 0.50% on the excess over $3 million.
The term "families" includes a person's spouse, children under 21 years of age
and grandchildren, parents, and a person's spouse's parents.
Purchase orders made pursuant to clause (4) may be placed either through
authorized dealers as described above or directly with Investor Services by the
investment adviser, trust company or bank trust department, provided that
Investor Services receives federal funds for the purchase by the close of
business on the next business day following acceptance of the order. An
authorized dealer may charge a transaction fee for placing an order to purchase
shares pursuant to this provision or for placing a redemption order with respect
to such shares. Authorized dealers will be paid a service fee as described above
on purchases made under options (3) through (9) above. The Fund may terminate,
or amend the terms of, offering shares of the Fund at net asset value to such
groups at any time.
REDEMPTION OF
SHARES
Generally shareholders may redeem for cash some or all of their shares without
charge by the Fund (other than applicable sales charge) at any time. As
described under the heading "Purchase of Shares," redemptions of Class B Shares
and Class C Shares may be subject to a contingent deferred sales charge. In
addition, certain redemptions of Class A Shares for shareholder accounts of $1
million or more may be subject to a contingent deferred sales charge.
Redemptions completed through an authorized dealer or a custodian of a
retirement plan account may involve additional fees charged by the dealer or
custodian.
Except as specified below under "Telephone Redemption Requests," payment for
shares redeemed generally will be made by check mailed within seven days after
receipt by Investor Services of the request and any other necessary documents in
proper form as described below. Such payment may be postponed or the right of
redemption suspended as provided by the rules of the SEC. Such payment may,
under certain circumstances, be paid wholly or in part by a distribution-in-kind
of portfolio securities which may result in brokerage costs and a gain or loss
for federal income tax purposes when such securities are sold. If the shares to
be redeemed have been recently purchased by check, Investor Services may delay
the payment of redemption proceeds until it confirms the purchase check has
cleared, which may take up to 15 days. A taxable gain or loss will be recognized
by the shareholder upon redemption of shares.
WRITTEN REDEMPTION REQUESTS. Shareholders may request a redemption of shares by
written request in proper form sent directly to Van Kampen Investor Services
Inc., PO Box 218256, Kansas City, MO 64121-8256. The request for redemption
should indicate the number of shares to be redeemed, the
20
<PAGE>
class designation of such shares and the shareholder's account number. The
redemption request must be signed by all persons in whose names the shares are
registered. Signatures must conform exactly to the account registration. If the
proceeds of the redemption exceed $50,000, or if the proceeds are not to be paid
to the record owner at the record address, or if the record address has changed
within the previous 30 days, signature(s) must be guaranteed by one of the
following: a bank or trust company; a broker-dealer; a credit union; a national
securities exchange, registered securities association or clearing agency; a
savings and loan association; or a federal savings bank.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption to be in proper form. In some
cases, however, additional documents may be necessary. In the case of
shareholders holding certificates, the certificates for the shares being
redeemed properly endorsed for transfer must accompany the redemption request.
In the event the redemption is requested by a corporation, partnership, trust,
fiduciary, executor or administrator, and the name and title of the
individual(s) authorizing such redemption is not shown in the account
registration, a copy of the corporate resolution or other legal documentation
appointing the authorized signer and certified within the prior 120 days must
accompany the redemption request. IRA redemption requests should be sent to the
IRA custodian to be forwarded to Investor Services. Contact the IRA custodian
for further information.
In the case of written redemption requests sent directly to Investor Services,
the redemption price is the net asset value per share next determined after the
request in proper form is received by Investor Services.
AUTHORIZED DEALER REDEMPTION REQUESTS. Shareholders may place redemption
requests through an authorized dealer. Orders sent through authorized dealers
must be at least $500 (unless transmitted by your authorized dealer via the
FUNDSERV network). The redemption price for such shares is the net asset value
per share next calculated after an order in proper form is received by an
authorized dealer provided such order is transmitted to the Distributor prior to
the Distributor's close of business on such day. It is the responsibility of
authorized dealers to transmit redemption requests received by them to the
Distributor so they will be received prior to such time. Redemptions completed
through an authorized dealer may involve additional fees charged by the dealer.
TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. A shareholder
automatically has telephone redemption privileges unless the shareholder
indicates otherwise by checking the applicable box on the application form
accompanying the prospectus. To redeem shares, contact the telephone transaction
line at (800) 421-5684. Van Kampen Investments, Investor Services and the Fund
employ procedures considered by them to be reasonable to confirm that
instructions communicated by telephone are genuine. Such procedures include
requiring certain personal identification information prior to acting upon
telephone instructions, tape-recording telephone communications and providing
written confirmation of instructions communicated by telephone. If reasonable
procedures are employed, none of Van Kampen Investments, Investor Services or
the Fund will be liable for following telephone instructions which it reasonably
believes to be genuine. Telephone redemptions may not be available if the
shareholder cannot reach Investor Services by telephone, whether because all
telephone lines are busy or for any other reason; in such case, a shareholder
would have to use the Fund's other redemption procedure previously described.
Requests received by Investor Services prior to 4:00 p.m., New York time, will
be processed at the next determined net asset value per share. These privileges
are available for all accounts other than retirement accounts or accounts with
shares represented by certificates. If an account has multiple owners, Investor
Services may rely on the instructions of any one owner.
For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check and amounts of at least
$1,000 up to $1 million may be redeemed daily if the proceeds are to be paid by
wire. The proceeds must be payable to the shareholder(s) of
21
<PAGE>
record and sent to the address of record for the account or wired directly to
their predesignated bank account. This privilege is not available if the address
of record has been changed within 30 days prior to a telephone redemption
request. Proceeds from redemptions payable by wire transfer are expected to be
wired on the next business day following the date of redemption. The Fund
reserves the right at any time to terminate, limit or otherwise modify this
redemption privilege.
OTHER REDEMPTION INFORMATION. The Fund may redeem shares of any shareholder
account that has a value on the date of the notice of redemption less than the
minimum initial investment as specified in this prospectus. At least 60 days
advance written notice of any such involuntary redemption will be provided to
the shareholder and such shareholder will be given an opportunity to purchase
the required value of additional shares at the next determined net asset value
without sales charge. Any involuntary redemption may only occur if the
shareholder account is less than the minimum initial investment due to
shareholder redemptions.
DISTRIBUTIONS FROM
THE FUND
In addition to any increase in the value of shares which the Fund may achieve,
shareholders may receive distributions from the Fund of dividends and capital
gain dividends.
DIVIDENDS. Dividends from stocks and interest earned from other investments are
the Fund's main sources of income. The Fund's present policy, which may be
changed at any time by the Board of Directors is to distribute all or
substantially all of this income, less expenses, at least annually as dividends
to shareholders. Dividends are automatically applied to purchase additional
shares of the Fund at the next determined net asset value unless the shareholder
instructs otherwise.
The per share dividends on Class B Shares and Class C Shares may be lower than
the per share dividends on Class A Shares as a result of the higher distribution
fees and transfer agency costs applicable to such classes of shares.
CAPITAL GAIN DIVIDENDS. The Fund may realize capital gains or losses when it
sells securities, depending on whether the sales prices for the securities are
higher or lower than purchase prices. Net realized capital gain represents the
total profits from sales of securities minus total losses from sales of
securities (including any losses carried forward from prior years), other than
net short-term capital gain from sales of securities held for one year or less.
The Fund distributes any taxable net realized capital gain to shareholders as
capital gain dividends at least annually. As in the case of dividends, capital
gain dividends are automatically reinvested in additional shares of the Fund at
the next determined net asset value unless the shareholder instructs otherwise.
SHAREHOLDER SERVICES
Listed below are some of the shareholder services the Fund offers to investors.
For a more complete description of the Fund's shareholder services, such as
investment accounts, share certificates, retirement plans, automated clearing
house deposits, dividend diversification and the systematic withdrawal plan,
please refer to the Statement of Additional Information or contact your
authorized dealer.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gain dividends in shares of the
Fund. Such shares are acquired at net asset value per share (without sales
charge) on the applicable payable date of the dividend or capital gain dividend.
Unless the shareholder instructs otherwise, the reinvestment plan is automatic.
This instruction may be made by telephone by calling (800) 341-2911
((800) 421-2833 for the hearing impaired) or by writing to Investor Services.
The investor may, on the initial application or prior to any declaration,
instruct that dividends be paid in cash and capital gain dividends be reinvested
at net asset value, or
22
<PAGE>
that both dividends and capital gain dividends be paid in cash.
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under which
a shareholder can authorize Investor Services to charge a bank account on a
regular basis to invest predetermined amounts in the Fund. Additional
information is available from the Distributor or your authorized dealer.
EXCHANGE PRIVILEGE. Shares of the Fund may be exchanged for shares of the same
class of any Participating Fund based on the next computed net asset value per
share of each fund after requesting the exchange without any sales charge,
subject to certain limitations. Shares of the Fund may be exchanged for shares
of any Participating Fund only if shares of that Participating Fund are
available for sale; however, during periods of suspension of sales, shares of a
Participating Fund may be available for sale only to existing shareholders of a
Participating Fund. Shareholders seeking an exchange into a Participating Fund
should obtain and read the current prospectus for such fund prior to
implementing an exchange. A prospectus of any of the Participating Funds may be
obtained from any authorized dealer or the Distributor.
To be eligible for exchange, shares of the Fund must have been registered in the
shareholder's name for at least 30 days prior to an exchange. Shares of the Fund
registered in a shareholder's name for less than 30 days may only be exchanged
upon receipt of prior approval of the Adviser. It is the policy of the Adviser,
under normal circumstances, not to approve such requests.
When shares that are subject to a contingent deferred sales charge are exchanged
among Participating Funds, the holding period for purposes of computing the
contingent deferred sales charge is based upon the date of the initial purchase
of such shares from a Participating Fund. When such shares are redeemed and not
exchanged for shares of another Participating Fund, the shares are subject to
the contingent deferred sales charge schedule imposed by the Participating Fund
from which such shares were originally purchased.
Exchanges of shares are sales of one Participating Fund and purchases of another
Participating Fund. The sale may result in a gain or loss for federal income tax
purposes. If the shares sold have been held for less than 91 days, the sales
charge paid on such shares is carried over and included in the tax basis of the
shares acquired.
A shareholder wishing to make an exchange may do so by sending a written request
to Investor Services or by contacting the telephone transaction line at
(800) 421-5684. A shareholder automatically has telephone exchange privileges
unless the shareholder indicates otherwise by checking the appropriate box on
the application form accompanying the prospectus. Van Kampen Investments,
Investor Services and the Fund employ procedures considered by them to be
reasonable to confirm that instructions communicated by telephone are genuine.
Such procedures include requiring certain personal identification information
prior to acting upon telephone instructions, tape-recording telephone
communications, and providing written confirmation of instructions communicated
by telephone. If reasonable procedures are employed, none of Van Kampen
Investments, Investor Services or the Fund will be liable for following
telephone instructions which it reasonably believes to be genuine. If the
exchanging shareholder does not have an account in the fund whose shares are
being acquired, a new account will be established with the same registration,
dividend and capital gain dividend options (except dividend diversification) and
authorized dealer of record as the account from which shares are exchanged,
unless otherwise specified by the shareholder. In order to establish a
systematic withdrawal plan for the new account or reinvest dividends from the
new account into another fund, however, an exchanging shareholder must submit a
specific request. The Fund reserves the right to reject any order to acquire its
shares through exchange. In addition, the Fund and other Participating Funds may
restrict exchanges by shareholders engaged in excessive trading by limiting or
disallowing the exchange privileges to such shareholders. For further
information on these restrictions see the Statement of Additional Information.
The Fund may modify, restrict or terminate the exchange privilege at any time on
60 days' notice to its shareholders of any termination or material amendment.
23
<PAGE>
For purposes of determining the sales charge rate previously paid on Class A
Shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchanged security was acquired through reinvestment, that
security is deemed to have been sold with a sales charge rate equal to the rate
previously paid on the security on which the dividend or distribution was paid.
If a shareholder exchanges less than all of such shareholder's securities, the
security upon which the highest sales charge rate was previously paid is deemed
exchanged first.
Exchange requests received on a business day prior to the time shares of the
funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares of the fund which the
shareholder is redeeming will be redeemed at the net asset value per share next
determined on the date of receipt. Shares of the new fund that the shareholder
is purchasing will also normally be purchased at the net asset value per share,
plus any applicable sales charge, next determined on the date of receipt.
Exchange requests received on a business day after the time shares of the funds
involved in the request are priced will be processed on the next business day in
the manner described herein.
INTERNET TRANSACTIONS. In addition to performing transactions on your account
through written instruction or by telephone, you may also perform certain
transactions through the internet. Please refer to our web site at
www.vankampen.com for further instruction. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated through the internet are genuine. Such
procedures include requiring use of a personal identification number prior to
acting upon internet instructions and providing written confirmation of
instructions communicated through the internet. If reasonable procedures are
employed, none of Van Kampen Investments, Investor Services or the Fund will be
liable for following instructions received through the internet which it
reasonably believes to be genuine. If an account has multiple owners, Investor
Services may rely on the instructions of any one owner.
FEDERAL INCOME
TAXATION
Distributions of the Fund's net investment income (consisting generally of
taxable income and net short-term capital gain) are taxable to shareholders as
ordinary income to the extent of the Fund's earnings and profits, whether paid
in cash or reinvested in additional shares. Distributions of the Fund's net
realized capital gain (which is the excess of net long-term capital gain over
net short-term capital loss) as capital gain dividends, if any, are taxable to
shareholders as long-term capital gains, whether paid in cash or reinvested in
additional shares, and regardless of how long the shares of the Fund have been
held by such shareholders. The Fund expects that its distributions will consist
primarily of ordinary income and capital gain dividends. Distributions in excess
of the Fund's earnings and profits will first reduce the adjusted tax basis of a
holder's shares and, after such adjusted tax basis is reduced to zero, will
constitute capital gains to such holder (assuming such shares are held as a
capital asset). Although distributions generally are treated as taxable in the
year they are paid, distributions declared in October, November or December,
payable to shareholders of record on a specified date in such month and paid
during January of the following year will be treated as having been distributed
by the Fund and received by the shareholders on the December 31st prior to the
date of payment. The Fund will inform shareholders of the source and tax status
of all distributions promptly after the close of each calendar year.
The sale or exchange of shares is a taxable transaction for federal income tax
purposes. Shareholders who sell their shares will generally recognize gain or
loss in an amount equal to the difference between their adjusted tax basis in
the shares sold and the amount received. If the shares are held as a capital
asset, the gain or loss will be a capital gain or loss. Any capital gains may be
taxed at different rates depending on how long the shareholder held such shares.
24
<PAGE>
The Fund is required, in certain circumstances, to withhold 31% of dividends and
certain other payments, including redemptions, paid to shareholders who do not
furnish to the Fund their correct taxpayer identification number (in the case of
individuals, their social security number) and certain required certifications
or who are otherwise subject to backup withholding.
Foreign shareholders, including shareholders who are non-resident aliens, may be
subject to U.S. withholding tax on certain distributions (whether received in
cash or in shares) at a rate of 30% or such lower rate as prescribed by an
applicable treaty. Accordingly, investment in the Fund is likely to be
appropriate for a foreign shareholder only if such person can utilize a foreign
tax credit or corresponding tax benefit in respect of such U.S. withholding tax.
Prospective foreign investors should consult their tax advisers concerning the
tax consequences to them of an investment in shares.
The Fund intends to qualify as a regulated investment company under federal
income tax law. If the Fund so qualifies and distributes each year to its
shareholders at least 90% of its net investment income, the Fund will not be
required to pay federal income taxes on any income it distributes to
shareholders. If the Fund distributes less than an amount equal to the sum of
98% of its ordinary income and 98% of its capital gain net income, then the Fund
will be subject to a 4% excise tax on the undistributed amounts.
The federal income tax discussion set forth above is for general information
only. Prospective investors should consult their own tax advisers regarding the
specific federal tax consequences of purchasing, holding, disposing, exchanging
or selling of shares, as well as the effects of state, local and foreign tax law
and any proposed tax law changes.
25
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the periods indicated. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report, along with the Fund's financial statements, is
included in the Statement of Additional Information and may be obtained by
shareholders without charge by calling the telephone number on the back cover of
this prospectus. This information should be read in conjunction with the
financial statements and notes thereto included in the Statement of Additional
Information.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
YEAR ENDED OCTOBER 29, 1997* YEAR ENDED OCTOBER 29, 1997* YEAR ENDED
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1999# TO JUNE 30, 1998 JUNE 30, 1999# TO JUNE 30, 1998 JUNE 30, 1999#
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD.................... $11.122 $ 10.00 $ 11.076 $ 10.00 $11.075
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss... 0.047 0.06 (0.033) 0.01 (0.034)
Net Realized and Unrealized
Gain/Loss........... 0.404 1.08 0.405 1.07 0.406
------- --------- -------- --------- -------
Total From Investment
Operations.......... 0.451 1.14 0.372 1.08 0.372
------- --------- -------- --------- -------
DISTRIBUTIONS
Net Investment Income... (0.076) (0.02) (0.008) -- (0.008)
In Excess of Net Investment
Income.............. (0.014) -- (0.002) -- (0.002)
Net Realized Gain..... (0.014) -- (0.014) -- (0.014)
------- --------- -------- --------- -------
Total Distributions... (0.104) (0.02) (0.024) -- (0.024)
------- --------- -------- --------- -------
NET ASSET VALUE, END OF PERIOD... $11.469 $ 11.12 $ 11.424 $ 11.08 $11.423
======= ========= ======== ========= =======
TOTAL RETURN (1).......... 4.05% 11.38%** 3.29% 10.84%** 3.39%
======= ========= ======== ========= =======
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's)................... $76,731 $ 80,508 $596,339 $ 623,229 $63,140
Ratio of Expenses to Average Net
Assets.................... 1.65% 1.70% 2.40% 2.45% 2.40%
Ratio of Net Investment
Income/Loss to Average Net
Assets.................... 0.44% 0.88% (0.31)% 0.12% (0.32)%
Portfolio Turnover Rate... 40% 4%** 40% 4%** 40%
<CAPTION>
CLASS C
OCTOBER 29, 1997*
SELECTED PER SHARE DATA AND RATIOS TO JUNE 30, 1998
- ---------------------------------- ------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD.................... $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss... 0.01
Net Realized and Unrealized
Gain/Loss........... 1.06
---------
Total From Investment
Operations.......... 1.07
---------
DISTRIBUTIONS
Net Investment Income... --
In Excess of Net Investment
Income.............. --
Net Realized Gain..... --
---------
Total Distributions... --
---------
NET ASSET VALUE, END OF PERIOD... $ 11.07
=========
TOTAL RETURN (1).......... 10.74%**
=========
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's)................... $ 69,572
Ratio of Expenses to Average Net
Assets.................... 2.45%
Ratio of Net Investment
Income/Loss to Average Net
Assets.................... 0.13%
Portfolio Turnover Rate... 4%**
</TABLE>
* COMMENCEMENT OF OPERATIONS
** NON-ANNUALIZED
(1) TOTAL RETURN IS CALCULATED EXCLUSIVE OF SALES CHARGES OR DEFERRED
SALES CHARGES.
# CHANGES PER SHARE ARE BASED UPON MONTHLY AVERAGE SHARES OUTSTANDING.
26
<PAGE>
BOARD OF DIRECTORS
AND OFFICERS
BOARD OF DIRECTORS
<TABLE>
<S> <C>
J. Miles Branagan Don G. Powell*
Jerry D. Choate Phillip B. Rooney
Richard M. DeMartini* Fernando Sisto
Linda Hutton Heagy Wayne W. Whalen*
R. Craig Kennedy Suzanne H. Woolsey
Jack E. Nelson Paul G. Yovovich
</TABLE>
OFFICERS
Richard F. Powers, III*
PRESIDENT
Dennis J. McDonnell*
EXECUTIVE VICE PRESIDENT & CHIEF INVESTMENT OFFICER
A. Thomas Smith III*
VICE PRESIDENT AND SECRETARY
Edward C. Wood III*
VICE PRESIDENT
Michael H. Santo*
VICE PRESIDENT
Peter W. Hegel*
VICE PRESIDENT
Stephen L. Boyd*
VICE PRESIDENT
Joseph P. Stadler*
VICE PRESIDENT
John L. Sullivan*
VICE PRESIDENT, CHIEF FINANCIAL OFFICER & TREASURER
Curtis W. Morell*
VICE PRESIDENT & CHIEF ACCOUNTING OFFICER
Tanya M. Loden*
CONTROLLER
* "Interested Persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2911
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders, or
redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through
Telecommunications Device for the Deaf (TDD), call
(800) 421-2833
FUNDINFO-REGISTERED TRADEMARK-
For automated telephone services, call (800) 847-2424
WEB SITE
www.vankampen.com
VAN KAMPEN GLOBAL EQUITY FUND
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
INVESTMENT ADVISER AND ADMINISTRATOR
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
INVESTMENT SUBADVISER
MORGAN STANLEY DEAN WITTER INVESTMENT
MANAGEMENT INC.
1221 Avenue of the Americas
New York, NY 10020
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
TRANSFER AGENT
VAN KAMPEN INVESTOR SERVICES INC.
PO Box 218256
Kansas City, MO 64121-8256
Attn: Van Kampen Global Equity Fund
CUSTODIAN
THE CHASE MANHATTAN BANK
3 MetroTech Center
Brooklyn, NY 11245
Attn: Van Kampen Global Equity Fund
LEGAL COUNSEL
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
INDEPENDENT ACCOUNTANTS
PRICEWATERHOUSECOOPERS LLP
200 East Randolph Drive
Chicago, IL 60601
<PAGE>
VAN KAMPEN
GLOBAL EQUITY FUND
PROSPECTUS
OCTOBER 28, 1999
A Statement of Additional Information, which contains more details about the
Fund, is incorporated by reference in its entirety into this prospectus.
You will find additional information about the Fund in its annual and semiannual
reports to shareholders. The annual report explains the market conditions and
investment strategies affecting the Fund's performance during its last fiscal
year.
You can ask questions or obtain a free copy of the Fund's reports or its
Statement of Additional Information by calling (800) 341-2911 from 7:00 a.m. to
7:00 p.m., Central time, Monday through Friday. Telecommunications Device for
the Deaf users may call (800) 421-2833. A free copy of the Fund's reports can
also be ordered from our web site at www.vankampen.com.
Information about the Fund, including its reports and Statement of Additional
Information, has been filed with the Securities and Exchange Commission (SEC).
It can be reviewed and copied at the SEC's Public Reference Room in Washington,
DC or on the EDGAR Database on the SEC's internet site (http://www.sec.gov).
Information on the operation of the SEC's Public Reference Room may be obtained
by calling the SEC at 1-202-942-8090. You can also request copies of these
materials, upon payment of a duplicating fee, by electronic request at the SEC's
e-mail address ([email protected]), or by writing the Public Reference Section
of the SEC, Washington, DC, 20549-0102.
[LOGO]
THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-7140.
MSGL PRO 10/99
<PAGE>
VAN KAMPEN
GLOBAL FIXED INCOME FUND
Van Kampen Global Fixed Income Fund is a mutual fund with an investment
objective to seek 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.
Shares of the Fund have not been approved or disapproved by the Securities and
Exchange Commission (SEC) or any state regulator, and neither the SEC nor any
state regulator has passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
THIS PROSPECTUS IS DATED OCTOBER 28, 1999.
[LOGO]
<PAGE>
TABLE OF CONTENTS
Risk/Return Summary .....................................................3
Fees and Expenses of the Fund ...........................................6
Investment Objective, Policies and Risks ................................6
Investment Advisory Services ...........................................12
Purchase of Shares .....................................................14
Redemption of Shares ...................................................22
Distributions from the Fund ............................................23
Shareholder Services ...................................................24
Federal Income Taxation ................................................26
Financial Highlights ...................................................27
Appendix -- Description of Securities Ratings .........................A-1
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations, other than those contained in this
prospectus, in connection with the offer contained in this prospectus and, if
given or made, such other information or representations must not be relied upon
as having been authorized by the Fund, the Fund's investment adviser or the
Fund's distributor. This prospectus does not constitute an offer by the Fund or
by the Fund's distributor to sell or a solicitation of an offer to buy any of
the securities offered hereby in any jurisdiction to any person to whom it is
unlawful for the Fund to make such an offer in such jurisdiction.
<PAGE>
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The Fund is a mutual fund with an investment objective to seek 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.
INVESTMENT STRATEGIES
Under normal market conditions, the Fund's investment adviser seeks to achieve
the Fund's investment objective by investing primarily in a global portfolio of
high-quality fixed income securities with varying maturities denominated in
various currencies or multi-national currency units. These securities include
U.S. government securities, foreign government securities, securities of
supranational entities, Eurobonds, corporate bonds and structured investments
with fixed income characteristics. The Fund seeks to achieve an attractive real
rate of return while preserving capital. In selecting portfolio securities, the
Fund's investment adviser seeks to manage interest rate, country, and currency
exposures by using a strategic, value-based investment approach that favors
securities with high real interest rates and sizable incremental yields at
longer maturities. The Fund's investment adviser seeks to preserve capital by
investing in high-quality (i.e., those rated in one of the two highest rating
categories or believed to be of equivalent quality) fixed income securities.
Portfolio securities typically are sold when the conditions that led to the buy
strategy are reversed and the investment adviser's assessment of real interest
rates in a particular country return closer to the average. Under normal market
conditions, the Fund invests at least 65% of its total assets in securities of
issuers located in at least three countries (including the U.S.). The Fund may
purchase and sell securities on a when-issued or delayed delivery basis. The
Fund may purchase and sell certain derivative instruments (such as options,
futures, options on futures, currency-related transactions involving options,
futures and forward contracts, and interest rate swaps or other interest
rate-related transactions) for various portfolio management purposes.
INVESTMENT RISKS
An investment in the Fund is subject to investment risks, and you could lose
money on your investment in the Fund. There can be no assurance that the Fund
will achieve its investment objective.
MARKET RISK. Market risk is the possibility that the market values of securities
owned by the Fund will decline. The prices of fixed income securities tend to
fall as interest rates rise, and such declines tend to be greater among fixed
income securities with longer maturities. Although the Fund has no policy
limiting the maturities of its investments, under normal market conditions the
Fund's investment adviser seeks to maintain the portfolio primarily in
medium-term securities (i.e. those securities with remaining maturities of
between three and seven years). This means the Fund is subject to more market
risk than a fund investing solely in shorter-term securities but less market
risk than a fund investing solely in longer-term securities. Foreign markets
may, but often do not, move in tandem with U.S. markets, and foreign markets may
be more volatile than U.S. markets.
When-issued and delayed delivery transactions are subject to changes in market
conditions from the time of the commitment until settlement. This may adversely
affect the prices or yields of the securities being purchased, as well as any
portfolio securities held for payment of such commitments. The greater the
Fund's outstanding commitments for these securities, the greater the Fund's
exposure to market price fluctuation.
CREDIT RISK. Credit risk refers to an issuer's ability to make timely payments
of interest and principal. The Fund invests primarily in high-quality securities
to seek to maintain a relatively lower level of credit risk than funds investing
in medium- or lower-quality securities.
INCOME RISK. The income you receive from the Fund is based primarily on interest
rates, which can vary widely over the short- and long-term. If interest rates
drop, your income from the Fund may drop as well.
CALL RISK. If interest rates fall, it is possible that issuers of debt
securities with high interest rates will prepay or "call" their securities
before their maturity
3
<PAGE>
dates. In this event, the proceeds from the called securities would most likely
be reinvested by the Fund in securities bearing the new, lower interest rates,
resulting in a possible decline in the Fund's income and distributions to
shareholders.
FOREIGN RISKS. Because the Fund owns securities of foreign issuers, it is
subject to risks not usually associated with owning securities of U.S. issuers.
These risks can include fluctuations in foreign currencies, foreign currency
exchange controls, political and economic instability, differences in financial
reporting, differences in securities regulation and trading, and foreign
taxation issues.
RISKS OF USING DERIVATIVE INVESTMENTS. In general terms, a derivative investment
is one whose value depends on (or is derived from) the value of an underlying
asset, interest rate or index. Options, futures, options on futures,
currency-related transactions involving options, futures and forward contracts
and interest rate swaps or other interest-rate related transactions are examples
of derivatives. Derivative investments involve risks different from direct
investment in underlying securities. These risks include imperfect correlation
between the value of the instruments and the underlying assets; risks of default
by the other party to certain transactions; risks that the transactions may
result in losses that partially or completely offset gains in portfolio
positions; risks that the transactions may not be liquid; and manager risk.
NON-DIVERSIFICATION RISKS. The Fund is classified as a "non-diversified" fund,
which means the Fund may invest a greater portion of its assets in a more
limited number of issuers than a "diversified" fund. As a result, the Fund may
be subject to greater risk than a diversified fund because changes in the
financial condition or market assessment of a single issuer may cause greater
fluctuations in the value of the Fund's shares.
MANAGER RISK. As with any managed fund, the Fund's investment adviser may not be
successful in selecting the best-performing securities or investment techniques
and the Fund's performance may lag behind that of similar funds.
INVESTOR PROFILE
In light of the Fund's investment objective and strategies, the Fund may be
appropriate for investors who:
- - Seek an attractive real rate of return while preserving capital
- - Are willing to take on the increased risks associated with investing in
securities of foreign issuers
- - Wish to add to their investment portfolio a fund that invests primarily in
high-quality fixed income securities of domestic and foreign issuers
An investment in the Fund is not a deposit of any bank or other insured
depository institution. Your investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
An investment in the Fund may not be appropriate for all investors. The Fund is
not intended to be a complete investment program, and investors should consider
their long-term investment goals and financial needs when making an investment
decision about the Fund. An investment in the Fund is intended to be a long-term
investment, and the Fund should not be used as a trading vehicle.
4
<PAGE>
ANNUAL PERFORMANCE
One way to measure the risks of investing in the Fund is to look at how its
performance varies from year-to-year. The following chart shows the annual
returns of the Fund's Class A Shares over the five calendar years prior to the
date of this prospectus. Sales loads are not reflected in this chart. If these
sales loads had been included, the returns shown below would have been lower.
Remember that the past performance of the Fund is not indicative of its future
performance.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1994 -5.53%
1995 17.65%
1996 5.42%
1997 0.78%
1998 12.95%
</TABLE>
The Fund's return for the nine-month period ended September 30, 1999 was -5.94%.
The annual return variability of the Fund's Class B Shares and Class C Shares
would be substantially similar to that shown for the Class A Shares because all
of the Fund's shares are invested in the same portfolio of securities; however,
the actual annual returns of the Class B Shares and Class C Shares would be
lower than the annual returns shown for the Fund's Class A Shares because of
differences in the expenses borne by each class of shares.
During the five-year period shown in the bar chart, the highest quarterly return
was 7.48% (for the quarter ended September 30, 1998) and the lowest quarterly
return was -4.15% (for the quarter ended March 31, 1997).
COMPARATIVE PERFORMANCE
As a basis for evaluating the Fund's performance and risks, the table below
shows how the Fund's performance compares with the J.P. Morgan Traded Global
Bond Index(*), a broad-based market index that the Fund's investment adviser
believes is an appropriate benchmark for the Fund. The Fund's performance
figures include the maximum sales charges paid by investors. The index
performance figures do not include any commissions or sales charges that would
be paid by investors purchasing the securities represented by the index. Average
annual total returns are shown for the periods ended December 31, 1998 (the most
recently completed calendar year prior to the date of this prospectus). Remember
that the past performance of the Fund is not indicative of its future
performance.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
AVERAGE ANNUAL
TOTAL RETURNS
FOR THE
PERIODS ENDED PAST PAST 5 SINCE
DECEMBER 31, 1998 1 YEAR YEARS INCEPTION
- ---------------------------------------------------------
Van Kampen Global
Fixed Income Fund --
Class A Shares 7.54% 4.91% 6.52%(1)
J.P. Morgan Traded
Global Bond Index 15.31% 8.08% 7.40%(3)
........................................................
Van Kampen Global
Fixed Income Fund --
Class B Shares 8.15% -- 5.56%(2)
J.P. Morgan Traded
Global Bond Index 15.31% -- 6.85%(4)
........................................................
Van Kampen Global
Fixed Income Fund --
Class C Shares 11.17% 5.10% 6.57%(1)
J.P. Morgan Traded
Global Bond Index 15.31% 8.08% 7.40%(3)
........................................................
INCEPTION DATES:
(1) 1/4/93, (2) 8/1/95, (3) 12/31/92, (4) 7/31/95.
* THE J.P. MORGAN TRADED GLOBAL BOND INDEX IS AN
UNMANAGED INDEX OF GOVERNMENT BOND ISSUES THAT INCLUDES
AUSTRALIA, BELGIUM, CANADA, DENMARK, FRANCE, GERMANY,
ITALY, JAPAN, THE NETHERLANDS, SPAIN, SWEDEN, THE
UNITED KINGDOM AND THE UNITED STATES, EXCLUDING
WITHHOLDING TAX.
</TABLE>
The current yield for the thirty-day period ended June 30, 1999 is 2.76% for
Class A Shares, 2.14% for Class B Shares and 2.14% for Class C Shares. Investors
can obtain the current yield of the Fund for each class of shares by calling
(800) 341-2911.
5
<PAGE>
FEES AND EXPENSES
OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
<S> <C> <C> <C>
- ------------------------------------------------------------
</TABLE>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------
Maximum sales charge
(load) imposed on
purchases (as a
percentage of offering
price) 4.75%(1) None None
...........................................................
Maximum deferred sales
charge (load) (as a
percentage of the
lesser of original
purchase price or
redemption proceeds) None(2) 4.00%(3) 1.00%(4)
...........................................................
Maximum sales charge
(load) imposed on
reinvested dividends None None None
...........................................................
Redemption fees None None None
...........................................................
Exchange fee None None None
...........................................................
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------
Management Fees(5) 0.75% 0.75% 0.75%
...........................................................
Distribution and/or
Service
(12b-1) Fees(6) 0.25% 1.00%(7) 1.00%(7)
...........................................................
Other Expenses(5) 1.97% 2.03% 1.99%
...........................................................
Total Annual Fund
Operating Expenses(5) 2.97% 3.78% 3.74%
...........................................................
</TABLE>
(1) REDUCED FOR PURCHASES OF 100,000 AND OVER. SEE "PURCHASE OF SHARES --
CLASS A SHARES."
(2) INVESTMENTS OF $1 MILLION OR MORE ARE NOT SUBJECT TO ANY SALES CHARGE
AT THE TIME OF PURCHASE, BUT A DEFERRED SALES CHARGE OF 1.00% MAY BE
IMPOSED ON CERTAIN REDEMPTIONS MADE WITHIN ONE YEAR OF THE PURCHASE.
SEE "PURCHASE OF SHARES -- CLASS A SHARES."
(3) THE MAXIMUM DEFERRED SALES CHARGE IS 4.00% IN THE FIRST AND SECOND
YEAR AFTER PURCHASE, DECLINING THEREAFTER AS FOLLOWS:
YEAR 1-4.00%
YEAR 2-4.00%
YEAR 3-3.00%
YEAR 4-2.50%
YEAR 5-1.50%
AFTER-NONE
SEE "PURCHASE OF SHARES -- CLASS B SHARES."
(4) THE MAXIMUM DEFERRED SALES CHARGE IS 1.00% IN THE FIRST YEAR AFTER
PURCHASE AND 0.00% THEREAFTER. SEE "PURCHASE OF SHARES -- CLASS C
SHARES."
(5) THE FUND'S INVESTMENT ADVISER IS CURRENTLY WAIVING OR REIMBURSING A
PORTION OF THE FUND'S MANAGEMENT FEES AND OTHER EXPENSES SUCH THAT THE
ACTUAL TOTAL ANNUAL FUND OPERATING EXPENSES WERE 1.45% FOR CLASS A
SHARES, 2.20% FOR CLASS B SHARES AND 2.20% FOR CLASS C SHARES FOR THE
FISCAL YEAR ENDED JUNE 30, 1999. THE FEE WAIVERS OR EXPENSE REIMBURSE-
MENTS CAN BE TERMINATED AT ANY TIME.
(6) CLASS A SHARES ARE SUBJECT TO AN ANNUAL SERVICE FEE OF UP TO 0.25% OF
THE AVERAGE DAILY NET ASSETS ATTRIBUTABLE TO SUCH CLASS OF SHARES.
CLASS B SHARES AND CLASS C SHARES ARE EACH SUBJECT TO A COMBINED
ANNUAL DISTRIBUTION AND SERVICE FEE OF UP TO 1.00% OF THE AVERAGE
DAILY NET ASSETS ATTRIBUTABLE TO SUCH CLASS OF SHARES. SEE "PURCHASE
OF SHARES."
(7) BECAUSE DISTRIBUTION AND/OR SERVICE (12b-1) FEES ARE PAID OUT OF THE
FUND'S ASSETS ON AN ONGOING BASIS, OVER TIME THESE FEES WILL INCREASE
THE COST OF YOUR INVESTMENT AND MAY COST YOU MORE THAN PAYING OTHER
TYPES OF SALES CHARGES.
EXAMPLE:
The following example is intended to help you compare the cost of investing in
the Fund with the costs of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same each year (except for the ten-year
amounts for Class B Shares which reflect the conversion of Class B Shares to
Class A Shares after eight years). Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------
Class A Shares $761 $1,350 $1,963 $3,608
................................................................
Class B Shares $780 $1,455 $2,099 $3,843*
................................................................
Class C Shares $476 $1,143 $1,930 $3,984
................................................................
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------
Class A Shares $761 $1,350 $1,963 $3,608
................................................................
Class B Shares $380 $1,155 $1,949 $3,843*
................................................................
Class C Shares $376 $1,143 $1,930 $3,984
................................................................
</TABLE>
* BASED ON CONVERSION TO CLASS A SHARES AFTER EIGHT YEARS.
INVESTMENT OBJECTIVE,
POLICIES AND RISKS
The Fund's investment objective is to seek 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 Fund's investment
objective is a fundamental policy and may not be changed without the approval of
a majority of shareholders of the Fund's outstanding voting securities, as
defined in the Investment Company Act of 1940, as amended (the "1940 Act").
6
<PAGE>
There are risks inherent in all investments in securities; accordingly there can
be no assurance that the Fund will achieve its investment objective.
Under normal market conditions, the Fund's investment adviser seeks to achieve
the Fund's investment objective by investing primarily in a global portfolio of
high-quality fixed income securities with varying maturities denominated in
various currencies or multi-national currency units. These securities include
U.S. government securities, foreign government securities, securities of
supranational entities, Eurobonds, corporate bonds and structured investments
with fixed income characteristics. Under normal market conditions, the Fund
invests at least 65% of the value of its total assets in securities of issuers
located in at least three different countries (including the U.S.).
In selecting portfolio securities, the Fund's investment adviser seeks to manage
interest rate, country, and currency exposures by using a strategic, value-
based investment approach that favors securities with high real interest rates
and sizable incremental yields at longer maturities. The Fund's investment
adviser seeks to preserve capital by investing in high-quality (i.e., those
rated in one of the two highest rating categories or believed to be of
equivalent quality) fixed income securities.
The Fund's investment adviser assesses real interest rates, inflationary trends
and yield curves in the global fixed income markets and combines this with a
separate currency analysis that focuses on relative interest rate differentials
and economic competitiveness. The Fund's investment adviser then seeks to
establish overweight positions in markets that offer the most attractive yield
curves and the highest yields over and above future inflation.
Under normal market conditions, the 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 market segments guide the Fund's investment
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 Fund's investment adviser analyzes current account
and capital account performance and real interest rates to adjust for
shorter-term currency flows.
The Fund's investment adviser seeks to minimize investment risk by investing in
a high-quality portfolio of fixed income securities, the majority of which will
be rated in one of the two highest rating categories by any nationally
recognized statistical rating organization (an "NRSRO") or, if unrated, will be
of comparable quality as determined by the Fund's investment adviser. U.S.
government securities in which the 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 U.S., 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 Fund's investment adviser believes to pose limited credit risk.
The Fund generally emphasizes investment in securities of U.S. and foreign
governments and their agencies and instrumentalities, but may invest in other
fixed income securities rated in the three highest rating categories of an NRSRO
or that the Fund's investment adviser believes to be of equivalent quality.
Corporate and supranational obligations in which the Fund will invest will be
limited to those rated
7
<PAGE>
"A" or better by Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
("S&P") or IBCA Ltd., or if unrated, of comparable quality as determined by the
Fund's investment adviser.
RISKS OF INVESTING IN SECURITIES
OF FOREIGN ISSUERS
The Fund invests in securities of foreign issuers. Such securities may be
denominated in U.S. dollars and in currencies other than U.S. dollars. The
percentage of assets invested in securities of a particular country or
denominated in a particular currency will vary in accordance with the investment
adviser's assessment of the relative yield, appreciation potential and the
relationship of a country's currency to the U.S. dollar, which is based upon
such factors as fundamental economic strength, credit quality and interest rate
trends. Investments in foreign securities present certain risks not ordinarily
associated with investments in securities of U.S. issuers. These risks include
fluctuations in foreign currency exchange rates, political, economic or legal
developments (including war or other instability, expropriation of assets,
nationalization and confiscatory taxation), the imposition of foreign exchange
limitations (including currency blockage), withholding taxes on dividend or
interest payments or capital transactions or other restrictions, higher
transaction costs (including higher brokerage, custodial and settlement costs
and currency translation costs) and possible difficulty in enforcing contractual
obligations or taking judicial action. Also, foreign securities may not be as
liquid and may be more volatile than comparable domestic securities.
In addition, there often is less publicly available information about many
foreign issuers, and issuers of foreign securities are subject to different,
often less comprehensive, auditing, accounting, financial reporting and
disclosure requirements than domestic issuers. There is generally less
government regulation of stock exchanges, brokers and listed companies abroad
than in the U.S., and, with respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investment in those countries. Because there is
usually less supervision and governmental regulation of exchanges, brokers and
dealers than there is in the U.S., the Fund may experience settlement
difficulties or delays not usually encountered in the U.S.
Delays in making trades in foreign securities relating to volume constraints,
limitations or restrictions, clearance or settlement procedures, or otherwise
could impact yields and result in temporary periods when assets of the Fund are
not fully invested or attractive investment opportunities are foregone.
In addition to the increased risks of investing in foreign securities, there are
often increased transactions costs associated with investing in foreign
securities including the costs incurred in connection with converting
currencies, higher foreign brokerage or dealer costs, and higher settlement
costs or custodial costs.
Since the Fund invests in securities denominated or quoted in currencies other
than the U.S. dollar, the Fund will be affected by changes in foreign currency
exchange rates (and exchange control regulations) which affect the value of
investments in the Fund and the accrued income and unrealized appreciation or
depreciation of the investments. Changes in foreign currency exchange ratios
relative to the U.S. dollar will affect the U.S. dollar value of the Fund's
assets denominated in that currency and the Fund's return on such assets as well
as any temporary uninvested reserves in bank deposits in foreign currencies. In
addition, the Fund will incur costs in connection with conversions between
various currencies.
The Fund may purchase and sell foreign currency on a spot basis in connection
with the settlement of transactions in securities traded in such foreign
currency. The Fund also may enter into contracts with banks, brokers or dealers
to purchase or sell securities or foreign currencies at a future date ("forward
contracts"). A foreign currency forward contract is a negotiated agreement
between the contracting parties to exchange a specified amount of currency at a
specified future time at a specified rate. The rate can be higher or lower than
the spot rate between the currencies that are the subject of the contract.
The Fund may attempt to protect against adverse changes in the value of the U.S.
dollar in relation to
8
<PAGE>
a foreign currency by entering into a forward contract for the purchase or sale
of the amount of foreign currency invested or to be invested, or by buying or
selling a foreign currency option or futures contract for such amount. Such
strategies may be employed before the Fund purchases a foreign security traded
in the currency which the Fund anticipates acquiring or between the date the
foreign security is purchased or sold and the date on which payment therefore is
made or received. Seeking to protect against a change in the value of a foreign
currency in the foregoing manner does not eliminate fluctuations in the prices
of portfolio securities or prevent losses if the prices of such securities
decline. Furthermore, such transactions reduce or preclude the opportunity for
gain if the value of the currency should move in the direction opposite to the
position taken. Unanticipated changes in currency prices may result in poorer
overall performance for the Fund than if it had not entered into such contracts.
Investors should carefully consider the risks of foreign investments before
investing in the Fund.
ADDITIONAL INFORMATION REGARDING
CERTAIN INCOME SECURITIES
DISCOUNT, ZERO-COUPON AND PAYMENT-IN-KIND SECURITIES. The Fund may invest in
securities sold at a substantial discount from their value at maturity, such as
zero-coupon and payment-in-kind securities, when the Fund's investment adviser
believes the effective yield on such securities over comparable instruments
paying current cash income makes these investments attractive. Zero-coupon
securities are debt obligations that do not entitle the holder to any periodic
payment of interest prior to maturity or a specified date when the securities
begin paying current interest. They are issued and traded at a discount from
their face amounts or par value, which discount varies depending on the time
remaining until cash payments begin, prevailing interest rates, liquidity of the
security and the perceived credit quality of the issuer. Because such securities
do not entitle the holder to any periodic payments of interest prior to
maturity, this prevents the reinvestment of such interest payments if prevailing
interest rates rise. On the other hand, because there are no periodic interest
payments to be reinvested prior to maturity, "zero-coupon" securities eliminate
the reinvestment risk and may lock in a favorable rate of return to maturity if
interest rates drop. Payment-in-kind securities are securities that pay interest
through the issuance of additional securities. Prices on non-cash-paying
instruments may be more sensitive to changes in the issuer's financial
condition, fluctuations in interest rates and market demand/supply imbalances
than cash-paying securities with similar credit ratings, and thus may be more
speculative than are securities that pay interest periodically in cash. In
addition, the amount of non-cash interest income earned on such instruments is
included, for federal income tax purposes, in the Fund's calculation of income
that is required to be distributed to shareholders for the Fund to maintain its
desired federal income tax status (even though such non-cash paying securities
do not provide the Fund with the cash flow with which to pay such
distributions). Accordingly, the Fund may be required to borrow or to liquidate
portfolio securities at a time that it otherwise would not have done so in order
to make such distributions. The Fund's investment adviser will weigh these
concerns against the expected total returns from such instruments.
OTHER INVESTMENT PRACTICES AND RISK FACTORS
DERIVATIVE INSTRUMENTS. The Fund may, but is not required to, use various
investment strategic transactions described below to earn income, facilitate
portfolio management and mitigate risks. Such strategic transactions are
generally accepted under modern portfolio management and are regularly used by
many mutual funds and other institutional investors. Although the Fund's
investment adviser seeks to use the practices to further the Fund's investment
objective, no assurance can be given that these practices will achieve this
result.
The Fund may purchase and sell derivative instruments such as exchange-listed
and over-the-counter put and call options on securities, financial futures,
equity, fixed-income and interest rate indices, and other financial instruments,
futures contracts and options thereon (including but not limited to securities
index futures, foreign currency exchange futures, interest rate futures and
other financial futures), structured notes, swaps, caps, floors or collars and
9
<PAGE>
enter into various currency transactions such as currency forward contracts,
currency futures contracts, currency swaps or options on currency or currency
futures. In addition, the Fund may invest in other derivative instruments that
are developed over time if their use would be consistent with the objective of
the Fund. Collectively, all of the above are referred to as "Strategic
Transactions." The Fund generally seeks to use Strategic Transactions as a
portfolio management or hedging technique to seek to protect against possible
adverse changes in the market value of securities held in or to be purchased for
the Fund's portfolio, protect the Fund's unrealized gains, facilitate the sale
of certain securities for investment purposes, protect against changes in
currency exchange rates or to adjust the exposure to a particular currency,
manage the effective maturity or duration of the Fund's portfolio, establish
positions in the derivatives markets as a substitute for purchasing or selling
particular securities, including, for example, when the Fund adjusts its
exposure to a market in response to changes in investment strategy, when doing
so provides more liquidity than the direct purchase of the securities underlying
such derivatives, when the Fund 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. The Fund may invest up to 33 1/3%
of its total assets in Strategic Transactions for non-hedging purposes (measured
by the aggregate notional amount of outstanding derivatives). In addition, the
Fund may invest up to 20% of its total assets in futures contracts and options
on futures contracts (measured by the aggregate notional amount of such
outstanding contracts).
Strategic Transactions have risks including the imperfect correlation between
the value of such instruments and the underlying assets, the possible default of
the other party to the transaction or illiquidity of the derivative instruments.
Furthermore, the ability to successfully use Strategic Transactions depends on
the Fund's investment adviser's ability to predict pertinent market movements,
which cannot be assured. Thus, the use of Strategic Transactions may result in
losses greater than if they had not been used, may require the Fund to sell or
purchase portfolio securities at inopportune times or for prices other than
current market values, may limit the amount of appreciation the Fund can
otherwise realize on an investment, or may cause the Fund to hold a security
that it might otherwise sell. The use of currency transactions can result in the
Fund incurring losses because of the imposition of exchange controls, suspension
of settlements or the inability of the Fund to deliver or receive a specified
currency. In addition, amounts paid as premiums or cash or other assets held in
margin accounts with respect to Strategic Transactions are not otherwise
available to the Fund for investment purposes.
When conducted outside the U.S., Strategic Transactions may not be regulated as
rigorously as in the U.S., may not involve a clearing mechanism and related
guarantees, and are subject to the risk of governmental actions affecting
trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions, (iii)
delays in the Fund's ability to act upon economic events occurring in foreign
markets during non-business hours in the U.S., (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
U.S. and (v) lower trading volume and liquidity.
A more complete discussion of Strategic Transactions and their risks is
contained in the Fund's Statement of Additional Information. The Statement of
Additional Information can be obtained by investors free of charge as described
on the back cover of this prospectus.
OTHER PRACTICES. For cash management purposes, the Fund may engage in repurchase
agreements with banks and broker-dealers and other financial institutions in
order to earn a return on temporarily available cash. Such transactions are
subject to the risk of default by the other party.
The Fund may purchase and sell securities in an amount up to 15% of its net
assets on a "when-issued" and "delayed delivery" basis. The Fund accrues no
income on such securities until the Fund
10
<PAGE>
actually takes delivery of such securities. These transactions are subject to
market fluctuation; the value of the securities at delivery may be more or less
than their purchase price. The value or yield generally available on comparable
securities when delivery occurs may be higher than the value or yield on the
securities obtained pursuant to such transactions. Because the Fund relies on
the buyer or seller to consummate the transaction, failure by the other party to
complete the transaction may result in the Fund missing the opportunity of
obtaining a price or yield considered to be advantageous. The Fund will engage
in when-issued and delayed delivery transactions for the purpose of acquiring
securities consistent with the Fund's investment objective and policies and not
for the purpose of investment leverage.
The Fund may lend its portfolio securities in an amount up to 33 1/3% of its
total assets to broker-dealers, banks or other recognized institutional
borrowers of securities. The Fund may incur lending fees and other costs in
connection with securities lending, and securities lending is subject to the
risk of default by the other party.
The Fund may invest up to 15% of the Fund's net assets in illiquid securities
and certain restricted securities. Notwithstanding the foregoing, the Fund may
not invest more than 10% of its total assets in securities subject to legal or
contractual restrictions on resale. Such securities may be difficult or
impossible to sell at the time and the price that the Fund would like. Thus, the
Fund may have to sell such securities at a lower price, sell other securities
instead to obtain cash or forego other investment opportunities.
The Fund may invest in securities indirectly through investment in other
investment companies. Such investments are commonly used when a direct
investment in certain countries is not permitted by foreign investors.
Investments in other investment companies may involve duplication of management
fees and certain other expenses.
Further information about these types of investments and other investment
practices that may be used by the Fund is contained in the Statement of
Additional Information.
The Fund may sell securities without regard to the length of time they have been
held in order to take advantage of new investment opportunities or when the
Fund's investment adviser believes the potential for return has lessened or for
other reasons. The Fund's portfolio turnover is shown under the heading
"Financial Highlights." The portfolio turnover rate may be expected to vary from
year to year. A high portfolio turnover rate (100% or more) increases the Fund's
transactions costs (including brokerage commissions or dealer costs) and a high
portfolio turnover rate may result in the realization of more short-term capital
gains than if the Fund had a lower portfolio turnover rate. Increases the Fund's
transaction costs would adversely impact the Fund's performance. The turnover
rate will not be a limiting factor, however, if the Fund's investment adviser
considers portfolio changes appropriate.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Fund may invest on a temporary basis a portion or all
of its assets in securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities, prime commercial paper, certificates of deposit,
bankers' acceptances and other obligations of domestic banks and in investment
grade corporate debt securities. Under normal market conditions, the potential
for return on these securities will tend to be lower than the potential for
return on other securities that may be owned by the Fund. In taking such a
defensive position, the Fund would not be pursuing and may not achieve its
investment objective.
YEAR 2000 RISKS. Like other mutual funds, financial and business organizations
and individuals around the world, the Fund could be adversely affected if the
computer systems used by the Fund's investment adviser, subadviser and other
service providers do not properly process and calculate date-related information
and data from and after January 1, 2000. This is commonly known as the "Year
2000 Problem." The Fund's investment adviser and subadviser are taking steps
that they believe are reasonably designed to address the Year 2000 Problem with
respect to computer systems that they use and to obtain reasonable assurances
that comparable steps are being taken by the Fund's other major service
providers. At this time, there can be no assurances that these
11
<PAGE>
steps will be sufficient to avoid any adverse impact to the Fund. In addition,
the Year 2000 Problem may adversely affect the markets and the issuers of
securities in which the Fund may invest which, in turn, may adversely affect the
net asset value of shares of the Fund. Improperly functioning trading systems
may result in settlement problems and liquidity issues. In addition, corporate
and governmental data processing errors may result in production problems for
individual companies or issuers and overall economic uncertainty. Earnings of
individual issuers will be affected by remediation costs, which may be
substantial and may be reported inconsistently in U.S. and foreign financial
statements. Efforts in foreign countries to remediate the potential Year 2000
Problem may not be as extensive as those in the U.S. As a result, the operations
of foreign markets and issuers may be disrupted by the Year 2000 Problem which
could adversely affect the Fund's portfolio. The risks are greater with respect
to certain developing or emerging market countries; because there is an
increased likelihood that issuers of securities of such countries cannot
anticipate or effectively manage the effects of computer programs and the Year
2000 Problem. Accordingly, the Fund's investments may be adversely affected. The
statements above are subject to the Year 2000 Information and Readiness
Disclosure Act which may limit the legal rights regarding the use of such
statements in the case of a dispute.
INVESTMENT ADVISORY
SERVICES
INVESTMENT ADVISER
Van Kampen Investment Advisory Corp. is the investment adviser (the "Adviser" or
"Advisory Corp.") and administrator of the Fund. The Adviser is a wholly owned
subsidiary of Van Kampen Investments Inc. ("Van Kampen Investments"). Van Kampen
Investments is a diversified asset management company with more than two million
retail investor accounts, extensive capabilities for managing institutional
portfolios, and more than $79 billion under management or supervision as of
September 30, 1999. Van Kampen Investments' more than 50 open-end and 39
closed-end funds and more than 2,500 unit investment trusts are professionally
distributed by leading authorized dealers nationwide. Van Kampen Funds Inc., the
distributor of the Fund (the "Distributor") and the sponsor of the funds
mentioned above, is also a wholly owned subsidiary of Van Kampen Investments.
Van Kampen Investments is an indirect wholly owned subsidiary of Morgan Stanley
Dean Witter & Co. The Adviser's principal office is located at 1 Parkview Plaza,
PO Box 5555, Oakbrook Terrace, Illinois 60181-5555.
ADVISORY AGREEMENT AND ADMINISTRATION AGREEMENT. The Fund retains the Adviser to
manage the investment of its assets and to place orders for the purchase and
sale of its portfolio securities. Under an investment advisory agreement between
the Adviser and the Fund (the "Advisory Agreement"), the Fund pays the Adviser a
monthly fee computed based upon an annual rate of 0.75% applied to the average
daily net assets of the Fund.
The Fund also retains the Adviser to provide administrative services for the
Fund's day-to-day operations. Under an administration agreement, between the
Fund and the Adviser, the Fund pays a monthly administration fee computed based
upon an annual rate of 0.25% applied to the average daily net assets of the
Fund.
The Adviser furnishes offices, necessary facilities and equipment, provides
administrative services, and permits its officers and employees to serve without
compensation as directors or officers of the Fund if elected to such positions.
The Fund pays all charges and expenses of its day-to-day operations, including
the compensation of directors of the Fund (other than those who are affiliated
persons of the Adviser, Distributor or Van Kampen Investments), the charges and
expenses of legal counsel and independent accountants, distribution fees,
service fees, custodian fees, the costs of providing reports to shareholders,
and all other ordinary business expenses not specifically assumed by the
Adviser.
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen Asset Management
Inc. ("Asset Management").
12
<PAGE>
INVESTMENT SUBADVISER
Morgan Stanley Dean Witter Investment Management Inc. (the "Subadviser") is the
Subadviser of the Fund. The Subadviser is a wholly owned subsidiary of Morgan
Stanley Dean Witter & Co., and is an affiliate of the Adviser. The Subadviser
conducts a worldwide portfolio management business and provides a broad range of
portfolio management services to customers in the United States and abroad. At
June 30, 1999, the Subadviser, together with its affiliated institutional asset
management companies, managed assets of approximately $175.3 billion, including
assets under fiduciary advice. The Subadviser's principal office is located at
1221 Avenue of the Americas, New York, New York 10020. On December 1, 1998,
Morgan Stanley Asset Management Inc. changed its name to Morgan Stanley Dean
Witter Investment Management Inc. but continues to do business in certain
instances using the name Morgan Stanley Asset Management.
SUBADVISORY AGREEMENT. The Adviser has entered into a subadvisory agreement with
the Subadviser to assist the Adviser in performing its investment advisory
functions. The Adviser pays the Subadviser on a monthly basis a portion of the
net advisory fees the Adviser receives from the Fund.
GENERAL
From time to time, the Adviser, the Subadviser or the Distributor may
voluntarily undertake to reduce the Fund's expenses by reducing the fees payable
to them or by reducing other expenses of the Fund in accordance with such
limitations as the Adviser, the Subadviser or Distributor may establish.
PERSONAL INVESTMENT POLICIES. The Fund, the Adviser and the Subadviser have
adopted Codes of Ethics designed to recognize the fiduciary relationship among
the Fund, the Adviser and the Subadviser and their respective employees. The
Codes of Ethics permit directors, trustees, officers and employees to buy and
sell securities for their personal accounts subject to certain restrictions.
Persons with access to certain sensitive information are subject to
pre-clearance and other procedures designed to prevent conflicts of interest.
PORTFOLIO MANAGEMENT. J. David Germany, Michael B. Kushma, Paul F. O'Brien,
Christian G. Roth and Ram Willner are primarily responsible for the day-to-day
management of the Fund's investment portfolio.
Mr. Germany has shared primary responsibility for managing the Fund's assets
since September 1997. Mr. Germany joined the Subadviser in 1996 and has been a
portfolio manager with the Adviser's affiliate, Miller Anderson & Sherrerd, LLP
("MAS") since 1991. He assumed responsibility for the Global Fixed Income and
International Fixed Income Portfolios of the MAS-advised MAS Funds in 1993 and
the MAS Funds' Multi-Asset-Class Portfolio in 1994. He holds an A.B.
(Valedictorian) from Princeton University and a Ph.D. in Economics from the
Massachusetts Institute of Technology.
Mr. Kushma, a Principal of Morgan Stanley Dean Witter & Co. and the Subadviser,
joined the firm in 1987. He has shared primary responsibility for managing the
Fund's assets since September 1995. He was a member of Morgan Stanley Dean
Witter & Co.'s global fixed income strategy group in the fixed income division
from 1987 to 1995 where he became the division's senior government bond
strategist. He joined the Subadviser in 1995 where he took responsibility for
the global fixed income portfolio. Mr. Kushma received an A.B. in economics from
Princeton University in 1979, an M.Sc. in economics from the London School of
Economics in 1981 and an M.Phil. in economics from Columbia University in 1983.
Mr. O'Brien has shared primary responsibility for managing the Fund's assets
since September 1996. He joined the Subadviser 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. from the
Massachusetts Institute of Technology and a Ph.D. in Economics from the
University of Minnesota.
Mr. Roth joined MAS in 1991 and is a Principal of Morgan Stanley Dean Witter &
Co. He has been a Portfolio Manager with MAS since 1993. Mr. Roth has shared
primary responsibility for managing the
13
<PAGE>
Fund since September 1998. Prior to joining MAS, Mr. Roth served as a Senior
Associate in the Merchant Banking Group of Dean Witter Capital Corporation. Mr.
Roth received a B.S. from the Wharton School of Business of the University of
Pennsylvania. He is a Chartered Financial Analyst and a member of the Financial
Analysts of Philadelphia.
Mr. Willner, a Principal of Morgan Stanley Dean Witter & Co., has been a
portfolio manager with MAS since April 1998. Mr. Willner has shared primary
responsibility for managing the Fund since April 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.
PURCHASE OF SHARES
GENERAL
The Fund offers three classes of shares designated as Class A Shares, Class B
Shares and Class C Shares. By offering three classes of shares, the Fund permits
each investor to choose the class of shares that is most beneficial given the
amount to be invested and the length of time the investor expects to hold the
shares.
Initial investments must be at least $1,000 for each class of shares, and
subsequent investments must be at least $25 for each class of shares. Both
minimums may be waived by the Distributor for plans involving periodic
investments.
Each class of shares represents an interest in the same portfolio of investments
of the Fund and has the same rights except that (i) Class A Shares generally
bear the sales charge expenses at the time of purchase while Class B Shares and
Class C Shares bear the sales charge expenses at the time of redemption and any
expenses (including higher distribution fees and transfer agency costs)
resulting from such deferred sales charge arrangement, (ii) generally, each
class of shares has exclusive voting rights with respect to approvals of the
Rule 12b-1 distribution plan and service plan (each as described below) under
which its distribution fee or service fee is paid, (iii) each class of shares
has different exchange privileges, (iv) certain classes of shares are subject to
a conversion feature and (v) certain classes of shares have different
shareholder service options available.
The offering price of the Fund's shares is based upon the Fund's net asset value
per share (plus sales charges, where applicable). The net asset values per share
of the Class A Shares, Class B Shares and Class C Shares are generally expected
to be substantially the same. In certain circumstances, however, the per share
net asset values of the classes of shares may differ from one another,
reflecting the daily expense accruals of the higher distribution fees and
transfer agency costs applicable to the Class B Shares and Class C Shares and
the differential in the dividends that may be paid on each class of shares.
The net asset value per share for each class of shares of the Fund is determined
once daily as of the close of trading on the New York Stock Exchange (the
"Exchange") (currently 4:00 p.m., New York time) each day the Exchange is open
for trading except on any day on which no purchase or redemption orders are
received or there is not sufficient degree of trading in the Fund's portfolio
securities such that the Fund's net asset value per share might be materially
affected. The Fund's Board of Directors reserves the right to calculate the net
asset value per share and adjust the offering price based thereon more
frequently than once daily if deemed desirable. Net asset value per share for
each class is determined by dividing the value of the Fund's portfolio
securities, cash and other assets (including accrued interest) attributable to
such class, less all liabilities (including accrued expenses) attributable to
such class, by the total number of shares of the class outstanding. Such
computation is made by using prices as of the close of trading on the Exchange.
Securities listed on a securities exchange for which market quotations are
available are valued at their closing price. If no closing price is available,
such
14
<PAGE>
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 not readily
available are valued at the average of the mean of 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 by the Adviser at fair value
using methods determined by the Fund's Board of Directors.
Trading in securities on many foreign securities exchanges (including European
and Far Eastern securities exchanges) and over-the-counter markets is normally
completed before the close of business on each U.S. business day. In addition,
securities trading in a particular country or countries may not take place on
all U.S. business days or may take place on days which are not U.S. business
days. Changes in valuations on certain securities may occur at times or on days
on which the Fund's net asset value is not calculated and on which the Fund does
not effect sales, redemptions and exchanges of its shares.
The Fund calculates net asset value per share, and therefore effects sales,
redemptions and exchanges of its shares, as of the close of trading on the
Exchange each day the Exchange is open for trading. Such calculation does not
take place contemporaneously with the determination of the prices of certain
foreign portfolio securities used in such calculation.
If events materially affecting the value of foreign portfolio securities or
other portfolio securities occur between the time when their price is determined
and the time when the Fund's net asset value is calculated, such securities may
be valued at fair value as determined in good faith by the Adviser based in
accordance with procedures established by the Fund's Board of 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.
The Fund has adopted a distribution plan (the "Distribution Plan") with respect
to each class of its shares pursuant to Rule 12b-1 under the 1940 Act. The Fund
also has adopted a service plan (the "Service Plan") with respect to each class
of its shares. Under the Distribution Plan and the Service Plan, the Fund pays
distribution fees in connection with the sale and distribution of its shares and
service fees in connection with the provision of ongoing services to
shareholders of each class.
15
<PAGE>
The amount of distribution and service fees varies among the classes offered by
the Fund. Because these fees are paid out of the Fund's assets on an ongoing
basis, these fees will increase the cost of your investment in the Fund. By
purchasing a class of shares subject to higher distribution and service fees,
you may pay more over time than on a class of shares with other types of sales
charge arrangements. Long-term shareholders may pay more than the economic
equivalent of the maximum front-end sales charges permitted by the rules of the
National Association of Securities Dealers, Inc. ("NASD"). The net income
attributable to a class of shares will be reduced by the amount of the
distribution fees and other expenses of the Fund associated with such class of
shares. To assist investors in comparing classes of shares, the tables under the
heading "Fees and Expenses of the Fund" provide a summary of sales charges and
expenses and an example of the sales charges and expenses of the Fund applicable
to each class of shares.
The shares are offered to the public on a continuous basis through the
Distributor as principal underwriter, which is located at 1 Parkview Plaza, PO
Box 5555, Oakbrook Terrace, Illinois 60181-5555. Shares also are offered through
members of the NASD who are acting as securities dealers ("dealers") and NASD
members or eligible non-NASD members who are acting as brokers or agents for
investors ("brokers"). "Dealers" and "brokers" are sometimes referred to herein
as "authorized dealers."
Shares may be purchased on any business day by completing the application
accompanying this prospectus and forwarding the application, directly or through
an authorized dealer, to the Fund's shareholder service agent, Van Kampen
Investor Services Inc. ("Investor Services"), a wholly owned subsidiary of Van
Kampen Investments. When purchasing shares of the Fund, investors must specify
whether the purchase is for Class A Shares, Class B Shares or Class C Shares.
Sales personnel of authorized dealers distributing the Fund's shares are
entitled to receive compensation for selling such shares and may receive
differing compensation for selling Class A Shares, Class B Shares or Class C
Shares.
The offering price for shares is based upon the next calculation of net asset
value per share (plus sales charges, where applicable) after an order is
received by Investor Services. Orders received by authorized dealers prior to
the close of the Exchange are priced based on the date of receipt provided such
order is transmitted to Investor Services prior to Investor Services' close of
business on such date. Orders received by authorized dealers after the close of
the Exchange, or transmitted to Investor Services after its close of business,
are priced based on the date of the next computed net asset value per share
provided they are received by Investor Services prior to Investor Services'
close of business on such date. It is the responsibility of authorized dealers
to transmit orders received by them to Investor Services so they will be
received in a timely manner.
The Fund and the Distributor reserve the right to refuse any order for the
purchase of shares. The Fund also reserves the right to suspend the sale of the
Fund's shares in response to conditions in the securities markets or for other
reasons. Shares of the Fund may be sold in foreign countries where permissible.
Investor accounts will automatically be credited with additional shares of the
Fund after any Fund distributions, such as dividends and capital gain dividends,
unless the investor instructs the Fund otherwise. Investors wishing to receive
cash instead of additional shares should contact the Fund at (800) 341-2911 or
by writing to the Fund, c/o Van Kampen Investors Services Inc., PO Box 218256,
Kansas City, MO 64121-8256.
CLASS A SHARES
Class A Shares of the Fund are sold at net asset value plus an initial maximum
sales charge of up to 4.75% of the offering price (or 4.99% of the net amount
invested), reduced on investments of $100,000 or more as follows:
16
<PAGE>
CLASS A SHARES
SALES CHARGE SCHEDULE
<TABLE>
<CAPTION>
AS % OF AS % OF
SIZE OF OFFERING NET AMOUNT
INVESTMENT PRICE INVESTED
<S> <C> <C>
- -----------------------------------------------------------------------------
Less than $100,000 4.75% 4.99%
............................................................................
$100,000 but less than $250,000 3.75% 3.90%
............................................................................
$250,000 but less than $500,000 2.75% 2.83%
............................................................................
$500,000 but less than $1,000,000 2.00% 2.04%
............................................................................
$1,000,000 or more * *
............................................................................
</TABLE>
* NO SALES CHARGE IS PAYABLE AT THE TIME OF PURCHASE ON INVESTMENTS OF
$1 MILLION OR MORE, ALTHOUGH FOR SUCH INVESTMENTS THE FUND MAY IMPOSE
A CONTINGENT DEFERRED SALES CHARGE OF 1.00% ON CERTAIN REDEMPTIONS
MADE WITHIN ONE YEAR OF THE PURCHASE. THE CONTINGENT DEFERRED SALES
CHARGE IS ASSESSED ON AN AMOUNT EQUAL TO THE LESSER OF THE THEN
CURRENT MARKET VALUE OR THE COST OF THE SHARES BEING REDEEMED.
ACCORDINGLY, NO SALES CHARGE IS IMPOSED ON INCREASES IN NET ASSET
VALUE ABOVE THE INITIAL PURCHASE PRICE.
No sales charge is imposed on Class A Shares received from reinvestment of
dividends or capital gain dividends.
Under the Distribution Plan and Service Plan, the Fund may spend up to a total
of 0.25% per year of the Fund's average daily net assets with respect to the
Class A Shares of the Fund. From such amount, under the Service Plan, the Fund
may spend up to 0.25% per year of the Fund's average daily net assets with
respect to the Class A Shares for the ongoing provision of services to Class A
shareholders by the Distributor and by brokers, dealers or financial
intermediaries and for the maintenance of such shareholders' accounts.
CLASS B SHARES
Class B Shares of the Fund are sold at net asset value and are subject to a
contingent deferred sales charge if redeemed within five years of purchase as
shown in the table as follows:
CLASS B SHARES
SALES CHARGE SCHEDULE
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE
AS A PERCENTAGE OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
<S> <C>
- ---------------------------------------------------------------------------
First 4.00%
..........................................................................
Second 4.00%
..........................................................................
Third 3.00%
..........................................................................
Fourth 2.50%
..........................................................................
Fifth 1.50%
..........................................................................
Sixth and after None
..........................................................................
</TABLE>
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gain dividends. It
is presently the policy of the Distributor not to accept any order for Class B
Shares in an amount of $500,000 or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
The amount of the contingent deferred sales charge, if any, varies depending on
the number of years from the time of payment for the purchase of Class B Shares
until the time of redemption of such shares. Solely for purposes of determining
the number of years from the time of any payment for the purchase of shares, all
payments during a month are totaled and deemed to have been made on the last day
of the month.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed shares being redeemed first are any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge followed by shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
Fund's average daily net assets with respect to the Class B Shares of the
17
<PAGE>
Fund. In addition, under the Service Plan, the Fund may spend up to 0.25% per
year of the Fund's average daily net assets with respect to the Class B Shares
for the ongoing provision of services to Class B shareholders by the Distributor
and by brokers, dealers or financial intermediaries and for the maintenance of
such shareholders' accounts.
CLASS C SHARES
Class C Shares of the Fund are sold at net asset value and are subject to a
contingent deferred sales charge of 1.00% of the dollar amount subject to charge
if redeemed within one year of purchase.
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gain dividends. It
is presently the policy of the Distributor not to accept any order for Class C
Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed shares being redeemed first are any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge followed by shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
Fund's average daily net assets with respect to the Class C Shares of the Fund.
In addition, under the Service Plan, the Fund may spend up to 0.25% per year of
the Fund's average daily net assets with respect to the Class C Shares for the
ongoing provision of services to Class C shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CONVERSION FEATURE
Class B Shares purchased on or after June 1, 1996, and any dividend reinvestment
plan Class B Shares received on such shares, automatically convert to Class A
Shares eight years after the end of the calendar month in which the shares were
purchased. Class B Shares purchased before June 1, 1996, and any dividend
reinvestment plan Class B Shares received on such shares, automatically convert
to Class A Shares seven years after the end of the calendar month in which the
shares were purchased. Such conversion will be on the basis of the relative net
asset values per share, without the imposition of any sales load, fee or other
charge. The conversion schedule applicable to a share of the Fund acquired
through the exchange privilege from another Van Kampen fund participating in the
exchange program is determined by reference to the Van Kampen fund from which
such share was originally purchased.
The conversion of such shares to Class A Shares is subject to the continuing
availability of an opinion of counsel to the effect that (i) the assessment of
the higher distribution fee and transfer agency costs with respect to such
shares does not result in the Fund's dividends or capital gain dividends
constituting "preferential dividends" under the federal income tax law and
(ii) the conversion of shares does not constitute a taxable event under federal
income tax law. The conversion may be suspended if such an opinion is no longer
available and such shares might continue to be subject to the higher aggregate
fees applicable to such shares for an indefinite period.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge is waived on redemptions of Class B Shares
and Class C Shares (i) within one year following the death or disability (as
disability is defined by federal income tax law) of a shareholder, (ii) for
required minimum distributions from an individual retirement account ("IRA") or
certain other retirement plan distributions, (iii) for withdrawals under the
Fund's systematic withdrawal plan but limited to 12% annually of the initial
value of the account, (iv) if no commission or transaction fee is paid to
authorized dealers at the time of purchase of such shares and (v) if made by
involuntary liquidation by the Fund of a shareholder's account as described
under the heading
18
<PAGE>
"Redemption of Shares." Subject to certain limitations, a shareholder who has
redeemed Class C Shares of the Fund may reinvest in Class C Shares at net asset
value with credit for any contingent deferred sales charge if the reinvestment
is made within 180 days after the redemption. For a more complete description of
contingent deferred sales charge waivers, please refer to the Fund's Statement
of Additional Information or contact your authorized dealer.
QUANTITY DISCOUNTS
Investors purchasing Class A Shares may, under certain circumstances described
below, be entitled to pay reduced or no sales charges. Investors, or their
authorized dealers, must notify the Fund at the time of the purchase order
whenever a quantity discount is applicable to purchases. Upon such notification,
an investor will receive the lowest applicable sales charge. Quantity discounts
may be modified or terminated at any time. For more information about quantity
discounts, investors should contact their authorized dealer or the Distributor.
A person eligible for a reduced sales charge includes an individual, his or her
spouse and children under 21 years of age and any corporation, partnership or
sole proprietorship which is 100% owned, either alone or in combination, by any
of the foregoing; a trustee or other fiduciary purchasing for a single trust or
for a single fiduciary account, or a "company" as defined in Section 2(a)(8) of
the 1940 Act.
As used herein, "Participating Funds" refers to certain open-end investment
companies advised by Asset Management or Advisory Corp. and distributed by the
Distributor as determined from time to time by the Fund's Board of Directors.
VOLUME DISCOUNTS. The size of investment shown in the Class A Shares sales
charge table applies to the total dollar amount being invested by any person in
shares of the Fund, or in any combination of shares of the Fund and shares of
other Participating Funds, although other Participating Funds may have different
sales charges.
CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the Class A Shares
sales charge table may also be determined by combining the amount being invested
in shares of the Participating Funds plus the current offering price of all
shares of the Participating Funds which have been previously purchased and are
still owned.
LETTER OF INTENT. A Letter of Intent provides an opportunity for an investor to
obtain a reduced sales charge by aggregating the investments over a 13-month
period to determine the sales charge as outlined in the Class A Shares sales
charge table. The size of investment shown in the Class A Shares sales charge
table includes purchases of shares of the Participating Funds over a 13-month
period based on the total amount of intended purchases plus the value of all
shares of the Participating Funds previously purchased and still owned. An
investor may elect to compute the 13-month period starting up to 90 days before
the date of execution of a Letter of Intent. Each investment made during the
period receives the reduced sales charge applicable to the total amount of the
investment goal. The initial purchase must be for an amount equal to at least 5%
of the minimum total purchase amount of the level selected. If trades not
initially made under a Letter of Intent subsequently qualify for a lower sales
charge through the 90-day backdating provisions, an adjustment will be made at
the time of the expiration of the Letter of Intent to give effect to the lower
charge. Such adjustment in sales charge will be used to purchase additional
shares for the shareholder at the applicable discount category. The Fund
initially will escrow shares totaling 5% of the dollar amount of the Letter of
Intent to be held by Investor Services in the name of the shareholder. In the
event the Letter of Intent goal is not achieved within the specified period, the
investor must pay the difference between the sales charge applicable to the
purchases made and the reduced sales charge previously paid. Such payments may
be made directly to the Distributor or, if not paid, the Distributor will
liquidate sufficient escrowed shares to obtain the difference.
OTHER PURCHASE PROGRAMS
Purchasers of Class A Shares may be entitled to reduced or no initial sales
charges in connection with the unit investment trust reinvestment program and
purchases by registered representatives of selling
19
<PAGE>
firms or purchases by persons affiliated with the Fund or the Distributor. The
Fund reserves the right to modify or terminate these arrangements at any time.
UNIT INVESTMENT TRUST REINVESTMENT PROGRAM. The Fund permits unitholders of unit
investment trusts to reinvest distributions from such trusts in Class A Shares
of the Fund at net asset value per share and with no minimum initial or
subsequent investment requirement, if the administrator of an investor's unit
investment trust program meets certain uniform criteria relating to cost savings
by the Fund and the Distributor. The total sales charge for all other
investments made from unit investment trust distributions will be 1.00% of the
offering price (1.01% of net asset value). Of this amount, the Distributor will
pay to the authorized dealer, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the terms and conditions that apply to the program,
should contact their authorized dealer or the Distributor.
The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during each distribution period by all investors who choose to invest in
the Fund through the program and (2) provide Investor Services with appropriate
backup data for each investor participating in the program in a computerized
format fully compatible with Investor Services' processing system.
In order to obtain these special benefits, all dividends and other distributions
by the Fund must be reinvested in additional shares and there can not be any
systematic withdrawal program. There will be no minimum for reinvestments from
unit investment trusts. The Fund will send account activity statements to such
participants on a quarterly basis only, even if their investments are made more
frequently. The Fund reserves the right to modify or terminate this program at
any time.
NET ASSET VALUE PURCHASE OPTIONS. Class A Shares of the Fund may be purchased at
net asset value, upon written assurance that the purchase is made for investment
purposes and that the shares will not be resold except through redemption by the
Fund, by:
(1) Current or retired trustees or directors of funds advised by Morgan Stanley
Dean Witter & Co. and any of its subsidiaries and such persons' families
and their beneficial accounts.
(2) Current or retired directors, officers and employees of Morgan Stanley Dean
Witter & Co. and any of its subsidiaries; employees of an investment
subadviser to any fund described in (1) above or an affiliate of such
subadviser; and such persons' families and their beneficial accounts.
(3) Directors, officers, employees and, when permitted, registered
representatives, of financial institutions that have a selling group
agreement with the Distributor and their spouses and children under 21
years of age when purchasing for any accounts they beneficially own, or, in
the case of any such financial institution, when purchasing for retirement
plans for such institution's employees; provided that such purchases are
otherwise permitted by such institutions.
(4) Registered investment advisers who charge a fee for their services, trust
companies and bank trust departments investing on their own behalf or on
behalf of their clients. The Distributor may pay authorized dealers through
which purchases are made an amount up to 0.50% of the amount invested, over
a 12-month period.
(5) Trustees and other fiduciaries purchasing shares for retirement plans which
invest in multiple fund families through broker-dealer retirement plan
alliance programs that have entered into agreements with the Distributor
and which are subject to certain minimum size and operational requirements.
Trustees and other fiduciaries should refer to the Statement of Additional
Information for further details with respect to such alliance programs.
(6) Beneficial owners of shares of Participating Funds held by a retirement
plan or held in a tax-advantaged retirement account who purchase shares of
the Fund with proceeds from distributions from such a plan or retirement
account
20
<PAGE>
other than distributions taken to correct an excess contribution.
(7) Accounts as to which a bank or broker-dealer charges an account management
fee ("wrap accounts"), provided the bank or broker-dealer has a separate
agreement with the Distributor.
(8) Trusts created under pension, profit sharing or other employee benefit
plans qualified under Section 401(a) of the Internal Revenue Code of 1986,
as amended (the "Code"), or custodial accounts held by a bank created
pursuant to Section 403(b) of the Code and sponsored by nonprofit
organizations defined under Section 501(c)(3) of the Code and assets held
by an employer or trustee in connection with an eligible deferred
compensation plan under Section 457 of the Code. Such plans will qualify
for purchases at net asset value provided, for plans initially establishing
accounts with the Distributor in the Participating Funds after February 1,
1997, that (1) the initial amount invested in the Participating Funds is at
least $500,000 or (2) such shares are purchased by an employer sponsored
plan with more than 100 eligible employees. Such plans that have been
established with a Participating Fund or have received proposals from the
Distributor prior to February 1, 1997 based on net asset value purchase
privileges previously in effect will be qualified to purchase shares of the
Participating Funds at net asset value for accounts established on or
before May 1, 1997. Section 403(b) and similar accounts for which Van
Kampen Trust Company serves as custodian will not be eligible for net asset
value purchases based on the aggregate investment made by the plan or the
number of eligible employees, except under certain uniform criteria
established by the Distributor from time to time. Prior to February 1,
1997, a commission will be paid to authorized dealers who initiate and are
responsible for such purchases within a rolling twelve- month period as
follows: 1.00% on sales to $5 million, plus 0.50% on the next $5 million,
plus 0.25% on the excess over $10 million. For purchases on February 1,
1997 and thereafter, a commission will be paid as follows: 1.00% on sales
to $2 million, plus 0.80% on the next $1 million, plus 0.50% on the next
$47 million, plus 0.25% on the excess over $50 million.
(9) Individuals who are members of a "qualified group." For this purpose, a
qualified group is one which (i) has been in existence for more than six
months, (ii) has a purpose other than to acquire shares of the Fund or
similar investments, (iii) has given and continues to give its endorsement
or authorization, on behalf of the group, for purchase of shares of the
Fund and Participating Funds, (iv) has a membership that the authorized
dealer can certify as to the group's members and (v) satisfies other
uniform criteria established by the Distributor for the purpose of
realizing economies of scale in distributing such shares. A qualified group
does not include one whose sole organizational nexus, for example, is that
its participants are credit card holders of the same institution, policy
holders of an insurance company, customers of a bank or broker-dealer,
clients of an investment adviser or other similar groups. Shares purchased
in each group's participants account in connection with this privilege will
be subject to a contingent deferred sales charge of 1.00% in the event of
redemption within one year of purchase, and a commission will be paid to
authorized dealers who initiate and are responsible for such sales to each
individual as follows: 1.00% on sales to $2 million, plus 0.80% on the next
$1 million and 0.50% on the excess over $3 million.
The term "families" includes a person's spouse, children under 21 years of age
and grandchildren, parents, and a person's spouse's parents.
Purchase orders made pursuant to clause (4) may be placed either through
authorized dealers as described above or directly with Investor Services by the
investment adviser, trust company or bank trust department, provided that
Investor Services receives federal funds for the purchase by the close of
business on the next business day following acceptance of the order. An
authorized dealer may charge a transaction fee for placing an order to purchase
shares pursuant to this provision or for placing a redemption order with respect
to such shares. Authorized dealers will be paid a service fee as described above
on purchases made under
21
<PAGE>
options (3) through (9) above. The Fund may terminate, or amend the terms of,
offering shares of the Fund at net asset value to such groups at any time.
REDEMPTION OF
SHARES
Generally shareholders may redeem for cash some or all of their shares without
charge by the Fund (other than applicable sales charge) at any time. As
described under the heading "Purchase of Shares," redemptions of Class B Shares
and Class C Shares may be subject to a contingent deferred sales charge. In
addition, certain redemptions of Class A Shares for shareholder accounts of $1
million or more may be subject to a contingent deferred sales charge.
Redemptions completed through an authorized dealer or a custodian of a
retirement plan account may involve additional fees charged by the dealer or
custodian.
Except as specified below under "Telephone Redemption Requests," payment for
shares redeemed generally will be made by check mailed within seven days after
receipt by Investor Services of the request and any other necessary documents in
proper form as described below. Such payment may be postponed or the right of
redemption suspended as provided by the rules of the SEC. Such payment may,
under certain circumstances, be paid wholly or in part by a distribution-in-kind
of portfolio securities which may result in brokerage costs and a gain or loss
for federal income tax purposes when such securities are sold. If the shares to
be redeemed have been recently purchased by check, Investor Services may delay
the payment of redemption proceeds until it confirms the purchase check has
cleared, which may take up to 15 days. A taxable gain or loss will be recognized
by the shareholder upon redemption of shares.
WRITTEN REDEMPTION REQUESTS. Shareholders may request a redemption of shares by
written request in proper form sent directly to Van Kampen Investor Services
Inc., PO Box 218256, Kansas City, MO 64121-8256. The request for redemption
should indicate the number of shares to be redeemed, the class designation of
such shares and the shareholder's account number. The redemption request must be
signed by all persons in whose names the shares are registered. Signatures must
conform exactly to the account registration. If the proceeds of the redemption
exceed $50,000, or if the proceeds are not to be paid to the record owner at the
record address, or if the record address has changed within the previous 30
days, signature(s) must be guaranteed by one of the following: a bank or trust
company; a broker-dealer; a credit union; a national securities exchange,
registered securities association or clearing agency; a savings and loan
association; or a federal savings bank.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption to be in proper form. In some
cases, however, additional documents may be necessary. In the case of
shareholders holding certificates, the certificates for the shares being
redeemed properly endorsed for transfer must accompany the redemption request.
In the event the redemption is requested by a corporation, partnership, trust,
fiduciary, executor or administrator, and the name and title of the
individual(s) authorizing such redemption is not shown in the account
registration, a copy of the corporate resolution or other legal documentation
appointing the authorized signer and certified within the prior 120 days must
accompany the redemption request. IRA redemption requests should be sent to the
IRA custodian to be forwarded to Investor Services. Contact the IRA custodian
for further information.
In the case of written redemption requests sent directly to Investor Services,
the redemption price is the net asset value per share next determined after the
request in proper form is received by Investor Services.
AUTHORIZED DEALER REDEMPTION REQUESTS. Shareholders may place redemption
requests through an authorized dealer. Orders sent through authorized dealers
must be at least $500 (unless transmitted by your authorized dealer via the
FUNDSERV network). The redemption price for such shares is the net asset value
per share next calculated after an order in proper form is received by an
authorized
22
<PAGE>
dealer provided such order is transmitted to the Distributor prior to the
Distributor's close of business on such day. It is the responsibility of
authorized dealers to transmit redemption requests received by them to the
Distributor so they will be received prior to such time. Redemptions completed
through an authorized dealer may involve additional fees charged by the dealer.
TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. A shareholder
automatically has telephone redemption privileges unless the shareholder
indicates otherwise by checking the applicable box on the application form
accompanying the prospectus. To redeem shares, contact the telephone transaction
line at (800) 421-5684. Van Kampen Investments, Investor Services and the Fund
employ procedures considered by them to be reasonable to confirm that
instructions communicated by telephone are genuine. Such procedures include
requiring certain personal identification information prior to acting upon
telephone instructions, tape-recording telephone communications and providing
written confirmation of instructions communicated by telephone. If reasonable
procedures are employed, none of Van Kampen Investments, Investor Services or
the Fund will be liable for following telephone instructions which it reasonably
believes to be genuine. Telephone redemptions may not be available if the
shareholder cannot reach Investor Services by telephone, whether because all
telephone lines are busy or for any other reason; in such case, a shareholder
would have to use the Fund's other redemption procedure previously described.
Requests received by Investor Services prior to 4:00 p.m., New York time, will
be processed at the next determined net asset value per share. These privileges
are available for all accounts other than retirement accounts or accounts with
shares represented by certificates. If an account has multiple owners, Investor
Services may rely on the instructions of any one owner.
For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check and amounts of at least
$1,000 up to $1 million may be redeemed daily if the proceeds are to be paid by
wire. The proceeds must be payable to the shareholder(s) of record and sent to
the address of record for the account or wired directly to their predesignated
bank account. This privilege is not available if the address of record has been
changed within 30 days prior to a telephone redemption request. Proceeds from
redemptions payable by wire transfer are expected to be wired on the next
business day following the date of redemption. The Fund reserves the right at
any time to terminate, limit or otherwise modify this redemption privilege.
OTHER REDEMPTION INFORMATION. The Fund may redeem shares of any shareholder
account that has a value on the date of the notice of redemption less than the
minimum initial investment as specified in this prospectus. At least 60 days
advance written notice of any such involuntary redemption will be provided to
the shareholder and such shareholder will be given an opportunity to purchase
the required value of additional shares at the next determined net asset value
without sales charge. Any involuntary redemption may only occur if the
shareholder account is less than the minimum initial investment due to
shareholder redemptions.
DISTRIBUTIONS FROM
THE FUND
In addition to any increase in the value of shares which the Fund may achieve,
shareholders may receive distributions from the Fund of dividends and capital
gain dividends.
DIVIDENDS. Interest earned from investments is the Fund's main source of income.
The Fund's present policy, which may be changed at any time by the Board of
Directors is to distribute all or substantially all of this income, less
expenses, at least monthly as dividends to shareholders. Dividends are
automatically applied to purchase additional shares of the Fund at the next
determined net asset value unless the shareholder instructs otherwise.
The per share dividends on Class B Shares and Class C Shares may be lower than
the per share
23
<PAGE>
dividends on Class A Shares as a result of the higher distribution fees and
transfer agency costs applicable to such classes of shares.
CAPITAL GAIN DIVIDENDS. The Fund may realize capital gains or losses when it
sells securities, depending on whether the sales prices for the securities are
higher or lower than purchase prices. Net realized capital gain represents the
total profits from sales of securities minus total losses from sales of
securities (including any losses carried forward from prior years), other than
net short-term capital gain from sales of securities held for one year or less.
The Fund distributes any taxable net realized capital gain to shareholders as
capital gain dividends at least annually. As in the case of dividends, capital
gain dividends are automatically reinvested in additional shares of the Fund at
the next determined net asset value unless the shareholder instructs otherwise.
SHAREHOLDER SERVICES
Listed below are some of the shareholder services the Fund offers to investors.
For a more complete description of the Fund's shareholder services, such as
investment accounts, share certificates, retirement plans, automated clearing
house deposits, dividend diversification and the systematic withdrawal plan,
please refer to the Statement of Additional Information or contact your
authorized dealer.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gain dividends in shares of the
Fund. Such shares are acquired at net asset value per share (without sales
charge) on the applicable payable date of the dividend or capital gain dividend.
Unless the shareholder instructs otherwise, the reinvestment plan is automatic.
This instruction may be made by telephone by calling (800) 341-2911
((800) 421-2833 for the hearing impaired) or by writing to Investor Services.
The investor may, on the initial application or prior to any declaration,
instruct that dividends be paid in cash and capital gain dividends be reinvested
at net asset value, or that both dividends and capital gain dividends be paid in
cash.
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under which
a shareholder can authorize Investor Services to charge a bank account on a
regular basis to invest predetermined amounts in the Fund. Additional
information is available from the Distributor or your authorized dealer.
EXCHANGE PRIVILEGE. Shares of the Fund may be exchanged for shares of the same
class of any Participating Fund based on the next computed net asset value per
share of each fund after requesting the exchange without any sales charge,
subject to certain limitations. Shares of the Fund may be exchanged for shares
of any Participating Fund only if shares of that Participating Fund are
available for sale; however, during periods of suspension of sales, shares of a
Participating Fund may be available for sale only to existing shareholders of a
Participating Fund. Shareholders seeking an exchange into a Participating Fund
should obtain and read the current prospectus for such fund prior to
implementing an exchange. A prospectus of any of the Participating Funds may be
obtained from any authorized dealer or the Distributor.
To be eligible for exchange, shares of the Fund must have been registered in the
shareholder's name for at least 30 days prior to an exchange. Shares of the Fund
registered in a shareholder's name for less than 30 days may only be exchanged
upon receipt of prior approval of the Adviser. It is the policy of the Adviser,
under normal circumstances, not to approve such requests.
When shares that are subject to a contingent deferred sales charge are exchanged
among Participating Funds, the holding period for purposes of computing the
contingent deferred sales charge is based upon the date of the initial purchase
of such shares from a Participating Fund. When such shares are redeemed and not
exchanged for shares of another Participating Fund, the shares are subject to
the contingent deferred sales charge schedule imposed by the Participating Fund
from which such shares were originally purchased.
24
<PAGE>
Exchanges of shares are sales of a Participating Fund and purchasers of another
Participating Fund. The sale may result in a gain or loss for federal income tax
purposes. If the shares sold have been held for less than 91 days, the sales
charge paid on such shares is carried over and included in the tax basis of the
shares acquired.
A shareholder wishing to make an exchange may do so by sending a written request
to Investor Services or by contacting the telephone transaction line at
(800) 421-5684. A shareholder automatically has telephone exchange privileges
unless the shareholder indicates otherwise by checking the application box on
the application form accompanying the prospectus. Van Kampen Investments,
Investor Services and the Fund employ procedures considered by them to be
reasonable to confirm that instructions communicated by telephone are genuine.
Such procedures include requiring certain personal identification information
prior to acting upon telephone instructions, tape-recording telephone
communications, and providing written confirmation of instructions communicated
by telephone. If reasonable procedures are employed, none of Van Kampen
Investments, Investor Services or the Fund will be liable for following
telephone instructions which it reasonably believes to be genuine. If the
exchanging shareholder does not have an account in the fund whose shares are
being acquired, a new account will be established with the same registration,
dividend and capital gain dividend options (except dividend diversification) and
authorized dealer of record as the account from which shares are exchanged,
unless otherwise specified by the shareholder. In order to establish a
systematic withdrawal plan for the new account or reinvest dividends from the
new account into another fund, however, an exchanging shareholder must submit a
specific request. The Fund reserves the right to reject any order to acquire its
shares through exchange. In addition, the Fund and other Participating Funds may
restrict exchanges by shareholders engaged in excessive trading by limiting or
disallowing the exchange privileges to such shareholders. For further
information on these restrictions see the Statement of Additional Information.
The Fund may modify, restrict or terminate the exchange privilege at any time on
60 days' notice to its shareholders of any termination or material amendment.
For purposes of determining the sales charge rate previously paid on Class A
Shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchanged security was acquired through reinvestment, that
security is deemed to have been sold with a sales charge rate equal to the rate
previously paid on the security on which the dividend or distribution was paid.
If a shareholder exchanges less than all of such shareholder's securities, the
security upon which the highest sales charge rate was previously paid is deemed
exchanged first.
Exchange requests received on a business day prior to the time shares of the
funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares of the fund which the
shareholder is redeeming will be redeemed at the net asset value per share next
determined on the date of receipt. Shares of the new fund that the shareholder
is purchasing will also normally be purchased at the net asset value per share,
plus any applicable sales charge, next determined on the date of receipt.
Exchange requests received on a business day after the time shares of the funds
involved in the request are priced will be processed on the next business day in
the manner described herein.
INTERNET TRANSACTIONS. In addition to performing transactions on your account
through written instruction or by telephone, you may also perform certain
transactions through the internet. Please refer to our web site at
www.vankampen.com for further instruction. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated through the internet are genuine. Such
procedures include requiring use of a personal identification number prior to
acting upon internet instructions and providing written confirmation of
instructions communicated through the internet. If reasonable procedures are
employed, none of Van Kampen Investments, Investor Services or the Fund will be
liable for following instructions received 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.
25
<PAGE>
FEDERAL INCOME
TAXATION
Distributions of the Fund's net investment income (consisting generally of
taxable income and net short-term capital gain) are taxable to shareholders as
ordinary income to the extent of the Fund's earnings and profits, whether paid
in cash or reinvested in additional shares. Distributions of the Fund's net
realized capital gain (which is the excess of net long-term capital gain over
net short-term capital loss) as capital gain dividends, if any, are taxable to
shareholders as long-term capital gains, whether paid in cash or reinvested in
additional shares, and regardless of how long the shares of the Fund have been
held by such shareholders. The Fund expects that its distributions will consist
primarily of ordinary income and capital gain dividends. Distributions in excess
of the Fund's earnings and profits will first reduce the adjusted tax basis of a
holder's shares and, after such adjusted tax basis is reduced to zero, will
constitute capital gains to such holder (assuming such shares are held as a
capital asset). Although distributions generally are treated as taxable in the
year they are paid, distributions declared in October, November or December,
payable to shareholders of record on a specified date in such month and paid
during January of the following year will be treated as having been distributed
by the Fund and received by the shareholders on the December 31st prior to the
date of payment. The Fund will inform shareholders of the source and tax status
of all distributions promptly after the close of each calendar year.
The sale or exchange of shares is a taxable transaction for federal income tax
purposes. Shareholders who sell their shares will generally recognize gain or
loss in an amount equal to the difference between their adjusted tax basis in
the shares sold and the amount received. If the shares are held as a capital
asset, the gain or loss will be a capital gain or loss. Any capital gains may be
taxed at different rates depending on how long the shareholder held such shares.
The Fund is required, in certain circumstances, to withhold 31% of dividends and
certain other payments, including redemptions, paid to shareholders who do not
furnish to the Fund their correct taxpayer identification number (in the case of
individuals, their social security number) and certain required certifications
or who are otherwise subject to backup withholding.
Foreign shareholders, including shareholders who are non-resident aliens, may be
subject to U.S. withholding tax on certain distributions (whether received in
cash or in shares) at a rate of 30% or such lower rate as prescribed by an
applicable treaty. Accordingly, investment in the Fund is likely to be
appropriate for a foreign shareholder only if such person can utilize a foreign
tax credit or corresponding tax benefit in respect of such U.S. withholding tax.
Prospective foreign investors should consult their tax advisers concerning the
tax consequences to them of an investment in shares.
The Fund intends to qualify as a regulated investment company under federal
income tax law. If the Fund so qualifies and distributes each year to its
shareholders at least 90% of its net investment income, the Fund will not be
required to pay federal income taxes on any income it distributes to
shareholders. If the Fund distributes less than an amount equal to the sum of
98% of its ordinary income and 98% of its capital gain net income, then the Fund
will be subject to a 4% excise tax on the undistributed amounts.
The federal income tax discussion set forth above is for general information
only. Prospective investors should consult their own tax advisers regarding the
specific federal tax consequences of purchasing, holding, disposing, exchanging
or selling of shares, as well as the effects of state, local and foreign tax law
and any proposed tax law changes.
26
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the periods indicated. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report, along with the Fund's financial statements, is
included in the Statement of Additional Information and may be obtained by
shareholders without charge by calling the telephone number on the back cover of
this prospectus. This information should be read in conjunction with the
financial statements and notes thereto included in the Statement of Additional
Information.
<TABLE>
<CAPTION>
CLASS B SHARES
CLASS A SHARES
YEAR ENDED JUNE 30, YEAR ENDED JUNE 30,
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# 1997 1996 1995 1999# 1998# 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD........................... $10.022 $ 9.95 $ 9.94 $ 10.23 $ 9.53 $ 9.971 $ 9.91 $ 9.91
------- ------- ------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss....... 0.311 0.39 0.44 0.53 0.56 0.229 0.32 0.41
Net Realized and Unrealized
Gain/Loss...................... (0.181) 0.13 (0.02) (0.01) 0.50 (0.186) 0.13 (0.07)
------- ------- ------- ------- ------- ------- ------- -------
Total From Investment
Operations..................... 0.130 0.52 0.42 0.52 1.06 0.043 0.45 0.34
------- ------- ------- ------- ------- ------- ------- -------
DISTRIBUTIONS
Net Investment Income............ (0.278) (0.39) (0.35) (0.79) (0.36) (0.234) (0.33) (0.29)
In Excess of Net Investment
Income......................... (0.106) (0.01) (0.06) (0.02) -- (0.090) (0.01) (0.05)
Net Realized Gain................ (0.290) (0.05) -- -- -- (0.290) (0.05) --
------- ------- ------- ------- ------- ------- ------- -------
Total Distributions.............. (0.674) (0.45) (0.41) (0.81) (0.36) (0.614) (0.39) (0.34)
------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD..... $ 9.478 $ 10.02 $ 9.95 $ 9.94 $ 10.23 $ 9.400 $ 9.97 $ 9.91
======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN (1) 0.95% 5.36% 4.27% 5.20% 11.41% 0.05% 4.65% 3.48%
======= ======= ======= ======= ======= ======= ======= =======
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's).......................... $ 3,392 $ 4,413 $ 6,407 $ 7,432 $11,092 $ 1,556 $ 1,425 $ 1,716
Ratio of Expenses to Average Net
Assets........................... 1.47% 1.45% 1.45% 1.45% 1.45% 2.23% 2.20% 2.20%
Ratio of Net Investment Income/Loss
to Average Net Assets............ 3.03% 3.94% 4.40% 5.02% 5.84% 2.21% 3.21% 3.65%
Portfolio Turnover Rate............ 143% 78% 170% 223% 169% 143% 78% 170%
- -----------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income/Loss......... $ 0.15 $ 0.15 $ 0.12 $ 0.07 $ 0.07 $ 0.15 $ 0.15 $ 0.13
Ratios Before Expense Limitation:
Expenses to Average Net Assets... 2.97% 3.00% 2.57% 2.16% 2.22% 3.78% 3.75% 3.37%
Net Investment Income to Average
Net Assets..................... 1.54% 2.42% 3.25% 4.31% 5.07% 0.71% 1.65% 2.45%
Ratio of Expenses to Average Net
Assets excluding country tax
expense and interest expense..... 1.45% 1.45% 1.45% 1.45% 1.45% 2.20% 2.20% 2.20%
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B SHARES
CLASS C SHARES
AUGUST 1, 1995+ YEAR ENDED JUNE 30,
TO
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1996 1999# 1998# 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD........................... $ 10.24 $ 9.962 $ 9.90 $ 9.90 $ 10.20 $ 9.54
------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss....... 0.64 0.230 0.32 0.39 0.37 0.49
Net Realized and Unrealized
Gain/Loss...................... (0.26) (0.191) 0.13 (0.05) 0.08 0.47
------- ------- ------- ------- ------- -------
Total From Investment
Operations..................... 0.38 0.039 0.45 0.34 0.45 0.96
------- ------- ------- ------- ------- -------
DISTRIBUTIONS
Net Investment Income............ (0.69) (0.234) (0.33) (0.29) (0.73) (0.30)
In Excess of Net Investment
Income......................... (0.02) (0.090) (0.01) (0.05) (0.02) --
Net Realized Gain................ -- (0.290) (0.05) -- -- --
------- ------- ------- ------- ------- -------
Total Distributions.............. (0.71) (0.614) (0.39) (0.34) (0.75) (0.30)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD..... $ 9.91 $ 9.387 $ 9.96 $ 9.90 $ 9.90 $ 10.20
======= ======= ======= ======= ======= =======
TOTAL RETURN (1) 3.76%* 0.05% 4.65% 3.48% 4.47% 10.24%
======= ======= ======= ======= ======= =======
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's).......................... $ 1,440 $ 1,483 $ 1,888 $ 2,445 $ 2,844 $ 5,965
Ratio of Expenses to Average Net
Assets........................... 2.20% 2.23% 2.20% 2.20% 2.20% 2.20%
Ratio of Net Investment Income/Loss
to Average Net Assets............ 3.38% 2.22% 3.21% 3.65% 4.35% 5.09%
Portfolio Turnover Rate............ 223%* 143% 78% 170% 223% 169%
- ------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income/Loss......... $ 0.12 $ 0.15 $ 0.15 $ 0.12 $ 0.06 $ 0.08
Ratios Before Expense Limitation:
Expenses to Average Net Assets... 3.57% 3.74% 3.75% 3.35% 2.87% 2.97%
Net Investment Income to Average
Net Assets..................... 2.01% 0.75% 1.67% 2.48% 3.68% 4.32%
Ratio of Expenses to Average Net
Assets excluding country tax
expense and interest expense..... 2.20% 2.20% 2.20% 2.20% 2.20% 2.20%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* NON-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.
# CHANGES PER SHARE ARE BASED UPON MONTHLY AVERAGE SHARES OUTSTANDING.
27
<PAGE>
APPENDIX -- DESCRIPTION OF SECURITIES RATINGS
STANDARD & POOR'S -- A brief description of the applicable Standard & Poor's
(S&P) rating symbols and their meanings (as published by S&P) follow:
A S&P corporate or municipal debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees.
The debt rating is not a recommendation to purchase, sell, or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished by the issuer or obtained
by S&P from other sources it considers reliable. S&P does not perform an audit
in connection with any rating and may, on occasion, rely on unaudited financial
information. The ratings may be changed, suspended, or withdrawn as a result of
changes in, or unavailability of, such information, or based on other
circumstances.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of payment -- capacity and willingness of the obligor to meet its
financial commitment on an obligation in accordance with the terms of the
obligation:
2. Nature of and provisions of the obligation:
3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditor's rights.
1. LONG-TERM DEBT -- INVESTMENT GRADE
AAA: Debt rated "AAA" has the highest rating assigned by S&P. Capacity to meet
its financial commitment on the obligation is extremely strong.
AA: Debt rated "AA" differs from the highest rated issues only in small degree.
Capacity to meets its financial commitment on the obligation is very strong.
A: Debt rated "A" is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than obligations in higher rated
categories. Capacity to meet its financial commitment on the obligation is still
strong.
BBB: Debt rated "BBB" exhibits adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to meet its financial commitment on the obligation.
SPECULATIVE GRADE
BB, B, CCC, CC, C: Debts rated "BB", "B", "CCC", "CC" and "C" are regarded as
having significant speculative characteristics. "BB" indicates the least degree
of speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
BB: Debt rated "BB" is less vulnerable to nonpayment than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
B: Debt rated "B" is more vulnerable to nonpayment than obligations rated "BB",
but the obligor currently has the capacity to meet its financial commitment on
the obligation. Adverse business, financial, or economic conditions will likely
impair the obligor's capacity or willingness to meet its financial commitment on
the obligation.
CCC: Debt rated "CCC" is currently vulnerable to nonpayment, and is dependent
upon favorable business, financial, and economic conditions for the obligor to
meet its financial commitment on the obligation. In the event of adverse
business, financial, or economic conditions, the obligor is not likely to have
A-1
<PAGE>
the capacity to meet its financial commitment on the obligation.
CC: Debt rated "CC" is currently highly vulnerable to nonpayment.
C: the "C" rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments on this obligation
are being continued.
D: Debt rated "D" is in payment default. The "D" rating category is used when
payments on an obligation are not made on the date due even if the applicable
grace period has not expired, unless S&P believes that such payments will be
made during such grace period. The "D" rating also will be used upon the filing
of a bankruptcy petition or the taking of a similar action if payments on an
obligation are jeopardized.
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
r: This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk -- such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
DEBT OBLIGATIONS OF ISSUERS OUTSIDE THE UNITED STATES AND ITS TERRITORIES are
rated on the same basis as domestic corporate and municipal issues. The ratings
measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.
BOND INVESTMENT QUALITY STANDARDS: Under present commercial bank regulations
issued by the Comptroller of the Currency, bonds rated in the top four
categories ("AAA", "AA", "A", "BBB", commonly known as "investment grade"
ratings) are generally regarded as eligible for bank investment. In addition,
the laws of various states governing legal investments impose certain ratings or
other standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.
2. COMMERCIAL PAPER
A S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.
Ratings are graded into several categories, ranging from "A-1" for the highest
quality obligations to "D" for the lowest. These categories are as follows:
A-1: The highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
A-3: Issues carrying this designation have adequate capacity for timely payment.
They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B: Issues rated "B" are regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
C: This rating is assigned to short-term debt obligations currently vulnerable
to nonpayment and is dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on the obligation.
D: Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired,
A-2
<PAGE>
unless S&P believes that such payments will be made during such grace period.
The "D" rating also will be used upon the filing of a bankruptcy petition or the
taking of a similar action if payments on an obligation are jeopardized.
A commercial paper rating is not a recommendation to purchase, sell or hold a
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained from other sources it considers reliable. S&P does
not perform an audit in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed, suspended or
withdrawn as a result of changes in, or unavailability of, such information, or
based on other circumstances.
3. PREFERRED STOCK
A S&P preferred stock rating is an assessment of the capacity and willingness of
an issuer to pay preferred stock dividends and any applicable sinking fund
obligations. A preferred stock rating differs from a bond rating inasmuch as it
is assigned to an equity issue, which issue is intrinsically different from, and
subordinated to, a debt issue. Therefore, to reflect this difference, the
preferred stock rating symbol will normally not be higher than the bond rating
symbol assigned to, or that would be assigned to, the senior debt of the same
issuer.
The preferred stock ratings are based on the following considerations:
i. Likelihood of payment-capacity and willingness of the issuer to meet the
timely payment of preferred stock dividends and any applicable sinking fund
requirements in accordance with the terms of the obligation.
ii. Nature of, and provisions of, the issuer.
iii. Relative position of the issue in the event of bankruptcy, reorganization,
or other arrangements under the laws of bankruptcy and other laws affecting
creditors' rights.
AAA: This is the highest rating that may be assigned by S&P to a preferred stock
issue and indicates an extremely strong capacity to pay the preferred stock
obligations.
AA: A preferred stock issue rated "AA" also qualifies as a high-quality, fixed
income security. The capacity to pay preferred stock obligations is very strong,
although not as overwhelming as for issues rated "AAA".
A: An issue rated "A" is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
BBB: An issue rated "BBB" is regarded as backed by an adequate capacity to pay
the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the "A" category.
BB, B and CCC: Preferred stock rated "BB", "B", and "CCC" are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay preferred stock obligations.
"BB" indicates the lowest degree of speculation and "CCC" the highest. While
such issues will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
CC: The rating "CC" is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments, but that is currently paying.
C: A preferred stock rated "C" is a nonpaying issue.
D: A preferred stock rated "D" is a nonpaying issue with the issuer in default
on debt instruments.
NR: This indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy. PLUS (+) or MINUS (-): To provide more
detailed indications of preferred stock quality, ratings
A-3
<PAGE>
from "AA" to "CCC" may be modified by the addition of a plus or minus sign to
show relative standing within the major rating categories.
A preferred stock rating is not a recommendation to purchase, sell, or hold a
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained by S&P from other sources it considers reliable.
S&P does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended, or withdrawn as a result of changes in, or unavailability of, such
information, or based on other circumstances.
MOODY'S INVESTORS SERVICE -- a brief description of the applicable Moody's
Investors Service (Moody's) rating symbols and their meanings (as published by
Moody's Investors Service) follows:
1. LONG-TERM DEBT
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than the Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payment
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
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 market shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the issue ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.
A-4
<PAGE>
ABSENCE OF RATING: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not rated as a
matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published in
Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
2. SHORT-TERM DEBT
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations. These obligations have an original maturity
not exceeding one year unless explicitly noted.
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issues:
Issuers rated Prime-1 (or supporting institutions) have a superior ability for
repayment or senior short-term debt obligations. Prime-1 repayment ability will
often be evidenced by many of the following characteristics:
- -- Leading market positions in well-established industries.
- -- High rates of return on funds employed.
- -- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
- -- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- -- Well-established access to a range of financial markets and assured sources
of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability for
repayment of senior short-term debt obligations. This will normally be evidenced
by many of the characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or supporting institutions) have an acceptable ability
for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes of the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
3. PREFERRED STOCK
Preferred stock rating symbols and their definitions are as follows:
AAA: An issue which is rated "AAA" is considered to be a top-quality preferred
stock. This rating indicates good asset protection and the least risk of
dividend impairment within the universe of preferred stocks.
AA: An issue which is rated "AA" is considered a high-grade preferred stock.
This rating indicates that there is a reasonable assurance the earnings and
asset protection will remain relatively well maintained in the foreseeable
future.
A: An issue which is rated "A" is considered to be an upper-medium-grade
preferred stock. While risks are judged to be somewhat greater than in the "AAA"
and "AA" classifications, earnings and asset protections are, nevertheless,
expected to be maintained at adequate levels.
A-5
<PAGE>
BAA: An issue which is rated "BAA" is considered to be a medium-grade preferred
stock, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any great
length of time.
BA: An issue which is rated "BA" is considered to have speculative elements and
its future cannot be considered well assured. Earnings and asset protection may
be very moderate and not well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.
B: An issue which is rated "B" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
CAA: An issue which is rated "CAA" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future status
of payments.
CA: An issue which is rated "CA" is speculative in a high degree and is likely
to be in arrears on dividends with little likelihood of eventual payment.
C: This is the lowest rated class of preferred or preference stock. Issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Moody's applies numerical modifiers 1, 2 and 3 in each rating classification.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category, the modifier 2 indicates a mid-range ranking, and the
modifier 3 indicates that the issue ranks in the lower end of its generic rating
category.
A-6
<PAGE>
BOARD OF DIRECTORS
AND OFFICERS
BOARD OF DIRECTORS
<TABLE>
<S> <C>
J. Miles Branagan Don G. Powell*
Jerry D. Choate Phillip B. Rooney
Richard M. DeMartini* Fernando Sisto
Linda Hutton Heagy Wayne W. Whalen*
R. Craig Kennedy Suzanne H. Woolsey
Jack E. Nelson Paul G. Yovovich
</TABLE>
OFFICERS
Richard F. Powers, III*
PRESIDENT
Dennis J. McDonnell*
EXECUTIVE VICE PRESIDENT & CHIEF INVESTMENT OFFICER
A. Thomas Smith III*
VICE PRESIDENT AND SECRETARY
Edward C. Wood III*
VICE PRESIDENT
Michael H. Santo*
VICE PRESIDENT
Peter W. Hegel*
VICE PRESIDENT
Stephen L. Boyd*
VICE PRESIDENT
Joseph P. Stadler*
VICE PRESIDENT
John L. Sullivan*
VICE PRESIDENT, CHIEF FINANCIAL OFFICER & TREASURER
Curtis W. Morell*
VICE PRESIDENT & CHIEF ACCOUNTING OFFICER
Tanya M. Loden*
CONTROLLER
* "Interested Persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2911
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders, or
redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call
(800) 421-2833
FUNDINFO-REGISTERED TRADEMARK-
For automated telephone services, call (800) 847-2424
WEB SITE
www.vankampen.com
VAN KAMPEN GLOBAL FIXED INCOME FUND
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
INVESTMENT ADVISER AND ADMINISTRATOR
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
INVESTMENT SUBADVISER
MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC.
1221 Avenue of the Americas
New York, NY 10020
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
TRANSFER AGENT
VAN KAMPEN INVESTOR SERVICES INC.
PO Box 218256
Kansas City, MO 64121-8256
Attn: Van Kampen Global Fixed Income Fund
CUSTODIAN
THE CHASE MANHATTAN BANK
3 MetroTech Center
Brooklyn, NY 11245
Attn: Van Kampen Global Fixed Income Fund
LEGAL COUNSEL
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
INDEPENDENT ACCOUNTANTS
PRICEWATERHOUSECOOPERS LLP
200 East Randolph Drive
Chicago, IL 60601
<PAGE>
VAN KAMPEN
GLOBAL FIXED INCOME FUND
PROSPECTUS
OCTOBER 28, 1999
A Statement of Additional Information, which contains more details about the
Fund, is incorporated by reference in its entirety into this prospectus.
You will find additional information about the Fund in its annual and semiannual
reports to shareholders. The annual report explains the market conditions and
investment strategies affecting the Fund's performance during its last fiscal
year.
You can ask questions or obtain a free copy of the Fund's reports or its
Statement of Additional Information by calling (800) 341-2911 from 7:00 a.m. to
7:00 p.m., Central time, Monday through Friday. Telecommunications Device for
the Deaf users may call (800) 421-2833. A free copy of the Fund's reports can
also be ordered from our web site at www.vankampen.com.
Information about the Fund, including its reports and Statement of Additional
Information, has been filed with the Securities and Exchange Commission (SEC).
It can be reviewed and copied at the SEC's Public Reference Room in Washington,
DC or on the EDGAR Database on the SEC's internet site (http://www.sec.gov).
Information on the operation of the SEC's Public Reference Room may be obtained
by calling the SEC at 1-202-942-8090. You can also request copies of these
materials, upon payment of a duplicating fee, by electronic request at the SEC's
e-mail addresss ([email protected]), or by writing the Public Reference Section
of the SEC, Washington, DC, 20549-6009.
[LOGO]
THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-7140.
MSGF PRO 10/99
<PAGE>
VAN KAMPEN
GLOBAL FRANCHISE FUND
Van Kampen Global Franchise Fund is a mutual fund with an investment objective
to seek long-term capital appreciation. Under normal market conditions, the
Fund's investment adviser seeks to achieve the Fund's investment objective by
investing primarily in a portfolio of publicly-traded equity securities of
issuers located in the U.S. and other countries that, in the judgment of the
Fund's investment adviser, have resilient business franchises and growth
potential.
Shares of the Fund have not been approved or disapproved by the Securities and
Exchange Commission (SEC) or any state regulator, and neither the SEC nor any
state regulator has passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
THIS PROSPECTUS IS DATED OCTOBER 28, 1999.
[LOGO]
<PAGE>
TABLE OF CONTENTS
Risk/Return Summary .....................................................3
Fees and Expenses of the Fund ...........................................4
Investment Objective, Policies and Risks ................................5
Investment Advisory Services ...........................................10
Purchase of Shares .....................................................12
Redemption of Shares ...................................................19
Distributions from the Fund ............................................20
Shareholder Services ...................................................21
Federal Income Taxation ................................................23
Financial Highlights ...................................................24
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations, other than those contained in this
prospectus, in connection with the offer contained in this prospectus and, if
given or made, such other information or representations must not be relied upon
as having been authorized by the Fund, the Fund's investment adviser or the
Fund's distributor. This prospectus does not constitute an offer by the Fund or
by the Fund's distributor to sell or a solicitation of an offer to buy any of
the securities offered hereby in any jurisdiction to any person to whom it is
unlawful for the Fund to make such an offer in such jurisdiction.
<PAGE>
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The Fund is a mutual fund with an investment objective to seek long-term capital
appreciation. Any income received from the investment of portfolio securities is
incidental to the Fund's investment objective.
INVESTMENT STRATEGIES
Under normal market conditions, the Fund's investment adviser seeks to achieve
the Fund's investment objective by investing primarily in a portfolio of
publicly-traded equity securities of issuers located in the U.S. and other
countries that, in the judgment of the Fund's investment adviser, have resilient
business franchises and growth potential. Equity securities include common and
preferred stocks, convertible securities, rights and warrants to purchase common
stock and depositary receipts.
The Fund's investment adviser uses a "bottom-up" investment approach that
emphasizes security selection on an individual company basis. The Fund invests
in securities of issuers that the Fund's investment adviser believes have
resilient business franchises, strong cash flows, modest capital requirements,
capable managements and growth potential. Securities are selected on a global
basis with a strong bias towards value. Sell decisions are directly connected to
buy decisions. Transactions are only undertaken when the addition or deletion of
a stock improves the portfolio's valuation and/or its quality.
Under normal market conditions, the Fund invests at least 65% of its total
assets in securities of issuers from at least three countries (including the
U.S.). The Fund may invest in issuers from developing or emerging market
countries. The Fund may purchase and sell certain derivative instruments (such
as options, futures, options on futures and currency-related transactions
involving options, futures, forward contracts and swaps) for various portfolio
management purposes.
INVESTMENT RISKS
An investment in the Fund is subject to investment risks, and you could lose
money on your investment in the Fund. There can be no assurance that the Fund
will achieve its investment objective.
MARKET RISK. Market risk is the possibility that the market values of securities
owned by the Fund will decline. Market risk may affect a single issuer,
industry, sector of the economy or the market as a whole. Investments in common
stocks and other equity securities generally are affected by changes in the
stock markets, which fluctuate substantially over time, sometimes suddenly and
sharply.
Foreign markets may, but often do not, move in tandem with U.S. markets, and
foreign markets, especially developing or emerging market countries, may be more
volatile than U.S. markets. During an overall stock market decline, stock prices
of smaller companies often fluctuate more and may fall more than the stock
prices of larger companies.
FOREIGN RISKS. Because the Fund owns securities of foreign issuers, it is
subject to risks not usually associated with owning securities of U.S. issuers.
These risks include fluctuations in foreign currencies, foreign currency
exchange controls, political and economic instability, differences in financial
reporting, differences in securities regulation and trading and foreign taxation
issues. The risks of investing in developing or emerging market countries are
greater than the risks generally associated with foreign investments including
investment and trading limitations, greater credit and liquidity concerns,
greater political uncertainties, an economy's dependence on international
development assistance, greater foreign currency exchange risk and currency
transfer restrictions, greater delays and disruptions in settlement transactions
and greater risks associated with computer programs and the Year 2000 problem.
To the extent the Fund focuses more of its assets in a single country or region,
its portfolio would be more susceptible to factors adversely affecting issuers
in that country or region.
RISKS OF USING DERIVATIVE INVESTMENTS. In general terms, a derivative investment
is one whose value depends on (or is derived from) the value of an underlying
asset, interest rate or index. Options, futures and options on futures and
currency-related transactions involving options, futures, forward contracts and
swaps are examples of derivatives. Derivative investments involve risks
different from direct investment in underlying securities. These risks include
imperfect correlation between the value of the instruments and the underlying
assets; risks of default by the other party to certain transactions; risks that
the transactions may result in losses that partially or completely offset gains
in portfolio positions; risks that the transactions may not be liquid; and
manager risk.
3
<PAGE>
MANAGER RISK. As with any managed fund, the Fund's investment adviser may not be
successful in selecting the best-performing securities or investment techniques
and the Fund's performance may lag behind that of similar funds.
INVESTOR PROFILE
In light of the Fund's investment objective and strategies, the Fund may be
appropriate for investors who:
- - Seek capital appreciation over the long term
- - Do not seek current income from their investment
- - Are willing to take on the increased risks associated with investing in
foreign securities
- - Can withstand volatility in the value of their Fund shares
- - Wish to add to their investment portfolio a fund that invests primarily in
publicly-traded equity securities of U.S. and other issuers
An investment in the Fund is not a deposit of any bank or other insured
depository institution. Your investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
An investment in the Fund may not be appropriate for all investors. The Fund is
not intended to be a complete investment program, and investors should consider
their long-term investment goals and financial needs when making an investment
decision about the Fund. An investment in the Fund is intended to be a long-term
investment, and the Fund should not be used as a trading vehicle.
PERFORMANCE INFORMATION
The Fund commenced investment operations on September 25, 1998. The Fund did not
have a full calendar year of performance as of the date of this prospectus and
thus has no historical calendar year annual performance or comparative
performance tables.
FEES AND EXPENSES
OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
- ---------------------------------------------------------------
Maximum sales charge
(load) imposed on
purchases (as a
percentage of
offering price) 5.75%(1) None None
..............................................................
Maximum deferred
sales charge (load)
(as a percentage of
the lesser of
original purchase
price or redemption
proceeds) None(2) 5.00%(3) 1.00%(4)
..............................................................
Maximum sales charge
(load) imposed on
reinvested dividends None None None
..............................................................
Redemption fees None None None
..............................................................
Exchange fee None None None
..............................................................
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- -----------------------------------------------------------
Management Fees(5) 1.00% 1.00% 1.00%
..........................................................
Distribution and/or
Service (12b-1)
Fees(6) 0.25% 1.00%(7) 1.00%(7)
..........................................................
Other Expenses(5) 12.30% 12.45% 14.07%
..........................................................
Total Annual Fund
Operating Expenses(5) 13.55% 14.45% 16.07%
..........................................................
</TABLE>
(1) REDUCED FOR PURCHASES OF $50,000 AND OVER. SEE "PURCHASE OF SHARES --
CLASS A SHARES."
(2) INVESTMENTS OF $1 MILLION OR MORE ARE NOT SUBJECT TO ANY SALES CHARGE
AT THE TIME OF PURCHASE, BUT A DEFERRED SALES CHARGE OF 1.00% MAY BE
IMPOSED ON CERTAIN REDEMPTIONS MADE WITHIN ONE YEAR OF THE PURCHASE.
SEE "PURCHASE OF SHARES -- CLASS A SHARES."
(3) THE MAXIMUM DEFERRED SALES CHARGE IS 5.00% IN THE FIRST YEAR AFTER
PURCHASE, THEREAFTER AS FOLLOWS:
YEAR 1-5.00%
YEAR 2-4.00%
YEAR 3-3.00%
YEAR 4-2.50%
YEAR 5-1.50%
AFTER-NONE
SEE "PURCHASE OF SHARES -- CLASS B SHARES."
(4) THE MAXIMUM DEFERRED SALES CHARGE IS 1.00% IN THE FIRST YEAR AFTER
PURCHASE AND 0.00% THEREAFTER. SEE "PURCHASE OF SHARES -- CLASS C
SHARES."
(5) THE FUND'S INVESTMENT ADVISER IS CURRENTLY WAIVING OR REIMBURSING A
PORTION OF THE FUND'S MANAGEMENT FEES AND OTHER EXPENSES SUCH THAT THE
ACTUAL TOTAL ANNUAL FUND OPERATING EXPENSES WERE 1.80% FOR CLASS A
SHARES, 2.55% FOR CLASS B SHARES AND 2.55% FOR CLASS C SHARES FOR THE
FISCAL YEAR ENDED JUNE 30, 1999. THE FEE WAIVERS OR EXPENSE REIMBURSE-
MENTS CAN BE TERMINATED AT ANY TIME.
(6) CLASS A SHARES ARE SUBJECT TO AN ANNUAL SERVICE FEE OF UP TO 0.25% OF
THE AVERAGE DAILY NET ASSETS ATTRIBUTABLE TO SUCH CLASS OF SHARES.
CLASS B SHARES AND CLASS C SHARES ARE EACH SUBJECT TO A COMBINED
ANNUAL DISTRIBUTION AND SERVICE FEE OF UP TO 1.00% OF THE AVERAGE
DAILY NET ASSETS ATTRIBUTABLE TO SUCH CLASS OF SHARES. SEE "PURCHASE
OF SHARES."
(7) BECAUSE DISTRIBUTION AND/OR SERVICE (12B-1) FEES ARE PAID OUT OF THE
FUND'S ASSETS ON AN ONGOING BASIS, OVER TIME THESE FEES WILL INCREASE
THE COST OF YOUR INVESTMENT AND MAY COST YOU MORE THAN PAYING OTHER
TYPES OF SALES CHARGES.
4
<PAGE>
EXAMPLE:
The following example is intended to help you compare the cost of investing in
the Fund with the costs of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same each year (except for the ten-year
amounts for Class B Shares, which reflect the conversion of Class B Shares to
Class A Shares after eight years). Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $1,797 $3,938 $5,728 $9,024
...............................................................
Class B Shares $1,877 $4,052 $5,850 $9,106*
...............................................................
Class C Shares $1,618 $4,069 $6,086 $9,471
...............................................................
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $1,797 $3,938 $5,728 $9,024
...............................................................
Class B Shares $1,377 $3,752 $5,700 $9,106*
...............................................................
Class C Shares $1,518 $4,069 $6,086 $9,471
...............................................................
</TABLE>
* BASED ON CONVERSION TO CLASS A SHARES AFTER EIGHT YEARS.
INVESTMENT OBJECTIVE,
POLICIES AND RISKS
The Fund's investment objective is to seek long-term capital appreciation. Any
income received from the investment of portfolio securities is incidental to the
Fund's investment objective. The Fund's investment objective is a fundamental
policy and may not be changed without the approval of a majority of shareholders
of the Fund's outstanding voting securities, as defined in the Investment
Company Act of 1940, as amended (the "1940 Act"). There are risks inherent in
all investments in securities; accordingly there can be no assurance that the
Fund will achieve its investment objective.
Under normal market conditions, the Fund's investment adviser seeks to achieve
the Fund's investment objective by investing primarily in a portfolio of
publicly-traded equity securities of issuers located in the U.S. and other
countries that, in the judgment of the Fund's investment adviser, have resilient
business franchises and growth potential. The franchise focus of the Fund is
based on the investment 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 Fund's investment 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 Fund's investment adviser uses a "bottom up" strategy
emphasizing individual security selection. The Fund's investment adviser relies
on its research capabilities, analytical resources and judgement to identify and
monitor franchise businesses meeting its investment program.
The Fund's investment adviser believes that the number of issuers with strong
business franchises meeting its criteria 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 invests in a number of
issuers and industries, the Fund may invest in a smaller number of companies
within the limits permissible for a diversified fund 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 is 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, the Fund invests at least 65% of the Fund's
total assets in securities of issuers located in at least three different
countries
5
<PAGE>
(including the U.S.). 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 single country or region.
To the extent the Fund does invest more of its assets in a single country or
region, the Fund will be subject to greater risks impacting such country or
region than a fund which maintains broad country diversity. The Fund may invest
in securities of issuers located in developing or emerging market countries;
such securities pose greater risks than securities of issuers located in
developed countries and traded in more established markets. See "Risks of
Investing in Securities of Foreign Issuers" below.
The Fund invests primarily in common stocks. Common stocks are shares of a
corporation or other entity that entitle the holder to a pro rata share of the
profits of the corporation, if any, without preference over any other class of
securities, including such entity's debt securities, preferred stock and other
senior equity securities. Common stock usually carries with it the right to vote
and frequently an exclusive right to do so.
While the Fund invests primarily in common stocks, it also may invest in
preferred stocks, convertible securities, warrants or rights to purchase common
stock and depository receipts. Preferred stock generally has a preference as to
dividends and liquidation over an issuer's common stock but ranks junior to debt
securities in an issuer's capital structure. Unlike interest payments on debt
securities, preferred stock dividends are payable only if declared by the
issuer's board of directors. Preferred stock also may be subject to optional or
mandatory redemption provisions. The ability of common stocks and preferred
stocks to generate income is dependent on the earnings and continuing
declaration of dividends by the issuers of such securities.
A convertible security is a bond, debenture, note, preferred stock, or other
security that may be converted into or exchanged for a prescribed amount of
common stock or other equity security of the same or a different issuer or into
cash within a particular period of time at a specified price or formula. A
convertible security generally entitles the holder to receive interest paid or
accrued on debt or the dividend paid on preferred stock until the convertible
security matures or is redeemed, converted or exchanged. Before conversion,
convertible securities generally have characteristics similar to both debt and
equity securities. The value of convertible securities tends to decline as
interest rates rise and, because of the conversion feature, tends to vary with
fluctuations in the market value of the underlying equity securities.
Convertible securities generally rank senior to common stock in a corporation's
capital structure but are usually subordinated to comparable nonconvertible
securities. Convertible securities generally do not participate directly in any
dividend increases or decreases of the underlying equity securities although the
market prices of convertible securities may be affected by any such dividend
changes or other changes in the underlying securities.
Rights and warrants entitle the holder to buy equity securities at a specific
price for a specific period of time. Rights are similar to warrants except that
they have a substantially shorter duration. Rights and warrants may be
considered more speculative and less liquid than certain other types of
investments in that they do not entitle a holder to dividends or voting rights
with respect to the underlying securities nor do they represent any right in the
assets of the issuing company and may lack a secondary market.
The Fund may invest in securities of certain issuers indirectly through
investment in other investment companies. Such investments are commonly used
when direct investment in certain countries is not permitted to foreign
entities. Investment in other investment companies may involve duplication of
management fees and certain other expenses.
The Fund may invest in issuers of small-, medium-or large-sized companies. The
securities of smaller companies may be subject to more abrupt or erratic market
movements than securities of larger companies or the market averages in general.
In addition, smaller companies typically are subject to a greater degree of
change in earnings and business prospects than are larger companies. Thus, to
the extent the Fund invests in small- or medium-sized companies, the Fund may be
subject to greater investment risk than that assumed through investment in the
equity securities of larger companies.
6
<PAGE>
RISKS OF INVESTING IN SECURITIES
OF FOREIGN ISSUERS
The Fund invests in securities of foreign issuers. Such securities may be
denominated in U.S. dollars and in currencies other than U.S. dollars. The
percentage of assets invested in securities of a particular country or
denominated in a particular currency will vary in accordance with the investment
adviser's assessment of the relative yield, appreciation potential and the
relationship of a country's currency to the U.S. dollar, which is based upon
such factors as fundamental economic strength, credit quality and interest rate
trends. Investments in foreign securities present certain risks not ordinarily
associated with investments in securities of U.S. issuers. These risks include
fluctuations in foreign currency exchange rates, political, economic or legal
developments (including war or other instability, expropriation of assets,
nationalization and confiscatory taxation), the imposition of foreign exchange
limitations (including currency blockage), withholding taxes on dividend or
interest payments or capital transactions or other restrictions, higher
transaction costs (including higher brokerage, custodial and settlement costs
and currency translation costs) and possible difficulty in enforcing contractual
obligations or taking judicial action. Also, foreign securities may not be as
liquid and may be more volatile than comparable domestic securities.
In addition, there often is less publicly available information about many
foreign issuers, and issuers of foreign securities are subject to different,
often less comprehensive, auditing, accounting, financial reporting and
disclosure requirements than domestic issuers. There is generally less
government regulation of stock exchanges, brokers and listed companies abroad
than in the U.S., and, with respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investment in those countries. Because there is
usually less supervision and governmental regulation of exchanges, brokers and
dealers than there is in the U.S., the Fund may experience settlement
difficulties or delays not usually encountered in the U.S.
Delays in making trades in foreign securities relating to volume constraints,
limitations or restrictions, clearance or settlement procedures, or otherwise
could impact returns and result in temporary periods when assets of the fund are
not fully invested or attractive investment opportunities are foregone.
Investments in securities of developing or emerging market countries are subject
to greater risks than in investments in securities of developed markets since
emerging market countries tend to have economic structures that are less diverse
and mature and political systems that are less stable than developed markets.
In addition to the increased risks of investing in foreign securities, there are
often increased transactions costs associated with investing in foreign
securities including the costs incurred in connection with converting
currencies, higher foreign brokerage or dealer costs, and higher settlement
costs or custodial costs.
Since the Fund invests in securities denominated or quoted in currencies other
than the U.S. dollar, the Fund will be affected by changes in foreign currency
exchange rates (and exchange control regulations) which affect the value of
investments in the Fund and the accrued income and unrealized appreciation or
depreciation of the investments. Changes in foreign currency exchange ratios
relative to the U.S. dollar will affect the U.S. dollar value of the Fund's
assets denominated in that currency and the Fund's return on such assets as well
as any temporary uninvested reserves in bank deposits in foreign currencies. In
addition, the Fund will incur costs in connection with conversions between
various currencies.
The Fund may purchase and sell foreign currency on a spot basis in connection
with the settlement of transactions in securities traded in such foreign
currency. The Fund also may enter into contracts with banks, brokers or dealers
to purchase or sell securities or foreign currencies at a future date ("forward
contracts"). A foreign currency forward contract is a negotiated agreement
between the contracting parties to exchange a specified amount of currency at a
specified future time at a specified rate. The rate can be higher or lower than
the spot rate between the currencies that are the subject of the contract.
7
<PAGE>
The Fund may attempt to protect against adverse changes in the value of the U.S.
dollar in relation to a foreign currency by entering into a forward contract for
the purchase or sale of the amount of foreign currency invested or to be
invested, or by buying or selling a foreign currency option or futures contract
for such amount. Such strategies may be employed before the Fund purchases a
foreign security traded in the currency which the Fund anticipates acquiring or
between the date the foreign security is purchased or sold and the date on which
payment therefor is made or received. Seeking to protect against a change in the
value of a foreign currency in the foregoing manner does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Furthermore, such transactions reduce or
preclude the opportunity for gain if the value of the currency should move in
the direction opposite to the position taken. Unanticipated changes in currency
prices may result in poorer overall performance for the Fund than if it had not
entered into such contracts.
Investors should carefully consider the risks of foreign investments before
investing in the Fund.
DERIVATIVE INSTRUMENTS
The Fund may, but is not required to, use various investment strategic
transactions described below to earn income, facilitate portfolio management and
mitigate risks. Such strategic transactions are generally accepted under modern
portfolio management and are regularly used by many mutual funds and other
institutional investors. Although the Fund's investment adviser seeks to use the
practices to further the Fund's investment objective, no assurance can be given
that these practices will achieve this result.
The Fund may purchase and sell derivative instruments such as exchange-listed
and over-the-counter put and call options on securities, financial futures,
equity, fixed-income and interest rate indices, and other financial instruments,
futures contracts and options thereon (including but not limited to securities
index futures, foreign currency exchange futures, interest rate futures and
other financial futures), structured notes, swaps, caps, floors or collars and
enter into various currency transactions such as currency forward contracts,
currency futures contracts, currency swaps or options on currency or currency
futures. In addition, the Fund may invest in other derivative instruments that
are developed over time if their use would be consistent with the objective of
the Fund. Collectively, all of the above are referred to as "Strategic
Transactions." The Fund generally seeks to use Strategic Transactions as a
portfolio management or hedging technique to seek to protect against possible
adverse changes in the market value of securities held in or to be purchased for
the Fund's portfolio, protect the Fund's unrealized gains, facilitate the sale
of certain securities for investment purposes, protect against changes in
currency exchange rates or to adjust the exposure to a particular currency,
manage the effective maturity or duration of the Fund's portfolio, establish
positions in the derivatives markets as a substitute for purchasing or selling
particular securities, including, for example, when the Fund adjusts its
exposure to a market in response to changes in investment strategy, when doing
so provides more liquidity than the direct purchase of the securities underlying
such derivatives, when the Fund 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. The Fund may invest up to 33 1/3%
of its total assets in Strategic Transactions for non-hedging purposes (measured
by the aggregate notional amount of outstanding derivatives). In addition, the
Fund may invest up to 20% of its total assets in futures contracts and options
on futures contracts (measured by the aggregate notional amount of such
outstanding contracts).
Strategic Transactions have risks including the imperfect correlation between
the value of such instruments and the underlying assets, the possible default of
the other party to the transaction or illiquidity of the derivative instruments.
Furthermore, the ability to successfully use Strategic Transactions depends on
the Fund's investment adviser's ability to predict pertinent market movements,
which cannot be assured. Thus, the use of Strategic Transactions may result in
losses greater than if they had not been
8
<PAGE>
used, may require the Fund to sell or purchase portfolio securities at
inopportune times or for prices other than current market values, may limit the
amount of appreciation the Fund can otherwise realize on an investment, or may
cause the Fund to hold a security that it might otherwise sell. The use of
currency transactions can result in the Fund incurring losses because of the
imposition of exchange controls, suspension of settlements or the inability of
the Fund to deliver or receive a specified currency. In addition, amounts paid
as premiums or cash or other assets held in margin accounts with respect to
Strategic Transactions are not otherwise available to the Fund for investment
purposes.
When conducted outside the U.S., Strategic Transactions may not be regulated as
rigorously as in the U.S., may not involve a clearing mechanism and related
guarantees, and are subject to the risk of governmental actions affecting
trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions, (iii)
delays in the Fund's ability to act upon economic events occurring in foreign
markets during non-business hours in the U.S., (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
U.S. and (v) lower trading volume and liquidity.
A more complete discussion of Strategic Transactions and their risks is
contained in the Fund's Statement of Additional Information. The Statement of
Additional Information can be obtained by investors free of charge as described
on the back cover of this prospectus.
OTHER INVESTMENT POLICIES
AND RISK FACTORS
For cash management purposes, the Fund may engage in repurchase agreements with
banks and broker-dealers and other financial institutions in order to earn a
return on temporarily available cash. Such transactions are subject to the risk
of default by the other party.
The Fund may lend its portfolio securities in an amount up to 33 1/3% of its
total assets to broker-dealers, banks or other recognized institutional
borrowers of securities. The Fund may incur lending fees and other costs in
connection with securities lending, and securities lending is subject to the
risk of default by the other party.
The Fund may invest up to 15% of the Fund's net assets in illiquid securities
and certain restricted securities. Such securities may be difficult or
impossible to sell at the time and the price that the Fund would like. Thus, the
Fund may have to sell such securities at a lower price, sell other securities
instead to obtain cash or forego other investment opportunities.
Further information about these types of investments and other investment
practices that may be used by the Fund is contained in the Statement of
Additional Information.
The Fund may sell securities without regard to the length of time they have been
held in order to take advantage of new investment opportunities or when the
Fund's investment adviser believes the potential for capital appreciation has
lessened or for other reasons. The Fund's portfolio turnover is shown under the
heading "Financial Highlights." The portfolio turnover rate may be expected to
vary from year to year. A high portfolio turnover rate (100% or more) increases
the Fund's transactions costs (including brokerage commissions or dealer costs)
and a high portfolio turnover rate may result in the realization of more
short-term capital gains than if the Fund had a lower portfolio turnover rate.
Increases in the Fund's transaction costs would adversely impact the Fund's
performance. The turnover rate will not be a limiting factor, however, if the
Fund's investment adviser considers portfolio changes appropriate.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Fund may on a temporary basis hold cash or invest a
portion or all of its assets in money-market instruments including obligations
of the U.S. government, its agencies or instrumentalities, obligations of
foreign sovereignties, other high-quality debt securities, including prime
commercial paper, repurchase
9
<PAGE>
agreements and bank obligations, such as bankers' acceptances and certificates
of deposit (including Eurodollar certificates of deposit). Under normal market
conditions, the potential for capital appreciation on these securities will tend
to be lower than the potential for capital appreciation on other securities that
may be owned by the Fund. In taking such a defensive position, the Fund would
not be pursuing and may not achieve its investment objective.
YEAR 2000 RISKS. Like other mutual funds, financial and business organizations
and individuals around the world, the Fund could be adversely affected if the
computer systems used by the Fund's investment adviser, subadviser and other
service providers do not properly process and calculate date-related information
and data from and after January 1, 2000. This is commonly known as the "Year
2000 Problem." The Fund's investment adviser and subadviser are taking steps
that they believe are reasonably designed to address the Year 2000 Problem with
respect to computer systems that they use and to obtain reasonable assurances
that comparable steps are being taken by the Fund's other major service
providers. At this time, there can be no assurances that these steps will be
sufficient to avoid any adverse impact to the Fund. In addition, the Year 2000
Problem may adversely affect the markets and the issuers of securities in which
the Fund may invest which, in turn, may adversely affect the net asset value of
shares of the Fund. Improperly functioning trading systems may result in
settlement problems and liquidity issues. In addition, corporate and
governmental data processing errors may result in production problems for
individual companies or issuers and overall economic uncertainty. Earnings of
individual issuers will be affected by remediation costs, which may be
substantial and may be reported inconsistently in U.S. and foreign financial
statements. Efforts in foreign countries to remediate the potential Year 2000
Problem may not be as extensive as those in the U.S. As a result, the operations
of foreign markets and issuers may be disrupted by the Year 2000 Problem which
could adversely affect the Fund's portfolio. The risks are greater with respect
to certain developing or emerging market countries because there is an increased
likelihood that issuers of securities of such countries cannot anticipate or
effectively manage the effects of computer programs and the Year 2000 Problem.
Accordingly, the Fund's investments may be adversely affected. The statements
above are subject to the Year 2000 Information and Readiness Disclosure Act
which may limit the legal rights regarding the use of such statements in the
case of a dispute.
INVESTMENT ADVISORY
SERVICES
INVESTMENT ADVISER
Van Kampen Investment Advisory Corp. is the investment adviser (the "Adviser" or
"Advisory Corp.") and administrator of the Fund. The Adviser is a wholly owned
subsidiary of Van Kampen Investments Inc. ("Van Kampen Investments"). Van Kampen
Investments is a diversified asset management company with more than two million
retail investor accounts, extensive capabilities for managing institutional
portfolios, and more than $79 billion under management or supervision as of
September 30, 1999. Van Kampen Investments' more than 50 open-end and 39
closed-end funds and more than 2,500 unit investment trusts are professionally
distributed by leading authorized dealers nationwide. Van Kampen Funds Inc., the
distributor of the Fund (the "Distributor") and the sponsor of the funds
mentioned above, is also a wholly owned subsidiary of Van Kampen Investments.
Van Kampen Investments is an indirect wholly owned subsidiary of Morgan Stanley
Dean Witter & Co. The Adviser's principal office is located at 1 Parkview Plaza,
PO Box 5555, Oakbrook Terrace, Illinois 60181-5555.
ADVISORY AGREEMENT AND ADMINISTRATION AGREEMENT. The Fund retains the Adviser to
manage the investment of its assets and to place orders for the purchase and
sale of its portfolio securities. Under an investment advisory agreement between
the Adviser and the Fund (the "Advisory Agreement"), the Fund pays the Adviser a
monthly fee computed based upon an annual rate applied to the average daily net
assets of the Fund as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS % PER ANNUM
- --------------------------------------------------
<S> <C>
FIRST $500 MILLION 1.00 OF 1.00%
.................................................
NEXT $500 MILLION 0.95 OF 1.00%
.................................................
OVER $1 BILLION 0.90 OF 1.00%
.................................................
</TABLE>
10
<PAGE>
Applying this fee schedule, the Fund paid the Adviser an advisory fee at the
effective rate of 1.00% of the Fund's average daily net assets for the Fund's
fiscal year ended June 30, 1999.
The Fund also retains the Adviser to provide administrative services for the
Fund's day-to-day operations. Under an administration agreement, between the
Adviser and the Fund, the Fund pays a monthly administration fee computed based
upon an annual rate of 0.25% applied to the average daily net assets of the
Fund.
The Adviser furnishes offices, necessary facilities and equipment, provides
administrative services, and permits its officers and employees to serve without
compensation as directors or officers of the Fund if elected to such positions.
The Fund pays all charges and expenses of its day-to-day operations, including
the compensation of directors of the Fund (other than those who are affiliated
persons of the Adviser, Distributor or Van Kampen Investments), the charges and
expenses of legal counsel and independent accountants, distribution fees,
service fees, custodian fees, the costs of providing reports to shareholders,
and all other ordinary business expenses not specifically assumed by the
Adviser.
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen Asset Management
Inc. ("Asset Management").
INVESTMENT SUBADVISER
Morgan Stanley Dean Witter Investment Management Inc. (the "Subadviser") is the
Subadviser of the Fund. The Subadviser is a wholly owned subsidiary of Morgan
Stanley Dean Witter & Co., and is an affiliate of the Adviser. The Subadviser
conducts a worldwide portfolio management business and provides a broad range of
portfolio management services to customers in the United States and abroad. At
June 30, 1999, the Subadviser, together with its affiliated institutional asset
management companies, managed assets of approximately $175.3 billion, including
assets under fiduciary advice. The Subadviser's principal office is located at
1221 Avenue of the Americas, New York, New York 10020. On December 1, 1998,
Morgan Stanley Asset Management Inc. changed its name to Morgan Stanley Dean
Witter Investment Management Inc. but continues to do business in certain
instances using the name Morgan Stanley Asset Management.
SUBADVISORY AGREEMENT. The Adviser has entered into a subadvisory agreement with
the Subadviser to assist the Adviser in performing its investment advisory
functions. The Adviser pays the Subadviser on a monthly basis a portion of the
net advisory fees the Adviser receives from the Fund.
GENERAL
From time to time, the Adviser, the Subadviser or the Distributor may
voluntarily undertake to reduce the Fund's expenses by reducing the fees payable
to them or by reducing other expenses of the Fund in accordance with such
limitations as the Adviser, the Subadviser or Distributor may establish.
PERSONAL INVESTMENT POLICIES. The Fund, the Adviser and the Subadviser have
adopted Codes of Ethics designed to recognize the fiduciary relationship among
the Fund, the Adviser and the Subadviser and their respective employees. The
Codes of Ethics permit directors, trustees, officers and employees to buy and
sell securities for their personal accounts subject to certain restrictions.
Persons with access to certain sensitive information are subject to
pre-clearance and other procedures designed to prevent conflicts of interest.
PORTFOLIO MANAGEMENT. Andrew Brown has primary responsibility for the day-to-day
management of the Fund's investment portfolio. Mr. Brown is a Managing Director
of the Subadviser. He joined the Subadviser in May 1994, as a consultant global
research analyst specializing in non-cyclical stocks, and became a Managing
Director in 1998. 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. Mr. Brown then became research director at
J.O. Hambro & Partners, and a partner in a consulting firm before returning to
Morgan Stanley Dean Witter & Co. Mr. Brown graduated from Harvard University in
1977 with an A.B. magna cum laude in English.
11
<PAGE>
PURCHASE OF SHARES
GENERAL
The Fund offers three classes of shares designated as Class A Shares, Class B
Shares and Class C Shares. By offering three classes of shares, the Fund permits
each investor to choose the class of shares that is most beneficial given the
amount to be invested and the length of time the investor expects to hold the
shares.
Initial investments must be at least $1,000 for each class of shares, and
subsequent investments must be at least $25 for each class of shares. Both
minimums may be waived by the Distributor for plans involving periodic
investments.
Each class of shares represents an interest in the same portfolio of investments
of the Fund and has the same rights except that (i) Class A Shares generally
bear the sales charge expenses at the time of purchase while Class B Shares and
Class C Shares bear the sales charge expenses at the time of redemption and any
expenses (including higher distribution fees and transfer agency costs)
resulting from such deferred sales charge arrangement, (ii) generally, each
class of shares has exclusive voting rights with respect to approvals of the
Rule 12b-1 distribution plan and service plan (each as described below) under
which its distribution fee or service fee is paid, (iii) each class of shares
has different exchange privileges, (iv) certain classes of shares are subject to
a conversion feature and (v) certain classes of shares have different
shareholder service options available.
The offering price of the Fund's shares is based upon the Fund's net asset value
per share (plus sales charges, where applicable). The net asset values per share
of the Class A Shares, Class B Shares and Class C Shares are generally expected
to be substantially the same. In certain circumstances, however, the per share
net asset values of the classes of shares may differ from one another,
reflecting the daily expense accruals of the higher distribution fees and
transfer agency costs applicable to the Class B Shares and Class C Shares and
the differential in the dividends that may be paid on each class of shares.
The net asset value per share for each class of shares of the Fund is determined
once daily as of the close of trading on the New York Stock Exchange (the
"Exchange") (currently 4:00 p.m., New York time) each day the Exchange is open
for trading except on any day on which no purchase or redemption orders are
received or there is not a sufficient degree of trading in the Fund's portfolio
securities such that the Fund's net asset value per share might be materially
affected. The Fund's Board of Directors reserves the right to calculate the net
asset value per share and adjust the offering price based thereon more
frequently than once daily if deemed desirable. Net asset value per share for
each class is determined by dividing the value of the Fund's portfolio
securities, cash and other assets (including accrued interest) attributable to
such class, less all liabilities (including accrued expenses) attributable to
such class, by the total number of shares of the class outstanding. Such
computation is made by using prices as of the close of trading on the Exchange
and (i) valuing securities listed or traded on a national securities exchange at
the closing price, or if no closing price is available, at the last reported
sale price, and if there has been no sale that day, at the mean between the last
reported bid and asked prices, (ii) valuing over-the-counter securities at the
last reported sale price from the National Association of Securities Dealers
Automated Quotations ("NASDAQ"), (iii) valuing unlisted securities and any
securities for which market quotations are not readily available at the average
of the mean between the current reported bid and asked prices obtained from
reputable brokers and (iv) valuing any other assets at fair value as determined
in good faith by the Adviser in accordance with procedures established by the
Fund's Board of Directors. Debt securities with remaining maturities of 60 days
or less are valued on an amortized cost basis, which approximates market value.
Trading in securities on many foreign securities exchanges (including European
and Far Eastern securities exchanges) and over-the-counter markets is normally
completed before the close of business on each U.S. business day. In addition,
securities trading in a particular country or countries may not take place on
all U.S. business days or may take place on days which are not U.S. business
days. Changes in valuations on certain securities may occur at times or
12
<PAGE>
on days on which the Fund's net asset value is not calculated and on which the
Fund does not effect sales, redemptions and exchanges of its shares.
The Fund calculates net asset value per share, and therefore effects sales,
redemptions and exchanges of its shares, as of the close of trading on the
Exchange each day the Exchange is open for trading. Such calculation does not
take place contemporaneously with the determination of the prices of certain
foreign portfolio securities used in such calculation.
If events materially affecting the value of foreign portfolio securities or
other portfolio securities occur between the time when their price is determined
and the time when the Fund's net asset value is calculated, such securities may
be valued at fair value as determined in good faith by the Adviser based in
accordance with procedures established by the Fund's Board of Directors.
The Fund has adopted a distribution plan (the "Distribution Plan") with respect
to each class of its shares pursuant to Rule 12b-1 under the 1940 Act. The Fund
also has adopted a service plan (the "Service Plan") with respect to each class
of its shares. Under the Distribution Plan and the Service Plan, the Fund pays
distribution fees in connection with the sale and distribution of its shares and
service fees in connection with the provision of ongoing services to
shareholders of each class.
The amount of distribution and service fees varies among the classes offered by
the Fund. Because these fees are paid out of the Fund's assets on an ongoing
basis, these fees will increase the cost of your investment in the Fund. By
purchasing a class of shares subject to higher distribution and service fees,
you may pay more over time than on a class of shares with other types of sales
charge arrangements. Long-term shareholders may pay more than the economic
equivalent of the maximum front-end sales charges permitted by the rules of the
National Association of Securities Dealers, Inc. ("NASD"). The net income
attributable to a class of shares will be reduced by the amount of the
distribution fees and other expenses of the Fund associated with such class of
shares. To assist investors in comparing classes of shares, the tables under the
heading "Fees and Expenses of the Fund" provide a summary of sales charges and
expenses and an example of the sales charges and expenses of the Fund applicable
to each class of shares.
The shares are offered to the public on a continuous basis through the
Distributor as principal underwriter, which is located at 1 Parkview Plaza, PO
Box 5555, Oakbrook Terrace, Illinois 60181-5555. Shares also are offered through
members of the NASD who are acting as securities dealers ("dealers") and NASD
members or eligible non-NASD members who are acting as brokers or agents for
investors ("brokers"). "Dealers" and "brokers" are sometimes referred to herein
as "authorized dealers."
Shares may be purchased on any business day by completing the application
accompanying this prospectus and forwarding the application, directly or through
an authorized dealer, to the Fund's shareholder service agent, Van Kampen
Investor Services Inc. ("Investor Services"), a wholly owned subsidiary of Van
Kampen Investments. When purchasing shares of the Fund, investors must specify
whether the purchase is for Class A Shares, Class B Shares or Class C Shares.
Sales personnel of authorized dealers distributing the Fund's shares are
entitled to receive compensation for selling such shares and may receive
differing compensation for selling Class A Shares, Class B Shares or Class C
Shares.
The offering price for shares is based upon the next calculation of net asset
value per share (plus sales charges, where applicable) after an order is
received by Investor Services. Orders received by authorized dealers prior to
the close of the Exchange are priced based on the date of receipt provided such
order is transmitted to Investor Services prior to Investor Services' close of
business on such date. Orders received by authorized dealers after the close of
the Exchange or transmitted to Investor Services after its close of business are
priced based on the date of the next computed net asset value per share provided
they are received by Investor Services prior to Investor Services' close of
business on such date. It is the responsibility of authorized dealers to
transmit orders received by them to Investor Services so they will be received
in a timely manner.
13
<PAGE>
The Fund and the Distributor reserve the right to refuse any order for the
purchase of shares. The Fund also reserves the right to suspend the sale of the
Fund's shares in response to conditions in the securities markets or for other
reasons. Shares of the Fund may be sold in foreign countries where permissible.
Investor accounts will automatically be credited with additional shares of the
Fund after any Fund distributions, such as dividends and capital gain dividends,
unless the investor instructs the Fund otherwise. Investors wishing to receive
cash instead of additional shares should contact the Fund at (800) 341-2911 or
by writing to the Fund, c/o Van Kampen Investors Services Inc., PO Box 218256,
Kansas City, MO 64121-8256.
CLASS A SHARES
Class A Shares of the Fund are sold at net asset value plus an initial maximum
sales charge of up to 5.75% of the offering price (or 6.10% of the net amount
invested), reduced on investments of $50,000 or more as follows:
CLASS A SHARES
SALES CHARGE SCHEDULE
<TABLE>
<CAPTION>
AS % OF AS % OF
SIZE OF OFFERING NET AMOUNT
INVESTMENT PRICE INVESTED
- ---------------------------------------------------------
<S> <C> <C>
Less than $50,000 5.75% 6.10%
........................................................
$50,000 but less than $100,000 4.75% 4.99%
........................................................
$100,000 but less than $250,000 3.75% 3.90%
........................................................
$250,000 but less than $500,000 2.75% 2.83%
........................................................
$500,000 but less than $1,000,000 2.00% 2.04%
........................................................
$1,000,000 or more * *
........................................................
</TABLE>
* NO SALES CHARGE IS PAYABLE AT THE TIME OF PURCHASE ON INVESTMENTS OF
$1 MILLION OR MORE, ALTHOUGH FOR SUCH INVESTMENTS THE FUND MAY IMPOSE
A CONTINGENT DEFERRED SALES CHARGE OF 1.00% ON CERTAIN REDEMPTIONS
MADE WITHIN ONE YEAR OF THE PURCHASE. THE CONTINGENT DEFERRED SALES
CHARGE IS ASSESSED ON AN AMOUNT EQUAL TO THE LESSER OF THE THEN
CURRENT MARKET VALUE OR THE COST OF THE SHARES BEING REDEEMED.
ACCORDINGLY, NO SALES CHARGE IS IMPOSED ON INCREASES IN NET ASSET
VALUE ABOVE THE INITIAL PURCHASE PRICE.
No sales charge is imposed on Class A Shares received from reinvestment of
dividends or capital gain dividends.
Under the Distribution Plan and Service Plan, the Fund may spend up to a total
of 0.25% per year of the Fund's average daily net assets with respect to the
Class A Shares of the Fund. From such amount, under the Service Plan, the Fund
may spend up to 0.25% per year of the Fund's average daily net assets with
respect to the Class A Shares for the ongoing provision of services to Class A
shareholders by the Distributor and by brokers, dealers or financial
intermediaries and for the maintenance of such shareholders' accounts.
CLASS B SHARES
Class B Shares of the Fund are sold at net asset value and are subject to a
contingent deferred sales charge if redeemed within five years of purchase as
shown in the table as follows:
CLASS B SHARES
SALES CHARGE SCHEDULE
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE
AS A PERCENTAGE OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
- -------------------------------------------------------
<S> <C>
First 5.00%
......................................................
Second 4.00%
......................................................
Third 3.00%
......................................................
Fourth 2.50%
......................................................
Fifth 1.50%
......................................................
Sixth and After None
......................................................
</TABLE>
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gain dividends. It
is presently the policy of the Distributor not to accept any order for Class B
Shares in an amount of $500,000 or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
14
<PAGE>
The amount of the contingent deferred sales charge, if any, varies depending on
the number of years from the time of payment for the purchase of Class B Shares
until the time of redemption of such shares. Solely for purposes of determining
the number of years from the time of any payment for the purchase of shares, all
payments during a month are totaled and deemed to have been made on the last day
of the month.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed shares being redeemed first are any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge followed by shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
Fund's average daily net assets with respect to the Class B Shares of the Fund.
In addition, under the Service Plan, the Fund may spend up to 0.25% per year of
the Fund's average daily net assets with respect to the Class B Shares for the
ongoing provision of services to Class B shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CLASS C SHARES
Class C Shares of the Fund are sold at net asset value and are subject to a
contingent deferred sales charge of 1.00% of the dollar amount subject to charge
if redeemed within one year of purchase.
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gain dividends. It
is presently the policy of the Distributor not to accept any order for Class C
Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed shares being redeemed first are any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge followed by shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
Fund's average daily net assets with respect to the Class C Shares of the Fund.
In addition, under the Service Plan, the Fund may spend up to 0.25% per year of
the Fund's average daily net assets with respect to the Class C Shares for the
ongoing provision of services to Class C shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CONVERSION FEATURE
Class B Shares and any dividend reinvestment plan Class B Shares received on
such shares, automatically convert to Class A Shares eight years after the end
of the calendar month in which the shares were purchased. Such conversion will
be on the basis of the relative net asset values per share, without the
imposition of any sales load, fee or other charge. The conversion schedule
applicable to a share of the Fund acquired through the exchange privilege from
another Van Kampen fund participating in the exchange program is determined by
reference to the Van Kampen fund from which such share was originally purchased.
The conversion of such shares to Class A Shares is subject to the continuing
availability of an opinion of counsel to the effect that (i) the assessment of
the higher distribution fee and transfer agency costs with respect to such
shares does not result in the Fund's dividends or capital gain dividends
constituting "preferential dividends" under the federal income tax law and
(ii) the conversion of shares does not constitute a taxable event under federal
income tax law. The conversion may be suspended if such an opinion is no longer
available and such shares might continue to be subject to the higher aggregate
fees applicable to such shares for an indefinite period.
15
<PAGE>
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge is waived on redemptions of Class B Shares
and Class C Shares (i) within one year following the death or disability (as
disability is defined by federal income tax law) of a shareholder, (ii) for
required minimum distributions from an individual retirement account ("IRA") or
certain other retirement plan distributions, (iii) for withdrawals under the
Fund's systematic withdrawal plan but limited to 12% annually of the initial
value of the account, (iv) if no commission or transaction fee is paid to
authorized dealers at the time of purchase of such shares and (v) if made by
involuntary liquidation by the Fund of a shareholder's account as described
under the heading "Redemption of Shares." Subject to certain limitations, a
shareholder who has redeemed Class C Shares of the Fund may reinvest in Class C
Shares at net asset value with credit for any contingent deferred sales charge
if the reinvestment is made within 180 days after the redemption. For a more
complete description of contingent deferred sales charge waivers, please refer
to the Fund's Statement of Additional Information or contact your authorized
dealer.
QUANTITY DISCOUNTS
Investors purchasing Class A Shares may, under certain circumstances described
below, be entitled to pay reduced or no sales charges. Investors, or their
authorized dealers, must notify the Fund at the time of the purchase order
whenever a quantity discount is applicable to purchases. Upon such notification,
an investor will receive the lowest applicable sales charge. Quantity discounts
may be modified or terminated at any time. For more information about quantity
discounts, investors should contact their authorized dealer or the Distributor.
A person eligible for a reduced sales charge includes an individual, his or her
spouse and children under 21 years of age and any corporation, partnership or
sole proprietorship which is 100% owned, either alone or in combination, by any
of the foregoing; a trustee or other fiduciary purchasing for a single trust or
for a single fiduciary account, or a "company" as defined in Section 2(a)(8) of
the 1940 Act.
As used herein, "Participating Funds" refers to certain open-end investment
companies advised by Asset Management or Advisory Corp. and distributed by the
Distributor as determined from time to time by the Fund's Board of Directors.
VOLUME DISCOUNTS. The size of investment shown in the Class A Shares sales
charge table applies to the total dollar amount being invested by any person in
shares of the Fund, or in any combination of shares of the Fund and shares of
other Participating Funds, although other Participating Funds may have different
sales charges.
CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the Class A Shares
sales charge table may also be determined by combining the amount being invested
in shares of the Participating Funds plus the current offering price of all
shares of the Participating Funds which have been previously purchased and are
still owned.
LETTER OF INTENT. A Letter of Intent provides an opportunity for an investor to
obtain a reduced sales charge by aggregating the investments over a 13-month
period to determine the sales charge as outlined in the Class A Shares sales
charge table. The size of investment shown in the Class A Shares sales charge
table includes purchases of shares of the Participating Funds over a 13-month
period based on the total amount of intended purchases plus the value of all
shares of the Participating Funds previously purchased and still owned. An
investor may elect to compute the 13-month period starting up to 90 days before
the date of execution of a Letter of Intent. Each investment made during the
period receives the reduced sales charge applicable to the total amount of the
investment goal. The initial purchase must be for an amount equal to at least 5%
of the minimum total purchase amount of the level selected. If trades not
initially made under a Letter of Intent subsequently qualify for a lower sales
charge through the 90-day backdating provisions, an adjustment will be made at
the time of the expiration of the Letter of Intent to give effect to the lower
charge. Such adjustment in sales charge will be used to purchase additional
shares for the shareholder at the applicable discount category. The Fund
initially will escrow shares totaling 5% of the dollar
16
<PAGE>
amount of the Letter of Intent to be held by Investor Services in the name of
the shareholder. In the event the Letter of Intent goal is not achieved within
the specified period, the investor must pay the difference between the sales
charge applicable to the purchases made and the reduced sales charge previously
paid. Such payments may be made directly to the Distributor or, if not paid, the
Distributor will liquidate sufficient escrowed shares to obtain the difference.
OTHER PURCHASE PROGRAMS
Purchasers of Class A Shares may be entitled to reduced or no initial sales
charges in connection with the unit investment trust reinvestment program and
purchases by registered representatives of selling firms or purchases by persons
affiliated with the Fund or the Distributor. The Fund reserves the right to
modify or terminate these arrangements at any time.
UNIT INVESTMENT TRUST REINVESTMENT PROGRAM. The Fund permits unitholders of unit
investment trusts to reinvest distributions from such trusts in Class A Shares
of the Fund at net asset value per share and with no minimum initial or
subsequent investment requirement, if the administrator of an investor's unit
investment trust program meets certain uniform criteria relating to cost savings
by the Fund and the Distributor. The total sales charge for all other
investments made from unit investment trust distributions will be 1.00% of the
offering price (1.01% of net asset value). Of this amount, the Distributor will
pay to the authorized dealer, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the terms and conditions that apply to the program,
should contact their authorized dealer or the Distributor.
The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during each distribution period by all investors who choose to invest in
the Fund through the program and (2) provide Investor Services with appropriate
backup data for each investor participating in the program in a computerized
format fully compatible with Investor Services' processing system.
In order to obtain these special benefits, all dividends and other distributions
by the Fund must be reinvested in additional shares and there can not be any
systematic withdrawal program. There will be no minimum for reinvestments from
unit investment trusts. The Fund will send account activity statements to such
participants on a quarterly basis only, even if their investments are made more
frequently. The Fund reserves the right to modify or terminate this program at
any time.
NET ASSET VALUE PURCHASE OPTIONS. Class A Shares of the Fund may be purchased at
net asset value, upon written assurance that the purchase is made for investment
purposes and that the shares will not be resold except through redemption by the
Fund, by:
(1) Current or retired trustees or directors of funds advised by Morgan Stanley
Dean Witter & Co. and any of its subsidiaries and such persons' families
and their beneficial accounts.
(2) Current or retired directors, officers and employees of Morgan Stanley Dean
Witter & Co. and any of its subsidiaries; employees of an investment
subadviser to any fund described in (1) above or an affiliate of such
subadviser; and such persons' families and their beneficial accounts.
(3) Directors, officers, employees and, when permitted, registered
representatives, of financial institutions that have a selling group
agreement with the Distributor and their spouses and children under 21
years of age when purchasing for any accounts they beneficially own, or, in
the case of any such financial institution, when purchasing for retirement
plans for such institution's employees; provided that such purchases are
otherwise permitted by such institutions.
(4) Registered investment advisers who charge a fee for their services, trust
companies and bank trust departments investing on their own behalf or on
behalf of their clients. The Distributor may pay authorized dealers through
which purchases are made an amount up to 0.50% of the amount invested, over
a 12-month period.
17
<PAGE>
(5) Trustees and other fiduciaries purchasing shares for retirement plans which
invest in multiple fund families through broker-dealer retirement plan
alliance programs that have entered into agreements with the Distributor
and which are subject to certain minimum size and operational requirements.
Trustees and other fiduciaries should refer to the Statement of Additional
Information for further details with respect to such alliance programs.
(6) Beneficial owners of shares of Participating Funds held by a retirement
plan or held in a tax-advantaged retirement account who purchase shares of
the Fund with proceeds from distributions from such a plan or retirement
account other than distributions taken to correct an excess contribution.
(7) Accounts as to which a bank or broker-dealer charges an account management
fee ("wrap accounts"), provided the bank or broker-dealer has a separate
agreement with the Distributor.
(8) Trusts created under pension, profit sharing or other employee benefit
plans qualified under Section 401(a) of the Internal Revenue Code of 1986,
as amended (the "Code"), or custodial accounts held by a bank created
pursuant to Section 403(b) of the Code and sponsored by nonprofit
organizations defined under Section 501(c)(3) of the Code and assets held
by an employer or trustee in connection with an eligible deferred
compensation plan under Section 457 of the Code. Such plans will qualify
for purchases at net asset value provided, for plans initially establishing
accounts with the Distributor in the Participating Funds after February 1,
1997, that (1) the initial amount invested in the Participating Funds is at
least $500,000 or (2) such shares are purchased by an employer sponsored
plan with more than 100 eligible employees. Such plans that have been
established with a Participating Fund or have received proposals from the
Distributor prior to February 1, 1997 based on net asset value purchase
privileges previously in effect will be qualified to purchase shares of the
Participating Funds at net asset value for accounts established on or
before May 1, 1997. Section 403(b) and similar accounts for which Van
Kampen Trust Company serves as custodian will not be eligible for net asset
value purchases based on the aggregate investment made by the plan or the
number of eligible employees, except under certain uniform criteria
established by the Distributor from time to time. Prior to February 1,
1997, a commission will be paid to authorized dealers who initiate and are
responsible for such purchases within a rolling twelve- month period as
follows: 1.00% on sales to $5 million, plus 0.50% on the next $5 million,
plus 0.25% on the excess over $10 million. For purchases on February 1,
1997 and thereafter, a commission will be paid as follows: 1.00% on sales
to $2 million, plus 0.80% on the next $1 million, plus 0.50% on the next
$47 million, plus 0.25% on the excess over $50 million.
(9) Individuals who are members of a "qualified group." For this purpose, a
qualified group is one which (i) has been in existence for more than six
months, (ii) has a purpose other than to acquire shares of the Fund or
similar investments, (iii) has given and continues to give its endorsement
or authorization, on behalf of the group, for purchase of shares of the
Fund and Participating Funds, (iv) has a membership that the authorized
dealer can certify as to the group's members and (v) satisfies other
uniform criteria established by the Distributor for the purpose of
realizing economies of scale in distributing such shares. A qualified group
does not include one whose sole organizational nexus, for example, is that
its participants are credit card holders of the same institution, policy
holders of an insurance company, customers of a bank or broker-dealer,
clients of an investment adviser or other similar groups. Shares purchased
in each group's participants account in connection with this privilege will
be subject to a contingent deferred sales charge of 1.00% in the event of
redemption within one year of purchase, and a commission will be paid to
authorized dealers who initiate and are responsible for such sales to each
individual as follows: 1.00% on sales to $2 million, plus 0.80% on the next
$1 million and 0.50% on the excess over $3 million.
The term "families" includes a person's spouse, children under 21 years of age
and grandchildren, parents, and a person's spouse's parents.
18
<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 above
on purchases made under options (3) through (9) above. The Fund may terminate,
or amend the terms of, offering shares of the Fund at net asset value to such
groups at any time.
REDEMPTION OF
SHARES
Generally shareholders may redeem for cash some or all of their shares without
charge by the Fund (other than applicable sales charge) at any time. As
described under the heading "Purchase of Shares," redemptions of Class B Shares
and Class C Shares may be subject to a contingent deferred sales charge. In
addition, certain redemptions of Class A Shares for shareholder accounts of $1
million or more may be subject to a contingent deferred sales charge.
Redemptions completed through an authorized dealer or a custodian of a
retirement plan account may involve additional fees charged by the dealer or
custodian.
Except as specified below under "Telephone Redemption Requests," payment for
shares redeemed generally will be made by check mailed within seven days after
receipt by Investor Services of the request and any other necessary documents in
proper form as described below. Such payment may be postponed or the right of
redemption suspended as provided by the rules of the SEC. Such payment may,
under certain circumstances, be paid wholly or in part by a distribution-in-kind
of portfolio securities which may result in brokerage costs and a gain or loss
for federal income tax purposes when such securities are sold. If the shares to
be redeemed have been recently purchased by check, Investor Services may delay
the payment of redemption proceeds until it confirms the purchase check has
cleared, which may take up to 15 days. A taxable gain or loss will be recognized
by the shareholder upon redemption of shares.
WRITTEN REDEMPTION REQUESTS. Shareholders may request a redemption of shares by
written request in proper form sent directly to Van Kampen Investor Services
Inc., PO Box 218256, Kansas City, MO 64121-8256. The request for redemption
should indicate the number of shares to be redeemed, the class designation of
such shares and the shareholder's account number. The redemption request must be
signed by all persons in whose names the shares are registered. Signatures must
conform exactly to the account registration. If the proceeds of the redemption
exceed $50,000, or if the proceeds are not to be paid to the record owner at the
record address, or if the record address has changed within the previous 30
days, signature(s) must be guaranteed by one of the following: a bank or trust
company; a broker-dealer; a credit union; a national securities exchange,
registered securities association or clearing agency; a savings and loan
association; or a federal savings bank.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption to be in proper form. In some
cases, however, additional documents may be necessary. In the case of
shareholders holding certificates, the certificates for the shares being
redeemed properly endorsed for transfer must accompany the redemption request.
In the event the redemption is requested by a corporation, partnership, trust,
fiduciary, executor or administrator, and the name and title of the
individual(s) authorizing such redemption is not shown in the account
registration, a copy of the corporate resolution or other legal documentation
appointing the authorized signer and certified within the prior 120 days must
accompany the redemption request. IRA redemption requests should be sent to the
IRA custodian to be forwarded to Investor Services. Contact the IRA custodian
for further information.
19
<PAGE>
In the case of written redemption requests sent directly to Investor Services,
the redemption price is the net asset value per share next determined after the
request in proper form is received by Investor Services.
AUTHORIZED DEALER REDEMPTION REQUESTS. Shareholders may place redemption
requests through an authorized dealer. Orders sent through authorized dealers
must be at least $500 (unless transmitted by your authorized dealer via the
FUNDSERV network). The redemption price for such shares is the net asset value
per share next calculated after an order in proper form is received by an
authorized dealer provided such order is transmitted to the Distributor prior to
the Distributor's close of business on such day. It is the responsibility of
authorized dealers to transmit redemption requests received by them to the
Distributor so they will be received prior to such time. Redemptions completed
through an authorized dealer may involve additional fees charged by the dealer.
TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. A shareholder
automatically has telephone redemption privileges unless the shareholder
indicates otherwise by checking the applicable box on the application form
accompanying the prospectus. To redeem shares, contact the telephone transaction
line at (800) 421-5684. Van Kampen Investments, Investor Services and the Fund
employ procedures considered by them to be reasonable to confirm that
instructions communicated by telephone are genuine. Such procedures include
requiring certain personal identification information prior to acting upon
telephone instructions, tape-recording telephone communications and providing
written confirmation of instructions communicated by telephone. If reasonable
procedures are employed, none of Van Kampen Investments, Investor Services or
the Fund will be liable for following telephone instructions which it reasonably
believes to be genuine. Telephone redemptions may not be available if the
shareholder cannot reach Investor Services by telephone, whether because all
telephone lines are busy or for any other reason; in such case, a shareholder
would have to use the Fund's other redemption procedure previously described.
Requests received by Investor Services prior to 4:00 p.m., New York time, will
be processed at the next determined net asset value per share. These privileges
are available for all accounts other than retirement accounts or accounts with
shares represented by certificates. If an account has multiple owners, Investor
Services may rely on the instructions of any one owner.
For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check and amounts of at least
$1,000 up to $1 million may be redeemed daily if the proceeds are to be paid by
wire. The proceeds must be payable to the shareholder(s) of record and sent to
the address of record for the account or wired directly to their predesignated
bank account. This privilege is not available if the address of record has been
changed within 30 days prior to a telephone redemption request. Proceeds from
redemptions payable by wire transfer are expected to be wired on the next
business day following the date of redemption. The Fund reserves the right at
any time to terminate, limit or otherwise modify this redemption privilege.
OTHER REDEMPTION INFORMATION. The Fund may redeem shares of any shareholder
account that has a value on the date of the notice of redemption less than the
minimum initial investment as specified in this prospectus. At least 60 days
advance written notice of any such involuntary redemption will be provided to
the shareholder and such shareholder will be given an opportunity to purchase
the required value of additional shares at the next determined net asset value
without sales charge. Any involuntary redemption may only occur if the
shareholder account is less than the minimum initial investment due to
shareholder redemptions.
DISTRIBUTIONS FROM
THE FUND
In addition to any increase in the value of shares which the Fund may achieve,
shareholders may receive distributions from the Fund of dividends and capital
gain dividends.
20
<PAGE>
DIVIDENDS. Dividends from stocks and interest earned from other investments are
the Fund's main sources of income. The Fund's present policy, which may be
changed at any time by the Board of Directors, is to distribute all or
substantially all of this income, less expenses, at least annually as dividends
to shareholders. Dividends are automatically applied to purchase additional
shares of the Fund at the next determined net asset value unless the shareholder
instructs otherwise.
The per share dividends on Class B Shares and Class C Shares may be lower than
the per share dividends on Class A Shares as a result of the higher distribution
fees and transfer agency costs applicable to such classes of shares.
CAPITAL GAIN DIVIDENDS. The Fund may realize capital gains or losses when it
sells securities, depending on whether the sales prices for the securities are
higher or lower than purchase prices. Net realized capital gain represents the
total profits from sales of securities minus total losses from sales of
securities (including any losses carried forward from prior years), other than
net short-term capital gain from sales of securities held for one year or less.
The Fund distributes any taxable net realized capital gain to shareholders as
capital gain dividends at least annually. As in the case of dividends, capital
gain dividends are automatically reinvested in additional shares of the Fund at
the next determined net asset value unless the shareholder instructs otherwise.
SHAREHOLDER SERVICES
Listed below are some of the shareholder services the Fund offers to investors.
For a more complete description of the Fund's shareholder services, such as
investment accounts, share certificates, retirement plans, automated clearing
house deposits, dividend diversification and the systematic withdrawal plan,
please refer to the Statement of Additional Information or contact your
authorized dealer.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gain dividends in shares of the
Fund. Such shares are acquired at net asset value per share (without sales
charge) on the applicable payable date of the dividend or capital gain dividend.
Unless the shareholder instructs otherwise, the reinvestment plan is automatic.
This instruction may be made by telephone by calling (800) 341-2911
((800) 421-2833 for the hearing impaired) or by writing to Investor Services.
The investor may, on the initial application or prior to any declaration,
instruct that dividends be paid in cash and capital gain dividends be reinvested
at net asset value, or that both dividends and capital gain dividends be paid in
cash.
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under which
a shareholder can authorize Investor Services to charge a bank account on a
regular basis to invest predetermined amounts in the Fund. Additional
information is available from the Distributor or your authorized dealer.
EXCHANGE PRIVILEGE. Shares of the Fund may be exchanged for shares of the same
class of any Participating Fund based on the next computed net asset value per
share of each fund after requesting the exchange without any sales charge,
subject to certain limitations. Shares of the Fund may be exchanged for shares
of any Participating Fund only if shares of that Participating Fund are
available for sale; however, during periods of suspension of sales, shares of a
Participating Fund may be available for sale only to existing shareholders of a
Participating Fund. Shareholders seeking an exchange into a Participating Fund
should obtain and read the current prospectus for such fund prior to
implementing an exchange. A prospectus of any of the Participating Funds may be
obtained from any authorized dealer or the Distributor.
To be eligible for exchange, shares of the Fund must have been registered in the
shareholder's name for at least 30 days prior to an exchange. Shares of the Fund
registered in a shareholder's name for less than 30 days may only be exchanged
upon receipt of prior approval of the Adviser. It is the policy of the Adviser,
under normal circumstances, not to approve such requests.
21
<PAGE>
When shares that are subject to a contingent deferred sales charge are exchanged
among Participating Funds, the holding period for purposes of computing the
contingent deferred sales charge is based upon the date of the initial purchase
of such shares from a Participating Fund. When such shares are redeemed and not
exchanged for shares of another Participating Fund, the shares are subject to
the contingent deferred sales charge schedule imposed by the Participating Fund
from which such shares were originally purchased.
Exchanges of shares are sales of one Participating Fund and purchases of another
Participating Fund. The sale may result in a gain or loss for federal income tax
purposes. If the shares sold have been held for less than 91 days, the sales
charge paid on such shares is carried over and included in the tax basis of the
shares acquired.
A shareholder wishing to make an exchange may do so by sending a written request
to Investor Services or by contacting the telephone transaction line at
(800) 421-5684. A shareholder automatically has telephone exchange privileges
unless the shareholder indicates otherwise by checking the applicable box on the
application form accompanying the prospectus. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated by telephone are genuine. Such procedures
include requiring certain personal identification information prior to acting
upon telephone instructions, tape-recording telephone communications, and
providing written confirmation of instructions communicated by telephone. If
reasonable procedures are employed, none of Van Kampen Investments, Investor
Services or the Fund will be liable for following telephone instructions which
it reasonably believes to be genuine. If the exchanging shareholder does not
have an account in the fund whose shares are being acquired, a new account will
be established with the same registration, dividend and capital gain dividend
options (except dividend diversification) and authorized dealer of record as the
account from which shares are exchanged, unless otherwise specified by the
shareholder. In order to establish a systematic withdrawal plan for the new
account or reinvest dividends from the new account into another fund, however,
an exchanging shareholder must submit a specific request. The Fund reserves the
right to reject any order to acquire its shares through exchange. In addition,
the Fund and other Participating Funds may restrict exchanges by shareholders
engaged in excessive trading by limiting or disallowing the exchange privileges
to such shareholders. For further information on these restrictions see the
Statement of Additional Information. The Fund may modify, restrict or terminate
the exchange privilege at any time on 60 days' notice to its shareholders of any
termination or material amendment.
For purposes of determining the sales charge rate previously paid on Class A
Shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchanged security was acquired through reinvestment, that
security is deemed to have been sold with a sales charge rate equal to the rate
previously paid on the security on which the dividend or distribution was paid.
If a shareholder exchanges less than all of such shareholder's securities, the
security upon which the highest sales charge rate was previously paid is deemed
exchanged first.
Exchange requests received on a business day prior to the time shares of the
funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares of the fund which the
shareholder is redeeming will be redeemed at the net asset value per share next
determined on the date of receipt. Shares of the new fund which the shareholder
is purchasing will also normally be purchased at the net asset value per share,
plus any applicable sales charge, next determined on the date of receipt.
Exchange requests received on a business day after the time shares of the funds
involved in the request are priced will be processed on the next business day in
the manner described herein.
INTERNET TRANSACTIONS. In addition to performing transactions on your account
through written instruction or by telephone, you may also perform certain
transactions through the internet. Please refer to our web site at
www.vankampen.com for further instruction. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by
22
<PAGE>
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, none of Van Kampen Investments, Investor
Services or the Fund will be liable for following instructions received through
the internet which it reasonably believes to be genuine. If an account has
multiple owners, Investor Services may rely on the instructions of any one
owner.
FEDERAL INCOME
TAXATION
Distributions of the Fund's net investment income (consisting generally of
taxable income and net short-term capital gain) are taxable to shareholders as
ordinary income to the extent of the Fund's earnings and profits, whether paid
in cash or reinvested in additional shares. Distributions of the Fund's net
realized capital gain (which is the excess of net long-term capital gain over
net short-term capital loss) as capital gain dividends, if any, are taxable to
shareholders as long-term capital gains, whether paid in cash or reinvested in
additional shares, and regardless of how long the shares of the Fund have been
held by such shareholders. The Fund expects that its distributions will consist
primarily of ordinary income and capital gain dividends. Distributions in excess
of the Fund's earnings and profits will first reduce the adjusted tax basis of a
holder's shares and, after such adjusted tax basis is reduced to zero, will
constitute capital gains to such holder (assuming such shares are held as a
capital asset). Although distributions generally are treated as taxable in the
year they are paid, distributions declared in October, November or December,
payable to shareholders of record on a specified date in such month and paid
during January of the following year will be treated as having been distributed
by the Fund and received by the shareholders on the December 31st prior to the
date of payment. The Fund will inform shareholders of the source and tax status
of all distributions promptly after the close of each calendar year.
The sale or exchange of shares is a taxable transaction for federal income tax
purposes. Shareholders who sell their shares will generally recognize gain or
loss in an amount equal to the difference between their adjusted tax basis in
the shares sold and the amount received. If the shares are held as a capital
asset, the gain or loss will be a capital gain or loss. Any capital gains may be
taxed at different rates depending on how long the shareholder held such shares.
The Fund is required, in certain circumstances, to withhold 31% of dividends and
certain other payments, including redemptions, paid to shareholders who do not
furnish to the Fund their correct taxpayer identification number (in the case of
individuals, their social security number) and certain required certifications
or who are otherwise subject to backup withholding.
Foreign shareholders, including shareholders who are non-resident aliens, may be
subject to U.S. withholding tax on certain distributions (whether received in
cash or in shares) at a rate of 30% or such lower rate as prescribed by an
applicable treaty. Accordingly, investment in the Fund is likely to be
appropriate for a foreign shareholder only if such person can utilize a foreign
tax credit or corresponding tax benefit in respect of such U.S. withholding tax.
Prospective foreign investors should consult their tax advisers concerning the
tax consequences to them of an investment in shares.
The Fund intends to qualify as a regulated investment company under federal
income tax law. If the Fund so qualifies and distributes each year to its
shareholders at least 90% of its net investment income, the Fund will not be
required to pay federal income taxes on any income it distributes to
shareholders. If the Fund distributes less than an amount equal to the sum of
98% of its ordinary income and 98% of its capital gain net income, then the Fund
will be subject to a 4% excise tax on the undistributed amounts.
The federal income tax discussion set forth above is for general information
only. Prospective investors should consult their own tax advisers regarding the
specific federal tax consequences of purchasing, holding, disposing, exchanging
or selling of shares, as well as the effects of state, local and foreign tax law
and any proposed tax law changes.
23
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the periods indicated. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report, along with the Fund's financial statements, is
included in the Statement of Additional Information and may be obtained by
shareholders without charge by calling the telephone number on the back cover of
this prospectus. This information should be read in conjunction with the
financial statements and notes thereto included in the Statement of Additional
Information.
<TABLE>
<CAPTION>
CLASS A CLASS B
SELECTED PER SHARE DATA AND RATIOS SEPTEMBER 25, 1998* TO JUNE 30, 1999# SEPTEMBER 25, 1998* TO JUNE 30, 1999#
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of the Period..... $10.000 $10.000
------- -------
Income From Investment Operations
Net Investment Income/Loss................. 0.136 0.066
Net Realized and Unrealized Gain/Loss...... 1.969 1.962
------- -------
Total from Investment Operations............. 2.105 2.028
------- -------
Distributions
Net Investment Income...................... (0.125) (0.106)
------- -------
Net Asset Value, End of Period............... $11.980 $11.922
======= =======
Total Return (1)............................. 21.22%** 20.40%**
======= =======
Ratios and Supplemental Data
Net Assets, End of Period (000's)............ $ 1,189 $ 614
Ratio of Expenses to Average Net Assets...... 1.80% 2.55%
Ratio of Net Investment Income/Loss to
Average Net Assets........................... 1.57% 0.77%
Portfolio Turnover Rate...................... 9%** 9%**
- -----------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During
the Period...................................
Per Share Benefit to Net Investment
Income/Loss................................ $ 1.02 $ 1.02
Ratios Before Expense Limitation:
Expenses to Average Net Assets............. 13.55% 14.45%
Net Investment Income/Loss to Average Net
Assets..................................... (10.17)% (11.12)%
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS C
SELECTED PER SHARE DATA AND RATIOS SEPTEMBER 25, 1998* TO JUNE 30, 1999#
- --------------------------------------------- -------------------------------------
<S> <C>
Net Asset Value, Beginning of the Period..... $10.000
-------
Income From Investment Operations
Net Investment Income/Loss................. 0.059
Net Realized and Unrealized Gain/Loss...... 2.065
-------
Total from Investment Operations............. 2.124
-------
Distributions
Net Investment Income...................... (0.106)
-------
Net Asset Value, End of Period............... $12.018
=======
Total Return (1)............................. 21.40%**
=======
Ratios and Supplemental Data
Net Assets, End of Period (000's)............ $ 480
Ratio of Expenses to Average Net Assets...... 2.55%
Ratio of Net Investment Income/Loss to
Average Net Assets........................... 0.69%
Portfolio Turnover Rate...................... 9%**
- ---------------------------------------------
Effect of Voluntary Expense Limitation During
the Period...................................
Per Share Benefit to Net Investment
Income/Loss................................ $ 1.16
Ratios Before Expense Limitation:
Expenses to Average Net Assets............. 16.07%
Net Investment Income/Loss to Average Net
Assets..................................... (12.83)%
- ---------------------------------------------
</TABLE>
* COMMENCEMENT OF OPERATIONS
** NON-ANNUALIZED
(1) TOTAL RETURN IS CALCULATED EXCLUSIVE OF SALES CHARGES OR DEFERRED
SALES CHARGES.
# CHANGES PER SHARE ARE BASED UPON MONTHLY AVERAGE SHARES OUTSTANDING.
24
<PAGE>
BOARD OF DIRECTORS
AND OFFICERS
BOARD OF DIRECTORS
<TABLE>
<S> <C>
J. Miles Branagan Don G. Powell*
Jerry D. Choate Phillip B. Rooney
Richard M. DeMartini* Fernando Sisto
Linda Hutton Heagy Wayne W. Whalen*
R. Craig Kennedy Suzanne H. Woolsey
Jack E. Nelson Paul G. Yovovich
</TABLE>
OFFICERS
Richard F. Powers, III*
PRESIDENT
Dennis J. McDonnell*
EXECUTIVE VICE PRESIDENT & CHIEF INVESTMENT OFFICER
A. Thomas Smith III*
VICE PRESIDENT AND SECRETARY
Edward C. Wood III*
VICE PRESIDENT
Michael H. Santo*
VICE PRESIDENT
Peter W. Hegel*
VICE PRESIDENT
Stephen L. Boyd*
VICE PRESIDENT
Joseph P. Stadler*
VICE PRESIDENT
John L. Sullivan*
VICE PRESIDENT, CHIEF FINANCIAL OFFICER & TREASURER
Curtis W. Morell*
VICE PRESIDENT & CHIEF ACCOUNTING OFFICER
Tanya M. Loden*
CONTROLLER
* "Interested Persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2911
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders, or
redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call (800) 421-2833
FUNDINFO-REGISTERED TRADEMARK-
For automated telephone services, call (800) 847-2424
WEB SITE
www.vankampen.com
VAN KAMPEN GLOBAL FRANCHISE FUND
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
INVESTMENT ADVISER AND ADMINISTRATOR
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
INVESTMENT SUBADVISER
MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC.
1221 Avenue of the Americas
New York, NY 10020
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
TRANSFER AGENT
VAN KAMPEN INVESTOR SERVICES INC.
PO Box 218256
Kansas City, MO 64121-8256
Attn: Van Kampen Global Franchise Fund
CUSTODIAN
THE CHASE MANHATTAN BANK
3 MetroTech Center
Brooklyn, NY 11245
Attn: Van Kampen Global Franchise Fund
LEGAL COUNSEL
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
INDEPENDENT ACCOUNTANTS
PRICEWATERHOUSECOOPERS LLP
200 East Randolph Drive
Chicago, IL 60601
<PAGE>
VAN KAMPEN
GLOBAL FRANCHISE FUND
PROSPECTUS
OCTOBER 28, 1999
A Statement of Additional Information, which contains more details about the
Fund, is incorporated by reference in its entirety into this prospectus.
You will find additional information about the Fund in its annual and semiannual
reports to shareholders. The annual report explains the market conditions and
investment strategies affecting the Fund's performance during its last fiscal
year.
You can ask questions or obtain a free copy of the Fund's reports or its
Statement of Additional Information by calling (800) 341-2911 from 7:00 a.m. to
7:00 p.m., Central time, Monday through Friday. Telecommunications Device for
the Deaf users may call (800) 421-2833. A free copy of the Fund's reports can
also be ordered from our web site at www.vankampen.com.
Information about the Fund, including its reports and Statement of Additional
Information, has been filed with the Securities and Exchange Commission (SEC).
It can be reviewed and copied at the SEC's Public Reference Room in Washington,
DC or on the EDGAR Database on the SEC's internet site (http://www.sec.gov).
Information on the operation of the SEC's Public Reference Room may be obtained
by calling the SEC at 1-202-942-8090. You can also request copies of these
materials, upon payment of a duplicating fee, by electronic request at the SEC's
e-mail address ([email protected]), or by writing the Public Reference Section
of the SEC, Washington, DC, 20549-0102.
[LOGO]
THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-7140.
GLF PRO 10/99
<PAGE>
VAN KAMPEN
GROWTH AND INCOME FUND II
Van Kampen Growth and Income Fund II is a mutual fund with an investment
objective to seek capital appreciation and current income. The Fund's investment
adviser seeks to achieve the 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.
Shares of the Fund have not been approved or disapproved by the Securities and
Exchange Commission (SEC) or any state regulator, and neither the SEC nor any
state regulator has passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
THIS PROSPECTUS IS DATED OCTOBER 28, 1999.
[LOGO]
<PAGE>
TABLE OF CONTENTS
Risk/Return Summary .....................................................3
Fees and Expenses of the Fund ...........................................4
Investment Objective, Policies and Risks ................................5
Investment Advisory Services ...........................................10
Purchase of Shares .....................................................11
Redemption of Shares ...................................................18
Distributions from the Fund ............................................20
Shareholder Services ...................................................20
Federal Income Taxation ................................................22
Appendix -- Description of Security Ratings ...........................A-1
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations, other than those contained in this
prospectus, in connection with the offer contained in this prospectus and, if
given or made, such other information or representations must not be relied upon
as having been authorized by the Fund, the Fund's investment adviser or the
Fund's distributor. This prospectus does not constitute an offer by the Fund or
by the Fund's distributor to sell or a solicitation of an offer to buy any of
the securities offered hereby in any jurisdiction to any person to whom it is
unlawful for the Fund to make such an offer in such jurisdiction.
<PAGE>
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The Fund is a mutual fund with an investment objective to seek capital
appreciation and current income.
INVESTMENT STRATEGIES
Under normal market conditions, the Fund's investment adviser seeks to achieve
the Fund's 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. The Fund also invests in slower-
growth companies with stable or accelerating earnings or dividend growth. Under
normal market conditions, the Fund invests primarily in equity securities,
including dividend-paying (and, to the extent consistent with the Fund's
investment objective, non-dividend paying) common and preferred stocks, and
convertible securities or other equity-linked securities, rights and warrants
and specialty securities having equity features.
The Fund's investment adviser actively manages the Fund's portfolio of
securities seeking to outperform the total return of the Standard & Poor's 500
Index ("S&P 500 Index"), while providing a higher yield than the yield of the
S&P 500 Index. The Fund may invest up to 35% of its total assets in lower-rated
securities or unrated securities of comparable quality, which are commonly
referred to as "junk bonds" and involve special risks as compared to investments
in higher-grade securities. The Fund may invest in securities of foreign
issuers. The Fund may purchase or sell certain derivative instruments (such as
options, futures, options on futures and forward contracts), which may subject
the Fund to additional risks. Portfolio securities are typically sold when the
Fund's Investment Adviser's assessment for growth and income of an issuer
materially changes.
INVESTMENT RISKS
An investment in the Fund is subject to investment risks, and you could lose
money on your investment in the Fund. There can be no assurance that the Fund
will achieve its investment objective.
MARKET RISK. Market risk is the possibility that the market values of securities
owned by the Fund will decline. Market risk may affect a single issuer,
industry, sector of the economy or the market as a whole. Investments in equity
securities generally are affected by changes in the stock markets, which
fluctuate substantially over time, sometimes suddenly and sharply.
The values of convertible securities or other equity-linked securities tend to
decline as interest rates rise and, because of the conversion features, tend to
vary with fluctuations in the market values of the underlying equity securities.
Lower-grade securities, especially those with long maturities or that do not
make regular interest payments, may fluctuate more in price in response to
negative news about an issuer or general economic news than higher-grade
securities. During an overall stock market decline, stock prices of medium- and
small-sized companies often fluctuate more and may fall more than the stock
prices of larger-sized companies.
CREDIT RISK. Credit risk refers to an issuer's ability to make timely payments
of interest and principal. Because the Fund may invest in securities with low
credit quality, it is subject to a higher level of credit risk than a fund that
buys only investment grade securities. The credit quality of "noninvestment
grade" securities is considered speculative by recognized rating agencies with
respect to the issuer's continuing ability to pay interest and principal.
Lower-grade securities may have less liquidity and a higher incidence of default
than investments in higher-grade securities. The Fund may incur higher
expenditures to protect the Fund's interest in such securities. The credit risks
and market prices of lower-grade securities generally are more sensitive to
negative corporate developments (such as a decline in profits) or adverse
economic conditions (such as a recession) than are higher-grade securities.
INCOME RISK. The interest income on convertible bonds and certain equity-linked
securities generally is affected by prevailing interest rates, which can vary
widely over the short- and long-term. The ability of equity securities to
generate income generally depends on the earnings and whether the issuers of
such securities continue to declare dividends. If interest rates drop or
dividends are reduced or discontinued, your income from the Fund may drop as
well.
FOREIGN RISKS. Because the Fund may own securities of foreign issuers, it may be
subject to risks not usually associated with owning securities of U.S. issuers.
These risks can include fluctuations in foreign currencies, foreign currency
exchange controls, political and economic instability, differences in
3
<PAGE>
financial reporting, differences in securities regulation and trading, and
foreign taxation issues.
RISKS OF USING DERIVATIVE INVESTMENTS. In general terms, a derivative investment
is one whose value depends on (or is derived from) the value of an underlying
asset, interest rate or index. Options, futures, options on futures and forward
contracts are examples of derivatives. Derivative investments involve risks
different from direct investment in underlying securities. These risks include
imperfect correlation between the value of the instruments and the underlying
assets; risks of default by the other party to certain transactions; risks that
the transactions may result in losses that partially or completely offset gains
in portfolio positions; risks that the transactions may not be liquid; and
manager risk.
MANAGER RISK. As with any managed fund, the Fund's investment adviser may not be
successful in selecting the best-performing securities or investment techniques
and the Fund's performance may lag behind that of similar funds.
INVESTOR PROFILE
In light of the Fund's investment objective and strategies, the Fund may be
appropriate for investors who:
- - Seek capital appreciation and current income over the long term
- - Can withstand price volatility in the value of their shares of the Fund
- - Wish to add to their investment portfolio a fund that invests primarily in
equity securities of rapidly growing companies, or convertible securities or
other equity-linked, income-generating securities of such companies
An investment in the Fund is not a deposit of any bank or other insured
depository institution. Your investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
An investment in the Fund may not be appropriate for all investors. The Fund is
not intended to be a complete investment program, and investors should consider
their long-term investment goals and financial needs when making an investment
decision about the Fund. An investment in the Fund is intended to be a long-term
investment, and the Fund should not be used as a trading vehicle.
FEES AND EXPENSES
OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
- --------------------------------------------------------------------------------
Maximum sales charge (load) imposed
on purchases (as a percentage of
offering price) 5.75%(1) None None
...............................................................................
Maximum deferred sales charge
(load) (as a percentage of the
lesser of original purchase price
or redemption proceeds) None(2) 5.00%(3) 1.00%(4)
...............................................................................
Maximum sales charge (load) imposed
on reinvested dividends None None None
...............................................................................
Redemption fees None None None
...............................................................................
Exchange fee None None None
...............................................................................
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
<TABLE>
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------
Management Fees 0.75% 0.75% 0.75%
................................................................................
Distribution and/or Service
(12b-1) Fees(5) 0.25% 1.00%(6) 1.00%(6)
................................................................................
Other Expenses(7) 0.45% 0.45% 0.45%
................................................................................
Total Annual Fund Operating
Expenses 1.45% 2.20% 2.20%
................................................................................
</TABLE>
(1) REDUCED FOR PURCHASES OF $50,000 AND OVER. SEE "PURCHASE OF SHARES --
CLASS A SHARES."
(2) INVESTMENTS OF $1 MILLION OR MORE ARE NOT SUBJECT TO ANY SALES CHARGE
AT THE TIME OF PURCHASE, BUT A DEFERRED SALES CHARGE OF 1.00% MAY BE
IMPOSED ON CERTAIN REDEMPTIONS MADE WITHIN ONE YEAR OF THE PURCHASE.
SEE "PURCHASE OF SHARES -- CLASS A SHARES."
(3) THE MAXIMUM DEFERRED SALES CHARGE IS 5.00% IN THE FIRST YEAR AFTER
PURCHASE, DECLINING THEREAFTER AS FOLLOWS:
YEAR 1-5.00%
YEAR 2-4.00%
YEAR 3-3.00%
YEAR 4-2.50%
YEAR 5-1.50%
AFTER-NONE
SEE "PURCHASE OF SHARES -- CLASS B SHARES."
(4) THE MAXIMUM DEFERRED SALES CHARGE IS 1.00% IN THE FIRST YEAR AFTER
PURCHASE AND 0.00% THEREAFTER. SEE "PURCHASE OF SHARES -- CLASS C
SHARES."
(5) CLASS A SHARES ARE SUBJECT TO AN ANNUAL SERVICE FEE OF UP TO 0.25% OF
THE AVERAGE DAILY NET ASSETS ATTRIBUTABLE TO SUCH CLASS OF SHARES.
CLASS B SHARES AND CLASS C SHARES ARE EACH SUBJECT TO A COMBINED
ANNUAL DISTRIBUTION AND SERVICE FEE OF UP TO 1.00% OF THE AVERAGE
DAILY NET ASSETS ATTRIBUTABLE TO SUCH CLASS OF SHARES. SEE "PURCHASE
OF SHARES."
(6) BECAUSE DISTRIBUTION AND/OR SERVICE (12b-1) FEES ARE PAID OUT OF THE
FUND'S ASSETS ON AN ONGOING BASIS, OVER TIME THESE FEES WILL INCREASE
THE COST OF YOUR INVESTMENT AND MAY COST YOU MORE THAN PAYING OTHER
TYPES OF SALES CHARGES.
(7) "OTHER EXPENSES" ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT FISCAL
YEAR.
4
<PAGE>
EXAMPLE:
The following example is intended to help you compare the cost of investing in
the Fund with the costs of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same each year. Although your actual costs
may be higher or lower, based on these assumptions your costs would be:
<TABLE>
THREE
ONE YEAR YEARS
- -----------------------------------------------------
<S> <C> <C>
Class A Shares $714 $1,007
....................................................
Class B Shares $723 $ 988
....................................................
Class C Shares $323 $ 688
....................................................
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
THREE
ONE YEAR YEARS
- -----------------------------------------------------
<S> <C> <C>
Class A Shares $714 $1,007
....................................................
Class B Shares $223 $ 688
....................................................
Class C Shares $223 $ 688
....................................................
</TABLE>
Because the 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.
INVESTMENT OBJECTIVE,
POLICIES AND RISKS
The Fund's investment objective is to seek capital appreciation and current
income. The Fund's investment objective is a fundamental policy and may not be
changed without the approval of a majority of shareholders of the Fund's
outstanding voting securities, as defined in the Investment Company Act of 1940,
as amended (the "1940 Act"). There are risks inherent in all investments in
securities; accordingly, there can be no assurance that the Fund will achieve
its investment objective.
Under normal market conditions, the Fund's investment adviser seeks to achieve
the Fund's 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. The Fund is not subject to any
limit or the size of companies in which it may invest, but the Fund generally
invests in companies with market capitalizations of $750 million or more. The
Fund also invests in slower-growth companies with stable or accelerating
earnings or dividend growth.
In selecting securities for investment, the Fund's investment adviser applies a
disciplined investment approach. The Fund's investment adviser actively manages
the Fund's portfolio of securities seeking to outperform the total return of the
S&P 500 Index while providing a higher yield than the yield of the S&P 500
Index. The Fund's primary approach is to identify higher-yielding securities
which are then subjected to a fundamental analysis of financial strength,
profitability, sustainability and the ability of company management. The Fund's
investment adviser actively manages the Fund's portfolio, under- or
over-weighting selected economic sectors against the S&P 500 Index's sector
weightings to enhance total return or reduce fluctuations in market value
relative to the S&P 500 Index. Because prices of equity securities and
convertible securities or other equity-linked securities fluctuate, the value of
an investment in the Fund will vary based upon the Fund's investment
performance. The Fund attempts to reduce overall exposure to risk from declines
in securities prices by investing in a broad range of securities across major
economic sectors.
The Fund invests in equity securities, including common and preferred stocks.
Common stocks are shares of a corporation or other entity that entitle the
holder to a pro rata share of the profits of the corporation, if any, without
preference over any other class of securities, including such entity's debt
securities, preferred stock and other senior equity securities. Common stock
usually carries with it the right to vote and frequently an exclusive right to
do so. Preferred stock generally has a preference as to dividends and
liquidation over an issuer's common stock but ranks junior to debt securities in
an issuer's capital structure. Unlike interest payments on debt securities,
preferred stock dividends are payable only if declared by the issuer's board of
directors. Preferred stock also may be subject to optional or mandatory
redemption provisions.
A convertible security is a bond, debenture, note, preferred stock or other
security that may be converted into or exchanged for a prescribed amount of
common stock or other equity security of the same
5
<PAGE>
or a different issuer or cash within a particular period of time at a specified
price or formula. A convertible security generally entitles the holder to
receive interest paid or accrued on debt securities or the dividend paid on
preferred stock until the convertible security matures or is redeemed, converted
or exchanged. Before conversion, convertible securities generally have
characteristics similar to both debt and equity securities. The value of
convertible securities tends to decline as interest rates rise and, because of
the conversion feature, tends to vary with fluctuations in the market value of
the underlying equity securities. Convertible securities generally rank senior
to common stock in a corporation's capital structure but are usually
subordinated to comparable nonconvertible securities. Convertible securities
generally do not participate directly in any dividend increases or decreases of
the underlying equity securities although the market prices of convertible
securities may be affected by any such dividend changes or other changes in the
underlying equity security.
Equity-linked securities are instruments whose value is based upon the value of
one or more underlying equity securities, a reference rate or an index.
Equity-linked securities come in many forms and may include features, among
others, such as the following: (i) may be issued by the issuer of the underlying
equity security or by a company other than the one to which the instrument is
linked (usually an investment bank), (ii) may convert into equity securities,
such as common stock, within a stated period from the issue date or may be
redeemed for cash or some combination of cash and the linked security at a value
based upon the value of the underlying equity security within a stated period
from the issue date, (iii) may have various conversion features prior to
maturity at the option of the holder or the issuer or both, (iv) may limit the
appreciation value with caps or collars of the value of underlying equity
security and (v) may have fixed, variable or no interest payments during the
life of the security which reflect the actual or a structured return relative to
the underlying dividends of the linked equity security. Investments in
equity-linked securities may subject the Fund to additional risks not ordinarily
associated with investments in other equity securities. Because equity-linked
securities are sometimes issued by a third party other than the issuer of the
linked security, the Fund is subject to risks if the underlying stock
underperforms and if the issuer defaults on the payment of the dividend or the
common stock at maturity. Additionally, the trading market for particular
equity-linked securities may be less liquid, making it difficult for the Fund to
dispose of a particular security when necessary and reduced liquidity in the
secondary market for any such securities may make it more difficult to obtain
market quotations for valuing the Fund's portfolio.
Rights and warrants entitle the holder to buy equity securities at a specific
price for a specific period of time. Rights are similar to warrants except that
they have a substantially shorter duration. Rights and warrants may be
considered more speculative and less liquid than certain other types of
investments in that they do not entitle a holder to dividends or voting rights
with respect to the underlying securities nor do they represent any rights in
the assets of the issuing company and may lack a secondary market.
The Fund may invest up to 35% of its total assets in below investment-grade debt
securities. Such lower-grade debt securities are commonly referred to as "junk
bonds" and involve special risks as compared to investments in higher-grade
securities. See "Risks of Investing in Lower-Grade Securities" below.
The Fund may invest in companies of any capitalization range, including smaller-
and medium-sized companies. The securities of smaller- and medium-sized
companies may be subject to more abrupt or erratic market movements and may have
lower trading volumes or more erratic trading than securities of larger-sized
companies or the market averages in general. To the extent the Fund invests in
smaller-and medium-sized companies it will be subject to greater investment risk
than that assumed through investment in the securities of larger-sized
companies.
RISKS OF INVESTING IN
LOWER-GRADE SECURITIES
Under normal market conditions, the Fund may invest up to 35% of its net assets
in securities below investment grade. Such lower-grade securities are securities
rated at the time of purchase BB or lower S&P or rated Ba or lower by Moody's or
comparably rated by any other NRSRO or, if unrated,
6
<PAGE>
believed by the Fund's investment adviser to be of comparable quality.
Lower-grade securities are regarded by S&P and Moody's as predominately
speculative with respect to the capacity to pay interest or repay principal in
accordance with their terms. Lower-grade securities involve greater risks, such
as greater credit risk, greater market risk and volatility, greater liquidity
concerns and potentially greater manager risk. There is no minimum rating or
comparable quality standard imposed on the Fund's investments and the Fund may
purchase securities that are rated in the lowest of the rating categories and
that are in default in the payment of interest or repayment of principal. For a
description of security's rating, see the appendix to this prospectus.
Lower-grade securities are more susceptible to nonpayment of interest and
principal and default than higher-grade securities. Adverse changes in the
economy or the individual issuer often have a more significant impact on the
ability of lower-grade issuers to make payments, meet projected goals or obtain
additional financing. When an issuer of such securities is in financial
difficulties, the Fund may incur additional expenditures or invest additional
assets in an effort to obtain partial or full recovery on amounts due. While all
income securities fluctuate inversely with changes in interest rates, the prices
of lower-grade securities generally are less sensitive to changes in interest
rates and are more sensitive to real or perceived general adverse economic or
specific issuer developments. A significant increase in market interest rates or
general economic developments could severely disrupt the market for such
securities and the market values of such securities. Such securities also often
experience more volatility in prices than higher-grade securities. Lack of
liquidity in a security makes the sale of the security more difficult in a
timely manner, at least without price concessions. The market for lower-grade
securities may have less available information available, further complicating
evaluations and valuations of such securities and placing more emphasis on the
investment adviser's experience, judgment and analysis than other securities.
For further information regarding investing in lower-grade securities, see the
Fund's Statement of Additional Information.
RISKS OF INVESTING
IN SECURITIES OF FOREIGN ISSUERS
The Fund may from time to time invest in securities of foreign issuers.
Securities of foreign issuers may be denominated in U.S. dollars or in
currencies other than U.S. dollars. Investments in foreign securities present
certain risks not ordinarily associated with investments in securities of U.S.
issuers. These risks include fluctuations in foreign currency exchange rates,
political, economic or legal developments (including war or other instability,
expropriation of assets, nationalization and confiscatory taxation), imposition
of foreign exchange limitations (including currency blockage), withholding taxes
on dividend or interest payments or capital transactions or other restrictions,
higher transaction costs (including higher brokerage, custodial and settlement
costs and currency translation costs) and possible difficulty in enforcing
contractual obligations or taking judicial action. Also, foreign securities may
not be as liquid and may be more volatile than comparable domestic securities.
In addition, there often is less publicly available information about many
foreign issuers, and issuers of foreign securities are subject to different,
often less comprehensive, auditing, accounting, financial reporting and
disclosure requirements than domestic issuers. There is generally less
government regulation of stock exchanges, brokers and listed companies abroad
than in the U.S., and, with respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investment in those countries. Because there is
usually less supervision and governmental regulation of exchanges, brokers and
dealers than there is in the U.S., a Fund may experience settlement difficulties
or delays not usually encountered in the U.S.
Delays in making trades in foreign securities relating to volume constraints,
limitations or restrictions, clearance or settlement procedures, or otherwise
could impact returns and result in temporary periods when assets of the Fund are
not fully invested or attractive investment opportunities are foregone.
A Fund's investments in securities of developing or emerging markets are subject
to greater risks than a
7
<PAGE>
Fund's investments in securities of developed countries since emerging markets
tend to have economic structures that are less diverse and mature and political
systems that are less stable than developed countries.
In addition to the increased risks of investing in foreign issuers, there are
often increased transactions costs associated with investing in foreign
securities including the costs incurred in connection with converting
currencies, higher foreign brokerage or dealer costs, and higher settlement
costs or custodial costs.
Investors should carefully consider the risks of foreign investments before
investing in the Fund.
DERIVATIVE INSTRUMENTS
The Fund may, but is not required to, use various investment strategic
transactions described below to earn income, facilitate portfolio management and
mitigate risks. Such strategic transactions are generally accepted under modern
portfolio management and are regularly used by many mutual funds and other
institutional investors. Although the Fund's investment adviser seeks to use the
practices to further the Fund's investment objective, no assurance can be given
that these practices will achieve this result.
The Fund may purchase and sell derivative instruments such as exchange-listed
and over-the-counter put and call options on securities, financial futures,
equity, fixed-income and interest rate indices, and other financial instruments,
futures contracts and options thereon (including but not limited to securities
index futures, foreign currency exchange futures, interest rate futures and
other financial futures), structured notes, swaps, caps, floors or collars and
enter into various currency transactions such as currency forward contracts,
currency futures contracts, currency swaps or options on currency or currency
futures. In addition, the Fund may invest in other derivative instruments that
are developed over time if their use would be consistent with the objective of
the Fund. Collectively, all of the above are referred to as "Strategic
Transactions." The Fund generally seeks to use Strategic Transactions as a
portfolio management or hedging technique to seek to protect against possible
adverse changes in the market value of securities held in or to be purchased for
the Fund's portfolio, protect the Fund's unrealized gains, facilitate the sale
of certain securities for investment purposes, protect against changes in
currency exchange rates or to adjust the exposure to a particular currency,
manage the effective maturity or duration of the Fund's portfolio, establish
positions in the derivatives markets as a substitute for purchasing or selling
particular securities, including, for example, when the Fund adjusts its
exposure to a market in response to changes in investment strategy, when doing
so provides more liquidity than the direct purchase of the securities underlying
such derivatives, when the Fund 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. The Fund may invest up to 33 1/3%
of its total assets in Strategic Transactions for non-hedging purposes (measured
by the aggregate notional amount of outstanding derivatives). In addition, the
Fund may invest up to 20% of its total assets in futures contracts and options
on futures contracts (measured by the aggregate notional amount of such
outstanding contracts).
Strategic Transactions have risks including the imperfect correlation between
the value of such instruments and the underlying assets, the possible default of
the other party to the transaction or illiquidity of the derivative instruments.
Furthermore, the ability to successfully use Strategic Transactions depends on
the Fund's investment adviser's ability to predict pertinent market movements,
which cannot be assured. Thus, the use of Strategic Transactions may result in
losses greater than if they had not been used, may require the Fund to sell or
purchase portfolio securities at inopportune times or for prices other than
current market values, may limit the amount of appreciation the Fund can
otherwise realize on an investment, or may cause the Fund to hold a security
that it might otherwise sell. The use of currency transactions can result in the
Fund incurring losses because of the imposition of exchange controls, suspension
of settlements or the inability of the Fund to deliver or receive a specified
currency. In addition, amounts paid as premiums or cash or
8
<PAGE>
other assets held in margin accounts with respect to Strategic Transactions are
not otherwise available to the Fund for investment purposes.
A more complete discussion of Strategic Transactions and their risks is
contained in the Fund's Statement of Additional Information. The Statement of
Additional Information can be obtained by investors free of charge as described
on the back cover of this prospectus.
OTHER INVESTMENTS AND RISK FACTORS
For cash management purposes, the Fund may engage in repurchase agreements with
banks and broker-dealers and other financial institutions in order to earn a
return on temporarily available cash. Such transactions are subject to the risk
of default by the other party.
The Fund may lend its portfolio securities in an amount up to 33 1/3% of its
total assets to broker-dealers, banks or other recognized institutional
borrowers of securities. The Fund may incur lending fees and other costs in
connection with securities lending, and securities lending is subject to the
risk of default by the other party.
The Fund may invest up to 15% of the Fund's net assets in illiquid securities
and certain restricted securities. Notwithstanding the foregoing, the Fund may
not invest more than 10% of its total assets in securities subject to legal or
contractual restrictions on resale. Such securities may be difficult or
impossible to sell at the time and the price that the Fund would like. Thus, the
Fund may have to sell such securities at a lower price, sell other securities
instead to obtain cash or forego other investment opportunities.
Further information about these types of investments and other investment
practices that may be used by the Fund is contained in the Statement of
Additional Information.
The Fund may sell securities without regard to the length of time they have been
held in order to take advantage of new investment opportunities or when the
Fund's investment adviser believes the potential for income or capital
appreciation has lessened or for other reasons. The portfolio turnover rate may
be expected to vary from year to year. A high portfolio turnover rate (100% or
more) increases the Fund's transactions costs (including brokerage commissions
or dealer costs) and a high portfolio turnover rate may result in the
realization of more short-term capital gains than if the Fund had a lower
portfolio turnover rate. Increases in the Fund's transaction costs would
adversely impact the Fund's performance. The turnover rate will not be a
limiting factor, however, if the Fund's investment adviser considers portfolio
changes appropriate.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Fund may on a temporary basis hold cash or invest a
portion or all of its assets in money-market instruments including obligations
of the U.S. government, its agencies or instrumentalities, obligations of
foreign sovereignties, other high-quality debt securities, including prime
commercial paper, repurchase agreements and bank obligations, such as bankers'
acceptances and certificates of deposit (including Eurodollar certificates of
deposit). Under normal market conditions, the potential for capital appreciation
on these securities will tend to be lower than the potential for capital
appreciation on other securities that may be owned by the Fund. In taking such a
defensive position, the Fund would not be pursuing and may not achieve its
investment objective.
YEAR 2000 RISKS. Like other mutual funds, financial and business organizations
and individuals around the world, the Fund could be adversely affected if the
computer systems used by the Fund's investment adviser, subadviser and other
service providers do not properly process and calculate date-related information
and data from and after January 1, 2000. This is commonly known as the "Year
2000 Problem." The Fund's investment adviser and subadviser are taking steps
that they believe are reasonably designed to address the Year 2000 Problem with
respect to computer systems that they use and to obtain reasonable assurances
that comparable steps are being taken by the Fund's other major service
providers. At this time, there can be no assurances that these steps will be
sufficient to avoid any adverse impact to the Fund. In addition, the Year 2000
Problem may adversely affect the markets and the issuers of securities in which
the Fund may invest
9
<PAGE>
which, in turn, may adversely affect the net asset value of shares of the Fund.
Improperly functioning trading systems may result in settlement problems and
liquidity issues. In addition, corporate and governmental data processing errors
may result in production problems for individual companies or issuers and
overall economic uncertainty. Earnings of individual issuers will be affected by
remediation costs, which may be substantial and may be reported inconsistently
in U.S. and foreign financial statements. Efforts in foreign countries to
remediate the potential Year 2000 Problem may not be as extensive as those in
the U.S. As a result, the operations of foreign markets and issuers may be
disrupted by the Year 2000 Problem that could adversely affect the net asset
value of the Fund's portfolio. The risks are greater with respect to certain
developing or emerging market countries; because there is an increased
likelihood that issuers of securities of such countries cannot anticipate or
effectively manage the effects of computer programs and the Year 2000 Problem.
Accordingly, the Fund's investments may be adversely affected. The statements
above are subject to the Year 2000 Information and Readiness Disclosure Act
which may limit the legal rights regarding the use of such statements in the
case of a dispute.
INVESTMENT ADVISORY
SERVICES
INVESTMENT ADVISER
Van Kampen Investment Advisory Corp. is the investment adviser (the "Adviser" or
"Advisory Corp.") and administrator of the Fund. The Adviser is a wholly owned
subsidiary of Van Kampen Investments Inc. ("Van Kampen Investments"). Van Kampen
Investments is a diversified asset management company with more than two million
retail investor accounts, extensive capabilities for managing institutional
portfolios, and more than $79 billion under management or supervision as of
September 30, 1999. Van Kampen Investments' more than 50 open-end and 39
closed-end funds and more than 2,500 unit investment trusts are professionally
distributed by leading authorized dealers nationwide. Van Kampen Funds Inc., the
distributor of the Fund (the "Distributor") and the sponsor of the funds
mentioned above, is also a wholly owned subsidiary of Van Kampen Investments.
Van Kampen Investments is an indirect wholly owned subsidiary of Morgan Stanley
Dean Witter & Co. The Adviser's principal office is located at 1 Parkview Plaza,
PO Box 5555, Oakbrook Terrace, Illinois 60181-5555.
ADVISORY AGREEMENT AND ADMINISTRATION AGREEMENT. The Fund retains the Adviser to
manage the investment of its assets and to place orders for the purchase and
sale of its portfolio securities. Under an investment advisory agreement between
the Adviser and the Fund (the "Advisory Agreement"), the Fund pays the Adviser a
monthly fee computed based upon an annual rate of 0.75% applied to the average
daily net assets of the Fund.
The Fund also retains the Adviser to provide administrative services for the
Fund's day-to-day operations. Under an administration agreement, between the
Adviser and the Fund, the Fund pays a monthly administration fee computed based
upon an annual rate of 0.25% applied to the average daily net assets of the
Fund.
The Adviser furnishes offices, necessary facilities and equipment, provides
administrative services, and permits its officers and employees to serve without
compensation as directors or officers of the Fund if elected to such positions.
The Fund pays all charges and expenses of its day-to-day operations, including
the compensation of directors of the Fund (other than those who are affiliated
persons of the Adviser, Distributor or Van Kampen Investments), the charges and
expenses of legal counsel and independent accountants, distribution fees,
service fees, custodian fees, the costs of providing reports to shareholders,
and all other ordinary business expenses not specifically assumed by the
Adviser.
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen Asset Management
Inc. ("Asset Management").
INVESTMENT SUBADVISER
Morgan Stanley Dean Witter Investment Management Inc. (the "Subadviser") is the
Subadviser of the Fund. The Subadviser is a wholly owned subsidiary of Morgan
Stanley Dean Witter & Co., and is an affiliate of the Adviser. The Subadviser
conducts a
10
<PAGE>
worldwide portfolio management business and provides a broad range of portfolio
management services to customers in the United States and abroad. At June 30,
1999, the Subadviser, together with its affiliated institutional asset
management companies, managed assets of approximately $175.3 billion, including
assets under fiduciary advice. The Subadviser's principal office is located at
1221 Avenue of the Americas, New York, New York 10020. On December 1, 1998,
Morgan Stanley Asset Management Inc. changed its name to Morgan Stanley Dean
Witter Investment Management Inc. but continues to do business in certain
instances using the name Morgan Stanley Asset Management.
SUBADVISORY AGREEMENT. The Adviser has entered into a subadvisory agreement with
the Subadviser to assist the Adviser in performing its investment advisory
functions. The Adviser pays the Subadviser on a monthly basis a portion of the
net advisory fees the Adviser receives from the Fund.
GENERAL
From time to time, the Adviser, the Subadviser or the Distributor may
voluntarily undertake to reduce the Fund's expenses by reducing the fees payable
to them or by reducing other expenses of the Fund in accordance with such
limitations as the Adviser, the Subadviser or the Distributor may establish.
PERSONAL INVESTMENT POLICIES. The Fund, the Adviser and the Subadviser have
adopted Codes of Ethics designed to recognize the fiduciary relationship among
the Fund, the Adviser and the Subadviser and their respective employees. The
Codes of Ethics permit directors, trustees, officers and employees to buy and
sell securities for their personal accounts subject to certain restrictions.
Persons with access to certain sensitive information are subject to
pre-clearance and other procedures designed to prevent conflicts of interest.
PORTFOLIO MANAGEMENT. Margaret K. Johnson is responsible for the day-to-day
management of the Fund's investment portfolio. Ms. Johnson is a Principal of the
Subadviser and Morgan Stanley Dean Witter & Co. and a Fund Manager in the
Institutional Equity Group. She joined the Subadviser in 1984 and worked as an
analyst in the Marketing and Fiduciary Advisor areas. Ms. Johnson became an
equity analyst in 1986 and a fund manager in 1989. She holds a B.A. from Yale
College and is a Chartered Financial Analyst.
PURCHASE OF SHARES
GENERAL
The Fund offers three classes of shares designated as Class A Shares, Class B
Shares and Class C Shares. By offering three classes of shares, the Fund permits
each investor to choose the class of shares that is most beneficial given the
amount to be invested and the length of time the investor expects to hold the
shares.
Initial investments must be at least $1,000 for each class of shares, and
subsequent investments must be at least $25 for each class of shares. Both
minimums may be waived by the Distributor for plans involving periodic
investments.
