<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 27, 1999
FILE NO. 033-51294
FILE NO. 811-7140
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
POST-EFFECTIVE AMENDMENT NO. 26 /X/
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /
AMENDMENT NO. 28 /X/
------------------------
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.
It is proposed that this filing be effective
(Check appropriate box)
/ / Immediately upon filing pursuant to paragraph (b)
/ / On (date) pursuant to paragraph (b)
/ / 75 days after filing pursuant to paragraph (a)(1)
/X/ 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.
------------------------
Title of securities being registered:
SHARES OF BENEFICIAL INTEREST, PAR VALUE $0.001 PER SHARE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This Post-Effective Amendment No. 26 to the Registration Statement contains
twenty Prospectuses, one of which describes three money market series of the
Registrant (the "Combined Prospectus"), and one Statement of Additional
Information, describing the twenty-two 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
Combined Prospectus relating to money market funds, in the following
order:
Morgan Stanley Money Market Fund
Morgan Stanley Tax-Free Money Market Fund
Morgan Stanley Government Obligations Money Market Fund
One Statement of Additional Information relating to all of the Funds of
the Registrant listed above.
Part C Information
Exhibits
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THE FUND MAY NOT SELL THESE SECURITIES UNTIL THE POST-
EFFECTIVE AMENDMENT TO THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES.
SUBJECT TO COMPLETION -- DATED AUGUST 27, 1999
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 regulators, and
neither the SEC nor any
state regulator has passed
upon the accuracy or
adequacy of this
prospectus. Any
representation to the
contrary is a criminal
offense.
THIS PROSPECTUS IS DATED
OCTOBER , 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 ............................................21
Shareholder Services ...................................................22
Federal Income Taxation ................................................24
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 a high
total return by investing in equity securities of small- to medium-sized
corporations.
INVESTMENT STRATEGIES
The Fund's management 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 management 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, 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. 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 or 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 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.
RISKS OF SMALL- AND MEDIUM-SIZED COMPANIES. The Fund focuses its investments on
small- and medium-sized companies which often are newer or less established
companies. Small- and medium-sized companies carry additional risks because
their earnings generally 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 small- and medium-sized companies may
be more abrupt or erratic than the market movements 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
3
<PAGE>
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 such as imperfect correlation between
the value of the instruments and the underlying assets; risks of default by the
other party to certain transactions; risks that the transactions may result in
losses that partially or completely offset gains in portfolio positions; risks
that the transactions may not be liquid; and manager risk.
MANAGER RISK. As with any managed fund, the Fund's management may not be
successful in selecting the best-performing securities and the Fund's
performance may lag behind that of similar funds.
An investment in the Fund is not a deposit of any bank or other insured
depository institution. Your investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
INVESTOR PROFILE
In light of its objective and investment 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 shares of the Fund.
- - Wish to add to their personal 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 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 past 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 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 management believes are applicable 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 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 % % %(3)
Russell 2500 Small
Company Index % % %(4)
......................................................
Van Kampen
American Value
Fund
- -- Class B Shares 3.84% -- 19.11% (2)
Standard & Poor's
500 Index % % % (5)
Russell 2500 Small
Company Index % % % (6)
......................................................
Van Kampen
American Value
Fund
- -- Class C Shares 7.83% 16.48% 15.79 (1)
Standard & Poor's
500 Index % % % (3)
Russell 2500 Small
Company Index % % % (4)
......................................................
INCEPTION DATES: (1) 10/18/93, (2) 8/1/95,
(3) , (4) , (5) , (6)
.
</TABLE>
* THE STANDARD & POOR'S 500 INDEX CONSISTS OF 500 WIDELY-HELD COMMON
STOCKS OF COMPANIES WITH MARKET CAPITALIZATIONS OF $1 BILLION OR MORE
WHICH ARE A REPRESENTATIVE SAMPLE OF APPROXIMATELY 100 INDUSTRIES,
CHOSEN MAINLY FOR MARKET SIZE, LIQUIDITY AND INDUSTRY GROUP
REPRESENTATION (ASSUMES DIVIDENDS ARE REINVESTED). MANAGEMENT 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, WHICH REPRESENTS APPROXIMATELY 98% OF THE
INVESTABLE U.S. EQUITY MARKET.
FEES AND EXPENSES
OF THE FUNDS
These tables describe the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
- ------------------------------------------------------
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 (as
a percentage of offering
price) None None None
.....................................................
Redemption fees (as a
percentage of amount
redeemed) None None None
.....................................................
Exchange fee None None None
.....................................................
(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 AND 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
<PAGE>
ANNUAL FUND
OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
- -----------------------------------------------------------
Management Fees 0.85% 0.85% 0.85%
..........................................................
Distribution and/or Service
(12b-1) Fees(1) 0.25% 1.00%(2) 1.00%(2)
..........................................................
Other Expenses 0.39% 0.39% 0.39%
..........................................................
Total Annual Fund Operating
Expenses 1.49% 2.24% 2.24%
..........................................................
(1) CLASS A SHARES ARE SUBJECT TO AN ANNUAL SERVICE FEE OF UP TO 0.25% OF
THE AVERAGE DAILY NET ASSETS ATTRIBUTABLE TO SUCH CLASS OF SHARES.
CLASS B SHARES AND CLASS C SHARES ARE EACH SUBJECT TO A COMBINED
ANNUAL DISTRIBUTION AND SERVICE FEE OF UP TO 1.00% OF THE AVERAGE
DAILY NET ASSETS ATTRIBUTABLE TO SUCH CLASS OF SHARES. SEE "PURCHASE
OF SHARES."
(2) 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% annual 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:
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
- ---------------------------------------------------
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
..................................................
You would pay the following expenses if you did not redeem your shares:
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
- ---------------------------------------------------
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
..................................................
* 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 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 $ to $ as of , 1999). The Fund also may
invest in larger companies but generally will not invest in companies as large
as any of the 500 largest U.S. companies.
6
<PAGE>
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
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, 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 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.
7
<PAGE>
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 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.
RISKS OF INVESTING IN SECURITIES
OF FOREIGN ISSUERS
The Fund may invest in foreign securities that are traded on U.S. exchanges or
over-the-counter markets. 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
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., 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.
The Fund's investments in securities of developing or emerging markets are
subject to greater risks than the 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. Additionally, 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 temporary substitute for purchasing or
selling particular securities, including, for example, when the Fund acts
quickly to adjust 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).
Additionally, 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 contacts).
9
<PAGE>
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. Additionally, 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 which 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
brokers-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 otherwise. The Fund's portfolio turnover is shown under the heading
"Financial Highlights." The portfolio turnover rate may be expected to vary from
year to year. A high portfolio turnover rate (100% or more) increases the Fund's
transactions costs, including brokerage commissions or dealer costs, and may
result in the realization of more short-term capital gains than if the Fund had
lower portfolio turnover. Increases in the Fund's transaction costs would impact
the Fund's performance. The turnover rate will not be a limiting factor,
however, if the Fund's investment adviser considers portfolio changes
appropriate.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Fund may hold cash or invest on a temporary basis 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 total return on
these securities will tend to be lower than the potential for total return on
other securities that may be
10
<PAGE>
owned by the Fund. The Fund may not achieve its investment objective if it takes
a defensive position.
YEAR 2000 RISKS. Like other mutual funds, financial and business organizations
and individuals around the world, the Fund could be adversely affected if the
computer systems used by the Fund's investment adviser and other service
providers do not properly process and calculate date-related information and
data from and after January 1, 2000. This is commonly known as the "Year 2000
Problem." The Fund's investment adviser 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
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 countries because there is an increased likelihood that issuers of
securities of such countries cannot anticipate or effectively manage the affects
of computer programs and the Year 2000 Problem. Accordingly, the Fund's
investments may be adversely affected. The statements above are subject to the
Year 2000 Information and Readiness Disclosure Act which Act may limit the legal
rights regarding the use of such statements in the case of a dispute.
INVESTMENT ADVISORY
SERVICES
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 $75 billion under management or supervision. Van
Kampen Investments' more than 50 open-end and 39 closed-end funds and more than
2,500 unit investment trusts are professionally distributed by leading financial
advisers nationwide. Van Kampen Funds Inc., the distributor of the Fund (the
"Distributor") and the sponsor of the funds mentioned above, is also a wholly
owned subsidiary of Van Kampen Investments. Van Kampen Investments is an
indirect wholly owned subsidiary of Morgan Stanley Dean Witter & Co. The
Adviser's principal office is located at 1 Parkview Plaza, PO Box 5555, Oakbrook
Terrace, Illinois 60181-5555.
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 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 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
11
<PAGE>
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.
From time to time, the Adviser or the Distributor may voluntarily undertake to
reduce the Fund's expenses by reducing the fees payable to them or by reducing
other expenses of the Fund in accordance with such limitations as the Adviser or
Distributor may establish.
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen 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
December 31, 1998, the Subadviser, together with its affiliated institutional
asset management companies, managed assets of approximately $163.4 billion,
including assets under fiduciary advice. The Subadviser's address is 1221 Avenue
of the Americas, New York, New York 10020.
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 percentage of
the net advisory fees the Adviser receives from the Fund.
----------
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 co-managers 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, the MAS Funds' Balanced Fund in 1992 and the 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 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
co-manager of the Fund since January 1997.
Mr. Gerlach joined the Subadviser in July 1996 and has worked with MAS for the
past five years. Mr. Gerlach also became a portfolio manager of the MAS Funds'
Small Cap Value and Mid Cap Value Funds in 1996. Previously, he was with
Alphametrics Corporation and Wharton Econometric Forecasting Associates. Mr.
Gerlach holds a B.A. in Economics from Haverford College. Mr. Gerlach has been
co-manager 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 co-manager of the Fund since 1997.
12
<PAGE>
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 (described below) pursuant to which its
distribution fee or service fee is paid, (iii) each class of shares has
different exchange privileges, (iv) certain classes of shares are subject to a
conversion feature and (v) certain classes of shares have different shareholder
service options available.
The 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 in which no purchase or redemption orders are
received or there is not a sufficient degree of trading in a 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 values per share and adjust the offering price more frequently than once a
day if deemed desirable. Net asset value per share for each class is determined
by dividing the value of a 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 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
13
<PAGE>
"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 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 on 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 gains
distributions, 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
AS % OF AS % OF
SIZE OF OFFERING NET AMOUNT
INVESTMENT PRICE INVESTED
- ---------------------------------------------------------
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 * *
........................................................
* NO SALES CHARGE IS PAYABLE AT THE TIME OF PURCHASE ON INVESTMENTS OF
$1 MILLION OR MORE, ALTHOUGH FOR SUCH INVESTMENTS THE FUND IMPOSES A
CONTINGENT DEFERRED SALES CHARGE OF 1.00% ON CERTAIN REDEMPTIONS MADE
WITHIN ONE YEAR OF THE PURCHASE. THE CONTINGENT DEFERRED SALES CHARGE
IS ASSESSED ON AN AMOUNT EQUAL TO THE LESSER OF THE THEN CURRENT
MARKET VALUE OR THE COST OF THE SHARES BEING REDEEMED. ACCORDINGLY, NO
SALES CHARGE IS IMPOSED ON INCREASES IN NET ASSET VALUE ABOVE THE
INITIAL PURCHASE PRICE.
No sales charge is imposed on Class A Shares received from reinvestment of
dividends or capital gains distributions.
Under the Distribution Plan and Service Plan, the Fund may spend a total of
0.25% per year of the average daily net assets with respect to the Class A
Shares of the Fund. From such amount, under the Service Plan, the Fund may spend
up to 0.25% per year of the Fund's average daily net assets with respect to the
Class A Shares for the ongoing provision of services to Class A shareholders by
the Distributor and by brokers, dealers or financial intermediaries and for the
maintenance of such shareholders' accounts.
CLASS B SHARES
Class B Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge if redeemed within five years of purchase as shown in the
table as follows:
CLASS B SHARES
SALES CHARGE SCHEDULE
CONTINGENT
DEFERRED
SALES
CHARGE
AS A
PERCENTAGE
OF
DOLLAR
AMOUNT
SUBJECT
TO
YEAR SINCE PURCHASE CHARGE
- -------------------------------------------
First 5.00%
..........................................
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 gains dividends. It
is presently the policy of the Distributor not to accept any order for Class B
Shares in an amount of $500,000 or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
The amount of the contingent deferred sales charge, if any, varies depending on
the number of years from the time of payment for the purchase of Class B Shares
until the time of redemption of such shares. Solely for purposes of determining
the number of years from the time of any payment for the purchase of shares, all
payments during a month are totaled and deemed to have been made on the last day
of the month.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed that the redemption is first of any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge and then of shares held the longest in the shareholder's account.
15
<PAGE>
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
average daily net assets with respect to the Class B Shares of the Fund. In
addition, under the Service Plan, the Fund may spend up to 0.25% per year of the
Fund's average daily net assets with respect to the Class B Shares for the
ongoing provision of services to Class B shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CLASS C SHARES
Class C Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge of 1.00% of the dollar amount subject to charge if
redeemed within one year of purchase.
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gains dividends. It
is presently the policy of the Distributor not to accept any order for Class C
Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
In determining whether a contingent deferred sales charge is applicable to a
redemption, it is assumed that the redemption is first of any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge and then of shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
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 distributions constituting
"preferential dividends" under the federal income tax law and (ii) the
conversion of shares does not constitute a taxable event under federal income
tax law. The conversion may be suspended if such an opinion is no longer
available and such shares might continue to be subject to the higher aggregate
fees applicable to such shares for an indefinite period.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge is waived on redemptions of Class B Shares
and Class C Shares (i) within one year following the death or disability (as
disability is defined by federal income tax law) of a shareholder, (ii) for
required minimum distributions from an individual retirement account ("IRA") or
certain other retirement plan distributions, (iii) for withdrawals under the
Fund's systematic withdrawal plan but limited to 12% annually of the initial
value of the account, (iv) if no commission or transaction fee is paid to
authorized dealers at the time of purchase of such shares and (v) if made by
involuntary liquidation by the Fund of a shareholder's account as described
under the heading
16
<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 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
17
<PAGE>
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 trust distributions will be 1.00% of the offering
price (1.01% of net asset value). Of this amount, the Distributor will pay to
the authorized dealer, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the terms and conditions that apply to the program,
should contact their authorized dealer or the Distributor.
The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during each distribution period by all investors who choose to invest in
the Fund through the program and (2) provide Investor Services with appropriate
backup data for each investor participating in the program in a computerized
format fully compatible with Investor Services' processing system.
As further requirements for obtaining these special benefits, the Fund also
requires that all dividends and other distributions by the Fund be reinvested in
additional shares without any systematic withdrawal program. There will be no
minimum for reinvestments from unit investment trusts. The Fund will send
account activity statements to such participants on a quarterly basis only, even
if their investments are made more frequently. The Fund reserves the right to
modify or terminate this program at any time.
NET ASSET VALUE PURCHASE OPTIONS. Class A Shares of the Fund may be purchased at
net asset value, upon written assurance that the purchase is made for investment
purposes and that the shares will not be resold except through redemption by the
Fund, by:
(1) Current or retired trustees or directors of funds advised by Morgan Stanley
Dean Witter & Co. and any of its subsidiaries and such persons' families
and their beneficial accounts.
(2) Current or retired directors, officers and employees of Morgan Stanley Dean
Witter & Co. and any of its subsidiaries, employees of an investment
subadviser to any fund described in (1) above or an affiliate of such
subadviser, and such persons' families and their beneficial accounts.
(3) Directors, officers, employees and, when permitted, registered
representatives, of financial institutions that have a selling group
agreement with the Distributor and their spouses and children under 21
years of age when purchasing for any accounts they beneficially own, or, in
the case of any such financial institution, when purchasing for retirement
plans for such institution's employees; provided that such purchases are
otherwise permitted by such institutions.
(4) Registered investment advisers who charge a fee for their services, trust
companies and bank trust departments investing on their own behalf or on
behalf of their clients. The Distributor may pay authorized dealers through
which purchases are made an amount up to 0.50% of the amount invested, over
a 12-month period.
(5) Trustees and other fiduciaries purchasing shares for retirement plans which
invest in multiple fund families through broker-dealer retirement plan
alliance programs that have entered into agreements with the Distributor
and which are subject to certain minimum size and operational requirements.
Trustees and other fiduciaries should refer to the Statement of Additional
Information for further details with respect to such alliance programs.
(6) Beneficial owners of shares of Participating Funds held by a retirement
plan or held in a tax-advantaged retirement account who purchase shares of
the Fund with proceeds from distributions from such a plan or retirement
account
18
<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 on
purchases made as described in (3) through (9) above. The Fund may terminate, or
19
<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 order. Such payment may be postponed or the right of redemption suspended
as provided by the rules of the SEC. Such payment may, under certain
circumstances, be paid wholly or in part by a distribution-in-kind of portfolio
securities. If the shares to be redeemed have been recently purchased by check,
Investor Services may delay the payment of redemption proceeds until it confirms
the purchase check has cleared, which may take up to 15 days. A taxable gain or
loss will be recognized by the shareholder upon redemption of shares.
WRITTEN REDEMPTION REQUESTS. Shareholders may request a redemption of shares by
written request in proper form sent directly to Van Kampen Investor Services
Inc., PO Box 218256, Kansas City, MO 64121-8256. The request for redemption
should indicate the number of shares to be redeemed, the class designation of
such shares and the shareholder's account number. The redemption request must be
signed by all persons in whose names the shares are registered. Signatures must
conform exactly to the account registration. If the proceeds of the redemption
exceed $50,000, or if the proceeds are not to be paid to the record owner at the
record address, or if the record address has changed within the previous 30
days, signature(s) must be guaranteed by one of the following: a bank or trust
company; a broker-dealer; a credit union; a national securities exchange,
registered securities association or clearing agency; a savings and loan
association; or a federal savings bank.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption to be in proper form. In some
cases, however, additional documents may be necessary. In the case of
shareholders holding certificates, the certificates for the shares being
redeemed properly endorsed for transfer must accompany the redemption request.
In the event the redemption is requested by a corporation, partnership, trust,
fiduciary, executor or administrator, and the name and title of the
individual(s) authorizing such redemption is not shown in the account
registration, a copy of the corporate resolution or other legal documentation
appointing the authorized signer and certified within the prior 120 days must
accompany the redemption request. IRA redemption requests should be sent to the
IRA custodian to be forwarded to Investor Services. Contact the IRA custodian
for further information.
In the case of written redemption requests sent directly to Investor Services,
the redemption price is the net asset value per share next determined after the
request in proper form is received by Investor Services.
AUTHORIZED DEALER REDEMPTION REQUESTS. Shareholders may place redemption
requests through an authorized dealer. Orders sent through authorized dealers
must be at least $500 (unless transmitted by your authorized dealer via the
FUNDSERV network). The redemption price for such shares is the net asset value
per share next calculated after an order in proper form is received by an
authorized dealer provided such order is transmitted to the Distributor prior to
the Distributor's close of business on such day. It is the responsibility of
authorized dealers to transmit redemption requests
20
<PAGE>
received by them to the Distributor so they will be received prior to such time.
Redemptions completed through an authorized dealer may involve additional fees
charged by the dealer.
TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. To establish
such privilege, a shareholder must complete the appropriate section of the
application form accompanying this prospectus or call the Fund at (800) 341-2911
to request that a copy of the Telephone Redemption Authorization form be sent to
them for completion. To redeem shares, contact the telephone transaction line at
(800) 421-5684. Van Kampen Investments, Investor Services and the Fund employ
procedures considered by them to be reasonable to confirm that instructions
communicated by telephone are genuine. Such procedures include requiring certain
personal identification information prior to acting upon telephone instructions,
tape-recording telephone communications and providing written confirmation of
instructions communicated by telephone. If reasonable procedures are employed,
neither Van Kampen Investments, Investor Services nor the Fund will be liable
for following telephone instructions which it reasonably believes to be genuine.
Telephone redemptions may not be available if the shareholder cannot reach
Investor Services by telephone, whether because all telephone lines are busy or
for any other reason; in such case, a shareholder would have to use the Fund's
other redemption procedure previously described. Requests received by Investor
Services prior to 4:00 p.m., New York time, will be processed at the next
determined net asset value per share. These privileges 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 two kinds of return from the Fund: dividends and
capital gains 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
21
<PAGE>
distribution fees and transfer agency costs applicable to such classes of
shares.
CAPITAL GAINS. The Fund may realize capital gains or losses when it sells
securities, depending on whether the sales prices for the securities are higher
or lower than purchase prices. Net realized capital gains represent the total
profit from sales of securities minus total losses from sales of securities
including losses carried forward from prior years. The Fund distributes any
taxable net realized capital gains to shareholders as capital gains dividends at
least annually. As in the case of dividends, capital gains dividends are
automatically reinvested in additional shares of the Fund at 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 gains distributions 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 gains
distribution. Unless the shareholder instructs otherwise, the reinvestment plan
is automatic. This instruction may be made by telephone by calling (800)
341-2911 ((800) 421-2833 for the hearing impaired) or by writing to Investor
Services. The investor may, on the initial application or prior to any
declaration, instruct that dividends be paid in cash and capital gains
distributions be reinvested at net asset value, or that both dividends and
capital gains distributions be paid in cash.
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under which
a shareholder can authorize 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.
To be eligible for exchange, shares of the Fund must have been registered in the
shareholder's name for at least 30 days prior to an exchange. Shares of the Fund
registered in a shareholder's name for less than 30 days may only be exchanged
upon receipt of prior approval of the Adviser. It is the policy of the Adviser,
under normal circumstances, not to approve such requests.
When Class B Shares and Class C Shares are exchanged among Participating Funds,
the holding period for purposes of computing the contingent deferred sales
charge is based upon the date of the initial purchase of such shares from a
Participating Fund. If such Class B Shares or Class C Shares are redeemed and
not exchanged for shares of another Participating Fund, Class B Shares and Class
C Shares are subject to the contingent deferred sales charge schedule imposed by
the Participating Fund from which such shares were originally purchased.
Exchanges of shares are sales and may result in a gain or loss for federal
income tax purposes. If the shares exchanged have been held for less than 91
days, the sales charge paid on such shares is carried over and included in the
tax basis of the shares acquired.
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
otherwise designated in the application form accompanying the prospectus. Van
Kampen Investments, Investor Services and the Fund employ procedures considered
by them to be reasonable to confirm that instructions communicated by telephone
are genuine. Such procedures include requiring certain personal identification
information prior to acting upon telephone instructions, tape-recording
telephone communications, and providing written confirmation of instructions
communicated by telephone. If reasonable procedures are employed, neither Van
Kampen Investments, Investor Services nor the Fund will be liable for following
telephone instructions which it reasonably believes to be genuine. If the
exchanging shareholder does not have an account in the fund whose shares are
being acquired, a new account will be established with the same registration,
dividend and capital gains options (except dividend diversification) and
authorized dealer of record as the account from which shares are exchanged,
unless otherwise specified by the shareholder. In order to establish a
systematic withdrawal plan for the new account or reinvest dividends from the
new account into another fund, however, an exchanging shareholder must submit a
specific request. The Fund reserves the right to reject any order to acquire its
shares through exchange. In addition, the Fund and other Participating Funds may
restrict exchanges by shareholders engaged in excessive trading by limiting or
disallowing the exchange privileges to such shareholders. For further
information on these restrictions see the Statement of Additional Information.
The Fund may modify, restrict or terminate the exchange privilege at any time on
60 days' notice to its shareholders of any termination or material amendment.
For purposes of determining the sales charge rate previously paid on Class A
Shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchanged security was acquired through reinvestment, that
security is deemed to have been sold with a sales charge rate equal to the rate
previously paid on the security on which the dividend or distribution was paid.
If a shareholder exchanges less than all of such shareholder's securities, the
security upon which the highest sales charge rate was previously paid is deemed
exchanged first.
Exchange requests received on a business day prior to the time shares of the
funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares in the fund from which the
shareholder is withdrawing an investment will be redeemed at the net asset value
per share next determined on the date of receipt. Shares of the new fund into
which the shareholder is investing will also normally be purchased at the net
asset value per share, plus any applicable sales charge, next determined on the
date of receipt. Exchange requests received on a business day after the time
shares of the funds involved in the request are priced will be processed on the
next business day in the manner described herein.
A prospectus of any of these Participating Funds may be obtained from any
authorized dealer or the Distributor. An investor considering an exchange to one
of such funds should refer to the prospectus for additional information
regarding such fund prior to investing.
INTERNET TRANSACTIONS. In addition to performing transactions on your account
through written instruction or by telephone, you may also perform certain
transactions through the internet. Please refer to our web site at
www.vankampen.com for further instruction. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated through the internet are genuine. Such
procedures include requiring use of a personal identification number prior to
acting upon internet instructions and providing written confirmation of
instructions communicated through the internet. If reasonable procedures are
employed, neither Van Kampen Investments, Investor Services nor the Fund will be
liable for following instructions through the internet which it reasonably
believes to be genuine. If an account has multiple owners, Investor Services may
rely on the instructions of any one owner.
23
<PAGE>
FEDERAL INCOME
TAXATION
Distributions of the Fund's net investment income (consisting generally of
taxable income and net short-term capital gains) are taxable to shareholders as
ordinary income to the extent of the Fund's earnings and profits, whether paid
in cash or reinvested in additional shares. Distributions of the Fund's net
capital gains (which are the excess of net long-term capital gains over net
short-term capital losses) as capital gain dividends, if any, are taxable to
shareholders as long-term capital gains, whether paid in cash or reinvested in
additional shares, and regardless of how long the shares of the Fund have been
held by such shareholders. Capital gains dividends may be taxed at different
rates depending on how long the Fund held the securities. The Fund expects that
its distributions will consist primarily of ordinary income and capital gains
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. Prospective foreign investors should consult their U.S. tax
advisers concerning the tax consequences to them of an investment in shares.
The Fund intends to qualify as a regulated investment company under federal
income tax law. If the Fund so qualifies and distributes each year to its
shareholders at least 90% of its net investment income, the Fund will not be
required to pay federal income taxes on any income it distributed to
shareholders. If the Fund distributes less than the sum of 98% of its ordinary
income and 98% of its capital gains 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, or disposing 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
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> <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
- ---------------------------------------------
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.
25
<PAGE>
BOARD OF DIRECTORS
AND OFFICERS
BOARD OF DIRECTORS
<TABLE>
<S> <C>
J. Miles Branagan Don G. Powell*
Jerry D. Choate Philip 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
Edward C. Wood III*
VICE PRESIDENT
A. Thomas Smith III*
VICE PRESIDENT AND SECRETARY
Michael H. Santo*
VICE PRESIDENT
Peter W. Hegel*
VICE PRESIDENT
Stephen L. Boyd*
VICE PRESIDENT
Joseph P. Stadler*
VICE PRESIDENT
Curtis W. Morell*
VICE PRESIDENT & CHIEF ACCOUNTING OFFICER
Tanya M. Loden*
CONTROLLER
John L. Sullivan*
VICE PRESIDENT, CHIEF FINANCIAL OFFICER & TREASURER
* "Interested" persons of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2911
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders, or
redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call
(800) 421-2833
FUND INFO-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 , 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 Public
Reference Room in
Washington, DC or online
at the SEC's web site
(http://www.sec.gov).
For more information,
please call the SEC at
(800) SEC-0330. You can
also request these
materials by writing the
Public Reference Section
of the SEC, Washington
DC, 20549-6009, and
paying a duplication
fee.
[LOGO]
THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-7140.
MSAV PRO 10/99
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THE FUND MAY NOT SELL THESE SECURITIES UNTIL THE POST-
EFFECTIVE AMENDMENT TO THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES.
SUBJECT TO COMPLETION -- DATED AUGUST 27, 1999
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 regulators, and
neither the SEC nor any
state regulator has passed
upon the accuracy or
adequacy of this
prospectus. Any
representation to the
contrary is a criminal
offense.
THIS PROSPECTUS IS DATED
OCTOBER , 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 ...........................................13
Purchase of Shares .....................................................15
Redemption of Shares ...................................................22
Distributions from the Fund ............................................24
Shareholder Services ...................................................24
Federal Income Taxation ................................................26
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 management seeks to achieve the
investment objective by investing at least 65% of the Fund's total assets in a
diversified portfolio of equity securities of companies that are: organized 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 stock exchanges in the U.S. 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 management
uses a "bottom-up" investment strategy that is research driven and emphasizes
security selection on an individual company basis. The Fund generally seeks to
invest in large companies located in emerging Asian markets countries 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 or non-Asian issuers.
The Fund may purchase or 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, including seeking to reduce or eliminate
foreign currency exchange risks associated with securities denominated in
non-U.S. dollars currencies.
INVESTMENT RISKS
An investment in the Fund is subject to investment risks, and you could lose
money on your investment in the Fund. There can be no assurance that the Fund
will achieve its investment 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
debt securities. Investments in debt securities generally are affected by
changes in interest rates and creditworthiness of the issuer. The market prices
for such securities tend to fall as interest rates rise, and such declines may
be greater among securities with longer maturities. Foreign markets may, but
often do not, move in tandem with changes in U.S. markets, and foreign markets,
especially emerging or developing markets, may have more price volatility 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, 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, EMERGING MARKETS 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 markets are greater than the
risks generally associated with foreign investments including investment and
trading limitations, greater
3
<PAGE>
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. The Fund is subject to additional risks associated
with investing in securities of companies which 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 such as imperfect
correlation between the value of the instruments and the underlying assets;
risks of default by the other party to certain transactions; risks that the
transactions may result in losses that partially or completely offset gains in
portfolio positions; risks that the transactions may not be liquid; and manager
risk.
MANAGER RISK. As with any managed fund, the Fund's management may not be
successful in selecting the best-performing securities and the Fund's
performance may lag behind that of similar funds.
An investment in the Fund is not a deposit of any bank or other insured
depository institution. Your investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
INVESTOR PROFILE
In light of its objective and investment 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 shares of the Fund.
- - Wish to add to their personal investment portfolio a fund that invests
primarily in equity securities of issuers of securities from Asian countries
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 past 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 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 management believes is an applicable
benchmark for the Fund. The Fund's performance figures include the maximum sales
charges paid by investors. The index performance figures do not include
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 PAST 5 SINCE
DECEMBER 31, 1998 1 YEAR YEARS INCEPTION
- ------------------------------------------------------------------
Van Kampen Asian Growth
Fund -- Class A Shares -11.24% -15.78% -7.52%(1)
MSCI All Country Far East
Free Ex-Japan Index % % %(3)
.................................................................
Van Kampen Asian Growth
Fund -- Class B Shares -11.03% - -19.81%(2)
MSCI All Country Far East
Free Ex-Japan Index % % %(4)
.................................................................
Van Kampen Asian Growth
Fund -- Class C Shares -7.53% -15.41% -7.21%(1)
MSCI All Country Far East
Free Ex-Japan Index % % %(3)
.................................................................
INCEPTION DATES: (1) 6/23/93, (2) 8/1/95, (3) (4) .
*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).
5
<PAGE>
FEES AND EXPENSES
OF THE FUNDS
These tables describe the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
- ----------------------------------------------------------------------
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 (as
a percentage of offering
price) None None None
.....................................................................
Redemption fees (as a
percentage of amount
redeemed) None None None
.....................................................................
Exchange fee None None None
.....................................................................
(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 AND DECLINING THEREAFTER AS FOLLOWS:
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 investment objective by investing at least 65% of the Fund's total assets in
a diversified 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
6
<PAGE>
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 management uses a "bottom-up" investment strategy that is research
driven and 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 evaluation.
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.
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 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 security 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
7
<PAGE>
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 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 additional fees
such as management and other fees.
While the Fund focuses primarily on larger-capitalization companies, it also may
invest in smaller- to medium-capitalization companies. The securities of smaller
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 such companies, it may be subject to greater investment risk
than that assumed through investment in the equity securities of larger-sized
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 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 investment
adviser's assessment of the relative yield, appreciation potential and
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
8
<PAGE>
brokerage, custodial and settlement costs and currency translation costs) and
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 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.
Since the Fund invests in securities denominated or quoted in currencies other
than the U.S. dollar, the Fund will be affected by changes in foreign currency
exchange rates (and exchange control regulations) which affect the value of
investments in the Fund and the accrued income and unrealized appreciation or
depreciation of the investments. Changes in foreign currency exchange ratios
relative to the U.S. dollar will affect the U.S. dollar value of the Fund's
assets denominated in that currency and the Fund's yield on such assets 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'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. The Fund purchases and sells
foreign currency on a spot basis in connection with the settlement of
transactions in securities traded in such foreign currency. The Fund also may
enter into contracts with banks, brokers or dealers to purchase or sell 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 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.
Investors should consider carefully the risks of foreign investments before
investing in the Fund.
9
<PAGE>
ADDITIONAL RISKS OF INVESTING IN EMERGING MARKETS COUNTRIES. The risks of
foreign investment are heightened when the issuer is from an emerging markets
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
markets countries tend to have economic structures that are less diverse and
mature and political systems that are less stable than developed markets.
Emerging markets 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 markets
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 markets 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 markets 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 markets 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 emerging
countries. Economies in emerging markets 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 markets 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 markets 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 markets 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
10
<PAGE>
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 markets
countries may be limited. Due to the limited market for these instruments in
emerging markets countries, the Fund's investment adviser does not currently
anticipate that a significant portion of the Funds' currency exposure in
emerging markets countries, if any, will be covered by such instruments.
Investors are strongly advised to consider carefully the special risks involved
in investing in emerging or developing 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 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. Additionally, 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 temporary
substitute for purchasing or selling particular securities, including, for
example, when the Fund acts quickly to adjust 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
11
<PAGE>
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).
Additionally, 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. Additionally, 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 which can be
obtained by investors free of charge as described on the back cover of this
prospectus.
OTHER INVESTMENTS AND RISK FACTORS
For cash management 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 otherwise. The Fund's portfolio turnover is shown under the
12
<PAGE>
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 may result in the realization of more short-term capital gains than if the
Fund had lower portfolio turnover. Increases in the Fund's transaction costs
would impact the Fund's performance. The turnover rate will not be a limiting
factor, however, if the Fund's investment adviser considers portfolio changes
appropriate.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Fund may hold cash or invest on a temporary basis 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. The Fund may not
achieve its investment objective if it takes a defensive position.
YEAR 2000 RISKS. Like other mutual funds, financial and business organizations
and individuals around the world, the Fund could be adversely affected if the
computer systems used by the Fund's investment adviser and other service
providers do not properly process and calculate date-related information and
data from and after January 1, 2000. This is commonly known as the "Year 2000
Problem." The Fund's investment adviser 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 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 markets countries because there is an increased likelihood that issuers
of securities of such countries cannot anticipate or effectively manage the
affects of computer programs and the Year 2000 Problem. Accordingly, the Fund's
investments may be adversely affected. The statements above are subject to the
Year 2000 Information and Readiness Disclosure Act which Act may limit the legal
rights regarding the use of such statements in the case of a dispute.
INVESTMENT ADVISORY
SERVICES
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 $75 billion under management or supervision. Van
Kampen Investments' more than 50 open-end and 39 closed-end funds and more than
2,500 unit investment trusts are professionally distributed by leading financial
advisers nationwide. Van Kampen Funds Inc., the distributor of the Fund (the
"Distributor") and the sponsor of the funds mentioned above, is also a
13
<PAGE>
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 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.
From time to time, the Adviser or the Distributor may voluntarily undertake to
reduce the Fund's expenses by reducing the fees payable to them or by reducing
other expenses of the Fund in accordance with such limitations as the Adviser or
Distributor may establish.
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen 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
December 31, 1998, the Subadviser, together with its affiliated institutional
asset management companies, managed assets of approximately $163.4 billion,
including assets under fiduciary advice. The Subadviser's address is 1221 Avenue
of the Americas, New York, New York 10020.
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 percentage of
the net advisory fees the Adviser receives from the Fund.
-------------
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
co-managers 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
14
<PAGE>
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, where he managed a portion of the emerging markets assets and,
prior to that time, he was Vice President at Bankers Trust Company 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 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 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 (described below) pursuant to which its
distribution fee or service fee is paid, (iii) each class of shares has
different exchange privileges, (iv) certain classes of shares are subject to a
conversion feature and (v) certain classes of shares have different shareholder
service options available.
The 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 a 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 in which no purchase or redemption orders are
received or there is not a sufficient degree of trading in a 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 values per share and adjust the offering price more frequently than once a
day if deemed desirable. Net asset value per share for each class is determined
by dividing the value of a 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
15
<PAGE>
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 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.
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 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.
16
<PAGE>
The offering price for shares is based on 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 gains
distributions, 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
AS % OF AS % OF
SIZE OF OFFERING NET AMOUNT
INVESTMENT PRICE INVESTED
- ------------------------------------------------
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 * *
...............................................
* NO SALES CHARGE IS PAYABLE AT THE TIME OF PURCHASE ON INVESTMENTS OF
$1 MILLION OR MORE, ALTHOUGH FOR SUCH INVESTMENTS THE FUND IMPOSES A
CONTINGENT DEFERRED SALES CHARGE OF 1.00% ON CERTAIN REDEMPTIONS MADE
WITHIN ONE YEAR OF THE PURCHASE. THE CONTINGENT DEFERRED SALES CHARGE
IS ASSESSED ON AN AMOUNT EQUAL TO THE LESSER OF THE THEN CURRENT
MARKET VALUE OR THE COST OF THE SHARES BEING REDEEMED. ACCORDINGLY, NO
SALES CHARGE IS IMPOSED ON INCREASES IN NET ASSET VALUE ABOVE THE
INITIAL PURCHASE PRICE.
No sales charge is imposed on Class A Shares received from reinvestment of
dividends or capital gains distributions.
Under the Distribution Plan and Service Plan, the Fund may spend a total of
0.25% per year of the average daily net assets with respect to the Class A
Shares of the Fund. From such amount, under the Service Plan, the Fund may spend
up to 0.25% per year of the Fund's average daily net assets with respect to the
Class A Shares for the ongoing provision of services to Class A shareholders by
the Distributor and by brokers, dealers or financial intermediaries and for the
maintenance of such shareholders' accounts.
CLASS B SHARES
Class B Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge if
17
<PAGE>
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 5.00%
..............................................
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 gains dividends. It
is presently the policy of the Distributor not to accept any order for Class B
Shares in an amount of $500,000 or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
The amount of the contingent deferred sales charge, if any, varies depending on
the number of years from the time of payment for the purchase of Class B Shares
until the time of redemption of such shares. Solely for purposes of determining
the number of years from the time of any payment for the purchase of shares, all
payments during a month are totaled and deemed to have been made on the last day
of the month.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed that the redemption is first of any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge and then of shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
average daily net assets with respect to the Class B Shares of the Fund. In
addition, under the Service Plan, the Fund may spend up to 0.25% per year of the
Fund's average daily net assets with respect to the Class B Shares for the
ongoing provision of services to Class B shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CLASS C SHARES
Class C Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge of 1.00% of the dollar amount subject to charge if
redeemed within one year of purchase.
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gains dividends. It
is presently the policy of the Distributor not to accept any order for Class C
Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
In determining whether a contingent deferred sales charge is applicable to a
redemption, it is assumed that the redemption is first of any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge and then of shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
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.
18
<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 distributions constituting
"preferential dividends" under the federal income tax law and (ii) the
conversion of shares does not constitute a taxable event under federal income
tax law. The conversion may be suspended if such an opinion is no longer
available and such shares might continue to be subject to the higher aggregate
fees applicable to such shares for an indefinite period.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge is waived on redemptions of Class B Shares
and Class C Shares (i) within one year following the death or disability (as
disability is defined by federal income tax law) of a shareholder, (ii) for
required minimum distributions from an individual retirement account ("IRA") or
certain other retirement plan distributions, (iii) for withdrawals under the
Fund's systematic withdrawal plan but limited to 12% annually of the initial
value of the account, (iv) if no commission or transaction fee is paid to
authorized dealers at the time of purchase of such shares and (v) if made by
involuntary liquidation by the Fund of a shareholder's account as described
under the heading "Redemption of Shares." Subject to certain limitations, a
shareholder who has redeemed Class C Shares of the Fund may reinvest in Class C
Shares at net asset value with credit for any contingent deferred sales charge
if the reinvestment is within 180 days after the redemption. For a more complete
description of contingent deferred sales charge waivers, please refer to the
Fund's Statement of Additional Information or contact your authorized dealer.
QUANTITY DISCOUNTS
Investors purchasing Class A Shares may, under certain circumstances described
below, be entitled to pay reduced or no sales charges. Investors, or their
authorized dealers, must notify the Fund at the time of the purchase order
whenever a quantity discount is applicable to purchases. Upon such notification,
an investor will receive the lowest applicable sales charge. Quantity discounts
may be modified or terminated at any time. For more information about quantity
discounts, investors should contact their authorized dealer or the Distributor.
A person eligible for a reduced sales charge includes an individual, his or her
spouse and children under 21 years of age and any corporation, partnership or
sole proprietorship which is 100% owned, either alone or in combination, by any
of the foregoing; a trustee or other fiduciary purchasing for a single trust or
for a single fiduciary account, or a "company" as defined in Section 2(a)(8) of
the 1940 Act.
As used herein, "Participating Funds" refers to certain open-end investment
companies advised by Asset Management or Advisory Corp. and distributed by the
Distributor as determined from time to time by the Fund's Board of 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
19
<PAGE>
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 trust distributions will be 1.00% of the offering
price (1.01% of net asset value). Of this amount, the Distributor will pay to
the authorized dealer, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the terms and conditions that apply to the program,
should contact their authorized dealer or the Distributor.
The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during each distribution period by all investors who choose to invest in
the Fund through the program and (2) provide Investor Services with appropriate
backup data for each investor participating in the program in a computerized
format fully compatible with Investor Services' processing system.
As further requirements for obtaining these special benefits, the Fund also
requires that all dividends and other distributions by the Fund be reinvested in
additional shares without any systematic withdrawal program. There will be no
minimum for reinvestments from unit investment trusts. The Fund will send
account activity statements to such participants on a quarterly basis only, even
if their investments are made more frequently. The Fund reserves the right to
modify or terminate this program at any time.
20
<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
21
<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 on
purchases made as described in (3) through (9) above. The Fund may terminate, or
amend the terms of, offering shares of the Fund at net asset value to such
groups at any time.
REDEMPTION OF
SHARES
Generally shareholders may redeem for cash some or all of their shares without
charge by the Fund (other than applicable sales charge) at any time. As
described under the heading "Purchase of Shares," redemptions of Class B Shares
and Class C Shares may be subject to a contingent deferred sales charge. In
addition, certain redemptions of Class A Shares for shareholder accounts of $1
million or more may be subject to a contingent deferred sales charge.
Redemptions completed through an authorized dealer or a custodian of a
retirement plan account may involve additional fees charged by the dealer or
custodian.
Except as specified below under "Telephone Redemption Requests," payment for
shares redeemed generally will be made by check mailed within seven days after
receipt by Investor Services of the request and any other necessary documents in
proper order. Such payment may be postponed or the right of redemption suspended
as provided by the rules of the SEC. Such payment may, under certain
circumstances, be paid wholly or in part by a distribution-in-kind of portfolio
securities. If the shares to be redeemed have been recently purchased by check,
Investor Services may delay the payment of redemption proceeds until it confirms
the purchase check has cleared, which may take up to 15 days. A taxable gain or
loss will be recognized by the shareholder upon redemption of shares.
WRITTEN REDEMPTION REQUESTS. Shareholders may request a redemption of shares by
written request in proper form sent directly to Van Kampen Investor Services
Inc., PO Box 218256, Kansas City, MO 64121-8256. The request for redemption
should indicate the number of shares to be redeemed, the class designation of
such shares and the shareholder's account number. The redemption request must be
signed by all persons in whose names the shares are
22
<PAGE>
registered. Signatures must conform exactly to the account registration. If the
proceeds of the redemption exceed $50,000, or if the proceeds are not to be paid
to the record owner at the record address, or if the record address has changed
within the previous 30 days, signature(s) must be guaranteed by one of the
following: a bank or trust company; a broker-dealer; a credit union; a national
securities exchange, registered securities association or clearing agency; a
savings and loan association; or a federal savings bank.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption to be in proper form. In some
cases, however, additional documents may be necessary. In the case of
shareholders holding certificates, the certificates for the shares being
redeemed properly endorsed for transfer must accompany the redemption request.
In the event the redemption is requested by a corporation, partnership, trust,
fiduciary, executor or administrator, and the name and title of the
individual(s) authorizing such redemption is not shown in the account
registration, a copy of the corporate resolution or other legal documentation
appointing the authorized signer and certified within the prior 120 days must
accompany the redemption request. IRA redemption requests should be sent to the
IRA custodian to be forwarded to Investor Services. Contact the IRA custodian
for further information.
In the case of written redemption requests sent directly to Investor Services,
the redemption price is the net asset value per share next determined after the
request in proper form is received by Investor Services.
AUTHORIZED DEALER REDEMPTION REQUESTS. Shareholders may place redemption
requests through an authorized dealer. Orders sent through authorized dealers
must be at least $500 (unless transmitted by your authorized dealer via the
FUNDSERV network). The redemption price for such shares is the net asset value
per share next calculated after an order in proper form is received by an
authorized dealer provided such order is transmitted to the Distributor prior to
the Distributor's close of business on such day. It is the responsibility of
authorized dealers to transmit redemption requests received by them to the
Distributor so they will be received prior to such time. Redemptions completed
through an authorized dealer may involve additional fees charged by the dealer.
TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. To establish
such privilege, a shareholder must complete the appropriate section of the
application form accompanying this prospectus or call the Fund at (800) 341-2911
to request that a copy of the Telephone Redemption Authorization form be sent to
them for completion. To redeem shares, contact the telephone transaction line at
(800) 421-5684. Van Kampen Investments, Investor Services and the Fund employ
procedures considered by them to be reasonable to confirm that instructions
communicated by telephone are genuine. Such procedures include requiring certain
personal identification information prior to acting upon telephone instructions,
tape-recording telephone communications and providing written confirmation of
instructions communicated by telephone. If reasonable procedures are employed,
neither Van Kampen Investments, Investor Services nor the Fund will be liable
for following telephone instructions which it reasonably believes to be genuine.
Telephone redemptions may not be available if the shareholder cannot reach
Investor Services by telephone, whether because all telephone lines are busy or
for any other reason; in such case, a shareholder would have to use the Fund's
other redemption procedure previously described. Requests received by Investor
Services prior to 4:00 p.m., New York time, will be processed at the next
determined net asset value per share. These privileges 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
23
<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 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 two kinds of return from the Fund: dividends and
capital gains 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 GAINS. The Fund may realize capital gains or losses when it sells
securities, depending on whether the sales prices for the securities are higher
or lower than purchase prices. Net realized capital gains represent the total
profit from sales of securities minus total losses from sales of securities
including losses carried forward from prior years. The Fund distributes any
taxable net realized capital gains to shareholders as capital gains dividends at
least annually. As in the case of dividends, capital gains dividends are
automatically reinvested in additional shares of the Fund at 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 gains distributions 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 gains
distribution. Unless the shareholder instructs otherwise, the reinvestment plan
is automatic. This instruction may be made by telephone by calling (800)
341-2911 ((800) 421-2833 for the hearing impaired) or by writing to Investor
Services. The investor may, on the initial application or prior to any
declaration, instruct that dividends be paid in cash and capital gains
distributions be reinvested at net asset value, or that both dividends and
capital gains distributions be paid in cash.
24
<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.
To be eligible for exchange, shares of the Fund must have been registered in the
shareholder's name for at least 30 days prior to an exchange. Shares of the Fund
registered in a shareholder's name for less than 30 days may only be exchanged
upon receipt of prior approval of the Adviser. It is the policy of the Adviser,
under normal circumstances, not to approve such requests.
When Class B Shares and Class C Shares are exchanged among Participating Funds,
the holding period for purposes of computing the contingent deferred sales
charge is based upon the date of the initial purchase of such shares from a
Participating Fund. If such Class B Shares or Class C Shares are redeemed and
not exchanged for shares of another Participating Fund, Class B Shares and Class
C Shares are subject to the contingent deferred sales charge schedule imposed by
the Participating Fund from which such shares were originally purchased.
Exchanges of shares are sales and may result in a gain or loss for federal
income tax purposes. If the shares exchanged have been held for less than 91
days, the sales charge paid on such shares is carried over and included in the
tax basis of the shares acquired.
A shareholder wishing to make an exchange may do so by sending a written request
to Investor Services or by contacting the telephone transaction line at (800)
421-5684. A shareholder automatically has telephone exchange privileges unless
otherwise designated in the application form accompanying the prospectus. Van
Kampen Investments, Investor Services and the Fund employ procedures considered
by them to be reasonable to confirm that instructions communicated by telephone
are genuine. Such procedures include requiring certain personal identification
information prior to acting upon telephone instructions, tape-recording
telephone communications, and providing written confirmation of instructions
communicated by telephone. If reasonable procedures are employed, neither Van
Kampen Investments, Investor Services nor the Fund will be liable for following
telephone instructions which it reasonably believes to be genuine. If the
exchanging shareholder does not have an account in the fund whose shares are
being acquired, a new account will be established with the same registration,
dividend and capital gains options (except dividend diversification) and
authorized dealer of record as the account from which shares are exchanged,
unless otherwise specified by the shareholder. In order to establish a
systematic withdrawal plan for the new account or reinvest dividends from the
new account into another fund, however, an exchanging shareholder must submit a
specific request. The Fund reserves the right to reject any order to acquire its
shares through exchange. In addition, the Fund and other Participating Funds may
restrict exchanges by shareholders engaged in excessive trading by limiting or
disallowing the exchange privileges to such shareholders. For further
information on these restrictions see the Statement of Additional Information.
The Fund may modify, restrict or terminate the exchange privilege at any time on
60 days' notice to its shareholders of any termination or material amendment.
For purposes of determining the sales charge rate previously paid on Class A
Shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchanged security was acquired through reinvestment, that
security is deemed to have been sold with a sales charge rate equal to the rate
previously paid on the
25
<PAGE>
security on which the dividend or distribution was paid. If a shareholder
exchanges less than all of such shareholder's securities, the security upon
which the highest sales charge rate was previously paid is deemed exchanged
first.
Exchange requests received on a business day prior to the time shares of the
funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares in the fund from which the
shareholder is withdrawing an investment will be redeemed at the net asset value
per share next determined on the date of receipt. Shares of the new fund into
which the shareholder is investing will also normally be purchased at the net
asset value per share, plus any applicable sales charge, next determined on the
date of receipt. Exchange requests received on a business day after the time
shares of the funds involved in the request are priced will be processed on the
next business day in the manner described herein.
A prospectus of any of these Participating Funds may be obtained from any
authorized dealer or the Distributor. An investor considering an exchange to one
of such funds should refer to the prospectus for additional information
regarding such fund prior to investing.
INTERNET TRANSACTIONS. In addition to performing transactions on your account
through written instruction or by telephone, you may also perform certain
transactions through the internet. Please refer to our web site at
www.vankampen.com for further instruction. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated through the internet are genuine. Such
procedures include requiring use of a personal identification number prior to
acting upon internet instructions and providing written confirmation of
instructions communicated through the internet. If reasonable procedures are
employed, neither Van Kampen Investments, Investor Services nor the Fund will be
liable for following instructions through the internet which it reasonably
believes to be genuine. If an account has multiple owners, Investor Services may
rely on the instructions of any one owner.
FEDERAL INCOME
TAXATION
Distributions of the Fund's net investment income (consisting generally of
taxable income and net short-term capital gains) are taxable to shareholders as
ordinary income to the extent of the Fund's earnings and profits, whether paid
in cash or reinvested in additional shares. Distributions of the Fund's net
capital gains (which are the excess of net long-term capital gains over net
short-term capital losses) as capital gain dividends, if any, are taxable to
shareholders as long-term capital gains, whether paid in cash or reinvested in
additional shares, and regardless of how long the shares of the Fund have been
held by such shareholders. Capital gains dividends may be taxed at different
rates depending on how long the Fund held the securities. The Fund expects that
its distributions will consist primarily of ordinary income and capital gains
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.
26
<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. Prospective foreign investors should consult their U.S. tax
advisers concerning the tax consequences to them of an investment in shares.
The Fund intends to qualify as a regulated investment company under federal
income tax law. If the Fund so qualifies and distributes each year to its
shareholders at least 90% of its net investment income, the Fund will not be
required to pay federal income taxes on any income it distributed to
shareholders. If the Fund distributes less than the sum of 98% of its ordinary
income and 98% of its capital gains 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, or disposing 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 AUGUST 1,
YEAR ENDED JUNE 30, 1995+ TO JUNE
1999# 1998# 1997 30, 1996
- -------------------------
<S> <C> <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
- -------------------------
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 Philip 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
Edward C. Wood III*
VICE PRESIDENT
A. Thomas Smith III*
VICE PRESIDENT AND SECRETARY
Michael H. Santo*
VICE PRESIDENT
Peter W. Hegel*
VICE PRESIDENT
Stephen L. Boyd*
VICE PRESIDENT
Joseph P. Stadler*
VICE PRESIDENT
Curtis W. Morell*
VICE PRESIDENT & CHIEF ACCOUNTING OFFICER
Tanya M. Loden*
CONTROLLER
John L. Sullivan*
VICE PRESIDENT, CHIEF FINANCIAL OFFICER & TREASURER
* "Interested" persons of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2911
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders, or
redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call
(800) 421-2833
FUND INFO-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 , 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 Public
Reference Room in
Washington, DC or online
at the SEC's web site
(http://www.sec.gov).
For more information,
please call the SEC at
(800) SEC-0330. You can
also request these
materials by writing
the Public Reference
Section of the SEC,
Washington DC,
20549-6009, and paying a
duplication fee.
[LOGO]
THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-7140.
MSAG PRO 10/99
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THE FUND MAY NOT SELL THESE SECURITIES UNTIL THE POST-
EFFECTIVE AMENDMENT TO THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES.
SUBJECT TO COMPLETION -- DATED AUGUST 27, 1999
VAN KAMPEN
EMERGING MARKETS
DEBT FUND
Van Kampen Emerging
Markets Debt Fund
is a mutual fund with an
investment objec-
tive to seek high total
return by investing
primarily in debt
securities of government,
government-related and
corporate issuers
located in emerging
markets countries.
Shares of the Fund have
not been approved or
disapproved by the
Securities and Exchange
Commission (SEC) or any
state regulators, and
neither the SEC nor any
state regulator has passed
upon the accuracy or
adequacy of this
prospectus. Any
representation to the
contrary is a criminal
offense.
THIS PROSPECTUS IS DATED
OCTOBER , 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 ............................................29
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
by investing primarily in debt securities of government, government-related and
corporate issuers located in emerging markets countries.
INVESTMENT STRATEGIES
Under normal market conditions, the Fund's management seeks to achieve the
investment objective by investing at least 65% of the Fund's total assets in a
non-diversified portfolio of debt securities of government and
government-related issuers located in emerging markets countries (including
participations in loans between governments and financial institutions) and of
entities organized to restructure outstanding debt of such issuers. 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 markets countries. The Fund buys and sells securities with a view to
seeking high total return through a portfolio of emerging market debt that
offers a low correlation to many other asset classes. Using macroeconomic and
fundamental analysis, the Fund's management seeks to identify developing
countries that are undervalued and have attractive or improving fundamentals.
After the country allocations are determined, the sector and security selections
are made within each country. A significant portion of the Fund's total assets
will be invested in securities rated lower-grade or comparable quality unrated
debt securities, which are commonly known as "junk bonds" (see sidebar for an
explanation of quality ratings). The Fund's investments in emerging markets
countries securities and lower-grade securities involve greater risks as
compared to 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 or sell certain derivative instruments (such as options,
futures, options on futures, currency-related transactions involving options,
futures and forward contracts, and interest rate swaps or other interest
rate-related transactions) for various portfolio management purposes, including
seeking to reduce or eliminate foreign currency exchange risks associated with
securities denominated in non-U.S. dollars currencies.
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.
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
..............................................................................
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 MARKETS 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 markets
countries are greater than the risks generally associated with foreign
3
<PAGE>
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 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 invests 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 have more price volatility 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 have more price volatility
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
therefore 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 be reinvested by the Fund in securities with 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, options on futures,
currency-related transactions involving options, futures and forward contracts,
and interest rate swaps and other interest rate-related transactions are
examples of derivatives. Derivative investments involve risks different from
direct investment in underlying securities such as imperfect correlation between
the value of the instruments and the underlying assets; risks of default by the
other party to certain transactions; risks that the transactions may result in
losses that
4
<PAGE>
partially or completely offset gains in portfolio positions; risks that the
transactions may not be liquid; and manager risk.
NON-DIVERSIFICATION RISKS. The Fund is classified as a "non-diversified" fund,
which means the Fund may invest a greater portion of its assets in a more
limited number of issuers than a "diversified" fund. As a result, the Fund may
be subject to greater risk than a diversified fund because changes in the
financial condition or market assessment of a single issuer may cause greater
fluctuations in the value of the Fund's shares.
MANAGER RISK. As with any managed fund, the Fund's management may not be
successful in selecting the best-performing securities and the Fund's
performance may lag behind that of similar funds.
An investment in the Fund is not a deposit of any bank or other insured
depository institution. Your investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
INVESTOR PROFILE
In light of its objective and investment strategies, the Fund may be appropriate
for investors who:
- - Seek a high level of current income while at the same time seeking the
potential for capital appreciation.
- - Are willing to take on the increased risks associated with investing in
emerging markets countries securities and lower-grade debt securities in
exchange for potentially higher total return.
- - Wish to add to their personal investment portfolio, a fund that invests
primarily in debt securities of government, government-related and corporate
issuers located in emerging markets countries.
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 FUNDS
These tables describe the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
- ----------------------------------------------------------------
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 (as a
percentage of offering price) None None None
...............................................................
Redemption fees (as a percentage of
amount redeemed) None None None
...............................................................
Exchange fee None None None
...............................................................
(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 AND 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
<PAGE>
ANNUAL FUND
OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
CLASS CLASS CLASS
A B C
SHARES SHARES SHARES
- ----------------------------------------------------------------
Management Fees 1.25% 1.25% 1.25%
...............................................................
Distribution and/or Service (12b-1)
Fees(1) 0.25% 1.00%(2) 1.00%(2)
...............................................................
Other Expenses(3) 0.55% 0.55% 0.55%
...............................................................
Total Annual Fund Operating
Expenses 2.05% 2.80% 2.80%
...............................................................
(1) CLASS A SHARES ARE SUBJECT TO AN ANNUAL SERVICE FEE OF UP TO 0.25% OF
THE AVERAGE DAILY NET ASSETS ATTRIBUTABLE TO SUCH CLASS OF SHARES.
CLASS B SHARES AND CLASS C SHARES ARE EACH SUBJECT TO A COMBINED
ANNUAL DISTRIBUTION AND SERVICE FEE OF UP TO 1.00% OF THE AVERAGE
DAILY NET ASSETS ATTRIBUTABLE TO SUCH CLASS OF SHARES. SEE "PURCHASE
OF SHARES."
(2) 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.
(3) "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% annual 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:
ONE THREE
YEAR YEARS
- -------------------------------------------------
Class A Shares $673 $1,087
................................................
Class B Shares $683 $1,168
................................................
Class C Shares $383 $ 868
................................................
You would pay the following expenses if you did not redeem your shares:
ONE THREE
YEAR YEARS
- -------------------------------------------------
Class A Shares $673 $1,087
................................................
Class B Shares $283 $ 868
................................................
Class C Shares $283 $ 868
................................................
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 by investing
primarily in debt securities of government, government-related and corporate
issuers located in emerging markets countries. 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 investment objective by investing at least 65% of the Fund's total assets in
a portfolio of debt securities of government and government-related issuers
located in emerging markets countries (including participations in loans between
governments and financial institutions) and of entities organized to restructure
outstanding debt of such issuers. 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 markets countries.
As used in this Prospectus, the term "emerging markets country" applies to any
country which, in
6
<PAGE>
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
markets countries will consist of (i) debt securities or obligations issued or
guaranteed by governments, governmental agencies or instrumentalities and
political subdivisions located in emerging markets countries (including
participations in loans between governments and financial institutions), (ii)
debt securities or obligations issued by government owned, controlled or
sponsored entities located in emerging markets countries and (iii) interests in
issuers organized and operated for the purpose of restructuring the investment
characteristics of instruments issued by any of the entities described above.
The 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 countries that are undervalued and have
attractive or improving fundamentals. After the country allocation is
determined, the sector and security selection is made within country.
The Fund's investment adviser global allocation team analyzes the global
economic environment and its impact on emerging markets. 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
markets country debt securities that provide a high level of current income,
while at the same time holding the potential for capital appreciation if the
perceived 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 markets 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 markets 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 markets 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
7
<PAGE>
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. The ratings assigned
by recognized ratings organizations represent their opinions of the quality of
the debt securities they undertake to rate, but not 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 markets 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 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 investment
adviser's assessment of the relative yield, appreciation potential and
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 of the Fund are
not fully invested or attractive investment opportunities are foregone.
In addition to the increased risks of investing in foreign issuers, there are
often increased transactions costs associated with investing in foreign
securities
8
<PAGE>
including the costs incurred in connection with converting currencies, higher
foreign brokerage or dealer costs, and higher settlement costs or custodial
costs.
Since the Fund invests in securities denominated or quoted in currencies other
than the U.S. dollar, the Fund will be affected by changes in foreign currency
exchange rates (and exchange control regulations) which affect the value of
investments in the Fund and the accrued income and unrealized appreciation or
depreciation of the investments. Changes in foreign currency exchange ratios
relative to the U.S. dollar will affect the U.S. dollar value of the Fund's
assets denominated in that currency and the Fund's yield on such assets 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'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. The Fund purchases and sells
foreign currency on a spot basis in connection with the settlement of
transactions in securities traded in such foreign currency. The Fund also may
enter into contracts with banks, brokers or dealers to purchase or sell 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 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 MARKETS COUNTRIES. The risks of
foreign investment are heightened when the issuer is from an emerging markets
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
markets countries tend to have economic structures that are less diverse and
mature and political systems that are less stable than developed markets.
Emerging markets 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 markets
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
9
<PAGE>
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 markets 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 markets 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 markets 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 emerging
countries. Economies in emerging markets 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 markets 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 markets 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 markets 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 markets
countries may be
10
<PAGE>
limited. Due to the limited market for these instruments in emerging markets
countries, the Fund's investment adviser does not currently anticipate that a
significant portion of the Funds' currency exposure in emerging markets
countries, if any, will be covered by such instruments.
Investors are strongly advised to consider carefully the special risks involved
in investing in emerging or developing 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 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
11
<PAGE>
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 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. 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
12
<PAGE>
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.
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 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.
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
13
<PAGE>
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 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 ("Loans") arranged
through private negotiations between an issuer of sovereign or corporate debt
obligations and one or more financial institutions ("Lenders"). The Fund's
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, 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 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 OTC 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 foreign
markets, 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
14
<PAGE>
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 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 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. Additionally, 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 temporary
substitute for purchasing or selling particular securities, including, for
example, when the Fund acts quickly to adjust 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 will limit its use of Strategic Transactions
to 50% of its total assets (measured by the aggregate notional amount of
outstanding derivative instruments), provided that no more than 33 1/3% of its
total assets are invested, for non-hedging purposes, in derivatives other than
futures and options on futures.
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. Additionally, amounts paid as premiums or cash or other assets held in
margin accounts with respect to
15
<PAGE>
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 which 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 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. Bank 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.
16
<PAGE>
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 of another open-end or closed-end investment
company, by purchase in the open market involving only customary brokers'
commissions or in connection with mergers, acquisitions of assets or
consolidations or as may otherwise be permitted by the 1940 Act. If the 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 investment adviser), but
also will indirectly bear similar expenses of the underlying investment
companies or investment funds.
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 otherwise. 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
may result in the realization of more short-term capital gains than if the Fund
had lower portfolio turnover. Increases the Fund's transaction costs would
impact the Fund's performance. The turnover rate will not be a limiting factor,
however, if the Fund's investment adviser considers portfolio changes
appropriate. The Fund, which has not commenced investment operations,
anticipates that its annual portfolio turnover will not exceed 100% under normal
circumstances.
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. The Fund may not achieve its
investment objective if it takes a defensive position.
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
17
<PAGE>
adviser and other service providers do not properly process and calculate
date-related information and data from and after January 1, 2000. This is
commonly known as the "Year 2000 Problem." The Fund's investment adviser 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 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 emerging or developing countries; because there is an increased
likelihood that issuers of securities of such countries cannot anticipate or
effectively manage the affects of computer programs and the Year 2000 Problem.
Accordingly, the Fund's investments may be adversely affected. The statements
above are subject to the Year 2000 Information and Readiness Disclosure Act
which Act may limit the legal rights regarding the use of such statements in the
case of a dispute.
INVESTMENT ADVISORY
SERVICES
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 $75 billion under management or supervision. Van
Kampen Investments' more than 50 open-end and 39 closed-end funds and more than
2,500 unit investment trusts are professionally distributed by leading financial
advisers nationwide. Van Kampen Funds Inc., the distributor of the Fund (the
"Distributor") and the sponsor of the funds mentioned above, is also a wholly
owned subsidiary of Van Kampen Investments. Van Kampen Investments is an
indirect wholly owned subsidiary of Morgan Stanley Dean Witter & Co. The
Adviser's principal office is located at 1 Parkview Plaza, PO Box 5555, Oakbrook
Terrace, Illinois 60181-5555.
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
18
<PAGE>
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.
From time to time, the Adviser or the Distributor may voluntarily undertake to
reduce the Fund's expenses by reducing the fees payable to them or by reducing
other expenses of the Fund in accordance with such limitations as the Adviser or
Distributor may establish.
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen 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
December 31, 1998, the Subadviser, together with its affiliated institutional
asset management companies, managed assets of approximately $163.4 billion,
including assets under fiduciary advice. The Subadviser's address is 1221 Avenue
of the Americas, New York, NY 10020.
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 percentage of
the net advisory fees the Adviser receives from the Fund.
-------------
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. Thomas L. Bennett, Stephen F. Esser and Abigail L. McKenna
have been responsible as co-managers for the day-to-day management of the Fund's
investment portfolio, since October 1998.
Mr. Bennett joined the Subadviser in 1996. Mr. Bennett has a B.S. degree
(Chemistry) and an M.B.A. from the University of Cincinnati.
Mr. Esser joined the Subadviser in 1996. Mr. Esser is a member of the New York
Society of Security Analysts and has a B.S. degree (Summa Cum Laude; Phi Beta
Kappa) from the University of Delaware.
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, Ms. McKenna 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
19
<PAGE>
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 (described below) pursuant to which its
distribution fee or service fee is paid, (iii) each class of shares has
different exchange privileges, (iv) certain classes of shares are subject to a
conversion feature and (v) certain classes of shares have different shareholder
service options available.
The 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.
Net asset value is calculated separately for each class of the Fund. The net
asset value per share of each class of shares is determined by dividing the
total fair market value of the investments and other assets attributable to such
class of shares, less all liabilities attributable to such class of shares, by
the total number of outstanding shares of such class of shares. Net asset value
per share of the Fund generally is determined once daily as of the regular close
of the New York Stock Exchange (the "Exchange") (currently, 4:00 p.m. Eastern
time) on each day that the Exchange is open for business. Securities listed on a
securities exchange for which market quotations are available are valued at
their closing price. If no closing price is available, such securities will be
valued at the last quoted sale price on the day the valuation is made. Price
information on listed securities is taken from the exchange where the security
is primarily traded. Unlisted securities and listed securities not traded on the
valuation date for which market quotations are 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.
20
<PAGE>
The value of other assets and securities for which no quotations are readily
available (including illiquid and unlisted foreign securities) and those
securities for which it is inappropriate to determine prices in accordance with
the above procedures are determined in good faith at fair value using methods
determined by the Board of Directors. 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. 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 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 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 on 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
21
<PAGE>
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 gains
distributions, 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
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 IMPOSES A
CONTINGENT DEFERRED SALES CHARGE OF 1.00% ON CERTAIN REDEMPTIONS MADE
WITHIN ONE YEAR OF THE PURCHASE. THE CONTINGENT DEFERRED SALES CHARGE
IS ASSESSED ON AN AMOUNT EQUAL TO THE LESSER OF THE THEN CURRENT
MARKET VALUE OR THE COST OF THE SHARES BEING REDEEMED. ACCORDINGLY, NO
SALES CHARGE IS IMPOSED ON INCREASES IN NET ASSET VALUE ABOVE THE
INITIAL PURCHASE PRICE.
No sales charge is imposed on Class A Shares received from reinvestment of
dividends or capital gains distributions.
Under the Distribution Plan and Service Plan, the Fund may spend a total of
0.25% per year of the 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.
22
<PAGE>
CLASS B SHARES
Class B Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge if redeemed within five years of purchase as shown in the
table as follows:
CLASS B SHARES
SALES CHARGE SCHEDULE
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 gains dividends. It
is presently the policy of the Distributor not to accept any order for Class B
Shares in an amount of $500,000 or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
The amount of the contingent deferred sales charge, if any, varies depending on
the number of years from the time of payment for the purchase of Class B Shares
until the time of redemption of such shares. Solely for purposes of determining
the number of years from the time of any payment for the purchase of shares, all
payments during a month are totaled and deemed to have been made on the last day
of the month.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed that the redemption is first of any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge and then of shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
average daily net assets with respect to the Class B Shares of the Fund. In
addition, under the Service Plan, the Fund may spend up to 0.25% per year of the
Fund's average daily net assets with respect to the Class B Shares for the
ongoing provision of services to Class B shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CLASS C SHARES
Class C Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge of 1.00% of the dollar amount subject to charge if
redeemed within one year of purchase.
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gains dividends. It
is presently the policy of the Distributor not to accept any order for Class C
Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
In determining whether a contingent deferred sales charge is applicable to a
redemption, it is assumed that the redemption is first of any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge and then of shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
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
23
<PAGE>
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 distributions constituting
"preferential dividends" under the federal income tax law and (ii) the
conversion of shares does not constitute a taxable event under federal income
tax law. The conversion may be suspended if such an opinion is no longer
available and such shares might continue to be subject to the higher aggregate
fees applicable to such shares for an indefinite period.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge is waived on redemptions of Class B Shares
and Class C Shares (i) within one year following the death or disability (as
disability is defined by federal income tax law) of a shareholder, (ii) for
required minimum distributions from an individual retirement account ("IRA") or
certain other retirement plan distributions, (iii) for withdrawals under the
Fund's systematic withdrawal plan but limited to 12% annually of the initial
value of the account, (iv) if no commission or transaction fee is paid to
authorized dealers at the time of purchase of such shares and (v) if made by
involuntary liquidation by the Fund of a shareholder's account as described
under the heading "Redemption of Shares." Subject to certain limitations, a
shareholder who has redeemed Class C Shares of the Fund may reinvest in Class C
Shares at net asset value with credit for any contingent deferred sales charge
if the reinvestment is within 180 days after the redemption. For a more complete
description of contingent deferred sales charge waivers, please refer to the
Fund's Statement of Additional Information or contact your authorized dealer.
QUANTITY DISCOUNTS
Investors purchasing Class A Shares may, under certain circumstances described
below, be entitled to pay reduced or no sales charges. Investors, or their
authorized dealers, must notify the Fund at the time of the purchase order
whenever a quantity discount is applicable to purchases. Upon such notification,
an investor will receive the lowest applicable sales charge. Quantity discounts
may be modified or terminated at any time. For more information about quantity
discounts, investors should contact their authorized dealer or the Distributor.
A person eligible for a reduced sales charge includes an individual, his or her
spouse and children under 21 years of age and any corporation, partnership or
sole proprietorship which is 100% owned, either alone or in combination, by any
of the foregoing; a trustee or other fiduciary purchasing for a single trust or
for a single fiduciary account, or a "company" as defined in Section 2(a)(8) of
the 1940 Act.
As used herein, "Participating Funds" refers to certain open-end investment
companies advised by Asset Management or Advisory Corp. and distributed by the
Distributor as determined from time to time by the Fund's Board of 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.
24
<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 trust distributions will be 1.00% of the offering
price (1.01% of net asset value). Of this amount, the Distributor will pay to
the authorized dealer, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the terms and conditions that apply to the program,
should contact their authorized dealer or the Distributor.
The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during each distribution period by all investors who choose to invest in
the Fund through the program and (2) provide Investor Services with appropriate
backup data for each investor participating in the program in a computerized
format fully compatible with Investor Services' processing system.
As further requirements for obtaining these special benefits, the Fund also
requires that all dividends and other distributions by the Fund be reinvested in
additional shares without any systematic withdrawal program. There will be no
minimum for reinvestments from unit investment trusts. The Fund will send
account activity statements to such participants on a quarterly basis only, even
if their investments are made more frequently. The Fund reserves the
25
<PAGE>
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 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
26
<PAGE>
as follows: 1.00% on sales to $2 million, plus 0.80% on the next $1
million, plus 0.50% on the next $47 million, plus 0.25% on the excess over
$50 million.
(9) Individuals who are members of a "qualified group." For this purpose, a
qualified group is one which (i) has been in existence for more than six
months, (ii) has a purpose other than to acquire shares of the Fund or
similar investments, (iii) has given and continues to give its endorsement
or authorization, on behalf of the group, for purchase of shares of the
Fund and Participating Funds, (iv) has a membership that the authorized
dealer can certify as to the group's members and (v) satisfies other
uniform criteria established by the Distributor for the purpose of
realizing economies of scale in distributing such shares. A qualified group
does not include one whose sole organizational nexus, for example, is that
its participants are credit card holders of the same institution, policy
holders of an insurance company, customers of a bank or broker-dealer,
clients of an investment adviser or other similar groups. Shares purchased
in each group's participants account in connection with this privilege will
be subject to a contingent deferred sales charge of 1.00% in the event of
redemption within one year of purchase, and a commission will be paid to
authorized dealers who initiate and are responsible for such sales to each
individual as follows: 1.00% on sales to $2 million, plus 0.80% on the next
$1 million and 0.50% on the excess over $3 million.
The term "families" includes a person's spouse, children under 21 years of age
and grandchildren, parents, and a person's spouse's parents.
Purchase orders made pursuant to clause (4) may be placed either through
authorized dealers as described above or directly with Investor Services by the
investment adviser, trust company or bank trust department, provided that
Investor Services receives federal funds for the purchase by the close of
business on the next business day following acceptance of the order. An
authorized dealer may charge a transaction fee for placing an order to purchase
shares pursuant to this provision or for placing a redemption order with respect
to such shares. Authorized dealers will be paid a service fee as described on
purchases made as described in (3) through (9) above. The Fund may terminate, or
amend the terms of, offering shares of the Fund at net asset value to such
groups at any time.
REDEMPTION OF
SHARES
Generally shareholders may redeem for cash some or all of their shares without
charge by the Fund (other than applicable sales charge) at any time. As
described under the heading "Purchase of Shares," redemptions of Class B Shares
and Class C Shares may be subject to a contingent deferred sales charge. In
addition, certain redemptions of Class A Shares for shareholder accounts of $1
million or more may be subject to a contingent deferred sales charge.
Redemptions completed through an authorized dealer or a custodian of a
retirement plan account may involve additional fees charged by the dealer or
custodian.
Except as specified below under "Telephone Redemption Requests," payment for
shares redeemed generally will be made by check mailed within seven days after
receipt by Investor Services of the request and any other necessary documents in
proper order. Such payment may be postponed or the right of redemption suspended
as provided by the rules of the SEC. Such payment may, under certain
circumstances, be paid wholly or in part by a distribution-in-kind of portfolio
securities. If the shares to be redeemed have been recently purchased by check,
Investor Services may delay the payment of redemption proceeds until it confirms
the purchase check has cleared, which may take up to 15 days. A taxable gain or
loss will be recognized by the shareholder upon redemption of shares.
WRITTEN REDEMPTION REQUESTS. Shareholders may request a redemption of shares by
written request in proper form sent directly to Van Kampen Investor Services
Inc., PO Box 218256, Kansas City, MO 64121-8256. The request for redemption
should indicate the number of shares to be redeemed, the class designation of
such shares and the shareholder's
27
<PAGE>
account number. The redemption request must be signed by all persons in whose
names the shares are registered. Signatures must conform exactly to the account
registration. If the proceeds of the redemption exceed $50,000, or if the
proceeds are not to be paid to the record owner at the record address, or if the
record address has changed within the previous 30 days, signature(s) must be
guaranteed by one of the following: a bank or trust company; a broker-dealer; a
credit union; a national securities exchange, registered securities association
or clearing agency; a savings and loan association; or a federal savings bank.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption to be in proper form. In some
cases, however, additional documents may be necessary. In the case of
shareholders holding certificates, the certificates for the shares being
redeemed properly endorsed for transfer must accompany the redemption request.
In the event the redemption is requested by a corporation, partnership, trust,
fiduciary, executor or administrator, and the name and title of the
individual(s) authorizing such redemption is not shown in the account
registration, a copy of the corporate resolution or other legal documentation
appointing the authorized signer and certified within the prior 120 days must
accompany the redemption request. IRA redemption requests should be sent to the
IRA custodian to be forwarded to Investor Services. Contact the IRA custodian
for further information.
In the case of written redemption requests sent directly to Investor Services,
the redemption price is the net asset value per share next determined after the
request in proper form is received by Investor Services.
AUTHORIZED DEALER REDEMPTION REQUESTS. Shareholders may place redemption
requests through an authorized dealer. Orders sent through authorized dealers
must be at least $500 (unless transmitted by your authorized dealer via the
FUNDSERV network). The redemption price for such shares is the net asset value
per share next calculated after an order in proper form is received by an
authorized dealer provided such order is transmitted to the Distributor prior to
the Distributor's close of business on such day. It is the responsibility of
authorized dealers to transmit redemption requests received by them to the
Distributor so they will be received prior to such time. Redemptions completed
through an authorized dealer may involve additional fees charged by the dealer.
TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. To establish
such privilege, a shareholder must complete the appropriate section of the
application form accompanying this prospectus or call the Fund at (800) 341-2911
to request that a copy of the Telephone Redemption Authorization form be sent to
them for completion. To redeem shares, contact the telephone transaction line at
(800) 421-5684. Van Kampen Investments, Investor Services and the Fund employ
procedures considered by them to be reasonable to confirm that instructions
communicated by telephone are genuine. Such procedures include requiring certain
personal identification information prior to acting upon telephone instructions,
tape-recording telephone communications and providing written confirmation of
instructions communicated by telephone. If reasonable procedures are employed,
neither Van Kampen Investments, Investor Services nor the Fund will be liable
for following telephone instructions which it reasonably believes to be genuine.
Telephone redemptions may not be available if the shareholder cannot reach
Investor Services by telephone, whether because all telephone lines are busy or
for any other reason; in such case, a shareholder would have to use the Fund's
other redemption procedure previously described. Requests received by Investor
Services prior to 4:00 p.m., New York time, will be processed at the next
determined net asset value per share. These privileges 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
28
<PAGE>
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 two kinds of return from the Fund: dividends and
capital gains 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 distribution
fees and transfer agency costs applicable to such classes of shares.
CAPITAL GAINS. The Fund may realize capital gains or losses when it sells
securities, depending on whether the sales prices for the securities are higher
or lower than purchase prices. Net realized capital gains represent the total
profit from sales of securities minus total losses from sales of securities
including losses carried forward from prior years. The Fund distributes any
taxable net realized capital gains to shareholders as capital gains dividends at
least annually. As in the case of dividends, capital gains dividends are
automatically reinvested in additional shares of the Fund at 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 gains distributions 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 gains
distribution. Unless the shareholder instructs otherwise, the reinvestment plan
is automatic. This instruction may be made by telephone by calling (800)
341-2911 ((800) 421-2833 for the hearing impaired) or by writing to Investor
Services. The investor may, on the initial application or prior to any
declaration, instruct that dividends be paid in cash and capital gains
distributions be reinvested at net asset value, or
29
<PAGE>
that both dividends and capital gains distributions be paid in cash.
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under which
a shareholder can authorize 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.
To be eligible for exchange, shares of the Fund must have been registered in the
shareholder's name for at least 30 days prior to an exchange. Shares of the Fund
registered in a shareholder's name for less than 30 days may only be exchanged
upon receipt of prior approval of the Adviser. It is the policy of the Adviser,
under normal circumstances, not to approve such requests.
When Class B Shares and Class C Shares are exchanged among Participating Funds,
the holding period for purposes of computing the contingent deferred sales
charge is based upon the date of the initial purchase of such shares from a
Participating Fund. If such Class B Shares or Class C Shares are redeemed and
not exchanged for shares of another Participating Fund, Class B Shares and Class
C Shares are subject to the contingent deferred sales charge schedule imposed by
the Participating Fund from which such shares were originally purchased.
Exchanges of shares are sales and may result in a gain or loss for federal
income tax purposes. If the shares exchanged have been held for less than 91
days, the sales charge paid on such shares is carried over and included in the
tax basis of the shares acquired.
A shareholder wishing to make an exchange may do so by sending a written request
to Investor Services or by contacting the telephone transaction line at (800)
421-5684. A shareholder automatically has telephone exchange privileges unless
otherwise designated in the application form accompanying the prospectus. Van
Kampen Investments, Investor Services and the Fund employ procedures considered
by them to be reasonable to confirm that instructions communicated by telephone
are genuine. Such procedures include requiring certain personal identification
information prior to acting upon telephone instructions, tape-recording
telephone communications, and providing written confirmation of instructions
communicated by telephone. If reasonable procedures are employed, neither Van
Kampen Investments, Investor Services nor the Fund will be liable for following
telephone instructions which it reasonably believes to be genuine. If the
exchanging shareholder does not have an account in the fund whose shares are
being acquired, a new account will be established with the same registration,
dividend and capital gains options (except dividend diversification) and
authorized dealer of record as the account from which shares are exchanged,
unless otherwise specified by the shareholder. In order to establish a
systematic withdrawal plan for the new account or reinvest dividends from the
new account into another fund, however, an exchanging shareholder must submit a
specific request. The Fund reserves the right to reject any order to acquire its
shares through exchange. In addition, the Fund and other Participating Funds may
restrict exchanges by shareholders engaged in excessive trading by limiting or
disallowing the exchange privileges to such shareholders. For further
information on these restrictions see the Statement of Additional Information.
The Fund may modify, restrict or terminate the exchange privilege at any time on
60 days' notice to its shareholders of any termination or material amendment.
For purposes of determining the sales charge rate previously paid on Class A
Shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchanged
30
<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 in the fund from which the
shareholder is withdrawing an investment will be redeemed at the net asset value
per share next determined on the date of receipt. Shares of the new fund into
which the shareholder is investing will also normally be purchased at the net
asset value per share, plus any applicable sales charge, next determined on the
date of receipt. Exchange requests received on a business day after the time
shares of the funds involved in the request are priced will be processed on the
next business day in the manner described herein.
A prospectus of any of these Participating Funds may be obtained from any
authorized dealer or the Distributor. An investor considering an exchange to one
of such funds should refer to the prospectus for additional information
regarding such fund prior to investing.
INTERNET TRANSACTIONS. In addition to performing transactions on your account
through written instruction or by telephone, you may also perform certain
transactions through the internet. Please refer to our web site at
www.vankampen.com for further instruction. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated through the internet are genuine. Such
procedures include requiring use of a personal identification number prior to
acting upon internet instructions and providing written confirmation of
instructions communicated through the internet. If reasonable procedures are
employed, neither Van Kampen Investments, Investor Services nor the Fund will be
liable for following instructions through the internet which it reasonably
believes to be genuine. If an account has multiple owners, Investor Services may
rely on the instructions of any one owner.
FEDERAL INCOME
TAXATION
Distributions of the Fund's net investment income (consisting generally of
taxable income and net short-term capital gains) are taxable to shareholders as
ordinary income to the extent of the Fund's earnings and profits, whether paid
in cash or reinvested in additional shares. Distributions of the Fund's net
capital gains (which are the excess of net long-term capital gains over net
short-term capital losses) as capital gain dividends, if any, are taxable to
shareholders as long-term capital gains, whether paid in cash or reinvested in
additional shares, and regardless of how long the shares of the Fund have been
held by such shareholders. Capital gains dividends may be taxed at different
rates depending on how long the Fund held the securities. The Fund expects that
its distributions will consist primarily of ordinary income and capital gains
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
31
<PAGE>
gain or loss will be a capital gain or loss. Any capital gains may be taxed at
different rates depending on how long the shareholder held such shares.
The Fund is required, in certain circumstances, to withhold 31% of dividends and
certain other payments, including redemptions, paid to shareholders who do not
furnish to the Fund their correct taxpayer identification number (in the case of
individuals, their social security number) and certain required certifications
or who are otherwise subject to backup withholding.
Foreign shareholders, including shareholders who are non-resident aliens, may be
subject to U.S. withholding tax on certain distributions (whether received in
cash or in shares) at a rate of 30% or such lower rate as prescribed by an
applicable treaty. Prospective foreign investors should consult their U.S. tax
advisers concerning the tax consequences to them of an investment in shares.
The Fund intends to qualify as a regulated investment company under federal
income tax law. If the Fund so qualifies and distributes each year to its
shareholders at least 90% of its net investment income, the Fund will not be
required to pay federal income taxes on any income it distributed to
shareholders. If the Fund distributes less than the sum of 98% of its ordinary
income and 98% of its capital gains 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, or disposing of
shares, as well as the effects of state, local and foreign tax law and any
proposed tax law changes.
32
<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 Philip 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
Edward C. Wood III*
VICE PRESIDENT
A. Thomas Smith III*
VICE PRESIDENT AND SECRETARY
Michael H. Santo*
VICE PRESIDENT
Peter W. Hegel*
VICE PRESIDENT
Stephen L. Boyd*
VICE PRESIDENT
Joseph P. Stadler*
VICE PRESIDENT
Curtis W. Morell*
VICE PRESIDENT & CHIEF ACCOUNTING OFFICER
Tanya M. Loden*
CONTROLLER
John L. Sullivan*
VICE PRESIDENT, CHIEF FINANCIAL OFFICER & TREASURER
* "Interested" persons of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2911
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders, or
redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call
(800) 421-2833
FUND INFO-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 , 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 Public
Reference Room in
Washington, DC or online
at the SEC's web site
(http://www.sec.gov).
For more information,
please call the SEC at
(800) SEC-0330. You can
also request these
materials by writing the
Public Reference Section
of the SEC, Washington
DC, 20549-6009, and
paying a duplication
fee.
[LOGO]
THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-7140.
EMD PRO 10/99
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THE FUND MAY NOT SELL THESE SECURITIES UNTIL THE POST-
EFFECTIVE AMENDMENT TO THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES.
SUBJECT TO COMPLETION -- DATED AUGUST 27, 1999
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
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 regulators, and
neither the SEC nor any
state regulator has passed
upon the accuracy or
adequacy of this
prospectus. Any
representation to the
contrary is a criminal
offense.
THIS PROSPECTUS IS DATED
OCTOBER , 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 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 management seeks to achieve the
investment objective by investing at least 65% of the Fund's total assets in a
non-diversified 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 in emerging markets. The Fund's investment approach combines
top-down country allocation with bottom-up stock selection. In selecting
securities for investment, the Fund's management focuses on those companies
offering attractive growth opportunities, reasonable valuations and managements
with a strong shareholder value orientation. The Fund may invest up to 35% of
its total assets in certain 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 or 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, including seeking to reduce or eliminate
foreign currency exchange risks associated with securities denominated in
non-U.S. dollars currencies.
INVESTMENT RISKS
An investment in the Fund is subject to investment risks, and you could lose
money on your investment in the Fund. There can be no assurance that the Fund
will achieve its investment 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
debt securities. Investments in debt securities generally are affected by
changes in interest rates and creditworthiness of the issuer. The market prices
of such securities tend to fall as interest rates rise, and such declines may be
greater among securities with longer maturities. Foreign markets may, but often
do not, move in tandem with changes in U.S. markets, and foreign markets,
especially emerging or developing markets, may have more price volatility than
U.S. markets. In addition, securities of emerging markets 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 (in which the Fund may invest) often fluctuate more and may
fall more than the prices of larger companies.
RISKS OF INVESTING IN EMERGING MARKETS 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 markets 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 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 such as imperfect
correlation between the value of the instruments and the underlying assets;
risks of default by the other party to certain transactions; risks that the
transactions may result in losses that partially or completely offset gains in
portfolio positions; risks that the transactions may not be liquid; and manager
risk.
NON-DIVERSIFICATION RISKS. The Fund is classified as a "non-diversified" fund,
which means the Fund may invest a greater portion of its assets in a more
limited number of issuers than a "diversified" fund. As a result, the Fund may
be subject to greater risk than a diversified fund because changes in the
financial condition or market assessment of a single issuer may cause greater
fluctuations in the value of the Fund's shares.
MANAGER RISK. As with any managed fund, the Fund's management may not be
successful in selecting the best-performing securities and the Fund's
performance may lag behind that of similar funds.
An investment in the Fund is not a deposit of any bank or other insured
depository institution. Your investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
INVESTOR PROFILE
In light of its objective and investment 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 issuers of emerging markets countries.
- - Can withstand substantial volatility in the value of their shares of the Fund.
- - Wish to add to their personal investment portfolio a fund that invests
primarily in a non-diversified portfolio of equity securities issued by
companies in emerging markets countries.
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 past 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>
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 management believes
is an applicable benchmark for the Fund. The Fund's performance figures include
the maximum sales charges paid by investors. The index performance figures do
not include 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 % %(3)
..........................................................
Van Kampen Emerging Markets Fund
- -- Class B Shares -30.48% -10.50% (2)
IFC Global Total Return Composite
Index % % (4)
..........................................................
Van Kampen Emerging Markets Fund
- -- Class C Shares -27.52% -9.60 (1)
IFC Global Total Return Composite
Index % % (3)
..........................................................
INCEPTION DATES: (1) 7/6/94, (2) 8/1/95, (3) , (4)
.
* THE IFC GLOBAL TOTAL RETURN COMPOSITE INDEX IS AN
UNMANAGED INDEX OF COMMON STOCKS AND INCLUDES DEVELOPING
COUNTRIES IN LATIN AMERICA, EAST AND SOUTH ASIA, EUROPE,
THE MIDDLE EAST AND AFRICA (ASSUMING DIVIDENDS ARE
REINVESTED).
5
<PAGE>
FEES AND EXPENSES
OF THE FUNDS
These tables describe the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
- ----------------------------------------------------------------
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 (as a
percentage of offering price) None None None
...............................................................
Redemption fees (as a percentage of
amount redeemed) None None None
...............................................................
Exchange fee None None None
...............................................................
(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 AND 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."
ANNUAL FUND
OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
- ----------------------------------------------------------------
Management Fees(1) 1.25% 1.25% 1.25%
...............................................................
Distribution and/or Service (12b-1)
Fees(2) 0.25% 1.00%(3) 1.00%(3)
...............................................................
Other Expenses(1) 1.06% 1.06% 1.06%
...............................................................
Total Annual Fund Operating
Expenses(1) 2.56% 3.31% 3.31%
...............................................................
(1) 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
REIMBURSEMENTS CAN BE TERMINATED AT ANY TIME.
(2) 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."
(3) 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% annual 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:
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
- -----------------------------------------------------------------
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
................................................................
6
<PAGE>
You would pay the following expenses if you did not redeem your shares:
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
- -----------------------------------------------------------------
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
................................................................
* 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 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 investment objective by investing at least 65% of the Fund's total assets in
a non-diversified 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
markets country or (iii) that derive 50% or more of their total revenues from
either goods produced, sales made or services performed in emerging countries.
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 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.
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 an emerging or developing
country 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.
7
<PAGE>
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 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 security 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 debt securities when the
Fund's investment adviser believes such investments offer opportunities for
capital appreciation, including (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
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 further description of
securities ratings, see the appendix to this prospectus. 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. 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.
8
<PAGE>
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 additional fees
such as management and other fees.
The Fund may invest in issuers of any capitalization range. The securities of
small- to 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 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-sized companies.
RISKS OF INVESTING IN
SECURITIES OF FOREIGN ISSUERS
The Fund 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 investment
adviser's assessment of the relative yield, appreciation potential and
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 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 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.
Since the Fund invests in securities denominated or quoted in currencies other
than the U.S. dollar, the Fund will be affected by changes in foreign currency
exchange rates (and exchange control regulations) which affect the value of
investments in the Fund and the accrued income and unrealized appreciation or
depreciation of the investments. Changes in foreign currency exchange ratios
relative to the U.S. dollar will affect the U.S. dollar value of the Fund's
assets denominated in that currency and the Fund's yield on such assets 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.
9
<PAGE>
The 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. The Fund purchases and sells
foreign currency on a spot basis in connection with the settlement of
transactions in securities traded in such foreign currency. The Fund also may
enter into contracts with banks, brokers or dealers to purchase or sell 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 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 MARKETS COUNTRIES. The risks of
foreign investment are heightened when the issuer is from an emerging markets
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
markets countries tend to have economic structures that are less diverse and
mature and political systems that are less stable than developed markets.
Emerging markets 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 markets
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 markets 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
10
<PAGE>
emerging markets 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 markets 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 emerging
countries. Economies in emerging markets 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 markets 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 markets 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 markets 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 markets
countries may be limited. Due to the limited market for these instruments in
emerging markets countries, the Fund's investment adviser does not currently
anticipate that a significant portion of the Funds' currency exposure in
emerging markets countries, if any, will be covered by such instruments.
