<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 7, 2000
FILE NO. 033-51294
FILE NO. 811-7140
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-1A
<TABLE>
<S> <C> <C>
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
POST-EFFECTIVE AMENDMENT NO. 28 /X/
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /
AMENDMENT NO. 30 /X/
</TABLE>
------------------------
VAN KAMPEN SERIES FUND, INC.
(Exact Name of Registrant as Specified in Charter)
1 PARKVIEW PLAZA, PO BOX 5555, OAKBROOK TERRACE, ILLINOIS 60181-5555
(Address of Principal Executive Office)
Registrant's Telephone Number (630) 684-6000
A. THOMAS SMITH III
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
VAN KAMPEN INVESTMENTS INC.
1 PARKVIEW PLAZA
PO BOX 5555
OAKBROOK TERRACE, ILLINOIS 60181-5555
(Name and Address of Agent for Service)
------------------------
COPIES TO:
WAYNE W. WHALEN, ESQ.
THOMAS A. HALE, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 WEST WACKER DRIVE
CHICAGO, ILLINOIS 60606
(312) 407-0700
------------------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable following effectiveness of this Registration Statement.
<TABLE>
<S> <C>
It is proposed that this filing be effective
(Check appropriate box)
/ / Immediately upon filing pursuant to paragraph (b)
/ / On (date) pursuant to paragraph (b)
/X/ 60 days after filing pursuant to paragraph (a)(1)
/ / On (date) pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / On (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
/ / This post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
</TABLE>
------------------------
Title of securities being registered:
COMMON SHARES, PAR VALUE $0.001 PER SHARE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This Post-Effective Amendment No. 28 to the Registration Statement contains
1 Prospectus describing the Van Kampen Tax Managed Global Franchise Fund
(formerly, the Van Kampen Global Franchise Fund) and a combined Statement of
Additional Information describing all 19 series of the Registrant (the "Funds"),
including the Van Kampen Tax Managed Global Franchise Fund. The Registration
Statement is organized as follows:
Facing Page
Prospectus relating to the Van Kampen Tax Managed Global Franchise Fund
One Statement of Additional Information relating to all of the Funds of
the Registrant listed below.
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 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 Tax Managed Global Franchise Fund
Van Kampen Value Fund
Van Kampen Worldwide High Income Fund
Part C Information
Exhibits
The prospectuses for the Funds (excluding the Van Kampen Tax Managed
Global Franchise Fund) included in Post-Effective Amendment No. 27 to the
Registration Statement of the Registrant are incorporated herein by
reference and no changes thereto are affected hereby.
<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 JANUARY 7, 2000
VAN KAMPEN
TAX MANAGED
GLOBAL FRANCHISE FUND
Van Kampen Tax Managed Global Franchise Fund is a mutual fund with an investment
objective to seek long-term capital appreciation. Under normal market
conditions, the Fund's investment adviser seeks to achieve the Fund's investment
objective by investing primarily in a portfolio of publicly-traded equity
securities of issuers located in the U.S. and other countries that, in the
judgment of the Fund's investment adviser, have resilient business franchises
and growth potential while attempting to minimize the impact of federal income
taxes on shareholder returns.
Shares of the Fund have not been approved or disapproved by the Securities and
Exchange Commission (SEC) or any state regulator, and neither the SEC nor any
state regulator has passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
THIS PROSPECTUS IS DATED MARCH , 2000.
[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 long-term capital
appreciation. Any income received from the investment of portfolio securities is
incidental to the Fund's investment objective.
INVESTMENT STRATEGIES
Under normal market conditions, the Fund's investment adviser seeks to achieve
the Fund's investment objective by investing primarily in a portfolio of
publicly-traded equity securities of issuers located in the U.S. and other
countries that, in the judgment of the Fund's investment adviser, have resilient
business franchises and growth potential while attempting to minimize the impact
of federal income taxes on shareholder returns. 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 minimize the impact of federal income
taxes on shareholder returns by employing certain tax sensitive investment
strategies such as maintaining a disciplined long-term investment focus to
minimize capital gain producing portfolio turnover, minimizing net capital gains
from sales of portfolio securities, offsetting capital gains by recognizing
capital losses when considered advantageous and selectively using derivative
instruments to manage certain portfolio transactions in a more tax sensitive
manner.
The Fund's investment adviser uses a "bottom-up" investment approach that
emphasizes security selection on an individual company basis. The Fund invests
in securities of issuers that the Fund's investment adviser believes have
resilient business franchises, strong cash flows, modest capital requirements,
capable managements and growth potential. Securities are selected on a global
basis with a strong bias towards value. Sell decisions are directly connected to
buy decisions. Transactions are only undertaken when the addition or deletion of
a stock improves the portfolio's valuation and/or its quality.
Under normal market conditions, the Fund invests at least 65% of its total
assets in securities of issuers from at least three countries (including the
U.S.). The Fund may invest in issuers from developing or emerging market
countries. The Fund may purchase and sell certain derivative instruments (such
as options, futures, options on futures and currency-related transactions
involving options, futures, forward contracts and swaps) for various portfolio
management purposes.
INVESTMENT RISKS
An investment in the Fund is subject to investment risks, and you could lose
money on your investment in the Fund. There can be no assurance that the Fund
will achieve its investment objective.
MARKET RISK. Market risk is the possibility that the market values of securities
owned by the Fund will decline. Market risk may affect a single issuer,
industry, sector of the economy or the market as a whole. Investments in common
stocks and other equity securities generally are affected by changes in the
stock markets, which fluctuate substantially over time, sometimes suddenly and
sharply.
Foreign markets may, but often do not, move in tandem with U.S. markets, and
foreign markets, especially developing or emerging market countries, may be more
volatile than U.S. markets. During an overall stock market decline, stock prices
of smaller companies often fluctuate more and may fall more than the stock
prices of larger companies.
TAX-MANAGED INVESTING. Managing for after-tax returns may negatively impact the
Fund's performance. The Fund utilizes an active management style and may realize
capital gains. Since the Fund balances investment and tax considerations when
deciding whether to buy or sell securities, its pre-tax return may be lower than
that of a similar fund that is not tax managed. The Fund is therefore not a
suitable investment for individual retirement accounts ("IRAs"), other
tax-exempt or tax-deferred accounts or for investors who are not sensitive to
the federal income tax consequences of their investments.
FOREIGN RISKS. Because the Fund owns securities of foreign issuers, it is
subject to risks not usually associated with owning securities of U.S. issuers.
These risks include fluctuations in foreign currencies, foreign currency
exchange controls, political and economic instability, differences in financial
reporting, differences in securities regulation and trading and foreign taxation
issues. The risks of investing in developing or emerging market countries are
greater than the risks generally associated with foreign investments including
investment and trading limitations, greater credit and liquidity concerns,
greater
3
<PAGE>
political uncertainties, an economy's dependence on international development
assistance, greater foreign currency exchange risk and currency transfer
restrictions, and greater delays and disruptions in settlement transactions. To
the extent the Fund focuses more of its assets in a single country or region,
its portfolio would be more susceptible to factors adversely affecting issuers
in that country or region.
RISKS OF USING DERIVATIVE INVESTMENTS. In general terms, a derivative investment
is one whose value depends on (or is derived from) the value of an underlying
asset, interest rate or index. Options, futures and options on futures and
currency-related transactions involving options, futures, forward contracts and
swaps are examples of derivatives. Derivative investments involve risks
different from direct investment in underlying securities. These risks include
imperfect correlation between the value of the instruments and the underlying
assets; risks of default by the other party to certain transactions; risks that
the transactions may result in losses that partially or completely offset gains
in portfolio positions; risks that the transactions may not be liquid; and
manager risk.
MANAGER RISK. As with any managed fund, the Fund's investment adviser may not be
successful in selecting the best-performing securities or investment techniques,
and the Fund's performance may lag behind that of similar funds.
INVESTOR PROFILE
In light of the Fund's investment objective and strategies, the Fund may be
appropriate for investors who:
- - Seek capital appreciation over the long term
- - Seek lower taxable distributions than a traditional equity growth fund (the
Fund is not an appropriate investment for IRAs, other tax-exempt or tax-
deferred accounts or for investors who are not sensitive to the federal income
tax consequences of their investments)
- - Do not seek current income from their investment
- - Are willing to take on the increased risks associated with investing in
foreign securities
- - Can withstand volatility in the value of their Fund shares
- - Wish to add to their investment portfolio a fund that invests primarily in
publicly-traded equity securities of U.S. and other issuers while attempting
to minimize the impact of federal income taxes on shareholder returns
(including investors who have already contributed the maximum to IRAs or other
tax-deferred accounts, investors saving for childrens' educational expenses or
investors seeking more liquidity than that offered by variable annuities)
An investment in the Fund is not a deposit of any bank or other insured
depository institution. Your investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
An investment in the Fund may not be appropriate for all investors. The Fund is
not intended to be a complete investment program, and investors should consider
their long-term investment goals and financial needs when making an investment
decision about the Fund. An investment in the Fund is intended to be a long-term
investment, and the Fund should not be used as a trading vehicle.
ANNUAL PERFORMANCE
One way to measure the risks of investing in the Fund is to look at how its
performance varies from year-to-year. The following chart shows the annual
return of the Fund's Class A Shares over the calendar year prior to the date of
this prospectus. Sales loads are not reflected in this chart. If these sales
loads had been included, the 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>
1999
</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
4
<PAGE>
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 % (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, the table below
shows how the Fund's performance compares with the Morgan Stanley Capital
International (MSCI) World Net Dividends Index*, a broad-based market index that
the Fund's investment adviser believes is an appropriate benchmark for the Fund.
The Fund's performance figures include the maximum sales charges paid by
investors. The index' performance figures do not include any commissions or
sales charges that would be paid by investors purchasing the securities
represented by the index. Average annual total returns are shown for the periods
ended December 31, 1999 (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, 1999 1 YEAR INCEPTION
- ------------------------------------------------------
<S> <C> <C>
Van Kampen Tax Managed
Global Franchise Fund
- -- Class A Shares
MSCI World Net
Dividends Index
.....................................................
Van Kampen Tax Managed
Global Franchise Fund
- -- Class B Shares
MSCI World Net
Dividends Index
.....................................................
Van Kampen Tax Managed
Global Franchise Fund
- -- Class C Shares
MSCI World Net
Dividends Index
.....................................................
</TABLE>
<TABLE>
<S> <C>
INCEPTION DATE: (1) 9/25/98.
* THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) WORLD NET DIVIDENDS
INDEX IS AN UNMANAGED INDEX WHICH INCLUDES SECURITIES LISTED ON THE
STOCK EXCHANGES OF THE UNITED STATES, EUROPE, CANADA, AUSTRALIA, NEW
ZEALAND, AND THE FAR EAST AND ASSUMES DIVIDENDS ARE REINVESTED NET OF
WITHHOLDING TAX.
</TABLE>
FEES AND EXPENSES
OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
- ---------------------------------------------------------------
Maximum sales charge
(load) imposed on
purchases (as a
percentage of
offering price) 5.75%(1) None None
..............................................................
Maximum deferred
sales charge (load)
(as a percentage of
the lesser of
original purchase
price or redemption
proceeds) None(2) 5.00%(3) 1.00%(4)
..............................................................
Maximum sales charge
(load) imposed on
reinvested dividends None None None
..............................................................
Redemption fees None None None
..............................................................
Exchange fee None None None
..............................................................
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- -----------------------------------------------------------
Management fees(5) 1.00% 1.00% 1.00%
..........................................................
Distribution and/or
service (12b-1)
fees(6) 0.25% 1.00%(7) 1.00%(7)
..........................................................
Other expenses(5) 12.30% 12.45% 14.07%
..........................................................
Total annual fund
operating expenses(5) 13.55% 14.45% 16.07%
..........................................................
</TABLE>
(1) REDUCED FOR PURCHASES OF $50,000 AND OVER. SEE "PURCHASE OF
SHARES -- CLASS A SHARES."
(2) INVESTMENTS OF $1 MILLION OR MORE ARE NOT SUBJECT TO ANY SALES
CHARGE AT THE TIME OF PURCHASE, BUT A DEFERRED SALES CHARGE OF
1.00% MAY BE IMPOSED ON CERTAIN REDEMPTIONS MADE WITHIN ONE
YEAR OF THE PURCHASE. SEE "PURCHASE OF SHARES -- CLASS A
SHARES."
(3) THE MAXIMUM DEFERRED SALES CHARGE IS 5.00% IN THE FIRST YEAR
AFTER PURCHASE, THEREAFTER AS FOLLOWS:
YEAR 1-5.00%
YEAR 2-4.00%
YEAR 3-3.00%
YEAR 4-2.50%
YEAR 5-1.50%
AFTER-NONE
SEE "PURCHASE OF SHARES -- CLASS B SHARES."
(4) THE MAXIMUM DEFERRED SALES CHARGE IS 1.00% IN THE FIRST YEAR
AFTER PURCHASE AND 0.00% THEREAFTER. SEE "PURCHASE OF
SHARES -- CLASS C SHARES."
(5) THE FUND'S INVESTMENT ADVISER IS CURRENTLY WAIVING OR
REIMBURSING A PORTION OF THE FUND'S MANAGEMENT FEES AND OTHER
EXPENSES SUCH THAT THE ACTUAL TOTAL ANNUAL FUND OPERATING
EXPENSES WERE 1.80% FOR CLASS A SHARES, 2.55% FOR CLASS B
SHARES AND 2.55% FOR CLASS C SHARES FOR THE FISCAL YEAR ENDED
JUNE 30, 1999. THE FEE WAIVERS OR EXPENSE REIMBURSEMENTS CAN BE
TERMINATED AT ANY TIME.
(6) CLASS A SHARES ARE SUBJECT TO AN ANNUAL SERVICE FEE OF UP TO
0.25% OF THE AVERAGE DAILY NET ASSETS ATTRIBUTABLE TO SUCH
CLASS OF SHARES. CLASS B SHARES AND CLASS C SHARES ARE EACH
SUBJECT TO A COMBINED ANNUAL DISTRIBUTION AND SERVICE FEE OF UP
TO 1.00% OF THE AVERAGE DAILY NET ASSETS ATTRIBUTABLE TO SUCH
CLASS OF SHARES. SEE "PURCHASE OF SHARES."
(7) BECAUSE DISTRIBUTION AND/OR SERVICE (12B-1) FEES ARE PAID OUT
OF THE FUND'S ASSETS ON AN ONGOING BASIS, OVER TIME THESE FEES
WILL INCREASE THE COST OF YOUR INVESTMENT AND MAY COST YOU MORE
THAN PAYING OTHER TYPES OF SALES CHARGES.
5
<PAGE>
EXAMPLE:
The following example is intended to help you compare the cost of investing in
the Fund with the costs of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same each year (except for the ten-year
amounts for Class B Shares, which reflect the conversion of Class B Shares to
Class A Shares after eight years). Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $1,797 $3,938 $5,728 $9,024
...............................................................
Class B Shares $1,877 $4,052 $5,850 $9,106*
...............................................................
Class C Shares $1,618 $4,069 $6,086 $9,471
...............................................................
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $1,797 $3,938 $5,728 $9,024
...............................................................
Class B Shares $1,377 $3,752 $5,700 $9,106*
...............................................................
Class C Shares $1,518 $4,069 $6,086 $9,471
...............................................................
</TABLE>
<TABLE>
<S> <C>
* BASED ON CONVERSION TO CLASS A SHARES AFTER EIGHT
YEARS.
</TABLE>
INVESTMENT OBJECTIVE,
POLICIES AND RISKS
The Fund's investment objective is to seek long-term capital appreciation. Any
income received from the investment of portfolio securities is incidental to the
Fund's investment objective. The Fund's investment objective is a fundamental
policy and may not be changed without the approval of a majority of shareholders
of the Fund's outstanding voting securities, as defined in the Investment
Company Act of 1940, as amended (the "1940 Act"). There are risks inherent in
all investments in securities; accordingly there can be no assurance that the
Fund will achieve its investment objective.
Under normal market conditions, the Fund's investment adviser seeks to achieve
the Fund's investment objective by investing primarily in a portfolio of
publicly-traded equity securities of issuers located in the U.S. and other
countries that, in the judgment of the Fund's investment adviser, have resilient
business franchises and growth potential while attempting to minimize the impact
of federal income taxes on shareholder returns. The franchise focus of the Fund
is based on the investment adviser's belief that the intangible assets
underlying a strong business franchise (such as patents, copyrights, brand
names, licenses or distribution methods) of issuers are difficult to create and
replicate (unlike many physical assets) and that carefully selected franchise
companies can yield above average potential for long-term capital appreciation.
The Fund seeks to invest in companies identified by the Fund's investment
adviser with resilient business franchises, strong cash flows, modest capital
requirements, capable managements and growth potential selected on a global
basis with a strong bias towards value. The Fund's investment adviser uses a
"bottom up" strategy emphasizing individual security selection. The Fund's
investment adviser relies on its research capabilities, analytical resources and
judgement to identify and monitor franchise businesses meeting its investment
program.
In managing the Fund, the investment adviser seeks to employ investment
strategies that attempt to achieve high after-tax returns by balancing
investment and tax considerations when deciding whether to buy or sell
securities. The Fund is designed to minimize income distributions and the
distributions of capital gains. The Fund may use, but is not limited to, the
following tax management techniques and strategies:
- - Maintain a long-term investment focus to minimize capital gain producing
portfolio turnover
- - Minimize taxable income and dividend receipts to the extent possible
consistent with the Fund's investment approach and without subjecting the
portfolio to undue risk
- - Reduce the impact of realized gains by selecting the most tax-favored share
lots
6
<PAGE>
- - Recognize capital losses on depreciated securities, when appropriate, to
offset capital gains
- - Selectively use derivative instruments to manage certain portfolio
transactions in a more tax sensitive manner.
The Fund's tax managed strategy can generally be expected to lead to lower
distributions of income and realized capital gains than funds managed without
regard to tax considerations. The Fund is actively managed, however, and there
can be no assurance that taxable distributions can always be avoided.
The Fund's investment adviser believes that the number of issuers with strong
business franchises meeting its criteria may be limited, and accordingly, the
Fund's portfolio may consist of less holdings than a fund without such a
specifically defined investment program. While the Fund invests in a number of
issuers and industries, the Fund may invest in a smaller number of companies
within the limits permissible for a diversified fund and may invest up to 25% of
its assets in a single industry. By investing more of its assets in fewer
issuers or industries, the Fund is subject to greater risks and price volatility
impacting individual issuers or industries than a Fund which does not employ
such a practice.
Under normal market conditions, the Fund invests at least 65% of the Fund's
total assets in securities of issuers located in at least three different
countries (including the U.S.). Such equity securities may be denominated in
currencies other than the U.S. dollar. The Fund is not subject to any other
limitations on the portion of its assets which may be invested in any single
country or region. To the extent the Fund does invest more of its assets in a
single country or region, the Fund will be subject to greater risks impacting
such country or region than a fund which maintains broad country diversity. The
Fund may invest in securities of issuers located in developing or emerging
market countries; such securities pose greater risks than securities of issuers
located in developed countries and traded in more established markets. See
"Risks of Investing in Securities of Foreign Issuers" below.
The Fund invests primarily in common stocks. Common stocks are shares of a
corporation or other entity that entitle the holder to a pro rata share of the
profits of the corporation, if any, without preference over any other class of
securities, including such entity's debt securities, preferred stock and other
senior equity securities. Common stock usually carries with it the right to vote
and frequently an exclusive right to do so.
While the Fund invests primarily in common stocks, it also may invest in
preferred stocks, convertible securities, rights or warrants to purchase stocks,
and depository receipts. Preferred stock generally has a preference as to
dividends and liquidation over an issuer's common stock but ranks junior to debt
securities in an issuer's capital structure. Unlike interest payments on debt
securities, preferred stock dividends are payable only if declared by the
issuer's board of directors. Preferred stock also may be subject to optional or
mandatory redemption provisions. The ability of common stocks and preferred
stocks to generate income is dependent on the earnings and continuing
declaration of dividends by the issuers of such securities.
A convertible security is a bond, debenture, note, preferred stock, or other
security that may be converted into or exchanged for a prescribed amount of
common stock or other equity security of the same or a different issuer or into
cash within a particular period of time at a specified price or formula. A
convertible security generally entitles the holder to receive interest paid or
accrued on debt 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 the convertible securities may be affected by any 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
7
<PAGE>
time. Rights typically have a substantially shorter duration than do warrants.
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. Rights and warrants
may lack a secondary market.
The Fund may invest in securities of certain issuers indirectly through
investment in other investment companies. Such investments are commonly used
when direct investment in certain countries is not permitted to foreign
entities. Investment in other investment companies may involve duplication of
management fees and certain other expenses.
The Fund may invest in issuers of small-, medium-or large-sized companies. The
securities of smaller companies may be subject to more abrupt or erratic market
movements than securities of larger companies or the market averages in general.
In addition, smaller companies typically are subject to a greater degree of
change in earnings and business prospects than are larger companies. Thus, to
the extent the Fund invests in small- or medium-sized companies, the Fund may be
subject to greater investment risk than that assumed through investment in the
equity securities of larger companies.
RISKS OF INVESTING IN SECURITIES
OF FOREIGN ISSUERS
The Fund invests in securities of foreign issuers. Such securities may be
denominated in U.S. dollars or in currencies other than U.S. dollars. The
percentage of assets invested in securities of a particular country or
denominated in a particular currency will vary in accordance with the investment
adviser's assessment of the relative yield, appreciation potential and the
relationship of a country's currency to the U.S. dollar, which is based upon
such factors as fundamental economic strength, credit quality and interest rate
trends. Investments in foreign securities present certain risks not ordinarily
associated with investments in securities of U.S. issuers. These risks include
fluctuations in foreign currency exchange rates, political, economic or legal
developments (including war or other instability, expropriation of assets,
nationalization and confiscatory taxation), the imposition of foreign exchange
limitations (including currency blockage), withholding taxes on dividend or
interest payments or capital transactions or other restrictions, higher
transaction costs (including higher brokerage, custodial and settlement costs
and currency conversion costs) and possible difficulty in enforcing contractual
obligations or taking judicial action. Also, foreign securities may not be as
liquid and may be more volatile than comparable domestic securities.
In addition, there often is less publicly available information about many
foreign issuers, and issuers of foreign securities are subject to different,
often less comprehensive, auditing, accounting, financial reporting and
disclosure requirements than domestic issuers. There is generally less
government regulation of stock exchanges, brokers and listed companies abroad
than in the U.S., and, with respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investment in those countries. Because there is
usually less supervision and governmental regulation of exchanges, brokers and
dealers than there is in the U.S., the Fund may experience settlement
difficulties or delays not usually encountered in the U.S.
Delays in making trades in foreign securities relating to volume constraints,
limitations or restrictions, clearance or settlement procedures, or otherwise
could impact returns and result in temporary periods when assets of the Fund are
not fully invested or attractive investment opportunities are foregone.
Investments in securities of developing or emerging market countries are subject
to greater risks than in investments in securities of developed markets since
emerging market countries tend to have economic structures that are less diverse
and mature and political systems that are less stable than developed markets.
In addition to the increased risks of investing in foreign securities, there are
often increased transactions costs associated with investing in foreign
securities including the costs incurred in connection with converting
currencies, higher foreign brokerage or dealer costs, and higher settlement
costs or custodial costs.
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 return on such assets as well
as any temporary uninvested reserves in bank deposits in foreign currencies. In
addition, the Fund will incur costs in connection with conversions between
various currencies.
The Fund may purchase and sell foreign currency on a spot basis in connection
with the settlement of transactions in securities traded in such foreign
currency. The Fund also may enter into contracts with banks, brokers or dealers
to purchase or sell securities or foreign currencies at a future date ("forward
contracts"). A foreign currency forward contract is a negotiated agreement
between the contracting parties to exchange a specified amount of currency at a
specified future time at a specified rate. The rate can be higher or lower than
the spot rate between the currencies that are the subject of the contract.
The Fund may attempt to protect against adverse changes in the value of the U.S.
dollar in relation to a foreign currency by entering into a forward contract for
the purchase or sale of the amount of foreign currency invested or to be
invested, or by buying or selling a foreign currency option or futures contract
for such amount. Such strategies may be employed before the Fund purchases a
foreign security traded in the currency which the Fund anticipates acquiring or
between the date the foreign security is purchased or sold and the date on which
payment therefor is made or received. Seeking to protect against a change in the
value of a foreign currency in the foregoing manner does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Furthermore, such transactions reduce or
preclude the opportunity for gain if the value of the currency should move in
the direction opposite to the position taken. Unanticipated changes in currency
prices may result in poorer overall performance for the Fund than if it had not
entered into such contracts.
Investors should carefully consider the risks of foreign investments before
investing in the Fund.
DERIVATIVE INSTRUMENTS
The Fund may, but is not required to, use various investment strategic
transactions described below to earn income, facilitate portfolio management and
mitigate risks. Although the Fund's investment adviser seeks to use the
practices to further the Fund's investment objective, no assurance can be given
that these practices will achieve this result.
The Fund may purchase and sell derivative instruments such as exchange-listed
and over-the-counter put and call options on securities, financial futures,
equity, fixed-income and interest rate indices, and other financial instruments,
futures contracts and options thereon (including but not limited to securities
index futures, foreign currency exchange futures, interest rate futures and
other financial futures), structured notes, swaps, caps, floors or collars and
enter into various currency transactions such as currency forward contracts,
currency futures contracts, currency swaps or options on currency or currency
futures. In addition, the Fund may invest in other derivative instruments that
are developed over time if their use would be consistent with the objective of
the Fund. Collectively, all of the above are referred to as "Strategic
Transactions." The Fund generally seeks to use Strategic Transactions as a
portfolio management or hedging technique to seek to protect against possible
adverse changes in the market value of securities held in or to be purchased for
the Fund's portfolio, protect the Fund's unrealized gains, facilitate the sale
of certain securities for investment purposes, protect against changes in
currency exchange rates or to adjust the exposure to a particular currency,
manage the effective maturity or duration of the Fund's portfolio, establish
positions in the derivatives markets as a substitute for purchasing or selling
particular securities, including, for example, when the Fund adjusts its
exposure to a market in response to changes in investment strategy, when doing
so provides more liquidity than the direct purchase of the securities underlying
such derivatives, when the Fund is restricted from directly owning the
underlying securities due to foreign investment restrictions or other reasons,
or when doing so provides a price advantage over purchasing the underlying
securities directly, either because of a pricing
9
<PAGE>
differential between the derivatives and securities markets or because of lower
transaction costs associated with the derivatives transaction. The Fund may
invest up to 33 1/3% of its total assets in Strategic Transactions for
non-hedging purposes (measured by the aggregate notional amount of outstanding
derivatives). In addition, the Fund may invest up to 20% of its total assets in
futures contracts and options on futures contracts (measured by the aggregate
notional amount of such outstanding contracts).
Strategic Transactions have risks including the imperfect correlation between
the value of such instruments and the underlying assets, the possible default of
the other party to the transaction or illiquidity of the derivative instruments.
Furthermore, the ability to successfully use Strategic Transactions depends on
the Fund's investment adviser's ability to predict pertinent market movements,
which cannot be assured. Thus, the use of Strategic Transactions may result in
losses greater than if they had not been used, may require the Fund to sell or
purchase portfolio securities at inopportune times or for prices other than
current market values, may limit the amount of appreciation the Fund can
otherwise realize on an investment, or may cause the Fund to hold a security
that it might otherwise sell. The use of currency transactions can result in the
Fund incurring losses because of the imposition of exchange controls, suspension
of settlements or the inability of the Fund to deliver or receive a specified
currency. In addition, amounts paid as premiums or cash or other assets held in
margin accounts with respect to Strategic Transactions are not otherwise
available to the Fund for investment purposes.
When conducted outside the U.S., Strategic Transactions may not be regulated as
rigorously as in the U.S., may not involve a clearing mechanism and related
guarantees, and are subject to the risk of governmental actions affecting
trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions, (iii)
delays in the Fund's ability to act upon economic events occurring in foreign
markets during non-business hours in the U.S., (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
U.S. and (v) lower trading volume and liquidity.
A more complete discussion of Strategic Transactions and their risks is
contained in the Fund's Statement of Additional Information. The Statement of
Additional Information can be obtained by investors free of charge as described
on the back cover of this prospectus.
OTHER 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 from time to time sell securities short. A short sale is a
transaction in which the 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 satsify its obligation to deliver the security upon conclusion of the
sale. The Fund may have to pay a fee to borrow particular securities and is
often obligated to pay over any payments received on such borrowed securities.
The Fund's obligation to replace the borrowed security will be secured by
collateral of cash or liquid securities. Depending on arrangements made with the
broker-dealer from which it borrowed the security regarding payment over of any
payments received by the Fund on such security, the Fund may not receive any
payments (including interest) on its collateral deposited with such
broker-dealer. If the price of the security sold short increases between the
time of the short sale and the time the Fund replaces the borrowed security, the
Fund will incur a capital loss; conversely, if the price declines, the Fund will
realize a capital gain. Any gain will be decreased, and any loss
10
<PAGE>
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.
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 Fund's Statement of
Additional Information.
The Fund balances investment and tax considerations when deciding whether to buy
and sell securities. A strategy of the Fund is to minimize capital gain
producing portfolio turnover. Notwithstanding the foregoing, the Fund may sell
securities and recognize gains when the investment adviser deems it advisable in
order to take advantage of new investment opportunities, or when the Fund's
investment adviser believes the potential for capital appreciation has lessened,
or for other reasons. The Fund's portfolio turnover is shown under the heading
"Financial Highlights." The portfolio turnover rate may vary from year to year.
A high portfolio turnover rate (100% or more) increases a fund's transactions
costs (including brokerage commissions or dealer costs) and a high portfolio
turnover rate may result in the realization of more short-term capital gains
than if a fund had a lower portfolio turnover rate. Increases in a fund's
transaction costs would adversely impact the fund's performance.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Fund may on a temporary basis hold cash or invest a
portion or all of its assets in money-market instruments including obligations
of the U.S. government, its agencies or instrumentalities, obligations of
foreign sovereignties, other high-quality debt securities, including prime
commercial paper, repurchase agreements and bank obligations, such as bankers'
acceptances and certificates of deposit (including Eurodollar certificates of
deposit). Under normal market conditions, the potential for capital appreciation
on these securities will tend to be lower than the potential for capital
appreciation on other securities that may be owned by the Fund. In taking such a
defensive position, the Fund would not be pursuing and may not achieve its
investment objective.