Each class of shares represents an interest in the same portfolio of investments
of the Fund and has the same rights except that (i) Class A Shares generally
bear the sales charge expenses at the time of purchase while Class B Shares and
Class C Shares bear the sales charge expenses at the time of redemption and any
expenses (including higher distribution fees and transfer agency costs)
resulting from such deferred sales charge arrangement, (ii) generally, each
class of shares has exclusive voting rights with respect to approvals of the
Rule 12b-1 distribution plan and service plan (each as described below) under
which its distribution fee or service fee is paid, (iii) each class of shares
has different exchange privileges, (iv) certain classes of shares are subject to
a conversion feature and (v) certain classes of shares have different
shareholder service options available.
The offering price of the Fund's shares is based upon the Fund's net asset value
per share (plus sales charges, where applicable). The net asset values per share
of the Class A Shares, Class B Shares and Class C Shares are generally expected
to be substantially the same. In certain circumstances, however,
11
<PAGE>
the per share net asset values of the classes of shares may differ from one
another, reflecting the daily expense accruals of the higher distribution fees
and transfer agency costs applicable to the Class B Shares and Class C Shares
and the differential in the dividends that may be paid on each class of shares.
The net asset value per share for each class of shares of the Fund is determined
once daily as of the close of trading on the New York Stock Exchange (the
"Exchange") (currently 4:00 p.m., New York time) each day the Exchange is open
for trading except on any day on which no purchase or redemption orders are
received or there is not a sufficient degree of trading in the Fund's portfolio
securities such that the Fund's net asset value per share might be materially
affected. The Fund's Board of Directors reserves the right to calculate the net
asset value per share and adjust the offering price based thereon more
frequently than once daily if deemed desirable. Net asset value per share for
each class is determined by dividing the value of the Fund's portfolio
securities, cash and other assets (including accrued interest) attributable to
such class, less all liabilities (including accrued expenses) attributable to
such class, by the total number of shares of the class outstanding. Such
computation is made by using prices as of the close of trading on the Exchange
and (i) valuing securities listed or traded on a national securities exchange at
the closing price, or if no closing price is available, at the last reported
sale price, and if there has been no sale that day, at the mean between the last
reported bid and asked prices, (ii) valuing over-the-counter securities at the
last reported sale price from the National Association of Securities Dealers
Automated Quotations ("NASDAQ"), (iii) valuing unlisted securities and any
securities for which market quotations are not readily available at the average
of the mean between the current reported bid and asked prices obtained from
reputable brokers and (iv) valuing any other assets at fair value as determined
in good faith by the Adviser in accordance with procedures established by the
Fund's Board of Directors. Debt securities with remaining maturities of 60 days
or less are valued on an amortized cost basis, which approximates market value.
The Fund has adopted a distribution plan (the "Distribution Plan") with respect
to each class of its shares pursuant to Rule 12b-1 under the 1940 Act. The Fund
also has adopted a service plan (the "Service Plan") with respect to each class
of its shares. Under the Distribution Plan and the Service Plan, the Fund pays
distribution fees in connection with the sale and distribution of its shares and
service fees in connection with the provision of ongoing services to
shareholders of each class.
The amount of distribution and service fees varies among the classes offered by
the Fund. Because these fees are paid out of the Fund's assets on an ongoing
basis, these fees will increase the cost of your investment in the Fund. By
purchasing a class of shares subject to higher distribution and service fees,
you may pay more over time than on a class of shares with other types of sales
charge arrangements. Long-term shareholders may pay more than the economic
equivalent of the maximum front-end sales charges permitted by the rules of the
National Association of Securities Dealers, Inc. ("NASD"). The net income
attributable to a class of shares will be reduced by the amount of the
distribution fees and other expenses of the Fund associated with such class of
shares. To assist investors in comparing classes of shares, the tables under the
heading "Fees and Expenses of the Fund" provide a summary of sales charges and
expenses and an example of the sales charges and expenses of the Fund applicable
to each class of shares.
The shares are offered to the public on a continuous basis through the
Distributor as principal underwriter, which is located at 1 Parkview Plaza, PO
Box 5555, Oakbrook Terrace, Illinois 60181-5555. Shares also are offered through
members of the NASD who are acting as securities dealers ("dealers") and NASD
members or eligible non-NASD members who are acting as brokers or agents for
investors ("brokers"). "Dealers" and "brokers" are sometimes referred to herein
as "authorized dealers."
Shares may be purchased on any business day by completing the application
accompanying this prospectus and forwarding the application, directly or through
an authorized dealer, to the Fund's shareholder service agent, Van Kampen
Investor Services Inc. ("Investor Services"), a wholly owned subsidiary of Van
Kampen Investments. When purchasing
12
<PAGE>
shares of the Fund, investors must specify whether the purchase is for Class A
Shares, Class B Shares or Class C Shares. Sales personnel of authorized dealers
distributing the Fund's shares are entitled to receive compensation for selling
such shares and may receive differing compensation for selling Class A Shares,
Class B Shares or Class C Shares.
The offering price for shares is based upon the next calculation of net asset
value per share (plus sales charges, where applicable) after an order is
received by Investor Services. Orders received by authorized dealers prior to
the close of the Exchange are priced based on the date of receipt provided such
order is transmitted to Investor Services prior to Investor Services' close of
business on such date. Orders received by authorized dealers after the close of
the Exchange or transmitted to Investor Services after its close of business are
priced based on the date of the next computed net asset value per share provided
they are received by Investor Services prior to Investor Services' close of
business on such date. It is the responsibility of authorized dealers to
transmit orders received by them to Investor Services so they will be received
in a timely manner.
The Fund and the Distributor reserve the right to refuse any order for the
purchase of shares. The Fund also reserves the right to suspend the sale of the
Fund's shares in response to conditions in the securities markets or for other
reasons. Shares of the Fund may be sold in foreign countries where permissible.
Investor accounts will automatically be credited with additional shares of the
Fund after any Fund distributions, such as dividends and capital gain dividends,
unless the investor instructs the Fund otherwise. Investors wishing to receive
cash instead of additional shares should contact the Fund at (800) 341-2911 or
by writing to the Fund, c/o Van Kampen Investors Services Inc., PO Box 218256,
Kansas City, MO 64121-8256.
CLASS A SHARES
Class A Shares of the Fund are sold at net asset value plus an initial maximum
sales charge of up to 5.75% of the offering price (or 6.10% of the net amount
invested), reduced on investments of $50,000 or more as follows:
CLASS A SHARES
SALES CHARGE SCHEDULE
<TABLE>
AS % OF
AS % OF NET
SIZE OF OFFERING AMOUNT
INVESTMENT PRICE INVESTED
- -----------------------------------------------------
<S> <C> <C>
Less than $50,000 5.75% 6.10%
....................................................
$50,000 but less than
$100,000 4.75% 4.99%
....................................................
$100,000 but less than
$250,000 3.75% 3.90%
....................................................
$250,000 but less than
$500,000 2.75% 2.83%
....................................................
$500,000 but less than
$1,000,000 2.00% 2.04%
....................................................
$1,000,000 or more * *
....................................................
</TABLE>
* NO SALES CHARGE IS PAYABLE AT THE TIME OF PURCHASE ON INVESTMENTS OF
$1 MILLION OR MORE, ALTHOUGH FOR SUCH INVESTMENTS THE FUND MAY IMPOSE
A CONTINGENT DEFERRED SALES CHARGE OF 1.00% ON CERTAIN REDEMPTIONS
MADE WITHIN ONE YEAR OF THE PURCHASE. THE CONTINGENT DEFERRED SALES
CHARGE IS ASSESSED ON AN AMOUNT EQUAL TO THE LESSER OF THE THEN
CURRENT MARKET VALUE OR THE COST OF THE SHARES BEING REDEEMED.
ACCORDINGLY, NO SALES CHARGE IS IMPOSED ON INCREASES IN NET ASSET
VALUE ABOVE THE INITIAL PURCHASE PRICE.
No sales charge is imposed on Class A Shares received from reinvestment of
dividends or capital gain dividends.
Under the Distribution Plan and Service Plan, the Fund may spend up to a total
of 0.25% per year of the Fund's average daily net assets with respect to the
Class A Shares of the Fund. From such amount, under the Service Plan, the Fund
may spend up to 0.25% per year of the Fund's average daily net assets with
respect to the Class A Shares for the ongoing provision of services to Class A
shareholders by the Distributor and by brokers, dealers or financial
intermediaries and for the maintenance of such shareholders' accounts.
CLASS B SHARES
Class B Shares of the Fund are sold at net asset value and are subject to a
contingent deferred sales
13
<PAGE>
charge if redeemed within five years of purchase as shown in the table as
follows:
CLASS B SHARES
SALES CHARGE SCHEDULE
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE
AS A PERCENTAGE OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
<S> <C>
- -------------------------------------------------------
First 5.00%
......................................................
Second 4.00%
......................................................
Third 3.00%
......................................................
Fourth 2.50%
......................................................
Fifth 1.50%
......................................................
Sixth and After None
......................................................
</TABLE>
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gain dividends. It
is presently the policy of the Distributor not to accept any order for Class B
Shares in an amount of $500,000 or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
The amount of the contingent deferred sales charge, if any, varies depending on
the number of years from the time of payment for the purchase of Class B Shares
until the time of redemption of such shares. Solely for purposes of determining
the number of years from the time of any payment for the purchase of shares, all
payments during a month are totaled and deemed to have been made on the last day
of the month.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed shares being redeemed first are any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge followed by shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
Fund's average daily net assets with respect to the Class B Shares of the Fund.
In addition, under the Service Plan, the Fund may spend up to 0.25% per year of
the Fund's average daily net assets with respect to the Class B Shares for the
ongoing provision of services to Class B shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CLASS C SHARES
Class C Shares of the Fund are sold at net asset value and are subject to a
contingent deferred sales charge of 1.00% of the dollar amount subject to charge
if redeemed within one year of purchase.
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gain dividends. It
is presently the policy of the Distributor not to accept any order for Class C
Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed shares being redeemed first are any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge followed by shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
Fund's average daily net assets with respect to the Class C Shares of the Fund.
In addition, under the Service Plan, the Fund may spend up to 0.25% per year of
the Fund's average daily net assets with respect to the Class C Shares for the
ongoing provision of services to Class C shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
14
<PAGE>
CONVERSION FEATURE
Class B Shares and any dividend reinvestment plan Class B Shares received on
such shares, automatically convert to Class A Shares eight years after the end
of the calendar month in which the shares were purchased. Such conversion will
be on the basis of the relative net asset values per share, without the
imposition of any sales load, fee or other charge. The conversion schedule
applicable to a share of the Fund acquired through the exchange privilege from
another Van Kampen fund participating in the exchange program is determined by
reference to the Van Kampen fund from which such share was originally purchased.
The conversion of such shares to Class A Shares is subject to the continuing
availability of an opinion of counsel to the effect that (i) the assessment of
the higher distribution fee and transfer agency costs with respect to such
shares does not result in the Fund's dividends or capital gain dividends
constituting "preferential dividends" under the federal income tax law and
(ii) the conversion of shares does not constitute a taxable event under federal
income tax law. The conversion may be suspended if such an opinion is no longer
available and such shares might continue to be subject to the higher aggregate
fees applicable to such shares for an indefinite period.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge is waived on redemptions of Class B Shares
and Class C Shares (i) within one year following the death or disability (as
disability is defined by federal income tax law) of a shareholder, (ii) for
required minimum distributions from an individual retirement account ("IRA") or
certain other retirement plan distributions, (iii) for withdrawals under the
Fund's systematic withdrawal plan but limited to 12% annually of the initial
value of the account, (iv) if no commission or transaction fee is paid to
authorized dealers at the time of purchase of such shares and (v) if made by
involuntary liquidation by the Fund of a shareholder's account as described
under the heading "Redemption of Shares." Subject to certain limitations, a
shareholder who has redeemed Class C Shares of the Fund may reinvest in Class C
Shares at net asset value with credit for any contingent deferred sales charge
if the reinvestment is made within 180 days after the redemption. For a more
complete description of contingent deferred sales charge waivers, please refer
to the Fund's Statement of Additional Information or contact your authorized
dealer.
QUANTITY DISCOUNTS
Investors purchasing Class A Shares may, under certain circumstances described
below, be entitled to pay reduced or no sales charges. Investors, or their
authorized dealers, must notify the Fund at the time of the purchase order
whenever a quantity discount is applicable to purchases. Upon such notification,
an investor will receive the lowest applicable sales charge. Quantity discounts
may be modified or terminated at any time. For more information about quantity
discounts, investors should contact their authorized dealer or the Distributor.
A person eligible for a reduced sales charge includes an individual, his or her
spouse and children under 21 years of age and any corporation, partnership or
sole proprietorship which is 100% owned, either alone or in combination, by any
of the foregoing; a trustee or other fiduciary purchasing for a single trust or
for a single fiduciary account, or a "company" as defined in Section 2(a)(8) of
the 1940 Act.
As used herein, "Participating Funds" refers to certain open-end investment
companies advised by Asset Management or Advisory Corp. and distributed by the
Distributor as determined from time to time by the Fund's Board of Directors.
VOLUME DISCOUNTS. The size of investment shown in the Class A Shares sales
charge table applies to the total dollar amount being invested by any person in
shares of the Fund, or in any combination of shares of the Fund and shares of
other Participating Funds, although other Participating Funds may have different
sales charges.
CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the Class A Shares
sales charge table may also be determined by combining the amount being invested
in shares of the Participating Funds plus the current offering price of all
shares of the Participating Funds which have been previously purchased and are
still owned.
15
<PAGE>
LETTER OF INTENT. A Letter of Intent provides an opportunity for an investor to
obtain a reduced sales charge by aggregating the investments over a 13-month
period to determine the sales charge as outlined in the Class A Shares sales
charge table. The size of investment shown in the Class A Shares sales charge
table includes purchases of shares of the Participating Funds over a 13-month
period based on the total amount of intended purchases plus the value of all
shares of the Participating Funds previously purchased and still owned. An
investor may elect to compute the 13-month period starting up to 90 days before
the date of execution of a Letter of Intent. Each investment made during the
period receives the reduced sales charge applicable to the total amount of the
investment goal. The initial purchase must be for an amount equal to at least 5%
of the minimum total purchase amount of the level selected. If trades not
initially made under a Letter of Intent subsequently qualify for a lower sales
charge through the 90-day backdating provisions, an adjustment will be made at
the time of the expiration of the Letter of Intent to give effect to the lower
charge. Such adjustment in sales charge will be used to purchase additional
shares for the shareholder at the applicable discount category. The Fund
initially will escrow shares totaling 5% of the dollar amount of the Letter of
Intent to be held by Investor Services in the name of the shareholder. In the
event the Letter of Intent goal is not achieved within the specified period, the
investor must pay the difference between the sales charge applicable to the
purchases made and the reduced sales charge previously paid. Such payments may
be made directly to the Distributor or, if not paid, the Distributor will
liquidate sufficient escrowed shares to obtain the difference.
OTHER PURCHASE PROGRAMS
Purchasers of Class A Shares may be entitled to reduced or no initial sales
charges in connection with the unit investment trust reinvestment program and
purchases by registered representatives of selling firms or purchases by persons
affiliated with the Fund or the Distributor. The Fund reserves the right to
modify or terminate these arrangements at any time.
UNIT INVESTMENT TRUST REINVESTMENT PROGRAM. The Fund permits unitholders of unit
investment trusts to reinvest distributions from such trusts in Class A Shares
of the Fund at net asset value per share and with no minimum initial or
subsequent investment requirement, if the administrator of an investor's unit
investment trust program meets certain uniform criteria relating to cost savings
by the Fund and the Distributor. The total sales charge for all other
investments made from unit investment trust distributions will be 1.00% of the
offering price (1.01% of net asset value). Of this amount, the Distributor will
pay to the authorized dealer, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the terms and conditions that apply to the program,
should contact their authorized dealer or the Distributor.
The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during each distribution period by all investors who choose to invest in
the Fund through the program and (2) provide Investor Services with appropriate
backup data for each investor participating in the program in a computerized
format fully compatible with Investor Services' processing system.
In order to obtain these special benefits, all dividends and other distributions
by the Fund must be reinvested in additional shares and there can not be any
systematic withdrawal program. There will be no minimum for reinvestments from
unit investment trusts. The Fund will send account activity statements to such
participants on a quarterly basis only, even if their investments are made more
frequently. The Fund reserves the right to modify or terminate this program at
any time.
NET ASSET VALUE PURCHASE OPTIONS. Class A Shares of the Fund may be purchased at
net asset value, upon written assurance that the purchase is made for
16
<PAGE>
investment purposes and that the shares will not be resold except through
redemption by the Fund, by:
(1) Current or retired trustees or directors of funds advised by Morgan Stanley
Dean Witter & Co. and any of its subsidiaries and such persons' families
and their beneficial accounts.
(2) Current or retired directors, officers and employees of Morgan Stanley Dean
Witter & Co. and any of its subsidiaries; employees of an investment
subadviser to any fund described in (1) above or an affiliate of such
subadviser; and such persons' families and their beneficial accounts.
(3) Directors, officers, employees and, when permitted, registered
representatives, of financial institutions that have a selling group
agreement with the Distributor and their spouses and children under 21
years of age when purchasing for any accounts they beneficially own, or, in
the case of any such financial institution, when purchasing for retirement
plans for such institution's employees; provided that such purchases are
otherwise permitted by such institutions.
(4) Registered investment advisers who charge a fee for their services, trust
companies and bank trust departments investing on their own behalf or on
behalf of their clients. The Distributor may pay authorized dealers through
which purchases are made an amount up to 0.50% of the amount invested, over
a 12-month period.
(5) Trustees and other fiduciaries purchasing shares for retirement plans which
invest in multiple fund families through broker-dealer retirement plan
alliance programs that have entered into agreements with the Distributor
and which are subject to certain minimum size and operational requirements.
Trustees and other fiduciaries should refer to the Statement of Additional
Information for further details with respect to such alliance programs.
(6) Beneficial owners of shares of Participating Funds held by a retirement
plan or held in a tax-advantaged retirement account who purchase shares of
the Fund with proceeds from distributions from such a plan or retirement
account other than distributions taken to correct an excess contribution.
(7) Accounts as to which a bank or broker-dealer charges an account management
fee ("wrap accounts"), provided the bank or broker-dealer has a separate
agreement with the Distributor.
(8) Trusts created under pension, profit sharing or other employee benefit
plans qualified under Section 401(a) of the Internal Revenue Code of 1986,
as amended (the "Code"), or custodial accounts held by a bank created
pursuant to Section 403(b) of the Code and sponsored by nonprofit
organizations defined under Section 501(c)(3) of the Code and assets held
by an employer or trustee in connection with an eligible deferred
compensation plan under Section 457 of the Code. Such plans will qualify
for purchases at net asset value provided, for plans initially establishing
accounts with the Distributor in the Participating Funds after February 1,
1997, that (1) the initial amount invested in the Participating Funds is at
least $500,000 or (2) such shares are purchased by an employer sponsored
plan with more than 100 eligible employees. Such plans that have been
established with a Participating Fund or have received proposals from the
Distributor prior to February 1, 1997 based on net asset value purchase
privileges previously in effect will be qualified to purchase shares of the
Participating Funds at net asset value for accounts established on or
before May 1, 1997. Section 403(b) and similar accounts for which Van
Kampen Trust Company serves as custodian will not be eligible for net asset
value purchases based on the aggregate investment made by the plan or the
number of eligible employees, except under certain uniform criteria
established by the Distributor from time to time. Prior to February 1,
1997, a commission will be paid to authorized dealers who initiate and are
responsible for such purchases within a rolling twelve- month period as
follows: 1.00% on sales to $5 million, plus 0.50% on the next $5 million,
plus 0.25% on the excess over $10 million. For purchases on February 1,
1997 and thereafter, a commission will be paid as follows: 1.00% on sales
to $2 million, plus 0.80% on the next $1 million, plus 0.50% on the next
$47 million, plus 0.25% on the excess over $50 million.
17
<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 Participating Funds, (iv) has a membership that the authorized
dealer can certify as to the group's members and (v) satisfies other
uniform criteria established by the Distributor for the purpose of
realizing economies of scale in distributing such shares. A qualified group
does not include one whose sole organizational nexus, for example, is that
its participants are credit card holders of the same institution, policy
holders of an insurance company, customers of a bank or broker-dealer,
clients of an investment adviser or other similar groups. Shares purchased
in each group's participants account in connection with this privilege will
be subject to a contingent deferred sales charge of 1.00% in the event of
redemption within one year of purchase, and a commission will be paid to
authorized dealers who initiate and are responsible for such sales to each
individual as follows: 1.00% on sales to $2 million, plus 0.80% on the next
$1 million and 0.50% on the excess over $3 million.
The term "families" includes a person's spouse, children under 21 years of age
and grandchildren, parents, and a person's spouse's parents.
Purchase orders made pursuant to clause (4) may be placed either through
authorized dealers as described above or directly with Investor Services by the
investment adviser, trust company or bank trust department, provided that
Investor Services receives federal funds for the purchase by the close of
business on the next business day following acceptance of the order. An
authorized dealer may charge a transaction fee for placing an order to purchase
shares pursuant to this provision or for placing a redemption order with respect
to such shares. Authorized dealers will be paid a service fee as described above
on purchases made under options (3) through (9) above. The Fund may terminate,
or amend the terms of, offering shares of the Fund at net asset value to such
groups at any time.
REDEMPTION OF
SHARES
Generally shareholders may redeem for cash some or all of their shares without
charge by the Fund (other than applicable sales charge) at any time. As
described under the heading "Purchase of Shares," redemptions of Class B Shares
and Class C Shares may be subject to a contingent deferred sales charge. In
addition, certain redemptions of Class A Shares for shareholder accounts of $1
million or more may be subject to a contingent deferred sales charge.
Redemptions completed through an authorized dealer or a custodian of a
retirement plan account may involve additional fees charged by the dealer or
custodian.
Except as specified below under "Telephone Redemption Requests," payment for
shares redeemed generally will be made by check mailed within seven days after
receipt by Investor Services of the request and any other necessary documents in
proper form as described below. Such payment may be postponed or the right of
redemption suspended as provided by the rules of the SEC. Such payment may,
under certain circumstances, be paid wholly or in part by a distribution-in-kind
of portfolio securities which may result in brokerage costs and a gain or loss
for federal income tax purposes when such securities are sold. If the shares to
be redeemed have been recently purchased by check, Investor Services may delay
the payment of redemption proceeds until it confirms the purchase check has
cleared, which may take up to 15 days. A taxable gain or loss will be recognized
by the shareholder upon redemption of shares.
WRITTEN REDEMPTION REQUESTS. Shareholders may request a redemption of shares by
written request in proper form sent directly to Van Kampen Investor Services
Inc., PO Box 218256, Kansas City, MO 64121-8256. The request for redemption
should indicate the number of shares to be redeemed, the class designation of
such shares and the shareholder's account number. The redemption request must be
signed by all persons in whose names the shares are registered. Signatures must
conform exactly to the
18
<PAGE>
account registration. If the proceeds of the redemption exceed $50,000, or if
the proceeds are not to be paid to the record owner at the record address, or if
the record address has changed within the previous 30 days, signature(s) must be
guaranteed by one of the following: a bank or trust company; a broker-dealer; a
credit union; a national securities exchange, registered securities association
or clearing agency; a savings and loan association; or a federal savings bank.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption to be in proper form. In some
cases, however, additional documents may be necessary. In the case of
shareholders holding certificates, the certificates for the shares being
redeemed properly endorsed for transfer must accompany the redemption request.
In the event the redemption is requested by a corporation, partnership, trust,
fiduciary, executor or administrator, and the name and title of the
individual(s) authorizing such redemption is not shown in the account
registration, a copy of the corporate resolution or other legal documentation
appointing the authorized signer and certified within the prior 120 days must
accompany the redemption request. IRA redemption requests should be sent to the
IRA custodian to be forwarded to Investor Services. Contact the IRA custodian
for further information.
In the case of written redemption requests sent directly to Investor Services,
the redemption price is the net asset value per share next determined after the
request in proper form is received by Investor Services.
AUTHORIZED DEALER REDEMPTION REQUESTS. Shareholders may place redemption
requests through an authorized dealer. Orders sent through authorized dealers
must be at least $500 (unless transmitted by your authorized dealer via the
FUNDSERV network). The redemption price for such shares is the net asset value
per share next calculated after an order in proper form is received by an
authorized dealer provided such order is transmitted to the Distributor prior to
the Distributor's close of business on such day. It is the responsibility of
authorized dealers to transmit redemption requests received by them to the
Distributor so they will be received prior to such time. Redemptions completed
through an authorized dealer may involve additional fees charged by the dealer.
TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. A shareholder
automatically has telephone redemption privileges unless the shareholder
indicates otherwise by checking the applicable box on the application form
accompanying the prospectus. To redeem shares, contact the telephone transaction
line at (800) 421-5684. Van Kampen Investments, Investor Services and the Fund
employ procedures considered by them to be reasonable to confirm that
instructions communicated by telephone are genuine. Such procedures include
requiring certain personal identification information prior to acting upon
telephone instructions, tape-recording telephone communications and providing
written confirmation of instructions communicated by telephone. If reasonable
procedures are employed, none of Van Kampen Investments, Investor Services or
the Fund will be liable for following telephone instructions which it reasonably
believes to be genuine. Telephone redemptions may not be available if the
shareholder cannot reach Investor Services by telephone, whether because all
telephone lines are busy or for any other reason; in such case, a shareholder
would have to use the Fund's other redemption procedure previously described.
Requests received by Investor Services prior to 4:00 p.m., New York time, will
be processed at the next determined net asset value per share. These privileges
are available for all accounts other than retirement accounts or accounts with
shares represented by certificates. If an account has multiple owners, Investor
Services may rely on the instructions of any one owner.
For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check and amounts of at least
$1,000 up to $1 million may be redeemed daily if the proceeds are to be paid by
wire. The proceeds must be payable to the shareholder(s) of record and sent to
the address of record for the account or wired directly to their predesignated
bank account. This privilege is not available if the address of record has been
changed within 30 days prior to
19
<PAGE>
a telephone redemption request. Proceeds from redemptions payable by wire
transfer are expected to be wired on the next business day following the date of
redemption. The Fund reserves the right at any time to terminate, limit or
otherwise modify this redemption privilege.
OTHER REDEMPTION INFORMATION. The Fund may redeem shares of any shareholder
account that has a value on the date of the notice of redemption less than the
minimum initial investment as specified in this prospectus. At least 60 days
advance written notice of any such involuntary redemption will be provided to
the shareholder and such shareholder will be given an opportunity to purchase
the required value of additional shares at the next determined net asset value
without sales charge. Any involuntary redemption may only occur if the
shareholder account is less than the minimum initial investment due to
shareholder redemptions.
DISTRIBUTIONS FROM
THE FUND
In addition to any increase in the value of shares which the Fund may achieve,
shareholders may receive distributions from the Fund of dividends and capital
gain dividends.
DIVIDENDS. Dividends from stocks and interest earned from other investments are
the Fund's main sources of income. The Fund's present policy, which may be
changed at any time by the Board of Directors, is to distribute all or
substantially all of this income, less expenses, at least annually as dividends
to shareholders. Dividends are automatically applied to purchase additional
shares of the Fund at the next determined net asset value unless the shareholder
instructs otherwise.
The per share dividends on Class B Shares and Class C Shares may be lower than
the per share dividends on Class A Shares as a result of the higher distribution
fees and transfer agency costs applicable to such classes of shares.
CAPITAL GAIN DIVIDENDS. The Fund may realize capital gains or losses when it
sells securities, depending on whether the sales prices for the securities are
higher or lower than purchase prices. Net realized capital gain represents the
total profits from sales of securities minus total losses from sales of
securities (including any losses carried forward from prior years), other than
net short-term capital gain from sales of securities held for one year or less.
The Fund distributes any taxable net realized capital gain to shareholders as
capital gain dividends at least annually. As in the case of dividends, capital
gain dividends are automatically reinvested in additional shares of the Fund at
the next determined net asset value unless the shareholder instructs otherwise.
SHAREHOLDER SERVICES
Listed below are some of the shareholder services the Fund offers to investors.
For a more complete description of the Fund's shareholder services, such as
investment accounts, share certificates, retirement plans, automated clearing
house deposits, dividend diversification and the systematic withdrawal plan,
please refer to the Statement of Additional Information or contact your
authorized dealer.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gain dividends in shares of the
Fund. Such shares are acquired at net asset value per share (without sales
charge) on the applicable payable date of the dividend or capital gain dividend.
Unless the shareholder instructs otherwise, the reinvestment plan is automatic.
This instruction may be made by telephone by calling (800) 341-2911
((800) 421-2833 for the hearing impaired) or by writing to Investor Services.
The investor may, on the initial application or prior to any declaration,
instruct that dividends be paid in cash and capital gain dividends be reinvested
at net asset value, or that both dividends and capital gains distributions be
paid in cash.
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under which
a shareholder can
20
<PAGE>
authorize Investor Services to charge a bank account on a regular basis to
invest predetermined amounts in the Fund. Additional information is available
from the Distributor or your authorized dealer.
EXCHANGE PRIVILEGE. Shares of the Fund may be exchanged for shares of the same
class of any Participating Fund based on the next computed net asset value per
share of each fund after requesting the exchange without any sales charge,
subject to certain limitations. Shares of the Fund may be exchanged for shares
of any Participating Fund only if shares of that Participating Fund are
available for sale; however, during periods of suspension of sales, shares of a
Participating Fund may be available for sale only to existing shareholders of a
Participating Fund. Shareholders seeking an exchange into a Participating Fund
should obtain and read the current prospectus for such fund prior to
implementing an exchange. A prospectus of any of the Participating Funds may be
optained from any authorized dealer or the Distributor.
To be eligible for exchange, shares of the Fund must have been registered in the
shareholder's name for at least 30 days prior to an exchange. Shares of the Fund
registered in a shareholder's name for less than 30 days may only be exchanged
upon receipt of prior approval of the Adviser. It is the policy of the Adviser,
under normal circumstances, not to approve such requests.
When shares that are subject to a contingent deferred sales charge are exchanged
among Participating Funds, the holding period for purposes of computing the
contingent deferred sales charge is based upon the date of the initial purchase
of such shares from a Participating Fund. When such shares are redeemed and not
exchanged for shares of another Participating Fund, the shares are subject to
the contingent deferred sales charge schedule imposed by the Participating Fund
from which such shares were originally purchased.
Exchanges of shares are sales of one Participating Fund and purchases of another
Participating Fund. The sale may result in a gain or loss for federal income tax
purposes. If the shares sold have been held for less than 91 days, the sales
charge paid on such shares is carried over and included in the tax basis of the
shares acquired.
A shareholder wishing to make an exchange may do so by sending a written request
to Investor Services or by contacting the telephone transaction line at
(800) 421-5684. A shareholder automatically has telephone exchange privileges
unless the shareholder indicates otherwise by checking the applicable box on the
application form accompanying the prospectus. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated by telephone are genuine. Such procedures
include requiring certain personal identification information prior to acting
upon telephone instructions, tape-recording telephone communications, and
providing written confirmation of instructions communicated by telephone. If
reasonable procedures are employed, none of Van Kampen Investments, Investor
Services or the Fund will be liable for following telephone instructions which
it reasonably believes to be genuine. If the exchanging shareholder does not
have an account in the fund whose shares are being acquired, a new account will
be established with the same registration, dividend and capital gain dividend
options (except dividend diversification) and authorized dealer of record as the
account from which shares are exchanged, unless otherwise specified by the
shareholder. In order to establish a systematic withdrawal plan for the new
account or reinvest dividends from the new account into another fund, however,
an exchanging shareholder must submit a specific request. The Fund reserves the
right to reject any order to acquire its shares through exchange. In addition,
the Fund and other Participating Funds may restrict exchanges by shareholders
engaged in excessive trading by limiting or disallowing the exchange privileges
to such shareholders. For further information on these restrictions see the
Statement of Additional Information. The Fund may modify, restrict or terminate
the exchange privilege at any time on 60 days' notice to its shareholders of any
termination or material amendment.
For purposes of determining the sales charge rate previously paid on Class A
Shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of
21
<PAGE>
its predecessors shall be included. If the exchanged security was acquired
through reinvestment, that security is deemed to have been sold with a sales
charge rate equal to the rate previously paid on the security on which the
dividend or distribution was paid. If a shareholder exchanges less than all of
such shareholder's securities, the security upon which the highest sales charge
rate was previously paid is deemed exchanged first.
Exchange requests received on a business day prior to the time shares of the
funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares of the fund which the
shareholder is redeeming will be redeemed at the net asset value per share next
determined on the date of receipt. Shares of the new fund that the shareholder
is purchasing will also normally be purchased at the net asset value per share,
plus any applicable sales charge, next determined on the date of receipt.
Exchange requests received on a business day after the time shares of the funds
involved in the request are priced will be processed on the next business day in
the manner described herein.
INTERNET TRANSACTIONS. In addition to performing transactions on your account
through written instruction or by telephone, you may also perform certain
transactions through the internet. Please refer to our web site at
www.vankampen.com for further instruction. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated through the internet are genuine. Such
procedures include requiring use of a personal identification number prior to
acting upon internet instructions and providing written confirmation of
instructions communicated through the internet. If reasonable procedures are
employed, none of Van Kampen Investments, Investor Services or the Fund will be
liable for following instructions received through the internet which it
reasonably believes to be genuine. If an account has multiple owners, Investor
Services may rely on the instructions of any one owner.
FEDERAL INCOME
TAXATION
Distributions of the Fund's net investment income (consisting generally of
taxable income and net short-term capital gain, are taxable to shareholders as
ordinary income to the extent of the Fund's earnings and profits, whether paid
in cash or reinvested in additional shares. Distributions of the Fund's net
realized capital gain (which are the excess of net long-term capital gain over
net short-term capital loss) as capital gain dividends, if any, are taxable to
shareholders as long-term capital gains, whether paid in cash or reinvested in
additional shares, and regardless of how long the shares of the Fund have been
held by such shareholders. The Fund expects that its distributions will consist
primarily of ordinary income and capital gain dividends. Distributions in excess
of the Fund's earnings and profits will first reduce the adjusted tax basis of a
holder's shares and, after such adjusted tax basis is reduced to zero, will
constitute capital gains to such holder (assuming such shares are held as a
capital asset). Although distributions generally are treated as taxable in the
year they are paid, distributions declared in October, November or December,
payable to shareholders of record on a specified date in such month and paid
during January of the following year will be treated as having been distributed
by the Fund and received by the shareholders on the December 31st prior to the
date of payment. The Fund will inform shareholders of the source and tax status
of all distributions promptly after the close of each calendar year.
The sale or exchange of shares is a taxable transaction for federal income tax
purposes. Shareholders who sell their shares will generally recognize gain or
loss in an amount equal to the difference between their adjusted tax basis in
the shares sold and the amount received. If the shares are held as a capital
asset, the gain or loss will be a capital gain or loss. Any capital gains may be
taxed at different rates depending on how long the shareholder held such shares.
The Fund is required, in certain circumstances, to withhold 31% of dividends and
certain other payments, including redemptions, paid to shareholders
22
<PAGE>
who do not furnish to the Fund their correct taxpayer identification number (in
the case of individuals, their social security number) and certain required
certifications or who are otherwise subject to backup withholding.
Foreign shareholders, including shareholders who are non-resident aliens, may be
subject to U.S. withholding tax on certain distributions (whether received in
cash or in shares) at a rate of 30% or such lower rate as prescribed by an
applicable treaty. Prospective foreign investors should consult their tax
advisers concerning the tax consequences to them of an investment in shares.
The Fund intends to qualify as a regulated investment company under federal
income tax law. If the Fund so qualifies and distributes each year to its
shareholders at least 90% of its net investment income, the Fund will not be
required to pay federal income taxes on any income it distributes to
shareholders. If the Fund distributes less than an amount equal to the sum of
98% of its ordinary income and 98% of its capital gain net income, then the Fund
will be subject to a 4% excise tax on the undistributed amounts.
The federal income tax discussion set forth above is for general information
only. Prospective investors should consult their own tax advisers regarding the
specific federal tax consequences of purchasing, holding, disposing, exchanging
or selling of shares, as well as the effects of state, local and foreign tax law
and any proposed tax law changes.
23
<PAGE>
APPENDIX -- DESCRIPTION OF SECURITIES RATINGS
STANDARD & POOR'S -- A brief description of the applicable Standard & Poor's
(S&P) rating symbols and their meanings (as published by S&P) follow:
A S&P corporate or municipal debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees.
The debt rating is not a recommendation to purchase, sell, or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished by the issuer or obtained
by S&P from other sources it considers reliable. S&P does not perform an audit
in connection with any rating and may, on occasion, rely on unaudited financial
information. The ratings may be changed, suspended, or withdrawn as a result of
changes in, or unavailability of, such information, or based on other
circumstances.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of payment -- capacity and willingness of the obligor to meet its
financial commitment on an obligation in accordance with the terms of the
obligation:
2. Nature of and provisions of the obligation:
3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditor's rights.
1. LONG-TERM DEBT -- INVESTMENT GRADE
AAA: Debt rated "AAA" has the highest rating assigned by S&P. Capacity to meet
its financial commitment on the obligation is extremely strong.
AA: Debt rated "AA" differs from the highest rated issues only in small degree.
Capacity to meets its financial commitment on the obligation is very strong.
A: Debt rated "A" is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than obligations in higher rated
categories. Capacity to meet its financial commitment on the obligation is still
strong.
BBB: Debt rated "BBB" exhibits adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to meet its financial commitment on the obligation.
SPECULATIVE GRADE
BB, B, CCC, CC, C: Debts rated "BB", "B", "CCC", "CC" and "C" are regarded as
having significant speculative characteristics. "BB" indicates the least degree
of speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
BB: Debt rated "BB" is less vulnerable to nonpayment than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
B: Debt rated "B" is more vulnerable to nonpayment than obligations rated "BB",
but the obligor currently has the capacity to meet its financial commitment on
the obligation. Adverse business, financial, or economic conditions will likely
impair the obligor's capacity or willingness to meet its financial commitment on
the obligation.
CCC: Debt rated "CCC" is currently vulnerable to nonpayment, and is dependent
upon favorable business, financial, and economic conditions for the obligor to
meet its financial commitment on the obligation. In the event of adverse
business, financial, or economic conditions, the obligor is not likely to have
A-1
<PAGE>
the capacity to meet its financial commitment on the obligation.
CC: Debt rated "CC" is currently highly vulnerable to nonpayment.
C: the "C" rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments on this obligation
are being continued.
D: Debt rated "D" is in payment default. The "D" rating category is used when
payments on an obligation are not made on the date due even if the applicable
grace period has not expired, unless S&P believes that such payments will be
made during such grace period. The "D" rating also will be used upon the filing
of a bankruptcy petition or the taking of a similar action if payments on an
obligation are jeopardized.
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
r: This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk -- such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
DEBT OBLIGATIONS OF ISSUERS OUTSIDE THE UNITED STATES AND ITS TERRITORIES are
rated on the same basis as domestic corporate and municipal issues. The ratings
measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.
BOND INVESTMENT QUALITY STANDARDS: Under present commercial bank regulations
issued by the Comptroller of the Currency, bonds rated in the top four
categories ("AAA", "AA", "A", "BBB", commonly known as "investment grade"
ratings) are generally regarded as eligible for bank investment. In addition,
the laws of various states governing legal investments impose certain ratings or
other standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.
2. COMMERCIAL PAPER
A S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.
Ratings are graded into several categories, ranging from "A-1" for the highest
quality obligations to "D" for the lowest. These categories are as follows:
A-1: The highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
A-3: Issues carrying this designation have adequate capacity for timely payment.
They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B: Issues rated "B" are regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
C: This rating is assigned to short-term debt obligations currently vulnerable
to nonpayment and is dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on the obligation.
D: Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired,
A-2
<PAGE>
unless S&P believes that such payments will be made during such grace period.
The "D" rating also will be used upon the filing of a bankruptcy petition or the
taking of a similar action if payments on an obligation are jeopardized.
A commercial paper rating is not a recommendation to purchase, sell or hold a
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained from other sources it considers reliable. S&P does
not perform an audit in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed, suspended or
withdrawn as a result of changes in, or unavailability of, such information, or
based on other circumstances.
3. PREFERRED STOCK
A S&P preferred stock rating is an assessment of the capacity and willingness of
an issuer to pay preferred stock dividends and any applicable sinking fund
obligations. A preferred stock rating differs from a bond rating inasmuch as it
is assigned to an equity issue, which issue is intrinsically different from, and
subordinated to, a debt issue. Therefore, to reflect this difference, the
preferred stock rating symbol will normally not be higher than the bond rating
symbol assigned to, or that would be assigned to, the senior debt of the same
issuer.
The preferred stock ratings are based on the following considerations:
i. Likelihood of payment-capacity and willingness of the issuer to meet the
timely payment of preferred stock dividends and any applicable sinking fund
requirements in accordance with the terms of the obligation.
ii. Nature of, and provisions of, the issuer.
iii. Relative position of the issue in the event of bankruptcy, reorganization,
or other arrangements under the laws of bankruptcy and other laws affecting
creditors' rights.
AAA: This is the highest rating that may be assigned by S&P to a preferred stock
issue and indicates an extremely strong capacity to pay the preferred stock
obligations.
AA: A preferred stock issue rated "AA" also qualifies as a high-quality, fixed
income security. The capacity to pay preferred stock obligations is very strong,
although not as overwhelming as for issues rated "AAA".
A: An issue rated "A" is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
BBB: An issue rated "BBB" is regarded as backed by an adequate capacity to pay
the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the "A" category.
BB, B and CCC: Preferred stock rated "BB", "B", and "CCC" are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay preferred stock obligations.
"BB" indicates the lowest degree of speculation and "CCC" the highest. While
such issues will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
CC: The rating "CC" is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments, but that is currently paying.
C: A preferred stock rated "C" is a nonpaying issue.
D: A preferred stock rated "D" is a nonpaying issue with the issuer in default
on debt instruments.
NR: This indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy. PLUS (+) or MINUS (-): To provide more
detailed indications of preferred stock quality, ratings
A-3
<PAGE>
from "AA" to "CCC" may be modified by the addition of a plus or minus sign to
show relative standing within the major rating categories.
A preferred stock rating is not a recommendation to purchase, sell, or hold a
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained by S&P from other sources it considers reliable.
S&P does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended, or withdrawn as a result of changes in, or unavailability of, such
information, or based on other circumstances.
MOODY'S INVESTORS SERVICE -- a brief description of the applicable Moody's
Investors Service (Moody's) rating symbols and their meanings (as published by
Moody's Investors Service) follows:
1. LONG-TERM DEBT
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than the Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payment
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
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 market shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the issue ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.
A-4
<PAGE>
ABSENCE OF RATING: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not rated as a
matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published in
Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
2. SHORT-TERM DEBT
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations. These obligations have an original maturity
not exceeding one year unless explicitly noted.
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issues:
Issuers rated Prime-1 (or supporting institutions) have a superior ability for
repayment or senior short-term debt obligations. Prime-1 repayment ability will
often be evidenced by many of the following characteristics:
- -- Leading market positions in well-established industries.
- -- High rates of return on funds employed.
- -- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
- -- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- -- Well-established access to a range of financial markets and assured sources
of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability for
repayment of senior short-term debt obligations. This will normally be evidenced
by many of the characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or supporting institutions) have an acceptable ability
for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes of the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
3. PREFERRED STOCK
Preferred stock rating symbols and their definitions are as follows:
AAA: An issue which is rated "AAA" is considered to be a top-quality preferred
stock. This rating indicates good asset protection and the least risk of
dividend impairment within the universe of preferred stocks.
AA: An issue which is rated "AA" is considered a high-grade preferred stock.
This rating indicates that there is a reasonable assurance the earnings and
asset protection will remain relatively well maintained in the foreseeable
future.
A: An issue which is rated "A" is considered to be an upper-medium-grade
preferred stock. While risks are judged to be somewhat greater than in the "AAA"
and "AA" classifications, earnings and asset protections are, nevertheless,
expected to be maintained at adequate levels.
A-5
<PAGE>
BAA: An issue which is rated "BAA" is considered to be a medium-grade preferred
stock, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any great
length of time.
BA: An issue which is rated "BA" is considered to have speculative elements and
its future cannot be considered well assured. Earnings and asset protection may
be very moderate and not well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.
B: An issue which is rated "B" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
CAA: An issue which is rated "CAA" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future status
of payments.
CA: An issue which is rated "CA" is speculative in a high degree and is likely
to be in arrears on dividends with little likelihood of eventual payment.
C: This is the lowest rated class of preferred or preference stock. Issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Moody's applies numerical modifiers 1, 2 and 3 in each rating classification.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category, the modifier 2 indicates a mid-range ranking, and the
modifier 3 indicates that the issue ranks in the lower end of its generic rating
category.
A-6
<PAGE>
BOARD OF DIRECTORS
AND OFFICERS
BOARD OF DIRECTORS
<TABLE>
<S> <C>
J. Miles Branagan Don G. Powell*
Jerry D. Choate Phillip B. Rooney
Richard M. DeMartini* Fernando Sisto
Linda Hutton Heagy Wayne W. Whalen*
R. Craig Kennedy Suzanne H. Woolsey
Jack E. Nelson Paul G. Yovovich
</TABLE>
OFFICERS
Richard F. Powers, III*
PRESIDENT
Dennis J. McDonnell*
EXECUTIVE VICE PRESIDENT & CHIEF INVESTMENT OFFICER
A. Thomas Smith III*
VICE PRESIDENT AND SECRETARY
Edward C. Wood III*
VICE PRESIDENT
Michael H. Santo*
VICE PRESIDENT
Peter W. Hegel*
VICE PRESIDENT
Stephen L. Boyd*
VICE PRESIDENT
Joseph P. Stadler*
VICE PRESIDENT
John L. Sullivan*
VICE PRESIDENT, CHIEF FINANCIAL OFFICER & TREASURER
Curtis W. Morell*
VICE PRESIDENT & CHIEF ACCOUNTING OFFICER
Tanya M. Loden*
CONTROLLER
* "Interested Persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2911
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders, or
redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call
(800) 421-2833
FUNDINFO-REGISTERED TRADEMARK-
For automated telephone services, call (800) 847-2424
WEB SITE
www.vankampen.com
VAN KAMPEN GROWTH AND INCOME FUND II
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
INVESTMENT ADVISER AND ADMINISTRATOR
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
INVESTMENT SUBADVISER
MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC.
1221 Avenue of the Americas
New York, NY 10020
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
TRANSFER AGENT
VAN KAMPEN INVESTOR SERVICES INC.
PO Box 218256
Kansas City, MO 64121-8256
Attn: Van Kampen Growth and Income Fund II
CUSTODIAN
THE CHASE MANHATTAN BANK
3 MetroTech Center
Brooklyn, NY 11245
Attn: Van Kampen Growth and Income Fund II
LEGAL COUNSEL
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
INDEPENDENT ACCOUNTANTS
PRICEWATERHOUSECOOPERS LLP
200 East Randolph Drive
Chicago, IL 60601
<PAGE>
VAN KAMPEN
GROWTH AND INCOME FUND II
PROSPECTUS
OCTOBER 28, 1999
A Statement of Additional Information, which contains more details about the
Fund, is incorporated by reference in its entirety into this prospectus.
You will find additional information about the Fund in its annual and semiannual
reports to shareholders. The annual report explains the market conditions and
investment strategies affecting the Fund's performance during its last fiscal
year.
You can ask questions or obtain a free copy of the Fund's reports or its
Statement of Additional Information by calling (800) 341-2911 from 7:00 a.m. to
7:00 p.m., Central time, Monday through Friday. Telecommunications Device for
the Deaf users may call (800) 421-2833. A free copy of the Fund's reports can
also be ordered from our web site at www.vankampen.com.
Information about the Fund, including its reports and Statement of Additional
Information, has been filed with the Securities and Exchange Commission (SEC).
It can be reviewed and copied at the SEC's Public Reference Room in Washington,
DC or on the EDGAR Database on the SEC's internet site (http://www.sec.gov).
Information on the operation of the SEC's Public Reference Room may be obtained
by calling the SEC at 1-202-942-8090. You can also request copies of these
materials, upon payment of a duplicating fee, by electronic request at the SEC's
e-mail address ([email protected]) or by writing the Public Reference Section
of the SEC, Washington, DC, 20549-0102.
[LOGO]
THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-7140.
<PAGE>
VAN KAMPEN
HIGH YIELD AND TOTAL RETURN FUND
Van Kampen High Yield and Total Return Fund is a mutual fund
with an investment objective to seek 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.
Shares of the Fund have not been approved or disapproved by
the Securities and Exchange Commission (SEC) or any state
regulator, and neither the SEC nor any state regulator has
passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
THIS PROSPECTUS IS DATED OCTOBER 28, 1999.
[LOGO]
<PAGE>
TABLE OF CONTENTS
Risk/Return Summary .....................................................3
Fees and Expenses of the Fund ...........................................6
Investment Objective, Policies and Risks ................................7
Investment Advisory Services ...........................................16
Purchase of Shares .....................................................17
Redemption of Shares ...................................................25
Distributions from the Fund ............................................26
Shareholder Services ...................................................27
Federal Income Taxation ................................................28
Financial Highlights ...................................................30
Appendix -- Description of Securities Ratings .........................A-1
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations, other than those contained in this
prospectus, in connection with the offer contained in this prospectus and, if
given or made, such other information or representations must not be relied upon
as having been authorized by the Fund, the Fund's investment adviser or the
Fund's distributor. This prospectus does not constitute an offer by the Fund or
by the Fund's distributor to sell or a solicitation of an offer to buy any of
the securities offered hereby in any jurisdiction to any person to whom it is
unlawful for the Fund to make such an offer in such jurisdiction.
<PAGE>
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The Fund is a mutual fund with an investment objective to seek 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.
INVESTMENT STRATEGIES
Under normal market conditions, the Fund's investment adviser seeks to achieve
the Fund's investment objective by investing at least 80% of the Fund's total
assets in a portfolio of lower-grade income securities. Lower-grade securities
are commonly referred to as "junk bonds" (see sidebar for an explanation of
quality ratings). The Fund buys and sells securities seeking a high level of
current income and capital appreciation over the long-term. The Fund invests in
a broad range of income securities represented by various companies and
industries and traded on various markets. The Fund's investment adviser uses
equity and fixed income valuation techniques, together with analyses of economic
and industry trends, to determine the Fund's overall structure, sector
allocation and desired maturity. Portfolio securities are typically sold when
the Fund's investment adviser's assessments for the total return of such
securities materially change.
The Fund invests primarily in domestic corporate issuers but may invest up to
20% of its total assets in income securities of foreign issuers. The Fund may
purchase and sell securities on a when-issued or delayed delivery basis. The
Fund may purchase and sell certain derivatives (such as options, futures,
options on futures, currency-related transactions involving options, futures and
forward contracts and interest rate swaps or other interest rate-related
transactions) for various portfolio management purposes.
INVESTMENT RISKS
An investment in the Fund is subject to investment risks, and you could lose
money on your investment in the Fund. There can be no assurance that the Fund
will achieve its investment objective.
CREDIT RISK. Credit risk refers to an issuer's ability to make timely payments
of interest and principal. Because the Fund invests primarily in lower-grade
securities, the Fund is subject to a higher level of credit risk than a fund
that buys only investment-grade securities. The credit quality of
"noninvestment-grade" securities is considered speculative by recognized rating
agencies with respect to the issuer's continuing ability to pay interest and
principal. Lower-grade securities may have less liquidity and a higher incidence
of default than higher-grade securities. The Fund may incur higher expenditures
to protect the Fund's interest in such securities. The credit risks and market
prices of lower-grade securities generally are more sensitive to negative issuer
developments, such as reduced revenues or increased expenditures, or adverse
economic conditions, such as a recession, than are higher-grade securities.
UNDERSTANDING
QUALITY RATINGS
Income securities ratings are based on the issuer's ability to pay interest
and repay the principal. Securities with ratings above the line are
considered "investment-grade," while those with ratings below the line are
regarded as "noninvestment-grade," or "junk bonds." A detailed explanation
of these ratings can be found in the appendix to this prospectus.
S&P MOODY'S MEANING
- --------------------------------------------------------------------
AAA Aaa Highest quality
...................................................................
AA Aa High quality
...................................................................
A A Above-average quality
...................................................................
BBB Baa Average quality
- --------------------------------------------------------------------
BB Ba Below-average quality
...................................................................
B B Marginal quality
...................................................................
CCC Caa Poor quality
...................................................................
CC Ca Highly speculative
...................................................................
C C Lowest quality
...................................................................
D -- In default
...................................................................
MARKET RISK. Market risk is the possibility that the market values of securities
owned by the Fund will decline. The prices of income securities tend to fall as
interest rates rise, and such declines tend to be greater among income
securities with longer maturities. The Fund has no policy limiting the
maturities of its investments. To the extent that the Fund
3
<PAGE>
invests in securities with longer maturities, the Fund will be subject to
greater market risk than a fund investing solely in shorter-term securities.
Lower-grade securities, especially those with longer maturities or those that do
not make regular interest payments, may be more volatile and may decline more in
response to negative issuer or general economic news than higher-grade
securities.
Market risk is often greater among certain types of income securities, such as
zero-coupon bonds or pay-in-kind securities. As interest rates change, these
securities often fluctuate more in price than traditional income securities and
may subject the Fund to greater market risk than a fund that does not own these
types of securities.
When-issued and delayed delivery transactions are subject to changes in market
conditions from the time of the commitment until settlement. This may adversely
affect the prices or yields of the securities being purchased, as well as any
portfolio securities held for payment of such commitments. The greater the
Fund's outstanding commitments for these securities, the greater the Fund's
exposure to market price fluctuation.
INCOME RISK. The income you receive from the Fund is based primarily on interest
rates, which can vary widely over the short- and long-term. If interest rates
drop, your income from the Fund may drop as well.
CALL RISK. If interest rates fall, it is possible that issuers of income
securities with high interest rates will prepay or "call" their securities
before their maturity dates. In this event, the proceeds from the called
securities most likely would be reinvested by the Fund in securities bearing the
new, lower interest rates, resulting in a possible decline in the Fund's income
and distributions to shareholders.
FOREIGN RISKS. Because the Fund may own securities of foreign issuers, it may be
subject to risks not usually associated with owning securities of U.S. issuers.
These risks can include fluctuations in foreign currencies, foreign currency
exchange controls, political and economic instability, differences in financial
reporting, differences in securities regulation and trading, and foreign
taxation issues.
RISKS OF USING DERIVATIVE INVESTMENTS. In general terms, a derivative investment
is one whose value depends on (or is derived from) the value of an underlying
asset, interest rate or index. Options, futures, options on futures,
currency-related transactions involving options, futures and forward contracts
and interest rate swaps or other interest rate-related transactions are examples
of derivatives. Derivative investments involve risks different from direct
investment in underlying securities. These risks include imperfect correlation
between the value of the instruments and the underlying assets; risks of default
by the other party to certain transactions; risks that the transactions may
result in losses that partially or completely offset gains in portfolio
positions; risks that the transactions may not be liquid; and manager risk.
MANAGER RISK. As with any managed fund, the Fund's investment adviser may not be
successful in selecting the best-performing securities or investment techniques
and the Fund's performance may lag behind that of similar funds.
INVESTOR PROFILE
In light of the Fund's investment objective and strategies, the Fund may be
appropriate for investors who:
- - Seek a high level of current income and capital appreciation
- - Are willing to take on the substantially increased risks of lower-grade
securities in exchange for potentially higher total return
- - Wish to add to their investment portfolio a fund that invests primarily in
lower-grade domestic corporate income securities
An investment in the Fund is not a deposit of any bank or other insured
depository institution. Your investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
An investment in the Fund may not be appropriate for all investors. The Fund is
not intended to be a complete investment program, and investors should consider
their long-term investment goals and financial needs when making an investment
decision about the Fund. An investment in the Fund is intended to be a long-term
investment, and the Fund should not be used as a trading vehicle.
4
<PAGE>
ANNUAL PERFORMANCE
One way to measure the risks of investing in the Fund is to look at how its
performance varies from year-to-year. The following chart shows the annual
returns of the Fund's Class A Shares over the two calendar years prior to the
date of this prospectus. Sales loads are not reflected in this chart. If these
sales loads had been included, the returns shown below would have been lower.
Remember that the past performance of the Fund is not indicative of its future
performance.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1997 13.80%
1998 4.11%
</TABLE>
The Fund's return for the nine-month period ended September 30, 1999 was 1.58%.
The annual return variability of the Fund's Class B Shares and Class C Shares
would be substantially similar to that shown for the Class A Shares because all
of the Fund's shares are invested in the same portfolio of securities; however,
the actual annual returns of the Class B Shares and Class C Shares would be
lower than the annual returns shown for the Fund's Class A Shares because of
differences in the expenses borne by each class of shares.
During the two-year period shown in the bar chart, the highest quarterly return
was 6.25% (for the quarter ended June 30, 1997) and the lowest quarterly return
was -4.34% (for the quarter ended September 30, 1998.
COMPARATIVE PERFORMANCE
As a basis for evaluating the Fund's performance and risks, the table below
shows how the Fund's performance compares with the Credit Suisse First Boston
High Yield Index, a broad-based market index (an unmanaged index of high yield
corporate bonds) that the Fund's investment adviser believes is an appropriate
benchmark for the Fund. The Fund's performance figures include the maximum sales
charges paid by investors. The index performance figures do not include any
commissions or sales charges that would be paid by investors purchasing the
securities represented by the index. Average annual total returns are shown for
the periods ended December 31, 1998 (the most recently completed calendar year
prior to the date of this prospectus). Remember that the past performance of the
Fund is not indicative of its future performance.
<TABLE>
<CAPTION>
AVERAGE ANNUAL
TOTAL RETURNS
FOR THE
PERIODS ENDED PAST SINCE
DECEMBER 31, 1998 1 YEAR INCEPTION
<S> <C> <C>
- -----------------------------------------------------------------------------
Van Kampen High Yield and Total Return Fund
- -- Class A Shares -0.85% 8.63%(1)
Credit Suisse First Boston High Yield Index 0.58% 8.16%(2)
............................................................................
Van Kampen High Yield and Total Return Fund
- -- Class B Shares -0.44% 8.79%(1)
Credit Suisse First Boston High Yield Index 0.58% 8.16%(2)
............................................................................
Van Kampen High Yield and Total Return Fund
- -- Class C Shares 2.48% 9.78%(1)
Credit Suisse First Boston High Yield Index 0.58% 8.16%(2)
............................................................................
INCEPTION DATES: (1) 5/1/96, (2) 4/30/96.
</TABLE>
The current yield for the thirty-day period ended June 30, 1999 is 8.52% for
Class A Shares, 8.18% for Class B Shares and 8.18% for Class C Shares. Investors
can obtain the current yield of the Fund for each class of shares by calling
(800) 341-2911.
5
<PAGE>
FEES AND EXPENSES
OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
</TABLE>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<S> <C> <C> <C>
- -----------------------------------------------------------------------------
Maximum sales charge
(load) imposed on
purchases (as a
percentage of
offering price) 4.75%(1) None None
............................................................................
Maximum deferred
sales charge (load)
(as a percentage of
the lesser of
original purchase
price or redemption
proceeds) None(2) 4.00%(3) 1.00%(4)
............................................................................
Maximum sales charge
(load) imposed on
reinvested dividends None None None
............................................................................
Redemption fees None None None
............................................................................
Exchange fee None None None
............................................................................
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
<TABLE>
<S> <C> <C> <C>
- -----------------------------------------------------------------------------
Management Fees(5) 0.75% 0.75% 0.75%
............................................................................
Distribution and/or
Service (12b-1)
Fees(6) 0.25% 1.00%(7) 1.00%(7)
............................................................................
Other Expenses(5) 0.72% 0.73% 0.73%
............................................................................
Total Annual Fund
Operating Expenses(5) 1.72% 2.48% 2.48%
............................................................................
</TABLE>
(1) REDUCED FOR PURCHASES OF $100,000 AND OVER. SEE "PURCHASE OF SHARES --
CLASS A SHARES."
(2) INVESTMENTS OF $1 MILLION OR MORE ARE NOT SUBJECT TO ANY SALES CHARGE
AT THE TIME OF PURCHASE, BUT A DEFERRED SALES CHARGE OF 1.00% MAY BE
IMPOSED ON CERTAIN REDEMPTIONS MADE WITHIN ONE YEAR OF THE PURCHASE.
SEE "PURCHASE OF SHARES -- CLASS A SHARES."
(3) THE MAXIMUM DEFERRED SALES CHARGE IS 4.00% IN THE FIRST AND SECOND
YEAR AFTER PURCHASE, DECLINING THEREAFTER AS FOLLOWS:
YEAR 1-4.00%
YEAR 2-4.00%
YEAR 3-3.00%
YEAR 4-2.50%
YEAR 5-1.50%
AFTER-NONE
SEE "PURCHASE OF SHARES -- CLASS B SHARES."
(4) THE MAXIMUM DEFERRED SALES CHARGE IS 1.00% IN THE FIRST YEAR AFTER
PURCHASE AND 0.00% THEREAFTER. SEE "PURCHASE OF SHARES -- CLASS C
SHARES."
(5) THE FUND'S INVESTMENT ADVISER IS CURRENTLY WAIVING OR REIMBURSING A
PORTION OF THE FUND'S MANAGEMENT FEES AND OTHER EXPENSES SUCH THAT THE
ACTUAL TOTAL ANNUAL FUND OPERATING EXPENSES WERE 1.25% FOR CLASS A
SHARES, 2.00% FOR CLASS B SHARES AND 2.00% FOR CLASS C SHARES FOR THE
FISCAL YEAR ENDED JUNE 30, 1999. THE FEE WAIVERS OR EXPENSE REIMBURSE-
MENTS CAN BE TERMINATED AT ANY TIME.
(6) CLASS A SHARES ARE SUBJECT TO AN ANNUAL SERVICE FEE OF UP TO 0.25% OF
THE AVERAGE DAILY NET ASSETS ATTRIBUTABLE TO SUCH CLASS OF SHARES.
CLASS B SHARES AND CLASS C SHARES ARE EACH SUBJECT TO A COMBINED
ANNUAL DISTRIBUTION AND SERVICE FEE OF UP TO 1.00% OF THE AVERAGE
DAILY NET ASSETS ATTRIBUTABLE TO SUCH CLASS OF SHARES. SEE "PURCHASE
OF SHARES."
(7) BECAUSE DISTRIBUTION AND/OR SERVICE (12b-1) FEES ARE PAID OUT OF THE
FUND'S ASSETS ON AN ONGOING BASIS, OVER TIME THESE FEES WILL INCREASE
THE COST OF YOUR INVESTMENT AND MAY COST YOU MORE THAN PAYING OTHER
TYPES OF SALES CHARGES.
EXAMPLE:
The following example is intended to help you compare the cost of investing in
the Fund with the costs of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same each year (except for the ten-year
amounts for Class B Shares, which reflect the conversion of Class B Shares to
Class A Shares after eight years). Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
<S> <C> <C> <C> <C>
- -------------------------------------------------------
Class A Shares $642 $ 991 $1,364 $2,409
......................................................
Class B Shares $651 $1,073 $1,471 $2,629*
......................................................
Class C Shares $351 $ 773 $1,321 $2,816
......................................................
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------
Class A Shares $642 $991 $1,364 $2,409
...............................................................
Class B Shares $251 $773 $1,321 $2,629*
...............................................................
Class C Shares $251 $773 $1,321 $2,816
...............................................................
</TABLE>
* BASED ON CONVERSION TO CLASS A SHARES AFTER EIGHT YEARS.
6
<PAGE>
INVESTMENT OBJECTIVE,
POLICIES AND RISKS
The Fund's investment objective is to seek 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 Fund's investment
objective is a fundamental policy and may not be changed without the approval of
a majority of shareholders of the Fund's outstanding voting securities, as
defined in the Investment Company Act of 1940, as amended (the "1940 Act").
There are risks inherent in all investments in securities; accordingly there can
be no assurance that the Fund will achieve its investment objective.
Under normal market conditions, the Fund's investment adviser seeks to achieve
the Fund's investment objective by investing at least 80% of the Fund's total
assets in a portfolio of lower-grade income securities, which includes
securities rated at the time of purchase BB or lower by Standard & Poor's
("S&P") or rated Ba or lower by Moody's Investors Service, Inc. ("Moody's") or
comparably rated short-term securities and unrated securities determined by the
Fund's investment adviser to be of comparable quality at the time of purchase.
Under normal market conditions, the Fund invests between 80% and 100% of its
total assets in these higher yielding, high risk securities (commonly referred
to as "junk bonds"). With respect to such investments, the Fund has not
established any limit on the percentage of its portfolio which may be invested
in securities in any one rating category. Securities rated BB or lower by S&P or
rated Ba or lower by Moody's or comparably rated short-term securities and
unrated securities of comparable quality involve special risks as compared to
investments in higher-grade securities. 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 "Risks of Investing in Lower-
Grade Securities."
The Fund buys and sells securities seeking a high level of current income and
capital appreciation over the long-term. The Fund invests in a broad range of
income securities represented by various companies and industries and traded on
various markets. The Fund's investment adviser uses equity and fixed income
valuation techniques, together with analyses of economic and industry trends, to
determine the Fund's overall structure, sector allocation and desired maturity.
The Fund's investment adviser emphasizes securities of companies that have
strong industry positions and favorable outlooks for cash flow and asset values.
The Fund's investment adviser conducts a credit analysis for each security
considered for investment to evaluate its attractiveness relative to the level
of risk it presents.
The higher yields, current income and the potential for capital appreciation
sought by the Fund are generally obtainable from securities in the lower-credit
quality range. Such securities tend to offer higher yields than higher-grade
securities with the same maturities because the historical conditions of the
issuers of such securities may not have been as strong as those of other
issuers. These securities may be issued in connection with corporate
restructurings such as leveraged buyouts, mergers, acquisitions, debt
recapitalization or similar events. These securities are often issued by
smaller, less creditworthy companies or companies with substantial debt and may
include financially troubled companies or companies in default or in
restructuring. Such securities often are subordinated to the prior claims of
banks and other senior lenders. Lower-grade securities are regarded by the
rating agencies as predominantly speculative with respect to the issuer's
continuing ability to meet principal and interest payments. The ratings of S&P
and Moody's represent their opinions of the quality of the debt securities they
undertake to rate, but not the market risk of such securities. It should be
emphasized however, that ratings are general and are not absolute standards of
quality.
The Fund's investment adviser seeks to minimize the risks involved in investing
in lower-grade securities through diversification, careful investment analysis
and attention to current developments and trends in the economy and financial
and credit markets. In purchasing and selling securities, the Fund's investment
adviser evaluates the issuers of such securities based on a number of factors,
including but not
7
<PAGE>
limited to the issuer's financial resources, its sensitivity to changing
economic conditions and trends, its revenues or earnings potential, its
operating history, its current borrowing requirements and debt maturities, the
quality of its management, regulatory matters and its potential for yields and
capital appreciation. The Fund's investment adviser may consider the ratings
from S&P and Moody's in evaluating securities but it does not rely primarily on
such ratings. The investment adviser continuously monitors the issuers of debt
securities held by the Fund.
The Fund may invest in income securities of any maturity and denominated in any
currency. The types of debt securities in which the Fund may invest, include,
but are not limited to, the following: fixed or variable rate bonds, notes,
bills or debentures; discount, zero coupon or payment-in-kind securities;
preferred stock; convertible securities; bank debt obligations; commercial
paper; equipment lease certificates; equipment trust certificates; conditional
sales contracts; and obligations issued or guaranteed by the U.S. government or
any foreign government with which the U.S. maintains relations or any of their
respective political subdivisions, agencies or instrumentalities. 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 not invest more than 5% of its total assets at time of acquisition
in equipment lease certificates, equipment trust certificates, conditional sales
contracts or limited partnership interests. The Fund may invest up to 20% of its
total assets in fixed income securities that are investment grade.
RISKS OF INVESTING IN SECURITIES
OF FOREIGN ISSUERS
The Fund may invest up to 20% of its total assets in securities of foreign
issuers, although the Fund may not invest more than 5% of its total assets in
foreign government issuers in any one country. Such securities may be
denominated in U.S. dollars and in currencies other than U.S. dollars. The
percentage of assets invested in securities of a particular country or
denominated in a particular currency will vary in accordance with the investment
adviser's assessment of the relative yield, appreciation potential and the
relationship of a country's currency to the U.S. dollar, which is based upon
such factors as fundamental economic strength, credit quality and interest rate
trends. Investments in foreign securities present certain risks not ordinarily
associated with investments in securities of U.S. issuers. These risks include
fluctuations in foreign currency exchange rates, political, economic or legal
developments (including war or other instability, expropriation of assets,
nationalization and confiscatory taxation), the imposition of foreign exchange
limitations (including currency blockage), withholding taxes on dividend or
interest payments or capital transactions or other restrictions, higher
transaction costs (including higher brokerage, custodial and settlement costs
and currency translation costs) and possible difficulty in enforcing contractual
obligations or taking judicial action. Also, foreign securities may not be as
liquid and may be more volatile than comparable domestic securities.
In addition, there often is less publicly available information about many
foreign issuers, and issuers of foreign securities are subject to different,
often less comprehensive, auditing, accounting, financial reporting and
disclosure requirements than domestic issuers. There is generally less
government regulation of stock exchanges, brokers and listed companies abroad
than in the U.S., and, with respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investment in those countries. Because there is
usually less supervision and governmental regulation of exchanges, brokers and
dealers than there is in the U.S., the Fund may experience settlement
difficulties or delays not usually encountered in the U.S.
Delays in making trades in foreign securities relating to volume constraints,
limitations or restrictions, clearance or settlement procedures, or otherwise
could impact yields and result in temporary periods when assets of the Fund are
not fully invested or attractive investment opportunities are foregone.
A Fund's investments in securities of developing or emerging market countries
are subject to greater risks than a Fund's investments in securities of
developed countries since emerging market countries tend to have economic
structures that are less diverse and
8
<PAGE>
mature and political systems that are less stable than developed countries.
In addition to the increased risks of investing in foreign securities, there are
often increased transactions costs associated with investing in foreign
securities including the costs incurred in connection with converting
currencies, higher foreign brokerage or dealer costs, and higher settlement
costs or custodial costs.
Since the Fund invests in securities denominated or quoted in currencies other
than the U.S. dollar, the Fund will be affected by changes in foreign currency
exchange rates (and exchange control regulations) which affect the value of
investments in the Fund and the accrued income and unrealized appreciation or
depreciation of the investments. Changes in foreign currency exchange ratios
relative to the U.S. dollar will affect the U.S. dollar value of the Fund's
assets denominated in that currency and the Fund's return on such assets as well
as any temporary uninvested reserves in bank deposits in foreign currencies. In
addition, the Fund will incur costs in connection with conversions between
various currencies.
The Fund may purchase or sell foreign currency on a spot basis in connection
with the settlement of transactions in securities traded in such foreign
currency. The Fund also may enter into contracts with banks, brokers or dealers
to purchase or sell securities or foreign currencies at a future date ("forward
contracts"). A foreign currency forward contract is a negotiated agreement
between the contracting parties to exchange a specified amount of currency at a
specified future time at a specified rate. The rate can be higher or lower than
the spot rate between the currencies that are the subject of the contract.
The Fund may attempt to protect against adverse changes in the value of the U.S.
dollar in relation to a foreign currency by entering into a forward contract for
the purchase or sale of the amount of foreign currency invested or to be
invested, or by buying or selling a foreign currency option or futures contract
for such amount. Such strategies may be employed before the Fund purchases a
foreign security traded in the currency which the Fund anticipates acquiring or
between the date the foreign security is purchased or sold and the date on which
payment therefor is made or received. Seeking to protect against a change in the
value of a foreign currency in the foregoing manner does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Furthermore, such transactions reduce or
preclude the opportunity for gain if the value of the currency should move in
the direction opposite to the position taken. Unanticipated changes in currency
prices may result in poorer overall performance for the Fund than if it had not
entered into such contracts.
Investors should carefully consider the risks of foreign investments before
investing in the Fund.
RISKS OF INVESTING IN
LOWER-GRADE SECURITIES
Securities which are in the lower-grade categories generally offer higher yields
than are offered by higher-grade securities of similar maturities, but they also
generally involve greater risks, such as greater credit risk, greater market
risk and volatility, greater liquidity concerns and potentially greater manager
risk. Investors should carefully consider the risks of owning shares of a
portfolio which invests in lower-grade securities before investing in the Fund.
Credit risk relates to the issuer's ability to make timely payment of interest
and principal when due. Lower-grade securities are considered more susceptible
to nonpayment of interest and principal or default than higher-grade securities.
Increases in interest rates or changes in the economy may significantly affect
the ability of issuers of lower-grade debt securities to pay interest and to
repay principal, to meet projected financial goals or to obtain additional
financing. In the event that an issuer of securities held by the Fund
experiences difficulties in the timely payment of principal and interest and
such issuer seeks to restructure the terms of its borrowings, the Fund may incur
additional expenses and may determine to invest additional assets with respect
to such issuer or the project or projects to which the Fund's securities relate.
Further, the Fund may incur additional expenses to the extent that it is
required to seek recovery upon a default in the payment of interest or the
repayment of principal on
9
<PAGE>
its portfolio holdings, and the Fund may be unable to obtain full recovery on
such amounts.
Market risk relates to changes in market value of a security that occur as a
result of variation in the level of prevailing interest rates and yield
relationships in the debt securities market and as a result of real or perceived
changes in credit risk. The value of the Fund's investments can be expected to
fluctuate over time. When interest rates decline, the value of a portfolio
invested in fixed income securities generally can be expected to rise.
Conversely, when interest rates rise, the value of a portfolio invested in fixed
income securities generally can be expected to decline. Debt securities with
longer maturities, which may have higher yields, may increase or decrease in
value more than debt securities with shorter maturities. However, the secondary
market prices of lower-grade debt securities generally are less sensitive to
changes in interest rate and are more sensitive to general adverse economic
changes or specific developments with respect to the particular issuers than are
the secondary market prices of higher-grade debt securities. A significant
increase in interest rates or a general economic downturn could severely disrupt
the market for lower-grade securities and adversely affect the market value of
such securities. Such events also could lead to a higher incidence of default by
issuers of lower-grade securities as compared with higher-grade securities. In
addition, changes in credit risks, interest rates, the credit markets or periods
of general economic uncertainty can be expected to result in increased
volatility in the market price of the lower-grade securities in the Fund and
thus in the net asset value of the Fund. Adverse publicity and investor
perceptions, whether or not based on rational analysis, may affect the value,
volatility and liquidity of lower-grade securities.
The markets for lower-grade securities may be less liquid than the markets for
higher-grade securities. Liquidity relates to the ability of a fund to sell a
security in a timely manner at a price which reflects the value of that
security. To the extent that there is no established retail market for some of
the lower-grade securities in which the Fund may invest, trading in such
securities may be relatively inactive. Prices of lower-grade securities may
decline rapidly in the event a significant number of holders decide to sell.
Changes in expectations regarding an individual issuer of lower-grade securities
generally could reduce market liquidity for such securities and make their sale
by the Fund more difficult, at least in the absence of price concessions. The
effects of adverse publicity and investor perceptions may be more pronounced for
securities for which no established retail market exists as compared with the
effects on securities for which such a market does exist. An economic downturn
or an increase in interest rates could severely disrupt the market for such
securities and adversely affect the value of outstanding securities or the
ability of the issuers to repay principal and interest. Further, the Fund may
have more difficulty selling such securities in a timely manner and at their
stated value than would be the case for securities for which an established
retail market does exist.
The Fund's investment adviser is responsible for determining the net asset value
of the Fund, subject to the supervision of the Fund's Board of Directors. During
periods of reduced market liquidity or in the absence of readily available
market quotations for lower-grade securities held in the Fund's portfolio, the
ability of the Fund's investment adviser to value the Fund's securities becomes
more difficult and the judgment of the Fund's investment adviser may play a
greater role in the valuation of the Fund's securities due to the reduced
availability of reliable objective data.
The Fund may invest in securities not producing immediate cash income, including
securities in default, zero-coupon securities or pay-in-kind securities, when
their effective yield over comparable instruments producing cash income make
these investments attractive. Prices on non-cash-paying instruments may be more
sensitive to changes in the issuer's financial condition, fluctuation in
interest rates and market demand/supply imbalances than cash-paying securities
with similar credit ratings and thus may be more speculative. In addition, the
accrued interest income earned on such instruments is included in investment
company taxable income, thereby increasing the required minimum distributions to
shareholders without providing the corresponding cash flow with which to pay
such distributions. The Fund's investment adviser will weigh these
10
<PAGE>
concerns against the expected total returns from such instruments.
The Fund's investments may include securities with the lowest-grade assigned by
the recognized rating organizations and unrated securities of comparable
quality. Securities assigned such ratings include those of companies that are in
default or are in bankruptcy or reorganization. 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 of such companies are regarded by the rating
agencies as having extremely poor prospects of ever attaining any real
investment standing and are usually available at deep discounts from the face
values of the instruments. A security purchased at a deep discount may currently
pay a very high effective yield. In addition, if the financial condition of the
issuer improves, the underlying value of the security may increase, resulting in
capital appreciation. If the company defaults on its obligations or remains in
default, or if the plan of reorganization does not provide sufficient payments
for debtholders, the deep discount securities may stop generating income and
lose value or become worthless. The Fund's investment adviser will balance the
benefits of deep discount securities with their risks. While a diversified
portfolio may reduce the overall impact of a deep discount security that is in
default or loses its value, the risk cannot be eliminated.
Many lower-grade debt securities are not listed for trading on any national
securities exchange, and many issuers of lower-grade debt securities choose not
to have a rating assigned to their obligations by any recognized rating
organization. As a result, the Fund's portfolio may consist of a higher portion
of unlisted or unrated securities as compared with an investment company that
invests primarily in higher-grade securities. Unrated securities are usually not
as attractive to as many buyers as are rated securities, a factor which may make
unrated securities less marketable. These factors may have the effect of
limiting the availability of the securities for purchase by the Fund and may
also limit the ability of the Fund to sell such securities at their fair value
either to meet redemption requests or in response to changes in the economy or
the financial markets. Further, to the extent the Fund owns or may acquire
illiquid or restricted lower-grade securities, these securities may involve
special registration responsibilities, liabilities and costs, and liquidity and
valuation difficulties.
The Fund will rely on its investment adviser's judgment, analysis and experience
in evaluating the creditworthiness of an issue. The amount of available
information about the financial condition of certain lower-grade issuers may be
less extensive than other issuers. In its analysis, the Fund's investment
adviser may consider the credit ratings of recognized rating organizations in
evaluating securities although the investment adviser does not rely primarily on
these ratings. Ratings evaluate only the safety of principal and interest
payments, not the market value risk. In addition, ratings are general and not
absolute standards of quality, and credit ratings are subject to the risk that
the creditworthiness of an issuer may change and the rating agencies may fail to
change such ratings in a timely fashion. A rating downgrade does not require the
Fund to dispose of a security. The Fund's investment adviser continuously
monitors the issuers of securities held in the Fund. Additionally, since most
foreign debt securities are not rated, the Fund will invest in such securities
based on the Fund's investment adviser's analysis without any guidance from
published ratings. Because of the number of investment considerations involved
in investing in lower-grade securities and foreign debt securities, achievement
of the Fund's investment objectives may be more dependent upon the investment
adviser's credit analysis than is the case with investing in higher-grade
securities.
New or proposed laws may have an impact on the market for lower-grade
securities. The Fund's investment adviser is unable at this time to predict what
effect, if any, legislation may have on the market for lower-grade securities.
Special tax considerations are associated with investing in certain lower-grade
securities, such as zero-coupon or pay-in-kind securities. The Fund accrues
income on these securities prior to the receipt of cash payments. The Fund must
distribute substantially all of its income to its shareholders to qualify for
pass-through treatment under federal income tax law and may, therefore, have to
dispose of its portfolio securities to satisfy distribution requirements.
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<PAGE>
The table below sets forth the percentages of the Fund's assets invested during
the fiscal period ended June 30, 1999 in the various rating categories and in
unrated securities determined by the Fund's investment adviser to be of
comparable quality. The percentages are based on the dollar-weighted average of
credit ratings of all debt securities held by the Fund during the fiscal period
computed on a monthly basis.
PERIOD ENDED JUNE 30, 1999
UNRATED SECURITIES
RATED SECURITIES OF
(AS A PERCENTAGE COMPARABLE QUALITY
OF (AS A PERCENTAGE OF
RATING CATEGORY PORTFOLIO VALUE) PORTFOLIO VALUE)
- -----------------------------------------------------------------------------
AAA/Aaa 0.00% 0.00%
............................................................................
AA/Aa 0.10% 0.00%
............................................................................
A/A 0.69% 0.00%
............................................................................
BBB/Baa 8.41% 0.00%
............................................................................
BB/Ba 44.12% 0.00%
............................................................................
B/B 37.83% 1.06%
............................................................................
CCC/Caa 6.91% 0.88%
............................................................................
CC/Ca 0.00% 0.00%
............................................................................
C/C 0.00% 0.00%
............................................................................
D 0.00% 0.00%
............................................................................
PERCENTAGE OF RATED AND UNRATED
SECURITIES 98.06% 1.94%
............................................................................
The percentage of the Fund's assets invested in securities of various grades may
vary from time to time from those listed above.
ADDITIONAL INFORMATION REGARDING
CERTAIN INCOME SECURITIES
DISCOUNT, ZERO-COUPON AND PAYMENT-IN-KIND SECURITIES. The Fund may invest in
securities sold at a substantial discount from their value at maturity, such as
zero-coupon and payment-in-kind securities, when the Fund's investment adviser
believes the effective yield on such securities over comparable instruments
paying current cash income makes these investments attractive. Zero-coupon
securities are debt obligations that do not entitle the holder to any periodic
payment of interest prior to maturity or a specified date when the securities
begin paying current interest. They are issued and traded at a discount from
their face amounts or par value, which discount varies depending on the time
remaining until cash payments begin, prevailing interest rates, liquidity of the
security and the perceived credit quality of the issuer. Because such securities
do not entitle the holder to any periodic payments of interest prior to
maturity, this prevents the reinvestment of such interest payments if prevailing
interest rates rise. On the other hand, because there are no periodic interest
payments to be reinvested prior to maturity, "zero-coupon" securities eliminate
the reinvestment risk and may lock in a favorable rate of return to maturity if
interest rates drop. Payment-in-kind securities are securities that pay interest
through the issuance of additional securities. Prices on non-cash-paying
instruments may be more sensitive to changes in the issuer's financial
condition, fluctuations in interest rates and market demand/supply imbalances
than cash-paying securities with similar credit ratings, and thus may be more
speculative than are securities that pay interest periodically in cash. In
addition, the amount of non-cash interest income earned on such instruments is
included, for federal income tax purposes, in the Fund's calculation of income
that is required to be distributed to shareholders for the Fund to maintain its
desired federal income tax status (even though such non-cash paying securities
do not provide the Fund with the cash flow with which to pay such
distributions). Accordingly, the Fund may be required to borrow or to liquidate
portfolio securities at a time that it otherwise would not have done so in order
to make such distributions. The Fund's investment adviser will weigh these
concerns against the expected total returns from such instruments.
BRADY BONDS. The Fund may invest in Brady Bonds and other sovereign debt of
countries that have restructured or are in the process of restructuring
sovereign debt pursuant to the Brady Plan. Brady Bonds are typically from a
debtor nation restructuring outstanding external commercial bank indebtedness.
Brady Bonds generally are based on issuers with a history of defaults with
respect to commercial bank loans and therefore are often viewed as speculative.
A more complete description of Brady Bonds is contained in the Fund's Statement
of Additional Information.
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<PAGE>
SOVEREIGN DEBT. In addition to Brady Bonds, the Fund may invest in sovereign or
sovereign-related debt obligations, including obligations of supranational
entities. Sovereign debt differs from debt obligations of private entities in
that, generally, remedies for defaults must be pursued in the courts of the
defaulting party and the legal recourse in enforcing a sovereign debt is often
limited. At certain times, certain countries (particularly emerging market
countries) have declared a moratoria on the payment of principal and interest on
external debt. Such investments may include participations and assignments of
sovereign bank debt, restructured external debt that has not undergone a
Brady-style debt exchange, and internal government debt.
PRIVATE PLACEMENTS. The Fund may invest in income securities that are sold in
private placement transactions between their issuers and their purchasers and
that are neither listed on an exchange nor traded in the over-the-counter
secondary market. A significant portion of the high yield, high risk bond market
is privately placed securities or restricted securities sold to qualified
institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as
amended. In many cases, privately placed securities will be subject to
contractual or legal restrictions on transfer. As a result of the absence of a
public trading market, privately placed securities may in turn be less liquid
and more difficult to value than publicly traded securities. In addition,
issuers whose securities are not publicly traded may not be subject to the
disclosure and other investor protection requirements that may be applicable if
their securities were publicly traded. The Fund monitors the liquidity of such
securities and securities not considered liquid are subject to the Fund's
limitation on illiquid securities. Notwithstanding the foregoing, the 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. Certain of the Fund's direct investments,
particularly in emerging market countries, may include investments in smaller,
less seasoned companies, which may involve greater risks. These companies may
have limited product lines, markets or financial resources, or they may be
dependent on a limited management group.
OTHER INVESTMENT PRACTICES
AND RISK FACTORS
DERIVATIVE INVESTMENTS. The Fund may, but is not required to, use various
investment strategic transactions described below to earn income, facilitate
portfolio management and mitigate risks. Such strategic transactions are
generally accepted under modern portfolio management and are regularly used by
many mutual funds and other institutional investors. Although the Fund's
investment adviser seeks to use the practices to further the Fund's investment
objective, no assurance can be given that these practices will achieve this
result.
The Fund may purchase and sell derivative instruments such as exchange-listed
and over-the-counter put and call options on securities, financial futures,
equity, fixed-income and interest rate indices, and other financial instruments,
futures contracts and options thereon (including but not limited to securities
index futures, foreign currency exchange futures, interest rate futures and
other financial futures), structured notes, swaps, caps, floors or collars and
enter into various currency transactions such as currency forward contracts,
currency futures contracts, currency swaps or options on currency or currency
futures. In addition, the Fund may invest in other derivative instruments that
are developed over time if their use would be consistent with the objective of
the Fund. Collectively, all of the above are referred to as "Strategic
Transactions." The Fund generally seeks to use Strategic Transactions as a
portfolio management or hedging technique to seek to protect against possible
adverse changes in the market value of securities held in or to be purchased for
the Fund's portfolio, protect the Fund's unrealized gains, facilitate the sale
of certain securities for investment purposes, protect against changes in
currency exchange rates, or adjust the exposure to a particular currency, manage
the effective maturity or duration of the Fund's portfolio, establish positions
in the derivatives markets as a substitute for purchasing or selling particular
securities, including, for example, when the Fund adjusts its exposure to a
market in response to changes in investment strategy, when doing so provides
more liquidity than the direct purchase of the securities underlying such
derivatives, when the Fund is restricted from directly owning the underlying
securities due to foreign investment
13
<PAGE>
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. The Fund may
invest up to 33 1/3% of its total assets in Strategic Transactions for
non-hedging purposes (measured by the aggregate notional amount of outstanding
derivatives). In addition, the Fund may invest up to 20% of its total assets in
futures contracts and options on futures contracts (measured by the aggregate
notional amount of such outstanding contracts).
Strategic Transactions have risks including the imperfect correlation between
the value of such instruments and the underlying assets, the possible default of
the other party to the transaction or illiquidity of the derivative instruments.
Furthermore, the ability to successfully use Strategic Transactions depends on
the Fund's investment adviser's ability to predict pertinent market movements,
which cannot be assured. Thus, the use of Strategic Transactions may result in
losses greater than if they had not been used, may require the Fund to sell or
purchase portfolio securities at inopportune times or for prices other than
current market values, may limit the amount of appreciation the Fund can
otherwise realize on an investment, or may cause the Fund to hold a security
that it might otherwise sell. The use of currency transactions can result in the
Fund incurring losses because of the imposition of exchange controls, suspension
of settlements or the inability of the Fund to deliver or receive a specified
currency. In addition, amounts paid as premiums or cash or other assets held in
margin accounts with respect to Strategic Transactions are not otherwise
available to the Fund for investment purposes.
When conducted outside the U.S., Strategic Transactions may not be regulated as
rigorously as in the U.S., may not involve a clearing mechanism and related
guarantees, and are subject to the risk of governmental actions affecting
trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions, (iii)
delays in the Fund's ability to act upon economic events occurring in foreign
markets during non-business hours in the U.S., (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
U.S., and (v) lower trading volume and liquidity.
A more complete discussion of Strategic Transactions and their risks is
contained in the Fund's Statement of Additional Information. The Statement of
Additional Information can be obtained by investors free of charge as described
on the back cover of this prospectus.
OTHER PRACTICES. For cash management purposes, the Fund may engage in repurchase
agreements with banks and broker-dealers and other financial institutions in
order to earn a return on temporarily available cash. Such transactions are
subject to the risk of default by the other party.
The Fund may purchase and sell securities in an amount up to 15% of its net
assets on a "when-issued" and "delayed delivery" basis. The Fund accrues no
income on such securities until the Fund actually takes delivery of such
securities. These transactions are subject to market fluctuation; the value of
the securities at delivery may be more or less than their purchase price. The
value or yield generally available on comparable securities when delivery occurs
may be higher than the value or yield on the securities obtained pursuant to
such transactions. Because the Fund relies on the buyer or seller to consummate
the transaction, failure by the other party to complete the transaction may
result in the Fund missing the opportunity of obtaining a price or yield
considered to be advantageous. The Fund will engage in when-issued and delayed
delivery transactions for the purpose of acquiring securities consistent with
the Fund's investment objective and policies and not for the purpose of
investment leverage.
The Fund may lend its portfolio securities in an amount up to 33 1/3% of its
total assets to broker-dealers, banks or other recognized institutional
borrowers of securities. The Fund may incur lending fees and other costs in
connection with securities lending, and securities lending is subject to the
risk of default by the other party.
14
<PAGE>
The Fund may invest up to 15% of the Fund's net assets in illiquid securities
and certain restricted securities. Notwithstanding the foregoing, the Fund may
not invest more than 10% of its total assets in securities subject to legal or
contractual restrictions on resale except that the Fund may invest up to 20% of
its total assets in securities which can be offered and sold to qualified
institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as
amended. Such securities may be difficult or impossible to sell at the time and
the price that the Fund would like. Thus, the Fund may have to sell such
securities at a lower price, sell other securities instead to obtain cash or
forego other investment opportunities.
The Fund may invest in securities indirectly through investment in other
investment companies. Such investments are commonly used when a direct
investment in certain countries is not permitted by foreign investors.
Investments in other investment companies may involve duplication of management
fees and certain other expenses.
Further information about these types of investments and other investment
practices that may be used by the Fund is contained in the Statement of
Additional Information.
The Fund may sell securities without regard to the length of time they have been
held in order to take advantage of new investment opportunities or when the
Fund's investment adviser believes the potential for total return has lessened
or for other reasons. The Fund's portfolio turnover is shown under the heading
"Financial Highlights." The portfolio turnover rate may be expected to vary from
year to year. A high portfolio turnover rate (100% or more) increases the Fund's
transactions costs (including brokerage commissions or dealer costs) and a high
portfolio turnover rate may result in the realization of more short-term capital
gains than if the Fund had a lower portfolio turnover rate. Increases in the
Fund's transaction costs would adversely impact the Fund's performance. The
turnover rate will not be a limiting factor, however, if the Fund's investment
adviser considers portfolio changes appropriate.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Fund may invest on a temporary basis a portion or all
of its assets in securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities, prime commercial paper, certificates of deposit,
bankers' acceptances and other obligations of domestic banks and in investment
grade corporate debt securities. Under normal market conditions, the potential
for total return on these securities will tend to be lower than the potential
for total return on other securities that may be owned by the Fund. In taking
such a defensive position, the Fund would not be pursuing and may not achieve
its investment objective.
YEAR 2000 RISKS. Like other mutual funds, financial and business organizations
and individuals around the world, the Fund could be adversely affected if the
computer systems used by the Fund's investment adviser, subadviser and other
service providers do not properly process and calculate date-related information
and data from and after January 1, 2000. This is commonly known as the "Year
2000 Problem." The Fund's investment adviser and subadviser are taking steps
that they believe are reasonably designed to address the Year 2000 Problem with
respect to computer systems that they use and to obtain reasonable assurances
that comparable steps are being taken by the Fund's other major service
providers. At this time, there can be no assurances that these steps will be
sufficient to avoid any adverse impact to the Fund. In addition, the Year 2000
Problem may adversely affect the markets and the issuers of securities in which
the Fund may invest which, in turn, may adversely affect the net asset value of
shares of the Fund. Improperly functioning trading systems may result in
settlement problems and liquidity issues. In addition, corporate and
governmental data processing errors may result in production problems for
individual companies or issuers and overall economic uncertainty. Earnings of
individual issuers will be affected by remediation costs, which may be
substantial and may be reported inconsistently in U.S. and foreign financial
statements. Efforts in foreign countries to remediate the potential Year 2000
Problem may not be as extensive as those in the U.S. As a result, the operations
of foreign markets and issuers may be disrupted by the Year 2000 Problem which
could adversely affect the Fund's portfolio. The risks are greater with respect
to certain developing or emerging market countries;
15
<PAGE>
because there is an increased likelihood that issuers of securities of such
countries cannot anticipate or effectively manage the effects of computer
programs and the Year 2000 Problem. Accordingly, the Fund's investments may be
adversely affected. The statements above are subject to the Year 2000
Information and Readiness Disclosure Act which may limit the legal rights
regarding the use of such statements in the case of a dispute.
INVESTMENT ADVISORY
SERVICES
INVESTMENT ADVISER
Van Kampen Investment Advisory Corp. is the investment adviser (the "Adviser" or
"Advisory Corp.") and administrator of the Fund. The Adviser is a wholly owned
subsidiary of Van Kampen Investments Inc. ("Van Kampen Investments"). Van Kampen
Investments is a diversified asset management company with more than two million
retail investor accounts, extensive capabilities for managing institutional
portfolios, and more than $79 billion under management or supervision as of
September 30, 1999. Van Kampen Investments' more than 50 open-end and 39
closed-end funds and more than 2,500 unit investment trusts are professionally
distributed by leading authorized dealers nationwide. Van Kampen Funds Inc., the
distributor of the Fund (the "Distributor") and the sponsor of the funds
mentioned above, is also a wholly owned subsidiary of Van Kampen Investments.
Van Kampen Investments is an indirect wholly owned subsidiary of Morgan Stanley
Dean Witter & Co. The Adviser's principal office is located at 1 Parkview Plaza,
PO Box 5555, Oakbrook Terrace, Illinois 60181-5555.
ADVISORY AGREEMENT AND ADMINISTRATION AGREEMENT. The Fund retains the Adviser to
manage the investment of its assets and to place orders for the purchase and
sale of its portfolio securities. Under an investment advisory agreement between
the Adviser and the Fund (the "Advisory Agreement"), the Fund pays the Adviser a
monthly fee computed based upon an annual rate of 0.75% applied to the average
daily net assets of the Fund.
The Fund also retains the Adviser to provide administrative services for the
Fund's day-to-day operations. Under an administration agreement, between the
Fund and the Adviser, the Fund pays a monthly administration fee computed based
upon an annual rate of 0.25% applied to the average daily net assets of the
Fund.
The Adviser furnishes offices, necessary facilities and equipment, provides
administrative services, and permits its officers and employees to serve without
compensation as directors or officers of the Fund if elected to such positions.
The Fund pays all charges and expenses of its day-to-day operations, including
the compensation of directors of the Fund (other than those who are affiliated
persons of the Adviser, Distributor or Van Kampen Investments), the charges and
expenses of legal counsel and independent accountants, distribution fees,
service fees, custodian fees, the costs of providing reports to shareholders,
and all other ordinary business expenses not specifically assumed by the
Adviser.
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen Asset Management
Inc. ("Asset Management").
INVESTMENT SUBADVISER
Morgan Stanley Dean Witter Investment Management Inc. (the "Subadviser") is the
Subadviser of the Fund. The Subadviser is a wholly owned subsidiary of Morgan
Stanley Dean Witter & Co., and is an affiliate of the Adviser. The Subadviser
conducts a worldwide portfolio management business and provides a broad range of
portfolio management services to customers in the United States and abroad. At
June 30, 1999, the Subadviser, together with its affiliated institutional asset
management companies, managed assets of approximately $175.3 billion, including
assets under fiduciary advice. The Subadviser's principal office is located at
1221 Avenue of the Americas, New York, New York 10020. On December 1, 1998,
Morgan Stanley Asset Management Inc. changed its name to Morgan Stanley Dean
Witter Investment Management Inc. but continues to do business in certain
instances using the name Morgan Stanley Asset Management.
16
<PAGE>
SUBADVISORY AGREEMENT. The Adviser has entered into a subadvisory agreement with
the Subadviser to assist the Adviser in performing its investment advisory
functions. The Adviser pays the Subadviser on a monthly basis a portion of the
net advisory fees the Adviser receives from the Fund.
GENERAL
From time to time, the Adviser, the Subadviser or the Distributor may
voluntarily undertake to reduce the Fund's expenses by reducing the fees payable
to them or by reducing other expenses of the Fund in accordance with such
limitations as the Adviser, the Subadviser or Distributor may establish.
PERSONAL INVESTMENT POLICIES. The Fund, the Adviser and the Subadviser have
adopted Codes of Ethics designed to recognize the fiduciary relationship among
the Fund, the Adviser and the Subadviser and their respective employees. The
Codes of Ethics permit directors, trustees, officers and employees to buy and
sell securities for their personal accounts subject to certain restrictions.
Persons with access to certain sensitive information are subject to
pre-clearance and other procedures designed to prevent conflicts of interest.
PORTFOLIO MANAGEMENT. Robert Angevine, Stephen F. Esser and Gordon W. Loery are
responsible as comanagers for the day-to-day management of the Fund's investment
portfolio.
Mr. Angevine is a Principal of Morgan Stanley Dean Witter & Co. and the
Subadviser and is the portfolio manager for high yield investments. Prior to
joining the Subadviser in October 1988, he spent over eight years at Prudential
Insurance where he was responsible for one of the largest open-end high yield
mutual funds in the country. Prior to 1980, his other experience includes
international treasury operations at a major pharmaceutical company and
commercial banking. Mr. Angevine received a B.A. in Economics from Lafayette
College and an M.B.A. from Fairleigh Dickinson University. Mr. Angevine has been
comanager of the Fund since it commenced investment operations.
Mr. Esser joined the Subadviser in 1996 and has been a portfolio manager with
Miller Anderson & Sherrerd, LLP (an affiliate of the Adviser "MAS") since 1988.
Mr. Esser was previously with Kidder Peabody and Co., Incorporated from 1985 to
1988 where he served as Assistant Vice President of the Fixed Income Group. He
assumed responsibility for the MAS Fund's High Yield Portfolio in 1989.
Mr. Esser is a member of the New York Society of Security Analysts and holds a
B.S. degree (Summa Cum Laude; Phi Beta Kappa) from the University of Delaware.
Mr. Esser has been comanager of the Fund since April 1996.
Mr. Loery, currently a Principal of the Subadviser, joined the Subadviser as a
fixed income analyst in 1990. Previously, he worked in Fixed Income at Alex
Brown and Mabon Neugent and managed commodity pools for a private firm. He has a
degree in economics from Cornell University, is a Chartered Financial Analyst
and a member of the NYSSA. Mr. Loery has been comanager of the Fund since April
1999.
PURCHASE OF SHARES
GENERAL
The Fund offers three classes of shares designated as Class A Shares, Class B
Shares and Class C Shares. By offering three classes of shares, the Fund permits
each investor to choose the class of shares that is most beneficial given the
amount to be invested and the length of time the investor expects to hold the
shares.
Initial investments must be at least $1,000 for each class of shares, and
subsequent investments must be at least $25 for each class of shares. Both
minimums may be waived by the Distributor for plans involving periodic
investments.
Each class of shares represents an interest in the same portfolio of investments
of the Fund and has the same rights except that (i) Class A Shares generally
bear the sales charge expenses at the time of purchase while Class B Shares and
Class C Shares bear the sales charge expenses at the time of redemption and any
expenses (including higher distribution fees and transfer agency costs)
resulting
17
<PAGE>
from such deferred sales charge arrangement, (ii) generally, each class of
shares has exclusive voting rights with respect to approvals of the Rule 12b-1
distribution plan and service plan (each as described below) under which its
distribution fee or service fee is paid, (iii) each class of shares has
different exchange privileges, (iv) certain classes of shares are subject to a
conversion feature and (v) certain classes of shares have different shareholder
service options available.
The offering price of the Fund's shares is based upon the Fund's net asset value
per share (plus sales charges, where applicable). The net asset values per share
of the Class A Shares, Class B Shares and Class C Shares are generally expected
to be substantially the same. In certain circumstances, however, the per share
net asset values of the classes of shares may differ from one another,
reflecting the daily expense accruals of the higher distribution fees and
transfer agency costs applicable to the Class B Shares and Class C Shares and
the differential in the dividends that may be paid on each class of shares.
The net asset value per share for each class of shares of the Fund is determined
once daily as of the close of trading on the New York Stock Exchange (the
"Exchange") (currently 4:00 p.m., New York time) each day the Exchange is open
for trading except on any day on which no purchase or redemption orders are
received or there is not a sufficient degree of trading in the Fund's portfolio
securities such that the Fund's net asset value per share might be materially
affected. The Fund's Board of Directors reserves the right to calculate the net
asset value per share and adjust the offering price based thereon more
frequently than once daily if deemed desirable. Net asset value per share for
each class is determined by dividing the value of the Fund's portfolio
securities, cash and other assets (including accrued interest) attributable to
such class, less all liabilities (including accrued expenses) attributable to
such class, by the total number of shares of the class outstanding. Such
computation is made by using prices as of the close of trading on the Exchange.
Securities listed 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 not
readily available are valued at the average of the mean of 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 by the Adviser at fair value
using methods determined by the Fund's Board of Directors. For purposes of
calculating net asset value per
18
<PAGE>
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.
The Fund has adopted a distribution plan (the "Distribution Plan") with respect
to each class of its shares pursuant to Rule 12b-1 under the 1940 Act. The Fund
also has adopted a service plan (the "Service Plan") with respect to each class
of its shares. Under the Distribution Plan and the Service Plan, the Fund pays
distribution fees in connection with the sale and distribution of its shares and
service fees in connection with the provision of ongoing services to
shareholders of each class.
The amount of distribution and service fees varies among the classes offered by
the Fund. Because these fees are paid out of the Fund's assets on an ongoing
basis, these fees will increase the cost of your investment in the Fund. By
purchasing a class of shares subject to higher distribution and service fees,
you may pay more over time than on a class of shares with other types of sales
charge arrangements. Long-term shareholders may pay more than the economic
equivalent of the maximum front-end sales charges permitted by the rules of the
National Association of Securities Dealers, Inc. ("NASD"). The net income
attributable to a class of shares will be reduced by the amount of the
distribution fees and other expenses of the Fund associated with such class of
shares. To assist investors in comparing classes of shares, the tables under the
heading "Fees and Expenses of the Fund" provide a summary of sales charges and
expenses and an example of the sales charges and expenses of the Fund applicable
to each class of shares.
The shares are offered to the public on a continuous basis through the
Distributor as principal underwriter, which is located at 1 Parkview Plaza, PO
Box 5555, Oakbrook Terrace, Illinois 60181-5555. Shares also are offered through
members of the NASD who are acting as securities dealers ("dealers") and NASD
members or eligible non-NASD members who are acting as brokers or agents for
investors ("brokers"). "Dealers" and "brokers" are sometimes referred to herein
as "authorized dealers."
Shares may be purchased on any business day by completing the application
accompanying this prospectus and forwarding the application, directly or through
an authorized dealer, to the Fund's shareholder service agent, Van Kampen
Investor Services Inc. ("Investor Services"), a wholly owned subsidiary of Van
Kampen Investments. When purchasing shares of the Fund, investors must specify
whether the purchase is for Class A Shares, Class B Shares or Class C Shares.
Sales personnel of authorized dealers distributing the Fund's shares are
entitled to receive compensation for selling such shares and may receive
differing compensation for selling Class A Shares, Class B Shares or Class C
Shares.
The offering price for shares is based upon the next calculation of net asset
value per share (plus sales charges, where applicable) after an order is
received by Investor Services. Orders received by authorized dealers prior to
the close of the Exchange are priced based on the date of receipt provided such
order is transmitted to Investor Services prior to Investor Services' close of
business on such date. Orders received by authorized dealers after the close of
the Exchange or transmitted to Investor Services after its close of business are
priced based on the date of the next computed net asset value per share provided
they are received by Investor Services prior to Investor Services' close of
business on such date. It is the responsibility of authorized dealers to
transmit orders received by them to Investor Services so they will be received
in a timely manner.
The Fund and the Distributor reserve the right to refuse any order for the
purchase of shares. The Fund also reserves the right to suspend the sale of the
Fund's shares in response to conditions in the securities markets or for other
reasons. Shares of the Fund may be sold in foreign countries where permissible.
Investor accounts will automatically be credited with additional shares of the
Fund after any Fund distributions, such as dividends and capital gain dividends,
unless the investor instructs the Fund otherwise. Investors wishing to receive
cash instead of additional shares should contact the Fund at (800) 341-2911 or
by writing to the Fund, c/o Van Kampen Investors Services Inc., PO Box 218256,
Kansas City, MO 64121-8256.
19
<PAGE>
CLASS A SHARES
Class A Shares of the Fund are sold at net asset value plus an initial maximum
sales charge of up to 4.75% of the offering price (or 4.99% of the net amount
invested), reduced on investments of $100,000 or more as follows:
CLASS A SHARES
SALES CHARGE SCHEDULE
AS % OF AS % OF
SIZE OF OFFERING NET AMOUNT
INVESTMENT PRICE INVESTED
- ---------------------------------------------------------
Less than $100,000 4.75% 4.99%
........................................................
$100,000 but less than $250,000 3.75% 3.90%
........................................................
$250,000 but less than $500,000 2.75% 2.83%
........................................................
$500,000 but less than $1,000,000 2.00% 2.04%
........................................................
$1,000,000 or more * *
........................................................
* NO SALES CHARGE IS PAYABLE AT THE TIME OF PURCHASE ON INVESTMENTS OF
$1 MILLION OR MORE, ALTHOUGH FOR SUCH INVESTMENTS THE FUND MAY IMPOSE
A CONTINGENT DEFERRED SALES CHARGE OF 1.00% ON CERTAIN REDEMPTIONS
MADE WITHIN ONE YEAR OF THE PURCHASE. THE CONTINGENT DEFERRED SALES
CHARGE IS ASSESSED ON AN AMOUNT EQUAL TO THE LESSER OF THE THEN
CURRENT MARKET VALUE OR THE COST OF THE SHARES BEING REDEEMED.
ACCORDINGLY, NO SALES CHARGE IS IMPOSED ON INCREASES IN NET ASSET
VALUE ABOVE THE INITIAL PURCHASE PRICE.
No sales charge is imposed on Class A Shares received from reinvestment of
dividends or capital gain dividends.
Under the Distribution Plan and Service Plan, the Fund may spend up to a total
of 0.25% per year of the Fund's average daily net assets with respect to the
Class A Shares of the Fund. From such amount, under the Service Plan, the Fund
may spend up to 0.25% per year of the Fund's average daily net assets with
respect to the Class A Shares for the ongoing provision of services to Class A
shareholders by the Distributor and by brokers, dealers or financial
intermediaries and for the maintenance of such shareholders' accounts.
CLASS B SHARES
Class B Shares of the Fund are sold at net asset value and are subject to a
contingent deferred sales charge if redeemed within five years of purchase as
shown in the table as follows:
CLASS B SHARES
SALES CHARGE SCHEDULE
CONTINGENT
DEFERRED
SALES CHARGE
AS A PERCENTAGE OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
- -------------------------------------------------------
First 4.00%
......................................................
Second 4.00%
......................................................
Third 3.00%
......................................................
Fourth 2.50%
......................................................
Fifth 1.50%
......................................................
Sixth and After None
......................................................
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gain dividends. It
is presently the policy of the Distributor not to accept any order for Class B
Shares in an amount of $500,000 or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
The amount of the contingent deferred sales charge, if any, varies depending on
the number of years from the time of payment for the purchase of Class B Shares
until the time of redemption of such shares. Solely for purposes of determining
the number of years from the time of any payment for the purchase of shares, all
payments during a month are totaled and deemed to have been made on the last day
of the month.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed shares
20
<PAGE>
being redeemed first are any shares in the shareholder's Fund account that are
not subject to a contingent deferred sales charge followed by shares held the
longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
Fund's average daily net assets with respect to the Class B Shares of the Fund.
In addition, under the Service Plan, the Fund may spend up to 0.25% per year of
the Fund's average daily net assets with respect to the Class B Shares for the
ongoing provision of services to Class B shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CLASS C SHARES
Class C Shares of the Fund are sold at net asset value and are subject to a
contingent deferred sales charge of 1.00% of the dollar amount subject to charge
if redeemed within one year of purchase.
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gain dividends. It
is presently the policy of the Distributor not to accept any order for Class C
Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed shares being redeemed first are any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge followed by shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
Fund's average daily net assets with respect to the Class C Shares of the Fund.
In addition, under the Service Plan, the Fund may spend up to 0.25% per year of
the Fund's average daily net assets with respect to the Class C Shares for the
ongoing provision of services to Class C shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CONVERSION FEATURE
Class B Shares purchased on or after June 1, 1996, and any dividend reinvestment
plan Class B Shares received on such shares, automatically convert to Class A
Shares eight years after the end of the calendar month in which the shares were
purchased. Class B Shares purchased before June 1, 1996, and any dividend
reinvestment plan Class B Shares received on such shares, automatically convert
to Class A Shares seven years after the end of the calendar month in which the
shares were purchased. Such conversion will be on the basis of the relative net
asset values per share, without the imposition of any sales load, fee or other
charge. The conversion schedule applicable to a share of the Fund acquired
through the exchange privilege from another Van Kampen fund participating in the
exchange program is determined by reference to the Van Kampen fund from which
such share was originally purchased.
The conversion of such shares to Class A Shares is subject to the continuing
availability of an opinion of counsel to the effect that (i) the assessment of
the higher distribution fee and transfer agency costs with respect to such
shares does not result in the Fund's dividends or capital gain dividends
constituting "preferential dividends" under the federal income tax law and
(ii) the conversion of shares does not constitute a taxable event under federal
income tax law. The conversion may be suspended if such an opinion is no longer
available and such shares might continue to be subject to the higher aggregate
fees applicable to such shares for an indefinite period.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge is waived on redemptions of Class B Shares
and Class C Shares (i) within one year following the death or disability (as
disability is defined by federal income tax law) of a shareholder, (ii) for
required minimum distributions from an individual retirement account ("IRA") or
certain other retirement plan distributions, (iii) for withdrawals under the
Fund's systematic withdrawal plan but limited to 12% annually of the initial
value of the account, (iv) if no commission or transaction fee is paid to
authorized dealers at the
21
<PAGE>
time of purchase of such shares and (v) if made by involuntary liquidation by
the Fund of a shareholder's account as described under the heading "Redemption
of Shares." Subject to certain limitations, a shareholder who has redeemed
Class C Shares of the Fund may reinvest in Class C Shares at net asset value
with credit for any contingent deferred sales charge if the reinvestment is made
within 180 days after the redemption. For a more complete description of
contingent deferred sales charge waivers, please refer to the Fund's Statement
of Additional Information or contact your authorized dealer.
QUANTITY DISCOUNTS
Investors purchasing Class A Shares may, under certain circumstances described
below, be entitled to pay reduced or no sales charges. Investors, or their
authorized dealers, must notify the Fund at the time of the purchase order
whenever a quantity discount is applicable to purchases. Upon such notification,
an investor will receive the lowest applicable sales charge. Quantity discounts
may be modified or terminated at any time. For more information about quantity
discounts, investors should contact their authorized dealer or the Distributor.
A person eligible for a reduced sales charge includes an individual, his or her
spouse and children under 21 years of age and any corporation, partnership or
sole proprietorship which is 100% owned, either alone or in combination, by any
of the foregoing; a trustee or other fiduciary purchasing for a single trust or
for a single fiduciary account, or a "company" as defined in Section 2(a)(8) of
the 1940 Act.
As used herein, "Participating Funds" refers to certain open-end investment
companies advised by Asset Management or Advisory Corp. and distributed by the
Distributor as determined from time to time by the Fund's Board of Directors.
VOLUME DISCOUNTS. The size of investment shown in the Class A Shares sales
charge table applies to the total dollar amount being invested by any person in
shares of the Fund, or in any combination of shares of the Fund and shares of
other Participating Funds, although other Participating Funds may have different
sales charges.
CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the Class A Shares
sales charge table may also be determined by combining the amount being invested
in shares of the Participating Funds plus the current offering price of all
shares of the Participating Funds which have been previously purchased and are
still owned.
LETTER OF INTENT. A Letter of Intent provides an opportunity for an investor to
obtain a reduced sales charge by aggregating the investments over a 13-month
period to determine the sales charge as outlined in the Class A Shares sales
charge table. The size of investment shown in the Class A Shares sales charge
table includes purchases of shares of the Participating Funds over a 13-month
period based on the total amount of intended purchases plus the value of all
shares of the Participating Funds previously purchased and still owned. An
investor may elect to compute the 13-month period starting up to 90 days before
the date of execution of a Letter of Intent. Each investment made during the
period receives the reduced sales charge applicable to the total amount of the
investment goal. The initial purchase must be for an amount equal to at least 5%
of the minimum total purchase amount of the level selected. If trades not
initially made under a Letter of Intent subsequently qualify for a lower sales
charge through the 90-day backdating provisions, an adjustment will be made at
the time of the expiration of the Letter of Intent to give effect to the lower
charge. Such adjustment in sales charge will be used to purchase additional
shares for the shareholder at the applicable discount category. The Fund
initially will escrow shares totaling 5% of the dollar amount of the Letter of
Intent to be held by Investor Services in the name of the shareholder. In the
event the Letter of Intent goal is not achieved within the specified period, the
investor must pay the difference between the sales charge applicable to the
purchases made and the reduced sales charge previously paid. Such payments may
be made directly to the Distributor or, if not paid, the Distributor will
liquidate sufficient escrowed shares to obtain the difference.
OTHER PURCHASE PROGRAMS
Purchasers of Class A Shares may be entitled to reduced or no initial sales
charges in connection with the unit investment trust reinvestment program and
purchases by registered representatives of selling
22
<PAGE>
firms or purchases by persons affiliated with the Fund or the Distributor. The
Fund reserves the right to modify or terminate these arrangements at any time.
UNIT INVESTMENT TRUST REINVESTMENT PROGRAM. The Fund permits unitholders of unit
investment trusts to reinvest distributions from such trusts in Class A Shares
of the Fund at net asset value per share and with no minimum initial or
subsequent investment requirement, if the administrator of an investor's unit
investment trust program meets certain uniform criteria relating to cost savings
by the Fund and the Distributor. The total sales charge for all other
investments made from unit investment trust distributions will be 1.00% of the
offering price (1.01% of net asset value). Of this amount, the Distributor will
pay to the authorized dealer, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the terms and conditions that apply to the program,
should contact their authorized dealer or the Distributor.
The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during each distribution period by all investors who choose to invest in
the Fund through the program and (2) provide Investor Services with appropriate
backup data for each investor participating in the program in a computerized
format fully compatible with Investor Services' processing system.
In order to obtain these special benefits, all dividends and other distributions
by the Fund must be reinvested in additional shares and there can not be any
systematic withdrawal program. There will be no minimum for reinvestments from
unit investment trusts. The Fund will send account activity statements to such
participants on a quarterly basis only, even if their investments are made more
frequently. The Fund reserves the right to modify or terminate this program at
any time.
NET ASSET VALUE PURCHASE OPTIONS. Class A Shares of the Fund may be purchased at
net asset value, upon written assurance that the purchase is made for investment
purposes and that the shares will not be resold except through redemption by the
Fund, by:
(1) Current or retired trustees or directors of funds advised by Morgan Stanley
Dean Witter & Co. and any of its subsidiaries and such persons' families
and their beneficial accounts.
(2) Current or retired directors, officers and employees of Morgan Stanley Dean
Witter & Co. and any of its subsidiaries; employees of an investment
subadviser to any fund described in (1) above or an affiliate of such
subadviser; and such persons' families and their beneficial accounts.
(3) Directors, officers, employees and, when permitted, registered
representatives, of financial institutions that have a selling group
agreement with the Distributor and their spouses and children under 21
years of age when purchasing for any accounts they beneficially own, or, in
the case of any such financial institution, when purchasing for retirement
plans for such institution's employees; provided that such purchases are
otherwise permitted by such institutions.
(4) Registered investment advisers who charge a fee for their services, trust
companies and bank trust departments investing on their own behalf or on
behalf of their clients. The Distributor may pay authorized dealers through
which purchases are made an amount up to 0.50% of the amount invested, over
a 12-month period.
(5) Trustees and other fiduciaries purchasing shares for retirement plans which
invest in multiple fund families through broker-dealer retirement plan
alliance programs that have entered into agreements with the Distributor
and which are subject to certain minimum size and operational requirements.
Trustees and other fiduciaries should refer to the Statement of Additional
Information for further details with respect to such alliance programs.
(6) Beneficial owners of shares of Participating Funds held by a retirement
plan or held in a tax-advantaged retirement account who purchase shares of
the Fund with proceeds from distributions from such a plan or retirement
account other than distributions taken to correct an excess contribution.
(7) Accounts as to which a bank or broker-dealer charges an account management
fee ("wrap
23
<PAGE>
accounts"), provided the bank or broker-dealer has a separate agreement
with the Distributor.
(8) Trusts created under pension, profit sharing or other employee benefit
plans qualified under Section 401(a) of the Internal Revenue Code of 1986,
as amended (the "Code"), or custodial accounts held by a bank created
pursuant to Section 403(b) of the Code and sponsored by nonprofit
organizations defined under Section 501(c)(3) of the Code and assets held
by an employer or trustee in connection with an eligible deferred
compensation plan under Section 457 of the Code. Such plans will qualify
for purchases at net asset value provided, for plans initially establishing
accounts with the Distributor in the Participating Funds after February 1,
1997, that (1) the initial amount invested in the Participating Funds is at
least $500,000 or (2) such shares are purchased by an employer sponsored
plan with more than 100 eligible employees. Such plans that have been
established with a Participating Fund or have received proposals from the
Distributor prior to February 1, 1997 based on net asset value purchase
privileges previously in effect will be qualified to purchase shares of the
Participating Funds at net asset value for accounts established on or
before May 1, 1997. Section 403(b) and similar accounts for which Van
Kampen Trust Company serves as custodian will not be eligible for net asset
value purchases based on the aggregate investment made by the plan or the
number of eligible employees, except under certain uniform criteria
established by the Distributor from time to time. Prior to February 1,
1997, a commission will be paid to authorized dealers who initiate and are
responsible for such purchases within a rolling twelve- month period as
follows: 1.00% on sales to $5 million, plus 0.50% on the next $5 million,
plus 0.25% on the excess over $10 million. For purchases on February 1,
1997 and thereafter, a commission will be paid as follows: 1.00% on sales
to $2 million, plus 0.80% on the next $1 million, plus 0.50% on the next
$47 million, plus 0.25% on the excess over $50 million.
(9) Individuals who are members of a "qualified group." For this purpose, a
qualified group is one which (i) has been in existence for more than six
months, (ii) has a purpose other than to acquire shares of the Fund or
similar investments, (iii) has given and continues to give its endorsement
or authorization, on behalf of the group, for purchase of shares of the
Fund and Participating Funds, (iv) has a membership that the authorized
dealer can certify as to the group's members and (v) satisfies other
uniform criteria established by the Distributor for the purpose of
realizing economies of scale in distributing such shares. A qualified group
does not include one whose sole organizational nexus, for example, is that
its participants are credit card holders of the same institution, policy
holders of an insurance company, customers of a bank or broker-dealer,
clients of an investment adviser or other similar groups. Shares purchased
in each group's participants account in connection with this privilege will
be subject to a contingent deferred sales charge of 1.00% in the event of
redemption within one year of purchase, and a commission will be paid to
authorized dealers who initiate and are responsible for such sales to each
individual as follows: 1.00% on sales to $2 million, plus 0.80% on the next
$1 million and 0.50% on the excess over $3 million.
The term "families" includes a person's spouse, children under 21 years of age
and grandchildren, parents, and a person's spouse's parents.
Purchase orders made pursuant to clause (4) may be placed either through
authorized dealers as described above or directly with Investor Services by the
investment adviser, trust company or bank trust department, provided that
Investor Services receives federal funds for the purchase by the close of
business on the next business day following acceptance of the order. An
authorized dealer may charge a transaction fee for placing an order to purchase
shares pursuant to this provision or for placing a redemption order with respect
to such shares. Authorized dealers will be paid a service fee as described above
on purchases made under options (3) through (9) above. The Fund may terminate,
or amend the terms of, offering shares of the Fund at net asset value to such
groups at any time.
24
<PAGE>
REDEMPTION OF
SHARES
Generally shareholders may redeem for cash some or all of their shares without
charge by the Fund (other than applicable sales charge) at any time. As
described under the heading "Purchase of Shares," redemptions of Class B Shares
and Class C Shares may be subject to a contingent deferred sales charge. In
addition, certain redemptions of Class A Shares for shareholder accounts of $1
million or more may be subject to a contingent deferred sales charge.
Redemptions completed through an authorized dealer or a custodian of a
retirement plan account may involve additional fees charged by the dealer or
custodian.
Except as specified below under "Telephone Redemption Requests," payment for
shares redeemed generally will be made by check mailed within seven days after
receipt by Investor Services of the request and any other necessary documents in
proper form as described below. Such payment may be postponed or the right of
redemption suspended as provided by the rules of the SEC. Such payment may,
under certain circumstances, be paid wholly or in part by a distribution-in-kind
of portfolio securities which may result in brokerage costs and a gain or loss
for federal income tax purposes when such securities are sold. If the shares to
be redeemed have been recently purchased by check, Investor Services may delay
the payment of redemption proceeds until it confirms the purchase check has
cleared, which may take up to 15 days. A taxable gain or loss will be recognized
by the shareholder upon redemption of shares.
WRITTEN REDEMPTION REQUESTS. Shareholders may request a redemption of shares by
written request in proper form sent directly to Van Kampen Investor Services
Inc., PO Box 218256, Kansas City, MO 64121-8256. The request for redemption
should indicate the number of shares to be redeemed, the class designation of
such shares and the shareholder's account number. The redemption request must be
signed by all persons in whose names the shares are registered. Signatures must
conform exactly to the account registration. If the proceeds of the redemption
exceed $50,000, or if the proceeds are not to be paid to the record owner at the
record address, or if the record address has changed within the previous 30
days, signature(s) must be guaranteed by one of the following: a bank or trust
company; a broker-dealer; a credit union; a national securities exchange,
registered securities association or clearing agency; a savings and loan
association; or a federal savings bank.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption to be in proper form. In some
cases, however, additional documents may be necessary. In the case of
shareholders holding certificates, the certificates for the shares being
redeemed properly endorsed for transfer must accompany the redemption request.
In the event the redemption is requested by a corporation, partnership, trust,
fiduciary, executor or administrator, and the name and title of the
individual(s) authorizing such redemption is not shown in the account
registration, a copy of the corporate resolution or other legal documentation
appointing the authorized signer and certified within the prior 120 days must
accompany the redemption request. IRA redemption requests should be sent to the
IRA custodian to be forwarded to Investor Services. Contact the IRA custodian
for further information.
In the case of written redemption requests sent directly to Investor Services,
the redemption price is the net asset value per share next determined after the
request in proper form is received by Investor Services.
AUTHORIZED DEALER REDEMPTION REQUESTS. Shareholders may place redemption
requests through an authorized dealer. Orders sent through authorized dealers
must be at least $500 (unless transmitted by your authorized dealer via the
FUNDSERV network). The redemption price for such shares is the net asset value
per share next calculated after an order in proper form is received by an
authorized dealer provided such order is transmitted to the Distributor prior to
the Distributor's close of business on such day. It is the responsibility of
authorized dealers to transmit redemption requests received by them to the
Distributor so
25
<PAGE>
they will be received prior to such time. Redemptions completed through an
authorized dealer may involve additional fees charged by the dealer.
TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. A shareholder
automatically has telephone redemption privileges unless the shareholder
indicates otherwise by checking the applicable box on the application form
accompanying the prospectus. To redeem shares, contact the telephone transaction
line at (800) 421-5684. Van Kampen Investments, Investor Services and the Fund
employ procedures considered by them to be reasonable to confirm that
instructions communicated by telephone are genuine. Such procedures include
requiring certain personal identification information prior to acting upon
telephone instructions, tape-recording telephone communications and providing
written confirmation of instructions communicated by telephone. If reasonable
procedures are employed, none of Van Kampen Investments, Investor Services or
the Fund will be liable for following telephone instructions which it reasonably
believes to be genuine. Telephone redemptions may not be available if the
shareholder cannot reach Investor Services by telephone, whether because all
telephone lines are busy or for any other reason; in such case, a shareholder
would have to use the Fund's other redemption procedure previously described.
Requests received by Investor Services prior to 4:00 p.m., New York time, will
be processed at the next determined net asset value per share. These privileges
are available for all accounts other than retirement accounts or accounts with
shares represented by certificates. If an account has multiple owners, Investor
Services may rely on the instructions of any one owner.
For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check and amounts of at least
$1,000 up to $1 million may be redeemed daily if the proceeds are to be paid by
wire. The proceeds must be payable to the shareholder(s) of record and sent to
the address of record for the account or wired directly to their predesignated
bank account. This privilege is not available if the address of record has been
changed within 30 days prior to a telephone redemption request. Proceeds from
redemptions payable by wire transfer are expected to be wired on the next
business day following the date of redemption. The Fund reserves the right at
any time to terminate, limit or otherwise modify this redemption privilege.
OTHER REDEMPTION INFORMATION. The Fund may redeem shares of any shareholder
account that has a value on the date of the notice of redemption less than the
minimum initial investment as specified in this prospectus. At least 60 days
advance written notice of any such involuntary redemption will be provided to
the shareholder and such shareholder will be given an opportunity to purchase
the required value of additional shares at the next determined net asset value
without sales charge. Any involuntary redemption may only occur if the
shareholder account is less than the minimum initial investment due to
shareholder redemptions.
DISTRIBUTIONS FROM
THE FUND
In addition to any increase in the value of shares which the Fund may achieve,
shareholders may receive distributions from the Fund of dividends and capital
gain dividends.
DIVIDENDS. Interest earned from investments is the Fund's main source of income.
The Fund's present policy, which may be changed at any time by the Board of
Directors is to distribute all or substantially all of this income, less
expenses, at least monthly as dividends to shareholders. Dividends are
automatically applied to purchase additional shares of the Fund at the next
determined net asset value unless the shareholder instructs otherwise.
The per share dividends on Class B Shares and Class C Shares may be lower than
the per share dividends on Class A Shares as a result of the higher distribution
fees and transfer agency costs applicable to such classes of shares.
CAPITAL GAIN DIVIDENDS. The Fund may realize capital gains or losses when it
sells securities, depending on whether the sales prices for the securities are
higher or lower than purchase prices. Net
26
<PAGE>
realized capital gain represents the total profits from sales of securities
minus total losses from sales of securities (including any losses carried
forward from prior years), other than net short-term capital gain from sales of
securities held for one year or less. The Fund distributes any taxable net
realized capital gain to shareholders as capital gain dividends at least
annually. As in the case of dividends, capital gain dividends are automatically
reinvested in additional shares of the Fund at the next determined net asset
value unless the shareholder instructs otherwise.
SHAREHOLDER SERVICES
Listed below are some of the shareholder services the Fund offers to investors.
For a more complete description of the Fund's shareholder services, such as
investment accounts, share certificates, retirement plans, automated clearing
house deposits, dividend diversification and the systematic withdrawal plan,
please refer to the Statement of Additional Information or contact your
authorized dealer.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gain dividends in shares of the
Fund. Such shares are acquired at net asset value per share (without sales
charge) on the applicable payable date of the dividend or capital gain dividend.
Unless the shareholder instructs otherwise, the reinvestment plan is automatic.
This instruction may be made by telephone by calling (800) 341-2911
((800) 421-2833 for the hearing impaired) or by writing to Investor Services.
The investor may, on the initial application or prior to any declaration,
instruct that dividends be paid in cash and capital gain dividends be reinvested
at net asset value, or that both dividends and capital gain dividends be paid in
cash.
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under which
a shareholder can authorize Investor Services to charge a bank account on a
regular basis to invest predetermined amounts in the Fund. Additional
information is available from the Distributor or your authorized dealer.
EXCHANGE PRIVILEGE. Shares of the Fund may be exchanged for shares of the same
class of any Participating Fund based on the next computed net asset value per
share of each fund after requesting the exchange without any sales charge,
subject to certain limitations. Shares of the Fund may be exchanged for shares
of any Participating Fund only if shares of that Participating Fund are
available for sale; however, during periods of suspension of sales, shares of a
Participating Fund may be available for sale only to existing shareholders of a
Participating Fund. Shareholders seeking an exchange into a Participating Fund
should obtain and read the current prospectus for such fund prior to
implementing an exchange. A prospectus of any of the Participating Funds may be
obtained from any authorized dealer or the Distributor.
To be eligible for exchange, shares of the Fund must have been registered in the
shareholder's name for at least 30 days prior to an exchange. Shares of the Fund
registered in a shareholder's name for less than 30 days may only be exchanged
upon receipt of prior approval of the Adviser. It is the policy of the Adviser,
under normal circumstances, not to approve such requests.
When shares that are subject to a contingent deferred sales charge are exchanged
among Participating Funds, the holding period for purposes of computing the
contingent deferred sales charge is based upon the date of the initial purchase
of such shares from a Participating Fund. When such shares are redeemed and not
exchanged for shares of another Participating Fund, the shares are subject to
the contingent deferred sales charge schedule imposed by the Participating Fund
from which such shares were originally purchased.
Exchanges of shares are sales of one Participating Fund and purchases of another
Participating Fund. The sale may result in a gain or loss for federal income tax
purposes. If the shares sold have been held for less than 91 days, the sales
charge paid on such shares is carried over and included in the tax basis of the
shares acquired.
A shareholder wishing to make an exchange may do so by sending a written request
to Investor Services or by contacting the telephone transaction line at
(800) 421-5684. A shareholder automatically has telephone exchange privileges
unless the shareholder
27
<PAGE>
indicates otherwise by checking the applicable box on the application form
accompanying the prospectus. Van Kampen Investments, Investor Services and the
Fund employ procedures considered by them to be reasonable to confirm that
instructions communicated by telephone are genuine. Such procedures include
requiring certain personal identification information prior to acting upon
telephone instructions, tape-recording telephone communications, and providing
written confirmation of instructions communicated by telephone. If reasonable
procedures are employed, none of Van Kampen Investments, Investor Services or
the Fund will be liable for following telephone instructions which it reasonably
believes to be genuine. If the exchanging shareholder does not have an account
in the fund whose shares are being acquired, a new account will be established
with the same registration, dividend and capital gain dividend options (except
dividend diversification) and authorized dealer of record as the account from
which shares are exchanged, unless otherwise specified by the shareholder. In
order to establish a systematic withdrawal plan for the new account or reinvest
dividends from the new account into another fund, however, an exchanging
shareholder must submit a specific request. The Fund reserves the right to
reject any order to acquire its shares through exchange. In addition, the Fund
and other Participating Funds may restrict exchanges by shareholders engaged in
excessive trading by limiting or disallowing the exchange privileges to such
shareholders. For further information on these restrictions see the Statement of
Additional Information. The Fund may modify, restrict or terminate the exchange
privilege at any time on 60 days' notice to its shareholders of any termination
or material amendment.
For purposes of determining the sales charge rate previously paid on Class A
Shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchanged security was acquired through reinvestment, that
security is deemed to have been sold with a sales charge rate equal to the rate
previously paid on the security on which the dividend or distribution was paid.
If a shareholder exchanges less than all of such shareholder's securities, the
security upon which the highest sales charge rate was previously paid is deemed
exchanged first.
Exchange requests received on a business day prior to the time shares of the
funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares of the fund which the
shareholder is redeeming will be redeemed at the net asset value per share next
determined on the date of receipt. Shares of the new fund that the shareholder
is purchasing will also normally be purchased at the net asset value per share,
plus any applicable sales charge, next determined on the date of receipt.
Exchange requests received on a business day after the time shares of the funds
involved in the request are priced will be processed on the next business day in
the manner described herein.
INTERNET TRANSACTIONS. In addition to performing transactions on your account
through written instruction or by telephone, you may also perform certain
transactions through the internet. Please refer to our web site at
www.vankampen.com for further instruction. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated through the internet are genuine. Such
procedures include requiring use of a personal identification number prior to
acting upon internet instructions and providing written confirmation of
instructions communicated through the internet. If reasonable procedures are
employed, none of Van Kampen Investments, Investor Services or the Fund will be
liable for following instructions received through the internet which it
reasonably believes to be genuine. If an account has multiple owners, Investor
Services may rely on the instructions of any one owner.
FEDERAL INCOME
TAXATION
Distributions of the Fund's net investment income (consisting generally of
taxable income and net short-term capital gain) are taxable to shareholders as
ordinary income to the extent of the Fund's earnings and profits, whether paid
in cash or reinvested in additional shares. Distributions of the Fund's net
realized capital gain (which is the excess of net long-term capital gain over
net short-term
28
<PAGE>
capital loss) as capital gain dividends, if any, are taxable to shareholders as
long-term capital gains, whether paid in cash or reinvested in additional
shares, and regardless of how long the shares of the Fund have been held by such
shareholders. The Fund expects that its distributions will consist primarily of
ordinary income and capital gain dividends. Distributions in excess of the
Fund's earnings and profits will first reduce the adjusted tax basis of a
holder's shares and, after such adjusted tax basis is reduced to zero, will
constitute capital gains to such holder (assuming such shares are held as a
capital asset). Although distributions generally are treated as taxable in the
year they are paid, distributions declared in October, November or December,
payable to shareholders of record on a specified date in such month and paid
during January of the following year will be treated as having been distributed
by the Fund and received by the shareholders on the December 31st prior to the
date of payment. The Fund will inform shareholders of the source and tax status
of all distributions promptly after the close of each calendar year.
The sale or exchange of shares is a taxable transaction for federal income tax
purposes. Shareholders who sell their shares will generally recognize gain or
loss in an amount equal to the difference between their adjusted tax basis in
the shares sold and the amount received. If the shares are held as a capital
asset, the gain or loss will be a capital gain or loss. Any capital gains may be
taxed at different rates depending on how long the shareholder held such shares.
The Fund is required, in certain circumstances, to withhold 31% of dividends and
certain other payments, including redemptions, paid to shareholders who do not
furnish to the Fund their correct taxpayer identification number (in the case of
individuals, their social security number) and certain required certifications
or who are otherwise subject to backup withholding.
Foreign shareholders, including shareholders who are non-resident aliens, may be
subject to U.S. withholding tax on certain distributions (whether received in
cash or in shares) at a rate of 30% or such lower rate as prescribed by an
applicable treaty. Accordingly, investment in the Fund is likely to be
appropriate for a foreign shareholder only if such person can utilize a foreign
tax credit or corresponding tax benefit in respect of such U.S. withholding tax.
Prospective foreign investors should consult their tax advisers concerning the
tax consequences to them of an investment in shares.
The Fund intends to qualify as a regulated investment company under federal
income tax law. If the Fund so qualifies and distributes each year to its
shareholders at least 90% of its net investment income, the Fund will not be
required to pay federal income taxes on any income it distributes to
shareholders. If the Fund distributes less than an amount equal to the sum of
98% of its ordinary income and 98% of its capital gain net income, then the Fund
will be subject to a 4% excise tax on the undistributed amounts.
The federal income tax discussion set forth above is for general information
only. Prospective investors should consult their own tax advisers regarding the
specific federal tax consequences of purchasing, holding, disposing, exchanging
or selling of shares, as well as the effects of state, local and foreign tax law
and any proposed tax law changes.
29
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the periods indicated. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report, along with the Fund's financial statements, is
included in the Statement of Additional Information and may be obtained by
shareholders without charge by calling the telephone number on the back cover of
this prospectus. This information should be read in conjunction with the
financial statements and notes thereto included in the Statement of Additional
Information.
<TABLE>
<CAPTION>
CLASS A
YEAR ENDED JUNE 30, MAY 1, 1996* TO
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# 1997 JUNE 30, 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD........................... $12.661 $ 12.86 $ 11.92 $12.00
------- ------- ------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss....... 1.006 0.97 1.07 0.13
Net Realized and Unrealized
Gain/Loss........................ (0.790) 0.35 0.99 (0.09)
------- ------- ------- ------
Total From Investment Operations... 0.216 1.32 2.06 0.04
------- ------- ------- ------
DISTRIBUTIONS
Net Investment Income............ (0.967) (0.97) (1.07) (0.12)
Net Realized Gain................ (0.088) (0.55) (0.05) --
In Excess of Net Realized Gain... (0.140) -- -- --
------- ------- ------- ------
Total Distributions.............. (1.195) (1.52) (1.12) (0.12)
------- ------- ------- ------
NET ASSET VALUE, END OF PERIOD..... $11.682 $ 12.66 $ 12.86 $11.92
======= ======= ======= ======
TOTAL RETURN (1)................... 1.90% 10.81% 18.12% 0.29%**
======= ======= ======= ======
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's).......................... $ 8,120 $ 7,813 $ 8,980 $3,907
Ratio of Expenses to Average Net
Assets........................... 1.25% 1.25% 1.25% 1.25%
Ratio of Net Investment Income/Loss
to Average Net Assets............ 8.39% 7.42% 8.83% 6.85%
Portfolio Turnover Rate............ 41% 81% 104% 10%**
- -------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period Per
Share
Benefit to Net Investment
Income/Loss...................... $ 0.06 $ 0.08 $ 0.10 $ 0.04
Ratios Before Expense Limitation:
Expenses to Average Net Assets... 1.72% 1.89% 2.04% 3.51%
Net Investment Income/Loss to
Average Net Assets............. 7.93% 6.78% 8.04% 4.59%
<CAPTION>
CLASS B
YEAR ENDED JUNE 30, MAY 1, 1996* TO
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# 1997 JUNE 30, 1996
- ----------------------------------- ------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD........................... $12.630 $ 12.86 $ 11.93 $12.00
------- ------- ------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss....... 0.912 0.87 0.98 0.12
Net Realized and Unrealized
Gain/Loss........................ (0.776) 0.34 0.99 (0.09)
------- ------- ------- ------
Total From Investment Operations... 0.136 1.21 1.97 0.03
------- ------- ------- ------
DISTRIBUTIONS
Net Investment Income............ (0.883) (0.89) (0.99) (0.10)
Net Realized Gain................ (0.088) (0.55) (0.05) --
In Excess of Net Realized Gain... (0.140) -- -- --
------- ------- ------- ------
Total Distributions.............. (1.111) (1.44) (1.04) (0.10)
------- ------- ------- ------
NET ASSET VALUE, END OF PERIOD..... $11.655 $ 12.63 $ 12.86 $11.93
======= ======= ======= ======
TOTAL RETURN (1)................... 1.28% 9.86% 17.22% 0.21%**
======= ======= ======= ======
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's).......................... $22,667 $18,420 $ 8,617 $3,421
Ratio of Expenses to Average Net
Assets........................... 2.00% 2.00% 2.00% 2.00%
Ratio of Net Investment Income/Loss
to Average Net Assets............ 7.63% 6.70% 7.99% 6.08%
Portfolio Turnover Rate............ 41% 81% 104% 10%**
- -------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period Per
Share
Benefit to Net Investment
Income/Loss...................... $ 0.06 $ 0.08 $ 0.10 $ 0.04
Ratios Before Expense Limitation:
Expenses to Average Net Assets... 2.48% 2.64% 2.82% 4.25%
Net Investment Income/Loss to
Average Net Assets............. 7.16% 6.04% 7.17% 3.83%
<CAPTION>
CLASS C
YEAR ENDED JUNE 30,
MAY 1, 1996* TO
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# 1997 JUNE 30, 1996
- ----------------------------------- ------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD........................... $12.634 $ 12.86 $ 11.93 $12.00
------- ------- ------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss....... 0.912 0.86 0.99 0.12
Net Realized and Unrealized
Gain/Loss........................ (0.775) 0.35 0.98 (0.09)
------- ------- ------- ------
Total From Investment Operations... 0.137 1.21 1.97 0.03
------- ------- ------- ------
DISTRIBUTIONS
Net Investment Income............ (0.883) (0.89) (0.99) (0.10)
Net Realized Gain................ (0.088) (0.55) (0.05) --
In Excess of Net Realized Gain... (0.140) -- -- --
------- ------- ------- ------
Total Distributions.............. (1.111) (1.44) (1.04) (0.10)
------- ------- ------- ------
NET ASSET VALUE, END OF PERIOD..... $11.660 $ 12.63 $ 12.86 $11.93
======= ======= ======= ======
TOTAL RETURN (1)................... 1.28% 9.86% 17.21% 0.21%**
======= ======= ======= ======
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's).......................... $ 7,879 $ 8,145 $ 4,970 $3,316
Ratio of Expenses to Average Net
Assets........................... 2.00% 2.00% 2.00% 2.00%
Ratio of Net Investment Income/Loss
to Average Net Assets............ 7.61% 6.63% 8.03% 6.07%
Portfolio Turnover Rate............ 41% 81% 104% 10%**
- -------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period Per
Share
Benefit to Net Investment
Income/Loss...................... $ 0.06 $ 0.08 $ 0.11 $ 0.04
Ratios Before Expense Limitation:
Expenses to Average Net Assets... 2.48% 2.64% 2.88% 4.25%
Net Investment Income/Loss to
Average Net Assets............. 7.14% 6.01% 7.15% 3.82%
</TABLE>
* COMMENCEMENT OF OPERATIONS
** NON-ANNUALIZED
(1) TOTAL RETURN IS CALCULATED EXCLUSIVE OF SALES CHARGES OR DEFERRED
SALES CHARGES.
# CHANGES PER SHARE ARE BASED UPON MONTHLY AVERAGE SHARES
OUTSTANDING.
30
<PAGE>
APPENDIX -- DESCRIPTION OF SECURITIES RATINGS
STANDARD & POOR'S -- A brief description of the applicable Standard & Poor's
(S&P) rating symbols and their meanings (as published by S&P) follow:
A S&P corporate or municipal debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees.
The debt rating is not a recommendation to purchase, sell, or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished by the issuer or obtained
by S&P from other sources it considers reliable. S&P does not perform an audit
in connection with any rating and may, on occasion, rely on unaudited financial
information. The ratings may be changed, suspended, or withdrawn as a result of
changes in, or unavailability of, such information, or based on other
circumstances.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of payment -- capacity and willingness of the obligor to meet its
financial commitment on an obligation in accordance with the terms of the
obligation:
2. Nature of and provisions of the obligation:
3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditor's rights.
1. LONG-TERM DEBT -- INVESTMENT GRADE
AAA: Debt rated "AAA" has the highest rating assigned by S&P. Capacity to meet
its financial commitment on the obligation is extremely strong.
AA: Debt rated "AA" differs from the highest rated issues only in small degree.
Capacity to meets its financial commitment on the obligation is very strong.
A: Debt rated "A" is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than obligations in higher rated
categories. Capacity to meet its financial commitment on the obligation is still
strong.
BBB: Debt rated "BBB" exhibits adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to meet its financial commitment on the obligation.
SPECULATIVE GRADE
BB, B, CCC, CC, C: Debts rated "BB", "B", "CCC", "CC" and "C" are regarded as
having significant speculative characteristics. "BB" indicates the least degree
of speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
BB: Debt rated "BB" is less vulnerable to nonpayment than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
B: Debt rated "B" is more vulnerable to nonpayment than obligations rated "BB",
but the obligor currently has the capacity to meet its financial commitment on
the obligation. Adverse business, financial, or economic conditions will likely
impair the obligor's capacity or willingness to meet its financial commitment on
the obligation.
CCC: Debt rated "CCC" is currently vulnerable to nonpayment, and is dependent
upon favorable business, financial, and economic conditions for the obligor to
meet its financial commitment on the obligation. In the event of adverse
business, financial, or economic conditions, the obligor is not likely to have
A-1
<PAGE>
the capacity to meet its financial commitment on the obligation.
CC: Debt rated "CC" is currently highly vulnerable to nonpayment.
C: the "C" rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments on this obligation
are being continued.
D: Debt rated "D" is in payment default. The "D" rating category is used when
payments on an obligation are not made on the date due even if the applicable
grace period has not expired, unless S&P believes that such payments will be
made during such grace period. The "D" rating also will be used upon the filing
of a bankruptcy petition or the taking of a similar action if payments on an
obligation are jeopardized.
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
r: This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk -- such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
DEBT OBLIGATIONS OF ISSUERS OUTSIDE THE UNITED STATES AND ITS TERRITORIES are
rated on the same basis as domestic corporate and municipal issues. The ratings
measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.
BOND INVESTMENT QUALITY STANDARDS: Under present commercial bank regulations
issued by the Comptroller of the Currency, bonds rated in the top four
categories ("AAA", "AA", "A", "BBB", commonly known as "investment grade"
ratings) are generally regarded as eligible for bank investment. In addition,
the laws of various states governing legal investments impose certain ratings or
other standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.
2. COMMERCIAL PAPER
A S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.
Ratings are graded into several categories, ranging from "A-1" for the highest
quality obligations to "D" for the lowest. These categories are as follows:
A-1: The highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
A-3: Issues carrying this designation have adequate capacity for timely payment.
They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B: Issues rated "B" are regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
C: This rating is assigned to short-term debt obligations currently vulnerable
to nonpayment and is dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on the obligation.
D: Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired,
A-2
<PAGE>
unless S&P believes that such payments will be made during such grace period.
The "D" rating also will be used upon the filing of a bankruptcy petition or the
taking of a similar action if payments on an obligation are jeopardized.
A commercial paper rating is not a recommendation to purchase, sell or hold a
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained from other sources it considers reliable. S&P does
not perform an audit in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed, suspended or
withdrawn as a result of changes in, or unavailability of, such information, or
based on other circumstances.
3. PREFERRED STOCK
A S&P preferred stock rating is an assessment of the capacity and willingness of
an issuer to pay preferred stock dividends and any applicable sinking fund
obligations. A preferred stock rating differs from a bond rating inasmuch as it
is assigned to an equity issue, which issue is intrinsically different from, and
subordinated to, a debt issue. Therefore, to reflect this difference, the
preferred stock rating symbol will normally not be higher than the bond rating
symbol assigned to, or that would be assigned to, the senior debt of the same
issuer.
The preferred stock ratings are based on the following considerations:
i. Likelihood of payment-capacity and willingness of the issuer to meet the
timely payment of preferred stock dividends and any applicable sinking fund
requirements in accordance with the terms of the obligation.
ii. Nature of, and provisions of, the issuer.
iii. Relative position of the issue in the event of bankruptcy, reorganization,
or other arrangements under the laws of bankruptcy and other laws affecting
creditors' rights.
AAA: This is the highest rating that may be assigned by S&P to a preferred stock
issue and indicates an extremely strong capacity to pay the preferred stock
obligations.
AA: A preferred stock issue rated "AA" also qualifies as a high-quality, fixed
income security. The capacity to pay preferred stock obligations is very strong,
although not as overwhelming as for issues rated "AAA".
A: An issue rated "A" is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
BBB: An issue rated "BBB" is regarded as backed by an adequate capacity to pay
the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the "A" category.
BB, B and CCC: Preferred stock rated "BB", "B", and "CCC" are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay preferred stock obligations.
"BB" indicates the lowest degree of speculation and "CCC" the highest. While
such issues will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
CC: The rating "CC" is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments, but that is currently paying.
C: A preferred stock rated "C" is a nonpaying issue.
D: A preferred stock rated "D" is a nonpaying issue with the issuer in default
on debt instruments.
NR: This indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy. PLUS (+) or MINUS (-): To provide more
detailed indications of preferred stock quality, ratings
A-3
<PAGE>
from "AA" to "CCC" may be modified by the addition of a plus or minus sign to
show relative standing within the major rating categories.
A preferred stock rating is not a recommendation to purchase, sell, or hold a
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained by S&P from other sources it considers reliable.
S&P does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended, or withdrawn as a result of changes in, or unavailability of, such
information, or based on other circumstances.
MOODY'S INVESTORS SERVICE -- a brief description of the applicable Moody's
Investors Service (Moody's) rating symbols and their meanings (as published by
Moody's Investors Service) follows:
1. LONG-TERM DEBT
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than the Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payment
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
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 market shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the issue ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.
A-4
<PAGE>
ABSENCE OF RATING: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not rated as a
matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published in
Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
2. SHORT-TERM DEBT
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations. These obligations have an original maturity
not exceeding one year unless explicitly noted.
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issues:
Issuers rated Prime-1 (or supporting institutions) have a superior ability for
repayment or senior short-term debt obligations. Prime-1 repayment ability will
often be evidenced by many of the following characteristics:
- -- Leading market positions in well-established industries.
- -- High rates of return on funds employed.
- -- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
- -- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- -- Well-established access to a range of financial markets and assured sources
of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability for
repayment of senior short-term debt obligations. This will normally be evidenced
by many of the characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or supporting institutions) have an acceptable ability
for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes of the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
3. PREFERRED STOCK
Preferred stock rating symbols and their definitions are as follows:
AAA: An issue which is rated "AAA" is considered to be a top-quality preferred
stock. This rating indicates good asset protection and the least risk of
dividend impairment within the universe of preferred stocks.
AA: An issue which is rated "AA" is considered a high-grade preferred stock.
This rating indicates that there is a reasonable assurance the earnings and
asset protection will remain relatively well maintained in the foreseeable
future.
A: An issue which is rated "A" is considered to be an upper-medium-grade
preferred stock. While risks are judged to be somewhat greater than in the "AAA"
and "AA" classifications, earnings and asset protections are, nevertheless,
expected to be maintained at adequate levels.
A-5
<PAGE>
BAA: An issue which is rated "BAA" is considered to be a medium-grade preferred
stock, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any great
length of time.
BA: An issue which is rated "BA" is considered to have speculative elements and
its future cannot be considered well assured. Earnings and asset protection may
be very moderate and not well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.
B: An issue which is rated "B" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
CAA: An issue which is rated "CAA" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future status
of payments.
CA: An issue which is rated "CA" is speculative in a high degree and is likely
to be in arrears on dividends with little likelihood of eventual payment.
C: This is the lowest rated class of preferred or preference stock. Issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Moody's applies numerical modifiers 1, 2 and 3 in each rating classification.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category, the modifier 2 indicates a mid-range ranking, and the
modifier 3 indicates that the issue ranks in the lower end of its generic rating
category.
A-6
<PAGE>
BOARD OF DIRECTORS
AND OFFICERS
BOARD OF DIRECTORS
<TABLE>
<S> <C>
J. Miles Branagan Don G. Powell*
Jerry D. Choate Phillip B. Rooney
Richard M. DeMartini* Fernando Sisto
Linda Hutton Heagy Wayne W. Whalen*
R. Craig Kennedy Suzanne H. Woolsey
Jack E. Nelson Paul G. Yovovich
</TABLE>
OFFICERS
Richard F. Powers, III*
PRESIDENT
Dennis J. McDonnell*
EXECUTIVE VICE PRESIDENT & CHIEF INVESTMENT OFFICER
A. Thomas Smith III*
VICE PRESIDENT AND SECRETARY
Edward C. Wood III*
VICE PRESIDENT
Michael H. Santo*
VICE PRESIDENT
Peter W. Hegel*
VICE PRESIDENT
Stephen L. Boyd*
VICE PRESIDENT
Joseph P. Stadler*
VICE PRESIDENT
John L. Sullivan*
VICE PRESIDENT, CHIEF FINANCIAL OFFICER & TREASURER
Curtis W. Morell*
VICE PRESIDENT & CHIEF ACCOUNTING OFFICER
Tanya M. Loden*
CONTROLLER
* "Interested Persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2911
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders, or
redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call
(800) 421-2833
FUNDINFO-REGISTERED TRADEMARK-
For automated telephone services, call (800) 847-2424
WEB SITE
www.vankampen.com
VAN KAMPEN HIGH YIELD AND TOTAL RETURN FUND
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
INVESTMENT ADVISER AND ADMINISTRATOR
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
INVESTMENT SUBADVISER
MORGAN STANLEY DEAN WITTER INVESTMENT
MANAGEMENT INC.
1221 Avenue of the Americas
New York, NY 10020
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
TRANSFER AGENT
VAN KAMPEN INVESTOR SERVICES INC.
PO Box 218256
Kansas City, MO 64121-8256
Attn: Van Kampen High Yield and Total Return Fund
CUSTODIAN
THE CHASE MANHATTAN BANK
3 MetroTech Center
Brooklyn, NY 11245
Attn: Van Kampen High Yield and Total Return Fund
LEGAL COUNSEL
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
INDEPENDENT ACCOUNTANTS
PRICEWATERHOUSECOOPERS LLP
200 East Randolph Drive
Chicago, IL 60601
<PAGE>
VAN KAMPEN
HIGH YIELD AND TOTAL RETURN FUND
PROSPECTUS
OCTOBER 28, 1999
A Statement of Additional Information, which contains
more details about the Fund is incorporated by reference
in its entirety into this prospectus.
You will find additional information about the Fund in
its annual and semiannual reports to shareholders. The
annual report explains the market conditions and
investment strategies affecting the Fund's performance
during its last fiscal year.
You can ask questions or obtain a free copy of the
Fund's reports or its Statement of Additional
Information by calling (800) 341-2911 from 7:00 a.m. to
7:00 p.m., Central time, Monday through Friday.
Telecommunications Device for the Deaf users may call
(800) 421-2833. A free copy of the Fund's reports can
also be ordered from our web site at www.vankampen.com.
Information about the Fund, including its reports and
Statement of Additional Information, has been filed with
the Securities and Exchange Commission (SEC). It can be
reviewed and copied at the SEC's Public Reference Room
in Washington, DC or on the EDGAR Database on the SEC's
internet site (http://www.sec.gov). Information on the
operation of the SEC's Public Reference Room may be
obtained by calling the SEC at 1-202-942-8090. You can
also request copies of these materials, upon payment of
a duplicating fee, by electronic request at the SEC's
e-mail address ([email protected]), or by writing the
Public Reference Section of the SEC, Washington, DC,
20549-0102.
[LOGO]
THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-7140.
MSHY PRO 10/99
<PAGE>
VAN KAMPEN
INTERNATIONAL MAGNUM FUND
Van Kampen International Magnum Fund is a mutual fund with an investment
objective to seek long-term capital appreciation by investing primarily in a
portfolio of equity securities of non-U.S. issuers in accordance with the Morgan
Stanley Capital International EAFE Index country weightings determined by the
Fund's investment adviser.
Shares of the Fund have not been approved or disapproved by the Securities and
Exchange Commission (SEC) or any state regulator, and neither the SEC nor any
state regulator has passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
THIS PROSPECTUS IS DATED OCTOBER 28, 1999.
[LOGO]
<PAGE>
TABLE OF CONTENTS
Risk/Return Summary .....................................................3
Fees and Expenses of the Fund ...........................................6
Investment Objective, Policies and Risks ................................7
Investment Advisory Services ...........................................12
Purchase of Shares .....................................................13
Redemption of Shares ...................................................21
Distributions from the Fund ............................................22
Shareholder Services ...................................................23
Federal Income Taxation ................................................25
Financial Highlights ...................................................26
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations, other than those contained in this
prospectus, in connection with the offer contained in this prospectus and, if
given or made, such other information or representations must not be relied upon
as having been authorized by the Fund, the Fund's investment adviser or the
Fund's distributor. This prospectus does not constitute an offer by the Fund or
by the Fund's distributor to sell or a solicitation of an offer to buy any of
the securities offered hereby in any jurisdiction to any person to whom it is
unlawful for the Fund to make such an offer in such jurisdiction.
<PAGE>
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The Fund is a mutual fund with an investment objective to seek long-term capital
appreciation by investing primarily in a portfolio of equity securities of
non-U.S. issuers in accordance with the Morgan Stanley Capital International
EAFE Index country weightings determined by the Fund's investment adviser. Any
income received from the investment of portfolio securities is incidental to the
Fund's investment objective.
INVESTMENT STRATEGIES
Under normal market conditions, the Fund's investment adviser seeks to achieve
the Fund's investment objective by investing primarily in a portfolio of
undervalued equity securities of non-U.S. issuers using a combination of
strategic geographic asset allocation and fundamental, value-oriented stock
selection. The Fund's investment adviser makes regional allocation, purchase and
sale decisions considering factors such as relative valuations, earnings
expectations and macroeconomic factors. The Fund's investment adviser selects
securities it believes are undervalued by the market based on its research and
company analysis. The Fund focuses primarily on issuers from countries
comprising the Morgan Stanley Capital International ("MSCI") Europe, Australasia
and Far East ("EAFE") Index. Under normal market conditions, the Fund invests at
least 65% of its total assets in securities of issuers located in at least three
foreign countries. Equity securities include common and preferred stocks,
convertible securities, rights and warrants to purchase common stock and
depositary receipts. The Fund also may invest up to 35% of its total assets in
debt securities. The Fund may purchase and sell certain derivative instruments
(such as options, futures, options on futures and currency-related transactions
involving options, futures forward contracts and swaps) for various portfolio
management purposes.
INVESTMENT RISKS
An investment in the Fund is subject to investment risks, and you could lose
money on your investment in the Fund. There can be no assurance that the Fund
will achieve its investment objective.
MARKET RISK. Market risk is the possibility that the market values of securities
owned by the Fund will decline. Market risk may affect a single issuer,
industry, sector of the economy or the market as a whole. Investments in common
stocks and other equity securities generally are affected by changes in the
stock markets, which fluctuate substantially over time, sometimes suddenly and
sharply. In general, market values of equity securities are more volatile than
those of debt securities. Investments in debt securities generally are affected
by changes in interest rates and creditworthiness of the issuer. The prices of
debt securities tend to fall as interest rates rise, and such declines tend to
be greater among securities with longer maturities. Foreign markets may, but
often do not, move in tandem with U.S. markets, and foreign markets, especially
developing or emerging market countries, may be more volatile than U.S. markets.
A "value" style of investing emphasizes undervalued companies that possess
characteristics for improved valuations. This style of investing is subject to
the risk that the valuations never improve or that the returns on "value" equity
securities are less than returns on other styles of investing or the overall
market. Different types of stocks tend to shift in and out of favor depending on
market and economic conditions. Thus, the value of the Fund's investments will
vary and at times may be lower or higher than that of other types of
investments. During an overall stock market decline, stock prices of smaller
companies often fluctuate more and may fall more than the stock prices of the
larger companies.
FOREIGN RISKS. Because the Fund owns securities of foreign issuers, it is
subject to risks not usually associated with owning securities of U.S. issuers.
These risks include fluctuations in foreign currencies, foreign currency
exchange controls, political and economic instability, differences in financial
reporting, differences in securities regulation and trading, and foreign
taxation issues. The risks of investing in developing or emerging market
countries are greater than the risks generally associated with foreign
investments, including investment and trading limitations, greater credit and
liquidity concerns, greater political uncertainties, an economy's dependence on
international development assistance, greater foreign currency exchange risk and
currency transfer restrictions, greater delays and disruptions in settlement
3
<PAGE>
transactions, and greater risks associated with computer programs and the Year
2000 problem.
RISKS OF USING DERIVATIVE INVESTMENTS. In general terms, a derivative investment
is one whose value depends on (or is derived from) the value of an underlying
asset, interest rate or index. Options, futures and options on futures and
currency-related transactions involving options, futures, forward contracts and
swaps are examples of derivatives. Derivative investments involve risks
different from direct investment in underlying securities. These risks include
imperfect correlation between the value of the instruments and the underlying
assets; risks of default by the other party to certain transactions; risks that
the transactions may result in losses that partially or completely offset gains
in portfolio positions; risks that the transactions may not be liquid; and
manager risk.
NON-DIVERSIFICATION RISKS. The Fund is classified as a "non-diversified" fund,
which means the Fund may invest a greater portion of its assets in a more
limited number of issuers than a "diversified" fund. As a result, the Fund may
be subject to greater risk than a diversified fund because changes in the
financial condition or market assessment of a single issuer may cause greater
fluctuations in the value of the Fund's shares.
MANAGER RISK. As with any managed fund, the Fund's investment adviser may not be
successful in selecting the best-performing securities or investment techniques
and the Fund's performance may lag behind that of similar funds.
INVESTOR PROFILE
In light of the Fund's investment objective and strategies, the Fund may be
appropriate for investors who:
- - Seek capital appreciation over the long term
- - Do not seek current income from their investment
- - Are willing to take on the increased risks associated with investing in
foreign securities
- - Can withstand volatility in the value of their Fund shares
- - Wish to add to their investment portfolio a fund that emphasizes a "value"
style of investing in equity securities of foreign issuers
An investment in the Fund is not a deposit of any bank or other insured
depository institution. Your investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
An investment in the Fund may not be appropriate for all investors. The Fund is
not intended to be a complete investment program, and investors should consider
their long-term investment goals and financial needs when making an investment
decision about the Fund. An investment in the Fund is intended to be a long-term
investment, and the Fund should not be used as a trading vehicle.
ANNUAL PERFORMANCE
One way to measure the risks of investing in the Fund is to look at how its
performance varies from year-to-year. The following chart shows the annual
returns of the Fund's Class A Shares over the two calendar years prior to the
date of this prospectus. Sales loads are not reflected in this chart. If these
sales loads had been included, the returns shown below would have been lower.
Remember that the past performance of the Fund is not indicative of its future
performance.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1997 6.05%
1998 5.58%
</TABLE>
The Fund's return for the nine-month period ended September 30, 1999 was 10.27%.
4
<PAGE>
The annual return variability of the Fund's Class B Shares and Class C Shares
would be substantially similar to that shown for the Class A Shares because all
of the Fund's shares are invested in the same portfolio of securities; however,
the actual annual returns of the Class B Shares and Class C Shares would be
lower than the annual returns shown for the Fund's Class A Shares because of
differences in the expenses borne by each class of shares.
During the two-year period shown in the bar chart, the highest quarterly return
was 13.81% (for the quarter ended March 31, 1998) and the lowest quarterly
return was -18.19% (for the quarter ended September 30, 1998).
COMPARATIVE PERFORMANCE
As a basis for evaluating the Fund's performance and risks, the table below
shows how the Fund's performance compares with the MSCI EAFE Index*, a
broad-based market index that the Fund's investment adviser believes is an
appropriate benchmark for the Fund. The Fund's performance figures include the
maximum sales charges paid by investors. The index performance figures do not
include any commissions or sales charges that would be paid by investors
purchasing the securities represented by the index. Average annual total returns
are shown for the periods ended December 31, 1998 (the most recently completed
calendar year prior to the date of this prospectus). Remember that the past
performance of the Fund is not indicative of its future performance.
<TABLE>
<CAPTION>
AVERAGE ANNUAL
TOTAL RETURNS
FOR THE
PERIODS ENDED PAST SINCE
DECEMBER 31, 1998 1 YEAR INCEPTION
- --------------------------------------------------------------------
<S> <C> <C>
Van Kampen International Magnum
Fund
- -- Class A Shares -0.47% 3.11%(1)
MSCI EAFE Index 20.00% 9.19%(2)
...................................................................
Van Kampen International Magnum
Fund
- -- Class B Shares -0.23% 3.64%(1)
MSCI EAFE Index 20.00% 9.19%(2)
...................................................................
Van Kampen International Magnum
Fund
- -- Class C Shares 3.83% 4.77%(1)
MSCI EAFE Index 20.00% 9.19%(2)
...................................................................
</TABLE>
INCEPTION DATES: (1) 7/1/96, (2) 6/30/96.
* THE MSCI EAFE INDEX IS AN UNMANAGED INDEX OF COMMON STOCKS AND INCLUDES
EUROPE, AUSTRALIA AND THE FAR EAST (ASSUMES DIVIDENDS ARE REINVESTED NET
OF WITHHOLDING TAXES).
5
<PAGE>
FEES AND EXPENSES
OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
- ------------------------------------------------------------
<S> <C> <C> <C>
</TABLE>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------
Maximum sales charge
(load) imposed on
purchases (as a
percentage of offering
price) 5.75%(1) None None
...........................................................
Maximum deferred sales
charge (load) (as a
percentage of the
lesser of original
purchase price or
redemption proceeds) None(2) 5.00%(3) 1.00%(4)
...........................................................
Maximum sales charge
(load) imposed on
reinvested dividends None None None
...........................................................
Redemption fees None None None
...........................................................
Exchange fee None None None
...........................................................
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------
Management Fees(5) 0.80% 0.80% 0.80%
...........................................................
Distribution and/or
Service (12b-1)
Fees(6) 0.25% 1.00%(7) 1.00%(7)
...........................................................
Other Expenses(5) 0.66% 0.66% 0.66%
...........................................................
Total Annual Fund
Operating Expenses(5) 1.71% 2.46% 2.46%
...........................................................
</TABLE>
(1) REDUCED FOR PURCHASES OF $50,000 AND OVER. SEE "PURCHASE OF SHARES --
CLASS A SHARES."
(2) INVESTMENTS OF $1 MILLION OR MORE ARE NOT SUBJECT TO ANY SALES CHARGE
AT THE TIME OF PURCHASE, BUT A DEFERRED SALES CHARGE OF 1.00% MAY BE
IMPOSED ON CERTAIN REDEMPTIONS MADE WITHIN ONE YEAR OF THE PURCHASE.
SEE "PURCHASE OF SHARES -- CLASS A SHARES."
(3) THE MAXIMUM DEFERRED SALES CHARGE IS 5.00% IN THE FIRST YEAR AFTER
PURCHASE, DECLINING THEREAFTER AS FOLLOWS:
YEAR 1-5.00%
YEAR 2-4.00%
YEAR 3-3.00%
YEAR 4-2.50%
YEAR 5-1.50%
AFTER-NONE
SEE "PURCHASE OF SHARES -- CLASS B SHARES."
(4) THE MAXIMUM DEFERRED SALES CHARGE IS 1.00% IN THE FIRST YEAR AFTER
PURCHASE AND 0.00% THEREAFTER. SEE "PURCHASE OF SHARES -- CLASS C
SHARES."
(5) THE FUND'S INVESTMENT ADVISER IS CURRENTLY WAIVING OR REIMBURSING A
PORTION OF THE FUND'S MANAGEMENT FEES AND OTHER EXPENSES SUCH THAT THE
ACTUAL TOTAL ANNUAL FUND OPERATING EXPENSES WERE 1.65% FOR CLASS A
SHARES, 2.40% FOR CLASS B SHARES AND 2.40% FOR CLASS C SHARES FOR THE
FISCAL YEAR ENDED JUNE 30, 1999. THE FEE WAIVERS OR EXPENSE REIMBURSE-
MENTS CAN BE TERMINATED AT ANY TIME.
(6) CLASS A SHARES ARE SUBJECT TO AN ANNUAL SERVICE FEE OF UP TO 0.25% OF
THE AVERAGE DAILY NET ASSETS ATTRIBUTABLE TO SUCH CLASS OF SHARES.
CLASS B SHARES AND CLASS C SHARES ARE EACH SUBJECT TO A COMBINED
ANNUAL DISTRIBUTION AND SERVICE FEE OF UP TO 1.00% OF THE AVERAGE
DAILY NET ASSETS ATTRIBUTABLE TO SUCH CLASS OF SHARES. SEE "PURCHASE
OF SHARES."
(7) BECAUSE DISTRIBUTION AND/OR SERVICE (12b-1) FEES ARE PAID OUT OF THE
FUND'S ASSETS ON AN ONGOING BASIS, OVER TIME THESE FEES WILL INCREASE
THE COST OF YOUR INVESTMENT AND MAY COST YOU MORE THAN PAYING OTHER
TYPES OF SALES CHARGES.
EXAMPLE:
The following example is intended to help you compare the cost of investing in
the Fund with the costs of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same each year (except for the ten-year
amounts for Class B Shares which reflect the conversion of Class B Shares to
Class A Shares after eight years). Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
Class A Shares $739 $1,083 $1,450 $2,478
...............................................................................
Class B Shares $749 $1,067 $1,461 $2,611*
...............................................................................
Class C Shares $349 $ 767 $1,311 $2,796
...............................................................................
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
Class A Shares $739 $1,083 $1,450 $2,478
...............................................................................
Class B Shares $249 $ 767 $1,311 $2,611*
...............................................................................
Class C Shares $249 $ 767 $1,311 $2,796
...............................................................................
</TABLE>
* BASED ON CONVERSION TO CLASS A SHARES AFTER EIGHT YEARS.
6
<PAGE>
INVESTMENT OBJECTIVE,
POLICIES AND RISKS
The Fund's investment objective is to seek long-term capital appreciation by
investing primarily in a portfolio of equity securities of non-U.S. issuers in
accordance with the MSCI EAFE Index country weightings determined by the Fund's
investment adviser. Any income received from the investment of portfolio
securities is incidental to the Fund's investment objective. The Fund's
investment objective is a fundamental policy and may not be changed without the
approval of a majority of shareholders of the Fund's outstanding voting
securities, as defined in the Investment Company Act of 1940, as amended (the
"1940 Act"). There are risks inherent in all investments in securities;
accordingly there can be no assurance that the Fund will achieve its investment
objective.
Under normal market conditions, the Fund's investment adviser seeks to achieve
the Fund's investment objective by investing primarily in a portfolio of
undervalued equity securities of non-U.S. issuers using a combination of
strategic geographic asset allocation and fundamental, value-oriented stock
selection. The Fund's investment adviser seeks to create a portfolio of
international equity securities it believes are undervalued by the market. The
Fund focuses primarily on issuers from countries comprising the MSCI EAFE Index.
The Fund may, however, invest up to 5% of its total assets in countries not
included in the MSCI EAFE Index. The MSCI EAFE Index includes Japan, most
nations in Western Europe, Australia, New Zealand, Hong Kong and Singapore.
Under normal market conditions, the Fund invests at least 65% of its total
assets in securities of issuers located in at least three foreign countries.
Investments in foreign companies may offer greater opportunities for capital
growth than investments in domestic companies, but also are subject to special
risks not typically associated with investing in domestic companies. As a
result, the Fund's portfolio may experience greater price volatility than a fund
investing in domestic issues.
The Fund is managed using a two-part process combining the expertise of a team
of investment professionals, who individually represent different areas of
expertise, and who together develop investment strategies for the Fund to use in
making buy and sell decisions. Members of the global research team are located
in offices around the world, including New York, London, Tokyo and Singapore.
The Fund's investment adviser makes regional allocation decisions based on a
variety of factors, including relative valuations, earnings expectations and
macroeconomic factors, and input from the regionally located research teams.
Once regional allocations have been determined, regional specialists seek to
identify companies they believe are undervalued. Specialists analyze each
company's finances, products and management, and members of the investment teams
often meet with each company's management before a security is purchased for the
Fund's portfolio.
The Fund invests primarily in common stocks. Common stocks are shares of a
corporation or other entity that entitle the holder to a pro rata share of the
profits of the corporation, if any, without preference over any other class of
securities, including such entity's debt securities, preferred stock and other
senior equity securities. Common stock usually carries with it the right to vote
and frequently an exclusive right to do so.
While the Fund invests primarily in common stocks, it also may invest in
preferred stocks, convertible securities, warrants or rights to purchase common
stock and depositary receipts. Preferred stock generally has a preference as to
dividends and liquidation over an issuer's common stock but ranks junior to debt
securities in an issuer's capital structure. Unlike interest payments on debt
securities, preferred stock dividends are payable only if declared by the
issuer's board of directors. Preferred stock also may be subject to optional or
mandatory redemption provisions. The ability of common stocks and preferred
stocks to generate income is dependent on the earnings and continuing
declaration of dividends by the issuers of such securities.
A convertible security is a bond, debenture, note, preferred stock, or other
security that may be converted into or exchanged for a prescribed amount of
common stock or other equity security of the same
7
<PAGE>
or a different issuer or into cash within a particular period of time at a
specified price or formula. A convertible security generally entitles the holder
to receive interest paid or accrued on debt or the dividend paid on preferred
stock until the convertible security matures or is redeemed, converted or
exchanged. Before conversion, convertible securities generally have
characteristics similar to both debt and equity securities. The value of
convertible securities tends to decline as interest rates rise and, because of
the conversion feature, tends to vary with fluctuations in the market value of
the underlying equity securities. Convertible securities generally rank senior
to common stock in a corporation's capital structure but are usually
subordinated to comparable nonconvertible securities. Convertible securities
generally do not participate directly in any dividend increases or decreases of
the underlying equity securities although the market prices of convertible
securities may be affected by any such dividend changes or other changes in the
underlying securities.
Rights and warrants entitle the holder to buy equity securities at a specific
price for a specific period of time. Rights are similar to warrants except that
they have a substantially shorter duration. Rights and warrants may be
considered more speculative and less liquid than certain other types of
investments in that they do not entitle a holder to dividends or voting rights
with respect to the underlying securities nor do they represent any right in the
assets of the issuing company and may lack a secondary market.
Under normal market conditions, the Fund may invest up to 35% of its total
assets in in debt securities including certain short- and medium-term debt
securities as well as money market instruments. Money-market instruments include
obligations of the U.S. or foreign governments, high-quality short-term debt
securities (including Eurodollar certificates of deposit), prime commercial
paper, certificates of deposit, bankers' acceptances and other obligations of
banks and repurchase agreements. The market prices of debt securities generally
fluctuate inversely with changes in interest rates so that the value of
investments in such securities can be expected to decrease as interest rates
rise and increase as interest rates fall. Debt securities with longer maturities
may increase or decrease in value more than debt securities of shorter
maturities. The credit risks and market prices of lower-grade securities
generally are more sensitive to negative issuer developments, such as reduced
revenues or increased expenditures, or adverse economic conditions, such as a
recession, than are higher-grade securities.
The Fund may invest in securities of certain issuers indirectly through
investment in other investment companies. Such investments are commonly used
when direct investments in certain countries are not permitted to foreign
entities. Investment in other investment companies may involve duplication of
management fees and certain other expenses.
The Fund may invest in issuers of small-, medium-or large-capitalization
companies. The securities of smaller- or medium-sized companies may be subject
to more abrupt or erratic market movements than securities of larger-sized
companies or the market averages in general. In addition, such companies
typically are subject to a greater degree of change in earnings and business
prospects than are larger companies. Thus, to the extent the Fund invests in
smaller- or medium-sized companies, the Fund may be subject to greater
investment risk than that assumed through investment in the equity securities of
larger companies.
RISKS OF INVESTING IN SECURITIES
OF FOREIGN ISSUERS
The Fund invests in securities of foreign issuers. Such securities may be
denominated in U.S. dollars and in currencies other than U.S. dollars. The
percentage of assets invested in securities of a particular country or
denominated in a particular currency will vary in accordance with the investment
adviser's assessment of the relative yield, appreciation potential and the
relationship of a country's currency to the U.S. dollar, which is based upon
such factors as fundamental economic strength, credit quality and interest rate
trends. Investments in foreign securities present certain risks not ordinarily
associated with investments in securities of U.S. issuers. These risks include
fluctuations in foreign currency exchange rates, political, economic or legal
developments (including war or other instability, expropriation of assets,
nationalization and confiscatory taxation), the
8
<PAGE>
imposition of foreign exchange limitations (including currency blockage),
withholding taxes on dividend or interest payments or capital transactions or
other restrictions, higher transaction costs (including higher brokerage,
custodial and settlement costs and currency translation costs) and possible
difficulty in enforcing contractual obligations or taking judicial action. Also,
foreign securities may not be as liquid and may be more volatile than comparable
domestic securities.
In addition, there often is less publicly available information about many
foreign issuers, and issuers of foreign securities are subject to different,
often less comprehensive, auditing, accounting, financial reporting and
disclosure requirements than domestic issuers. There is generally less
government regulation of stock exchanges, brokers and listed companies abroad
than in the U.S., and, with respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investment in those countries. Because there is
usually less supervision and governmental regulation of exchanges, brokers and
dealers than there is in the U.S., the Fund may experience settlement
difficulties or delays not usually encountered in the U.S.
Delays in making trades in foreign securities relating to volume constraints,
limitations or restrictions, clearance or settlement procedures, or otherwise
could impact returns and result in temporary periods when assets of the Fund are
not fully invested or attractive investment opportunities are foregone.
Investments in securities of developing or emerging market countries are subject
to greater risks than a Fund's investments in securities of developed countries
since emerging market countries tend to have economic structures that are less
diverse and mature and political systems that are less stable than developed
countries.
In addition to the increased risks of investing in foreign securities, there are
often increased transactions costs associated with investing in foreign
securities including the costs incurred in connection with converting
currencies, higher foreign brokerage or dealer costs, and higher settlement
costs or custodial costs.
Since the Fund invests in securities denominated or quoted in currencies other
than the U.S. dollar, the Fund will be affected by changes in foreign currency
exchange rates (and exchange control regulations) which affect the value of
investments in the Fund and the accrued income and unrealized appreciation or
depreciation of the investments. Changes in foreign currency exchange ratios
relative to the U.S. dollar will affect the U.S. dollar value of the Fund's
assets denominated in that currency and the Fund's return on such assets as well
as any temporary uninvested reserves in bank deposits in foreign currencies. In
addition, the Fund will incur costs in connection with conversions between
various currencies.
The Fund may purchase and sell foreign currency on a spot basis in connection
with the settlement of transactions in securities traded in such foreign
currency. The Fund also may enter into contracts with banks, brokers or dealers
to purchase or sell securities or foreign currencies at a future date ("forward
contracts"). A foreign currency forward contract is a negotiated agreement
between the contracting parties to exchange a specified amount of currency at a
specified future time at a specified rate. The rate can be higher or lower than
the spot rate between the currencies that are the subject of the contract.
The Fund may attempt to protect against adverse changes in the value of the U.S.
dollar in relation to a foreign currency by entering into a forward contract for
the purchase or sale of the amount of foreign currency invested or to be
invested, or by buying or selling a foreign currency option or futures contract
for such amount. Such strategies may be employed before the Fund purchases a
foreign security traded in the currency which the Fund anticipates acquiring or
between the date the foreign security is purchased or sold and the date on which
payment therefor is made or received. Seeking to protect against a change in the
value of a foreign currency in the foregoing manner does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Furthermore, such transactions reduce or
preclude the opportunity for gain if the value of the currency should move in
the direction opposite to the position taken. Unanticipated changes in currency
prices
9
<PAGE>
may result in poorer overall performance for the Fund than if it had not entered
into such contracts.
Investors should carefully consider the risks of foreign investments before
investing in the Fund.
DERIVATIVE INSTRUMENTS
The Fund may, but is not required to, use various investment strategic
transactions described below to earn income, facilitate portfolio management and
mitigate risks. Such strategic transactions are generally accepted under modern
portfolio management and are regularly used by many mutual funds and other
institutional investors. Although the Fund's investment adviser seeks to use the
practices to further the Fund's investment objective, no assurance can be given
that these practices will achieve this result.
The Fund may purchase and sell derivative instruments such as exchange-listed
and over-the-counter put and call options on securities, financial futures,
equity, fixed-income and interest rate indices, and other financial instruments,
futures contracts and options thereon (including but not limited to securities
index futures, foreign currency exchange futures, interest rate futures and
other financial futures), structured notes, swaps, caps, floors or collars and
enter into various currency transactions such as currency forward contracts,
currency futures contracts, currency swaps or options on currency or currency
futures. In addition, the Fund may invest in other derivative instruments that
are developed over time if their use would be consistent with the objective of
the Fund. Collectively, all of the above are referred to as "Strategic
Transactions." The Fund generally seeks to use Strategic Transactions as a
portfolio management or hedging technique to seek to protect against possible
adverse changes in the market value of securities held in or to be purchased for
the Fund's portfolio, protect the Fund's unrealized gains, facilitate the sale
of certain securities for investment purposes, protect against changes in
currency exchange rates or to adjust the exposure to a particular currency,
manage the effective maturity or duration of the Fund's portfolio, establish
positions in the derivatives markets as a substitute for purchasing or selling
particular securities, including, for example, when the Fund adjusts its
exposure to a market in response to changes in investment strategy, when doing
so provides more liquidity than the direct purchase of the securities underlying
such derivatives, when the Fund 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. The Fund may invest up to 33 1/3%
of its total assets in Strategic Transactions for non-hedging purposes (measured
by the aggregate notional amount of outstanding derivatives). In addition, the
Fund may invest up to 20% of its total assets in futures contracts and options
on futures contracts (measured by the aggregate notional amount of such
outstanding contracts).
Strategic Transactions have risks including the imperfect correlation between
the value of such instruments and the underlying assets, the possible default of
the other party to the transaction or illiquidity of the derivative instruments.
Furthermore, the ability to successfully use Strategic Transactions depends on
the Fund's investment adviser's ability to predict pertinent market movements,
which cannot be assured. Thus, the use of Strategic Transactions may result in
losses greater than if they had not been used, may require the Fund to sell or
purchase portfolio securities at inopportune times or for prices other than
current market values, may limit the amount of appreciation the Fund can
otherwise realize on an investment, or may cause the Fund to hold a security
that it might otherwise sell. The use of currency transactions can result in the
Fund incurring losses because of the imposition of exchange controls, suspension
of settlements or the inability of the Fund to deliver or receive a specified
currency. In addition, amounts paid as premiums or cash or other assets held in
margin accounts with respect to Strategic Transactions are not otherwise
available to the Fund for investment purposes.
When conducted outside the U.S., Strategic Transactions may not be regulated as
rigorously as in the U.S., may not involve a clearing mechanism and related
guarantees, and are subject to the risk of governmental actions affecting
trading in, or the prices of, foreign securities, currencies and other
10
<PAGE>
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions,
(iii) delays in the Fund's ability to act upon economic events occurring in
foreign markets during non-business hours in the U.S., (iv) the imposition of
different exercise and settlement terms and procedures and margin requirements
than in the U.S. and (v) lower trading volume and liquidity.
A more complete discussion of Strategic Transactions and their risks is
contained in the Fund's Statement of Additional Information. The Statement of
Additional Information can be obtained by investors free of charge as described
on the back cover of this prospectus.
OTHER INVESTMENTS AND RISK FACTORS
For cash management purposes, the Fund may engage in repurchase agreements with
banks and broker-dealers and other financial institutions in order to earn a
return on temporarily available cash. Such transactions are subject to the risk
of default by the other party.
The Fund may lend its portfolio securities in an amount up to 33 1/3% of its
total assets to broker-dealers, banks or other recognized institutional
borrowers of securities. The Fund may incur lending fees and other costs in
connection with securities lending, and securities lending is subject to the
risk of default by the other party.
The Fund may invest up to 15% of the Fund's net assets in illiquid securities
and certain restricted securities. Notwithstanding the foregoing, the Fund may
not invest more than 10% of its total assets in securities subject to legal or
contractual restrictions on resale. Such securities may be difficult or
impossible to sell at the time and the price that the Fund would like. Thus, the
Fund may have to sell such securities at a lower price, sell other securities
instead to obtain cash or forego other investment opportunities.
Further information about these types of investments and other investment
practices that may be used by the Fund is contained in the Statement of
Additional Information.
The Fund may sell securities without regard to the length of time they have been
held in order to take advantage of new investment opportunities or when the
Fund's investment adviser believes the potential for capital appreciation has
lessened or for other reasons. The Fund's portfolio turnover is shown under the
heading "Financial Highlights." The portfolio turnover rate may be expected to
vary from year to year. A high portfolio turnover rate (100% or more) increases
the Fund's transactions costs, (including brokerage commissions or dealer
costs), and a high portfolio turnover rate may result in the realization of more
short-term capital gains than if the Fund had a lower portfolio turnover rate.
Increases in the Fund's transaction costs would adversely impact the Fund's
performance. The turnover rate will not be a limiting factor, however, if the
Fund's investment adviser considers portfolio changes appropriate.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Fund may on a temporary basis hold cash or invest a
portion or all of its assets in money-market instruments including obligations
of the U.S. government, its agencies or instrumentalities, obligations of
foreign sovereignties, other high-quality debt securities, including prime
commercial paper, repurchase agreements and bank obligations, such as bankers'
acceptances and certificates of deposit (including Eurodollar certificates of
deposit). Under normal market conditions, the potential for capital appreciation
on these securities will tend to be lower than the potential for capital
appreciation on other securities that may be owned by the Fund. In taking such a
defensive position, the Fund would not be pursuing and may not achieve its
investment objective.
YEAR 2000 RISKS. Like other mutual funds, financial and business organizations
and individuals around the world, the Fund could be adversely affected if the
computer systems used by the Fund's investment adviser and subadviser and other
service providers do not properly process and calculate date-related information
and data from and after January 1, 2000. This is commonly known as the "Year
2000 Problem." The Fund's investment adviser and subadviser
11
<PAGE>
are taking steps that they believe are reasonably designed to address the Year
2000 Problem with respect to computer systems that they use and to obtain
reasonable assurances that comparable steps are being taken by the Fund's other
major service providers. At this time, there can be no assurances that these
steps will be sufficient to avoid any adverse impact to the Fund. In addition,
the Year 2000 Problem may adversely affect the markets and the issuers of
securities in which the Fund may invest which, in turn, may adversely affect the
net asset value of shares of the Fund. Improperly functioning trading systems
may result in settlement problems and liquidity issues. In addition, corporate
and governmental data processing errors may result in production problems for
individual companies or issuers and overall economic uncertainty. Earnings of
individual issuers will be affected by remediation costs, which may be
substantial and may be reported inconsistently in U.S. and foreign financial
statements. Efforts in foreign countries to remediate the potential Year 2000
Problem may not be as extensive as those in the U.S. As a result, the operations
of foreign markets and issuers may be disrupted by the Year 2000 Problem that
could adversely affect the Fund's portfolio. The risks are greater with respect
to certain developing or emerging market countries because there is an increased
likelihood that issuers of securities of such countries cannot anticipate or
effectively manage the effects of computer programs and the Year 2000 Problem.
Accordingly, the Fund's investments may be adversely affected. The statements
above are subject to the Year 2000 Information and Readiness Disclosure Act
which may limit the legal rights regarding the use of such statements in the
case of a dispute.
INVESTMENT ADVISORY
SERVICES
INVESTMENT ADVISER
Van Kampen Investment Advisory Corp. is the investment adviser (the "Adviser" or
"Advisory Corp.") and administrator of the Fund. The Adviser is a wholly owned
subsidiary of Van Kampen Investments Inc. ("Van Kampen Investments"). Van Kampen
Investments is a diversified asset management company with more than two million
retail investor accounts, extensive capabilities for managing institutional
portfolios, and more than $79 billion under management or supervision as of
September 30, 1999. Van Kampen Investments' more than 50 open-end and 39
closed-end funds and more than 2,500 unit investment trusts are professionally
distributed by leading authorized dealers nationwide. Van Kampen Funds Inc., the
distributor of the Fund (the "Distributor") and the sponsor of the funds
mentioned above, is also a wholly owned subsidiary of Van Kampen Investments.
Van Kampen Investments is an indirect wholly owned subsidiary of Morgan Stanley
Dean Witter & Co. The Adviser's principal office is located at 1 Parkview Plaza,
PO Box 5555, Oakbrook Terrace, Illinois 60181-5555.
ADVISORY AGREEMENT AND ADMINISTRATION AGREEMENT. The Fund retains the Adviser to
manage the investment of its assets and to place orders for the purchase and
sale of its portfolio securities. Under an investment advisory agreement between
the Adviser and the Fund (the "Advisory Agreement"), the Fund pays the Adviser a
monthly fee computed based upon an annual rate of 0.80% applied to the average
daily net assets of the Fund.
The Fund also retains the Adviser to provide administrative services for the
Fund's day-to-day operations. Under an administration agreement, between the
Adviser and the Fund, the Fund pays a monthly administration fee computed based
upon an annual rate of 0.25% applied to the average daily net assets of the
Fund.
The Adviser furnishes offices, necessary facilities and equipment, provides
administrative services, and permits its officers and employees to serve without
compensation as directors or officers of the Fund if elected to such positions.
The Fund pays all charges and expenses of its day-to-day operations, including
the compensation of directors of the Fund (other than those who are affiliated
persons of the Adviser, Distributor or Van Kampen Investments), the charges and
expenses of legal counsel and independent accountants, distribution fees,
service fees, custodian fees, the costs of providing reports to shareholders,
and all other ordinary business expenses not specifically assumed by the
Adviser.
12
<PAGE>
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen Asset Management
Inc. ("Asset Management").
INVESTMENT SUBADVISER
Morgan Stanley Dean Witter Investment Management Inc. (the "Subadviser") is the
Subadviser of the Fund. The Subadviser is a wholly owned subsidiary of Morgan
Stanley Dean Witter & Co., and is an affiliate of the Adviser. The Subadviser
conducts a worldwide portfolio management business and provides a broad range of
portfolio management services to customers in the United States and abroad. At
June 30, 1999, the Subadviser, together with its affiliated institutional asset
management companies, managed assets of approximately $175.3 billion, including
assets under fiduciary advice. The Subadviser's principal office is located at
1221 Avenue of the Americas, New York, New York 10020. On December 1, 1998,
Morgan Stanley Asset Management Inc. changed its name to Morgan Stanley Dean
Witter Investment Management Inc. but continues to do business in certain
instances using the name Morgan Stanley Asset Management.
SUBADVISORY AGREEMENT. The Adviser has entered into a subadvisory agreement with
the Subadviser to assist the Adviser in performing its investment advisory
functions. The Adviser pays the Subadviser on a monthly basis a portion of the
net advisory fees the Adviser receives from the Fund.
GENERAL
From time to time, the Adviser, the Subadviser or the Distributor may
voluntarily undertake to reduce the Fund's expenses by reducing the fees payable
to them or by reducing other expenses of the Fund in accordance with such
limitations as the Adviser, the Subadviser or Distributor may establish.
PERSONAL INVESTMENT POLICIES. The Fund, the Adviser and the Subadviser have
adopted Codes of Ethics designed to recognize the fiduciary relationship among
the Fund, the Adviser and the Subadviser and their respective employees. The
Codes of Ethics permit directors, trustees, officers and employees to buy and
sell securities for their personal accounts subject to certain restrictions.
Persons with access to certain sensitive information are subject to
pre-clearance and other procedures designed to prevent conflicts of interest.
PORTFOLIO MANAGEMENT. Francine J. Bovich is responsible for the day-to-day
management of the Fund's investment portfolio. Ms. Bovich joined the Subadviser
in 1993 and is currently a Managing Director of the Subadviser and Morgan
Stanley Dean Witter & Co. Prior to joining the Subadviser, she was a Principal
and Executive Vice President of Westwood Management Corp., a registered
investment adviser. Ms. Bovich began her investment career at Bankers Trust
Company and also was a Managing Director of Citicorp Investment
Management, Inc., where she had responsibility for the Institutional Investment
Management Group. Ms. Bovich was appointed and serves as the U.S. Representative
to the United Nations Investment Committee. In addition, she serves as an
Emeritus Trustee and Chair of the Investment Sub-Committee for Connecticut
College and is a former board member of the YWCA Retirement Fund. Ms. Bovich
graduated from Connecticut College with a B.A. in Economics and received her
M.B.A. in Finance from New York University. Ms. Bovich has had primary
responsibility for managing the Fund's portfolio since its inception.
PURCHASE OF SHARES
GENERAL
The Fund offers three classes of shares designated as Class A Shares, Class B
Shares and Class C Shares. By offering three classes of shares, the Fund permits
each investor to choose the class of shares that is most beneficial given the
amount to be invested and the length of time the investor expects to hold the
shares.
Initial investments must be at least $1,000 for each class of shares, and
subsequent investments must be at least $25 for each class of shares. Both
minimums may be waived by the Distributor for plans involving periodic
investments.
13
<PAGE>
Each class of shares represents an interest in the same portfolio of investments
of the Fund and has the same rights except that (i) Class A Shares generally
bear the sales charge expenses at the time of purchase while Class B Shares and
Class C Shares bear the sales charge expenses at the time of redemption and any
expenses (including higher distribution fees and transfer agency costs)
resulting from such deferred sales charge arrangement, (ii) generally, each
class of shares has exclusive voting rights with respect to approvals of the
Rule 12b-1 distribution plan and service plan (each as described below) under
which its distribution fee or service fee is paid, (iii) each class of shares
has different exchange privileges, (iv) certain classes of shares are subject to
a conversion feature and (v) certain classes of shares have different
shareholder service options available.
The offering price of the Fund's shares is based upon the Fund's net asset value
per share (plus sales charges, where applicable). The net asset values per share
of the Class A Shares, Class B Shares and Class C Shares are generally expected
to be substantially the same. In certain circumstances, however, the per share
net asset values of the classes of shares may differ from one another,
reflecting the daily expense accruals of the higher distribution fees and
transfer agency costs applicable to the Class B Shares and Class C Shares and
the differential in the dividends that may be paid on each class of shares.
The net asset value per share for each class of shares of the Fund is determined
once daily as of the close of trading on the New York Stock Exchange (the
"Exchange") (currently 4:00 p.m., New York time) each day the Exchange is open
for trading except on any day on which no purchase or redemption orders are
received or there is not a sufficient degree of trading in the Fund's portfolio
securities such that the Fund's net asset value per share might be materially
affected. The Fund's Board of Directors reserves the right to calculate the net
asset value per share and adjust the offering price based thereon more
frequently than once daily if deemed desirable. Net asset value per share for
each class is determined by dividing the value of the Fund's portfolio
securities, cash and other assets (including accrued interest) attributable to
such class, less all liabilities (including accrued expenses) attributable to
such class, by the total number of shares of the class outstanding. Such
computation is made by using prices as of the close of trading on the Exchange
and (i) valuing securities listed or traded on a national securities exchange at
the closing price, or if no closing price is available, at the last reported
sale price, and if there has been no sale that day, at the mean between the last
reported bid and asked prices, (ii) valuing over-the-counter securities at the
last reported sale price from the National Association of Securities Dealers
Automated Quotations ("NASDAQ"), (iii) valuing unlisted securities and any
securities for which market quotations are not readily available at the average
of the mean between the current reported bid and asked prices obtained from
reputable brokers and (iv) valuing any other assets at fair value as determined
in good faith by the Adviser in accordance with procedures established by the
Fund's Board of Directors. Debt securities with remaining maturities of 60 days
or less are valued on an amortized cost basis, which approximates market value.
Trading in securities on many foreign securities exchanges (including European
and Far Eastern securities exchanges) and over-the-counter markets is normally
completed before the close of business on each U.S. business day. In addition,
securities trading in a particular country or countries may not take place on
all U.S. business days or may take place on days which are not U.S. business
days. Changes in valuations on certain securities may occur at times or on days
on which the Fund's net asset value is not calculated and on which the Fund does
not effect sales, redemptions and exchanges of its shares.
The Fund calculates net asset value per share, and therefore effects sales,
redemptions and exchanges of its shares, as of the close of trading on the
Exchange each day the Exchange is open for trading. Such calculation does not
take place contemporaneously with the determination of the prices of certain
foreign portfolio securities used in such calculation.
If events materially affecting the value of foreign portfolio securities or
other portfolio securities occur between the time when their price is determined
and the time when the Fund's net asset value is calculated, such securities may
be valued at fair value as determined in good faith by the Adviser based in
14
<PAGE>
accordance with procedures established by the Fund's Board of Directors.
The Fund has adopted a distribution plan (the "Distribution Plan") with respect
to each class of its shares pursuant to Rule 12b-1 under the 1940 Act. The Fund
also has adopted a service plan (the "Service Plan") with respect to each class
of its shares. Under the Distribution Plan and the Service Plan, the Fund pays
distribution fees in connection with the sale and distribution of its shares and
service fees in connection with the provision of ongoing services to
shareholders of each class.
The amount of distribution and service fees varies among the classes offered by
the Fund. Because these fees are paid out of the Fund's assets on an ongoing
basis, these fees will increase the cost of your investment in the Fund. By
purchasing a class of shares subject to higher distribution and service fees,
you may pay more over time than on a class of shares with other types of sales
charge arrangements. Long-term shareholders may pay more than the economic
equivalent of the maximum front-end sales charges permitted by the rules of the
National Association of Securities Dealers, Inc. ("NASD"). The net income
attributable to a class of shares will be reduced by the amount of the
distribution fees and other expenses of the Fund associated with such class of
shares. To assist investors in comparing classes of shares, the tables under the
heading "Fees and Expenses of the Fund" provide a summary of sales charges and
expenses and an example of the sales charges and expenses of the Fund applicable
to each class of shares.
The shares are offered to the public on a continuous basis through the
Distributor as principal underwriter, which is located at 1 Parkview Plaza, PO
Box 5555, Oakbrook Terrace, Illinois 60181-5555. Shares also are offered through
members of the NASD who are acting as securities dealers ("dealers") and NASD
members or eligible non-NASD members who are acting as brokers or agents for
investors ("brokers"). "Dealers" and "brokers" are sometimes referred to herein
as "authorized dealers."
Shares may be purchased on any business day by completing the application
accompanying this prospectus and forwarding the application, directly or through
an authorized dealer, to the Fund's shareholder service agent, Van Kampen
Investor Services Inc. ("Investor Services"), a wholly owned subsidiary of Van
Kampen Investments. When purchasing shares of the Fund, investors must specify
whether the purchase is for Class A Shares, Class B Shares or Class C Shares.
Sales personnel of authorized dealers distributing the Fund's shares are
entitled to receive compensation for selling such shares and may receive
differing compensation for selling Class A Shares, Class B Shares or Class C
Shares.
The offering price for shares is based upon the next calculation of net asset
value per share (plus sales charges, where applicable) after an order is
received by Investor Services. Orders received by authorized dealers prior to
the close of the Exchange are priced based on the date of receipt provided such
order is transmitted to Investor Services prior to Investor Services' close of
business on such date. Orders received by authorized dealers after the close of
the Exchange or transmitted to Investor Services after its close of business are
priced based on the date of the next computed net asset value per share provided
they are received by Investor Services prior to Investor Services' close of
business on such date. It is the responsibility of authorized dealers to
transmit orders received by them to Investor Services so they will be received
in a timely manner.
The Fund and the Distributor reserve the right to refuse any order for the
purchase of shares. The Fund also reserves the right to suspend the sale of the
Fund's shares in response to conditions in the securities markets or for other
reasons. Shares of the Fund may be sold in foreign countries where permissible.
Investor accounts will automatically be credited with additional shares of the
Fund after any Fund distributions, such as dividends and capital gain dividends,
unless the investor instructs the Fund otherwise. Investors wishing to receive
cash instead of additional shares should contact the Fund at (800) 341-2911 or
by writing to the Fund, c/o Van Kampen Investors Services Inc., PO Box 218256,
Kansas City, MO 64121-8256.
15
<PAGE>
CLASS A SHARES
Class A Shares of the Fund are sold at net asset value plus an initial maximum
sales charge of up to 5.75% of the offering price (or 6.10% of the net amount
invested), reduced on investments of $50,000 or more as follows:
CLASS A SHARES
SALES CHARGE SCHEDULE
<TABLE>
<CAPTION>
AS % OF AS % OF
SIZE OF OFFERING NET AMOUNT
INVESTMENT PRICE INVESTED
<S> <C> <C>
- ------------------------------------------------------------------------
Less than $50,000 5.75% 6.10%
.......................................................................
$50,000 but less than $100,000 4.75% 4.99%
.......................................................................
$100,000 but less than $250,000 3.75% 3.90%
.......................................................................
$250,000 but less than $500,000 2.75% 2.83%
.......................................................................
$500,000 but less than $1,000,000 2.00% 2.04%
.......................................................................
$1,000,000 or more * *
.......................................................................
</TABLE>
* NO SALES CHARGE IS PAYABLE AT THE TIME OF PURCHASE ON INVESTMENTS OF
$1 MILLION OR MORE, ALTHOUGH FOR SUCH INVESTMENTS THE FUND MAY IMPOSE
A CONTINGENT DEFERRED SALES CHARGE OF 1.00% ON CERTAIN REDEMPTIONS
MADE WITHIN ONE YEAR OF THE PURCHASE. THE CONTINGENT DEFERRED SALES
CHARGE IS ASSESSED ON AN AMOUNT EQUAL TO THE LESSER OF THE THEN
CURRENT MARKET VALUE OR THE COST OF THE SHARES BEING REDEEMED.
ACCORDINGLY, NO SALES CHARGE IS IMPOSED ON INCREASES IN NET ASSET
VALUE ABOVE THE INITIAL PURCHASE PRICE.
No sales charge is imposed on Class A Shares received from reinvestment of
dividends or capital gain dividends.
Under the Distribution Plan and Service Plan, the Fund may spend up to a total
of 0.25% per year of the Fund's average daily net assets with respect to the
Class A Shares of the Fund. From such amount, under the Service Plan, the Fund
may spend up to 0.25% per year of the Fund's average daily net assets with
respect to the Class A Shares for the ongoing provision of services to Class A
shareholders by the Distributor and by brokers, dealers or financial
intermediaries and for the maintenance of such shareholders' accounts.
CLASS B SHARES
Class B Shares of the Fund are sold at net asset value and are subject to a
contingent deferred sales charge if redeemed within five years of purchase as
shown in the table as follows:
CLASS B SHARES
SALES CHARGE SCHEDULE
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE
AS A PERCENTAGE OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
<S> <C>
- -----------------------------------------------------------------
First 5.00%
................................................................
Second 4.00%
................................................................
Third 3.00%
................................................................
Fourth 2.50%
................................................................
Fifth 1.50%
................................................................
Sixth and After None
................................................................
</TABLE>
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gain dividends. It
is presently the policy of the Distributor not to accept any order for Class B
Shares in an amount of $500,000 or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
The amount of the contingent deferred sales charge, if any, varies depending on
the number of years from the time of payment for the purchase of Class B Shares
until the time of redemption of such shares. Solely for purposes of determining
the number of years from the time of any payment for the purchase of shares, all
payments during a month are totaled and deemed to have been made on the last day
of the month.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed shares being redeemed first are any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge followed by shares held the longest in the shareholder's account.
16
<PAGE>
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
Fund's average daily net assets with respect to the Class B Shares of the Fund.
In addition, under the Service Plan, the Fund may spend up to 0.25% per year of
the Fund's average daily net assets with respect to the Class B Shares for the
ongoing provision of services to Class B shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CLASS C SHARES
Class C Shares of the Fund are sold at net asset value and are subject to a
contingent deferred sales charge of 1.00% of the dollar amount subject to charge
if redeemed within one year of purchase.
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gain dividends. It
is presently the policy of the Distributor not to accept any order for Class C
Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed shares being redeemed first are any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge followed by of shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
Fund's average daily net assets with respect to the Class C Shares of the Fund.
In addition, under the Service Plan, the Fund may spend up to 0.25% per year of
the Fund's average daily net assets with respect to the Class C Shares for the
ongoing provision of services to Class C shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CONVERSION FEATURE
Class B Shares and any dividend reinvestment plan Class B Shares received on
such shares, automatically convert to Class A Shares eight years after the end
of the calendar month in which the shares were purchased. Such conversion will
be on the basis of the relative net asset values per share, without the
imposition of any sales load, fee or other charge. The conversion schedule
applicable to a share of the Fund acquired through the exchange privilege from
another Van Kampen fund participating in the exchange program is determined by
reference to the Van Kampen fund from which such share was originally purchased.
The conversion of such shares to Class A Shares is subject to the continuing
availability of an opinion of counsel to the effect that (i) the assessment of
the higher distribution fee and transfer agency costs with respect to such
shares does not result in the Fund's dividends or capital gain dividends
constituting "preferential dividends" under the federal income tax law and
(ii) the conversion of shares does not constitute a taxable event under federal
income tax law. The conversion may be suspended if such an opinion is no longer
available and such shares might continue to be subject to the higher aggregate
fees applicable to such shares for an indefinite period.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge is waived on redemptions of Class B Shares
and Class C Shares (i) within one year following the death or disability (as
disability is defined by federal income tax law) of a shareholder, (ii) for
required minimum distributions from an individual retirement account ("IRA") or
certain other retirement plan distributions, (iii) for withdrawals under the
Fund's systematic withdrawal plan but limited to 12% annually of the initial
value of the account, (iv) if no commission or transaction fee is paid to
authorized dealers at the time of purchase of such shares and (v) if made by
involuntary liquidation by the Fund of a shareholder's account as described
under the heading "Redemption of Shares." Subject to certain limitations, a
shareholder who has redeemed Class C Shares of the Fund may reinvest in Class C
Shares at net asset value with credit for any contingent deferred sales charge
if the reinvestment is made
17
<PAGE>
within 180 days after the redemption. For a more complete description of
contingent deferred sales charge waivers, please refer to the Fund's Statement
of Additional Information or contact your authorized dealer.
QUANTITY DISCOUNTS
Investors purchasing Class A Shares may, under certain circumstances described
below, be entitled to pay reduced or no sales charges. Investors, or their
authorized dealers, must notify the Fund at the time of the purchase order
whenever a quantity discount is applicable to purchases. Upon such notification,
an investor will receive the lowest applicable sales charge. Quantity discounts
may be modified or terminated at any time. For more information about quantity
discounts, investors should contact their authorized dealer or the Distributor.
A person eligible for a reduced sales charge includes an individual, his or her
spouse and children under 21 years of age and any corporation, partnership or
sole proprietorship which is 100% owned, either alone or in combination, by any
of the foregoing; a trustee or other fiduciary purchasing for a single trust or
for a single fiduciary account, or a "company" as defined in Section 2(a)(8) of
the 1940 Act.
As used herein, "Participating Funds" refers to certain open-end investment
companies advised by Asset Management or Advisory Corp. and distributed by the
Distributor as determined from time to time by the Fund's Board of Directors.
VOLUME DISCOUNTS. The size of investment shown in the Class A Shares sales
charge table applies to the total dollar amount being invested by any person in
shares of the Fund, or in any combination of shares of the Fund and shares of
other Participating Funds, although other Participating Funds may have different
sales charges.
CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the Class A Shares
sales charge table may also be determined by combining the amount being invested
in shares of the Participating Funds plus the current offering price of all
shares of the Participating Funds which have been previously purchased and are
still owned.
LETTER OF INTENT. A Letter of Intent provides an opportunity for an investor to
obtain a reduced sales charge by aggregating the investments over a 13-month
period to determine the sales charge as outlined in the Class A Shares sales
charge table. The size of investment shown in the Class A Shares sales charge
table includes purchases of shares of the Participating Funds over a 13-month
period based on the total amount of intended purchases plus the value of all
shares of the Participating Funds previously purchased and still owned. An
investor may elect to compute the 13-month period starting up to 90 days before
the date of execution of a Letter of Intent. Each investment made during the
period receives the reduced sales charge applicable to the total amount of the
investment goal. The initial purchase must be for an amount equal to at least 5%
of the minimum total purchase amount of the level selected. If trades not
initially made under a Letter of Intent subsequently qualify for a lower sales
charge through the 90-day backdating provisions, an adjustment will be made at
the time of the expiration of the Letter of Intent to give effect to the lower
charge. Such adjustment in sales charge will be used to purchase additional
shares for the shareholder at the applicable discount category. The Fund
initially will escrow shares totaling 5% of the dollar amount of the Letter of
Intent to be held by Investor Services in the name of the shareholder. In the
event the Letter of Intent goal is not achieved within the specified period, the
investor must pay the difference between the sales charge applicable to the
purchases made and the reduced sales charge previously paid. Such payments may
be made directly to the Distributor or, if not paid, the Distributor will
liquidate sufficient escrowed shares to obtain the difference.
OTHER PURCHASE PROGRAMS
Purchasers of Class A Shares may be entitled to reduced or no initial sales
charges in connection with the unit investment trust reinvestment program and
purchases by registered representatives of selling firms or purchases by persons
affiliated with the Fund or the Distributor. The Fund reserves the right to
modify or terminate these arrangements at any time.
18
<PAGE>
UNIT INVESTMENT TRUST REINVESTMENT PROGRAM. The Fund permits unitholders of unit
investment trusts to reinvest distributions from such trusts in Class A Shares
of the Fund at net asset value per share and with no minimum initial or
subsequent investment requirement, if the administrator of an investor's unit
investment trust program meets certain uniform criteria relating to cost savings
by the Fund and the Distributor. The total sales charge for all other
investments made from unit investment trust distributions will be 1.00% of the
offering price (1.01% of net asset value). Of this amount, the Distributor will
pay to the authorized dealer, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the terms and conditions that apply to the program,
should contact their authorized dealer or the Distributor.
The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during each distribution period by all investors who choose to invest in
the Fund through the program and (2) provide Investor Services with appropriate
backup data for each investor participating in the program in a computerized
format fully compatible with Investor Services' processing system.
In order to obtain these special benefits, all dividends and other distributions
by the Fund must be reinvested in additional shares and there can not be any
systematic withdrawal program. There will be no minimum for reinvestments from
unit investment trusts. The Fund will send account activity statements to such
participants on a quarterly basis only, even if their investments are made more
frequently. The Fund reserves the right to modify or terminate this program at
any time.
NET ASSET VALUE PURCHASE OPTIONS. Class A Shares of the Fund may be purchased at
net asset value, upon written assurance that the purchase is made for investment
purposes and that the shares will not be resold except through redemption by the
Fund, by:
(1) Current or retired trustees or directors of funds advised by Morgan Stanley
Dean Witter & Co. and any of its subsidiaries and such persons' families
and their beneficial accounts.
(2) Current or retired directors, officers and employees of Morgan Stanley Dean
Witter & Co. and any of its subsidiaries; employees of an investment
subadviser to any fund described in (1) above or an affiliate of such
subadviser; and such persons' families and their beneficial accounts.
(3) Directors, officers, employees and, when permitted, registered
representatives, of financial institutions that have a selling group
agreement with the Distributor and their spouses and children under 21
years of age when purchasing for any accounts they beneficially own, or, in
the case of any such financial institution, when purchasing for retirement
plans for such institution's employees; provided that such purchases are
otherwise permitted by such institutions.
(4) Registered investment advisers who charge a fee for their services, trust
companies and bank trust departments investing on their own behalf or on
behalf of their clients. The Distributor may pay authorized dealers through
which purchases are made an amount up to 0.50% of the amount invested, over
a 12-month period.
(5) Trustees and other fiduciaries purchasing shares for retirement plans which
invest in multiple fund families through broker-dealer retirement plan
alliance programs that have entered into agreements with the Distributor
and which are subject to certain minimum size and operational requirements.
Trustees and other fiduciaries should refer to the Statement of Additional
Information for further details with respect to such alliance programs.
(6) Beneficial owners of shares of Participating Funds held by a retirement
plan or held in a tax-advantaged retirement account who purchase shares of
the Fund with proceeds from distributions from such a plan or retirement
account other than distributions taken to correct an excess contribution.
19
<PAGE>
(7) Accounts as to which a bank or broker-dealer charges an account management
fee ("wrap accounts"), provided the bank or broker-dealer has a separate
agreement with the Distributor.
(8) Trusts created under pension, profit sharing or other employee benefit
plans qualified under Section 401(a) of the Internal Revenue Code of 1986,
as amended (the "Code"), or custodial accounts held by a bank created
pursuant to Section 403(b) of the Code and sponsored by nonprofit
organizations defined under Section 501(c)(3) of the Code and assets held
by an employer or trustee in connection with an eligible deferred
compensation plan under Section 457 of the Code. Such plans will qualify
for purchases at net asset value provided, for plans initially establishing
accounts with the Distributor in the Participating Funds after February 1,
1997, that (1) the initial amount invested in the Participating Funds is at
least $500,000 or (2) such shares are purchased by an employer sponsored
plan with more than 100 eligible employees. Such plans that have been
established with a Participating Fund or have received proposals from the
Distributor prior to February 1, 1997 based on net asset value purchase
privileges previously in effect will be qualified to purchase shares of the
Participating Funds at net asset value for accounts established on or
before May 1, 1997. Section 403(b) and similar accounts for which Van
Kampen Trust Company serves as custodian will not be eligible for net asset
value purchases based on the aggregate investment made by the plan or the
number of eligible employees, except under certain uniform criteria
established by the Distributor from time to time. Prior to February 1,
1997, a commission will be paid to authorized dealers who initiate and are
responsible for such purchases within a rolling twelve- month period as
follows: 1.00% on sales to $5 million, plus 0.50% on the next $5 million,
plus 0.25% on the excess over $10 million. For purchases on February 1,
1997 and thereafter, a commission will be paid as follows: 1.00% on sales
to $2 million, plus 0.80% on the next $1 million, plus 0.50% on the next
$47 million, plus 0.25% on the excess over $50 million.
(9) Individuals who are members of a "qualified group." For this purpose, a
qualified group is one which (i) has been in existence for more than six
months, (ii) has a purpose other than to acquire shares of the Fund or
similar investments, (iii) has given and continues to give its endorsement
or authorization, on behalf of the group, for purchase of shares of the
Fund and Participating Funds, (iv) has a membership that the authorized
dealer can certify as to the group's members and (v) satisfies other
uniform criteria established by the Distributor for the purpose of
realizing economies of scale in distributing such shares. A qualified group
does not include one whose sole organizational nexus, for example, is that
its participants are credit card holders of the same institution, policy
holders of an insurance company, customers of a bank or broker-dealer,
clients of an investment adviser or other similar groups. Shares purchased
in each group's participants account in connection with this privilege will
be subject to a contingent deferred sales charge of 1.00% in the event of
redemption within one year of purchase, and a commission will be paid to
authorized dealers who initiate and are responsible for such sales to each
individual as follows: 1.00% on sales to $2 million, plus 0.80% on the next
$1 million and 0.50% on the excess over $3 million.
The term "families" includes a person's spouse, children under 21 years of age
and grandchildren, parents, and a person's spouse's parents.
Purchase orders made pursuant to clause (4) may be placed either through
authorized dealers as described above or directly with Investor Services by the
investment adviser, trust company or bank trust department, provided that
Investor Services receives federal funds for the purchase by the close of
business on the next business day following acceptance of the order. An
authorized dealer may charge a transaction fee for placing an order to purchase
shares pursuant to this provision or for placing a redemption order with respect
to such shares. Authorized dealers will be paid a service fee as described above
on purchases made under options (3) through (9) above. The Fund may terminate,
or amend the terms of, offering shares of the Fund at net asset value to such
groups at any time.
20
<PAGE>
REDEMPTION OF
SHARES
Generally shareholders may redeem for cash some or all of their shares without
charge by the Fund (other than applicable sales charge) at any time. As
described under the heading "Purchase of Shares," redemptions of Class B Shares
and Class C Shares may be subject to a contingent deferred sales charge. In
addition, certain redemptions of Class A Shares for shareholder accounts of $1
million or more may be subject to a contingent deferred sales charge.
Redemptions completed through an authorized dealer or a custodian of a
retirement plan account may involve additional fees charged by the dealer or
custodian.
Except as specified below under "Telephone Redemption Requests," payment for
shares redeemed generally will be made by check mailed within seven days after
receipt by Investor Services of the request and any other necessary documents in
proper form as described below. Such payment may be postponed or the right of
redemption suspended as provided by the rules of the SEC. Such payment may,
under certain circumstances, be paid wholly or in part by a distribution-in-kind
of portfolio securities which may result in brokerage costs and a gain or loss
for federal income tax purposes when such securities are sold. If the shares to
be redeemed have been recently purchased by check, Investor Services may delay
the payment of redemption proceeds until it confirms the purchase check has
cleared, which may take up to 15 days. A taxable gain or loss will be recognized
by the shareholder upon redemption of shares.
WRITTEN REDEMPTION REQUESTS. Shareholders may request a redemption of shares by
written request in proper form sent directly to Van Kampen Investor Services
Inc., PO Box 218256, Kansas City, MO 64121-8256. The request for redemption
should indicate the number of shares to be redeemed, the class designation of
such shares and the shareholder's account number. The redemption request must be
signed by all persons in whose names the shares are registered. Signatures must
conform exactly to the account registration. If the proceeds of the redemption
exceed $50,000, or if the proceeds are not to be paid to the record owner at the
record address, or if the record address has changed within the previous 30
days, signature(s) must be guaranteed by one of the following: a bank or trust
company; a broker-dealer; a credit union; a national securities exchange,
registered securities association or clearing agency; a savings and loan
association; or a federal savings bank.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption to be in proper form. In some
cases, however, additional documents may be necessary. In the case of
shareholders holding certificates, the certificates for the shares being
redeemed properly endorsed for transfer must accompany the redemption request.
In the event the redemption is requested by a corporation, partnership, trust,
fiduciary, executor or administrator, and the name and title of the
individual(s) authorizing such redemption is not shown in the account
registration, a copy of the corporate resolution or other legal documentation
appointing the authorized signer and certified within the prior 120 days must
accompany the redemption request. IRA redemption requests should be sent to the
IRA custodian to be forwarded to Investor Services. Contact the IRA custodian
for further information.
In the case of written redemption requests sent directly to Investor Services,
the redemption price is the net asset value per share next determined after the
request in proper form is received by Investor Services.
AUTHORIZED DEALER REDEMPTION REQUESTS. Shareholders may place redemption
requests through an authorized dealer. Orders sent through authorized dealers
must be at least $500 (unless transmitted by your authorized dealer via the
FUNDSERV network). The redemption price for such shares is the net asset value
per share next calculated after an order in proper form is received by an
authorized dealer provided such order is transmitted to the Distributor prior to
the Distributor's close of business on such day. It is the responsibility of
authorized dealers to transmit redemption requests received by them to the
Distributor so they will be
21
<PAGE>
received prior to such time. Redemptions completed through an authorized dealer
may involve additional fees charged by the dealer.
TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. A shareholder
automatically has telephone redemption privileges unless the shareholder
indicates otherwise by checking the applicable box on the application form
accompanying the prospectus. To redeem shares, contact the telephone transaction
line at (800) 421-5684. Van Kampen Investments, Investor Services and the Fund
employ procedures considered by them to be reasonable to confirm that
instructions communicated by telephone are genuine. Such procedures include
requiring certain personal identification information prior to acting upon
telephone instructions, tape-recording telephone communications and providing
written confirmation of instructions communicated by telephone. If reasonable
procedures are employed, none of Van Kampen Investments, Investor Services or
the Fund will be liable for following telephone instructions which it reasonably
believes to be genuine. Telephone redemptions may not be available if the
shareholder cannot reach Investor Services by telephone, whether because all
telephone lines are busy or for any other reason; in such case, a shareholder
would have to use the Fund's other redemption procedure previously described.
Requests received by Investor Services prior to 4:00 p.m., New York time, will
be processed at the next determined net asset value per share. These privileges
are available for all accounts other than retirement accounts or accounts with
shares represented by certificates. If an account has multiple owners, Investor
Services may rely on the instructions of any one owner.
For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check and amounts of at least
$1,000 up to $1 million may be redeemed daily if the proceeds are to be paid by
wire. The proceeds must be payable to the shareholder(s) of record and sent to
the address of record for the account or wired directly to their predesignated
bank account. This privilege is not available if the address of record has been
changed within 30 days prior to a telephone redemption request. Proceeds from
redemptions payable by wire transfer are expected to be wired on the next
business day following the date of redemption. The Fund reserves the right at
any time to terminate, limit or otherwise modify this redemption privilege.
OTHER REDEMPTION INFORMATION. The Fund may redeem shares of any shareholder
account that has a value on the date of the notice of redemption less than the
minimum initial investment as specified in this prospectus. At least 60 days
advance written notice of any such involuntary redemption will be provided to
the shareholder and such shareholder will be given an opportunity to purchase
the required value of additional shares at the next determined net asset value
without sales charge. Any involuntary redemption may only occur if the
shareholder account is less than the minimum initial investment due to
shareholder redemptions.
DISTRIBUTIONS FROM
THE FUND
In addition to any increase in the value of shares which the Fund may achieve,
shareholders may receive distributions from the Fund of dividends and capital
gain dividends.
DIVIDENDS. Dividends from stocks and interest earned from other investments are
the Fund's main sources of income. The Fund's present policy, which may be
changed at any time by the Board of Directors, is to distribute all or
substantially all of this income, less expenses, at least annually as dividends
to shareholders. Dividends are automatically applied to purchase additional
shares of the Fund at the next determined net asset value unless the shareholder
instructs otherwise.
The per share dividends on Class B Shares and Class C Shares may be lower than
the per share dividends on Class A Shares as a result of the higher distribution
fees and transfer agency costs applicable to such classes of shares.
22
<PAGE>
CAPITAL GAIN DIVIDENDS. The Fund may realize capital gains or losses when it
sells securities, depending on whether the sales prices for the securities are
higher or lower than purchase prices. Net realized capital gain represents the
total profits from sales of securities minus total losses from sales of
securities (including and losses carried forward from prior years), other than
net short-term capital gain from sales of securities held for one year or less.
The Fund distributes any taxable net realized capital gain to shareholders as
capital gain dividends at least annually. As in the case of dividends, capital
gain dividends are automatically reinvested in additional shares of the Fund at
the next determined net asset value unless the shareholder instructs otherwise.
SHAREHOLDER SERVICES
Listed below are some of the shareholder services the Fund offers to investors.
For a more complete description of the Fund's shareholder services, such as
investment accounts, share certificates, retirement plans, automated clearing
house deposits, dividend diversification and the systematic withdrawal plan,
please refer to the Statement of Additional Information or contact your
authorized dealer.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gain dividends in shares of the
Fund. Such shares are acquired at net asset value per share (without sales
charge) on the applicable payable date of the dividend or capital gain dividend.
Unless the shareholder instructs otherwise, the reinvestment plan is automatic.
This instruction may be made by telephone by calling (800) 341-2911
((800) 421-2833 for the hearing impaired) or by writing to Investor Services.
The investor may, on the initial application or prior to any declaration,
instruct that dividends be paid in cash and capital gain dividends be reinvested
at net asset value, or that both dividends and capital gain dividends be paid in
cash.
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under which
a shareholder can authorize Investor Services to charge a bank account on a
regular basis to invest predetermined amounts in the Fund. Additional
information is available from the Distributor or your authorized dealer.
EXCHANGE PRIVILEGE. Shares of the Fund may be exchanged for shares of the same
class of any Participating Fund based on the next computed net asset value per
share of each fund after requesting the exchange without any sales charge,
subject to certain limitations. Shares of the Fund may be exchanged for shares
of any Participating Fund only if shares of that Participating Fund are
available for sale; however, during periods of suspension of sales, shares of a
Participating Fund may be available for sale only to existing shareholders of a
Participating Fund. Shareholders seeking an exchange into a Participating Fund
should obtain and read the current prospectus for such fund prior to
implementing an exchange. A prospectus of any of the Participating Funds may be
obtained from any authorized dealer or the Distributor.
To be eligible for exchange, shares of the Fund must have been registered in the
shareholder's name for at least 30 days prior to an exchange. Shares of the Fund
registered in a shareholder's name for less than 30 days may only be exchanged
upon receipt of prior approval of the Adviser. It is the policy of the Adviser,
under normal circumstances, not to approve such requests.
When shares that are subject to a contingent deferred sales charge are exchanged
among Participating Funds, the holding period for purposes of computing the
contingent deferred sales charge is based upon the date of the initial purchase
of such shares from a Participating Fund. When such shares are redeemed and not
exchanged for shares of another Participating Fund, the shares are subject to
the contingent deferred sales charge schedule imposed by the Participating Fund
from which such shares were originally purchased.
Exchanges of shares are sales of one Participating Fund and purchases of another
Participating Fund. The sale may result in a gain or loss for federal income tax
purposes. If the shares sold have been held for less than 91 days, the sales
charge paid on
23
<PAGE>
such shares is carried over and included in the tax basis of the shares
acquired.
A shareholder wishing to make an exchange may do so by sending a written request
to Investor Services or by contacting the telephone transaction line at
(800) 421-5684. A shareholder automatically has telephone exchange privileges
unless the shareholder indicates otherwise by checking the applicable box on the
application form accompanying the prospectus. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated by telephone are genuine. Such procedures
include requiring certain personal identification information prior to acting
upon telephone instructions, tape-recording telephone communications, and
providing written confirmation of instructions communicated by telephone. If
reasonable procedures are employed, none of Van Kampen Investments, Investor
Services or the Fund will be liable for following telephone instructions which
it reasonably believes to be genuine. If the exchanging shareholder does not
have an account in the fund whose shares are being acquired, a new account will
be established with the same registration, dividend and capital gain dividend
options (except dividend diversification) and authorized dealer of record as the
account from which shares are exchanged, unless otherwise specified by the
shareholder. In order to establish a systematic withdrawal plan for the new
account or reinvest dividends from the new account into another fund, however,
an exchanging shareholder must submit a specific request. The Fund reserves the
right to reject any order to acquire its shares through exchange. In addition,
the Fund and other Participating Funds may restrict exchanges by shareholders
engaged in excessive trading by limiting or disallowing the exchange privileges
to such shareholders. For further information on these restrictions see the
Statement of Additional Information. The Fund may modify, restrict or terminate
the exchange privilege at any time on 60 days' notice to its shareholders of any
termination or material amendment.