Investors are strongly advised to consider carefully the special risks involved
in investing in emerging or developing 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 investment adviser seeks to use the
practices to further the
11
<PAGE>
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. Additionally, 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 temporary
substitute for purchasing or selling particular securities, including, for
example, when the Fund acts to quickly adjust 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). Additionally, 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. Additionally, 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 which can be
obtained by
12
<PAGE>
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 otherwise. The Fund's portfolio turnover is shown under the heading
"Financial Highlights." The portfolio turnover rate may be expected to vary from
year to year. A high portfolio turnover rate (100% or more) increases the Fund's
transactions costs, including brokerage commissions or dealer costs, and may
result in the realization of more short-term capital gains than if the Fund had
lower portfolio turnover. Increases in the Fund's transaction costs would impact
the Fund's performance. The turnover rate will not be a limiting factor,
however, if the Fund's investment adviser considers portfolio changes
appropriate.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Fund may hold cash or invest on a temporary basis 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. The Fund may not
achieve its investment objective if it takes a defensive position.
YEAR 2000 RISKS. Like other mutual funds, financial and business organizations
and individuals around the world, the Fund could be adversely affected if the
computer systems used by the Fund's investment adviser and other service
providers do not properly process and calculate date-related information and
data from and after January 1, 2000. This is commonly known as the "Year 2000
Problem." The Fund's investment adviser is taking steps that it believes are
reasonably designed to address the Year 2000 Problem with respect to computer
systems that it uses and to obtain reasonable assurances that comparable steps
are being taken by the Fund's other major service providers. At this time, there
can be no assurances that these steps will be sufficient to avoid any adverse
impact to the Fund. In addition, the Year 2000 Problem may adversely affect the
markets and the issuers of securities in which the Fund may invest which, in
turn, may adversely affect the net asset value of the Fund. Improperly
functioning trading systems may result in settlement problems and liquidity
issues. In addition, corporate and governmental data processing errors may
result in production problems for individual companies or issuers and overall
economic uncertainty. Earnings of individual issuers will be affected by
remediation
13
<PAGE>
costs, which may be substantial and may be reported inconsistently in U.S. and
foreign financial statements. Efforts in foreign countries to remediate
potential Year 2000 problems 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 emerging or developing countries because
there is an increased likelihood that issuers of securities of such countries
cannot anticipate or effectively manage the affects of computer 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 Act 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 $75 billion under management or supervision. Van
Kampen Investments' more than 50 open-end and 39 closed-end funds and more than
2,500 unit investment trusts are professionally distributed by leading financial
advisers nationwide. Van Kampen Funds Inc., the distributor of the Fund (the
"Distributor") and the sponsor of the funds mentioned above, is also a wholly
owned subsidiary of Van Kampen Investments. Van Kampen Investments is an
indirect wholly owned subsidiary of Morgan Stanley Dean Witter & Co. The
Adviser's principal office is located at 1 Parkview Plaza, PO Box 5555, Oakbrook
Terrace, Illinois 60181-5555.
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 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.
From time to time, the Adviser or the Distributor may voluntarily undertake to
reduce the Fund's expenses by reducing the fees payable to them or by reducing
other expenses of the Fund in accordance with such limitations as the Adviser or
Distributor may establish.
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen Asset Management
Inc. ("Asset Management").
INVESTMENT SUBADVISER
Morgan Stanley Dean Witter Investment Management Inc. (the "Subadviser") is the
Subadviser of the Fund. The Subadvisor is a wholly owned subsidiary
14
<PAGE>
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 December 31, 1998, the Subadviser, together with its affiliated
institutional asset management companies, managed assets of approximately $163.4
billion, including assets under fiduciary advice. The Subadvisor's address is
1221 Avenue of the Americas, New York, New York 10020.
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 percentage of
the net advisory fees the Adviser receives from the Fund.
-------------
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 co-managers responsible
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 co-manager 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 co-manager
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 (described below) pursuant to which its
distribution fee or service fee is paid, (iii) each class of shares has
different exchange privileges, (iv) certain classes of shares are subject to a
conversion feature and (v) certain classes of shares have different shareholder
service options available.
The 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
15
<PAGE>
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 a 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 in which no purchase or redemption orders are
received or there is not a sufficient degree of trading in a 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 values per share and adjust the offering price more frequently than once a
day if deemed desirable. Net asset value per share for each class is determined
by dividing the value of a 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 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. 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 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
16
<PAGE>
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 on 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 gains
distributions, 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
AS % OF AS % OF
SIZE OF OFFERING NET AMOUNT
INVESTMENT PRICE INVESTED
- ---------------------------------------------------------
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 * *
........................................................
* NO SALES CHARGE IS PAYABLE AT THE TIME OF PURCHASE ON INVESTMENTS OF
$1 MILLION OR MORE, ALTHOUGH FOR SUCH INVESTMENTS THE FUND IMPOSES A
CONTINGENT DEFERRED SALES CHARGE OF 1.00% ON CERTAIN REDEMPTIONS MADE
WITHIN ONE YEAR OF THE PURCHASE. THE CONTINGENT DEFERRED SALES CHARGE
IS ASSESSED ON AN AMOUNT EQUAL TO THE LESSER OF THE THEN CURRENT
MARKET VALUE OR THE COST OF THE SHARES BEING REDEEMED. ACCORDINGLY, NO
SALES CHARGE IS IMPOSED ON INCREASES IN NET ASSET VALUE ABOVE THE
INITIAL PURCHASE PRICE.
No sales charge is imposed on Class A Shares received from reinvestment of
dividends or capital gains distributions.
17
<PAGE>
Under the Distribution Plan and Service Plan, the Fund may spend a total of
0.25% per year of the average daily net assets with respect to the Class A
Shares of the Fund. From such amount, under the Service Plan, the Fund may spend
up to 0.25% per year of the Fund's average daily net assets with respect to the
Class A Shares for the ongoing provision of services to Class A shareholders by
the Distributor and by brokers, dealers or financial intermediaries and for the
maintenance of such shareholders' accounts.
CLASS B SHARES
Class B Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge if redeemed within five years of purchase as shown in the
table as follows:
CLASS B SHARES
SALES CHARGE SCHEDULE
CONTINGENT
DEFERRED
SALES CHARGE
AS A PERCENTAGE OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
- -------------------------------------------------------
First 5.00%
......................................................
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 gains dividends. It
is presently the policy of the Distributor not to accept any order for Class B
Shares in an amount of $500,000 or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
The amount of the contingent deferred sales charge, if any, varies depending on
the number of years from the time of payment for the purchase of Class B Shares
until the time of redemption of such shares. Solely for purposes of determining
the number of years from the time of any payment for the purchase of shares, all
payments during a month are totaled and deemed to have been made on the last day
of the month.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed that the redemption is first of any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge and then of shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
average daily net assets with respect to the Class B Shares of the Fund. In
addition, under the Service Plan, the Fund may spend up to 0.25% per year of the
Fund's average daily net assets with respect to the Class B Shares for the
ongoing provision of services to Class B shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CLASS C SHARES
Class C Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge of 1.00% of the dollar amount subject to charge if
redeemed within one year of purchase.
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gains 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 is applicable to a
redemption, it is assumed that the redemption is first of any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge and then of shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
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 distributions constituting
"preferential dividends" under the federal income tax law and (ii) the
conversion of shares does not constitute a taxable event under federal income
tax law. The conversion may be suspended if such an opinion is no longer
available and such shares might continue to be subject to the higher aggregate
fees applicable to such shares for an indefinite period.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge is waived on redemptions of Class B Shares
and Class C Shares (i) within one year following the death or disability (as
disability is defined by federal income tax law) of a shareholder, (ii) for
required minimum distributions from an individual retirement account ("IRA") or
certain other retirement plan distributions, (iii) for withdrawals under the
Fund's systematic withdrawal plan but limited to 12% annually of the initial
value of the account, (iv) if no commission or transaction fee is paid to
authorized dealers at the time of purchase of such shares and (v) if made by
involuntary liquidation by the Fund of a shareholder's account as described
under the heading "Redemption of Shares." Subject to certain limitations, a
shareholder who has redeemed Class C Shares of the Fund may reinvest in Class C
Shares at net asset value with credit for any contingent deferred sales charge
if the reinvestment is within 180 days after the redemption. For a more complete
description of contingent deferred sales charge waivers, please refer to the
Fund's Statement of Additional Information or contact your authorized dealer.
QUANTITY DISCOUNTS
Investors purchasing Class A Shares may, under certain circumstances described
below, be entitled to pay reduced or no sales charges. Investors, or their
authorized dealers, must notify the Fund at the time of the purchase order
whenever a quantity discount is applicable to purchases. Upon such notification,
an investor will receive the lowest applicable sales charge. Quantity discounts
may be modified or terminated at any time. For more information about quantity
discounts, investors should contact their authorized dealer or the Distributor.
A person eligible for a reduced sales charge includes an individual, his or her
spouse and children under 21 years of age and any corporation, partnership or
sole proprietorship which is 100% owned, either alone or in combination, by any
of the foregoing; a trustee or other fiduciary purchasing for a single
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 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
20
<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.
As further requirements for obtaining these special benefits, the Fund also
requires that all dividends and other distributions by the Fund be reinvested in
additional shares without any systematic withdrawal program. There will be no
minimum for reinvestments from unit investment trusts. The Fund will send
account activity statements to such participants on a quarterly basis only, even
if their investments are made more frequently. The Fund reserves the right to
modify or terminate this program at any time.
NET ASSET VALUE PURCHASE OPTIONS. Class A Shares of the Fund may be purchased at
net asset value, upon written assurance that the purchase is made for investment
purposes and that the shares will not be resold except through redemption by the
Fund, by:
(1) Current or retired trustees or directors of funds advised by Morgan Stanley
Dean Witter & Co. and any of its subsidiaries and such persons' families
and their beneficial accounts.
(2) Current or retired directors, officers and employees of Morgan Stanley Dean
Witter & Co. and any of its subsidiaries, employees of an investment
subadviser to any fund described in (1) above or an affiliate of such
subadviser, and such persons' families and their beneficial accounts.
(3) Directors, officers, employees and, when permitted, registered
representatives, of financial institutions that have a selling group
agreement with the Distributor and their spouses and children under 21
years of age when purchasing for any accounts they beneficially own, or, in
the case of any such financial institution, when purchasing for retirement
plans for such institution's employees; provided that such purchases are
otherwise permitted by such institutions.
(4) Registered investment advisers who charge a fee for their services, trust
companies and bank trust departments investing on their own behalf or on
behalf of their clients. The Distributor may pay authorized dealers through
which purchases are made an amount up to 0.50% of the amount invested, over
a 12-month period.
(5) Trustees and other fiduciaries purchasing shares for retirement plans which
invest in multiple fund families through broker-dealer retirement plan
alliance programs that have entered into agreements with the Distributor
and which are subject to certain minimum size and operational requirements.
Trustees and other fiduciaries should refer to the Statement of Additional
Information for further details with respect to such alliance programs.
(6) Beneficial owners of shares of Participating Funds held by a retirement
plan or held in a tax-advantaged retirement account who purchase shares of
the Fund with proceeds from distributions from such a plan or retirement
account other than distributions taken to correct an excess contribution.
(7) Accounts as to which a bank or broker-dealer charges an account management
fee ("wrap accounts"), provided the bank or broker-dealer has a separate
agreement with the Distributor.
(8) Trusts created under pension, profit sharing or other employee benefit
plans qualified under Section 401(a) of the Internal Revenue Code of 1986,
as amended (the "Code"), or custodial accounts held by a bank created
pursuant to Section 403(b) of the Code and sponsored by nonprofit
organizations defined under Section 501(c)(3) of the Code and assets held
by an employer or trustee in connection with an eligible deferred
compensation plan under Section 457 of the Code. Such plans will qualify
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
21
<PAGE>
asset value for accounts established on or before May 1, 1997. Section
403(b) and similar accounts for which Van Kampen Trust Company serves as
custodian will not be eligible for net asset value purchases based on the
aggregate investment made by the plan or the number of eligible employees,
except under certain uniform criteria established by the Distributor from
time to time. Prior to February 1, 1997, a commission will be paid to
authorized dealers who initiate and are responsible for such purchases
within a rolling twelve- month period as follows: 1.00% on sales to $5
million, plus 0.50% on the next $5 million, plus 0.25% on the excess over
$10 million. For purchases on February 1, 1997 and thereafter, a commission
will be paid as follows: 1.00% on sales to $2 million, plus 0.80% on the
next $1 million, plus 0.50% on the next $47 million, plus 0.25% on the
excess over $50 million.
(9) Individuals who are members of a "qualified group." For this purpose, a
qualified group is one which (i) has been in existence for more than six
months, (ii) has a purpose other than to acquire shares of the Fund or
similar investments, (iii) has given and continues to give its endorsement
or authorization, on behalf of the group, for purchase of shares of the
Fund and Participating Funds, (iv) has a membership that the authorized
dealer can certify as to the group's members and (v) satisfies other
uniform criteria established by the Distributor for the purpose of
realizing economies of scale in distributing such shares. A qualified group
does not include one whose sole organizational nexus, for example, is that
its participants are credit card holders of the same institution, policy
holders of an insurance company, customers of a bank or broker-dealer,
clients of an investment adviser or other similar groups. Shares purchased
in each group's participants account in connection with this privilege will
be subject to a contingent deferred sales charge of 1.00% in the event of
redemption within one year of purchase, and a commission will be paid to
authorized dealers who initiate and are responsible for such sales to each
individual as follows: 1.00% on sales to $2 million, plus 0.80% on the next
$1 million and 0.50% on the excess over $3 million.
The term "families" includes a person's spouse, children under 21 years of age
and grandchildren, parents, and a person's spouse's parents.
Purchase orders made pursuant to clause (4) may be placed either through
authorized dealers as described above or directly with Investor Services by the
investment adviser, trust company or bank trust department, provided that
Investor Services receives federal funds for the purchase by the close of
business on the next business day following acceptance of the order. An
authorized dealer may charge a transaction fee for placing an order to purchase
shares pursuant to this provision or for placing a redemption order with respect
to such shares. Authorized dealers will be paid a service fee as described on
purchases made as described in (3) through (9) above. The Fund may terminate, or
amend the terms of, offering shares of the Fund at net asset value to such
groups at any time.
REDEMPTION OF
SHARES
Generally shareholders may redeem for cash some or all of their shares without
charge by the Fund (other than applicable sales charge) at any time. As
described under the heading "Purchase of Shares," redemptions of Class B Shares
and Class C Shares may be subject to a contingent deferred sales charge. In
addition, certain redemptions of Class A Shares for shareholder accounts of $1
million or more may be subject to a contingent deferred sales charge.
Redemptions completed through an authorized dealer or a custodian of a
retirement plan account may involve additional fees charged by the dealer or
custodian.
Except as specified below under "Telephone Redemption Requests," payment for
shares redeemed generally will be made by check mailed within seven days after
receipt by Investor Services of the request and any other necessary documents in
proper order. Such payment may be postponed or the right of redemption suspended
as provided by the rules of the SEC. Such payment may, under
22
<PAGE>
certain circumstances, be paid wholly or in part by a distribution-in-kind of
portfolio securities. If the shares to be redeemed have been recently purchased
by check, Investor Services may delay the payment of redemption proceeds until
it confirms the purchase check has cleared, which may take up to 15 days. A
taxable gain or loss will be recognized by the shareholder upon redemption of
shares.
WRITTEN REDEMPTION REQUESTS. Shareholders may request a redemption of shares by
written request in proper form sent directly to Van Kampen Investor Services
Inc., PO Box 218256, Kansas City, MO 64121-8256. The request for redemption
should indicate the number of shares to be redeemed, the class designation of
such shares and the shareholder's account number. The redemption request must be
signed by all persons in whose names the shares are registered. Signatures must
conform exactly to the account registration. If the proceeds of the redemption
exceed $50,000, or if the proceeds are not to be paid to the record owner at the
record address, or if the record address has changed within the previous 30
days, signature(s) must be guaranteed by one of the following: a bank or trust
company; a broker-dealer; a credit union; a national securities exchange,
registered securities association or clearing agency; a savings and loan
association; or a federal savings bank.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption to be in proper form. In some
cases, however, additional documents may be necessary. In the case of
shareholders holding certificates, the certificates for the shares being
redeemed properly endorsed for transfer must accompany the redemption request.
In the event the redemption is requested by a corporation, partnership, trust,
fiduciary, executor or administrator, and the name and title of the
individual(s) authorizing such redemption is not shown in the account
registration, a copy of the corporate resolution or other legal documentation
appointing the authorized signer and certified within the prior 120 days must
accompany the redemption request. IRA redemption requests should be sent to the
IRA custodian to be forwarded to Investor Services. Contact the IRA custodian
for further information.
In the case of written redemption requests sent directly to Investor Services,
the redemption price is the net asset value per share next determined after the
request in proper form is received by Investor Services.
AUTHORIZED DEALER REDEMPTION REQUESTS. Shareholders may place redemption
requests through an authorized dealer. Orders sent through authorized dealers
must be at least $500 (unless transmitted by your authorized dealer via the
FUNDSERV network). The redemption price for such shares is the net asset value
per share next calculated after an order in proper form is received by an
authorized dealer provided such order is transmitted to the Distributor prior to
the Distributor's close of business on such day. It is the responsibility of
authorized dealers to transmit redemption requests received by them to the
Distributor so they will be received prior to such time. Redemptions completed
through an authorized dealer may involve additional fees charged by the dealer.
TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. To establish
such privilege, a shareholder must complete the appropriate section of the
application form accompanying this prospectus or call the Fund at (800) 341-2911
to request that a copy of the Telephone Redemption Authorization form be sent to
them for completion. To redeem shares, contact the telephone transaction line at
(800) 421-5684. Van Kampen Investments, Investor Services and the Fund employ
procedures considered by them to be reasonable to confirm that instructions
communicated by telephone are genuine. Such procedures include requiring certain
personal identification information prior to acting upon telephone instructions,
tape-recording telephone communications and providing written confirmation of
instructions communicated by telephone. If reasonable procedures are employed,
neither Van Kampen Investments, Investor Services nor the Fund will be liable
for following telephone instructions which it reasonably believes to be genuine.
Telephone redemptions may not be available if the shareholder cannot reach
Investor Services by telephone, whether because all telephone lines are busy or
for any other
23
<PAGE>
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 two kinds of return from the Fund: dividends and
capital gains 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 GAINS. The Fund may realize capital gains or losses when it sells
securities, depending on whether the sales prices for the securities are higher
or lower than purchase prices. Net realized capital gains represent the total
profit from sales of securities minus total losses from sales of securities
including losses carried forward from prior years. The Fund distributes any
taxable net realized capital gains to shareholders as capital gains dividends at
least annually. As in the case of dividends, capital gains dividends are
automatically reinvested in additional shares of the Fund at 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.
24
<PAGE>
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gains distributions in shares of
the Fund. Such shares are acquired at net asset value per share (without sales
charge) on the applicable payable date of the dividend or capital gains
distribution. Unless the shareholder instructs otherwise, the reinvestment plan
is automatic. This instruction may be made by telephone by calling (800)
341-2911 ((800) 421-2833 for the hearing impaired) or by writing to Investor
Services. The investor may, on the initial application or prior to any
declaration, instruct that dividends be paid in cash and capital gains
distributions be reinvested at net asset value, or that both dividends and
capital gains distributions be paid in cash.
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under which
a shareholder can authorize 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.
To be eligible for exchange, shares of the Fund must have been registered in the
shareholder's name for at least 30 days prior to an exchange. Shares of the Fund
registered in a shareholder's name for less than 30 days may only be exchanged
upon receipt of prior approval of the Adviser. It is the policy of the Adviser,
under normal circumstances, not to approve such requests.
When Class B Shares and Class C Shares are exchanged among Participating Funds,
the holding period for purposes of computing the contingent deferred sales
charge is based upon the date of the initial purchase of such shares from a
Participating Fund. If such Class B Shares or Class C Shares are redeemed and
not exchanged for shares of another Participating Fund, Class B Shares and Class
C Shares are subject to the contingent deferred sales charge schedule imposed by
the Participating Fund from which such shares were originally purchased.
Exchanges of shares are sales and may result in a gain or loss for federal
income tax purposes. If the shares exchanged have been held for less than 91
days, the sales charge paid on such shares is carried over and included in the
tax basis of the shares acquired.
A shareholder wishing to make an exchange may do so by sending a written request
to Investor Services or by contacting the telephone transaction line at (800)
421-5684. A shareholder automatically has telephone exchange privileges unless
otherwise designated in the application form accompanying the prospectus. Van
Kampen Investments, Investor Services and the Fund employ procedures considered
by them to be reasonable to confirm that instructions communicated by telephone
are genuine. Such procedures include requiring certain personal identification
information prior to acting upon telephone instructions, tape-recording
telephone communications, and providing written confirmation of instructions
communicated by telephone. If reasonable procedures are employed, neither Van
Kampen Investments, Investor Services nor the Fund will be liable for following
telephone instructions which it reasonably believes to be genuine. If the
exchanging shareholder does not have an account in the fund whose shares are
being acquired, a new account will be established with the same registration,
dividend and capital gains options (except dividend diversification) and
authorized dealer of record as the account from which shares are exchanged,
unless otherwise specified by the shareholder. In order to establish a
systematic withdrawal plan for the new account or reinvest dividends from the
new account into another fund, however, an exchanging shareholder must submit a
specific request. The Fund reserves the right to reject any order to acquire its
shares through exchange. In addition, the Fund and other
25
<PAGE>
Participating Funds may restrict exchanges by shareholders engaged in excessive
trading by limiting or disallowing the exchange privileges to such shareholders.
For further information on these restrictions see the Statement of Additional
Information. The Fund may modify, restrict or terminate the exchange privilege
at any time on 60 days' notice to its shareholders of any termination or
material amendment.
For purposes of determining the sales charge rate previously paid on Class A
Shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchanged security was acquired through reinvestment, that
security is deemed to have been sold with a sales charge rate equal to the rate
previously paid on the security on which the dividend or distribution was paid.
If a shareholder exchanges less than all of such shareholder's securities, the
security upon which the highest sales charge rate was previously paid is deemed
exchanged first.
Exchange requests received on a business day prior to the time shares of the
funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares in the fund from which the
shareholder is withdrawing an investment will be redeemed at the net asset value
per share next determined on the date of receipt. Shares of the new fund into
which the shareholder is investing will also normally be purchased at the net
asset value per share, plus any applicable sales charge, next determined on the
date of receipt. Exchange requests received on a business day after the time
shares of the funds involved in the request are priced will be processed on the
next business day in the manner described herein.
A prospectus of any of these Participating Funds may be obtained from any
authorized dealer or the Distributor. An investor considering an exchange to one
of such funds should refer to the prospectus for additional information
regarding such fund prior to investing.
INTERNET TRANSACTIONS. In addition to performing transactions on your account
through written instruction or by telephone, you may also perform certain
transactions through the internet. Please refer to our web site at
www.vankampen.com for further instruction. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated through the internet are genuine. Such
procedures include requiring use of a personal identification number prior to
acting upon internet instructions and providing written confirmation of
instructions communicated through the internet. If reasonable procedures are
employed, neither Van Kampen Investments, Investor Services nor the Fund will be
liable for following instructions through the internet which it reasonably
believes to be genuine. If an account has multiple owners, Investor Services may
rely on the instructions of any one owner.
FEDERAL INCOME
TAXATION
Distributions of the Fund's net investment income (consisting generally of
taxable income and net short-term capital gains) are taxable to shareholders as
ordinary income to the extent of the Fund's earnings and profits, whether paid
in cash or reinvested in additional shares. Distributions of the Fund's net
capital gains (which are the excess of net long-term capital gains over net
short-term capital losses) as capital gain dividends, if any, are taxable to
shareholders as long-term capital gains, whether paid in cash or reinvested in
additional shares, and regardless of how long the shares of the Fund have been
held by such shareholders. Capital gains dividends may be taxed at different
rates depending on how long the Fund held the securities. The Fund expects that
its distributions will consist primarily of ordinary income and capital gains
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
26
<PAGE>
and paid during January of the following year will be treated as having been
distributed by the Fund and received by the shareholders on the December 31st
prior to the date of payment. The Fund will inform shareholders of the source
and tax status of all distributions promptly after the close of each calendar
year.
The sale or exchange of shares is a taxable transaction for federal income tax
purposes. Shareholders who sell their shares will generally recognize gain or
loss in an amount equal to the difference between their adjusted tax basis in
the shares and the amount received. If the shares are held as a capital asset,
the gain or loss will be a capital gain or loss. Any capital gains may be taxed
at different rates depending on how long the shareholder held such shares.
The Fund is required, in certain circumstances, to withhold 31% of dividends and
certain other payments, including redemptions, paid to shareholders who do not
furnish to the Fund their correct taxpayer identification number (in the case of
individuals, their social security number) and certain required certifications
or who are otherwise subject to backup withholding.
Foreign shareholders, including shareholders who are non-resident aliens, may be
subject to U.S. withholding tax on certain distributions (whether received in
cash or in shares) at a rate of 30% or such lower rate as prescribed by an
applicable treaty. Prospective foreign investors should consult their U.S. tax
advisers concerning the tax consequences to them of an investment in shares.
The Fund intends to qualify as a regulated investment company under federal
income tax law. If the Fund so qualifies and distributes each year to its
shareholders at least 90% of its net investment income, the Fund will not be
required to pay federal income taxes on any income it distributed to
shareholders. If the Fund distributes less than the sum of 98% of its ordinary
income and 98% of its capital gains 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, or disposing 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+ TO
1999# 1998# 1997 JUNE 30, 1996
- ------------------------------------------------------------
<S> <C> <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
- ------------------------------------------------------------
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 Philip 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
Edward C. Wood III*
VICE PRESIDENT
A. Thomas Smith III*
VICE PRESIDENT AND SECRETARY
Michael H. Santo*
VICE PRESIDENT
Peter W. Hegel*
VICE PRESIDENT
Stephen L. Boyd*
VICE PRESIDENT
Joseph P. Stadler*
VICE PRESIDENT
Curtis W. Morell*
VICE PRESIDENT & CHIEF ACCOUNTING OFFICER
Tanya M. Loden*
CONTROLLER
John L. Sullivan*
VICE PRESIDENT, CHIEF FINANCIAL OFFICER & TREASURER
* "Interested" persons of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2911
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders, or
redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call
(800) 421-2833
FUND INFO-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 , 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 Public
Reference Room in
Washington, DC or online
at the SEC's web site
(http://www.sec.gov).
For more information,
please call the SEC at
(800) SEC-0330. You can
also request these
materials by writing
the Public Reference
Section of the SEC,
Washington DC,
20549-6009, and paying a
duplication fee.
[LOGO]
THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-7140.
MSEM PRO 10/99
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THE FUND MAY NOT SELL THESE SECURITIES UNTIL THE POST-
EFFECTIVE AMENDMENT TO THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES.
SUBJECT TO COMPLETION -- DATED AUGUST 27, 1999
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 regulators, and
neither the SEC nor any
state regulator has passed
upon the accuracy or
adequacy of this
prospectus. Any
representation to the
contrary is a criminal
offense.
THIS PROSPECTUS IS DATED
OCTOBER , 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
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 management seeks to achieve the
investment objective by investing at least 65% of the Fund's total assets in a
diversified 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 generally invests in medium- and
large-capitalization companies with market capitalizations of $1 billion or more
at the time of investment, but also may invest in smaller-capitalization
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. The Fund may invest up to 25% of its total assets 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.
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 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. 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 such as imperfect
correlation between the value of the instruments and the underlying assets;
risks of default by the other party to certain transactions; risks that the
transactions may result in losses that partially or completely offset gains in
portfolio positions; risks that the transactions may not be liquid; and manager
risk.
MANAGER RISK. As with any managed fund, the Fund's management may not be
successful in selecting the best-performing securities and the Fund's
performance may lag behind that of similar funds.
An investment in the Fund is not a deposit of any bank or other insured
depository institution. Your
3
<PAGE>
investment is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
INVESTOR PROFILE
In light of its objective and investment 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 shares of the Fund.
- - Wish to add to their personal investment portfolio a fund that emphasizes
growth style of investing in a portfolio of equity securities.
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.
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 FUNDS
These tables describe the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Class Class Class
A B C
Shares Shares Shares
....................................................
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 (as
a percentage of offering
price) None None None
....................................................
Redemption fees (as a
percentage of amount
redeemed) None None None
....................................................
Exchange fee None None None
....................................................
(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 AND 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."
ANNUAL FUND
OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
Class Class Class
A B C
Shares Shares Shares
....................................................
Management Fees(1) 0.80% 0.80% 0.80%
....................................................
Distribution and/or
Service (12b-1) Fees(2) 0.25% 1.00% (3) 1.00% (3)
....................................................
Other Expenses(1) 0.93% 0.92% 0.95%
....................................................
Total Annual Fund
Operating Expenses(1) 1.98% 2.72% 2.75%
....................................................
(1) 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.
(2) 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."
(3) 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% annual 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:
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 $2,728*
..............................................................
Class C Shares $ 378 $ 853 $1,454 $3,080
..............................................................
You would pay the following expenses if you did not redeem your shares:
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 $2,728*
..............................................................
Class C Shares $ 278 $ 853 $1,454 $3,080
..............................................................
* 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 investment objective by investing at least 65% of the Fund's total assets in
a diversified 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 equity securities of medium- and
large-sized companies with market capitalizations of $1 billion or more, but
also may invest in smaller-capitalization companies. The Fund 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 permissable for a diversified fund. While the Fund invests among 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 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.
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
6
<PAGE>
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.
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 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 markets are
subject to greater risks than the 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
7
<PAGE>
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 by
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. Additionally, 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 temporary substitute for purchasing or
selling particular securities, including, for example, when the Fund acts
quickly to adjust 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. Additionally, 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 which can be
obtained by
8
<PAGE>
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
brokers-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 otherwise. The Fund's portfolio turnover is shown under the heading
"Financial Highlights." The portfolio turnover rate may be expected to vary from
year to year. A high portfolio turnover rate (100% or more) increases the Fund's
transactions costs, including brokerage commissions or dealer costs, and may
result in the realization of more short-term capital gains than if the Fund had
lower portfolio turnover. Increases in the Fund's transaction costs would impact
the Fund's performance. The turnover rate will not be a limiting factor,
however, if the Fund's investment adviser considers portfolio changes
appropriate.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Fund may hold cash or invest on a temporary basis 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. The Fund may not
achieve its investment objective if it takes a defensive position.
YEAR 2000 RISKS. Like other mutual funds, financial and business organizations
and individuals around the world, the Fund could be adversely affected if the
computer systems used by the Fund's investment adviser and other service
providers do not properly process and calculate date-related information and
data from and after January 1, 2000. This is commonly known as the "Year 2000
Problem." The Fund's investment adviser 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
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
9
<PAGE>
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
markets countries because there is an increased likelihood that issuers of
securities of such countries cannot anticipate or effectively manage the affects
of computer programs and the Year 2000 Problem. Accordingly, the Fund's
investments may be adversely affected. The statements above are subject to the
Year 2000 Information and Readiness Disclosure Act which Act may limit the legal
rights regarding the use of such statements in the case of a dispute.
INVESTMENT ADVISORY
SERVICES
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 $75 billion under management or supervision. Van
Kampen Investments' more than 50 open-end and 39 closed-end funds and more than
2,500 unit investment trusts are professionally distributed by leading financial
advisers nationwide. Van Kampen Funds Inc., the distributor of the Fund (the
"Distributor") and the sponsor of the funds mentioned above, is also a wholly
owned subsidiary of Van Kampen Investments. Van Kampen Investments is an
indirect wholly owned subsidiary of Morgan Stanley Dean Witter & Co. The
Adviser's principal office is located at 1 Parkview Plaza, PO Box 5555, Oakbrook
Terrace, Illinois 60181-5555.
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 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:
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%
............................................
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 period 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.
From time to time, the Adviser or the Distributor may voluntarily undertake to
reduce the Fund's expenses by reducing the fees payable to them or by reducing
other expenses of the Fund in accordance with such limitations as the Adviser or
Distributor may establish.
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen Asset Management
Inc. ("Asset Management").
10
<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
December 31, 1998, the Subadviser, together with its affiliated institutional
asset management companies, managed assets of approximately $163.4 billion,
including assets under fiduciary advice. The Subadviser's address is 1221 Avenue
of the Americas, New York, New York 10020.
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 percentage of
the net advisory fees the Adviser receives from the Fund.
----------
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 management team is 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 and 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 co-manager 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 co-manager 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.
11
<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 (described below) pursuant to which its
distribution fee or service fee is paid, (iii) each class of shares has
different exchange privileges, (iv) certain classes of shares are subject to a
conversion feature and (v) certain classes of shares have different shareholder
service options available.
The 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 in which no purchase or redemption orders are
received or there is not a sufficient degree of trading in a 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 values per share and adjust the offering price more frequently than once a
day if deemed desirable. Net asset value per share for each class is determined
by dividing the value of a 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 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 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
12
<PAGE>
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 on 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 gains
distributions, 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
As % of As % of
Size of Offering Net Amount
Investment Price Invested
- -----------------------------------------------
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 * *
..............................................
* NO SALES CHARGE IS PAYABLE AT THE TIME OF PURCHASE ON INVESTMENTS OF
$1 MILLION OR MORE, ALTHOUGH FOR SUCH INVESTMENTS THE FUND IMPOSES A
CONTINGENT DEFERRED SALES CHARGE OF 1.00% ON CERTAIN REDEMPTIONS MADE
WITHIN ONE YEAR OF THE PURCHASE. THE CONTINGENT DEFERRED SALES CHARGE
IS ASSESSED ON AN AMOUNT EQUAL TO THE LESSER OF THE THEN CURRENT
MARKET VALUE OR THE COST OF THE SHARES BEING REDEEMED. ACCORDINGLY, NO
SALES CHARGE IS IMPOSED ON INCREASES IN NET ASSET VALUE ABOVE THE
INITIAL PURCHASE PRICE.
No sales charge is imposed on Class A Shares received from reinvestment of
dividends or capital gains distributions.
Under the Distribution Plan and Service Plan, the Fund may spend a total of
0.25% per year of the
13
<PAGE>
average daily net assets with respect to the Class A Shares of the Fund. From
such amount, under the Service Plan, the Fund may spend up to 0.25% per year of
the Fund's average daily net assets with respect to the Class A Shares for the
ongoing provision of services to Class A shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CLASS B SHARES
Class B Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge if redeemed within five years of purchase as shown in the
table as follows:
CLASS B SHARES
SALES CHARGE SCHEDULE
Contingent Deferred
Sales Charge
as a Percentage of
Year Since Dollar Amount
Purchase Subject to Charge
- -----------------------------------
First 5.00%
..................................
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 gains dividends. It
is presently the policy of the Distributor not to accept any order for Class B
Shares in an amount of $500,000 or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
The amount of the contingent deferred sales charge, if any, varies depending on
the number of years from the time of payment for the purchase of Class B Shares
until the time of redemption of such shares. Solely for purposes of determining
the number of years from the time of any payment for the purchase of shares, all
payments during a month are totaled and deemed to have been made on the last day
of the month.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed that the redemption is first of any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge and then of shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
average daily net assets with respect to the Class B Shares of the Fund. In
addition, under the Service Plan, the Fund may spend up to 0.25% per year of the
Fund's average daily net assets with respect to the Class B Shares for the
ongoing provision of services to Class B shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CLASS C SHARES
Class C Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge of 1.00% of the dollar amount subject to charge if
redeemed within one year of purchase.
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gains dividends. It
is presently the policy of the Distributor not to accept any order for Class C
Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
In determining whether a contingent deferred sales charge is applicable to a
redemption, it is assumed that the redemption is first of any shares in the
14
<PAGE>
shareholder's Fund account that are not subject to a contingent deferred sales
charge and then of shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
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 distributions constituting
"preferential dividends" under the federal income tax law and (ii) the
conversion of shares does not constitute a taxable event under federal income
tax law. The conversion may be suspended if such an opinion is no longer
available and such shares might continue to be subject to the higher aggregate
fees applicable to such shares for an indefinite period.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge is waived on redemptions of Class B Shares
and Class C Shares (i) within one year following the death or disability (as
disability is defined by federal income tax law) of a shareholder, (ii) for
required minimum distributions from an individual retirement account ("IRA") or
certain other retirement plan distributions, (iii) for withdrawals under the
Fund's systematic withdrawal plan but limited to 12% annually of the initial
value of the account, (iv) if no commission or transaction fee is paid to
authorized dealers at the time of purchase of such shares and (v) if made by
involuntary liquidation by the Fund of a shareholder's account as described
under the heading "Redemption of Shares." Subject to certain limitations, a
shareholder who has redeemed Class C Shares of the Fund may reinvest in Class C
Shares at net asset value with credit for any contingent deferred sales charge
if the reinvestment is within 180 days after the redemption. For a more complete
description of contingent deferred sales charge waivers, please refer to the
Fund's Statement of Additional Information or contact your authorized dealer.
QUANTITY DISCOUNTS
Investors purchasing Class A Shares may, under certain circumstances described
below, be entitled to pay reduced or no sales charges. Investors, or their
authorized dealers, must notify the Fund at the time of the purchase order
whenever a quantity discount is applicable to purchases. Upon such notification,
an investor will receive the lowest applicable sales charge. Quantity discounts
may be modified or terminated at any time. For more information about quantity
discounts, investors should contact their authorized dealer or the Distributor.
A person eligible for a reduced sales charge includes an individual, his or her
spouse and children under 21 years of age and any corporation, partnership or
sole proprietorship which is 100% owned, either alone or in combination, by any
of the foregoing; a trustee or other fiduciary purchasing for a single trust or
for a single fiduciary account, or a "company" as defined in Section 2(a)(8) of
the 1940 Act.
As used herein, "Participating Funds" refers to certain open-end investment
companies advised by Asset Management or Advisory Corp. and distributed by the
Distributor as determined from time to time by the Fund's Board of Directors.
15
<PAGE>
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 trust distributions will be 1.00% of the offering
price (1.01% of net asset value). Of this amount, the Distributor will pay to
the authorized dealer, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the terms and conditions that apply to the program,
should contact their authorized dealer or the Distributor.
The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during each distribution period by all investors who choose to invest in
the Fund through the program and (2) provide Investor Services with appropriate
backup data for each investor participating in the program in a computerized
format fully compatible with Investor Services' processing system.
As further requirements for obtaining these special benefits, the Fund also
requires that all dividends
16
<PAGE>
and other distributions by the Fund be reinvested in additional shares without
any systematic withdrawal program. There will be no minimum for reinvestments
from unit investment trusts. The Fund will send account activity statements to
such participants on a quarterly basis only, even if their investments are made
more frequently. The Fund reserves the right to modify or terminate this program
at any time.
NET ASSET VALUE PURCHASE OPTIONS. Class A Shares of the Fund may be purchased at
net asset value, upon written assurance that the purchase is made for investment
purposes and that the shares will not be resold except through redemption by the
Fund, by:
(1) Current or retired trustees or directors of funds advised by Morgan Stanley
Dean Witter & Co. and any of its subsidiaries and such persons' families
and their beneficial accounts.
(2) Current or retired directors, officers and employees of Morgan Stanley Dean
Witter & Co. and any of its subsidiaries, employees of an investment
subadviser to any fund described in (1) above or an affiliate of such
subadviser, and such persons' families and their beneficial accounts.
(3) Directors, officers, employees and, when permitted, registered
representatives, of financial institutions that have a selling group
agreement with the Distributor and their spouses and children under 21
years of age when purchasing for any accounts they beneficially own, or, in
the case of any such financial institution, when purchasing for retirement
plans for such institution's employees; provided that such purchases are
otherwise permitted by such institutions.
(4) Registered investment advisers who charge a fee for their services, trust
companies and bank trust departments investing on their own behalf or on
behalf of their clients. The Distributor may pay authorized dealers through
which purchases are made an amount up to 0.50% of the amount invested, over
a 12-month period.
(5) Trustees and other fiduciaries purchasing shares for retirement plans which
invest in multiple fund families through broker-dealer retirement plan
alliance programs that have entered into agreements with the Distributor
and which are subject to certain minimum size and operational requirements.
Trustees and other fiduciaries should refer to the Statement of Additional
Information for further details with respect to such alliance programs.
(6) Beneficial owners of shares of Participating Funds held by a retirement
plan or held in a tax-advantaged retirement account who purchase shares of
the Fund with proceeds from distributions from such a plan or retirement
account other than distributions taken to correct an excess contribution.
(7) Accounts as to which a bank or broker-dealer charges an account management
fee ("wrap accounts"), provided the bank or broker-dealer has a separate
agreement with the Distributor.
(8) Trusts created under pension, profit sharing or other employee benefit
plans qualified under Section 401(a) of the Internal Revenue Code of 1986,
as amended (the "Code"), or custodial accounts held by a bank created
pursuant to Section 403(b) of the Code and sponsored by nonprofit
organizations defined under Section 501(c)(3) of the Code and assets held
by an employer or trustee in connection with an eligible deferred
compensation plan under Section 457 of the Code. Such plans will qualify
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
17
<PAGE>
to time. Prior to February 1, 1997, a commission will be paid to authorized
dealers who initiate and are responsible for such purchases within a
rolling twelve- month period as follows: 1.00% on sales to $5 million, plus
0.50% on the next $5 million, plus 0.25% on the excess over $10 million.
For purchases on February 1, 1997 and thereafter, a commission will be paid
as follows: 1.00% on sales to $2 million, plus 0.80% on the next $1
million, plus 0.50% on the next $47 million, plus 0.25% on the excess over
$50 million.
(9) Individuals who are members of a "qualified group." For this purpose, a
qualified group is one which (i) has been in existence for more than six
months, (ii) has a purpose other than to acquire shares of the Fund or
similar investments, (iii) has given and continues to give its endorsement
or authorization, on behalf of the group, for purchase of shares of the
Fund and Participating Funds, (iv) has a membership that the authorized
dealer can certify as to the group's members and (v) satisfies other
uniform criteria established by the Distributor for the purpose of
realizing economies of scale in distributing such shares. A qualified group
does not include one whose sole organizational nexus, for example, is that
its participants are credit card holders of the same institution, policy
holders of an insurance company, customers of a bank or broker-dealer,
clients of an investment adviser or other similar groups. Shares purchased
in each group's participants account in connection with this privilege will
be subject to a contingent deferred sales charge of 1.00% in the event of
redemption within one year of purchase, and a commission will be paid to
authorized dealers who initiate and are responsible for such sales to each
individual as follows: 1.00% on sales to $2 million, plus 0.80% on the next
$1 million and 0.50% on the excess over $3 million.
The term "families" includes a person's spouse, children under 21 years of age
and grandchildren, parents, and a person's spouse's parents.
Purchase orders made pursuant to clause (4) may be placed either through
authorized dealers as described above or directly with Investor Services by the
investment adviser, trust company or bank trust department, provided that
Investor Services receives federal funds for the purchase by the close of
business on the next business day following acceptance of the order. An
authorized dealer may charge a transaction fee for placing an order to purchase
shares pursuant to this provision or for placing a redemption order with respect
to such shares. Authorized dealers will be paid a service fee as described on
purchases made as described in (3) through (9) above. The Fund may terminate, or
amend the terms of, offering shares of the Fund at net asset value to such
groups at any time.
REDEMPTION OF
SHARES
Generally shareholders may redeem for cash some or all of their shares without
charge by the Fund (other than applicable sales charge) at any time. As
described under the heading "Purchase of Shares," redemptions of Class B Shares
and Class C Shares may be subject to a contingent deferred sales charge. In
addition, certain redemptions of Class A Shares for shareholder accounts of $1
million or more may be subject to a contingent deferred sales charge.
Redemptions completed through an authorized dealer or a custodian of a
retirement plan account may involve additional fees charged by the dealer or
custodian.
Except as specified below under "Telephone Redemption Requests," payment for
shares redeemed generally will be made by check mailed within seven days after
receipt by Investor Services of the request and any other necessary documents in
proper order. Such payment may be postponed or the right of redemption suspended
as provided by the rules of the SEC. Such payment may, under certain
circumstances, be paid wholly or in part by a distribution-in-kind of portfolio
securities. If the shares to be redeemed have been recently purchased by check,
Investor Services may delay the payment of redemption proceeds until it confirms
the purchase check has cleared, which may take up to 15 days. A taxable gain or
loss will be recognized by the shareholder upon redemption of shares.
18
<PAGE>
WRITTEN REDEMPTION REQUESTS. Shareholders may request a redemption of shares by
written request in proper form sent directly to Van Kampen Investor Services
Inc., PO Box 218256, Kansas City, MO 64121-8256. The request for redemption
should indicate the number of shares to be redeemed, the class designation of
such shares and the shareholder's account number. The redemption request must be
signed by all persons in whose names the shares are registered. Signatures must
conform exactly to the account registration. If the proceeds of the redemption
exceed $50,000, or if the proceeds are not to be paid to the record owner at the
record address, or if the record address has changed within the previous 30
days, signature(s) must be guaranteed by one of the following: a bank or trust
company; a broker-dealer; a credit union; a national securities exchange,
registered securities association or clearing agency; a savings and loan
association; or a federal savings bank.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption to be in proper form. In some
cases, however, additional documents may be necessary. In the case of
shareholders holding certificates, the certificates for the shares being
redeemed properly endorsed for transfer must accompany the redemption request.
In the event the redemption is requested by a corporation, partnership, trust,
fiduciary, executor or administrator, and the name and title of the
individual(s) authorizing such redemption is not shown in the account
registration, a copy of the corporate resolution or other legal documentation
appointing the authorized signer and certified within the prior 120 days must
accompany the redemption request. IRA redemption requests should be sent to the
IRA custodian to be forwarded to Investor Services. Contact the IRA custodian
for further information.
In the case of written redemption requests sent directly to Investor Services,
the redemption price is the net asset value per share next determined after the
request in proper form is received by Investor Services.
AUTHORIZED DEALER REDEMPTION REQUESTS. Shareholders may place redemption
requests through an authorized dealer. Orders sent through authorized dealers
must be at least $500 (unless transmitted by your authorized dealer via the
FUNDSERV network). The redemption price for such shares is the net asset value
per share next calculated after an order in proper form is received by an
authorized dealer provided such order is transmitted to the Distributor prior to
the Distributor's close of business on such day. It is the responsibility of
authorized dealers to transmit redemption requests received by them to the
Distributor so they will be received prior to such time. Redemptions completed
through an authorized dealer may involve additional fees charged by the dealer.
TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. To establish
such privilege, a shareholder must complete the appropriate section of the
application form accompanying this prospectus or call the Fund at (800) 341-2911
to request that a copy of the Telephone Redemption Authorization form be sent to
them for completion. To redeem shares, contact the telephone transaction line at
(800) 421-5684. Van Kampen Investments, Investor Services and the Fund employ
procedures considered by them to be reasonable to confirm that instructions
communicated by telephone are genuine. Such procedures include requiring certain
personal identification information prior to acting upon telephone instructions,
tape-recording telephone communications and providing written confirmation of
instructions communicated by telephone. If reasonable procedures are employed,
neither Van Kampen Investments, Investor Services nor the Fund will be liable
for following telephone instructions which it reasonably believes to be genuine.
Telephone redemptions may not be available if the shareholder cannot reach
Investor Services by telephone, whether because all telephone lines are busy or
for any other reason; in such case, a shareholder would have to use the Fund's
other redemption procedure previously described. Requests received by Investor
Services prior to 4:00 p.m., New York time, will be processed at the next
determined net asset value per share. These privileges are available for all
accounts other than retirement accounts or accounts with shares represented by
certificates. If an account
19
<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 two kinds of return from the Fund: dividends and
capital gains 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.
CAPITAL GAINS. The Fund may realize capital gains or losses when it sells
securities, depending on whether the sales prices for the securities are higher
or lower than purchase prices. Net realized capital gains represent the total
profit from sales of securities minus total losses from sales of securities
including losses carried forward from prior years. The Fund distributes any
taxable net realized capital gains to shareholders as capital gains dividends at
least annually. As in the case of dividends, capital gains dividends are
automatically reinvested in additional shares of the Fund at 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 gains distributions 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 gains
distribution. Unless the shareholder instructs otherwise, the reinvestment plan
is automatic. This instruction may
20
<PAGE>
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 gains distributions be reinvested at net asset value, or that both
dividends and capital gains distributions be paid in cash.
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under which
a shareholder can authorize 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.
When Class B Shares and Class C Shares are exchanged among Participating Funds,
the holding period for purposes of computing the contingent deferred sales
charge is based upon the date of the initial purchase of such shares from a
Participating Fund. If such Class B Shares or Class C Shares are redeemed and
not exchanged for shares of another Participating Fund, Class B Shares and Class
C Shares are subject to the contingent deferred sales charge schedule imposed by
the Participating Fund from which such shares were originally purchased.
Exchanges of shares are sales and may result in a gain or loss for federal
income tax purposes. If the shares exchanged have been held for less than 91
days, the sales charge paid on such shares is carried over and included in the
tax basis of the shares acquired.
A shareholder wishing to make an exchange may do so by sending a written request
to Investor Services or by contacting the telephone transaction line at (800)
421-5684. A shareholder automatically has telephone exchange privileges unless
otherwise designated in the application form accompanying the prospectus. Van
Kampen Investments, Investor Services and the Fund employ procedures considered
by them to be reasonable to confirm that instructions communicated by telephone
are genuine. Such procedures include requiring certain personal identification
information prior to acting upon telephone instructions, tape-recording
telephone communications, and providing written confirmation of instructions
communicated by telephone. If reasonable procedures are employed, neither Van
Kampen Investments, Investor Services nor the Fund will be liable for following
telephone instructions which it reasonably believes to be genuine. If the
exchanging shareholder does not have an account in the fund whose shares are
being acquired, a new account will be established with the same registration,
dividend and capital gains options (except dividend diversification) and
authorized dealer of record as the account from which shares are exchanged,
unless otherwise specified by the shareholder. In order to establish a
systematic withdrawal plan for the new account or reinvest dividends from the
new account into another fund, however, an exchanging shareholder must submit a
specific request. The Fund reserves the right to reject any order to acquire its
shares through exchange. In addition, the Fund and other Participating Funds may
restrict exchanges by shareholders engaged in excessive trading by limiting or
disallowing the exchange privileges to such shareholders. For further
information on these restrictions see the Statement of Additional Information.
The Fund may modify, restrict or terminate the exchange privilege at any time on
60 days' notice to its shareholders of any termination or material amendment.
For purposes of determining the sales charge rate previously paid on Class A
Shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchanged security was acquired through reinvestment, that
security is deemed to have been sold with a sales charge rate equal to the rate
previously paid on the
21
<PAGE>
security on which the dividend or distribution was paid. If a shareholder
exchanges less than all of such shareholder's securities, the security upon
which the highest sales charge rate was previously paid is deemed exchanged
first.
Exchange requests received on a business day prior to the time shares of the
funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares in the fund from which the
shareholder is withdrawing an investment will be redeemed at the net asset value
per share next determined on the date of receipt. Shares of the new fund into
which the shareholder is investing will also normally be purchased at the net
asset value per share, plus any applicable sales charge, next determined on the
date of receipt. Exchange requests received on a business day after the time
shares of the funds involved in the request are priced will be processed on the
next business day in the manner described herein.
A prospectus of any of these Participating Funds may be obtained from any
authorized dealer or the Distributor. An investor considering an exchange to one
of such funds should refer to the prospectus for additional information
regarding such fund prior to investing.
INTERNET TRANSACTIONS. In addition to performing transactions on your account
through written instruction or by telephone, you may also perform certain
transactions through the internet. Please refer to our web site at
www.vankampen.com for further instruction. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated through the internet are genuine. Such
procedures include requiring use of a personal identification number prior to
acting upon internet instructions and providing written confirmation of
instructions communicated through the internet. If reasonable procedures are
employed, neither Van Kampen Investments, Investor Services nor the Fund will be
liable for following instructions through the internet which it reasonably
believes to be genuine. If an account has multiple owners, Investor Services may
rely on the instructions of any one owner.
FEDERAL INCOME
TAXATION
Distributions of the Fund's net investment income (consisting generally of
taxable income and net short-term capital gains) are taxable to shareholders as
ordinary income to the extent of the Fund's earnings and profits, whether paid
in cash or reinvested in additional shares. Distributions of the Fund's net
capital gains (which are the excess of net long-term capital gains over net
short-term capital losses) as capital gain dividends, if any, are taxable to
shareholders as long-term capital gains, whether paid in cash or reinvested in
additional shares, and regardless of how long the shares of the Fund have been
held by such shareholders. Capital gains dividends may be taxed at different
rates depending on how long the Fund held the securities. The Fund expects that
its distributions will consist primarily of ordinary income and capital gains
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.
22
<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. Prospective foreign investors should consult their U.S. tax
advisers concerning the tax consequences to them of an investment in shares.
The Fund intends to qualify as a regulated investment company under federal
income tax law. If the Fund so qualifies and distributes each year to its
shareholders at least 90% of its net investment income, the Fund will not be
required to pay federal income taxes on any income it distributed to
shareholders. If the Fund distributes less than the sum of 98% of its ordinary
income and 98% of its capital gains 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, or disposing 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
Selected Per Share Data Year Ended May 29, 1998* Year Ended May 29, 1998* Year Ended May 29, 1998*
and Ratios June 30, 1999# to June 30, 1998 June 30, 1999# to June 30, 1998 June 30, 1999# to June 30, 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period..... $10.291 $ 10.00 $10.284 $ 10.00 $10.284 $ 10.00
------ ------ ------ ------ ------ ------
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 0.28
------ ------ ------ ------ ------ ------
Total From Investment
Operations.............. 2.255 0.29 2.168 0.28 2.161 0.28
------ ------ ------ ------ ------ ------
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 $ 10.28
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
Total Return (1)........ 21.90% 2.90%** 21.14% 2.80%** 21.04% 2.80%**
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
Ratios and Supplemental
Data
Net Assets, End of
Period (000's).......... $17,185 $ 2,057 $23,978 $ 1,543 $ 7,435 $ 1,543
Ratio of Expenses to
Average Net Assets...... 1.50% 1.50% 2.25% 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)% (0.25)%
Portfolio Turnover
Rate.................... 126% 19%** 126% 19%** 126% 19%**
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 $ 0.02
Ratios Before Expense
Limitation:
Expenses to Average
Net Assets............ 1.98% 4.06% 2.72% 4.81% 2.75% 4.81%
Net Investment
Income/Loss to Average
Net Assets............ (1.05)% (2.05)% (1.81)% (2.81)% (1.81)% (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 Philip 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
Edward C. Wood III*
VICE PRESIDENT
A. Thomas Smith III*
VICE PRESIDENT AND SECRETARY
Michael H. Santo*
VICE PRESIDENT
Peter W. Hegel*
VICE PRESIDENT
Stephen L. Boyd*
VICE PRESIDENT
Joseph P. Stadler*
VICE PRESIDENT
Curtis W. Morell*
VICE PRESIDENT & CHIEF ACCOUNTING OFFICER
Tanya M. Loden*
CONTROLLER
John L. Sullivan*
VICE PRESIDENT, CHIEF FINANCIAL OFFICER & TREASURER
* "Interested" persons of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2911
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders, or
redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call
(800) 421-2833
FUND INFO-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 , 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 Public
Reference Room in
Washington, DC or online
at the SEC's web site
(http://www.sec.gov).
For more information,
please call the SEC at
(800) SEC-0330. You can
also request these
materials by writing the
Public Reference Section
of the SEC, Washington
DC, 20549-6009, and
paying a duplication
fee.
[LOGO]
THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-7140.
EQG PRO 10/99
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THE FUND MAY NOT SELL THESE SECURITIES UNTIL THE
POST-EFFECTIVE AMENDMENT TO THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES.
SUBJECT TO COMPLETION -- DATED AUGUST 27, 1999
VAN KAMPEN
EUROPEAN EQUITY FUND
Van Kampen European Equity
Fund is a mutual fund with
an investment objective to
seek long-term capital
appreciation. The Fund's
management seeks to
achieve the investment
objective by investing,
under normal market
conditions, primarily in a
diversified 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 regulators, and
neither the SEC nor any
state regulator has passed
upon the accuracy or
adequacy of this
prospectus. Any
representation to the
contrary ia a criminal
offense.
THIS PROSPECTUS IS DATED
OCTOBER , 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 ................................................24
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
The Fund's management seeks to achieve the investment objective by investing,
under normal market conditions, primarily in a diversified portfolio of equity
securities of European issuers based on individual stock selection. 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, at least 65% of the total
assets of the Fund will be invested in equity securities of European issuers.
The Fund's management utilizes a bottom-up approach to investing that seeks to
identify securities of undervalued European issuers. The Fund may purchase or
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, including
seeking to reduce or estimate foreign currency exchange risks associated with
securities denominated in non-U.S. dollar currencies.
INVESTMENT RISKS
An investment in the Fund is subject to investment risks, and you could lose
money on your investment in the Fund. There can be no assurance that the Fund
will achieve its investment 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. market, and foreign markets, especially emerging or developing markets, may
have more price volatility 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 market decline, stock prices of
small- or medium-sized companies (in which the Fund may invest) often fluctuate
more and may fall more than stock prices of larger-sized 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 markets 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.
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.
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 such as imperfect
correlation between the value of the instruments and the underlying assets;
risks of default by the other party to certain transactions; risks that the
transactions may result in losses that
3
<PAGE>
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 management may not be
successful in selecting the best-performing securities and the Fund's
performance may lag behind that of similar funds.
An investment in the Fund is not a deposit of any bank or other insured
depository institution. Your investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
INVESTOR PROFILE
In light of its objective and investment 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 shares of the Fund.
- - Wish to add to their personal investment portfolio a fund that invests
primarily in equity securities of European issuers.
An investment in the Fund may not be appropriate for all investors. The Fund is
not intended to be a complete investment program, and investors should consider
their long-term investment goals and financial needs when making an investment
decision about the Fund. An investment in the Fund is intended to be a long-term
investment, and the Fund should not be used as a trading vehicle.
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 FUNDS
These tables describe the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
<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 (as
a percentage of offering
price) None None None
..............................................................
Redemption fees (as a
percentage of amount
redeemed) None None None
..............................................................
Exchange fee None None None
..............................................................
</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
AND 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."
4
<PAGE>
ANNUAL FUND
OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
<S> <C> <C> <C>
- -----------------------------------------------------------------
Management Fees(1) 1.00% 1.00% 1.00%
................................................................
Distribution and/or Service
(12b-1) Fees(2) 0.25% 1.00%(3) 1.00%(3)
................................................................
Other Expenses(1) 4.95% 4.61% 5.51%
................................................................
Total Annual Fund Operating
Expenses(1) 6.20% 6.61% 7.51%
................................................................
</TABLE>
(1) 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.
(2) 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."
(3) 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% annual 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>
THREE FIVE
ONE YEAR YEARS YEARS TEN 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 $ 5,253*
..............................................................
Class C Shares $ 842 $ 2,169 $ 3,526 $ 6,632
..............................................................
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
THREE FIVE
ONE YEAR YEARS YEARS TEN 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 $ 5,253*
..............................................................
Class C Shares $ 742 $ 2,169 $ 3,526 $ 6,632
..............................................................
</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.
The Fund's investment adviser seeks to achieve the investment objective by
investing, under normal market conditions, primarily in equity securities of
European issuers, including issuers from Germany, France, Switzerland, Belgium,
Italy, Finland, Sweden, Denmark, Norway and the United Kingdom. The Fund may
also make investments in the equity securities of 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, at least 65% of the total assets of the Fund will be invested
in equity securities of European issuers.
The Fund's investment adviser selects issuers from a universe of approximately
1,200 companies in the Morgan Stanley Capital International (MSCI) Europe Index.
The investment process is value-driven and
5
<PAGE>
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
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 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
6
<PAGE>
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 additional fees
such as management and other fees.
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 equity securities of larger-capitalization companies.
RISKS OF INVESTING IN SECURITIES
OF FOREIGN ISSUERS
The Fund 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 Fund's
investment adviser's assessment of the relative yield, appreciation potential
and 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 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 markets are
subject to greater risks than investments in securities of developed markets
since emerging markets tend to have economic structures that are less diverse
and mature and political systems that are less stable than developed markets.
Emerging markets 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 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.
7
<PAGE>
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'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. The Fund purchases and sells
foreign currency on a spot basis in connection with the settlement of
transactions in securities traded in such foreign currency. The Fund also may
enter into contracts with banks, brokers or dealers to purchase or sell 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 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 COUNTRIES. 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
8
<PAGE>
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
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 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. Additionally, 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 temporary substitute for purchasing or
selling particular securities, including, for example, when the Fund acts
quickly to adjust 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 use Strategic
Transactions to enhance potential gain, although no more than 33 1/3% of the
Fund's total assets will be committed to certain Strategic Transactions for
non-hedging purposes (measured by the aggregate notional value of outstanding
derivative instruments). In addition, the Fund will not enter into futures
contracts and options on futures contracts to the extent that the notional value
of its outstanding obligations to purchase securities under such contracts would
exceed 20% of its total assets (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
9
<PAGE>
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. Additionally 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 which can be
obtained by investors free of charge as described on the back cover of this
prospectus.
OTHER INVESTMENTS AND RISK FACTORS
For cash management purposes, the Fund may engage in repurchase agreements with
banks and broker-dealers and other financial institutions in order to earn a
return on temporary 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 forgoing, 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 growth
has lessened or otherwise. The Fund's portfolio turnover is shown under the
heading "Financial Highlights." The portfolio turnover rate may be expected to
vary from year to year. A high portfolio turnover rate (100% or more) increases
the Fund's transactions costs, including brokerage commissions or dealer costs,
and may result in the realization of more short-term capital gains than if the
Fund had lower portfolio turnover. Increases in the Fund's transaction costs
would impact the Fund's performance. The turnover rate will not be a limiting
factor, however, if the Fund's investment adviser considers portfolio changes
appropriate. The Fund, which has not commenced investment operations,
anticipates that its annual portfolio turnover will not exceed 100% under normal
circumstances.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Fund may hold cash or invest on a temporary basis 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
10
<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. The Fund may not achieve its investment objective if
it takes a defensive position.
YEAR 2000 RISKS. Like other mutual funds, financial and business organizations
and individuals around the world, the Fund could be adversely affected if the
computer systems used by the Fund's investment adviser and other service
providers do not properly process and calculate date-related information and
data from and after January 1, 2000. This is commonly known as the "Year 2000
Problem." The Fund's investment adviser 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 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 emerging or developing
countries because there is an increased likelihood that issuers of securities in
such countries cannot anticipate or effectively manage the affects of computer
programs and the Year 2000 Problem. Accordingly, the Fund's investments may be
adversely affected. The statements above are subject to the Year 2000
Information and Readiness Disclosure Act which Act may limit the legal rights
regarding the use of such statements in the case of a dispute.
INVESTMENT ADVISORY
SERVICES
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 $75 billion under management or
supervision. Van Kampen Investments' more than 50 open-end and 39 closed-end
funds and more than 2,500 unit investment trusts are professionally distributed
by leading financial advisers nationwide. Van Kampen Funds Inc., the distributor
of the Fund (the "Distributor") and the sponsor of the funds mentioned above, is
also a wholly owned subsidiary of Van Kampen Investments. Van Kampen Investments
is an indirect wholly owned subsidiary of Morgan Stanley Dean Witter & Co. The
Adviser's principal office is located at 1 Parkview Plaza, PO Box 5555, Oakbrook
Terrace, Illinois 60181-5555.
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 average daily
net assets of the Fund.
11
<PAGE>
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.
From time to time, the Adviser or the Distributor may voluntarily undertake to
reduce the Fund's expenses by reducing the fees payable to them or by reducing
other expenses of the Fund in accordance with such limitations as the Adviser or
Distributor may establish.
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen 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
December 31, 1998, the Subadviser, together with its affiliated institutional
asset management companies, managed assets of approximately $163.4 billion,
including assets under fiduciary advice. The Subadviser's address is 1221 Avenue
of the Americas, New York, NY 10020.
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 percentage of
the net advisory fees the Adviser receives from the Fund.
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
co-managers 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
co-manager 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 for Deloitte & Touche
LLP. 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 co-manager of the Fund since January 1998.
12
<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 (described below) pursuant to which its
distribution fee or service fee is paid, (iii) each class of shares has
different exchange privileges, (iv) certain classes of shares are subject to a
conversion feature and (v) certain classes of shares have different shareholder
service options available.
The 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 a 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 in which no purchase or redemption orders are
received or there is not a sufficient degree of trading in a 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 values per share and adjust the offering price more frequently than once a
day if deemed desirable. Net asset value per share for each class is determined
by dividing the value of a 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 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
13
<PAGE>
calculated and on which the Fund does not effect sales, redemptions and
exchanges of its shares.
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 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 on 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.
14
<PAGE>
Investor accounts will automatically be credited with additional shares of the
Fund after any Fund distributions, such as dividends and capital gains
distributions, 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 IMPOSES A
CONTINGENT DEFERRED SALES CHARGE OF 1.00% ON CERTAIN REDEMPTIONS MADE
WITHIN ONE YEAR OF THE PURCHASE. THE CONTINGENT DEFERRED SALES CHARGE IS
ASSESSED ON AN AMOUNT EQUAL TO THE LESSER OF THE THEN CURRENT MARKET VALUE
OR THE COST OF THE SHARES BEING REDEEMED. ACCORDINGLY, NO SALES CHARGE IS
IMPOSED ON INCREASES IN NET ASSET VALUE ABOVE THE INITIAL PURCHASE PRICE.
No sales charge is imposed on Class A Shares received from reinvestment of
dividends or capital gains distributions.
Under the Distribution Plan and Service Plan, the Fund may spend a total of
0.25% per year of the average daily net assets with respect to the Class A
Shares of the Fund. From such amount, under the Service Plan, the Fund may spend
up to 0.25% per year of the Fund's average daily net assets with respect to the
Class A Shares for the ongoing provision of services to Class A shareholders by
the Distributor and by brokers, dealers or financial intermediaries and for the
maintenance of such shareholders' accounts.
CLASS B SHARES
Class B Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge if redeemed within five years of purchase as shown in the
table as follows:
CLASS B SHARES
SALES CHARGE SCHEDULE
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE
AS A PERCENTAGE
OF
DOLLAR AMOUNT
YEAR SINCE SUBJECT TO
PURCHASE 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 gains 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
15
<PAGE>
and deemed to have been made on the last day of the month.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed that the redemption is first of any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge and then of shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
average daily net assets with respect to the Class B Shares of the Fund. In
addition, under the Service Plan, the Fund may spend up to 0.25% per year of the
Fund's average daily net assets with respect to the Class B Shares for the
ongoing provision of services to Class B shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CLASS C SHARES
Class C Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge of 1.00% of the dollar amount subject to charge if
redeemed within one year of purchase.
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gains dividends. It
is presently the policy of the Distributor not to accept any order for Class C
Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
In determining whether a contingent deferred sales charge is applicable to a
redemption, it is assumed that the redemption is first of any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge and then of shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
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 distributions constituting
"preferential dividends" under the federal income tax law and (ii) the
conversion of shares does not constitute a taxable event under federal income
tax law. The conversion may be suspended if such an opinion is no longer
available and such shares might continue to be subject to the higher aggregate
fees applicable to such shares for an indefinite period.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge is waived on redemptions of Class B Shares
and Class C Shares (i) within one year following the death or disability (as
disability is defined by federal income tax law) of a shareholder, (ii) for
required minimum distributions from an individual retirement account ("IRA") or
certain other retirement plan distributions,
16
<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 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.
17
<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 trust distributions will be 1.00% of the offering
price (1.01% of net asset value). Of this amount, the Distributor will pay to
the authorized dealer, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the terms and conditions that apply to the program,
should contact their authorized dealer or the Distributor.
The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during each distribution period by all investors who choose to invest in
the Fund through the program and (2) provide Investor Services with appropriate
backup data for each investor participating in the program in a computerized
format fully compatible with Investor Services' processing system.
As further requirements for obtaining these special benefits, the Fund also
requires that all dividends and other distributions by the Fund be reinvested in
additional shares without any systematic withdrawal program. There will be no
minimum for reinvestments from unit investment trusts. The Fund will send
account activity statements to such participants on a quarterly basis only, even
if their investments are made more frequently. The Fund reserves the right to
modify or terminate this program at any time.
NET ASSET VALUE PURCHASE OPTIONS. Class A Shares of the Fund may be purchased at
net asset value, upon written assurance that the purchase is made for investment
purposes and that the shares will not be resold except through redemption by the
Fund, by:
(1) Current or retired trustees or directors of funds advised by Morgan Stanley
Dean Witter & Co. and any of its subsidiaries and such persons' families
and their beneficial accounts.
(2) Current or retired directors, officers and employees of Morgan Stanley Dean
Witter & Co. and any of its subsidiaries, employees of an investment
subadviser to any fund described in (1) above or an affiliate of such
subadviser, and such persons' families and their beneficial accounts.
(3) Directors, officers, employees and, when permitted, registered
representatives, of financial institutions that have a selling group
agreement with the Distributor and their spouses and children under 21
years of age when purchasing for any accounts they beneficially own, or, in
the case of any such financial institution, when purchasing for retirement
plans for such institution's employees; provided that such purchases are
otherwise permitted by such institutions.
(4) Registered investment advisers who charge a fee for their services, trust
companies and bank trust departments investing on their own behalf or on
behalf of their clients. The Distributor may pay authorized dealers through
which purchases are made an amount up to 0.50% of the amount invested, over
a 12-month period.
(5) Trustees and other fiduciaries purchasing shares for retirement plans which
invest in multiple fund families through broker-dealer retirement plan
alliance programs that have entered into agreements with the Distributor
and which are subject to certain minimum size and operational requirements.
Trustees and other fiduciaries should refer to the Statement of Additional
Information for further details with respect to such alliance programs.
18
<PAGE>
(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 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
19
<PAGE>
redemption order with respect to such shares. Authorized dealers will be paid a
service fee as described on purchases made as described in (3) through (9)
above. The Fund may terminate, or amend the terms of, offering shares of the
Fund at net asset value to such groups at any time.
REDEMPTION OF
SHARES
Generally shareholders may redeem for cash some or all of their shares without
charge by the Fund (other than applicable sales charge) at any time. As
described under the heading "Purchase of Shares," redemptions of Class B Shares
and Class C Shares may be subject to a contingent deferred sales charge. In
addition, certain redemptions of Class A Shares for shareholder accounts of $1
million or more may be subject to a contingent deferred sales charge.
Redemptions completed through an authorized dealer or a custodian of a
retirement plan account may involve additional fees charged by the dealer or
custodian.
Except as specified below under "Telephone Redemption Requests," payment for
shares redeemed generally will be made by check mailed within seven days after
receipt by Investor Services of the request and any other necessary documents in
proper order. Such payment may be postponed or the right of redemption suspended
as provided by the rules of the SEC. Such payment may, under certain
circumstances, be paid wholly or in part by a distribution-in-kind of portfolio
securities. If the shares to be redeemed have been recently purchased by check,
Investor Services may delay the payment of redemption proceeds until it confirms
the purchase check has cleared, which may take up to 15 days. A taxable gain or
loss will be recognized by the shareholder upon redemption of shares.
WRITTEN REDEMPTION REQUESTS. Shareholders may request a redemption of shares by
written request in proper form sent directly to Van Kampen Investor Services
Inc., PO Box 218256, Kansas City, MO 64121-8256. The request for redemption
should indicate the number of shares to be redeemed, the class designation of
such shares and the shareholder's account number. The redemption request must be
signed by all persons in whose names the shares are registered. Signatures must
conform exactly to the account registration. If the proceeds of the redemption
exceed $50,000, or if the proceeds are not to be paid to the record owner at the
record address, or if the record address has changed within the previous 30
days, signature(s) must be guaranteed by one of the following: a bank or trust
company; a broker-dealer; a credit union; a national securities exchange,
registered securities association or clearing agency; a savings and loan
association; or a federal savings bank.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption to be in proper form. In some
cases, however, additional documents may be necessary. In the case of
shareholders holding certificates, the certificates for the shares being
redeemed properly endorsed for transfer must accompany the redemption request.
In the event the redemption is requested by a corporation, partnership, trust,
fiduciary, executor or administrator, and the name and title of the
individual(s) authorizing such redemption is not shown in the account
registration, a copy of the corporate resolution or other legal documentation
appointing the authorized signer and certified within the prior 120 days must
accompany the redemption request. IRA redemption requests should be sent to the
IRA custodian to be forwarded to Investor Services. Contact the IRA custodian
for further information.
In the case of written redemption requests sent directly to Investor Services,
the redemption price is the net asset value per share next determined after the
request in proper form is received by Investor Services.
AUTHORIZED DEALER REDEMPTION REQUESTS. Shareholders may place redemption
requests through an authorized dealer. Orders sent through authorized dealers
must be at least $500 (unless transmitted by your authorized dealer via the
FUNDSERV network). The redemption price for such shares is the net asset value
per share next calculated after an order in proper form is received by an
authorized
20
<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. To establish
such privilege, a shareholder must complete the appropriate section of the
application form accompanying this prospectus or call the Fund at (800) 341-2911
to request that a copy of the Telephone Redemption Authorization form be sent to
them for completion. To redeem shares, contact the telephone transaction line at
(800) 421-5684. Van Kampen Investments, Investor Services and the Fund employ
procedures considered by them to be reasonable to confirm that instructions
communicated by telephone are genuine. Such procedures include requiring certain
personal identification information prior to acting upon telephone instructions,
tape-recording telephone communications and providing written confirmation of
instructions communicated by telephone. If reasonable procedures are employed,
neither Van Kampen Investments, Investor Services nor the Fund will be liable
for following telephone instructions which it reasonably believes to be genuine.
Telephone redemptions may not be available if the shareholder cannot reach
Investor Services by telephone, whether because all telephone lines are busy or
for any other reason; in such case, a shareholder would have to use the Fund's
other redemption procedure previously described. Requests received by Investor
Services prior to 4:00 p.m., New York time, will be processed at the next
determined net asset value per share. These privileges 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 two kinds of return from the Fund: dividends and
capital gains 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 GAINS. The Fund may realize capital gains or losses when it sells
securities, depending on whether the sales prices for the securities are higher
or lower than purchase prices. Net realized capital gains represent the total
profit from sales of securities minus total losses from sales of securities
including losses carried forward from prior years. The Fund distributes any
taxable net realized capital gains to shareholders as capital gains dividends at
least annually. As in the case of dividends, capital gains dividends are
automatically reinvested in additional shares of the Fund at 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 gains distributions 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 gains
distribution. Unless the shareholder instructs otherwise, the reinvestment plan
is automatic. This instruction may be made by telephone by calling (800)
341-2911 ((800) 421-2833 for the hearing impaired) or by writing to Investor
Services. The investor may, on the initial application or prior to any
declaration, instruct that dividends be paid in cash and capital gains
distributions be reinvested at net asset value, or that both dividends and
capital gains distributions be paid in cash.
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under which
a shareholder can authorize 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.
To be eligible for exchange, shares of the Fund must have been registered in the
shareholder's name for at least 30 days prior to an exchange. Shares of the Fund
registered in a shareholder's name for less than 30 days may only be exchanged
upon receipt of prior approval of the Adviser. It is the policy of the Adviser,
under normal circumstances, not to approve such requests.
When Class B Shares and Class C Shares are exchanged among Participating Funds,
the holding period for purposes of computing the contingent deferred sales
charge is based upon the date of the initial purchase of such shares from a
Participating Fund. If such Class B Shares or Class C Shares are redeemed and
not exchanged for shares of another Participating Fund, Class B Shares and Class
C Shares are subject to the contingent deferred sales charge schedule imposed by
the Participating Fund from which such shares were originally purchased.
Exchanges of shares are sales and may result in a gain or loss for federal
income tax purposes. If the shares exchanged have been held for less than 91
days, the sales charge paid on such shares is carried
22
<PAGE>
over and included in the tax basis of the shares acquired.
A shareholder wishing to make an exchange may do so by sending a written request
to Investor Services or by contacting the telephone transaction line at (800)
421-5684. A shareholder automatically has telephone exchange privileges unless
otherwise designated in the application form accompanying the prospectus. Van
Kampen Investments, Investor Services and the Fund employ procedures considered
by them to be reasonable to confirm that instructions communicated by telephone
are genuine. Such procedures include requiring certain personal identification
information prior to acting upon telephone instructions, tape-recording
telephone communications, and providing written confirmation of instructions
communicated by telephone. If reasonable procedures are employed, neither Van
Kampen Investments, Investor Services nor the Fund will be liable for following
telephone instructions which it reasonably believes to be genuine. If the
exchanging shareholder does not have an account in the fund whose shares are
being acquired, a new account will be established with the same registration,
dividend and capital gains options (except dividend diversification) and
authorized dealer of record as the account from which shares are exchanged,
unless otherwise specified by the shareholder. In order to establish a
systematic withdrawal plan for the new account or reinvest dividends from the
new account into another fund, however, an exchanging shareholder must submit a
specific request. The Fund reserves the right to reject any order to acquire its
shares through exchange. In addition, the Fund and other Participating Funds may
restrict exchanges by shareholders engaged in excessive trading by limiting or
disallowing the exchange privileges to such shareholders. For further
information on these restrictions see the Statement of Additional Information.
The Fund may modify, restrict or terminate the exchange privilege at any time on
60 days' notice to its shareholders of any termination or material amendment.
For purposes of determining the sales charge rate previously paid on Class A
Shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchanged security was acquired through reinvestment, that
security is deemed to have been sold with a sales charge rate equal to the rate
previously paid on the security on which the dividend or distribution was paid.
If a shareholder exchanges less than all of such shareholder's securities, the
security upon which the highest sales charge rate was previously paid is deemed
exchanged first.
Exchange requests received on a business day prior to the time shares of the
funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares in the fund from which the
shareholder is withdrawing an investment will be redeemed at the net asset value
per share next determined on the date of receipt. Shares of the new fund into
which the shareholder is investing will also normally be purchased at the net
asset value per share, plus any applicable sales charge, next determined on the
date of receipt. Exchange requests received on a business day after the time
shares of the funds involved in the request are priced will be processed on the
next business day in the manner described herein.
A prospectus of any of these Participating Funds may be obtained from any
authorized dealer or the Distributor. An investor considering an exchange to one
of such funds should refer to the prospectus for additional information
regarding such fund prior to investing.
INTERNET TRANSACTIONS. In addition to performing transactions on your account
through written instruction or by telephone, you may also perform certain
transactions through the internet. Please refer to our web site at
www.vankampen.com for further instruction. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated through the internet are genuine. Such
procedures include requiring use of a personal identification number prior to
acting upon internet instructions and providing written confirmation of
instructions communicated through the internet. If reasonable procedures are
employed, neither Van Kampen Investments, Investor Services nor the Fund will be
liable for following instructions through the internet which it reasonably
believes to be genuine.
23
<PAGE>
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 gains) are taxable to shareholders as
ordinary income to the extent of the Fund's earnings and profits, whether paid
in cash or reinvested in additional shares. Distributions of the Fund's net
capital gains (which are the excess of net long-term capital gains over net
short-term capital losses) as capital gain dividends, if any, are taxable to
shareholders as long-term capital gains, whether paid in cash or reinvested in
additional shares, and regardless of how long the shares of the Fund have been
held by such shareholders. Capital gains dividends may be taxed at different
rates depending on how long the Fund held the securities. The Fund expects that
its distributions will consist primarily of ordinary income and capital gains
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. Prospective foreign investors should consult their U.S. tax
advisers concerning the tax consequences to them of an investment in shares.
The Fund intends to qualify as a regulated investment company under federal
income tax law. If the Fund so qualifies and distributes each year to its
shareholders at least 90% of its net investment income, the Fund will not be
required to pay federal income taxes on any income it distributed to
shareholders. If the Fund distributes less than the sum of 98% of its ordinary
income and 98% of its capital gains 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, or disposing 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 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>
* 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 Philip 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
Edward C. Wood III*
VICE PRESIDENT
A. Thomas Smith III*
VICE PRESIDENT AND SECRETARY
Michael H. Santo*
VICE PRESIDENT
Peter W. Hegel*
VICE PRESIDENT
Stephen L. Boyd*
VICE PRESIDENT
Joseph P. Stadler*
VICE PRESIDENT
Curtis W. Morell*
VICE PRESIDENT & CHIEF ACCOUNTING OFFICER
Tanya M. Loden*
CONTROLLER
John L. Sullivan*
VICE PRESIDENT, CHIEF FINANCIAL OFFICER & TREASURER
* "Interested" persons of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2911
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders, or
redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call
(800) 421-2833
FUND INFO-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 , 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 Public
Reference Room in
Washington, DC or online
at the SEC's web site
(http://www.sec.gov).
For more information,
please call the SEC at
(800) SEC-0330. You can
also request these
materials by writing the
Public Reference Section
of the SEC, Washington
DC, 20549-6009, and
paying a duplication
fee.
[LOGO]
THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-7140.
EEQ PRO 10/99
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THE FUND MAY NOT SELL THESE SECURITIES UNTIL THE
POST-EFFECTIVE AMENDMENT TO THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES.
SUBJECT TO COMPLETION -- DATED AUGUST 27, 1999
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 regulators, and
neither the SEC nor any
state regulator has passed
upon the accuracy or
adequacy of this
prospectus. Any
representation to the
contrary is a criminal
offense.
THIS PROSPECTUS IS DATED
OCTOBER , 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 ...................................................21
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 management seeks to achieve the
investment objective by investing at least 65% of the Fund's total assets in a
non-diversified 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 generally invests in companies with
market capitalizations of $1 billion or more at the time of investment, but also
may invest in smaller-capitalization 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. The Fund may invest up to 25% of its total assets in the
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.
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 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. 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 such as imperfect
correlation between the value of the instruments and the underlying assets;
risks of default by the other party to certain transactions; risks that the
transactions may result in losses that partially or completely offset gains in
portfolio positions; risks that the transactions may not be liquid; and manager
risk.
NON-DIVERSIFICATION RISKS. The Fund is classified as a "non-diversified" fund,
which means the Fund may invest a greater portion of its assets in a more
limited number of issuers than a "diversified" fund. As a result, the Fund may
be subject to greater risk than a diversified fund because changes in the
financial condition or market assessment of a single issuer may cause greater
fluctuations in the value of the
3
<PAGE>
Fund's shares. Additionally, as a result of the Fund's stock selection process,
a significant portion of the 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 management may not be
successful in selecting the best-performing securities and the Fund's
performance may lag behind that of similar funds.
An investment in the Fund is not a deposit of any bank or other insured
depository institution. Your investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
INVESTOR PROFILE
In light of its objective and investment 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 shares of the Fund.
- - Seek a fund with a focused investment strategy on a relatively small number of
companies.
- - Wish to add to their personal 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 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 past 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>
Annual Return
<S> <C>
1996 37.64%
1997 31.70%
1998 14.02%
</TABLE>
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 management believes is an applicable
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 not include
4
<PAGE>
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 % %(2)
Lipper Capital
Appreciation
Fund Index % %(3)
................................................
Van Kampen Focus Equity
Fund
- -- Class B Shares 8.18% 25.90% (1)
Standard & Poor's 500
Index % % (2)
Lipper Capital
Appreciation
Fund Index % % (3)
................................................
Van Kampen Focus Equity
Fund
- -- Class C Shares 12.19% 26.49% (1)
Standard & Poor's 500
Index % % (2)
Lipper Capital
Appreciation
Fund Index % % (3)
................................................
INCEPTION DATES: (1) 1/2/96, (2) , (3)
.
* THE STANDARD & POOR'S 500 INDEX CONSISTS OF
500 WIDELY HELD COMMON STOCKS OF COMPANIES
WITH MARKET CAPITALIZATIONS OF $1 BILLION OR
MORE WHICH 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 FUNDS
These tables describe the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
<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 (as
a percentage of offering
price) None None None
..............................................................
Redemption fees (as a
percentage of amount
redeemed) None None None
..............................................................
Exchange fee None None None
..............................................................
</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 AND DECLINING THEREAFTER AS FOLLOWS:
<TABLE>
<S> <C>
YEAR 1-5.00%
YEAR 2-4.00%
YEAR 3-3.00%
YEAR 4-2.50%
YEAR 5-1.50%
AFTER-NONE
</TABLE>
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."
ANNUAL FUND
OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
<S> <C> <C> <C>
- -------------------------------------------------------------------
Management Fees(1) 0.90% 0.90% 0.90%
..................................................................
Distribution and/or Service
(12b-1) Fees(2) 0.25% 1.00%(3) 1.00%(3)
..................................................................
Other Expenses(1) 0.46% 0.46% 0.46%
..................................................................
Total Annual Fund Operating
Expenses(1) 1.61% 2.36% 2.36%
..................................................................
</TABLE>
(1) 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.
(2) 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."
(3) 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% annual 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>
THREE FIVE
ONE YEAR YEARS YEARS TEN YEARS
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $ 729 $ 1,054 $ 1,401 $ 2,376
................................................................
Class B Shares $ 739 $ 1,036 $ 1,410 $ 2,479*
................................................................
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>
THREE FIVE
ONE YEAR YEARS YEARS TEN YEARS
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $ 729 $ 1,054 $ 1,401 $ 2,376
................................................................
Class B Shares $ 239 $ 736 $ 1,260 $ 2,479*
................................................................
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 investment objective by investing at least 65% of the Fund's total assets in
a non-diversified 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 securities of companies with market
capitalizations of $1 billion or more, but also may invest in smaller-
capitalization companies. The Fund 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 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 closely monitors analysts' consensus
expectations
6
<PAGE>
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. Additionally, 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 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
7
<PAGE>
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.
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 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 markets are
subject to greater risks than the Fund's investments in securities of developed
8
<PAGE>
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. Additionally, 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 temporary substitute for purchasing or
selling particular securities, including, for example, when the Fund acts
quickly to adjust 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).
Additionally, 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 contacts).
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. Additionally, amounts paid as premiums or cash or other assets held in
margin accounts with respect to
9
<PAGE>
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 which 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
brokers-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 otherwise. The Fund's portfolio turnover is shown under the heading
"Financial Highlights." The portfolio turnover rate may be expected to vary from
year to year. A high portfolio turnover rate (100% or more) increases the Fund's
transactions costs, including brokerage commissions or dealer costs, and may
result in the realization of more short-term capital gains than if the Fund had
lower portfolio turnover. Increases in the Fund's transaction costs would impact
the Fund's performance. The turnover rate will not be a limiting factor,
however, if the Fund's investment adviser considers portfolio changes
appropriate.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Fund may hold cash or invest on a temporary basis 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. The Fund may not
achieve its investment objective if it takes a defensive position.
YEAR 2000 RISKS. Like other mutual funds, financial and business organizations
and individuals around the world, the Fund could be adversely affected if the
computer systems used by the Fund's investment adviser and other service
providers do not properly process and calculate date-related information and
data from and after January 1, 2000. This is commonly known as the "Year 2000
Problem." The Fund's investment adviser 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
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
10
<PAGE>
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 markets countries because there is an increased
likelihood that issuers of securities of such countries cannot anticipate or
effectively manage the affects of computer programs and the Year 2000 Problem.
Accordingly, the Fund's investments may be adversely affected. The statements
above are subject to the Year 2000 Information and Readiness Disclosure Act
which Act may limit the legal rights regarding the use of such statements in the
case of a dispute.
INVESTMENT ADVISORY
SERVICES
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 $75 billion under management or supervision. Van
Kampen Investments' more than 50 open-end and 39 closed-end funds and more than
2,500 unit investment trusts are professionally distributed by leading financial
advisers nationwide. Van Kampen Funds Inc., the distributor of the Fund (the
"Distributor") and the sponsor of the funds mentioned above, is also a wholly
owned subsidiary of Van Kampen Investments. Van Kampen Investments is an
indirect wholly owned subsidiary of Morgan Stanley Dean Witter & Co. The
Adviser's principal office is located at 1 Parkview Plaza, PO Box 5555, Oakbrook
Terrace, Illinois 60181-5555.
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 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.
From time to time, the Adviser or the Distributor may voluntarily undertake to
reduce the Fund's expenses by reducing the fees payable to them or by reducing
other expenses of the Fund in accordance with such limitations as the Adviser or
Distributor may establish.
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen 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
December 31, 1998, the Subadviser, together with its affiliated institutional
asset management companies, managed assets of approximately $163.4 billion,
including assets under fiduciary advice. The Subadviser's address is 1221 Avenue
of the Americas, New York, New York 10020.
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 percentage of
the net advisory fees the Adviser recieves from the Fund.
----------
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 co-managers 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
and 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
co-manager 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 co-manager 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.
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
12
<PAGE>
rights with respect to approvals of the Rule 12b-1 distribution plan (described
below) pursuant to which its distribution fee or service fee is paid, (iii) each
class of shares has different exchange privileges, (iv) certain classes of
shares are subject to a conversion feature and (v) certain classes of shares
have different shareholder service options available.
The 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 in which no purchase or redemption orders are
received or there is not a sufficient degree of trading in a 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 values per share and adjust the offering price more frequently than once a
day if deemed desirable. Net asset value per share for each class is determined
by dividing the value of a 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 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 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
13
<PAGE>
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 on 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 gains
distributions, 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 IMPOSES A
CONTINGENT DEFERRED SALES CHARGE OF 1.00% ON CERTAIN REDEMPTIONS MADE
WITHIN ONE YEAR OF THE PURCHASE. THE CONTINGENT DEFERRED SALES CHARGE IS
ASSESSED ON AN AMOUNT EQUAL TO THE LESSER OF THE THEN CURRENT MARKET VALUE
OR THE COST OF THE SHARES BEING REDEEMED. ACCORDINGLY, NO SALES CHARGE IS
IMPOSED ON INCREASES IN NET ASSET VALUE ABOVE THE INITIAL PURCHASE PRICE.
No sales charge is imposed on Class A Shares received from reinvestment of
dividends or capital gains distributions.
Under the Distribution Plan and Service Plan, the Fund may spend a total of
0.25% per year of the 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
14
<PAGE>
Distributor and by brokers, dealers or financial intermediaries and for the
maintenance of such shareholders' accounts.
CLASS B SHARES
Class B Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge if redeemed within five years of purchase as shown in the
table as follows:
CLASS B SHARES
SALES CHARGE SCHEDULE
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE
AS A PERCENTAGE
OF
DOLLAR AMOUNT
YEAR SINCE SUBJECT TO
PURCHASE 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 gains dividends. It
is presently the policy of the Distributor not to accept any order for Class B
Shares in an amount of $500,000 or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
The amount of the contingent deferred sales charge, if any, varies depending on
the number of years from the time of payment for the purchase of Class B Shares
until the time of redemption of such shares. Solely for purposes of determining
the number of years from the time of any payment for the purchase of shares, all
payments during a month are totaled and deemed to have been made on the last day
of the month.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed that the redemption is first of any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge and then of shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
average daily net assets with respect to the Class B Shares of the Fund. In
addition, under the Service Plan, the Fund may spend up to 0.25% per year of the
Fund's average daily net assets with respect to the Class B Shares for the
ongoing provision of services to Class B shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CLASS C SHARES
Class C Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge of 1.00% of the dollar amount subject to charge if
redeemed within one year of purchase.
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gains dividends. It
is presently the policy of the Distributor not to accept any order for Class C
Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
In determining whether a contingent deferred sales charge is applicable to a
redemption, it is assumed that the redemption is first of any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge and then of shares held the longest in the shareholder's account.
15
<PAGE>
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
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 distributions constituting
"preferential dividends" under the federal income tax law and (ii) the
conversion of shares does not constitute a taxable event under federal income
tax law. The conversion may be suspended if such an opinion is no longer
available and such shares might continue to be subject to the higher aggregate
fees applicable to such shares for an indefinite period.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge is waived on redemptions of Class B Shares
and Class C Shares (i) within one year following the death or disability (as
disability is defined by federal income tax law) of a shareholder, (ii) for
required minimum distributions from an individual retirement account ("IRA") or
certain other retirement plan distributions, (iii) for withdrawals under the
Fund's systematic withdrawal plan but limited to 12% annually of the initial
value of the account, (iv) if no commission or transaction fee is paid to
authorized dealers at the time of purchase of such shares and (v) if made by
involuntary liquidation by the Fund of a shareholder's account as described
under the heading "Redemption of Shares." Subject to certain limitations, a
shareholder who has redeemed Class C Shares of the Fund may reinvest in Class C
Shares at net asset value with credit for any contingent deferred sales charge
if the reinvestment is within 180 days after the redemption. For a more complete
description of contingent deferred sales charge waivers, please refer to the
Fund's Statement of Additional Information or contact your authorized dealer.
QUANTITY DISCOUNTS
Investors purchasing Class A Shares may, under certain circumstances described
below, be entitled to pay reduced or no sales charges. Investors, or their
authorized dealers, must notify the Fund at the time of the purchase order
whenever a quantity discount is applicable to purchases. Upon such notification,
an investor will receive the lowest applicable sales charge. Quantity discounts
may be modified or terminated at any time. For more information about quantity
discounts, investors should contact their authorized dealer or the Distributor.
A person eligible for a reduced sales charge includes an individual, his or her
spouse and children under 21 years of age and any corporation, partnership or
sole proprietorship which is 100% owned, either alone or in combination, by any
of the foregoing; a trustee or other fiduciary purchasing for a single trust or
for a single fiduciary account, or a "company" as defined in Section 2(a)(8) of
the 1940 Act.
As used herein, "Participating Funds" refers to certain open-end investment
companies advised by Asset Management or Advisory Corp. and distributed by the
Distributor as determined from time to time by the Fund's Board of Directors.