INVESTMENT ADVISORY
SERVICES
INVESTMENT ADVISER
Van Kampen Investment Advisory Corp. is the investment adviser (the "Adviser" or
"Advisory Corp.") and administrator of the Fund. The Adviser is a wholly owned
subsidiary of Van Kampen Investments Inc. ("Van Kampen Investments"). Van Kampen
Investments is a diversified asset management company with more than two million
retail investor accounts, extensive capabilities for managing institutional
portfolios, and more than $79 billion under management or supervision as of
September 30, 1999. Van Kampen Investments' more than 50 open-end and 39
closed-end funds and more than 2,500 unit investment trusts are professionally
distributed by leading authorized dealers nationwide. Van Kampen Funds Inc., the
distributor of the Fund (the "Distributor") and the sponsor of the funds
mentioned above, is also a wholly owned subsidiary of Van Kampen Investments.
Van Kampen Investments is an indirect wholly owned subsidiary of Morgan Stanley
Dean Witter & Co. The Adviser's principal office is located at 1 Parkview Plaza,
PO Box 5555, Oakbrook Terrace, Illinois 60181-5555.
ADVISORY AGREEMENT AND ADMINISTRATION AGREEMENT. The Fund retains the Adviser to
manage the investment of its assets and to place orders for the purchase and
sale of its portfolio securities. Under an investment advisory agreement between
the Adviser and the Fund (the "Advisory Agreement"), the Fund pays the Adviser a
monthly fee computed based upon an annual rate applied to the average daily net
assets of the Fund as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS % PER ANNUM
- ---------------------------------------
<S> <C>
FIRST $500 MILLION 1.00 OF 1.00%
......................................
NEXT $500 MILLION 0.95 OF 1.00%
......................................
OVER $1 BILLION 0.90 OF 1.00%
......................................
</TABLE>
11
<PAGE>
Applying this fee schedule, the effective rate was 1.00% of the Fund's average
daily net assets for the Fund's fiscal year ended June 30, 1999.
The Fund also retains the Adviser to provide administrative services for the
Fund's day-to-day operations. Under an administration agreement, between the
Adviser and the Fund, the Fund pays a monthly administration fee computed based
upon an annual rate of 0.25% applied to the average daily net assets of the
Fund.
The Adviser furnishes offices, necessary facilities and equipment, provides
administrative services, and permits its officers and employees to serve without
compensation as directors or officers of the Fund if elected to such positions.
The Fund pays all charges and expenses of its day-to-day operations, including
the compensation of directors of the Fund (other than those who are affiliated
persons of the Adviser, Distributor or Van Kampen Investments), the charges and
expenses of legal counsel and independent accountants, distribution fees,
service fees, custodian fees, the costs of providing reports to shareholders,
and all other ordinary business expenses not specifically assumed by the
Adviser.
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen Asset Management
Inc. ("Asset Management").
INVESTMENT SUBADVISER
Morgan Stanley Dean Witter Investment Management Inc. (the "Subadviser") is the
Subadviser of the Fund. The Subadviser is a wholly owned subsidiary of Morgan
Stanley Dean Witter & Co., and is an affiliate of the Adviser. The Subadviser
conducts a worldwide portfolio management business and provides a broad range of
portfolio management services to customers in the United States and abroad. At
September 30, 1999, the Subadviser, together with its affiliated institutional
asset management companies, managed assets of approximately $173.5 billion,
including assets under fiduciary advice. The Subadviser's principal office is
located at 1221 Avenue of the Americas, New York, New York 10020. On
December 1, 1998, Morgan Stanley Asset Management Inc. changed its name to
Morgan Stanley Dean Witter Investment Management Inc. but continues to do
business in certain instances using the name Morgan Stanley Asset Management.
SUBADVISORY AGREEMENT. The Adviser has entered into a subadvisory agreement with
the Subadviser to assist the Adviser in performing its investment advisory
functions. The Adviser pays the Subadviser on a monthly basis a portion of the
net advisory fees the Adviser receives from the Fund.
GENERAL
From time to time, the Adviser, the Subadviser or the Distributor may
voluntarily undertake to reduce the Fund's expenses by reducing the fees payable
to them or by reducing other expenses of the Fund in accordance with such
limitations as the Adviser, the Subadviser or Distributor may establish.
PERSONAL INVESTMENT POLICIES. The Fund, the Adviser and the Subadviser have
adopted Codes of Ethics designed to recognize the fiduciary relationship among
the Fund, the Adviser and the Subadviser and their respective employees. The
Codes of Ethics permit directors, trustees, officers and employees to buy and
sell securities for their personal accounts subject to certain restrictions.
Persons with access to certain sensitive information are subject to
pre-clearance and other procedures designed to prevent conflicts of interest.
PORTFOLIO MANAGEMENT. Andrew Brown has had primary responsibility for the
day-to-day management of the Fund's investment portfolio since its inception.
Mr. Brown is a Managing Director of the Subadviser. He joined the Subadviser in
May 1994, as a consultant global research analyst specializing in non-cyclical
stocks, and became a Managing Director in 1998. Mr. Brown spent the first nine
years of his business career as a journalist at Fortune Magazine, and worked
from 1986 through 1991 as a sell side analyst for Morgan Stanley International,
specializing in UK and Continental European consumer stocks. Mr. Brown then
became research director at J.O. Hambro & Partners, and a partner in a
consulting firm before returning to Morgan Stanley Dean Witter & Co. Mr. Brown
graduated from Harvard University in 1977 with an A.B. magna cum laude in
English.
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 and service plan (each as described below) under
which its distribution fee or service fee is paid, (iii) each class of shares
has different exchange privileges, (iv) certain classes of shares are subject to
a conversion feature and (v) certain classes of shares have different
shareholder service options available.
The offering price of the Fund's shares is based upon the Fund's net asset value
per share (plus sales charges, where applicable). The net asset values per share
of the Class A Shares, Class B Shares and Class C Shares are generally expected
to be substantially the same. In certain circumstances, however, the per share
net asset values of the classes of shares may differ from one another,
reflecting the daily expense accruals of the higher distribution fees and
transfer agency costs applicable to the Class B Shares and Class C Shares and
the differential in the dividends that may be paid on each class of shares.
The net asset value per share for each class of shares of the Fund is determined
once daily as of the close of trading on the New York Stock Exchange (the
"Exchange") (currently 4:00 p.m., New York time) each day the Exchange is open
for trading except on any day on which no purchase or redemption orders are
received or there is not a sufficient degree of trading in the Fund's portfolio
securities such that the Fund's net asset value per share might be materially
affected. The Fund's Board of Directors reserves the right to calculate the net
asset value per share and adjust the offering price based thereon more
frequently than once daily if deemed desirable. Net asset value per share for
each class is determined by dividing the value of the Fund's portfolio
securities, cash and other assets (including accrued interest) attributable to
such class, less all liabilities (including accrued expenses) attributable to
such class, by the total number of shares of the class outstanding. Such
computation is made by using prices as of the close of trading on the Exchange
and (i) valuing securities listed or traded on a national securities exchange at
the closing price, or if no closing price is available, at the last reported
sale price, and if there has been no sale that day, at the mean between the last
reported bid and asked prices, (ii) valuing over-the-counter securities at the
last reported sale price from the National Association of Securities Dealers
Automated Quotations ("NASDAQ"), (iii) valuing unlisted securities and any
securities for which market quotations are not readily available at the average
of the mean between the current reported bid and asked prices obtained from
reputable brokers and (iv) valuing any other assets at fair value as determined
in good faith by the Adviser in accordance with procedures established by the
Fund's Board of Directors. Debt securities with remaining maturities of 60 days
or less are valued on an amortized cost basis, which approximates market value.
Trading in securities on many foreign securities exchanges (including European
and Far Eastern securities exchanges) and over-the-counter markets is normally
completed before the close of business on each U.S. business day. In addition,
securities trading in a particular country or countries may not take place on
all U.S. business days or may take place on days which are not U.S. business
days. Changes in valuations on certain securities may occur at times or
13
<PAGE>
on days on which the Fund's net asset value is not calculated and on which the
Fund does not effect sales, redemptions and exchanges of its shares.
The Fund calculates net asset value per share, and therefore effects sales,
redemptions and exchanges of its shares, as of the close of trading on the
Exchange each day the Exchange is open for trading. Such calculation does not
take place contemporaneously with the determination of the prices of certain
foreign portfolio securities used in such calculation.
If events materially affecting the value of foreign portfolio securities or
other portfolio securities occur between the time when their price is determined
and the time when the Fund's net asset value is calculated, such securities may
be valued at fair value as determined in good faith by the Adviser based in
accordance with procedures established by the Fund's Board of Directors.
The Fund has adopted a distribution plan (the "Distribution Plan") with respect
to each class of its shares pursuant to Rule 12b-1 under the 1940 Act. The Fund
also has adopted a service plan (the "Service Plan") with respect to each class
of its shares. Under the Distribution Plan and the Service Plan, the Fund pays
distribution fees in connection with the sale and distribution of its shares and
service fees in connection with the provision of ongoing services to
shareholders of each class.
The amount of distribution and service fees varies among the classes offered by
the Fund. Because these fees are paid out of the Fund's assets on an ongoing
basis, these fees will increase the cost of your investment in the Fund. By
purchasing a class of shares subject to higher distribution and service fees,
you may pay more over time than on a class of shares with other types of sales
charge arrangements. Long-term shareholders may pay more than the economic
equivalent of the maximum front-end sales charges permitted by the rules of the
National Association of Securities Dealers, Inc. ("NASD"). The net income
attributable to a class of shares will be reduced by the amount of the
distribution fees and other expenses of the Fund associated with such class of
shares. To assist investors in comparing classes of shares, the tables under the
heading "Fees and Expenses of the Fund" provide a summary of sales charges and
expenses and an example of the sales charges and expenses of the Fund applicable
to each class of shares.
The shares are offered to the public on a continuous basis through the
Distributor as principal underwriter, which is located at 1 Parkview Plaza, PO
Box 5555, Oakbrook Terrace, Illinois 60181-5555. Shares also are offered through
members of the NASD who are acting as securities dealers ("dealers") and NASD
members or eligible non-NASD members who are acting as brokers or agents for
investors ("brokers"). "Dealers" and "brokers" are sometimes referred to herein
as "authorized dealers."
Shares may be purchased on any business day by completing the application
accompanying this prospectus and forwarding the application, directly or through
an authorized dealer, to the Fund's shareholder service agent, Van Kampen
Investor Services Inc. ("Investor Services"), a wholly owned subsidiary of Van
Kampen Investments. When purchasing shares of the Fund, investors must specify
whether the purchase is for Class A Shares, Class B Shares or Class C Shares.
Sales personnel of authorized dealers distributing the Fund's shares are
entitled to receive compensation for selling such shares and may receive
differing compensation for selling Class A Shares, Class B Shares or Class C
Shares.
The offering price for shares is based upon the next calculation of net asset
value per share (plus sales charges, where applicable) after an order is
received by Investor Services. Orders received by authorized dealers prior to
the close of the Exchange are priced based on the date of receipt provided such
order is transmitted to Investor Services prior to Investor Services' close of
business on such date. Orders received by authorized dealers after the close of
the Exchange or transmitted to Investor Services after its close of business are
priced based on the date of the next computed net asset value per share provided
they are received by Investor Services prior to Investor Services' close of
business on such date. It is the responsibility of authorized dealers to
transmit orders received by them to Investor Services so they will be received
in a timely manner.
14
<PAGE>
The Fund and the Distributor reserve the right to refuse any order for the
purchase of shares. The Fund also reserves the right to suspend the sale of the
Fund's shares in response to conditions in the securities markets or for other
reasons. Shares of the Fund may be sold in foreign countries where permissible.
Investor accounts will automatically be credited with additional shares of the
Fund after any Fund distributions, such as dividends and capital gain dividends,
unless the investor instructs the Fund otherwise. Investors wishing to receive
cash instead of additional shares should contact the Fund at (800) 341-2911 or
by writing to the Fund, c/o Van Kampen Investors Services Inc., PO Box 218256,
Kansas City, MO 64121-8256.
CLASS A SHARES
Class A Shares of the Fund are sold at net asset value plus an initial maximum
sales charge of up to 5.75% of the offering price (or 6.10% of the net amount
invested), reduced on investments of $50,000 or more as follows:
CLASS A SHARES
SALES CHARGE SCHEDULE
<TABLE>
<CAPTION>
AS % OF AS % OF
SIZE OF OFFERING NET AMOUNT
INVESTMENT PRICE INVESTED
- -------------------------------------------------------
<S> <C> <C>
Less than $50,000 5.75% 6.10%
......................................................
$50,000 but less than
$100,000 4.75% 4.99%
......................................................
$100,000 but less than
$250,000 3.75% 3.90%
......................................................
$250,000 but less than
$500,000 2.75% 2.83%
......................................................
$500,000 but less than
$1,000,000 2.00% 2.04%
......................................................
$1,000,000 or more * *
......................................................
</TABLE>
<TABLE>
<S> <C>
* NO SALES CHARGE IS PAYABLE AT THE TIME OF PURCHASE
ON INVESTMENTS OF $1 MILLION OR MORE, ALTHOUGH FOR
SUCH INVESTMENTS THE FUND MAY IMPOSE A CONTINGENT
DEFERRED SALES CHARGE OF 1.00% ON CERTAIN
REDEMPTIONS MADE WITHIN ONE YEAR OF THE PURCHASE.
THE CONTINGENT DEFERRED SALES CHARGE IS ASSESSED ON
AN AMOUNT EQUAL TO THE LESSER OF THE THEN CURRENT
MARKET VALUE OR THE COST OF THE SHARES BEING
REDEEMED. ACCORDINGLY, NO SALES CHARGE IS IMPOSED
ON INCREASES IN NET ASSET VALUE ABOVE THE INITIAL
PURCHASE PRICE.
</TABLE>
No sales charge is imposed on Class A Shares received from reinvestment of
dividends or capital gain dividends.
Under the Distribution Plan and Service Plan, the Fund may spend up to a total
of 0.25% per year of the Fund's average daily net assets with respect to the
Class A Shares of the Fund. From such amount, under the Service Plan, the Fund
may spend up to 0.25% per year of the Fund's average daily net assets with
respect to the Class A Shares for the ongoing provision of services to Class A
shareholders by the Distributor and by brokers, dealers or financial
intermediaries and for the maintenance of such shareholders' accounts.
CLASS B SHARES
Class B Shares of the Fund are sold at net asset value and are subject to a
contingent deferred sales charge if redeemed within five years of purchase as
shown in the table as follows:
CLASS B SHARES
SALES CHARGE SCHEDULE
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE
AS A PERCENTAGE OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
- -------------------------------------------------------
<S> <C>
First 5.00%
......................................................
Second 4.00%
......................................................
Third 3.00%
......................................................
Fourth 2.50%
......................................................
Fifth 1.50%
......................................................
Sixth and After None
......................................................
</TABLE>
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gain dividends. It
is presently the policy of the Distributor not to accept any order for Class B
Shares in an amount of $500,000 or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
15
<PAGE>
The amount of the contingent deferred sales charge, if any, varies depending on
the number of years from the time of payment for the purchase of Class B Shares
until the time of redemption of such shares.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed shares being redeemed first are any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge followed by shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
Fund's average daily net assets with respect to the Class B Shares of the Fund.
In addition, under the Service Plan, the Fund may spend up to 0.25% per year of
the Fund's average daily net assets with respect to the Class B Shares for the
ongoing provision of services to Class B shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CLASS C SHARES
Class C Shares of the Fund are sold at net asset value and are subject to a
contingent deferred sales charge of 1.00% of the dollar amount subject to charge
if redeemed within one year of purchase.
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gain dividends. It
is presently the policy of the Distributor not to accept any order for Class C
Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed shares being redeemed first are any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge followed by shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
Fund's average daily net assets with respect to the Class C Shares of the Fund.
In addition, under the Service Plan, the Fund may spend up to 0.25% per year of
the Fund's average daily net assets with respect to the Class C Shares for the
ongoing provision of services to Class C shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CONVERSION FEATURE
Class B Shares and any dividend reinvestment plan Class B Shares received on
such shares, automatically convert to Class A Shares eight years after the end
of the calendar month in which the shares were purchased. Such conversion will
be on the basis of the relative net asset values per share, without the
imposition of any sales load, fee or other charge. The conversion schedule
applicable to a share of the Fund acquired through the exchange privilege from
another Van Kampen fund participating in the exchange program is determined by
reference to the Van Kampen fund from which such share was originally purchased.
The conversion of such shares to Class A Shares is subject to the continuing
availability of an opinion of counsel to the effect that (i) the assessment of
the higher distribution fee and transfer agency costs with respect to such
shares does not result in the Fund's dividends or capital gain dividends
constituting "preferential dividends" under the federal income tax law and
(ii) the conversion of shares does not constitute a taxable event under federal
income tax law. The conversion may be suspended if such an opinion is no longer
available and such shares might continue to be subject to the higher aggregate
fees applicable to such shares for an indefinite period.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge is waived on redemptions of Class B Shares
and Class C Shares (i) within one year following the death or disability (as
disability is defined by federal income tax law) of a shareholder, (ii) for
required minimum distributions from an individual retirement account ("IRA") or
certain other retirement plan distributions,
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(iii) for withdrawals under the Fund's systematic withdrawal plan but limited to
12% annually of the initial value of the account, (iv) if no commission or
transaction fee is paid to authorized dealers at the time of purchase of such
shares and (v) if made by involuntary liquidation by the Fund of a shareholder's
account as described under the heading "Redemption of Shares." Subject to
certain limitations, a shareholder who has redeemed Class C Shares of the Fund
may reinvest in Class C Shares at net asset value with credit for any contingent
deferred sales charge if the reinvestment is made within 180 days after the
redemption. For a more complete description of contingent deferred sales charge
waivers, please refer to the Fund's Statement of Additional Information or
contact your authorized dealer.
QUANTITY DISCOUNTS
Investors purchasing Class A Shares may, under certain circumstances described
below, be entitled to pay reduced or no sales charges. Investors, or their
authorized dealers, must notify the Fund at the time of the purchase order
whenever a quantity discount is applicable to purchases. Upon such notification,
an investor will pay 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 currently 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.
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<PAGE>
OTHER PURCHASE PROGRAMS
Purchasers of Class A Shares may be entitled to reduced or no initial sales
charges in connection with the unit investment trust reinvestment program and
purchases by registered representatives of selling firms or purchases by persons
affiliated with the Fund or the Distributor. The Fund reserves the right to
modify or terminate these arrangements at any time.
UNIT INVESTMENT TRUST REINVESTMENT PROGRAM. The Fund permits unitholders of unit
investment trusts to reinvest distributions from such trusts in Class A Shares
of the Fund at net asset value per share and with no minimum initial or
subsequent investment requirement, if the administrator of an investor's unit
investment trust program meets certain uniform criteria relating to cost savings
by the Fund and the Distributor. The total sales charge for all other
investments made from unit investment trust distributions will be 1.00% of the
offering price (1.01% of net asset value). Of this amount, the Distributor will
pay to the authorized dealer, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the terms and conditions that apply to the program,
should contact their authorized dealer or the Distributor.
The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during each distribution period by all investors who choose to invest in
the Fund through the program and (2) provide Investor Services with appropriate
backup data for each investor participating in the program in a computerized
format fully compatible with Investor Services' processing system.
In order to obtain these special benefits, all dividends and other distributions
by the Fund must be reinvested in additional shares and there can not be any
systematic withdrawal program. There will be no minimum for reinvestments from
unit investment trusts. The Fund will send account activity statements to such
participants on a quarterly basis only, even if their investments are made more
frequently. The Fund reserves the right to modify or terminate this program at
any time.
NET ASSET VALUE PURCHASE OPTIONS. Class A Shares of the Fund may be purchased at
net asset value, upon written assurance that the purchase is made for investment
purposes and that the shares will not be resold except through redemption by the
Fund, by:
(1) Current or retired trustees or directors of funds advised by Morgan Stanley
Dean Witter & Co. and any of its subsidiaries and such persons' families
and their beneficial accounts.
(2) Current or retired directors, officers and employees of Morgan Stanley Dean
Witter & Co. and any of its subsidiaries; employees of an investment
subadviser to any fund described in (1) above or an affiliate of such
subadviser; and such persons' families and their beneficial accounts.
(3) Directors, officers, employees and, when permitted, registered
representatives, of financial institutions that have a selling group
agreement with the Distributor and their spouses and children under 21
years of age when purchasing for any accounts they beneficially own, or, in
the case of any such financial institution, when purchasing for retirement
plans for such institution's employees; provided that such purchases are
otherwise permitted by such institutions.
(4) Registered investment advisers who charge a fee for their services, trust
companies and bank trust departments investing on their own behalf or on
behalf of their clients. The Distributor may pay authorized dealers through
which purchases are made an amount up to 0.50% of the amount invested, over
a 12-month period.
(5) Trustees and other fiduciaries purchasing shares for retirement plans which
invest in multiple fund families through broker-dealer retirement plan
alliance programs that have entered into agreements with the Distributor
and which are subject to certain minimum size and operational requirements.
Trustees and other fiduciaries should refer to the Statement of Additional
Information for further details with respect to such alliance programs.
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<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 January 1,
2000, that (1) the total plan assets are at least $1,000,000 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
January 1, 2000 based on net asset value purchase privileges previously in
effect will be qualified to purchase shares of the Participating Funds at
net asset value. 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. For purchases on February 1, 1997 and
thereafter, a commission will be paid as follows: 1.00% on sales to $2
million, plus 0.80% on the next $1 million, plus 0.50% on the next $47
million, plus 0.25% on the excess over $50 million.
(9) Individuals who are members of a "qualified group." For this purpose, a
qualified group is one which (i) has been in existence for more than six
months, (ii) has a purpose other than to acquire shares of the Fund or
similar investments, (iii) has given and continues to give its endorsement
or authorization, on behalf of the group, for purchase of shares of the
Fund and Participating Funds, (iv) has a membership that the authorized
dealer can certify as to the group's members and (v) satisfies other
uniform criteria established by the Distributor for the purpose of
realizing economies of scale in distributing such shares. A qualified group
does not include one whose sole organizational nexus, for example, is that
its participants are credit card holders of the same institution, policy
holders of an insurance company, customers of a bank or broker-dealer,
clients of an investment adviser or other similar groups. Shares purchased
in each group's participants account in connection with this privilege will
be subject to a contingent deferred sales charge of 1.00% in the event of
redemption within one year of purchase, and a commission will be paid to
authorized dealers who initiate and are responsible for such sales to each
individual as follows: 1.00% on sales to $2 million, plus 0.80% on the next
$1 million and 0.50% on the excess over $3 million.
The term "families" includes a person's spouse, children under 21 years of age
and grandchildren, parents, and a person's spouse's parents.
Purchase orders made pursuant to clause (4) may be placed either through
authorized dealers as described above or directly with Investor Services by the
investment adviser, trust company or bank trust department, provided that
Investor Services receives federal funds for the purchase by the close of
business on the next business day following acceptance of the order. An
authorized dealer may charge a transaction fee for placing an order to purchase
shares pursuant to this provision or for placing a redemption order with respect
to such shares. Authorized dealers will be paid a service fee as described above
on purchases made under options (3) through (9) above. The Fund may terminate,
or amend the terms of, offering shares of the Fund at net asset value to such
groups at any time.
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REDEMPTION OF
SHARES
Generally shareholders may redeem for cash some or all of their shares without
charge by the Fund (other than applicable sales charge) at any time. As
described under the heading "Purchase of Shares," redemptions of Class B Shares
and Class C Shares may be subject to a contingent deferred sales charge. In
addition, certain redemptions of Class A Shares for shareholder accounts of $1
million or more may be subject to a contingent deferred sales charge.
Redemptions completed through an authorized dealer or a custodian of a
retirement plan account may involve additional fees charged by the dealer or
custodian.
Except as specified below under "Telephone Redemption Requests," payment for
shares redeemed generally will be made by check mailed within seven days after
receipt by Investor Services of the request and any other necessary documents in
proper form as described below. Such payment may be postponed or the right of
redemption suspended as provided by the rules of the SEC. Such payment may,
under certain circumstances, be paid wholly or in part by a distribution-in-kind
of portfolio securities which may result in brokerage costs and a gain or loss
for federal income tax purposes when such securities are sold. If the shares to
be redeemed have been recently purchased by check, Investor Services may delay
the payment of redemption proceeds until it confirms the purchase check has
cleared, which may take up to 15 days. A taxable gain or loss will be recognized
by the shareholder upon redemption of shares.
WRITTEN REDEMPTION REQUESTS. Shareholders may request a redemption of shares by
written request in proper form sent directly to Van Kampen Investor Services
Inc., PO Box 218256, Kansas City, MO 64121-8256. The request for redemption
should indicate the number of shares to be redeemed, the class designation of
such shares and the shareholder's account number. The redemption request must be
signed by all persons in whose names the shares are registered. Signatures must
conform exactly to the account registration. If the proceeds of the redemption
exceed $50,000, or if the proceeds are not to be paid to the record owner at the
record address, or if the record address has changed within the previous 30
days, signature(s) must be guaranteed by one of the following: a bank or trust
company; a broker-dealer; a credit union; a national securities exchange,
registered securities association or clearing agency; a savings and loan
association; or a federal savings bank.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption to be in proper form. In some
cases, however, additional documents may be necessary. In the case of
shareholders holding certificates, the certificates for the shares being
redeemed must be properly endorsed for transfer and 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
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<PAGE>
received prior to such time. Redemptions completed through an authorized dealer
may involve additional fees charged by the dealer.
TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. A shareholder
automatically has telephone redemption privileges unless the shareholder
indicates otherwise by checking the applicable box on the application form
accompanying the prospectus. To redeem shares, contact the telephone transaction
line at (800) 421-5684. Van Kampen Investments and its subsidiaries, including
Investor Services, and the Fund employ procedures considered by them to be
reasonable to confirm that instructions communicated by telephone are genuine.
Such procedures include requiring certain personal identification information
prior to acting upon telephone instructions, tape-recording telephone
communications and providing written confirmation of instructions communicated
by telephone. If reasonable procedures are employed, none of Van Kampen
Investments, Investor Services or the Fund will be liable for following
telephone instructions which it reasonably believes to be genuine. Telephone
redemptions may not be available if the shareholder cannot reach Investor
Services by telephone, whether because all telephone lines are busy or for any
other reason; in such case, a shareholder would have to use the Fund's other
redemption procedure previously described. Requests received by Investor
Services prior to 4:00 p.m., New York time, will be processed at the next
determined net asset value per share. These privileges are available for all
accounts other than retirement accounts or accounts with shares represented by
certificates. If an account has multiple owners, Investor Services may rely on
the instructions of any one owner.
For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check and amounts of at least
$1,000 up to $1 million may be redeemed daily if the proceeds are to be paid by
wire. The proceeds must be payable to the shareholder(s) of record and sent to
the address of record for the account or wired directly to their predesignated
bank account. This privilege is not available if the address of record has been
changed within 30 days prior to a telephone redemption request. Proceeds from
redemptions payable by wire transfer are expected to be wired on the next
business day following the date of redemption. The Fund reserves the right at
any time to terminate, limit or otherwise modify this redemption privilege.
OTHER REDEMPTION INFORMATION. The Fund may redeem any shareholder account that
has a value on the date of the notice of redemption less than the minimum
initial investment as specified in this prospectus. At least 60 days' advance
written notice of any such involuntary redemption will be provided to the
shareholder and such shareholder will be given an opportunity to purchase the
required value of additional shares at the next determined net asset value
without sales charge. Any involuntary redemption may only occur if the
shareholder account is less than the minimum initial investment due to
shareholder redemptions.
DISTRIBUTIONS FROM
THE FUND
In addition to any increase in the value of shares which the Fund may achieve,
shareholders may receive distributions from the Fund of dividends and capital
gain dividends.
DIVIDENDS. Dividends from stocks and interest earned from other investments are
the Fund's main sources of net investment 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 its net investment income 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.
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<PAGE>
CAPITAL GAIN DIVIDENDS. The Fund may realize capital gains or losses when it
sells securities, depending on whether the sales prices for the securities are
higher or lower than purchase prices. The Fund distributes any capital gains to
shareholders at least annually. As in the case of dividends, capital gain
dividends are automatically reinvested in additional shares of the Fund at the
next determined net asset value unless the shareholder instructs otherwise.
SHAREHOLDER SERVICES
Listed below are some of the shareholder services the Fund offers to investors.
For a more complete description of the Fund's shareholder services, such as
investment accounts, share certificates, retirement plans, automated clearing
house deposits, dividend diversification and the systematic withdrawal plan,
please refer to the Statement of Additional Information or contact your
authorized dealer.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gain dividends in shares of the
Fund. Such shares are acquired at net asset value per share (without sales
charge) on the applicable payable date of the dividend or capital gain dividend.
Unless the shareholder instructs otherwise, the reinvestment plan is automatic.
This instruction may be made by telephone by calling (800) 341-2911
((800) 421-2833 for the hearing impaired) or by writing to Investor Services.
The investor may, on the initial application or prior to any declaration,
instruct that dividends be paid in cash and capital gain dividends be reinvested
at net asset value, or that both dividends and capital gain dividends be paid in
cash.
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under which
a shareholder can authorize Investor Services to charge a bank account on a
regular basis to invest predetermined amounts in the Fund. Additional
information is available from the Distributor or your authorized dealer.
EXCHANGE PRIVILEGE. Shares of the Fund may be exchanged for shares of the same
class of any Participating Fund based on the next computed net asset value per
share of each fund after requesting the exchange without any sales charge,
subject to certain limitations. Shares of the Fund may be exchanged for shares
of any Participating Fund only if shares of that Participating Fund are
available for sale; however, during periods of suspension of sales, shares of a
Participating Fund may be available for sale only to existing shareholders of a
Participating Fund. Shareholders seeking an exchange into a Participating Fund
should obtain and read the current prospectus for such fund prior to
implementing an exchange. A prospectus of any of the Participating Funds may be
obtained from any authorized dealer or the Distributor.
To be eligible for exchange, shares of the Fund must have been registered in the
shareholder's name for at least 30 days prior to an exchange. Shares of the Fund
registered in a shareholder's name for less than 30 days may only be exchanged
upon receipt of prior approval of the Adviser. It is the policy of the Adviser,
under normal circumstances, not to approve such requests.
When shares that are subject to a contingent deferred sales charge are exchanged
among Participating Funds, the holding period for purposes of computing the
contingent deferred sales charge is based upon the date of the initial purchase
of such shares from a Participating Fund. When such shares are redeemed and not
exchanged for shares of another Participating Fund, the shares are subject to
the contingent deferred sales charge schedule imposed by the Participating Fund
from which such shares were originally purchased.