For purposes of determining the sales charge rate previously paid on Class A
Shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchanged security was acquired through reinvestment, that
security is deemed to have been sold with a sales charge rate equal to the rate
previously paid on the security on which the dividend or distribution was paid.
If a shareholder exchanges less than all of such shareholder's securities, the
security upon which the highest sales charge rate was previously paid is deemed
exchanged first.
Exchange requests received on a business day prior to the time shares of the
funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares of the fund which the
shareholder is redeeming will be redeemed at the net asset value per share next
determined on the date of receipt. Shares of the new fund that the shareholder
is purchasing will also normally be purchased at the net asset value per share,
plus any applicable sales charge, next determined on the date of receipt.
Exchange requests received on a business day after the time shares of the funds
involved in the request are priced will be processed on the next business day in
the manner described herein.
INTERNET TRANSACTIONS. In addition to performing transactions on your account
through written instruction or by telephone, you may also perform certain
transactions through the internet. Please refer to our web site at
www.vankampen.com for further instruction. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated through the internet are genuine. Such
procedures include requiring use of a personal identification number prior to
acting upon internet instructions and providing written confirmation of
instructions communicated through the internet. If reasonable procedures are
employed, none of Van Kampen Investments, Investor Services or the Fund will be
liable for following instructions received 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.
24
<PAGE>
FEDERAL INCOME
TAXATION
Distributions of the Fund's net investment income (consisting generally of
taxable income and net short-term capital gain) are taxable to shareholders as
ordinary income to the extent of the Fund's earnings and profits, whether paid
in cash or reinvested in additional shares. Distributions of the Fund's net
realized capital gain (which is the excess of net long-term capital gain over
net short-term capital loss) as capital gain dividends, if any, are taxable to
shareholders as long-term capital gains, whether paid in cash or reinvested in
additional shares, and regardless of how long the shares of the Fund have been
held by such shareholders. The Fund expects that its distributions will consist
primarily of ordinary income and capital gain dividends. Distributions in excess
of the Fund's earnings and profits will first reduce the adjusted tax basis of a
holder's shares and, after such adjusted tax basis is reduced to zero, will
constitute capital gains to such holder (assuming such shares are held as a
capital asset). Although distributions generally are treated as taxable in the
year they are paid, distributions declared in October, November or December,
payable to shareholders of record on a specified date in such month and paid
during January of the following year will be treated as having been distributed
by the Fund and received by the shareholders on the December 31st prior to the
date of payment. The Fund will inform shareholders of the source and tax status
of all distributions promptly after the close of each calendar year.
The sale or exchange of shares is a taxable transaction for federal income tax
purposes. Shareholders who sell their shares will generally recognize gain or
loss in an amount equal to the difference between their adjusted tax basis in
the shares sold and the amount received. If the shares are held as a capital
asset, the gain or loss will be a capital gain or loss. Any capital gains may be
taxed at different rates depending on how long the shareholder held such shares.
The Fund is required, in certain circumstances, to withhold 31% of dividends and
certain other payments, including redemptions, paid to shareholders who do not
furnish to the Fund their correct taxpayer identification number (in the case of
individuals, their social security number) and certain required certifications
or who are otherwise subject to backup withholding.
Foreign shareholders, including shareholders who are non-resident aliens, may be
subject to U.S. withholding tax on certain distributions (whether received in
cash or in shares) at a rate of 30% or such lower rate as prescribed by an
applicable treaty. Accordingly, investment in the Fund is likely to be
appropriate for a foreign shareholder only if such person can utilize a foreign
tax credit or corresponding tax benefit in respect of such U.S. withholding tax.
Prospective foreign investors should consult their tax advisers concerning the
tax consequences to them of an investment in shares.
The Fund intends to qualify as a regulated investment company under federal
income tax law. If the Fund so qualifies and distributes each year to its
shareholders at least 90% of its net investment income, the Fund will not be
required to pay federal income taxes on any income it distributes to
shareholders. If the Fund distributes less than an amount equal to the sum of
98% of its ordinary income and 98% of its capital gain net income, then the Fund
will be subject to a 4% excise tax on the undistributed amounts.
The federal income tax discussion set forth above is for general information
only. Prospective investors should consult their own tax advisers regarding the
specific federal tax consequences of purchasing, holding, disposing, exchanging
or selling of shares, as well as the effects of state, local and foreign tax law
and any proposed tax law changes.
25
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the periods indicated. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report, along with the Fund's financial statements, is
included in the Statement of Additional Information and may be obtained by
shareholders without charge by calling the telephone number on the back cover of
this prospectus. This information should be read in conjunction with the
financial statements and notes thereto included in the Statement of Additional
Information.
<TABLE>
<CAPTION>
CLASS A
YEAR ENDED
JUNE 30, JULY 1, 1996* TO
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# JUNE 30, 1997
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period............................. $14.845 $ 13.91 $ 12.00
------- ------- -------
Income From Investment Operations
Net Investment Income/Loss....... 0.049 0.17 0.17
Net Realized and Unrealized
Gain/Loss........................ (0.910) 0.96 1.88
------- ------- -------
Total From Investment Operations... (0.861) 1.13 2.05
------- ------- -------
Distributions
Net Investment Income.............. (0.248) (0.18) (0.13)
In Excess of Net Investment
Income............................. (0.003) -- --
Net Realized Gain.................. -- (0.01) (0.01)
In Excess of Net Realized Gain..... (0.164) -- --
------- ------- -------
Total Distributions................ (0.415) (0.19) (0.14)
------- ------- -------
Net Asset Value, End of Period..... $13.569 $ 14.85 $ 13.91
======= ======= =======
Total Return (1)................... (5.54)% 8.32% 17.30%**
======= ======= =======
Ratios and Supplemental Data
Net Assets, End of Period
(000's)............................ $45,573 $66,817 $21,961
Ratio of Expenses to Average Net
Assets............................. 1.65% 1.65% 1.65%
Ratio of Net Investment Income/Loss
to Average Net Assets.............. 0.37% 1.19% 1.39%
Portfolio Turnover Rate............ 70% 35% 22%**
- -----------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income/Loss........... $ 0.00+ $ 0.02 $ 0.11
Ratios Before Expense Limitation:
Expenses to Average Net Assets... 1.71% 1.82% 2.50%
Net Investment Income/Loss to
Average Net Assets............... 0.33% 1.02% 0.52%
<CAPTION>
CLASS B
YEAR ENDED
JUNE 30, JULY 1, 1996* TO
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# JUNE 30, 1997
- ----------------------------------- ----------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period............................. $14.724 $ 13.84 $ 12.00
------- ------- -------
Income From Investment Operations
Net Investment Income/Loss....... (0.043) 0.05 0.10
Net Realized and Unrealized
Gain/Loss........................ (0.903) 0.97 1.85
------- ------- -------
Total From Investment Operations... (0.946) 1.02 1.95
------- ------- -------
Distributions
Net Investment Income.............. (0.147) (0.13) (0.10)
In Excess of Net Investment
Income............................. (0.002) -- --
Net Realized Gain.................. -- (0.01) (0.01)
In Excess of Net Realized Gain..... (0.164) -- --
------- ------- -------
Total Distributions................ (0.313) (0.14) (0.11)
------- ------- -------
Net Asset Value, End of Period..... $13.465 $ 14.72 $ 13.84
======= ======= =======
Total Return (1)................... (6.28)% 7.55% 16.40%**
======= ======= =======
Ratios and Supplemental Data
Net Assets, End of Period
(000's)............................ $48,096 $51,541 $18,215
Ratio of Expenses to Average Net
Assets............................. 2.40% 2.40% 2.40%
Ratio of Net Investment Income/Loss
to Average Net Assets.............. (0.33)% 0.40% 0.54%
Portfolio Turnover Rate............ 70% 35% 22%**
- -----------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income/Loss........... $ 0.00+ $ 0.02 $ 0.17
Ratios Before Expense Limitation:
Expenses to Average Net Assets... 2.46% 2.57% 3.34%
Net Investment Income/Loss to
Average Net Assets............... (0.37)% 0.23% (0.42)%
<CAPTION>
CLASS C
YEAR ENDED
JUNE 30, JULY 1, 1996* TO
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# JUNE 30, 1997
- ----------------------------------- ----------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period............................. $14.782 $ 13.83 $ 12.00
------- ------- -------
Income From Investment Operations
Net Investment Income/Loss....... (0.034) 0.05 0.06
Net Realized and Unrealized
Gain/Loss........................ (0.914) 0.99 1.88
------- ------- -------
Total From Investment Operations... (0.948) 1.04 1.94
------- ------- -------
Distributions
Net Investment Income.............. (0.147) (0.08) (0.10)
In Excess of Net Investment
Income............................. (0.002) -- --
Net Realized Gain.................. -- (0.01) (0.01)
In Excess of Net Realized Gain..... (0.164) -- --
------- ------- -------
Total Distributions................ (0.313) (0.09) (0.11)
------- ------- -------
Net Asset Value, End of Period..... $13.521 $ 14.78 $ 13.83
======= ======= =======
Total Return (1)................... (6.25)% 7.55% 16.27%**
======= ======= =======
Ratios and Supplemental Data
Net Assets, End of Period
(000's)............................ $14,187 $15,520 $ 9,156
Ratio of Expenses to Average Net
Assets............................. 2.40% 2.40% 2.40%
Ratio of Net Investment Income/Loss
to Average Net Assets.............. (0.26)% 0.36% 0.29%
Portfolio Turnover Rate............ 70% 35% 22%**
- -----------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income/Loss........... $ 0.00+ $ 0.02 $ 0.21
Ratios Before Expense Limitation:
Expenses to Average Net Assets... 2.46% 2.56% 3.45%
Net Investment Income/Loss to
Average Net Assets............... (0.30)% 0.20% (0.77)%
</TABLE>
* COMMENCEMENT OF OPERATIONS
** NON-ANNUALIZED
+ AMOUNT IS LESS THAN $0.01 PER SHARE.
(1) TOTAL RETURN IS CALCULATED EXCLUSIVE OF SALES CHARGES OR DEFERRED
SALES CHARGES.
# CHANGES PER SHARE ARE BASED UPON MONTHLY AVERAGE SHARES OUTSTANDING.
26
<PAGE>
BOARD OF DIRECTORS
AND OFFICERS
BOARD OF DIRECTORS
<TABLE>
<S> <C>
J. Miles Branagan Don G. Powell*
Jerry D. Choate Phillip B. Rooney
Richard M. DeMartini* Fernando Sisto
Linda Hutton Heagy Wayne W. Whalen*
R. Craig Kennedy Suzanne H. Woolsey
Jack E. Nelson Paul G. Yovovich
</TABLE>
OFFICERS
Richard F. Powers, III*
PRESIDENT
Dennis J. McDonnell*
EXECUTIVE VICE PRESIDENT & CHIEF INVESTMENT OFFICER
A. Thomas Smith III*
VICE PRESIDENT AND SECRETARY
Edward C. Wood III*
VICE PRESIDENT
Michael H. Santo*
VICE PRESIDENT
Peter W. Hegel*
VICE PRESIDENT
Stephen L. Boyd*
VICE PRESIDENT
Joseph P. Stadler*
VICE PRESIDENT
John L. Sullivan*
VICE PRESIDENT, CHIEF FINANCIAL OFFICER & TREASURER
Curtis W. Morell*
VICE PRESIDENT & CHIEF ACCOUNTING OFFICER
Tanya M. Loden*
CONTROLLER
* "Interested Persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2911
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders, or
redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call
(800) 421-2833
FUNDINFO-REGISTERED TRADEMARK-
For automated telephone services, call (800) 847-2424
WEB SITE
www.vankampen.com
VAN KAMPEN INTERNATIONAL MAGNUM FUND
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
INVESTMENT ADVISER AND ADMINISTRATOR
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
INVESTMENT SUBADVISER
MORGAN STANLEY DEAN WITTER INVESTMENT
MANAGEMENT INC.
1221 Avenue of the Americas
New York, NY 10020
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
TRANSFER AGENT
VAN KAMPEN INVESTOR SERVICES INC.
PO Box 218256
Kansas City, MO 64121-8256
Attn: Van Kampen International Magnum Fund
CUSTODIAN
THE CHASE MANHATTAN BANK
3 MetroTech Center
Brooklyn, NY 11245
Attn: Van Kampen International Magnum Fund
LEGAL COUNSEL
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
INDEPENDENT ACCOUNTANTS
PRICEWATERHOUSECOOPERS LLP
200 East Randolph Drive
Chicago, IL 60601
<PAGE>
VAN KAMPEN
INTERNATIONAL MAGNUM FUND
PROSPECTUS
OCTOBER 28, 1999
A Statement of Additional Information, which contains more details about the
Fund, is incorporated by reference in its entirety into this prospectus.
You will find additional information about the Fund in its annual and semiannual
reports to shareholders. The annual report explains the market conditions and
investment strategies affecting the Fund's performance during its last fiscal
year.
You can ask questions or obtain a free copy of the Fund's reports or its
Statement of Additional Information by calling (800) 341-2911 from 7:00 a.m. to
7:00 p.m., Central time, Monday through Friday. Telecommunications Device for
the Deaf users may call (800) 421-2833. A free copy of the Fund's reports can
also be ordered from our web site at www.vankampen.com.
Information about the Fund, including its reports and Statement of Additional
Information, has been filed with the Securities and Exchange Commission (SEC).
It can be reviewed and copied at the SEC's Public Reference Room in Washington,
DC or on the EDGAR Database on the SEC's internet site (http://www.sec.gov).
Information on the operation of the SEC's Public Reference Room may be obtained
by calling the SEC at 1-202-942-8090. You can also request copies of these
materials, upon payment of a duplicating fee, by electronic request at the SEC's
e-mail address ([email protected]), or by writing
the Public Reference Section of the SEC,
Washington, DC, 20549-6009.
[LOGO]
THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-7140.
MSIM PRO 10/99
<PAGE>
VAN KAMPEN
JAPANESE EQUITY FUND
Van Kampen Japanese Equity Fund is a mutual fund with an
investment objective to seek to provide long-term capital
appreciation. The Fund's investment adviser seeks to achieve
the investment objective by investing primarily in a
portfolio of equity securities of Japanese issuers.
Shares of the Fund have not been approved or disapproved by
the Securities and Exchange Commission (SEC) or any state
regulator, and neither the SEC nor any state regulator has
passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
THIS PROSPECTUS IS DATED OCTOBER 28, 1999.
[LOGO]
<PAGE>
TABLE OF CONTENTS
Risk/Return Summary .....................................................3
Fees and Expenses of the Fund ...........................................4
Investment Objective, Policies and Risks ................................5
Investment Advisory Services ...........................................11
Purchase of Shares .....................................................13
Redemption of Shares ...................................................20
Distributions from the Fund ............................................21
Shareholder Services ...................................................22
Federal Income Taxation ................................................23
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations, other than those contained in this
prospectus, in connection with the offer contained in this prospectus and, if
given or made, such other information or representations must not be relied upon
as having been authorized by the Fund, the Fund's investment adviser or the
Fund's distributor. This prospectus does not constitute an offer by the Fund or
by the Fund's distributor to sell or a solicitation of an offer to buy any of
the securities offered hereby in any jurisdiction to any person to whom it is
unlawful for the Fund to make such an offer in such jurisdiction.
<PAGE>
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The Fund is a mutual fund with an investment objective to seek to provide
long-term capital appreciation. Any income received from the investment of
portfolio securities is incidental to the Fund's investment objective.
INVESTMENT STRATEGIES
The Fund's investment adviser seeks to achieve the Fund's investment objective
by investing primarily in a portfolio of equity securities of Japanese
companies, including common and preferred stocks, convertible securities, rights
and warrants to purchase common stocks and depositary receipts. The Fund may
invest in debt securities of Japanese companies or the Japanese government when
the Fund's investment adviser believes the potential for capital appreciation
from such securities equals or exceeds that available from equity securities.
Under normal market conditions, the Fund invests at least 80% of its total
assets in securities of Japanese issuers. In selecting securities for
investment, the Fund's investment adviser focuses on those companies that it
believes are undervalued relative to their intrinsic assets, cash flows and
earnings potential. The Fund's investment adviser sells securities when they are
no longer undervalued or following a disappointment in earnings. The Fund may
purchase and sell derivative instruments (such as options, futures, options on
futures and currency-related transactions involving options, futures, forward
contracts and swaps) for various portfolio management purposes, including
seeking to reduce or eliminate foreign currency exchange risks associated with
securities denominated in non-U.S. dollar currencies. Portfolio securities are
typically sold when the Fund's investment adviser's assessment for capital
appreciation of an issuer materially changes.
INVESTMENT RISKS
An investment in the Fund is subject to investment risks, and you could lose
money on your investment in the Fund. There can be no assurance that the Fund
will achieve its investment objective.
MARKET RISK. Market risk is the possibility that the market values of securities
owned by the Fund will decline. Market risk may affect a single issuer,
industry, sector of the economy or the market as a whole. Investments in common
stocks and other equity securities generally are affected by changes in the
stock markets, which fluctuate substantially over time, sometimes suddenly and
sharply.
In general, market values of equity securities are more volatile than those of
debt securities. Investments in debt securities generally are affected by
changes in interest rates and the creditworthiness of the issuers. The prices of
debt securities tend to fall as interest rates rise, and such declines tend to
be greater among debt securities with longer maturities. Foreign markets may,
but often do not, move in tandem with U.S. markets, and foreign markets may be
more volatile than U.S. markets.
At times, securities of Japanese issuers may underperform relative to other
sectors of the market. Thus, the value of the Fund's investments will vary and
at times may be lower or higher than investments in other countries. During an
overall market decline, securities prices of smaller companies often fluctuate
more and may fall more than the securities prices of larger companies.
FOREIGN RISKS. Because the Fund owns securities of foreign issuers, it is
subject to risks not usually associated with owning securities of U.S. issuers.
These risks include fluctuations in foreign currencies, foreign currency
exchange controls, political and economic instability, differences in financial
reporting, differences in securities regulation and trading, and foreign
taxation issues.
RISKS OF INVESTING IN JAPANESE SECURITIES. In addition to the general risks
associated with investing in foreign securities, investments in the Fund will be
subject to additional risks associated with investing almost exclusively in
securities of Japanese issuers. These securities are subject to Japanese
economic and financial factors and conditions. The Japanese economy is dependent
to a significant extent on foreign trade; therefore, the relationships between
3
<PAGE>
Japan and its trading partners and between the yen and other currencies are
expected to have a significant impact on particular Japanese issuers and on the
Japanese economy generally. Because the Fund's investments are focused in a
single country, its portfolio is more susceptible to factors adversely affecting
issuers located in that country than would be a more geographically diverse
portfolio of investments.
RISKS OF USING DERIVATIVE INVESTMENTS. In general terms, a derivative investment
is one whose value depends on (or is derived from) the value of an underlying
asset, interest rate or index. Options, futures, options on futures and
currency-related transactions involving options, futures, forward contracts and
swaps are examples of derivatives. Derivative investments involve risks
different from direct investment in underlying securities. These risks include
imperfect correlation between the value of the instruments and the underlying
assets; risks of default by the other party to certain transactions; risks that
the transactions may result in losses that partially or completely offset gains
in portfolio positions; risks that the transactions may not be liquid; and
manager risk.
MANAGER RISK. As with any managed fund, the Fund's investment adviser may not be
successful in selecting the best-performing securities or investment techniques
and the Fund's performance may lag behind that of similar funds.
INVESTOR PROFILE
In light of the Fund's investment objective and strategies, the Fund may be
appropriate for investors who:
- - Seek capital appreciation over the long term
- - Do not seek current income from their investment
- - Are willing to take on the increased risks associated with investing in
securities of Japanese issuers
- - Can withstand volatility in the value of their Fund shares
- - Wish to add to their investment portfolio a fund that invests primarily in
equity securities of Japanese issuers
An investment in the Fund is not a deposit of any bank or other insured
depository institution. Your investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
An investment in the Fund may not be appropriate for all investors. The Fund is
not intended to be a complete investment program, and investors should consider
their long-term investment goals and financial needs when making an investment
decision about the Fund. An investment in the Fund is intended to be a long-term
investment, and the Fund should not be used as a trading vehicle.
FEES AND EXPENSES
OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
<S> <C> <C> <C>
- ------------------------------------------------------------
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
- ------------------------------------------------------------
Maximum sales charge
(load) imposed on
purchases (as a
percentage of offering
price) 5.75%(1) None None
...........................................................
Maximum deferred sales
charge (load) (as a
percentage of the lesser
of original purchase
price or redemption
proceeds) None(2) 5.00%(3) 1.00%(4)
...........................................................
Maximum sales charge
(load) imposed on
reinvested dividends None None None
...........................................................
Redemption fees None None None
...........................................................
Exchange fee None None None
...........................................................
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------
Management Fees(5) 1.00% 1.00% 1.00%
...........................................................
Distribution and/or
Service (12b-1) Fees(6) 0.25% 1.00%(7) 1.00%(7)
...........................................................
Other Expenses(5)(8) 0.65% 0.65% 0.65%
...........................................................
Total Annual Fund
Operating Expenses 1.90% 2.65% 2.65%
...........................................................
</TABLE>
4
<PAGE>
(1) REDUCED FOR PURCHASES OF $50,000 AND OVER. SEE "PURCHASE OF SHARES --
CLASS A SHARES."
(2) INVESTMENTS OF $1 MILLION OR MORE ARE NOT SUBJECT TO ANY SALES CHARGE
AT THE TIME OF PURCHASE, BUT A DEFERRED SALES CHARGE OF 1.00% MAY BE
IMPOSED ON CERTAIN REDEMPTIONS MADE WITHIN ONE YEAR OF THE PURCHASE.
SEE "PURCHASE OF SHARES -- CLASS A SHARES."
(3) THE MAXIMUM DEFERRED SALES CHARGE IS 5.00% IN THE FIRST YEAR AFTER
PURCHASE, DECLINING THEREAFTER AS FOLLOWS:
YEAR 1-5.00%
YEAR 2-4.00%
YEAR 3-3.00%
YEAR 4-2.50%
YEAR 5-1.50%
AFTER-NONE
SEE "PURCHASE OF SHARES -- CLASS B SHARES."
(4) THE MAXIMUM DEFERRED SALES CHARGE IS 1.00% IN THE FIRST YEAR AFTER
PURCHASE AND 0.00% THEREAFTER. SEE "PURCHASE OF SHARES -- CLASS C
SHARES."
(5) THE FUND'S INVESTMENT ADVISER HAS AGREED TO WAIVE OR REIMBURSE A
PORTION OF THE FUND'S MANAGEMENT FEES OR OTHER EXPENSES SUCH THAT
ACTUAL TOTAL ANNUAL FUND OPERATING EXPENSES DO NOT EXCEED 1.70% FOR
CLASS A SHARES, 2.45% FOR CLASS B SHARES AND 2.45% FOR CLASS C SHARES
FOR THE FUND'S FIRST FISCAL YEAR.
(6) CLASS A SHARES ARE SUBJECT TO AN ANNUAL SERVICE FEE OF UP TO 0.25% OF
THE AVERAGE DAILY NET ASSETS ATTRIBUTABLE TO SUCH CLASS OF SHARES.
CLASS B SHARES AND CLASS C SHARES ARE EACH SUBJECT TO A COMBINED
ANNUAL DISTRIBUTION AND SERVICE FEE OF UP TO 1.00% OF THE AVERAGE
DAILY NET ASSETS ATTRIBUTABLE TO SUCH CLASS OF SHARES. SEE "PURCHASE
OF SHARES."
(7) BECAUSE DISTRIBUTION AND/OR SERVICE (12b-1) FEES ARE PAID OUT OF THE
FUND'S ASSETS ON AN ONGOING BASIS, OVER TIME THESE FEES WILL INCREASE
THE COST OF YOUR INVESTMENT AND MAY COST YOU MORE THAN PAYING OTHER
TYPES OF SALES CHARGES.
(8) "OTHER EXPENSES" ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT FISCAL
YEAR.
EXAMPLE:
The following example is intended to help you compare the cost of investing in
the Fund with the costs of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same each years. Although your actual costs
may be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
ONE THREE
YEAR YEARS
- -------------------------------------------------
<S> <C> <C>
Class A Shares $757 $1,138
................................................
Class B Shares $768 $1,123
................................................
Class C Shares $368 $ 823
................................................
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
ONE THREE
YEAR YEARS
- --------------------------------------------------
<S> <C> <C>
Class A Shares $757 $1,138
.................................................
Class B Shares $268 $ 823
.................................................
Class C Shares $268 $ 823
.................................................
</TABLE>
Because the 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.
INVESTMENT OBJECTIVE,
POLICIES AND RISKS
The Fund's investment objective is to seek to provide long-term capital
appreciation. Any income received from the investment of portfolio securities is
incidental to the Fund's investment objective. The Fund's investment objective
is a fundamental policy and may not be changed without the approval of a
majority of shareholders of the Funds' outstanding voting securities, as defined
in the Investment Company Act of 1940, as amended (the "1940 Act"). There are
risks inherent in all investments in securities; accordingly there can be no
assurance that the Fund will achieve its investment objective.
The Fund's investment adviser seeks to achieve the investment objective by
investing primarily in a portfolio of equity securities of Japanese companies,
including common and preferred stocks, convertible securities, rights and
warrants to purchase common stocks and depositary receipts. The Fund may invest
in debt securities of Japanese companies or the Japanese government when the
Fund's investment adviser believes the potential for capital appreciation from
such securities equals or exceeds that available from equity securities. Under
normal market conditions, the Fund invests at least 80% of its total assets in
securities of Japanese issuers. Japanese companies include companies: (i)
organized under the laws of Japan, (ii) whose principal securities trading
market is in Japan or (iii) that derive 50% or more of their
5
<PAGE>
total revenue or profits from goods produced or sold, services performed or
investments made in Japan, or which have at least 50% of their assets situated
in Japan. In selecting securities for investment, the Fund's investment adviser
seeks to identify those companies that are undervalued relative to their market
values and other financial measurements of intrinsic worth with an emphasis on
company assets, cash flows and earnings potential. The Fund's investment style
presents the risk that the valuations never improve or that the returns on
"value" securities are less than returns on other styles of investing or the
overall market.
The Fund's investment adviser conducts a quantitative screening of Japanese
companies, including both large- and small-capitalization issuers. The screening
is designed to identify undervalued issuers, based on price-to-book value,
price-to-cash flow and other value-oriented criteria. The most undervalued
securities identified by the investment adviser's analysts are subjected to
in-depth fundamental analysis with an emphasis on financial structure, strategic
value of assets, business franchise, product line and management quality and
focus. Company visits also are a normal part of the investment process. The
Fund's investment adviser closely monitors securities and sells securities when
they are no longer undervalued or following a fundamental disappointment in
earnings.
The Fund invests primarily in common stocks. Common stocks are shares of a
corporation or other entity that entitle the holder to a pro rata share of the
profits of the corporation, if any, without preference over any other class of
securities, including such entity's debt securities, preferred stock and other
senior equity securities. Common stock usually carries with it the right to vote
and frequently an exclusive right to do so.
While the Fund invests primarily in common stocks, it also may invest in
preferred stocks, convertible securities, rights and warrants to purchase common
stock and depositary receipts. Preferred stock generally has a preference as to
dividends and liquidation over an issuer's common stock but ranks junior to debt
securities in an issuer's capital structure. Unlike interest payments on debt
securities, preferred stock dividends are payable only if declared by the
issuer's board of directors. Preferred stock also may be subject to optional or
mandatory redemption provisions. The ability of common stocks and preferred
stocks to generate income is dependent on the earnings and continuing
declaration of dividends by the issuers of such securities.
A convertible security is a bond, debenture, note, preferred stock or other
security that may be converted into or exchanged for a prescribed amount of
common stock or other equity security of the same or a different issuer or into
cash within a particular period of time at a specified price or formula. A
convertible security generally entitles the holder to receive interest paid or
accrued on debt securities or the dividend paid on preferred stock until the
convertible security matures or is redeemed, converted or exchanged. Before
conversion, convertible securities generally have characteristics similar to
both debt and equity securities. The value of convertible securities tends to
decline as interest rates rise and, because of the conversion feature, tends to
vary with fluctuations in the market value of the underlying equity securities.
Convertible securities generally rank senior to common stock in a corporation's
capital structure but are usually subordinated to comparable nonconvertible
securities. Convertible securities generally do not participate directly in any
dividend increases or decreases of the underlying equity securities although the
market prices of convertible securities may be affected by any such dividend
changes or other changes in the underlying securities.
Rights and warrants entitle the holder to buy equity securities at a specific
price for a specific period of time. Rights are similar to warrants except that
they have a substantially shorter duration. Rights and warrants may be
considered more speculative and less liquid than certain other types of
investments in that they do not entitle a holder to dividends or voting rights
with respect to the underlying securities nor do they represent any right in the
assets of the issuing company and may lack a secondary market.
The Fund also may invest in "investment-grade" debt securities issued by
Japanese companies or the Japanese government, when the Fund's investment
adviser believes that the potential for capital appreciation equals or exceeds
that available from investment in equity securities. Investment grade securities
6
<PAGE>
are securities rated BBB or higher by Standard & Poor's ("S&P"), or rated Baa or
higher by Moody's Investors Service, Inc. ("Moody's"), or BBB or higher by
Mikuni Inc. ("Mikuni") (a Japanese rating agency) or, if unrated, are considered
by the Fund's investment adviser to be of comparable quality. Securities rated
BBB by S&P, Baa by Moody's or BBB by Mikuni are in the lowest of the four
investment grade categories and are considered by the rating agencies to be
medium-grade obligations which possess speculative characteristics so that
changes in economic conditions or other circumstances are more likely to lead to
a weakened capacity to make principal and interest payments than in the case of
higher-rated securities. The market prices of debt securities generally
fluctuate inversely with changes in interest rates so that the value of
investments in such securities can be expected to decrease as interest rates
rise and increase as interest rates fall. The market prices of longer-term debt
securities generally tends to fluctuate more in response to changes in interest
rates than short-term debt securities.
The Fund may invest in securities of certain issuers indirectly through
investment in other investment companies. Such investments are commonly used
when direct investments in certain countries are not permitted to foreign
entities. Investment in other investment companies may involve duplication of
management fees and certain other expenses.
The Fund may invest in companies of any capitalization range, including small-
and medium-sized companies. The securities of smaller- and medium-sized
companies may be subject to more abrupt or erratic market movements and may have
lower trading volumes or more erratic trading than securities of larger
companies or the market averages in general. In addition, such companies
typically are subject to a greater degree of change in earnings and business
prospects than are larger companies. Thus, to the extent the Fund invests in
smaller- and medium-sized companies, it will be subject to greater investment
risk than that assumed through investment in the securities of larger-sized
companies.
RISKS OF INVESTING IN SECURITIES
OF FOREIGN ISSUERS
The Fund invests in securities of foreign issuers. Such securities may be
denominated in U.S. dollars and in currencies other than U.S. dollars. The
percentage of assets invested in securities of a particular country or
denominated in a particular currency will vary in accordance with the investment
adviser's assessment of the relative yield, appreciation potential and the
relationship of a country's currency to the U.S. dollar, which is based upon
such factors as fundamental economic strength, credit quality and interest rate
trends. Investments in foreign securities present certain risks not ordinarily
associated with investments in securities of U.S. issuers. These risks include
fluctuations in foreign currency exchange rates, political, economic or legal
developments (including war or other instability, expropriation of assets,
nationalization and confiscatory taxation), the imposition of foreign exchange
limitations (including currency blockage), withholding taxes on dividend or
interest payments or capital transactions or other restrictions, higher
transaction costs (including higher brokerage, custodial and settlement costs
and currency translation costs) and possible difficulty in enforcing contractual
obligations or taking judicial action. Also, foreign securities may not be as
liquid and may be more volatile than comparable domestic securities.
In addition, there often is less publicly available information about many
foreign issuers, and issuers of foreign securities are subject to different,
often less comprehensive, auditing, accounting, financial reporting and
disclosure requirements than domestic issuers. There is generally less
government regulation of stock exchanges, brokers and listed companies abroad
than in the U.S., and, with respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investment in those countries. Because there is
usually less supervision and governmental regulation of exchanges, brokers and
dealers than there is in the U.S., the Fund may experience settlement
difficulties or delays not usually encountered in the U.S.
Delays in making trades in foreign securities relating to volume constraints,
limitations or restrictions, clearance or settlement procedures, or otherwise
7
<PAGE>
could impact returns and result in temporary periods when assets of the fund are
not fully invested or attractive investment opportunities are foregone.
In addition to the increased risks of investing in foreign securities, there are
often increased transactions costs associated with investing in foreign
securities including the costs incurred in connection with converting
currencies, higher foreign brokerage or dealer costs, and higher settlement
costs or custodial costs.
Since the Fund invests in securities denominated or quoted in currencies other
than the U.S. dollar, the Fund will be affected by changes in foreign currency
exchange rates (and exchange control regulations) which affect the value of
investments in the Fund and the accrued income and unrealized appreciation or
depreciation of the investments. Changes in foreign currency exchange ratios
relative to the U.S. dollar will affect the U.S. dollar value of the Fund's
assets denominated in that currency and the Fund's return on such assets as well
as any temporary uninvested reserves in bank deposits in foreign currencies. In
addition, the Fund will incur costs in connection with conversions between
various currencies.
The Fund may purchase and sell foreign currency on a spot basis in connection
with the settlement of transactions in securities traded in such foreign
currency. The Fund also may enter into contracts with banks, brokers or dealers
to purchase or sell securities or foreign currencies at a future date ("forward
contracts"). A foreign currency forward contract is a negotiated agreement
between the contracting parties to exchange a specified amount of currency at a
specified future time at a specified rate. The rate can be higher or lower than
the spot rate between the currencies that are the subject of the contract.
The Fund may attempt to protect against adverse changes in the value of the U.S.
dollar in relation to a foreign currency by entering into a forward contract for
the purchase or sale of the amount of foreign currency invested or to be
invested, or by buying or selling a foreign currency option or futures contract
for such amount. Such strategies may be employed before the Fund purchases a
foreign security traded in the currency which the Fund anticipates acquiring or
between the date the foreign security is purchased or sold and the date on which
payment therefor is made or received. Seeking to protect against a change in the
value of a foreign currency in the foregoing manner does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Furthermore, such transactions reduce or
preclude the opportunity for gain if the value of the currency should move in
the direction opposite to the position taken. Unanticipated changes in currency
prices may result in poorer overall performance for the Fund than if it had not
entered into such contracts.
Investors should carefully consider the risks of foreign investments before
investing in the Fund.
RISKS OF INVESTING
IN JAPANESE SECURITIES
The Fund's concentration in Japanese companies will expose it to the risk of
adverse social, political and economic events which occur in Japan or affect the
Japanese markets.
Japan's economy, one of the largest in the world, has grown substantially over
the last three decades. Since 1990, however, Japan's economic growth has
declined significantly, and is currently subject to deflationary pressures. In
addition to this economic downturn, Japan is undergoing structural adjustments
related to high wages and taxes, currency valuations and structural rigidities.
Japan has also been experiencing notable uncertainty and loss of public
confidence in connection with the reform of its political process and the
deregulation of its economy. 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's yen-denominated investments in
dollar terms. These conditions present risks to the Fund and its ability to
attain its investment objective.
Japan's economy is heavily dependent upon international trade, and is especially
sensitive to trade barriers and disputes. In particular, Japan relies on large
imports of agricultural products, raw materials and fuels. A substantial rise in
world oil or commodity prices, or a fall-off in Japan's manufactured exports,
8
<PAGE>
could be expected to adversely affect Japan's economy. In addition, 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. Japan is also vulnerable
to earthquakes, volcanoes and other natural disasters.
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 U.S. In general, however, reported net income in Japan
is understated relative to U.S. accounting 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 U.S.
The Japanese securities markets are less regulated than the U.S. markets.
Evidence has emerged from time to time of distortion of market prices to serve
political or other purposes. Shareholders' rights are also not always equally
enforced.
DERIVATIVE INSTRUMENTS
The Fund may, but is not required to, use various investment strategic
transactions described below to earn income, facilitate portfolio management and
mitigate risks. Such strategic transactions are generally accepted under modern
portfolio management and are regularly used by many mutual funds and other
institutional investors. Although the Fund's investment adviser seeks to use the
practices to further the Fund's investment objective, no assurance can be given
that these practices will achieve this result.
The Fund may purchase and sell derivative instruments such as exchange-listed
and over-the-counter put and call options on securities, financial futures,
equity, fixed-income and interest rate indices, and other financial instruments,
futures contracts and options thereon (including but not limited to securities
index futures, foreign currency exchange futures, interest rate futures and
other financial futures), structured notes, swaps, caps, floors or collars and
enter into various currency transactions such as currency forward contracts,
currency futures contracts, currency swaps or options on currency or currency
futures. In addition, the Fund may invest in other derivative instruments that
are developed over time if their use would be consistent with the objective of
the Fund. Collectively, all of the above are referred to as "Strategic
Transactions." The Fund generally seeks to use Strategic Transactions as a
portfolio management or hedging technique to seek to protect against possible
adverse changes in the market value of securities held in or to be purchased for
the Fund's portfolio, protect the Fund's unrealized gains, facilitate the sale
of certain securities for investment purposes, protect against changes in
currency exchange rates or to adjust the exposure to a particular currency,
manage the effective maturity or duration of the Fund's portfolio, establish
positions in the derivatives markets as a substitute for purchasing or selling
particular securities, including, for example, when the Fund adjusts its
exposure to a market in response to changes in investment strategy, when doing
so provides more liquidity than the direct purchase of the securities underlying
such derivatives, when the Fund 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. The Fund may invest up to 33 1/3%
of its total assets in Strategic Transactions for non-hedging purposes (measured
by
9
<PAGE>
the aggregate notional amount of outstanding derivatives). In addition, the Fund
may invest up to 20% of its total assets in futures contracts and options on
futures contracts (measured by the aggregate notional amount of such outstanding
contracts).
Strategic Transactions have risks including the imperfect correlation between
the value of such instruments and the underlying assets, the possible default of
the other party to the transaction or illiquidity of the derivative instruments.
Furthermore, the ability to successfully use Strategic Transactions depends on
the Fund's investment adviser's ability to predict pertinent market movements,
which cannot be assured. Thus, the use of Strategic Transactions may result in
losses greater than if they had not been used, may require the Fund to sell or
purchase portfolio securities at inopportune times or for prices other than
current market values, may limit the amount of appreciation the Fund can
otherwise realize on an investment, or may cause the Fund to hold a security
that it might otherwise sell. The use of currency transactions can result in the
Fund incurring losses because of the imposition of exchange controls, suspension
of settlements or the inability of the Fund to deliver or receive a specified
currency. In addition, amounts paid as premiums or cash or other assets held in
margin accounts with respect to Strategic Transactions are not otherwise
available to the Fund for investment purposes.
When conducted outside the U.S., Strategic Transactions may not be regulated as
rigorously as in the U.S., may not involve a clearing mechanism and related
guarantees, and are subject to the risk of governmental actions affecting
trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions,
(iii) delays in the Fund's ability to act upon economic events occurring in
foreign markets during non-business hours in the U.S., (iv) the imposition of
different exercise and settlement terms and procedures and margin requirements
than in the U.S., and (v) lower trading volume and liquidity.
A more complete discussion of Strategic Transactions and their risks is
contained in the Fund's Statement of Additional Information. The Statement of
Additional Information can be obtained by investors free of charge as described
on the back cover of this prospectus.
OTHER INVESTMENTS AND RISK FACTORS
For cash management purposes, the Fund may engage in repurchase agreements with
banks and broker-dealers and other financial institutions in order to earn a
return on temporarily available cash. Such transactions are subject to the risk
of default by the other party.
The Fund may lend its portfolio securities in an amount up to 33 1/3% of its
total assets to broker-dealers, banks or other recognized institutional
borrowers of securities. The Fund may incur lending fees and other costs in
connection with securities lending, and securities lending is subject to the
risk of default by the other party.
The Fund may invest up to 15% of the Fund's net assets in illiquid securities
and certain restricted securities. Notwithstanding the foregoing, the Fund may
not invest more than 10% of its total assets in securities subject to legal or
contractual restrictions on resale. Such securities may be difficult or
impossible to sell at the time and the price that the Fund would like. Thus, the
Fund may have to sell such securities at a lower price, sell other securities
instead to obtain cash or forego other investment opportunities.
Further information about these types of investments and other investment
practices that may be used by the Fund is contained in the Statement of
Additional Information.
The Fund may sell securities without regard to the length of time they have been
held in order to take advantage of new investment opportunities or when the
Fund's investment adviser believes the potential for capital appreciation has
lessened or for other reasons. The portfolio turnover rate may be expected to
vary from year to year. A high portfolio turnover rate (100% or more) increases
the Fund's transactions costs (including brokerage commissions or dealer costs)
and a high portfolio turnover rate may result in the realization of more
short-term
10
<PAGE>
capital gains than if the Fund had a lower portfolio turnover rate. Increases in
the Fund's transaction costs would adversely impact the Fund's performance. The
turnover rate will not be a limiting factor, however, if the Fund's investment
adviser considers portfolio changes appropriate.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Fund may on a temporary basis hold cash or invest a
portion or all of its assets in money-market instruments including obligations
of the U.S. government, its agencies or instrumentalities, obligations of
foreign sovereignties, other high-quality debt securities, including prime
commercial paper, repurchase agreements and bank obligations, such as bankers'
acceptances and certificates of deposit. Under normal market conditions, the
potential for capital appreciation on these securities will tend to be lower
than the potential for capital appreciation on other securities that may be
owned by the Fund. In taking such a defensive position, the Fund would not be
pursuing and may not achieve its investment objective.
YEAR 2000 RISKS. Like other mutual funds, financial and business organizations
and individuals around the world, the Fund could be adversely affected if the
computer systems used by the Fund's investment adviser, subadviser and other
service providers do not properly process and calculate date-related information
and data from and after January 1, 2000. This is commonly known as the "Year
2000 Problem." The Fund's investment adviser and subadviser are taking steps
that they believe are reasonably designed to address the Year 2000 Problem with
respect to computer systems that they use and to obtain reasonable assurances
that comparable steps are being taken by the Fund's other major service
providers. At this time, there can be no assurances that these steps will be
sufficient to avoid any adverse impact to the Fund. In addition, the Year 2000
Problem may adversely affect the markets and the issuers of securities in which
the Fund may invest which, in turn, may adversely affect the net asset value of
the shares of the Fund. Improperly functioning trading systems may result in
settlement problems and liquidity issues. In addition, corporate and
governmental data processing errors may result in production problems for
individual companies or issuers and overall economic uncertainty. Earnings of
individual issuers will be affected by remediation costs, which may be
substantial and may be reported inconsistently in U.S. and foreign financial
statements. Efforts in foreign countries to remediate the potential Year 2000
Problem may not be as extensive as those in the U.S. As a result, the operations
of foreign markets and issuers may be disrupted by the Year 2000 Problem which
could adversely affect the Fund's portfolio. The risks are greater with respect
to certain developing or emerging market countries because there is an increased
likelihood that issuers of securities of such countries cannot anticipate or
effectively manage the effects of computer programs and the Year 2000 Problem.
Accordingly, the Fund's investments may be adversely affected. The statements
above are subject to the Year 2000 Information and Readiness Disclosure Act
which may limit the legal rights regarding the use of such statements in the
case of a dispute.
INVESTMENT ADVISORY
SERVICES
INVESTMENT ADVISER
Van Kampen Investment Advisory Corp. is the investment adviser (the "Adviser" or
"Advisory Corp.") and administrator of the Fund. The Adviser is a wholly owned
subsidiary of Van Kampen Investments Inc. ("Van Kampen Investments"). Van Kampen
Investments is a diversified asset management company with more than two million
retail investor accounts, extensive capabilities for managing institutional
portfolios, and more than $79 billion under management or supervision as of
September 30, 1999. Van Kampen Investments' more than 50 open-end and 39
closed-end funds and more than 2,500 unit investment trusts are professionally
distributed by leading authorized dealers nationwide. Van Kampen Funds Inc., the
distributor of the Fund (the "Distributor") and the sponsor of the funds
mentioned above, is also a wholly owned subsidiary of Van Kampen Investments.
Van Kampen Investments is an indirect wholly owned subsidiary of Morgan Stanley
Dean Witter & Co. The Adviser's
11
<PAGE>
principal office is located at 1 Parkview Plaza, PO Box 5555, Oakbrook Terrace,
Illinois 60181-5555.
ADVISORY AGREEMENT AND ADMINISTRATION AGREEMENT. The Fund retains the Adviser to
manage the investment of its assets and to place orders for the purchase and
sale of its portfolio securities. Under an investment advisory agreement between
the Adviser and the Fund (the "Advisory Agreement"), the Fund pays the Adviser a
monthly fee computed based upon an annual rate of 1.00% applied to the average
daily net assets of the Fund.
The Fund also retains the Adviser to provide administrative services for the
Fund's day-to-day operations. Under an administration agreement, between the
Adviser and the Fund, the Fund pays a monthly administration fee computed based
upon an annual rate of 0.25% applied to the average daily net assets of the
Fund.
The Adviser furnishes offices, necessary facilities and equipment, provides
administrative services, and permits its officers and employees to serve without
compensation as directors or officers if elected to such positions. The Fund
pays all charges and expenses of its day-to-day operations, including the
compensation of directors of the Fund (other than those who are affiliated
persons of the Adviser, Distributor or Van Kampen Investments), the charges and
expenses of legal counsel and independent accountants, distribution fees,
service fees, custodian fees, the costs of providing reports to shareholders,
and all other ordinary business expenses not specifically assumed by the
Adviser.
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen Asset Management
Inc. ("Asset Management").
INVESTMENT SUBADVISER
Morgan Stanley Dean Witter Investment Management Inc. (the "Subadviser") is the
Subadviser of the Fund. The Subadviser is a wholly owned subsidiary of Morgan
Stanley Dean Witter & Co., and is an affiliate of the Adviser. The Subadviser
conducts a worldwide portfolio management business and provides a broad range of
portfolio management services to customers in the United States and abroad. At
June 30, 1999, the Subadviser, together with its affiliated institutional asset
management companies, managed assets of approximately $175.3 billion, including
assets under fiduciary advice. The Subadviser's principal office is located at
1221 Avenue of the Americas, New York, New York 10020. On December 1, 1998,
Morgan Stanley Asset Management Inc. changed its name to Morgan Stanley Dean
Witter Investment Management Inc. but continues to do business in certain
instances using the name Morgan Stanley Asset Management.
SUBADVISORY AGREEMENT. The Adviser has entered into a subadvisory agreement with
the Subadviser to assist the Adviser in performing its investment advisory
functions. The Adviser pays the Subadviser on a monthly basis a portion of the
net advisory fees the Adviser receives from the Fund.
GENERAL
From time to time, the Adviser, the Subadviser or the Distributor may
voluntarily undertake to reduce the Fund's expenses by reducing the fees payable
to them or by reducing other expenses of the Fund in accordance with such
limitations as the Adviser, the Subadviser or Distributor may establish.
PERSONAL INVESTMENT POLICIES. The Fund, the Adviser and the Subadviser have
adopted Codes of Ethics designed to recognize the fiduciary relationship among
the Fund, the Adviser and the Subadviser and their respective employees. The
Codes of Ethics permit directors, trustees, officers and employees to buy and
sell securities for their personal accounts subject to certain restrictions.
Persons with access to certain sensitive information are subject to
pre-clearance and other procedures designed to prevent conflicts of interest.
PORTFOLIO MANAGEMENT. John R. Alkire and Kunihiko Sugio are responsible as
comanagers for the day-to-day management of the Fund's investment portfolio.
Mr. Alkire is a Managing Director of Morgan Stanley Dean Witter & Co. and the
Subadviser. Mr. Alkire joined the Subadviser in 1981 to initiate foreign equity
sales and trading to Pacific basin institutions. He was appointed President of
Morgan Stanley Dean
12
<PAGE>
Witter 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 the
University of Victoria, Canada.
Mr. Sugio, a Principal of Morgan Stanley Dean Witter & Co. and the Subadviser,
manages dedicated Japanese equity portfolios. Mr. Sugio joined the Subadviser in
1993. Prior to joining Morgan Stanley Dean Witter & Co., he worked with Baring
International Investment Management, Tokyo, from 1988 to 1993 where he was a
Director and fund manager. He graduated from Wakayama Kokuristu University.
PURCHASE OF SHARES
GENERAL
The Fund has not commenced investment operations and, accordingly, is not
offering its shares to investors.
The Fund offers three classes of shares designated as Class A Shares, Class B
Shares and Class C Shares. By offering three classes of shares, the Fund permits
each investor to choose the class of shares that is most beneficial given the
amount to be invested and the length of time the investor expects to hold the
shares.
Initial investments must be at least $1,000 for each class of shares, and
subsequent investments must be at least $25 for each class of shares. Both
minimums may be waived by the Distributor for plans involving periodic
investments.
Each class of shares represents an interest in the same portfolio of investments
of the Fund and has the same rights except that (i) Class A Shares generally
bear the sales charge expenses at the time of purchase while Class B Shares and
Class C Shares bear the sales charge expenses at the time of redemption and any
expenses (including higher distribution fees and transfer agency costs)
resulting from such deferred sales charge arrangement, (ii) generally, each
class of shares has exclusive voting rights with respect to approvals of the
Rule 12b-1 distribution plan and service plan (each as described below) under
which its distribution fee or service fee is paid, (iii) each class of shares
has different exchange privileges, (iv) certain classes of shares are subject to
a conversion feature and (v) certain classes of shares have different
shareholder service options available.
The offering price of the Fund's shares is based upon the Fund's net asset value
per share (plus sales charges, where applicable). The net asset values per share
of the Class A Shares, Class B Shares and Class C Shares are generally expected
to be substantially the same. In certain circumstances, however, the per share
net asset values of the classes of shares may differ from one another,
reflecting the daily expense accruals of the higher distribution fees and
transfer agency costs applicable to the Class B Shares and Class C Shares and
the differential in the dividends that may be paid on each class of shares.
The net asset value per share for each class of shares of the Fund is determined
once daily as of the close of trading on the New York Stock Exchange (the
"Exchange") (currently 4:00 p.m., New York time) each day the Exchange is open
for trading except on any day on which no purchase or redemption orders are
received or there is not a sufficient degree of trading in the Fund's portfolio
securities such that the Fund's net asset value per share might be materially
affected. The Fund's Board of Directors reserves the right to calculate the net
asset value per share and adjust the offering price more frequently than once
daily if deemed desirable. Net asset value per share for each class is
determined by dividing the value of the Fund's portfolio securities, cash and
other assets (including accrued interest) attributable to such class, less all
liabilities (including accrued expenses) attributable to such class, by the
total number of shares of the class outstanding. Such computation is made by
using prices as of the close of trading on the Exchange and (i) valuing
securities listed or traded on a national securities exchange at the closing
price, or, if no closing price is available, at the last reported sale price,
and if there has been no sale that day, at the mean between the last reported
bid and asked prices, (ii) valuing over-the-counter securities at the last
reported sale price from the National Association of Securities Dealers
Automated Quotations ("NASDAQ"), (iii) valuing unlisted securities and any
securities for which market quotations are not readily available at the average
of the mean between the current reported bid and asked prices obtained from
reputable brokers and (iv) valuing any other assets at fair value as determined
in good faith by the Adviser in accordance
13
<PAGE>
with procedures established by the Fund's Board of Directors. Debt securities
with remaining maturities of 60 days or less are valued on an amortized cost
basis, which approximates market value.
Trading in securities on many foreign securities exchanges (including European
and Far Eastern securities exchanges) and over-the-counter markets is normally
completed before the close of business on each U.S. business day. In addition,
securities trading in a particular country or countries may not take place on
all U.S. business days or may take place on days which are not U.S. business
days. Changes in valuations on certain securities may occur at times or on days
on which the Fund's net asset value is not calculated and on which the Fund does
not effect sales, redemptions and exchanges of its shares.
The Fund calculates net asset value per share, and therefore effects sales,
redemptions and exchanges of its shares, as of the close of trading on the
Exchange each day the Exchange is open for trading. Such calculation does not
take place contemporaneously with the determination of the prices of certain
foreign portfolio securities used in such calculation.
If events materially affecting the value of foreign portfolio securities or
other portfolio securities occur between the time when their price is determined
and the time when the Fund's net asset value is calculated, such securities may
be valued at fair value as determined in good faith by the Adviser based in
accordance with procedures established by the Fund's Board of Directors.
The Fund has adopted a distribution plan (the "Distribution Plan") with respect
to each class of its shares pursuant to Rule 12b-1 under the 1940 Act. The Fund
also has adopted a service plan (the "Service Plan") with respect to each class
of its shares. Under the Distribution Plan and the Service Plan, the Fund pays
distribution fees in connection with the sale and distribution of its shares and
service fees in connection with the provision of ongoing services to
shareholders of each class.
The amount of distribution and service fees varies among the classes offered by
the Fund. Because these fees are paid out of the Fund's assets on an ongoing
basis, these fees will increase the cost of your investment in the Fund. By
purchasing a class of shares subject to higher distribution and service fees,
you may pay more over time than on a class of shares with other types of sales
charge arrangements. Long-term shareholders may pay more than the economic
equivalent of the maximum front-end sales charges permitted by the rules of the
National Association of Securities Dealers, Inc. ("NASD"). The net income
attributable to a class of shares will be reduced by the amount of the
distribution fees and other expenses of the Fund associated with such class of
shares. To assist investors in comparing classes of shares, the tables under the
heading "Fees and Expenses of the Fund" provide a summary of sales charges and
expenses and an example of the sales charges and expenses of the Fund applicable
to each class of shares.
The shares are offered to the public on a continuous basis through the
Distributor as principal underwriter, which is located at 1 Parkview Plaza, PO
Box 5555, Oakbrook Terrace, Illinois 60181-5555. Shares also are offered through
members of the NASD who are acting as securities dealers ("dealers") and NASD
members or eligible non-NASD members who are acting as brokers or agents for
investors ("brokers"). "Dealers" and "brokers" are sometimes referred to herein
as "authorized dealers."
Shares may be purchased on any business day by completing the application
accompanying this prospectus and forwarding the application, directly or through
an authorized dealer, to the Fund's shareholder service agent, Van Kampen
Investor Services Inc. ("Investor Services"), a wholly owned subsidiary of Van
Kampen Investments. When purchasing shares of the Fund, investors must specify
whether the purchase is for Class A Shares, Class B Shares or Class C Shares.
Sales personnel of authorized dealers distributing the Fund's shares are
entitled to receive compensation for selling such shares and may receive
differing compensation for selling Class A Shares, Class B Shares or Class C
Shares.
The offering price for shares is based upon the next calculation of net asset
value per share (plus sales charges, where applicable) after an order is
received by Investor Services. Orders received by authorized dealers are prior
to the close of the Exchange priced based on the date of receipt provided such
order is transmitted to Investor Services prior to Investor Services' close of
business on such date. Orders received by authorized dealers after the close of
the Exchange or transmitted to Investor Services after its close of business are
priced based on the date of the
14
<PAGE>
next computed net asset value per share provided they are received by Investor
Services prior to Investor Services' close of business on such date. It is the
responsibility of authorized dealers to transmit orders received by them to
Investor Services so they will be received in a timely manner.
The Fund and the Distributor reserve the right to refuse any order for the
purchase of shares. The Fund also reserves the right to suspend the sale of the
Fund's shares in response to conditions in the securities markets or for other
reasons. Shares of the Fund may be sold in foreign countries where permissible.
Investor accounts will automatically be credited with additional shares of the
Fund after any Fund distributions, such as dividends and capital gain dividends,
unless the investor instructs the Fund otherwise. Investors wishing to receive
cash instead of additional shares should contact the Fund at (800) 341-2911 or
by writing to the Fund, c/o Van Kampen Investors Services Inc., PO Box 218256,
Kansas City, MO 64121-8256.
CLASS A SHARES
Class A Shares of the Fund are sold at net asset value plus an initial maximum
sales charge of up to 5.75% of the offering price (or 6.10% of the net amount
invested), reduced on investments of $50,000 or more as follows:
CLASS A SHARES
SALES CHARGE SCHEDULE
<TABLE>
AS % AS % OF
OF NET
SIZE OF OFFERING AMOUNT
INVESTMENT PRICE INVESTED
- ------------------------------------------------------
<S> <C> <C>
Less than $50,000 5.75% 6.10%
.....................................................
$50,000 but less than $100,000 4.75% 4.99%
.....................................................
$100,000 but less than $250,000 3.75% 3.90%
.....................................................
$250,000 but less than $500,000 2.75% 2.83%
.....................................................
$500,000 but less than $1,000,000 2.00% 2.04%
.....................................................
$1,000,000 or more * *
.....................................................
</TABLE>
* NO SALES CHARGE IS PAYABLE AT THE TIME OF PURCHASE ON INVESTMENTS OF
$1 MILLION OR MORE, ALTHOUGH FOR SUCH INVESTMENTS THE FUND MAY IMPOSE
A CONTINGENT DEFERRED SALES CHARGE OF 1.00% ON CERTAIN REDEMPTIONS
MADE WITHIN ONE YEAR OF THE PURCHASE. THE CONTINGENT DEFERRED SALES
CHARGE IS ASSESSED ON AN AMOUNT EQUAL TO THE LESSER OF THE THEN
CURRENT MARKET VALUE OR THE COST OF THE SHARES BEING REDEEMED.
ACCORDINGLY, NO SALES CHARGE IS IMPOSED ON INCREASES IN NET ASSET
VALUE ABOVE THE INITIAL PURCHASE PRICE.
No sales charge is imposed on Class A Shares received from reinvestment of
dividends or capital gain dividends.
Under the Distribution Plan and Service Plan, the Fund may spend up to a total
of 0.25% per year of the Fund's average daily net assets with respect to the
Class A Shares of the Fund. From such amount, under the Service Plan, the Fund
may spend up to 0.25% per year of the Fund's average daily net assets with
respect to the Class A Shares for the ongoing provision of services to Class A
shareholders by the Distributor and by brokers, dealers or financial
intermediaries and for the maintenance of such shareholders' accounts.
CLASS B SHARES
Class B Shares of the Fund are sold at net asset value and are subject to a
contingent deferred sales charge if redeemed within five years of purchase as
shown in the table as follows:
CLASS B SHARES
SALES CHARGE SCHEDULE
<TABLE>
CONTINGENT
DEFERRED
SALES CHARGE
AS A PERCENTAGE
OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
- ------------------------------------------------------
<S> <C>
First 5.00%
.....................................................
Second 4.00%
.....................................................
Third 3.00%
.....................................................
Fourth 2.50%
.....................................................
Fifth 1.50%
.....................................................
Sixth and After None
.....................................................
</TABLE>
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gain dividends. It
is presently the policy of the Distributor not to accept any order for Class B
Shares in an amount of $500,000 or more because it ordinarily will be more
advantageous for
15
<PAGE>
an investor making such an investment to purchase Class A Shares.
The amount of the contingent deferred sales charge, if any, varies depending on
the number of years from the time of payment for the purchase of Class B Shares
until the time of redemption of such shares. Solely for purposes of determining
the number of years from the time of any payment for the purchase of shares, all
payments during a month are totaled and deemed to have been made on the last day
of the month.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed shares being redeemed first are any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge followed by shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
Fund's average daily net assets with respect to the Class B Shares of the Fund.
In addition, under the Service Plan, the Fund may spend up to 0.25% per year of
the Fund's average daily net assets with respect to the Class B Shares for the
ongoing provision of services to Class B shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CLASS C SHARES
Class C Shares of the Fund are sold at net asset value and are subject to a
contingent deferred sales charge of 1.00% of the dollar amount subject to charge
if redeemed within one year of purchase.
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gain dividends. It
is presently the policy of the Distributor not to accept any order for Class C
Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed shares being redeemed first are any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge followed by shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
Fund's average daily net assets with respect to the Class C Shares of the Fund.
In addition, under the Service Plan, the Fund may spend up to 0.25% per year of
the Fund's average daily net assets with respect to the Class C Shares for the
ongoing provision of services to Class C shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CONVERSION FEATURE
Class B Shares and any dividend reinvestment plan Class B Shares received on
such shares, automatically convert to Class A Shares eight years after the end
of the calendar month in which the shares were purchased. Such conversion will
be on the basis of the relative net asset values per share, without the
imposition of any sales load, fee or other charge. The conversion schedule
applicable to a share of the Fund acquired through the exchange privilege from
another Van Kampen fund participating in the exchange program is determined by
reference to the Van Kampen fund from which such share was originally purchased.
The conversion of such shares to Class A Shares is subject to the continuing
availability of an opinion of counsel to the effect that (i) the assessment of
the higher distribution fee and transfer agency costs with respect to such
shares does not result in the Fund's dividends or capital gain dividends
constituting "preferential dividends" under the federal income tax law and
(ii) the conversion of shares does not constitute a taxable event under federal
income tax law. The conversion may be suspended if such an opinion is no longer
available and such shares might continue to be subject to the higher aggregate
fees applicable to such shares for an indefinite period.
16
<PAGE>
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge is waived on redemptions of Class B Shares
and Class C Shares (i) within one year following the death or disability (as
disability is defined by federal income tax law) of a shareholder, (ii) for
required minimum distributions from an individual retirement account ("IRA") or
certain other retirement plan distributions, (iii) for withdrawals under the
Fund's systematic withdrawal plan but limited to 12% annually of the initial
value of the account, (iv) if no commission or transaction fee is paid to
authorized dealers at the time of purchase of such shares and (v) if made by
involuntary liquidation by the Fund of a shareholder's account as described
under the heading "Redemption of Shares." Subject to certain limitations, a
shareholder who has redeemed Class C Shares of the Fund may reinvest in Class C
Shares at net asset value with credit for any contingent deferred sales charge
if the reinvestment is made within 180 days after the redemption. For a more
complete description of contingent deferred sales charge waivers, please refer
to the Fund's Statement of Additional Information or contact your authorized
dealer.
QUANTITY DISCOUNTS
Investors purchasing Class A Shares may, under certain circumstances described
below, be entitled to pay reduced or no sales charges. Investors, or their
authorized dealers, must notify the Fund at the time of the purchase order
whenever a quantity discount is applicable to purchases. Upon such notification,
an investor will receive the lowest applicable sales charge. Quantity discounts
may be modified or terminated at any time. For more information about quantity
discounts, investors should contact their authorized dealer or the Distributor.
A person eligible for a reduced sales charge includes an individual, his or her
spouse and children under 21 years of age and any corporation, partnership or
sole proprietorship which is 100% owned, either alone or in combination, by any
of the foregoing; a trustee or other fiduciary purchasing for a single trust or
for a single fiduciary account, or a "company" as defined in Section 2(a)(8) of
the 1940 Act.
As used herein, "Participating Funds" refers to certain open-end investment
companies advised by Asset Management or Advisory Corp. and distributed by the
Distributor as determined from time to time by the Fund's Board of Directors.
VOLUME DISCOUNTS. The size of investment shown in the Class A Shares sales
charge table applies to the total dollar amount being invested by any person in
shares of the Fund, or in any combination of shares of the Fund and shares of
other Participating Funds, although other Participating Funds may have different
sales charges.
CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the Class A Shares
sales charge table may also be determined by combining the amount being invested
in shares of the Participating Funds plus the current offering price of all
shares of the Participating Funds which have been previously purchased and are
still owned.
LETTER OF INTENT. A Letter of Intent provides an opportunity for an investor to
obtain a reduced sales charge by aggregating the investments over a 13-month
period to determine the sales charge as outlined in the Class A Shares sales
charge table. The size of investment shown in the Class A Shares sales charge
table includes purchases of shares of the Participating Funds over a 13-month
period based on the total amount of intended purchases plus the value of all
shares of the Participating Funds previously purchased and still owned. An
investor may elect to compute the 13-month period starting up to 90 days before
the date of execution of a Letter of Intent. Each investment made during the
period receives the reduced sales charge applicable to the total amount of the
investment goal. The initial purchase must be for an amount equal to at least 5%
of the minimum total purchase amount of the level selected. If trades not
initially made under a Letter of Intent subsequently qualify for a lower sales
charge through the 90-day backdating provisions, an adjustment will be made at
the time of the expiration of the Letter of Intent to give effect to the lower
charge. Such adjustment in sales charge will be used to purchase additional
shares for the shareholder at the applicable discount category. The Fund
initially will escrow shares totaling 5% of the dollar
17
<PAGE>
amount of the Letter of Intent to be held by Investor Services in the name of
the shareholder. In the event the Letter of Intent goal is not achieved within
the specified period, the investor must pay the difference between the sales
charge applicable to the purchases made and the reduced sales charge previously
paid. Such payments may be made directly to the Distributor or, if not paid, the
Distributor will liquidate sufficient escrowed shares to obtain the difference.
OTHER PURCHASE PROGRAMS
Purchasers of Class A Shares may be entitled to reduced or no initial sales
charges in connection with the unit investment trust reinvestment program and
purchases by registered representatives of selling firms or purchases by persons
affiliated with the Fund or the Distributor. The Fund reserves the right to
modify or terminate these arrangements at any time.
UNIT INVESTMENT TRUST REINVESTMENT PROGRAM. The Fund permits unitholders of unit
investment trusts to reinvest distributions from such trusts in Class A Shares
of the Fund at net asset value per share and with no minimum initial or
subsequent investment requirement, if the administrator of an investor's unit
investment trust program meets certain uniform criteria relating to cost savings
by the Fund and the Distributor. The total sales charge for all other
investments made from unit investment trust distributions will be 1.00% of the
offering price (1.01% of net asset value). Of this amount, the Distributor will
pay to the authorized dealer, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the terms and conditions that apply to the program,
should contact their authorized dealer or the Distributor.
The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during each distribution period by all investors who choose to invest in
the Fund through the program and (2) provide Investor Services with appropriate
backup data for each investor participating in the program in a computerized
format fully compatible with Investor Services' processing system.
In order to obtain these special benefits, all dividends and other distributions
by the Fund must be reinvested in additional shares and there can not be any
systematic withdrawal program. There will be no minimum for reinvestments from
unit investment trusts. The Fund will send account activity statements to such
participants on a quarterly basis only, even if their investments are made more
frequently. The Fund reserves the right to modify or terminate this program at
any time.
NET ASSET VALUE PURCHASE OPTIONS. Class A Shares of the Fund may be purchased at
net asset value, upon written assurance that the purchase is made for investment
purposes and that the shares will not be resold except through redemption by the
Fund, by:
(1) Current or retired trustees or directors of funds advised by Morgan Stanley
Dean Witter & Co. and any of its subsidiaries and such persons' families
and their beneficial accounts.
(2) Current or retired directors, officers and employees of Morgan Stanley Dean
Witter & Co. and any of its subsidiaries; employees of an investment
subadviser to any fund described in (1) above or an affiliate of such
subadviser; and such persons' families and their beneficial accounts.
(3) Directors, officers, employees and, when permitted, registered
representatives, of financial institutions that have a selling group
agreement with the Distributor and their spouses and children under 21
years of age when purchasing for any accounts they beneficially own, or, in
the case of any such financial institution, when purchasing for retirement
plans for such institution's employees; provided that such purchases are
otherwise permitted by such institutions.
(4) Registered investment advisers who charge a fee for their services, trust
companies and bank trust departments investing on their own behalf or on
behalf of their clients. The Distributor may pay authorized dealers through
which purchases are made an amount up to 0.50% of the amount invested, over
a 12-month period.
18
<PAGE>
(5) Trustees and other fiduciaries purchasing shares for retirement plans which
invest in multiple fund families through broker-dealer retirement plan
alliance programs that have entered into agreements with the Distributor
and which are subject to certain minimum size and operational requirements.
Trustees and other fiduciaries should refer to the Statement of Additional
Information for further details with respect to such alliance programs.
(6) Beneficial owners of shares of Participating Funds held by a retirement
plan or held in a tax-advantaged retirement account who purchase shares of
the Fund with proceeds from distributions from such a plan or retirement
account other than distributions taken to correct an excess contribution.
(7) Accounts as to which a bank or broker-dealer charges an account management
fee ("wrap accounts"), provided the bank or broker-dealer has a separate
agreement with the Distributor.
(8) Trusts created under pension, profit sharing or other employee benefit
plans qualified under Section 401(a) of the Internal Revenue Code of 1986,
as amended (the "Code"), or custodial accounts held by a bank created
pursuant to Section 403(b) of the Code and sponsored by nonprofit
organizations defined under Section 501(c)(3) of the Code and assets held
by an employer or trustee in connection with an eligible deferred
compensation plan under Section 457 of the Code. Such plans will qualify
for purchases at net asset value provided, for plans initially establishing
accounts with the Distributor in the Participating Funds after February 1,
1997, that (1) the initial amount invested in the Participating Funds is at
least $500,000 or (2) such shares are purchased by an employer sponsored
plan with more than 100 eligible employees. Such plans that have been
established with a Participating Fund or have received proposals from the
Distributor prior to February 1, 1997 based on net asset value purchase
privileges previously in effect will be qualified to purchase shares of the
Participating Funds at net asset value for accounts established on or
before May 1, 1997. Section 403(b) and similar accounts for which Van
Kampen Trust Company serves as custodian will not be eligible for net asset
value purchases based on the aggregate investment made by the plan or the
number of eligible employees, except under certain uniform criteria
established by the Distributor from time to time. Prior to February 1,
1997, a commission will be paid to authorized dealers who initiate and are
responsible for such purchases within a rolling twelve- month period as
follows: 1.00% on sales to $5 million, plus 0.50% on the next $5 million,
plus 0.25% on the excess over $10 million. For purchases on February 1,
1997 and thereafter, a commission will be paid as follows: 1.00% on sales
to $2 million, plus 0.80% on the next $1 million, plus 0.50% on the next
$47 million, plus 0.25% on the excess over $50 million.
(9) Individuals who are members of a "qualified group." For this purpose, a
qualified group is one which (i) has been in existence for more than six
months, (ii) has a purpose other than to acquire shares of the Fund or
similar investments, (iii) has given and continues to give its endorsement
or authorization, on behalf of the group, for purchase of shares of the
Fund and Participating Funds, (iv) has a membership that the authorized
dealer can certify as to the group's members and (v) satisfies other
uniform criteria established by the Distributor for the purpose of
realizing economies of scale in distributing such shares. A qualified group
does not include one whose sole organizational nexus, for example, is that
its participants are credit card holders of the same institution, policy
holders of an insurance company, customers of a bank or broker-dealer,
clients of an investment adviser or other similar groups. Shares purchased
in each group's participants account in connection with this privilege will
be subject to a contingent deferred sales charge of 1.00% in the event of
redemption within one year of purchase, and a commission will be paid to
authorized dealers who initiate and are responsible for such sales to each
individual as follows: 1.00% on sales to $2 million, plus 0.80% on the next
$1 million and 0.50% on the excess over $3 million.
The term "families" includes a person's spouse, children under 21 years of age
and grandchildren, parents, and a person's spouse's parents.
19
<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 above
on purchases made under options (3) through (9) above. The Fund may terminate,
or amend the terms of, offering shares of the Fund at net asset value to such
groups at any time.
REDEMPTION OF
SHARES
Generally shareholders may redeem for cash some or all of their shares without
charge by the Fund (other than applicable sales charge) at any time. As
described under the heading "Purchase of Shares," redemptions of Class B Shares
and Class C Shares may be subject to a contingent deferred sales charge. In
addition, certain redemptions of Class A Shares for shareholder accounts of $1
million or more may be subject to a contingent deferred sales charge.
Redemptions completed through an authorized dealer or a custodian of a
retirement plan account may involve additional fees charged by the dealer or
custodian.
Except as specified below under "Telephone Redemption Requests," payment for
shares redeemed generally will be made by check mailed within seven days after
receipt by Investor Services of the request and any other necessary documents in
proper form as described below. Such payment may be postponed or the right of
redemption suspended as provided by the rules of the SEC. Such payment may,
under certain circumstances, be paid wholly or in part by a distribution-in-kind
of portfolio securities which may result in brokerage costs and a gain or loss
for federal income tax purposes when such securities are sold. If the shares to
be redeemed have been recently purchased by check, Investor Services may delay
the payment of redemption proceeds until it confirms the purchase check has
cleared, which may take up to 15 days. A taxable gain or loss will be recognized
by the shareholder upon redemption of shares.
WRITTEN REDEMPTION REQUESTS. Shareholders may request a redemption of shares by
written request in proper form sent directly to Van Kampen Investor Services
Inc., PO Box 218256, Kansas City, MO 64121-8256. The request for redemption
should indicate the number of shares to be redeemed, the class designation of
such shares and the shareholder's account number. The redemption request must be
signed by all persons in whose names the shares are registered. Signatures must
conform exactly to the account registration. If the proceeds of the redemption
exceed $50,000, or if the proceeds are not to be paid to the record owner at the
record address, or if the record address has changed within the previous 30
days, signature(s) must be guaranteed by one of the following: a bank or trust
company; a broker-dealer; a credit union; a national securities exchange,
registered securities association or clearing agency; a savings and loan
association; or a federal savings bank.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption to be in proper form. In some
cases, however, additional documents may be necessary. In the case of
shareholders holding certificates, the certificates for the shares being
redeemed properly endorsed for transfer must accompany the redemption request.
In the event the redemption is requested by a corporation, partnership, trust,
fiduciary, executor or administrator, and the name and title of the
individual(s) authorizing such redemption is not shown in the account
registration, a copy of the corporate resolution or other legal documentation
appointing the authorized signer and certified within the prior 120 days must
accompany the redemption request. IRA redemption requests should be sent to the
IRA custodian to be forwarded to Investor Services. Contact the IRA custodian
for further information.
In the case of written redemption requests sent directly to Investor Services,
the redemption price is the net asset value per share next determined after the
request in proper form is received by Investor Services.
20
<PAGE>
AUTHORIZED DEALER REDEMPTION REQUESTS. Shareholders may place redemption
requests through an authorized dealer. Orders sent through authorized dealers
must be at least $500 (unless transmitted by your authorized dealer via the
FUNDSERV network). The redemption price for such shares is the net asset value
per share next calculated after an order in proper form is received by an
authorized dealer provided such order is transmitted to the Distributor prior to
the Distributor's close of business on such day. It is the responsibility of
authorized dealers to transmit redemption requests received by them to the
Distributor so they will be received prior to such time. Redemptions completed
through an authorized dealer may involve additional fees charged by the dealer.
TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. A shareholder
automatically has telephone redemption privileges unless the shareholder
indicates otherwise by checking the applicable box on the application form
accompanying the prospectus. To redeem shares, contact the telephone transaction
line at (800) 421-5684. Van Kampen Investments, Investor Services and the Fund
employ procedures considered by them to be reasonable to confirm that
instructions communicated by telephone are genuine. Such procedures include
requiring certain personal identification information prior to acting upon
telephone instructions, tape-recording telephone communications and providing
written confirmation of instructions communicated by telephone. If reasonable
procedures are employed, none of Van Kampen Investments, Investor Services or
the Fund will be liable for following telephone instructions which it reasonably
believes to be genuine. Telephone redemptions may not be available if the
shareholder cannot reach Investor Services by telephone, whether because all
telephone lines are busy or for any other reason; in such case, a shareholder
would have to use the Fund's other redemption procedure previously described.
Requests received by Investor Services prior to 4:00 p.m., New York time, will
be processed at the next determined net asset value per share. These privileges
are available for all accounts other than retirement accounts or accounts with
shares represented by certificates. If an account has multiple owners, Investor
Services may rely on the instructions of any one owner.
For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check and amounts of at least
$1,000 up to $1 million may be redeemed daily if the proceeds are to be paid by
wire. The proceeds must be payable to the shareholder(s) of record and sent to
the address of record for the account or wired directly to their predesignated
bank account. This privilege is not available if the address of record has been
changed within 30 days prior to a telephone redemption request. Proceeds from
redemptions payable by wire transfer are expected to be wired on the next
business day following the date of redemption. The Fund reserves the right at
any time to terminate, limit or otherwise modify this redemption privilege.
OTHER REDEMPTION INFORMATION. The Fund may redeem shares of any shareholder
account that has a value on the date of the notice of redemption less than the
minimum initial investment as specified in this prospectus. At least 60 days
advance written notice of any such involuntary redemption will be provided to
the shareholder and such shareholder will be given an opportunity to purchase
the required value of additional shares at the next determined net asset value
without sales charge. Any involuntary redemption may only occur if the
shareholder account is less than the minimum initial investment due to
shareholder redemptions.
DISTRIBUTIONS FROM
THE FUND
In addition to any increase in the value of shares which the Fund may achieve,
shareholders may receive distributions from the Fund of dividends and capital
gain dividends.
DIVIDENDS. Dividends from stocks and interest earned from other investments are
the Fund's main sources of income. The Fund's present policy, which may be
changed at any time by the Board of Directors, is to distribute all or
substantially all of this income, less expenses, at least annually as dividends
to shareholders. Dividends are automatically applied to purchase additional
shares of the Fund at the next determined net asset value unless the shareholder
instructs otherwise.
21
<PAGE>
The per share dividends on Class B Shares and Class C Shares may be lower than
the per share dividends on Class A Shares as a result of the higher distribution
fees and transfer agency costs applicable to such classes of shares.
CAPITAL GAIN DIVIDENDS. The Fund may realize capital gains or losses when it
sells securities, depending on whether the sales prices for the securities are
higher or lower than purchase prices. Net realized capital gain represents the
total profits from sales of securities minus total losses from sales of
securities (including any losses carried forward from prior years), other than
net short-term capital gain from sales of securities held for one year or less.
The Fund distributes any taxable net realized capital gain to shareholders as
capital gain dividends at least annually. As in the case of dividends, capital
gain dividends are automatically reinvested in additional shares of the Fund at
the next determined net asset value unless the shareholder instructs otherwise.
SHAREHOLDER SERVICES
Listed below are some of the shareholder services the Fund offers to investors.
For a more complete description of the Fund's shareholder services, such as
investment accounts, share certificates, retirement plans, automated clearing
house deposits, dividend diversification and the systematic withdrawal plan,
please refer to the Statement of Additional Information or contact your
authorized dealer.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gain dividends in shares of the
Fund. Such shares are acquired at net asset value per share (without sales
charge) on the applicable payable date of the dividend or capital gain dividend.
Unless the shareholder instructs otherwise, the reinvestment plan is automatic.
This instruction may be made by telephone by calling (800) 341-2911
((800) 421-2833 for the hearing impaired) or by writing to Investor Services.
The investor may, on the initial application or prior to any declaration,
instruct that dividends be paid in cash and capital gain dividends be reinvested
at net asset value, or that both dividends and capital gain dividends be paid in
cash.
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under which
a shareholder can authorize Investor Services to charge a bank account on a
regular basis to invest predetermined amounts in the Fund. Additional
information is available from the Distributor or your authorized dealer.
EXCHANGE PRIVILEGE. Shares of the Fund may be exchanged for shares of the same
class of any Participating Fund based on the next computed net asset value per
share of each fund after requesting the exchange without any sales charge,
subject to certain limitations. Shares of the Fund may be exchanged for shares
of any Participating Fund only if shares of that Participating Fund are
available for sale; however, during periods of suspension of sales, shares of a
Participating Fund may be available for sale only to existing shareholders of a
Participating Fund. Shareholders seeking an exchange into a Participating Fund
should obtain and read the current prospectus for such fund prior to
implementing an exchange. A prospectus of any of the Participating Funds may be
obtained from any authorized dealer or the Distributor.
To be eligible for exchange, shares of the Fund must have been registered in the
shareholder's name for at least 30 days prior to an exchange. Shares of the Fund
registered in a shareholder's name for less than 30 days may only be exchanged
upon receipt of prior approval of the Adviser. It is the policy of the Adviser,
under normal circumstances, not to approve such requests.
When shares that are subject to a contingent deferred sales charge are exchanged
among Participating Funds, the holding period for purposes of computing the
contingent deferred sales charge is based upon the date of the initial purchase
of such shares from a Participating Fund. When such shares are redeemed and not
exchanged for shares of another Participating Fund, the shares are subject to
the contingent deferred sales charge schedule imposed by the Participating Fund
from which such shares were originally purchased.
Exchanges of shares are sales of one Participating Fund and purchases of another
Participating Fund. The sale may result in a gain or loss for federal income tax
purposes. If the shares sold have been held for less than 91 days, the sales
charge paid on such shares is carried over and included in the tax basis of the
shares acquired.
22
<PAGE>
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 the shareholder indicates otherwise by checking the applicable box on the
application form accompanying the prospectus. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated by telephone are genuine. Such procedures
include requiring certain personal identification information prior to acting
upon telephone instructions, tape-recording telephone communications, and
providing written confirmation of instructions communicated by telephone. If
reasonable procedures are employed, none of Van Kampen Investments, Investor
Services or the Fund will be liable for following telephone instructions which
it reasonably believes to be genuine. If the exchanging shareholder does not
have an account in the fund whose shares are being acquired, a new account will
be established with the same registration, dividend and capital gain dividend
options (except dividend diversification) and authorized dealer of record as the
account from which shares are exchanged, unless otherwise specified by the
shareholder. In order to establish a systematic withdrawal plan for the new
account or reinvest dividends from the new account into another fund, however,
an exchanging shareholder must submit a specific request. The Fund reserves the
right to reject any order to acquire its shares through exchange. In addition,
the Fund and other Participating Funds may restrict exchanges by shareholders
engaged in excessive trading by limiting or disallowing the exchange privileges
to such shareholders. For further information on these restrictions see the
Statement of Additional Information. The Fund may modify, restrict or terminate
the exchange privilege at any time on 60 days' notice to its shareholders of any
termination or material amendment.
For purposes of determining the sales charge rate previously paid on Class A
Shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchanged security was acquired through reinvestment, that
security is deemed to have been sold with a sales charge rate equal to the rate
previously paid on the security on which the dividend or distribution was paid.
If a shareholder exchanges less than all of such shareholder's securities, the
security upon which the highest sales charge rate was previously paid is deemed
exchanged first.
Exchange requests received on a business day prior to the time shares of the
funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares of the fund which the
shareholder is redeeming will be redeemed at the net asset value per share next
determined on the date of receipt. Shares of the new fund that the shareholder
is purchasing will also normally be purchased at the net asset value per share,
plus any applicable sales charge, next determined on the date of receipt.
Exchange requests received on a business day after the time shares of the funds
involved in the request are priced will be processed on the next business day in
the manner described herein.
INTERNET TRANSACTIONS. In addition to performing transactions on your account
through written instruction or by telephone, you may also perform certain
transactions through the internet. Please refer to our web site at
www.vankampen.com for further instruction. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated through the internet are genuine. Such
procedures include requiring use of a personal identification number prior to
acting upon internet instructions and providing written confirmation of
instructions communicated through the internet. If reasonable procedures are
employed, none of Van Kampen Investments, Investor Services or the Fund will be
liable for following instructions received through the internet which it
reasonably believes to be genuine. If an account has multiple owners, Investor
Services may rely on the instructions of any one owner.
FEDERAL INCOME
TAXATION
Distributions of the Fund's net investment income (consisting generally of
taxable income and net short-term capital gain) are taxable to shareholders as
ordinary income to the extent of the Fund's
23
<PAGE>
earnings and profits, whether paid in cash or reinvested in additional shares.
Distributions of the Fund's net realized capital gain (which are the excess of
net long-term capital gain over net short-term capital loss) as capital gain
dividends, if any, are taxable to shareholders as long-term capital gains,
whether paid in cash or reinvested in additional shares, and regardless of how
long the shares of the Fund have been held by such shareholders. The Fund
expects that its distributions will consist primarily of ordinary income and
capital gain dividends. Distributions in excess of the Fund's earnings and
profits will first reduce the adjusted tax basis of a holder's shares and, after
such adjusted tax basis is reduced to zero, will constitute capital gains to
such holder (assuming such shares are held as a capital asset). Although
distributions generally are treated as taxable in the year they are paid,
distributions declared in October, November or December, payable to shareholders
of record on a specified date in such month and paid during January of the
following year will be treated as having been distributed by the Fund and
received by the shareholders on the December 31st prior to the date of payment.
The Fund will inform shareholders of the source and tax status of all
distributions promptly after the close of each calendar year.
The sale or exchange of shares is a taxable transaction for federal income tax
purposes. Shareholders who sell their shares will generally recognize gain or
loss in an amount equal to the difference between their adjusted tax basis in
the shares sold and the amount received. If the shares are held as a capital
asset, the gain or loss will be a capital gain or loss. Any capital gains may be
taxed at different rates depending on how long the shareholder held such shares.
The Fund is required, in certain circumstances, to withhold 31% of dividends and
certain other payments, including redemptions, paid to shareholders who do not
furnish to the Fund their correct taxpayer identification number (in the case of
individuals, their social security number) and certain required certifications
or who are otherwise subject to backup withholding.
Foreign shareholders, including shareholders who are non-resident aliens, may be
subject to U.S. withholding tax on certain distributions (whether received in
cash or in shares) at a rate of 30% or such lower rate as prescribed by an
applicable treaty. Accordingly, investment in the Fund is likely to be
appropriate for a foreign shareholder only if such person can utilize a foreign
tax credit or corresponding tax benefit in respect of such U.S. withholding tax.
Prospective foreign investors should consult their tax advisers concerning the
tax consequences to them of an investment in shares.
The Fund intends to qualify as a regulated investment company under federal
income tax law. If the Fund so qualifies and distributes each year to its
shareholders at least 90% of its net investment income, the Fund will not be
required to pay federal income taxes on any income it distributes to
shareholders. If the Fund distributes less than an amount equal to the sum of
98% of its ordinary income and 98% of its capital gain net income, then the Fund
will be subject to a 4% excise tax on the undistributed amounts.
The federal income tax discussion set forth above is for general information
only. Prospective investors should consult their own tax advisers regarding the
specific federal tax consequences of purchasing, holding, disposing, exchanging
or selling of shares, as well as the effects of state, local and foreign tax law
and any proposed tax law changes.
24
<PAGE>
BOARD OF DIRECTORS
AND OFFICERS
BOARD OF DIRECTORS
<TABLE>
<S> <C>
J. Miles Branagan Don G. Powell*
Jerry D. Choate Phillip B. Rooney
Richard M. DeMartini* Fernando Sisto
Linda Hutton Heagy Wayne W. Whalen*
R. Craig Kennedy Suzanne H. Woolsey
Jack E. Nelson Paul G. Yovovich
</TABLE>
OFFICERS
Richard F. Powers, III*
PRESIDENT
Dennis J. McDonnell*
EXECUTIVE VICE PRESIDENT & CHIEF INVESTMENT OFFICER
A. Thomas Smith III*
VICE PRESIDENT AND SECRETARY
Edward C. Wood III*
VICE PRESIDENT
Michael H. Santo*
VICE PRESIDENT
Peter W. Hegel*
VICE PRESIDENT
Stephen L. Boyd*
VICE PRESIDENT
Joseph P. Stadler*
VICE PRESIDENT
John L. Sullivan*
VICE PRESIDENT, CHIEF FINANCIAL OFFICER & TREASURER
Curtis W. Morell*
VICE PRESIDENT & CHIEF ACCOUNTING OFFICER
Tanya M. Loden*
CONTROLLER
* "Interested Persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2911
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders, or
redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call
(800) 421-2833
FUNDINFO-REGISTERED TRADEMARK-
For automated telephone services, call (800) 847-2424
WEB SITE
www.vankampen.com
VAN KAMPEN JAPANESE EQUITY FUND
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
INVESTMENT ADVISER AND ADMINISTRATOR
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
INVESTMENT SUBADVISER
MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC.
1221 Avenue of the Americas
New York, NY 10020
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
TRANSFER AGENT
VAN KAMPEN INVESTOR SERVICES INC.
PO Box 218256
Kansas City, MO 64121-8256
Attn: Van Kampen Japanese Equity Fund
CUSTODIAN
THE CHASE MANHATTAN BANK
3 MetroTech Center
Brooklyn, NY 11245
Attn: Van Kampen Japanese Equity Fund
LEGAL COUNSEL
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
INDEPENDENT ACCOUNTANTS
PRICEWATERHOUSECOOPERS LLP
200 East Randolph Drive
Chicago, IL 60601
<PAGE>
VAN KAMPEN
JAPANESE EQUITY FUND
PROSPECTUS
OCTOBER 28, 1999
A Statement of Additional Information, which contains
more details about the Fund, is incorporated by
reference in its entirety into this prospectus.
You will find additional information about the Fund in
its annual and semiannual reports to shareholders. The
annual report explains the market conditions and
investment strategies affecting the Fund's performance
during its last fiscal year.
You can ask questions or obtain a free copy of the
Fund's reports or its Statement of Additional
Information by calling (800) 341-2911 from 7:00 a.m. to
7:00 p.m., Central time, Monday through Friday.
Telecommunications Device for the Deaf users may call
(800) 421-2833. A free copy of the Fund's reports can
also be ordered from our web site at www.vankampen.com.
Information about the Fund, including its reports and
Statement of Additional Information, has been filed with
the Securities and Exchange Commission (SEC). It can be
reviewed and copied at the SEC's Public Reference Room
in Washington, DC or on the EDGAR Database on the SEC's
internet site (http://www.sec.gov). Information on the
operation of the SEC's Public Reference Room may be
obtained by calling the SEC at 1-202-942-8090. You can
also request copies of these materials, upon payment of
a duplicating fee, by electronic request at the SEC's
e-mail address ([email protected]) or by writing the
Public Reference Section of the SEC, Washington, DC,
20549-0102.
[LOGO]
THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-7140.
<PAGE>
VAN KAMPEN
LATIN AMERICAN FUND
Van Kampen Latin American Fund is a mutual fund with an investment objective to
seek 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. Under normal market
conditions, the Fund invests primarily in equity securities.
Shares of the Fund have not been approved or disapproved by the Securities and
Exchange Commission (SEC) or any state regulator, and neither the SEC nor any
state regulator has passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
THIS PROSPECTUS IS DATED OCTOBER 28, 1999.
[LOGO]
<PAGE>
TABLE OF CONTENTS
Risk/Return Summary .....................................................3
Fees and Expenses of the Fund ...........................................6
Investment Objective, Policies and Risks ................................7
Investment Advisory Services ...........................................16
Purchase of Shares .....................................................18
Redemption of Shares ...................................................25
Distributions from the Fund ............................................27
Shareholder Services ...................................................27
Federal Income Taxation ................................................29
Financial Highlights ...................................................31
Appendix--Description of Securities Ratings ...........................A-1
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations, other than those contained in this
prospectus, in connection with the offer contained in this prospectus and, if
given or made, such other information or representations must not be relied upon
as having been authorized by the Fund, the Fund's investment adviser or the
Fund's distributor. This prospectus does not constitute an offer by the Fund or
by the Fund's distributor to sell or a solicitation of an offer to buy any of
the securities offered hereby in any jurisdiction to any person to whom it is
unlawful for the Fund to make such an offer in such jurisdiction.
<PAGE>
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The Fund is a mutual fund with an investment objective to seek 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. Any income received from the investment of
portfolio securities is incidental to the Fund's investment objective.
INVESTMENT STRATEGIES
Under normal market conditions, the Fund's investment adviser seeks to achieve
the Fund's investment objective by investing at least 80% of the Fund's total
assets in a portfolio of:
- - equity securities of companies organized in or for which the principal
securities trading market is in Latin America;
- - equity securities denominated in a Latin American currency issued by companies
to finance operations in Latin America;
- - equity securities 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; and
- - debt securities issued or guaranteed by Latin American governments or
governmental entities.
Under normal market conditions, the Fund invests primarily in equity securities.
Equity securities include common and preferred stocks, convertible securities,
rights and warrants to purchase stocks, depository receipts and equity interests
in trusts or partnerships.
The Fund's investment adviser combines top-down country criteria to allocate the
Fund's assets among Latin American countries (based on relative economic,
political and social fundamentals; stock valuations; and investor sentiment)
with bottom-up fundamental analysis of Latin American issuers (seeking to
identify issuers with strong earnings growth potential). The Fund's investment
adviser focuses on companies offering attractive growth opportunities,
reasonable valuations and/or management with strong shareholder value
orientation. Portfolio securities are typically sold when the Fund's investment
adviser's assessments of one or more of the factors listed above materially
change. The 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.
Under normal market conditions, the Fund will invest more than 25% (but less
than 40%) of the Fund's total assets in securities of telecommunications
companies, which reflects the increased presence of telecommunications companies
in the Latin American markets. The Fund may invest up to 20% of its total assets
in securities that are rated below investment grade by Standard & Poor's ("S&P")
or Moody's Investors Service, Inc. ("Moody's"), or unrated securities of
comparable quality. The Fund's investments in emerging market countries'
securities and lower-grade securities involve greater risks than investments in
developed countries or higher-grade securities.
The Fund may purchase or sell securities on a when-issued or delayed delivery
basis. The Fund may purchase and sell certain derivative instruments (such as
options, futures, options on futures and currency-related transactions involving
options, futures, forward contracts and swaps), to the extent available, for
various portfolio management purposes.
INVESTMENT RISKS
An investment in the Fund is subject to investment risks, and you could lose
money on your investment in the Fund. There can be no assurance that the Fund
will achieve its investment objective.
MARKET RISK. Market risk is the possibility that the market values of securities
owned by the Fund will decline. Market risk may affect a single issuer,
industry, sector of the economy or the market as a whole. Investments in common
stocks and other equity securities generally are affected by changes in the
3
<PAGE>
stock markets, which fluctuate substantially over time, sometimes suddenly and
sharply.
In general, market values of equity securities are more volatile than those of
debt securities. Investments in debt securities generally are affected by
changes in interest rates and the creditworthiness of the issuer. The prices of
debt securities tend to fall as interest rates rise, and such declines tend to
be greater among debt securities with longer maturities.
Foreign markets may but often do not move in tandem with changes in U.S.
markets, and foreign markets, especially developing or emerging market
countries, may be more volatile than U.S. markets. At times, securities of Latin
American issuers may underperform relative to other sectors. Historically,
securities of Latin American issuers have sometimes gone through extended
periods when they did not perform as well as securities of domestic issuers or
issuers of countries in other regions. Thus, the value of the Fund's investments
will vary and at times may be lower or higher than that of other types of
investments. During an overall market decline, securities prices of smaller
companies often fluctuate more and may fall more than the securities prices of
larger companies.
FOREIGN, EMERGING MARKET COUNTRIES AND LATIN AMERICAN REGION RISKS. Because the
Fund owns securities of foreign issuers, it is subject to risks not usually
associated with owning securities of U.S. issuers. These risks include
fluctuations in foreign currencies, foreign currency exchange controls,
political and economic instability, differences in financial reporting,
differences in securities regulation and trading and foreign taxation issues.
The risks of investing in developing or emerging market countries are greater
than the risks generally associated with foreign investments, including
investment and trading limitations, greater credit and liquidity concerns,
greater political uncertainties, an economy's dependence on international trade
or development assistance, greater foreign currency exchange risks and currency
transfer restrictions, greater delays and disruptions in settlement transactions
and greater risks associated with computer programs and the Year 2000 problem.
The Fund is subject to additional risks associated with investing in securities
of companies or governments that are subject to economic and financial factors
and conditions of the Latin American region. Securities markets of Latin
American countries are substantially smaller, less liquid, less regulated and
more volatile than domestic securities markets. Because the Fund's investments
are focused in a single region, its portfolio is more susceptible to factors
affecting issuers in that region than a more geographically diverse portfolio of
investments.
TELECOMMUNICATIONS RISKS. Because the Fund emphasizes telecommunication
companies, its portfolio is more susceptible to factors adversely affecting the
telecommunications industry than a Fund without such emphasis. The
telecommunications industry is undergoing significant technological and
structural developments and may be subject to more governmental regulation than
other industries. Securities of telecommunications companies may be more
volatile than and may or may not move in tandem with the overall securities
markets.
RISKS OF USING DERIVATIVE INVESTMENTS. In general terms, a derivative investment
is one whose value depends on (or is derived from) the value of an underlying
asset, interest rate or index. Options, futures and options on futures and
currency-related transactions involving options, futures, forward contracts and
swaps are examples of derivatives. Derivative investments involve risks
different from the direct investment in underlying securities. These risks
include imperfect correlation between the value of the instruments and the
underlying assets; risks of default by the other party to certain transactions;
risks that the transactions may result in losses that partially or completely
offset gains in portfolio positions; risks that the transactions may not be
liquid; and manager risk.
NON-DIVERSIFICATION RISKS. The Fund is classified as a "non-diversified" fund,
which means the Fund may invest a greater portion of its assets in a more
limited number of issuers than a "diversified" fund. As a result, the Fund may
be subject to greater risk than a diversified fund because changes in the
financial condition or market assessment of a single issuer may cause greater
fluctuations in the value of the Fund's shares.
4
<PAGE>
MANAGER RISK. As with any managed fund, the Fund's investment adviser may not be
successful in selecting the best-performing securities or investment techniques
and the Fund's performance may lag behind that of similar funds.
INVESTOR PROFILE
In light of the Fund's investment objective and strategies, the Fund may be
appropriate for investors who:
- - Seek capital appreciation over the long term
- - Do not seek current income from their investment
- - Are willing to take on the increased risks associated with investing in
foreign securities from countries in a single region
- - Can withstand substantial volatility in the value of their Fund shares
- - Wish to add to their investment portfolio a fund that invests in equity
securities and debt securities of Latin American issuers
An investment in the Fund is not a deposit of any bank or other insured
depository institution. Your investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
An investment in the Fund may not be appropriate for all investors. The Fund is
not intended to be a complete investment program, and investors should consider
their long-term investment goals and financial needs when making an investment
decision about the Fund. An investment in the Fund is intended to be a long-term
investment, and the Fund should not be used as a trading vehicle.
ANNUAL PERFORMANCE
One way to measure the risks of investing in the Fund is to look at how its
performance varies from year-to-year. The following chart shows the annual
returns of the Fund's Class A Shares over the four calendar years prior to the
date of this prospectus. Sales loads are not reflected in this chart. If these
sales loads had been included, the returns shown below would have been lower.
Remember that the past performance of the Fund is not indicative of its future
performance.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Annual Return
1995 -20.43%
1996 47.37%
1997 39.61%
1998 -35.93%
</TABLE>
The Fund's return for the nine-month period ended September 30, 1999 was 20.05%.
The annual return variability of the Fund's Class B Shares and Class C Shares
would be substantially similar to that shown for the Class A Shares because all
of the Fund's shares are invested in the same portfolio of securities; however,
the actual annual returns of the Class B Shares and Class C Shares would be
lower than the annual returns shown for the Fund's Class A Shares because of
differences in the expenses borne by each class of shares.
During the four-year period shown in the bar chart, the highest quarterly return
was 28.42% (for the quarter ended September 30, 1994) and the lowest quarterly
return was -36.09% (for the quarter ended March 31, 1995).
COMPARATIVE PERFORMANCE
As a basis for evaluating the Fund's performance and risks, the table below
shows how the Fund's performance compares with the Morgan Stanley Capital
International ("MSCI") Emerging Markets Latin America Index* (a broad-based
market capitalization-weighted composite index covering at least 60% of the
markets in Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela,
including dividends) and the MSCI Emerging Markets Free Latin
5
<PAGE>
America Index* (a broad-based market capitalization-weighted composite index
covering at least 60% of the markets in Argentina, Brazil Free, Chile, Colombia,
Mexico Free, Peru and Venezuela, including dividends). The Fund's performance
figures include the maximum sales charges paid by investors. The indices'
performance figures do not include commissions or sales charges that would be
paid by investors purchasing the securities represented by those indices.
Average annual total returns are shown for the periods ended December 31, 1998
(the most recently completed calendar year prior to the date of this
prospectus). Remember that the past performance of the Fund is not indicative of
its future performance.
<TABLE>
<CAPTION>
AVERAGE ANNUAL
TOTAL RETURNS
FOR THE PERIODS ENDED PAST SINCE
DECEMBER 31, 1998 1 YEAR INCEPTION
<S> <C> <C>
- ----------------------------------------------------------
Van Kampen Latin American
Fund
- -- Class A Shares -39.61% -0.15%(1)
MSCI Emerging Markets
Latin America Index -35.29% -1.99%(3)
MSCI Emerging Markets
Free Latin America Index -35.11% -1.16%(3)
.........................................................
Van Kampen Latin American
Fund
- -- Class B Shares -39.41% 6.45%(2)
MSCI Emerging Markets
Latin America Index -35.29% -3.86%(4)
MSCI Emerging Markets
Free Latin America Index -35.11% -3.18%(4)
.........................................................
Van Kampen Latin American
Fund
- -- Class C Shares -36.86% 0.44%(1)
MSCI Emerging Markets
Latin America Index -35.29% -1.99%(3)
MSCI Emerging Markets
Free Latin America Index -35.11% -1.16%(3)
.........................................................
INCEPTION DATES: (1) 7/6/94, (2) 8/1/95, (3) 6/30/94, (4)
7/31/95.
* THE MSCI EMERGING MARKETS LATIN AMERICA INDEX WAS
INITIALLY SELECTED AS A BENCHMARK FOR THE FUND'S
PERFORMANCE. BASED ON FOREIGN OWNERSHIP RESTRICTIONS
RECENTLY IMPOSED IN BRAZIL AND RELATED CHANGES IN MSCI
INDICES, MANAGEMENT BELIEVES THE MSCI EMERGING MARKETS
FREE LATIN AMERICA INDEX PROVIDES A MORE APPROPRIATE
BENCHMARK FOR THE FUND. THE MSCI EMERGING MARKETS LATIN
AMERICA INDEX WILL NOT BE SHOWN IN FUTURE FUND
PROSPECTUSES.
</TABLE>
FEES AND EXPENSES
OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
<S> <C> <C> <C>
- ---------------------------------------------------------
</TABLE>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<S> <C> <C> <C>
- ---------------------------------------------------------
Maximum sales charge
(load) imposed on
purchases (as a
percentage of
offering price) 5.75%(1) None None
........................................................
Maximum deferred
sales charge (load)
(as a percentage of
the lesser of
original purchase
price or redemption
proceeds) None(2) 5.00%(3) 1.00%(4)
........................................................
Maximum sales charge
(load) imposed on
reinvested dividends None None None
........................................................
Redemption fees None None None
........................................................
Exchange fee None None None
........................................................
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
<TABLE>
<S> <C> <C> <C>
- ---------------------------------------------------------
Management Fees(5) 1.25% 1.25% 1.25%
........................................................
Distribution and/or
Service (12b-1)
Fees(6) 0.25% 1.00%(7) 1.00%(7)
........................................................
Other Expenses(5) 0.94% 0.95% 0.95%
........................................................
Total Annual Fund
Operating Expenses(5) 2.44% 3.20% 3.20%
........................................................
</TABLE>
(1) REDUCED FOR PURCHASES OF $50,000 AND OVER. SEE "PURCHASE OF SHARES --
CLASS A SHARES."
(2) INVESTMENTS OF $1 MILLION OR MORE ARE NOT SUBJECT TO ANY SALES CHARGE AT
THE TIME OF PURCHASE, BUT A DEFERRED SALES CHARGE OF 1.00% MAY BE
IMPOSED ON CERTAIN REDEMPTIONS MADE WITHIN ONE YEAR OF THE PURCHASE.
SEE "PURCHASE OF SHARES -- CLASS A SHARES."
(3) THE MAXIMUM DEFERRED SALES CHARGE IS 5.00% IN THE FIRST YEAR AFTER
PURCHASE, DECLINING THEREAFTER AS FOLLOWS:
YEAR 1-5.00%
YEAR 2-4.00%
YEAR 3-3.00%
YEAR 4-2.50%
YEAR 5-1.50%
AFTER-NONE
SEE "PURCHASE OF SHARES -- CLASS B SHARES."
(4) THE MAXIMUM DEFERRED SALES CHARGE IS 1.00% IN THE FIRST YEAR AFTER
PURCHASE AND 0.00% THEREAFTER. SEE "PURCHASE OF SHARES -- CLASS C
SHARES."
(5) THE FUND'S INVESTMENT ADVISER IS CURRENTLY WAIVING OR REIMBURSING A
PORTION OF THE FUND'S MANAGEMENT FEES AND OTHER EXPENSES SUCH THAT THE
ACTUAL TOTAL ANNUAL FUND OPERATING EXPENSES WERE 2.10% FOR CLASS A
SHARES, 2.85% FOR CLASS B SHARES AND 2.85% FOR CLASS C SHARES FOR THE
FISCAL YEAR ENDED JUNE 30, 1999. THE FEE WAIVERS OR EXPENSE REIMBURSE-
MENTS CAN BE TERMINATED AT ANY TIME.
(6) CLASS A SHARES ARE SUBJECT TO AN ANNUAL SERVICE FEE OF UP TO 0.25% OF
THE AVERAGE DAILY NET ASSETS ATTRIBUTABLE TO SUCH CLASS OF SHARES.
CLASS B SHARES AND CLASS C SHARES ARE EACH SUBJECT TO A COMBINED ANNUAL
DISTRIBUTION AND SERVICE FEE OF UP TO 1.00% OF THE AVERAGE DAILY NET
ASSETS ATTRIBUTABLE TO SUCH CLASS OF SHARES. SEE "PURCHASE OF SHARES."
(7) BECAUSE DISTRIBUTION AND/OR SERVICE (12b-1) FEES ARE PAID OUT OF THE
FUND'S ASSETS ON AN ONGOING BASIS, OVER TIME THESE FEES WILL INCREASE
THE COST OF YOUR INVESTMENT AND MAY COST YOU MORE THAN PAYING OTHER
TYPES OF SALES CHARGES.
6
<PAGE>
EXAMPLE:
The following example is intended to help you compare the cost of investing
in the Fund with the costs of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods.
The example also assumes that your investment has a 5% return each year and
that the Fund's operating expenses remain the same each year (except for the
ten-year amounts for Class B Shares which reflect the conversion of Class B
Shares to Class A Shares after eight years). Although your actual costs may
be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------
<CAPTION>
Class A Shares $808 $1,292 $1,801 $3,192
<S> <C> <C> <C> <C>
................................................................
Class B Shares $823 $1,286 $1,824 $3,329*
................................................................
Class C Shares $423 $ 986 $1,674 $3,503
................................................................
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------
Class A Shares $808 $1,292 $1,801 $3,192
................................................................
Class B Shares $323 $ 986 $1,674 $3,329*
................................................................
Class C Shares $323 $ 986 $1,674 $3,503
................................................................
</TABLE>
* BASED ON CONVERSION TO CLASS A SHARES AFTER EIGHT YEARS.
INVESTMENT OBJECTIVE,
POLICIES AND RISKS
The Fund's investment objective is to seek 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. The Fund's investment objective is a
fundamental policy and may not be changed without the approval of a majority
of shareholders of the Fund's outstanding voting securities, as defined in
the Investment Company Act of 1940, as amended (the "1940 Act"). There are
risks inherent in all investments in securities; accordingly there can be no
assurance that the Fund will achieve its investment objective.
Under normal market conditions, the Fund's investment adviser seeks to
achieve the Fund's investment objective by investing at least 80% of the
Fund's total assets in a portfolio of:
- - equity securities of companies organized in or for which the principal
securities trading market is in Latin America;
- - equity securities denominated in a Latin American currency issued by companies
to finance operations in Latin America;
- - equity securities 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
- - debt securities issued or guaranteed by Latin American governments or
governmental entities ("Sovereign Debt").
Under normal market conditions, the Fund invests primarily in equity
securities.
The Fund's investment adviser combines top-down country allocation with
bottom-up stock selection. The Fund's investment adviser allocates the
Fund's assets among Latin American countries based on relative economic,
political and social fundamentals; stock valuations; and investor sentiment.
The Fund invests within countries based on fundamental analysis of Latin
American issuers and seeks to identify issuers with strong earnings growth
potential. The Fund's investment adviser focuses on companies offering
attractive growth opportunities, reasonable valuations and management with
strong shareholder value orientation.
Latin American countries consist 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. The Fund focuses its investments in listed equity securities in
7
<PAGE>
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. To the extent the Fund emphasizes issuers of a single country, the Fund is
more susceptible to any single economic, political or regulatory occurance
affecting issues located in that country. Because of the Fund's policy of
concentrating its assets in a single region, it is more susceptible than a fund
without such a policy to any single economic, political or regulatory occurance
affecting issuers located in the Latin American region.
Equity securities in which the Fund invests include common and preferred stocks,
convertible securities, rights and warrants to purchase stocks, depository
receipts and equity interests in trusts or partnerships. The Fund may invest 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 rated below
investment grade or unrated securities determined by the Fund's investment
adviser to be of comparable quality, which are commonly referred to as "junk
bonds." Such lower-quality securities are regarded as being predominantly
speculative and involve significant risks including greater credit risk, greater
market risk and volatility, greater liquidity concerns and potentially greater
manager risk. The 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 generally invests 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.
The Fund's 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 total 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 total 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 total assets.
8
<PAGE>
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 defensive
strategy."
TYPES OF INVESTMENT SECURITIES
The Fund invests primarily in common stocks. Common stocks are shares of a
corporation or other entity that entitle the holder to a pro rata share of the
profits of the corporation, if any, without preference over any other class of
securities, including such entity's debt securities, preferred stock and other
senior equity securities. Common stock usually carries with it the right to vote
and frequently an exclusive right to do so.
While the Fund invests primarily in common stocks, it also may invest in
preferred stocks, convertible securities, warrants or rights to purchase common
stock, depository receipts and equity interests in trusts or partnerships.
Preferred stock generally has a preference as to dividends and liquidation over
an issuer's common stock but ranks junior to debt securities in an issuer's
capital structure. Unlike interest payments on debt securities, preferred stock
dividends are payable only if declared by the issuer's board of directors.
Preferred stock also may be subject to optional or mandatory redemption
provisions. The ability of common stocks and preferred stocks to generate income
is dependent on the earnings and continuing declaration of dividends by the
issuers of such securities.
A convertible security is a bond, debenture, note, preferred stock, or other
security that may be converted into or exchanged for a prescribed amount of
common stock or other equity security of the same or a different issuer or into
cash within a particular period of time at a specified price or formula. A
convertible security generally entitles the holder to receive interest paid or
accrued on debt or the dividend paid on preferred stock until the convertible
security matures or is redeemed, converted or exchanged. Before conversion,
convertible securities generally have characteristics similar to both debt and
equity securities. The value of convertible securities tends to decline as
interest rates rise and, because of the conversion feature, tends to vary with
fluctuations in the market value of the underlying equity security. Convertible
securities generally rank senior to common stock in a corporation's capital
structure but are usually subordinated to comparable nonconvertible securities.
Convertible securities generally do not participate directly in any dividend
increases or decreases of the underlying equity securities although the market
prices of convertible securities may be affected by any such dividend changes or
other changes in the underlying security.
Rights and warrants entitle the holder to buy equity securities at a specific
price for a specific period of time. Rights are similar to warrants except that
they have a substantially shorter duration. Rights and warrants may be
considered more speculative and less liquid than certain other types of
investments in that they do not entitle a holder to dividends or voting rights
with respect to the underlying securities nor do they represent any right in the
assets of the issuing company and may lack a secondary market.
The Fund invests in certain debt securities. The market prices of debt
securities generally fluctuate inversely with changes in interest rates so that
the value of investments in such securities can be expected to decrease as
interest rates rise and decrease as interest rates fall. Debt securities with
longer maturities may increase or decrease in value more than debt securities of
shorter maturities. The credit risks and market prices of lower-grade securities
generally are more sensitive to negative issuer developments, such as reduced
revenues or increased expenditures, or adverse economic conditions, such as a
recession, than are higher-grade securities. For a further description of
securities ratings, see the appendix to this prospectus. For a further
description of the risks of lower-grade securities, see the Fund's Statement of
Additional Information.
The Fund may invest in securities sold at a substantial discount from their
value at maturity, such as zero-coupon and payment-in-kind securities, when the
Fund's investment adviser believes the effective yield on such securities over
comparable instruments
9
<PAGE>
paying current cash income makes these investments attractive. Zero-coupon
securities are debt obligations that do not entitle the holder to any periodic
payment of interest prior to maturity or a specified date when the securities
begin paying current interest. They are issued and traded at a discount from
their face amounts or par value, which discount varies depending on the time
remaining until cash payments begin, prevailing interest rates, liquidity of the
security and the perceived credit quality of the issuer. Because such securities
do not entitle the holder to any periodic payments of interest prior to
maturity, this prevents the reinvestment of such interest payments if prevailing
interest rates rise. On the other hand, because there are no periodic interest
payments to be reinvested prior to maturity, "zero-coupon" securities eliminate
the reinvestment risk and may lock in a favorable rate of return to maturity if
interest rates drop. Payment-in-kind securities are securities that pay interest
through the issuance of additional securities. Prices on non-cash-paying
instruments may be more sensitive to changes in the issuer's financial
condition, fluctuations in interest rates and market demand/supply imbalances
than cash-paying securities with similar credit ratings, and thus may be more
speculative than are securities that pay interest periodically in cash. In
addition, the amount of non-cash interest income earned on such instruments is
included, for federal income tax purposes, in the Fund's calculation of income
that is required to be distributed to shareholders for the Fund to maintain its
desired federal income tax status (even though such non-cash paying securities
do not provide the Fund with the cash flow with which to pay such
distributions). Accordingly, the Fund may be required to borrow or to liquidate
portfolio securities at a time that it otherwise would not have done so in order
to make such distributions. The Fund's investment adviser will weigh these
concerns against the expected total returns from such instruments.
The Fund may invest in Brady Bonds and other sovereign debt of countries that
have restructured or are in the process of restructuring sovereign debt pursuant
to the Brady Plan. Brady Bonds are typically from a debtor nation restructuring
outstanding external commercial bank indebtedness. Brady Bonds generally are
based on issuers with a history of defaults with respect to commercial bank
loans and therefore are often viewed as speculative. A more complete description
of Brady Bonds is contained in the Fund's Statement of Additional Information.
In addition to Brady Bonds, the Fund may invest in sovereign or
sovereign-related debt obligations, including obligations of supranational
entities. Sovereign debt differs from debt obligations of private entities in
that, generally, remedies for defaults must be pursued in the courts of the
defaulting party and the legal recourse in enforcing a sovereign debt is often
limited. At certain times, certain countries (particularly emerging market
countries) have declared a moratoria on the payment of principal and interest on
external debt. Such investments may include participations and assignments of
sovereign bank debt, restructured external debt that has not undergone a
Brady-style debt exchange, and internal government debt.
The Fund may invest in securities of Latin American issuers indirectly through
investment in other investment companies. Such investments are commonly used
when direct investment in certain countries are not permitted to foreign
entities. Investment in other investment companies may involve duplication of
management fees and certain other expenses.
The Fund may invest in small-, medium- or large-sized companies. The securities
of small- and medium-sized companies may be subject to more abrupt or erratic
market movements than securities of larger companies or the market averages in
general. In addition, such companies typically are subject to a greater degree
of change in earnings and business prospects than are larger companies. Thus, to
the extent the Fund invests in small- and medium-sized companies, the Fund may
be subject to greater investment risk than that assumed through investment in
the securities of larger-sized companies.
The Fund may enter into forward foreign currency exchange contracts and foreign
currency futures contracts, may purchase and 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
10
<PAGE>
futures markets for Latin American currencies, securities and indices, and the
nature of the strategies adopted by the Fund's investment adviser and the extent
to which those strategies are used depends on the development of those markets.
RISKS OF INVESTING IN SECURITIES
OF FOREIGN ISSUERS
The Fund invests in securities of foreign issuers. Such securities may be
denominated in U.S. dollars and in currencies other than U.S. dollars. The
percentage of assets invested in securities of a particular country or
denominated in a particular currency will vary in accordance with the investment
adviser's assessment of the relative yield, appreciation potential and the
relationship of a country's currency to the U.S. dollar, which is based upon
such factors as fundamental economic strength, credit quality and interest rate
trends. Investments in foreign securities present certain risks not ordinarily
associated with investments in securities of U.S. issuers. These risks include
fluctuations in foreign currency exchange rates, political, economic or legal
developments (including war or other instability, expropriation of assets,
nationalization and confiscatory taxation), the imposition of foreign exchange
limitations (including currency blockage), withholding taxes on dividend or
interest payments or capital transactions or other restrictions, higher
transaction costs (including higher brokerage, custodial and settlement costs
and currency translation costs) and possible difficulty in enforcing contractual
obligations or taking judicial action. Also, foreign securities may not be as
liquid and may be more volatile than comparable domestic securities.
In addition, there often is less publicly available information about many
foreign issuers, and issuers of foreign securities are subject to different,
often less comprehensive, auditing, accounting, financial reporting and
disclosure requirements than domestic issuers. There is generally less
government regulation of stock exchanges, brokers and listed companies abroad
than in the U.S., and, with respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investment in those countries. Because there is
usually less supervision and governmental regulation of exchanges, brokers and
dealers than there is in the U.S., the Fund may experience settlement
difficulties or delays not usually encountered in the U.S.
Delays in making trades in foreign securities relating to volume constraints,
limitations or restrictions, clearance or settlement procedures, or otherwise
could impact returns and result in temporary periods when assets of the fund are
not fully invested or attractive investment opportunities are foregone.
In addition to the increased risks of investing in foreign securities, there are
often increased transactions costs associated with investing in foreign
securities including the costs incurred in connection with converting
currencies, higher foreign brokerage or dealer costs, and higher settlement
costs or custodial costs.
Since the Fund invests in securities denominated or quoted in currencies other
than the U.S. dollar, the Fund will be affected by changes in foreign currency
exchange rates (and exchange control regulations) which affect the value of
investments in the Fund and the accrued income and unrealized appreciation or
depreciation of the investments. Changes in foreign currency exchange ratios
relative to the U.S. dollar will affect the U.S. dollar value of the Fund's
assets denominated in that currency and the Fund's return on such assets as well
as any temporary uninvested reserves in bank deposits in foreign currencies. In
addition, the Fund will incur costs in connection with conversions between
various currencies.
The Fund may purchase and sell foreign currency on a spot basis in connection
with the settlement of transactions in securities traded in such foreign
currency. The Fund also may enter into contracts with banks, brokers or dealers
to purchase or sell securities or foreign securities or currencies at a future
date ("forward contracts"). A foreign currency forward contract is a negotiated
agreement between the contracting parties to exchange a specified amount of
currency at a specified future time at a specified rate. The rate can be higher
or lower than the spot rate between the currencies that are the subject of the
contract.
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The Fund may attempt to protect against adverse changes in the value of the U.S.
dollar in relation to a foreign currency by entering into a forward contract for
the purchase or sale of the amount of foreign currency invested or to be
invested, or by buying or selling a foreign currency option or futures contract
for such amount. Such strategies may be employed before the Fund purchases a
foreign security traded in the currency which the Fund anticipates acquiring or
between the date the foreign security is purchased or sold and the date on which
payment therefor is made or received. Seeking to protect against a change in the
value of a foreign currency in the foregoing manner does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Furthermore, such transactions reduce or
preclude the opportunity for gain if the value of the currency should move in
the direction opposite to the position taken. Unanticipated changes in currency
prices may result in poorer overall performance for the Fund than if it had not
entered into such contracts. Because of the lack of hedging facilities available
in Latin American countries, the nature of strategies adopted by the Fund's
investment adviser and the extent to which those strategies are used depends on
the development of those markets.
Investors should carefully consider the risks of foreign investments before
investing in the Fund.
ADDITIONAL RISKS OF INVESTING IN EMERGING MARKET COUNTRIES. The risks of foreign
investment are heightened when the issuer is from an emerging market country.
The extent of economic development, political stability and market depth of such
countries varies widely and investments in the securities of issuers in such
countries typically involve greater potential gain or loss than investments in
securities of issuers in more developed countries. Emerging market countries
tend to have economic structures that are less diverse and mature and political
systems that are less stable than developed markets. Emerging market countries
may be more likely to experience political turmoil or rapid changes in economic
conditions than more developed markets and the financial condition of issuers in
emerging market countries may be more precarious than in other countries.
Certain countries depend to a larger degree upon international trade or
development assistance and, therefore, are vulnerable to changes in trade or
assistance which, in turn, may be affected by a variety of factors. The Fund may
be particularly sensitive to changes in the economies of certain countries
resulting from any reversal of economic liberalization, political unrest or the
imposition of sanctions by the U.S. or other countries.
The Fund's purchase and sale of portfolio securities in emerging market
countries may be constrained by limitations as to daily changes in the prices of
listed securities, periodic or sporadic trading or settlement or limitations on
aggregate holdings by foreign investors. Such limitations may be computed based
on the aggregate trading volume by or holdings of the Fund, the Fund's
investment adviser, its affiliates or their respective clients or other service
providers. The Fund may not be able to sell securities in circumstances where
price, trading or settlement volume limitations have been reached. Foreign
investment in the securities markets of certain emerging market countries is
restricted or controlled to varying degrees which may limit investment in such
countries or increase the administrative costs of such investments. For example,
certain countries may require governmental approval prior to investments by
foreign persons or limit investment by foreign persons to only a specified
percentage of an issuer's outstanding securities or a specific class of
securities which may have less advantageous terms (including price) than
securities of the issuer available for purchase by nationals. In addition,
certain countries may restrict or prohibit investment opportunities in issuers
or industries deemed important to national interests. Such restrictions may
affect the market price, liquidity and rights of securities that may be
purchased by the Fund. The repatriation of both investment income and capital
from certain emerging market countries is subject to restrictions such as the
need for governmental consents. Due to restrictions on direct investment in
securities in certain countries, it is anticipated that the Fund may invest in
such countries through other investment funds in such countries.
Many emerging market countries have experienced currency devaluations and
substantial (and, in some cases, extremely high) rates of inflation, which have
had a negative effect on the economies and securities markets of such countries.
Economies in emerging
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market countries generally are dependent heavily upon commodity prices and
international trade and, accordingly, have been and may continue to be affected
adversely by the economies of their trading partners, trade barriers, exchange
controls, managed adjustments in relative currency values and other
protectionist measures or negotiated by the countries with which they trade.
Many emerging market countries are subject to a substantial degree of economic,
political and social instability. Governments of some emerging market countries
are authoritarian in nature or have been installed or removed as a result of
military coups, while governments in other emerging market countries have
periodically used force to suppress civil dissent. Disparities of wealth, the
pace and success of political reforms, and ethnic, religious and racial
disaffection, among other factors, have also led to social unrest, violence
and/or labor unrest in some emerging market countries. Unanticipated political
or social developments may result in sudden and significant investment losses.
Settlement procedures in emerging market countries are frequently less developed
and reliable than those in developed markets. In addition, significant delays
are common in certain markets in registering the transfer of securities.
Settlement or registration problems may make it more difficult for the Fund to
value its portfolio securities and could cause the Fund to miss attractive
investment opportunities, to have a portion of its assets uninvested or to incur
losses due to the failure of a counterparty to pay for securities the Fund has
delivered or the Fund's inability to complete its contractual obligations. The
creditworthiness of the local securities firms used by the Fund in emerging
market countries may not be as sound as the creditworthiness of firms used in
more developed countries. As a result, the Fund may be subject to a greater risk
of loss if a securities firm defaults in the performance of its
responsibilities.
The small size and inexperience of the securities markets in certain emerging
market countries and the limited volume of trading in securities in those
countries may make the Fund's investments in such countries less liquid and more
volatile than investments in countries with more developed securities markets.
The Fund's investments in emerging market countries are subject to the risk that
the liquidity of a particular investment, or investments generally, in such
countries will shrink or disappear suddenly and without warning as a result of
adverse economic, market or political conditions or adverse investor
perceptions, whether or not accurate. Because of the lack of sufficient market
liquidity, the Fund may incur losses because it will be required to effect sales
at a disadvantageous time and only then at a substantial drop in price.
Investments in emerging market countries may be more difficult to price
precisely because of the characteristics discussed above and lower trading
volumes.
The Fund's use of foreign currency management techniques in emerging market
countries may be limited. Due to the limited market for these instruments in
emerging market countries, the Fund's investment adviser does not currently
anticipate that a significant portion of the Fund's currency exposure in
emerging market countries, if any, will be covered by such instruments.
Investors are strongly advised to consider carefully the special risks involved
in investing in developing or emerging market countries, which are in addition
to the risks of investing in foreign securities generally.
ADDITIONAL RISKS OF INVESTING IN LATIN AMERICAN COUNTRIES. The securities
markets of Latin American countries are substantially smaller, less liquid and
more volatile than the major securities markets in the U.S. 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.
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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 higher than in the U.S., although the Fund
will endeavor to achieve the most favorable net results on its portfolio
transactions.
DERIVATIVE INSTRUMENTS
The Fund may, but is not required to, use various investment strategic
transactions described below to earn income, facilitate portfolio management and
mitigate risks. Such strategic transactions are generally accepted under modern
portfolio management and are regularly used by many mutual funds and other
institutional investors. Although the Fund's investment adviser seeks to use the
practices to further the Fund's investment objective, no assurance can be given
that these practices will achieve this result.
The Fund may purchase and sell derivative instruments such as exchange-listed
and over-the-counter put and call options on securities, financial futures,
equity, fixed-income and interest rate indices, and other financial instruments,
futures contracts and options thereon (including but not limited to securities
index futures, foreign currency exchange futures, interest rate futures and
other financial futures), structured notes, swaps, caps, floors or collars and
enter into various currency transactions (to the extent available) such as
currency forward contracts, currency futures contracts, currency swaps or
options on currency or currency futures. In addition, the Fund may invest in
other derivative instruments that are developed over time if their use would be
consistent with the objective of the Fund. Collectively, all of the above are
referred to as "Strategic Transactions." The Fund generally seeks to use
Strategic Transactions as a portfolio management or hedging technique to seek to
protect against possible adverse changes in the market value of securities held
in or to be purchased for the Fund's portfolio, protect the Fund's unrealized
gains, facilitate the sale of certain securities for investment purposes,
protect against changes in currency exchange rates or to adjust the exposure to
a particular currency, manage the effective maturity or duration of the Fund's
portfolio, establish positions in the derivatives markets as a substitute for
purchasing or selling particular securities, including, for example, when the
Fund adjusts its exposure to a market in response to changes in investment
strategy, when doing so provides more liquidity than the direct purchase of the
securities underlying such derivatives, when the Fund 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. The Fund may invest up to
33 1/3% of its total assets in Strategic Transactions for non-hedging purposes
(measured by the aggregate notional value of outstanding derivative
instruments). In addition, the Fund may invest up to 20% of its total assets in
futures contracts and options on futures contracts (measured by the aggregate
notional amount of such outstanding contracts).
Strategic Transactions have risks including the imperfect correlation between
the value of such instruments and the underlying assets, the possible default of
the other party to the transaction or illiquidity of the derivative instruments.
Furthermore, the ability to successfully use Strategic Transactions depends on
the Fund's investment adviser's ability to predict pertinent market movements,
which cannot be assured. Thus, the use of Strategic Transactions may result in
losses greater than if they had not been used, may require the Fund to sell or
purchase portfolio securities at inopportune times or for prices other than
current market values, may limit the amount of appreciation the Fund can
otherwise realize on an investment, or may cause the Fund to hold
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a security that it might otherwise sell. The use of currency transactions can
result in the Fund incurring losses because of the imposition of exchange
controls, suspension of settlements or the inability of the Fund to deliver or
receive a specified currency. In addition, amounts paid as premiums or cash or
other assets held in margin accounts with respect to Strategic Transactions are
not otherwise available to the Fund for investment purposes.
When conducted outside the U.S., Strategic Transactions may not be regulated as
rigorously as in the U.S., may not involve a clearing mechanism and related
guarantees, and are subject to the risk of governmental actions affecting
trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions,
(iii) delays in the Fund's ability to act upon economic events occurring in
foreign markets during non-business hours in the U.S., (iv) the imposition of
different exercise and settlement terms and procedures and margin requirements
than in the U.S., and (v) lower trading volume and liquidity.
A more complete discussion of Strategic Transactions and their risks is
contained in the Fund's Statement of Additional Information. The Statement of
Additional Information can be obtained by investors free of charge as described
on the back cover of this prospectus.
OTHER INVESTMENTS AND RISK FACTORS
For cash management purposes, the Fund may engage in repurchase agreements with
banks and broker-dealers and other financial institutions in order to earn a
return on temporarily available cash. Such transactions are subject to the risk
of default by the other party.
The Fund may purchase and sell securities in an amount up to 15% of its net
assets on a "when-issued" and "delayed delivery" basis. The Fund accrues no
income on such securities until the Fund actually takes delivery of such
securities. These transactions are subject to market fluctuation; the value of
the securities at delivery may be more or less than their purchase price. The
value or yield generally available on comparable securities when delivery occurs
may be higher than the value or yield on the securities obtained pursuant to
such transactions. Because the Fund relies on the buyer or seller to consummate
the transaction, failure by the other party to complete the transaction may
result in the Fund missing the opportunity of obtaining a price or yield
considered to be advantageous. The Fund will engage in when-issued and delayed
delivery transactions for the purpose of acquiring securities consistent with
the Fund's investment objective and policies and not for the purpose of
investment leverage.
The Fund may lend its portfolio securities in an amount up to 20% of its total
assets to broker-dealers, banks or other recognized institutional borrowers of
securities. The Fund may incur lending fees and other costs in connection with
securities lending, and securities lending is subject to the risk of default by
the other party.
The Fund may invest up to 15% of the Fund's net assets in illiquid securities
and certain restricted securities. Notwithstanding the foregoing, the Fund may
not invest more than 10% of its total assets in securities subject to legal or
contractual restrictions on resale. Such securities may be difficult or
impossible to sell at the time and the price that the Fund would like. Thus, the
Fund may have to sell such securities at a lower price, sell other securities
instead to obtain cash or forego other investment opportunities.
Further information about these types of investments and other investment
practices that may be used by the Fund is contained in the Statement of
Additional Information.
The Fund may sell securities without regard to the length of time they have been
held in order to take advantage of new investment opportunities or when the
Fund's investment adviser believes the potential for capital appreciation has
lessened or for other reasons. The Fund's portfolio turnover is shown under the
heading "Financial Highlights." The portfolio turnover rate may be expected to
vary from year to year. A high portfolio turnover rate (100% or more) increases
the Fund's transactions costs (including brokerage commissions or dealer costs)
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and a higher portfolio turnover rate may result in the realization of more
short-term capital gains than if the Fund had a lower portfolio turnover rate.
Increases in the Fund's transaction costs would adversely impact the Fund's
performance. The turnover rate will not be a limiting factor, however, if the
Fund's investment adviser considers portfolio changes appropriate.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Fund may on a temporary basis hold cash or invest a
portion or all of its assets in money-market instruments including obligations
of the U.S. government, its agencies or instrumentalities, obligations of
foreign sovereignties, other high-quality debt securities, including prime
commercial paper, repurchase agreements and bank obligations, such as bankers'
acceptances and certificates of deposit. Under normal market conditions, the
potential for capital appreciation on these securities will tend to be lower
than the potential for capital appreciation on other securities that may be
owned by the Fund. In taking such a defensive position, the Fund would not be
pursuing and may not achieve its investment objective.
YEAR 2000 RISKS. Like other mutual funds, financial and business organizations
and individuals around the world, the Fund could be adversely affected if the
computer systems used by the Fund's investment adviser, subadviser and other
service providers do not properly process and calculate date-related information
and data from and after January 1, 2000. This is commonly known as the "Year
2000 Problem." The Fund's investment adviser and subadviser are taking steps
that they believe are reasonably designed to address the Year 2000 Problem with
respect to computer systems that they use and to obtain reasonable assurances
that comparable steps are being taken by the Fund's other major service
providers. At this time, there can be no assurances that these steps will be
sufficient to avoid any adverse impact to the Fund. In addition, the Year 2000
Problem may adversely affect the markets and the issuers of securities in which
the Fund may invest which, in turn, may adversely affect the net asset value of
shares of the Fund. Improperly functioning trading systems may result in
settlement problems and liquidity issues. In addition, corporate and
governmental data processing errors may result in production problems for
individual companies or issuers and overall economic uncertainty. Earnings of
individual issuers will be affected by remediation costs, which may be
substantial and may be reported inconsistently in U.S. and foreign financial
statements. Efforts in foreign countries to remediate the potential Year 2000
Problem may not be as extensive as those in the U.S. As a result, the operations
of foreign markets and issuers may be disrupted by the Year 2000 Problem that
could adversely affect the Fund's portfolio. The risks are greater with respect
to certain developing or emerging market countries because there is an increased
likelihood that issuers of securities in such countries cannot anticipate or
effectively manage the effects of computer programs and the Year 2000 Problem.
Accordingly, the Fund's investments may be adversely affected. The statements
above are subject to the Year 2000 Information and Readiness Disclosure Act
which may limit the legal rights regarding the use of such statements in the
case of a dispute.
INVESTMENT ADVISORY
SERVICES
INVESTMENT ADVISER
Van Kampen Investment Advisory Corp. is the investment adviser (the "Adviser" or
"Advisory Corp.") and administrator of the Fund. The Adviser is a wholly owned
subsidiary of Van Kampen Investments Inc. ("Van Kampen Investments"). Van Kampen
Investments is a diversified asset management company with more than two million
retail investor accounts, extensive capabilities for managing institutional
portfolios, and more than $79 billion under management or supervision as of
September 30, 1999. Van Kampen Investments' more than 50 open-end and 39
closed-end funds and more than 2,500 unit investment trusts are professionally
distributed by leading authorized dealers nationwide. Van Kampen Funds Inc., the
distributor of the Fund (the "Distributor") and the sponsor of the funds
mentioned above, is also a wholly owned subsidiary
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of Van Kampen Investments. Van Kampen Investments is an indirect wholly owned
subsidiary of Morgan Stanley Dean Witter & Co. The Adviser's principal office is
located at 1 Parkview Plaza, PO Box 5555, Oakbrook Terrace, Illinois 60181-5555.
ADVISORY AGREEMENT AND ADMINISTRATION AGREEMENT. The Fund retains the Adviser to
manage the investment of its assets and to place orders for the purchase and
sale of its portfolio securities. Under an investment advisory agreement between
the Adviser and the Fund (the "Advisory Agreement"), the Fund pays the Adviser a
monthly fee computed based upon an annual rate of 1.25% applied to average daily
net assets of the Fund.
The Fund also retains the Adviser to provide administrative services for the
Fund's day-to-day operations. Under an administration agreement, between the
Fund and the Adviser, the Fund pays a monthly administration fee computed based
upon an annual rate of 0.25% applied to the average daily net assets of the
Fund.
The Adviser furnishes offices, necessary facilities and equipment, provides
administrative services, and permits its officers and employees to serve without
compensation as directors or officers of the Fund if elected to such positions.
The Fund pays all charges and expenses of its day-to-day operations, including
the compensation of directors of the Fund (other than those who are affiliated
persons of the Adviser, Distributor or Van Kampen Investments), the charges and
expenses of legal counsel and independent accountants, distribution fees,
service fees, custodian fees, the costs of providing reports to shareholders,
and all other ordinary business expenses not specifically assumed by the
Adviser.
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen Asset Management
Inc. ("Asset Management").
INVESTMENT SUBADVISER
Morgan Stanley Dean Witter Investment Management Inc. (the "Subadviser") is the
Subadviser of the Fund. The Subadviser is a wholly owned subsidiary of Morgan
Stanley Dean Witter & Co., and is an affiliate of the Adviser. The Subadviser
conducts a worldwide portfolio management business and provides a broad range of
portfolio management services to customers in the United States and abroad. At
June 30, 1999, the Subadviser, together with its affiliated institutional asset
management companies, managed assets of approximately $175.3 billion, including
assets under fiduciary advice. The Subadviser's principal office is located at
1221 Avenue of the Americas, New York, New York 10020. On December 1, 1998,
Morgan Stanley Asset Management Inc. changed its name to Morgan Stanley Dean
Witter Investment Management Inc. but continues to do business in certain
instances using the name Morgan Stanley Asset Management.
SUBADVISER AGREEMENT. The Adviser has entered into a subadvisory agreement with
the Subadviser to assist the Adviser in performing its investment advisory
functions. The Adviser pays the Subadviser on a monthly basis a portion of the
net advisory fees the Adviser receives from the Fund.
GENERAL
From time to time, the Adviser, the Subadviser or the Distributor may
voluntarily undertake to reduce the Fund's expenses by reducing the fees payable
to them or by reducing other expenses of the Fund in accordance with such
limitations as the Adviser, the Subadviser or Distributor may establish.
PERSONAL INVESTMENT POLICIES. The Fund, the Adviser and the Subadviser have
adopted Codes of Ethics designed to recognize the fiduciary relationship among
the Fund, the Adviser and the Subadviser and their respective employees. The
Codes of Ethics permit directors, trustees, officers and employees to buy and
sell securities for their personal accounts subject to certain restrictions.
Persons with access to certain sensitive information are subject to
pre-clearance and other procedures designed to prevent conflicts of interest.
PORTFOLIO MANAGEMENT. Robert L. Meyer, Andy Skov and Michael Perl are
responsible as comanagers for the management of the Fund's investment portfolio.
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Mr. Meyer joined the Subadviser in 1989 and is a Managing Director of the
Subadviser and Morgan Stanley Dean Witter & Co. and head of the Subadviser's
Emerging Markets Equity Group. 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 been comanager of the Fund since its inception.
Mr. Skov joined the Subadviser in 1994 as a portfolio manager. Currently, he is
a Principal of Morgan Stanley Dean Witter & Co. and the Subadviser and a
portfolio manager of the Subadviser's Emerging Markets Equity Group. He
graduated from the University of California at Berkeley with a B.A. (Phi
Beta Kappa) in Political Science and Economic Development. Mr. Skov has been
comanager of the Fund since May 1997.
Mr. Perl joined the Subadviser in 1998. He is a Vice President of Morgan Stanley
Dean Witter & Co. and the Subadviser and a Portfolio Manager in the Subadviser's
Emerging Markets Equity Group. Prior to joining the Subadviser, he worked as a
Latin American Portfolio Manager at Bankers Trust Australia from 1992 to 1998.
He graduated from the University of New South Wales and a Bachelor of Commerce
(Honors), majoring in Finance, Accounting and Taxation. Mr. Perl has been
comanager of the Fund since November 1998.
PURCHASE OF SHARES
GENERAL
The Fund offers three classes of shares designated as Class A Shares, Class B
Shares and Class C Shares. By offering three classes of shares, the Fund permits
each investor to choose the class of shares that is most beneficial given the
amount to be invested and the length of time the investor expects to hold the
shares.
Initial investments must be at least $1,000 for each class of shares, and
subsequent investments must be at least $25 for each class of shares. Both
minimums may be waived by the Distributor for plans involving periodic
investments.
Each class of shares represents an interest in the same portfolio of investments
of the Fund and has the same rights except that (i) Class A Shares generally
bear the sales charge expenses at the time of purchase while Class B Shares and
Class C Shares bear the sales charge expenses at the time of redemption and any
expenses (including higher distribution fees and transfer agency costs)
resulting from such deferred sales charge arrangement, (ii) generally, each
class of shares has exclusive voting rights with respect to approvals of the
Rule 12b-1 distribution plan and service plan (each as described below) under
which its distribution fee or service fee is paid, (iii) each class of shares
has different exchange privileges, (iv) certain classes of shares are subject to
a conversion feature and (v) certain classes of shares have different
shareholder service options available.
The offering price of the Fund's shares is based upon the Fund's net asset value
per share (plus sales charges, where applicable). The net asset values per share
of the Class A Shares, Class B Shares and Class C Shares are generally expected
to be substantially the same. In certain circumstances, however, the per share
net asset values of the classes of shares may differ from one another,
reflecting the daily expense accruals of the higher distribution fees and
transfer agency costs applicable to the Class B Shares and Class C Shares and
the differential in the dividends that may be paid on each class of shares.
The net asset value per share for each class of shares of the Fund is determined
once daily as of the close of trading on the New York Stock Exchange (the
"Exchange") (currently 4:00 p.m., New York time) each day the Exchange is open
for trading except on any day on which no purchase or redemption orders are
received or there is not a sufficient degree of trading in the Fund's portfolio
securities such that the Fund's net asset value per share might be materially
affected. The Fund's Board of Directors reserves the right to calculate the net
asset value per share and adjust the offering price based thereon more
frequently than once daily if deemed desirable. Net asset value per share for
each class is determined by dividing the value of the Fund's portfolio
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securities, cash and other assets (including accrued interest) attributable to
such class, less all liabilities (including accrued expenses) attributable to
such class, by the total number of shares of the class outstanding. Such
computation is made by using prices as of the close of trading on the Exchange
and (i) valuing securities listed or traded on a national securities exchange at
the closing price, or if no closing price is available, at the last reported
sale price, and if there has been no sale that day, at the mean between the last
reported bid and asked prices, (ii) valuing over-the-counter securities at the
last reported sale price from the National Association of Securities Dealers
Automated Quotations ("NASDAQ"), (iii) valuing unlisted securities and any
securities for which market quotations are not readily available at the average
of the mean between the current reported bid and asked prices obtained from
reputable brokers and (iv) valuing any other assets at fair value as determined
in good faith by the Adviser in accordance with procedures established by the
Fund's Board of Directors. Debt securities with remaining maturities of 60 days
or less are valued on an amortized cost basis, which approximates market value.
Trading in securities on many foreign securities exchanges (including European
and Far Eastern securities exchanges) and over-the-counter markets is normally
completed before the close of business on each U.S. business day. In addition,
securities trading in a particular country or countries may not take place on
all U.S. business days or may take place on days which are not U.S. business
days. Changes in valuations on certain securities may occur at times or on days
on which the Fund's net asset value is not calculated and on which the Fund does
not effect sales, redemptions and exchanges of its shares.
The Fund calculates net asset value per share, and therefore effects sales,
redemptions and exchanges of its shares, as of the close of trading on the
Exchange each day the Exchange is open for trading. Such calculation does not
take place contemporaneously with the determination of the prices of certain
foreign portfolio securities used in such calculation.
If events materially affecting the value of foreign portfolio securities or
other portfolio securities occur between the time when their price is determined
and the time when the Fund's net asset value is calculated, such securities may
be valued at fair value as determined in good faith by the Adviser based in
accordance with procedures established by the Fund's Board of Directors.
The Fund has adopted a distribution plan (the "Distribution Plan") with respect
to each class of its shares pursuant to Rule 12b-1 under the 1940 Act. The Fund
also has adopted a service plan (the "Service Plan") with respect to each class
of its shares. Under the Distribution Plan and the Service Plan, the Fund pays
distribution fees in connection with the sale and distribution of its shares and
service fees in connection with the provision of ongoing services to
shareholders of each class.
The amount of distribution and service fees varies among the classes offered by
the Fund. Because these fees are paid out of the Fund's assets on an ongoing
basis, these fees will increase the cost of your investment in the Fund. By
purchasing a class of shares subject to higher distribution and service fees,
you may pay more over time than on a class of shares with other types of sales
charge arrangements. Long-term shareholders may pay more than the economic
equivalent of the maximum front-end sales charges permitted by the rules of the
National Association of Securities Dealers, Inc. ("NASD"). The net income
attributable to a class of shares will be reduced by the amount of the
distribution fees and other expenses of the Fund associated with such class of
shares. To assist investors in comparing classes of shares, the tables under the
heading "Fees and Expenses of the Fund" provide a summary of sales charges and
expenses and an example of the sales charges and expenses of the Fund applicable
to each class of shares.
The shares are offered to the public on a continuous basis through the
Distributor as principal underwriter, which is located at 1 Parkview Plaza, PO
Box 5555, Oakbrook Terrace, Illinois 60181-5555. Shares also are offered through
members of the NASD who are acting as securities dealers ("dealers") and NASD
members or eligible non-NASD members who are acting as brokers or agents for
investors ("brokers"). "Dealers" and "brokers" are sometimes referred to herein
as "authorized dealers."
19
<PAGE>
Shares may be purchased on any business day by completing the application
accompanying this prospectus and forwarding the application, directly or through
an authorized dealer, to the Fund's shareholder service agent, Van Kampen
Investor Services Inc. ("Investor Services"), a wholly owned subsidiary of Van
Kampen Investments. When purchasing shares of the Fund, investors must specify
whether the purchase is for Class A Shares, Class B Shares or Class C Shares.
Sales personnel of authorized dealers distributing the Fund's shares are
entitled to receive compensation for selling such shares and may receive
differing compensation for selling Class A Shares, Class B Shares or Class C
Shares.
The offering price for shares is based upon the next calculation of net asset
value per share (plus sales charges, where applicable) after an order is
received by Investor Services. Orders received by authorized dealers are priced
based on the date of receipt provided such order is transmitted to Investor
Services prior to Investor Services' close of business on such date. Orders
received by authorized dealers or transmitted to Investor Services after its
close of business are priced based on the date of the next computed net asset
value per share provided they are received by Investor Services prior to
Investor Services' close of business on such date. It is the responsibility of
authorized dealers to transmit orders received by them to Investor Services so
they will be received in a timely manner.
The Fund and the Distributor reserve the right to refuse any order for the
purchase of shares. The Fund also reserves the right to suspend the sale of the
Fund's shares in response to conditions in the securities markets or for other
reasons. Shares of the Fund may be sold in foreign countries where permissible.
Investor accounts will automatically be credited with additional shares of the
Fund after any Fund distributions, such as dividends and capital gain dividends,
unless the investor instructs the Fund otherwise. Investors wishing to receive
cash instead of additional shares should contact the Fund at (800) 341-2911 or
by writing to the Fund, c/o Van Kampen Investors Services Inc., PO Box 218256,
Kansas City, MO 64121-8256.
CLASS A SHARES
Class A Shares of the Fund are sold at net asset value plus an initial maximum
sales charge of up to 5.75% of the offering price (or 6.10% of the net amount
invested), reduced on investments of $50,000 or more as follows:
CLASS A SHARES
SALES CHARGE SCHEDULE
<TABLE>
<CAPTION>
AS % OF AS % OF
SIZE OF OFFERING NET AMOUNT
INVESTMENT PRICE INVESTED
<S> <C> <C>
- ---------------------------------------------------------
Less than $50,000 5.75% 6.10%
........................................................
$50,000 but less than $100,000 4.75% 4.99%
........................................................
$100,000 but less than $250,000 3.75% 3.90%
........................................................
$250,000 but less than $500,000 2.75% 2.83%
........................................................
$500,000 but less than $1,000,000 2.00% 2.04%
........................................................
$1,000,000 or more * *
........................................................
</TABLE>
* NO SALES CHARGE IS PAYABLE AT THE TIME OF PURCHASE ON INVESTMENTS OF $1
MILLION OR MORE, ALTHOUGH FOR SUCH INVESTMENTS THE FUND MAY IMPOSE A
CONTINGENT DEFERRED SALES CHARGE OF 1.00% ON CERTAIN REDEMPTIONS MADE
WITHIN ONE YEAR OF THE PURCHASE. THE CONTINGENT DEFERRED SALES CHARGE IS
ASSESSED ON AN AMOUNT EQUAL TO THE LESSER OF THE THEN CURRENT MARKET
VALUE OR THE COST OF THE SHARES BEING REDEEMED. ACCORDINGLY, NO SALES
CHARGE IS IMPOSED ON INCREASES IN NET ASSET VALUE ABOVE THE INITIAL
PURCHASE PRICE.
No sales charge is imposed on Class A Shares received from reinvestment of
dividends or capital gain dividends.
Under the Distribution Plan and Service Plan, the Fund may spend up to a total
of 0.25% per year of the Fund's average daily net assets with respect to the
Class A Shares of the Fund. From such amount, under the Service Plan, the Fund
may spend up to 0.25% per year of the Fund's average daily net assets with
respect to the Class A Shares for the ongoing provision of services to Class A
shareholders by the Distributor and by brokers, dealers or financial
intermediaries and for the maintenance of such shareholders' accounts.
CLASS B SHARES
Class B Shares of the Fund are sold at net asset value and are subject to a
contingent deferred sales
20
<PAGE>
charge if redeemed within five years of purchase as shown in the table as
follows:
CLASS B SHARES
SALES CHARGE SCHEDULE
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE
AS A PERCENTAGE OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
<S> <C>
- -------------------------------------------------------
First 5.00%
......................................................
Second 4.00%
......................................................
Third 3.00%
......................................................
Fourth 2.50%
......................................................
Fifth 1.50%
......................................................
Sixth and After None
......................................................
</TABLE>
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gain dividends. It
is presently the policy of the Distributor not to accept any order for Class B
Shares in an amount of $500,000 or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
The amount of the contingent deferred sales charge, if any, varies depending on
the number of years from the time of payment for the purchase of Class B Shares
until the time of redemption of such shares. Solely for purposes of determining
the number of years from the time of any payment for the purchase of shares, all
payments during a month are totaled and deemed to have been made on the last day
of the month.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed shares being redeemed first are any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge followed by shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
Fund's average daily net assets with respect to the Class B Shares of the Fund.
In addition, under the Service Plan, the Fund may spend up to 0.25% per year of
the Fund's average daily net assets with respect to the Class B Shares for the
ongoing provision of services to Class B shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CLASS C SHARES
Class C Shares of the Fund are sold at net asset value and are subject to a
contingent deferred sales charge of 1.00% of the dollar amount subject to charge
if redeemed within one year of purchase.
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gain dividends. It
is presently the policy of the Distributor not to accept any order for Class C
Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed shares being redeemed first are any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge followed by shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
Fund's average daily net assets with respect to the Class C Shares of the Fund.
In addition, under the Service Plan, the Fund may spend up to 0.25% per year of
the Fund's average daily net assets with respect to the Class C Shares for the
ongoing provision of services to Class C shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
21
<PAGE>
CONVERSION FEATURE
Class B Shares purchased on or after June 1, 1996, and any dividend reinvestment
plan Class B Shares received on such shares, automatically convert to Class A
Shares eight years after the end of the calendar month in which the shares were
purchased. Class B Shares purchased before June 1, 1996, and any dividend
reinvestment plan Class B Shares received on such shares, automatically convert
to Class A Shares seven years after the end of the calendar month in which the
shares were purchased. Such conversion will be on the basis of the relative net
asset values per share, without the imposition of any sales load, fee or other
charge. The conversion schedule applicable to a share of the Fund acquired
through the exchange privilege from another Van Kampen fund participating in the
exchange program is determined by reference to the Van Kampen fund from which
such share was originally purchased.
The conversion of such shares to Class A Shares is subject to the continuing
availability of an opinion of counsel to the effect that (i) the assessment of
the higher distribution fee and transfer agency costs with respect to such
shares does not result in the Fund's dividends or capital gain dividends
constituting "preferential dividends" under the federal income tax law and
(ii) the conversion of shares does not constitute a taxable event under federal
income tax law. The conversion may be suspended if such an opinion is no longer
available and such shares might continue to be subject to the higher aggregate
fees applicable to such shares for an indefinite period.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge is waived on redemptions of Class B Shares
and Class C Shares (i) within one year following the death or disability (as
disability is defined by federal income tax law) of a shareholder, (ii) for
required minimum distributions from an individual retirement account ("IRA") or
certain other retirement plan distributions, (iii) for withdrawals under the
Fund's systematic withdrawal plan but limited to 12% annually of the initial
value of the account, (iv) if no commission or transaction fee is paid to
authorized dealers at the time of purchase of such shares and (v) if made by
involuntary liquidation by the Fund of a shareholder's account as described
under the heading "Redemption of Shares." Subject to certain limitations, a
shareholder who has redeemed Class C Shares of the Fund may reinvest in Class C
Shares at net asset value with credit for any contingent deferred sales charge
if the reinvestment is made within 180 days after the redemption. For a more
complete description of contingent deferred sales charge waivers, please refer
to the Fund's Statement of Additional Information or contact your authorized
dealer.
QUANTITY DISCOUNTS
Investors purchasing Class A Shares may, under certain circumstances described
below, be entitled to pay reduced or no sales charges. Investors, or their
authorized dealers, must notify the Fund at the time of the purchase order
whenever a quantity discount is applicable to purchases. Upon such notification,
an investor will receive the lowest applicable sales charge. Quantity discounts
may be modified or terminated at any time. For more information about quantity
discounts, investors should contact their authorized dealer or the Distributor.
A person eligible for a reduced sales charge includes an individual, his or her
spouse and children under 21 years of age and any corporation, partnership or
sole proprietorship which is 100% owned, either alone or in combination, by any
of the foregoing; a trustee or other fiduciary purchasing for a single trust or
for a single fiduciary account, or a "company" as defined in Section 2(a)(8) of
the 1940 Act.
As used herein, "Participating Funds" refers to certain open-end investment
companies advised by Asset Management or Advisory Corp. and distributed by the
Distributor as determined from time to time by the Fund's Board of Directors.
VOLUME DISCOUNTS. The size of investment shown in the Class A Shares sales
charge table applies to the total dollar amount being invested by any person in
shares of the Fund, or in any combination of shares of the Fund and shares of
other Participating Funds, although other Participating Funds may have different
sales charges.
CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the Class A Shares
sales charge table
22
<PAGE>
may also be determined by combining the amount being invested in shares of the
Participating Funds plus the current offering price of all shares of the
Participating Funds which have been previously purchased and are still owned.
LETTER OF INTENT. A Letter of Intent provides an opportunity for an investor to
obtain a reduced sales charge by aggregating the investments over a 13-month
period to determine the sales charge as outlined in the Class A Shares sales
charge table. The size of investment shown in the Class A Shares sales charge
table includes purchases of shares of the Participating Funds over a 13-month
period based on the total amount of intended purchases plus the value of all
shares of the Participating Funds previously purchased and still owned. An
investor may elect to compute the 13-month period starting up to 90 days before
the date of execution of a Letter of Intent. Each investment made during the
period receives the reduced sales charge applicable to the total amount of the
investment goal. The initial purchase must be for an amount equal to at least 5%
of the minimum total purchase amount of the level selected. If trades not
initially made under a Letter of Intent subsequently qualify for a lower sales
charge through the 90-day backdating provisions, an adjustment will be made at
the time of the expiration of the Letter of Intent to give effect to the lower
charge. Such adjustment in sales charge will be used to purchase additional
shares for the shareholder at the applicable discount category. The Fund
initially will escrow shares totaling 5% of the dollar amount of the Letter of
Intent to be held by Investor Services in the name of the shareholder. In the
event the Letter of Intent goal is not achieved within the specified period, the
investor must pay the difference between the sales charge applicable to the
purchases made and the reduced sales charge previously paid. Such payments may
be made directly to the Distributor or, if not paid, the Distributor will
liquidate sufficient escrowed shares to obtain the difference.
OTHER PURCHASE PROGRAMS
Purchasers of Class A Shares may be entitled to reduced or no initial sales
charges in connection with the unit investment trust reinvestment program and
purchases by registered representatives of selling firms or purchases by persons
affiliated with the Fund or the Distributor. The Fund reserves the right to
modify or terminate these arrangements at any time.
UNIT INVESTMENT TRUST REINVESTMENT PROGRAM. The Fund permits unitholders of unit
investment trusts to reinvest distributions from such trusts in Class A Shares
of the Fund at net asset value per share and with no minimum initial or
subsequent investment requirement, if the administrator of an investor's unit
investment trust program meets certain uniform criteria relating to cost savings
by the Fund and the Distributor. The total sales charge for all other
investments made from unit investment trust distributions will be 1.00% of the
offering price (1.01% of net asset value). Of this amount, the Distributor will
pay to the authorized dealer, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the terms and conditions that apply to the program,
should contact their authorized dealer or the Distributor.
The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during each distribution period by all investors who choose to invest in
the Fund through the program and (2) provide Investor Services with appropriate
backup data for each investor participating in the program in a computerized
format fully compatible with Investor Services' processing system.
In order to obtain these special benefits, all dividends and other distributions
by the Fund must be reinvested in additional shares and there can not be any
systematic withdrawal program. There will be no minimum for reinvestments from
unit investment trusts. The Fund will send account activity statements to such
participants on a quarterly basis only, even if their investments are made more
frequently. The Fund reserves the right to modify or terminate this program at
any time.
23
<PAGE>
NET ASSET VALUE PURCHASE OPTIONS. Class A Shares of the Fund may be purchased at
net asset value, upon written assurance that the purchase is made for investment
purposes and that the shares will not be resold except through redemption by the
Fund, by:
(1) Current or retired trustees or directors of funds advised by Morgan Stanley
Dean Witter & Co. and any of its subsidiaries and such persons' families
and their beneficial accounts.
(2) Current or retired directors, officers and employees of Morgan Stanley Dean
Witter & Co. and any of its subsidiaries; employees of an investment
subadviser to any fund described in (1) above or an affiliate of such
subadviser; and such persons' families and their beneficial accounts.
(3) Directors, officers, employees and, when permitted, registered
representatives, of financial institutions that have a selling group
agreement with the Distributor and their spouses and children under 21
years of age when purchasing for any accounts they beneficially own, or, in
the case of any such financial institution, when purchasing for retirement
plans for such institution's employees; provided that such purchases are
otherwise permitted by such institutions.
(4) Registered investment advisers who charge a fee for their services, trust
companies and bank trust departments investing on their own behalf or on
behalf of their clients. The Distributor may pay authorized dealers through
which purchases are made an amount up to 0.50% of the amount invested, over
a 12-month period.
(5) Trustees and other fiduciaries purchasing shares for retirement plans which
invest in multiple fund families through broker-dealer retirement plan
alliance programs that have entered into agreements with the Distributor
and which are subject to certain minimum size and operational requirements.
Trustees and other fiduciaries should refer to the Statement of Additional
Information for further details with respect to such alliance programs.
(6) Beneficial owners of shares of Participating Funds held by a retirement
plan or held in a tax-advantaged retirement account who purchase shares of
the Fund with proceeds from distributions from such a plan or retirement
account other than distributions taken to correct an excess contribution.
(7) Accounts as to which a bank or broker-dealer charges an account management
fee ("wrap accounts"), provided the bank or broker-dealer has a separate
agreement with the Distributor.
(8) Trusts created under pension, profit sharing or other employee benefit
plans qualified under Section 401(a) of the Internal Revenue Code of 1986,
as amended (the "Code"), or custodial accounts held by a bank created
pursuant to Section 403(b) of the Code and sponsored by nonprofit
organizations defined under Section 501(c)(3) of the Code and assets held
by an employer or trustee in connection with an eligible deferred
compensation plan under Section 457 of the Code. Such plans will qualify
for purchases at net asset value provided, for plans initially establishing
accounts with the Distributor in the Participating Funds after February 1,
1997, that (1) the initial amount invested in the Participating Funds is at
least $500,000 or (2) such shares are purchased by an employer sponsored
plan with more than 100 eligible employees. Such plans that have been
established with a Participating Fund or have received proposals from the
Distributor prior to February 1, 1997 based on net asset value purchase
privileges previously in effect will be qualified to purchase shares of the
Participating Funds at net asset value for accounts established on or
before May 1, 1997. Section 403(b) and similar accounts for which Van
Kampen Trust Company serves as custodian will not be eligible for net asset
value purchases based on the aggregate investment made by the plan or the
number of eligible employees, except under certain uniform criteria
established by the Distributor from time to time. Prior to February 1,
1997, a commission will be paid to authorized dealers who initiate and are
responsible for such purchases within a rolling twelve- month period as
follows: 1.00% on sales to $5 million, plus 0.50% on the next $5 million,
plus 0.25% on the excess over $10 million. For purchases on February 1,
1997 and thereafter, a commission will be paid as follows: 1.00% on sales
to $2 million, plus 0.80% on the next $1 million, plus 0.50% on
24
<PAGE>
the next $47 million, plus 0.25% on the excess over $50 million.
(9) Individuals who are members of a "qualified group." For this purpose, a
qualified group is one which (i) has been in existence for more than six
months, (ii) has a purpose other than to acquire shares of the Fund or
similar investments, (iii) has given and continues to give its endorsement
or authorization, on behalf of the group, for purchase of shares of the
Fund and Participating Funds, (iv) has a membership that the authorized
dealer can certify as to the group's members and (v) satisfies other
uniform criteria established by the Distributor for the purpose of
realizing economies of scale in distributing such shares. A qualified group
does not include one whose sole organizational nexus, for example, is that
its participants are credit card holders of the same institution, policy
holders of an insurance company, customers of a bank or broker-dealer,
clients of an investment adviser or other similar groups. Shares purchased
in each group's participants account in connection with this privilege will
be subject to a contingent deferred sales charge of 1.00% in the event of
redemption within one year of purchase, and a commission will be paid to
authorized dealers who initiate and are responsible for such sales to each
individual as follows: 1.00% on sales to $2 million, plus 0.80% on the next
$1 million and 0.50% on the excess over $3 million.
The term "families" includes a person's spouse, children under 21 years of age
and grandchildren, parents, and a person's spouse's parents.
Purchase orders made pursuant to clause (4) may be placed either through
authorized dealers as described above or directly with Investor Services by the
investment adviser, trust company or bank trust department, provided that
Investor Services receives federal funds for the purchase by the close of
business on the next business day following acceptance of the order. An
authorized dealer may charge a transaction fee for placing an order to purchase
shares pursuant to this provision or for placing a redemption order with respect
to such shares. Authorized dealers will be paid a service fee as described above
on purchases made under options (3) through (9) above. The Fund may terminate,
or amend the terms of, offering shares of the Fund at net asset value to such
groups at any time.
REDEMPTION OF
SHARES
Generally shareholders may redeem for cash some or all of their shares without
charge by the Fund (other than applicable sales charge) at any time. As
described under the heading "Purchase of Shares," redemptions of Class B Shares
and Class C Shares may be subject to a contingent deferred sales charge. In
addition, certain redemptions of Class A Shares for shareholder accounts of $1
million or more may be subject to a contingent deferred sales charge.
Redemptions completed through an authorized dealer or a custodian of a
retirement plan account may involve additional fees charged by the dealer or
custodian.
Except as specified below under "Telephone Redemption Requests," payment for
shares redeemed generally will be made by check mailed within seven days after
receipt by Investor Services of the request and any other necessary documents in
proper form as described below. Such payment may be postponed or the right of
redemption suspended as provided by the rules of the SEC. Such payment may,
under certain circumstances, be paid wholly or in part by a distribution-in-kind
of portfolio securities which may result in brokerage costs and a gain or loss
for federal income tax purposes when such securities are sold. If the shares to
be redeemed have been recently purchased by check, Investor Services may delay
the payment of redemption proceeds until it confirms the purchase check has
cleared, which may take up to 15 days. A taxable gain or loss will be recognized
by the shareholder upon redemption of shares.
WRITTEN REDEMPTION REQUESTS. Shareholders may request a redemption of shares by
written request in proper form sent directly to Van Kampen Investor Services
Inc., PO Box 218256, Kansas City, MO 64121-8256. The request for redemption
should indicate the number of shares to be redeemed, the
25
<PAGE>
class designation of such shares and the shareholder's account number. The
redemption request must be signed by all persons in whose names the shares are
registered. Signatures must conform exactly to the account registration. If the
proceeds of the redemption exceed $50,000, or if the proceeds are not to be paid
to the record owner at the record address, or if the record address has changed
within the previous 30 days, signature(s) must be guaranteed by one of the
following: a bank or trust company; a broker-dealer; a credit union; a national
securities exchange, registered securities association or clearing agency; a
savings and loan association; or a federal savings bank.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption to be in proper form. In some
cases, however, additional documents may be necessary. In the case of
shareholders holding certificates, the certificates for the shares being
redeemed properly endorsed for transfer must accompany the redemption request.
In the event the redemption is requested by a corporation, partnership, trust,
fiduciary, executor or administrator, and the name and title of the
individual(s) authorizing such redemption is not shown in the account
registration, a copy of the corporate resolution or other legal documentation
appointing the authorized signer and certified within the prior 120 days must
accompany the redemption request. IRA redemption requests should be sent to the
IRA custodian to be forwarded to Investor Services. Contact the IRA custodian
for further information.
In the case of written redemption requests sent directly to Investor Services,
the redemption price is the net asset value per share next determined after the
request in proper form is received by Investor Services.
AUTHORIZED DEALER REDEMPTION REQUESTS. Shareholders may place redemption
requests through an authorized dealer. Orders sent through authorized dealers
must be at least $500 (unless transmitted by your authorized dealer via the
FUNDSERV network). The redemption price for such shares is the net asset value
per share next calculated after an order in proper form is received by an
authorized dealer provided such order is transmitted to the Distributor prior to
the Distributor's close of business on such day. It is the responsibility of
authorized dealers to transmit redemption requests received by them to the
Distributor so they will be received prior to such time. Redemptions completed
through an authorized dealer may involve additional fees charged by the dealer.
TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. A shareholder
automatically has telephone redemption privileges unless the shareholder
indicates otherwise by checking the applicable box on the application form
accompanying the prospectus. To redeem shares, contact the telephone transaction
line at (800) 421-5684. Van Kampen Investments, Investor Services and the Fund
employ procedures considered by them to be reasonable to confirm that
instructions communicated by telephone are genuine. Such procedures include
requiring certain personal identification information prior to acting upon
telephone instructions, tape-recording telephone communications and providing
written confirmation of instructions communicated by telephone. If reasonable
procedures are employed, none of Van Kampen Investments, Investor Services or
the Fund will be liable for following telephone instructions which it reasonably
believes to be genuine. Telephone redemptions may not be available if the
shareholder cannot reach Investor Services by telephone, whether because all
telephone lines are busy or for any other reason; in such case, a shareholder
would have to use the Fund's other redemption procedure previously described.
Requests received by Investor Services prior to 4:00 p.m., New York time, will
be processed at the next determined net asset value per share. These privileges
are available for all accounts other than retirement accounts or accounts with
shares represented by certificates. If an account has multiple owners, Investor
Services may rely on the instructions of any one owner.
For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check and amounts of at least
$1,000 up to $1 million may be redeemed daily if the proceeds are to be paid by
wire. The proceeds must be payable to the shareholder(s) of record and sent to
the address of record for the
26
<PAGE>
account or wired directly to their predesignated bank account. This privilege is
not available if the address of record has been changed within 30 days prior to
a telephone redemption request. Proceeds from redemptions payable by wire
transfer are expected to be wired on the next business day following the date of
redemption. The Fund reserves the right at any time to terminate, limit or
otherwise modify this redemption privilege.
OTHER REDEMPTION INFORMATION. The Fund may redeem shares of any shareholder
account that has value on the date of the notice of redemption less than the
minimum initial investment as specified in this prospectus. At least 60 days
advance written notice of any such involuntary redemption will be provided to
the shareholder and such shareholder will be given an opportunity to purchase
the required value of additional shares at the next determined net asset value
without sales charge. Any involuntary redemption may only occur if the
shareholder account is less than the minimum initial investment due to
shareholder redemptions.
DISTRIBUTIONS FROM
THE FUND
In addition to any increase in the value of shares which the Fund may achieve,
shareholders may receive distributions from the Fund of dividends and capital
gain dividends.
DIVIDENDS. Dividends from stocks and interest earned from other investments are
the Fund's main sources of income. The Fund's present policy, which may be
changed at any time by the Board of Directors is to distribute all or
substantially all of this income, less expenses, at least annually as dividends
to shareholders. Dividends are automatically applied to purchase additional
shares of the Fund at the next determined net asset value unless the shareholder
instructs otherwise.
The per share dividends on Class B Shares and Class C Shares may be lower than
the per share dividends on Class A Shares as a result of the higher distribution
fees and transfer agency costs applicable to such classes of shares.
CAPITAL GAIN DIVIDENDS. The Fund may realize capital gains or losses when it
sells securities, depending on whether the sales prices for the securities are
higher or lower than purchase prices. Net realized capital gain represents the
total profits from sales of securities minus total losses from sales of
securities (including any losses carried forward from prior years), other than
net short-term capital gain from sales of securities held for one year or less.
The Fund distributes any taxable net realized capital gain to shareholders as
capital gain dividends at least annually. As in the case of dividends, capital
gain dividends are automatically reinvested in additional shares of the Fund at
the next determined net asset value unless the shareholder instructs otherwise.
SHAREHOLDER SERVICES
Listed below are some of the shareholder services the Fund offers to investors.
For a more complete description of the Fund's shareholder services, such as
investment accounts, share certificates, retirement plans, automated clearing
house deposits, dividend diversification and the systematic withdrawal plan,
please refer to the Statement of Additional Information or contact your
authorized dealer.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gain dividends in shares of the
Fund. Such shares are acquired at net asset value per share (without sales
charge) on the applicable payable date of the dividend or capital gain dividend.
Unless the shareholder instructs otherwise, the reinvestment plan is automatic.
This instruction may be made by telephone by calling (800) 341-2911
((800) 421-2833 for the hearing impaired) or by writing to Investor Services.
The investor may, on the initial application or prior to any declaration,
instruct that dividends be paid in cash and capital gain dividends be reinvested
at net asset value, or that both dividends and capital gain dividends be paid in
cash.
27
<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 predetermined amounts in the Fund. Additional
information is available from the Distributor or your authorized dealer.
EXCHANGE PRIVILEGE. Shares of the Fund may be exchanged for shares of the same
class of any Participating Fund based on the next computed net asset value per
share of each fund after requesting the exchange without any sales charge,
subject to certain limitations. Shares of the Fund may be exchanged for shares
of any Participating Fund only if shares of that Participating Fund are
available for sale; however, during periods of suspension of sales, shares of a
Participating Fund may be available for sale only to existing shareholders of a
Participating Fund. Shareholders seeking an exchange into a Participating Fund
should obtain and read the current prospectus for such fund prior to
implementing an exchange. A prospectus of any of the Participating Funds may be
obtained from any authorized dealer or the Distributor.
To be eligible for exchange, shares of the Fund must have been registered in the
shareholder's name for at least 30 days prior to an exchange. Shares of the Fund
registered in a shareholder's name for less than 30 days may only be exchanged
upon receipt of prior approval of the Adviser. It is the policy of the Adviser,
under normal circumstances, not to approve such requests.
When shares that are subject to a contingent deferred sales charge are exchanged
among Participating Funds, the holding period for purposes of computing the
contingent deferred sales charge is based upon the date of the initial purchase
of such shares from a Participating Fund. When such shares are redeemed and not
exchanged for shares of another Participating Fund, the shares are subject to
the contingent deferred sales charge schedule imposed by the Participating Fund
from which such shares were originally purchased.
Exchanges of shares are sales of one Participating Fund and purchases of another
Participating Fund. The sale may result in a gain or loss for federal income tax
purposes. If the shares sold have been held for less than 91 days, the sales
charge paid on such shares is carried over and included in the tax basis of the
shares acquired.
A shareholder wishing to make an exchange may do so by sending a written request
to Investor Services or by contacting the telephone transaction line at
(800) 421-5684. A shareholder automatically has telephone exchange privileges
unless the shareholder indicates otherwise by checking the applicable box on the
application form accompanying the prospectus. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated by telephone are genuine. Such procedures
include requiring certain personal identification information prior to acting
upon telephone instructions, tape-recording telephone communications, and
providing written confirmation of instructions communicated by telephone. If
reasonable procedures are employed, none of Van Kampen Investments, Investor
Services or the Fund will be liable for following telephone instructions which
it reasonably believes to be genuine. If the exchanging shareholder does not
have an account in the fund whose shares are being acquired, a new account will
be established with the same registration, dividend and capital gain dividend
options (except dividend diversification) and authorized dealer of record as the
account from which shares are exchanged, unless otherwise specified by the
shareholder. In order to establish a systematic withdrawal plan for the new
account or reinvest dividends from the new account into another fund, however,
an exchanging shareholder must submit a specific request. The Fund reserves the
right to reject any order to acquire its shares through exchange. In addition,
the Fund and other Participating Funds may restrict exchanges by shareholders
engaged in excessive trading by limiting or disallowing the exchange privileges
to such shareholders. For further information on these restrictions see the
Statement of Additional Information. The Fund may modify, restrict or terminate
the exchange privilege at any time on 60 days' notice to its shareholders of any
termination or material amendment.
For purposes of determining the sales charge rate previously paid on Class A
Shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchanged
28
<PAGE>
security was acquired through reinvestment, that security is deemed to have been
sold with a sales charge rate equal to the rate previously paid on the security
on which the dividend or distribution was paid. If a shareholder exchanges less
than all of such shareholder's securities, the security upon which the highest
sales charge rate was previously paid is deemed exchanged first.
Exchange requests received on a business day prior to the time shares of the
funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares of the fund which the
shareholder is redeeming will be redeemed at the net asset value per share next
determined on the date of receipt. Shares of the new fund that the shareholder
is purchasing will also normally be purchased at the net asset value per share,
plus any applicable sales charge, next determined on the date of receipt.
Exchange requests received on a business day after the time shares of the funds
involved in the request are priced will be processed on the next business day in
the manner described herein.
INTERNET TRANSACTIONS. In addition to performing transactions on your account
through written instruction or by telephone, you may also perform certain
transactions through the internet. Please refer to our web site at
www.vankampen.com for further instruction. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated through the internet are genuine. Such
procedures include requiring use of a personal identification number prior to
acting upon internet instructions and providing written confirmation of
instructions communicated through the internet. If reasonable procedures are
employed, none of Van Kampen Investments, Investor Services or the Fund will be
liable for following instructions received through the internet which it
reasonably believes to be genuine. If an account has multiple owners, Investor
Services may rely on the instructions of any one owner.
FEDERAL INCOME
TAXATION
Distributions of the Fund's net investment income (consisting generally of
taxable income and net short-term capital gain) are taxable to shareholders as
ordinary income to the extent of the Fund's earnings and profits, whether paid
in cash or reinvested in additional shares. Distributions of the Fund's net
realized capital gain (which is the excess of net long-term capital gain over
net short-term capital loss) as capital gain dividends, if any, are taxable to
shareholders as long-term capital gains, whether paid in cash or reinvested in
additional shares, and regardless of how long the shares of the Fund have been
held by such shareholders. The Fund expects that its distributions will consist
primarily of ordinary income and capital gain dividends. Distributions in excess
of the Fund's earnings and profits will first reduce the adjusted tax basis of a
holder's shares and, after such adjusted tax basis is reduced to zero, will
constitute capital gains to such holder (assuming such shares are held as a
capital asset). Although distributions generally are treated as taxable in the
year they are paid, distributions declared in October, November or December,
payable to shareholders of record on a specified date in such month and paid
during January of the following year will be treated as having been distributed
by the Fund and received by the shareholders on the December 31st prior to the
date of payment. The Fund will inform shareholders of the source and tax status
of all distributions promptly after the close of each calendar year.
The sale or exchange of shares is a taxable transaction for federal income tax
purposes. Shareholders who sell their shares will generally recognize gain or
loss in an amount equal to the difference between their adjusted tax basis in
the shares sold and the amount received. If the shares are held as a capital
asset, the gain or loss will be a capital gain or loss. Any capital gains may be
taxed at different rates depending on how long the shareholder held such shares.
29
<PAGE>
The Fund is required, in certain circumstances, to withhold 31% of dividends and
certain other payments, including redemptions, paid to shareholders who do not
furnish to the Fund their correct taxpayer identification number (in the case of
individuals, their social security number) and certain required certifications
or who are otherwise subject to backup withholding.
Foreign shareholders, including shareholders who are non-resident aliens, may be
subject to U.S. withholding tax on certain distributions (whether received in
cash or in shares) at a rate of 30% or such lower rate as prescribed by an
applicable treaty. Accordingly, investment in the Fund is likely to be
appropriate for a foreign shareholder only if such person can utilize a foreign
tax credit or corresponding tax benefit in respect of such U.S. withholding tax.
Prospective foreign investors should consult their tax advisers concerning the
tax consequences to them of an investment in shares.
The Fund intends to qualify as a regulated investment company under federal
income tax law. If the Fund so qualifies and distributes each year to its
shareholders at least 90% of its net investment income, the Fund will not be
required to pay federal income taxes on any income it distributes to
shareholders. If the Fund distributes less than the amount equal to the sum of
98% of its ordinary income and 98% of its capital gain net income, then the Fund
will be subject to a 4% excise tax on the undistributed amounts.
The federal income tax discussion set forth above is for general information
only. Prospective investors should consult their own tax advisers regarding the
specific federal tax consequences of purchasing, holding, disposing, exchanging
or selling of shares, as well as the effects of state, local and foreign tax law
and any proposed tax law changes.
30
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the periods indicated. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report, along with the Fund's financial statements, is
included in the Statement of Additional Information and may be obtained by
shareholders without charge by calling the telephone number on the back cover of
this prospectus. This information should be read in conjunction with the
financial statements and notes thereto included in the Statement of Additional
Information.
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------
YEAR ENDED JUNE 30,
---------------------------------------- JULY 6, 1994* TO
SELECTED PER SHARE DATA AND RATIOS 1999 # 1998 # 1997 1996 JUNE 30, 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period......... $11.424 $17.39 $ 12.63 $ 9.08 $ 12.00
------- ------- ------- ------- -------
Income From Investment Operations
Net Investment Income/Loss................. 0.093 (0.01) 0.02 0.10 (0.02)
Net Realized and Unrealized Gain/Loss...... 0.182 (2.73) 6.46 3.47 (2.70)
------- ------- ------- ------- -------
Total From Investment Operations............. 0.275 (2.74) 6.48 3.57 (2.72)
------- ------- ------- ------- -------
DISTRIBUTIONS
Net Investment Income...................... (0.041) -- -- (0.02) --
In Excess of Net Investment Income......... (0.063) -- (0.09) -- --
Net Realized Gain.......................... -- (1.92) (1.63) -- --
In Excess of Net Realized Gain............. (0.052) (1.31) -- -- --
Return of Capital.......................... -- -- -- -- (0.20)
------- ------- ------- ------- -------
Total Distributions........................ (0.156) (3.23) (1.72) (0.02) (0.20)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD............... $11.543 $11.42 $ 17.39 $ 12.63 $ 9.08
======= ======= ======= ======= =======
TOTAL RETURN (1)............................. 3.00% (17.37)% 57.32% 39.35% (23.07)%**
======= ======= ======= ======= =======
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)............ $34,139 $44,439 $84,401 $18,701 $ 7,658
Ratio of Expenses to Average Net Assets...... 2.20% 2.25% 2.24% 2.11% 2.46%
Ratio of Net Investment Income/Loss to
Average Net Assets........................... 0.98% (0.09)% (0.08)% 1.18% (0.44)%
Portfolio Turnover Rate...................... 163% 249% 241% 131% 107%**
- --------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During
the Period
Per Share Benefit to Net Investment
Income/Loss.................................. $ 0.02 $ 0.02 $ 0.10 $ 0.09 $ 0.13
Ratios Before Expense Limitation:
Expenses to Average Net Assets............. 2.44% 2.41% 2.77% 3.28% 4.30%
Net Investment Income/Loss to Average Net
Assets................................... 0.74% (0.24)% (0.61)% 0.01% (2.26)%
Ratio of Expenses to Average Net Assets
excluding country tax expense and interest
expense...................................... 2.10% 2.10% 2.10% 2.10% 2.10%
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
-----------------------------------------------------
YEAR ENDED JUNE 30,
------------------------------ AUGUST 1, 1995+ TO
SELECTED PER SHARE DATA AND RATIOS 1999 # 1998 # 1997 JUNE 30, 1996
- --------------------------------------------- -----------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period......... $ 11.030 $16.99 $ 12.45 $ 9.58
-------- ------- ------- ------
Income From Investment Operations
Net Investment Income/Loss................. 0.019 (0.08) (0.03) 0.03
Net Realized and Unrealized Gain/Loss...... 0.215 (2.65) 6.28 2.84
-------- ------- ------- ------
Total From Investment Operations............. 0.234 (2.73) 6.25 2.87
-------- ------- ------- ------
DISTRIBUTIONS
Net Investment Income...................... (0.009) -- -- --
In Excess of Net Investment Income......... (0.014) -- (0.08) --
Net Realized Gain.......................... -- (1.92) (1.63) --
In Excess of Net Realized Gain............. (0.052) (1.31) -- --
Return of Capital.......................... -- -- -- --
-------- ------- ------- ------
Total Distributions........................ (0.075) (3.23) (1.71) --
-------- ------- ------- ------
NET ASSET VALUE, END OF PERIOD............... $ 11.189 $11.03 $ 16.99 $12.45
======== ======= ======= ======
TOTAL RETURN (1)............................. 2.47% (17.82)% 56.17% 29.26%**
======== ======= ======= ======
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)............ $ 18,570 $24,206 $14,314 $2,041
Ratio of Expenses to Average Net Assets...... 2.96% 2.99% 2.99% 2.87%
Ratio of Net Investment Income/Loss to
Average Net Assets........................... 0.20% (0.58)% (0.78)% 0.88%
Portfolio Turnover Rate...................... 163% 249% 241% 131%**
- --------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During
the Period
Per Share Benefit to Net Investment
Income/Loss.................................. $ 0.02 $ 0.02 $ 0.02 $ 0.04
Ratios Before Expense Limitation:
Expenses to Average Net Assets............. 3.20% 3.16% 3.55% 3.89%
Net Investment Income/Loss to Average Net
Assets................................... (0.04)% (0.73)% (1.34)% (0.14)%
Ratio of Expenses to Average Net Assets
excluding country tax expense and interest
expense...................................... 2.85% 2.85% 2.85% 2.85%
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS C
-------------------------------------------------------------
YEAR ENDED JUNE 30,
---------------------------------------- JULY 6, 1994* TO
SELECTED PER SHARE DATA AND RATIOS 1999 # 1998 # 1997 1996 JUNE 30, 1995
- --------------------------------------------- -------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period......... $11.037 $17.01 $ 12.43 $ 8.99 $12.00
------- ------- ------- ------- ------
Income From Investment Operations
Net Investment Income/Loss................. 0.021 (0.11) (0.07) 0.04 (0.08)
Net Realized and Unrealized Gain/Loss...... 0.199 (2.63) 6.31 3.40 (2.73)
------- ------- ------- ------- ------
Total From Investment Operations............. 0.220 (2.74) 6.24 3.44 (2.81)
------- ------- ------- ------- ------
DISTRIBUTIONS
Net Investment Income...................... (0.009) -- -- -- --
In Excess of Net Investment Income......... (0.014) -- (0.03) -- --
Net Realized Gain.......................... -- (1.92) (1.63) -- --
In Excess of Net Realized Gain............. (0.052) (1.31) -- -- --
Return of Capital.......................... -- -- -- -- (0.20)
------- ------- ------- ------- ------
Total Distributions........................ (0.075) (3.23) (1.66) -- (0.20)
------- ------- ------- ------- ------
NET ASSET VALUE, END OF PERIOD............... $11.182 $11.04 $ 17.01 $ 12.43 $ 8.99
======= ======= ======= ======= ======
TOTAL RETURN (1)............................. 2.28% (17.86)% 56.04% 38.26% (23.83)%**
======= ======= ======= ======= ======
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)............ $10,387 $14,577 $20,345 $ 6,780 $4,085
Ratio of Expenses to Average Net Assets...... 2.96% 3.00% 2.99% 2.86% 3.20%
Ratio of Net Investment Income/Loss to
Average Net Assets........................... 0.23% (0.77)% (0.79)% 0.42% (1.16)%
Portfolio Turnover Rate...................... 163% 249% 241% 131% 107%**
- --------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During
the Period
Per Share Benefit to Net Investment
Income/Loss.................................. $ 0.02 $ 0.02 $ 0.05 $ 0.12 $ 0.12
Ratios Before Expense Limitation:
Expenses to Average Net Assets............. 3.20% 3.16% 3.56% 4.06% 5.20%
Net Investment Income/Loss to Average Net
Assets................................... (0.01)% (0.93)% (1.36)% (0.78)% (3.16)%
Ratio of Expenses to Average Net Assets
excluding country tax expense and interest
expense...................................... 2.85% 2.85% 2.85% 2.85% 2.85%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
* COMMENCEMENT OF OPERATIONS.
** NON-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.
# CHANGES PER SHARE ARE BASED UPON MONTHLY AVERAGE SHARES OUTSTANDING.
31
<PAGE>
APPENDIX -- DESCRIPTION OF SECURITIES RATINGS
STANDARD & POOR'S -- A brief description of the applicable Standard & Poor's
(S&P) rating symbols and their meanings (as published by S&P) follow:
A S&P corporate or municipal debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees.
The debt rating is not a recommendation to purchase, sell, or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished by the issuer or obtained
by S&P from other sources it considers reliable. S&P does not perform an audit
in connection with any rating and may, on occasion, rely on unaudited financial
information. The ratings may be changed, suspended, or withdrawn as a result of
changes in, or unavailability of, such information, or based on other
circumstances.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of payment -- capacity and willingness of the obligor to meet its
financial commitment on an obligation in accordance with the terms of the
obligation:
2. Nature of and provisions of the obligation:
3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditor's rights.
1. LONG-TERM DEBT -- INVESTMENT GRADE
AAA: Debt rated "AAA" has the highest rating assigned by S&P. Capacity to meet
its financial commitment on the obligation is extremely strong.
AA: Debt rated "AA" differs from the highest rated issues only in small degree.
Capacity to meets its financial commitment on the obligation is very strong.
A: Debt rated "A" is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than obligations in higher rated
categories. Capacity to meet its financial commitment on the obligation is still
strong.
BBB: Debt rated "BBB" exhibits adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to meet its financial commitment on the obligation.
SPECULATIVE GRADE
BB, B, CCC, CC, C: Debts rated "BB", "B", "CCC", "CC" and "C" are regarded as
having significant speculative characteristics. "BB" indicates the least degree
of speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
BB: Debt rated "BB" is less vulnerable to nonpayment than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
B: Debt rated "B" is more vulnerable to nonpayment than obligations rated "BB",
but the obligor currently has the capacity to meet its financial commitment on
the obligation. Adverse business, financial, or economic conditions will likely
impair the obligor's capacity or willingness to meet its financial commitment on
the obligation.
CCC: Debt rated "CCC" is currently vulnerable to nonpayment, and is dependent
upon favorable business, financial, and economic conditions for the obligor to
meet its financial commitment on the obligation. In the event of adverse
business, financial, or economic conditions, the obligor is not likely to have
A-1
<PAGE>
the capacity to meet its financial commitment on the obligation.
CC: Debt rated "CC" is currently highly vulnerable to nonpayment.
C: the "C" rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments on this obligation
are being continued.
D: Debt rated "D" is in payment default. The "D" rating category is used when
payments on an obligation are not made on the date due even if the applicable
grace period has not expired, unless S&P believes that such payments will be
made during such grace period. The "D" rating also will be used upon the filing
of a bankruptcy petition or the taking of a similar action if payments on an
obligation are jeopardized.
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
r: This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk -- such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
DEBT OBLIGATIONS OF ISSUERS OUTSIDE THE UNITED STATES AND ITS TERRITORIES are
rated on the same basis as domestic corporate and municipal issues. The ratings
measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.
BOND INVESTMENT QUALITY STANDARDS: Under present commercial bank regulations
issued by the Comptroller of the Currency, bonds rated in the top four
categories ("AAA", "AA", "A", "BBB", commonly known as "investment grade"
ratings) are generally regarded as eligible for bank investment. In addition,
the laws of various states governing legal investments impose certain ratings or
other standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.
2. COMMERCIAL PAPER
A S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.
Ratings are graded into several categories, ranging from "A-1" for the highest
quality obligations to "D" for the lowest. These categories are as follows:
A-1: The highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
A-3: Issues carrying this designation have adequate capacity for timely payment.
They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B: Issues rated "B" are regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
C: This rating is assigned to short-term debt obligations currently vulnerable
to nonpayment and is dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on the obligation.
D: Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired,
A-2
<PAGE>
unless S&P believes that such payments will be made during such grace period.
The "D" rating also will be used upon the filing of a bankruptcy petition or the
taking of a similar action if payments on an obligation are jeopardized.
A commercial paper rating is not a recommendation to purchase, sell or hold a
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained from other sources it considers reliable. S&P does
not perform an audit in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed, suspended or
withdrawn as a result of changes in, or unavailability of, such information, or
based on other circumstances.
3. PREFERRED STOCK
A S&P preferred stock rating is an assessment of the capacity and willingness of
an issuer to pay preferred stock dividends and any applicable sinking fund
obligations. A preferred stock rating differs from a bond rating inasmuch as it
is assigned to an equity issue, which issue is intrinsically different from, and
subordinated to, a debt issue. Therefore, to reflect this difference, the
preferred stock rating symbol will normally not be higher than the bond rating
symbol assigned to, or that would be assigned to, the senior debt of the same
issuer.
The preferred stock ratings are based on the following considerations:
i. Likelihood of payment-capacity and willingness of the issuer to meet the
timely payment of preferred stock dividends and any applicable sinking fund
requirements in accordance with the terms of the obligation.
ii. Nature of, and provisions of, the issuer.
iii. Relative position of the issue in the event of bankruptcy, reorganization,
or other arrangements under the laws of bankruptcy and other laws affecting
creditors' rights.
AAA: This is the highest rating that may be assigned by S&P to a preferred stock
issue and indicates an extremely strong capacity to pay the preferred stock
obligations.
AA: A preferred stock issue rated "AA" also qualifies as a high-quality, fixed
income security. The capacity to pay preferred stock obligations is very strong,
although not as overwhelming as for issues rated "AAA".
A: An issue rated "A" is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
BBB: An issue rated "BBB" is regarded as backed by an adequate capacity to pay
the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the "A" category.
BB, B and CCC: Preferred stock rated "BB", "B", and "CCC" are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay preferred stock obligations.
"BB" indicates the lowest degree of speculation and "CCC" the highest. While
such issues will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
CC: The rating "CC" is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments, but that is currently paying.
C: A preferred stock rated "C" is a nonpaying issue.
D: A preferred stock rated "D" is a nonpaying issue with the issuer in default
on debt instruments.
NR: This indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy. PLUS (+) or MINUS (-): To provide more
detailed indications of preferred stock quality, ratings
A-3
<PAGE>
from "AA" to "CCC" may be modified by the addition of a plus or minus sign to
show relative standing within the major rating categories.
A preferred stock rating is not a recommendation to purchase, sell, or hold a
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained by S&P from other sources it considers reliable.
S&P does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended, or withdrawn as a result of changes in, or unavailability of, such
information, or based on other circumstances.
MOODY'S INVESTORS SERVICE -- a brief description of the applicable Moody's
Investors Service (Moody's) rating symbols and their meanings (as published by
Moody's Investors Service) follows:
1. LONG-TERM DEBT
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than the Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payment
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
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 market shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the issue ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.
A-4
<PAGE>
ABSENCE OF RATING: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not rated as a
matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published in
Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
2. SHORT-TERM DEBT
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations. These obligations have an original maturity
not exceeding one year unless explicitly noted.
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issues:
Issuers rated Prime-1 (or supporting institutions) have a superior ability for
repayment or senior short-term debt obligations. Prime-1 repayment ability will
often be evidenced by many of the following characteristics:
- -- Leading market positions in well-established industries.
- -- High rates of return on funds employed.
- -- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
- -- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- -- Well-established access to a range of financial markets and assured sources
of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability for
repayment of senior short-term debt obligations. This will normally be evidenced
by many of the characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or supporting institutions) have an acceptable ability
for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes of the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
3. PREFERRED STOCK
Preferred stock rating symbols and their definitions are as follows:
AAA: An issue which is rated "AAA" is considered to be a top-quality preferred
stock. This rating indicates good asset protection and the least risk of
dividend impairment within the universe of preferred stocks.
AA: An issue which is rated "AA" is considered a high-grade preferred stock.
This rating indicates that there is a reasonable assurance the earnings and
asset protection will remain relatively well maintained in the foreseeable
future.
A: An issue which is rated "A" is considered to be an upper-medium-grade
preferred stock. While risks are judged to be somewhat greater than in the "AAA"
and "AA" classifications, earnings and asset protections are, nevertheless,
expected to be maintained at adequate levels.
A-5
<PAGE>
BAA: An issue which is rated "BAA" is considered to be a medium-grade preferred
stock, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any great
length of time.
BA: An issue which is rated "BA" is considered to have speculative elements and
its future cannot be considered well assured. Earnings and asset protection may
be very moderate and not well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.
B: An issue which is rated "B" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
CAA: An issue which is rated "CAA" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future status
of payments.
CA: An issue which is rated "CA" is speculative in a high degree and is likely
to be in arrears on dividends with little likelihood of eventual payment.
C: This is the lowest rated class of preferred or preference stock. Issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Moody's applies numerical modifiers 1, 2 and 3 in each rating classification.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category, the modifier 2 indicates a mid-range ranking, and the
modifier 3 indicates that the issue ranks in the lower end of its generic rating
category.
A-6
<PAGE>
BOARD OF DIRECTORS
AND OFFICERS
BOARD OF DIRECTORS
<TABLE>
<S> <C>
J. Miles Branagan Don G. Powell*
Jerry D. Choate Phillip B. Rooney
Richard M. DeMartini* Fernando Sisto
Linda Hutton Heagy Wayne W. Whalen*
R. Craig Kennedy Suzanne H. Woolsey
Jack E. Nelson Paul G. Yovovich
</TABLE>
OFFICERS
Richard F. Powers, III*
PRESIDENT
Dennis J. McDonnell*
EXECUTIVE VICE PRESIDENT & CHIEF INVESTMENT OFFICER
A. Thomas Smith III*
VICE PRESIDENT AND SECRETARY
Edward C. Wood III*
VICE PRESIDENT
Michael H. Santo*
VICE PRESIDENT
Peter W. Hegel*
VICE PRESIDENT
Stephen L. Boyd*
VICE PRESIDENT
Joseph P. Stadler*
VICE PRESIDENT
John L. Sullivan*
VICE PRESIDENT, CHIEF FINANCIAL OFFICER & TREASURER
Curtis W. Morell*
VICE PRESIDENT & CHIEF ACCOUNTING OFFICER
Tanya M. Loden*
CONTROLLER
* "Interested Persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2911
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders, or
redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call (800) 421-2833
FUNDINFO-REGISTERED TRADEMARK-
For automated telephone services, call (800) 847-2424
WEB SITE
www.vankampen.com
VAN KAMPEN LATIN AMERICAN FUND
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
INVESTMENT ADVISER AND ADMINISTRATOR
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
INVESTMENT SUBADVISER
MORGAN STANLEY DEAN WITTER INVESTMENT
MANAGEMENT INC.
1221 Avenue of the Americas
New York, NY 10020
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
TRANSFER AGENT
VAN KAMPEN INVESTOR SERVICES INC.
PO Box 218256
Kansas City, MO 64121-8256
Attn: Van Kampen Latin American Fund
CUSTODIAN
THE CHASE MANHATTAN BANK
3 MetroTech Center
Brooklyn, NY 11245
Attn: Van Kampen Latin American Fund
LEGAL COUNSEL
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
INDEPENDENT ACCOUNTANTS
PRICEWATERHOUSECOOPERS LLP
200 East Randolph Drive
Chicago, IL 60601
<PAGE>
VAN KAMPEN
LATIN AMERICAN FUND
PROSPECTUS
OCTOBER 28, 1999
A Statement of Additional Information, which contains more details about the
Fund, is incorporated by reference in its entirety into this prospectus.
You will find additional information about the Fund in its annual and semiannual
reports to shareholders. The annual report explains the market conditions and
investment strategies affecting the Fund's performance during its last fiscal
year.
You can ask questions or obtain a free copy of the Fund's reports or its
Statement of Additional Information by calling (800) 341-2911 from 7:00 a.m. to
7:00 p.m., Central time, Monday through Friday. Telecommunications Device for
the Deaf users may call (800) 421-2833. A free copy of the Fund's reports can
also be ordered from our web site at www.vankampen.com.
Information about the Fund, including its reports and Statement of Additional
Information, has been filed with the Securities and Exchange Commission (SEC).
It can be reviewed and copied at the SEC's Public Reference Room in Washington,
DC or on the EDGAR Database on the SEC's internet site (http://www.sec.gov).
Information on the operation of the SEC's Public Reference Room may be obtained
by calling the SEC at 1-202-942-8090. You can also request copies of these
materials, upon payment of a duplicating fee, by electronic request at the SEC's
e-mail address ([email protected]), or by writing the Public Reference Section
of the SEC, Washington, DC, 20549-0102.
[LOGO]
THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-7140.
MSLA PRO 10/99
<PAGE>
VAN KAMPEN
MID CAP GROWTH FUND
Van Kampen Mid Cap Growth Fund is a mutual fund with an investment objective to
seek to achieve long-term growth. The Fund's investment adviser seeks to achieve
the Fund's investment objective by investing primarily in a portfolio of common
stocks and other equity securities of medium-sized companies that the Fund's
investment adviser believes have long-term growth potential.
Shares of the Fund have not been approved or disapproved by the Securities and
Exchange Commission (SEC) or any state regulator, and neither the SEC nor any
state regulator has passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
THIS PROSPECTUS IS DATED OCTOBER 28, 1999.
[LOGO]
<PAGE>
TABLE OF CONTENTS
Risk/Return Summary .....................................................3
Fees and Expenses of the Fund ...........................................4
Investment Objective, Policies and Risks ................................5
Investment Advisory Services ............................................8
Purchase of Shares .....................................................10
Redemption of Shares ...................................................17
Distributions from the Fund ............................................18
Shareholder Services ...................................................19
Federal Income Taxation ................................................20
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations, other than those contained in this
prospectus, in connection with the offer contained in this prospectus and, if
given or made, such other information or representations must not be relied upon
as having been authorized by the Fund, the Fund's investment adviser or the
Fund's distributor. This prospectus does not constitute an offer by the Fund or
by the Fund's distributor to sell or a solicitation of an offer to buy any of
the securities offered hereby in any jurisdiction to any person to whom it is
unlawful for the Fund to make such an offer in such jurisdiction.
<PAGE>
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The Fund is a mutual fund with an investment objective to seek to achieve
long-term growth.
INVESTMENT STRATEGIES
The Fund's investment adviser seeks to achieve the Fund's investment objective
by investing primarily in a portfolio of common stocks and other equity
securities of medium-sized companies that the Fund's investment adviser believes
have long-term growth potential. Under normal market conditions, the Fund
invests at least 65% of its total assets in common stocks and other equity
securities of medium-sized companies at the time of investment. Other equity
securities include preferred stocks, convertible securities and rights and
warrants to purchase common stock.
The Fund emphasizes a "growth" style of investing focusing on those companies
selected using the Fund's investment adviser's four-part process. This process
combines quantitative, fundamental and valuation analysis with a strict sales
discipline to seek companies with above-average potential for capital growth.
Portfolio securities are typically sold when the Fund's investment adviser's
assessment for growth of an issuer materially changes. The Fund may purchase and
sell certain derivative instruments (such as options, futures, options on
futures and forward contracts), which may subject the Fund to additional risks.
INVESTMENT RISKS
An investment in the Fund is subject to investment risks, and you could lose
money on your investment in the Fund. There can be no assurance that the Fund
will achieve its investment objective.
MARKET RISK. Market risk is the possibility that the market values of securities
owned by the Fund will decline. Market risk may affect a single issuer,
industry, sector of the economy or the market as a whole. Investments in common
stocks and other equity securities generally are affected by changes in the
stock markets, which fluctuate substantially over time, sometimes suddenly and
sharply.
The Fund emphasizes a "growth" style of investing. The market values of growth
securities may be more volatile than those of other types of investments. The
returns on growth securities may or may not move in tandem with the returns on
other styles of investing or the overall stock markets. Different types of
stocks tend to shift in and out of favor depending on market and economic
conditions. Thus, the value of the Fund's investments will vary and at times may
be lower or higher than that of other types of funds.
RISKS OF MEDIUM-SIZED COMPANIES. The Fund invests primarily in medium-sized
companies which often are newer or less established companies than large-sized
companies. Investments in medium-sized companies carry additional risks because
their earnings tend to be less predictable; they often have limited product
lines, markets, distribution channels or financial resources; and the management
of such companies may be dependent upon one or a few key people. The market
movements of equity securities of medium-sized companies may be more abrupt or
erratic than the market movements of equity securities of larger, more
established companies or the stock market in general. Historically, medium-sized
companies have sometimes gone through extended periods where they did not
perform as well as larger companies. In addition, equity securities of
medium-sized companies generally are less liquid than those of larger companies.
This means that the Fund could have greater difficulty selling such securities
at the time and price that the Fund would like.
RISKS OF USING DERIVATIVE INVESTMENTS. In general terms, a derivative investment
is one whose value depends on (or is derived from) the value of an underlying
asset, interest rate or index. Options, futures, options on futures and forward
contracts are examples of derivatives. Derivative investments involve risks
different from direct investment in underlying securities. These risks include
imperfect correlation between the value of the instruments and the underlying
assets; risks of default by the other party to certain transactions; risks that
the transactions may result in losses that partially or completely offset gains
in portfolio positions; risks that the transactions may not be liquid; and
manager risk.
MANAGER RISK. As with any managed fund, the Fund's investment adviser may not be
successful in selecting the best-performing securities or investment
3
<PAGE>
techniques and the Fund's performance may lag behind that of similar funds.
INVESTOR PROFILE
In light of the Fund's investment objective and strategies, the Fund may be
appropriate for investors who:
- - Seek capital growth over the long term
- - Do not seek current income from their investment
- - Can withstand substantial volatility in the value of their Fund shares
- - Wish to add to their investment portfolio a fund that emphasizes a growth
style of investing in common stocks and other equity securities of
medium-sized companies
An investment in the Fund is not a deposit of any bank or other insured
depository institution. Your investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
An investment in the Fund may not be appropriate for all investors. The Fund is
not intended to be a complete investment program, and investors should consider
their long-term investment goals and financial needs when making an investment
decision about the Fund. An investment in the Fund is intended to be a long-term
investment, and the Fund should not be used as a trading vehicle.
PERFORMANCE INFORMATION
The Fund commenced investment operations on October 25, 1999. The Fund did not
have a full calendar year of performance as of the date of this prospectus and
thus has no historical calendar year annual performance or comparative
performance tables.
FEES AND EXPENSES
OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
- ------------------------------------------------------------
<S> <C> <C> <C>
</TABLE>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------
Maximum sales charge
(load) imposed on
purchases (as a
percentage of offering
price) 5.75%(1) None None
...........................................................
Maximum deferred sales
charge (load) (as a
percentage of the
lesser of original
purchase price or
redemption proceeds) None(2) 5.00%(3) 1.00%(4)
...........................................................
Maximum sales charge
(load) imposed on
reinvested dividends None None None
...........................................................
Redemption fees None None None
...........................................................
Exchange fee None None None
...........................................................
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------
Management Fees 0.75% 0.75% 0.75%
...........................................................
Distribution and/or
Service
(12b-1) Fees(5) 0.25% 1.00%(6) 1.00%(6)
...........................................................
Other(7) 0.48% 0.48% 0.48%
...........................................................
Total Annual Fund
Operating Expenses 1.48% 2.23% 2.23%
...........................................................
</TABLE>
(1) REDUCED FOR PURCHASES OF $50,000 AND OVER. SEE "PURCHASE OF SHARES --
CLASS A SHARES."
(2) INVESTMENTS OF $1 MILLION OR MORE ARE NOT SUBJECT TO ANY SALES CHARGE
AT THE TIME OF PURCHASE, BUT A DEFERRED SALES CHARGE OF 1.00% MAY BE
IMPOSED ON CERTAIN REDEMPTIONS MADE WITHIN ONE YEAR OF THE PURCHASE.
SEE "PURCHASE OF SHARES -- CLASS A SHARES."
(3) THE MAXIMUM DEFERRED SALES CHARGE IS 5.00% IN THE FIRST YEAR AFTER
PURCHASE, DECLINING THEREAFTER AS FOLLOWS:
YEAR 1-5.00%
YEAR 2-4.00%
YEAR 3-3.00%
YEAR 4-2.50%
YEAR 5-1.50%
AFTER-NONE
SEE "PURCHASE OF SHARES -- CLASS B SHARES."
(4) THE MAXIMUM DEFERRED SALES CHARGE IS 1.00% IN THE FIRST YEAR AFTER
PURCHASE AND 0.00% THEREAFTER. SEE "PURCHASE OF SHARES--CLASS C
SHARES."
(5) CLASS A SHARES ARE SUBJECT TO AN ANNUAL SERVICE FEE OF UP TO 0.25% OF
THE AVERAGE DAILY NET ASSETS ATTRIBUTABLE TO SUCH CLASS OF SHARES.
CLASS B SHARES AND CLASS C SHARES ARE EACH SUBJECT TO A COMBINED
ANNUAL DISTRIBUTION AND SERVICE FEE OF UP TO 1.00% OF THE AVERAGE
DAILY NET ASSETS ATTRIBUTABLE TO SUCH CLASS OF SHARES. SEE "PURCHASE
OF SHARES."
(6) BECAUSE DISTRIBUTION AND/OR SERVICE (12b-1) FEES ARE PAID OUT OF THE
FUND'S ASSETS ON AN ONGOING BASIS, OVER TIME THESE FEES WILL INCREASE
THE COST OF YOUR INVESTMENT AND MAY COST YOU MORE THAN PAYING OTHER
TYPES OF SALES CHARGES.
(7) "OTHER EXPENSES" ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT FISCAL
YEAR.
4
<PAGE>
EXAMPLE:
The following example is intended to help you compare the cost of investing in
the Fund with the costs of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same each year. Although your actual costs
may be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
ONE THREE
YEAR YEARS
- -----------------------------------------------------
<S> <C> <C>
Class A Shares $717 $1,016
....................................................
Class B Shares $726 $ 997
....................................................
Class C Shares $326 $ 697
....................................................
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
ONE THREE
YEAR YEARS
- -----------------------------------------------------
<S> <C> <C>
Class A Shares $717 $1,016
....................................................
Class B Shares $226 $ 697
....................................................
Class C Shares $226 $ 697
....................................................
</TABLE>
INVESTMENT OBJECTIVE,
POLICIES AND RISKS
The Fund's investment objective is to seek to achieve long-term growth. Any
income received from the investment of portfolio securities is incidental to the
Fund's investment objective. The Fund's investment objective is a fundamental
policy and may not be changed without the approval of a majority of shareholders
of the Fund's outstanding voting securities, as defined in the Investment
Company Act of 1940, as amended (the "1940 Act"). There are risks inherent in
all investments in securities; accordingly, there can be no assurance that the
Fund will achieve its investment objective.
The Fund's investment adviser seeks to achieve the Fund's investment objective
by investing primarily in a portfolio of common stocks and other equity
securities of medium-sized companies that the Fund's investment adviser believes
have long-term growth potential. Under normal market conditions, the Fund
invests at least 65% its total assets in common stocks and other equity
securities of medium-sized companies at the time of investment. Under current
market conditions, the Fund's investment adviser defines medium-sized companies
by reference to those companies represented in the Standard & Poor's ("S&P")
MidCap 400 Index, an unmanaged capitalization-weighted measure of 400 stocks in
the mid-range sector of the market (which consists of companies in the
capitalization range of approximately $238 million to $11.5 billion as of
August 31, 1999). The Fund may invest in common stocks and other equity
securities of small- and large-sized companies.
The Fund's primary approach is to seek to identify those companies that offer
sound fundamental values and opportunities for capital growth. In selecting
securities for investment, the Fund's investment adviser uses a four-step
investment process which combines quantitative screening techniques, fundamental
and valuation analysis with strict sales discipline. The first step of the
process is to screen potential candidates for investment based upon earnings
predictions. From this, companies with the most attractive estimated earnings
revisions are selected and subjected to rigorous fundamental analysis. The
investment adviser uses valuation analysis to eliminate what it believes to be
the most overvalued securities. The most attractive opportunities as determined
by the Fund's investment adviser are selected for investment. After investment,
the Fund's investment adviser follows a strict sales discipline, requiring the
sale of Fund investments, if (i) their earnings fall to unacceptable levels,
(ii) research uncovers unfavorable trends or (iii) valuations exceed levels
determined to be reasonable given the growth prospects. Because of the fully
managed approach of the Fund, the Fund's turnover rate may be greater than other
portfolios' turnover rates and result in increased transaction costs, including
higher brokerage charges, which may adversely impact the Fund's performance.
The Fund invests primarily in common stocks. Common stocks are shares of a
corporation or other entity that entitle the holder to a pro rata share of the
profits of the corporation, if any, without preference over any other class of
securities, including such entity's debt securities, preferred stock and other
senior equity securities. Common stock usually carries with it the right to vote
and frequently an exclusive right to do so.
5
<PAGE>
While the Fund invests primarily in common stocks, it may invest in preferred
stocks, convertible securities and rights and warrants to purchase common stock.
Preferred stock generally has a preference as to dividends and liquidation over
an issuer's common stock but ranks junior to debt securities in an issuer's
capital structure. Unlike interest payments on debt securities, preferred stock
dividends are payable only if declared by the issuer's board of directors.
Preferred stock also may be subject to optional or mandatory redemption
provisions.
A convertible security is a bond, debenture, note, preferred stock or other
security that may be converted into or exchanged for a prescribed amount of
common stock or other equity security of the same or a different issuer or into
cash within a particular period of time at a specified price or formula. A
convertible security generally entitles the holder to receive interest paid or
accrued on debt securities or the dividend paid on preferred stock until the
convertible security matures or is redeemed, converted or exchanged. Before
conversion, convertible securities generally have characteristics similar to
both debt and equity securities. The value of convertible securities tends to
decline as interest rates rise and, because of the conversion feature, tends to
vary with fluctuations in the market value of the underlying equity securities.
Convertible securities ordinarily provide a stream of income with generally
higher yields than those of common stock of the same or similar issuers.
Convertible securities generally rank senior to common stock in a corporation's
capital structure but are usually subordinated to comparable nonconvertible
securities. Convertible securities generally do not participate directly in any
dividend increases or decreases of the underlying equity securities although the
market prices of convertible securities may be affected by any such dividend
changes or other changes in the underlying equity securities.
Rights and warrants entitle the holder to buy equity securities at a specific
price for a specific period of time. Rights are similar to warrants except that
they have a substantially shorter duration. Rights and warrants may be
considered more speculative and less liquid than certain other types of
investments in that they do not entitle a holder to dividends or voting rights
with respect to the underlying securities nor do they represent any rights in
the assets of the issuing company and may lack a secondary market.
DERIVATIVE INSTRUMENTS
The Fund may, but is not required to, use various investment strategic
transactions described below to earn income, facilitate portfolio management and
mitigate risks. Such strategic transactions are generally accepted under modern
portfolio management and are regularly used by many mutual funds and other
institutional investors. Although the Fund's investment adviser seeks to use the
practices to further the Fund's investment objective, no assurance can be given
that these practices will achieve this result.
The Fund may purchase and sell derivative instruments such as exchange-listed
and over-the-counter put and call options on securities, financial futures,
equity, fixed-income and interest rate indices, and other financial instruments,
futures contracts and options thereon (including but not limited to securities
index futures, foreign currency exchange futures, interest rate futures and
other financial futures), structured notes, swaps, caps, floors or collars and
enter into various currency transactions such as currency forward contracts,
currency futures contracts, currency swaps or options on currency or currency
futures. In addition, the Fund may invest in other derivative instruments that
are developed over time if their use would be consistent with the objective of
the Fund. Collectively, all of the above are referred to as "Strategic
Transactions." The Fund generally seeks to use Strategic Transactions as a
portfolio management or hedging technique to seek to protect against possible
adverse changes in the market value of securities held in or to be purchased for
the Fund's portfolio, protect the Fund's unrealized gains, facilitate the sale
of certain securities for investment purposes, protect against changes in
currency exchange rates or to adjust the exposure to a particular currency,
manage the effective maturity or duration of the Fund's portfolio, establish
positions in the derivatives markets as a substitute for purchasing or selling
particular securities, including, for example, when the Fund adjusts its
exposure to a market in response to changes in investment strategy, when doing
so provides more liquidity than the direct purchase of the securities underlying
such derivatives, when the Fund 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
6
<PAGE>
markets or because of lower transaction costs associated with the derivatives
transaction. The Fund may invest up to 33 1/3% of its total assets in Strategic
Transactions for non-hedging purposes (measured by the aggregate notional amount
of outstanding derivatives). The Fund may invest up to 50% of its total assets
in futures contracts and options contracts (measured by the aggregate notional
amount of such outstanding contracts).
Strategic Transactions have risks including the imperfect correlation between
the value of such instruments and the underlying assets, the possible default of
the other party to the transaction or illiquidity of the derivative instruments.
Furthermore, the ability to successfully use Strategic Transactions depends on
the Fund's investment adviser's ability to predict pertinent market movements,
which cannot be assured. Thus, the use of Strategic Transactions may result in
losses greater than if they had not been used, may require the Fund to sell or
purchase portfolio securities at inopportune times or for prices other than
current market values, may limit the amount of appreciation the Fund can
otherwise realize on an investment, or may cause the Fund to hold a security
that it might otherwise sell. The use of currency transactions can result in the
Fund incurring losses because of the imposition of exchange controls, suspension
of settlements or the inability of the Fund to deliver or receive a specified
currency. In addition, amounts paid as premiums or cash or other assets held in
margin accounts with respect to Strategic Transactions are not otherwise
available to the Fund for investment purposes.
A more complete discussion of Strategic Transactions and their risks is
contained in the Fund's Statement of Additional Information. The Statement of
Additional Information can be obtained by investors free of charge as described
on the back cover of this prospectus.
OTHER INVESTMENT PRACTICES AND RISK FACTORS
For cash management purposes, the Fund may engage in repurchase agreements with
broker-dealers, banks and other financial institutions in order to earn a return
on temporarily available cash. Such transactions are subject to the risk of
default by the other party.
The Fund may lend its portfolio securities to broker-dealers, banks or other
recognized institutional borrowers of securities. The Fund may incur lending
fees and other costs in connection with securities lending, and securities
lending is subject to the risk of default by the other party.
The Fund may invest up to 15% of its net assets in illiquid and certain
restricted securities. Such securities may be difficult or impossible to sell at
the time and the price that the Fund would like. Thus, the Fund may have to sell
such securities at a lower price, sell other securities instead to obtain cash
or forego other investment opportunities.
Further information about these types of investments and other investment
practices that may be used by the Fund is contained in the Statement of
Additional Information.
The Fund may sell securities without regard to the length of time they have been
held in order to take advantage of new investment opportunities or when the
Fund's investment adviser believes the potential for long-term growth has
lessened or for other reasons. The portfolio turnover rate may be expected to
vary from year to year. A high portfolio turnover rate (100% or more) increases
the Fund's transactions costs (including brokerage commissions or dealer costs)
and a high portfolio turnover rate may result in the realization of more
short-term capital gains than if the Fund had a lower portfolio turnover rate.
Increases in the Fund's transaction costs would adversely impact the Fund's
performance. The turnover rate will not be a limiting factor, however, if the
Fund's investment adviser considers portfolio changes appropriate.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Fund may on a temporary basis hold cash or invest a
portion or all of its assets in money-market instruments including obligations
of the U.S. government, its agencies or instrumentalities, obligations of
foreign sovereignties, other high-quality debt securities including prime
commercial paper, repurchase agreements and bank obligations, such as bankers'
acceptances and certificates of deposit (including Eurodollar certificates of
deposit). Under normal market conditions, the potential for long-term growth on
these securities will tend to be lower than the potential for long-term growth
on other securities that may be owned by the Fund. In taking such a defensive
position, the Fund would not be pursuing and may not achieve its investment
objective.
YEAR 2000 RISKS. Like other mutual funds, financial and business organizations
and individuals around the
7
<PAGE>
world, the Fund could be adversely affected if the computer systems used by the
Fund's investment adviser, subadviser and other service providers do not
properly process and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000 Problem." The Fund's
investment adviser and subadviser are taking steps that they believe are
reasonably designed to address the Year 2000 Problem with respect to computer
systems that they use and to obtain reasonable assurances that comparable steps
are being taken by the Fund's other major service providers. At this time, there
can be no assurances that these steps will be sufficient to avoid any adverse
impact to the Fund. In addition, the Year 2000 Problem may adversely affect the
markets and the issuers of securities in which the Fund may invest which, in
turn, may adversely affect the net asset value of shares of the Fund. Improperly
functioning trading systems may result in settlement problems and liquidity
issues. In addition, corporate and governmental data processing errors may
result in production problems for individual companies or issuers and overall
economic uncertainty. Earnings of individual issuers will be affected by
remediation costs, which may be substantial and may be reported inconsistently
in U.S. and foreign financial statements. Efforts in foreign countries to
remediate the potential Year 2000 Problem may not be as extensive as those in
the U.S. As a result, the operations of foreign markets and issuers may be
disrupted by the Year 2000 Problem which could adversely affect the Fund's
portfolio. The risks are greater with respect to certain developing or emerging
market countries because there is an increased likelihood that issuers of
securities of such countries cannot anticipate or effectively manage the effects
of computer programs and the Year 2000 Problem. Accordingly, the Fund's
investments may be adversely affected. The statements above are subject to the
Year 2000 Information and Readiness Disclosure Act which may limit the legal
rights regarding the use of such statements in the case of a dispute.
INVESTMENT ADVISORY
SERVICES
INVESTMENT ADVISER
Van Kampen Investment Advisory Corp. is the investment adviser (the "Adviser" or
"Advisory Corp.") and administrator of the Fund. The Adviser is a wholly owned
subsidiary of Van Kampen Investments Inc. ("Van Kampen Investments"). Van Kampen
Investments is a diversified asset management company with more than two million
retail investor accounts, extensive capabilities for managing institutional
portfolios, and more than $79 billion under management or supervision as of
September 30, 1999. Van Kampen Investments' more than 50 open-end and 39
closed-end funds and more than 2,500 unit investment trusts are professionally
distributed by leading authorized dealers nationwide. Van Kampen Funds Inc., the
distributor of the Fund (the "Distributor") and the sponsor of the funds
mentioned above, is also a wholly owned subsidiary of Van Kampen Investments.
Van Kampen Investments is an indirect wholly owned subsidiary of Morgan Stanley
Dean Witter & Co. The Adviser's principal office is located at 1 Parkview Plaza,
PO Box 5555, Oakbrook Terrace, Illinois 60181-5555.
ADVISORY AGREEMENT AND ADMINISTRATION AGREEMENT. The Fund retains the Adviser to
manage the investment of its assets and to place orders for the purchase and
sale of its portfolio securities. Under an investment advisory agreement between
the Adviser and the Fund (the "Advisory Agreement"), the Fund pays the Adviser a
monthly fee computed based upon an annual rate applied to the average daily net
assets of the Fund as follows:
<TABLE>
% PER
AVERAGE DAILY NET ASSETS ANNUM
- -------------------------------------
<S> <C>
First $500 million 0.75%
....................................
Next $500 million 0.70%
....................................
Over $1 billion 0.65%
....................................
</TABLE>
The Fund also retains the Adviser to provide administrative services for the
Fund's day-to-day operations. Under an administration agreement, between the
Adviser and the Fund, the Fund pays a monthly administration fee computed based
upon an annual rate of 0.25% applied to the average daily net assets of the
Fund.
The Adviser furnishes offices, necessary facilities and equipment, provides
administrative services, and permits its officers and employees to serve without
compensation as directors or officers of the Fund if elected to such positions.
The Fund pays all charges and expenses of its day-to-day operations, including
the compensation of directors of the Fund (other than those who are affiliated
persons of the Adviser, Distributor or Van Kampen Investments), the
8
<PAGE>
charges and expenses of legal counsel and independent accountants, distribution
fees, service fees, custodian fees, the costs of providing reports to
shareholders, and all other ordinary business expenses not specifically assumed
by the Adviser.
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen Asset Management
Inc. ("Asset Management").
INVESTMENT SUBADVISER
Miller Anderson & Sherrerd, LLP ("MAS" or the "Subadviser") is the Subadviser of
the Fund. The Subadviser is a Pennsylvania limited liability partnership founded
in 1969. The Subadviser is a wholly owned subsidiary of Morgan Stanley Dean
Witter & Co., and is an affiliate of the Adviser. The Subadviser provides
investment advisory services to employee benefit plans, endowment funds,
foundations and other institutional investors. At June 30, 1999, the Subadviser,
together with its affiliated institutional asset management companies, managed
assets of approximately $175.3 billion, including assets under fiduciary advice.
The Subadviser's principal office is located at One Tower Bridge, West
Conshohocken, Pennsylvania 19428.
SUBADVISORY AGREEMENT. The Adviser has entered into a subadvisory agreement with
the Subadviser to assist the Adviser in performing its investment advisory
functions. The Adviser pays the Subadviser on a monthly basis a portion of the
net advisory fees the Adviser receives from the Fund.
GENERAL
From time to time, the Adviser, the Subadviser or the Distributor may
voluntarily undertake to reduce the Fund's expenses by reducing the fees payable
to them or by reducing other expenses of the Fund in accordance with such
limitations as the Adviser, the Subadviser or Distributor may establish.
PERSONAL INVESTMENT POLICIES. The Fund, the Adviser and the Subadviser have
adopted Codes of Ethics designed to recognize the fiduciary relationships among
the Fund, the Adviser and the Subadviser and their respective employees. The
Codes of Ethics permit directors, trustees, officers and employees to buy and
sell securities for their personal accounts subject to certain restrictions.
Persons with access to certain sensitive information are subject to
pre-clearance and other procedures designed to prevent conflicts of interest.
PORTFOLIO MANAGEMENT. Arden C. Armstrong, David P. Chu and Steve B. Chulik are
responsible as comanagers for the day-to-day management of the Fund's investment
portfolio.
Ms. Armstrong is a Managing Director of Morgan Stanley Dean Witter & Co. and
joined the Subadviser in 1986. She assumed responsibility for the MAS-advised
institutional mid cap growth fund in 1990, the MAS-advised institutional equity
fund in 1994 and the MAS-advised institutional small cap growth fund in 1998.
Ms. Armstrong holds a B.A. (Magna Cum Laude) in Economics from Brown University
and an M.B.A. from The Wharton School of the University of Pennsylvania. She is
a Chartered Financial Analyst.
Mr. Chu is a Vice President of Morgan Stanley Dean Witter & Co. and joined the
Subadviser in 1998. He has been comanager of the MAS-advised institutional mid
cap growth fund since 1998 and the MAS-advised institutional small cap growth
fund since 1998. He served as a Senior Equity Analyst from 1992 to 1997 and as
fund comanager in 1997 for NationsBank and its subsidiary, TradeStreet
Investment Associates. Mr. Chu earned a B.S. from University of Michigan and an
M.B.A. from The Wharton School of the University of Pennsylvania.
Mr. Chulik joined the Subadviser in 1997. He has been comanager of the
MAS-advised institutional mid cap growth fund since 1999 and the MAS-advised
institutional small cap growth fund since 1999. He was a quantitative hedge fund
analyst from 1994 to 1995 for IBJ Schroder Bank and Trust. Prior to that time,
he was an engineer from 1989-1995 for Lockheed Martin, Astro Space Division. Mr.
Chulik earned a B.S. from Columbia University and an M.B.A. from The Wharton
School of the University of Pennsylvania.
9
<PAGE>
PURCHASE OF SHARES
GENERAL
The Fund offers three classes of shares designated as Class A Shares, Class B
Shares and Class C Shares. By offering three classes of shares, the Fund permits
each investor to choose the class of shares that is most beneficial given the
amount to be invested and the length of time the investor expects to hold the
shares.
Initial investments must be at least $1,000 for each class of shares, and
subsequent investments must be at least $25 for each class of shares. Both
minimums may be waived by the Distributor for plans involving periodic
investments.
Each class of shares represents an interest in the same portfolio of investments
of the Fund and has the same rights except that (i) Class A Shares generally
bear the sales charge expenses at the time of purchase while Class B Shares and
Class C Shares bear the sales charge expenses at the time of redemption and any
expenses (including higher distribution fees and transfer agency costs)
resulting from such deferred sales charge arrangement, (ii) generally, each
class of shares has exclusive voting rights with respect to approvals of the
Rule 12b-1 distribution plan and service plan (each as described below) under
which its distribution fee or service fee is paid, (iii) each class of shares
has different exchange privileges, (iv) certain classes of shares are subject to
a conversion feature and (v) certain classes of shares have different
shareholder service options available.
The offering price of the Fund's shares is based upon the Fund's net asset value
per share (plus sales charges, where applicable). The net asset values per share
of the Class A Shares, Class B Shares and Class C Shares are generally expected
to be substantially the same. In certain circumstances, however, the per share
net asset values of the classes of shares may differ from one another,
reflecting the daily expense accruals of the higher distribution fees and
transfer agency costs applicable to the Class B Shares and Class C Shares and
the differential in the dividends that may be paid on each class of shares.