16
<PAGE>
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 trust distributions will be 1.00% of the offering
price (1.01% of net asset value). Of this amount, the Distributor will pay to
the authorized dealer, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the terms and conditions that apply to the program,
should contact their authorized dealer or the Distributor.
The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during each distribution period by all investors who choose to invest in
the Fund through the program and (2) provide Investor Services with appropriate
backup data for each investor participating in the program in a computerized
format fully compatible with Investor Services' processing system.
As further requirements for obtaining these special benefits, the Fund also
requires that all dividends
17
<PAGE>
and other distributions by the Fund be reinvested in additional shares without
any systematic withdrawal program. There will be no minimum for reinvestments
from unit investment trusts. The Fund will send account activity statements to
such participants on a quarterly basis only, even if their investments are made
more frequently. The Fund reserves the right to modify or terminate this program
at any time.
NET ASSET VALUE PURCHASE OPTIONS. Class A Shares of the Fund may be purchased at
net asset value, upon written assurance that the purchase is made for investment
purposes and that the shares will not be resold except through redemption by the
Fund, by:
(1) Current or retired trustees or directors of funds advised by Morgan Stanley
Dean Witter & Co. and any of its subsidiaries and such persons' families
and their beneficial accounts.
(2) Current or retired directors, officers and employees of Morgan Stanley Dean
Witter & Co. and any of its subsidiaries, employees of an investment
subadviser to any fund described in (1) above or an affiliate of such
subadviser, and such persons' families and their beneficial accounts.
(3) Directors, officers, employees and, when permitted, registered
representatives, of financial institutions that have a selling group
agreement with the Distributor and their spouses and children under 21
years of age when purchasing for any accounts they beneficially own, or, in
the case of any such financial institution, when purchasing for retirement
plans for such institution's employees; provided that such purchases are
otherwise permitted by such institutions.
(4) Registered investment advisers who charge a fee for their services, trust
companies and bank trust departments investing on their own behalf or on
behalf of their clients. The Distributor may pay authorized dealers through
which purchases are made an amount up to 0.50% of the amount invested, over
a 12-month period.
(5) Trustees and other fiduciaries purchasing shares for retirement plans which
invest in multiple fund families through broker-dealer retirement plan
alliance programs that have entered into agreements with the Distributor
and which are subject to certain minimum size and operational requirements.
Trustees and other fiduciaries should refer to the Statement of Additional
Information for further details with respect to such alliance programs.
(6) Beneficial owners of shares of Participating Funds held by a retirement
plan or held in a tax-advantaged retirement account who purchase shares of
the Fund with proceeds from distributions from such a plan or retirement
account other than distributions taken to correct an excess contribution.
(7) Accounts as to which a bank or broker-dealer charges an account management
fee ("wrap accounts"), provided the bank or broker-dealer has a separate
agreement with the Distributor.
(8) Trusts created under pension, profit sharing or other employee benefit
plans qualified under Section 401(a) of the Internal Revenue Code of 1986,
as amended (the "Code"), or custodial accounts held by a bank created
pursuant to Section 403(b) of the Code and sponsored by nonprofit
organizations defined under Section 501(c)(3) of the Code and assets held
by an employer or trustee in connection with an eligible deferred
compensation plan under Section 457 of the Code. Such plans will qualify
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
18
<PAGE>
to time. Prior to February 1, 1997, a commission will be paid to authorized
dealers who initiate and are responsible for such purchases within a
rolling twelve- month period as follows: 1.00% on sales to $5 million, plus
0.50% on the next $5 million, plus 0.25% on the excess over $10 million.
For purchases on February 1, 1997 and thereafter, a commission will be paid
as follows: 1.00% on sales to $2 million, plus 0.80% on the next $1
million, plus 0.50% on the next $47 million, plus 0.25% on the excess over
$50 million.
(9) Individuals who are members of a "qualified group." For this purpose, a
qualified group is one which (i) has been in existence for more than six
months, (ii) has a purpose other than to acquire shares of the Fund or
similar investments, (iii) has given and continues to give its endorsement
or authorization, on behalf of the group, for purchase of shares of the
Fund and Participating Funds, (iv) has a membership that the authorized
dealer can certify as to the group's members and (v) satisfies other
uniform criteria established by the Distributor for the purpose of
realizing economies of scale in distributing such shares. A qualified group
does not include one whose sole organizational nexus, for example, is that
its participants are credit card holders of the same institution, policy
holders of an insurance company, customers of a bank or broker-dealer,
clients of an investment adviser or other similar groups. Shares purchased
in each group's participants account in connection with this privilege will
be subject to a contingent deferred sales charge of 1.00% in the event of
redemption within one year of purchase, and a commission will be paid to
authorized dealers who initiate and are responsible for such sales to each
individual as follows: 1.00% on sales to $2 million, plus 0.80% on the next
$1 million and 0.50% on the excess over $3 million.
The term "families" includes a person's spouse, children under 21 years of age
and grandchildren, parents, and a person's spouse's parents.
Purchase orders made pursuant to clause (4) may be placed either through
authorized dealers as described above or directly with Investor Services by the
investment adviser, trust company or bank trust department, provided that
Investor Services receives federal funds for the purchase by the close of
business on the next business day following acceptance of the order. An
authorized dealer may charge a transaction fee for placing an order to purchase
shares pursuant to this provision or for placing a redemption order with respect
to such shares. Authorized dealers will be paid a service fee as described on
purchases made as described in (3) through (9) above. The Fund may terminate, or
amend the terms of, offering shares of the Fund at net asset value to such
groups at any time.
REDEMPTION OF
SHARES
Generally shareholders may redeem for cash some or all of their shares without
charge by the Fund (other than applicable sales charge) at any time. As
described under the heading "Purchase of Shares," redemptions of Class B Shares
and Class C Shares may be subject to a contingent deferred sales charge. In
addition, certain redemptions of Class A Shares for shareholder accounts of $1
million or more may be subject to a contingent deferred sales charge.
Redemptions completed through an authorized dealer or a custodian of a
retirement plan account may involve additional fees charged by the dealer or
custodian.
Except as specified below under "Telephone Redemption Requests," payment for
shares redeemed generally will be made by check mailed within seven days after
receipt by Investor Services of the request and any other necessary documents in
proper order. Such payment may be postponed or the right of redemption suspended
as provided by the rules of the SEC. Such payment may, under certain
circumstances, be paid wholly or in part by a distribution-in-kind of portfolio
securities. If the shares to be redeemed have been recently purchased by check,
Investor Services may delay the payment of redemption proceeds until it confirms
the purchase check has cleared, which may take up to 15 days. A taxable gain or
loss will be recognized by the shareholder upon redemption of shares.
19
<PAGE>
WRITTEN REDEMPTION REQUESTS. Shareholders may request a redemption of shares by
written request in proper form sent directly to Van Kampen Investor Services
Inc., PO Box 218256, Kansas City, MO 64121-8256. The request for redemption
should indicate the number of shares to be redeemed, the class designation of
such shares and the shareholder's account number. The redemption request must be
signed by all persons in whose names the shares are registered. Signatures must
conform exactly to the account registration. If the proceeds of the redemption
exceed $50,000, or if the proceeds are not to be paid to the record owner at the
record address, or if the record address has changed within the previous 30
days, signature(s) must be guaranteed by one of the following: a bank or trust
company; a broker-dealer; a credit union; a national securities exchange,
registered securities association or clearing agency; a savings and loan
association; or a federal savings bank.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption to be in proper form. In some
cases, however, additional documents may be necessary. In the case of
shareholders holding certificates, the certificates for the shares being
redeemed properly endorsed for transfer must accompany the redemption request.
In the event the redemption is requested by a corporation, partnership, trust,
fiduciary, executor or administrator, and the name and title of the
individual(s) authorizing such redemption is not shown in the account
registration, a copy of the corporate resolution or other legal documentation
appointing the authorized signer and certified within the prior 120 days must
accompany the redemption request. IRA redemption requests should be sent to the
IRA custodian to be forwarded to Investor Services. Contact the IRA custodian
for further information.
In the case of written redemption requests sent directly to Investor Services,
the redemption price is the net asset value per share next determined after the
request in proper form is received by Investor Services.
AUTHORIZED DEALER REDEMPTION REQUESTS. Shareholders may place redemption
requests through an authorized dealer. Orders sent through authorized dealers
must be at least $500 (unless transmitted by your authorized dealer via the
FUNDSERV network). The redemption price for such shares is the net asset value
per share next calculated after an order in proper form is received by an
authorized dealer provided such order is transmitted to the Distributor prior to
the Distributor's close of business on such day. It is the responsibility of
authorized dealers to transmit redemption requests received by them to the
Distributor so they will be received prior to such time. Redemptions completed
through an authorized dealer may involve additional fees charged by the dealer.
TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. To establish
such privilege, a shareholder must complete the appropriate section of the
application form accompanying this prospectus or call the Fund at (800) 341-2911
to request that a copy of the Telephone Redemption Authorization form be sent to
them for completion. To redeem shares, contact the telephone transaction line at
(800) 421-5684. Van Kampen Investments, Investor Services and the Fund employ
procedures considered by them to be reasonable to confirm that instructions
communicated by telephone are genuine. Such procedures include requiring certain
personal identification information prior to acting upon telephone instructions,
tape-recording telephone communications and providing written confirmation of
instructions communicated by telephone. If reasonable procedures are employed,
neither Van Kampen Investments, Investor Services nor the Fund will be liable
for following telephone instructions which it reasonably believes to be genuine.
Telephone redemptions may not be available if the shareholder cannot reach
Investor Services by telephone, whether because all telephone lines are busy or
for any other reason; in such case, a shareholder would have to use the Fund's
other redemption procedure previously described. Requests received by Investor
Services prior to 4:00 p.m., New York time, will be processed at the next
determined net asset value per share. These privileges are available for all
accounts other than retirement accounts or accounts with shares represented by
certificates. If an account
20
<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 two kinds of return from the Fund: dividends and
capital gains 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 GAINS. The Fund may realize capital gains or losses when it sells
securities, depending on whether the sales prices for the securities are higher
or lower than purchase prices. Net realized capital gains represent the total
profit from sales of securities minus total losses from sales of securities
including losses carried forward from prior years. The Fund distributes any
taxable net realized capital gains to shareholders as capital gains dividends at
least annually. As in the case of dividends, capital gains dividends are
automatically reinvested in additional shares of the Fund at 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 gains distributions 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 gains
distribution. Unless the shareholder instructs otherwise, the reinvestment plan
is automatic. This instruction may
21
<PAGE>
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 gains distributions be reinvested at net asset value, or that both
dividends and capital gains distributions be paid in cash.
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under which
a shareholder can authorize 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.
To be eligible for exchange, shares of the Fund must have been registered in the
shareholder's name for at least 30 days prior to an exchange. Shares of the Fund
registered in a shareholder's name for less than 30 days may only be exchanged
upon receipt of prior approval of the Adviser. It is the policy of the Adviser,
under normal circumstances, not to approve such requests.
When Class B Shares and Class C Shares are exchanged among Participating Funds,
the holding period for purposes of computing the contingent deferred sales
charge is based upon the date of the initial purchase of such shares from a
Participating Fund. If such Class B Shares or Class C Shares are redeemed and
not exchanged for shares of another Participating Fund, Class B Shares and Class
C Shares are subject to the contingent deferred sales charge schedule imposed by
the Participating Fund from which such shares were originally purchased.
Exchanges of shares are sales and may result in a gain or loss for federal
income tax purposes. If the shares exchanged have been held for less than 91
days, the sales charge paid on such shares is carried over and included in the
tax basis of the shares acquired.
A shareholder wishing to make an exchange may do so by sending a written request
to Investor Services or by contacting the telephone transaction line at (800)
421-5684. A shareholder automatically has telephone exchange privileges unless
otherwise designated in the application form accompanying the prospectus. Van
Kampen Investments, Investor Services and the Fund employ procedures considered
by them to be reasonable to confirm that instructions communicated by telephone
are genuine. Such procedures include requiring certain personal identification
information prior to acting upon telephone instructions, tape-recording
telephone communications, and providing written confirmation of instructions
communicated by telephone. If reasonable procedures are employed, neither Van
Kampen Investments, Investor Services nor the Fund will be liable for following
telephone instructions which it reasonably believes to be genuine. If the
exchanging shareholder does not have an account in the fund whose shares are
being acquired, a new account will be established with the same registration,
dividend and capital gains options (except dividend diversification) and
authorized dealer of record as the account from which shares are exchanged,
unless otherwise specified by the shareholder. In order to establish a
systematic withdrawal plan for the new account or reinvest dividends from the
new account into another fund, however, an exchanging shareholder must submit a
specific request. The Fund reserves the right to reject any order to acquire its
shares through exchange. In addition, the Fund and other Participating Funds may
restrict exchanges by shareholders engaged in excessive trading by limiting or
disallowing the exchange privileges to such shareholders. For further
information on these restrictions see the Statement of Additional Information.
The Fund may modify, restrict or terminate the exchange privilege at any time on
60 days' notice to its
22
<PAGE>
shareholders of any termination or material amendment.
For purposes of determining the sales charge rate previously paid on Class A
Shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchanged security was acquired through reinvestment, that
security is deemed to have been sold with a sales charge rate equal to the rate
previously paid on the security on which the dividend or distribution was paid.
If a shareholder exchanges less than all of such shareholder's securities, the
security upon which the highest sales charge rate was previously paid is deemed
exchanged first.
Exchange requests received on a business day prior to the time shares of the
funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares in the fund from which the
shareholder is withdrawing an investment will be redeemed at the net asset value
per share next determined on the date of receipt. Shares of the new fund into
which the shareholder is investing will also normally be purchased at the net
asset value per share, plus any applicable sales charge, next determined on the
date of receipt. Exchange requests received on a business day after the time
shares of the funds involved in the request are priced will be processed on the
next business day in the manner described herein.
A prospectus of any of these Participating Funds may be obtained from any
authorized dealer or the Distributor. An investor considering an exchange to one
of such funds should refer to the prospectus for additional information
regarding such fund prior to investing.
INTERNET TRANSACTIONS. In addition to performing transactions on your account
through written instruction or by telephone, you may also perform certain
transactions through the internet. Please refer to our web site at
www.vankampen.com for further instruction. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated through the internet are genuine. Such
procedures include requiring use of a personal identification number prior to
acting upon internet instructions and providing written confirmation of
instructions communicated through the internet. If reasonable procedures are
employed, neither Van Kampen Investments, Investor Services nor the Fund will be
liable for following instructions through the internet which it reasonably
believes to be genuine. If an account has multiple owners, Investor Services may
rely on the instructions of any one owner.
FEDERAL INCOME
TAXATION
Distributions of the Fund's net investment income (consisting generally of
taxable income and net short-term capital gains) are taxable to shareholders as
ordinary income to the extent of the Fund's earnings and profits, whether paid
in cash or reinvested in additional shares. Distributions of the Fund's net
capital gains (which are the excess of net long-term capital gains over net
short-term capital losses) as capital gain dividends, if any, are taxable to
shareholders as long-term capital gains, whether paid in cash or reinvested in
additional shares, and regardless of how long the shares of the Fund have been
held by such shareholders. Capital gains dividends may be taxed at different
rates depending on how long the Fund held the securities. The Fund expects that
its distributions will consist primarily of ordinary income and capital gains
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.
23
<PAGE>
The sale or exchange of shares is a taxable transaction for federal income tax
purposes. Shareholders who sell their shares will generally recognize gain or
loss in an amount equal to the difference between their adjusted tax basis in
the shares and the amount received. If the shares are held as a capital asset,
the gain or loss will be a capital gain or loss. Any capital gains may be taxed
at different rates depending on how long the shareholder held such shares.
The Fund is required, in certain circumstances, to withhold 31% of dividends and
certain other payments, including redemptions, paid to shareholders who do not
furnish to the Fund their correct taxpayer identification number (in the case of
individuals, their social security number) and certain required certifications
or who are otherwise subject to backup withholding.
Foreign shareholders, including shareholders who are non-resident aliens, may be
subject to U.S. withholding tax on certain distributions (whether received in
cash or in shares) at a rate of 30% or such lower rate as prescribed by an
applicable treaty. Prospective foreign investors should consult their U.S. tax
advisers concerning the tax consequences to them of an investment in shares.
The Fund intends to qualify as a regulated investment company under federal
income tax law. If the Fund so qualifies and distributes each year to its
shareholders at least 90% of its net investment income, the Fund will not be
required to pay federal income taxes on any income it distributed to
shareholders. If the Fund distributes less than the sum of 98% of its ordinary
income and 98% of its capital gains 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, or disposing 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
-------------------------------------------------
JANUARY
YEAR ENDED JUNE 30, 2, 1996*
------------------------------------- TO JUNE
SELECTED PER SHARE DATA AND RATIOS 1999 # 1998 # 1997 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
---------------------------------------------------
JANUARY
YEAR ENDED JUNE 30, 2, 1996*
--------------------------------------- TO JUNE
SELECTED PER SHARE DATA AND RATIOS 1999 # 1998 # 1997 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
------------------------------------------------
JANUARY
YEAR ENDED JUNE 30, 2, 1996*
------------------------------------ TO JUNE
SELECTED PER SHARE DATA AND RATIOS 1999 # 1998 # 1997 30, 1996
- --------------------------------------------------
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 Philip B. Rooney
Richard M.
DeMartini* Fernando Sisto
Linda Hutton Heagy Wayne W. Whalen*
Suzanne H.
R. Craig Kennedy Woolsey
Jack E. Nelson Paul G. Yovovich
</TABLE>
OFFICERS
Richard F. Powers, III*
PRESIDENT
Dennis J. McDonnell*
EXECUTIVE VICE PRESIDENT & CHIEF INVESTMENT OFFICER
Edward C. Wood III*
VICE PRESIDENT
A. Thomas Smith III*
VICE PRESIDENT AND SECRETARY
Michael H. Santo*
VICE PRESIDENT
Peter W. Hegel*
VICE PRESIDENT
Stephen L. Boyd*
VICE PRESIDENT
Joseph P. Stadler*
VICE PRESIDENT
Curtis W. Morell*
VICE PRESIDENT & CHIEF ACCOUNTING OFFICER
Tanya M. Loden*
CONTROLLER
John L. Sullivan*
VICE PRESIDENT, CHIEF FINANCIAL OFFICER & TREASURER
* "Interested" persons of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2911
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders, or
redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call (800)
421-2833
FUND INFO-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 , 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 Public
Reference Room in
Washington, DC or online
at the SEC's web site
(http://www.sec.gov).
For more information,
please call the SEC at
(800) SEC-0330. You can
also request these
materials by writing
the Public Reference
Section of the SEC,
Washington DC,
20549-6009, and paying a
duplication fee.
[LOGO]
THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-7140.
MSFE PRO 10/99
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THE FUND MAY NOT SELL THESE SECURITIES UNTIL THE POST-
EFFECTIVE AMENDMENT TO THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES.
SUBJECT TO COMPLETION -- DATED AUGUST 27, 1999
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 regulators, and
neither the SEC nor any
state regulator has passed
upon the accuracy or
adequacy of this
prospectus. Any
representation to the
contrary is a criminal
offense.
THIS PROSPECTUS IS DATED
OCTOBER , 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 ...................................................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 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
Under normal market conditions, the Fund management seeks to achieve the
investment objective by applying a "top-down" investment approach that
emphasizes country and/or sector selection and weighting rather than individual
security selection and, within a particular country, selecting equity securities
of issuers designed to track a broad market index for that country. 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
evaluation of economic and market trends by the Fund's management and the
anticipated relative capital appreciation available from particular countries
and securities. The Fund may invest in any country, including emerging or
developing countries. Equity securities include common and preferred stocks,
convertible securities, rights and warrants to purchase common stock and
depositary receipts. The Fund may purchase or 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, including seeking to reduce or eliminate
foreign currency exchange risks associated with securities denominated in
non-U.S. dollar currencies.
INVESTMENT RISKS
An investment in the Fund is subject to investment risks, and you could lose
money on your investment in the Fund. There can be no assurance that the Fund
will achieve its investment 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 emerging or developing markets,
may have more price volatility than U.S. markets. 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 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 markets 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, futures and options on futures and
currency-related
3
<PAGE>
transactions involving options, futures, forward contracts and swaps are
examples of derivatives. Derivative investments involve risks different from
direct investment in underlying securities such as imperfect correlation between
the value of the instruments and the underlying assets; risks of default by the
other party to certain transactions; risks that the transactions may result in
losses that partially or completely offset gains in portfolio positions; risks
that the transactions may not be liquid; and manager risk.
MANAGER RISK. As with any managed fund, the Fund's management may not be
successful in selecting the best-performing securities and the Fund's
performance may lag behind that of similar funds.
An investment in the Fund is not a deposit of any bank or other insured
depository institution. Your investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
INVESTOR PROFILE
In light of its objective and investment 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 shares of the Fund.
- - Wish to add to their personal investment portfolio a fund that invests in a
global portfolio of equity securities.
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 past 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>
1993 22.72%
<S> <C>
1994 0.27%
1995 19.65%
1996 13.01%
1997 16.45%
1998 19.38%
</TABLE>
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 15.98% (for the quarter ended December 31, 1998) and the lowest quarterly
return was -11.46% (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 management believes is an applicable benchmark for the Fund. The
Fund's performance figures include the maximum sales charges paid by investors.
The
4
<PAGE>
index performance figures do not include 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 PAST 5 SINCE
DECEMBER 31, 1998 1 YEAR YEARS INCEPTION
- ------------------------------------------------------------------
Van Kampen Global Equity Allocation
Fund
- -- Class A Shares 12.55% 12.18% 13.90%(1)
MSCI World Net Dividends Index % % %(3)
.................................................................
Van Kampen Global Equity Allocation
Fund
- -- Class B Shares 13.58% --% 15.63%(2)
MSCI World Net Dividends Index % % %(4)
.................................................................
Van Kampen Global Equity Allocation
Fund
- -- Class C Shares 17.53% 12.68% 14.19%(1)
MSCI World Net Dividends Index % % %(3)
.................................................................
INCEPTION DATES: (1) 1/4/93, (2) 8/1/95, (3) ,
(4)
* THE MSCI WORLD NET DIVIDENDS INDEX IS AN UNMANAGED
INDEX WHICH 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 FUNDS
These tables describe the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
- ----------------------------------------------------------------
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 (as a
percentage of offering price) None None None
...............................................................
Redemption fees (as a percentage of
amount redeemed) None None None
...............................................................
Exchange fee None None None
...............................................................
(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 AND 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."
ANNUAL FUND
OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
- ----------------------------------------------------------------
Management Fees(1) 1.00% 1.00% 1.00%
...............................................................
Distribution and/or Service
(12b-1) Fees(2) 0.25% 1.00%(3) 1.00%(3)
...............................................................
Other Expenses(1) 0.48% 0.49% 0.48%
...............................................................
Total Annual Fund Operating
Expenses(1) 1.73% 2.49% 2.48%
...............................................................
(1) 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.
(2) 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."
(3) 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% annual 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>
THREE FIVE
ONE YEAR YEARS YEARS TEN YEARS
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $ 741 $ 1,089 $ 1,460 $ 2,499
................................................................
Class B Shares $ 752 $ 1,076 $ 1,476 $ 2,628*
................................................................
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>
THREE FIVE
ONE YEAR YEARS YEARS TEN YEARS
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $ 741 $ 1,089 $ 1,460 $ 2,499
................................................................
Class B Shares $ 252 $ 776 $ 1,326 $ 2,628*
................................................................
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 investment objective by applying a "top-down" investment approach that
emphasizes country and sector selection and weighting rather than individual
security selection and, within a particular country, selecting equity securities
of issuers designed to track a broad market index. 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 emerging or developing
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
securities. 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 may result in the realization of more
short-term capital gains than if the Fund had
6
<PAGE>
lower portfolio turnover. Increases in the Fund's transaction costs would impact
the Fund's performance.
The Fund's investment adviser determines country and sector allocations for the
Fund on an ongoing basis. The Fund generally invests in 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 markets 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 stocks which, in the aggregate, designed to track a broad market index for
that particular country or sector, which in most cases will be the MSCI Index
for the particular country or sector. The MSCI Indices measure the performance
of stock markets worldwide and are based on the share prices of companies listed
on the local stock exchange of the specified country or countries within a
specified region. The combined market capitalization of companies in such
indices generally represent approximately 80% of the aggregate market value of
the covered stock exchanges. Companies included in the MSCI Index for a country
replicate the industry composition of the local market and are a representative
sampling of large, medium and small companies. Non-domiciled companies traded on
the local exchange and companies with restricted float due to dominant
shareholders or cross-ownership are avoided. The Fund's investment adviser may
overweight or underweight an industry segment of a particular index if it
concludes it would be advantageous to the Fund.
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 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
7
<PAGE>
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 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 additional fees
such as management and other fees.
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, 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 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 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 investment
adviser's assessment of the relative yield, appreciation potential and
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 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 markets are subject to
greater risks than investments in securities of developed markets since emerging
markets tend to have economic structures that are less diverse and mature and
political systems that are less stable than developed markets.
In addition to the increased risks of investing in foreign 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.
Since the Fund invests in securities denominated or quoted in currencies other
than the U.S. dollar, the Fund will be affected by changes in foreign currency
exchange rates (and exchange control regulations) which affect the value of
investments in the Fund and the accrued income and unrealized appreciation or
depreciation of the investments. Changes in foreign currency exchange ratios
relative to the U.S. dollar will affect the U.S. dollar value of the Fund's
assets denominated in that currency and the Fund's yield on such assets 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'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. The Fund purchases and sells
foreign currency on a spot basis in connection with the settlement of
transactions in securities traded in such foreign currency. The Fund also may
enter into contracts with banks, brokers or dealers to purchase or sell 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 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 investment adviser seeks to use the
practices to further the
9
<PAGE>
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. Additionally, 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 temporary substitute for purchasing or
selling particular securities, including, for example, when the Fund acts
quickly to adjust 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).
Additionally, 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. Additionally, 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 which 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 hold cash or invest on a temporary basis 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. The Fund may not
achieve its investment objective if it takes a defensive position.
YEAR 2000 RISKS. Like other mutual funds, financial and business organizations
and individuals around the world, the Fund could be adversely affected if the
computer systems used by the Fund's investment adviser and other service
providers do not properly process and calculate date-related information and
data from and after January 1, 2000. This is commonly known as the "Year 2000
Problem." The Fund's investment adviser 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 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 markets countries because there is an increased likelihood that issuers
of securities of such countries cannot anticipate or effectively manage the
affects 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 Act 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 $75 billion under management or supervision. Van
Kampen Investments' more than 50 open-end and 39 closed-end funds and more than
2,500 unit investment trusts are professionally distributed by leading financial
advisers nationwide. Van Kampen Funds Inc., the distributor of the Fund (the
"Distributor") and the sponsor of the funds mentioned above, is also a wholly
owned subsidiary of Van Kampen Investments. Van Kampen Investments is an
indirect wholly owned subsidiary of Morgan Stanley Dean Witter & Co. The
Adviser's principal office is located at 1 Parkview Plaza, PO Box 5555, Oakbrook
Terrace, Illinois 60181-5555.
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 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.
From time to time, the Adviser or the Distributor may voluntarily undertake to
reduce the Fund's expenses by reducing the fees payable to them or by reducing
other expenses of the Fund in accordance with such limitations as the Adviser or
Distributor may establish.
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen 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
December 31, 1998, the Subadviser, together with its affiliated institutional
asset management companies, managed assets of approximately $163.4 billion,
including assets under fiduciary advice. The Subadviser's address is 1221 Avenue
of the Americas, New York, New York 10020.
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 percentage of
the net advisory fees the Adviser receives from the Fund.
-------------
12
<PAGE>
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
co-managers for the day-to-day management of the Fund's investment portfolio.
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. 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 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.
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 (described below) pursuant to which its
distribution fee or service fee is paid, (iii) each class of shares has
different exchange privileges, (iv) certain classes of shares are subject to a
conversion feature and (v) certain classes of shares have different shareholder
service options available.
The 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 a 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 in which no purchase or redemption orders are
received or there is not a sufficient degree of trading in a 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
13
<PAGE>
right to calculate the net asset values per share and adjust the offering price
more frequently than once a day if deemed desirable. Net asset value per share
for each class is determined by dividing the value of a 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
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.
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 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."
14
<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 on 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 gains
distributions, 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
AS % OF AS % OF
SIZE OF OFFERING NET AMOUNT
INVESTMENT PRICE INVESTED
- ---------------------------------------------------------
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 * *
........................................................
* NO SALES CHARGE IS PAYABLE AT THE TIME OF PURCHASE ON INVESTMENTS OF
$1 MILLION OR MORE, ALTHOUGH FOR SUCH INVESTMENTS THE FUND IMPOSES A
CONTINGENT DEFERRED SALES CHARGE OF 1.00% ON CERTAIN REDEMPTIONS MADE
WITHIN ONE YEAR OF THE PURCHASE. THE CONTINGENT DEFERRED SALES CHARGE
IS ASSESSED ON AN AMOUNT EQUAL TO THE LESSER OF THE THEN CURRENT
MARKET VALUE OR THE COST OF THE SHARES BEING REDEEMED. ACCORDINGLY, NO
SALES CHARGE IS IMPOSED ON INCREASES IN NET ASSET VALUE ABOVE THE
INITIAL PURCHASE PRICE.
No sales charge is imposed on Class A Shares received from reinvestment of
dividends or capital gains distributions.
Under the Distribution Plan and Service Plan, the Fund may spend a total of
0.25% per year of the average daily net assets with respect to the Class A
Shares of the Fund. From such amount, under the Service Plan, the Fund may spend
up to 0.25% per year of the Fund's average daily net assets with respect to the
Class A Shares for the ongoing provision of services to Class A shareholders by
the Distributor and by brokers, dealers or financial intermediaries and for the
maintenance of such shareholders' accounts.
CLASS B SHARES
Class B Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge if
15
<PAGE>
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 5.00%
......................................................
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 gains dividends. It
is presently the policy of the Distributor not to accept any order for Class B
Shares in an amount of $500,000 or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
The amount of the contingent deferred sales charge, if any, varies depending on
the number of years from the time of payment for the purchase of Class B Shares
until the time of redemption of such shares. Solely for purposes of determining
the number of years from the time of any payment for the purchase of shares, all
payments during a month are totaled and deemed to have been made on the last day
of the month.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed that the redemption is first of any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge and then of shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
average daily net assets with respect to the Class B Shares of the Fund. In
addition, under the Service Plan, the Fund may spend up to 0.25% per year of the
Fund's average daily net assets with respect to the Class B Shares for the
ongoing provision of services to Class B shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CLASS C SHARES
Class C Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge of 1.00% of the dollar amount subject to charge if
redeemed within one year of purchase.
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gains dividends. It
is presently the policy of the Distributor not to accept any order for Class C
Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
In determining whether a contingent deferred sales charge is applicable to a
redemption, it is assumed that the redemption is first of any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge and then of shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
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.
16
<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 distributions constituting
"preferential dividends" under the federal income tax law and (ii) the
conversion of shares does not constitute a taxable event under federal income
tax law. The conversion may be suspended if such an opinion is no longer
available and such shares might continue to be subject to the higher aggregate
fees applicable to such shares for an indefinite period.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge is waived on redemptions of Class B Shares
and Class C Shares (i) within one year following the death or disability (as
disability is defined by federal income tax law) of a shareholder, (ii) for
required minimum distributions from an individual retirement account ("IRA") or
certain other retirement plan distributions, (iii) for withdrawals under the
Fund's systematic withdrawal plan but limited to 12% annually of the initial
value of the account, (iv) if no commission or transaction fee is paid to
authorized dealers at the time of purchase of such shares and (v) if made by
involuntary liquidation by the Fund of a shareholder's account as described
under the heading "Redemption of Shares." Subject to certain limitations, a
shareholder who has redeemed Class C Shares of the Fund may reinvest in Class C
Shares at net asset value with credit for any contingent deferred sales charge
if the reinvestment is within 180 days after the redemption. For a more complete
description of contingent deferred sales charge waivers, please refer to the
Fund's Statement of Additional Information or contact your authorized dealer.
QUANTITY DISCOUNTS
Investors purchasing Class A Shares may, under certain circumstances described
below, be entitled to pay reduced or no sales charges. Investors, or their
authorized dealers, must notify the Fund at the time of the purchase order
whenever a quantity discount is applicable to purchases. Upon such notification,
an investor will receive the lowest applicable sales charge. Quantity discounts
may be modified or terminated at any time. For more information about quantity
discounts, investors should contact their authorized dealer or the Distributor.
A person eligible for a reduced sales charge includes an individual, his or her
spouse and children under 21 years of age and any corporation, partnership or
sole proprietorship which is 100% owned, either alone or in combination, by any
of the foregoing; a trustee or other fiduciary purchasing for a single trust or
for a single fiduciary account, or a "company" as defined in Section 2(a)(8) of
the 1940 Act.
As used herein, "Participating Funds" refers to certain open-end investment
companies advised by Asset Management or Advisory Corp. and distributed by the
Distributor as determined from time to time by the Fund's Board of 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
17
<PAGE>
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 trust distributions will be 1.00% of the offering
price (1.01% of net asset value). Of this amount, the Distributor will pay to
the authorized dealer, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the terms and conditions that apply to the program,
should contact their authorized dealer or the Distributor.
The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during each distribution period by all investors who choose to invest in
the Fund through the program and (2) provide Investor Services with appropriate
backup data for each investor participating in the program in a computerized
format fully compatible with Investor Services' processing system.
As further requirements for obtaining these special benefits, the Fund also
requires that all dividends and other distributions by the Fund be reinvested in
additional shares without any systematic withdrawal program. There will be no
minimum for reinvestments from unit investment trusts. The Fund will send
account activity statements to such participants on a quarterly basis only, even
if their investments are made more frequently. The Fund reserves the right to
modify or terminate this program at any time.
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
19
<PAGE>
0.80% on the next $1 million, plus 0.50% on the next $47 million, plus
0.25% on the excess over $50 million.
(9) Individuals who are members of a "qualified group." For this purpose, a
qualified group is one which (i) has been in existence for more than six
months, (ii) has a purpose other than to acquire shares of the Fund or
similar investments, (iii) has given and continues to give its endorsement
or authorization, on behalf of the group, for purchase of shares of the
Fund and Participating Funds, (iv) has a membership that the authorized
dealer can certify as to the group's members and (v) satisfies other
uniform criteria established by the Distributor for the purpose of
realizing economies of scale in distributing such shares. A qualified group
does not include one whose sole organizational nexus, for example, is that
its participants are credit card holders of the same institution, policy
holders of an insurance company, customers of a bank or broker-dealer,
clients of an investment adviser or other similar groups. Shares purchased
in each group's participants account in connection with this privilege will
be subject to a contingent deferred sales charge of 1.00% in the event of
redemption within one year of purchase, and a commission will be paid to
authorized dealers who initiate and are responsible for such sales to each
individual as follows: 1.00% on sales to $2 million, plus 0.80% on the next
$1 million and 0.50% on the excess over $3 million.
The term "families" includes a person's spouse, children under 21 years of age
and grandchildren, parents, and a person's spouse's parents.
Purchase orders made pursuant to clause (4) may be placed either through
authorized dealers as described above or directly with Investor Services by the
investment adviser, trust company or bank trust department, provided that
Investor Services receives federal funds for the purchase by the close of
business on the next business day following acceptance of the order. An
authorized dealer may charge a transaction fee for placing an order to purchase
shares pursuant to this provision or for placing a redemption order with respect
to such shares. Authorized dealers will be paid a service fee as described on
purchases made as described in (3) through (9) above. The Fund may terminate, or
amend the terms of, offering shares of the Fund at net asset value to such
groups at any time.
REDEMPTION OF
SHARES
Generally shareholders may redeem for cash some or all of their shares without
charge by the Fund (other than applicable sales charge) at any time. As
described under the heading "Purchase of Shares," redemptions of Class B Shares
and Class C Shares may be subject to a contingent deferred sales charge. In
addition, certain redemptions of Class A Shares for shareholder accounts of $1
million or more may be subject to a contingent deferred sales charge.
Redemptions completed through an authorized dealer or a custodian of a
retirement plan account may involve additional fees charged by the dealer or
custodian.
Except as specified below under "Telephone Redemption Requests," payment for
shares redeemed generally will be made by check mailed within seven days after
receipt by Investor Services of the request and any other necessary documents in
proper order. Such payment may be postponed or the right of redemption suspended
as provided by the rules of the SEC. Such payment may, under certain
circumstances, be paid wholly or in part by a distribution-in-kind of portfolio
securities. If the shares to be redeemed have been recently purchased by check,
Investor Services may delay the payment of redemption proceeds until it confirms
the purchase check has cleared, which may take up to 15 days. A taxable gain or
loss will be recognized by the shareholder upon redemption of shares.
WRITTEN REDEMPTION REQUESTS. Shareholders may request a redemption of shares by
written request in proper form sent directly to Van Kampen Investor Services
Inc., PO Box 218256, Kansas City, MO 64121-8256. The request for redemption
should indicate the number of shares to be redeemed, the class designation of
such shares and the shareholder's account number. The redemption request must be
20
<PAGE>
signed by all persons in whose names the shares are registered. Signatures must
conform exactly to the account registration. If the proceeds of the redemption
exceed $50,000, or if the proceeds are not to be paid to the record owner at the
record address, or if the record address has changed within the previous 30
days, signature(s) must be guaranteed by one of the following: a bank or trust
company; a broker-dealer; a credit union; a national securities exchange,
registered securities association or clearing agency; a savings and loan
association; or a federal savings bank.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption to be in proper form. In some
cases, however, additional documents may be necessary. In the case of
shareholders holding certificates, the certificates for the shares being
redeemed properly endorsed for transfer must accompany the redemption request.
In the event the redemption is requested by a corporation, partnership, trust,
fiduciary, executor or administrator, and the name and title of the
individual(s) authorizing such redemption is not shown in the account
registration, a copy of the corporate resolution or other legal documentation
appointing the authorized signer and certified within the prior 120 days must
accompany the redemption request. IRA redemption requests should be sent to the
IRA custodian to be forwarded to Investor Services. Contact the IRA custodian
for further information.
In the case of written redemption requests sent directly to Investor Services,
the redemption price is the net asset value per share next determined after the
request in proper form is received by Investor Services.
AUTHORIZED DEALER REDEMPTION REQUESTS. Shareholders may place redemption
requests through an authorized dealer. Orders sent through authorized dealers
must be at least $500 (unless transmitted by your authorized dealer via the
FUNDSERV network). The redemption price for such shares is the net asset value
per share next calculated after an order in proper form is received by an
authorized dealer provided such order is transmitted to the Distributor prior to
the Distributor's close of business on such day. It is the responsibility of
authorized dealers to transmit redemption requests received by them to the
Distributor so they will be received prior to such time. Redemptions completed
through an authorized dealer may involve additional fees charged by the dealer.
TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. To establish
such privilege, a shareholder must complete the appropriate section of the
application form accompanying this prospectus or call the Fund at (800) 341-2911
to request that a copy of the Telephone Redemption Authorization form be sent to
them for completion. To redeem shares, contact the telephone transaction line at
(800) 421-5684. Van Kampen Investments, Investor Services and the Fund employ
procedures considered by them to be reasonable to confirm that instructions
communicated by telephone are genuine. Such procedures include requiring certain
personal identification information prior to acting upon telephone instructions,
tape-recording telephone communications and providing written confirmation of
instructions communicated by telephone. If reasonable procedures are employed,
neither Van Kampen Investments, Investor Services nor the Fund will be liable
for following telephone instructions which it reasonably believes to be genuine.
Telephone redemptions may not be available if the shareholder cannot reach
Investor Services by telephone, whether because all telephone lines are busy or
for any other reason; in such case, a shareholder would have to use the Fund's
other redemption procedure previously described. Requests received by Investor
Services prior to 4:00 p.m., New York time, will be processed at the next
determined net asset value per share. These privileges 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
21
<PAGE>
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 two kinds of return from the Fund: dividends and
capital gains 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 GAINS. The Fund may realize capital gains or losses when it sells
securities, depending on whether the sales prices for the securities are higher
or lower than purchase prices. Net realized capital gains represent the total
profit from sales of securities minus total losses from sales of securities
including losses carried forward from prior years. The Fund distributes any
taxable net realized capital gains to shareholders as capital gains dividends at
least annually. As in the case of dividends, capital gains dividends are
automatically reinvested in additional shares of the Fund at 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 gains distributions 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 gains
distribution. Unless the shareholder instructs otherwise, the reinvestment plan
is automatic. This instruction may be made by telephone by calling (800)
341-2911 ((800) 421-2833 for the hearing impaired) or by writing to Investor
Services. The investor may, on the initial application or prior to any
declaration, instruct that dividends be paid in cash and capital gains
distributions be reinvested at net asset value, or
22
<PAGE>
that both dividends and capital gains distributions be paid in cash.
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under which
a shareholder can authorize 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.
To be eligible for exchange, shares of the Fund must have been registered in the
shareholder's name for at least 30 days prior to an exchange. Shares of the Fund
registered in a shareholder's name for less than 30 days may only be exchanged
upon receipt of prior approval of the Adviser. It is the policy of the Adviser,
under normal circumstances, not to approve such requests.
When Class B Shares and Class C Shares are exchanged among Participating Funds,
the holding period for purposes of computing the contingent deferred sales
charge is based upon the date of the initial purchase of such shares from a
Participating Fund. If such Class B Shares or Class C Shares are redeemed and
not exchanged for shares of another Participating Fund, Class B Shares and Class
C Shares are subject to the contingent deferred sales charge schedule imposed by
the Participating Fund from which such shares were originally purchased.
Exchanges of shares are sales and may result in a gain or loss for federal
income tax purposes. If the shares exchanged have been held for less than 91
days, the sales charge paid on such shares is carried over and included in the
tax basis of the shares acquired.
A shareholder wishing to make an exchange may do so by sending a written request
to Investor Services or by contacting the telephone transaction line at (800)
421-5684. A shareholder automatically has telephone exchange privileges unless
otherwise designated in the application form accompanying the prospectus. Van
Kampen Investments, Investor Services and the Fund employ procedures considered
by them to be reasonable to confirm that instructions communicated by telephone
are genuine. Such procedures include requiring certain personal identification
information prior to acting upon telephone instructions, tape-recording
telephone communications, and providing written confirmation of instructions
communicated by telephone. If reasonable procedures are employed, neither Van
Kampen Investments, Investor Services nor the Fund will be liable for following
telephone instructions which it reasonably believes to be genuine. If the
exchanging shareholder does not have an account in the fund whose shares are
being acquired, a new account will be established with the same registration,
dividend and capital gains options (except dividend diversification) and
authorized dealer of record as the account from which shares are exchanged,
unless otherwise specified by the shareholder. In order to establish a
systematic withdrawal plan for the new account or reinvest dividends from the
new account into another fund, however, an exchanging shareholder must submit a
specific request. The Fund reserves the right to reject any order to acquire its
shares through exchange. In addition, the Fund and other Participating Funds may
restrict exchanges by shareholders engaged in excessive trading by limiting or
disallowing the exchange privileges to such shareholders. For further
information on these restrictions see the Statement of Additional Information.
The Fund may modify, restrict or terminate the exchange privilege at any time on
60 days' notice to its shareholders of any termination or material amendment.
For purposes of determining the sales charge rate previously paid on Class A
Shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchanged
23
<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 in the fund from which the
shareholder is withdrawing an investment will be redeemed at the net asset value
per share next determined on the date of receipt. Shares of the new fund into
which the shareholder is investing will also normally be purchased at the net
asset value per share, plus any applicable sales charge, next determined on the
date of receipt. Exchange requests received on a business day after the time
shares of the funds involved in the request are priced will be processed on the
next business day in the manner described herein.
A prospectus of any of these Participating Funds may be obtained from any
authorized dealer or the Distributor. An investor considering an exchange to one
of such funds should refer to the prospectus for additional information
regarding such fund prior to investing.
INTERNET TRANSACTIONS. In addition to performing transactions on your account
through written instruction or by telephone, you may also perform certain
transactions through the internet. Please refer to our web site at
www.vankampen.com for further instruction. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated through the internet are genuine. Such
procedures include requiring use of a personal identification number prior to
acting upon internet instructions and providing written confirmation of
instructions communicated through the internet. If reasonable procedures are
employed, neither Van Kampen Investments, Investor Services nor the Fund will be
liable for following instructions through the internet which it reasonably
believes to be genuine. If an account has multiple owners, Investor Services may
rely on the instructions of any one owner.
FEDERAL INCOME
TAXATION
Distributions of the Fund's net investment income (consisting generally of
taxable income and net short-term capital gains) are taxable to shareholders as
ordinary income to the extent of the Fund's earnings and profits, whether paid
in cash or reinvested in additional shares. Distributions of the Fund's net
capital gains (which are the excess of net long-term capital gains over net
short-term capital losses) as capital gain dividends, if any, are taxable to
shareholders as long-term capital gains, whether paid in cash or reinvested in
additional shares, and regardless of how long the shares of the Fund have been
held by such shareholders. Capital gains dividends may be taxed at different
rates depending on how long the Fund held the securities. The Fund expects that
its distributions will consist primarily of ordinary income and capital gains
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
24
<PAGE>
gain or loss will be a capital gain or loss. Any capital gains may be taxed at
different rates depending on how long the shareholder held such shares.
The Fund is required, in certain circumstances, to withhold 31% of dividends and
certain other payments, including redemptions, paid to shareholders who do not
furnish to the Fund their correct taxpayer identification number (in the case of
individuals, their social security number) and certain required certifications
or who are otherwise subject to backup withholding.
Foreign shareholders, including shareholders who are non-resident aliens, may be
subject to U.S. withholding tax on certain distributions (whether received in
cash or in shares) at a rate of 30% or such lower rate as prescribed by an
applicable treaty. Prospective foreign investors should consult their U.S. tax
advisers concerning the tax consequences to them of an investment in shares.
The Fund intends to qualify as a regulated investment company under federal
income tax law. If the Fund so qualifies and distributes each year to its
shareholders at least 90% of its net investment income, the Fund will not be
required to pay federal income taxes on any income it distributed to
shareholders. If the Fund distributes less than the sum of 98% of its ordinary
income and 98% of its capital gains 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, or disposing 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
------------------------------------------------
AUGUST 1,
YEAR ENDED JUNE 30, 1995+ TO
----------------------------------- JUNE 30,
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# 1997 1996
- ------------------------------------------------------------ ------------------------------------------------
<S> <C> <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
- ------------------------------------------------------------ --------------------------------------------------------------
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
<TABLE>
<S> <C>
J. Miles Branagan Don G. Powell*
Jerry D. Choate Philip 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
Edward C. Wood III*
VICE PRESIDENT
A. Thomas Smith III*
VICE PRESIDENT AND SECRETARY
Michael H. Santo*
VICE PRESIDENT
Peter W. Hegel*
VICE PRESIDENT
Stephen L. Boyd*
VICE PRESIDENT
Joseph P. Stadler*
VICE PRESIDENT
Curtis W. Morell*
VICE PRESIDENT & CHIEF ACCOUNTING OFFICER
Tanya M. Loden*
CONTROLLER
John L. Sullivan*
VICE PRESIDENT, CHIEF FINANCIAL OFFICER & TREASURER
* "Interested" persons of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2911
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders, or
redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call
(800) 421-2833
FUND INFO-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 , 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 Public
Reference Room in
Washington, DC or online
at the SEC's web site
(http://www.sec.gov).
For more information,
please call the SEC at
(800) SEC-0330. You can
also request these
materials by writing the
Public Reference Section
of the SEC, Washington
DC, 20549-6009, and
paying a duplication
fee.
[LOGO]
THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-7140.
MSGE PRO 10/99
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THE FUND MAY NOT SELL THESE SECURITIES UNTIL THE POST-
EFFECTIVE AMENDMENT TO THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES.
SUBJECT TO COMPLETION -- DATED AUGUST 27, 1999
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 regulators, and
neither the SEC nor any
state regulator has passed
upon the accuracy or
adequacy of this
prospectus. Any
representation to the
contrary is a criminal
offense.
THIS PROSPECTUS IS DATED
OCTOBER , 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 management seeks to achieve the
investment objective by investing in a diversified portfolio of global equity
securities, including common and preferred stocks, convertible securities,
rights and warrants to purchase common stock, depositary receipts and equity-
linked securities. The Fund's management 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 market index of
international countries, including emerging or developing 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.). Under
normal market conditions, the Fund's management expects to invest at least 20%
of the Fund's total assets in equity securities of U.S. issuers. The Fund may
purchase or 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,
including seeking to reduce or eliminate foreign currency exchange risks
associated with securities denominated in non-U.S. dollars currencies.
INVESTMENT RISKS
An investment in the Fund is subject to investment risks, and you could lose
money on your investment in the Fund. There can be no assurance that the Fund
will achieve its investment 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 emerging or developing markets,
may have more price volatility 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 (in which the Fund may invest) often fluctuate more and may
fall more than the 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 markets 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 the direct investment in underlying securities such as imperfect
correlation between the value of the instruments and the underlying assets;
risks of default by the other party to certain transactions; risks that the
transactions may result in losses that partially or completely offset gains in
portfolio positions; risks that the transactions may not be liquid; and manager
risk.
MANAGER RISK. As with any managed fund, the Fund's management may not be
successful in selecting the best-performing securities and the Fund's
performance may lag behind that of similar funds.
An investment in the Fund is not a deposit of any bank or other insured
depository institution. Your investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
INVESTOR PROFILE
In light of its objective and investment 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 shares of the Fund.
- - Wish to add to their personal investment portfolio a fund that emphasizes a
"value" style of investing in equity securities of global issuers.
An investment in the Fund may not be appropriate for all investors. The Fund is
not intended to be a complete investment program, and investors should consider
their long-term investment goals and financial needs when making an investment
decision about the Fund. An investment in the Fund is intended to be a long-term
investment, and the Fund should not be used as a trading vehicle.
ANNUAL PERFORMANCE
One way to measure the risks of investing in the Fund is to look at how its
performance varies from year to year. The following chart shows the annual
returns of the Fund's Class A Shares over the past 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 returns 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>
<CAPTION>
1998 13.49%
<S> <C>
</TABLE>
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 quarter ended December 31, 1998) and the lowest quarterly
return was -12.41% (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 Net Dividends Index*, a broad-based market index
that the Fund's management believes is an applicable benchmark for the Fund. The
Fund's performance figures include the maximum sales charges paid by investors.
The index performance figures do not include 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 Global Equity Fund --
Class A Shares 7.01% 5.25%(1)
MSCI World Net Dividends Index % %(2)
.......................................................
Van Kampen Global Equity Fund --
Class B Shares 7.56% 6.44%(1)
MSCI World Net Dividends Index % %(2)
.......................................................
Van Kampen Global Equity Fund --
Class C Shares 11.56% 9.80%(1)
MSCI World Net Dividends Index % %(2)
.......................................................
INCEPTION DATES: (1) 10/29/97, (2) , (3)
.
* THE MSCI WORLD NET DIVIDENDS INDEX IS AN UNMANAGED
INDEX WHICH 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.
FEES AND EXPENSES
OF THE FUNDS
These tables describe the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
- ----------------------------------------------------------------
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 (as a
percentage of offering price) None None None
...............................................................
Redemption fees (as a percentage of
amount redeemed) None None None
...............................................................
Exchange fee None None None
...............................................................
(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 AND 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."
ANNUAL FUND
OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
- ----------------------------------------------------------------
Management Fees 1.00% 1.00% 1.00%
...............................................................
Distribution and/or Service (12b-1)
Fees(1) 0.25% 1.00%(2) 1.00%(2)
...............................................................
Other Expenses 0.40% 0.40% 0.40%
...............................................................
Total Annual Fund Operating
Expenses 1.65% 2.40% 2.40%
...............................................................
(1) CLASS A SHARES ARE SUBJECT TO AN ANNUAL SERVICE FEE OF UP TO 0.25% OF
THE AVERAGE DAILY NET ASSETS ATTRIBUTABLE TO SUCH CLASS OF SHARES.
CLASS B SHARES AND CLASS C SHARES ARE EACH SUBJECT TO A COMBINED
ANNUAL DISTRIBUTION AND SERVICE FEE OF UP TO 1.00% OF THE AVERAGE
DAILY NET ASSETS ATTRIBUTABLE TO SUCH CLASS OF SHARES. SEE "PURCHASE
OF SHARES."
(2) 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% annual 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:
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
- -----------------------------------------------------------------
Class A Shares $733 $1,065 $1,420 $2,417
................................................................
Class B Shares $743 $1,048 $1,430 $2,585*
................................................................
Class C Shares $343 $ 748 $1,280 $2,736
................................................................
You would pay the following expenses if you did not redeem your shares:
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
- -----------------------------------------------------------------
Class A Shares $733 $1,065 $1,420 $2,417
................................................................
Class B Shares $243 $ 748 $1,280 $2,585*
................................................................
Class C Shares $243 $ 748 $1,280 $2,736
................................................................
* 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 investment objective by
investing in a diversified 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.). 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 universe
of eligible companies consisting of approximately 3,200 companies that comprise
the MSCI World Index. Under normal market conditions, the Fund's investment
adviser expects to invest at least 20% of the Fund's total assets in equity
securities of U.S. issuers. 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
6
<PAGE>
when they sell at a substantial discount relative to an issuer's assets and cash
flow. Securities which appear 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 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 security 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.
7
<PAGE>
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.
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 additional fees
such as management and other fees.
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, 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 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 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 investment
adviser's assessment of the relative yield, appreciation potential and
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 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 markets are subject to
greater risks than investments in securities of developed markets since emerging
markets tend to have economic structures that are less diverse and mature and
political systems that are less stable than developed markets.
In addition to the increased risks of investing in foreign issuers, there are
often increased transactions costs associated with investing in foreign
securities
8
<PAGE>
including the costs incurred in connection with converting currencies, higher
foreign brokerage or dealer costs, and higher settlement costs or custodial
costs.
Since the Fund invests in securities denominated or quoted in currencies other
than the U.S. dollar, the Fund will be affected by changes in foreign currency
exchange rates (and exchange control regulations) which affect the value of
investments in the Fund and the accrued income and unrealized appreciation or
depreciation of the investments. Changes in foreign currency exchange ratios
relative to the U.S. dollar will affect the U.S. dollar value of the Fund's
assets denominated in that currency and the Fund's yield on such assets 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'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. The Fund purchases and sells
foreign currency on a spot basis in connection with the settlement of
transactions in securities traded in such foreign currency. The Fund also may
enter into contracts with banks, brokers or dealers to purchase or sell 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 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.
Investor 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 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. Additionally, 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
9
<PAGE>
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 temporary substitute for purchasing or selling
particular securities, including, for example, when the Fund acts quickly to
adjust 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. Additionally, 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 which 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.
10
<PAGE>
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 otherwise. The Fund's portfolio turnover is shown under the heading
"Financial Highlights." The portfolio turnover rate may be expected to vary from
year to year. A high portfolio turnover rate (100% or more) increases the Fund's
transactions costs, including brokerage commissions or dealer costs, and may
result in the realization of more short-term capital gains than if the Fund had
lower portfolio turnover. Increases in the Fund's transaction costs would impact
the Fund's performance. The turnover rate will not be a limiting factor,
however, if the Fund's investment adviser considers portfolio changes
appropriate.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Fund may hold cash or invest on a temporary basis 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. The Fund may not
achieve its investment objective if it takes a defensive position.
YEAR 2000 RISKS. Like other mutual funds, financial and business organizations
and individuals around the world, the Fund could be adversely affected if the
computer systems used by the Fund's investment adviser and other service
providers do not properly process and calculate date-related information and
data from and after January 1, 2000. This is commonly known as the "Year 2000
Problem." The Fund's investment adviser 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 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 emerging or
developing countries because there is an increased likelihood that issuers of
securities of such countries cannot anticipate or effectively manage the affect
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 Act 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 $75 billion under management or
supervision. Van Kampen Investments' more than 50 open-end and 39 closed-end
funds and more than 2,500 unit investment trusts are professionally distributed
by leading financial advisers nationwide. Van Kampen Funds Inc., the distributor
of the Fund (the "Distributor") and the sponsor of the funds mentioned above, is
also a wholly owned subsidiary of Van Kampen Investments. Van Kampen Investments
is an indirect wholly owned subsidiary of Morgan Stanley Dean Witter & Co. The
Adviser's principal office is located at 1 Parkview Plaza, PO Box 5555, Oakbrook
Terrace, Illinois 60181-5555.
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 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.
From time to time, the Adviser or the Distributor may voluntarily undertake to
reduce the Fund's expenses by reducing the fees payable to them or by reducing
other expenses of the Fund in accordance with such limitations as the Adviser or
Distributor may establish.
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen 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
December 31, 1998, the Subadviser, together with its affiliated institutional
asset management companies, managed assets of approximately $163.4 billion,
including assets under fiduciary advice. The Subadviser's address is 1221 Avenue
of the Americas, New York, New York 10020.
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 percentage of
the net advisory fees the Adviser receives from the Fund.
-------------
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.
12
<PAGE>
PORTFOLIO MANAGEMENT. Frances Campion, Richard Boon and Paul Boyne are
responsible as co-managers 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 product. 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 in the implementation of the Global Equity Program
and the 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 (described below) pursuant to which its
distribution fee or service fee is paid, (iii) each class of shares has
different exchange privileges, (iv) certain classes of shares are subject to a
conversion feature and (v) certain classes of shares have different shareholder
service options available.
The 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 a 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 in which no purchase or redemption orders are
received or there is not a sufficient degree of trading in a 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 values per share and adjust the offering price more frequently than once a
day if deemed desirable. Net asset value per share for each class is determined
by dividing the value of a 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
13
<PAGE>
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
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. 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 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
14
<PAGE>
differing compensation for selling Class A Shares, Class B Shares or Class C
Shares.
The offering price for shares is based on 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 gains
distributions, 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
AS % OF AS % OF
SIZE OF OFFERING NET AMOUNT
INVESTMENT PRICE INVESTED
- ---------------------------------------------------------
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 * *
........................................................
* NO SALES CHARGE IS PAYABLE AT THE TIME OF PURCHASE ON INVESTMENTS OF
$1 MILLION OR MORE, ALTHOUGH FOR SUCH INVESTMENTS THE FUND IMPOSES A
CONTINGENT DEFERRED SALES CHARGE OF 1.00% ON CERTAIN REDEMPTIONS MADE
WITHIN ONE YEAR OF THE PURCHASE. THE CONTINGENT DEFERRED SALES CHARGE
IS ASSESSED ON AN AMOUNT EQUAL TO THE LESSER OF THE THEN CURRENT
MARKET VALUE OR THE COST OF THE SHARES BEING REDEEMED. ACCORDINGLY, NO
SALES CHARGE IS IMPOSED ON INCREASES IN NET ASSET VALUE ABOVE THE
INITIAL PURCHASE PRICE.
No sales charge is imposed on Class A Shares received from reinvestment of
dividends or capital gains distributions.
Under the Distribution Plan and Service Plan, the Fund may spend a total of
0.25% per year of the 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
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 5.00%
......................................................
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 gains dividends. It
is presently the policy of the Distributor not to accept any order for Class B
Shares in an amount of $500,000 or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
The amount of the contingent deferred sales charge, if any, varies depending on
the number of years from the time of payment for the purchase of Class B Shares
until the time of redemption of such shares. Solely for purposes of determining
the number of years from the time of any payment for the purchase of shares, all
payments during a month are totaled and deemed to have been made on the last day
of the month.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed that the redemption is first of any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge and then of shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
average daily net assets with respect to the Class B Shares of the Fund. In
addition, under the Service Plan, the Fund may spend up to 0.25% per year of the
Fund's average daily net assets with respect to the Class B Shares for the
ongoing provision of services to Class B shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CLASS C SHARES
Class C Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge of 1.00% of the dollar amount subject to charge if
redeemed within one year of purchase.
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gains dividends. It
is presently the policy of the Distributor not to accept any order for Class C
Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
In determining whether a contingent deferred sales charge is applicable to a
redemption, it is assumed that the redemption is first of any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge and then of shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
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
16
<PAGE>
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 distributions constituting
"preferential dividends" under the federal income tax law and (ii) the
conversion of shares does not constitute a taxable event under federal income
tax law. The conversion may be suspended if such an opinion is no longer
available and such shares might continue to be subject to the higher aggregate
fees applicable to such shares for an indefinite period.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge is waived on redemptions of Class B Shares
and Class C Shares (i) within one year following the death or disability (as
disability is defined by federal income tax law) of a shareholder, (ii) for
required minimum distributions from an individual retirement account ("IRA") or
certain other retirement plan distributions, (iii) for withdrawals under the
Fund's systematic withdrawal plan but limited to 12% annually of the initial
value of the account, (iv) if no commission or transaction fee is paid to
authorized dealers at the time of purchase of such shares and (v) if made by
involuntary liquidation by the Fund of a shareholder's account as described
under the heading "Redemption of Shares." Subject to certain limitations, a
shareholder who has redeemed Class C Shares of the Fund may reinvest in Class C
Shares at net asset value with credit for any contingent deferred sales charge
if the reinvestment is within 180 days after the redemption. For a more complete
description of contingent deferred sales charge waivers, please refer to the
Fund's Statement of Additional Information or contact your authorized dealer.
QUANTITY DISCOUNTS
Investors purchasing Class A Shares may, under certain circumstances described
below, be entitled to pay reduced or no sales charges. Investors, or their
authorized dealers, must notify the Fund at the time of the purchase order
whenever a quantity discount is applicable to purchases. Upon such notification,
an investor will receive the lowest applicable sales charge. Quantity discounts
may be modified or terminated at any time. For more information about quantity
discounts, investors should contact their authorized dealer or the Distributor.
A person eligible for a reduced sales charge includes an individual, his or her
spouse and children under 21 years of age and any corporation, partnership or
sole proprietorship which is 100% owned, either alone or in combination, by any
of the foregoing; a trustee or other fiduciary purchasing for a single trust or
for a single fiduciary account, or a "company" as defined in Section 2(a)(8) of
the 1940 Act.
As used herein, "Participating Funds" refers to certain open-end investment
companies advised by Asset Management or Advisory Corp. and distributed by the
Distributor as determined from time to time by the Fund's Board of 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 trust distributions will be 1.00% of the offering
price (1.01% of net asset value). Of this amount, the Distributor will pay to
the authorized dealer, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the terms and conditions that apply to the program,
should contact their authorized dealer or the Distributor.
The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during each distribution period by all investors who choose to invest in
the Fund through the program and (2) provide Investor Services with appropriate
backup data for each investor participating in the program in a computerized
format fully compatible with Investor Services' processing system.
As further requirements for obtaining these special benefits, the Fund also
requires that all dividends and other distributions by the Fund be reinvested in
additional shares without any systematic withdrawal program. There will be no
minimum for reinvestments from unit investment trusts. The Fund will send
account activity statements to such participants on a quarterly basis only, even
if their investments are made more frequently. The Fund reserves the
18
<PAGE>
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 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
19
<PAGE>
as follows: 1.00% on sales to $2 million, plus 0.80% on the next $1
million, plus 0.50% on the next $47 million, plus 0.25% on the excess over
$50 million.
(9) Individuals who are members of a "qualified group." For this purpose, a
qualified group is one which (i) has been in existence for more than six
months, (ii) has a purpose other than to acquire shares of the Fund or
similar investments, (iii) has given and continues to give its endorsement
or authorization, on behalf of the group, for purchase of shares of the
Fund and Participating Funds, (iv) has a membership that the authorized
dealer can certify as to the group's members and (v) satisfies other
uniform criteria established by the Distributor for the purpose of
realizing economies of scale in distributing such shares. A qualified group
does not include one whose sole organizational nexus, for example, is that
its participants are credit card holders of the same institution, policy
holders of an insurance company, customers of a bank or broker-dealer,
clients of an investment adviser or other similar groups. Shares purchased
in each group's participants account in connection with this privilege will
be subject to a contingent deferred sales charge of 1.00% in the event of
redemption within one year of purchase, and a commission will be paid to
authorized dealers who initiate and are responsible for such sales to each
individual as follows: 1.00% on sales to $2 million, plus 0.80% on the next
$1 million and 0.50% on the excess over $3 million.
The term "families" includes a person's spouse, children under 21 years of age
and grandchildren, parents, and a person's spouse's parents.
Purchase orders made pursuant to clause (4) may be placed either through
authorized dealers as described above or directly with Investor Services by the
investment adviser, trust company or bank trust department, provided that
Investor Services receives federal funds for the purchase by the close of
business on the next business day following acceptance of the order. An
authorized dealer may charge a transaction fee for placing an order to purchase
shares pursuant to this provision or for placing a redemption order with respect
to such shares. Authorized dealers will be paid a service fee as described on
purchases made as described in (3) through (9) above. The Fund may terminate, or
amend the terms of, offering shares of the Fund at net asset value to such
groups at any time.
REDEMPTION OF
SHARES
Generally shareholders may redeem for cash some or all of their shares without
charge by the Fund (other than applicable sales charge) at any time. As
described under the heading "Purchase of Shares," redemptions of Class B Shares
and Class C Shares may be subject to a contingent deferred sales charge. In
addition, certain redemptions of Class A Shares for shareholder accounts of $1
million or more may be subject to a contingent deferred sales charge.
Redemptions completed through an authorized dealer or a custodian of a
retirement plan account may involve additional fees charged by the dealer or
custodian.
Except as specified below under "Telephone Redemption Requests," payment for
shares redeemed generally will be made by check mailed within seven days after
receipt by Investor Services of the request and any other necessary documents in
proper order. Such payment may be postponed or the right of redemption suspended
as provided by the rules of the SEC. Such payment may, under certain
circumstances, be paid wholly or in part by a distribution-in-kind of portfolio
securities. If the shares to be redeemed have been recently purchased by check,
Investor Services may delay the payment of redemption proceeds until it confirms
the purchase check has cleared, which may take up to 15 days. A taxable gain or
loss will be recognized by the shareholder upon redemption of shares.
WRITTEN REDEMPTION REQUESTS. Shareholders may request a redemption of shares by
written request in proper form sent directly to Van Kampen Investor Services
Inc., PO Box 218256, Kansas City, MO 64121-8256. The request for redemption
should indicate the number of shares to be redeemed, the class designation of
such shares and the shareholder's
20
<PAGE>
account number. The redemption request must be signed by all persons in whose
names the shares are registered. Signatures must conform exactly to the account
registration. If the proceeds of the redemption exceed $50,000, or if the
proceeds are not to be paid to the record owner at the record address, or if the
record address has changed within the previous 30 days, signature(s) must be
guaranteed by one of the following: a bank or trust company; a broker-dealer; a
credit union; a national securities exchange, registered securities association
or clearing agency; a savings and loan association; or a federal savings bank.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption to be in proper form. In some
cases, however, additional documents may be necessary. In the case of
shareholders holding certificates, the certificates for the shares being
redeemed properly endorsed for transfer must accompany the redemption request.
In the event the redemption is requested by a corporation, partnership, trust,
fiduciary, executor or administrator, and the name and title of the
individual(s) authorizing such redemption is not shown in the account
registration, a copy of the corporate resolution or other legal documentation
appointing the authorized signer and certified within the prior 120 days must
accompany the redemption request. IRA redemption requests should be sent to the
IRA custodian to be forwarded to Investor Services. Contact the IRA custodian
for further information.
In the case of written redemption requests sent directly to Investor Services,
the redemption price is the net asset value per share next determined after the
request in proper form is received by Investor Services.
AUTHORIZED DEALER REDEMPTION REQUESTS. Shareholders may place redemption
requests through an authorized dealer. Orders sent through authorized dealers
must be at least $500 (unless transmitted by your authorized dealer via the
FUNDSERV network). The redemption price for such shares is the net asset value
per share next calculated after an order in proper form is received by an
authorized dealer provided such order is transmitted to the Distributor prior to
the Distributor's close of business on such day. It is the responsibility of
authorized dealers to transmit redemption requests received by them to the
Distributor so they will be received prior to such time. Redemptions completed
through an authorized dealer may involve additional fees charged by the dealer.
TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. To establish
such privilege, a shareholder must complete the appropriate section of the
application form accompanying this prospectus or call the Fund at (800) 341-2911
to request that a copy of the Telephone Redemption Authorization form be sent to
them for completion. To redeem shares, contact the telephone transaction line at
(800) 421-5684. Van Kampen Investments, Investor Services and the Fund employ
procedures considered by them to be reasonable to confirm that instructions
communicated by telephone are genuine. Such procedures include requiring certain
personal identification information prior to acting upon telephone instructions,
tape-recording telephone communications and providing written confirmation of
instructions communicated by telephone. If reasonable procedures are employed,
neither Van Kampen Investments, Investor Services nor the Fund will be liable
for following telephone instructions which it reasonably believes to be genuine.
Telephone redemptions may not be available if the shareholder cannot reach
Investor Services by telephone, whether because all telephone lines are busy or
for any other reason; in such case, a shareholder would have to use the Fund's
other redemption procedure previously described. Requests received by Investor
Services prior to 4:00 p.m., New York time, will be processed at the next
determined net asset value per share. These privileges 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
21
<PAGE>
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 two kinds of return from the Fund: dividends and
capital gains 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.
CAPITAL GAINS. The Fund may realize capital gains or losses when it sells
securities, depending on whether the sales prices for the securities are higher
or lower than purchase prices. Net realized capital gains represent the total
profit from sales of securities minus total losses from sales of securities
including losses carried forward from prior years. The Fund distributes any
taxable net realized capital gains to shareholders as capital gains dividends at
least annually. As in the case of dividends, capital gains dividends are
automatically reinvested in additional shares of the Fund at 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 gains distributions 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 gains
distribution. Unless the shareholder instructs otherwise, the reinvestment plan
is automatic. This instruction may be made by telephone by calling (800)
341-2911 ((800) 421-2833 for the hearing impaired) or by writing to Investor
Services. The investor may, on the initial application or prior to any
declaration, instruct that dividends be paid in cash and capital gains
distributions be reinvested at net asset value, or
22
<PAGE>
that both dividends and capital gains distributions be paid in cash.
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under which
a shareholder can authorize 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.
To be eligible for exchange, shares of the Fund must have been registered in the
shareholder's name for at least 30 days prior to an exchange. Shares of the Fund
registered in a shareholder's name for less than 30 days may only be exchanged
upon receipt of prior approval of the Adviser. It is the policy of the Adviser,
under normal circumstances, not to approve such requests.
When Class B Shares and Class C Shares are exchanged among Participating Funds,
the holding period for purposes of computing the contingent deferred sales
charge is based upon the date of the initial purchase of such shares from a
Participating Fund. If such Class B Shares or Class C Shares are redeemed and
not exchanged for shares of another Participating Fund, Class B Shares and Class
C Shares are subject to the contingent deferred sales charge schedule imposed by
the Participating Fund from which such shares were originally purchased.
Exchanges of shares are sales and may result in a gain or loss for federal
income tax purposes. If the shares exchanged have been held for less than 91
days, the sales charge paid on such shares is carried over and included in the
tax basis of the shares acquired.
A shareholder wishing to make an exchange may do so by sending a written request
to Investor Services or by contacting the telephone transaction line at (800)
421-5684. A shareholder automatically has telephone exchange privileges unless
otherwise designated in the application form accompanying the prospectus. Van
Kampen Investments, Investor Services and the Fund employ procedures considered
by them to be reasonable to confirm that instructions communicated by telephone
are genuine. Such procedures include requiring certain personal identification
information prior to acting upon telephone instructions, tape-recording
telephone communications, and providing written confirmation of instructions
communicated by telephone. If reasonable procedures are employed, neither Van
Kampen Investments, Investor Services nor the Fund will be liable for following
telephone instructions which it reasonably believes to be genuine. If the
exchanging shareholder does not have an account in the fund whose shares are
being acquired, a new account will be established with the same registration,
dividend and capital gains options (except dividend diversification) and
authorized dealer of record as the account from which shares are exchanged,
unless otherwise specified by the shareholder. In order to establish a
systematic withdrawal plan for the new account or reinvest dividends from the
new account into another fund, however, an exchanging shareholder must submit a
specific request. The Fund reserves the right to reject any order to acquire its
shares through exchange. In addition, the Fund and other Participating Funds may
restrict exchanges by shareholders engaged in excessive trading by limiting or
disallowing the exchange privileges to such shareholders. For further
information on these restrictions see the Statement of Additional Information.
The Fund may modify, restrict or terminate the exchange privilege at any time on
60 days' notice to its shareholders of any termination or material amendment.
For purposes of determining the sales charge rate previously paid on Class A
Shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchanged
23
<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 in the fund from which the
shareholder is withdrawing an investment will be redeemed at the net asset value
per share next determined on the date of receipt. Shares of the new fund into
which the shareholder is investing will also normally be purchased at the net
asset value per share, plus any applicable sales charge, next determined on the
date of receipt. Exchange requests received on a business day after the time
shares of the funds involved in the request are priced will be processed on the
next business day in the manner described herein.
A prospectus of any of these Participating Funds may be obtained from any
authorized dealer or the Distributor. An investor considering an exchange to one
of such funds should refer to the prospectus for additional information
regarding such fund prior to investing.
INTERNET TRANSACTIONS. In addition to performing transactions on your account
through written instruction or by telephone, you may also perform certain
transactions through the internet. Please refer to our web site at
www.vankampen.com for further instruction. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated through the internet are genuine. Such
procedures include requiring use of a personal identification number prior to
acting upon internet instructions and providing written confirmation of
instructions communicated through the internet. If reasonable procedures are
employed, neither Van Kampen Investments, Investor Services nor the Fund will be
liable for following instructions through the internet which it reasonably
believes to be genuine. If an account has multiple owners, Investor Services may
rely on the instructions of any one owner.
FEDERAL INCOME
TAXATION
Distributions of the Fund's net investment income (consisting generally of
taxable income and net short-term capital gains) are taxable to shareholders as
ordinary income to the extent of the Fund's earnings and profits, whether paid
in cash or reinvested in additional shares. Distributions of the Fund's net
capital gains (which are the excess of net long-term capital gains over net
short-term capital losses) as capital gain dividends, if any, are taxable to
shareholders as long-term capital gains, whether paid in cash or reinvested in
additional shares, and regardless of how long the shares of the Fund have been
held by such shareholders. Capital gains dividends may be taxed at different
rates depending on how long the Fund held the securities. The Fund expects that
its distributions will consist primarily of ordinary income and capital gains
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
24
<PAGE>
gain or loss will be a capital gain or loss. Any capital gains may be taxed at
different rates depending on how long the shareholder held such shares.
The Fund is required, in certain circumstances, to withhold 31% of dividends and
certain other payments, including redemptions, paid to shareholders who do not
furnish to the Fund their correct taxpayer identification number (in the case of
individuals, their social security number) and certain required certifications
or who are otherwise subject to backup withholding.
Foreign shareholders, including shareholders who are non-resident aliens, may be
subject to U.S. withholding tax on certain distributions (whether received in
cash or in shares) at a rate of 30% or such lower rate as prescribed by an
applicable treaty. Prospective foreign investors should consult their U.S. tax
advisers concerning the tax consequences to them of an investment in shares.
The Fund intends to qualify as a regulated investment company under federal
income tax law. If the Fund so qualifies and distributes each year to its
shareholders at least 90% of its net investment income, the Fund will not be
required to pay federal income taxes on any income it distributed to
shareholders. If the Fund distributes less than the sum of 98% of its ordinary
income and 98% of its capital gains 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, or disposing 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
OCTOBER 29, OCTOBER 29, OCTOBER 29,
1997* YEAR ENDED 1997* 1997*
YEAR ENDED TO JUNE 30, JUNE 30, TO JUNE 30, YEAR ENDED TO JUNE 30,
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1999# 1998 1999# 1998 JUNE 30, 1999# 1998
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD............................. $ 11.122 $ 10.00 $ 11.076 $ 10.00 $ 11.075 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss..... 0.047 0.06 (0.033) 0.01 (0.034) 0.01
Net Realized and Unrealized
Gain/Loss.................... 0.404 1.08 0.405 1.07 0.406 1.06
------ ------------- ------------- ------------- ------ -------------
Total From Investment
Operations................... 0.451 1.14 0.372 1.08 0.372 1.07
------ ------------- ------------- ------------- ------ -------------
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 $ 11.07
------ ------------- ------------- ------------- ------ -------------
------ ------------- ------------- ------------- ------ -------------
TOTAL RETURN (1)................... 4.05% 11.38%** 3.29% 10.84%** 3.39% 10.74%**
------ ------------- ------------- ------------- ------ -------------
------ ------------- ------------- ------------- ------ -------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's)............................ $ 76,731 $ 80,508 $ 596,339 $ 623,229 $ 63,140 $ 69,572
Ratio of Expenses to Average Net
Assets............................. 1.65% 1.70% 2.40% 2.45% 2.40% 2.45%
Ratio of Net Investment Income/Loss
to Average Net Assets.............. 0.44% 0.88% (0.31)% 0.12% (0.32)% 0.13%
Portfolio Turnover Rate............ 40% 4%** 40% 4%** 40% 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 Philip 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
Edward C. Wood III*
VICE PRESIDENT
A. Thomas Smith III*
VICE PRESIDENT AND SECRETARY
Michael H. Santo*
VICE PRESIDENT
Peter W. Hegel*
VICE PRESIDENT
Stephen L. Boyd*
VICE PRESIDENT
Joseph P. Stadler*
VICE PRESIDENT
Curtis W. Morell*
VICE PRESIDENT & CHIEF ACCOUNTING OFFICER
Tanya M. Loden*
CONTROLLER
John L. Sullivan*
VICE PRESIDENT, CHIEF FINANCIAL OFFICER & TREASURER
* "Interested" persons of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2911
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders, or
redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call
(800) 421-2833
FUND INFO-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 , 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 Public
Reference Room in
Washington, DC or online
at the SEC's web site
(http://www.sec.gov).
For more information,
please call the SEC at
(800) SEC-0330. You can
also request these
materials by writing the
Public Reference Section
of the SEC, Washington
DC, 20549-6009, and
paying a duplication
fee.
[LOGO]
THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-7140.
MSGL PRO 10/99
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THE FUND MAY NOT SELL THESE SECURITIES UNTIL THE POST-
EFFECTIVE AMENDMENT TO THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES.
SUBJECT TO COMPLETION -- DATED AUGUST 27, 1999
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 regulators, and
neither the SEC nor any
state regulator has passed
upon the accuracy or
adequacy of this
prospectus. Any
representation to the
contrary is a criminal
offense.
THIS PROSPECTUS IS DATED
OCTOBER , 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 ...........................................13
Purchase of Shares .....................................................14
Redemption of Shares ...................................................22
Distributions from the Fund ............................................24
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 management seeks to achieve the
investment objective by investing primarily in a non-diversified global
portfolio of high-quality fixed income securities with varying maturities
denominated in various currencies or multi-national currency units, including
U.S. government securities, foreign government securities, securities of
supranational entities, Eurobonds, corporate bonds and structured investments
with fixed income characteristics. In selecting portfolio securities, the Fund's
management seeks to manage interest rate, country, and currency exposures by a
strategic, value-based approach that favors securities with high real interest
rates and sizable incremental yield at longer maturities. The Fund's management
seeks to preserve capital by investing in high quality (i.e., those rated in the
two highest rating categories or believed to be of equivalent quality) fixed
income securities. The Fund invests with a view to seeking an attractive real
rate of return while preserving capital. 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 or sell
securities on a when-issued or delayed delivery basis. The Fund may purchase or
sell certain derivative instruments (such as options, futures, options on
futures, currency-related transactions involving options, futures and forward
contracts, and interest rate swaps or other interest rate-related transactions)
for various portfolio management purposes, including seeking to reduce or
eliminate foreign currency exchange risks associated with securities denominated
in non-U.S. dollar currencies.
INVESTMENT RISKS
An investment in the Fund is subject to investment risks, and you could lose
money on your investment in the Fund. There can be no assurance that the Fund
will achieve its investment 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, 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 have more price volatility 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 be
reinvested by the Fund in securities with 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 and other interest-rate related transactions are
examples of derivatives. Derivative investments involve risks different from
direct investment in underlying securities such as imperfect correlation between
the value of the instruments and the underlying assets; risks of default by the
other party to certain transactions; risks that the transactions may result in
losses that partially or completely offset gains in portfolio positions; risks
that the transactions may not be liquid; and manager risk.
NON-DIVERSIFICATION RISKS. The Fund is classified as a "non-diversified" fund,
which means the Fund may invest a greater portion of its assets in a more
limited number of issuers than a "diversified" fund. As a result, the Fund may
be subject to greater risk than a diversified fund because changes in the
financial condition or market assessment of a single issuer may cause greater
fluctuations in the value of the Fund's shares.
MANAGER RISK. As with any managed fund, the Fund's management may not be
successful in selecting the best-performing securities and the Fund's
performance may lag behind that of similar funds.
An investment in the Fund is not a deposit of any bank or other insured
depository institution. Your investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
INVESTOR PROFILE
In light of its objective and investment 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 personal investment portfolio a fund that invests
primarily in high-quality fixed income securities of domestic and foreign
issuers.
An investment in the Fund may not be appropriate for all investors. The Fund is
not intended to be a complete investment program, and investors should consider
their long-term investment goals and financial needs when making an investment
decision about the Fund. An investment in the Fund is intended to be a long-term
investment, and the Fund should not be used as a trading vehicle.
4
<PAGE>
ANNUAL PERFORMANCE
One way to measure the risks of investing in the Fund is to look at how its
performance varies from year to year. The following chart shows the annual
returns of the Fund's Class A Shares over the past 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 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 management believes is an
applicable benchmark for the Fund. The Fund's performance figures include the
maximum sales charges paid by investors. The index performance figures do not
include 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
Fixed Income Fund
- -- Class A Shares 7.54% 4.91% 6.52%(1)
J.P. Morgan Traded
Global Bond Index % % %(3)
....................................................
Van Kampen Global
Fixed Income Fund
- -- Class B Shares 8.15% -- 5.56% (2)
J.P. Morgan Traded
Global Bond Index % % % (3)
....................................................
Van Kampen Global
Fixed Income Fund
- -- Class C Shares 11.17% 5.10% 6.57% (1)
J.P. Morgan Traded
Global Bond Index % % % (3)
....................................................
INCEPTION DATES: (1) 1/4/93, (2)
08/01/95, (3) .
* 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 % for
Class A Shares, % for Class B Shares and % 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 FUNDS
These tables describe the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
- ----------------------------------------------------------------
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 (as a
percentage of offering price) None None None
...............................................................
Redemption fees (as a percentage of
amount redeemed) None None None
...............................................................
Exchange fee None None None
...............................................................
(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 AND 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."
ANNUAL FUND
OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
- --------------------------------------------------------------------
Management Fees(1) 0.75% 0.75% 0.75%
...................................................................
Distribution and/or Service
(12b-1) Fees(2) 0.25% 1.00%(3) 1.00%(3)
...................................................................
Other Expenses(1) 1.97% 2.03% 1.99%
...................................................................
Total Annual Fund Operating
Expenses(1) 2.97% 3.78% 3.74%
...................................................................
(1) 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
REIMBURSEMENTS CAN BE TERMINATED AT ANY TIME.
(2) 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."
(3) 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% annual 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:
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
- -----------------------------------------------------------------
Class A Shares $761 $1,350 $1,963 $3,608
................................................................
Class B Shares $780 $1,455 $2,098 $3,499*
................................................................
Class C Shares $476 $1,143 $1,930 $3,984
................................................................
6
<PAGE>
You would pay the following expenses if you did not redeem your shares:
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
- -----------------------------------------------------------------
Class A Shares $761 $1,350 $1,963 $3,608
................................................................
Class B Shares $380 $1,155 $1,949 $3,499*
................................................................
Class C Shares $376 $1,143 $1,930 $3,984
................................................................
* 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").
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 investment objective by investing primarily in a non-diversified global
portfolio of high-quality fixed income securities with varying maturities
denominated in various currencies or multi-national currency units, including
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.).
The Fund's investment adviser seeks to manage interest rate, country, and
currency exposures by a strategic, value-based approach that favors securities
with high real interest rates and sizable incremental yield at longer
maturities. The Fund's investment adviser seeks to preserve capital by investing
in high quality (i.e., those rated in 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.
In normal circumstances, 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 a 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
7
<PAGE>
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 a
nationally recognized statistical rating organization 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 "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 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 investment
adviser's assessment of the relative yield, appreciation potential and
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 of the Fund are
not fully invested or attractive investment opportunities are foregone.
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.
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.
8
<PAGE>
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 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. The Fund purchases and sells
foreign currency on a spot basis in connection with the settlement of
transactions in securities traded in such foreign currency. The Fund also may
enter into contracts with banks, brokers or dealers to purchase or sell 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 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
9
<PAGE>
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 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. Additionally, 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 temporary substitute for purchasing or
selling particular securities, including, for example, when the Fund acts
quickly to adjust 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).
Additionally, 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. Additionally, 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 which can be
obtained by investors free of charge as described on the back cover of this
prospectus.
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 OTC 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. The Fund may
not invest more than 10% of its total assets in securities subject to legal or
contractual restriction on resale. 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 foreign markets, 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 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.
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 of another open-end or closed-end investment
company, by purchase in the open market involving only customary brokers'
commissions or in connection with mergers,
11
<PAGE>
acquisitions of assets or consolidations or as may otherwise be permitted by the
1940 Act. If the 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
investment adviser), but also will indirectly bear similar expenses of the
underlying investment companies or investment funds.
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 otherwise. The Fund's portfolio turnover is shown under the
heading "Financial Highlights." The portfolio turnover rate may be expected to
vary from year to year. A high portfolio turnover rate (100% or more) increases
the Fund's transactions costs, including brokerage commissions or dealer costs,
and may result in the realization of more short-term capital gains than if the
Fund had lower portfolio turnover. Increases the Fund's transaction costs would
impact the Fund's performance. The turnover rate will not be a limiting factor,
however, if the Fund's investment adviser considers portfolio changes
appropriate.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Fund may 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. The Fund may not
achieve its investment objective if it takes a defensive position.
YEAR 2000 RISKS. Like other mutual funds, financial and business organizations
and individuals around the world, the Fund could be adversely affected if the
computer systems used by the Fund's investment adviser and other service
providers do not properly process and calculate date-related information and
data from and after January 1, 2000. This is commonly known as the "Year 2000
Problem." The Fund's investment adviser 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 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 emerging or
developing countries; because there is an increased likelihood that issuers of
securities of such countries cannot anticipate or effectively manage the affects
of computer programs and the Year 2000 Problem. Accordingly, the Fund's
investments may be adversely affected. The statements above are subject to the
Year 2000 Information and Readiness Disclosure Act which Act may limit the legal
rights regarding the use of such statements in the case of a dispute.
12
<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 $75 billion under management or supervision. Van
Kampen Investments' more than 50 open-end and 39 closed-end funds and more than
2,500 unit investment trusts are professionally distributed by leading financial
advisers nationwide. Van Kampen Funds Inc., the distributor of the Fund (the
"Distributor") and the sponsor of the funds mentioned above, is also a wholly
owned subsidiary of Van Kampen Investments. Van Kampen Investments is an
indirect wholly owned subsidiary of Morgan Stanley Dean Witter & Co. The
Adviser's principal office is located at 1 Parkview Plaza, PO Box 5555, Oakbrook
Terrace, Illinois 60181-5555.
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 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.
From time to time, the Adviser or the Distributor may voluntarily undertake to
reduce the Fund's expenses by reducing the fees payable to them or by reducing
other expenses of the Fund in accordance with such limitations as the Adviser or
Distributor may establish.
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen 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
December 31, 1998, the Subadviser, together with its affiliated institutional
asset management companies, managed assets of approximately $163.4 billion,
including assets under fiduciary advice. The Subadviser's address is 1221 Avenue
of the Americas, New York, NY 10020.
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
13
<PAGE>
monthly basis based upon a percentage of the net advisory fees the Adviser
receives from the Fund.
---------------------
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 share primary responsibility for managing the
Fund's 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. degree
(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 1987-1995 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 portfolios. 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. degree
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 Fund since September 1998. Prior to
joining MAS, he 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 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
14
<PAGE>
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 (described below) pursuant to which its
distribution fee or service fee is paid, (iii) each class of shares has
different exchange privileges, (iv) certain classes of shares are subject to a
conversion feature and (v) certain classes of shares have different shareholder
service options available.
The 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.
Net asset value is calculated separately for each class of the Fund. The net
asset value per share of each class of shares is determined by dividing the
total fair market value of the investments and other assets attributable to such
class of shares, less all liabilities attributable to such class of shares, by
the total number of outstanding shares of such class of shares. Net asset value
per share of the Fund generally is determined once daily as of the regular close
of the New York Stock Exchange (the "Exchange") (currently, 4:00 p.m. Eastern
time) on each day that the Exchange is open for business. Securities listed on a
securities exchange for which market quotations are available are valued at
their closing price. If no closing price is available, such securities will be
valued at the last quoted sale price on the day the valuation is made. Price
information on listed securities is taken from the exchange where the security
is primarily traded. Unlisted securities and listed securities not traded on the
valuation date for which market quotations are 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.
15
<PAGE>
The value of other assets and securities for which no quotations are readily
available (including illiquid and unlisted foreign securities) and those
securities for which it is inappropriate to determine prices in accordance with
the above procedures are determined in good faith at fair value using methods
determined by the Board of Directors. 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. 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 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 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 on 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
16
<PAGE>
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 gains
distributions, 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
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 IMPOSES A
CONTINGENT DEFERRED SALES CHARGE OF 1.00% ON CERTAIN REDEMPTIONS MADE
WITHIN ONE YEAR OF THE PURCHASE. THE CONTINGENT DEFERRED SALES CHARGE
IS ASSESSED ON AN AMOUNT EQUAL TO THE LESSER OF THE THEN CURRENT
MARKET VALUE OR THE COST OF THE SHARES BEING REDEEMED. ACCORDINGLY, NO
SALES CHARGE IS IMPOSED ON INCREASES IN NET ASSET VALUE ABOVE THE
INITIAL PURCHASE PRICE.
No sales charge is imposed on Class A Shares received from reinvestment of
dividends or capital gains distributions.
Under the Distribution Plan and Service Plan, the Fund may spend a total of
0.25% per year of the average daily net assets with respect to the Class A
Shares of the Fund. From such amount, under the Service Plan, the Fund may spend
up to 0.25% per year of the Fund's average daily net assets with respect to the
Class A Shares for the ongoing provision of services to Class A shareholders by
the Distributor and by brokers, dealers or financial intermediaries and for the
maintenance of such shareholders' accounts.
CLASS B SHARES
Class B Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge if
17
<PAGE>
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 gains dividends. It
is presently the policy of the Distributor not to accept any order for Class B
Shares in an amount of $500,000 or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
The amount of the contingent deferred sales charge, if any, varies depending on
the number of years from the time of payment for the purchase of Class B Shares
until the time of redemption of such shares. Solely for purposes of determining
the number of years from the time of any payment for the purchase of shares, all
payments during a month are totaled and deemed to have been made on the last day
of the month.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed that the redemption is first of any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge and then of shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
average daily net assets with respect to the Class B Shares of the Fund. In
addition, under the Service Plan, the Fund may spend up to 0.25% per year of the
Fund's average daily net assets with respect to the Class B Shares for the
ongoing provision of services to Class B shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CLASS C SHARES
Class C Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge of 1.00% of the dollar amount subject to charge if
redeemed within one year of purchase.
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gains dividends. It
is presently the policy of the Distributor not to accept any order for Class C
Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
In determining whether a contingent deferred sales charge is applicable to a
redemption, it is assumed that the redemption is first of any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge and then of shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
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.
18
<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 distributions constituting
"preferential dividends" under the federal income tax law and (ii) the
conversion of shares does not constitute a taxable event under federal income
tax law. The conversion may be suspended if such an opinion is no longer
available and such shares might continue to be subject to the higher aggregate
fees applicable to such shares for an indefinite period.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge is waived on redemptions of Class B Shares
and Class C Shares (i) within one year following the death or disability (as
disability is defined by federal income tax law) of a shareholder, (ii) for
required minimum distributions from an individual retirement account ("IRA") or
certain other retirement plan distributions, (iii) for withdrawals under the
Fund's systematic withdrawal plan but limited to 12% annually of the initial
value of the account, (iv) if no commission or transaction fee is paid to
authorized dealers at the time of purchase of such shares and (v) if made by
involuntary liquidation by the Fund of a shareholder's account as described
under the heading "Redemption of Shares." Subject to certain limitations, a
shareholder who has redeemed Class C Shares of the Fund may reinvest in Class C
Shares at net asset value with credit for any contingent deferred sales charge
if the reinvestment is within 180 days after the redemption. For a more complete
description of contingent deferred sales charge waivers, please refer to the
Fund's Statement of Additional Information or contact your authorized dealer.
QUANTITY DISCOUNTS
Investors purchasing Class A Shares may, under certain circumstances described
below, be entitled to pay reduced or no sales charges. Investors, or their
authorized dealers, must notify the Fund at the time of the purchase order
whenever a quantity discount is applicable to purchases. Upon such notification,
an investor will receive the lowest applicable sales charge. Quantity discounts
may be modified or terminated at any time. For more information about quantity
discounts, investors should contact their authorized dealer or the Distributor.
A person eligible for a reduced sales charge includes an individual, his or her
spouse and children under 21 years of age and any corporation, partnership or
sole proprietorship which is 100% owned, either alone or in combination, by any
of the foregoing; a trustee or other fiduciary purchasing for a single trust or
for a single fiduciary account, or a "company" as defined in Section 2(a)(8) of
the 1940 Act.