Exchanges of shares are sales of shares of one Participating Fund and purchases
of shares of another Participating Fund. The sale may result in a gain or loss
for federal income tax purposes. If the shares sold have been held for less than
91 days, the sales charge paid on such shares is carried over and included in
the tax basis of the shares acquired.
A shareholder wishing to make an exchange may do so by sending a written request
to Investor Services or by contacting the telephone transaction line at
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<PAGE>
(800) 421-5684. A shareholder automatically has telephone exchange privileges
unless the shareholder indicates otherwise by checking the applicable box on the
application form accompanying the prospectus. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated by telephone are genuine. Such procedures
include requiring certain personal identification information prior to acting
upon telephone instructions, tape-recording telephone communications, and
providing written confirmation of instructions communicated by telephone. If
reasonable procedures are employed, none of Van Kampen Investments and its
subsidiaries, including Investor Services, or the Fund will be liable for
following telephone instructions which it reasonably believes to be genuine. If
the exchanging shareholder does not have an account in the fund whose shares are
being acquired, a new account will be established with the same registration,
dividend and capital gain dividend options (except dividend diversification) and
authorized dealer of record as the account from which shares are exchanged,
unless otherwise specified by the shareholder. In order to establish a
systematic withdrawal plan for the new account or reinvest dividends from the
new account into another fund, however, an exchanging shareholder must submit a
specific request. The Fund reserves the right to reject any order to acquire its
shares through exchange. In addition, the Fund and other Participating Funds may
restrict exchanges by shareholders engaged in excessive trading by limiting or
disallowing the exchange privileges to such shareholders. For further
information on these restrictions see the Statement of Additional Information.
The Fund may modify, restrict or terminate the exchange privilege at any time on
60 days' notice to its shareholders of any termination or material amendment.
For purposes of determining the sales charge rate previously paid on Class A
Shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchanged security was acquired through reinvestment, that
security is deemed to have been sold with a sales charge rate equal to the rate
previously paid on the security on which the dividend or distribution was paid.
If a shareholder exchanges less than all of such shareholder's securities, the
security upon which the highest sales charge rate was previously paid is deemed
exchanged first.
Exchange requests received on a business day prior to the time shares of the
funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares of the fund which the
shareholder is redeeming will be redeemed at the net asset value per share next
determined on the date of receipt. Shares of the fund that the shareholder is
purchasing will also normally be purchased at the net asset value per share,
plus any applicable sales charge, next determined on the date of receipt.
Exchange requests received on a business day after the time shares of the funds
involved in the request are priced will be processed on the next business day in
the manner described herein.
INTERNET TRANSACTIONS. In addition to performing transactions on your account
through written instruction or by telephone, you may also perform certain
transactions through the internet. Please refer to our web site at
www.vankampen.com for further instruction. Van Kampen Investments and its
subsidiaries, including Investor Services, and the Fund employ procedures
considered by them to be reasonable to confirm that instructions communicated
through the internet are genuine. Such procedures include requiring use of a
personal identification number prior to acting upon internet instructions and
providing written confirmation of instructions communicated through the
internet. If reasonable procedures are employed, none of Van Kampen Investments,
Investor Services or the Fund will be liable for following instructions received
through the internet which it reasonably believes to be genuine. If an account
has multiple owners, Investor Services may rely on the instructions of any one
owner.
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FEDERAL INCOME
TAXATION
Distributions of the Fund's investment company taxable income (consisting
generally of taxable income and net short-term capital gain) are taxable to
shareholders as ordinary income to the extent of the Fund's earnings and
profits, whether paid in cash or reinvested in additional shares. Distributions
of the Fund's net capital gain (which is the excess of net long-term capital
gain over net short-term capital loss) as capital gain dividends, if any, are
taxable to shareholders as long-term capital gains, whether paid in cash or
reinvested in additional shares, and regardless of how long the shares of the
Fund have been held by such shareholders. The Fund expects that its
distributions will consist primarily of ordinary income and capital gain
dividends. Distributions in excess of the Fund's earnings and profits will first
reduce the adjusted tax basis of a holder's shares and, after such adjusted tax
basis is reduced to zero, will constitute capital gains to such holder (assuming
such shares are held as a capital asset). Although distributions generally are
treated as taxable in the year they are paid, distributions declared in October,
November or December, payable to shareholders of record on a specified date in
such month and paid during January of the following year will be treated as
having been distributed by the Fund and received by the shareholders on the
December 31st prior to the date of payment. The Fund will inform shareholders of
the source and tax status of all distributions promptly after the close of each
calendar year.
The Fund's tax managed strategy can generally be expected to lead to lower
distributions of income and capital gains than funds managed without regard to
tax considerations. The Fund is actively managed, however, and there can be no
assurance that taxable distributions can always be avoided.
The sale or exchange of shares is a taxable transaction for federal income tax
purposes. Shareholders who sell their shares will generally recognize gain or
loss in an amount equal to the difference between their adjusted tax basis in
the shares sold and the amount received. If the shares are held as a capital
asset, the gain or loss will be a capital gain or loss. Any capital gains may be
taxed at different rates depending on how long the shareholder held such shares.
The Fund is required, in certain circumstances, to withhold 31% of dividends and
certain other payments, including redemptions, paid to shareholders who do not
furnish to the Fund their correct taxpayer identification number (in the case of
individuals, their social security number) and certain required certifications
or who are otherwise subject to backup withholding.
Foreign shareholders, including shareholders who are non-resident aliens, may be
subject to U.S. withholding tax on certain distributions (whether received in
cash or in shares) at a rate of 30% or such lower rate as prescribed by an
applicable treaty. Accordingly, investment in the Fund is likely to be
appropriate for a foreign shareholder only if such person can utilize a foreign
tax credit or corresponding tax benefit in respect of such U.S. withholding tax.
Prospective foreign investors should consult their tax advisers concerning the
tax consequences to them of an investment in shares.
The Fund intends to qualify as a regulated investment company under federal
income tax law. If the Fund so qualifies and distributes each year to its
shareholders at least 90% of its net investment income, the Fund will not be
required to pay federal income taxes on any income it distributes to
shareholders. If the Fund distributes less than an amount equal to the sum of
98% of its ordinary income and 98% of its capital gain net income, then the Fund
will be subject to a 4% excise tax on the undistributed amounts.
The federal income tax discussion set forth above is for general information
only. Prospective investors should consult their own tax advisers regarding the
specific federal tax consequences of purchasing, holding, and 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 Richard F. Powers, III*
Jerry D. Choate Phillip B. Rooney
Linda Hutton Heagy Fernando Sisto
R. Craig Kennedy Wayne W. Whalen*
Mitchell M. Merin* Suzanne H. Woolsey
Jack E. Nelson Paul G. Yovovich
</TABLE>
OFFICERS
Richard F. Powers, III*
PRESIDENT
Dennis J. McDonnell*
EXECUTIVE VICE PRESIDENT & CHIEF INVESTMENT OFFICER
A. Thomas Smith III*
VICE PRESIDENT AND SECRETARY
Edward C. Wood III*
VICE PRESIDENT
Michael H. Santo*
VICE PRESIDENT
Peter W. Hegel*
VICE PRESIDENT
Stephen L. Boyd*
VICE PRESIDENT
Joseph P. Stadler*
VICE PRESIDENT
John L. Sullivan*
VICE PRESIDENT, CHIEF FINANCIAL OFFICER & TREASURER
Curtis W. Morell*
VICE PRESIDENT & CHIEF ACCOUNTING OFFICER
Tanya M. Loden*
CONTROLLER
* "Interested Persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2911
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders, or
redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call (800) 421-2833
FUNDINFO-REGISTERED TRADEMARK-
For automated telephone services, call (800) 847-2424
WEB SITE
www.vankampen.com
VAN KAMPEN TAX MANAGED 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 Tax Managed Global Franchise Fund
CUSTODIAN
THE CHASE MANHATTAN BANK
3 MetroTech Center
Brooklyn, NY 11245
Attn: Van Kampen Tax Managed 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
TAX MANAGED
GLOBAL FRANCHISE FUND
PROSPECTUS
MARCH , 2000
A Statement of Additional Information, which contains more details about the
Fund, is incorporated by reference in its entirety into this prospectus.
You will find additional information about the Fund in its annual and semiannual
reports to shareholders. The annual report explains the market conditions and
investment strategies affecting the Fund's performance during its last fiscal
year.
You can ask questions or obtain a free copy of the Fund's reports or its
Statement of Additional Information by calling (800) 341-2911 from 7:00 a.m. to
7:00 p.m., Central time, Monday through Friday. Telecommunications Device for
the Deaf users may call (800) 421-2833. A free copy of the Fund's reports can
also be ordered from our web site at www.vankampen.com.
Information about the Fund, including its reports and Statement of Additional
Information, has been filed with the Securities and Exchange Commission (SEC).
It can be reviewed and copied at the SEC's Public Reference Room in Washington,
DC or on the EDGAR Database on the SEC's internet site (http://www.sec.gov).
Information on the operation of the SEC's Public Reference Room may be obtained
by calling the SEC at 1-202-942-8090. You can also request copies of these
materials, upon payment of a duplicating fee, by electronic request at the SEC's
e-mail address ([email protected]), or by writing the Public Reference Section
of the SEC, Washington, DC, 20549-0102.
[LOGO]
THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-7140.
GLF PRO 03/00
<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 JANUARY 7, 2000
STATEMENT OF ADDITIONAL INFORMATION
VAN KAMPEN SERIES FUND, INC.
Van Kampen Series Fund, Inc. (the "Company") is an open-end management
investment company. The Company currently consists of the following nineteen
investment portfolios designed to offer a range of investment choices (each, a
"Fund" and collectively, the "Funds"): Van Kampen American Value Fund, Van
Kampen Asian Growth Fund, Van Kampen Emerging Markets Debt Fund, Van Kampen
Emerging Markets Fund, Van Kampen Equity Growth Fund, Van Kampen European Equity
Fund, Van Kampen Focus Equity Fund (formerly known as Van Kampen Aggressive
Growth Fund), Van Kampen Global Equity Allocation Fund, Van Kampen Global Equity
Fund, Van Kampen Global Fixed Income Fund, Van Kampen 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 Tax Managed Global Franchise Fund (formerly known as
Van Kampen Global Franchise Fund), Van Kampen Value Fund and Van Kampen
Worldwide High Income Fund. For ease of reference, the words "Van Kampen" which
begin the name of each Fund, are not used hereinafter.
This Statement of Additional Information is not a prospectus. This Statement
of Additional Information should be read in conjunction with each Fund's
prospectus (the "Prospectus") dated as of October 28, 1999 for all Funds except
the Tax Managed Global Franchise Fund and dated as of March , 2000 for the Tax
Managed Global Franchise Fund. 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>
<CAPTION>
PAGE
--------
<S> <C>
General Information......................................... 2
Investment Objectives and Policies.......................... 3
Investment Restrictions..................................... 20
Directors and Officers...................................... 23
Investment Advisory Agreements.............................. 30
Other Agreements............................................ 32
Distribution and Service.................................... 33
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........................................... 51
Appendix A -- Description of Securities Ratings............. A-1
Reports of Independent Accountants, Financial Statements and
Notes to Financial Statements.............................. F-1
</TABLE>
Date: March , 2000
1
<PAGE>
GENERAL INFORMATION
The Company is a corporation established under the laws of the state of
Maryland by Articles of Incorporation dated August 12, 1992 (the "Articles").
The Articles permit the Board of Directors to create one or more separate
investment portfolios and issue a series of shares for each portfolio. The Board
of Directors can further sub-divide each series of shares into one or more
classes of shares for each portfolio. The Company's name at the time of its
organization was Morgan Stanley Series Fund, Inc. The company changed its name
to Van Kampen Series Fund, Inc. in July 1998. Similarly each Fund described
herein at the time of its organization began its name with the words "Morgan
Stanley" and each Fund changed its name to begin with the words "Van Kampen" in
July 1998 (except for the Equity Growth Fund which made this name change in June
1998 and the Global Franchise Fund which has always had Van Kampen in its name
since its organization in June 1998 and added the words "Tax Managed" to its
name in January 2000).
Van Kampen Investment Advisory Corp. ("Advisory Corp.") is the investment
adviser (the "Adviser") and the administrator (the "Administrator") for the
Funds. Morgan Stanley Dean Witter Investment Management Inc. ("MSDWIM") is a
sub-adviser (a "Sub-Adviser") to the Funds, other than Van Kampen Mid Cap Growth
Fund and Van Kampen Value Fund. Miller, Anderson & Sherrard, LLP ("MAS") is a
sub-adviser (a "Sub-Adviser") to Van Kampen Mid Cap Growth Fund and Van Kampen
Value Fund. The Funds are distributed by Van Kampen Funds Inc. (the
"Distributor") and the Funds receive certain shareholder services from Van
Kampen Investor Services Inc. ("Investor Services"). Other service providers for
the Funds are described herein under "Other Agreements" or "Other Information".
Advisory Corp., the Distributor, and Investor Services are wholly owned
subsidiaries of Van Kampen Investments Inc. ("Van Kampen Investments"), which is
an indirect wholly owned subsidiary of Morgan Stanley Dean Witter & Co. ("Morgan
Stanley Dean Witter"). MSDWIM and MAS are wholly owned subsidiaries of Morgan
Stanley Dean Witter. The principal office of each Fund, the Adviser, the
Distributor and Van Kampen Investments is located at 1 Parkview Plaza,
PO Box 5555, Oakbrook Terrace, Illinois 60181-5555. The principal office of
Investor Services is located at PO Box 218256, Kansas City, Missouri 64121-8256.
The principal office of MSDWIM is located at 1221 Avenue of the Americas, New
York, New York 10020. The principal office of MAS is located at One Tower
Bridge, West Conshocken, Pennsylvania 19428.
Morgan Stanley Dean Witter and various of its directly or indirectly owned
subsidiaries, including Morgan Stanley & Co. Incorporated, a registered
broker-dealer and investment adviser, and Morgan Stanley International, are
engaged in a wide range of financial services. Their principal businesses
include securities underwriting, distribution and trading; merger, acquisition,
restructuring and other corporate finance advisory activities; merchant banking;
stock brokerage and research services; credit services; asset management;
trading of futures, options, foreign exchange, commodities and swaps (involving
foreign exchange, commodities, indices and interest rates); real estate advice,
financing and investing; and securities lending.
The authorized capitalization of the Company consists of 28.5 billion shares
of common stock, par value $0.001 per share, which can be divided into series,
such as the Funds, and further subdivided into classes of each series. Each
share represents an equal proportionate interest in the assets of the series
with each other share in such series and no interest in any other series. No
series is subject to the liabilities of any other series.
Each Fund currently offers three classes of shares, designated Class A
Shares, Class B Shares and Class C Shares. Other classes may be established from
time to time in accordance with provisions of the Articles. Each class of shares
of a Fund generally is identical in all respects except that each class bears
certain distribution expenses and has exclusive voting rights with respect to
its distribution fee. Shares of the Company entitle their holders to one vote
per share; however, separate votes are taken by each series on matters affecting
an individual series and separate votes are taken by each class of a series on
matters affecting an individual class of such series. For example, a change in
investment policy for a series would be voted upon by shareholders of only the
series involved and a change in the distribution fee for a class of a series
would be voted upon by shareholders of only the class of such series involved.
Except as otherwise described in the Prospectus or herein, shares do not have
cumulative voting rights, preemptive rights or any conversion, subscription or
exchange rights.
The Company does not contemplate holding regular meetings of shareholders to
elect Directors or otherwise. Each Fund will assist shareholders in
communicating with other shareholders of such Fund to the extent required by the
Investment Company Act of 1940, as amended (the "1940 Act"), or rules or
regulations promulgated by the Securities and Exchange Commission ("SEC").
In the event of liquidation, each of the shares of each Fund is entitled to
its portion of all of such Fund's net assets after all debts and expenses of the
Fund have been paid. Since Class B Shares and Class C Shares have higher
distribution fees and transfer agency costs, the liquidation proceeds to holders
of Class B Shares and Class C Shares are likely to be lower than to holders of
Class A Shares.
Statements contained in this Statement of Additional Information as to the
contents of any contract or other document referred to are not necessarily
complete, and, in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement of which
this Statement of Additional Information forms a part, each such statement being
qualified in all respects by such reference.
2
<PAGE>
As of March , 2000, 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:
INVESTMENT OBJECTIVES AND POLICIES
The following disclosure supplements the disclosure set forth in the
"Investment Objective(s), Policies and Risks" sections in each Fund's Prospectus
and does not, standing alone, present a complete or accurate explanation of the
matters disclosed. Readers must refer also to this caption in the Fund's
Prospectus for a complete presentation of the matters disclosed below.
BORROWING AND LEVERAGE
To the extent allowed by the Funds' investment restrictions described
herein, certain Funds may engage in borrowing for temporary or emerging
purposes. To the extent allowed by the Funds' investment restrictions described
herein, certain Funds may engage in borrowing for investment purposes, also
known as leverage. Leveraging will magnify declines as well as increases in the
net asset value of a Fund's shares and in the return on a Fund's investments.
The extent to which a Fund may borrow will depend upon the availability of
credit. No assurance can be given that a Fund will be able to borrow on terms
acceptable to the Fund and the Adviser. Borrowing by a Fund will create the
opportunity for increased net income but, at the same time, will involve special
risk considerations. Borrowing will create interest expenses for a Fund which
can exceed the income from the assets obtained with the proceeds. To the extent
the income derived from securities purchased with funds obtained through
borrowing exceeds the interest and other expenses that a Fund will have to pay
in connection with such borrowing, such Fund's net income will be greater than
if the Fund did not borrow. Conversely, if the income from the assets obtained
through borrowing is not sufficient to cover the cost of borrowing, the net
income of the Fund will be less than if the Fund did not borrow, and therefore
the amount available for distribution to shareholders will be reduced. A Fund's
use of leverage may impair the ability of the Fund to maintain its qualification
for federal income tax purposes as a regulated investment company. The rights of
any lenders to a Fund to receive payments of interest on and repayments of
principal of borrowings will be senior to the rights of such Fund's
shareholders, and the terms of a Fund's borrowings may contain provisions that
limit certain activities of such Fund and could result in precluding the
purchase of securities and instruments that the Fund would otherwise purchase.
CONVERTIBLE SECURITIES, RIGHTS OR WARRANTS AND EQUITY-LINKED SECURITIES
Certain Funds may invest in convertible securities, rights or warrants to
purchase common stocks and other equity-linked securities. A convertible
security is a bond, debenture, note, preferred stock or other security that may
be converted into or exchanged for a prescribed amount of common stock or other
equity security of the same or a different issuer or into cash within a
particular period of time at a specified price or formula. A convertible
security generally entitles the holder to receive interest paid or accrued on
debt securities or the dividend paid on preferred stock until the convertible
security matures or is redeemed, converted or exchanged. Before conversion,
convertible securities generally have characteristics similar to both debt and
equity securities. The value of convertible securities tends to decline as
interest rates rise and, because of the conversion feature, tends to vary with
fluctuations in the market value of the underlying equity securities.
Convertible securities ordinarily provide a stream of income with generally
higher yields than those of common stock of the same or similar issuers.
Convertible securities generally rank senior to common stock in a corporation's
capital structure but are usually subordinated to comparable nonconvertible
securities. Convertible securities generally do not participate directly in any
dividend increases or decreases of the underlying equity security although the
market prices of convertible securities may be affected by any such dividend
changes or other changes in the underlying equity securities. Rights and
warrants are instruments giving holders the right, but not the obligation, to
buy shares of a company at a given price during a specified period. Rights are
similar to warrants except that they have a substantially shorter duration.
Rights and warrants may be considered more speculative and less liquid than
certain other types of investments in that they do not entitle a holder to
dividends or voting rights with respect to the underlying securities nor do they
represent any rights in the assets of the issuing company and may lack a
secondary market. Equity-linked securities are instruments whose value is based
upon the value of one or more underlying equity securities, a reference rate or
an index. Equity-linked securities come in many forms and may include features,
among others, such as the following: (i) may be issued by the issuer of the
underlying equity security or by a company other than the one to which the
instrument is linked (usually an investment bank), (ii) may convert into equity
securities, such as common stock, within a stated period from the issue date or
may be redeemed for cash or some combination of cash and the linked security at
a value based upon the value of the underlying equity security within a stated
period from the issue date, (iii) may have various conversion features prior to
maturity at the option of the holder or the issuer or both, (iv) may limit the
appreciation value with caps or collars of the value of underlying equity
security and (v) may have fixed, variable or no interest payments during the
life of the security which reflect the actual or a structured return relative to
the underlying dividends of the linked equity security. Investments in
equity-linked securities may subject the Fund to additional risks not ordinarily
associated with investments in other equity securities. Because equity-linked
securities are sometimes issued by a third party other than the issuer of the
linked security, the Fund is subject to risks if the underlying stock
underperforms and if the issuer defaults on the payment of the dividend or the
common stock at maturity. In addition, the trading market for particular
equity-linked securities may be less liquid, making it difficult for the Fund to
dispose of a particular security when necessary and reduced liquidity in the
secondary market for any such securities may make it more difficult to obtain
market quotations for valuing the Fund's portfolio.
3
<PAGE>
DEPOSITARY RECEIPTS
Certain Funds may invest in American Depositary Receipts ("ADRs"), Global
Depositary Receipts ("GDRs"), European Depositary Receipts ("EDRs") and other
depositary receipts, to the extent that such depositary receipts become
available. ADRs are securities, typically issued by a U.S. financial institution
(a "depositary"), that evidence ownership interests in a security or a pool of
securities issued by a foreign issuer (the "underlying issuer") and deposited
with the depositary. ADRs include American Depositary Shares and New York Shares
and may be "sponsored" or "unsponsored." Sponsored ADRs are established jointly
by a depositary and the underlying issuer, whereas unsponsored ADRs may be
established by a depositary without participation by the underlying issuer.
GDRs, EDRs and other types of depositary receipts are typically issued by
foreign depositaries, although they may also be issued by U.S. depositaries, and
evidence ownership interests in a security or pool of securities issued by
either a foreign or a U.S. corporation.
Holders of unsponsored depositary receipts generally bear all the costs
associated with establishing the unsponsored depositary receipt. The depositary
of an unsponsored depositary receipt is under no obligation to distribute
shareholder communications received from the underlying issuer or to pass
through to the holders of the unsponsored depositary receipt voting rights with
respect to the deposited securities or pool of securities. Depositary receipts
are not necessarily denominated in the same currency as the underlying
securities to which they may be connected. Generally, depositary receipts in
registered form are designed for use in the U.S. securities market and
depositary receipts in bearer form are designed for use in securities markets
outside the United States. For purposes of the Funds' investment policies, a
Fund's investments in depositary receipts will be deemed to be investments in
the underlying securities.
EURODOLLAR AND YANKEE OBLIGATIONS
Eurodollar bank obligations are dollar-denominated certificates of deposit
and time deposits issued outside the U.S. capital markets by foreign branches of
banks and by foreign banks. Yankee bank obligations are dollar-denominated
obligations issued in the U.S. capital markets by foreign banks.
Eurodollar and Yankee obligations are subject to the same risks that pertain
to domestic issues, notably credit risk, market risk and liquidity risk.
Additionally, Eurodollar (and to a limited extent, Yankee) obligations are
subject to certain sovereign risks. One such risk is the possibility that a
sovereign country might prevent capital, in the form of dollars, from flowing
across its borders. Other risks include: adverse political and economic
developments; the extent and quality of government regulation of financial
markets and institutions; the imposition of foreign withholding taxes, and the
expropriation or nationalization of foreign issuers.
FOREIGN INVESTING
Certain Funds may or will invest in securities of foreign issuers. Such
securities may be denominated in U.S. dollars and in currencies other than U.S.
dollars. The percentage of assets invested in securities of a particular country
or denominated in a particular currency will vary in accordance with the
Adviser's assessment of the relative yield, appreciation potential and the
relationship of a country's currency to the U.S. dollar, which is based upon
such factors as fundamental economic strength, credit quality and interest rate
trends. Investments in foreign securities present certain risks not ordinarily
associated with investments in securities of U.S. issuers. These risks include
fluctuations in foreign currency exchange rates, political, economic or legal
developments (including war or other instability, expropriation of assets,
nationalization and confiscatory taxation), the imposition of foreign exchange
limitations (including currency blockage), withholding taxes on dividend or
interest payments or capital transactions or other restrictions, higher
transaction costs (including higher brokerage, custodial and settlement costs
and currency translation costs) and possible difficulty in enforcing contractual
obligations or taking judicial action. Also, foreign securities may not be as
liquid and may be more volatile than comparable domestic securities.
In addition, there often is less publicly available information about many
foreign issuers, and issuers of foreign securities are subject to different,
often less comprehensive, auditing, accounting, financial reporting and
disclosure requirements than domestic issuers. There is generally less
government regulation of stock exchanges, brokers and listed companies abroad
than in the U.S., and, with respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investment in those countries. Because there is
usually less supervision and governmental regulation of exchanges, brokers and
dealers than there is in the U.S., a Fund may experience settlement difficulties
or delays not usually encountered in the U.S.
Delays in making trades in foreign securities relating to volume
constraints, limitations or restrictions, clearance or settlement procedures, or
otherwise could impact yields and result in temporary periods when assets are
not fully invested or attractive investment opportunities are foregone.
4
<PAGE>
In addition to the increased risks of investing in foreign issuers, there
are often increased transactions costs associated with investing in foreign
securities including the costs incurred in connection with converting
currencies, higher foreign brokerage or dealer costs, and higher settlement
costs or custodial costs.
Ratings of a non-U.S. debt instrument, to the extent that those ratings are
undertaken, are related to evaluations of the country in which the issuer of the
instrument is located. Ratings generally take into account the currency in which
a non-U.S. debt instrument is denominated. Instruments issued by a foreign
government in other than the local currency, for example, typically have a lower
rating than local currency instruments due to the existence of an additional
risk that the government will be unable to obtain the required foreign currency
to service its foreign currency-denominated debt. In general, the ratings of
debt securities or obligations issued by a non-U.S. public or private entity
will not be higher than the rating of the currency or the foreign currency debt
of the central government of the country in which the issuer is located,
regardless of the intrinsic creditworthiness of the issuer.
The governments of some countries have been engaged in programs of selling
part or all of their stakes in government owned or controlled enterprises
("privatization"). The Adviser believes that privatization may offer investors
opportunities for significant capital appreciation and intends to invest assets
of the Fund in privatization in appropriate circumstances. In certain countries,
the ability of foreign entities, such as the Fund, to participate in
privatization may be limited by local law, or the terms on which the Fund may be
permitted to participate may be less advantageous than those for local
investors. There can be no assurance that governments will continue to sell
companies currently owned or controlled by them or that any privatization
programs in which the Fund participates will be successful.
FOREIGN CURRENCY EXCHANGE RISKS. To the extent a Fund invests in securities
denominated or quoted in currencies other than the U.S. dollar, such Fund will
be affected by changes in foreign currency exchange rates (and exchange control
regulations) which affect the value of investments in the Fund and the accrued
income and unrealized appreciation or depreciation of the investments. Changes
in foreign currency exchange ratios relative to the U.S. dollar will affect the
U.S. dollar value of the Fund's assets denominated in that currency and the
Fund's yield on such assets as well as any temporary uninvested reserves in bank
deposits in foreign currencies. In addition, the Fund will incur costs in
connection with conversions between various currencies. The Funds do not intend
to invest in any security in a country where the currency is not freely
convertible to U.S. dollars, unless the Fund has obtained the necessary
governmental licensing to convert such currency or other appropriately licensed
or sanctioned contractual guarantee to protect such investment against loss of
that currency's external value, or the Fund has a reasonable expectation at the
time the investment is made that such governmental licensing or other
appropriately licensed or sanctioned guarantee would be obtained or that the
currency in which the security is quoted would be freely convertible at the time
of any proposed sale of the security by the Fund.
A Fund's foreign currency exchange transactions may be conducted on a spot
basis (that is, cash basis) at the spot rate for purchasing or selling currency
prevailing in the foreign currency exchange market. A Fund also may enter into
contracts with banks, brokers or dealers to purchase or sell securities or
foreign currencies at a future date ("forward contracts"). A foreign currency
forward contract is a negotiated agreement between the contracting parties to
exchange a specified amount of currency at a specified future time at a
specified rate. The rate can be higher or lower than the spot rate between the
currencies that are the subject of the contract. These contracts are traded in
the interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for such
trades.
A Fund may attempt to protect against adverse changes in the value of the
U.S. dollar in relation to a foreign currency by entering into a forward
contract for the purchase or sale of the amount of foreign currency invested or
to be invested, or by buying or selling a foreign currency option or futures
contract for such amount. Such strategies may be employed before the Fund
purchases a foreign security traded in the currency which the Fund anticipates
acquiring or between the date the foreign security is purchased or sold and the
date on which payment therefor is made or received. Seeking to protect against a
change in the value of a foreign currency in the foregoing manner does not
eliminate fluctuations in the prices of portfolio securities or prevent losses
if the prices of such securities decline. Furthermore, such transactions reduce
or preclude the opportunity for gain if the value of the currency should move in
the direction opposite to the position taken. Unanticipated changes in currency
prices may result in poorer overall performance for the Fund than if it had not
entered into such contracts. The Funds generally will not enter into a forward
contract with a term of greater than one year. At the maturity of a forward
contract, a Fund may either accept or make delivery of the currency specified in
the contract or, prior to maturity, enter into a closing purchase transaction
involving the purchase or sale of an offsetting contract. Closing purchase
transactions with respect to forward contracts are usually effected with the
currency trader who is a party to the original forward contract. A Fund will
only enter into such a forward contract if it is expected that there will be a
liquid market in which to close out such contract. There can, however, be no
assurance that such a liquid market will exist in which to close a forward
contract, in which case the Fund may suffer a loss.
It is impossible to forecast with absolute precision the market value of a
particular portfolio security at the expiration of the contract. Accordingly, it
may be necessary for a Fund to purchase additional foreign currency on the spot
market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency that such Fund is obligated
to deliver and if a decision is made to sell the security and make delivery of
the foreign currency.
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If a Fund engages in an offsetting transaction, such Fund will incur a gain
or a loss to the extent that there has been movement in forward contract prices.
Should forward prices decline during the period between a Fund entering into a
forward contract for the sale of a foreign currency and the date it enters into
an offsetting contract for the purchase of the foreign currency, such Fund will
realize a gain to the extent that the price of the currency it has agreed to
sell exceeds the price of the currency it has agreed to purchase. Should forward
prices increase, such Fund would suffer a loss to the extent that the price of
the currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell.