The net asset value per share for each class of shares of the Fund is determined
once daily as of the close of trading on the New York Stock Exchange (the
"Exchange") (currently 4:00 p.m., New York time) each day the Exchange is open
for trading except on any day on which no purchase or redemption orders are
received or there is not a sufficient degree of trading in the Fund's portfolio
securities such that the Fund's net asset value per share might be materially
affected. The Fund's Board of Directors reserves the right to calculate the net
asset value per share and adjust the offering price based theron more frequently
than once daily if deemed desirable. Net asset value per share for each class is
determined by dividing the value of the Fund's portfolio securities, cash and
other assets (including accrued interest) attributable to such class, less all
liabilities (including accrued expenses) attributable to such class, by the
total number of shares of the class outstanding. Such computation is made by
using prices as of the close of trading on the Exchange and (i) valuing
securities listed or traded on a national securities exchange at the closing
price, or if no closing price is available, at the last reported sale price, and
if there has been no sale that day, at the mean between the last reported bid
and asked prices, (ii) valuing over-the-counter securities at the last reported
sale price from the National Association of Securities Dealers Automated
Quotations ("NASDAQ"), (iii) valuing unlisted securities and any securities for
which market quotations are not readily available at the average of the mean
between the current reported bid and asked prices obtained from reputable
brokers and (iv) valuing any other assets at fair value as determined in good
faith by the Adviser in accordance with procedures established by the Fund's
Board of Directors. Debt securities with remaining maturities of 60 days or less
are valued on an amortized cost basis, which approximates market value.
The Fund has adopted a distribution plan (the "Distribution Plan") with respect
to each class of its shares pursuant to Rule 12b-1 under the 1940 Act. The Fund
also has adopted a service plan (the "Service Plan") with respect to each class
of its shares. Under the Distribution Plan and the Service Plan, the Fund pays
distribution fees in connection with the sale and distribution of its shares and
10
<PAGE>
service fees in connection with the provision of ongoing services to
shareholders of each class.
The amount of distribution and service fees varies among the classes offered by
the Fund. Because these fees are paid out of the Fund's assets on an ongoing
basis, these fees will increase the cost of your investment in the Fund. By
purchasing a class of shares subject to higher distribution and service fees,
you may pay more over time than on a class of shares with other types of sales
charge arrangements. Long-term shareholders may pay more than the economic
equivalent of the maximum front-end sales charges permitted by the rules of the
National Association of Securities Dealers, Inc. ("NASD"). The net income
attributable to a class of shares will be reduced by the amount of the
distribution fees and other expenses of the Fund associated with such class of
shares. To assist investors in comparing classes of shares, the tables under the
heading "Fees and Expenses of the Fund" provide a summary of sales charges and
expenses and an example of the sales charges and expenses of the Fund applicable
to each class of shares.
The shares are offered to the public on a continuous basis through the
Distributor as principal underwriter, which is located at 1 Parkview Plaza, PO
Box 5555, Oakbrook Terrace, Illinois 60181-5555. Shares also are offered through
members of the NASD who are acting as securities dealers ("dealers") and NASD
members or eligible non-NASD members who are acting as brokers or agents for
investors ("brokers"). "Dealers" and "brokers" are sometimes referred to herein
as "authorized dealers."
Shares may be purchased on any business day by completing the application
accompanying this prospectus and forwarding the application, directly or through
an authorized dealer, to the Fund's shareholder service agent, Van Kampen
Investor Services Inc. ("Investor Services"), a wholly owned subsidiary of Van
Kampen Investments. When purchasing shares of the Fund, investors must specify
whether the purchase is for Class A Shares, Class B Shares or Class C Shares.
Sales personnel of authorized dealers distributing the Fund's shares are
entitled to receive compensation for selling such shares and may receive
differing compensation for selling Class A Shares, Class B Shares or Class C
Shares.
The offering price for shares is based upon the next calculation of net asset
value per share (plus sales charges, where applicable) after an order is
received by Investor Services. Orders received by authorized dealers prior to
the close of the Exchange are priced based on the date of receipt provided such
order is transmitted to Investor Services prior to Investor Services' close of
business on such date. Orders received by authorized dealers after the close of
the Exchange or transmitted to Investor Services after its close of business are
priced based on the date of the next computed net asset value per share provided
they are received by Investor Services prior to Investor Services' close of
business on such date. It is the responsibility of authorized dealers to
transmit orders received by them to Investor Services so they will be received
in a timely manner.
The Fund and the Distributor reserve the right to refuse any order for the
purchase of shares. The Fund also reserves the right to suspend the sale of the
Fund's shares in response to conditions in the securities markets or for other
reasons. Shares of the Fund may be sold in foreign countries where permissible.
Investor accounts will automatically be credited with additional shares of the
Fund after any Fund distributions, such as dividends and capital gain dividends,
unless the investor instructs the Fund otherwise. Investors wishing to receive
cash instead of additional shares should contact the Fund at (800) 341-2911 or
by writing to the Fund, c/o Van Kampen Investors Services Inc., PO Box 218256,
Kansas City, MO 64121-8256.
CLASS A SHARES
Class A Shares of the Fund are sold at net asset value plus an initial maximum
sales charge of up to 5.75% of the offering price (or 6.10% of the net
11
<PAGE>
amount invested), reduced on investments of $50,000 or more as follows:
CLASS A SHARES
SALES CHARGE SCHEDULE
<TABLE>
<CAPTION>
AS % OF AS % OF
SIZE OF OFFERING NET AMOUNT
INVESTMENT PRICE INVESTED
<S> <C> <C>
- ------------------------------------------------------------------------
Less than $50,000 5.75% 6.10%
.......................................................................
$50,000 but less than $100,000 4.75% 4.99%
.......................................................................
$100,000 but less than $250,000 3.75% 3.90%
.......................................................................
$250,000 but less than $500,000 2.75% 2.83%
.......................................................................
$500,000 but less than $1,000,000 2.00% 2.04%
.......................................................................
$1,000,000 or more * *
.......................................................................
</TABLE>
* NO SALES CHARGE IS PAYABLE AT THE TIME OF PURCHASE ON INVESTMENTS OF
$1 MILLION OR MORE, ALTHOUGH FOR SUCH INVESTMENTS THE FUND MAY IMPOSE
A CONTINGENT DEFERRED SALES CHARGE OF 1.00% ON CERTAIN REDEMPTIONS
MADE WITHIN ONE YEAR OF THE PURCHASE. THE CONTINGENT DEFERRED SALES
CHARGE IS ASSESSED ON AN AMOUNT EQUAL TO THE LESSER OF THE THEN
CURRENT MARKET VALUE OR THE COST OF THE SHARES BEING REDEEMED.
ACCORDINGLY, NO SALES CHARGE IS IMPOSED ON INCREASES IN NET ASSET
VALUE ABOVE THE INITIAL PURCHASE PRICE.
No sales charge is imposed on Class A Shares received from reinvestment of
dividends or capital gain dividends.
Under the Distribution Plan and Service Plan, the Fund may spend up to a total
of 0.25% per year of the Fund's average daily net assets with respect to the
Class A Shares of the Fund. From such amount, under the Service Plan, the Fund
may spend up to 0.25% per year of the Fund's average daily net assets with
respect to the Class A Shares for the ongoing provision of services to Class A
shareholders by the Distributor and by brokers, dealers or financial
intermediaries and for the maintenance of such shareholders' accounts.
CLASS B SHARES
Class B Shares of the Fund are sold at net asset value and are subject to a
contingent deferred sales charge if redeemed within five years of purchase as
shown in the table as follows:
CLASS B SHARES
SALES CHARGE SCHEDULE
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE
AS A PERCENTAGE OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
<S> <C>
- ----------------------------------------------------------------------
First 5.00%
.....................................................................
Second 4.00%
.....................................................................
Third 3.00%
.....................................................................
Fourth 2.50%
.....................................................................
Fifth 1.50%
.....................................................................
Sixth and After None
.....................................................................
</TABLE>
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gain dividends. It
is presently the policy of the Distributor not to accept any order for Class B
Shares in an amount of $500,000 or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
The amount of the contingent deferred sales charge, if any, varies depending on
the number of years from the time of payment for the purchase of Class B Shares
until the time of redemption of such shares. Solely for purposes of determining
the number of years from the time of any payment for the purchase of shares, all
payments during a month are totaled and deemed to have been made on the last day
of the month.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed shares being redeemed first are any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge followed by shares held the longest in the shareholder's account.
12
<PAGE>
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
Fund's average daily net assets with respect to the Class B Shares of the Fund.
In addition, under the Service Plan, the Fund may spend up to 0.25% per year of
the Fund's average daily net assets with respect to the Class B Shares for the
ongoing provision of services to Class B shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CLASS C SHARES
Class C Shares of the Fund are sold at net asset value and are subject to a
contingent deferred sales charge of 1.00% of the dollar amount subject to charge
if redeemed within one year of purchase.
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gain dividends. It
is presently the policy of the Distributor not to accept any order for Class C
Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed shares being redeemed first are any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge followed by shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
Fund's average daily net assets with respect to the Class C Shares of the Fund.
In addition, under the Service Plan, the Fund may spend up to 0.25% per year of
the Fund's average daily net assets with respect to the Class C Shares for the
ongoing provision of services to Class C shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CONVERSION FEATURE
Class B Shares and any dividend reinvestment plan Class B Shares received on
such shares, automatically convert to Class A Shares eight years after the end
of the calendar month in which the shares were purchased. Such conversion will
be on the basis of the relative net asset values per share, without the
imposition of any sales load, fee or other charge. The conversion schedule
applicable to a share of the Fund acquired through the exchange privilege from
another Van Kampen fund participating in the exchange program is determined by
reference to the Van Kampen fund from which such share was originally purchased.
The conversion of such shares to Class A Shares is subject to the continuing
availability of an opinion of counsel to the effect that (i) the assessment of
the higher distribution fee and transfer agency costs with respect to such
shares does not result in the Fund's dividends or capital gain dividends
constituting "preferential dividends" under the federal income tax law and
(ii) the conversion of shares does not constitute a taxable event under federal
income tax law. The conversion may be suspended if such an opinion is no longer
available and such shares might continue to be subject to the higher aggregate
fees applicable to such shares for an indefinite period.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge is waived on redemptions of Class B Shares
and Class C Shares (i) within one year following the death or disability (as
disability is defined by federal income tax law) of a shareholder, (ii) for
required minimum distributions from an individual retirement account ("IRA") or
certain other retirement plan distributions, (iii) for withdrawals under the
Fund's systematic withdrawal plan but limited to 12% annually of the initial
value of the account, (iv) if no commission or transaction fee is paid to
authorized dealers at the time of purchase of such shares and (v) if made by
involuntary liquidation by the Fund of a shareholder's account as described
under the heading "Redemption of Shares." Subject to certain limitations, a
shareholder who has redeemed Class C Shares of the Fund may reinvest in Class C
Shares at net asset value with credit for any contingent deferred sales charge
if the reinvestment is made
13
<PAGE>
within 180 days after the redemption. For a more complete description of
contingent deferred sales charge waivers, please refer to the Fund's Statement
of Additional Information or contact your authorized dealer.
QUANTITY DISCOUNTS
Investors purchasing Class A Shares may, under certain circumstances described
below, be entitled to pay reduced or no sales charges. Investors, or their
authorized dealers, must notify the Fund at the time of the purchase order
whenever a quantity discount is applicable to purchases. Upon such notification,
an investor will receive the lowest applicable sales charge. Quantity discounts
may be modified or terminated at any time. For more information about quantity
discounts, investors should contact their authorized dealer or the Distributor.
A person eligible for a reduced sales charge includes an individual, his or her
spouse and children under 21 years of age and any corporation, partnership or
sole proprietorship which is 100% owned, either alone or in combination, by any
of the foregoing; a trustee or other fiduciary purchasing for a single trust or
for a single fiduciary account, or a "company" as defined in Section 2(a)(8) of
the 1940 Act.
As used herein, "Participating Funds" refers to certain open-end investment
companies advised by Asset Management or Advisory Corp. and distributed by the
Distributor as determined from time to time by the Fund's Board of Directors.
VOLUME DISCOUNTS. The size of investment shown in the Class A Shares sales
charge table applies to the total dollar amount being invested by any person in
shares of the Fund, or in any combination of shares of the Fund and shares of
other Participating Funds, although other Participating Funds may have different
sales charges.
CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the Class A Shares
sales charge table may also be determined by combining the amount being invested
in shares of the Participating Funds plus the current offering price of all
shares of the Participating Funds which have been previously purchased and are
still owned.
LETTER OF INTENT. A Letter of Intent provides an opportunity for an investor to
obtain a reduced sales charge by aggregating the investments over a 13-month
period to determine the sales charge as outlined in the Class A Shares sales
charge table. The size of investment shown in the Class A Shares sales charge
table includes purchases of shares of the Participating Funds over a 13-month
period based on the total amount of intended purchases plus the value of all
shares of the Participating Funds previously purchased and still owned. An
investor may elect to compute the 13-month period starting up to 90 days before
the date of execution of a Letter of Intent. Each investment made during the
period receives the reduced sales charge applicable to the total amount of the
investment goal. The initial purchase must be for an amount equal to at least 5%
of the minimum total purchase amount of the level selected. If trades not
initially made under a Letter of Intent subsequently qualify for a lower sales
charge through the 90-day backdating provisions, an adjustment will be made at
the time of the expiration of the Letter of Intent to give effect to the lower
charge. Such adjustment in sales charge will be used to purchase additional
shares for the shareholder at the applicable discount category. The Fund
initially will escrow shares totaling 5% of the dollar amount of the Letter of
Intent to be held by Investor Services in the name of the shareholder. In the
event the Letter of Intent goal is not achieved within the specified period, the
investor must pay the difference between the sales charge applicable to the
purchases made and the reduced sales charge previously paid. Such payments may
be made directly to the Distributor or, if not paid, the Distributor will
liquidate sufficient escrowed shares to obtain the difference.
OTHER PURCHASE PROGRAMS
Purchasers of Class A Shares may be entitled to reduced or no initial sales
charges in connection with the unit investment trust reinvestment program and
purchases by registered representatives of selling firms or purchases by persons
affiliated with the Fund or the Distributor. The Fund reserves the right to
modify or terminate these arrangements at any time.
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UNIT INVESTMENT TRUST REINVESTMENT PROGRAM. The Fund permits unitholders of unit
investment trusts to reinvest distributions from such trusts in Class A Shares
of the Fund at net asset value per share and with no minimum initial or
subsequent investment requirement, if the administrator of an investor's unit
investment trust program meets certain uniform criteria relating to cost savings
by the Fund and the Distributor. The total sales charge for all other
investments made from unit investment trust distributions will be 1.00% of the
offering price (1.01% of net asset value). Of this amount, the Distributor will
pay to the authorized dealer, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the terms and conditions that apply to the program,
should contact their authorized dealer or the Distributor.
The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during each distribution period by all investors who choose to invest in
the Fund through the program and (2) provide Investor Services with appropriate
backup data for each investor participating in the program in a computerized
format fully compatible with Investor Services' processing system.
In order to obtain these special benefits, all dividends and other distributions
by the Fund must be reinvested in additional shares and there can not be any
systematic withdrawal program. There will be no minimum for reinvestments from
unit investment trusts. The Fund will send account activity statements to such
participants on a quarterly basis only, even if their investments are made more
frequently. The Fund reserves the right to modify or terminate this program at
any time.
NET ASSET VALUE PURCHASE OPTIONS. Class A Shares of the Fund may be purchased at
net asset value, upon written assurance that the purchase is made for investment
purposes and that the shares will not be resold except through redemption by the
Fund, by:
(1) Current or retired trustees or directors of funds advised by Morgan Stanley
Dean Witter & Co. and any of its subsidiaries and such persons' families
and their beneficial accounts.
(2) Current or retired directors, officers and employees of Morgan Stanley Dean
Witter & Co. and any of its subsidiaries; employees of an investment
subadviser to any fund described in (1) above or an affiliate of such
subadviser; and such persons' families and their beneficial accounts.
(3) Directors, officers, employees and, when permitted, registered
representatives, of financial institutions that have a selling group
agreement with the Distributor and their spouses and children under 21
years of age when purchasing for any accounts they beneficially own, or, in
the case of any such financial institution, when purchasing for retirement
plans for such institution's employees; provided that such purchases are
otherwise permitted by such institutions.
(4) Registered investment advisers who charge a fee for their services, trust
companies and bank trust departments investing on their own behalf or on
behalf of their clients. The Distributor may pay authorized dealers through
which purchases are made an amount up to 0.50% of the amount invested, over
a 12-month period.
(5) Trustees and other fiduciaries purchasing shares for retirement plans which
invest in multiple fund families through broker-dealer retirement plan
alliance programs that have entered into agreements with the Distributor
and which are subject to certain minimum size and operational requirements.
Trustees and other fiduciaries should refer to the Statement of Additional
Information for further details with respect to such alliance programs.
(6) Beneficial owners of shares of Participating Funds held by a retirement
plan or held in a tax-advantaged retirement account who purchase shares of
the Fund with proceeds from distributions from such a plan or retirement
account other than distributions taken to correct an excess contribution.
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<PAGE>
(7) Accounts as to which a bank or broker-dealer charges an account management
fee ("wrap accounts"), provided the bank or broker-dealer has a separate
agreement with the Distributor.
(8) Trusts created under pension, profit sharing or other employee benefit
plans qualified under Section 401(a) of the Internal Revenue Code of 1986,
as amended (the "Code"), or custodial accounts held by a bank created
pursuant to Section 403(b) of the Code and sponsored by nonprofit
organizations defined under Section 501(c)(3) of the Code and assets held
by an employer or trustee in connection with an eligible deferred
compensation plan under Section 457 of the Code. Such plans will qualify
for purchases at net asset value provided, for plans initially establishing
accounts with the Distributor in the Participating Funds after February 1,
1997, that (1) the initial amount invested in the Participating Funds is at
least $500,000 or (2) such shares are purchased by an employer sponsored
plan with more than 100 eligible employees. Such plans that have been
established with a Participating Fund or have received proposals from the
Distributor prior to February 1, 1997 based on net asset value purchase
privileges previously in effect will be qualified to purchase shares of the
Participating Funds at net asset value for accounts established on or
before May 1, 1997. Section 403(b) and similar accounts for which Van
Kampen Trust Company serves as custodian will not be eligible for net asset
value purchases based on the aggregate investment made by the plan or the
number of eligible employees, except under certain uniform criteria
established by the Distributor from time to time. Prior to February 1,
1997, a commission will be paid to authorized dealers who initiate and are
responsible for such purchases within a rolling twelve- month period as
follows: 1.00% on sales to $5 million, plus 0.50% on the next $5 million,
plus 0.25% on the excess over $10 million. For purchases on February 1,
1997 and thereafter, a commission will be paid as follows: 1.00% on sales
to $2 million, plus 0.80% on the next $1 million, plus 0.50% on the next
$47 million, plus 0.25% on the excess over $50 million.
(9) Individuals who are members of a "qualified group." For this purpose, a
qualified group is one which (i) has been in existence for more than six
months, (ii) has a purpose other than to acquire shares of the Fund or
similar investments, (iii) has given and continues to give its endorsement
or authorization, on behalf of the group, for purchase of shares of the
Fund and Participating Funds, (iv) has a membership that the authorized
dealer can certify as to the group's members and (v) satisfies other
uniform criteria established by the Distributor for the purpose of
realizing economies of scale in distributing such shares. A qualified group
does not include one whose sole organizational nexus, for example, is that
its participants are credit card holders of the same institution, policy
holders of an insurance company, customers of a bank or broker-dealer,
clients of an investment adviser or other similar groups. Shares purchased
in each group's participants account in connection with this privilege will
be subject to a contingent deferred sales charge of 1.00% in the event of
redemption within one year of purchase, and a commission will be paid to
authorized dealers who initiate and are responsible for such sales to each
individual as follows: 1.00% on sales to $2 million, plus 0.80% on the next
$1 million and 0.50% on the excess over $3 million.
The term "families" includes a person's spouse, children under 21 years of age
and grandchildren, parents, and a person's spouse's parents.
Purchase orders made pursuant to clause (4) may be placed either through
authorized dealers as described above or directly with Investor Services by the
investment adviser, trust company or bank trust department, provided that
Investor Services receives federal funds for the purchase by the close of
business on the next business day following acceptance of the order. An
authorized dealer may charge a transaction fee for placing an order to purchase
shares pursuant to this provision or for placing a redemption order with respect
to such shares. Authorized dealers will be paid a service fee as described above
on purchases made under options (3) through (9) above. The Fund may terminate,
or amend the terms of, offering shares of the Fund at net asset value to such
groups at any time.
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REDEMPTION OF
SHARES
Generally shareholders may redeem for cash some or all of their shares without
charge by the Fund (other than applicable sales charge) at any time. As
described under the heading "Purchase of Shares," redemptions of Class B Shares
and Class C Shares may be subject to a contingent deferred sales charge. In
addition, certain redemptions of Class A Shares for shareholder accounts of $1
million or more may be subject to a contingent deferred sales charge.
Redemptions completed through an authorized dealer or a custodian of a
retirement plan account may involve additional fees charged by the dealer or
custodian.
Except as specified below under "Telephone Redemption Requests," payment for
shares redeemed generally will be made by check mailed within seven days after
receipt by Investor Services of the request and any other necessary documents in
proper form as described below. Such payment may be postponed or the right of
redemption suspended as provided by the rules of the SEC. Such payment may,
under certain circumstances, be paid wholly or in part by a distribution-in-kind
of portfolio securities which may result in brokerage costs and a gain or loss
for federal income tax purposes when such securities are sold. If the shares to
be redeemed have been recently purchased by check, Investor Services may delay
the payment of redemption proceeds until it confirms the purchase check has
cleared, which may take up to 15 days. A taxable gain or loss will be recognized
by the shareholder upon redemption of shares.
WRITTEN REDEMPTION REQUESTS. Shareholders may request a redemption of shares by
written request in proper form sent directly to Van Kampen Investor Services
Inc., PO Box 218256, Kansas City, MO 64121-8256. The request for redemption
should indicate the number of shares to be redeemed, the class designation of
such shares and the shareholder's account number. The redemption request must be
signed by all persons in whose names the shares are registered. Signatures must
conform exactly to the account registration. If the proceeds of the redemption
exceed $50,000, or if the proceeds are not to be paid to the record owner at the
record address, or if the record address has changed within the previous 30
days, signature(s) must be guaranteed by one of the following: a bank or trust
company; a broker-dealer; a credit union; a national securities exchange,
registered securities association or clearing agency; a savings and loan
association; or a federal savings bank.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption to be in proper form. In some
cases, however, additional documents may be necessary. In the case of
shareholders holding certificates, the certificates for the shares being
redeemed properly endorsed for transfer must accompany the redemption request.
In the event the redemption is requested by a corporation, partnership, trust,
fiduciary, executor or administrator, and the name and title of the
individual(s) authorizing such redemption is not shown in the account
registration, a copy of the corporate resolution or other legal documentation
appointing the authorized signer and certified within the prior 120 days must
accompany the redemption request. IRA redemption requests should be sent to the
IRA custodian to be forwarded to Investor Services. Contact the IRA custodian
for further information.
In the case of written redemption requests sent directly to Investor Services,
the redemption price is the net asset value per share next determined after the
request in proper form is received by Investor Services.
AUTHORIZED DEALER REDEMPTION REQUESTS. Shareholders may place redemption
requests through an authorized dealer. Orders sent through authorized dealers
must be at least $500 (unless transmitted by your authorized dealer via the
FUNDSERV network). The redemption price for such shares is the net asset value
per share next calculated after an order in proper form is received by an
authorized dealer provided such order is transmitted to the Distributor prior to
the Distributor's close of business on such day. It is the responsibility of
authorized dealers to transmit redemption requests received by them to the
Distributor so they will be
17
<PAGE>
received prior to such time. Redemptions completed through an authorized dealer
may involve additional fees charged by the dealer.
TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. A shareholder
automatically has telephone redemption privileges unless the shareholder
indicates otherwise by checking the applicable box on the application form
accompanying the prospectus. To redeem shares, contact the telephone transaction
line at (800) 421-5684. Van Kampen Investments, Investor Services and the Fund
employ procedures considered by them to be reasonable to confirm that
instructions communicated by telephone are genuine. Such procedures include
requiring certain personal identification information prior to acting upon
telephone instructions, tape-recording telephone communications and providing
written confirmation of instructions communicated by telephone. If reasonable
procedures are employed, none of Van Kampen Investments, Investor Services or
the Fund will be liable for following telephone instructions which it reasonably
believes to be genuine. Telephone redemptions may not be available if the
shareholder cannot reach Investor Services by telephone, whether because all
telephone lines are busy or for any other reason; in such case, a shareholder
would have to use the Fund's other redemption procedure previously described.
Requests received by Investor Services prior to 4:00 p.m., New York time, will
be processed at the next determined net asset value per share. These privileges
are available for all accounts other than retirement accounts or accounts with
shares represented by certificates. If an account has multiple owners, Investor
Services may rely on the instructions of any one owner.
For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check and amounts of at least
$1,000 up to $1 million may be redeemed daily if the proceeds are to be paid by
wire. The proceeds must be payable to the shareholder(s) of record and sent to
the address of record for the account or wired directly to their predesignated
bank account. This privilege is not available if the address of record has been
changed within 30 days prior to a telephone redemption request. Proceeds from
redemptions payable by wire transfer are expected to be wired on the next
business day following the date of redemption. The Fund reserves the right at
any time to terminate, limit or otherwise modify this redemption privilege.
OTHER REDEMPTION INFORMATION. The Fund may redeem shares of any shareholder
account that has a value on the date of the notice of redemption less than the
minimum initial investment as specified in this prospectus. At least 60 days
advance written notice of any such involuntary redemption will be provided to
the shareholder and such shareholder will be given an opportunity to purchase
the required value of additional shares at the next determined net asset value
without sales charge. Any involuntary redemption may only occur if the
shareholder account is less than the minimum initial investment due to
shareholder redemptions.
DISTRIBUTIONS FROM
THE FUND
In addition to any increase in the value of shares which the Fund may achieve,
shareholders may receive distributions from the Fund of dividends and capital
gain dividends.
DIVIDENDS. Dividends from stocks and interest earned from other investments are
the Fund's main sources of income. The Fund's present policy, which may be
changed at any time by the Board of Directors, is to distribute all or
substantially all of this income, less expenses, at least annually as dividends
to shareholders. Dividends are automatically applied to purchase additional
shares of the Fund at the next determined net asset value unless the shareholder
instructs otherwise.
The per share dividends on Class B Shares and Class C Shares may be lower than
the per share dividends on Class A Shares as a result of the higher distribution
fees and transfer agency costs applicable to such classes of shares.
CAPITAL GAIN DIVIDENDS. The Fund may realize capital gains or losses when it
sells securities, depending on whether the sales prices for the securities are
higher or lower than purchase prices. Net realized
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<PAGE>
capital gain represents the total profits from sales of securities minus total
losses from sales of securities (including any losses carried forward from prior
years), other than net short-term capital gain from sales of securities held for
one year or less. The Fund distributes any taxable net realized capital gain to
shareholders as capital gain dividends at least annually. As in the case of
dividends, capital gain dividends are automatically reinvested in additional
shares of the Fund at the next determined net asset value unless the shareholder
instructs otherwise.
SHAREHOLDER SERVICES
Listed below are some of the shareholder services the Fund offers to investors.
For a more complete description of the Fund's shareholder services, such as
investment accounts, share certificates, retirement plans, automated clearing
house deposits, dividend diversification and the systematic withdrawal plan,
please refer to the Statement of Additional Information or contact your
authorized dealer.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gain dividends in shares of the
Fund. Such shares are acquired at net asset value per share (without sales
charge) on the applicable payable date of the dividend or capital gain dividend.
Unless the shareholder instructs otherwise, the reinvestment plan is automatic.
This instruction may be made by telephone by calling (800) 341-2911
((800) 421-2833 for the hearing impaired) or by writing to Investor Services.
The investor may, on the initial application or prior to any declaration,
instruct that dividends be paid in cash and capital gain dividends be reinvested
at net asset value, or that both dividends and capital gain dividends be paid in
cash.
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under which
a shareholder can authorize Investor Services to charge a bank account on a
regular basis to invest predetermined amounts in the Fund. Additional
information is available from the Distributor or your authorized dealer.
EXCHANGE PRIVILEGE. Shares of the Fund may be exchanged for shares of the same
class of any Participating Fund based on the next computed net asset value per
share of each fund after requesting the exchange without any sales charge,
subject to certain limitations. Shares of the Fund may be exchanged for shares
of any Participating Fund only if shares of that Participating Fund are
available for sale; however, during periods of suspension of sales, shares of a
Participating Fund may be available for sale only to existing shareholders of a
Participating Fund. Shareholders seeking an exchange into a Participating Fund
should obtain and read the current prospectus for such fund prior to
implementing an exchange. A prospectus of any of the Participating Funds may be
obtained from any authorized dealer or the Distributor.
To be eligible for exchange, shares of the Fund must have been registered in the
shareholder's name for at least 30 days prior to an exchange. Shares of the Fund
registered in a shareholder's name for less than 30 days may only be exchanged
upon receipt of prior approval of the Adviser. It is the policy of the Adviser,
under normal circumstances, not to approve such requests.
When shares that are subject to a contingent deferred sales charge are exchanged
among Participating Funds, the holding period for purposes of computing the
contingent deferred sales charge is based upon the date of the initial purchase
of such shares from a Participating Fund. When such shares are redeemed and not
exchanged for shares of another Participating Fund, the shares are subject to
the contingent deferred sales charge schedule imposed by the Participating Fund
from which such shares were originally purchased.
Exchanges of shares are sales of one Participating Fund and purchases of another
Participating Fund. The sale may result in a gain or loss for federal income tax
purposes. If the shares sold have been held for less than 91 days, the sales
charge paid on such shares is carried over and included in the tax basis of the
shares acquired.
A shareholder wishing to make an exchange may do so by sending a written request
to Investor Services or by contacting the telephone transaction line at
(800) 421-5684. A shareholder automatically has telephone exchange privileges
unless the shareholder
19
<PAGE>
indicates otherwise by checking the applicable box on the application form
accompanying the prospectus. Van Kampen Investments, Investor Services and the
Fund employ procedures considered by them to be reasonable to confirm that
instructions communicated by telephone are genuine. Such procedures include
requiring certain personal identification information prior to acting upon
telephone instructions, tape-recording telephone communications, and providing
written confirmation of instructions communicated by telephone. If reasonable
procedures are employed, none of Van Kampen Investments, Investor Services or
the Fund will be liable for following telephone instructions which it reasonably
believes to be genuine. If the exchanging shareholder does not have an account
in the fund whose shares are being acquired, a new account will be established
with the same registration, dividend and capital gain dividend options (except
dividend diversification) and authorized dealer of record as the account from
which shares are exchanged, unless otherwise specified by the shareholder. In
order to establish a systematic withdrawal plan for the new account or reinvest
dividends from the new account into another fund, however, an exchanging
shareholder must submit a specific request. The Fund reserves the right to
reject any order to acquire its shares through exchange. In addition, the Fund
and other Participating Funds may restrict exchanges by shareholders engaged in
excessive trading by limiting or disallowing the exchange privileges to such
shareholders. For further information on these restrictions see the Statement of
Additional Information. The Fund may modify, restrict or terminate the exchange
privilege at any time on 60 days' notice to its shareholders of any termination
or material amendment.
For purposes of determining the sales charge rate previously paid on Class A
Shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchanged security was acquired through reinvestment, that
security is deemed to have been sold with a sales charge rate equal to the rate
previously paid on the security on which the dividend or distribution was paid.
If a shareholder exchanges less than all of such shareholder's securities, the
security upon which the highest sales charge rate was previously paid is deemed
exchanged first.
Exchange requests received on a business day prior to the time shares of the
funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares of the fund which the
shareholder is redeeming will be redeemed at the net asset value per share next
determined on the date of receipt. Shares of the new fund that the shareholder
is purchasing will also normally be purchased at the net asset value per share,
plus any applicable sales charge, next determined on the date of receipt.
Exchange requests received on a business day after the time shares of the funds
involved in the request are priced will be processed on the next business day in
the manner described herein.
INTERNET TRANSACTIONS. In addition to performing transactions on your account
through written instruction or by telephone, you may also perform certain
transactions through the internet. Please refer to our web site at
www.vankampen.com for further instruction. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated through the internet are genuine. Such
procedures include requiring use of a personal identification number prior to
acting upon internet instructions and providing written confirmation of
instructions communicated through the internet. If reasonable procedures are
employed, none of Van Kampen Investments, Investor Services or the Fund will be
liable for following instructions received through the internet which it
reasonably believes to be genuine. If an account has multiple owners, Investor
Services may rely on the instructions of any one owner.
FEDERAL INCOME
TAXATION
Distributions of the Fund's net investment income (consisting generally of
taxable income and net short-term capital gain) are taxable to shareholders as
ordinary income to the extent of the Fund's earnings and profits, whether paid
in cash or reinvested in additional shares. Distributions of the Fund's net
realized capital gain (which is the excess of net long-term capital gain over
net short-term
20
<PAGE>
capital loss) as capital gain dividends, if any, are taxable to shareholders as
long-term capital gains, whether paid in cash or reinvested in additional
shares, and regardless of how long the shares of the Fund have been held by such
shareholders. The Fund expects that its distributions will consist primarily of
ordinary income and capital gain dividends. Distributions in excess of the
Fund's earnings and profits will first reduce the adjusted tax basis of a
holder's shares and, after such adjusted tax basis is reduced to zero, will
constitute capital gains to such holder (assuming such shares are held as a
capital asset). Although distributions generally are treated as taxable in the
year they are paid, distributions declared in October, November or December,
payable to shareholders of record on a specified date in such month and paid
during January of the following year will be treated as having been distributed
by the Fund and received by the shareholders on the December 31st prior to the
date of payment. The Fund will inform shareholders of the source and tax status
of all distributions promptly after the close of each calendar year.
The sale or exchange of shares is a taxable transaction for federal income tax
purposes. Shareholders who sell their shares will generally recognize gain or
loss in an amount equal to the difference between their adjusted tax basis in
the shares sold and the amount received. If the shares are held as a capital
asset, the gain or loss will be a capital gain or loss. Any capital gains may be
taxed at different rates depending on how long the shareholder held such shares.
The Fund is required, in certain circumstances, to withhold 31% of dividends and
certain other payments, including redemptions, paid to shareholders who do not
furnish to the Fund their correct taxpayer identification number (in the case of
individuals, their social security number) and certain required certifications
or who are otherwise subject to backup withholding.
Foreign shareholders, including shareholders who are non-resident aliens, may be
subject to U.S. withholding tax on certain distributions (whether received in
cash or in shares) at a rate of 30% or such lower rate as prescribed by an
applicable treaty. Prospective foreign investors should consult their tax
advisers concerning the tax consequences to them of an investment in shares.
The Fund intends to qualify as a regulated investment company under federal
income tax law. If the Fund so qualifies and distributes each year to its
shareholders at least 90% of its net investment income, the Fund will not be
required to pay federal income taxes on any income it distributes to
shareholders. If the Fund distributes less than an amount equal to the sum of
98% of its ordinary income and 98% of its capital gain net income, then the Fund
will be subject to a 4% excise tax on the undistributed amounts.
The federal income tax discussion set forth above is for general information
only. Prospective investors should consult their own tax advisers regarding the
specific federal tax consequences of purchasing, holding, disposing, exchanging
or selling of shares, as well as the effects of state, local and foreign tax law
and any proposed tax law changes.
21
<PAGE>
BOARD OF DIRECTORS
AND OFFICERS
BOARD OF DIRECTORS
J. Miles Branagan Don G. Powell*
Jerry D. Choate Phillip B. Rooney
Richard M. DeMartini* Fernando Sisto
Linda Hutton Heagy Wayne W. Whalen*
R. Craig Kennedy Suzanne H. Woolsey
Jack E. Nelson Paul G. Yovovich
OFFICERS
Richard F. Powers, III*
PRESIDENT
Dennis J. McDonnell*
EXECUTIVE VICE PRESIDENT & CHIEF INVESTMENT OFFICER
A. Thomas Smith III*
VICE PRESIDENT AND SECRETARY
Edward C. Wood III*
VICE PRESIDENT
Michael H. Santo*
VICE PRESIDENT
Peter W. Hegel*
VICE PRESIDENT
Stephen L. Boyd*
VICE PRESIDENT
Joseph P. Stadler*
VICE PRESIDENT
John L. Sullivan*
VICE PRESIDENT, CHIEF FINANCIAL OFFICER & TREASURER
Curtis W. Morell*
VICE PRESIDENT & CHIEF ACCOUNTING OFFICER
Tanya M. Loden*
CONTROLLER
* "Interested Persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2911
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders, or
redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call (800) 421-2833
FUNDINFO-REGISTERED TRADEMARK-
For automated telephone services, call (800) 847-2424
WEB SITE
www.vankampen.com
VAN KAMPEN MID CAP GROWTH FUND
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
INVESTMENT ADVISER AND ADMINISTRATOR
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
INVESTMENT SUBADVISER
MILLER ANDERSON & SHERRERD, LLP
One Tower Bridge
West Conshohocken, PA 19428
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
TRANSFER AGENT
VAN KAMPEN INVESTOR SERVICES INC.
PO Box 218256
Kansas City, MO 64121-8256
Attn: Van Kampen Mid Cap Growth Fund
CUSTODIAN
THE CHASE MANHATTAN BANK
3 MetroTech Center
Brooklyn, NY 11245
Attn: Van Kampen Mid Cap Growth Fund
LEGAL COUNSEL
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
INDEPENDENT ACCOUNTANTS
PRICEWATERHOUSECOOPERS LLP
200 East Randolph Drive
Chicago, IL 60601
<PAGE>
VAN KAMPEN
MID CAP GROWTH FUND
PROSPECTUS
OCTOBER 28, 1999
A Statement of Additional Information, which contains more details about the
Fund, is incorporated by reference in its entirety into this prospectus.
You will find additional information about the Fund in its annual and semiannual
reports to shareholders. The annual report explains the market conditions and
investment strategies affecting the Fund's performance during its last fiscal
year.
You can ask questions or obtain a free copy of the Fund's reports or its
Statement of Additional Information by calling (800) 341-2911 from 7:00 a.m. to
7:00 p.m., Central time, Monday through Friday. Telecommunications Device for
the Deaf users may call (800) 421-2833. A free copy of the Fund's reports can
also be ordered from our web site at www.vankampen.com.
Information about the Fund, including its reports and Statement of Additional
Information, has been filed with the Securities and Exchange Commission (SEC).
It can be reviewed and copied at the SEC's Public Reference Room in Washington,
DC or on the EDGAR Database on the SEC's internet site (http://www.sec.gov).
Information on the operation of the SEC's Public Reference Room may be obtained
by calling the SEC at 1-202-942-8090. You can also request copies of these
materials, upon payment of a duplicating fee, by electronic request at the SEC's
e-mail address ([email protected]), or by writing the Public Reference Section
of the SEC, Washington, DC, 20549-0102.
[LOGO]
THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-7140.
MCG PRO 10/99
<PAGE>
VAN KAMPEN
VALUE FUND
Van Kampen Value Fund is a mutual fund with an investment
objective to seek to achieve an 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 Fund's investment adviser to be relatively
undervalued based upon various measures such as
price-to-earnings ratios and price-to-book ratios.
Shares of the Fund have not been approved or disapproved by
the Securities and Exchange Commission (SEC) or any state
regulator, and neither the SEC nor any state regulator has
passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
THIS PROSPECTUS IS DATED OCTOBER 28, 1999.
[LOGO]
<PAGE>
TABLE OF CONTENTS
Risk/Return Summary .....................................................3
Fees and Expenses of the Fund ...........................................5
Investment Objective, Policies and Risks ................................6
Investment Advisory Services ............................................9
Purchase of Shares .....................................................11
Redemption of Shares ...................................................18
Distributions from the Fund ............................................19
Shareholder Services ...................................................20
Federal Income Taxation ................................................22
Financial Highlights ...................................................23
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations, other than those contained in this
prospectus, in connection with the offer contained in this prospectus and, if
given or made, such other information or representations must not be relied upon
as having been authorized by the Fund, the Fund's investment adviser or the
Fund's distributor. This prospectus does not constitute an offer by the Fund or
by the Fund's distributor to sell or a solicitation of an offer to buy any of
the securities offered hereby in any jurisdiction to any person to whom it is
unlawful for the Fund to make such an offer in such jurisdiction.
<PAGE>
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The Fund is a mutual fund with an investment objective to seek to achieve an
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
Fund's investment adviser to be relatively undervalued based upon various
measures such as price-to-earnings ratios and price-to-book ratios.
INVESTMENT STRATEGIES
Under normal market conditions, the Fund's investment adviser seeks to achieve
the Fund's investment objective by investing at least 65% of the Fund's total
assets in a portfolio of equity securities that are deemed relatively
undervalued by the Fund's investment adviser. The Fund invests primarily in
common stocks and other equity securities, including preferred stock;
convertible securities and equity-linked securities; warrants and rights to
purchase common stock; and depositary receipts. The Fund generally invests in
equity securities of companies with market capitalizations greater than
$300 million.
The Fund emphasizes a "value" style of investing seeking securities of companies
that the Fund's investment adviser believes are undervalued relative to
companies in the stock market in general as measured by the S&P 500 Index. In
seeking to identify these companies, the Fund's investment adviser uses
traditional value measures, such as price-to-earnings and price-to-book ratios,
as well as fundamental research and analysis. Portfolio securities are typically
sold when the price of such securities advance and the perceived values are
realized. The Fund may purchase and sell certain derivative instruments (such as
options, futures, options on futures and forward contracts), which may subject
the Fund to additional risks.
INVESTMENT RISKS
An investment in the Fund is subject to investment risks, and you could lose
money on your investment in the Fund. There can be no assurance that the Fund
will achieve its investment objective.
MARKET RISK. Market risk is the possibility that the market values of securities
owned by the Fund will decline. Market risk may affect a single issuer,
industry, sector of the economy or the market as a whole. Investments in common
stocks and other equity securities generally are affected by changes in the
stock markets, which fluctuate substantially over time, sometimes suddenly and
sharply.
The Fund emphasizes a "value" style of investing. This style of investing is
subject to the risk that the valuations never improve or that the returns on
value equity securities are less than returns on other styles of investing or
the overall stock market. Different types of stocks tend to shift in and out of
favor depending on market and economic conditions. Thus, the value of the Fund's
investments will vary and at times may be lower or higher than that of other
types of funds. During an overall stock market decline, stock prices of small-
and medium-sized companies often fluctuate more and may fall more than the stock
prices of larger-sized companies.
RISKS OF USING DERIVATIVE INVESTMENTS. In general terms, a derivative investment
is one whose value depends on (or is derived from) the value of an underlying
asset, interest rate or index. Options, futures, options on futures and forward
contracts are examples of derivatives. Derivative investments involve risks
different from direct investment in underlying securities. These risks include
imperfect correlation between the value of the instruments and the underlying
assets; risks of default by the other party to certain transactions; risks that
the transactions may result in losses that partially or completely offset gains
in portfolio positions; risks that the transactions may not be liquid; and
manager risk.
MANAGER RISK. As with any managed fund, the Fund's investment adviser may not be
successful in selecting the best-performing securities or investment techniques
and the Fund's performance may lag behind that of similar funds.
INVESTOR PROFILE
In light of the Fund's investment objective and strategies, the Fund may be
appropriate for investors who:
- - Seek above-average total return over the long term
3
<PAGE>
- - Can withstand volatility in the value of their Fund shares
- - Wish to add to their investment portfolio a fund that emphasizes a "value"
style of investing in equity securities
An investment in the Fund is not a deposit of any bank or other insured
depository institution. Your investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
An investment in the Fund may not be appropriate for all investors. The Fund is
not intended to be a complete investment program, and investors should consider
their long-term investment goals and financial needs when making an investment
decision about the Fund. An investment in the Fund is intended to be a long-term
investment, and the Fund should not be used as a trading vehicle.
ANNUAL PERFORMANCE
One way to measure the risks of investing in the Fund is to look at how its
performance varies from year-to-year. The following chart shows the annual
return of the Fund's Class A Shares over the calendar year prior to the date of
this prospectus. Sales loads are not reflected in this chart. If these sales
loads had been included, the return shown below would have been lower. Remember
that the past performance of the Fund is not indicative of its future
performance.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ANNUAL RETURN
<S> <C>
1998 -2.37%
</TABLE>
The Fund's return for the nine-month period ended September 30, 1999 was -4.24%.
The annual return variability of the Fund's Class B Shares and Class C Shares
would be substantially similar to that shown for the Class A Shares because all
of the Fund's shares are invested in the same portfolio of securities; however,
the actual annual returns of the Class B Shares and Class C Shares would be
lower than the annual returns shown for the Fund's Class A Shares because of
differences in the expenses borne by each class of shares.
During the one-year period shown in the bar chart, the highest quarterly return
was 13.71% (for the quarter ended December 31, 1998) and the lowest quarterly
return was -18.09% (for the quarter ended September 30, 1998).
COMPARATIVE PERFORMANCE
As a basis for evaluating the Fund's performance and risks, the table below
shows how the Fund's performance compares with the Standard & Poor's 500 Index,*
a broad-based market index that the Fund's investment adviser believes is an
appropriate benchmark for the Fund. The Fund's performance figures include the
maximum sales charges paid by investors. The index performance figures do not
include any commissions or sales charges that would be paid by investors
purchasing the securities represented by the index. Average annual total returns
are shown for the periods ended December 31, 1998 (the most recently completed
calendar year prior to the date of this prospectus). Remember that the past
performance of the Fund is not indicative of its future performance.
<TABLE>
<CAPTION>
AVERAGE ANNUAL
TOTAL RETURNS
FOR THE
PERIODS ENDED PAST SINCE
DECEMBER 31, 1998 1 YEAR INCEPTION
- -----------------------------------------------------
<S> <C> <C>
Van Kampen Value
Fund
- -- Class A Shares -8.02% -4.28%(1)
Standard & Poor's
500 Index 28.57% 24.17%(2)
....................................................
Van Kampen Value
Fund
- -- Class B Shares -7.91% -3.76%(1)
Standard & Poor's
500 Index 28.57% 24.17%(2)
....................................................
Van Kampen Value
Fund
- -- Class C Shares -4.02% -1.14%(1)
Standard & Poor's
500 Index 28.57% 24.17%(2)
....................................................
INCEPTION DATES: (1) 7/7/97, (2) 6/30/97.
</TABLE>
* THE STANDARD & POOR'S 500 INDEX CONSISTS OF 500 WIDELY-HELD COMMON
STOCKS OF COMPANIES WITH MARKET CAPITALIZATION OF $1 BILLION OR MORE
THAT ARE A REPRESENTATIVE SAMPLE OF APPROXIMATELY 100 INDUSTRIES, CHOSEN
MAINLY FOR MARKET SIZE, LIQUIDITY AND INDUSTRY GROUP REPRESENTATION
(ASSUMES DIVIDENDS ARE REINVESTED).
4
<PAGE>
FEES AND EXPENSES
OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
- ------------------------------------------------------------
<S> <C> <C> <C>
</TABLE>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------
Maximum sales charge
(load) imposed on
purchases (as a
percentage of offering
price) 5.75%(1) None None
...........................................................
Maximum deferred sales
charge (load) (as a
percentage of the
lesser of original
purchase price or
redemption proceeds) None(2) 5.00%(3) 1.00%(4)
...........................................................
Maximum sales charge
(load) imposed on
reinvested dividends None None None
...........................................................
Redemption fees None None None
...........................................................
Exchange fee None None None
...........................................................
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------
Management Fees(5) 0.80% 0.80% 0.80%
...........................................................
Distribution and/or
Service (12b-1)
Fees(6) 0.25% 1.00%(7) 1.00%(7)
...........................................................
Other Expenses(5) 0.43% 0.43% 0.43%
...........................................................
Total Annual Fund
Operating Expenses 1.48% 2.23% 2.23%
...........................................................
</TABLE>
(1) REDUCED FOR PURCHASES OF $50,000 AND OVER. SEE "PURCHASE OF SHARES --
CLASS A SHARES."
(2) INVESTMENTS OF $1 MILLION OR MORE ARE NOT SUBJECT TO ANY SALES CHARGE AT
THE TIME OF PURCHASE, BUT A DEFERRED SALES CHARGE OF 1.00% MAY BE
IMPOSED ON CERTAIN REDEMPTIONS MADE WITHIN ONE YEAR OF THE PURCHASE. SEE
"PURCHASE OF SHARES -- CLASS A SHARES."
(3) THE MAXIMUM DEFERRED SALES CHARGE IS 5.00% IN THE FIRST YEAR AFTER
PURCHASE, DECLINING THEREAFTER AS FOLLOWS:
YEAR 1-5.00%
YEAR 2-4.00%
YEAR 3-3.00%
YEAR 4-2.50%
YEAR 5-1.50%
AFTER-NONE
SEE "PURCHASE OF SHARES -- CLASS B SHARES."
(4) THE MAXIMUM DEFERRED SALES CHARGE IS 1.00% IN THE FIRST YEAR AFTER
PURCHASE AND 0.00% THEREAFTER. SEE "PURCHASE OF SHARES -- CLASS C
SHARES."
(5) THE FUND'S INVESTMENT ADVISER IS CURRENTLY WAIVING OR REIMBURSING A
PORTION OF THE FUND'S MANAGEMENT FEES AND OTHER EXPENSES SUCH THAT THE
ACTUAL TOTAL ANNUAL FUND OPERATING EXPENSES WERE 1.45% FOR CLASS A
SHARES, 2.20% FOR CLASS B SHARES AND 2.20% FOR CLASS C SHARES FOR THE
FISCAL YEAR ENDED JUNE 30, 1999. THE FEE WAIVERS OR EXPENSE REIMBURSE-
MENTS CAN BE TERMINATED AT ANY TIME.
(6) CLASS A SHARES ARE SUBJECT TO AN ANNUAL SERVICE FEE OF UP TO 0.25% OF
THE AVERAGE DAILY NET ASSETS ATTRIBUTABLE TO SUCH CLASS OF SHARES.
CLASS B SHARES AND CLASS C SHARES ARE EACH SUBJECT TO A COMBINED ANNUAL
DISTRIBUTION AND SERVICE FEE OF UP TO 1.00% OF THE AVERAGE DAILY NET
ASSETS ATTRIBUTABLE TO SUCH CLASS OF SHARES. SEE "PURCHASE OF SHARES."
(7) BECAUSE DISTRIBUTION AND/OR SERVICE (12B-1) FEES ARE PAID OUT OF THE
FUND'S ASSETS ON AN ONGOING BASIS, OVER TIME THESE FEES WILL INCREASE
THE COST OF YOUR INVESTMENT AND MAY COST YOU MORE THAN PAYING OTHER
TYPES OF SALES CHARGES.
EXAMPLE:
The following example is intended to help you compare the cost of investing in
the Fund with the costs of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same each year (except for the ten-year
amounts for Class B Shares which reflect the conversion of Class B Shares to
Class A Shares after eight years). Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $717 $1,016 $1,336 $2,242
................................................................
Class B Shares $726 $ 997 $1,345 $2,376*
................................................................
Class C Shares $326 $ 697 $1,195 $2,565
................................................................
</TABLE>
You would pay the following expenses if you did not redeem your shares:
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
- -----------------------------------------------------------------
Class A Shares $717 $1,016 $1,336 $2,242
................................................................
Class B Shares $226 $ 697 $1,195 $2,376*
................................................................
Class C Shares $226 $ 697 $1,195 $2,565
................................................................
* BASED ON CONVERSION TO CLASS A SHARES AFTER EIGHT YEARS.
5
<PAGE>
INVESTMENT OBJECTIVE,
POLICIES AND RISKS
The Fund's investment objective is to seek to achieve an 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 Fund's investment adviser to be
relatively undervalued based on various measures such as prices-to-earnings
ratios and price-to-book ratios. The Fund's investment objective is a
fundamental policy and may not be changed without the approval of a majority of
shareholders of the Fund's outstanding voting securities, as defined in the
Investment Company Act of 1940, as amended (the "1940 Act"). There are risks
inherent in all investments in securities; accordingly, there can be no
assurance that the Fund will achieve its investment objective.
Under normal market conditions, the Fund's investment adviser seeks to achieve
the Fund's investment objective by investing at least 65% of the Fund's total
assets in a portfolio of equity securities that are deemed relatively
undervalued by the Fund's investment adviser. The Fund generally invests in
equity securities of companies with market capitalizations greater than $300
million. The Fund emphasizes a "value" style of investing seeking securities of
companies that the Fund's investment adviser believes are undervalued relative
to companies in the stock market in general as measured by the S&P 500 Index.
The Fund applies a disciplined investment approach using traditional value
measures to identify potential investments and fundamental research and analysis
to select the most promising of those securities identified. In selecting
securities for investment, the Fund focuses on those companies with strong
fundamentals, promising growth prospects and attractive valuations also referred
to as value companies. The Fund's investment style presents the risk that the
valuations of such companies never improve or that the returns on value
investments are less than returns on other styles of investing or the overall
stock market. Stocks of different types, such as "value" stocks or "growth"
stocks, tend to shift in and out of favor depending on market and economic
conditions. Thus, the value of the Fund's investments in "value" stocks will
vary and at times may be lower or higher than that of other types of funds.
The Fund emphasizes an investment approach that combines a highly structured buy
discipline with a formal sell discipline. The Fund's portfolio generally
consists of broadly diversified stocks with low price-to-earnings ratios. After
screening for low price-to-earnings ratios, the Fund's investment adviser
analyzes and compares other measures of value against the stock market in
general. The stocks selected for investment generally are those issued by
companies with relative valuations below that which is merited based upon the
companies relative growth and profit characteristics. The Fund's investment
adviser strictly adheres to the Fund's sell approach which requires that
portfolio investments be automatically sold once the price of such securities
advance and the perceived values are realized.
The Fund invests primarily in common stocks. Common stocks are shares of a
corporation or other entity that entitle the holder to a pro rata share of the
profits of the corporation, if any, without preference over any other class of
securities, including such entity's debt securities, preferred stock and other
senior equity securities. Common stock usually carries with it the right to vote
and frequently an exclusive right to do so.
While the Fund invests primarily in common stocks, it also may invest in other
equity securities, including preferred stocks, convertible securities and
equity-linked securities, rights and warrants to purchase common stock and
depositary receipts. Preferred stock generally has a preference as to dividends
and liquidation over an issuer's common stock but ranks junior to debt
securities in an issuer's capital structure. Unlike interest payments on debt
securities, preferred stock dividends are payable only if declared by the
issuer's board of directors. Preferred stock also may be subject to optional or
mandatory redemption provisions.
A convertible security is a bond, debenture, note, preferred stock or other
security that may be converted into or exchanged for a prescribed amount of
common stock or other equity security of the same or a different issuer or into
cash within a particular
6
<PAGE>
period of time at a specified price or formula. A convertible security generally
entitles the holder to receive interest paid or accrued on debt securities or
the dividend paid on preferred stock until the convertible security matures or
is redeemed, converted or exchanged. Before conversion, convertible securities
generally have characteristics similar to both debt and equity securities. The
value of convertible securities tends to decline as interest rates rise and,
because of the conversion feature, tends to vary with fluctuations in the market
value of the underlying equity securities. Convertible securities ordinarily
provide a stream of income with generally higher yields than those of common
stock of the same or similar issuers. Convertible securities generally rank
senior to common stock in a corporation's capital structure but are usually
subordinated to comparable nonconvertible securities. Convertible securities
generally do not participate directly in any dividend increases or decreases of
the underlying equity securities although the market prices of convertible
securities may be affected by any such dividend changes or other changes in the
underlying equity securities.
Equity-linked securities are instruments whose value is based upon the value of
one or more underlying equity securities, a reference rate or an index.
Equity-linked securities come in many forms and may include features, among
others, such as the following: (i) may be issued by the issuer of the underlying
equity security or by a company other than the one to which the instrument is
linked (usually an investment bank), (ii) may convert into equity securities,
such as common stock, within a stated period from the issue date or may be
redeemed for cash or some combination of cash and the linked security at a value
based upon the value of the underlying equity security within a stated period
from the issue date, (iii) may have various conversion features prior to
maturity at the option of the holder or the issuer or both, (iv) may limit the
appreciation value with caps or collars of the value of the underlying equity
security and (v) may have fixed, variable or no interest payments during the
life of the security which reflect the actual or a structured return relative to
the underlying dividends of the linked equity security. Investments in
equity-linked securities may subject the Fund to additional risks not ordinarily
associated with investments in other equity securities. Because equity-linked
securities are sometimes issued by a third party other than the issuer of the
linked security, the Fund is subject to risks if the underlying stock
underperforms and if the issuer defaults on the payment of the dividend or the
common stock at maturity. In addition, the trading market for particular
equity-linked securities may be less liquid, making it difficult for the Fund to
dispose of a particular security when necessary and reduced liquidity in the
secondary market for any such securities may make it more difficult to obtain
market quotations for valuing the Fund's portfolio.
Rights and warrants entitle the holder to buy equity securities at a specific
price for a specific period of time. Rights are similar to warrants except that
they have a substantially shorter duration. Rights and warrants may be
considered more speculative and less liquid than certain other types of
investments in that they do not entitle a holder to dividends or voting rights
with respect to the underlying securities nor do they represent any rights in
the assets of the issuing company and may lack a secondary market.
DERIVATIVE INSTRUMENTS
The Fund may, but is not required to, use various investment strategic
transactions described below to earn income, facilitate portfolio management and
mitigate risks. Such strategic transactions are generally accepted under modern
portfolio management and are regularly used by many mutual funds and other
institutional investors. Although the Fund's investment adviser seeks to use the
practices to further the Fund's investment objective, no assurance can be given
that these practices will achieve this result.
The Fund may purchase and sell derivative instruments such as exchange-listed
and over-the-counter put and call options on securities, financial futures,
equity, fixed-income and interest rate indices, and other financial instruments,
futures contracts and options thereon (including but not limited to securities
index futures, foreign currency exchange futures, interest rate futures and
other financial futures), structured notes, swaps, caps, floors or collars and
enter into various currency transactions such as currency forward contracts,
currency futures contracts, currency swaps or options on currency or currency
futures. In addition, the Fund may invest in other
7
<PAGE>
derivative instruments that are developed over time if their use would be
consistent with the objective of the Fund. Collectively, all of the above are
referred to as "Strategic Transactions." The Fund generally seeks to use
Strategic Transactions as a portfolio management or hedging technique to seek to
protect against possible adverse changes in the market value of securities held
in or to be purchased for the Fund's portfolio, protect the Fund's unrealized
gains, facilitate the sale of certain securities for investment purposes,
protect against changes in currency exchange rates or to adjust the exposure to
a particular currency, manage the effective maturity or duration of the Fund's
portfolio, establish positions in the derivatives markets as a substitute for
purchasing or selling particular securities, including, for example, when the
Fund adjusts its exposure to a market in response to changes in investment
strategy, when doing so provides more liquidity than the direct purchase of the
securities underlying such derivatives, when the Fund 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. The Fund may invest up to 50%
of its total assets in futures contracts and options contracts (measured by the
aggregate notional amount of such outstanding contracts).
Strategic Transactions have risks including the imperfect correlation between
the value of such instruments and the underlying assets, the possible default of
the other party to the transaction or illiquidity of the derivative instruments.
Furthermore, the ability to successfully use Strategic Transactions depends on
the Fund's investment adviser's ability to predict pertinent market movements,
which cannot be assured. Thus, the use of Strategic Transactions may result in
losses greater than if they had not been used, may require the Fund to sell or
purchase portfolio securities at inopportune times or for prices other than
current market values, may limit the amount of appreciation the Fund can
otherwise realize on an investment, or may cause the Fund to hold a security
that it might otherwise sell. The use of currency transactions can result in the
Fund incurring losses because of the imposition of exchange controls, suspension
of settlements or the inability of the Fund to deliver or receive a specified
currency. In addition, amounts paid as premiums or cash or other assets held in
margin accounts with respect to Strategic Transactions are not otherwise
available to the Fund for investment purposes.
A more complete discussion of Strategic Transactions and their risks is
contained in the Fund's Statement of Additional Information. The Statement of
Additional Information can be obtained by investors free of charge as described
on the back cover of this prospectus.
OTHER INVESTMENT PRACTICES AND RISK FACTORS
For cash management purposes, the Fund may engage in repurchase agreements with
broker-dealers, banks and other financial institutions in order to earn a return
on temporarily available cash. Such transactions are subject to the risk of
default by the other party.
The Fund may lend its portfolio securities to broker-dealers, banks or other
recognized institutional borrowers of securities. The Fund may incur lending
fees and other costs in connection with securities lending, and securities
lending is subject to the risk of default by the other party.
The Fund may invest up to 15% its net assets in illiquid and certain restricted
securities. Such securities may be difficult or impossible to sell at the time
and the price that the Fund would like. Thus, the Fund may have to sell such
securities at a lower price, sell other securities instead to obtain cash or
forego other investment opportunities.
Further information about these types of investments and other investment
practices that may be used by the Fund is contained in the Statement of
Additional Information.
The Fund may sell securities without regard to the length of time they have been
held in order to take advantage of new investment opportunities or when the
Fund's investment adviser believes the potential for high total return has
lessened or for other reasons. The Fund's portfolio turnover is shown under the
heading "Financial Highlights." The portfolio turnover rate may be expected to
vary from year to year. A high portfolio turnover rate (100% or more) increases
the Fund's transactions costs (including
8
<PAGE>
brokerage commissions or dealer costs) and a high portfolio turnover rate may
result in the realization of more short-term capital gains than if the Fund had
a lower portfolio turnover rate. Increases in the Fund's transaction costs would
adversely impact the Fund's performance. The turnover rate will not be a
limiting factor, however, if the Fund's investment adviser considers portfolio
changes appropriate.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Fund may on a temporary basis hold cash or invest a
portion or all of its assets in money-market instruments including obligations
of the U.S. government, its agencies or instrumentalities, obligations of
foreign sovereignties, other high-quality debt securities, including prime
commercial paper, repurchase agreements and bank obligations, such as bankers
acceptances and certificates of deposit (including Eurodollar certificates of
deposit). Under normal market conditions, the potential for high total return on
these securities will tend to be lower than the potential for high total return
on other securities that may be owned by the Funds. In taking such a defensive
position, the Fund would not be pursuing and may not achieve its investment
objective.
YEAR 2000 RISKS. Like other mutual funds, financial and business organizations
and individuals around the world, the Fund could be adversely affected if the
computer systems used by the Fund's investment adviser, subadviser and other
service providers do not properly process and calculate date-related information
and data from and after January 1, 2000. This is commonly known as the "Year
2000 Problem." The Fund's investment adviser and subadviser are taking steps
that they believe are reasonably designed to address the Year 2000 Problem with
respect to computer systems that they use and to obtain reasonable assurances
that comparable steps are being taken by the Fund's other major service
providers. At this time, there can be no assurances that these steps will be
sufficient to avoid any adverse impact to the Fund. In addition, the Year 2000
Problem may adversely affect the markets and the issuers of securities in which
the Fund may invest which, in turn, may adversely affect the net asset values of
shares of the Fund. Improperly functioning trading systems may result in
settlement problems and liquidity issues. In addition, corporate and
governmental data processing errors may result in production problems for
individual companies or issuers and overall economic uncertainty. Earnings of
individual issuers will be affected by remediation costs, which may be
substantial and may be reported inconsistently in U.S. and foreign financial
statements. Efforts in foreign countries to remediate the potential Year 2000
Problem may not be as extensive as those in the U.S. As a result, the operations
of foreign markets and issuers may be disrupted by the Year 2000 Problem which
could adversely affect the Fund's portfolio. The risks are greater with respect
to certain developing or emerging market countries because there is an increased
likelihood that issuers of securities of such countries cannot anticipate or
effectively manage the effects of computer programs and the Year 2000 Problem.
Accordingly, the Fund's investments may be adversely affected. The statements
above are subject to the Year 2000 Information and Readiness Disclosure Act
which may limit the legal rights regarding the use of such statements in the
case of a dispute.
INVESTMENT ADVISORY
SERVICES
INVESTMENT ADVISER
Van Kampen Investment Advisory Corp. is the investment adviser (the "Adviser" or
"Advisory Corp.") and administrator of the Fund. The Adviser is a wholly owned
subsidiary of Van Kampen Investments Inc. ("Van Kampen Investments"). Van Kampen
Investments is a diversified asset management company with more than two million
retail investor accounts, extensive capabilities for managing institutional
portfolios, and more than $79 billion under management or supervision as of
September 30, 1999. Van Kampen Investments' more than 50 open-end and 39
closed-end funds and more than 2,500 unit investment trusts are professionally
distributed by leading authorized dealers nationwide. Van Kampen Funds Inc., the
distributor of the Fund (the "Distributor") and the sponsor of the funds
mentioned above, is also a wholly owned subsidiary of Van Kampen Investments.
Van Kampen Investments is an indirect wholly owned subsidiary of Morgan Stanley
Dean Witter & Co. The Adviser's principal office is located at 1 Parkview Plaza,
PO Box 5555, Oakbrook Terrace, Illinois 60181-5555.
9
<PAGE>
ADVISORY AGREEMENT AND ADMINISTRATION AGREEMENT. The Fund retains the Adviser to
manage the investment of its assets and to place orders for the purchase and
sale of its portfolio securities. Under an investment advisory agreement between
the Adviser and the Fund (the "Advisory Agreement"), the Fund pays the Adviser a
monthly fee computed based upon an annual rate applied to the average daily net
assets of the Fund as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS % PER ANNUM
- ---------------------------------------
<S> <C>
FIRST $500 MILLION 0.80 OF 1.00%
......................................
NEXT $500 MILLION 0.75 OF 1.00%
......................................
OVER $1 BILLION 0.70 OF 1.00%
......................................
</TABLE>
Applying this fee schedule, the Fund paid the Adviser an advisory fee at the
effective rate of 0.80% of the Fund's average daily net assets for the Fund's
fiscal year ended June 30, 1999.
The Fund also retains the Adviser to provide administrative services for the
Fund's day-to-day operations. Under an administration agreement, between the
Adviser and the Fund, the Fund pays a monthly administration fee computed based
upon an annual rate of 0.25% applied to the average daily net assets of the
Fund.
The Adviser furnishes offices, necessary facilities and equipment, provides
administrative services, and permits its officers and employees to serve without
compensation as directors or officers of the Fund if elected to such positions.
The Fund pays all charges and expenses of its day-to-day operations, including
the compensation of directors of the Fund (other than those who are affiliated
persons of the Adviser, Distributor or Van Kampen Investments), the charges and
expenses of legal counsel and independent accountants, distribution fees,
service fees, custodian fees, the costs of providing reports to shareholders,
and all other ordinary business expenses not specifically assumed by the
Adviser.
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen Asset Management
Inc. ("Asset Management").
INVESTMENT SUBADVISER
Miller Anderson & Sherrerd, LLP (the "Subadviser" or, "MAS") is the Subadviser
of the Fund. The Subadviser is a Pennsylvania limited liability partnership
founded in 1969. The Subadviser is a wholly owned subsidiary of Morgan Stanley
Dean Witter & Co, and is and affiliate of the Adviser. The Subadviser provides
investment advisory services to employee benefit plans, endowment funds,
foundations and other institutional investors. At June 30, 1999, the Subadviser,
together with its affiliated institutional asset management companies, managed
assets of approximately $175.3 billion, including assets under fiduciary advice.
The Subadviser's principal office is located at is One Tower Bridge, West
Conshohocken, Pennsylvania 19428.
SUBADVISORY AGREEMENT. The Adviser has entered into a subadvisory agreement with
the Subadviser to assist the Adviser in performing its investment advisory
functions. The Adviser pays the Subadviser on a monthly basis a portion of the
net advisory fees the Adviser receives from the Fund.
GENERAL
From time to time, the Adviser, the Subadviser or the Distributor may
voluntarily undertake to reduce the Fund's expenses by reducing the fees payable
to them or by reducing other expenses of the Fund in accordance with such
limitations as the Adviser, Subadviser or Distributor may establish.
PERSONAL INVESTMENT POLICIES. The Fund, the Adviser and the Subadviser have
adopted Codes of Ethics designed to recognize the fiduciary relationship among
the Fund, the Adviser and the Subadviser and their respective employees. The
Codes of Ethics permit directors, trustees, officers and employees to buy and
sell securities for their personal accounts subject to certain restrictions.
Persons with access to certain sensitive information are subject to
pre-clearance and other procedures designed to prevent conflicts of interest.
PORTFOLIO MANAGEMENT. Robert J. Marcin, Richard M. Behler and Nicholas J. Kovich
have been responsible as comanagers for the day-to-day management of the Fund's
investment portfolio since its inception.
10
<PAGE>
Mr. Marcin is a Managing Director of Morgan Stanley Dean Witter & Co. He joined
the Subadviser in 1988. Mr. Marcin assumed responsibility for the MAS Funds'
Value Fund in 1990 and MAS Funds' Equity Fund in 1994. Mr. Marcin holds a B.A.
(Cum Laude) from Dartmouth College and is a Chartered Financial Analyst.
Mr. Behler is a Principal of Morgan Stanley Dean Witter & Co. He joined the
Subadviser in 1995. He assumed responsibility for MAS Funds' Value Fund in 1996.
Mr. Behler served as a fund manager from 1992 through 1995 for Moore Capital
Management. 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.
Mr. Kovich is a Managing Director of Morgan Stanley Dean Witter & Co. He joined
the Subadviser in 1988. Mr. Kovich assumed responsibility for MAS Funds' Equity
Fund in 1994 and MAS Funds' Value Fund in 1997. Mr. Kovich received a B.S. in
Chemical Engineering and an M.B.A. from University of Kansas.
PURCHASE OF SHARES
GENERAL
The Fund offers three classes of shares designated as Class A Shares, Class B
Shares and Class C Shares. By offering three classes of shares, the Fund permits
each investor to choose the class of shares that is most beneficial given the
amount to be invested and the length of time the investor expects to hold the
shares.
Initial investments must be at least $1,000 for each class of shares, and
subsequent investments must be at least $25 for each class of shares. Both
minimums may be waived by the Distributor for plans involving periodic
investments.
Each class of shares represents an interest in the same portfolio of investments
of the Fund and has the same rights except that (i) Class A Shares generally
bear the sales charge expenses at the time of purchase while Class B Shares and
Class C Shares bear the sales charge expenses at the time of redemption and any
expenses (including higher distribution fees and transfer agency costs)
resulting from such deferred sales charge arrangement, (ii) generally, each
class of shares has exclusive voting rights with respect to approvals of the
Rule 12b-1 distribution plan and service plan (each as described below) under
which its distribution fee or service fee is paid, (iii) each class of shares
has different exchange privileges, (iv) certain classes of shares are subject to
a conversion feature and (v) certain classes of shares have different
shareholder service options available.
The offering price of the Fund's shares is based upon the Fund's net asset value
per share (plus sales charges, where applicable). The net asset values per share
of the Class A Shares, Class B Shares and Class C Shares are generally expected
to be substantially the same. In certain circumstances, however, the per share
net asset values of the classes of shares may differ from one another,
reflecting the daily expense accruals of the higher distribution fees and
transfer agency costs applicable to the Class B Shares and Class C Shares and
the differential in the dividends that may be paid on each class of shares.
The net asset value per share for each class of shares of the Fund is determined
once daily as of the close of trading on the New York Stock Exchange (the
"Exchange") (currently 4:00 p.m., New York time) each day the Exchange is open
for trading except on any day on which no purchase or redemption orders are
received or there is not a sufficient degree of trading in the Fund's portfolio
securities such that the Fund's net asset value per share might be materially
affected. The Fund's Board of Directors reserves the right to calculate the net
asset value per share and adjust the offering price based thereon more
frequently than once daily if deemed desirable. Net asset value per share for
each class is determined by dividing the value of the Fund's portfolio
securities, cash and other assets (including accrued interest) attributable to
such class, less all liabilities (including accrued expenses) attributable to
such class, by the total number of shares of the class outstanding. Such
computation is made by using prices as of the close of trading on the Exchange
and (i) valuing securities listed or traded on a national securities exchange at
the closing price, or if no
11
<PAGE>
closing price is available, at the last reported sale price, and if there has
been no sale that day, at the mean between the last reported bid and asked
prices, (ii) valuing over-the-counter securities at the last reported sale price
from the National Association of Securities Dealers Automated Quotations
("NASDAQ"), (iii) valuing unlisted securities and any securities for which
market quotations are not readily available at the average of the mean between
the current reported bid and asked prices obtained from reputable brokers and
(iv) valuing any other assets at fair value as determined in good faith by the
Adviser in accordance with procedures established by the Fund's Board of
Directors. Debt securities with remaining maturities of 60 days or less are
valued on an amortized cost basis, which approximates market value.
The Fund has adopted a distribution plan (the "Distribution Plan") with respect
to each class of its shares pursuant to Rule 12b-1 under the 1940 Act. The Fund
also has adopted a service plan (the "Service Plan") with respect to each class
of its shares. Under the Distribution Plan and the Service Plan, the Fund pays
distribution fees in connection with the sale and distribution of its shares and
service fees in connection with the provision of ongoing services to
shareholders of each class.
The amount of distribution and service fees varies among the classes offered by
the Fund. Because these fees are paid out of the Fund's assets on an ongoing
basis, these fees will increase the cost of your investment in the Fund. By
purchasing a class of shares subject to higher distribution and service fees,
you may pay more over time than on a class of shares with other types of sales
charge arrangements. Long-term shareholders may pay more than the economic
equivalent of the maximum front-end sales charges permitted by the rules of the
National Association of Securities Dealers, Inc. ("NASD"). The net income
attributable to a class of shares will be reduced by the amount of the
distribution fees and other expenses of the Fund associated with such class of
shares. To assist investors in comparing classes of shares, the tables under the
heading "Fees and Expenses of the Fund" provide a summary of sales charges and
expenses and an example of the sales charges and expenses of the Fund applicable
to each class of shares.
The shares are offered to the public on a continuous basis through the
Distributor as principal underwriter, which is located at 1 Parkview Plaza, PO
Box 5555, Oakbrook Terrace, Illinois 60181-5555. Shares also are offered through
members of the NASD who are acting as securities dealers ("dealers") and NASD
members or eligible non-NASD members who are acting as brokers or agents for
investors ("brokers"). "Dealers" and "brokers" are sometimes referred to herein
as "authorized dealers."
Shares may be purchased on any business day by completing the application
accompanying this prospectus and forwarding the application, directly or through
an authorized dealer, to the Fund's shareholder service agent, Van Kampen
Investor Services Inc. ("Investor Services"), a wholly owned subsidiary of Van
Kampen Investments. When purchasing shares of the Fund, investors must specify
whether the purchase is for Class A Shares, Class B Shares or Class C Shares.
Sales personnel of authorized dealers distributing the Fund's shares are
entitled to receive compensation for selling such shares and may receive
differing compensation for selling Class A Shares, Class B Shares or Class C
Shares.
The offering price for shares is based upon the next calculation of net asset
value per share (plus sales charges, where applicable) after an order is
received by Investor Services. Orders received by authorized dealers prior to
the close of the Exchange are priced based on the date of receipt provided such
order is transmitted to Investor Services prior to Investor Services' close of
business on such date. Orders received by authorized dealers after the close of
the Exchange or transmitted to Investor Services after its close of business are
priced based on the date of the next computed net asset value per share provided
they are received by Investor Services prior to Investor Services' close of
business on such date. It is the responsibility of authorized dealers to
transmit orders received by them to Investor Services so they will be received
in a timely manner.
The Fund and the Distributor reserve the right to refuse any order for the
purchase of shares. The Fund also reserves the right to suspend the sale of the
Fund's shares in response to conditions in the securities markets or for other
reasons. Shares of the
12
<PAGE>
Fund may be sold in foreign countries where permissible.
Investor accounts will automatically be credited with additional shares of the
Fund after any Fund distributions, such as dividends and capital gain dividends,
unless the investor instructs the Fund otherwise. Investors wishing to receive
cash instead of additional shares should contact the Fund at (800) 341-2911 or
by writing to the Fund, c/o Van Kampen Investors Services Inc., PO Box 218256,
Kansas City, MO 64121-8256.
CLASS A SHARES
Class A Shares of the Fund are sold at net asset value plus an initial maximum
sales charge of up to 5.75% of the offering price (or 6.10% of the net amount
invested), reduced on investments of $50,000 or more as follows:
CLASS A SHARES
SALES CHARGE SCHEDULE
<TABLE>
AS % AS % OF
OF NET
SIZE OF OFFERING AMOUNT
INVESTMENT PRICE INVESTED
- ------------------------------------------------------
<S> <C> <C>
Less than $50,000 5.75% 6.10%
.....................................................
$50,000 but less than $100,000 4.75% 4.99%
.....................................................
$100,000 but less than $250,000 3.75% 3.90%
.....................................................
$250,000 but less than $500,000 2.75% 2.83%
.....................................................
$500,000 but less than $1,000,000 2.00% 2.04%
.....................................................
$1,000,000 or more * *
.....................................................
</TABLE>
* NO SALES CHARGE IS PAYABLE AT THE TIME OF PURCHASE ON INVESTMENTS OF $1
MILLION OR MORE, ALTHOUGH FOR SUCH INVESTMENTS THE FUND MAY IMPOSE A
CONTINGENT DEFERRED SALES CHARGE OF 1.00% ON CERTAIN REDEMPTIONS MADE
WITHIN ONE YEAR OF THE PURCHASE. THE CONTINGENT DEFERRED SALES CHARGE IS
ASSESSED ON AN AMOUNT EQUAL TO THE LESSER OF THE THEN CURRENT MARKET
VALUE OR THE COST OF THE SHARES BEING REDEEMED. ACCORDINGLY, NO SALES
CHARGE IS IMPOSED ON INCREASES IN NET ASSET VALUE ABOVE THE INITIAL
PURCHASE PRICE.
No sales charge is imposed on Class A Shares received from reinvestment of
dividends or capital gain dividends.
Under the Distribution Plan and Service Plan, the Fund may spend up to a total
of 0.25% per year of the Fund's average daily net assets with respect to the
Class A Shares of the Fund. From such amount, under the Service Plan, the Fund
may spend up to 0.25% per year of the Fund's average daily net assets with
respect to the Class A Shares for the ongoing provision of services to Class A
shareholders by the Distributor and by brokers, dealers or financial
intermediaries and for the maintenance of such shareholders' accounts.
CLASS B SHARES
Class B Shares of the Fund are sold at net asset value and are subject to a
contingent deferred sales charge if redeemed within five years of purchase as
shown in the table as follows:
CLASS B SHARES
SALES CHARGE SCHEDULE
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
AS A PERCENTAGE OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
<S> <C>
- --------------------------------------------------------
First 5.00%
.......................................................
Second 4.00%
.......................................................
Third 3.00%
.......................................................
Fourth 2.50%
.......................................................
Fifth 1.50%
.......................................................
Sixth and After None
.......................................................
</TABLE>
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gain dividends. It
is presently the policy of the Distributor not to accept any order for Class B
Shares in an amount of $500,000 or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
The amount of the contingent deferred sales charge, if any, varies depending on
the number of years from the time of payment for the purchase of Class B Shares
until the time of redemption of such shares. Solely for purposes of determining
the number of
13
<PAGE>
years from the time of any payment for the purchase of shares, all payments
during a month are totaled and deemed to have been made on the last day of the
month.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed shares being redeemed first are any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge followed by shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
Fund's average daily net assets with respect to the Class B Shares of the Fund.
In addition, under the Service Plan, the Fund may spend up to 0.25% per year of
the Fund's average daily net assets with respect to the Class B Shares for the
ongoing provision of services to Class B shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CLASS C SHARES
Class C Shares of the Fund are sold at net asset value and are subject to a
contingent deferred sales charge of 1.00% of the dollar amount subject to charge
if redeemed within one year of purchase.
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gain dividends. It
is presently the policy of the Distributor not to accept any order for Class C
Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed shares being redeemed first are any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge followed by shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
Fund's average daily net assets with respect to the Class C Shares of the Fund.
In addition, under the Service Plan, the Fund may spend up to 0.25% per year of
the Fund's average daily net assets with respect to the Class C Shares for the
ongoing provision of services to Class C shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CONVERSION FEATURE
Class B Shares and any dividend reinvestment plan Class B Shares received on
such shares, automatically convert to Class A Shares eight years after the end
of the calendar month in which the shares were purchased. Such conversion will
be on the basis of the relative net asset values per share, without the
imposition of any sales load, fee or other charge. The conversion schedule
applicable to a share of the Fund acquired through the exchange privilege from
another Van Kampen fund participating in the exchange program is determined by
reference to the Van Kampen fund from which such share was originally purchased.
The conversion of such shares to Class A Shares is subject to the continuing
availability of an opinion of counsel to the effect that (i) the assessment of
the higher distribution fee and transfer agency costs with respect to such
shares does not result in the Fund's dividends or capital gain dividends
constituting "preferential dividends" under the federal income tax law and
(ii) the conversion of shares does not constitute a taxable event under federal
income tax law. The conversion may be suspended if such an opinion is no longer
available and such shares might continue to be subject to the higher aggregate
fees applicable to such shares for an indefinite period.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge is waived on redemptions of Class B Shares
and Class C Shares (i) within one year following the death or disability (as
disability is defined by federal income tax law) of a shareholder, (ii) for
required minimum distributions from an individual retirement account ("IRA") or
certain other retirement plan distributions,
14
<PAGE>
(iii) for withdrawals under the Fund's systematic withdrawal plan but limited to
12% annually of the initial value of the account, (iv) if no commission or
transaction fee is paid to authorized dealers at the time of purchase of such
shares and (v) if made by involuntary liquidation by the Fund of a shareholder's
account as described under the heading "Redemption of Shares." Subject to
certain limitations, a shareholder who has redeemed Class C Shares of the Fund
may reinvest in Class C Shares at net asset value with credit for any contingent
deferred sales charge if the reinvestment is made within 180 days after the
redemption. For a more complete description of contingent deferred sales charge
waivers, please refer to the Fund's Statement of Additional Information or
contact your authorized dealer.
QUANTITY DISCOUNTS
Investors purchasing Class A Shares may, under certain circumstances described
below, be entitled to pay reduced or no sales charges. Investors, or their
authorized dealers, must notify the Fund at the time of the purchase order
whenever a quantity discount is applicable to purchases. Upon such notification,
an investor will receive the lowest applicable sales charge. Quantity discounts
may be modified or terminated at any time. For more information about quantity
discounts, investors should contact their authorized dealer or the Distributor.
A person eligible for a reduced sales charge includes an individual, his or her
spouse and children under 21 years of age and any corporation, partnership or
sole proprietorship which is 100% owned, either alone or in combination, by any
of the foregoing; a trustee or other fiduciary purchasing for a single trust or
for a single fiduciary account, or a "company" as defined in Section 2(a)(8) of
the 1940 Act.
As used herein, "Participating Funds" refers to certain open-end investment
companies advised by Asset Management or Advisory Corp. and distributed by the
Distributor as determined from time to time by the Fund's Board of Directors.
VOLUME DISCOUNTS. The size of investment shown in the Class A Shares sales
charge table applies to the total dollar amount being invested by any person in
shares of the Fund, or in any combination of shares of the Fund and shares of
other Participating Funds, although other Participating Funds may have different
sales charges.
CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the Class A Shares
sales charge table may also be determined by combining the amount being invested
in shares of the Participating Funds plus the current offering price of all
shares of the Participating Funds which have been previously purchased and are
still owned.
LETTER OF INTENT. A Letter of Intent provides an opportunity for an investor to
obtain a reduced sales charge by aggregating the investments over a 13-month
period to determine the sales charge as outlined in the Class A Shares sales
charge table. The size of investment shown in the Class A Shares sales charge
table includes purchases of shares of the Participating Funds over a 13-month
period based on the total amount of intended purchases plus the value of all
shares of the Participating Funds previously purchased and still owned. An
investor may elect to compute the 13-month period starting up to 90 days before
the date of execution of a Letter of Intent. Each investment made during the
period receives the reduced sales charge applicable to the total amount of the
investment goal. The initial purchase must be for an amount equal to at least 5%
of the minimum total purchase amount of the level selected. If trades not
initially made under a Letter of Intent subsequently qualify for a lower sales
charge through the 90-day backdating provisions, an adjustment will be made at
the time of the expiration of the Letter of Intent to give effect to the lower
charge. Such adjustment in sales charge will be used to purchase additional
shares for the shareholder at the applicable discount category. The Fund
initially will escrow shares totaling 5% of the dollar amount of the Letter of
Intent to be held by Investor Services in the name of the shareholder. In the
event the Letter of Intent goal is not achieved within the specified period, the
investor must pay the difference between the sales charge applicable to the
purchases made and the reduced sales charge previously paid. Such payments may
be made directly to the Distributor or, if not paid, the Distributor will
liquidate sufficient escrowed shares to obtain the difference.
15
<PAGE>
OTHER PURCHASE PROGRAMS
Purchasers of Class A Shares may be entitled to reduced or no initial sales
charges in connection with the unit investment trust reinvestment program and
purchases by registered representatives of selling firms or purchases by persons
affiliated with the Fund or the Distributor. The Fund reserves the right to
modify or terminate these arrangements at any time.
UNIT INVESTMENT TRUST REINVESTMENT PROGRAM. The Fund permits unitholders of unit
investment trusts to reinvest distributions from such trusts in Class A Shares
of the Fund at net asset value per share and with no minimum initial or
subsequent investment requirement, if the administrator of an investor's unit
investment trust program meets certain uniform criteria relating to cost savings
by the Fund and the Distributor. The total sales charge for all other
investments made from unit investment trust distributions will be 1.00% of the
offering price (1.01% of net asset value). Of this amount, the Distributor will
pay to the authorized dealer, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the terms and conditions that apply to the program,
should contact their authorized dealer or the Distributor.
The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during each distribution period by all investors who choose to invest in
the Fund through the program and (2) provide Investor Services with appropriate
backup data for each investor participating in the program in a computerized
format fully compatible with Investor Services' processing system.
In order to obtain these special benefits, all dividends and other distributions
by the Fund must be reinvested in additional shares and there can not be any
systematic withdrawal program. There will be no minimum for reinvestments from
unit investment trusts. The Fund will send account activity statements to such
participants on a quarterly basis only, even if their investments are made more
frequently. The Fund reserves the right to modify or terminate this program at
any time.
NET ASSET VALUE PURCHASE OPTIONS. Class A Shares of the Fund may be purchased at
net asset value, upon written assurance that the purchase is made for investment
purposes and that the shares will not be resold except through redemption by the
Fund, by:
(1) Current or retired trustees or directors of funds advised by Morgan Stanley
Dean Witter & Co. and any of its subsidiaries and such persons' families
and their beneficial accounts.
(2) Current or retired directors, officers and employees of Morgan Stanley Dean
Witter & Co. and any of its subsidiaries; employees of an investment
subadviser to any fund described in (1) above or an affiliate of such
subadviser; and such persons' families and their beneficial accounts.
(3) Directors, officers, employees and, when permitted, registered
representatives, of financial institutions that have a selling group
agreement with the Distributor and their spouses and children under 21
years of age when purchasing for any accounts they beneficially own, or, in
the case of any such financial institution, when purchasing for retirement
plans for such institution's employees; provided that such purchases are
otherwise permitted by such institutions.
(4) Registered investment advisers who charge a fee for their services, trust
companies and bank trust departments investing on their own behalf or on
behalf of their clients. The Distributor may pay authorized dealers through
which purchases are made an amount up to 0.50% of the amount invested, over
a 12-month period.
(5) Trustees and other fiduciaries purchasing shares for retirement plans which
invest in multiple fund families through broker-dealer retirement plan
alliance programs that have entered into agreements with the Distributor
and which are subject to certain minimum size and operational requirements.
Trustees and other fiduciaries should refer to the Statement of Additional
Information for further details with respect to such alliance programs.
(6) Beneficial owners of shares of Participating Funds held by a retirement
plan or held in a tax-advantaged retirement account who purchase
16
<PAGE>
shares of the Fund with proceeds from distributions from such a plan or
retirement account other than distributions taken to correct an excess
contribution.
(7) Accounts as to which a bank or broker-dealer charges an account management
fee ("wrap accounts"), provided the bank or broker-dealer has a separate
agreement with the Distributor.
(8) Trusts created under pension, profit sharing or other employee benefit
plans qualified under Section 401(a) of the Internal Revenue Code of 1986,
as amended (the "Code"), or custodial accounts held by a bank created
pursuant to Section 403(b) of the Code and sponsored by nonprofit
organizations defined under Section 501(c)(3) of the Code and assets held
by an employer or trustee in connection with an eligible deferred
compensation plan under Section 457 of the Code. Such plans will qualify
for purchases at net asset value provided, for plans initially establishing
accounts with the Distributor in the Participating Funds after February 1,
1997, that (1) the initial amount invested in the Participating Funds is at
least $500,000 or (2) such shares are purchased by an employer sponsored
plan with more than 100 eligible employees. Such plans that have been
established with a Participating Fund or have received proposals from the
Distributor prior to February 1, 1997 based on net asset value purchase
privileges previously in effect will be qualified to purchase shares of the
Participating Funds at net asset value for accounts established on or
before May 1, 1997. Section 403(b) and similar accounts for which Van
Kampen Trust Company serves as custodian will not be eligible for net asset
value purchases based on the aggregate investment made by the plan or the
number of eligible employees, except under certain uniform criteria
established by the Distributor from time to time. Prior to February 1,
1997, a commission will be paid to authorized dealers who initiate and are
responsible for such purchases within a rolling twelve- month period as
follows: 1.00% on sales to $5 million, plus 0.50% on the next $5 million,
plus 0.25% on the excess over $10 million. For purchases on February 1,
1997 and thereafter, a commission will be paid as follows: 1.00% on sales
to $2 million, plus 0.80% on the next $1 million, plus 0.50% on the next
$47 million, plus 0.25% on the excess over $50 million.
(9) Individuals who are members of a "qualified group." For this purpose, a
qualified group is one which (i) has been in existence for more than six
months, (ii) has a purpose other than to acquire shares of the Fund or
similar investments, (iii) has given and continues to give its endorsement
or authorization, on behalf of the group, for purchase of shares of the
Fund and Participating Funds, (iv) has a membership that the authorized
dealer can certify as to the group's members and (v) satisfies other
uniform criteria established by the Distributor for the purpose of
realizing economies of scale in distributing such shares. A qualified group
does not include one whose sole organizational nexus, for example, is that
its participants are credit card holders of the same institution, policy
holders of an insurance company, customers of a bank or broker-dealer,
clients of an investment adviser or other similar groups. Shares purchased
in each group's participants account in connection with this privilege will
be subject to a contingent deferred sales charge of 1.00% in the event of
redemption within one year of purchase, and a commission will be paid to
authorized dealers who initiate and are responsible for such sales to each
individual as follows: 1.00% on sales to $2 million, plus 0.80% on the next
$1 million and 0.50% on the excess over $3 million.
The term "families" includes a person's spouse, children under 21 years of age
and grandchildren, parents, and a person's spouse's parents.
Purchase orders made pursuant to clause (4) may be placed either through
authorized dealers as described above or directly with Investor Services by the
investment adviser, trust company or bank trust department, provided that
Investor Services receives federal funds for the purchase by the close of
business on the next business day following acceptance of the order. An
authorized dealer may charge a transaction fee for placing an order to purchase
shares pursuant to this provision or for placing a redemption order with respect
to such shares. Authorized dealers will be paid a service fee as described above
on purchases made under options (3) through (9) above. The Fund may terminate,
or
17
<PAGE>
amend the terms of, offering shares of the Fund at net asset value to such
groups at any time.
REDEMPTION OF
SHARES
Generally shareholders may redeem for cash some or all of their shares without
charge by the Fund (other than applicable sales charge) at any time. As
described under the heading "Purchase of Shares," redemptions of Class B Shares
and Class C Shares may be subject to a contingent deferred sales charge. In
addition, certain redemptions of Class A Shares for shareholder accounts of $1
million or more may be subject to a contingent deferred sales charge.
Redemptions completed through an authorized dealer or a custodian of a
retirement plan account may involve additional fees charged by the dealer or
custodian.
Except as specified below under "Telephone Redemption Requests," payment for
shares redeemed generally will be made by check mailed within seven days after
receipt by Investor Services of the request and any other necessary documents in
proper form as described below. Such payment may be postponed or the right of
redemption suspended as provided by the rules of the SEC. Such payment may,
under certain circumstances, be paid wholly or in part by a distribution-in-kind
of portfolio securities which may result in brokerage costs and a gain or loss
for federal income tax purposes when such securities are sold. If the shares to
be redeemed have been recently purchased by check, Investor Services may delay
the payment of redemption proceeds until it confirms the purchase check has
cleared, which may take up to 15 days. A taxable gain or loss will be recognized
by the shareholder upon redemption of shares.
WRITTEN REDEMPTION REQUESTS. Shareholders may request a redemption of shares by
written request in proper form sent directly to Van Kampen Investor Services
Inc., PO Box 218256, Kansas City, MO 64121-8256. The request for redemption
should indicate the number of shares to be redeemed, the class designation of
such shares and the shareholder's account number. The redemption request must be
signed by all persons in whose names the shares are registered. Signatures must
conform exactly to the account registration. If the proceeds of the redemption
exceed $50,000, or if the proceeds are not to be paid to the record owner at the
record address, or if the record address has changed within the previous 30
days, signature(s) must be guaranteed by one of the following: a bank or trust
company; a broker-dealer; a credit union; a national securities exchange,
registered securities association or clearing agency; a savings and loan
association; or a federal savings bank.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption to be in proper form. In some
cases, however, additional documents may be necessary. In the case of
shareholders holding certificates, the certificates for the shares being
redeemed properly endorsed for transfer must accompany the redemption request.
In the event the redemption is requested by a corporation, partnership, trust,
fiduciary, executor or administrator, and the name and title of the
individual(s) authorizing such redemption is not shown in the account
registration, a copy of the corporate resolution or other legal documentation
appointing the authorized signer and certified within the prior 120 days must
accompany the redemption request. IRA redemption requests should be sent to the
IRA custodian to be forwarded to Investor Services. Contact the IRA custodian
for further information.
In the case of written redemption requests sent directly to Investor Services,
the redemption price is the net asset value per share next determined after the
request in proper form is received by Investor Services.
AUTHORIZED DEALER REDEMPTION REQUESTS. Shareholders may place redemption
requests through an authorized dealer. Orders sent through authorized dealers
must be at least $500 (unless transmitted by your authorized dealer via the
FUNDSERV network). The redemption price for such shares is the net asset value
per share next calculated after an order in proper form is received by an
authorized dealer provided such order is transmitted to the
18
<PAGE>
Distributor prior to the Distributor's close of business on such day. It is the
responsibility of authorized dealers to transmit redemption requests received by
them to the Distributor so they will be received prior to such time. Redemptions
completed through an authorized dealer may involve additional fees charged by
the dealer.
TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. A shareholder
automatically has telephone redemption privileges unless the shareholder
indicates otherwise by checking the applicable box on the application form
accompanying the prospectus. To redeem shares, contact the telephone transaction
line at (800) 421-5684. Van Kampen Investments, Investor Services and the Fund
employ procedures considered by them to be reasonable to confirm that
instructions communicated by telephone are genuine. Such procedures include
requiring certain personal identification information prior to acting upon
telephone instructions, tape-recording telephone communications and providing
written confirmation of instructions communicated by telephone. If reasonable
procedures are employed, none of Van Kampen Investments, Investor Services or
the Fund will be liable for following telephone instructions which it reasonably
believes to be genuine. Telephone redemptions may not be available if the
shareholder cannot reach Investor Services by telephone, whether because all
telephone lines are busy or for any other reason; in such case, a shareholder
would have to use the Fund's other redemption procedure previously described.
Requests received by Investor Services prior to 4:00 p.m., New York time, will
be processed at the next determined net asset value per share. These privileges
are available for all accounts other than retirement accounts or accounts with
shares represented by certificates. If an account has multiple owners, Investor
Services may rely on the instructions of any one owner.
For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check and amounts of at least
$1,000 up to $1 million may be redeemed daily if the proceeds are to be paid by
wire. The proceeds must be payable to the shareholder(s) of record and sent to
the address of record for the account or wired directly to their predesignated
bank account. This privilege is not available if the address of record has been
changed within 30 days prior to a telephone redemption request. Proceeds from
redemptions payable by wire transfer are expected to be wired on the next
business day following the date of redemption. The Fund reserves the right at
any time to terminate, limit or otherwise modify this redemption privilege.
OTHER REDEMPTION INFORMATION. The Fund may redeem shares of any shareholder
account that has a value on the date of the notice of redemption less than the
minimum initial investment as specified in this prospectus. At least 60 days
advance written notice of any such involuntary redemption will be provided to
the shareholder and such shareholder will be given an opportunity to purchase
the required value of additional shares at the next determined net asset value
without sales charge. Any involuntary redemption may only occur if the
shareholder account is less than the minimum initial investment due to
shareholder redemptions.
DISTRIBUTIONS FROM
THE FUND
In addition to any increase in the value of shares which the Fund may achieve,
shareholders may receive distributions from the Fund of dividends and capital
gain dividends.
DIVIDENDS. Dividends from stocks and interest earned from other investments are
the Fund's main sources of income. The Fund's present policy, which may be
changed at any time by the Board of Directors, is to distribute all or
substantially all of this income, less expenses, at least quarterly as dividends
to shareholders. Dividends are automatically applied to purchase additional
shares of the Fund at the next determined net asset value unless the shareholder
instructs otherwise.
The per share dividends on Class B Shares and Class C Shares may be lower than
the per share dividends on Class A Shares as a result of the higher
19
<PAGE>
distribution fees and transfer agency costs applicable to such classes of
shares.
CAPITAL GAIN DIVIDENDS. The Fund may realize capital gains or losses when it
sells securities, depending on whether the sales prices for the securities are
higher or lower than purchase prices. Net realized capital gain represents the
total profits from sales of securities minus total losses from sales of
securities (including any losses carried forward from prior years), other than
net short-term capital gain from sales of securities held for one year or less.
The Fund distributes any taxable net realized capital gain to shareholders as
capital gain dividends at least annually. As in the case of dividends, capital
gain dividends are automatically reinvested in additional shares of the Fund at
the next determined net asset value unless the shareholder instructs otherwise.
SHAREHOLDER SERVICES
Listed below are some of the shareholder services the Fund offers to investors.
For a more complete description of the Fund's shareholder services, such as
investment accounts, share certificates, retirement plans, automated clearing
house deposits, dividend diversification and the systematic withdrawal plan,
please refer to the Statement of Additional Information or contact your
authorized dealer.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gain dividends in shares of the
Fund. Such shares are acquired at net asset value per share (without sales
charge) on the applicable payable date of the dividend or capital gain dividend.
Unless the shareholder instructs otherwise, the reinvestment plan is automatic.
This instruction may be made by telephone by calling (800) 341-2911
((800) 421-2833 for the hearing impaired) or by writing to Investor Services.
The investor may, on the initial application or prior to any declaration,
instruct that dividends be paid in cash and capital gain dividends be reinvested
at net asset value, or that both dividends and capital gain dividends be paid in
cash.
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under which
a shareholder can authorize Investor Services to charge a bank account on a
regular basis to invest predetermined amounts in the Fund. Additional
information is available from the Distributor or your authorized dealer.
EXCHANGE PRIVILEGE. Shares of the Fund may be exchanged for shares of the same
class of any Participating Fund based on the next computed net asset value per
share of each fund after requesting the exchange without any sales charge,
subject to certain limitations. Shares of the Fund may be exchanged for shares
of any Participating Fund only if shares of that Participating Fund are
available for sale; however, during periods of suspension of sales, shares of a
Participating Fund may be available for sale only to existing shareholders of a
Participating Fund. Shareholders seeking an exchange into a Participating Fund
should obtain and read the current prospectus for such fund prior to
implementing an exchange. A prospectus of any of the Participating Funds may be
obtained from any authorized dealer or the Distributor.
To be eligible for exchange, shares of the Fund must have been registered in the
shareholder's name for at least 30 days prior to an exchange. Shares of the Fund
registered in a shareholder's name for less than 30 days may only be exchanged
upon receipt of prior approval of the Adviser. It is the policy of the Adviser,
under normal circumstances, not to approve such requests.
When shares that are subject to a contingent deferred sales charge are exchanged
among Participating Funds, the holding period for purposes of computing the
contingent deferred sales charge is based upon the date of the initial purchase
of such shares from a Participating Fund. When such shares are redeemed and not
exchanged for shares of another Participating Fund, the shares are subject to
the contingent deferred sales charge schedule imposed by the Participating Fund
from which such shares were originally purchased.
Exchanges of shares are sales of one Participating Fund and purchases of another
Participating Fund. The sale may result in a gain or loss for federal income tax
purposes. If the shares sold have been held for less than 91 days, the sales
charge paid on
20
<PAGE>
such shares is carried over and included in the tax basis of the shares
acquired.
A shareholder wishing to make an exchange may do so by sending a written request
to Investor Services or by contacting the telephone transaction line at
(800) 421-5684. A shareholder automatically has telephone exchange privileges
unless the shareholder indicates otherwise by checking the applicable box on the
application form accompanying the prospectus. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated by telephone are genuine. Such procedures
include requiring certain personal identification information prior to acting
upon telephone instructions, tape-recording telephone communications, and
providing written confirmation of instructions communicated by telephone. If
reasonable procedures are employed, none of Van Kampen Investments, Investor
Services or the Fund will be liable for following telephone instructions which
it reasonably believes to be genuine. If the exchanging shareholder does not
have an account in the fund whose shares are being acquired, a new account will
be established the same registration, dividend and capital gain dividend options
(except dividend diversification) and authorized dealer of record as the account
from which shares are exchanged, unless otherwise specified by the shareholder.
In order to establish a systematic withdrawal plan for the new account or
reinvest dividends from the new account into another fund, however, an
exchanging shareholder must submit a specific request. The Fund reserves the
right to reject any order to acquire its shares through exchange. In addition,
the Fund and other Participating Funds may restrict exchanges by shareholders
engaged in excessive trading by limiting or disallowing the exchange privileges
to such shareholders. For further information on these restrictions see the
Statement of Additional Information. The Fund may modify, restrict or terminate
the exchange privilege at any time on 60 days' notice to its shareholders of any
termination or material amendment.
For purposes of determining the sales charge rate previously paid on Class A
Shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchanged security was acquired through reinvestment, that
security is deemed to have been sold with a sales charge rate equal to the rate
previously paid on the security on which the dividend or distribution was paid.
If a shareholder exchanges less than all of such shareholder's securities, the
security upon which the highest sales charge rate was previously paid is deemed
exchanged first.
Exchange requests received on a business day prior to the time shares of the
funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares of the fund which the
shareholder is redeeming will be redeemed at the net asset value per share next
determined on the date of receipt. Shares of the new fund that the shareholder
is purchasing, will also normally be purchased at the net asset value per share,
plus any applicable sales charge, next determined on the date of receipt.
Exchange requests received on a business day after the time shares of the funds
involved in the request are priced will be processed on the next business day in
the manner described herein.
INTERNET TRANSACTIONS. In addition to performing transactions on your account
through written instruction or by telephone, you may also perform certain
transactions through the internet. Please refer to our web site at
www.vankampen.com for further instruction. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated through the internet are genuine. Such
procedures include requiring use of a personal identification number prior to
acting upon internet instructions and providing written confirmation of
instructions communicated through the internet. If reasonable procedures are
employed, none of Van Kampen Investments, Investor Services or the Fund will be
liable for following instructions received 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.
21
<PAGE>
FEDERAL INCOME
TAXATION
Distributions of the Fund's net investment income (consisting generally of
taxable income and net short-term capital gain) are taxable to shareholders as
ordinary income to the extent of the Fund's earnings and profits, whether paid
in cash or reinvested in additional shares. Distributions of the Fund's net
realized capital gain (which is the excess of net long-term capital gain over
net short-term capital loss) as capital gain dividends, if any, are taxable to
shareholders as long-term capital gains, whether paid in cash or reinvested in
additional shares, and regardless of how long the shares of the Fund have been
held by such shareholders. The Fund expects that its distributions will consist
primarily of ordinary income and capital gain dividends. Distributions in excess
of the Fund's earnings and profits will first reduce the adjusted tax basis of a
holder's shares and, after such adjusted tax basis is reduced to zero, will
constitute capital gains to such holder (assuming such shares are held as a
capital asset). Although distributions generally are treated as taxable in the
year they are paid, distributions declared in October, November or December,
payable to shareholders of record on a specified date in such month and paid
during January of the following year will be treated as having been distributed
by the Fund and received by the shareholders on the December 31st prior to the
date of payment. The Fund will inform shareholders of the source and tax status
of all distributions promptly after the close of each calendar year.
The sale or exchange of shares is a taxable transaction for federal income tax
purposes. Shareholders who sell their shares will generally recognize gain or
loss in an amount equal to the difference between their adjusted tax basis in
the shares sold and the amount received. If the shares are held as a capital
asset, the gain or loss will be a capital gain or loss. Any capital gains may be
taxed at different rates depending on how long the shareholder held such shares.
The Fund is required, in certain circumstances, to withhold 31% of dividends and
certain other payments, including redemptions, paid to shareholders who do not
furnish to the Fund their correct taxpayer identification number (in the case of
individuals, their social security number) and certain required certifications
or who are otherwise subject to backup withholding.
Foreign shareholders, including shareholders who are non-resident aliens, may be
subject to U.S. withholding tax on certain distributions (whether received in
cash or in shares) at a rate of 30% or such lower rate as prescribed by an
applicable treaty. Prospective foreign investors should consult their tax
advisers concerning the tax consequences to them of an investment in shares.
The Fund intends to qualify as a regulated investment company under federal
income tax law. If the Fund so qualifies and distributes each year to its
shareholders at least 90% of its net investment income, the Fund will not be
required to pay federal income taxes on any income it distributes to
shareholders. If the Fund distributes less than an amount equal to the sum of
98% of its ordinary income and 98% of its capital gain net income, then the Fund
will be subject to a 4% excise tax on the undistributed amounts.
The federal income tax discussion set forth above is for general information
only. Prospective investors should consult their own tax advisers regarding the
specific federal tax consequences of purchasing, holding, disposing, exchanging
or selling of shares, as well as the effects of state, local and foreign tax law
and any proposed tax law changes.
22
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the periods indicated. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report, along with the Fund's financial statements, is
included in the Statement of Additional Information and may be obtained by
shareholders without charge by calling the telephone number on the back cover of
this prospectus. This information should be read in conjunction with the
financial statements and notes thereto included in the Statement of Additional
Information.
<TABLE>
CLASS A CLASS B CLASS C
YEAR ENDED JULY 7, 1997* YEAR ENDED JULY 7, 1997* YEAR ENDED JULY 7, 1997*
SELECTED PER SHARE DATA AND JUNE 30, TO JUNE 30, TO JUNE 30, TO
RATIOS 1999# JUNE 30, 1998# 1999# JUNE 30, 1998# 1999# JUNE 30, 1998#
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of
Period........................ $10.526 $ 10.00 $ 10.514 $ 10.00 $10.503 $ 10.00
------- -------- -------- -------- ------- -------
Income From Investment
Operations
Net Investment
Income/Loss................. 0.072 0.11 (0.003) 0.03 (0.002) 0.03
Net Realized and Unrealized
Gain/Loss................... 0.512 0.56 0.509 0.56 0.512 0.55
------- -------- -------- -------- ------- -------
Total From Investment
Operations.................. 0.584 0.67 0.506 0.59 0.510 0.58
------- -------- -------- -------- ------- -------
Distributions
Net Investment Income....... (0.052) (0.08) (0.007) (0.03) (0.007) (0.03)
In Excess of Net Investment
Income...................... (0.000)+ (0.01) -- (0.00)+ -- (0.00)+
Net Realized Gain........... -- (0.05) -- (0.05) -- (0.05)
In Excess of Net Realized
Gain........................ (0.174) -- (0.174) -- (0.174) --
------- -------- -------- -------- ------- -------
Total Distributions......... (0.226) (0.14) (0.181) (0.08) (0.181) (0.08)
------- -------- -------- -------- ------- -------
Net Asset Value, End of
Period........................ $10.884 $ 10.53 $ 10.839 $ 10.51 $10.832 $ 10.50
======= ======== ======== ======== ======= =======
Total Return(1)............... 5.83% 6.74%** 5.02% 6.01%** 5.13% 5.83%**
Ratios and Supplemental Data
Net Assets, End of Period
(000's)....................... $95,208 $137,447 $127,978 $142,741 $29,071 $35,564
Ratio of Expenses to Average
Net Assets.................... 1.45% 1.45% 2.20% 2.20% 2.20% 2.20%
Ratio of Net Investment
Income/Loss to Average Net
Assets........................ 0.74% 1.02% (0.03)% 0.28% (0.02)% 0.29%
Portfolio Turnover Rate....... 64% 38%** 64% 38%** 64% 38%**
- ------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income/Loss...... $ 0.00+ $ 0.01 $ 0.00+ $ 0.01 $ 0.00+ $ 0.01
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets...................... 1.48% 1.60% 2.23% 2.35% 2.23% 2.35%
Net Investment Income/Loss
to Average Net Assets....... 0.73% 0.88% (0.05)% 0.14% (0.03)% 0.15%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* COMMENCEMENT OF OPERATIONS
** NON-ANNUALIZED
+ AMOUNT IS LESS THAN $0.01 PER SHARE.
(1) TOTAL RETURN IS CALCULATED EXCLUSIVE OF SALES CHARGES OR DEFERRED SALES
CHARGES.
# CHANGES PER SHARE ARE BASED UPON MONTHLY AVERAGE SHARES
OUTSTANDING.
23
<PAGE>
BOARD OF DIRECTORS
AND OFFICERS
BOARD OF DIRECTORS
<TABLE>
<S> <C>
J. Miles Branagan Don G. Powell*
Jerry D. Choate Phillip B. Rooney
Richard M. DeMartini* Fernando Sisto
Linda Hutton Heagy Wayne W. Whalen*
R. Craig Kennedy Suzanne H. Woolsey
Jack E. Nelson Paul G. Yovovich
</TABLE>
OFFICERS
Richard F. Powers, III*
PRESIDENT
Dennis J. McDonnell*
EXECUTIVE VICE PRESIDENT & CHIEF INVESTMENT OFFICER
A. Thomas Smith III*
VICE PRESIDENT AND SECRETARY
Edward C. Wood III*
VICE PRESIDENT
Michael H. Santo*
VICE PRESIDENT
Peter W. Hegel*
VICE PRESIDENT
Stephen L. Boyd*
VICE PRESIDENT
Joseph P. Stadler*
VICE PRESIDENT
John L. Sullivan*
VICE PRESIDENT, CHIEF FINANCIAL OFFICER & TREASURER
Curtis W. Morell*
VICE PRESIDENT & CHIEF ACCOUNTING OFFICER
Tanya M. Loden*
CONTROLLER
* "Interested Persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2911
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders, or
redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call
(800) 421-2833
FUNDINFO-REGISTERED TRADEMARK-
For automated telephone services, call (800) 847-2424
WEB SITE
www.vankampen.com
VAN KAMPEN VALUE FUND
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
INVESTMENT ADVISER AND ADMINISTRATOR
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
INVESTMENT SUBADVISER
MILLER ANDERSON & SHERRERD, LLP
One Tower Bridge
West Conshohocken, PA 19428
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
TRANSFER AGENT
VAN KAMPEN INVESTOR SERVICES INC.
PO Box 218256
Kansas City, MO 64121-8256
Attn: Van Kampen Value Fund
CUSTODIAN
THE CHASE MANHATTAN BANK
3 MetroTech Center
Brooklyn, NY 11245
Attn: Van Kampen Value Fund
LEGAL COUNSEL
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
INDEPENDENT ACCOUNTANTS
PRICEWATERHOUSECOOPERS LLP
200 East Randolph Drive
Chicago, IL 60601
<PAGE>
VAN KAMPEN
VALUE FUND
PROSPECTUS
OCTOBER 28, 1999
A Statement of Additional Information, which contains
more details about the Fund, is incorporated by
reference in its entirety into this prospectus.
You will find additional information about the Fund in
its annual and semiannual reports to shareholders. The
annual report explains the market conditions and
investment strategies affecting the Fund's performance
during its last fiscal year.
You can ask questions or obtain a free copy of the
Fund's reports or its Statement of Additional
Information by calling (800) 341-2911 from 7:00 a.m. to
7:00 p.m., Central time, Monday through Friday.
Telecommunications Device for the Deaf users may call
(800) 421-2833. A free copy of the Fund's reports can
also be ordered from our web site at www.vankampen.com.
Information about the Fund, including its reports and
Statement of Additional Information, has been filed with
the Securities and Exchange Commission (SEC). It can be
reviewed and copied at the SEC's Public Reference Room
in Washington, DC or on the EDGAR Database on the SEC's
internet site (http://www.sec.gov). Information on the
operation of the SEC's Public Reference Room may be
obtained by calling the SEC at 1-202-942-8090. You can
also request copies of these materials, upon payment of
a duplicating fee, by electronic request at the SEC's
e-mail address ([email protected]), or by writing the
Public Reference Section of the SEC, Washington, DC,
20549-0102.
[LOGO]
THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-7140.
MSVL PRO 10/99
<PAGE>
VAN KAMPEN
WORLDWIDE HIGH
INCOME FUND
Van Kampen Worldwide High Income Fund is a mutual fund with a primary investment
objective to seek 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.
Shares of the Fund have not been approved or disapproved by the Securities and
Exchange Commission (SEC) or any state regulator, and neither the SEC nor any
state regulator has passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
THIS PROSPECTUS IS DATED OCTOBER 28, 1999.
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TABLE OF CONTENTS
Risk/Return Summary .....................................................3
Fees and Expenses of the Fund ...........................................7
Investment Objectives, Policies and Risks ...............................7
Investment Advisory Services ...........................................19
Purchase of Shares .....................................................21
Redemption of Shares ...................................................29
Distributions from the Fund ............................................30
Shareholder Services ...................................................31
Federal Income Taxation ................................................33
Financial Highlights ...................................................34
Appendix--Description of Securities Ratings ...........................A-1
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations, other than those contained in this
prospectus, in connection with the offer contained in this prospectus and, if
given or made, such other information or representations must not be relied upon
as having been authorized by the Fund, the Fund's investment adviser or the
Fund's distributor. This prospectus does not constitute an offer by the Fund or
by the Fund's distributor to sell or a solicitation of an offer to buy any of
the securities offered hereby in any jurisdiction to any person to whom it is
unlawful for the Fund to make such an offer in such jurisdiction.
<PAGE>
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVES
The Fund is a mutual fund with a primary investment objective to seek 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.
INVESTMENT STRATEGIES
Under normal market conditions, the Fund's investment adviser seeks to achieve
the Fund's investment objectives by investing primarily in a portfolio of
lower-grade fixed income securities of issuers located throughout the world. The
Fund allocates its assets among any or all of three investment sectors: U.S.
corporate lower-grade debt securities, emerging market countries debt securities
and global fixed income securities offering high real (inflation adjusted)
yields. The Fund's investment adviser uses equity and fixed income valuation
techniques, together with analyses of economic and industry trends, to determine
the Fund's overall structure, sector allocation and desired maturity. In
selecting U.S. corporate lower-grade debt securities for the Fund's portfolio,
the Fund considers, among other factors, the price of the security and the
financial history, condition, prospects and management of an issuer. Lower-grade
debt securities are commonly known as "junk bonds" (see sidebar for an
explanation of quality ratings). In selecting emerging market countries debt
securities, the Fund seeks securities that provide a high level of current
income while offering 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 Fund seeks to invest in fixed income securities of
issuers in the global fixed income markets displaying high real (inflation
adjusted) yields. Portfolio securities are typically sold when the Fund's
investment adviser's assessments for income or capital appreciation of such
securities materially change. This could be a result of a security exceeding
expectations, a security meeting expectations but identification of better
opportunities elsewhere, or a deterioration of fundamentals of the underlying
issuer.
The Fund's investments in lower-grade securities and emerging market countries
securities involve greater risks as compared to investments in higher-grade
securities or developed countries. The Fund may purchase and sell securities on
a when-issued or delayed delivery basis. The Fund may purchase and sell certain
derivative instruments (such as options, futures and options on futures,
currency-related transactions involving options, futures and forward contracts,
and interest rate swaps or other interest rate-related transactions) for various
portfolio management purposes.
UNDERSTANDING
QUALITY RATINGS
Income securities ratings are based on the issuer's ability to pay interest
and repay the principal. Securities with ratings above the line are
considered "investment-grade," while those with ratings below the line are
regarded as "noninvestment-grade," or "junk bonds." A detailed explanation
of these ratings can be found in the appendix to this prospectus.
<TABLE>
S&P MOODY'S MEANING
- ------------------------------------------------------------------
<C> <S> <C>
AAA Aaa Highest quality
.................................................................
AA Aa High quality
.................................................................
A A Above-average quality
.................................................................
BBB Baa Average quality
- ------------------------------------------------------------------
BB Ba Below-average quality
.................................................................
B B Marginal quality
.................................................................
CCC Caa Poor quality
.................................................................
CC Ca Highly speculative
.................................................................
C C Lowest quality
.................................................................
D -- In default
.................................................................
</TABLE>
INVESTMENT RISKS
An investment in the Fund is subject to investment risks, and you could lose
money on your investment
3
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in the Fund. There can be no assurance that the Fund will achieve its investment
objectives.
FOREIGN AND EMERGING MARKET COUNTRIES RISKS. Because the Fund owns securities of
foreign issuers, it is subject to risks not usually associated with owning
securities of U.S. issuers. These risks can include fluctuations in foreign
currencies, foreign currency exchange controls, political and economic
instability, differences in financial reporting, differences in securities
regulation and trading and foreign taxation issues. The risks of investing in
emerging market countries are greater than the risks generally associated with
foreign investments, including investment and trading limitations, greater
credit and liquidity concerns, greater political uncertainties, an economy's
dependence on international trade or development assistance, greater foreign
currency exchange risks and currency transfer restrictions, greater delays and
disruptions in settlement transactions and greater risks associated with
computer programs and the Year 2000 problem. To the extent the Fund focuses more
of its assets in a single country or region, its portfolio would be more
susceptible to factors adversely affecting issuers in that country or region.
CREDIT RISK. Credit risk refers to an issuer's ability to make timely payments
of interest and principal. Because a significant portion of the Fund's total
assets are invested in lower-grade securities, the Fund is subject to a higher
level of credit risk than a fund that buys only investment-grade securities. The
credit quality of "noninvestment-grade" securities is considered speculative by
recognized rating agencies with respect to the issuer's continuing ability to
pay interest and principal. Lower-grade securities may have less liquidity and a
higher incidence of default than higher-grade securities. The Fund may incur
higher expenditures to protect the Fund's interest in such securities. The
credit risks and market prices of lower-grade securities generally are more
sensitive to negative issuer developments, such as reduced revenues or increased
expenditures, or adverse economic conditions, such as a recession, than are
higher-grade securities.
MARKET RISK. Market risk is the possibility that the market values of securities
owned by the Fund will decline. The prices of income securities tend to fall as
interest rates rise, and such declines tend to be greater among income
securities with longer maturities. Although the Fund has no policy limiting the
maturities of its investments, under normal market conditions, the Fund's
investment adviser seeks to maintain the portfolio's average time to maturity
within the range of medium-term securities (i.e., those securities with
remaining maturities of approximately five years). This means that the Fund is
subject to more market risk than a fund investing solely in shorter-term
securities but less market risk than a fund investing solely in longer-term
securities. Lower-grade securities, especially those with longer maturities or
that do not make regular interest payments, may be more volatile and may decline
more in response to negative issuer or general economic news than higher-grade
securities. Foreign markets may, but often do not, move in tandem with U.S.
markets, and foreign markets, particularly developing or emerging market
countries, may be more volatile than U.S. markets.
Market risk is often greater among certain types of income securities, such as
zero-coupon bonds or pay-in-kind securities. As interest rates change, these
securities often fluctuate more in price than traditional fixed income
securities and may subject the Fund to greater market risk than a fund that does
not own these types of securities.
When-issued and delayed delivery transactions are subject to changes in market
conditions from the time of the commitment until settlement. This may adversely
affect the prices or yields of the securities being purchased, as well as any
portfolio securities held for payment of such commitments. The greater the
Fund's outstanding commitments for these securities, the greater the Fund's
exposure to market price fluctuation.
INCOME RISK. The income you receive from the Fund is based primarily on interest
rates, which can vary widely over the short- and long-term. If interest rates
drop, your income from the Fund may drop as well.
CALL RISK. If interest rates fall, it is possible that issuers of debt
securities with high interest rates will prepay or "call" their securities
before their maturity dates. In this event, the proceeds from the called
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securities most likely would be reinvested by the Fund in securities bearing the
new, lower interest rates, resulting in a possible decline in the Fund's income
and distributions to shareholders.
RISKS OF USING DERIVATIVE INVESTMENTS. In general terms, a derivative investment
is one whose value depends on (or is derived from) the value of an underlying
asset, interest rate or index. Options, futures and options on futures,
currency-related transactions involving options, futures and forward contracts,
and interest rate swaps or other interest rate-related transactions are examples
of derivatives. Derivative investments involve risks different from direct
investment in underlying securities. These risks include imperfect correlation
between the value of the instruments and the underlying assets; risks of default
by the other party to certain transactions; risks that the transactions may
result in losses that partially or completely offset gains in portfolio
positions; risks that the transactions may not be liquid; and manager risk.
NON-DIVERSIFICATION RISKS. The Fund is classified as a "non-diversified" fund,
which means the Fund may invest a greater portion of its assets in a more
limited number of issuers than a "diversified" fund. As a result, the Fund may
be subject to greater risk than a diversified fund because changes in the
financial condition or market assessment of a single issuer may cause greater
fluctuations in the value of the Fund's shares.
MANAGER RISK. As with any managed fund, the Fund's investment adviser may not be
successful in selecting the best-performing securities or investment techniques
and the Fund's performance may lag behind that of similar funds.
INVESTOR PROFILE
In light of the Fund's investment objectives and strategies, the Fund may be
appropriate for investors who:
- - Seek a high level of current income and, secondarily, capital appreciation
- - Are willing to take on the increased risks associated with investing in
emerging market countries securities and lower-grade securities
- - Can withstand volatility in the value of their Fund shares
- - Wish to add to their investment portfolio a fund that invests primarily in
lower-grade income securities of issuers located throughout the world
An investment in the Fund is not a deposit of any bank or other insured
depository institution. Your investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
An investment in the Fund may not be appropriate for all investors. The Fund is
not intended to be a complete investment program, and investors should consider
their long-term investment goals and financial needs when making an investment
decision about the Fund. An investment in the Fund is intended to be a long-term
investment, and the Fund should not be used as a trading vehicle.
ANNUAL PERFORMANCE
One way to measure the risks of investing in the Fund is to look at how its
performance varies from year-to-year. The following chart shows the annual
returns of the Fund's Class A Shares over the four calendar years prior to the
date of this prospectus. Sales loads are not reflected in this chart. If these
sales loads had been included, the returns shown below would have been lower.
Remember that the past performance of the Fund is not indicative of its future
performance.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1995 19.97%
1996 26.01%
1997 15.62%
1998 -17.15%
</TABLE>
5
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The Fund's return for the nine-month period ended September 30, 1999 was 8.16%.
The annual return variability of the Fund's Class B Shares and Class C Shares
would be substantially similar to that shown for the Class A Shares because all
of the Fund's shares are invested in the same portfolio of securities; however,
the actual annual returns of the Class B Shares and Class C Shares would be
lower than the annual returns shown for the Fund's Class A Shares because of
differences in the expenses borne by each class of shares.
During the four-year period shown in the bar chart, the highest quarterly return
was 14.18% (for the quarter ended June 30, 1995) and the lowest quarterly return
was -24.09% (for the quarter ended September 30, 1998).
COMPARATIVE PERFORMANCE
As a basis for evaluating the Fund's performance and risks, the table below
shows how the Fund's performance compares with two broad-based market indices
that the Fund's investment adviser believes are appropriate benchmarks for the
Fund: the Worldwide High Income Blended Index I* and the Worldwide High Income
Blended Index II**. The Fund's performance figures include the maximum sales
charges paid by investors. The indices' performance figures do not include any
commissions or sales charges that would be paid by investors purchasing the
securities represented by those indices. Average annual total returns are shown
for the periods ended December 31, 1998 (the most recently completed calendar
year prior to the date of this prospectus). Remember that the past performance
of the Fund is not indicative of its future performance.
<TABLE>
AVERAGE ANNUAL
TOTAL RETURNS
FOR THE
PERIODS ENDED PAST SINCE
DECEMBER 31, 1998 1 YEAR INCEPTION
- -----------------------------------------------------------------
<S> <C> <C>
Van Kampen Worldwide
High Income Fund
- -- Class A Shares -21.10% 7.37%(1)
Worldwide High Income
Blended Index I -3.19% 11.12%(3)
Worldwide High Income
Blended Index II -6.89% 11.31%(3)
................................................................
Van Kampen Worldwide
High Income Fund
- -- Class B Shares -20.69% 7.01%(2)
Worldwide High Income
Blended Index I -3.19% 10.43%(4)
Worldwide High Income
Blended Index II -6.89% 11.38%(4)
................................................................
Van Kampen Worldwide
High Income Fund
- -- Class C Shares -18.36% 7.69%(1)
Worldwide High Income
Blended Index I -3.19% 11.12%(3)
Worldwide High Income
Blended Index II -6.89% 11.31%(3)
................................................................
INCEPTION DATES: (1) 4/21/94, (2) 8/1/95, (3) 4/29/94, (4)
7/30/95.
*THE WORLDWIDE HIGH INCOME BLENDED INDEX I IS AN UNMANAGED INDEX
COMPOSED OF 50 PERCENT CS FIRST BOSTON HIGH YIELD INDEX,
25 PERCENT J.P. MORGAN LATIN EUROBOND INDEX, AND 25 PERCENT
J.P. MORGAN EMERGING MARKETS BOND INDEX PLUS. RECENT CHANGES AND
ADDITIONS TO THE J.P. MORGAN EMERGING MARKETS BOND INDEX PLUS ON
JUNE 30, 1999 HAVE MADE THE REVISED INDEX BROADER AND MORE
INCLUSIVE AND THE INVESTMENT ADVISER BELIEVES THE REVISED INDEX
IS MORE REPRESENTATIVE OF THE EMERGING MARKETS DEBT ASSET CLASS
AND THE EMERGING MARKETS DEBT PORTION OF THE FUND. THEREFORE THE
FUND HAS ADOPTED A REVISED BENCHMARK--THE WORLDWIDE HIGH INCOME
BLENDED INDEX II**--AND FUTURE PROSPECTUSES OF THE FUND WILL NOT
SHOW THE WORLDWIDE HIGH INCOME BLENDED INDEX I.
**THE WORLDWIDE HIGH INCOME BLENDED INDEX II IS AN UNMANAGED
INDEX COMPOSED OF 50 PERCENT CS FIRST BOSTON HIGH YIELD INDEX
AND 50 PERCENT J.P. MORGAN EMERGING MARKETS BOND INDEX PLUS.
</TABLE>
The current yield for the thirty-day period ended June 30, 1999 is 11.18% for
Class A Shares, 10.97% for Class B Shares and 10.97% for Class C Shares.
Investors can obtain the current yield of the Fund for each class of shares by
calling (800) 341-2911.
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FEES AND EXPENSES
OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
<S> <C> <C> <C>
- ------------------------------------------------------------
</TABLE>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------
Maximum sales charge
(load) imposed on
purchases (as a
percentage of offering
price) 4.75%(1) None None
...........................................................
Maximum deferred sales
charge (load) (as a
percentage of the
lesser of original
purchase price or
redemption proceeds) None(2) 4.00%(3) 1.00%(4)
...........................................................
Maximum sales charge
(load) imposed on
reinvested dividends None None None
...........................................................
Redemption fees None None None
...........................................................
Exchange fee None None None
...........................................................
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------
Management Fees 0.75% 0.75% 0.75%
...........................................................
Distribution and/or
Service
(12b-1) Fees(5) 0.25% 1.00%(6) 1.00%(6)
...........................................................
Other Expenses 0.45% 0.45% 0.45%
...........................................................
Total Annual Fund
Operating Expenses 1.45% 2.20% 2.20%
...........................................................
</TABLE>
(1) REDUCED FOR PURCHASES OF $100,000 AND OVER. SEE "PURCHASE OF SHARES --
CLASS A SHARES."
(2) INVESTMENTS OF $1 MILLION OR MORE ARE NOT SUBJECT TO ANY SALES CHARGE
AT THE TIME OF PURCHASE, BUT A DEFERRED SALES CHARGE OF 1.00% MAY BE
IMPOSED ON CERTAIN REDEMPTIONS MADE WITHIN ONE YEAR OF THE PURCHASE.
SEE "PURCHASE OF SHARES -- CLASS A SHARES."
(3) THE MAXIMUM DEFERRED SALES CHARGE IS 4.00% IN THE FIRST AND SECOND
YEAR AFTER PURCHASE, DECLINING THEREAFTER AS FOLLOWS:
YEAR 1-4.00%
YEAR 2-4.00%
YEAR 3-3.00%
YEAR 4-2.50%
YEAR 5-1.50%
AFTER-NONE
SEE "PURCHASE OF SHARES -- CLASS B SHARES."
(4) THE MAXIMUM DEFERRED SALES CHARGE IS 1.00% IN THE FIRST YEAR AFTER
PURCHASE AND 0.00% THEREAFTER. SEE "PURCHASE OF SHARES -- CLASS C
SHARES."
(5) CLASS A SHARES ARE SUBJECT TO AN ANNUAL SERVICE FEE OF UP TO 0.25% OF
THE AVERAGE DAILY NET ASSETS ATTRIBUTABLE TO SUCH CLASS OF SHARES.
CLASS B SHARES AND CLASS C SHARES ARE EACH SUBJECT TO A COMBINED
ANNUAL DISTRIBUTION AND SERVICE FEE OF UP TO 1.00% OF THE AVERAGE
DAILY NET ASSETS ATTRIBUTABLE TO SUCH CLASS OF SHARES. SEE "PURCHASE
OF SHARES."
(6) BECAUSE DISTRIBUTION AND/OR SERVICE (12B-1) FEES ARE PAID OUT OF THE
FUND'S ASSETS ON AN ONGOING BASIS, OVER TIME THESE FEES WILL INCREASE
THE COST OF YOUR INVESTMENT AND MAY COST YOU MORE THAN PAYING OTHER
TYPES OF SALES CHARGES.
EXAMPLE:
The following example is intended to help you compare the cost of investing in
the Fund with the costs of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same each year (except for the ten-year
amounts for Class B Shares which reflect the conversion of Class B Shares to
Class A Shares after eight years). Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------
Class A Shares $616 $913 $1,231 $2,128
...............................................................
Class B Shares $623 $988 $1,330 $2,344*
...............................................................
Class C Shares $323 $688 $1,180 $2,534
...............................................................
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------
Class A Shares $616 $913 $1,231 $2,128
...............................................................
Class B Shares $223 $688 $1,180 $2,344*
...............................................................
Class C Shares $223 $688 $1,180 $2,534
...............................................................
</TABLE>
* BASED ON CONVERSION TO CLASS A SHARES AFTER EIGHT YEARS.
INVESTMENT OBJECTIVES,
POLICIES AND RISKS
The Fund's primary investment objective is to seek high current income
consistent with relative stability
7
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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's investment objectives are fundamental policies
and may not be changed without the approval of a majority of shareholders of the
Fund's outstanding voting securities, as defined in the Investment Company Act
of 1940, as amended (the "1940 Act"). There are risks inherent in all
investments in securities; accordingly there can be no assurance that the Fund
will achieve its investment objectives.
Under normal market conditions, the Fund's investment adviser seeks to achieve
the Fund's investment objectives by investing primarily in a portfolio of
lower-grade fixed income securities of issuers located throughout the world. The
Fund allocates its assets among any or all of three investment sectors: U.S.
corporate lower-grade debt securities, emerging market countries debt securities
and global fixed income securities offering high real (inflation adjusted)
yields. The Fund's investment adviser uses equity and fixed income valuation
techniques, together with analyses of economic and industry trends, to determine
the Fund's overall structure, sector allocation and desired maturity. The Fund's
investment adviser emphasizes securities of companies that have strong industry
positions and favorable outlooks for cash flow and asset values. The Fund's
investment adviser conducts a credit analysis for each security considered for
investment to evaluate its attractiveness relative to the level of risk it
presents. Under normal conditions, the Fund invests between 80% and 100% of its
total assets in some or all of these three categories of high yielding, high
risk securities, commonly known as "junk bonds." 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 or comparable quality unrated debt
securities for the Fund's portfolio, the Fund's investment adviser considers,
among other factors, the price of the security and the financial history,
condition, prospects and management of an issuer.
The Fund's investment adviser intends to invest a portion of the Fund's assets
in emerging market countries debt securities that provide a high level of
current income while offering 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. As used in this Prospectus, the term "emerging market
country" applies to any country which, in the opinion of the Fund's investment
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. 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. In selecting
emerging market countries debt securities for investment, the Fund's investment
adviser applies a market risk analysis assessing factors such as liquidity,
volatility, tax implications, interest rate sensitivity, counterparty risks and
technical market considerations. Emerging market countries debt securities
generally are subject to higher risks than investments in domestic securities or
securities of developed markets. See "Risks of Investing in Securities of
Foreign Issuers" below.
In addition, the Fund's investment adviser intends 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.
The Fund's approach to multi-currency fixed-income management is strategic and
value-based and designed to produce an attractive real rate of return. The
Fund's investment adviser's assessment of the fixed income 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 fixed income markets which offer the most attractive real
returns relative to inflation.
The types of fixed income securities in which the Fund may invest include, but
are not limited to, the following: fixed or variable rate bonds, notes, bills or
debentures; discount, zero coupon or payment-in-kind securities; preferred
stock; convertible securities; warrants; loans, loan participations and
assignments; assignments and interests issued by entities organized and operated
for the purpose of restructuring the investment characteristics of other debt
securities; and securities whose principal or interest payments
8
<PAGE>
are indexed to changes in the values of currencies, interest rates, commodities
or an index. 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
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.
The value of fixed income securities generally varies inversely with changes in
prevailing interest rates. If interest rates rise, fixed income security prices
generally fall; if interest rates fall, fixed income security prices generally
rise. Shorter-term securities are generally less sensitive to interest rate
changes than longer-term securities; thus, for a given change in interest rates,
the market prices of shorter-maturity fixed income securities generally
fluctuate less than the market prices of longer-maturity fixed income
securities. Fixed income securities with shorter maturities generally offer
lesser yields than fixed income securities with longer maturities assuming all
other factors, including credit quality, being equal. The average time to
maturity of the Fund's securities will vary depending upon the Fund's investment
adviser's perception of market conditions. Under normal market conditions, the
Fund invests primarily in medium-term securities (i.e., those with a remaining
maturity of approximately five years). When the Fund's investment adviser
believes that real yields are high, the Fund lengthens the remaining maturities
of securities held by it and, conversely, when the Fund's investment 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 securities it
holds, and the Fund's investment adviser may vary the average maturity of the
securities held in the Fund's portfolio without limit.
Credit risk refers to an issuer's ability to make timely payments of interest
and principal. Under normal market conditions, the Fund invests primarily in
lower-grade fixed income securities. The Fund may purchase unrated lower-grade
securities and rated lower-grade securities with no minimum quality standard
limitation, including securities that are in default. Lower-grade securities
tend to offer higher yields than higher-grade securities with the same
maturities, but generally involve greater risks of default and of volatility in
price than higher-grade securities. Rated lower-grade securities are regarded by
recognized rating organizations as predominantly speculative with respect to the
issuer's continuing ability to pay interest and principal. Ratings agencies
assign ratings based upon their opinions of the quality of the debt securities
they undertake to rate, but they do not base their assessment on the market
value risk of such securities. It should be emphasized that ratings are general
and are not absolute standards of quality. Many foreign securities, and
particularly securities of issuers from emerging market countries, may not be
rated for creditworthiness by any recognized rating organization. See "Risks of
Investing in Lower-Grade Securities" below.
Certain types of fixed income securities are subject to additional market,
credit or other risks not associated with traditional fixed income securities,
see "Additional Information Regarding Certain Fixed Income Securities" below.
RISKS OF INVESTING IN SECURITIES
OF FOREIGN ISSUERS
The Fund invests in securities of foreign issuers. Such securities may be
denominated in U.S. dollars and in currencies other than U.S. dollars. The
percentage of assets invested in securities of a particular country or
denominated in a particular currency will vary in accordance with the investment
adviser's assessment of the relative yield, appreciation potential and the
relationship of a country's currency to the U.S. dollar, which is based upon
such factors as fundamental economic strength, credit quality and interest rate
trends. Investments in foreign securities present certain risks not ordinarily
associated with investments in securities of U.S. issuers. These risks include
fluctuations in foreign currency exchange rates, political, economic or legal
developments (including war or other instability, expropriation of assets,
nationalization and confiscatory taxation), the imposition of foreign exchange
limitations (including currency blockage), withholding taxes on dividend or
interest payments or capital transactions or other restrictions, higher
transaction costs (including higher brokerage, custodial and settlement costs
and currency translation costs) and possible difficulty in enforcing contractual
obligations or taking judicial action. Also, foreign securities may not be as
liquid and may be more volatile than comparable domestic securities.
9
<PAGE>
In addition, there often is less publicly available information about many
foreign issuers, and issuers of foreign securities are subject to different,
often less comprehensive, auditing, accounting, financial reporting and
disclosure requirements than domestic issuers. There is generally less
government regulation of stock exchanges, brokers and listed companies abroad
than in the U.S., and, with respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investment in those countries. Because there is
usually less supervision and governmental regulation of exchanges, brokers and
dealers than there is in the U.S., the Fund may experience settlement
difficulties or delays not usually encountered in the U.S.
Delays in making trades in foreign securities relating to volume constraints,
limitations or restrictions, clearance or settlement procedures, or otherwise
could impact yields and result in temporary periods when assets of the Fund are
not fully invested or attractive investment opportunities are foregone.
In addition to the increased risks of investing in foreign securities, there are
often increased transactions costs associated with investing in foreign
securities including the costs incurred in connection with converting
currencies, higher foreign brokerage or dealer costs, and higher settlement
costs or custodial costs.
Since the Fund invests in securities denominated or quoted in currencies other
than the U.S. dollar, the Fund will be affected by changes in foreign currency
exchange rates (and exchange control regulations) which affect the value of
investments in the Fund and the accrued income and unrealized appreciation or
depreciation of the investments. Changes in foreign currency exchange ratios
relative to the U.S. dollar will affect the U.S. dollar value of the Fund's
assets denominated in that currency and the Fund's return on such assets as well
as any temporary uninvested reserves in bank deposits in foreign currencies. In
addition, the Fund will incur costs in connection with conversions between
various currencies.
The Fund may purchase and sell foreign currency on a spot basis in connection
with the settlement of transactions in securities traded in such foreign
currency. The Fund also may enter into contracts with banks, brokers or dealers
to purchase or sell securities or foreign currencies at a future date ("forward
contracts"). A foreign currency forward contract is a negotiated agreement
between the contracting parties to exchange a specified amount of currency at a
specified future time at a specified rate. The rate can be higher or lower than
the spot rate between the currencies that are the subject of the contract.
The Fund may attempt to protect against adverse changes in the value of the U.S.
dollar in relation to a foreign currency by entering into a forward contract for
the purchase or sale of the amount of foreign currency invested or to be
invested, or by buying or selling a foreign currency option or futures contract
for such amount. Such strategies may be employed before the Fund purchases a
foreign security traded in the currency which the Fund anticipates acquiring or
between the date the foreign security is purchased or sold and the date on which
payment therefor is made or received. Seeking to protect against a change in the
value of a foreign currency in the foregoing manner does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Furthermore, such transactions reduce or
preclude the opportunity for gain if the value of the currency should move in
the direction opposite to the position taken. Unanticipated changes in currency
prices may result in poorer overall performance for the Fund than if it had not
entered into such contracts.
Investors should carefully consider the risks of foreign investments before
investing in the Fund.
ADDITIONAL RISKS OF INVESTING IN EMERGING MARKET COUNTRIES. The risks of foreign
investment are heightened when the issuer is from an emerging market country.
The extent of economic development, political stability and market depth of such
countries varies widely and investments in the securities of issuers in such
countries typically involve greater potential gain or loss than investments in
securities of issuers in more developed countries. Emerging market countries
tend to have economic structures that are less diverse and mature and political
systems that are less stable than developed markets. Emerging market countries
may be more likely to experience political turmoil or rapid changes in economic
conditions than more developed markets and the financial condition of issuers in
emerging market countries may be more precarious than in other
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<PAGE>
countries. Certain countries depend to a larger degree upon international trade
or development assistance and, therefore, are vulnerable to changes in trade or
assistance which, in turn, may be affected by a variety of factors. The Fund may
be particularly sensitive to changes in the economies of certain countries
resulting from any reversal of economic liberalization, political unrest or the
imposition of sanctions by the U.S. or other countries.
The Fund's purchase and sale of portfolio securities in emerging market
countries may be constrained by limitations as to daily changes in the prices of
listed securities, periodic or sporadic trading or settlement, or limitations on
aggregate holdings by foreign investors. Such limitations may be computed based
on the aggregate trading volume by or holdings of the Fund, the Fund's
investment adviser, its affiliates or their respective clients or other service
providers. The Fund may not be able to sell securities in circumstances where
price, trading or settlement volume limitations have been reached. Foreign
investment in the securities markets of certain emerging market countries is
restricted or controlled to varying degrees which may limit investment in such
countries or increase the administrative costs of such investments. For example,
certain countries may require governmental approval prior to investments by
foreign persons or limit investment by foreign persons to only a specified
percentage of an issuer's outstanding securities or a specific class of
securities which may have less advantageous terms (including price) than
securities of the issuer available for purchase by nationals. In addition,
certain countries may restrict or prohibit investment opportunities in issuers
or industries deemed important to national interests. Such restrictions may
affect the market price, liquidity and rights of securities that may be
purchased by the Fund. The repatriation of both investment income and capital
from certain emerging market countries is subject to restrictions such as the
need for governmental consents. Due to restrictions on direct investment in
securities in certain countries, it is anticipated that the Fund may invest in
such countries through other investment funds in such countries.
Many emerging market countries have experienced currency devaluations and
substantial (and, in some cases, extremely high) rates of inflation, which have
had a negative effect on the economies and securities markets of such countries.
Economies in emerging market countries generally are dependent heavily upon
commodity prices and international trade and, accordingly, have been and may
continue to be affected adversely by the economies of their trading partners,
trade barriers, exchange controls, managed adjustments in relative currency
values and other protectionist measures or negotiated by the countries with
which they trade.
Many emerging market countries are subject to a substantial degree of economic,
political and social instability. Governments of some emerging market countries
are authoritarian in nature or have been installed or removed as a result of
military coups, while governments in other emerging market countries have
periodically used force to suppress civil dissent. Disparities of wealth, the
pace and success of political reforms, and ethnic, religious and racial
disaffection, among other factors, have also led to social unrest, violence
and/or labor unrest in some emerging market countries. Unanticipated political
or social developments may result in sudden and significant investment losses.
Settlement procedures in emerging market countries are frequently less developed
and reliable than those in developed markets. In addition, significant delays
are common in certain markets in registering the transfer of securities.
Settlement or registration problems may make it more difficult for the Fund to
value its portfolio securities and could cause the Fund to miss attractive
investment opportunities, to have a portion of its assets uninvested or to incur
losses due to the failure of a counterparty to pay for securities the Fund has
delivered or the Fund's inability to complete its contractual obligations. The
creditworthiness of the local securities firms used by the Fund in emerging
market countries may not be as sound as the creditworthiness of firms used in
more developed countries. As a result, the Fund may be subject to a greater risk
of loss if a securities firm defaults in the performance of its
responsibilities.
The small size and inexperience of the securities markets in certain emerging
market countries and the limited volume of trading in securities in those
countries may make the Fund's investments in such countries less liquid and more
volatile than investments in countries with more developed securities markets.
The Fund's investments in emerging market countries are subject to the risk that
the liquidity of a particular investment, or investments generally, in
11
<PAGE>
such countries will shrink or disappear suddenly and without warning as a result
of adverse economic, market or political conditions or adverse investor
perceptions, whether or not accurate. Because of the lack of sufficient market
liquidity, the Fund may incur losses because it will be required to effect sales
at a disadvantageous time and only then at a substantial drop in price.
Investments in emerging market countries may be more difficult to price
precisely because of the characteristics discussed above and lower trading
volumes.
The Fund's use of foreign currency management techniques in emerging market
countries may be limited. Due to the limited market for these instruments in
emerging market countries, the Fund's investment adviser does not currently
anticipate that a significant portion of the Fund's currency exposure in
emerging market countries, if any, will be covered by such instruments.
Investors are strongly advised to consider carefully the special risks involved
in investing in developing or emerging market countries, which are in addition
to the risks of investing in foreign securities generally.
RISKS OF INVESTING IN
LOWER-GRADE SECURITIES
Securities which are in the lower-grade categories generally offer higher yields
than are offered by higher-grade securities of similar maturities, but they also
generally involve greater risks, such as greater credit risk, greater market
risk and volatility, greater liquidity concerns and potentially greater manager
risk. Investors should carefully consider the risks of owning shares of a
portfolio which invests in lower-grade securities before investing in the Fund.
Credit risk relates to the issuer's ability to make timely payment of interest
and principal when due. Lower-grade securities are considered more susceptible
to nonpayment of interest and principal or default than higher-grade securities.
Increases in interest rates or changes in the economy may significantly affect
the ability of issuers of lower-grade debt securities to pay interest and to
repay principal, to meet projected financial goals or to obtain additional
financing. In the event that an issuer of securities held by the Fund
experiences difficulties in the timely payment of principal and interest and
such issuer seeks to restructure the terms of its borrowings, the Fund may incur
additional expenses and may determine to invest additional assets with respect
to such issuer or the project or projects to which the Fund's securities relate.
Further, the Fund may incur additional expenses to the extent that it is
required to seek recovery upon a default in the payment of interest or the
repayment of principal on its portfolio holdings, and the Fund may be unable to
obtain full recovery on such amounts.
Market risk relates to changes in market value of a security that occur as a
result of variation in the level of prevailing interest rates and yield
relationships in the debt securities market and as a result of real or perceived
changes in credit risk. The value of the Fund's investments can be expected to
fluctuate over time. When interest rates decline, the value of a portfolio
invested in fixed income securities generally can be expected to rise.
Conversely, when interest rates rise, the value of a portfolio invested in fixed
income securities generally can be expected to decline. Debt securities with
longer maturities, which may have higher yields, may increase or decrease in
value more than debt securities with shorter maturities. However, the secondary
market prices of lower-grade debt securities generally are less sensitive to
changes in interest rate and are more sensitive to general adverse economic
changes or specific developments with respect to the particular issuers than are
the secondary market prices of higher-grade debt securities. A significant
increase in interest rates or a general economic downturn could severely disrupt
the market for lower-grade securities and adversely affect the market value of
such securities. Such events also could lead to a higher incidence of default by
issuers of lower-grade securities as compared with higher-grade securities. In
addition, changes in credit risks, interest rates, the credit markets or periods
of general economic uncertainty can be expected to result in increased
volatility in the market price of the lower-grade securities in the Fund and
thus in the net asset value of the Fund. Adverse publicity and investor
perceptions, whether or not based on rational analysis, may affect the value,
volatility and liquidity of lower-grade securities.
The markets for lower-grade securities may be less liquid than the markets for
higher-grade securities. Liquidity relates to the ability of a fund to sell a
security in a timely manner at a price which reflects the value of that
security. To the extent that there is
12
<PAGE>
no established retail market for some of the lower-grade securities in which the
Fund may invest, trading in such securities may be relatively inactive. Prices
of lower-grade securities may decline rapidly in the event a significant number
of holders decide to sell. Changes in expectations regarding an individual
issuer of lower-grade securities generally could reduce market liquidity for
such securities and make their sale by the Fund more difficult, at least in the
absence of price concessions. The effects of adverse publicity and investor
perceptions may be more pronounced for securities for which no established
retail market exists as compared with the effects on securities for which such a
market does exist. An economic downturn or an increase in interest rates could
severely disrupt the market for such securities and adversely affect the value
of outstanding securities or the ability of the issuers to repay principal and
interest. Further, the Fund may have more difficulty selling such securities in
a timely manner and at their stated value than would be the case for securities
for which an established retail market does exist.
The Fund's investment adviser is responsible for determining the net asset value
of the Fund, subject to the supervision of the Fund's Board of Directors. During
periods of reduced market liquidity or in the absence of readily available
market quotations for lower-grade securities held in the Fund's portfolio, the
ability of the Fund's investment adviser to value the Fund's securities becomes
more difficult and the judgment of the Fund's investment adviser may play a
greater role in the valuation of the Fund's securities due to the reduced
availability of reliable objective data.
The Fund may invest in securities not producing immediate cash income, including
securities in default, zero-coupon securities or pay-in-kind securities, when
their effective yield over comparable instruments producing cash income make
these investments attractive. Prices on non-cash-paying instruments may be more
sensitive to changes in the issuer's financial condition, fluctuation in
interest rates and market demand/supply imbalances than cash-paying securities
with similar credit ratings and thus may be more speculative. In addition, the
accrued interest income earned on such instruments is included in investment
company taxable income, thereby increasing the required minimum distributions to
shareholders without providing the corresponding cash flow with which to pay
such distributions. The Fund's investment adviser will weigh these concerns
against the expected total returns from such instruments.
The Fund's investments may include securities with the lowest-grade assigned by
the recognized rating organizations and unrated securities of comparable
quality. Securities assigned such ratings include those of companies that are in
default or are in bankruptcy or reorganization. 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, 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. Securities of such
companies are regarded by the rating agencies as having extremely poor prospects
of ever attaining any real investment standing and are usually available at deep
discounts from the face values of the instruments. A security purchased at a
deep discount may currently pay a very high effective yield. In addition, if the
financial condition of the issuer improves, the underlying value of the security
may increase, resulting in capital appreciation. If the company defaults on its
obligations or remains in default, or if the plan of reorganization does not
provide sufficient payments for debtholders, the deep discount securities may
stop generating income and lose value or become worthless. The Fund's investment
adviser will balance the benefits of deep discount securities with their risks.
While a broad portfolio of investments may reduce the overall impact of a deep
discount security that is in default or loses its value, the risk cannot be
eliminated.
Many lower-grade debt securities are not listed for trading on any national
securities exchange, and many issuers of lower-grade debt securities choose not
to have a rating assigned to their obligations by any recognized rating
organization. As a result, the Fund's portfolio may consist of a higher portion
of unlisted or unrated securities as compared with an investment company that
invests primarily in higher-grade securities. Unrated securities are usually not
as attractive to as many buyers as are rated securities, a
13
<PAGE>
factor which may make unrated securities less marketable. These factors may have
the effect of limiting the availability of the securities for purchase by the
Fund and may also limit the ability of the Fund to sell such securities at their
fair value either to meet redemption requests or in response to changes in the
economy or the financial markets. Further, to the extent the Fund owns or may
acquire illiquid or restricted lower-grade securities, these securities may
involve special registration responsibilities, liabilities and costs, and
liquidity and valuation difficulties.
The Fund will rely on its investment adviser's judgment, analysis and experience
in evaluating the creditworthiness of an issue. The amount of available
information about the financial condition of certain lower-grade issuers may be
less extensive than other issuers. In its analysis, the Fund's investment
adviser may consider the credit ratings of recognized rating organizations in
evaluating securities although the investment adviser does not rely primarily on
these ratings. Ratings evaluate only the safety of principal and interest
payments, not the market value risk. In addition, ratings are general and not
absolute standards of quality, and credit ratings are subject to the risk that
the creditworthiness of an issuer may change and the rating agencies may fail to
change such ratings in a timely fashion. A rating downgrade does not require the
Fund to dispose of a security. The Fund's investment adviser continuously
monitors the issuers of securities held in the Fund. Additionally, since most
foreign debt securities are not rated, the Fund will invest in such securities
based on the Fund's investment adviser's analysis without any guidance from
published ratings. Because of the number of investment considerations involved
in investing in lower-grade securities and foreign debt securities, achievement
of the Fund's investment objectives may be more dependent upon the investment
adviser's credit analysis than is the case with investing in higher-grade
securities.
New or proposed laws may have an impact on the market for lower-grade
securities. The Fund's investment adviser is unable at this time to predict what
effect, if any, legislation may have on the market for lower-grade securities.
Special tax considerations are associated with investing in certain lower-grade
securities, such as zero-coupon or pay-in-kind securities. The Fund accrues
income on these securities prior to the receipt of cash payments. The Fund must
distribute substantially all of its income to its shareholders to qualify for
pass-through treatment under federal income tax law and may, therefore, have to
dispose of its portfolio securities to satisfy distribution requirements.
The table below sets forth the percentages of the Fund's assets invested during
the fiscal period ended June 30, 1999 in the various rating categories and in
unrated securities determined by the Fund's investment adviser to be of
comparable quality. The percentages are based on the dollar-weighted average of
credit ratings of all debt securities held by the Fund during the fiscal period
computed on a monthly basis.
<TABLE>
<CAPTION>
PERIOD ENDED JUNE 30, 1999
UNRATED SECURITIES OF
RATED SECURITIES COMPARABLE QUALITY
(AS A PERCENTAGE OF (AS A PERCENTAGE OF
RATING CATEGORY PORTFOLIO VALUE) PORTFOLIO VALUE)
<S> <C> <C>
- ---------------------------------------------------------------------
AAA/Aaa 0.00% 0.38%
....................................................................
AA/Aa 0.00% 0.00%
....................................................................
A/A 2.26% 0.00%
....................................................................
BBB/Baa 5.45% 0.00%
....................................................................
BB/Ba 47.13% 5.00%
....................................................................
B/B 28.48% 3.44%
....................................................................
CCC/Caa 6.48% 1.38%
....................................................................
CC/Ca 0.00% 0.00%
....................................................................
C/C 0.00% 0.00%
....................................................................
D 0.00% 0.00%
....................................................................
Percentage of Rated and
Unrated Securities 89.80% 10.20%
....................................................................
</TABLE>
The percentage of the Fund's assets invested in securities of various grades may
vary from time to time from those listed above.
ADDITIONAL INFORMATION REGARDING
CERTAIN FIXED INCOME SECURITIES
DISCOUNT, ZERO-COUPON AND PAYMENT-IN-KIND SECURITIES. The Fund may invest in
securities sold at a substantial discount from their value at maturity, such as
zero-coupon and payment-in-kind securities, when the Fund's investment adviser
believes the effective yield on such securities over comparable instruments
paying current cash income makes these investments attractive. Zero-coupon
securities are
14
<PAGE>
debt obligations that do not entitle the holder to any periodic payment of
interest prior to maturity or a specified date when the securities begin paying
current interest. They are issued and traded at a discount from their face
amounts or par value, which discount varies depending on the time remaining
until cash payments begin, prevailing interest rates, liquidity of the security
and the perceived credit quality of the issuer. Because such securities do not
entitle the holder to any periodic payments of interest prior to maturity, this
prevents the reinvestment of such interest payments if prevailing interest rates
rise. On the other hand, because there are no periodic interest payments to be
reinvested prior to maturity, "zero-coupon" securities eliminate the
reinvestment risk and may lock in a favorable rate of return to maturity if
interest rates drop. Payment-in-kind securities are securities that pay interest
through the issuance of additional securities. Prices on non-cash-paying
instruments may be more sensitive to changes in the issuer's financial
condition, fluctuations in interest rates and market demand/supply imbalances
than cash-paying securities with similar credit ratings, and thus may be more
speculative than are securities that pay interest periodically in cash. In
addition, the amount of non-cash interest income earned on such instruments is
included, for federal income tax purposes, in the Fund's calculation of income
that is required to be distributed to shareholders for the Fund to maintain its
desired federal income tax status (even though such non-cash paying securities
do not provide the Fund with the cash flow with which to pay such
distributions). Accordingly, the Fund may be required to borrow or to liquidate
portfolio securities at a time that it otherwise would not have done so in order
to make such distributions. The Fund's investment adviser will weigh these
concerns against the expected total returns from such instruments.
BRADY BONDS. The Fund may invest in Brady Bonds and other sovereign debt of
countries that have restructured or are in the process of restructuring
sovereign debt pursuant to the Brady Plan. Brady Bonds are typically from a
debtor nation restructuring outstanding external commercial bank indebtedness.
Brady Bonds generally are based on issuers with a history of defaults with
respect to commercial bank loans and therefore are often viewed as speculative.
A more complete description of Brady Bonds is contained in the Fund's Statement
of Additional Information.
SOVEREIGN DEBT. In addition to Brady Bonds, the Fund may invest in sovereign or
sovereign-related debt obligations, including obligations of supranational
entities. Sovereign debt differs from debt obligations of private entities in
that, generally, remedies for defaults must be pursued in the courts of the
defaulting party and the legal recourse in enforcing a sovereign debt is often
limited. At certain times, certain countries (particularly emerging market
countries) have declared a moratoria on the payment of principal and interest on
external debt. Such investments may include participations and assignments of
sovereign bank debt, restructured external debt that has not undergone a
Brady-style debt exchange, and internal government debt.
LOANS. The Fund may invest in fixed and floating rate loans arranged through
private negotiations between an issuer of sovereign or corporate debt
obligations and one or more financial institutions. The Fund's investments in
loans are expected in most instances to be in the form of participations in
loans and assignments of all or a portion of loans from third parties. In the
case of participations, the Fund will have the right to receive payments of
principal, interest and any fees to which it is entitled only from the lender
selling the 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, the 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. The Fund
will acquire participations only if the lender interpositioned between the Fund
and the borrower is determined by the Fund's investment adviser to be
creditworthy.
When the 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 the 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
Fund anticipates 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 the Fund's ability to dispose
of particular assignments or participations when necessary to meet the
15
<PAGE>
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 the Fund to assign a value to these securities for purposes of
valuing the Fund's portfolio and calculating its net asset value.
PRIVATE PLACEMENTS. The Fund may invest in income securities that are sold in
private placement transactions between their issuers and their purchasers and
that are neither listed on an exchange nor traded in the over-the-counter
secondary market. A significant portion of the high yield, high risk bond market
is privately placed securities or restricted securities sold to qualified
institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as
amended. In many cases, privately placed securities will be subject to
contractual or legal restrictions on transfer. As a result of the absence of a
public trading market, privately placed securities may in turn be less liquid
and more difficult to value than publicly traded securities. In addition,
issuers whose securities are not publicly traded may not be subject to the
disclosure and other investor protection requirements that may be applicable if
their securities were publicly traded. The Fund monitors the liquidity of such
securities and securities not considered liquid are subject to the Fund's
limitation on illiquid securities. Notwithstanding the foregoing, the Fund may
not invest more than 10% of its total assets in securities subject to legal or
contractual restrictions on resale. Certain of the Fund's direct investments,
particularly in emerging market countries, may include investments in smaller,
less seasoned companies, which may involve greater risks. These companies may
have limited product lines, markets or financial resources, or they may be
dependent on a limited management group.
STRUCTURED INVESTMENTS. The Fund may invest a portion of its assets in
"structured investments" which are interests in entities organized and operated
for the purpose of restructuring the investment characteristics of other
securities. This type of restructuring involves the deposit with or purchase by
an entity of debt securities (such as mortgages, bank loans or Brady Bonds) and
the issuance by that entity of one or more classes of securities, backed by, or
representing interests in, the underlying instruments. The cash flow on the
underlying instruments may be apportioned among the newly issued securities to
create different investment characteristics such as varying maturities, payment
priorities and interest rate provisions.
OTHER INVESTMENTS
AND RISK FACTORS
DERIVATIVE INSTRUMENTS. The Fund may, but is not required to, use various
investment strategic transactions described below to earn income, facilitate
portfolio management and mitigate risks. Such strategic transactions are
generally accepted under modern portfolio management and are regularly used by
many mutual funds and other institutional investors. Although the Fund's
investment adviser seeks to use the practices to further the Fund's investment
objective, no assurance can be given that these practices will achieve this
result.
The Fund may purchase and sell derivative instruments such as exchange-listed
and over-the-counter put and call options on securities, financial futures,
equity, fixed-income and interest rate indices, and other financial instruments,
futures contracts and options thereon (including but not limited to securities
index futures, foreign currency exchange futures, interest rate futures and
other financial futures), structured notes, swaps, caps, floors or collars and
enter into various currency transactions such as currency forward contracts,
currency futures contracts, currency swaps or options on currency or currency
futures. In addition, the Fund may invest in other derivative instruments that
are developed over time if their use would be consistent with the objective of
the Fund. Collectively, all of the above are referred to as "Strategic
Transactions." The Fund generally seeks to use Strategic Transactions as a
portfolio management or hedging technique to seek to protect against possible
adverse changes in the market value of securities held in or to be purchased for
the Fund's portfolio, protect the Fund's unrealized gains, facilitate the sale
of certain securities for investment purposes, protect against changes in
currency exchange rates or to adjust the exposure to a particular currency,
manage the effective maturity or duration of the Fund's portfolio, establish
positions in the derivatives markets as a substitute for purchasing or selling
particular securities, including, for example, when the Fund adjusts its
exposure to a market in response to changes in investment strategy, when
16
<PAGE>
doing so provides more liquidity than the direct purchase of the securities
underlying such derivatives, when the Fund 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. The Fund may invest up to 33 1/3%
of its total assets in Strategic Transactions for non-hedging purposes (measured
by the aggregate notional amount of outstanding derivatives). In addition, the
Fund may invest up to 20% of its total assets in futures contracts and options
on futures contracts (measured by the aggregate notional amount of such
outstanding contracts).
Strategic Transactions have risks including the imperfect correlation between
the value of such instruments and the underlying assets, the possible default of
the other party to the transaction or illiquidity of the derivative instruments.
Furthermore, the ability to successfully use Strategic Transactions depends on
the Fund's investment adviser's ability to predict pertinent market movements,
which cannot be assured. Thus, the use of Strategic Transactions may result in
losses greater than if they had not been used, may require the Fund to sell or
purchase portfolio securities at inopportune times or for prices other than
current market values, may limit the amount of appreciation the Fund can
otherwise realize on an investment, or may cause the Fund to hold a security
that it might otherwise sell. The use of currency transactions can result in the
Fund incurring losses because of the imposition of exchange controls, suspension
of settlements or the inability of the Fund to deliver or receive a specified
currency. In addition, amounts paid as premiums or cash or other assets held in
margin accounts with respect to Strategic Transactions are not otherwise
available to the Fund for investment purposes.
When conducted outside the U.S., Strategic Transactions may not be regulated as
rigorously as in the U.S., may not involve a clearing mechanism and related
guarantees, and are subject to the risk of governmental actions affecting
trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions, (iii)
delays in the Fund's ability to act upon economic events occurring in foreign
markets during non-business hours in the U.S., (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
U.S., and (v) lower trading volume and liquidity.
A more complete discussion of Strategic Transactions and their risks is
contained in the Fund's Statement of Additional Information. The Statement of
Additional Information can be obtained by investors free of charge as described
on the back cover of this prospectus.
OTHER PRACTICES. For cash management purposes, the Fund may engage in repurchase
agreements with banks and broker-dealers and other financial institutions in
order to earn a return on temporarily available cash. Such transactions are
subject to the risk of default by the other party.
The Fund may purchase and sell securities in an amount up to 15% of its net
assets on a "when-issued" and "delayed delivery" basis. The Fund accrues no
income on such securities until the Fund actually takes delivery of such
securities. These transactions are subject to market fluctuation; the value of
the securities at delivery may be more or less than their purchase price. The
value or yield generally available on comparable securities when delivery occurs
may be higher than the value or yield on the securities obtained pursuant to
such transactions. Because the Fund relies on the buyer or seller to consummate
the transaction, failure by the other party to complete the transaction may
result in the Fund missing the opportunity of obtaining a price or yield
considered to be advantageous. The Fund will engage in when-issued and delayed
delivery transactions for the purpose of acquiring securities consistent with
the Fund's investment objectives and policies and not for the purpose of
investment leverage.
The Fund may lend its portfolio securities in an amount up to 33 1/3% of its
total assets to broker-dealers, banks or other recognized institutional
borrowers of securities. The Fund may incur lending fees and other costs in
connection with securities
17
<PAGE>
lending, and securities lending is subject to the risk of default by the other
party.
The Fund may invest up to 15% of the Fund's net assets in illiquid securities
and certain restricted securities. Notwithstanding the foregoing, the Fund may
not invest more than 10% of its total assets in securities subject to legal or
contractual restrictions on resale. Such securities may be difficult or
impossible to sell at the time and the price that the Fund would like. Thus, the
Fund may have to sell such securities at a lower price, sell other securities
instead to obtain cash or forego other investment opportunities.
The Fund is authorized to borrow money from banks and engage in reverse
repurchase agreements in an aggregate amount up to 33 1/3% of the Fund's total
assets (including the amount borrowed) for investment purposes. The use of such
transactions to purchase additional securities is known as "leverage." Leverage
transactions create an opportunity for increased net income but, at the same
time, may increase the volatility of the Fund's net asset value as a result of
fluctuations in market interest rates and increase the risk of the Fund's
portfolio. The principal amount of these transactions is fixed when the
transaction is opened, but the Fund's assets may change in value during the time
these transactions are outstanding. As a result, interest expenses and other
costs from these transactions may exceed the interest income and other revenues
earned from portfolio assets, and the net income of the Fund may be less than if
these transactions were not used. Borrowing may be done on a secured or
unsecured basis. The Fund may pay various fees and expenses in connection with
the borrowing, and the loan agreements may contain covenants or restrictions on
certain investment practices in which the Fund may otherwise be permitted to
engage.
Reverse repurchase agreements are transactions in which the Fund sells certain
securities concurrently with an agreement to repurchase the same securities at a
later date at a fixed price. During the reverse repurchase agreement period, the
Fund continues to receive principal and interest payments on such securities.
Reverse repurchase agreements involve the risk that the market value of the
securities retained by the Fund may decline below the price of the securities
the Fund has sold but is obligated to repurchase under the agreement.
The Fund may, from time to time, make short sales without limitation of
securities it owns or has the right to acquire through conversion or exchange of
other securities it owns. A short sale is a transaction in which the Fund sells
a security it does not own in anticipation that the market price of that
security will decline. A short sale is "against the box" to the extent that the
Fund contemporaneously owns or has the right to obtain, at no added cost,
securities identical to those sold short. When the Fund makes a short sale, it
must borrow the security sold short and deliver it to the broker-dealer through
which it made the short sale in order to satisfy its obligation to deliver the
security upon conclusion of the sale. The Fund is obligated to collateralize its
obligation to replace the borrowed security with cash or other liquid
securities. The Fund may have to pay a fee to borrow particular securities and
is often obligated to pay over any payments received on such borrowed
securities. If the price of the security sold short increases between the time
of the short sale and the time the Fund replaces the borrowed security, the Fund
will incur a loss; conversely, if the price declines, the Fund will realize a
capital gain. Although the Fund's gain is limited to the price at which it sold
the security short, its potential loss is theoretically unlimited. The short
sale of a security is considered a speculative investment technique.
The Fund may invest in securities indirectly through investment in other
investment companies. Such investments are commonly used when a direct
investment in certain countries is not permitted by foreign investors.
Investments in other investment companies may involve duplication of management
fees and certain other expenses.
Further information about these types of investments and other investment
practices that may be used by the Fund is contained in the Statement of
Additional Information.
The Fund may sell securities without regard to the length of time they have been
held in order to take advantage of new investment opportunities or when the
Fund's investment adviser believes the potential for income or capital growth
has lessened or for
18
<PAGE>
other reasons. The Fund's portfolio turnover is shown under the heading
"Financial Highlights." The portfolio turnover rate may be expected to vary from
year to year. A high portfolio turnover rate (100% or more) increases the Fund's
transactions costs (including brokerage commissions or dealer costs), and a high
portfolio turnover rate may result in the realization of more short-term capital
gains than if the Fund had a lower portfolio turnover rate. Increases the Fund's
transaction costs would adversely impact the Fund's performance. The turnover
rate will not be a limiting factor, however, if the Fund's investment adviser
considers portfolio changes appropriate.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Fund may invest on a temporary basis a portion or all
of its assets in securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities, obligations of foreign sovereignties, prime
commercial paper, certificates of deposit, bankers' acceptances and other
obligations of domestic banks and in investment grade corporate debt securities.
Under normal market conditions, the potential for high current income and
capital appreciation on these securities will tend to be lower than the
potential for high current income and capital appreciation on other securities
that may be owned by the Fund. In taking such a defensive position, the Fund
would not be pursuing and may not achieve its investment objective.
YEAR 2000 RISKS. Like other mutual funds, financial and business organizations
and individuals around the world, the Fund could be adversely affected if the
computer systems used by the Fund's investment adviser, subadviser and other
service providers do not properly process and calculate date-related information
and data from and after January 1, 2000. This is commonly known as the "Year
2000 Problem." The Fund's investment adviser and subadviser are taking steps
that they believe are reasonably designed to address the Year 2000 Problem with
respect to computer systems that they use and to obtain reasonable assurances
that comparable steps are being taken by the Fund's other major service
providers. At this time, there can be no assurances that these steps will be
sufficient to avoid any adverse impact to the Fund. In addition, the Year 2000
Problem may adversely affect the markets and the issuers of securities in which
the Fund may invest which, in turn, may adversely affect the net asset value of
shares of the Fund. Improperly functioning trading systems may result in
settlement problems and liquidity issues. In addition, corporate and
governmental data processing errors may result in production problems for
individual companies or issuers and overall economic uncertainty. Earnings of
individual issuers will be affected by remediation costs, which may be
substantial and may be reported inconsistently in U.S. and foreign financial
statements. Efforts in foreign countries to remediate the potential Year 2000
Problem may not be as extensive as those in the U.S. As a result, the operations
of foreign markets and issuers may be disrupted by the Year 2000 Problem which
could adversely affect the Fund's portfolio. The risks are greater with respect
to certain developing or emerging market countries; because there is an
increased likelihood that issuers of securities of such countries cannot
anticipate or effectively manage the effects of computer programs and the Year
2000 Problem. Accordingly, the Fund's investments may be adversely affected. The
statements above are subject to the Year 2000 Information and Readiness
Disclosure Act which may limit the legal rights regarding the use of such
statements in the case of a dispute.
INVESTMENT ADVISORY
SERVICES
INVESTMENT ADVISER
Van Kampen Investment Advisory Corp. is the investment adviser (the "Adviser" or
"Advisory Corp.") and administrator of the Fund. The Adviser is a wholly owned
subsidiary of Van Kampen Investments Inc. ("Van Kampen Investments"). Van Kampen
Investments is a diversified asset management company with more than two million
retail investor accounts, extensive capabilities for managing institutional
portfolios, and more than $79 billion under management or supervision as of
September 30, 1999. Van Kampen Investments' more than 50 open-end and 39
closed-end funds and more than 2,500 unit investment trusts are professionally
19
<PAGE>
distributed by leading authorized dealers nationwide. Van Kampen Funds Inc., the
distributor of the Fund (the "Distributor") and the sponsor of the funds
mentioned above, is also a wholly owned subsidiary of Van Kampen Investments.
Van Kampen Investments is an indirect wholly owned subsidiary of Morgan Stanley
Dean Witter & Co. The Adviser's principal office is located at 1 Parkview Plaza,
PO Box 5555, Oakbrook Terrace, Illinois 60181-5555.
ADVISORY AGREEMENT AND ADMINISTRATION AGREEMENT. The Fund retains the Adviser to
manage the investment of its assets and to place orders for the purchase and
sale of its portfolio securities. Under an investment advisory agreement between
the Adviser and the Fund (the "Advisory Agreement"), the Fund pays the Adviser a
monthly fee computed based upon an annual rate of 0.75% applied to the average
daily net assets of the Fund.
The Fund also retains the Adviser to provide administrative services for the
Fund's day-to-day operations. Under an administration agreement between the Fund
and the Adviser, the Fund pays a monthly administration fee computed based upon
an annual rate of 0.25% applied to the average daily net assets of the Fund.
The Adviser furnishes offices, necessary facilities and equipment, provides
administrative services, and permits its officers and employees to serve without
compensation as directors or officers of the Fund if elected to such positions.
The Fund pays all charges and expenses of its day-to-day operations, including
the compensation of directors of the Fund (other than those who are affiliated
persons of the Adviser, Distributor or Van Kampen Investments), the charges and
expenses of legal counsel and independent accountants, distribution fees,
service fees, custodian fees, the costs of providing reports to shareholders,
and all other ordinary business expenses not specifically assumed by the
Adviser.
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen Asset Management
Inc. ("Asset Management").
INVESTMENT SUBADVISER
Morgan Stanley Dean Witter Investment Management Inc. (the "Subadviser") is the
Subadviser of the Fund. The Subadviser is a wholly owned subsidiary of Morgan
Stanley Dean Witter & Co., and is an affiliate of the Adviser. The Subadviser
conducts a worldwide portfolio management business and provides a broad range of
portfolio management services to customers in the United States and abroad. At
June 30, 1999, the Subadviser, together with its affiliated institutional asset
management companies, managed assets of approximately $175.3 billion, including
assets under fiduciary advice. The Subadviser's principal office is located at
1221 Avenue of the Americas, New York, New York 10020. On December 1, 1998,
Morgan Stanley Asset Management Inc. changed its name to Morgan Stanley Dean
Witter Investment Management Inc. but continues to do business in certain
instances using the name Morgan Stanley Asset Management.
SUBADVISORY AGREEMENT. The Adviser has entered into a subadvisory agreement with
the Subadviser to assist the Adviser in performing its investment advisory
functions. The Adviser pays the Subadviser on a monthly basis a portion of the
net advisory fees the Adviser receives from the Fund.
GENERAL
From time to time, the Adviser, the Subadviser or the Distributor may
voluntarily undertake to reduce the Fund's expenses by reducing the fees payable
to them or by reducing other expenses of the Fund in accordance with such
limitations as the Adviser, the Subadviser or Distributor may establish.
PERSONAL INVESTMENT POLICIES. The Fund, the Adviser and the Subadviser have
adopted Codes of Ethics designed to recognize the fiduciary relationship among
the Fund, the Adviser and the Subadviser and their respective employees. The
Codes of Ethics permit directors, trustees, officers and employees to buy and
sell securities for their personal accounts subject to certain restrictions.
Persons with access to certain sensitive information are subject to
pre-clearance and other procedures designed to prevent conflicts of interest.
20
<PAGE>
PORTFOLIO MANAGEMENT. Robert Angevine, Gordon W. Loery, Stephen F. Esser and
Abigail L. McKenna are responsible as comanagers for the day-to-day management
of the Fund's investment portfolio.
Mr. Angevine is a Principal of Morgan Stanley Dean Witter & Co. and the
Subadviser and the portfolio manager for high yield investments. He has shared
primary management responsibility for the Fund since it commenced operations.
Prior to joining the Subadviser in October 1988, he spent over eight years at
Prudential Insurance where he was responsible for one of the largest open-end
high yield mutual funds in the country. His other experience includes
international treasury operations at a major pharmaceutical company and
commercial banking. Mr. Angevine received a B.A. in Economics from Lafayette
College and an M.B.A. from Fairleigh Dickinson University.
Mr. Loery, currently a Principal of the Subadviser, joined the Subadviser as a
Fixed Income Analyst in 1990. Previously, he worked in Fixed Income at Alex
Brown and Mabon Nugent and managed commodity pools for a private firm. He has a
degree in economics from Cornell University, is a Chartered Financial Analyst
and a member of the NYSSA. He has shared primary responsibility for managing the
Fund's assets since April 1999.
Mr. Esser has shared primary responsibility for managing the Fund's assets since
October, 1998. He joined the Subadviser in 1996 and has been a portfolio manager
with Miller Anderson & Sherrerd, LLP ("MAS") since 1988. He assumed
responsibility for the MAS-advised MAS Fund High Yield Portfolio in 1989.
Mr. Esser is a member of the New York Society of Security Analysts and has a
B.S. (Summa Cum Laude; Phi Beta Kappa) from the University of Delaware.
Ms. McKenna has shared primary responsibility for managing the Fund's assets
since 1996. Ms. McKenna joined the Subadviser in 1996 and is a Vice President of
the Subadviser and Morgan Stanley Dean Witter & Co. She focuses primarily on the
trading and management of the emerging markets debt portfolios. Prior to joining
the Subadviser, she was a Senior Portfolio Manager at MIMCO and a Limited
Partner at Weiss Peck & Greer from 1991 to 1995 where she was responsible for
the trading and management of Corporate Bond Portfolios. She holds a B.A. in
International Relations from Georgetown University and is a Chartered Financial
Analyst.
PURCHASE OF SHARES
GENERAL
The Fund offers three classes of shares designated as Class A Shares, Class B
Shares and Class C Shares. By offering three classes of shares, the Fund permits
each investor to choose the class of shares that is most beneficial given the
amount to be invested and the length of time the investor expects to hold the
shares.
Initial investments must be at least $1,000 for each class of shares, and
subsequent investments must be at least $25 for each class of shares. Both
minimums may be waived by the Distributor for plans involving periodic
investments.
Each class of shares represents an interest in the same portfolio of investments
of the Fund and has the same rights except that (i) Class A Shares generally
bear the sales charge expenses at the time of purchase while Class B Shares and
Class C Shares bear the sales charge expenses at the time of redemption and any
expenses (including higher distribution fees and transfer agency costs)
resulting from such deferred sales charge arrangement, (ii) generally, each
class of shares has exclusive voting rights with respect to approvals of the
Rule 12b-1 distribution plan and service plan (each as described below) under
which its distribution fee or service fee is paid, (iii) each class of shares
has different exchange privileges, (iv) certain classes of shares are subject to
a conversion feature and (v) certain classes of shares have different
shareholder service options available.
The offering price of the Fund's shares is based upon the Fund's net asset value
per share (plus sales charges, where applicable). The net asset values per share
of the Class A Shares, Class B Shares and Class C Shares are generally expected
to be substantially the same. In certain circumstances, however,
21
<PAGE>
the per share net asset values of the classes of shares may differ from one
another, reflecting the daily expense accruals of the higher distribution fees
and transfer agency costs applicable to the Class B Shares and Class C Shares
and the differential in the dividends that may be paid on each class of shares.
The net asset value per share for each class of shares of the Fund is determined
once daily as of the close of trading on the New York Stock Exchange (the
"Exchange") (currently 4:00 p.m., New York time) each day the Exchange is open
for trading except on any day on which no purchase or redemption orders are
received or there is not a sufficient degree of trading in the Fund's portfolio
securities such that the Fund's net asset value per share might be materially
affected. The Fund's Board of Directors reserves the right to calculate the net
asset value per share and adjust the offering price based thereon more
frequently than once daily if deemed desirable. Net asset value per share for
each class is determined by dividing the value of the Fund's portfolio
securities, cash and other assets (including accrued interest) attributable to
such class, less all liabilities (including accrued expenses) attributable to
such class, by the total number of shares of the class outstanding. Such
computation is made by using prices as of the close of trading on the Exchange.
Securities listed 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 not
readily available are valued at the average of the mean of 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 by the Adviser at fair value
using methods determined by the Fund's Board of Directors.
Trading in securities on many foreign securities exchanges (including European
and Far Eastern securities exchanges) and over-the-counter markets is normally
completed before the close of business on each U.S. business day. In addition,
securities trading in a particular country or countries may not take place on
all U.S. business days or may take place on days which are not U.S. business
days. Changes in valuations on certain securities may occur at times or on days
on which the Fund's net asset value is not calculated and on which the Fund does
not effect sales, redemptions and exchanges of its shares.
The Fund calculates net asset value per share, and therefore effects sales,
redemptions and exchanges of its shares, as of the close of trading on the
Exchange
22
<PAGE>
each day the Exchange is open for trading. Such calculation does not take place
contemporaneously with the determination of the prices of certain foreign
portfolio securities used in such calculation.
If events materially affecting the value of foreign portfolio securities or
other portfolio securities occur between the time when their price is determined
and the time when the Fund's net asset value is calculated, such securities may
be valued at fair value as determined in good faith by the Adviser based in
accordance with procedures established by the Fund's Board of 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.
The Fund has adopted a distribution plan (the "Distribution Plan") with respect
to each class of its shares pursuant to Rule 12b-1 under the 1940 Act. The Fund
also has adopted a service plan (the "Service Plan") with respect to each class
of its shares. Under the Distribution Plan and the Service Plan, the Fund pays
distribution fees in connection with the sale and distribution of its shares and
service fees in connection with the provision of ongoing services to
shareholders of each class.
The amount of distribution and service fees varies among the classes offered by
the Fund. Because these fees are paid out of the Fund's assets on an ongoing
basis, these fees will increase the cost of your investment in the Fund. By
purchasing a class of shares subject to higher distribution and service fees,
you may pay more over time than on a class of shares with other types of sales
charge arrangements. Long-term shareholders may pay more than the economic
equivalent of the maximum front-end sales charges permitted by the rules of the
National Association of Securities Dealers, Inc. ("NASD"). The net income
attributable to a class of shares will be reduced by the amount of the
distribution fees and other expenses of the Fund associated with such class of
shares. To assist investors in comparing classes of shares, the tables under the
heading "Fees and Expenses of the Fund" provide a summary of sales charges and
expenses and an example of the sales charges and expenses of the Fund applicable
to each class of shares.
The shares are offered to the public on a continuous basis through the
Distributor as principal underwriter, which is located at 1 Parkview Plaza, PO
Box 5555, Oakbrook Terrace, Illinois 60181-5555. Shares also are offered through
members of the NASD who are acting as securities dealers ("dealers") and NASD
members or eligible non-NASD members who are acting as brokers or agents for
investors ("brokers"). "Dealers" and "brokers" are sometimes referred to herein
as "authorized dealers."
Shares may be purchased on any business day by completing the application
accompanying this prospectus and forwarding the application, directly or through
an authorized dealer, to the Fund's shareholder service agent, Van Kampen
Investor Services Inc. ("Investor Services"), a wholly owned subsidiary of Van
Kampen Investments. When purchasing shares of the Fund, investors must specify
whether the purchase is for Class A Shares, Class B Shares or Class C Shares.
Sales personnel of authorized dealers distributing the Fund's shares are
entitled to receive compensation for selling such shares and may receive
differing compensation for selling Class A Shares, Class B Shares or Class C
Shares.
The offering price for shares is based upon the next calculation of net asset
value per share (plus sales charges, where applicable) after an order is
received by Investor Services. Orders received by authorized dealers prior to
the close of the Exchange are priced based on the date of receipt provided such
order is transmitted to Investor Services prior to Investor Services' close of
business on such date. Orders received by authorized dealers after the close of
the Exchange or transmitted to Investor Services after its close of business are
priced based on the date of the next computed net asset value per share provided
they are received by Investor Services prior to Investor Services' close of
business on such date. It is the responsibility of authorized dealers to
transmit orders received by them to Investor Services so they will be received
in a timely manner.
The Fund and the Distributor reserve the right to refuse any order for the
purchase of shares. The
23
<PAGE>
Fund also reserves the right to suspend the sale of the Fund's shares in
response to conditions in the securities markets or for other reasons. Shares of
the Fund may be sold in foreign countries where permissible.
Investor accounts will automatically be credited with additional shares of the
Fund after any Fund distributions, such as dividends and capital gain dividends,
unless the investor instructs the Fund otherwise. Investors wishing to receive
cash instead of additional shares should contact the Fund at (800) 341-2911 or
by writing to the Fund, c/o Van Kampen Investors Services Inc., PO Box 218256,
Kansas City, MO 64121-8256.
CLASS A SHARES
Class A Shares of the Fund are sold at net asset value plus an initial maximum
sales charge of up to 4.75% of the offering price (or 4.99% of the net amount
invested), reduced on investments of $100,000 or more as follows:
CLASS A SHARES
SALES CHARGE SCHEDULE
<TABLE>
<CAPTION>
AS % OF AS % OF
SIZE OF OFFERING NET AMOUNT
INVESTMENT PRICE INVESTED
<S> <C> <C>
- -----------------------------------------------------------------------------
Less than $100,000 4.75% 4.99%
............................................................................
$100,000 but less than $250,000 3.75% 3.90%
............................................................................
$250,000 but less than $500,000 2.75% 2.83%
............................................................................
$500,000 but less than $1,000,000 2.00% 2.04%
............................................................................
$1,000,000 or more * *
............................................................................
</TABLE>
* NO SALES CHARGE IS PAYABLE AT THE TIME OF PURCHASE ON INVESTMENTS OF
$1 MILLION OR MORE, ALTHOUGH FOR SUCH INVESTMENTS THE FUND MAY IMPOSE
A CONTINGENT DEFERRED SALES CHARGE OF 1.00% ON CERTAIN REDEMPTIONS
MADE WITHIN ONE YEAR OF THE PURCHASE. THE CONTINGENT DEFERRED SALES
CHARGE IS ASSESSED ON AN AMOUNT EQUAL TO THE LESSER OF THE THEN
CURRENT MARKET VALUE OR THE COST OF THE SHARES BEING REDEEMED.
ACCORDINGLY, NO SALES CHARGE IS IMPOSED ON INCREASES IN NET ASSET
VALUE ABOVE THE INITIAL PURCHASE PRICE.
No sales charge is imposed on Class A Shares received from reinvestment of
dividends or capital gain dividends.
Under the Distribution Plan and Service Plan, the Fund may spend up to a total
of 0.25% per year of the Fund's average daily net assets with respect to the
Class A Shares of the Fund. From such amount, under the Service Plan, the Fund
may spend up to 0.25% per year of the Fund's average daily net assets with
respect to the Class A Shares for the ongoing provision of services to Class A
shareholders by the Distributor and by brokers, dealers or financial
intermediaries and for the maintenance of such shareholders' accounts.
CLASS B SHARES
Class B Shares of the Fund are sold at net asset value and are subject to a
contingent deferred sales charge if redeemed within five years of purchase as
shown in the table as follows:
CLASS B SHARES
SALES CHARGE SCHEDULE
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE
AS A PERCENTAGE OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
<S> <C>
- --------------------------------------------------------------------------------
First 4.00%
...............................................................................
Second 4.00%
...............................................................................
Third 3.00%
...............................................................................
Fourth 2.50%
...............................................................................
Fifth 1.50%
...............................................................................
Sixth and after None
...............................................................................
</TABLE>
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gain dividends. It
is presently the policy of the Distributor not to accept any order for Class B
Shares in an amount of $500,000 or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
The amount of the contingent deferred sales charge, if any, varies depending on
the number of years from the time of payment for the purchase of
24
<PAGE>
Class B Shares until the time of redemption of such shares. Solely for purposes
of determining the number of years from the time of any payment for the purchase
of shares, all payments during a month are totaled and deemed to have been made
on the last day of the month.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed shares being redeemed first are any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge followed by shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
Fund's average daily net assets with respect to the Class B Shares of the Fund.
In addition, under the Service Plan, the Fund may spend up to 0.25% per year of
the Fund's average daily net assets with respect to the Class B Shares for the
ongoing provision of services to Class B shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CLASS C SHARES
Class C Shares of the Fund are sold at net asset value and are subject to a
contingent deferred sales charge of 1.00% of the dollar amount subject to charge
if redeemed within one year of purchase.
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gain dividends. It
is presently the policy of the Distributor not to accept any order for Class C
Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed shares being redeemed first are any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge followed by shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
Fund's average daily net assets with respect to the Class C Shares of the Fund.
In addition, under the Service Plan, the Fund may spend up to 0.25% per year of
the Fund's average daily net assets with respect to the Class C Shares for the
ongoing provision of services to Class C shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CONVERSION FEATURE
Class B Shares purchased on or after June 1, 1996, and any dividend reinvestment
plan Class B Shares received on such shares, automatically convert to Class A
Shares eight years after the end of the calendar month in which the shares were
purchased. Class B Shares purchased before June 1, 1996, and any dividend
reinvestment plan Class B Shares received on such shares, automatically convert
to Class A Shares seven years after the end of the calendar month in which the
shares were purchased. Such conversion will be on the basis of the relative net
asset values per share, without the imposition of any sales load, fee or other
charge. The conversion schedule applicable to a share of the Fund acquired
through the exchange privilege from another Van Kampen fund participating in the
exchange program is determined by reference to the Van Kampen fund from which
such share was originally purchased.
The conversion of such shares to Class A Shares is subject to the continuing
availability of an opinion of counsel to the effect that (i) the assessment of
the higher distribution fee and transfer agency costs with respect to such
shares does not result in the Fund's dividends or capital gain dividends
constituting "preferential dividends" under the federal income tax law and
(ii) the conversion of shares does not constitute a taxable event under federal
income tax law. The conversion may be suspended if such an opinion is no longer
available and such shares might continue to be subject to the higher aggregate
fees applicable to such shares for an indefinite period.
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WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge is waived on redemptions of Class B Shares
and Class C Shares (i) within one year following the death or disability (as
disability is defined by federal income tax law) of a shareholder, (ii) for
required minimum distributions from an individual retirement account ("IRA") or
certain other retirement plan distributions, (iii) for withdrawals under the
Fund's systematic withdrawal plan but limited to 12% annually of the initial
value of the account, (iv) if no commission or transaction fee is paid to
authorized dealers at the time of purchase of such shares and (v) if made by
involuntary liquidation by the Fund of a shareholder's account as described
under the heading "Redemption of Shares." Subject to certain limitations, a
shareholder who has redeemed Class C Shares of the Fund may reinvest in Class C
Shares at net asset value with credit for any contingent deferred sales charge
if the reinvestment is made within 180 days after the redemption. For a more
complete description of contingent deferred sales charge waivers, please refer
to the Fund's Statement of Additional Information or contact your authorized
dealer.
QUANTITY DISCOUNTS
Investors purchasing Class A Shares may, under certain circumstances described
below, be entitled to pay reduced or no sales charges. Investors, or their
authorized dealers, must notify the Fund at the time of the purchase order
whenever a quantity discount is applicable to purchases. Upon such notification,
an investor will receive the lowest applicable sales charge. Quantity discounts
may be modified or terminated at any time. For more information about quantity
discounts, investors should contact their authorized dealer or the Distributor.
A person eligible for a reduced sales charge includes an individual, his or her
spouse and children under 21 years of age and any corporation, partnership or
sole proprietorship which is 100% owned, either alone or in combination, by any
of the foregoing; a trustee or other fiduciary purchasing for a single trust or
for a single fiduciary account, or a "company" as defined in Section 2(a)(8) of
the 1940 Act.
As used herein, "Participating Funds" refers to certain open-end investment
companies advised by Asset Management or Advisory Corp. and distributed by the
Distributor as determined from time to time by the Fund's Board of Directors.
VOLUME DISCOUNTS. The size of investment shown in the Class A Shares sales
charge table applies to the total dollar amount being invested by any person in
shares of the Fund, or in any combination of shares of the Fund and shares of
other Participating Funds, although other Participating Funds may have different
sales charges.
CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the Class A Shares
sales charge table may also be determined by combining the amount being invested
in shares of the Participating Funds plus the current offering price of all
shares of the Participating Funds which have been previously purchased and are
still owned.
LETTER OF INTENT. A Letter of Intent provides an opportunity for an investor to
obtain a reduced sales charge by aggregating the investments over a 13-month
period to determine the sales charge as outlined in the Class A Shares sales
charge table. The size of investment shown in the Class A Shares sales charge
table includes purchases of shares of the Participating Funds over a 13-month
period based on the total amount of intended purchases plus the value of all
shares of the Participating Funds previously purchased and still owned. An
investor may elect to compute the 13-month period starting up to 90 days before
the date of execution of a Letter of Intent. Each investment made during the
period receives the reduced sales charge applicable to the total amount of the
investment goal. The initial purchase must be for an amount equal to at least 5%
of the minimum total purchase amount of the level selected. If trades not
initially made under a Letter of Intent subsequently qualify for a lower sales
charge through the 90-day backdating provisions, an adjustment will be made at
the time of the expiration of the Letter of Intent to give effect to the lower
charge. Such adjustment in sales charge will be used to purchase additional
shares for the shareholder at the applicable discount category. The Fund
initially will escrow shares totaling 5% of the dollar
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<PAGE>
amount of the Letter of Intent to be held by Investor Services in the name of
the shareholder. In the event the Letter of Intent goal is not achieved within
the specified period, the investor must pay the difference between the sales
charge applicable to the purchases made and the reduced sales charge previously
paid. Such payments may be made directly to the Distributor or, if not paid, the
Distributor will liquidate sufficient escrowed shares to obtain the difference.
OTHER PURCHASE PROGRAMS
Purchasers of Class A Shares may be entitled to reduced or no initial sales
charges in connection with the unit investment trust reinvestment program and
purchases by registered representatives of selling firms or purchases by persons
affiliated with the Fund or the Distributor. The Fund reserves the right to
modify or terminate these arrangements at any time.
UNIT INVESTMENT TRUST REINVESTMENT PROGRAM. The Fund permits unitholders of unit
investment trusts to reinvest distributions from such trusts in Class A Shares
of the Fund at net asset value per share and with no minimum initial or
subsequent investment requirement, if the administrator of an investor's unit
investment trust program meets certain uniform criteria relating to cost savings
by the Fund and the Distributor. The total sales charge for all other
investments made from unit investment trust distributions will be 1.00% of the
offering price (1.01% of net asset value). Of this amount, the Distributor will
pay to the authorized dealer, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the terms and conditions that apply to the program,
should contact their authorized dealer or the Distributor.
The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during each distribution period by all investors who choose to invest in
the Fund through the program and (2) provide Investor Services with appropriate
backup data for each investor participating in the program in a computerized
format fully compatible with Investor Services' processing system.
In order to obtain these special benefits, all dividends and other distributions
by the Fund must be reinvested in additional shares and there can not be any
systematic withdrawal program. There will be no minimum for reinvestments from
unit investment trusts. The Fund will send account activity statements to such
participants on a quarterly basis only, even if their investments are made more
frequently. The Fund reserves the right to modify or terminate this program at
any time.
NET ASSET VALUE PURCHASE OPTIONS. Class A Shares of the Fund may be purchased at
net asset value, upon written assurance that the purchase is made for investment
purposes and that the shares will not be resold except through redemption by the
Fund, by:
(1) Current or retired trustees or directors of funds advised by Morgan Stanley
Dean Witter & Co. and any of its subsidiaries and such persons' families
and their beneficial accounts.
(2) Current or retired directors, officers and employees of Morgan Stanley Dean
Witter & Co. and any of its subsidiaries; employees of an investment
subadviser to any fund described in (1) above or an affiliate of such
subadviser; and such persons' families and their beneficial accounts.
(3) Directors, officers, employees and, when permitted, registered
representatives, of financial institutions that have a selling group
agreement with the Distributor and their spouses and children under 21
years of age when purchasing for any accounts they beneficially own, or, in
the case of any such financial institution, when purchasing for retirement
plans for such institution's employees; provided that such purchases are
otherwise permitted by such institutions.
(4) Registered investment advisers who charge a fee for their services, trust
companies and bank trust departments investing on their own behalf or on
behalf of their clients. The Distributor may pay authorized dealers through
which purchases are made an amount up to 0.50% of the amount invested, over
a 12-month period.
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<PAGE>
(5) Trustees and other fiduciaries purchasing shares for retirement plans which
invest in multiple fund families through broker-dealer retirement plan
alliance programs that have entered into agreements with the Distributor
and which are subject to certain minimum size and operational requirements.
Trustees and other fiduciaries should refer to the Statement of Additional
Information for further details with respect to such alliance programs.
(6) Beneficial owners of shares of Participating Funds held by a retirement
plan or held in a tax-advantaged retirement account who purchase shares of
the Fund with proceeds from distributions from such a plan or retirement
account other than distributions taken to correct an excess contribution.
(7) Accounts as to which a bank or broker-dealer charges an account management
fee ("wrap accounts"), provided the bank or broker-dealer has a separate
agreement with the Distributor.
(8) Trusts created under pension, profit sharing or other employee benefit
plans qualified under Section 401(a) of the Internal Revenue Code of 1986,
as amended (the "Code"), or custodial accounts held by a bank created
pursuant to Section 403(b) of the Code and sponsored by nonprofit
organizations defined under Section 501(c)(3) of the Code and assets held
by an employer or trustee in connection with an eligible deferred
compensation plan under Section 457 of the Code. Such plans will qualify
for purchases at net asset value provided, for plans initially establishing
accounts with the Distributor in the Participating Funds after February 1,
1997, that (1) the initial amount invested in the Participating Funds is at
least $500,000 or (2) such shares are purchased by an employer sponsored
plan with more than 100 eligible employees. Such plans that have been
established with a Participating Fund or have received proposals from the
Distributor prior to February 1, 1997 based on net asset value purchase
privileges previously in effect will be qualified to purchase shares of the
Participating Funds at net asset value for accounts established on or
before May 1, 1997. Section 403(b) and similar accounts for which Van
Kampen Trust Company serves as custodian will not be eligible for net asset
value purchases based on the aggregate investment made by the plan or the
number of eligible employees, except under certain uniform criteria
established by the Distributor from time to time. Prior to February 1,
1997, a commission will be paid to authorized dealers who initiate and are
responsible for such purchases within a rolling twelve- month period as
follows: 1.00% on sales to $5 million, plus 0.50% on the next $5 million,
plus 0.25% on the excess over $10 million. For purchases on February 1,
1997 and thereafter, a commission will be paid as follows: 1.00% on sales
to $2 million, plus 0.80% on the next $1 million, plus 0.50% on the next
$47 million, plus 0.25% on the excess over $50 million.
(9) Individuals who are members of a "qualified group." For this purpose, a
qualified group is one which (i) has been in existence for more than six
months, (ii) has a purpose other than to acquire shares of the Fund or
similar investments, (iii) has given and continues to give its endorsement
or authorization, on behalf of the group, for purchase of shares of the
Fund and Participating Funds, (iv) has a membership that the authorized
dealer can certify as to the group's members and (v) satisfies other
uniform criteria established by the Distributor for the purpose of
realizing economies of scale in distributing such shares. A qualified group
does not include one whose sole organizational nexus, for example, is that
its participants are credit card holders of the same institution, policy
holders of an insurance company, customers of a bank or broker-dealer,
clients of an investment adviser or other similar groups. Shares purchased
in each group's participants account in connection with this privilege will
be subject to a contingent deferred sales charge of 1.00% in the event of
redemption within one year of purchase, and a commission will be paid to
authorized dealers who initiate and are responsible for such sales to each
individual as follows: 1.00% on sales to $2 million, plus 0.80% on the next
$1 million and 0.50% on the excess over $3 million.
The term "families" includes a person's spouse, children under 21 years of age
and grandchildren, parents, and a person's spouse's parents.
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<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 above
on purchases made under options (3) through (9) above. The Fund may terminate,
or amend the terms of, offering shares of the Fund at net asset value to such
groups at any time.
REDEMPTION OF
SHARES
Generally shareholders may redeem for cash some or all of their shares without
charge by the Fund (other than applicable sales charge) at any time. As
described under the heading "Purchase of Shares," redemptions of Class B Shares
and Class C Shares may be subject to a contingent deferred sales charge. In
addition, certain redemptions of Class A Shares for shareholder accounts of $1
million or more may be subject to a contingent deferred sales charge.
Redemptions completed through an authorized dealer or a custodian of a
retirement plan account may involve additional fees charged by the dealer or
custodian.
Except as specified below under "Telephone Redemption Requests," payment for
shares redeemed generally will be made by check mailed within seven days after
receipt by Investor Services of the request and any other necessary documents in
proper form as described below. Such payment may be postponed or the right of
redemption suspended as provided by the rules of the SEC. Such payment may,
under certain circumstances, be paid wholly or in part by a distribution-in-kind
of portfolio securities which may result in brokerage costs and a gain or loss
for federal income tax purposes when such securities are sold. If the shares to
be redeemed have been recently purchased by check, Investor Services may delay
the payment of redemption proceeds until it confirms the purchase check has
cleared, which may take up to 15 days. A taxable gain or loss will be recognized
by the shareholder upon redemption of shares.
WRITTEN REDEMPTION REQUESTS. Shareholders may request a redemption of shares by
written request in proper form sent directly to Van Kampen Investor Services
Inc., PO Box 218256, Kansas City, MO 64121-8256. The request for redemption
should indicate the number of shares to be redeemed, the class designation of
such shares and the shareholder's account number. The redemption request must be
signed by all persons in whose names the shares are registered. Signatures must
conform exactly to the account registration. If the proceeds of the redemption
exceed $50,000, or if the proceeds are not to be paid to the record owner at the
record address, or if the record address has changed within the previous 30
days, signature(s) must be guaranteed by one of the following: a bank or trust
company; a broker-dealer; a credit union; a national securities exchange,
registered securities association or clearing agency; a savings and loan
association; or a federal savings bank.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption to be in proper form. In some
cases, however, additional documents may be necessary. In the case of
shareholders holding certificates, the certificates for the shares being
redeemed properly endorsed for transfer must accompany the redemption request.
In the event the redemption is requested by a corporation, partnership, trust,
fiduciary, executor or administrator, and the name and title of the
individual(s) authorizing such redemption is not shown in the account
registration, a copy of the corporate resolution or other legal documentation
appointing the authorized signer and certified within the prior 120 days must
accompany the redemption request. IRA redemption requests should be sent to the
IRA custodian to be forwarded to Investor Services. Contact the IRA custodian
for further information.
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<PAGE>
In the case of written redemption requests sent directly to Investor Services,
the redemption price is the net asset value per share next determined after the
request in proper form is received by Investor Services.
AUTHORIZED DEALER REDEMPTION REQUESTS. Shareholders may place redemption
requests through an authorized dealer. Orders sent through authorized dealers
must be at least $500 (unless transmitted by your authorized dealer via the
FUNDSERV network). The redemption price for such shares is the net asset value
per share next calculated after an order in proper form is received by an
authorized dealer provided such order is transmitted to the Distributor prior to
the Distributor's close of business on such day. It is the responsibility of
authorized dealers to transmit redemption requests received by them to the
Distributor so they will be received prior to such time. Redemptions completed
through an authorized dealer may involve additional fees charged by the dealer.
TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. A shareholder
automatically has telephone redemption privileges unless the shareholder
indicates otherwise by checking the applicable box on the application form
accompanying the prospectus. To redeem shares, contact the telephone transaction
line at (800) 421-5684. Van Kampen Investments, Investor Services and the Fund
employ procedures considered by them to be reasonable to confirm that
instructions communicated by telephone are genuine. Such procedures include
requiring certain personal identification information prior to acting upon
telephone instructions, tape-recording telephone communications and providing
written confirmation of instructions communicated by telephone. If reasonable
procedures are employed, none of Van Kampen Investments, Investor Services or
the Fund will be liable for following telephone instructions which it reasonably
believes to be genuine. Telephone redemptions may not be available if the
shareholder cannot reach Investor Services by telephone, whether because all
telephone lines are busy or for any other reason; in such case, a shareholder
would have to use the Fund's other redemption procedure previously described.
Requests received by Investor Services prior to 4:00 p.m., New York time, will
be processed at the next determined net asset value per share. These privileges
are available for all accounts other than retirement accounts or accounts with
shares represented by certificates. If an account has multiple owners, Investor
Services may rely on the instructions of any one owner.
For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check and amounts of at least
$1,000 up to $1 million may be redeemed daily if the proceeds are to be paid by
wire. The proceeds must be payable to the shareholder(s) of record and sent to
the address of record for the account or wired directly to their predesignated
bank account. This privilege is not available if the address of record has been
changed within 30 days prior to a telephone redemption request. Proceeds from
redemptions payable by wire transfer are expected to be wired on the next
business day following the date of redemption. The Fund reserves the right at
any time to terminate, limit or otherwise modify this redemption privilege.
OTHER REDEMPTION INFORMATION. The Fund may redeem shares of any shareholder
account that has a value on the date of the notice of redemption less than the
minimum initial investment as specified in this prospectus. At least 60 days
advance written notice of any such involuntary redemption will be provided to
the shareholder and such shareholder will be given an opportunity to purchase
the required value of additional shares at the next determined net asset value
without sales charge. Any involuntary redemption may only occur if the
shareholder account is less than the minimum initial investment due to
shareholder redemptions.
DISTRIBUTIONS FROM
THE FUND
In addition to any increase in the value of shares which the Fund may achieve,
shareholders may receive distributions from the Fund of dividends and capital
gain dividends.
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<PAGE>
DIVIDENDS. Interest earned from investments is the Fund's main source of income.
The Fund's present policy, which may be changed at any time by the Board of
Directors is to distribute all or substantially all of this income, less
expenses, at least monthly as dividends to shareholders. Dividends are
automatically applied to purchase additional shares of the Fund at the next
determined net asset value unless the shareholder instructs otherwise.
The per share dividends on Class B Shares and Class C Shares may be lower than
the per share dividends on Class A Shares as a result of the higher distribution
fees and transfer agency costs applicable to such classes of shares.
CAPITAL GAIN DIVIDENDS. The Fund may realize capital gains or losses when it
sells securities, depending on whether the sales prices for the securities are
higher or lower than purchase prices. Net realized capital gain represents the
total profits from sales of securities minus total losses from sales of
securities (including any losses carried forward from prior years), other than
net short-term capital gain from sales of securities held for one year or less.
The Fund distributes any taxable net realized capital gain to shareholders as
capital gain dividends at least annually. As in the case of dividends, capital
gain dividends are automatically reinvested in additional shares of the Fund at
the next determined net asset value unless the shareholder instructs otherwise.
SHAREHOLDER SERVICES
Listed below are some of the shareholder services the Fund offers to investors.
For a more complete description of the Fund's shareholder services, such as
investment accounts, share certificates, retirement plans, automated clearing
house deposits, dividend diversification and the systematic withdrawal plan,
please refer to the Statement of Additional Information or contact your
authorized dealer.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gain dividends in shares of the
Fund. Such shares are acquired at net asset value per share (without sales
charge) on the applicable payable date of the dividend or capital gain dividend.
Unless the shareholder instructs otherwise, the reinvestment plan is automatic.
This instruction may be made by telephone by calling (800) 341-2911
((800) 421-2833 for the hearing impaired) or by writing to Investor Services.
The investor may, on the initial application or prior to any declaration,
instruct that dividends be paid in cash and capital gain dividends be reinvested
at net asset value, or that both dividends and capital gain dividends be paid in
cash.
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under which
a shareholder can authorize Investor Services to charge a bank account on a
regular basis to invest predetermined amounts in the Fund. Additional
information is available from the Distributor or your authorized dealer.
EXCHANGE PRIVILEGE. Shares of the Fund may be exchanged for shares of the same
class of any Participating Fund based on the next computed net asset value per
share of each fund after requesting the exchange without any sales charge,
subject to certain limitations. Shares of the Fund may be exchanged for shares
of any Participating Fund only if shares of that Participating Fund are
available for sale; however, during periods of suspension of sales, shares of a
Participating Fund may be available for sale only to existing shareholders of a
Participating Fund. Shareholders seeking an exchange into a Participating Fund
should obtain and read the current prospectus for such fund prior to
implementing an exchange. A prospectus of any of the Participating Funds may be
obtained from any authorized dealer or the Distributor.
To be eligible for exchange, shares of the Fund must have been registered in the
shareholder's name for at least 30 days prior to an exchange. Shares of the Fund
registered in a shareholder's name for less than 30 days may only be exchanged
upon receipt of prior approval of the Adviser. It is the policy of the Adviser,
under normal circumstances, not to approve such requests.
When shares that are subject to a contingent deferred sales charge are exchanged
among Participating Funds, the holding period for purposes of computing the
contingent deferred sales charge is
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<PAGE>
based upon the date of the initial purchase of such shares from a Participating
Fund. When such shares are redeemed and not exchanged for shares of another
Participating Fund, the shares are subject to the contingent deferred sales
charge schedule imposed by the Participating Fund from which such shares were
originally purchased.
Exchanges of shares are sales of one Participating Fund and purchases of another
Participating Fund. The sale may result in a gain or loss for federal income tax
purposes. If the shares sold have been held for less than 91 days, the sales
charge paid on such shares is carried over and included in the tax basis of the
shares acquired.
A shareholder wishing to make an exchange may do so by sending a written request
to Investor Services or by contacting the telephone transaction line at
(800) 421-5684. A shareholder automatically has telephone exchange privileges
unless the shareholder indicates otherwise by checking the applicable box on the
application form accompanying the prospectus. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated by telephone are genuine. Such procedures
include requiring certain personal identification information prior to acting
upon telephone instructions, tape-recording telephone communications, and
providing written confirmation of instructions communicated by telephone. If
reasonable procedures are employed, none of Van Kampen Investments, Investor
Services or the Fund will be liable for following telephone instructions which
it reasonably believes to be genuine. If the exchanging shareholder does not
have an account in the fund whose shares are being acquired, a new account will
be established with the same registration, dividend and capital gain dividend
options (except dividend diversification) and authorized dealer of record as the
account from which shares are exchanged, unless otherwise specified by the
shareholder. In order to establish a systematic withdrawal plan for the new
account or reinvest dividends from the new account into another fund, however,
an exchanging shareholder must submit a specific request. The Fund reserves the
right to reject any order to acquire its shares through exchange. In addition,
the Fund and other Participating Funds may restrict exchanges by shareholders
engaged in excessive trading by limiting or disallowing the exchange privileges
to such shareholders. For further information on these restrictions see the
Statement of Additional Information. The Fund may modify, restrict or terminate
the exchange privilege at any time on 60 days' notice to its shareholders of any
termination or material amendment.
For purposes of determining the sales charge rate previously paid on Class A
Shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchanged security was acquired through reinvestment, that
security is deemed to have been sold with a sales charge rate equal to the rate
previously paid on the security on which the dividend or distribution was paid.
If a shareholder exchanges less than all of such shareholder's securities, the
security upon which the highest sales charge rate was previously paid is deemed
exchanged first.
Exchange requests received on a business day prior to the time shares of the
funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares of the fund which the
shareholder is redeeming will be redeemed at the net asset value per share next
determined on the date of receipt. Shares of the new fund that the shareholder
is purchasing will also normally be purchased at the net asset value per share,
plus any applicable sales charge, next determined on the date of receipt.
Exchange requests received on a business day after the time shares of the funds
involved in the request are priced will be processed on the next business day in
the manner described herein.
INTERNET TRANSACTIONS. In addition to performing transactions on your account
through written instruction or by telephone, you may also perform certain
transactions through the internet. Please refer to our web site at
www.vankampen.com for further instruction. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated through the internet are genuine. Such
procedures include requiring use of a personal identification number prior to
acting upon internet instructions and providing written confirmation of
instructions communicated through the internet. If
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<PAGE>
reasonable procedures are employed, none of Van Kampen Investments, Investor
Services or the Fund will be liable for following instructions received through
the internet which it reasonably believes to be genuine. If an account has
multiple owners, Investor Services may rely on the instructions of any one
owner.
FEDERAL INCOME
TAXATION
Distributions of the Fund's net investment income (consisting generally of
taxable income and net short-term capital gain) are taxable to shareholders as
ordinary income to the extent of the Fund's earnings and profits, whether paid
in cash or reinvested in additional shares. Distributions of the Fund's net
realized capital gain (which is the excess of net long-term capital gain over
net short-term capital loss) as capital gain dividends, if any, are taxable to
shareholders as long-term capital gains, whether paid in cash or reinvested in
additional shares, and regardless of how long the shares of the Fund have been
held by such shareholders. The Fund expects that its distributions will consist
primarily of ordinary income and capital gain dividends. Distributions in excess
of the Fund's earnings and profits will first reduce the adjusted tax basis of a
holder's shares and, after such adjusted tax basis is reduced to zero, will
constitute capital gains to such holder (assuming such shares are held as a
capital asset). Although distributions generally are treated as taxable in the
year they are paid, distributions declared in October, November or December,
payable to shareholders of record on a specified date in such month and paid
during January of the following year will be treated as having been distributed
by the Fund and received by the shareholders on the December 31st prior to the
date of payment. The Fund will inform shareholders of the source and tax status
of all distributions promptly after the close of each calendar year.
The sale or exchange of shares is a taxable transaction for federal income tax
purposes. Shareholders who sell their shares will generally recognize gain or
loss in an amount equal to the difference between their adjusted tax basis in
the shares sold and the amount received. If the shares are held as a capital
asset, the gain or loss will be a capital gain or loss. Any capital gains may be
taxed at different rates depending on how long the shareholder held such shares.
The Fund is required, in certain circumstances, to withhold 31% of dividends and
certain other payments, including redemptions, paid to shareholders who do not
furnish to the Fund their correct taxpayer identification number (in the case of
individuals, their social security number) and certain required certifications
or who are otherwise subject to backup withholding.
Foreign shareholders, including shareholders who are non-resident aliens, may be
subject to U.S. withholding tax on certain distributions (whether received in
cash or in shares) at a rate of 30% or such lower rate as prescribed by an
applicable treaty. Accordingly, investment in the Fund is likely to be
appropriate for a foreign shareholder only if such person can utilize a foreign
tax credit or corresponding tax benefit in respect of such U.S. withholding tax.
Prospective foreign investors should consult their tax advisers concerning the
tax consequences to them of an investment in shares.
The Fund intends to qualify as a regulated investment company under federal
income tax law. If the Fund so qualifies and distributes each year to its
shareholders at least 90% of its net investment income, the Fund will not be
required to pay federal income taxes on any income it distributes to
shareholders. If the Fund distributes less than an amount equal to the sum of
98% of its ordinary income and 98% of its capital gain net income, then the Fund
will be subject to a 4% excise tax on the undistributed amounts.
The federal income tax discussion set forth above is for general information
only. Prospective investors should consult their own tax advisers regarding the
specific federal tax consequences of purchasing, holding, disposing, exchanging
or selling of shares, as well as the effects of state, local and foreign tax law
and any proposed tax law changes.
33
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the periods indicated. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report, along with the Fund's financial statements, is
included in the Statement of Additional Information and may be obtained by
shareholders without charge by calling the telephone number on the back cover of
this prospectus. This information should be read in conjunction with the
financial statements and notes thereto included in the Statement of Additional
Information.
<TABLE>
<CAPTION>
CLASS A
YEAR ENDED JUNE 30,
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# 1997 1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period.................................. $ 12.464 $ 14.26 $ 12.47 $ 11.57 $ 12.17
Income From Investment Operations
Net Investment Income/Loss............ 1.062 1.15 1.25 1.36 1.26
Net Realized and Unrealized
Gain/Loss........................... (2.516) (0.67) 2.30 0.80 (0.52)
-------- ------- ------- ------- -------
Total From Investment Operations........ (1.454) 0.48 3.55 2.16 0.74
-------- ------- ------- ------- -------
DISTRIBUTIONS
Net Investment Income................. (1.100) (1.09) (1.25) (1.26) (1.22)
Net Realized Gain..................... -- (1.19) (0.51) -- (0.12)
In Excess of Net Realized Gain........ (0.006) -- -- -- --
-------- ------- ------- ------- -------
Total Distributions................... (1.106) (2.28) (1.76) (1.26) (1.34)
-------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD.......... 9.904 12.46 14.26 12.47 11.57
======== ======= ======= ======= =======
TOTAL RETURN (1)........................ (11.14)% 3.40% 30.29% 19.61% 6.87%
======== ======= ======= ======= =======
RATIOS AND SUPPLEMENTAL DATA
Net assets, End of Period (000's)....... $ 58,506 $91,579 $76,439 $41,493 $14,819
Ratio of Expenses to Average Net
Assets.................................. 1.45% 1.45% 1.52% 1.55% 1.55%
Ratio of Net Investment Income/Loss to
Average Net Assets...................... 10.55% 8.36% 9.73% 11.95% 11.53%
Portfolio Turnover Rate................. 121% 156% 157% 220% 178%
Effect of Voluntary Expense Limitation
During the Period
Per Share Benefit to Net Investment
Income/Loss......................... $ -- $ -- $ -- $ 0.02 $ 0.05
Ratios Before Expense Limitation:
Expenses to Average Net Assets........ -- -- -- 1.69% 1.97%
Net Investment Income/Loss to Average
Net Assets.......................... -- -- -- 11.81% 11.11%
<CAPTION>
CLASS B
YEAR ENDED JUNE 30, AUGUST 1, 1995+ TO
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# 1997 JUNE 30, 1996
- ---------------------------------------- ------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period.................................. $ 12.396 $ 14.20 $ 12.44 $ 11.63
Income From Investment Operations
Net Investment Income/Loss............ 0.982 1.04 1.07 1.18
Net Realized and Unrealized
Gain/Loss........................... (2.497) (0.65) 2.35 0.72
-------- -------- ------- -------
Total From Investment Operations........ (1.515) 0.39 3.42 1.90
-------- -------- ------- -------
DISTRIBUTIONS
Net Investment Income................. (1.012) (1.00) (1.15) (1.09)
Net Realized Gain..................... -- (1.19) (0.51) --
In Excess of Net Realized Gain........ (0.006) -- -- --
-------- -------- ------- -------
Total Distributions................... (1.018) (2.19) (1.66) (1.09)
-------- -------- ------- -------
NET ASSET VALUE, END OF PERIOD.......... 9.863 12.40 14.20 12.44
======== ======== ======= =======
TOTAL RETURN (1)........................ (11.82)% 2.63% 29.14% 17.07%*
======== ======== ======= =======
RATIOS AND SUPPLEMENTAL DATA
Net assets, End of Period (000's)....... $107,013 $146,401 $78,340 $26,174
Ratio of Expenses to Average Net
Assets.................................. 2.20% 2.20% 2.27% 2.30%
Ratio of Net Investment Income/Loss to
Average Net Assets...................... 9.81% 7.64% 8.86% 12.06%
Portfolio Turnover Rate................. 121% 156% 157% 220%*
Effect of Voluntary Expense Limitation
During the Period
Per Share Benefit to Net Investment
Income/Loss......................... $ -- $ -- $ -- $ 0.02
Ratios Before Expense Limitation:
Expenses to Average Net Assets........ -- -- -- 2.47%
Net Investment Income/Loss to Average
Net Assets.......................... -- -- -- 11.89%
<CAPTION>
CLASS C
YEAR ENDED JUNE 30,
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# 1997 1996 1995
- ---------------------------------------- ------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period.................................. $ 12.403 $ 14.21 $ 12.45 $ 11.58 $ 12.16
Income From Investment Operations
Net Investment Income/Loss............ 0.982 1.04 1.16 1.30 1.17
Net Realized and Unrealized
Gain/Loss........................... (2.500) (0.66) 2.26 0.77 (0.50)
-------- ------- ------- ------- -------
Total From Investment Operations........ (1.518) 0.38 3.42 2.07 0.67
-------- ------- ------- ------- -------
DISTRIBUTIONS
Net Investment Income................. (1.012) (1.00) (1.15) (1.20) (1.13)
Net Realized Gain..................... -- (1.19) (0.51) -- (0.12)
In Excess of Net Realized Gain........ (0.006) -- -- -- --
-------- ------- ------- ------- -------
Total Distributions................... (1.018) (2.19) (1.66) (1.20) (1.25)
-------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD.......... 9.867 12.40 14.21 12.45 11.58
======== ======= ======= ======= =======
TOTAL RETURN (1)........................ (11.83)% 2.55% 29.12% 18.71% 6.20%
======== ======= ======= ======= =======
RATIOS AND SUPPLEMENTAL DATA
Net assets, End of Period (000's)....... $ 40,616 $60,197 $41,709 $28,094 $11,880
Ratio of Expenses to Average Net
Assets.................................. 2.20% 2.20% 2.27% 2.30% 2.30%
Ratio of Net Investment Income/Loss to
Average Net Assets...................... 9.81% 7.62% 9.04% 11.40% 10.72%
Portfolio Turnover Rate................. 121% 156% 157% 220% 178%
Effect of Voluntary Expense Limitation
During the Period
Per Share Benefit to Net Investment
Income/Loss......................... $ -- $ -- $ -- $ 0.04 $ 0.05
Ratios Before Expense Limitation:
Expenses to Average Net Assets........ -- -- -- 2.44% 2.74%
Net Investment Income/Loss to Average
Net Assets.......................... -- -- -- 11.26% 10.28%
</TABLE>
* NON-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.
# CHANGES PER SHARE ARE BASED UPON MONTHLY AVERAGE SHARES OUTSTANDING.
34
<PAGE>
APPENDIX -- DESCRIPTION OF SECURITIES RATINGS
STANDARD & POOR'S -- A brief description of the applicable Standard & Poor's
(S&P) rating symbols and their meanings (as published by S&P) follow:
A S&P corporate or municipal debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees.
The debt rating is not a recommendation to purchase, sell, or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished by the issuer or obtained
by S&P from other sources it considers reliable. S&P does not perform an audit
in connection with any rating and may, on occasion, rely on unaudited financial
information. The ratings may be changed, suspended, or withdrawn as a result of
changes in, or unavailability of, such information, or based on other
circumstances.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of payment -- capacity and willingness of the obligor to meet its
financial commitment on an obligation in accordance with the terms of the
obligation:
2. Nature of and provisions of the obligation:
3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditor's rights.
1. LONG-TERM DEBT -- INVESTMENT GRADE
AAA: Debt rated "AAA" has the highest rating assigned by S&P. Capacity to meet
its financial commitment on the obligation is extremely strong.
AA: Debt rated "AA" differs from the highest rated issues only in small degree.
Capacity to meets its financial commitment on the obligation is very strong.
A: Debt rated "A" is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than obligations in higher rated
categories. Capacity to meet its financial commitment on the obligation is still
strong.
BBB: Debt rated "BBB" exhibits adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to meet its financial commitment on the obligation.
SPECULATIVE GRADE
BB, B, CCC, CC, C: Debts rated "BB", "B", "CCC", "CC" and "C" are regarded as
having significant speculative characteristics. "BB" indicates the least degree
of speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
BB: Debt rated "BB" is less vulnerable to nonpayment than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
B: Debt rated "B" is more vulnerable to nonpayment than obligations rated "BB",
but the obligor currently has the capacity to meet its financial commitment on
the obligation. Adverse business, financial, or economic conditions will likely
impair the obligor's capacity or willingness to meet its financial commitment on
the obligation.
CCC: Debt rated "CCC" is currently vulnerable to nonpayment, and is dependent
upon favorable business, financial, and economic conditions for the obligor to
meet its financial commitment on the obligation. In the event of adverse
business, financial, or economic conditions, the obligor is not likely to have
A-1
<PAGE>
the capacity to meet its financial commitment on the obligation.
CC: Debt rated "CC" is currently highly vulnerable to nonpayment.
C: the "C" rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments on this obligation
are being continued.
D: Debt rated "D" is in payment default. The "D" rating category is used when
payments on an obligation are not made on the date due even if the applicable
grace period has not expired, unless S&P believes that such payments will be
made during such grace period. The "D" rating also will be used upon the filing
of a bankruptcy petition or the taking of a similar action if payments on an
obligation are jeopardized.
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
r: This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk -- such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
DEBT OBLIGATIONS OF ISSUERS OUTSIDE THE UNITED STATES AND ITS TERRITORIES are
rated on the same basis as domestic corporate and municipal issues. The ratings
measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.
BOND INVESTMENT QUALITY STANDARDS: Under present commercial bank regulations
issued by the Comptroller of the Currency, bonds rated in the top four
categories ("AAA", "AA", "A", "BBB", commonly known as "investment grade"
ratings) are generally regarded as eligible for bank investment. In addition,
the laws of various states governing legal investments impose certain ratings or
other standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.
2. COMMERCIAL PAPER
A S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.
Ratings are graded into several categories, ranging from "A-1" for the highest
quality obligations to "D" for the lowest. These categories are as follows:
A-1: The highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
A-3: Issues carrying this designation have adequate capacity for timely payment.
They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B: Issues rated "B" are regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
C: This rating is assigned to short-term debt obligations currently vulnerable
to nonpayment and is dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on the obligation.
D: Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired,
A-2
<PAGE>
unless S&P believes that such payments will be made during such grace period.
The "D" rating also will be used upon the filing of a bankruptcy petition or the
taking of a similar action if payments on an obligation are jeopardized.
A commercial paper rating is not a recommendation to purchase, sell or hold a
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained from other sources it considers reliable. S&P does
not perform an audit in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed, suspended or
withdrawn as a result of changes in, or unavailability of, such information, or
based on other circumstances.
3. PREFERRED STOCK
A S&P preferred stock rating is an assessment of the capacity and willingness of
an issuer to pay preferred stock dividends and any applicable sinking fund
obligations. A preferred stock rating differs from a bond rating inasmuch as it
is assigned to an equity issue, which issue is intrinsically different from, and
subordinated to, a debt issue. Therefore, to reflect this difference, the
preferred stock rating symbol will normally not be higher than the bond rating
symbol assigned to, or that would be assigned to, the senior debt of the same
issuer.