As used herein, "Participating Funds" refers to certain open-end investment
companies advised by Asset Management or Advisory Corp. and distributed by the
Distributor as determined from time to time by the Fund's Board of 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
19
<PAGE>
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 trust distributions will be 1.00% of the offering
price (1.01% of net asset value). Of this amount, the Distributor will pay to
the authorized dealer, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the terms and conditions that apply to the program,
should contact their authorized dealer or the Distributor.
The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during each distribution period by all investors who choose to invest in
the Fund through the program and (2) provide Investor Services with appropriate
backup data for each investor participating in the program in a computerized
format fully compatible with Investor Services' processing system.
As further requirements for obtaining these special benefits, the Fund also
requires that all dividends and other distributions by the Fund be reinvested in
additional shares without any systematic withdrawal program. There will be no
minimum for reinvestments from unit investment trusts. The Fund will send
account activity statements to such participants on a quarterly basis only, even
if their investments are made more frequently. The Fund reserves the right to
modify or terminate this program at any time.
20
<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
21
<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 on
purchases made as described in (3) through (9) above. The Fund may terminate, or
amend the terms of, offering shares of the Fund at net asset value to such
groups at any time.
REDEMPTION OF
SHARES
Generally shareholders may redeem for cash some or all of their shares without
charge by the Fund (other than applicable sales charge) at any time. As
described under the heading "Purchase of Shares," redemptions of Class B Shares
and Class C Shares may be subject to a contingent deferred sales charge. In
addition, certain redemptions of Class A Shares for shareholder accounts of $1
million or more may be subject to a contingent deferred sales charge.
Redemptions completed through an authorized dealer or a custodian of a
retirement plan account may involve additional fees charged by the dealer or
custodian.
Except as specified below under "Telephone Redemption Requests," payment for
shares redeemed generally will be made by check mailed within seven days after
receipt by Investor Services of the request and any other necessary documents in
proper order. Such payment may be postponed or the right of redemption suspended
as provided by the rules of the SEC. Such payment may, under certain
circumstances, be paid wholly or in part by a distribution-in-kind of portfolio
securities. If the shares to be redeemed have been recently purchased by check,
Investor Services may delay the payment of redemption proceeds until it confirms
the purchase check has cleared, which may take up to 15 days. A taxable gain or
loss will be recognized by the shareholder upon redemption of shares.
WRITTEN REDEMPTION REQUESTS. Shareholders may request a redemption of shares by
written request in proper form sent directly to Van Kampen Investor Services
Inc., PO Box 218256, Kansas City, MO 64121-8256. The request for redemption
should indicate the number of shares to be redeemed, the class designation of
such shares and the shareholder's account number. The redemption request must be
signed by all persons in whose names the shares are
22
<PAGE>
registered. Signatures must conform exactly to the account registration. If the
proceeds of the redemption exceed $50,000, or if the proceeds are not to be paid
to the record owner at the record address, or if the record address has changed
within the previous 30 days, signature(s) must be guaranteed by one of the
following: a bank or trust company; a broker-dealer; a credit union; a national
securities exchange, registered securities association or clearing agency; a
savings and loan association; or a federal savings bank.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption to be in proper form. In some
cases, however, additional documents may be necessary. In the case of
shareholders holding certificates, the certificates for the shares being
redeemed properly endorsed for transfer must accompany the redemption request.
In the event the redemption is requested by a corporation, partnership, trust,
fiduciary, executor or administrator, and the name and title of the
individual(s) authorizing such redemption is not shown in the account
registration, a copy of the corporate resolution or other legal documentation
appointing the authorized signer and certified within the prior 120 days must
accompany the redemption request. IRA redemption requests should be sent to the
IRA custodian to be forwarded to Investor Services. Contact the IRA custodian
for further information.
In the case of written redemption requests sent directly to Investor Services,
the redemption price is the net asset value per share next determined after the
request in proper form is received by Investor Services.
AUTHORIZED DEALER REDEMPTION REQUESTS. Shareholders may place redemption
requests through an authorized dealer. Orders sent through authorized dealers
must be at least $500 (unless transmitted by your authorized dealer via the
FUNDSERV network). The redemption price for such shares is the net asset value
per share next calculated after an order in proper form is received by an
authorized dealer provided such order is transmitted to the Distributor prior to
the Distributor's close of business on such day. It is the responsibility of
authorized dealers to transmit redemption requests received by them to the
Distributor so they will be received prior to such time. Redemptions completed
through an authorized dealer may involve additional fees charged by the dealer.
TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. To establish
such privilege, a shareholder must complete the appropriate section of the
application form accompanying this prospectus or call the Fund at (800) 341-2911
to request that a copy of the Telephone Redemption Authorization form be sent to
them for completion. To redeem shares, contact the telephone transaction line at
(800) 421-5684. Van Kampen Investments, Investor Services and the Fund employ
procedures considered by them to be reasonable to confirm that instructions
communicated by telephone are genuine. Such procedures include requiring certain
personal identification information prior to acting upon telephone instructions,
tape-recording telephone communications and providing written confirmation of
instructions communicated by telephone. If reasonable procedures are employed,
neither Van Kampen Investments, Investor Services nor the Fund will be liable
for following telephone instructions which it reasonably believes to be genuine.
Telephone redemptions may not be available if the shareholder cannot reach
Investor Services by telephone, whether because all telephone lines are busy or
for any other reason; in such case, a shareholder would have to use the Fund's
other redemption procedure previously described. Requests received by Investor
Services prior to 4:00 p.m., New York time, will be processed at the next
determined net asset value per share. These privileges 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
23
<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 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 two kinds of return from the Fund: dividends and
capital gains 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 GAINS. The Fund may realize capital gains or losses when it sells
securities, depending on whether the sales prices for the securities are higher
or lower than purchase prices. Net realized capital gains represent the total
profit from sales of securities minus total losses from sales of securities
including losses carried forward from prior years. The Fund distributes any
taxable net realized capital gains to shareholders as capital gains dividends at
least annually. As in the case of dividends, capital gains dividends are
automatically reinvested in additional shares of the Fund at 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
24
<PAGE>
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 gains distributions 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 gains
distribution. Unless the shareholder instructs otherwise, the reinvestment plan
is automatic. This instruction may be made by telephone by calling (800)
341-2911 ((800) 421-2833 for the hearing impaired) or by writing to Investor
Services. The investor may, on the initial application or prior to any
declaration, instruct that dividends be paid in cash and capital gains
distributions be reinvested at net asset value, or that both dividends and
capital gains distributions be paid in cash.
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under which
a shareholder can authorize 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.
To be eligible for exchange, shares of the Fund must have been registered in the
shareholder's name for at least 30 days prior to an exchange. Shares of the Fund
registered in a shareholder's name for less than 30 days may only be exchanged
upon receipt of prior approval of the Adviser. It is the policy of the Adviser,
under normal circumstances, not to approve such requests.
When Class B Shares and Class C Shares are exchanged among Participating Funds,
the holding period for purposes of computing the contingent deferred sales
charge is based upon the date of the initial purchase of such shares from a
Participating Fund. If such Class B Shares or Class C Shares are redeemed and
not exchanged for shares of another Participating Fund, Class B Shares and Class
C Shares are subject to the contingent deferred sales charge schedule imposed by
the Participating Fund from which such shares were originally purchased.
Exchanges of shares are sales and may result in a gain or loss for federal
income tax purposes. If the shares exchanged have been held for less than 91
days, the sales charge paid on such shares is carried over and included in the
tax basis of the shares acquired.
A shareholder wishing to make an exchange may do so by sending a written request
to Investor Services or by contacting the telephone transaction line at (800)
421-5684. A shareholder automatically has telephone exchange privileges unless
otherwise designated in the application form accompanying the prospectus. Van
Kampen Investments, Investor Services and the Fund employ procedures considered
by them to be reasonable to confirm that instructions communicated by telephone
are genuine. Such procedures include requiring certain personal identification
information prior to acting upon telephone instructions, tape-recording
telephone communications, and providing written confirmation of instructions
communicated by telephone. If reasonable procedures are employed, neither Van
Kampen Investments, Investor Services nor the Fund will be liable for following
telephone instructions which it reasonably believes to be genuine. If the
exchanging shareholder does not have an account in the fund whose shares are
being acquired, a new account will be established with the same registration,
dividend and capital gains options (except dividend diversification) and
authorized dealer of record as the account from which shares are exchanged,
unless otherwise specified by the shareholder. In order to establish a
systematic withdrawal plan for the new account or reinvest dividends from the
new account into another fund, however, an exchanging shareholder must submit a
specific request. The Fund reserves the right to reject any order to acquire its
shares through exchange. In addition, the Fund and other
25
<PAGE>
Participating Funds may restrict exchanges by shareholders engaged in excessive
trading by limiting or disallowing the exchange privileges to such shareholders.
For further information on these restrictions see the Statement of Additional
Information. The Fund may modify, restrict or terminate the exchange privilege
at any time on 60 days' notice to its shareholders of any termination or
material amendment.
For purposes of determining the sales charge rate previously paid on Class A
Shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchanged security was acquired through reinvestment, that
security is deemed to have been sold with a sales charge rate equal to the rate
previously paid on the security on which the dividend or distribution was paid.
If a shareholder exchanges less than all of such shareholder's securities, the
security upon which the highest sales charge rate was previously paid is deemed
exchanged first.
Exchange requests received on a business day prior to the time shares of the
funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares in the fund from which the
shareholder is withdrawing an investment will be redeemed at the net asset value
per share next determined on the date of receipt. Shares of the new fund into
which the shareholder is investing will also normally be purchased at the net
asset value per share, plus any applicable sales charge, next determined on the
date of receipt. Exchange requests received on a business day after the time
shares of the funds involved in the request are priced will be processed on the
next business day in the manner described herein.
A prospectus of any of these Participating Funds may be obtained from any
authorized dealer or the Distributor. An investor considering an exchange to one
of such funds should refer to the prospectus for additional information
regarding such fund prior to investing.
INTERNET TRANSACTIONS. In addition to performing transactions on your account
through written instruction or by telephone, you may also perform certain
transactions through the internet. Please refer to our web site at
www.vankampen.com for further instruction. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated through the internet are genuine. Such
procedures include requiring use of a personal identification number prior to
acting upon internet instructions and providing written confirmation of
instructions communicated through the internet. If reasonable procedures are
employed, neither Van Kampen Investments, Investor Services nor the Fund will be
liable for following instructions through the internet which it reasonably
believes to be genuine. If an account has multiple owners, Investor Services may
rely on the instructions of any one owner.
FEDERAL INCOME
TAXATION
Distributions of the Fund's net investment income (consisting generally of
taxable income and net short-term capital gains) are taxable to shareholders as
ordinary income to the extent of the Fund's earnings and profits, whether paid
in cash or reinvested in additional shares. Distributions of the Fund's net
capital gains (which are the excess of net long-term capital gains over net
short-term capital losses) as capital gain dividends, if any, are taxable to
shareholders as long-term capital gains, whether paid in cash or reinvested in
additional shares, and regardless of how long the shares of the Fund have been
held by such shareholders. Capital gains dividends may be taxed at different
rates depending on how long the Fund held the securities. The Fund expects that
its distributions will consist primarily of ordinary income and capital gains
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
26
<PAGE>
received by the shareholders on the December 31st prior to the date of payment.
The Fund will inform shareholders of the source and tax status of all
distributions promptly after the close of each calendar year.
The sale or exchange of shares is a taxable transaction for federal income tax
purposes. Shareholders who sell their shares will generally recognize gain or
loss in an amount equal to the difference between their adjusted tax basis in
the shares and the amount received. If the shares are held as a capital asset,
the gain or loss will be a capital gain or loss. Any capital gains may be taxed
at different rates depending on how long the shareholder held such shares.
The Fund is required, in certain circumstances, to withhold 31% of dividends and
certain other payments, including redemptions, paid to shareholders who do not
furnish to the Fund their correct taxpayer identification number (in the case of
individuals, their social security number) and certain required certifications
or who are otherwise subject to backup withholding.
Foreign shareholders, including shareholders who are non-resident aliens, may be
subject to U.S. withholding tax on certain distributions (whether received in
cash or in shares) at a rate of 30% or such lower rate as prescribed by an
applicable treaty. Prospective foreign investors should consult their U.S. tax
advisers concerning the tax consequences to them of an investment in shares.
The Fund intends to qualify as a regulated investment company under federal
income tax law. If the Fund so qualifies and distributes each year to its
shareholders at least 90% of its net investment income, the Fund will not be
required to pay federal income taxes on any income it distributed to
shareholders. If the Fund distributes less than the sum of 98% of its ordinary
income and 98% of its capital gains 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, or disposing 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 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>
AUGUST 1, 1995+ CLASS C SHARES
TO YEAR ENDED JUNE 30,
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.
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 Philip 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
Edward C. Wood III*
VICE PRESIDENT
A. Thomas Smith III*
VICE PRESIDENT AND SECRETARY
Michael H. Santo*
VICE PRESIDENT
Peter W. Hegel*
VICE PRESIDENT
Stephen L. Boyd*
VICE PRESIDENT
Joseph P. Stadler*
VICE PRESIDENT
Curtis W. Morell*
VICE PRESIDENT & CHIEF ACCOUNTING OFFICER
Tanya M. Loden*
CONTROLLER
John L. Sullivan*
VICE PRESIDENT, CHIEF FINANCIAL OFFICER & TREASURER
* "Interested" persons of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2911
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders, or
redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call
(800) 421-2833
FUND INFO-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 , 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 Public
Reference Room in
Washington, DC or online
at the SEC's web site
(http://www.sec.gov).
For more information,
please call the SEC at
(800) SEC-0330. You can
also request these
materials by writing
the Public Reference
Section of the SEC,
Washington DC,
20549-6009, and paying a
duplication fee.
[LOGO]
THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-7140.
MSGF PRO 10/99
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THE FUND MAY NOT SELL THESE SECURITIES UNTIL THE POST-
EFFECTIVE AMENDMENT TO THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES.
SUBJECT TO COMPLETION -- DATED AUGUST 27, 1999
VAN KAMPEN
GLOBAL FRANCHISE FUND
Van Kampen Global
Franchise Fund is a mutual
fund with an investment
objective to seek
long-term capital
appreciation. The Fund's
management seeks to
achieve the 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 regulators, and
neither the SEC nor any
state regulator has passed
upon the accuracy or
adequacy of this
prospectus. Any
representation to the
contrary is a criminal
offense.
THIS PROSPECTUS IS DATED
OCTOBER , 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 ............................................21
Shareholder Services ...................................................21
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 management seeks to achieve the
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 management uses a "bottom-up" investment
approach that emphasizes security selection on an individual company basis. The
Fund selects securities of issuers that the Fund's management believes have
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. 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 emerging or
developing countries. The Fund may purchase or sell in 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, including seeking to reduce or eliminate
foreign currency exchange risks associated with securities denominated in
non-U.S. dollar currencies.
INVESTMENT RISKS
An investment in the Fund is subject to investment risks, and you could lose
money on your investment in the Fund. There can be no assurance that the Fund
will achieve its investment 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 emerging or developing markets,
may have more price volatility than U.S. markets. 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 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 markets 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 such as imperfect
correlation between the value of the instruments and
3
<PAGE>
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 management may not be
successful in selecting the best-performing securities and the Fund's
performance may lag behind that of similar funds.
An investment in the Fund is not a deposit of any bank or other insured
depository institution. Your investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
INVESTOR PROFILE
In light of its objective and investment 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 shares of the Fund.
- - Wish to add to their personal investment portfolio a fund that invests
primarily in publicly-traded equity securities of U.S. and other issuers.
An investment in the Fund may not be appropriate for all investors. The Fund is
not intended to be a complete investment program, and investors should consider
their long-term investment goals and financial needs when making an investment
decision about the Fund. An investment in the Fund is intended to be a long-term
investment, and the Fund should not be used as a trading vehicle.
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 FUNDS
These tables describe the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
- ----------------------------------------------------------------
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 (as a
percentage of offering price) None None None
...............................................................
Redemption fees (as a percentage of
amount redeemed) None None None
...............................................................
Exchange fee None None None
...............................................................
(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 AND 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."
4
<PAGE>
ANNUAL FUND
OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
- ----------------------------------------------------------------
Management Fees(1) 1.00% 1.00% 1.00%
...............................................................
Distribution and/or Service (12b-1)
Fees(2) 0.25% 1.00%(3) 1.00%(3)
...............................................................
Other Expenses(1) 12.30% 12.45% 14.07%
...............................................................
Total Annual Fund Operating
Expenses(1) 13.55% 14.45% 16.07%
...............................................................
(1) 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
REIMBURSEMENTS CAN BE TERMINATED AT ANY TIME.
(2) 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."
(3) 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% annual 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:
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
- -------------------------------------------------------------------
Class A Shares $1,797 $3,938 $5,728 $9,024
..................................................................
Class B Shares $1,877 $4,052 $5,850 $8,123*
..................................................................
Class C Shares $1,618 $4,069 $6,086 $9,471
..................................................................
You would pay the following expenses if you did not redeem your shares:
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
- -------------------------------------------------------------------
Class A Shares $1,797 $3,938 $5,728 $9,024
..................................................................
Class B Shares $1,377 $3,752 $5,700 $8,123*
..................................................................
Class C Shares $1,518 $4,069 $6,086 $9,471
..................................................................
* 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 investment objective by investing primarily in a portfolio of publicly-
traded equity securities of issuers 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
5
<PAGE>
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's investments generally
will be diversified among a number of issuers and industries, the Fund may
invest up to 5% of its total assets in selected issuers (and, subject to certain
limitations, more than 5% of its total assets in selected issuers) and may
invest up to 25% of its assets in a single industry. By investing more of its
assets in fewer issuers or industries, the Fund will be subject to greater risks
and price volatility impacting individual issuers or industries than a Fund
which does not employ such a practice.
Under normal market conditions, at least 65% of the Fund's total assets will be
invested in securities of issuers located in at least three different countries
(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 countries and traded in emerging
markets; such securities pose greater risks than securities of issuers located
in developed countries and traded in more established markets. 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 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 security 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
6
<PAGE>
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 additional fees
such as management and other fees.
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, 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 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 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 investment
adviser's assessment of the relative yield, appreciation potential and
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 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 markets are subject to
greater risks than in investments in securities of developed markets since
emerging markets tend to have economic structures that are less diverse and
mature and political systems that are less stable than developed markets.
In addition to the increased risks of investing in foreign 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.
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
7
<PAGE>
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 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. The Fund purchases and sells
foreign currency on a spot basis in connection with the settlement of
transactions in securities traded in such foreign currency. The Fund also may
enter into contracts with banks, brokers or dealers to purchase or sell 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 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 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. Additionally, 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 temporary substitute for purchasing or
selling particular securities, including, for example, when the Fund acts to
quickly adjust its exposure to a market in response to changes in
8
<PAGE>
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). Additionally, 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. Additionally, 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 which 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.
9
<PAGE>
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 otherwise. The Fund's portfolio turnover is shown under the heading
"Financial Highlights." The portfolio turnover rate may be expected to vary from
year to year. A high portfolio turnover rate (100% or more) increases the Fund's
transactions costs, including brokerage commissions or dealer costs, and may
result in the realization of more short-term capital gains than if the Fund had
lower portfolio turnover. Increases in the Fund's transaction costs would impact
the Fund's performance. The turnover rate will not be a limiting factor,
however, if the Fund's investment adviser considers portfolio changes
appropriate.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Fund may hold cash or invest on a temporary basis 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. The Fund may not
achieve its investment objective if it takes a defensive position.
YEAR 2000 RISKS. Like other mutual funds, financial and business organizations
and individuals around the world, the Fund could be adversely affected if the
computer systems used by the Fund's investment adviser and other service
providers do not properly process and calculate date-related information and
data from and after January 1, 2000. This is commonly known as the "Year 2000
Problem." The Fund's investment adviser is taking steps that it believes are
reasonably designed to address the Year 2000 Problem with respect to computer
systems that it uses and to obtain reasonable assurances that comparable steps
are being taken by the Fund's other major service providers. At this time, there
can be no assurances that these steps will be sufficient to avoid any adverse
impact to the Fund. In addition, the Year 2000 Problem may adversely affect the
markets and the issuers of securities in which the Fund may invest which, in
turn, may adversely affect the net asset value of the Fund. Improperly
functioning trading systems may result in settlement problems and liquidity
issues. In addition, corporate and governmental data processing errors may
result in production problems for individual companies or issuers and overall
economic uncertainty. Earnings of individual issuers will be affected by
remediation costs, which may be substantial and may be reported inconsistently
in U.S. and foreign financial statements. Efforts in foreign countries to
remediate the potential Year 2000 Problem may not be as extensive as those in
the U.S. As a result, the operations of foreign markets and issuers may be
disrupted by the Year 2000 Problem which could adversely affect the Fund's
portfolio. The risks are greater with respect to certain developing or emerging
countries because there is an increased likelihood that issuers of securities of
such countries cannot anticipate or effectively manage the affects of computer
programs and the Year 2000 Problem. Accordingly, the Fund's investments may be
adversely affected. The statements above are subject to the Year 2000
Information and Readiness Disclosure Act which Act may limit the legal rights
regarding the use of such statements in the case of a dispute.
INVESTMENT ADVISORY
SERVICES
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 $75 billion under management or supervision. Van
Kampen
10
<PAGE>
Investments' more than 50 open-end and 39 closed-end funds and more than 2,500
unit investment trusts are professionally distributed by leading financial
advisers nationwide. Van Kampen Funds Inc., the distributor of the Fund (the
"Distributor") and the sponsor of the funds mentioned above, is also a wholly
owned subsidiary of Van Kampen Investments. Van Kampen Investments is an
indirect wholly owned subsidiary of Morgan Stanley Dean Witter & Co. The
Adviser's principal office is located at 1 Parkview Plaza, PO Box 5555, Oakbrook
Terrace, Illinois 60181-5555.
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 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:
AVERAGE DAILY NET ASSETS % PER ANNUM
- --------------------------------------------------
FIRST $500 MILLION 1.00 OF 1.00%
.................................................
NEXT $500 MILLION 0.95 OF 1.00%
.................................................
OVER $1 BILLION 0.90 OF 1.00%
.................................................
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 period 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 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.
From time to time, the Adviser or the Distributor may voluntarily undertake to
reduce the Fund's expenses by reducing the fees payable to them or by reducing
other expenses of the Fund in accordance with such limitations as the Adviser or
Distributor may establish.
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen Asset Management
Inc. ("Asset Management").
INVESTMENT SUBADVISER
Morgan Stanley Dean Witter Investment Management Inc. (the "Subadviser") is the
Subadviser of the Fund. 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 December 31, 1998, the Subadviser,
together with its affiliated institutional asset management companies, managed
assets of approximately $163.4 billion, including assets under fiduciary advice.
The Subadviser is a wholly owned subsidiary of Morgan Stanley Dean Witter & Co.,
and is an affiliate of the Adviser. The Subadviser's address is 1221 Avenue of
the Americas, New York, New York 10020.
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 percentage of
the net advisory fees the Adviser receives from the Fund.
-------------
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
11
<PAGE>
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 Principal of the
Subadviser. He joined the Subadviser in May 1994, as a consultant global
research analyst specializing in non-cyclical stocks, and became a Principal in
1995. Mr. Brown spent the first nine years of his business career as a
journalist at Fortune Magazine, and worked from 1986 through 1991 as a sell side
analyst for Morgan Stanley International, specializing in UK and Continental
European consumer stocks. Mr. Brown then became research director at J.O. Hambro
& Partners, and a partner in a consulting firm before re-joining Morgan Stanley
Dean Witter & Co. Mr. Brown is a graduate of 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 (described below) pursuant to which its
distribution fee or service fee is paid, (iii) each class of shares has
different exchange privileges, (iv) certain classes of shares are subject to a
conversion feature and (v) certain classes of shares have different shareholder
service options available.
The 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 a 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 in which no purchase or redemption orders are
received or there is not a sufficient degree of trading in a 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 values per share and adjust the offering price more frequently than once a
day if deemed desirable. Net asset value per share for each class is determined
by dividing the value of a 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
12
<PAGE>
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 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.
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 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.
13
<PAGE>
The offering price for shares is based on 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 gains
distributions, 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
AS % OF AS % OF
SIZE OF OFFERING NET AMOUNT
INVESTMENT PRICE INVESTED
- ---------------------------------------------------------
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 * *
........................................................
* NO SALES CHARGE IS PAYABLE AT THE TIME OF PURCHASE ON INVESTMENTS OF
$1 MILLION OR MORE, ALTHOUGH FOR SUCH INVESTMENTS THE FUND IMPOSES A
CONTINGENT DEFERRED SALES CHARGE OF 1.00% ON CERTAIN REDEMPTIONS MADE
WITHIN ONE YEAR OF THE PURCHASE. THE CONTINGENT DEFERRED SALES CHARGE
IS ASSESSED ON AN AMOUNT EQUAL TO THE LESSER OF THE THEN CURRENT
MARKET VALUE OR THE COST OF THE SHARES BEING REDEEMED. ACCORDINGLY, NO
SALES CHARGE IS IMPOSED ON INCREASES IN NET ASSET VALUE ABOVE THE
INITIAL PURCHASE PRICE.
No sales charge is imposed on Class A Shares received from reinvestment of
dividends or capital gains distributions.
Under the Distribution Plan and Service Plan, the Fund may spend a total of
0.25% per year of the average daily net assets with respect to the Class A
Shares of the Fund. From such amount, under the Service Plan, the Fund may spend
up to 0.25% per year of the Fund's average daily net assets with respect to the
Class A Shares for the ongoing provision of services to Class A shareholders by
the Distributor and by brokers, dealers or financial intermediaries and for the
maintenance of such shareholders' accounts.
CLASS B SHARES
Class B Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge if
14
<PAGE>
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 5.00%
......................................................
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 gains dividends. It
is presently the policy of the Distributor not to accept any order for Class B
Shares in an amount of $500,000 or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
The amount of the contingent deferred sales charge, if any, varies depending on
the number of years from the time of payment for the purchase of Class B Shares
until the time of redemption of such shares. Solely for purposes of determining
the number of years from the time of any payment for the purchase of shares, all
payments during a month are totaled and deemed to have been made on the last day
of the month.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed that the redemption is first of any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge and then of shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
average daily net assets with respect to the Class B Shares of the Fund. In
addition, under the Service Plan, the Fund may spend up to 0.25% per year of the
Fund's average daily net assets with respect to the Class B Shares for the
ongoing provision of services to Class B shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CLASS C SHARES
Class C Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge of 1.00% of the dollar amount subject to charge if
redeemed within one year of purchase.
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gains dividends. It
is presently the policy of the Distributor not to accept any order for Class C
Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
In determining whether a contingent deferred sales charge is applicable to a
redemption, it is assumed that the redemption is first of any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge and then of shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
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.
15
<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 distributions constituting
"preferential dividends" under the federal income tax law and (ii) the
conversion of shares does not constitute a taxable event under federal income
tax law. The conversion may be suspended if such an opinion is no longer
available and such shares might continue to be subject to the higher aggregate
fees applicable to such shares for an indefinite period.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge is waived on redemptions of Class B Shares
and Class C Shares (i) within one year following the death or disability (as
disability is defined by federal income tax law) of a shareholder, (ii) for
required minimum distributions from an individual retirement account ("IRA") or
certain other retirement plan distributions, (iii) for withdrawals under the
Fund's systematic withdrawal plan but limited to 12% annually of the initial
value of the account, (iv) if no commission or transaction fee is paid to
authorized dealers at the time of purchase of such shares and (v) if made by
involuntary liquidation by the Fund of a shareholder's account as described
under the heading "Redemption of Shares." Subject to certain limitations, a
shareholder who has redeemed Class C Shares of the Fund may reinvest in Class C
Shares at net asset value with credit for any contingent deferred sales charge
if the reinvestment is within 180 days after the redemption. For a more complete
description of contingent deferred sales charge waivers, please refer to the
Fund's Statement of Additional Information or contact your authorized dealer.
QUANTITY DISCOUNTS
Investors purchasing Class A Shares may, under certain circumstances described
below, be entitled to pay reduced or no sales charges. Investors, or their
authorized dealers, must notify the Fund at the time of the purchase order
whenever a quantity discount is applicable to purchases. Upon such notification,
an investor will receive the lowest applicable sales charge. Quantity discounts
may be modified or terminated at any time. For more information about quantity
discounts, investors should contact their authorized dealer or the Distributor.
A person eligible for a reduced sales charge includes an individual, his or her
spouse and children under 21 years of age and any corporation, partnership or
sole proprietorship which is 100% owned, either alone or in combination, by any
of the foregoing; a trustee or other fiduciary purchasing for a single trust or
for a single fiduciary account, or a "company" as defined in Section 2(a)(8) of
the 1940 Act.
As used herein, "Participating Funds" refers to certain open-end investment
companies advised by Asset Management or Advisory Corp. and distributed by the
Distributor as determined from time to time by the Fund's Board of 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.
16
<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 trust distributions will be 1.00% of the offering
price (1.01% of net asset value). Of this amount, the Distributor will pay to
the authorized dealer, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the terms and conditions that apply to the program,
should contact their authorized dealer or the Distributor.
The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during each distribution period by all investors who choose to invest in
the Fund through the program and (2) provide Investor Services with appropriate
backup data for each investor participating in the program in a computerized
format fully compatible with Investor Services' processing system.
As further requirements for obtaining these special benefits, the Fund also
requires that all dividends and other distributions by the Fund be reinvested in
additional shares without any systematic withdrawal program. There will be no
minimum for reinvestments from unit investment trusts. The Fund will send
account activity statements to such participants on a quarterly basis only, even
if their investments are made more frequently. The Fund reserves the right to
modify or terminate this program at any time.
NET ASSET VALUE PURCHASE OPTIONS. Class A Shares of the Fund may be purchased at
net asset value, upon written assurance that the purchase is made for
17
<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.
18
<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 on
purchases made as described in (3) through (9) above. The Fund may terminate, or
amend the terms of, offering shares of the Fund at net asset value to such
groups at any time.
REDEMPTION OF
SHARES
Generally shareholders may redeem for cash some or all of their shares without
charge by the Fund (other than applicable sales charge) at any time. As
described under the heading "Purchase of Shares," redemptions of Class B Shares
and Class C Shares may be subject to a contingent deferred sales charge. In
addition, certain redemptions of Class A Shares for shareholder accounts of $1
million or more may be subject to a contingent deferred sales charge.
Redemptions completed through an authorized dealer or a custodian of a
retirement plan account may involve additional fees charged by the dealer or
custodian.
Except as specified below under "Telephone Redemption Requests," payment for
shares redeemed generally will be made by check mailed within seven days after
receipt by Investor Services of the request and any other necessary documents in
proper order. Such payment may be postponed or the right of redemption suspended
as provided by the rules of the SEC. Such payment may, under certain
circumstances, be paid wholly or in part by a distribution-in-kind of portfolio
securities. If the shares to be redeemed have been recently purchased by check,
Investor Services may delay the payment of redemption proceeds until it confirms
the purchase check has cleared, which may take up to 15 days. A taxable gain or
loss will be recognized by the shareholder upon redemption of shares.
WRITTEN REDEMPTION REQUESTS. Shareholders may request a redemption of shares by
written request in proper form sent directly to Van Kampen Investor Services
Inc., PO Box 218256, Kansas City, MO 64121-8256. The request for redemption
should indicate the number of shares to be redeemed, the class designation of
such shares and the shareholder's account number. The redemption request must be
signed by all persons in whose names the shares are registered. Signatures must
conform exactly to the account registration. If the proceeds of the redemption
exceed $50,000, or if the proceeds are not to be paid to the record owner at the
record address, or if the record address has changed within the
19
<PAGE>
previous 30 days, signature(s) must be guaranteed by one of the following: a
bank or trust company; a broker-dealer; a credit union; a national securities
exchange, registered securities association or clearing agency; a savings and
loan association; or a federal savings bank.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption to be in proper form. In some
cases, however, additional documents may be necessary. In the case of
shareholders holding certificates, the certificates for the shares being
redeemed properly endorsed for transfer must accompany the redemption request.
In the event the redemption is requested by a corporation, partnership, trust,
fiduciary, executor or administrator, and the name and title of the
individual(s) authorizing such redemption is not shown in the account
registration, a copy of the corporate resolution or other legal documentation
appointing the authorized signer and certified within the prior 120 days must
accompany the redemption request. IRA redemption requests should be sent to the
IRA custodian to be forwarded to Investor Services. Contact the IRA custodian
for further information.
In the case of written redemption requests sent directly to Investor Services,
the redemption price is the net asset value per share next determined after the
request in proper form is received by Investor Services.
AUTHORIZED DEALER REDEMPTION REQUESTS. Shareholders may place redemption
requests through an authorized dealer. Orders sent through authorized dealers
must be at least $500 (unless transmitted by your authorized dealer via the
FUNDSERV network). The redemption price for such shares is the net asset value
per share next calculated after an order in proper form is received by an
authorized dealer provided such order is transmitted to the Distributor prior to
the Distributor's close of business on such day. It is the responsibility of
authorized dealers to transmit redemption requests received by them to the
Distributor so they will be received prior to such time. Redemptions completed
through an authorized dealer may involve additional fees charged by the dealer.
TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. To establish
such privilege, a shareholder must complete the appropriate section of the
application form accompanying this prospectus or call the Fund at (800) 341-2911
to request that a copy of the Telephone Redemption Authorization form be sent to
them for completion. To redeem shares, contact the telephone transaction line at
(800) 421-5684. Van Kampen Investments, Investor Services and the Fund employ
procedures considered by them to be reasonable to confirm that instructions
communicated by telephone are genuine. Such procedures include requiring certain
personal identification information prior to acting upon telephone instructions,
tape-recording telephone communications and providing written confirmation of
instructions communicated by telephone. If reasonable procedures are employed,
neither Van Kampen Investments, Investor Services nor the Fund will be liable
for following telephone instructions which it reasonably believes to be genuine.
Telephone redemptions may not be available if the shareholder cannot reach
Investor Services by telephone, whether because all telephone lines are busy or
for any other reason; in such case, a shareholder would have to use the Fund's
other redemption procedure previously described. Requests received by Investor
Services prior to 4:00 p.m., New York time, will be processed at the next
determined net asset value per share. These privileges 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
20
<PAGE>
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 two kinds of return from the Fund: dividends and
capital gains 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 GAINS. The Fund may realize capital gains or losses when it sells
securities, depending on whether the sales prices for the securities are higher
or lower than purchase prices. Net realized capital gains represent the total
profit from sales of securities minus total losses from sales of securities
including losses carried forward from prior years. The Fund distributes any
taxable net realized capital gains to shareholders as capital gains dividends at
least annually. As in the case of dividends, capital gains dividends are
automatically reinvested in additional shares of the Fund at 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 gains distributions 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 gains
distribution. Unless the shareholder instructs otherwise, the reinvestment plan
is automatic. This instruction may be made by telephone by calling (800)
341-2911 ((800) 421-2833 for the hearing impaired) or by writing to Investor
Services. The investor may, on the initial application or prior to any
declaration, instruct that dividends be paid in cash and capital gains
distributions be reinvested at net asset value, or that both dividends and
capital gains distributions be paid in cash.
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under which
a shareholder can authorize 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.
21
<PAGE>
EXCHANGE PRIVILEGE. Shares of the Fund may be exchanged for shares of the same
class of any Participating Fund based on the next computed net asset value per
share of each fund after requesting the exchange without any sales charge,
subject to certain limitations. Shares of the Fund may be exchanged for shares
of any Participating Fund only if shares of that Participating Fund are
available for sale; however, during periods of suspension of sales, shares of a
Participating Fund may be available for sale only to existing shareholders of a
Participating Fund. Shareholders seeking an exchange into a Participating Fund
should obtain and read the current prospectus for such fund.
To be eligible for exchange, shares of the Fund must have been registered in the
shareholder's name for at least 30 days prior to an exchange. Shares of the Fund
registered in a shareholder's name for less than 30 days may only be exchanged
upon receipt of prior approval of the Adviser. It is the policy of the Adviser,
under normal circumstances, not to approve such requests.
When Class B Shares and Class C Shares are exchanged among Participating Funds,
the holding period for purposes of computing the contingent deferred sales
charge is based upon the date of the initial purchase of such shares from a
Participating Fund. If such Class B Shares or Class C Shares are redeemed and
not exchanged for shares of another Participating Fund, Class B Shares and Class
C Shares are subject to the contingent deferred sales charge schedule imposed by
the Participating Fund from which such shares were originally purchased.
Exchanges of shares are sales and may result in a gain or loss for federal
income tax purposes. If the shares exchanged have been held for less than 91
days, the sales charge paid on such shares is carried over and included in the
tax basis of the shares acquired.
A shareholder wishing to make an exchange may do so by sending a written request
to Investor Services or by contacting the telephone transaction line at (800)
421-5684. A shareholder automatically has telephone exchange privileges unless
otherwise designated in the application form accompanying the prospectus. Van
Kampen Investments, Investor Services and the Fund employ procedures considered
by them to be reasonable to confirm that instructions communicated by telephone
are genuine. Such procedures include requiring certain personal identification
information prior to acting upon telephone instructions, tape-recording
telephone communications, and providing written confirmation of instructions
communicated by telephone. If reasonable procedures are employed, neither Van
Kampen Investments, Investor Services nor the Fund will be liable for following
telephone instructions which it reasonably believes to be genuine. If the
exchanging shareholder does not have an account in the fund whose shares are
being acquired, a new account will be established with the same registration,
dividend and capital gains options (except dividend diversification) and
authorized dealer of record as the account from which shares are exchanged,
unless otherwise specified by the shareholder. In order to establish a
systematic withdrawal plan for the new account or reinvest dividends from the
new account into another fund, however, an exchanging shareholder must submit a
specific request. The Fund reserves the right to reject any order to acquire its
shares through exchange. In addition, the Fund and other Participating Funds may
restrict exchanges by shareholders engaged in excessive trading by limiting or
disallowing the exchange privileges to such shareholders. For further
information on these restrictions see the Statement of Additional Information.
The Fund may modify, restrict or terminate the exchange privilege at any time on
60 days' notice to its shareholders of any termination or material amendment.
For purposes of determining the sales charge rate previously paid on Class A
Shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchanged security was acquired through reinvestment, that
security is deemed to have been sold with a sales charge rate equal to the rate
previously paid on the security on which the dividend or distribution was paid.
If a shareholder exchanges less than all of such shareholder's securities, the
security upon which the highest sales charge rate was previously paid is deemed
exchanged first.
22
<PAGE>
Exchange requests received on a business day prior to the time shares of the
funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares in the fund from which the
shareholder is withdrawing an investment will be redeemed at the net asset value
per share next determined on the date of receipt. Shares of the new fund into
which the shareholder is investing will also normally be purchased at the net
asset value per share, plus any applicable sales charge, next determined on the
date of receipt. Exchange requests received on a business day after the time
shares of the funds involved in the request are priced will be processed on the
next business day in the manner described herein.
A prospectus of any of these Participating Funds may be obtained from any
authorized dealer or the Distributor. An investor considering an exchange to one
of such funds should refer to the prospectus for additional information
regarding such fund prior to investing.
INTERNET TRANSACTIONS. In addition to performing transactions on your account
through written instruction or by telephone, you may also perform certain
transactions through the internet. Please refer to our web site at
www.vankampen.com for further instruction. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated through the internet are genuine. Such
procedures include requiring use of a personal identification number prior to
acting upon internet instructions and providing written confirmation of
instructions communicated through the internet. If reasonable procedures are
employed, neither Van Kampen Investments, Investor Services nor the Fund will be
liable for following instructions through the internet which it reasonably
believes to be genuine. If an account has multiple owners, Investor Services may
rely on the instructions of any one owner.
FEDERAL INCOME
TAXATION
Distributions of the Fund's net investment income (consisting generally of
taxable income and net short-term capital gains) are taxable to shareholders as
ordinary income to the extent of the Fund's earnings and profits, whether paid
in cash or reinvested in additional shares. Distributions of the Fund's net
capital gains (which are the excess of net long-term capital gains over net
short-term capital losses) as capital gain dividends, if any, are taxable to
shareholders as long-term capital gains, whether paid in cash or reinvested in
additional shares, and regardless of how long the shares of the Fund have been
held by such shareholders. Capital gains dividends may be taxed at different
rates depending on how long the Fund held the securities. The Fund expects that
its distributions will consist primarily of ordinary income and capital gains
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.
23
<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. Prospective foreign investors should consult their U.S. tax
advisers concerning the tax consequences to them of an investment in shares.
The Fund intends to qualify as a regulated investment company under federal
income tax law. If the Fund so qualifies and distributes each year to its
shareholders at least 90% of its net investment income, the Fund will not be
required to pay federal income taxes on any income it distributed to
shareholders. If the Fund distributes less than the sum of 98% of its ordinary
income and 98% of its capital gains 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, or disposing 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 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.
25
<PAGE>
BOARD OF DIRECTORS
AND OFFICERS
BOARD OF DIRECTORS
<TABLE>
<S> <C>
J. Miles Branagan Don G. Powell*
Jerry D. Choate Philip 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
Edward C. Wood III*
VICE PRESIDENT
A. Thomas Smith III*
VICE PRESIDENT AND SECRETARY
Michael H. Santo*
VICE PRESIDENT
Peter W. Hegel*
VICE PRESIDENT
Stephen L. Boyd*
VICE PRESIDENT
Joseph P. Stadler*
VICE PRESIDENT
Curtis W. Morell*
VICE PRESIDENT & CHIEF ACCOUNTING OFFICER
Tanya M. Loden*
CONTROLLER
John L. Sullivan*
VICE PRESIDENT, CHIEF FINANCIAL OFFICER & TREASURER
* "Interested" persons of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2911
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders, or
redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call (800) 421-2833
FUND INFO-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 , 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 Public
Reference Room in
Washington, DC or online
at the SEC's web site
(http://www.sec.gov).
For more information,
please call the SEC at
(800) SEC-0330. You can
also request these
materials by writing the
Public Reference Section
of the SEC, Washington
DC, 20549-6009, and
paying a duplication
fee.
[LOGO]
THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-7140.
GLF PRO 10/99
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THE FUND MAY NOT SELL THESE SECURITIES UNTIL THE POST-
EFFECTIVE AMENDMENT TO THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES.
SUBJECT TO COMPLETION -- DATED AUGUST 27, 1999
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
management 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 regulators, and
neither the SEC nor any
state regulator has passed
upon the accuracy or
adequacy of this
prospectus. Any
representation to the
contrary is a criminal
offense.
THIS PROSPECTUS IS DATED
OCTOBER , 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 ...................................................19
Distributions from the Fund ............................................20
Shareholder Services ...................................................21
Federal Income Taxation ................................................23
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 management 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. 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.
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 issuer or general economic news than higher-grade securities. During an
overall stock market decline, stock prices of medium- and small-sized companies
(in which the Fund may invest) often fluctuate more and may fall more than the
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 continuing declaration of
dividends by the issuers of such securities. If interest rates drop or dividends
are reduced or discontinued, your income from the Fund may drop as well.
3
<PAGE>
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 such as imperfect
correlation between the value of the instruments and the underlying assets;
risks of default by the other party to certain transactions; risks that the
transactions may result in losses that partially or completely offset gains in
portfolio positions; risks that the transactions may not be liquid; and manager
risk.
MANAGER RISK. As with any managed fund, the Fund's management may not be
successful in selecting the best-performing securities and the Fund's
performance may lag behind that of similar funds.
An investment in the Fund is not a deposit of any bank or other insured
depository institution. Your investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
INVESTOR PROFILE
In light of its objective and investment 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 personal 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 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 FUNDS
These tables describe the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
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 (as
a percentage of offering
price) None None None
.......................................................
Redemption fees (as a
percentage of amount
redeemed) None None None
.......................................................
Exchange fee None None None
.......................................................
(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 AND 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."
4
<PAGE>
ANNUAL FUND
OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
CLASS CLASS CLASS
A B C
SHARES SHARES SHARES
....................................................
Management Fees 0.75% 0.75% 0.75%
....................................................
Distribution and/or
Service (12b-1) Fees(1) 0.25% 1.00% (2) 1.00% (2)
....................................................
Other Expenses(3) 0.45% 0.45% 0.45%
....................................................
Total Annual Fund
Operating Expenses 1.45% 2.20% 2.20%
....................................................
(1) CLASS A SHARES ARE SUBJECT TO AN ANNUAL SERVICE FEE OF UP TO 0.25% OF
THE AVERAGE DAILY NET ASSETS ATTRIBUTABLE TO SUCH CLASS OF SHARES.
CLASS B SHARES AND CLASS C SHARES ARE EACH SUBJECT TO A COMBINED
ANNUAL DISTRIBUTION AND SERVICE FEE OF UP TO 1.00% OF THE AVERAGE
DAILY NET ASSETS ATTRIBUTABLE TO SUCH CLASS OF SHARES. SEE "PURCHASE
OF SHARES."
(2) 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.
(3) "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% annual 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:
THREE
ONE YEAR YEARS
- -------------------------------------------------
Class A Shares $ 714 $ 1,007
................................................
Class B Shares $ 723 $ 988
................................................
Class C Shares $ 323 $ 688
................................................
You would pay the following expenses if you did not redeem your shares:
THREE
ONE YEAR YEARS
- -------------------------------------------------
Class A Shares $ 714 $ 1,007
................................................
Class B Shares $ 223 $ 688
................................................
Class C Shares $ 223 $ 688
................................................
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 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
5
<PAGE>
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 or a different issuer 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.
6
<PAGE>
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-capitalization companies it will be subject to greater
investment risk than that assumed through investment in the securities of
larger-capitalization 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, 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.
FOREIGN SECURITIES
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
7
<PAGE>
(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 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 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. Additionally, 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 temporary substitute for purchasing or
selling particular securities, including, for example, when the Fund acts
quickly to adjust 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
8
<PAGE>
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). Additionally, 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. Additionally, 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 which can be
obtained by investors free of charge as described on the back cover of this
prospectus.
OTHER INVESTMENTS AND RISK FACTORS
For cash management 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 otherwise. 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 may result in the realization of more short-term capital
gains than if the Fund had lower portfolio turnover. Increases in the Fund's
transaction costs would impact the Fund's performance. The turnover rate will
not be a limiting factor, however, if the Fund's investment adviser considers
portfolio changes appropriate. The Fund, which has not commenced investment
operations, anticipates
9
<PAGE>
that its annual portfolio turnover rate will not exceed 100% under normal
circumstances.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Fund may hold cash or invest on a temporary basis 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. The Fund may not
achieve its investment objective if it takes a defensive position.
YEAR 2000 RISKS. Like other mutual funds, financial and business organizations
and individuals around the world, the Fund could be adversely affected if the
computer systems used by the Fund's investment adviser and other service
providers do not properly process and calculate date-related information and
data from and after January 1, 2000. This is commonly known as the "Year 2000
Problem." The Fund's investment adviser 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 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 emerging or developing countries; because there is an increased
likelihood that issuers of securities of such countries cannot anticipate or
effectively manage the affects of computer programs and the Year 2000 Problem.
Accordingly, the Fund's investments may be adversely affected. The statements
above are subject to the Year 2000 Information and Readiness Disclosure Act
which Act may limit the legal rights regarding the use of such statements in the
case of a dispute.
INVESTMENT ADVISORY
SERVICES
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 $75 billion under management or supervision. Van
Kampen Investments' more than 50 open-end and 39 closed-end funds and more than
2,500 unit investment trusts are professionally distributed by leading financial
advisers nationwide. Van Kampen Funds Inc., the distributor of the Fund (the
"Distributor") and the sponsor of the funds mentioned above, is also a wholly
owned subsidiary of Van Kampen Investments. Van Kampen Investments is an
indirect wholly owned subsidiary of Morgan Stanley Dean Witter & Co. The
Adviser's principal office is located at 1 Parkview Plaza, PO Box 5555, Oakbrook
Terrace, Illinois 60181-5555.
10
<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 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.
From time to time, the Adviser or the Distributor may voluntarily undertake to
reduce the Fund's expenses by reducing the fees payable to them or by reducing
other expenses of the Fund in accordance with such limitations as the Adviser or
Distributor may establish.
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen 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
December 31, 1998, the Subadviser, together with its affiliated institutional
asset management companies, managed assets of approximately $163.4 billion,
including assets under fiduciary advice. The Subadviser's address is 1221 Avenue
of the Americas, New York, New York 10020.
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 percentage of
the net advisory fees the Adviser receives from the Fund.
-------------
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 Kinsley Johnson is responsible for the day-to-day
management of the Fund's investment portfolio. Ms. Johnson is a Principal of the
Subadviser. She joined Morgan Stanley Dean Witter & Co. in 1984 as a marketing
analyst. She became an equity analyst in 1986 and a Portfolio Manager in 1989.
She holds a B.A. degree from Yale College and is a Chartered Financial Analyst.
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.
11
<PAGE>
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 (described below) pursuant to which its
distribution fee or service fee is paid, (iii) each class of shares has
different exchange privileges, (iv) certain classes of shares are subject to a
conversion feature and (v) certain classes of shares have different shareholder
service options available.
The 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 a 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 in which no purchase or redemption orders are
received or there is not a sufficient degree of trading in a 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 a
day if deemed desirable. Net asset value per share for each class is determined
by dividing the value of a 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 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
12
<PAGE>
net income attributable to a class of shares will be reduced by the amount of
the distribution fees and other expenses associated with such class of shares.
To assist investors in comparing classes of shares, the tables under the heading
"Fees and Expenses of the Fund" provide a summary of sales charges and expenses
and an example of the sales charges and expenses of the Fund applicable to each
class of shares.
The shares are offered to the public on a continuous basis through the
Distributor as principal underwriter, which is located at 1 Parkview Plaza, PO
Box 5555, Oakbrook Terrace, Illinois 60181-5555. Shares also are offered through
members of the NASD who are acting as securities dealers ("dealers") and NASD
members or eligible non-NASD members who are acting as brokers or agents for
investors ("brokers"). "Dealers" and "brokers" are sometimes referred to herein
as "authorized dealers."
Shares may be purchased on any business day by completing the application
accompanying this prospectus and forwarding the application, directly or through
an authorized dealer, to the Fund's shareholder service agent, Van Kampen
Investor Services Inc. ("Investor Services"), a wholly owned subsidiary of Van
Kampen Investments. When purchasing shares of the Fund, investors must specify
whether the purchase is for Class A Shares, Class B Shares or Class C Shares.
Sales personnel of authorized dealers distributing the Fund's shares are
entitled to receive compensation for selling such shares and may receive
differing compensation for selling Class A Shares, Class B Shares or Class C
Shares.
The offering price for shares is based on 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 gains
distributions, 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
AS % OF AS % OF
SIZE OF OFFERING NET AMOUNT
INVESTMENT PRICE INVESTED
- ----------------------------------------------------
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 * *
...................................................
* NO SALES CHARGE IS PAYABLE AT THE TIME OF PURCHASE ON INVESTMENTS OF
$1 MILLION OR MORE, ALTHOUGH FOR SUCH INVESTMENTS THE FUND IMPOSES A
CONTINGENT DEFERRED SALES CHARGE OF 1.00% ON CERTAIN REDEMPTIONS MADE
WITHIN ONE YEAR OF THE PURCHASE. THE CONTINGENT DEFERRED SALES CHARGE
IS ASSESSED ON AN AMOUNT EQUAL TO THE LESSER OF THE THEN CURRENT
MARKET VALUE OR THE COST OF THE SHARES BEING REDEEMED. ACCORDINGLY, NO
SALES CHARGE IS IMPOSED ON INCREASES IN NET ASSET VALUE ABOVE THE
INITIAL PURCHASE PRICE.
No sales charge is imposed on Class A Shares received from reinvestment of
dividends or capital gains distributions.
Under the Distribution Plan and Service Plan, the Fund may spend a total of
0.25% per year of the average daily net assets with respect to the Class A
Shares of the Fund. From such amount, under the Service Plan, the Fund may spend
up to 0.25% per year of the Fund's average daily net assets with respect to the
Class A Shares for the ongoing provision of services to Class A shareholders by
the Distributor and by brokers, dealers or financial intermediaries and for the
maintenance of such shareholders' accounts.
CLASS B SHARES
Class B Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge if redeemed within five years of purchase as shown in the
table as follows:
CLASS B SHARES
SALES CHARGE SCHEDULE
CONTINGENT DEFERRED
SALES CHARGE
AS A PERCENTAGE OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
- -----------------------------------------------
First 5.00%
..............................................
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 gains dividends. It
is presently the policy of the Distributor not to accept any order for Class B
Shares in an amount of $500,000 or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
The amount of the contingent deferred sales charge, if any, varies depending on
the number of years from the time of payment for the purchase of Class B Shares
until the time of redemption of such shares. Solely for purposes of determining
the number of years from the time of any payment for the purchase of shares, all
payments during a month are totaled and deemed to have been made on the last day
of the month.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed that the redemption is first of any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge and then of shares held the longest in the shareholder's account.
14
<PAGE>
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
average daily net assets with respect to the Class B Shares of the Fund. In
addition, under the Service Plan, the Fund may spend up to 0.25% per year of the
Fund's average daily net assets with respect to the Class B Shares for the
ongoing provision of services to Class B shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CLASS C SHARES
Class C Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge of 1.00% of the dollar amount subject to charge if
redeemed within one year of purchase.
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gains dividends. It
is presently the policy of the Distributor not to accept any order for Class C
Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
In determining whether a contingent deferred sales charge is applicable to a
redemption, it is assumed that the redemption is first of any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge and then of shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
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 distributions constituting
"preferential dividends" under the federal income tax law and (ii) the
conversion of shares does not constitute a taxable event under federal income
tax law. The conversion may be suspended if such an opinion is no longer
available and such shares might continue to be subject to the higher aggregate
fees applicable to such shares for an indefinite period.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge is waived on redemptions of Class B Shares
and Class C Shares (i) within one year following the death or disability (as
disability is defined by federal income tax law) of a shareholder, (ii) for
required minimum distributions from an individual retirement account ("IRA") or
certain other retirement plan distributions, (iii) for withdrawals under the
Fund's systematic withdrawal plan but limited to 12% annually of the initial
value of the account, (iv) if no commission or transaction fee is paid to
authorized dealers at the time of purchase of such shares and (v) if made by
involuntary liquidation by the Fund of a shareholder's account as described
under the heading "Redemption of Shares." Subject to certain limitations, a
shareholder who has redeemed Class C Shares of the Fund may reinvest in Class C
Shares at net asset value with credit for any contingent deferred sales charge
if the reinvestment is within
15
<PAGE>
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 trust distributions will be 1.00% of the offering
price (1.01% of net asset value). Of this amount, the Distributor will pay to
the authorized dealer, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the terms and conditions that apply to the program,
should contact their authorized dealer or the Distributor.
The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during each distribution period by all investors who choose to invest in
the Fund through the program and (2) provide Investor Services with appropriate
backup data for each investor participating in the program in a computerized
format fully compatible with Investor Services' processing system.
As further requirements for obtaining these special benefits, the Fund also
requires that all dividends and other distributions by the Fund be reinvested in
additional shares without any systematic withdrawal program. There will be no
minimum for reinvestments from unit investment trusts. The Fund will send
account activity statements to such participants on a quarterly basis only, even
if their investments are made more frequently. The Fund reserves the right to
modify or terminate this program at any time.
NET ASSET VALUE PURCHASE OPTIONS. Class A Shares of the Fund may be purchased at
net asset value, upon written assurance that the purchase is made for investment
purposes and that the shares will not be resold except through redemption by the
Fund, by:
(1) Current or retired trustees or directors of funds advised by Morgan Stanley
Dean Witter & Co. and any of its subsidiaries and such persons' families
and their beneficial accounts.
(2) Current or retired directors, officers and employees of Morgan Stanley Dean
Witter & Co. and any of its subsidiaries, employees of an investment
subadviser to any fund described in (1) above or an affiliate of such
subadviser, and such persons' families and their beneficial accounts.
(3) Directors, officers, employees and, when permitted, registered
representatives, of financial institutions that have a selling group
agreement with the Distributor and their spouses and children under 21
years of age when purchasing for any accounts they beneficially own, or, in
the case of any such financial institution, when purchasing for retirement
plans for such institution's employees; provided that such purchases are
otherwise permitted by such institutions.
(4) Registered investment advisers who charge a fee for their services, trust
companies and bank trust departments investing on their own behalf or on
behalf of their clients. The Distributor may pay authorized dealers through
which purchases are made an amount up to 0.50% of the amount invested, over
a 12-month period.
(5) Trustees and other fiduciaries purchasing shares for retirement plans which
invest in multiple fund families through broker-dealer retirement plan
alliance programs that have entered into agreements with the Distributor
and which are subject to certain minimum size and operational requirements.
Trustees and other fiduciaries should refer to the Statement of Additional
Information for further details with respect to such alliance programs.
(6) Beneficial owners of shares of Participating Funds held by a retirement
plan or held in a tax-advantaged retirement account who purchase shares of
the Fund with proceeds from distributions from such a plan or retirement
account other than distributions taken to correct an excess contribution.
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 on
purchases made as described in (3) through (9) above. The Fund may terminate, or
amend the terms of, offering shares of the Fund at net asset value to such
groups at any time.
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 order. Such payment may be postponed or the right of redemption suspended
as provided by the rules of the SEC. Such payment may, under certain
circumstances, be paid wholly or in part by a distribution-in-kind of portfolio
securities. If the shares to be redeemed have been recently purchased by check,
Investor Services may delay the payment of redemption proceeds until it confirms
the purchase check has cleared, which may take up to 15 days. A taxable gain or
loss will be recognized by the shareholder upon redemption of shares.
WRITTEN REDEMPTION REQUESTS. Shareholders may request a redemption of shares by
written request in proper form sent directly to Van Kampen Investor Services
Inc., PO Box 218256, Kansas City, MO 64121-8256. The request for redemption
should indicate the number of shares to be redeemed, the class designation of
such shares and the shareholder's account number. The redemption request must be
signed by all persons in whose names the shares are registered. Signatures must
conform exactly to the account registration. If the proceeds of the redemption
exceed $50,000, or if the proceeds are not to be paid to the record owner at the
record address, or if the record address has changed within the previous 30
days, signature(s) must be guaranteed by one of the following: a bank or trust
company; a broker-dealer; a credit union; a national securities exchange,
registered securities association or clearing agency; a savings and loan
association; or a federal savings bank.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption to be in proper form. In some
cases, however, additional documents may be necessary. In the case of
shareholders holding certificates, the certificates for the shares being
redeemed properly endorsed for transfer must accompany the redemption request.
In the event the redemption is requested by a corporation, partnership, trust,
fiduciary, executor or administrator, and the name and title of the
individual(s) authorizing such redemption is not shown in the account
registration, a copy of the corporate resolution or other legal documentation
appointing the authorized signer and certified within the prior 120 days must
accompany the redemption request. IRA redemption requests should be sent to the
IRA custodian to be forwarded to Investor Services. Contact the IRA custodian
for further information.
In the case of written redemption requests sent directly to Investor Services,
the redemption price is the net asset value per share next determined after the
request in proper form is received by Investor Services.
AUTHORIZED DEALER REDEMPTION REQUESTS. Shareholders may place redemption
requests through an authorized dealer. Orders sent through authorized dealers
must be at least $500 (unless transmitted by your authorized dealer via the
FUNDSERV network). The redemption price for such shares is the net asset value
per share next calculated after an order in proper form is received by an
authorized dealer provided such order is transmitted to the Distributor prior to
the Distributor's close of business on such day. It is the responsibility of
authorized dealers to transmit redemption requests received by them to the
Distributor so they will be received prior to such time. Redemptions completed
through an authorized dealer may involve additional fees charged by the dealer.
19
<PAGE>
TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. To establish
such privilege, a shareholder must complete the appropriate section of the
application form accompanying this prospectus or call the Fund at (800) 341-2911
to request that a copy of the Telephone Redemption Authorization form be sent to
them for completion. To redeem shares, contact the telephone transaction line at
(800) 421-5684. Van Kampen Investments, Investor Services and the Fund employ
procedures considered by them to be reasonable to confirm that instructions
communicated by telephone are genuine. Such procedures include requiring certain
personal identification information prior to acting upon telephone instructions,
tape-recording telephone communications and providing written confirmation of
instructions communicated by telephone. If reasonable procedures are employed,
neither Van Kampen Investments, Investor Services nor the Fund will be liable
for following telephone instructions which it reasonably believes to be genuine.
Telephone redemptions may not be available if the shareholder cannot reach
Investor Services by telephone, whether because all telephone lines are busy or
for any other reason; in such case, a shareholder would have to use the Fund's
other redemption procedure previously described. Requests received by Investor
Services prior to 4:00 p.m., New York time, will be processed at the next
determined net asset value per share. These privileges 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 two kinds of return from the Fund: dividends and
capital gains 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 GAINS. The Fund may realize capital gains or losses when it sells
securities, depending on whether
20
<PAGE>
the sales prices for the securities are higher or lower than purchase prices.
Net realized capital gains represent the total profit from sales of securities
minus total losses from sales of securities including losses carried forward
from prior years. The Fund distributes any taxable net realized capital gains to
shareholders as capital gains dividends at least annually. As in the case of
dividends, capital gains dividends are automatically reinvested in additional
shares of the Fund at 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 gains distributions 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 gains
distribution. Unless the shareholder instructs otherwise, the reinvestment plan
is automatic. This instruction may be made by telephone by calling (800)
341-2911 ((800) 421-2833 for the hearing impaired) or by writing to Investor
Services. The investor may, on the initial application or prior to any
declaration, instruct that dividends be paid in cash and capital gains
distributions be reinvested at net asset value, or that both dividends and
capital gains distributions be paid in cash.
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under which
a shareholder can authorize 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.
To be eligible for exchange, shares of the Fund must have been registered in the
shareholder's name for at least 30 days prior to an exchange. Shares of the Fund
registered in a shareholder's name for less than 30 days may only be exchanged
upon receipt of prior approval of the Adviser. It is the policy of the Adviser,
under normal circumstances, not to approve such requests.
When Class B Shares and Class C Shares are exchanged among Participating Funds,
the holding period for purposes of computing the contingent deferred sales
charge is based upon the date of the initial purchase of such shares from a
Participating Fund. If such Class B Shares or Class C Shares are redeemed and
not exchanged for shares of another Participating Fund, Class B Shares and Class
C Shares are subject to the contingent deferred sales charge schedule imposed by
the Participating Fund from which such shares were originally purchased.
Exchanges of shares are sales and may result in a gain or loss for federal
income tax purposes. If the shares exchanged have been held for less than 91
days, the sales charge paid on such shares is carried over and included in the
tax basis of the shares acquired.
A shareholder wishing to make an exchange may do so by sending a written request
to Investor Services or by contacting the telephone transaction line at (800)
421-5684. A shareholder automatically has telephone exchange privileges unless
otherwise designated in the application form accompanying the
21
<PAGE>
prospectus. Van Kampen Investments, Investor Services and the Fund employ
procedures considered by them to be reasonable to confirm that instructions
communicated by telephone are genuine. Such procedures include requiring certain
personal identification information prior to acting upon telephone instructions,
tape-recording telephone communications, and providing written confirmation of
instructions communicated by telephone. If reasonable procedures are employed,
neither Van Kampen Investments, Investor Services nor the Fund will be liable
for following telephone instructions which it reasonably believes to be genuine.
If the exchanging shareholder does not have an account in the fund whose shares
are being acquired, a new account will be established with the same
registration, dividend and capital gains options (except dividend
diversification) and authorized dealer of record as the account from which
shares are exchanged, unless otherwise specified by the shareholder. In order to
establish a systematic withdrawal plan for the new account or reinvest dividends
from the new account into another fund, however, an exchanging shareholder must
submit a specific request. The Fund reserves the right to reject any order to
acquire its shares through exchange. In addition, the Fund and other
Participating Funds may restrict exchanges by shareholders engaged in excessive
trading by limiting or disallowing the exchange privileges to such shareholders.
For further information on these restrictions see the Statement of Additional
Information. The Fund may modify, restrict or terminate the exchange privilege
at any time on 60 days' notice to its shareholders of any termination or
material amendment.
For purposes of determining the sales charge rate previously paid on Class A
Shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchanged security was acquired through reinvestment, that
security is deemed to have been sold with a sales charge rate equal to the rate
previously paid on the security on which the dividend or distribution was paid.
If a shareholder exchanges less than all of such shareholder's securities, the
security upon which the highest sales charge rate was previously paid is deemed
exchanged first.
Exchange requests received on a business day prior to the time shares of the
funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares in the fund from which the
shareholder is withdrawing an investment will be redeemed at the net asset value
per share next determined on the date of receipt. Shares of the new fund into
which the shareholder is investing will also normally be purchased at the net
asset value per share, plus any applicable sales charge, next determined on the
date of receipt. Exchange requests received on a business day after the time
shares of the funds involved in the request are priced will be processed on the
next business day in the manner described herein.
A prospectus of any of these Participating Funds may be obtained from any
authorized dealer or the Distributor. An investor considering an exchange to one
of such funds should refer to the prospectus for additional information
regarding such fund prior to investing.
INTERNET TRANSACTIONS. In addition to performing transactions on your account
through written instruction or by telephone, you may also perform certain
transactions through the internet. Please refer to our web site at
www.vankampen.com for further instruction. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated through the internet are genuine. Such
procedures include requiring use of a personal identification number prior to
acting upon internet instructions and providing written confirmation of
instructions communicated through the internet. If reasonable procedures are
employed, neither Van Kampen Investments, Investor Services nor the Fund will be
liable for following instructions through the internet which it reasonably
believes to be genuine. If an account has multiple owners, Investor Services may
rely on the instructions of any one owner.
22
<PAGE>
FEDERAL INCOME
TAXATION
Distributions of the Fund's net investment income (consisting generally of
taxable income and net short-term capital gains) are taxable to shareholders as
ordinary income to the extent of the Fund's earnings and profits, whether paid
in cash or reinvested in additional shares. Distributions of the Fund's net
capital gains (which are the excess of net long-term capital gains over net
short-term capital losses) as capital gain dividends, if any, are taxable to
shareholders as long-term capital gains, whether paid in cash or reinvested in
additional shares, and regardless of how long the shares of the Fund have been
held by such shareholders. Capital gains dividends may be taxed at different
rates depending on how long the Fund held the securities. The Fund expects that
its distributions will consist primarily of ordinary income and capital gains
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. Prospective foreign investors should consult their U.S. tax
advisers concerning the tax consequences to them of an investment in shares.
The Fund intends to qualify as a regulated investment company under federal
income tax law. If the Fund so qualifies and distributes each year to its
shareholders at least 90% of its net investment income, the Fund will not be
required to pay federal income taxes on any income it distributed to
shareholders. If the Fund distributes less than the sum of 98% of its ordinary
income and 98% of its capital gains 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, or disposing 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
J. Miles Branagan Don G. Powell*
Jerry D. Choate Philip 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
Edward C. Wood III*
VICE PRESIDENT
A. Thomas Smith III*
VICE PRESIDENT AND SECRETARY
Michael H. Santo*
VICE PRESIDENT
Peter W. Hegel*
VICE PRESIDENT
Stephen L. Boyd*
VICE PRESIDENT
Joseph P. Stadler*
VICE PRESIDENT
Curtis W. Morell*
VICE PRESIDENT & CHIEF ACCOUNTING OFFICER
Tanya M. Loden*
CONTROLLER
John L. Sullivan*
VICE PRESIDENT, CHIEF FINANCIAL OFFICER & TREASURER
* "Interested" persons of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2911
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders, or
redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call
(800) 421-2833
FUND INFO-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 , 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 Public
Reference Room in
Washington, DC or online
at the SEC's web site
(http://www.sec.gov).
For more information,
please call the SEC at
(800) SEC-0330. You can
also request these
materials by writing the
Public Reference Section
of the SEC, Washington
DC, 20549-6009, and
paying a duplication
fee.
[LOGO]
THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-7140.
GRO&INC II 10/99
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THE FUND MAY NOT SELL THESE SECURITIES UNTIL THE POST-
EFFECTIVE AMENDMENT TO THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES.
SUBJECT TO COMPLETION -- DATED AUGUST 27, 1999
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 regulators, and
neither the SEC nor any
state regulator has passed
upon the accuracy or
adequacy of this
prospectus. Any
representation to the
contrary is a criminal
offense.
THIS PROSPECTUS IS DATED
OCTOBER , 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 ............................................26
Shareholder Services ...................................................27
Federal Income Taxation ................................................29
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 management seeks to achieve the
investment objective by investing primarily in a diversified portfolio of lower-
grade domestic corporate income securities. The Fund also may invest up to 20%
of its total assets in income securities of similar quality issued by foreign
governments or foreign corporations. The Fund buys and sells securities with a
view to 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. Lower-grade securities are
commonly referred to as "junk bonds" (see sidebar for an explanation of quality
ratings). The Fund's investments in lower-grade securities involve greater risks
as compared to higher-grade securities. The Fund may purchase or sell securities
on a when-issued or delayed delivery basis. The Fund may purchase or sell
certain derivatives (such as options, futures, options on futures, and interest
rate swaps or other interest rate-related transactions) for various portfolio
management purposes 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.
CREDIT RISK. Credit risk refers to an issuer's ability to make timely payments
of interest and principal. Because the Fund invests primarily in securities with
lower-credit quality, 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
3
<PAGE>
greater among income securities with longer maturities. The Fund has no policy
limiting the maturities of its investments. To the extent that the Fund invests
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 have more price volatility 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 debt securities and
therefore 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 would be reinvested by the Fund in securities with 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, and
interest rate swaps or other interest rate-related transactions are examples of
derivatives. Derivative investments involve risks different from direct
investment in underlying securities such as imperfect correlation between the
value of the instruments and the underlying assets; risks of default by the
other party to certain transactions; risks that the transactions may result in
losses that partially or completely offset gains in portfolio positions; risks
that the transactions may not be liquid; and manager risk.
MANAGER RISK. As with any managed fund, the Fund's management may not be
successful in selecting the best-performing securities and the Fund's
performance may lag behind that of similar funds.
An investment in the Fund is not a deposit of any bank or other insured
depository institution. Your investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
INVESTOR PROFILE
In light of its objectives and investment strategies, the Fund may be
appropriate for investors who:
- - Seek 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 personal investment portfolio a fund that invests
primarily in lower-grade domestic corporate income securities.
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 past 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>
<CAPTION>
ANNUAL RETURN
<S> <C>
1997 13.80%
1998 4.11%
</TABLE>
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 management believes is an applicable benchmark
for the Fund. The Fund's performance figures include the maximum sales charges
paid by investors. The index performance figures do not include 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 High Yield and Total
Return Fund
- -- Class A Shares -0.85% 8.63%(1)
Credit Suisse First Boston High
Yield Index % %(2)
.......................................................
Van Kampen High Yield and Total
Return Fund
- -- Class B Shares -0.44% 8.79%(1)
Credit Suisse First Boston High
Yield Index % %(2)
.......................................................
Van Kampen High Yield and Total
Return Fund
- -- Class C Shares 2.48% 9.78(1)
Credit Suisse First Boston High
Yield Index % %(2)
.......................................................
INCEPTION DATES: (1) 5/1/96, (2) , (3)
.
The current yield for the thirty-day period ended June 30, 1999 is % for
Class A Shares, % for Class B Shares and % 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 FUNDS
These tables describe the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
- ----------------------------------------------------------------
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 (as a
percentage of offering price) None None None
...............................................................
Redemption fees (as a percentage of
amount redeemed) None None None
...............................................................
Exchange fee None None None
...............................................................
(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 AND 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."
ANNUAL FUND
OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
- ----------------------------------------------------------------
Management Fees(1) 0.75% 0.75% 0.75%
...............................................................
Distribution and/or Service (12b-1)
Fees(2) 0.25% 1.00%(3) 1.00%(3)
...............................................................
Other Expenses(1) 0.72% 0.73% 0.73%
...............................................................
Total Annual Fund Operating
Expenses(1) 1.72% 2.48% 2.48%
...............................................................
(1) 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
REIMBURSEMENTS CAN BE TERMINATED AT ANY TIME.
(2) 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."
(3) 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% annual 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:
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
- -----------------------------------------------------------------
Class A Shares $642 $ 991 $1,364 $2,409
................................................................
Class B Shares $651 $1,073 $1,471 $2,508*
................................................................
Class C Shares $351 $ 773 $1,321 $2,816
................................................................
6
<PAGE>
You would pay the following expenses if you did not redeem your shares:
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
- -----------------------------------------------------------------
Class A Shares $642 $991 $1,364 $2,409
................................................................
Class B Shares $251 $773 $1,321 $2,508*
................................................................
Class C Shares $251 $773 $1,321 $2,816
................................................................
* BASED ON CONVERSION TO CLASS A SHARES AFTER EIGHT YEARS.
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 investment objective by investing primarily in a diversified portfolio of
lower-grade domestic corporate 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. The Fund normally
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 with a view to 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,
7
<PAGE>
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 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
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.
8
<PAGE>
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 markets are subject
to greater risks than a 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.
Since the Fund invests in securities denominated or quoted in currencies other
than the U.S. dollar, the Fund will be affected by changes in foreign currency
exchange rates (and exchange control regulations) which affect the value of
investments in the Fund and the accrued income and unrealized appreciation or
depreciation of the investments. Changes in foreign currency exchange ratios
relative to the U.S. dollar will affect the U.S. dollar value of the Fund's
assets denominated in that currency and the Fund's yield on such assets 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'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. The Fund purchases and sells
foreign currency on a spot basis in connection with the settlement of
transactions in securities traded in such foreign currency. The Fund also may
enter into contracts with banks, brokers or dealers to purchase or sell 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 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
9
<PAGE>
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 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 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
10
<PAGE>
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 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. 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 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
11
<PAGE>
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.
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)
- --------------------------------------------------------------------------------
AAA/AAA % %
...............................................................................
AA/AA % %
...............................................................................
A/A % %
...............................................................................
BBB/BAA % %
...............................................................................
BB/BA % %
...............................................................................
B/B % %
...............................................................................
CCC/CAA % %
...............................................................................
CC/CA % %
...............................................................................
C/C % %
...............................................................................
D % %
...............................................................................
PERCENTAGE OF RATED AND UNRATED
SECURITIES % %
...............................................................................
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.
12
<PAGE>
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 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 OTC 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
foreign markets, 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 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. Additionally, 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,
13
<PAGE>
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 temporary
substitute for purchasing or selling particular securities, including, for
example, when the Fund acts quickly to adjust 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). Additionally, 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
obligations under such 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. Additionally, 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 which 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
14
<PAGE>
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. Such loans must be callable at any time and
the borrower at all times during the loan must maintain cash or liquid
securities as collateral or provide to the Fund an irrevocable letter of credit
equal in value to at least 100% of the value of the securities loaned. During
the time portfolio securities are on loan, the Fund receives any dividends or
interest paid on such securities and receives the interest earned on the
collateral which is invested in short-term instruments or receives an
agreed-upon amount of interest income from the borrower who has delivered the
collateral or a letter of credit. As with any extensions of credit, there are
risks of delay in recovery and in some cases even loss of rights in the
collateral should the borrower of the securities fail financially.
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 of another open-end or closed-end investment
company, by purchase in the open market involving only customary brokers'
commissions or in connection with mergers, acquisitions of assets or
consolidations or as may otherwise be permitted by the 1940 Act. If the 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 investment adviser), but
also will indirectly bear similar expenses of the underlying investment
companies or investment funds.
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 otherwise. The Fund's portfolio turnover is shown under the
heading "Financial Highlights." The portfolio turnover rate may be expected to
vary from year to year. A high portfolio turnover rate (100% or more) increases
the Fund's transactions costs, including brokerage commissions or dealer costs,
and may result in the realization of more short-term capital gains than if the
Fund had lower portfolio turnover. Increases the Fund's transaction costs would
impact the Fund's performance. The turnover rate will not be a limiting factor,
however, if the Fund's investment adviser considers portfolio changes
appropriate.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Fund may 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. The Fund may
not achieve its investment objective if it takes a defensive position.
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
15
<PAGE>
adviser and other service providers do not properly process and calculate
date-related information and data from and after January 1, 2000. This is
commonly known as the "Year 2000 Problem." The Fund's investment adviser 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 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 emerging or developing countries; because there is an increased
likelihood that issuers of securities of such countries cannot anticipate or
effectively manage the affects of computer programs and the Year 2000 Problem.
Accordingly, the Fund's investments may be adversely affected. The statements
above are subject to the Year 2000 Information and Readiness Disclosure Act
which Act may limit the legal rights regarding the use of such statements in the
case of a dispute.
INVESTMENT ADVISORY
SERVICES
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 $75 billion under management or supervision. Van
Kampen Investments' more than 50 open-end and 39 closed-end funds and more than
2,500 unit investment trusts are professionally distributed by leading financial
advisers nationwide. Van Kampen Funds Inc., the distributor of the Fund (the
"Distributor") and the sponsor of the funds mentioned above, is also a wholly
owned subsidiary of Van Kampen Investments. Van Kampen Investments is an
indirect wholly owned subsidiary of Morgan Stanley Dean Witter & Co. The
Adviser's principal office is located at 1 Parkview Plaza, PO Box 5555, Oakbrook
Terrace, Illinois 60181-5555.
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 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.
16
<PAGE>
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.
From time to time, the Adviser or the Distributor may voluntarily undertake to
reduce the Fund's expenses by reducing the fees payable to them or by reducing
other expenses of the Fund in accordance with such limitations as the Adviser or
Distributor may establish.
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen 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
December 31, 1998, the Subadviser, together with its affiliated institutional
asset management companies, managed assets of approximately $163.4 billion,
including assets under fiduciary advice. The Subadviser's address is 1221 Avenue
of the Americas, New York, NY 10020.
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 percentage of
the net advisory fees the Adviser receives from the Fund.
-------------
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 co-managers 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. Mr. Angevine also manages high yield assets for one
of the largest corporate pension funds in the country. His other experience
includes international treasury operations at a major pharmaceutical company and
commercial banking. Mr. Angevine received a B.A. in Economics from Lafayette
College and an M.B.A. from Fairleigh Dickinson University. Mr. Angevine has been
co-manager of the Fund since it commenced investment operations.
Mr. Esser joined the Subadviser in 1996 and has been a Portfolio Manager with
MAS since 1988. 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 co-manager of the Fund since April
1996.
Mr. Loery, currently a Principal of the Subadviser joined the Subadviser as a
Fixed Income Analyst in 1990. Mr. Loery has been co-manager of the Fund since
April 1999.
17
<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 (described below) pursuant to which its
distribution fee or service fee is paid, (iii) each class of shares has
different exchange privileges, (iv) certain classes of shares are subject to a
conversion feature and (v) certain classes of shares have different shareholder
service options available.
The 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.
Net asset value is calculated separately for each class of the Fund. The net
asset value per share of each class of shares is determined by dividing the
total fair market value of the investments and other assets attributable to such
class of shares, less all liabilities attributable to such class of shares, by
the total number of outstanding shares of such class of shares. Net asset value
per share of the Fund generally is determined once daily as of the regular close
of the New York Stock Exchange (the "Exchange") (currently, 4:00 p.m. Eastern
time) on each day that the Exchange is open for business. Securities listed on a
securities exchange for which market quotations are available are valued at
their closing price. If no closing price is available, such securities will be
valued at the last quoted sale price on the day the valuation is made. Price
information on listed securities is taken from the exchange where the security
is primarily traded. Unlisted securities and listed securities not traded on the
valuation date for which market quotations are 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
18
<PAGE>
to maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. While this method provides
certainty in valuation, it may result in periods during which value, as
determined by amortized cost, is higher or lower than the price the Fund would
receive if it sold the instrument.
The value of other assets and securities for which no quotations are readily
available (including illiquid and unlisted foreign securities) and those
securities for which it is inappropriate to determine prices in accordance with
the above procedures are determined in good faith at fair value using methods
determined by the Board of Directors. For purposes of calculating net asset
value per share, all assets and liabilities initially expressed in foreign
currencies will be converted into U.S. Dollars at the mean of the bid price and
asked price of such currencies against the U.S. Dollar as quoted by a major
bank.
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 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 on 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
19
<PAGE>
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 gains
distributions, 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
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 IMPOSES A
CONTINGENT DEFERRED SALES CHARGE OF 1.00% ON CERTAIN REDEMPTIONS MADE
WITHIN ONE YEAR OF THE PURCHASE. THE CONTINGENT DEFERRED SALES CHARGE
IS ASSESSED ON AN AMOUNT EQUAL TO THE LESSER OF THE THEN CURRENT
MARKET VALUE OR THE COST OF THE SHARES BEING REDEEMED. ACCORDINGLY, NO
SALES CHARGE IS IMPOSED ON INCREASES IN NET ASSET VALUE ABOVE THE
INITIAL PURCHASE PRICE.
No sales charge is imposed on Class A Shares received from reinvestment of
dividends or capital gains distributions.
Under the Distribution Plan and Service Plan, the Fund may spend a total of
0.25% per year of the average daily net assets with respect to the Class A
Shares of the Fund. From such amount, under the Service Plan, the Fund may spend
up to 0.25% per year of the Fund's average daily net assets with respect to the
Class A Shares for the ongoing provision of services to Class A shareholders by
the Distributor and by brokers, dealers or financial intermediaries and for the
maintenance of such shareholders' accounts.
CLASS B SHARES
Class B Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge if redeemed within five years of purchase as shown in the
table as follows:
CLASS B SHARES
SALES CHARGE SCHEDULE
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 gains 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
20
<PAGE>
purchase of shares, all payments during a month are totaled and deemed to have
been made on the last day of the month.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed that the redemption is first of any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge and then of shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
average daily net assets with respect to the Class B Shares of the Fund. In
addition, under the Service Plan, the Fund may spend up to 0.25% per year of the
Fund's average daily net assets with respect to the Class B Shares for the
ongoing provision of services to Class B shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CLASS C SHARES
Class C Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge of 1.00% of the dollar amount subject to charge if
redeemed within one year of purchase.
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gains dividends. It
is presently the policy of the Distributor not to accept any order for Class C
Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
In determining whether a contingent deferred sales charge is applicable to a
redemption, it is assumed that the redemption is first of any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge and then of shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
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 distributions constituting
"preferential dividends" under the federal income tax law and (ii) the
conversion of shares does not constitute a taxable event under federal income
tax law. The conversion may be suspended if such an opinion is no longer
available and such shares might continue to be subject to the higher aggregate
fees applicable to such shares for an indefinite period.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge is waived on redemptions of Class B Shares
and Class C Shares (i) within one year following the death or disability
21
<PAGE>
(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 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
22
<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 trust distributions will be 1.00% of the offering
price (1.01% of net asset value). Of this amount, the Distributor will pay to
the authorized dealer, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the terms and conditions that apply to the program,
should contact their authorized dealer or the Distributor.
The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during each distribution period by all investors who choose to invest in
the Fund through the program and (2) provide Investor Services with appropriate
backup data for each investor participating in the program in a computerized
format fully compatible with Investor Services' processing system.
As further requirements for obtaining these special benefits, the Fund also
requires that all dividends and other distributions by the Fund be reinvested in
additional shares without any systematic withdrawal program. There will be no
minimum for reinvestments from unit investment trusts. The Fund will send
account activity statements to such participants on a quarterly basis only, even
if their investments are made more frequently. The Fund reserves the right to
modify or terminate this program at any time.
NET ASSET VALUE PURCHASE OPTIONS. Class A Shares of the Fund may be purchased at
net asset value, upon written assurance that the purchase is made for investment
purposes and that the shares will not be resold except through redemption by the
Fund, by:
(1) Current or retired trustees or directors of funds advised by Morgan Stanley
Dean Witter & Co. and any of its subsidiaries and such persons' families
and their beneficial accounts.
(2) Current or retired directors, officers and employees of Morgan Stanley Dean
Witter & Co. and any of its subsidiaries, employees of an investment
subadviser to any fund described in (1) above or an affiliate of such
subadviser, and such persons' families and their beneficial accounts.
(3) Directors, officers, employees and, when permitted, registered
representatives, of financial institutions that have a selling group
agreement with the Distributor and their spouses and children under 21
years of age when purchasing for any accounts they beneficially own, or, in
the case of any such financial institution, when purchasing for retirement
plans for such institution's employees; provided that such purchases are
otherwise permitted by such institutions.
(4) Registered investment advisers who charge a fee for their services, trust
companies and bank trust departments investing on their own behalf or on
behalf of their clients. The Distributor may pay authorized dealers through
which purchases are made an amount up to 0.50% of the amount invested, over
a 12-month period.
(5) Trustees and other fiduciaries purchasing shares for retirement plans which
invest in multiple fund families through broker-dealer retirement plan
alliance programs that have entered into agreements with the Distributor
and which are subject to certain minimum size and operational requirements.
Trustees and other fiduciaries
23
<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 of the order. An
authorized dealer may charge a transaction fee for placing an order to purchase
24
<PAGE>
shares pursuant to this provision or for placing a redemption order with respect
to such shares. Authorized dealers will be paid a service fee as described on
purchases made as described in (3) through (9) above. The Fund may terminate, or
amend the terms of, offering shares of the Fund at net asset value to such
groups at any time.
REDEMPTION OF
SHARES
Generally shareholders may redeem for cash some or all of their shares without
charge by the Fund (other than applicable sales charge) at any time. As
described under the heading "Purchase of Shares," redemptions of Class B Shares
and Class C Shares may be subject to a contingent deferred sales charge. In
addition, certain redemptions of Class A Shares for shareholder accounts of $1
million or more may be subject to a contingent deferred sales charge.
Redemptions completed through an authorized dealer or a custodian of a
retirement plan account may involve additional fees charged by the dealer or
custodian.
Except as specified below under "Telephone Redemption Requests," payment for
shares redeemed generally will be made by check mailed within seven days after
receipt by Investor Services of the request and any other necessary documents in
proper order. Such payment may be postponed or the right of redemption suspended
as provided by the rules of the SEC. Such payment may, under certain
circumstances, be paid wholly or in part by a distribution-in-kind of portfolio
securities. If the shares to be redeemed have been recently purchased by check,
Investor Services may delay the payment of redemption proceeds until it confirms
the purchase check has cleared, which may take up to 15 days. A taxable gain or
loss will be recognized by the shareholder upon redemption of shares.
WRITTEN REDEMPTION REQUESTS. Shareholders may request a redemption of shares by
written request in proper form sent directly to Van Kampen Investor Services
Inc., PO Box 218256, Kansas City, MO 64121-8256. The request for redemption
should indicate the number of shares to be redeemed, the class designation of
such shares and the shareholder's account number. The redemption request must be
signed by all persons in whose names the shares are registered. Signatures must
conform exactly to the account registration. If the proceeds of the redemption
exceed $50,000, or if the proceeds are not to be paid to the record owner at the
record address, or if the record address has changed within the previous 30
days, signature(s) must be guaranteed by one of the following: a bank or trust
company; a broker-dealer; a credit union; a national securities exchange,
registered securities association or clearing agency; a savings and loan
association; or a federal savings bank.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption to be in proper form. In some
cases, however, additional documents may be necessary. In the case of
shareholders holding certificates, the certificates for the shares being
redeemed properly endorsed for transfer must accompany the redemption request.
In the event the redemption is requested by a corporation, partnership, trust,
fiduciary, executor or administrator, and the name and title of the
individual(s) authorizing such redemption is not shown in the account
registration, a copy of the corporate resolution or other legal documentation
appointing the authorized signer and certified within the prior 120 days must
accompany the redemption request. IRA redemption requests should be sent to the
IRA custodian to be forwarded to Investor Services. Contact the IRA custodian
for further information.
In the case of written redemption requests sent directly to Investor Services,
the redemption price is the net asset value per share next determined after the
request in proper form is received by Investor Services.
AUTHORIZED DEALER REDEMPTION REQUESTS. Shareholders may place redemption
requests through an authorized dealer. Orders sent through authorized dealers
must be at least $500 (unless transmitted by your authorized dealer via the
FUNDSERV network). The redemption price for such shares is
25
<PAGE>
the net asset value per share next calculated after an order in proper form is
received by an authorized dealer provided such order is transmitted to the
Distributor prior to the Distributor's close of business on such day. It is the
responsibility of authorized dealers to transmit redemption requests received by
them to the Distributor so they will be received prior to such time. Redemptions
completed through an authorized dealer may involve additional fees charged by
the dealer.
TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. To establish
such privilege, a shareholder must complete the appropriate section of the
application form accompanying this prospectus or call the Fund at (800) 341-2911
to request that a copy of the Telephone Redemption Authorization form be sent to
them for completion. To redeem shares, contact the telephone transaction line at
(800) 421-5684. Van Kampen Investments, Investor Services and the Fund employ
procedures considered by them to be reasonable to confirm that instructions
communicated by telephone are genuine. Such procedures include requiring certain
personal identification information prior to acting upon telephone instructions,
tape-recording telephone communications and providing written confirmation of
instructions communicated by telephone. If reasonable procedures are employed,
neither Van Kampen Investments, Investor Services nor the Fund will be liable
for following telephone instructions which it reasonably believes to be genuine.
Telephone redemptions may not be available if the shareholder cannot reach
Investor Services by telephone, whether because all telephone lines are busy or
for any other reason; in such case, a shareholder would have to use the Fund's
other redemption procedure previously described. Requests received by Investor
Services prior to 4:00 p.m., New York time, will be processed at the next
determined net asset value per share. These privileges 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 two kinds of return from the Fund: dividends and
capital gains 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.
26
<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 GAINS. The Fund may realize capital gains or losses when it sells
securities, depending on whether the sales prices for the securities are higher
or lower than purchase prices. Net realized capital gains represent the total
profit from sales of securities minus total losses from sales of securities
including losses carried forward from prior years. The Fund distributes any
taxable net realized capital gains to shareholders as capital gains dividends at
least annually. As in the case of dividends, capital gains dividends are
automatically reinvested in additional shares of the Fund at 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 gains distributions 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 gains
distribution. Unless the shareholder instructs otherwise, the reinvestment plan
is automatic. This instruction may be made by telephone by calling (800)
341-2911 ((800) 421-2833 for the hearing impaired) or by writing to Investor
Services. The investor may, on the initial application or prior to any
declaration, instruct that dividends be paid in cash and capital gains
distributions be reinvested at net asset value, or that both dividends and
capital gains distributions be paid in cash.
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under which
a shareholder can authorize 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.
To be eligible for exchange, shares of the Fund must have been registered in the
shareholder's name for at least 30 days prior to an exchange. Shares of the Fund
registered in a shareholder's name for less than 30 days may only be exchanged
upon receipt of prior approval of the Adviser. It is the policy of the Adviser,
under normal circumstances, not to approve such requests.
When Class B Shares and Class C Shares are exchanged among Participating Funds,
the holding period for purposes of computing the contingent deferred sales
charge is based upon the date of the initial purchase of such shares from a
Participating Fund. If such Class B Shares or Class C Shares are redeemed and
not exchanged for shares of another Participating Fund, Class B Shares and Class
C Shares are subject to the contingent deferred sales charge schedule imposed by
the Participating Fund from which such shares were originally purchased.
Exchanges of shares are sales and may result in a gain or loss for federal
income tax purposes. If the shares exchanged have been held for less than 91
days, the sales charge paid on such shares is carried over and included in the
tax basis of the shares acquired.
27
<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
otherwise designated in the application form accompanying the prospectus. Van
Kampen Investments, Investor Services and the Fund employ procedures considered
by them to be reasonable to confirm that instructions communicated by telephone
are genuine. Such procedures include requiring certain personal identification
information prior to acting upon telephone instructions, tape-recording
telephone communications, and providing written confirmation of instructions
communicated by telephone. If reasonable procedures are employed, neither Van
Kampen Investments, Investor Services nor the Fund will be liable for following
telephone instructions which it reasonably believes to be genuine. If the
exchanging shareholder does not have an account in the fund whose shares are
being acquired, a new account will be established with the same registration,
dividend and capital gains options (except dividend diversification) and
authorized dealer of record as the account from which shares are exchanged,
unless otherwise specified by the shareholder. In order to establish a
systematic withdrawal plan for the new account or reinvest dividends from the
new account into another fund, however, an exchanging shareholder must submit a
specific request. The Fund reserves the right to reject any order to acquire its
shares through exchange. In addition, the Fund and other Participating Funds may
restrict exchanges by shareholders engaged in excessive trading by limiting or
disallowing the exchange privileges to such shareholders. For further
information on these restrictions see the Statement of Additional Information.
The Fund may modify, restrict or terminate the exchange privilege at any time on
60 days' notice to its shareholders of any termination or material amendment.
For purposes of determining the sales charge rate previously paid on Class A
Shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchanged security was acquired through reinvestment, that
security is deemed to have been sold with a sales charge rate equal to the rate
previously paid on the security on which the dividend or distribution was paid.
If a shareholder exchanges less than all of such shareholder's securities, the
security upon which the highest sales charge rate was previously paid is deemed
exchanged first.
Exchange requests received on a business day prior to the time shares of the
funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares in the fund from which the
shareholder is withdrawing an investment will be redeemed at the net asset value
per share next determined on the date of receipt. Shares of the new fund into
which the shareholder is investing will also normally be purchased at the net
asset value per share, plus any applicable sales charge, next determined on the
date of receipt. Exchange requests received on a business day after the time
shares of the funds involved in the request are priced will be processed on the
next business day in the manner described herein.