The Funds are not required to enter into such transactions with regard to
their foreign currency-denominated securities. It also should be realized that
this method of protecting the value of portfolio securities against a decline in
the value of a currency does not eliminate fluctuations in the underlying prices
of the securities. It simply establishes a rate of exchange which one can
achieve at some future point in time. Additionally, although such contracts tend
to minimize the risk of loss due to a decline in the value of the hedged
currency, at the same time, they tend to limit any potential gain which might
result should the value of such currency increase.
In addition, Funds may cross-hedge currencies by entering into a transaction
to purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which a portfolio has or expects to have
portfolio exposure. These Funds may also engage in proxy hedging, which is
defined as entering into positions in one currency to hedge investments
denominated in another currency, where two currencies are economically linked. A
Fund's entry into forward contracts, as well as any use of proxy or cross
hedging techniques, will generally require the Fund to hold liquid securities or
cash equal to the Fund's obligations in a segregated account throughout the
duration of the contract. Funds may combine forward contracts with investments
in securities denominated in other currencies in order to achieve desired
security and currency exposures. Such combinations are generally referred to as
synthetic securities. For example, in lieu of purchasing a foreign bond, a Fund
may purchase a U.S. dollar-denominated security and at the same time enter into
a forward contract to exchange U.S. dollars for the contract's underlying
currency at a future date. By matching the amount of U.S. dollars to be
exchanged with the anticipated value of the U.S. dollar-denominated security,
the Fund may be able to lock in the foreign currency value of the security and
adopt a synthetic position reflecting the credit quality of the U.S.
dollar-denominated security.
To the extent required by the rules and regulations of the Securities and
Exchange Commission ("SEC"), the Fund will earmark or place cash or other liquid
assets into a segregated account in an amount equal to the value of such Fund's
total assets committed to the consummation of forward foreign currency exchange
contracts. If the value of the securities placed in the segregated account
declines, additional cash or liquid assets will be placed in the account on a
daily basis so that the value of the account will be at least equal to the
amount of such Fund's commitments with respect to such contracts. See also
"Strategic Transactions".
FOREIGN CURRENCY EXCHANGE-RELATED SECURITIES. Foreign currency warrants are
warrants which entitle the holder to receive from their issuer an amount of cash
(generally, for warrants issued in the United States, in U.S. dollars) which is
calculated pursuant to a predetermined formula and based on the exchange rate
between a specified foreign currency and the U.S. dollar as of the exercise date
of the warrant. Foreign currency warrants generally are exercisable upon their
issuance and expire as of a specified date and time. Foreign currency warrants
have been issued in connection with U.S. dollar-denominated debt offerings by
major corporate issuers in an attempt to reduce the foreign currency exchange
risk which, from the point of view of prospective purchasers of the securities,
is inherent in the international fixed-income marketplace. Foreign currency
warrants may attempt to reduce the foreign exchange risk assumed by purchasers
of a security by, for example, providing for a supplemental payment in the event
that the U.S. dollar depreciates against the value of a major foreign currency
such as the Japanese Yen or German Deutschmark. The formula used to determine
the amount payable upon exercise of a foreign currency warrant may make the
warrant worthless unless the applicable foreign currency exchange rate moves in
a particular direction (e.g., unless the U.S. dollar appreciates or depreciates
against the particular foreign currency to which the warrant is linked or
indexed). Foreign currency warrants are severable from the debt obligations with
which they may be offered, and may be listed on exchanges. Foreign currency
warrants may be exercisable only in certain minimum amounts, and an investor
wishing to exercise warrants who possesses less than the minimum number required
for exercise may be required either to sell the warrants or to purchase
additional warrants, thereby incurring additional transaction costs. In the case
of any exercise of warrants, there may be a time delay between the time a holder
of warrants gives instructions to exercise and the time the exchange rate
relating to exercise is determined, during which time the exchange rate could
change significantly, thereby affecting both the market and cash settlement
values of the warrants being exercised. The expiration date of the warrants may
be accelerated if the warrants should be delisted from an exchange or if their
trading should be suspended permanently, which would result in the loss of any
remaining "time value" of the warrants (i.e., the difference between the current
market value and the exercise value of the warrants), and, in the case where the
warrants were "out-of-the-money," in a total loss of the purchase price of the
warrants. Warrants are generally unsecured obligations of their issuers and are
not standardized foreign currency options issued by the Options Clearing
Corporation ("OCC"). Unlike foreign currency options issued by the OCC, the
terms of foreign exchange warrants generally will not be amended in the event of
governmental or regulatory actions affecting exchange rates or in the event of
the imposition of other regulatory controls affecting the international currency
markets. The initial public offering price
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of foreign currency warrants is generally considerably in excess of the price
that a commercial user of foreign currencies might pay in the interbank market
for a comparable option involving significantly larger amounts of foreign
currencies. Foreign currency warrants are subject to complex political or
economic factors.
Principal exchange rate linked securities are debt obligations the principal
on which is payable at maturity in an amount that may vary based on the exchange
rate between the U.S. dollar and a particular foreign currency at or about that
time. The return on "standard" principal exchange rate linked securities is
enhanced if the foreign currency to which the security is linked appreciates
against the U.S. dollar, and is adversely affected by increases in the foreign
exchange value of the U.S. dollar; "reverse" principal exchange rate linked
securities are like the "standard" securities, except that their return is
enhanced by increases in the value of the U.S. dollar and adversely impacted by
increases in the value of foreign currency. Interest payments on the securities
are generally made in U.S. dollars at rates that reflect the degree of foreign
currency risk assumed or given up by the purchaser of the notes (i.e., at
relatively higher interest rates if the purchaser has assumed some of the
foreign exchange risk, or relatively lower interest rates if the issuer has
assumed some of the foreign exchange risk, based on the expectations of the
current market). Principal exchange rate linked securities may in limited cases
be subject to acceleration of maturity (generally, not without the consent of
the holders of the securities), which may have an adverse impact on the value of
the principal payment to be made at maturity.
Performance indexed paper is U.S. dollar-denominated commercial paper the
yield of which is linked to certain foreign exchange rate movements. The yield
to the investor on performance indexed paper is between the U.S. dollar and a
designated currency as of or about that time (generally, the index maturity two
days prior to maturity). The yield to the investor will be within a range
stipulated at the time of purchase of the obligation, generally with a
guaranteed minimum rate of return that is below, and a potential maximum rate of
return that is above, market yields on U.S. dollar-denominated commercial paper,
with both the minimum and maximum rates of return on the investment
corresponding to the minimum and maximum values of the spot exchange rate two
business days prior to maturity.
INVESTING IN EMERGING MARKET COUNTRIES. The risks of foreign investment are
heightened when the issuer is from an emerging market country. The extent of
economic development, political stability and market depth of such countries
varies widely and investments in the securities of issuers in such countries
typically involve greater potential gain or loss than investments in securities
of issuers in more developed countries. Emerging market countries tend to have
economic structures that are less diverse and mature and political systems that
are less stable than developed markets. Emerging market countries may be more
likely to experience political turmoil or rapid changes in economic conditions
than more developed markets and the financial condition of issuers in emerging
market countries may be more precarious than in other countries. Certain
countries depend to a larger degree upon international trade or development
assistance and, therefore, are vulnerable to changes in trade or assistance
which, in turn, may be affected by a variety of factors. A Fund may be
particularly sensitive to changes in the economies of certain countries
resulting from any reversal of economic liberalization, political unrest or the
imposition of sanctions by the U.S. or other countries.
A Fund's purchase and sale of portfolio securities in emerging market
countries may be constrained by limitations as to daily changes in the prices of
listed securities, periodic or sporadic trading or settlement or limitations on
aggregate holdings by foreign investors. Such limitations may be computed based
on the aggregate trading volume by or holdings of such Fund, the Fund's
investment adviser, its affiliates or their respective clients or other service
providers. The Fund may not be able to sell securities in circumstances where
price, trading or settlement volume limitations have been reached. Foreign
investment in the securities markets of certain emerging market countries is
restricted or controlled to varying degrees which may limit investment in such
countries or increase the administrative costs of such investments. For example,
certain countries may require governmental approval prior to investments by
foreign persons or limit investment by foreign persons to only a specified
percentage of an issuer's outstanding securities or a specific class of
securities which may have less advantageous terms (including price) than
securities of the issuer available for purchase by nationals. In addition,
certain countries may restrict or prohibit investment opportunities in issuers
or industries deemed important to national interests. Such restrictions may
affect the market price, liquidity and rights of securities that may be
purchased by the Fund. The repatriation of both investment income and capital
from certain emerging market countries is subject to restrictions such as the
need for governmental consents. Due to restrictions on direct investment in
securities in certain countries, it is anticipated that the Fund may invest in
such countries through other investment funds in such countries.
Many emerging market countries have experienced currency devaluations and
substantial (and, in some cases, extremely high) rates of inflation, which have
had a negative effect on the economies and securities markets of such countries.
Economies in emerging market countries generally are dependent heavily upon
commodity prices and international trade and, accordingly, have been and may
continue to be affected adversely by the economies of their trading partners,
trade barriers, exchange controls, managed adjustments in relative currency
values and other protectionist measures or negotiated by the countries with
which they trade.
Many emerging market countries are subject to a substantial degree of
economic, political and social instability. Governments of some emerging
countries are authoritarian in nature or have been installed or removed as a
result of military coups, while governments in other emerging market countries
have periodically used force to suppress civil dissent. Disparities of
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wealth, the pace and success of political reforms, and ethnic, religious and
racial disaffection, among other factors, have also led to social unrest,
violence and/or labor unrest in some emerging markets countries. Unanticipated
political or social developments may result in sudden and significant investment
losses.
Settlement procedures in emerging market countries are frequently less
developed and reliable than those in developed markets. In addition, significant
delays are common in certain markets in registering the transfer of securities.
Settlement or registration problems may make it more difficult for a Fund to
value its portfolio securities and could cause such Fund to miss attractive
investment opportunities, to have a portion of its assets uninvested or to incur
losses due to the failure of a counterparty to pay for securities the Fund has
delivered or the Fund's inability to complete its contractual obligations. The
creditworthiness of the local securities firms used by the Fund in emerging
market countries may not be as sound as the creditworthiness of firms used in
more developed countries. As a result, the Fund may be subject to a greater risk
of loss if a securities firm defaults in the performance of its
responsibilities.
The small size and inexperience of the securities markets in certain
emerging market countries and the limited volume of trading in securities in
those countries may make a Fund's investments in such countries less liquid and
more volatile than investments in countries with more developed securities
markets. A Fund's investments in emerging market countries are subject to the
risk that the liquidity of a particular investment, or investments generally, in
such countries will shrink or disappear suddenly and without warning as a result
of adverse economic, market or political conditions or adverse investor
perceptions, whether or not accurate. Because of the lack of sufficient market
liquidity, the Fund may incur losses because it will be required to effect sales
at a disadvantageous time and only then at a substantial drop in price.
Investments in emerging market countries may be more difficult to price
precisely because of the characteristics discussed above and lower trading
volumes.
A Fund's use of foreign currency management techniques in emerging market
countries may be limited. Due to the limited market for these instruments in
emerging market countries, the Funds' investment adviser does not currently
anticipate that a significant portion of the Funds' currency exposure in
emerging market countries, if any, will be covered by such instruments.
Investments in emerging market country government debt securities involve
special risks. Certain emerging market countries have historically experienced,
and may continue to experience, high rates of inflation, high interest rates,
exchange rate fluctuations, large amounts of external debt, balance of payments
and trade difficulties and extreme poverty and unemployment. The issuer or
governmental authority that controls the repayment of an emerging market
country's debt may not be able or willing to repay the principal and/or interest
when due in accordance with the terms of such debt. As a result of the
foregoing, a government obligor may default on its obligations. If such an event
occurs, a Fund may have limited legal recourse against the issuer and/or
guarantor. Remedies must, in some cases, be pursued in the courts of the
defaulting party itself, and the ability of the holder of foreign government
debt securities to obtain recourse may be subject to the political climate in
the relevant country. In addition, no assurance can be given that the holders of
commercial bank debt will not contest payments to the holders of other foreign
government debt obligations in the event of default under their commercial bank
loan agreements.
Debt securities of corporate issuers in emerging market countries may
include debt securities or obligations issued (i) by banks located in emerging
market countries or by branches of emerging market country banks located outside
the country or (ii) by companies organized under the laws of an emerging market
country. Determinations as to eligibility will be made by the Adviser based on
publicly available information and inquiries made to the issuer.
EUROPEAN INVESTING. In recent years there have been two key issues
influencing the investment environment and economic conditions of Europe: the
creation of the single market and the emergence of Eastern European economies.
Both of these factors have helped European companies by opening up new markets
for growth.
In connection with efforts to create a single market, eleven of the fifteen
member countries of the European Union established fixed conversion rates
between their existing sovereign currencies and a new common currency, the euro,
effective January 1, 1999. The introduction of the euro is expected to reshape
financial markets, banking systems and monetary policies in Europe and other
parts of the world. The participating countries will issue sovereign debt
exclusively in the euro and will redenominate outstanding sovereign debt.
Financial transactions and market information, including share quotations and
company accounts, in participating countries will be denominated in euros.
Monetary policy for participating countries will be uniformly managed by a new
central bank, the European Central Bank (ECB).
The transition to the euro may change the economic environment and behavior
of investors, particularly in European markets. For example, the process of
implementing the euro may adversely affect financial markets world-wide and may
result in changes in the relative strength and value of the U.S. dollar or other
major currencies, as well as possible adverse tax consequences. The transition
to the euro is likely to have a significant impact on fiscal and monetary policy
in the participating countries and may produce unpredictable effects on trade
and commerce generally. These resulting uncertainties could create increased
volatility in financial markets world-wide.
Governments across Europe have also initiated major privatization programs
shifting a greater share of economic activity into the more efficient private
sector. Private companies have sought quotation, following the need to compete
in the capital markets, as much as in the market place for their products and
services. Those companies already quoted have begun to appreciate the value of
their being listed. To achieve a high rating on their equity, companies need to
produce transparent
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accounts, communicate effectively with their shareholders and manage their
businesses and assets to their shareholders' advantage. The restructuring,
management incentives and rationalization of companies has lead to lower wage
structures and greater flexibility. This has enabled European companies to match
the competitive cost environment of developing economies.
Demand for equity will grow hand in hand with supply; driven by pension fund
reform, growth in life insurance, shifts in European investing from fixed income
to equities and the emergence of European mutual funds. All of these factors
together will improve the quality of the markets in which European equities are
traded.
RUSSIAN INVESTING. The registration, clearing and settlement of securities
transactions in Russia are subject to significant risks not normally associated
with securities transactions, in the United States and other more developed
markets. Ownership of shares in Russian companies is evidenced by entries in a
company's share register (except where shares are held through depositories that
meet the requirements of the 1940 Act) and the issuance of extracts from the
register or, in certain limited cases, by formal share certificates. However,
Russian share registers are frequently unreliable and the Fund could possibly
lose its registration through oversight, negligence or fraud. Moreover, Russia
lacks a centralized registry to record securities transactions and registrars
located throughout Russia or the companies themselves maintain share registers.
Registrars are under no obligation to provide extracts to potential purchasers
in a timely manner or at all and are not necessarily subject to effective state
supervision. In addition, while registrars are liable under law for losses
resulting from their errors, it may be difficult for the Fund to enforce any
rights it may have against the registrar or issuer of the securities in the
event of loss of share registration. Although Russian companies with more than
1,000 shareholders are required by law to employ an independent company to
maintain share registers, in practice, such companies have not always followed
this law. Because of this lack of independence of registrars, management of a
Russian company may be able to exert considerable influence over who can
purchase and sell the company's shares by illegally instructing the registrar to
refuse to record transactions on the share register. Furthermore, these
practices may prevent the Fund from investing in the securities of certain
Russian companies deemed suitable by the Adviser and could cause a delay in the
sale of Russian securities by the fund if the company deems a purchaser
unsuitable, which may expose the Fund to potential loss on its investment.
In light of the risks described above, the Board of Directors has approved
certain procedures concerning the Fund's investments in Russian securities.
Among these procedures is a requirement that the Fund will not invest in the
securities of a Russian company unless that issuer's registrar has entered into
a contract with the Fund's sub-custodian containing certain protective
conditions, including, among other things, the sub-custodian's right to conduct
regular share confirmations on behalf of the Fund. This requirement will likely
have the effect of precluding investments in certain Russian companies that the
Fund would otherwise make.
BRADY BONDS. Funds that invest in foreign debt securities may invest in
debt obligations customarily referred to as "Brady Bonds." Brady Bonds are
created through the exchange of existing commercial bank loans to foreign
entities for new obligations in connection with debt restructuring under a plan
introduced by former U.S. Secretary of the Treasury Nicholas F. Brady (the
"Brady Plan"). Brady Bonds may be collateralized or uncollateralized and issued
in various currencies (although most are U.S. dollar-denominated) and they are
actively traded in the over-the-counter secondary market. A Fund may purchase
Brady Bonds either in the primary or secondary markets. The price and yield of
Brady Bonds purchased in the secondary market will reflect the market conditions
at the time of purchase, regardless of the stated face amount and the stated
interest rate. With respect to Brady Bonds with no or limited collateralization,
a Fund will rely for payment of interest and principal primarily on the
willingness and ability of the issuing government to make payment in accordance
with the terms of the bonds.
U.S. dollar-denominated, collateralized Brady Bonds, which may be fixed rate
par bonds or floating rate discount bonds, are generally collateralized in full
as to principal due at maturity by U.S. Treasury zero coupon obligations which
have the same maturity as the Brady Bonds. Interest payments on these Brady
Bonds generally are collateralized by cash or securities in an amount that, in
the case of fixed rate bonds, is equal to at least one year of rolling interest
payments or, in the case of floating rate bonds, initially is equal to at least
one year's rolling interest payments based on the applicable interest rate at
that time and is adjusted at regular intervals thereafter. Certain Brady Bonds
are entitled to "value recovery payments" in certain circumstances, which in
effect constitute supplemental interest payments but generally are not
collateralized. Brady Bonds are often viewed as having three or four valuation
components: (i) the collateralized repayment of principal at final maturity;
(ii) the collateralized interest payments; (iii) the uncollateralized interest
payments; and (iv) any uncollateralized repayment of principal at maturity
(these uncollateralized amounts constitute the "residual risk"). In the event of
a default with respect to collateralized Brady Bonds as a result of which the
payment obligations of the issuer are accelerated, the U.S. Treasury zero coupon
obligations held as collateral for the payment of principal will not be
distributed to investors, nor will such obligations be sold and the proceeds
distributed. The collateral will be held to the scheduled maturity of the
defaulted Brady Bonds by the collateral agent, at which time the face amount of
the collateral will equal the principal payments which would have then been due
on the Brady Bonds in the normal course. In addition, in light of the residual
risk of the Brady Bonds and, among other factors, the history of defaults with
respect to commercial bank loans by public and private entities of countries
issuing Brady Bonds, investments in Brady Bonds should be viewed as speculative.
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ILLIQUID SECURITIES
Each Fund may invest a portion of its assets in illiquid securities, which
includes securities that are not readily marketable, repurchase agreements which
have a maturity of longer than seven days and generally includes securities that
are restricted from sale to the public without registration under the Securities
Act of 1933, as amended (the "1933 Act"). The sale of such securities often
requires more time and results in higher brokerage charges or dealer discounts
and other selling expenses than does the sale of liquid securities trading on
national securities exchanges or in the over-the-counter markets. Restricted
securities are often purchased at a discount from the market price of
unrestricted securities of the same issuer reflecting the fact that such
securities may not be readily marketable without some time delay. Investments in
securities which have no ready market are valued at fair value as determined in
good faith by the Adviser in accordance with procedures approved by the Fund's
Board of Directors. Ordinarily, a Fund would invest in restricted securities
only when it receives the issuer's commitment to register the securities without
expense to the Fund. However, registration and underwriting expenses (which may
range from 7% to 15% of the gross proceeds of the securities sold) may be paid
by a Fund. Restricted securities which can be offered and sold to qualified
institutional buyers under Rule 144A under the 1933 Act ("144A Securities") and
are determined to be liquid under guidelines adopted by and subject to the
supervision of the Fund's Board of Directors are not subject to the limitation
on illiquid securities; however, such securities are still subject to any Fund
limitation on the securities subject to legal or contractual restrictions or
resale as described in the Fund's investment restrictions. 144A Securities
initially deemed liquid are subject to monitoring and may become illiquid to the
extent qualified institutional buyers become, for a time, uninterested in
purchasing such securities. Factors used to determine whether 144A Securities
are liquid include, among other things, a security's trading history, the
availability of reliable pricing information, the number of dealers making
quotes or making a market in such security and the number of potential
purchasers in the market for such security.
INVESTMENT COMPANY SECURITIES
Each Fund may invest in securities of other open-end or closed-end
investment companies, by purchase in the open market involving only customary
brokers' commissions or in connection with mergers, acquisitions of assets or
consolidations or as may otherwise be permitted by the 1940 Act.
Some emerging market countries have laws and regulations that currently
preclude direct foreign investment in the securities of their companies.
However, indirect foreign investment in the securities of companies listed and
traded on the stock exchanges in these countries is permitted by certain
emerging market countries through investment funds which have been specifically
authorized. Certain Funds may invest in these investment funds, including those
advised by Adviser or its affiliates, subject to applicable provisions of the
1940 Act, and other applicable laws.
If a Fund invests in such investment companies or investment funds, the
Fund's shareholders will bear not only their proportionate share of the expenses
of the Fund (including operating expenses and the fees of the Adviser), but also
will indirectly bear similar expenses of the underlying investment companies or
investment funds.
LOAN PARTICIPATIONS AND ASSIGNMENTS
Certain Funds may invest in fixed and floating rate loans ("Loans") arranged
through private negotiations between an issuer of sovereign or corporate debt
obligations and one or more financial institutions ("Lenders"). Such Funds'
investments in Loans are expected in most instances to be in the form of
participations in Loans ("Participations") and assignments of all or a portion
of Loans ("Assignments") from third parties. In the case of Participations, a
Fund will have the right to receive payments of principal, interest and any fees
to which it is entitled only from the Lender selling the Participations and only
upon receipt by the Lender of the payments from the borrower. In the event of
the insolvency of the Lender selling a Participation, a Fund may be treated as a
general creditor of the Lender and may not benefit from any set-off between the
Lender and the borrower. A Fund will acquire Participations only if the Lender
interpositioned between the Fund and the borrower is determined by the Adviser
to be creditworthy.
When a Fund purchases Assignments from Lenders it will acquire direct rights
against the borrower on the Loan. Because Assignments are arranged through
private negotiations between potential assignees and potential assignors,
however, the rights and obligations acquired by a Fund as the purchaser of an
Assignment may differ from, and be more limited than, those held by the
assigning Lender. Because there is no liquid market for such securities, the
Funds anticipate that such securities could be sold only to a limited number of
institutional investors. The lack of a liquid secondary market may have an
adverse impact on the value of such securities and a Fund's ability to dispose
of particular Assignments or Participations when necessary to meet the Fund's
liquidity needs or in response to a specific economic event such as a
deterioration in the creditworthiness of the borrower. The lack of a liquid
secondary market for Assignments and Participations also may make it more
difficult for a Fund to assign a value to these securities for purposes of
valuing the Fund's portfolio and calculating its net asset value.
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LOWER-GRADE SECURITIES
Certain Funds may invest in lower-grade income securities. Securities which
are in the lower-grade categories generally offer higher yields than are offered
by higher-grade securities of similar maturities, but they also generally
involve greater risks, such as greater credit risk, greater market risk and
volatility, greater liquidity concerns and potentially greater manager risk.
Investors should carefully consider the risks of owning shares of a portfolio
which invests in lower-grade securities.
Credit risk relates to the issuer's ability to make timely payment of
interest and principal when due. Lower-grade securities are considered more
susceptible to nonpayment of interest and principal or default than higher-grade
securities. Increases in interest rates or changes in the economy may
significantly affect the ability of issuers of lower-grade debt securities to
pay interest and to repay principal, to meet projected financial goals or to
obtain additional financing. In the event that an issuer of securities held by a
Fund experiences difficulties in the timely payment of principal and interest
and such issuer seeks to restructure the terms of its borrowings, such Fund may
incur additional expenses and may determine to invest additional assets with
respect to such issuer or the project or projects to which the Fund's securities
relate. Further, the Fund may incur additional expenses to the extent that it is
required to seek recovery upon a default in the payment of interest or the
repayment of principal on its portfolio holdings, and the Fund may be unable to
obtain full recovery on such amounts.
Market risk relates to changes in market value of a security that occur as a
result of variation in the level of prevailing interest rates and yield
relationships in the debt securities market and as a result of real or perceived
changes in credit risk. The value of such a Fund's investments can be expected
to fluctuate over time. When interest rates decline, the value of a portfolio
invested in fixed income securities generally can be expected to rise.
Conversely, when interest rates rise, the value of a portfolio invested in fixed
income securities generally can be expected to decline. Debt securities with
longer maturities, which may have higher yields, may increase or decrease in
value more than debt securities with shorter maturities. However, the secondary
market prices of lower-grade debt securities generally are less sensitive to
changes in interest rate and are more sensitive to general adverse economic
changes or specific developments with respect to the particular issuers than are
the secondary market prices of higher-grade debt securities. A significant
increase in interest rates or a general economic downturn could severely disrupt
the market for lower-grade securities and adversely affect the market value of
such securities. Such events also could lead to a higher incidence of default by
issuers of lower-grade securities as compared with higher-grade securities. In
addition, changes in credit risks, interest rates, the credit markets or periods
of general economic uncertainty can be expected to result in increased
volatility in the market price of the lower-grade securities in such a Fund and
thus in the net asset value of the Fund. Adverse publicity and investor
perceptions, whether or not based on rational analysis, may affect the value,
volatility and liquidity of lower-grade securities.
The markets for lower-grade securities may be less liquid than the markets
for higher-grade securities. Liquidity relates to the ability of a fund to sell
a security in a timely manner at a price which reflects the value of that
security. To the extent that there is no established retail market for some of
the lower-grade securities in which a Fund may invest, trading in such
securities may be relatively inactive. Prices of lower-grade securities may
decline rapidly in the event a significant number of holders decide to sell.
Changes in expectations regarding an individual issuer of lower-grade securities
generally could reduce market liquidity for such securities and make their sale
by the Fund more difficult, at least in the absence of price concessions. The
effects of adverse publicity and investor perceptions may be more pronounced for
securities for which no established retail market exists as compared with the
effects on securities for which such a market does exist. An economic downturn
or an increase in interest rates could severely disrupt the market for such
securities and adversely affect the value of outstanding securities or the
ability of the issuers to repay principal and interest. Further, a Fund may have
more difficulty selling such securities in a timely manner and at their stated
value than would be the case for securities for which an established retail
market does exist.
The Adviser is responsible for determining the net asset values of the
Funds, subject to the supervision of the Board of Directors. During periods of
reduced market liquidity or in the absence of readily available market
quotations for lower-grade securities, the ability of the Adviser to value the
securities becomes more difficult and the judgment of the Adviser may play a
greater role in the valuation of such securities due to the reduced availability
of reliable objective data.
A Fund may invest in securities not producing immediate cash income,
including securities in default, zero-coupon securities or pay-in-kind
securities, when their effective yield over comparable instruments producing
cash income make these investments attractive. Prices on non-cash-paying
instruments may be more sensitive to changes in the issuer's financial
condition, fluctuation in interest rates and market demand/supply imbalances
than cash-paying securities with similar credit ratings and thus may be more
speculative. In addition, the accrued interest income earned on such instruments
is included in investment company taxable income, thereby increasing the
required minimum distributions to shareholders without providing the
corresponding cash flow with which to pay such distributions. The Adviser will
weigh these concerns against the expected total returns from such instruments.
A Fund's investments may include securities with the lowest-grade assigned
by the recognized rating organizations and unrated securities of comparable
quality. Securities assigned such ratings include those of companies that are in
default or are in bankruptcy or reorganization. Such a Fund may invest in or own
securities of companies in various stages of financial restructuring, bankruptcy
or reorganization which are not currently paying interest or dividends. A Fund
may have limited recourse in the event of default on such debt instruments. A
Fund may invest in loans, assignments of loans and participation in
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loans. Securities of such companies are regarded by the rating agencies as
having extremely poor prospects of ever attaining any real investment standing
and are usually available at deep discounts from the face values of the
instruments. A security purchased at a deep discount may currently pay a very
high effective yield. In addition, if the financial condition of the issuer
improves, the underlying value of the security may increase, resulting in
capital appreciation. If the company defaults on its obligations or remains in
default, or if the plan of reorganization does not provide sufficient payments
for debtholders, the deep discount securities may stop generating income and
lose value or become worthless. The Adviser will balance the benefits of deep
discount securities with their risks. While a broad portfolio of investments may
reduce the overall impact of a deep discount security that is in default or
loses its value, the risk cannot be eliminated.
Many lower-grade debt securities are not listed for trading on any national
securities exchange, and many issuers of lower-grade debt securities choose not
to have a rating assigned to their obligations by any recognized rating
organization. As a result, a Fund's portfolio may consist of a higher portion of
unlisted or unrated securities as compared with an investment company that
invests primarily in higher-grade securities. Unrated securities are usually not
as attractive to as many buyers as are rated securities, a factor which may make
unrated securities less marketable. These factors may have the effect of
limiting the availability of the securities for purchase by a Fund and may also
limit the ability of a Fund to sell such securities at their fair value either
to meet redemption requests or in response to changes in the economy or the
financial markets. Further, to the extent a Fund owns or may acquire illiquid or
restricted lower-grade securities, these securities may involve special
registration responsibilities, liabilities and costs, and liquidity and
valuation difficulties.
The Funds will rely on the Adviser's judgment, analysis and experience in
evaluating the creditworthiness of an issue. The amount of available information
about the financial condition of certain lower-grade issuers may be less
extensive than other issuers. In its analysis, the Adviser may consider the
credit ratings of recognized rating organizations in evaluating securities
although the Adviser does not rely primarily on these ratings. Ratings evaluate
only the safety of principal and interest payments, not the market value risk.
Additionally, ratings are general and not absolute standards of quality, and
credit ratings are subject to the risk that the creditworthiness of an issuer
may change and the rating agencies may fail to change such ratings in a timely
fashion. A rating downgrade does not require a Fund to dispose of a security.
The Adviser continuously monitors the issuers of securities held in a Fund.
Additionally, since most foreign debt securities are not rated, a Fund will
invest in such securities based on the Adviser's analysis without any guidance
from published ratings. Because of the number of investment considerations
involved in investing in lower-grade securities and foreign debt securities,
achievement of such Fund's investment objectives may be more dependent upon the
investment adviser's credit analysis than is the case with investing in
higher-grade securities.