The preferred stock ratings are based on the following considerations:
i. Likelihood of payment-capacity and willingness of the issuer to meet the
timely payment of preferred stock dividends and any applicable sinking fund
requirements in accordance with the terms of the obligation.
ii. Nature of, and provisions of, the issuer.
iii. Relative position of the issue in the event of bankruptcy, reorganization,
or other arrangements under the laws of bankruptcy and other laws affecting
creditors' rights.
AAA: This is the highest rating that may be assigned by S&P to a preferred stock
issue and indicates an extremely strong capacity to pay the preferred stock
obligations.
AA: A preferred stock issue rated "AA" also qualifies as a high-quality, fixed
income security. The capacity to pay preferred stock obligations is very strong,
although not as overwhelming as for issues rated "AAA".
A: An issue rated "A" is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
BBB: An issue rated "BBB" is regarded as backed by an adequate capacity to pay
the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the "A" category.
BB, B and CCC: Preferred stock rated "BB", "B", and "CCC" are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay preferred stock obligations.
"BB" indicates the lowest degree of speculation and "CCC" the highest. While
such issues will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
CC: The rating "CC" is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments, but that is currently paying.
C: A preferred stock rated "C" is a nonpaying issue.
D: A preferred stock rated "D" is a nonpaying issue with the issuer in default
on debt instruments.
NR: This indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy. PLUS (+) or MINUS (-): To provide more
detailed indications of preferred stock quality, ratings
A-3
<PAGE>
from "AA" to "CCC" may be modified by the addition of a plus or minus sign to
show relative standing within the major rating categories.
A preferred stock rating is not a recommendation to purchase, sell, or hold a
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained by S&P from other sources it considers reliable.
S&P does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended, or withdrawn as a result of changes in, or unavailability of, such
information, or based on other circumstances.
MOODY'S INVESTORS SERVICE -- a brief description of the applicable Moody's
Investors Service (Moody's) rating symbols and their meanings (as published by
Moody's Investors Service) follows:
1. LONG-TERM DEBT
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than the Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payment
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
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 market shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the issue ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.
A-4
<PAGE>
ABSENCE OF RATING: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not rated as a
matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published in
Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
2. SHORT-TERM DEBT
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations. These obligations have an original maturity
not exceeding one year unless explicitly noted.
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issues:
Issuers rated Prime-1 (or supporting institutions) have a superior ability for
repayment or senior short-term debt obligations. Prime-1 repayment ability will
often be evidenced by many of the following characteristics:
- -- Leading market positions in well-established industries.
- -- High rates of return on funds employed.
- -- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
- -- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- -- Well-established access to a range of financial markets and assured sources
of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability for
repayment of senior short-term debt obligations. This will normally be evidenced
by many of the characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or supporting institutions) have an acceptable ability
for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes of the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
3. PREFERRED STOCK
Preferred stock rating symbols and their definitions are as follows:
AAA: An issue which is rated "AAA" is considered to be a top-quality preferred
stock. This rating indicates good asset protection and the least risk of
dividend impairment within the universe of preferred stocks.
AA: An issue which is rated "AA" is considered a high-grade preferred stock.
This rating indicates that there is a reasonable assurance the earnings and
asset protection will remain relatively well maintained in the foreseeable
future.
A: An issue which is rated "A" is considered to be an upper-medium-grade
preferred stock. While risks are judged to be somewhat greater than in the "AAA"
and "AA" classifications, earnings and asset protections are, nevertheless,
expected to be maintained at adequate levels.
A-5
<PAGE>
BAA: An issue which is rated "BAA" is considered to be a medium-grade preferred
stock, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any great
length of time.
BA: An issue which is rated "BA" is considered to have speculative elements and
its future cannot be considered well assured. Earnings and asset protection may
be very moderate and not well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.
B: An issue which is rated "B" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
CAA: An issue which is rated "CAA" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future status
of payments.
CA: An issue which is rated "CA" is speculative in a high degree and is likely
to be in arrears on dividends with little likelihood of eventual payment.
C: This is the lowest rated class of preferred or preference stock. Issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Moody's applies numerical modifiers 1, 2 and 3 in each rating classification.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category, the modifier 2 indicates a mid-range ranking, and the
modifier 3 indicates that the issue ranks in the lower end of its generic rating
category.
A-6
<PAGE>
BOARD OF DIRECTORS
AND OFFICERS
BOARD OF DIRECTORS
<TABLE>
<S> <C>
J. Miles Branagan Don G. Powell*
Jerry D. Choate Phillip B. Rooney
Richard M. DeMartini* Fernando Sisto
Linda Hutton Heagy Wayne W. Whalen*
R. Craig Kennedy Suzanne H. Woolsey
Jack E. Nelson Paul G. Yovovich
</TABLE>
OFFICERS
Richard F. Powers, III*
PRESIDENT
Dennis J. McDonnell*
EXECUTIVE VICE PRESIDENT & CHIEF INVESTMENT OFFICER
A. Thomas Smith III*
VICE PRESIDENT AND SECRETARY
Edward C. Wood III*
VICE PRESIDENT
Michael H. Santo*
VICE PRESIDENT
Peter W. Hegel*
VICE PRESIDENT
Stephen L. Boyd*
VICE PRESIDENT
Joseph P. Stadler*
VICE PRESIDENT
John L. Sullivan*
VICE PRESIDENT, CHIEF FINANCIAL OFFICER & TREASURER
Curtis W. Morell*
VICE PRESIDENT & CHIEF ACCOUNTING OFFICER
Tanya M. Loden*
CONTROLLER
* "Interested Persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2911
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders, or
redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call
(800) 421-2833
FUNDINFO-REGISTERED TRADEMARK-
For automated telephone services, call (800) 847-2424
WEB SITE
www.vankampen.com
VAN KAMPEN WORLDWIDE HIGH INCOME FUND
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
INVESTMENT ADVISER AND ADMINISTRATOR
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
INVESTMENT SUBADVISER
MORGAN STANLEY DEAN WITTER INVESTMENT
MANAGEMENT INC.
1221 Avenue of the Americas
New York, NY 10020
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
TRANSFER AGENT
VAN KAMPEN INVESTOR SERVICES INC.
PO Box 218256
Kansas City, MO 64121-8256
Attn: Van Kampen Worldwide High Income Fund
CUSTODIAN
THE CHASE MANHATTAN BANK
3 MetroTech Center
Brooklyn, NY 11245
Attn: Van Kampen Worldwide High Income Fund
LEGAL COUNSEL
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
INDEPENDENT ACCOUNTANTS
PRICEWATERHOUSECOOPERS LLP
200 East Randolph Drive
Chicago, IL 60601
<PAGE>
VAN KAMPEN
WORLDWIDE HIGH
INCOME FUND
PROSPECTUS
OCTOBER 28, 1999
A Statement of Additional Information, which contains more details about the
Fund, is incorporated by reference in its entirety into this prospectus.
You will find additional information about the Fund in its annual and semiannual
reports to shareholders. The annual report explains the market conditions and
investment strategies affecting the Fund's performance during its last fiscal
year.
You can ask questions or obtain a free copy of the Fund's reports or its
Statement of Additional Information by calling (800) 341-2911 from 7:00 a.m. to
7:00 p.m., Central time, Monday through Friday. Telecommunications Device for
the Deaf users may call (800) 421-2833. A free copy of the Fund's reports can
also be ordered from our web site at www.vankampen.com.
Information about the Fund, including its reports and Statement of Additional
Information, has been filed with the Securities and Exchange Commission (SEC).
It can be reviewed and copied at the SEC's Public Reference Room in Washington,
DC or on the Edgar Database on the SEC's internet site (http://www.sec.gov).
Information on the operation of the SEC's Public Reference Room may be obtained
by calling the SEC at 1-202-942-8090. You can also request copies of these
materials, upon payment of a duplicating fee, by electronic request at the SEC's
e-mail address ([email protected]), or by writing the Public Reference Section
of the SEC, Washington, DC, 20549-0102.
[LOGO]
THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-7140.
MSWW PRO 10/99
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
VAN KAMPEN SERIES FUND, INC.
Van Kampen Series Fund, Inc. (the "Company") is an open-end management
investment company. The Company currently consists of the following nineteen
investment portfolios designed to offer a range of investment choices (each, a
"Fund" and collectively, the "Funds"): Van Kampen American Value Fund, Van
Kampen Asian Growth Fund, Van Kampen Emerging Markets Debt Fund, Van Kampen
Emerging Markets Fund, Van Kampen Equity Growth Fund, Van Kampen European Equity
Fund, Van Kampen Focus Equity Fund (formerly known as Van Kampen Aggressive
Growth Fund), Van Kampen Global Equity Allocation Fund, Van Kampen Global Equity
Fund, Van Kampen Global Fixed Income Fund, Van Kampen Global Franchise Fund, Van
Kampen Growth and Income Fund II, Van Kampen High Yield & Total Return Fund, Van
Kampen International Magnum Fund, Van Kampen Japanese Equity Fund, Van Kampen
Latin American Fund, Van Kampen Mid Cap Growth Fund, Van Kampen Value Fund and
Van Kampen Worldwide High Income Fund. For ease of reference, the words "Van
Kampen" which begin the name of each Fund, are not used hereinafter.
This Statement of Additional Information is not a prospectus. This Statement
of Additional Information should be read in conjunction with each Fund's
prospectus (the "Prospectus") dated as of the same date as this Statement of
Additional Information. This Statement of Additional Information does not
include all the information that a prospective investor should consider before
purchasing shares of a Fund. Investors should obtain and read the Prospectus of
a Fund prior to purchasing shares of such Fund. A Prospectus for each of the
Funds may be obtained without charge by writing or calling Van Kampen Funds Inc.
at 1 Parkview Plaza, PO Box 5555, Oakbrook Terrace, Illinois 60181-5555 or
(800) 341-2911 (or (800) 421-2833 for the hearing impaired).
------------------------------------
TABLE OF CONTENTS
------------------------------------
<TABLE>
<S> <C>
PAGE
--------
General Information......................................... 2
Investment Objectives and Policies.......................... 8
Investment Restrictions..................................... 25
Directors and Officers...................................... 28
Investment Advisory Agreements.............................. 35
Other Agreements............................................ 37
Distribution and Service.................................... 38
Transfer Agent.............................................. 43
Portfolio Transactions and Brokerage Allocation............. 43
Shareholder Services........................................ 46
Redemption of Shares........................................ 47
Contingent Deferred Sales Charge -- Class A................. 47
Waiver of Class B and Class C Contingent Deferred Sales
Charge..................................................... 48
Taxation.................................................... 49
Performance Information..................................... 52
Other Information........................................... 56
Appendix A -- Description of Securities Ratings............. A-1
Reports of Independent Accountants, Financial Statements and
Notes to Financial Statements.............................. F-1
</TABLE>
Date: October 28, 1999
1
<PAGE>
GENERAL INFORMATION
The Company is a corporation established under the laws of the state of
Maryland by Articles of Incorporation dated August 12, 1992 (the "Articles").
The Articles permit the Board of Directors to create one or more separate
investment portfolios and issue a series of shares for each portfolio. The Board
of Directors can further sub-divide each series of shares into one or more
classes of shares for each portfolio. The Company's name at the time of its
organization was Morgan Stanley Series Fund, Inc. The company changed its name
to Van Kampen Series Fund, Inc. in July 1998. Similarly each Fund described
herein at the time of its organization began its name with the words "Morgan
Stanley" and each Fund changed its name to begin with the words "Van Kampen" in
July 1998 (except for the Equity Growth Fund which made this name change in June
1998 and the Global Franchise Fund which has always had Van Kampen in its name
since its organization in June 1998).
Van Kampen Investment Advisory Corp. ("Advisory Corp.") is the investment
adviser (the "Adviser") and the administrator (the "Administrator") for the
Funds. Morgan Stanley Dean Witter Investment Management Inc. ("MSDWIM") is a
sub-adviser (a "Sub-Adviser") to the Funds, other than Van Kampen Mid Cap Growth
Fund and Van Kampen Value Fund. Miller, Anderson & Sherrard, LLP ("MAS") is a
sub-adviser (a "Sub-Adviser") to Van Kampen Mid Cap Growth Fund and Van Kampen
Value Fund. The Funds are distributed by Van Kampen Funds Inc. (the
"Distributor") and the Funds receive certain shareholder services from Van
Kampen Investor Services Inc. ("Investor Services"). Other service providers for
the Funds are described herein under "Other Agreements" or "Other Information".
Advisory Corp., the Distributor, and Investor Services are wholly owned
subsidiaries of Van Kampen Investments Inc. ("Van Kampen Investments"), which is
an indirect wholly owned subsidiary of Morgan Stanley Dean Witter & Co. ("Morgan
Stanley Dean Witter"). MSDWIM and MAS are wholly owned subsidiaries of Morgan
Stanley Dean Witter. The principal office of each Fund, the Adviser, the
Distributor and Van Kampen Investments is located at 1 Parkview Plaza,
PO Box 5555, Oakbrook Terrace, Illinois 60181-5555. The principal office of
Investor Services is located at PO Box 218256, Kansas City, Missouri 64121-8256.
The principal office of MSDWIM is located at 1221 Avenue of the Americas, New
York, New York 10020. The principal office of MAS is located at One Tower
Bridge, West Conshocken, Pennsylvania 19428.
Morgan Stanley Dean Witter 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; credit services; asset management;
trading of futures, options, foreign exchange, commodities and swaps (involving
foreign exchange, commodities, indices and interest rates); real estate advice,
financing and investing; and securities lending.
The authorized capitalization of the Company consists of 28.5 billion shares
of common stock, par value $0.001 per share, which can be divided into series,
such as the Funds, and further subdivided into classes of each series. Each
share represents an equal proportionate interest in the assets of the series
with each other share in such series and no interest in any other series. No
series is subject to the liabilities of any other series.
Each Fund currently offers three classes of shares, designated Class A
Shares, Class B Shares and Class C Shares. Other classes may be established from
time to time in accordance with provisions of the Articles. Each class of shares
of a Fund generally is identical in all respects except that each class bears
certain distribution expenses and has exclusive voting rights with respect to
its distribution fee. Shares of the Company entitle their holders to one vote
per share; however, separate votes are taken by each series on matters affecting
an individual series and separate votes are taken by each class of a series on
matters affecting an individual class of such series. For example, a change in
investment policy for a series would be voted upon by shareholders of only the
series involved and a change in the distribution fee for a class of a series
would be voted upon by shareholders of only the class of such series involved.
Except as otherwise described in the Prospectus or herein, shares do not have
cumulative voting rights, preemptive rights or any conversion, subscription or
exchange rights.
The Company does not contemplate holding regular meetings of shareholders to
elect Directors or otherwise. Each Fund will assist shareholders in
communicating with other shareholders of such Fund to the extent required by the
Investment Company Act of 1940, as amended (the "1940 Act"), or rules or
regulations promulgated by the Securities and Exchange Commission ("SEC").
In the event of liquidation, each of the shares of each Fund is entitled to
its portion of all of such Fund's net assets after all debts and expenses of the
Fund have been paid. Since Class B Shares and Class C Shares have higher
distribution fees and transfer agency costs, the liquidation proceeds to holders
of Class B Shares and Class C Shares are likely to be lower than to holders of
Class A Shares.
Statements contained in this Statement of Additional Information as to the
contents of any contract or other document referred to are not necessarily
complete, and, in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement of which
this Statement of Additional Information forms a part, each such statement being
qualified in all respects by such reference.
2
<PAGE>
As of October 12, 1999, no person was known by the Company to own
beneficially or to hold of record 5% or more of the outstanding Class A Shares,
Class B Shares or Class C Shares of any Fund, except as follows:
<TABLE>
<CAPTION>
AMOUNT OF
OWNERSHIP AS OF CLASS OF PERCENTAGE
FUND NAME AND ADDRESS OF HOLDER OCTOBER 12, 1999 SHARES OWNERSHIP
- ------------------------------------------------ ----------------------------------- ----------------- --------- ----------
<S> <C> <C> <C> <C>
Van Kampen American Value Fund MLPF&S For the Sole Benefit of 4,801,129 A 7.77%
Its Customers 1,437,763 C 7.61%
Attn: Fund Administration 97B64
4800 Deer Lake Dr. E 2nd Fl
Jacksonville, FL 32246-6484
Edward Jones & Co. 1,141,545 A 6.60%
Attn: Mutual Fund
Shareholder Accounting
201 Progress Pkwy
Maryland Hts, MO 63043-3009
Van Kampen Trust Company 1,103,652 B 6.98%
2800 Post Oak Blvd.
Houston, TX 77056
Van Kampen Asian Growth Fund Charles Schwab & Co. Inc. 389,933 A 6.18%
Exclusive Benefit of its Customers
101 Montgomery Street
San Francisco, CA 94104-4122
Van Kampen Trust Company 319,555 A 5.07%
2800 Post Oak Blvd.
Houston, TX 77056
MLPF&S For the Sole Benefit of 245,419 B 6.31%
Its Customers
Attn: Fund Administration 97FK4
4800 Deer lake Dr. E 2nd Floor
Jacksonville, FL 32246-6484
Van Kampen Emerging Markets Fund Charles Schwab & Co. Inc. 1,376,862 A 22.57%
Exclusive Benefit of its Customers
101 Montgomery Street
San Francisco, CA 94104-4122
Van Kampen Trust Company 214,724 B 5.35%
2800 Post Oak Blvd.
Houston, TX 77056
Van Kampen Equity Growth Fund Edward Jones & Co. 179,236 A 11.90%
Attn: Mutual Fund 62,872 C 9.84%
Shareholder Accounting
201 Progress Pkwy
Maryland Hts, MO 63043-3009
Van Kampen Trust Company 190,943 A 12.67%
2800 Post Oak Blvd. 315,331 B 15.35%
Houston, TX 77056
Donaldson Lufkin Jenrette 57,078 C 8.94%
Securities Corp Inc.
PO Box 2052
Jersey City, NJ 07303-2052
Van Kampen European Equity Fund Van Kampen Funds Inc. 100,000 A 28.97%
Attn: Dominick Cogliandro 100,000 B 33.15%
One Chase Manhattan Plaza 37th Fl 100,000 C 70.27%
New York, NY 10005-1401
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
AMOUNT OF
OWNERSHIP AS OF CLASS OF PERCENTAGE
FUND NAME AND ADDRESS OF HOLDER OCTOBER 12, 1999 SHARES OWNERSHIP
- ------------------------------------------------ ----------------------------------- ----------------- --------- ----------
<S> <C> <C> <C> <C>
Van Kampen Trust Company 24,656 A 7.14%
2800 Post Oak Blvd. 36,831 B 12.21%
Houston, TX 77056 7,146 C 5.02%
Bear Stearns Securities Corp 93,110 A 26.97%
FBO 220-81341-10
1 Metrotech Ctr N
Brooklyn, NY 11201-3870
Edward Jones & Co. 70,025 A 20.28%
Attn: Mutual Fund 36,958 B 12.25%
Shareholder Accounting
201 Progress Pkwy
Maryland Hts, MO 63043-3009
Donaldson Lufkin Jenrette 8,618 C 6.06%
Securities Corp Inc.
PO Box 2052
Jersey City, NJ 07303-2052
Van Kampen Focus Equity Fund Edward Jones & Co. 308,469 A 8.85%
Attn: Mutual Fund
Shareholder Accounting
201 Progress Pkwy
Maryland Hts, MO 63043-3009
Van Kampen Trust Company 259,175 A 7.44%
2800 Post Oak Blvd. 494,393 B 6.02%
Houston, TX 77056
Van Kampen Global Equity Allocation Fund Edward Jones & Co. 1,081,075 A 7.84%
Attn: Mutual Fund
Shareholder Accounting
201 Progress Pkwy
Maryland Hts, MO 63043-3009
Van Kampen Trust Company 2,910,191 A 21.09%
2800 Post Oak Blvd. 3,023,649 B 22.03%
Houston, TX 77056 320,545 C 5.45%
Van Kampen Global Equity Fund Edward Jones & Co. 645,277 A 10.18%
Attn: Mutual Fund
Shareholder Accounting
201 Progress Pkwy
Maryland Hts, MO 63043-3009
Van Kampen Global Fixed Income Fund Charles Schwab & Co. Inc. 18,186 A 5.11%
Exclusive Benefit of its Customers
101 Montgomery Street
San Francisco, CA 94104-4122
NFSC FEBO #DKB-000701 54,344 A 15.27%
NFSC/FMTC IRA Rollover
FBO Bruce S. Sperling
55 W. Monroe Ste. 3300
Chicago, IL 60603-5010
Prudential Securities Inc. FBO 10,832 B 7.22%
Marlane Investments L.P.
4002 Marlane Dr.
Pensacola, FL 32526-2149
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
AMOUNT OF
OWNERSHIP AS OF CLASS OF PERCENTAGE
FUND NAME AND ADDRESS OF HOLDER OCTOBER 12, 1999 SHARES OWNERSHIP
- ------------------------------------------------ ----------------------------------- ----------------- --------- ----------
<S> <C> <C> <C> <C>
First Union Securities, Inc. 12,892 C 9.16%
A/C 2755-2685
Geraldine M Falkiner 1987
111 East Kilbourn Avenue
Milwaukee, WI 53202-6611
Salomon Smith Barney Inc. 11,673 C 8.30%
00117947308
333 West 34th St - 3rd Floor
New York, NY 10001-2483
Van Kampen Global Franchise Fund Van Kampen Funds Inc. 40,000 A 39.58%
Attn: Dominick Cogliandro 30,000 B 44.71%
One Chase Manhattan Plaza 37th Fl 30,000 C 28.16%
New York, NY 10005-1401
Dean Witter FBO 22,302 A 22.06%
Mitchell M Merin
PO Box 250
New York, NY 10008-0250
Edward Jones & Co. 11,372 A 11.25%
Attn: Mutual Fund
Shareholder Accounting
201 Progress Pkwy
Maryland Hts, MO 63043-3009
Painewebber FBO 5,728 B 8.54%
Dorothy Jean Tisdale TR
Dorothy Jean Tisdale Trust
DTD 10-30-97
85 Brentwood Avenue
Excelsior, MN 55331-8523
Donaldson Lufkin Jenrette 4,284 C 6.38%
Securities Corp Inc.
PO Box 2052
Jersey City, NJ 07303-2052
Hercules Worldwide Corp. 32,760 C 30.76%
PO Box 621 54 Bath Street
St Helier Jersey Channel Island
JE4 8YD United Kingdom
Warrant Trustees Limited 16,023 C 15.14%
REF TC 6732
Discretionary Trust
PO Box 218 38/39 The Esplanade
St Helier Jersey JE4 8SD
United Kingdom
Warrant Trustees Limited 8,217 C 7.71%
REF TC 6730
Discretionary Trust
PO Box 218 38/39 The Esplanade
St Helier Jersey JE4 8SD
United Kingdom
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
AMOUNT OF
OWNERSHIP AS OF CLASS OF PERCENTAGE
FUND NAME AND ADDRESS OF HOLDER OCTOBER 12, 1999 SHARES OWNERSHIP
- ------------------------------------------------ ----------------------------------- ----------------- --------- ----------
<S> <C> <C> <C> <C>
Ernest & Young TR Ltd 6,143 C 5.77%
The Rockwell Trust
DTD 10-28-94
PO Box 621 54 Bath Street
St Helier Jersey Channel Island
JE4 8YD United Kingdom
Van Kampen High Yield & Total Return Fund Charles Schwab & Co. Inc. 125,912 A 18.64%
Exclusive Benefit of its Customers
101 Montgomery Street
San Francisco, CA 94104-4122
Donaldson Lufkin Jenrette 38,935 A 5.76%
Securities Corp Inc.
PO Box 2052
Jersey City, NJ 07303-2052
MLPF&S For the Sole Benefit of Its 75,170 A 11.13%
Customers
Attn: Fund Administration 97N81
4800 Deer lake Dr. E 2nd Floor
Jacksonville, FL 32246-6484
Edward Jones & Co. 96,041 A 14.21%
Attn: Mutual Fund 35,379 C 5.19%
Shareholder Accounting
201 Progress Pkwy
Maryland Hts, MO 63043-3009
MLPF&S For the Sole Benefit of Its 115,587 B 5.85%
Customers
Attn: Fund Administration 97N82
4800 Deer lake Dr. E 2nd Floor
Jacksonville, FL 32246-6484
MLPF&S For the Sole Benefit of Its 108,327 C 15.88%
Customers
Attn: Fund Administration 97N83
4800 Deer lake Dr. E 2nd Floor
Jacksonville, FL 32246-6484
Van Kampen International Magnum Fund Van Kampen Trust Company 164,101 A 5.05%
2800 Post Oak Blvd. 283,422 B 8.29%
Houston, TX 77056 54,890 C 5.36%
Wachovia Bank NA Cust 319,989 A 9.85%
FBO East Carolina University
Endowment and Foundation
PO Box 3073
301 N Main St MC NC 31057
Winston Salem, NC 27150-0001
Wachovia Securities, Inc. 100,167 A 9.78%
FBO 811-00512-19
PO Box 1220
Charlotte, NC 28201-1220
Edward Jones & Co. 946,218 A 29.13%
Attn: Mutual Fund 256,787 B 7.51%
Shareholder Accounting
201 Progress Pkwy
Maryland Hts, MO 63043-3009
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
AMOUNT OF
OWNERSHIP AS OF CLASS OF PERCENTAGE
FUND NAME AND ADDRESS OF HOLDER OCTOBER 12, 1999 SHARES OWNERSHIP
- ------------------------------------------------ ----------------------------------- ----------------- --------- ----------
<S> <C> <C> <C> <C>
MLPF&S For the Sole Benefit of Its 81,786 C 7.99%
Customers
Attn: Fund Administration 97N83
4800 Deer lake Dr. E 2nd Floor
Jacksonville, FL 32246-6484
Van Kampen Latin American Fund Van Kampen Trust Company 135,449 A 5.62%
2800 Post Oak Blvd. 92,127 B 5.74%
Houston, TX 77056
Charles Schwab & Co. Inc. 166,988 A 6.93%
Exclusive Benefit of its Customers
101 Montgomery Street
San Francisco, CA 94104-4122
MLPF&S For the Sole Benefit of Its 64,477 C 7.21%
Customers
Attn: Fund Administration 97N91
4800 Deer lake Dr. E 2nd Floor
Jacksonville, FL 32246-6484
Bear Stearns Securities Corp 62,202 C 6.95%
FBO 176-13059-27
1 Metrotech Ctr N
Brooklyn, NY 11201-3870
Van Kampen Value Fund Van Kampen Trust Company 514,712 A 6.32%
2800 Post Oak Blvd. 821,125 B 7.30%
Houston, TX 77056 240,768 C 9.56%
Edward Jones & Co. 1,739,473 A 21.36%
Attn: Mutual Fund 129,826 C 5.15%
Shareholder Accounting
201 Progress Pkwy
Maryland Hts, MO 63043-3009
MLPF&S For the Sole Benefit of Its 1,117,674 B 9.93%
Customers
Attn: Fund Administration 97P52
4800 Deer lake Dr. E 2nd Floor
Jacksonville, FL 32246-6484
MLPF&S For the Sole Benefit of Its 172,698 C 6.86%
Customers
Attn: Fund Administration 97P53
4800 Deer lake Dr. E 2nd Floor
Jacksonville, FL 32246-6484
Van Kampen Worldwide High Income Charles Schwab & Co. Inc. 454,466 A 8.46%
Exclusive Benefit of its Customers
101 Montgomery Street
San Francisco, CA 94104-4122
Edward Jones & Co. 320,127 A 5.96%
Attn: Mutual Fund
Shareholder Accounting
201 Progress Pkwy
Maryland Hts, MO 63043-3009
</TABLE>
Van Kampen Trust Company acts as custodian for certain employee benefit
plans and individual retirement accounts.
7
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The following disclosure supplements the disclosure set forth in the
"Investment Objective(s) and Policies" sections in each Fund's Prospectus and
does not, standing alone, present a complete or accurate explanation of the
matters disclosed. Readers must refer also to this caption in the Fund's
Prospectus for a complete presentation of the matters disclosed below.
BORROWING AND LEVERAGE
To the extent allowed by the Funds' investment restrictions described
herein, certain Funds may engage in borrowing for temporary or emerging
purposes. To the extent allowed by the Funds' investment restrictions described
herein, certain Funds may engage in borrowing for investment purposes, also
known as leverage. Leveraging will magnify declines as well as increases in the
net asset value of a Fund's shares and in the return on a Fund's investments.
The extent to which a Fund may borrow will depend upon the availability of
credit. No assurance can be given that a Fund will be able to borrow on terms
acceptable to the Fund 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 a 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 a Fund will have to pay
in connection with such borrowing, such 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. A Fund's
use of leverage may impair the ability of the Fund to maintain its qualification
for federal income tax purposes as a regulated investment company. The rights of
any lenders to a Fund to receive payments of interest on and repayments of
principal of borrowings will be senior to the rights of such Fund's
shareholders, and the terms of a Fund's borrowings may contain provisions that
limit certain activities of such Fund and could result in precluding the
purchase of securities and instruments that the Fund would otherwise purchase.
CONVERTIBLE SECURITIES, RIGHTS OR WARRANTS AND EQUITY-LINKED SECURITIES
Certain Funds may invest in convertible securities, rights or warrants to
purchase common stocks and other equity-linked securities. A convertible
security is a bond, debenture, note, preferred stock or other security that may
be converted into or exchanged for a prescribed amount of common stock or other
equity security of the same or a different issuer or into cash within a
particular period of time at a specified price or formula. A convertible
security generally entitles the holder to receive interest paid or accrued on
debt securities or the dividend paid on preferred stock until the convertible
security matures or is redeemed, converted or exchanged. Before conversion,
convertible securities generally have characteristics similar to both debt and
equity securities. The value of convertible securities tends to decline as
interest rates rise and, because of the conversion feature, tends to vary with
fluctuations in the market value of the underlying equity securities.
Convertible securities ordinarily provide a stream of income with generally
higher yields than those of common stock of the same or similar issuers.
Convertible securities generally rank senior to common stock in a corporation's
capital structure but are usually subordinated to comparable nonconvertible
securities. Convertible securities generally do not participate directly in any
dividend increases or decreases of the underlying equity security although the
market prices of convertible securities may be affected by any such dividend
changes or other changes in the underlying equity securities. Rights and
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. Rights are
similar to warrants except that they have a substantially shorter duration.
Rights and warrants may be considered more speculative and less liquid than
certain other types of investments in that they do not entitle a holder to
dividends or voting rights with respect to the underlying securities nor do they
represent any rights in the assets of the issuing company and may lack a
secondary market. Equity-linked securities are instruments whose value is based
upon the value of one or more underlying equity securities, a reference rate or
an index. Equity-linked securities come in many forms and may include features,
among others, such as the following: (i) may be issued by the issuer of the
underlying equity security or by a company other than the one to which the
instrument is linked (usually an investment bank), (ii) may convert into equity
securities, such as common stock, within a stated period from the issue date or
may be redeemed for cash or some combination of cash and the linked security at
a value based upon the value of the underlying equity security within a stated
period from the issue date, (iii) may have various conversion features prior to
maturity at the option of the holder or the issuer or both, (iv) may limit the
appreciation value with caps or collars of the value of underlying equity
security and (v) may have fixed, variable or no interest payments during the
life of the security which reflect the actual or a structured return relative to
the underlying dividends of the linked equity security. Investments in
equity-linked securities may subject the Fund to additional risks not ordinarily
associated with investments in other equity securities. Because equity-linked
securities are sometimes issued by a third party other than the issuer of the
linked security, the Fund is subject to risks if the underlying stock
underperforms and if the issuer defaults on the payment of the dividend or the
common stock at maturity. In addition, the trading market for particular
equity-linked securities may be less liquid, making it difficult for the Fund to
dispose of a particular security when necessary and reduced liquidity in the
secondary market for any such securities may make it more difficult to obtain
market quotations for valuing the Fund's portfolio.
8
<PAGE>
DEPOSITARY RECEIPTS
Certain 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.
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.
FOREIGN INVESTING
Certain Funds may or will invest in securities of foreign issuers. Such
securities may be denominated in U.S. dollars and in currencies other than U.S.
dollars. The percentage of assets invested in securities of a particular country
or denominated in a particular currency will vary in accordance with the
Adviser's assessment of the relative yield, appreciation potential and the
relationship of a country's currency to the U.S. dollar, which is based upon
such factors as fundamental economic strength, credit quality and interest rate
trends. Investments in foreign securities present certain risks not ordinarily
associated with investments in securities of U.S. issuers. These risks include
fluctuations in foreign currency exchange rates, political, economic or legal
developments (including war or other instability, expropriation of assets,
nationalization and confiscatory taxation), the imposition of foreign exchange
limitations (including currency blockage), withholding taxes on dividend or
interest payments or capital transactions or other restrictions, higher
transaction costs (including higher brokerage, custodial and settlement costs
and currency translation costs) and possible difficulty in enforcing contractual
obligations or taking judicial action. Also, foreign securities may not be as
liquid and may be more volatile than comparable domestic securities.
In addition, there often is less publicly available information about many
foreign issuers, and issuers of foreign securities are subject to different,
often less comprehensive, auditing, accounting, financial reporting and
disclosure requirements than domestic issuers. There is generally less
government regulation of stock exchanges, brokers and listed companies abroad
than in the U.S., and, with respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investment in those countries. Because there is
usually less supervision and governmental regulation of exchanges, brokers and
dealers than there is in the U.S., a Fund may experience settlement difficulties
or delays not usually encountered in the U.S.
Delays in making trades in foreign securities relating to volume
constraints, limitations or restrictions, clearance or settlement procedures, or
otherwise could impact yields and result in temporary periods when assets are
not fully invested or attractive investment opportunities are foregone.
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In addition to the increased risks of investing in foreign issuers, there
are often increased transactions costs associated with investing in foreign
securities including the costs incurred in connection with converting
currencies, higher foreign brokerage or dealer costs, and higher settlement
costs or custodial costs.
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 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 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.
FOREIGN CURRENCY EXCHANGE RISKS. To the extent a Fund invests in securities
denominated or quoted in currencies other than the U.S. dollar, such Fund will
be affected by changes in foreign currency exchange rates (and exchange control
regulations) which affect the value of investments in the Fund and the accrued
income and unrealized appreciation or depreciation of the investments. Changes
in foreign currency exchange ratios relative to the U.S. dollar will affect the
U.S. dollar value of the Fund's assets denominated in that currency and the
Fund's yield on such assets as well as any temporary uninvested reserves in bank
deposits in foreign currencies. In addition, the Fund will incur costs in
connection with conversions between various currencies. 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.
A Fund's foreign currency exchange transactions may be conducted on a spot
basis (that is, cash basis) at the spot rate for purchasing or selling currency
prevailing in the foreign currency exchange market. A Fund also may enter into
contracts with banks, brokers or dealers to purchase or sell securities or
foreign currencies at a future date ("forward contracts"). A foreign currency
forward contract is a negotiated agreement between the contracting parties to
exchange a specified amount of currency at a specified future time at a
specified rate. The rate can be higher or lower than the spot rate between the
currencies that are the subject of the contract. 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.
A Fund may attempt to protect against adverse changes in the value of the
U.S. dollar in relation to a foreign currency by entering into a forward
contract for the purchase or sale of the amount of foreign currency invested or
to be invested, or by buying or selling a foreign currency option or futures
contract for such amount. Such strategies may be employed before the Fund
purchases a foreign security traded in the currency which the Fund anticipates
acquiring or between the date the foreign security is purchased or sold and the
date on which payment therefor is made or received. Seeking to protect against a
change in the value of a foreign currency in the foregoing manner does not
eliminate fluctuations in the prices of portfolio securities or prevent losses
if the prices of such securities decline. Furthermore, such transactions reduce
or preclude the opportunity for gain if the value of the currency should move in
the direction opposite to the position taken. Unanticipated changes in currency
prices may result in poorer overall performance for the Fund than if it had not
entered into such contracts. The 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.
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If a Fund engages in an offsetting transaction, such Fund will incur a gain
or a loss to the extent that there has been movement in forward contract prices.
Should forward prices decline during 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. Funds may combine forward contracts with investments
in securities denominated in other currencies in order to achieve desired
security 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 Fund will earmark or place cash or other liquid
assets into a segregated account 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. See also
"Strategic Transactions".
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 Options Clearing
Corporation ("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
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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 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.
INVESTING IN EMERGING MARKET COUNTRIES. The risks of foreign investment are
heightened when the issuer is from an emerging market country. The extent of
economic development, political stability and market depth of such countries
varies widely and investments in the securities of issuers in such countries
typically involve greater potential gain or loss than investments in securities
of issuers in more developed countries. Emerging market countries tend to have
economic structures that are less diverse and mature and political systems that
are less stable than developed markets. Emerging market countries may be more
likely to experience political turmoil or rapid changes in economic conditions
than more developed markets and the financial condition of issuers in emerging
market countries may be more precarious than in other countries. Certain
countries depend to a larger degree upon international trade or development
assistance and, therefore, are vulnerable to changes in trade or assistance
which, in turn, may be affected by a variety of factors. A Fund may be
particularly sensitive to changes in the economies of certain countries
resulting from any reversal of economic liberalization, political unrest or the
imposition of sanctions by the U.S. or other countries.
A Fund's purchase and sale of portfolio securities in emerging market
countries may be constrained by limitations as to daily changes in the prices of
listed securities, periodic or sporadic trading or settlement or limitations on
aggregate holdings by foreign investors. Such limitations may be computed based
on the aggregate trading volume by or holdings of such Fund, the Fund's
investment adviser, its affiliates or their respective clients or other service
providers. The Fund may not be able to sell securities in circumstances where
price, trading or settlement volume limitations have been reached. Foreign
investment in the securities markets of certain emerging market countries is
restricted or controlled to varying degrees which may limit investment in such
countries or increase the administrative costs of such investments. For example,
certain countries may require governmental approval prior to investments by
foreign persons or limit investment by foreign persons to only a specified
percentage of an issuer's outstanding securities or a specific class of
securities which may have less advantageous terms (including price) than
securities of the issuer available for purchase by nationals. In addition,
certain countries may restrict or prohibit investment opportunities in issuers
or industries deemed important to national interests. Such restrictions may
affect the market price, liquidity and rights of securities that may be
purchased by the Fund. The repatriation of both investment income and capital
from certain emerging market countries is subject to restrictions such as the
need for governmental consents. Due to restrictions on direct investment in
securities in certain countries, it is anticipated that the Fund may invest in
such countries through other investment funds in such countries.
Many emerging market countries have experienced currency devaluations and
substantial (and, in some cases, extremely high) rates of inflation, which have
had a negative effect on the economies and securities markets of such countries.
Economies in emerging market countries generally are dependent heavily upon
commodity prices and international trade and, accordingly, have been and may
continue to be affected adversely by the economies of their trading partners,
trade barriers, exchange controls, managed adjustments in relative currency
values and other protectionist measures or negotiated by the countries with
which they trade.
Many emerging market countries are subject to a substantial degree of
economic, political and social instability. Governments of some emerging
countries are authoritarian in nature or have been installed or removed as a
result of military coups, while governments in other emerging market countries
have periodically used force to suppress civil dissent. Disparities of
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wealth, the pace and success of political reforms, and ethnic, religious and
racial disaffection, among other factors, have also led to social unrest,
violence and/or labor unrest in some emerging markets countries. Unanticipated
political or social developments may result in sudden and significant investment
losses.
Settlement procedures in emerging market countries are frequently less
developed and reliable than those in developed markets. In addition, significant
delays are common in certain markets in registering the transfer of securities.
Settlement or registration problems may make it more difficult for a Fund to
value its portfolio securities and could cause such Fund to miss attractive
investment opportunities, to have a portion of its assets uninvested or to incur
losses due to the failure of a counterparty to pay for securities the Fund has
delivered or the Fund's inability to complete its contractual obligations. The
creditworthiness of the local securities firms used by the Fund in emerging
market countries may not be as sound as the creditworthiness of firms used in
more developed countries. As a result, the Fund may be subject to a greater risk
of loss if a securities firm defaults in the performance of its
responsibilities.
The small size and inexperience of the securities markets in certain
emerging market countries and the limited volume of trading in securities in
those countries may make a Fund's investments in such countries less liquid and
more volatile than investments in countries with more developed securities
markets. A Fund's investments in emerging market countries are subject to the
risk that the liquidity of a particular investment, or investments generally, in
such countries will shrink or disappear suddenly and without warning as a result
of adverse economic, market or political conditions or adverse investor
perceptions, whether or not accurate. Because of the lack of sufficient market
liquidity, the Fund may incur losses because it will be required to effect sales
at a disadvantageous time and only then at a substantial drop in price.
Investments in emerging market countries may be more difficult to price
precisely because of the characteristics discussed above and lower trading
volumes.
A Fund's use of foreign currency management techniques in emerging market
countries may be limited. Due to the limited market for these instruments in
emerging market countries, the Funds' investment adviser does not currently
anticipate that a significant portion of the Funds' currency exposure in
emerging market countries, if any, will be covered by such instruments.
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.
EUROPEAN INVESTING. 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 established 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
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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.
RUSSIAN INVESTING. 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
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.
BRADY BONDS. Funds that invest in foreign debt securities may invest in
debt obligations customarily referred to as "Brady Bonds." Brady Bonds 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.
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ILLIQUID SECURITIES
Each Fund may invest a portion of its assets in illiquid securities, which
includes securities that are not readily marketable, repurchase agreements which
have a maturity of longer than seven days and generally includes securities that
are restricted from sale to the public without registration under the Securities
Act of 1933, as amended (the "1933 Act"). The sale of such securities often
requires more time and results in higher brokerage charges or dealer discounts
and other selling expenses than does the sale of liquid securities trading on
national securities exchanges or in the over-the-counter markets. Restricted
securities are often purchased at a discount from the market price of
unrestricted securities of the same issuer reflecting the fact that such
securities may not be readily marketable without some time delay. Investments in
securities which have no ready market are valued at fair value as determined in
good faith by the Adviser in accordance with procedures approved by the Fund's
Board of Directors. Ordinarily, a Fund would invest in restricted securities
only when it receives the issuer's commitment to register the securities without
expense to the Fund. However, registration and underwriting expenses (which may
range from 7% to 15% of the gross proceeds of the securities sold) may be paid
by a Fund. Restricted securities which can be offered and sold to qualified
institutional buyers under Rule 144A under the 1933 Act ("144A Securities") and
are determined to be liquid under guidelines adopted by and subject to the
supervision of the Fund's Board of Directors are not subject to the limitation
on illiquid securities; however, such securities are still subject to any Fund
limitation on the securities subject to legal or contractual restrictions or
resale as described in the Fund's investment restrictions. 144A Securities
initially deemed liquid are subject to monitoring and may become illiquid to the
extent qualified institutional buyers become, for a time, uninterested in
purchasing such securities. Factors used to determine whether 144A Securities
are liquid include, among other things, a security's trading history, the
availability of reliable pricing information, the number of dealers making
quotes or making a market in such security and the number of potential
purchasers in the market for such security.
INVESTMENT COMPANY SECURITIES
Each Fund may invest in securities of other open-end or closed-end
investment companies, 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 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 Funds may invest in these investment funds, including those
advised by Adviser or its affiliates, 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.
LOAN PARTICIPATIONS AND ASSIGNMENTS
Certain 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.
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.
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LOWER-GRADE SECURITIES
Certain Funds may invest in lower-grade income securities. Securities which
are in the lower-grade categories generally offer higher yields than are offered
by higher-grade securities of similar maturities, but they also generally
involve greater risks, such as greater credit risk, greater market risk and
volatility, greater liquidity concerns and potentially greater manager risk.
Investors should carefully consider the risks of owning shares of a portfolio
which invests in lower-grade securities.
Credit risk relates to the issuer's ability to make timely payment of
interest and principal when due. Lower-grade securities are considered more
susceptible to nonpayment of interest and principal or default than higher-grade
securities. Increases in interest rates or changes in the economy may
significantly affect the ability of issuers of lower-grade debt securities to
pay interest and to repay principal, to meet projected financial goals or to
obtain additional financing. In the event that an issuer of securities held by a
Fund experiences difficulties in the timely payment of principal and interest
and such issuer seeks to restructure the terms of its borrowings, such Fund may
incur additional expenses and may determine to invest additional assets with
respect to such issuer or the project or projects to which the Fund's securities
relate. Further, the Fund may incur additional expenses to the extent that it is
required to seek recovery upon a default in the payment of interest or the
repayment of principal on its portfolio holdings, and the Fund may be unable to
obtain full recovery on such amounts.
Market risk relates to changes in market value of a security that occur as a
result of variation in the level of prevailing interest rates and yield
relationships in the debt securities market and as a result of real or perceived
changes in credit risk. The value of such a Fund's investments can be expected
to fluctuate over time. When interest rates decline, the value of a portfolio
invested in fixed income securities generally can be expected to rise.
Conversely, when interest rates rise, the value of a portfolio invested in fixed
income securities generally can be expected to decline. Debt securities with
longer maturities, which may have higher yields, may increase or decrease in
value more than debt securities with shorter maturities. However, the secondary
market prices of lower-grade debt securities generally are less sensitive to
changes in interest rate and are more sensitive to general adverse economic
changes or specific developments with respect to the particular issuers than are
the secondary market prices of higher-grade debt securities. A significant
increase in interest rates or a general economic downturn could severely disrupt
the market for lower-grade securities and adversely affect the market value of
such securities. Such events also could lead to a higher incidence of default by
issuers of lower-grade securities as compared with higher-grade securities. In
addition, changes in credit risks, interest rates, the credit markets or periods
of general economic uncertainty can be expected to result in increased
volatility in the market price of the lower-grade securities in such a Fund and
thus in the net asset value of the Fund. Adverse publicity and investor
perceptions, whether or not based on rational analysis, may affect the value,
volatility and liquidity of lower-grade securities.
The markets for lower-grade securities may be less liquid than the markets
for higher-grade securities. Liquidity relates to the ability of a fund to sell
a security in a timely manner at a price which reflects the value of that
security. To the extent that there is no established retail market for some of
the lower-grade securities in which a Fund may invest, trading in such
securities may be relatively inactive. Prices of lower-grade securities may
decline rapidly in the event a significant number of holders decide to sell.
Changes in expectations regarding an individual issuer of lower-grade securities
generally could reduce market liquidity for such securities and make their sale
by the Fund more difficult, at least in the absence of price concessions. The
effects of adverse publicity and investor perceptions may be more pronounced for
securities for which no established retail market exists as compared with the
effects on securities for which such a market does exist. An economic downturn
or an increase in interest rates could severely disrupt the market for such
securities and adversely affect the value of outstanding securities or the
ability of the issuers to repay principal and interest. Further, a Fund may have
more difficulty selling such securities in a timely manner and at their stated
value than would be the case for securities for which an established retail
market does exist.
The Adviser is responsible for determining the net asset values of the
Funds, subject to the supervision of the Board of Directors. During periods of
reduced market liquidity or in the absence of readily available market
quotations for lower-grade securities, the ability of the Adviser to value the
securities becomes more difficult and the judgment of the Adviser may play a
greater role in the valuation of such securities due to the reduced availability
of reliable objective data.
A Fund may invest in securities not producing immediate cash income,
including securities in default, zero-coupon securities or pay-in-kind
securities, when their effective yield over comparable instruments producing
cash income make these investments attractive. Prices on non-cash-paying
instruments may be more sensitive to changes in the issuer's financial
condition, fluctuation in interest rates and market demand/supply imbalances
than cash-paying securities with similar credit ratings and thus may be more
speculative. In addition, the accrued interest income earned on such instruments
is included in investment company taxable income, thereby increasing the
required minimum distributions to shareholders without providing the
corresponding cash flow with which to pay such distributions. The Adviser will
weigh these concerns against the expected total returns from such instruments.
A Fund's investments may include securities with the lowest-grade assigned
by the recognized rating organizations and unrated securities of comparable
quality. Securities assigned such ratings include those of companies that are in
default or are in bankruptcy or reorganization. Such a 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. A Fund
may have limited recourse in the event of default on such debt instruments. A
Fund may invest in loans, assignments of loans and participation in
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loans. Securities of such companies are regarded by the rating agencies as
having extremely poor prospects of ever attaining any real investment standing
and are usually available at deep discounts from the face values of the
instruments. A security purchased at a deep discount may currently pay a very
high effective yield. In addition, if the financial condition of the issuer
improves, the underlying value of the security may increase, resulting in
capital appreciation. If the company defaults on its obligations or remains in
default, or if the plan of reorganization does not provide sufficient payments
for debtholders, the deep discount securities may stop generating income and
lose value or become worthless. The Adviser will balance the benefits of deep
discount securities with their risks. While a broad portfolio of investments may
reduce the overall impact of a deep discount security that is in default or
loses its value, the risk cannot be eliminated.
Many lower-grade debt securities are not listed for trading on any national
securities exchange, and many issuers of lower-grade debt securities choose not
to have a rating assigned to their obligations by any recognized rating
organization. As a result, a Fund's portfolio may consist of a higher portion of
unlisted or unrated securities as compared with an investment company that
invests primarily in higher-grade securities. Unrated securities are usually not
as attractive to as many buyers as are rated securities, a factor which may make
unrated securities less marketable. These factors may have the effect of
limiting the availability of the securities for purchase by a Fund and may also
limit the ability of a Fund to sell such securities at their fair value either
to meet redemption requests or in response to changes in the economy or the
financial markets. Further, to the extent a Fund owns or may acquire illiquid or
restricted lower-grade securities, these securities may involve special
registration responsibilities, liabilities and costs, and liquidity and
valuation difficulties.
The Funds will rely on the Adviser's judgment, analysis and experience in
evaluating the creditworthiness of an issue. The amount of available information
about the financial condition of certain lower-grade issuers may be less
extensive than other issuers. In its analysis, the Adviser may consider the
credit ratings of recognized rating organizations in evaluating securities
although the Adviser does not rely primarily on these ratings. Ratings evaluate
only the safety of principal and interest payments, not the market value risk.
Additionally, ratings are general and not absolute standards of quality, and
credit ratings are subject to the risk that the creditworthiness of an issuer
may change and the rating agencies may fail to change such ratings in a timely
fashion. A rating downgrade does not require a Fund to dispose of a security.
The Adviser continuously monitors the issuers of securities held in a Fund.
Additionally, since most foreign debt securities are not rated, a Fund will
invest in such securities based on the Adviser's analysis without any guidance
from published ratings. Because of the number of investment considerations
involved in investing in lower-grade securities and foreign debt securities,
achievement of such Fund's investment objectives may be more dependent upon the
investment adviser's credit analysis than is the case with investing in
higher-grade securities.
New or proposed laws may have an impact on the market for lower-grade
securities. The Adviser is unable at this time to predict what effect, if any,
legislation may have on the market for lower-grade securities.
Special tax considerations are associated with investing in certain
lower-grade securities, such as zero-coupon or pay-in-kind securities. A Fund
accrues income on these securities prior to the receipt of cash payments. A Fund
must distribute substantially all of its income to its shareholders to qualify
for pass-through treatment under federal income tax law and may, therefore, have
to dispose of its portfolio securities to satisfy distribution requirements.
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.
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
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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.
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
"Foreign Investing" above 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.
REPURCHASE AGREEMENTS
The Funds may engage in repurchase agreements with banks or broker-dealers
in order to earn a return on temporarily available cash. A repurchase agreement
is a short-term investment in which the purchaser (i.e., the Fund) acquires
ownership of a security and the seller agrees to repurchase the obligation at a
future time and set price, thereby determining the yield during the holding
period. Repurchase agreements involve certain risks in the event of default by
the other party. A Fund may enter into repurchase agreements with banks or
broker-dealers deemed to be creditworthy by the Adviser under guidelines
approved by the Board of Directors. A Fund will not invest in repurchase
agreements maturing in more than seven days if any such investment, together
with any other illiquid securities held by the Fund, would exceed the Fund's
limitation on illiquid securities described herein. In the event of the
bankruptcy or other default of a seller of a repurchase agreement, a Fund could
experience both delays in liquidating the underlying securities and losses
including: (a) possible decline in the value of the underlying security during
the period while the Fund seeks to enforce its rights thereto; (b) possible lack
of access to income on the underlying security during this period; and (c)
expenses of enforcing its rights.
For the purpose of investing in repurchase agreements, the Adviser may
aggregate the cash that certain funds advised or subadvised by the Adviser or
certain of its affiliates would otherwise invest separately into a joint
account. The cash in the joint account is then invested in repurchase agreements
and the funds that contributed to the joint account share pro rata in the net
revenue generated. The Adviser believes that the joint account produces
efficiencies and economies of scale that may contribute to reduced transaction
costs, higher returns, higher quality investments and greater diversity of
investments for the Funds than would be available to the Funds investing
separately. The manner in which the joint account is managed is subject to
conditions set forth in an exemptive order from the SEC authorizing this
practice, which conditions are designed to ensure the fair administration of the
joint account and to protect the amounts in that account.
Repurchase agreements are fully collateralized by the underlying securities
and are considered to be loans under the 1940 Act. A Fund pays for such
securities only upon physical delivery or evidence of book entry transfer to the
account of a custodian or bank acting as agent. The seller under a repurchase
agreement will be required to maintain the value of the underlying securities
marked-to-market daily at not less than the repurchase price. The underlying
securities (normally securities of the U.S. government, or its agencies or
instrumentalities) may have maturity dates exceeding one year. A Fund does not
bear the risk of a decline in value of the underlying security unless the seller
defaults under its repurchase obligation.
REVERSE REPURCHASE AGREEMENTS
To the extent allowed by the Fund's investment restrictions, certain 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
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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.
SECURITIES LENDING
Certain Funds may lend 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.
SHORT SALES
Unless limited by a Fund's fundamental investment restrictions described
herein, each Fund may from time to time sell securities short. A short sale is a
transaction in which a Fund sells a security in anticipation that the market
price of such security will decline. Unless limited by a Fund's fundamental
investment restrictions described herein, each Fund may sell securities it owns
or has the right to acquire at no added cost (i.e., "against the box") or it
does not own. When the Fund makes a short sale, it must borrow the security sold
short and deliver it to the broker-dealer through which it made the short sale
in order to satisfy its obligation to deliver the security upon conclusion of
the sale. The Fund may have to pay a fee to borrow particular securities and is
often obligated to pay over any payments received on such borrowed securities.
The Fund's obligation to replace the borrowed security will be secured by
collateral of cash or liquid securities. Depending on arrangements made with the
broker-dealer from which it borrowed the security regarding payment over of any
payments received by the Fund on such security, the Fund may not receive any
payments (including interest) on its collateral deposited with such
broker-dealer.
If the price of the security sold short increases between the time of the
short sale and the time the Fund replaces the borrowed security, the Fund will
incur a loss; conversely, if the price declines, the Fund will realize a capital
gain. Any gain will be decreased, and any loss increased, by the transaction
costs described above. Although the Fund's gain is limited to the price at which
it sold the security short, its potential loss is theoretically unlimited.
STRATEGIC TRANSACTIONS
Each Fund may, but is not required to, use various Strategic Transactions
(as defined in the prospectuses) to earn income, facilitate portfolio management
and mitigate risks. Such Strategic Transactions are generally accepted under
modern portfolio management and are regularly used by many mutual funds and
other institutional investors. Techniques and instruments may change over time
as new instruments and strategies are developed or regulatory changes occur.
Although the Fund's Adviser seeks to use such transactions to further the Fund's
investment objective(s), no assurance can be given that these transactions will
achieve this result.
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.
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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 in a Fund's prospectus or herein, each Fund 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 in a Fund's prospectus or herein, each Fund 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. For example, if the Adviser believes that
a portion of a Fund's assets should be invested in emerging market 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 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.
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.
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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.
OPTIONS TRANSACTIONS. Unless otherwise limited in a Fund's prospectus or
herein, each Fund 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 over-the-counter option ("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
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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.
OPTIONS ON FOREIGN CURRENCIES. Unless otherwise limited in a Fund's
prospectus or herein, each Fund may attempt to accomplish objectives similar to
those described herein 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 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 Fund's 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.
CAPS, FLOORS AND COLLARS. Unless otherwise limited by a Fund's prospectus
or herein, each Fund may invest in caps, floors and collars, which are
instruments analogous to options transactions described above. 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
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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.
COMBINED TRANSACTIONS. Unless otherwise limited by a Fund's prospectus or
herein, each Fund 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 portfolio management or 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 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.
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 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.
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 may 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.
SWAP CONTRACTS. A swap contract 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" may include, but is not limited to,
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
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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.
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.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Funds 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. Because the Fund relies on the buyer or seller,
as the case may be, to consummate the transaction, failure by the other party to
complete the transaction may result in the Fund missing the opportunity of
obtaining a price or yield considered to be advantageous. When the Fund is the
buyer in such a transaction, however, it will maintain, in a segregated account
with its custodian, cash or portfolio securities having an aggregate value equal
to the amount of such purchase commitments until payment is made.
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.
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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").
INVESTMENT RESTRICTIONS
Each Fund has adopted certain investment policies which are either
fundamental investment limitations or non-fundamental investment limitations.
Fundamental investment limitations may not be changed without approval by the
vote of a majority of its outstanding voting securities which is defined by the
1940 Act as the lesser of: (1) 67% or more 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 without
shareholder approval.
Each Fund is designated as either a diversified fund or a non-diversified
fund as those terms are defined under the 1940 Act. Like fundamental investment
restrictions, a fund which is designated as a diversified fund may not change
its status to a non-diversified fund without approval by the vote of a majority
of its outstanding voting securities. The following Funds are diversified funds:
American Value Fund, Asian Growth Fund, Equity Growth Fund, European Equity
Fund, Global Equity Allocation Fund, Global Equity Fund, Global Franchise Fund,
Growth and Income Fund II, High Yield and Total Return Fund, Japanese Equity
Fund, Mid Cap Growth Fund, and Value Fund. The following Funds are
non-diversified funds: Emerging Markets Debt Fund, Emerging Markets Fund, Focus
Equity Fund, Global Fixed Income Fund, International Magnum Fund, Latin American
Fund, and Worldwide High Income Fund. As described in the prospectuses for the
non-diversified funds, such funds may invest a greater portion of their assets
in a more limited number of issuers than diversified funds, and therefore, non-
diversified funds are subject to greater risk because the changes in the
financial condition of a single issuer may cause greater fluctuation in the
value of such funds' shares.
For the purpose of describing fundamental investment limitations, the Funds
have been divided into two separate groups, which limitations apply only to the
Funds that form a part of that group. The groups are comprised as follows:
<TABLE>
<S> <C>
Category I Funds: American Value Fund, Asian Growth Fund, Emerging Markets
Fund, European Equity Fund, Focus Equity Fund, Global Equity
Allocation Fund, Global Fixed Income Fund, Growth and Income
Fund II, High Yield & Total Return Fund, International
Magnum Fund, Japanese Equity Fund, Latin American Fund and
Worldwide High Income Fund.
Category II Funds: Emerging Markets Debt Fund, Equity Growth Fund, Global
Equity Fund, Global Franchise Fund, Mid Cap Growth Fund and
Value Fund.
</TABLE>
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 American Value Fund,
Emerging Markets Fund, European Equity Fund, Focus Equity Fund, Growth and
Income Fund II, Latin American Fund 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.
(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.
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(6) except with respect to the Latin American 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, European Equity Fund, Focus Equity Fund,
Latin American 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
Growth and Income Fund II, Latin American Fund and Worldwide High Income Fund
may enter into reverse repurchase agreements in accordance with its investment
objective and policies and except that each of the Focus Equity Fund, Latin
American 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 Focus
Equity Fund, Latin American Fund and Worldwide High Income Fund 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 Statement of Additional
Information), and (ii) in fixed time deposits with a duration of over seven
calendar days.
(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 Emerging Markets Fund, Focus Equity Fund, Global Fixed
Income Fund, International Magnum Fund, Latin American Fund and Worldwide High
Income Fund, purchase more than 10% of any class of the outstanding securities
of any issuer.
(17) except for the Emerging Markets Fund, Focus Equity Fund, Global Fixed
Income Fund, International Magnum Fund, Latin American 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; invest up to 25% of its
total assets in privately placed securities; or invest more than 15% of its net
assets in illiquid securities.
(3) except with respect to the Latin American Fund, acquire any securities
of companies within one industry if, as a result of such acquisition, 25% or
more 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.
26
<PAGE>
The percentage limitations contained in these restrictions apply at the time
of purchase of securities, except for limitations on borrowings and illiquid
securities which apply on an ongoing basis.
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
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.
27
<PAGE>
(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 Emerging Markets Debt Fund, Equity Growth
Fund and Global Equity Funds or 50% of its total assets in the case of the Mid
Cap Growth Fund and Value Fund, 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 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.
(9) in the case of the Emerging Markets Debt Fund, Equity Growth Fund and
Global Equity Fund, 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.
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, except for the limitation on borrowings and
illiquid securities which apply on an ongoing basis.
DIRECTORS AND OFFICERS
The business and affairs of the Funds are managed under the direction of the
Company's Board of Directors and each Fund's officers appointed by the Board of
Directors. The tables below list the directors and officers and their principal
occupations for the last five years and their affiliations, if any, with
Van Kampen Investments Inc. ("Van Kampen Investments"), Van Kampen Investment
Advisory Corp. ("Advisory Corp."), Van Kampen Asset Management Inc. ("Asset
Management"), Van Kampen Funds Inc. (the "Distributor"), Van Kampen Management
Inc., Van Kampen Advisors Inc., Van Kampen Insurance Agency of Illinois Inc.,
Van Kampen Insurance Agency of Texas Inc., Van Kampen System Inc., Van Kampen
Recordkeeping Services Inc., American Capital Contractual Services, Inc.,
Van Kampen Trust Company, Van Kampen Exchange Corp. and Van Kampen Investor
Services Inc. ("Investor Services"). Advisory Corp. and Asset Management
sometimes are referred to herein collectively as the "Advisers". For purposes
hereof, the term "Fund Complex" includes each of the open-end investment
companies advised by the Advisers (excluding Van Kampen Exchange Fund).
DIRECTORS
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- --------------------- --------------------------
<S> <C>
J. Miles Branagan......................... Private investor. Trustee/Director of each of the funds in
1632 Morning Mountain Road the Fund Complex. Co-founder, and prior to August 1996,
Raleigh, NC 27614 Chairman, Chief Executive Officer and President, MDT
Date of Birth: 07/14/32 Corporation (now known as Getinge/Castle, Inc., a subsidiary
of Getinge Industrier AB), a company which develops,
manufactures, markets and services medical and scientific
equipment.
Jerry D. Choate........................... Director of Amgen Inc., a biotechnological company.
Barrington Place, Building 4 Trustee/Director of each of the funds in the Fund Complex.
18 E. Dundee Road, Suite 101 Prior to January 1999, Chairman and Chief Executive Officer
Barrington, IL 60010 of The Allstate Corporation ("Allstate") and Allstate
Date of Birth: 09/16/38 Insurance Company. Prior to January 1995, President and
Chief Executive Officer of Allstate. Prior to August 1994,
Mr. Choate held various management positions at Allstate.
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- --------------------- --------------------------
<S> <C>
Richard M. DeMartini*..................... Chairman and Chief Executive Officer of International
Two World Trade Center Private Client Group, a business unit of Morgan Stanley Dean
66th Floor Witter which encompasses all of the Firm's activities
New York, NY 10048 relating to the gathering of investment assets and sale of
Date of Birth: 10/12/52 securities to individual investors internationally, since
December 1998. President and Chief Operating Officer
Individual Asset Management Group and Director of Dean
Witter Reynolds Inc. Chairman and Director of Dean Witter
Capital Corporation. Chairman, Chief Executive Officer,
President and Director of Dean Witter Alliance Capital
Corporation, Director of the National Healthcare
Resources, Inc., Dean Witter Realty Inc., Dean Witter
Reynolds Venture Equities Inc., DW Window Covering
Holding, Inc. Morgan Stanley Dean Witter Distributors Inc.,
Morgan Stanley Dean Witter Trust FSB and is a member of the
Morgan Stanley Dean Witter Management Committee. Trustee of
the TCW/DW Funds, Director of the Morgan Stanley Dean Witter
Funds and Trustee/Director of other funds in the Fund
Complex. Prior to March 1999, Chairman, Chief Executive
Officer and President of Morgan Stanley Dean Witter
Distributors, Inc. Prior to January 1999, Chairman of Dean
Witter Futures & Currency Management Inc. and Demeter
Management Corporation. Prior to December 1998, President
and Chief Operating Officer of Morgan Stanley Dean Witter
Individual Asset Management. Formerly Vice Chairman of the
Board of the National Association of Securities Dealers,
Inc. and Chairman of the Board of the Nasdaq Stock
Market, Inc.
Linda Hutton Heagy........................ Managing Partner of Heidrick & Stuggles, an executive search
Sears Tower firm. Trustee/Director of each of the funds in the Fund
233 South Wacker Drive Complex. Prior to 1997, Partner, Ray & Berndtson, Inc., an
Suite 7000 executive recruiting and management consulting firm.
Chicago, IL 60606 Formerly, Executive Vice President of ABN AMRO, N.A., a
Date of Birth: 06/03/48 Dutch bank holding company. Prior to 1992, Executive Vice
President of La Salle National Bank. Trustee on the
University of Chicago Hospitals Board, Vice Chair of the
Board of The YMCA of Metropolitan Chicago and a member of
the Women's Board of the University of Chicago. Prior to
1996, Trustee of The International House Board.
R. Craig Kennedy.......................... President and Director, German Marshall Fund of the United
11 DuPont Circle, N.W. States. Trustee/Director of each of the funds in the Fund
Washington, D.C. 20016 Complex. Formerly, advisor to the Dennis Trading Group Inc.
Date of Birth: 02/29/52 Prior to 1992, President and Chief Executive Officer,
Director and Member of the Investment Committee of the Joyce
Foundation, a private foundation.
Jack E. Nelson............................ President and owner, Nelson Investment Planning
423 Country Club Drive Services, Inc., a financial planning company and registered
Winter Park, FL 32789 investment adviser in the State of Florida. President and
Date of Birth: 02/13/36 owner, Nelson Ivest Brokerage Services Inc., a member of the
National Association of Securities Dealers, Inc. and
Securities Investors Protection Corp. Trustee/Director of
each of the funds in the Fund Complex.
Don G. Powell*............................ Currently a member of the Board of Governors and Executive
2800 Post Oak Blvd. Committee for the Investment Company Institute, and a member
Houston, TX 77056 of the Board of Trustees of the Houston Museum of Natural
Date of Birth: 10/19/39 Science. Trustee/Director of certain open-end investment
companies in the Fund Complex. Immediate past Chairman of
the Investment Company Institute. Prior to January 1999,
Chairman and Director of Van Kampen Investments, the
Advisers, the Distributor, and Investor Services and
Director or officer of certain other subsidiaries of Van
Kampen Investments. Prior to July 1998, Director and
Chairman of VK/AC Holding, Inc. (predecessor of Van Kampen
Investments). Prior to November 1996, President, Chief
Executive Officer and Director of VK/AC Holding, Inc.
(predecessor of Van Kampen Investments).
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- --------------------- --------------------------
<S> <C>
Phillip B. Rooney......................... Vice Chairman (since April 1997) and Director (since 1994)
One ServiceMaster Way of The ServiceMaster Company, a business and consumer
Downers Grove, IL 60515 services company. Director of Illinois Tool Works, Inc., a
Date of Birth: 07/08/44 manufacturing company and the Urban Shopping Centers Inc., a
retail mall management company. Trustee, University of Notre
Dame. Trustee/ Director of each of the funds in the Fund
Complex. Prior to 1998, Director of Stone Smurfit Container
Corp., a paper manufacturing company. From May 1996 through
February 1997 he was President, Chief Executive Officer and
Chief Operating Officer of Waste Management, Inc., an
environmental services company, and from November 1984
through May 1996 he was President and Chief Operating
Officer of Waste Management, Inc.
Fernando Sisto............................ Emeritus Professor Prior to August 1996, a George M. Bond
155 Hickory Lane Chaired Professor with Stevens Institute of Technology and
Closter, NJ 07624 prior to 1995, Dean of the Graduate School, Stevens
Date of Birth: 08/02/24 Institute of Technology. Director, Dynalysis of Princeton, a
firm engaged in engineering research. Trustee/Director of
each of the funds in the Fund Complex.
Wayne W. Whalen*.......................... Partner in the law firm of Skadden, Arps, Slate, Meagher &
333 West Wacker Drive Flom (Illinois), legal counsel to the funds in the Fund
Chicago, IL 60606 Complex, and other open-end and closed-end funds advised by
Date of Birth: 08/22/39 the Advisers or Van Kampen Management Inc. Trustee/Director
of each of the funds in the Fund Complex, and
Trustee/Managing General Partner of other open-end and
closed-end funds advised by the Advisers or Van Kampen
Management Inc.
Suzanne H. Woolsey, Ph.D.................. Chief Operating Officer of the National Academy of
2101 Constitution Ave., N.W. Sciences/National Research Council, an independent,
Room 206 federally chartered policy institution, since 1993. Director
Washington, D.C. 20418 of Neurogen Corporation, a pharmaceutical company, since
Date of Birth: 12/27/41 January 1998. Director and former Chairman of the German
Marshall Fund of the United States Trustee of Colorado
College, Vice Chair of the Board of the Council for
Excellence in Government. Trustee/Director of each of the
funds in the Fund Complex. Prior to 1993, Executive Director
of the Commission on Behavioral and Social Sciences and
Education at the National Academy of Sciences/ National
Research Council. From 1980 through 1989, Partner of
Coopers & Lybrand.
Paul G. Yovovich.......................... Private investor. Director of 3Com Corporation, which
Sears Tower provides information access products and network system
233 South Wacker Drive solutions, COMARCO, Inc., a wireless communications products
Suite 9700 company and APAC Customer Services, Inc., a provider of
Chicago, IL 60606 outsourced customer contact services. Trustee/Director of
Date of Birth: 10/29/53 each of the funds in the Fund Complex. Prior to May 1996,
President of Advance Ross Corporation, an international
transaction services and pollution control equipment
manufacturing company.
</TABLE>
- --------------
* Such 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
Fund by reason of his firm currently acting as legal counsel to the Fund.
Messrs. DeMartini and Powell are interested persons of the Fund and the
Advisers by reason of their current or former positions with Morgan Stanley
Dean Witter or its affiliates.
OFFICERS
Messrs. Powers, McDonnell, Smith, Santo, Hegel, Sullivan and Wood are
located at 1 Parkview Plaza, PO Box 5555, Oakbrook Terrace, IL 60181-5555.
Messrs. Boyd and Morell and Ms. Loden are located at 2800 Post Oak Boulevard,
Houston TX 77056. Mr. Stadler is located at 1221 Avenue of the Americas, New
York, NY 10020.
<TABLE>
<CAPTION>
NAME, AGE, POSITIONS AND PRINCIPAL OCCUPATIONS
OFFICES WITH FUND DURING PAST 5 YEARS
- ----------------- -------------------
<S> <C>
Richard F. Powers III..................... Chairman, Director, President and Chief Executive Officer of
Date of Birth: 02/02/46 Van Kampen Investments. Chairman, Director and Chief
President Executive Officer of the Advisers, the Distributor,
Van Kampen Advisor Inc. and Van Kampen Management Inc.
Director and officer of certain other subsidiaries of
Van Kampen Investments. President of each of the funds in
the Fund Complex. Prior to May 1998, Executive Vice
President and Director of Marketing at Morgan Stanley Dean
Witter and Director of Dean Witter Discover & Co. and Dean
Witter Realty. Prior to 1996, Director of Dean Witter
Reynolds Inc.
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITIONS AND PRINCIPAL OCCUPATIONS
OFFICES WITH FUND DURING PAST 5 YEARS
- ----------------- -------------------
<S> <C>
Dennis J. McDonnell....................... Executive Vice President and Director of Van Kampen
Date of Birth: 05/20/42 Investments. President, Chief Operating Officer and Director
Executive Vice President and of the Advisers, Van Kampen Advisors Inc., and Van Kampen
Chief Investment Officer Management Inc. Executive Vice President and Chief
Investment Officer of each of the funds in the Fund Complex.
Executive Vice President, Chief Investment Officer and
Trustee/Managing General Partner of other investment
companies advised by the Advisers or Van Kampen Management
Inc. Prior to July 1998, Director and Executive Vice
President of VK/AC Holding, Inc. (predecessor of Van Kampen
Investments). Prior to April 1998, President and Director of
Van Kampen Merritt Equity Advisors Corp. Prior to
April 1997, Mr. McDonnell was Director of Van Kampen Merritt
Equity Holdings Corp. Prior to September 1996,
Mr. McDonnell was Chief Executive Officer and Director of
MCM Group, Inc. and McCarthy, Crisanti & Maffei, Inc. a
financial research firm, and Chairman and Director of MCM
Asia Pacific Company, Limited and MCM (Europe) Limited.
A. Thomas Smith III....................... Executive Vice President, General Counsel, Secretary and
Date of Birth: 12/14/56 Director of Van Kampen Investments, the Advisers, Van Kampen
Vice President and Secretary Advisors Inc., Van Kampen Management Inc., the Distributor,
American Capital Contractual Services, Inc., Van Kampen
Exchange Corp., Van Kampen Recordkeeping Services Inc.,
Investor Services, Van Kampen Insurance Agency of Illinois
Inc. and Van Kampen System Inc. Vice President and
Secretary/Vice President, Principal Legal Officer and
Secretary of other investment companies advised by the
Advisers or their affiliates. Vice President and Secretary
of each of the funds in the Fund Complex. Prior to
January 1999, counsel to New York Life Insurance Company
("New York Life"), and prior to March 1997, Vice President
and Associate General Counsel of New York Life. Prior to
December 1993, Assistant General Counsel of The Dreyfus
Corporation. Prior to August 1991, Senior Associate, Willkie
Farr & Gallagher. Prior to January 1989, Mr. Smith was a
Staff Attorney at the Securities and Exchange Commission,
Division of Investment Management, Office of Chief Counsel.
Michael H. Santo.......................... Executive Vice President, Chief Administrative Officer and
Date of Birth: 10/25/55 Director of Van Kampen Investments, the Advisers, the
Vice President Distributor, Van Kampen Advisors Inc, Van Kampen Management
Inc. and Van Kampen Investor Services Inc. Director or
officer of certain other subsidiaries of Van Kampen
Investments. Vice President of each of the funds in the Fund
Complex and certain other investment companies advised by
the Advisers and their affiliates. Prior to 1998, Senior
Vice President and Senior Planning Officer for Individual
Asset Management of Morgan Stanley Dean Witter and its
predecessor.
Peter W. Hegel............................ Executive Vice President of the Advisers, Van Kampen
Date of Birth: 06/25/56 Management Inc. and Van Kampen Advisors Inc. Vice President
Vice President of each of the funds in the Fund Complex and certain other
investment companies advised by the Advisers or their
affiliates. Prior to September 1996, Director of McCarthy,
Crisanti & Maffei, Inc, a financial research company.
Stephen L. Boyd........................... Vice President and Chief Investment Officer for equity
Date of Birth: 11/16/40 investments at the Advisers. Vice President of each of the
Vice President funds in the Fund Complex and certain other investment
companies advised by the Advisers or their affiliates. Prior
to October 1998, Vice President, Senior Portfolio Manager
with AIM Capital Management, Inc. Prior to February 1998,
Senior Vice President of Van Kampen American Capital Asset
Management, Inc., Van Kampen American Capital Investment
Advisory Corp. and Van Kampen American Capital
Management, Inc.
Joseph P. Stadler......................... Since 1998, Principal of Morgan Stanley & Co. Incorporated
Date of Birth: 06/07/54 and Morgan Stanley Dean Witter Investment Management Inc. He
Vice President joined Morgan Stanley & Co. Incorporated and Morgan Stanley
Dean Witter Investment Management Inc. in 1993. Accountant
with Price Waterhouse LLP (now PricewaterhouseCoopers LLP)
(an accounting firm) from 1983 to 1993. Vice President of
various U.S. registered investment companies managed by
Morgan Stanley Dean Witter Investment Management Inc.
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITIONS AND PRINCIPAL OCCUPATIONS
OFFICES WITH FUND DURING PAST 5 YEARS
- ----------------- -------------------
<S> <C>
John L. Sullivan.......................... Senior Vice President of Van Kampen Investments and the
Date of Birth: 08/20/55 Advisers. Treasurer, Vice President and Chief Financial
Treasurer, Vice President and Chief Officer of each of the funds in the Fund Complex and certain
Financial Officer other investment companies advised by the Advisers or their
affiliates.
Curtis W. Morell.......................... Senior Vice President of the Advisers, Vice President and
Date of Birth: 08/04/46 Chief Accounting Officer of each of the funds in the Fund
Vice President and Chief Accounting Complex and certain other investment companies advised by
Officer the Advisers or their affiliates.
Edward C. Wood III........................ Senior Vice President of the Advisers, Van Kampen
Date of Birth: 01/11/56 Investments and Van Kampen Management Inc. Senior Vice
Vice President President and Chief Operating Officer of the Distributor.
Vice President of each of the funds in the Fund Complex and
certain other investment companies advised by the Advisers
or their affiliates.
Tanya M. Loden............................ Vice President of Van Kampen Investments and the Advisers.
Date of Birth: 11/19/59 Controller of each of the funds in the Fund Complex and
Controller other investment companies advised by the Advisers or their
affiliates.
</TABLE>
Each trustee/director who is not an affiliated person of Van Kampen
Investments, the Advisers or the Distributor (each a "Non-Affiliated Trustee")
holds the same position with each of the funds in the Fund Complex.
Messrs. DeMartini and Powell hold the same position with each of the Funds in
the Fund Complex except for the Van Kampen Technology Fund and Van Kampen
Emerging Growth Fund. As of the date of this Statement of Additional
Information, there are 64 operating funds in the Fund Complex. Each
Non-Affiliated Trustee is compensated by an annual retainer and meeting fees for
services to the funds in the Fund Complex. Each fund in the Fund Complex
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 provides a retirement plan to its Non-Affiliated
Trustees that provides Non-Affiliated Trustees with compensation after
retirement, provided that certain eligibility requirements are met as more fully
described below.
The compensation of each Non-Affiliated Trustee includes an annual retainer
in an amount equal to $50,000 per calendar year, due in four quarterly
installments on the first business day of each quarter. Payment of the annual
retainer is allocated among the funds in the Fund Complex on the basis of the
relative net assets of each fund as of the last business day of the preceding
calendar quarter. The compensation of each Non-Affiliated Trustee includes a per
meeting fee from each fund in the Fund Complex in the amount of $200 per
quarterly or special meeting attended by the Non-Affiliated Trustee, due on the
date of the meeting, plus reasonable expenses incurred by the Non-Affiliated
Trustee in connection with his or her services as a trustee, provided that no
compensation will be paid in connection with certain telephonic special
meetings.
Under the deferred compensation plan, each Non-Affiliated Trustee generally
can elect to defer receipt of all or a portion of the compensation earned by
such Non-Affiliated Trustee until retirement. Amounts deferred are retained by
the respective Funds 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 Funds 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 each individual 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 Funds
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.
32
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
FUND COMPLEX
---------------------------------------------------------
AGGREGATE
AGGREGATE ESTIMATED TOTAL
COMPENSATION AGGREGATE PENSION MAXIMUM ANNUAL COMPENSATION
BEFORE DEFERRAL OR RETIREMENT BENEFITS FROM THE BEFORE DEFERRAL
FROM BENEFITS ACCRUED AS FUND UPON FROM FUND
NAME(1) THE COMPANY(2) PART OF EXPENSES(3) RETIREMENT(4) COMPLEX(5)
------- --------------- ------------------- ----------------- ---------------
<S> <C> <C> <C> <C>
J. Miles Branagan.............................. $ 22,100 $ 35,691 $ 60,000 $ 125,200
Jerry D. Choate(1)............................. 4,036 0 60,000 0
Linda Hutton Heagy............................. 22,100 3,861 60,000 112,800
R. Craig Kennedy............................... 22,100 2,652 60,000 125,200
Jack E. Nelson................................. 22,100 18,385 60,000 125,200
Phillip B. Rooney.............................. 19,100 6,002 60,000 125,200
Dr. Fernando Sisto............................. 22,100 68,615 60,000 125,200
Wayne W. Whalen................................ 22,100 12,658 60,000 125,200
Suzanne H. Woolsey(1).......................... 4,036 0 60,000 0
Paul G. Yovovich(1)............................ 15,283 0 60,000 25,300
</TABLE>
- --------------
(1) Directors not eligible for compensation are not included in the
Compensation Table. Mr. Yovovich became a member of the Board of Directors
for the Funds and other funds in the Fund Complex on October 22, 1998 and
therefore does not have a full calendar year of information to report.
Mr. Choate and Ms. Woolsey became members of the Board of Trustees for the
Funds and other funds in the Fund Complex on May 26, 1999 and therefore do
not have any 1998 calendar year information to report.
(2) The amounts shown in this column represent the Aggregate Compensation
before Deferral from all operating series of the Company with respect to
the Company's fiscal period ended June 30, 1999. The details of aggregate
compensation before deferral for each series are shown in Table A below.
Certain directors' deferred compensation from the Company during the
fiscal period ended June 30, 1999; the aggregate compensation deferred
from all series of the Company is as follows: Mr. Branagan, $22,100;
Ms. Heagy, $22,100; Mr. Kennedy, $11,054; Mr. Nelson, $22,100;
Mr. Rooney, $19,100; Dr. Sisto, $11,054; Mr. Whalen, $22,100; and
Mr. Yovovich, $11,162. The details of amounts deferred for each series are
shown in Table B below. Amounts deferred are retained by the Funds and
earn a rate of return determined by reference to either the return on the
shares of the respective 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 all operating series of
the Company as of the Company's fiscal period ended June 30, 1999 is as
follows: Mr. Branagan, $40,043; Mr. Gaughan, $311; Ms. Heagy, $35,983;
Mr. Kennedy, $22,104; Mr. Miller, $1,715; Mr. Nelson, $48,568;
Mr. Robinson, $3,510; Mr. Rooney, $36,084; Dr. Sisto, $24,364;
Mr. Whalen, $41,735; and Mr. Yovovich, $11,996. The details of cumulative
deferred compensation (including interest) for each series of the Company
are shown in Table C. The deferred compensation plan is described above
the Compensation Table.
(3) The amounts shown in this column represent the sum of the retirement
benefits accrued by the operating investment companies in the Fund Complex
for each of the directors for the Funds' respective fiscal years ended in
1998. The retirement plan is described above the Compensation Table.
(4) For each director, this is the sum of the estimated maximum annual
benefits payable by the funds in the Fund Complex for each year of the
10-year period commencing in the year of such director's anticipated
retirement. The Retirement Plan is described above the Compensation Table.
Each Non-Affiliated Trustee has served as a member of the Board of
Directors since the year set forth in Table D below.
(5) The amounts shown in this column represent the aggregate compensation paid
by all funds in the Fund Complex as of December 31, 1998 before deferral
by the directors 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 directors
deferred all or a portion of their aggregate compensation from the Fund
Complex during the calendar year ended December 31, 1998. The deferred
compensation earns a rate of return determined by reference to the return
on the shares of the funds in the Fund Complex as selected by the
respective Non-Affiliated Trustee, with the same economic effect as if
such Non-Affiliated Trustee had invested in one or more funds in the Fund
Complex. To the extent permitted by the 1940 Act, the Funds 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
33
<PAGE>
Trustees were not trustees of such investment companies. Combining the
Fund Complex with other investment companies advised by the Advisers and
their affiliates, Mr. Whalen received Total Compensation of $285,825
during the calendar year ended December 31, 1998.
As of October 12, 1999, the directors and officers of the Funds owned as a
group 1.198% of the shares of the Van Kampen Global Franchise Fund, and as a
group owned less than 1% of the shares of each of the remaining Funds. As of the
date of this Statement of Additional Information, the following four Funds had
not yet commenced investment operations and therefore are not reported in tables
A-D below: Van Kampen Emerging Markets Debt Fund Van, Kampen Growth and Income
Fund II, Van Kampen Japanese Equity Fund and Van Kampen Mid Cap Growth Fund.
FISCAL YEAR 1999 AGGREGATE COMPENSATION FROM THE COMPANY AND EACH PORTFOLIO
TABLE A
<TABLE>
<CAPTION>
FUND NAME BRANAGAN CHOATE HEAGY KENNEDY NELSON ROONEY SISTO
- --------- --------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
American Value Fund................................... $2,086 $405 $2,086 $2,086 $2,086 $1,886 $2,086
Asian Growth Fund..................................... 1,350 238 1,350 1,350 1,350 1,150 1,350
Emerging Markets Fund................................. 1,356 233 1,356 1,356 1,356 1,156 1,356
Equity Growth Fund.................................... 1,241 215 1,241 1,241 1,241 1,041 1,241
European Equity Fund.................................. 1,003 203 1,003 1,003 1,003 803 1,003
Focus Equity Fund..................................... 1,521 285 1,521 1,521 1,521 1,321 1,521
Global Equity Allocation Fund......................... 2,011 386 2,011 2,011 2,011 1,811 2,011
Global Equity Fund.................................... 2,270 446 2,270 2,270 2,270 2,070 2,270
Global Fixed Income Fund.............................. 1,213 203 1,213 1,213 1,213 1,013 1,213
Global Franchise Fund................................. 1,000 200 1,000 1,000 1,000 800 1,000
High Yield & Total Return Fund........................ 1,254 214 1,254 1,254 1,254 1,054 1,254
International Magnum Fund............................. 1,374 238 1,374 1,374 1,374 1,174 1,374
Latin American Fund................................... 1,283 218 1,283 1,283 1,283 1,083 1,283
Value Fund............................................ 1,593 280 1,593 1,593 1,593 1,393 1,593
Worldwide High Income Fund............................ 1,545 272 1,545 1,545 1,545 1,345 1,545
------- ------ ------- ------- ------- ------- -------
Company Total....................................... $22,100 $4,036 $22,100 $22,100 $22,100 $19,100 $22,100
------- ------ ------- ------- ------- ------- -------
<CAPTION>
FUND NAME WHALEN WOOLSEY YOVOVICH
- --------- -------- -------- --------
<S> <C> <C> <C>
American Value Fund................................... $2,086 $405 $1,462
Asian Growth Fund..................................... 1,350 238 912
Emerging Markets Fund................................. 1,356 233 905
Equity Growth Fund.................................... 1,241 215 839
European Equity Fund.................................. 1,003 203 803
Focus Equity Fund..................................... 1,521 285 1,041
Global Equity Allocation Fund......................... 2,011 386 1,388
Global Equity Fund.................................... 2,270 446 1,589
Global Fixed Income Fund.............................. 1,213 203 810
Global Franchise Fund................................. 1,000 200 800
High Yield & Total Return Fund........................ 1,254 214 841
International Magnum Fund............................. 1,374 238 925
Latin American Fund................................... 1,283 218 853
Value Fund............................................ 1,593 280 1,078
Worldwide High Income Fund............................ 1,545 272 1,037
------- ------ -------
Company Total....................................... $22,100 $4,036 $15,283
------- ------ -------
</TABLE>
1999 AGGREGATE COMPENSATION DEFERRED FROM THE COMPANY AND EACH PORTFOLIO
TABLE B
<TABLE>
<CAPTION>
FUND NAME BRANAGAN CHOATE HEAGY KENNEDY NELSON ROONEY SISTO
- --------- --------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
American Value Fund................................... $ 2,086 $ 0 $ 2,086 $ 1,043 $ 2,086 $ 1,886 $ 1,043
Asian Growth Fund..................................... 1,350 0 1,350 675 1,350 1,150 675
Emerging Markets Fund................................. 1,356 0 1,356 678 1,356 1,156 678
Equity Growth Fund.................................... 1,241 0 1,241 621 1,241 1,041 621
European Equity Fund.................................. 1,003 0 1,003 502 1,003 803 502
Focus Equity Fund..................................... 1,521 0 1,521 761 1,521 1,321 761
Global Equity Allocation Fund......................... 2,011 0 2,011 1,006 2,011 1,811 1,006
Global Equity Fund.................................... 2,270 0 2,270 1,135 2,270 2,070 1,135
Global Fixed Income Fund.............................. 1,213 0 1,213 607 1,213 1,013 607
Global Franchise Fund................................. 1,000 0 1,000 500 1,000 800 500
High Yield & Total Return Fund........................ 1,254 0 1,254 627 1,254 1,054 627
International Magnum Fund............................. 1,374 0 1,374 687 1,374 1,174 687
Latin American Fund................................... 1,283 0 1,283 642 1,283 1,083 642
Value Fund............................................ 1,593 0 1,593 797 1,593 1,393 797
Worldwide High Income Fund............................ 1,545 0 1,545 773 1,545 1,345 773
------- ------ ------- ------- ------- ------- -------
Company Total....................................... $22,100 $ 0 $22,100 $11,054 $22,100 $19,100 $11,054
------- ------ ------- ------- ------- ------- -------
<CAPTION>
FUND NAME WHALEN WOOLSEY YOVOVICH
- --------- -------- -------- --------
<S> <C> <C> <C>
American Value Fund................................... $ 2,086 $ 0 $ 1,036
Asian Growth Fund..................................... 1,350 0 676
Emerging Markets Fund................................. 1,356 0 667
Equity Growth Fund.................................... 1,241 0 629
European Equity Fund.................................. 1,003 0 603
Focus Equity Fund..................................... 1,521 0 766
Global Equity Allocation Fund......................... 2,011 0 985
Global Equity Fund.................................... 2,270 0 1,121
Global Fixed Income Fund.............................. 1,213 0 606
Global Franchise Fund................................. 1,000 0 600
High Yield & Total Return Fund........................ 1,254 0 627
International Magnum Fund............................. 1,374 0 682
Latin American Fund................................... 1,283 0 634
Value Fund............................................ 1,593 0 778
Worldwide High Income Fund............................ 1,545 0 752
------- ------ -------
Company Total....................................... $22,100 $ 0 $11,162
------- ------ -------
</TABLE>
34
<PAGE>
CUMULATIVE COMPENSATION DEFERRED (PLUS INTEREST) FROM THE COMPANY AND EACH
PORTFOLIO
TABLE C
<TABLE>
<CAPTION>
FUND NAME BRANAGAN CHOATE HEAGY KENNEDY NELSON ROONEY SISTO WHALEN
- --------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
American Value Fund................. $ 3,521 $ 0 $ 3,095 $ 1,838 $ 4,068 $ 3,371 $ 1,626 $ 3,506
Asian Growth Fund................... 2,435 0 2,070 1,273 2,810 2,266 1,122 2,425
Emerging Markets Fund............... 2,490 0 2,121 1,302 2,872 2,323 1,145 2,480
Equity Growth Fund.................. 1,434 0 1,360 745 1,678 1,227 678 1,424
European Equity Fund................ 1,153 0 1,095 597 1,339 937 549 1,143
Focus Equity Fund................... 2,637 0 2,262 1,378 3,048 2,470 1,217 2,625
Global Equity Allocation Fund....... 6,498 0 6,816 4,585 9,797 4,980 8,854 8,347
Global Equity Fund.................. 3,998 0 3,541 2,088 4,600 3,861 1,841 3,981
Global Fixed Income Fund............ 2,152 0 1,804 1,126 2,491 1,977 993 2,143
Global Franchise Fund............... 1,150 0 1,092 596 1,336 934 547 1,139
High Yield & Total Return Fund...... 2,212 0 1,861 1,157 2,560 2,037 1,020 2,203
International Magnum Fund........... 2,421 0 2,057 1,266 2,799 2,250 1,116 2,410
Latin American Fund................. 2,342 0 1,982 1,225 2,704 2,172 1,078 2,333
Value Fund.......................... 2,827 0 2,439 1,478 3,265 2,667 1,302 2,815
Worldwide High Income Fund.......... 2,773 0 2,388 1,450 3,201 2,612 1,276 2,761
------- ------- ------- ------- ------- ------- ------- -------
Company Total..................... $40,043 $ 0 $35,983 $22,104 $48,568 $36,084 $24,364 $41,735
------- ------- ------- ------- ------- ------- ------- -------
<CAPTION>
FORMER DIRECTORS
------------------------------
FUND NAME WOOLSEY YOVOVICH GAUGHAN MILLER ROBINSON
- --------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
American Value Fund................. $ 0 $ 1,119 $ 0 $ 0 $ 0
Asian Growth Fund................... 0 725 0 0 0
Emerging Markets Fund............... 0 715 0 0 0
Equity Growth Fund.................. 0 674 0 0 0
European Equity Fund................ 0 645 0 0 0
Focus Equity Fund................... 0 823 0 0 0
Global Equity Allocation Fund....... 0 1,063 311 1,715 3,510
Global Equity Fund.................. 0 1,212 0 0 0
Global Fixed Income Fund............ 0 649 0 0 0
Global Franchise Fund............... 0 642 0 0 0
High Yield & Total Return Fund...... 0 672 0 0 0
International Magnum Fund........... 0 732 0 0 0
Latin American Fund................. 0 679 0 0 0
Value Fund.......................... 0 838 0 0 0
Worldwide High Income Fund.......... 0 808 0 0 0
------- ------- ---- ------ ------
Company Total..................... $ 0 $11,996 $311 $1,715 $3,510
------- ------- ---- ------ ------
</TABLE>
YEAR OF ELECTION TO EACH PORTFOLIO OF THE COMPANY
TABLE D
<TABLE>
<CAPTION>
FUND NAME BRANAGAN CHOATE HEAGY KENNEDY NELSON ROONEY SISTO
- --------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
American Value Fund........................... 1997 1999 1997 1997 1997 1997 1997
Asian Growth Fund............................. 1997 1999 1997 1997 1997 1997 1997
Emerging Markets Fund......................... 1997 1999 1997 1997 1997 1997 1997
Equity Growth Fund............................ 1997 1999 1997 1997 1997 1997 1997
European Equity Fund.......................... 1997 1999 1997 1997 1997 1997 1997
Focus Equity Fund............................. 1997 1999 1997 1997 1997 1997 1997
Global Equity Allocation Fund................. 1997 1999 1997 1997 1997 1997 1997
Global Equity Fund............................ 1997 1999 1997 1997 1997 1997 1997
Global Fixed Income Fund...................... 1997 1999 1997 1997 1997 1997 1997
Global Franchise Fund......................... 1997 1999 1997 1997 1997 1997 1997
High Yield & Total Return Fund................ 1997 1999 1997 1997 1997 1997 1997
International Magnum Fund..................... 1997 1999 1997 1997 1997 1997 1997
Latin American Fund........................... 1997 1999 1997 1997 1997 1997 1997
Value Fund.................................... 1997 1999 1997 1997 1997 1997 1997
Worldwide High Income Fund.................... 1997 1999 1997 1997 1997 1997 1997
<CAPTION>
FUND NAME WHALEN WOOLSEY YOVOVICH
- --------- -------- -------- --------
<S> <C> <C> <C>
American Value Fund........................... 1997 1999 1998
Asian Growth Fund............................. 1997 1999 1998
Emerging Markets Fund......................... 1997 1999 1998
Equity Growth Fund............................ 1997 1999 1998
European Equity Fund.......................... 1997 1999 1998
Focus Equity Fund............................. 1997 1999 1998
Global Equity Allocation Fund................. 1997 1999 1998
Global Equity Fund............................ 1997 1999 1998
Global Fixed Income Fund...................... 1997 1999 1998
Global Franchise Fund......................... 1997 1999 1998
High Yield & Total Return Fund................ 1997 1999 1998
International Magnum Fund..................... 1997 1999 1998
Latin American Fund........................... 1997 1999 1998
Value Fund.................................... 1997 1999 1998
Worldwide High Income Fund.................... 1997 1999 1998
</TABLE>
INVESTMENT ADVISORY AGREEMENTS
Each Fund and the Adviser are parties to an investment advisory agreement
(the "Advisory Agreement"). Under the Advisory Agreement, each Fund retains the
Adviser to manage the investment of its assets, including the placing of orders
for the purchase and sale of portfolio securities. The Adviser obtains and
evaluates economic, statistical and financial information to formulate and
implement the Fund's investment objectives. The Adviser also furnishes offices,
necessary facilities and equipment, provides administrative services, and
permits its officers and employees to serve without compensation as directors of
the Company or officers of the Fund if elected to such positions. The Funds pay
all charges and expenses of their respective day-to-day operations, including
the compensation of directors of the Company (other than those who are
affiliated persons of the Adviser, Distributor or Van Kampen Investments), the
charges and expenses of legal counsel and independent accountants, distribution
fees, service fees, custodian fees, the costs of providing reports to
shareholders, and all other ordinary business expenses not specifically assumed
by the Adviser. The Advisory Agreement also provides that the Adviser shall not
be liable to a Fund for any actions or omissions if it acted without willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations.
A Fund's average daily net assets are determined by taking the average of
all of the determinations of the net assets during a given calendar month. Such
fee is payable for each calendar month as soon as practicable after the end of
that month.
The Advisory Agreement also provides that, in the event the expenses of a
Fund for any fiscal year exceed the most restrictive expense limitation
applicable in the states where such Fund's shares are qualified for sale, the
compensation due the Adviser will be reduced by the amount of such excess and
that, if a reduction in and refund of the advisory fee is insufficient, the
Adviser will pay the Fund monthly an amount sufficient to make up the
deficiency, subject to readjustment during the year.
The Advisory Agreement may be continued from year to year if specifically
approved at least annually (a)(i) by a Fund's Board of Directors or (ii) by a
vote of a majority of such Fund's outstanding voting securities and (b) by the
affirmative vote of a
35
<PAGE>
majority of the Directors who are not parties to the agreement or interested
persons of any such party by votes cast in person at a meeting called for such
purpose. The Advisory Agreement provides that it shall terminate automatically
if assigned and that it may be terminated without penalty by either party on 60
days' written notice.
During the fiscal years ended June 30, 1999 and 1998, the Adviser received
the approximate advisory fees (net of fee waivers) from the Funds as set forth
in the table below. During the fiscal year ended June 30, 1997, MSWDIM was the
investment adviser for each Fund (except the Mid Cap Growth Fund and Value Fund)
and MAS was the investment adviser for the Mid Cap Growth Fund and Value Fund,
and they earned the approximate advisory fees (net of fee waivers) from the
respective Fund as set forth in the table below.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
FUND NAME JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1997
- --------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
American Value Fund............................ $5,367,000 $2,424,000 $ 297,000
Asian Growth Fund.............................. 1,023,000 1,557,000 4,057,000
Emerging Markets Debt Fund(1).................. -- -- --
Emerging Markets Fund.......................... 1,098,000 1,909,000 1,624,000
Equity Growth Fund(2).......................... 110,000 0 --
European Equity Fund(3)........................ 0 -- --
Focus Equity Fund.............................. 1,816,000 848,000 41,000
Global Equity Allocation Fund.................. 5,422,000 2,107,000 1,264,000
Global Equity Fund(4).......................... 7,424,000 4,344,000 --
Global Fixed Income Fund....................... 0 0 0
Global Franchise Fund(3)....................... 0 -- --
Growth and Income Fund II(1)................... -- -- --
High Yield & Total Return Fund................. 108,000 27,000 0
International Magnum Fund...................... 904,000 561,000 0
Japanese Equity Fund(1)........................ -- -- --
Latin American Fund............................ 573,000 1,247,000 324,000
Mid Cap Growth Fund(1)......................... -- -- --
Value Fund(5).................................. 2,088,000 1,311,000 --
Worldwide High Income Fund..................... 1,743,000 1,864,000 1,086,000
</TABLE>
- ------------------
(1) Not operational as of June 30, 1999.
(2) Fund inception May 29, 1998.
(3) Fund inception September 25, 1998.
(4) Fund inception October 29, 1997.
(5) Fund inception July 7, 1997.
During the fiscal years ended June 30, 1999, 1998 and 1997, the Adviser (and
the predecessor adviser, where applicable) waived approximate advisory fees from
the Funds as set forth in the table below.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
FUND NAME JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1997
- --------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
American Value Fund............................ -- 267,000 135,000
Asian Growth Fund.............................. 85,000 266,000 --
Emerging Markets Debt Fund(1).................. -- -- --
Emerging Markets Fund.......................... 239,000 553,000 33,000
Equity Growth Fund(2).......................... 164,000 -- --
European Equity Fund(3)........................ 39,000 -- --
Focus Equity Fund.............................. 252,000 279,000 204,000
Global Equity Allocation Fund.................. 152,000 292,000 293,000
Global Equity Fund(4).......................... -- -- --
Global Fixed Income Fund....................... 62,000 69,000 79,000
Global Franchise Fund(3)....................... 12,000 -- --
Growth and Income Fund II(1)................... -- -- --
High Yield & Total Return Fund................. 180,000 158,000 113,000
International Magnum Fund...................... 39,000 148,000 168,000
Japanese Equity Fund(1)........................ -- -- --
Latin American Fund............................ 137,000 169,000 248,000
Mid Cap Growth Fund(1)......................... -- -- --
Value Fund(5).................................. 43,000 278,000 --
Worldwide High Income Fund..................... -- -- --
</TABLE>
- ------------------
(1) Not operational as of June 30, 1999.
(2) Fund inception May 29, 1998.
36
<PAGE>
(3) Fund inception September 25, 1998.
(4) Fund inception October 29, 1997.
(5) Fund inception July 7, 1997.
MSDWIM is the investment sub-adviser of all of the Funds except the Mid Cap
Growth Fund and Value Fund. MAS is the investment sub-adviser of the Mid Cap
Growth Fund and Value Fund. 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-adisory fees computed daily and
paid monthly. Except for the Mid Cap Growth Fund, 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 MSDWIM 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; and a Fund's
average daily net assets for the monthly period are greater than $500 million,
the Adviser shall pay MSDWIM or MAS, as appropriate, 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 adisory fee payable to the
Adviser by the Fund (after application of any fee waivers in effect) for such
monthly period. For the Mid Cap Growth Fund, the Adviser shall pay MAS at an
annual rate of .40% of the average daily net assets of such Fund.
OTHER AGREEMENTS
ADMINISTRATION AGREEMENT. Pursuant to an administration agreement between
the Adviser and the Company, the Adviser provides administrative services to the
Funds. The services provided under the Administration Agreement are subject to
the supervision of the officers of the Fund 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. The Administration Agreement also provides that the
Administrator shall not be liable to the Company for any actions or omissions if
it or its agents or any of their employees acted without gross negligence or
willful misfeasance.
During the fiscal years ended June 30, 1999 and 1998, the Adviser received
the approximate administative fees from the Funds as set forth in the table
below. During the fiscal year ended June 30, 1997, MSDWIM was the administrator
for each Fund, and MSDWIM received the approximate administration fees from the
Funds as set forth in the table below.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
FUND NAME JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1997
- --------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
American Value Fund............................ $1,590,000 $ 799,000 $ 139,000
Asian Growth Fund.............................. 287,000 463,000 1,080,000
Emerging Markets Debt Fund(1).................. -- -- --
Emerging Markets Fund.......................... 285,000 522,000 445,000
Equity Growth Fund(2).......................... 91,000 1,000 --
European Equity Fund(3)........................ 14,000 -- --
Focus Equity Fund.............................. 579,000 316,000 76,000
Global Equity Allocation Fund.................. 1,473,000 657,000 473,000
Global Equity Fund(4).......................... 1,867,000 1,089,000 --
Global Fixed Income Fund....................... 26,000 27,000 34,000
Global Franchise Fund(3)....................... 7,000 -- --
Growth and Income Fund II(1)................... -- -- --
High Yield & Total Return Fund................. 99,000 64,000 42,000
International Magnum Fund...................... 318,000 237,000 73,000
Japanese Equity Fund(1)........................ -- -- --
Latin American Fund............................ 161,000 335,000 151,000
Mid Cap Growth Fund(1)......................... -- -- --
Value Fund(5).................................. 672,000 500,000 --
Worldwide High Income Fund..................... 585,000 626,000 388,000
</TABLE>
- ------------------
(1) Not operational as of June 30, 1999.
(2) Fund inception May 29, 1998.
(3) Fund inception September 25, 1998.
(4) Fund inception October 29, 1997.
(5) Fund inception July 7, 1997.
37
<PAGE>
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.
LEGAL SERVICES AGREEMENT. The Fund and each of the other Van Kampen funds
advised by the Adviser and distributed by the Distributor have entered into
legal services agreements pursuant to which Van Kampen Investments provides
legal services, including without limitation: accurate maintenance of the fund's
minute books and records, preparation and oversight of the fund's regulatory
reports, and other information provided to shareholders, as well as responding
to day-to-day legal issues on behalf of the funds. Payment by the Funds for such
services is made on a cost basis for the salary and salary related benefits,
including but not limited to bonuses, group insurance and other regular wages
for the employment of personnel, as well as overhead and the expenses related to
the office space and the equipment necessary to render the legal services. Other
funds distributed by the Distributor also receive legal services from Van Kampen
Investments. Of the total costs for legal services provided to funds distributed
by the Distributor, one half of such costs are allocated equally to each fund
and the remaining one half of such costs are allocated to specific funds based
on monthly time records.
During the fiscal years ended June 30, 1999, 1998 and 1997, the Adviser
received the following fees from the Funds pursuant to the legal services
agreement:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
FUND NAME JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1997
- --------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
American Value Fund............................ $10,876 $ 8,993 $ --
Asian Growth Fund.............................. 5,482 6,152 --
Emerging Markets Debt Fund(1).................. -- -- --
Emerging Markets Fund.......................... 5,550 6,610 --
Equity Growth Fund(2).......................... 3,442 4 --
European Equity Fund(3)........................ 0 N/A --
Focus Equity Fund.............................. 6,382 6,317 --
Global Equity Allocation Fund.................. 10,534 9,334 --
Global Equity Fund(4).......................... 11,824 11,423 --
Global Fixed Income Fund....................... 4,280 4,885 --
Global Franchise Fund(3)....................... 3,211 N/A --
Growth and Income Fund II(1)................... -- -- --
High Yield & Total Return Fund................. 4,546 5,055 --
International Magnum Fund...................... 5,385 5,610 --
Japanese Equity Fund(1)........................ -- -- --
Latin American Fund............................ 4,727 5,687 --
Mid Cap Growth Fund(1)......................... -- -- --
Value Fund(5).................................. 7,141 9,199 --
Worldwide High Income Fund..................... 6,616 8,061 --
</TABLE>
- ------------------
(1) Not operational as of June 30, 1999.
(2) Fund inception May 29, 1998.
(3) Fund inception September 25, 1998.
(4) Fund inception October 29, 1997.
(5) Fund inception July 7, 1997.
DISTRIBUTION AND SERVICE
The Distributor acts as the principal underwriter of the Funds' shares
pursuant to a written agreement (the "Distribution and Service Agreement"). The
Distributor has the exclusive right to distribute shares of the Funds through
authorized dealers on a continuous basis. The Distributor's obligation is an
agency or "best efforts" arrangement under which the Distributor is required to
take and pay for only such shares of a Fund as may be sold to the public. The
Distributor is not obligated to sell any stated number of shares. The
Distributor bears the cost of printing (but not typesetting) prospectuses used
in connection with this offering and certain other costs including the cost of
supplemental sales literature and advertising. The Distribution and Service
Agreement is renewable from year to year if approved (a)(i) by a Fund's Board of
Directors or (ii) by a vote of a majority of such Fund's outstanding voting
securities and (b) by the affirmative vote of a majority of Directors who are
not parties to the Distribution and Service Agreement or interested persons of
any party, by votes cast in person at a meeting called for such
38
<PAGE>
purpose. The Distribution and Service Agreement provides that it will terminate
if assigned, and that it may be terminated without penalty by either party on
90 days' written notice. Total underwriting commissions on the sale of shares of
the Funds for the last three fiscal years are shown in the chart below.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1997
-------------------------- -------------------------- --------------------------
TOTAL AMOUNTS TOTAL AMOUNTS TOTAL AMOUNTS
UNDERWRITING RETAINED BY UNDERWRITING RETAINED BY UNDERWRITING RETAINED BY
FUND NAME COMMISSIONS DISTRIBUTOR COMMISSIONS DISTRIBUTOR COMMISSIONS DISTRIBUTOR
- --------- ------------ ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
American Value Fund............. $2,919,020 $228,560 $4,773,186 $658,912 $349,953 $ 47,963
Asian Growth Fund............... 397,591 25,451 749,053 98,417 832,975 103,092
Emerging Markets Debt Fund(1)... -- -- -- -- -- --
Emerging Markets Fund........... 344,275 21,951 638,827 85,770 612,339 84,793
Equity Growth Fund(2)........... 526,879 67,063 0 0 N/A N/A
European Equity Fund(3)......... 30,192 3,501 N/A N/A N/A N/A
Focus Equity Fund............... 1,229,038 83,560 1,640,138 229,561 656,053 87,259
Global Equity Allocation Fund... 1,266,693 110,283 1,033,797 135,086 310,083 39,966
Global Equity Fund(4)........... 3,117,074 62,141 3,370,697 466,837 N/A N/A
Global Fixed Income Fund........ 23,425 1,613 9,204 1,082 34,196 1,954
Global Franchise Fund(3)........ 12,337 1,748 N/A N/A N/A N/A
Growth and Income Fund II(1).... -- -- -- -- -- --
High Yield & Total Return Fund.. 121,267 7,888 132,102 13,824 25,581 2,379
International Magnum Fund....... 484,186 34,803 1,045,607 140,250 380,391 52,266
Japanese Equity Fund(1)......... -- -- -- -- -- --
Latin American Fund............. 217,094 13,361 986,259 133,298 706,758 94,909
Mid Cap Growth Fund(1).......... -- -- -- -- -- --
Value Fund(5)................... 1,338,133 70,253 6,293,710 856,595 N/A N/A
Worldwide High Income Fund...... 950,093 34,465 1,276,023 135,143 648,293 73,078
</TABLE>
- ------------------
(1) Not operational as of June 30, 1999.
(2) Fund inception May 29, 1998.
(3) Fund inception September 25, 1998.
(4) Fund inception October 29, 1997.
(5) Fund inception July 7, 1997.
With respect to sales of Class A Shares of the Funds, the total sales
charges and concessions reallowed to authorized dealers at the time of purchase
are as follows:
CLASS A SHARES SALES CHARGE TABLES
With respect to Emerging Markets Debt Fund, Global Fixed Income Fund, High
Yield & Total Return Fund and Worldwide High Income Fund:
<TABLE>
<CAPTION>
TOTAL SALES CHARGE
---------------------- REALLOWED
AS % OF AS % OF NET TO DEALERS
SIZE OF OFFERING AMOUNT AS A % OF
INVESTMENT PRICE INVESTED OFFERING PRICE
- ---------- -------- ----------- --------------
<S> <C> <C> <C>
Less than $100,000.......................................... 4.75% 4.99% 4.25%
$100,000 but less than $250,000............................. 3.75% 3.90% 3.25%
$250,000 but less than $500,000............................. 2.75% 2.83% 2.25%
$500,000 but less than $1,000,000........................... 2.00% 2.04% 1.75%
$1,000,000 or more.......................................... * * *
</TABLE>
With respect to all of the remaining Funds:
<TABLE>
<CAPTION>
TOTAL SALES CHARGE
---------------------- REALLOWED
AS % OF AS % OF NET TO DEALERS
SIZE OF OFFERING AMOUNT AS A % OF
INVESTMENT PRICE INVESTED OFFERING PRICE
- ---------- -------- ----------- --------------
<S> <C> <C> <C>
Less than $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 sales charge is payable at the time of purchase on investments of
$1 million or more, although for such investments the Fund may impose a
contingent deferred sales charge of 1.00% on certain redemptions made within
one year of the purchase. A commission or transaction fee will be paid by the
Distributor at the time of purchase directly out of the Distributor's assets
(and not out of the Fund's assets) to authorized dealers who initiate and are
responsible for purchases of $1 million or more computed based on a percentage
of the dollar value of such shares sold as follows: 1.00% on sales to
$2 million, plus 0.80% on the next $1 million and 0.50% on the excess over
$3 million.
With respect to sales of Class B Shares and Class C Shares, a commission or
transaction fee generally will be paid by the Distributor at the time of
purchase directly out of the Distributor's assets (and not out of the Fund's
assets) to authorized dealers who initiate and are responsible for such
purchases computed based on a percentage of the dollar value of such shares sold
of 4.00% on Class B Shares and 1.00% on Class C Shares.
39
<PAGE>
Proceeds from any contingent deferred sales charge and any distribution fees
on Class B Shares and Class C Shares are paid to the Distributor and are used by
the Distributor to defray its distribution related expenses in connection with
the sale of the Fund's shares, such as the payment to authorized dealers for
selling such shares. With respect to Class C Shares, the authorized dealers
generally are paid the ongoing commission and transaction fees of up to 0.75% of
the average daily net assets of a Fund's Class C Shares annually commencing in
the second year after purchase.
In addition to reallowances or commissions described above, the Distributor
may from time to time implement programs under which an authorized dealer's
sales force may be eligible to win nominal awards for certain sales efforts or
under which the Distributor will reallow to any authorized dealer that sponsors
sales contests or recognition programs conforming to criteria established by the
Distributor, or participates in sales programs sponsored by the Distributor, an
amount not exceeding the total applicable sales charges on the sales generated
by the authorized dealer at the public offering price during such programs.
Other programs provide, among other things and subject to certain conditions,
for certain favorable distribution arrangements for shares of the Fund. Also,
the Distributor in its discretion may from time to time, pursuant to objective
criteria established by the Distributor, pay fees to, and sponsor business
seminars for, qualifying authorized dealers for certain services or activities
which are primarily intended to result in sales of shares of the Fund or other
Van Kampen funds. Fees may include payment for travel expenses, including
lodging, incurred in connection with trips taken by invited registered
representatives for meetings or seminars of a business nature. In some instances
additional compensation or promotional incentives may be offered to brokers,
dealers or financial intermediaries that have sold or may sell significant
amounts of shares during specified periods of time. The Distributor may provide
additional compensation to Edward D. Jones & Co. or an affiliate thereof based
on a combination of its sales of shares and increases in assets under
management. All of the foregoing payments are made by the Distributor out of its
own assets. Such fees paid for such services and activities with respect to a
Fund will not exceed in the aggregate 1.25% of the average total daily net
assets of such Fund on an annual basis. These programs will not change the price
an investor will pay for shares or the amount that a Fund will receive from such
sale.
Banks are currently prohibited under the Glass-Steagall Act from providing
certain underwriting or distribution services. If banking firms were prohibited
from acting in any capacity or providing any of the described services, the
Distributor would consider what action, if any, would be appropriate. The
Distributor does not believe that termination of a relationship with a bank
would result in any material adverse consequences to the Fund. State securities
laws regarding registration of banks and other financial institutions may differ
from the interpretations of federal law expressed herein, and banks and other
financial institutions may be required to register as dealers pursuant to
certain state laws.
The Funds have each adopted a distribution plan (the "Distribution Plan")
with respect to each class of its shares pursuant to Rule 12b-1 under the 1940
Act. The Fund also has adopted a service plan (the "Service Plan") with respect
to each class of its shares. The Distribution Plan and the Service Plan
sometimes are referred to herein as the "Plans". The Plans provide that a Fund
may spend a portion of the Fund's average daily net assets attributable to each
class of shares in connection with distribution of the respective class of
shares and in connection with the provision of ongoing services to shareholders
of such class, respectively. The Distribution Plan and the Service Plan are
being implemented through the Distribution and Service Agreement with the
Distributor of each class of the Fund's shares and sub-agreements between the
Distributor and members of the NASD who are acting as securities dealers and
NASD members or eligible non-members who are acting as brokers or agents and
similar agreements between a Fund and financial intermediaries who are acting as
brokers (collectively, "Selling Agreements") that may provide for their
customers or clients certain services or assistance, which may include, but not
be limited to, processing purchase and redemption transactions, establishing and
maintaining shareholder accounts regarding the Fund, and such other services as
may be agreed to from time to time and as may be permitted by applicable
statute, rule or regulation. Brokers, dealers and financial intermediaries that
have entered into sub-agreements with the Distributor and sell shares of the
Fund are referred to herein as "financial intermediaries."
The Distributor must submit quarterly reports to the Board of Directors,
with respect to each Fund setting forth separately by class of shares all
amounts paid under the Distribution Plan and the purposes for which such
expenditures were made, together with such other information as from time to
time is reasonably requested by the Board of Directors. The Plans provide that
they will continue in full force and effect from year to year so long as such
continuance is specifically approved by a vote of the Board of Directors, and
also by a vote of the disinterested Directors, cast in person at a meeting
called for the purpose of voting on the Plans. Each of the Plans may not be
amended to increase materially the amount to be spent for the services described
therein with respect to any class of shares without approval by a vote of a
majority of the outstanding voting shares of such class, and all material
amendments to either of the Plans must be approved by the Board of Directors and
also by the disinterested Directors. Each of the Plans may be terminated with
respect to any class of shares at any time by a vote of a majority of the
disinterested Directors or by a vote of a majority of the outstanding voting
shares of such class.
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.
Because each Fund is a series of the Company, amounts paid to the
Distributor as reimbursement for expenses of one series of the Company may
indirectly benefit the other Funds which are series of the Company. The
Distributor will endeavor to allocate such expenses among such funds in an
equitable manner. The Distributor will not use the proceeds from the contingent
deferred sales charge applicable to a particular class of shares to defray
distribution-related expenses attributable to any other class of shares.
40
<PAGE>
As of June 30, 1999, the unreimbursed distribution-related expenses with
respect to Class B Shares and Class C shares, and the percentage of the Fund's
net assets attributable to Class B Shares and Class C Shares are represented
below.
<TABLE>
<CAPTION>
B SHARES C SHARES
---------------------------- ----------------------------
PERCENTAGE OF PERCENTAGE OF
UNREIMBURSED FUND'S NET UNREIMBURSED FUND'S NET
FUND NAME DISTRIBUTION ASSETS DISTRIBUTION ASSETS
- --------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
American Value Fund......................... $10,138,207 2.97% $152,210 0.09%
Asian Growth Fund........................... 2,450,266 5.71 22,692 0.06
Emerging Markets Fund....................... 1,836,551 4.79 17,012 0.08
Equity Growth Fund.......................... 606,348 2.53 22,770 0.31
European Equity Fund........................ 14,804 0.48 1,508 0.10
Focus Equity Fund........................... 4,521,932 2.57 20,961 0.08
Global Equity Fund.......................... 19,894,984 3.34 47,093 0.07
Global Equity Allocation Fund............... 1,956,904 0.84 169,199 0.17
Global Fixed Income Fund.................... 87,937 5.65 2,100 0.14
Global Franchise Fund....................... 6,435 1.05 1,380 0.29
High Yield & Total Return Fund.............. 711,833 3.14 16,111 0.20
International Magnum Fund................... 1,651,126 3.43 5,147 0.04
Latin American Fund......................... 1,036,423 5.58 17,977 0.17
Value Fund.................................. 4,179,000 3.27 81,668 0.28
Worldwide High Income Fund.................. 5,193,409 4.85 66,211 0.16
</TABLE>
41
<PAGE>
As reimbursement for providing distribution services to the Company for the
fiscal year ended June 30, 1999, the Distributor received aggregate fees of
approximately $23,977,000 which were attributable approximately as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED PERCENTAGE OF
JUNE 30, 1999 AVERAGE DAILY
FUND NAME (000) NET ASSETS
- --------- ----------------- -------------
<S> <C> <C>
American Value Fund -- Class A.............................. $ 540 .25%
American Value Fund -- Class B.............................. 2,840 1.00%
American Value Fund -- Class C.............................. 1,313 1.00%
Asian Growth Fund -- Class A................................ 130 .25%
Asian Growth Fund -- Class B................................ 291 1.00%
Asian Growth Fund -- Class C................................ 295 1.00%
Emerging Markets Debt Fund -- Class A(1).................... --%
Emerging Markets Debt Fund -- Class B(1).................... --%
Emerging Markets Debt Fund -- Class C(1).................... --%
Emerging Markets Fund -- Class A............................ 141 .25%
Emerging Markets Fund -- Class B............................ 299 1.00%
Emerging Markets Fund -- Class C............................ 205 1.00%
Equity Growth Fund -- Class A............................... 30 .25%
Equity Growth Fund -- Class B............................... 163 1.00%
Equity Growth Fund -- Class C............................... 58 1.00%
European Equity Fund -- Class A............................. 3 .25%
European Equity Fund -- Class B............................. 17 1.00%
European Equity Fund -- Class C............................. 10 1.00%
Focus Equity Fund -- Class A................................ 155 .25%
Focus Equity Fund -- Class B................................ 1,433 1.00%
Focus Equity Fund -- Class C................................ 244 1.00%
Global Equity Allocation Fund -- Class A.................... 588 .25%
Global Equity Allocation Fund -- Class B.................... 2,243 1.00%
Global Equity Allocation Fund -- Class C.................... 998 1.00%
Global Equity Fund -- Class A............................... 191 .25%
Global Equity Fund -- Class B............................... 6,007 1.00%
Global Equity Fund -- Class C............................... 657 1.00%
Global Franchise Fund -- Class A............................ 2 .25%
Global Franchise Fund -- Class B............................ 3 1.00%
Global Franchise Fund -- Class C............................ 3 1.00%
Global Fixed Income Fund -- Class A......................... 11 .25%
Global Fixed Income Fund -- Class B......................... 17 1.00%
Global Fixed Income Fund -- Class C......................... 18 1.00%
Growth and Income Fund II -- Class A(1)..................... --%
Growth and Income Fund II -- Class B(1)..................... --%
Growth and Income Fund II -- Class C(1)..................... --%
High Yield & Total Return Fund -- Class A................... 23 .25%
High Yield & Total Return Fund -- Class B................... 209 1.00%
High Yield & Total Return Fund -- Class C................... 82 1.00%
International Magnum Fund -- Class A........................ 138 .25%
International Magnum Fund -- Class B........................ 482 1.00%
International Magnum Fund -- Class C........................ 144 1.00%
Japanese Equity Fund -- Class A(1).......................... --%
Japanese Equity Fund -- Class B(1).......................... --%
Japanese Equity Fund -- Class C(1).......................... --%
Latin American Fund -- Class A.............................. 75 .25%
Latin American Fund -- Class B.............................. 169 1.00%
Latin American Fund -- Class C.............................. 96 1.00%
Mid Cap Growth Fund -- Class A(1)........................... --%
Mid Cap Growth Fund -- Class B(1)........................... --%
Mid Cap Growth Fund -- Class C(1)........................... --%
Value Fund -- Class A....................................... 270 .25%
Value Fund -- Class B....................................... 1,279 1.00%
Value Fund -- Class C....................................... 306 1.00%
Worldwide High Income Fund -- Class A....................... 173 .25%
Worldwide High Income Fund -- Class B....................... 1,158 1.00%
Worldwide High Income Fund -- Class C....................... 468 1.00%
</TABLE>
- ------------------
(1) Not operational as of June 30, 1999.
42
<PAGE>
TRANSFER AGENT
The Funds' transfer agent, shareholder service agent and divided disbursing
agent is Van Kampen Investor Services Inc., PO Box 218256, Kansas City, MO
64121-8256. The transfer agency prices are determined through negotiations with
the Fund's Board of Directors and are based on competitive benchmarks.
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION
The Adviser is responsible for decisions to buy and sell securities for the
Funds, the selection of brokers and dealers to effect the transactions and the
negotiation of prices and any brokerage commissions on such transaction. While
the Adviser will be primarily responsible for the placement of each Fund's
portfolio business, the policies and practices in this regard will at all times
be subject to review by the Board of Directors.
With respect to the Emerging Markets Debt Fund, the Global Fixed Income
Fund, the High Yield & Total Return Fund and the Worldwide High Income Fund;
most transactions made by such Funds are principal transactions at net prices
and the Funds generally incur little or no brokerage costs. The portfolio
securities in which these Funds invest are normally purchased directly from the
issuer or in the over-the-counter market from an underwriter or market maker for
the securities. Purchases from underwriters of portfolio securities include a
commission or concession paid by the issuer to the underwriter and purchases
from dealers serving as market makers include a spread or markup to the dealer
between the bid and asked price. Sales to dealers are effected at bid prices.
These Funds may also purchase certain money market instruments directly from an
issuer, in which case no commissions or discounts are paid, or may purchase and
sell listed securities on an exchange, which are effected through brokers who
charge a commission for their services.
The Adviser is responsible for placing portfolio transactions and does so in
a manner deemed fair and reasonable to the Funds and not according to any
formula. The primary consideration in all portfolio transactions is prompt
execution of orders in an effective manner at the most favorable price. In
selecting broker/dealers and in negotiating prices and any brokerage commissions
on such transactions, the Adviser considers the firm's reliability, integrity
and financial condition and the firm's execution capability, the size and
breadth of the market for the security, the size of and difficulty in executing
the order, and the best net price. There are many instances when, in the
judgment of the Adviser, more than one firm can offer comparable execution
services. In selecting among such firms, consideration may be given to those
firms which supply research and other services in addition to execution
services. The Adviser is authorized to pay higher commissions to brokerage firms
that provide it with investment and research information than to firms which do
not provide such services if the Adviser determines that such commissions are
reasonable in relation to the overall services provided. No specific value can
be assigned to such research services which are furnished without cost to the
Adviser. Since statistical and other research information is only supplementary
to the research efforts of the Adviser to the Fund and still must be analyzed
and reviewed by its staff, the receipt of research information is not expected
to reduce its expenses materially. The investment advisory fee is not reduced as
a result of the Adviser's receipt of such research services. Services provided
may include (a) furnishing advice as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities; (b)
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and the performance of
accounts; and (c) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement and custody). Research
services furnished by firms through which the Fund effects its securities
transactions may be used by the Adviser in servicing all of its advisory
accounts; not all of such services may be used by the Adviser in connection with
the Funds. The Adviser also may place portfolio transactions, to the extent
permitted by law, with brokerage firms affiliated with the Funds, the Adviser or
the Distributor and with brokerage firms participating in the distribution of
the Funds' shares if it reasonably believes that the quality of execution and
the commission are comparable to that available from other qualified firms.
Similarly, to the extent permitted by law and subject to the same considerations
on quality of execution and comparable commission rates, the Adviser may direct
an executing broker to pay a portion or all of any commissions, concessions or
discounts to a firm supplying research or other services or to a firm
participating in the distribution of the Funds' shares.
The Adviser may place portfolio transactions at or about the same time for
other advisory accounts, including other investment companies. The Adviser seeks
to allocate portfolio transactions equitably whenever concurrent decisions are
made to purchase or sell securities for a Fund and another advisory account. In
some cases, this procedure could have an adverse effect on the price or the
amount of securities available to such Fund. In making such allocations among a
Fund and other advisory accounts, the main factors considered by the Adviser are
the respective sizes of the Fund and other advisory accounts, the respective
investment objectives, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment, the size of
investment commitments generally held and opinions of the persons responsible
for recommending the investment.
Morgan Stanley & Co. Incorporated is an affiliate of the Adviser (and the
predecessor adviser) of the Funds. Effective May 31, 1997, Dean Witter
Reynolds, Inc. ("Dean Witter") became an affiliate of the Adviser (and the
predecessor adviser) of the Funds. The Board of Directors have adopted certain
policies incorporating the standards of Rule 17e-1 issued by the SEC under the
1940 Act which requires that the commissions paid to affiliates of the Funds
must be reasonable and fair compared to the commissions, fees or other
remuneration received or to be received by other brokers in connection with
comparable transactions involving similar securities during a comparable period
of time. The rule and procedures also contain review requirements and require
the Adviser to furnish reports to the Board of Directors and to maintain records
in connection with such reviews. After consideration of all factors deemed
relevant, the Board of Directors will consider from time to time whether the
advisory fee for each Fund will be reduced by all or a portion of the brokerage
commission given to affiliated brokers.
The Funds paid the following commissions to all brokers and affiliated
brokers during the periods shown:
43
<PAGE>
<TABLE>
<CAPTION>
EMERGING
AMERICAN ASIAN MARKETS EMERGING EQUITY EUROPEAN FOCUS
FISCAL YEAR ENDED VALUE GROWTH DEBT MARKETS GROWTH EQUITY EQUITY
JUNE 30, 1999 FUND FUND FUND(1) FUND FUND FUND FUND
- ----------------- -------- ------ -------- -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Total brokerage
commissions............... $ 5,210,669 $ 1,059,398 $ -- $ 892,711 $ 96,599 $ 20,070 $ 1,158,339
Commissions with Morgan
Stanley................... $ 2,130 $ 53,519 $ -- $ 49,419 $ 1,755 $ 1,984 $ 13,980
Percentage of total
commissions.............. 0.04% 5.05% --% 5.54% 1.82% 9.89% 1.21%
Commissions with Dean
Witter.................... $ 1,356 $ 0 $ -- $ 0 $ 0 $ 0 $ 0
Percentage of total
commissions.............. 0.03% 0% --% 0% 0% 0% 0%
Percentage of total value of
brokerage transactions
with Morgan Stanley....... 0.06% 5.30% --% 4.72% 2.19% 7.33% 1.75%
Percentage of total value of
brokerage transactions
with Dean Witter.......... 0.01% 0% --% 0% 0% 0% 0%
Commissions for research
services.................. $ 4,704,647 $ 1,059,398 $ -- $ 892,711 $ 76,151 $ 20,070 $ 1,109,511
Value of research
transactions.............. $1,968,924,455 $283,946,042 $ -- $263,588,372 $67,510,503 $10,392,253 $876,267,703
<CAPTION>
GLOBAL
EQUITY GLOBAL GLOBAL
FISCAL YEAR ENDED ALLOCATION EQUITY FRANCHISE
JUNE 30, 1999 FUND FUND FUND
- ----------------- ---------- ------ ---------
<S> <C> <C> <C>
Total brokerage
commissions............... $ 723,144 $ 1,180,688 $ 4,237
Commissions with Morgan
Stanley................... $ 1,790 $ 106,499 $ 314
Percentage of total
commissions.............. 0.25% 9.02% 7.41%
Commissions with Dean
Witter.................... $ 0 $ 0 $ 0
Percentage of total
commissions.............. 0% 0% 0%
Percentage of total value of
brokerage transactions
with Morgan Stanley....... 0.08% 8.54% 6.66%
Percentage of total value of
brokerage transactions
with Dean Witter.......... 0% 0% 0%
Commissions for research
services.................. $ 723,144 $ 1,180,688 $ 4,237
Value of research
transactions.............. $740,411,692 $537,623,505 $1,839,734
</TABLE>
<TABLE>
<CAPTION>
HIGH
GLOBAL GROWTH YIELD & INTER-
FIXED AND TOTAL NATIONAL JAPANESE LATIN MID CAP
FISCAL YEAR ENDED INCOME INCOME RETURN MAGNUM EQUITY AMERICAN GROWTH
JUNE 30, 1999 FUND FUND II(1) FUND FUND FUND(1) FUND FUND(1)
- ----------------- ------ ---------- ------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Total brokerage
commissions............... $ 0 $ -- $ 0 $ 369,509 $ -- $ 509,214 $ --
Commissions with Morgan
Stanley................... $ 0 $ -- $ 0 $ 8,443 $ -- $ 7,942 $ --
Percentage of total
commissions.............. 0% --% 0% 2.28% --% 1.56% --%
Commissions with Dean
Witter.................... $ 0 $ -- $ 0 $ 0 $ -- $ 0 $ --
Percentage of total
commissions.............. 0% --% 0% 0% --% 0% --%
Percentage of total value of
brokerage transactions
with Morgan Stanley....... 0% --% 0% 2.09% --% 2.71% --%
Percentage of total value of
brokerage transactions
with Dean Witter.......... 0% --% 0% 0% --% 0% --%
Commissions for research
services.................. $ -- $ -- $ -- $ 369,509 $ -- $ 509,214 $ --
Value of research
transactions.............. $ -- $ -- $ -- $147,219,049 $ -- $172,872,826 $ --
<CAPTION>
WORLDWIDE
HIGH
FISCAL YEAR ENDED VALUE INCOME
JUNE 30, 1999 FUND FUND
- ----------------- ----- ---------
<S> <C> <C>
Total brokerage
commissions............... $ 463,294 $ 626
Commissions with Morgan
Stanley................... $ 0 $ 0
Percentage of total
commissions.............. 0.0% 0%
Commissions with Dean
Witter.................... $ 0 $ 0
Percentage of total
commissions.............. 0% 0%
Percentage of total value of
brokerage transactions
with Morgan Stanley....... 0% 0%
Percentage of total value of
brokerage transactions
with Dean Witter.......... 0% 0%
Commissions for research
services.................. $ 458,024 $ 626
Value of research
transactions.............. $303,327,814 $18,919,240
</TABLE>
- --------------------
(1) Not operational as of June 30, 1999.
44
<PAGE>
<TABLE>
<CAPTION>
EMERGING GLOBAL
AMERICAN ASIAN MARKETS EMERGING EQUITY EUROPEAN FOCUS EQUITY
FISCAL YEAR ENDED VALUE GROWTH DEBT MARKETS GROWTH EQUITY EQUITY ALLOCATION
JUNE 30, 1998 FUND FUND FUND(1) FUND FUND(2) FUND(3) FUND FUND
- ----------------- -------- ------ -------- -------- ------- -------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total brokerage
commissions............... $1,863,022 $2,171,340 $ -- $1,122,264 $4,685 $ -- $836,700 $382,680
Commissions with Morgan
Stanley................... $ 0 $ 157,183 $ -- $ 41,792 $ 0 $ -- $ 0 $ 981
Commissions with Dean
Witter.................... $ 0 $ 0 $ -- $ 0 $ 0 $ -- $ 0 $ 0
<CAPTION>
GLOBAL GLOBAL
FISCAL YEAR ENDED EQUITY FRANCHISE
JUNE 30, 1998 FUND(4) FUND(3)
- ----------------- ------- ---------
<S> <C> <C>
Total brokerage
commissions............... $775,168 $ --
Commissions with Morgan
Stanley................... $188,780 $ --
Commissions with Dean
Witter.................... $ 0 $ --
</TABLE>
<TABLE>
<CAPTION>
HIGH
GLOBAL GROWTH YIELD & INTER-
FIXED AND TOTAL NATIONAL JAPANESE LATIN MID CAP
FISCAL YEAR ENDED INCOME INCOME RETURN MAGNUM EQUITY AMERICAN GROWTH VALUE
JUNE 30, 1998 FUND FUND II(1) FUND FUND FUND(1) FUND FUND(1) FUND
- ----------------- ------ ---------- ------- -------- -------- -------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total brokerage
commissions............... $ 0 $ -- $2,940 $243,789 $ -- $1,251,018 $ -- $475,178
Commissions with Morgan
Stanley................... $ 0 $ -- $ 0 $ 8,123 $ -- $ 53,140 $ -- $ 0
Commissions with Dean
Witter.................... $ 0 $ -- $ 0 $ 0 $ -- $ 0 $ -- $ 0
<CAPTION>
WORLDWIDE
HIGH
FISCAL YEAR ENDED INCOME
JUNE 30, 1998 FUND
- ----------------- ---------
<S> <C>
Total brokerage
commissions............... $ 0
Commissions with Morgan
Stanley................... $ 0
Commissions with Dean
Witter.................... $ 0
</TABLE>
<TABLE>
<CAPTION>
EMERGING GLOBAL
AMERICAN ASIAN MARKETS EMERGING EQUITY EUROPEAN FOCUS EQUITY
FISCAL YEAR ENDED VALUE GROWTH DEBT MARKETS GROWTH EQUITY EQUITY ALLOCATION
JUNE 30, 1997 FUND FUND FUND(1) FUND FUND FUND FUND FUND
- ----------------- -------- ------ -------- -------- ------ -------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total brokerage
commissions............... $130,098 $2,757,149 $ -- $922,655 $ -- $ -- $174,610 $118,044
Commissions with Morgan
Stanley................... $ 0 $ 326,044 $ -- $ 79,641 $ -- $ -- $ 0 $ 0
Commissions with Dean
Witter.................... $ 1,302 $ 0 $ -- $ 0 $ -- $ -- $ 168 $ 0
<CAPTION>
GLOBAL GLOBAL
FISCAL YEAR ENDED EQUITY FRANCHISE
JUNE 30, 1997 FUND FUND
- ----------------- ------ ---------
<S> <C> <C>
Total brokerage
commissions............... $ -- $ --
Commissions with Morgan
Stanley................... $ -- $ --
Commissions with Dean
Witter.................... $ -- $ --
</TABLE>
<TABLE>
<CAPTION>
HIGH
GLOBAL GROWTH YIELD & INTER-
FIXED AND TOTAL NATIONAL JAPANESE LATIN MID CAP
FISCAL YEAR ENDED INCOME INCOME RETURN MAGNUM EQUITY AMERICAN GROWTH VALUE
JUNE 30, 1997 FUND FUND II(1) FUND FUND FUND(1) FUND FUND(1) FUND(5)
- ----------------- ------ ---------- ------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total brokerage
commissions............... $ 0 $ -- $ 0 $155,283 $ -- $742,521 $ -- $ --
Commissions with Morgan
Stanley................... $ 0 $ -- $ 0 $ 15,487 $ -- $ 40,849 $ -- $ --
Commissions with Dean
Witter.................... $ 0 $ -- $ 0 $ 0 $ -- $ 0 $ -- $ --
<CAPTION>
WORLDWIDE
HIGH
FISCAL YEAR ENDED INCOME
JUNE 30, 1997 FUND
- ----------------- ---------
<S> <C>
Total brokerage
commissions............... $ 0
Commissions with Morgan
Stanley................... $ 0
Commissions with Dean
Witter.................... $ 0
</TABLE>
- --------------------
(1) Not operational as of June 30, 1999.
(2) Fund inception May 29, 1998.
(3) Fund inception September 25, 1998.
(4) Fund inception October 29, 1997.
(5) Fund inception July 7, 1997.
45
<PAGE>
SHAREHOLDER SERVICES
The Funds offer a number of shareholder services designed to facilitate
investment in their respective shares at little or no extra cost to the
investor. Below is a description of such services. The following information
supplements the section in each Fund's Prospectus captioned "Shareholder
Services."
INVESTMENT ACCOUNT
Each shareholder of each Fund has an investment account under which the
investor's shares of the Fund are held by Investor Services, the Funds' transfer
agent. Investor Services performs bookkeeping, data processing and
administrative services related to the maintenance of shareholder accounts.
Except as described in the Prospectus and this Statement of Additional
Information, after each share transaction in an account, the shareholder
receives a statement showing the activity in the account. Each shareholder who
has an account in any of the Participating Funds (as defined in the Funds'
Prospectuses) will receive statements quarterly from Investor Services showing
any reinvestments of dividends and capital gains dividends and any other
activity in the account since the preceding statement. Such shareholders also
will receive separate confirmations for each purchase or sale transaction other
than reinvestment of dividends and capital gains dividends and systematic
purchases or redemptions. Additions to an investment account may be made at any
time by purchasing shares through authorized dealers or by mailing a check
directly to Investor Services.
SHARE CERTIFICATES
Generally, a Fund will not issue share certificates. However, upon written
or telephone request to such Fund, a share certificate will be issued
representing shares (with the exception of fractional shares) of the Fund. A
shareholder will be required to surrender such certificates upon an exchange or
redemption thereof. In addition, if such certificates are lost the shareholder
must write to Van Kampen Funds Inc. c/o Investor Services, PO Box 218256, Kansas
City, MO 64121-8256, requesting an "affidavit of loss" and obtain a Surety Bond
in a form acceptable to Investor Services. On the date the letter is received,
Investor Services will calculate a fee for replacing the lost certificate equal
to no more than 2.00% of the net asset value of the issued shares, and bill the
party to whom the replacement certificate was mailed.
RETIREMENT PLANS
Eligible investors may establish individual retirement accounts ("IRAs");
SEP; 401(k) plans; Section 403(b)(7) plans in the case of employees of public
school systems and certain non-profit organizations; or other pension or profit
sharing plans. Documents and forms containing detailed information regarding
these plans are available from the Distributor. Van Kampen Trust Company serves
as custodian under the IRA, 403(b)(7) and Keogh plans. Details regarding fees,
as well as full plan administration for profit sharing, pension and 401(k)
plans, are available from the Distributor.
AUTOMATED CLEARING HOUSE ("ACH") DEPOSITS
Holders of Class A Shares can use ACH to have redemption proceeds deposited
electronically into their bank accounts. Redemptions transferred to a bank
account via the ACH plan are available to be credited to the account on the
second business day following normal payment. In order to utilize this option,
the shareholder's bank must be a member of ACH. In addition, the shareholder
must fill out the appropriate section of the account application. The
shareholder must also include a voided check or deposit slip from the bank
account into which redemptions are to be deposited together with the completed
application. Once Investor Services has received the application and the voided
check or deposit slip, such shareholder's designated bank account, following any
redemption, will be credited with the proceeds of such redemption. Once enrolled
in the ACH plan, a shareholder may terminate participation at any time by
writing Investor Services.
DIVIDEND DIVERSIFICATION
A shareholder may, upon written request or by completing the appropriate
section of the application form accompanying the Prospectus or by calling (800)
341-2911 ((800) 421-2833 for the hearing impaired), elect to have all dividends
and other distributions paid on a class of shares of a Fund invested into shares
of the same class of any Participating Fund so long as the investor has a
pre-existing account for such class of shares of the other fund. Both accounts
must be of the same type, either non-retirement or retirement. If the accounts
are retirement accounts, they must both be for the same class and of the same
type of retirement plan (e.g. IRA, 403(b)(7), 401(k), Keogh) and for the benefit
of the same individual. If a qualified, pre-existing account does not exist, the
shareholder must establish a new account subject to minimum investment and other
requirements of the fund into which distributions would be invested.
Distributions are invested into the selected fund at its net asset value per
share as of the payable date of the distribution.
SYSTEMATIC WITHDRAWAL PLAN
Any investor whose shares in a single account total $10,000 or more at the
next computed net asset value per share after receipt of instructions may
establish a monthly, quarterly, semi-annual or annual withdrawal plan. Any
investor whose shares in a
46
<PAGE>
single account total $5,000 or more at the next computed net asset value per
share after receipt of instructions may establish a quarterly, semiannual or
annual withdrawal plan. This plan provides for the orderly use of the entire
account, not only the income but also the capital, if necessary. Each withdrawal
constitutes a redemption of shares on which any capital gain or loss will be
recognized. The planholder may arrange for monthly, quarterly, semiannual or
annual checks in any amount, not less than $25. Such a systematic withdrawal
plan may also be maintained by an investor purchasing shares for a retirement
plan established on a form made available by such Fund. See "Shareholder
Services -- Retirement Plans."
Class B shareholders and Class C shareholders who establish a withdrawal
plan may redeem up to 12% annually of the shareholder's initial account balance
without incurring a contingent deferred sales charge. Initial account balance
means the amount of the shareholder's investment at the time the election to
participate in the plan is made.
Under the plan, sufficient shares of the applicable Fund are redeemed to
provide the amount of the periodic withdrawal payment. Dividends and capital
gains dividends on shares held under the plans are reinvested in additional
shares at the next determined net asset value per share. If periodic withdrawals
continuously exceed reinvested dividends and capital gains dividends, the
shareholder's original investment will be correspondingly reduced and ultimately
exhausted. Withdrawals made concurrently with the purchase of additional shares
ordinarily will be disadvantageous to the shareholder because of the duplication
of sales charges. Any gain or loss realized by the shareholder upon redemption
of shares is a taxable event. Each Fund reserves the right to amend or terminate
the systematic withdrawal program on 30 days' notice to its shareholders.
EXCHANGE PRIVILEGE
The following information supplements the section in the Prospectus under
the same heading. Beginning December 1, 1999, all shareholders will be limited
to eight (8) exchanges per fund during a rolling 365-day period.
Exchange privileges will be suspended on a particular fund if more than
eight (8) exchanges out of that fund are made during a rolling 365-day period.
If exchange privileges are suspended, subsequent exchange requests will not be
processed. Exchange privileges will be restored when the account history shows
fewer than eight (8) exchanges in the rolling 365-day period.
This policy change does not apply to money market funds, systematic exchange
plans, or employer-sponsored retirement plans.
REINSTATEMENT PRIVILEGE
A Class A shareholder or Class B shareholder who has redeemed shares of a
Fund may reinstate any portion or all of the net proceeds of such redemption in
Class A Shares of such Fund. A Class C shareholder who has redeemed shares of
the Fund may reinstate any portion or all of the net proceeds of such redemption
in Class C Shares of the Fund with credit given for any contingent deferred
sales charge paid upon such redemption. Such reinstatement is made at the net
asset value per share (without sales charge) next determined after the order is
received, which must be within 180 days after the date of the redemption.
Reinstatement at net asset value per share is also offered to participants in
those eligible retirement plans held or administered by Van Kampen Trust Company
for repayment of principal (and interest) on their borrowings on such plans.
REDEMPTION OF SHARES
Redemptions are not made on days during which the New York Stock Exchange
(the "Exchange") is closed. The right of redemption may be suspended and the
payment therefor may be postponed for more than seven days during any period
when (a) the Exchange is closed for other than customary weekends or holidays;
(b) the SEC determines trading on the Exchange is restricted; (c) the SEC
determines an emergency exists as a result of which disposal by a Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for such Fund to fairly determine the value of its net assets; or
(d) the SEC, by order, so permits.
Additionally, if the Board of Directors determines that payment wholly or
partly in cash would be detrimental to the best interests of the remaining
shareholders of a Fund, such Fund may pay the redemption proceeds in whole or in
part by a distribution-in-kind of portfolio securities held by the Fund in lieu
of cash in conformity with applicable rules of the SEC. Upon the sale of
portfolio securities so received in payment of redemptions, shareholders may
incur brokerage charges and a gain or loss for federal income tax purposes.
CONTINGENT DEFERRED SALES CHARGE -- CLASS A ("CDSC -- CLASS A")
As described in the Company's Prospectuses under "Purchase of Shares --
Class A Shares," there is no sales charge payable on Class A Shares at the time
of purchase on investments of $1 million or more, but a contingent deferred
sales charge ("CDSC -- Class A Shares") may be imposed on certain redemptions
made within one year of purchase. For purposes of the CDSC-Class A, when shares
of one fund are exchanged for shares of another fund, the purchase date for the
shares of the fund exchanged into will be assumed to be the date on which shares
were purchased in the fund from which the exchange was made. If
47
<PAGE>
the exchanged shares themselves are acquired through an exchange, the purchase
date is assumed to carry over from the date of the original election to purchase
shares subject to a CDSC-Class A rather than a front-end load sales charge. In
determining whether a CDSC-Class A is payable, it is assumed that shares held
the longest are the first to be redeemed.
WAIVER OF CLASS B AND CLASS C CONTINGENT DEFERRED SALES CHARGE ("CDSC-CLASS B
AND C")
As described in the Company's Prospectuses under "Redemption of Shares,"
redemptions of Class B Shares and Class C Shares will be subject to a contingent
deferred sales charge. The CDSC-Class B and C is waived on redemptions of
Class B Shares and Class C Shares in the circumstances described below:
REDEMPTION UPON DEATH OR DISABILITY
A Fund will waive the CDSC-Class B and C on redemptions following the death
or disability of a Class B shareholder and Class C shareholder. An individual
will be considered disabled for this purpose if he or she meets the definition
thereof in Section 72(m)(7) of the Internal Revenue Code of 1986, as amended
(the "Code"), which in pertinent part defines a person as disabled if such
person "is unable to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which can be expected to
result in death or to be of long-continued and indefinite duration." While the
Funds do not specifically adopt the balance of the Code's definition which
pertains to furnishing the Secretary of Treasury with such proof as he or she
may require, the Distributor will require satisfactory proof of death or
disability before it determines to waive the CDSC-Class B and C.
In cases of death or disability, the CDSC-Class B and C will be waived where
the decedent or disabled person is either an individual shareholder or owns the
shares as a joint tenant with right of survivorship or is the beneficial owner
of a custodial or fiduciary account, and where the redemption is made within one
year of the death or initial determination of disability. This waiver of the
CDSC-Class B and C applies to a total or partial redemption, but only to
redemptions of shares held at the time of the death or initial determination of
disability.
REDEMPTION IN CONNECTION WITH CERTAIN DISTRIBUTIONS FROM RETIREMENT PLANS
A Fund will waive the CDSC-Class B and C when a total or partial redemption
is made in connection with certain distributions from retirement plans. The
charge will be waived upon the tax-free rollover or transfer of assets to
another retirement plan invested in one or more Participating Funds; in such
event, as described below, the Fund will "tack" the period for which the
original shares were held on to the holding period of the shares acquired in the
transfer or rollover for purposes of determining what, if any, CDSC-Class B and
C is applicable in the event that such acquired shares are redeemed following
the transfer or rollover. The charge also will be waived on any redemption which
results from the return of an excess contribution pursuant to Section
408(d)(4) or (5) of the Code, the return of excess deferral amounts pursuant to
Code Section 401(k)(8) or 402(g)(2), the financial hardship of the employee
pursuant to Treasury Regulation Section 401(k)-1(d)(2), or from the death or
disability of the employee (see Code Section 72(m)(7) and 72(t)(2)(A)(ii)). In
addition, the charge will be waived on any minimum distribution required to be
distributed in accordance with Code Section 401(a)(9).
The Funds do not intend to waive the CDSC-Class B and C for any
distributions from IRAs or other retirement plans not specifically described
above.
REDEMPTION PURSUANT TO A FUND'S SYSTEMATIC WITHDRAWAL PLAN
A shareholder may elect to participate in a systematic withdrawal plan with
respect to the shareholder's investment in a Fund. Under the plan, a dollar
amount of a participating shareholder's investment in the Fund will be redeemed
systematically by the Fund on a periodic basis, and the proceeds mailed to the
shareholder. The amount to be redeemed and frequency of the systematic
withdrawals will be specified by the shareholder upon his or her election to
participate in the plan. The CDSC-Class B and C will be waived on redemptions
made under the plan.
The amount of the shareholder's investment in a Fund at the time the
election to participate in the plan is made with respect to the Fund is
hereinafter referred to as the "initial account balance." The amount to be
systematically redeemed from the Fund without the imposition of a CDSC-Class B
and C may not exceed a maximum of 12% annually of the shareholder's initial
account balance. The Fund reserves the right to change the terms and conditions
of the plan and the ability to offer the plan.
NO INITIAL COMMISSION OR TRANSACTION FEE
A Fund will waive the CDSC-Class B and C in circumstances under which no
commission or transaction fee is paid to authorized dealers at the time of
purchase of shares.
48
<PAGE>
INVOLUNTARY REDEMPTIONS OF SHARES
Each Fund reserves the right to redeem shareholder accounts with balances of
less than a specified dollar amount as set forth in the Company's Prospectuses.
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. Each Fund will waive the CDSC-Class B and C
upon such involuntary redemption.
REINVESTMENT OF REDEMPTION PROCEEDS
A shareholder who has redeemed Class C Shares of a Fund may reinvest at net
asset value, with credit for any CDSC-Class C paid on the redeemed shares, any
portion or all of his or her redemption proceeds (plus that amount necessary to
acquire a fractional share to round off his or her purchase to the nearest full
share) in Class C Shares of the Fund, provided that the reinvestment is effected
within 180 days after such redemption and the shareholder has not previously
exercised this reinvestment privilege with respect to Class C Shares of the
Fund. Shares acquired in this manner will be deemed to have the original cost
and purchase date of the redeemed shares for purposes of applying the
CDSC-Class C to subsequent redemptions.
REDEMPTION BY ADVISER
A Fund may waive the CDSC-Class B and C when a total or partial redemption
is made by the Adviser with respect to its investments in such Fund.
TAXATION
FEDERAL INCOME TAXATION
The Company and each of its series will be treated as separate corporations
for federal income tax purposes. The Funds have each elected and qualified, and
intend to continue to qualify each year, to be treated as regulated investment
companies under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"). To qualify as a regulated investment company, each Fund must
comply with certain requirements of the Code relating to, among other things,
the source of its income and diversification of its assets.
If a Fund so qualifies and distributes each year to its shareholders at
least 90% of its net investment income (including taxable income and net
short-term capital gain, but not net capital gain, which is the excess of net
long-term capital gain over net short-term capital loss), it will not be
required to pay federal income taxes on any income distributed to shareholders.
Each Fund intends to distribute at least the minimum amount of net investment
income necessary to satisfy the 90% distribution requirement. A Fund will not be
subject to federal income tax on any net capital gain distributed to
shareholders.
In order to avoid a 4% excise tax, each Fund will be required to distribute,
by December 31st of each year, at least an amount equal to the sum of (i) 98% of
its ordinary income for such year and (ii) 98% of its capital gain net income
(the latter of which generally is computed on the basis of the one-year period
ending on October 31st of such year), plus any amounts that were not distributed
in previous taxable years. For purposes of the excise tax, any ordinary income
or capital gain net income retained by, and subject to federal income tax in the
hands of, a Fund will be treated as having been distributed.
If a Fund failed to qualify as a regulated investment company or failed to
satisfy the 90% distribution requirement in any taxable year, such Fund would be
taxed as an ordinary corporation on its taxable income (even if such income were
distributed to its shareholders) and all distributions out of earnings and
profits would be taxed to shareholders as ordinary income. To qualify again as a
regulated investment company in a subsequent year, such Fund may be required to
pay an interest charge on 50% of its earnings and profits attributable to
non-regulated investment company years and would be required to distribute such
earnings and profits to shareholders (less any interest charge). In addition, if
the Fund failed to qualify as a regulated investment company for its first
taxable year or, if immediately after qualifying as a regulated investment
company for any taxable year, it failed to qualify for a period greater than one
taxable year, the Fund would be required to recognize any net built-in gains
(the excess of aggregate gains, including items of income, over aggregate losses
that would have been realized if it had been liquidated) in order to qualify as
a regulated investment company in a subsequent year.
Some of the Funds' investment practices are subject to special provisions of
the Code that, among other things, may defer the use of certain losses of a Fund
and affect the holding period of the securities held by such Fund and the
character of the gains or losses realized by the Fund. These provisions may also
require the Fund to recognize income or gain without receiving cash with which
to make distributions in amounts necessary to satisfy the 90% distribution
requirement and the distribution requirements for avoiding income and excise
taxes. Each Fund will monitor its transactions and may make certain tax
elections in order to mitigate the effect of these rules and prevent
disqualification as a regulated investment company.
Investments of a Fund in securities issued at a discount or providing for
deferred interest or payment of interest in kind are subject to special tax
rules that will affect the amount, timing and character of distributions to
shareholders. For example, with respect to securities issued at a discount, a
Fund will be required to accrue as income each year a portion of the discount
and to
49
<PAGE>
distribute such income each year in order to maintain its qualification as a
regulated investment company and to avoid income and excise taxes. In order to
generate sufficient cash to make distributions necessary to satisfy the 90%
distribution requirement and to avoid income and excise taxes, such Fund may
have to dispose of securities that it would otherwise have continued to hold.
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 regulated investment company that holds stock of a PFIC
will be subject to federal income tax on (i) a portion of any "excess
distribution" received on such stock or (ii) any gain from a sale or disposition
of such stock (collectively, "PFIC income"), plus interest on such amounts, even
if the regulated investment company distributes the PFIC income as a taxable
dividend to its shareholders. The balance of the PFIC income will be included in
the regulated investment company's investment company taxable income and,
accordingly, will not be taxable to it to the extent that income is distributed
to its shareholders. If 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, such Fund would be required to include in income each year its pro
rata share of the qualified electing fund's annual ordinary earnings and net
capital gain, which most likely would have to be distributed to satisfy the 90%
distribution requirement and the distribution requirement for avoiding income
and excise taxes. In most instances it will be very difficult to make this
election due to certain requirements imposed with respect to the election.
As an alternative to making the above-described election to treat the PFIC
as a qualified electing fund, a Fund may make an election to annually
mark-to-market PFIC stock that it owns (a "PFIC Mark-to-Market Election").
"Marking-to-market," in this context, means recognizing as ordinary income or
loss each year an amount equal to the difference between such 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. A Fund may be required to
include in its taxable income for the first taxable year in which it makes a
PFIC Mark-to-Market Election an amount equal to the interest charge that would
otherwise accrue with respect to distributions on, or dispositions of, the PFIC
stock. This amount would not be deductible from the Fund's taxable income. The
PFIC Mark-to-Market Election applies to the taxable year for which made and to
all subsequent taxable years, unless the Internal Revenue Service ("IRS")
consents to revocation of the election. By making the PFIC Mark-to-Market
Election, the Fund could ameliorate the adverse tax consequences arising from
its ownership of PFIC stock, but in any particular year may be required to
recognize income in excess of the distributions it receives from the PFIC and
proceeds from the dispositions of PFIC stock.
DISTRIBUTIONS
Distributions of a Fund's net investment income are taxable to shareholders
as ordinary income to the extent of such Fund's earnings and profits, whether
paid in cash or reinvested in additional shares. Distributions of a Fund's net
capital gain ("capital gain dividends"), if any, are taxable to shareholders as
long-term capital gain regardless of the length of time shares of such Fund have
been held by such shareholders. Distributions in excess of the Fund's earnings
and profits will first reduce the adjusted tax basis of a holder's shares and,
after such adjusted tax basis is reduced to zero, will constitute capital gain
to such holder (assuming such shares are held as a capital asset). For a summary
of the tax rates applicable to capital gains (including capital gain dividends),
see "Capital Gains Rates" below. Tax-exempt shareholders not subject to federal
income tax on their income generally will not be taxed on distributions from a
Fund.
Shareholders receiving distributions in the form of additional shares issued
by a Fund will be treated for federal income tax purposes as receiving a
distribution in an amount equal to the fair market value of the shares received,
determined as of the distribution date. The basis of such shares will equal the
fair market value on the distribution date.
Each Fund will inform shareholders of the source and tax status of all
distributions promptly after the close of each calendar year. Some portion of
the distributions from a Fund may be eligible for the dividends received
deduction for corporations if such Fund receives qualifying dividends during the
year and if certain other requirements of the Code are satisfied.
Although dividends generally will be treated as distributed when paid,
dividends declared in October, November or December, payable to shareholders of
record on a specified date in such month and paid during January of the
following year will be treated as having been distributed by a Fund and received
by the shareholders on the December 31st prior to the date of payment. In
addition, certain other distributions made after the close of a taxable year of
a Fund may be "spilled back" and treated as paid by such Fund (except for
purposes of the 4% excise tax) during such taxable year. In such case,
shareholders will be treated as having received such dividends in the taxable
year in which the distribution was actually made.
Income from investments in foreign securities received by a Fund may be
subject to income, withholding or other taxes imposed by foreign countries and
U.S. possessions. Tax conventions between certain countries and the United
States may reduce or eliminate such taxes. Shareholders of a Fund may be
entitled to claim United States foreign tax credits with respect to such taxes,
subject to certain provisions and limitations contained in the Code. If more
than 50% in value of a Fund's total assets at the close of its fiscal year
consists of securities of foreign issuers and such Fund meets certain holding
period requirements with respect to the securities, the Fund will be eligible to
file, and may file, elections with the IRS pursuant to which shareholders of
such Fund will be required (i) to include their respective pro rata portions of
such taxes in their United States income tax returns
50
<PAGE>
as gross income and (ii) to treat such respective pro rata portions as taxes
paid by them. Each shareholder will be entitled, subject to certain limitations,
either to deduct his pro rata portion of such foreign taxes in computing his
taxable income or to credit them against his United States federal income taxes.
No deduction for such foreign taxes may be claimed by a shareholder who does not
itemize deductions. Each shareholder of a Fund that may be eligible to file the
election described in this paragraph will be notified annually whether the
foreign taxes paid by such Fund will "pass through" for that year and, if so,
such notification will designate (i) the shareholder's portion of the foreign
taxes paid to each country and (ii) the portion of dividends that represent
income derived from sources within each country. The amount of foreign taxes for
which a shareholder may claim a credit in any year will be subject to an overall
limitation such that the credit may not exceed the shareholder's United States
federal income tax attributable to the shareholder's foreign source taxable
income. This limitation generally applies separately to certain specific
categories of foreign source income including "passive income," which includes
dividends and interest. Because application of the foregoing rules depends on
the particular circumstances of each shareholder, shareholders are advised to
consult their tax advisers.
Certain foreign currency gains or losses attributable to currency exchange
rate fluctuations are treated as ordinary income or loss. Such income or loss
may increase or decrease (or possibly eliminate) a Fund's income available for
distribution. If, under the rules governing the tax treatment of foreign
currency gains and losses, such Fund's income available for distribution is
decreased or eliminated, all or a portion of the dividends declared by the Fund
may be treated for federal income tax purposes as a return of capital or, in
some circumstances, as capital gain. Generally, a shareholder's tax basis in
Fund shares will be reduced to the extent that an amount distributed to such
shareholder is treated as a return of capital.
SALE OF SHARES
The sale of shares (including transfers in connection with a redemption or
repurchase of shares) will be a taxable transaction for federal income tax
purposes. Selling shareholders will generally recognize gain or loss in an
amount equal to the difference between their adjusted tax basis in the shares
and the amount received. If such shares are held as a capital asset, the gain or
loss will be a capital gain or loss. For a summary of the tax rates applicable
to capital gains, see "Capital Gains Rates" below. Any loss recognized upon a
taxable disposition of shares held for six months or less will be treated as a
long-term capital loss to the extent of any capital gain dividends received with
respect to such shares. For purposes of determining whether shares have been
held for six months or less, the holding period is suspended for any periods
during which the shareholder's risk of loss is diminished as a result of holding
one or more other positions in substantially similar or related property or
through certain options or short sales.
CAPITAL GAINS RATES
The maximum tax rate applicable to net capital gains recognized by
individuals and other non-corporate taxpayers is (i) the same as the maximum
ordinary income tax rate for capital assets held for one year or less or (ii)
20% for capital assets held for more than one year. The maximum long-term
capital gains rate for corporations is 35%.
NON-U.S. SHAREHOLDERS
A shareholder who is not (i) a citizen or resident of the United States,
(ii) a corporation or partnership created or organized under the laws of the
United States or any state thereof, (iii) an estate, the income of which is
subject to United States federal income taxation regardless of its source or
(iv) a trust whose administration is subject to the primary supervision of a
United States court and which has one or more United States fiduciaries who have
the authority to control all substantial decisions of the trust (a "Non-U.S.
Shareholder") generally will be subject to withholding of United States federal
income tax at a 30% rate (or lower applicable treaty rate) on dividends from the
Fund (other than capital gain dividends) that are not "effectively connected"
with a United States trade or business carried on by such shareholder.
Accordingly, investment in certain Funds that invest primarily in debt
securities or securities of foreign issuers is likely to be appropriate for a
Non-U.S. Shareholder only if such person can utilize a foreign tax credit or
corresponding tax benefit in respect of such United States withholding tax.
Non-effectively connected capital gain dividends and gains realized from the
sale of shares will not be subject to United States federal income tax in the
case of (i) a Non-U.S. Shareholder that is a corporation and (ii) a Non-U.S.
Shareholder that is not present in the United States for more than 182 days
during the taxable year (assuming that certain other conditions are met).
However, certain Non-U.S. Shareholders may nonetheless be subject to backup
withholding on capital gain dividends and gross proceeds paid to them upon the
sale of their shares. See "Backup Withholding" below.
If income from a Fund or gains realized from the sale of shares is
effectively connected with a Non-U.S. Shareholder's United States trade or
business, then such amounts will be subject to United States federal income tax
on a net basis at the tax rates applicable to United States citizens or domestic
corporations. Non-U.S. Shareholders that are corporations may also be subject to
an additional "branch profits tax" with respect to income from the Fund that is
effectively connected with a United States trade or business.
51
<PAGE>
Final United States Treasury Regulations, effective for payments made after
December 31, 2000, modify the withholding, backup withholding and information
reporting rules, including the procedures to be followed by Non-U.S.
Shareholders in establishing foreign status. Prospective investors should
consult their tax advisers concerning the applicability and effect of such
Treasury Regulations on an investment in shares of a Fund.
The tax consequences to a Non-U.S. Shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described in
this section. Non-U.S. Shareholders may be required to provide appropriate
documentation to establish their entitlement to the benefits of such a treaty.
Foreign investors are advised to consult their tax advisers with respect to the
tax implications of purchasing, holding and disposing of shares of a Fund.
BACKUP WITHHOLDING
A Fund may be required to withhold federal income tax at a rate of 31%
("backup withholding") from dividends and redemption proceeds paid to
non-corporate shareholders. This tax may be withheld from dividends if (i) the
shareholder fails to furnish such Fund with its correct taxpayer identification
number, (ii) the IRS notifies the Fund that the shareholder has failed to
properly report certain interest and dividend income to the IRS and to respond
to notices to that effect or (iii) when required to do so, the shareholder fails
to certify that he or she is not subject to backup withholding. Redemption
proceeds may be subject to withholding under the circumstances described in (i)
above.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules from payments made to a Shareholder may be refunded or
credited against such shareholder's United States federal income tax liability,
if any, provided that the required information is furnished to the IRS.
INFORMATION REPORTING
Each Fund must report annually to the IRS and to each shareholder the amount
of dividends paid to such shareholder and the amount, if any, of tax withheld
with respect to such dividends. In the case of a Non-U.S. Shareholder, this
information may also be made available to the tax authorities in such Non-U.S.
Shareholder's country of residence.
GENERAL
The federal income tax discussion set forth above is for general information
only. Prospective investors should consult their advisors regarding the specific
federal tax consequences of purchasing, holding and disposing of shares, as well
as the effects of state, local and foreign tax law and any proposed tax law
changes.
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 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>
52
<PAGE>
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, 1999 for the one, three and five year
periods ended June 30, 1999 and for the period from the inception of each Fund
through June 30, 1999 are as follows:
<TABLE>
<CAPTION>
ONE-YEAR FIVE-YEAR INCEPTION
INCEPTION PERIOD ENDED PERIOD ENDED THROUGH
DATE JUNE 30, 1999 JUNE 30, 1999 JUNE 30, 1999
--------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Global Equity Allocation Fund
Class A Shares.......................................... 01/04/93 8.41% 15.09% 14.76%
Class B Shares(1)....................................... 08/01/95 7.50 N/A 15.41
Class C Shares(1)....................................... 01/04/93 7.61 14.23 13.92
Global Fixed Income Fund
Class A Shares.......................................... 01/04/93 0.95 5.38 5.44
Class B Shares(1)....................................... 08/01/95 .05 N/A 3.04
Class C Shares(1)....................................... 01/04/93 .05 4.53 4.61
Asian Growth Fund
Class A Shares.......................................... 06/23/93 75.69 (4.76) 0.20
Class B Shares(1)....................................... 08/01/95 74.48 N/A (8.57)
Class C Shares(1)....................................... 06/23/93 74.13 (5.50) (.55)
American Value Fund
Class A Shares.......................................... 10/18/93 17.41 21.59 18.47
Class B Shares(1)....................................... 08/01/95 16.50 N/A 21.74
Class C Shares(1)....................................... 10/18/93 16.55 20.66 17.56
Worldwide High Income Fund
Class A Shares.......................................... 04/21/94 (11.14) 8.87 9.12
Class B Shares(1)....................................... 08/01/95 (11.82) N/A 8.34
Class C Shares(1)....................................... 04/21/94 (11.83) 8.04 8.27
Emerging Markets Fund
Class A Shares.......................................... 07/06/94 23.92 N/A (1.39)
Class B Shares(1)....................................... 08/01/95 22.99 N/A (0.25)
Class C Shares(1)....................................... 07/06/94 23.09 N/A (2.09)
Latin American Fund
Class A Shares.......................................... 07/06/94 3.00 N/A 7.52
Class B Shares(1)....................................... 08/01/95 2.47 N/A 14.69
Class C Shares(1)....................................... 07/06/94 2.28 N/A 6.70
Aggressive Equity Fund
Class A Shares.......................................... 01/02/96 25.57 N/A 30.80
Class B Shares.......................................... 01/02/96 24.59 N/A 29.85
Class C Shares.......................................... 01/02/96 24.67 N/A 29.85
High Yield & Total Return Fund
Class A Shares.......................................... 05/01/96 1.90 N/A 9.60
Class B Shares.......................................... 05/01/96 1.28 N/A 8.80
Class C Shares.......................................... 05/01/96 1.28 N/A 8.80
International Magnum Fund
Class A Shares.......................................... 07/01/96 (5.54) N/A 6.28
Class B Shares.......................................... 07/01/96 (6.28) N/A 5.48
Class C Shares.......................................... 07/01/96 (6.25) N/A 5.47
Japanese Equity Fund
Class A Shares.......................................... N/A -- -- --
Class B Shares.......................................... N/A -- -- --
Class C Shares.......................................... N/A -- -- --
Growth and Income Fund II
Class A Shares.......................................... N/A -- -- --
Class B Shares.......................................... N/A -- -- --
Class C Shares.......................................... N/A -- -- --
European Equity Fund
Class A Shares.......................................... 9/25/98 N/A N/A 6.75
Class B Shares.......................................... 9/25/98 N/A N/A 6.26
Class C Shares.......................................... 9/25/98 N/A N/A 5.96
Equity Growth Fund
Class A Shares.......................................... 5/29/98 21.90 N/A 23.10
Class B Shares.......................................... 5/29/98 21.14 N/A 22.29
Class C Shares.......................................... 5/29/98 21.04 N/A 22.20
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
ONE-YEAR FIVE-YEAR INCEPTION
INCEPTION PERIOD ENDED PERIOD ENDED THROUGH
DATE JUNE 30, 1999 JUNE 30, 1999 JUNE 30, 1999
--------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Global Equity Fund
Class A Shares.......................................... 10/29/97 4.05% N/A 9.24%
Class B Shares.......................................... 10/29/97 3.29 N/A 8.45
Class C Shares.......................................... 10/29/97 3.39 N/A 8.45
Emerging Markets Debt Fund
Class A Shares.......................................... N/A -- -- --
Class B Shares.......................................... N/A -- -- --
Class C Shares.......................................... N/A -- -- --
Mid Cap Growth Fund
Class A Shares.......................................... N/A -- -- --
Class B Shares.......................................... N/A -- -- --
Class C Shares.......................................... N/A -- -- --
Value Fund
Class A Shares.......................................... 7/7/97 5.83 N/A 6.34
Class B Shares.......................................... 7/7/97 5.02 N/A 5.57
Class C Shares.......................................... 7/7/97 5.13 N/A 5.53
Global Franchise Fund
Class A Shares.......................................... 9/25/98 N/A N/A 21.22
Class B Shares.......................................... 9/25/98 N/A N/A 20.40
Class C Shares.......................................... 9/25/98 N/A N/A 21.40
</TABLE>
- ------------------
The Emerging Markets Debt, Growth and Income II, Japanese Equity and Mid Cap
Growth Funds had not commenced operations in the fiscal year ended June 30,
1999.
(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.
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, 1999 were as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
FUND NAME SHARES SHARES SHARES
- --------- -------- -------- --------
<S> <C> <C> <C>
Global Fixed Income Fund 2.76% 2.14% 2.14%
Worldwide High Income Fund 11.18% 10.97% 10.97%
High Yield & Total Return Fund 8.52% 8.18% 8.18%
</TABLE>
COMPARISONS
To help investors better evaluate how an investment in a Fund 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.
54
<PAGE>
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.
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 research firms such as
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. 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 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
views 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
55
<PAGE>
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 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 a 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.
OTHER INFORMATION
CUSTODY OF ASSETS
Chase serves as the Company's custodian.
SHAREHOLDER REPORTS
Semiannual statements are furnished to shareholders, and annually such
statements are audited by the independent accountants.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 200 E. Randolph Street, Chicago, Illinois 60601,
the independent accountants for the Funds, performs an annual audit of each
Fund's financial statements.
LEGAL COUNSEL
Counsel to the Funds is Skadden, Arps, Slate, Meagher & Flom (Illinois).
56
<PAGE>
APPENDIX A -- DESCRIPTION OF SECURITIES RATINGS
STANDARD & POOR'S -- A brief description of the applicable Standard & Poor's
(S&P) rating symbols and their meanings (as published by S&P) follow:
A S&P corporate or municipal debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees.
The debt rating is not a recommendation to purchase, sell, or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished by the issuer or obtained
by S&P from other sources it considers reliable. S&P does not perform an audit
in connection with any rating and may, on occasion, rely on unaudited financial
information. The ratings may be changed, suspended, or withdrawn as a result of
changes in, or unavailability of, such information, or based on other
circumstances.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of payment -- capacity and willingness of the obligor to meet its
financial commitment on an obligation in accordance with the terms of the
obligation:
2. Nature of and provisions of the obligation:
3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditor's rights.
1. LONG-TERM DEBT -- INVESTMENT GRADE
AAA: Debt rated "AAA" has the highest rating assigned by S&P. Capacity to meet
its financial commitment on the obligation is extremely strong.
AA: Debt rated "AA" differs from the highest rated issues only in small degree.
Capacity to meets its financial commitment on the obligation is very strong.
A: Debt rated "A" is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than obligations in higher rated
categories. Capacity to meet its financial commitment on the obligation is still
strong.
BBB: Debt rated "BBB" exhibits adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to meet its financial commitment on the obligation.
SPECULATIVE GRADE
BB, B, CCC, CC, C: Debts rated "BB", "B", "CCC", "CC" and "C" are regarded as
having significant speculative characteristics. "BB" indicates the least degree
of speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
BB: Debt rated "BB" is less vulnerable to nonpayment than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
B: Debt rated "B" is more vulnerable to nonpayment than obligations rated "BB",
but the obligor currently has the capacity to meet its financial commitment on
the obligation. Adverse business, financial, or economic conditions will likely
impair the obligor's capacity or willingness to meet its financial commitment on
the obligation.
CCC: Debt rated "CCC" is currently vulnerable to nonpayment, and is dependent
upon favorable business, financial, and economic conditions for the obligor to
meet its financial commitment on the obligation. In the event of adverse
business, financial, or economic conditions, the obligor is not likely to have
A-1
<PAGE>
the capacity to meet its financial commitment on the obligation.
CC: Debt rated "CC" is currently highly vulnerable to nonpayment.
C: the "C" rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments on this obligation
are being continued.
D: Debt rated "D" is in payment default. The "D" rating category is used when
payments on an obligation are not made on the date due even if the applicable
grace period has not expired, unless S&P believes that such payments will be
made during such grace period. The "D" rating also will be used upon the filing
of a bankruptcy petition or the taking of a similar action if payments on an
obligation are jeopardized.
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
r: This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk -- such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
DEBT OBLIGATIONS OF ISSUERS OUTSIDE THE UNITED STATES AND ITS TERRITORIES are
rated on the same basis as domestic corporate and municipal issues. The ratings
measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.
BOND INVESTMENT QUALITY STANDARDS: Under present commercial bank regulations
issued by the Comptroller of the Currency, bonds rated in the top four
categories ("AAA", "AA", "A", "BBB", commonly known as "investment grade"
ratings) are generally regarded as eligible for bank investment. In addition,
the laws of various states governing legal investments impose certain ratings or
other standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.
2. COMMERCIAL PAPER
A S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.
Ratings are graded into several categories, ranging from "A-1" for the highest
quality obligations to "D" for the lowest. These categories are as follows:
A-1: The highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
A-3: Issues carrying this designation have adequate capacity for timely payment.
They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B: Issues rated "B" are regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
C: This rating is assigned to short-term debt obligations currently vulnerable
to nonpayment and is dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on the obligation.
D: Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired,
A-2
<PAGE>
unless S&P believes that such payments will be made during such grace period.
The "D" rating also will be used upon the filing of a bankruptcy petition or the
taking of a similar action if payments on an obligation are jeopardized.
A commercial paper rating is not a recommendation to purchase, sell or hold a
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained from other sources it considers reliable. S&P does
not perform an audit in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed, suspended or
withdrawn as a result of changes in, or unavailability of, such information, or
based on other circumstances.
3. PREFERRED STOCK
A S&P preferred stock rating is an assessment of the capacity and willingness of
an issuer to pay preferred stock dividends and any applicable sinking fund
obligations. A preferred stock rating differs from a bond rating inasmuch as it
is assigned to an equity issue, which issue is intrinsically different from, and
subordinated to, a debt issue. Therefore, to reflect this difference, the
preferred stock rating symbol will normally not be higher than the bond rating
symbol assigned to, or that would be assigned to, the senior debt of the same
issuer.
The preferred stock ratings are based on the following considerations:
i. Likelihood of payment-capacity and willingness of the issuer to meet the
timely payment of preferred stock dividends and any applicable sinking fund
requirements in accordance with the terms of the obligation.
ii. Nature of, and provisions of, the issuer.
iii. Relative position of the issue in the event of bankruptcy, reorganization,
or other arrangements under the laws of bankruptcy and other laws affecting
creditors' rights.
AAA: This is the highest rating that may be assigned by S&P to a preferred stock
issue and indicates an extremely strong capacity to pay the preferred stock
obligations.
AA: A preferred stock issue rated "AA" also qualifies as a high-quality, fixed
income security. The capacity to pay preferred stock obligations is very strong,
although not as overwhelming as for issues rated "AAA".
A: An issue rated "A" is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
BBB: An issue rated "BBB" is regarded as backed by an adequate capacity to pay
the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the "A" category.
BB, B and CCC: Preferred stock rated "BB", "B", and "CCC" are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay preferred stock obligations.
"BB" indicates the lowest degree of speculation and "CCC" the highest. While
such issues will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
CC: The rating "CC" is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments, but that is currently paying.
C: A preferred stock rated "C" is a nonpaying issue.
D: A preferred stock rated "D" is a nonpaying issue with the issuer in default
on debt instruments.
NR: This indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy. PLUS (+) or MINUS (-): To provide more
detailed indications of preferred stock quality, ratings
A-3
<PAGE>
from "AA" to "CCC" may be modified by the addition of a plus or minus sign to
show relative standing within the major rating categories.
A preferred stock rating is not a recommendation to purchase, sell, or hold a
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained by S&P from other sources it considers reliable.
S&P does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended, or withdrawn as a result of changes in, or unavailability of, such
information, or based on other circumstances.
MOODY'S INVESTORS SERVICE -- a brief description of the applicable Moody's
Investors Service (Moody's) rating symbols and their meanings (as published by
Moody's Investors Service) follows:
1. LONG-TERM DEBT
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than the Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payment
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
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 market shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the issue ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.
A-4
<PAGE>
ABSENCE OF RATING: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not rated as a
matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published in
Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
2. SHORT-TERM DEBT
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations. These obligations have an original maturity
not exceeding one year unless explicitly noted.
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issues:
Issuers rated Prime-1 (or supporting institutions) have a superior ability for
repayment or senior short-term debt obligations. Prime-1 repayment ability will
often be evidenced by many of the following characteristics:
- -- Leading market positions in well-established industries.
- -- High rates of return on funds employed.
- -- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
- -- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- -- Well-established access to a range of financial markets and assured sources
of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability for
repayment of senior short-term debt obligations. This will normally be evidenced
by many of the characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or supporting institutions) have an acceptable ability
for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes of the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
3. PREFERRED STOCK
Preferred stock rating symbols and their definitions are as follows:
AAA: An issue which is rated "AAA" is considered to be a top-quality preferred
stock. This rating indicates good asset protection and the least risk of
dividend impairment within the universe of preferred stocks.
AA: An issue which is rated "AA" is considered a high-grade preferred stock.
This rating indicates that there is a reasonable assurance the earnings and
asset protection will remain relatively well maintained in the foreseeable
future.
A: An issue which is rated "A" is considered to be an upper-medium-grade
preferred stock. While risks are judged to be somewhat greater than in the "AAA"
and "AA" classifications, earnings and asset protections are, nevertheless,
expected to be maintained at adequate levels.
A-5
<PAGE>
BAA: An issue which is rated "BAA" is considered to be a medium-grade preferred
stock, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any great
length of time.
BA: An issue which is rated "BA" is considered to have speculative elements and
its future cannot be considered well assured. Earnings and asset protection may
be very moderate and not well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.
B: An issue which is rated "B" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
CAA: An issue which is rated "CAA" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future status
of payments.
CA: An issue which is rated "CA" is speculative in a high degree and is likely
to be in arrears on dividends with little likelihood of eventual payment.
C: This is the lowest rated class of preferred or preference stock. Issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Moody's applies numerical modifiers 1, 2 and 3 in each rating classification.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category, the modifier 2 indicates a mid-range ranking, and the
modifier 3 indicates that the issue ranks in the lower end of its generic rating
category.
A-6
<PAGE>
VAN KAMPEN AMERICAN VALUE FUND
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of Van Kampen Series Fund, Inc. --
Van Kampen American Value Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Van Kampen American Value Fund (the
"Fund", a fund of Van Kampen Series Fund, Inc.) at June 30, 1999, the results of
its operations, the changes in its net assets, and the financial highlights for
each of the periods presented, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at June 30, 1999 by correspondence with the custodian
and brokers, provide a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
200 E. Randolph Dr.
Chicago, Illinois 60601
August 6, 1999
F-1
<PAGE>
VAN KAMPEN AMERICAN VALUE FUND
PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- --------------------------------------------------------------------
COMMON STOCKS (89.0%)
AEROSPACE (0.8%)
(a)Alliant TechSystems, Inc........ 29,800 $ 2,578
(a)Gulfstream Aerospace Corp....... 64,900 4,385
--------
6,963
--------
BANKING (3.3%)
Bank United Corp. 'A'.............. 105,200 4,228
Comerica, Inc...................... 74,200 4,410
Greenpoint Financial Corp.......... 101,700 3,337
Hudson United Bancorp.............. 117,900 3,610
Mellon Bank Corp................... 143,700 5,227
Mercantile Bankshares Corp......... 44,600 1,578
New England Community Bancorp,
Inc. 'A'......................... 39,800 1,097
Prime Bancshares, Inc.............. 117,200 2,095
TCF Financial Corp................. 67,400 1,879
Western Bancorp.................... 10,000 435
--------
27,896
--------
BUILDING (1.4%)
Vulcan Materials Co................ 36,500 1,761
York International Corp............ 236,900 10,142
--------
11,903
--------
CAPITAL GOODS (11.0%)
(a)Aeroflex, Inc................... 265,900 5,251
(a)Asyst Technologies, Inc......... 193,400 5,790
(a)Atmel Corp...................... 160,600 4,206
Cummins Engine Co., Inc............ 147,300 8,414
(a)Electronics for Imaging, Inc.... 149,500 7,680
Flowserve Corp..................... 218,200 4,132
Manitowoc Co., Inc................. 58,550 2,437
(a)Mentor Graphics Corp............ 346,200 4,436
New Holland N.V.................... 913,400 15,642
(a)PRI Automation, Inc............. 44,100 1,599
(a)Republic Services, Inc. 'A'..... 146,500 3,626
(a)Safety-Kleen Corp............... 244,575 4,433
Stewart & Stevenson Services,
Inc.............................. 618,100 9,426
Tecumseh Products Co. 'A'.......... 47,500 2,877
Titan International, Inc........... 91,000 1,081
(a)Tower Automotive, Inc........... 487,800 12,408
--------
93,438
--------
CHEMICALS (3.3%)
Lubrizol Corp...................... 105,800 2,883
M.A. Hanna Co...................... 214,900 3,532
Quaker Chemical Corp............... 17,400 283
(a)W.R. Grace & Co................. 429,000 7,883
Wellman, Inc....................... 530,300 8,452
Witco Corp......................... 260,300 5,206
--------
28,239
--------
COMMUNICATIONS (6.8%)
A. Schulman, Inc................... 85,500 1,469
ADTRAN, Inc........................ 210,500 7,657
(a)Advanced Radio Telecom Corp..... 1,200 17
(a)Aerial Communications, Inc...... 63,500 857
Cincinnati Bell, Inc............... 143,200 3,571
(a)Digital Microwave Corp.......... 142,400 1,816
(a)General Instrument Corp......... 151,000 6,417
(a)GST Telecommunications, Inc..... 2,000 26
(a)IDT Corp........................ 131,200 2,919
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
(a)ITC DeltaCom, Inc............... 69,600 $ 1,949
(a)Journal Register Co............. 56,400 1,269
(a)Pacific Gateway Exchange,
Inc.............................. 109,400 3,186
(a)Powerwave Technologies, Inc..... 275,000 8,869
(a)QUALCOMM, Inc................... 37,600 5,396
(a)RCN Corp........................ 41,800 1,740
(a)Saville Systems plc ADR......... 66,900 970
(a)VoiceStream Wireless Corp....... 220,200 6,262
(a)Winstar Communications, Inc..... 69,000 3,364
--------
57,754
--------
COMPUTERS (5.0%)
(a)BEA Systems, Inc................ 248,100 7,086
(a)Complete Business Solutions..... 25,500 458
(a)GenRad, Inc..................... 281,100 5,850
(a)Goto.com, Inc................... 17,600 493
(a)Network Solutions, Inc. 'A'..... 20,300 1,606
(a)Networks Associates, Inc........ 358,400 5,264
(a)Pinnacle Systems, Inc........... 404,700 13,608
Ryder Systems, Inc................. 90,200 2,345
(a)SanDisk Corp.................... 10,600 477
(a)SoftNet Systems, Inc............ 112,400 3,133
(a)WorldGate Communications,
Inc.............................. 37,200 1,907
--------
42,227
--------
CONSUMER--DURABLES (1.3%)
Arvin Industries, Inc.............. 15,300 579
Earthgrains Co..................... 90,200 2,328
Michael Foods, Inc................. 72,300 1,699
(a)Splash Technology Holdings,
Inc.............................. 149,900 1,054
(a)Sybron International Corp....... 185,600 5,116
--------
10,776
--------
CONSUMER--RETAIL (6.2%)
(a)Action Performance Cos., Inc.... 55,900 1,845
(a)American Eagle Outfitters,
Inc.............................. 34,000 1,547
(a)Ames Department Stores, Inc..... 137,500 6,273
(a)Ann Taylor Stores Corp.......... 109,000 4,905
Bausch & Lomb, Inc................. 23,400 1,790
(a)Blyth Industries, Inc........... 115,300 3,963
Callaway Golf Co................... 82,500 1,207
Casey's General Stores, Inc........ 140,300 2,104
Claire's Stores, Inc............... 73,500 1,883
(a)Dress Barn, Inc................. 151,800 2,429
(a)Sunglass Hut International,
Inc.............................. 1,031,600 17,731
Tandy Corp......................... 64,400 3,148
(a)Zale Corp....................... 104,800 4,192
--------
53,017
--------
CONSUMER--SERVICE & GROWTH (1.8%)
(a)NOVA Corp....................... 23,000 575
(a)Quanta Services, Inc............ 303,800 13,367
(a)School Specialty, Inc........... 89,900 1,444
--------
15,386
--------
CONSUMER STAPLES (1.9%)
Alpharma, Inc...................... 167,500 5,957
(a)800-JR Cigar, Inc............... 101,400 1,255
(a)Fresh Del Monte Produce, Inc.... 479,400 6,772
(a)General Cigar Holdings, Inc..... 121,400 948
(a)Omega Protein Corp.............. 238,500 1,252
--------
16,184
--------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE>
VAN KAMPEN AMERICAN VALUE FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
ELECTRIC (1.9%)
(a)Cherry Corp..................... 2,600 $ 37
DPL, Inc........................... 152,600 2,804
(a)Electroglas, Inc................ 70,000 1,400
Florida Progress Corp.............. 26,900 1,111
(a)LTX Corp........................ 115,400 1,536
Potomac Electric Power Co.......... 321,400 9,461
--------
16,349
--------
ENERGY (6.5%)
(a)BJ Services Co.................. 179,400 5,281
Black Hills Corp................... 2,700 63
Energy East Corp................... 129,700 3,372
(a)Global Marine, Inc.............. 761,000 11,748
(a)Grey Wolf, Inc.................. 134,400 336
Illinova Corp...................... 394,400 10,747
MCN Corp........................... 33,700 699
Minnesota Power & Light Co......... 61,100 1,214
Nicor, Inc......................... 14,700 560
(a)Ocean Energy, Inc............... 639,924 6,159
(a)Smith International, Inc........ 126,000 5,473
Suburban Propane Partners, L.P..... 38,000 741
Sunoco, Inc........................ 46,400 1,401
Union Pacific Resources Group,
Inc.............................. 124,200 2,026
Valero Energy Corp................. 197,000 4,223
(a)Wisconsin Energy Corp........... 36,400 912
--------
54,955
--------
ENTERTAINMENT (2.3%)
(a)Bally Total Fitness Holdings
Co............................... 686,500 19,480
(a)Imax Corp....................... 9,300 209
--------
19,689
--------
FINANCIAL SERVICES (4.3%)
(a)Billing Concepts Corp........... 127,500 1,426
Federated Investors, Inc........... 176,900 3,173
Heller Financial, Inc.............. 355,300 9,882
Hospitality Properties, Inc........ 316,500 8,585
Investors Financial Services
Corp............................. 49,800 1,992
(a)Knight/Trimark Group, Inc.
'A'.............................. 86,600 5,283
Reliastar Financial Corp........... 139,600 6,107
--------
36,448
--------
HEALTH CARE (6.1%)
(a)Amerisource Health Corp. 'A'.... 85,900 2,190
(a)Centocor, Inc................... 103,900 4,844
(a)Coulter Pharmaceutical, Inc..... 66,300 1,496
(a)Coventry Health Care, Inc....... 189,900 2,077
(a)Del Global Technologies Corp.... 600,400 5,854
(a)Guilford Pharmaceuticals,
Inc.............................. 181,000 2,308
(a)Henry Schein, Inc............... 113,600 3,600
ICN Pharmaceuticals, Inc........... 198,600 6,392
(a)MedImmune, Inc.................. 21,100 1,430
(a)MedPartners, Inc................ 530,900 4,015
(a)Mid Atlantic Medical Services,
Inc.............................. 265,000 2,617
Teva Pharmaceutical Industries Ltd.
ADR.............................. 100,700 4,934
(a)Trigon Healthcare, Inc.......... 245,700 8,937
(a)VISX, Inc....................... 16,200 1,283
--------
51,977
--------
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
INDUSTRIAL (2.4%)
(a)Cooper Cameron Corp............. 190,700 $ 7,068
(a)Global Industries Ltd........... 396,400 5,079
(a)Nabors Industries, Inc.......... 253,600 6,197
(a)Precision Drilling Corp......... 97,100 1,851
ProLogis Trust..................... 9,600 195
--------
20,390
--------
INSURANCE (1.6%)
Allmerica Financial Corp........... 41,500 2,524
American Medical Security Group.... 241,300 2,081
Everest Reinsurance Holdings,
Inc.............................. 87,400 2,851
Nationwide Health Properties,
Inc.............................. 16,300 311
Reinsurance Group of America,
Inc.............................. 85,400 3,010
XL Capital Ltd. 'A'................ 42,600 2,407
--------
13,184
--------
METALS (2.7%)
Agnico-Eagle Mines Ltd............. 169,600 1,049
Ashann Goldfields.................. 140,300 973
Barrick Gold Corp.................. 158,000 3,061
(a)Lone Star Technologies, Inc..... 27,600 490
(a)Mueller Industries, Inc......... 87,400 2,966
(a)Steel Dynamics, Inc............. 148,400 2,296
(a)Stillwater Mining Co............ 82,950 2,712
Tosco Corp......................... 359,700 9,330
--------
22,877
--------
PAPER & PACKAGING (1.1%)
Boise Cascade Corp................. 23,600 1,015
(a)Valassis Communications, Inc.... 231,050 8,462
--------
9,477
--------
REAL ESTATE (5.4%)
AMB Property Corp.................. 598,900 14,074
Arden Realty Group, Inc............ 210,500 5,184
(a)Cadillac Fairview Corp.......... 21,700 410
Cousins Properties, Inc............ 50,100 1,694
Crescent Real Estate Equities Co.
REIT............................. 235,100 5,584
Developers Diversified Realty
Corp............................. 155,700 2,588
Duke Realty Investment, Inc.
REIT............................. 207,900 4,691
First Washinton Realty Trust,
Inc.............................. 35,000 818
Glenborough Realty Trust, Inc...... 26,500 464
JDN Realty Corp.................... 57,000 1,275
Lasalle Hotel Properties REIT...... 36,100 553
Liberty Property Trust REIT........ 48,600 1,209
Manufactured Home Communities, Inc.
REIT............................. 58,500 1,521
(a)NBTY, Inc....................... 382,700 2,487
Newhall Land & Farming Co., L.P.... 28,800 709
Radian Group, Inc.................. 29,700 1,450
Simon Property Group, Inc.......... 49,300 1,251
(a)Wellsford Properties, Inc....... 5,250 56
--------
46,018
--------
RESTAURANTS (0.6%)
CKE Restaurants, Inc............... 240,100 3,902
(a)Friendly Ice Cream Corp......... 152,700 1,221
--------
5,123
--------
SERVICES (2.6%)
(a)AC Nielsen Corp................. 136,500 4,129
(a)Corinthian Colleges, Inc........ 29,000 547
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
VAN KAMPEN AMERICAN VALUE FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
</TABLE>
SERVICES (CONT.)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
(a)Innotrac Corp................... 48,600 $ 984
Luby's, Inc........................ 190,300 2,855
Ogden Corp......................... 26,800 722
Olsten Corp........................ 305,300 1,927
(a)Snyder Communications, Inc...... 180,700 5,918
(a)Tetra Technologies, Inc......... 525,900 4,832
--------
21,914
--------
TECHNOLOGY (2.6%)
Adobe Systems, Inc................. 21,800 1,791
(a)Barnesandnoble.com, Inc......... 57,300 1,031
(a)Galileo International, Inc...... 223,300 11,933
Galileo Technology Ltd............. 36,300 1,645
(a)Go2Net, Inc..................... 10,900 1,001
(a)Veritas DGC, Inc................ 135,500 2,481
(a)Webtrends, Inc.................. 42,200 1,947
--------
21,829
--------
TRANSPORTATION (4.5%)
Air Express International Corp..... 210,700 5,347
Canadian National Railway Co....... 42,900 2,874
CNF Transportation, Inc............ 75,700 2,905
(a)Gaylord Container Corp. 'A'..... 1,303,100 10,343
(a)Jevic Transportation, Inc....... 15,000 208
(a)Navistar International Corp..... 99,800 4,990
SkyWest, Inc....................... 59,100 1,474
Teekay Shipping Corp............... 70,400 1,241
(a)U.S. Xpress Enterprises, Inc.
'A'.............................. 55,700 595
Wabash National Corp............... 372,800 7,223
Wisconsin Central Transportation
Corp............................. 78,700 1,486
--------
38,686
--------
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
UTILITIES (1.6%)
Allegheny Energy, Inc.............. 84,100 $ 2,697
CalEnergy Co., Inc................. 207,400 7,181
Eastern Entreprises................ 15,500 616
Montana Power Co................... 26,000 1,833
Public Service Co. of New Mexico... 45,200 898
SJW Corp........................... 5,300 422
--------
13,647
--------
TOTAL LONG-TERM INVESTMENTS (89.0%) (COST $674,747)..... 756,346
--------
<CAPTION>
PAR
VALUE
(000)
---------
SHORT-TERM INVESTMENT (12.5%)
<S> <C> <C>
REPURCHASE AGREEMENT (12.5%)
Chase Securities, Inc., 4.55%, dated $ 106,601
6/30/99, due 7/1/99, to be repurchased
at $106,614, collateralized by $111,955
Federal National Mortgage Association,
5.125%, due 2/13/04, valued at $109,546
(COST $106,601)................................... 106,601
--------
TOTAL INVESTMENTS (101.5%) (COST $781,348).............. 862,947
LIABILITIES IN EXCESS OF OTHER ASSETS (-1.5%)........... (12,684)
--------
NET ASSETS (100%)....................................... $850,263
========
</TABLE>
- ---------------
<TABLE>
<S> <C> <C>
(a) -- Non-income producing security
ADR -- American Depositary Receipt
REIT -- Real Estate Investment Trust
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
VAN KAMPEN AMERICAN VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
(000)
- ---------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments at Value (Cost $781,348) (including repurchase
agreement of $106,601).................................. $ 862,947
Cash...................................................... 7
Receivable for:
Investments Sold........................................ 24,576
Fund Shares Sold........................................ 4,800
Dividends............................................... 351
Interest................................................ 14
Other..................................................... 27
---------
Total Assets............................................ 892,722
---------
LIABILITIES:
Payable for:
Investments Purchased................................... 37,629
Fund Shares Redeemed.................................... 3,038
Distribution Fees....................................... 871
Investment Advisory Fees................................ 521
Administrative Fees..................................... 154
Transfer Agent Fees..................................... 93
Shareholder Reporting Expenses.......................... 64
Professional Fees....................................... 40
Custody Fees............................................ 26
Directors' Fees and Expenses............................ 21
Other..................................................... 2
---------
Total Liabilities....................................... 42,459
---------
NET ASSETS................................................ $ 850,263
=========
NET ASSETS CONSIST OF:
Capital Stock at Par ($.001 par value, Shares Authorized
2,625,000,000).......................................... $ 36
Paid in Capital in Excess of Par.......................... 730,047
Unrealized Appreciation on Investments.................... 81,599
Accumulated Net Realized Gain............................. 38,603
Accumulated Net Investment Loss........................... (22)
---------
NET ASSETS.................................................. $ 850,263
=========
CLASS A SHARES:
Net Asset Value and Redemption Price Per Share (Based on
Net Assets of $343,003,465 and 14,545,320 Shares
Outstanding)............................................ $ 23.58
=========
Maximum Sales Charge...................................... 5.75%
Maximum Offering Price Per Share (Net Asset Value Per
Share X 100 / (100 - maximum sales charge))............. $ 25.02
=========
CLASS B SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $341,908,423 and 14,721,507 Shares
Outstanding)*........................................... $ 23.23
=========
CLASS C SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $165,351,391 and 7,116,164 Shares
Outstanding)*........................................... $ 23.24
=========
</TABLE>
- ---------------
<TABLE>
<S> <C>
* Redemption price may be subject to a contingent deferred
sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
VAN KAMPEN AMERICAN VALUE FUND
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1999
<TABLE>
(000)
- ---------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividends................................................. $ 6,513
Interest.................................................. 3,071
---------
Total Income............................................. 9,584
---------
EXPENSES:
Investment Advisory Fees.................................. 5,367
Distribution Fees (Attributed to Classes A, B, and C of
$540, $2,840, and $1,313, respectively)................. 4,693
Administrative Fees....................................... 1,590
Transfer Agent Fees....................................... 326
Custodian Fees............................................ 197
Shareholder Reports....................................... 170
Professional Fees......................................... 82
Filing and Registration Fees.............................. 67
Directors' Fees and Expenses.............................. 16
Other..................................................... 17
---------
Total Expenses........................................... 12,525
---------
Net Investment Income/Loss............................... (2,941)
---------
NET REALIZED GAIN/LOSS ON:
Investments............................................... 44,491
---------
NET UNREALIZED APPRECIATION/DEPRECIATION:
Beginning of the Period................................... 16,746
---------
End of the Period
Investments............................................. 81,599
---------
Net Unrealized Appreciation/Depreciation During the
Period.................................................... 64,853
---------
Net Realized Gain/Loss and Net Unrealized
Appreciation/Depreciation................................. 109,344
---------
NET INCREASE/DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................................ $ 106,403
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
VAN KAMPEN AMERICAN VALUE FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1999 JUNE 30, 1998
(000) (000)
<S> <C> <C>
- --------------------------------------------------------------------------------------------------
INCREASE/DECREASE IN NET ASSETS
OPERATIONS:
Net Investment Income/Loss................................ $ (2,941) $ (1,791)
Net Realized Gain/Loss.................................... 44,491 45,496
Net Unrealized Appreciation/Depreciation.................. 64,853 4,044
------------- -------------
Net Increase/Decrease in Net Assets Resulting from
Operations.............................................. 106,403 47,749
------------- -------------
DISTRIBUTIONS:
In Excess of Net Investment Income:
Class A................................................... -- (122)
Class B................................................... -- (29)
Class C................................................... -- (25)
------------- -------------
-- (176)
------------- -------------
Net Realized Gain:
Class A................................................... (12,659) (5,303)
Class B................................................... (17,437) (5,203)
Class C................................................... (7,981) (3,629)
------------- -------------
(38,077) (14,135)
------------- -------------
Net Decrease in Net Assets Resulting from Distributions... (38,077) (14,311)
------------- -------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed................................................ 344,367 558,778
Distributions Reinvested.................................. 31,597 12,507
Redeemed.................................................. (211,364) (69,473)
------------- -------------
Net Increase/Decrease in Net Assets Resulting from Capital
Share Transactions...................................... 164,600 501,812
------------- -------------
Total Increase/Decrease in Net Assets..................... 232,926 535,250
NET ASSETS--Beginning of Period............................. 617,337 82,087
------------- -------------
NET ASSETS--End of Period (Including
accumulated/distributions in excess of net investment
income/loss of $(22) and $(6), respectively).............. $ 850,263 $ 617,337
============= =============
- --------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
(1) Class A:
Shares:
Subscribed............................................. 8,979 9,937
Distributions Reinvested............................... 579 269
Redeemed............................................... (5,327) (1,843)
------------- -------------
Net Increase/Decrease in Class A Shares Outstanding...... 4,231 8,363
============= =============
Dollars:
Subscribed............................................. $ 190,079 $ 205,042
Distributions Reinvested............................... 11,025 5,049
Redeemed............................................... (104,033) (37,455)
------------- -------------
Net Increase/Decrease.................................... $ 97,071 $ 172,636
============= =============
Ending Paid in Capital................................... $ 295,061+ $ 197,990
============= =============
Class B:
Shares:
Subscribed............................................. 4,895 12,495
Distributions Reinvested............................... 769 239
Redeemed............................................... (3,673) (875)
------------- -------------
Net Increase/Decrease in Class B Shares Outstanding...... 1,991 11,859
============= =============
Dollars:
Subscribed............................................. $ 98,965 $ 257,479
Distributions Reinvested............................... 14,494 4,461
Redeemed............................................... (70,265) (18,025)
------------- -------------
Net Increase/Decrease.................................... $ 43,194 $ 243,915
============= =============
Ending Paid in Capital................................... $ 301,083+ $ 257,889
============= =============
Class C:
Shares:
Subscribed............................................. 2,707 4,675
Distributions Reinvested............................... 322 160
Redeemed............................................... (1,921) (671)
------------- -------------
Net Increase/Decrease in Class C Shares Outstanding...... 1,108 4,164
============= =============
Dollars:
Subscribed............................................. $ 55,323 $ 96,257
Distributions Reinvested............................... 6,078 2,997
Redeemed............................................... (37,066) (13,993)
------------- -------------
Net Increase/Decrease.................................... $ 24,335 $ 85,261
============= =============
Ending Paid in Capital................................... $ 134,054+ $ 109,719
============= =============
</TABLE>
- ---------------
<TABLE>
<S> <C>
+ Ending Paid in Capital amounts do not reflect permanent book
to tax differences.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
VAN KAMPEN AMERICAN VALUE FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
CLASS A CLASS B
------------------------------------------------- -----------------------------
YEAR ENDED JUNE 30, YEAR ENDED JUNE 30,
------------------------------------------------- -----------------------------
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# 1997 1996 1995 1999# 1998# 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.... $ 21.339 $ 17.59 $ 14.63 $ 12.89 $ 11.70 $ 21.196 $ 17.59 $ 14.63
-------- -------- ------- ------- ------- -------- -------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss............ 0.006 (0.02) 0.20 0.27 0.27 (0.142) (0.17) 0.09
Net Realized and Unrealized
Gain/Loss........................... 3.437 4.84 4.05 1.94 1.44 3.371 4.83 4.05
-------- -------- ------- ------- ------- -------- -------- -------
Total from Investment Operations...... 3.443 4.82 4.25 2.21 1.71 3.229 4.66 4.14
-------- -------- ------- ------- ------- -------- -------- -------
DISTRIBUTIONS
Net Investment Income................. -- (0.03) (0.20) (0.27) (0.28) -- (0.01) (0.09)
In Excess of Net Investment Income.... -- (0.00)++ (0.00)++ (0.01) -- -- (0.00)++ (0.00)++
Net Realized Gain..................... (1.200) (1.04) (1.09) (0.19) (0.24) (1.200) (1.04) (1.09)
-------- -------- ------- ------- ------- -------- -------- -------
Total Distributions................... (1.200) (1.07) (1.29) (0.47) (0.52) (1.200) (1.05) (1.18)
-------- -------- ------- ------- ------- -------- -------- -------
NET ASSET VALUE, END OF PERIOD.......... $ 23.582 $ 21.34 $ 17.59 $ 14.63 $ 12.89 $ 23.225 $ 21.20 $ 17.59
======== ======== ======= ======= ======= ======== ======== =======
TOTAL RETURN (1)........................ 17.41% 28.26% 30.68% 17.41% 15.01% 16.50% 27.30% 29.77%
======== ======== ======= ======= ======= ======== ======== =======
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)....... $343,004 $220,100 $34,331 $19,674 $20,675 $341,908 $269,836 $15,331
Ratio of Expenses to Average Net
Assets................................ 1.49% 1.50% 1.50% 1.50% 1.50% 2.24% 2.25% 2.25%
Ratio of Net Investment Income/Loss to
Average Net Assets.................... 0.03% (0.09)% 1.25% 1.90% 2.29% (0.72)% (0.84)% 0.40%
Portfolio Turnover Rate................. 283% 207% 73% 41% 23% 283% 207% 73%
- ---------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net Investment
Income/Loss......................... $ -- $ 0.02 $ 0.04 $ 0.04 $ 0.05 $ -- $ 0.02 $ 0.06
Ratios Before Expense Limitation:
Expenses to Average Net Assets........ -- 1.58% 1.76% 1.81% 1.96% -- 2.33% 2.48%
Net Investment Income/Loss to Average
Net Assets.......................... -- (0.18)% 0.98% 1.59% 1.83% -- (0.93)% 0.14%
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
---------------
AUGUST 1, 1995+
TO JUNE 30,
SELECTED PER SHARE DATA AND RATIOS 1996
- ----------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD.... $ 13.37
---------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss............ 0.15
Net Realized and Unrealized
Gain/Loss........................... 1.46
---------------
Total from Investment Operations...... 1.61
---------------
DISTRIBUTIONS
Net Investment Income................. (0.15)
In Excess of Net Investment Income.... (0.01)
Net Realized Gain..................... (0.19)
---------------
Total Distributions................... (0.35)
---------------
NET ASSET VALUE, END OF PERIOD.......... $ 14.63
===============
TOTAL RETURN (1)........................ 12.29%*
===============
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)....... $ 2,485
Ratio of Expenses to Average Net
Assets................................ 2.25%
Ratio of Net Investment Income/Loss to
Average Net Assets.................... 1.18%
Portfolio Turnover Rate................. 41%*
- ----------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net Investment
Income/Loss......................... $ 0.04
Ratios Before Expense Limitation:
Expenses to Average Net Assets........ 2.61%
Net Investment Income/Loss to Average
Net Assets.......................... 0.82%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
CLASS C
-------------------------------------------------------------
YEAR ENDED JUNE 30,
-------------------------------------------------------------
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 21.205 $ 17.59 $ 14.64 $ 12.89 $ 11.69
-------- -------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss................................ (0.142) (0.17) 0.08 0.16 0.17
Net Realized and Unrealized Gain/Loss..................... 3.373 4.83 4.05 1.94 1.44
-------- -------- ------- ------- -------
Total from Investment Operations.......................... 3.231 4.66 4.13 2.10 1.61
-------- -------- ------- ------- -------
DISTRIBUTIONS
Net Investment Income..................................... -- (0.01) (0.09) (0.15) (0.17)
In Excess of Net Investment Income........................ -- (0.00)++ (0.00)++ (0.01) --
Net Realized Gain......................................... (1.200) (1.04) (1.09) (0.19) (0.24)
-------- -------- ------- ------- -------
Total Distributions....................................... (1.200) (1.05) (1.18) (0.35) (0.41)
-------- -------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD.............................. $ 23.236 $ 21.20 $ 17.59 $ 14.64 $ 12.89
======== ======== ======= ======= =======
TOTAL RETURN (1)............................................ 16.55% 27.28% 29.67% 16.50% 14.13%
======== ======== ======= ======= =======
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)........................... $165,351 $127,401 $32,425 $21,193 $13,867
Ratio of Expenses to Average Net Assets..................... 2.24% 2.25% 2.25% 2.25% 2.25%
Ratio of Net Investment Income/Loss to Average Net Assets... (0.72)% (0.84)% 0.49% 1.17% 1.54%
Portfolio Turnover Rate..................................... 283% 207% 73% 41% 23%
- -------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net Investment Income/Loss........... $ -- $ 0.02 $ 0.04 $ 0.04 $ 0.05
Ratios Before Expense Limitation:
Expenses to Average Net Assets............................ -- 2.33% 2.47% 2.58% 2.71%
Net Investment Income/Loss to Average Net Assets.......... -- (0.92)% 0.22% 0.84% 1.08%
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
* Non-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.
# Changes per share are based upon monthly average shares
outstanding.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-8
<PAGE>
VAN KAMPEN AMERICAN VALUE FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
The Van Kampen American Value Fund (the "Fund") is organized as a separate
diversified fund of Van Kampen Series Fund, Inc., a Maryland Corporation, which
is registered as an open-end management investment company under the Investment
Company Act of 1940, as amended. The Fund's investment objective seeks high
total return by investing in equity securities of small-
to medium-sized corporations. The Fund commenced operations on October 18, 1993.
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 and Class C
shares are offered without a front end sales charge, but are subject to a
contingent deferred sales charge ("CDSC"). Class B shares will automatically
convert to Class A shares after the eighth year following purchase. The CDSC
will be imposed on most redemptions made within five years of the purchase for
Class B shares and one year of the purchase for Class C shares as detailed in
the following schedule:
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE
----------------------
YEAR OF REDEMPTION CLASS B CLASS C
- ------------------ -------- --------
<S> <C> <C>
First..................................... 5.00% 1.00%
Second.................................... 4.00% None
Third..................................... 3.00% None
Fourth.................................... 2.50% None
Fifth..................................... 1.50% None
Thereafter................................ None None
</TABLE>
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.
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. 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. 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. SECURITY TRANSACTIONS: Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements, which are short-term investments
in which the Fund acquires ownership of a debt security and the seller agrees to
repurchase the security at a future time and specified price. Repurchase
agreements are fully collateralized by the underlying debt security. 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.
3. INCOME AND EXPENSES: Dividend income is recorded on the ex-dividend date.
Interest income is recognized on an accrual basis except where collection is in
doubt. 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 Fund are recorded on the
ex-distribution date.
4. TAXES: It is the Fund's intention to qualify as a regulated investment
company and distribute substantially all of its taxable income. Accordingly, no
provision for U.S. Federal income taxes is required in the financial statements.
Net capital losses incurred after October 31 and within the taxable year are
deemed to arise on the first business day of the Fund's next taxable year. For
the period from November 1, 1998 to June 30, 1999 the Fund incurred and elected
to defer until July 1, 1999, for U.S. Federal income tax purposes, net capital
losses of approximately $599,000.
At June 30, 1999, cost and unrealized appreciation/ depreciation for U.S.
Federal income tax purposes of the investments of the Fund was:
<TABLE>
<CAPTION>
NET
APPRECIATION/
COST APPREC. DEPREC. DEPRECIATION
(000) (000) (000) (000)
- -------- -------- -------- -------------
<S> <C> <C> <C>
$783,848 $105,035 $(25,936) $79,099
</TABLE>
5. Distribution of Income and Gains: 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.
Permanent book to tax basis differences relating to shareholder distributions
may result in reclassification among accumulated net investment income/loss,
accumulated net realized gain/loss, and paid in capital. For the year ended June
30, 1999, approximately $2,810,000 has been reclassified from accumulated net
realized gain/loss and approximately $115,000 has been reclassified from paid in
capital, totaling approximately $2,925,000 posted to accumulated net investment
income/loss.
F-9
<PAGE>
VAN KAMPEN AMERICAN VALUE FUND
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
Permanent book to tax basis differences are not included in ending
undistributed/distributions in excess of net investment income for the purpose
of calculating net investment income/loss per share in the Financial Highlights.
B. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES: Van
Kampen Investment Advisory Corp. (the "Adviser"), a wholly owned subsidiary of
Van Kampen Investments Inc. (an indirect wholly owned subsidiary of Morgan
Stanley Dean Witter & Co.), Morgan Stanley Dean Witter Investment Management
Inc. ("MSDWIM" or a "Subadviser"), 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 Fund, 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
ADVISORY FEE EXPENSE RATIO EXPENSE RATIO
- ------------ -------------- --------------
<S> <C> <C>
0.85% 1.50% 2.25%
</TABLE>
For the year ended June 30, 1999, the Fund recognized expenses of approximately
$31,000 representing legal services provided by Skadden, Arps, Slate, Meagher &
Flom (Illinois), counsel to the Fund, of which a director of the Fund is an
affiliated person.
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 Fund, 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 Adviser.
Van Kampen Funds Inc. the ("Distributor") a wholly owned subsidiary of Van
Kampen Investments Inc., an indirect 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 Fund 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% of the Class B shares and Class C shares of the Fund, on
an annualized basis, of the average daily net assets attributable to each Class.
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 shares and Class C shares of the Fund
redeemed within one to five years following such purchase. For the year ended
June 30, 1999, the Distributor has advised the Fund that it earned initial sales
charges of $1,637,168 for Class A shares and deferred sales charges of $11,295,
$1,191,362, and $79,195 for Class A shares, Class B shares, and Class C shares,
respectively.
Certain officers and directors of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or directors who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its directors
who are not officers of Van Kampen. Under the deferred compensation plan,
Directors 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 Director's years of service to the Fund. The maximum annual
benefit per director under the plan is $2,500.
C. INVESTMENT TRANSACTIONS: For the year ended June 30, 1999, the Fund made
purchases of approximately $1,731,740,000 and sales of approximately
$1,633,241,000 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.
F-10
<PAGE>
VAN KAMPEN ASIAN GROWTH FUND
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of Van Kampen Series Fund, Inc.--
Van Kampen Asian Growth Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Van Kampen Asian Growth Fund (the
"Fund", a fund of Van Kampen Series Fund, Inc.) at June 30, 1999, the results of
its operations, the changes in its net assets and the financial highlights for
each of the periods presented, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at June 30, 1999 by correspondence with the custodian
and brokers, provide a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
200 E. Randolph Dr.
Chicago, Illinois 60601
August 6, 1999
F-11
<PAGE>
VAN KAMPEN ASIAN GROWTH FUND
PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- --------------------------------------------------------------------
COMMON STOCKS (91.5%)
HONG KONG (30.1%)
Asia Satellite Telecommunications
Holdings Ltd...................... 127,000 $ 299
Axa China Region Ltd................ 904,700 723
Cathay Pacific Airways Ltd.......... 920,000 1,411
Cheung Kong Holdings Ltd............ 733,000 6,519
China Telecom Ltd................... 458,000 1,272
Citic Pacific Ltd................... 396,400 1,265
CLP Holdings Ltd.................... 260,200 1,264
Cosco Pacific Ltd................... 776,200 645
Dao Heng Bank Group Ltd............. 384,900 1,726
Hengan International Group Co.,
Ltd............................... 1,220,000 617
Hong Kong & China Gas Co., Ltd...... 15,590 23
Hong Kong Telecommunications Ltd.... 2,432,900 6,319
Hutchison Whampoa Ltd............... 1,186,300 10,742
Johnson Electric Holdings Ltd....... 118,000 487
Kerry Properties Ltd................ 341,000 451
Li & Fung Ltd....................... 735,000 1,762
New World Development Co., Ltd...... 536,000 1,606
New World Infrastructure Ltd........ 281,550 530
(a)Shandong International Power
Development Co., Ltd.............. 1,626,000 367
SmarTone Telecommunications Holdings
Ltd............................... 572,900 2,038
Sun Hung Kai Properties Ltd......... 766,000 6,985
Swire Pacific Ltd. 'A'.............. 408,000 2,019
Television Broadcasts Ltd........... 505,000 2,369
Yanzhou Coal Mining Co., Ltd. 'H'... 1,052,000 377
--------
51,816
--------
INDIA (1.4%)
Castrol Ltd......................... 100 1
Digital Equipment Ltd............... 32,000 315
Hero Honda Motors Ltd............... 1,477 37
ICICI Ltd........................... 550,000 931
NIIT Ltd............................ 5,350 251
Reckitt & Coleman of India Ltd...... 550 6
SmithKline Beecham Consumer
Healthcare Ltd.................... 50 1
Software Solution Integrated Ltd.... 25,000 249
Tata Infotech Ltd................... 24,363 597
--------
2,388
--------
INDONESIA (2.2%)
PT Gudang Garam Tbk (Foreign)....... 570,500 1,549
PT Semen Gresik Tbk................. 270,500 589
PT Telekomunikasi Indonesia ADR..... 113,184 1,408
Unilever Indonesia Tbk (Foreign).... 34,200 199
--------
3,745
--------
KOREA (20.1%)
Daewoo Securities, Co............... 33,290 647
Good Morning Securities Co., Ltd.... 67,740 418
Hana Bank........................... 51,740 760
Hankuk Glass Industry Co., Ltd...... 16,740 448
Housing & Commercial Bank........... 57,530 1,814
Kookmin Bank........................ 33,060 671
(a)Kookmin Bank GDR................. 13,600 277
Koram Bank.......................... 59,960 751
Korea Chemical Co., Ltd............. 8,860 796
Korea Electric Power Corp........... 22,340 928
Korea Electric Power Corp. ADR...... 239,490 4,910
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
Korea Exchange Bank................. 138,110 $ 776
(b)Korea Telecom Corp............... 20,220 1,342
(a)Korea Telecom Corp. ADR.......... 97,900 3,916
LG Chemical Ltd..................... 17,390 473
LG Electronics...................... 37,810 1,045
Pohang Iron & Steel Co., Ltd. ADR... 44,900 1,510
(b)Pohang Iron & Steel Co., Ltd.
(Foreign)......................... 17,579 2,164
Samsung Electro-Mechanics Co........ 36,152 1,249
Samsung Electronics Co. (Foreign)... 49,376 5,418
Samsung Fire & Marine Insurance..... 2,642 1,860
(b)SK Telecom Co., Ltd.............. 604 829
SK Telecom Co., Ltd. ADR............ 39,920 679
SK Corp............................. 35,799 1,030
--------
34,711
--------
MALAYSIA (5.4%)
Carlsberg Brewery Malaysia Bhd...... 542,000 1,541
Commerce Asset-Holding Bhd.......... 199,000 492
Malayan Banking Bhd................. 445,400 1,336
Nestle Bhd.......................... 262,000 1,034
Public Bank Bhd..................... 643,000 489
Rothmans of Pall Mall Bhd........... 318,000 2,406
Telekom Malaysia Bhd................ 563,000 2,104
--------
9,402
--------
PHILIPPINES (2.1%)
(a)La Tondena Distillers, Inc....... 452,850 537
Manila Electric Co. 'B'............. 149,230 538
Philippine Long Distance Telephone
Co. 'B' ADR....................... 18,090 553
(a)Philippine National Bank......... 150,680 409
San Miguel Corp. 'B'................ 509,905 1,114
SM Prime Holdings, Inc. 'B'......... 1,891,680 428
--------
3,579
--------
SINGAPORE (9.9%)
(a)Asia Pulp & Paper Co., Ltd.
ADR............................... 40,500 390
City Developments Ltd............... 203,000 1,300
Gul Technologies.................... 333,000 317
NatSteel Electronics Ltd............ 378,000 1,654
Oversea-Chinese Banking Corp., Ltd.
(Foreign)......................... 204,000 1,702
Overseas Union Bank Ltd.
(Foreign)......................... 155,000 747
Parkway Holdings Ltd................ 210,000 518
Rothmans Industries Ltd............. 49,000 412
Sembcorp Logistics Ltd.............. 220,900 869
(a)Singapore Airlines Ltd........... 3,184,000 2,843
Singapore Press Holdings Ltd........ 144,200 2,456
Singapore Technology Engineering
Ltd............................... 553,000 627
United Overseas Bank Ltd.
(Foreign)......................... 187,000 1,307
Venture Manufacturing Ltd........... 256,800 1,976
--------
17,118
--------
TAIWAN (17.1%)
(a)Advanced Semiconductor
Engineering, Inc.................. 210,000 709
(a)Asia Cement Corp................. 360,000 323
Asustek Computer, Inc............... 268,396 3,025
Bank Sinopac........................ 910,000 634
Cathay Life Insurance Co., Ltd...... 226,000 812
China Steel Corp.................... 1,170,100 884
China Steel Corp. GDR............... 21,105 327
(a)Chinatrust Business Bank......... 654,000 786
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-12
<PAGE>
VAN KAMPEN ASIAN GROWTH FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
</TABLE>
TAIWAN (CONT.)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
Compal Electronics, Inc............. 339,218 $ 1,334
(a)Compeq Manufacturing Co., Ltd.... 62,700 355
(a)CTCI Corp........................ 284,000 337
(a)E. Sun Commercial Bank........... 853,000 475
(a)Evergreen Marine Corp............ 255,000 319
(a)Far Eastern International Bank... 860,000 315
(a)Far Eastern Textile Ltd.......... 1,117,343 1,660
First Commercial Bank............... 167,000 318
Formosa Chemicals & Fibre Corp...... 404,000 493
(a)Hon Hai Precision Industry....... 338,400 3,059
Hua Nan Commercial Bank............. 158,000 313
International Commercial Bank of
China............................. 714,000 924
Nan Ya Plastic Corp................. 713,000 1,181
(a)President Chain Store Corp....... 199,000 675
Quanta Computer Inc................. 57,120 684
Siliconware Precision Industries
Co................................ 327,696 624
(a)Taishin International Bank....... 1,178,000 875
(a)Taiwan Semiconductor Co.......... 1,565,935 5,987
(a)United Micro Electronics Corp.,
Ltd............................... 591,650 1,273
United World Chinese Commercial
Bank.............................. 302,000 467
Yang Ming Marine Transport.......... 481,000 313
--------
29,481
--------
THAILAND (3.2%)
Advanced Information Services Public
Co., Ltd. (Foreign)............... 99,800 1,353
BEC World Public Co., Ltd.
(Foreign)......................... 151,100 942
Delta Electronics Public Co., Ltd.
(Foreign)......................... 78,855 663
(b)Golden Land Property Development
Public Co., Ltd................... 745,000 439
Shin Corp. Public Co., Ltd.
(Foreign)......................... 40,300 188
Siam Cement Public Co., Ltd.
(Foreign)......................... 22,900 695
Siam City Cement Public Co., Ltd.
(Foreign)......................... 162,733 671
Thai Farmer's Bank Public Co., Ltd.
(Foreign)......................... 189,300 585
--------
5,536
--------
TOTAL COMMON STOCKS..................................... 157,776
--------
PREFERRED STOCK (0.1%)
THAILAND (0.1%)
(a)Siam Commercial Bank Public Co.,
Ltd. 5.25% (Foreign).............. 114,300 163
--------
<CAPTION>
NO. OF
RIGHTS
----------
RIGHT (0.0%)
<S> <C> <C>
KOREA (0.0%)
(a,b)SK Telecom Co., Ltd., expiring
7/27/99........................... 604 76
--------
<CAPTION>
NO. OF
WARRANTS
----------
WARRANTS (1.2%)
<S> <C> <C>
HONG KONG (0.3%)
(a)Credit Lyonnais HSBC Holdings,
expiring 10/13/99................. 919,000 462
--------
</TABLE>
<TABLE>
<CAPTION>
NO. OF VALUE
WARRANTS (000)
<S> <C> <C>
- --------------------------------------------------------------------
PHILIPPINES (0.2%)
(a)Jollibee Food, expiring
3/24/03........................... 536,000 $ 275
--------
SINGAPORE (0.3%)
(a)Oversea-Chinese Banking Corp.,
expiring 3/28/02.................. 708,000 528
--------
THAILAND (0.4%)
(a)Siam Commercial Bank Public Co.,
Ltd., expiring 5/10/02............ 1,066,300 686
--------
TOTAL WARRANTS........................................ 1,951
--------
<CAPTION>
PAR
VALUE
(000)
----------
CONVERTIBLE DEBENTURE (0.7%)
<S> <C> <C>
SINGAPORE (0.7%)
Finlayson Global Corp. 0.00%,
2/19/04........................... $ 780 1,178
--------
TOTAL LONG-TERM INVESTMENTS (93.5%) (COST $115,649)..... 161,144
--------
SHORT-TERM INVESTMENT (7.5%)
REPURCHASE AGREEMENT (7.5%)
Chase Securities, Inc., 4.55%, dated 12,988
6/30/99, due 7/1/99, to be repurchased
at $12,990 collateralized by $13,640
Federal National Mortgage
Association, 5.125%, due 2/13/04,
valued at $13,347 (COST $12,988)................ 12,988
--------
TOTAL INVESTMENTS IN SECURITIES (101.0%) (COST
$128,637)............................................... 174,132
--------
FOREIGN CURRENCY (0.7%) (COST $1,318)................... 1,310
--------
TOTAL INVESTMENTS (101.7%) (COST $129,955).............. 175,442
LIABILITIES IN EXCESS OF OTHER ASSETS (-1.7%)........... (3,023)
--------
NET ASSETS (100%)....................................... $172,419
========
</TABLE>
- ---------------
<TABLE>
<S> <C> <C>
(a) -- Non-income producing security
(b) -- Security valued at fair value -- see note A-1 to
financial statements.