A prospectus of any of these Participating Funds may be obtained from any
authorized dealer or the Distributor. An investor considering an exchange to one
of such funds should refer to the prospectus for additional information
regarding such fund prior to investing.
INTERNET TRANSACTIONS. In addition to performing transactions on your account
through written instruction or by telephone, you may also perform certain
transactions through the internet. Please refer to our web site at
www.vankampen.com for further instruction. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated through the internet are genuine. Such
procedures include requiring use of a personal identification number prior to
acting upon internet instructions and providing written confirmation of
instructions communicated through the internet. If reasonable procedures are
employed, neither Van Kampen Investments, Investor Services nor the Fund will be
liable for following instructions through the internet which it reasonably
believes to be genuine. If an account has multiple owners, Investor Services may
rely on the instructions of any one owner.
28
<PAGE>
FEDERAL INCOME
TAXATION
Distributions of the Fund's net investment income (consisting generally of
taxable income and net short-term capital gains) are taxable to shareholders as
ordinary income to the extent of the Fund's earnings and profits, whether paid
in cash or reinvested in additional shares. Distributions of the Fund's net
capital gains (which are the excess of net long-term capital gains over net
short-term capital losses) as capital gain dividends, if any, are taxable to
shareholders as long-term capital gains, whether paid in cash or reinvested in
additional shares, and regardless of how long the shares of the Fund have been
held by such shareholders. Capital gains dividends may be taxed at different
rates depending on how long the Fund held the securities. The Fund expects that
its distributions will consist primarily of ordinary income and capital gains
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. Prospective foreign investors should consult their U.S. tax
advisers concerning the tax consequences to them of an investment in shares.
The Fund intends to qualify as a regulated investment company under federal
income tax law. If the Fund so qualifies and distributes each year to its
shareholders at least 90% of its net investment income, the Fund will not be
required to pay federal income taxes on any income it distributed to
shareholders. If the Fund distributes less than the sum of 98% of its ordinary
income and 98% of its capital gains 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, or disposing 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
- ------------------------------------------------------------
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 Philip 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
Edward C. Wood III*
VICE PRESIDENT
A. Thomas Smith III*
VICE PRESIDENT AND SECRETARY
Michael H. Santo*
VICE PRESIDENT
Peter W. Hegel*
VICE PRESIDENT
Stephen L. Boyd*
VICE PRESIDENT
Joseph P. Stadler*
VICE PRESIDENT
Curtis W. Morell*
VICE PRESIDENT & CHIEF ACCOUNTING OFFICER
Tanya M. Loden*
CONTROLLER
John L. Sullivan*
VICE PRESIDENT, CHIEF FINANCIAL OFFICER & TREASURER
* "Interested" persons of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2911
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders, or
redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call
(800) 421-2833
FUND INFO-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 , 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 Public
Reference Room in
Washington, DC or online
at the SEC's web site
(http://www.sec.gov).
For more information,
please call the SEC at
(800) SEC-0330. You can
also request these
materials by writing the
Public Reference Section
of the SEC, Washington
DC, 20549-6009, and
paying a duplication
fee.
[LOGO]
THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-7140.
MSHY PRO 10/99
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THE FUND MAY NOT SELL THESE SECURITIES UNTIL THE POST-
EFFECTIVE AMENDMENT TO THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES.
SUBJECT TO COMPLETION -- DATED AUGUST 27, 1999
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 regulators, and
neither the SEC nor any
state regulator has passed
upon the accuracy or
adequacy of this
prospectus. Any
representation to the
contrary is a criminal
offense.
THIS PROSPECTUS IS DATED
OCTOBER , 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 ............................................21
Shareholder Services ...................................................22
Federal Income Taxation ................................................24
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 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 management seeks to achieve the
investment objective by investing primarily in a portfolio of equity securities
of non-U.S. issuers using a combination of strategic geographic asset allocation
and fundamental, value-oriented stock selection. The Fund's management 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 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
certain debt securities. The Fund may purchase or 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, including seeking to reduce or eliminate foreign
currency exchange risks associated with securities denominated in non-U.S.
dollar currencies.
INVESTMENT RISKS
An investment in the Fund is subject to investment risks, and you could lose
money on your investment in the Fund. There can be no assurance that the Fund
will achieve its investment 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
debt securities. Investments in debt securities generally are affected by
changes in interest rates and creditworthiness of the issuer. The market prices
for such securities tend to fall as interest rates rise, and such declines may
be greater among securities with longer maturities. Foreign markets may, but
often do not, move in tandem with changes in U.S. markets, and foreign markets,
especially emerging or developing markets, may have more price volatility 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 "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 (in which the Fund may invest) often fluctuate more and may fall more
than 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 markets 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,
3
<PAGE>
greater delays and disruptions in settlement 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 such as imperfect
correlation between the value of the instruments and the underlying assets;
risks of default by the other party to certain transactions; risks that the
transactions may result in losses that partially or completely offset gains in
portfolio positions; risks that the transactions may not be liquid; and manager
risk.
NON-DIVERSIFICATION RISKS. The Fund is classified as a "non-diversified" fund,
which means the Fund may invest a greater portion of its assets in a more
limited number of issuers than a "diversified" fund. As a result, the Fund may
be subject to greater risk than a diversified fund because changes in the
financial condition or market assessment of a single issuer may cause greater
fluctuations in the value of the Fund's shares.
MANAGER RISK. As with any managed fund, the Fund's management may not be
successful in selecting the best-performing securities and the Fund's
performance may lag behind that of similar funds.
An investment in the Fund is not a deposit of any bank or other insured
depository institution. Your investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
INVESTOR PROFILE
In light of its objective and investment 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 shares of the Fund.
- - Wish to add to their personal investment portfolio a fund that emphasizes a
"value" style of investing in equity securities of foreign issuers.
An investment in the Fund may not be appropriate for all investors. The Fund is
not intended to be a complete investment program, and investors should consider
their long-term investment goals and financial needs when making an investment
decision about the Fund. An investment in the Fund is intended to be a long-term
investment, and the Fund should not be used as a trading vehicle.
ANNUAL PERFORMANCE
One way to measure the risks of investing in the Fund is to look at how its
performance varies from year to year. The following chart shows the annual
returns of the Fund's Class A Shares over the past 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 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.
4
<PAGE>
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 management believes is an applicable
benchmark for the Fund. The Fund's performance figures include the maximum sales
charges paid by investors. The index performance figures do not include
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
International
Magnum Fund
- -- Class A Shares -0.47% 3.11%(1)
MSCI EAFE Index % %(2)
................................................
Van Kampen
International
Magnum Fund
- -- Class B Shares -0.23% 3.64%(1)
MSCI EAFE Index % %(2)
................................................
Van Kampen
International
Magnum Fund
- -- Class C Shares 3.83% 4.77%(1)
MSCI EAFE Index % %(2)
................................................
INCEPTION DATES: (1) 7/1/96, (2) , (3)
.
* 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).
FEES AND EXPENSES
OF THE FUNDS
These tables describe the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Class A Class B Class C
Shares Shares Shares
- ------------------------------------------------------------------
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 (as a
percentage of offering price) None None None
.................................................................
Redemption fees (as a percentage of
amount redeemed) None None None
.................................................................
Exchange fee None None None
.................................................................
(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 AND 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
<PAGE>
ANNUAL FUND
OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
Class A Class B Class C
Shares Shares Shares
- ----------------------------------------------------------------
Management Fees(1) 0.80% 0.80% 0.80%
...............................................................
Distribution and/or Service (12b-1)
Fees(2) 0.25% 1.00%(3) 1.00%(3)
...............................................................
Other Expenses(1) 0.66% 0.66% 0.66%
...............................................................
Total Annual Fund Operating
Expenses(1) 1.71% 2.46% 2.46%
...............................................................
(1) 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
REIMBURSEMENTS CAN BE TERMINATED AT ANY TIME.
(2) 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."
(3) 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% annual 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:
One Three Five Ten
Year Years Years Years
- -----------------------------------------------------------------
Class A Shares $739 $1,083 $1,450 $2,478
................................................................
Class B Shares $749 $1,067 $1,461 $2,593*
................................................................
Class C Shares $349 $ 767 $1,311 $2,796
................................................................
You would pay the following expenses if you did not redeem your shares:
One Three Five Ten
Year Years Years Years
- -----------------------------------------------------------------
Class A Shares $739 $1,083 $1,450 $2,478
................................................................
Class B Shares $249 $ 767 $1,311 $2,593*
................................................................
Class C Shares $249 $ 767 $1,311 $2,796
................................................................
* 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 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 investment objective by investing primarily in 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 foreign issuers. Investments in
foreign
6
<PAGE>
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. In
selecting securities for investment, 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 or a different issuer 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
7
<PAGE>
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 additional fees
such as management and other fees.
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, 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 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 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 investment
adviser's assessment of the relative yield, appreciation potential and
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 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 markets are subject to
greater risks than a 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.
8
<PAGE>
Since the Fund invests in securities denominated or quoted in currencies other
than the U.S. dollar, the Fund will be affected by changes in foreign currency
exchange rates (and exchange control regulations) which affect the value of
investments in the Fund and the accrued income and unrealized appreciation or
depreciation of the investments. Changes in foreign currency exchange ratios
relative to the U.S. dollar will affect the U.S. dollar value of the Fund's
assets denominated in that currency and the Fund's yield on such assets 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'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. The Fund purchases and sells
foreign currency on a spot basis in connection with the settlement of
transactions in securities traded in such foreign currency. The Fund also may
enter into contracts with banks, brokers or dealers to purchase or sell 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 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 by
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 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. Additionally, 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 temporary substitute for purchasing or
selling particular securities, including, for example, when the Fund acts
quickly to adjust its
9
<PAGE>
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). Additionally, 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. Additionally, 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 which can be
obtained by investors free of charge as described on the back cover of this
prospectus.
OTHER INVESTMENTS AND RISK FACTORS
For cash management 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.
10
<PAGE>
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 otherwise. The Fund's portfolio turnover is shown under the heading
"Financial Highlights." The portfolio turnover rate may be expected to vary from
year to year. A high portfolio turnover rate (100% or more) increases the Fund's
transactions costs, including brokerage commissions or dealer costs, and may
result in the realization of more short-term capital gains than if the Fund had
lower portfolio turnover. Increases in the Fund's transaction costs would impact
the Fund's performance. The turnover rate will not be a limiting factor,
however, if the Fund's investment adviser considers portfolio changes
appropriate.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Fund may hold cash or invest on a temporary basis 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. The Fund may not
achieve its investment objective if it takes a defensive position.
YEAR 2000 RISKS. Like other mutual funds, financial and business organizations
and individuals around the world, the Fund could be adversely affected if the
computer systems used by the Fund's investment adviser and other service
providers do not properly process and calculate date-related information and
data from and after January 1, 2000. This is commonly known as the "Year 2000
Problem." The Fund's investment adviser and subadvisers 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 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
countries because there is an increased likelihood that issuers of securities of
such countries cannot anticipate or effectively manage the affects of computer
programs and the Year 2000 Problem. Accordingly, the Fund's investments may be
adversely affected. The statements above are subject to the Year 2000
Information and Readiness Disclosure Act which Act may limit the legal rights
regarding the use of such statements in the case of a dispute.
INVESTMENT ADVISORY
SERVICES
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 $75 billion under management or supervision. Van
Kampen Investments' more than 50 open-end and 39 closed-end funds and more than
2,500 unit investment
11
<PAGE>
trusts are professionally distributed by leading financial advisers nationwide.
Van Kampen Funds Inc., the distributor of the Fund (the "Distributor") and the
sponsor of the funds mentioned above, is also a wholly owned subsidiary of Van
Kampen Investments. Van Kampen Investments is an indirect wholly owned
subsidiary of Morgan Stanley Dean Witter & Co. The Adviser's principal office is
located at 1 Parkview Plaza, PO Box 5555, Oakbrook Terrace, Illinois 60181-5555.
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 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 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.
From time to time, the Adviser or the Distributor may voluntarily undertake to
reduce the Fund's expenses by reducing the fees payable to them or by reducing
other expenses of the Fund in accordance with such limitations as the Adviser or
Distributor may establish.
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen 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
December 31, 1998, the Subadviser, together with its affiliated institutional
asset management companies, managed assets of approximately $163.4 billion,
including assets under fiduciary advice. The Subadviser's address is 1221 Avenue
of the Americas, New York, New York 10020.
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 percentage of
the net advisory fees the Adviser receives from the Fund.
-------------
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
12
<PAGE>
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. Additionally, 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.
Each class of shares represents an interest in the same portfolio of investments
of the Fund and has the same rights except that (i) Class A Shares generally
bear the sales charge expenses at the time of purchase while Class B Shares and
Class C Shares bear the sales charge expenses at the time of redemption and any
expenses (including higher distribution fees and transfer agency costs)
resulting from such deferred sales charge arrangement, (ii) generally, each
class of shares has exclusive voting rights with respect to approvals of the
Rule 12b-1 distribution plan (described below) pursuant to which its
distribution fee or service fee is paid, (iii) each class of shares has
different exchange privileges, (iv) certain classes of shares are subject to a
conversion feature and (v) certain classes of shares have different shareholder
service options available.
The 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 a 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 in which no purchase or redemption orders are
received or there is not a sufficient degree of trading in a 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 values per share and adjust the offering price more frequently than once a
day if deemed desirable. Net asset value per share for each class is determined
by dividing the value of a 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
13
<PAGE>
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 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.
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 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 on 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
14
<PAGE>
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 gains
distributions, 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
AS % OF AS % OF
SIZE OF OFFERING NET AMOUNT
INVESTMENT PRICE INVESTED
- ---------------------------------------------------------
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 * *
........................................................
* NO SALES CHARGE IS PAYABLE AT THE TIME OF PURCHASE ON INVESTMENTS OF
$1 MILLION OR MORE, ALTHOUGH FOR SUCH INVESTMENTS THE FUND IMPOSES A
CONTINGENT DEFERRED SALES CHARGE OF 1.00% ON CERTAIN REDEMPTIONS MADE
WITHIN ONE YEAR OF THE PURCHASE. THE CONTINGENT DEFERRED SALES CHARGE
IS ASSESSED ON AN AMOUNT EQUAL TO THE LESSER OF THE THEN CURRENT
MARKET VALUE OR THE COST OF THE SHARES BEING REDEEMED. ACCORDINGLY, NO
SALES CHARGE IS IMPOSED ON INCREASES IN NET ASSET VALUE ABOVE THE
INITIAL PURCHASE PRICE.
No sales charge is imposed on Class A Shares received from reinvestment of
dividends or capital gains distributions.
Under the Distribution Plan and Service Plan, the Fund may spend a total of
0.25% per year of the average daily net assets with respect to the Class A
Shares of the Fund. From such amount, under the Service Plan, the Fund may spend
up to 0.25% per year of the Fund's average daily net assets with respect to the
Class A Shares for the ongoing provision of services to Class A shareholders by
the Distributor and by brokers, dealers or financial intermediaries and for the
maintenance of such shareholders' accounts.
CLASS B SHARES
Class B Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge if redeemed within five years of purchase as shown in the
table as follows:
CLASS B SHARES
SALES CHARGE SCHEDULE
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE
AS A PERCENTAGE OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
- -------------------------------------------------------
<S> <C>
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 gains 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
15
<PAGE>
because it ordinarily will be more advantageous for an investor making such an
investment to purchase Class A Shares.
The amount of the contingent deferred sales charge, if any, varies depending on
the number of years from the time of payment for the purchase of Class B Shares
until the time of redemption of such shares. Solely for purposes of determining
the number of years from the time of any payment for the purchase of shares, all
payments during a month are totaled and deemed to have been made on the last day
of the month.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed that the redemption is first of any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge and then of shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
average daily net assets with respect to the Class B Shares of the Fund. In
addition, under the Service Plan, the Fund may spend up to 0.25% per year of the
Fund's average daily net assets with respect to the Class B Shares for the
ongoing provision of services to Class B shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CLASS C SHARES
Class C Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge of 1.00% of the dollar amount subject to charge if
redeemed within one year of purchase.
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gains dividends. It
is presently the policy of the Distributor not to accept any order for Class C
Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
In determining whether a contingent deferred sales charge is applicable to a
redemption, it is assumed that the redemption is first of any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge and then of shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
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 distributions constituting
"preferential dividends" under the federal income tax law and (ii) the
conversion of shares does not constitute a taxable event under federal income
tax law. The conversion may be suspended if such an opinion is no longer
available and such shares might continue to be subject to the higher aggregate
fees applicable to such shares for an indefinite period.
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 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
17
<PAGE>
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 trust distributions will be 1.00% of the offering
price (1.01% of net asset value). Of this amount, the Distributor will pay to
the authorized dealer, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the terms and conditions that apply to the program,
should contact their authorized dealer or the Distributor.
The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during each distribution period by all investors who choose to invest in
the Fund through the program and (2) provide Investor Services with appropriate
backup data for each investor participating in the program in a computerized
format fully compatible with Investor Services' processing system.
As further requirements for obtaining these special benefits, the Fund also
requires that all dividends and other distributions by the Fund be reinvested in
additional shares without any systematic withdrawal program. There will be no
minimum for reinvestments from unit investment trusts. The Fund will send
account activity statements to such participants on a quarterly basis only, even
if their investments are made more frequently. The Fund reserves the right to
modify or terminate this program at any time.
NET ASSET VALUE PURCHASE OPTIONS. Class A Shares of the Fund may be purchased at
net asset value, upon written assurance that the purchase is made for investment
purposes and that the shares will not be resold except through redemption by the
Fund, by:
(1) Current or retired trustees or directors of funds advised by Morgan Stanley
Dean Witter & Co. and any of its subsidiaries and such persons' families
and their beneficial accounts.
(2) Current or retired directors, officers and employees of Morgan Stanley Dean
Witter & Co. and any of its subsidiaries, employees of an investment
subadviser to any fund described in (1) above or an affiliate of such
subadviser, and such persons' families and their beneficial accounts.
(3) Directors, officers, employees and, when permitted, registered
representatives, of financial institutions that have a selling group
agreement with the Distributor and their spouses and children under 21
years of age when purchasing for any accounts they beneficially own, or, in
the case of any such financial institution, when purchasing for retirement
plans for such institution's employees; provided that such purchases are
otherwise permitted by such institutions.
(4) Registered investment advisers who charge a fee for their services, trust
companies and bank trust departments investing on their own behalf or on
behalf of their clients. The Distributor may pay authorized dealers through
which purchases are made an amount up to 0.50% of the amount invested, over
a 12-month period.
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 on
purchases made as described in (3) through (9) above. The Fund may terminate, or
amend the terms of, offering shares of the Fund at net asset value to such
groups at any time.
REDEMPTION OF
SHARES
Generally shareholders may redeem for cash some or all of their shares without
charge by the Fund (other than applicable sales charge) at any time. As
described under the heading "Purchase of Shares," redemptions of Class B Shares
and Class C Shares may be subject to a contingent deferred sales charge. In
addition, certain redemptions of Class A Shares for shareholder accounts of $1
million or more may be subject to a contingent deferred sales charge.
Redemptions completed through an authorized dealer or a custodian of a
retirement plan account may involve additional fees charged by the dealer or
custodian.
Except as specified below under "Telephone Redemption Requests," payment for
shares redeemed generally will be made by check mailed within seven days after
receipt by Investor Services of the request and any other necessary documents in
proper order. Such payment may be postponed or the right of redemption suspended
as provided by the rules of the SEC. Such payment may, under certain
circumstances, be paid wholly or in part by a distribution-in-kind of portfolio
securities. If the shares to be redeemed have been recently purchased by check,
Investor Services may delay the payment of redemption proceeds until it confirms
the purchase check has cleared, which may take up to 15 days. A taxable gain or
loss will be recognized by the shareholder upon redemption of shares.
WRITTEN REDEMPTION REQUESTS. Shareholders may request a redemption of shares by
written request in proper form sent directly to Van Kampen Investor Services
Inc., PO Box 218256, Kansas City, MO 64121-8256. The request for redemption
should indicate the number of shares to be redeemed, the class designation of
such shares and the shareholder's account number. The redemption request must be
signed by all persons in whose names the shares are registered. Signatures must
conform exactly to the account registration. If the proceeds of the redemption
exceed $50,000, or if the proceeds are not to be paid to the record owner at the
record address, or if the record address has changed within the previous 30
days, signature(s) must be guaranteed by one of the following: a bank or trust
company; a broker-dealer; a credit union; a national securities exchange,
registered securities association or clearing agency; a savings and loan
association; or a federal savings bank.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption to be in proper form. In some
cases, however, additional documents may be necessary. In the case of
shareholders holding certificates, the certificates for the shares being
redeemed properly endorsed for transfer must accompany the redemption request.
In the event the redemption is requested by a corporation, partnership, trust,
fiduciary, executor or administrator, and the name and title of the
individual(s) authorizing such redemption is not shown in the account
registration, a copy of the corporate resolution or other legal documentation
appointing the authorized signer and certified within the prior 120 days must
accompany the redemption request. IRA redemption requests should be sent to the
IRA custodian to be forwarded to Investor Services. Contact the IRA custodian
for further information.
In the case of written redemption requests sent directly to Investor Services,
the redemption price is the net asset value per share next determined after
20
<PAGE>
the request in proper form is received by Investor Services.
AUTHORIZED DEALER REDEMPTION REQUESTS. Shareholders may place redemption
requests through an authorized dealer. Orders sent through authorized dealers
must be at least $500 (unless transmitted by your authorized dealer via the
FUNDSERV network). The redemption price for such shares is the net asset value
per share next calculated after an order in proper form is received by an
authorized dealer provided such order is transmitted to the Distributor prior to
the Distributor's close of business on such day. It is the responsibility of
authorized dealers to transmit redemption requests received by them to the
Distributor so they will be received prior to such time. Redemptions completed
through an authorized dealer may involve additional fees charged by the dealer.
TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. To establish
such privilege, a shareholder must complete the appropriate section of the
application form accompanying this prospectus or call the Fund at (800) 341-2911
to request that a copy of the Telephone Redemption Authorization form be sent to
them for completion. To redeem shares, contact the telephone transaction line at
(800) 421-5684. Van Kampen Investments, Investor Services and the Fund employ
procedures considered by them to be reasonable to confirm that instructions
communicated by telephone are genuine. Such procedures include requiring certain
personal identification information prior to acting upon telephone instructions,
tape-recording telephone communications and providing written confirmation of
instructions communicated by telephone. If reasonable procedures are employed,
neither Van Kampen Investments, Investor Services nor the Fund will be liable
for following telephone instructions which it reasonably believes to be genuine.
Telephone redemptions may not be available if the shareholder cannot reach
Investor Services by telephone, whether because all telephone lines are busy or
for any other reason; in such case, a shareholder would have to use the Fund's
other redemption procedure previously described. Requests received by Investor
Services prior to 4:00 p.m., New York time, will be processed at the next
determined net asset value per share. These privileges 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 two kinds of return from the Fund: dividends and
capital gains dividends.
21
<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 GAINS. The Fund may realize capital gains or losses when it sells
securities, depending on whether the sales prices for the securities are higher
or lower than purchase prices. Net realized capital gains represent the total
profit from sales of securities minus total losses from sales of securities
including losses carried forward from prior years. The Fund distributes any
taxable net realized capital gains to shareholders as capital gains dividends at
least annually. As in the case of dividends, capital gains dividends are
automatically reinvested in additional shares of the Fund at 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 gains distributions 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 gains
distribution. Unless the shareholder instructs otherwise, the reinvestment plan
is automatic. This instruction may be made by telephone by calling (800)
341-2911 ((800) 421-2833 for the hearing impaired) or by writing to Investor
Services. The investor may, on the initial application or prior to any
declaration, instruct that dividends be paid in cash and capital gains
distributions be reinvested at net asset value, or that both dividends and
capital gains distributions be paid in cash.
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under which
a shareholder can authorize 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.
To be eligible for exchange, shares of the Fund must have been registered in the
shareholder's name for at least 30 days prior to an exchange. Shares of the Fund
registered in a shareholder's name for less than 30 days may only be exchanged
upon receipt of prior approval of the Adviser. It is the policy of the Adviser,
under normal circumstances, not to approve such requests.
When Class B Shares and Class C Shares are exchanged among Participating Funds,
the holding period for purposes of computing the contingent deferred sales
charge is based upon the date of the initial purchase of such shares from a
Participating Fund. If such Class B Shares or Class C Shares are
22
<PAGE>
redeemed and not exchanged for shares of another Participating Fund, Class B
Shares and Class C Shares are subject to the contingent deferred sales charge
schedule imposed by the Participating Fund from which such shares were
originally purchased.
Exchanges of shares are sales and may result in a gain or loss for federal
income tax purposes. If the shares exchanged have been held for less than 91
days, the sales charge paid on such shares is carried over and included in the
tax basis of the shares acquired.
A shareholder wishing to make an exchange may do so by sending a written request
to Investor Services or by contacting the telephone transaction line at (800)
421-5684. A shareholder automatically has telephone exchange privileges unless
otherwise designated in the application form accompanying the prospectus. Van
Kampen Investments, Investor Services and the Fund employ procedures considered
by them to be reasonable to confirm that instructions communicated by telephone
are genuine. Such procedures include requiring certain personal identification
information prior to acting upon telephone instructions, tape-recording
telephone communications, and providing written confirmation of instructions
communicated by telephone. If reasonable procedures are employed, neither Van
Kampen Investments, Investor Services nor the Fund will be liable for following
telephone instructions which it reasonably believes to be genuine. If the
exchanging shareholder does not have an account in the fund whose shares are
being acquired, a new account will be established with the same registration,
dividend and capital gains options (except dividend diversification) and
authorized dealer of record as the account from which shares are exchanged,
unless otherwise specified by the shareholder. In order to establish a
systematic withdrawal plan for the new account or reinvest dividends from the
new account into another fund, however, an exchanging shareholder must submit a
specific request. The Fund reserves the right to reject any order to acquire its
shares through exchange. In addition, the Fund and other Participating Funds may
restrict exchanges by shareholders engaged in excessive trading by limiting or
disallowing the exchange privileges to such shareholders. For further
information on these restrictions see the Statement of Additional Information.
The Fund may modify, restrict or terminate the exchange privilege at any time on
60 days' notice to its shareholders of any termination or material amendment.
For purposes of determining the sales charge rate previously paid on Class A
Shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchanged security was acquired through reinvestment, that
security is deemed to have been sold with a sales charge rate equal to the rate
previously paid on the security on which the dividend or distribution was paid.
If a shareholder exchanges less than all of such shareholder's securities, the
security upon which the highest sales charge rate was previously paid is deemed
exchanged first.
Exchange requests received on a business day prior to the time shares of the
funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares in the fund from which the
shareholder is withdrawing an investment will be redeemed at the net asset value
per share next determined on the date of receipt. Shares of the new fund into
which the shareholder is investing will also normally be purchased at the net
asset value per share, plus any applicable sales charge, next determined on the
date of receipt. Exchange requests received on a business day after the time
shares of the funds involved in the request are priced will be processed on the
next business day in the manner described herein.
A prospectus of any of these Participating Funds may be obtained from any
authorized dealer or the Distributor. An investor considering an exchange to one
of such funds should refer to the prospectus for additional information
regarding such fund prior to investing.
INTERNET TRANSACTIONS. In addition to performing transactions on your account
through written instruction or by telephone, you may also perform certain
transactions through the internet. Please refer to our web site at
www.vankampen.com for further instruction. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by them to be reasonable to
confirm that instructions
23
<PAGE>
communicated through the internet are genuine. Such procedures include requiring
use of a personal identification number prior to acting upon internet
instructions and providing written confirmation of instructions communicated
through the internet. If reasonable procedures are employed, neither Van Kampen
Investments, Investor Services nor the Fund will be liable for following
instructions through the internet which it reasonably believes to be genuine. If
an account has multiple owners, Investor Services may rely on the instructions
of any one owner.
FEDERAL INCOME
TAXATION
Distributions of the Fund's net investment income (consisting generally of
taxable income and net short-term capital gains) are taxable to shareholders as
ordinary income to the extent of the Fund's earnings and profits, whether paid
in cash or reinvested in additional shares. Distributions of the Fund's net
capital gains (which are the excess of net long-term capital gains over net
short-term capital losses) as capital gain dividends, if any, are taxable to
shareholders as long-term capital gains, whether paid in cash or reinvested in
additional shares, and regardless of how long the shares of the Fund have been
held by such shareholders. Capital gains dividends may be taxed at different
rates depending on how long the Fund held the securities. The Fund expects that
its distributions will consist primarily of ordinary income and capital gains
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. Prospective foreign investors should consult their U.S. tax
advisers concerning the tax consequences to them of an investment in shares.
The Fund intends to qualify as a regulated investment company under federal
income tax law. If the Fund so qualifies and distributes each year to its
shareholders at least 90% of its net investment income, the Fund will not be
required to pay federal income taxes on any income it distributed to
shareholders. If the Fund distributes less than the sum of 98% of its ordinary
income and 98% of its capital gains 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, or disposing 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
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
- -----------------------------------------------------------------
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.
25
<PAGE>
BOARD OF DIRECTORS
AND OFFICERS
BOARD OF DIRECTORS
<TABLE>
<S> <C>
J. Miles Branagan Don G. Powell*
Jerry D. Choate Philip B. Rooney
Richard M.
DeMartini* Fernando Sisto
Linda Hutton Heagy Wayne W. Whalen*
Suzanne H.
R. Craig Kennedy Woolsey
Jack E. Nelson Paul G. Yovovich
</TABLE>
OFFICERS
Richard F. Powers, III*
PRESIDENT
Dennis J. McDonnell*
EXECUTIVE VICE PRESIDENT & CHIEF INVESTMENT OFFICER
Edward C. Wood III*
VICE PRESIDENT
A. Thomas Smith III*
VICE PRESIDENT AND SECRETARY
Michael H. Santo*
VICE PRESIDENT
Peter W. Hegel*
VICE PRESIDENT
Stephen L. Boyd*
VICE PRESIDENT
Joseph P. Stadler*
VICE PRESIDENT
Curtis W. Morell*
VICE PRESIDENT & CHIEF ACCOUNTING OFFICER
Tanya M. Loden*
CONTROLLER
John L. Sullivan*
VICE PRESIDENT, CHIEF FINANCIAL OFFICER & TREASURER
* "Interested" persons of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2911
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders, or
redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call
(800) 421-2833
FUND INFO-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 , 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 Public
Reference Room in
Washington, DC or online
at the SEC's web site
(http://www.sec.gov).
For more information,
please call the SEC at
(800) SEC-0330. You can
also request these
materials by writing
the Public Reference
Section of the SEC,
Washington DC,
20549-6009, and paying a
duplication fee.
[LOGO]
THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-7140.
MSIM PRO 10/99
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THE FUND MAY NOT SELL THESE SECURITIES UNTIL THE POST-
EFFECTIVE AMENDMENT TO THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES.
SUBJECT TO COMPLETION -- DATED AUGUST 27, 1999
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 management 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 regulators, and
neither the SEC nor any
state regulator has passed
upon the accuracy or
adequacy of this
prospectus. Any
representation to the
contrary is a criminal
offense.
THIS PROSPECTUS IS DATED
OCTOBER , 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 ............................................22
Shareholder Services ...................................................22
Federal Income Taxation ................................................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. Any income received from the investment of
portfolio securities is incidental to the Fund's investment objective.
INVESTMENT STRATEGIES
The Fund's management 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
management 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 management
focuses on those companies that are undervalued relative to their intrinsic
assets, cash flows and earnings potential. Portfolio securities are sold when
they are no longer undervalued or following a fundamental disappointment in
earnings. The Fund may purchase or 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.
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
debt securities. Investments in debt securities generally are affected by
changes in interest rates and creditworthiness of the issuers. The market prices
for such securities tend to fall as interest rates rise, and such declines may
be greater among securities with longer maturities. Foreign markets may, but
often do not, move in tandem with changes in U.S. markets, and foreign markets
may have more price volatility 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 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 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 risks associated
with investing in foreign securities generally, investments in the Fund will be
subject to additional risks associated with investing almost exclusively in
securities of Japanese issuers which are subject to Japanese economic and
financial factors and conditions. Since the Japanese economy is dependent to a
significant extent on foreign trade, the relationships between 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
3
<PAGE>
country, 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 such as imperfect
correlation between the value of the instruments and the underlying assets;
risks of default by the other party to certain transactions; risks that the
transactions may result in losses that partially or completely offset gains in
portfolio positions; risks that the transactions may not be liquid; and manager
risk.
MANAGER RISK. As with any managed fund, the Fund's management may not be
successful in selecting the best-performing securities and the Fund's
performance may lag behind that of similar funds.
An investment in the Fund is not a deposit of any bank or other insured
depository institution. Your investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
INVESTOR PROFILE
In light of its objective and investment 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 shares of the Fund.
- - Wish to add to their personal investment portfolio a fund that invests
primarily in equity securities of Japanese issuers.
An investment in the Fund may not be appropriate for all investors. The Fund is
not intended to be a complete investment program, and investors should consider
their long-term investment goals and financial needs when making an investment
decision about the Fund. An investment in the Fund is intended to be a long-term
investment, and the Fund should not be used as a trading vehicle.
FEES AND EXPENSES
OF THE FUNDS
These tables describe the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Class A Class B Class C
Shares Shares Shares
- ----------------------------------------------------------------
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 (as a
percentage of offering price) None None None
...............................................................
Redemption fees (as a percentage of
amount redeemed) None None None
...............................................................
Exchange fee None None None
...............................................................
(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 AND 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."
4
<PAGE>
ANNUAL FUND
OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
Class A Class B Class C
Shares Shares Shares
- ----------------------------------------------------------------
Management Fees(1) 1.00% 1.00% 1.00%
...............................................................
Distribution and/or Service (12b-1)
Fees(2) 0.25% 1.00%(3) 1.00%(3)
...............................................................
Other Expenses(1)(4) 0.65% 0.65% 0.65%
...............................................................
Total Annual Fund Operating
Expenses 1.90% 2.65% 2.65%
...............................................................
(1) 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.
(2) 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."
(3) 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) "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% annual 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:
One Three
Year Years
- --------------------------------------------------
Class A Shares $757 $ 1,138
.................................................
Class B Shares $768 $ 1,123
.................................................
Class C Shares $368 $ 823
.................................................
You would pay the following expenses if you did not redeem your shares:
One Three
Year Years
- ---------------------------------------------------
Class A Shares $757 $ 1,138
..................................................
Class B Shares $268 $ 823
..................................................
Class C Shares $268 $ 823
..................................................
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 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 additional fees
such as management and other fees.
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-capitalization companies, it will be subject to greater
investment risk than that assumed through investment in the securities of
larger-capitalization companies.
RISKS OF INVESTING IN SECURITIES
OF FOREIGN ISSUERS
The Fund 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 investment
adviser's assessment of the relative yield, appreciation potential and
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 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 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.
Since the Fund invests in securities denominated or quoted in currencies other
than the U.S. dollar, the Fund will be affected by changes in foreign currency
exchange rates (and exchange control regulations) which affect the value of
investments in the Fund and the accrued income and unrealized appreciation or
depreciation of the investments. Changes in foreign currency exchange ratios
relative to the U.S. dollar will affect the U.S. dollar value of the Fund's
assets denominated in that currency and the Fund's yield on such assets 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'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. The Fund purchases and sells
foreign currency on a spot basis in connection with the settlement of
transactions in securities traded in such foreign currency. The Fund also may
enter into contracts with banks, brokers or dealers to purchase or sell 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 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 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
8
<PAGE>
fuels. A substantial rise in world oil or commodity prices, or a fall-off in
Japan's manufactured exports, could be expected to adversely affect Japan's
economy. Additionally, 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 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. Additionally, 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 temporary substitute for purchasing or
selling particular securities, including, for example, when the Fund acts
quickly to adjust 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
9
<PAGE>
assets in Strategic Transactions for non-hedging purposes (measured by the
aggregate notional amount of outstanding derivatives). Additionally, 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. Additionally, 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 which can be
obtained by investors free of charge as described on the back cover of this
prospectus.
OTHER INVESTMENTS AND RISK FACTORS
For cash management 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 otherwise. 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 may
result in the realization of more
10
<PAGE>
short-term capital gains than if the Fund had lower portfolio turnover.
Increases in the Fund's transaction costs would impact the Fund's performance.
The turnover rate will not be a limiting factor, however, if the Fund's
investment adviser considers portfolio changes appropriate. The Fund, which has
not commenced investment operations, anticipates that its portfolio turnover
will not exceed 200% under normal circumstances.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Fund may hold cash or invest on a temporary basis 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. The Fund may not achieve its investment objective if it takes
a defensive position.
YEAR 2000 RISKS. Like other mutual funds, financial and business organizations
and individuals around the world, the Fund could be adversely affected if the
computer systems used by the Fund's investment adviser and other service
providers do not properly process and calculate date-related information and
data from and after January 1, 2000. This is commonly known as the "Year 2000
Problem." The Fund's investment adviser 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 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 countries because there is an increased likelihood that issuers of
securities of such countries cannot anticipate or effectively manage the affects
of computer programs and the Year 2000 Problem. Accordingly, the Fund's
investments may be adversely affected. The statements above are subject to the
Year 2000 Information and Readiness Disclosure Act which Act may limit the legal
rights regarding the use of such statements in the case of a dispute.
INVESTMENT ADVISORY
SERVICES
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 $75 billion under management or supervision. Van
Kampen Investments' more than 50 open-end and 39 closed-end funds and more than
2,500 unit investment trusts are professionally distributed by leading financial
advisers nationwide. Van Kampen Funds Inc., the distributor of the Fund (the
"Distributor") and the sponsor of the funds mentioned above, is also a wholly
owned subsidiary of Van Kampen Investments. Van Kampen Investments is an
indirect wholly owned subsidiary of Morgan Stanley Dean Witter & Co. The
Adviser's principal office is located
11
<PAGE>
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 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.
From time to time, the Adviser or the Distributor may voluntarily undertake to
reduce the Fund's expenses by reducing the fees payable to them or by reducing
other expenses of the Fund in accordance with such limitations as the Adviser or
Distributor may establish.
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen 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
December 31, 1998, the Subadviser, together with its affiliated institutional
asset management companies, managed assets of approximately $163.4 billion,
including assets under fiduciary advice. The Subadviser's address is 1221 Avenue
of the Americas, New York, New York 10020.
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 percentage of
the net advisory fees the Adviser receives from the Fund.
-----------------
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
co-managers 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 Witter Investment Advisory, Japan in October 1993. Prior to
1993, he specialized in Japanese warrants
12
<PAGE>
and cash equity sales and trading to Japanese financial institutions in the
Tokyo office. Mr Alkire is a graduate of University of Victoria, Canada.
Mr. Sugio, a Principal of Morgan Stanley Dean Witter & Co. and the Subadviser,
manages dedicated Japanese equity portfolios. Prior to joining Morgan Stanley
Dean Witter & Co., he worked with Baring International Investment Management,
Tokyo, 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 (described below) pursuant to which its
distribution fee or service fee is paid, (iii) each class of shares has
different exchange privileges, (iv) certain classes of shares are subject to a
conversion feature and (v) certain classes of shares have different shareholder
service options available.
The 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 a 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 in which no purchase or redemption orders are
received or there is not a sufficient degree of trading in a 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 values per share and adjust the offering price more frequently than once a
day if deemed desirable. Net asset value per share for each class is determined
by dividing the value of a 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
13
<PAGE>
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
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. 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 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 on 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 gains
distributions, 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
As % of As % of
Size of Offering Net Amount
Investment Price Invested
- ---------------------------------------------------------
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 * *
........................................................
* NO SALES CHARGE IS PAYABLE AT THE TIME OF PURCHASE ON INVESTMENTS OF
$1 MILLION OR MORE, ALTHOUGH FOR SUCH INVESTMENTS THE FUND IMPOSES A
CONTINGENT DEFERRED SALES CHARGE OF 1.00% ON CERTAIN REDEMPTIONS MADE
WITHIN ONE YEAR OF THE PURCHASE. THE CONTINGENT DEFERRED SALES CHARGE
IS ASSESSED ON AN AMOUNT EQUAL TO THE LESSER OF THE THEN CURRENT
MARKET VALUE OR THE COST OF THE SHARES BEING REDEEMED. ACCORDINGLY, NO
SALES CHARGE IS IMPOSED ON INCREASES IN NET ASSET VALUE ABOVE THE
INITIAL PURCHASE PRICE.
No sales charge is imposed on Class A Shares received from reinvestment of
dividends or capital gains distributions.
Under the Distribution Plan and Service Plan, the Fund may spend a total of
0.25% per year of the average daily net assets with respect to the Class A
Shares of the Fund. From such amount, under the Service Plan, the Fund may spend
up to 0.25% per year of the Fund's average daily net assets with respect to the
Class A Shares for the ongoing provision of services to Class A shareholders by
the Distributor and by brokers, dealers or financial intermediaries and for the
maintenance of such shareholders' accounts.
CLASS B SHARES
Class B Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge if
15
<PAGE>
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 5.00%
......................................................
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 gains dividends. It
is presently the policy of the Distributor not to accept any order for Class B
Shares in an amount of $500,000 or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
The amount of the contingent deferred sales charge, if any, varies depending on
the number of years from the time of payment for the purchase of Class B Shares
until the time of redemption of such shares. Solely for purposes of determining
the number of years from the time of any payment for the purchase of shares, all
payments during a month are totaled and deemed to have been made on the last day
of the month.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed that the redemption is first of any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge and then of shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
average daily net assets with respect to the Class B Shares of the Fund. In
addition, under the Service Plan, the Fund may spend up to 0.25% per year of the
Fund's average daily net assets with respect to the Class B Shares for the
ongoing provision of services to Class B shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CLASS C SHARES
Class C Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge of 1.00% of the dollar amount subject to charge if
redeemed within one year of purchase.
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gains dividends. It
is presently the policy of the Distributor not to accept any order for Class C
Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
In determining whether a contingent deferred sales charge is applicable to a
redemption, it is assumed that the redemption is first of any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge and then of shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
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.
16
<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 distributions constituting
"preferential dividends" under the federal income tax law and (ii) the
conversion of shares does not constitute a taxable event under federal income
tax law. The conversion may be suspended if such an opinion is no longer
available and such shares might continue to be subject to the higher aggregate
fees applicable to such shares for an indefinite period.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge is waived on redemptions of Class B Shares
and Class C Shares (i) within one year following the death or disability (as
disability is defined by federal income tax law) of a shareholder, (ii) for
required minimum distributions from an individual retirement account ("IRA") or
certain other retirement plan distributions, (iii) for withdrawals under the
Fund's systematic withdrawal plan but limited to 12% annually of the initial
value of the account, (iv) if no commission or transaction fee is paid to
authorized dealers at the time of purchase of such shares and (v) if made by
involuntary liquidation by the Fund of a shareholder's account as described
under the heading "Redemption of Shares." Subject to certain limitations, a
shareholder who has redeemed Class C Shares of the Fund may reinvest in Class C
Shares at net asset value with credit for any contingent deferred sales charge
if the reinvestment is within 180 days after the redemption. For a more complete
description of contingent deferred sales charge waivers, please refer to the
Fund's Statement of Additional Information or contact your authorized dealer.
QUANTITY DISCOUNTS
Investors purchasing Class A Shares may, under certain circumstances described
below, be entitled to pay reduced or no sales charges. Investors, or their
authorized dealers, must notify the Fund at the time of the purchase order
whenever a quantity discount is applicable to purchases. Upon such notification,
an investor will receive the lowest applicable sales charge. Quantity discounts
may be modified or terminated at any time. For more information about quantity
discounts, investors should contact their authorized dealer or the Distributor.
A person eligible for a reduced sales charge includes an individual, his or her
spouse and children under 21 years of age and any corporation, partnership or
sole proprietorship which is 100% owned, either alone or in combination, by any
of the foregoing; a trustee or other fiduciary purchasing for a single trust or
for a single fiduciary account, or a "company" as defined in Section 2(a)(8) of
the 1940 Act.
As used herein, "Participating Funds" refers to certain open-end investment
companies advised by Asset Management or Advisory Corp. and distributed by the
Distributor as determined from time to time by the Fund's Board of 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.
17
<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 trust distributions will be 1.00% of the offering
price (1.01% of net asset value). Of this amount, the Distributor will pay to
the authorized dealer, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the terms and conditions that apply to the program,
should contact their authorized dealer or the Distributor.
The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during each distribution period by all investors who choose to invest in
the Fund through the program and (2) provide Investor Services with appropriate
backup data for each investor participating in the program in a computerized
format fully compatible with Investor Services' processing system.
As further requirements for obtaining these special benefits, the Fund also
requires that all dividends and other distributions by the Fund be reinvested in
additional shares without any systematic withdrawal program. There will be no
minimum for reinvestments from unit investment trusts. The Fund will send
account activity statements to such participants on a quarterly basis only, even
if their investments are made more frequently. The Fund reserves the right to
modify or terminate this program at any time.
NET ASSET VALUE PURCHASE OPTIONS. Class A Shares of the Fund may be purchased at
net asset value, upon written assurance that the purchase is made for
18
<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.
19
<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 on
purchases made as described in (3) through (9) above. The Fund may terminate, or
amend the terms of, offering shares of the Fund at net asset value to such
groups at any time.
REDEMPTION OF
SHARES
Generally shareholders may redeem for cash some or all of their shares without
charge by the Fund (other than applicable sales charge) at any time. As
described under the heading "Purchase of Shares," redemptions of Class B Shares
and Class C Shares may be subject to a contingent deferred sales charge. In
addition, certain redemptions of Class A Shares for shareholder accounts of $1
million or more may be subject to a contingent deferred sales charge.
Redemptions completed through an authorized dealer or a custodian of a
retirement plan account may involve additional fees charged by the dealer or
custodian.
Except as specified below under "Telephone Redemption Requests," payment for
shares redeemed generally will be made by check mailed within seven days after
receipt by Investor Services of the request and any other necessary documents in
proper order. Such payment may be postponed or the right of redemption suspended
as provided by the rules of the SEC. Such payment may, under certain
circumstances, be paid wholly or in part by a distribution-in-kind of portfolio
securities. If the shares to be redeemed have been recently purchased by check,
Investor Services may delay the payment of redemption proceeds until it confirms
the purchase check has cleared, which may take up to 15 days. A taxable gain or
loss will be recognized by the shareholder upon redemption of shares.
WRITTEN REDEMPTION REQUESTS. Shareholders may request a redemption of shares by
written request in proper form sent directly to Van Kampen Investor Services
Inc., PO Box 218256, Kansas City, MO 64121-8256. The request for redemption
should indicate the number of shares to be redeemed, the class designation of
such shares and the shareholder's account number. The redemption request must be
signed by all persons in whose names the shares are registered. Signatures must
conform exactly to the account registration. If the proceeds of the redemption
exceed $50,000, or if the proceeds are not to be paid to the record owner at the
record address, or if the record address has changed within the
20
<PAGE>
previous 30 days, signature(s) must be guaranteed by one of the following: a
bank or trust company; a broker-dealer; a credit union; a national securities
exchange, registered securities association or clearing agency; a savings and
loan association; or a federal savings bank.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption to be in proper form. In some
cases, however, additional documents may be necessary. In the case of
shareholders holding certificates, the certificates for the shares being
redeemed properly endorsed for transfer must accompany the redemption request.
In the event the redemption is requested by a corporation, partnership, trust,
fiduciary, executor or administrator, and the name and title of the
individual(s) authorizing such redemption is not shown in the account
registration, a copy of the corporate resolution or other legal documentation
appointing the authorized signer and certified within the prior 120 days must
accompany the redemption request. IRA redemption requests should be sent to the
IRA custodian to be forwarded to Investor Services. Contact the IRA custodian
for further information.
In the case of written redemption requests sent directly to Investor Services,
the redemption price is the net asset value per share next determined after the
request in proper form is received by Investor Services.
AUTHORIZED DEALER REDEMPTION REQUESTS. Shareholders may place redemption
requests through an authorized dealer. Orders sent through authorized dealers
must be at least $500 (unless transmitted by your authorized dealer via the
FUNDSERV network). The redemption price for such shares is the net asset value
per share next calculated after an order in proper form is received by an
authorized dealer provided such order is transmitted to the Distributor prior to
the Distributor's close of business on such day. It is the responsibility of
authorized dealers to transmit redemption requests received by them to the
Distributor so they will be received prior to such time. Redemptions completed
through an authorized dealer may involve additional fees charged by the dealer.
TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. To establish
such privilege, a shareholder must complete the appropriate section of the
application form accompanying this prospectus or call the Fund at (800) 341-2911
to request that a copy of the Telephone Redemption Authorization form be sent to
them for completion. To redeem shares, contact the telephone transaction line at
(800) 421-5684. Van Kampen Investments, Investor Services and the Fund employ
procedures considered by them to be reasonable to confirm that instructions
communicated by telephone are genuine. Such procedures include requiring certain
personal identification information prior to acting upon telephone instructions,
tape-recording telephone communications and providing written confirmation of
instructions communicated by telephone. If reasonable procedures are employed,
neither Van Kampen Investments, Investor Services nor the Fund will be liable
for following telephone instructions which it reasonably believes to be genuine.
Telephone redemptions may not be available if the shareholder cannot reach
Investor Services by telephone, whether because all telephone lines are busy or
for any other reason; in such case, a shareholder would have to use the Fund's
other redemption procedure previously described. Requests received by Investor
Services prior to 4:00 p.m., New York time, will be processed at the next
determined net asset value per share. These privileges 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
21
<PAGE>
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 two kinds of return from the Fund: dividends and
capital gains 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 GAINS. The Fund may realize capital gains or losses when it sells
securities, depending on whether the sales prices for the securities are higher
or lower than purchase prices. Net realized capital gains represent the total
profit from sales of securities minus total losses from sales of securities
including losses carried forward from prior years. The Fund distributes any
taxable net realized capital gains to shareholders as capital gains dividends at
least annually. As in the case of dividends, capital gains dividends are
automatically reinvested in additional shares of the Fund at 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 gains distributions 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 gains
distribution. Unless the shareholder instructs otherwise, the reinvestment plan
is automatic. This instruction may be made by telephone by calling (800)
341-2911 ((800) 421-2833 for the hearing impaired) or by writing to Investor
Services. The investor may, on the initial application or prior to any
declaration, instruct that dividends be paid in cash and capital gains
distributions be reinvested at net asset value, or that both dividends and
capital gains distributions be paid in cash.
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under which
a shareholder can authorize 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.
22
<PAGE>
EXCHANGE PRIVILEGE. Shares of the Fund may be exchanged for shares of the same
class of any Participating Fund based on the next computed net asset value per
share of each fund after requesting the exchange without any sales charge,
subject to certain limitations. Shares of the Fund may be exchanged for shares
of any Participating Fund only if shares of that Participating Fund are
available for sale; however, during periods of suspension of sales, shares of a
Participating Fund may be available for sale only to existing shareholders of a
Participating Fund. Shareholders seeking an exchange into a Participating Fund
should obtain and read the current prospectus for such fund.
To be eligible for exchange, shares of the Fund must have been registered in the
shareholder's name for at least 30 days prior to an exchange. Shares of the Fund
registered in a shareholder's name for less than 30 days may only be exchanged
upon receipt of prior approval of the Adviser. It is the policy of the Adviser,
under normal circumstances, not to approve such requests.
When Class B Shares and Class C Shares are exchanged among Participating Funds,
the holding period for purposes of computing the contingent deferred sales
charge is based upon the date of the initial purchase of such shares from a
Participating Fund. If such Class B Shares or Class C Shares are redeemed and
not exchanged for shares of another Participating Fund, Class B Shares and Class
C Shares are subject to the contingent deferred sales charge schedule imposed by
the Participating Fund from which such shares were originally purchased.
Exchanges of shares are sales and may result in a gain or loss for federal
income tax purposes. If the shares exchanged have been held for less than 91
days, the sales charge paid on such shares is carried over and included in the
tax basis of the shares acquired.
A shareholder wishing to make an exchange may do so by sending a written request
to Investor Services or by contacting the telephone transaction line at (800)
421-5684. A shareholder automatically has telephone exchange privileges unless
otherwise designated in the application form accompanying the prospectus. Van
Kampen Investments, Investor Services and the Fund employ procedures considered
by them to be reasonable to confirm that instructions communicated by telephone
are genuine. Such procedures include requiring certain personal identification
information prior to acting upon telephone instructions, tape-recording
telephone communications, and providing written confirmation of instructions
communicated by telephone. If reasonable procedures are employed, neither Van
Kampen Investments, Investor Services nor the Fund will be liable for following
telephone instructions which it reasonably believes to be genuine. If the
exchanging shareholder does not have an account in the fund whose shares are
being acquired, a new account will be established with the same registration,
dividend and capital gains options (except dividend diversification) and
authorized dealer of record as the account from which shares are exchanged,
unless otherwise specified by the shareholder. In order to establish a
systematic withdrawal plan for the new account or reinvest dividends from the
new account into another fund, however, an exchanging shareholder must submit a
specific request. The Fund reserves the right to reject any order to acquire its
shares through exchange. In addition, the Fund and other Participating Funds may
restrict exchanges by shareholders engaged in excessive trading by limiting or
disallowing the exchange privileges to such shareholders. For further
information on these restrictions see the Statement of Additional Information.
The Fund may modify, restrict or terminate the exchange privilege at any time on
60 days' notice to its shareholders of any termination or material amendment.
For purposes of determining the sales charge rate previously paid on Class A
Shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchanged security was acquired through reinvestment, that
security is deemed to have been sold with a sales charge rate equal to the rate
previously paid on the security on which the dividend or distribution was paid.
If a shareholder exchanges less than all of such shareholder's securities, the
security upon which the highest sales charge rate was previously paid is deemed
exchanged first.
23
<PAGE>
Exchange requests received on a business day prior to the time shares of the
funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares in the fund from which the
shareholder is withdrawing an investment will be redeemed at the net asset value
per share next determined on the date of receipt. Shares of the new fund into
which the shareholder is investing will also normally be purchased at the net
asset value per share, plus any applicable sales charge, next determined on the
date of receipt. Exchange requests received on a business day after the time
shares of the funds involved in the request are priced will be processed on the
next business day in the manner described herein.
A prospectus of any of these Participating Funds may be obtained from any
authorized dealer or the Distributor. An investor considering an exchange to one
of such funds should refer to the prospectus for additional information
regarding such fund prior to investing.
INTERNET TRANSACTIONS. In addition to performing transactions on your account
through written instruction or by telephone, you may also perform certain
transactions through the internet. Please refer to our web site at
www.vankampen.com for further instruction. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated through the internet are genuine. Such
procedures include requiring use of a personal identification number prior to
acting upon internet instructions and providing written confirmation of
instructions communicated through the internet. If reasonable procedures are
employed, neither Van Kampen Investments, Investor Services nor the Fund will be
liable for following instructions through the internet which it reasonably
believes to be genuine. If an account has multiple owners, Investor Services may
rely on the instructions of any one owner.
FEDERAL INCOME
TAXATION
Distributions of the Fund's net investment income (consisting generally of
taxable income and net short-term capital gains) are taxable to shareholders as
ordinary income to the extent of the Fund's earnings and profits, whether paid
in cash or reinvested in additional shares. Distributions of the Fund's net
capital gains (which are the excess of net long-term capital gains over net
short-term capital losses) as capital gain dividends, if any, are taxable to
shareholders as long-term capital gains, whether paid in cash or reinvested in
additional shares, and regardless of how long the shares of the Fund have been
held by such shareholders. Capital gains dividends may be taxed at different
rates depending on how long the Fund held the securities. The Fund expects that
its distributions will consist primarily of ordinary income and capital gains
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.
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. Prospective foreign investors should consult their U.S. tax
advisers concerning the tax consequences to them of an investment in shares.
The Fund intends to qualify as a regulated investment company under federal
income tax law. If the Fund so qualifies and distributes each year to its
shareholders at least 90% of its net investment income, the Fund will not be
required to pay federal income taxes on any income it distributed to
shareholders. If the Fund distributes less than the sum of 98% of its ordinary
income and 98% of its capital gains 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, or disposing of
shares, as well as the effects of state, local and foreign tax law and any
proposed tax law changes.
25
<PAGE>
BOARD OF DIRECTORS
AND OFFICERS
BOARD OF DIRECTORS
<TABLE>
<S> <C>
J. Miles Branagan Don G. Powell*
Jerry D. Choate Philip 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
Edward C. Wood III*
VICE PRESIDENT
A. Thomas Smith III*
VICE PRESIDENT AND SECRETARY
Michael H. Santo*
VICE PRESIDENT
Peter W. Hegel*
VICE PRESIDENT
Stephen L. Boyd*
VICE PRESIDENT
Joseph P. Stadler*
VICE PRESIDENT
Curtis W. Morell*
VICE PRESIDENT & CHIEF ACCOUNTING OFFICER
Tanya M. Loden*
CONTROLLER
John L. Sullivan*
VICE PRESIDENT, CHIEF FINANCIAL OFFICER & TREASURER
* "Interested" persons of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2911
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders, or
redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call
(800) 421-2833
FUND INFO-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 , 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 Public
Reference Room in
Washington, DC or online
at the SEC's web site
(http://www.sec.gov).
For more information,
please call the SEC at
(800) SEC-0330. You can
also request these
materials by writing the
Public Reference Section
of the SEC, Washington
DC, 20549-6009, and
paying a duplication
fee.
[LOGO]
THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-7140.
MSJE PRO 10/99
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THE FUND MAY NOT SELL THESE SECURITIES UNTIL THE POST-
EFFECTIVE AMENDMENT TO THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES.
SUBJECT TO COMPLETION -- DATED AUGUST 27, 1999
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.
Shares of the Fund have
not been approved or
disapproved by the
Securities and Exchange
Commission (SEC) or any
state regulators, and
neither the SEC nor any
state regulator has passed
upon the accuracy or
adequacy of this
prospectus. Any
representation to the
contrary is a criminal
offense.
THIS PROSPECTUS IS DATED
OCTOBER , 1999.
[LOGO]
<PAGE>
TABLE OF CONTENTS
Risk/Return Summary .....................................................3
Fees and Expenses of the Fund ...........................................6
Investment Objective, Policies and Risks ................................8
Investment Advisory Services ...........................................17
Purchase of Shares .....................................................20
Redemption of Shares ...................................................27
Distributions from the Fund ............................................28
Shareholder Services ...................................................29
Federal Income Taxation ................................................31
Financial Highlights ...................................................32
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 is from the investment
of portfolio securities is incidental to the Fund's investment objective.
INVESTMENT STRATEGIES
Under normal market conditions, the Fund's management seeks to achieve the
investment objective by investing at least 80% of the Fund's total assets in:
equity securities (i) of companies organized in or for which the principal
securities trading market is in Latin America, (ii) denominated in a Latin
American currency issued by companies to finance operations in Latin America, or
(iii) of companies that alone or on a consolidated basis derive 50% or more of
their annual revenues from either goods produced, sales made or services
performed in Latin America; and debt securities issued or guaranteed by Latin
American governments or governmental entities. 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 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. 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. Income is not an investment objective or a consideration
in selecting investments. 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 markets countries securities and lower-grade securities involve
greater risks as compared to 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 borrow money for investment purposes, which creates the
opportunity for increased risks but involves special risks. The Fund may
purchase or 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, including seeking to reduce or eliminate foreign currency
exchange risks associated with securities denominated in non-U.S. dollar
currencies.
INVESTMENT RISKS
An investment in the Fund is subject to investment risks, and you could lose
money on your investment in the Fund. There can be no assurance that the Fund
will achieve its investment 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
debt securities. Investments in debt securities generally are affected by
changes in interest rates and the creditworthiness of the issuer. The market
prices
3
<PAGE>
of such securities tend to fall as interest rates rise, and such declines may be
greater among securities with longer maturities. Foreign markets may, but often
do not, move in tandem with changes in U.S. markets, and foreign markets,
especially emerging or developing markets, may have more price volatility 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 (in which the Fund may invest)
often fluctuate more and may fall more than the prices of larger companies.
FOREIGN, EMERGING MARKETS 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 can include
fluctuations in foreign currencies, foreign currency exchange controls,
political and economic instability, differences in financial reporting,
differences in securities regulation and trading and foreign taxation issues.
The risks of investing in developing or emerging markets 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 which 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 places more emphasis on
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 the overall securities markets 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 such as imperfect
correlation between the value of the instruments and the underlying assets;
risks of default by the other party to certain transactions; risks that the
transactions may result in losses that partially or completely offset gains in
portfolio positions; risks that the transactions may not be liquid; and manager
risk.
BORROWING RISKS. The Fund may borrow money for investment purposes, which is
known as "leverage." The Fund may use leverage to seek to enhance the income to
shareholders, but the use of leverage creates the likelihood of greater
volatility in the net asset value of the Fund's shares. Leverage also creates
the risk that fluctuations in interest rates on leverage may adversely affect
the return to shareholders and the Fund's ability to make dividend payments. To
the extent that income from investments made with such borrowed money exceeds
the interest payable and other expenses of the leverage, the Fund's net income
will be less than if the Fund did not use leverage and the amount available for
distributions to shareholders of the Fund will be reduced. The Fund's use of
leverage also may impair the ability of the Fund to maintain its qualification
for federal income tax purposes as a regulated investment company.
4
<PAGE>
NON-DIVERSIFICATION RISKS. The Fund is classified as a "non-diversified" fund,
which means the Fund may invest a greater portion of its assets in a more
limited number of issuers than a "diversified" fund. As a result, the Fund may
be subject to greater risk than a diversified fund because changes in the
financial condition or market assessment of a single issuer may cause greater
fluctuations in the value of the Fund's shares.
MANAGER RISK. As with any managed fund, the Fund's management may not be
successful in selecting the best-performing securities and the Fund's
performance may lag behind that of similar funds.
An investment in the Fund is not a deposit of any bank or other insured
depository institution. Your investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
INVESTOR PROFILE
In light of its objective and investment 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 shares of the Fund.
- - Wish to add to their personal investment portfolio a fund that invests in
equity securities and debt securities of issuers in Latin American countries.
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 past 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>
<CAPTION>
Annual Return
<S> <C>
1995 -20.43%
1996 47.37%
1997 39.61%
1998 -35.93%
</TABLE>
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 two broad-based market indices
that the Fund's management believes are applicable benchmarks for the Fund: the
Morgan
5
<PAGE>
Stanley Capital International ("MSCI") Emerging Markets Global 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
Chile, including dividends) and the MSCI Emerging Markets Free Latin America
Index* (a broad-based market capitalization-weighted composite index covering at
least 60% of the markets in Argentina, Brazil, Chile, Columbia, Mexico, Peru and
Chile, 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.
AVERAGE ANNUAL
TOTAL RETURNS
FOR THE PERIODS ENDED PAST SINCE
DECEMBER 31, 1998 1 YEAR INCEPTION
- ---------------------------------------------------------
Van Kampen Latin American Fund
- -- Class A Shares -39.61% -0.15%(1)
MSCI Emerging Markets Global Latin
America Index % %(3)
MSCI Emerging Markets Free Latin
America Index % %(4)
........................................................
Van Kampen Latin American Fund
- -- Class B Shares -39.41% 6.45%(2)
MSCI Emerging Markets Global Latin
America Index % %(3)
MSCI Emerging Markets Free Latin
America Index % %(4)
........................................................
Van Kampen Latin American Fund
- -- Class C Shares -36.86% 0.44%(1)
MSCI Emerging Markets Global Latin
America Index % %(3)
MSCI Emerging Markets Free Latin
America Index % %(4)
........................................................
INCEPTION DATES: (1) 7/6/94, (2) 8/1/95, (3) .
* THE MSCI EMERGING MARKETS GLOBAL 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 ACCURATE
BENCHMARK FOR THE FUND. THE MSCI EMERGING MARKETS GLOBAL
LATIN AMERICA INDEX WILL NOT BE SHOWN IN FUTURE FUND
PROSPECTUSES.
FEES AND EXPENSES
OF THE FUNDS
These tables describe the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
- ----------------------------------------------------------------
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 (as a
percentage of offering price) None None None
...............................................................
Redemption fees (as a percentage of
amount redeemed) None None None
...............................................................
Exchange fee None None None
...............................................................
(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 AND 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."
6
<PAGE>
ANNUAL FUND
OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
- -------------------------------------------------------------------
Management Fees(1) 1.25% 1.25% 1.25%
..................................................................
Distribution and/or Service (12b-1)
Fees(2) 0.25% 1.00%(3) 1.00%(3)
..................................................................
Other Expenses(1) 0.94% 0.95% 0.95%
..................................................................
Total Annual Fund Operating
Expenses(1) 2.44% 3.20% 3.20%
..................................................................
(1) 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
REIMBURSEMENTS CAN BE TERMINATED AT ANY TIME.
(2) 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."
(3) 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% annual 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:
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
- -----------------------------------------------------------------
Class A Shares $808 $1,292 $1,801 $3,192
................................................................
Class B Shares $823 $1,286 $1,824 $3,245*
................................................................
Class C Shares $423 $ 986 $1,674 $3,503
................................................................
You would pay the following expenses if you did not redeem your shares:
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
- -----------------------------------------------------------------
Class A Shares $808 $1,292 $1,801 $3,192
................................................................
Class B Shares $323 $ 986 $1,674 $3,245*
................................................................
Class C Shares $323 $ 986 $1,674 $3,503
................................................................
* BASED ON CONVERSION TO CLASS A SHARES AFTER EIGHT YEARS.
7
<PAGE>
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 investment objective by investing at least 80% of the Fund's total assets
in: equity securities (i) of companies organized in or for which the principal
securities trading market is in Latin America, (ii) denominated in a Latin
American currency issued by companies to finance operations in Latin America, or
(iii) of companies that alone or on a consolidated basis derive 50% or more of
their annual revenues from either goods produced, sales made or services
performed in Latin America (collectively, "Latin American issuers"); and debt
securities issued or guaranteed by Latin American governments or governmental
entities ("Sovereign Debt"). Unless otherwise indicated, 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. Income is not an
investment objective or a consideration in selecting investments.
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.
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. 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. Such lower-quality securities are regarded
as being predominantly speculative and involve significant
8
<PAGE>
risks. 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.
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 within a
particular period of time at a specified price or formula. A convertible
9
<PAGE>
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 security 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 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
10
<PAGE>
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 additional fees
such as management and other fees.
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 equity securities of larger- capitalization 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 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 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 investment
adviser's assessment of the relative yield, appreciation potential and
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 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
11
<PAGE>
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 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.
Since the Fund invests in securities denominated or quoted in currencies other
than the U.S. dollar, the Fund will be affected by changes in foreign currency
exchange rates (and exchange control regulations) which affect the value of
investments in the Fund and the accrued income and unrealized appreciation or
depreciation of the investments. Changes in foreign currency exchange ratios
relative to the U.S. dollar will affect the U.S. dollar value of the Fund's
assets denominated in that currency and the Fund's yield on such assets 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'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. The Fund purchases and sells
foreign currency on a spot basis in connection with the settlement of
transactions in securities traded in such foreign currency. The Fund also may
enter into contracts with banks, brokers or dealers to purchase or sell 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 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 MARKETS COUNTRIES. The risks of
foreign investment are heightened when the issuer is from an emerging markets
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
markets countries tend to have economic
12
<PAGE>
structures that are less diverse and mature and political systems that are less
stable than developed markets. Emerging markets 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 markets
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 markets 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 markets 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 markets 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 emerging
countries. Economies in emerging markets 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 markets 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 markets 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 markets 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
13
<PAGE>
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 markets
countries may be limited. Due to the limited market for these instruments in
emerging markets countries, the Fund's investment adviser does not currently
anticipate that a significant portion of the Funds' currency exposure in
emerging markets countries, if any, will be covered by such instruments.
Investors are strongly advised to consider carefully the special risks involved
in investing in emerging or developing 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.
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 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
14
<PAGE>
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. Additionally, 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 temporary substitute for purchasing or
selling particular securities, including, for example, when the Fund acts to
quickly adjust 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). Additionally, 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. Additionally 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 which can be
obtained by investors free of charge as described on the back cover of this
prospectus.
OTHER INVESTMENTS AND RISK FACTORS
For cash management 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.
15
<PAGE>
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.
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. Bank 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. During periods in which the Fund is utilizing leverage, the fees paid to
the Fund's investment adviser will be higher than if the Fund did not utilize
leverage because the fees paid will be calculated on the basis of the average
daily managed assets of the Fund, including proceeds from leverage transactions.
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.
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 otherwise. The Fund's portfolio turnover is shown under the heading
"Financial Highlights." The portfolio turnover rate may be expected to vary from
year to year.
16
<PAGE>
A high portfolio turnover rate (100% or more) increases the Fund's transactions
costs, including brokerage commissions or dealer costs, and may result in the
realization of more short-term capital gains than if the Fund had lower
portfolio turnover. Increases in the Fund's transaction costs would impact the
Fund's performance. The turnover rate will not be a limiting factor, however, if
the Fund's investment adviser considers portfolio changes appropriate.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Fund may hold cash or invest on a temporary basis 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. The Fund may not achieve its investment objective if it takes
a defensive position.
YEAR 2000 RISKS. Like other mutual funds, financial and business organizations
and individuals around the world, the Fund could be adversely affected if the
computer systems used by the Fund's investment adviser and other service
providers do not properly process and calculate date-related information and
data from and after January 1, 2000. This is commonly known as the "Year 2000
Problem." The Fund's investment adviser is taking steps that it believes are
reasonably designed to address the Year 2000 Problem with respect to computer
systems that it uses and to obtain reasonable assurances that comparable steps
are being taken by the Fund's other major service providers. At this time, there
can be no assurances that these steps will be sufficient to avoid any adverse
impact to the Fund. In addition, the Year 2000 Problem may adversely affect the
markets and the issuers of securities in which the Fund may invest which, in
turn, may adversely affect the net asset value of the Fund. Improperly
functioning trading systems may result in settlement problems and liquidity
issues. In addition, corporate and governmental data processing errors may
result in production problems for individual companies or issuers and overall
economic uncertainty. Earnings of individual issuers will be affected by
remediation costs, which may be substantial and may be reported inconsistently
in U.S. and foreign financial statements. Efforts in foreign countries to
remediate the potential Year 2000 Problem may not be as extensive as those in
the U.S. As a result, the operations of foreign markets and issuers may be
disrupted by the Year 2000 Problem that could adversely affect the Fund's
portfolio. The risks are greater with respect to certain developing or emerging
countries because there is an increased likelihood that issuers of securities in
such countries cannot anticipate or effectively manage the affects of computer
programs and the Year 2000 Problem. Accordingly, the Fund's investments may be
adversely affected. The statements above are subject to the Year 2000
Information and Readiness Disclosure Act which Act may limit the legal rights
regarding the use of such statements in the case of a dispute.
INVESTMENT ADVISORY
SERVICES
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 $75 billion under management or supervision. Van
Kampen Investments' more than 50 open-end and 39 closed-end funds and more than
2,500 unit investment trusts are professionally distributed by leading financial
advisers nationwide. Van Kampen Funds Inc., the distributor of the Fund (the
"Distributor") and the sponsor of the funds mentioned above, is also a wholly
owned subsidiary of Van Kampen Investments. Van Kampen Investments is an
indirect wholly owned subsidiary of Morgan Stanley Dean
17
<PAGE>
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 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.
From time to time, the Adviser or the Distributor may voluntarily undertake to
reduce the Fund's expenses by reducing the fees payable to them or by reducing
other expenses of the Fund in accordance with such limitations as the Adviser or
Distributor may establish.
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen 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
December 31, 1998, the Subadviser, together with its affiliated institutional
asset management companies, managed assets of approximately $163.4 billion,
including assets under fiduciary advice. The Subadviser's address is 1221 Avenue
of the Americas, New York, NY 10020.
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 percentage of
the net advisory fees the Adviser receives from the Fund.
-----------------
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 co-managers for the management of the Fund's investment
portfolio.
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
18
<PAGE>
Analyst. Mr. Meyer has been co-manager 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
co-manager 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
co-manager of the Fund since November 1998.
19
<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 (described below) pursuant to which its
distribution fee or service fee is paid, (iii) each class of shares has
different exchange privileges, (iv) certain classes of shares are subject to a
conversion feature and (v) certain classes of shares have different shareholder
service options available.
The 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 a 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 in which no purchase or redemption orders are
received or there is not a sufficient degree of trading in a 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 values per share and adjust the offering price more frequently than once a
day if deemed desirable. Net asset value per share for each class is determined
by dividing the value of a 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 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
20
<PAGE>
calculated and on which the Fund does not effect sales, redemptions and
exchanges of its shares.
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 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 on 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.
21
<PAGE>
Investor accounts will automatically be credited with additional shares of the
Fund after any Fund distributions, such as dividends and capital gains
distributions, 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
AS % OF AS % OF
SIZE OF OFFERING NET AMOUNT
INVESTMENT PRICE INVESTED
- ---------------------------------------------------------
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 * *
........................................................
* NO SALES CHARGE IS PAYABLE AT THE TIME OF PURCHASE ON INVESTMENTS OF
$1 MILLION OR MORE, ALTHOUGH FOR SUCH INVESTMENTS THE FUND IMPOSES A
CONTINGENT DEFERRED SALES CHARGE OF 1.00% ON CERTAIN REDEMPTIONS MADE
WITHIN ONE YEAR OF THE PURCHASE. THE CONTINGENT DEFERRED SALES CHARGE
IS ASSESSED ON AN AMOUNT EQUAL TO THE LESSER OF THE THEN CURRENT
MARKET VALUE OR THE COST OF THE SHARES BEING REDEEMED. ACCORDINGLY, NO
SALES CHARGE IS IMPOSED ON INCREASES IN NET ASSET VALUE ABOVE THE
INITIAL PURCHASE PRICE.
No sales charge is imposed on Class A Shares received from reinvestment of
dividends or capital gains distributions.
Under the Distribution Plan and Service Plan, the Fund may spend a total of
0.25% per year of the average daily net assets with respect to the Class A
Shares of the Fund. From such amount, under the Service Plan, the Fund may spend
up to 0.25% per year of the Fund's average daily net assets with respect to the
Class A Shares for the ongoing provision of services to Class A shareholders by
the Distributor and by brokers, dealers or financial intermediaries and for the
maintenance of such shareholders' accounts.
CLASS B SHARES
Class B Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge if redeemed within five years of purchase as shown in the
table as follows:
CLASS B SHARES
SALES CHARGE SCHEDULE
CONTINGENT
DEFERRED
SALES CHARGE
AS A PERCENTAGE OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
- -------------------------------------------------------
First 5.00%
......................................................
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 gains 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
22
<PAGE>
and deemed to have been made on the last day of the month.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed that the redemption is first of any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge and then of shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
average daily net assets with respect to the Class B Shares of the Fund. In
addition, under the Service Plan, the Fund may spend up to 0.25% per year of the
Fund's average daily net assets with respect to the Class B Shares for the
ongoing provision of services to Class B shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CLASS C SHARES
Class C Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge of 1.00% of the dollar amount subject to charge if
redeemed within one year of purchase.
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gains dividends. It
is presently the policy of the Distributor not to accept any order for Class C
Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
In determining whether a contingent deferred sales charge is applicable to a
redemption, it is assumed that the redemption is first of any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge and then of shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
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 distributions constituting
"preferential dividends" under the federal income tax law and (ii) the
conversion of shares does not constitute a taxable event under federal income
tax law. The conversion may be suspended if such an opinion is no longer
available and such shares might continue to be subject to the higher aggregate
fees applicable to such shares for an indefinite period.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge is waived on redemptions of Class B Shares
and Class C Shares
23
<PAGE>
(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 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
24
<PAGE>
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 trust distributions will be 1.00% of the offering
price (1.01% of net asset value). Of this amount, the Distributor will pay to
the authorized dealer, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the terms and conditions that apply to the program,
should contact their authorized dealer or the Distributor.
The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during each distribution period by all investors who choose to invest in
the Fund through the program and (2) provide Investor Services with appropriate
backup data for each investor participating in the program in a computerized
format fully compatible with Investor Services' processing system.
As further requirements for obtaining these special benefits, the Fund also
requires that all dividends and other distributions by the Fund be reinvested in
additional shares without any systematic withdrawal program. There will be no
minimum for reinvestments from unit investment trusts. The Fund will send
account activity statements to such participants on a quarterly basis only, even
if their investments are made more frequently. The Fund reserves the right to
modify or terminate this program at any time.
NET ASSET VALUE PURCHASE OPTIONS. Class A Shares of the Fund may be purchased at
net asset value, upon written assurance that the purchase is made for investment
purposes and that the shares will not be resold except through redemption by the
Fund, by:
(1) Current or retired trustees or directors of funds advised by Morgan Stanley
Dean Witter & Co. and any of its subsidiaries and such persons' families
and their beneficial accounts.
(2) Current or retired directors, officers and employees of Morgan Stanley Dean
Witter & Co. and any of its subsidiaries, employees of an investment
subadviser to any fund described in (1) above or an affiliate of such
subadviser, and such persons' families and their beneficial accounts.
(3) Directors, officers, employees and, when permitted, registered
representatives, of financial institutions that have a selling group
agreement with the Distributor and their spouses and children under 21
years of age when purchasing for any accounts they beneficially own, or, in
the case of any such financial institution, when purchasing for retirement
plans for such institution's employees; provided that such purchases are
otherwise permitted by such institutions.
(4) Registered investment advisers who charge a fee for their services, trust
companies and bank trust departments investing on their own behalf or on
behalf of their clients. The Distributor may pay authorized dealers through
which purchases are made an amount up to 0.50% of the amount invested, over
a 12-month period.
(5) Trustees and other fiduciaries purchasing shares for retirement plans which
invest in multiple fund families through broker-dealer retirement plan
alliance programs that have entered into
25
<PAGE>
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.
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
26
<PAGE>
department, provided that Investor Services receives federal funds for the
purchase by the close of business on the next business day following acceptance
of the order. An authorized dealer may charge a transaction fee for placing an
order to purchase shares pursuant to this provision or for placing a redemption
order with respect to such shares. Authorized dealers will be paid a service fee
as described on purchases made as described in (3) through (9) above. The Fund
may terminate, or amend the terms of, offering shares of the Fund at net asset
value to such groups at any time.
REDEMPTION OF
SHARES
Generally shareholders may redeem for cash some or all of their shares without
charge by the Fund (other than applicable sales charge) at any time. As
described under the heading "Purchase of Shares," redemptions of Class B Shares
and Class C Shares may be subject to a contingent deferred sales charge. In
addition, certain redemptions of Class A Shares for shareholder accounts of $1
million or more may be subject to a contingent deferred sales charge.
Redemptions completed through an authorized dealer or a custodian of a
retirement plan account may involve additional fees charged by the dealer or
custodian.
Except as specified below under "Telephone Redemption Requests," payment for
shares redeemed generally will be made by check mailed within seven days after
receipt by Investor Services of the request and any other necessary documents in
proper order. Such payment may be postponed or the right of redemption suspended
as provided by the rules of the SEC. Such payment may, under certain
circumstances, be paid wholly or in part by a distribution-in-kind of portfolio
securities. If the shares to be redeemed have been recently purchased by check,
Investor Services may delay the payment of redemption proceeds until it confirms
the purchase check has cleared, which may take up to 15 days. A taxable gain or
loss will be recognized by the shareholder upon redemption of shares.
WRITTEN REDEMPTION REQUESTS. Shareholders may request a redemption of shares by
written request in proper form sent directly to Van Kampen Investor Services
Inc., PO Box 218256, Kansas City, MO 64121-8256. The request for redemption
should indicate the number of shares to be redeemed, the class designation of
such shares and the shareholder's account number. The redemption request must be
signed by all persons in whose names the shares are registered. Signatures must
conform exactly to the account registration. If the proceeds of the redemption
exceed $50,000, or if the proceeds are not to be paid to the record owner at the
record address, or if the record address has changed within the previous 30
days, signature(s) must be guaranteed by one of the following: a bank or trust
company; a broker-dealer; a credit union; a national securities exchange,
registered securities association or clearing agency; a savings and loan
association; or a federal savings bank.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption to be in proper form. In some
cases, however, additional documents may be necessary. In the case of
shareholders holding certificates, the certificates for the shares being
redeemed properly endorsed for transfer must accompany the redemption request.
In the event the redemption is requested by a corporation, partnership, trust,
fiduciary, executor or administrator, and the name and title of the
individual(s) authorizing such redemption is not shown in the account
registration, a copy of the corporate resolution or other legal documentation
appointing the authorized signer and certified within the prior 120 days must
accompany the redemption request. IRA redemption requests should be sent to the
IRA custodian to be forwarded to Investor Services. Contact the IRA custodian
for further information.
In the case of written redemption requests sent directly to Investor Services,
the redemption price is the net asset value per share next determined after the
request in proper form is received by Investor Services.
AUTHORIZED DEALER REDEMPTION REQUESTS. Shareholders may place redemption
requests through an authorized dealer. Orders sent through authorized
27
<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. To establish
such privilege, a shareholder must complete the appropriate section of the
application form accompanying this prospectus or call the Fund at (800) 341-2911
to request that a copy of the Telephone Redemption Authorization form be sent to
them for completion. To redeem shares, contact the telephone transaction line at
(800) 421-5684. Van Kampen Investments, Investor Services and the Fund employ
procedures considered by them to be reasonable to confirm that instructions
communicated by telephone are genuine. Such procedures include requiring certain
personal identification information prior to acting upon telephone instructions,
tape-recording telephone communications and providing written confirmation of
instructions communicated by telephone. If reasonable procedures are employed,
neither Van Kampen Investments, Investor Services nor the Fund will be liable
for following telephone instructions which it reasonably believes to be genuine.
Telephone redemptions may not be available if the shareholder cannot reach
Investor Services by telephone, whether because all telephone lines are busy or
for any other reason; in such case, a shareholder would have to use the Fund's
other redemption procedure previously described. Requests received by Investor
Services prior to 4:00 p.m., New York time, will be processed at the next
determined net asset value per share. These privileges 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 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 two kinds of return from the Fund: dividends and
capital gains 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
28
<PAGE>
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 GAINS. The Fund may realize capital gains or losses when it sells
securities, depending on whether the sales prices for the securities are higher
or lower than purchase prices. Net realized capital gains represent the total
profit from sales of securities minus total losses from sales of securities
including losses carried forward from prior years. The Fund distributes any
taxable net realized capital gains to shareholders as capital gains dividends at
least annually. As in the case of dividends, capital gains dividends are
automatically reinvested in additional shares of the Fund at 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 gains distributions 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 gains
distribution. Unless the shareholder instructs otherwise, the reinvestment plan
is automatic. This instruction may be made by telephone by calling (800)
341-2911 ((800) 421-2833 for the hearing impaired) or by writing to Investor
Services. The investor may, on the initial application or prior to any
declaration, instruct that dividends be paid in cash and capital gains
distributions be reinvested at net asset value, or that both dividends and
capital gains distributions be paid in cash.
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under which
a shareholder can authorize 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.
To be eligible for exchange, shares of the Fund must have been registered in the
shareholder's name for at least 30 days prior to an exchange. Shares of the Fund
registered in a shareholder's name for less than 30 days may only be exchanged
upon receipt of prior approval of the Adviser. It is the policy of the Adviser,
under normal circumstances, not to approve such requests.
When Class B Shares and Class C Shares are exchanged among Participating Funds,
the holding period for purposes of computing the contingent deferred sales
charge is based upon the date of the initial purchase of such shares from a
Participating Fund. If such Class B Shares or Class C Shares are redeemed and
not exchanged for shares of another Participating Fund, Class B Shares and Class
C Shares are subject to the contingent deferred sales charge schedule imposed by
the Participating Fund from which such shares were originally purchased.
Exchanges of shares are sales and may result in a gain or loss for federal
income tax purposes. If the shares exchanged have been held for less than 91
days, the sales charge paid on such shares is carried
29
<PAGE>
over and included in the tax basis of the shares acquired.
A shareholder wishing to make an exchange may do so by sending a written request
to Investor Services or by contacting the telephone transaction line at (800)
421-5684. A shareholder automatically has telephone exchange privileges unless
otherwise designated in the application form accompanying the prospectus. Van
Kampen Investments, Investor Services and the Fund employ procedures considered
by them to be reasonable to confirm that instructions communicated by telephone
are genuine. Such procedures include requiring certain personal identification
information prior to acting upon telephone instructions, tape-recording
telephone communications, and providing written confirmation of instructions
communicated by telephone. If reasonable procedures are employed, neither Van
Kampen Investments, Investor Services nor the Fund will be liable for following
telephone instructions which it reasonably believes to be genuine. If the
exchanging shareholder does not have an account in the fund whose shares are
being acquired, a new account will be established with the same registration,
dividend and capital gains options (except dividend diversification) and
authorized dealer of record as the account from which shares are exchanged,
unless otherwise specified by the shareholder. In order to establish a
systematic withdrawal plan for the new account or reinvest dividends from the
new account into another fund, however, an exchanging shareholder must submit a
specific request. The Fund reserves the right to reject any order to acquire its
shares through exchange. In addition, the Fund and other Participating Funds may
restrict exchanges by shareholders engaged in excessive trading by limiting or
disallowing the exchange privileges to such shareholders. For further
information on these restrictions see the Statement of Additional Information.
The Fund may modify, restrict or terminate the exchange privilege at any time on
60 days' notice to its shareholders of any termination or material amendment.
For purposes of determining the sales charge rate previously paid on Class A
Shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchanged security was acquired through reinvestment, that
security is deemed to have been sold with a sales charge rate equal to the rate
previously paid on the security on which the dividend or distribution was paid.
If a shareholder exchanges less than all of such shareholder's securities, the
security upon which the highest sales charge rate was previously paid is deemed
exchanged first.
Exchange requests received on a business day prior to the time shares of the
funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares in the fund from which the
shareholder is withdrawing an investment will be redeemed at the net asset value
per share next determined on the date of receipt. Shares of the new fund into
which the shareholder is investing will also normally be purchased at the net
asset value per share, plus any applicable sales charge, next determined on the
date of receipt. Exchange requests received on a business day after the time
shares of the funds involved in the request are priced will be processed on the
next business day in the manner described herein.
A prospectus of any of these Participating Funds may be obtained from any
authorized dealer or the Distributor. An investor considering an exchange to one
of such funds should refer to the prospectus for additional information
regarding such fund prior to investing.
INTERNET TRANSACTIONS. In addition to performing transactions on your account
through written instruction or by telephone, you may also perform certain
transactions through the internet. Please refer to our web site at
www.vankampen.com for further instruction. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated through the internet are genuine. Such
procedures include requiring use of a personal identification number prior to
acting upon internet instructions and providing written confirmation of
instructions communicated through the internet. If reasonable procedures are
employed, neither Van Kampen Investments, Investor Services nor the Fund will be
liable for following instructions through the internet which it reasonably
believes to be genuine. If an account has multiple owners, Investor Services may
rely on the instructions of any one owner.
30
<PAGE>
FEDERAL INCOME
TAXATION
Distributions of the Fund's net investment income (consisting generally of
taxable income and net short-term capital gains) are taxable to shareholders as
ordinary income to the extent of the Fund's earnings and profits, whether paid
in cash or reinvested in additional shares. Distributions of the Fund's net
capital gains (which are the excess of net long-term capital gains over net
short-term capital losses) as capital gain dividends, if any, are taxable to
shareholders as long-term capital gains, whether paid in cash or reinvested in
additional shares, and regardless of how long the shares of the Fund have been
held by such shareholders. Capital gains dividends may be taxed at different
rates depending on how long the Fund held the securities. The Fund expects that
its distributions will consist primarily of ordinary income and capital gains
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. Prospective foreign investors should consult their U.S. tax
advisers concerning the tax consequences to them of an investment in shares.
The Fund intends to qualify as a regulated investment company under federal
income tax law. If the Fund so qualifies and distributes each year to its
shareholders at least 90% of its net investment income, the Fund will not be
required to pay federal income taxes on any income it distributed to
shareholders. If the Fund distributes less than the sum of 98% of its ordinary
income and 98% of its capital gains 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, or disposing of
shares, as well as the effects of state, local and foreign tax law and any
proposed tax law changes.
31
<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> <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
- ------------------------------------------------------------
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.
32
<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 Philip 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
Edward C. Wood III*
VICE PRESIDENT
A. Thomas Smith III*
VICE PRESIDENT AND SECRETARY
Michael H. Santo*
VICE PRESIDENT
Peter W. Hegel*
VICE PRESIDENT
Stephen L. Boyd*
VICE PRESIDENT
Joseph P. Stadler*
VICE PRESIDENT
Curtis W. Morell*
VICE PRESIDENT & CHIEF ACCOUNTING OFFICER
Tanya M. Loden*
CONTROLLER
John L. Sullivan*
VICE PRESIDENT, CHIEF FINANCIAL OFFICER & TREASURER
* "Interested" persons of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2911
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders, or
redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call (800) 421-2833
FUND INFO-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 , 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 Public
Reference Room in
Washington, DC or online
at the SEC's web site
(http://www.sec.gov).
For more information,
please call the SEC at
(800) SEC-0330. You can
also request these
materials by writing the
Public Reference Section
of the SEC, Washington
DC, 20549-6009, and
paying a duplication
fee.
[LOGO]
THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-7140.
MSLA PRO 10/99
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THE FUND MAY NOT SELL THESE SECURITIES UNTIL THE POST-
EFFECTIVE AMENDMENT TO THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES.
SUBJECT TO COMPLETION -- DATED AUGUST 27, 1999
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 by investing
primarily in common stocks
and other equity
securities of small- and
medium-sized companies
which are deemed by the
Fund's investment adviser
to offer long-term growth
potential.
Shares of the Fund have
not been approved or
disapproved by the
Securities and Exchange
Commission (SEC) or any
state regulators, and
neither the SEC nor any
state regulator has passed
upon the accuracy or
adequacy of this
prospectus. Any
representation to the
contrary is a criminal
offense.
THIS PROSPECTUS IS DATED
OCTOBER , 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 by investing primarily in common stocks and other equity
securities of small- and medium-sized companies which are deemed by the Fund's
investment adviser to offer long-term growth potential.
INVESTMENT STRATEGIES
The Fund's management seeks to achieve the investment objective by investing
primarily in a portfolio of common stocks and other equity securities of small-
and 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
small-and medium-sized companies. 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 combining
quantitative, fundamental and valuation analysis with a strict sales discipline
seeking companies with above-average potential for capital growth. 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.
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
such securities may be more volatile than 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 SMALL- AND MEDIUM-SIZED COMPANIES. The Fund focuses its investments on
small- and medium-sized companies which often are newer or less established
companies. Small- and medium-sized companies carry additional risks because
their earnings generally 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 small- and medium-sized companies may
be more abrupt or erratic than the market movements 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 where 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 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 such as imperfect
correlation between the value of the instruments and the underlying assets;
risks of default by the other party to certain transactions; risks that the
transactions may result in losses that partially or completely offset gains in
portfolio positions; risks that the transactions may not be liquid; and manager
risk.
3
<PAGE>
MANAGER RISK. As with any managed fund, the Fund's management may not be
successful in selecting the best-performing securities and the Fund's
performance may lag behind that of similar funds.
An investment in the Fund is not a deposit of any bank or other insured
depository institution. Your investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
INVESTOR PROFILE
In light of its objective and investment 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 shares of the Fund.
- - Wish to add to their personal investment portfolio a fund that emphasizes a
growth style of investing in common stocks and equity securities of small- and
medium-sized companies.
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 FUNDS
These tables describe the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
- ----------------------------------------------------------------
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 (as a
percentage of offering price) None None None
...............................................................
Redemption fees (as a percentage of
amount redeemed) None None None
...............................................................
Exchange fee None None None
...............................................................
(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 AND 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."
ANNUAL FUND
OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
- ----------------------------------------------------------------
Management Fees(1) 0.75% 0.75% 0.75%
...............................................................
Distribution and/or Service (12b-1)
Fees(2) 0.25% 1.00%(3) 1.00%(3)
...............................................................
Other Expenses(1)(4) 0.48% 0.48% 0.48%
...............................................................
Total Annual Fund Operating
Expenses(1) 1.48% 2.23% 2.23%
...............................................................
(1) 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 1.40% FOR
CLASS A SHARES, 2.15% FOR CLASS B SHARES AND 2.15% FOR CLASS C SHARES
FOR THE FUND'S FIRST FISCAL YEAR.
(2) 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."
(3) 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) "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% annual 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>
THREE
ONE YEAR YEARS
- ---------------------------------------------------------
<S> <C> <C>
Class A Shares $ 717 $ 1,016
........................................................
Class B Shares $ 726 $ 999
........................................................
Class C Shares $ 326 $ 697
........................................................
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
THREE
ONE YEAR YEARS
- ---------------------------------------------------------
<S> <C> <C>
Class A Shares $ 717 $ 1,016
........................................................
Class B Shares $ 226 $ 697
........................................................
Class C Shares $ 226 $ 697
........................................................
</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 achieve long-term growth by
investing primarily in common stocks and other equity securities of small- and
medium-sized companies which are deemed by the Fund's investment adviser to
offer long-term growth potential. 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 investment objective by
investing primarily in a portfolio of common stocks and other equity securities
of small- and 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 small-and medium-sized companies. Under current market conditions,
the Fund's investment adviser defines small- and medium-sized companies by
reference to those companies represented in the Standard & Poor's ("S&P") Mid
Cap 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 $ to $ as of ,
1999).
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 revisions to
analysts earnings predictions. From this, companies with the most attractive
earnings revisions are selected and subjected to rigorous fundamental analysis.