New or proposed laws may have an impact on the market for lower-grade
securities. The Adviser is unable at this time to predict what effect, if any,
legislation may have on the market for lower-grade securities.
Special tax considerations are associated with investing in certain
lower-grade securities, such as zero-coupon or pay-in-kind securities. A Fund
accrues income on these securities prior to the receipt of cash payments. A Fund
must distribute substantially all of its income to its shareholders to qualify
for pass-through treatment under federal income tax law and may, therefore, have
to dispose of its portfolio securities to satisfy distribution requirements.
MORTGAGE-RELATED DEBT SECURITIES
Mortgage-related debt securities represent ownership interests in individual
pools of residential mortgage loans. These securities are designed to provide
monthly payments of interest and principal to the investor. Each mortgagor's
monthly payment to his lending institution on his residential mortgage is
"passed-through" to investors. Mortgage pools consist of whole mortgage loans or
participations in loans. The terms and characteristics of the mortgage
instruments are generally uniform within a pool but may vary among pools.
Lending institutions which originate mortgages for the pools are subject to
certain standards, including credit and underwriting criteria for individual
mortgages included in the pools.
The coupon rate of interest on mortgage-related securities is lower than the
interest rates paid on the mortgages included in the underlying pool, but only
by the amount of the fees paid to the mortgage pooler, issuer, and/or guarantor
of payment of the securities for the guarantee of the services of passing
through monthly payments to investors. Actual yield may vary from the coupon
rate, however, if mortgage-related securities are purchased at a premium or
discount, traded in the secondary market at a premium or discount, or to the
extent that mortgages in the underlying pool are prepaid as noted above. In
addition, interest on mortgage-related securities is earned monthly, rather than
semi-annually as is the case for traditional bonds, and monthly compounding may
tend to raise the effective yield earned on such securities.
STRIPPED MORTGAGE-BACKED SECURITIES. Stripped mortgage-backed securities
("SMBS") are derivative multiclass mortgage securities. SMBS may be issued by
agencies or instrumentalities of the U.S. government or by private originators
of, or investors in, mortgage loans, including savings and loan associations,
mortgage banks, commercial banks, investment banks and special purpose entities
of the foregoing.
SMBS are usually structured with two classes that receive different
proportions of the interest and principal distributions on a pool of mortgage
assets. A common type of SMBS will have one class receiving some of the interest
and most of the principal from the mortgage assets, while the other class will
receive most of the interest and the remainder of the principal. In the most
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extreme case, one class will receive all of the interest (the interest-only or
"IO" class), while the other class will receive all of the principal (the
principal-only or "PO" class). The yield to maturity on an IO class is extremely
sensitive to the rate of principal payments (including prepayments) on the
related underlying mortgage assets, and a rapid rate of principal payments may
have a material adverse effect on a Fund's yield to maturity from these
securities. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, a Fund may fail to fully recoup its
initial investment in these securities even if the security is in one of the
highest rating categories.
Although SMBS are purchased and sold by institutional investors through
several investment banking firms acting as brokers or dealers, these securities
were only recently developed. As a result, established trading markets have not
yet developed and, accordingly, certain of these securities may be deemed
"illiquid" and subject to a Fund's limitations on investment in illiquid
securities.
OBLIGATIONS OF DOMESTIC BANKS, FOREIGN BANKS AND FOREIGN BRANCHES OF U.S. BANKS
For purposes of the Funds' investment policies with respect to bank
obligations, the assets of a bank or savings institution will be deemed to
include the assets of its domestic and foreign branches. Investments in bank
obligations will include obligations of domestic branches of foreign banks and
foreign branches of domestic banks. Such investments may involve risks that are
different from investments in securities of domestic branches of U.S. banks. See
"Foreign Investing" above for a discussion of the risks of foreign investments.
These institutions may be subject to less stringent reserve requirements and to
different accounting, auditing, reporting and record keeping requirements than
those applicable to domestic branches of U.S. banks.
REPURCHASE AGREEMENTS
The Funds may engage in repurchase agreements with banks or broker-dealers
in order to earn a return on temporarily available cash. A repurchase agreement
is a short-term investment in which the purchaser (i.e., the Fund) acquires
ownership of a security and the seller agrees to repurchase the obligation at a
future time and set price, thereby determining the yield during the holding
period. Repurchase agreements involve certain risks in the event of default by
the other party. A Fund may enter into repurchase agreements with banks or
broker-dealers deemed to be creditworthy by the Adviser under guidelines
approved by the Board of Directors. A Fund will not invest in repurchase
agreements maturing in more than seven days if any such investment, together
with any other illiquid securities held by the Fund, would exceed the Fund's
limitation on illiquid securities described herein. In the event of the
bankruptcy or other default of a seller of a repurchase agreement, a Fund could
experience both delays in liquidating the underlying securities and losses
including: (a) possible decline in the value of the underlying security during
the period while the Fund seeks to enforce its rights thereto; (b) possible lack
of access to income on the underlying security during this period; and (c)
expenses of enforcing its rights.
For the purpose of investing in repurchase agreements, the Adviser may
aggregate the cash that certain funds advised or subadvised by the Adviser or
certain of its affiliates would otherwise invest separately into a joint
account. The cash in the joint account is then invested in repurchase agreements
and the funds that contributed to the joint account share pro rata in the net
revenue generated. The Adviser believes that the joint account produces
efficiencies and economies of scale that may contribute to reduced transaction
costs, higher returns, higher quality investments and greater diversity of
investments for the Funds than would be available to the Funds investing
separately. The manner in which the joint account is managed is subject to
conditions set forth in an exemptive order from the SEC authorizing this
practice, which conditions are designed to ensure the fair administration of the
joint account and to protect the amounts in that account.
Repurchase agreements are fully collateralized by the underlying securities
and are considered to be loans under the 1940 Act. A Fund pays for such
securities only upon physical delivery or evidence of book entry transfer to the
account of a custodian or bank acting as agent. The seller under a repurchase
agreement will be required to maintain the value of the underlying securities
marked-to-market daily at not less than the repurchase price. The underlying
securities (normally securities of the U.S. government, or its agencies or
instrumentalities) may have maturity dates exceeding one year. A Fund does not
bear the risk of a decline in value of the underlying security unless the seller
defaults under its repurchase obligation.
REVERSE REPURCHASE AGREEMENTS
To the extent allowed by the Fund's investment restrictions, certain Funds
may enter into reverse repurchase agreements with brokers, dealers, banks or
other financial institutions that meet the credit guidelines set by the
Company's Board of Directors. In a reverse repurchase agreement, a Fund sells a
security and agrees to repurchase it at a mutually agreed upon date and price,
reflecting the interest rate effective for the term of the agreement. It may
also be viewed as the borrowing of money by a Fund. A Fund's investment of the
proceeds of a reverse repurchase agreement is the speculative factor known as
leverage. A Fund will enter into a reverse repurchase agreement only if the
interest income from investment of the proceeds is expected to be greater than
the interest expense of the transaction and the proceeds are invested for a
period no longer than the term of the agreement. A Fund will maintain with an
appropriate custodian a separate account with a segregated portfolio of cash or
liquid assets in an amount at least equal to its purchase obligations under
these agreements (including accrued interest). If interest rates rise during a
reverse repurchase agreement, it may adversely affect a Fund's net asset value.
In the event that the buyer of
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securities under a reverse repurchase agreement files for bankruptcy or becomes
insolvent, the buyer or its trustee or receiver may receive an extension of time
to determine whether to enforce the Fund's repurchase obligation, and the Fund's
use of proceeds of the agreement may effectively be restricted pending such
decision.
SECURITIES LENDING
Certain Funds may lend investment securities to qualified institutional
investors who need to borrow securities in order to complete certain
transactions, such as covering short sales, avoiding failures to deliver
securities or completing arbitrage operations. By lending its investment
securities, a Fund attempts to increase its net investment income through the
receipt of interest on the loan. Any gain or loss in the market price of the
securities loaned that might occur during the term of the loan would be for the
account of the Fund. Each Fund may lend its investment securities to qualified
brokers, dealers, domestic and foreign banks or other financial institutions, so
long as the terms, structure and the aggregate amount of such loans are not
inconsistent with the 1940 Act, or the rules and regulations or interpretations
of the SEC thereunder, which currently require that (a) the borrower pledge and
maintain with the Fund collateral consisting of cash, an irrevocable letter of
credit issued by a domestic U.S. bank, or liquid securities having a value at
all times not less than 100% of the value of the securities loaned, including
accrued interest, (b) the borrower add to such collateral whenever the price of
the securities loaned rises (i.e., the borrower "marks to the market" on a daily
basis), (c) the loan be made subject to termination by the Fund at any time, and
(d) the Fund receive reasonable interest on the loan (which may include the Fund
investing any cash collateral in interest bearing short-term investments), any
distributions on the loaned securities and any increase in their market value.
There may be risks of delay in recovery of the securities or even loss of rights
in the collateral should the borrower of the securities fail financially.
However, loans will only be made to borrowers deemed by the Adviser to be of
good standing and when, in the judgment of the Adviser, the consideration which
can be earned currently from such securities loans justifies the attendant risk.
All relevant facts and circumstances, including the creditworthiness of the
broker, dealer or institution, will be considered in making decisions with
respect to the lending of securities, subject to review by the Directors.
At the present time, the staff of the SEC does not object if an investment
company pays reasonable negotiated fees in connection with loaned securities, so
long as such fees are set forth in a written contract and approved by the
investment company's Directors. In addition, voting rights may pass with the
loaned securities, but if a material event will occur affecting an investment on
loan, the loan must be called and the securities voted.
SHORT SALES
Unless limited by a Fund's fundamental investment restrictions described
herein, each Fund may from time to time sell securities short. A short sale is a
transaction in which a Fund sells a security in anticipation that the market
price of such security will decline. Unless limited by a Fund's fundamental
investment restrictions described herein, each Fund may sell securities it owns
or has the right to acquire at no added cost (i.e., "against the box") or it
does not own. When the Fund makes a short sale, it must borrow the security sold
short and deliver it to the broker-dealer through which it made the short sale
in order to satisfy its obligation to deliver the security upon conclusion of
the sale. The Fund may have to pay a fee to borrow particular securities and is
often obligated to pay over any payments received on such borrowed securities.
The Fund's obligation to replace the borrowed security will be secured by
collateral of cash or liquid securities. Depending on arrangements made with the
broker-dealer from which it borrowed the security regarding payment over of any
payments received by the Fund on such security, the Fund may not receive any
payments (including interest) on its collateral deposited with such
broker-dealer.
If the price of the security sold short increases between the time of the
short sale and the time the Fund replaces the borrowed security, the Fund will
incur a loss; conversely, if the price declines, the Fund will realize a capital
gain. Any gain will be decreased, and any loss increased, by the transaction
costs described above. Although the Fund's gain is limited to the price at which
it sold the security short, its potential loss is theoretically unlimited.
STRATEGIC TRANSACTIONS
Each Fund may, but is not required to, use various Strategic Transactions
(as defined in the prospectuses) to earn income, facilitate portfolio management
and mitigate risks. Such Strategic Transactions are generally accepted under
modern portfolio management and are regularly used by many mutual funds and
other institutional investors. Techniques and instruments may change over time
as new instruments and strategies are developed or regulatory changes occur.
Although the Fund's Adviser seeks to use such transactions to further the Fund's
investment objective(s), no assurance can be given that these transactions will
achieve this result.
FUTURES CONTRACTS. Futures contracts provide for the future sale by one
party and purchase by another party of a specified amount of a specific security
or a specific currency at a specified future time and at a specified price.
Futures contracts, which are standardized as to maturity date and underlying
financial instrument, index or currency, traded in the United States are traded
on national futures exchanges. Futures exchanges and trading are regulated under
the Commodity Exchange Act by the Commodity Futures Trading Commission ("CFTC"),
a U.S. government agency.
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Although futures contracts by their terms call for actual delivery or
acceptance of the underlying securities or currencies, in most cases the
contracts are closed out before the settlement date without the making or taking
of delivery. Closing out an open futures position is done by taking an opposite
position ("buying" a contract which has previously been "sold" or "selling" a
contract previously "purchased") in an identical contract to terminate the
position. Brokerage commissions are incurred when a futures contract is bought
or sold.
Unless otherwise limited in a Fund's prospectus or herein, each Fund may
sell indexed financial futures contracts in anticipation of or during a market
decline to attempt to offset the decrease in market value of securities in its
portfolio that might otherwise result. An index futures contract is an agreement
to take or make delivery of an amount of cash equal to the difference between
the value of the index at the beginning and at the end of the contract period.
Successful use of index futures will be subject to the Adviser's ability to
predict correctly movements in the direction of the relevant securities market.
No assurance can be given that the Adviser's judgment in this respect will be
correct.
Unless otherwise limited in a Fund's prospectus or herein, each Fund may
sell indexed financial futures contracts in anticipation of or during a market
decline to attempt to offset the decrease in market value of securities in its
portfolio that might otherwise result. For example, if the Adviser believes that
a portion of a Fund's assets should be invested in emerging market country
securities but such investments have not been fully made and the Adviser
anticipates a significant market advance, the Fund may purchase index futures in
order to gain rapid market exposure that may in part or entirely offset
increases in the cost of securities that it intends to purchase. In a
substantial majority of these transactions, the Fund will purchase such
securities upon termination of the futures position but, under unusual market
conditions, a futures position may be terminated without the corresponding
purchase of such securities.
Futures traders are required to make a good faith margin deposit in cash or
liquid securities with a broker or custodian to initiate and maintain open
positions in futures contracts. A margin deposit is intended to assure
completion of the contract (delivery or acceptance of the underlying security)
if it is not terminated prior to the specified delivery date. Minimal initial
margin requirements are established by the futures exchange and may be changed.
Brokers may establish deposit requirements which are higher than the exchange
minimums. Futures contracts are customarily purchased and sold for prices that
may range upward from less than 5% of the value of the contract being traded.
After a futures contract position is opened, the value of the contract is
marked-to-market daily. If the futures contract price changes to the extent that
the margin on deposit does not satisfy margin requirements, payment of an
additional "variation" margin will be required. Conversely, a change in the
contract value may reduce the required margin, resulting in a repayment of
excess margin to the contract holder. Variation margin payments are made to and
from the futures broker for as long as the contract remains open. The Funds
expect to earn interest income on its margin deposits.
Traders in futures contracts may be broadly classified as either "hedgers"
or "speculators." Hedgers use the futures markets primarily to offset
unfavorable changes in the value of securities otherwise held for investment
purposes or expected to be acquired by them. Speculators are less inclined to
own the underlying securities with futures contracts that they trade, and use
futures contracts with the expectation of realizing profits from market
fluctuations. The Funds intend to use futures contracts only for hedging
purposes.
Regulations of the CFTC applicable to the Funds require generally that all
futures transactions constitute bona fide hedging transactions. A Fund may
engage in futures transactions for other purposes so long as the aggregate
initial margin and premiums required for such transaction will not exceed 5% of
the liquidation value of the Fund's portfolio, after taking into account
unrealized profits and unrealized losses on any such contracts it has entered
into. The Funds generally will only sell futures contracts to protect securities
owned against declines in price or purchase contracts to protect against an
increase in the price of securities intended for purchase. As evidence of this
hedging interest, the Funds expect that approximately 75% of their respective
futures contracts will be "completed"; that is, equivalent amounts of related
securities will have been purchased or are being purchased by the Fund upon sale
of open futures contracts.
Although techniques other than the sale and purchase of futures contracts
could be used to control a Fund's exposure to market fluctuations, the use of
futures contracts may be a more effective means of hedging this exposure. While
the Funds will incur commission expenses in both opening and closing out futures
positions, these costs are lower than transaction costs incurred in the purchase
and sale of the underlying securities.
RISK FACTORS IN FUTURES TRANSACTIONS. Positions in futures contracts may be
closed out only on an exchange which provides a secondary market for such
futures. However, there can be no assurance that a liquid secondary market will
exist for any particular futures contract at any specific time. Thus, it may not
be possible to close a futures position. In the event of adverse price
movements, a Fund would continue to be required to make daily cash payments to
maintain its required margin. In such situations, if a Fund has insufficient
cash, it may have to sell portfolio securities to meet its daily margin
requirement at a time when it may be disadvantageous to do so. In addition, the
Fund may be required to make delivery of the instruments underlying futures
contracts it holds. The inability to close options and futures positions also
could have an adverse impact on the Fund's ability to effectively hedge.
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The Funds will minimize the risk that they will be unable to close out a
futures contract by generally entering into futures which are traded on
recognized international or national futures exchanges and for which there
appears to be a liquid secondary market, however, the Funds may enter into
over-the-counter futures transactions to the extent permitted by applicable law.
The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required and the extremely high
degree of leverage involved in futures pricing. As a result, a relatively small
price movement in a futures contract may result in immediate and substantial
loss (as well as gain) to the investor. For example, if, at the time of
purchase, 10% of the value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract would result in a
total loss of the margin deposit, before any deduction for the transaction
costs, if the account were then closed out. A 15% decrease would result in a
loss equal to 150% of the original margin deposit if the contract were closed
out. Thus, a purchase or sale of a futures contract may result in losses in
excess of the amount invested in the contract. However, because the Funds engage
in futures strategies only for hedging purposes, the Adviser does not believe
that the Funds are subject to the risks of loss frequently associated with
futures transactions. The Fund would presumably have sustained comparable losses
if, instead of the futures contract, the Fund had invested in the underlying
security or currency and sold it after the decline.
Utilization of futures transactions by a Fund does involve the risk of
imperfect or no correlation where the securities underlying futures contracts
have different maturities than the portfolio securities or currencies being
hedged. It is also possible that a Fund could both lose money on futures
contracts and also experience a decline in value of its portfolio securities.
There is also the risk of loss by a Fund of margin deposits in the event of
bankruptcy of a broker with whom the Fund has an open position in a futures
contract or related option.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond that limit. The daily limit governs only
price movement during a particular trading day and therefore does not limit
potential losses, because the limit may prevent the liquidation of unfavorable
positions. Futures contract prices have occasionally moved to the daily limit
for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and subjecting some futures
traders to substantial losses.
OPTIONS TRANSACTIONS. Unless otherwise limited in a Fund's prospectus or
herein, each Fund may write (i.e., sell) covered call options which give the
purchaser the right to buy the underlying security covered by the option from
the Fund at the stated exercise price. A "covered" call option means that so
long as a Fund is obligated as the writer of the option, it will own (i) the
underlying securities subject to the option, or (ii) securities convertible or
exchangeable without the payment of any consideration into the securities
subject to the option.
A Fund will receive a premium from writing call options, which increases the
Fund's return on the underlying security in the event the option expires
unexercised or is closed out at a profit. By writing a call, a Fund will limit
its opportunity to profit from an increase in the market value of the underlying
security above the exercise price of the option for as long as the Fund's
obligation as writer of the option continues. Thus, in some periods a Fund will
receive less total return and in other periods greater total return from writing
covered call options than it would have received from its underlying securities
had it not written call options.
A Fund may sell put options to receive the premiums paid by purchasers and
to close out a long put option position. In addition, when the Adviser wishes to
purchase a security at a price lower than its current market price, a Fund may
write a covered put at an exercise price reflecting the lower purchase price
sought.
A Fund may purchase call options to close out a covered call position or to
protect against an increase in the price of a security it anticipates
purchasing. A Fund may purchase put options on securities which it holds in its
portfolio to protect itself against a decline in the value of the security. If
the value of the underlying security were to fall below the exercise price of
the put purchased in an amount greater than the premium paid for the option, the
Fund would incur no additional loss. A Fund may also purchase put options to
close out written put positions in a manner similar to call option closing
purchase transactions. There are no other limits on a Fund's ability to purchase
call and put options.
Unless the parties provide for it, there is no central clearing or guaranty
function in an over-the-counter option ("OTC Option"). As a result, if the
counterparty fails to make or take delivery of the security, currency or other
instrument underlying an OTC Option it has entered into with a Fund or fails to
make a cash settlement payment due in accordance with the terms of that option,
the Fund will lose any premium it paid for the option as well as any anticipated
benefit of the transaction. Accordingly, the Adviser must assess the
creditworthiness of each such counterparty or any guarantor of credit
enhancement of the counterparty's credit to determine the likelihood that the
terms of the OTC Options will be satisfied. The staff of the SEC currently takes
the position that OTC Options purchased by a Fund or sold by it (the cost of the
sell-back plus the in-the-money amount, if any) are illiquid unless the Fund has
entered into a special arrangement to dispose of the security, and are subject
to the Fund's limitation on investing in illiquid securities.
Investments in options involve some of the same considerations that are
involved in connection with investments in futures contracts (e.g., the
existence of a liquid secondary market). In addition, the purchase of an option
also entails the risk that
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changes in the value of the underlying security or contract will not be fully
reflected in the value of the option purchased. Depending on the pricing of the
option compared to either the futures contract or securities, an option may or
may not be less risky than ownership of the futures contract or actual
securities. In general, the market prices of options can be expected to be more
volatile than the market prices on the underlying futures contract or
securities. In the opinion of the Adviser, the risk that a Fund will be unable
to close out an options contract will be minimized by only entering into options
transactions for which there appears to be a liquid secondary market.
OPTIONS ON FOREIGN CURRENCIES. Unless otherwise limited in a Fund's
prospectus or herein, each Fund may attempt to accomplish objectives similar to
those described herein with respect to forward foreign currency exchange
contracts and futures contracts for currency by means of purchasing put or call
options on foreign currencies on exchanges. A put option gives a Fund the right
to sell a currency at the exercise price until the expiration of the option. A
call option gives a Fund the right to purchase a currency at the exercise price
until the expiration of the option.
The Funds may purchase and write options on foreign currencies in a manner
similar to that in which futures contracts on foreign currencies, or forward
contracts, will be utilized. For example, a decline in the dollar value of a
foreign currency in which portfolio securities are denominated will reduce the
dollar value of such securities, even if their value in the foreign currency
remains constant. In order to protect against such diminution in the value of
portfolio securities, the Funds may purchase put options on the foreign
currency. If the value of the currency does decline, the Funds will have the
right to sell such currency for a fixed amount in dollars and will thereby
offset, in whole or in part, the adverse effect on their portfolios which
otherwise would have resulted. Conversely, where a rise in the dollar value of a
currency in which securities to be acquired are denominated is projected,
thereby increasing the cost of such securities, the Funds may purchase call
options thereon. The purchase of such options could offset, at least partially,
the effects of the adverse movements in exchange rates. As in the case of other
types of options, however, the benefit to the Funds derived from purchases of
foreign currency options will be reduced by the amount of the premium and
related transaction costs. In addition, where currency exchange rates do not
move in the direction or to the extent anticipated, the Funds could sustain
losses on transactions in foreign currency options which would require them to
forego a portion or all of the benefits of advantageous changes in such rates.
Funds may write options on foreign currencies for the same purposes. For
example, where a Fund anticipates a decline in the dollar value of foreign
currency denominated securities due to adverse fluctuations in exchange rates it
could, instead of purchasing a put option, write a call option on the relevant
currency. If the anticipated decline occurs, the option will most likely not be
exercised, and the diminution in value of portfolio securities will be offset by
the amount of the premium received. Similarly, instead of purchasing a call
option to hedge against an anticipated increase in the dollar cost of securities
to be acquired, the Fund could write a put option on the relevant currency
which, if rates move in the manner projected, will expire unexercised and allow
the portfolio to hedge such increased cost up to the amount of the premium. As
in the case of other types of options, however, the writing of a foreign
currency option will constitute only a partial hedge up to the amount of the
premium, and only if rates move in the expected direction. If this does not
occur, the option may be exercised and the Fund would be required to purchase or
sell the underlying currency at a loss which may not be offset by the amount of
the premium. Through the writing of options on foreign currencies, the Fund also
may be required to forego all or a portion of the benefits which might otherwise
have been obtained from favorable movements in exchange rates.
Funds may only write covered call options on foreign currencies. A call
option written on a foreign currency by the portfolio is "covered" if the Fund
owns the underlying foreign currency covered by the call, an absolute and
immediate right to acquire that foreign currency without additional cash
consideration (or for additional cash consideration held in a segregated account
by the Custodian) or upon conversion or exchange of other foreign currency held
in its portfolio. A written call option is also covered if the Fund has a call
on the same foreign currency and in the same principal amount as the call
written where the exercise price of the call held (a) is equal to or less than
the exercise price of the call written or (b) is greater than the exercise price
of the call written if the difference is maintained by the Fund in cash or other
liquid securities in a segregated account with the Custodian, or (c) maintains
in a segregated account cash or other liquid securities in an amount not less
than the value of the underlying foreign currency in U.S. dollars,
marked-to-market daily.
Funds may also write call options on foreign currencies for cross-hedging
purposes. A call option on a foreign currency is for cross-hedging purposes if
it is designed to provide a hedge against a decline in the U.S. dollar value of
a security which the portfolio owns or has the right to acquire due to an
adverse change in the exchange rate and which is denominated in the currency
underlying the option. In such circumstances, the Fund will either "cover" the
transaction as described above or collateralize the option by maintaining in a
segregated account with the Fund's Custodian, cash or other liquid securities in
an amount not less than the value of the underlying foreign currency in U.S.
dollars marked-to-market daily.
CAPS, FLOORS AND COLLARS. Unless otherwise limited by a Fund's prospectus
or herein, each Fund may invest in caps, floors and collars, which are
instruments analogous to options transactions described above. In particular, a
cap is the right to receive the excess of a reference rate over a given rate and
is analogous to a put option. A floor is the right to receive the excess of a
given rate over a reference rate and is analogous to a call option. Finally, a
collar is an instrument that combines a cap and a floor. That
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is, the buyer of a collar buys a cap and writes a floor, and the writer of a
collar writes a cap and buys a floor. The risks associated with caps, floors and
collars are similar to those associated with options. In addition, caps, floors
and collars are subject to risk of default by the counterparty because they are
privately negotiated instruments.
COMBINED TRANSACTIONS. Unless otherwise limited by a Fund's prospectus or
herein, each Fund may enter into multiples of the forwards, futures and options
transactions described above, including multiple options transactions, multiple
futures transactions, multiple foreign currency transactions (including forward
foreign currency exchange contracts) and any combination of futures, options and
foreign currency transactions, instead of a single transaction, as part of a
single portfolio management or hedging strategy when, in the opinion of the
Adviser, it is in the best interest of the Fund to do so. A combined
transaction, while part of a single strategy, may contain elements of risk that
are present in each of its component transactions and will be structured in
accordance with applicable SEC regulations and SEC staff guidelines.
RISKS OF OPTIONS ON FUTURES CONTRACTS, FORWARD CONTRACTS AND OPTIONS ON
FOREIGN CURRENCIES. Options on foreign currencies and forward contracts are not
traded on contract markets regulated by the CFTC or (with the exception of
certain foreign currency options) by the SEC. To the contrary, such instruments
are traded through financial institutions acting as market-makers, although
foreign currency options are also traded on certain national securities
exchanges, such as the Philadelphia Stock Exchange and the Chicago Board Options
Exchange, subject to SEC regulation. Similarly, options on currencies may be
traded over-the-counter. In an over-the-counter trading environment, many of the
protections afforded to exchange participants will not be available. For
example, there are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a period of time.
Although the purchase of an option cannot lose more than the amount of the
premium plus related transaction costs, this entire amount could be lost.
Moreover, the option writer and a trader of forward contracts could lose amounts
substantially in excess of their initial investments.
Options on foreign currencies traded on national securities exchanges are
within the jurisdiction of the SEC, as are other securities traded on such
exchanges. As a result, many of the protections provided to traders on organized
exchanges will be available with respect to such transactions. In particular,
all foreign currency option positions entered into on a national securities
exchange are cleared and guaranteed by the OCC, thereby reducing the risk of
counterparty default. Furthermore, a liquid secondary market in options traded
on a national securities exchange may be more readily available than in the
over-the-counter market, potentially permitting a Fund to liquidate open
positions at a profit prior to exercise or expiration, or to limit losses in the
event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options, however,
is subject to the risks of the availability of a liquid secondary market
described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effect of other
political and economic events. In addition, exchange-traded options of foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices or prohibitions, on exercise.
In addition, futures contracts, options on futures contracts, forward
contracts and options on foreign currencies may be traded on foreign exchanges.
Such transactions are subject to the risk of governmental actions affecting
trading in or the prices of foreign currencies or securities. The value of such
positions also could be adversely affected by (i) other complex foreign
political and economic factors, (ii) lesser availability than in the United
States of data on which to make trading decision, (iii) delays in the Fund's
ability to act upon economic events occurring in foreign markets during non
business hours in the United States, (iv) the imposition of different exercise
and settlement terms and procedures and margin requirements than in the United
States, and (v) lesser trading volume.
STRUCTURED NOTES. Structured Notes are derivatives on which the amount of
principal repayment and/or interest payments is based upon the movement of one
or more factors. These factors may include, but are not limited to, currency
exchange rates, interest rates (such as the prime lending rate and LIBOR) and
stock indices such as the S&P 500 Index. In some cases, the impact of the
movements of these factors may increase or decrease through the use of
multipliers or deflators. The Funds may use structured notes to tailor their
investments to the specific risks and returns the Adviser is willing to accept
while avoiding or reducing certain other risks.
SWAP CONTRACTS. A swap contract is an agreement to exchange the return
generated by one instrument for the return generated by another instrument. The
payment streams are calculated by reference to a specified index and agreed upon
notional amount. The term "specified index" may include, but is not limited to,
currencies, fixed interest rates, prices, total return on interest rate indices,
fixed income indices, stock indices and commodity indices (as well as amounts
derived from arithmetic operations on these indices). For example, a Fund may
agree to swap the return generated by a fixed-income index for the return
generated by a second fixed-income index. The currency swaps in which a Fund may
enter will generally involve an
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agreement to pay interest streams in one currency based on a specified index in
exchange for receiving interest streams denominated in another currency. Such
swaps may involve initial and final exchanges that correspond to the agreed upon
notional amount.
The swaps in which the noted Funds may engage also include rate caps, floors
and collars under which one party pays a single or periodic fixed amount(s) (or
premium), and the other party pays periodic amounts based on the movement of a
specified index. Swaps do not involve the delivery of securities, other
underlying assets, or principal. Accordingly, the risk of loss with respect to
swaps is limited to the net amount of payments that the Fund is contractually
obligated to make. If the other party to a swap defaults, the Fund's risk of
loss consists of the net amount of payments that the Fund is contractually
entitled to receive. Currency swaps usually involve the delivery of the entire
principal value of one designated currency in exchange for the other designated
currency. Therefore, the entire principal value of a currency swap is subject to
the risk that the other party to the swap will default on its contractual
delivery obligations. If there is a default by the counterparty, the Fund may
have contractual remedies pursuant to the agreements related to the transaction.