ADR -- American Depositary Receipt
GDR -- Global Depositary Receipt
</TABLE>
- ----------------------------------------------------------------
SUMMARY OF LONG-TERM INVESTMENTS BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
- -------- -------- ----------
<S> <C> <C>
Finance................... $ 44,637 25.9%
Services.................. 37,762 21.9
Capital Equipment......... 26,971 15.6
Consumer Goods............ 17,049 9.9
Multi-Industry............ 14,345 8.3
Materials................. 12,350 7.2
Energy.................... 8,030 4.7
-------- ----
$161,144 93.5%
======== ====
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-13
<PAGE>
VAN KAMPEN ASIAN GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- ---------------------------------------------------------------------------
ASSETS:
Investments in Securities, at Value (Cost $128,637)....... $ 174,132
Foreign Currency (Cost $1,318)............................ 1,310
Receivable for:
Fund Shares Sold........................................ 2,168
Dividends............................................... 468
Investments Sold........................................ 327
Foreign Withholding Tax Reclaim......................... 41
Interest Receivable..................................... 2
Other..................................................... 38
---------
Total Assets.......................................... 178,486
---------
LIABILITIES:
Payable for:
Investments Purchased................................... 3,488
Fund Shares Redeemed.................................... 796
Deferred Country Tax.................................... 670
Bank Overdraft.......................................... 552
Custody Fees............................................ 157
Distribution Fees....................................... 155
Investment Advisory Fees................................ 99
Shareholder Reporting Expenses.......................... 35
Professional Fees....................................... 35
Administrative Fees..................................... 32
Transfer Agent Fees..................................... 32
Directors' Fees and Expenses............................ 14
Other..................................................... 2
---------
Total Liabilities..................................... 6,067
---------
NET ASSETS.................................................. $ 172,419
=========
NET ASSETS CONSIST OF:
Capital Stock at Par ($.001 par value, Shares Authorized
2,625,000,000).......................................... $ 15
Paid in Capital in Excess of Par.......................... 254,175
Net Unrealized Appreciation on Investments and Foreign
Currency Translations*.................................. 44,850
Accumulated Net Investment Loss........................... (25)
Accumulated Net Realized Loss............................. (126,596)
---------
NET ASSETS.................................................. $ 172,419
=========
CLASS A SHARES:
Net Asset Value and Redemption Price Per Share (Based on
Net Assets of $88,808,301 and 7,733,211 Shares
Outstanding)............................................ $ 11.48
=========
Maximum Sales Charge...................................... 5.75%
Maximum Offering Price Per Share (Net Asset Value Per
Share X 100/ (100 - maximum sales charge)).............. $ 12.18
=========
CLASS B SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $42,905,212 and 3,897,898 Shares
Outstanding)**.......................................... $ 11.01
=========
CLASS C SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $40,705,672 and 3,709,699 Shares
Outstanding)**.......................................... $ 10.97
=========
</TABLE>
- ---------------
<TABLE>
<S> <C>
* Net of accrual for deferred country tax of approximately
U.S. $632,000.
** Redemption price may be subject to a contingent deferred
sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-14
<PAGE>
VAN KAMPEN ASIAN GROWTH FUND
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- --------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends................................................. $ 2,517
Interest.................................................. 163
Less Foreign Taxes Withheld............................... (195)
--------
Total Income............................................. 2,485
--------
EXPENSES:
Investment Advisory Fees.................................. 1,108
Distribution Fees (Attributed to Classes A, B, and C of
$130, $291, and $295, respectively)..................... 716
Administrative Fees....................................... 287
Custodian Fees............................................ 250
Shareholder Reports....................................... 83
Transfer Agent Fees....................................... 82
Professional Fees......................................... 39
Filing & Registration Fees................................ 36
Interest Expense.......................................... 36
Country Tax Expense....................................... 28
Directors' Fees and Expenses.............................. 13
Other..................................................... 17
--------
Total Expenses........................................... 2,695
Less Expense Reductions.................................. (85)
--------
Net Expenses............................................. 2,610
--------
Net Investment Income/Loss.................................. (125)
--------
NET REALIZED GAIN/LOSS ON:
Investments............................................... 280
Foreign Currency Transactions............................. (285)
--------
Net Realized Gain/Loss.................................. (5)
--------
NET UNREALIZED APPRECIATION/DEPRECIATION:
Beginning of the Period................................... (23,483)
--------
End of the Period:
Investments............................................. 45,495
Foreign Currency Translations........................... (645)
--------
44,850
--------
Net Unrealized Appreciation/Depreciation During the
Period...................................................... 68,333
--------
Net Realized Gain/Loss and Net Unrealized
Appreciation/Depreciation................................... 68,328
--------
NET INCREASE/DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS.................................................. $ 68,203
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-15
<PAGE>
VAN KAMPEN ASIAN GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1999 JUNE 30, 1998
(000) (000)
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------
INCREASE/DECREASE IN NET ASSETS
OPERATIONS:
Net Investment Income/Loss................................ $ (125) $ (1,379)
Net Realized Gain/Loss.................................... (5) (117,195)
Net Unrealized Appreciation/Depreciation.................. 68,333 (58,612)
----------------- -------------
Net Increase/Decrease in Net Assets Resulting from
Operations.............................................. 68,203 (177,186)
----------------- -------------
DISTRIBUTIONS:
In Excess of Net Realized Gain:
Class A................................................... -- (135)
Class B................................................... -- (60)
Class C................................................... -- (84)
----------------- -------------
Net Decrease in Net Assets Resulting from Distributions... -- (279)
----------------- -------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed................................................ 84,305 114,898
Distributions Reinvested.................................. -- 258
Redeemed.................................................. (82,166) (188,300)
----------------- -------------
Net Increase/Decrease in Net Assets Resulting from Capital
Share Transactions...................................... 2,139 (73,144)
----------------- -------------
Total Increase/Decrease in Net Assets..................... 70,342 (250,609)
NET ASSETS--Beginning of Period............................. 102,077 352,686
----------------- -------------
NET ASSETS--End of Period (Including accumulated net
investment loss of $(25) and $(1,200), respectively)...... $ 172,419 $ 102,077
================= =============
- -------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
(1) Class A:
--------
Shares:
Subscribed................................................ 8,906 9,205
Distributions Reinvested.................................. -- 15
Redeemed.................................................. (8,391) (12,556)
----------------- -------------
Net Increase/Decrease in Class A Shares Outstanding......... 515 (3,336)
================= =============
Dollars:
Subscribed................................................ $ 70,587 $ 80,960
Distributions Reinvested.................................. -- 125
Redeemed.................................................. (61,673) (123,834)
----------------- -------------
Net Increase/Decrease....................................... $ 8,914 $ (42,749)
================= =============
Ending Paid in Capital...................................... $ 121,936+ $ 113,022
================= =============
Class B:
- -------
Shares:
Subscribed................................................ 944 2,181
Distributions Reinvested.................................. -- 7
Redeemed.................................................. (1,189) (1,929)
----------------- -------------
Net Increase/Decrease in Class B Shares Outstanding......... (245) 259
================= =============
Dollars:
Subscribed................................................ $ 7,734 $ 19,723
Distributions Reinvested.................................. -- 55
Redeemed.................................................. (8,813) (19,925)
----------------- -------------
Net Increase/Decrease....................................... $ (1,079) $ (147)
================= =============
Ending Paid in Capital...................................... $ 62,911+ $ 63,990
================= =============
Class C:
- -------
Shares:
Subscribed................................................ 807 1,702
Distributions Reinvested.................................. -- 10
Redeemed.................................................. (1,680) (4,222)
----------------- -------------
Net Increase/Decrease in Class C Shares Outstanding......... (873) (2,510)
================= =============
Dollars:
Subscribed................................................ $ 5,984 $ 14,215
Distributions Reinvested.................................. -- 78
Redeemed.................................................. (11,680) (44,541)
----------------- -------------
Net Increase/Decrease....................................... $ (5,696) $ (30,248)
================= =============
Ending Paid in Capital...................................... $ 70,942+ $ 76,638
================= =============
</TABLE>
- ---------------
+ Ending Paid in Capital amounts do not reflect permanent book to tax
differences.
The accompanying notes are an integral part of the financial statements.
F-16
<PAGE>
VAN KAMPEN ASIAN GROWTH FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------
YEAR ENDED JUNE 30,
-----------------------------------------------------
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD........... $ 6.529 $ 16.62 $ 17.15 $ 16.42 $ 15.50
------- ------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss................... 0.022 (0.04) (0.06) (0.04) --
Net Realized and Unrealized Gain/Loss........ 4.933 (10.03) (0.14) 0.77 1.43
------- ------- -------- -------- --------
Total From Investment Operations............. 4.955 (10.07) (0.20) 0.73 1.43
------- ------- -------- -------- --------
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................. $11.484 $ 6.53 $ 16.62 $ 17.15 $ 16.42
======= ======= ======== ======== ========
TOTAL RETURN (1)............................... 75.69% (60.57)% (1.10)% 4.45% 9.50%
======= ======= ======== ======== ========
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's).............. $88,808 $47,128 $175,440 $248,009 $178,667
Ratio of Expenses to Average Net Assets........ 1.95% 1.90% 1.84% 1.88% 1.90%
Ratio of Net Investment Income/Loss to Average
Net Assets................................... 0.28% (0.39)% (0.31)% (0.16)% 0.04%
Portfolio Turnover Rate........................ 138% 130% 74% 38% 34%
- ------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During
the Period
Per Share Benefit to Net Investment
Income/Loss................................ $ 0.01 $ 0.01 $ -- $ -- $ --
Ratios Before Expense Limitation:
Expenses to Average Net Assets............... 2.03% 2.21% -- -- --
Net Investment Income/Loss to Average Net
Assets..................................... 0.20% (0.53)% -- -- --
Ratio of Net Expenses to Average Net Assets
excluding country tax expense and interest
expense...................................... 1.90% 1.90% -- -- --
- ------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
-----------------------------------------------
YEAR ENDED JUNE 30,
--------------------------- AUGUST 1, 1995+
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# 1997 TO JUNE 30, 1996
<S> <C> <C> <C> <C>
- -----------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD........... $ 6.306 $ 16.17 $ 16.81 $ 16.51
------- ------- ------- ---------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss................... (0.033) (0.10) (0.16) (0.03)
Net Realized and Unrealized Gain/Loss........ 4.734 (9.74) (0.15) 0.33
------- ------- ------- ---------------
Total From Investment Operations............. 4.701 (9.84) (0.31) 0.30
------- ------- ------- ---------------
DISTRIBUTIONS
Net Realized Gain............................ -- -- (0.33) --
In Excess of Net Realized Gain............... -- (0.02) -- --
------- ------- ------- ---------------
Total Distributions.......................... -- (0.02) (0.33) --
------- ------- ------- ---------------
NET ASSET VALUE, END OF PERIOD................. $11.007 $ 6.31 $ 16.17 $ 16.81
======= ======= ======= ===============
TOTAL RETURN (1)............................... 74.48% (60.89)% (1.79)% 1.82%*
======= ======= ======= ===============
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's).............. $42,905 $26,126 $62,786 $ 52,853
Ratio of Expenses to Average Net Assets........ 2.70% 2.65% 2.59% 2.61%
Ratio of Net Investment Income/Loss to Average
Net Assets................................... (0.44)% (1.01)% (1.04)% (0.52)%
Portfolio Turnover Rate........................ 138% 130% 74% 38%*
- ------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During
the Period
Per Share Benefit to Net Investment
Income/Loss................................ $ 0.01 $ 0.02 $ -- $ --
Ratios Before Expense Limitation:
Expenses to Average Net Assets............... 2.78% 2.96% -- --
Net Investment Income/Loss to Average Net
Assets..................................... (0.52)% (1.15)% -- --
Ratio of Net Expenses to Average Net Assets
excluding country tax expense and interest
expense...................................... 2.65% 2.65% -- --
- ------------------------------------------------------------------------------------------------------ ---------------------------
- --------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS C
--------------------------------------------------------------
YEAR ENDED JUNE 30,
--------------------------------------------------------------
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 6.290 $ 16.14 $ 16.78 $ 16.19 $ 15.40
------- ------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss................................ (0.035) (0.12) (0.21) (0.13) (0.12)
Net Realized and Unrealized Gain/Loss..................... 4.718 (9.71) (0.10) 0.72 1.42
------- ------- -------- -------- --------
Total From Investment Operations.......................... 4.683 (9.83) (0.31) 0.59 1.30
------- ------- -------- -------- --------
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.............................. $10.973 $ 6.29 $ 16.14 $ 16.78 $ 16.19
======= ======= ======== ======== ========
TOTAL RETURN (1)............................................ 74.13% (60.88)% (1.79)% 3.64% 8.71%
======= ======= ======== ======== ========
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)........................... $40,706 $28,823 $114,460 $168,070 $139,497
Ratio of Expenses to Average Net Assets..................... 2.70% 2.65% 2.59% 2.63% 2.63%
Ratio of Net Investment Income/Loss to Average Net Assets... (0.48)% (1.17)% (1.06)% (0.94)% (0.77)%
Portfolio Turnover Rate..................................... 138% 130% 74% 38% 34%
- --------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the Period
Per Share Benefit to Net Investment Income/Loss........... $ 0.01 $ 0.01 $ -- $ -- $ --
Ratios Before Expense Limitation:
Expenses to Average Net Assets............................ 2.78% 2.96% -- -- --
Net Investment Income/Loss to Average Net Assets.......... (0.56)% (1.31)% -- -- --
Ratio of Net Expenses to Average Net Assets excluding
country tax expense and interest expense.................. 2.65% 2.65% -- -- --
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
* Non-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.
# Changes per share are based upon monthly average shares
outstanding.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-17
<PAGE>
VAN KAMPEN ASIAN GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
The Van Kampen Asian Growth Fund (the "Fund") is organized as a separate
diversified fund of Van Kampen Series Fund, Inc., a Maryland Corporation which
is registered as an open-end management investment company under the Investment
Company Act of 1940, as amended. The Fund's investment objective seeks long-term
capital appreciation through investment primarily in equity securities of Asian
issuers, excluding Japan. The Fund commenced operations on June 23, 1993.
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 and Class C
shares are offered without a front end sales charge, but are subject to a
contingent deferred sales charge ("CDSC"). Class B shares will automatically
convert to Class A shares after the eighth year following purchase. The CDSC
will be imposed on most redemptions made within five years of the purchase for
Class B shares and one year of the purchase for Class C shares as detailed in
the following schedule:
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE
----------------------
YEAR OF REDEMPTION CLASS B CLASS C
- ------------------ -------- --------
<S> <C> <C>
First..................................... 5.00% 1.00%
Second.................................... 4.00% None
Third..................................... 3.00% None
Fourth.................................... 2.50% None
Fifth..................................... 1.50% None
Thereafter................................ None None
</TABLE>
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.
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. SECURITY TRANSACTIONS: Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements, which are short-term investments
in which the Fund acquires ownership of a debt security and the seller agrees to
repurchase the security at a future time and specified price. Repurchase
agreements are fully collateralized by the underlying debt security. 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.
3. INCOME AND EXPENSES: Dividend income is recorded on the ex-dividend date, net
of applicable withholding taxes where recovery of such taxes is not reasonably
assured. Interest income is recognized on an accrual basis except where
collection is in doubt. 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 Fund are
recorded on the ex-distribution date.
4. FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS: Assets and liabilities
denominated in foreign currencies and commitments under forward currency
contracts are translated into U.S. dollars at the mean of the quoted bid and
asked prices. Purchases and sales of portfolio securities are translated at the
rate of exchange prevailing when such securities were purchased or sold. Income
and expenses are translated at rates prevailing when accrued. Realized and
unrealized gains and losses on securities are not segregated for financial
reporting purposes from amounts arising from
F-18
<PAGE>
VAN KAMPEN ASIAN GROWTH FUND
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
changes in the market prices of securities. Realized gains and losses on foreign
currency includes the net realized amount from the sale of the currency and the
amount realized between trade date and settlement date on security and income
transactions. However, 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.
The net assets of the Fund may include issuers located in emerging markets.
There are certain risks inherent in these investments not typically associated
with investments in the United States, including the smaller size of the markets
themselves, lesser liquidity, greater volatility, and potentially less publicly
available information. Emerging markets may be subject to a greater degree of
government involvement in the economy and greater economic and political
uncertainty, which has the potential to extend to government imposed
restrictions on exchange traded transactions and currency transactions. These
restrictions may impact the Fund's ability to buy or sell certain securities or
to repatriate certain currencies to U.S. dollars. Additionally, changes in
currency exchange rates will affect the value of and investment income from such
securities.
5. TAXES: It is the Fund's intention to qualify as a regulated investment
company and distribute substantially all of its taxable income. Accordingly, no
provision for U.S. Federal income taxes is required in the financial statements.
The Fund 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, 1999, the Fund had available capital loss carryforwards to offset
future net capital gains, to the extent provided by U.S. Federal income tax
regulations, of approximately $53,293,000 and $69,761,000 which will expire on
June 30, 2006 and June 30, 2007, respectively.
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 Fund 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 losses incurred after October 31 and within the taxable year are
deemed to arise on the first business day of the Fund's next taxable year. For
the period from November 1, 1998 to June 30, 1999, the Fund incurred and elected
to defer until July 1, 1999, for U.S. Federal income tax purposes, net capital
losses of approximately $999,000.
At June 30, 1999, cost and unrealized appreciation/ depreciation for U.S.
Federal income tax purposes of the investments of the Fund was:
<TABLE>
<CAPTION>
NET
APPRECIATION/
COST APPREC. DEPREC. DEPRECIATION
(000) (000) (000) (000)
- --------------------- ------- ------- -------------
<S> <C> <C> <C>
$131,179 $45,500 $(2,547) $42,953
</TABLE>
6. DISTRIBUTION OF INCOME AND GAINS: 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, and
foreign taxes on net realized gains.
Permanent book to tax basis differences relating to shareholder distributions
may result in reclassification among accumulated net investment income/loss,
accumulated net realized gain/loss, and paid in capital in excess of par. For
the year ended June 30, 1999 approximately $1,599,000 has been reclassified from
paid in capital in excess of par with approximately $1,300,000 posted to
accumulated net investment loss and approximately $299,000 posted to accumulated
net realized loss.
Permanent book to tax basis differences are not included in ending
undistributed/distributions in excess of net investment income for the purpose
of calculating net investment income/loss per share in the Financial Highlights.
B. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES: Van
Kampen Investment Advisory Corp. (the "Adviser"), a wholly owned subsidiary of
Van Kampen Investments Inc. (an indirect wholly owned subsidiary of Morgan
Stanley Dean Witter & Co.) and Morgan Stanley Dean Witter Investment Management
Inc. ("MSDWIM" or a "Subadviser"), a wholly owned subsidiary 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 Fund, 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
ADVISORY FEE EXPENSE RATIO EXPENSE RATIO
------------ -------------- --------------
<S> <C> <C>
1.00% 1.90% 2.65%
</TABLE>
For the year ended June 30, 1999, the Fund recognized expenses of approximately
$3,000 representing legal services
F-19
<PAGE>
VAN KAMPEN ASIAN GROWTH FUND
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
provided by Skadden, Arps, Slate, Meagher & Flom (Illinois), counsel to the
Fund, of which a director of the Fund is an affiliated person.
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 Fund, 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 Adviser.
Van Kampen Funds Inc. the ("Distributor") a wholly owned subsidiary of Van
Kampen Investments Inc., an indirect 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% of the Class B shares and Class C shares of the Fund, on
an annualized basis, of the average daily net assets attributable to each Class.
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 shares and Class C shares of the Fund
redeemed within one to five years following such purchase. For the year ended
June 30, 1999, the Distributor has advised the Fund that it earned initial sales
charges of $180,695 for Class A shares and deferred sales charges of $4,722,
$184,325, and $27,849 for Class A shares, Class B shares, and Class C shares,
respectively.
Prior to October 1, 1998, the Fund's assets held outside the United States were
held by Morgan Stanley Trust Company ("MSTC"), a former affiliate of the
Subadvisers. Through September 30, 1998, the Fund incurred MSTC fees of
approximately $48,000. On October 1, 1998, the Chase Manhattan Bank purchased
MSTC.
Certain officers and directors of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or directors who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its directors
who are not officers of Van Kampen. Under the deferred compensation plan,
Directors 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 Director's years of service to the Fund. The maximum annual
benefit per director under the plan is $2,500.
During the year ended June 30, 1999, the Fund incurred approximately $54,000 as
brokerage commissions with Morgan Stanley & Co. Incorporated, an affiliated
broker/dealer.
C. INVESTMENT TRANSACTIONS: For the year ended June 30, 1999, the Fund made
purchases of approximately $149,702,000 and sales of approximately $149,321,000
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.
F-20
<PAGE>
VAN KAMPEN EMERGING MARKETS FUND
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of Van Kampen Series Fund, Inc.--
Van Kampen Emerging Markets Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Van Kampen Emerging Markets Fund
(the "Fund", a fund of Van Kampen Series Fund, Inc.) at June 30, 1999, the
results of its operations, the changes in its net assets and the financial
highlights for each of the periods presented, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at June 30, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
200 E. Randolph Dr.
Chicago, Illinois 60601
August 6, 1999
F-21
<PAGE>
VAN KAMPEN EMERGING MARKETS FUND
PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- --------------------------------------------------------------------
COMMON STOCKS (90.4%)
ARGENTINA (0.7%)
Telecom Argentina ADR................ 28,526 $ 763
Telefonica de Argentina ADR.......... 3,248 102
--------
865
--------
BRAZIL (4.4%)
CEMIG ADR............................ 19,217 408
Coteminas............................ 1,384,100 70
(b,c)Coteminas ADR................... 12,645 32
(a)CRT............................... 3,828,145 519
CVRD ADR............................. 31,619 628
Eletrobras ADR....................... 24,520 247
Eletrobras S.A....................... 2,328,560 44
Embratel Participacoes ADR........... 21,814 303
(a)Lojas Arupau ADR.................. 14,225 --
Pao de Acucar........................ 4,660,000 87
Pao de Acucar ADR.................... 3,367 63
Petrobras ADR........................ 4,950 76
Tele Celular Sul ADR................. 2,790 61
Tele Centro Oeste Sul................ 2,311,729 2
Tele Centro Sul...................... 3,818 212
Tele Nordeste Celular ADR............ 1,095 30
Tele Norte Leste..................... 12,849 239
Telemig Celular ADR.................. 1,365 34
Telesp Celular ADR................... 18,207 487
Telesp............................... 7,480 171
TeleSudeste Celular.................. 3,523 102
Unibanco GDR......................... 62,551 1,505
USIMINAS ADR (Registered Shares)..... 6,605 22
--------
5,342
--------
CHILE (0.6%)
CCU ADR.............................. 7,506 215
ENDESA ADR........................... 12,984 157
Enersis ADR.......................... 13,863 317
(a)Santa Isabel ADR.................. 5,015 51
--------
740
--------
CHINA (0.7%)
Huaneng Power International, Inc.
ADR................................ 14,095 241
Yanzhou Coal Mining Co. ADR.......... 18,228 324
Zhenhai Refining & Chemical Co.
`H'................................ 1,117,000 338
--------
903
--------
CZECH REPUBLIC (0.6%)
SPT Telecom a.s...................... 37,872 611
SPT Telecom a.s. GDR................. 10,260 166
--------
777
--------
EGYPT (0.6%)
(a)Al-Ahram Beverages Co. S.A.E.
GDR................................ 5,988 170
Eastern Tobacco...................... 7,721 188
Egypt Gas Co......................... 2,900 119
Egyptian Co. for Mobile Services..... 10,098 228
Industrial & Engineering............. 4,975 39
--------
744
--------
GREECE (2.0%)
Commercial Bank of Greece S.A........ 613 44
OTE S.A.............................. 60,701 1,303
OTE S.A. ADR......................... 98,506 1,089
--------
2,436
--------
HUNGARY (0.8%)
Matav Rt............................. 19,822 107
Matav Rt. ADR........................ 11,640 320
Matav Rt. ADR........................ 9,549 263
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
MOL Magyar Olaj-es Gazipari Rt. GDR.. 3,796 $ 91
OPT Bank Rt.......................... 5,985 250
--------
1,031
--------
INDIA (8.4%)
Bharat Heavy Electricals Ltd......... 155,500 881
Container Corp. of India Ltd......... 109,500 459
Gujarat Ambuja Cements Ltd........... 23,500 173
Hero Honda Motors Ltd................ 41,305 1,028
Hindustan Lever Ltd.................. 17,100 938
Housing Development Finance Corp.,
Ltd................................ 7,644 391
Infosys Technologies Ltd............. 22,300 1,863
ITC Limited.......................... 9,000 206
ITC Limited.......................... 20,100 507
Larson & Tourbo Ltd. `A'............. 68,700 453
Mahanagar Telephone Nigam Ltd........ 53,000 220
Mahanagar Telephone Nigam Ltd........ 40,000 171
MRF Ltd.............................. 5,000 220
NIIT Ltd............................. 12,000 562
Satyam Computer Services Ltd......... 28,000 818
(a)State Bank of India............... 102,100 558
Tata Engineering & Locomotive Co.,
Ltd................................ 49,500 235
Videsh Sanchar Nigam Ltd. GDR........ 8,900 114
(a)Zee Telefilms Ltd................. 18,000 603
--------
10,400
--------
INDONESIA (3.4%)
PT Gudang Garam Tbk (Foreign)........ 563,925 1,532
PT Indah Kiat Pulp & Paper Corp.
(Foreign).......................... 1,260,080 586
PT Semen Gresik Tbk.................. 224,700 489
PT Telekomunikasi Indonesia ADR...... 129,384 1,609
--------
4,216
--------
ISRAEL (2.9%)
(a)Amdocs Ltd........................ 22,700 516
(a)BackWeb Technologies Ltd.......... 2,280 62
Bank Hapoalim Ltd.................... 96,700 248
Bank Leumi Le-Israel Ltd............. 124,800 236
(a)Comverse Technology, Inc.......... 2,907 220
ECI Telecommunications Ltd........... 16,214 538
Elbit Systems Ltd.................... 1 --
(a)Gilat Satellite Networks Ltd...... 10,332 543
Koor Industries Ltd.................. 3,056 353
(a)NICE-Systems Ltd.................. 2,319 63
(a)NICE-Systems Ltd. ADR............. 6,220 171
(a)Orbotech Ltd...................... 5,256 274
Teva Pharmaceutical Industries Ltd.
ADR................................ 6,615 324
--------
3,548
--------
KOREA (16.6%)
Daewoo Securities, Co................ 19,040 370
Good Morning Securities Co., Ltd..... 74,860 462
Hana Bank............................ 34,640 509
Hankuk Glass Industry Co., Ltd....... 9,660 259
Housing & Commercial Bank............ 39,250 1,238
Kookmin Bank......................... 68,800 1,397
Kookmin Bank GDR..................... 1,708 35
Koram Bank........................... 34,740 435
Korea Electric Power Corp............ 32,690 1,358
Korea Electric Power Corp. ADR....... 94,180 1,931
Korea Exchange Bank.................. 85,920 482
(b)Korea Telecom Corp................ 39,080 2,593
(a)Korea Telecom Corp. ADR........... 58,600 2,344
LG Securities Co..................... 4,820 81
LG Chemical Ltd...................... 13,140 358
(b)Pohang Iron & Steel Ltd.
(Foreign).......................... 15,866 1,953
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-22
<PAGE>
VAN KAMPEN EMERGING MARKETS FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
Samsung Electro-Mechanics Co......... 10,829 $ 374
Samsung Electronics Co. (Foreign).... 27,321 2,998
Shinhan Bank Co. Ltd................. 37,000 415
(b)SK Telecom Co., Ltd............... 539 740
SK Telecom Co., Ltd. ADR............. 12,890 219
--------
20,551
--------
MALAYSIA (3.0%)
Commerce Asset-Holdings Bhd.......... 205,000 507
Malayan Banking Bhd.................. 267,000 801
Nestle Bhd........................... 60,000 237
Public Bank Bhd...................... 236,000 180
Rothmans of Pall Mall Bhd............ 73,000 552
Telekom Malaysia Bhd................. 292,000 1,091
Tenaga Nasional Bhd.................. 150,000 345
--------
3,713
--------
MEXICO (12.9%)
Alfa................................. 71,278 296
Banacci `L'.......................... 177,316 433
Banacci `O'.......................... 129,543 327
(a)Carso `A1'........................ 68,984 320
Cemex `B'............................ 8,992 45
Cemex `B' ADR........................ 85,345 843
Cemex CPO............................ 205,048 1,014
Cemex CPO ADR........................ 52,824 502
(a)Cifra `C'......................... 155,524 285
(a)Cifra `V'......................... 42,653 83
(a)Cifra `V' ADR..................... 21,660 415
FEMSA................................ 361,047 1,445
FEMSA ADR............................ 30,581 1,219
(a)Grupo Financiero Bancomer S.A. de
C.V. `O'........................... 447,556 162
(c)Grupo Financiero Bancomer S.A. de
C.V. `O' ADR....................... 31,915 231
Kimberly `A'......................... 120,293 495
Telmex ADR........................... 54,613 4,413
(a)Televisa CPO GDR.................. 76,887 3,436
--------
15,964
--------
PAKISTAN (0.4%)
Fauji Fertilizer Co., Ltd............ 256,900 200
Pakistan State Oil Co., Ltd.......... 125,572 221
Pakistan Telecommunication Corp.
`A'................................ 144,300 55
--------
476
--------
PHILIPPINES (1.0%)
Manila Electric Co. `B'.............. 90,610 327
San Miguel Corp. `B'................. 267,557 585
SM Prime Holdings, Inc............... 1,560,940 353
--------
1,265
--------
POLAND (2.5%)
(a)Bank Polska Kasa Opieki Pekao
S.A................................ 5,979 69
Elektrim S.A......................... 32,995 466
Powszechny Bank Kredytowy S.A........ 4,503 108
(a)Powszechny Bank Kredytowy S.A.
`C'................................ 1,125 20
Prokom Software GDR.................. 14,833 243
(a)Telekomunikacja Polska GDR........ 287,808 2,029
Wielkopolski Bank Kredytowy.......... 15,798 93
--------
3,028
--------
RUSSIA (3.5%)
A.O. Tatneft ADR..................... 4,300 16
Lukoil Oil Co. ADR................... 36,053 1,474
(a,b)Mustcom......................... 4,570,885 954
(a,b,d)Storyfirst Communications,
Inc................................ 600 453
Surgutneftegaz ADR................... 147,009 1,240
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
RAO Unified Energy Systems GDR....... 15,080 $ 146
--------
4,283
--------
SINGAPORE (0.9%)
(a)Asia Pulp & Paper Co., Ltd. ADR... 113,725 1,095
--------
SOUTH AFRICA (6.9%)
Amalgamated Banks of South Africa.... 101,910 577
(a)Anglo American plc................ 3,500 166
(a)Anglo American plc................ 18,340 857
(a)Anglo American plc ADR............ 220 11
B.O.E. Corp., Ltd. `N'............... 833,254 663
B.O.E. Corp., Ltd.................... 104,460 104
Bidvest Group Ltd.................... 128,640 1,074
Billiton Plc......................... 84,200 291
Comparex Holdings Ltd................ 25,640 161
De Beers Centenary AG................ 10,840 260
De Beers Consolidated Mines ADR...... 5,220 125
Ellerine Holdings Ltd................ 60,710 241
Firstrand Ltd........................ 616,420 705
Liberty Life Association of Africa
Ltd................................ 20,518 263
Nedcor Ltd........................... 23,750 545
(a)New Africa Investments Ltd. `N'... 394,410 232
Rembrant Group Ltd................... 85,390 712
(a)Sanlam Ltd........................ 354,900 421
Sasol Ltd............................ 19,800 141
(a)South African Breweries Ltd....... 87,490 749
(a)South African Breweries Ltd....... 13,140 114
The Education Investment Corp.,
Ltd................................ 147,892 139
--------
8,551
--------
TAIWAN (10.8%)
(a)Acer, Inc......................... 138,000 350
(a)Advanced Semiconductor
Engineering, Inc................... 182,000 614
Asustek Computer, Inc................ 195,980 2,209
Bank Sinopac......................... 415,000 289
Cathay Life Insurance Co., Ltd....... 111,000 399
Chang Hwa Commercial Bank............ 122,000 183
(a)China Development Corp............ 47,000 117
China Steel Corp..................... 682,500 516
(a)Chinatrust Commercial Bank........ 317,000 381
Compal Electronics, Inc.............. 149,760 589
(a)E. Sun Commercial Bank............ 173,000 96
(a)Far Eastern Textile Ltd........... 562,000 835
First Commercial Bank................ 110,000 209
Formosa Plastics Corp................ 213,000 448
(a)Hon Hai Precision Industry........ 115,000 1,040
Hua Nan Commercial Bank.............. 134,000 266
International Commercial Bank of
China.............................. 259,000 335
Nan Ya Plastic Corp.................. 276,000 457
(a)President Chain Store Corp........ 64,153 217
Quanta Computer Inc.................. 24,120 289
(a)Shinkong Synthetic Fibers Corp.... 1 --
(a)Siliconware Precision Industries
Co................................. 220,349 420
(a)Taishin International Bank........ 464,000 345
(a)Taiwan Semiconductor Co........... 645,750 2,469
(a)Taiwan Semiconductor Co. ADR...... 3,996 136
United World Chinese Commercial
Bank............................... 77,000 119
--------
13,328
--------
THAILAND (2.8%)
Advanced Info Service Public Co.,
Ltd. (Foreign)..................... 93,200 1,263
BEC World Public Co., Ltd............ 65,100 406
Delta Electronics Public Co., Ltd.
(Foreign).......................... 54,337 457
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-23
<PAGE>
VAN KAMPEN EMERGING MARKETS FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
THAILAND (CONT.)
Shin Corp. Public Co., Ltd.
(Foreign).......................... 123,280 $ 575
Siam City Cement Public Co., Ltd.
(Foreign).......................... 146,833 605
Thai Farmer's Bank Public Co. Ltd.
(Foreign).......................... 29,000 90
--------
3,396
--------
TURKEY (4.0%)
Akbank T.A.S......................... 35,010,500 515
(c)Akbank T.A.S. ADR................. 8,080 24
Dogan Sirketler Grupo Holdings
A.S................................ 44,840,000 595
Ege Biracilik Ve Malt Sanayii........ 3,565,500 266
(a)Erciyas Biracilik Ve Malt
Sanayii............................ 1,555,488 36
Kos Holdings A.S..................... 2,912,000 183
Migros Turk T.A.S.................... 174,000 217
Sabanci Holding...................... 10,227,000 228
Turkiye Petrol Rafinerileri A.S...... 1,910,000 127
(a)Turkiye Garanti Bankasi........... 39,243,400 293
Turkiye Is Bankasi, `C'.............. 14,848,000 264
(a)Vestel Elektronik Sanayii ve
Ticaret A.S........................ 4,563,470 498
Yapi Ve Kredi Bankasi A.S............ 112,988,405 1,633
--------
4,879
--------
TOTAL COMMON STOCKS..................................... 111,531
--------
PREFERRED STOCKS (6.7%)
BRAZIL (6.4%)
(a,b)Banco Nacional.................. 11,156,000 --
Brahma............................... 596,081 336
CRT.................................. 3,828,145 939
CEMIG................................ 35,414,681 745
CVRD `A'............................. 31,083 615
Eletrobras `B'....................... 3,592,000 72
Embratel Participacoes `A'........... 8,970,552 124
(a)Lojas Arapua...................... 12,437,000 --
Petrobras............................ 7,248,400 1,122
Telebras ADR......................... 4,839 436
Telebras............................. 14,958,000 1,338
Tele Celular Sul ADR................. 51,006,152 107
Tele Centro Sul...................... 33,238,552 368
Tele Nordeste Celular................ 11,378,752 15
Tele Norte Leste..................... 5,725,552 104
Tele Sudeste Celular................. 46,446,552 262
Telemig Celular...................... 56,455,552 71
Telerj Celular....................... 2,082,000 68
Telesp............................... 6,990,552 160
Telesp Celular....................... 33,604,552 348
Telesp Celular....................... 9,786,261 509
(a)USIMINAS.......................... 37,900 128
--------
7,867
--------
COLOMBIA (0.0%)
BanColombia.......................... 7,150 10
--------
THAILAND (0.3%)
(a)Siam Commercial Bank.............. 238,800 340
--------
TOTAL PREFERRED STOCKS.................................. 8,217
--------
INVESTMENT COMPANIES (0.0%)
UNITED STATES (0.0%)
(e)Morgan Stanley Dean Witter Africa
Investment Fund, Inc............... 4,470 45
--------
</TABLE>
<TABLE>
<CAPTION>
NO. OF VALUE
RIGHTS (000)
<S> <C> <C>
- --------------------------------------------------------------------
RIGHTS (0.1%)
BRAZIL (0.0%)
(a,b)CRT............................. 3,828,145 $ --
--------
KOREA (0.1%)
(a,b)SK Telecom Co., Ltd............. 499 63
--------
SOUTH AFRICA (0.0%)
(a)Liberty Internationl plc.......... 9,565 63
--------
TOTAL RIGHTS............................................ 126
--------
NO. OF
WARRANTS
-----------
WARRANTS (0.3%)
THAILAND
(a)Siam Commercial Bank (expiring
12/31/02).......................... 111,466 --
(a)Siam Commercial Bank (expiring
5/10/02)........................... 658,000 424
--------
424
--------
<CAPTION>
PAR
VALUE
(000)
-----------
CONVERTIBLE DEBENTURE (0.5%)
<S> <C> <C>
RUSSIA (0.5%)
(a,b)Svyaz Finance Ltd. 17.00%,
8/11/99............................ $ 2,684,488 660
--------
TOTAL LONG-TERM INVESTMENTS (98.0%) (COST $110,577)..... 121,003
--------
SHORT-TERM INVESTMENT (2.0%)
REPURCHASE AGREEMENT (2.0%)
Chase Securities, Inc., 4.55%, dated
6/30/99, 2,404
due 7/1/99, to be repurchased at $2,404
collateralized by $2,235 Treasury Bonds,
7.250%, due 5/15/16, valued at $2,484
(COST $2,404)....................................... 2,404
--------
TOTAL INVESTMENTS IN SECURITIES (100.0%)
(COST $112,981)......................................... 123,407
--------
FOREIGN CURRENCY (0.6%) (COST $776)..................... 774
--------
TOTAL INVESTMENTS (100.6%) (COST $113,757).............. 124,181
LIABILITIES IN EXCESS OF OTHER ASSETS (-0.6%)........... (713)
--------
NET ASSETS (100%)....................................... $123,468
========
</TABLE>
- ---------------
<TABLE>
<S> <C> <C>
(a) -- Non-income producing security
(b) -- Security valued at fair value -- see note A-1 to
financial statements
(c) -- 144A Security -- Certain conditions for public sale may
exist.
(d) -- Restricted as to public resale. Total value of restricted
securities at June 30, 1999 was $453,000 or 0.37% of net
assets (Total cost $1,500,000).
(e) -- 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
</TABLE>
- ----------------------------------------------------------------
SUMMARY OF LONG-TERM INVESTMENTS BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
- -------- -------- ----------
<S> <C> <C>
Services............................... $ 39,145 31.7%
Finance................................ 22,009 17.8
Consumer Goods......................... 16,671 13.5
Capital Equipment...................... 16,595 13.4
Materials.............................. 12,824 10.4
Energy................................. 11,488 9.3
Multi-Industry......................... 2,271 1.9
-------- ----
$121,003 98.0%
======== ====
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-24
<PAGE>
VAN KAMPEN EMERGING MARKETS FUND
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- --------------------------------------------------------------------------
ASSETS:
Investments in Securities, at Value (Cost $112,981)....... $123,407
Foreign Currency (Cost $776).............................. 774
Receivable for:
Investments Sold........................................ 1,779
Dividends............................................... 508
Fund Shares Sold........................................ 446
Interest................................................ 406
Foreign Withholding Tax Reclaim........................... 2
Other..................................................... 18
--------
Total Assets............................................ 127,340
--------
LIABILITIES:
Payable for:
Investments Purchased................................... 2,866
Custody Fees............................................ 246
Deferred Country Tax.................................... 231
Distribution Fees....................................... 134
Fund Shares Redeemed.................................... 131
Investment Advisory Fees................................ 81
Bank Overdraft.......................................... 58
Professional Fees....................................... 35
Administrative Fees..................................... 25
Transfer Agent Fees..................................... 25
Shareholder Reporting Expenses.......................... 24
Directors' Fees and Expenses............................ 14
Other..................................................... 2
--------
Total Liabilities....................................... 3,872
--------
NET ASSETS.................................................. $123,468
========
NET ASSETS CONSIST OF:
Capital Stock at Par ($.001 par value, Shares Authorized
2,625,000,000).......................................... $ 13
Paid in Capital in Excess of Par.......................... 172,856
Net Unrealized Appreciation on Investments and Foreign
Currency Translations*.................................. 10,264
Accumulated Net Investment Loss........................... (554)
Accumulated Net Realized Loss............................. (59,111)
--------
NET ASSETS.................................................. $123,468
========
CLASS A SHARES:
Net Asset Value and Redemption Price Per Share (Based on
Net Assets of $63,273,132 and 6,413,606 Shares
Outstanding)............................................ $ 9.87
========
Maximum Sales Charge...................................... 5.75%
Maximum Offering Price Per Share (Net Asset Value Per
Share X 100/ (100 - maximum sales charge)).............. $ 10.47
========
CLASS B SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $38,312,954 and 4,010,764 Shares
Outstanding)**.......................................... $ 9.55
========
CLASS C SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $21,882,158 and 2,286,771 Shares
Outstanding)**.......................................... $ 9.57
========
</TABLE>
- ---------------
<TABLE>
<S> <C>
* Net of accrual for deferred country tax of approximately
U.S. $144,000.
** Redemption price may be subject to a contingent deferred
sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-25
<PAGE>
VAN KAMPEN EMERGING MARKETS FUND
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- --------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends................................................. $ 2,508
Interest.................................................. 607
Less Foreign Taxes Withheld............................... (136)
--------
Total Income............................................. 2,979
--------
EXPENSES:
Investment Advisory Fees.................................. 1,337
Distribution Fees (Attributed to Classes A, B, and C of
$141, $299, and $205, respectively)..................... 645
Custodian Fees............................................ 476
Administrative Fees....................................... 285
Country Tax Expense....................................... 88
Transfer Agent Fees....................................... 71
Shareholder Reports....................................... 64
Professional Fees......................................... 52
Interest Expense.......................................... 45
Filing and Registration Fees.............................. 38
Directors' Fees and Expenses.............................. 11
Other..................................................... 12
--------
Total Expenses.......................................... 3,124
Less Expense Reductions................................. (239)
--------
Net Expenses............................................ 2,885
--------
Net Investment Income/Loss.................................. 94
--------
NET REALIZED GAIN/LOSS ON:
Investments............................................... (31,019)
Foreign Currency Transactions............................. (120)
Swaps..................................................... (226)
--------
Net Realized Gain/Loss................................... (31,365)
--------
NET UNREALIZED APPRECIATION/DEPRECIATION:
Beginning of the Period................................... (37,352)
--------
End of the Period:
Investments............................................. 10,426
Foreign Currency Translations........................... (162)
--------
10,264
--------
Net Unrealized Appreciation/Depreciation During the
Period.................................................... 47,616
--------
Net Realized Gain/Loss and Net Unrealized
Appreciation/Depreciation................................. 16,251
--------
NET INCREASE/DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................................ $ 16,345
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-26
<PAGE>
VAN KAMPEN EMERGING MARKETS FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1999 JUNE 30, 1998
(000) (000)
<S> <C> <C>
- ------------------------------------------------------------------------------------------------
INCREASE/DECREASE IN NET ASSETS
OPERATIONS:
Net Investment Income/Loss................................ $ 94 $ (617)
Net Realized Gain/Loss.................................... (31,365) (23,236)
Net Unrealized Appreciation/Depreciation.................. 47,616 (57,677)
------------- -------------
Net Increase/Decrease in Net Assets Resulting from
Operations.............................................. 16,345 (81,530)
------------- -------------
DISTRIBUTIONS:
Net Realized Gain:
Class A................................................... -- (6,225)
Class B................................................... -- (3,112)
Class C................................................... -- (2,878)
In Excess of Net Realized Gain:
Class A................................................... (1) (2,361)
Class B................................................... (1) (1,180)
Class C................................................... (1) (1,091)
------------- -------------
(3) (16,847)
------------- -------------
Return of Capital:
Class A................................................... (29) --
Class B................................................... (14) --
Class C................................................... (9) --
------------- -------------
(52) --
------------- -------------
Net Decrease in Net Assets Resulting from Distributions..... (55) (16,847)
------------- -------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed................................................ 59,525 160,772
Distributions Reinvested.................................. 54 15,915
Redeemed.................................................. (92,463) (151,194)
------------- -------------
Net Increase/Decrease in Net Assets Resulting from Capital
Share Transactions...................................... (32,884) 25,493
------------- -------------
Total Increase/Decrease in Net Assets..................... (16,594) (72,884)
NET ASSETS--Beginning of Period............................. 140,062 212,946
------------- -------------
NET ASSETS--End of Period (Including accumulated net
investment loss of $(554) and $(1,090), respectively)..... $ 123,468 $ 140,062
============= =============
- ------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
(1) Class A:
----------
Shares:
Subscribed............................................. 6,660 10,304
Distributions Reinvested............................... 4 891
Redeemed............................................... (9,639) (10,645)
------------- -------------
Net Increase/Decrease in Class A Shares Outstanding...... (2,975) 550
============= =============
Dollars:
Subscribed............................................. $ 48,869 $ 114,410
Distributions Reinvested............................... 30 8,101
Redeemed............................................... (68,213) (115,555)
------------- -------------
Net Increase/Decrease.................................... $ (19,314) $ 6,956
============= =============
Ending Paid in Capital................................... $ 88,430+ $ 107,744
============= =============
Class B:
----------
Shares:
Subscribed............................................. 935 2,827
Distributions Reinvested............................... 2 457
Redeemed............................................... (1,605) (1,321)
------------- -------------
Net Increase/Decrease in Class B Shares Outstanding...... (668) 1,963
============= =============
Dollars:
Subscribed............................................. $ 7,223 $ 33,891
Distributions Reinvested............................... 14 4,064
Redeemed............................................... (11,281) (13,053)
------------- -------------
Net Increase/Decrease.................................... $ (4,044) $ 24,902
============= =============
Ending Paid in Capital................................... $ 52,409+ $ 56,453
============= =============
Class C:
----------
Shares:
Subscribed............................................. 462 1,061
Distributions Reinvested............................... 1 421
Redeemed............................................... (1,857) (2,173)
------------- -------------
Net Increase/Decrease in Class C Shares Outstanding...... (1,394) (691)
============= =============
Dollars:
Subscribed............................................. $ 3,433 $ 12,471
Distributions Reinvested............................... 10 3,750
Redeemed............................................... (12,969) (22,586)
------------- -------------
Net Increase/Decrease.................................... $ (9,526) $ (6,365)
============= =============
Ending Paid in Capital................................... $ 32,835+ $ 42,361
============= =============
</TABLE>
- ---------------
<TABLE>
<S> <C>
+ Ending Paid in Capital amounts do not reflect permanent book
to tax differences.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-27
<PAGE>
VAN KAMPEN EMERGING MARKETS FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------
YEAR ENDED JUNE 30,
------------------------------------------ JULY 6, 1994* TO
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# 1997 1996 JUNE 30, 1995
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD......................... $ 7.984 $ 13.47 $ 12.06 $ 10.61 $ 12.00
------- ------- -------- -------- --------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss..... 0.032 -- 0.01 0.05 0.05
Net Realized and Unrealized
Gain/Loss.................... 1.853 (4.49) 1.57 1.44 (1.44)
------- ------- -------- -------- --------------
Total From Investment
Operations................... 1.885 (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......................... (0.004) (0.27) -- -- --
Return of Capital.............. (0.000)++ -- -- -- --
------- ------- -------- -------- --------------
Total Distributions............ (0.004) (1.00) (0.17) (0.04) --
------- ------- -------- -------- --------------
NET ASSET VALUE, END OF PERIOD... $ 9.865 $ 7.98 $ 13.47 $ 12.06 $ 10.61
======= ======= ======== ======== ==============
TOTAL RETURN (1)................. 23.92% (34.31)% 13.54% 14.16% (11.58)%**
======= ======= ======== ======== ==============
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's)........................ $63,273 $74,959 $119,022 $114,850 $ 26,091
Ratio of Expenses to Average Net
Assets......................... 2.34% 2.27% 2.21% 2.16% 2.33%
Ratio of Net Investment Income/
Loss to Average Net Assets..... 0.44% 0.04% (0.06)% 0.93% 0.81%
Portfolio Turnover Rate.......... 132% 99% 82% 42% 32%**
- ---------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income/Loss....... $ 0.02 $ 0.03 $ 0.03 $ 0.02 $ 0.04
Ratios Before Expense Limitation:
Expenses to Average Net
Assets....................... 2.56% 2.60% 2.41% 2.56% 3.10%
Net Investment Income/Loss to
Average Net Assets........... 0.22% (0.24)% (0.27)% 0.53% 0.04%
Ratio of Expenses to Average Net
Assets excluding country tax
expense and interest expense... 2.15% 2.15% 2.15% 2.15% 2.15%
- ---------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
--------------------------------------------------
YEAR ENDED JUNE 30,
----------------------------- AUGUST 1, 1995+
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# 1997 TO JUNE 30, 1996
<S> <C> <C> <C> <C>
- ----------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD......................... $ 7.784 $ 13.24 $ 11.94 $ 10.91
------- ------- ------- ---------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss..... (0.021) (0.07) (0.03) 0.01
Net Realized and Unrealized
Gain/Loss.................... 1.794 (4.39) 1.50 1.02
------- ------- ------- ---------------
Total From Investment
Operations................... 1.773 (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......................... (0.004) (0.27) -- --
Return of Capital.............. (0.000)++ -- -- --
------- ------- ------- ---------------
Total Distributions............ (0.004) (1.00) (0.17) --
------- ------- ------- ---------------
NET ASSET VALUE, END OF PERIOD... $ 9.553 $ 7.78 $ 13.24 $ 11.94
======= ======= ======= ===============
TOTAL RETURN (1)................. 22.99% (34.76)% 12.67% 9.45%**
======= ======= ======= ===============
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's)........................ $38,313 $36,423 $35,966 $ 10,416
Ratio of Expenses to Average Net
Assets......................... 3.09% 3.02% 2.96% 2.91%
Ratio of Net Investment Income/
Loss to Average Net Assets..... (0.29)% (0.67)% (0.64)% 0.30%
Portfolio Turnover Rate.......... 132% 99% 82% 42%**
- ---------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income/Loss....... $ 0.02 $ 0.03 $ 0.01 $ 0.02
Ratios Before Expense Limitation:
Expenses to Average Net
Assets....................... 3.31% 3.35% 3.17% 3.31%
Net Investment Income/Loss to
Average Net Assets........... (0.51)% (0.97)% (0.87)% (0.10)%
Ratio of Expenses to Average Net
Assets excluding country tax
expense and interest expense... 2.90% 2.90% 2.90% 2.90%
- --------------------------------------------------------------------------------------------------- ------------------------------
- --------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS C
---------------------------------------------------------------------
YEAR ENDED JUNE 30,
---------------------------------------------- JULY 6, 1994* TO
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# 1997 1996 JUNE 30, 1995
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD.................. $ 7.791 $ 13.26 $ 11.93 $ 10.53 $ 12.00
------- ------- ------- ------- ---------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss.......................... (0.023) (0.08) (0.08) (0.01) --
Net Realized and Unrealized Gain/Loss............... 1.805 (4.39) 1.55 1.41 (1.47)
------- ------- ------- ------- ---------------
Total From Investment Operations.................... 1.782 (4.47) 1.47 1.40 (1.47)
------- ------- ------- ------- ---------------
DISTRIBUTIONS
Net Investment Income............................... -- -- -- -- --
In Excess of Net Investment Income.................. -- -- (0.01) -- --
Realized Gain....................................... -- (0.73) (0.13) -- --
In Excess of Net Realized Gain...................... (0.004) (0.27) -- -- --
Return of Capital................................... (0.000)++ -- -- -- --
------- ------- ------- ------- ---------------
Total Distributions................................. (0.004) (1.00) (0.14) -- --
------- ------- ------- ------- ---------------
NET ASSET VALUE, END OF PERIOD........................ $ 9.569 $ 7.79 $ 13.26 $ 11.93 $ 10.53
======= ======= ======= ======= ===============
TOTAL RETURN (1)...................................... 23.09% (34.73)% 12.66% 13.30% (12.25)%**
======= ======= ======= ======= ===============
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)..................... $21,882 $28,680 $57,958 $43,601 $ 22,245
Ratio of Expenses to Average Net Assets............... 3.09% 3.01% 2.96% 2.91% 3.08%
Ratio of Net Investment Income/Loss to Average Net
Assets.............................................. (0.32)% (0.76)% (0.79)% (0.11)% 0.06%
Portfolio Turnover Rate............................... 132% 99% 82% 42% 32%**
- ---------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the
Period
Per Share Benefit to Net Investment Income/Loss..... $ 0.02 $ 0.03 $ 0.02 $ 0.03 $ 0.04
Ratios Before Expense Limitation:
Expenses to Average Net Assets...................... 3.31% 3.34% 3.17% 3.34% 3.90%
Net Investment Income/Loss to Average Net Assets.... (0.54)% (1.03)% (1.00)% (0.54)% (0.76)%
Ratio of Expenses to Average Net Assets excluding
country tax expense and interest expense............ 2.90% 2.90% 2.90% 2.90% 2.90%
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
* Commencement of operations
** Non-Annualized
+ The Fund began offering Class B shares on August 1, 1995.
++ Amount is less than $0.001 per share.
(1) Total return is calculated exclusive of sales charges or
deferred sales charges.
# Changes per share are based upon monthly average shares
outstanding.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-28
<PAGE>
VAN KAMPEN EMERGING MARKETS FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
The Van Kampen Emerging Markets Fund, (the "Fund") is organized as a separate
non-diversified fund of Van Kampen Series Fund, Inc., a Maryland Corporation,
which is registered as an open-end management investment company under the
Investment Company Act of 1940, as amended. The Fund's investment objective
seeks long-term capital appreciation by investing primarily in equity securities
of emerging country issues. The Fund commenced operations on July 6, 1994.
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 and Class C
shares are offered without a front end sales charge, but are subject to a
contingent deferred sales charge ("CDSC"). Class B shares will automatically
convert to Class A shares after the eighth year following purchase. The CDSC
will be imposed on most redemptions made within five years of the purchase for
Class B shares and one year of the purchase for Class C shares as detailed in
the following schedule:
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED SALES
CHARGE
-------------------
YEAR OF REDEMPTION CLASS B CLASS C
- ------------------ -------- --------
<S> <C> <C>
First........................................ 5.00% 1.00%
Second....................................... 4.00% None
Third........................................ 3.00% None
Fourth....................................... 2.50% None
Fifth........................................ 1.50% None
Thereafter................................... None None
</TABLE>
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.
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. 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. SECURITY TRANSACTIONS: Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements, which are short-term investments
in which the Fund acquires ownership of a debt security and the seller agrees to
repurchase the security at a future time and specified price. Repurchase
agreements are fully collateralized by the underlying debt security. 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.
3. INCOME AND EXPENSES: Dividend income is recorded on the ex-dividend date, net
of applicable withholding taxes where recovery of such taxes is not reasonably
assured. Interest income is recognized on an accrual basis except where
collection is in doubt. 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 Fund are
recorded on the ex-distribution date.
4. FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS: Assets and liabilities
denominated in foreign currencies and commitments under forward currency
contracts are translated into U.S. dollars at the mean of the quoted bid and
asked prices. Purchases and sales of portfolio securities are translated at the
rate of exchange prevailing when such securities were purchased or sold. Income
and expenses are translated at rates prevailing when accrued. Realized and
unrealized gains and losses on securities are not segregated for financial
reporting purposes from amounts arising from changes in the market prices of
securities. Realized gains and losses on foreign currency includes the net
realized amount from the sale of the currency and the amount realized between
trade date and settlement date on security and income transactions. However, 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.
F-29
<PAGE>
VAN KAMPEN EMERGING MARKETS FUND
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
The net assets of the Fund include issuers located in emerging markets. There
are certain risks inherent in these investments not typically associated with
investments in the United States, including the smaller size of the markets
themselves, lesser liquidity, greater volatility and potentially less publicly
available information. Emerging markets may be subject to a greater degree of
government involvement in the economy and greater economic and political
uncertainty, which has the potential to extend to government imposed
restrictions on exchange traded transactions and currency transactions. These
restrictions may impact the Fund's ability to buy or sell certain securities or
to repatriate certain currencies to U.S. dollars. Additionally, changes in
currency exchange rates will affect the value of and investment income from such
securities.
5. TAXES: It is the Fund's intention to qualify as a regulated investment
company and distribute substantially all of its taxable income. Accordingly, no
provision for U.S. Federal income taxes is required in the financial statements.
The Fund 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, 1999, the Fund had a capital loss carryforward for U.S. Federal
income tax purposes of approximately $45,443,000 which will expire June 30,
2007.
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 Fund 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 Fund's next
taxable year. For the period from November 1, 1998 to June 30, 1999 the Fund
incurred and elected to defer until July 1, 1999, for U.S. Federal income tax
purposes, net currency and capital losses of approximately $10,331,000.
At June 30, 1999, cost and unrealized appreciation/ depreciation for the U.S.
Federal income tax purposes of the investments of the Fund was:
<TABLE>
<CAPTION>
NET
APPRECIATION/
COST APPREC. (DEPREC.) DEPRECIATION
(000) (000) (000) (000)
- -------- -------- ---------- -------------
<S> <C> <C> <C>
$116,854 $26,914 $(20,361) $6,553
</TABLE>
6. DISTRIBUTION OF INCOME AND GAINS: 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 to tax basis differences relating to shareholder distributions
may result in reclassification among accumulated net investment income/loss,
accumulated net realized gain/loss, paid in capital in excess of par. For the
year ended June 30, 1999, approximately $805,000 has been reclassified from paid
in capital in excess of par with approximately $442,000 posted to accumulated
net investment loss and approximately $363,000 posted to accumulated net
realized loss.
Permanent book to tax basis differences are not included in ending
undistributed/distributions in excess of net investment income for the purpose
of calculating net investment income/loss per share in the Financial Highlights.
B. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES: Van
Kampen Investment Advisory Corp. (the "Adviser"), a wholly owned subsidiary of
Van Kampen Investments Inc. (an indirect wholly owned subsidiary of Morgan
Stanley Dean Witter & Co.) and Morgan Stanley Dean Witter Investment Management
Inc. ("MSDWIM" or a "Subadviser"), a wholly owned subsidiary 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 Fund, 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
ADVISORY FEE EXPENSE RATIO EXPENSE RATIO
- ------------ -------------- --------------
<S> <C> <C>
1.25% 2.15% 2.90%
</TABLE>
For the year ended June 30, 1999, the Fund recognized expenses of approximately
$5,000 representing legal services provided by Skadden, Arps, Slate, Meagher &
Flom (Illinois), counsel to the Fund, of which a director of the Fund is an
affiliated person.
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
F-30
<PAGE>
VAN KAMPEN EMERGING MARKETS FUND
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
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
Adviser.
Van Kampen Funds Inc. the ("Distributor") a wholly owned subsidiary of Van
Kampen Investments Inc., an indirect 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 Fund 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% of the Class B and Class C shares of the Fund, on an
annualized basis, of the average daily net assets attributable to each Class.
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 the Fund
redeemed within one to five years following such purchase. For the year ended
June 30, 1999, the Distributor has advised the Fund that it earned initial sales
charges of $154,972 for Class A shares and deferred sales charges of $9,133,
$174,193, and $5,977 for Class A shares, Class B shares, and Class C shares,
respectively.
Prior to October 1, 1998, the Fund's assets held outside the United States were
held by Morgan Stanley Trust Company ("MSTC"), a former affiliate of the
Subadvisers. Through September 30, 1998, the Fund incurred MSTC fees of
approximately $104,000. On October 1, 1998, the Chase Manhattan Bank purchased
MSTC.
Certain officers and directors of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or directors who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its directors
who are not officers of Van Kampen. Under the deferred compensation plan,
Directors 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 Director's years of service to the Fund. The maximum annual
benefit per director under the plan is $2,500.
During the year ended June 30, 1999, the Fund incurred approximately $49,000 as
brokerage commissions with Morgan Stanley & Co. Incorporated, an affiliated
broker/ dealer.
At June 30, 1999, the Fund owned shares of affiliated funds for which the Fund
earned dividend income of approximately $30,000 during the period.
C. INVESTMENT TRANSACTIONS: For the year ended June 30, 1999, the Fund made
purchases of approximately $137,936,000 and sales of approximately $171,006,000
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.
D. DERIVATIVE FINANCIAL INSTRUMENTS: A derivative financial instrument in very
general terms refers to security whose value is "derived" from the value of an
underlying asset, reference rate or index.
The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio and to manage the portfolio's effective yield, foreign currency
exposure, maturity and duration. All of the Fund's portfolio holdings, including
derivative instruments, are marked-to-market each day with the change in value
reflected in unrealized appreciation/depreciation. Upon disposition, a realized
gain or loss is recognized accordingly, except when exercising a call option
contract or taking delivery of a security underlying a forward contract. In this
instance, the recognition of gain or loss is postponed until the disposal of the
security underlying the option or forward contract. Risks may arise as a result
of the potential inability of the counterparties to meet the terms of their
contracts.
Summarized below are the specific types of derivative financial instruments used
by the Fund.
1. SWAP AGREEMENTS: The Fund may enter into total return 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. Total return swaps involve commitments to pay interest in
exchange for a market-linked return based on a notional amount. To the extent
the total return of the security or index underlying the transactions exceeds or
falls short of the offsetting interest obligation, the Fund 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 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 Fund 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.
F-31
<PAGE>
VAN KAMPEN EQUITY GROWTH FUND
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of Van Kampen Series Fund, Inc.--
Van Kampen Equity Growth Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Van Kampen Equity Growth Fund (the
"Fund", a fund of Van Kampen Series Fund Inc.), at June 30, 1999, the results of
its operations, the changes in its net assets and the financial highlights for
each of the periods presented, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at June 30, 1999 by correspondence with the custodian
and brokers, provide a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
200 E. Randolph Dr.
Chicago, Illinois 60601
August 6, 1999
F-32
<PAGE>
VAN KAMPEN EQUITY GROWTH FUND
PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- --------------------------------------------------------------------
COMMON STOCKS (98.2%)
CAPITAL GOODS (20.9%)
General Electric Co..................... 18,600 $ 2,102
(a)Gulfstream Aerospace Corp............ 14,600 986
Pitney Bowes, Inc....................... 16,400 1,054
Textron, Inc............................ 7,600 626
Tyco International Ltd.................. 36,300 3,439
United Technologies Corp................ 26,300 1,885
(a)WESCO International, Inc............. 4,500 92
-------
10,184
-------
COMMUNICATION SERVICES (6.6%)
American Telephone & Telegraph Co....... 14,402 804
Bell Atlantic Corp...................... 11,100 725
(a)Crown Castle International Corp...... 11,600 241
(a)MCI WorldCom, Inc.................... 16,600 1,432
-------
3,202
-------
CONSUMER CYCLICALS (13.9%)
(a)Abercrombie & Fitch Co. 'A'.......... 12,800 614
(a)Berkshire Hathaway, Inc. 'B'......... 274 616
(a)Best Buy Co., Inc.................... 1,400 95
(a)Costco Cos., Inc..................... 12,300 985
Gap, Inc................................ 15,050 758
Harley-Davidson, Inc.................... 200 11
Home Depot, Inc......................... 19,900 1,282
Intimate Brands, Inc.................... 6,405 303
(a)Nielsen Media Research, Inc.......... 6,599 193
(a)Office Depot, Inc.................... 16,300 360
Omnicom Group, Inc...................... 6,800 544
Wal-Mart Stores, Inc.................... 20,300 980
-------
6,741
-------
CONSUMER STAPLES (14.5%)
Anheuser-Busch Cos., Inc. 'A'........... 4,000 284
(a)AT&T Corp., Liberty Media Group
'A'................................... 23,200 853
(a)Brinker International, Inc........... 4,900 133
(a)Chancellor Media Corp. 'A'........... 8,800 485
(a)Clear Channel Communications, Inc.... 22,500 1,551
Coca-Cola Enterprises, Inc.............. 8,000 238
Comcast Corp. 'A'....................... 2,600 93
Comcast Corp. 'A' (Special)............. 21,400 823
(a)Keebler Foods Co..................... 7,300 222
(a)MediaOne Group, Inc.................. 300 22
Philip Morris Cos., Inc................. 13,400 538
Procter & Gamble Co..................... 6,500 580
Time Warner, Inc........................ 16,900 1,242
-------
7,064
-------
ENERGY (0.4%)
Exxon Corp.............................. 2,400 185
-------
FINANCIAL (4.6%)
American Express Co..................... 6,800 885
Bank of New York Co., Inc............... 15,300 561
Citigroup, Inc.......................... 16,750 796
(a)E-LOAN, Inc.......................... 100 4
-------
2,246
-------
HEALTH CARE (13.2%)
American Home Products Corp............. 3,800 219
(a)Amgen, Inc........................... 10,200 621
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
Bristol-Myers Squibb Co................. 16,900 $ 1,190
Eli Lilly & Co.......................... 3,300 236
Johnson & Johnson....................... 4,800 471
Merck & Co., Inc........................ 15,800 1,169
Pfizer, Inc............................. 7,800 856
Pharmacia & Upjohn, Inc................. 3,700 210
Schering-Plough Corp.................... 7,800 413
Warner-Lambert Co....................... 14,600 1,013
-------
6,398
-------
TECHNOLOGY (23.8%)
(a)America Online, Inc.................. 5,400 597
(a)American Tower Corp. 'A'............. 13,300 319
(a)Applied Materials, Inc............... 6,600 488
Ask Jeeves, Inc......................... 300 4
(a)At Home Corp. 'A'.................... 2,300 124
(a)BMC Software, Inc.................... 3,600 194
(a)CIENA Corp........................... 1,500 45
(a)Cisco Systems, Inc................... 29,500 1,903
Clarent Corp............................ 100 2
(a)Compuware Corp....................... 6,700 213
(a)General Motors Corp. 'H'............. 3,600 203
Intel Corp.............................. 21,800 1,297
(a)Juniper Networks, Inc................ 1,300 194
(a)L-3 Communications Holdings, Inc..... 2,200 106
(a)Litton Industries, Inc............... 4,700 337
(a)Loral Space & Communications Ltd..... 19,100 344
Lucent Technologies, Inc................ 6,700 452
(a)Microsoft Corp....................... 24,900 2,246
Motorola, Inc........................... 8,900 843
(a)New Era of Networks, Inc............. 4,100 180
(a)Novell, Inc.......................... 11,900 315
(a)Oracle Corp.......................... 3,400 126
(a)Quantum Corp......................... 8,600 208
(a)Sun Microsystems, Inc................ 2,800 193
Texas Instruments, Inc.................. 2,200 319
(a)Uniphase Corp........................ 1,800 299
-------
11,551
-------
UTILITIES (0.3%)
Montana Power Co........................ 2,000 141
-------
TOTAL LONG-TERM INVESTMENTS (98.2%) (COST $38,538)....... 47,712
-------
<CAPTION>
PAR
VALUE
(000)
-------
SHORT-TERM INVESTMENT (2.5%)
<S> <C> <C>
REPURCHASE AGREEMENT (2.5%)
Chase Securities, Inc., 4.55%, dated $ 1,242
6/30/99, due 7/1/99, to be repurchased
at $1,242, collateralized by $1,155
U.S. Treasury Bonds, 7.25%, due 5/15/16
valued at $1,284 (COST $1,242)................... 1,242
-------
TOTAL INVESTMENTS (100.7%) (COST $39,780)................ 48,954
LIABILITIES IN EXCESS OF OTHER ASSETS (-0.7%)............ (356)
-------
NET ASSETS (100%)........................................ $48,598
=======
</TABLE>
- ---------------
<TABLE>
<S> <C> <C>
(a) -- Non-income producing security
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-33
<PAGE>
VAN KAMPEN EQUITY GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- -------------------------------------------------------------------------
ASSETS:
Investments at Value (Cost $39,780)....................... $48,954
Receivable for:
Investments Sold........................................ 515
Fund Shares Sold........................................ 254
Dividends............................................... 25
Deferred Organizational Costs............................. 15
Other..................................................... 8
-------
Total Assets............................................ 49,771
-------
LIABILITIES:
Payable for:
Investments Purchased................................... 1,000
Distribution Fees....................................... 56
Fund Shares Redeemed.................................... 31
Investment Advisory Fees................................ 19
Professional Fees....................................... 18
Custody Fees............................................ 11
Shareholder Reporting Expenses.......................... 11
Administrative Fees..................................... 10
Directors' Fees and Expenses............................ 9
Transfer Agent Fees..................................... 6
Bank Overdraft.......................................... 2
-------
Total Liabilities..................................... 1,173
-------
NET ASSETS.................................................. $48,598
-------
NET ASSETS CONSIST OF:
Capital Stock at Par ($.001 par value, Shares Authorized
2,625,000,000).......................................... $ 4
Paid in Capital in Excess of Par.......................... 39,285
Net Unrealized Appreciation on Investments................ 9,174
Accumulated Net Realized Gain............................. 143
Accumulated Net Investment Loss........................... (8)
-------
NET ASSETS.................................................. $48,598
=======
CLASS A SHARES:
Net Asset Value and Redemption Price Per Share (Based on
Net Assets of $17,185,350 and 1,370,069 Shares
Outstanding)............................................ $ 12.54
=======
Maximum Sales Charge...................................... 5.75%
Maximum Offering Price Per Share (Net Asset Value Per
Share x 100/ (100 - maximum sales charge)).............. $ 13.31
=======
CLASS B SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $23,977,419 and 1,926,071 Shares
Outstanding)*........................................... $ 12.45
=======
CLASS C SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $7,435,116 and 597,570 Shares Outstanding)*... $ 12.44
=======
</TABLE>
- ---------------
<TABLE>
<S> <C>
* Redemption price may be subject to a contingent deferred
sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-34
<PAGE>
VAN KAMPEN EQUITY GROWTH FUND
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- ------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends................................................. $ 230
Interest.................................................. 85
------
Total Income............................................ 315
------
EXPENSES:
Investment Advisory Fees.................................. 274
Distribution Fees (Attributed to Classes A, B, and C of
$30, $163, and $58, respectively)....................... 251
Custodian Fees............................................ 85
Filing and Registration Fees.............................. 30
Administrative Fees....................................... 91
Professional Fees......................................... 25
Shareholder Reports....................................... 35
Amortization of Organizational Costs...................... 19
Directors' Fees and Expenses.............................. 9
Transfer Agent Fees....................................... 17
Other..................................................... 7
------
Total Expenses.......................................... 843
Less Expense Reductions................................. (164)
------
Net Expenses............................................ 679
------
Net Investment Income/Loss.................................. (364)
------
NET REALIZED GAIN/LOSS ON:
Investments............................................... 502
------
NET UNREALIZED APPRECIATION/DEPRECIATION:
Beginning of the Period................................... 138
------
End of the Period
Investments............................................. 9,174
------
Net Unrealized Appreciation/Depreciation During the
Period.................................................... 9,036
------
Net Realized Gain/Loss and Net Unrealized
Appreciation/Depreciation................................. 9,538
------
NET INCREASE/DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................................ $9,174
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-35
<PAGE>
VAN KAMPEN EQUITY GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED MAY 29, 1998*
JUNE 30, 1999 TO JUNE 30, 1998
(000) (000)
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------
INCREASE/DECREASE IN NET ASSETS
OPERATIONS:
Net Investment Income/Loss................................ $ (364) $ --
Net Realized Gain/Loss.................................... 502 5
Net Unrealized Appreciation/Depreciation.................. 9,036 138
------------- ---------------
Net Increase/Decrease in Net Assets Resulting from
Operations.............................................. 9,174 143
------------- ---------------
DISTRIBUTIONS:
Net Realized Gain:
Class A................................................... (3) --
Class B................................................... (4) --
Class C................................................... (1) --
------------- ---------------
Net Decrease in Net Assets Resulting from Distributions... (8) --
------------- ---------------
CAPITAL SHARES TRANSACTIONS (1):
Subscribed................................................ 47,489 --
Distributions Reinvested.................................. 8 --
Redeemed.................................................. (13,208) --
------------- ---------------
Net Increase/Decrease in Net Assets Resulting from Capital
Share Transactions...................................... 34,289 --
------------- ---------------
Total Increase/Decrease in Net Assets..................... 43,455 --
NET ASSETS--Beginning of Period............................. 5,143 5,000
------------- ---------------
NET ASSETS--End of Period (Including accumulated net
investment loss of $(8) at June 30, 1999)................. $ 48,598 $ 5,143
============= ===============
- ------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
(1) CLASS A:
Shares:
Subscribed............................................. 1,629 200
Distributions Reinvested............................... -- --
Redeemed............................................... (459) --
------------- ---------------
Net Increase/Decrease in Class A Shares Outstanding...... 1,170 200
============= ===============
Dollars:
Subscribed............................................. $ 16,596 --
Distributions Reinvested............................... 3 --
Redeemed............................................... (4,778) --
------------- ---------------
Net Increase/Decrease.................................... $ 11,821 --
============= ===============
Ending Paid in Capital................................... $ 13,821 $ 2,000
============= ===============
CLASS B:
Shares:
Subscribed............................................. 2,258 150
Distributions Reinvested............................... -- --
Redeemed............................................... (482) --
------------- ---------------
Net Increase/Decrease in Class B Shares Outstanding...... 1,776 150
============= ===============
Dollars:
Subscribed............................................. $ 23,038 --
Distributions Reinvested............................... 4 --
Redeemed............................................... (5,054) --
------------- ---------------
Net Increase/Decrease $ 17,988 --
============= ===============
Ending Paid in Capital................................... $ 19,488 $ 1,500
============= ===============
CLASS C:
Shares:
Subscribed............................................. 788 150
Distributions Reinvested............................... -- --
Redeemed............................................... (340) --
------------- ---------------
Net Increase/Decrease in Class C Shares Outstanding 448 150
============= ===============
Dollars:
Subscribed............................................. $ 7,855 --
Distributions Reinvested............................... 1 --
Redeemed............................................... (3,376) --
------------- ---------------
Net Increase/Decrease.................................... $ 4,480 --
============= ===============
Ending Paid in Capital................................... $ 5,980 $ 1,500
============= ===============
- ------------------------------------------------------------------------------------------------------
* Commencement of operations
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-36
<PAGE>
VAN KAMPEN EQUITY GROWTH FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
--------------------------------- --------------------------------- --------------
YEAR ENDED MAY 29, 1998* YEAR ENDED MAY 29, 1998* YEAR ENDED
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1999# TO JUNE 30, 1998 JUNE 30, 1999# TO JUNE 30, 1998 JUNE 30, 1999#
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD..... $ 10.291 $ 10.00 $ 10.284 $ 10.00 $ 10.284
-------------- --------------- -------------- --------------- --------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss............. (0.062) -- (0.144) -- (0.141)
Net Realized and Unrealized
Gain/Loss............................ 2.317 0.29 2.312 0.28 2.302
-------------- --------------- -------------- --------------- --------------
Total From Investment Operations....... 2.255 0.29 2.168 0.28 2.161
-------------- --------------- -------------- --------------- --------------
DISTRIBUTIONS
Net Realized Gain...................... (0.003) -- (0.003) -- (0.003)
-------------- --------------- -------------- --------------- --------------
NET ASSET VALUE, END OF PERIOD........... $ 12.543 $ 10.29 $ 12.449 $ 10.28 $ 12.442
============== =============== ============== =============== ==============
TOTAL RETURN (1)......................... 21.90% 2.90%** 21.14% 2.80%** 21.04%
============== =============== ============== =============== ==============
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)........ $ 17,185 $ 2,057 $ 23,978 $ 1,543 $ 7,435
Ratio of Expenses to Average Net
Assets................................. 1.50% 1.50% 2.25% 2.25% 2.25%
Ratio of Net Investment Income/Loss to
Average Net Assets..................... (0.57)% 0.51% (1.34)% (0.25)% (1.32)%
Portfolio Turnover Rate.................. 126% 19%** 126% 19%** 126%
- ---------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation
During the Period
Per Share Benefit to Net Investment
Income/Loss.......................... $ 0.05 $ 0.02 $ 0.05 $ 0.02 $ 0.05
Ratios Before Expense Limitation:
Expenses to Average Net Assets......... 1.98% 4.06% 2.72% 4.81% 2.75%
Net Investment Income/Loss to Average
Net Assets........................... (1.05)% (2.05)% (1.81)% (2.81)% (1.81)%
<CAPTION>
CLASS C
----------------
MAY 29, 1998*
SELECTED PER SHARE DATA AND RATIOS TO JUNE 30, 1998
<S> <C>
- -----------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD..... $ 10.00
---------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss............. --
Net Realized and Unrealized
Gain/Loss............................ 0.28
---------------
Total From Investment Operations....... 0.28
---------------
DISTRIBUTIONS
Net Realized Gain...................... --
---------------
NET ASSET VALUE, END OF PERIOD........... $ 10.28
===============
TOTAL RETURN (1)......................... 2.80%**
===============
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)........ $ 1,543
Ratio of Expenses to Average Net
Assets................................. 2.25%
Ratio of Net Investment Income/Loss to
Average Net Assets..................... (0.25)%
Portfolio Turnover Rate.................. 19%**
- -------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation
During the Period
Per Share Benefit to Net Investment
Income/Loss.......................... $ 0.02
Ratios Before Expense Limitation:
Expenses to Average Net Assets......... 4.81%
Net Investment Income/Loss to Average
Net Assets........................... (2.81)%
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
* Commencement of operations
** Non-Annualized
(1) Total return is calculated exclusive of sales charges or
deferred sales charges.
# Changes per share are based upon monthly average shares
outstanding.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-37
<PAGE>
VAN KAMPEN EQUITY GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
The Van Kampen Equity Growth Fund (the "Fund") is organized as a separate
diversified fund of Van Kampen Series Fund, Inc., a Maryland Corporation, which
is registered as an open-end management investment company under the Investment
Company Act of 1940, as amended. The Fund's investment objective is to seek
long-term capital appreciation by investing primarily in growth-oriented equity
securities of medium and large capitalization companies. The Fund commenced
operations on May 29, 1998.
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 and Class C
shares are offered without a front end sales charge, but are subject to a
contingent deferred sales charge ("CDSC"). Class B shares will automatically
convert to Class A shares after the eighth year following purchase. The CDSC
will be imposed on most redemptions made within five years of the purchase for
Class B shares and one year of the purchase for Class C shares as detailed in
the following schedule:
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE
-----------------------
YEAR OF REDEMPTION CLASS B CLASS C
- ------------------ ------- -------
<S> <C> <C>
First..................................... 5.00% 1.00%
Second.................................... 4.00% None
Third..................................... 3.00% None
Fourth.................................... 2.50% None
Fifth..................................... 1.50% None
Thereafter................................ None None
</TABLE>
All three classes of shares have identical voting, dividend, liquidation and
other rights.
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. 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. 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. SECURITY TRANSACTIONS: Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements, which are short-term investments
in which the Fund acquires ownership of a debt security and the seller agrees to
repurchase the security at a future time and specified price. Repurchase
agreements are fully collateralized by the underlying debt security. 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.
3. INCOME AND EXPENSES: Dividend income is recorded on the ex-dividend date.
Interest income is recognized on the accrual basis except where collection is in
doubt. 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 Fund are recorded on the
ex-distribution date.
4. ORGANIZATIONAL COSTS: The organizational costs of the Fund are being
amortized on a straight line basis over a period of five years beginning with
the Fund's commencement of operations. The Adviser has agreed that in the event
any of the initial shares of the Fund originally purchased by Van Kampen are
redeemed by the Fund during the amortization period, the Fund will be reimbursed
for any unamortized organizational costs in the same proportion as the number of
shares redeemed bears to the number of initial shares held at the time of
redemption.
5. TAXES: It is the Fund's intention to qualify as a regulated investment
company and distribute substantially all of its taxable income. Accordingly, no
provision for U.S. Federal income taxes is required in the financial statements.
At June 30, 1999, cost and unrealized appreciation/ depreciation for
U.S. Federal income tax purposes of the investments of the Fund was:
<TABLE>
<CAPTION>
NET
APPRECIATION/
COST APPREC. DEPREC. DEPRECIATION
(000) (000) (000) (000)
- --------------------- -------- -------- -------------
<S> <C> <C> <C>
$40,175 $9,158 $(379) $8,779
</TABLE>
F-38
<PAGE>
VAN KAMPEN EQUITY GROWTH FUND
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
6. DISTRIBUTION OF INCOME AND GAINS: 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.
Permanent book to tax basis differences relating to shareholder distributions
may result in reclassification among accumulated net investment income/loss,
accumulated net realized gain/loss, and paid in capital in excess of par. For
the year ended June 30, 1999, approximately $356,000 has been reclassified from
accumulated net realized gain and posted to accumulated net investment loss.
Permanent book to tax basis differences are not included in ending
undistributed/distributions in excess of net investment income for the purpose
of calculating net investment income/loss per share in the Financial Highlights.
B. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES: Van
Kampen Investment Advisory Corp. (the "Adviser"), a wholly owned subsidiary of
Van Kampen Investments Inc. (an indirect wholly owned subsidiary of Morgan
Stanley Dean Witter & Co.) and Morgan Stanley Dean Witter Investment
Management Inc. ("MSDWIM" or a "Subadviser"), a wholly owned subsidiary 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 Fund 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
ADVISORY FEE EXPENSE RATIO EXPENSE RATIO
- --------------------- -------------- --------------
<S> <C> <C>
0.80% 1.50% 2.25%
</TABLE>
For the year ended June 30, 1999, the Fund recognized expenses of approximately
$3,000 representing legal services provided by Skadden, Arps, Slate, Meagher &
Flom (Illinois), counsel to the Fund, of which a director of the Fund is an
affiliated person.
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 Fund, 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 Adviser.
Van Kampen Funds Inc. the ("Distributor") a wholly owned subsidiary of Van
Kampen Investments Inc., an indirect 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 Fund 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% of the Class B and Class C shares of the Fund, on an
annualized basis, of the average daily net assets attributable to each Class.
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 the Fund
redeemed within one to five years following such purchase. For the year ended
June 30, 1999, the Distributor has advised the Fund that it earned initial sales
charges of $449,522 for Class A shares and deferred sales charges of $1,488,
$69,097, and $6,772 for Class A shares, Class B shares, and Class C shares,
respectively.
Certain officers and directors of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or directors who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its directors
who are not officers of Van Kampen. Under the deferred compensation plan,
Directors 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 Director's years of service to the Fund. The maximum annual
benefit per director under the plan is $2,500.
During the year ended June 30, 1999, the Fund incurred approximately $2,000 as
brokerage commissions with Morgan Stanley & Co. Incorporated, an affiliated
broker/dealer.
C. INVESTMENT TRANSACTIONS: For the year ended June 30, 1999, the Fund made
purchases of approximately $73,882,000 and sales of approximately $40,725,000 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.
F-39
<PAGE>
VAN KAMPEN EUROPEAN EQUITY FUND
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of Van Kampen Series Fund, Inc.--
Van Kampen European Equity Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Van Kampen European Equity Fund
(the "Fund", a fund of Van Kampen Series Fund, Inc.) at June 30, 1999, the
results of its operations, the changes in its net assets and the financial
highlights for the period September 25, 1998 (commencement of operations)
through June 30, 1999, 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, 1999 by correspondence with the custodian
and brokers, provides a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
200 E. Randolph Dr.
Chicago, Illinois 60601
August 6, 1999
F-40
<PAGE>
VAN KAMPEN EUROPEAN EQUITY FUND
PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- ----------------------------------------------------------------------
COMMON STOCKS (94.1%)
BELGIUM (0.5%)
Fortis 'B'.................................... 550 $ 17
G.I.B. Holdings Ltd........................... 427 16
------
33
------
DENMARK (2.4%)
Novo Nordisk A/S 'B'.......................... 860 93
Unidanmark A/S 'A' (Registered)............... 940 63
------
156
------
FINLAND (3.0%)
KCI Konecranes International plc.............. 525 18
Kone Oyj 'B'.................................. 290 36
Merita Ltd. 'A'............................... 14,200 81
Sampo Insurance Co., plc 'A'.................. 2,190 64
------
199
------
FRANCE (14.3%)
Alcatel....................................... 460 65
Axa S.A....................................... 330 40
Banque Nationale de Paris..................... 225 18
Compagnie de Saint-Gobain..................... 490 78
(a)CNP Assurances............................. 3,810 104
Elf Aquitaine................................. 455 67
Groupe Danone RFD............................. 240 62
Michelin (C.G.D.E.) 'B'....................... 1,940 80
Pernod-Ricard................................. 1,210 81
Rhone-Poulenc S.A. 'A'........................ 1,820 83
Schneider S.A................................. 1,570 88
Suez Lyonnaise des Eaux....................... 190 35
(a)Total S.A. 'B'............................. 1,035 134
------
935
------
GERMANY (8.1%)
Adidas-Salomon AG............................. 462 45
BASF AG....................................... 1,760 77
Bayerische AG................................. 1,275 81
Berliner KraftUnd Litch 'A'................... 2,701 42
Hoechst AG.................................... 1,873 85
Mannesmann AG................................. 150 22
Schering AG................................... 680 73
Siemens AG.................................... 250 19
Volkswagen AG................................. 1,380 89
------
533
------
IRELAND (1.9%)
Bank of Ireland............................... 5,320 90
Greencore Group plc........................... 12,300 38
------
128
------
ITALY (5.1%)
Banca Popolare di Bergamo..................... 3,910 86
Marzotto S.p.A................................ 4,630 36
Mediaset S.p.A................................ 9,400 84
Telecom Italia S.p.A.......................... 12,500 130
------
336
------
NETHERLANDS (5.8%)
ABN Amro Holdings N.V......................... 1,170 25
Akzo Nobel N.V................................ 2,180 92
Benckiser N.V. 'B'............................ 700 37
ING Groep N.V................................. 2,235 121
<CAPTION>
VALUE
SHARES (000)
- ----------------------------------------------------------------------
<S> <C> <C>
Laurus N.V.................................... 1,094 $ 26
Philips Electronics N.V....................... 791 78
------
379
------
PORTUGAL (1.8%)
Banco Comercial Portugues S.A. (Registered)... 1,550 40
Electricidade de Portugal S.A................. 4,220 76
------
116
------
SPAIN (4.5%)
Banco Popular Espanol S.A..................... 550 40
Banco Santander Central Hispano S.A........... 3,340 35
Endesa S.A.................................... 3,260 69
Iberdrola S.A................................. 4,430 67
(a)Telefonica de Espana....................... 1,714 83
------
294
------
SWEDEN (5.6%)
Autoliv, Inc. SDR............................. 2,590 79
Ericsson LM 'B'............................... 1,200 39
ForeningsSparbanker AB........................ 1,300 18
Nordbanken Holding AB......................... 12,450 73
Svedala Industri AB........................... 3,410 62
Svenska Handelsbanken 'A'..................... 7,920 95
------
366
------
SWITZERLAND (12.1%)
Cie Financiere Richemont AG 'A'............... 108 208
Holderbank Financiere Glarus AG 'B'
(Bearer).................................... 85 101
Nestle S.A. (Registered)...................... 111 200
Novartis AG (Registered)...................... 65 95
Roche Holding AG-Genusshein................... 7 72
Schindler Holding AG (Registered)............. 25 39
Union Bank of Switzerland AG (Registered)..... 255 76
------
791
------
UNITED KINGDOM (29.0%)
Aegis Group plc............................... 23,560 52
Allied Domecq plc............................. 10,570 102
Allied Zurich plc............................. 7,950 100
BG plc........................................ 13,100 80
BOC Group plc................................. 4,350 85
British Telecommunications plc................ 7,950 133
Burmah Castrol plc............................ 3,591 68
Capital Radio plc............................. 5,950 79
Centrica plc.................................. 23,400 55
Diageo plc.................................... 5,760 60
Glaxo Wellcome plc............................ 1,200 33
Great Universal Stores plc.................... 8,800 98
Halma plc..................................... 24,800 41
Imperial Tobacco Group plc.................... 9,300 102
Lloyds TSB Group plc.......................... 4,000 54
Morgan Crucible Co. plc....................... 10,900 46
Prudential Corp. plc.......................... 5,800 85
Reckitt & Colman plc.......................... 11,294 118
Royal & Sun Alliance Insurance Group plc...... 6,473 58
Royal Bank of Scotland Group plc.............. 5,320 71
Sainsbury (J) plc............................. 5,000 32
Scottish & Southern Energy plc................ 8,200 84
Shell Transport & Trading Co. plc............. 5,600 42
Smith & Nephew plc............................ 26,700 81
SSL International plc......................... 3,200 37
Tesco plc..................................... 10,800 28
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-41
<PAGE>
VAN KAMPEN EUROPEAN EQUITY FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ----------------------------------------------------------------------
<S> <C> <C>
</TABLE>
UNITED KINGDOM (CONT.)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ----------------------------------------------------------------------
<S> <C> <C>
United News & Media plc....................... 200 $ 2
WPP Group plc................................. 9,100 77
------
1,903
------
TOTAL COMMON STOCKS......................................... 6,169
------
PREFERRED STOCKS (3.1%)
GERMANY (3.1%)
Fresenius AG.................................. 684 120
Henkel KGaA AG................................ 735 52
Suedzucker AG-Varzug.......................... 84 33
------
TOTAL PREFERRED STOCKS...................................... 205
------
TOTAL LONG-TERM INVESTMENTS (97.2%) (COST $6,205)........... 6,374
------
<CAPTION>
PAR
VALUE
(000)
--------
SHORT-TERM INVESTMENT (5.4%)
<S> <C> <C>
REPURCHASE AGREEMENT (5.4%)
Chase Securities, Inc., 4.55%, dated 6/30/99, $ 354
due 7/1/99, to be repurchased at $354, collateralized
by $295 U.S. Treasury Bonds, 11.125%, due 8/15/03,
valued at $364 (COST $354)............................ 354
TOTAL INVESTMENTS IN SECURITIES (102.6%) (COST $6,559)...... 6,728
------
FOREIGN CURRENCY (0.3%) (COST $18).......................... 18
------
</TABLE>
<TABLE>
<CAPTION>
VALUE
(000)
<S> <C> <C>
- --------------------------------------------------------------------
TOTAL INVESTMENTS (102.9%) (COST $6,577).................. $6,746
LIABILITIES IN EXCESS OF OTHER ASSETS (-2.9%)............. (187)
------
NET ASSETS (100%)......................................... $6,559
======
</TABLE>
- ---------------
<TABLE>
<S> <C> <C>
(a) -- Non-income producing security
RFD -- Ranked for Dividend
SDR -- Swedish Depositary Receipt
</TABLE>
- ----------------------------------------------------------------
SUMMARY OF LONG-TERM INVESTMENTS BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
- -------- ------ ----------
<S> <C> <C>
Consumer Goods.............. $2,041 31.1%
Finance..................... 1,536 23.4
Services.................... 903 13.8
Energy...................... 785 12.0
Materials................... 664 10.1
Capital Equipment........... 445 6.8
------ ----
$6,374 97.2%
====== ====
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-42
<PAGE>
VAN KAMPEN EUROPEAN EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- ------------------------------------------------------------------------
ASSETS:
Investments in Securities, at Value (Cost $6,559)......... $6,728
Foreign Currency (Cost $18)............................... 18
Cash...................................................... 8
Receivable for:
Investments Sold........................................ 33
Fund Shares Sold........................................ 25
Dividends............................................... 15
Foreign Withholding Tax Reclaim......................... 6
------
Total Assets.......................................... 6,833
------
LIABILITIES:
Payable for:
Investments Purchased................................... 144
Filing and Registration Fees............................ 34
Professional Fees....................................... 29
Custody Fees............................................ 23
Shareholder Reporting Expenses.......................... 14
Distribution Fees....................................... 8
Advisory Fees........................................... 7
Transfer Agent Fees..................................... 6
Directors' Fees and Expenses............................ 5
Administrative Fees..................................... 2
Fund Shares Redeemed.................................... 1
Other..................................................... 1
------
Total Liabilities..................................... 274
------
NET ASSETS.................................................. $6,559
======
NET ASSETS CONSIST OF:
Capital Stock at Par ($.001 par value, Shares Authorized
2,625,000,000).......................................... $ 1
Paid in Capital in Excess of Par.......................... 6,296
Net Unrealized Appreciation on Investments................ 169
Accumulated Net Investment Income......................... 73
Accumulated Net Realized Gain............................. 20
------
NET ASSETS.................................................. $6,559
======
CLASS A SHARES:
Net Asset Value and Redemption Price Per Share (Based on
Net Assets of $2,020,496 and 189,743 Shares
Outstanding)............................................ $10.65
======
Maximum Sales Charge...................................... 5.75%
Maximum Offering Price Per Share (Net Asset Value Per
Share x 100/ (100 - maximum sales charge)).............. $11.30
======
CLASS B SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $3,081,562 and 290,172 Shares Outstanding)*... $10.62
======
CLASS C SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $1,456,542 and 137,493 Shares Outstanding)*... $10.59
======
</TABLE>
- ---------------
<TABLE>
<S> <C>
* Redemption price may be subject to a contingent deferred
sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-43
<PAGE>
VAN KAMPEN EUROPEAN EQUITY FUND
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
SEPTEMBER 25, 1998* TO JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- -----------------------------------------------------------------------
INVESTMENT INCOME:
Dividends................................................. $ 130
Interest.................................................. 18
Less Foreign Taxes Withheld............................... (17)
-----
Total Income............................................. 131
-----
EXPENSES:
Shareholder Reports....................................... 51
Custodian Fees............................................ 39
Investment Advisory Fees.................................. 39
Filing and Registration Fees.............................. 38
Professional Fees......................................... 35
Distribution Fees (Attributed to Classes A, B, and C of
$3, $17, and $10, respectively)......................... 30
Administrative Fees....................................... 14
Directors' Fees and Expenses.............................. 6
Transfer Agent Fees....................................... 6
Other..................................................... 2
-----
Total Expenses........................................... 260
Less Expense Reductions.................................. (173)
-----
Net Expenses............................................. 87
-----
Net Investment Income/Loss.................................. 44
-----
NET REALIZED GAIN/LOSS ON:
Investments............................................... 20
Foreign Currency Transactions............................. (9)
-----
Net Realized Gain/Loss................................... 11
-----
NET UNREALIZED APPRECIATION/DEPRECIATION:
Beginning of the Period................................... --
-----
End of the Period:
Investments............................................. 169
-----
Net Unrealized Appreciation/Depreciation During the
Period.................................................... 169
-----
Net Realized Gain/Loss and Net Unrealized
Appreciation/Depreciation................................. 180
-----
NET INCREASE/DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................................ $ 224
=====
</TABLE>
- ---------------
<TABLE>
<S> <C>
* Commencement of operations
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-44
<PAGE>
VAN KAMPEN EUROPEAN EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
SEPTEMBER 25, 1998* TO JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- -------------------------------------------------------------------------
INCREASE/DECREASE IN NET ASSETS
OPERATIONS:
Net Investment Income/Loss................................ $ 44
Net Realized Gain/Loss.................................... 11
Net Unrealized Appreciation/Depreciation.................. 169
-------
Net Increase/Decrease in Net Assets Resulting from
Operations.............................................. 224
-------
DISTRIBUTIONS:
Net Investment Income:
Class A................................................... (3)
Class B................................................... (1)
Class C................................................... (1)
-------
Net Decrease in Net Assets Resulting from Distributions... (5)
-------
CAPITAL SHARES TRANSACTIONS (1):
Subscribed................................................ 4,084
Distributions Reinvested.................................. 1
Redeemed.................................................. (745)
-------
Net Increase/Decrease in Net Assets Resulting from Capital
Share Transactions...................................... 3,340
-------
Total Increase/Decrease in Net Assets..................... 3,559
NET ASSETS--Beginning of Period............................. 3,000
-------
NET ASSETS--End of Period (Including accumulated net
investment income of $73 at June 30, 1999)................ $ 6,559
=======
- -------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (000):
(1) Class A:
------------
Shares:
Subscribed (Initial Shares of 100)..................... 205
Distributions Reinvested............................... --
Redeemed............................................... (15)
-------
Net Increase/Decrease in Class A Shares Outstanding...... 190
=======
Dollars:
Subscribed............................................. $ 1,098
Distributions Reinvested............................... 1
Redeemed............................................... (157)
-------
Net Increase/Decrease.................................... $ 942
=======
Beginning Paid in Capital................................ $ 1,000
=======
Ending Paid in Capital................................... $ 1,942+
=======
Class B:
------------
Shares:
Subscribed (Initial Shares of 100)..................... 305
Distributions Reinvested............................... --
Redeemed............................................... (15)
-------
Net Increase/Decrease in Class B Shares Outstanding...... 290
=======
Dollars:
Subscribed............................................. $ 2,142
Distributions Reinvested............................... --
Redeemed............................................... (152)
-------
Net Increase/Decrease.................................... $ 1,990
=======
Beginning Paid in Capital................................ $ 1,000
=======
Ending Paid in Capital................................... $ 2,990+
=======
Class C:
------------
Shares:
Subscribed (Initial Shares of 100)..................... 179
Distributions Reinvested............................... --
Redeemed............................................... (42)
-------
Net Increase/Decrease in Class C Shares Outstanding...... 137
=======
Dollars:
Subscribed............................................. $ 844
Distributions Reinvested............................... --
Redeemed............................................... (436)
-------
Net Increase/Decrease.................................... $ 408
=======
Beginning Paid in Capital................................ $ 1,000
=======
Ending Paid in Capital................................... $ 1,408+
=======
</TABLE>
------------------
<TABLE>
<S> <C>
* Commencement of operations
+ Ending Paid in Capital amounts do not reflect permanent book
to tax differences.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-45
<PAGE>
VAN KAMPEN EUROPEAN EQUITY FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
---------------------- ---------------------- ----------------------
SEPTEMBER 25, 1998* TO SEPTEMBER 25, 1998* TO SEPTEMBER 25, 1998* TO
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1999# JUNE 30, 1999# JUNE 30, 1999#
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD......... $ 10.000 $ 10.000 $ 10.000
--------------------- --------------------- ---------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss................. 0.133 0.078 0.065
Net Realized and Unrealized Gain/Loss...... 0.541 0.548 0.534
--------------------- --------------------- ---------------------
Total From Investment Operations........... 0.674 0.626 0.599
--------------------- --------------------- ---------------------
DISTRIBUTIONS
Net Investment Income...................... (0.025) (0.006) (0.006)
--------------------- --------------------- ---------------------
NET ASSET VALUE, END OF PERIOD............... $ 10.649 $ 10.620 $ 10.593
===================== ===================== =====================
TOTAL RETURN (1)............................. 6.75%** 6.26%** 5.96%**
===================== ===================== =====================
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)............ $ 2,020 $ 3,082 $ 1,457
Ratio of Expenses to Average Net Assets...... 1.70% 2.45% 2.45%
Ratio of Net Investment Income/Loss to
Average Net Assets......................... 1.64% 0.96% 0.81%
Portfolio Turnover Rate...................... 51%** 51%** 51%**
- ---------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During
the Period
Per Share Benefit to Net Investment
Income/Loss................................ $ 0.36 $ 0.34 $ 0.40
Ratios Before Expense Limitation:
Expenses to Average Net Assets............. 6.20% 6.61% 7.33%
Net Investment Income/Loss to Average Net
Assets................................... (2.87)% (3.20)% (4.13)%
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
* Commencement of operations
** Non-Annualized
(1) Total return is calculated exclusive of sales charges or
deferred sales charges.
# Changes per share are based upon monthly average shares
outstanding.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-46
<PAGE>
VAN KAMPEN EUROPEAN EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
The Van Kampen European Equity Fund (the "Fund") is organized as a separate
diversified fund of Van Kampen Series Fund, Inc., a Maryland Corporation, which
is registered as an open-end management investment company under the Investment
Company Act of 1940, as amended. The Fund's investment objective seeks long-term
capital appreciation. The Fund commenced operations on September 25, 1998.
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 and Class C
shares are offered without a front end sales charge, but are subject to a
contingent deferred sales charge ("CDSC"). Class B shares will automatically
convert to Class A shares after the eighth year following purchase. The CDSC
will be imposed on most redemptions made within five years of the purchase for
Class B shares and one year of the purchase for Class C shares as detailed in
the following schedule:
<TABLE>
CONTINGENT DEFERRED
SALES CHARGE
-------------------
YEAR OF REDEMPTION CLASS B CLASS C
- --------------------------------------------- ----- -----
<S> <C> <C>
First........................................ 5.00% 1.00%
Second....................................... 4.00% None
Third........................................ 3.00% None
Fourth....................................... 2.50% None
Fifth........................................ 1.50% None
Thereafter................................... None None
</TABLE>
All three classes of shares have identical voting, dividend, liquidation and
other rights.
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. 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. SECURITY TRANSACTIONS: Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements, which are short-term investments
in which the Fund acquires ownership of a debt security and the seller agrees to
repurchase the security at a future time and specified price. Repurchase
agreements are fully collateralized by the underlying debt security. 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.
3. INCOME AND EXPENSES: Dividend income is recorded on the ex-dividend date, net
of applicable withholding taxes where recovery of such taxes is not reasonably
assured. Interest income is recognized on an accrual basis except where
collection is in doubt. 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 Fund are
recorded on the ex-distribution date.
4. FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS: The Fund 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 Fund as
unrealized gain or loss on foreign currency translation.
Assets and liabilities denominated in foreign currencies and commitments under
forward currency contracts are translated into U.S. dollars at the mean of the
quoted bid and asked prices. Purchases and sales of portfolio securities are
translated at the rate of exchange prevailing when such securities were
purchased or sold. Income and expenses are
F-47
<PAGE>
VAN KAMPEN EUROPEAN EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
translated at rates prevailing when accrued. Realized and unrealized gains and
losses on securities are not segregated for financial reporting purposes from
amounts arising from changes in the market prices of securities. Realized gains
and losses on foreign currency includes the net realized amount from the sale of
the currency and the amount realized between trade date and settlement date on
security and income transactions. However, 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.
Risks may arise upon entering into these contracts from the potential inability
of counterparties to meet the terms of their contracts. Risks may also arise
from the unanticipated movements in the value of a foreign currency relative to
the U.S. dollar.
5. TAXES: It is the Fund's intention to qualify as a regulated investment
company and distribute substantially all of its taxable income. Accordingly, no
provision for U.S. Federal income taxes is required in the financial statements.
The Fund 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, 1999, cost and unrealized appreciation/ depreciation for U.S.
Federal income tax purposes of the investments of the Fund was:
<TABLE>
<CAPTION>
NET
APPRECIATION/
COST APPREC. DEPREC. DEPRECIATION
(000) (000) (000) (000)
- --------------------- -------- -------- -------------
<S> <C> <C> <C>
$6,565 $458 $(295) $163
</TABLE>
6. DISTRIBUTION OF INCOME AND GAINS: 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.
Permanent book to tax basis differences relating to shareholder distributions
may result in reclassification among accumulated net investment income/loss,
accumulated net realized gain/loss, and paid in capital in excess of par. For
the year ended June 30, 1999, approximately $43,000 has been reclassified from
paid in capital in excess of par with approximately $34,000 posted to
accumulated net investment income and approximately $9,000 posted to accumulated
net realized gain.
Permanent book to tax basis differences are not included in ending
undistributed/distributions in excess of net investment income for the purpose
of calculating net investment income/loss per share in the Financial Highlights.
B. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES: Van
Kampen Investment Advisory Corp. (the "Adviser"), a wholly owned subsidiary of
Van Kampen Investments Inc. (an indirect wholly owned subsidiary of Morgan
Stanley Dean Witter & Co.), and Morgan Stanley Dean Witter Investment Management
Inc. ("MSDWIM" or a "Subadviser"), a wholly owned subsidiary 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 Fund, 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
ADVISORY FEE EXPENSE RATIO EXPENSE RATIO
- --------------------- -------------- --------------
<S> <C> <C>
1.00% 1.70% 2.45%
</TABLE>
For the year ended June 30, 1999, the Fund recognized expenses of approximately
$3,000 representing legal services provided by Skadden, Arps, Slate, Meagher &
Flom (Illinois), counsel to the Fund, of which a director of the Fund is an
affiliated person.
At June 30, 1999, Van Kampen Funds, Inc. owned 53%, 35%, and 73% of the shares
outstanding of each Class A, B, and C shares in the Fund.
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 Adviser.
Van Kampen Funds Inc. the ("Distributor") a wholly owned subsidiary of Van
Kampen Investments Inc., an indirect 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 Fund 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% of the Class B shares and Class C shares of the Fund, on
an annualized basis, of the average daily net assets attributable to each Class.
F-48
<PAGE>
VAN KAMPEN EUROPEAN EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
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 shares and Class C shares of the Fund
redeemed within one to five years following such purchase. For the period ended
June 30, 1999, the Distributor has advised the Fund that it earned initial sales
charges of $27,564 for Class A shares and deferred sales charges of $1,486 and
$1,142 for Class B shares and Class C shares, respectively.
Prior to October 1, 1998, the Fund's assets held outside the United States were
held by Morgan Stanley Trust Company ("MSTC"), a former affiliate of the
Subadvisers. On October 1, 1998, the Chase Manhattan Bank purchased MSTC.
Certain officers and directors of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or directors who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its directors
who are not officers of Van Kampen. Under the deferred compensation plan,
Directors 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 Director's years of service to the Fund. The maximum annual
benefit per director under the plan is $2,500.
During the period ended June 30, 1999, the Fund incurred approximately $2,000 as
brokerage commissions with Morgan Stanley & Co. Incorporated, an affiliated
broker/ dealer.
C. INVESTMENT TRANSACTIONS: For the period ended June 30, 1999, the Fund made
purchases of approximately $8,423,000 and sales of approximately $2,244,000 of
investment securities other than long-term U.S. government securities and
short-term investments. There were no purchases or sale of long-term U.S.
government securities.
F-49
<PAGE>
VAN KAMPEN FOCUS EQUITY FUND
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of Van Kampen Series Fund, Inc.--
Van Kampen Aggressive Equity Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Van Kampen Aggressive Equity Fund
(the "Fund", a fund of Van Kampen Series Fund, Inc.) at June 30, 1999, the
results of its operations, the changes in its net assets and the financial
highlights for each of the periods presented, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at June 30, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
200 E. Randolph Dr.
Chicago, Illinois 60601
August 6, 1999
F-50
<PAGE>
VAN KAMPEN FOCUS EQUITY FUND
PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- ---------------------------------------------------------------------
COMMON STOCKS (96.4%)
CAPITAL GOODS (24.3%)
AEROSPACE/DEFENSE (1.0%)
(a)Gulfstream Aerospace Corp........... 42,600 $ 2,878
--------
ELECTRICAL EQUIPMENT (5.8%)
General Electric Co.................... 141,200 15,956
--------
MANUFACTURING (DIVERSIFIED) (14.0%)
Textron, Inc........................... 77,500 6,379
Tyco International Ltd................. 227,900 21,594
United Technologies Corp............... 152,500 10,932
--------
38,905
--------
OFFICE EQUIPMENT & SUPPLIES (3.5%)
Pitney Bowes, Inc...................... 149,500 9,605
--------
TOTAL CAPITAL GOODS.................................... 67,344
--------
COMMUNICATION SERVICES (12.1%)
TELECOMMUNICATIONS (CELLULAR/WIRELESS) (5.0%)
(a)Associated Group, Inc. 'A'.......... 39,200 2,553
(a)Associated Group, Inc. 'B'.......... 174,100 11,349
--------
13,902
--------
TELECOMMUNICATIONS (LONG DISTANCE) (4.4%)
American Telephone & Telegraph Co...... 35,675 1,991
(a)MCI WorldCom, Inc................... 116,900 10,083
--------
12,074
--------
TELEPHONE (2.7%)
Bell Atlantic Corp..................... 115,200 7,531
--------
TOTAL COMMUNICATION SERVICES........................... 33,507
--------
CONSUMER CYCLICALS (13.6%)
RETAIL (BUILDING SUPPLIES) (2.4%)
Home Depot, Inc........................ 103,400 6,663
--------
RETAIL (GENERAL MERCHANDISE) (3.1%)
(a)Costco Cos., Inc.................... 106,000 8,486
--------
RETAIL (SPECIALTY) (6.1%)
(a)Abercrombie & Fitch Co. 'A'......... 250,000 12,000
Gap, Inc............................... 98,475 4,961
--------
16,961
--------
SERVICES (COMMERCIAL & CONSUMER) (2.0%)
(a)Nielsen Media Research, Inc......... 190,800 5,581
--------
TOTAL CONSUMER CYCLICALS............................... 37,691
--------
CONSUMER STAPLES (7.7%)
BROADCASTING (TV, RADIO, & CABLE) (5.3%)
(a)AT&T Corp. Liberty Media 'A'........ 57,400 2,109
(a)Chancellor Media Corp. 'A'.......... 48,300 2,663
(a)Clear Channel
Communications, Inc.................. 141,400 9,748
--------
14,520
--------
FOODS (1.2%)
(a)Keebler Foods Co.................... 111,600 3,390
--------
HOUSEHOLD PRODUCTS (NON-DURABLES) (1.2%)
Procter & Gamble Co.................... 38,400 3,427
--------
TOTAL CONSUMER STAPLES................................. 21,337
--------
FINANCIAL (3.0%)
BANKS (MAJOR REGIONAL) (1.6%)
Bank of New York Co., Inc.............. 121,600 4,461
--------
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------------------
<S> <C> <C>
FINANCIAL (DIVERSIFIED) (1.4%)
Citigroup, Inc......................... 82,500 $ 3,919
--------
TOTAL FINANCIAL........................................ 8,380
--------
HEALTH CARE (13.0%)
HEALTH CARE (DIVERSIFIED) (6.7%)
Bristol-Myers Squibb Co................ 116,300 8,192
Warner-Lambert Co...................... 151,000 10,476
--------
18,668
--------
HEALTH CARE (DRUGS--GENERIC & OTHERS) (2.7%)
(a)Amgen, Inc.......................... 123,800 7,536
--------
HEALTH CARE (DRUGS--MAJOR PHARMACEUTICALS) (3.6%)
Pfizer, Inc............................ 37,700 4,137
Schering-Plough Corp................... 109,300 5,793
--------
9,930
--------
TOTAL HEALTH CARE...................................... 36,134
--------
TECHNOLOGY (20.2%)
COMMUNICATION EQUIPMENT (4.1%)
(a)American Tower Corp. 'A'............ 245,900 5,902
Motorola, Inc.......................... 56,700 5,372
--------
11,274
--------
COMPUTERS (NETWORKING) (5.5%)
(a)Cisco Systems, Inc.................. 235,600 15,196
--------
COMPUTERS (SOFTWARE & SERVICES) (6.6%)
(a)America Online, Inc................. 35,700 3,945
(a)Juniper Networks, Inc............... 7,700 1,147
(a)Microsoft Corp...................... 145,700 13,141
--------
18,233
--------
ELECTRONICS (SEMICONDUCTORS) (2.0%)
Intel Corp............................. 95,400 5,676
--------
EQUIPMENT (SEMICONDUCTORS) (2.0%)
(a)Applied Materials, Inc.............. 75,900 5,607
--------
TOTAL TECHNOLOGY....................................... 55,986
--------
UTILITIES (2.5%)
ELECTRIC COMPANIES (2.5%)
Montana Power Co....................... 98,200 6,923
--------
TOTAL LONG-TERM INVESTMENTS (96.4%) (COST $228,806)...... 267,302
--------
<CAPTION>
PAR
VALUE
(000)
--------
SHORT-TERM INVESTMENT (2.6%)
<S> <C> <C>
REPURCHASE AGREEMENT (2.6%)
Chase Securities, Inc., 4.55%, dated $ 7,218
6/30/99, due 7/1/99, to be
repurchased at $7,219
collateralized by $6,705 U.S.
Treasury Bonds, 7.25%, due 5/15/16,
valued at $7,452 (COST $7,218)..... 7,218
TOTAL INVESTMENTS (99.0%) (COST $236,024)................ 274,520
--------
OTHER ASSETS IN EXCESS OF LIABILITIES (1.0%)............. 2,687
--------
NET ASSETS (100%)........................................ $277,207
========
</TABLE>
- ---------------
<TABLE>
<S> <C> <C>
(a) -- Non-income producing security
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-51
<PAGE>
VAN KAMPEN FOCUS EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- --------------------------------------------------------------------------
ASSETS:
Investments at Value (Cost $236,024)...................... $274,520
Receivable for:
Investments Sold........................................ 4,394
Fund Shares Sold........................................ 1,909
Dividends............................................... 65
Interest................................................ 1
Deferred Organizational Costs............................. 15
Other..................................................... 11
--------
Total Assets............................................ 280,915
--------
LIABILITIES:
Payable for:
Investments Purchased................................... 2,163
Fund Shares Redeemed.................................... 853
Distribution Fees....................................... 348
Investment Advisory Fees................................ 148
Administrative Fees..................................... 54
Transfer Agent Fees..................................... 46
Shareholder Reporting Expenses.......................... 33
Professional Fees....................................... 28
Directors' Fees and Expenses............................ 15
Custody Fees............................................ 13
Other..................................................... 7
--------
Total Liabilities....................................... 3,708
--------
NET ASSETS................................................ $277,207
========
NET ASSETS CONSIST OF:
Capital Stock at Par ($.001 par value, Shares Authorized
2,625,000,000).......................................... $ 12
Paid in Capital in Excess of Par.......................... 221,070
Unrealized Appreciation on Investments.................... 38,496
Accumulated Net Realized Gain............................. 17,644
Accumulated Net Investment Loss........................... (15)
--------
NET ASSETS.................................................. $277,207
========
CLASS A SHARES:
Net Asset Value and Redemption Price Per Share (Based on
Net Assets of $73,828,526 and 3,212,182 Shares
Outstanding)............................................ $ 22.98
========
Maximum Sales Charge...................................... 5.75%
Maximum Offering Price Per Share (Net Asset Value Per
Share X 100/ (100 - maximum sales charge)).............. $ 24.38
========
CLASS B SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $176,188,744 and 7,872,472 Shares
Outstanding)*........................................... $ 22.38
========
CLASS C SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $27,189,247 and 1,215,821 Shares
Outstanding)*........................................... $ 22.36
========
</TABLE>
- ---------------
<TABLE>
<S> <C>
* Redemption price may be subject to a contingent deferred
sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-52
<PAGE>
VAN KAMPEN FOCUS EQUITY FUND
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- -------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends................................................. $ 1,309
Interest.................................................. 431
-------
Total Income............................................. 1,740
-------
EXPENSES:
Investment Advisory Fees.................................. 2,068
Distribution Fees (Attributed to Classes A, B, and C of
$155, $1,433, and $244, respectively)................... 1,832
Administrative Fees....................................... 579
Transfer Agent Fees....................................... 157
Custodian Fees............................................ 96
Shareholder Reports....................................... 90
Filing and Registration Fees.............................. 52
Professional Fees......................................... 49
Directors' Fees and Expenses.............................. 11
Amortization of Organizational Costs...................... 11
Other..................................................... 8
-------
Total Expenses........................................... 4,953
Less Expense Reductions.................................. (252)
-------
Net Expenses............................................. 4,701
-------
Net Investment Income/Loss............................... (2,961)
-------
NET REALIZED GAIN/LOSS ON:
Investments............................................... 24,769
Securities Sold Short..................................... (176)
-------
Net Realized Gain/Loss................................... 24,593
-------
NET UNREALIZED APPRECIATION/DEPRECIATION:
Beginning of the Period................................... 6,123
-------
End of the Period
Investments.............................................. 38,496
-------
Net Unrealized Appreciation/Depreciation During the
Period.................................................... 32,373
-------
Net Realized Gain/Loss and Net Unrealized
Appreciation/Depreciation................................. 56,966
-------
NET INCREASE/DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................................ $54,005
=======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-53
<PAGE>
VAN KAMPEN FOCUS EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1999 JUNE 30, 1998
(000) (000)
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------
INCREASE/DECREASE IN NET ASSETS
OPERATIONS:
Net Investment Income/Loss................................ $ (2,961) $ (1,097)
Net Realized Gain/Loss.................................... 24,593 23,029
Net Unrealized Appreciation/Depreciation.................. 32,373 2,644
------------- -------------
Net Increase/Decrease in Net Assets Resulting from
Operations.............................................. 54,005 24,576
------------- -------------
DISTRIBUTIONS:
Net Realized Gain:
Class A................................................... (4,962) (3,187)
Class B................................................... (11,751) (5,696)
Class C................................................... (2,021) (1,157)
------------- -------------
Net Decrease in Net Assets Resulting from Distributions... (18,734) (10,040)
------------- -------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed................................................ 95,378 171,376
Distributions Reinvested.................................. 17,353 9,563
Redeemed.................................................. (90,199) (42,384)
------------- -------------
Net Increase/Decrease in Net Assets Resulting from Capital
Share Transactions...................................... 22,532 138,555
------------- -------------
Total Increase/Decrease in Net Assets..................... 57,803 153,091
NET ASSETS--Beginning of Period............................. 219,404 66,313
------------- -------------
NET ASSETS--End of Period (Including accumulated net
investment loss of $(15) and $(4), respectively).......... $ 277,207 $ 219,404
============= =============
- ----------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
(1) CLASS A
Shares:
Subscribed............................................. 1,623 3,038
Distributions Reinvested............................... 266 177
Redeemed............................................... (1,877) (1,340)
------------- -------------
Net Increase/Decrease in Class A Shares Outstanding...... 12 1,875
============= =============
Dollars:
Subscribed............................................. $ 31,396 $ 59,406
Distributions Reinvested............................... 4,594 3,064
Redeemed............................................... (34,991) (26,003)
------------- -------------
Net Increase/Decrease.................................... $ 999 $ 36,467
============= =============
Ending Paid in Capital................................... $ 57,462+ $ 56,463
============= =============
CLASS B:
Shares:
Subscribed............................................. 2,694 4,818
Distributions Reinvested............................... 650 314
Redeemed............................................... (2,106) (539)
------------- -------------
Net Increase/Decrease in Class B Shares Outstanding...... 1,238 4,593
============= =============
Dollars:
Subscribed............................................. $ 50,034 $ 92,956
Distributions Reinvested............................... 10,965 5,363
Redeemed............................................... (38,411) (10,091)
------------- -------------
Net Increase/Decrease.................................... $ 22,588 $ 88,228
============= =============
Ending Paid in Capital................................... $ 142,680+ $ 120,092
============= =============
CLASS C:
Shares:
Subscribed............................................. 744 982
Distributions Reinvested............................... 106 67
Redeemed............................................... (900) (343)
------------- -------------
Net Increase/Decrease in Class C Shares Outstanding...... (50) 706
============= =============
Dollars:
Subscribed............................................. $ 13,948 $ 19,014
Distributions Reinvested............................... 1,794 1,136
Redeemed............................................... (16,797) (6,290)
------------- -------------
Net Increase/Decrease.................................... $ (1,055) $ 13,860
============= =============
Ending Paid in Capital................................... $ 20,928+ $ 21,983
============= =============
</TABLE>
- ---------------
<TABLE>
<S> <C>
+ Ending Paid in Capital amounts do not reflect permanent book
to tax differences.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-54
<PAGE>
VAN KAMPEN FOCUS EQUITY FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------
YEAR ENDED JUNE 30,
--------------------------------- JANUARY 2, 1996*
SELECTED PER SHARE DATA AND RATIOS 1999 # 1998 # 1997 TO JUNE 30, 1996
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD..... $20.007 $ 16.98 $ 14.40 $ 12.00
------- ------- ------- ---------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss............. (0.141) (0.07) 0.01 0.06
Net Realized and Unrealized
Gain/Loss............................ 4.712 5.03 3.95 2.40
------- ------- ------- ---------------
Total From Investment Operations....... 4.571 4.96 3.96 2.46
------- ------- ------- ---------------
DISTRIBUTIONS
Net Investment Income.................. -- -- (0.03) (0.06)
Net Realized Gain...................... (1.594) (1.93) (1.35) --
------- ------- ------- ---------------
Total Distributions.................... (1.594) (1.93) (1.38) (0.06)
------- ------- ------- ---------------
NET ASSET VALUE, END OF PERIOD........... $22.984 $ 20.01 $ 16.98 $ 14.40
======= ======= ======= ===============
TOTAL RETURN (1)......................... 25.57% 30.93% 28.93% 20.52%**
======= ======= ======= ===============
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)........ $73,829 $64,035 $22,521 $ 5,382
Ratio of Expenses to Average Net
Assets................................. 1.50% 1.50% 1.57% 2.03%
Ratio of Net Investment Income/Loss to
Average Net Assets..................... (0.73)% (0.37)% (0.04)% 1.22%
Portfolio Turnover Rate.................. 282% 308% 241% 204%**
- ------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation
During the Period
Per Share Benefit to Net Investment
Income/Loss.......................... $ 0.02 $ 0.04 $ 0.02 $ 0.06
Ratios Before Expense Limitation:
Expenses to Average Net Assets......... 1.61% 1.71% 2.38% 3.26%
Net Investment Income/Loss to Average
Net Assets........................... (0.84)% (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% 1.50%
- ------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
-------------------------------------------------------
YEAR ENDED JUNE 30,
----------------------------------- JANUARY 2, 1996*
SELECTED PER SHARE DATA AND RATIOS 1999 # 1998 # 1997 TO JUNE 30, 1996
<S> <C> <C> <C> <C>
- -----------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD..... $ 19.670 $ 16.85 $ 14.38 $ 12.00
-------- -------- ------- ---------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss............. (0.282) (0.21) (0.02) 0.03
Net Realized and Unrealized
Gain/Loss............................ 4.586 4.96 3.86 2.39
-------- -------- ------- ---------------
Total From Investment Operations....... 4.304 4.75 3.84 2.42
-------- -------- ------- ---------------
DISTRIBUTIONS
Net Investment Income.................. -- -- (0.02) (0.04)
Net Realized Gain...................... (1.594) (1.93) (1.35) --
-------- -------- ------- ---------------
Total Distributions.................... (1.594) (1.93) (1.37) (0.04)
-------- -------- ------- ---------------
NET ASSET VALUE, END OF PERIOD........... $ 22.380 $ 19.67 $ 16.85 $ 14.38
======== ======== ======= ===============
TOTAL RETURN (1)......................... 24.59% 29.94% 28.01% 20.18%**
======== ======== ======= ===============
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)........ $176,189 $130,497 $34,382 $ 2,426
Ratio of Expenses to Average Net
Assets................................. 2.25% 2.25% 2.32% 2.67%
Ratio of Net Investment Income/Loss to
Average Net Assets..................... (1.50)% (1.11)% (0.83)% 0.43%
Portfolio Turnover Rate.................. 282% 308% 241% 204%**
- ------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation
During the Period
Per Share Benefit to Net Investment
Income/Loss.......................... $ 0.02 $ 0.04 $ 0.02 $ 0.07
Ratios Before Expense Limitation:
Expenses to Average Net Assets......... 2.36% 2.47% 2.88% 3.79%
Net Investment Income/Loss to Average
Net Assets........................... (1.61)% (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% 2.25%
- ------------------------------------------------------------------------------------------------ ---------------------------------
- ----------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS C
-----------------------------------------------------
YEAR ENDED JUNE 30,
--------------------------------- JANUARY 2, 1996*
SELECTED PER SHARE DATA AND RATIOS 1999 # 1998 # 1997 TO JUNE 30, 1996
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 19.655 $ 16.83 $14.37 $ 12.00
-------- ------- ------ ---------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss................................ (0.278) (0.21) (0.06) 0.03
Net Realized and Unrealized Gain/Loss..................... 4.580 4.97 3.89 2.38
-------- ------- ------ ---------------
Total From Investment Operations.......................... 4.302 4.76 3.83 2.41
-------- ------- ------ ---------------
DISTRIBUTIONS
Net Investment Income..................................... -- -- (0.02) (0.04)
Net Realized Gain......................................... (1.594) (1.93) (1.35) --
-------- ------- ------ ---------------
Total Distributions....................................... (1.594) (1.93) (1.37) (0.04)
-------- ------- ------ ---------------
NET ASSET VALUE, END OF PERIOD.............................. $ 22.363 $ 19.66 $16.83 $ 14.37
======== ======= ====== ===============
TOTAL RETURN (1)............................................ 24.67% 29.90% 28.04% 20.10%**
-------- ------- ------ ---------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)........................... $ 27,189 $24,872 $9,410 $ 2,582
Ratio of Expenses to Average Net Assets..................... 2.25% 2.25% 2.32% 2.67%
Ratio of Net Investment Income/Loss to Average Net Assets... (1.48)% (1.13)% (0.77)% 0.44%
Portfolio Turnover Rate..................................... 282% 308% 241% 204%**
- -------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the Period
Per Share Benefit to Net Investment Income/Loss........... $ 0.02 $ 0.04 $ 0.02 $ 0.07
Ratios Before Expense Limitation:
Expenses to Average Net Assets............................ 2.36% 2.25% 3.23% 3.80%
Net Investment Income/Loss to Average Net Assets.......... (1.59)% (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% 2.25%
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
* Commencement of operations
** Non-Annualized
(1) Total return is calculated exclusive of sales charges or
deferred sales charges.
# Changes per share are based upon monthly average shares
outstanding.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-55
<PAGE>
VAN KAMPEN FOCUS EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
The Van Kampen Aggressive Equity Fund (the "Fund") is organized as a separate
non-diversified fund of Van Kampen Series Fund, Inc., a Maryland Corporation,
which is registered as an open-end management investment corporation, under the
Investment Company Act of 1940, as amended. The Fund's investment objective is
to seek capital appreciation by investing primarily in a non-diversified
portfolio of corporate equity and equity linked securities. The Fund commenced
operations on January 2, 1996.
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 and Class C
shares are offered without a front end sales charge, but are subject to a
contingent deferred sales charge ("CDSC"). Class B shares will automatically
convert to Class A shares after the eighth year following purchase. The CDSC
will be imposed on most redemptions made within five years of the purchase for
Class B shares and one year of the purchase for Class C shares as detailed in
the following schedule:
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE
YEAR OF REDEMPTION CLASS B CLASS C
- ------------------ -------- --------
<S> <C> <C>
First............................... 5.00% 1.00%
Second.............................. 4.00% None
Third............................... 3.00% None
Fourth.............................. 2.50% None
Fifth............................... 1.50% None
Thereafter.......................... None None
</TABLE>
All three classes of shares have identical voting, dividend, liquidation and
other rights.
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. 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. 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. SECURITY TRANSACTIONS: Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements, which are short-term investments
in which the Fund acquires ownership of a debt security and the seller agrees to
repurchase the security at a future time and specified price. Repurchase
agreements are fully collateralized by the underlying debt security. 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.
3. INCOME AND EXPENSES: Dividend income is recorded on the ex-dividend date.
Interest income is recognized on an accrual basis except where collection is in
doubt. 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 Fund are recorded on the
ex-distribution date.
4. SHORT SALES: The Fund may sell securities short. A short sale is a
transaction in which the Fund sells securities it may or may not own, but has
borrowed, in anticipation of a decline in the market price of the securities.
The Fund is obligated to purchase securities at the market price to replace the
borrowed securities at the time of replacement. The Fund may have to pay a
premium to borrow the securities as well as pay 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 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 Fund
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 Fund involve certain risks and special considerations.
Possible losses from short sales differ from
F-56
<PAGE>
VAN KAMPEN FOCUS EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
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.
5. ORGANIZATIONAL COSTS: The organizational costs of the Fund are being
amortized on a straight line basis over a period of five years beginning with
the Fund's commencement of operations. The Adviser has agreed that in the event
any of the initial shares of the Fund originally purchased by Van Kampen are
redeemed by the Fund during the amortization period, the Fund will be reimbursed
for any unamortized organizational costs in the same proportion as the number of
shares redeemed bears to the number of initial shares held at the time of
redemption.
6. TAXES: It is the Fund's intention to qualify as a regulated investment
company and distribute substantially all of its taxable income. Accordingly, no
provision for U.S. Federal income taxes is required in the financial statements.
At June 30, 1999, cost and unrealized appreciation/ depreciation for U.S.
Federal income tax purposes of the investments of the Fund was:
<TABLE>
<CAPTION>
NET
APPRECIATION/
COST APPREC. DEPREC. DEPECIATION
(000) (000) (000) (000)
- -------- -------- -------- -------------
<S> <C> <C> <C>
$236,420 $40,268 $(2,168) $38,100
</TABLE>
7. DISTRIBUTION OF INCOME AND GAINS: 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.
Permanent book to tax basis differences relating to shareholder distributions
may result in reclassification among accumulated net investment income/loss,
accumulated net realized gain/loss, and paid in capital. For the year ended
June 30, 1999 approximately $2,962,000 has been reclassified from accumulated
net realized gain/loss with approximately $2,950,000 posted to accumulated net
investment income/loss and approximately $12,000 posted to paid in capital.
Permanent book to tax basis differences are not included in ending
undistributed/distributions in excess of net investment income for the purpose
of calculating net investment income/loss per share in the Financial Highlights.
B. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES: Van
Kampen Investment Advisory Corp. (the "Adviser"), a wholly owned subsidiary of
Van Kampen Investments Inc. (an indirect wholly owned subsidiary of Morgan
Stanley Dean Witter & Co.) and Morgan Stanley Dean Witter Investment Management
Inc. ("MSDWIM" or a "Subadviser"), a wholly owned subsidiary 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 Fund, 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
ADVISORY MAX. OPERATING MAX. OPERATING
FEE EXPENSE RATIO EXPENSE RATIO
- -------- -------------- --------------
<S> <C> <C>
0.90% 1.50% 2.25%
</TABLE>
For the year ended June 30, 1999, the Fund recognized expenses of approximately
$9,000 representing legal services provided by Skadden, Arps, Slate, Meagher &
Flom (Illinois), counsel to the Fund, of which a director of the Fund is an
affiliated person.
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 Fund, 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 Adviser.
Van Kampen Funds Inc. the ("Distributor") a wholly owned subsidiary of Van
Kampen Investments Inc., an indirect 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 Fund 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% of the Class B shares and Class C shares of the Fund, on
an annualized basis, of the average daily net assets attributable to each Class.
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 shares and Class C shares of the Fund
redeemed within one to five years following such purchase. For the year ended
June 30, 1999, the Distributor has advised the Fund that it earned initial sales
charges of $584,668 for Class A shares and deferred sales charges of $613,437
and $30,933 for Class B shares and Class C shares, respectively.
Certain officers and directors of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or directors who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its directors
who are not officers of Van Kampen.
F-57
<PAGE>
VAN KAMPEN FOCUS EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
Under the deferred compensation plan, Directors 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 Director's years
of service to the Fund. The maximum annual benefit per director under the plan
is $2,500.
During the year ended June 30, 1999, the Fund incurred approximately $14,000 as
brokerage commissions with Morgan Stanley & Co. Incorporated, an affiliated
broker/ dealer.
C. INVESTMENT TRANSACTIONS: For the year ended June 30, 1999, the Fund made
purchases of approximately $631,670,000 and sales of approximately $630,129,000
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.
F-58
<PAGE>
VAN KAMPEN GLOBAL EQUITY FUND
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of Van Kampen Series Fund, Inc.--
Van Kampen Global Equity Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Van Kampen Global Equity Fund (the
"Fund", a fund of Van Kampen Series Fund, Inc.) at June 30, 1999, the results of
its operations, the changes in its net assets and the financial highlights for
each of the periods presented, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at June 30, 1999 by correspondence with the custodian
and brokers, provide a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
200 E. Randolph Dr.
Chicago, Illinois 60601
August 6, 1999
F-59
<PAGE>
VAN KAMPEN GLOBAL EQUITY FUND
PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- --------------------------------------------------------------------
COMMON STOCKS (96.5%)
AUSTRALIA (0.9%)
CSR Ltd................................ 2,291,600 $ 6,528
--------
BELGIUM (1.0%)
Delhaize Freres et Cie 'Le Lion'
S.A.................................. 84,360 7,191
--------
CANADA (2.4%)
BCT.Telus Communications, Inc.......... 281,524 6,761
BCT.Telus Communications, Inc. 'A'..... 93,841 2,219
Potash Corp. of Saskatchewan, Inc...... 131,600 6,798
(a)Renaissance Energy Ltd.............. 130,000 1,746
--------
17,524
--------
DENMARK (0.5%)
Danisco A/S............................ 82,550 3,726
--------
FRANCE (10.1%)
Bongrain S.A........................... 17,664 6,675
Elf Aquitaine.......................... 100,760 14,805
France Telecom S.A..................... 149,900 11,338
Groupe Danone RFD...................... 54,800 14,146
Michelin (C.G.D.E.) 'B'................ 82,420 3,376
Pernod-Ricard.......................... 74,200 4,980
Rhone-Poulenc S.A. 'A'................. 221,500 10,134
Scor................................... 171,450 8,515
--------
73,969
--------
GERMANY (3.8%)
BASF AG................................ 264,350 11,628
Bayer AG............................... 138,100 5,753
Veba AG................................ 182,400 10,773
--------
28,154
--------
IRELAND (2.4%)
Bank of Ireland........................ 725,436 12,207
Green Property plc..................... 988,900 5,463
--------
17,670
--------
ITALY (3.0%)
Mediaset S.p.A......................... 1,029,600 9,164
Telecom Italia S.p.A................... 2,326,400 12,635
--------
21,799
--------
JAPAN (9.3%)
Daiichi Pharmaceutical Co., Ltd........ 457,000 7,101
Fuji Photo Film Co..................... 313,000 11,860
Hitachi Ltd............................ 665,000 6,244
KAO Corp............................... 607,000 17,074
Nippon Telegraph & Telephone Corp.
ADR.................................. 1,905 22,223
Sumitomo Marine & Fire Insurance Co.... 626,000 3,781
--------
68,283
--------
NETHERLANDS (4.4%)
ABN Amro Holding N.V................... 316,300 6,858
Benckiser N.V. 'B'..................... 135,935 7,264
ING Groep N.V.......................... 201,980 10,949
Philips Electronics N.V................ 76,728 7,578
--------
32,649
--------
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
PORTUGAL (0.7%)
Cimpor-Cimentos de Portugal S.A........ 192,720 $ 4,975
--------
SPAIN (3.5%)
Iberdrola S.A.......................... 738,500 11,263
(a)Telefonica de Espana................ 302,302 14,580
--------
25,843
--------
SWEDEN (0.9%)
Nordbanken Holding AB.................. 1,120,650 6,576
--------
SWITZERLAND (8.9%)
Cie Financiere Richemont AG 'A'........ 13,720 26,437
Forbo Holding AG (Registered).......... 13,100 5,217
Holderbank Financiere Glarus AG 'B'
(Bearer)............................. 7,404 8,756
Nestle S.A. (Registered)............... 11,680 21,084
Swisscom AG (Registered)............... 10,500 3,958
--------
65,452
--------
UNITED KINGDOM (11.0%)
Allied Domecq plc...................... 1,047,200 10,110
Blue Circle Industries plc............. 823,750 5,484
Burmah Castrol plc..................... 409,487 7,777
Imperial Tobacco Group plc............. 665,300 7,262
Invensys plc........................... 1,447,940 6,858
Reckitt & Colman plc................... 1,353,243 14,121
Royal & Sun Alliance Insurance Group
plc.................................. 1,138,911 10,222
Sainsbury (J) plc...................... 1,479,600 9,336
Wolseley plc........................... 618,100 4,656
WPP Group plc.......................... 633,000 5,357
--------
81,183
--------
UNITED STATES (33.7%)
Albertson's, Inc....................... 446,418 23,018
Aluminum Co. of America................ 68,000 4,208
(a)BJ's Wholesale Club, Inc............ 273,200 8,213
Boise Cascade Corp..................... 135,900 5,844
Borg-Warner Automotive, Inc............ 126,450 6,955
(a)Cadiz Land Co., Inc................. 403,898 3,812
Chase Manhattan Corp................... 88,950 7,705
COMSAT Corp............................ 453,700 14,745
(a)Data General Corp................... 522,100 7,603
Enhance Financial Services Group,
Inc.................................. 393,000 7,762
FINOVA Group, Inc...................... 192,605 10,136
(a)GenRad, Inc......................... 415,500 8,648
Georgia-Pacific Corp................... 79,700 3,776
Goodrich (B.F.) Co..................... 169,200 7,191
Houghton Mifflin Co.................... 350,963 16,517
IBP, Inc............................... 200,000 4,750
MBIA, Inc.............................. 215,110 13,928
Mellon Bank Corp....................... 312,100 11,353
(a)NCR Corp............................ 98,900 4,828
(a)Noble Drilling Corp................. 190,700 3,754
(a)Ocean Energy, Inc................... 498,070 4,794
Pharmacia & Upjohn, Inc................ 33,200 1,886
Philip Morris Cos., Inc................ 640,970 25,759
Rite Aid Corp.......................... 143,400 3,531
Sears, Roebuck & Co.................... 6,500 290
Tenneco, Inc........................... 149,400 3,567
Terra Nova (Bermuda) Holdings Ltd.
'A'.................................. 199,100 5,363
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-60
<PAGE>
VAN KAMPEN GLOBAL EQUITY FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
UNITED STATES (CONT.)
Tupperware Corp........................ 320,400 $ 8,170
Unicom Corp............................ 337,700 13,023
U.S. Bancorp........................... 105,600 3,590
UST Corp............................... 124,100 3,754
--------
248,473
--------
TOTAL COMMON STOCKS..................................... 709,995
--------
PREFERRED STOCK (0.8%)
GERMANY (0.8%)
Volkswagen AG.......................... 163,600 6,149
--------
TOTAL LONG-TERM INVESTMENTS (97.3%) (COST $654,745)..... 716,144
--------
</TABLE>
<TABLE>
<CAPTION>
PAR
VALUE VALUE
(000) (000)
<S> <C> <C>
- --------------------------------------------------------------------
SHORT-TERM INVESTMENT (2.7%)
REPURCHASE AGREEMENT (2.7%)
Chase Securities, Inc., 4.55%, dated
6/30/99, $ 19,800
due 7/1/99, to be repurchased at $19,803,
collateralized by $13,255 U.S. Treasury
Bonds, 11.25%, due 2/15/15, valued at
$20,426 (COST $19,800)............................ $ 19,800
--------
TOTAL INVESTMENTS IN SECURITIES (100.0%) (COST
$674,545)............................................. 735,944
FOREIGN CURRENCY (0.1%) (COST $1,140)................... 1,139
--------
TOTAL INVESTMENTS (100.1%) (COST $675,685).............. 737,083
LIABILITIES IN EXCESS OF OTHER ASSETS (-0.1%)........... (873)
--------
NET ASSETS (100%)....................................... $736,210
========
</TABLE>
- ---------------
<TABLE>
<S> <C> <C>
(a) -- Non-income producing security
ADR -- American Depositary Receipt
RFD -- Ranked for Dividend
</TABLE>
- --------------------------------------------------------------------------------
SUMMARY OF LONG-TERM INVESTMENTS BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
- -------- -------- ----------
<S> <C> <C>
Consumer Goods.............................................. $227,232 30.9%
Services.................................................... 162,862 22.1
Finance..................................................... 131,976 17.9
Materials................................................... 73,622 10.0
Energy...................................................... 64,180 8.7
Capital Equipment........................................... 45,847 6.3
Diversified Operations...................................... 10,425 1.4
-------- ----
$716,144 97.3%
======== ====
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-61
<PAGE>
VAN KAMPEN GLOBAL EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- --------------------------------------------------------------------------
ASSETS:
Investments in Securities, at Value (Cost $674,545)....... $735,944
Foreign Currency (Cost $1,140)............................ 1,139
Receivable for:
Dividends............................................... 2,320
Foreign Withholding Tax Reclaim......................... 678
Investments Sold........................................ 498
Fund Shares Sold........................................ 379
Interest................................................ 3
Deferred Organizational Costs............................. 15
Other..................................................... 90
--------
Total Assets............................................ 741,066
--------
LIABILITIES:
Payable for:
Investments Purchased................................... 1,371
Fund Shares Redeemed.................................... 1,175
Distribution Fees....................................... 1,132
Investment Advisory Fees................................ 605
Administrative Fees..................................... 152
Transfer Agent Fees..................................... 101
Custody Fees............................................ 96
Shareholder Reporting Expenses.......................... 88
Professional Fees....................................... 73
Bank Overdraft.......................................... 22
Directors' Fees and Expenses............................ 41
--------
Total Liabilities....................................... 4,856
--------
NET ASSETS................................................ $736,210
========
NET ASSETS CONSIST OF:
Capital Stock at Par ($.001 par value, Shares Authorized
2,625,000,000).......................................... $ 64
Paid in Capital in Excess of Par.......................... 650,388
Net Unrealized Appreciation on Investments and Foreign
Currency Translations................................... 61,356
Accumulated Net Realized Gain............................. 24,214
Undistributed Net Investment Income....................... 188
--------
NET ASSETS.................................................. $736,210
========
CLASS A SHARES:
Net Asset Value and Redemption Price Per Share (Based on
Net Assets of $76,730,861 and 6,690,456 Shares
Outstanding)............................................ $ 11.47
========
Maximum Sales Charge...................................... 5.75%
Maximum Offering Price Per Share (Net Asset Value Per
Share X 100/ (100 - maximum sales charge)).............. $ 12.17
========
CLASS B SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $596,339,278 and 52,200,891 Shares
Outstanding)*........................................... $ 11.42
========
CLASS C SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $63,139,799 and 5,527,471 Shares
Outstanding)*........................................... $ 11.42
========
</TABLE>
- ---------------
<TABLE>
<S> <C>
* Redemption price may be subject to a contingent deferred
sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-62
<PAGE>
VAN KAMPEN GLOBAL EQUITY FUND
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- --------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends................................................. $ 15,474
Interest.................................................. 1,303
Less Foreign Taxes Withheld............................... (1,258)
--------
Total Income............................................. 15,519
--------
EXPENSES:
Investment Advisory Fees.................................. 7,424
Distribution Fees (Attributed to Classes A, B, and C of
$191, $6,007, and $657, respectively)................... 6,855
Administrative Fees....................................... 1,867
Shareholder Reports....................................... 311
Transfer Agent Fees....................................... 264
Custodian Fees............................................ 214
Professional Fees......................................... 115
Filing and Registration fees.............................. 75
Amortization of Organizational Costs...................... 38
Directors' Fees and Expenses.............................. 32
Other..................................................... 33
--------
Total Expenses........................................... 17,228
--------
Net Investment Income/Loss.................................. (1,709)
--------
NET REALIZED GAIN/LOSS ON:
Investments............................................... 24,305
Foreign Currency Transactions............................. (535)
--------
Net Realized Gain/Loss................................... 23,770
--------
NET UNREALIZED APPRECIATION/DEPRECIATION:
Beginning of the Period................................... 61,355
--------
End of the Period:
Investments............................................. 61,399
Foreign Currency Translations........................... (43)
--------
61,356
--------
Net Unrealized Appreciation/Depreciation During the
Period.................................................... 1
--------
Net Realized Gain/Loss and Net Unrealized
Appreciation/Depreciation................................. 23,771
--------
NET INCREASE/DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................................ $ 22,062
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-63
<PAGE>
VAN KAMPEN GLOBAL EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 29, 1997* TO
JUNE 30, 1999 JUNE 30, 1998
(000) (000)
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------
INCREASE/DECREASE IN NET ASSETS
OPERATIONS:
Net Investment Income/Loss................................ $ (1,709) $ 844
Net Realized Gain/Loss.................................... 23,770 1,689
Net Unrealized Appreciation/Depreciation.................. 1 61,355
------------- -------------------
Net Increase/Decrease in Net Assets Resulting from
Operations.............................................. 22,062 63,888
------------- -------------------
DISTRIBUTIONS:
Net Investment Income:
Class A................................................... (532) (88)
Class B................................................... (472) (188)
Class C................................................... (52) (18)
In Excess of Net Investment Income:
Class A................................................... (94) --
Class B................................................... (83) --
Class C................................................... (9) --
------------- -------------------
(1,242) (294)
------------- -------------------
Net Realized Gain:
Class A................................................... (97) --
Class B................................................... (796) --
Class C................................................... (87) --
------------- -------------------
(980) --
------------- -------------------
Net Decrease in Net Assets Resulting from Distributions... (2,222) (294)
------------- -------------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed................................................ 166,640 739,265
Distributions Reinvested.................................. 2,068 276
Redeemed.................................................. (225,647) (29,826)
------------- -------------------
Net Increase/Decrease in Net Assets Resulting from Capital
Share Transactions...................................... (56,939) 709,715
------------- -------------------
Total Increase/Decrease in Net Assets..................... (37,099) 773,309
NET ASSETS--Beginning of Period............................. 773,309 --
------------- -------------------
NET ASSETS--End of Period (Including undistributed net
investment income of $188 and $1,301, respectively)....... $ 736,210 $ 773,309
============= ===================
- -----------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
(1) Class A:
Shares:
Subscribed............................................. 7,057 7,876
Distributions Reinvested............................... 60 8
Redeemed............................................... (7,666) (645)
------------- -------------------
Net Increase/Decrease in Class A Shares Outstanding...... (549) 7,239
============= ===================
Dollars:
Subscribed............................................. $ 76,578 $ 81,031
Distributions Reinvested............................... 652 78
Redeemed............................................... (82,720) (7,009)
------------- -------------------
Net Increase/Decrease.................................... $ (5,490) $ 74,100
============= ===================
Ending Paid in Capital................................... $ 68,606+ $ 74,096
============= ===================
Class B:
- ------------------------------------------------------------
Shares:
Subscribed............................................. 7,094 57,900
Distributions Reinvested............................... 118 19
Redeemed............................................... (11,280) (1,650)
------------- -------------------
Net Increase/Decrease in Class B Shares Outstanding...... (4,068) 56,269
============= ===================
Dollars:
Subscribed............................................. $ 75,705 $ 588,891
Distributions Reinvested............................... 1,280 180
Redeemed............................................... (120,388) (17,780)
------------- -------------------
Net Increase/Decrease.................................... $ (43,403) $ 571,291
============= ===================
Ending Paid in Capital................................... $ 527,856+ $ 571,259
============= ===================
Class C:
- ------------------------------------------------------------
Shares:
Subscribed............................................. 1,344 6,752
Distributions Reinvested............................... 13 2
Redeemed............................................... (2,112) (472)
------------- -------------------
Net Increase in Class C Shares Outstanding............... (755) 6,282
============= ===================
Dollars:
Subscribed............................................. $ 14,357 $ 69,343
Distributions Reinvested............................... 136 18
Redeemed............................................... (22,539) (5,037)
------------- -------------------
Net Increase/Decrease.................................... $ (8,046) $ 64,324
============= ===================
Ending Paid in Capital................................... $ 56,274+ $ 64,320
============= ===================
- ---------------
* Commencement of operations
+ Ending Paid in Capital amounts do not reflect permanent
book to tax differences.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-64
<PAGE>
VAN KAMPEN GLOBAL EQUITY FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B
----------------------------------- -----------------------------------
YEAR ENDED OCTOBER 29, 1997* YEAR ENDED OCTOBER 29, 1997*
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1999# TO JUNE 30, 1998 JUNE 30, 1999# TO JUNE 30, 1998
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD..... $ 11.122 $ 10.00 $ 11.076 $ 10.00
-------------- ---------------- -------------- ----------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss............. 0.047 0.06 (0.033) 0.01
Net Realized and Unrealized Gain/Loss.. 0.404 1.08 0.405 1.07
-------------- ---------------- -------------- ----------------
Total From Investment Operations....... 0.451 1.14 0.372 1.08
-------------- ---------------- -------------- ----------------
DISTRIBUTIONS
Net Investment Income.................. (0.076) (0.02) (0.008) --
In Excess of Net Investment Income..... (0.014) -- (0.002) --
Net Realized Gain...................... (0.014) -- (0.014) --
-------------- ---------------- -------------- ----------------
Total Distributions.................... (0.104) (0.02) (0.024) --
-------------- ---------------- -------------- ----------------
NET ASSET VALUE, END OF PERIOD........... $ 11.469 $ 11.12 $ 11.424 $ 11.08
============== ================ ============== ================
TOTAL RETURN (1)......................... 4.05% 11.38%** 3.29% 10.84%**
============== ================ ============== ================
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)........ $ 76,731 $ 80,508 $ 596,339 $ 623,229
Ratio of Expenses to Average Net
Assets................................. 1.65% 1.70% 2.40% 2.45%
Ratio of Net Investment Income/Loss to
Average Net Assets..................... 0.44% 0.88% (0.31)% 0.12%
Portfolio Turnover Rate.................. 40% 4%** 40% 4%**
<CAPTION>
CLASS C
-----------------------------------
YEAR ENDED OCTOBER 29, 1997*
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1999# TO JUNE 30, 1998
<S> <C> <C>
- -----------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD..... $ 11.075 $ 10.00
-------------- ----------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss............. (0.034) 0.01
Net Realized and Unrealized Gain/Loss.. 0.406 1.06
-------------- ----------------
Total From Investment Operations....... 0.372 1.07
-------------- ----------------
DISTRIBUTIONS
Net Investment Income.................. (0.008) --
In Excess of Net Investment Income..... (0.002) --
Net Realized Gain...................... (0.014) --
-------------- ----------------
Total Distributions.................... (0.024) --
-------------- ----------------
NET ASSET VALUE, END OF PERIOD........... $ 11.423 $ 11.07
============== ================
TOTAL RETURN (1)......................... 3.39% 10.74%**
============== ================
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)........ $ 63,140 $ 69,572
Ratio of Expenses to Average Net
Assets................................. 2.40% 2.45%
Ratio of Net Investment Income/Loss to
Average Net Assets..................... (0.32)% 0.13%
Portfolio Turnover Rate.................. 40% 4%**
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
* Commencement of operations
** Non-Annualized
(1) Total return is calculated exclusive of sales charges or
deferred sales charges.
# Changes per share are based upon monthly average shares
outstanding.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-65
<PAGE>
VAN KAMPEN GLOBAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
The Van Kampen Global Equity Fund (the "Fund") is organized as a separate
diversified fund of Van Kampen Series Fund, Inc., a Maryland Corporation, which
is registered as an open-end management investment company under the Investment
Company Act of 1940, as amended. The Fund's investment objective seeks long-term
capital appreciation by investing primarily in equity securities of issuers
throughout the world, including U.S. issuers. The Fund commenced operations on
October 29, 1997.
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 and Class C
shares are offered without a front end sales charge, but are subject to a
contingent deferred sales charge ("CDSC"). Class B shares will automatically
convert to Class A shares after the eighth year following purchase. The CDSC
will be imposed on most redemptions made within five years of the purchase for
Class B shares and one year of the purchase for Class C shares as detailed in
the following schedule:
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE
-------------------
YEAR OF REDEMPTION CLASS B CLASS C
- ------------------ -------- --------
<S> <C> <C>
First........................................ 5.00% 1.00%
Second....................................... 4.00% None
Third........................................ 3.00% None
Fourth....................................... 2.50% None
Fifth........................................ 1.50% None
Thereafter................................... None None
</TABLE>
All three classes of shares have identical voting, dividend, liquidation and
other rights.
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. 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. SECURITY TRANSACTIONS: Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements, which are short-term investments
in which the Fund acquires ownership of a debt security and the seller agrees to
repurchase the security at a future time and specified price. Repurchase
agreements are fully collateralized by the underlying debt security. 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.
3. INCOME AND EXPENSES: Dividend income is recorded on the ex-dividend date net
of applicable withholding taxes where recovery of such taxes is not reasonably
assured. Interest income is recognized on an accrual basis except where
collection is in doubt. 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 Fund are
recorded on the ex-distribution date.
4. FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS: Assets and liabilities
denominated in foreign currencies and commitments under forward currency
contracts are translated into U.S. dollars at the mean of the quoted bid and
asked prices. Purchases and sales of portfolio securities are translated at the
rate of exchange prevailing when such securities were purchased or sold. Income
and expenses are translated at rates prevailing when accrued. Realized and
unrealized gains and losses on securities are not segregated for financial
reporting purposes from amounts arising from changes in the market prices of
securities. Realized gains and losses on foreign currency includes the net
realized amount from the sale of the currency and the amount realized between
trade date and settlement date on security and income and expenses transactions.
However, 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.
F-66
<PAGE>
VAN KAMPEN GLOBAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
The net assets of the Fund may include issuers located in emerging markets.
There are certain risks inherent in these investments not typically associated
with investments in the United States, including the smaller size of the markets
themselves, lesser liquidity, greater volatility, and potentially less publicly
available information. Emerging markets may be subject to a greater degree of
government involvement in the economy and greater economic and political
uncertainty, which has the potential to extend to government imposed
restrictions on exchange traded transactions and currency transactions. These
restrictions may impact the Fund's ability to buy or sell certain securities or
to repatriate certain currencies to U.S. dollars. Additionally, changes in
currency exchange rates will affect the value of and investment income from such
securities.
5. ORGANIZATIONAL COSTS: The organizational costs of the Fund are being
amortized on a straight line basis over a period of five years beginning with
the Fund's commencement of operations. The Adviser has agreed that in the event
any of the initial shares of the Fund originally purchased by Van Kampen are
redeemed by the Fund during the amortization period, the Fund will be reimbursed
for any unamortized organizational costs in the same proportion as the number of
shares redeemed bears to the number of initial shares held at the time of
redemption.
6. TAXES: It is the Fund's intention to qualify as a regulated investment
company and distribute substantially all of its taxable income. Accordingly, no
provision for U.S. 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.
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 Fund's next
taxable year. For the period from November 1, 1998 to June 30, 1999 the Fund
incurred and elected to defer until July 1, 1999 for U.S. Federal income tax
purposes, net currency losses of approximately $147,000.
At June 30, 1999, cost and unrealized appreciation/ depreciation for U.S.
Federal income tax purposes of the investments of the Fund was:
<TABLE>
<CAPTION>
NET
APPRECIATION/
COST APPREC. DEPREC. DEPRECIATION
(000) (000) (000) (000)
- -------- -------- --------- -------------
<S> <C> <C> <C>
$674,545 $104,455 $(43,056) $61,399
</TABLE>
7. DISTRIBUTION OF INCOME AND GAINS: 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, and gains on certain securities of corporations
designated as "passive foreign investment companies."
Permanent book to 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 in excess of par. For
the year ended June 30, 1999, approximately $2,284,000 has been reclassified
from paid in capital in excess of par with $1,838,000 posted to undistributed
net investment income and $446,000 posted to accumulated net realized gain.
Permanent book to tax basis differences 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. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES: Van
Kampen Investment Advisory Corp. (the "Adviser"), a wholly owned subsidiary of
Van Kampen Investments Inc. (an indirect wholly owned subsidiary of Morgan
Stanley Dean Witter & Co.) and Morgan Stanley Dean Witter Investment Management
Inc. ("MSDWIM" or a "Subadviser"), a wholly owned subsidiary 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 Fund, 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
ADVISORY FEE EXPENSE RATIO EXPENSE RATIO
- ------------ -------------- --------------
<S> <C> <C>
1.00 % 1.80% 2.55%
</TABLE>
For the year ended June 30, 1999, the Fund recognized expenses of approximately
$35,000 representing legal services provided by Skadden, Arps, Slate, Meagher &
Flom (Illinois), counsel to the Fund, of which a director of the Fund is an
affiliated person.
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 Fund, 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
F-67
<PAGE>
VAN KAMPEN GLOBAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
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
Adviser.
Van Kampen Funds Inc. the ("Distributor") a wholly owned subsidiary of Van
Kampen Investments Inc., an indirect 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 Fund 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% of the Class B shares and Class C shares of the Fund, on
an annualized basis, of the average daily net assets attributable to each Class.
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 shares and Class C shares of the Fund
redeemed within one to five years following such purchase. For the year ended
June 30, 1999, the Distributor has advised the Fund that it earned initial sales
charges of $431,221 for Class A shares and deferred sales charges of $40,909,
$2,591,742, and $53,302 for Class A shares, Class B shares, and Class C shares,
respectively.
Prior to October 1, 1998, the Fund's assets held outside the United States were
held by Morgan Stanley Trust Company ("MSTC"), a former affiliate of the
Subadvisers. Through September 30, 1998, the Fund incurred MSTC fees of
approximately $49,000. On October 1, 1998, the Chase Manhattan Bank purchased
MSTC.
Certain officers and directors of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or directors who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its directors
who are not officers of Van Kampen. Under the deferred compensation plan,
Directors 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 Director's years of service to the Fund. The maximum annual
benefit per director under the plan is $2,500.
During the year ended June 30, 1999, the Fund incurred approximately $106,000 as
brokerage commissions with Morgan Stanley & Co. Incorporated, an affiliated
broker/ dealer.
C. INVESTMENT TRANSACTIONS: For the year ended June 30, 1999, the Fund made
purchases of approximately $287,379,000 and sales of approximately $318,704,000
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.
F-68
<PAGE>
VAN KAMPEN GLOBAL EQUITY ALLOCATION FUND
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of Van Kampen Series Fund, Inc.--
Van Kampen Global Equity Allocation Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Van Kampen Global Equity Allocation
Fund (the "Fund", a fund of Van Kampen Series Fund, Inc.) at June 30, 1999, the
results of its operations, the changes in its net assets, and the financial
highlights for each of the periods presented, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at June 30, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
200 E. Randolph Dr.
Chicago, Illinois 60601
August 6, 1999
F-69
<PAGE>
VAN KAMPEN GLOBAL EQUITY ALLOCATION FUND
PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- --------------------------------------------------------------------
COMMON STOCKS (86.8%)
AUSTRALIA (2.4%)
Amcor Ltd............................. 43,942 $ 243
AMP Ltd............................... 63,305 690
Australian Gas Light Co., Ltd......... 25,593 155
Boral Ltd............................. 76,468 129
Brambles Industries Ltd............... 14,761 387
Broken Hill Proprietary Co., Ltd...... 135,000 1,558
Coca-Cola Amatil Ltd.................. 64,066 257
Coles Myer Ltd........................ 73,971 429
Colonial Ltd.......................... 60,692 214
CSL Ltd............................... 7,167 62
CSR Ltd............................... 69,030 197
Faulding (F.H.) & Co. Ltd............. 8,373 51
Fosters Brewing Ltd................... 119,412 335
General Property Trust................ 92,060 149
GIO Australia Holdings Ltd............ 45,469 110
Goodman Fielder Ltd................... 90,483 80
Leighton Holdings Ltd................. 18,450 72
Lend Lease Corp., Ltd................. 36,172 495
Mayne Nickless Ltd.................... 24,819 85
National Australia Bank Ltd........... 89,258 1,471
News Corp., Ltd....................... 126,779 1,078
Normandy Mining Ltd................... 133,037 88
North Broken Hill Peko Ltd............ 64,684 131
Orica Ltd............................. 19,541 106
Pacific Dunlop Ltd.................... 72,472 104
Pioneer International Ltd............. 62,368 158
QBE Insurance Group Ltd............... 27,089 103
Rio Tinto Ltd......................... 12,573 205
Santos Ltd............................ 40,735 133
Schroders Property Fund............... 26,497 41
Smith (Howard) Ltd.................... 13,530 103
Southcorp Holdings Ltd................ 42,987 173
(a)Stockland Trust Group.............. 441 1
Stockland Trust Group................. 21,230 48
Suncorp-Metway Ltd.................... 21,378 127
TABCORP Holdings Ltd.................. 22,004 148
Telstra Corp., Ltd.................... 326,031 1,861
Wesfarmers Ltd........................ 12,783 115
Westfield Trust....................... 86,614 175
(a)Westfield Trust (New).............. 1,438 3
Westpac Banking Corp., Ltd............ 122,607 792
WMC Ltd............................... 121,589 520
Woolworths Ltd........................ 76,969 255
--------
13,637
--------
AUSTRIA (0.7%)
Austria Mikro Systems International
AG.................................. 503 18
Austria Tabakwerke AG................. 3,719 217
Austrian Airlines Osterreichische
Luftverkehrs AG..................... 4,142 100
Bank Austria AG....................... 19,144 1,008
Bau Holdings AG....................... 795 25
Boehler-Udderholm AG.................. 1,866 93
BWT AG................................ 285 54
Flughafen Wein AG..................... 3,589 151
Generali AG........................... 1,197 220
Lenzing AG............................ 625 36
Mayr-Melnhof Karton AG................ 2,026 92
Oesterreichische Brau-Beteiligungs
AG.................................. 1,548 69
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
Oesterreichish Elektrizitaets 'A'..... 5,159 $ 752
OMV AG................................ 4,517 403
Radex-Heraklith Industriebet AG....... 2,366 64
VA Technologies AG.................... 2,535 230
Wienerberger Baustoffindustrie AG..... 11,680 303
--------
3,835
--------
CANADA (1.2%)
Abitibi-Consolidated, Inc............. 4,200 48
Agrium, Inc........................... 3,100 27
Alberta Energy Co., Ltd............... 2,400 77
Alcan Aluminum Ltd.................... 4,900 155
(a)Anderson Exploration Ltd........... 2,800 37
Bank of Montreal...................... 5,600 203
Bank of Nova Scotia................... 10,100 219
Barrick Gold Corp..................... 8,200 159
Barrick Gold Corp..................... 9,400 181
BCE, Inc.............................. 13,500 657
(a)BCT.Telus Communications, Inc...... 1,865 45
BCT.Telus Communications, Inc. 'A'.... 621 15
Bombardier, Inc. 'A'.................. 13,800 211
Cameco Corp........................... 1,200 25
(a)Canadian Hunter Exploration Ltd.... 1,350 20
Canadian Imperial Bank of Commerce.... 8,400 200
(a)Canadian Natural Resources Ltd..... 2,100 41
Canadian Occidental Petroleum Ltd..... 3,000 48
Canadian Pacific Ltd.................. 7,300 173
Canadian Tire Corp. 'A'............... 2,000 58
Cominco Ltd........................... 1,900 32
Dofasco, Inc.......................... 2,200 36
Edperbarascan Corp. 'A'............... 3,600 55
(a)Fairfax Financial Holdings Ltd..... 200 54
George Weston Ltd..................... 2,900 128
(a)Gulf Canada Resources Ltd.......... 19,900 82
Imasco Ltd............................ 9,000 242
Imperial Oil Ltd...................... 10,000 190
Inco Ltd.............................. 3,600 64
Laidlaw, Inc. 'B'..................... 7,100 52
(a)Loewen Group, Inc.................. 1,600 1
Macmillan Bloedel Ltd................. 3,000 54
Magna International, Inc. 'A'......... 1,600 90
MDS Inc. 'B'.......................... 1,300 28
National Bank of Canada............... 3,800 50
(a)Newbridge Networks Corp............ 3,600 103
Nexfor, Inc........................... 2,354 15
Noranda, Inc.......................... 5,400 71
Northern Telecom Ltd.................. 13,600 1,162
NOVA Chemicals Corp................... 208 5
Petro-Canada.......................... 6,200 85
Placer Dome, Inc...................... 22,560 262
(a)Poco Petroleums Ltd................ 3,200 26
Potash Corp. of Saskatchewan, Inc..... 1,200 62
Power Corp. of Canada................. 3,600 69
Quebecor, Inc. 'B'.................... 1,700 41
(a)Renaissance Energy Ltd............. 3,200 43
(a)Rogers Communication, Inc. 'B'..... 3,700 59
Royal Bank of Canada.................. 6,500 287
Seagram Co., Ltd...................... 7,400 368
Suncor Energy, Inc.................... 2,400 98
(a)Talisman Energy, Inc............... 2,300 62
Thomson Corp.......................... 12,600 380
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-70
<PAGE>
VAN KAMPEN GLOBAL EQUITY ALLOCATION FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
</TABLE>
CANADA (CONT.)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
TransAlta Corp........................ 1,800 $ 27
Transcanada Pipelines Ltd............. 10,344 146
Westcoast Energy, Inc................. 2,600 51
--------
7,179
--------
FRANCE (1.8%)
Accor S.A............................. 396 100
Alcatel............................... 5,046 711
Axa................................... 3,452 422
Banque Nationale de Paris............. 2,154 180
BIC Corp.............................. 643 34
Bouygues.............................. 292 77
Canal Plus............................ 322 90
Cap Gemini S.A........................ 1,817 286
Carrefour S.A......................... 2,406 354
Cie de Saint-Gobain................... 1,041 166
Dassault Systemes S.A................. 3,172 105
Elf Aquitaine......................... 2,911 428
Eridania Beghin-Say S.A............... 451 65
Essilor International................. 141 44
Etablissements Economiques du Casino
Guichard-Perrachon.................. 800 70
France Telecom S.A.................... 6,286 475
Groupe Danone RFD..................... 658 170
Klepierre............................. 6,678 627
L'air Liquide......................... 959 151
L'Oreal............................... 688 466
Lafarge S.A........................... 1,141 109
Lagardere S.C.A....................... 1,495 56
Legrand S.A........................... 299 61
(a)LVMH Moet Hennessy Louis Vuitton... 921 270
Michelin (C.G.D.E.) 'B'............... 2,247 92
Paribas............................... 1,846 207
Pernod-Ricard......................... 742 50
Pinault-Printemps-Redoute............. 1,235 212
Promodes.............................. 198 130
PSA Peugeot Citroen S.A............... 549 87
Rhone-Poulenc S.A. 'A'................ 3,917 179
Sagem................................. 30 20
Sanofi-Synthelabo S.A................. 4,528 192
Schneider S.A......................... 1,810 102
Silic................................. 1,723 271
Simco S.A. (Registered)............... 8,930 756
Societe Fonciere Lyonnaise............ 1,725 246
Societe Generale...................... 1,008 178
Sodexho S.A........................... 650 112
Suez Lyonnaise des Eaux............... 1,493 270
Thomson CSF S.A....................... 1,735 60
(a)Total S.A. 'B'..................... 2,710 350
Unibail............................... 6,450 826
Usinor Sacilor........................ 3,012 45
(a)Valeo S.A.......................... 935 77
Vivendi............................... 4,941 401
--------
10,380
--------
GERMANY (3.4%)
Adidas-Salomon AG..................... 1,483 145
Agiv AG............................... 1,450 33
Allianz AG............................ 7,292 2,040
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
AMB Aachener & Muenchener
Beteiligungs AG..................... 600 $ 60
BASF AG............................... 18,500 814
Bayer AG.............................. 21,300 887
Bayer Vereinsbank AG.................. 12,025 766
Bilfinger & Berger Bau AG............. 1,950 48
Brau und Brunnen AG................... 33 2
CKAG Colonia Konzern AG............... 717 68
Continental AG........................ 3,533 85
Daimler-Chrysler AG................... 1 -
Daimler-Chrysler AG................... 29,729 2,600
(a)Degussa AG......................... 2,183 91
Deutsche Bank AG...................... 15,100 921
(a)Deutsche Telekom AG................ 39,688 1,670
Dresdner Bank AG...................... 14,617 569
FAG Kugelfischer Georg Schaefer AG.... 4,500 44
Heidelberger Zement AG................ 603 49
Hochtief AG........................... 3,183 145
Karstadt AG........................... 350 167
Kloeckner-Humboldt-Deutz AG........... 2,067 14
Linde AG.............................. 233 140
Lufthansa AG.......................... 10,700 195
MAN AG................................ 3,500 119
Mannesmann AG......................... 6,620 991
Merck KGaA AG......................... 6,440 209
Metro AG.............................. 7,057 450
(a)Metro AG........................... 600 3
Muenchener Rueckversicherungs-
Gesellschaft AG (Registered)........ 2,447 462
Muenchener Rueckversicherungs-
Gesellschaft AG (Registered)........ 2,447 457
Preussag AG........................... 5,000 270
RWE AG................................ 12,704 589
SAP AG................................ 1,727 593
Schering AG........................... 2,300 246
Siemens AG............................ 16,783 1,296
(a)Thyssen AG......................... 12,170 267
VEBA AG............................... 14,733 870
Viag AG............................... 845 393
Volkswagen AG......................... 8,730 564
--------
19,332
--------
GREECE (0.0%)
Alpha Credit Bank S.A................. 1,387 90
--------
HONG KONG (1.0%)
Bank of East Asia..................... 41,800 106
Cathay Pacific Airways Ltd............ 93,000 143
Cheung Kong Holdings Ltd.............. 72,000 640
CLP Holdings Ltd...................... 79,500 386
Dickson Concepts International Ltd.... 25,000 18
Hang Lung Development Corp............ 48,000 59
Hang Seng Bank Ltd.................... 59,200 662
(a)Hong Kong & China Gas Co., Ltd..... 150,000 217
Hong Kong Land Holdings Ltd........... 508 1
Hong Kong Shanghai Hotels............. 22,000 19
Hong Kong Telecommunications Ltd...... 358,800 932
Hopewell Holdings Ltd................. 51,000 39
Hutchison Whampoa Ltd................. 108,000 978
Hysan Development Co.................. 33,781 51
Johnson Electric Holdings Ltd......... 26,000 107
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-71
<PAGE>
VAN KAMPEN GLOBAL EQUITY ALLOCATION FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
</TABLE>
HONG KONG (CONT.)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
New World Development Co., Ltd........ 67,000 $ 201
Shangri-La Asia Ltd................... 32,000 39
Sino Land Co.......................... 74,001 42
South China Morning Post.............. 62,000 35
Sun Hung Kai Properties Ltd........... 67,000 611
Swire Pacific Ltd. 'A'................ 48,500 240
Television Broadcasting Ltd........... 11,000 52
Wharf Holdings Ltd.................... 68,000 212
--------
5,790
--------
ITALY (2.5%)
Alitalia.............................. 62,254 162
Assicurazioni Generali S.p.A.......... 44,676 1,550
Banca Commerciale Italiana............ 81,300 594
Banco Ambrosiano Veneto............... 85,900 413
Banco Popolare di Milano.............. 11,000 85
Benetton Group S.p.A.................. 76,300 150
Burgo Cartiere S.p.A.................. 3,700 24
CIR-Compagnie Industriali Riunite
S.p.A............................... 700 1
Credito Italiano S.p.A................ 196,215 863
Edison S.p.A.......................... 31,000 269
Ente Nazionale Idrocarburi S.p.A...... 360,000 2,152
Falck Acciaierie & Ferriere
Lombarde............................ 2,000 15
Fiat S.p.A............................ 261,630 829
Fiat S.p.A. di Risp NCS............... 44,970 77
Impreglio S.p.A....................... 21,000 18
Istituto Nazionale delle Assicurazioni
(INA)............................... 176,680 410
Italcementi S.p.A..................... 7,300 93
Italcementi S.p.A..................... 10,150 51
Italgas............................... 20,400 86
La Rinascente S.p.A................... 9,878 75
Magneti Marelli S.p.A................. 14,000 19
Mediaset S.p.A........................ 49,000 436
Mediobanca S.p.A...................... 29,260 307
Montedison S.p.A...................... 92,616 151
Montedison S.p.A. di Risp NCS......... 30,628 36
(a)Olivetti Group..................... 76,180 183
Parmalat Finanziaria S.p.A............ 79,640 104
Pirelli S.p.A......................... 100,000 273
R.A.S................................. 21,769 212
R.A.S. di Risp........................ 462 4
S.A.I................................. 250 1
S.A.I................................. 6,100 63
San Paolo-Imi S.p.A................... 62,176 847
Sirti S.p.A........................... 8,000 39
Snia BPD S.p.A........................ 41,000 51
Telecom Italia Mobile S.p.A........... 178,400 1,067
Telecom Italia Mobile S.p.A. RNC...... 43,400 160
Telecom Italia S.p.A.................. 30,162 164
Telecom Italia S.p.A.................. 96,388 1,003
Unione Immobiliare S.p.A.............. 2,666,907 1,184
--------
14,221
--------
JAPAN (10.9%)
Acom Co., Ltd......................... 4,500 389
Ajinomoto Co., Inc.................... 45,800 523
(a)Aoki Corp.......................... 47,800 30
Asahi Bank Ltd........................ 64,500 310
Asahi Breweries Ltd................... 29,000 361
Asahi Chemical Industry Co., Ltd...... 85,400 474
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
Asahi Glass Co........................ 80,600 $ 523
Bank of Tokyo-Mitsubishi Ltd.......... 180,600 2,574
Bank of Yokohama...................... 23,500 60
Bridgestone Corp...................... 32,000 969
Canon, Inc............................ 34,800 1,002
Casio Computer Co., Ltd............... 17,000 129
Chiba Bank Ltd........................ 22,800 84
Chugai Pharmaceutical Ltd............. 29,800 321
Credit Saison Co., Ltd................ 5,100 107
Dai Nippon Printing Co., Ltd.......... 32,800 525
Daiei, Inc............................ 29,800 102
Daikin Industries Ltd................. 28,800 335
Daiwa House Industry.................. 29,800 314
Daiwa Securities Co., Ltd............. 108,000 715
Denso Corp............................ 10,600 216
East Japan Railway Co................. 170 914
Ebara Corp............................ 19,800 236
Fanuc Co.............................. 12,200 656
Fuji Bank............................. 171,000 1,194
Fuji Photo Film Co.................... 17,000 644
Fujitsu Ltd........................... 70,600 1,422
Furukawa Electric Co., Ltd............ 20,800 96
Gunma Bank Ltd........................ 11,000 69
Hankyu Corp........................... 37,000 147
(a)Hazama Corp........................ 28,000 23
Hitachi Ltd........................... 143,000 1,343
Honda Motor Co........................ 34,000 1,443
Industrial Bank of Japan Ltd.......... 79,000 627
Ito-Yokado Co., Ltd................... 14,000 938
Japan Airlines Co., Ltd............... 90,000 298
Japan Energy Corp..................... 67,600 79
Joyo Bank............................. 11,800 46
Jusco Co.............................. 14,800 269
Kajima Corp........................... 55,600 202
Kansai Electric Power Co.............. 36,600 696
KAO Corp.............................. 37,800 1,063
Kawasaki Steel Corp................... 45,600 85
Kinki Nippon Railway Co., Ltd......... 65,600 323
Kirin Brewery Co., Ltd................ 57,600 691
Komatsu Ltd........................... 52,600 336
Kubota Corp........................... 81,400 244
Kumagai Gumi Co., Ltd................. 88,600 99
Kyocera Corp.......................... 8,500 499
Kyowa Hakko Kogyo Co., Ltd............ 26,800 154
Marubeni Corp......................... 77,200 162
Marui Co., Ltd........................ 6,800 113
Matsushita Electric Industrial Co.,
Ltd................................. 72,400 1,408
Mitsubishi Chemical Corp.............. 86,000 298
Mitsubishi Corp....................... 76,000 516
Mitsubishi Electric Corp.............. 101,400 390
Mitsubishi Estate Co., Ltd............ 24,000 234
Mitsubishi Heavy Industries Ltd....... 155,000 630
Mitsubishi Materials Corp............. 54,600 122
Mitsubishi Trust and Banking Corp..... 38,000 370
Mitsui & Co........................... 78,200 546
Mitsui Engineering & Shipbuilding Co.,
Ltd................................. 56,600 64
Mitsui Fudosan Co., Ltd............... 18,000 146
Mitsui Trust & Banking Co., Ltd....... 1,400 2
Mitsukoshi Ltd........................ 29,800 130
Murata Manufacturing Co., Inc......... 12,000 790
Mycal Corp............................ 18,800 118
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-72
<PAGE>
VAN KAMPEN GLOBAL EQUITY ALLOCATION FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
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SHARES (000)
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<S> <C> <C>
</TABLE>
JAPAN (CONT.)
<TABLE>
<CAPTION>
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SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
NEC Corp.............................. 50,600 $ 630
New OJI Paper Co., Ltd................ 57,600 334
NGK Insulators Ltd.................... 29,800 312
Nippon Express Co., Ltd............... 22,000 132
Nippon Fire & Marine Insurance Co..... 26,800 91
Nippon Light Metal Co................. 26,800 40
Nippon Meat Packers, Inc.............. 26,800 350
Nippon Oil Co......................... 82,600 349
Nippon Steel Corp..................... 320,000 744
Nippon Telegraph & Telephone Corp.
ADR................................. 433 5,051
Nippon Yusen Kabushiki Kaisha......... 80,400 310
Nissan Fire & Marine Insurance Co.,
Ltd................................. 350 1
Nissan Motor Co., Ltd................. 102,400 490
NKK Corp.............................. 168,000 138
Nomura Securities Co., Ltd............ 55,000 645
Odakyu Electric Railway Co............ 31,800 107
Orix Corp............................. 1,300 116
Osaka Gas Co.......................... 114,200 388
Penta-Ocean Construction Co., Ltd..... 26,800 47
Pioneer Electronic Corp............... 8,000 156
Rohm Co............................... 3,000 470
Sakura Bank Ltd....................... 108,200 411
Sankyo Co., Ltd....................... 21,800 550
Sanwa Bank Ltd........................ 80,000 788
Sanyo Electric Co., Ltd............... 73,400 299
Secom Co.............................. 6,800 709
Sega Enterprises Ltd.................. 5,800 77
Sekisui House Ltd..................... 28,800 311
Sharp Corp............................ 48,600 575
Shimano Inc........................... 8,000 190
Shimizu Corp.......................... 40,800 159
Shin-Etsu Chemical Co................. 12,000 402
Shiseido Co., Ltd..................... 13,000 195
Shizuoka Bank......................... 15,800 158
Showa Denko K.K....................... 54,600 70
SMC Corp.............................. 2,100 235
Softbank Corp......................... 900 183
Sony Corp............................. 12,000 1,296
Sumitomo Bank Ltd..................... 69,000 857
Sumitomo Chemical Co.................. 108,200 497
Sumitomo Corp......................... 55,400 406
Sumitomo Electric Industries.......... 38,800 442
Sumitomo Forestry Co., Ltd............ 17,000 132
Sumitomo Metal Industries Ltd......... 103,400 129
Sumitomo Metal Mining Co.............. 28,000 116
Sumitomo Osaka Cement Co., Ltd........ 27,800 54
Taisei Corp., Ltd..................... 57,600 127
Taisho Pharmaceutical Co.............. 17,000 563
Taiyo Yuden Co., Ltd.................. 33,000 542
Takeda Chemical Industries............ 32,800 1,522
Teijin Ltd............................ 57,600 234
The 77 Bank Ltd....................... 12,000 105
Tobu Railway Co....................... 36,800 104
Tohoku Electric Power Co., Ltd........ 19,500 296
Tokai Bank Ltd........................ 53,600 306
Tokio Marine & Fire Insurance Co...... 79,400 864
Tokyo Electric Power Co............... 47,300 1,000
Tokyo Electron Ltd.................... 4,000 272
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
Tokyo Gas Co.......................... 108,200 $ 267
Tokyu Corp............................ 45,800 116
Toppan Printing Co., Ltd.............. 37,800 422
Toray Industries, Inc................. 84,500 424
Toto Ltd.............................. 29,800 231
Toyobo Ltd............................ 58,600 89
Toyota Motor Corp..................... 118,000 3,739
Ube Industries Ltd.................... 54,600 118
Yokogawa Electric Corp................ 30,000 177
--------
62,598
--------
NETHERLANDS (3.5%)
ABN Amro Holdings N.V................. 58,059 1,259
Aegon N.V............................. 22,400 1,627
Akzo Nobel N.V........................ 13,319 561
Buhrmann N.V.......................... 122 2
Elsevier N.V.......................... 24,030 279
Getronics N.V......................... 2,861 110
Hagemeyer N.V......................... 4,384 143
Heineken N.V.......................... 12,409 636
ING Groep N.V......................... 37,247 2,019
KLM Royal Dutch Airlines N.V.......... 3,379 96
Koninklijke Ahold N.V................. 23,809 821
KPN N.V............................... 11,250 529
Oce N.V............................... 3,679 94
Philips Electronics N.V............... 13,222 1,306
Royal Dutch Petroleum................. 85,956 5,041
Royal Dutch Petroleum Co., New York
Shares.............................. 28,700 1,729
Schlumberger Ltd...................... 7,900 503
Stork N.V............................. 120 3
TNT Post Group N.V.................... 19,569 468
(a)Unilever N.V. CVA.................. 23,294 1,572
(a)Unilever N.V....................... 7,500 523
Vedior N.V............................ 2,920 50
Wolters Kluwer N.V.................... 11,684 466
--------
19,837
--------
SINGAPORE (1.5%)
City Developments Ltd................. 99,000 634
Comfort Group Ltd..................... 65,000 40
Creative Technology Ltd............... 11,150 145
Cycle & Carriage Ltd.................. 19,000 109
DBS Land Ltd.......................... 131,000 262
Development Bank of Singapore Ltd.
(Foreign)........................... 76,000 929
First Capital Corp.................... 36,000 56
Fraser & Neave Ltd.................... 36,000 160
Hotel Properties Ltd.................. 49,000 51
Inchcape Bhd.......................... 5,000 8
Keppel Corp........................... 105,000 358
NatSteel Ltd.......................... 45,000 79
Neptune Orient Lines Ltd.............. 28,000 34
Oversea-Chinese Banking Corp., Ltd.
(Foreign)........................... 119,000 993
Overseas Union Enterprise Ltd......... 20,000 63
Parkway Holdings Ltd.................. 45,000 111
Sembcorp Industries Ltd............... 148,235 235
Singapore Airlines Ltd. (Foreign)..... 112,000 1,066
Singapore Press Holdings.............. 45,000 767
Singapore Technology Engineering
Ltd................................. 355,000 403
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-73
<PAGE>
VAN KAMPEN GLOBAL EQUITY ALLOCATION FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
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SINGAPORE (CONT.)
<TABLE>
<CAPTION>
VALUE
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- --------------------------------------------------------------------
<S> <C> <C>
Singapore Telecommunications Ltd...... 702,000 $ 1,204
Straits Trading Co., Ltd.............. 13,000 17
United Industrial Corp., Ltd.......... 167,000 113
United Overseas Bank Ltd. (Foreign)... 87,000 608
United Overseas Land Ltd.............. 74,000 83
Venture Manufacturing Ltd............. 25,000 192
--------
8,720
--------
SPAIN (2.1%)
Acerinox S.A.......................... 3,764 110
ACS S.A............................... 2,802 80
Argentaria S.A........................ 26,319 600
Autopistas Concesionaria Espanola
S.A................................. 13,943 163
Azucarere Ebro Agricolas S.A.......... 3,766 58
Banco Bilbao Vizcaya S.A.
(Registered)........................ 104,767 1,516
Banco Santander Central Hispano
S.A................................. 179,712 1,874
Corporacion Financiera Alba S.A....... 753 122
Corporacion Mapfre S.A................ 3,696 75
Empresa Nacional de Cellulosas S.A.... 34 1
Endesa S.A............................ 49,484 1,057
Energia y Industrias Aragonesas
S.A................................. 12 -
Fomento de Construcciones y Contratas
S.A................................. 3,764 216
Gas Natural SDG S.A. 'E'.............. 7,527 548
General de Aguas de Barcelona S.A..... 2,379 124
Gropo Dragados, S.A................... 8,955 105
Iberdrola S.A......................... 45,207 689
Immobiliaria Metropolitana Vasco
Central
S.A................................. 27,499 539
Prima Inmobiliaria S.A................ 30,600 237
Repsol S.A............................ 48,858 999
Sol Melia S.A......................... 1,647 70
Tabacalera S.A. 'A'................... 8,964 181
(a)Telefonica S.A..................... 33,095 1,596
(a)TelePizza S.A...................... 10,943 57
Union Electrica Fenosa S.A............ 14,986 196
Vallehermoso S.A...................... 90,415 877
(a)Viscofan Industria Navarra de
Envolturas Calulosicas S.A.......... 68 1
Zardoya-Otis S.A...................... 1,264 32
--------
12,123
--------
SWEDEN (1.7%)
ABB AB 'A'............................ 9,900 132
ABB AB 'B'............................ 700 9
(a)ABB Ltd............................ 3,005 282
AGA AG 'B'............................ 8,400 104
Atlas Copco AB 'A'.................... 6,650 182
Atlas Copco AB 'B'.................... 3,600 97
Castellum AB.......................... 31,600 299
Diligentia AB......................... 51,786 404
Drott AB 'B'.......................... 32,300 263
Electrolux AB 'B'..................... 15,900 334
Ericsson AB........................... 68,700 2,211
Fastighets AB Tornet.................. 17,610 240
ForeningsSparbanken AB................ 27,450 389
Hennes & Mauritz AB 'B'............... 42,400 1,051
(a)NetCom Systems AB 'B'.............. 3,400 115
OM Gruppen AB......................... 3,800 43
Sandvik AB 'A'........................ 10,200 223
Sandvik AB 'B'........................ 4,200 93
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
SCA AB 'B'............................ 11,500 $ 299
Securitas AB 'B'...................... 20,200 303
Skandia Forsakrings AB................ 26,700 501
Skandinaviska Enskilda Banken AB
'A'................................. 31,100 364
Skanska AB 'B'........................ 6,500 246
SKF AB 'B'............................ 4,500 83
Svenska Handelsbanken 'A'............. 33,600 405
Svenskt Stal AB 'A'................... 6,300 79
Trelleborg AB 'B'..................... 7,600 67
Volvo AB 'A'.......................... 7,600 220
Volvo AB 'B'.......................... 15,900 463
Wm-Data AB 'B'........................ 2,700 103
--------
9,604
--------
SWITZERLAND (2.2%)
ABB Ltd. (New)........................ 3,969 375
Adecco S.A. (Registered).............. 470 252
Alusuisse-Lonza Holding AG
(Registered)........................ 160 187
CS Holding AG (Registered)............ 6,850 1,188
Georg Fischer AG (Registered)......... 85 28
Holderbank Financiere Glarus AG
(Bearer)............................ 175 207
Nestle S.A. (Registered).............. 1,005 1,814
Novartis AG (Registered).............. 1,636 2,393
Roche Holding AG (Bearer)............. 42 693
Roche Holding AG-Genusshein........... 177 1,823
Sairgroup (Registered)................ 405 85
Schweizerische Rueckver
(Registered)........................ 375 715
SGS Societe Generale de Surveillance
Holding S.A. (Bearer)............... 50 52
SMH AG (Bearer)....................... 135 91
Sulzer AG (Registered)................ 110 67
Swisscom AG (Registered).............. 1,090 411
UBS AG (Registered)................... 5,181 1,549
Valora Holding AG (Registered)........ 165 38
Zurich Allied AG (New)................ 1,205 686
--------
12,654
--------
UNITED KINGDOM (10.5%)
Abbey National plc.................... 40,603 763
Albert Fisher Group plc............... 58,227 12
Alldays plc........................... 3,096 4
Allders plc........................... 4,039 9
Allied Zurich plc..................... 43,182 543
Amec plc.............................. 11,811 48
Anglian Water plc..................... 31,582 350
Arjo Wiggins Appleton plc............. 28,433 99
Associated British Foods plc.......... 25,719 170
Associated British Ports Holdings
plc................................. 83,014 376
AstraZeneca Group..................... 13,873 537
AstraZeneca plc....................... 26,569 1,038
BAA plc............................... 31,685 305
Barclays plc.......................... 40,838 1,189
Barrat Developments plc............... 16,890 95
Bass plc.............................. 23,324 339
BBA Group plc......................... 2,022 16
Beazer Group plc...................... 38,215 121
Berisford plc......................... 26,471 101
BG plc................................ 112,642 689
BICC plc.............................. 31,967 46
Blue Circle Industries plc............ 52,594 350
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-74
<PAGE>
VAN KAMPEN GLOBAL EQUITY ALLOCATION FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
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UNITED KINGDOM (CONT.)
<TABLE>
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VALUE
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<S> <C> <C>
BOC Group plc......................... 16,708 $ 327
Boots Co. plc......................... 28,579 340
BP Amoco plc.......................... 234,126 4,199
BPB Industries plc.................... 77,860 462
British Aerospace plc................. 55,389 360
British Airways plc................... 31,222 216
British American Tobacco plc.......... 43,182 406
British Land Co. plc.................. 224,516 1,879
British Sky Broadcasting Group plc.... 46,468 431
British Steel plc..................... 78,328 203
British Telecommunications plc........ 103,228 1,731
Burmah Castrol plc.................... 34,128 648
Cable & Wireless plc.................. 37,650 480
Cadbury Schweppes plc................. 55,210 352
Capital Shopping Centers plc.......... 60,550 384
Caradon plc........................... 97,945 232
Carpetright plc....................... 16,769 104
Centrica plc.......................... 128,580 302
Cobham plc............................ 19,249 307
Commercial Union plc.................. 27,431 397
Compass Group plc..................... 20,035 199
Delta plc............................. 3,953 9
Diageo plc............................ 98,750 1,032
Dialog Corporation plc................ 7,331 11
Emap plc.............................. 9,770 171
EMI Group plc......................... 80,014 642
Enterprise Oil plc.................... 40,199 262
Firstgroup plc........................ 38,972 212
FKI plc............................... 31,227 97
General Electric plc.................. 79,686 813
GKN plc............................... 42,906 733
Glaxo Wellcome plc.................... 85,295 2,372
Granada Group plc..................... 25,911 481
Grantchester Holdings plc............. 273,830 741
Great Portland Estates plc............ 140,530 486
Great Universal Stores plc............ 29,417 326
Greycoat plc.......................... 8,968 36
Halifax plc........................... 66,139 790
Hammerson plc......................... 100,910 756
Hanson plc............................ 59,228 526
Hilton Group plc...................... 43,911 174
House of Fraser plc................... 22,703 31
HSBC Holdings plc..................... 66,014 2,339
Hyder plc............................. 39,193 467
IMI plc............................... 37,585 152
Imperial Chemical Industries plc...... 21,041 208
Invensys plc.......................... 215,159 1,019
Jarvis plc............................ 21,676 101
JBA Holdings plc...................... 2,387 4
Johnson Matthey plc................... 44,295 433
Kingfisher plc........................ 43,082 496
Laird Group plc....................... 10,539 44
Land Securities plc................... 201,165 2,707
Lasmo plc............................. 135,898 311
Legal & General Group plc............. 149,612 381
Lex Service plc....................... 21,762 201
LIMIT plc............................. 87,179 184
Lloyds TSB Group plc.................. 144,074 1,955
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
London Clubs International plc........ 31,795 $ 72
London Forfaiting Co., plc............ 11,737 11
Lonmin plc............................ 35,802 333
Low & Bonar plc....................... 3,132 10
Manchester United plc................. 3,027 10
Marks & Spencer plc................... 79,288 459
Mayflower Corporation plc............. 396 1
McKechnie plc......................... 3,630 28
Meggitt plc........................... 9,288 29
MEPC plc.............................. 169,153 1,377
Mirror Group News Ord plc............. 32,562 127
Misys plc............................. 72,884 624
National Power plc.................... 36,850 269
Next plc.............................. 42,540 517
NFC plc............................... 64,004 208
Ocean Group plc....................... 1,489 25
(a)Parity plc......................... 14,245 140
Pearson plc........................... 1 -
Peninsular & Oriental Steam Navigation
Co.................................. 21,474 323
Pennon Group plc...................... 17,517 293
Pilkington plc........................ 213,754 311
Powerscreen International plc......... 3,303 10
Provident Financial plc............... 7 --
Prudential Corp. plc.................. 54,935 809
Racal Electronic plc.................. 15,431 94
Railtrack Group plc................... 13,746 281
Rank Group plc........................ 68,009 271
Reed International plc................ 33,290 222
Rentokil Initial plc.................. 78,591 307
Reuters Holdings plc.................. 40,134 528
Rexam plc............................. 22,695 92
Rio Tinto plc......................... 31,413 527
RMC Group plc......................... 12,110 195
Rolls-Royce plc....................... 56,619 240
Royal & Sun Alliance Insurance Group
plc................................. 38,002 341
Rugby Group plc....................... 20,156 36
Safeway plc........................... 30,418 122
Sainsbury (J) plc..................... 52,895 334
Schroders Property Fund............... 4,417 90
Scotia Holdings plc................... 8,881 16
Scottish & Southern Energy plc........ 34,834 357
Scottish Power plc.................... 36,236 313
Skillsgroup plc....................... 2,700 13
Slough Estates plc.................... 189,716 1,077
SmithKline Beecham plc................ 146,865 1,910
Smiths Industries plc................. 8,351 110
Stagecoach Holdings plc............... 68,744 246
Tarmac plc............................ 40,831 77
Tate & Lyle plc....................... 21,085 132
Taylor Woodrow plc.................... 19,736 57
Tesco plc............................. 89,024 229
Thames Water plc...................... 14,894 236
The Berkeley Group plc................ 10,202 123
TI Group plc.......................... 17,948 120
Torotrac plc.......................... 2,634 8
Unilever plc.......................... 95,100 847
United Utilities...................... 19,397 236
Vickers plc........................... 4,410 11
Vodafone Group plc.................... 49,284 972
Wickes plc............................ 1,852 11
William Baird plc..................... 25,635 46
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-75
<PAGE>
VAN KAMPEN GLOBAL EQUITY ALLOCATION FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
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UNITED KINGDOM (CONT.)
<TABLE>
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<S> <C> <C>
WPP Group plc......................... 45,398 $ 384
Yorkshire Water plc................... 29,111 203
--------
60,262
--------
UNITED STATES (41.4%)
A.G. Edwards, Inc..................... 2,500 81
A.H. Belo Corp., 'A'.................. 4,200 83
A.O. Smith Corp....................... 6,800 190
AAR Corp.............................. 6,600 150
Abbott Laboratories................... 20,600 937
(a)Abercrombie & Fitch Co. 'A'........ 3,000 144
ABM Industries, Inc................... 4,600 141
(a)Acnielsen Corp..................... 2,100 64
(a)Acxiom Corp........................ 14,500 362
Adac Laboratories, Inc................ 4,300 31
(a)ADC Telecom, Inc................... 3,900 178
(a)Advo Inc........................... 4,600 95
(a)AES Corp........................... 3,600 209
AETNA, Inc............................ 2,400 215
AFLAC, Inc............................ 7,400 354
AGL Resources, Inc.................... 2,100 39
Air Express International Corp........ 8,100 206
Air Products & Chemicals, Inc......... 5,500 221
Airborne Freight Corp................. 2,000 55
AK Steel Holding Corp................. 2,900 65
(a)Alaska Air Group, Inc.............. 1,100 46
Albertson's, Inc...................... 6,146 317
Alcoa, Inc............................ 6,900 427
Aliant Communications, Inc............ 1,500 69
Allegheny Energy, Inc................. 3,100 99
Alliant Energy Corp................... 3,800 108
(a)Alliant Techsystems, Inc........... 2,800 242
Allied Signal, Inc.................... 7,900 498
(a)Allied Waste Industries, Inc....... 5,400 107
Allstate Corp......................... 11,300 405
Alltel Corp........................... 3,800 272
Alpharma, Inc......................... 5,900 210
(a)Altera Corp........................ 5,600 206
(a)Alza Corp. 'A'..................... 3,000 153
AMBAC Finacial Group, Inc............. 2,000 114
Amerada Hess Corp..................... 2,400 143
Ameren Corp........................... 1,800 69
American Bankers Insurance
Group, Inc.......................... 9,100 495
American Electric Power Co., Inc...... 2,700 101
American Express Co................... 5,900 768
American Financial Group, Inc......... 2,200 75
American General Corp................. 4,100 309
American Home Products Corp........... 17,600 1,012
American International Group, Inc..... 19,230 2,251
(a)American Management
Systems, Inc........................ 8,500 273
(a)American Power Conversion Corp..... 5,600 113
(a)American Standard
Companies, Inc...................... 2,400 115
(a)American Telephone & Telegraph
Co.................................. 45,145 2,520
American Water Works, Inc............. 2,400 74
(a)Americredit Corp................... 13,500 216
Ameritech Corp........................ 15,100 1,110
(a)Amgen, Inc......................... 7,300 444
(a)AMR Corp........................... 2,400 164
(a)Analog Devices..................... 5,000 251
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
Analogic Corp......................... 3,000 $ 93
Analysts International Corp........... 5,200 75
Anchor Bancorp Wisconsin, Inc......... 3,500 62
Anheuser-Busch Cos., Inc. 'A'......... 6,900 489
(a)Anixter International, Inc......... 10,800 197
(a)Ann Taylor Stores Corp............. 4,800 216
Aon Corp.............................. 4,500 186
Apogee Enterprises, Inc............... 9,400 126
(a)Apollo Group, Inc. 'A'............. 2,600 69
Applebee's International, Inc......... 6,400 193
Applied Industrial
Technologies, Inc................... 7,300 139
(a)Applied Material, Inc.............. 6,000 443
Applied Power, Inc. 'A'............... 8,300 227
Aptar Group, Inc...................... 8,500 255
Arch Chemicals, Inc................... 1,200 29
Archer Daniels Midland Co............. 9,500 147
(a)Arrow Electronics, Inc............. 3,600 68
Arvin Industries, Inc................. 1,500 57
(a)Aspect Telecommunications Corp..... 11,200 109
Associated Banc-Corp.................. 2,400 100
Associates First Capital Corp. 'A'.... 9,603 426
(a)Astec Industries, Inc.............. 4,200 171
Astoria Financial Corp................ 11,700 514
AT&T Corp. Liberty Media 'A'.......... 11,576 425
Atlantic Richfield Co................. 5,000 418
(a)Atmel Corp......................... 4,100 107
Atmos Energy Corp..................... 5,700 142
Automatic Data Processing, Inc........ 7,900 348
Avery Dennison Corp................... 3,000 181
(a)Avid Technology, Inc............... 5,500 89
Avnet, Inc............................ 1,400 65
Avon Products, Inc.................... 4,200 233
Baker Hughes, Inc..................... 5,600 188
Baldor Electric Co.................... 9,500 189
Ballard Medical Products.............. 7,300 170
Bank of New York Co., Inc............. 9,300 341
Bank One Corp......................... 15,900 947
BankAmerica Corp...................... 23,000 1,686
BankBoston Corp....................... 4,400 225
Banknorth Group, Inc.................. 3,200 106
(a)Barnes & Noble, Inc................ 2,100 57
Barnes Group, Inc..................... 5,000 109
(a)Barr Laboratories, Inc............. 4,700 187
(a)Barrett Resources Corp............. 5,800 223
Baxter International, Inc............. 4,300 261
BB&T Corp............................. 4,900 180
(a)BE Aerospace, Inc.................. 5,200 97
Beckman Coulter, Inc.................. 1,200 58
Becton & Dickinson & Co............... 4,500 135
(a)Bed Bath & Beyond, Inc............. 4,000 154
Belden, Inc........................... 8,900 213
Bell Atlantic Corp.................... 21,000 1,373
BellSouth Corp........................ 26,300 1,233
Bergen Brunswig Corp. 'A'............. 3,000 52
(a)Best Buy Co., Inc.................. 6,000 405
Bestfoods............................. 4,300 213
(a)Billing Concepts Corp.............. 7,300 82
Bindley Western Industries, Inc....... 6,667 154
(a)Biogen, Inc........................ 4,200 270
(a)BISYS Group, Inc................... 6,200 363
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-76
<PAGE>
VAN KAMPEN GLOBAL EQUITY ALLOCATION FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
</TABLE>
UNITED STATES (CONT.)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
(a)BJ Services Co..................... 2,700 $ 79
(a)BJ's Wholesale Club, Inc........... 2,800 84
Black & Decker Corp................... 2,400 151
Blout International, Inc. 'A'......... 8,900 242
(a)BMC Software, Inc.................. 7,185 388
Boeing Co............................. 13,800 610
Borg-Warner Automotive, Inc........... 5,035 277
(a)Boston Scientific Corp............. 6,900 303
Bowater, Inc.......................... 2,000 95
Bowne & Co............................ 8,500 111
Brady Corp. 'A'....................... 4,900 159
(a,c)BREED Technologies, Inc.......... 13,300 30
(a)Brightpoint, Inc................... 11,800 72
(a)Brinker International, Inc......... 2,500 68
Bristol-Myers Squibb Co............... 27,000 1,902
Browning-Ferris Industries, Inc....... 3,100 133
Brush Wellman, Inc.................... 6,100 111
(a)Buckeye Technologies, Inc.......... 8,500 129
Burlington Northern Railroad Co....... 5,700 177
Burlington Resources, Inc............. 3,100 134
(a)Burr-Brown Corp.................... 8,000 293
(a)C-Cube Microsystems, Inc........... 8,400 266
(a)Cable Design Technologies Corp..... 6,900 107
Cabot Corp............................ 2,600 63
Cabot Oil & Gas Corp. 'A'............. 6,800 127
(a)Cadence Design Systems, Inc........ 6,500 83
Cambrex Corp.......................... 6,300 165
(a)Cambridge Tech Partner, Inc........ 1,900 33
Campbell Soup Co...................... 5,400 250
(a)Canandaigua Brands, Inc. 'A'....... 3,800 199
Capital One Financial Corp............ 3,300 184
Capital Re Corp....................... 7,700 124
Caraustar Industries, Inc............. 6,000 148
Cardinal Health, Inc.................. 4,258 273
Carlisle Cos., Inc.................... 1,100 53
Carolina Power & Light Co............. 1,900 81
Carpenter Technology Corp............. 1,200 34
Case Corp............................. 9,200 443
Caseys General Stores, Inc............ 12,000 180
(a)Catalina Marketing Corp............ 3,800 350
Caterpillar, Inc...................... 6,000 360
Cato Corp., 'A'....................... 7,000 81
CBRL Group, Inc....................... 2,500 43
(a)CBS, Inc........................... 10,900 473
CCB Financial Corp.................... 1,300 69
(a)CDI Corp........................... 4,900 167
(a)CEC Entertainment, Inc............. 3,600 152
(a)Cendant Corp....................... 13,100 269
(a)Centocor, Inc...................... 2,200 103
Central & South West Corp............. 2,600 61
Central Hudson Gas & Electric Corp.... 3,800 160
Central Parking Corp.................. 6,000 205
Centura Banks, Inc.................... 4,900 276
Century Telephone
Enterprises, Inc.................... 3,900 155
(a)Ceridian Corp...................... 2,600 85
(a)Cerner Corp........................ 6,400 134
(a)Champion Enterprises, Inc.......... 10,000 186
Charter One Financial, Inc............ 4,000 111
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
Chase Manhattan Corp.................. 12,000 $ 1,039
Chemed Corp........................... 4,000 133
ChemFirst, Inc........................ 4,600 112
Chevron Corp.......................... 8,800 838
Chiquita Brands International, Inc.... 13,900 125
(a)Chiron Corp........................ 5,500 114
(a)Chris-Craft Industries, Inc........ 1,545 73
Chubb Corp............................ 2,400 167
(a)Ciber, Inc......................... 11,100 212
Cigna Corp............................ 3,100 276
CILCORP, Inc.......................... 3,100 194
Cincinnati Bell, Inc.................. 4,500 112
Cincinnati Financial Corp............. 2,900 109
Cinergy Corp.......................... 2,200 70
Cintas Corp........................... 3,100 208
(a)Cisco Systems, Inc................. 42,600 2,748
Citigroup, Inc........................ 46,200 2,194
(a)Citrix Systems, Inc................ 2,600 147
City National Corp.................... 1,500 56
Cke Restaurants, Inc.................. 10,200 166
CLARCOR, Inc.......................... 6,000 115
Clayton Homes, Inc.................... 4,800 55
(a)Clear Channel Communications,
Inc................................. 3,800 262
Clorox Co............................. 1,988 212
CMS Energy Corp....................... 2,800 117
CNF Transportation, Inc............... 1,800 69
Coastal Corp.......................... 4,600 184
Coca-Cola Bottling Co................. 2,100 118
Coca-Cola Co.......................... 32,600 2,037
Coca-Cola Enterprises, Inc............ 5,900 176
(a)Cognex Corp........................ 8,000 252
Colgate Palmolive Co.................. 4,100 405
Columbia HCA/Healthcare Corp.......... 10,400 237
Comair Holdings, Inc.................. 18,900 393
Comcast Corp.......................... 10,400 400
Comdisco, Inc......................... 4,800 123
Comerica, Inc......................... 2,500 149
Commerce Bancorp, Inc................. 4,700 201
Commercial Federal Corp............... 12,700 294
Commercial Metals Co.................. 5,000 142
Commonwealth Energy Systems........... 4,200 176
(a)CommScope, Inc..................... 8,800 271
Compaq Computer Corp.................. 23,500 557
Computer Associates International,
Inc................................. 7,800 429
(a)Computer Sciences Corp............. 2,400 166
Computer Task Group, Inc.............. 4,700 80
Comsat Corp........................... 900 29
(a)Comverse Technology, Inc........... 1,950 147
Conagra, Inc.......................... 7,300 194
(a)Concord EFS, Inc................... 2,900 123
Conectiv, Inc......................... 4,100 100
(a)Conexant Systems, Inc.............. 1,800 105
Conseco, Inc.......................... 4,400 134
Consolidated Edison, Inc.............. 3,500 158
(a)Consolidated Graphics, Inc......... 3,300 165
Consolidated Papers, Inc.............. 3,900 104
(a)Consolidated Stores Corp........... 2,400 65
(a)Convergys Corp..................... 4,400 85
Cooper Companies, Inc................. 4,400 110
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-77
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VAN KAMPEN GLOBAL EQUITY ALLOCATION FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
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- --------------------------------------------------------------------
<S> <C> <C>
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UNITED STATES (CONT.)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
Cooper Industries, Inc................ 3,000 $ 156
Corn Products International, Inc...... 7,100 216
Corning, Inc.......................... 3,900 273
(a)Costco Cos., Inc................... 3,200 256
Countrywide Credit Industries, Inc.... 2,200 94
(a)Covance, Inc....................... 1,800 43
(a)Coventry Health Care, Inc.......... 12,000 131
Crompton & Knowles Corp............... 2,800 55
Cross Timbers Oil Co.................. 10,600 158
CSX Corp.............................. 3,500 159
CTS Corp.............................. 4,100 287
Cullen/Frost Bankers, Inc............. 10,600 292
Cummins Engine........................ 300 17
CVS Corp.............................. 5,800 297
D.R. Horton, Inc...................... 12,000 199
Dallas Semiconductor Corp............. 6,700 338
Dana Corp............................. 4,000 184
Dayton Hudson Corp.................... 6,700 435
Dean Foods Co......................... 1,200 50
Deere & Co............................ 3,700 147
(a)Dell Computer Corp................. 35,000 1,295
(a)Delphi Automotive Systems Corp..... 6,709 125
Delphi Financial Group, Inc. 'A'...... 4,692 168
Delta & Pine Land Co.................. 8,000 252
Delta Airlines, Inc................... 1,900 109
DENTSPLY International, Inc........... 2,300 66
Devon Energy Corp..................... 7,000 250
(a)DeVry, Inc......................... 13,800 309
Diagnostic Products Corp.............. 5,000 138
Dial Corp............................. 3,200 119
Diebold, Inc.......................... 1,900 55
Dime Bancorp, Inc..................... 2,500 50
Dimon, Inc............................ 9,100 47
(a)Dionex Corp........................ 5,000 202
(a)Discount Auto Parts, Inc........... 4,600 111
Dole Food Co., Inc.................... 2,000 59
(a)Dollar Tree Stores, Inc............ 1,900 84
Dominion Resources, Inc............... 3,600 156
Donaldson Co., Inc.................... 3,400 83
Dover Corp............................ 4,300 150
Dow Chemical Co....................... 4,200 533
Downey Financial Corp................. 5,900 129
DPL, Inc.............................. 3,700 68
(a)Dress Barn, Inc.................... 7,100 114
DTE Energy Co......................... 1,800 72
Du Pont (EI) de Nemours Co............ 16,000 1,093
Duke Power Co......................... 4,500 245
Dun & Brandstreet Corp................ 4,000 142
(a)E*TRADE Group, Inc................. 43,600 1,741
Earthgrains Co........................ 8,300 214
Eastern Utilities Association......... 5,600 163
Eastman Kodak Co...................... 4,700 318
Eaton Vance Corp...................... 6,100 210
Edison International Corp............. 5,100 136
El Paso Energy Corp................... 3,100 109
Electronic Data Systems Corp.......... 6,900 390
Electronics For Imaging, Inc.......... 2,000 109
Eli Lilly & Co........................ 14,900 1,067
(a)EMC Corp........................... 14,000 770
Emerson Electric Co................... 5,800 365
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
Energen Corp.......................... 6,400 $ 119
Energy East Corp...................... 3,600 94
Enhance Financial Services Group,
Inc................................. 8,100 160
Enron Corp............................ 4,900 401
Ensco International, Inc.............. 4,200 84
Entergy Corp.......................... 3,700 116
(a)Enzo Biochem, Inc.................. 9,800 97
Equifax, Inc.......................... 2,300 82
(a)Etec Systems, Inc.................. 5,000 166
Ethan Allen Interiors, Inc............ 9,600 362
Executive Risk, Inc................... 3,000 255
Expeditors International of
Washington, Inc..................... 10,000 272
(a)Express Scripts, Inc. 'A'.......... 6,700 403
Exxon Corp............................ 32,200 2,483
Fair, Issac & Co., Inc................ 3,600 126
Family Dollar Stores, Inc............. 5,400 130
(a)Family Golf Centers, Inc........... 5,800 45
Fannie Mae Corp....................... 13,600 930
Fastenal Co........................... 1,400 73
(a)FDX Corp........................... 5,000 271
Federal Home Loan Mortgage Corp....... 8,700 505
Federal Signal Corp................... 2,400 51
Federal-Mogul Corp.................... 2,000 104
(a)Federated Department Stores........ 3,900 206
Fidelity National Financial, Inc...... 6,270 132
Fifth Third Bancorp................... 4,000 266
Finova Group, Inc..................... 1,700 89
First American Financial Corp......... 10,800 193
First Data Corp....................... 6,700 328
First Midwest Bancorp, Inc............ 5,900 235
First Security Corp................... 5,100 139
First Tennessee National Corp......... 3,500 134
First Union Corp. (N.C.).............. 12,800 602
First Virginia Banks, Inc............. 1,500 74
Firstbancorp/Puerto Rico.............. 6,000 135
Firstenergy Corp...................... 3,500 109
Firstmerit Corp....................... 13,000 365
(a)Fiserv, Inc........................ 3,300 103
Fleet Financial Group, Inc............ 7,200 319
Fleming Cos., Inc..................... 10,100 117
Florida Progress Corp................. 1,900 78
Florida Rock Industries, Inc.......... 4,300 196
Flowers Industries, Inc............... 3,700 80
(a)Foodmaker, Inc..................... 8,600 244
(a)Footstar, Inc...................... 5,500 205
Ford Motor Co......................... 17,100 965
(a)Forest Laboratories, Inc. 'A'...... 2,500 116
Fort James Corp....................... 4,100 155
Fortune Brands, Inc................... 3,300 137
(a)Foundation Health Systems 'A'...... 6,600 99
FPL Group, Inc........................ 2,100 115
(a)Franklin Covey Co.................. 6,700 49
Franklin Resources, Inc............... 3,900 158
Fremont General Corp.................. 13,700 259
Frontier Corp......................... 3,100 183
Frontier Insurance Group, Inc......... 9,400 145
(a)Furniture Brands International,
Inc................................. 1,800 50
G & K Services Inc. 'A'............... 4,500 236
Gallagher (Arthur J.) & Co............ 3,200 158
Gannett Co., Inc...................... 3,900 278
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-78
<PAGE>
VAN KAMPEN GLOBAL EQUITY ALLOCATION FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
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- --------------------------------------------------------------------
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UNITED STATES (CONT.)
<TABLE>
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- --------------------------------------------------------------------
<S> <C> <C>
Gap, Inc.............................. 12,525 $ 631
(a)Gateway 2000, Inc.................. 2,600 153
Gatx Corp............................. 2,600 99
General Dynamics Corp................. 2,200 151
General Electric Co................... 45,700 5,164
General Mills, Inc.................... 2,700 217
General Motors Corp................... 9,600 634
(a)Genesis Health Ventures, Inc....... 8,800 26
(a)Gentex Corp........................ 13,800 386
(a)Genzyme Corp....................... 2,400 116
(a)Genzyme Surgical Products.......... 429 2
Geon Co............................... 5,200 168
Georgia-Pacific Corp.................. 6,600 313
Georgia-Pacific Corp. (Timber
Group).............................. 3,100 78
Gerber Scientific, Inc................ 5,900 130
Gillette Co........................... 15,300 627
(a)Global Marine, Inc................. 5,800 90
(a)Golden State Bancorp, Inc.......... 1,000 1
Golden West Financial Corp............ 1,100 108
Goodyear Tire & Rubber Co............. 4,200 247
GPU, Inc.............................. 2,100 89
Graco, Inc............................ 3,700 109
Greenpoint Financial Corp............. 2,400 79
GTE Corp.............................. 13,100 992
Guidant Corp.......................... 4,500 231
Guilford Mills, Inc................... 9,500 99
(a)Gulfstream Aerospace Corp.......... 2,400 162
H.J. Heinz Co......................... 5,100 256
(a)Ha-Lo Industries, Inc.............. 8,850 87
(a)Hadco Corp......................... 3,000 119
Halliburton Co........................ 6,300 285
Hannaford Brothers Co................. 1,900 102
Harley-Davidson, Inc.................. 4,700 256
Harman International Industries,
Inc................................. 4,400 194
Harsco Corp........................... 1,500 48
Hartford Financial Services Group..... 3,000 175
(a)Health Management Associates, Inc.
'A'................................. 7,400 83
(a)HEALTHSOUTH Corp................... 9,000 134
(a)Heartland Express, Inc............. 7,000 115
Henry (Jack) & Associates............. 4,100 161
Herman Miller, Inc.................... 2,500 53
Hershey Foods Corp.................... 2,100 125
Hewlett-Packard Co.................... 14,500 1,457
Hibernia Corp. 'A'.................... 5,100 80
Hillenbrand Industries, Inc........... 2,200 95
Hilton Hotels Corp.................... 4,500 64
(a)HNC Software, Inc.................. 5,200 160
Home Depot, Inc....................... 19,600 1,263
HON INDUSTRIES, Inc................... 2,100 61
Honeywell, Inc........................ 2,100 243
Hormel Foods Corp..................... 2,400 97
Household Internaional, Inc........... 6,800 322
Hubbell Inc. 'B'...................... 2,900 132
Hudson United Bancorp................. 8,000 245
Hughes Supply, Inc.................... 6,200 184
Huntington Bancshares, Inc............ 3,700 130
(a)Hutchinson Technology, Inc......... 5,700 158
(a)Hyperion Solutions Corp............ 6,000 107
IBP, Inc.............................. 3,200 76
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
ICN Pharmaceuticals, Inc.............. 2,800 $ 90
(a)IDEXX Laboratories, Inc............ 8,100 189
(a)IHOP Corp.......................... 5,200 125
Illinois Tool Works, Inc.............. 4,000 328
Illinova Corp......................... 2,900 79
IMC Global, Inc....................... 4,000 71
IMS Health, Inc....................... 5,600 175
(a)Inacom Corp........................ 6,272 79
(a)Incyte Pharmaceuticals, Inc........ 6,300 167
(a)Informix Corp...................... 5,600 48
Ingersoll-Rand Co..................... 2,800 181
(a)Input/Output, Inc.................. 10,300 78
(a)Insituform Technologies, Inc.
'A'................................. 8,200 177
(a)Integrated Health Services, Inc.... 12,400 99
Intel Corp............................ 45,600 2,713
Inter-Tel, Inc........................ 6,100 111
Interface, Inc........................ 13,000 112
(a)Interim Services, Inc.............. 10,600 219
Intermet Corp......................... 6,000 91
International Business Machines
Corp................................ 25,400 3,283
International Game Technology......... 4,000 74
International Paper Co................ 6,400 323
(a)International Rectifier Corp....... 14,200 189
Interstate Bakeries Corp.............. 2,300 52
(a)Intuit, Inc........................ 1,700 153
(a)Ionics, Inc........................ 4,400 161
IPALCO Enterprises, Inc............... 3,400 72
ITT Industries, Inc................... 2,400 92
Ivacare Corp.......................... 6,800 182
J.C. Penney Co., Inc.................. 3,900 189
Jefferson-Pilot Corp.................. 1,500 99
JLG Industries, Inc................... 9,500 194
John H. Harland Co.................... 7,100 142
Johnson & Johnson..................... 17,800 1,744
(a)Jones Apparel Group, Inc........... 3,300 113
Jones Pharma., Inc.................... 6,200 244
JSB Financial......................... 1,800 92
(a)Just For Feet, Inc................. 7,300 47
Justin Industries..................... 7,300 102
Kaman Corp. 'A'....................... 7,600 119
Kansas City Southern Industries,
Inc................................. 3,300 211
Kaydon Corp........................... 1,300 44
(a)Keane, Inc......................... 2,000 45
Kellogg Co............................ 5,100 168
Kellwood Co........................... 5,600 152
Kelly Services Inc. 'A'............... 1,600 51
(a)Kemet Corp......................... 8,600 197
(a)Kent Electronics Corp.............. 8,300 164
Keycorp............................... 6,500 209
Keyspan Energy Corp................... 4,100 108
Keystone Financial, Inc............... 11,900 352
Kimberly-Clark Corp................... 7,400 422
(a)Kirby Corp......................... 3,600 76
(a)Kmart Corp......................... 9,700 159
KN Energy, Inc........................ 2,200 29
(a)Kohls Corp......................... 2,600 201
(a)Kroger Co.......................... 13,200 369
(a)Kulicke & Soffa Industries......... 5,900 158
La-Z-Boy, Inc......................... 10,900 251
(a)Lakes Gaming, Inc.................. 2,950 32
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-79
<PAGE>
VAN KAMPEN GLOBAL EQUITY ALLOCATION FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
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- --------------------------------------------------------------------
<S> <C> <C>
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UNITED STATES (CONT.)
<TABLE>
<CAPTION>
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- --------------------------------------------------------------------
<S> <C> <C>
Lancaster Colony Corp................. 1,900 $ 66
(a)Landstar System, Inc............... 2,100 76
(a)Lattice Semiconductor Corp......... 5,000 311
(a)Lear Corp.......................... 2,100 104
Lee Enterprises....................... 2,700 82
(a)Legato Systems, Inc................ 1,100 64
Legg Mason, Inc....................... 12,300 474
Leggett & Platt, Inc.................. 5,800 161
Lehman Brothers Holdings, Inc......... 3,500 218
(a)Lexmark International Group,
Inc................................. 3,800 251
LG&E Energy Corp...................... 2,900 61
Libbey, Inc........................... 3,700 107
(a)LifePoint Hospitals, Inc........... 547 7
Lilly Industries, Inc. 'A'............ 5,200 97
(a)Lincare Holdings, Inc.............. 2,100 53
Lincoln National Corp................. 3,200 167
Linear Technology Corp................ 4,400 296
(a)Linens 'n Things, Inc.............. 7,800 341
Litton Industries, Inc................ 1,500 108
Lockheed Martin Corp.................. 5,900 220
Loews Corp............................ 1,800 142
Lone Star Industries, Inc............. 5,300 199
Lowe's Cos., Inc...................... 8,840 501
Lubrizol Corp......................... 3,100 84
Luby's Cafeterias, Inc................ 8,800 132
Lucent Technologies, Inc.............. 41,045 2,768
Lyondell Petrochemical Co............. 2,900 60
Macdermid, Inc........................ 5,400 251
(a)Macromedia, Inc.................... 8,300 293
Maf Bancorp, Inc...................... 2,800 68
(a)Mandalay Resort Group.............. 3,700 78
Manitowoc Co., Inc.................... 5,550 231
Manpower, Inc......................... 2,700 61
Marriott International 'A'............ 4,700 176
Marsh & McLennan Cos., Inc............ 3,600 272
Marshall & Ilsley Corp................ 2,900 187
(a)Marshall Industries................ 6,700 241
Martin Marietta Corp.................. 1,700 100
Masco Corp............................ 5,300 153
Mattel, Inc........................... 4,200 111
(a)Maxim Integrated Products.......... 3,800 253
May Department Stores Co.............. 6,000 245
Maytag Corp........................... 2,400 167
MBIA, Inc............................. 2,300 149
MBNA Corp............................. 10,300 315
McCormick & Co., Inc.................. 2,900 92
McDonald's Corp....................... 18,300 756
McGraw-Hill Cos., Inc................. 3,700 200
MCI WorldCom, Inc..................... 24,200 2,087
Mckesson Corp......................... 7,699 247
MCN Corp.............................. 2,400 50
Media General, Inc. 'A'............... 1,400 71
(a)MediaOne Group, Inc................ 8,400 625
(a)Medimmune, Inc..................... 10,700 725
(a)Medquist, Inc...................... 4,900 214
Medtronic, Inc........................ 6,700 522
Mellon Bank Corp...................... 7,200 262
(a)Men's Warehouse, Inc............... 6,800 173
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
Mercantile Bancorp.................... 2,600 $ 149
Mercantile Bankshares Corp............ 2,600 92
Merck & Co., Inc...................... 31,700 2,346
(a)Mercury Interactive................ 7,600 269
Merrill Lynch & Co., Inc.............. 4,900 392
Methode Electronics 'A'............... 8,600 197
(a)Metro Networks, Inc................ 3,500 187
MGIC Investment Corp.................. 2,500 122
(a)Michaels Stores, Inc............... 6,400 196
(a)Microchip Technology, Inc.......... 1,600 76
(a)Micron Technology, Inc............. 3,800 153
(a)Micros Systems, Inc................ 3,500 119
(a)Microsoft Corp..................... 66,200 5,970
MidAmerican Energy Holdings Co........ 2,300 80
Midas, Inc............................ 1 --
(a)Midway Games, Inc.................. 8,800 114
Minnesota Mining & Manufacturing
Co.................................. 5,800 504
Minnesota Power & Light Co............ 3,000 60
Mississippi Chemical Corp............. 7,300 72
Mobil Corp............................ 10,500 1,039
(a)Modis Professional Services,
Inc................................. 3,800 52
(a)Mohawk Industries, Inc............. 10,600 322
Molex, Inc............................ 4,800 178
Monsanto.............................. 8,800 347
Montana Power Co...................... 1,500 106
Morgan (J.P.) & Co., Inc.............. 2,700 379
(a)Morrison Knudsen Corp.............. 13,600 140
Motorola, Inc......................... 9,100 862
(a)MS Carriers........................ 4,700 139
(a)Mueller Industries, Inc............ 8,800 299
Murphy Oil Corp....................... 2,500 122
Mutual Risk Management Ltd............ 7,700 257
Myers Industries, Inc................. 5,000 100
Mylan Laboratories, Inc............... 3,900 103
Nabisco Group Holdings Corp........... 4,700 92
(a)Nabors Industries, Inc............. 3,400 83
National City Corp.................... 3,900 255
National Computer Systems, Inc........ 6,500 219
National Data Corp.................... 8,300 355
National Fuel Gas Co.................. 1,400 68
(a)National Instruments Corp.......... 6,600 266
(a)Nautica Enterprises, Inc........... 8,500 143
(a)NBTY, Inc.......................... 13,900 90
NCR Corp.............................. 3,100 151
(a)NCS Healthcare, Inc................ 5,300 29
(a)Networks Associates, Inc........... 3,700 54
Nevada Power Co....................... 3,100 78
New England Business Services, Inc.... 3,500 108
New England Electric System........... 2,100 105
New Jersey Resources Corp............. 4,100 153
New York Times Co. 'A'................ 3,100 114
Newell Rubbermaid Inc................. 5,501 256
(a)Newfield Exploration Co............ 7,600 216
(a)Nextel Communications Inc. 'A'..... 5,600 281
(a)NFO Worldwide, Inc................. 12,600 176
Nike, Inc. 'B'........................ 4,500 285
NiSource Inc.......................... 2,500 65
Noble Affiliates, Inc................. 2,300 65
(a)Noble Drilling Corp................ 4,000 79
Norfolk Southern Corp................. 5,200 157
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-80
<PAGE>
VAN KAMPEN GLOBAL EQUITY ALLOCATION FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
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- --------------------------------------------------------------------
<S> <C> <C>
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UNITED STATES (CONT.)