The investment adviser uses valuation analysis to eliminate 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 revisions scores 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
5
<PAGE>
than other portfolios 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.
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 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. Additionally, 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
6
<PAGE>
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 temporary substitute for purchasing or selling
particular securities, including, for example, when the Fund acts quickly to
adjust 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). 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. Additionally, 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 which 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
brokers-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 otherwise. 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 may
result in the realization of more short-term capital gains than if the Fund had
lower portfolio turnover. Increases in the Fund's transaction costs would impact
the Fund's performance. The turnover rate will not be a limiting factor,
however, if the Fund's investment adviser considers portfolio changes
appropriate.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Fund may hold cash or invest on a
7
<PAGE>
temporary basis 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 Funds. The
Fund may not achieve its investment objective if it takes a defensive position.
YEAR 2000 RISKS. Like other mutual funds, financial and business organizations
and individuals around the world, the Fund could be adversely affected if the
computer systems used by the Fund's investment adviser and other service
providers do not properly process and calculate date-related information and
data from and after January 1, 2000. This is commonly known as the "Year 2000
Problem." The Fund's investment adviser 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
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 emerging or
developing countries because there is an increased likelihood that issuers of
securities of such countries cannot anticipate or effectively manage the affect
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 Act 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 $75 billion under management or supervision. Van
Kampen Investments' more than 50 open-end and 39 closed-end funds and more than
2,500 unit investment trusts are professionally distributed by leading financial
advisers nationwide. Van Kampen Funds Inc., the distributor of the Fund (the
"Distributor") and the sponsor of the funds mentioned above, is also a wholly
owned subsidiary of Van Kampen Investments. Van Kampen Investments is an
indirect wholly owned subsidiary of Morgan Stanley Dean Witter & Co. The
Adviser's principal office is located at 1 Parkview Plaza, PO Box 5555, Oakbrook
Terrace, Illinois 60181-5555.
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 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
8
<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.
From time to time, the Adviser or the Distributor may voluntarily undertake to
reduce the Fund's expenses by reducing the fees payable to them or by reducing
other expenses of the Fund in accordance with such limitations as the Adviser or
Distributor may establish.
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen Asset Management
Inc. ("Asset Management").
INVESTMENT SUBADVISER
Miller Anderson & Sherrerd, LLP (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 December 31, 1998, the Subadviser, together
with its affiliated institutional asset management companies, managed assets of
approximately $163.4 billion, including assets under fiduciary advice. The
Subadviser's address 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 percentage of
the net advisory fees the Adviser receives from the Fund.
----------
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. Arden C. Armstrong, David P. Chu and Steve Chulik are
responsible as co-managers 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 Subadviser's
Mid Cap Growth Fund in 1990, the Funds' Growth Fund in 1993 and the Equity Fund
in 1994. Ms. Armstrong holds a B.A. (Magna Cum Laude) in Economics from Brown
University, an M.B.A. from the University of Pennsylvania and is a Chartered
Financial Analyst.
Mr. Chu is a Vice President of Morgan Stanley Dean Witter & Co. and joined the
Subadviser in 1998. He served as a Senior Equity Analyst from 1992 to 1997 and
as Fund Co-Manager in 1997 for NationsBank and its subsidiary, TradeStreet
Investment Associates. Mr. Chu earned a B.S. degree from University of Michigan
and an M.B.A. from The Wharton School of the University of Pennsylvania. Mr. Chu
has been co-manager of the Fund since 1998.
Mr. Chulik joined the Subadviser in 1997. He was a quantitative hedge fund
analyst from 1994 to 1995 for IBJ Schroder Bank and Trust. Prior to that time,
Mr. Chulik was an engineer from 1989-1995 for Lockheed Martin, Astro Space
Division. Mr. Chulik earned a B.S. degree 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 (described below) pursuant to which its
distribution fee or service fee is paid, (iii) each class of shares has
different exchange privileges, (iv) certain classes of shares are subject to a
conversion feature and (v) certain classes of shares have different shareholder
service options available.
The 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 in which no purchase or redemption orders are
received or there is not a sufficient degree of trading in a 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 values per share and adjust the offering price more frequently than once a
day if deemed desirable. Net asset value per share for each class is determined
by dividing the value of a 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 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.
10
<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 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 on 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 gains
distributions, 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
AS % OF AS % OF
SIZE OF OFFERING NET AMOUNT
INVESTMENT PRICE INVESTED
- ---------------------------------------------------------
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 * *
........................................................
* NO SALES CHARGE IS PAYABLE AT THE TIME OF PURCHASE ON INVESTMENTS OF
$1 MILLION OR MORE, ALTHOUGH FOR SUCH INVESTMENTS THE FUND IMPOSES A
CONTINGENT DEFERRED SALES CHARGE OF 1.00% ON CERTAIN REDEMPTIONS MADE
WITHIN ONE YEAR OF THE PURCHASE. THE CONTINGENT DEFERRED SALES CHARGE
IS ASSESSED ON AN AMOUNT EQUAL TO THE LESSER OF THE THEN CURRENT
MARKET VALUE OR THE COST OF THE SHARES BEING REDEEMED. ACCORDINGLY, NO
SALES CHARGE IS IMPOSED ON INCREASES IN NET ASSET VALUE ABOVE THE
INITIAL PURCHASE PRICE.
No sales charge is imposed on Class A Shares received from reinvestment of
dividends or capital gains distributions.
Under the Distribution Plan and Service Plan, the Fund may spend a total of
0.25% per year of the average daily net assets with respect to the Class A
Shares of the Fund. From such amount, under the Service Plan, the Fund may spend
up to 0.25% per year of the Fund's average daily net assets with respect to the
Class A Shares for the ongoing provision of services to Class A shareholders by
the Distributor and by brokers, dealers or financial intermediaries and for the
maintenance of such shareholders' accounts.
CLASS B SHARES
Class B Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge if redeemed within five years of purchase as shown in the
table as follows:
CLASS B SHARES
SALES CHARGE SCHEDULE
CONTINGENT
DEFERRED
SALES CHARGE
AS A PERCENTAGE OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
- -------------------------------------------------------
First 5.00%
......................................................
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 gains dividends. It
is presently the policy of the Distributor not to accept any order for Class B
Shares in an amount of $500,000 or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
The amount of the contingent deferred sales charge, if any, varies depending on
the number of years from the time of payment for the purchase of Class B Shares
until the time of redemption of such shares. Solely for purposes of determining
the number of years from the time of any payment for the purchase of shares, all
payments during a month are totaled and deemed to have been made on the last day
of the month.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed that the redemption is first of any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge and then of shares held the longest in the shareholder's account.
12
<PAGE>
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
average daily net assets with respect to the Class B Shares of the Fund. In
addition, under the Service Plan, the Fund may spend up to 0.25% per year of the
Fund's average daily net assets with respect to the Class B Shares for the
ongoing provision of services to Class B shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CLASS C SHARES
Class C Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge of 1.00% of the dollar amount subject to charge if
redeemed within one year of purchase.
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gains dividends. It
is presently the policy of the Distributor not to accept any order for Class C
Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
In determining whether a contingent deferred sales charge is applicable to a
redemption, it is assumed that the redemption is first of any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge and then of shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
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 distributions constituting
"preferential dividends" under the federal income tax law and (ii) the
conversion of shares does not constitute a taxable event under federal income
tax law. The conversion may be suspended if such an opinion is no longer
available and such shares might continue to be subject to the higher aggregate
fees applicable to such shares for an indefinite period.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge is waived on redemptions of Class B Shares
and Class C Shares (i) within one year following the death or disability (as
disability is defined by federal income tax law) of a shareholder, (ii) for
required minimum distributions from an individual retirement account ("IRA") or
certain other retirement plan distributions, (iii) for withdrawals under the
Fund's systematic withdrawal plan but limited to 12% annually of the initial
value of the account, (iv) if no commission or transaction fee is paid to
authorized dealers at the time of purchase of such shares and (v) if made by
involuntary liquidation by the Fund of a shareholder's account as described
under the heading "Redemption of Shares." Subject to certain limitations, a
shareholder who has redeemed Class C Shares of the Fund may reinvest in Class C
Shares at net asset value with credit for any contingent deferred sales charge
if the reinvestment is within
13
<PAGE>
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.
14
<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 trust distributions will be 1.00% of the offering
price (1.01% of net asset value). Of this amount, the Distributor will pay to
the authorized dealer, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the terms and conditions that apply to the program,
should contact their authorized dealer or the Distributor.
The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during each distribution period by all investors who choose to invest in
the Fund through the program and (2) provide Investor Services with appropriate
backup data for each investor participating in the program in a computerized
format fully compatible with Investor Services' processing system.
As further requirements for obtaining these special benefits, the Fund also
requires that all dividends and other distributions by the Fund be reinvested in
additional shares without any systematic withdrawal program. There will be no
minimum for reinvestments from unit investment trusts. The Fund will send
account activity statements to such participants on a quarterly basis only, even
if their investments are made more frequently. The Fund reserves the right to
modify or terminate this program at any time.
NET ASSET VALUE PURCHASE OPTIONS. Class A Shares of the Fund may be purchased at
net asset value, upon written assurance that the purchase is made for investment
purposes and that the shares will not be resold except through redemption by the
Fund, by:
(1) Current or retired trustees or directors of funds advised by Morgan Stanley
Dean Witter & Co. and any of its subsidiaries and such persons' families
and their beneficial accounts.
(2) Current or retired directors, officers and employees of Morgan Stanley Dean
Witter & Co. and any of its subsidiaries, employees of an investment
subadviser to any fund described in (1) above or an affiliate of such
subadviser, and such persons' families and their beneficial accounts.
(3) Directors, officers, employees and, when permitted, registered
representatives, of financial institutions that have a selling group
agreement with the Distributor and their spouses and children under 21
years of age when purchasing for any accounts they beneficially own, or, in
the case of any such financial institution, when purchasing for retirement
plans for such institution's employees; provided that such purchases are
otherwise permitted by such institutions.
(4) Registered investment advisers who charge a fee for their services, trust
companies and bank trust departments investing on their own behalf or on
behalf of their clients. The Distributor may pay authorized dealers through
which purchases are made an amount up to 0.50% of the amount invested, over
a 12-month period.
(5) Trustees and other fiduciaries purchasing shares for retirement plans which
invest in multiple fund families through broker-dealer retirement plan
alliance programs that have entered into agreements with the Distributor
and which are subject to certain minimum size and operational requirements.
Trustees and other fiduciaries should refer to the Statement of Additional
Information for further details with respect to such alliance programs.
(6) Beneficial owners of shares of Participating Funds held by a retirement
plan or held in a tax-advantaged retirement account who purchase shares of
the Fund with proceeds from distributions from such a plan or retirement
account other than distributions taken to correct an excess contribution.
15
<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 on
purchases made as described in (3) through (9) above. The Fund may terminate, or
amend the terms of, offering shares of the Fund at net asset value to such
groups at any time.
16
<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 order. Such payment may be postponed or the right of redemption suspended
as provided by the rules of the SEC. Such payment may, under certain
circumstances, be paid wholly or in part by a distribution-in-kind of portfolio
securities. If the shares to be redeemed have been recently purchased by check,
Investor Services may delay the payment of redemption proceeds until it confirms
the purchase check has cleared, which may take up to 15 days. A taxable gain or
loss will be recognized by the shareholder upon redemption of shares.
WRITTEN REDEMPTION REQUESTS. Shareholders may request a redemption of shares by
written request in proper form sent directly to Van Kampen Investor Services
Inc., PO Box 218256, Kansas City, MO 64121-8256. The request for redemption
should indicate the number of shares to be redeemed, the class designation of
such shares and the shareholder's account number. The redemption request must be
signed by all persons in whose names the shares are registered. Signatures must
conform exactly to the account registration. If the proceeds of the redemption
exceed $50,000, or if the proceeds are not to be paid to the record owner at the
record address, or if the record address has changed within the previous 30
days, signature(s) must be guaranteed by one of the following: a bank or trust
company; a broker-dealer; a credit union; a national securities exchange,
registered securities association or clearing agency; a savings and loan
association; or a federal savings bank.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption to be in proper form. In some
cases, however, additional documents may be necessary. In the case of
shareholders holding certificates, the certificates for the shares being
redeemed properly endorsed for transfer must accompany the redemption request.
In the event the redemption is requested by a corporation, partnership, trust,
fiduciary, executor or administrator, and the name and title of the
individual(s) authorizing such redemption is not shown in the account
registration, a copy of the corporate resolution or other legal documentation
appointing the authorized signer and certified within the prior 120 days must
accompany the redemption request. IRA redemption requests should be sent to the
IRA custodian to be forwarded to Investor Services. Contact the IRA custodian
for further information.
In the case of written redemption requests sent directly to Investor Services,
the redemption price is the net asset value per share next determined after the
request in proper form is received by Investor Services.
AUTHORIZED DEALER REDEMPTION REQUESTS. Shareholders may place redemption
requests through an authorized dealer. Orders sent through authorized dealers
must be at least $500 (unless transmitted by your authorized dealer via the
FUNDSERV network). The redemption price for such shares is the net asset value
per share next calculated after an order in proper form is received by an
authorized dealer provided such order is transmitted to the Distributor prior to
the Distributor's close of business on such day. It is the responsibility of
authorized dealers to transmit redemption requests received by them to the
Distributor so they will be received prior to such time. Redemptions completed
through an authorized dealer may involve additional fees charged by the dealer.
17
<PAGE>
TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. To establish
such privilege, a shareholder must complete the appropriate section of the
application form accompanying this prospectus or call the Fund at (800) 341-2911
to request that a copy of the Telephone Redemption Authorization form be sent to
them for completion. To redeem shares, contact the telephone transaction line at
(800) 421-5684. Van Kampen Investments, Investor Services and the Fund employ
procedures considered by them to be reasonable to confirm that instructions
communicated by telephone are genuine. Such procedures include requiring certain
personal identification information prior to acting upon telephone instructions,
tape-recording telephone communications and providing written confirmation of
instructions communicated by telephone. If reasonable procedures are employed,
neither Van Kampen Investments, Investor Services nor the Fund will be liable
for following telephone instructions which it reasonably believes to be genuine.
Telephone redemptions may not be available if the shareholder cannot reach
Investor Services by telephone, whether because all telephone lines are busy or
for any other reason; in such case, a shareholder would have to use the Fund's
other redemption procedure previously described. Requests received by Investor
Services prior to 4:00 p.m., New York time, will be processed at the next
determined net asset value per share. These privileges 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 two kinds of return from the Fund: dividends and
capital gains 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 GAINS. The Fund may realize capital gains or losses when it sells
securities, depending on whether the sales prices for the securities are higher
or lower than purchase prices. Net realized capital
18
<PAGE>
gains represent the total profit from sales of securities minus total losses
from sales of securities including losses carried forward from prior years. The
Fund distributes any taxable net realized capital gains to shareholders as
capital gains dividends at least annually. As in the case of dividends, capital
gains dividends are automatically reinvested in additional shares of the Fund at
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 gains distributions 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 gains
distribution. Unless the shareholder instructs otherwise, the reinvestment plan
is automatic. This instruction may be made by telephone by calling (800)
341-2911 ((800) 421-2833 for the hearing impaired) or by writing to Investor
Services. The investor may, on the initial application or prior to any
declaration, instruct that dividends be paid in cash and capital gains
distributions be reinvested at net asset value, or that both dividends and
capital gains distributions be paid in cash.
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under which
a shareholder can authorize 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.
To be eligible for exchange, shares of the Fund must have been registered in the
shareholder's name for at least 30 days prior to an exchange. Shares of the Fund
registered in a shareholder's name for less than 30 days may only be exchanged
upon receipt of prior approval of the Adviser. It is the policy of the Adviser,
under normal circumstances, not to approve such requests.
When Class B Shares and Class C Shares are exchanged among Participating Funds,
the holding period for purposes of computing the contingent deferred sales
charge is based upon the date of the initial purchase of such shares from a
Participating Fund. If such Class B Shares or Class C Shares are redeemed and
not exchanged for shares of another Participating Fund, Class B Shares and Class
C Shares are subject to the contingent deferred sales charge schedule imposed by
the Participating Fund from which such shares were originally purchased.
Exchanges of shares are sales and may result in a gain or loss for federal
income tax purposes. If the shares exchanged have been held for less than 91
days, the sales charge paid on such shares is carried over and included in the
tax basis of the shares acquired.
A shareholder wishing to make an exchange may do so by sending a written request
to Investor Services or by contacting the telephone transaction line at (800)
421-5684. A shareholder automatically has telephone exchange privileges unless
otherwise designated in the application form accompanying the prospectus. Van
Kampen Investments, Investor Services and the Fund employ procedures considered
by them to be reasonable to confirm that instructions communicated by telephone
are genuine. Such procedures include requiring certain personal identification
information prior to acting upon telephone
19
<PAGE>
instructions, tape-recording telephone communications, and providing written
confirmation of instructions communicated by telephone. If reasonable procedures
are employed, neither Van Kampen Investments, Investor Services nor the Fund
will be liable for following telephone instructions which it reasonably believes
to be genuine. If the exchanging shareholder does not have an account in the
fund whose shares are being acquired, a new account will be established with the
same registration, dividend and capital gains options (except dividend
diversification) and authorized dealer of record as the account from which
shares are exchanged, unless otherwise specified by the shareholder. In order to
establish a systematic withdrawal plan for the new account or reinvest dividends
from the new account into another fund, however, an exchanging shareholder must
submit a specific request. The Fund reserves the right to reject any order to
acquire its shares through exchange. In addition, the Fund and other
Participating Funds may restrict exchanges by shareholders engaged in excessive
trading by limiting or disallowing the exchange privileges to such shareholders.
For further information on these restrictions see the Statement of Additional
Information. The Fund may modify, restrict or terminate the exchange privilege
at any time on 60 days' notice to its shareholders of any termination or
material amendment.
For purposes of determining the sales charge rate previously paid on Class A
Shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchanged security was acquired through reinvestment, that
security is deemed to have been sold with a sales charge rate equal to the rate
previously paid on the security on which the dividend or distribution was paid.
If a shareholder exchanges less than all of such shareholder's securities, the
security upon which the highest sales charge rate was previously paid is deemed
exchanged first.
Exchange requests received on a business day prior to the time shares of the
funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares in the fund from which the
shareholder is withdrawing an investment will be redeemed at the net asset value
per share next determined on the date of receipt. Shares of the new fund into
which the shareholder is investing will also normally be purchased at the net
asset value per share, plus any applicable sales charge, next determined on the
date of receipt. Exchange requests received on a business day after the time
shares of the funds involved in the request are priced will be processed on the
next business day in the manner described herein.
A prospectus of any of these Participating Funds may be obtained from any
authorized dealer or the Distributor. An investor considering an exchange to one
of such funds should refer to the prospectus for additional information
regarding such fund prior to investing.
INTERNET TRANSACTIONS. In addition to performing transactions on your account
through written instruction or by telephone, you may also perform certain
transactions through the internet. Please refer to our web site at
www.vankampen.com for further instruction. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated through the internet are genuine. Such
procedures include requiring use of a personal identification number prior to
acting upon internet instructions and providing written confirmation of
instructions communicated through the internet. If reasonable procedures are
employed, neither Van Kampen Investments, Investor Services nor the Fund will be
liable for following instructions through the internet which it reasonably
believes to be genuine. If an account has multiple owners, Investor Services may
rely on the instructions of any one owner.
FEDERAL INCOME
TAXATION
Distributions of the Fund's net investment income (consisting generally of
taxable income and net short-term capital gains) are taxable to shareholders as
ordinary income to the extent of the Fund's earnings and profits, whether paid
in cash or reinvested in additional shares. Distributions of the Fund's net
capital gains (which are the excess of net long-term capital gains over net
short-term capital losses) as capital gain dividends, if any, are taxable to
shareholders as long-term capital gains, whether paid
20
<PAGE>
in cash or reinvested in additional shares, and regardless of how long the
shares of the Fund have been held by such shareholders. Capital gains dividends
may be taxed at different rates depending on how long the Fund held the
securities. The Fund expects that its distributions will consist primarily of
ordinary income and capital gains 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. Prospective foreign investors should consult their U.S. tax
advisers concerning the tax consequences to them of an investment in shares.
The Fund intends to qualify as a regulated investment company under federal
income tax law. If the Fund so qualifies and distributes each year to its
shareholders at least 90% of its net investment income, the Fund will not be
required to pay federal income taxes on any income it distributed to
shareholders. If the Fund distributes less than the sum of 98% of its ordinary
income and 98% of its capital gains 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, or disposing 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
<TABLE>
<S> <C>
J. Miles Branagan Don G. Powell*
Jerry D. Choate Philip 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
Edward C. Wood III*
VICE PRESIDENT
A. Thomas Smith III*
VICE PRESIDENT AND SECRETARY
Michael H. Santo*
VICE PRESIDENT
Peter W. Hegel*
VICE PRESIDENT
Stephen L. Boyd*
VICE PRESIDENT
Joseph P. Stadler*
VICE PRESIDENT
Curtis W. Morell*
VICE PRESIDENT & CHIEF ACCOUNTING OFFICER
Tanya M. Loden*
CONTROLLER
John L. Sullivan*
VICE PRESIDENT, CHIEF FINANCIAL OFFICER & TREASURER
* "Interested" persons of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2911
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders, or
redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call
(800) 421-2833
FUND INFO-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 , 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 Public
Reference Room in
Washington, DC or online
at the SEC's web site
(http://www.sec.gov).
For more information,
please call the SEC at
(800) SEC-0330. You can
also request these
materials by writing the
Public Reference Section
of the SEC, Washington
DC, 20549-6009, and
paying a duplication
fee.
[LOGO]
THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-7140.
MCG PRO 10/99
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THE FUND MAY NOT SELL THESE SECURITIES UNTIL THE POST-
EFFECTIVE AMENDMENT TO THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES.
SUBJECT TO COMPLETION -- DATED AUGUST 27, 1999
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 regulators, and
neither the SEC nor any
state regulator has passed
upon the accuracy or
adequacy of this
prospectus. Any
representation to the
contrary is a criminal
offense.
THIS PROSPECTUS IS DATED
OCTOBER , 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 ............................................20
Shareholder Services ...................................................20
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 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 management seeks to achieve the
investment objective by investing at least 65% of the Fund's total assets in a
diversified portfolio of equity securities which 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,
using traditional value measures, such as price-to-earnings and price-to-book
ratios, as well as fundamental research and analysis. 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.
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 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
(in which the Fund may invest) 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 such as imperfect
correlation between the value of the instruments and the underlying assets;
risks of default by the other party to certain transactions; risks that the
transactions may result in losses that partially or completely offset gains in
portfolio positions; risks that the transactions may not be liquid; and manager
risk.
MANAGER RISK. As with any managed fund, the Fund's management may not be
successful in selecting the best-performing securities and the Fund's
performance may lag behind that of similar funds.
An investment in the Fund is not a deposit of any bank or other insured
depository institution. Your investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
INVESTOR PROFILE
In light of its objective and investment strategies, the Fund may be appropriate
for investors who:
- - Seek above-average total return over the long term.
- - Can withstand volatility in the value of their shares.
3
<PAGE>
- - Wish to add to their personal investment portfolio a fund that emphasizes a
"value" style of investing in equity securities.
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 past 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 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>
1998 -2.37%
</TABLE>
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 management believes is an applicable
benchmark for the Fund. The Fund's performance figures include the maximum sales
charges paid by investors. The index performance figures do not include
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 % %(2)
.........................................
Van Kampen Value
Fund
- -- Class B Shares -7.91% -3.76% (1)
Standard & Poor's
500 Index % % (2)
.........................................
Van Kampen Value
Fund
- -- Class C Shares -4.02% -1.14% (1)
Standard & Poor's
500 Index % % (2)
.........................................
INCEPTION DATES: (1) 7/7/97, (2)
, (3) .
</TABLE>
* THE STANDARD & POOR'S 500 INDEX CONSISTS OF 500 WIDELY-HELD COMMON
STOCKS OF COMPANIES WITH MARKET CAPITALIZATION OF $1 BILLION OR MORE
WHICH 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 FUNDS
These tables describe the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
- ----------------------------------------------------------------
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 (as a
percentage of offering price) None None None
...............................................................
Redemption fees (as a percentage of
amount redeemed) None None None
...............................................................
Exchange fee None None None
...............................................................
(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 AND 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."
ANNUAL FUND
OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
- ----------------------------------------------------------------
Management Fees(1) 0.80% 0.80% 0.80%
...............................................................
Distribution and/or Service (12b-1)
Fees(2) 0.25% 1.00%(3) 1.00%(3)
...............................................................
Other Expenses(1) 0.43% 0.43% 0.43%
...............................................................
Total Annual Fund Operating
Expenses 1.48% 2.23% 2.23%
...............................................................
(1) 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
REIMBURSEMENTS CAN BE TERMINATED AT ANY TIME.
(2) 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."
(3) 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% annual 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:
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
- -----------------------------------------------------------------
Class A Shares $717 $1,016 $1,336 $2,242
................................................................
Class B Shares $726 $ 997 $1,345 $2,365*
................................................................
Class C Shares $326 $ 697 $1,195 $2,565
................................................................
5
<PAGE>
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 $2,365*
................................................................
Class C Shares $226 $ 697 $1,195 $2,565
................................................................
* BASED ON CONVERSION TO CLASS A SHARES AFTER EIGHT YEARS.
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 investment objective by investing at least 65% of the Fund's total assets in
a diversified portfolio of equity securities which 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 markets 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
advances and the perceived value is 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
6
<PAGE>
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 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 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.
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.
7
<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. Additionally, 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 temporary substitute for purchasing or
selling particular securities, including, for example, when the Fund acts
quickly to adjust 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. Additionally, 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 which 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
brokers-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.
8
<PAGE>
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 otherwise. The Fund's portfolio turnover is shown under the heading
"Financial Highlights." The portfolio turnover rate may be expected to vary from
year to year. A high portfolio turnover rate (100% or more) increases the Fund's
transactions costs, including brokerage commissions or dealer costs, and may
result in the realization of more short-term capital gains than if the Fund had
lower portfolio turnover. Increases in the Fund's transaction costs would impact
the Fund's performance. The turnover rate will not be a limiting factor,
however, if the Fund's investment adviser considers portfolio changes
appropriate.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Fund may hold cash or invest on a temporary basis 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. The Fund may not achieve its
investment objective if it takes a defensive position.
YEAR 2000 RISKS. Like other mutual funds, financial and business organizations
and individuals around the world, the Fund could be adversely affected if the
computer systems used by the Fund's investment adviser and other service
providers do not properly process and calculate date-related information and
data from and after January 1, 2000. This is commonly known as the "Year 2000
Problem." The Fund's investment adviser 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
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 markets countries because there is an increased likelihood that issuers
of securities of such countries cannot anticipate or effectively manage the
affects of computer programs and the Year 2000 Problem. Accordingly, the Fund's
investments may be adversely affected. The statements above are subject to the
Year 2000 Information and Readiness Disclosure Act which Act may limit the legal
rights regarding the use of such statements in the case of a dispute.
INVESTMENT ADVISORY
SERVICES
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
9
<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 $75 billion under management or
supervision. Van Kampen Investments' more than 50 open-end and 39 closed-end
funds and more than 2,500 unit investment trusts are professionally distributed
by leading financial advisers nationwide. Van Kampen Funds Inc., the distributor
of the Fund (the "Distributor") and the sponsor of the funds mentioned above, is
also a wholly owned subsidiary of Van Kampen Investments. Van Kampen Investments
is an indirect wholly owned subsidiary of Morgan Stanley Dean Witter & Co. The
Adviser's principal office is located at 1 Parkview Plaza, PO Box 5555, Oakbrook
Terrace, Illinois 60181-5555.
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 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>
0.80 OF
FIRST $500 MILLION 1.00%
..............................
0.75 OF
NEXT $500 MILLION 1.00%
..............................
0.70 OF
OVER $1 BILLION 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 period 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.
From time to time, the Adviser or the Distributor may voluntarily undertake to
reduce the Fund's expenses by reducing the fees payable to them or by reducing
other expenses of the Fund in accordance with such limitations as the Adviser or
Distributor may establish.
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen 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 December 31, 1998, the
Subadviser, together with its affiliated institutional asset management
companies, managed assets of approximately $163.4 billion, including assets
under fiduciary advice. The Subadviser's address is One Tower Bridge, West
Conshohocken, Pennsylvania 19428.
10
<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 percentage of
the net advisory fees the Adviser receives from the Fund.
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 co-managers for the day-to-day management of the Fund's
investment portfolio since its inception.
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 the 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. Mr. Behler served as a Fund Manager from 1992 through 1995
for Moore Capital Management. He assumed responsibility for the MAS Funds' Value
Fund in 1996. Mr. Behler holds a B.A. (Cum Laude) in Economics from Villanova
University and an M.A. and Ph.D. in Economics from University of Notre Dame.
Mr. Kovich is a Managing Director of Morgan Stanley Dean Witter & Co. He joined
the Subadviser in 1988. Mr. Kovich assumed responsibility for the MAS Funds'
Equity Fund in 1994 and the 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 (described below) pursuant to which its
distribution fee or service fee is paid, (iii) each class of shares has
different exchange privileges, (iv) certain classes of shares are subject to a
conversion feature and (v) certain classes of shares have different shareholder
service options available.
The 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
11
<PAGE>
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 in which no purchase or redemption orders are
received or there is not a sufficient degree of trading in a 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 values per share and adjust the offering price more frequently than once a
day if deemed desirable. Net asset value per share for each class is determined
by dividing the value of a 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 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 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
12
<PAGE>
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 on 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 gains
distributions, 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
AS % OF AS % OF
SIZE OF OFFERING NET AMOUNT
INVESTMENT PRICE INVESTED
- ---------------------------------------------------------
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 * *
........................................................
* NO SALES CHARGE IS PAYABLE AT THE TIME OF PURCHASE ON INVESTMENTS OF
$1 MILLION OR MORE, ALTHOUGH FOR SUCH INVESTMENTS THE FUND IMPOSES A
CONTINGENT DEFERRED SALES CHARGE OF 1.00% ON CERTAIN REDEMPTIONS MADE
WITHIN ONE YEAR OF THE PURCHASE. THE CONTINGENT DEFERRED SALES CHARGE
IS ASSESSED ON AN AMOUNT EQUAL TO THE LESSER OF THE THEN CURRENT
MARKET VALUE OR THE COST OF THE SHARES BEING REDEEMED. ACCORDINGLY, NO
SALES CHARGE IS IMPOSED ON INCREASES IN NET ASSET VALUE ABOVE THE
INITIAL PURCHASE PRICE.
No sales charge is imposed on Class A Shares received from reinvestment of
dividends or capital gains distributions.
Under the Distribution Plan and Service Plan, the Fund may spend a total of
0.25% per year of the average daily net assets with respect to the Class A
Shares of the Fund. From such amount, under the Service Plan, the Fund may spend
up to 0.25% per year of the Fund's average daily net assets with respect to the
Class A Shares for the ongoing provision of services to Class A shareholders by
the Distributor and by brokers, dealers or financial intermediaries and for the
maintenance of such shareholders' accounts.
CLASS B SHARES
Class B Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge if
13
<PAGE>
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 5.00%
......................................................
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 gains dividends. It
is presently the policy of the Distributor not to accept any order for Class B
Shares in an amount of $500,000 or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
The amount of the contingent deferred sales charge, if any, varies depending on
the number of years from the time of payment for the purchase of Class B Shares
until the time of redemption of such shares. Solely for purposes of determining
the number of years from the time of any payment for the purchase of shares, all
payments during a month are totaled and deemed to have been made on the last day
of the month.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed that the redemption is first of any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge and then of shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
average daily net assets with respect to the Class B Shares of the Fund. In
addition, under the Service Plan, the Fund may spend up to 0.25% per year of the
Fund's average daily net assets with respect to the Class B Shares for the
ongoing provision of services to Class B shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CLASS C SHARES
Class C Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge of 1.00% of the dollar amount subject to charge if
redeemed within one year of purchase.
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gains dividends. It
is presently the policy of the Distributor not to accept any order for Class C
Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
In determining whether a contingent deferred sales charge is applicable to a
redemption, it is assumed that the redemption is first of any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge and then of shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
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 distributions constituting
"preferential dividends" under the federal income tax law and (ii) the
conversion of shares does not constitute a taxable event under federal income
tax law. The conversion may be suspended if such an opinion is no longer
available and such shares might continue to be subject to the higher aggregate
fees applicable to such shares for an indefinite period.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge is waived on redemptions of Class B Shares
and Class C Shares (i) within one year following the death or disability (as
disability is defined by federal income tax law) of a shareholder, (ii) for
required minimum distributions from an individual retirement account ("IRA") or
certain other retirement plan distributions, (iii) for withdrawals under the
Fund's systematic withdrawal plan but limited to 12% annually of the initial
value of the account, (iv) if no commission or transaction fee is paid to
authorized dealers at the time of purchase of such shares and (v) if made by
involuntary liquidation by the Fund of a shareholder's account as described
under the heading "Redemption of Shares." Subject to certain limitations, a
shareholder who has redeemed Class C Shares of the Fund may reinvest in Class C
Shares at net asset value with credit for any contingent deferred sales charge
if the reinvestment is within 180 days after the redemption. For a more complete
description of contingent deferred sales charge waivers, please refer to the
Fund's Statement of Additional Information or contact your authorized dealer.
QUANTITY DISCOUNTS
Investors purchasing Class A Shares may, under certain circumstances described
below, be entitled to pay reduced or no sales charges. Investors, or their
authorized dealers, must notify the Fund at the time of the purchase order
whenever a quantity discount is applicable to purchases. Upon such notification,
an investor will receive the lowest applicable sales charge. Quantity discounts
may be modified or terminated at any time. For more information about quantity
discounts, investors should contact their authorized dealer or the Distributor.
A person eligible for a reduced sales charge includes an individual, his or her
spouse and children under 21 years of age and any corporation, partnership or
sole proprietorship which is 100% owned, either alone or in combination, by any
of the foregoing; a trustee or other fiduciary purchasing for a single trust or
for a single fiduciary account, or a "company" as defined in Section 2(a)(8) of
the 1940 Act.
As used herein, "Participating Funds" refers to certain open-end investment
companies advised by Asset Management or Advisory Corp. and distributed by the
Distributor as determined from time to time by the Fund's Board of 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 trust distributions will be 1.00% of the offering
price (1.01% of net asset value). Of this amount, the Distributor will pay to
the authorized dealer, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the terms and conditions that apply to the program,
should contact their authorized dealer or the Distributor.
The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during each distribution period by all investors who choose to invest in
the Fund through the program and (2) provide Investor Services with appropriate
backup data for each investor participating in the program in a computerized
format fully compatible with Investor Services' processing system.
As further requirements for obtaining these special benefits, the Fund also
requires that all dividends and other distributions by the Fund be reinvested in
additional shares without any systematic withdrawal program. There will be no
minimum for reinvestments from unit investment trusts. The Fund will send
account activity statements to such participants on a quarterly basis only, even
if their investments are made more frequently. The Fund reserves the right to
modify or terminate this program at any time.
NET ASSET VALUE PURCHASE OPTIONS. Class A Shares of the Fund may be purchased at
net asset value, upon written assurance that the purchase is made for
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 on
purchases made as described in (3) through (9) above. The Fund may terminate, or
amend the terms of, offering shares of the Fund at net asset value to such
groups at any time.
REDEMPTION OF
SHARES
Generally shareholders may redeem for cash some or all of their shares without
charge by the Fund (other than applicable sales charge) at any time. As
described under the heading "Purchase of Shares," redemptions of Class B Shares
and Class C Shares may be subject to a contingent deferred sales charge. In
addition, certain redemptions of Class A Shares for shareholder accounts of $1
million or more may be subject to a contingent deferred sales charge.
Redemptions completed through an authorized dealer or a custodian of a
retirement plan account may involve additional fees charged by the dealer or
custodian.
Except as specified below under "Telephone Redemption Requests," payment for
shares redeemed generally will be made by check mailed within seven days after
receipt by Investor Services of the request and any other necessary documents in
proper order. Such payment may be postponed or the right of redemption suspended
as provided by the rules of the SEC. Such payment may, under certain
circumstances, be paid wholly or in part by a distribution-in-kind of portfolio
securities. If the shares to be redeemed have been recently purchased by check,
Investor Services may delay the payment of redemption proceeds until it confirms
the purchase check has cleared, which may take up to 15 days. A taxable gain or
loss will be recognized by the shareholder upon redemption of shares.
WRITTEN REDEMPTION REQUESTS. Shareholders may request a redemption of shares by
written request in proper form sent directly to Van Kampen Investor Services
Inc., PO Box 218256, Kansas City, MO 64121-8256. The request for redemption
should indicate the number of shares to be redeemed, the class designation of
such shares and the shareholder's account number. The redemption request must be
signed by all persons in whose names the shares are registered. Signatures must
conform exactly to the account registration. If the proceeds of the redemption
exceed $50,000, or if the proceeds are not to be paid to the record owner at the
record address, or if the record address has changed within the
18
<PAGE>
previous 30 days, signature(s) must be guaranteed by one of the following: a
bank or trust company; a broker-dealer; a credit union; a national securities
exchange, registered securities association or clearing agency; a savings and
loan association; or a federal savings bank.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption to be in proper form. In some
cases, however, additional documents may be necessary. In the case of
shareholders holding certificates, the certificates for the shares being
redeemed properly endorsed for transfer must accompany the redemption request.
In the event the redemption is requested by a corporation, partnership, trust,
fiduciary, executor or administrator, and the name and title of the
individual(s) authorizing such redemption is not shown in the account
registration, a copy of the corporate resolution or other legal documentation
appointing the authorized signer and certified within the prior 120 days must
accompany the redemption request. IRA redemption requests should be sent to the
IRA custodian to be forwarded to Investor Services. Contact the IRA custodian
for further information.
In the case of written redemption requests sent directly to Investor Services,
the redemption price is the net asset value per share next determined after the
request in proper form is received by Investor Services.
AUTHORIZED DEALER REDEMPTION REQUESTS. Shareholders may place redemption
requests through an authorized dealer. Orders sent through authorized dealers
must be at least $500 (unless transmitted by your authorized dealer via the
FUNDSERV network). The redemption price for such shares is the net asset value
per share next calculated after an order in proper form is received by an
authorized dealer provided such order is transmitted to the Distributor prior to
the Distributor's close of business on such day. It is the responsibility of
authorized dealers to transmit redemption requests received by them to the
Distributor so they will be received prior to such time. Redemptions completed
through an authorized dealer may involve additional fees charged by the dealer.
TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. To establish
such privilege, a shareholder must complete the appropriate section of the
application form accompanying this prospectus or call the Fund at (800) 341-2911
to request that a copy of the Telephone Redemption Authorization form be sent to
them for completion. To redeem shares, contact the telephone transaction line at
(800) 421-5684. Van Kampen Investments, Investor Services and the Fund employ
procedures considered by them to be reasonable to confirm that instructions
communicated by telephone are genuine. Such procedures include requiring certain
personal identification information prior to acting upon telephone instructions,
tape-recording telephone communications and providing written confirmation of
instructions communicated by telephone. If reasonable procedures are employed,
neither Van Kampen Investments, Investor Services nor the Fund will be liable
for following telephone instructions which it reasonably believes to be genuine.
Telephone redemptions may not be available if the shareholder cannot reach
Investor Services by telephone, whether because all telephone lines are busy or
for any other reason; in such case, a shareholder would have to use the Fund's
other redemption procedure previously described. Requests received by Investor
Services prior to 4:00 p.m., New York time, will be processed at the next
determined net asset value per share. These privileges 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
19
<PAGE>
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 two kinds of return from the Fund: dividends and
capital gains 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 distribution
fees and transfer agency costs applicable to such classes of shares.
CAPITAL GAINS. The Fund may realize capital gains or losses when it sells
securities, depending on whether the sales prices for the securities are higher
or lower than purchase prices. Net realized capital gains represent the total
profit from sales of securities minus total losses from sales of securities
including losses carried forward from prior years. The Fund distributes any
taxable net realized capital gains to shareholders as capital gains dividends at
least annually. As in the case of dividends, capital gains dividends are
automatically reinvested in additional shares of the Fund at 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 gains distributions 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 gains
distribution. Unless the shareholder instructs otherwise, the reinvestment plan
is automatic. This instruction may be made by telephone by calling (800)
341-2911 ((800) 421-2833 for the hearing impaired) or by writing to Investor
Services. The investor may, on the initial application or prior to any
declaration, instruct that dividends be paid in cash and capital gains
distributions be reinvested at net asset value, or that both dividends and
capital gains distributions be paid in cash.
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under which
a shareholder can authorize 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.
20
<PAGE>
EXCHANGE PRIVILEGE. Shares of the Fund may be exchanged for shares of the same
class of any Participating Fund based on the next computed net asset value per
share of each fund after requesting the exchange without any sales charge,
subject to certain limitations. Shares of the Fund may be exchanged for shares
of any Participating Fund only if shares of that Participating Fund are
available for sale; however, during periods of suspension of sales, shares of a
Participating Fund may be available for sale only to existing shareholders of a
Participating Fund. Shareholders seeking an exchange into a Participating Fund
should obtain and read the current prospectus for such fund.
To be eligible for exchange, shares of the Fund must have been registered in the
shareholder's name for at least 30 days prior to an exchange. Shares of the Fund
registered in a shareholder's name for less than 30 days may only be exchanged
upon receipt of prior approval of the Adviser. It is the policy of the Adviser,
under normal circumstances, not to approve such requests.
When Class B Shares and Class C Shares are exchanged among Participating Funds,
the holding period for purposes of computing the contingent deferred sales
charge is based upon the date of the initial purchase of such shares from a
Participating Fund. If such Class B Shares or Class C Shares are redeemed and
not exchanged for shares of another Participating Fund, Class B Shares and Class
C Shares are subject to the contingent deferred sales charge schedule imposed by
the Participating Fund from which such shares were originally purchased.
Exchanges of shares are sales and may result in a gain or loss for federal
income tax purposes. If the shares exchanged have been held for less than 91
days, the sales charge paid on such shares is carried over and included in the
tax basis of the shares acquired.
A shareholder wishing to make an exchange may do so by sending a written request
to Investor Services or by contacting the telephone transaction line at (800)
421-5684. A shareholder automatically has telephone exchange privileges unless
otherwise designated in the application form accompanying the prospectus. Van
Kampen Investments, Investor Services and the Fund employ procedures considered
by them to be reasonable to confirm that instructions communicated by telephone
are genuine. Such procedures include requiring certain personal identification
information prior to acting upon telephone instructions, tape-recording
telephone communications, and providing written confirmation of instructions
communicated by telephone. If reasonable procedures are employed, neither Van
Kampen Investments, Investor Services nor the Fund will be liable for following
telephone instructions which it reasonably believes to be genuine. If the
exchanging shareholder does not have an account in the fund whose shares are
being acquired, a new account will be established with the same registration,
dividend and capital gains options (except dividend diversification) and
authorized dealer of record as the account from which shares are exchanged,
unless otherwise specified by the shareholder. In order to establish a
systematic withdrawal plan for the new account or reinvest dividends from the
new account into another fund, however, an exchanging shareholder must submit a
specific request. The Fund reserves the right to reject any order to acquire its
shares through exchange. In addition, the Fund and other Participating Funds may
restrict exchanges by shareholders engaged in excessive trading by limiting or
disallowing the exchange privileges to such shareholders. For further
information on these restrictions see the Statement of Additional Information.
The Fund may modify, restrict or terminate the exchange privilege at any time on
60 days' notice to its shareholders of any termination or material amendment.
For purposes of determining the sales charge rate previously paid on Class A
Shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchanged security was acquired through reinvestment, that
security is deemed to have been sold with a sales charge rate equal to the rate
previously paid on the security on which the dividend or distribution was paid.
If a shareholder exchanges less than all of such shareholder's securities, the
security upon which the highest sales charge rate was previously paid is deemed
exchanged first.
21
<PAGE>
Exchange requests received on a business day prior to the time shares of the
funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares in the fund from which the
shareholder is withdrawing an investment will be redeemed at the net asset value
per share next determined on the date of receipt. Shares of the new fund into
which the shareholder is investing will also normally be purchased at the net
asset value per share, plus any applicable sales charge, next determined on the
date of receipt. Exchange requests received on a business day after the time
shares of the funds involved in the request are priced will be processed on the
next business day in the manner described herein.
A prospectus of any of these Participating Funds may be obtained from any
authorized dealer or the Distributor. An investor considering an exchange to one
of such funds should refer to the prospectus for additional information
regarding such fund prior to investing.
INTERNET TRANSACTIONS. In addition to performing transactions on your account
through written instruction or by telephone, you may also perform certain
transactions through the internet. Please refer to our web site at
www.vankampen.com for further instruction. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated through the internet are genuine. Such
procedures include requiring use of a personal identification number prior to
acting upon internet instructions and providing written confirmation of
instructions communicated through the internet. If reasonable procedures are
employed, neither Van Kampen Investments, Investor Services nor the Fund will be
liable for following instructions through the internet which it reasonably
believes to be genuine. If an account has multiple owners, Investor Services may
rely on the instructions of any one owner.
FEDERAL INCOME
TAXATION
Distributions of the Fund's net investment income (consisting generally of
taxable income and net short-term capital gains) are taxable to shareholders as
ordinary income to the extent of the Fund's earnings and profits, whether paid
in cash or reinvested in additional shares. Distributions of the Fund's net
capital gains (which are the excess of net long-term capital gains over net
short-term capital losses) as capital gain dividends, if any, are taxable to
shareholders as long-term capital gains, whether paid in cash or reinvested in
additional shares, and regardless of how long the shares of the Fund have been
held by such shareholders. Capital gains dividends may be taxed at different
rates depending on how long the Fund held the securities. The Fund expects that
its distributions will consist primarily of ordinary income and capital gains
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.
22
<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. Prospective foreign investors should consult their U.S. tax
advisers concerning the tax consequences to them of an investment in shares.
The Fund intends to qualify as a regulated investment company under federal
income tax law. If the Fund so qualifies and distributes each year to its
shareholders at least 90% of its net investment income, the Fund will not be
required to pay federal income taxes on any income it distributed to
shareholders. If the Fund distributes less than the sum of 98% of its ordinary
income and 98% of its capital gains 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, or disposing 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
JULY 7, 1997* JULY 7, 1997*
YEAR ENDED TO YEAR ENDED TO
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1999# JUNE 30, 1998# JUNE 30, 1999# JUNE 30, 1998#
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period.............. $10.526 $ 10.00 $ 10.514 $ 10.00
------ ------ ------ ------
Income From Investment Operations
Net Investment Income/Loss...................... 0.072 0.11 (0.003) 0.03
Net Realized and Unrealized Gain/Loss........... 0.512 0.56 0.509 0.56
------ ------ ------ ------
Total From Investment Operations................ 0.584 0.67 0.506 0.59
------ ------ ------ ------
Distributions
Net Investment Income........................... (0.052) (0.08) (0.007) (0.03)
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) --
------ ------ ------ ------
Total Distributions............................. (0.226) (0.14) (0.181) (0.08)
------ ------ ------ ------
Net Asset Value, End of Period.................... $10.884 $ 10.53 $ 10.839 $ 10.51
------ ------ ------ ------
------ ------ ------ ------
Total Return(1)................................... 5.83% 6.74%** 5.02% 6.01%**
Ratios and Supplemental Data
Net Assets, End of Period (000's)................. $95,208 $137,447 $127,978 $142,741
Ratio of Expenses to Average Net Assets........... 1.45% 1.45% 2.20% 2.20%
Ratio of Net Investment Income/Loss to Average Net
Assets............................................ 0.74% 1.02% (0.03)% 0.28%
Portfolio Turnover Rate........................... 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
Ratios Before Expense Limitation:
Expenses to Average Net Assets.................. 1.48% 1.60% 2.23% 2.35%
Net Investment Income/Loss to Average Net
Assets.......................................... 0.73% 0.88% (0.05)% 0.14%
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS C
JULY 7, 1997*
YEAR ENDED TO
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1999# JUNE 30, 1998#
<S> <C> <C>
- --------------------------------------------------
Net Asset Value, Beginning of Period.............. $10.503 $ 10.00
------ ------
Income From Investment Operations
Net Investment Income/Loss...................... (0.002) 0.03
Net Realized and Unrealized Gain/Loss........... 0.512 0.55
------ ------
Total From Investment Operations................ 0.510 0.58
------ ------
Distributions
Net Investment Income........................... (0.007) (0.03)
In Excess of Net Investment Income.............. -- (0.00)+
Net Realized Gain............................... -- (0.05)
In Excess of Net Realized Gain.................. (0.174) --
------ ------
Total Distributions............................. (0.181) (0.08)
------ ------
Net Asset Value, End of Period.................... $10.832 $ 10.50
------ ------
------ ------
Total Return(1)................................... 5.13% 5.83%**
Ratios and Supplemental Data
Net Assets, End of Period (000's)................. $29,071 $35,564
Ratio of Expenses to Average Net Assets........... 2.20% 2.20%
Ratio of Net Investment Income/Loss to Average Net
Assets............................................ (0.02)% 0.29%
Portfolio Turnover Rate........................... 64% 38%**
- --------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the
Period
Per Share Benefit to Net Investment
Income/Loss..................................... $ 0.00+ $ 0.01
Ratios Before Expense Limitation:
Expenses to Average Net Assets.................. 2.23% 2.35%
Net Investment Income/Loss to Average Net
Assets.......................................... (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.
24
<PAGE>
BOARD OF DIRECTORS
AND OFFICERS
BOARD OF DIRECTORS
<TABLE>
<S> <C>
J. Miles Branagan Don G. Powell*
Jerry D. Choate Philip 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
Edward C. Wood III*
VICE PRESIDENT
A. Thomas Smith III*
VICE PRESIDENT AND SECRETARY
Michael H. Santo*
VICE PRESIDENT
Peter W. Hegel*
VICE PRESIDENT
Stephen L. Boyd*
VICE PRESIDENT
Joseph P. Stadler*
VICE PRESIDENT
Curtis W. Morell*
VICE PRESIDENT & CHIEF ACCOUNTING OFFICER
Tanya M. Loden*
CONTROLLER
John L. Sullivan*
VICE PRESIDENT, CHIEF FINANCIAL OFFICER & TREASURER
* "Interested" persons of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2911
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders, or
redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call
(800) 421-2833
FUND INFO-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 , 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 Public
Reference Room in
Washington, DC or online
at the SEC's web site
(http://www.sec.gov).
For more information,
please call the SEC at
(800) SEC-0330. You can
also request these
materials by writing
the Public Reference
Section of the SEC,
Washington DC,
20549-6009, and paying a
duplication fee.
[LOGO]
THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-7140.
MSVL PRO 10/99
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE FUND
MAY NOT SELL THESE SECURITIES UNTIL THE POST-EFFECTIVE AMENDMENT TO THE
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES.
SUBJECT TO COMPLETION -- DATED AUGUST 27, 1999
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 regulators, and
neither the SEC nor any
state regulator has passed
upon the accuracy or
adequacy of this
prospectus. Any
representation to the
contrary is a criminal
offense.
THIS PROSPECTUS IS DATED
OCTOBER , 1999.
[LOGO]
<PAGE>
TABLE OF CONTENTS
Risk/Return Summary .....................................................3
Fees and Expenses of the Fund ...........................................6
Investment Objectives, Policies and Risks ...............................7
Investment Advisory Services ...........................................20
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 management seeks to achieve the
investment objectives by investing primarily in non-diversified 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 markets 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 things, the price of the security and
the financial history, condition, prospects and management of an issuer. In
selecting emerging markets countries debt securities, the Fund seeks securities
that provide a high level of current income while at the same time holding the
potential for capital appreciation if the perceived creditworthiness of the
issuer improves due to improving economic, financial, political, social or other
conditions in the country in which the issuer is located. In addition, the Fund
seeks to invest in fixed income securities of issuers in the global fixed income
markets displaying high real (inflation adjusted) yields. Lower-grade debt
securities are commonly known as "junk bonds" (see sidebar for an explanation of
quality ratings).
The Fund's investments in lower-grade securities and emerging markets countries
securities involve greater risks as compared to investments in higher-grade
securities or developed countries. The Fund may purchase or sell securities on a
when-issued or delayed delivery basis. The Fund may purchase or 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, including seeking to reduce or eliminate foreign
currency exchange risks associated with securities denominated in non-U.S.
dollar currencies.
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>
<CAPTION>
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 in the Fund. There can be no assurance that the Fund
will achieve its investment objectives.
FOREIGN AND EMERGING MARKETS 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
3
<PAGE>
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 markets 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 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 income securities tend to fall as
interest rates rise, and such declines tend to be greater among income
securities with longer maturities or longer durations. Although the Fund has no
policy limiting the maturities of its investments, under market neutral
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 have more price
volatility 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 markets countries, may have more price volatility 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 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 be reinvested by the Fund in securities with 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 and other interest rate-related transactions are
examples of derivatives. Derivative investments involve risks different from
direct investment in underlying securities such as imperfect correlation between
the value of the
4
<PAGE>
instruments and the underlying assets; risks of default by the other party to
certain transactions; risks that the transactions may result in losses that
partially or completely offset gains in portfolio positions; risks that the
transactions may not be liquid; and manager risk.
NON-DIVERSIFICATION RISKS. The Fund is classified as a "non-diversified" fund,
which means the Fund may invest a greater portion of its assets in a more
limited number of issuers than a "diversified" fund. As a result, the Fund may
be subject to greater risk than a diversified fund because changes in the
financial condition or market assessment of a single issuer may cause greater
fluctuations in the value of the Fund's shares.
MANAGER RISK. As with any managed fund, the Fund's management may not be
successful in selecting the best-performing securities and the Fund's
performance may lag behind that of similar funds.
An investment in the Fund is not a deposit of any bank or other insured
depository institution. Your investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
INVESTOR PROFILE
In light of its objective and investment 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 markets countries securities and lower-grade debt securities.
- - Wish to add to their personal investment portfolio, a fund that invests
primarily in lower-grade income securities of issuers located throughout the
world.
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 past 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>
<CAPTION>
1995 19.97%
<S> <C>
1996 26.01%
1997 15.62%
1998 -17.15%
</TABLE>
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 management believes are applicable 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 commissions
or sales charges that would be paid by investors purchasing the securities
5
<PAGE>
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 Worldwide
High Income Fund
- -- Class A Shares -21.10% 7.37%(1)
Worldwide High Income
Blended Index I % %(3)
Worldwide High Income
Blended Index II % %(4)
................................................
Van Kampen Worldwide
High Income Fund
- -- Class B Shares -20.69% 7.01 %(2)
Worldwide High Income
Blended Index I % %(3)
Worldwide High Income
Blended Index II % %(4)
................................................
Van Kampen Worldwide
High Income Fund
- -- Class C Shares -18.36% 7.69 %(1)
Worldwide High Income
Blended Index I % %(3)
Worldwide High Income
Blended Index II % %(4)
................................................
INCEPTION DATES: (1) 4/21/94, (2) 8/1/95, (3)
.
*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 MANAGEMENT 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>
FEES AND EXPENSES
OF THE FUNDS
These tables describe the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
- ------------------------------------------------------
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 (as
a percentage of offering
price) None None None
.....................................................
Redemption fees (as a
percentage of amount
redeemed) None None None
.....................................................
Exchange fee None None None
.....................................................
(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 AND 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."
6
<PAGE>
ANNUAL FUND
OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
Management Fees 0.75% 0.75% 0.75%
..........................................................
Distribution and/or Service
(12b-1) Fees(1) 0.25% 1.00%(2) 1.00%(2)
..........................................................
Other Expenses 0.45% 0.45% 0.45%
..........................................................
Total Annual Fund Operating
Expenses 1.45% 2.20% 2.20%
..........................................................
(1) CLASS A SHARES ARE SUBJECT TO AN ANNUAL SERVICE FEE OF UP TO 0.25% OF
THE AVERAGE DAILY NET ASSETS ATTRIBUTABLE TO SUCH CLASS OF SHARES.
CLASS B SHARES AND CLASS C SHARES ARE EACH SUBJECT TO A COMBINED
ANNUAL DISTRIBUTION AND SERVICE FEE OF UP TO 1.00% OF THE AVERAGE
DAILY NET ASSETS ATTRIBUTABLE TO SUCH CLASS OF SHARES. SEE "PURCHASE
OF SHARES."
(2) 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% annual 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:
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
- -------------------------------------------------------
Class A Shares $616 $913 $1,231 $2,128
......................................................
Class B Shares $623 $988 $1,330 $2,367*
......................................................
Class C Shares $323 $688 $1,180 $2,534
......................................................
You would pay the following expenses if you did not redeem your shares:
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
- -------------------------------------------------------
Class A Shares $616 $913 $1,231 $2,128
......................................................
Class B Shares $223 $688 $1,180 $2,367*
......................................................
Class C Shares $223 $688 $1,180 $2,534
......................................................
* 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 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 management seeks to achieve the
investment objectives by investing primarily in non-diversified 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 markets 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
7
<PAGE>
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 things, 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 markets country debt securities that provide a high level of current
income, while at the same time holding the potential for capital appreciation if
the perceived creditworthiness of the issuer improves due to improving economic,
financial, political, social or other conditions in the country in which the
issuer is located. As used in this Prospectus, the term "emerging markets
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 markets country 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 markets country 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 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
8
<PAGE>
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. The Fund invests primarily in
medium-term securities (i.e., those with a remaining maturity of approximately
five years) in a market neutral environment. 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. The ratings assigned
by recognized ratings organizations represent their opinions of the quality of
the fixed income securities they undertake to rate, but not 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 markets 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.
For further information about the foregoing and certain additional investment
practices of the Fund, including investment in derivative securities, see "Other
Investment Practices and Risk Factors" below.
RISKS OF INVESTING IN SECURITIES
OF FOREIGN ISSUERS
The Fund 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 investment
adviser's assessment of the relative yield, appreciation potential and
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
9
<PAGE>
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.
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.
Since the Fund invests in securities denominated or quoted in currencies other
than the U.S. dollar, the Fund will be affected by changes in foreign currency
exchange rates (and exchange control regulations) which affect the value of
investments in the Fund and the accrued income and unrealized appreciation or
depreciation of the investments. Changes in foreign currency exchange ratios
relative to the U.S. dollar will affect the U.S. dollar value of the Fund's
assets denominated in that currency and the Fund's yield on such assets 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'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. The Fund purchases and sells
foreign currency on a spot basis in connection with the settlement of
transactions in securities traded in such foreign currency. The Fund also may
enter into contracts with banks, brokers or dealers to purchase or sell 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 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 MARKETS COUNTRIES. The risks of
foreign investment are heightened when the issuer is from an emerging markets
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
markets countries tend to have economic structures that are less diverse and
mature and political systems that are less stable than developed markets.
Emerging markets 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
10
<PAGE>
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 markets
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 markets 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 markets 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 markets 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 emerging
countries. Economies in emerging markets 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 markets 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 markets 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 markets 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
11
<PAGE>
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 markets
countries may be limited. Due to the limited market for these instruments in
emerging markets countries, the Fund's investment adviser does not currently
anticipate that a significant portion of the Funds' currency exposure in
emerging markets countries, if any, will be covered by such instruments.
Investors are strongly advised to consider carefully the special risks involved
in investing in emerging or developing 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 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. The Fund may invest
in loans, assignments of loans and participation in 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 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-
13
<PAGE>
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. 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 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.
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)
- ------------------------------------------------------------
AAA/AAA % %
...........................................................
AA/AA % %
...........................................................
A/A % %
...........................................................
BBB/BAA % %
...........................................................
BB/BA % %
...........................................................
B/B % %
...........................................................
CCC/CAA % %
...........................................................
CC/CA % %
...........................................................
C/C % %
...........................................................
D % %
...........................................................
PERCENTAGE OF
RATED AND
UNRATED
SECURITIES % %
...........................................................
The percentage of the Fund's assets invested in securities of various grades may
vary from time to time from those listed above.
14
<PAGE>
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 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 ("Loans") arranged
through private negotiations between an issuer of sovereign or corporate debt
obligations and one or more financial institutions ("Lenders"). The Fund's
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, 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.
15
<PAGE>
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 OTC 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
foreign markets, 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 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 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. Additionally, the Fund may invest in other
16
<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 temporary
substitute for purchasing or selling particular securities, including, for
example, when the Fund acts to quickly adjust 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). 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 outstanding derivatives).
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. Additionally, 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 which can be
obtained by investors free of charge as described on the back cover of this
prospectus.
ADDITIONAL INFORMATION REGARDING
CERTAIN DEBT SECURITIES
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.
17
<PAGE>
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.
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. Bank 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
18
<PAGE>
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 of another open-end or closed-end investment
company, by purchase in the open market involving only customary brokers'
commissions or in connection with mergers, acquisitions of assets or
consolidations or as may otherwise be permitted by the 1940 Act. If the 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.
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 otherwise. The Fund's portfolio turnover is shown under the
heading "Financial Highlights." The portfolio turnover rate may be expected to
vary from year to year. A high portfolio turnover rate (100% or more) increases
the Fund's transactions costs, including brokerage commissions or dealer costs,
and may result in the realization of more short-term capital gains than if the
Fund had lower portfolio turnover. Increases the Fund's transaction costs would
impact the Fund's performance. The turnover rate will not be a limiting factor,
however, if the Fund's investment adviser considers portfolio changes
appropriate.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Fund may 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. The Fund may not achieve its investment objective
if it takes a defensive position.
YEAR 2000 RISKS. Like other mutual funds, financial and business organizations
and individuals around the world, the Fund could be adversely affected if the
computer systems used by the Fund's investment adviser and other service
providers do not properly process and calculate date-related information and
data from and after January 1, 2000. This is commonly known as the "Year 2000
Problem." The Fund's investment adviser is taking steps that it believes are
reasonably designed to address the Year 2000 Problem with respect to computer
systems that it uses and to obtain reasonable assurances that comparable steps
are being taken by the Fund's other major service providers. At this time, there
can be no assurances that these steps will be sufficient to avoid any adverse
impact to the Fund. In addition, the Year 2000 Problem may adversely affect the
markets and the issuers of securities in which the Fund may invest which, in
turn, may adversely affect the net asset value of the Fund. Improperly
functioning trading systems may result in settlement problems and liquidity
issues. In addition, corporate and governmental data processing errors may
result in production problems for individual companies or issuers and overall
economic uncertainty. Earnings of individual issuers will be affected by
remediation costs, which may be substantial and may be reported inconsistently
in U.S. and foreign financial statements. Efforts in foreign countries to
remediate the potential Year 2000 Problem may not be as extensive as those in
the U.S. As a result, the operations of foreign markets and issuers may be
disrupted by the Year 2000 Problem which could adversely affect the Fund's
portfolio. The risks are greater with respect to certain emerging or developing
countries; because there is an increased likelihood that issuers of securities
of such countries cannot anticipate or effectively manage the affects of
computer programs and the
19
<PAGE>
Year 2000 Problem. Accordingly, the Fund's investments may be adversely
affected. The statements above are subject to the Year 2000 Information and
Readiness Disclosure Act which Act may limit the legal rights regarding the use
of such statements in the case of a dispute.
INVESTMENT ADVISORY
SERVICES
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 $75 billion under management or supervision. Van
Kampen Investments' more than 50 open-end and 39 closed-end funds and more than
2,500 unit investment trusts are professionally distributed by leading financial
advisers nationwide. Van Kampen Funds Inc., the distributor of the Fund (the
"Distributor") and the sponsor of the funds mentioned above, is also a wholly
owned subsidiary of Van Kampen Investments. Van Kampen Investments is an
indirect wholly owned subsidiary of Morgan Stanley Dean Witter & Co. The
Adviser's principal office is located at 1 Parkview Plaza, PO Box 5555, Oakbrook
Terrace, Illinois 60181-5555.
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 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.
From time to time, the Adviser or the Distributor may voluntarily undertake to
reduce the Fund's expenses by reducing the fees payable to them or by reducing
other expenses of the Fund in accordance with such limitations as the Adviser or
Distributor may establish.
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen 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
December 31, 1998, the Subadviser, together with its affiliated institutional
asset management companies, managed assets of approximately $163.4 billion,
including assets under fiduciary advice. The
20
<PAGE>
Subadviser's address is 1221 Avenue of the Americas, New York, NY 10020.
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 percentage of
the net advisory fees the Adviser receives from the Fund.
-------------
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, Gordon W. Loery, Stephen F. Esser and
Abigail L. McKenna are responsible as co-managers 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.
Mr. Angevine also manages high yield assets for one of the largest corporate
pension funds in the country. His other experience includes international
treasury operations at a major pharmaceutical company and commercial banking.
Mr. Angevine received an M.B.A. from Fairleigh Dickinson University and a B.A.
in Economics from Lafayette College.
Mr. Loery, currently a Principal of the Subadviser, joined the Subadviser as a
Fixed Income Analyst in 1990. 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 MAS since 1988. He assumed responsibility for the MAS-advised MAS Funds'
High Yield Portfolio in 1989. Mr. Esser is a member of the New York Society of
Security Analysts and has a B.S. degree (Summa Cum Laude; Phi Beta Kappa) from
the University of Delaware.
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
21
<PAGE>
rights with respect to approvals of the Rule 12b-1 distribution plan (described
below) pursuant to which its distribution fee or service fee is paid, (iii) each
class of shares has different exchange privileges, (iv) certain classes of
shares are subject to a conversion feature and (v) certain classes of shares
have different shareholder service options available.
The 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.
Net asset value is calculated separately for each class of the Fund. The net
asset value per share of each class of shares is determined by dividing the
total fair market value of the investments and other assets attributable to such
class of shares, less all liabilities attributable to such class of shares, by
the total number of outstanding shares of such class of shares. Net asset value
per share of the Fund generally is determined once daily as of the regular close
of the New York Stock Exchange (the "Exchange") (currently, 4:00 p.m. Eastern
time) on each day that the Exchange is open for business. Securities listed on a
securities exchange for which market quotations are available are valued at
their closing price. If no closing price is available, such securities will be
valued at the last quoted sale price on the day the valuation is made. Price
information on listed securities is taken from the exchange where the security
is primarily traded. Unlisted securities and listed securities not traded on the
valuation date for which market quotations are 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 at fair value using methods
determined by the 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. If
22
<PAGE>
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 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 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 on 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.
23
<PAGE>
Investor accounts will automatically be credited with additional shares of the
Fund after any Fund distributions, such as dividends and capital gains
distributions, 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 IMPOSES A
CONTINGENT DEFERRED SALES CHARGE OF 1.00% ON CERTAIN REDEMPTIONS MADE
WITHIN ONE YEAR OF THE PURCHASE. THE CONTINGENT DEFERRED SALES CHARGE
IS ASSESSED ON AN AMOUNT EQUAL TO THE LESSER OF THE THEN CURRENT
MARKET VALUE OR THE COST OF THE SHARES BEING REDEEMED. ACCORDINGLY, NO
SALES CHARGE IS IMPOSED ON INCREASES IN NET ASSET VALUE ABOVE THE
INITIAL PURCHASE PRICE.
No sales charge is imposed on Class A Shares received from reinvestment of
dividends or capital gains distributions.
Under the Distribution Plan and Service Plan, the Fund may spend a total of
0.25% per year of the average daily net assets with respect to the Class A
Shares of the Fund. From such amount, under the Service Plan, the Fund may spend
up to 0.25% per year of the Fund's average daily net assets with respect to the
Class A Shares for the ongoing provision of services to Class A shareholders by
the Distributor and by brokers, dealers or financial intermediaries and for the
maintenance of such shareholders' accounts.
CLASS B SHARES
Class B Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge if redeemed within five years of purchase as shown in the
table as follows:
CLASS B SHARES
SALES CHARGE SCHEDULE
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE
AS A PERCENTAGE
OF
DOLLAR AMOUNT
YEAR SINCE SUBJECT TO
PURCHASE 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 gains 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.
24
<PAGE>
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed that the redemption is first of any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge and then of shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
average daily net assets with respect to the Class B Shares of the Fund. In
addition, under the Service Plan, the Fund may spend up to 0.25% per year of the
Fund's average daily net assets with respect to the Class B Shares for the
ongoing provision of services to Class B shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CLASS C SHARES
Class C Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge of 1.00% of the dollar amount subject to charge if
redeemed within one year of purchase.
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gains dividends. It
is presently the policy of the Distributor not to accept any order for Class C
Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
In determining whether a contingent deferred sales charge is applicable to a
redemption, it is assumed that the redemption is first of any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge and then of shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
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 distributions constituting
"preferential dividends" under the federal income tax law and (ii) the
conversion of shares does not constitute a taxable event under federal income
tax law. The conversion may be suspended if such an opinion is no longer
available and such shares might continue to be subject to the higher aggregate
fees applicable to such shares for an indefinite period.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge is waived on redemptions of Class B Shares
and Class C Shares (i) within one year following the death or disability (as
disability is defined by federal income tax law) of a shareholder, (ii) for
required minimum distributions from an individual retirement account ("IRA")
25
<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 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.
26
<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 trust distributions will be 1.00% of the offering
price (1.01% of net asset value). Of this amount, the Distributor will pay to
the authorized dealer, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the terms and conditions that apply to the program,
should contact their authorized dealer or the Distributor.
The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during each distribution period by all investors who choose to invest in
the Fund through the program and (2) provide Investor Services with appropriate
backup data for each investor participating in the program in a computerized
format fully compatible with Investor Services' processing system.
As further requirements for obtaining these special benefits, the Fund also
requires that all dividends and other distributions by the Fund be reinvested in
additional shares without any systematic withdrawal program. There will be no
minimum for reinvestments from unit investment trusts. The Fund will send
account activity statements to such participants on a quarterly basis only, even
if their investments are made more frequently. The Fund reserves the right to
modify or terminate this program at any time.
NET ASSET VALUE PURCHASE OPTIONS. Class A Shares of the Fund may be purchased at
net asset value, upon written assurance that the purchase is made for investment
purposes and that the shares will not be resold except through redemption by the
Fund, by:
(1) Current or retired trustees or directors of funds advised by Morgan Stanley
Dean Witter & Co. and any of its subsidiaries and such persons' families
and their beneficial accounts.
(2) Current or retired directors, officers and employees of Morgan Stanley Dean
Witter & Co. and any of its subsidiaries, employees of an investment
subadviser to any fund described in (1) above or an affiliate of such
subadviser, and such persons' families and their beneficial accounts.
(3) Directors, officers, employees and, when permitted, registered
representatives, of financial institutions that have a selling group
agreement with the Distributor and their spouses and children under 21
years of age when purchasing for any accounts they beneficially own, or, in
the case of any such financial institution, when purchasing for retirement
plans for such institution's employees; provided that such purchases are
otherwise permitted by such institutions.
(4) Registered investment advisers who charge a fee for their services, trust
companies and bank trust departments investing on their own behalf or on
behalf of their clients. The Distributor may pay authorized dealers through
which purchases are made an amount up to 0.50% of the amount invested, over
a 12-month period.
(5) Trustees and other fiduciaries purchasing shares for retirement plans which
invest in multiple fund families through broker-dealer retirement plan
alliance programs that have entered into agreements with the Distributor
and which are subject to certain minimum size and operational requirements.
Trustees and other fiduciaries should refer to the Statement of Additional
27
<PAGE>
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 of the order. An
authorized dealer may charge a
28
<PAGE>
transaction fee for placing an order to purchase shares pursuant to this
provision or for placing a redemption order with respect to such shares.
Authorized dealers will be paid a service fee as described on purchases made as
described in (3) through (9) above. The Fund may terminate, or amend the terms
of, offering shares of the Fund at net asset value to such groups at any time.
REDEMPTION OF
SHARES
Generally shareholders may redeem for cash some or all of their shares without
charge by the Fund (other than applicable sales charge) at any time. As
described under the heading "Purchase of Shares," redemptions of Class B Shares
and Class C Shares may be subject to a contingent deferred sales charge. In
addition, certain redemptions of Class A Shares for shareholder accounts of $1
million or more may be subject to a contingent deferred sales charge.
Redemptions completed through an authorized dealer or a custodian of a
retirement plan account may involve additional fees charged by the dealer or
custodian.
Except as specified below under "Telephone Redemption Requests," payment for
shares redeemed generally will be made by check mailed within seven days after
receipt by Investor Services of the request and any other necessary documents in
proper order. Such payment may be postponed or the right of redemption suspended
as provided by the rules of the SEC. Such payment may, under certain
circumstances, be paid wholly or in part by a distribution-in-kind of portfolio
securities. If the shares to be redeemed have been recently purchased by check,
Investor Services may delay the payment of redemption proceeds until it confirms
the purchase check has cleared, which may take up to 15 days. A taxable gain or
loss will be recognized by the shareholder upon redemption of shares.
WRITTEN REDEMPTION REQUESTS. Shareholders may request a redemption of shares by
written request in proper form sent directly to Van Kampen Investor Services
Inc., PO Box 218256, Kansas City, MO 64121-8256. The request for redemption
should indicate the number of shares to be redeemed, the class designation of
such shares and the shareholder's account number. The redemption request must be
signed by all persons in whose names the shares are registered. Signatures must
conform exactly to the account registration. If the proceeds of the redemption
exceed $50,000, or if the proceeds are not to be paid to the record owner at the
record address, or if the record address has changed within the previous 30
days, signature(s) must be guaranteed by one of the following: a bank or trust
company; a broker-dealer; a credit union; a national securities exchange,
registered securities association or clearing agency; a savings and loan
association; or a federal savings bank.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption to be in proper form. In some
cases, however, additional documents may be necessary. In the case of
shareholders holding certificates, the certificates for the shares being
redeemed properly endorsed for transfer must accompany the redemption request.
In the event the redemption is requested by a corporation, partnership, trust,
fiduciary, executor or administrator, and the name and title of the
individual(s) authorizing such redemption is not shown in the account
registration, a copy of the corporate resolution or other legal documentation
appointing the authorized signer and certified within the prior 120 days must
accompany the redemption request. IRA redemption requests should be sent to the
IRA custodian to be forwarded to Investor Services. Contact the IRA custodian
for further information.
In the case of written redemption requests sent directly to Investor Services,
the redemption price is the net asset value per share next determined after the
request in proper form is received by Investor Services.
AUTHORIZED DEALER REDEMPTION REQUESTS. Shareholders may place redemption
requests through an authorized dealer. Orders sent through authorized dealers
must be at least $500 (unless transmitted by your authorized dealer via the
FUNDSERV network). The redemption price for such shares is the
29
<PAGE>
net asset value per share next calculated after an order in proper form is
received by an authorized dealer provided such order is transmitted to the
Distributor prior to the Distributor's close of business on such day. It is the
responsibility of authorized dealers to transmit redemption requests received by
them to the Distributor so they will be received prior to such time. Redemptions
completed through an authorized dealer may involve additional fees charged by
the dealer.
TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. To establish
such privilege, a shareholder must complete the appropriate section of the
application form accompanying this prospectus or call the Fund at (800) 341-2911
to request that a copy of the Telephone Redemption Authorization form be sent to
them for completion. To redeem shares, contact the telephone transaction line at
(800) 421-5684. Van Kampen Investments, Investor Services and the Fund employ
procedures considered by them to be reasonable to confirm that instructions
communicated by telephone are genuine. Such procedures include requiring certain
personal identification information prior to acting upon telephone instructions,
tape-recording telephone communications and providing written confirmation of
instructions communicated by telephone. If reasonable procedures are employed,
neither Van Kampen Investments, Investor Services nor the Fund will be liable
for following telephone instructions which it reasonably believes to be genuine.
Telephone redemptions may not be available if the shareholder cannot reach
Investor Services by telephone, whether because all telephone lines are busy or
for any other reason; in such case, a shareholder would have to use the Fund's
other redemption procedure previously described. Requests received by Investor
Services prior to 4:00 p.m., New York time, will be processed at the next
determined net asset value per share. These privileges 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 two kinds of return from the Fund: dividends and
capital gains dividends.
30
<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 GAINS. The Fund may realize capital gains or losses when it sells
securities, depending on whether the sales prices for the securities are higher
or lower than purchase prices. Net realized capital gains represent the total
profit from sales of securities minus total losses from sales of securities
including losses carried forward from prior years. The Fund distributes any
taxable net realized capital gains to shareholders as capital gains dividends at
least annually. As in the case of dividends, capital gains dividends are
automatically reinvested in additional shares of the Fund at 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 gains distributions 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 gains
distribution. Unless the shareholder instructs otherwise, the reinvestment plan
is automatic. This instruction may be made by telephone by calling (800)
341-2911 ((800) 421-2833 for the hearing impaired) or by writing to Investor
Services. The investor may, on the initial application or prior to any
declaration, instruct that dividends be paid in cash and capital gains
distributions be reinvested at net asset value, or that both dividends and
capital gains distributions be paid in cash.
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under which
a shareholder can authorize 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.
To be eligible for exchange, shares of the Fund must have been registered in the
shareholder's name for at least 30 days prior to an exchange. Shares of the Fund
registered in a shareholder's name for less than 30 days may only be exchanged
upon receipt of prior approval of the Adviser. It is the policy of the Adviser,
under normal circumstances, not to approve such requests.
When Class B Shares and Class C Shares are exchanged among Participating Funds,
the holding period for purposes of computing the contingent deferred sales
charge is based upon the date of the initial purchase of such shares from a
Participating Fund. If such Class B Shares or Class C Shares are redeemed and
not exchanged for shares of another
31
<PAGE>
Participating Fund, Class B Shares and Class C Shares are subject to the
contingent deferred sales charge schedule imposed by the Participating Fund from
which such shares were originally purchased.
Exchanges of shares are sales and may result in a gain or loss for federal
income tax purposes. If the shares exchanged have been held for less than 91
days, the sales charge paid on such shares is carried over and included in the
tax basis of the shares acquired.
A shareholder wishing to make an exchange may do so by sending a written request
to Investor Services or by contacting the telephone transaction line at (800)
421-5684. A shareholder automatically has telephone exchange privileges unless
otherwise designated in the application form accompanying the prospectus. Van
Kampen Investments, Investor Services and the Fund employ procedures considered
by them to be reasonable to confirm that instructions communicated by telephone
are genuine. Such procedures include requiring certain personal identification
information prior to acting upon telephone instructions, tape-recording
telephone communications, and providing written confirmation of instructions
communicated by telephone. If reasonable procedures are employed, neither Van
Kampen Investments, Investor Services nor the Fund will be liable for following
telephone instructions which it reasonably believes to be genuine. If the
exchanging shareholder does not have an account in the fund whose shares are
being acquired, a new account will be established with the same registration,
dividend and capital gains options (except dividend diversification) and
authorized dealer of record as the account from which shares are exchanged,
unless otherwise specified by the shareholder. In order to establish a
systematic withdrawal plan for the new account or reinvest dividends from the
new account into another fund, however, an exchanging shareholder must submit a
specific request. The Fund reserves the right to reject any order to acquire its
shares through exchange. In addition, the Fund and other Participating Funds may
restrict exchanges by shareholders engaged in excessive trading by limiting or
disallowing the exchange privileges to such shareholders. For further
information on these restrictions see the Statement of Additional Information.
The Fund may modify, restrict or terminate the exchange privilege at any time on
60 days' notice to its shareholders of any termination or material amendment.
For purposes of determining the sales charge rate previously paid on Class A
Shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchanged security was acquired through reinvestment, that
security is deemed to have been sold with a sales charge rate equal to the rate
previously paid on the security on which the dividend or distribution was paid.
If a shareholder exchanges less than all of such shareholder's securities, the
security upon which the highest sales charge rate was previously paid is deemed
exchanged first.
Exchange requests received on a business day prior to the time shares of the
funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares in the fund from which the
shareholder is withdrawing an investment will be redeemed at the net asset value
per share next determined on the date of receipt. Shares of the new fund into
which the shareholder is investing will also normally be purchased at the net
asset value per share, plus any applicable sales charge, next determined on the
date of receipt. Exchange requests received on a business day after the time
shares of the funds involved in the request are priced will be processed on the
next business day in the manner described herein.
A prospectus of any of these Participating Funds may be obtained from any
authorized dealer or the Distributor. An investor considering an exchange to one
of such funds should refer to the prospectus for additional information
regarding such fund prior to investing.
INTERNET TRANSACTIONS. In addition to performing transactions on your account
through written instruction or by telephone, you may also perform certain
transactions through the internet. Please refer to our web site at
www.vankampen.com for further instruction. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated through the internet are genuine.
32
<PAGE>
Such procedures include requiring use of a personal identification number prior
to acting upon internet instructions and providing written confirmation of
instructions communicated through the internet. If reasonable procedures are
employed, neither Van Kampen Investments, Investor Services nor the Fund will be
liable for following instructions through the internet which it reasonably
believes to be genuine. If an account has multiple owners, Investor Services may
rely on the instructions of any one owner.
FEDERAL INCOME
TAXATION
Distributions of the Fund's net investment income (consisting generally of
taxable income and net short-term capital gains) are taxable to shareholders as
ordinary income to the extent of the Fund's earnings and profits, whether paid
in cash or reinvested in additional shares. Distributions of the Fund's net
capital gains (which are the excess of net long-term capital gains over net
short-term capital losses) as capital gain dividends, if any, are taxable to
shareholders as long-term capital gains, whether paid in cash or reinvested in
additional shares, and regardless of how long the shares of the Fund have been
held by such shareholders. Capital gains dividends may be taxed at different
rates depending on how long the Fund held the securities. The Fund expects that
its distributions will consist primarily of ordinary income and capital gains
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. Prospective foreign investors should consult their U.S. tax
advisers concerning the tax consequences to them of an investment in shares.
The Fund intends to qualify as a regulated investment company under federal
income tax law. If the Fund so qualifies and distributes each year to its
shareholders at least 90% of its net investment income, the Fund will not be
required to pay federal income taxes on any income it distributed to
shareholders. If the Fund distributes less than the sum of 98% of its ordinary
income and 98% of its capital gains 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, or disposing 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
AUGUST
1, 1995+
TO
YEAR ENDED JUNE 30, JUNE 30,
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# 1997 1996
- ------------------------------------------------------------
<S> <C> <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
- ------------------------------------------------------------
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 Philip B. Rooney
Richard M.
DeMartini* Fernando Sisto
Linda Hutton Heagy Wayne W. Whalen*
Suzanne H.
R. Craig Kennedy Woolsey
Jack E. Nelson Paul G. Yovovich
</TABLE>
OFFICERS
Richard F. Powers, III*
PRESIDENT
Dennis J. McDonnell*
EXECUTIVE VICE PRESIDENT & CHIEF INVESTMENT OFFICER
Edward C. Wood III*
VICE PRESIDENT
A. Thomas Smith III*
VICE PRESIDENT AND SECRETARY
Michael H. Santo*
VICE PRESIDENT
Peter W. Hegel*
VICE PRESIDENT
Stephen L. Boyd*
VICE PRESIDENT
Joseph P. Stadler*
VICE PRESIDENT
Curtis W. Morell*
VICE PRESIDENT & CHIEF ACCOUNTING OFFICER
Tanya M. Loden*
CONTROLLER
John L. Sullivan*
VICE PRESIDENT, CHIEF FINANCIAL OFFICER & TREASURER
* "Interested" persons of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2911
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders, or
redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call
(800) 421-2833
FUND INFO-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 , 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 Public
Reference Room in
Washington, DC or online
at the SEC's web site
(http://www.sec.gov).
For more information,
please call the SEC at
(800) SEC-0330. You can
also request these
materials by writing the
Public Reference Section
of the SEC, Washington
DC, 20549-6009, and
paying a duplication
fee.
[LOGO]
THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-7140.
MSWW PRO 10/99
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THE FUND MAY NOT SELL THESE SECURITIES UNTIL THE POST-
EFFECTIVE AMENDMENT TO THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES.
SUBJECT TO COMPLETION -- DATED AUGUST 27, 1999
MORGAN STANLEY MONEY MARKET FUND
MORGAN STANLEY TAX-FREE MONEY MARKET FUND
MORGAN STANLEY GOVERNMENT OBLIGATIONS MONEY MARKET FUND
- MORGAN STANLEY MONEY MARKET FUND seeks to provide as high a level of
current interest income as is consistent with maintaining liquidity and
stability of principal.
- MORGAN STANLEY TAX-FREE MONEY MARKET FUND seeks to provide as high a level
of current interest income exempt from regular federal income taxes as is
consistent with maintaining liquidity and stability of principal. As of
the date of this Prospectus, the Tax-Free Money Market Fund is not
offering shares.
- MORGAN STANLEY GOVERNMENT OBLIGATIONS MONEY MARKET FUND seeks to provide
as high a level of current interest income as is consistent with
maintaining liquidity and stability of principal.
Shares of the Funds have not been approved or disapproved by the Securities
and Exchange Commission (SEC) or any state regulators, and neither the SEC
nor any state regulator has passed upon the accuracy or adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
THIS PROSPECTUS IS DATED
OCTOBER , 1999.
[LOGO]
<PAGE>
TABLE OF CONTENTS
Risk/Return Summaries....................................................3
Morgan Stanley Money Market Fund.......................................3
Morgan Stanley Tax-Free Money Market Fund..............................4
Morgan Stanley Government Obligations Money Market Fund................5
Fees and Expenses of the Funds...........................................6
Investment Objectives, Policies and Risks ...............................7
Morgan Stanley Money Market Fund.......................................7
Morgan Stanley Tax-Free Money Market Fund..............................8
Morgan Stanley Government Obligations Money Market Fund................9
Investment Advisory Services ...........................................13
Purchase of Shares .....................................................14
Shareholder Services ...................................................18
Redemption of Shares ...................................................19
Distributions from the Funds............................................22
Federal Income Taxation ................................................22
Financial Highlights ...................................................24
Morgan Stanley Money Market Fund........................................24
Morgan Stanley Government Obligations Money Market Fund.................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 Funds, the Funds' investment adviser or the
Funds' distributor. This prospectus does not constitute an offer by the Funds or
by the Funds' distributor to sell or a solicitation of an offer to buy any of
the securities offered hereby in any jurisdiction to any person to whom it is
unlawful for the Funds to make such an offer in such jurisdiction.
<PAGE>
MORGAN STANLEY MONEY MARKET FUND
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
MORGAN STANLEY MONEY MARKET FUND seeks to provide as high a level of
current interest income as is consistent with maintaining liquidity and
stability of principal.
INVESTMENT STRATEGIES
The Fund's management seeks to achieve the investment objective by investing
in a diversified portfolio of high-quality, U.S. dollar-denominated money-market
securities, including U.S. government securities, domestic and foreign bank
obligations, commercial paper and repurchase agreements secured by such
obligations. The Fund seeks to maintain a constant net asset value of $1.00 per
share by investing in money-market instruments with remaining maturities of
397 days or less and with a dollar-weighted average maturity of 90 days or
less. The Fund's investments are limited to those securities that meet
maturity, quality and diversification standards with which money market funds
must comply.
INVESTMENT RISKS
An investment in the Fund is subject to investment risks. There can be no
assurances that the Fund will achieve its investment objective.
INCOME RISK. The income you receive from the Fund is based primarily on
short-term interest rates, which can vary widely over time. If short-term
interest rates drop, your income from the Fund may drop as well.
CREDIT RISK. Credit risk refers to an issuer's ability to make timely payments
of interest and principal. While credit risk should be low for the Fund
because it invests in high-quality instruments, an investment in the Fund
is not risk free. The Fund is still subject to the risk that the issuers of
such securities may experience financial difficulties and, as a result, fail
to pay on their obligations.
MARKET RISK. Market risk is the possibility that the market values of
securities owned by the Fund will decline. An investment in the Fund is not a
deposit of any bank and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Although the Fund seeks
to preserve the value of your investment at $1.00 per share, it is possible to
lose money by investing in the Fund.
MANAGER RISK. As with any managed fund, the Fund's management may not be
successful in selecting the best-performing securities and the Fund's
performance may lag behind that of similar funds.
INVESTOR PROFILE
In light of its objective and investment strategies, the Fund may be
appropriate for investors who:
- - Seek protection of capital and high current income through investments in
money market instruments.
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 Shares over the past nine calendar years prior to the
date of this prospectus. Remember that the past performance of the Fund is
not indicative of its future performance.
[GRAPH]
During the nine-year period shown in the bar chart, the highest quarterly
return was % (for the quarter ended ) and the lowest
quarterly return was % (for the quarter ended ).
COMPARATIVE PERFORMANCE
As a basis for evaluating the Fund's performance and risks over time, the
table below shows the Fund's average total return 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 PAST 10
FOR THE YEARS OR
PERIODS ENDED PAST PAST SINCE
DECEMBER 31, 1998 1 YEAR 5 YEARS INCEPTION
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Morgan Stanley
Money Market
Fund
</TABLE>
INCEPTION DATE(1)8/4/89.
Investors can obtain the current 7-day yield of the Fund by calling (800)
341-2911.
3
<PAGE>
MORGAN STANLEY TAX-FREE MONEY MARKET FUND
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
MORGAN STANLEY TAX-FREE MONEY MARKET FUND seeks to provide as high a level
of current interest income exempt from regular federal income taxes as is
consistent with maintaining liquidity and stability of principal. As of
the date of this Prospectus, the Tax-Free Money Market Fund is not
offering shares.
INVESTMENT STRATEGIES
The Fund's management seeks to achieve the investment objective by investing
in a diversified portfolio of high-quality, U.S. dollar denominated short-term
municipal obligations, the interest on which is exempt from regular federal
income tax. The Fund seeks to maintain a constant net asset value of $1.00
per share by investing in money-market instruments with remaining maturities of
397 days or less and with a dollar-weighted average maturity of 90 days or
less. The Fund's investments are limited to those securities that meet
maturity, quality and diversification standards with which money market funds
must comply.
INVESTMENT RISKS
An investment in the Fund is subject to investment risks. There can be no
assurances that the Fund will achieve its investment objective.
INCOME RISK. The income you receive from the Fund is based primarily on
short-term interest rates, which can vary widely over time. If short-term
interest rates drop, your income from the Fund may drop as well.
CREDIT RISK. Credit risk refers to an issuer's ability to make timely payments
of interest and principal. While credit risk should be low for the Fund
because it invests in high-quality instruments, an investment in the Fund
is not risk free. The Fund is still subject to the risk that the issuers of
such securities may experience financial difficulties and, as a result, fail
to pay on their obligations.
MARKET RISK. Market risk is the possibility that the market values of
securities owned by the Fund will decline. An investment in the Fund is not a
deposit of any bank and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Although the Fund seeks
to preserve the value of your investment at $1.00 per share, it is possible to
lose money by investing in the Fund.
MUNICIPAL SECURITIES RISK. The Fund invests primarily in municipal
securities. The yields of municipal securities may move differently and
adversely compared to the yields of the overall debt securities markets.
While the interest received from municipal securities generally is exempt
from federal income tax, the Fund may from time to time invest a portion of
its net assets in taxable securities. In addition, there could be changes in
applicable tax laws or tax treatments that reduce or eliminate the current
federal income tax exemption on municipal securities or otherwise adversely
affect the current federal or state tax status of municipal securities.
MANAGER RISK. As with any managed fund, the Fund's management may not be
successful in selecting the best-performing securities and the Fund's
performance may lag behind that of similar funds.
INVESTOR PROFILE
In light of its objective and investment strategies, the Fund may be
appropriate for investors who:
- - Are in a high federal income tax bracket.
- - Seek current tax-exempt income and protection of capital through
investments in municipal money-market instruments.
The Fund has not commenced investment operations as of the date of this
prospectus and thus has no historical calendar year annual performance or
comparative performance information to present.
4
<PAGE>
MORGAN STANLEY GOVERNMENT OBLIGATIONS MONEY MARKET FUND
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
MORGAN STANLEY GOVERNMENT OBLIGATIONS MONEY MARKET FUND seeks to provide
as high a level of current interest income as is consistent with
maintaining liquidity and stability of principal.
INVESTMENT STRATEGIES
The Fund's management seeks to achieve the investment objective by investing
in a diversified portfolio of high-quality, U.S. dollar-denominated money-market
securities, including U.S. government securities and repurchase agreements
secured by such obligations. The Fund seeks to maintain a constant net asset
value of $1.00 per share by investing in money-market instruments with remaining
maturities of 397 days or less and with a dollar-weighted average maturity of
90 days or less. The Fund's investments are limited to those securities that
meet maturity, quality and diversification standards with which money market
funds must comply.
INVESTMENT RISKS
An investment in the Fund is subject to investment risks. There can be no
assurances that the Fund will achieve its investment objective.
INCOME RISK. The income you receive from the Fund is based primarily on
short-term interest rates, which can vary widely over time. If short-term
interest rates drop, your income from the Fund may drop as well.
CREDIT RISK. Credit risk refers to an issuer's ability to make timely payments
of interest and principal. While credit risk should be low for the Fund
because it invests in high-quality instruments, an investment in the Fund
is not risk free. The Fund is still subject to the risk that the issuers of
such securities may experience financial difficulties and, as a result, fail
to pay on their obligations.
MARKET RISK. Market risk is the possibility that the market values of
securities owned by the Fund will decline. An investment in the Fund is not a
deposit of any bank and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Although the Fund seeks
to preserve the value of your investment at $1.00 per share, it is possible to
lose money by investing in the Fund.
MANAGER RISK. As with any managed fund, the Fund's management may not be
successful in selecting the best-performing securities and the Fund's
performance may lag behind that of similar funds.
INVESTOR PROFILE
In light of its objective and investment strategies, the Fund may be
appropriate for investors who:
- - Seek protection of capital and high current income through investments in
money market instruments.