The swap market has grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become relatively liquid. Caps, floors, and collars are more recent innovations
for which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.
Funds will usually enter into swaps on a net basis, i.e., the two payment
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. The Fund's obligations under a swap
agreement will be accrued daily (offset against any amounts owing to the
portfolio) and any accrued but unpaid net amounts owed to a swap counterparty
will be covered by the maintenance of a segregated account consisting of cash or
liquid securities, to avoid any potential leveraging of the Fund. To the extent
that these swaps, caps, floors, and collars are entered into for hedging
purposes, the Adviser believes such obligations do not constitute "senior
securities" under the 1940 Act and, accordingly, will not treat them as being
subject to the Fund's borrowing restrictions. Funds may enter into OTC
derivatives transactions (swaps, caps, floors, puts, etc., but excluding foreign
exchange contracts) with counterparties that are approved by the Adviser in
accordance with guidelines established by the Board of Directors. These
guidelines provide for a minimum credit rating for each counterparty and various
credit enhancement techniques (for example, collateralization of amounts due
from counterparties) to limit exposure to counterparties with ratings below AA.
The use of swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. If the Adviser is incorrect in its forecasts of market
values, interest rates, and currency exchange rates, the investment performance
of the portfolio would be less favorable than it would have been if this
investment technique were not used.
U.S. GOVERNMENT OBLIGATIONS
Examples of types of U.S. Government obligations include U.S. Treasury
Bills, Treasury Notes and Treasury Bonds and the obligations of Federal Home
Loan Banks, Federal Farm Credit Banks, Federal Land Banks, the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Federal National Mortgage Association,
Government National Mortgage Association, General Services Administration,
Student Loan Marketing Association, Central Bank for Cooperatives, Federal Home
Loan Mortgage Corporation, Federal Intermediate Credit Banks, Maritime
Administration, International Bank for Reconstruction and Development (the
"World Bank"), the Asian-American Development Bank and the Inter-American
Development Bank.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Funds may purchase securities on a when-issued or delayed delivery
basis. In such transactions, instruments are bought with payment and delivery
taking place in the future in order to secure what is considered to be an
advantageous yield or price at the time of the transaction. The payment
obligation and the interest rates that will be received are each fixed at the
time a Fund enters into the commitment, and no interest accrues to the Fund
until settlement. Thus, it is possible that the market value at the time of
settlement could be higher or lower than the purchase price if the general level
of interest rates has changed. Because the Fund relies on the buyer or seller,
as the case may be, to consummate the transaction, failure by the other party to
complete the transaction may result in the Fund missing the opportunity of
obtaining a price or yield considered to be advantageous. When the Fund is the
buyer in such a transaction, however, it will maintain, in a segregated account
with its custodian, cash or portfolio securities having an aggregate value equal
to the amount of such purchase commitments until payment is made.
ZERO COUPON BONDS
Zero coupon bonds is a term used to describe notes and bonds which have been
stripped of their unmatured interest coupons, or the coupons themselves, and
also receipts or certificates representing interest in such stripped debt
obligations and coupons. The timely payment of coupon interest and principal on
zero coupon bonds issued by the U.S. Treasury remains guaranteed by the "full
faith and credit" of the United States government.
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A zero coupon bond does not pay interest. Instead, it is issued at a
substantial discount to its "face value"--what it will be worth at maturity. The
difference between a security's issue or purchase price and its face value
represents the imputed interest an investor will earn if the security is held
until maturity. For tax purposes, a portion of this imputed interest is deemed
to be income received by zero coupon bondholders each year. Each Fund, which
expects to qualify as a regulated investment company, intends to pass along such
interest as a component of the Fund's distributions of net investment income.
Zero coupon bonds may offer investors the opportunity to earn higher yields
than those available on U.S. Treasury bonds of similar maturity. However, zero
coupon bond prices may also exhibit greater price volatility than ordinary debt
securities because of the manner in which their principal and interest is
returned to the investor.
Zero Coupon Treasury Bonds are sold under a variety of different names, such
as: Certificate of Accrual on Treasury Securities ("CATS"), Treasury Receipts
("TRs"), Separate Trading of Registered Interest and Principal of Securities
("STRIPS") and Treasury Investment Growth Receipts ("TIGERS").
INVESTMENT RESTRICTIONS
Each Fund has adopted certain investment policies which are either
fundamental investment limitations or non-fundamental investment limitations.
Fundamental investment limitations may not be changed without approval by the
vote of a majority of its outstanding voting securities which is defined by the
1940 Act as the lesser of: (1) 67% or more of the voting securities of the Fund
present at a meeting, if the holders of more than 50% of the outstanding voting
securities of the Fund are present or represented by proxy, or (2) more than 50%
of the outstanding voting securities of the Fund. Non-fundamental investment
limitations may be changed by the Board of Directors of the Company without
shareholder approval.
Each Fund is designated as either a diversified fund or a non-diversified
fund as those terms are defined under the 1940 Act. Like fundamental investment
restrictions, a fund which is designated as a diversified fund may not change
its status to a non-diversified fund without approval by the vote of a majority
of its outstanding voting securities. The following Funds are diversified funds:
American Value Fund, Asian Growth Fund, Equity Growth Fund, European Equity
Fund, Global Equity Allocation Fund, Global Equity Fund, Growth and Income Fund
II, High Yield and Total Return Fund, Japanese Equity Fund, Mid Cap Growth Fund,
Tax Managed Global Franchise Fund, and Value Fund. The following Funds are
non-diversified funds: Emerging Markets Debt Fund, Emerging Markets Fund, Focus
Equity Fund, Global Fixed Income Fund, International Magnum Fund, Latin American
Fund, and Worldwide High Income Fund. As described in the prospectuses for the
non-diversified funds, such funds may invest a greater portion of their assets
in a more limited number of issuers than diversified funds, and therefore,
non-diversified funds are subject to greater risk because the changes in the
financial condition of a single issuer may cause greater fluctuation in the
value of such funds' shares.
For the purpose of describing fundamental investment limitations, the Funds
have been divided into two separate groups, which limitations apply only to the
Funds that form a part of that group. The groups are comprised as follows:
<TABLE>
<S> <C>
Category I Funds: American Value Fund, Asian Growth Fund, Emerging Markets
Fund, European Equity Fund, Focus Equity Fund, Global Equity
Allocation Fund, Global Fixed Income Fund, Growth and Income
Fund II, High Yield & Total Return Fund, International
Magnum Fund, Japanese Equity Fund, Latin American Fund and
Worldwide High Income Fund.
Category II Funds: Emerging Markets Debt Fund, Equity Growth Fund, Global
Equity Fund, Mid Cap Growth Fund Tax Managed Global
Franchise Fund, and Value Fund.
</TABLE>
CATEGORY I FUNDS
The following are fundamental investment limitations with respect to the
Category I Funds. No Category I Fund will:
(1) invest in commodities, except that each of the American Value Fund,
Emerging Markets Fund, European Equity Fund, Focus Equity Fund, Growth and
Income Fund II, Latin American Fund and Worldwide High Income Fund may invest in
futures contracts and options to the extent that not more than 5% of its total
assets are required as deposits to secure obligations under futures contracts
and not more than 20% of its total assets are invested in futures contracts and
options at any time.
(2) purchase or sell real estate or real estate limited partnerships,
although it may purchase and sell securities of companies which deal in real
estate and may purchase and sell securities which are secured by interests in
real estate.
(3) underwrite the securities of other issuers.
(4) invest for the purpose of exercising control over management of any
company.
(5) invest more than 5% of its total assets in securities of companies
which have (with predecessors) a record of less than three years' continuous
operation.
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(6) except with respect to the Latin American Fund, acquire any securities
of companies within one industry if, as a result of such acquisition, more than
25% of the value of the Fund's total assets would be invested in securities of
companies within such industry; provided, however, that there shall be no
limitation on the purchase of obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities.
(7) write or acquire options or interests in oil, gas or other mineral
exploration or development programs or leases.
(8) purchase on margin or sell short except as specified above in (1) and
except that the Emerging Markets Fund, European Equity Fund, Focus Equity Fund,
Latin American Fund and Worldwide High Income Fund may enter into short sales in
accordance with its investment objective and policies.
(9) purchase or retain securities of an issuer if those officers and
Directors of the Company or its investment adviser owning more than 1/2 of 1% of
such securities together own more than 5% of such securities.
(10) borrow, except from banks and as a temporary measure for extraordinary
or emergency purposes and then, in no event, in excess of 10% of the Fund's
total assets valued at the lower of market or cost and a Fund may not purchase
additional securities when borrowings exceed 5% of total assets, except that the
Growth and Income Fund II, Latin American Fund and Worldwide High Income Fund
may enter into reverse repurchase agreements in accordance with its investment
objective and policies and except that each of the Focus Equity Fund, Latin
American Fund and Worldwide High Income Fund may borrow amounts up to 33 1/3% of
its total assets (including the amount borrowed), less all liabilities and
indebtedness other than the borrowing.
(11) pledge, mortgage, or hypothecate any of its assets to an extent greater
than 10% of its total assets at fair market value, except that each of the Focus
Equity Fund, Latin American Fund and Worldwide High Income Fund may pledge,
mortgage or hypothecate its assets to secure borrowings in amounts up to 33 1/3%
of its assets (including the amount borrowed).
(12) invest more than an aggregate of 15% of the total assets of the Fund,
determined at the time of investment, in illiquid assets, including repurchase
agreements having maturities of more than seven days or invest in fixed time
deposits with a duration of from two business days to seven calendar days if
more than 10% of the Fund's total assets would be invested in these time
deposits; provided, however, that no Fund shall invest (i) more than 10% of its
total assets in securities subject to legal or contractual restrictions on
resale, except that the High Yield & Total Return Fund may invest up to 20% of
its total assets in 144A Securities (as defined in the Statement of Additional
Information), and (ii) in fixed time deposits with a duration of over seven
calendar days.
(13) invest its assets in securities of any investment company, except by
purchase in the open market involving only customary brokers' commissions or in
connection with mergers, acquisitions of assets or consolidations and except as
may otherwise be permitted by the 1940 Act.
(14) issue senior securities.
(15) make loans except (i) by purchasing bonds, debentures or similar
obligations (including repurchase agreements, subject to the limitation
described in (12) above) which are publicly distributed, and (ii) by lending its
portfolio securities to banks, brokers, dealers and other financial institutions
so long as such loans are not inconsistent with the 1940 Act or the rules and
regulations or interpretations of the SEC thereunder.
(16) except for the Emerging Markets Fund, Focus Equity Fund, Global Fixed
Income Fund, International Magnum Fund, Latin American Fund and Worldwide High
Income Fund, purchase more than 10% of any class of the outstanding securities
of any issuer.
(17) except for the Emerging Markets Fund, Focus Equity Fund, Global Fixed
Income Fund, International Magnum Fund, Latin American Fund and Worldwide High
Income Fund, purchase securities of an issuer (except obligations of the U.S.
government and its instrumentalities) if as the result, with respect to 75% of
its total assets, more than 5% of the Fund's total assets, at market value,
would be invested in the securities of such issuer.
The following are non-fundamental investment limitations with respect to the
Category I Funds. As a matter of non-fundamental policy, no Category I Fund
will:
(1) purchase warrants if, by reason of such purchase, more than 5% of the
value of the Fund's net assets would be invested in warrants valued at the lower
of cost or market. Included in this amount, but not to exceed 2% of the value of
the Fund's net assets, may be warrants that are not listed on a nationally
recognized stock exchange.
(2) invest in oil, gas or other mineral leases; invest up to 25% of its
total assets in privately placed securities; or invest more than 15% of its net
assets in illiquid securities.
(3) except with respect to the Latin American Fund, acquire any securities
of companies within one industry if, as a result of such acquisition, 25% or
more of the value of the Fund's total assets would be invested in securities of
companies within such industry; provided, however, that there shall be no
limitation on the purchase of obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities.
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The percentage limitations contained in these restrictions apply at the time
of purchase of securities, except for limitations on borrowings and illiquid
securities which apply on an ongoing basis.
CATEGORY II FUNDS
The following are fundamental investment limitations with respect to the
Category II Funds. No Category II Fund will:
(1) invest in physical commodities or contracts on physical commodities,
except that any Fund may acquire physical commodities as a result of ownership
of securities or other instruments and may purchase or sell options or futures
contracts or invest in securities or other instruments backed by physical
commodities.
(2) purchase or sell real estate, although each Fund may purchase and sell
securities of companies which deal in real estate, other than real estate
limited partnerships, and may purchase and sell marketable securities which are
secured by interests in real estate.
(3) make loans except: (i) by purchasing debt securities in accordance with
their respective investment objectives and policies, or entering into repurchase
agreements, subject to the limitations described in non-fundamental investment
limitation (9) below, (ii) by lending their portfolio securities, and (iii) by
lending portfolio assets to other Funds, banks, brokers, dealers and other
financial institutions, so long as such loans are not inconsistent with the 1940
Act, the rules, regulations, interpretations or orders of the SEC and its staff
thereunder.
(4) except for the Emerging Markets Debt Fund, with respect to 75% of each
Fund's assets, purchase a security if, as a result, the Fund would hold more
than 10% (taken at the time of such investment) of the outstanding voting
securities of any issuer.
(5) except for the Emerging Markets Debt Fund, with respect to 75% of each
Fund's assets, purchase securities of any issuer if, as a result, more than 5%
of the Fund's total assets, taken at market value at the time of such
investment, would be invested in the securities of such issuer except that this
restriction does not apply to securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities.
(6) issue any class of senior security or sell any senior security of which
it is the issuer, except that each Fund may borrow money as a temporary measure
for extraordinary or emergency purposes, provided that such borrowings do not
exceed 33 1/3% of the Fund's total assets (including the amount borrowed) less
liabilities (exclusive of borrowings) and except that the Emerging Markets Debt
Fund may borrow from banks in an amount not in excess of 33 1/3% of its total
assets (including the amount borrowed) less liabilities in accordance with its
investment objective and policies. The term "senior security" shall not include
any temporary borrowings that do not exceed 5% of the value of a Fund's total
assets at the time the Fund makes such temporary borrowing. Notwithstanding the
foregoing limitations on issuing or selling senior securities and borrowing, a
Fund may engage in investment strategies that obligate it either to purchase
securities or segregate assets, or enter into reverse repurchase agreements,
provided that it will segregate assets to cover its obligations pursuant to such
transactions in accordance with applicable rules, orders, or interpretations of
the SEC or its staff. This investment limitation shall not preclude a Fund from
issuing multiple classes of shares in reliance on SEC rules or orders.
(7) underwrite the securities of other issuers (except to the extent that a
Fund may be deemed to be an underwriter within the meaning of the 1933 Act in
connection with the disposition of restricted securities).
(8) Acquire any securities of companies within one industry, if as a result
of such acquisition, more than 25% of the value of the Fund's total assets would
be invested in securities of companies within such industry; provided, however,
that there shall be no limitation on the purchase of obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities, when any
such Fund adopts a temporary defensive position.
The following are non-fundamental investment limitations with respect to the
Category II Funds. As a matter of non-fundamental policy, no Category II Fund
will:
(1) purchase on margin, except for use of short-term credit as may be
necessary for the clearance of purchases and sales of securities, provided that
each Fund may make margin deposits in connection with transactions in options,
futures, and options on futures.
(2) sell short unless the Fund (i) owns the securities sold short, (ii) by
virtue of its ownership of other securities, has the right to obtain securities
equivalent in kind and amount to the securities sold and, if the right is
conditional, the sale is made upon the same conditions, or (ii) maintains in a
segregated account on the books of the Fund's custodian an amount that, when
combined with the amount of collateral deposited with the broker in connection
with the short sale, equals the current market value of the security sold short
or such other amount as the SEC or its staff may permit by rule, regulation,
order, or interpretation, except that the Emerging Markets Debt Fund may from
time to time sell securities short without limitation but consistent with
applicable legal requirements as stated in its Prospectus; provided that
transactions in futures contracts and options are not deemed to constitute
selling securities short.
22
<PAGE>
(3) purchase or retain securities of an issuer if those Officers and
Directors of the Company or any of its investment advisers owning more than 1/2
of 1% of such securities together own more than 5% of such securities.
(4) borrow money other than from banks or other Funds of the Company,
provided that a Fund may borrow from banks or other Funds of the Company so long
as such borrowing is not inconsistent with the 1940 Act or the rules,
regulations, interpretations or orders of the SEC and its staff thereunder; or,
except for the Emerging Markets Debt Fund, purchase additional securities when
borrowings exceed 5% of total assets.
(5) pledge, mortgage or hypothecate assets in an amount greater than 10% of
its total assets in the case of the Emerging Markets Debt Fund, Equity Growth
Fund and Global Equity Funds or 50% of its total assets in the case of the Mid
Cap Growth Fund and Value Fund, provided that each Fund may segregate assets
without limit in order to comply with the requirements of Section 18(f) of the
1940 Act and applicable rules, regulations or interpretations of the SEC and its
staff.
(6) invest more than an aggregate of 15% of the net assets of the Fund in
illiquid securities provided that this limitation shall not apply to any
investment in securities that are not registered under the 1933 Act but that can
be sold to qualified institutional investors in accordance with Rule 144A under
the 1933 Act and are determined to be liquid securities under guidelines or
procedures adopted by the Board of Directors.
(7) invest for the purpose of exercising control over management of any
company.
(8) invest its assets in securities of any investment company, except by
purchase in the open market involving only customary brokers' commissions or in
connection with mergers, acquisitions of assets or consolidations and except as
may otherwise be permitted by the 1940 Act.
(9) in the case of the Emerging Markets Debt Fund, Equity Growth Fund and
Global Equity Fund, make loans as described in fundamental investment
limitations 3(ii) and 3(iii), above, in an amount exceeding 33 1/3% of its total
assets.
If a percentage limitation on investment or utilization of assets as set
forth above is adhered to at the time an investment is made, a later change in
percentage resulting from changes in the value or total cost of the Fund's
assets will not be considered a violation of the restriction, and the sale of
securities will not be required, except for the limitation on borrowings and
illiquid securities which apply on an ongoing basis.
DIRECTORS AND OFFICERS
The business and affairs of the Funds are managed under the direction of the
Company's Board of Directors and each Fund's officers appointed by the Board of
Directors. The tables below list the directors and officers and their principal
occupations for the last five years and their affiliations, if any, with
Van Kampen Investments Inc. ("Van Kampen Investments"), Van Kampen Investment
Advisory Corp. ("Advisory Corp."), Van Kampen Asset Management Inc. ("Asset
Management"), Van Kampen Funds Inc. (the "Distributor"), Van Kampen Management
Inc., Van Kampen Advisors Inc., Van Kampen Insurance Agency of Illinois Inc.,
Van Kampen Insurance Agency of Texas Inc., Van Kampen System Inc., Van Kampen
Recordkeeping Services Inc., American Capital Contractual Services, Inc.,
Van Kampen Trust Company, Van Kampen Exchange Corp. and Van Kampen Investor
Services Inc. ("Investor Services"). Advisory Corp. and Asset Management
sometimes are referred to herein collectively as the "Advisers". For purposes
hereof, the term "Fund Complex" includes each of the open-end investment
companies advised by the Advisers (excluding Van Kampen Exchange Fund).
DIRECTORS
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- --------------------- --------------------------
<S> <C>
J. Miles Branagan......................... Private investor. Trustee/Director of each of the funds in
1632 Morning Mountain Road the Fund Complex. Co-founder, and prior to August 1996,
Raleigh, NC 27614 Chairman, Chief Executive Officer and President, MDT
Date of Birth: 07/14/32 Corporation (now known as Getinge/Castle, Inc., a subsidiary
of Getinge Industrier AB), a company which develops,
manufactures, markets and services medical and scientific
equipment.
Jerry D. Choate........................... Director of Amgen Inc., a biotechnological company.
Barrington Place, Building 4 Trustee/Director of each of the funds in the Fund Complex.
18 E. Dundee Road, Suite 101 Prior to January 1999, Chairman and Chief Executive Officer
Barrington, IL 60010 of The Allstate Corporation ("Allstate") and Allstate
Date of Birth: 09/16/38 Insurance Company. Prior to January 1995, President and
Chief Executive Officer of Allstate. Prior to August 1994,
Mr. Choate held various management positions at Allstate.
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- --------------------- --------------------------
<S> <C>
Linda Hutton Heagy........................ Managing Partner of Heidrick & Stuggles, an executive search
Sears Tower firm. Trustee/Director of each of the funds in the Fund
233 South Wacker Drive Complex. Prior to 1997, Partner, Ray & Berndtson, Inc., an
Suite 7000 executive recruiting and management consulting firm.
Chicago, IL 60606 Formerly, Executive Vice President of ABN AMRO, N.A., a
Date of Birth: 06/03/48 Dutch bank holding company. Prior to 1992, Executive Vice
President of La Salle National Bank. Trustee on the
University of Chicago Hospitals Board, Vice Chair of the
Board of The YMCA of Metropolitan Chicago and a member of
the Women's Board of the University of Chicago. Prior to
1996, Trustee of The International House Board.
R. Craig Kennedy.......................... President and Director, German Marshall Fund of the United
11 DuPont Circle, N.W. States, an independent foundation created to deepen
Washington, D.C. 20016 understanding, promote collaboration and stimulate exchanges
Date of Birth: 02/29/52 of practical experience between Americans and Europeans.
Trustee/Director of each of the 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.
Mitchell M. Merin*........................ President and Chief Operating Officer of Asset Management of
Two World Trade Center Morgan Stanley Dean Witter since December 1998. President
66th Floor and Director since April 1997 and Chief Executive Officer
New York, NY 10048 since June 1998 of Morgan Stanley Dean Witter Advisors Inc.
Date of Birth: 08/13/53 and Morgan Stanley Dean Witter Services Company Inc.
Chairman, Chief Executive Officer and Director of Morgan
Stanley Dean Witter Distributors Inc. since June 1998.
Chairman and Chief Executive Officer since June 1998, and
Director since January 1998, of Morgan Stanley Dean Witter
Trust FSB. Director of various Morgan Stanley Dean Witter
subsidiaries. President of the Morgan Stanley Dean Witter
Funds and Discover Brokerage Index Series since May 1999.
Trustee/Director of each of the funds in the Fund Complex,
and Vice President of other investment companies advised by
the Advisers and their affiliates. Previously Chief
Strategic Officer of Morgan Stanley Dean Witter
Advisors Inc. and Morgan Stanley Dean Witter Services
Company Inc. and Executive Vice President of Morgan Stanley
Dean Witter Distributors Inc. April 1997-June 1998, Vice
President of the Morgan Stanley Dean Witter Funds and
Discover Brokerage Index Series May 1997-April 1999, and
Executive Vice President of Dean Witter, Discover & Co.
Jack E. Nelson............................ President and owner, Nelson Investment Planning
423 Country Club Drive Services, Inc., a financial planning company and registered
Winter Park, FL 32789 investment adviser in the State of Florida. President and
Date of Birth: 02/13/36 owner, Nelson Ivest Brokerage Services Inc., a member of the
National Association of Securities Dealers, Inc. and
Securities Investors Protection Corp. Trustee/Director of
each of the funds in the Fund Complex.
Richard F. Powers, III*................... Chairman, President and Chief Executive Officer of Van
1 Parkview Plaza Kampen Investments. Chairman, Director and Chief Executive
P.O. Box 5555 Oficer of the Advisers, the Distributor, Van Kampen
Oakbrook Terrace, IL 60181-5555 Advisors Inc. and Van Kampen Management Inc. Director and
Date of Birth: 02/02/46 officer of certain other subsidiaries of Van Kampen
Investments. Trustee/Director and President of each of the
funds in the Fund Complex. Trustee, President and Chairman
of the Board of other investment companies advised by the
Advisers and their affiliates, and Chief Executive Officer
of Van Kampen Exchange Fund. Prior to May 1998, Executive
Vice President and Director of Marketing at Morgan Stanley
Dean Witter and Director of Dean Witter Discover & Co. and
Dean Witter Realty. Prior to 1996, Director of Dean Witter
Reynolds Inc.
Phillip B. Rooney......................... Vice Chairman (since April 1997) and Director (since 1994)
One ServiceMaster Way of The ServiceMaster Company, a business and consumer
Downers Grove, IL 60515 services company. Director of Illinois Tool Works, Inc., a
Date of Birth: 07/08/44 manufacturing company and the Urban Shopping Centers Inc., a
retail mall management company. Trustee, University of Notre
Dame. Trustee/ Director of each of the funds in the Fund
Complex. Prior to 1998, Director of Stone Smurfit Container
Corp., a paper manufacturing company. From May 1996 through
February 1997 he was President, Chief Executive Officer and
Chief Operating Officer of Waste Management, Inc., an
environmental services company, and from November 1984
through May 1996 he was President and Chief Operating
Officer of Waste Management, Inc.
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- --------------------- --------------------------
<S> <C>
Fernando Sisto............................ Emeritus Professor Prior to August 1996, a George M. Bond
155 Hickory Lane Chaired Professor with Stevens Institute of Technology and
Closter, NJ 07624 prior to 1995, Dean of the Graduate School, Stevens
Date of Birth: 08/02/24 Institute of Technology. Director, Dynalysis of Princeton, a
firm engaged in engineering research. Trustee/Director of
each of the funds in the Fund Complex.
Wayne W. Whalen*.......................... Partner in the law firm of Skadden, Arps, Slate, Meagher &
333 West Wacker Drive Flom (Illinois), legal counsel to the funds in the Fund
Chicago, IL 60606 Complex, and other open-end and closed-end funds advised by
Date of Birth: 08/22/39 the Advisers or Van Kampen Management Inc. Trustee/Director
of each of the funds in the Fund Complex, and
Trustee/Managing General Partner of other open-end and
closed-end funds advised by the Advisers or Van Kampen
Management Inc.
Suzanne H. Woolsey, Ph.D.................. Chief Operating Officer of the National Academy of
2101 Constitution Ave., N.W. Sciences/National Research Council, an independent,
Room 206 federally chartered policy institution, since 1993. Director
Washington, D.C. 20418 of Neurogen Corporation, a pharmaceutical company, since
Date of Birth: 12/27/41 January 1998. Director and former Chairman of the German
Marshall Fund of the United States Trustee of Colorado
College, Vice Chair of the Board of the Council for
Excellence in Government. Trustee/Director of each of the
funds in the Fund Complex. Prior to 1993, Executive Director
of the Commission on Behavioral and Social Sciences and
Education at the National Academy of Sciences/ National
Research Council. From 1980 through 1989, Partner of
Coopers & Lybrand.
Paul G. Yovovich.......................... Private investor. Director of 3Com Corporation, which
Sears Tower provides information access products and network system
233 South Wacker Drive solutions, COMARCO, Inc., a wireless communications products
Suite 9700 company and APAC Customer Services, Inc., a provider of
Chicago, IL 60606 outsourced customer contact services. Trustee/Director of
Date of Birth: 10/29/53 each of the funds in the Fund Complex. Prior to May 1996,
President of Advance Ross Corporation, an international
transaction services and pollution control equipment
manufacturing company.
</TABLE>
- --------------
* Such director is an "interested person" (within the meaning of
Section 2(a)(19) of the 1940 Act). Mr. Whalen is an interested person of the
Fund by reason of his firm currently acting as legal counsel to the Fund.
Messrs. Merin and Powers are interested persons of the Fund and the Advisers
by reason of their positions with Morgan Stanley Dean Witter or its
affiliates.
OFFICERS
Messrs. McDonnell, Smith, Santo, Hegel, Sullivan and Wood are located at 1
Parkview Plaza, PO Box 5555, Oakbrook Terrace, IL 60181-5555. Messrs. Boyd and
Morell and Ms. Loden are located at 2800 Post Oak Boulevard, Houston TX 77056.
Mr. Stadler is located at 1221 Avenue of the Americas, New York, NY 10020.
<TABLE>
<CAPTION>
NAME, AGE, POSITIONS AND PRINCIPAL OCCUPATIONS
OFFICES WITH FUND DURING PAST 5 YEARS
- ----------------- -------------------
<S> <C>
Dennis J. McDonnell....................... Executive Vice President and Director of Van Kampen
Date of Birth: 05/20/42 Investments. President, Chief Operating Officer and Director
Executive Vice President and of the Advisers, Van Kampen Advisors Inc., and Van Kampen
Chief Investment Officer Management Inc. Executive Vice President and Chief
Investment Officer of each of the funds in the Fund Complex.
Executive Vice President, Chief Investment Officer and
Trustee/Managing General Partner of other investment
companies advised by the Advisers or Van Kampen Management
Inc. Prior to July 1998, Director and Executive Vice
President of VK/AC Holding, Inc. (predecessor of Van Kampen
Investments). Prior to April 1998, President and Director of
Van Kampen Merritt Equity Advisors Corp. Prior to
April 1997, Mr. McDonnell was Director of Van Kampen Merritt
Equity Holdings Corp. Prior to September 1996,
Mr. McDonnell was Chief Executive Officer and Director of
MCM Group, Inc. and McCarthy, Crisanti & Maffei, Inc. a
financial research firm, and Chairman and Director of MCM
Asia Pacific Company, Limited and MCM (Europe) Limited.
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITIONS AND PRINCIPAL OCCUPATIONS
OFFICES WITH FUND DURING PAST 5 YEARS
- ----------------- -------------------
<S> <C>
A. Thomas Smith III....................... Executive Vice President, General Counsel, Secretary and
Date of Birth: 12/14/56 Director of Van Kampen Investments, the Advisers, Van Kampen
Vice President and Secretary Advisors Inc., Van Kampen Management Inc., the Distributor,
American Capital Contractual Services, Inc., Van Kampen
Exchange Corp., Van Kampen Recordkeeping Services Inc.,
Investor Services, Van Kampen Insurance Agency of Illinois
Inc. and Van Kampen System Inc. Vice President and
Secretary/Vice President, Principal Legal Officer and
Secretary of other investment companies advised by the
Advisers or their affiliates. Vice President and Secretary
of each of the funds in the Fund Complex. Prior to
January 1999, Vice President and Associate General Counsel
to New York Life Insurance Company ("New York Life"), and
prior to March 1997, 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,
Staff Attorney at the Securities and Exchange Commission,
Division of Investment Management, Office of Chief Counsel.