<TABLE>
<CAPTION>
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- --------------------------------------------------------------------
<S> <C> <C>
Norrell Corp.......................... 7,700 $ 145
Nortel Networks Corp.................. 8,800 764
(a)North American Vaccine, Inc........ 6,400 31
North Fork Bancorp, Inc............... 2,900 62
(a)Northeast Utilities................ 4,000 71
Northern Trust Corp................... 2,100 204
Northwest Natural Gas Co.............. 5,500 133
(a)Nova Corp/Georgia.................. 2,200 55
(a)Novell, Inc........................ 5,900 156
(a)Novellus Systems, Inc.............. 7,700 526
(a)O'Reilly Automotive, Inc........... 4,800 242
(a)Oak Industries, Inc................ 4,300 188
Oakwood Homes Corp.................... 10,100 133
Occidental Petroleum Corp............. 5,300 112
(a)Office Depot, Inc.................. 11,250 248
Ogden Corp............................ 2,000 54
OGE Energy Corp....................... 4,400 105
Old Kent Financial Corp............... 3,045 128
Old Republic International Corp....... 3,100 54
Olin Corp............................. 2,400 32
Om Group, Inc......................... 5,600 193
Omnicare, Inc......................... 2,800 35
Omnicon Group, Inc.................... 3,300 264
(a)Oracle System Corp................. 20,100 746
Orange & Rockland Utilities, Inc...... 2,200 129
(a)Orbital Sciences Corp.............. 7,700 182
Orion Capital Corp.................... 6,700 240
(a)Orthodontic Centers of America..... 11,500 162
(a)Outback Steakhouse, Inc............ 2,400 94
Owens & Minor, Inc.................... 8,800 97
(a)Owens-Illinois, Inc................ 3,300 108
(a)Oxford Health Plans, Inc........... 2,600 40
Pacific Century Financial Corp........ 3,400 73
(a)Pacific Sunwear of California...... 6,000 146
(a)Pacificare Health Systems.......... 1,400 101
PacifiCorp............................ 4,400 81
Paine Webber Group, Inc............... 4,000 187
(a)Parexel International Corp......... 4,700 63
(a)Park Place Entertainment Corp...... 11,800 114
(a)Patterson Dental Co................ 6,200 215
(a)Paxar.............................. 11,100 100
Paychex, Inc.......................... 3,750 120
Peco Energy Co........................ 3,100 130
(a)Pediatrix Medical Group, Inc....... 3,400 72
Pennsylvania Enterprises, Inc......... 4,000 123
Pentair, Inc.......................... 1,500 69
Pepsico, Inc.......................... 20,100 778
Pfizer, Inc........................... 17,600 1,932
PG&E Corp............................. 5,700 185
(a)Pharmaceutical Product
Development......................... 4,900 134
Pharmacia & Upjohn, Inc............... 7,300 415
Philadelphia Suburban Corp............ 6,300 145
Philip Morris Cos., Inc............... 32,600 1,310
Phillips Petroleum Co................. 4,100 206
Phillips-Van Heusen Corp.............. 9,800 97
(a)Photronics, Inc.................... 5,900 145
(a)Phycor, Inc........................ 16,500 122
Piedmont Natural Gas Co............... 4,800 149
Pier 1 Imports, Inc................... 21,800 245
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
Pillowtex Corp........................ 3,900 $ 64
Pinnacle West Capital Corp............ 2,300 93
(a)Pioneer Group, Inc................. 6,400 110
Pioneer Hi-Bred International, Inc.... 3,700 144
Pitney Bowes, Inc..................... 4,400 283
Pittston Brinks Group................. 1,800 48
(a)Plains Resources, Inc.............. 5,900 112
(a)Platinum Technology, Inc........... 2,800 82
PMI Group, Inc........................ 1,000 63
PNC Bank Corp......................... 4,100 236
Pogo Producing Co..................... 10,800 201
Polaris Industries, Inc............... 5,300 231
(a)Policy Management Systems Corp..... 1,200 36
Potomac Electric Power Co............. 3,000 88
PPG Industries, Inc................... 4,600 272
Praxair, Inc.......................... 3,500 171
Premark International, Inc............ 2,500 94
(a)Prepaid Legal Services, Inc........ 5,400 147
(a)Pride International, Inc........... 10,900 115
(a)Primark Corp....................... 5,600 157
(a)Prime Hospitality Corp............. 14,200 170
(a)Priority Healthcare Corp........... 3,426 118
Procter & Gamble Co................... 17,600 1,571
(a)Progress Software Corp............. 3,700 105
Progressive Corp...................... 1,200 174
(a)Promus Company, Inc................ 2,800 87
Protective Life Corp.................. 2,300 76
(a)Protein Design Labs, Inc........... 3,800 84
Provident Financial Group............. 1,400 61
Providian Financial Corp.............. 2,750 257
Public Service Co. of New Mexico...... 2,600 52
Public Service Enterprise Group,
Inc................................. 3,000 123
Puget Sound Energy, Inc............... 3,000 72
Quaker Oats, Co....................... 2,600 173
(a)Qualcomm, Inc...................... 4,200 603
(a)Quantum Corp....................... 5,300 128
Queens County Bancorp, Inc............ 4,400 142
Questar Corp.......................... 2,900 55
(a)Quintiles Transnational Corp....... 7,996 336
(a)R.J. Reynolds Tobacco Holdings,
Inc................................. 1,566 49
(a)Ralcorp Holdings, Inc.............. 7,000 112
Ralston-Ralston Purina Group.......... 4,700 143
Raymond James Financial, Inc.......... 10,100 242
Rayonier, Inc......................... 1,400 70
Raytheon Co., 'B'..................... 5,500 387
(a)Read-Rite Corp..................... 10,800 67
Regal Beloit.......................... 4,900 116
Regions Financial Corp................ 3,700 142
Regis Corp............................ 7,650 147
Reliance Steel & Aluminum............. 4,000 156
Reliant Energy, Inc................... 3,800 105
Reliastar Financial Corp.............. 2,300 101
(a)Renal Care Group, Inc.............. 9,200 238
Republic New York Corp................ 1,800 123
(a)Respironics, Inc................... 7,000 106
Reynolds & Reynolds Co. 'A'........... 2,700 63
Richfood Holdings, Inc................ 9,900 174
Riggs National Corp. of Washington
D.C................................. 5,800 119
Rite Aid Corp......................... 3,800 94
(a)Robert Half International, Inc..... 2,800 73
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-81
<PAGE>
VAN KAMPEN GLOBAL EQUITY ALLOCATION FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
</TABLE>
UNITED STATES (CONT.)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
(a)Roberts Pharmaceutical Corp........ 7,400 $ 179
Rockwell International Corp........... 3,800 231
Rohm & Haas Co........................ 5,100 219
Rollins Truck Leasing Corp............ 12,600 140
Roper Industries, Inc................. 8,000 256
Ross Stores, Inc...................... 1,400 71
RPM, Inc.............................. 4,700 67
Ruby Tuesday, Inc..................... 7,300 139
Russ Berrie & Co., Inc................ 5,600 139
(a)Ryan's Family Steak Houses, Inc.... 11,400 133
(a)Safe Skin Corp..................... 11,000 132
Safeco Corp........................... 2,200 97
(a)Saks, Inc.......................... 4,100 118
(a)Samina Corp........................ 8,500 645
(a)Santa Fe Snyder Corp............... 36,455 278
Sara Lee Corp......................... 12,700 288
SBC Communications, Inc............... 25,798 1,496
Scana Corp............................ 2,500 58
Schering-Plough Corp.................. 19,900 1,055
Schwab (Charles) Corp................. 5,900 648
(a)SCI Systems, Inc................... 1,900 90
(a)Seagate Technology, Inc............ 3,900 100
Seagram Co., Ltd...................... 5,400 272
Sears, Roebuck & Co................... 5,800 258
SEI Corp.............................. 3,700 327
Selective Insurance Group, Inc........ 7,200 137
Sempra Energy......................... 4,401 100
(a)Sepracor Inc....................... 800 65
Service Corp. International........... 3,900 75
(a)Service Experts, Inc............... 4,300 94
(a)Shaw Industries, Inc............... 4,400 73
Sherwin-Williams Co................... 4,300 119
(a)Shopko Stores, Inc................. 5,900 214
(a)Shorewood Packaging................ 6,200 114
(a)Siebel Systems, Inc................ 2,500 166
(a)Sierra Health Services, Inc........ 6,700 97
Sierra Pac Res Com.................... 4,700 171
(a)Silicon Valley Bancshares.......... 4,900 121
Skywest, Inc.......................... 4,900 122
SLM Holding Corp...................... 2,500 115
(a)Smith International, Inc........... 1,700 74
(a)Smithfield Foods, Inc.............. 7,700 257
(a)Snyder Communications, Inc......... 2,100 69
(a)Sola International, Inc............ 6,400 124
Solutia, Inc.......................... 3,400 72
Sonat, Inc............................ 2,500 83
Sonoco Products Co.................... 3,100 93
Sotheby's Holdings, Inc. 'A'.......... 2,100 80
Southdown, Inc........................ 1,500 96
Southern Co........................... 10,700 284
Southtrust Corp....................... 4,600 177
Southwest Airlines Co................. 4,200 131
Southwest Gas Corp.................... 6,400 183
Southwestern Energy Co................ 8,500 90
Sovereign Bancorp, Inc................ 5,800 70
Sprint Corp........................... 11,800 623
(a)Sprint Corp........................ 3,050 174
(a)SPS Technologies, Inc.............. 2,900 109
(a)SPX Corp........................... 1,200 100
St. John Knits, Inc................... 4,400 129
St. Paul Bancorp, Inc................. 7,600 194
St. Paul Cos., Inc.................... 4,901 156
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
Standard Motor Products............... 3,700 $ 91
Standard Products Co.................. 6,400 164
(a)Staples, Inc....................... 7,250 224
(a)Starbucks Corp..................... 5,400 203
Statestreet Corp...................... 3,000 256
(a)Steris Corp........................ 2,100 41
(a)Sterling Commerce, Inc............. 2,600 95
(a)Sterling Software, Inc............. 2,500 67
Stewart Enterprises, Inc. 'A'......... 3,600 52
(a)Stillwater Mining Co............... 7,200 235
Stone & Webster, Inc.................. 3,700 99
(a)Storage Technology Corp............ 3,000 68
Stride Rite Corp...................... 9,700 100
Stryker Corp.......................... 2,800 168
Sturm Ruger & Co., Inc................ 6,700 72
Summit Bancorp........................ 3,200 134
(a)Sun Microsystems, Inc.............. 10,800 744
(a)Sunguard Data Systems, Inc......... 3,000 104
(a)Sunrise Medical, Inc............... 7,900 56
Suntrust Banks, Inc................... 3,100 215
(a)Superior Services, Inc............. 5,900 157
Susquehanna Bancshares, Inc........... 6,100 108
(a)Sybron International Corp.......... 3,300 91
Symbol Technologies, Inc.............. 2,700 100
(a)Synopsys, Inc...................... 2,000 110
Synovus Financial Corp................ 4,400 87
Sysco Corp............................ 5,600 167
T. Rowe Price Associates, Inc......... 3,500 134
(a)TALK.com, Inc...................... 15,000 169
TCA Cable TV, Inc..................... 1,800 100
TCF Financial Corp.................... 2,500 70
(a)Tech Data Corp..................... 1,600 61
Technitrol, Inc....................... 4,300 139
(a)Technology Solutions Co............ 9,700 105
Teco Energy, Inc...................... 2,900 66
Teleflex, Inc......................... 1,700 74
Telephone & Data Systems, Inc......... 2,100 153
(a)Tellabs, Inc....................... 8,000 540
(a)Tenet Healthcare Corp.............. 5,200 97
(a)Teradyne, Inc...................... 2,500 179
Texaco, Inc........................... 7,200 450
Texas Industries, Inc................. 4,600 178
Texas Instruments, Inc................ 5,600 812
Texas Utilities Co.................... 3,900 161
Textron, Inc.......................... 3,000 247
(a)The Cheesecake Factory, Inc........ 4,600 140
The Interpublic Group of Cos., Inc.... 2,800 243
The Limited, Inc...................... 4,100 186
The Marcus Corporation................ 7,900 97
(a)The Scott Company.................. 4,500 214
Thomas Industries, Inc................ 5,300 109
(a)3Com Corp.......................... 5,200 139
Tidewater, Inc........................ 2,000 61
Tiffany & Co.......................... 1,300 125
(a)Timberland Co. 'A'................. 3,000 204
Time Warner, Inc...................... 16,400 1,205
Times Mirror Co. 'A'.................. 1,300 77
TJX Companies, Inc.................... 5,000 167
TNP Enterprises, Inc.................. 3,300 120
(a)Toll Brothers, Inc................. 7,800 167
Torchmark Corp........................ 2,300 78
Tosco Corp............................ 4,600 119
(a)Total Renal Care Holdings, Inc..... 2,600 40
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-82
<PAGE>
VAN KAMPEN GLOBAL EQUITY ALLOCATION FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
</TABLE>
UNITED STATES (CONT.)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
Transamerica Corp..................... 1,700 $ 128
Transocean Offshore, Inc.............. 2,900 76
Tredegar Industries, Inc.............. 7,100 154
Trenwick Group, Inc................... 3,000 74
(a)Triad Hospitals, Inc............... 547 7
(a)Triarc Companies................... 6,800 144
Tribune Co............................ 2,200 192
(a)Tricon Global Restaurants, Inc..... 2,400 130
(a)Trigon Healthcare, Inc............. 1,600 58
Trinity Industries, Inc............... 1,500 50
True North Communications, Inc........ 9,500 285
Trustco Bank Corp..................... 5,000 134
TRW, Inc.............................. 2,500 137
(a)Tuboscope, Inc..................... 10,900 149
Tyco International Ltd................ 12,328 1,168
Tyson Foods, Inc...................... 6,500 146
(a)U.S. Airways Group, Inc............ 1,600 70
U.S. Bancorp.......................... 10,400 354
(a)U.S. Foodservice, Inc.............. 1,500 64
U.S. Freightways Corp................. 5,500 255
(a)U.S. Home Corp..................... 3,700 131
(a)U.S. Onconlogy, Inc................ 7,000 84
U.S. Trust Corp....................... 3,500 324
U.S. West, Inc........................ 6,800 399
Ultramar Diamond Shamrock Corp........ 2,900 63
(a)Ultratech Stepper, Inc............. 5,200 78
Unicom Corp........................... 3,700 143
Union Carbide Corp.................... 3,600 175
Union Pacific Corp.................... 3,600 210
Union Planters Corp................... 2,600 116
(a)Unisys Corp........................ 4,000 156
United Bankshares, Inc................ 7,400 196
United Healthcare Corp................ 3,500 219
United Illuminating Co................ 3,400 144
United Technologies Corp.............. 7,948 570
United Water Resources, Inc........... 8,600 195
(a)Unitrode Corp...................... 8,500 244
Universal Corp........................ 1,500 43
Universal Foods Corp.................. 2,600 55
(a)Universal Health Services, Inc..... 7,000 334
Unocal Corp........................... 4,500 178
UNUM Corp............................. 2,300 126
UST, Inc.............................. 3,100 91
USX-Marathon Group.................... 5,000 163
UtliCorp. United, Inc................. 3,750 91
(a)Valassis Communications, Inc....... 10,950 401
Valmont Industries.................... 5,700 97
(a)Vertex Pharmaceuticals, Inc........ 5,500 133
(a)Viacom, Inc., 'B'.................. 10,200 449
Viad Corp............................. 3,300 102
(a)Vicor Corp......................... 11,800 250
Vintage Petroleum, Inc................ 13,000 140
(a)Visx, Inc.......................... 12,400 982
(a)Vitesse Semiconductor.............. 14,500 978
Vodafone Group plc ADR................ 4,200 827
Vulcan Materials Co................... 3,300 159
Wabash National Corp.................. 6,400 124
Wachovia Corp......................... 2,600 222
Wal-Mart Stores, Inc.................. 59,984 2,894
Walgreen Co........................... 12,900 379
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
Wallace Computer Services, Inc........ 2,100 $ 53
Walt Disney Co........................ 27,900 860
Warnaco Group......................... 2,100 56
Warner-Lambert Co..................... 11,200 777
Washington Mutual, Inc................ 8,100 287
Washington Post Co. 'B'............... 400 215
Waste Management, Inc................. 8,200 441
Watsoc, Inc........................... 5,200 85
(a)Watson Pharmaceuticals, Inc........ 2,600 91
WD-40 Co.............................. 6,000 150
(a)Weatherford International, Inc..... 3,500 128
Wells Fargo Co........................ 21,400 915
Werner Enterprises, Inc............... 9,900 205
Westpoint Stevens, Inc................ 2,300 69
(a)Westwood One Inc................... 7,100 253
Weyerhaeuser Co....................... 4,500 309
Whitman Corp.......................... 3,800 68
Whitney Holding Corp.................. 4,100 163
(a)Whittman-Hart, Inc................. 9,800 311
(a)Whole Foods Market, Inc............ 5,300 255
Wicor, Inc............................ 9,800 274
Williams Cos., Inc.................... 6,500 277
(a)Williams-Sonoma, Inc............... 11,200 390
Wilmington Trust Corp................. 1,200 69
Winn-Dixie Stores, Inc................ 2,200 81
Wisconsin Energy...................... 3,100 78
WM. Wrigley Jr. Co.................... 1,900 171
Wolverine World Wide, Inc............. 11,800 165
(a)World Color Press, Inc............. 8,000 220
Wynn's International Inc.............. 5,300 98
Xerox Corp............................ 9,500 561
(a)Xilinx, Inc........................ 4,200 240
(a)Xircom, Inc........................ 4,700 141
XL Capital Ltd. 'A'................... 3,385 191
(a)Yellow Corp........................ 6,400 114
York International Corp............... 2,200 94
(a)Zale Corp.......................... 7,800 312
(a)Zebra Technologies Corp. 'A'....... 6,700 258
Zenith National Insurance............. 4,000 99
Zions Bancorp......................... 2,200 140
--------
237,535
--------
TOTAL COMMON STOCKS..................................... 497,797
--------
PREFERRED STOCKS (0.3%)
AUSTRALIA (0.2%)
News Corp., Ltd....................... 112,250 852
--------
AUSTRIA (0.0%)
Bau Holdings AG....................... 5 --
--------
GERMANY (0.1%)
SAP AG................................ 1,226 488
Volkswagen AG......................... 2,800 105
--------
593
--------
ITALY (0.0%)
Fiat S.p.A. (Privilegiate)............ 57,550 93
--------
NETHERLANDS (0.0%)
(a)Unilever N.V....................... 26,089 140
--------
TOTAL PREFERRED STOCKS.................................. 1,678
--------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-83
<PAGE>
VAN KAMPEN GLOBAL EQUITY ALLOCATION FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- --------------------------------------------------------------------
INVESTMENT COMPANIES (0.8%)
UNITED STATES (0.8%)
(b)Latin American Discovery Fund,
Inc................................. 381,900 $ 3,580
(a,b)Morgan Stanley Asia-Pacific Fund,
Inc................................. 124,800 1,201
--------
TOTAL INVESTMENT COMPANIES.............................. 4,781
--------
<CAPTION>
NO. OF
RIGHTS
----------
RIGHTS (0.0%)
<S> <C> <C>
FRANCE (0.0%)
(a)Bouygues........................... 292 1
(a)LVMH Moet Hennessy Louis Vuitton... 921 27
--------
28
--------
ITALY (0.0%)
(a)Olivetti S.p.A..................... 76,180 15
--------
TOTAL RIGHTS............................................ 43
--------
<CAPTION>
NO. OF
WARRANTS
----------
WARRANTS (0.0%)
<S> <C> <C>
HONG KONG (0.0%)
(a)Hong Kong and China Gas Co., Ltd.,
expiring 9/30/99.................... 15,300 2
--------
<CAPTION>
PAR
VALUE
(000)
----------
CONVERTIBLE DEBENTURES (0.0%)
<S> <C> <C>
FRANCE (0.0%)
Casino Guichard Perrachon 4.50%,
7/12/01............................. FRF 32 28
Sodexho S.A., 6.00%, 6/7/04........... -- 4
--------
32
--------
PORTUGAL (0.0%)
(a)Jeromimo Martins................... $ 34 21
--------
TOTAL CONVERTIBLE DEBENTURES............................ 53
--------
TOTAL LONG-TERM INVESTMENTS (87.9%) (COST $426,747)..... 504,354
--------
</TABLE>
<TABLE>
<CAPTION>
PAR
VALUE VALUE
(000) (000)
<S> <C> <C>
- --------------------------------------------------------------------
SHORT-TERM INVESTMENT (11.2%)
REPURCHASE AGREEMENT (11.2%)
Chase Securities, Inc., 4.55%, dated $ 64,369
6/30/99, due 7/1/99, to be repurchased at
$64,377, collateralized by $67,600
Federal National Mortgage Association,
5.125%, due 2/13/04, valued at $65,779
(COST $64,369).................................... $ 64,369
--------
TOTAL INVESTMENTS IN SECURITIES (99.1%) (COST
$491,116)............................................... 568,723
FOREIGN CURRENCY (0.2%) (COST $1,098)................... 1,090
--------
TOTAL INVESTMENTS (99.3%) (COST $492,214)............... 569,813
OTHER ASSETS IN EXCESS OF LIABILITIES (0.7%)............ 3,965
--------
NET ASSETS (100%)....................................... $573,778
========
</TABLE>
<TABLE>
<S> <C> <C>
(a) -- Non-income producing security
(b) -- The Fund is advised by an affiliate which earns a
management fee as advisor to the Fund.
(c) -- All or a portion of security on loan at June 30, 1999.
ADR -- American Depositary Receipt
CVA -- Share Certificates
FRF -- French Franc
NCS -- Non Convertible Shares
RFD -- Ranked for Dividend
RNC -- Non-Convertible Savings Shares
</TABLE>
- ----------------------------------------------------------------
SUMMARY OF LONG-TERM INVESTMENTS BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
- -------- -------- ----------
<S> <C> <C>
Finance........................... $114,118 19.9%
Services.......................... 112,281 19.6
Consumer Goods.................... 97,450 17.0
Capital Goods & Equipment......... 74,713 13.0
Energy............................ 49,083 8.6
Materials......................... 29,424 5.1
Multi-Industry.................... 19,677 3.4
Investment Companies.............. 4,781 0.8
Technology........................ 2,739 0.5
Gold Mines........................ 88 0.0
-------- ----
$504,354 87.9%
======== ====
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-84
<PAGE>
VAN KAMPEN GLOBAL EQUITY ALLOCATION FUND
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- -------------------------------------------------------------------------------
ASSETS:
Investments in Securities, at Value (Cost $491,116)
(including repurchase agreement of $64,369)............. $ 568,723
Foreign Currency (Cost $1,098)............................ 1,090
Cash...................................................... 68
Margin Deposit on Futures................................. 1,903
Receivable for:
Fund Shares Sold........................................ 3,579
Variation of Futures Contracts.......................... 1,199
Dividends............................................... 894
Investments Sold........................................ 531
Foreign Withholding Tax Reclaim......................... 210
Security Lending Income................................. 19
Interest................................................ 9
Cash, Held as Collateral for Securities Loaned............ 25
Other..................................................... 28
-------------
Total Assets............................................ 578,278
-------------
LIABILITIES:
Payable for:
Fund Shares Redeemed.................................... 1,038
Investments Purchased................................... 689
Distribution Fees....................................... 689
Investment Advisory Fees................................ 393
Custody Fees............................................ 195
Administrative Fees..................................... 121
Shareholder Reporting Expenses.......................... 87
Directors' Fees and Expenses............................ 53
Professional Fees....................................... 50
Collateral on Securities Loaned......................... 25
Securities Lending Expense.............................. 14
Net Unrealized Loss on Foreign Currency Exchange
Contracts............................................... 982
Other..................................................... 164
-------------
Total Liabilities....................................... 4,500
-------------
NET ASSETS................................................ $ 573,778
=============
NET ASSETS CONSIST OF:
Capital Stock at Par ($.001 par value, Shares Authorized
2,625,000,000).......................................... $ 35
Paid in Capital in Excess of Par.......................... 474,021
Net Unrealized Appreciation on Investments, Foreign
Currency Translations and Futures....................... 77,822
Accumulated Net Realized Gain............................. 22,117
Distributions in Excess of Net Investment Income.......... (217)
-------------
NET ASSETS.................................................. $ 573,778
=============
CLASS A SHARES:
Net Asset Value and Redemption Price Per Share (Based on
Net Assets of $240,121,069 and 14,242,656 Shares
Outstanding)............................................ $ 16.86
=============
Maximum Sales Charge...................................... 5.75%
Maximum Offering Price Per Share (Net Asset Value Per
Share x 100 / (100 - maximum sales charge))............. $ 17.89
=============
CLASS B SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $232,643,456 and 14,287,124 Shares
Outstanding)*........................................... $ 16.28
=============
CLASS C SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $101,013,000 and 6,136,614 Shares
Outstanding)*........................................... $ 16.46
=============
</TABLE>
- ---------------
<TABLE>
<S> <C>
* Redemption price may be subject to a contingent deferred
sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-85
<PAGE>
VAN KAMPEN GLOBAL EQUITY ALLOCATION FUND
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- -------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends................................................. $ 8,772
Interest.................................................. 3,795
Security Lending.......................................... 216
Less Foreign Taxes Withheld............................... (682)
-------
Total Income............................................. 12,101
-------
EXPENSES:
Investment Advisory....................................... 5,574
Distribution Fees (Attributed to Classes A, B, and C of
$588, $2,243, and $998, respectively)................... 3,829
Administrative Fees....................................... 1,473
Transfer Agent Fees....................................... 399
Custodian Fees............................................ 386
Shareholder Reports....................................... 235
Professional Fees......................................... 58
Filing and Registration Fees.............................. 49
Other..................................................... 40
-------
Total Expenses........................................... 12,043
Less Expense Reductions.................................. (152)
-------
Net Expenses............................................. 11,891
-------
Net Investment Income/Loss.................................. 210
-------
NET REALIZED GAIN/LOSS ON:
Investments............................................... 39,780
Foreign Currency Transactions............................. (4,520)
Futures................................................... 5,283
-------
Net Realized Gain/Loss................................... 40,543
-------
NET UNREALIZED APPRECIATION/DEPRECIATION:
Beginning of the Period................................... 79,385
-------
END OF THE PERIOD:
Investments............................................... 77,607
Foreign Currency Translations............................. (992)
Futures................................................... 1,207
-------
77,822
-------
Net Unrealized Appreciation/Depreciation During the
Period.................................................... (1,563)
-------
Net Realized Gain/Loss and Net Unrealized
Appreciation/Depreciation................................. 38,980
-------
NET INCREASE/DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................................ $39,190
=======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-86
<PAGE>
VAN KAMPEN GLOBAL EQUITY ALLOCATION FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1999 JUNE 30, 1998
(000) (000)
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------
INCREASE/DECREASE IN NET ASSETS
OPERATIONS:
Net Investment Income/Loss................................ $ 210 $ 1,993
Net Realized Gain/Loss.................................... 40,543 33,576
Net Unrealized Appreciation/Depreciation.................. (1,563) 47,298
------------- -------------
Net Increase/Decrease in Net Assets Resulting from
Operations.............................................. 39,190 82,867
------------- -------------
DISTRIBUTIONS:
Net Investment Income:
Class A..................................................... (1,038) (1,628)
Class B..................................................... (488) (1,028)
Class C..................................................... (217) (1,187)
In Excess of Net Investment Income
Class A..................................................... (2,120) --
Class B..................................................... (996) --
Class C..................................................... (444) --
------------- -------------
(5,303) (3,843)
------------- -------------
Net Realized Gain:
Class A................................................... (12,336) (8,369)
Class B................................................... (12,000) (6,610)
Class C................................................... (5,364) (9,026)
------------- -------------
(29,700) (24,005)
------------- -------------
Net Decrease in Net Assets Resulting from Distributions... (35,003) (27,848)
------------- -------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed................................................ 172,653 399,475
Distributions Reinvested.................................. 31,543 26,341
Redeemed.................................................. (230,685) (74,620)
------------- -------------
Net Increase/Decrease in Net Assets Resulting from Capital
Share Transactions...................................... (26,489) 351,196
------------- -------------
Total Increase/Decrease in Net Assets..................... (22,302) 406,215
NET ASSETS--Beginning of Period............................. 596,080 189,865
------------- -------------
NET ASSETS--End of Period (Including
undistributed/distributions in excess of net investment
income of $(217) and $4,082, respectively)................ $ 573,778 $ 596,080
============= =============
- ----------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
(1) Class A:
- ------------------------------------------------------------
Shares:
Subscribed............................................. 6,401 13,220
Distributions Reinvested............................... 953 658
Redeemed............................................... (8,806) (2,571)
------------- -------------
Net Increase/Decrease in Class A Shares Outstanding...... (1,452) 11,307
============= =============
Dollars:
Subscribed............................................. $ 102,532 $ 193,752
Distributions Reinvested............................... 14,538 9,235
Redeemed............................................... (139,451) (41,983)
------------- -------------
Net Increase/Decrease.................................... $ (22,381) $ 161,004
============= =============
Ending Paid in Capital................................... $ 192,898+ $ 215,279
============= =============
Class B:
- ------------------------------------------------------------
Shares:
Subscribed............................................. 3,651 11,944
Distributions Reinvested............................... 790 533
Redeemed............................................... (4,141) (902)
------------- -------------
Net Increase/Decrease in Class B Shares Outstanding...... 300 11,575
============= =============
Dollars:
Subscribed............................................. $ 56,414 $ 170,660
Distributions Reinvested............................... 11,694 7,277
Redeemed............................................... (64,043) (14,280)
------------- -------------
Net Increase/Decrease.................................... $ 4,065 $ 163,657
============= =============
Ending Paid in Capital................................... $ 202,973+ $ 198,908
============= =============
Class C:
- ------------------------------------------------------------
Shares:
Subscribed............................................. 871 2,310
Distributions Reinvested............................... 355 713
Redeemed............................................... (1,755) (1,171)
------------- -------------
Net Increase/Decrease in Class C Shares Outstanding...... (529) 1,852
============= =============
Dollars:
Subscribed............................................. $ 13,707 $ 35,063
Distributions Reinvested............................... 5,311 9,829
Redeemed............................................... (27,191) (18,357)
------------- -------------
Net Increase/Decrease.................................... $ (8,173) $ 26,535
============= =============
Ending Paid in Capital................................... $ 78,195+ $ 86,368
============= =============
</TABLE>
- -----------------
<TABLE>
<S> <C>
+ Ending Paid in Capital amounts do not reflect permanent book
to tax differences.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-87
<PAGE>
VAN KAMPEN GLOBAL EQUITY ALLOCATION FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B
------------------------------------------------- -----------------------------
YEAR ENDED JUNE 30, YEAR ENDED JUNE 30,
------------------------------------------------- -----------------------------
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# 1997 1996 1995 1999# 1998# 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD....... $ 16.670 $ 16.57 $ 14.75 $ 12.60 $ 11.99 $ 16.144 $ 16.15 $ 14.46
-------- -------- ------- ------- ------- -------- -------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss............... 0.075 0.21 0.10 0.19 0.12 (0.043) 0.09 (0.05)
Net Realized and Unrealized Gain/Loss.... 1.211 2.07 2.76 2.82 0.67 1.164 2.01 2.73
-------- -------- ------- ------- ------- -------- -------- -------
Total From Investment Operations......... 1.286 2.28 2.86 3.01 0.79 1.121 2.10 2.68
-------- -------- ------- ------- ------- -------- -------- -------
DISTRIBUTIONS
Net Investment Income.................... (0.073) (0.35) (0.55) (0.39) -- (0.035) (0.28) (0.50)
In Excess of Net Investment Income....... (0.150) -- -- -- (0.05) (0.073) -- --
Net Realized Gain........................ (0.874) (1.83) (0.49) (0.47) (0.13) (0.874) (1.83) (0.49)
-------- -------- ------- ------- ------- -------- -------- -------
Total Distributions...................... (1.097) (2.18) (1.04) (0.86) (0.18) (0.982) (2.11) (0.99)
-------- -------- ------- ------- ------- -------- -------- -------
NET ASSET VALUE, END OF PERIOD............. $ 16.859 $ 16.67 $ 16.57 $ 14.75 $ 12.60 $ 16.283 $ 16.14 $ 16.15
======== ======== ======= ======= ======= ======== ======== =======
TOTAL RETURN (1)........................... 8.41% 16.17% 20.61% 24.62% 6.69% 7.50% 15.33% 19.64%
======== ======== ======= ======= ======= ======== ======== =======
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's).......... $240,121 $261,633 $72,704 $63,706 $42,586 $232,644 $225,797 $38,962
Ratio of Expenses to Average Net Assets.... 1.70% 1.61% 1.70% 1.70% 1.70% 2.45% 2.35% 2.45%
Ratio of Net Investment Income/Loss to
Average Net Assets....................... 0.47% 1.30% 0.59% 0.71% 1.01% (0.27)% 0.60% (0.11)%
Portfolio Turnover Rate.................... 84% 108% 45% 44% 39% 84% 108% 45%
- ---------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation
During the Period
Per Share Benefit to Net Investment
Income/ Loss........................... $ 0.00++ $ 0.02 $ 0.03 $ 0.10 $ 0.04 $ 0.00++ $ 0.02 $ 0.09
Ratios Before Expense Limitation:
Expenses to Average Net Assets........... 1.73% 1.62% 1.90% 2.06% 2.03% 2.49% 2.36% 2.65%
Net Investment Income/Loss to Average Net
Assets................................. 0.44% 1.30% 0.40% 0.35% 0.68% (0.30)% 0.60% (0.30)%
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
-----------------
AUGUST 1, 1995+
SELECTED PER SHARE DATA AND RATIOS TO JUNE 30, 1996
<S> <C>
- -------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD....... $ 13.01
---------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss............... 0.30
Net Realized and Unrealized Gain/Loss.... 1.98
---------------
Total From Investment Operations......... 2.28
---------------
DISTRIBUTIONS
Net Investment Income.................... (0.35)
In Excess of Net Investment Income....... --
Net Realized Gain........................ (0.48)
---------------
Total Distributions...................... (0.83)
---------------
NET ASSET VALUE, END OF PERIOD............. $ 14.46
===============
TOTAL RETURN (1)........................... 18.08%*
===============
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's).......... $ 14,786
Ratio of Expenses to Average Net Assets.... 2.45%
Ratio of Net Investment Income/Loss to
Average Net Assets....................... 0.45%
Portfolio Turnover Rate.................... 44%*
- ----------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation
During the Period
Per Share Benefit to Net Investment
Income/ Loss........................... $ 0.22
Ratios Before Expense Limitation:
Expenses to Average Net Assets........... 2.81%
Net Investment Income/Loss to Average Net
Assets................................. 0.09%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS C
-------------------------------------------------------------
YEAR ENDED JUNE 30,
-------------------------------------------------------------
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 16.298 $ 16.24 $ 14.49 $ 12.43 $ 11.90
-------- -------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss................................ (0.043) 0.08 (0.03) 0.12 0.04
Net Realized and Unrealized Gain/Loss..................... 1.187 2.05 2.73 2.75 0.65
-------- -------- ------- ------- -------
Total From Investment Operations.......................... 1.144 2.13 2.70 2.87 0.69
-------- -------- ------- ------- -------
DISTRIBUTIONS
Net Investment Income..................................... (0.035) (0.24) (0.46) (0.33) --
In Excess of Net Investment Income........................ (0.072) -- -- -- (0.03)
Net Realized Gain......................................... (0.874) (1.83) (0.49) (0.48) (0.13)
-------- -------- ------- ------- -------
Total Distributions....................................... (0.981) (2.07) (0.95) (0.81) (0.16)
-------- -------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD.............................. $ 16.461 $ 16.30 $ 16.24 $ 14.49 $ 12.43
======== ======== ======= ======= =======
TOTAL RETURN (1)............................................ 7.61% 15.37% 19.69% 23.65% 5.84%
======== ======== ======= ======= =======
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)........................... $101,013 $108,650 $78,199 $63,025 $40,460
Ratio of Expenses to Average Net Assets..................... 2.45% 2.55% 2.45% 2.45% 2.45%
Ratio of Net Investment Income/Loss to Average Net Assets... (0.28)% 0.52% (0.16)% (0.04)% 0.25%
Portfolio Turnover Rate..................................... 84% 108% 45% 44% 39%
- -------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net Investment Income/Loss........... $ 0.00++ $ 0.02 $ 0.03 $ 1.16 $ 0.05
Ratios Before Expense Limitation:
Expenses to Average Net Assets............................ 2.48% 2.56% 2.65% 2.81% 2.78%
Net Investment Income/Loss to Average Net Assets.......... (0.30)% 0.52% (0.34)% (0.40)% (0.08)%
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
* Non-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 sale charges or
deferred sales charges.
# Changes per share are based upon monthly average shares
outstanding.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-88
<PAGE>
VAN KAMPEN GLOBAL EQUITY ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
The Van Kampen Global Equity Allocation Fund (the "Fund") is organized as a
separate diversified fund of Van Kampen Series Fund, Inc., a Maryland
Corporation, which is registered as an open-end management investment company
under the Investment Company Act of 1940, as amended. The Fund's investment
objective 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 Fund commenced operations on January 4, 1993.
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 charges 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 and Class C
shares are offered without a front end sales charge, but are subject to a
contingent deferred sales charge ("CDSC"). Class B shares will automatically
convert to Class A shares after the eighth year following purchase. The CDSC
will be imposed on most redemptions made within five years of the purchase for
Class B shares and one year of the purchase for Class C shares as detailed in
the following schedule:
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE
--------------------
YEAR OF REDEMPTION CLASS B CLASS C
- ------------------ -------- --------
<S> <C> <C>
First........................................ 5.00% 1.00%
Second....................................... 4.00% None
Third........................................ 3.00% None
Fourth....................................... 2.50% None
Fifth........................................ 1.50% None
Thereafter................................... None None
</TABLE>
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.
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. 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. SECURITY TRANSACTIONS: Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements, which are short-term investments
in which the Fund acquires ownership of a debt security and the seller agrees to
repurchase the security at a future time and specified price. Repurchase
agreements are fully collateralized by the underlying debt security. 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.
3. INCOME AND EXPENSES: Dividend income is recorded on the ex-dividend date net
of applicable withholding taxes where recovery of such taxes is not reasonably
assured. Interest income is recognized on an accrual basis except where
collection is in doubt. 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 Fund are
recorded on the ex-distribution date.
4. FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS: Assets and liabilities
denominated in foreign currencies and commitments under forward currency
contracts are translated into U.S. dollars at the mean of the quoted bid and
asked prices. Purchases and sales of portfolio securities are translated at the
rate of exchange prevailing when such securities were purchased or sold. Income
and expenses are translated at rates prevailing when accrued. Realized and
unrealized gains and losses on securities are not segregated for financial
reporting purposes from amounts arising from changes in the market prices of
securities. Realized gains and losses on foreign currency includes the net
realized amount from the sale of the currency and the amount realized
F-89
<PAGE>
VAN KAMPEN GLOBAL EQUITY ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
between trade date and settlement date on security and income transactions.
However, 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.
5. SECURITY LENDING: The Fund may lend investment securities to qualified
institutional investors who borrow securities in order to complete certain
transactions. By lending its investment securities, the 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
and any interest earned or dividends declared during the term of the loan would
accrue to the account of the Fund. 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.
Upon entering into a securities lending transaction the Fund receives 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 generally 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 Statement of
Operations as interest income. The value of loaned securities and related
collateral outstanding at June 30, 1999 is as follows:
<TABLE>
<CAPTION>
VALUE OF LOANED VALUE OF
SECURITIES COLLATERAL
(000) (000)
- --------------- ----------
<S> <C>
$18 $25
</TABLE>
Morgan Stanley Trust Company, a former affiliate of the Investment Subadviser,
administers the security lending program and for its services the Fund incurred
fees in the amount of $26,674 for the year ended June 30, 1999.
6. TAXES: It is the Fund's intention to qualify as a regulated investment
company and distribute substantially all of its taxable income. Accordingly, no
provision for U.S. Federal income taxes is required in the financial statements.
The Fund 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.
Net currency losses incurred after October 31 and within the taxable year are
deemed to arise on the first business day of the Fund's next taxable year. For
the period from November 1, 1998 the Fund incurred and elected to defer until
July 1, 1999, for U.S. Federal income tax purposes, net currency losses of
approximately $3,539,000.
At June 30, 1999, cost and unrealized appreciation/ depreciation for U.S.
Federal income tax purposes of the investments of the Fund was:
<TABLE>
<CAPTION>
NET
APPRECIATION/
COST APPREC. DEPREC. DEPRECIATION
(000) (000) (000) (000)
- -------- -------- --------- -------------
<S> <C> <C> <C>
$499,287 $ 94,317 $(24,881) $69,436
</TABLE>
7. DISTRIBUTION OF INCOME AND GAINS: 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 and gains on certain securities of corporations
designated as "passive foreign investment companies."
Permanent book to 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 in excess of par. For
the year ended June 30, 1999, approximately $2,548,000 has been reclassified
from distributions in excess of net investment income with $2,517,000 posted to
accumulated net realized gain and $31,000 posted to paid in capital in excess of
par.
Permanent book to tax basis differences 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. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES: Van
Kampen Investment Advisory Corp. (the "Adviser"), a wholly owned subsidiary of
Van Kampen Investments Inc. (an indirect wholly owned subsidiary of Morgan
Stanley Dean Witter & Co.) and Morgan Stanley Dean Witter Investment Management
Inc. ("MSDWIM" or a "Subadviser"), a wholly owned subsidiary 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 Fund, 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
ADVISORY FEE EXPENSE RATIO EXPENSE RATIO
- ------------ -------------- --------------
<S> <C> <C>
1.00% 1.70% 2.45%
</TABLE>
F-90
<PAGE>
VAN KAMPEN GLOBAL EQUITY ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
For the year ended June 30, 1999, the Fund recognized expenses of approximately
$5,000 representing legal services provided by Skadden, Arps, Slate, Meagher &
Flom (Illinois), counsel to the Fund, of which a director of the Fund is an
affiliated person.
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 Fund, 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 Adviser.
Van Kampen Funds Inc. the ("Distributor") a wholly owned subsidiary of Van
Kampen Investments Inc., an indirect 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 Fund 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% of the Class B shares and Class C shares of the Fund on
an annualized basis, of the average daily net assets attributable to each Class.
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 shares and Class C shares of the Fund
redeemed within one to five years following such purchase. For the year ended
June 30, 1999, the Distributor has advised the Fund that it earned initial sales
charges of $776,766 for Class A shares and deferred sales charges of $2,318,
$477,072, and $10,537 for Class A shares, Class B shares, and Class C shares,
respectively.
Prior to October 1, 1998, the Fund's assets held outside the United States were
held by Morgan Stanley Trust Company ("MSTC"), a former affiliate of the
Subadvisers. Through September 30, 1998, the Fund incurred MSTC fees of
approximately $96,000. On October 1, 1998, the Chase Manhattan Bank purchased
MSTC.
Certain officers and directors of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or directors who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its directors
who are not officers of Van Kampen. Under the deferred compensation plan,
Directors 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 Director's years of service to the Fund. The maximum annual
benefit per director under the plan is $2,500.
During the year ended June 30, 1999, the Fund incurred approximately $2,000 as
brokerage commissions with Morgan Stanley & Co. Incorporated, an affiliated
broker/ dealer.
At June 30, 1999, the Fund owned shares of affiliated funds for which the Fund
earned dividend income of approximately $103,000 during the period.
C. INVESTMENT TRANSACTIONS: For the year ended June 30, 1999, the Fund made
purchases of approximately $393,338,000 and sales of approximately $411,550,000
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.
D. DERIVATIVE FINANCIAL INSTRUMENTS: A derivative financial instrument in very
general terms refers to a security whose value is "derived" from the value of an
underlying asset, reference rate, or index.
The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio and to manage the Fund's foreign currency exposure. All of the Fund's
portfolio holdings, including derivative instruments, are marked-to-market each
day with the change in value reflected in unrealized appreciation/depreciation.
Upon disposition, a realized gain or loss is recognized accordingly, except when
exercising a call option contract or taking delivery of a security underlying a
forward contract. In this instance, the recognition of gain or loss is postponed
until the disposal of the security underlying the option or forward contract.
Risks may arise as a result of the potential inability of the counterparties to
meet the terms of their contracts.
Summarized below are the specific types of derivative financial instruments used
by the Fund.
1. FORWARD CURRENCY CONTRACTS: These instruments are commitments to purchase or
sell a foreign currency at a future date at a negotiated forward rate. The
gain/loss arising from the difference between the original value of the contract
and the closing value of such contract is included as a component of realized
gain/loss on foreign currency transactions.
F-91
<PAGE>
VAN KAMPEN GLOBAL EQUITY ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
At June 30, 1999, the Fund has outstanding forward currency contracts as
follows:
<TABLE>
<CAPTION>
UNREALIZED
CURRENT APPRECIATION/
VALUE DEPRECIATION
FORWARD CURRENCY CONTRACTS (000) (000)
- -------------------------- -------- -------------
<S> <C> <C>
LONG CONTRACTS:
Australian Dollar, 14,033,089 expiring
7/1/99................................ $ 8,809 $(444)
British Pound, 3,751,000 expiring
8/12/99............................... 6,070 151
Japanese Yen, 172,092,000 expiring
8/24/99............................... 1,401 (34)
Swedish Krona, 2,236,649 expiring
7/6/99................................ 263 (1)
------- -----
$16,543 (328)
======= =====
SHORT CONTRACTS:
Australian Dollar, 14,033,103 expiring
7/1/99................................ $ 9,253 165
British Pound, 3,751,000 expiring
8/12/99............................... 5,919 (187)
Euro, 21,158,750 expiring
7/16/99-9/10/99....................... 21,942 (285)
Japanese Yen, 2,262,897,090 expiring
8/24/99-9/16/99....................... 18,907 (347)
------- -----
$56,021 (654)
======= =====
$(982)
=====
</TABLE>
2. FUTURES CONTRACTS: A futures contract is an agreement involving the delivery
of a particular asset on a specified future date at an agreed upon price. The
Fund generally invests in futures of equity indices and typically closes the
contract prior to the delivery date.
Upon entering into futures contracts, the Fund maintains, in a segregated
account with its custodian, cash and/or securities with a value equal to its
obligation under the futures contracts. During the period the futures contract
is open, payments are received from or made to the broker based upon changes in
the value of the contract (the variation margin). The potential risk of loss
associated with a futures contract in excess of the variation margin is
reflected on the Statement of Assets and Liabilities. The cost of securities
acquired through delivery under a contract is adjusted by the unrealized gain or
loss on the contract.
Transactions in futures contracts for the year ended June 30, 1999, were as
follows:
<TABLE>
<CAPTION>
CONTRACTS
---------
<S> <C>
Outstanding at June 30, 1998......................... 486
Futures Opened....................................... 6,574
Futures Closed....................................... (6,545)
------
Outstanding at June 30, 1999......................... 515
======
</TABLE>
The futures contracts outstanding as of June 30, 1999, and the descriptions and
the unrealized appreciation/ depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION/
DEPRECIATION
CONTRACTS (000)
--------- -------------
<S> <C> <C>
LONG CONTRACTS:
CAC 40 Index--September 1999 (Current
notional value $4,554 per
contract)............................ 291 $ 152
DAX Index--September 1999 (Current
notional value $5,389 per
contract)............................ 34 116
MIB 30 Index--September 1999 (Current
notional value $34,993 per
contract)............................ 34 (65)
SHORT CONTRACTS:
TOPIX Index--September 1999 (Current
notional value $1,407 per
contract)............................ 156 1,004
--- ------
515 $1,207
=== ======
</TABLE>
E. 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. Included in these net assets were
cumulative book and tax differences resulting in re-classifications of
undistributed capital gains of $(3,301,076), undistributed net investment income
of $3,342,357, and paid in capital of $(41,281).
F-92
<PAGE>
VAN KAMPEN GLOBAL FIXED INCOME FUND
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of Van Kampen Series Fund, Inc.--
Van Kampen Global Fixed Income Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Van Kampen Global Fixed Income Fund
(the "Fund", a fund of Van Kampen Series Fund, Inc.) at June 30, 1999, the
results of its operations, the changes in its net assets and the financial
highlights for each of the periods presented, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at June 30, 1999 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PRICEWATERHOUSECOOPERS LLP
200 E. Randolph Dr.
Chicago, Illinois 60601
August 6, 1999
F-93
<PAGE>
VAN KAMPEN GLOBAL FIXED INCOME FUND
PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
PAR
VALUE VALUE
(000) (000)
<C> <S> <C>
- --------------------------------------------------------------------
FIXED INCOME SECURITIES (95.0%)
AUSTRALIAN DOLLAR (1.7%)
U.S. GOVERNMENT & AGENCY OBLIGATIONS--GLOBAL
$ 50 Federal National Mortgage Association
6.50%, 7/10/02....................... $ 34
60 Federal National Mortgage Association
6.375%, 8/15/07...................... 39
AUD 50 Government of Australia 10.00%,
10/15/02............................. 37
------
110
------
BRITISH POUND (7.4%)
GOVERNMENT BOND
GBP 250 United Kingdom Treasury Gilt 8.50%,
7/16/07.............................. 474
------
CANADIAN DOLLAR (3.9%)
GOVERNMENT BOND
CAD 320 Government of Canada 8.75%, 12/1/05.... 255
------
DANISH KRONE (7.0%)
GOVERNMENT BONDS
DKK 1,800 Kingdom of Denmark 8.00%, 5/15/03...... 284
1,000 Kingdom of Denmark 8.00%, 3/15/06...... 164
------
448
------
EURO (34.1%)
GOVERNMENT BONDS
EUR 100 Buoni Poliennali Del Tesoro 9.50%,
2/1/06............................... 133
50 Deutsche Ausgleichsbank 4.00%,
7/4/09............................... 48
610 Deutschland Republic 8.375%, 5/21/01... 688
200 Deutschland Republic 6.50%, 10/14/05... 232
180 Deutschland Republic 6.25%, 1/4/24..... 206
100 Government of France 4.50%, 7/12/02.... 106
200 Government of France 6.00%, 10/25/25... 222
200 Government of Spain 5.15%, 7/30/09..... 212
200 Government of The Netherlands 8.25%,
2/15/02.............................. 231
100 Kingdom of Belgium 9.20%, 6/28/10...... 118
------
2,196
------
<CAPTION>
PAR
VALUE
(000)
- --------------------------------------------------------------------
<C> <S> <C>
JAPANESE YEN (10.5%)
GOVERNMENT BOND (5.9%)
JPY 50,000 Government of Japan 0.90%, 12/22/08.... $ 378
------
EUROBOND (4.6%)
30,000 IBRD 4.75%, 12/20/04................... 295
------
TOTAL JAPANESE YEN...................................... 673
------
SWEDISH KRONA (4.5%)
GOVERNMENT BONDS
SEK 1,000 Swedish Government 13.00%, 6/15/01..... 137
1,200 Swedish Government 6.00%, 2/9/05....... 151
------
288
------
UNITED STATES DOLLAR (25.9%)
CORPORATE BOND (0.7%)
$ (a)50 Monsanto Co. 6.60%, 12/1/28............ 44
------
U.S. TREASURY BONDS (12.7%)
300 8.125%, 8/15/19........................ 362
460 6.25%, 8/15/23......................... 460
------
822
------
U.S. TREASURY NOTES (12.5%)
440 6.25%, 10/31/01........................ 446
350 6.25%, 2/15/07......................... 357
------
803
------
TOTAL UNITED STATES DOLLAR.............................. 1,669
------
TOTAL LONG-TERM INVESTMENTS (95.0%) (COST $6,479)......... 6,113
------
SHORT-TERM INVESTMENT (4.6%)
REPURCHASE AGREEMENT (4.6%)
$ 294 Chase Securities, Inc., 4.55%, dated
6/30/99, due 7/1/99, to be
repurchased at $294, collateralized
by $275 U.S. Treasury Bonds, 7.25%,
due 5/15/16, valued at $306
(COST $294).......................... 294
------
TOTAL INVESTMENTS (99.6%) (COST $6,773)................... 6,407
OTHER ASSETS IN EXCESS OF LIABILITIES (0.4%).............. 24
------
NET ASSETS (100%)......................................... $6,431
======
</TABLE>
- ---------------
<TABLE>
<S> <C> <C>
(a) 144A Security--Certain conditions for public sale may exist.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-94
<PAGE>
VAN KAMPEN GLOBAL FIXED INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- ------------------------------------------------------------------------
ASSETS:
Investments at Value (Cost $6,773)........................ $6,407
Receivable for:
Interest................................................ 109
Fund Shares Sold........................................ 12
Net Unrealized Gain on Foreign Currency Contracts......... 7
Foreign Witholding Tax Reclaim............................ 3
------
Total Assets............................................ 6,538
------
LIABILITIES:
Payable for:
Professional Fees....................................... 25
Dividends Declared...................................... 21
Fund Shares Redeemed.................................... 16
Directors' Fees and Expenses............................ 12
Shareholder Reporting Expenses.......................... 8
Distribution Fees....................................... 6
Bank Overdraft.......................................... 5
Custody Fees............................................ 4
Transfer Agent Fees..................................... 3
Investment Advisory Fees................................ 3
Administrative Fees..................................... 2
Other..................................................... 2
------
Total Liabilities..................................... 107
------
NET ASSETS.................................................. $6,431
======
NET ASSETS CONSIST OF:
Capital Stock at Par ($.001 par value, Shares Authorized
2,625,000,000).......................................... $ 1
Paid in Capital in Excess of Par.......................... 6,777
Accumulated Net Realized Gain............................. 93
Distributions in Excess of Net Investment Income.......... (78)
Net Unrealized Depreciation on Investments and Foreign
Currency Translations................................... (362)
------
NET ASSETS.................................................. $6,431
======
CLASS A SHARES:
Net Asset Value and Redemption Price Per Share (Based on
Net Assets of $3,391,538 and 357,818 Shares
Outstanding)............................................ $ 9.48
======
Maximum Sales Charge...................................... 4.75%
Maximum Offering Price Per Share (Net Asset Value Per
Share X 100/ (100 - maximum sales charge)).............. $ 9.95
======
CLASS B SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $1,556,467 and 165,575 Shares Outstanding)*... $ 9.40
======
CLASS C SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $1,483,381 and 158,021 Shares Outstanding)*... $ 9.39
======
</TABLE>
- ---------------
<TABLE>
<S> <C>
* Redemption price may be subject to a contingent deferred
sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-95
<PAGE>
VAN KAMPEN GLOBAL FIXED INCOME FUND
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- -----------------------------------------------------------------------
INVESTMENT INCOME:
Interest.................................................. $ 369
Less Foreign Taxes Withheld............................... (3)
-----
Total Income............................................. 366
-----
EXPENSES:
Investment Advisory Fees.................................. 62
Distribution Fees (Attributed to Classes A, B, and C of
$11, $17, and $18, respectively)........................ 46
Professional Fees......................................... 34
Shareholder Reports....................................... 30
Filing and Registration Fees.............................. 28
Administrative Fees....................................... 26
Custodian Fees............................................ 14
Transfer Agent Fees....................................... 13
Directors' Fees and Expenses.............................. 9
Interest Expense.......................................... 2
Other..................................................... 5
-----
Total Expenses........................................... 269
Less Expense Reductions.................................. (122)
-----
Net Expenses............................................. 147
-----
Net Investment Income/Loss.................................. 219
-----
NET REALIZED GAIN/LOSS ON:
Investments............................................... 392
Foreign Currency Transactions............................. 59
-----
Net Realized Gain/Loss................................... 451
-----
NET UNREALIZED APPRECIATION/DEPRECIATION:
Beginning of the Period................................... 60
-----
End of the Period:
Investments.............................................. (366)
Foreign Currency Translations............................ 4
-----
(362)
-----
Net Unrealized Appreciation/Depreciation During the
Period.................................................... (422)
-----
Net Realized Gain/Loss and Net Unrealized
Appreciation/Depreciation................................. 29
-----
NET INCREASE/DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................................ $ 248
=====
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-96
<PAGE>
VAN KAMPEN GLOBAL FIXED INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1999 JUNE 30, 1998
(000) (000)
<S> <C> <C>
- --------------------------------------------------------------------------------------------------
INCREASE/DECREASE IN NET ASSETS
OPERATIONS:
Net Investment Income/Loss................................ $ 219 $ 336
Net Realized Gain/Loss.................................... 451 (59)
Net Unrealized Appreciation/Depreciation.................. (422) 178
------------- -------------
Net Increase/Decrease in Net Assets Resulting from
Operations.............................................. 248 455
------------- -------------
DISTRIBUTIONS:
Net Investment Income:
Class A................................................... (124) (219)
Class B................................................... (38) (49)
Class C................................................... (41) (68)
In Excess of Net Investment Income:
Class A................................................... (47) (4)
Class B................................................... (15) (1)
Class C................................................... (15) (1)
------------- -------------
(280) (342)
------------- -------------
Net Realized Gain:
Class A................................................... (144) (30)
Class B................................................... (50) (8)
Class C................................................... (52) (11)
------------- -------------
(246) (49)
------------- -------------
Net Decrease in Net Assets Resulting from Distributions... (526) (391)
------------- -------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed................................................ 5,081 1,701
Distributions Reinvested.................................. 449 329
Redeemed.................................................. (6,547) (4,936)
------------- -------------
Net Increase/Decrease in Net Assets Resulting from Capital
Share Transactions...................................... (1,017) (2,906)
------------- -------------
Total Increase/Decrease in Net Assets..................... (1,295) (2,842)
NET ASSETS--Beginning of Period............................. 7,726 10,568
------------- -------------
NET ASSETS--End of Period (Including distributions in excess
of net investment income of $(78) and $(150),
respectively)............................................. $ 6,431 $ 7,726
============= =============
- --------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
(1) Class A:
----------
Shares:
Subscribed............................................. 407 72
Distributions Reinvested............................... 28 22
Redeemed............................................... (517) (298)
------------- -------------
Net Increase/Decrease in Class A Shares Outstanding...... (82) (204)
============= =============
Dollars:
Subscribed............................................. $ 4,142 $ 714
Distributions Reinvested............................... 285 226
Redeemed............................................... (5,371) (2,981)
------------- -------------
Net Increase/Decrease.................................... $ (944) $ (2,041)
============= =============
Ending Paid in Capital................................... $ 3,508 $ 4,452
============= =============
Class B:
----------
Shares:
Subscribed............................................. 69 58
Distributions Reinvested............................... 7 4
Redeemed............................................... (53) (92)
------------- -------------
Net Increase/Decrease in Class B Shares Outstanding...... 23 (30)
============= =============
Dollars:
Subscribed............................................. $ 707 $ 572
Distributions Reinvested............................... 74 42
Redeemed............................................... (540) (909)
------------- -------------
Net Increase/Decrease.................................... $ 241 $ (295)
============= =============
Ending Paid in Capital................................... $ 1,675 $ 1,434
============= =============
Class C:
----------
Shares:
Subscribed............................................. 24 42
Distributions Reinvested............................... 8 6
Redeemed............................................... (64) (105)
------------- -------------
Net Increase/Decrease in Class C Shares Outstanding...... (32) (57)
============= =============
Dollars:
Subscribed............................................. $ 232 $ 415
Distributions Reinvested............................... 90 61
Redeemed............................................... (636) (1,046)
------------- -------------
Net Increase/Decrease.................................... $ (314) $ (570)
============= =============
Ending Paid in Capital................................... $ 1,595 $ 1,909
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-97
<PAGE>
VAN KAMPEN GLOBAL FIXED INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B
---------------------------------------------- ----------------------------------------------
YEAR ENDED JUNE 30, YEAR ENDED JUNE 30,
---------------------------------------------- --------------------------- AUGUST 1, 1995+
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# 1997 1996 1995 1999# 1998# 1997 TO JUNE 30, 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD.......................... $10.022 $ 9.95 $ 9.94 $10.23 $ 9.53 $ 9.971 $ 9.91 $ 9.91 $ 10.24
------- -------- ------ ------ ------- ------- -------- ------ ---------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss...... 0.311 0.39 0.44 0.53 0.56 0.229 0.32 0.41 0.64
Net Realized and Unrealized
Gain/Loss..................... (0.181) 0.13 (0.02) (0.01) 0.50 (0.186) 0.13 (0.07) (0.26)
------- -------- ------ ------ ------- ------- -------- ------ ---------------
Total From Investment
Operations.................... 0.130 0.52 0.42 0.52 1.06 0.043 0.45 0.34 0.38
------- -------- ------ ------ ------- ------- -------- ------ ---------------
DISTRIBUTIONS
Net Investment Income........... (0.278) (0.39) (0.35) (0.79) (0.36) (0.234) (0.33) (0.29) (0.69)
In Excess of Net Investment
Income........................ (0.106) (0.01) (0.06) (0.02) -- (0.090) (0.01) (0.05) (0.02)
Net Realized Gain............... (0.290) (0.05) -- -- -- (0.290) (0.05) -- --
------- -------- ------ ------ ------- ------- -------- ------ ---------------
Total Distributions............. (0.674) (0.45) (0.41) (0.81) (0.36) (0.614) (0.39) (0.34) (0.71)
------- -------- ------ ------ ------- ------- -------- ------ ---------------
NET ASSET VALUE, END OF PERIOD.... $ 9.478 $ 10.02 $ 9.95 $ 9.94 $ 10.23 $ 9.400 $ 9.97 $ 9.91 $ 9.91
======= ======== ====== ====== ======= ======= ======== ====== ===============
TOTAL RETURN (1).................. 0.95% 5.36% 4.27% 5.20% 11.41% 0.05% 4.65% 3.48% 3.76%*
======= ======== ====== ====== ======= ======= ======== ====== ===============
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's)......................... $ 3,392 $ 4,413 $6,407 $7,432 $11,092 $ 1,556 $ 1,425 $1,716 $ 1,440
Ratio of Expenses to Average Net
Assets.......................... 1.47% 1.45% 1.45% 1.45% 1.45% 2.23% 2.20% 2.20% 2.20%
Ratio of Net Investment
Income/Loss to Average Net
Assets.......................... 3.03% 3.94% 4.40% 5.02% 5.84% 2.21% 3.21% 3.65% 3.38%
Portfolio Turnover Rate........... 143% 78% 170% 223% 169% 143% 78% 170% 223%*
- -----------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income/Loss........ $ 0.15 $ 0.15 $ 0.12 $ 0.07 $ 0.07 $ 0.15 $ 0.15 $ 0.13 $ 0.12
Ratios Before Expense Limitation:
Expenses to Average Net
Assets........................ 2.97% 3.00% 2.57% 2.16% 2.22% 3.78% 3.75% 3.37% 3.57%
Net Investment Income to Average
Net Assets.................... 1.54% 2.42% 3.25% 4.31% 5.07% 0.71% 1.65% 2.45% 2.01%
Ratio of Expenses to Average Net
Assets excluding country tax
expense and interest expense.... 1.45% 1.45% 1.45% 1.45% 1.45% 2.20% 2.20% 2.20% 2.20%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS C
---------------------------------------------------------
YEAR ENDED JUNE 30,
---------------------------------------------------------
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 9.962 $ 9.90 $ 9.90 $10.20 $ 9.54
------- -------- ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss................................ 0.230 0.32 0.39 0.37 0.49
Net Realized and Unrealized Gain/Loss..................... (0.191) 0.13 (0.05) 0.08 0.47
------- -------- ------ ------ ------
Total From Investment Operations.......................... 0.039 0.45 0.34 0.45 0.96
------- -------- ------ ------ ------
DISTRIBUTIONS
Net Investment Income..................................... (0.234) (0.33) (0.29) (0.73) (0.30)
In Excess of Net Investment Income........................ (0.090) (0.01) (0.05) (0.02) --
Net Realized Gain......................................... (0.290) (0.05) -- -- --
------- -------- ------ ------ ------
Total Distributions....................................... (0.614) (0.39) (0.34) (0.75) (0.30)
------- -------- ------ ------ ------
NET ASSET VALUE, END OF PERIOD.............................. $ 9.387 $ 9.96 $ 9.90 $ 9.90 $10.20
======= ======== ====== ====== ======
TOTAL RETURN (1)............................................ 0.05% 4.65% 3.48% 4.47% 10.24%
======= ======== ====== ====== ======
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)........................... $ 1,483 $ 1,888 $2,445 $2,844 $5,965
Ratio of Expenses to Average Net Assets..................... 2.23% 2.20% 2.20% 2.20% 2.20%
Ratio of Net Investment Income/Loss to Average Net Assets... 2.22% 3.21% 3.65% 4.35% 5.09%
Portfolio Turnover Rate..................................... 143% 78% 170% 223% 169%
- ---------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net Investment Income/Loss........... $ 0.15 $ 0.15 $ 0.12 $ 0.06 $ 0.08
Ratios Before Expense Limitation:
Expenses to Average Net Assets............................ 3.74% 3.75% 3.35% 2.87% 2.97%
Net Investment Income/Loss to Average Net Assets.......... 0.75% 1.67% 2.48% 3.68% 4.32%
Ratio of Net Expenses to Average Net Assets excluding
country tax expense and interest expense.................. 2.20% 2.20% 2.20% 2.20% 2.20%
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
* Non-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.
# Changes per share are based upon monthly average shares
outstanding.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-98
<PAGE>
VAN KAMPEN GLOBAL FIXED INCOME FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
The Van Kampen Global Fixed Income Fund (the "Fund") is organized as a separate
non-diversified fund of Van Kampen Series Fund, Inc., a Maryland Corporation,
which is registered as an open-end management investment company under the
Investment Company Act of 1940, as amended. The Fund's investment objective
seeks to produce an attractive real rate of return by investing in fixed-income
securities of U.S. and foreign issuers denominated in U.S. dollars and in other
currencies. The Fund commenced operations on January 4, 1993.
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
4.75%. 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 and Class C
shares are offered without a front end sales charge, but are subject to a
contingent deferred sales charge ("CDSC"). Class B shares will automatically
convert to Class A shares after the eighth year following purchase. The CDSC
will be imposed on most redemptions made within five years of the purchase for
Class B shares and one year of the purchase for Class C shares as detailed in
the following schedule:
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE
----------------------
YEAR OF REDEMPTION CLASS B CLASS C
- ------------------ -------- --------
<S> <C> <C>
First..................................... 4.00% 1.00%
Second.................................... 4.00% None
Third..................................... 3.00% None
Fourth.................................... 2.50% None
Fifth..................................... 1.50% None
Thereafter................................ None None
</TABLE>
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.
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. SECURITY TRANSACTIONS: Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements, which are short-term investments
in which the Fund acquires ownership of a debt security and the seller agrees to
repurchase the security at a future time and specified price. Repurchase
agreements are fully collateralized by the underlying debt security. 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.
3. INCOME AND EXPENSES: 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. 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 Fund are recorded
on the ex-distribution date.
4. FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS: Assets and liabilities
denominated in foreign currencies and commitments under forward currency
contracts are translated into U.S. dollars at the mean of the quoted bid and
asked prices. Purchases and sales of portfolio securities are translated at the
rate of exchange prevailing when such securities were purchased or sold. Income
and expenses are translated at rates prevailing when accrued. Realized and
unrealized gains and losses on securities are not segregated for financial
reporting purposes from amounts arising from changes in the market prices of
securities. Realized gains and
F-99
<PAGE>
VAN KAMPEN GLOBAL FIXED INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
losses on foreign currency includes the net realized amount from the sale of the
currency and the amount realized between trade date and settlement date on
security and income transactions. However, 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.
5. TAXES: It is the Fund's intention to qualify as a regulated investment
company and distribute substantially all of its taxable income. Accordingly, no
provision for U.S. Federal income taxes is required in the financial statements.
The Fund 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.
Net currency losses incurred after October 31 and within the taxable year are
deemed to arise on the first business day of the Fund's next taxable year. For
the period from November 1, 1998 to June 30, 1999 the Fund incurred and elected
to defer until July 1, 1999, for U.S. Federal income tax purposes, net currency
losses of approximately $27,000.
At June 30, 1999, cost and unrealized appreciation/ depreciation for U.S.
Federal income tax purposes of the investments of the Fund was:
<TABLE>
<CAPTION>
NET
APPRECIATION/
COST APPREC. DEPREC. DEPRECIATION
(000) (000) (000) (000)
- ------ -------- -------- -------------
<S> <C> <C> <C>
$6,775..
$66 $(434) $(368)
</TABLE>
6. DISTRIBUTION OF INCOME AND GAINS: 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, and gains on certain securities of corporations
designated as "passive foreign investment companies."
Permanent book to tax basis differences relating to shareholder distributions
may result in reclassification among accumulated net investment income/loss,
accumulated net realized gain/loss, and paid in capital in excess of par. For
the year ended June 30, 1999, approximately $133,000 has been reclassified from
accumulated net realized gain and posted to distributions in excess of net
investment income.
Permanent book to tax basis differences are not included in ending
undistributed/distributions in excess of net investment income for the purpose
of calculating net investment income/loss per share in the Financial Highlights.
B. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES: Van
Kampen Investment Advisory Corp. (the "Adviser"), a wholly owned subsidiary of
Van Kampen Investments Inc. (an indirect wholly owned subsidiary of Morgan
Stanley Dean Witter & Co.), Morgan Stanley Dean Witter Investment Management
Inc. ("MSDWIM" or a "Subadviser") 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 Fund, 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
ADVISORY FEE EXPENSE RATIO EXPENSE RATIO
- ------------ -------------- ---------------
<S> <C> <C>
0.75%
1.45% 2.20%
</TABLE>
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 Adviser.
Van Kampen Funds Inc. the ("Distributor") a wholly owned subsidiary of Van
Kampen Investments Inc., an indirect 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 Fund 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% of the Class B shares and Class C shares of the Fund, on
an annualized basis, of the average daily net assets attributable to each Class.
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 shares and Class C shares of the Fund
redeemed within one to five years following such purchase. For the year ended
June 30, 1999, the Distributor has advised the Fund that it earned initial sales
charges of $12,010 for Class A shares and deferred sales charges of $472,
$10,212, and $731 for Class A shares, Class B shares, and Class C shares,
respectively.
Prior to October 1, 1998, the Fund's assets held outside the United States were
held by Morgan Stanley Trust Company
F-100
<PAGE>
VAN KAMPEN GLOBAL FIXED INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
("MSTC"), a former affiliate of the Subadvisers. Through September 30, 1998, the
Fund incurred MSTC fees of approximately $1,000. On October 1, 1998, the Chase
Manhattan Bank purchased MSTC.
Certain officers and directors of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or directors who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its directors
who are not officers of Van Kampen. Under the deferred compensation plan,
Directors 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 Director's years of service to the Fund. The maximum annual
benefit per director under the plan is $2,500.
C. INVESTMENT TRANSACTIONS: For the year ended June 30, 1999, the Fund made
purchases of approximately $8,110,000 and sales of approximately $8,406,000 of
investment securities other than long-term U.S. government securities and
short-term investments. Purchases and sales of long-term U.S. government
securities for the year ended June 30, 1999 totaled approximately $2,528,000 and
$3,205,000, respectively.
D. DERIVATIVE FINANCIAL INSTRUMENTS: A derivative financial instrument in very
general terms refers to a security whose value is "derived" from the value of an
underlying asset, reference rate or index.
The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio and to manage the portfolio's effective yield, foreign currency
exposure, maturity, and duration. All of the Fund's portfolio holdings,
including derivative instruments, are marked-to-market each day with the change
in value reflected in unrealized appreciation/depreciation. Upon disposition, a
realized gain or loss is recognized accordingly, except when exercising a call
option contract or taking delivery of a security underlying a forward contract.
In this instance, the recognition of gain or loss is postponed until the
disposal of the security underlying the option or forward contract. Risks may
arise as a result of the potential inability of the counterparties to meet the
terms of their contracts.
Summarized below are the specific types of derivative financial instruments used
by the Fund.
1. FORWARD CURRENCY CONTRACTS: These instruments are commitments to purchase or
sell a foreign currency at a future date at a negotiated forward rate. The gain
or loss arising from the difference between the original value of the contract
and the closing value of such contract is included as a component of realized
gain/loss on foreign currency transactions.
At June 30, 1999, the Fund has outstanding forward currency contracts as
follows:
<TABLE>
<CAPTION>
UNREALIZED
CURRENT APPRECIATION/
VALUE DEPRECIATION
FORWARD CURRENCY CONTRACTS (000) (000)
- -------------------------- -------- -------------
<S> <C> <C>
LONG CONTRACTS:
Australian Dollar,
100,000 expiring 9/16/99........... $ 66 $ --
---- ----
SHORT CONTRACTS:
Australian Dollar,
100,000 expiring 9/16/99........... $ 66 $ --
Euro,
200,000 expiring 7/12/99........... 207 7
---- ----
$273 $ 7
==== ====
$ 7
====
</TABLE>
F-101
<PAGE>
VAN KAMPEN GLOBAL FRANCHISE FUND
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of Van Kampen Series Fund, Inc.--
Van Kampen Global Franchise Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Van Kampen Global Franchise Fund
(the "Fund", a fund of Van Kampen Series Fund, Inc.) at June 30, 1999, the
results of its operations, the changes in its net assets and the financial
highlights for the period September 25, 1998 (commencement of operations)
through June 30, 1999, 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, 1999 by correspondence with the
custodian, provides a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
200 E. Randolph Dr.
Chicago, Illinois 60601
August 6, 1999
F-102
<PAGE>
VAN KAMPEN GLOBAL FRANCHISE FUND
PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- --------------------------------------------------------------------
COMMON STOCKS (100.3%)
CANADA (4.0%)
Torstar Corp. 'B'.......................... 8,230 $ 92
------
FINLAND (4.4%)
Kone Corp. 'B'............................. 615 77
(a)Rapala Normark Corp..................... 3,350 24
------
101
------
FRANCE (9.9%)
Groupe Danone RFD.......................... 292 76
Pernod-Ricard.............................. 1,315 88
Societe Television Francaise 1............. 267 62
------
226
------
ITALY (4.8%)
Mediaset S.p.A............................. 7,050 63
Seat Pagine Gialle S.p.A................... 33,900 46
------
109
------
NETHERLANDS (4.7%)
Benckiser N.V. 'B'......................... 2,020 108
------
SPAIN (2.3%)
Zardoya-Otis S.A........................... 2,079 52
------
SWITZERLAND (13.6%)
Cie Financiere Richemont AG 'A'............ 96 185
Lindt & Spruengli AG....................... 20 51
Nestle S.A. (Registered)................... 41 74
------
310
------
UNITED KINGDOM (33.4%)
Aegis Group plc............................ 38,150 84
Allied Domecq plc.......................... 10,050 97
Burmah Castrol plc......................... 2,187 42
Capital Radio plc.......................... 5,890 78
Great Universal Stores plc................. 5,250 58
Imperial Tobacco Group plc................. 9,260 101
Reckitt & Colman plc....................... 9,324 97
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
Scottish Media Group plc................... 3,430 $ 47
Time Products plc.......................... 6,800 11
WPP Group plc.............................. 17,560 149
------
764
------
UNITED STATES (23.2%)
Bestfoods.................................. 1,900 94
Brown-Forman Corp. 'B'..................... 1,670 109
New York Times Co. 'A'..................... 3,865 142
Philip Morris Cos., Inc.................... 1,978 80
Snap-on, Inc............................... 1,260 46
WD-40 Co................................... 2,330 58
------
529
------
TOTAL LONG-TERM INVESTMENTS (100.3%) (COST $2,057)........ 2,291
------
FOREIGN CURRENCY (0.1%) (COST $2)......................... 2
------
TOTAL INVESTMENTS (100.4%) (COST $2,059).................. 2,293
LIABILITIES IN EXCESS OF OTHER ASSETS (-0.4%)............. (10)
------
NET ASSETS (100%)......................................... $2,283
======
</TABLE>
- ---------------
<TABLE>
<S> <C> <C>
(a) -- Non-income producing security
RFD -- Ranked for Dividend
</TABLE>
- ----------------------------------------------------------------
SUMMARY OF LONG-TERM INVESTMENTS BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
- -------- ------ ----------
<S> <C> <C>
Consumer Goods...................... $1,170 51.2%
Services............................ 846 37.0
Capital Equipment................... 175 7.7
Energy.............................. 100 4.4
------ -----
$2,291 100.3%
====== =====
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-103
<PAGE>
VAN KAMPEN GLOBAL FRANCHISE FUND
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- ------------------------------------------------------------------------
ASSETS:
Investments at Value (Cost $2,057)........................ $2,291
Foreign Currency (Cost $2)................................ 2
Cash...................................................... 66
Receivable for:
Dividends............................................... 8
Foreign Witholding Tax Reclaim.......................... 1
Net Unrealized Gain on Foreign Currency Exchange
Contracts............................................... 18
Receivable from Investment Adviser........................ 15
------
Total Assets.......................................... 2,401
------
LIABILITIES:
Payable for:
Professional Fees....................................... 48
Filing and Registration Fees............................ 34
Shareholder Reporting Expenses.......................... 14
Directors' Fees and Expenses............................ 8
Custody Fees............................................ 5
Transfer Agent Fees..................................... 5
Distribution Fees....................................... 2
Administrative Fees..................................... 1
Other..................................................... 1
------
Total Liabilities..................................... 118
------
NET ASSETS.................................................. $2,283
======
NET ASSETS CONSIST OF:
Capital Stock at Par ($.001 par value, Shares Authorized
2,625,000,000).......................................... $ --
Paid in Capital in Excess of Par.......................... 1,953
Net Unrealized Appreciation on Investments and Foreign
Currency Translations................................... 253
Accumulated Net Investment Income......................... 48
Accumulated Net Realized Gain............................. 29
------
NET ASSETS.................................................. $2,283
======
CLASS A SHARES:
Net Asset Value and Redemption Price Per Share (Based on
Net Assets of $1,189,338 and 99,280 Shares
Outstanding)............................................ $11.98
======
Maximum Sales Charge...................................... 5.75%
Maximum Offering Price Per Share (Net Asset Value Per
Share X 100 / (100 - maximum sales charge))............. $12.71
======
CLASS B SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $614,254 and 51,522 Shares Outstanding)*...... $11.92
======
CLASS C SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $479,666 and 39,914 Shares Outstanding)*...... $12.02
======
</TABLE>
- ---------------
<TABLE>
<S> <C>
* Redemption price may be subject to a contingent deferred
sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-104
<PAGE>
VAN KAMPEN GLOBAL FRANCHISE FUND
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
SEPTEMBER 25, 1998* TO JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- -----------------------------------------------------------------------
INVESTMENT INCOME:
Dividends................................................. $ 42
Interest.................................................. 4
Less Foreign Taxes Withheld............................... (5)
-----
Total Income............................................ 41
-----
EXPENSES:
Professional Fees......................................... 52
Filing and Registration Fees.............................. 49
Shareholder Reports....................................... 22
Investment Advisory Fees.................................. 12
Custodian Fees............................................ 10
Directors' Fees and Expenses.............................. 8
Distribution Fees (Attributed to Classes A, B, and C of
$2, $3, and $3, respectively)........................... 8
Administrative Fees....................................... 7
Transfer Agent Fees....................................... 7
Other..................................................... 2
-----
Total Expenses............................................ 177
Less Expense Reductions................................... (150)
-----
Net Expenses.............................................. 27
-----
Net Investment Income/Loss.................................. 14
-----
NET REALIZED GAIN/LOSS ON:
Investments............................................... 29
Foreign Currency Transactions............................. (7)
-----
Net Realized Gain/Loss.................................. 22
-----
NET UNREALIZED APPRECIATION/DEPRECIATION:
Beginning of the Period................................... --
-----
End of the Period:
Investments............................................. 234
Foreign Currency Translations........................... 19
-----
Net Unrealized Appreciation/Depreciation During the
Period.................................................... 253
-----
Net Realized Gain/Loss and Net Unrealized
Appreciation/Depreciation................................. 275
-----
NET INCREASE/DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................................ $ 289
=====
</TABLE>
- ---------------
<TABLE>
<S> <C>
* Commencement of operations
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-105
<PAGE>
VAN KAMPEN GLOBAL FRANCHISE FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
SEPTEMBER 25, 1998* TO JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- ------------------------------------------------------------------------
INCREASE/DECREASE IN NET ASSETS
OPERATIONS:
Net Investment Income/Loss................................ $ 14
Net Realized Gain/Loss.................................... 22
Net Unrealized Appreciation/Depreciation.................. 253
------
Net Increase/Decrease in Net Assets Resulting from
Operations.............................................. 289
------
DISTRIBUTIONS:
Net Investment Income:
Class A................................................... (7)
Class B................................................... (4)
Class C................................................... (5)
------
Net Decrease in Net Assets Resulting from Distributions... (16)
------
CAPITAL SHARES TRANSACTIONS (1):
Subscribed................................................ 1,012
Distributions Reinvested.................................. 3
Redeemed.................................................. (5)
------
Net Increase/Decrease in Net Assets Resulting from Capital
Share Transactions...................................... 1,010
------
Total Increase/Decrease in Net Assets..................... 1,283
NET ASSETS--Beginning of Period............................. 1,000
------
NET ASSETS--End of Period (Including accumulated net
investment income of $48 at June 30, 1999)................ $2,283
======
- ------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (000):
(1) CLASS A:
Shares:
Subscribed (Initial Shares of 40) 99
Distributions Reinvested............................... --
Redeemed............................................... --
------
Net Increase/Decrease in Class A Shares Outstanding...... 99
======
Dollars:
Subscribed............................................. $ 667
Distributions Reinvested............................... 2
Redeemed............................................... (2)
------
Net Increase/Decrease.................................... $ 667
======
Beginning Paid in Capital................................ $ 400
======
Ending Paid in Capital................................... $1,067+
======
CLASS B:
Shares:
Subscribed (Initial Shares of 30)...................... 52
Distributions Reinvested............................... --
Redeemed............................................... --
------
Net Increase/Decrease in Class B Shares Outstanding...... 52
======
Dollars:
Subscribed............................................. $ 242
Distributions Reinvested............................... 1
Redeemed............................................... --
------
Net Increase/Decrease.................................... $ 243
======
Beginning Paid in Capital................................ $ 300
======
Ending Paid in Capital................................... $ 543+
======
CLASS C:
Shares:
Subscribed (Initial Shares of 30)...................... 40
Distributions Reinvested............................... --
Redeemed............................................... --
------
Net Increase/Decrease in Class C Shares Outstanding...... 40
======
Dollars:
Subscribed............................................. $ 103
Distributions Reinvested............................... --
Redeemed............................................... (3)
------
Net Increase/Decrease.................................... $ 100
======
Beginning Paid in Capital................................ $ 300
======
Ending Paid in Capital................................... $ 400+
======
</TABLE>
- ---------------
<TABLE>
<S> <C>
* Commencement of operations
+ Ending Paid in Capital amounts do not reflect permanent book
to tax differences.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-106
<PAGE>
VAN KAMPEN GLOBAL FRANCHISE FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
---------------------- ---------------------- ----------------------
SEPTEMBER 25, 1998* TO SEPTEMBER 25, 1998* TO SEPTEMBER 25, 1998* TO
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1999# JUNE 30, 1999# JUNE 30, 1999#
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD......... $ 10.000 $ 10.000 $ 10.000
--------------------- --------------------- ---------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss................. 0.136 0.066 0.059
Net Realized and Unrealized Gain/Loss...... 1.969 1.962 2.065
--------------------- --------------------- ---------------------
Total From Investment Operations........... 2.105 2.028 2.124
--------------------- --------------------- ---------------------
DISTRIBUTIONS
Net Investment Income...................... (0.125) (0.106) (0.106)
--------------------- --------------------- ---------------------
NET ASSET VALUE, END OF PERIOD............... $ 11.980 $ 11.922 $ 12.018
===================== ===================== =====================
TOTAL RETURN (1)............................. 21.22%** 20.40%** 21.40%**
===================== ===================== =====================
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)............ $ 1,189 $ 614 $ 480
Ratio of Expenses to Average Net Assets...... 1.80% 2.55% 2.55%
Ratio of Net Investment Income/Loss to
Average Net Assets......................... 1.57% 0.77% 0.69%
Portfolio Turnover Rate...................... 9%** 9%** 9%**
- ---------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During
the Period
Per Share Benefit to Net Investment
Income/Loss.............................. $ 1.02 $ 1.02 $ 1.16
Ratios Before Expense Limitation:
Expenses to Average Net Assets............. 13.55% 14.45% 16.07%
Net Investment Income/Loss to Average Net
Assets................................... (10.17)% (11.12)% (12.83)%
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
* Commencement of operations
** Non-Annualized
(1) Total return is calculated exclusive of sales charges or
deferred sales charges.
# Changes per share are based upon monthly average shares
outstanding.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-107
<PAGE>
VAN KAMPEN GLOBAL FRANCHISE FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
The Van Kampen Global Franchise Fund (the "Fund") is organized as a separate
diversified fund of Van Kampen Series Fund, Inc., a Maryland Corporation, which
is registered as an open-end management investment company under the Investment
Company Act of 1940, as amended. The Fund's investment objective seeks long-term
capital appreciation. The Fund commenced operations on September 25, 1998.
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 and Class C
shares are offered without a front end sales charge, but are subject to a
contingent deferred sales charge ("CDSC"). Class B shares will automatically
convert to Class A shares after the eighth year following purchase. The CDSC
will be imposed on most redemptions made within five years of the purchase for
Class B shares and one year of the purchase for Class C shares as detailed in
the following schedule:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
-----------------------
YEAR OF REDEMPTION CLASS B CLASS C
- ------------------ -------- --------
<S> <C> <C>
First..................................... 5.00% 1.00%
Second.................................... 4.00% None
Third..................................... 3.00% None
Fourth.................................... 2.50% None
Fifth..................................... 1.50% None
Thereafter................................ None None
</TABLE>
All three classes of shares have identical voting, dividend, liquidation and
other rights.
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. 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. SECURITY TRANSACTIONS: Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements, which are short-term investments
in which the Fund acquires ownership of a debt security and the seller agrees to
repurchase the security at a future time and specified price. Repurchase
agreements are fully collateralized by the underlying debt security. 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.
3. INCOME AND EXPENSES: Dividend income is recorded on the ex-dividend date, net
of applicable withholding taxes where recovery of such taxes is not reasonably
assured. Interest income is recognized on an accrual basis except where
collection is in doubt. 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 Fund are
recorded on the ex-distribution date.
4. FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS: Assets and liabilities
denominated in foreign currencies and commitments under forward currency
contracts are translated into U.S. dollars at the mean of the quoted bid and
asked prices. Purchases and sales of portfolio securities are translated at the
rate of exchange prevailing when such securities were purchased or sold. Income
and expenses are translated at rates prevailing when accrued. Realized and
unrealized gains and losses on securities are not segregated for financial
reporting purposes from amounts arising from changes in the market prices of
securities. Realized gains and losses on foreign currency includes the net
realized amount from the sale of the currency and the amount realized between
trade date and settlement date on security and income transactions. However, 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.
F-108
<PAGE>
VAN KAMPEN GLOBAL FRANCHISE FUND
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
5. TAXES: It is the Fund's intention to qualify as a regulated investment
company and distribute substantially all of its taxable income. Accordingly, no
provision for U.S. Federal income taxes is required in the financial statements.
The Fund 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, 1999, cost and unrealized appreciation/ depreciation for U.S.
Federal income tax purposes of the investments of the Fund was:
<TABLE>
<CAPTION>
NET
APPRECIATION/
COST APPREC. DEPREC. DEPRECIATION
(000) (000) (000) (000)
- --------------------- -------- -------- -------------
<S> <C> <C> <C>
$2,057 $301 $(67) $234
</TABLE>
6. DISTRIBUTION OF INCOME AND GAINS: 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.
Permanent book to tax basis differences relating to shareholder distributions
may result in reclassification among accumulated net investment income/loss,
accumulated net realized gain/loss, and paid in capital in excess of par. For
the year ended June 30, 1999, approximately $57,000 has been reclassified from
paid in capital in excess of par with approximately $50,000 posted to
accumulated net investment income and approximately $7,000 posted to accumulated
net realized gain.
Permanent book to tax basis differences are not included in ending
undistributed/distributions in excess of net investment income for the purpose
of calculating net investment income/loss per share in the Financial Highlights.
B. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES: Van
Kampen Investment Advisory Corp. (the "Adviser"), a wholly owned subsidiary of
Van Kampen Investments Inc. (an indirect wholly owned subsidiary of Morgan
Stanley Dean Witter & Co.) and Morgan Stanley Dean Witter Investment Management
Inc. ("MSDWIM" or a "Subadviser"), a wholly owned subsidiary 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 Fund, 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
ADVISORY FEE EXPENSE RATIO EXPENSE RATIO
- --------------------- -------------- --------------
<S> <C> <C>
1.00% 1.80% 2.55%
</TABLE>
At June 30, 1999, Van Kampen Funds, Inc. owned 40%, 58%, and 75% of the shares
outstanding of each Class A, B, and C shares in the Fund.
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 Adviser.
Van Kampen Funds Inc. the ("Distributor") a wholly owned subsidiary of Van
Kampen Investments Inc., an indirect 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 Fund 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% of the Class B shares and Class C shares of the Fund, on
an annualized basis, of the average daily net assets attributable to each Class.
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 shares and Class C shares of the Fund
redeemed within one to five years following such purchase. For the period ended
June 30, 1999, the Distributor has advised the Fund that it earned initial sales
charges of $12,307 for Class A shares and a deferred sales charge of $30 for
Class C shares.
Prior to October 1, 1998, the Fund's assets held outside the United States were
held by Morgan Stanley Trust Company ("MSTC"), a former affiliate of the
Subadvisers. Through September 30, 1998, the Fund incurred MSTC fees of $394. On
October 1, 1998, the Chase Manhattan Bank purchased MSTC.
F-109
<PAGE>
VAN KAMPEN GLOBAL FRANCHISE FUND
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
Certain officers and directors of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or directors who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its directors
who are not officers of Van Kampen. Under the deferred compensation plan,
Directors 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 Director's years of service to the Fund. The maximum annual
benefit per director under the plan is $2,500.
During the year ended June 30, 1999, the Fund incurred $314 as brokerage
commissions with Morgan Stanley & Co. Incorporated, an affiliated broker/dealer.
C. INVESTMENT TRANSACTIONS: For the period ended June 30, 1999, the Fund made
purchases of approximately $2,165,000 and sales of approximately $131,000 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.
D. DERIVATIVE FINANCIAL INSTRUMENTS: A derivative financial instrument in very
general terms refers to a security whose value is "derived" from the value of an
underlying asset, reference rate or index.
The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio and to manage the portfolio's foreign currency exposure. All of the
Fund's portfolio holdings, including derivative instruments, are
marked-to-market each day with the change in value reflected in unrealized
appreciation/depreciation. Upon disposition, a realized gain or loss is
recognized accordingly, except when exercising a call option contract or taking
delivery of a security underlying a forward contract. In this instance, the
recognition of gain or loss is postponed until the disposal of the security
underlying the option or forward contract. Risks may arise as a result of the
potential inability of the counterparties to meet the terms of their contracts.
Summarized below are the specific types of derivative financial instruments used
by the Fund.
1. FORWARD CURRENCY CONTRACTS: These instruments are commitments to purchase or
sell a foreign currency at a future date at a negotiated forward rate. The gain
or loss arising from the difference between the original value of the contract
and the closing value of such contract is included as a component of realized
gain/loss on foreign currency transactions.
At June 30, 1999, the Fund has outstanding forward currency contracts as
follows:
<TABLE>
<CAPTION>
UNREALIZED
CURRENT APPRECIATION/
VALUE DEPRECIATION
FORWARD CURRENCY CONTRACTS (000) (000)
- -------------------------- -------- -------------
<S> <C> <C>
SHORT CONTRACTS:
Euro,
100,000 expiring 11/10/99............. $104 $ 5
British Pounds,
235,000 expiring 11/10/99............. 371 13
---- ---
$475 $18
==== ===
</TABLE>
F-110
<PAGE>
VAN KAMPEN HIGH YIELD & TOTAL RETURN FUND
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of Van Kampen Series Fund, Inc.--
Van Kampen High Yield & Total Return Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Van Kampen High Yield & Total
Return Fund (the "Fund", a fund of Van Kampen Series Fund, Inc.) at June 30,
1999, the results of its operations, the changes in its net assets and the
financial highlights for each of the periods presented, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at June 30, 1999 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PRICEWATERHOUSECOOPERS LLP
200 E. Randolph Dr.
Chicago, Illinois 60601
August 6, 1999
F-111
<PAGE>
VAN KAMPEN HIGH YIELD & TOTAL RETURN FUND
PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
PAR
VALUE VALUE
(000) (000)
<C> <S> <C>
- -------------------------------------------------------------------
CORPORATE BONDS & NOTES (89.3%)
AEROSPACE & DEFENSE (1.6%)
$ 200 Jet Equipment Trust, Series C-1,
11.79%, 6/15/13..................... $ 248
(b)300 Jet Equipment Trust, Series 1995-D,
11.44%, 11/1/14..................... 369
-------
617
-------
AUTOMOTIVE (1.0%)
(b)405 Hayes Lemmerz International 8.25%,
12/15/08............................ 385
-------
BROADCAST--RADIO & TELEVISION (3.8%)
575 Chancellor Media Corp., Series B,
8.125%, 12/15/07.................... 558
180 Chancellor Media Corp. 9.00%,
10/1/08............................. 182
(b)240 RBS Participacoes S.A. 11.00%,
4/1/07.............................. 161
775 TV Azteca S.A. de CV, Series B,
10.50%, 2/15/07..................... 583
-------
1,484
-------
BUILDING MATERIALS & COMPONENTS (1.7%)
275 American Standard Cos., Inc. 7.375%,
2/1/08.............................. 258
(b)410 Nortek, Inc. 8.875%, 8/1/08........... 404
-------
662
-------
CABLE TELEVISION (3.9%)
200 Adelphia Communications, Series B,
7.50%, 1/15/04...................... 191
125 Adelphia Communications, Series B,
9.875%, 3/1/07...................... 130
165 Adelphia Communications, Series B,
8.375%, 2/1/08...................... 159
255 CSC Holdings, Inc. 9.875%, 5/15/06.... 271
125 CSC Holdings, Inc. 7.25%, 7/15/08..... 118
290 Lenfest Communications, Inc. 8.375%,
11/1/05............................. 307
300 Rogers Cablesystems Ltd., Series B,
10.00%, 3/15/05..................... 323
-------
1,499
-------
CAPITAL GOODS/CONSTRUCTION (1.1%)
460 D.R. Horton, Inc. 8.00%, 2/1/09....... 432
-------
CHEMICALS (3.2%)
600 ISP Holdings, Inc., Series B, 9.00%,
10/15/03............................ 598
EUR (b)400 Huntsman ICI Chemicals 10.125%,
7/1/09.............................. 401
$ (b)250 Lyondell Chemical Co. 9.625%,
5/1/07.............................. 255
-------
1,254
-------
COMPUTERS (0.5%)
(d)300 Wam!Net, Inc., Series B, 0.00%,
3/1/05.............................. 177
-------
CONSTRUCTION & MINING (0.6%)
275 Murrin Murrin Holdings 9.375%,
8/31/07............................. 242
-------
ENERGY (3.3%)
395 CMS Energy 7.50%, 1/15/09............. 370
(d)205 Husky Oil Ltd. 8.90%, 8/15/28......... 197
100 Quezon Power Ltd. 8.86%, 6/15/17...... 81
440 Snyder Oil Corp. 8.75%, 6/15/07....... 433
125 Vintage Petroleum 9.75%, 6/30/09...... 128
50 Vintage Petroleum 8.625%, 2/1/09...... 48
-------
1,257
-------
<CAPTION>
PAR
VALUE
(000)
- -------------------------------------------------------------------
<C> <S> <C>
ENVIRONMENTAL CONTROLS (2.2%)
$ 210 Allied Waste of North America 7.875%,
1/1/09.............................. $ 195
(d)600 Norcal Waste Systems, Series B,
13.50%, 11/15/05.................... 663
-------
858
-------
FINANCE (1.0%)
(b,d)180 Fuji JGB Investments LLC, Series A,
9.87%, 12/31/49..................... 157
(b,d)235 SB Treasury Co. LLC 9.40%, 12/29/49... 229
-------
386
-------
FOOD (1.7%)
700 Smithfield Foods, Inc. 7.625%,
2/15/08............................. 637
-------
FOOD SERVICE & LODGING (1.9%)
400 Hilton Hotels 7.95%, 4/15/07.......... 405
335 Host Marriott Travel Plaza, Series B,
9.50%, 5/15/05...................... 344
-------
749
-------
FOREST PRODUCTS & PAPER (1.8%)
215 Asia Pulp & Paper Co., Ltd.,
Series A, 12.00%, 2/15/04........... 141
140 Pindo Deli Fin Mauritius 10.75%,
10/1/07............................. 97
305 SD Warren Co., Series B, 12.00%,
12/15/04............................ 325
145 Tembec Industries, Inc. 8.625%,
6/30/09............................. 144
-------
707
-------
GAMING & LODGING (6.9%)
515 Harrahs Operating Co., Inc. 7.875%,
12/15/05............................ 500
(b)460 Horseshoe Gaming Holdings 8.652%,
5/15/09............................. 445
(b)590 International Game Technology 8.375%,
5/15/09............................. 583
425 Park Place Entertainment 7.875%,
12/15/05............................ 404
405 Station Casinos, Inc. 10.125%,
3/15/06............................. 418
60 Station Casinos, Inc. 9.75%,
4/15/07............................. 61
275 Station Casinos, Inc. 8.875%,
12/1/08............................. 269
-------
2,680
-------
HEALTH CARE SUPPLIES & SERVICES (7.3%)
130 Columbia/HCA Healthcare, 8.13%, 8/4/03
MTN................................. 128
650 Columbia/HCA Healthcare, 6.91%,
6/15/05............................. 601
525 Columbia/HCA Healthcare, 8.85%, 1/1/07
MTN................................. 528
200 Columbia/HCA Healthcare, 7.00%,
7/1/07.............................. 181
275 Columbia/HCA Healthcare, 7.69%,
6/15/25............................. 228
270 Fresenius Medical Capital Trust II
7.875%, 2/1/08...................... 254
920 Tenet Healthcare Corp. 8.625%,
1/15/07............................. 899
-------
2,819
-------
MINING (0.9%)
410 Glencore Nickel Property Ltd. 9.00%,
12/1/14............................. 353
-------
MULTI-INDUSTRY (3.1%)
185 Applied Power, Inc. 8.75%, 4/1/09..... 179
150 Axia, Inc. 10.75%, 7/15/08............ 148
550 Outdoor Systems, Inc., 8.875%,
6/15/07............................. 574
(d)380 PTC International Finance BV 0.00%,
7/1/07.............................. 281
-------
1,182
-------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-112
<PAGE>
VAN KAMPEN HIGH YIELD & TOTAL RETURN FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
PAR
VALUE
(000)
- -------------------------------------------------------------------
<C> <S> <C>
PAPER & PACKAGING (1.8%)
$ 750 Indah Kiat Financial Mauritius 10.00%,
7/1/07.............................. $ 517
170 Norampac, Inc. 9.50%, 2/1/08.......... 174
-------
691
-------
REAL ESTATE (2.1%)
850 HMH Properties, Inc. Series A 7.875%,
8/1/05.............................. 803
-------
RETAIL--GENERAL (4.8%)
375 DR Securitized Lease Trust,
Series 1993-K1, Class A2, 7.43%,
8/15/18............................. 338
436 DR Securitized Lease Trust,
Series 1994-K1, Class A1, 7.60%,
8/15/07............................. 428
100 DR Securitized Lease Trust,
Series 1994-K1, Class A2, 8.375%,
8/15/15............................. 99
150 Fred Meyer, Inc. 7.375%, 3/1/05....... 152
375 Kmart Funding Corp., Series F, 8.80%,
7/1/10.............................. 384
75 Musicland Group, Inc. 9.00%,
6/15/03............................. 73
400 Musicland Group, Inc. 9.875%,
3/15/08............................. 392
-------
1,866
-------
SERVICES (0.6%)
240 CEX Holdings, Inc. 9.625%, 6/1/08..... 226
-------
TECHNOLOGY (1.5%)
(b)150 AST Research, Inc. 7.45%, 10/1/02..... 144
75 Entex Information Services 12.50%,
8/1/06.............................. 45
(b)325 Hyundai Semiconductor 8.625%,
5/15/07............................. 261
(d)240 Rhythms Netconnections, Inc.,
Series B, 0.00%, 5/15/08............ 127
-------
577
-------
TELECOMMUNICATIONS (29.9%)
305 American Cellular Corp. 10.50%,
5/15/08............................. 313
300 American Communications Lines LLC,
Series B, 10.25%, 6/30/08........... 300
300 AMSC Acquisition Co., Inc., Series B,
12.25%, 4/1/08...................... 230
(b)285 Centennial Cellular Holdings 10.75%,
12/15/08............................ 294
(d)90 Dial Call Communications, Series B,
10.25%, 12/15/05.................... 92
275 Dobson Communications Corp. 11.75%,
4/15/07............................. 289
EUR (d)405 Dolphin Telecommunications plc 0.00%,
6/1/08.............................. 202
$ (b)410 Echostar DBS Corp. 9.375%, 2/1/09..... 417
315 Global Crossing Holdings, Ltd. 9.625%,
5/15/08............................. 332
305 Globalstar LP/Capital 11.375%,
2/15/04............................. 201
45 Globalstar LP/Capital 11.50%,
6/1/05.............................. 29
275 Hermes Europe Railtel BV 11.50%,
8/15/07............................. 289
(d)520 Hyperion Telecommunications 0.00%,
4/15/03............................. 430
(d)885 Intermedia Communications, Series B,
0.00%, 7/15/07...................... 632
375 Iridium LLC/Capital Corp., Series A,
13.00%, 7/15/05..................... 75
115 IXC Communications, Inc. 9.00%,
4/15/08............................. 110
150 Lenfest Communications, Inc. 7.625%,
2/15/08............................. 154
205 Metromedia Fiber Network 10.00%,
11/15/08............................ 211
360 Multicanal S.A. 10.50%, 2/1/07........ 296
315 National Steel Corp., Series D,
9.875%, 3/1/09...................... 320
(d)300 Nextel Communications, Inc. 9.75%,
8/15/04............................. 304
<CAPTION>
PAR
VALUE
(000)
- -------------------------------------------------------------------
<C> <S> <C>
$ (d)1700 Nextel Communications, Inc. 0.00%,
9/15/07............................. $ 1,241
(d)590 NEXTLINK Communications, Inc. 0.00%,
4/15/08............................. 353
(b)90 NEXTLINK Communications, Inc. 10.75%,
11/15/08............................ 92
EUR (d)660 NTL, Inc. 0.00%, 4/1/08............... 447
$ (d)400 Occidente Y Caribe 0.00%, 3/15/04..... 268
(b)195 OnePoint Communications Corp., 14.50%,
6/1/08.............................. 106
315 Philippine Long Distance
Telephone Co. 7.85%, 3/6/07......... 269
370 Primus Telecommunications Group,
Series B, 9.875%, 5/15/08........... 351
225 PSINet, Inc., Series B, 10.00%,
2/15/05............................. 224
(d)250 RCN Corp. 0.00%, 10/15/07............. 168
(b,d)370 RCN Corp. 0.00%, 2/15/08.............. 230
150 Rogers Cantel, Inc. 8.30%, 10/1/07.... 148
650 Rogers Communications, Inc. 8.875%,
7/15/07............................. 658
60 Rogers Communications, Inc. 9.125%,
1/15/06............................. 61
17 RSL Communications plc. 12.25%,
11/15/06............................ 18
(d)675 RSL Communications plc 0.00%,
3/1/08.............................. 405
EUR 470 RSL Communications plc 9.125%,
3/1/08.............................. 431
$ 55 Satelites Mexicanos S.A. Series B,
10.125%, 11/1/04.................... 44
EUR (b)160 Tele1 Europe BV 13.00%, 5/15/09....... 166
$ (b)180 Total Access Communications PCL 2.00%,
5/31/06............................. 164
(d)320 Viatel, Inc. Series A 0.00%,
4/15/08............................. 206
-------
11,570
-------
UTILITIES (1.1%)
435 AES Corp. 8.50%, 11/1/07.............. 409
-------
TOTAL CORPORATE BONDS & NOTES........................... 34,522
-------
ASSET BACKED SECURITIES (1.5%)
AEROSPACE & DEFENSE (0.4%)
157 Aircraft Lease Portfolio
Securitization Ltd., Series 1996-1,
Class D, 12.75%, 6/15/06............ 157
-------
FINANCIAL SERVICES (1.1%)
(b)233 CA FM Lease Trust 8.50%, 7/15/17...... 217
226 Commercial Financial Services, Inc.,
Series 1997-5, Class A1 7.72%,
6/15/05............................. 56
(b)122 Federal Mortgage Acceptance
Corporation, Series 1996-B,
Class C, 7.929%, 11/1/18............ 93
71 Long Beach Acceptance Auto Grantor
Trust 1997-1, Class B, 14.22%,
10/26/03............................ 70
-------
436
-------
TOTAL ASSET BACKED SECURITIES........................... 593
-------
FOREIGN GOVERNMENT BONDS (2.5%)
BONDS (2.5%)
(c)693 Republic of Argentina, Series L,
5.938%, 3/31/05..................... 592
470 United Mexican States Par Bond 6.25%,
12/31/19............................ 350
-------
TOTAL FOREIGN GOVERNMENT BONDS.......................... 942
-------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-113
<PAGE>
VAN KAMPEN HIGH YIELD & TOTAL RETURN FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
PAR
VALUE
(000)
- -------------------------------------------------------------------
<C> <S> <C>
PREFERRED STOCKS (2.2%)
BROADCAST--RADIO & TELEVISION (0.7%)
$ (a)3,200 Paxson Communications 11.625%......... $ 288
-------
TELECOMMUNICATIONS (1.5%)
(a)1,819 Concentric Network Corp. 13.50%....... 172
(a,b)1,500 Dobson Communications Corp. 13.00%.... 145
(a)260 IXC Communications, Inc. PIK 9.00%.... 251
-------
568
-------
TOTAL PREFERRED STOCKS.................................. 856
-------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
WARRANTS
<C> <S> <C>
- --------------
WARRANTS (0.5%)
COMPUTERS (0.0%)
(a)9,000 Wam!Net, Inc., expiring 3/1/05........ 21
-------
TECHNOLOGY (0.4%)
(a,b)9,600 Rhythms Netconnections, Inc., expiring
5/15/08............................. 138
-------
TELECOMMUNICATIONS (0.1%)
(a,b)3,000 American Mobile Satellite Corp.,
expiring 4/1/08..................... 11
(a,b)210 Globalstar Telecom, expiring
2/15/04............................. 11
(a,b)16,000 Occidente Y Caribe, expiring
3/15/04............................. 27
(a,b)1,950 OnePoint Communications Corp.,
expiring 6/1/08..................... --
-------
49
-------
TOTAL WARRANTS.......................................... 208
-------
TOTAL LONG-TERM INVESTMENTS (96.0%) (COST $38,915)...... 37,121
-------
</TABLE>
<TABLE>
<CAPTION>
PAR
VALUE
(000)
<C> <S> <C>
- --------------
SHORT-TERM INVESTMENT (2.1%)
REPURCHASE AGREEMENT (2.1%)
$ 797 Chase Securities, Inc. 4.55%, dated
6/30/99, due 7/1/99, to be
repurchased at $797, collaterized by
$740 U.S. Treasury Bonds, 7.250%,
due 5/15/16, valued at $822
(COST $797)......................... 797
-------
TOTAL INVESTMENTS (98.1%) (COST $39,712)................ 37,918
OTHER ASSETS IN EXCESS OF LIABILITIES (1.9%)............ 748
-------
NET ASSETS (100%)....................................... $38,666
=======
</TABLE>
- ---------------
<TABLE>
<S> <C> <C>
(a) -- Non-income producing security
(b) -- 144A Security--Certain conditions for public sale may
exist.
(c) -- Variable/floating rate security--rate disclosed is as of
June 30, 1999.
(d) -- Step Bond--coupon rate increases in increments to
maturity. Rate disclosed is as of June 30, 1999. Maturity
date disclosed is the ultimate maturity date.
EUR -- Euro
MTN -- Medium Term Note
PCL -- Public Company Limited
PIK -- Payment-In-Kind. Income may be received in additional
securities or cash at the discretion of the issuer.
</TABLE>
----------------------------------------------------------------
SUMMARY OF LONG-TERM INVESTMENTS BY COUNTRY
<TABLE>
<CAPTION>
VALUE PERCENT OF
COUNTRY (000) NET ASSETS
- ------- -------- ----------
<S> <C> <C>
United States..................... $28,187 72.9%
Canada............................ 1,705 4.4
Germany........................... 1,397 3.6
Mexico............................ 978 2.5
Argentina......................... 888 2.3
Indonesia......................... 755 2.0
Japan............................. 647 1.7
Australia......................... 595 1.5
United Kingdom.................... 574 1.5
Philippines....................... 350 0.9
Colombia.......................... 295 0.8
Poland............................ 281 0.7
Thailand.......................... 164 0.4
Brazil............................ 161 0.4
Korea............................. 144 0.4
------- ----
$37,121 96.0%
======= ====
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-114
<PAGE>
VAN KAMPEN HIGH YIELD & TOTAL RETURN FUND
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- -------------------------------------------------------------------------
ASSETS:
Investments at Value (Cost $39,712)....................... $37,918
Receivable for:
Interest................................................ 714
Investments Sold........................................ 491
Fund Shares Sold........................................ 48
Deferred Organizational Costs............................. 11
-------
Total Assets............................................ 39,182
-------
LIABILITIES:
Payable for:
Dividends Declared...................................... 242
Bank Overdraft.......................................... 108
Distribution Fees....................................... 56
Fund Shares Redeemed.................................... 35
Professional Fees....................................... 23
Directors' Fees and Expenses............................ 12
Investment Advisory Fees................................ 11
Administrative Fees..................................... 9
Shareholder Reporting Expense........................... 9
Transfer Agent Fees..................................... 6
Custody Fees............................................ 3
Other..................................................... 2
-------
Total Liabilities....................................... 516
-------
NET ASSETS.................................................. $38,666
=======
NET ASSETS CONSIST OF:
Capital Stock at Par ($.001 par value, Shares Authorized
2,625,000,000).......................................... $ 3
Paid in Capital in Excess of Par.......................... 40,797
Accumulated Net Investment Income......................... 95
Distributions in Excess of Net Realized Gain.............. (435)
Unrealized Depreciation on Investments.................... (1,794)
-------
NET ASSETS.................................................. $38,666
=======
CLASS A SHARES:
Net Asset Value and Redemption Price Per Share (Based on
Net Assets of $8,120,144 and 695,094 Shares
Outstanding)............................................ $ 11.68
=======
Maximum Sales Charge...................................... 4.75%
Maximum Offering Price Per Share (Net Asset Value Per
Share x 100/ (100 - maximum sales charge)).............. $ 12.26
=======
CLASS B SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $22,666,658 and 1,944,751 Shares
Outstanding)*........................................... $ 11.66
=======
CLASS C SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $7,878,820 and 675,698 Shares Outstanding)*... $ 11.66
=======
</TABLE>
- ---------------
<TABLE>
<S> <C>
* Redemption price may be subject to a contingent deferred
sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-115
<PAGE>
VAN KAMPEN HIGH YIELD & TOTAL RETURN FUND
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- -------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends................................................. $ 12
Interest.................................................. 3,684
-------
Total Income............................................ 3,696
-------
EXPENSES:
Distribution Fees (Attributed to Classes A, B, and C of
$23, $209, and $82, respectively)....................... 314
Investment Advisory Fees.................................. 288
Administrative Fees....................................... 99
Filing and Registration Fees.............................. 44
Professional Fees......................................... 37
Shareholder Reports....................................... 34
Custodian Fees............................................ 22
Transfer Agent Fees....................................... 22
Directors' Fees and Expenses.............................. 10
Other..................................................... 10
-------
Total Expenses.......................................... 880
Less Expense Reductions................................. (180)
-------
Net Expenses............................................ 700
-------
Net Investment Income/Loss.................................. 2,996
-------
NET REALIZED GAIN/LOSS ON:
Investments............................................... (344)
-------
NET UNREALIZED APPRECIATION/DEPRECIATION:
Beginning of the Period................................... 210
-------
End of the Period
Investments............................................... (1,794)
-------
Net Unrealized Appreciation/Depreciation During the
Period.................................................... (2,004)
-------
Net Realized Gain/Loss and Net Unrealized
Appreciation/Depreciation................................. (2,348)
-------
NET INCREASE/DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................................ $ 648
=======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-116
<PAGE>
VAN KAMPEN HIGH YIELD & TOTAL RETURN FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1999 JUNE 30, 1998
(000) (000)
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------
INCREASE/DECREASE IN NET ASSETS
OPERATIONS:
Net Investment Income/Loss................................ $ 2,996 $ 1,701
Net Realized Gain/Loss.................................... (344) 1,119
Net Unrealized Appreciation /Depreciation................. (2,004) (585)
------------- -------------
Net Increase/Decrease in Net Assets Resulting from
Operations.............................................. 648 2,235
------------- -------------
DISTRIBUTIONS:
Net Investment Income:
Class A................................................... (749) (525)
Class B................................................... (1,540) (854)
Class C................................................... (603) (343)
------------- -------------
(2,892) (1,722)
------------- -------------
Net Realized Gain:
Class A................................................... (61) (236)
Class B................................................... (152) (415)
Class C................................................... (59) (120)
In Excess of Net Realized Gain:
Class A................................................... (97) --
Class B................................................... (244) --
Class C................................................... (94) --
------------- -------------
(707) (771)
------------- -------------
Net Decrease in Net Assets Resulting from Distributions..... (3,599) (2,493)
------------- -------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed................................................ 27,018 32,419
Distributions Reinvested.................................. 2,061 1,273
Redeemed.................................................. (21,840) (21,623)
------------- -------------
Net Increase/Decrease in Net Assets Resulting from Capital
Share Transactions...................................... 7,239 12,069
------------- -------------
Total Increase/Decrease in Net Assets..................... 4,288 11,811
NET ASSETS--Beginning of Period............................. 34,378 22,567
------------- -------------
NET ASSETS--End of Period (Including accumulated net
investment income of $95 and $36, respectively)........... $ 38,666 $ 34,378
============= =============
- ----------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
(1) Class A:
----------
Shares:
Subscribed............................................. 1,215 786
Distributions Reinvested............................... 43 33
Redeemed............................................... (1,180) (900)
------------- -------------
Net Increase/Decrease in Class A Shares Outstanding...... 78 (81)
============= =============
Dollars:
Subscribed............................................. $ 14,702 $ 10,149
Distributions Reinvested............................... 520 420
Redeemed............................................... (14,249) (11,731)
------------- -------------
Net Increase/Decrease.................................... $ 973 $ (1,162)
============= =============
Ending Paid in Capital................................... $ 8,385+ $ 7,412
============= =============
Class B:
----------
Shares:
Subscribed............................................. 768 1,167
Distributions Reinvested............................... 89 48
Redeemed............................................... (371) (427)
------------- -------------
Net Increase/Decrease in Class B Shares Outstanding...... 486 788
============= =============
Dollars:
Subscribed............................................. $ 9,251 $ 15,056
Distributions Reinvested............................... 1,068 615
Redeemed............................................... (4,454) (5,588)
------------- -------------
Net Increase/Decrease.................................... $ 5,865 $ 10,083
============= =============
Ending Paid in Capital................................... $ 24,185+ $ 18,320
============= =============
Class C:
----------
Shares:
Subscribed............................................. 255 562
Distributions Reinvested............................... 40 19
Redeemed............................................... (264) (323)
------------- -------------
Net Increase/Decrease in Class C Shares Outstanding...... 31 258
============= =============
Dollars:
Subscribed............................................. $ 3,065 $ 7,214
Distributions Reinvested............................... 473 238
Redeemed............................................... (3,137) (4,304)
------------- -------------
Net Increase/Decrease.................................... $ 401 $ 3,148
============= =============
Ending Paid in Capital................................... $ 8,227+ $ 7,826
============= =============
</TABLE>
- -----------------
<TABLE>
<S> <C>
+ Ending Paid in Capital amounts do not reflect permanent book
to tax differences.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-117
<PAGE>
VAN KAMPEN HIGH YIELD & TOTAL RETURN FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B
---------------------------------------------- ---------------------------
YEAR ENDED JUNE 30, YEAR ENDED JUNE 30,
--------------------------- MAY 1, 1996* TO ---------------------------
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# 1997 JUNE 30, 1996 1999# 1998# 1997
<S> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD.............. $12.661 $ 12.86 $ 11.92 $ 12.00 $12.630 $ 12.86 $ 11.93
------- ------- ------- ---------------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss... 1.006 0.97 1.07 0.13 0.912 0.87 0.98
Net Realized and Unrealized
Gain/Loss......... (0.790) 0.35 0.99 (0.09) (0.776) 0.34 0.99
------- ------- ------- ---------------- ------- ------- -------
Total From Investment
Operations........ 0.216 1.32 2.06 0.04 0.136 1.21 1.97
------- ------- ------- ---------------- ------- ------- -------
DISTRIBUTIONS
Net Investment Income... (0.967) (0.97) (1.07) (0.12) (0.883) (0.89) (0.99)
Net Realized Gain... (0.088) (0.55) (0.05) -- (0.088) (0.55) (0.05)
In Excess of Net Realized
Gain.............. (0.140) -- -- -- (0.140) -- --
------- ------- ------- ---------------- ------- ------- -------
Total Distributions... (1.195) (1.52) (1.12) (0.12) (1.111) (1.44) (1.04)
------- ------- ------- ---------------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD... $11.682 $ 12.66 $ 12.86 $ 11.92 $11.655 $ 12.63 $ 12.86
======= ======= ======= ================ ======= ======= =======
TOTAL RETURN (1)...... 1.90% 10.81% 18.12% 0.29%** 1.28% 9.86% 17.22%
======= ======= ======= ================ ======= ======= =======
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's)............. $ 8,120 $ 7,813 $ 8,980 $ 3,907 $22,667 $18,420 $ 8,617
Ratio of Expenses to Average Net
Assets.............. 1.25% 1.25% 1.25% 1.25% 2.00% 2.00% 2.00%
Ratio of Net Investment
Income/Loss to Average Net
Assets.............. 8.39% 7.42% 8.83% 6.85% 7.63% 6.70% 7.99%
Portfolio Turnover Rate... 41% 81% 104% 10%** 41% 81% 104%
- -------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income/Loss... $ 0.06 $ 0.08 $ 0.10 $ 0.04 $ 0.06 $ 0.08 $ 0.10
Ratios Before Expense Limitation:
Expenses to Average Net
Assets............ 1.72% 1.89% 2.04% 3.51% 2.48% 2.64% 2.82%
Net Investment Income/Loss to
Average Net Assets... 7.93% 6.78% 8.04% 4.59% 7.16% 6.04% 7.17%
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
----------------
MAY 1, 1996* TO
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1996
<S> <C>
- ----------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD.............. $ 12.00
----------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss... 0.12
Net Realized and Unrealized
Gain/Loss......... (0.09)
----------------
Total From Investment
Operations........ 0.03
----------------
DISTRIBUTIONS
Net Investment Income... (0.10)
Net Realized Gain... --
In Excess of Net Realized
Gain.............. --
----------------
Total Distributions... (0.10)
----------------
NET ASSET VALUE, END OF PERIOD... $ 11.93
================
TOTAL RETURN (1)...... 0.21%**
================
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's)............. $ 3,421
Ratio of Expenses to Average Net
Assets.............. 2.00%
Ratio of Net Investment
Income/Loss to Average Net
Assets.............. 6.08%
Portfolio Turnover Rate... 10%**
- -------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income/Loss... $ 0.04
Ratios Before Expense Limitation:
Expenses to Average Net
Assets............ 4.25%
Net Investment Income/Loss to
Average Net Assets... 3.83%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS C
----------------------------------------------
YEAR ENDED JUNE 30,
--------------------------- MAY 1, 1996* TO
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# 1997 JUNE 30, 1996
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD........................ $12.634 $ 12.86 $ 11.93 $ 12.00
------- ------- ------- ----------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income /Loss............................... 0.912 0.86 0.99 0.12
Net Realized and Unrealized Gain/Loss..................... (0.775) 0.35 0.98 (0.09)
------- ------- ------- ----------------
Total From Investment Operations.......................... 0.137 1.21 1.97 0.03
------- ------- ------- ----------------
DISTRIBUTIONS
Net Investment Income..................................... (0.883) (0.89) (0.99) (0.10)
Net Realized Gain......................................... (0.088) (0.55) (0.05) --
In Excess of Net Realized Gain............................ (0.140) -- -- --
------- ------- ------- ----------------
Total Distributions....................................... (1.111) (1.44) (1.04) (0.10)
------- ------- ------- ----------------
NET ASSET VALUE, END OF PERIOD.............................. $11.660 $ 12.63 $ 12.86 $ 11.93
======= ======= ======= ================
TOTAL RETURN (1)............................................ 1.28% 9.86% 17.21% 0.21%**
======= ======= ======= ================
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)........................... $ 7,879 $ 8,145 $ 4,970 $ 3,316
Ratio of Expenses to Average Net Assets..................... 2.00% 2.00% 2.00% 2.00%
Ratio of Net Investment Income/Loss to Average Net Assets... 7.61% 6.63% 8.03% 6.07%
Portfolio Turnover Rate..................................... 41% 81% 104% 10%**
- ------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the Period
Per Share Benefit to Net Investment Income/Loss........... $ 0.06 $ 0.08 $ 0.11 $ 0.04
Ratios Before Expense Limitation:
Expenses to Average Net Assets............................ 2.48% 2.64% 2.88% 4.25%
Net Investment Income/Loss to Average Net Assets.......... 7.14% 6.01% 7.15% 3.82%
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
* Commencement of operations
** Non-Annualized
(1) Total return is calculated exclusive of sales charges or
deferred sales charges.
# Changes per share are based upon monthly average shares
outstanding.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-118
<PAGE>
VAN KAMPEN HIGH YIELD & TOTAL RETURN FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
The Van Kampen High Yield & Total Return Fund (the "Fund") is organized as a
separate diversified fund of Van Kampen Series Fund, Inc., a Maryland
Corporation, which is registered as an open-end management investment Company
under the Investment Company Act of 1940, as amended. The Fund's investment
objective seeks to maximize total return by investing in a diversified portfolio
of high-yield, high-risk income that offer a yield above what is generally
available on debt securities in the four highest categories of the recognized
rating services. The Fund commenced operations on May 1, 1996.
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
4.75%. 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 and Class C
shares are offered without a front end sales charge, but are subject to a
contingent deferred sales charge ("CDSC"). Class B shares will automatically
convert to Class A shares after the eighth year following purchase. The CDSC
will be imposed on most redemptions made within five years of the purchase for
Class B shares and one year of the purchase for Class C shares as detailed in
the following schedule:
<TABLE>
CONTINGENT DEFERRED
SALES CHARGE
YEAR OF REDEMPTION CLASS B CLASS C
- --------------------------------------------- ----- -----
<S> <C> <C>
First........................................ 4.00% 1.00%
Second....................................... 4.00% None
Third........................................ 3.00% None
Fourth....................................... 2.50% None
Fifth........................................ 1.50% None
Thereafter................................... None None
</TABLE>
All three classes of shares have identical voting, dividend, liquidation and
other rights.
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. 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.
At June 30, 1999, approximately 86% of the net assets of the Fund 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 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. SECURITY TRANSACTIONS: Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund may invest in repurchase agreements, which are short-term investments in
which the Fund acquires ownership of a debt security and the seller agrees to
repurchase the security at a future time and specified price. Repurchase
agreements are fully collateralized by the underlying debt security. 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.
3. INCOME AND EXPENSES: Dividend income is recorded on the ex-dividend date.
Interest income is recognized on an 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. 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 Fund are recorded on the ex-distribution date.
4. ORGANIZATIONAL COSTS: The organizational costs of the Fund are being
amortized on a straight line basis over a
F-119
<PAGE>
VAN KAMPEN HIGH YIELD & TOTAL RETURN FUND
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
period of five years beginning with the Fund's commencement of operations. The
Adviser has agreed that in the event any of the initial shares of the Fund
originally purchased by Van Kampen are redeemed by the Fund during the
amortization period, the Fund will be reimbursed for any unamortized
organizational costs in the same proportion as the number of shares redeemed
bears to the number of initial shares at the time of redemption.
5. TAXES: It is the Fund's intention to qualify as a regulated investment
company and distribute substantially all of its taxable income. Accordingly, no
provision for U.S. Federal income taxes is required in the financial statements.
Net capital losses incurred after October 31 and within the taxable year are
deemed to arise on the first business day of the Fund's next taxable year. For
the period from November 1, 1998 to June 30, 1999 the Fund incurred and elected
to defer until July 1, 1999, for U.S. Federal income tax purposes, net capital
losses of approximately $435,000.
At June 30, 1999, cost and unrealized appreciation/ depreciation for U.S.
Federal income tax purposes of the investments of the Fund was:
<TABLE>
<CAPTION>
NET
APPRECIATION/
COST APPREC. DEPREC. DEPRECIATION
(000) (000) (000) (000)
- --------------------- ------------ ------------ -------------
<S> <C> <C> <C>
$39,712 $614 $(2,408) $(1,794)
</TABLE>
6. DISTRIBUTION OF INCOME AND GAINS: 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.
Permanent book to tax basis differences relating to shareholder distributions
may result in reclassification among accumulated net investment income/loss,
accumulated net realized gain/loss, and paid in capital in excess of par. For
the year ended June 30, 1999, approximately $45,000 has been reclassified from
accumulated net investment income with approximately $42,000 posted to
distributions in excess of net realized gain and approximately $3,000 posted to
paid in capital in excess of par.
Permanent book to tax basis differences are not included in ending
undistributed/distributions in excess of net investment income for the purpose
of calculating net investment income/loss per share in the Financial Highlights.
B. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES: Van
Kampen Investment Advisory Corp. (the "Adviser"), a wholly owned subsidiary of
Van Kampen Investments Inc. (an indirect wholly owned subsidiary of Morgan
Stanley Dean Witter & Co.), Morgan Stanley Dean Witter Investment
Management Inc. ("MSDWIM" or a "Subadviser"), 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 Fund, 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
ADVISORY FEE EXPENSE RATIO EXPENSE RATIO
- --------------------- ----------------- -----------------
<S> <C> <C>
0.75% 1.25% 2.00%
</TABLE>
For the year ended June 30, 1999, the Fund recognized expenses of approximately
$1,000 representing legal services provided by Skadden, Arps, Slate, Meagher &
Flom (Illinois), counsel to the Fund, of which a director of the Fund is an
affiliated person.
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 Fund, 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 Adviser.
Van Kampen Funds Inc. the ("Distributor") a wholly owned subsidiary of Van
Kampen Investments Inc., an indirect 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 Fund 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% of the Class B shares and Class C shares of the Fund, on
an annualized basis, of the average daily net assets attributable to each Class.
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 shares and Class C shares of the Fund
redeemed within one to five years following such purchase. For the year ended
June 30, 1999, the Distributor has advised the Fund that it earned initial sales
charges of $65,881 for Class A shares and deferred sales charges of $49,073 and
$6,313 for Class B shares and Class C shares, respectively.
F-120
<PAGE>
VAN KAMPEN HIGH YIELD & TOTAL RETURN FUND
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
Prior to October 1, 1998, the Fund's assets held outside the United States were
held by Morgan Stanley Company ("MSTC"), a former affiliate of the Subadvisers.
On October 1, 1998, the Chase Manhattan purchased MSTC.
Certain officers and directors of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or directors who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its directors
who are not officers of Van Kampen. Under the deferred compensation plan,
Directors 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 Director's years of service to the Fund. The maximum annual
benefit per director under the plan is $2,500.
C. INVESTMENT TRANSACTIONS: For the year ended June 30, 1999, the Fund made
purchases of approximately $25,944,000 and sales of approximately $14,451,000 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.
F-121
<PAGE>
VAN KAMPEN INTERNATIONAL MAGNUM FUND
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of Van Kampen Series Fund, Inc.--
Van Kampen International Magnum Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Van Kampen International Magnum
Fund (the "Fund", a fund of Van Kampen Series Fund, Inc.) at June 30, 1999, the
results of its operations, the changes in its net assets and the financial
highlights for each of the periods presented, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at June 30, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
200 E. Randolph Dr.
Chicago, Illinois 60601
August 6, 1999
F-122
<PAGE>
VAN KAMPEN INTERNATIONAL MAGNUM FUND
PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- --------------------------------------------------------------------
COMMON STOCKS (97.8%)
AUSTRALIA (2.8%)
AMP Ltd.................................. 8,250 $ 90
Brambles Industries Ltd.................. 5,000 131
Broken Hill Proprietary Co., Ltd......... 17,750 205
Cable & Wireless Optus Ltd............... 36,900 84
Colonial Ltd............................. 25,550 90
Fosters Brewing Group Ltd................ 64,900 182
Lend Lease Corp., Ltd.................... 13,800 189
National Australia Bank Ltd.............. 24,300 401
News Corp., Ltd.......................... 37,740 321
Normandy Mining Ltd...................... 71,300 47
Oil Search Ltd........................... 58,200 86
Quantas Airlines......................... 36,400 120
Rio Tinto Ltd............................ 17,150 280
Telstra Corp., Ltd....................... 74,950 428
Westpac Banking Corp., Ltd............... 40,150 259
WMC Ltd.................................. 16,950 72
--------
2,985
--------
BELGIUM (0.2%)
Fortis 'B'............................... 6,400 201
--------
DENMARK (1.2%)
Nova Nordisk A/S 'B'..................... 9,110 983
Unidanmark A/S 'A' (Registered).......... 4,300 287
--------
1,270
--------
FINLAND (2.2%)
KCI Konecranes International plc......... 9,370 322
Kone Oyj 'B'............................. 3,285 411
Merita Ltd. 'A' plc...................... 166,970 950
Sampo Insurance Co., Ltd. 'A'............ 24,580 713
--------
2,396
--------
FRANCE (10.3%)
Alcatel Alsthom.......................... 4,380 617
Axa...................................... 3,710 453
Cie de Saint Gobain...................... 5,492 876
(a)CNP Assurances........................ 47,350 1,295
Elf Aquitaine............................ 5,180 761
Groupe Danone RFD........................ 2,793 721
Michelin (C.G.D.E.) 'B'.................. 24,930 1,021
Pernod-Ricard............................ 15,110 1,014
Rhone-Poulenc S.A. 'A'................... 20,400 934
Suez Lyonnaise des Eaux.................. 2,200 397
Schneider S.A............................ 21,630 1,216
(a)Total S.A. 'B'........................ 14,110 1,823
--------
11,128
--------
GERMANY (5.9%)
Adidas-Salomon AG........................ 5,250 512
BASF AG.................................. 21,260 935
Bayer AG................................. 19,200 1,223
Bewag AG................................. 20,907 324
Hoechst AG............................... 20,000 902
Mannesmann AG............................ 1,740 261
Schering AG.............................. 8,660 926
Siemens AG............................... 3,150 243
Volkswagen AG............................ 15,270 987
--------
6,313
--------
HONG KONG (2.7%)
Cathay Pacific Airways Ltd............... 55,900 86
Cheung Kong Holdings Ltd................. 67,500 600
China Telecom Ltd........................ 103,500 288
Dao Heng Bank Group Ltd.................. 19,000 85
Hong Kong & Shanghai Bank Holdings plc... 7,400 270
Hong Kong Telecommunications Ltd......... 106,600 277
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
Hutchison Whampoa Ltd.................... 50,600 $ 458
Li & Fung Ltd............................ 55,900 134
New World Development Co. Ltd............ 22,000 66
SmarTone Telecom Holdings Ltd............ 34,300 122
Sun Hung Kai Properties Ltd.............. 39,300 358
Swire Pacific Ltd. 'A'................... 30,000 149
Television Broadcasts Ltd................ 12,000 56
--------
2,949
--------
IRELAND (1.3%)
Bank of Ireland.......................... 60,004 1,010
Greencore Group plc...................... 127,000 393
--------
1,403
--------
ITALY (3.5%)
Banca Popolare di Bergamo S.p.A.......... 44,660 982
Marzotto (Gaetano) & Figli S.p.A......... 53,300 415
Mediaset S.p.A........................... 105,500 939
Telecom Italia S.p.A..................... 140,000 1,457
--------
3,793
--------
JAPAN (24.9%)
Aiwa Co., Ltd............................ 8,000 265
Amada Co., Ltd........................... 53,000 375
Canon, Inc............................... 29,000 835
Casio Computer Co., Ltd.................. 35,000 266
Dai Nippon Printing Co., Ltd............. 26,000 416
Daicel Chemical Industries Ltd........... 96,000 353
Daifuku Co., Ltd......................... 51,000 357
Daikin Industries Ltd.................... 46,000 535
FamilyMart Co., Ltd...................... 7,200 331
Fuji Machine Manufacturing Co............ 19,000 586
Fuji Photo Film Co....................... 20,000 758
Fujitec Co. Ltd.......................... 32,000 304
Fujitsu Ltd.............................. 54,000 1,088
Furukawa Electric Co., Ltd............... 77,000 354
Hitachi Credit Corp...................... 19,700 390
Hitachi Ltd.............................. 109,000 1,023
Kaneka Corp.............................. 66,000 622
Kurita Water Industries Ltd.............. 22,000 395
Kyocera Corp............................. 8,400 493
Kyudenko Co., Ltd........................ 25,000 143
Lintec Corp.............................. 20,000 201
Matsushita Electric Industrial Co.,
Ltd.................................... 36,000 700
Minebea Co., Ltd......................... 36,000 402
Mitsubishi Chemical Corp................. 90,000 312
Mitsubishi Estate Co., Ltd............... 40,000 391
Mitsubishi Heavy Industries Ltd.......... 97,000 394
Mitsumi Electric Co., Ltd................ 25,000 699
NEC Corp................................. 77,000 959
Nifco, Inc............................... 25,000 241
Nintendo Corp., Ltd...................... 8,300 1,168
Nippon Telegraph & Telephone Corp. ADR... 78 910
Nissan Motor Co., Ltd.................... 150,000 717
Nissha Printing Co., Ltd................. 20,000 146
Ono Pharmaceutical Co., Ltd.............. 15,000 521
Ricoh Co., Ltd........................... 70,000 965
Rinnai Corp.............................. 13,900 320
Rohm Co.................................. 3,000 470
Ryosan Co................................ 10,000 199
Sangetsu Co., Ltd........................ 9,000 192
Sankyo Co., Ltd.......................... 32,000 807
Sanwa Shutter Corp....................... 44,000 239
Sekisui Chemical Co...................... 42,000 244
Sekisui House Ltd........................ 34,000 367
Shin-Etsu Polymer Co., Ltd............... 44,000 247
Sony Corp................................ 8,400 907
Suzuki Motor Co., Ltd.................... 31,000 494
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-123
<PAGE>
VAN KAMPEN INTERNATIONAL MAGNUM FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
TDK Corp................................. 8,000 $ 733
Toshiba Corp............................. 133,000 950
Toyota Motor Corp........................ 21,000 665
Tsubakimoto Chain Co..................... 76,000 271
Yamaha Corp.............................. 30,000 361
Yamanouchi Pharmaceutical Co............. 21,000 804
--------
26,885
--------
NETHERLANDS (4.2%)
ABN Amro Holdings N.V.................... 10,200 221
Akzo Nobel N.V........................... 32,315 1,362
Benckiser N.V. 'B'....................... 7,900 422
ING Groep N.V............................ 27,573 1,495
Laurus N.V............................... 6,150 143
Philips Electonics N.V................... 9,075 896
--------
4,539
--------
NEW ZEALAND (0.1%)
Telecom Corp. of New Zealand Ltd......... 30,000 129
--------
PORTUGAL (1.0%)
Banco Comercial Portugues S.A.
(Registered)........................... 2,600 68
Electricidade de Portugal S.A............ 54,150 976
--------
1,044
--------
SINGAPORE (1.8%)
City Developments Ltd.................... 25,900 166
Development Bank of Singapore Ltd.
(Foreign).............................. 28,000 342
NatSteel Ltd............................. 40,000 175
Oversea-Chinese Banking Corp., Ltd.
(Foreign).............................. 17,000 142
Overseas Union Bank Ltd. (Foreign)....... 23,000 111
Sembcorp Logistics Ltd................... 19,000 75
Singapore Airlines Ltd. (Foreign)........ 22,000 209
Singapore Press Holdings Ltd............. 15,000 255
Singapore Telecommunications Ltd......... 87,000 149
United Overseas Bank Ltd. (Foreign)...... 17,000 119
Venture Manufacturing Ltd................ 24,000 185
--------
1,928
--------
SPAIN (3.4%)
Banco Popular Espanol S.A................ 6,310 455
Banco Santander Central Hispano S.A...... 42,000 438
Endesa S.A............................... 34,300 732
Iberdrola S.A............................ 50,800 775
(a)Telefonica de Espana.................. 25,320 1,221
--------
3,621
--------
SWEDEN (4.0%)
Autoliv, Inc. SDR........................ 29,000 887
Ericsson LM 'B'.......................... 8,850 285
ForeningsSparbanken AB................... 6,900 98
Nordbanken Holding AB.................... 160,200 940
Svedala Industri AB...................... 50,000 903
Svenska Handelsbanken 'A'................ 101,100 1,217
--------
4,330
--------
SWITZERLAND (8.6%)
Cie Financiere Richemont AG 'A'.......... 1,238 2,386
Holderbank Financiere Glarus AG 'B'
(Bearer)............................... 982 1,161
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
Nestle S.A. (Registered)................. 1,275 $ 2,302
Novartis AG (Registered)................. 470 688
Roche Holding AG-Genusshein.............. 68 700
Schindler Holding AG (Registered)........ 269 416
Swisscom AG (Registered)................. 2,110 795
Union Bank of Switzerland AG
(Registered)........................... 2,900 867
--------
9,315
--------
UNITED KINGDOM (19.7%)
Aegis Group plc.......................... 270,280 597
Allied Domecq plc........................ 110,800 1,070
Allied Zurich plc........................ 91,400 1,150
BG plc................................... 148,428 907
BOC Group plc............................ 49,250 963
British Telecommunications plc........... 90,800 1,523
Burmah Castrol plc....................... 40,217 764
Capital Radio plc........................ 75,000 994
Centrica plc............................. 227,790 535
Diageo plc............................... 66,983 700
Glaxo Wellcome plc....................... 13,400 373
Great Universal Stores plc............... 102,670 1,139
Halma plc................................ 417,400 698
Imperial Tobacco Group plc............... 106,300 1,160
Lloyds TSB Group plc..................... 47,400 643
Morgan Crucible Co. plc.................. 107,300 454
Prudential Corp. plc..................... 66,100 974
Reckitt & Colman plc..................... 138,768 1,448
Royal & Sun Alliance Insurance Group
plc.................................... 73,977 664
Royal Bank of Scotland Group plc......... 61,082 809
Sainsbury (J) plc........................ 62,000 391
Scottish & Southern Energy plc........... 102,400 1,048
Shell Transport & Trading Co. plc........ 66,400 498
Smith & Nephew plc....................... 50,900 155
SSL International plc.................... 36,400 418
Tesco plc................................ 128,300 330
WPP Group plc............................ 99,600 843
--------
21,248
--------
TOTAL COMMON STOCKS..................................... 105,477
--------
PREFERRED STOCKS (1.8%)
GERMANY (1.8%)
Fresenius AG............................. 7,915 1,389
Henkel KGaA AG........................... 8,300 581
--------
1,970
--------
TOTAL LONG-TERM INVESTMENTS (99.6%) (COST $99,365)...... 107,447
--------
FOREIGN CURRENCY (1.7%) (COST $1,799)................... 1,793
--------
TOTAL INVESTMENTS (101.3%) (COST $101,164).............. 109,240
LIABILITIES IN EXCESS OF OTHER ASSETS (-1.3%)........... (1,384)
--------
NET ASSETS (100%)....................................... $107,856
========
</TABLE>
- ---------------
<TABLE>
<S> <C> <C>
(a) -- Non-income producing security
ADR -- American Depositary Receipt
RFD -- Ranked for Dividend
SDR -- Swedish Depositary Receipt
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-124
<PAGE>
VAN KAMPEN INTERNATIONAL MAGNUM FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
- --------------------------------------------------------------------------------
SUMMARY OF LONG-TERM INVESTMENTS BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
- -------- -------- ----------
<S> <C> <C>
Consumer Goods.............................................. $ 31,260 29.0%
Finance..................................................... 21,222 19.7
Capital Equipment........................................... 18,558 17.2
Services.................................................... 15,655 14.5
Materials................................................... 10,462 9.7
Energy...................................................... 9,435 8.7
Multi-Industry.............................................. 855 0.8
-------- ----
$107,447 99.6%
======== ====
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-125
<PAGE>
VAN KAMPEN INTERNATIONAL MAGNUM FUND
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
(000)
- --------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments at Value (Cost $99,365)....................... $107,447
Foreign Currency (Cost $1,799)............................ 1,793
Margin Deposit on Futures................................. 701
Receivable for:
Investments Sold........................................ 734
Dividends............................................... 320
Fund Shares Sold........................................ 294
Foreign Withholding Tax Reclaim......................... 90
Net Unrealized Gain on Foreign Currency Exchange
Contracts............................................... 8
Other..................................................... 20
--------
Total Assets............................................ 111,407
--------
LIABILITIES:
Payable for:
Custodian Overdraft..................................... 1,666
Investments Purchased................................... 1,362
Fund Shares Redeemed.................................... 165
Distribution Fees....................................... 123
Custody Fees............................................ 65
Investment Advisory Fees................................ 65
Administrative Fees..................................... 25
Professional Fees....................................... 24
Transfer Agent Fees..................................... 21
Shareholder Reporting Expense........................... 19
Directors' Fees and Expenses............................ 14
Other..................................................... 2
--------
Total Liabilities....................................... 3,551
--------
NET ASSETS.................................................. $107,856
========
NET ASSETS CONSIST OF:
Capital Stock at Par ($.001 par value, Shares Authorized
2,625,000,000).......................................... $ 8
Paid in Capital in Excess of Par.......................... 106,226
Net Unrealized Appreciation on Investments and Foreign
Currency Translations................................... 8,068
Distributions in Excess of Net Investment Income.......... (23)
Accumulated Net Realized Loss............................. (6,423)
--------
NET ASSETS.................................................. $107,856
========
CLASS A SHARES:
Net Asset Value and Redemption Price Per Share (Based on
Net Assets of $45,573,218 and 3,358,578 Shares
Outstanding)............................................ $ 13.57
========
Maximum Sales Charge...................................... 5.75%
Maximum Offering Price Per Share (Net Asset Value Per
Share X 100 / (100 - maximum sales charge))............. $ 14.40
========
CLASS B SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $48,095,622 and 3,571,823 Shares
Outstanding)*........................................... $ 13.47
========
CLASS C SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $14,187,085 and 1,049,263 Shares
Outstanding)*........................................... $ 13.52
========
</TABLE>
- ---------------
<TABLE>
<S> <C>
* Redemption price may be subject to a contingent deferred
sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-126
<PAGE>
VAN KAMPEN INTERNATIONAL MAGNUM FUND
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1999
<TABLE>
(000)
- -------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividends................................................. $ 2,262
Interest.................................................. 441
Less Foreign Taxes Withheld............................... (256)
-------
Total Income............................................. 2,447
-------
EXPENSES:
Investment Advisory Fees.................................. 943
Distribution Fees (Attributed to Classes A, B, and C of
$138, $482, and $144, respectively)..................... 764
Administrative Fees....................................... 318
Custodian Fees............................................ 139
Transfer Agent Fees....................................... 116
Shareholder Reports....................................... 66
Professional Fees......................................... 43
Filing and Registration Fees.............................. 40
Directors' Fees and Expenses.............................. 11
Amortization of Organizational Costs...................... 8
Other..................................................... 32
-------
Total Expenses........................................... 2,480
Less Expense Reductions.................................. (39)
-------
Net Expenses............................................. 2,441
-------
Net Investment Income/Loss.................................. 6
-------
NET REALIZED GAIN/LOSS ON:
Investments............................................... (5,131)
Foreign Currency Transactions............................. (1,176)
Futures................................................... (544)
-------
Net Realized Gain/Loss................................... (6,851)
-------
NET UNREALIZED APPRECIATION/DEPRECIATION:
Beginning of the Period................................... 10,250
-------
End of the Period:
Investments............................................. 8,082
Foreign Currency Translations........................... (14)
-------
8,068
-------
Net Unrealized Appreciation/Depreciation During the
Period.................................................... (2,182)
-------
Net Realized Gain/Loss and Net Unrealized
Appreciation/Depreciation................................. (9,033)
-------
NET INCREASE/DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................................ $(9,027)
=======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-127
<PAGE>
VAN KAMPEN INTERNATIONAL MAGNUM FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1999 JUNE 30, 1998
(000) (000)
<S> <C> <C>
- --------------------------------------------------------------------------------------------------
INCREASE/DECREASE IN NET ASSETS
OPERATIONS:
Net Investment Income/Loss................................ $ 6 $ 679
Net Realized Gain/Loss.................................... (6,851) 1,875
Net Unrealized Appreciation/Depreciation.................. (2,182) 6,066
------------- -------------
Net Increase/Decrease in Net Assets Resulting from
Operations.............................................. (9,027) 8,620
------------- -------------
DISTRIBUTIONS:
Net Investment Income:
Class A................................................... (1,075) (488)
Class B................................................... (551) (330)
Class C................................................... (161) (53)
In Excess of Net Investment Income:
Class A................................................... (14) --
Class B................................................... (7) --
Class C................................................... (2) --
------------- -------------
(1,810) (871)
------------- -------------
Net Realized Gain:
Class A................................................... -- (33)
Class B................................................... -- (31)
Class C................................................... -- (9)
In Excess of Net Realized Gain:
Class A................................................... (709) --
Class B................................................... (611) --
Class C................................................... (179) --
------------- -------------
(1,499) (73)
------------- -------------
Net Decrease in Net Assets Resulting from Distributions... (3,309) (944)
------------- -------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed................................................ 79,794 106,801
Distributions Reinvested.................................. 2,837 850
Redeemed.................................................. (96,317) (30,781)
------------- -------------
Net Increase/Decrease in Net Assets Resulting from Capital
Share Transactions...................................... (13,686) 76,870
------------- -------------
Total Increase/Decrease in Net Assets..................... (26,022) 84,546
NET ASSETS--Beginning of Period............................. 133,878 49,332
------------- -------------
NET ASSETS--End of Period (Including distributions in
excess/undistributed net investment income of $(23) and
$1,524, respectively)..................................... $ 107,856 $ 133,878
============= =============
- --------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
(1) Class A:
Shares:
Subscribed............................................. 1,848 4,160
Distributions Reinvested............................... 120 38
Redeemed............................................... (3,110) (1,276)
------------- -------------
Net Increase/Decrease in Class A Shares Outstanding...... (1,142) 2,922
============= =============
Dollars:
Subscribed............................................. $ 24,712 $ 58,246
Distributions Reinvested............................... 1,503 473
Redeemed............................................... (40,959) (17,581)
------------- -------------
Net Increase/Decrease.................................... $ (14,744) $ 41,138
============= =============
Ending Paid in Capital................................... $ 46,134+ $ 60,878
============= =============
Class B:
Shares:
Subscribed............................................. 1,344 2,713
Distributions Reinvested............................... 84 26
Redeemed............................................... (1,357) (556)
------------- -------------
Net Increase/Decrease in Class B Shares Outstanding...... 71 2,183
============= =============
Dollars:
Subscribed............................................. $ 17,633 $ 37,386
Distributions Reinvested............................... 1,048 322
Redeemed............................................... (17,469) (7,487)
------------- -------------
Net Increase/Decrease.................................... $ 1,212 $ 30,221
============= =============
Ending Paid in Capital................................... $ 48,048+ $ 46,836
============= =============
Class C:
Shares:
Subscribed............................................. 2,928 809
Distributions Reinvested............................... 23 4
Redeemed............................................... (2,952) (425)
------------- -------------
Net Increase/Decrease in Class C Shares Outstanding...... (1) 388
============= =============
Dollars:
Subscribed............................................. $ 37,449 $ 11,169
Distributions Reinvested............................... 286 55
Redeemed............................................... (37,889) (5,713)
------------- -------------
Net Increase/Decrease.................................... $ (154) $ 5,511
============= =============
Ending Paid in Capital................................... $ 13,362+ $ 13,516
============= =============
</TABLE>
- ---------------
+ Ending Paid in Capital amounts do not reflect permanent book to tax
differences.
The accompanying notes are an integral part of the financial statements.
F-128
<PAGE>
VAN KAMPEN INTERNATIONAL MAGNUM FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B
------------------------------------ -------------------------------------
YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30,
----------------- JULY 1, 1996* TO ----------------- JULY 1, 1996* TO
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# JUNE 30, 1997 1999# 1998# JUNE 30, 1997
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD............ $14.845 $ 13.91 $ 12.00 $14.724 $ 13.84 $ 12.00
------- ------- -------------- ------- ------- --------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss.................... 0.049 0.17 0.17 (0.043) 0.05 0.10
Net Realized and Unrealized Gain/Loss......... (0.910) 0.96 1.88 (0.903) 0.97 1.85
------- ------- -------------- ------- ------- --------------
Total From Investment Operations.............. (0.861) 1.13 2.05 (0.946) 1.02 1.95
------- ------- -------------- ------- ------- --------------
DISTRIBUTIONS
Net Investment Income......................... (0.248) (0.18) (0.13) (0.147) (0.13) (0.10)
In Excess of Net Investment Income............ (0.003) -- -- (0.002) -- --
Net Realized Gain............................. -- (0.01) (0.01) -- (0.01) (0.01)
In Excess of Net Realized Gain................ (0.164) -- -- (0.164) -- --
------- ------- -------------- ------- ------- --------------
Total Distributions........................... (0.415) (0.19) (0.14) (0.313) (0.14) (0.11)
------- ------- -------------- ------- ------- --------------
NET ASSET VALUE, END OF PERIOD.................. $13.569 $ 14.85 $ 13.91 $13.465 $ 14.72 $ 13.84
======= ======= ============== ======= ======= ==============
TOTAL RETURN (1)................................ (5.54)% 8.32% 17.30%** (6.28)% 7.55% 16.40%**
======= ======= ============== ======= ======= ==============
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)............... $45,573 $66,817 $ 21,961 $48,096 $51,541 $ 18,215
Ratio of Expenses to Average Net Assets......... 1.65% 1.65% 1.65% 2.40% 2.40% 2.40%
Ratio of Net Investment Income/Loss to Average
Net Assets.................................... 0.37% 1.19% 1.39% (0.33)% 0.40% 0.54%
Portfolio Turnover Rate......................... 70% 35% 22%** 70% 35% 22%**
- ---------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During
the Period
Per Share Benefit to Net Investment
Income/Loss................................. $ 0.00+ $ 0.02 $ 0.11 $ 0.00+ $ 0.02 $ 0.17
Ratios Before Expense Limitation:
Expenses to Average Net Assets................ 1.71% 1.82% 2.50% 2.46% 2.57% 3.34%
Net Investment Income/Loss to Average Net
Assets...................................... 0.33% 1.02% 0.52% (0.37)% 0.23% (0.42)%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS C
------------------------------------------
YEAR ENDED
JUNE 30,
-------------------- JULY 1, 1996* TO
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# JUNE 30, 1997
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD........................ $14.782 $ 13.83 $ 12.00
------- ------- --------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss................................ (0.034) 0.05 0.06
Net Realized and Unrealized Gain/Loss..................... (0.914) 0.99 1.88
------- ------- --------------
Total From Investment Operations.......................... (0.948) 1.04 1.94
------- ------- --------------
DISTRIBUTIONS
Net Investment Income..................................... (0.147) (0.08) (0.10)
In Excess of Net Investment Income........................ (0.002) -- --
Net Realized Gain......................................... -- (0.01) (0.01)
In Excess of Net Realized Gain............................ (0.164) -- --
------- ------- --------------
Total Distributions....................................... (0.313) (0.09) (0.11)
------- ------- --------------
NET ASSET VALUE, END OF PERIOD.............................. $13.521 $ 14.78 $ 13.83
======= ======= ==============
TOTAL RETURN (1)............................................ (6.25)% 7.55% 16.27%**
======= ======= ==============
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)........................... $14,187 $15,520 $ 9,156
Ratio of Expenses to Average Net Assets..................... 2.40% 2.40% 2.40%
Ratio of Net Investment Income/Loss to Average Net Assets... (0.26)% 0.36% 0.29%
Portfolio Turnover Rate..................................... 70% 35% 22%**
- ------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the Period
Per Share Benefit to Net Investment Income/Loss........... $ 0.00+ $ 0.02 $ 0.21
Ratios Before Expense Limitation:
Expenses to Average Net Assets............................ 2.46% 2.56% 3.45%
Net Investment Income/Loss to Average Net Assets.......... (0.30)% 0.20% (0.77)%
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
* Commencement of operations
** Non-Annualized
+ Amount is less than $0.01 per share.
(1) Total return is calculated exclusive of sales charges or
deferred sales charges.
# Changes per share are based upon monthly average shares
outstanding.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-129
<PAGE>
VAN KAMPEN INTERNATIONAL MAGNUM FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
The Van Kampen International Magnum Fund (the "Fund") is organized as a separate
non-diversified fund of Van Kampen Series Fund, Inc., a Maryland Corporation,
which is registered as an open-end management company under the Investment
Company Act of 1940, as amended. The Fund's investment objective 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 Fund commenced operations on July 1, 1996.
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 and Class C
shares are offered without a front end sales charge, but are subject to a
contingent deferred sales charge ("CDSC"). Class B shares will automatically
convert to Class A shares after the eighth year following purchase. The CDSC
will be imposed on most redemptions made within five years of the purchase for
Class B shares and one year of the purchase for Class C shares as detailed in
the following schedule:
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE
------------
YEAR OF REDEMPTION CLASS B CLASS C
- ------------------ -------- --------
<S> <C> <C>
First........................................ 5.00% 1.00%
Second....................................... 4.00% None
Third........................................ 3.00% None
Fourth....................................... 2.50% None
Fifth........................................ 1.50% None
Thereafter................................... None None
</TABLE>
All three classes of shares have identical voting, dividend, liquidation and
other rights.
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: 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. 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. SECURITY TRANSACTIONS: Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements, which are short-term investments
in which the Fund acquires ownership of a debt security and the seller agrees to
repurchase the security at a future time and specified price. Repurchase
agreements are fully collateralized by the underlying debt security. 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.
3. INCOME AND EXPENSES: Dividend income is recorded on the ex-dividend date, net
of applicable withholding taxes where recovery of such taxes is not reasonably
assured. Interest income is recognized on an accrual basis except where
collection is in doubt. 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 Fund are
recorded on the ex-distribution date.
4. FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS: Assets and liabilities
denominated in foreign currencies and commitments under forward currency
contracts are translated into U.S. dollars at the mean of the quoted bid and
asked prices. Purchases and sales of portfolio securities are translated at the
rate of exchange prevailing when such securities were purchased or sold. Income
and expenses are translated at rates prevailing when accrued. Realized and
unrealized gains and losses on securities are not segregated for financial
reporting purposes from amounts arising from changes in the market prices of
securities. Realized gains and losses on foreign currency includes the net
realized amount from the sale of the currency and the amount realized between
trade date and settlement date on security and income transactions. However, 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.
5. ORGANIZATIONAL COSTS: The organizational costs of the Fund are being
amortized on a straight line basis over a period of five years beginning with
the Fund's commencement of operations. The Adviser has agreed that in the event
any of the initial shares of the Fund originally purchased by Van Kampen are
redeemed by the Fund during
F-130
<PAGE>
VAN KAMPEN INTERNATIONAL MAGNUM FUND
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
the amortization period, the Fund will be reimbursed for any unamortized
organizational costs in the same proportion as the number of shares redeemed
bears to the number of initial shares held at the time of redemption.
6. TAXES: It is the Fund's intention to qualify as a regulated investment
company and distribute substantially all of its taxable income. Accordingly, no
provision for U.S. Federal income taxes is required in the financial statements.
The Fund 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 a Fund for gains realized and not distributed. To the extent that capital
gains are so offset, such gains will not be distributed to shareholders.
At June 30, 1999, the Fund had available capital loss carryforward for U.S.
Federal income tax purposes of approximately $2,624,000 which will expire
June 30, 2007.
Net capital losses incurred after October 31 and within the taxable year are
deemed to arise on the first business day of the Fund's next taxable year. For
the period from November 1, 1998 to June 30, 1999 the Fund incurred and elected
to defer until July 1, 1999, for U.S. Federal income tax purposes, net capital
losses of approximately $3,163,000.
At June 30, 1999, cost and unrealized appreciation/ depreciation for U.S.
Federal income tax purposes of the investments of the Fund was:
<TABLE>
<CAPTION>
NET
APPRECIATION/
COST APPREC. DEPREC. DEPRECIATION
(000) (000) (000) (000)
- ----- -------- -------- -------------
<S> <C> <C> <C>
$ 100,001 $12,463 $(5,017) $7,446
</TABLE>
7. DISTRIBUTION OF INCOME AND GAINS: 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 to tax basis differences relating to shareholder distributions
may result in reclassification among accumulated net investment income/loss,
accumulated net realized gain/loss and paid in capital in excess of par. For the
year ended June 30, 1999, approximately $1,310,000 has been reclassified from
paid in capital in excess of par with approximately $257,000 posted to
distributions in excess of net investment income and approximately $1,053,000
posted to accumulated net realized loss.
Permanent book to tax basis differences are not included in ending
undistributed/distributions in excess of net investment income for the purpose
of calculating net investment income/loss per share in the Financial Highlights.
B. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES: Van
Kampen Investment Advisory Corp. (the "Adviser"), a wholly owned subsidiary of
Van Kampen Investments Inc. (an indirect wholly owned subsidiary of Morgan
Stanley Dean Witter & Co.) and Morgan Stanley Dean Witter Investment Management
Inc. ("MSDWIM" or a "Subadviser"), a wholly owned subsidiary 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 Fund, 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
ADVISORY FEE EXPENSE RATIO EXPENSE RATIO
- ------------ -------------- --------------
<S> <C> <C>
0.80% 1.65% 2.40%
</TABLE>
For the year ended June 30, 1999, the Fund recognized expenses of approximately
$4,000 representing legal services provided by Skadden, Arps, Slate, Meagher &
Flom (Illinois), counsel to the Fund, of which a director of the Fund is an
affiliated person.
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 Adviser.
Van Kampen Funds Inc. the ("Distributor") a wholly owned subsidiary of Van
Kampen Investments Inc., an indirect 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
F-131
<PAGE>
VAN KAMPEN INTERNATIONAL MAGNUM FUND
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
1.00% of the Class B and Class C shares of the Fund, on an annualized basis, of
the average daily net assets attributable to each Class.
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 the Fund
redeemed within one to five years following such purchase. For the year ended
June 30, 1999, the Distributor has advised the Fund that it earned initial sales
charges of $239,826 for Class A shares and deferred sales charges of $8,799,
$206,929, and $28,632 for Class A shares, Class B shares, and Class C shares,
respectively.
Prior to October 1, 1998, the Fund's assets held outside the United States were
held by Morgan Stanley Trust Company ("MSTC"), a former affiliate of the
Subadvisers. Through September 30, 1998, the Fund incurred MSTC fees of
approximately $27,000. On October 1, 1998, the Chase Manhattan Bank purchased
MSTC.
Certain officers and directors of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or directors who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its directors
who are not officers of Van Kampen. Under the deferred compensation plan,
Directors 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 Director's years of service to the Fund. The maximum annual
benefit per director under the plan is $2,500.
During the year ended June 30, 1999, the Fund incurred approximately $8,000 as
brokerage commissions with Morgan Stanley & Co. Incorporated, an affiliated
broker/ dealer.
C. INVESTMENT TRANSACTIONS: For the year ended June 30, 1999, the Portfolio made
purchases of approximately $77,070,000 and sales of approximately $77,028,000 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.
D. DERIVATIVE FINANCIAL INSTRUMENTS: A derivative financial instrument in very
general terms refers to a security whose value is "derived" from the value of an
underlying asset, reference rate or index.
The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio and to manage the portfolio's foreign currency exposure. All of the
Fund's portfolio holdings, including derivative instruments,
are marked-to-market each day with the change in value reflected in unrealized
appreciation/depreciation. Upon disposition, a realized gain or loss is
recognized accordingly, except when exercising a call option contract or taking
delivery of a security underlying a forward contract. In this instance, the
recognition of gain or loss is postponed until the disposal of the security
underlying the option or forward contract. Risks may arise as a result of the
potential inability of the counterparties to meet the terms of their contracts.
Summarized below are the specific types of derivative financial instruments used
by the Fund.
1. FORWARD CURRENCY CONTRACTS: These instruments are commitments to purchase or
sell a foreign currency at a future date at a negotiated forward rate. The gain
or loss arising from the difference between the original value of the contract
and the closing value of such contract is included as a component of realized
gain/loss on foreign currency transactions.
At June 30, 1999, the Fund has outstanding forward currency contracts as
follows:
<TABLE>
<CAPTION>
UNREALIZED
CURRENT APPRECIATION/
VALUE DEPRECIATION
FORWARD CURRENCY CONTRACTS (000) (000)
- -------------------------- ------- -------------
<S> <C> <C>
SHORT CONTRACTS:
Japanese Yen,
322,227,600 expiring 7/19/99.......... $2,674 $8
====== ==
</TABLE>
2. FUTURES CONTRACTS: A futures contract is an agreement involving the delivery
of a particular asset on a specified future date at an agreed upon price. The
Fund generally invests in futures of U.S. Treasury Notes and typically closes
the contract prior to the delivery date.
Upon entering into futures contracts, the Fund maintains, in a segregated
account with its custodian, securities with a value equal to its obligation
under the futures contracts. During the period the futures contract is open,
payments are received from or made to the broker based upon changes in the value
of the contract (the variation margin). The potential risk of loss associated
with a futures contract is in excess of the variation margin reflected on the
Statement of Assets and Liabilities. The cost of securities acquired through
delivery under a contract is adjusted by the unrealized gain or loss on the
contract.
Transactions in futures contracts for the year ended June 30, 1999, were as
follows:
<TABLE>
<CAPTION>
CONTRACTS
---------
<S> <C>
Outstanding at June 30, 1998......................... -0-
Futures Opened....................................... 516
Futures Closed....................................... (516)
----
Outstanding at June 30, 1999......................... -0-
====
</TABLE>
F-132
<PAGE>
VAN KAMPEN LATIN AMERICAN FUND
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of Van Kampen Series Fund, Inc.--
Van Kampen Latin American Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Van Kampen Latin American Fund (the
"Fund", a fund of Van Kampen Series Fund, Inc.) at June 30, 1999, the results of
its operations, the changes in its net assets and the financial highlights for
each of the periods presented, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management and evaluating the overall
financial statement presentation. We believe that our audits which included
confirmation of securities at June 30, 1999 by correspondence with the custodian
and brokers, provide a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
200 E. RANDOLPH DR.
CHICAGO, ILLINOIS 60601
AUGUST 6, 1999
F-133
<PAGE>
VAN KAMPEN LATIN AMERICAN FUND
PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- ---------------------------------------------------------------------
COMMON STOCKS (75.3%)
ARGENTINA (6.4%)
Banco Rio de La Plata ADR............ 24,505 $ 233
Quilmes Industrial ADR............... 100,955 1,249
Telecom Argentina ADR................ 62,418 1,670
Telefonica de Argentina ADR.......... 27,398 859
-------
4,011
-------
BRAZIL (11.9%)
CEMIG ADR............................ 31,273 665
(c)CEMIG ADR......................... 835 18
(a)Cia Electric de Est Rio Janerio... 1,911,759,000 454
Copel 'B' ADR........................ 37,525 314
Cia Siderurgica Nacional............. 18,244,000 477
Coteminas............................ 2,492,000 127
(b,c)Coteminas ADR................... 22,545 57
CVRD 'A'............................. 5,000 70
Eletrobras ADR....................... 5,440 52
Eletrobras 'B' ADR................... 43,930 442
Eletrobras S.A....................... 21,024,000 397
Embratel Participacoes ADR........... 64,520 895
(a)Lojas Arupau ADR.................. 10,410 --
(c)Petrobras ADR..................... 22,943 358
Petrobras ADR........................ 15,640 241
(c)Rossi Residencial S.A. GDR........ 44,287 50
Rossi Residencial S.A. GDS........... 187,805 211
Tele Leste Celular ADR............... 1,160 35
Tele Norte Leste ADR................. 23,523 437
Tele Sudeste Celular ADR............. 2,290 66
Telesp Celular ADR................... 21,330 571
Telesp ADR........................... 25,710 588
Unibanco GDR......................... 40,390 972
(a)Vale Do Rio Doce ADR.............. 31,997 --
-------
7,497
-------
CHILE (8.8%)
Banco Edwards ADR.................... 25,362 368
Banco Santander ADR.................. 7,549 117
Banco Santiago ADR................... 13,910 267
CCU ADR.............................. 28,067 803
Chilectra ADR........................ 49,206 1,033
CTC ADR.............................. 65,225 1,614
D & S ADR............................ 18,265 342
ENDESA ADR........................... 15,387 187
Enersis ADR.......................... 14,450 331
Quinenco ADR......................... 27,439 257
(a)Santa Isabel ADR.................. 20,698 210
-------
5,529
-------
COLOMBIA (0.4%)
Bavaria.............................. 46,693 175
Valores Bavaria...................... 74,594 62
-------
237
-------
MEXICO (44.6%)
Alfa................................. 238,666 992
(a)Banacci 'L'....................... 154,310 377
(a)Banacci 'O'....................... 106,488 269
(a)Carso Global Telecom 'A1'......... 155,952 988
Cemex 'B' ADR........................ 131,309 1,297
Cemex CPO............................ 243,975 1,207
Cemex CPO ADR........................ 31,930 303
Cemex 'B'............................ 262,774 1,305
(a)Cifra 'C'......................... 488,695 895
(a)Cifra 'V'......................... 168,221 327
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------------------
<S> <C> <C>
(a)Cifra 'V' ADR..................... 11,324 $ 217
Empresas ICA S.A..................... 153,950 170
Empresas S.A. ADR.................... 36,571 247
FEMSA................................ 364,497 1,458
FEMSA ADR............................ 33,521 1,337
(a)Grupo Carso 'A1'.................. 182,724 847
Grupo Modelo 'C'..................... 185,448 529
(a)Grupo Financiero Banorte S.A. de
C.V. 'O'........................... 333,298 481
Grupo Financiero Bancomer S.A. de
C.V. 'O'........................... 1,462,500 528
(a)Grupo Industrial Bimbo S.A. de CV
'A'................................ 73,595 163
Kimberly 'A'......................... 594,916 2,450
(a)Seminis, Inc. 'A'................. 32,800 494
Soriana 'B'.......................... 253,815 1,196
TAMSA ADR............................ 20,777 226
Telmex ADR........................... 83,206 6,724
(a)Televisa CPO GDR.................. 62,941 2,820
Vitro ADR............................ 58,008 297
-------
28,144
-------
PERU (1.1%)
Tel Peru 'B' ADR..................... 47,863 724
-------
VENEZUELA (2.1%)
CANTV ADR............................ 49,285 1,343
-------
TOTAL COMMON STOCKS....................................... 47,485
-------
PREFERRED STOCKS (23.4%)
BRAZIL (23.4%)
Banco Bradesco....................... 15,930,000 80
(a,b)Banco Nacional.................. 8,115,000 --
(a)Celular CRT Participacoes S.A..... 6,717,974 911
CEMIG................................ 45,693,270 961
Copel................................ 164,715,900 1,340
CRT.................................. 5,099,574 1,251
CVRD 'A'............................. 61,289 1,212
CVRD................................. 28,970 576
Eletrobras 'B'....................... 24,984,200 504
Embratel Participacoes 'A'........... 60,563,000 835
Gerdau............................... 29,631,867 494
Globex Utilidades S.A................ 8,000 42
Iven................................. 600,500 78
Itaubanco............................ 1,090,641 558
(a)Lojas Arapua S.A.................. 19,195,300 --
Petrobras............................ 12,662,697 1,961
Telebras ADR......................... 7,941 716
Tele Centro Sul...................... 35,820,560 396
Tele Leste Celular................... 370,217,700 226
Tele Nordeste Celular................ 78,574,300 106
Tele Norte Celular................... 339,309,000 196
Tele Norte Leste..................... 63,958,000 1,157
Tele Sudeste Celular................. 53,316,960 301
Telesp Celular....................... 28,850,730 298
Telesp............................... 3,521,000 416
Usiminas............................. 52,200 176
-------
TOTAL PREFERRED STOCK..................................... 14,791
-------
<CAPTION>
NO. OF
RIGHTS
-------------
RIGHTS (0.0%)
<S> <C> <C>
BRAZIL (0.0%)
(a,b)CRT............................. 2,184,997 --
-------
TOTAL LONG-TERM INVESTMENTS (98.7%) (COST $61,089)........ 62,276
-------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-134
<PAGE>
VAN KAMPEN LATIN AMERICAN FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
PAR
VALUE VALUE
(000) (000)
<S> <C> <C>
- ---------------------------------------------------------------------
SHORT-TERM INVESTMENT (4.8%)
REPURCHASE AGREEMENT (4.8%)
Chase Securities, Inc., 4.55%, dated $ 3,032
6/30/99, due 7/1/99, to be
repurchased at $3,032, collaterized
by $3,175 U.S. Treasury Bill,
4.58%, due 1/6/00, valued at $3,096
(COST $3,032)....................................... $ 3,032
-------
TOTAL INVESTMENTS IN SECURITIES (103.5%) (COST $64,121)... 65,308
-------
FOREIGN CURRENCY (0.2%) (COST $127)....................... 128
-------
TOTAL INVESTMENTS (103.7%) (COST $64,248)................. 65,436
LIABILITIES IN EXCESS OF OTHER ASSETS (-3.7%)............. (2,340)
-------
NET ASSETS (100%)......................................... $63,096
=======
</TABLE>
- ---------------
<TABLE>
<S> <C> <C>
(a) -- Non-income producing security
(b) -- Security valued at fair value -- see note A-1 to
financial statements.
(c) -- 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
</TABLE>
- ----------------------------------------------------------------
SUMMARY OF LONG-TERM INVESTMENTS BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
- -------- ------- ----------
<S> <C> <C>
Services.......................... $29,030 46.0%
Energy............................ 9,257 14.7
Consumer Goods.................... 9,248 14.7
Materials......................... 7,414 11.8
Finance........................... 4,510 7.1
Multi-Industry.................... 2,174 3.4
Capital Equipment................. 643 1.0
------- ----
$62,276 98.7%
======= ====
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-135
<PAGE>
VAN KAMPEN LATIN AMERICAN FUND
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- --------------------------------------------------------------------------
ASSETS:
Investments in Securities, at Value (Cost $64,121)........ $ 65,308
Foreign Currency (Cost $127).............................. 128
Receivable for:
Investments Sold........................................ 1,092
Dividends............................................... 260
Fund Shares Sold........................................ 59
Foreign Witholding Tax Reclaim.......................... 3
Other..................................................... 4
--------
Total Assets............................................ 66,854
--------
LIABILITIES:
Payable for:
Investments Purchased................................... 3,391
Fund Shares Redeemed.................................... 94
Distribution Fees....................................... 66
Custody Fees............................................ 59
Investment Advisory Fees................................ 49
Professional Fees....................................... 27
Transfer Agent Fees..................................... 17
Shareholder Reporting Expenses.......................... 16
Administrative Fees..................................... 13
Directors' Fees and Expenses............................ 13
Deferred Country Tax.................................... 6
Other..................................................... 7
--------
Total Liabilities....................................... 3,758
--------
NET ASSETS.................................................. $ 63,096
========
NET ASSETS CONSIST OF:
Capital Stock at Par ($.001 par value, Shares Authorized
2,625,000,000).......................................... $ 6
Paid in Capital in Excess of Par.......................... 90,512
Net Unrealized Appreciation on Investments and Foreign
Currency Translations................................... 1,156
Distributions in Excess of Net Investment Income.......... (158)
Accumulated Net Realized Loss............................. (28,420)
--------
NET ASSETS.................................................. $ 63,096
========
CLASS A SHARES:
Net Asset Value and Redemption Price Per Share (Based on
Net Assets of $34,139,111 and 2,957,664 Shares
Outstanding)............................................ $ 11.54
========
Maximum Sales Charge...................................... 5.75%
Maximum Offering Price Per Share (Net Asset Value Per
Share X 100/ (100 - maximum sales charge)).............. $ 12.24
========
CLASS B SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $18,569,829 and 1,659,653 Shares
Outstanding)*........................................... $ 11.19
========
CLASS C SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $10,387,176 and 928,886 Shares
Outstanding)*........................................... $ 11.18
========
</TABLE>
- ---------------
<TABLE>
<S> <C>
* Redemption price may be subject to a contingent deferred
sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-136
<PAGE>
VAN KAMPEN LATIN AMERICAN FUND
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- --------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends................................................. $ 1,694
Interest.................................................. 121
Less Foreign Taxes Withheld............................... (10)
--------
Total Income............................................. 1,805
--------
EXPENSES:
Investment Advisory Fees.................................. 710
Distribution Fees (Attributed to Classes A, B, and C of
$75, $169, and $96, respectively)....................... 340
Administrative Fees....................................... 161
Custodian Fees............................................ 117
Country Tax Expense....................................... 60
Shareholder Reports....................................... 57
Transfer Agent Fees....................................... 53
Professional Fees......................................... 37
Filing and Registration Fees.............................. 33
Directors' Fees and Expenses.............................. 9
Amortization of Organizational Costs...................... 3
Other..................................................... 9
--------
Total Expenses........................................... 1,589
Less Expense Reductions.................................. (137)
--------
Net Expenses............................................. 1,452
--------
Net Investment Income/Loss.................................. 353
--------
NET REALIZED GAIN/LOSS ON:
Investments............................................... (18,585)
Foreign Currency Transactions............................. (111)
--------
Net Realized Gain/Loss.................................. (18,696)
--------
NET UNREALIZED APPRECIATION/DEPRECIATION:
Beginning of the Period................................... (13,340)
--------
End of the Period:
Investments............................................. 1,187
Foreign Currency Translations........................... (31)
--------
1,156
--------
Net Unrealized Appreciation/Depreciation During the
Period.................................................... 14,496
--------
Net Realized Gain/Loss and Net Unrealized
Appreciation/Depreciation................................. (4,200)
--------
NET INCREASE/DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................................ $ (3,847)
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-137
<PAGE>
VAN KAMPEN LATIN AMERICAN FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1999 JUNE 30, 1998
(000) (000)
<S> <C> <C>
- -----------------------------------------------------------------------------------------------
INCREASE/DECREASE IN NET ASSETS
OPERATIONS:
Net Investment Income/Loss................................ $ 353 $ (380)
Net Realized Gain/Loss.................................... (18,696) 4,576
Net Unrealized Appreciation/Depreciation.................. 14,496 (27,206)
------------- -------------
Net Increase/Decrease in Net Assets Resulting from
Operations.............................................. (3,847) (23,010)
------------- -------------
DISTRIBUTIONS:
Net Investment Income:
Class A................................................... (120) --
Class B................................................... (17) --
Class C................................................... (10) --
In Excess of Net Investment Income:
Class A................................................... (182) --
Class B................................................... (26) --
Class C................................................... (15) --
------------- -------------
(370) --
------------- -------------
Net Realized Gain:
Class A................................................... -- (7,513)
Class B................................................... -- (3,444)
Class C................................................... -- (2,645)
In Excess of Net Realized Gain:
Class A................................................... (153) (5,098)
Class B................................................... (100) (2,337)
Class C................................................... (57) (1,795)
------------- -------------
(310) (22,832)
------------- -------------
Net Decrease in Net Assets Resulting from Distributions... (680) (22,832)
------------- -------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed................................................ 37,085 115,672
Distributions Reinvested.................................. 580 20,476
Redeemed.................................................. (53,264) (126,144)
------------- -------------
Net Increase/Decrease in Net Assets Resulting from Capital
Share Transactions...................................... (15,599) 10,004
------------- -------------
Total Increase/Decrease in Net Assets..................... (20,126) (35,838)
NET ASSETS--Beginning of Period............................. 83,222 119,060
------------- -------------
NET ASSETS--End of Period (Including distributions in excess
of net investment income of $(158) and $(95),
respectively)............................................. $ 63,096 $ 83,222
============= =============
- -----------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
(1) Class A:
---------
Shares:
Subscribed............................................. 2,939 4,455
Distributions Reinvested............................... 46 920
Redeemed............................................... (3,917) (6,340)
------------- -------------
Net Increase/Decrease in Class A Shares Outstanding...... (932) (965)
============= =============
Dollars:
Subscribed............................................. $ 28,926 $ 72,239
Distributions Reinvested............................... 389 11,506
Redeemed............................................... (37,394) (98,189)
------------- -------------
Net Increase/Decrease.................................... $ (8,079) $ (14,444)
============= =============
Ending Paid in Capital................................... $ 46,039+ $ 54,118
============= =============
Class B:
---------
Shares:
Subscribed............................................. 386 1,661
Distributions Reinvested............................... 15 443
Redeemed............................................... (936) (752)
------------- -------------
Net Increase/Decrease in Class B Shares Outstanding...... (535) 1,352
============= =============
Dollars:
Subscribed............................................. $ 3,651 $ 26,168
Distributions Reinvested............................... 124 5,380
Redeemed............................................... (8,006) (10,163)
------------- -------------
Net Increase/Decrease.................................... $ (4,231) $ 21,385
============= =============
Ending Paid in Capital................................... $ 29,066+ $ 33,297
============= =============
Class C:
---------
Shares:
Subscribed............................................. 508 1,071
Distributions Reinvested............................... 8 296
Redeemed............................................... (908) (1,242)
------------- -------------
Net Increase/Decrease in Class C Shares Outstanding...... (392) 125
============= =============
Dollars:
Subscribed............................................. $ 4,508 $ 17,265
Distributions Reinvested............................... 67 3,590
Redeemed............................................... (7,864) (17,792)
------------- -------------
Net Increase/Decrease.................................... $ (3,289) $ 3,063
============= =============
Ending Paid in Capital................................... $ 15,478+ $ 18,767
============= =============
</TABLE>
--------------------
+ Ending Paid in Capital amounts do not reflect permanent book to tax
differences.
The accompanying notes are an integral part of the financial statements.
F-138
<PAGE>
VAN KAMPEN LATIN AMERICAN FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------
YEAR ENDED JUNE 30,
---------------------------------------- JULY 6, 1994* TO
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# 1997 1996 JUNE 30, 1995
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD............................ $11.424 $ 17.39 $ 12.63 $ 9.08 $ 12.00
------- ------- ------- ------- --------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss........ 0.093 (0.01) 0.02 0.10 (0.02)
Net Realized and Unrealized Gain/
Loss............................ 0.182 (2.73) 6.46 3.47 (2.70)
------- ------- ------- ------- --------------
Total From Investment
Operations...................... 0.275 (2.74) 6.48 3.57 (2.72)
------- ------- ------- ------- --------------
DISTRIBUTIONS
Net Investment Income............. (0.041) -- -- (0.02) --
In Excess of Net Investment
Income.......................... (0.063) -- (0.09) -- --
Net Realized Gain................. -- (1.92) (1.63) -- --
In Excess of Net Realized Gain.... (0.052) (1.31) -- -- --
Return of Capital................. -- -- -- -- (0.20)
------- ------- ------- ------- --------------
Total Distributions............... (0.156) (3.23) (1.72) (0.02) (0.20)
------- ------- ------- ------- --------------
NET ASSET VALUE, END OF PERIOD...... $11.543 $ 11.42 $ 17.39 $ 12.63 $ 9.08
======= ======= ======= ======= ==============
TOTAL RETURN (1).................... 3.00% (17.37)% 57.32% 39.35% (23.07)%**
======= ======= ======= ======= ==============
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)... $34,139 $44,439 $84,401 $18,701 $ 7,658
Ratio of Expenses to Average Net
Assets............................ 2.20% 2.25% 2.24% 2.11% 2.46%
Ratio of Net Investment Income/Loss
to Average Net Assets............. 0.98% (0.09)% (0.08)% 1.18% (0.44)%
Portfolio Turnover Rate............. 163% 249% 241% 131% 107%**
- --------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation
During the Period
Per Share Benefit to Net
Investment Income/Loss.......... $ 0.02 $ 0.02 $ 0.10 $ 0.09 $ 0.13
Ratios Before Expense Limitation:
Expenses to Average Net Assets.... 2.44% 2.41% 2.77% 3.28% 4.30%
Net Investment Income/Loss to
Average Net Assets.............. 0.74% (0.24)% (0.61)% 0.01% (2.26)%
Ratio of Expenses to Average Net
Assets excluding country tax
expense and interest expense...... 2.10% 2.10% 2.10% 2.10% 2.10%
- --------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
---------------------------------------------------
YEAR ENDED JUNE 30,
----------------------------- AUGUST 1, 1995+ TO
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# 1997 JUNE 30, 1996
<S> <C> <C> <C> <C>
- ------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD............................ $11.030 $ 16.99 $ 12.45 $ 9.58
------- ------- ------- -----------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss........ 0.019 (0.08) (0.03) 0.03
Net Realized and Unrealized Gain/
Loss............................ 0.215 (2.65) 6.28 2.84
------- ------- ------- -----------------
Total From Investment
Operations...................... 0.234 (2.73) 6.25 2.87
------- ------- ------- -----------------
DISTRIBUTIONS
Net Investment Income............. (0.009) -- -- --
In Excess of Net Investment
Income.......................... (0.014) -- (0.08) --
Net Realized Gain................. -- (1.92) (1.63) --
In Excess of Net Realized Gain.... (0.052) (1.31) -- --
Return of Capital................. -- -- -- --
------- ------- ------- -----------------
Total Distributions............... (0.075) (3.23) (1.71) --
------- ------- ------- -----------------
NET ASSET VALUE, END OF PERIOD...... $11.189 $ 11.03 $ 16.99 $ 12.45
======= ======= ======= =================
TOTAL RETURN (1).................... 2.47% (17.82)% 56.17% 29.26%**
======= ======= ======= =================
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)... $18,570 $24,206 $14,314 $ 2,041
Ratio of Expenses to Average Net
Assets............................ 2.96% 2.99% 2.99% 2.87%
Ratio of Net Investment Income/Loss
to Average Net Assets............. 0.20% (0.58)% (0.78)% 0.88%
Portfolio Turnover Rate............. 163% 249% 241% 131%**
- --------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation
During the Period
Per Share Benefit to Net
Investment Income/Loss.......... $ 0.02 $ 0.02 $ 0.02 $ 0.04
Ratios Before Expense Limitation:
Expenses to Average Net Assets.... 3.20% 3.16% 3.55% 3.89%
Net Investment Income/Loss to
Average Net Assets.............. (0.04)% (0.73)% (1.34)% (0.14)%
Ratio of Expenses to Average Net
Assets excluding country tax
expense and interest expense...... 2.85% 2.85% 2.85% 2.85%
- --------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
* Commencement of operations.
** Non-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.
# Changes per share are based upon monthly average shares
outstanding.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-139
<PAGE>
VAN KAMPEN LATIN AMERICAN FUND
FINANCIAL HIGHLIGHTS (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS C
--------------------------------------------------------------------
YEAR ENDED JUNE 30,
--------------------------------------------- JULY 6, 1994* TO
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# 1997 1996 JUNE 30, 1995
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD................... $11.037 $ 17.01 $ 12.43 $ 8.99 $ 12.00
------- ------- ------- ------ --------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss........................... 0.021 (0.11) (0.07) 0.04 (0.08)
Net Realized and Unrealized Gain/Loss................ 0.199 (2.63) 6.31 3.40 (2.73)
------- ------- ------- ------ --------------
Total From Investment Operations..................... 0.220 (2.74) 6.24 3.44 (2.81)
------- ------- ------- ------ --------------
DISTRIBUTIONS
Net Investment Income................................ (0.009) -- -- -- --
In Excess of Net Investment Income................... (0.014) -- (0.03) -- --
Net Realized Gain.................................... -- (1.92) (1.63) -- --
In Excess of Net Realized Gain....................... (0.052) (1.31) -- -- --
Return of Capital.................................... -- -- -- -- (0.20)
------- ------- ------- ------ --------------
Total Distributions.................................. (0.075) (3.23) (1.66) -- (0.20)
------- ------- ------- ------ --------------
NET ASSET VALUE, END OF PERIOD......................... $11.182 $ 11.04 $ 17.01 $12.43 $ 8.99
======= ======= ======= ====== ==============
TOTAL RETURN (1)....................................... 2.28% (17.86)% 56.04% 38.26% (23.83)%**
======= ======= ======= ====== ==============
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)...................... $10,387 $14,577 $20,345 $6,780 $ 4,085
Ratio of Expenses to Average Net Assets................ 2.96% 3.00% 2.99% 2.86% 3.20%
Ratio of Net Investment Income/Loss to Average Net
Assets............................................... 0.23% (0.77)% (0.79)% 0.42% (1.16)%
Portfolio Turnover Rate................................ 163% 249% 241% 131% 107%**
- ---------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the
Period
Per Share Benefit to Net Investment Income/Loss...... $ 0.02 $ 0.02 $ 0.05 $ 0.12 $ 0.12
Ratios Before Expense Limitation:
Expenses to Average Net Assets....................... 3.20% 3.16% 3.56% 4.06% 5.20%
Net Investment Income/Loss to Average Net Assets..... (0.01)% (0.93)% (1.36)% (0.78)% (3.16)%
Ratio of Expenses to Average Net Assets excluding
country tax expense and interest expense............. 2.85% 2.85% 2.85% 2.85% 2.85%
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
* Commencement of operations.
** Non-Annualized
(1) Total return is calculated exclusive of sales charges or
deferred sales charges.
# Changes per share are based upon monthly average shares
outstanding.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-140
<PAGE>
VAN KAMPEN LATIN AMERICAN FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
The Van Kampen Latin American Fund (the "Fund") is organized as a separate
non-diversified fund of Van Kampen Series Fund, Inc., a Maryland Corporation
which is registered as an open-end management investment company under the
Investment Company Act of 1940, as amended. The Fund's investment objective
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. The Fund commenced
operations on July 6, 1994.
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 and Class C shares
are offered without a front end sales charge, but are subject to a contingent
deferred sales charge ("CDSC"). Class B shares will automatically convert to
Class A shares after the eighth year following purchase. The CDSC will be
imposed on most redemptions made within five years of the purchase for Class B
shares and one year of the purchase for Class C shares as detailed in the
following schedule:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
YEAR OF REDEMPTION CLASS B CLASS C
- ------------------ -------- --------
<S> <C> <C>
First....................................... 5.00% 1.00%
Second...................................... 4.00% None
Third....................................... 3.00% None
Fourth...................................... 2.50% None
Fifth....................................... 1.50% None
Thereafter.................................. None None
</TABLE>
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.
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. 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. SECURITY TRANSACTIONS: Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements, which are short-term investments
in which the Fund acquires ownership of a debt security and the seller agrees to
repurchase the security at a future time and specified price. Repurchase
agreements are fully collateralized by the underlying debt security. 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.
3. INCOME AND EXPENSES: Dividend income is recorded on the ex-dividend date, net
of applicable withholding taxes where recovery of such taxes is not reasonably
assured. Interest income is recognized on an accrual basis except where
collection is in doubt. 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 Fund are
recorded on the ex-distribution date.
4. FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS: Assets and liabilities
denominated in foreign currencies and commitments under forward currency
contracts are translated into U.S. dollars at the mean of the quoted bid and
asked prices. Purchases and sales of portfolio securities are translated at the
rate of exchange prevailing when such securities were purchased or sold. Income
and expenses are translated at rates prevailing when accrued. Realized and
unrealized gains and losses on securities are not segregated for financial
reporting purposes from amounts arising from changes in the market prices of
securities. Realized gains and losses on foreign currency includes the net
realized amount from the sale of the currency and the amount realized between
trade date and settlement date on security and income transactions. However, the
foreign currency portion
F-141
<PAGE>
VAN KAMPEN LATIN AMERICAN FUND
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
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.
The net assets of the Fund include issuers located in emerging markets. There
are certain risks inherent in these investments not typically associated with
investments in the United States, including the smaller size of the markets
themselves, lesser liquidity, greater volatility and potentially less publicly
available information. Emerging markets may be subject to a greater degree of
government involvement in the economy and greater economic and political
uncertainty, which has the potential to extend to government imposed
restrictions on exchange traded transactions and currency transactions. These
restrictions may impact the Fund's ability to buy or sell certain securities or
to repatriate certain currencies to U.S. dollars. Additionally, changes in
currency exchange rates will affect the value of and investment income from such
securities
5. ORGANIZATIONAL COSTS: The organizational costs of the Fund are being
amortized on a straight line basis over a period of five years beginning with
the Fund's commencement of operations. The Adviser has agreed that in the event
any of the initial shares of the Fund originally purchased by Van Kampen are
redeemed by the Fund during the amortization period, the Fund will be reimbursed
for any unamortized organizational costs in the same proportion as the number of
shares redeemed bears to the number of initial shares held at the time of
redemption.
6. TAXES: It is the Fund's intention to qualify as a regulated investment
company and distribute substantially all of its taxable income. Accordingly, no
provision for U.S. Federal income taxes is required in the financial statements.
The Fund 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, 1999, the Fund had a capital loss carryforward for U.S. Federal
income tax purposes of approximately $16,568,000 which will expire June 30,
2007.
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 Fund 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 Fund's next
taxable year. For the period from November 1, 1998 to June 30, 1999 the Fund
incurred
and elected to defer until July 1, 1999, for U.S. Federal income tax purposes,
net currency and capital losses of approximately $6,068,000.
At June 30, 1999, cost and unrealized appreciation/ depreciation for U.S.
Federal income tax purposes of the investments of the Fund was:
<TABLE>
<CAPTION>
NET
APPRECIATION/
COST APPREC. DEPREC. DEPRECIATION
(000) (000) (000) (000)
- ------- -------- -------- -------------
<S> <C> <C> <C>
$70,009 $7,722 $(12,423) $(4,701)
</TABLE>
7. DISTRIBUTION OF INCOME AND GAINS: 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 to tax basis differences relating to shareholder distributions
may result in reclassification among accumulated net investment income/loss,
accumulated net realized gain/loss and paid in capital in excess of par. For the
year ended June 30, 1999, approximately $65,000 has been reclassified from paid
in capital in excess of par and approximately $46,000 has been reclassified from
distributions in excess of net investment income, totaling $111,000 posted to
accumulated net realized loss.
Permanent book to tax basis differences are not included in ending
undistributed/distributions in excess of net investment income for the purpose
of calculating net investment income/loss per share in the Financial Highlights.
B. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES: Van
Kampen Investment Advisory Corp. (the "Adviser"), a wholly owned subsidiary of
Van Kampen Investments Inc. (an indirect wholly owned subsidiary of Morgan
Stanley Dean Witter & Co.) and Morgan Stanley Dean Witter Investment Management
Inc. ("MSDWIM" or a "Subadviser"), a wholly owned subsidiary 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 Fund, 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
ADVISORY MAX. OPERATING MAX. OPERATING
FEE EXPENSE RATIO EXPENSE RATIO
- -------- -------------- --------------
<S> <C> <C>
1.25% 2.10% 2.85%
</TABLE>
F-142
<PAGE>
VAN KAMPEN LATIN AMERICAN FUND
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
For the year ended June 30, 1999, the Fund recognized expenses of approximately
$2,000 representing legal services provided by Skadden, Arps, Slate, Meagher &
Flom (Illinois), counsel to the Fund, of which a director of the Fund is an
affiliated person.
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 Adviser.
Van Kampen Funds Inc. the ("Distributor") a wholly owned subsidiary of Van
Kampen Investments Inc., an indirect 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 Fund 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% of the Class B shares and Class C shares of the Fund, on
an annualized basis, of the average daily net assets attributable to each Class.
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 shares and Class C shares of the Fund
redeemed within one to five years following such purchase. For the year ended
June 30, 1999, the Distributor has advised the Fund that it earned initial sales
charges of $98,029 for Class A shares and deferred sales charges of $105,678 and
$13,387 for Class B shares and Class C shares, respectively.
Prior to October 1, 1998, the Fund's assets held outside the United States were
held by Morgan Stanley Trust Company ("MSTC"), a former affiliate of the
Subadvisers. Through September 30, 1998, the Fund incurred MSTC fees of
approximately $20,000. On October 1, 1998, the Chase Manhattan Bank purchased
MSTC.
Certain officers and directors of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or directors who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its directors
who are not officers of Van Kampen. Under the deferred compensation plan,
Directors 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 Director's years of service to the Fund. The maximum annual
benefit per director under the plan is $2,500.
During the year ended June 30, 1999, the Fund incurred approximately $8,000 as
brokerage commissions with Morgan Stanley & Co. Incorporated, an affiliated
broker/ dealer.
D. INVESTMENT TRANSACTIONS: For the year ended June 30, 1999, the Fund made
purchases of approximately $89,489,000 and sales of approximately $102,312,000
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.
F-143
<PAGE>
VAN KAMPEN VALUE FUND
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of Van Kampen Series Fund, Inc.--
Van Kampen Value Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Van Kampen Value Fund (the "Fund",
a fund of Van Kampen Series Fund, Inc.) at June 30, 1999, the results of its
operations, the changes in its net assets and the financial highlights for each
of the periods presented, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at June 30, 1999 by correspondence with the custodian
and brokers, provide a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
200 E. Randolph Dr.
Chicago, Illinois 60601
August 6, 1999
F-144
<PAGE>
VAN KAMPEN VALUE FUND
PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- ---------------------------------------------------------------------
COMMON STOCKS (99.5%)
CAPITAL EQUIPMENT (18.3%)
CHEMICALS--DIVERSIFIED (2.1%)
Eastman Chemical Co.................... 5,800 $ 300
Lubrizol Corp.......................... 127,400 3,472
Rohm & Haas Co......................... 33,380 1,431
--------
5,203
--------
CONSTRUCTION & HOUSING (1.2%)
Owens Corning.......................... 89,020 3,060
--------
ELECTRICAL & ELECTRONICS (0.5%)
Entergy Corp........................... 44,090 1,378
--------
ELECTRONIC COMPONENTS--MISCELLANEOUS (2.6%)
(a)Arrow Electronics, Inc.............. 98,460 1,871
Avnet, Inc............................. 43,500 2,023
Tektronix, Inc......................... 90,310 2,726
--------
6,620
--------
ENERGY EQUIPMENT & SERVICES (1.6%)
GTE Corp............................... 38,000 2,878
Peco Energy Co......................... 27,200 1,139
--------
4,017
--------
MACHINERY & ENGINEERING (6.3%)
Case Corp.............................. 78,100 3,758
Cummins Engine Co., Inc................ 118,000 6,741
Deere & Co............................. 300 12
Kennametal, Inc........................ 53,250 1,651
Parker-Hannifin Corp................... 83,125 3,803
--------
15,965
--------
MANUFACTURING (3.6%)
Eaton Corp............................. 29,400 2,705
(a)FMC Corp............................ 49,310 3,368
Tecumseh Products Co. 'A'.............. 48,570 2,942
--------
9,015
--------
PROFESSIONAL SERVICES (0.4%)
Olsten Corp............................ 141,370 892
--------
TOTAL CAPITAL EQUIPMENT................................ 46,150
--------
CONSUMER PRODUCTS--MISCELLANEOUS (28.5%)
APPLIANCES & HOUSEHOLD DURABLES (1.1%)
Whirlpool Corp......................... 37,600 2,782
--------
AUTOMOBILES (10.9%)
Dana Corp.............................. 80,890 3,726
Ford Motor Co.......................... 114,130 6,441
General Motors Corp.................... 157,580 10,400
Goodyear Tire & Rubber Co.............. 20,000 1,176
(a)Navistar International Corp......... 45,900 2,295
TRW, Inc............................... 62,860 3,450
--------
27,488
--------
COMPUTERS/SOFTWARE (8.2%)
First Data Corp........................ 96,200 4,708
Intel Corp............................. 43,800 2,606
International Business Machines
Corp................................. 63,400 8,194
(a)Quantum Corp........................ 214,000 5,163
--------
20,671
--------
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------------------
<S> <C> <C>
RECREATION, OTHER CONSUMER GOODS (0.3%)
Standard Register Co................... 26,670 $ 820
--------
RETAIL--MAJOR DEPARTMENT STORES (3.0%)
Dillards, Inc. 'A'..................... 55,020 1,933
Sears, Roebuck & Co.................... 52,500 2,339
(a)Toys 'R' Us, Inc.................... 154,440 3,195
--------
7,467
--------
TEXTILES & APPAREL (4.6%)
Liz Claiborne, Inc..................... 123,300 4,500
Springs Industries, Inc. 'A'........... 41,920 1,829
VF Corp................................ 126,140 5,392
--------
11,721
--------
TOBACCO (0.4%)
(a)R.J. Reynolds Tobacco
Holdings, Inc........................ 30,346 956
--------
TOTAL CONSUMER PRODUCTS--MISCELLANEOUS................. 71,905
--------
ENERGY (6.4%)
ELECTRIC--INTERGRATED (0.8%)
Cinergy Corp........................... 18,570 594
GPU, Inc............................... 34,940 1,474
--------
2,068
--------
OIL & GAS (3.8%)
Coastal Corp........................... 37,100 1,484
(a)Nabors Industries, Inc.............. 136,500 3,336
Tosco Corp............................. 44,200 1,146
Transocean Offshore, Inc............... 46,600 1,223
Ultramar Diamond Shamrock Corp......... 106,570 2,325
--------
9,514
--------
UTILITIES--ELECTRICAL & GAS (1.8%)
DTE Energy Co.......................... 43,280 1,731
Duke Power Co.......................... 22,100 1,202
Southern Co............................ 58,700 1,556
--------
4,489
--------
TOTAL ENERGY........................................... 16,071
--------
FINANCE (21.9%)
BANKING (6.6%)
Associates First Capital Corp. 'A'..... 2 --
Bank of America........................ 56,500 4,142
BankBoston Corp........................ 42,400 2,168
Chase Manhattan Corp................... 94,240 8,163
UnionBanCal Corp....................... 58,400 2,110
--------
16,583
--------
INSURANCE (7.2%)
ACE Ltd................................ 45,200 1,277
Allstate Corp.......................... 92,580 3,321
American General Corp.................. 22,640 1,706
Hartford Financial Services Group...... 59,540 3,472
Old Republic International Corp........ 86,105 1,491
Washington Mutual, Inc................. 192,450 6,808
--------
18,075
--------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-145
<PAGE>
VAN KAMPEN VALUE FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------------------
<S> <C> <C>
LIFE/HEALTH INSURANCE (2.0%)
CIGNA Corp............................. 21,400 $ 1,905
Reliastar Financial Corp............... 70,280 3,075
--------
4,980
--------
REINSURANCE (0.8%)
Everest Reinsurance Holdings, Inc...... 66,210 2,160
--------
SUPER--REGIONAL BANKS--U.S. (5.3%)
Bank One Corp.......................... 65,800 3,919
First Union Corp. (N.C.)............... 40,589 1,908
KeyCorp................................ 74,500 2,393
PNC Bank Corp.......................... 89,400 5,152
--------
13,372
--------
TOTAL FINANCE.......................................... 55,170
--------
MATERIALS (6.7%)
CHEMICALS (4.7%)
Air Products & Chemicals, Inc.......... 42,500 1,711
Engelhard Corp......................... 160,100 3,622
IMC Global, Inc........................ 112,400 1,981
Solutia, Inc........................... 99,100 2,112
(a)W.R. Grace & Co..................... 127,300 2,339
--------
11,765
--------
METALS--STEEL (0.8%)
Ryerson Tull, Inc...................... 85,700 1,934
--------
TELECOMMUNICATIONS EQUIPMENT (1.2%)
U.S. West, Inc......................... 53,700 3,155
--------
TOTAL MATERIALS........................................ 16,854
--------
SERVICES (17.7%)
BUSINESS & PUBLIC SERVICES (1.0%)
Service Corp. International............ 135,500 2,608
--------
FOOD--MISCELLANEOUS/DIVERSIFIED (2.7%)
IBP, Inc............................... 63,310 1,504
Nabisco Group Holdings Corp............ 156,340 3,058
Universal Foods Corp................... 111,820 2,362
--------
6,924
--------
HEALTHCARE SUPPLIES & SERVICES (7.2%)
Beckman Coulter, Inc................... 60,030 2,919
Columbia HCA/Healthcare Corp........... 63,770 1,455
(a)Foundation Health Systems 'A'....... 78,000 1,170
(a)HEALTHSOUTH Corp.................... 418,000 6,244
(a)LifePoint Hospitals, Inc............ 4,761 64
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------------------
<S> <C> <C>
(a)Tenet Healthcare Corp............... 155,400 $ 2,885
(a)Triad Hospitals, Inc................ 4,761 64
United HealthCare Corp................. 51,500 3,225
--------
18,026
--------
TELECOMMUNICATIONS (3.8%)
(a)AMR Corp............................ 74,980 5,117
Bell Atlantic Corp..................... 66,700 4,361
--------
9,478
--------
TRANSPORTATION--AIRLINES (1.9%)
CNF Transportation, Inc................ 30,800 1,182
Delta Airlines, Inc.................... 64,100 3,694
--------
4,876
--------
TRANSPORTATION--RAIL (0.5%)
Burlington Northern Railroad Co........ 40,300 1,249
--------
TRANSPORTATION--TRUCKING (0.6%)
Ryder Systems, Inc..................... 60,800 1,581
--------
TOTAL SERVICES......................................... 44,742
--------
TOTAL LONG-TERM INVESTMENTS (99.5%) (COST $233,558).... 250,892
--------
<CAPTION>
PAR
VALUE
(000)
--------
SHORT-TERM INVESTMENT (3.3%)
<S> <C> <C>
REPURCHASE AGREEMENT (3.3%)
Chase Securities, Inc., 4.55%, dated $ 8,469
6/30/99, due 7/1/99, to be repurchased at
$8,470, collaterized by $7,040 U.S.
Treasury Bonds, 11.125%, due 8/15/03,
valued at $8,693 (COST $8,469)................... 8,469
--------
TOTAL INVESTMENTS (102.8%) (COST $242,027)............... 259,361
LIABILITIES IN EXCESS OF OTHER ASSETS (-2.8%)............ (7,104)
--------
NET ASSETS (100%)........................................ $252,257
========
</TABLE>
- ---------------
<TABLE>
<S> <C> <C>
(a) -- Non-income producing security
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-146
<PAGE>
VAN KAMPEN VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- --------------------------------------------------------------------------
ASSETS:
Investments at Value (Cost $242,027)...................... $259,361
Receivable for:
Investments Sold........................................ 1,619
Fund Shares Sold........................................ 351
Dividends............................................... 205
Interest................................................ 1
Deferred Organizational Costs............................. 4
Other Assets.............................................. 12
--------
Total Assets.......................................... 261,553
--------
LIABILITIES:
Payable for:
Investments Purchased................................... 7,881
Fund Shares Redeemed.................................... 786
Distribution Fees....................................... 303
Investment Advisory Fees................................ 133
Administrative Fees..................................... 52
Transfer Agent Fees..................................... 41
Professional Fees....................................... 34
Shareholder Reporting Expenses.......................... 29
Directors' Fees and Expenses............................ 20
Custody Fees............................................ 9
Other..................................................... 8
--------
Total Liabilities..................................... 9,296
--------
NET ASSETS.................................................. $252,257
========
NET ASSETS CONSIST OF:
Capital Stock at Par ($.001 par value, Shares Authorized
2,625,000,000).......................................... $ 23
Paid in Capital in Excess of Par.......................... 244,212
Unrealized Appreciation on Investments.................... 17,334
Distributions in Excess of Net Investment Income.......... (1)
Accumulated Net Realized Loss............................. (9,311)
--------
NET ASSETS................................................ $252,257
========
CLASS A SHARES:
Net Asset Value and Redemption Price Per Share (Based on
Net Assets of $95,207,962 and 8,747,187 Shares
Outstanding)............................................ $ 10.88
========
Maximum Sales Charge...................................... 5.75%
Maximum Offering Price Per Share (Net Asset Value Per
Share X 100 / (100 - maximum sales charge))............. $ 11.54
========
CLASS B SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $127,977,872 and 11,807,261 Shares
Outstanding)*........................................... $ 10.84
========
CLASS C SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $29,071,184 and 2,683,913 Shares
Outstanding)*........................................... $ 10.83
========
</TABLE>
- ---------------
<TABLE>
<S> <C>
* Redemption price may be subject to a contingent deferred
sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-147
<PAGE>
VAN KAMPEN VALUE FUND
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- -------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends................................................. $ 4,804
Interest.................................................. 984
-------
Total Income............................................. 5,788
-------
EXPENSES:
Investment Advisory Fees.................................. 2,131
Distribution Fees (Attributed to Classes A, B, and C of
$270, $1,279, and $306, respectively)................... 1,855
Administrative Fees....................................... 672
Transfer Agent Fees....................................... 140
Shareholder Reports....................................... 78
Professional Fees......................................... 59
Filing and Registration Fees.............................. 56
Custodian Fees............................................ 56
Directors' Fees and Expenses.............................. 15
Amortization of Organizational Costs...................... 2
Other..................................................... 9
-------
Total Expenses........................................... 5,073
Less Expense Reductions.................................. (43)
-------
Net Expenses............................................. 5,030
-------
Net Investment Income/Loss.................................. 758
-------
NET REALIZED GAIN/LOSS ON:
Investments............................................... (9,132)
-------
NET UNREALIZED APPRECIATION/DEPRECIATION:
Beginning of the Period................................... 1,221
-------
End of the Period
Investments............................................. 17,334
-------
Net Unrealized Appreciation/Depreciation During the
Period.................................................... 16,113
-------
Net Realized Gain/Loss and Net Unrealized
Appreciation/Depreciation................................. 6,981
-------
NET INCREASE/DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................................ $ 7,739
=======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-148
<PAGE>
VAN KAMPEN VALUE FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JULY 7, 1997* TO
JUNE 30, 1999 JUNE 30, 1998
(000) (000)
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------
INCREASE/DECREASE IN NET ASSETS
OPERATIONS:
Net Investment Income/Loss................................ $ 758 $ 1,260
Net Realized Gain/Loss.................................... (9,132) 5,893
Net Unrealized Appreciation /Depreciation................. 16,113 1,221
------------- --------------
Net Increase/Decrease in Net Assets Resulting from
Operations.............................................. 7,739 8,374
------------- --------------
DISTRIBUTIONS:
Net Investment Income:
Class A................................................... (601) (930)
Class B................................................... (91) (264)
Class C................................................... (23) (66)
In Excess of Net Investment Income:
Class A................................................... (1) (77)
Class B................................................... -- (22)
Class C................................................... -- (6)
------------- --------------
(716) (1,365)
------------- --------------
Net Realized Gain:
Class A................................................... -- (502)
Class B................................................... -- (431)
Class C................................................... -- (95)
In Excess of Net Realized Gain:
Class A................................................... (2,049) --
Class B................................................... (2,409) --
Class C................................................... (584) --
------------- --------------
(5,042) (1,028)
------------- --------------
Net Decrease in Net Assets Resulting from Distributions... (5,758) (2,393)
------------- --------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed................................................ 63,721 354,369
Distributions Reinvested.................................. 5,042 2,140
Redeemed.................................................. (134,239) (49,738)
------------- --------------
Net Increase/Decrease in Net Assets Resulting from Capital
Share Transactions...................................... (65,476) 306,771
------------- --------------
Total Increase/Decrease in Net Assets..................... (63,495) 312,752
NET ASSETS--Beginning of Period............................. 315,752 3,000
------------- --------------
NET ASSETS--End of Period (Including distributions in excess
of net investment income of $(1) and $(45),
respectively)............................................. $ 252,257 $ 315,752
============= ==============
- -------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (000):
(1) Class A:
----------
Shares:
Subscribed (Initial Shares of 100)..................... 2,585 16,264
Distributions Reinvested............................... 259 136
Redeemed............................................... (7,154) (3,343)
------------- --------------
Net Increase/Decrease in Class A Shares Outstanding...... (4,310) 13,057
============= ==============
Dollars:
Subscribed............................................. $ 24,777 $ 167,353
Distributions Reinvested............................... 2,427 1,393
Redeemed............................................... (69,185) (35,499)
------------- --------------
Net Increase/Decrease.................................... $ (41,981) $ 133,247
============= ==============
Ending Paid in Capital................................... $ 92,241+ $ 134,222
============= ==============
Class B:
----------
Shares:
Subscribed (Initial Shares of 100)..................... 3,052 14,654
Distributions Reinvested............................... 225 60
Redeemed............................................... (5,046) (1,138)
------------- --------------
Net Increase/Decrease in Class B Shares Outstanding...... (1,769) 13,576
============= ==============
Dollars:
Subscribed............................................. $ 29,487 $ 150,818
Distributions Reinvested............................... 2,115 607
Redeemed............................................... (48,333) (12,023)
------------- --------------
Net Increase/Decrease.................................... $ (16,731) $ 139,402
============= ==============
Ending Paid in Capital................................... $ 123,644+ $ 140,375
============= ==============
Class C:
----------
Shares:
Subscribed (Initial Shares of 100)..................... 988 3,584
Distributions Reinvested............................... 53 14
Redeemed............................................... (1,743) (212)
------------- --------------
Net Increase/Decrease in Class C Shares Outstanding...... (702) 3,386
============= ==============
Dollars:
Subscribed............................................. $ 9,457 $ 36,198
Distributions Reinvested............................... 500 140
Redeemed............................................... (16,721) (2,216)
------------- --------------
Net Increase/Decrease.................................... $ (6,764) $ 34,122
============= ==============
Ending Paid in Capital................................... $ 28,352+ $ 35,116
============= ==============
</TABLE>
- -----------------
<TABLE>
<S> <C>
* Commencement of operations
+ Ending Paid in Capital amounts do not reflect permanent book
to tax differences.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-149
<PAGE>
VAN KAMPEN VALUE FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
----------------------------------- ----------------------------------- ---------------
YEAR ENDED JULY 7, 1997* TO YEAR ENDED JULY 7, 1997* TO YEAR ENDED
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1999# JUNE 30, 1998# JUNE 30, 1999# JUNE 30, 1998# JUNE 30, 1999#
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD........................... $ 10.526 $ 10.00 $ 10.514 $ 10.00 $ 10.503
-------------- -------------- -------------- -------------- --------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss....... 0.072 0.11 (0.003) 0.03 (0.002)
Net Realized and Unrealized
Gain/Loss...................... 0.512 0.56 0.509 0.56 0.512
-------------- -------------- -------------- -------------- --------------
Total From Investment
Operations..................... 0.584 0.67 0.506 0.59 0.510
-------------- -------------- -------------- -------------- --------------
DISTRIBUTIONS
Net Investment Income............ (0.052) (0.08) (0.007) (0.03) (0.007)
In Excess of Net Investment
Income......................... (0.000)+ (0.01) -- (0.00)+ --
Net Realized Gain................ -- (0.05) -- (0.05) --
In Excess of Net Realized Gain... (0.174) -- (0.174) -- (0.174)
-------------- -------------- -------------- -------------- --------------
Total Distributions.............. (0.226) (0.14) (0.181) (0.08) (0.181)
-------------- -------------- -------------- -------------- --------------
NET ASSET VALUE, END OF PERIOD..... $ 10.884 $ 10.53 $ 10.839 $ 10.51 $ 10.832
============== ============== ============== ============== ==============
TOTAL RETURN (1)................... 5.83% 6.74%** 5.02% 6.01%** 5.13%
============== ============== ============== ============== ==============
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's).......................... $ 95,208 $ 137,447 $ 127,978 $ 142,741 $ 29,071
Ratio of Expenses to Average Net
Assets........................... 1.45% 1.45% 2.20% 2.20% 2.20%
Ratio of Net Investment Income/Loss
to Average Net Assets............ 0.74% 1.02% (0.03)% 0.28% (0.02)%
Portfolio Turnover Rate............ 64% 38%** 64% 38%** 64%
- --------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income/Loss......... $ 0.00+ $ 0.01 $ 0.00+ $ 0.01 $ 0.00+
Ratios Before Expense Limitation:
Expenses to Average Net Assets... 1.48% 1.60% 2.23% 2.35% 2.23%
Net Investment Income/Loss to
Average Net Assets............. 0.73% 0.88% (0.05)% 0.14% (0.03)%
<CAPTION>
CLASS C
-----------------
JULY 7, 1997* TO
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1998#
<S> <C>
- -----------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD........................... $ 10.00
--------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss....... 0.03
Net Realized and Unrealized
Gain/Loss...................... 0.55
--------------
Total From Investment
Operations..................... 0.58
--------------
DISTRIBUTIONS
Net Investment Income............ (0.03)
In Excess of Net Investment
Income......................... (0.00)+
Net Realized Gain................ (0.05)
In Excess of Net Realized Gain... --
--------------
Total Distributions.............. (0.08)
--------------
NET ASSET VALUE, END OF PERIOD..... $ 10.50
==============
TOTAL RETURN (1)................... 5.83%**
==============
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's).......................... $ 35,564
Ratio of Expenses to Average Net
Assets........................... 2.20%
Ratio of Net Investment Income/Loss
to Average Net Assets............ 0.29%
Portfolio Turnover Rate............ 38%**
- --------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income/Loss......... $ 0.01
Ratios Before Expense Limitation:
Expenses to Average Net Assets... 2.35%
Net Investment Income/Loss to
Average Net Assets............. 0.15%
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
* Commencement of operations
** Non-Annualized
+ Amount is less than $0.01 per share.
(1) Total return is calculated exclusive of sales charges or
deferred sales charges.
# Changes per share are based upon monthly average shares
outstanding.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-150
<PAGE>
VAN KAMPEN VALUE FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
The Van Kampen Value Fund (the "Fund") is organized as a separate diversified
fund of Van Kampen Series Fund, Inc., a Maryland Corporation, which is
registered as an open-end management investment company under the Investment
Company Act of 1940, as amended. The Fund's investment objective seeks to
achieve above-average total return over a market cycle of three to five years,
consistent with reasonable risk. The Fund commenced operations on July 7, 1997.
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 and Class C
shares are offered without a front end sales charge, but are subject to a
contingent deferred sales charge ("CDSC"). Class B shares will automatically
convert to Class A shares after the eighth year following purchase. The CDSC
will be imposed on most redemptions made within five years of the purchase for
Class B shares and one year of the purchase for Class C shares as detailed in
the following schedule:
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE
----------------------
YEAR OF REDEMPTION CLASS B CLASS C
- ------------------ -------- --------
<S> <C> <C>
First..................................... 5.00% 1.00%
Second.................................... 4.00% None
Third..................................... 3.00% None
Fourth.................................... 2.50% None
Fifth..................................... 1.50% None
Thereafter................................ None None
</TABLE>
All three classes of shares have identical voting, dividend, liquidation and
other rights.
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. 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. 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. SECURITY TRANSACTIONS: Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements which are short-term investments in
which the Fund acquires ownership of a debt security and the seller agrees to
repurchase the security at a future time and specified price. Repurchase
agreements are fully collateralized by the underlying debt securities. 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.
3. INCOME AND EXPENSES: Dividend income is recorded on the ex-dividend date.
Interest income is recognized on an accrual basis except where collection is in
doubt. 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 Fund are recorded on the
ex-distribution date.
4. ORGANIZATIONAL COSTS: The organizational costs of the Fund are being
amortized on a straight line basis over a period of five years beginning with
the Fund's commencement of operations. The Adviser has agreed that in the event
any of its initial shares of the Fund originally purchased by Van Kampen are
redeemed by the Fund during the amortization period, the Fund will be reimbursed
for any unamortized organization costs in the same proportion as the number of
shares redeemed bears to the number of initial shares held at the time of
redemption.
5. TAXES: It is the Fund's intention to qualify as a regulated investment
company and distribute substantially all of its taxable income. Accordingly, no
provision for U.S. Federal income taxes is required in the financial statements.
At June 30, 1999, the Fund had a capital loss carryforward for U.S. Federal
Income tax purposes of approximately $4,433,000 which will expire June 30, 2007.
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 Fund for
F-151
<PAGE>
VAN KAMPEN VALUE FUND
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
gains realized and not distributed. To the extent that capital gains are so
offset, such gains will not be distributed to shareholders.
Net capital losses incurred after October 31 and within the taxable year are
deemed to arise on the first business day of the Fund's next taxable year. For
the period from November 1, 1998 to June 30, 1999 the Fund incurred and elected
to defer until July 1, 1999, for U.S. Federal income tax purposes, net capital
losses of approximately $1,606,000.
At June 30, 1999, cost and unrealized appreciation/ depreciation for U.S.
Federal income tax purposes of the investments of the Fund was:
<TABLE>
<CAPTION>
NET
APPRECIATION/
COST APPREC. DEPREC. DEPRECIATION
(000) (000) (000) (000)
- --------------------- -------- --------- -------------
<S> <C> <C> <C>
$245,340 $30,340 $(16,319) $14,021
</TABLE>
6. DISTRIBUTION OF INCOME AND GAINS: 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.
Permanent book to tax basis differences relating to shareholder distributions
may result in reclassification among accumulated net investment income/loss,
accumulated net realized gain/loss, and paid in capital. For the year ended
June 30, 1999, approximately $2,000 has been reclassified from paid in capital
and posted to accumulated net investment income/loss.
Permanent book to tax basis differences are not included in ending
undistributed/distributions in excess of net investment income for the purpose
of calculating net investment income/loss per share in the Financial Highlights.
B. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES: Van
Kampen Investment Advisory Corp. (the "Adviser"), a wholly owned subsidiary of
Van Kampen Investments Inc. (an indirect wholly owned subsidiary of Morgan
Stanley Dean Witter & Co.), Morgan Stanley Dean Witter Investment Management
Inc. ("MSDWIM" or a "Subadviser") 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 Fund, 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
ADVISORY FEE EXPENSE RATIO EXPENSE RATIO
- --------------------- -------------- --------------
<S> <C> <C>
0.80% 1.45% 2.20%
</TABLE>
For the year ended June 30, 1999, the Fund recognized expenses of approximately
$15,000 representing legal services provided by Skadden, Arps, Slate, Meagher &
Flom (Illinois), counsel to the Fund, of which a director of the Fund is an
affiliated person.
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 Fund, 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 Adviser.
Van Kampen Funds Inc. the ("Distributor") a wholly owned subsidiary of Van
Kampen Investments Inc., an indirect 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 Fund 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% of the Class B shares and Class C shares of the Fund, on
an annualized basis, of the average daily net assets attributable to each Class.
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 shares and Class C shares of the Fund
redeemed within one to five years following such purchase. For the year ended
June 30, 1999, the Distributor has advised the Fund that it earned initial sales
charges of $470,484 for Class A shares and deferred sales charges of $9,521,
$835,926, and $22,202 for Class A shares, Class B shares, and Class C shares,
respectively.
Certain officers and directors of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or directors who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its directors
who are not officers of Van Kampen. Under the deferred compensation plan,
Directors 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 Director's years of service to the Fund. The maximum annual
benefit per director under the plan is $2,500.
C. INVESTMENT TRANSACTIONS: For the year ended June 30, 1999, the Fund made
purchases of approximately $158,329,000 and sales of approximately $186,083,000
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.
F-152
<PAGE>
VAN KAMPEN WORLDWIDE HIGH INCOME FUND
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of Van Kampen Series Fund, Inc.--
Van Kampen Worldwide High Income Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Van Kampen Worldwide High Income
Fund (the "Fund", a fund of Van Kampen Series Fund, Inc.) at June 30, 1999, the
results of its operations, the changes in its net assets and the financial
highlights for each of the periods presented, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at June 30, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
200 E. Randolph Dr.
Chicago, Illinois 60601
August 6, 1999
F-153
<PAGE>
VAN KAMPEN WORLDWIDE HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
PAR
VALUE VALUE
(000) (000)
<C> <S> <C>
- ---------------------------------------------------------------------
CORPORATES BONDS & NOTES (51.6%)
ARGENTINA (3.3%)
$ (b)1,100 Cablevision S.A. 13.75%, 5/1/09........ $ 1,004
ARP (b)6,292 CIA International Telecommunications,
10.375%, 8/1/04...................... 4,940
$ (b)945 Multicanal S.A. 13.125%, 4/15/09....... 877
--------
6,821
--------
AUSTRALIA (0.7%)
895 Glencore Nickel Property Ltd. 9.00%,
12/1/14.............................. 770
745 Murrin Murrin Holdings 9.375%,
8/31/07.............................. 655
--------
1,425
--------
BRAZIL (1.8%)
(b,c)4,500 Banco Nacional Deseny Econ 13.64%,
6/16/08.............................. 3,780
--------
CANADA (1.6%)
(c)575 Husky Oil Ltd. 8.90%, 8/15/28.......... 553
400 Rogers Cablesystems Ltd. 10.125%,
9/1/12............................... 432
865 Rogers Cablesystems Ltd., Series B,
10.00%, 3/15/05...................... 932
605 Rogers Cantel, Inc. 8.30%, 10/1/07..... 597
250 Rogers Communications, Inc. 9.125%,
1/15/06.............................. 254
100 Rogers Communications, Inc. 8.875%,
7/15/07 Senior Notes................. 101
315 Tembec Industries, Inc. 8.625%,
6/30/09.............................. 313
--------
3,182
--------
CHILE (0.8%)
(b)1,650 Embotelladora Arica S.A. 9.875%,
3/15/06.............................. 1,681
--------
COLOMBIA (0.7%)
(d)2,000 Occidente Y Caribe 0.00%, 3/15/04...... 1,320
--------
INDIA (0.2%)
(b)400 Reliance Industries, Inc. 10.50%,
8/6/46............................... 342
--------
INDONESIA (0.7%)
300 Indah Kiat International, Series B,
11.875%, 6/15/02..................... 249
1,500 Tjiwi Kimia International B.V. 13.25%,
8/1/01............................... 1,290
--------
1,539
--------
KOREA (0.4%)
(b)785 Samsung Electronics Co. 7.45%,
10/1/02.............................. 761
--------
LUXEMBOURG (0.2%)
EUR (b)486 Sirona Dental Systems 9.125%,
7/15/08.............................. 461
--------
MEXICO (4.2%)
$ (c)2,650 Petroleos Mexicanos 9.369%, 7/15/05.... 2,481
(b)2,850 Petroleos Mexicanos 9.50%, 9/15/27..... 2,736
4,200 TV Azteca S.A. 10.125%, 2/15/04........ 3,423
--------
8,640
--------
NETHERLANDS (1.4%)
975 Hermes Europe Railtel BV 11.50%,
8/15/07 Senior Notes................. 1,024
EUR 299 Impress Metal 9.875%, 5/29/07.......... 342
<CAPTION>
PAR
VALUE
(000)
- ---------------------------------------------------------------------
<C> <S> <C>
$ (d)730 PTC International Finance BV 0.00%,
7/1/07............................... $ 539
EUR 875 Tele 1 Europe B.V. 13.00%, 5/15/09..... 936
--------
2,841
--------
PHILIPPINES (0.5%)
$ 1,300 Philippine Long Distance Telephone Co.