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 Shares over the past six calendar years prior to the
date of this prospectus. Remember that the past performance of the Fund is
not indicative of its future performance.
[GRAPH]
During the six-year period shown in the bar chart, the highest quarterly return
was (for the quarter ended ) and the lowest quarterly return was
(for the quarter ended ).
COMPARATIVE PERFORMANCE
As a basis for evaluating the Fund's performance and risks over time, the
table below shows the Fund's average total returns for the periods ended
December 31, 1998 (the most recently completed calendar year prior to the date
of this prospectus). Remember that the past performance of the Fund is not
indicative of its future performance.
<TABLE>
<CAPTION>
AVERAGE ANNUAL
TOTAL RETURNS
FOR THE
PERIODS ENDED PAST PAST SINCE
DECEMBER 31, 1998 1 YEAR 5 YEARS INCEPTION
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Morgan Stanley Government
Obligations Money Market
Fund --
</TABLE>
INCEPTION DATE(1)3/12/92.
Investors can obtain the current 7-day yield of the Fund by calling (800)
341-2911.
5
<PAGE>
FEES AND EXPENSES
OF THE FUNDS
These tables describe the fees and expenses that you may pay if you buy and hold
shares of the Funds.
<TABLE>
<CAPTION>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Government
Tax-Free Obligations
Money Money Money
Market Market Market
Fund Fund Fund
- -----------------------------------------------------------
<S> <C> <C> <C>
Maximum sales charge
(load) imposed on
purchases (as a
percentage of offering
price) None None None
..........................................................
Maximum deferred sales
charge (load) (as a
percentage of the lesser
of original purchase
price or redemption
proceeds) None None None
..........................................................
Maximum sales charge
(load) imposed on
reinvested dividends (as
a percentage of offering
price) None None None
..........................................................
Redemption fees (as a
percentage of amount
redeemed) None None None
..........................................................
Exchange fee None None None
..........................................................
</TABLE>
ANNUAL FUND
OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
<TABLE>
<CAPTION>
Government
Tax-Free Obligations
Money Money Money
Market Market Market
Fund Fund Fund
- -------------------------------------------------------------
<S> <C> <C> <C>
Management Fees(1)
.............................................................
Distribution and/or
Service (12b-1) Fees(1)
.............................................................
Other Expenses(1) (2)
.............................................................
Total Annual Fund
Operating Expenses(1)
.............................................................
</TABLE>
(1) THE FUNDS' INVESTMENT ADVISER IS CURRENTLY WAIVING OR REIMBURSING A
PORTION OF THE MANAGEMENT FEES AND OTHER EXPENSES FOR THE MONEY MARKET
FUND AND GOVERNMENT OBLIGATIONS MONEY MARKET FUND SUCH THAT THE ACTUAL
TOTAL ANNUAL FUND OPERATING EXPENSES WERE ___% FOR THE MONEY MARKET FUND
AND FOR THE GOVERNMENT OBLIGATIONS MONEY MARKET FUND FOR THE FISCAL YEARS
ENDED JUNE 30, 1999. THE FEE WAIVERS OR EXPENSE REIMBURSEMENTS CAN BE
TERMINATED AT ANY TIME. THE TAX-FREE MONEY FUND HAS NOT COMMENCED
INVESTMENT OPERATIONS AS OF THE DATE OF THIS PROSPECTUS.
(2) "OTHER EXPENSES" ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT FISCAL
YEAR.
6
<PAGE>
EXAMPLE:
The following examples are intended to help you compare the cost of investing in
the Funds with the costs of investing in other mutual funds.
The examples assume that you invest $10,000 in the Funds for the time periods
indicated and then redeem all of your shares at the end of those periods. The
examples also assume that your investment has a 5% annual return each year and
that the Funds' 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 Five Ten
Year Years Years Years
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
Money Market Fund
...............................................................
Tax-Free Money Market Fund * *
...............................................................
Government Obligations
Money Market Fund
...............................................................
</TABLE>
* Because the Tax-Free Money Market 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 OBJECTIVES,
POLICIES AND RISKS
The investment objective of each Fund is described below, together
with the policies the Fund employs in its efforts to achieve its objective.
Each Fund's investment objective is a fundamental policy which may not be
changed by the Fund without the approval of a majority of shareholders of the
respective the Fund's outstanding voting securities, as defined in the
Investment Company Act of 1940, as amended (the "1940 Act"). The investment
policies described below are not fundamental policies and may be changed
without shareholder approval. There can be no assurance that a Fund will
attain its investment objective. For more information about certain
investment practices common to two or more of the Funds, see "Additional
Investment Information."
THE MONEY MARKET FUND
The Money Market Fund's investment objective is to provide as high a level
of current interest income as is consistent with maintaining liquidity and
stability of principal. Obligations held by the Money Market Fund will have
remaining maturities of 397 days or less (except that portfolio securities which
are subject to repurchase agreements may bear maturities exceeding 397 days). In
pursuing its investment objective, the Money Market Fund invests in a broad
range of U.S. dollar-denominated instruments, such as government, bank and
commercial obligations, that may be available in the money markets and that
satisfy strict credit quality standards imposed by the Fund in accordance with
applicable law ("Money Market Instruments"). The following descriptions
illustrate the types of Money Market Instruments in which the Money Market Fund
invests.
BANK OBLIGATIONS. The Fund may purchase bank obligations, such as
certificates of deposit, bankers' acceptances and time deposits, including U.S.
dollar-denominated instruments issued or supported by the credit of U.S. or
foreign banks or savings institutions having total assets at the time of
purchase in excess of $1 billion. The Fund may invest in U.S. dollar-denominated
obligations of foreign banks or foreign branches of U.S. banks where the Fund's
investment adviser deems the instrument to present minimal credit risks and to
otherwise satisfy applicable quality standards. Such investments may
nevertheless entail risks that are different from those of investments in
domestic obligations of U.S. banks due to differences in political, regulatory
and economic systems and conditions. These risks may include future unfavorable
political and economic developments, possible withholding taxes on interest
income, seizure or nationalization of foreign deposits, currency controls,
interest limitations, or other governmental restrictions which might affect the
payment of principal or interest on the securities held in the Fund.
Additionally, these institutions may be subject to less stringent reserve
requirements and to different accounting, auditing, reporting and recordkeeping
requirements than those applicable to domestic branches of U.S. banks. The Fund
may also make interest-bearing savings deposits in commercial and savings banks
in amounts not in excess of 5% of its total assets.
COMMERCIAL PAPER. The Fund may purchase commercial paper rated (at the time
of purchase) "A-1" or "A-1+" by Standard & Poor's ("S&P") or "Prime-1" by
Moody's Investors Service, Inc. ("Moody's") or, when deemed advisable by the
Fund's investment adviser and to the extent permitted under applicable
regulations, limited amounts of issues rated "A-2" or "Prime-2" by S&P or
Moody's, respectively that the Fund's investment adviser believes to be of high
quality. The Fund may also purchase commercial paper not rated by S&P or Moody's
provided that such paper is determined by the Fund's investment adviser to be of
comparable quality pursuant to guidelines approved by the Fund's Board of
Directors. The applicable short-term corporate ratings are described in the
Statement of Additional Information.
UNITED STATES GOVERNMENT OBLIGATIONS. The Money Market Fund may invest in
obligations issued or guaranteed by the United States Government, including
United States Treasury securities and other securities backed by the full faith
and credit of the United States, such as obligations of the Government National
Mortgage Association ("GNMA"), the Farmers Home Administration and the
Export-Import Bank. The Fund may also invest in obligations issued or guaranteed
by United States Government agencies or instrumentalities, such as the Federal
Farm Credit System and the Federal Home Loan Banks, where the Fund must look
principally to the issuing or guaranteeing agency for ultimate repayment. For a
more complete discussion of United States Government Obligations, see the
description of the Government Obligations Money Market Fund.
7
<PAGE>
MUNICIPAL OBLIGATIONS. "Municipal Obligations" are obligations issued by or
on behalf of states, territories and possessions of the United States, the
District of Columbia and their political subdivisions, agencies,
instrumentalities and authorities. The Fund may invest without limitation in
high quality, short-term Municipal Obligations issued by state and local
governmental issuers, the interest on which may be taxable or tax-exempt for
federal income tax purposes, when deemed appropriate by the Fund's investment
adviser in light of the Fund's investment objective, and provided that such
obligations carry yields that are competitive with those of other types of Money
Market Instruments of comparable quality. For a more complete discussion of
Municipal Obligations, see the description of the Tax-Free Money Market Fund. In
addition, the Fund may acquire "stand-by commitments" with respect to Municipal
Obligations held in its portfolio.
THE TAX-FREE MONEY MARKET FUND
The Tax-Free Money Market Fund's investment objective is to provide as high
a level of current interest income exempt from regular federal income taxes as
is consistent with maintaining liquidity and stability of principal. The
Tax-Free Money Market Fund invests substantially all of its assets in a
diversified portfolio of high quality, short-term Municipal Obligations, the
interest on which, in the opinion of bond counsel or counsel to the issuer, as
the case may be, is exempt from the regular federal income tax. It is a
fundamental policy of the Fund that under normal market conditions, at least 80%
of the net assets of the Tax-Free Money Market Fund will be invested in
short-term Municipal Obligations, the interest on which is exempt from regular
federal income tax and is not an item of tax preference for noncorporate
shareholders for purposes of the alternative minimum tax ("Tax-Exempt
Interest"). All portfolio investments must satisfy strict credit quality
standards imposed by applicable law.
MUNICIPAL OBLIGATIONS. The Fund invests in short-term Municipal Obligations
which are determined by the Fund's investment adviser to present minimal credit
risks and to otherwise satisfy applicable quality standards pursuant to
guidelines established by the Fund's Board of Directors and which at the time of
purchase are considered to be "first-tier" securities e.g., rated "AAA" or
higher by S&P or "Aaa" or higher by Moody's in the case of bonds; rated "SP-1"
by S&P or "MIG-1" by Moody's in the case of notes; rated "VMIG-1" by Moody's in
the case of variable rate demand notes; or rated "A-1" or "A-1+" by S&P or
"Prime-1" by Moody's in the case of tax-exempt commercial paper. The Fund may
also purchase securities that are not rated by S&P or Moody's at the time of
purchase provided that the securities are determined to be of comparable quality
by the Fund's investment adviser pursuant to guidelines approved by the Fund's
Board of Directors. The applicable Municipal Obligations ratings are described
in the Statement of Additional Information.
The Fund may hold uninvested cash reserves pending investment, during
temporary defensive periods or if, in the opinion of the Fund's investment
adviser, suitable obligations bearing Tax-Exempt Interest are unavailable. There
is no percentage limitation on the amount of assets which may be held uninvested
during temporary defensive periods. Uninvested cash reserves will not earn
income.
The two principal classifications of Municipal Obligations are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
excise tax or other specific revenue source such as the user of the facility
being financed. Revenue securities include private activity bonds which are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved. Municipal Obligations
may also include "moral obligation" bonds, which are normally issued by special
purpose public authorities. If the issuer of moral obligation bonds is unable to
meet its debt service obligations from current revenues, it may draw on a
reserve fund, the restoration of which is a moral commitment but not a legal
obligation of the state or municipality which created the issuer. Municipal
Obligations may include variable rate demand notes, which are described below
under "Other Investment Practices and Risk Factors."
8
<PAGE>
Current federal income tax law limits the types and volume of bonds
qualifying for the federal income tax exemption of interest. Such limitations
may have an effect on the ability of the Fund to purchase sufficient amounts of
tax-exempt securities. In addition, interest on certain bonds, although exempt
from the regular federal income tax, may be subject to alternative minimum tax.
See the discussion below under "Federal Income Taxation" and the Statement of
Additional Information.
Although the Tax-Free Money Market Fund may invest more than 25% of its net
assets in (i) Municipal Obligations whose issuers are in the same state, (ii)
Municipal Obligations the interest on which is paid solely from revenues of
similar projects and (iii) private activity bonds bearing Tax-Exempt Interest,
it does not currently intend to do so on a regular basis. To the extent the
Tax-Free Money Market Fund's assets are concentrated in Municipal Obligations
that are payable from issuers of the same state or the revenues of similar
projects, the Fund will be subject to the peculiar risks presented by the laws
and economic conditions relating to such states or projects to a greater extent
than it would be if its assets were not so concentrated.
THE GOVERNMENT OBLIGATIONS MONEY MARKET FUND
The Government Obligations Money Market Fund's investment objective is to
provide as high a level of current interest income as is consistent with
maintaining liquidity and stability of principal. It seeks to achieve such
objective by investing at least 65% of its net assets, under normal market
conditions, in short-term U.S. Treasury bills, notes and other obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities,
and entering into repurchase agreements relating to such obligations. Purchases
of portfolio securities must satisfy strict credit quality standards imposed by
the Fund in accordance with applicable law. The types of U.S. Government
obligations in which the Fund may invest include a variety of U.S. Treasury
obligations, which differ only in their interest rates, maturities, and time of
issuance, and obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, including mortgage-backed securities. Obligations
of certain agencies and instrumentalities of the U.S. Government, such as GNMA
and the Export-Import Bank of the United States, are supported by the full faith
and credit of the U.S. Treasury; others, such as those of Fannie Mae, are
supported by the right of the issuer to borrow from the Treasury; others, such
as those of the Student Loan Marketing Association, are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Federal Farm Credit Banks or the
Federal Home Loan Mortgage Corporation, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored agencies or
instrumentalities if it is not obligated to do so under law. The Fund will
invest in the obligations of such agencies or instrumentalities only when the
Fund's investment adviser believes that the credit risk with respect thereto is
minimal and that applicable quality standards have been satisfied.
Securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities have historically involved little risk of loss of principal if
held to maturity. However, due to fluctuations in interest rates, the market
value of such securities may vary during the period a shareholder owns shares
representing an interest in the Fund. Certain government securities held by the
Fund may have remaining maturities exceeding 397 days if such securities provide
for adjustments in their interest rates not less frequently than annually and
the adjustments are sufficient to cause the securities to have market values,
after adjustment, which approximate their par values.
9
<PAGE>
OTHER INVESTMENT PRACTICES AND RISK FACTORS. For cash management and
investment purposes, each Fund may engage in repurchase agreements with
brokers-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.
Each of the Money Market Fund and Government Obligations Money Market 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. Such Funds 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.
Each Fund may invest up to 10% 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.
Each of the Money Market Fund and Government Obligations Money Market
Fund may invest in mortgage-backed securities. Mortgage loans made by banks,
savings and loan institutions, and other lenders are often assembled into
pools, the interests in which are issued and guaranteed by an agency or
instrumentality of the U.S. Government, though not necessarily by the U.S.
Government itself. Interests in such pools are what this Prospectus calls
"mortgage-backed securities." One such type of mortgage-backed security in
which these Funds may invest is a GNMA Certificate. GNMA Certificates are
backed as to the timely payment of principal and interest by the full faith
and credit of the U.S. Government. Another type is a Fannie Mae Certificate.
Principal and interest payments on Fannie Mae Certificates are guaranteed
only by Fannie Mae itself, not by the full faith and credit of the U.S.
Government. A third type of mortgage-backed security in which such Funds may
invest is a Federal Home Loan Mortgage Association ("FHLMC") Participation
Certificate. This type of security is guaranteed by FHLMC as to timely
payment of principal and interest but, like a Fannie Mae security, it is not
guaranteed by the full faith and credit of the U.S. Government. Each of the
mortgage-backed securities described above is characterized by monthly
payments to the security holder, reflecting the monthly payments made by the
mortgagors of the underlying mortgage loans. The payments to the security
holders (such as a Fund), like the payments on the underlying loans,
represent both principal and interest. Although the underlying mortgage loans
are for specified periods of time, such as twenty or thirty years, the
borrowers can, and typically do, repay them sooner. Thus, the security
holders frequently receive prepayments of principal, in addition to the
principal which is part of the regular monthly payments. A borrower is more
likely to prepay a mortgage which bears a relatively high rate of interest.
This means that, in times of declining interest rates, some of a Fund's
higher yielding securities might be repaid and thereby converted to cash and
the Fund will be forced to accept lower interest rates when that cash is used
to purchase additional securities. A Fund normally will not distribute
principal payments (whether regular or prepaid) to its shareholders. Interest
received by each Fund will, however, be distributed to shareholders in the
form of dividends.
10
<PAGE>
Each of the Money Market Fund and Government Obligations Money Market
Fund may enter into reverse repurchase agreements with brokers, dealers,
banks or other financial institutions that meet the credit guidelines set by
the Board of Directors. In a reverse repurchase agreement, a Fund sells a
security and agrees to repurchase it at a mutually agreed upon date and
price, reflecting the interest rate effective for the term of the agreement.
It may also be viewed as the borrowing of money by the Fund. A Fund's
investment of the proceeds of a reverse repurchase agreement is a speculative
factor known as leverage. A Fund will enter into a reverse repurchase
agreement only if the interest income from investment of the proceeds is
expected to be greater than the interest expense of the transaction and the
proceeds are invested for a period no longer than the term of the agreement.
A Fund will maintain with an appropriate custodian a separate account with a
segregated portfolio of cash or other liquid securities in an amount at least
equal to its purchase obligations under these agreements (including accrued
interest). If interest rates rise during a reverse repurchase agreement, it
may adversely affect a Fund's ability to maintain a stable net asset value.
In the event that the buyer of securities under a reverse repurchase
agreement files for bankruptcy or becomes insolvent, the buyer or its trustee
or receiver may receive an extension of time to determine whether to enforce
a Fund's repurchase obligation, and the Fund's use of proceeds of the
agreement may effectively be restricted pending such decision.
Each of the Money Market Fund and Tax-Free Money Market Fund may acquire
"stand-by commitments" with respect to Municipal Obligations held in its
portfolio. Under a stand-by commitment, a dealer would agree to purchase at a
Fund's option specified Municipal Obligations at a specified price. The
acquisition of a stand-by commitment may increase the cost, and thereby
reduce the yield, of the Municipal Obligations to which such commitment
relates. A Fund will acquire stand-by commitments solely to facilitate
portfolio liquidity and does not intend to exercise its rights thereunder for
trading purposes.
Each of the Money Market Fund and Tax-Free Money Market Fund may purchase
variable rate demand notes, which are unsecured instruments that permit the
indebtedness thereunder to vary and provide for periodic adjustment in the
interest rate. Although the notes are not normally traded and there may be no
active secondary market in the notes, a Fund will be able (at any time or
during the specified periods not exceeding 397 days, depending upon the note
involved) to demand payment of the principal of a note. The notes are
frequently not rated by credit rating agencies, but notes not rated by S&P or
Moody's purchased by a Fund will have been determined by the Fund's
investment adviser to be of comparable quality at the time of the purchase to
rated instruments purchasable by the Fund. Where necessary to ensure that a
note is of sufficiently high quality, a Fund will require that the issuer's
obligation to pay the principal of the note be backed by an unconditional
bank letter or line of credit, guarantee or commitment to lend. The absence
of an active secondary market, however, could make it difficult for a Fund to
dispose of a variable rate demand note if the issuer defaulted on its payment
obligation or during the periods that the Fund is not entitled to exercise
its demand rights. A Fund could, for this or other reasons, suffer a loss to
the extent of the default. A Fund will invest in variable rate demand notes
only when the Fund's investment adviser deems the investment to involve
minimal credit risk and to otherwise satisfy applicable quality standards.
The Fund's investment adviser also monitors the continuing creditworthiness
of issuers of such notes to determine whether a Fund should continue to hold
such notes.
Each of the Money Market Fund and Government Obligations Money Market
Fund may purchase securities on a when-issued or delayed delivery basis. In
such transactions, instruments are bought with payment and delivery taking
place in the future in order to secure what is considered to be an
advantageous yield or price at the time of the transaction. The payment
obligation and the interest rates that will be received are each fixed at the
time a Fund enters into the commitment, and no interest accrues to the Fund
until settlement. Thus, it is possible that the market value at the time of
settlement could be higher or lower than the purchase price if the general level
of interest rates has changed. It is a current policy of each Fund not to enter
into when-issued commitments or delayed delivery securities exceeding, in the
aggregate, 25% of the Fund's net assets other than the obligations created by
these commitments.
11
<PAGE>
QUALITY INFORMATION. Each of the Funds utilizes the amortized cost method of
valuation in accordance with regulations issued by the SEC. Accordingly,
each Fund will limit its portfolio investments to those instruments which
present minimal credit risks and which are of eligible quality, as determined
by the Fund's investment adviser under the supervision of the Board of Directors
and in accordance with regulations of the SEC, as such regulations may from time
to time be amended. Eligible quality for this purpose means a security (i) rated
in one of the two highest rating categories by at least two nationally
recognized statistical rating organizations ("NRSROs") assigning a rating to
the security or issuer or, if only one rating organization assigned a rating,
by that rating organization or (ii) if unrated, determined to be of
comparable quality by the Fund's investment adviser under the supervision of the
Board of Directors. Each of the Government Obligations Money Market and Money
Market Funds will not invest more than 5% of its total assets in securities of
issuers having the second highest rating from any NRSRO; and these Funds will
not invest more than the greater of one percent of its total assets or $1
million in securities issued by an issuer, having at the time of acquisition
or roll over, the second highest rating from any NRSRO. The Tax-Exempt Money
Market Fund will not invest more than 5% of its total assets in conduit
securities (not subject to unconditional demand features) of issuers having
the second highest rating from any NRSRO. Additionally, the Tax-Exempt Money
Market Fund will not invest more than the greater of one percent of its total
assets or $1 million in conduit securities (not subject to unconditional
demand features) of an issuer which, at the time of acquisition or roll over,
has the second highest rating from an NRSRO. Among the criteria adopted by
the Board of Directors, a Fund will not purchase any bank or corporate
obligation unless it is rated at least Aa or Prime-1 by Moody's or AA, A-1+
or A-1 by S&P or, if not rated by S&P or Moody's, it is determined to be of
comparable quality by the Fund's investment adviser under the supervision of
the Board of Directors. Ratings, however, are not the only criteria utilized
under the procedures adopted by the Board of Directors.
These quality standards must be satisfied at the time an investment is made.
In the event that an investment held by the Fund is assigned a lower rating or
ceases to be rated, the Fund's investment adviser, under the supervision of the
Board of Directors, will promptly reassess whether such security presents
minimal credit risks and whether the Fund should continue to hold the security
in its portfolio. If a portfolio security no longer presents minimal credit
risks, is in default or its rating is downgraded to below the second highest
rating category, the Fund will dispose of the security as soon as reasonably
practicable unless the Board of Directors determines that to do so is not in the
best interests of the Fund.
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.
YEAR 2000 RISKS. Like other mutual funds, financial and business
organizations and individuals around the world, the Funds could be adversely
affected if the computer systems used by the Funds' 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 Funds' 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
Funds' 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 Funds. In
addition, the Year 2000 Problem may adversely affect the markets and the
issuers of securities in which the Funds may invest which, in turn, may
adversely affect the net asset values of the Funds. 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 Funds' portfolio.
The risks are greater with respect to certain developing or emerging markets
countries because there is an increased likelihood that issuers of securities
of such countries cannot anticipate or effectively manage the affects of
computer programs and the Year 2000 Problem. Accordingly, the Funds'
investments may be adversely affected. The statements above are subject to
the Year 2000 Information and Readiness Disclosure Act which Act may limit
the legal rights regarding the use of such statements in the case of a
dispute.
12
<PAGE>
INVESTMENT ADVISORY
SERVICES
INVESTMENT ADVISER
Van Kampen Investment Advisory Corp. is the investment adviser (the "Adviser" or
"Advisory Corp.") and administrator of the Funds. The Adviser is a wholly owned
subsidiary of Van Kampen Investments Inc. ("Van Kampen Investments"). Van Kampen
Investments is a diversified asset management company with more than two million
retail investor accounts, extensive capabilities for managing institutional
portfolios, and more than $75 billion under management or supervision. Van
Kampen Investments' more than 50 open-end and 39 closed-end funds and more than
2,500 unit investment trusts are professionally distributed by leading financial
advisers nationwide. Van Kampen Funds Inc., the distributor of the Funds (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 Funds retain the Adviser to
manage the investment of its assets and to place orders for the purchase and
sale of portfolio securities. Under an investment advisory agreement between the
Adviser and the Funds (the "Advisory Agreement"), the Funds pay the Adviser a
monthly fee computed based upon an annual rate applied to the average daily net
assets of the Funds as follows:
<TABLE>
<CAPTION>
NET ASSETS ABOVE EFFECTIVE ADVISORY FEE
NET ASSETS UP TO $250 MILLION UP NET ASSETS EXCEEDING FOR THE FISCAL YEAR
$250 MILLION TO $500 MILLION $500 MILLION ENDED JUNE 30, 1999
----------------- ----------------- --------------------- ----------------------
<S> <C> <C> <C> <C>
Money Market Fund............................ 0.45% 0.40% 0.35%
Tax-Free Money Market Fund................... 0.45% 0.40% 0.35%
Government Obligations Money Market Fund..... 0.45% 0.40% 0.35%
</TABLE>
The Funds also retain the Adviser to provide administrative services for
the Funds' day-to-day operations. Under an administration agreement, between
the Adviser and the Funds, the Funds pay a monthly administration fee
computed based upon an annual rate of 0.10% of the first $200 million of the
Funds' average daily net assets, 0.075% on the next $200 million of average
daily net assets, 0.05% on the next $200 million of average daily net assets,
and 0.03% on the average daily net assets over $600 million of each Fund.
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 Funds pay all charges and expenses of its day-to-day operations, including
the compensation of directors of the Funds (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.
From time to time, the Adviser or the Distributor may voluntarily undertake to
reduce a Funds' expenses by reducing the fees payable to them or by reducing
other expenses of such Funds in accordance with such limitations as the Adviser
or Distributor may establish.
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen Asset Management
Inc. ("Asset Management").
13
<PAGE>
INVESTMENT SUBADVISER
Morgan Stanley Dean Witter Investment Management Inc. (the "Subadviser") is the
Subadviser of the Funds. 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 December 31, 1998, the Subadviser, together with its affiliated
institutional asset management companies, managed assets of approximately
$163.4 billion, including assets under fiduciary advice. The Subadviser's
address is 1221 Avenue of the Americas, New York, New York 10020.
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 percentage of
the net advisory fees the Adviser receives from the Funds.
----------
PERSONAL INVESTMENT POLICIES. The Funds, the Adviser and the Subadviser have
adopted Codes of Ethics designed to recognize the fiduciary relationship among
the Funds, 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.
PURCHASE OF SHARES
GENERAL. Each Fund offers one class of shares to the public on a continuous
basis at net asset value per share without any sales charge through the
Distributor as principal underwriter, which is located at 1 Parkview Plaza,
P.O. Box 5555, Oakbrook Terrace, Illinois 60181-5555. Shares are also offered
through members of the NASD who are acting as securities dealers ("dealers")
and NASD members or eligible non-NASD members who are acting as brokers or
agents for investors ("brokers"). The term "dealers" and "brokers" are sometimes
referred to herein as "Participating Dealers." Shares are also offered through
Morgan Stanley & Co. to Prime Resource Account Holders.
The minimum initial investment is $250,000, except that the minimum initial
investment amount for Prime Resource Account Holders is $500. The minimum for
subsequent investments is $25 and there is no minimum for automatic reinvestment
of dividends and distributions. The Distributor may waive the investment
minimums in its sole discretion. A Fund in its sole discretion may accept or
reject any order for purchases of its shares.
PURCHASES BY PRIME RESOURCE ACCOUNT HOLDERS
GENERAL. Prime Resource Account Holders are account holders who open a
prime resource account with Morgan Stanley & Co. A prime resource account is a
cash management account offering such features as check writing privileges,
automatic sweep of all cash balances into a money market fund and a Visa Gold
credit card. Pursuant to the sweep feature, Prime Resource Account Holders will
be permitted to purchase shares of the money market funds. Prime resource
accounts are available only to clients of broker-dealers who use Morgan Stanley
& Co. as their clearing firm. Investors may purchase shares through an account
maintained by the investor with his brokerage firm (an "Account").
All payments for initial and subsequent investments should be in U.S.
Dollars. Purchases will be effected at the net asset value per share next
determined after PFPC, Inc. (the "Sub-Transfer Agent") has received a purchase
order in proper form and the Fund's custodian has Federal Funds immediately
available to it.
PURCHASES THROUGH A PRIME RESOURCE ACCOUNT. Share purchases may be effected
through an investor's account with his broker through procedures established in
connection with the requirements of Accounts at such broker.
In such event, beneficial ownership of shares will be recorded by the broker
and will be reflected in the account statements provided by the broker to such
investors. A broker may impose minimum investor account requirements. Although a
broker does not impose a sales charge for purchases of shares, depending on the
terms of an investor's account with his or her broker, the broker may charge an
investor's account fees for automatic investment and other service provided to
the Account. Information concerning Account requirements, services and charges
should be obtained from an investor's broker. This Prospectus should be read in
conjunction with any information received from a broker.
14
<PAGE>
A broker may offer investors maintaining Accounts the ability to purchase
shares under an automatic purchase program (a "Purchase Program") established by
a participating broker. An investor who participates in a Purchase Program will
have their "free-credit" cash balances in their Account automatically invested
in shares of the Fund which they have designated (the "Designated Fund") under
the Purchase Program. The frequency of investments and the minimum investment
requirement will be established by the broker and the Company. In addition, the
broker may require a minimum amount of cash and/or securities to be deposited in
an Account for participants in its Purchase Program. The description of the
particular broker's Purchase Program should be read for details, and any
inquiries concerning an Account under a Purchase Program should be directed to
the broker. A participant in a Purchase Program may change the designation Fund
at any time by so instructing his broker.
If a broker makes special arrangements under which orders for shares are
received by the Sub-Transfer Agent prior to 12:00 noon (Eastern Time) on any day
that the New York Stock Exchange (the "NYSE") and Federal Reserve Banks are open
for business (a "Business Day"), and the broker guarantees that payment for such
shares will be made in Federal Funds to the Fund's custodian prior to 4:00 p.m.
(Eastern Time), on the same day, such purchase orders will be effective, and
shares will be purchased at the offering price in effect, as of 12:00 p.m.
(Eastern Time) on the date the purchase order is received by the Sub-Transfer
Agent. Purchase
15
<PAGE>
orders received after 12:00 p.m. (Eastern Time) and prior to 4:00 p.m. (Eastern
Time), on any Business Day for which payment in Federal Funds has been received
by 4:00 p.m. (Eastern Time), will be effective, and shares will be purchased at
the offering price in effect, as of 4:00 p.m. (Eastern Time) the same day.
FOR PRIME RESOURCE ACCOUNT HOLDERS, INFORMATION ON EACH FUND CAN BE OBTAINED
BY CALLING THE SUB-TRANSFER AGENT AT 1-800-533-7719.
PURCHASES BY ALL OTHER SHAREHOLDERS
GENERAL. Shares of the Company may be purchased on any business day through
Participating Dealers. Shares may also be purchased by completing the
application accompanying this Prospectus and forwarding the application, through
the Participating Dealer, to Investor Services, a wholly-owned subsidiary of Van
Kampen.
The price paid for shares purchased is based on the next calculation of net
asset value per share after an order is received by a Participating Dealer and
transmitted to the Distributor. If the Distributor receives a purchase order
prior to 12:00 noon (Eastern Time) and receives payment in Federal Funds prior
to 4:00 p.m. (Eastern Time) on any day that the NYSE and Federal Reserve Banks
are open for business (a "Business Day"), shares will be purchased at the
offering price in effect as of 12:00 p.m. (Eastern Time) on the date the
purchase order is received by a Participating Dealer. Purchase orders received
after 12:00 p.m. (Eastern Time) and prior to 4:00 p.m. (Eastern Time), on any
Business Day for which payment in Federal Funds has been received by 4:00 p.m.
(Eastern Time), will be effective, and shares will be purchased at the offering
price in effect, as of 4:00 p.m. (Eastern Time) the same day provided such order
is transmitted to the Distributor prior to the Distributor's close of business
on such day. Orders received by Participating Dealers after the close of the
NYSE are priced based on the net asset value per share next calculated provided
they are received by the Distributor prior to the Distributor's close of
business on such day. It is the responsibility of Participating Dealers to
transmit orders received by them to the Distributor so they will be received
prior to such time. Orders of less than $500 are mailed by the Participating
Dealer and processed at the offering price next calculated after acceptance by
Investor Services.
OTHER PURCHASE INFORMATION
Purchase of shares of the Funds by check is credited to your account at the
price next determined after receipt of Federal Funds on the day of receipt and
will begin receiving dividends the following day. If you purchase shares of a
Fund directly, you must make payment by check or Federal Funds to effect your
purchase of the shares and obtain the price for the shares as described above.
Purchasing shares of a Fund is different from placing a trade for securities at
a given price and having a certain number of days in which to make settlement or
payment for the securities.
To ensure that checks are collected by the Fund, withdrawals of investments
made by check will not be forwarded until the Fund's depository bank has made
fully available for withdrawal the check amount used to purchase Fund shares,
which generally will be within 15 days. As a condition of this offering, if a
purchase is canceled due to nonpayment or because your check does not clear, you
will be responsible for any loss the Fund and/or its agents incur. If you are
already a shareholder, the Fund may redeem shares from your account(s) to
reimburse the Fund and/or its agents for any loss. In addition, you may be
prohibited or restricted from making future purchases in the Fund.
SHAREHOLDER SERVICES RELATED TO PURCHASES (Shareholders Other Than Prime
Resource Account Holders)
The Fund offers a number of shareholder services designed to facilitate
investment in its shares at little or no extra cost to the investor. Below is a
description of such services. Unless otherwise described below, each of these
services may be modified or terminated by the Fund at any time.
INVESTMENT ACCOUNT. Investor Services performs bookkeeping, data processing
and administration services related to the maintenance of shareholder accounts.
Each shareholder has an investment account under which shares are held by
Investor Services. Except as described herein, after each share transaction in
an account, the shareholder receives a statement showing the activity in the
account. Each shareholder will receive statements at least quarterly from
Investor Services showing any reinvestments of dividends and capital gains
distributions and any other
16
<PAGE>
activity in the account since the preceding statement. Such shareholders also
will receive separate confirmations for each purchase or sale transaction other
than reinvestment of dividends and capital gains distributions and systematic
purchases or redemptions. Additions to an investment account may be made at any
time by purchasing shares through authorized brokers, dealers or financial
intermediaries or by mailing a check directly to Investor Services.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gains distributions in shares of
the applicable Fund. Such shares are acquired at net asset value per share on
the record date of such dividend or distribution. Unless the shareholder
instructs otherwise, the reinvestment plan is automatic. This instruction may be
made by telephone by calling (800) 282-4404 or (800) 772-8889 for the hearing
impaired, or in writing to Investor Services. The investor may, on the initial
application or prior to any declaration, instruct that dividends be paid in cash
and capital gains distributions be reinvested at net asset value, or that both
dividends and capital gains distributions be paid in cash. For further
information, see "Distributions from the Fund."
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under
which a shareholder can authorize Investor Services to charge a bank account on
a regular basis to invest pre-determined amounts in the Funds. Additional
information is available from the Distributor or authorized brokers, dealers or
financial intermediaries.
DIVIDEND DIVERSIFICATION. A shareholder may, upon written request or by
completing the appropriate section of the application form accompanying this
Prospectus or by calling (800) 282-4404, or (800) 772-8889 for the hearing
impaired, elect to have all dividends and other distributions paid on shares of
the Fund invested into shares of any other Participating Fund, so long as a
pre-existing account exists for such shareholder. Both accounts must also be of
the same type, either non-retirement or retirement. Any two non-retirement
accounts can be used. If the accounts are retirement accounts, they must both be
for the same type of retirement plan (e.g. IRA, 403(b)(7), 401(k), Keogh) and
for the benefit of the same individual. The phrase "Participating Funds," as
used herein, refers to certain open-end investment companies advised by the
Adviser or Van Kampen Asset Management Inc. ("Asset Management") and distributed
by the Distributor as determined from time to time by the Fund's Board of
Directors.
If the qualified pre-existing account does not exist, the shareholder must
establish a new account subject to minimum investment and other requirements of
the Participating Fund into which distributions would be invested. Distributions
are invested into the selected fund at its net asset value per share as of the
payable date of the distribution only if shares of such selected fund have been
registered for sale in the investor's state and are currently available for
sale.
SHARE CERTIFICATES. Generally, the Fund will not issue share certificates.
However, upon written or telephone request to the Fund, a share certificate will
be issued, representing shares (with the exception of fractional shares) of the
Fund. A shareholder will be required to surrender such certificates upon
redemption or transfer thereof. In addition, if such certificates are lost the
shareholder must write to Van Kampen Series Fund, Inc. c/o Van Kampen Investor
Services Inc., P.O. Box 218256, Kansas City, MO 64121-8256, requesting an
"affidavit of loss" and to obtain a Surety Bond in a form acceptable to Investor
Services. On the date the letter is received, Investor Services will calculate a
fee for replacing the lost certificate equal to no more than 2.00% of the value
of the issued shares and bill the party to whom the replacement certificate was
mailed.
SYSTEMATIC WITHDRAWAL PLAN. A shareholder, other than a Prime Resource
Account Holder, whose shares in a single account total $5,000 or more at the
offering price next computed after receipt of instructions may establish a
quarterly, semi-annual or annual withdrawal plan. A shareholder, other than a
Prime Resource Account Holder, whose shares in a single account total $10,000 or
more at the offering price next computed after receipt of instructions may
establish a monthly, quarterly, semi-annual or annual withdrawal plan. This plan
17
<PAGE>
provides for the orderly use of the entire account, not only the income but also
the principal, if necessary. Each withdrawal constitutes a redemption of shares
on which taxable gain or loss will be recognized. The plan holder may arrange
for monthly, quarterly, semi-annual, or annual checks in any amount not less
than $25.
Under the plan, sufficient shares of the Company are redeemed to provide the
amount of the periodic withdrawal payment. Dividends and capital gains
distributions on shares held under the plan are reinvested in additional shares
at the next determined net asset value. If periodic withdrawals continuously
exceed reinvested dividends and capital gains distributions, the shareholder's
original investment will be correspondingly reduced and ultimately exhausted.
The Company reserves the right to amend or terminate the systematic withdrawal
program on 30 days' notice to its shareholders.
AUTOMATED CLEARING HOUSE ("ACH") DEPOSITS. A shareholder, other than a
Prime Resource Account Holder, can use ACH to have redemption proceeds deposited
electronically into their bank accounts. Redemptions transferred to a bank
account via the ACH plan are available to be credited to the account on the
second business day following normal payment. In order to utilize this option,
the shareholder's bank must be a member of ACH. In addition, the shareholder
must fill out the appropriate section of the account application. The
shareholder must also include a voided check or deposit slip from the bank
account into which redemptions are to be deposited together with the completed
application. Once Investor Services has received the application and the voided
check or deposit slip, such shareholder's designated bank account, following any
redemption, will be credited with the proceeds of such redemption. Once enrolled
in the ACH plan, a shareholder may terminate participation at any time by
writing to Investor Services or by calling (800) 282-4404. A shareholder's bank
may charge a fee for ACH transfers.
FOR SHAREHOLDERS OTHER THAN PRIME RESOURCE ACCOUNT HOLDERS, INFORMATION ON
EACH FUND CAN BE OBTAINED BY CALLING THE TRANSFER AGENT AT 1-800-282-4404.
SHAREHOLDER SERVICES
TRANSFER OF REGISTRATION. You may transfer the registration of any of your
Company shares to another person by writing to the Company c/o Van Kampen
Investor Services Inc., P.O. Box 418256, Kansas City, Missouri 64141-9256. As in
the case of redemptions, the written request must be received in "good order"
before any transfer can be made.
RETIREMENT PLANS. Eligible investors may establish individual retirement
accounts ("IRAs"); Simplified Employee Pension ("SEP") Plans; pension and profit
sharing plans; 401(k) plans; or Section 403(b)(7) plans in the case of employees
of public school systems and certain non-profit organizations. Documents and
forms containing detailed information regarding these plans are available from
the Distributor. Van Kampen Trust Company serves as custodian under the IRA,
403(b)(7) and Keogh plans. Details regarding fees, as well as full plan
administration for profit sharing, pension and 401(k) plans, are available from
the Distributor.
EXCHANGE PRIVILEGE. Shares of a Fund may be exchanged with shares of
another Money Market Fund, subject to certain limitations. SHAREHOLDERS MAY ONLY
EXCHANGE INTO SUCH OTHER FUNDS AS ARE LEGALLY AVAILABLE FOR SALE IN THEIR STATE
AND ARE CURRENTLY AVAILABLE FOR SALE.
A shareholder wishing to make an exchange may do so by sending a written
request to Investor Services or by contacting the telephone transaction line at
(800) 421-5684 or (800) 772-8889 for the hearing impaired. A shareholder
automatically has telephone exchange privileges unless otherwise designated in
the application form accompanied by this Prospectus. See "Redemption of Shares
- -- Telephone Transaction Procedures" for more information. The exchange will
take place at the relative net asset value per share of the shares next
determined after receipt of such request. Any shares exchanged begin earning
dividends on the next business day after the exchange is affected. Exchanges of
shares are sales and may result in a gain or loss for federal income tax
purposes. If the exchanging shareholder does not have an account in the Fund
whose shares are being acquired, a new account will be established with the same
registration, dividend and capital gains options (except dividend
diversification options) and broker, dealer or financial intermediary of record
as the account
18
<PAGE>
from which shares are exchanged, unless otherwise specified by the shareholder.
In order to establish a systematic withdrawal plan for the new account or
dividend diversification options for the new account, an exchanging shareholder
must file a specific written request. The Company reserves the right to reject
any order to acquire its shares through exchange. In addition, the Company may
restrict or terminate the exchange privilege at any time on 60 days' notice to
its shareholders of any termination or material amendment.
GENERAL
The net asset value per share of each of the Funds is determined at 12:00
p.m. (Eastern Time) and 4:00 p.m. (Eastern Time) on the days on which the NYSE
and the Custodian are open. For the purpose of calculating the Fund's net asset
value per share, securities are valued by the "amortized cost" method of
valuation, which does not take into account unrealized gains or losses. This
involves valuing an instrument at its cost and thereafter assuming a constant
amortization to maturity of any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the instrument. While this
method provides certainty in valuation, it may result in periods during which
value, as determined by amortized cost, is higher or lower than the price the
Fund would receive if it sold the instrument.
DISTRIBUTION AND SERVICE. Each Fund has adopted a distribution plan (the
"Distribution Plan") with respect to its shares pursuant to Rule 12b-1 under
the 1940 Act. Each Fund also has adopted a service plan (the "Service Plan")
with respect to its shares. Under the Distribution Plan and the Service Plan,
each 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.
Under the Distribution Plan and Service Plan, each Fund may spend a total of
0.50% per year of the average daily net assets with respect to the 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
Shares for the ongoing provision of services to shareholders by the
Distributor and by brokers, dealers or financial intermediaries and for the
maintenance of such shareholders' accounts.
REDEMPTION OF
SHARES
REDEMPTION PROCEDURES Redemption orders are effected at the net asset value
per share next determined after receipt of the order in proper form by the
Sub-Transfer Agent. Investors may redeem all or some of their shares in
accordance with one of the procedures described below.
REDEMPTIONS BY PRIME RESOURCE ACCOUNT HOLDERS
REDEMPTION OF SHARES IN A PRIME RESOURCE ACCOUNT. Investors who
beneficially own shares may redeem such shares in their Accounts in
accordance with instructions and limitations pertaining to their Accounts by
contacting their brokers. If such notice is received by the Sub-Transfer
Agent by 12:00 noon (Eastern Time) on any Business Day, the redemption will
be effective as of 12:00 noon (Eastern Time) on that day. Payment of the
redemption proceeds will be made after 12:00 noon (Eastern Time) on the day
the redemption is effected, provided that PNC Bank, N.A. (the "Custodian") is
open for business. If the Custodian is not open, payment will be made on the
next bank business day. If the redemption request is received after 12:00
noon but before 4:00 p.m. (Eastern Time), the redemption will be effected as
of 4:00 p.m. (Eastern Time) on that day and payment of the redemptions
proceeds will be made after 12:00 noon (Eastern Time) on the next Business
Day after the redemption is effected, provided that the Custodian is open for
business. If the Custodian is not open, payment will be made on the next bank
business day. If all shares are redeemed, all accrued but unpaid dividends on
those shares will be paid with the redemption proceeds.
An investor's brokerage firm will also redeem each day a sufficient number
of shares of the designated Fund to cover debit balances created by transactions
in the Account or instructions for cash disbursements. Fund shares will be
redeemed on the same day that a transaction occurs that results in such a debit
balance or charge.
Each brokerage firm reserves the right to waive or modify criteria for
participation in an Account or to terminate participation in an Account for any
reason.
19
<PAGE>
REDEMPTION BY CHECK. Upon request, the Funds will provide any Prime
Resource Account Holder with forms of drafts ("checks") payable through the
Custodian. These checks may be made payable to the order of anyone. The minimum
amount of a check is $500. An investor wishing to use this check writing
redemption procedure should complete specimen signature cards, and then forward
such signature cards to the investor's broker or in accordance with the broker's
instructions. Upon receipt, the Sub-Transfer Agent will then arrange for the
checks to be honored by the Custodian. Investors who own shares through an
Account should contact their brokers for signature cards. Investors with joint
accounts may elect to have checks honored with a single signature. Check
redemptions will be subject to the Custodian's rules governing checks. The
Fund or Sub-Transfer Agent may terminate this redemption service at any time,
and shall not incur any liability for honoring checks, for effecting redemptions
to pay checks, or for returning checks which have not been accepted.
When a check is presented to the Custodian for clearance, the Custodian, as
the investor's agent, will cause the appropriate Fund to redeem a sufficient
number of full and fractional shares owned by the investor to cover the amount
of the check at the redemption price next determined after the redemption
requested is presented. Checks may not be presented for cash payment at the
offices of the Custodian.
REDEMPTION BY ALL OTHER SHAREHOLDERS
Shareholders may redeem for cash some or all of their shares without charge
by the Funds at any time by sending a written request in proper form directly
to the Fund c/o Van Kampen Investor Services Inc., P.O. Box 418256, Kansas City,
Missouri 64141-9256, by placing the redemption request through Participating
Dealer or by calling the Company.
WRITTEN REDEMPTION REQUESTS. In the case of redemption requests sent
directly to Investor Services, the redemption request should indicate the number
of shares or dollars to be redeemed, the account number and be signed exactly as
the shares are registered. Signatures must conform exactly to the account
registration. If the proceeds of the redemption would exceed $50,000, or if the
proceeds are not to be paid to the record owner at the record address, or if the
record address has changed within the previous 30 days, signature(s) must be
guaranteed by one of the following: a bank or trust company; a broker-dealer; a
credit union; a national securities exchange, registered securities association
or clearing agency; a savings and loan association; or a federal savings bank.
If certificates are held for the shares being redeemed, such certificates must
be endorsed for transfer or accompanied by an endorsed stock power and sent with
the redemption request. In the event the redemption is requested by a
corporation, partnership, trust, fiduciary, executor or administrator, and the
name and title of the individual(s) authorizing such redemption is not shown in
the account registration, a copy of the corporate resolution or other legal
documentation appointing the authorized signer and certified within the prior
120 days must accompany the redemption request. The redemption price is the net
asset value per share next determined after the request is received by Investor
Services in proper form. Payment for shares redeemed will ordinarily be made by
check mailed within seven business days after acceptance by Investor Services of
the request and any other necessary documents in proper order.
DEALER REDEMPTION REQUESTS. Shareholders may redeem shares through their
securities dealers, who will submit the request to the Distributor. Orders
received from dealers must be at least $500 unless transmitted via the
FUNDSERV network. The redemption price for such shares is the net asset value
per share next calculated after an order is received by a dealer provided
such order is transmitted to the Distributor prior to the Distributor's close
of business on such day. It is the responsibility of dealers to transmit
redemption requests received by them to the Distributor so they will be
received prior to such time. Any change in the redemption price due to
failure of the Distributor to receive a redemption request prior to such time
must be settled between the shareholder and dealer. Shareholders must submit
a written redemption request in proper form (as described above under
"Written Redemption Requests") to the dealer within three business days after
calling the dealer with the redemption request. Payment for shares redeemed
will ordinarily be made by check mailed within three business days to the
dealer.
20
<PAGE>
TELEPHONE REDEMPTION REQUESTS. Each Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. To establish
such privilege, a shareholder must complete the appropriate section of the
application accompanying this Prospectus or call the Funds at (800) 282-4404,
or (800) 772-8889 for the hearing impaired, to request that a copy of the
Telephone Redemption Authorization form be sent to them for completion. To
redeem shares, contact the telephone transaction line at (800) 421-5684. See
"Telephone Transaction Procedures" for more information. Telephone redemptions
may not be available if the shareholder cannot reach Investor Services by
telephone, whether because all telephone lines are busy or for any other reason;
in such case, a shareholder would have to use the Company's other redemption
procedures previously described. Requests received by Investor Services prior to
12:00 noon, Eastern Time, on a regular business day or 4:00 p.m., Eastern Time,
on a regular business day will be processed at the net asset value per share
determined at 12:00 noon, Eastern Time or 4:00 p.m., Eastern Time, respectively,
that day. These privileges are available for all accounts other than retirement
accounts. The telephone redemption privilege is not available for shares
represented by certificates. If an account has multiple owners, Investor
Services may rely on the instructions of any one owner.
For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check sent to the shareholders'
address of record and amounts of at least $1,000 and up to $1 million may be
redeemed daily if the proceeds are to be paid by wire sent to the shareholder's
bank account of record. The proceeds must be payable to the shareholder(s) of
record. Proceeds from redemptions to be paid by check will ordinarily be mailed
within three business days to the shareholder's address of record. Proceeds from
redemptions to be paid by wire will ordinarily be wired on the next business day
to the shareholder's bank account of record. This privilege is not available if
the address of record or bank account has been changed within 30 days prior to a
telephone redemption request. Each Fund reserves the right at any time to
terminate, limit or otherwise modify this telephone redemption privilege.
GENERAL REDEMPTION INFORMATION. If the shares to be redeemed have been
recently purchased by check, Investor Services may delay mailing a redemption
check or wiring redemption proceeds until it confirms that the purchase check
has cleared, usually a period of up to 15 days. In addition, the redemption
payment may be delayed or the right of redemption suspended by the Fund pursuant
to rules of the SEC.
The Funds may redeem any shareholder account with a value on the date of the
notice of redemption less than the minimum initial investment as specified by
the Directors. At least 60 days' advance written notice of any such involuntary
redemption will be given and the shareholder will be given an opportunity to
purchase the required value of additional shares at the next determined net
asset value per share. Any involuntary redemption may only occur if the
shareholder account is less than the minimum initial investment due to
shareholder redemptions.
IRA redemption requests should be sent to the IRA custodian to be forwarded
to Investor Services. Where Van Kampen Trust Company serves as IRA Custodian,
special IRA, 403(b)(7), or Keogh redemption forms must be obtained from and be
forwarded to Van Kampen Trust Company, P.O. Box 944, Houston, Texas 77001-0944.
Contact the Custodian for information.
FOR SHARES HELD IN BROKER STREET NAME, YOU CANNOT REQUEST REDEMPTION BY
TELEPHONE OR BY MAIL; SUCH SHARES MAY BE REDEEMED ONLY BY CONTACTING YOUR
PARTICIPATING DEALER.
TELEPHONE TRANSACTION PROCEDURES. Van Kampen Investments and the Funds
employ procedures considered by them to be reasonable to confirm that
instructions communicated by telephone are genuine. Such procedures include
requiring certain personal identification information prior to acting upon
telephone instructions, tape recording telephone communications, and providing
written confirmation of instructions communicated by telephone. If reasonable
procedures are employed, neither Van Kampen Investments nor the Funds will be
liable for following instructions which it reasonably believes to be genuine.
Van Kampen Investments and the Funds may be liable for any losses due to
unauthorized or fraudulent instructions if reasonable procedures are not
followed.
21
<PAGE>
DISTRIBUTIONS FROM
THE FUNDS
Shareholders will automatically be credited with all dividends and
distributions in additional shares at net asset value per share, except that,
upon written notice to the Fund or by checking off the appropriate box in the
account application form, a shareholder may elect to receive dividends and/or
distributions in cash.
For the Funds, net investment income is computed and dividends declared
as of 1:00 p.m. (Eastern Time) on each day. Such dividends are payable to
Fund shareholders of record as of 12:00 p.m. (Eastern Time) on that day, if
the Company and the Custodian are open for business. This means that
shareholders whose purchase orders become effective as of 12:00 p.m. (Eastern
Time) will begin to receive the dividend on that day and shareholders whose
purchase orders become effective as of 4:00 p.m. (Eastern Time) will begin to
receive the dividend on the following day. Dividends declared for Saturdays,
Sundays and holidays are payable to shareholders of record as of 4:00 p.m.
(Eastern Time) on the last preceding day the Company and the Custodian were
open for business. Net realized gains, if any, after reduction for any
available tax loss carry forward may be distributed annually.
It is an objective of management to maintain the price per share of each
Fund as computed for the purpose of sales and redemptions at exactly $1.00. In
the event the Directors determine that a deviation from the $1.00 per share
price may exist which may result in a material dilution or other unfair results
to investors or existing shareholders, they will take corrective action they
regard as necessary and appropriate, including selling instruments from the Fund
prior to maturity to realize gains or losses, shortening average portfolio
maturity, withholding dividends, making a special capital distribution, or
redeeming of shares in kind.
FEDERAL INCOME
TAXATION
Distributions of a Fund's net investment income (consisting generally of taxable
income and net short-term capital gains) 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 a Fund's net capital gains
(which are the excess of net long-term capital gains over net short-term capital
losses) as capital gain dividends, if any, are taxable to shareholders as
long-term capital gains, whether paid in cash or reinvested in additional
shares, and regardless of how long the shares of the Fund have been held by such
shareholders. Capital gains dividends may be taxed at different rates depending
on how long the Fund held the securities. Each Fund expects that its
distributions will consist primarily of ordinary income and capital gains
dividends. Distributions in excess of a 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 Funds 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.
22
<PAGE>
Each 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 appropriate Fund their correct taxpayer identification number
(in the case of individuals, their social security number) and certain required
certifications or who are otherwise subject to backup withholding.
Foreign shareholders, including shareholders who are non-resident aliens, may be
subject to U.S. withholding tax on certain distributions (whether received in
cash or in shares) at a rate of 30% or such lower rate as prescribed by an
applicable treaty. Prospective foreign investors should consult their U.S. tax
advisers concerning the tax consequences to them of an investment in shares.
Each 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 distributed to
shareholders. If the Fund distributes less than the sum of 98% of its ordinary
income and 98% of its capital gains 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, or disposing of
shares, as well as the effects of state, local and foreign tax law and any
proposed tax law changes.
23
<PAGE>
FINANCIAL HIGHLIGHTS
These financial highlights tables are intended to help you understand the
Money Market Fund's and Government Obligations Money Market 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
respective Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report, along with each 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>
MORGAN STANLEY GOVERNMENT OBLIGATIONS MONEY MARKET FUND
- --------------------------------------------------------------------------------
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.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment
Income/Loss.......... 0.0420 0.0469 0.0443 0.0464 0.0448
Net Realized and
Unrealized
Gain/Loss............ (0.0019) -- -- (0.0011) --
------------ ------------ ------------ ------------ ------------
Total From Investment
Operations........... 0.0401 0.0469 0.0443 0.0453 0.0448
------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS
Net Investment
Income............... (0.0401) (0.0469) (0.0443) (0.0453) (0.0448)
Net Realized Gain...... -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Total Distributions.... (0.0401) (0.0469) (0.0443) (0.0453) (0.0448)
------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF
PERIOD................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
TOTAL RETURN............. 4.09% 4.79% 4.53% 4.72% 4.58%
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's)................ $ 28,873 $ 56,302 $ 94,768 $ 145,978 $ 67,505
Ratio of Expenses to
Average Net Assets..... 0.95% 0.95% 0.95% 0.95% 0.95%
Ratio of Net Investment
Income/Loss to Average
Net Assets............. 4.20% 4.64% 4.43% 4.68% 4.61%
- ---------------------------------------------------------------------------------------------------------
RATIOS BEFORE EXPENSE
LIMITATION:
Expenses to Average Net
Assets............... 1.20% 1.22% 1.27% 1.24% 1.12%
Net Investment
Income/Loss to
Average Net Assets... 3.95% 4.38% 4.10% 4.39% 4.44%
- ---------------------------------------------------------------------------------------------------------
</TABLE>
# Changes per share are based upon monthly average shares outstanding.
<TABLE>
<CAPTION>
MORGAN STANLEY MONEY MARKET FUND
- --------------------------------------------------------------------------------
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............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss......... 0.0432 0.0472 0.0450 0.0463 0.0446
Net Realized and Unrealized
Gain/Loss........................ (0.0018) -- -- (0.0006) 0.0001
------- -------- -------- -------- --------
Total From Investment Operations... 0.0414 0.0472 0.0450 0.0457 0.0447
------- -------- -------- -------- --------
DISTRIBUTIONS
Net Investment Income.............. (0.0414) (0.0472) (0.0450) (0.0457) (0.0446)
Net Realized Gain.................. -- -- -- -- (0.0001)
------- -------- -------- -------- --------
Total Distributions................ (0.0414) (0.0472) (0.0450) (0.0457) (0.0447)
------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- -------- -------- -------- --------
------- -------- -------- -------- --------
TOTAL RETURN (1)..................... 4.22% 4.83% 4.60% 4.72% 4.55%
------- -------- -------- -------- --------
------- -------- -------- -------- --------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's).... $31,955 $119,376 $138,422 $170,973 $171,515
Ratio of Expenses to Average Net
Assets............................. 0.98% 0.98% 0.98% 0.98% 0.98%
Ratio of Net Investment Income/Loss
to Average Net Assets.............. 4.32% 4.72% 4.50% 4.65% 4.45%
- -----------------------------------------------------------------------------------------------------
RATIOS BEFORE EXPENSE LIMITATION:
Expenses to Average Net Assets..... 1.23% 1.10% 1.27% 1.22% 1.18%
Net Investment Income/Loss to
Average Net Assets............... 4.07% 4.61% 4.20% 4.41% 4.25%
- -----------------------------------------------------------------------------------------------------
</TABLE>
# 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 Philip 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
Edward C. Wood III*
VICE PRESIDENT
A. Thomas Smith III*
VICE PRESIDENT AND SECRETARY
Michael H. Santo*
VICE PRESIDENT
Peter W. Hegel*
VICE PRESIDENT
Stephen L. Boyd*
VICE PRESIDENT
Joseph P. Stadler*
VICE PRESIDENT
Curtis W. Morell*
VICE PRESIDENT & CHIEF ACCOUNTING OFFICER
Tanya M. Loden*
CONTROLLER
John L. Sullivan*
VICE PRESIDENT, CHIEF FINANCIAL OFFICER & TREASURER
* "Interested" persons of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2911
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders, or
redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call
(800) 421-2833
FUND INFO-REGISTERED TRADEMARK-
For automated telephone services, call (800) 847-2424
WEB SITE
www.vankampen.com
VAN KAMPEN MONEY MARKET FUND
VAN KAMPEN TAX-FREE MONEY MARKET FUND
VAN KAMPEN GOVERNMENT OBLIGATIONS MONEY MARKET 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
CUSTODIAN
The Chase Manhattan Bank
3 MetroTech Center
Brooklyn, NY 11245
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
25
<PAGE>
MORGAN STANLEY MONEY MARKET FUND
MORGAN STANLEY TAX-FREE MONEY MARKET FUND
MORGAN STANLEY GOVERNMENT OBLIGATIONS MONEY MARKET FUND
PROSPECTUS
OCTOBER , 1999
A Statement of Additional Information, which contains more details about the
Funds, is incorporated by reference in its entirety into this prospectus.
You will find additional information about the Funds in its annual and
semiannual reports to shareholders.
You can ask questions or obtain a free copy of the Funds' reports or
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 Funds' reports
can also be ordered from our web site at www.vankampen.com.
Information about the Funds, including 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 Public Reference Room in
Washington, DC or online at the SEC's web site (http://www.sec.gov). For more
information, please call the SEC at (800) SEC-0330. You can also request
these materials by writing the Public Reference Section of the SEC,
Washington DC, 20549-6009, and paying a duplication fee.
[LOGO]
THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-7140.
MMF 10/99
<PAGE>
THE INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT COMPLETE AND
MAY BE CHANGED. THE FUND MAY NOT SELL THESE SECURITIES UNTIL THE POST-EFFECTIVE
AMENDMENT TO THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION IS EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A
PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT AN OFFER TO SELL
THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES.
<PAGE>
SUBJECT TO COMPLETION -- DATED AUGUST 27, 1999
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 nineteen investment
portfolios designed to offer a range of investment choices (each, a "Fund" and
collectively, the "Funds"). The Company is designed to make available to
investors the expertise of (i) Van Kampen Investment Advisory Corp. as an
investment adviser (the "Adviser") and administrator (the "Administrator") to
the Funds, (ii) Morgan Stanley Dean Witter Investment Management Co. ("MSDWIM"),
a sub-adviser (a "Sub-Adviser") to the Funds, other than Van Kampen Mid Cap
Growth Fund and Van Kampen Value Fund and (iii) Miller, Anderson & Sherrerd, LLP
("MAS"), a sub-adviser (a "Sub-Adviser") to Van Kampen Mid Cap Growth Fund and
Van Kampen Value Fund. As of the date hereof, 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 have not commenced a continuous offering of
shares.
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...... 3
Investment Restrictions................. 21
Directors and Officers.................. 24
Investment Advisory Agreement........... 32
Other Agreements........................ 33
Distribution and Service................ 34
Transfer Agent.......................... 38
Portfolio Transactions and Brokerage
Allocation............................. 38
Shareholder Services.................... 41
Redemption of Shares.................... 42
Contingent Deferred Sales Charge --
Class A................................ 42
Waiver of Class B and Class C Contingent
Deferred Sales Charge.................. 43
Taxation................................ 44
Performance Information................. 47
Other Information....................... 53
Appendix A -- Description of Securities
Ratings................................ A-1
Appendix B -- Limitations on Certain
Investment Practices................... B-1
Report of Independent Accountants....... F-1
Financial Statements....................
Notes to Financial Statements...........
</TABLE>
Date: October , 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 currently consists of nineteen investment portfolios (each a
"Fund" and collectively the "Funds"). As of the date hereof, 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 have not commenced a continuous
offering of shares.
Van Kampen Investment Advisory Corp. (the "Adviser" or "Advisory Corp.") is
the investment 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.
Advisory Corp., Van Kampen Funds Inc. (the "Distributor"), and Van Kampen
Investor Services Inc. ("Investor Services") are wholly owned subsidiaries of
Van Kampen Investments Inc. ("Van Kampen Investments"), which is an indirect
wholly owned subsidiary of Morgan Stanley Dean Witter & Co. ("Morgan Stanley
Dean Witter"). The principal office of the Fund, the Adviser, the Distributor
and Van Kampen Investments is located at 1 Parkview Plaza, PO Box 5555, Oakbrook
Terrace, Illinois 60181-5555.
Morgan Stanley Dean Witter and various of its directly or indirectly owned
subsidiaries, including MSDWIM, 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.
Fifteen of the Funds currently offer 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 the respective Funds generally are identical in all
respects except that each class bears certain distribution expenses and has
exclusive voting rights with respect to its distribution fee. Shares of the
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 such holders 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 , 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 AT CLASS OF PERCENTAGE
FUND NAME AND ADDRESS OF HOLDER , 1999 SHARES OWNERSHIP
- ---------------------------------------- --------------------------------------------- ------------ --------- -------------
<S> <C> <C> <C> <C>
</TABLE>
Van Kampen Trust Company acts as custodian for certain employee benefit
plans and individual retirement accounts.
INVESTMENT OBJECTIVES AND POLICIES
The following policies (listed in alphabetical order) supplement the
investment objectives and policies set forth in the Company's Prospectuses with
respect to the Company's nineteen 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, 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.
BORROWING AND OTHER FORMS OF LEVERAGE
To the extent set forth in Appendix B hereto, the Funds may engage in
borrowing for temporary or emerging purposes. To the extent set forth in
Appendix B hereto, certain Funds may engage in borrowing and other forms of
leverage for investment purposes. Leveraging will magnify declines as well as
increases in the net asset value of a Fund's shares and in the yield on a Fund's
investments. The extent to which each Fund may borrow will depend upon the
availability of credit. No assurance can be given that the Funds will be able to
borrow on terms acceptable to the Funds and the Adviser. Borrowing by a Fund
will create the opportunity for increased net income but, at the same time, will
involve special risk considerations. Borrowing will create interest expenses for
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.
Each Fund expects that its borrowing, for other than temporary purposes, will be
made on a secured basis. The Funds' custodian will either segregate the assets
securing the borrowing for the benefit of the lenders or arrangements will be
made with a suitable sub-custodian. If assets used to secure the borrowing
decrease in value, the Funds may be required to pledge additional collateral to
the lender in the form of cash or securities to avoid liquidation of those
assets. The rights of any lenders to the Fund to receive payments of interest on
and repayments of principal of borrowings will be senior to the rights of the
Fund's shareholders, and the terms of the Fund's borrowings may contain
provisions that limit certain activities of the Fund and could result in
precluding the purchase of securities and instruments that the Fund would
otherwise purchase.
CONVERTIBLE SECURITIES, RIGHTS OR WARRANTS AND EQUITY-LINKED SECURITIES
To the extent set forth in Appendix B hereto, 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 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
3
<PAGE>
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.
DEPOSITARY RECEIPTS
To the extent set forth in Appendix B herein, certain of the 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 eemed to be investments in the
underlying securities.
EMERGING COUNTRY DEBT SECURITIES
GENERAL. Emerging market country debt securities includes securities of
companies that may have characteristics and business relationships common to
companies in a country or countries other than an emerging market country. As a
result, the value of the securities of such companies may reflect economic and
market forces applicable to other countries, as well as to an emerging market
country. The Adviser believes, however, that investment in such companies will
be appropriate because the Funds will invest in those emerging market companies
which, in its view, have sufficiently strong exposure to economic and market
forces in an emerging market country such that their value will tend to reflect
developments in such emerging market country to a greater extent than
developments in another country or countries. For example, the Funds may invest
in companies organized and located in countries other than an emerging market
country, including companies having their entire production facilities outside
of an emerging market country, when securities of such companies meet one or
more elements of the Funds' definition of an emerging market country debt
security and so long as the Adviser believes at the time of investment that the
value of the company's securities will reflect principally conditions in such
emerging market country.
The Funds are subject to no restrictions on the maturities of the emerging
market country debt securities they hold; those maturities may range from
overnight to 30 years. The value of debt securities held by a Fund generally
will vary inversely to changes in prevailing interest rates. A Fund's
investments in fixed-rated debt securities with longer terms to maturity are
subject to greater volatility than the Fund's investments in shorter-term
obligations. Debt obligations acquired at a discount are subject to greater
fluctuations of market value in response to changing interest rates than debt
obligations of comparable maturities which are not subject to such discount.
Government, government-related and restructured debt securities in emerging
market countries will consist of (i) debt securities or obligations issued or
guaranteed by governments, governmental agencies or instrumentalities and
political subdivisions located in emerging market countries (including
participations in loans between governments and financial institutions), (ii)
debt securities or obligations issued by government owned, controlled or
sponsored entities located in emerging market countries, and (iii) interests in
issuers organized and operated for the purpose of restructuring the investment
characteristics of instruments issued by any of the entities described above.
Such type of restructuring involves the deposit with or purchase by an entity of
specific instruments and the issuance by that entity of one or more classes of
securities backed by, or representing
4
<PAGE>
interests in, the underlying instruments. Certain issuers of such structured
securities may be deemed to be "investment companies" as defined in the 1940
Act. As a result, a Fund's investment in such securities may be limited by
certain investment restrictions contained in the 1940 Act.
Investments in emerging market country government debt securities involve
special risks. Certain emerging market countries have historically experienced,
and may continue to experience, high rates of inflation, high interest rates,
exchange rate fluctuations, large amounts of external debt, balance of payments
and trade difficulties and extreme poverty and unemployment. The issuer or
governmental authority that controls the repayment of an emerging market
country's debt may not be able or willing to repay the principal and/or interest
when due in accordance with the terms of such debt. As a result of the
foregoing, a government obligor may default on its obligations. If such an event
occurs, a Fund may have limited legal recourse against the issuer and/or
guarantor. Remedies must, in some cases, be pursued in the courts of the
defaulting party itself, and the ability of the holder of foreign government
debt securities to obtain recourse may be subject to the political climate in
the relevant country. In addition, no assurance can be given that the holders of
commercial bank debt will not contest payments to the holders of other foreign
government debt obligations in the event of default under their commercial bank
loan agreements.
Debt securities of corporate issuers in emerging market countries may
include debt securities or obligations issued (i) by banks located in emerging
market countries or by branches of emerging market country banks located outside
the country or (ii) by companies organized under the laws of an emerging market
country. Determinations as to eligibility will be made by the Adviser based on
publicly available information and inquiries made to the issuer.
Ratings of a non-U.S. debt instrument, to the extent that those ratings are
undertaken, are related to evaluations of the country in which the issuer of the
instrument is located. Ratings generally take into account the currency in which
a non-U.S. debt instrument is denominated. Instruments issued by a foreign
government in other than the local currency, for example, typically have a lower
rating than local currency instruments due to the existence of an additional
risk that the government will be unable to obtain the required foreign currency
to service its foreign currency-denominated debt. In general, the ratings of
debt securities or obligations issued by a non-U.S. public or private entity
will not be higher than the rating of the currency or the foreign currency debt
of the central government of the country in which the issuer is located,
regardless of the intrinsic creditworthiness of the issuer.
The Funds do not intend to invest in any security in a country where the
currency is not freely convertible to U.S. Dollars, unless the Fund has obtained
the necessary governmental licensing to convert such currency or other
appropriately licensed or sanctioned contractual guarantee to protect such
investment against loss of that currency's external value, or the Fund has a
reasonable expectation at the time the investment is made that such governmental
licensing or other appropriately licensed or sanctioned guarantee would be
obtained or that the currency in which the security is quoted would be freely
convertible at the time of any proposed sale of the security by the Fund.
The governments of some countries have been engaged in programs of selling
part or all of their stakes in government owned or controlled enterprises
("privatization"). The Adviser believes that privatization may offer investors
opportunities for significant capital appreciation and intends to invest assets
of the Fund in privatization in appropriate circumstances. In certain countries,
the ability of foreign entities, such as the Fund, to participate in
privatization may be limited by local law, or the terms on which the Fund may be
permitted to participate may be less advantageous than those for local
investors. There can be no assurance that governments will continue to sell
companies currently owned or controlled by them or that any privatization
programs in which the Fund participates will be successful.
Several Latin American countries have adopted debt conversion programs,
pursuant to which investors may use sovereign debt of a country, directly or
indirectly, to make investments in local companies. The terms of the various
programs vary from country to country although each program includes significant
restrictions on the application of the proceeds received in the conversion and
on the remittance of profits on the investment and of the invested capital. The
Fund may participate in Latin American debt conversion programs. The Adviser
will evaluate opportunities to enter into debt conversion transactions as they
arise.
BRADY BONDS. The Funds may invest in certain debt obligations customarily
referred to as "Brady Bonds," which are created through the exchange of existing
commercial bank loans to foreign entities for new obligations in connection with
debt restructuring under a plan introduced by former U.S. Secretary of the
Treasury Nicholas F. Brady (the "Brady Plan"). Brady Bonds may be collateralized
or uncollateralized and issued in various currencies (although most are U.S.
dollar-denominated) and they are actively traded in the over-the-counter
secondary market. A Fund may purchase Brady Bonds either in the primary or
secondary markets. The price and yield of Brady Bonds purchased in the secondary
market will reflect the market conditions at the time of purchase, regardless of
the stated face amount and the stated interest rate. With respect to Brady Bonds
with no or limited collateralization, a Fund will rely for payment of interest
and principal primarily on the willingness and ability of the issuing government
to make payment in accordance with the terms of the bonds.
U.S. Dollar-denominated, collateralized Brady Bonds, which may be fixed rate
par bonds or floating rate discount bonds, are generally collateralized in full
as to principal due at maturity by U.S. Treasury zero coupon obligations which
have the same maturity as the Brady Bonds. Interest payments on these Brady
Bonds generally are collateralized by cash or securities in an amount that, in
the case of fixed rate bonds, is equal to at least one year of rolling interest
payments or, in the case of floating rate
5
<PAGE>
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.
EURODOLLAR AND YANKEE OBLIGATIONS
Eurodollar bank obligations are dollar-denominated certificates of deposit
and time deposits issued outside the U.S. capital markets by foreign branches of
banks and by foreign banks. Yankee bank obligations are dollar-denominated
obligations issued in the U.S. capital markets by foreign banks.
Eurodollar and Yankee obligations are subject to the same risks that pertain
to domestic issues, notably credit risk, market risk and liquidity risk.
Additionally, Eurodollar (and to a limited extent, Yankee) obligations are
subject to certain sovereign risks. One such risk is the possibility that a
sovereign country might prevent capital, in the form of dollars, from flowing
across its borders. Other risks include: adverse political and economic
developments; the extent and quality of government regulation of financial
markets and institutions; the imposition of foreign withholding taxes, and the
expropriation or nationalization of foreign issuers.
EMERGENCE OF EASTERN EUROPEAN ECONOMIES
In recent years there have been two key issues influencing the investment
environment and economic conditions of Europe: the creation of the single market
and the emergence of Eastern European economies. Both of these factors have
helped European companies by opening up new markets for growth.
In connection with efforts to create a single market, eleven of the fifteen
member countries of the European Union 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 accounts, communicate effectively with their shareholders
and manage their businesses and assets to their shareholders' advantage. The
restructuring, management incentives and rationalization of companies has lead
to lower wage structures and greater flexibility. This has enabled European
companies to match the competitive cost environment of developing economies.
Demand for equity will grow hand in hand with supply; driven by pension fund
reform, growth in life insurance, shifts in European investing from fixed income
to equities and the emergence of European mutual funds. All of these factors
together will improve the quality of the markets in which European equities are
traded.
FOREIGN CURRENCY EXCHANGE-RELATED SECURITIES
Foreign currency warrants are warrants which entitle the holder to receive
from their issuer an amount of cash (generally, for warrants issued in the
United States, in U.S. Dollars) which is calculated pursuant to a predetermined
formula and based on the exchange rate between a specified foreign currency and
the U.S. Dollar as of the exercise date of the warrant. Foreign
6
<PAGE>
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 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
7
<PAGE>
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.
FOREIGN SECURITIES
To the extent set forth in Appendix B hereto, the Funds may 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 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.
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.
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.
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. The Funds purchase and sell
foreign currency on a spot basis in connection with the settlement of
transactions in securities traded in such foreign currency. The Funds also may
enter into contracts with banks, brokers or dealers to purchase or sell 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.
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 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
8
<PAGE>
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.
ADDITIONAL RISKS OF INVESTING IN EMERGING MARKETS COUNTRIES. The risks of
foreign investment are heightened when the issuer is from an emerging markets
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
markets countries tend to have economic structures that are less diverse and
mature and political systems that are less stable than developed markets.
Emerging markets 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 markets
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 markets 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 markets 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 markets 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 emerging
countries. Economies in emerging markets 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 markets 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 markets 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 markets 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 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
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 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 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.
9
<PAGE>
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.
A Fund's use of foreign currency management techniques in emerging markets
countries may be limited. Due to the limited market for these instruments in
emerging markets countries, the Funds' investment adviser does not currently
anticipate that a significant portion of the Funds' currency exposure in
emerging markets countries, if any, will be covered by such instruments.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The U.S. Dollar value of the assets of the Funds may be affected favorably
or unfavorably by changes in foreign currency exchange rates and exchange
control regulations, and the Funds may incur costs in connection with
conversions between various currencies. The Funds will conduct their foreign
currency exchange transactions either on a spot (i.e., cash) basis at the spot
rate prevailing in the foreign currency exchange market, or through entering
into forward contracts to purchase or sell foreign currencies. A forward foreign
currency exchange contract (a "forward contract") involves an obligation to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. These contracts are traded in the
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for such
trades.
The Funds may enter into forward contracts in several circumstances. When a
Fund enters into a contract for the purchase or sale of a security denominated
in a foreign currency, or when a Fund anticipates the receipt in a foreign
currency of dividends or interest payments on a security which it holds, the
Fund may desire to "lock-in" the U.S. Dollar price of the security or the U.S.
Dollar equivalent of such dividend or interest payment, as the case may be. By
entering into a forward contract for a fixed amount of dollars, for the purchase
or sale of the amount of foreign currency involved in the underlying
transactions, the Fund will be able to protect itself against a possible loss
resulting from an adverse change in the relationship between the U.S. Dollar and
the subject foreign currency during the period between the date on which the
security is purchased or sold, or on which the dividend or interest payment is
declared, and the date on which such payments are made or received.
Additionally, when any of these Funds anticipates that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
Dollar, it may enter into a forward contract for a fixed amount of dollars, to
sell the amount of foreign currency approximating the value of some or all of
such Fund's securities denominated in such foreign currency. The precise
matching of the forward contract amounts and the value of the securities
involved will not generally be possible since the future value of securities in
foreign currencies will change as a consequence of market movements in the value
of these securities between the date on which the forward contract is entered
into and the date it matures. The projection of short-term currency market
movement is extremely difficult, and the successful execution of a short-term
hedging strategy is highly uncertain. A Fund will not enter into such forward
contracts or maintain a net exposure to such contracts where the consummation of
the contracts would obligate such Fund to deliver an amount of foreign currency
in excess of the value of such Fund's securities or other assets denominated in
that currency.
In normal circumstances, consideration of the prospect for currency parities
will be incorporated into the long-term investment decisions made with regard to
overall diversification strategies. However, the management of the Company
believes that it is important to have the flexibility to enter into such forward
contracts when it determines that the best interests of the performance of each
Fund will thereby be served. Except in circumstances where segregated accounts
are not required by the 1940 Act and the rules adopted thereunder, the Company's
Custodian will place cash or liquid assets into a segregated account of a Fund
in an amount equal to the value of such Fund's total assets committed to the
consummation of forward contracts. If the value of the securities placed in the
segregated account declines, additional cash or assets will be placed in the
account on a daily basis so that the value of the account will be at least equal
to the amount of such Fund's commitments with respect to such contracts.
The Funds generally will not enter into a forward contract with a term of
greater than one year. At the maturity of a forward contract, a Fund may either
accept or make delivery of the currency specified in the contract or, prior to
maturity, enter into a closing purchase transaction involving the purchase or
sale of an offsetting contract. Closing purchase transactions with respect to
forward contracts are usually effected with the currency trader who is a party
to the original forward contract. A Fund will only enter into such a forward
contract if it is expected that there will be a liquid market in which to close
out such contract. There can, however, be no assurance that such a liquid market
will exist in which to close a forward contract, in which case the Fund may
suffer a loss.
It is impossible to forecast with absolute precision the market value of a
particular portfolio security at the expiration of the contract. Accordingly, it
may be necessary for a Fund to purchase additional foreign currency on the spot
market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency that such Fund is obligated
to deliver and if a decision is made to sell the security and make delivery of
the foreign currency.
If a Fund retains the portfolio security and engages in an offsetting
transaction, such Fund will incur a gain or a loss (as described below) to the
extent that there has been movement in forward contract prices. Should forward
prices decline during
10
<PAGE>
the period between a Fund entering into a forward contract for the sale of a
foreign currency and the date it enters into an offsetting contract for the
purchase of the foreign currency, such Fund will realize a gain to the extent
that the price of the currency it has agreed to sell exceeds the price of the
currency it has agreed to purchase. Should forward prices increase, such Fund
would suffer a loss to the extent that the price of the currency it has agreed
to purchase exceeds the price of the currency it has agreed to sell.
The Funds are not required to enter into such transactions with regard to
their foreign currency-denominated securities. It also should be realized that
this method of protecting the value of portfolio securities against a decline in
the value of a currency does not eliminate fluctuations in the underlying prices
of the securities. It simply establishes a rate of exchange which one can
achieve at some future point in time. Additionally, although such contracts tend
to minimize the risk of loss due to a decline in the value of the hedged
currency, at the same time, they tend to limit any potential gain which might
result should the value of such currency increase.
In addition, Funds may cross-hedge currencies by entering into a transaction
to purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which a portfolio has or expects to have
portfolio exposure. These Funds may also engage in proxy hedging, which is
defined as entering into positions in one currency to hedge investments
denominated in another currency, where two currencies are economically linked. A
Fund's entry into forward contracts, as well as any use of proxy or cross
hedging techniques, will generally require the Fund to hold liquid securities or
cash equal to the Fund's obligations in a segregated account throughout the
duration of the contract.
FUTURES CONTRACTS
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of a specific security or a specific
currency at a specified future time and at a specified price. Futures contracts,
which are standardized as to maturity date and underlying financial instrument,
index or currency, traded in the United States are traded on national futures
exchanges. Futures exchanges and trading are regulated under the Commodity
Exchange Act by the Commodity Futures Trading Commission ("CFTC"), a U.S.
Government agency.
Although futures contracts by their terms call for actual delivery or
acceptance of the underlying securities or currencies, in most cases the
contracts are closed out before the settlement date without the making or taking
of delivery. Closing out an open futures position is done by taking an opposite
position ("buying" a contract which has previously been "sold" or "selling" a
contract previously "purchased") in an identical contract to terminate the
position. Brokerage commissions are incurred when a futures contract is bought
or sold.
Unless otherwise limited herein, the Funds may sell indexed financial
futures contracts in anticipation of or during a market decline to attempt to
offset the decrease in market value of securities in its portfolio that might
otherwise result. An index futures contract is an agreement to take or make
delivery of an amount of cash equal to the difference between the value of the
index at the beginning and at the end of the contract period. Successful use of
index futures will be subject to the Adviser's ability to predict correctly
movements in the direction of the relevant securities market. No assurance can
be given that the Adviser's judgment in this respect will be correct.
Unless otherwise limited herein, the Funds may sell indexed financial
futures contracts in anticipation of or during a market decline to attempt to
offset the decrease in market value of securities in its portfolio that might
otherwise result. If the Adviser believes that a portion of a Fund's assets
should be invested in emerging country securities but such investments have not
been fully made and the Adviser anticipates a significant market advance, the
Fund may purchase index futures in order to gain rapid market exposure that may
in part or entirely offset increases in the cost of securities that it intends
to purchase. In a substantial majority of these transactions, the Fund will
purchase such securities upon termination of the futures position but, under
unusual market conditions, a futures position may be terminated without the
corresponding purchase of such securities.
Futures traders are required to make a good faith margin deposit in cash or
liquid securities with a broker or custodian to initiate and maintain open
positions in futures contracts. A margin deposit is intended to assure
completion of the contract (delivery or acceptance of the underlying security)
if it is not terminated prior to the specified delivery date. Minimal initial
margin requirements are established by the futures exchange and may be changed.
Brokers may establish deposit requirements which are higher than the exchange
minimums. Futures contracts are customarily purchased and sold for prices that
may range upward from less than 5% of the value of the contract being traded.
After a futures contract position is opened, the value of the contract is
marked-to-market daily. If the futures contract price changes to the extent that
the margin on deposit does not satisfy margin requirements, payment of an
additional "variation" margin will be required. Conversely, a change in the
contract value may reduce the required margin, resulting in a repayment of
excess margin to the contract holder. Variation margin payments are made to and
from the futures broker for as long as the contract remains open. The Funds
expect to earn interest income on its margin deposits.
Traders in futures contracts may be broadly classified as either "hedgers"
or "speculators." Hedgers use the futures markets primarily to offset
unfavorable changes in the value of securities otherwise held for investment
purposes or expected to be
11
<PAGE>
acquired by them. Speculators are less inclined to own the underlying securities
with futures contracts that they trade, and use futures contracts with the
expectation of realizing profits from market fluctuations. The Funds intend to
use futures contracts only for hedging purposes.
Regulations of the CFTC applicable to the Funds require generally that all
futures transactions constitute bona fide hedging transactions. A Fund may
engage in futures transactions for other purposes so long as the aggregate
initial margin and premiums required for such transaction will not exceed 5% of
the liquidation value of the Fund's portfolio, after taking into account
unrealized profits and unrealized losses on any such contracts it has entered
into. The Funds generally will only sell futures contracts to protect securities
owned against declines in price or purchase contracts to protect against an
increase in the price of securities intended for purchase. As evidence of this
hedging interest, the Funds expect that approximately 75% of their respective
futures contracts will be "completed"; that is, equivalent amounts of related
securities will have been purchased or are being purchased by the Fund upon sale
of open futures contracts.
Although techniques other than the sale and purchase of futures contracts
could be used to control a Fund's exposure to market fluctuations, the use of
futures contracts may be a more effective means of hedging this exposure. While
the Funds will incur commission expenses in both opening and closing out futures
positions, these costs are lower than transaction costs incurred in the purchase
and sale of the underlying securities.
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS. None of the Funds will enter
into futures contract transactions to the extent that, immediately thereafter,
the sum of its initial margin deposits on open contracts exceeds 5% of the
market value of its total assets. In addition, none of the Funds will enter into
futures contracts and options on futures contracts to the extent that the
notional value of its outstanding obligations to purchase securities under such
contracts would exceed the limitations set forth in Appendix B.
RISK FACTORS IN FUTURES TRANSACTIONS. Positions in futures contracts may be
closed out only on an exchange which provides a secondary market for such
futures. However, there can be no assurance that a liquid secondary market will
exist for any particular futures contract at any specific time. Thus, it may not
be possible to close a futures position. In the event of adverse price
movements, a Fund would continue to be required to make daily cash payments to
maintain its required margin. In such situations, if a Fund has insufficient
cash, it may have to sell portfolio securities to meet its daily margin
requirement at a time when it may be disadvantageous to do so. In addition, the
Fund may be required to make delivery of the instruments underlying futures
contracts it holds. The inability to close options and futures positions also
could have an adverse impact on the Fund's ability to effectively hedge.
The Funds will minimize the risk that they will be unable to close out a
futures contract by generally entering into futures which are traded on
recognized international or national futures exchanges and for which there
appears to be a liquid secondary market, however, the Funds may enter into
over-the-counter futures transactions to the extent permitted by applicable law.
The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required and the extremely high
degree of leverage involved in futures pricing. As a result, a relatively small
price movement in a futures contract may result in immediate and substantial
loss (as well as gain) to the investor. For example, if, at the time of
purchase, 10% of the value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract would result in a
total loss of the margin deposit, before any deduction for the transaction
costs, if the account were then closed out. A 15% decrease would result in a
loss equal to 150% of the original margin deposit if the contract were closed
out. Thus, a purchase or sale of a futures contract may result in losses in
excess of the amount invested in the contract. However, because the Funds engage
in futures strategies only for hedging purposes, the Adviser does not believe
that the Funds are subject to the risks of loss frequently associated with
futures transactions. The Fund would presumably have sustained comparable losses
if, instead of the futures contract, the Fund had invested in the underlying
security or currency and sold it after the decline.
Utilization of futures transactions by a Fund does involve the risk of
imperfect or no correlation where the securities underlying futures contracts
have different maturities than the portfolio securities or currencies being
hedged. It is also possible that a Fund could both lose money on futures
contracts and also experience a decline in value of its portfolio securities.
There is also the risk of loss by a Fund of margin deposits in the event of
bankruptcy of a broker with whom the Fund has an open position in a futures
contract or related option.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond that limit. The daily limit governs only
price movement during a particular trading day and therefore does not limit
potential losses, because the limit may prevent the liquidation of unfavorable
positions. Futures contract prices have occasionally moved to the daily limit
for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and subjecting some futures
traders to substantial losses.
12
<PAGE>
OPTIONS ON FOREIGN CURRENCIES
Unless otherwise limited herein, the Funds may attempt to accomplish
objectives similar to those described above with respect to forward foreign
currency exchange contracts and futures contracts for currency by means of
purchasing put or call options on foreign currencies on exchanges. A put option
gives a Fund the right to sell a currency at the exercise price until the
expiration of the option. A call option gives a Fund the right to purchase a
currency at the exercise price until the expiration of the option.
The Funds may purchase and write options on foreign currencies in a manner
similar to that in which futures contracts on foreign currencies, or forward
contracts, will be utilized. For example, a decline in the dollar value of a
foreign currency in which portfolio securities are denominated will reduce the
dollar value of such securities, even if their value in the foreign currency
remains constant. In order to protect against such diminution in the value of
portfolio securities, the Funds may purchase put options on the foreign
currency. If the value of the currency does decline, the Funds will have the
right to sell such currency for a fixed amount in dollars and will thereby
offset, in whole or in part, the adverse effect on their portfolios which
otherwise would have resulted. Conversely, where a rise in the dollar value of a
currency in which securities to be acquired are denominated is projected,
thereby increasing the cost of such securities, the Funds may purchase call
options thereon. The purchase of such options could offset, at least partially,
the effects of the adverse movements in exchange rates. As in the case of other
types of options, however, the benefit to the Funds derived from purchases of
foreign currency options will be reduced by the amount of the premium and
related transaction costs. In addition, where currency exchange rates do not
move in the direction or to the extent anticipated, the Funds could sustain
losses on transactions in foreign currency options which would require them to
forego a portion or all of the benefits of advantageous changes in such rates.
Funds may write options on foreign currencies for the same purposes. For
example, where a Fund anticipates a decline in the dollar value of foreign
currency denominated securities due to adverse fluctuations in exchange rates it
could, instead of purchasing a put option, write a call option on the relevant
currency. If the anticipated decline occurs, the option will most likely not be
exercised, and the diminution in value of portfolio securities will be offset by
the amount of the premium received. Similarly, instead of purchasing a call
option to hedge against an anticipated increase in the dollar cost of securities
to be acquired, the Fund could write a put option on the relevant currency
which, if rates move in the manner projected, will expire unexercised and allow
the portfolio to hedge such increased cost up to the amount of the premium. As
in the case of other types of options, however, the writing of a foreign
currency option will constitute only a partial hedge up to the amount of the
premium, and only if rates move in the expected direction. If this does not
occur, the option may be exercised and the Fund would be required to purchase or
sell the underlying currency at a loss which may not be offset by the amount of
the premium. Through the writing of options on foreign currencies, the Fund also
may be required to forego all or a portion of the benefits which might otherwise
have been obtained from favorable movements in exchange rates.
Funds may only write covered call options on foreign currencies. A call
option written on a foreign currency by the portfolio is "covered" if the Fund
owns the underlying foreign currency covered by the call, an absolute and
immediate right to acquire that foreign currency without additional cash
consideration (or for additional cash consideration held in a segregated account
by the Custodian) or upon conversion or exchange of other foreign currency held
in its portfolio. A written call option is also covered if the Fund has a call
on the same foreign currency and in the same principal amount as the call
written where the exercise price of the call held (a) is equal to or less than
the exercise price of the call written or (b) is greater than the exercise price
of the call written if the difference is maintained by the Fund in cash or other
liquid securities in a segregated account with the Custodian, or (c) maintains
in a segregated account cash or other liquid securities in an amount not less
than the value of the underlying foreign currency in U.S. Dollars,
marked-to-market daily.
Funds may also write call options on foreign currencies for cross-hedging
purposes. A call option on a foreign currency is for cross-hedging purposes if
it is designed to provide a hedge against a decline in the U.S. Dollar value of
a security which the portfolio owns or has the right to acquire due to an
adverse change in the exchange rate and which is denominated in the currency
underlying the option. In such circumstances, the Fund will either "cover" the
transaction as described above or collateralize the option by maintaining in a
segregated account with the Custodian, cash or other liquid securities in an
amount not less than the value of the underlying foreign currency in U.S.
Dollars marked-to-market daily.
Funds may combine forward contracts with investments in securities
denominated in other currencies in order to achieve desired credit and currency
exposures. Such combinations are generally referred to as synthetic securities.
For example, in lieu of purchasing a foreign bond, a Fund may purchase a U.S.
dollar-denominated security and at the same time enter into a forward contract
to exchange U.S. dollars for the contract's underlying currency at a future
date. By matching the amount of U.S. dollars to be exchanged with the
anticipated value of the U.S. dollar-denominated security, the Fund may be able
to lock in the foreign currency value of the security and adopt a synthetic
position reflecting the credit quality of the U.S. dollar-denominated security.
To the extent required by the rules and regulations of the Securities and
Exchange Commission ("SEC"), the Custodian of the Funds will place cash or other
liquid assets into a segregated account of a Fund in an amount equal to the
value of such Fund's total assets committed to the consummation of forward
foreign currency exchange contracts. If the value of the securities placed in
the segregated account declines, additional cash or liquid assets will be placed
in the account on a daily basis so that the value of the account will be at
least equal to the amount of such Fund's commitments with respect to such
contracts.
13
<PAGE>
OPTIONS TRANSACTIONS
Unless otherwise limited herein, the Funds may write (i.e., sell) covered
call options which give the purchaser the right to buy the underlying security
covered by the option from the Fund at the stated exercise price. A "covered"
call option means that so long as a Fund is obligated as the writer of the
option, it will own (i) the underlying securities subject to the option, or (ii)
securities convertible or exchangeable without the payment of any consideration
into the securities subject to the option.
A Fund will receive a premium from writing call options, which increases the
Fund's return on the underlying security in the event the option expires
unexercised or is closed out at a profit. By writing a call, a Fund will limit
its opportunity to profit from an increase in the market value of the underlying
security above the exercise price of the option for as long as the Fund's
obligation as writer of the option continues. Thus, in some periods a Fund will
receive less total return and in other periods greater total return from writing
covered call options than it would have received from its underlying securities
had it not written call options.