Michael H. Santo.......................... Executive Vice President, Chief Administrative Officer and
Date of Birth: 10/25/55 Director of Van Kampen Investments, the Advisers, the
Vice President Distributor, Van Kampen Advisors Inc, Van Kampen Management
Inc. and Van Kampen Investor Services Inc. Director or
officer of certain other subsidiaries of Van Kampen
Investments. Vice President of each of the funds in the Fund
Complex and certain other investment companies advised by
the Advisers and their affiliates. Prior to 1998, Senior
Vice President and Senior Planning Officer for Individual
Asset Management of Morgan Stanley Dean Witter and its
predecessor since 1994. From 1990-1994, First Vice President
and Assistant Controller in Dean Witter's controller's
department.
Peter W. Hegel............................ Executive Vice President of the Advisers, Van Kampen
Date of Birth: 06/25/56 Management Inc. and Van Kampen Advisors Inc. Vice President
Vice President of each of the funds in the Fund Complex and certain other
investment companies advised by the Advisers or their
affiliates. Prior to September 1996, Director of McCarthy,
Crisanti & Maffei, Inc, a financial research company.
Stephen L. Boyd........................... Vice President and Chief Investment Officer for equity
Date of Birth: 11/16/40 investments at the Advisers. Vice President of each of the
Vice President funds in the Fund Complex and certain other investment
companies advised by the Advisers or their affiliates. Prior
to October 1998, Vice President and Senior Portfolio Manager
with AIM Capital Management, Inc. Prior to February 1998,
Senior Vice President of Van Kampen American Capital Asset
Management, Inc., Van Kampen American Capital Investment
Advisory Corp. and Van Kampen American Capital
Management, Inc.
Joseph P. Stadler......................... Since 1998, Principal of Morgan Stanley & Co. Incorporated
Date of Birth: 06/07/54 and Morgan Stanley Dean Witter Investment Management Inc. He
Vice President joined Morgan Stanley & Co. Incorporated and Morgan Stanley
Dean Witter Investment Management Inc. in 1993. Accountant
with Price Waterhouse LLP (now PricewaterhouseCoopers LLP)
(an accounting firm) from 1983 to 1993. Vice President of
various U.S. registered investment companies managed by
Morgan Stanley Dean Witter Investment Management Inc.
John L. Sullivan.......................... Senior Vice President of Van Kampen Investments and the
Date of Birth: 08/20/55 Advisers. Treasurer, Vice President and Chief Financial
Treasurer, Vice President and Chief Officer of each of the funds in the Fund Complex and certain
Financial Officer other investment companies advised by the Advisers or their
affiliates.
Curtis W. Morell.......................... Senior Vice President of the Advisers, Vice President and
Date of Birth: 08/04/46 Chief Accounting Officer of each of the funds in the Fund
Vice President and Chief Accounting Complex and certain other investment companies advised by
Officer the Advisers or their affiliates.
Edward C. Wood III........................ Senior Vice President of the Advisers, Van Kampen
Date of Birth: 01/11/56 Investments and Van Kampen Management Inc. Senior Vice
Vice President President and Chief Operating Officer of the Distributor.
Vice President of each of the funds in the Fund Complex and
certain other investment companies advised by the Advisers
or their affiliates.
Tanya M. Loden............................ Vice President of Van Kampen Investments and the Advisers.
Date of Birth: 11/19/59 Controller of each of the funds in the Fund Complex and
Controller other investment companies advised by the Advisers or their
affiliates.
</TABLE>
26
<PAGE>
Each trustee/director holds the same position with each of the funds in the
Fund Complex. As of the date of this Statement of Additional Information, there
are 65 operating funds in the Fund Complex. Each trustee/director who is not an
affiliated person of Van Kampen Investments, the Advisers or the Distributor
(each a "Non-Affiliated Trustee") is compensated by an annual retainer and
meeting fees for services to the funds in the Fund Complex. Each fund in the
Fund Complex 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.
COMPENSATION TABLE
<TABLE>
<CAPTION>
FUND COMPLEX
---------------------------------------------------------
AGGREGATE
AGGREGATE ESTIMATED TOTAL
COMPENSATION AGGREGATE PENSION MAXIMUM ANNUAL COMPENSATION
BEFORE DEFERRAL OR RETIREMENT BENEFITS FROM THE BEFORE DEFERRAL
FROM BENEFITS ACCRUED AS FUND UPON FROM FUND
NAME(1) THE COMPANY(2) PART OF EXPENSES(3) RETIREMENT(4) COMPLEX(5)
------- --------------- ------------------- ----------------- ---------------
<S> <C> <C> <C> <C>
J. Miles Branagan.............................. $ 22,100 $ 35,691 $ 60,000 $ 125,200
Jerry D. Choate(1)............................. 4,036 0 60,000 0
Linda Hutton Heagy............................. 22,100 3,861 60,000 112,800
R. Craig Kennedy............................... 22,100 2,652 60,000 125,200
Jack E. Nelson................................. 22,100 18,385 60,000 125,200
Phillip B. Rooney.............................. 19,100 6,002 60,000 125,200
Dr. Fernando Sisto............................. 22,100 68,615 60,000 125,200
Wayne W. Whalen................................ 22,100 12,658 60,000 125,200
Suzanne H. Woolsey(1).......................... 4,036 0 60,000 0
Paul G. Yovovich(1)............................ 15,283 0 60,000 25,300
</TABLE>
- --------------
(1) Directors not eligible for compensation are not included in the
Compensation Table. Mr. Yovovich became a member of the Board of Directors
for the Funds and other funds in the Fund Complex on October 22, 1998 and
therefore does not have a full calendar year of information to report.
Mr. Choate and Ms. Woolsey became members of the Board of Trustees for the
Funds and other funds in the Fund Complex on May 26, 1999 and therefore do
not have any 1998 calendar year information to report.
27
<PAGE>
(2) The amounts shown in this column represent the Aggregate Compensation
before Deferral from all operating series of the Company with respect to
the Company's fiscal period ended June 30, 1999. The details of aggregate
compensation before deferral for each series are shown in Table A below.
Certain directors' deferred compensation from the Company during the
fiscal period ended June 30, 1999; the aggregate compensation deferred
from all series of the Company is as follows: Mr. Branagan, $22,100;
Ms. Heagy, $22,100; Mr. Kennedy, $11,054; Mr. Nelson, $22,100;
Mr. Rooney, $19,100; Dr. Sisto, $11,054; Mr. Whalen, $22,100; and
Mr. Yovovich, $11,162. The details of amounts deferred for each series are
shown in Table B below. Amounts deferred are retained by the Funds and
earn a rate of return determined by reference to either the return on the
shares of the respective Fund or other funds in the Fund Complex as
selected by the respective Non-Affiliated Trustee, with the same economic
effect as if such Non-Affiliated Trustee had invested in one or more funds
in the Fund Complex. To the extent permitted by the 1940 Act, each Fund
may invest in securities of those funds selected by the Non-Affiliated
Trustees in order to match the deferred compensation obligation. The
cumulative deferred compensation (including interest) accrued with respect
to each director, including former directors, from all operating series of
the Company as of the Company's fiscal period ended June 30, 1999 is as
follows: Mr. Branagan, $40,043; Mr. Gaughan, $311; Ms. Heagy, $35,983;
Mr. Kennedy, $22,104; Mr. Miller, $1,715; Mr. Nelson, $48,568;
Mr. Robinson, $3,510; Mr. Rooney, $36,084; Dr. Sisto, $24,364;
Mr. Whalen, $41,735; and Mr. Yovovich, $11,996. The details of cumulative
deferred compensation (including interest) for each series of the Company
are shown in Table C. The deferred compensation plan is described above
the Compensation Table.
(3) The amounts shown in this column represent the sum of the retirement
benefits accrued by the operating investment companies in the Fund Complex
for each of the directors for the Funds' respective fiscal years ended in
1998. The retirement plan is described above the Compensation Table.
(4) For each director, this is the sum of the estimated maximum annual
benefits payable by the funds in the Fund Complex for each year of the
10-year period commencing in the year of such director's anticipated
retirement. The Retirement Plan is described above the Compensation Table.
Each Non-Affiliated Trustee has served as a member of the Board of
Directors since the year set forth in Table D below.
(5) The amounts shown in this column represent the aggregate compensation paid
by all funds in the Fund Complex as of December 31, 1998 before deferral
by the directors under the deferred compensation plan. Because the funds
in the Fund Complex have different fiscal year ends, the amounts shown in
this column are presented on a calendar year basis. Certain directors
deferred all or a portion of their aggregate compensation from the Fund
Complex during the calendar year ended December 31, 1998. The deferred
compensation earns a rate of return determined by reference to the return
on the shares of the funds in the Fund Complex as selected by the
respective Non-Affiliated Trustee, with the same economic effect as if
such Non-Affiliated Trustee had invested in one or more funds in the Fund
Complex. To the extent permitted by the 1940 Act, the Funds may invest in
securities of those investment companies selected by the Non-Affiliated
Trustees in order to match the deferred compensation obligation. The
Advisers and their affiliates also serve as investment adviser for other
investment companies; however, with the exception of Mr. Whalen, the
Non-Affiliated Trustees were not trustees of such investment companies.
Combining the Fund Complex with other investment companies advised by the
Advisers and their affiliates, Mr. Whalen received Total Compensation of
$285,825 during the calendar year ended December 31, 1998.
As of March , 2000, the directors and officers of the Funds owned as a
group % of the shares of the Van Kampen Tax Managed Global Franchise Fund,
and as a group owned less than 1% of the shares of each of the remaining Funds.
As of the date of this Statement of Additional Information, the following four
Funds had not yet commenced investment operations and therefore are not reported
in tables A-D below: Van Kampen Emerging Markets Debt Fund Van, Kampen Growth
and Income Fund II, Van Kampen Japanese Equity Fund and Van Kampen Mid Cap
Growth Fund.
28
<PAGE>
FISCAL YEAR 1999 AGGREGATE COMPENSATION FROM THE COMPANY AND EACH PORTFOLIO
TABLE A
<TABLE>
<CAPTION>
FUND NAME BRANAGAN CHOATE HEAGY KENNEDY NELSON ROONEY SISTO
- --------- --------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
American Value Fund................................... $2,086 $405 $2,086 $2,086 $2,086 $1,886 $2,086
Asian Growth Fund..................................... 1,350 238 1,350 1,350 1,350 1,150 1,350
Emerging Markets Fund................................. 1,356 233 1,356 1,356 1,356 1,156 1,356
Equity Growth Fund.................................... 1,241 215 1,241 1,241 1,241 1,041 1,241
European Equity Fund.................................. 1,003 203 1,003 1,003 1,003 803 1,003
Focus Equity Fund..................................... 1,521 285 1,521 1,521 1,521 1,321 1,521
Global Equity Allocation Fund......................... 2,011 386 2,011 2,011 2,011 1,811 2,011
Global Equity Fund.................................... 2,270 446 2,270 2,270 2,270 2,070 2,270
Global Fixed Income Fund.............................. 1,213 203 1,213 1,213 1,213 1,013 1,213
High Yield & Total Return Fund........................ 1,254 214 1,254 1,254 1,254 1,054 1,254
International Magnum Fund............................. 1,374 238 1,374 1,374 1,374 1,174 1,374
Latin American Fund................................... 1,283 218 1,283 1,283 1,283 1,083 1,283
Tax Managed Global Franchise Fund..................... 1,000 200 1,000 1,000 1,000 800 1,000
Value Fund............................................ 1,593 280 1,593 1,593 1,593 1,393 1,593
Worldwide High Income Fund............................ 1,545 272 1,545 1,545 1,545 1,345 1,545
------- ------ ------- ------- ------- ------- -------
Company Total....................................... $22,100 $4,036 $22,100 $22,100 $22,100 $19,100 $22,100
------- ------ ------- ------- ------- ------- -------
<CAPTION>
FUND NAME WHALEN WOOLSEY YOVOVICH
- --------- -------- -------- --------
<S> <C> <C> <C>
American Value Fund................................... $2,086 $405 $1,462
Asian Growth Fund..................................... 1,350 238 912
Emerging Markets Fund................................. 1,356 233 905
Equity Growth Fund.................................... 1,241 215 839
European Equity Fund.................................. 1,003 203 803
Focus Equity Fund..................................... 1,521 285 1,041
Global Equity Allocation Fund......................... 2,011 386 1,388
Global Equity Fund.................................... 2,270 446 1,589
Global Fixed Income Fund.............................. 1,213 203 810
High Yield & Total Return Fund........................ 1,254 214 841
International Magnum Fund............................. 1,374 238 925
Latin American Fund................................... 1,283 218 853
Tax Managed Global Franchise Fund..................... 1,000 200 800
Value Fund............................................ 1,593 280 1,078
Worldwide High Income Fund............................ 1,545 272 1,037
------- ------ -------
Company Total....................................... $22,100 $4,036 $15,283
------- ------ -------
</TABLE>
1999 AGGREGATE COMPENSATION DEFERRED FROM THE COMPANY AND EACH PORTFOLIO
TABLE B
<TABLE>
<CAPTION>
FUND NAME BRANAGAN CHOATE HEAGY KENNEDY NELSON ROONEY SISTO
- --------- --------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
American Value Fund................................... $ 2,086 $ 0 $ 2,086 $ 1,043 $ 2,086 $ 1,886 $ 1,043
Asian Growth Fund..................................... 1,350 0 1,350 675 1,350 1,150 675
Emerging Markets Fund................................. 1,356 0 1,356 678 1,356 1,156 678
Equity Growth Fund.................................... 1,241 0 1,241 621 1,241 1,041 621
European Equity Fund.................................. 1,003 0 1,003 502 1,003 803 502
Focus Equity Fund..................................... 1,521 0 1,521 761 1,521 1,321 761
Global Equity Allocation Fund......................... 2,011 0 2,011 1,006 2,011 1,811 1,006
Global Equity Fund.................................... 2,270 0 2,270 1,135 2,270 2,070 1,135
Global Fixed Income Fund.............................. 1,213 0 1,213 607 1,213 1,013 607
High Yield & Total Return Fund........................ 1,254 0 1,254 627 1,254 1,054 627
International Magnum Fund............................. 1,374 0 1,374 687 1,374 1,174 687
Latin American Fund................................... 1,283 0 1,283 642 1,283 1,083 642
Tax Managed Global Franchise Fund..................... 1,000 0 1,000 500 1,000 800 500
Value Fund............................................ 1,593 0 1,593 797 1,593 1,393 797
Worldwide High Income Fund............................ 1,545 0 1,545 773 1,545 1,345 773
------- ------ ------- ------- ------- ------- -------
Company Total....................................... $22,100 $ 0 $22,100 $11,054 $22,100 $19,100 $11,054
------- ------ ------- ------- ------- ------- -------
<CAPTION>
FUND NAME WHALEN WOOLSEY YOVOVICH
- --------- -------- -------- --------
<S> <C> <C> <C>
American Value Fund................................... $ 2,086 $ 0 $ 1,036
Asian Growth Fund..................................... 1,350 0 676
Emerging Markets Fund................................. 1,356 0 667
Equity Growth Fund.................................... 1,241 0 629
European Equity Fund.................................. 1,003 0 603
Focus Equity Fund..................................... 1,521 0 766
Global Equity Allocation Fund......................... 2,011 0 985
Global Equity Fund.................................... 2,270 0 1,121
Global Fixed Income Fund.............................. 1,213 0 606
High Yield & Total Return Fund........................ 1,254 0 627
International Magnum Fund............................. 1,374 0 682
Latin American Fund................................... 1,283 0 634
Tax Managed Global Franchise Fund..................... 1,000 0 600
Value Fund............................................ 1,593 0 778
Worldwide High Income Fund............................ 1,545 0 752
------- ------ -------
Company Total....................................... $22,100 $ 0 $11,162
------- ------ -------
</TABLE>
CUMULATIVE COMPENSATION DEFERRED (PLUS INTEREST) FROM THE COMPANY AND EACH
PORTFOLIO
TABLE C
<TABLE>
<CAPTION>
FUND NAME BRANAGAN CHOATE HEAGY KENNEDY NELSON ROONEY SISTO WHALEN
- --------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
American Value Fund................. $ 3,521 $ 0 $ 3,095 $ 1,838 $ 4,068 $ 3,371 $ 1,626 $ 3,506
Asian Growth Fund................... 2,435 0 2,070 1,273 2,810 2,266 1,122 2,425
Emerging Markets Fund............... 2,490 0 2,121 1,302 2,872 2,323 1,145 2,480
Equity Growth Fund.................. 1,434 0 1,360 745 1,678 1,227 678 1,424
European Equity Fund................ 1,153 0 1,095 597 1,339 937 549 1,143
Focus Equity Fund................... 2,637 0 2,262 1,378 3,048 2,470 1,217 2,625
Global Equity Allocation Fund....... 6,498 0 6,816 4,585 9,797 4,980 8,854 8,347
Global Equity Fund.................. 3,998 0 3,541 2,088 4,600 3,861 1,841 3,981
Global Fixed Income Fund............ 2,152 0 1,804 1,126 2,491 1,977 993 2,143
High Yield & Total Return Fund...... 2,212 0 1,861 1,157 2,560 2,037 1,020 2,203
International Magnum Fund........... 2,421 0 2,057 1,266 2,799 2,250 1,116 2,410
Latin American Fund................. 2,342 0 1,982 1,225 2,704 2,172 1,078 2,333
Tax Managed Global Franchise Fund... 1,150 0 1,092 596 1,336 934 547 1,139
Value Fund.......................... 2,827 0 2,439 1,478 3,265 2,667 1,302 2,815
Worldwide High Income Fund.......... 2,773 0 2,388 1,450 3,201 2,612 1,276 2,761
------- ------- ------- ------- ------- ------- ------- -------
Company Total..................... $40,043 $ 0 $35,983 $22,104 $48,568 $36,084 $24,364 $41,735
------- ------- ------- ------- ------- ------- ------- -------
<CAPTION>
FORMER DIRECTORS
------------------------------
FUND NAME WOOLSEY YOVOVICH GAUGHAN MILLER ROBINSON
- --------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
American Value Fund................. $ 0 $ 1,119 $ 0 $ 0 $ 0
Asian Growth Fund................... 0 725 0 0 0
Emerging Markets Fund............... 0 715 0 0 0
Equity Growth Fund.................. 0 674 0 0 0
European Equity Fund................ 0 645 0 0 0
Focus Equity Fund................... 0 823 0 0 0
Global Equity Allocation Fund....... 0 1,063 311 1,715 3,510
Global Equity Fund.................. 0 1,212 0 0 0
Global Fixed Income Fund............ 0 649 0 0 0
High Yield & Total Return Fund...... 0 672 0 0 0
International Magnum Fund........... 0 732 0 0 0
Latin American Fund................. 0 679 0 0 0
Tax Managed Global Franchise Fund... 0 642 0 0 0
Value Fund.......................... 0 838 0 0 0
Worldwide High Income Fund.......... 0 808 0 0 0
------- ------- ---- ------ ------
Company Total..................... $ 0 $11,996 $311 $1,715 $3,510
------- ------- ---- ------ ------
</TABLE>
29
<PAGE>
YEAR OF ELECTION TO EACH PORTFOLIO OF THE COMPANY
TABLE D
<TABLE>
<CAPTION>
FUND NAME BRANAGAN CHOATE HEAGY KENNEDY NELSON ROONEY SISTO
- --------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
American Value Fund........................... 1997 1999 1997 1997 1997 1997 1997
Asian Growth Fund............................. 1997 1999 1997 1997 1997 1997 1997
Emerging Markets Fund......................... 1997 1999 1997 1997 1997 1997 1997
Equity Growth Fund............................ 1997 1999 1997 1997 1997 1997 1997
European Equity Fund.......................... 1997 1999 1997 1997 1997 1997 1997
Focus Equity Fund............................. 1997 1999 1997 1997 1997 1997 1997
Global Equity Allocation Fund................. 1997 1999 1997 1997 1997 1997 1997
Global Equity Fund............................ 1997 1999 1997 1997 1997 1997 1997
Global Fixed Income Fund...................... 1997 1999 1997 1997 1997 1997 1997
High Yield & Total Return Fund................ 1997 1999 1997 1997 1997 1997 1997
International Magnum Fund..................... 1997 1999 1997 1997 1997 1997 1997
Latin American Fund........................... 1997 1999 1997 1997 1997 1997 1997
Tax Managed Global Franchise Fund............. 1997 1999 1997 1997 1997 1997 1997
Value Fund.................................... 1997 1999 1997 1997 1997 1997 1997
Worldwide High Income Fund.................... 1997 1999 1997 1997 1997 1997 1997
<CAPTION>
FUND NAME WHALEN WOOLSEY YOVOVICH
- --------- -------- -------- --------
<S> <C> <C> <C>
American Value Fund........................... 1997 1999 1998
Asian Growth Fund............................. 1997 1999 1998
Emerging Markets Fund......................... 1997 1999 1998
Equity Growth Fund............................ 1997 1999 1998
European Equity Fund.......................... 1997 1999 1998
Focus Equity Fund............................. 1997 1999 1998
Global Equity Allocation Fund................. 1997 1999 1998
Global Equity Fund............................ 1997 1999 1998
Global Fixed Income Fund...................... 1997 1999 1998
High Yield & Total Return Fund................ 1997 1999 1998
International Magnum Fund..................... 1997 1999 1998
Latin American Fund........................... 1997 1999 1998
Tax Managed Global Franchise Fund............. 1997 1999 1998
Value Fund.................................... 1997 1999 1998
Worldwide High Income Fund.................... 1997 1999 1998
</TABLE>
INVESTMENT ADVISORY AGREEMENTS
Each Fund and the Adviser are parties to an investment advisory agreement
(the "Advisory Agreement"). Under the Advisory Agreement, each Fund retains the
Adviser to manage the investment of its assets, including the placing of orders
for the purchase and sale of portfolio securities. The Adviser obtains and
evaluates economic, statistical and financial information to formulate and
implement the Fund's investment objectives. The Adviser also furnishes offices,
necessary facilities and equipment, provides administrative services, and
permits its officers and employees to serve without compensation as directors of
the Company or officers of the Fund if elected to such positions. The Funds pay
all charges and expenses of their respective day-to-day operations, including
the compensation of directors of the Company (other than those who are
affiliated persons of the Adviser, Distributor or Van Kampen Investments), the
charges and expenses of legal counsel and independent accountants, distribution
fees, service fees, custodian fees, the costs of providing reports to
shareholders, and all other ordinary business expenses not specifically assumed
by the Adviser. The Advisory Agreement also provides that the Adviser shall not
be liable to a Fund for any actions or omissions if it acted without willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations.
A Fund's average daily net assets are determined by taking the average of
all of the determinations of the net assets during a given calendar month. Such
fee is payable for each calendar month as soon as practicable after the end of
that month.
The Advisory Agreement also provides that, in the event the expenses of a
Fund for any fiscal year exceed the most restrictive expense limitation
applicable in the states where such Fund's shares are qualified for sale, the
compensation due the Adviser will be reduced by the amount of such excess and
that, if a reduction in and refund of the advisory fee is insufficient, the
Adviser will pay the Fund monthly an amount sufficient to make up the
deficiency, subject to readjustment during the year.
The Advisory Agreement may be continued from year to year if specifically
approved at least annually (a)(i) by a Fund's Board of Directors or (ii) by a
vote of a majority of such Fund's outstanding voting securities and (b) by the
affirmative vote of a 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.
30
<PAGE>
During the fiscal years ended June 30, 1999 and 1998, the Adviser received
the approximate advisory fees (net of fee waivers) from the Funds as set forth
in the table below. During the fiscal year ended June 30, 1997, MSWDIM was the
investment adviser for each Fund (except the Mid Cap Growth Fund and Value Fund)
and MAS was the investment adviser for the Mid Cap Growth Fund and Value Fund,
and they earned the approximate advisory fees (net of fee waivers) from the
respective Fund as set forth in the table below.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
FUND NAME JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1997
- --------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
American Value Fund............................ $5,367,000 $2,424,000 $ 297,000
Asian Growth Fund.............................. 1,023,000 1,557,000 4,057,000
Emerging Markets Debt Fund(1).................. -- -- --
Emerging Markets Fund.......................... 1,098,000 1,909,000 1,624,000
Equity Growth Fund(2).......................... 110,000 0 --
European Equity Fund(3)........................ 0 -- --
Focus Equity Fund.............................. 1,816,000 848,000 41,000
Global Equity Allocation Fund.................. 5,422,000 2,107,000 1,264,000
Global Equity Fund(4).......................... 7,424,000 4,344,000 --
Global Fixed Income Fund....................... 0 0 0
Growth and Income Fund II(1)................... -- -- --
High Yield & Total Return Fund................. 108,000 27,000 0
International Magnum Fund...................... 904,000 561,000 0
Japanese Equity Fund(1)........................ -- -- --
Latin American Fund............................ 573,000 1,247,000 324,000
Mid Cap Growth Fund(1)......................... -- -- --
Tax Managed Global Franchise Fund(3)........... 0 -- --
Value Fund(5).................................. 2,088,000 1,311,000 --
Worldwide High Income Fund..................... 1,743,000 1,864,000 1,086,000
</TABLE>
- ------------------
(1) Not operational as of June 30, 1999.
(2) Fund inception May 29, 1998.
(3) Fund inception September 25, 1998.
(4) Fund inception October 29, 1997.
(5) Fund inception July 7, 1997.
During the fiscal years ended June 30, 1999, 1998 and 1997, the Adviser (and
the predecessor adviser, where applicable) waived approximate advisory fees from
the Funds as set forth in the table below.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
FUND NAME JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1997
- --------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
American Value Fund............................ -- 267,000 135,000
Asian Growth Fund.............................. 85,000 266,000 --
Emerging Markets Debt Fund(1).................. -- -- --
Emerging Markets Fund.......................... 239,000 553,000 33,000
Equity Growth Fund(2).......................... 164,000 -- --
European Equity Fund(3)........................ 39,000 -- --
Focus Equity Fund.............................. 252,000 279,000 204,000
Global Equity Allocation Fund.................. 152,000 292,000 293,000
Global Equity Fund(4).......................... -- -- --
Global Fixed Income Fund....................... 62,000 69,000 79,000
Growth and Income Fund II(1)................... -- -- --
High Yield & Total Return Fund................. 180,000 158,000 113,000
International Magnum Fund...................... 39,000 148,000 168,000
Japanese Equity Fund(1)........................ -- -- --
Latin American Fund............................ 137,000 169,000 248,000
Mid Cap Growth Fund(1)......................... -- -- --
Tax Managed Global Franchise Fund(3)........... 12,000 -- --
Value Fund(5).................................. 43,000 278,000 --
Worldwide High Income Fund..................... -- -- --
</TABLE>
- ------------------
(1) Not operational as of June 30, 1999.
(2) Fund inception May 29, 1998.
(3) Fund inception September 25, 1998.
(4) Fund inception October 29, 1997.
(5) Fund inception July 7, 1997.
31
<PAGE>
MSDWIM is the investment sub-adviser of all of the Funds except the Mid Cap
Growth Fund and Value Fund. MAS is the investment sub-adviser of the Mid Cap
Growth Fund and Value Fund. The Sub-Advisers provide investment advice and
portfolio management services pursuant to investment sub-advisory agreements
and, subject to the supervision of the Adviser and the Company's Board of
Directors, make the Funds' investment decisions, arrange for the execution of
portfolio transactions and generally manage the Funds' investments.
The Sub-Advisers are entitled to receive sub-adisory fees computed daily and
paid monthly. Except for the Mid Cap Growth Fund, if the average daily net
assets of a Fund during the monthly period are less than or equal to
$500 million, the Adviser shall pay MSDWIM or MAS, as appropriate, one-half of
the total investment advisory fee payable to the Adviser by the Fund (after
application of any fee waivers in effect) for such monthly period; and a Fund's
average daily net assets for the monthly period are greater than $500 million,
the Adviser shall pay MSDWIM or MAS, as appropriate, a fee for such monthly
period equal to the greater of (a) one-half of what the total investment
advisory fee payable to the Adviser by the Fund (after application of any fee
waivers in effect) for such monthly period would have been had the Fund's
average daily net assets during such period been equal to $500 million, or
(b) forty-five percent of the total investment adisory fee payable to the
Adviser by the Fund (after application of any fee waivers in effect) for such
monthly period. For the Mid Cap Growth Fund, the Adviser shall pay MAS at an
annual rate of .40% of the average daily net assets of such Fund.
OTHER AGREEMENTS
ADMINISTRATION AGREEMENT. Pursuant to an administration agreement between
the Adviser and the Company, the Adviser provides administrative services to the
Funds. The services provided under the Administration Agreement are subject to
the supervision of the officers of the Fund and Board of Directors of the
Company and include day-to-day administration of matters related to the
corporate existence of the Company, maintenance of its records, preparation of
reports, supervision of the Company's arrangements with its custodian and
assistance in the preparation of the Company's registration statements under
federal and state laws. The Administration Agreement also provides that the
Administrator through its agents will provide the Company dividend disbursing
and transfer agent services. The Administration Agreement also provides that the
Administrator shall not be liable to the Company for any actions or omissions if
it or its agents or any of their employees acted without gross negligence or
willful misfeasance.
During the fiscal years ended June 30, 1999 and 1998, the Adviser received
the approximate administative fees from the Funds as set forth in the table
below. During the fiscal year ended June 30, 1997, MSDWIM was the administrator
for each Fund, and MSDWIM received the approximate administration fees from the
Funds as set forth in the table below.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
FUND NAME JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1997
- --------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
American Value Fund............................ $1,590,000 $ 799,000 $ 139,000
Asian Growth Fund.............................. 287,000 463,000 1,080,000
Emerging Markets Debt Fund(1).................. -- -- --
Emerging Markets Fund.......................... 285,000 522,000 445,000
Equity Growth Fund(2).......................... 91,000 1,000 --
European Equity Fund(3)........................ 14,000 -- --
Focus Equity Fund.............................. 579,000 316,000 76,000
Global Equity Allocation Fund.................. 1,473,000 657,000 473,000
Global Equity Fund(4).......................... 1,867,000 1,089,000 --
Global Fixed Income Fund....................... 26,000 27,000 34,000
Growth and Income Fund II(1)................... -- -- --
High Yield & Total Return Fund................. 99,000 64,000 42,000
International Magnum Fund...................... 318,000 237,000 73,000
Japanese Equity Fund(1)........................ -- -- --
Latin American Fund............................ 161,000 335,000 151,000
Mid Cap Growth Fund(1)......................... -- -- --
Tax Managed Global Franchise Fund(3)........... 7,000 -- --
Value Fund(5).................................. 672,000 500,000 --
Worldwide High Income Fund..................... 585,000 626,000 388,000
</TABLE>
- ------------------
(1) Not operational as of June 30, 1999.
(2) Fund inception May 29, 1998.
(3) Fund inception September 25, 1998.