7.85%, 3/6/07........................ 1,111
--------
POLAND (1.5%)
(a,b,d)1,630 @Entertainment 0.00%, 2/1/09........... 1,092
EUR 1,900 Netia Holdings 13.50%, 6/15/09......... 2,021
--------
3,113
--------
QUATAR (0.3%)
$ (b)725 Ras Laffan Liquid National Gas 8.294%,
3/15/14.............................. 665
--------
TURKEY (1.2%)
2,440 Cellco Finance 15.00%, 8/1/05.......... 2,526
--------
UNITED KINGDOM (2.2%)
EUR 964 Colt Telecom Group plc 7.625%,
7/31/08.............................. 993
(d)940 Dolphin Telecommunications plc 0.00%,
6/1/08............................... 480
$ (b,d)500 Dolphin Telecommunications plc 0.00%,
5/15/09.............................. 241
EUR 665 Esprit Telecommunication Group plc
11.00%, 6/15/08...................... 734
$ 620 HMV Media Group, Inc. 10.875%,
5/15/08.............................. 1,014
EUR (d)1,611 RSL Communications plc 0.00%,
6/15/08.............................. 1,025
--------
4,487
--------
UNITED STATES (29.9%)
$ 205 Adelphia Communications, Series B,
7.50%, 1/15/04....................... 196
800 Adelphia Communications, Series B,
9.875%, 3/1/07....................... 834
600 Adelphia Communications, Series B,
8.375%, 2/1/08....................... 577
1,125 AES Corp. 8.50%, 11/1/07............... 1,059
725 American Cellular Corp. 10.50%,
5/15/08.............................. 743
500 American Communications Lines LLC, `B',
10.25%, 6/30/08...................... 501
EUR 1,150 American Standard Cos., Inc. 7.125%,
6/1/06............................... 1,195
$ 885 AMSC Acquisition Co., Inc., Series B,
12.25%, 4/1/08....................... 677
405 Axia, Inc. 10.75%, 7/15/08............. 400
(b)932 CA FM Lease Trust 8.50%, 7/15/17....... 866
(b)535 Centennial Cellular Holdings 10.75%,
12/15/08............................. 552
600 CEX Holdings, Inc., Series B, 9.625%,
6/1/08............................... 564
350 Chancellor Media Corp. 9.00%,
10/1/08.............................. 355
1,365 Chancellor Media Corp., `B', 8.125%,
12/15/07............................. 1,324
850 CMS Energy 7.50%, 1/15/09.............. 796
85 Columbia/HCA Healthcare, 8.13%, 8/4/03
MTN.................................. 84
425 Columbia/HCA Healthcare, 6.91%,
6/15/05.............................. 393
1,325 Columbia/HCA Healthcare, 8.85%, 1/1/07
MTN.................................. 1,333
2,500 Columbia/HCA Healthcare, 7.69%,
6/15/25.............................. 2,070
(d)1,025 Dial Call Communications, Series B,
10.25%, 12/15/05..................... 1,045
660 Dobson Communications Corp. 11.75%,
4/15/07.............................. 693
970 D.R. Horton, Inc. 8.00%, 2/1/09........ 912
762 DR Securitized Lease Trust,
Series 1993-K1, Class A1, 6.66%,
8/15/10.............................. 709
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-154
<PAGE>
VAN KAMPEN WORLDWIDE HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
PAR
VALUE
(000)
- ---------------------------------------------------------------------
<C> <S> <C>
$ 891 DR Securitized Lease Trust,
Series 1994-K1, Class A1, 7.60%,
8/15/07.............................. $ 874
250 DR Securitized Lease Trust,
Series 1994-K1, Class A2, 8.375%,
8/15/15.............................. 247
150 DR Structured Finance, Series 1994-K2,
CMO, 9.35%, 8/15/19.................. 151
(b)1,050 Echostar DBS Corp. 9.375%, 2/1/09...... 1,067
(b)300 EES Coke Battery Co., Inc. 9.382%,
4/15/07.............................. 294
165 Entex Information Services 12.50%,
8/1/06............................... 99
900 Fresenius Medical Capital Trust II
7.875%, 2/1/08....................... 846
(b,d)500 Fuji JGB Investments LLC, Series A,
9.87%, 12/31/49...................... 438
730 Global Crossing Holdings, Ltd. 9.625%,
5/15/08.............................. 770
770 Globalstar LP/Capital 11.375%,
2/15/04.............................. 508
125 Globalstar LP/Capital 11.50%, 6/1/05... 80
1,020 Harrahs Operating Co., Inc. 7.875%,
12/15/05............................. 989
930 Hilton Hotels 7.95%, 4/15/07........... 941
1,355 HMH Properties, Inc. Series A 7.875%,
8/1/05............................... 1,280
(b)1,060 Horseshoe Gaming Holdings 8.652%,
5/15/09.............................. 1,026
950 Host Marriott Travel Plaza, Series B,
9.50%, 5/15/05....................... 976
(b)1,175 Huntsman ICI Chemicals 10.125%,
7/1/09............................... 1,179
EUR (b)1,150 Huntsman ICI Chemicals 10.125%,
7/1/09............................... 1,192
$ (d)845 Hyperiom Telecommunications, 0.00%,
4/15/03.............................. 698
(d)2,765 Intermedia Communications, Series B,
0.00%, 7/15/07....................... 1,974
815 Iridium LLC/Capital Corp., Series A
13.00%, 7/15/05...................... 163
(b)300 Jet Equipment Trust, Series C-1,
11.79%, 6/15/13...................... 372
(b)300 Jet Equipment Trust, Series 1995-D,
11.44%, 11/1/14...................... 369
500 Kmart Funding Corp. 8.80%, 7/1/10...... 512
500 Mosaic RE Ltd., Class A, 9.60%,
7/9/99............................... 500
500 Musicland Group, Inc. 9.00%, 6/15/03... 485
950 Musicland Group, Inc. 9.875%,
3/15/08.............................. 931
490 National Steel Corp., Series D, 9.875%,
3/1/09............................... 497
(d,e)315 Nextel Communications, Inc. 9.75%,
8/15/04.............................. 320
(d)2,575 Nextel Communications, Inc. 0.00%,
9/15/07.............................. 1,880
(d)1,760 NEXTLINK Communications, Inc. 0.00%,
4/15/08.............................. 1,052
(d)990 Norcal Waste Systems 13.50%,
11/15/05............................. 1,094
(b,d)1,100 Nortek, Inc. 8.875%, 8/1/08............ 1,083
(b,f)525 NSM Steel Ltd., 12.25%, 2/1/08......... 1
GBP (d)1800 NTL, Inc. 0.00%, 4/1/08................ 1,920
$ (b)188 Oil Purchase Co. 7.10%, 4/30/02........ 179
(b)735 OnePoint Communications Corp., 14.50%,
6/1/08............................... 399
1,020 Outdoor Systems, Inc., 8.875%,
6/15/07.............................. 1,065
(b)500 Pacifica Papers, Inc. 10.00%,
3/15/09.............................. 515
970 Park Place Entertainment 7.875%,
12/15/05............................. 921
700 Primus Telecommunications Group,
Series B, 9.875%, 5/15/08............ 664
(b)330 Primus Telecommunications Group,
11.25%, 1/15/09...................... 335
515 PSINet, Inc., Series B, 10.00%,
2/15/05.............................. 512
(d)1325 RCN Corp. 0.00%, 10/15/07.............. 888
(d)910 Rhythms Netconnections, Inc.,
Series B, 0.00%, 5/15/08............. 480
35 RSL Communications Ltd. 12.25%,
11/15/06............................. 37
(b)740 RSL Communications Ltd. 9.125%,
3/1/08............................... 679
<CAPTION>
PAR
VALUE
(000)
- ---------------------------------------------------------------------
<C> <S> <C>
$ (b)1,215 Samsung Electronics Co. 9.75%,
5/1/03............................... $ 1,262
(b,d)425 SB Treasury Co. LLC 9.40%, 12/29/49.... 413
800 SD Warren Co., Series B, 12.00%,
12/15/04............................. 852
805 Smithfield Foods, Inc. 7.625%,
2/15/08.............................. 733
1,125 Snyder Oil Corp. 8.75%, 6/15/07........ 1,108
960 Station Casinos, Inc. 10.125%,
3/15/06.............................. 990
985 Station Casinos, Inc. 9.75%, 4/15/07... 1,005
(b)500 Tenet Healthcare Corp. 8.125%,
12/1/08.............................. 472
1,480 Tenet Healthcare Corp. 8.625%,
1/15/07.............................. 1,447
(d)1,900 Viatel, Inc., Series A, 0.00%,
4/15/08.............................. 1,221
450 Vintage Petroleum 8.625%, 2/1/09....... 430
(d)750 Wam!Net, Inc. 0.00%, 3/1/05............ 443
--------
61,736
--------
TOTAL CORPORATES BONDS & NOTES........................... 106,431
--------
ASSET BACKED SECURITIES (0.7%)
UNITED STATES (0.7%)
858 Commercial Financial Services, Inc.,
Series 1997-5, Class A1, 7.72%,
6/15/05.............................. 214
270 Long Beach Acceptance Auto Grantor
Trust 1997-1, Class B, 14.22%,
10/26/03............................. 268
922 OHA Grantor Trust, 11.00%, 9/15/03..... 918
--------
TOTAL ASSET BACKED SECURITIES............................ 1,400
--------
COLLATERALIZED MORTGAGE OBLIGATIONS (0.9%)
UNITED STATES (0.9%)
629 Aircraft Lease Portfolio Securitization
Ltd., Series 1996-1, Class DX,
12.75%, 6/15/06...................... 629
(b,c)36,368 DLJ Mortgage Acceptance Corp.,
Series 1997-CF2, Class S, IO, 0.36%,
10/15/30............................. 777
(b)535 Federal Mortgage Acceptance Corp.,
Series 1996-B, Class C, 7.883%,
11/15/18............................. 407
--------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS................ 1,813
--------
EUROBONDS (1.8%)
ARGENTINA (1.8%)
(c)4,269 Republic of Argentina, Series L,
5.938%, 3/31/05...................... 3,650
--------
FOREIGN GOVERNMENT & AGENCY OBLIGATIONS (37.3%)
ARGENTINA (6.9%)
2,920 Bonos del Tesoro, Series BT02, 8.75%,
5/9/02............................... 2,673
4,000 Republic of Argentina 12.125%,
2/15/19.............................. 3,640
8,690 Republic of Argentina 11.75%, 4/7/09... 7,864
--------
14,177
--------
BRAZIL (9.4%)
3,319 Federated Republic of Brazil, `C' PIK,
8.00%, 4/15/14....................... 2,165
(c)2,080 Federated Republic of Brazil Debt
Conversion Bond, Series Z-L, 5.938%,
4/15/12.............................. 1,292
(c)6,289 Federative Republic of Brazil,
Series EI-L, 5.875%, 4/15/06......... 4,968
(c)2,400 Federated Republic of Brazil,
Series NMB-L 5.938%, 4/15/09......... 1,686
9,800 Federated Republic of Brazil 11.625%,
4/15/04.............................. 9,249
--------
19,360
--------
BULGARIA (2.5%)
(d)8,580 Bulgaria Front Loaded Interest
Reduction Bond 2.50%, 7/28/12........ 5,239
--------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-155
<PAGE>
VAN KAMPEN WORLDWIDE HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
PAR
VALUE
(000)
- ---------------------------------------------------------------------
<C> <S> <C>
CHILE (0.8%)
$ 1,725 ENDESA 7.75%, 7/15/08.................. $ 1,615
--------
COLOMBIA (2.6%)
600 Republic of Colombia, Global Bond
10.875%, 3/9/04...................... 576
(c)1,460 Republic of Colombia, 9.705%,
8/13/05.............................. 1,266
4,250 Republic of Colombia, 9.75%, 4/23/09... 3,512
--------
5,354
--------
ECUADOR (0.3%)
(c)1,230 Republic of Ecuador Discount Bond
6.00%, 2/28/25....................... 576
--------
JAMAICA (0.1%)
(b)300 Government of Jamaica 10.875%,
6/10/05.............................. 279
--------
JORDAN (0.4%)
(c)496 Government of Jordan 6.188%,
12/23/23............................. 312
(b,c)828 Government of Jordan 6.188%,
12/23/23............................. 522
--------
834
--------
MEXICO (7.9%)
12,100 United Mexican States 10.375%,
2/17/09.............................. 12,297
3,780 United Mexican States 11.375%, 9/15/16
Global Bond.......................... 4,065
--------
16,362
--------
NIGERIA (0.4%)
(d)2,100 Government of Nigeria Promissory Notes
5.092%, 1/5/10....................... 839
--------
PANAMA (1.4%)
1,950 Republic of Panama, 9.375%, 4/1/29..... 1,862
(d)1,305 Republic of Panama Past Due Interest,
PIK 4.00%, 7/17/16................... 965
--------
2,827
--------
PERU (1.4%)
(b,d)3,950 Republic of Peru Front Loaded Interest
Reduction Bond 3.75%, 3/7/17......... 2,188
(d)1,140 Republic of Peru Front Loaded Interest
Reduction Bond 3.75%, 3/7/17......... 631
--------
2,819
--------
RUSSIA (2.0%)
(b)8,370 Government of Russia 11.00%, 7/24/18... 4,206
--------
VENEZUELA (1.2%)
(c)3,238 Republic of Venezuela Discount Bond,
Series L, 6.313%, 12/18/07........... 2,511
--------
TOTAL FOREIGN GOVERNMENT & AGENCY OBLIGATIONS............ 76,998
--------
LOAN AGREEMENTS (1.6%)
INDONESIA (0.4%)
(c)300 Republic of Indonesia Syndicated Loan
8.125%, 8/25/00...................... 280
(c)500 Republic of Indonesia Syndicated Loan
8.375%, 8/25/01...................... 440
(c)100 Republic of Indonesia Syndicated Loan
8.625%, 8/25/02...................... 86
--------
806
--------
<CAPTION>
PAR
VALUE
(000)
- ---------------------------------------------------------------------
<C> <S> <C>
MOROCCO (1.2%)
$ (c)3,080 Kingdom of Morocco, Series A, 5.906%,
1/1/09............................... $ 2,487
--------
TOTAL LOAN AGREEMENTS.................................... 3,293
--------
<CAPTION>
SHARES
------
PREFERRED STOCKS (0.9%)
<C> <S> <C>
UNITED STATES (0.9%)
(a)6,275 Concentric Network Corp. 13.50%........ 593
(a)679 IXC Communications, Inc., PIK 12.50%... 655
6,931 Paxson Communications 13.25%........... 624
--------
TOTAL PREFERRED STOCKS................................... 1,872
--------
<CAPTION>
NO. OF
WARRANTS
--------
WARRANTS (0.4%)
<C> <S> <C>
ARGENTINA (0.0%)
(a)4,750 Republic of Argentina, expiring
2/25/00.............................. 5
--------
COLOMBIA (0.1%)
(a,b)80,000 Occidente Y Caribe, expiring 3/15/04... 135
--------
POLAND (0.0%)
(a,b)6,520 @Entertainment, expiring 2/1/09........ --
--------
UNITED STATES (0.3%)
(a,b)8,850 American Mobile Satellite Corp.,
expiring 4/1/08...................... 32
(a,b)3,323,743 NSM Steel, Inc., expiring 2/1/08....... 4
(a,b)7,350 OnePoint Communications Corp., expiring
6/1/08............................... 1
(a,b)38,200 Rhythms Netconnections, Inc. expiring
5/15/08.............................. 550
(a,b)22,500 Wam!Net, Inc., expiring 3/1/05......... 51
--------
638
--------
TOTAL WARRANTS........................................... 778
--------
TOTAL LONG-TERM INVESTMENTS (95.2%) (COST $199,335)...... 196,235
--------
</TABLE>
<TABLE>
<CAPTION>
PAR
VALUE
(000)
<C> <S> <C>
- -------------------
SHORT-TERM INVESTMENTS (2.6%)
TREASURY BILLS (1.3%)
TRL(b)1,146,669,000 Republic of Turkey, Series 14T,
0.00%, 2/9/00.................. 1,703
510,772,000 Republic of Turkey, Series 6B,
0.00%, 9/15/99................. 1,032
--------
2,735
--------
REPURCHASE AGREEMENT (1.3%)
$ 2,598 Chase Securities, Inc., 4.55%,
dated 6/30/99, due 7/1/99, to
be repurchased at $2,598,
collateralized by $2,415 U.S.
Treasury Bonds, 7.250%
due 5/15/16, valued at
$2,684......................... 2,598
--------
TOTAL SHORT-TERM INVESTMENTS (2.6%) (COST $5,663)....... 5,333
--------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-156
<PAGE>
VAN KAMPEN WORLDWIDE HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
(000)
<C> <S> <C>
- ---------------------------------------------------------------------
TOTAL INVESTMENTS (COST $204,998) (97.8%)................ $201,568
OTHER ASSETS IN EXCESS OF LIABILITIES (2.2%)............. 4,567
--------
NET ASSETS (100%)........................................ $206,135
========
</TABLE>
- ---------------
<TABLE>
<S> <C> <C>
(a) -- Non-income producing security
(b) -- 144A Security--Certain conditions for public sale may
exist.
(c) -- Variable/floating rate security--rate disclosed is as of
June 30, 1999.
(d) -- Step Bond--coupon rate increases in increments to
maturity. Rate disclosed is as of June 30, 1999. Maturity
date disclosed is the ultimate maturity date.
(e) -- Security out on collateral for outstanding futures
contracts.
(f) -- Bond is in default.
ARP -- Argentine Peso
CMO -- Collaterized Mortgage Obligation
EUR -- Euro
GBP -- British Pound
IO -- Interest Only
PIK -- Payment-In-Kind. Income may be received in additional
securities or cash at the discretion of the issuer.
MTN -- Medium Term Note
TRL -- Turkish Lira
</TABLE>
----------------------------------------------------------------
SUMMARY OF LONG-TERM INVESTMENTS BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
- -------- -------- ----------
<S> <C> <C>
Foreign Government & Agency
Obligations...................... $ 76,998 37.4%
Telecommunications............... 30,924 15.0
Services......................... 18,115 8.8
Broadcast--Radio & Television.... 15,637 7.6
Multi-Industry................... 15,112 7.3
Finance.......................... 10,797 5.2
Materials........................ 5,243 2.5
Technology....................... 4,926 2.4
Eurobonds........................ 3,650 1.8
Utilities........................ 3,584 1.7
Loan Agreements.................. 3,293 1.6
Collateralized Mortgage
Obligations & Asset Backed
Securities....................... 3,213 1.6
Consumer Goods................... 2,807 1.4
Transportation................... 1,024 0.5
Capital Goods.................... 912 0.4
-------- ----
$196,235 95.2%
======== ====
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-157
<PAGE>
VAN KAMPEN WORLDWIDE HIGH INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- --------------------------------------------------------------------------
ASSETS:
Investments at Value (Cost $204,998)...................... $201,568
Margin Deposit on Futures................................. 199
Receivable for:
Interest................................................ 4,781
Investments Sold........................................ 2,710
Fund Shares Sold........................................ 328
Variation of Futures Contracts.......................... 33
Foreign Withholding Tax Reclaim......................... 19
Net Unrealized Gain on Foreign Currency Exchange
Contracts............................................... 271
Other..................................................... 9
--------
Total Assets............................................ 209,918
--------
LIABILITIES:
Payable for:
Dividends Declared...................................... 1,798
Bank Overdraft.......................................... 602
Investments Purchased................................... 496
Fund Shares Redeemed.................................... 293
Distribution Fees....................................... 284
Investment Advisory Fees................................ 127
Administrative Fees..................................... 43
Professional Fees....................................... 42
Transfer Agent Fees..................................... 35
Shareholder Reporting Expenses.......................... 23
Custody Fees............................................ 22
Directors' Fees and Expenses............................ 16
Other..................................................... 2
--------
Total Liabilities....................................... 3,783
--------
NET ASSETS.................................................. $206,135
========
NET ASSETS CONSIST OF:
Capital Stock at Par ($.001 par value, Shares Authorized
2,625,000,000).......................................... $ 21
Paid in Capital in Excess of Par.......................... 283,951
Accumulated Net Investment Income......................... 357
Net Unrealized Depreciation on Investments, Foreign
Currency Translations and Futures....................... (3,140)
Accumulated Net Realized Loss............................. (75,054)
--------
NET ASSETS.................................................. $206,135
========
CLASS A SHARES:
Net Asset Value and Redemption Price Per Share (Based on
Net Assets of $58,506,414 and 5,907,569 Shares
Outstanding)............................................ $ 9.90
========
Maximum Sales Charge...................................... 4.75%
Maximum Offering Price Per Share (Net Asset Value Per
Share X 100/ (100 - maximum sales charge)).............. $ 10.39
========
CLASS B SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $107,012,758 and 10,849,654 Shares
Outstanding)*........................................... $ 9.86
========
CLASS C SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $40,616,194 and 4,116,484 Shares
Outstanding)*........................................... $ 9.87
========
</TABLE>
- -------------
<TABLE>
<S> <C>
* Redemption price may be subject to a contingent deferred
sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-158
<PAGE>
VAN KAMPEN WORLDWIDE HIGH INCOME FUND
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- --------------------------------------------------------------------------
INVESTMENT INCOME:
Interest.................................................. $ 27,856
--------
EXPENSES:
Distribution Fees (Attributed to Classes A, B, and C of
$173, $1,158, and $468, respectively)................... 1,799
Investment Advisory Fees.................................. 1,743
Administrative Fees....................................... 585
Shareholder Reports....................................... 106
Custodian Fees............................................ 124
Transfer Agent Fees....................................... 108
Professional Fees......................................... 66
Filing and Registration Fees.............................. 44
Directors' Fees and Expenses.............................. 12
Other..................................................... 17
--------
Total Expenses.......................................... 4,604
--------
Net Investment Income/Loss.................................. 23,252
--------
NET REALIZED GAIN/LOSS ON:
Investments............................................... (75,324)
Foreign Currency Transactions............................. (393)
Futures................................................... 5
--------
Net Realized Gain/Loss.................................. (75,712)
--------
NET UNREALIZED APPRECIATION/DEPRECIATION:
Beginning of the Period................................... (14,693)
--------
End of the Period:
Investments............................................. (3,430)
Foreign Currency Translations........................... 257
Futures................................................. 33
--------
(3,140)
--------
Net Unrealized Appreciation/Depreciation During the
Period.................................................... 11,553
--------
Net Realized Gain/Loss and Net Unrealized
Appreciation/Depreciation................................. (64,159)
--------
NET INCREASE/DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................................ $(40,907)
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-159
<PAGE>
VAN KAMPEN WORLDWIDE HIGH INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1999 JUNE 30, 1998
(000) (000)
<S> <C> <C>
- --------------------------------------------------------------------------------------------------
INCREASE/DECREASE IN NET ASSETS
OPERATIONS:
Net Investment Income/Loss................................ $ 23,252 $ 19,591
Net Realized Gain/Loss.................................... (75,712) 12,018
Net Unrealized Appreciation/Depreciation.................. 11,553 (28,435)
------------- -------------
Net Increase/Decrease in Net Assets Resulting from
Operations.............................................. (40,907) 3,174
------------- -------------
DISTRIBUTIONS:
Net Investment Income:
Class A................................................... (7,573) (6,930)
Class B................................................... (11,681) (8,313)
Class C................................................... (4,723) (3,852)
------------- -------------
(23,977) (19,095)
------------- -------------
Net Realized Gain:
Class A................................................... -- (6,907)
Class B................................................... -- (8,787)
Class C................................................... -- (4,230)
In Excess of Net Realized Gain:
Class A................................................... (42) --
Class B................................................... (70) --
Class C................................................... (29) --
------------- -------------
(141) (19,924)
------------- -------------
Net Decrease in Net Assets Resulting from Distributions... (24,118) (39,019)
------------- -------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed................................................ 83,177 226,529
Distributions Reinvested.................................. 13,759 25,615
Redeemed.................................................. (123,953) (114,610)
------------- -------------
Net Increase/Decrease in Net Assets Resulting from Capital
Share Transactions...................................... (27,017) 137,534
------------- -------------
Total Increase/Decrease in Net Assets..................... (92,042) 101,689
NET ASSETS--Beginning of Period............................. 298,177 196,488
------------- -------------
NET ASSETS--End of Period (Including accumulated net
investment income of $357 and $781, respectively)......... $ 206,135 $ 298,177
============= =============
- --------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
(1) Class A:
Shares:
Subscribed............................................. 3,413 6,811
Distributions Reinvested............................... 486 743
Redeemed............................................... (5,339) (5,569)
------------- -------------
Net Increase/Decrease in Class A Shares Outstanding...... (1,440) 1,985
============= =============
Dollars:
Subscribed............................................. $ 36,170 $ 93,959
Distributions Reinvested............................... 4,873 9,850
Redeemed............................................... (53,258) (77,161)
------------- -------------
Net Increase/Decrease.................................... $ (12,215) $ 26,648
============= =============
Ending Paid in Capital................................... $ 80,677+ $ 92,892
============= =============
Class B:
- ------------------------------------------------------------
Shares:
Subscribed............................................. 3,007 7,464
Distributions Reinvested............................... 619 770
Redeemed............................................... (4,586) (1,939)
------------- -------------
Net Increase/Decrease in Class B Shares Outstanding...... (960) 6,295
============= =============
Dollars:
Subscribed............................................. $ 31,134 $ 101,066
Distributions Reinvested............................... 6,179 10,086
Redeemed............................................... (45,561) (26,325)
------------- -------------
Net Increase/Decrease.................................... $ (8,248) $ 84,827
============= =============
Ending Paid in Capital................................... $ 147,844+ $ 156,092
============= =============
Class C:
- ------------------------------------------------------------
Shares:
Subscribed............................................. 1,545 2,312
Distributions Reinvested............................... 270 432
Redeemed............................................... (2,552) (825)
------------- -------------
Net Increase/Decrease in Class C Shares Outstanding...... (737) 1,919
============= =============
Dollars:
Subscribed............................................. $ 15,873 $ 31,504
Distributions Reinvested............................... 2,707 5,679
Redeemed............................................... (25,134) (11,124)
------------- -------------
Net Increase/Decrease.................................... $ (6,554) $ 26,059
============= =============
Ending Paid in Capital................................... $ 55,455+ $ 62,009
============= =============
</TABLE>
- ---------------
<TABLE>
<S> <C>
+ Ending Paid in Capital amounts do not reflect permanent book
to tax differences.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-160
<PAGE>
VAN KAMPEN WORLDWIDE HIGH INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B
----------------------------------------------- -----------------------------
YEAR ENDED JUNE 30, YEAR ENDED JUNE 30,
----------------------------------------------- -----------------------------
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# 1997 1996 1995 1999# 1998# 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD........ $12.464 $ 14.26 $ 12.47 $ 11.57 $ 12.17 $ 12.396 $ 14.20 $ 12.44
------- ------- ------- ------- ------- -------- -------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss... 1.062 1.15 1.25 1.36 1.26 0.982 1.04 1.07
Net Realized and Unrealized
Gain/Loss... (2.516) (0.67) 2.30 0.80 (0.52) (2.497) (0.65) 2.35
------- ------- ------- ------- ------- -------- -------- -------
Total From Investment
Operations... (1.454) 0.48 3.55 2.16 0.74 (1.515) 0.39 3.42
------- ------- ------- ------- ------- -------- -------- -------
DISTRIBUTIONS
Net Investment Income... (1.100) (1.09) (1.25) (1.26) (1.22) (1.012) (1.00) (1.15)
Net Realized Gain... -- (1.19) (0.51) -- (0.12) -- (1.19) (0.51)
In Excess of Net Realized
Gain........ (0.006) -- -- -- -- (0.006) -- --
------- ------- ------- ------- ------- -------- -------- -------
Total Distributions... (1.106) (2.28) (1.76) (1.26) (1.34) (1.018) (2.19) (1.66)
------- ------- ------- ------- ------- -------- -------- -------
NET ASSET VALUE, END OF PERIOD... $ 9.904 $ 12.46 $ 14.26 $ 12.47 $ 11.57 $ 9.863 $ 12.40 $ 14.20
======= ======= ======= ======= ======= ======== ======== =======
TOTAL RETURN (1)... (11.14)% 3.40% 30.29% 19.61% 6.87% (11.82)% 2.63% 29.14%
======= ======= ======= ======= ======= ======== ======== =======
RATIOS AND SUPPLEMENTAL DATA
Net assets, End of Period
(000's)....... $58,506 $91,579 $76,439 $41,493 $14,819 $107,013 $146,401 $78,340
Ratio of Expenses to Average Net
Assets........ 1.45% 1.45% 1.52% 1.55% 1.55% 2.20% 2.20% 2.27%
Ratio of Net Investment
Income/Loss to Average Net
Assets........ 10.55% 8.36% 9.73% 11.95% 11.53% 9.81% 7.64% 8.86%
Portfolio Turnover Rate... 121% 156% 157% 220% 178% 121% 156% 157%
- ---------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income/Loss... $ -- $ -- $ -- $ 0.02 $ 0.05 $ -- $ -- $ --
Ratios Before Expense Limitation:
Expenses to Average Net
Assets...... -- -- -- 1.69% 1.97% -- -- --
Net Investment Income/Loss to
Average Net Assets.. -- -- -- 11.81% 11.11% -- -- --
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
----------------
AUGUST 1, 1995+
SELECTED PER SHARE DATA AND RATIOS TO JUNE 30, 1996
<S> <C>
- ----------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD........ $ 11.63
---------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss... 1.18
Net Realized and Unrealized
Gain/Loss... 0.72
---------------
Total From Investment
Operations... 1.90
---------------
DISTRIBUTIONS
Net Investment Income... (1.09)
Net Realized Gain... --
In Excess of Net Realized
Gain........ --
---------------
Total Distributions... (1.09)
---------------
NET ASSET VALUE, END OF PERIOD... $ 12.44
===============
TOTAL RETURN (1)... 17.07%*
===============
RATIOS AND SUPPLEMENTAL DATA
Net assets, End of Period
(000's)....... $ 26,174
Ratio of Expenses to Average Net
Assets........ 2.30%
Ratio of Net Investment
Income/Loss to Average Net
Assets........ 12.06%
Portfolio Turnover Rate... 220%*
- -----------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income/Loss... $ 0.02
Ratios Before Expense Limitation:
Expenses to Average Net
Assets...... 2.47%
Net Investment Income/Loss to
Average Net Assets.. 11.89%
- --------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS C
-----------------------------------------------------------
YEAR ENDED JUNE 30,
-----------------------------------------------------------
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD........................ $12.403 $ 14.21 $ 12.45 $ 11.58 $ 12.16
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss................................ 0.982 1.04 1.16 1.30 1.17
Net Realized and Unrealized Gain/Loss..................... (2.500) (0.66) 2.26 0.77 (0.50)
------- ------- ------- ------- -------
Total From Investment Operations.......................... (1.518) 0.38 3.42 2.07 0.67
------- ------- ------- ------- -------
DISTRIBUTIONS
Net Investment Income..................................... (1.012) (1.00) (1.15) (1.20) (1.13)
Net Realized Gain......................................... -- (1.19) (0.51) -- (0.12)
In Excess of Net Realized Gain............................ (0.006) -- -- -- --
------- ------- ------- ------- -------
Total Distributions....................................... (1.018) (2.19) (1.66) (1.20) (1.25)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD.............................. $ 9.867 $ 12.40 $ 14.21 $ 12.45 $ 11.58
======= ======= ======= ======= =======
TOTAL RETURN (1)............................................ (11.83)% 2.55% 29.12% 18.71% 6.20%
======= ======= ======= ======= =======
RATIOS AND SUPPLEMENTAL DATA
Net assets, End of Period (000's)........................... $40,616 $60,197 $41,709 $28,094 $11,880
Ratio of Expenses to Average Net Assets..................... 2.20% 2.20% 2.27% 2.30% 2.30%
Ratio of Net Investment Income to Average Net Assets........ 9.81% 7.62% 9.04% 11.40% 10.72%
Portfolio Turnover Rate..................................... 121% 156% 157% 220% 178%
- -----------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the Period
Per Share Benefit to Net Investment Income/Loss........... $ -- $ -- $ -- $ 0.04 $ 0.05
Ratios Before Expense Limitation:
Expenses to Average Net Assets............................ -- -- -- 2.44% 2.74%
Net Investment Income/Loss to Average Net Assets.......... -- -- -- 11.26% 10.28%
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
* Non-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.
# Changes per share are based upon monthly average shares
outstanding.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-161
<PAGE>
VAN KAMPEN WORLDWIDE HIGH INCOME FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
The Van Kampen Worldwide High Income Fund (the "Fund") is organized as a
separate non-diversified fund of Van Kampen Series Fund, Inc., a Maryland
Corporation, which is registered as an open-end management investment company
under the Investment Company Act of 1940, as amended. The Fund's investment
objective seeks to offer investors high current income consistent with relative
stability of principal and potential for capital appreciation. The Fund
commenced operations on April 21, 1994.
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
4.75%. 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 and Class C
shares are offered without a front end sales charge, but are subject to a
contingent deferred sales charge ("CDSC"). Class B shares will automatically
convert to Class A shares after the eighth year following purchase. The CDSC
will be imposed on most redemptions made within five years of the purchase for
Class B shares and one year of the purchase for Class C shares as detailed in
the following schedule:
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE
YEAR OF REDEMPTION CLASS B CLASS C
- ------------------ -------- --------
<S> <C> <C>
First............................. 4.00% 1.00%
Second............................ 4.00% None
Third............................. 3.00% None
Fourth............................ 2.50% None
Fifth............................. 1.50% None
Thereafter........................ None None
</TABLE>
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.
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.
At June 30, 1999, approximately 86% of the net assets of the Worldwide High
Income Fund 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 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. SECURITY TRANSACTIONS: Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements, which are short-term investments
in which the Fund acquires ownership of a debt security and the seller agrees to
repurchase the security at a future time and specified price. Repurchase
agreements are fully collateralized by the underlying debt security. 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.
3. INCOME AND EXPENSES: Dividend income is recorded on the ex-dividend date.
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. 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 Fund are recorded on the ex-distribution date.
4. FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS: Assets and liabilities
denominated in foreign currencies and commitments under forward currency
contracts are
F-162
<PAGE>
VAN KAMPEN WORLDWIDE HIGH INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
translated into U.S. dollars at the mean of the quoted bid and asked prices.
Purchases and sales of portfolio securities are translated at the rate of
exchange prevailing when such securities were purchased or sold. Income and
expenses are translated at rates prevailing when accrued. Realized and
unrealized gains and losses on securities are not segregated for financial
reporting purposes from amounts arising from changes in the market prices of
securities. Realized gains and losses on foreign currency includes the net
realized amount from the sale of the currency and the amount realized between
trade date and settlement date on security and income transactions. However, 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.
The net assets of the Fund may include issuers located in emerging markets.
There are certain risks inherent in these investments not typically associated
with investments in the United States, including the smaller size of the markets
themselves, lesser liquidity, greater volatility and potentially less publicly
available information. Emerging markets may be subject to a greater degree of
government involvement in the economy and greater economic and political
uncertainty, which has the potential to extend to government imposed
restrictions on exchange traded transactions and currency transactions. These
restrictions may impact the Fund's ability to buy or sell certain securities or
to repatriate certain currencies to U.S. dollars. Additionally, changes in
currency exchange rates will affect the value of and investment income from such
securities.
5. TAXES: It is the Fund's intention to qualify as a regulated investment
company and distribute substantially all of its taxable income. Accordingly, no
provision for U.S. Federal income taxes is required in the financial statements.
The Fund 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, 1999, cost and unrealized appreciation/ depreciation for U.S.
Federal income tax purposes of the investments of the Fund was:
<TABLE>
<CAPTION>
NET
APPRECIATION/
COST APPREC. DEPREC. DEPRECIATION
(000) (000) (000) (000)
----- ------- ------- -------------
<S> <C> <C> <C>
$212,269 $8,059 $(18,760) $(10,701)
</TABLE>
6. DISTRIBUTIONS OF INCOME AND GAINS: 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, and gains on certain securities of corporations
designated as "passive foreign investment companies."
Permanent book to tax basis differences relating to shareholder distributions
may result in reclassification among accumulated net investment income/loss,
accumulated net realized gain/loss, and paid in capital in excess of par. For
the year ended June 30, 1999, approximately $297,000 has been reclassified from
accumulated net realized loss and approximately $4,000 has been reclassified
from paid in capital in excess of par totaling $301,000 posted to accumulated
net investment income.
Permanent book to tax basis differences are not included in ending
undistributed/distributions in excess of net investment income for the purpose
of calculating net investment income/loss per share in the Financial Highlights.
B. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES: Van
Kampen Investment Advisory Corp. (the "Adviser"), a wholly owned subsidiary of
Van Kampen Investments Inc. (an indirect wholly owned subsidiary of Morgan
Stanley Dean Witter & Co.), Morgan Stanley Dean Witter Investment Management
Inc. ("MSDWIM" or a "Subadviser") 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 Fund, 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
ADVISORY FEE EXPENSE RATIO EXPENSE RATIO
- ------------ -------------- --------------
<S> <C> <C>
0.75% 1.55% 2.30%
</TABLE>
For the year ended June 30, 1999, the Fund recognized expenses of approximately
$12,000 representing legal services provided by Skadden, Arps, Slate, Meagher &
Flom (Illinois), counsel to the Fund, of which a director of the Fund is an
affiliated person.
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 Adviser.
F-163
<PAGE>
VAN KAMPEN WORLDWIDE HIGH INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
Van Kampen Funds Inc. the ("Distributor") a wholly owned subsidiary of Van
Kampen Investments Inc., an indirect 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 Fund 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% of the Class B shares and Class C shares of the Fund on
an annualized basis, of the average daily net assets attributable to each Class.
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 shares and Class C shares of the Fund
redeemed within one to five years following such purchase. For the year ended
June 30, 1999, the Distributor has advised the Fund that it earned initial sales
charges of $308,371 for Class A shares and deferred sales charges of $6,501,
$610,632, and $24,589 for Class A shares, Class B shares, and Class C shares,
respectively.
Prior to October 1, 1998, the Fund's assets held outside the United States were
held by Morgan Stanley Trust Company ("MSTC"), a former affiliate of the
Subadvisers. Through September 30, 1998, the Fund incurred MSTC fees of
approximately $7,000. On October 1, 1998, the Chase Manhattan Bank purchased
MSTC.
Certain officers and directors of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or directors who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its directors
who are not officers of Van Kampen. Under the deferred compensation plan,
Directors 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 Director's years of service to the Fund. The maximum annual
benefit per director under the plan is $2,500.
C. INVESTMENT TRANSACTIONS: For the year ended June 30, 1999, the Fund made
purchases of approximately $267,604,000 and sales of approximately $287,663,000
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.
D. DERIVATIVE FINANCIAL INSTRUMENTS: A derivative financial instrument in very
general terms refers to a security whose value is "derived" from the value of an
underlying asset, reference rate or index.
The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio and to manage the portfolio's effective yield, foreign currency
exposure, maturity and duration. All of the Fund's portfolio holdings, including
derivative instruments, are marked-to-market each day with the change in value
reflected in unrealized appreciation/depreciation. Upon disposition, a realized
gain or loss is recognized accordingly, except when exercising a call option
contract or taking delivery of a security underlying a forward contract. In this
instance, the recognition of gain or loss is postponed until the disposal of the
security underlying the option or forward contract. Risks may arise as a result
of the potential inability of the counterparties to meet the terms of their
contracts.
Summarized below are the specific types of derivative financial instruments used
by the Fund.
1. FORWARD CURRENCY CONTRACTS: These instruments are commitments to purchase or
sell a foreign currency at a future date at a negotiated forward rate. The gain
or loss arising from the difference between the original value of the contract
and the closing value of such contract is included as a component of realized
gain/loss on foreign currency transactions.
At June 30, 1999, the Fund has outstanding forward currency contracts as
follows:
<TABLE>
<CAPTION>
UNREALIZED
CURRENT APPRECIATION/
VALUE DEPRECIATION
FORWARD CURRENCY CONTRACTS (000) (000)
- -------------------------- ------- -------------
<S> <C> <C>
SHORT CONTRACTS:
British Pound,
2,005,000 expiring 9/3/99............. $ 3,165 $ 66
Euro,
9,215,000 expiring 7/26/99-8/20/99.... 9,536 205
------- ----
$12,701 $271
======= ====
</TABLE>
2. FUTURES CONTRACTS: A futures contract is an agreement involving the delivery
of a particular asset on a specified future date at an agreed upon price. The
Fund generally invests in futures of foreign government bonds and typically
closes the contract prior to the delivery date. These contracts are generally
used to manage the portfolio's effective maturity and duration.
Upon entering into futures contracts, the Fund maintains, in a segregated
account with its custodian, cash or securities with a value equal to its
obligation under the futures contracts. During the period the futures contract
is open, payments are received from or made to the broker based upon changes in
the value of the contract (the variation margin). The potential risk of loss
associated with a futures contract could be in excess of the variation margin
reflected on the Statement of Assets and Liabilities. The cost of securities
acquired through delivery under a contract is adjusted by the unrealized gain or
loss on the contract.
F-164
<PAGE>
VAN KAMPEN WORLDWIDE HIGH INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
Transactions in futures contracts for the year ended June 30, 1999, were as
follows:
<TABLE>
<CAPTION>
CONTRACTS
- ------------------------------------------------------
<S> <C>
Outstanding at June 30, 1998............... -0-
Futures Opened............................. 69
Futures Closed............................. (56)
---
Outstanding at June 30, 1999............... 13
===
</TABLE>
The futures contracts outstanding as of June 30, 1999, and the descriptions and
the unrealized appreciation/ depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION/
DEPRECIATION
CONTRACTS (000)
<S> <C> <C>
- ------------------------------------------------------------------
SHORT CONTRACTS:
U.K. Long Gilt September 1999
(Current notional value
$2,329,331).......................... 13 $33
== ===
</TABLE>
F-165
<PAGE>
PART C: OTHER INFORMATION
ITEM 23. EXHIBITS
<TABLE>
<C> <S> <C>
(a) (1) Articles of Amendment and Restatement(1)
(2) Articles Supplementary (adding Registrant's High Yield & Total
Return (formerly, High Yield) and Japanese Equity Funds) to the
Amended and Restated Articles of Incorporation(2)
(3) 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)
(4) Articles Supplementary (changing the name of Morgan Stanley Equity
Growth to Van Kampen Equity Growth) to the Amended and Restated
Articles of Incorporation(7)
(5) Articles Supplementary (adding Registrant's Global Franchise Fund)
to the Amended and Restated Articles of Incorporation(7)
(6) Articles of Amendment (changing the corporate name from Morgan
Stanley Fund, Inc. to Van Kampen Series Fund, Inc.)(8)
(7) Articles Supplementary (changing the name of each fund (except the
money market funds))(8)
(8) Articles Supplementary (changing the name of Van Kampen Aggressive
Equity Fund to Van Kampen Focus Equity Fund)+
(b) Amended and Restated By-Laws(1)
(c) Specimen stock certificates relating to all of the Funds of the
Registrant(5)
(d) (1) Investment Advisory Agreement(8)
(2) Investment Sub-Advisory Agreement, Morgan Stanley Dean Witter
Investment Management Inc., formerly, Morgan Stanley Asset
Management Inc.(5)
(3) Investment Sub-Advisory Agreement, Miller Anderson & Sherrerd,
LLP(5)
(e) (1) Distribution Agreement(3)
(2) Form of Dealer Agreement(9)
(3) Form of Broker Fully Disclosed Clearing Agreement(9)
(4) Form of Bank Fully Disclosed Clearing Agreement(9)
(f) (1) Form of Trustee Deferred Compensation Agreement(6)
(2) Form of Trustee Retirement Plan(6)
(g) Custody Agreement, The Chase Manhattan Bank, N.A.(4)
(h) (1) Transfer Agency and Service Agreements:
(i) Sub-Transfer Agency Agreement between Morgan Stanley Dean
Witter Investment Management Inc., formerly, Morgan Stanley
Asset Management Inc. and Van Kampen Investor
Services Inc.(3)
(ii) Assignment and Assumption Agreement for Sub-Transfer Agency
Agreement between Van Kampen Investment Advisory Corp. and
Morgan Stanley Dean Witter Investment Management Inc.,
formerly, Morgan Stanley Asset Management Inc.(5)
(iii) Sub-Transfer Agency Agreement between Miller Anderson &
Sherrerd, LLP and Van Kampen Investor Services Inc.(3)
</TABLE>
C-1
<PAGE>
<TABLE>
<C> <S> <C>
(iv) Assignment and Assumption Agreement (Sub-Transfer Agency
Agreement) between Van Kampen Investment Advisory Corp. and
Miller Anderson & Sherrerd, LLP(5)
(v) Amended Schedule for Sub-Transfer Agency Agreement between
Morgan Stanley Dean Witter Investment Management Inc.,
formerly, Morgan Stanley Asset Management Inc., and Van
Kampen Investor Services Inc. (Global Franchise Fund)(8)
(2) Administration Agreements:
(i) Administration Agreement between Registrant and Morgan
Stanley Dean Witter Investment Management Inc., formerly,
Morgan Stanley Asset Management Inc.(4) and as amended by
Addendum to such Agreement(1)
(ii) Assignment and Assumption Agreement (Administration
Agreement) between Van Kampen Investment Advisory Inc. and
Morgan Stanley Dean Witter Investment Management Inc.,
formerly, Morgan Stanley Asset Management Inc.(5)
(iii) Administration Agreement between Registrant and Miller
Anderson & Sherrerd, LLP(3)
(iv) Assignment and Assumption Agreement (Administration
Agreement) between Van Kampen Investment Advisory Corp. and
Miller Anderson & Sherrerd, LLP(5)
(v) Sub-Administration Agreement between Morgan Stanley Dean
Witter Investment Management Inc., formerly, Morgan Stanley
Asset Management Inc. and The Chase Manhattan Bank(3)
(vi) Assignment and Assumption Agreement (Sub-Administration
Agreement) between Van Kampen Investment Advisory Corp. and
Morgan Stanley Dean Witter Investment Management Inc.,
formerly, Morgan Stanley Asset Management Inc.(5)
(vii) Sub-Administration Agreement between Miller Anderson &
Sherrerd, LLP and The Chase Manhattan Bank(3)
(viii) Assignment and Assumption Agreement (Sub-Administration
Agreement) between Van Kampen Investment Advisory Corp. and
Miller Anderson & Sherrerd, LLP(5)
(ix) Amended Administration Agreement between Registrant and
Morgan Stanley Dean Witter Investment Management Inc.,
formerly, Morgan Stanley Asset Management Inc.(4)
(3) Amended and Restated Legal Services Agreement(8)
(i) (1) Opinion of Skadden, Arps, Slate, Meagher & Flom (Illinois)(8)
(2) Consent of Skadden, Arps, Slate, Meagher & Flom (Illinois)+
(j) Consent of Independent Accountants+
(k) Not applicable
(l) Purchase Agreement(4)
(m) (1) Distribution Plan Pursuant to Rule 12b-1:
(i) Plan of Distribution for Class A Shares of the Global Fixed
Income, Asian Growth, American Value, Worldwide High Income,
Emerging Markets, Latin American, Global Equity Allocation,
High Yield & Total Return (formerly High Yield),
International Magnum and Focus Equity (formerly Aggressive
Equity) Funds(3)
(ii) Plan of Distribution of the Japanese Equity, European
Equity, Growth and Income II, Global Equity, Emerging
Markets Debt, Mid Cap Growth, Equity Growth, Value and
Global Franchise Funds(3)
</TABLE>
C-2
<PAGE>
<TABLE>
<C> <S> <C>
(iii) Amended and Restated Plan of Distribution for Class B and
Class C Shares of the Global Fixed Income, Asian Growth,
American Value, Worldwide High Income, Emerging Markets,
Latin American, Global Equity Allocation, High Yield & Total
Return (formerly High Yield), International Magnum, Focus
Equity (formerly Aggressive Equity), Japanese Equity, Global
Equity, Emerging Markets Debt, Mid Cap Growth, Equity
Growth, Value and Global Franchise Funds(3)
(iv) Plan of Distribution for Class B and Class C Shares of the
Japanese Equity, European Equity and Growth and Income II
Funds(3)
(2) Service Plans for each fund in the Series+
(o) Multiple Class Plan(3)
(p) Power of Attorney+
(z) (1) List of certain investment companies in response to Item 27(a)+
(2) List of officers and directors of Van Kampen Funds Inc. in response
to Item 27(b)+
</TABLE>
- ------------------------
(1) Incorporated herein by reference to Post-Effective Amendment No. 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 81 to Van Kampen Harbor
Fund's Registration Statement on Form N-1A (File Nos. 2-12685 and 811-734),
as filed with the SEC via EDGAR on April 29, 1999.
(7) Incorporated herein by reference to Post-Effective Amendment No. 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.
(8) Incorporated herein by reference to Post-Effective Amendment No. 25 to
Registrant's Registration Statement on Form N-1A (File Nos. 33-51294 and
811-7140) as filed with the SEC via EDGAR on September 28, 1998.
(9) Incorporated herein by reference to Pre-Effective Amendment No. 1 to Van
Kampen Equity Trust II Registration Statement on Form N-1A (File Nos.
333-75493 and 811-9279), as filed with the SEC via EDGAR on June 4, 1999.
+ Filed herewith.
C-3
<PAGE>
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None
ITEM 25. INDEMNIFICATION
Pursuant to Maryland General Corporate Law ("MGCL") Code Ann. Article III
Section 2-418, a Maryland corporation may provide in its governing instrument
for the indemnification of its officers and directors from and against any and
all claims and demands whatsoever.
Reference is made to Article Seventh, Section 2 of the Registrant's Articles
of Amendment and Restatement. Article Seventh of the Articles of Amendment and
Restatement provides that each officer and director of the Registrant shall be
indemnified by the Registrant against all expenses incurred in connection with
the defense or disposition of any action, suit or other proceeding, whether
civil or criminal, administrative or investigative in which the officer or
director may be or may have been involved by reason of being or having been an
officer or director, except that such indemnity shall not protect any such
person against a liability to the Registrant or any shareholder thereof to which
such person would otherwise be subject by reason of willful malfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct Conditional advancing of indemnification monies may be made if the
director or officer undertakes to repay the advance unless it is ultimately
determined that he or she is entitled to the indemnification.
The Registrant has purchased insurance on behalf of its officers and
directors protecting such persons from liability arising from their activities
as officers or directors of the Registrant. The insurance does not protect or
purport to protect such persons from liability to the Registrant or to its
shareholders to which such officers or directors would otherwise be subject by
reason of willful malfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of their office.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (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 such indemnification is against public policy as expressed in the
1933 Act and is, therefor unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by the 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 shares being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the 1933 Act and
will be governed by the final adjudication of such issue.
Pursuant to Section 6 of the Distribution Agreement, the Registrant agrees
to indemnify, defend and hold Van Kampen Funds Inc. (the "Distributor"), its
directors and officers and any person who controls the Distributor within the
meaning of Section 15 of the 1933 Act, free and harmless from and against any
and all claims, demands, liabilities and expenses (including the cost of
investigating or defending any such claims, demands, or liabilities and any
counsel fees incurred in connection therewith arising by reason of any person
acquiring any shares, based upon the ground that the Registration Statement,
prospectus, shareholder reports or other information filed or made public by the
Registrant (as from time to time amended) included an untrue statement of a
material fact or omitted to state a material fact required to be stated or
necessary in order to make the statements not misleading under the 1933 Act, or
any other statute or the common law. The Registrant does not agree to indemnify
the Distributor or hold it harmless to the extent that the statement or omission
was made in reliance upon, and in conformity with, information furnished to the
Registrant by or on behalf of the Distributor. In no case in the indemnity of
the Registrant in favor of the Distributor or any person indemnified to be
deemed to protect the Distributor or any person against any liability to the
Fund or its security holders to which the Distributor or
C-4
<PAGE>
such person would otherwise be subject by reason of willful misfeasance, bad
faith or gross negligence in the performance of its duties or by reason of its
reckless disregard of its obligations and duties under the agreement. The
Registrant's agreement to indemnify the Distributor, its officers and directors
and any such controlling person is expressly conditioned upon the Registrant's
being promptly notified of any action brought against any such persons.
See also "Investment Advisory Agreement" in the Statement of Additional
Information.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER AND INVESTMENT
SUBADVISERS
See "Investment Advisory Services" in each Prospectus and "Investment
Advisory Agreement," "Other Agreements," and "Directors and Officers" in the
Statement of Additional Information for information regarding the business of
Van Kampen Investment Advisory Corp. (the "Adviser"). For information as to the
business, profession, vocation and employment of a substantial nature of
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.
See "Investment Advisory Services" in each Prospectus and "Investment
Advisory Agreement," "Other Agreements" and "Directors and Officers" in the
Statement of Additional Information for information regarding the business of
Morgan Stanley Dean Witter Investment Management Inc., formerly, Morgan Stanley
Asset Management Inc. (a "Subadviser"). For information as to the business,
profession, vocation and employment of a substantial nature of directors and
officers of the Subadviser, reference is made to the Subadviser's current
Form ADV (SEC File No. 801-15757) filed under the Investment Advisers Act of
1940, as amended, incorporated herein by reference.
See "Investment Advisory Services" in each Prospectus and "Investment
Advisory Agreement," "Other Agreements" and "Directors and Officers" in the
Statement of Additional Information for information regarding the business of
Miller Anderson & Sherrerd, LLP (a "Subadviser"). For information as to the
business, profession, vocation and employment of a substantial nature of
directors and officers of the Subadviser, reference is made to the Subadviser's
current Form ADV (SEC File No. 801-10437) filed under the Investment Advisers
Act of 1940, as amended, incorporated herein by reference.
ITEM 27. PRINCIPAL UNDERWRITERS
(a) The sole principal underwriter is Van Kampen Funds Inc. which acts as
principal underwriter for certain investment companies and unit investment
trusts. See Exhibit (z)(1) incorporated by reference herein.
(b) Van Kampen Funds Inc., is an affiliated person of the Registrant and is
the only principal underwriter for the Registrant. The name, principal business
address and positions and offices with Van Kampen Funds Inc. of each of the
directors and officers of the Registrant are disclosed in Exhibit (z)(2). Except
as disclosed under the heading, "Directors and Officers" in Part B of this
Registration Statement, none of such persons has any position or office with the
Registrant.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required by the Registrant by
Section 31(a) of the Investment Company Act of 1940, as amended, and the
rules promulgated thereunder to be maintained (i) by Registrant, will be
maintained at its offices located at 1 Parkview Plaza, PO Box 5555, Oakbrook
Terrace, Illinois 60181-5555, Van Kampen Investor Services Inc., 7501 Tiffany
Springs Parkway, Kansas City, Missouri 64153 or The Chase Manhattan Bank,
3 MetroTech Center, Brooklyn, New York 11245; (ii) by the Adviser, will be
maintained at its offices located at 1 Parkview Plaza, PO Box 5555, Oakbrook
Terrace, Illinois 60181-5555; (iii) by the Subadvisers, will be maintained
at Morgan Stanley Dean Witter Investment Management Inc., formerly, Morgan
Stanley Asset Management Inc., 1221 Avenue of the
C-5
<PAGE>
Americas, New York, New York 10020, and Miller Anderson & Sherrerd, LLP, One
Tower Bridge, West Conshohocken, Pennsylvania 19428; (iv) by Van Kampen Funds
Inc., the principal underwriter, will be maintained at its offices located at 1
Parkview Plaza, Oakbrook Terrace, Illinois 60181-5555.
ITEM 29. MANAGEMENT SERVICES
Not applicable
ITEM 30. UNDERTAKINGS
Not applicable
C-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, Van Kampen Series Fund, Inc.
certifies that it meets all the requirements for effectiveness of this Amendment
to the Registration Statement pursuant to Rule 485(b) under the 1933 Act 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 October, 1999.
<TABLE>
<S> <C> <C>
VAN KAMPEN SERIES FUND, INC.
By: /s/ A. THOMAS SMITH III
-----------------------------------------
A. Thomas Smith III, Secretary
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment to the Registration Statement has been signed on October 28, 1999 by
the following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S> <C>
Principal Executive Officer:
/s/ RICHARD F. POWERS, III* President
--------------------------------------
Richard F. Powers, III
Principal Financial Officer:
/s/ JOHN L. SULLIVAN* Vice President, Chief Financial Officer and
-------------------------------------- Treasurer
John L. Sullivan
Directors:
/s/ WAYNE W. WHALEN* Director (Chairman)
--------------------------------------
Wayne W. Whalen
/s/ J. MILES BRANAGAN* Director
--------------------------------------
J. Miles Branagan
/s/ JERRY D. CHOATE* Director
--------------------------------------
Jerry D. Choate
/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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S> <C>
/s/ PHILLIP B. ROONEY* Director
--------------------------------------
Phillip B. Rooney
/s/ FERNANDO SISTO* Director
--------------------------------------
Fernando Sisto
/s/ SUZANNE H. WOOLSEY* Director
--------------------------------------
Suzanne H. Woolsey
/s/ PAUL G. YOVOVICH* Director
--------------------------------------
Paul G. Yovovich
</TABLE>
- ------------------------
* Signed by A. Thomas Smith III pursuant to a power of attorney filed herewith.
<TABLE>
<S> <C> <C> <C>
/s/ A. THOMAS SMITH III
---------------------------------
A. Thomas Smith III October 28, 1999.
ATTORNEY-IN-FACT
</TABLE>
<PAGE>
SCHEDULE OF EXHIBITS TO
POST-EFFECTIVE AMENDMENT 27 TO FORM N-1A
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------ -------
<C> <S>
(a)(8) Articles Supplementary (changing the name of Van Kampen
Aggressive Equity Fund to Van Kampen Focus Equity Fund)
(i)(2) Consent of Skadden, Arps, Slate, Meagher & Flom (Illinois)
(j) Consent of Independent Accountants
(m)(2) Service Plans for each fund in the Series
(p) Power of Attorney
(z) (1) List of certain investment companies in response to
Item 29(a)
(2) List of officers and directors of Van Kampen Funds Inc.
in response to Item 29(b).
</TABLE>
<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 August 11, 1999 adopted a resolution to change the name of
a portfolio of the Corporation, namely the Van Kampen Aggressive Equity Fund to
the Van Kampen Focus Equity Fund, so that the 28,500,000,000 shares of common
stock, par value $.001 per share, of the Corporation authorized to be issued are
designated and classified as follows:
<TABLE>
<CAPTION>
Number of Shares of Common
Name of Class Stock Classified and Allocated
- ------------- ------------------------------
<S> <C>
Morgan Stanley Money Market Fund 2,000,000,000 shares
Van Kampen Global Equity Allocation Fund
Class A 375,000,000 shares
Van Kampen 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
<PAGE>
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
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
<PAGE>
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 Focus Equity Fund
Class A 375,000,000 shares
Van Kampen Focus Equity Fund
Class B 375,000,000 shares
Van Kampen Focus 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
Morgan Stanley Tax-Free Income
Money Market Fund 2,000,000,000 shares
Morgan Stanley Government Obligations
Money Market Fund 2,000,000,000 shares
<PAGE>
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
Van Kampen Equity Growth Fund
Class A 375,000,000 shares
Van Kampen Equity Growth Fund
Class B 375,000,000 shares
Van Kampen Equity Growth Fund
Class C 375,000,000 shares
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
Van Kampen Global Franchise Fund
Class A 375,000,000 shares
Van Kampen Global Franchise Fund
Class B 375,000,000 shares
Van Kampen Global Franchise Fund
Class C 375,000,000 shares
</TABLE>
<PAGE>
The effective date of the name change shall be October 28, 1999.
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 Secretary
attested by its Treasurer on this______day of October, 1999.
VAN KAMPEN SERIES FUND, INC
By:
-----------------------------
A. Thomas Smith III
Vice President and Secretary
Attest:
-----------------------------
John B. Sullivan
Treasurer
<PAGE>
The undersigned, Vice President and Secretary of Van Kampen Series Fund, Inc.,
who executed on behalf of said corporation the foregoing Articles Supplementary
to the Articles of Amendment and Restatement of which this certificate is made a
part, hereby acknowledges, in the name of and on behalf of said corporation, the
foregoing Articles Supplementary to the Articles of Amendment and Restatement to
be the 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.
By:
-------------------------
A. Thomas Smith III
<PAGE>
[Letterhead of Skadden, Arps, Slate, Meagher & Flom (Illinois)]
October 28, 1999
Van Kampen Series Fund, Inc.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
Re: Post-Effective Amendment No.27 to the
Registration Statement on Form N-1A
for the Van Kampen Series Fund, Inc.
(the "Registration Statement")
(File Nos. 33-51294 and 811-7140)
---------------------------------
We hereby 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 Securities Act of 1933, as amended, or the rules and
regulations promulgated thereunder.
Very truly yours,
/s/ Skadden, Arps, Slate,
Meagher & Flom (Illinois)
<PAGE>
EXHIBIT (j)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 27, Amendment No. 29, to
the registration statement on Form N-1A (the "Registration Statement") of our
report dated August 6, 1999, 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
October 28,1999
<PAGE>
VAN KAMPEN AMERICAN VALUE FUND
SERVICE PLAN
The plan set forth below (the "Service Plan") for the VAN KAMPEN
AMERICAN VALUE FUND (the "Fund"), a series of the Van Kampen Series Fund, Inc.
(the "Series") describes the material terms and conditions under which assets of
the Fund may be used to compensate the Fund's principal underwriter, within the
meaning of the Investment Company Act of 1940, as amended (the "1940 Act"),
brokers, dealers and other financial intermediaries (collectively "Financial
Intermediaries") for providing personal services to shareholders and/or the
maintenance of shareholder accounts with respect to each of its Class A Shares
of beneficial interest (the "Class A Shares"), its Class B Shares of beneficial
interest (the "Class B Shares"), and its Class C Shares of beneficial interest
(the "Class C Shares") The Class A Shares, Class B Shares and Class C Shares
sometimes are referred to herein collectively as the "Shares." Each class of
Shares is offered and sold subject to a different combination of front-end sales
charges, distribution fees, service fees and contingent deferred sales
charges.(1) Classes of shares, if any, subject to a front-end sales charge and
a distribution and/or service fee are referred to herein as "Front-End Classes"
and the Shares of such classes are referred to herein as "Front-End Shares."
Classes of shares, if any, subject to a contingent-deferred sales charge and a
distribution and or a service fee are referred to herein as "CDSC Classes" and
Shares of such classes are referred to herein as "CDSC Shares." Classes of
shares, if any, subject to a front-end sales charge, a contingent-deferred sales
charge and a distribution and/or service fee are referred to herein as
"Combination Classes" and Shares of such class are referred to herein as
"Combination Shares."
The Fund has adopted a distribution plan (the "Distribution Plan")
pursuant to which the Fund is authorized to expend on an annual basis a portion
of its average net assets attributable to each class of Shares in connection
with financing distribution related activities. The Fund also has entered into a
distribution and services agreement (the "Distribution and Services Agreement")
with Van Kampen Funds Inc. (the "Distributor"), pursuant to which the
Distributor acts as agent on behalf of the Fund in connection with the
implementation of the Service Plan and acts as the principal underwriter with
respect to each class of Shares. The Distributor may enter into selling
agreements (the "Selling Agreements") with brokers, dealers and other financial
intermediaries ("Financial Intermediaries") in order to implement the
Distribution Agreement, the Distribution Plan and this Service Plan.
1. The Fund hereby is authorized to pay a service fee with respect to its
Class A Shares, Class B Shares and Class C Shares to any person who sells such
Shares and provides personal services to shareholders and/or maintains
shareholder accounts in an annual amount not to exceed 0.25% of the average
annual net asset value of the Shares maintained in the Fund by such person that
were sold on or after the date on which this Service Plan was first implemented.
The aggregate annual amount of all such payments with respect to each such class
of Shares may not exceed 0.25% of the Fund's average annual net assets
attributable to the respective class of Shares sold on or after the date on
which this Service Plan was first implemented and maintained in the Fund more
than one year.
2. Payments pursuant to this Service Plan may be paid or prepaid on behalf
of the Fund by the Distributor acting as the Fund's agent.
3. Payments by the Fund to the Distributor pursuant to this Service Plan
shall not be made more often than monthly upon receipt by the Fund of a separate
written expense report with respect to each
- --------------------
(1) The Fund is authorized to offer multiple classes of shares pursuant to
a Rule 18f-3 Plan adopted under the 1940 Act.
1
<PAGE>
class of Shares setting forth the expenses qualifying for such reimbursement
allocated to each class of Shares and the purposes thereof.
4. In the event that amounts payable hereunder with respect to a class of
Shares do not fully reimburse the Distributor for pre-paid service fees, such
unreimbursed service fee expenses will be carried forward and paid by the Fund
hereunder in future years so long as this Service Plan remains in effect,
subject to applicable laws and regulations. Reimbursements for service fee
related expenses payable hereunder with respect to a particular class of Shares
may not be used to subsidize services provided with respect to any other class
of Shares.
5. The Fund shall not compensate the Distributor, and neither the Fund nor
the Distributor shall compensate any Financial Intermediary, for any service
related expenses incurred with respect to a class of Shares prior to the later
of (a) the implementation of this Service Plan with respect to such class of
Shares or (b) the date that such Financial Intermediary enters into a Selling
Agreement with the Distributor.
6. The Fund hereby authorizes the Distributor to enter into Selling
Agreements with certain Financial Intermediaries to provide compensation to such
Financial Intermediaries for activities and services of the type referred to in
Paragraph 1 hereof. Prior to the implementation of a Selling Agreement, such
agreement shall be approved by a majority of the Board of Directors of the
Series and a majority of the Disinterested Directors (within the meaning of the
1940 Act) by a vote cast in person at a meeting called for the purpose of voting
on such Selling Agreements. Such Selling Agreements shall provide that the
Financial Intermediaries shall provide the Distributor with such information as
is reasonably necessary to permit the Distributor to comply with the reporting
requirements set forth in Paragraphs 3 and 8 hereof.
7. Subject to the provisions of this Service Agreement, the Fund is hereby
authorized to pay a service fee to any person that is not an "affiliated person"
or "interested person" of the Fund or its "investment adviser" or "principal
underwriter" (as such terms are defined in the 1940 Act) who provides any of the
foregoing services for the Fund. Such fee shall be paid only pursuant to written
agreements between the Fund and such other person the terms of which permit
payments to such person only in accordance with the provisions of this Service
Agreement and which have the approval of a majority of the Disinterested
Directors by vote cast separately with respect to each class of Shares and cast
in person at a meeting called for the purpose of voting on such written
agreement.
8. The Fund and the Distributor shall prepare separate written reports for
each class of Shares and shall submit such reports to the Fund's Board of
Directors on a quarterly basis summarizing all payments made by them with
respect to each class of Shares pursuant to this Service Plan and the agreements
contemplated hereby, the purposes for which such payments were made and such
other information as the Board of Directors or the Disinterested Directors may
reasonably request from time to time, and the Board of Directors shall review
such reports and other information.
9. This Service Plan may be terminated with respect to a class of Shares
without penalty at any time by a majority of the Disinterested Directors or by a
"majority of the outstanding voting securities" of the respective class of
Shares of the Fund.
10. This Service Plan shall become effective upon its approval by (a) a
majority of the Board of Directors and a majority of the Disinterested Directors
by vote cast separately with respect to each class of Shares cast in person at a
meeting called for the purpose of voting on this Distribution Plan, and (b) with
respect to each class of Shares, a "majority of the outstanding voting
securities" (as such phrase is defined in the 1940 Act) of such class of Shares
voting separately as a class.
11. This Service Plan and any agreement contemplated hereby shall continue
in effect beyond the
2
<PAGE>
first anniversary of its adoption by the Board of Directors of the Fund only so
long as (a) its continuation is approved at least annually in the manner set
forth in clause (a) of paragraph 10 above and (b) the selection and nomination
of those Directors of the Fund who are not "interested persons" of the Fund are
committed to the discretion of such Directors.
12. This Service Plan may not be amended to increase materially the maximum
amounts permitted to be expended hereunder except with the approval of a
"majority of the outstanding voting securities" of the respective class of
Shares of the Fund. This Service Plan may not be amended in any material respect
except with the approval of a majority of the Disinterested Directors.
Amendments required to conform this Service Plan to changes in Rule 12b-1 under
the 1940 Act, the rules and regulations thereunder or the Rules of Fair Practice
of the National Association of Securities Dealers, Inc. shall not be deemed to
be material amendments.
The Directors of the Series have adopted this Service Plan as Directors
under the Articles of Incorporation of the Series and the policies of the Series
adopted hereby are not binding upon any of the Directors or shareholders of the
Series individually, but bind only the corporation.
3
<PAGE>
VAN KAMPEN ASIAN GROWTH FUND
SERVICE PLAN
The plan set forth below (the "Service Plan") for the VAN KAMPEN ASIAN
GROWTH FUND (the "Fund"), a series of the Van Kampen Series Fund, Inc. (the
"Series") describes the material terms and conditions under which assets of the
Fund may be used to compensate the Fund's principal underwriter, within the
meaning of the Investment Company Act of 1940, as amended (the "1940 Act"),
brokers, dealers and other financial intermediaries (collectively "Financial
Intermediaries") for providing personal services to shareholders and/or the
maintenance of shareholder accounts with respect to each of its Class A Shares
of beneficial interest (the "Class A Shares"), its Class B Shares of beneficial
interest (the "Class B Shares"), and its Class C Shares of beneficial interest
(the "Class C Shares") The Class A Shares, Class B Shares and Class C Shares
sometimes are referred to herein collectively as the "Shares." Each class of
Shares is offered and sold subject to a different combination of front-end sales
charges, distribution fees, service fees and contingent deferred sales
charges.(1) Classes of shares, if any, subject to a front-end sales charge and
a distribution and/or service fee are referred to herein as "Front-End Classes"
and the Shares of such classes are referred to herein as "Front-End Shares."
Classes of shares, if any, subject to a contingent-deferred sales charge and a
distribution and or a service fee are referred to herein as "CDSC Classes" and
Shares of such classes are referred to herein as "CDSC Shares." Classes of
shares, if any, subject to a front-end sales charge, a contingent-deferred sales
charge and a distribution and/or service fee are referred to herein as
"Combination Classes" and Shares of such class are referred to herein as
"Combination Shares."
The Fund has adopted a distribution plan (the "Distribution Plan")
pursuant to which the Fund is authorized to expend on an annual basis a portion
of its average net assets attributable to each class of Shares in connection
with financing distribution related activities. The Fund also has entered into a
distribution and services agreement (the "Distribution and Services Agreement")
with Van Kampen Funds Inc. (the "Distributor"), pursuant to which the
Distributor acts as agent on behalf of the Fund in connection with the
implementation of the Service Plan and acts as the principal underwriter with
respect to each class of Shares. The Distributor may enter into selling
agreements (the "Selling Agreements") with brokers, dealers and other financial
intermediaries ("Financial Intermediaries") in order to implement the
Distribution Agreement, the Distribution Plan and this Service Plan.
1. The Fund hereby is authorized to pay a service fee with respect to its
Class A Shares, Class B Shares and Class C Shares to any person who sells such
Shares and provides personal services to shareholders and/or maintains
shareholder accounts in an annual amount not to exceed 0.25% of the average
annual net asset value of the Shares maintained in the Fund by such person that
were sold on or after the date on which this Service Plan was first implemented.
The aggregate annual amount of all such payments with respect to each such class
of Shares may not exceed 0.25% of the Fund's average annual net assets
attributable to the respective class of Shares sold on or after the date on
which this Service Plan was first implemented and maintained in the Fund more
than one year.
2. Payments pursuant to this Service Plan may be paid or prepaid on behalf
of the Fund by the Distributor acting as the Fund's agent.
3. Payments by the Fund to the Distributor pursuant to this Service Plan
shall not be made more often than monthly upon receipt by the Fund of a separate
written expense report with respect to each
- --------------------
(1) The Fund is authorized to offer multiple classes of shares pursuant to
a Rule 18f-3 Plan adopted under the 1940 Act.
1
<PAGE>
class of Shares setting forth the expenses qualifying for such reimbursement
allocated to each class of Shares and the purposes thereof.
4. In the event that amounts payable hereunder with respect to a class of
Shares do not fully reimburse the Distributor for pre-paid service fees, such
unreimbursed service fee expenses will be carried forward and paid by the Fund
hereunder in future years so long as this Service Plan remains in effect,
subject to applicable laws and regulations. Reimbursements for service fee
related expenses payable hereunder with respect to a particular class of Shares
may not be used to subsidize services provided with respect to any other class
of Shares.
5. The Fund shall not compensate the Distributor, and neither the Fund nor
the Distributor shall compensate any Financial Intermediary, for any service
related expenses incurred with respect to a class of Shares prior to the later
of (a) the implementation of this Service Plan with respect to such class of
Shares or (b) the date that such Financial Intermediary enters into a Selling
Agreement with the Distributor.
6. The Fund hereby authorizes the Distributor to enter into Selling
Agreements with certain Financial Intermediaries to provide compensation to such
Financial Intermediaries for activities and services of the type referred to in
Paragraph 1 hereof. Prior to the implementation of a Selling Agreement, such
agreement shall be approved by a majority of the Board of Directors of the
Series and a majority of the Disinterested Directors (within the meaning of the
1940 Act) by a vote cast in person at a meeting called for the purpose of voting
on such Selling Agreements. Such Selling Agreements shall provide that the
Financial Intermediaries shall provide the Distributor with such information as
is reasonably necessary to permit the Distributor to comply with the reporting
requirements set forth in Paragraphs 3 and 8 hereof.
7. Subject to the provisions of this Service Agreement, the Fund is hereby
authorized to pay a service fee to any person that is not an "affiliated person"
or "interested person" of the Fund or its "investment adviser" or "principal
underwriter" (as such terms are defined in the 1940 Act) who provides any of the
foregoing services for the Fund. Such fee shall be paid only pursuant to written
agreements between the Fund and such other person the terms of which permit
payments to such person only in accordance with the provisions of this Service
Agreement and which have the approval of a majority of the Disinterested
Directors by vote cast separately with respect to each class of Shares and cast
in person at a meeting called for the purpose of voting on such written
agreement.
8. The Fund and the Distributor shall prepare separate written reports for
each class of Shares and shall submit such reports to the Fund's Board of
Directors on a quarterly basis summarizing all payments made by them with
respect to each class of Shares pursuant to this Service Plan and the agreements
contemplated hereby, the purposes for which such payments were made and such
other information as the Board of Directors or the Disinterested Directors may
reasonably request from time to time, and the Board of Directors shall review
such reports and other information.
9. This Service Plan may be terminated with respect to a class of Shares
without penalty at any time by a majority of the Disinterested Directors or by a
"majority of the outstanding voting securities" of the respective class of
Shares of the Fund.
10. This Service Plan shall become effective upon its approval by (a) a
majority of the Board of Directors and a majority of the Disinterested Directors
by vote cast separately with respect to each class of Shares cast in person at a
meeting called for the purpose of voting on this Distribution Plan, and (b) with
respect to each class of Shares, a "majority of the outstanding voting
securities" (as such phrase is defined in the 1940 Act) of such class of Shares
voting separately as a class.
11. This Service Plan and any agreement contemplated hereby shall continue
in effect beyond the
2
<PAGE>
first anniversary of its adoption by the Board of Directors of the Fund only so
long as (a) its continuation is approved at least annually in the manner set
forth in clause (a) of paragraph 10 above and (b) the selection and nomination
of those Directors of the Fund who are not "interested persons" of the Fund are
committed to the discretion of such Directors.
12. This Service Plan may not be amended to increase materially the maximum
amounts permitted to be expended hereunder except with the approval of a
"majority of the outstanding voting securities" of the respective class of
Shares of the Fund. This Service Plan may not be amended in any material respect
except with the approval of a majority of the Disinterested Directors.
Amendments required to conform this Service Plan to changes in Rule 12b-1 under
the 1940 Act, the rules and regulations thereunder or the Rules of Fair Practice
of the National Association of Securities Dealers, Inc. shall not be deemed to
be material amendments.
The Directors of the Series have adopted this Service Plan as Directors
under the Articles of Incorporation of the Series and the policies of the Series
adopted hereby are not binding upon any of the Directors or shareholders of the
Series individually, but bind only the corporation.
3
<PAGE>
VAN KAMPEN EMERGING MARKETS DEBT FUND
SERVICE PLAN
The plan set forth below (the "Service Plan") for the VAN KAMPEN
EMERGING MARKETS DEBT FUND (the "Fund"), a series of the Van Kampen Series Fund,
Inc. (the "Series") describes the material terms and conditions under which
assets of the Fund may be used to compensate the Fund's principal underwriter,
within the meaning of the Investment Company Act of 1940, as amended (the "1940
Act"), brokers, dealers and other financial intermediaries (collectively
"Financial Intermediaries") for providing personal services to shareholders
and/or the maintenance of shareholder accounts with respect to each of its Class
A Shares of beneficial interest (the "Class A Shares"), its Class B Shares of
beneficial interest (the "Class B Shares"), and its Class C Shares of beneficial
interest (the "Class C Shares") The Class A Shares, Class B Shares and Class C
Shares sometimes are referred to herein collectively as the "Shares." Each class
of Shares is offered and sold subject to a different combination of front-end
sales charges, distribution fees, service fees and contingent deferred sales
charges.(1) Classes of shares, if any, subject to a front-end sales charge and
a distribution and/or service fee are referred to herein as "Front-End Classes"
and the Shares of such classes are referred to herein as "Front-End Shares."
Classes of shares, if any, subject to a contingent-deferred sales charge and a
distribution and or a service fee are referred to herein as "CDSC Classes" and
Shares of such classes are referred to herein as "CDSC Shares." Classes of
shares, if any, subject to a front-end sales charge, a contingent-deferred sales
charge and a distribution and/or service fee are referred to herein as
"Combination Classes" and Shares of such class are referred to herein as
"Combination Shares."
The Fund has adopted a distribution plan (the "Distribution Plan")
pursuant to which the Fund is authorized to expend on an annual basis a portion
of its average net assets attributable to each class of Shares in connection
with financing distribution related activities. The Fund also has entered into a
distribution and services agreement (the "Distribution and Services Agreement")
with Van Kampen Funds Inc. (the "Distributor"), pursuant to which the
Distributor acts as agent on behalf of the Fund in connection with the
implementation of the Service Plan and acts as the principal underwriter with
respect to each class of Shares. The Distributor may enter into selling
agreements (the "Selling Agreements") with brokers, dealers and other financial
intermediaries ("Financial Intermediaries") in order to implement the
Distribution Agreement, the Distribution Plan and this Service Plan.
1. The Fund hereby is authorized to pay a service fee with respect to its
Class A Shares, Class B Shares and Class C Shares to any person who sells such
Shares and provides personal services to shareholders and/or maintains
shareholder accounts in an annual amount not to exceed 0.25% of the average
annual net asset value of the Shares maintained in the Fund by such person that
were sold on or after the date on which this Service Plan was first implemented.
The aggregate annual amount of all such payments with respect to each such class
of Shares may not exceed 0.25% of the Fund's average annual net assets
attributable to the respective class of Shares sold on or after the date on
which this Service Plan was first implemented and maintained in the Fund more
than one year.
2. Payments pursuant to this Service Plan may be paid or prepaid on behalf
of the Fund by the Distributor acting as the Fund's agent.
3. Payments by the Fund to the Distributor pursuant to this Service Plan
shall not be made more often than monthly upon receipt by the Fund of a separate
written expense report with respect to each
- --------------------
(1) The Fund is authorized to offer multiple classes of shares pursuant to
a Rule 18f-3 Plan adopted under the 1940 Act.
1
<PAGE>
class of Shares setting forth the expenses qualifying for such reimbursement
allocated to each class of Shares and the purposes thereof.
4. In the event that amounts payable hereunder with respect to a class of
Shares do not fully reimburse the Distributor for pre-paid service fees, such
unreimbursed service fee expenses will be carried forward and paid by the Fund
hereunder in future years so long as this Service Plan remains in effect,
subject to applicable laws and regulations. Reimbursements for service fee
related expenses payable hereunder with respect to a particular class of Shares
may not be used to subsidize services provided with respect to any other class
of Shares.
5. The Fund shall not compensate the Distributor, and neither the Fund nor
the Distributor shall compensate any Financial Intermediary, for any service
related expenses incurred with respect to a class of Shares prior to the later
of (a) the implementation of this Service Plan with respect to such class of
Shares or (b) the date that such Financial Intermediary enters into a Selling
Agreement with the Distributor.
6. The Fund hereby authorizes the Distributor to enter into Selling
Agreements with certain Financial Intermediaries to provide compensation to such
Financial Intermediaries for activities and services of the type referred to in
Paragraph 1 hereof. Prior to the implementation of a Selling Agreement, such
agreement shall be approved by a majority of the Board of Directors of the
Series and a majority of the Disinterested Directors (within the meaning of the
1940 Act) by a vote cast in person at a meeting called for the purpose of voting
on such Selling Agreements. Such Selling Agreements shall provide that the
Financial Intermediaries shall provide the Distributor with such information as
is reasonably necessary to permit the Distributor to comply with the reporting
requirements set forth in Paragraphs 3 and 8 hereof.
7. Subject to the provisions of this Service Agreement, the Fund is hereby
authorized to pay a service fee to any person that is not an "affiliated person"
or "interested person" of the Fund or its "investment adviser" or "principal
underwriter" (as such terms are defined in the 1940 Act) who provides any of the
foregoing services for the Fund. Such fee shall be paid only pursuant to written
agreements between the Fund and such other person the terms of which permit
payments to such person only in accordance with the provisions of this Service
Agreement and which have the approval of a majority of the Disinterested
Directors by vote cast separately with respect to each class of Shares and cast
in person at a meeting called for the purpose of voting on such written
agreement.
8. The Fund and the Distributor shall prepare separate written reports for
each class of Shares and shall submit such reports to the Fund's Board of
Directors on a quarterly basis summarizing all payments made by them with
respect to each class of Shares pursuant to this Service Plan and the agreements
contemplated hereby, the purposes for which such payments were made and such
other information as the Board of Directors or the Disinterested Directors may
reasonably request from time to time, and the Board of Directors shall review
such reports and other information.
9. This Service Plan may be terminated with respect to a class of Shares
without penalty at any time by a majority of the Disinterested Directors or by a
"majority of the outstanding voting securities" of the respective class of
Shares of the Fund.
10. This Service Plan shall become effective upon its approval by (a) a
majority of the Board of Directors and a majority of the Disinterested Directors
by vote cast separately with respect to each class of Shares cast in person at a
meeting called for the purpose of voting on this Distribution Plan, and (b) with
respect to each class of Shares, a "majority of the outstanding voting
securities" (as such phrase is defined in the 1940 Act) of such class of Shares
voting separately as a class.
11. This Service Plan and any agreement contemplated hereby shall continue
in effect beyond the
2
<PAGE>
first anniversary of its adoption by the Board of Directors of the Fund only so
long as (a) its continuation is approved at least annually in the manner set
forth in clause (a) of paragraph 10 above and (b) the selection and nomination
of those Directors of the Fund who are not "interested persons" of the Fund are
committed to the discretion of such Directors.
12. This Service Plan may not be amended to increase materially the maximum
amounts permitted to be expended hereunder except with the approval of a
"majority of the outstanding voting securities" of the respective class of
Shares of the Fund. This Service Plan may not be amended in any material respect
except with the approval of a majority of the Disinterested Directors.
Amendments required to conform this Service Plan to changes in Rule 12b-1 under
the 1940 Act, the rules and regulations thereunder or the Rules of Fair Practice
of the National Association of Securities Dealers, Inc. shall not be deemed to
be material amendments.
The Directors of the Series have adopted this Service Plan as Directors
under the Articles of Incorporation of the Series and the policies of the Series
adopted hereby are not binding upon any of the Directors or shareholders of the
Series individually, but bind only the corporation.
3
<PAGE>
VAN KAMPEN EMERGING MARKETS FUND
SERVICE PLAN
The plan set forth below (the "Service Plan") for the VAN KAMPEN
EMERGING MARKETS FUND (the "Fund"), a series of the Van Kampen Series Fund, Inc.
(the "Series") describes the material terms and conditions under which assets of
the Fund may be used to compensate the Fund's principal underwriter, within the
meaning of the Investment Company Act of 1940, as amended (the "1940 Act"),
brokers, dealers and other financial intermediaries (collectively "Financial
Intermediaries") for providing personal services to shareholders and/or the
maintenance of shareholder accounts with respect to each of its Class A Shares
of beneficial interest (the "Class A Shares"), its Class B Shares of beneficial
interest (the "Class B Shares"), and its Class C Shares of beneficial interest
(the "Class C Shares") The Class A Shares, Class B Shares and Class C Shares
sometimes are referred to herein collectively as the "Shares." Each class of
Shares is offered and sold subject to a different combination of front-end sales
charges, distribution fees, service fees and contingent deferred sales
charges.(1) Classes of shares, if any, subject to a front-end sales charge and
a distribution and/or service fee are referred to herein as "Front-End Classes"
and the Shares of such classes are referred to herein as "Front-End Shares."
Classes of shares, if any, subject to a contingent-deferred sales charge and a
distribution and or a service fee are referred to herein as "CDSC Classes" and
Shares of such classes are referred to herein as "CDSC Shares." Classes of
shares, if any, subject to a front-end sales charge, a contingent-deferred sales
charge and a distribution and/or service fee are referred to herein as
"Combination Classes" and Shares of such class are referred to herein as
"Combination Shares."
The Fund has adopted a distribution plan (the "Distribution Plan")
pursuant to which the Fund is authorized to expend on an annual basis a portion
of its average net assets attributable to each class of Shares in connection
with financing distribution related activities. The Fund also has entered into a
distribution and services agreement (the "Distribution and Services Agreement")
with Van Kampen Funds Inc. (the "Distributor"), pursuant to which the
Distributor acts as agent on behalf of the Fund in connection with the
implementation of the Service Plan and acts as the principal underwriter with
respect to each class of Shares. The Distributor may enter into selling
agreements (the "Selling Agreements") with brokers, dealers and other financial
intermediaries ("Financial Intermediaries") in order to implement the
Distribution Agreement, the Distribution Plan and this Service Plan.
1. The Fund hereby is authorized to pay a service fee with respect to its
Class A Shares, Class B Shares and Class C Shares to any person who sells such
Shares and provides personal services to shareholders and/or maintains
shareholder accounts in an annual amount not to exceed 0.25% of the average
annual net asset value of the Shares maintained in the Fund by such person that
were sold on or after the date on which this Service Plan was first implemented.
The aggregate annual amount of all such payments with respect to each such class
of Shares may not exceed 0.25% of the Fund's average annual net assets
attributable to the respective class of Shares sold on or after the date on
which this Service Plan was first implemented and maintained in the Fund more
than one year.
2. Payments pursuant to this Service Plan may be paid or prepaid on behalf
of the Fund by the Distributor acting as the Fund's agent.
3. Payments by the Fund to the Distributor pursuant to this Service Plan
shall not be made more often than monthly upon receipt by the Fund of a separate
written expense report with respect to each
- --------------------
(1) The Fund is authorized to offer multiple classes of shares pursuant to
a Rule 18f-3 Plan adopted under the 1940 Act.
1
<PAGE>
class of Shares setting forth the expenses qualifying for such reimbursement
allocated to each class of Shares and the purposes thereof.
4. In the event that amounts payable hereunder with respect to a class of
Shares do not fully reimburse the Distributor for pre-paid service fees, such
unreimbursed service fee expenses will be carried forward and paid by the Fund
hereunder in future years so long as this Service Plan remains in effect,
subject to applicable laws and regulations. Reimbursements for service fee
related expenses payable hereunder with respect to a particular class of Shares
may not be used to subsidize services provided with respect to any other class
of Shares.
5. The Fund shall not compensate the Distributor, and neither the Fund nor
the Distributor shall compensate any Financial Intermediary, for any service
related expenses incurred with respect to a class of Shares prior to the later
of (a) the implementation of this Service Plan with respect to such class of
Shares or (b) the date that such Financial Intermediary enters into a Selling
Agreement with the Distributor.
6. The Fund hereby authorizes the Distributor to enter into Selling
Agreements with certain Financial Intermediaries to provide compensation to such
Financial Intermediaries for activities and services of the type referred to in
Paragraph 1 hereof. Prior to the implementation of a Selling Agreement, such
agreement shall be approved by a majority of the Board of Directors of the
Series and a majority of the Disinterested Directors (within the meaning of the
1940 Act) by a vote cast in person at a meeting called for the purpose of voting
on such Selling Agreements. Such Selling Agreements shall provide that the
Financial Intermediaries shall provide the Distributor with such information as
is reasonably necessary to permit the Distributor to comply with the reporting
requirements set forth in Paragraphs 3 and 8 hereof.
7. Subject to the provisions of this Service Agreement, the Fund is hereby
authorized to pay a service fee to any person that is not an "affiliated person"
or "interested person" of the Fund or its "investment adviser" or "principal
underwriter" (as such terms are defined in the 1940 Act) who provides any of the
foregoing services for the Fund. Such fee shall be paid only pursuant to written
agreements between the Fund and such other person the terms of which permit
payments to such person only in accordance with the provisions of this Service
Agreement and which have the approval of a majority of the Disinterested
Directors by vote cast separately with respect to each class of Shares and cast
in person at a meeting called for the purpose of voting on such written
agreement.
8. The Fund and the Distributor shall prepare separate written reports for
each class of Shares and shall submit such reports to the Fund's Board of
Directors on a quarterly basis summarizing all payments made by them with
respect to each class of Shares pursuant to this Service Plan and the agreements
contemplated hereby, the purposes for which such payments were made and such
other information as the Board of Directors or the Disinterested Directors may
reasonably request from time to time, and the Board of Directors shall review
such reports and other information.
9. This Service Plan may be terminated with respect to a class of Shares
without penalty at any time by a majority of the Disinterested Directors or by a
"majority of the outstanding voting securities" of the respective class of
Shares of the Fund.
10. This Service Plan shall become effective upon its approval by (a) a
majority of the Board of Directors and a majority of the Disinterested Directors
by vote cast separately with respect to each class of Shares cast in person at a
meeting called for the purpose of voting on this Distribution Plan, and (b) with
respect to each class of Shares, a "majority of the outstanding voting
securities" (as such phrase is defined in the 1940 Act) of such class of Shares
voting separately as a class.
11. This Service Plan and any agreement contemplated hereby shall continue in
effect beyond the
2
<PAGE>
first anniversary of its adoption by the Board of Directors of the Fund only so
long as (a) its continuation is approved at least annually in the manner set
forth in clause (a) of paragraph 10 above and (b) the selection and nomination
of those Directors of the Fund who are not "interested persons" of the Fund are
committed to the discretion of such Directors.
12. This Service Plan may not be amended to increase materially the maximum
amounts permitted to be expended hereunder except with the approval of a
"majority of the outstanding voting securities" of the respective class of
Shares of the Fund. This Service Plan may not be amended in any material respect
except with the approval of a majority of the Disinterested Directors.
Amendments required to conform this Service Plan to changes in Rule 12b-1 under
the 1940 Act, the rules and regulations thereunder or the Rules of Fair Practice
of the National Association of Securities Dealers, Inc. shall not be deemed to
be material amendments.
The Directors of the Series have adopted this Service Plan as Directors
under the Articles of Incorporation of the Series and the policies of the Series
adopted hereby are not binding upon any of the Directors or shareholders of the
Series individually, but bind only the corporation.
3
<PAGE>
VAN KAMPEN EQUITY GROWTH FUND
SERVICE PLAN
The plan set forth below (the "Service Plan") for the VAN KAMPEN
EQUITY GROWTH FUND (the "Fund"), a series of the Van Kampen Series Fund, Inc.
(the "Series") describes the material terms and conditions under which assets
of the Fund may be used to compensate the Fund's principal underwriter,
within the meaning of the Investment Company Act of 1940, as amended (the
"1940 Act"), brokers, dealers and other financial intermediaries
(collectively "Financial Intermediaries") for providing personal services to
shareholders and/or the maintenance of shareholder accounts with respect to
each of its Class A Shares of beneficial interest (the "Class A Shares"), its
Class B Shares of beneficial interest (the "Class B Shares"), and its Class C
Shares of beneficial interest (the "Class C Shares") The Class A Shares,
Class B Shares and Class C Shares sometimes are referred to herein
collectively as the "Shares." Each class of Shares is offered and sold
subject to a different combination of front-end sales charges, distribution
fees, service fees and contingent deferred sales charges.(1) Classes of
shares, if any, subject to a front-end sales charge and a distribution and/or
service fee are referred to herein as "Front-End Classes" and the Shares of
such classes are referred to herein as "Front-End Shares." Classes of shares,
if any, subject to a contingent-deferred sales charge and a distribution and
or a service fee are referred to herein as "CDSC Classes" and Shares of such
classes are referred to herein as "CDSC Shares." Classes of shares, if any,
subject to a front-end sales charge, a contingent-deferred sales charge and a
distribution and/or service fee are referred to herein as "Combination
Classes" and Shares of such class are referred to herein as "Combination
Shares."
The Fund has adopted a distribution plan (the "Distribution Plan")
pursuant to which the Fund is authorized to expend on an annual basis a
portion of its average net assets attributable to each class of Shares in
connection with financing distribution related activities. The Fund also has
entered into a distribution and services agreement (the "Distribution and
Services Agreement") with Van Kampen Funds Inc. (the "Distributor"), pursuant
to which the Distributor acts as agent on behalf of the Fund in connection
with the implementation of the Service Plan and acts as the principal
underwriter with respect to each class of Shares. The Distributor may enter
into selling agreements (the "Selling Agreements") with brokers, dealers and
other financial intermediaries ("Financial Intermediaries") in order to
implement the Distribution Agreement, the Distribution Plan and this Service
Plan.
1. The Fund hereby is authorized to pay a service fee with respect to its
Class A Shares, Class B Shares and Class C Shares to any person who sells such
Shares and provides personal services to shareholders and/or maintains
shareholder accounts in an annual amount not to exceed 0.25% of the average
annual net asset value of the Shares maintained in the Fund by such person that
were sold on or after the date on which this Service Plan was first implemented.
The aggregate annual amount of all such payments with respect to each such class
of Shares may not exceed 0.25% of the Fund's average annual net assets
attributable to the respective class of Shares sold on or after the date on
which this Service Plan was first implemented and maintained in the Fund more
than one year.
2. Payments pursuant to this Service Plan may be paid or prepaid on behalf
of the Fund by the Distributor acting as the Fund's agent.
3. Payments by the Fund to the Distributor pursuant to this Service Plan
shall not be made more often than monthly upon receipt by the Fund of a separate
written expense report with respect to each
- --------------------
(1) The Fund is authorized to offer multiple classes of shares pursuant to
a Rule 18f-3 Plan adopted under the 1940 Act.
1
<PAGE>
class of Shares setting forth the expenses qualifying for such reimbursement
allocated to each class of Shares and the purposes thereof.
4. In the event that amounts payable hereunder with respect to a class of
Shares do not fully reimburse the Distributor for pre-paid service fees, such
unreimbursed service fee expenses will be carried forward and paid by the Fund
hereunder in future years so long as this Service Plan remains in effect,
subject to applicable laws and regulations. Reimbursements for service fee
related expenses payable hereunder with respect to a particular class of Shares
may not be used to subsidize services provided with respect to any other class
of Shares.
5. The Fund shall not compensate the Distributor, and neither the Fund nor
the Distributor shall compensate any Financial Intermediary, for any service
related expenses incurred with respect to a class of Shares prior to the later
of (a) the implementation of this Service Plan with respect to such class of
Shares or (b) the date that such Financial Intermediary enters into a Selling
Agreement with the Distributor.
6. The Fund hereby authorizes the Distributor to enter into Selling
Agreements with certain Financial Intermediaries to provide compensation to such
Financial Intermediaries for activities and services of the type referred to in
Paragraph 1 hereof. Prior to the implementation of a Selling Agreement, such
agreement shall be approved by a majority of the Board of Directors of the
Series and a majority of the Disinterested Directors (within the meaning of the
1940 Act) by a vote cast in person at a meeting called for the purpose of voting
on such Selling Agreements. Such Selling Agreements shall provide that the
Financial Intermediaries shall provide the Distributor with such information as
is reasonably necessary to permit the Distributor to comply with the reporting
requirements set forth in Paragraphs 3 and 8 hereof.
7. Subject to the provisions of this Service Agreement, the Fund is hereby
authorized to pay a service fee to any person that is not an "affiliated person"
or "interested person" of the Fund or its "investment adviser" or "principal
underwriter" (as such terms are defined in the 1940 Act) who provides any of the
foregoing services for the Fund. Such fee shall be paid only pursuant to written
agreements between the Fund and such other person the terms of which permit
payments to such person only in accordance with the provisions of this Service
Agreement and which have the approval of a majority of the Disinterested
Directors by vote cast separately with respect to each class of Shares and cast
in person at a meeting called for the purpose of voting on such written
agreement.
8. The Fund and the Distributor shall prepare separate written reports for
each class of Shares and shall submit such reports to the Fund's Board of
Directors on a quarterly basis summarizing all payments made by them with
respect to each class of Shares pursuant to this Service Plan and the agreements
contemplated hereby, the purposes for which such payments were made and such
other information as the Board of Directors or the Disinterested Directors may
reasonably request from time to time, and the Board of Directors shall review
such reports and other information.
9. This Service Plan may be terminated with respect to a class of Shares
without penalty at any time by a majority of the Disinterested Directors or by a
"majority of the outstanding voting securities" of the respective class of
Shares of the Fund.
10. This Service Plan shall become effective upon its approval by (a) a
majority of the Board of Directors and a majority of the Disinterested Directors
by vote cast separately with respect to each class of Shares cast in person at a
meeting called for the purpose of voting on this Distribution Plan, and (b) with
respect to each class of Shares, a "majority of the outstanding voting
securities" (as such phrase is defined in the 1940 Act) of such class of Shares
voting separately as a class.
11. This Service Plan and any agreement contemplated hereby shall continue
in effect beyond the
2
<PAGE>
first anniversary of its adoption by the Board of Directors of the Fund only so
long as (a) its continuation is approved at least annually in the manner set
forth in clause (a) of paragraph 10 above and (b) the selection and nomination
of those Directors of the Fund who are not "interested persons" of the Fund are
committed to the discretion of such Directors.
12. This Service Plan may not be amended to increase materially the maximum
amounts permitted to be expended hereunder except with the approval of a
"majority of the outstanding voting securities" of the respective class of
Shares of the Fund. This Service Plan may not be amended in any material respect
except with the approval of a majority of the Disinterested Directors.
Amendments required to conform this Service Plan to changes in Rule 12b-1 under
the 1940 Act, the rules and regulations thereunder or the Rules of Fair Practice
of the National Association of Securities Dealers, Inc. shall not be deemed to
be material amendments.
The Directors of the Series have adopted this Service Plan as Directors
under the Articles of Incorporation of the Series and the policies of the Series
adopted hereby are not binding upon any of the Directors or shareholders of the
Series individually, but bind only the corporation.
3
<PAGE>
VAN KAMPEN EUROPEAN EQUITY FUND
SERVICE PLAN
The plan set forth below (the "Service Plan") for the VAN KAMPEN
EUROPEAN EQUITY FUND (the "Fund"), a series of the Van Kampen Series Fund,
Inc. (the "Series") describes the material terms and conditions under which
assets of the Fund may be used to compensate the Fund's principal
underwriter, within the meaning of the Investment Company Act of 1940, as
amended (the "1940 Act"), brokers, dealers and other financial intermediaries
(collectively "Financial Intermediaries") for providing personal services to
shareholders and/or the maintenance of shareholder accounts with respect to
each of its Class A Shares of beneficial interest (the "Class A Shares"), its
Class B Shares of beneficial interest (the "Class B Shares"), and its Class C
Shares of beneficial interest (the "Class C Shares") The Class A Shares,
Class B Shares and Class C Shares sometimes are referred to herein
collectively as the "Shares." Each class of Shares is offered and sold
subject to a different combination of front-end sales charges, distribution
fees, service fees and contingent deferred sales charges.(1) Classes of
shares, if any, subject to a front-end sales charge and a distribution and/or
service fee are referred to herein as "Front-End Classes" and the Shares of
such classes are referred to herein as "Front-End Shares." Classes of shares,
if any, subject to a contingent-deferred sales charge and a distribution and
or a service fee are referred to herein as "CDSC Classes" and Shares of such
classes are referred to herein as "CDSC Shares." Classes of shares, if any,
subject to a front-end sales charge, a contingent-deferred sales charge and a
distribution and/or service fee are referred to herein as "Combination
Classes" and Shares of such class are referred to herein as "Combination
Shares."
The Fund has adopted a distribution plan (the "Distribution Plan")
pursuant to which the Fund is authorized to expend on an annual basis a portion
of its average net assets attributable to each class of Shares in connection
with financing distribution related activities. The Fund also has entered into a
distribution and services agreement (the "Distribution and Services Agreement")
with Van Kampen Funds Inc. (the "Distributor"), pursuant to which the
Distributor acts as agent on behalf of the Fund in connection with the
implementation of the Service Plan and acts as the principal underwriter with
respect to each class of Shares. The Distributor may enter into selling
agreements (the "Selling Agreements") with brokers, dealers and other financial
intermediaries ("Financial Intermediaries") in order to implement the
Distribution Agreement, the Distribution Plan and this Service Plan.
1. The Fund hereby is authorized to pay a service fee with respect to its
Class A Shares, Class B Shares and Class C Shares to any person who sells such
Shares and provides personal services to shareholders and/or maintains
shareholder accounts in an annual amount not to exceed 0.25% of the average
annual net asset value of the Shares maintained in the Fund by such person that
were sold on or after the date on which this Service Plan was first implemented.
The aggregate annual amount of all such payments with respect to each such class
of Shares may not exceed 0.25% of the Fund's average annual net assets
attributable to the respective class of Shares sold on or after the date on
which this Service Plan was first implemented and maintained in the Fund more
than one year.
2. Payments pursuant to this Service Plan may be paid or prepaid on behalf
of the Fund by the Distributor acting as the Fund's agent.
3. Payments by the Fund to the Distributor pursuant to this Service Plan
shall not be made more often than monthly upon receipt by the Fund of a separate
written expense report with respect to each
- --------------------
(1) The Fund is authorized to offer multiple classes of shares pursuant to
a Rule 18f-3 Plan adopted under the 1940 Act.
1
<PAGE>
class of Shares setting forth the expenses qualifying for such reimbursement
allocated to each class of Shares and the purposes thereof.
4. In the event that amounts payable hereunder with respect to a class of
Shares do not fully reimburse the Distributor for pre-paid service fees, such
unreimbursed service fee expenses will be carried forward and paid by the Fund
hereunder in future years so long as this Service Plan remains in effect,
subject to applicable laws and regulations. Reimbursements for service fee
related expenses payable hereunder with respect to a particular class of Shares
may not be used to subsidize services provided with respect to any other class
of Shares.
5. The Fund shall not compensate the Distributor, and neither the Fund nor
the Distributor shall compensate any Financial Intermediary, for any service
related expenses incurred with respect to a class of Shares prior to the later
of (a) the implementation of this Service Plan with respect to such class of
Shares or (b) the date that such Financial Intermediary enters into a Selling
Agreement with the Distributor.
6. The Fund hereby authorizes the Distributor to enter into Selling
Agreements with certain Financial Intermediaries to provide compensation to such
Financial Intermediaries for activities and services of the type referred to in
Paragraph 1 hereof. Prior to the implementation of a Selling Agreement, such
agreement shall be approved by a majority of the Board of Directors of the
Series and a majority of the Disinterested Directors (within the meaning of the
1940 Act) by a vote cast in person at a meeting called for the purpose of voting
on such Selling Agreements. Such Selling Agreements shall provide that the
Financial Intermediaries shall provide the Distributor with such information as
is reasonably necessary to permit the Distributor to comply with the reporting
requirements set forth in Paragraphs 3 and 8 hereof.
7. Subject to the provisions of this Service Agreement, the Fund is hereby
authorized to pay a service fee to any person that is not an "affiliated person"
or "interested person" of the Fund or its "investment adviser" or "principal
underwriter" (as such terms are defined in the 1940 Act) who provides any of the
foregoing services for the Fund. Such fee shall be paid only pursuant to written
agreements between the Fund and such other person the terms of which permit
payments to such person only in accordance with the provisions of this Service
Agreement and which have the approval of a majority of the Disinterested
Directors by vote cast separately with respect to each class of Shares and cast
in person at a meeting called for the purpose of voting on such written
agreement.
8. The Fund and the Distributor shall prepare separate written reports for
each class of Shares and shall submit such reports to the Fund's Board of
Directors on a quarterly basis summarizing all payments made by them with
respect to each class of Shares pursuant to this Service Plan and the agreements
contemplated hereby, the purposes for which such payments were made and such
other information as the Board of Directors or the Disinterested Directors may
reasonably request from time to time, and the Board of Directors shall review
such reports and other information.
9. This Service Plan may be terminated with respect to a class of Shares
without penalty at any time by a majority of the Disinterested Directors or by a
"majority of the outstanding voting securities" of the respective class of
Shares of the Fund.
10. This Service Plan shall become effective upon its approval by (a) a
majority of the Board of Directors and a majority of the Disinterested Directors
by vote cast separately with respect to each class of Shares cast in person at a
meeting called for the purpose of voting on this Distribution Plan, and (b) with
respect to each class of Shares, a "majority of the outstanding voting
securities" (as such phrase is defined in the 1940 Act) of such class of Shares
voting separately as a class.
11. This Service Plan and any agreement contemplated hereby shall continue
in effect beyond the
2
<PAGE>
first anniversary of its adoption by the Board of Directors of the Fund only so
long as (a) its continuation is approved at least annually in the manner set
forth in clause (a) of paragraph 10 above and (b) the selection and nomination
of those Directors of the Fund who are not "interested persons" of the Fund are
committed to the discretion of such Directors.
12. This Service Plan may not be amended to increase materially the maximum
amounts permitted to be expended hereunder except with the approval of a
"majority of the outstanding voting securities" of the respective class of
Shares of the Fund. This Service Plan may not be amended in any material respect
except with the approval of a majority of the Disinterested Directors.
Amendments required to conform this Service Plan to changes in Rule 12b-1 under
the 1940 Act, the rules and regulations thereunder or the Rules of Fair Practice
of the National Association of Securities Dealers, Inc. shall not be deemed to
be material amendments.
The Directors of the Series have adopted this Service Plan as Directors
under the Articles of Incorporation of the Series and the policies of the Series
adopted hereby are not binding upon any of the Directors or shareholders of the
Series individually, but bind only the corporation.
3
<PAGE>
VAN KAMPEN FOCUS EQUITY FUND
SERVICE PLAN
The plan set forth below (the "Service Plan") for the VAN KAMPEN
FOCUS EQUITY FUND (the "Fund"), a series of the Van Kampen Series Fund, Inc.
(the "Series") describes the material terms and conditions under which assets
of the Fund may be used to compensate the Fund's principal underwriter,
within the meaning of the Investment Company Act of 1940, as amended (the
"1940 Act"), brokers, dealers and other financial intermediaries
(collectively "Financial Intermediaries") for providing personal services to
shareholders and/or the maintenance of shareholder accounts with respect to
each of its Class A Shares of beneficial interest (the "Class A Shares"), its
Class B Shares of beneficial interest (the "Class B Shares"), and its Class C
Shares of beneficial interest (the "Class C Shares") The Class A Shares,
Class B Shares and Class C Shares sometimes are referred to herein
collectively as the "Shares." Each class of Shares is offered and sold
subject to a different combination of front-end sales charges, distribution
fees, service fees and contingent deferred sales charges.(1) Classes of
shares, if any, subject to a front-end sales charge and a distribution and/or
service fee are referred to herein as "Front-End Classes" and the Shares of
such classes are referred to herein as "Front-End Shares." Classes of shares,
if any, subject to a contingent-deferred sales charge and a distribution and
or a service fee are referred to herein as "CDSC Classes" and Shares of such
classes are referred to herein as "CDSC Shares." Classes of shares, if any,
subject to a front-end sales charge, a contingent-deferred sales charge and a
distribution and/or service fee are referred to herein as "Combination
Classes" and Shares of such class are referred to herein as "Combination
Shares."
The Fund has adopted a distribution plan (the "Distribution Plan")
pursuant to which the Fund is authorized to expend on an annual basis a portion
of its average net assets attributable to each class of Shares in connection
with financing distribution related activities. The Fund also has entered into a
distribution and services agreement (the "Distribution and Services Agreement")
with Van Kampen Funds Inc. (the "Distributor"), pursuant to which the
Distributor acts as agent on behalf of the Fund in connection with the
implementation of the Service Plan and acts as the principal underwriter with
respect to each class of Shares. The Distributor may enter into selling
agreements (the "Selling Agreements") with brokers, dealers and other financial
intermediaries ("Financial Intermediaries") in order to implement the
Distribution Agreement, the Distribution Plan and this Service Plan.
1. The Fund hereby is authorized to pay a service fee with respect to its
Class A Shares, Class B Shares and Class C Shares to any person who sells such
Shares and provides personal services to shareholders and/or maintains
shareholder accounts in an annual amount not to exceed 0.25% of the average
annual net asset value of the Shares maintained in the Fund by such person that
were sold on or after the date on which this Service Plan was first implemented.
The aggregate annual amount of all such payments with respect to each such class
of Shares may not exceed 0.25% of the Fund's average annual net assets
attributable to the respective class of Shares sold on or after the date on
which this Service Plan was first implemented and maintained in the Fund more
than one year.
2. Payments pursuant to this Service Plan may be paid or prepaid on behalf
of the Fund by the Distributor acting as the Fund's agent.
3. Payments by the Fund to the Distributor pursuant to this Service Plan
shall not be made more often than monthly upon receipt by the Fund of a separate
written expense report with respect to each
- --------------------
(1) The Fund is authorized to offer multiple classes of shares pursuant to
a Rule 18f-3 Plan adopted under the 1940 Act.
1
<PAGE>
class of Shares setting forth the expenses qualifying for such reimbursement
allocated to each class of Shares and the purposes thereof.
4. In the event that amounts payable hereunder with respect to a class of
Shares do not fully reimburse the Distributor for pre-paid service fees, such
unreimbursed service fee expenses will be carried forward and paid by the Fund
hereunder in future years so long as this Service Plan remains in effect,
subject to applicable laws and regulations. Reimbursements for service fee
related expenses payable hereunder with respect to a particular class of Shares
may not be used to subsidize services provided with respect to any other class
of Shares.
5. The Fund shall not compensate the Distributor, and neither the Fund nor
the Distributor shall compensate any Financial Intermediary, for any service
related expenses incurred with respect to a class of Shares prior to the later
of (a) the implementation of this Service Plan with respect to such class of
Shares or (b) the date that such Financial Intermediary enters into a Selling
Agreement with the Distributor.
6. The Fund hereby authorizes the Distributor to enter into Selling
Agreements with certain Financial Intermediaries to provide compensation to such
Financial Intermediaries for activities and services of the type referred to in
Paragraph 1 hereof. Prior to the implementation of a Selling Agreement, such
agreement shall be approved by a majority of the Board of Directors of the
Series and a majority of the Disinterested Directors (within the meaning of the
1940 Act) by a vote cast in person at a meeting called for the purpose of voting
on such Selling Agreements. Such Selling Agreements shall provide that the
Financial Intermediaries shall provide the Distributor with such information as
is reasonably necessary to permit the Distributor to comply with the reporting
requirements set forth in Paragraphs 3 and 8 hereof.
7. Subject to the provisions of this Service Agreement, the Fund is hereby
authorized to pay a service fee to any person that is not an "affiliated person"
or "interested person" of the Fund or its "investment adviser" or "principal
underwriter" (as such terms are defined in the 1940 Act) who provides any of the
foregoing services for the Fund. Such fee shall be paid only pursuant to written
agreements between the Fund and such other person the terms of which permit
payments to such person only in accordance with the provisions of this Service
Agreement and which have the approval of a majority of the Disinterested
Directors by vote cast separately with respect to each class of Shares and cast
in person at a meeting called for the purpose of voting on such written
agreement.
8. The Fund and the Distributor shall prepare separate written reports for
each class of Shares and shall submit such reports to the Fund's Board of
Directors on a quarterly basis summarizing all payments made by them with
respect to each class of Shares pursuant to this Service Plan and the agreements
contemplated hereby, the purposes for which such payments were made and such
other information as the Board of Directors or the Disinterested Directors may
reasonably request from time to time, and the Board of Directors shall review
such reports and other information.
9. This Service Plan may be terminated with respect to a class of Shares
without penalty at any time by a majority of the Disinterested Directors or by a
"majority of the outstanding voting securities" of the respective class of
Shares of the Fund.
10. This Service Plan shall become effective upon its approval by (a) a
majority of the Board of Directors and a majority of the Disinterested Directors
by vote cast separately with respect to each class of Shares cast in person at a
meeting called for the purpose of voting on this Distribution Plan, and (b) with
respect to each class of Shares, a "majority of the outstanding voting
securities" (as such phrase is defined in the 1940 Act) of such class of Shares
voting separately as a class.
11. This Service Plan and any agreement contemplated hereby shall continue
in effect beyond the
2
<PAGE>
first anniversary of its adoption by the Board of Directors of the Fund only so
long as (a) its continuation is approved at least annually in the manner set
forth in clause (a) of paragraph 10 above and (b) the selection and nomination
of those Directors of the Fund who are not "interested persons" of the Fund are
committed to the discretion of such Directors.
12. This Service Plan may not be amended to increase materially the maximum
amounts permitted to be expended hereunder except with the approval of a
"majority of the outstanding voting securities" of the respective class of
Shares of the Fund. This Service Plan may not be amended in any material respect
except with the approval of a majority of the Disinterested Directors.
Amendments required to conform this Service Plan to changes in Rule 12b-1 under
the 1940 Act, the rules and regulations thereunder or the Rules of Fair Practice
of the National Association of Securities Dealers, Inc. shall not be deemed to
be material amendments.
The Directors of the Series have adopted this Service Plan as Directors
under the Articles of Incorporation of the Series and the policies of the Series
adopted hereby are not binding upon any of the Directors or shareholders of the
Series individually, but bind only the corporation.
3
<PAGE>
VAN KAMPEN GLOBAL EQUITY ALLOCATION FUND
SERVICE PLAN
The plan set forth below (the "Service Plan") for the VAN KAMPEN
GLOBAL EQUITY ALLOCATION FUND (the "Fund"), a series of the Van Kampen Series
Fund, Inc. (the "Series") describes the material terms and conditions under
which assets of the Fund may be used to compensate the Fund's principal
underwriter, within the meaning of the Investment Company Act of 1940, as
amended (the "1940 Act"), brokers, dealers and other financial intermediaries
(collectively "Financial Intermediaries") for providing personal services to
shareholders and/or the maintenance of shareholder accounts with respect to
each of its Class A Shares of beneficial interest (the "Class A Shares"), its
Class B Shares of beneficial interest (the "Class B Shares"), and its Class C
Shares of beneficial interest (the "Class C Shares") The Class A Shares,
Class B Shares and Class C Shares sometimes are referred to herein
collectively as the "Shares." Each class of Shares is offered and sold
subject to a different combination of front-end sales charges, distribution
fees, service fees and contingent deferred sales charges.(1) Classes of
shares, if any, subject to a front-end sales charge and a distribution and/or
service fee are referred to herein as "Front-End Classes" and the Shares of
such classes are referred to herein as "Front-End Shares." Classes of shares,
if any, subject to a contingent-deferred sales charge and a distribution and
or a service fee are referred to herein as "CDSC Classes" and Shares of such
classes are referred to herein as "CDSC Shares." Classes of shares, if any,
subject to a front-end sales charge, a contingent-deferred sales charge and a
distribution and/or service fee are referred to herein as "Combination
Classes" and Shares of such class are referred to herein as "Combination
Shares."
The Fund has adopted a distribution plan (the "Distribution Plan")
pursuant to which the Fund is authorized to expend on an annual basis a portion
of its average net assets attributable to each class of Shares in connection
with financing distribution related activities. The Fund also has entered into a
distribution and services agreement (the "Distribution and Services Agreement")
with Van Kampen Funds Inc. (the "Distributor"), pursuant to which the
Distributor acts as agent on behalf of the Fund in connection with the
implementation of the Service Plan and acts as the principal underwriter with
respect to each class of Shares. The Distributor may enter into selling
agreements (the "Selling Agreements") with brokers, dealers and other financial
intermediaries ("Financial Intermediaries") in order to implement the
Distribution Agreement, the Distribution Plan and this Service Plan.
1. The Fund hereby is authorized to pay a service fee with respect to its
Class A Shares, Class B Shares and Class C Shares to any person who sells such
Shares and provides personal services to shareholders and/or maintains
shareholder accounts in an annual amount not to exceed 0.25% of the average
annual net asset value of the Shares maintained in the Fund by such person that
were sold on or after the date on which this Service Plan was first implemented.
The aggregate annual amount of all such payments with respect to each such class
of Shares may not exceed 0.25% of the Fund's average annual net assets
attributable to the respective class of Shares sold on or after the date on
which this Service Plan was first implemented and maintained in the Fund more
than one year.
2. Payments pursuant to this Service Plan may be paid or prepaid on behalf
of the Fund by the Distributor acting as the Fund's agent.
3. Payments by the Fund to the Distributor pursuant to this Service Plan
shall not be made more often than monthly upon receipt by the Fund of a separate
written expense report with respect to each
- --------------------
(1) The Fund is authorized to offer multiple classes of shares pursuant to
a Rule 18f-3 Plan adopted under the 1940 Act.
1
<PAGE>
class of Shares setting forth the expenses qualifying for such reimbursement
allocated to each class of Shares and the purposes thereof.
4. In the event that amounts payable hereunder with respect to a class of
Shares do not fully reimburse the Distributor for pre-paid service fees, such
unreimbursed service fee expenses will be carried forward and paid by the Fund
hereunder in future years so long as this Service Plan remains in effect,
subject to applicable laws and regulations. Reimbursements for service fee
related expenses payable hereunder with respect to a particular class of Shares
may not be used to subsidize services provided with respect to any other class
of Shares.
5. The Fund shall not compensate the Distributor, and neither the Fund nor
the Distributor shall compensate any Financial Intermediary, for any service
related expenses incurred with respect to a class of Shares prior to the later
of (a) the implementation of this Service Plan with respect to such class of
Shares or (b) the date that such Financial Intermediary enters into a Selling
Agreement with the Distributor.
6. The Fund hereby authorizes the Distributor to enter into Selling
Agreements with certain Financial Intermediaries to provide compensation to such
Financial Intermediaries for activities and services of the type referred to in
Paragraph 1 hereof. Prior to the implementation of a Selling Agreement, such
agreement shall be approved by a majority of the Board of Directors of the
Series and a majority of the Disinterested Directors (within the meaning of the
1940 Act) by a vote cast in person at a meeting called for the purpose of voting
on such Selling Agreements. Such Selling Agreements shall provide that the
Financial Intermediaries shall provide the Distributor with such information as
is reasonably necessary to permit the Distributor to comply with the reporting
requirements set forth in Paragraphs 3 and 8 hereof.
7. Subject to the provisions of this Service Agreement, the Fund is hereby
authorized to pay a service fee to any person that is not an "affiliated person"
or "interested person" of the Fund or its "investment adviser" or "principal
underwriter" (as such terms are defined in the 1940 Act) who provides any of the
foregoing services for the Fund. Such fee shall be paid only pursuant to written
agreements between the Fund and such other person the terms of which permit
payments to such person only in accordance with the provisions of this Service
Agreement and which have the approval of a majority of the Disinterested
Directors by vote cast separately with respect to each class of Shares and cast
in person at a meeting called for the purpose of voting on such written
agreement.
8. The Fund and the Distributor shall prepare separate written reports for
each class of Shares and shall submit such reports to the Fund's Board of
Directors on a quarterly basis summarizing all payments made by them with
respect to each class of Shares pursuant to this Service Plan and the agreements
contemplated hereby, the purposes for which such payments were made and such
other information as the Board of Directors or the Disinterested Directors may
reasonably request from time to time, and the Board of Directors shall review
such reports and other information.
9. This Service Plan may be terminated with respect to a class of Shares
without penalty at any time by a majority of the Disinterested Directors or by a
"majority of the outstanding voting securities" of the respective class of
Shares of the Fund.
10. This Service Plan shall become effective upon its approval by (a) a
majority of the Board of Directors and a majority of the Disinterested Directors
by vote cast separately with respect to each class of Shares cast in person at a
meeting called for the purpose of voting on this Distribution Plan, and (b) with
respect to each class of Shares, a "majority of the outstanding voting
securities" (as such phrase is defined in the 1940 Act) of such class of Shares
voting separately as a class.
11. This Service Plan and any agreement contemplated hereby shall continue
in effect beyond the
2
<PAGE>
first anniversary of its adoption by the Board of Directors of the Fund only so
long as (a) its continuation is approved at least annually in the manner set
forth in clause (a) of paragraph 10 above and (b) the selection and nomination
of those Directors of the Fund who are not "interested persons" of the Fund are
committed to the discretion of such Directors.
12. This Service Plan may not be amended to increase materially the maximum
amounts permitted to be expended hereunder except with the approval of a
"majority of the outstanding voting securities" of the respective class of
Shares of the Fund. This Service Plan may not be amended in any material respect
except with the approval of a majority of the Disinterested Directors.
Amendments required to conform this Service Plan to changes in Rule 12b-1 under
the 1940 Act, the rules and regulations thereunder or the Rules of Fair Practice
of the National Association of Securities Dealers, Inc. shall not be deemed to
be material amendments.
The Directors of the Series have adopted this Service Plan as Directors
under the Articles of Incorporation of the Series and the policies of the Series
adopted hereby are not binding upon any of the Directors or shareholders of the
Series individually, but bind only the corporation.
3
<PAGE>
VAN KAMPEN GLOBAL EQUITY FUND
SERVICE PLAN
The plan set forth below (the "Service Plan") for the VAN KAMPEN
GLOBAL EQUITY FUND (the "Fund"), a series of the Van Kampen Series Fund, Inc.
(the "Series") describes the material terms and conditions under which assets
of the Fund may be used to compensate the Fund's principal underwriter,
within the meaning of the Investment Company Act of 1940, as amended (the
"1940 Act"), brokers, dealers and other financial intermediaries
(collectively "Financial Intermediaries") for providing personal services to
shareholders and/or the maintenance of shareholder accounts with respect to
each of its Class A Shares of beneficial interest (the "Class A Shares"), its
Class B Shares of beneficial interest (the "Class B Shares"), and its Class C
Shares of beneficial interest (the "Class C Shares") The Class A Shares,
Class B Shares and Class C Shares sometimes are referred to herein
collectively as the "Shares." Each class of Shares is offered and sold
subject to a different combination of front-end sales charges, distribution
fees, service fees and contingent deferred sales charges.(1) Classes of
shares, if any, subject to a front-end sales charge and a distribution and/or
service fee are referred to herein as "Front-End Classes" and the Shares of
such classes are referred to herein as "Front-End Shares." Classes of shares,
if any, subject to a contingent-deferred sales charge and a distribution and
or a service fee are referred to herein as "CDSC Classes" and Shares of such
classes are referred to herein as "CDSC Shares." Classes of shares, if any,
subject to a front-end sales charge, a contingent-deferred sales charge and a
distribution and/or service fee are referred to herein as "Combination
Classes" and Shares of such class are referred to herein as "Combination
Shares."
The Fund has adopted a distribution plan (the "Distribution Plan")
pursuant to which the Fund is authorized to expend on an annual basis a portion
of its average net assets attributable to each class of Shares in connection
with financing distribution related activities. The Fund also has entered into a
distribution and services agreement (the "Distribution and Services Agreement")
with Van Kampen Funds Inc. (the "Distributor"), pursuant to which the
Distributor acts as agent on behalf of the Fund in connection with the
implementation of the Service Plan and acts as the principal underwriter with
respect to each class of Shares. The Distributor may enter into selling
agreements (the "Selling Agreements") with brokers, dealers and other financial
intermediaries ("Financial Intermediaries") in order to implement the
Distribution Agreement, the Distribution Plan and this Service Plan.
1. The Fund hereby is authorized to pay a service fee with respect to its
Class A Shares, Class B Shares and Class C Shares to any person who sells such
Shares and provides personal services to shareholders and/or maintains
shareholder accounts in an annual amount not to exceed 0.25% of the average
annual net asset value of the Shares maintained in the Fund by such person that
were sold on or after the date on which this Service Plan was first implemented.
The aggregate annual amount of all such payments with respect to each such class
of Shares may not exceed 0.25% of the Fund's average annual net assets
attributable to the respective class of Shares sold on or after the date on
which this Service Plan was first implemented and maintained in the Fund more
than one year.
2. Payments pursuant to this Service Plan may be paid or prepaid on behalf
of the Fund by the Distributor acting as the Fund's agent.
3. Payments by the Fund to the Distributor pursuant to this Service Plan
shall not be made more often than monthly upon receipt by the Fund of a separate
written expense report with respect to each
- --------------------
(1) The Fund is authorized to offer multiple classes of shares pursuant to
a Rule 18f-3 Plan adopted under the 1940 Act.
1
<PAGE>
class of Shares setting forth the expenses qualifying for such reimbursement
allocated to each class of Shares and the purposes thereof.
4. In the event that amounts payable hereunder with respect to a class of
Shares do not fully reimburse the Distributor for pre-paid service fees, such
unreimbursed service fee expenses will be carried forward and paid by the Fund
hereunder in future years so long as this Service Plan remains in effect,
subject to applicable laws and regulations. Reimbursements for service fee
related expenses payable hereunder with respect to a particular class of Shares
may not be used to subsidize services provided with respect to any other class
of Shares.
5. The Fund shall not compensate the Distributor, and neither the Fund nor
the Distributor shall compensate any Financial Intermediary, for any service
related expenses incurred with respect to a class of Shares prior to the later
of (a) the implementation of this Service Plan with respect to such class of
Shares or (b) the date that such Financial Intermediary enters into a Selling
Agreement with the Distributor.
6. The Fund hereby authorizes the Distributor to enter into Selling
Agreements with certain Financial Intermediaries to provide compensation to such
Financial Intermediaries for activities and services of the type referred to in
Paragraph 1 hereof. Prior to the implementation of a Selling Agreement, such
agreement shall be approved by a majority of the Board of Directors of the
Series and a majority of the Disinterested Directors (within the meaning of the
1940 Act) by a vote cast in person at a meeting called for the purpose of voting
on such Selling Agreements. Such Selling Agreements shall provide that the
Financial Intermediaries shall provide the Distributor with such information as
is reasonably necessary to permit the Distributor to comply with the reporting
requirements set forth in Paragraphs 3 and 8 hereof.
7. Subject to the provisions of this Service Agreement, the Fund is hereby
authorized to pay a service fee to any person that is not an "affiliated person"
or "interested person" of the Fund or its "investment adviser" or "principal
underwriter" (as such terms are defined in the 1940 Act) who provides any of the
foregoing services for the Fund. Such fee shall be paid only pursuant to written
agreements between the Fund and such other person the terms of which permit
payments to such person only in accordance with the provisions of this Service
Agreement and which have the approval of a majority of the Disinterested
Directors by vote cast separately with respect to each class of Shares and cast
in person at a meeting called for the purpose of voting on such written
agreement.
8. The Fund and the Distributor shall prepare separate written reports for
each class of Shares and shall submit such reports to the Fund's Board of
Directors on a quarterly basis summarizing all payments made by them with
respect to each class of Shares pursuant to this Service Plan and the agreements
contemplated hereby, the purposes for which such payments were made and such
other information as the Board of Directors or the Disinterested Directors may
reasonably request from time to time, and the Board of Directors shall review
such reports and other information.
9. This Service Plan may be terminated with respect to a class of Shares
without penalty at any time by a majority of the Disinterested Directors or by a
"majority of the outstanding voting securities" of the respective class of
Shares of the Fund.
10. This Service Plan shall become effective upon its approval by (a) a
majority of the Board of Directors and a majority of the Disinterested Directors
by vote cast separately with respect to each class of Shares cast in person at a
meeting called for the purpose of voting on this Distribution Plan, and (b) with
respect to each class of Shares, a "majority of the outstanding voting
securities" (as such phrase is defined in the 1940 Act) of such class of Shares
voting separately as a class.
11. This Service Plan and any agreement contemplated hereby shall continue
in effect beyond the
2
<PAGE>
first anniversary of its adoption by the Board of Directors of the Fund only so
long as (a) its continuation is approved at least annually in the manner set
forth in clause (a) of paragraph 10 above and (b) the selection and nomination
of those Directors of the Fund who are not "interested persons" of the Fund are
committed to the discretion of such Directors.
12. This Service Plan may not be amended to increase materially the maximum
amounts permitted to be expended hereunder except with the approval of a
"majority of the outstanding voting securities" of the respective class of
Shares of the Fund. This Service Plan may not be amended in any material respect
except with the approval of a majority of the Disinterested Directors.
Amendments required to conform this Service Plan to changes in Rule 12b-1 under
the 1940 Act, the rules and regulations thereunder or the Rules of Fair Practice
of the National Association of Securities Dealers, Inc. shall not be deemed to
be material amendments.
The Directors of the Series have adopted this Service Plan as Directors
under the Articles of Incorporation of the Series and the policies of the Series
adopted hereby are not binding upon any of the Directors or shareholders of the
Series individually, but bind only the corporation.
3
<PAGE>
VAN KAMPEN GLOBAL FIXED INCOME FUND
SERVICE PLAN
The plan set forth below (the "Service Plan") for the VAN KAMPEN
GLOBAL FIXED INCOME FUND (the "Fund"), a series of the Van Kampen Series
Fund, Inc. (the "Series") describes the material terms and conditions under
which assets of the Fund may be used to compensate the Fund's principal
underwriter, within the meaning of the Investment Company Act of 1940, as
amended (the "1940 Act"), brokers, dealers and other financial intermediaries
(collectively "Financial Intermediaries") for providing personal services to
shareholders and/or the maintenance of shareholder accounts with respect to
each of its Class A Shares of beneficial interest (the "Class A Shares"), its
Class B Shares of beneficial interest (the "Class B Shares"), and its Class C
Shares of beneficial interest (the "Class C Shares") The Class A Shares,
Class B Shares and Class C Shares sometimes are referred to herein
collectively as the "Shares." Each class of Shares is offered and sold
subject to a different combination of front-end sales charges, distribution
fees, service fees and contingent deferred sales charges.(1) Classes of
shares, if any, subject to a front-end sales charge and a distribution and/or
service fee are referred to herein as "Front-End Classes" and the Shares of
such classes are referred to herein as "Front-End Shares." Classes of shares,
if any, subject to a contingent-deferred sales charge and a distribution and
or a service fee are referred to herein as "CDSC Classes" and Shares of such
classes are referred to herein as "CDSC Shares." Classes of shares, if any,
subject to a front-end sales charge, a contingent-deferred sales charge and a
distribution and/or service fee are referred to herein as "Combination
Classes" and Shares of such class are referred to herein as "Combination
Shares."
The Fund has adopted a distribution plan (the "Distribution Plan")
pursuant to which the Fund is authorized to expend on an annual basis a portion
of its average net assets attributable to each class of Shares in connection
with financing distribution related activities. The Fund also has entered into a
distribution and services agreement (the "Distribution and Services Agreement")
with Van Kampen Funds Inc. (the "Distributor"), pursuant to which the
Distributor acts as agent on behalf of the Fund in connection with the
implementation of the Service Plan and acts as the principal underwriter with
respect to each class of Shares. The Distributor may enter into selling
agreements (the "Selling Agreements") with brokers, dealers and other financial
intermediaries ("Financial Intermediaries") in order to implement the
Distribution Agreement, the Distribution Plan and this Service Plan.
1. The Fund hereby is authorized to pay a service fee with respect to its
Class A Shares, Class B Shares and Class C Shares to any person who sells such
Shares and provides personal services to shareholders and/or maintains
shareholder accounts in an annual amount not to exceed 0.25% of the average
annual net asset value of the Shares maintained in the Fund by such person that
were sold on or after the date on which this Service Plan was first implemented.
The aggregate annual amount of all such payments with respect to each such class
of Shares may not exceed 0.25% of the Fund's average annual net assets
attributable to the respective class of Shares sold on or after the date on
which this Service Plan was first implemented and maintained in the Fund more
than one year.
2. Payments pursuant to this Service Plan may be paid or prepaid on behalf
of the Fund by the Distributor acting as the Fund's agent.
3. Payments by the Fund to the Distributor pursuant to this Service Plan
shall not be made more often than monthly upon receipt by the Fund of a separate
written expense report with respect to each
- --------------------
(1) The Fund is authorized to offer multiple classes of shares pursuant to
a Rule 18f-3 Plan adopted under the 1940 Act.
1
<PAGE>
class of Shares setting forth the expenses qualifying for such reimbursement
allocated to each class of Shares and the purposes thereof.
4. In the event that amounts payable hereunder with respect to a class of
Shares do not fully reimburse the Distributor for pre-paid service fees, such
unreimbursed service fee expenses will be carried forward and paid by the Fund
hereunder in future years so long as this Service Plan remains in effect,
subject to applicable laws and regulations. Reimbursements for service fee
related expenses payable hereunder with respect to a particular class of Shares
may not be used to subsidize services provided with respect to any other class
of Shares.
5. The Fund shall not compensate the Distributor, and neither the Fund nor
the Distributor shall compensate any Financial Intermediary, for any service
related expenses incurred with respect to a class of Shares prior to the later
of (a) the implementation of this Service Plan with respect to such class of
Shares or (b) the date that such Financial Intermediary enters into a Selling
Agreement with the Distributor.
6. The Fund hereby authorizes the Distributor to enter into Selling
Agreements with certain Financial Intermediaries to provide compensation to such
Financial Intermediaries for activities and services of the type referred to in
Paragraph 1 hereof. Prior to the implementation of a Selling Agreement, such
agreement shall be approved by a majority of the Board of Directors of the
Series and a majority of the Disinterested Directors (within the meaning of the
1940 Act) by a vote cast in person at a meeting called for the purpose of voting
on such Selling Agreements. Such Selling Agreements shall provide that the
Financial Intermediaries shall provide the Distributor with such information as
is reasonably necessary to permit the Distributor to comply with the reporting
requirements set forth in Paragraphs 3 and 8 hereof.
7. Subject to the provisions of this Service Agreement, the Fund is hereby
authorized to pay a service fee to any person that is not an "affiliated person"
or "interested person" of the Fund or its "investment adviser" or "principal
underwriter" (as such terms are defined in the 1940 Act) who provides any of the
foregoing services for the Fund. Such fee shall be paid only pursuant to written
agreements between the Fund and such other person the terms of which permit
payments to such person only in accordance with the provisions of this Service
Agreement and which have the approval of a majority of the Disinterested
Directors by vote cast separately with respect to each class of Shares and cast
in person at a meeting called for the purpose of voting on such written
agreement.
8. The Fund and the Distributor shall prepare separate written reports for
each class of Shares and shall submit such reports to the Fund's Board of
Directors on a quarterly basis summarizing all payments made by them with
respect to each class of Shares pursuant to this Service Plan and the agreements
contemplated hereby, the purposes for which such payments were made and such
other information as the Board of Directors or the Disinterested Directors may
reasonably request from time to time, and the Board of Directors shall review
such reports and other information.
9. This Service Plan may be terminated with respect to a class of Shares
without penalty at any time by a majority of the Disinterested Directors or by a
"majority of the outstanding voting securities" of the respective class of
Shares of the Fund.
10. This Service Plan shall become effective upon its approval by (a) a
majority of the Board of Directors and a majority of the Disinterested Directors
by vote cast separately with respect to each class of Shares cast in person at a
meeting called for the purpose of voting on this Distribution Plan, and (b) with
respect to each class of Shares, a "majority of the outstanding voting
securities" (as such phrase is defined in the 1940 Act) of such class of Shares
voting separately as a class.
11. This Service Plan and any agreement contemplated hereby shall continue
in effect beyond the
2
<PAGE>
first anniversary of its adoption by the Board of Directors of the Fund only so
long as (a) its continuation is approved at least annually in the manner set
forth in clause (a) of paragraph 10 above and (b) the selection and nomination
of those Directors of the Fund who are not "interested persons" of the Fund are
committed to the discretion of such Directors.
12. This Service Plan may not be amended to increase materially the maximum
amounts permitted to be expended hereunder except with the approval of a
"majority of the outstanding voting securities" of the respective class of
Shares of the Fund. This Service Plan may not be amended in any material respect
except with the approval of a majority of the Disinterested Directors.
Amendments required to conform this Service Plan to changes in Rule 12b-1 under
the 1940 Act, the rules and regulations thereunder or the Rules of Fair Practice
of the National Association of Securities Dealers, Inc. shall not be deemed to
be material amendments.
The Directors of the Series have adopted this Service Plan as Directors
under the Articles of Incorporation of the Series and the policies of the Series
adopted hereby are not binding upon any of the Directors or shareholders of the
Series individually, but bind only the corporation.
3
<PAGE>
VAN KAMPEN GLOBAL FRANCHISE FUND
SERVICE PLAN
The plan set forth below (the "Service Plan") for the VAN KAMPEN
GLOBAL FRANCHISE FUND (the "Fund"), a series of the Van Kampen Series Fund,
Inc. (the "Series") describes the material terms and conditions under which
assets of the Fund may be used to compensate the Fund's principal
underwriter, within the meaning of the Investment Company Act of 1940, as
amended (the "1940 Act"), brokers, dealers and other financial intermediaries
(collectively "Financial Intermediaries") for providing personal services to
shareholders and/or the maintenance of shareholder accounts with respect to
each of its Class A Shares of beneficial interest (the "Class A Shares"), its
Class B Shares of beneficial interest (the "Class B Shares"), and its Class C
Shares of beneficial interest (the "Class C Shares") The Class A Shares,
Class B Shares and Class C Shares sometimes are referred to herein
collectively as the "Shares." Each class of Shares is offered and sold
subject to a different combination of front-end sales charges, distribution
fees, service fees and contingent deferred sales charges.(1) Classes of
shares, if any, subject to a front-end sales charge and a distribution and/or
service fee are referred to herein as "Front-End Classes" and the Shares of
such classes are referred to herein as "Front-End Shares." Classes of shares,
if any, subject to a contingent-deferred sales charge and a distribution and
or a service fee are referred to herein as "CDSC Classes" and Shares of such
classes are referred to herein as "CDSC Shares." Classes of shares, if any,
subject to a front-end sales charge, a contingent-deferred sales charge and a
distribution and/or service fee are referred to herein as "Combination
Classes" and Shares of such class are referred to herein as "Combination
Shares."
The Fund has adopted a distribution plan (the "Distribution Plan")
pursuant to which the Fund is authorized to expend on an annual basis a portion
of its average net assets attributable to each class of Shares in connection
with financing distribution related activities. The Fund also has entered into a
distribution and services agreement (the "Distribution and Services Agreement")
with Van Kampen Funds Inc. (the "Distributor"), pursuant to which the
Distributor acts as agent on behalf of the Fund in connection with the
implementation of the Service Plan and acts as the principal underwriter with
respect to each class of Shares. The Distributor may enter into selling
agreements (the "Selling Agreements") with brokers, dealers and other financial
intermediaries ("Financial Intermediaries") in order to implement the
Distribution Agreement, the Distribution Plan and this Service Plan.
1. The Fund hereby is authorized to pay a service fee with respect to its
Class A Shares, Class B Shares and Class C Shares to any person who sells such
Shares and provides personal services to shareholders and/or maintains
shareholder accounts in an annual amount not to exceed 0.25% of the average
annual net asset value of the Shares maintained in the Fund by such person that
were sold on or after the date on which this Service Plan was first implemented.
The aggregate annual amount of all such payments with respect to each such class
of Shares may not exceed 0.25% of the Fund's average annual net assets
attributable to the respective class of Shares sold on or after the date on
which this Service Plan was first implemented and maintained in the Fund more
than one year.
2. Payments pursuant to this Service Plan may be paid or prepaid on behalf
of the Fund by the Distributor acting as the Fund's agent.
3. Payments by the Fund to the Distributor pursuant to this Service Plan
shall not be made more often than monthly upon receipt by the Fund of a separate
written expense report with respect to each
- --------------------
(1) The Fund is authorized to offer multiple classes of shares pursuant to
a Rule 18f-3 Plan adopted under the 1940 Act.
1
<PAGE>
class of Shares setting forth the expenses qualifying for such reimbursement
allocated to each class of Shares and the purposes thereof.
4. In the event that amounts payable hereunder with respect to a class of
Shares do not fully reimburse the Distributor for pre-paid service fees, such
unreimbursed service fee expenses will be carried forward and paid by the Fund
hereunder in future years so long as this Service Plan remains in effect,
subject to applicable laws and regulations. Reimbursements for service fee
related expenses payable hereunder with respect to a particular class of Shares
may not be used to subsidize services provided with respect to any other class
of Shares.
5. The Fund shall not compensate the Distributor, and neither the Fund nor
the Distributor shall compensate any Financial Intermediary, for any service
related expenses incurred with respect to a class of Shares prior to the later
of (a) the implementation of this Service Plan with respect to such class of
Shares or (b) the date that such Financial Intermediary enters into a Selling
Agreement with the Distributor.
6. The Fund hereby authorizes the Distributor to enter into Selling
Agreements with certain Financial Intermediaries to provide compensation to such
Financial Intermediaries for activities and services of the type referred to in
Paragraph 1 hereof. Prior to the implementation of a Selling Agreement, such
agreement shall be approved by a majority of the Board of Directors of the
Series and a majority of the Disinterested Directors (within the meaning of the
1940 Act) by a vote cast in person at a meeting called for the purpose of voting
on such Selling Agreements. Such Selling Agreements shall provide that the
Financial Intermediaries shall provide the Distributor with such information as
is reasonably necessary to permit the Distributor to comply with the reporting
requirements set forth in Paragraphs 3 and 8 hereof.
7. Subject to the provisions of this Service Agreement, the Fund is hereby
authorized to pay a service fee to any person that is not an "affiliated person"
or "interested person" of the Fund or its "investment adviser" or "principal
underwriter" (as such terms are defined in the 1940 Act) who provides any of the
foregoing services for the Fund. Such fee shall be paid only pursuant to written
agreements between the Fund and such other person the terms of which permit
payments to such person only in accordance with the provisions of this Service
Agreement and which have the approval of a majority of the Disinterested
Directors by vote cast separately with respect to each class of Shares and cast
in person at a meeting called for the purpose of voting on such written
agreement.
8. The Fund and the Distributor shall prepare separate written reports for
each class of Shares and shall submit such reports to the Fund's Board of
Directors on a quarterly basis summarizing all payments made by them with
respect to each class of Shares pursuant to this Service Plan and the agreements
contemplated hereby, the purposes for which such payments were made and such
other information as the Board of Directors or the Disinterested Directors may
reasonably request from time to time, and the Board of Directors shall review
such reports and other information.
9. This Service Plan may be terminated with respect to a class of Shares
without penalty at any time by a majority of the Disinterested Directors or by a
"majority of the outstanding voting securities" of the respective class of
Shares of the Fund.
10. This Service Plan shall become effective upon its approval by (a) a
majority of the Board of Directors and a majority of the Disinterested Directors
by vote cast separately with respect to each class of Shares cast in person at a
meeting called for the purpose of voting on this Distribution Plan, and (b) with
respect to each class of Shares, a "majority of the outstanding voting
securities" (as such phrase is defined in the 1940 Act) of such class of Shares
voting separately as a class.
11. This Service Plan and any agreement contemplated hereby shall continue
in effect beyond the
2
<PAGE>
first anniversary of its adoption by the Board of Directors of the Fund only so
long as (a) its continuation is approved at least annually in the manner set
forth in clause (a) of paragraph 10 above and (b) the selection and nomination
of those Directors of the Fund who are not "interested persons" of the Fund are
committed to the discretion of such Directors.
12. This Service Plan may not be amended to increase materially the maximum
amounts permitted to be expended hereunder except with the approval of a
"majority of the outstanding voting securities" of the respective class of
Shares of the Fund. This Service Plan may not be amended in any material respect
except with the approval of a majority of the Disinterested Directors.
Amendments required to conform this Service Plan to changes in Rule 12b-1 under
the 1940 Act, the rules and regulations thereunder or the Rules of Fair Practice
of the National Association of Securities Dealers, Inc. shall not be deemed to
be material amendments.
The Directors of the Series have adopted this Service Plan as Directors
under the Articles of Incorporation of the Series and the policies of the Series
adopted hereby are not binding upon any of the Directors or shareholders of the
Series individually, but bind only the corporation.
3
<PAGE>
VAN KAMPEN GROWTH & INCOME FUND II
SERVICE PLAN
The plan set forth below (the "Service Plan") for the VAN KAMPEN
GROWTH & INCOME FUND II (the "Fund"), a series of the Van Kampen Series Fund,
Inc. (the "Series") describes the material terms and conditions under which
assets of the Fund may be used to compensate the Fund's principal
underwriter, within the meaning of the Investment Company Act of 1940, as
amended (the "1940 Act"), brokers, dealers and other financial intermediaries
(collectively "Financial Intermediaries") for providing personal services to
shareholders and/or the maintenance of shareholder accounts with respect to
each of its Class A Shares of beneficial interest (the "Class A Shares"), its
Class B Shares of beneficial interest (the "Class B Shares"), and its Class C
Shares of beneficial interest (the "Class C Shares") The Class A Shares,
Class B Shares and Class C Shares sometimes are referred to herein
collectively as the "Shares." Each class of Shares is offered and sold
subject to a different combination of front-end sales charges, distribution
fees, service fees and contingent deferred sales charges.(1) Classes of
shares, if any, subject to a front-end sales charge and a distribution and/or
service fee are referred to herein as "Front-End Classes" and the Shares of
such classes are referred to herein as "Front-End Shares." Classes of shares,
if any, subject to a contingent-deferred sales charge and a distribution and
or a service fee are referred to herein as "CDSC Classes" and Shares of such
classes are referred to herein as "CDSC Shares." Classes of shares, if any,
subject to a front-end sales charge, a contingent-deferred sales charge and a
distribution and/or service fee are referred to herein as "Combination
Classes" and Shares of such class are referred to herein as "Combination
Shares."
The Fund has adopted a distribution plan (the "Distribution Plan")
pursuant to which the Fund is authorized to expend on an annual basis a portion
of its average net assets attributable to each class of Shares in connection
with financing distribution related activities. The Fund also has entered into a
distribution and services agreement (the "Distribution and Services Agreement")
with Van Kampen Funds Inc. (the "Distributor"), pursuant to which the
Distributor acts as agent on behalf of the Fund in connection with the
implementation of the Service Plan and acts as the principal underwriter with
respect to each class of Shares. The Distributor may enter into selling
agreements (the "Selling Agreements") with brokers, dealers and other financial
intermediaries ("Financial Intermediaries") in order to implement the
Distribution Agreement, the Distribution Plan and this Service Plan.
1. The Fund hereby is authorized to pay a service fee with respect to its
Class A Shares, Class B Shares and Class C Shares to any person who sells such
Shares and provides personal services to shareholders and/or maintains
shareholder accounts in an annual amount not to exceed 0.25% of the average
annual net asset value of the Shares maintained in the Fund by such person that
were sold on or after the date on which this Service Plan was first implemented.
The aggregate annual amount of all such payments with respect to each such class
of Shares may not exceed 0.25% of the Fund's average annual net assets
attributable to the respective class of Shares sold on or after the date on
which this Service Plan was first implemented and maintained in the Fund more
than one year.
2. Payments pursuant to this Service Plan may be paid or prepaid on behalf
of the Fund by the Distributor acting as the Fund's agent.
3. Payments by the Fund to the Distributor pursuant to this Service Plan
shall not be made more often than monthly upon receipt by the Fund of a separate
written expense report with respect to each
- --------------------
(1) The Fund is authorized to offer multiple classes of shares pursuant to
a Rule 18f-3 Plan adopted under the 1940 Act.
1
<PAGE>
class of Shares setting forth the expenses qualifying for such reimbursement
allocated to each class of Shares and the purposes thereof.
4. In the event that amounts payable hereunder with respect to a class of
Shares do not fully reimburse the Distributor for pre-paid service fees, such
unreimbursed service fee expenses will be carried forward and paid by the Fund
hereunder in future years so long as this Service Plan remains in effect,
subject to applicable laws and regulations. Reimbursements for service fee
related expenses payable hereunder with respect to a particular class of Shares
may not be used to subsidize services provided with respect to any other class
of Shares.
5. The Fund shall not compensate the Distributor, and neither the Fund nor
the Distributor shall compensate any Financial Intermediary, for any service
related expenses incurred with respect to a class of Shares prior to the later
of (a) the implementation of this Service Plan with respect to such class of
Shares or (b) the date that such Financial Intermediary enters into a Selling
Agreement with the Distributor.
6. The Fund hereby authorizes the Distributor to enter into Selling
Agreements with certain Financial Intermediaries to provide compensation to such
Financial Intermediaries for activities and services of the type referred to in
Paragraph 1 hereof. Prior to the implementation of a Selling Agreement, such
agreement shall be approved by a majority of the Board of Directors of the
Series and a majority of the Disinterested Directors (within the meaning of the
1940 Act) by a vote cast in person at a meeting called for the purpose of voting
on such Selling Agreements. Such Selling Agreements shall provide that the
Financial Intermediaries shall provide the Distributor with such information as
is reasonably necessary to permit the Distributor to comply with the reporting
requirements set forth in Paragraphs 3 and 8 hereof.
7. Subject to the provisions of this Service Agreement, the Fund is hereby
authorized to pay a service fee to any person that is not an "affiliated person"
or "interested person" of the Fund or its "investment adviser" or "principal
underwriter" (as such terms are defined in the 1940 Act) who provides any of the
foregoing services for the Fund. Such fee shall be paid only pursuant to written
agreements between the Fund and such other person the terms of which permit
payments to such person only in accordance with the provisions of this Service
Agreement and which have the approval of a majority of the Disinterested
Directors by vote cast separately with respect to each class of Shares and cast
in person at a meeting called for the purpose of voting on such written
agreement.
8. The Fund and the Distributor shall prepare separate written reports for
each class of Shares and shall submit such reports to the Fund's Board of
Directors on a quarterly basis summarizing all payments made by them with
respect to each class of Shares pursuant to this Service Plan and the agreements
contemplated hereby, the purposes for which such payments were made and such
other information as the Board of Directors or the Disinterested Directors may
reasonably request from time to time, and the Board of Directors shall review
such reports and other information.
9. This Service Plan may be terminated with respect to a class of Shares
without penalty at any time by a majority of the Disinterested Directors or by a
"majority of the outstanding voting securities" of the respective class of
Shares of the Fund.
10. This Service Plan shall become effective upon its approval by (a) a
majority of the Board of Directors and a majority of the Disinterested Directors
by vote cast separately with respect to each class of Shares cast in person at a
meeting called for the purpose of voting on this Distribution Plan, and (b) with
respect to each class of Shares, a "majority of the outstanding voting
securities" (as such phrase is defined in the 1940 Act) of such class of Shares
voting separately as a class.
11. This Service Plan and any agreement contemplated hereby shall continue
in effect beyond the
2
<PAGE>
first anniversary of its adoption by the Board of Directors of the Fund only so
long as (a) its continuation is approved at least annually in the manner set
forth in clause (a) of paragraph 10 above and (b) the selection and nomination
of those Directors of the Fund who are not "interested persons" of the Fund are
committed to the discretion of such Directors.
12. This Service Plan may not be amended to increase materially the maximum
amounts permitted to be expended hereunder except with the approval of a
"majority of the outstanding voting securities" of the respective class of
Shares of the Fund. This Service Plan may not be amended in any material respect
except with the approval of a majority of the Disinterested Directors.
Amendments required to conform this Service Plan to changes in Rule 12b-1 under
the 1940 Act, the rules and regulations thereunder or the Rules of Fair Practice
of the National Association of Securities Dealers, Inc. shall not be deemed to
be material amendments.
The Directors of the Series have adopted this Service Plan as Directors
under the Articles of Incorporation of the Series and the policies of the Series
adopted hereby are not binding upon any of the Directors or shareholders of the
Series individually, but bind only the corporation.
3
<PAGE>
VAN KAMPEN HIGH YIELD & TOTAL RETURN FUND
SERVICE PLAN
The plan set forth below (the "Service Plan") for the VAN KAMPEN
HIGH YIELD & TOTAL RETURN FUND (the "Fund"), a series of the Van Kampen
Series Fund, Inc. (the "Series") describes the material terms and conditions
under which assets of the Fund may be used to compensate the Fund's principal
underwriter, within the meaning of the Investment Company Act of 1940, as
amended (the "1940 Act"), brokers, dealers and other financial intermediaries
(collectively "Financial Intermediaries") for providing personal services to
shareholders and/or the maintenance of shareholder accounts with respect to
each of its Class A Shares of beneficial interest (the "Class A Shares"), its
Class B Shares of beneficial interest (the "Class B Shares"), and its Class C
Shares of beneficial interest (the "Class C Shares") The Class A Shares,
Class B Shares and Class C Shares sometimes are referred to herein
collectively as the "Shares." Each class of Shares is offered and sold
subject to a different combination of front-end sales charges, distribution
fees, service fees and contingent deferred sales charges.(1) Classes of
shares, if any, subject to a front-end sales charge and a distribution and/or
service fee are referred to herein as "Front-End Classes" and the Shares of
such classes are referred to herein as "Front-End Shares." Classes of shares,
if any, subject to a contingent-deferred sales charge and a distribution and
or a service fee are referred to herein as "CDSC Classes" and Shares of such
classes are referred to herein as "CDSC Shares." Classes of shares, if any,
subject to a front-end sales charge, a contingent-deferred sales charge and a
distribution and/or service fee are referred to herein as "Combination
Classes" and Shares of such class are referred to herein as "Combination
Shares."
The Fund has adopted a distribution plan (the "Distribution Plan")
pursuant to which the Fund is authorized to expend on an annual basis a portion
of its average net assets attributable to each class of Shares in connection
with financing distribution related activities. The Fund also has entered into a
distribution and services agreement (the "Distribution and Services Agreement")
with Van Kampen Funds Inc. (the "Distributor"), pursuant to which the
Distributor acts as agent on behalf of the Fund in connection with the
implementation of the Service Plan and acts as the principal underwriter with
respect to each class of Shares. The Distributor may enter into selling
agreements (the "Selling Agreements") with brokers, dealers and other financial
intermediaries ("Financial Intermediaries") in order to implement the
Distribution Agreement, the Distribution Plan and this Service Plan.
1. The Fund hereby is authorized to pay a service fee with respect to its
Class A Shares, Class B Shares and Class C Shares to any person who sells such
Shares and provides personal services to shareholders and/or maintains
shareholder accounts in an annual amount not to exceed 0.25% of the average
annual net asset value of the Shares maintained in the Fund by such person that
were sold on or after the date on which this Service Plan was first implemented.
The aggregate annual amount of all such payments with respect to each such class
of Shares may not exceed 0.25% of the Fund's average annual net assets
attributable to the respective class of Shares sold on or after the date on
which this Service Plan was first implemented and maintained in the Fund more
than one year.
2. Payments pursuant to this Service Plan may be paid or prepaid on behalf
of the Fund by the Distributor acting as the Fund's agent.
3. Payments by the Fund to the Distributor pursuant to this Service Plan
shall not be made more often than monthly upon receipt by the Fund of a separate
written expense report with respect to each
- --------------------
(1) The Fund is authorized to offer multiple classes of shares pursuant to
a Rule 18f-3 Plan adopted under the 1940 Act.
1
<PAGE>
class of Shares setting forth the expenses qualifying for such reimbursement
allocated to each class of Shares and the purposes thereof.
4. In the event that amounts payable hereunder with respect to a class of
Shares do not fully reimburse the Distributor for pre-paid service fees, such
unreimbursed service fee expenses will be carried forward and paid by the Fund
hereunder in future years so long as this Service Plan remains in effect,
subject to applicable laws and regulations. Reimbursements for service fee
related expenses payable hereunder with respect to a particular class of Shares
may not be used to subsidize services provided with respect to any other class
of Shares.
5. The Fund shall not compensate the Distributor, and neither the Fund nor
the Distributor shall compensate any Financial Intermediary, for any service
related expenses incurred with respect to a class of Shares prior to the later
of (a) the implementation of this Service Plan with respect to such class of
Shares or (b) the date that such Financial Intermediary enters into a Selling
Agreement with the Distributor.
6. The Fund hereby authorizes the Distributor to enter into Selling
Agreements with certain Financial Intermediaries to provide compensation to such
Financial Intermediaries for activities and services of the type referred to in
Paragraph 1 hereof. Prior to the implementation of a Selling Agreement, such
agreement shall be approved by a majority of the Board of Directors of the
Series and a majority of the Disinterested Directors (within the meaning of the
1940 Act) by a vote cast in person at a meeting called for the purpose of voting
on such Selling Agreements. Such Selling Agreements shall provide that the
Financial Intermediaries shall provide the Distributor with such information as
is reasonably necessary to permit the Distributor to comply with the reporting
requirements set forth in Paragraphs 3 and 8 hereof.
7. Subject to the provisions of this Service Agreement, the Fund is hereby
authorized to pay a service fee to any person that is not an "affiliated person"
or "interested person" of the Fund or its "investment adviser" or "principal
underwriter" (as such terms are defined in the 1940 Act) who provides any of the
foregoing services for the Fund. Such fee shall be paid only pursuant to written
agreements between the Fund and such other person the terms of which permit
payments to such person only in accordance with the provisions of this Service
Agreement and which have the approval of a majority of the Disinterested
Directors by vote cast separately with respect to each class of Shares and cast
in person at a meeting called for the purpose of voting on such written
agreement.
8. The Fund and the Distributor shall prepare separate written reports for
each class of Shares and shall submit such reports to the Fund's Board of
Directors on a quarterly basis summarizing all payments made by them with
respect to each class of Shares pursuant to this Service Plan and the agreements
contemplated hereby, the purposes for which such payments were made and such
other information as the Board of Directors or the Disinterested Directors may
reasonably request from time to time, and the Board of Directors shall review
such reports and other information.
9. This Service Plan may be terminated with respect to a class of Shares
without penalty at any time by a majority of the Disinterested Directors or by a
"majority of the outstanding voting securities" of the respective class of
Shares of the Fund.
10. This Service Plan shall become effective upon its approval by (a) a
majority of the Board of Directors and a majority of the Disinterested Directors
by vote cast separately with respect to each class of Shares cast in person at a
meeting called for the purpose of voting on this Distribution Plan, and (b) with
respect to each class of Shares, a "majority of the outstanding voting
securities" (as such phrase is defined in the 1940 Act) of such class of Shares
voting separately as a class.
11. This Service Plan and any agreement contemplated hereby shall continue
in effect beyond the
2
<PAGE>
first anniversary of its adoption by the Board of Directors of the Fund only so
long as (a) its continuation is approved at least annually in the manner set
forth in clause (a) of paragraph 10 above and (b) the selection and nomination
of those Directors of the Fund who are not "interested persons" of the Fund are
committed to the discretion of such Directors.
12. This Service Plan may not be amended to increase materially the maximum
amounts permitted to be expended hereunder except with the approval of a
"majority of the outstanding voting securities" of the respective class of
Shares of the Fund. This Service Plan may not be amended in any material respect
except with the approval of a majority of the Disinterested Directors.
Amendments required to conform this Service Plan to changes in Rule 12b-1 under
the 1940 Act, the rules and regulations thereunder or the Rules of Fair Practice
of the National Association of Securities Dealers, Inc. shall not be deemed to
be material amendments.
The Directors of the Series have adopted this Service Plan as Directors
under the Articles of Incorporation of the Series and the policies of the Series
adopted hereby are not binding upon any of the Directors or shareholders of the
Series individually, but bind only the corporation.
3
<PAGE>
VAN KAMPEN INTERNATIONAL MAGNUM FUND
SERVICE PLAN
The plan set forth below (the "Service Plan") for the VAN KAMPEN
INTERNATIONAL MAGNUM FUND (the "Fund"), a series of the Van Kampen Series
Fund, Inc. (the "Series") describes the material terms and conditions under
which assets of the Fund may be used to compensate the Fund's principal
underwriter, within the meaning of the Investment Company Act of 1940, as
amended (the "1940 Act"), brokers, dealers and other financial intermediaries
(collectively "Financial Intermediaries") for providing personal services to
shareholders and/or the maintenance of shareholder accounts with respect to
each of its Class A Shares of beneficial interest (the "Class A Shares"), its
Class B Shares of beneficial interest (the "Class B Shares"), and its Class C
Shares of beneficial interest (the "Class C Shares") The Class A Shares,
Class B Shares and Class C Shares sometimes are referred to herein
collectively as the "Shares." Each class of Shares is offered and sold
subject to a different combination of front-end sales charges, distribution
fees, service fees and contingent deferred sales charges.(1) Classes of
shares, if any, subject to a front-end sales charge and a distribution and/or
service fee are referred to herein as "Front-End Classes" and the Shares of
such classes are referred to herein as "Front-End Shares." Classes of shares,
if any, subject to a contingent-deferred sales charge and a distribution and
or a service fee are referred to herein as "CDSC Classes" and Shares of such
classes are referred to herein as "CDSC Shares." Classes of shares, if any,
subject to a front-end sales charge, a contingent-deferred sales charge and a
distribution and/or service fee are referred to herein as "Combination
Classes" and Shares of such class are referred to herein as "Combination
Shares."
The Fund has adopted a distribution plan (the "Distribution Plan")
pursuant to which the Fund is authorized to expend on an annual basis a portion
of its average net assets attributable to each class of Shares in connection
with financing distribution related activities. The Fund also has entered into a
distribution and services agreement (the "Distribution and Services Agreement")
with Van Kampen Funds Inc. (the "Distributor"), pursuant to which the
Distributor acts as agent on behalf of the Fund in connection with the
implementation of the Service Plan and acts as the principal underwriter with
respect to each class of Shares. The Distributor may enter into selling
agreements (the "Selling Agreements") with brokers, dealers and other financial
intermediaries ("Financial Intermediaries") in order to implement the
Distribution Agreement, the Distribution Plan and this Service Plan.
1. The Fund hereby is authorized to pay a service fee with respect to its
Class A Shares, Class B Shares and Class C Shares to any person who sells such
Shares and provides personal services to shareholders and/or maintains
shareholder accounts in an annual amount not to exceed 0.25% of the average
annual net asset value of the Shares maintained in the Fund by such person that
were sold on or after the date on which this Service Plan was first implemented.
The aggregate annual amount of all such payments with respect to each such class
of Shares may not exceed 0.25% of the Fund's average annual net assets
attributable to the respective class of Shares sold on or after the date on
which this Service Plan was first implemented and maintained in the Fund more
than one year.
2. Payments pursuant to this Service Plan may be paid or prepaid on behalf
of the Fund by the Distributor acting as the Fund's agent.
3. Payments by the Fund to the Distributor pursuant to this Service Plan
shall not be made more often than monthly upon receipt by the Fund of a separate
written expense report with respect to each
- --------------------
(1) The Fund is authorized to offer multiple classes of shares pursuant to
a Rule 18f-3 Plan adopted under the 1940 Act.
1
<PAGE>
class of Shares setting forth the expenses qualifying for such reimbursement
allocated to each class of Shares and the purposes thereof.
4. In the event that amounts payable hereunder with respect to a class of
Shares do not fully reimburse the Distributor for pre-paid service fees, such
unreimbursed service fee expenses will be carried forward and paid by the Fund
hereunder in future years so long as this Service Plan remains in effect,
subject to applicable laws and regulations. Reimbursements for service fee
related expenses payable hereunder with respect to a particular class of Shares
may not be used to subsidize services provided with respect to any other class
of Shares.
5. The Fund shall not compensate the Distributor, and neither the Fund nor
the Distributor shall compensate any Financial Intermediary, for any service
related expenses incurred with respect to a class of Shares prior to the later
of (a) the implementation of this Service Plan with respect to such class of
Shares or (b) the date that such Financial Intermediary enters into a Selling
Agreement with the Distributor.
6. The Fund hereby authorizes the Distributor to enter into Selling
Agreements with certain Financial Intermediaries to provide compensation to such
Financial Intermediaries for activities and services of the type referred to in
Paragraph 1 hereof. Prior to the implementation of a Selling Agreement, such
agreement shall be approved by a majority of the Board of Directors of the
Series and a majority of the Disinterested Directors (within the meaning of the
1940 Act) by a vote cast in person at a meeting called for the purpose of voting
on such Selling Agreements. Such Selling Agreements shall provide that the
Financial Intermediaries shall provide the Distributor with such information as
is reasonably necessary to permit the Distributor to comply with the reporting
requirements set forth in Paragraphs 3 and 8 hereof.
7. Subject to the provisions of this Service Agreement, the Fund is hereby
authorized to pay a service fee to any person that is not an "affiliated person"
or "interested person" of the Fund or its "investment adviser" or "principal
underwriter" (as such terms are defined in the 1940 Act) who provides any of the
foregoing services for the Fund. Such fee shall be paid only pursuant to written
agreements between the Fund and such other person the terms of which permit
payments to such person only in accordance with the provisions of this Service
Agreement and which have the approval of a majority of the Disinterested
Directors by vote cast separately with respect to each class of Shares and cast
in person at a meeting called for the purpose of voting on such written
agreement.
8. The Fund and the Distributor shall prepare separate written reports for
each class of Shares and shall submit such reports to the Fund's Board of
Directors on a quarterly basis summarizing all payments made by them with
respect to each class of Shares pursuant to this Service Plan and the agreements
contemplated hereby, the purposes for which such payments were made and such
other information as the Board of Directors or the Disinterested Directors may
reasonably request from time to time, and the Board of Directors shall review
such reports and other information.
9. This Service Plan may be terminated with respect to a class of Shares
without penalty at any time by a majority of the Disinterested Directors or by a
"majority of the outstanding voting securities" of the respective class of
Shares of the Fund.
10. This Service Plan shall become effective upon its approval by (a) a
majority of the Board of Directors and a majority of the Disinterested Directors
by vote cast separately with respect to each class of Shares cast in person at a
meeting called for the purpose of voting on this Distribution Plan, and (b) with
respect to each class of Shares, a "majority of the outstanding voting
securities" (as such phrase is defined in the 1940 Act) of such class of Shares
voting separately as a class.
11. This Service Plan and any agreement contemplated hereby shall continue
in effect beyond the
2
<PAGE>
first anniversary of its adoption by the Board of Directors of the Fund only so
long as (a) its continuation is approved at least annually in the manner set
forth in clause (a) of paragraph 10 above and (b) the selection and nomination
of those Directors of the Fund who are not "interested persons" of the Fund are
committed to the discretion of such Directors.
12. This Service Plan may not be amended to increase materially the maximum
amounts permitted to be expended hereunder except with the approval of a
"majority of the outstanding voting securities" of the respective class of
Shares of the Fund. This Service Plan may not be amended in any material respect
except with the approval of a majority of the Disinterested Directors.
Amendments required to conform this Service Plan to changes in Rule 12b-1 under
the 1940 Act, the rules and regulations thereunder or the Rules of Fair Practice
of the National Association of Securities Dealers, Inc. shall not be deemed to
be material amendments.
The Directors of the Series have adopted this Service Plan as Directors
under the Articles of Incorporation of the Series and the policies of the Series
adopted hereby are not binding upon any of the Directors or shareholders of the
Series individually, but bind only the corporation.
3
<PAGE>
VAN KAMPEN JAPANESE EQUITY FUND
SERVICE PLAN
The plan set forth below (the "Service Plan") for the VAN KAMPEN
JAPANESE EQUITY FUND (the "Fund"), a series of the Van Kampen Series Fund,
Inc. (the "Series") describes the material terms and conditions under which
assets of the Fund may be used to compensate the Fund's principal
underwriter, within the meaning of the Investment Company Act of 1940, as
amended (the "1940 Act"), brokers, dealers and other financial intermediaries
(collectively "Financial Intermediaries") for providing personal services to
shareholders and/or the maintenance of shareholder accounts with respect to
each of its Class A Shares of beneficial interest (the "Class A Shares"), its
Class B Shares of beneficial interest (the "Class B Shares"), and its Class C
Shares of beneficial interest (the "Class C Shares") The Class A Shares,
Class B Shares and Class C Shares sometimes are referred to herein
collectively as the "Shares." Each class of Shares is offered and sold
subject to a different combination of front-end sales charges, distribution
fees, service fees and contingent deferred sales charges.(1) Classes of
shares, if any, subject to a front-end sales charge and a distribution and/or
service fee are referred to herein as "Front-End Classes" and the Shares of
such classes are referred to herein as "Front-End Shares." Classes of shares,
if any, subject to a contingent-deferred sales charge and a distribution and
or a service fee are referred to herein as "CDSC Classes" and Shares of such
classes are referred to herein as "CDSC Shares." Classes of shares, if any,
subject to a front-end sales charge, a contingent-deferred sales charge and a
distribution and/or service fee are referred to herein as "Combination
Classes" and Shares of such class are referred to herein as "Combination
Shares."
The Fund has adopted a distribution plan (the "Distribution Plan")
pursuant to which the Fund is authorized to expend on an annual basis a portion
of its average net assets attributable to each class of Shares in connection
with financing distribution related activities. The Fund also has entered into a
distribution and services agreement (the "Distribution and Services Agreement")
with Van Kampen Funds Inc. (the "Distributor"), pursuant to which the
Distributor acts as agent on behalf of the Fund in connection with the
implementation of the Service Plan and acts as the principal underwriter with
respect to each class of Shares. The Distributor may enter into selling
agreements (the "Selling Agreements") with brokers, dealers and other financial
intermediaries ("Financial Intermediaries") in order to implement the
Distribution Agreement, the Distribution Plan and this Service Plan.
1. The Fund hereby is authorized to pay a service fee with respect to its
Class A Shares, Class B Shares and Class C Shares to any person who sells such
Shares and provides personal services to shareholders and/or maintains
shareholder accounts in an annual amount not to exceed 0.25% of the average
annual net asset value of the Shares maintained in the Fund by such person that
were sold on or after the date on which this Service Plan was first implemented.
The aggregate annual amount of all such payments with respect to each such class
of Shares may not exceed 0.25% of the Fund's average annual net assets
attributable to the respective class of Shares sold on or after the date on
which this Service Plan was first implemented and maintained in the Fund more
than one year.
2. Payments pursuant to this Service Plan may be paid or prepaid on behalf
of the Fund by the Distributor acting as the Fund's agent.
3. Payments by the Fund to the Distributor pursuant to this Service Plan
shall not be made more often than monthly upon receipt by the Fund of a separate
written expense report with respect to each
- --------------------
(1) The Fund is authorized to offer multiple classes of shares pursuant to
a Rule 18f-3 Plan adopted under the 1940 Act.
1
<PAGE>
class of Shares setting forth the expenses qualifying for such reimbursement
allocated to each class of Shares and the purposes thereof.
4. In the event that amounts payable hereunder with respect to a class of
Shares do not fully reimburse the Distributor for pre-paid service fees, such
unreimbursed service fee expenses will be carried forward and paid by the Fund
hereunder in future years so long as this Service Plan remains in effect,
subject to applicable laws and regulations. Reimbursements for service fee
related expenses payable hereunder with respect to a particular class of Shares
may not be used to subsidize services provided with respect to any other class
of Shares.
5. The Fund shall not compensate the Distributor, and neither the Fund nor
the Distributor shall compensate any Financial Intermediary, for any service
related expenses incurred with respect to a class of Shares prior to the later
of (a) the implementation of this Service Plan with respect to such class of
Shares or (b) the date that such Financial Intermediary enters into a Selling
Agreement with the Distributor.
6. The Fund hereby authorizes the Distributor to enter into Selling
Agreements with certain Financial Intermediaries to provide compensation to such
Financial Intermediaries for activities and services of the type referred to in
Paragraph 1 hereof. Prior to the implementation of a Selling Agreement, such
agreement shall be approved by a majority of the Board of Directors of the
Series and a majority of the Disinterested Directors (within the meaning of the
1940 Act) by a vote cast in person at a meeting called for the purpose of voting
on such Selling Agreements. Such Selling Agreements shall provide that the
Financial Intermediaries shall provide the Distributor with such information as
is reasonably necessary to permit the Distributor to comply with the reporting
requirements set forth in Paragraphs 3 and 8 hereof.
7. Subject to the provisions of this Service Agreement, the Fund is hereby
authorized to pay a service fee to any person that is not an "affiliated person"
or "interested person" of the Fund or its "investment adviser" or "principal
underwriter" (as such terms are defined in the 1940 Act) who provides any of the
foregoing services for the Fund. Such fee shall be paid only pursuant to written
agreements between the Fund and such other person the terms of which permit
payments to such person only in accordance with the provisions of this Service
Agreement and which have the approval of a majority of the Disinterested
Directors by vote cast separately with respect to each class of Shares and cast
in person at a meeting called for the purpose of voting on such written
agreement.
8. The Fund and the Distributor shall prepare separate written reports for
each class of Shares and shall submit such reports to the Fund's Board of
Directors on a quarterly basis summarizing all payments made by them with
respect to each class of Shares pursuant to this Service Plan and the agreements
contemplated hereby, the purposes for which such payments were made and such
other information as the Board of Directors or the Disinterested Directors may
reasonably request from time to time, and the Board of Directors shall review
such reports and other information.
9. This Service Plan may be terminated with respect to a class of Shares
without penalty at any time by a majority of the Disinterested Directors or by a
"majority of the outstanding voting securities" of the respective class of
Shares of the Fund.
10. This Service Plan shall become effective upon its approval by (a) a
majority of the Board of Directors and a majority of the Disinterested Directors
by vote cast separately with respect to each class of Shares cast in person at a
meeting called for the purpose of voting on this Distribution Plan, and (b) with
respect to each class of Shares, a "majority of the outstanding voting
securities" (as such phrase is defined in the 1940 Act) of such class of Shares
voting separately as a class.
11. This Service Plan and any agreement contemplated hereby shall continue
in effect beyond the
2
<PAGE>
first anniversary of its adoption by the Board of Directors of the Fund only so
long as (a) its continuation is approved at least annually in the manner set
forth in clause (a) of paragraph 10 above and (b) the selection and nomination
of those Directors of the Fund who are not "interested persons" of the Fund are
committed to the discretion of such Directors.
12. This Service Plan may not be amended to increase materially the maximum
amounts permitted to be expended hereunder except with the approval of a
"majority of the outstanding voting securities" of the respective class of
Shares of the Fund. This Service Plan may not be amended in any material respect
except with the approval of a majority of the Disinterested Directors.
Amendments required to conform this Service Plan to changes in Rule 12b-1 under
the 1940 Act, the rules and regulations thereunder or the Rules of Fair Practice
of the National Association of Securities Dealers, Inc. shall not be deemed to
be material amendments.
The Directors of the Series have adopted this Service Plan as Directors
under the Articles of Incorporation of the Series and the policies of the Series
adopted hereby are not binding upon any of the Directors or shareholders of the
Series individually, but bind only the corporation.
3
<PAGE>
VAN KAMPEN LATIN AMERICAN FUND
SERVICE PLAN
The plan set forth below (the "Service Plan") for the VAN KAMPEN
LATIN AMERICAN FUND (the "Fund"), a series of the Van Kampen Series Fund,
Inc. (the "Series") describes the material terms and conditions under which
assets of the Fund may be used to compensate the Fund's principal
underwriter, within the meaning of the Investment Company Act of 1940, as
amended (the "1940 Act"), brokers, dealers and other financial intermediaries
(collectively "Financial Intermediaries") for providing personal services to
shareholders and/or the maintenance of shareholder accounts with respect to
each of its Class A Shares of beneficial interest (the "Class A Shares"), its
Class B Shares of beneficial interest (the "Class B Shares"), and its Class C
Shares of beneficial interest (the "Class C Shares") The Class A Shares,
Class B Shares and Class C Shares sometimes are referred to herein
collectively as the "Shares." Each class of Shares is offered and sold
subject to a different combination of front-end sales charges, distribution
fees, service fees and contingent deferred sales charges.(1) Classes of
shares, if any, subject to a front-end sales charge and a distribution and/or
service fee are referred to herein as "Front-End Classes" and the Shares of
such classes are referred to herein as "Front-End Shares." Classes of shares,
if any, subject to a contingent-deferred sales charge and a distribution and
or a service fee are referred to herein as "CDSC Classes" and Shares of such
classes are referred to herein as "CDSC Shares." Classes of shares, if any,
subject to a front-end sales charge, a contingent-deferred sales charge and a
distribution and/or service fee are referred to herein as "Combination
Classes" and Shares of such class are referred to herein as "Combination
Shares."
The Fund has adopted a distribution plan (the "Distribution Plan")
pursuant to which the Fund is authorized to expend on an annual basis a portion
of its average net assets attributable to each class of Shares in connection
with financing distribution related activities. The Fund also has entered into a
distribution and services agreement (the "Distribution and Services Agreement")
with Van Kampen Funds Inc. (the "Distributor"), pursuant to which the
Distributor acts as agent on behalf of the Fund in connection with the
implementation of the Service Plan and acts as the principal underwriter with
respect to each class of Shares. The Distributor may enter into selling
agreements (the "Selling Agreements") with brokers, dealers and other financial
intermediaries ("Financial Intermediaries") in order to implement the
Distribution Agreement, the Distribution Plan and this Service Plan.
1. The Fund hereby is authorized to pay a service fee with respect to its
Class A Shares, Class B Shares and Class C Shares to any person who sells such
Shares and provides personal services to shareholders and/or maintains
shareholder accounts in an annual amount not to exceed 0.25% of the average
annual net asset value of the Shares maintained in the Fund by such person that
were sold on or after the date on which this Service Plan was first implemented.
The aggregate annual amount of all such payments with respect to each such class
of Shares may not exceed 0.25% of the Fund's average annual net assets
attributable to the respective class of Shares sold on or after the date on
which this Service Plan was first implemented and maintained in the Fund more
than one year.
2. Payments pursuant to this Service Plan may be paid or prepaid on behalf
of the Fund by the Distributor acting as the Fund's agent.
3. Payments by the Fund to the Distributor pursuant to this Service Plan
shall not be made more often than monthly upon receipt by the Fund of a separate
written expense report with respect to each
- --------------------
(1) The Fund is authorized to offer multiple classes of shares pursuant to
a Rule 18f-3 Plan adopted under the 1940 Act.
1
<PAGE>
class of Shares setting forth the expenses qualifying for such reimbursement
allocated to each class of Shares and the purposes thereof.
4. In the event that amounts payable hereunder with respect to a class of
Shares do not fully reimburse the Distributor for pre-paid service fees, such
unreimbursed service fee expenses will be carried forward and paid by the Fund
hereunder in future years so long as this Service Plan remains in effect,
subject to applicable laws and regulations. Reimbursements for service fee
related expenses payable hereunder with respect to a particular class of Shares
may not be used to subsidize services provided with respect to any other class
of Shares.
5. The Fund shall not compensate the Distributor, and neither the Fund nor
the Distributor shall compensate any Financial Intermediary, for any service
related expenses incurred with respect to a class of Shares prior to the later
of (a) the implementation of this Service Plan with respect to such class of
Shares or (b) the date that such Financial Intermediary enters into a Selling
Agreement with the Distributor.
6. The Fund hereby authorizes the Distributor to enter into Selling
Agreements with certain Financial Intermediaries to provide compensation to such
Financial Intermediaries for activities and services of the type referred to in
Paragraph 1 hereof. Prior to the implementation of a Selling Agreement, such
agreement shall be approved by a majority of the Board of Directors of the
Series and a majority of the Disinterested Directors (within the meaning of the
1940 Act) by a vote cast in person at a meeting called for the purpose of voting
on such Selling Agreements. Such Selling Agreements shall provide that the
Financial Intermediaries shall provide the Distributor with such information as
is reasonably necessary to permit the Distributor to comply with the reporting
requirements set forth in Paragraphs 3 and 8 hereof.
7. Subject to the provisions of this Service Agreement, the Fund is hereby
authorized to pay a service fee to any person that is not an "affiliated person"
or "interested person" of the Fund or its "investment adviser" or "principal
underwriter" (as such terms are defined in the 1940 Act) who provides any of the
foregoing services for the Fund. Such fee shall be paid only pursuant to written
agreements between the Fund and such other person the terms of which permit
payments to such person only in accordance with the provisions of this Service
Agreement and which have the approval of a majority of the Disinterested
Directors by vote cast separately with respect to each class of Shares and cast
in person at a meeting called for the purpose of voting on such written
agreement.
8. The Fund and the Distributor shall prepare separate written reports for
each class of Shares and shall submit such reports to the Fund's Board of
Directors on a quarterly basis summarizing all payments made by them with
respect to each class of Shares pursuant to this Service Plan and the agreements
contemplated hereby, the purposes for which such payments were made and such
other information as the Board of Directors or the Disinterested Directors may
reasonably request from time to time, and the Board of Directors shall review
such reports and other information.
9. This Service Plan may be terminated with respect to a class of Shares
without penalty at any time by a majority of the Disinterested Directors or by a
"majority of the outstanding voting securities" of the respective class of
Shares of the Fund.
10. This Service Plan shall become effective upon its approval by (a) a
majority of the Board of Directors and a majority of the Disinterested Directors
by vote cast separately with respect to each class of Shares cast in person at a
meeting called for the purpose of voting on this Distribution Plan, and (b) with
respect to each class of Shares, a "majority of the outstanding voting
securities" (as such phrase is defined in the 1940 Act) of such class of Shares
voting separately as a class.
11. This Service Plan and any agreement contemplated hereby shall continue
in effect beyond the
2
<PAGE>
first anniversary of its adoption by the Board of Directors of the Fund only so
long as (a) its continuation is approved at least annually in the manner set
forth in clause (a) of paragraph 10 above and (b) the selection and nomination
of those Directors of the Fund who are not "interested persons" of the Fund are
committed to the discretion of such Directors.
12. This Service Plan may not be amended to increase materially the maximum
amounts permitted to be expended hereunder except with the approval of a
"majority of the outstanding voting securities" of the respective class of
Shares of the Fund. This Service Plan may not be amended in any material respect
except with the approval of a majority of the Disinterested Directors.
Amendments required to conform this Service Plan to changes in Rule 12b-1 under
the 1940 Act, the rules and regulations thereunder or the Rules of Fair Practice
of the National Association of Securities Dealers, Inc. shall not be deemed to
be material amendments.
The Directors of the Series have adopted this Service Plan as Directors
under the Articles of Incorporation of the Series and the policies of the Series
adopted hereby are not binding upon any of the Directors or shareholders of the
Series individually, but bind only the corporation.
3
<PAGE>
VAN KAMPEN MID CAP GROWTH FUND
SERVICE PLAN
The plan set forth below (the "Service Plan") for the VAN KAMPEN MID
CAP GROWTH FUND (the "Fund"), a series of the Van Kampen Series Fund, Inc.
(the "Series") describes the material terms and conditions under which assets
of the Fund may be used to compensate the Fund's principal underwriter,
within the meaning of the Investment Company Act of 1940, as amended (the
"1940 Act"), brokers, dealers and other financial intermediaries
(collectively "Financial Intermediaries") for providing personal services to
shareholders and/or the maintenance of shareholder accounts with respect to
each of its Class A Shares of beneficial interest (the "Class A Shares"), its
Class B Shares of beneficial interest (the "Class B Shares"), and its Class C
Shares of beneficial interest (the "Class C Shares") The Class A Shares,
Class B Shares and Class C Shares sometimes are referred to herein
collectively as the "Shares." Each class of Shares is offered and sold
subject to a different combination of front-end sales charges, distribution
fees, service fees and contingent deferred sales charges.(1) Classes of
shares, if any, subject to a front-end sales charge and a distribution and/or
service fee are referred to herein as "Front-End Classes" and the Shares of
such classes are referred to herein as "Front-End Shares." Classes of shares,
if any, subject to a contingent-deferred sales charge and a distribution and
or a service fee are referred to herein as "CDSC Classes" and Shares of such
classes are referred to herein as "CDSC Shares." Classes of shares, if any,
subject to a front-end sales charge, a contingent-deferred sales charge and a
distribution and/or service fee are referred to herein as "Combination
Classes" and Shares of such class are referred to herein as "Combination
Shares."
The Fund has adopted a distribution plan (the "Distribution Plan")
pursuant to which the Fund is authorized to expend on an annual basis a portion
of its average net assets attributable to each class of Shares in connection
with financing distribution related activities. The Fund also has entered into a
distribution and services agreement (the "Distribution and Services Agreement")
with Van Kampen Funds Inc. (the "Distributor"), pursuant to which the
Distributor acts as agent on behalf of the Fund in connection with the
implementation of the Service Plan and acts as the principal underwriter with
respect to each class of Shares. The Distributor may enter into selling
agreements (the "Selling Agreements") with brokers, dealers and other financial
intermediaries ("Financial Intermediaries") in order to implement the
Distribution Agreement, the Distribution Plan and this Service Plan.
1. The Fund hereby is authorized to pay a service fee with respect to its
Class A Shares, Class B Shares and Class C Shares to any person who sells such
Shares and provides personal services to shareholders and/or maintains
shareholder accounts in an annual amount not to exceed 0.25% of the average
annual net asset value of the Shares maintained in the Fund by such person that
were sold on or after the date on which this Service Plan was first implemented.
The aggregate annual amount of all such payments with respect to each such class
of Shares may not exceed 0.25% of the Fund's average annual net assets
attributable to the respective class of Shares sold on or after the date on
which this Service Plan was first implemented and maintained in the Fund more
than one year.
2. Payments pursuant to this Service Plan may be paid or prepaid on behalf
of the Fund by the Distributor acting as the Fund's agent.
3. Payments by the Fund to the Distributor pursuant to this Service Plan
shall not be made more often than monthly upon receipt by the Fund of a separate
written expense report with respect to each
- --------------------
(1) The Fund is authorized to offer multiple classes of shares pursuant to
a Rule 18f-3 Plan adopted under the 1940 Act.
1
<PAGE>
class of Shares setting forth the expenses qualifying for such reimbursement
allocated to each class of Shares and the purposes thereof.
4. In the event that amounts payable hereunder with respect to a class of
Shares do not fully reimburse the Distributor for pre-paid service fees, such
unreimbursed service fee expenses will be carried forward and paid by the Fund
hereunder in future years so long as this Service Plan remains in effect,
subject to applicable laws and regulations. Reimbursements for service fee
related expenses payable hereunder with respect to a particular class of Shares
may not be used to subsidize services provided with respect to any other class
of Shares.
5. The Fund shall not compensate the Distributor, and neither the Fund nor
the Distributor shall compensate any Financial Intermediary, for any service
related expenses incurred with respect to a class of Shares prior to the later
of (a) the implementation of this Service Plan with respect to such class of
Shares or (b) the date that such Financial Intermediary enters into a Selling
Agreement with the Distributor.
6. The Fund hereby authorizes the Distributor to enter into Selling
Agreements with certain Financial Intermediaries to provide compensation to such
Financial Intermediaries for activities and services of the type referred to in
Paragraph 1 hereof. Prior to the implementation of a Selling Agreement, such
agreement shall be approved by a majority of the Board of Directors of the
Series and a majority of the Disinterested Directors (within the meaning of the
1940 Act) by a vote cast in person at a meeting called for the purpose of voting
on such Selling Agreements. Such Selling Agreements shall provide that the
Financial Intermediaries shall provide the Distributor with such information as
is reasonably necessary to permit the Distributor to comply with the reporting
requirements set forth in Paragraphs 3 and 8 hereof.
7. Subject to the provisions of this Service Agreement, the Fund is hereby
authorized to pay a service fee to any person that is not an "affiliated person"
or "interested person" of the Fund or its "investment adviser" or "principal
underwriter" (as such terms are defined in the 1940 Act) who provides any of the
foregoing services for the Fund. Such fee shall be paid only pursuant to written
agreements between the Fund and such other person the terms of which permit
payments to such person only in accordance with the provisions of this Service
Agreement and which have the approval of a majority of the Disinterested
Directors by vote cast separately with respect to each class of Shares and cast
in person at a meeting called for the purpose of voting on such written
agreement.
8. The Fund and the Distributor shall prepare separate written reports for
each class of Shares and shall submit such reports to the Fund's Board of
Directors on a quarterly basis summarizing all payments made by them with
respect to each class of Shares pursuant to this Service Plan and the agreements
contemplated hereby, the purposes for which such payments were made and such
other information as the Board of Directors or the Disinterested Directors may
reasonably request from time to time, and the Board of Directors shall review
such reports and other information.
9. This Service Plan may be terminated with respect to a class of Shares
without penalty at any time by a majority of the Disinterested Directors or by a
"majority of the outstanding voting securities" of the respective class of
Shares of the Fund.
10. This Service Plan shall become effective upon its approval by (a) a
majority of the Board of Directors and a majority of the Disinterested Directors
by vote cast separately with respect to each class of Shares cast in person at a
meeting called for the purpose of voting on this Distribution Plan, and (b) with
respect to each class of Shares, a "majority of the outstanding voting
securities" (as such phrase is defined in the 1940 Act) of such class of Shares
voting separately as a class.
11. This Service Plan and any agreement contemplated hereby shall continue
in effect beyond the
2
<PAGE>
first anniversary of its adoption by the Board of Directors of the Fund only so
long as (a) its continuation is approved at least annually in the manner set
forth in clause (a) of paragraph 10 above and (b) the selection and nomination
of those Directors of the Fund who are not "interested persons" of the Fund are
committed to the discretion of such Directors.
12. This Service Plan may not be amended to increase materially the maximum
amounts permitted to be expended hereunder except with the approval of a
"majority of the outstanding voting securities" of the respective class of
Shares of the Fund. This Service Plan may not be amended in any material respect
except with the approval of a majority of the Disinterested Directors.
Amendments required to conform this Service Plan to changes in Rule 12b-1 under
the 1940 Act, the rules and regulations thereunder or the Rules of Fair Practice
of the National Association of Securities Dealers, Inc. shall not be deemed to
be material amendments.
The Directors of the Series have adopted this Service Plan as Directors
under the Articles of Incorporation of the Series and the policies of the Series
adopted hereby are not binding upon any of the Directors or shareholders of the
Series individually, but bind only the corporation.
3
<PAGE>
VAN KAMPEN VALUE FUND
SERVICE PLAN
The plan set forth below (the "Service Plan") for the VAN KAMPEN
VALUE FUND (the "Fund"), a series of the Van Kampen Series Fund, Inc. (the
"Series") describes the material terms and conditions under which assets of
the Fund may be used to compensate the Fund's principal underwriter, within
the meaning of the Investment Company Act of 1940, as amended (the "1940
Act"), brokers, dealers and other financial intermediaries (collectively
"Financial Intermediaries") for providing personal services to shareholders
and/or the maintenance of shareholder accounts with respect to each of its
Class A Shares of beneficial interest (the "Class A Shares"), its Class B
Shares of beneficial interest (the "Class B Shares"), and its Class C Shares
of beneficial interest (the "Class C Shares") The Class A Shares, Class B
Shares and Class C Shares sometimes are referred to herein collectively as
the "Shares." Each class of Shares is offered and sold subject to a different
combination of front-end sales charges, distribution fees, service fees and
contingent deferred sales charges.(1) Classes of shares, if any, subject to a
front-end sales charge and a distribution and/or service fee are referred to
herein as "Front-End Classes" and the Shares of such classes are referred to
herein as "Front-End Shares." Classes of shares, if any, subject to a
contingent-deferred sales charge and a distribution and or a service fee are
referred to herein as "CDSC Classes" and Shares of such classes are referred
to herein as "CDSC Shares." Classes of shares, if any, subject to a front-end
sales charge, a contingent-deferred sales charge and a distribution and/or
service fee are referred to herein as "Combination Classes" and Shares of
such class are referred to herein as "Combination Shares."
The Fund has adopted a distribution plan (the "Distribution Plan")
pursuant to which the Fund is authorized to expend on an annual basis a portion
of its average net assets attributable to each class of Shares in connection
with financing distribution related activities. The Fund also has entered into a
distribution and services agreement (the "Distribution and Services Agreement")
with Van Kampen Funds Inc. (the "Distributor"), pursuant to which the
Distributor acts as agent on behalf of the Fund in connection with the
implementation of the Service Plan and acts as the principal underwriter with
respect to each class of Shares. The Distributor may enter into selling
agreements (the "Selling Agreements") with brokers, dealers and other financial
intermediaries ("Financial Intermediaries") in order to implement the
Distribution Agreement, the Distribution Plan and this Service Plan.
1. The Fund hereby is authorized to pay a service fee with respect to its
Class A Shares, Class B Shares and Class C Shares to any person who sells such
Shares and provides personal services to shareholders and/or maintains
shareholder accounts in an annual amount not to exceed 0.25% of the average
annual net asset value of the Shares maintained in the Fund by such person that
were sold on or after the date on which this Service Plan was first implemented.
The aggregate annual amount of all such payments with respect to each such class
of Shares may not exceed 0.25% of the Fund's average annual net assets
attributable to the respective class of Shares sold on or after the date on
which this Service Plan was first implemented and maintained in the Fund more
than one year.
2. Payments pursuant to this Service Plan may be paid or prepaid on behalf
of the Fund by the Distributor acting as the Fund's agent.
3. Payments by the Fund to the Distributor pursuant to this Service Plan
shall not be made more often than monthly upon receipt by the Fund of a separate
written expense report with respect to each
- --------------------
(1) The Fund is authorized to offer multiple classes of shares pursuant to
a Rule 18f-3 Plan adopted under the 1940 Act.
1
<PAGE>
class of Shares setting forth the expenses qualifying for such reimbursement
allocated to each class of Shares and the purposes thereof.
4. In the event that amounts payable hereunder with respect to a class of
Shares do not fully reimburse the Distributor for pre-paid service fees, such
unreimbursed service fee expenses will be carried forward and paid by the Fund
hereunder in future years so long as this Service Plan remains in effect,
subject to applicable laws and regulations. Reimbursements for service fee
related expenses payable hereunder with respect to a particular class of Shares
may not be used to subsidize services provided with respect to any other class
of Shares.
5. The Fund shall not compensate the Distributor, and neither the Fund nor
the Distributor shall compensate any Financial Intermediary, for any service
related expenses incurred with respect to a class of Shares prior to the later
of (a) the implementation of this Service Plan with respect to such class of
Shares or (b) the date that such Financial Intermediary enters into a Selling
Agreement with the Distributor.
6. The Fund hereby authorizes the Distributor to enter into Selling
Agreements with certain Financial Intermediaries to provide compensation to such
Financial Intermediaries for activities and services of the type referred to in
Paragraph 1 hereof. Prior to the implementation of a Selling Agreement, such
agreement shall be approved by a majority of the Board of Directors of the
Series and a majority of the Disinterested Directors (within the meaning of the
1940 Act) by a vote cast in person at a meeting called for the purpose of voting
on such Selling Agreements. Such Selling Agreements shall provide that the
Financial Intermediaries shall provide the Distributor with such information as
is reasonably necessary to permit the Distributor to comply with the reporting
requirements set forth in Paragraphs 3 and 8 hereof.
7. Subject to the provisions of this Service Agreement, the Fund is hereby
authorized to pay a service fee to any person that is not an "affiliated person"
or "interested person" of the Fund or its "investment adviser" or "principal
underwriter" (as such terms are defined in the 1940 Act) who provides any of the
foregoing services for the Fund. Such fee shall be paid only pursuant to written
agreements between the Fund and such other person the terms of which permit
payments to such person only in accordance with the provisions of this Service
Agreement and which have the approval of a majority of the Disinterested
Directors by vote cast separately with respect to each class of Shares and cast
in person at a meeting called for the purpose of voting on such written
agreement.
8. The Fund and the Distributor shall prepare separate written reports for
each class of Shares and shall submit such reports to the Fund's Board of
Directors on a quarterly basis summarizing all payments made by them with
respect to each class of Shares pursuant to this Service Plan and the agreements
contemplated hereby, the purposes for which such payments were made and such
other information as the Board of Directors or the Disinterested Directors may
reasonably request from time to time, and the Board of Directors shall review
such reports and other information.
9. This Service Plan may be terminated with respect to a class of Shares
without penalty at any time by a majority of the Disinterested Directors or by a
"majority of the outstanding voting securities" of the respective class of
Shares of the Fund.
10. This Service Plan shall become effective upon its approval by (a) a
majority of the Board of Directors and a majority of the Disinterested Directors
by vote cast separately with respect to each class of Shares cast in person at a
meeting called for the purpose of voting on this Distribution Plan, and (b) with
respect to each class of Shares, a "majority of the outstanding voting
securities" (as such phrase is defined in the 1940 Act) of such class of Shares
voting separately as a class.
11. This Service Plan and any agreement contemplated hereby shall continue
in effect beyond the
2
<PAGE>
first anniversary of its adoption by the Board of Directors of the Fund only so
long as (a) its continuation is approved at least annually in the manner set
forth in clause (a) of paragraph 10 above and (b) the selection and nomination
of those Directors of the Fund who are not "interested persons" of the Fund are
committed to the discretion of such Directors.
12. This Service Plan may not be amended to increase materially the maximum
amounts permitted to be expended hereunder except with the approval of a
"majority of the outstanding voting securities" of the respective class of
Shares of the Fund. This Service Plan may not be amended in any material respect
except with the approval of a majority of the Disinterested Directors.
Amendments required to conform this Service Plan to changes in Rule 12b-1 under
the 1940 Act, the rules and regulations thereunder or the Rules of Fair Practice
of the National Association of Securities Dealers, Inc. shall not be deemed to
be material amendments.
The Directors of the Series have adopted this Service Plan as Directors
under the Articles of Incorporation of the Series and the policies of the Series
adopted hereby are not binding upon any of the Directors or shareholders of the
Series individually, but bind only the corporation.
3
<PAGE>
VAN KAMPEN WORLDWIDE HIGH FUND
SERVICE PLAN
The plan set forth below (the "Service Plan") for the VAN KAMPEN
WORLDWIDE HIGH INCOME FUND (the "Fund"), a series of the Van Kampen Series
Fund, Inc. (the "Series") describes the material terms and conditions under
which assets of the Fund may be used to compensate the Fund's principal
underwriter, within the meaning of the Investment Company Act of 1940, as
amended (the "1940 Act"), brokers, dealers and other financial intermediaries
(collectively "Financial Intermediaries") for providing personal services to
shareholders and/or the maintenance of shareholder accounts with respect to
each of its Class A Shares of beneficial interest (the "Class A Shares"), its
Class B Shares of beneficial interest (the "Class B Shares"), and its Class C
Shares of beneficial interest (the "Class C Shares") The Class A Shares,
Class B Shares and Class C Shares sometimes are referred to herein
collectively as the "Shares." Each class of Shares is offered and sold
subject to a different combination of front-end sales charges, distribution
fees, service fees and contingent deferred sales charges.(1) Classes of
shares, if any, subject to a front-end sales charge and a distribution and/or
service fee are referred to herein as "Front-End Classes" and the Shares of
such classes are referred to herein as "Front-End Shares." Classes of shares,
if any, subject to a contingent-deferred sales charge and a distribution and
or a service fee are referred to herein as "CDSC Classes" and Shares of such
classes are referred to herein as "CDSC Shares." Classes of shares, if any,
subject to a front-end sales charge, a contingent-deferred sales charge and a
distribution and/or service fee are referred to herein as "Combination
Classes" and Shares of such class are referred to herein as "Combination
Shares."
The Fund has adopted a distribution plan (the "Distribution Plan")
pursuant to which the Fund is authorized to expend on an annual basis a portion
of its average net assets attributable to each class of Shares in connection
with financing distribution related activities. The Fund also has entered into a
distribution and services agreement (the "Distribution and Services Agreement")
with Van Kampen Funds Inc. (the "Distributor"), pursuant to which the
Distributor acts as agent on behalf of the Fund in connection with the
implementation of the Service Plan and acts as the principal underwriter with
respect to each class of Shares. The Distributor may enter into selling
agreements (the "Selling Agreements") with brokers, dealers and other financial
intermediaries ("Financial Intermediaries") in order to implement the
Distribution Agreement, the Distribution Plan and this Service Plan.
1. The Fund hereby is authorized to pay a service fee with respect to its
Class A Shares, Class B Shares and Class C Shares to any person who sells such
Shares and provides personal services to shareholders and/or maintains
shareholder accounts in an annual amount not to exceed 0.25% of the average
annual net asset value of the Shares maintained in the Fund by such person that
were sold on or after the date on which this Service Plan was first implemented.
The aggregate annual amount of all such payments with respect to each such class
of Shares may not exceed 0.25% of the Fund's average annual net assets
attributable to the respective class of Shares sold on or after the date on
which this Service Plan was first implemented and maintained in the Fund more
than one year.
2. Payments pursuant to this Service Plan may be paid or prepaid on behalf
of the Fund by the Distributor acting as the Fund's agent.
3. Payments by the Fund to the Distributor pursuant to this Service Plan
shall not be made more often than monthly upon receipt by the Fund of a separate
written expense report with respect to each
- --------------------
(1) The Fund is authorized to offer multiple classes of shares pursuant to
a Rule 18f-3 Plan adopted under the 1940 Act.
2
<PAGE>
class of Shares setting forth the expenses qualifying for such reimbursement
allocated to each class of Shares and the purposes thereof.
4. In the event that amounts payable hereunder with respect to a class of
Shares do not fully reimburse the Distributor for pre-paid service fees, such
unreimbursed service fee expenses will be carried forward and paid by the Fund
hereunder in future years so long as this Service Plan remains in effect,
subject to applicable laws and regulations. Reimbursements for service fee
related expenses payable hereunder with respect to a particular class of Shares
may not be used to subsidize services provided with respect to any other class
of Shares.
5. The Fund shall not compensate the Distributor, and neither the Fund nor
the Distributor shall compensate any Financial Intermediary, for any service
related expenses incurred with respect to a class of Shares prior to the later
of (a) the implementation of this Service Plan with respect to such class of
Shares or (b) the date that such Financial Intermediary enters into a Selling
Agreement with the Distributor.
6. The Fund hereby authorizes the Distributor to enter into Selling
Agreements with certain Financial Intermediaries to provide compensation to such
Financial Intermediaries for activities and services of the type referred to in
Paragraph 1 hereof. Prior to the implementation of a Selling Agreement, such
agreement shall be approved by a majority of the Board of Directors of the
Series and a majority of the Disinterested Directors (within the meaning of the
1940 Act) by a vote cast in person at a meeting called for the purpose of voting
on such Selling Agreements. Such Selling Agreements shall provide that the
Financial Intermediaries shall provide the Distributor with such information as
is reasonably necessary to permit the Distributor to comply with the reporting
requirements set forth in Paragraphs 3 and 8 hereof.
7. Subject to the provisions of this Service Agreement, the Fund is hereby
authorized to pay a service fee to any person that is not an "affiliated person"
or "interested person" of the Fund or its "investment adviser" or "principal
underwriter" (as such terms are defined in the 1940 Act) who provides any of the
foregoing services for the Fund. Such fee shall be paid only pursuant to written
agreements between the Fund and such other person the terms of which permit
payments to such person only in accordance with the provisions of this Service
Agreement and which have the approval of a majority of the Disinterested
Directors by vote cast separately with respect to each class of Shares and cast
in person at a meeting called for the purpose of voting on such written
agreement.
8. The Fund and the Distributor shall prepare separate written reports for
each class of Shares and shall submit such reports to the Fund's Board of
Directors on a quarterly basis summarizing all payments made by them with
respect to each class of Shares pursuant to this Service Plan and the agreements
contemplated hereby, the purposes for which such payments were made and such
other information as the Board of Directors or the Disinterested Directors may
reasonably request from time to time, and the Board of Directors shall review
such reports and other information.
9. This Service Plan may be terminated with respect to a class of Shares
without penalty at any time by a majority of the Disinterested Directors or by a
"majority of the outstanding voting securities" of the respective class of
Shares of the Fund.
10. This Service Plan shall become effective upon its approval by (a) a
majority of the Board of Directors and a majority of the Disinterested Directors
by vote cast separately with respect to each class of Shares cast in person at a
meeting called for the purpose of voting on this Distribution Plan, and (b) with
respect to each class of Shares, a "majority of the outstanding voting
securities" (as such phrase is defined in the 1940 Act) of such class of Shares
voting separately as a class.
11. This Service Plan and any agreement contemplated hereby shall continue
in effect beyond the
2
<PAGE>
first anniversary of its adoption by the Board of Directors of the Fund only so
long as (a) its continuation is approved at least annually in the manner set
forth in clause (a) of paragraph 10 above and (b) the selection and nomination
of those Directors of the Fund who are not "interested persons" of the Fund are
committed to the discretion of such Directors.
12. This Service Plan may not be amended to increase materially the maximum
amounts permitted to be expended hereunder except with the approval of a
"majority of the outstanding voting securities" of the respective class of
Shares of the Fund. This Service Plan may not be amended in any material respect
except with the approval of a majority of the Disinterested Directors.
Amendments required to conform this Service Plan to changes in Rule 12b-1 under
the 1940 Act, the rules and regulations thereunder or the Rules of Fair Practice
of the National Association of Securities Dealers, Inc. shall not be deemed to
be material amendments.
The Directors of the Series have adopted this Service Plan as Directors
under the Articles of Incorporation of the Series and the policies of the Series
adopted hereby are not binding upon any of the Directors or shareholders of the
Series individually, but bind only the corporation.
3
<PAGE>
EXHIBIT (p)
POWER OF ATTORNEY
The undersigned, being officers and trustees of each of the Van Kampen
Open End Trusts (individually, a "Trust") as indicated on Schedule 1 attached
hereto and incorporated by reference, each a Delaware business trust, except for
the Van Kampen Pennsylvania Tax Free Income Fund being a Pennsylvania trust, and
being Officers and Directors of Van Kampen Series Fund, Inc. (the
"Corporation"), a Maryland corporation, do hereby, in the capacities shown
below, appoint Richard F. Powers, III, Dennis J. McDonnell and A. Thomas Smith
III, each of Oakbrook Terrace, Illinois, as agents and attorneys-in-fact with
full power of substitution and resubstitution, for each of the undersigned, to
execute and deliver, for and on behalf of the undersigned, any and all
amendments to the Registration Statement filed by each Trust or the Corporation
with the Securities and Exchange Commission pursuant to the provisions of the
Securities Act of 1933 and the Investment Company Act of 1940.
This Power of Attorney may be executed in multiple counterparts, each
of which shall be deemed an original, but which taken together shall constitute
one instrument.
Dated: June 23, 1999
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ RICHARD F. POWERS III President
---------------------------
Richard F. Powers III
/s/ JOHN L. SULLIVAN Vice President, Chief Financial Officer
--------------------------- and Treasurer
John L. Sullivan
/s/ J. MILES BRANAGAN Trustee/Director
---------------------------
J. Miles Branagan
/s/ JERRY D. CHOATE Trustee/Director
---------------------------
Jerry D. Choate
/s/ RICHARD M. DeMARTINI Trustee/Director
---------------------------
Richard M. DeMartini
/s/ LINDA HUTTON HEAGY Trustee/Director
---------------------------
Linda Hutton Heagy
/s/ R. CRAIG KENNEDY Trustee/Director
---------------------------
R. Craig Kennedy
/s/ JACK E. NELSON Trustee/Director
---------------------------
Jack E. Nelson
/s/ DON G. POWELL Trustee/Director
---------------------------
Don G. Powell
/s/ PHILLIP B. ROONEY Trustee/Director
---------------------------
Phillip B. Rooney
/s/ FERNANDO SISTO, SC.D. Trustee/Director
---------------------------
Fernando Sisto, Sc. D.
/s/ WAYNE W. WHALEN Trustee/Director and Chairman
---------------------------
Wayne W. Whalen
/s/ SUZANNE H. WOOLSEY Trustee/Director
----------------------------
Suzanne H. Woolsey
/s/ PAUL G. YOVOVICH
----------------------------
Paul G. Yovovich
</TABLE>
<PAGE>
SCHEDULE 1
VAN KAMPEN U.S. GOVERNMENT TRUST
VAN KAMPEN TAX FREE TRUST
VAN KAMPEN TRUST
VAN KAMPEN EQUITY TRUST
VAN KAMPEN PENNSYLVANIA TAX FREE INCOME FUND
VAN KAMPEN TAX FREE MONEY FUND
VAN KAMPEN COMSTOCK FUND
VAN KAMPEN CORPORATE BOND FUND
VAN KAMPEN EMERGING GROWTH FUND
VAN KAMPEN ENTERPRISE FUND
VAN KAMPEN EQUITY INCOME FUND
VAN KAMPEN GLOBAL MANAGED ASSETS FUND
VAN KAMPEN GOVERNMENT SECURITIES FUND
VAN KAMPEN GROWTH AND INCOME FUND
VAN KAMPEN HARBOR FUND
VAN KAMPEN HIGH INCOME CORPORATE BOND FUND
VAN KAMPEN LIFE INVESTMENT TRUST
VAN KAMPEN LIMITED MATURITY GOVERNMENT FUND
VAN KAMPEN PACE FUND
VAN KAMPEN REAL ESTATE SECURITIES FUND
VAN KAMPEN RESERVE FUND
VAN KAMPEN TAX-EXEMPT TRUST
VAN KAMPEN U.S. GOVERNMENT TRUST FOR INCOME
VAN KAMPEN WORLD PORTFOLIO SERIES TRUST
<PAGE>
EXHIBIT (z)(1)
Van Kampen U.S. Government Trust
Van Kampen U.S. Government Fund
Van Kampen Tax Free Trust
Van Kampen Insured Tax Free Income Fund
Van Kampen Tax Free High Income Fund
Van Kampen California Insured Tax Free Fund
Van Kampen Municipal Income Fund
Van Kampen Intermediate Term Municipal Income Fund
Van Kampen Florida Insured Tax Free Income Fund
Van Kampen New York Tax Free Income Fund
Van Kampen California Tax Free Income Fund*
Van Kampen Michigan Tax Free Income Fund*
Van Kampen Missouri Tax Free Income Fund*
Van Kampen Ohio Tax Free Income Fund*
Van Kampen Trust
Van Kampen High Yield Fund
Van Kampen Short-Term Global Income Fund
Van Kampen Strategic Income Fund
Van Kampen Equity Trust
Van Kampen Aggressive Growth Fund
Van Kampen Great American Companies Fund*
Van Kampen Growth Fund
Van Kampen Mid Cap Value Fund*
Van Kampen Prospector Fund*
Van Kampen Small Cap Value Fund
Van Kampen Utility Fund
Van Kampen Equity Trust II
Van Kampen Technology Fund
Van Kampen Pennsylvania Tax Free Income Fund
Van Kampen Tax Free Money Fund
Van Kampen Prime Rate Income Trust
Van Kampen Senior Floating Rate Fund
Van Kampen Comstock Fund
Van Kampen Corporate Bond Fund
Van Kampen Emerging Growth Fund
Van Kampen Enterprise Fund
Van Kampen Equity Income Fund
Van Kampen Exchange Fund
The Explorer Institutional Trust
Explorer Institutional Active Core Fund
Explorer Institutional Limited Duration Fund
<PAGE>
Van Kampen Limited Maturity Government Fund
Van Kampen Global Managed Assets Fund
Van Kampen Government Securities Fund
Van Kampen Growth and Income Fund
Van Kampen Harbor Fund
Van Kampen High Income Corporate Bond Fund
Van Kampen Life Investment Trust on behalf of its series
Asset Allocation Portfolio
Comstock Portfolio
Domestic Income Portfolio
Emerging Growth Portfolio
Enterprise Portfolio
Global Equity Portfolio
Government Portfolio
Growth and Income Portfolio
Money Market Portfolio
Strategic Stock Portfolio
Morgan Stanley Real Estate Securities Portfolio
Van Kampen Pace Fund
Van Kampen Real Estate Securities Fund
Van Kampen Reserve Fund
Van Kampen Tax Exempt Trust
Van Kampen High Yield Municipal Fund
Van Kampen U.S. Government Trust for Income
Van Kampen World Portfolio Series Trust on behalf of its Series
Van Kampen Global Government Securities Fund
Van Kampen Series Fund, Inc.
Van Kampen American Value Fund
Van Kampen Asian Growth Fund
Van Kampen Emerging Markets Debt Fund*
Van Kampen Emerging Markets Fund
Van Kampen Equity Growth Fund
Van Kampen European Equity Fund
Van Kampen Focus Equity Fund
Van Kampen Global Equity Allocation Fund
Van Kampen Global Equity Fund
Van Kampen Global Fixed Income Fund
Van Kampen Global Franchise Fund
Van Kampen Growth and Income Fund II*
Van Kampen High Yield & Total Return Fund
Van Kampen International Magnum Fund
Van Kampen Japanese Equity Fund*
Van Kampen Latin American Fund
Van Kampen Mid Cap Growth Fund
Van Kampen Value Fund
Van Kampen Worldwide High Income Fund
<PAGE>
<TABLE>
<S> <C>
Insured Municipals Income Trust Series 414
Strategic Municipal Trust, Intermediate Series 2
California Insured Municipals Income Trust Series 182
FLORIDA INSURED MUNICIPALS INCOME TRUST SERIES 127
MICHIGAN INSURED MUNICIPALS INCOME TRUST SERIES 159
Missouri Insured Municipals Income Trust Series 113
PENNSYLVANIA INSURED MUNICIPALS INCOME TRUST SERIES 245
Virginia Investors' Quality Tax-Exempt Trust Series 86
THE DOW -SM- STRATEGIC 10 TRUST OCTOBER 1999
SERIES
THE DOW -SM- STRATEGIC 10 TRUST OCTOBER 1999
TRADITIONAL SERIES
THE DOW -SM- STRATEGIC 5 TRUST OCTOBER 1999
SERIES
THE DOW -SM- STRATEGIC 5 TRUST OCTOBER 1999
TRADITIONAL SERIES
EAFE STRATEGIC 20 TRUST OCTOBER 1999
SERIES
STRATEGIC PICKS OPPORTUNITY TRUST OCTOBER 1999
SERIES
Great International Firms Trust Series 9
Brand Name Equity Trust Series 10
Dow 30 Index Trust Series 8
Dow 30 Index and Treasury Trust Series 10
Global Energy Trust Series 10
Financial Institutions Trust Series 1
Edward Jones Select Growth Trust August 1999
Series
Internet Trust Series 16A
Internet Trust Series 16B
Morgan Stanley High-Technology 35 Index Trust Series 8A
Morgan Stanley High-Technology 35 Index Trust Series 8B
Pharmaceutical Trust Series 7A
Pharmaceutical Trust Series 7B
Telecommunications & Bandwidth Trust Series 7A
Telecommunications and Bandwidth Trust Series 7B
New Frontier Utility Trust Series 7A
New Frontier Utility Trust Series 7B
Roaring 2000s Trust Series 3
Roaring 2000s Trust Traditional Series 3
Robert Baird - Utility & Communications Trust Series 1
Josephthal - Small Cap Focus Portfolio Series 1
Morgan Stanley Multinational Index Trust Series 1A
Morgan Stanley Multinational Index Trust Series 1B
Software Trust Series 1A
Software Trust Series 1B
Gruntal - E-Commerce Software Growth Trust Series 1
Wheat First Union - Mid-Cap Banking Opportunity Trust Series 1
</TABLE>
* Funds that have not commenced investment operations.
<PAGE>
EXHIBIT (z) (2)
<TABLE>
<S> <C> <C>
Richard F. Powers III Chairman & Chief Executive Officer Oakbrook Terrace, IL
John H. Zimmerman III President Oakbrook Terrace, IL
A. Thomas Smith III Executive Vice President, General Oakbrook Terrace, IL
Counsel & Secretary;
Vice President and Secretary of the Funds
William R. Rybak Executive Vice President, Chief
Financial Officer and Treasurer Oakbrook Terrace, IL
Michael H. Santo Executive Vice President & Chief
Operations & Technology Officer Oakbrook Terrace, IL
Colette M. Saucedo Executive Vice President & Chief
Administrative Officer Houston, TX
A. Thomas Smith Executive Vice President
General Counsel and Secretary;
Vice President and Secretary of the Funds Oakbrook Terrace, IL
Laurence J. Althoff Sr. Vice President & Controller Oakbrook Terrace, IL
Don J. Andrews Sr. Vice President & Chief
Compliance officer Oakbrook Terrace, IL
Sara L. Badler Sr. Vice President, Deputy
General Counsel & Assistant Secretary;
Assistant Secretary of the Funds Oakbrook Terrace, IL
James J. Boyne Sr. Vice President, Deputy General Oakbrook Terrace, IL
Counsel & Assistant Secretary
Gary R. DeMoss Sr. Vice President Oakbrook Terrace, IL
John E. Doyle Sr. Vice President Oakbrook Terrace, IL
Richard G. Golod Sr. Vice President Annapolis, MD
Steven T. Johnson Sr. Vice President Oakbrook Terrace, IL
Walter E. Rein Sr. Vice President Oakbrook Terrace, IL
James J. Ryan Sr. Vice President Oakbrook Terrace, IL
Frederick Shepherd Sr. Vice President Houston, TX
Robert S. West Sr. Vice President Oakbrook Terrace, IL
Patrick J. Woelfel Sr. Vice President Oakbrook Terrace, IL
Edward G. Wood, III Sr. Vice President and
Chief Operating Officer; Oakbrook Terrace. IL
Vice President of the Funds
Patricia A. Bettlach First Vice President Chesterfield, MO
Glenn M. Cackovic First Vice President Laguna Niguel, CA
Eric J. Hargens First Vice President Orlando, FL
Gregory Heffington First Vice President Ft. Collins, CO
David S. Hogaboom First Vice President Oakbrook Terrace, IL
Dominic C. Martellaro First Vice President Danville, CA
Carl Mayfield First Vice President Lakewood, CO
Mark R. McClure First Vice President Oakbrook Terrace, IL
Maura A. McGrath First Vice President New York, NY
Robert F. Muller First Vice President Houston, TX
Thomas Rowley First Vice President St. Louis, MO
Andrew J. Scherer First Vice President Oakbrook Terrace, IL
James D. Stevens First Vice President North Andover, MA
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James D. Stevens First Vice Presdent North Andover, MA
James R. Yount First Vice President Coto De Caza, CA
James K. Ambrosio Vice President Massapequa, NY
Brian P. Arcara Vice President Buffalo, NY
Timothy R. Armstrong Vice President Wellington, FL
Shakeel Anwar Barkat Vice President Annapolis, MD
Scott C. Bernstiel Vice President Plainsboro, NJ
Carol S. Biegel Vice President Oakbrook Terrace, IL
Christopher M. Bisaillon Vice President Oakbrook Terrace, IL
William Edwin Bond Vice President New York, NY
Michael P. Boos Vice President Oakbrook Terrace, IL
Robert C. Brooks Vice President Oakbrook Terrace, IL
Elizabeth M. Brown Vice President Houston, TX
William F. Burke, Jr. Vice President Mendham, NJ
Loren Burket Vice President Plymouth, MN
Juanita E. Buss Vice President Kennesaw, GA
Christine Cleary Byrum Vice President Tampa, FL
Richard J. Charlino Vice President Oakbrook Terrace, IL
Deanne Margaret Chiaro Vice President Oakbrook Terrace, IL
Scott A. Chriske Vice President Plano, TX
German Clavijo Vice President Atlanta, GA
Eleanor M. Cloud Vice President Oakbrook Terrace, IL
Dominick Cogliandro Vice President & Asst. Treasurer New York, NY
Michael Colston Vice President Louisville, KY
Kevin J. Connors Vice President Oakbrook Terrace, IL
Suzanne Cummings Vice President Oakbrook Terrace, IL
Michael E. Eccleston Vice President Oakbrook Terrace, IL
William J. Fow Vice President Redding, CT
Nicholas J. Foxhoven Vice President Englewood, CO
Charles Friday Vice President Gibsonia, PA
Timothy D. Griffith Vice President Kirkland, WA
Kyle D. Haas Vice President Oakbrook Terrace, IL
Daniel Hamilton Vice President Austin, TX
John G. Hansen Vice President Oakbrook Terrace, IL
Joseph Hays Vice President Cherry Hill, NJ
Michael D. Hibsch Vice President Oakbrook Terrace, IL
Susan J. Hill Vice President Oakbrook Terrace, IL
Thomas R. Hindelang Vice President Gilbert, AZ
Bryn M. Hoggard Vice President Houston, TX
Michelle Huber Vice President Oakbrook Terrace, IL
Michael B. Hughes Vice President Oakbrook Terrace, IL
Lowell Jackson Vice President Norcross, GA
Kevin G. Jajuga Vice President Baltimore, MD
Dana R. Klein Vice President Oakbrook Terrace, IL
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Frederick Kohly Vice President Miami, FL
Paul Koleda Vice President Denver, CO
David R. Kowalski Vice President & Director of Compliance 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
Jonathan Linstra Vice President Oakbrook Terrace, IL
Richard M. Lundgren Vice President Oakbrook Terrace, IL
Walter Lynn Vice President Flower Mound, TX
Linda S. MacAyeal Vice President Oakbrook Terrace, IL
Kevin S. Marsh Vice President Bellevue, WA
Brooks D. McCartney Vice President Puyallup, WA
Anne Therese McGrath Vice President Los Gatos, CA
John Mills Vice President Kenner, LA
Stuart R. Moehlman Vice President Houston, TX
Ted Morrow Vice President Dallas, TX
Peter Nicholas Vice President Beverly, MA
Steven R. Norvid Vice President Oakbrook Terrace, IL
Allyn O'Connor Vice President & Assoc. General Counsel Oakbrook Terrace, IL
Gregory S. Parker Vice President Houston, TX
Christopher Petrungaro Vice President Oakbrook Terrace, IL
Richard J. Poli Vice President Philadelphia, PA
Ronald E. Pratt Vice President Marietta, GA
Daniel D. Reams Vice President Royal Oak, MI
Kevin Wayne Reszel Vice President Oakbrook Terrace, IL
Michael W. Rohr Vice President Oakbrook Terrace, IL
Jeffrey L. Rose Vice President Houston, TX
Suzette N. Rothberg Vice President Plymouth, MN
Jeffrey Rourke Vice President Oakbrook Terrace, IL
Heather R. Sabo Vice President Richmond, VA
Diane Saxon Vice President and Assistant Treasurer Oakbrook Terrace, IL
Stephanie Scarlata Vice President Bedford Corners, NY
Christina L. Schmieder Vice President Oakbrook Terrace, IL
Timothy M. Scholten Vice President Oakbrook Terrace, IL
Ronald J. Schuster Vice President Tampa, FL
Gwen L. Shaneyfalt Vice President Oakbrook Terrace, IL
Jeffrey C. Shirk Vice President Swampscott, MA
Traci T. Sorenson Vice President Oakbrook Terrace, IL
Darren D. Stabler Vice President Phoenix, AZ
Christopher J. Staniforth Vice President Leawood, KS
Richard Stefanec Vice President Los Angles, CA
William C. Strafford Vice President Granger, IN
Mark A. Syswerda Vice President Oakbrook Terrace, IL
Charles S. Thompson Vice President Oakbrook Terrace, IL
John F. Tierney Vice President Oakbrook Terrace, IL
Curtis L. Ulvestad Vice President Red Wing, MN
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;
Assistant Secretary of the Funds
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Frank L. Wheeler Vice President Oakbrook Terrace, IL
Harold Whitworth, III Vice President Oakbrook Terrace, IL
Joel J. Wilezewski 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
Patrick M. Zacchea Vice President Oakbrook Terrace, IL
Scott F. Becker Asst. Vice President Oakbrook Terrace, IL
Andree Beckham Asst. Vice President Oakbrook Terrace, IL
Brian E. Binder Asst. Vice President Oakbrook Terrace, IL
Billie J. Bronaugh Asst. Vice President Houston, TX
Lynn Chadderton Asst. Vice President Valrico, FL
Amy Cooper Asst. Vice President Oakbrook Terrace, IL
Gina Costello Asst. Vice President Oakbrook Terrace, IL
Sarah K. Geiser Asst. Vice President Oakbrook Terrace, IL
Walter C. Gray Asst. Vice President Oakbrook Terrace, IL
Laurie L. Jones Asst. Vice President Houston, TX
Robin R. Jordan Asst. Vice President Oakbrook Terrace, IL
Anne S. Kochevar Asst. Vice President Oakbrook Terrace, IL
Ivan R. Lowe Asst. Vice President Houston, TX
Barbara Novak Asst. Vice President Oakbrook Terrace, IL
Christine K. Putong Asst. Vice President & Asst. Secretary Oakbrook Terrace, IL
Leah Richardson Asst. Vice President Oakbrook Terrace, IL
David P. Robbins Asst. Vice President Oakbrook Terrace, IL
Regina Rosen Asst. Vice President Oakbrook Terrace, IL
Pamela S. Salley Asst. Vice President Houston, TX
Thomas J. Sauerborn Asst. Vice President New York, NY
David T. Saylor Asst. Vice President Oakbrook Terrace, IL
Lisa Schultz Asst. Vice President Oakbrook Terrace, IL
Lauren B. Sinai Asst. Vice President Oakbrook Terrace, IL
Scott Stevens Asst. Vice President Oakbrook Terrace, IL
Kristen L. Transier Asst. Vice President Houston, TX
Michael Trizil Asst. Vice President Oakbrook Terrace, IL
David H. Villarreal Asst. Vice President Oakbrook Terrace, IL
Sharon M. C. Wells Asst. Vice President Oakbrook Terrace, IL
Cathy Napoli Assistant Secretary Oakbrook Terrace, IL
John Browning Officer Oakbrook Terrace, IL
Leticia George Officer Houston, TX
William D. McLaughlin Officer Houston, TX
Rebecca Newman Officer Houston, TX
Theresa M. Renn Officer Oakbrook Terrace, IL
Larry Vickrey Officer Houston, TX
John Yovanovic Officer Houston, TX
Richard F. Powers III Director Oakbrook Terrace, IL
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A. Thomas Smith III Director Oakbrook Terrace, IL
William R. Rybak Director Oakbrook Terrace, IL
Michael H. Santo Director Oakbrook Terrace, IL
John H. Zimmerman III Director Oakbrook Terrace, IL
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