A Fund may sell put options to receive the premiums paid by purchasers and
to close out a long put option position. In addition, when the Adviser wishes to
purchase a security at a price lower than its current market price, a Fund may
write a covered put at an exercise price reflecting the lower purchase price
sought.
A Fund may purchase call options to close out a covered call position or to
protect against an increase in the price of a security it anticipates
purchasing. A Fund may purchase put options on securities which it holds in its
portfolio to protect itself against a decline in the value of the security. If
the value of the underlying security were to fall below the exercise price of
the put purchased in an amount greater than the premium paid for the option, the
Fund would incur no additional loss. A Fund may also purchase put options to
close out written put positions in a manner similar to call option closing
purchase transactions. There are no other limits on a Fund's ability to purchase
call and put options.
Unless the parties provide for it, there is no central clearing or guaranty
function in an OTC Option. As a result, if the counterparty fails to make or
take delivery of the security, currency or other instrument underlying an OTC
Option it has entered into with a Fund or fails to make a cash settlement
payment due in accordance with the terms of that option, the Fund will lose any
premium it paid for the option as well as any anticipated benefit of the
transaction. Accordingly, the Adviser must assess the creditworthiness of each
such counterparty or any guarantor of credit enhancement of the counterparty's
credit to determine the likelihood that the terms of the OTC Options will be
satisfied. The staff of the SEC currently takes the position that OTC Options
purchased by a Fund or sold by it (the cost of the sell-back plus the
in-the-money amount, if any) are illiquid unless the Fund has entered into a
special arrangement to dispose of the security, and are subject to the Fund's
limitation on investing in illiquid securities.
Investments in options involve some of the same considerations that are
involved in connection with investments in futures contracts (e.g., the
existence of a liquid secondary market). In addition, the purchase of an option
also entails the risk that changes in the value of the underlying security or
contract will not be fully reflected in the value of the option purchased.
Depending on the pricing of the option compared to either the futures contract
or securities, an option may or may not be less risky than ownership of the
futures contract or actual securities. In general, the market prices of options
can be expected to be more volatile than the market prices on the underlying
futures contract or securities. In the opinion of the Adviser, the risk that a
Fund will be unable to close out an options contract will be minimized by only
entering into options transactions for which there appears to be a liquid
secondary market.
CAPS, FLOORS AND COLLARS.
The Funds 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 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 herein, the Funds may enter into multiples of the
forwards, futures and options transactions described above, including multiple
options transactions, multiple futures transactions, multiple foreign currency
transactions (including forward foreign currency exchange contracts) and any
combination of futures, options and foreign currency transactions, instead of a
single transaction, as part of a single hedging strategy when, in the opinion of
the Adviser, it is in the best
14
<PAGE>
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.
ILLIQUID SECURITIES
To the extent set forth in Appendix B hereto, the Funds may invest 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. Such 144A Securities are
subject to monitoring and may become illiquid to the extent qualified
institutional buyers become, for a time, uninterested in purchasing such
securities. Factors used to determine whether 144A Securities are liquid
include, among other things, a security's trading history, the availability of
reliable pricing information, the number of dealers making quotes or making a
market in such security and the number of potential purchasers in the market for
such security. For purposes hereof, investments by the Fund in securities of
other investment companies will not be considered investments in restricted
securities to the extent permitted by (i) the 1940 Act, as amended from time to
time, (ii) the rules and
15
<PAGE>
regulations promulgated by the SEC under the 1940 Act, as amended from time to
time, or (iii) an exemption or other relief from the provisions of the 1940 Act.
Notwithstanding the foregoing, certain funds are subject to limitations on
investing in securities subject to legal or contractual restrictions on resale
as set forth in Appendix B hereto.
INVESTMENT COMPANY SECURITIES
The Funds 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 countries have laws and regulations that currently preclude
direct foreign investment in the securities of their companies. However,
indirect foreign investment in the securities of companies listed and traded on
the stock exchanges in these countries is permitted by certain emerging
countries through investment funds which have been specifically authorized.
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
To the extent set forth in Appendix B hereto, 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.
LOWER GRADE SECURITIES
To the extent set forth in Appendix B hereto, certain of the 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
16
<PAGE>
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 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
17
<PAGE>
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.
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 Securities" 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
for investment purposes and 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 above. 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.
18
<PAGE>
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 and
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 set forth in Appendix B hereto, the Funds may enter into
reverse repurchase agreements with brokers, dealers, banks or other financial
institutions that meet the credit guidelines set by the Company's Board of
Directors. In a reverse repurchase agreement, a Fund sells a security and agrees
to repurchase it at a mutually agreed upon date and price, reflecting the
interest rate effective for the term of the agreement. It may also be viewed as
the borrowing of money by a Fund. A Fund's investment of the proceeds of a
reverse repurchase agreement is the speculative factor known as leverage. A Fund
will enter into a reverse repurchase agreement only if the interest income from
investment of the proceeds is expected to be greater than the interest expense
of the transaction and the proceeds are invested for a period no longer than the
term of the agreement. A Fund will maintain with an appropriate custodian a
separate account with a segregated portfolio of cash or liquid assets in an
amount at least equal to its purchase obligations under these agreements
(including accrued interest). If interest rates rise during a reverse repurchase
agreement, it may adversely affect a Fund's net asset value. In the event that
the buyer of securities under a reverse repurchase agreement files for
bankruptcy or becomes insolvent, the buyer or its trustee or receiver may
receive an extension of time to determine whether to enforce the Fund's
repurchase obligation, and the Fund's use of proceeds of the agreement may
effectively be restricted pending such decision.
SECURITIES LENDING
Each Fund may lend its investment securities to qualified institutional
investors who need to borrow securities in order to complete certain
transactions, such as covering short sales, avoiding failures to deliver
securities or completing arbitrage operations. By lending its investment
securities, a Fund attempts to increase its net investment income through the
receipt of interest on the loan. Any gain or loss in the market price of the
securities loaned that might occur during the term of the loan would be for the
account of the Fund. Each Fund may lend its investment securities to qualified
brokers, dealers, domestic and foreign banks or other financial institutions, so
long as the terms, structure and the aggregate amount of such loans are not
inconsistent with the 1940 Act, or the Rules and Regulations or interpretations
of the SEC thereunder, which currently require that (a) the borrower pledge and
maintain with the Fund collateral consisting of cash, an irrevocable letter of
credit issued by a domestic U.S. bank, or liquid securities having a value at
all times not less than 100% of the value of the securities loaned, including
accrued interest, (b) the borrower add to such collateral whenever the price of
the securities loaned rises (i.e., the borrower "marks to the market" on a daily
basis), (c) the loan be made subject to termination by the Fund at any time, and
(d) the Fund receive reasonable interest on the loan (which may include the Fund
investing any cash collateral in interest bearing short-term investments), any
distributions on the loaned securities and any increase in their market value.
There may be risks of delay in recovery of the securities or even loss of rights
in the collateral should the borrower of the securities fail financially.
However, loans will only be made to borrowers deemed by the Adviser to be of
good standing and when, in the judgment of the Adviser, the consideration which
can be earned currently from such securities loans justifies the attendant risk.
All relevant facts and circumstances, including the creditworthiness of the
broker, dealer or institution, will be considered in making decisions with
respect to the lending of securities, subject to review by the Directors.
At the present time, the staff of the SEC does not object if an investment
company pays reasonable negotiated fees in connection with loaned securities, so
long as such fees are set forth in a written contract and approved by the
investment company's Directors. In addition, voting rights may pass with the
loaned securities, but if a material event will occur affecting an investment on
loan, the loan must be called and the securities voted.
SHORT SALES
To the extent set forth in Appendix B hereto, the Funds 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.
The 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 deposited with the broker-dealer of cash or liquid securities. The
Fund will also be required to deposit similar collateral with its Custodian to
the extent, if any, necessary so that the value of both collateral deposits in
the aggregate is at all times equal to the greater of the price at which the
security is sold short or 100% of the current market value of the security sold
short. 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.
19
<PAGE>
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.
STRUCTURED NOTES
Structured Notes are derivatives on which the amount of principal repayment
and/or interest payments is based upon the movement of one or more factors.
These factors include, but are not limited to, currency exchange rates, interest
rates (such as the prime lending rate and LIBOR) and stock indices such as the
S&P 500 Index. In some cases, the impact of the movements of these factors may
increase or decrease through the use of multipliers or deflators. The Funds may
use structured notes to tailor their investments to the specific risks and
returns the Adviser is willing to accept while avoiding or reducing certain
other risks.
STRIPPED MORTGAGE-BACKED SECURITIES
Stripped mortgage-backed securities ("SMBS") are derivative multiclass
mortgage securities. SMBS may be issued by agencies or instrumentalities of the
U.S. Government or by private originators of, or investors in, mortgage loans,
including savings and loan associations, mortgage banks, commercial banks,
investment banks and special purpose entities of the foregoing.
SMBS are usually structured with two classes that receive different
proportions of the interest and principal distributions on a pool of mortgage
assets. A common type of SMBS will have one class receiving some of the interest
and most of the principal from the mortgage assets, while the other class will
receive most of the interest and the remainder of the principal. In the most
extreme case, one class will receive all of the interest (the interest-only or
"IO" class), while the other class will receive all of the principal (the
principal-only or "PO" class). The yield to maturity on an IO class is extremely
sensitive to the rate of principal payments (including prepayments) on the
related underlying mortgage assets, and a rapid rate of principal payments may
have a material adverse effect on a Fund's yield to maturity from these
securities. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, a Fund may fail to fully recoup its
initial investment in these securities even if the security is in one of the
highest rating categories.
Although SMBS are purchased and sold by institutional investors through
several investment banking firms acting as brokers or dealers, these securities
were only recently developed. As a result, established trading markets have not
yet developed and, accordingly, certain of these securities may be deemed
"illiquid" and subject to a Fund's limitations on investment in illiquid
securities.
SWAP CONTRACTS
The Funds may enter into Swap Contracts. A swap is an agreement to exchange
the return generated by one instrument for the return generated by another
instrument. The payment streams are calculated by reference to a specified index
and agreed upon notional amount. The term "specified index" includes currencies,
fixed interest rates, prices, total return on interest rate indices, fixed
income indices, stock indices and commodity indices (as well as amounts derived
from arithmetic operations on these indices). For example, a Fund may agree to
swap the return generated by a fixed-income index for the return generated by a
second fixed-income index. The currency swaps in which a Fund may enter will
generally involve an agreement to pay interest streams in one currency based on
a specified index in exchange for receiving interest streams denominated in
another currency. Such swaps may involve initial and final exchanges that
correspond to the agreed upon notional amount.
The swaps in which the noted Funds may engage also include rate caps, floors
and collars under which one party pays a single or periodic fixed amount(s) (or
premium), and the other party pays periodic amounts based on the movement of a
specified index. Swaps do not involve the delivery of securities, other
underlying assets, or principal. Accordingly, the risk of loss with respect to
swaps is limited to the net amount of payments that the Fund is contractually
obligated to make. If the other party to a swap defaults, the Fund's risk of
loss consists of the net amount of payments that the Fund is contractually
entitled to receive. Currency swaps usually involve the delivery of the entire
principal value of one designated currency in exchange for the other designated
currency. Therefore, the entire principal value of a currency swap is subject to
the risk that the other party to the swap will default on its contractual
delivery obligations. If there is a default by the counterparty, the Fund may
have contractual remedies pursuant to the agreements related to the transaction.
The swap market has grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become relatively liquid. Caps, floors, and collars are more recent innovations
for which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.
Funds will usually enter into swaps on a net basis, i.e., the two payment
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. The Fund's obligations under a swap
agreement will be accrued daily (offset against any amounts owing to the
portfolio) and any accrued but unpaid net amounts owed to a swap counterparty
will be covered by the maintenance of a segregated account consisting of cash or
liquid securities, to avoid any potential leveraging of the Fund. To the extent
that these swaps, caps, floors, and collars are entered into for hedging
purposes, the Adviser believes such obligations do not constitute
20
<PAGE>
"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
To the extent set forth in Appendix B hereto, 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.
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 current Fund of the Company has adopted certain investment policies
which are either fundamental investment limitations or non-fundamental
investment limitations. Fundamental investment limitations may not be changed
without the approval of the lesser of: (1) 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.
21
<PAGE>
For the purpose of adopting fundamental investment limitations the current
Funds have been divided into three separate groups, which limitations apply only
to the Funds that form a part of that group. The groups are comprised as
follows:
Category I Funds: 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.
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;
(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;
22
<PAGE>
(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 U.S. Real Estate
Fund, purchase more than 10% of any class of the outstanding securities of any
issuer; and
(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; and invest up to 25% of its
total assets in privately placed securities, provided that it may not invest
more than 15% of its total assets in illiquid securities, including securities
for which there is no readily available market, and provided further that it
will not invest more than 10% of its total assets in securities which are
restricted from sale to the public without registration under the Securities Act
of 1933, as amended (the "1933 Act"), except securities that are not registered
under the 1933 Act but that can be offered and sold to qualified institutional
buyers under Rule 144A under the 1933 Act.
The percentage limitations contained in these restrictions apply at the time
of purchase of securities. Future funds of the Company may adopt different
limitations.
CATEGORY II FUNDS
The following are fundamental investment limitations with respect to the
Category II Funds. No Category II Fund will:
(1) invest in physical commodities or contracts on physical commodities,
except that any Fund may acquire physical commodities as a result of ownership
of securities or other instruments and may purchase or sell options or futures
contracts or invest in securities or other instruments backed by physical
commodities;
(2) purchase or sell real estate, although each Fund may purchase and sell
securities of companies which deal in real estate, other than real estate
limited partnerships, and may purchase and sell marketable securities which are
secured by interests in real estate;
(3) make loans except: (i) by purchasing debt securities in accordance with
their respective investment objectives and policies, or entering into repurchase
agreements, subject to the limitations described in non-fundamental investment
limitation (9) below, (ii) by lending their portfolio securities, and (iii) by
lending portfolio assets to other Funds, banks, brokers, dealers and other
financial institutions, so long as such loans are not inconsistent with the 1940
Act, the rules, regulations, interpretations or orders of the SEC and its staff
thereunder;
(4) except for the Emerging Markets Debt Fund, with respect to 75% of each
Fund's assets, purchase a security if, as a result, the Fund would hold more
than 10% (taken at the time of such investment) of the outstanding voting
securities of any issuer;
(5) except for the Emerging Markets Debt Fund, with respect to 75% of each
Fund's assets, purchase securities of any issuer if, as a result, more than 5%
of the Fund's total assets, taken at market value at the time of such
investment, would be invested in the securities of such issuer except that this
restriction does not apply to securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities;
(6) issue any class of senior security or sell any senior security of which
it is the issuer, except that each Fund may borrow money as a temporary measure
for extraordinary or emergency purposes, provided that such borrowings do not
exceed 33 1/3% of the Fund's total assets (including the amount borrowed) less
liabilities (exclusive of borrowings) and except that the Emerging Markets Debt
Fund may borrow from banks in an amount not in excess of 33 1/3% of its total
assets (including the amount borrowed) less liabilities in accordance with its
investment objective and policies. The term "senior security" shall not include
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
23
<PAGE>
investment strategies that obligate it either to purchase securities or
segregate assets, or enter into reverse repurchase agreements, provided that it
will segregate assets to cover its obligations pursuant to such transactions in
accordance with applicable rules, orders, or interpretations of the SEC or its
staff. This investment limitation shall not preclude a Fund from issuing
multiple classes of shares in reliance on SEC rules or orders.
(7) underwrite the securities of other issuers (except to the extent that a
Fund may be deemed to be an underwriter within the meaning of the 1933 Act in
connection with the disposition of restricted securities);
(8) Acquire any securities of companies within one industry, if as a result
of such acquisition, more than 25% of the value of the Fund's total assets would
be invested in securities of companies within such industry; provided, however,
that there shall be no limitation on the purchase of obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, when any
such Fund adopts a temporary defensive position.
The following are non-fundamental investment limitations with respect to the
Category II Funds. As a matter of non-fundamental policy, no Category II Fund
will:
(1) purchase on margin, except for use of short-term credit as may be
necessary for the clearance of purchases and sales of securities, provided that
each Fund may make margin deposits in connection with transactions in options,
futures, and options on futures;
(2) sell short unless the Fund (i) owns the securities sold short, (ii) by
virtue of its ownership of other securities, has the right to obtain securities
equivalent in kind and amount to the securities sold and, if the right is
conditional, the sale is made upon the same conditions, or (ii) maintains in a
segregated account on the books of the Fund's custodian an amount that, when
combined with the amount of collateral deposited with the broker in connection
with the short sale, equals the current market value of the security sold short
or such other amount as the SEC or its staff may permit by rule, regulation,
order, or interpretation, except that the Emerging Markets Debt Fund may from
time to time sell securities short without limitation but consistent with
applicable legal requirements as stated in its Prospectus; provided that
transactions in futures contracts and options are not deemed to constitute
selling securities short;
(3) purchase or retain securities of an issuer if those Officers and
Directors of the Company or any of its investment advisers owning more than 1/2
of 1% of such securities together own more than 5% of such securities;
(4) borrow money other than from banks or other Funds of the Company,
provided that a Fund may borrow from banks or other Funds of the Company so long
as such borrowing is not inconsistent with the 1940 Act or the rules,
regulations, interpretations or orders of the SEC and its staff thereunder; or,
except for the Emerging Markets Debt Fund, purchase additional securities when
borrowings exceed 5% of total assets;
(5) pledge, mortgage or hypothecate assets in an amount greater than 10% of
its total assets in the case of the 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,
determined at the time of investment, in illiquid securities provided that this
limitation shall not apply to any investment in securities that are not
registered under the 1933 Act but that can be sold to qualified institutional
investors in accordance with Rule 144A under the 1933 Act and are determined to
be liquid securities under guidelines or procedures adopted by the Board of
Directors;
(7) invest for the purpose of exercising control over management of any
company;
(8) invest its assets in securities of any investment company, except by
purchase in the open market involving only customary brokers' commissions or in
connection with mergers, acquisitions of assets or consolidations and except as
may otherwise be permitted by the 1940 Act; and
(9) in the case of the 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.
Unless otherwise indicated, if a percentage limitation on investment or
utilization of assets as set forth above is adhered to at the time an investment
is made, a later change in percentage resulting from changes in the value or
total cost of the Fund's assets will not be considered a violation of the
restriction, and the sale of securities will not be required.
DIRECTORS AND OFFICERS
The business and affairs of the Funds are managed under the direction of the
Funds' Board of Directors and the Funds' officers appointed by the Board of
Directors. The tables below list the directors and officers of the Funds and
executive officers
of the Funds' investment adviser and their principal occupations for the last
five years and their affiliations, if any, with Van Kampen Investments Inc.
("Van Kampen Investments"), Van Kampen Investment Advisory Corp. ("Advisory
Corp."), Van Kampen Asset Management Inc. ("Asset Management"), Van Kampen Funds
Inc. (the "Distributor"), Van Kampen Management Inc., Van Kampen Advisors Inc.,
Van Kampen Insurance Agency of Illinois Inc., Van Kampen Insurance Agency of
Texas
24
<PAGE>
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
1632 Morning Mountain Road of each of the funds in the Fund
Raleigh, NC 27614 Complex. Co-founder, and prior to
Date of Birth: 07/14/32 August 1996, Chairman, Chief
Executive Officer and President,
MDT Corporation (now known as
Getinge/Castle, Inc., a subsidiary
of Getinge Industrier AB), a
company which develops,
manufactures, markets and services
medical and scientific equipment.
Jerry D. Choate.................... Director of Amgen Inc., a
Barrington Place, Building 4 biotechnological company.
18 E. Dundee Road, Suite 101 Trustee/Director of each of the
Barrington, IL 60010 funds in the Fund Complex. Prior to
Date of Birth: 09/16/38 January 1999, Chairman and Chief
Executive Officer of The Allstate
Corporation ("Allstate") and
Allstate Insurance Company. Prior
to January 1995, President and
Chief Executive Officer of
Allstate. Prior to August 1994, Mr.
Choate held various management
positions at Allstate.
Richard M. DeMartini*.............. Chairman and Chief Executive
Two World Trade Center Officer of International Private
66th Floor Client Group, a division of Morgan
New York, NY 10048 Stanley Dean Witter. Director of
Date of Birth: 10/12/52 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. 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, President and Director of
Morgan Stanley Dean Witter
Distributors, Inc. Prior to January
1999, Chairman of Dean Witter
Futures & Currency Management Inc.
and Demeter Management Corporation.
Prior to December 1998, President
and Chief Operating Officer of
Morgan Stanley Dean Witter
Individual Asset Management and
Director of Morgan Stanley Dean
Witter Trust FSB. Formerly Vice
Chairman of the Board of the
National Association of Securities
Dealers, Inc. and Chairman of the
Board of the Nasdaq Stock Market,
Inc.
Linda Hutton Heagy................. Managing Partner of Heidrick &
Sears Tower Stuggles, an executive search firm.
233 South Wacker Drive Trustee/Director of each of the
Suite 7000 funds in the Fund Complex. Prior to
Chicago, IL 60606 1997, Partner, Ray & Berndtson,
Date of Birth: 06/03/48 Inc., an executive recruiting and
management consulting firm.
Formerly, Executive Vice President
of ABN AMRO, N.A., a Dutch bank
holding company. Prior to 1992,
Executive Vice President of La
Salle National Bank. Trustee on the
University of Chicago Hospitals
Board, Vice Chair of the Board of
The YMCA of Metropolitan Chicago
and a member of the Women's Board
of the University of Chicago. Prior
to 1996, Trustee of The
International House Board.
R. Craig Kennedy................... President and Director, German
11 DuPont Circle, N.W. Marshall Fund of the United States.
Washington, D.C. 20016 Trustee/Director of each of the
Date of Birth: 02/29/52 funds in the Fund Complex.
Formerly, advisor to the Dennis
Trading Group Inc. Prior to 1992,
President and Chief Executive
Officer, Director and Member of the
Investment Committee of the Joyce
Foundation, a private foundation.
Jack E. Nelson..................... President and owner, Nelson
423 Country Club Drive Investment Planning Services, Inc.,
Winter Park, FL 32789 a financial planning company and
Date of Birth: 02/13/36 registered investment adviser.
President and owner, Nelson Ivest
Brokerage Services Inc., a member
of the National Association of
Securities Dealers, Inc. and
Securities Investors Protection
Corp. Trustee/Director of each of
the funds in the Fund Complex.
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- ----------------------------------- -----------------------------------
<S> <C>
Don G. Powell*..................... Currently a member of the Board of
2800 Post Oak Blvd. Governors and Executive Committee
Houston, TX 77056 for the Investment Company
Date of Birth: 10/19/39 Institute, and a member of the
Board of Trustees of the Houston
Museum of Natural Science.
Trustee/Director of certain
open-end investment companies in
the Fund Complex and
Trustee/Managing General Partner of
other funds advised by the Advisers
or Van Kampen Management Inc.
Immediate past Chairman of the
Investment Company Institute. Prior
to January 1999, Chairman and
Director of Van Kampen Investments,
the Advisers, the Distributor, and
Investor Services and Director or
officer of certain other
subsidiaries of Van Kampen
Investments. Prior to July 1998,
Director and Chairman of VK/AC
Holding, Inc. Prior to November
1996, President, Chief Executive
Officer and Director of VK/AC
Holding, Inc.
Phillip B. Rooney.................. Vice Chairman and Director of The
One ServiceMaster Way ServiceMaster Company, a business
Downers Grove, IL 60515 and consumer services company.
Date of Birth: 07/08/44 Director of Illinois Tool Works,
Inc., a manufacturing company and
the Urban Shopping Centers Inc., a
retail mall management company.
Trustee, University of Notre Dame.
Trustee/ Director of each of the
funds in the Fund Complex. Prior to
1998, Director of Stone Smurfit
Container Corp., a paper
manufacturing company. Formerly,
President, Chief Executive Officer
and Chief Operating Officer of
Waste Management, Inc., an
environmental services company.
Fernando Sisto..................... Professor Emeritus and, prior to
155 Hickory Lane 1995, Dean of the Graduate School,
Closter, NJ 07624 Stevens Institute of Technology.
Date of Birth: 08/02/24 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,
333 West Wacker Drive Arps, Slate, Meagher & Flom
Chicago, IL 60606 (Illinois), legal counsel to the
Date of Birth: 08/22/39 funds in the Fund Complex, and
other open-end and closed-end funds
advised by the Advisers or Van
Kampen Management Inc.
Trustee/Director of each of the
funds in the Fund Complex, and
Trustee/Managing General Partner of
other open-end and closed-end funds
advised by the Advisers or Van
Kampen Management Inc.
Suzanne H. Woolsey, Ph.D........... Chief Operating Officer of the
2101 Constitution Ave., N.W. National Academy of
Room 206 Sciences/National Research Council,
Washington, D.C. 20418 an independent, federally chartered
Date of Birth: 12/27/41 policy institution. Director of
Neurogen Corporation, a
pharmaceutical company. Director
and former Chairman of the German
Marshall Fund of the United States
Trustee of Colorado College, Vice
Chair of the Board of the Council
for Excellence in Government.
Trustee/Director of each of the
funds in the Fund Complex. Prior to
1993, Executive Director of the
Commission on Behavioral and Social
Sciences and Education at the
National Academy of Sciences/
National Research Council. Prior to
1989, Partner of Coopers & Lybrand.
Paul G. Yovovich................... Private investor. Director of 3Com
Sears Tower Corporation, which provides
233 South Wacker Drive information access products and
Suite 9700 network system solutions, COMARCO,
Chicago, IL 60606 Inc., a wireless communications
Date of Birth: 10/29/53 products company and APAC Customer
Services, Inc., a provider of
outsourced customer contact
services. Trustee/Director of each
of the funds in the Fund Complex.
Prior to May 1996, President of
Advance Ross Corporation, an
international transaction services
and pollution control equipment
manufacturing company.
</TABLE>
- --------------
* Such 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.
26
<PAGE>
OFFICERS
Messrs. Powers, McDonnell, Smith, Hegel, Sullivan, Wood and Wetherell are
located at 1 Parkview Plaza, PO Box 5555, Oakbrook Terrace, IL 60181-5555. The
Funds' other officers are located at 2800 Post Oak Blvd., Houston, TX 77056.
<TABLE>
<CAPTION>
NAME, AGE, POSITIONS AND PRINCIPAL OCCUPATIONS
OFFICES WITH FUND DURING PAST 5 YEARS
- ------------------------------------------ ----------------------------------------------------------------------------------------
<S> <C>
Richard F. Powers III..................... President and Chief Executive Officer of Van Kampen Investments. President of each of
Date of Birth: 02/02/46 the Funds in the Fund Complex. Prior to May 1998, Executive Vice President and Director
President of Marketing at Morgan Stanley Dean Witter and Director of Dean Witter Discover & Co.
and Dean Witter Realty. Prior to 1996, Director of Dean Witter Reynolds Inc.
Dennis J. McDonnell....................... Executive Vice President and Director of Van Kampen Investments. President, Chief
Date of Birth: 05/20/42 Operating Officer and Director of the Advisers, Van Kampen Advisors Inc., and Van Kampen
Chief Investment Officer and Management Inc. Chief Investment Officer and Executive Vice President of each of the
Executive Vice President funds in the Fund Complex. President, Chairman of the Board 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.
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 Director of Van Kampen
Date of Birth: 12/14/56 Investments, the Advisers, Van Kampen Advisors Inc., Van Kampen Management Inc., the
Vice President and Secretary Distributor, American Capital Contractual Services, Inc., Van Kampen Exchange Corp., Van
Kampen Recordkeeping Services Inc., Investor Services, Van Kampen Insurance Agency of
Illinois Inc. and Van Kampen System Inc. Vice President and Secretary of each of the
funds in the Fund Complex and certain other investment companies advised by the Advisers
or their affiliates. Prior to January 1999, counsel to New York Life Insurance Company
("New York Life"), and prior to March 1997, Vice President and Associate General Counsel
of New York Life. Prior to December 1993, Assistant General Counsel of The Dreyfus
Corporation. Prior to August 1991, Senior Associate, Willkie Farr & Gallagher. Prior to
January 1989, Mr. Smith was a Staff Attorney at the Securities and Exchange Commission,
Division of Investment Management, Office of Chief Counsel.
Peter W. Hegel............................ Executive Vice President of the Advisers, Van Kampen Management Inc. and Van Kampen
Date of Birth: 06/25/56 Advisors Inc. Vice President of each of the funds in the Fund Complex and certain other
Vice President 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 investments at the Advisers. Vice
Date of Birth: 11/16/40 President of each of the funds in the Fund Complex and certain other investment
Vice President 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.
John L. Sullivan.......................... Senior Vice President of Van Kampen Investments and the Advisers. Treasurer, Vice
Date of Birth: 08/20/55 President and Chief Financial Officer of each of the funds in the Fund Complex and
Treasurer, Vice President and Chief certain other investment companies advised by the Advisers or their affiliates.
Financial Officer
Curtis W. Morell.......................... Senior Vice President of the Advisers, Vice President and Chief Accounting Officer of
Date of Birth: 08/04/46 each of the funds in the Fund Complex and certain other investment companies advised by
Vice President and Chief Accounting the Advisers or their affiliates.
Officer
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITIONS AND PRINCIPAL OCCUPATIONS
OFFICES WITH FUND DURING PAST 5 YEARS
- ------------------------------------------ ----------------------------------------------------------------------------------------
<S> <C>
Edward C. Wood III........................ Senior Vice President of the Advisers, Van Kampen Investments and Van Kampen Management
Date of Birth: 01/11/56 Inc. Senior Vice President and Chief Operating Officer of the Distributor. Vice
Vice President President of each of the funds in the Fund Complex and certain other investment
companies advised by the Advisers or their affiliates.
Tanya M. Loden............................ Vice President of Van Kampen Investments and the Advisers. Controller of each of the
Date of Birth: 11/19/59 funds in the Fund Complex and other investment companies advised by the Advisers or
Controller their affiliates.
Weston B. Wetherell....................... Vice President, Deputy General Counsel and Assistant Secretary of Van Kampen
Date of Birth: 06/15/56 Investments, the Advisers, the Distributor, Van Kampen Management Inc. and Van Kampen
Assistant Secretary Advisors Inc. Assistant Secretary of each of the funds in the Fund Complex and other
investment companies advised by the Advisers or their affiliates.
Michael Robert Sullivan................... Assistant Vice President of Van Kampen Investments, the Advisers and Van Kampen
Date of Birth: 03/30/33 Management Inc. Assistant Controller of each of the funds in the Fund Complex and other
Assistant Controller 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. As of the date of this
Statement of Additional Information, there are 66 operating funds in the Fund
Complex. Each Non-Affiliated Trustee is compensated by an annual retainer and
meeting fees for services to the funds in the Fund Complex. Each fund in the
Fund Complex (except the money market series of the Company) 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.
28
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
AGGREGATE AGGREGATE PENSION AGGREGATE TOTAL
COMPENSATION OR RETIREMENT ESTIMATED MAXIMUM COMPENSATION
BEFORE DEFERRAL BENEFITS ACCRUED ANNUAL BENEFITS BEFORE DEFERRAL
FROM AS PART OF FROM THE FUND UPON FROM FUND
NAME(1) THE COMPANY(2) EXPENSES(3) RETIREMENT(4) COMPLEX(5)
- ------------------------------ --------------- ------------------ ------------------ ----------------
<S> <C> <C> <C> <C>
J. Miles Branagan............. $ $ $ 60,000 $ 125,200
Jerry D. Choate(5)............ 60,000 0
Linda Hutton Heagy............ 60,000 112,800
R. Craig Kennedy.............. 60,000 125,200
Jack E. Nelson................ 60,000 125,200
Phillip B. Rooney............. 60,000 125,200
Dr. Fernando Sisto............ 60,000 125,200
Wayne W. Whalen............... 60,000 125,200
Suzanne H. Woolsey(5)......... 60,000 0
Paul G. Yovovich(5)........... 60,000 25,300
</TABLE>
- --------------
(1) Directors not eligible for compensation are not included in the
Compensation Table.
(2) The amounts shown in this column represent the Aggregate Compensation
before Deferral from all operating 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, $ ; Ms.
Heagy, $ ; Mr. Kennedy, $ ; Mr. Nelson, $ ; Mr. Rooney, $ ;
Dr. Sisto, $ ; Mr. Whalen, $ ; and Mr. Yovovich, $ . 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, $ ; Mr. Gaughan, $ ; Ms. Heagy, $ ; Mr. Kennedy,
$ ; Mr. Miller, $ ; Mr. Nelson, $ ; Mr. Robinson, $ ; Mr.
Rooney, $ ; Dr. Sisto, $ ; Mr. Whalen, $ ; and Mr. Yovovich,
$ . 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) 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. 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 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.
29
<PAGE>
As of , 1999, the directors and officers of the Funds as a group owned
less than 1% of the shares of each of the Funds.
FISCAL YEAR 1999 AGGREGATE COMPENSATION FROM THE COMPANY AND EACH PORTFOLIO
TABLE A
<TABLE>
<CAPTION>
FUND NAME BRANAGAN CHOATE HEAGY KENNEDY NELSON ROONEY SISTO WHALEN WOOLSEY YOVOVICH
- -------------------------------------- -------- ------- ------- ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
American Value Fund................... $ $ $ $ $ $ $ $ $ $
Asian Growth Fund.....................
Emerging Markets Debt Fund............
Emerging Markets Fund.................
Equity Growth Fund....................
European Equity Fund..................
Focus Equity Fund.....................
Global Equity Allocation Fund.........
Global Equity Fund....................
Global Fixed Income Fund..............
Global Franchise Fund.................
Growth and Income Fund II.............
High Yield & Total Return Fund........
International Magnum Fund.............
Japanese Equity Fund..................
Latin American Fund...................
Mid Cap Growth Fund...................
Value Fund............................
Worldwide High Income Fund............
-------- ------- ------- ------- ------- ------- ------- ------- ------- --------
Company Total....................... $ $ $ $ $ $ $ $ $ $
-------- ------- ------- ------- ------- ------- ------- ------- ------- --------
</TABLE>
1999 AGGREGATE COMPENSATION DEFERRED FROM THE COMPANY AND EACH PORTFOLIO
TABLE B
<TABLE>
<CAPTION>
FUND NAME BRANAGAN CHOATE HEAGY KENNEDY NELSON ROONEY SISTO WHALEN WOOLSEY YOVOVICH
- ------------------------------------------ -------- ------ ------ ------- ------ ------ ------ ------ ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
American Value Fund....................... $ $ $ $ $ $ $ $ $ $
Asian Growth Fund.........................
Emerging Markets Debt Fund................
Emerging Markets Fund.....................
Equity Growth Fund........................
European Equity Fund......................
Focus Equity Fund.........................
Global Equity Allocation Fund.............
Global Equity Fund........................
Global Fixed Income Fund..................
Global Franchise Fund.....................
Growth and Income Fund II.................
High Yield & Total Return Fund............
International Magnum Fund.................
Japanese Equity Fund......................
Latin American Fund.......................
Mid Cap Growth Fund.......................
Value Fund................................
Worldwide High Income Fund................
-------- ------ ------ ------- ------ ------ ------ ------ ------- --------
Company Total........................... $ $ $ $ $ $ $ $ $ $
-------- ------ ------ ------- ------ ------ ------ ------ ------- --------
</TABLE>
30
<PAGE>
CUMULATIVE COMPENSATION DEFERRED (PLUS INTEREST) FROM THE COMPANY AND EACH
PORTFOLIO
TABLE C
<TABLE>
<CAPTION>
FUND NAME BRANAGAN CHOATE HEAGY KENNEDY NELSON ROBINSON ROONEY SISTO
- --------------------------------- ----------- --------- --------- ----------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
American Value Fund.............. $ $ $ $ $ $ $ $
Asian Growth Fund................
Emerging Markets Debt Fund.......
Emerging Markets Fund............
Equity Growth Fund...............
European Equity Fund.............
Focus Equity Fund................
Global Equity Allocation Fund....
Global Equity Fund...............
Global Fixed Income Fund.........
Global Franchise Fund............
Growth and Income Fund II........
High Yield & Total Return Fund...
International Magnum Fund........
Japanese Equity Fund.............
Latin American Fund..............
Mid Cap Growth Fund..............
Value Fund.......................
Worldwide High Income Fund.......
----------- --------- --------- ----------- --------- ----------- --------- ---------
Company Total.................. $ $ $ $ $ $ $ $
----------- --------- --------- ----------- --------- ----------- --------- ---------
<CAPTION>
FUND NAME WHALEN WOOLSEY YOVOVICH MILLER GAUGHAN ROBINSON
- --------------------------------- --------- --------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
American Value Fund.............. $ $ $ $ $ $
Asian Growth Fund................
Emerging Markets Debt Fund.......
Emerging Markets Fund............
Equity Growth Fund...............
European Equity Fund.............
Focus Equity Fund................
Global Equity Allocation Fund....
Global Equity Fund...............
Global Fixed Income Fund.........
Global Franchise Fund............
Growth and Income Fund II........
High Yield & Total Return Fund...
International Magnum Fund........
Japanese Equity Fund.............
Latin American Fund..............
Mid Cap Growth Fund..............
Value Fund.......................
Worldwide High Income Fund.......
--------- --------- ----------- --------- ----- -----------
Company Total.................. $ $ $ $ $ $
--------- --------- ----------- --------- ----- -----------
</TABLE>
YEAR OF ELECTION TO EACH PORTFOLIO OF THE COMPANY
TABLE D
<TABLE>
<CAPTION>
FUND NAME BRANAGAN CHOATE HEAGY KENNEDY NELSON ROONEY SISTO WHALEN WOOLSEY YOVOVICH
- ------------------------------------------ -------- ------ ------ ------- ------ ------ ------ ------ ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
American Value Fund....................... 1997 1999 1997 1997 1997 1997 1997 1997 1999 1998
Asian Growth Fund......................... 1997 1999 1997 1997 1997 1997 1997 1997 1999 1998
Emerging Markets Debt Fund................ 1997 1999 1997 1997 1997 1997 1997 1997 1999 1998
Emerging Markets Fund..................... 1997 1999 1997 1997 1997 1997 1997 1997 1999 1998
Equity Growth Fund........................ 1997 1999 1997 1997 1997 1997 1997 1997 1999 1998
European Equity Fund...................... 1997 1999 1997 1997 1997 1997 1997 1997 1999 1998
Focus Equity Fund......................... 1997 1999 1997 1997 1997 1997 1997 1997 1999 1998
Global Equity Allocation Fund............. 1997 1999 1997 1997 1997 1997 1997 1997 1999 1998
Global Equity Fund........................ 1997 1999 1997 1997 1997 1997 1997 1997 1999 1998
Global Fixed Income Fund.................. 1997 1999 1997 1997 1997 1997 1997 1997 1999 1998
Global Franchise Fund..................... 1997 1999 1997 1997 1997 1997 1997 1997 1999 1998
Growth and Income Fund II................. 1997 1999 1997 1997 1997 1997 1997 1997 1999 1998
High Yield & Total Return Fund............ 1997 1999 1997 1997 1997 1997 1997 1997 1999 1998
International Magnum Fund................. 1997 1999 1997 1997 1997 1997 1997 1997 1999 1998
Japanese Equity Fund...................... 1997 1999 1997 1997 1997 1997 1997 1997 1999 1998
Latin American Fund....................... 1997 1999 1997 1997 1997 1997 1997 1997 1999 1998
Mid Cap Growth Fund....................... 1997 1999 1997 1997 1997 1997 1997 1997 1999 1998
Value Fund................................ 1997 1999 1997 1997 1997 1997 1997 1997 1999 1998
Worldwide High Income Fund................ 1997 1999 1997 1997 1997 1997 1997 1997 1999 1998
</TABLE>
31
<PAGE>
INVESTMENT ADVISORY AGREEMENT
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 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, 1998 and 1997, the Adviser
received the following advisory fees from the Funds:
<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........................................
Asian Growth Fund..........................................
Emerging Markets Debt Fund.................................
Emerging Markets Fund......................................
Equity Growth Fund.........................................
European Equity Fund.......................................
Focus Equity Fund..........................................
Global Equity Allocation Fund..............................
Global Equity Fund.........................................
Global Fixed Income Fund...................................
Global Franchise Fund......................................
Growth and Income Fund II..................................
High Yield & Total Return Fund.............................
International Magnum Fund..................................
Japanese Equity Fund.......................................
Latin American Fund........................................
Mid Cap Growth Fund........................................
Value Fund.................................................
Worldwide High Income Fund.................................
</TABLE>
MSDWIM is the investment sub-adviser of all of the Funds except the MidCap
Growth Fund and Value Fund and Miller Anderson & Sherrerd, LLP ("MAS," or a
"Sub-Adviser") 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. 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. If 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
32
<PAGE>
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.
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 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.
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. During the fiscal years ended June 30, 1999,
1998 and 1997, the Adviser received the following administative fees from the
Funds:
<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........................................ $ $ $
Asian Growth Fund..........................................
Emerging Markets Debt Fund.................................
Emerging Markets Fund......................................
Equity Growth Fund.........................................
European Equity Fund.......................................
Focus Equity Fund..........................................
Global Equity Allocation Fund..............................
Global Equity Fund.........................................
Global Fixed Income Fund...................................
Global Franchise Fund......................................
Growth and Income Fund II..................................
High Yield & Total Return Fund.............................
International Magnum Fund..................................
Japanese Equity Fund.......................................
Latin American Fund........................................
Mid Cap Growth Fund........................................
Value Fund.................................................
Worldwide High Income Fund.................................
</TABLE>
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.
33
<PAGE>
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........................................ $ $ $
Asian Growth Fund..........................................
Emerging Markets Debt Fund.................................
Emerging Markets Fund......................................
Equity Growth Fund.........................................
European Equity Fund.......................................
Focus Equity Fund..........................................
Global Equity Allocation Fund..............................
Global Equity Fund.........................................
Global Fixed Income Fund...................................
Global Franchise Fund......................................
Growth and Income Fund II..................................
High Yield & Total Return Fund.............................
International Magnum Fund..................................
Japanese Equity Fund.......................................
Latin American Fund........................................
Mid Cap Growth Fund........................................
Value Fund.................................................
Worldwide High Income Fund.................................
</TABLE>
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 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............................. $ $ $ $ $ $
Asian Growth Fund...............................
Emerging Markets Debt Fund......................
Emerging Markets Fund...........................
Equity Growth Fund..............................
European Equity Fund............................
Focus Equity Fund...............................
Global Equity Allocation Fund...................
Global Equity Fund..............................
Global Fixed Income Fund........................
Global Franchise Fund...........................
Growth and Income Fund II.......................
High Yield & Total Return Fund..................
International Magnum Fund.......................
Japanese Equity Fund............................
Latin American Fund.............................
Mid Cap Growth Fund.............................
Value Fund......................................
Worldwide High Income Fund......................
</TABLE>
34
<PAGE>
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
------------------------ TO DEALERS
AS % OF AS % OF NET AS A % OF
SIZE OF OFFERING AMOUNT OFFERING
INVESTMENT PRICE INVESTED PRICE
- ---------------------------------------------------------------------------- ----------- ----------- -------------
<S> <C> <C> <C>
Less than $100,000.......................................................... 4.75% 4.99% 4.25%
$100,000 but less than $250,000............................................. 3.75% 3.90% 3.25%
$250,000 but less than $500,000............................................. 2.75% 2.83% 2.25%
$500,000 but less than $1,000,000........................................... 2.00% 2.04% 1.75%
$1,000,000 or more.......................................................... * * *
</TABLE>
With respect to all of the remaining Funds:
<TABLE>
<CAPTION>
TOTAL SALES CHARGE REALLOWED
------------------------ TO DEALERS
AS % OF AS % OF NET AS A % OF
SIZE OF OFFERING AMOUNT OFFERING
INVESTMENT PRICE INVESTED PRICE
- ---------------------------------------------------------------------------- ----------- ----------- -------------
<S> <C> <C> <C>
Less than $50,000........................................................... 5.75% 6.10% 5.00%
$50,000 but less than $100,000.............................................. 4.75% 4.99% 4.00%
$100,000 but less than $250,000............................................. 3.75% 3.90% 3.00%
$250,000 but less than $500,000............................................. 2.75% 2.83% 2.25%
$500,000 but less than $1,000,000........................................... 2.00% 2.04% 1.75%
$1,000,000 or more.......................................................... * * *
</TABLE>
- --------------
* No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the Fund imposes a contingent
deferred sales charge of 1.00% on certain redemptions made within one year of
the purchase. A commission or transaction fee will be paid by the Distributor
at the time of purchase directly out of the Distributor's assets (and not out
of the Fund's assets) to authorized dealers who initiate and are responsible
for purchases of $1 million or more computed based on a percentage of the
dollar value of such shares sold as follows: 1.00% on sales to $2 million,
plus 0.80% on the next $1 million and 0.50% on the excess over $3 million.
With respect to sales of Class B Shares and Class C Shares, a commission or
transaction fee generally will be paid by the Distributor at the time of
purchase directly out of the Distributor's assets (and not out of the Fund's
assets) to authorized dealers who initiate and are responsible for such
purchases computed based on a percentage of the dollar value of such shares sold
of 4.00% on Class B Shares and 1.00% on Class C Shares.
Proceeds from any contingent deferred sales charge and any distribution fees
on Class B Shares and Class C Shares 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.
35
<PAGE>
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.
36
<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 $ 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.................................................... $ %
American Value Fund -- Class B.................................................... %
American Value Fund -- Class C.................................................... %
Asian Growth Fund -- Class A...................................................... %
Asian Growth Fund -- Class B...................................................... %
Asian Growth Fund -- Class C...................................................... %
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.................................................. %
Emerging Markets Fund -- Class B.................................................. %
Emerging Markets Fund -- Class C.................................................. %
Equity Growth Fund -- Class A..................................................... %
Equity Growth Fund -- Class B..................................................... %
Equity Growth Fund -- Class C..................................................... %
European Equity Fund -- Class A................................................... %
European Equity Fund -- Class B................................................... %
European Equity Fund -- Class C................................................... %
Focus Equity Fund -- Class A...................................................... %
Focus Equity Fund -- Class B...................................................... %
Focus Equity Fund -- Class C...................................................... %
Global Equity Allocation Fund -- Class A.......................................... %
Global Equity Allocation Fund -- Class B.......................................... %
Global Equity Allocation Fund -- Class C.......................................... %
Global Equity Fund -- Class A..................................................... %
Global Equity Fund -- Class B..................................................... %
Global Equity Fund -- Class C..................................................... %
Global Franchise Fund -- Class A.................................................. %
Global Franchise Fund -- Class B.................................................. %
Global Franchise Fund -- Class C.................................................. %
Global Fixed Income Fund -- Class A............................................... %
Global Fixed Income Fund -- Class B............................................... %
Global Fixed Income Fund -- Class C............................................... %
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......................................... %
High Yield & Total Return Fund -- Class B......................................... %
High Yield & Total Return Fund -- Class C......................................... %
International Magnum Fund -- Class A.............................................. %
International Magnum Fund -- Class B.............................................. %
International Magnum Fund -- Class C.............................................. %
Japanese Equity Fund -- Class A(1)................................................ %
Japanese Equity Fund -- Class B(1)................................................ %
Japanese Equity Fund -- Class C(1)................................................ %
Latin American Fund -- Class A.................................................... %
Latin American Fund -- Class B.................................................... %
Latin American Fund -- Class C.................................................... %
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............................................................. %
Value Fund -- Class B............................................................. %
Value Fund -- Class C............................................................. %
Worldwide High Income Fund -- Class A............................................. %
Worldwide High Income Fund -- Class B............................................. %
Worldwide High Income Fund -- Class C............................................. %
</TABLE>
- ------------------
(1) Not operational as of June 30, 1999.
37
<PAGE>
TRANSFER AGENT
The Funds' transfer agent, shareholder service agent and divided disbursing
agent is Van Kampen Investor Services Inc., PO Box 418256, Kansas City, MO
64141-9256. 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.
Effective October 31, 1996, Morgan Stanley & Co. Incorporated ("Morgan
Stanley") became an affiliate of the Adviser. Effective May 31, 1997, Dean
Witter Reynolds, Inc. ("Dean Witter") became an affiliate of the Adviser. The
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 Fund must be reasonable and fair compared
to the commissions, fees or other remuneration received or to be received by
other brokers in connection with comparable transactions involving similar
securities during a comparable period of time. The rule and procedures also
contain review requirements and require the Adviser to furnish reports to the
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:
38
<PAGE>
<TABLE>
<CAPTION>
EMERGING
AMERICAN ASIAN MARKETS EMERGING EQUITY EUROPEAN
FISCAL YEAR ENDED VALUE GROWTH DEBT MARKETS GROWTH EQUITY
JUNE 30, 1999 FUND FUND FUND(1) FUND FUND FUND
- --------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Total brokerage commissions...... $ $ $ $ $ $
Commissions with Morgan Stanley.. $ $ $ $ $ $
Percentage of total
commissions................... % % % % % %
Commissions with Dean Witter..... $ $ $ $ $ $
Percentage of total
commissions................... % % % % % %
Percentage of total value of
brokerage transactions with
Morgan Stanley................. % % % % % %
Percentage of total value of
brokerage transactions with
Dean Witter.................... % % % % % %
Commissions for research
services....................... $ $ $ $ $ $
Value of research transactions... $ $ $ $ $ $
<CAPTION>
GLOBAL
FOCUS EQUITY GLOBAL GLOBAL
FISCAL YEAR ENDED EQUITY ALLOCATION EQUITY FRANCHISE
JUNE 30, 1999 FUND FUND FUND FUND
- --------------------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Total brokerage commissions...... $ $ $ $
Commissions with Morgan Stanley.. $ $ $ $
Percentage of total
commissions................... % % % %
Commissions with Dean Witter..... $ $ $ $
Percentage of total
commissions................... % % % %
Percentage of total value of
brokerage transactions with
Morgan Stanley................. % % % %
Percentage of total value of
brokerage transactions with
Dean Witter.................... % % % %
Commissions for research
services....................... $ $ $ $
Value of research transactions... $ $ $ $
</TABLE>
<TABLE>
<CAPTION>
HIGH
GLOBAL YIELD & INTER-
FIXED GROWTH AND TOTAL NATIONAL JAPANESE LATIN
FISCAL YEAR ENDED INCOME INCOME RETURN MAGNUM EQUITY AMERICAN
JUNE 30, 1999 FUND FUND II(1) FUND FUND FUND(1) FUND
- --------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Total brokerage commissions...... $ $ $ $ $ $
Commissions with Morgan Stanley.. $ $ $ $ $ $
Percentage of total
commissions................... % % % % % %
Commissions with Dean Witter..... $ $ $ $ $ $
Percentage of total
commissions................... % % % % % %
Percentage of total value of
brokerage transactions with
Morgan Stanley................. % % % % % %
Percentage of total value of
brokerage transactions with
Dean Witter.................... % % % % % %
Commissions for research
services....................... $ $ $ $ $ $
Value of research transactions... $ $ $ $ $ $
<CAPTION>
WORLDWIDE
MID CAP HIGH
FISCAL YEAR ENDED GROWTH VALUE INCOME
JUNE 30, 1999 FUND(1) FUND FUND
- --------------------------------- ------------- ------------- -------------
<S> <C> <C> <C>
Total brokerage commissions...... $ $ $
Commissions with Morgan Stanley.. $ $ $
Percentage of total
commissions................... % % %
Commissions with Dean Witter..... $ $ $
Percentage of total
commissions................... % % %
Percentage of total value of
brokerage transactions with
Morgan Stanley................. % % %
Percentage of total value of
brokerage transactions with
Dean Witter.................... % % %
Commissions for research
services....................... $ $ $
Value of research transactions... $ $ $
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
EMERGING
AMERICAN ASIAN MARKETS EMERGING EQUITY EUROPEAN
FISCAL YEAR ENDED VALUE GROWTH DEBT MARKETS GROWTH EQUITY
JUNE 30, 1998 FUND FUND FUND(1) FUND FUND FUND
- --------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Total brokerage commissions...... $ $ $ $ $ $
Commissions with Morgan Stanley.. $ $ $ $ $ $
Commissions with Dean Witter..... $ $ $ $ $ $
<CAPTION>
GLOBAL
FOCUS EQUITY GLOBAL GLOBAL
FISCAL YEAR ENDED EQUITY ALLOCATION EQUITY FRANCHISE
JUNE 30, 1998 FUND FUND FUND FUND
- --------------------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Total brokerage commissions...... $ $ $ $
Commissions with Morgan Stanley.. $ $ $ $
Commissions with Dean Witter..... $ $ $ $
</TABLE>
<TABLE>
<CAPTION>
HIGH
GLOBAL YIELD & INTER-
FIXED GROWTH AND TOTAL NATIONAL JAPANESE LATIN
FISCAL YEAR ENDED INCOME INCOME RETURN MAGNUM EQUITY AMERICAN
JUNE 30, 1998 FUND FUND II(1) FUND FUND FUND(1) FUND
- --------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Total brokerage commissions...... $ $ $ $ $ $
Commissions with Morgan Stanley.. $ $ $ $ $ $
Commissions with Dean Witter..... $ $ $ $ $ $
<CAPTION>
WORLDWIDE
MID CAP HIGH
FISCAL YEAR ENDED GROWTH VALUE INCOME
JUNE 30, 1998 FUND(1) FUND FUND
- --------------------------------- ------------- ------------- -------------
<S> <C> <C> <C>
Total brokerage commissions...... $ $ $
Commissions with Morgan Stanley.. $ $ $
Commissions with Dean Witter..... $ $ $
</TABLE>
<TABLE>
<CAPTION>
EMERGING
AMERICAN ASIAN MARKETS EMERGING EQUITY EUROPEAN
FISCAL YEAR ENDED VALUE GROWTH DEBT MARKETS GROWTH EQUITY
JUNE 30, 1997 FUND FUND FUND(1) FUND FUND FUND
- --------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Total brokerage commissions...... $ $ $ $ $ $
Commissions with Morgan Stanley.. $ $ $ $ $ $
Commissions with Dean Witter..... $ $ $ $ $ $
<CAPTION>
GLOBAL
FOCUS EQUITY GLOBAL GLOBAL
FISCAL YEAR ENDED EQUITY ALLOCATION EQUITY FRANCHISE
JUNE 30, 1997 FUND FUND FUND FUND
- --------------------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Total brokerage commissions...... $ $ $ $
Commissions with Morgan Stanley.. $ $ $ $
Commissions with Dean Witter..... $ $ $ $
</TABLE>
<TABLE>
<CAPTION>
HIGH
GLOBAL YIELD & INTER-
FIXED GROWTH AND TOTAL NATIONAL JAPANESE LATIN
FISCAL YEAR ENDED INCOME INCOME RETURN MAGNUM EQUITY AMERICAN
JUNE 30, 1997 FUND FUND II(1) FUND FUND FUND(1) FUND
- --------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Total brokerage commissions...... $ $ $ $ $ $
Commissions with Morgan Stanley.. $ $ $ $ $ $
Commissions with Dean Witter..... $ $ $ $ $ $
<CAPTION>
WORLDWIDE
MID CAP HIGH
FISCAL YEAR ENDED GROWTH VALUE INCOME
JUNE 30, 1997 FUND(1) FUND FUND
- --------------------------------- ------------- ------------- -------------
<S> <C> <C> <C>
Total brokerage commissions...... $ $ $
Commissions with Morgan Stanley.. $ $ $
Commissions with Dean Witter..... $ $ $
</TABLE>
- --------------------
(1) As of October 29, 1999, the Emerging Markets Debt Fund, Growth and Income
Fund II, Japanese Equity Fund and Mid Cap Growth Fund were not operational.
40
<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 will receive statements
quarterly from Investor Services showing any reinvestments of dividends and
capital gains distributions and any other activity in the account since the
preceding statement. Such shareholders also will receive separate confirmations
for each purchase or sale transaction other than reinvestment of dividends and
capital gains distributions and systematic purchases or redemptions. Additions
to an investment account may be made at any time by purchasing shares through
authorized 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 redemption
thereof. In addition, if such certificates are lost the shareholder must write
to Van Kampen Funds, c/o Investor Services, PO Box 418256, Kansas City, MO
64141-9256, 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
offering price next computed after receipt of instructions may establish a
monthly, quarterly, semi-annual or annual withdrawal plan. Any investor whose
shares in a single account total $5,000 or more at the offering price next
computed after receipt of instructions may establish a quarterly,
41
<PAGE>
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 distributions 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 distributions, the
shareholder's original investment will be correspondingly reduced and ultimately
exhausted. Withdrawals made concurrently with the purchase of additional shares
ordinarily will be disadvantageous to the shareholder because of the duplication
of sales charges. Any gain or loss realized by the shareholder upon redemption
of shares is a taxable event. 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. Shareholders may incur
brokerage charges upon the sale of portfolio securities so received in payment
of redemptions.
CONTINGENT DEFERRED SALES CHARGE -- CLASS A ("CDSC -- CLASS A")
As described in the Prospectus under "Purchase of Shares -- Class A Shares,"
there is no sales charge payable on Class A Shares at the time of purchase on
investments of $1 million or more, but a contingent deferred sales charge ("CDSC
- -- Class A 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 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.
42
<PAGE>
WAIVER OF CLASS B AND CLASS C CONTINGENT DEFERRED SALES CHARGE ("CDSC-CLASS B
AND C")
As described in the Prospectus under "Redemption of Shares," redemptions of
Class B Shares and Class C Shares will be subject to a contingent deferred sales
charge. 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.
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 Prospectus. Prior to
such redemptions, shareholders will be notified in writing and allowed a
specified period of time to purchase additional shares to bring the account up
to the required minimum balance. Each Fund will waive the CDSC-Class B and C
upon such involuntary redemption.
43
<PAGE>
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 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 gains, which are the excess of net
long-term capital gains over net short-term capital losses), it will not be
required to pay federal income taxes on any income distributed to shareholders.
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 gains 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. The Funds will monitor their 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 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
44
<PAGE>
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 gains ("capital gain dividends"), if any, are taxable to shareholders as
long-term capital gains 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 gains to such holder (assuming such shares are held as a capital asset).
For a summary of the tax rates applicable to capital gains (including capital
gain dividends), see "Capital Gains Rates" below. Tax-exempt shareholders not
subject to federal income tax on their income generally will not be taxed on
distributions from 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. Such taxes will not be deductible or creditable by
shareholders. Tax conventions between certain countries and the United States
may reduce or eliminate such taxes.
Under Code Section 988, foreign currency gains or losses from certain
forward contracts not traded in the interbank market as well as certain other
gains or losses attributable to currency exchange rate fluctuations are
typically treated as ordinary income or loss. Such income or loss may increase
or decrease (or possibly eliminate) 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
45
<PAGE>
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 a Fund is likely to be appropriate for a Non-U.S.
Shareholder only if such person can utilize a foreign tax credit or
corresponding tax benefit in respect of such United States withholding tax.
Non-effectively connected capital gain dividends and gains realized from the
sale of shares will not be subject to United States federal income tax in the
case of (i) a Non-U.S. Shareholder that is a corporation and (ii) a Non-U.S.
Shareholder that is not present in the United States for more than 182 days
during the taxable year (assuming that certain other conditions are met).
However, certain Non-U.S. Shareholders may nonetheless be subject to backup
withholding on capital gain dividends and gross proceeds paid to them upon the
sale of their shares. See "Backup Withholding" below.
If income from 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.
Final United States Treasury Regulations, effective for payments made after
December 31, 2000, may affect the procedures to be followed by Non-U.S.
Shareholders in establishing foreign status for purposes of the withholding,
backup withholding and information reporting rules. Prospective investors should
consult their tax advisors 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.
Each Fund must report annually to the IRS and to each Non-U.S. Shareholder
the amount of dividends paid to such shareholder and the amount, if any, of tax
withheld pursuant to backup withholding rules with respect to such dividends.
This information may also be made available to the tax authorities in the
Non-U.S. Shareholder's country of residence.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules from payments made to a Shareholder may be refunded or
credited against such shareholder's United States federal income tax liability,
if any, provided that the required information is furnished to the IRS.
46
<PAGE>
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>
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 THREE-YEAR FIVE-YEAR INCEPTION
INCEPTION PERIOD ENDED PERIOD ENDED PERIOD ENDED THROUGH JUNE
DATE JUNE 30, 1999 JUNE 30, 1999 JUNE 30, 1999 30, 1999
--------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Global Equity Allocation Fund
Class A Shares...................... 01/04/93 % % % %
Class B Shares(1)................... 08/01/95
Class C Shares(1)................... 01/04/93
Global Fixed Income Fund
Class A Shares...................... 01/04/93
Class B Shares(1)................... 08/01/95
Class C Shares(1)................... 01/04/93
Asian Growth Fund
Class A Shares...................... 06/23/93
Class B Shares(1)................... 08/01/95
Class C Shares(1)................... 06/23/93
American Value Fund
Class A Shares...................... 10/18/93
Class B Shares(1)................... 08/01/95
Class C Shares(1)................... 10/18/93
Worldwide High Income Fund
Class A Shares...................... 04/21/94
Class B Shares(1)................... 08/01/95
Class C Shares(1)................... 04/21/94
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
ONE-YEAR THREE-YEAR FIVE-YEAR INCEPTION
INCEPTION PERIOD ENDED PERIOD ENDED PERIOD ENDED THROUGH JUNE
DATE JUNE 30, 1999 JUNE 30, 1999 JUNE 30, 1999 30, 1999
--------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Emerging Markets Fund
Class A Shares...................... 07/06/94
Class B Shares(1)................... 08/01/95
Class C Shares(1)................... 07/06/94
Latin American Fund
Class A Shares...................... 07/06/94 % % % %
Class B Shares(1)................... 08/01/95
Class C Shares(1)................... 07/06/94
Aggressive Equity Fund
Class A Shares...................... 01/02/96
Class B Shares...................... 01/02/96
Class C Shares...................... 01/02/96
High Yield & Total Return Fund
Class A Shares...................... 05/01/96
Class B Shares...................... 05/01/96
Class C Shares...................... 05/01/96
International Magnum Fund
Class A Shares...................... 07/01/96
Class B Shares...................... 07/01/96
Class C Shares...................... 07/01/96
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
Class B Shares...................... 9/25/98
Class C Shares...................... 9/25/98
Equity Growth Fund
Class A Shares...................... 5/29/98
Class B Shares...................... 5/29/98
Class C Shares...................... 5/29/98
Global Equity Fund
Class A Shares...................... 10/29/97
Class B Shares...................... 10/29/97
Class C Shares...................... 10/29/97
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
Class B Shares...................... 7/7/97
Class C Shares...................... 7/7/97
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
ONE-YEAR THREE-YEAR FIVE-YEAR INCEPTION
INCEPTION PERIOD ENDED PERIOD ENDED PERIOD ENDED THROUGH JUNE
DATE JUNE 30, 1999 JUNE 30, 1999 JUNE 30, 1999 30, 1999
--------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Global Franchise Fund
Class A Shares...................... 9/25/98
Class B Shares...................... 9/25/98
Class C Shares...................... 9/25/98
</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
Worldwide High Income Fund
High Yield & Total Return Fund
</TABLE>
49
<PAGE>
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. The
following publications may be used:
(a) Dow Jones Composite Average or its component averages -- an unmanaged
index composed of 30 blue-chip industrial corporation stocks (Dow Jones
Industrial Average), 15 utilities company stocks and 20 transportation stocks.
Comparisons of performance assume reinvestment of dividends.
(b) Standard & Poor's 500 Stock Index or its component indices -- unmanaged
index composed of 400 industrial stocks, 40 financial stocks, 40 utilities
company stocks and 20 transportation stocks. Comparisons of performance assume
reinvestment of dividends.
(c) The New York Stock Exchange composite or component indices -- unmanaged
indices of all industrial, utilities, transportation and finance company stocks
listed on the New York Stock Exchange.
(d) Wilshire 5000 Equity Index or its component indices -- represents the
return on the market value of all common equity securities for which daily
pricing is available. Comparisons of performance assume reinvestment of
dividends.
(e) Lipper -- Capital Appreciation Index -- a composite of mutual funds
managed for maximum capital gains.
(f) Lipper -- Mutual Fund Performance Analysis and Lipper -- Fixed Income
Fund Performance Analysis -- measures total return and average current yield for
the mutual fund industry. Ranks individual mutual fund performance over
specified time periods, assuming reinvestment of all distributions, exclusive of
any applicable sales charges.
(g) Morgan Stanley Capital International EAFE Index -- an arithmetic, market
value-weighted average of the performance of over 1,000 securities on the stock
exchanges of countries in Europe, Australia and the Far East.
(h) Goldman Sachs 100 Convertible Bond Index -- currently includes 67 bonds
and 33 preferred. The original list of names was generated by screening for
convertible issues of $100 million or greater in market capitalization. The
index is priced monthly.
(i) Salomon Smith Barney GNMA Index -- includes pools of mortgages
originated by private lenders and guaranteed by the mortgage pools of the
Government National Association.
(j) Salomon Smith Barney High Grade Corporate Bond Index -- consists of
publicly issued, non-convertible corporate bonds rated AA or AAA. It is
value-weighted, total return index, including approximately 800 issues with
maturities of 12 years or greater.
(k) Salomon Smith Barney Broad Investment Grade Bond Index -- is a
market-weighted index that contains approximately 4700 individually priced
investment grade corporate bonds rated BBB or better, United States
Treasury/agency issues and mortgage pass-through securities.
(l) Salomon Brothers World Bond Index -- measures the total return
performance of high-quality securities in major sectors of the international
bond market. The index covers approximately 600 bonds from 10 currencies:
<TABLE>
<S> <C>
Australian Dollars Netherlands Guilder
Canadian Dollars Swiss Francs
European Currency Units UK Pounds Sterling
French Francs U.S. Dollars
Japanese Yen German Deutsche Marks
</TABLE>
(m) J.P. Morgan Traded Global Bond Index -- is an unmanaged index of
government bond issues and includes Australia, Belgium, Canada, Denmark, France,
Germany, Italy, Japan, the Netherlands, Spain, Sweden, United Kingdom and United
States gross of withholding tax.
(n) Lehman LONG-TERM Treasury Bond Index -- is composed of all bonds covered
by the Lehman Treasury Bond Index with maturities of 10 years or greater.
(o) Lehman Aggregate Bond Index -- is an unmanaged index made up of the
Government/Corporate Index, the Mortgage-Backed Securities Index and the
Asset-Backed Securities Index.
(p) NASDAQ Industrial Index is composed of more than 3,000 industrial
issues. Ifmis a value-weighted index calculated on price change only and does
not include income.
(q) Composite Indices -- 70% Standard & Poor's 500 Stock Index and 30%
NASDAQ Industrial Index; 36% Standard & Poor's 500 Stock Index and 65% Salomon
Brothers High Grade Bond Index; and 65% Standard & Poor's 500 Stock Index and
35% Salomon Brothers High Grade Bond Index.
(r) CDA Mutual Fund Report, published by CDA Investment Technologies, Inc.
- -- analyzes price, current yield, risk, total return and average rate of return
(average annual compounded growth rate) over specified time periods for the
mutual fund industry.
50
<PAGE>
(s) Mutual Fund Source Book, published by Morningstar, Inc. -- analyzes
price, yield, risk and total return for equity funds.
(t) Financial publications: Business Week, Changing Times, Financial World,
Forbes, Fortune, Money, Barron's, Consumer's Digest, Financial Times, Global
Investor, Investor's Daily, Lipper Analytical Services, Inc., Morningstar, Inc.,
New York Times, Personal Investor, Wall Street Journal and Weisenberger
Investment Companies Service -- publications that rate fund performance over
specified time periods.
(u) Consumer Price Index (or cost of Living Index), published by the United
States Bureau of Labor Statistics -- a statistical measure of change, over time,
in the price of goods and services in major expenditure groups.
(v) Stocks, Bonds, Bills and Inflation, published by Hobson Associates --
historical measure of yield, price and total return for common and small company
stock, long-term government bonds, Treasury bills and inflation.
(w) Savings and Loan Historical Interest Rates -- as published in the United
States Savings & Loan League Fact Book.
(x) Historical data supplied by the research departments of First Boston
Corporation, the J.P. Morgan companies, Salomon Brothers, Merrill Lynch, Pierce,
Fenner & Smith, Lehman Brothers Inc. and Bloomberg L.P.
(y) The MSCI Combined Far East Free ex-Japan Index -- a
market-capitalization weighted index comprising stocks in Hong Kong, Indonesia,
Korea, Malaysia, Philippines, Taiwan and Thailand. Korea is included in the MSCI
Combined Far East Free ex-Japan Index at 20% of its market capitalization.
(z) CS First Boston High Yield Index -- generally includes over 180 issues
with an average maturity range of seven to ten years with a minimum
capitalization of $100 million. All issues are individually trader-priced
monthly.
(bb) Morgan Stanley Capital International World Index -- An arithmetic,
market value-weighted average of the performance of over 1,470 securities listed
on the stock exchanges of countries in Europe, Australia, New Zealand, the Far
East, Canada and the United States.
(cc) Morgan Stanley Capital International Emerging Markets Global Latin
American Index -- An unmanaged, arithmetic market value weighted average of the
performance of over 196 securities on the stock exchanges of Argentina, Brazil,
Chile, Colombia, Mexico, Peru and Venezuela. (Assumes reinvestment of
dividends.)
(dd) IFC Global Total Return Composite Index -- An unmanaged index of common
stocks and includes developing countries in Latin America, East and South Asia,
Europe, the Middle East and Africa (net of dividends reinvested).
(ee) EMBI+ -- Expanding on the EMBI, which includes only Bradys, the EMBI+
includes a broader group of Brady Bonds, loans, Eurobonds and U.S. Dollar local
markets instruments. A more comprehensive benchmark than EMBI, the EMBI+ covers
49 instruments from 14 countries. At $98 billion, its market cap is nearly 50%
higher than the EMBI's. The EMBI+ is not, however, intended to replace the EMBI
but rather to complement it. The EMBI continues to represent the most liquid,
most easily traded segment of the market, while the EMBI+ represents the broader
market, including more of the assets that investors typically hold in their
portfolios. Both of these indices are published daily.
(ff) The MSCI Latin America Global Index -- is a broad-based market cap
weighted composite index covering at least 60% of markets in Mexico, Argentina,
Brazil, Chile, Colombia, Peru and Venezuela (Assumes reinvestment of dividends).
(gg) Morgan Stanley Capital International Japan Index -- An unmanaged index
of common stocks (assumes dividends reinvested).
(hh) NAREIT Index -- An unmanaged market weighted index of tax qualified
REITs (excluding healthcare REITs) listed on the New York Stock Exchange,
American Stock Exchange and the NASDAQ National Market System, including
dividends.
(ii) Standard & Poor's 400 Mid Cap Index -- The Standard and Poor's Midcap
400 is a capitalization-weighted index that measures the performance of the
mid-range sector of the U.S. stock market where the medium market capitalization
is approximately $700 million.
(jj) Russell 2500 Index -- comprised of the bottom 500 stocks in the Russell
1000 Index which represents the universe of stocks from which most active money
managers typically select; and all the stocks in the Russell 2000 Index. The
largest security in the index has a market capitalization of approximately $1.3
billion.
(kk) The Worldwide High Income Blended Index -- is an unmanaged index
comprised of 50% CS First Boston High Yield Index, 25% J.P. Morgan Latin
Eurobond Index and 25% J.P. Morgan Emerging Markets Bond Index Plus.
In assessing such comparisons of performance an investor should keep in mind
that the composition of the investments in the reported indices and averages is
not identical to the composition of investments in the Company's Funds, that the
averages are generally unmanaged, and that the items included in the
calculations of such averages may not be identical to the formula used by the
Company to calculate its performance. In addition, there can be no assurance
that the Company will continue this performance as compared to such other
averages.
51
<PAGE>
GENERAL PERFORMANCE INFORMATION
Each Fund's performance will fluctuate, unlike bank deposits or other
investments which pay a fixed yield for a stated period of time. Past
performance is not necessarily indicative of future return. Actual performance
will depend on such variables as portfolio quality, average portfolio maturity,
the type of portfolio instruments acquired, changes in interest rates, portfolio
expenses and other factors. Performance is one basis investors may use to
analyze a Fund as compared to other funds and other investment vehicles.
However, performance of other funds and other investment vehicles may not be
comparable because of the foregoing variables, and differences in the methods
used in valuing their portfolio instruments, computing net asset value and
determining performance.
From time to time, a Fund's performance may be compared to other mutual
funds tracked by financial or business
publications and periodicals. For example, a Fund may quote Morningstar, Inc. in
its advertising materials. Morningstar, Inc. is a mutual fund rating service
that rates mutual funds on the basis of risk-adjusted performance. Rankings that
compare the performance of the Funds to one another in appropriate categories
over specific periods of time may also be quoted in advertising.
Fund advertising may include data on historical returns of the capital
markets in the United States compiled or published by Ibbotson Associates of
Chicago, Illinois ("Ibbotson"), including returns on common stocks, small
capitalization stocks, long-term corporate bonds, intermediate-term government
bonds, long-term government bonds, Treasury bills, the U.S. rate of inflation
(based on the Consumer Price Index), and combinations of various capital
markets. The performance of these capital markets is based on the returns of
different indices. The Funds may use the performance of these capital markets in
order to demonstrate general risk-versus-reward investment scenarios.
Performance comparisons may also include the value of a hypothetical investment
in any of these capital markets. The risks associated with the security types in
any capital market may or may not correspond directly to those of the Funds. The
Funds may also compare their performance to that of other compilations or
indices that may be developed and made available in the future.
The Funds may include in advertisements, charts, graphs or drawings which
illustrate the potential risks and rewards of investment in various investment
vehicles, including but not limited to, foreign securities, stocks, bonds,
treasury bills and shares of a Fund. In addition, advertisements may include a
discussion of certain attributes or benefits to be derived by an investment in a
Fund and/or other mutual funds, shareholder profiles and hypothetical investor
scenarios, timely information on financial management, tax and retirement
planning and various investment alternatives. Advertisements may include lists
of representative Morgan Stanley clients. The Funds may also from time to time
include discussions or illustrations of the effects of compounding in
advertisements. "Compounding" refers to the fact that, if dividends or other
distributions on a Fund investment are reinvested by being paid in additional
Fund shares, any future income or capital appreciation of a Fund would increase
the value, not only of the original investment in the Fund, but also of the
additional Fund shares received through reinvestment.
The Funds may include in its advertisements, discussions or illustrations of
the potential investment goals of a prospective investor (including materials
that describe general principles of investing, such as asset allocation,
diversification, risk tolerance, goal setting, questionnaires designed to help
create a personal financial profile, worksheets used to project savings needs
based on assumed rates of inflation and hypothetical rates of return and action
plans offering investment alternatives), investment management techniques,
policies or investment suitability of a Fund (such as value investing, market
timing, dollar cost averaging, asset allocation, constant ratio transfer,
automatic account rebalancing, the advantages and disadvantages of investing in
tax-deferred and taxable investments). Advertisements and sales materials
relating to a Fund may include information regarding the background and
experience of its portfolio managers; the resources, expertise and support made
available to the portfolio managers by Morgan Stanley or its affiliates; and the
portfolio managers' goals, strategies and investment techniques.
The Funds' advertisements may discuss economic and political conditions of
the United States and foreign countries, the relationship between sectors of the
U.S., a foreign, or the global economy and the U.S., a foreign, or the global
economy as a whole and the effects of inflation. The Funds may include
discussions and illustrations of the growth potential of various global markets
including, but not limited to, Africa, Asia, Europe, Latin America, North
America, South America, Emerging Markets and individual countries. These
discussions may include the past performance of the various markets or market
sectors; forecasts of population, gross national product and market performance;
and the underlying data which supports such forecasts. From time to time,
advertisements, sales literature, communications to shareholders or other
materials may summarize the substance of information contained in the Funds'
shareholder reports (including the investment composition of a Fund), as well as
the views of Morgan Stanley as to current market, economic, trade and interest
rate trends, legislative, regulatory and monetary developments, investment
strategies and related matters believed to be of relevance to a Fund.
The Funds may quote various measures of volatility and benchmark correlation
in advertising. The Funds may compare these measures to those of other funds.
Measures of volatility seek to compare the historical share price fluctuations
or total returns to those of a benchmark. Measures of benchmark correlation
indicate how valid a comparative benchmark may be. Measures of volatility and
correlation may be calculated using averages of historical data. A Fund may also
advertise its current interest rate sensitivity, duration, weighted average
maturity or similar maturity characteristics.
The Funds may advertise examples of the effects of periodic investment
plans, including the principle of dollar cost averaging. In such a program, an
investor invests a fixed dollar amount in a Fund at periodic intervals, thereby
purchasing fewer shares when prices are high and more shares when prices are
low. While such a strategy does not assure a profit or guard against
52
<PAGE>
loss in a declining market, the investor's average cost per share can be lower
than if fixed numbers of shares are purchased at the same intervals. In
evaluating such a plan, investors should consider their ability to continue
purchasing shares during periods of low price levels.
From time to time marketing materials may provide a portfolio manager
update, an adviser update and discuss general economic conditions and outlooks.
The Funds' marketing materials may also show each Fund's asset class
diversification, top five sector holdings and ten largest holdings. Materials
may also mention how the Adviser believes the Fund compares relative to other
funds advised by the Adviser or distributed by the Distributor. Materials may
also discuss the Dalbar Financial Services study from 1984 to 1994 which
examined investor cash flow into and out of all types of mutual funds. The ten
year study found that investors who bought mutual fund shares and held such
shares outperformed investors who bought and sold. The Dalbar study conclusions
were consistent regardless if shareholders purchased their fund in direct or
sales force distribution channels. The study showed that investors working with
a professional representative have tended over time to earn higher returns than
those who invested directly. The Funds will also be marketed on the Internet.
OTHER INFORMATION
CUSTODY OF ASSETS
Chase serves as the Company's domestic custodian. Morgan Stanley Trust
Company, Brooklyn, NY, acts as the Company's custodian for foreign assets held
outside the United States and employs subcustodians who were approved by the
Directors of the Company in accordance with Rule 17f-5 adopted by the SEC under
the 1940 Act. Morgan Stanley Trust Company is an affiliate of Morgan Stanley
Dean Witter & Co. In the selection of foreign subcustodians, the Directors
consider a number of factors, including, but not limited to, the reliability and
financial stability of the institution, the ability of the institution to
provide efficiently the custodial services required for the Company, and the
reputation of the institution in the particular country or region.
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 Fund, performs an annual audit of the Fund's
financial statements.
LEGAL COUNSEL
Counsel to the Fund is Skadden, Arps, Slate, Meagher & Flom (Illinois).
53
<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>
<TABLE>
<CAPTION>
APPENDIX B
- -------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
EMERGING
AMERICAN ASIAN MARKETS EMERGING EQUITY EUROPEAN FOCUS
VALUE GROWTH DEBT MARKETS GROWTH EQUITY EQUITY
BORROWING FUND FUND FUND FUND FUND FUND FUND
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Temporary or Emergency Purposes
Leverage
Reverse Repurchase Agreements
Lower Grade Securities X 10%
On U.S. X X X 25% X 25%
Exchanges
Only
Foreign Securities
ADRs only X X X X X X
Depositary Receipts
Loans of Securities 33 1/3% 33 1/3% 33 1/3% 33 1/3% 33 1/3% 33 1/3% 33 1/3%
Illiquid Securities 15%* 15%* 15%* 15%* 15%* 15%* 15%*
Restricted Securities 10% 10% X 10% X 10% 10%
144A Securities 10% 10% X 10% X 10% 10%
Short Sales X X X X X
When Issued/Delayed-Delivery 15%* 15%* X 15%* X 15%* 15%*
Securities
Zero Coupons, Pay-in-Kind, Deferred X X X X X X
Payment Securities
Preferred Stocks X X X X X X
Other Equity-Linked Securities X X X X X X
Derivatives
For Hedging Purposes X X X X X X X
For Non-Hedging Purposes 33 1/3% 33 1/3% 50% 33 1/3% 50% 33 1/3% 33 1/3%
Futures Contracts (Non-Hedging) 20% 20% 50% 20% 50% 20% 20%
<CAPTION>
APPENDIX B
- -------------------------------------
<S> <C> <C> <C> <C> <C>
HIGH
GLOBAL GLOBAL GROWTH YIELD &
GLOBAL EQUITY FIXED GLOBAL AND TOTAL INTERNATIONAL
EQUITY ALLOCATION INCOME FRANCHISE INCOME RETURN MAGNUM
BORROWING FUND FUND FUND FUND FUND II FUND FUND
<S> <C> <C> <C> <C> <C>
Temporary or Emergency Purposes
Leverage
Reverse Repurchase Agreements
Lower Grade Securities 35% X
X X X X X X X
Foreign Securities
X X X X X
Depositary Receipts
Loans of Securities 33 1/3% 33 1/3% 33 1/3% 33 1/3% 33 1/3% 33 1/3% 33 1/3%
Illiquid Securities 15%* 15%* 15%* 15%* 15%* 15%* 15%*
Restricted Securities X 10% 10% X 10% 10% 10%
144A Securities X 10% 10% X 10% 20% 10%
Short Sales Against X
Box Only
When Issued/Delayed-Delivery X 15%* 15%* 15%* 15%* 15%* 15%*
Securities
Zero Coupons, Pay-in-Kind, Deferred X X X X X X
Payment Securities
Preferred Stocks X X X X X X X
Other Equity-Linked Securities X X X X 10% X
Derivatives
For Hedging Purposes X X X X X X X
For Non-Hedging Purposes 50% 33 1/3% 33 1/3% 33 1/3% 33 1/3% 33 1/3% 33 1/3%
Futures Contracts (Non-Hedging) 50% 20% 20% 20% 20% 20% 20%
<CAPTION>
APPENDIX B
- -------------------------------------
WORLDWIDE
JAPANESE LATIN MID CAP HIGH
EQUITY AMERICAN GROWTH VALUE INCOME
BORROWING FUND FUND FUND FUND FUND
Temporary or Emergency Purposes
Leverage
Reverse Repurchase Agreements
Lower Grade Securities 20% X
X X 5% 5% X
Foreign Securities
X X X X X
Depositary Receipts
Loans of Securities 33 1/3% 20% X X 33 1/3%
Illiquid Securities 15%* 15%* 15%* 15%* 15%*
Restricted Securities 10% 10% X X 10%
144A Securities 10% 10% X X 10%
Short Sales X X X X
When Issued/Delayed-Delivery 15%* 15%* X X 15%*
Securities
Zero Coupons, Pay-in-Kind, Deferred X X X X X
Payment Securities
Preferred Stocks X X X X X
Other Equity-Linked Securities X X X X 10%
Derivatives
For Hedging Purposes X X X X X
For Non-Hedging Purposes 33 1/3% 33 1/3% 50% 50% 33 1/3%
Futures Contracts (Non-Hedging) 20% 20% 50% 50% 20%
</TABLE>
Limitations are expressed as a percentage of total assets unless marked with an
asterisk, in which case percentages apply to net assets. Derivatives limitations
apply to aggregate national amounts outstanding. A check mark indicates that the
Fund may so invest without limitation.
B-1
<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 Government Obligations
Money Market and Tax-Free Money Market Funds) to the Amended and
Restated Articles of Incorporation(2)
(4) 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)
(5) Articles Supplementary (changing the name of Morgan Stanley Equity
Growth to Van Kampen Equity Growth) to the Amended and Restated
Articles of Incorporation(7)
(6) Articles Supplementary (adding Registrant's Global Franchise Fund) to
the Amended and Restated Articles of Incorporation(7)
(7) Articles of Amendment (changing the corporate name from Morgan Stanley
Fund, Inc. to Van Kampen Series Fund, Inc.)(8)
(8) Articles Supplementary (changing the name of each fund (except the
money market funds))(8)
(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) (1) Custody Agreements:
(i) Custody Agreement, The Chase Manhattan Bank, N.A.(4)
(ii) Custody Agreement, PNC Bank, N.A. (with respect to the money
market funds)(2)
(h) (1) Transfer Agency and Service Agreements:
(i) Sub-Transfer Agency Agreement, PFPC, Inc. (with respect to the
money market funds)(5)
(ii) 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)
</TABLE>
C-1
<PAGE>
<TABLE>
<C> <S> <C>
(iii) 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)
(iv) Sub-Transfer Agency Agreement between Miller Anderson &
Sherrerd, LLP and Van Kampen Investor Services Inc.(3)
(v) Assignment and Assumption Agreement (Sub-Transfer Agency
Agreement) between Van Kampen Investment Advisory Corp. and
Miller Anderson & Sherrerd, LLP(5)
(vi) 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) Opinion and Consent of Skadden, Arps, Slate, Meagher & Flom
(Illinois)(8)
(j) Consent of Independent Accountants++
(k) Not applicable
(l) Purchase Agreement(4)
(m) (1) Distribution Plan Pursuant to Rule 12b-1:
(i) Amended and Restated Plan of Distribution of the Money Market,
Government Obligations Money Market and Tax-Free Money Market
Funds(3)
</TABLE>
C-2
<PAGE>
<TABLE>
<C> <S> <C>
(ii) 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)
(iii) 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)
(iv) 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)
(v) 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 Plan++
(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.
C-3
<PAGE>
(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.
++ Filed by further amendment
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
C-4
<PAGE>
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 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.
C-5
<PAGE>
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 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. 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 27th of August, 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 August 27, 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 August 27, 1999.
ATTORNEY-IN-FACT
</TABLE>
<PAGE>
SCHEDULE OF EXHIBITS TO
POST-EFFECTIVE AMENDMENT 26 TO FORM N-1A
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------- -----------------------------------------------------------------------
<C> <S>
(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>
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 Thomas A. 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
---------------------------
Wayne W. Whalen
/s/ SUZANNE H. WOOLSEY Trustee/Director and Chairman
----------------------------
Suzanne H. Woolsey
/s/ PAUL G. YOVOVICH Trustee/Director
---------------------------
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 Aggressive Equity Fund
Van Kampen American Value Fund
Van Kampen Asian Growth Fund
Van Kampen Emerging Markets Debt Fund*
Van Kampen Emerging Markets Fund
Van Kampen Equity Growth Fund
Van Kampen European Equity Fund
Van Kampen Global Equity Allocation Fund
Van Kampen Global Equity Fund
Van Kampen Global Fixed Income Fund
Van Kampen Global Franchise Fund
Morgan Stanley Government Obligations Money Market Fund
Van Kampen Growth and Income Fund II*
Van Kampen High Yield & Total Return Fund
Van Kampen International Magnum Fund
Van Kampen Japanese Equity Fund*
Van Kampen Latin American Fund
Van Kampen Mid Cap Growth Fund*
Morgan Stanley Money Market Fund
Morgan Stanley Tax-Free Money Market Fund*
Van Kampen Value Fund
Van Kampen Worldwide High Income Fund
<PAGE>
<TABLE>
<S> <C>
Insured Municipals Income Trust Series 410
Strategic Municipal Trust, Intermediate Series 2
California Insured Municipals Income Trust Series 180
Florida Insured Municipals Income Trust Series 126
Michigan Insured Municipals Income Trust Series 156
Missouri Insured Municipals Income Trust Series 111
New Jersey Insured Municipals Income Trust Series 127
New York Insured Municipals Income Trust Series 148
Pennsylvania Insured Municipals Income Trust Series 242
Tennessee Investors' Quality Tax-Exempt Trust Series 1
Internet Trust Series 14
The Dow (SM) Strategic 10 Trust May 1999
Series
The Dow (SM) Strategic 10 Trust May 1999
Traditional Series
The Dow (SM) Strategic 5 Trust May 1999
Series
The Dow (SM) Strategic 5 Trust May 1999
Traditional Series
EAFE Strategic 20 Trust May 1999
Series
EURO Strategic 20 Trust May 1999
Series
Strategic Picks Opportunity Trust May 1999
Series
Great International Firms Trust Series 8
Dow 30 Index Trust Series 7
Dow 30 Index and Treasury Trust Series 9
Global Energy Trust Series 8
Brand Name Equity Trust Series 9
Edward Jones Select Growth Trust May 1999
Series
Banking Trust Series 6
Morgan Stanley High-Technology 35 Index Trust Series 6
Pharmaceuticals Trust Series 6
Telecommunications and Bandwidth Trust Series 6
Utility Trust Series 6
Financial Services Trust Series 4
Roaring 2000s Trust Series 2
Roaring 2000s Trust Traditional Series 1
Josepthal - Research Series Power Portfolio Series 1
Josepthal - Research Series The Online Portfolio 1 Series 1
NatCity - Great American Equities Trust Series 2
Baird - Financial Institutions Trust 1999 Series
</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 Oakbrook Terrace, IL
Michael H. Santo Executive Vice President & Chief
Administrative Officer Oakbrook Terrace, IL
Laurence J. Althoff Sr. Vice President & Controller Oakbrook Terrace, IL
James J. Boyne Sr. Vice President, Associate General Oakbrook Terrace, IL
Counsel & Assistant Secretary
Gary R. DeMoss Sr. Vice President Oakbrook Terrace, IL
John E. Doyle Sr. Vice President Oakbrook Terrace, IL
Richard G. Golod Sr. Vice President Annapolis, MD
Steven T. Johnson Sr. Vice President Oakbrook Terrace, IL
Scott E. Martin Sr. Vice President, Deputy General Oakbrook Terrace, IL
Counsel & Assistant Secretary
Walter E. Rein Sr. Vice President Oakbrook Terrace, IL
James J. Ryan Sr. Vice President Oakbrook Terrace, IL
Colette M. Saucedo Sr. Vice President Houston, TX
Frederick Shepherd Sr. Vice President Houston, TX
Steven P. Sorenson Sr. Vice President Oakbrook Terrace, IL
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
Robert S. Hunt First Vice President Phoenix, AZ
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
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
James D. Stevens First Vice Presdent North Andover, MA
George J. Vogel First Vice President Oakbrook Terrace, IL
James R. Yount First Vice President Mercer Island, WA
Robert J. Abreu Vice President New York, NY
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 Wellington, FL
Scott C. Bernstiel Vice President Plainsboro, NJ
Carol S. Biegel Vice President Oakbrook Terrace, IL
Christopher M. Bisaillon Vice President Oakbrook Terrace, IL
Michael P. Boos Vice President Oakbrook Terrace, IL
Robert C. Brooks Vice President Oakbrook Terrace, IL
Elizabeth M. Brown Vice President Houston, TX
William F. Burke, Jr. Vice President Mendham, NJ
Loren Burket Vice President Plymouth, MN
Juanita E. Buss Vice President Kennesaw, GA
Christine Cleary Byrum Vice President Tampa, FL
Daniel R. Chambers Vice President Austin, TX
Richard J. Charlino Vice President Oakbrook Terrace, IL
Deanne Margaret Chiaro Vice President Oakbrook Terrace, IL
Scott A. Chriske Vice President Plano, TX
German Clavijo Vice President Atlanta, GA
Eleanor M. Cloud Vice President Oakbrook Terrace, IL
Dominick Cogliandro Vice President & Asst. Treasurer New York, NY
Michael Colston Vice President Louisville, KY
Kevin J. Connors Vice President Oakbrook Terrace, IL
Suzanne Cummings Vice President Oakbrook Terrace, IL
Michael E. Eccleston Vice President Oakbrook Terrace, IL
Christopher J. Egan Vice President Oakbrook Terrace, IL
William J. Fow Vice President Redding, CT
Nicholas J. Foxhoven Vice President Englewood, CO
Charles Friday Vice President Gibsonia, PA
Timothy D. Griffith Vice President Kirkland, WA
Kyle D. Haas Vice President Oakbrook Terrace, IL
Daniel Hamilton Vice President Austin, TX
John G. Hansen Vice President Oakbrook Terrace, IL
Joseph Hays Vice President Cherry Hill, NJ
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
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
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
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
Michael W. Rohr Vice President Oakbrook Terrace, IL
Jeffrey L. Rose Vice President Houston, TX
Suzette N. Rothberg Vice President Plymouth, MN
Jeffrey Rourke Vice President Oakbrook Terrace, IL
Heather R. Sabo Vice President Richmond, VA
Stephanie Scarlata Vice President Bedford Corners, NY
Christina L. Schmieder Vice President Oakbrook Terrace, IL
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
David G. Walsh Vice President Exton, PA
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
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Frank L. Wheeler Vice President Oakbrook Terrace, IL
Harold Whitworth, III Vice President Oakbrook Terrace, IL
Thomas M. Wilson Vice President Oakbrook Terrace, IL
Barbara A. Withers Vice President Oakbrook Terrace, IL
David M. Wynn Vice President Phoenix, AZ
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
Joan E. Blackwood Asst. Vice President Oakbrook Terrace, IL
Billie J. Bronaugh Asst. Vice President Houston, TX
Gregory T. Brunk Asst. Vice President Oakbrook Terrace, IL
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
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
Andrew Rakowski Asst. Vice President 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
Vanessa M. Sanchez Asst. Vice President Oakbrook Terrace, IL
Thomas J. Sauerborn Asst. Vice President New York, NY
Bruce Saxon Asst. Vice President Oakbrook Terrace, IL
David T. Saylor Asst. Vice President Oakbrook Terrace, IL
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
Aimee Williams Asst. Vice President Oakbrook Terrace, IL
Cathy Napoli Assistant Secretary Oakbrook Terrace, IL
Diane Saxon Assistant Treasurer 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
William R. Rybak Treasurer Oakbrook Terrace, IL
Richard F. Powers III Director Oakbrook Terrace, IL
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
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
</TABLE>