(4) Fund inception October 29, 1997.
(5) Fund inception July 7, 1997.
32
<PAGE>
Under a sub-administration agreement between the Administrator and The Chase
Manhattan Bank ("Chase"), Chase Global Funds Services Company ("CGFSC"), a
corporate affiliate of Chase, provides certain administrative services to the
Company. The Administrator supervises and monitors such administrative services
provided by CGFSC. The services provided under the sub-administration agreement
are subject to the supervision of the Board of Directors of the Company. The
Board of Directors of the Company has approved the provision of services
described above pursuant to the sub-administration agreement as being in the
best interests of the Company. CGFSC's business address is 73 Tremont Street,
Boston, Massachusetts 02108-3913.
LEGAL SERVICES AGREEMENT. The Fund and each of the other Van Kampen funds
advised by the Adviser and distributed by the Distributor have entered into
legal services agreements pursuant to which Van Kampen Investments provides
legal services, including without limitation: accurate maintenance of the fund's
minute books and records, preparation and oversight of the fund's regulatory
reports, and other information provided to shareholders, as well as responding
to day-to-day legal issues on behalf of the funds. Payment by the Funds for such
services is made on a cost basis for the salary and salary related benefits,
including but not limited to bonuses, group insurance and other regular wages
for the employment of personnel, as well as overhead and the expenses related to
the office space and the equipment necessary to render the legal services. Other
funds distributed by the Distributor also receive legal services from Van Kampen
Investments. Of the total costs for legal services provided to funds distributed
by the Distributor, one half of such costs are allocated equally to each fund
and the remaining one half of such costs are allocated to specific funds based
on monthly time records.
During the fiscal years ended June 30, 1999, 1998 and 1997, the Adviser
received the following fees from the Funds pursuant to the legal services
agreement:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
FUND NAME JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1997
- --------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
American Value Fund............................ $10,876 $ 8,993 $ --
Asian Growth Fund.............................. 5,482 6,152 --
Emerging Markets Debt Fund(1).................. -- -- --
Emerging Markets Fund.......................... 5,550 6,610 --
Equity Growth Fund(2).......................... 3,442 4 --
European Equity Fund(3)........................ 0 N/A --
Focus Equity Fund.............................. 6,382 6,317 --
Global Equity Allocation Fund.................. 10,534 9,334 --
Global Equity Fund(4).......................... 11,824 11,423 --
Global Fixed Income Fund....................... 4,280 4,885 --
Growth and Income Fund II(1)................... -- -- --
High Yield & Total Return Fund................. 4,546 5,055 --
International Magnum Fund...................... 5,385 5,610 --
Japanese Equity Fund(1)........................ -- -- --
Latin American Fund............................ 4,727 5,687 --
Mid Cap Growth Fund(1)......................... -- -- --
Tax Managed Global Franchise Fund(3)........... 3,211 N/A --
Value Fund(5).................................. 7,141 9,199 --
Worldwide High Income Fund..................... 6,616 8,061 --
</TABLE>
- ------------------
(1) Not operational as of June 30, 1999.
(2) Fund inception May 29, 1998.
(3) Fund inception September 25, 1998.
(4) Fund inception October 29, 1997.
(5) Fund inception July 7, 1997.
DISTRIBUTION AND SERVICE
The Distributor acts as the principal underwriter of the Funds' shares
pursuant to a written agreement (the "Distribution and Service Agreement"). The
Distributor has the exclusive right to distribute shares of the Funds through
authorized dealers on a continuous basis. The Distributor's obligation is an
agency or "best efforts" arrangement under which the Distributor is required to
take and pay for only such shares of a Fund as may be sold to the public. The
Distributor is not obligated to sell any stated number of shares. The
Distributor bears the cost of printing (but not typesetting) prospectuses used
in connection with this offering and certain other costs including the cost of
supplemental sales literature and advertising. The Distribution and Service
Agreement is renewable from year to year if approved (a)(i) by a Fund's Board of
Directors or (ii) by a vote of a majority of such Fund's outstanding voting
securities and (b) by the affirmative vote of a majority of Directors who are
not parties to the Distribution and Service Agreement or interested persons of
any party, by votes cast in person at a meeting called for such
33
<PAGE>
purpose. The Distribution and Service Agreement provides that it will terminate
if assigned, and that it may be terminated without penalty by either party on
90 days' written notice. Total underwriting commissions on the sale of shares of
the Funds for the last three fiscal years are shown in the chart below.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1997
-------------------------- -------------------------- --------------------------
TOTAL AMOUNTS TOTAL AMOUNTS TOTAL AMOUNTS
UNDERWRITING RETAINED BY UNDERWRITING RETAINED BY UNDERWRITING RETAINED BY
FUND NAME COMMISSIONS DISTRIBUTOR COMMISSIONS DISTRIBUTOR COMMISSIONS DISTRIBUTOR
- --------- ------------ ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
American Value Fund............. $2,919,020 $228,560 $4,773,186 $658,912 $349,953 $ 47,963
Asian Growth Fund............... 397,591 25,451 749,053 98,417 832,975 103,092
Emerging Markets Debt Fund(1)... -- -- -- -- -- --
Emerging Markets Fund........... 344,275 21,951 638,827 85,770 612,339 84,793
Equity Growth Fund(2)........... 526,879 67,063 0 0 N/A N/A
European Equity Fund(3)......... 30,192 3,501 N/A N/A N/A N/A
Focus Equity Fund............... 1,229,038 83,560 1,640,138 229,561 656,053 87,259
Global Equity Allocation Fund... 1,266,693 110,283 1,033,797 135,086 310,083 39,966
Global Equity Fund(4)........... 3,117,074 62,141 3,370,697 466,837 N/A N/A
Global Fixed Income Fund........ 23,425 1,613 9,204 1,082 34,196 1,954
Growth and Income Fund II(1).... -- -- -- -- -- --
High Yield & Total Return Fund.. 121,267 7,888 132,102 13,824 25,581 2,379
International Magnum Fund....... 484,186 34,803 1,045,607 140,250 380,391 52,266
Japanese Equity Fund(1)......... -- -- -- -- -- --
Latin American Fund............. 217,094 13,361 986,259 133,298 706,758 94,909
Mid Cap Growth Fund(1).......... -- -- -- -- -- --
Tax Managed Global Franchise
Fund(3)........................ 12,337 1,748 N/A N/A N/A N/A
Value Fund(5)................... 1,338,133 70,253 6,293,710 856,595 N/A N/A
Worldwide High Income Fund...... 950,093 34,465 1,276,023 135,143 648,293 73,078
</TABLE>
- ------------------
(1) Not operational as of June 30, 1999.
(2) Fund inception May 29, 1998.
(3) Fund inception September 25, 1998.
(4) Fund inception October 29, 1997.
(5) Fund inception July 7, 1997.
With respect to sales of Class A Shares of the Funds, the total sales
charges and concessions reallowed to authorized dealers at the time of purchase
are as follows:
CLASS A SHARES SALES CHARGE TABLES
With respect to Emerging Markets Debt Fund, Global Fixed Income Fund, High
Yield & Total Return Fund and Worldwide High Income Fund:
<TABLE>
<CAPTION>
TOTAL SALES CHARGE
---------------------- REALLOWED
AS % OF AS % OF NET TO DEALERS
SIZE OF OFFERING AMOUNT AS A % OF
INVESTMENT PRICE INVESTED OFFERING PRICE
- ---------- -------- ----------- --------------
<S> <C> <C> <C>
Less than $100,000.......................................... 4.75% 4.99% 4.25%
$100,000 but less than $250,000............................. 3.75% 3.90% 3.25%
$250,000 but less than $500,000............................. 2.75% 2.83% 2.25%
$500,000 but less than $1,000,000........................... 2.00% 2.04% 1.75%
$1,000,000 or more.......................................... * * *
</TABLE>
With respect to all of the remaining Funds:
<TABLE>
<CAPTION>
TOTAL SALES CHARGE
---------------------- REALLOWED
AS % OF AS % OF NET TO DEALERS
SIZE OF OFFERING AMOUNT AS A % OF
INVESTMENT PRICE INVESTED OFFERING PRICE
- ---------- -------- ----------- --------------
<S> <C> <C> <C>
Less than $50,000........................................... 5.75% 6.10% 5.00%
$50,000 but less than $100,000.............................. 4.75% 4.99% 4.00%
$100,000 but less than $250,000............................. 3.75% 3.90% 3.00%
$250,000 but less than $500,000............................. 2.75% 2.83% 2.25%
$500,000 but less than $1,000,000........................... 2.00% 2.04% 1.75%
$1,000,000 or more.......................................... * * *
</TABLE>
- --------------
* No sales charge is payable at the time of purchase on investments of
$1 million or more, although for such investments the Fund may impose a
contingent deferred sales charge of 1.00% on certain redemptions made within
one year of the purchase. A commission or transaction fee will be paid by the
Distributor at the time of purchase directly out of the Distributor's assets
(and not out of the Fund's assets) to authorized dealers who initiate and are
responsible for purchases of $1 million or more computed based on a percentage
of the dollar value of such shares sold as follows: 1.00% on sales to
$2 million, plus 0.80% on the next $1 million and 0.50% on the excess over
$3 million.
34
<PAGE>
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.
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."
Certain financial intermediaries may be prohibited under the Glass-Steagall
Act from providing certain underwriting or distribution services. If a financial
intermediary was 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 financial intermediary would result in any material adverse consequences
to the Fund.
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
35
<PAGE>
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.
As of June 30, 1999, the unreimbursed distribution-related expenses with
respect to Class B Shares and Class C shares, and the percentage of the Fund's
net assets attributable to Class B Shares and Class C Shares are represented
below.
<TABLE>
<CAPTION>
B SHARES C SHARES
---------------------------- ----------------------------
PERCENTAGE OF PERCENTAGE OF
UNREIMBURSED FUND'S NET UNREIMBURSED FUND'S NET
FUND NAME DISTRIBUTION ASSETS DISTRIBUTION ASSETS
- --------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
American Value Fund......................... $10,138,207 2.97% $152,210 0.09%
Asian Growth Fund........................... 2,450,266 5.71 22,692 0.06
Emerging Markets Fund....................... 1,836,551 4.79 17,012 0.08
Equity Growth Fund.......................... 606,348 2.53 22,770 0.31
European Equity Fund........................ 14,804 0.48 1,508 0.10
Focus Equity Fund........................... 4,521,932 2.57 20,961 0.08
Global Equity Fund.......................... 19,894,984 3.34 47,093 0.07
Global Equity Allocation Fund............... 1,956,904 0.84 169,199 0.17
Global Fixed Income Fund.................... 87,937 5.65 2,100 0.14
High Yield & Total Return Fund.............. 711,833 3.14 16,111 0.20
International Magnum Fund................... 1,651,126 3.43 5,147 0.04
Latin American Fund......................... 1,036,423 5.58 17,977 0.17
Tax Managed Global Franchise Fund........... 6,435 1.05 1,380 0.29
Value Fund.................................. 4,179,000 3.27 81,668 0.28
Worldwide High Income Fund.................. 5,193,409 4.85 66,211 0.16
</TABLE>
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 $23,977,000 which were attributable approximately as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED PERCENTAGE OF
JUNE 30, 1999 AVERAGE DAILY
FUND NAME (000) NET ASSETS
- --------- ----------------- -------------
<S> <C> <C>
American Value Fund -- Class A.............................. $ 540 .25%
American Value Fund -- Class B.............................. 2,840 1.00%
American Value Fund -- Class C.............................. 1,313 1.00%
Asian Growth Fund -- Class A................................ 130 .25%
Asian Growth Fund -- Class B................................ 291 1.00%
Asian Growth Fund -- Class C................................ 295 1.00%
Emerging Markets Debt Fund -- Class A(1).................... --%
Emerging Markets Debt Fund -- Class B(1).................... --%
Emerging Markets Debt Fund -- Class C(1).................... --%
Emerging Markets Fund -- Class A............................ 141 .25%
Emerging Markets Fund -- Class B............................ 299 1.00%
Emerging Markets Fund -- Class C............................ 205 1.00%
Equity Growth Fund -- Class A............................... 30 .25%
Equity Growth Fund -- Class B............................... 163 1.00%
Equity Growth Fund -- Class C............................... 58 1.00%
European Equity Fund -- Class A............................. 3 .25%
European Equity Fund -- Class B............................. 17 1.00%
European Equity Fund -- Class C............................. 10 1.00%
Focus Equity Fund -- Class A................................ 155 .25%
Focus Equity Fund -- Class B................................ 1,433 1.00%
Focus Equity Fund -- Class C................................ 244 1.00%
Global Equity Allocation Fund -- Class A.................... 588 .25%
Global Equity Allocation Fund -- Class B.................... 2,243 1.00%
Global Equity Allocation Fund -- Class C.................... 998 1.00%
Global Equity Fund -- Class A............................... 191 .25%
Global Equity Fund -- Class B............................... 6,007 1.00%
Global Equity Fund -- Class C............................... 657 1.00%
Global Fixed Income Fund -- Class A......................... 11 .25%
Global Fixed Income Fund -- Class B......................... 17 1.00%
Global Fixed Income Fund -- Class C......................... 18 1.00%
Growth and Income Fund II -- Class A(1)..................... --%
Growth and Income Fund II -- Class B(1)..................... --%
Growth and Income Fund II -- Class C(1)..................... --%
High Yield & Total Return Fund -- Class A................... 23 .25%
High Yield & Total Return Fund -- Class B................... 209 1.00%
High Yield & Total Return Fund -- Class C................... 82 1.00%
International Magnum Fund -- Class A........................ 138 .25%
International Magnum Fund -- Class B........................ 482 1.00%
International Magnum Fund -- Class C........................ 144 1.00%
Japanese Equity Fund -- Class A(1).......................... --%
Japanese Equity Fund -- Class B(1).......................... --%
Japanese Equity Fund -- Class C(1).......................... --%
Latin American Fund -- Class A.............................. 75 .25%
Latin American Fund -- Class B.............................. 169 1.00%
Latin American Fund -- Class C.............................. 96 1.00%
Mid Cap Growth Fund -- Class A(1)........................... --%
Mid Cap Growth Fund -- Class B(1)........................... --%
Mid Cap Growth Fund -- Class C(1)........................... --%
Tax Managed Global Franchise Fund -- Class A................ 2 .25%
Tax Managed Global Franchise Fund -- Class B................ 3 1.00%
Tax Managed Global Franchise Fund -- Class C................ 3 1.00%
Value Fund -- Class A....................................... 270 .25%
Value Fund -- Class B....................................... 1,279 1.00%
Value Fund -- Class C....................................... 306 1.00%
Worldwide High Income Fund -- Class A....................... 173 .25%
Worldwide High Income Fund -- Class B....................... 1,158 1.00%
Worldwide High Income Fund -- Class C....................... 468 1.00%
</TABLE>
- ------------------
(1) Not operational as of June 30, 1999.
37
<PAGE>
TRANSFER AGENT
The Funds' transfer agent, shareholder service agent and divided disbursing
agent is Van Kampen Investor Services Inc., PO Box 218256, Kansas City, MO
64121-8256. The transfer agency prices are determined through negotiations with
the Fund's Board of Directors and are based on competitive benchmarks.
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION
The Adviser is responsible for decisions to buy and sell securities for the
Funds, the selection of brokers and dealers to effect the transactions and the
negotiation of prices and any brokerage commissions on such transaction. While
the Adviser will be primarily responsible for the placement of each Fund's
portfolio business, the policies and practices in this regard will at all times
be subject to review by the Board of Directors.
With respect to the Emerging Markets Debt Fund, the Global Fixed Income
Fund, the High Yield & Total Return Fund and the Worldwide High Income Fund;
most transactions made by such Funds are principal transactions at net prices
and the Funds generally incur little or no brokerage costs. The portfolio
securities in which these Funds invest are normally purchased directly from the
issuer or in the over-the-counter market from an underwriter or market maker for
the securities. Purchases from underwriters of portfolio securities include a
commission or concession paid by the issuer to the underwriter and purchases
from dealers serving as market makers include a spread or markup to the dealer
between the bid and asked price. Sales to dealers are effected at bid prices.
These Funds may also purchase certain money market instruments directly from an
issuer, in which case no commissions or discounts are paid, or may purchase and
sell listed securities on an exchange, which are effected through brokers who
charge a commission for their services.
The Adviser is responsible for placing portfolio transactions and does so in
a manner deemed fair and reasonable to the Funds and not according to any
formula. The primary consideration in all portfolio transactions is prompt
execution of orders in an effective manner at the most favorable price. In
selecting broker/dealers and in negotiating prices and any brokerage commissions
on such transactions, the Adviser considers the firm's reliability, integrity
and financial condition and the firm's execution capability, the size and
breadth of the market for the security, the size of and difficulty in executing
the order, and the best net price. There are many instances when, in the
judgment of the Adviser, more than one firm can offer comparable execution
services. In selecting among such firms, consideration may be given to those
firms which supply research and other services in addition to execution
services. The Adviser is authorized to pay higher commissions to brokerage firms
that provide it with investment and research information than to firms which do
not provide such services if the Adviser determines that such commissions are
reasonable in relation to the overall services provided. No specific value can
be assigned to such research services which are furnished without cost to the
Adviser. Since statistical and other research information is only supplementary
to the research efforts of the Adviser to the Fund and still must be analyzed
and reviewed by its staff, the receipt of research information is not expected
to reduce its expenses materially. The investment advisory fee is not reduced as
a result of the Adviser's receipt of such research services. Services provided
may include (a) furnishing advice as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities; (b)
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and the performance of
accounts; and (c) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement and custody). Research
services furnished by firms through which the Fund effects its securities
transactions may be used by the Adviser in servicing all of its advisory
accounts; not all of such services may be used by the Adviser in connection with
the Funds. The Adviser also may place portfolio transactions, to the extent
permitted by law, with brokerage firms affiliated with the Funds, the Adviser or
the Distributor and with brokerage firms participating in the distribution of
the Funds' shares if it reasonably believes that the quality of execution and
the commission are comparable to that available from other qualified firms.
Similarly, to the extent permitted by law and subject to the same considerations
on quality of execution and comparable commission rates, the Adviser may direct
an executing broker to pay a portion or all of any commissions, concessions or
discounts to a firm supplying research or other services or to a firm
participating in the distribution of the Funds' shares.
The Adviser may place portfolio transactions at or about the same time for
other advisory accounts, including other investment companies. The Adviser seeks
to allocate portfolio transactions equitably whenever concurrent decisions are
made to purchase or sell securities for a Fund and another advisory account. In
some cases, this procedure could have an adverse effect on the price or the
amount of securities available to such Fund. In making such allocations among a
Fund and other advisory accounts, the main factors considered by the Adviser are
the respective sizes of the Fund and other advisory accounts, the respective
investment objectives, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment, the size of
investment commitments generally held and opinions of the persons responsible
for recommending the investment.
Morgan Stanley & Co. Incorporated is an affiliate of the Adviser (and the
predecessor adviser) of the Funds. Effective May 31, 1997, Dean Witter
Reynolds, Inc. ("Dean Witter") became an affiliate of the Adviser (and the
predecessor adviser) of the Funds. The Board of Directors have adopted certain
policies incorporating the standards of Rule 17e-1 issued by the SEC under the
1940 Act which requires that the commissions paid to affiliates of the Funds
must be reasonable and fair compared to the commissions, fees or other
remuneration received or to be received by other brokers in connection with
comparable transactions involving similar securities during a comparable period
of time. The rule and procedures also contain review requirements and require
the Adviser to furnish reports to the Board of Directors and to maintain records
in connection with such reviews. After consideration of all factors deemed
relevant, the Board of Directors will consider from time to time whether the
advisory fee for each Fund will be reduced by all or a portion of the brokerage
commission given to affiliated brokers.
The Funds paid the following commissions to all brokers and affiliated
brokers during the periods shown:
38
<PAGE>
<TABLE>
<CAPTION>
EMERGING
AMERICAN ASIAN MARKETS EMERGING EQUITY EUROPEAN FOCUS
FISCAL YEAR ENDED VALUE GROWTH DEBT MARKETS GROWTH EQUITY EQUITY
JUNE 30, 1999 FUND FUND FUND(1) FUND FUND FUND FUND
- ----------------- -------- ------ -------- -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Total brokerage
commissions............... $ 5,210,669 $ 1,059,398 $ -- $ 892,711 $ 96,599 $ 20,070 $ 1,158,339
Commissions with Morgan
Stanley................... $ 2,130 $ 53,519 $ -- $ 49,419 $ 1,755 $ 1,984 $ 13,980
Percentage of total
commissions.............. 0.04% 5.05% --% 5.54% 1.82% 9.89% 1.21%
Commissions with Dean
Witter.................... $ 1,356 $ 0 $ -- $ 0 $ 0 $ 0 $ 0
Percentage of total
commissions.............. 0.03% 0% --% 0% 0% 0% 0%
Percentage of total value of
brokerage transactions
with Morgan Stanley....... 0.06% 5.30% --% 4.72% 2.19% 7.33% 1.75%
Percentage of total value of
brokerage transactions
with Dean Witter.......... 0.01% 0% --% 0% 0% 0% 0%
Commissions for research
services.................. $ 4,704,647 $ 1,059,398 $ -- $ 892,711 $ 76,151 $ 20,070 $ 1,109,511
Value of research
transactions.............. $1,968,924,455 $283,946,042 $ -- $263,588,372 $67,510,503 $10,392,253 $876,267,703
<CAPTION>
GLOBAL
EQUITY GLOBAL
FISCAL YEAR ENDED ALLOCATION EQUITY
JUNE 30, 1999 FUND FUND
- ----------------- ---------- ------
<S> <C> <C>
Total brokerage
commissions............... $ 723,144 $ 1,180,688
Commissions with Morgan
Stanley................... $ 1,790 $ 106,499
Percentage of total
commissions.............. 0.25% 9.02%
Commissions with Dean
Witter.................... $ 0 $ 0
Percentage of total
commissions.............. 0% 0%
Percentage of total value of
brokerage transactions
with Morgan Stanley....... 0.08% 8.54%
Percentage of total value of
brokerage transactions
with Dean Witter.......... 0% 0%
Commissions for research
services.................. $ 723,144 $ 1,180,688
Value of research
transactions.............. $740,411,692 $537,623,505
</TABLE>
<TABLE>
<CAPTION>
HIGH
GLOBAL GROWTH YIELD & INTER-
FIXED AND TOTAL NATIONAL JAPANESE LATIN MID CAP
FISCAL YEAR ENDED INCOME INCOME RETURN MAGNUM EQUITY AMERICAN GROWTH
JUNE 30, 1999 FUND FUND II(1) FUND FUND FUND(1) FUND FUND(1)
- ----------------- ------ ---------- ------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Total brokerage
commissions............... $ 0 $ -- $ 0 $ 369,509 $ -- $ 509,214 $ --
Commissions with Morgan
Stanley................... $ 0 $ -- $ 0 $ 8,443 $ -- $ 7,942 $ --
Percentage of total
commissions.............. 0% --% 0% 2.28% --% 1.56% --%
Commissions with Dean
Witter.................... $ 0 $ -- $ 0 $ 0 $ -- $ 0 $ --
Percentage of total
commissions.............. 0% --% 0% 0% --% 0% --%
Percentage of total value of
brokerage transactions
with Morgan Stanley....... 0% --% 0% 2.09% --% 2.71% --%
Percentage of total value of
brokerage transactions
with Dean Witter.......... 0% --% 0% 0% --% 0% --%
Commissions for research
services.................. $ -- $ -- $ -- $ 369,509 $ -- $ 509,214 $ --
Value of research
transactions.............. $ -- $ -- $ -- $147,219,049 $ -- $172,872,826 $ --
<CAPTION>
TAX
MANAGED WORLDWIDE
GLOBAL HIGH
FISCAL YEAR ENDED FRANCHISE VALUE INCOME
JUNE 30, 1999 FUND FUND FUND
- ----------------- --------- ----- ---------
<S> <C> <C> <C>
Total brokerage
commissions............... $ 4,237 $ 463,294 $ 626
Commissions with Morgan
Stanley................... $ 314 $ 0 $ 0
Percentage of total
commissions.............. 7.41% 0.0% 0%
Commissions with Dean
Witter.................... $ 0 $ 0 $ 0
Percentage of total
commissions.............. 0% 0% 0%
Percentage of total value of
brokerage transactions
with Morgan Stanley....... 6.66% 0% 0%
Percentage of total value of
brokerage transactions
with Dean Witter.......... 0% 0% 0%
Commissions for research
services.................. $ 4,237 $ 458,024 $ 626
Value of research
transactions.............. $1,839,734 $303,327,814 $18,919,240
</TABLE>
- --------------------
(1) Not operational as of June 30, 1999.
39
<PAGE>
<TABLE>
<CAPTION>
EMERGING GLOBAL
AMERICAN ASIAN MARKETS EMERGING EQUITY EUROPEAN FOCUS EQUITY
FISCAL YEAR ENDED VALUE GROWTH DEBT MARKETS GROWTH EQUITY EQUITY ALLOCATION
JUNE 30, 1998 FUND FUND FUND(1) FUND FUND(2) FUND(3) FUND FUND
- ----------------- -------- ------ -------- -------- ------- -------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total brokerage
commissions............... $1,863,022 $2,171,340 $ -- $1,122,264 $4,685 $ -- $836,700 $382,680
Commissions with Morgan
Stanley................... $ 0 $ 157,183 $ -- $ 41,792 $ 0 $ -- $ 0 $ 981
Commissions with Dean
Witter.................... $ 0 $ 0 $ -- $ 0 $ 0 $ -- $ 0 $ 0
<CAPTION>
GLOBAL
FISCAL YEAR ENDED EQUITY
JUNE 30, 1998 FUND(4)
- ----------------- -------
<S> <C>
Total brokerage
commissions............... $775,168
Commissions with Morgan
Stanley................... $188,780
Commissions with Dean
Witter.................... $ 0
</TABLE>
<TABLE>
<CAPTION>
HIGH TAX
GLOBAL GROWTH YIELD & INTER- MANAGED
FIXED AND TOTAL NATIONAL JAPANESE LATIN MID CAP GLOBAL
FISCAL YEAR ENDED INCOME INCOME RETURN MAGNUM EQUITY AMERICAN GROWTH FRANCHISE
JUNE 30, 1998 FUND FUND II(1) FUND FUND FUND(1) FUND FUND(1) FUND(3)
- ----------------- ------ ---------- ------- -------- -------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total brokerage
commissions............... $ 0 $ -- $2,940 $243,789 $ -- $1,251,018 $ -- $ --
Commissions with Morgan
Stanley................... $ 0 $ -- $ 0 $ 8,123 $ -- $ 53,140 $ -- $ --
Commissions with Dean
Witter.................... $ 0 $ -- $ 0 $ 0 $ -- $ 0 $ -- $ --
<CAPTION>
WORLDWIDE
HIGH
FISCAL YEAR ENDED VALUE INCOME
JUNE 30, 1998 FUND FUND
- ----------------- ----- ---------
<S> <C> <C>
Total brokerage
commissions............... $475,178 $ 0
Commissions with Morgan
Stanley................... $ 0 $ 0
Commissions with Dean
Witter.................... $ 0 $ 0
</TABLE>
<TABLE>
<CAPTION>
EMERGING GLOBAL
AMERICAN ASIAN MARKETS EMERGING EQUITY EUROPEAN FOCUS EQUITY
FISCAL YEAR ENDED VALUE GROWTH DEBT MARKETS GROWTH EQUITY EQUITY ALLOCATION
JUNE 30, 1997 FUND FUND FUND(1) FUND FUND FUND FUND FUND
- ----------------- -------- ------ -------- -------- ------ -------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total brokerage
commissions............... $130,098 $2,757,149 $ -- $922,655 $ -- $ -- $174,610 $118,044
Commissions with Morgan
Stanley................... $ 0 $ 326,044 $ -- $ 79,641 $ -- $ -- $ 0 $ 0
Commissions with Dean
Witter.................... $ 1,302 $ 0 $ -- $ 0 $ -- $ -- $ 168 $ 0
<CAPTION>
GLOBAL
FISCAL YEAR ENDED EQUITY
JUNE 30, 1997 FUND
- ----------------- ------
<S> <C>
Total brokerage
commissions............... $ --
Commissions with Morgan
Stanley................... $ --
Commissions with Dean
Witter.................... $ --
</TABLE>
<TABLE>
<CAPTION>
HIGH TAX
GLOBAL GROWTH YIELD & INTER- MANAGED
FIXED AND TOTAL NATIONAL JAPANESE LATIN MID CAP GLOBAL
FISCAL YEAR ENDED INCOME INCOME RETURN MAGNUM EQUITY AMERICAN GROWTH FRANCHISE
JUNE 30, 1997 FUND FUND II(1) FUND FUND FUND(1) FUND FUND(1) FUND
- ----------------- ------ ---------- ------- -------- -------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total brokerage
commissions............... $ 0 $ -- $ 0 $155,283 $ -- $742,521 $ -- $ --
Commissions with Morgan
Stanley................... $ 0 $ -- $ 0 $ 15,487 $ -- $ 40,849 $ -- $ --
Commissions with Dean
Witter.................... $ 0 $ -- $ 0 $ 0 $ -- $ 0 $ -- $ --
<CAPTION>
WORLDWIDE
HIGH
FISCAL YEAR ENDED VALUE INCOME
JUNE 30, 1997 FUND(5) FUND
- ----------------- ------- ---------
<S> <C> <C>
Total brokerage
commissions............... $ -- $ 0
Commissions with Morgan
Stanley................... $ -- $ 0
Commissions with Dean
Witter.................... $ -- $ 0
</TABLE>
- --------------------
(1) Not operational as of June 30, 1999.
(2) Fund inception May 29, 1998.
(3) Fund inception September 25, 1998.
(4) Fund inception October 29, 1997.
(5) Fund inception July 7, 1997.
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 (as defined in the Funds'
Prospectuses) will receive statements quarterly from Investor Services showing
any reinvestments of dividends and capital gains dividends and any other
activity in the account since the preceding statement. Such shareholders also
will receive separate confirmations for each purchase or sale transaction other
than reinvestment of dividends and capital gains dividends and systematic
purchases or redemptions. Additions to an investment account may be made at any
time by purchasing shares through authorized dealers or by mailing a check
directly to Investor Services.
SHARE CERTIFICATES
Generally, a Fund will not issue share certificates. However, upon written
or telephone request to such Fund, a share certificate will be issued
representing shares (with the exception of fractional shares) of the Fund. A
shareholder will be required to surrender such certificates upon an exchange or
redemption thereof. In addition, if such certificates are lost the shareholder
must write to Van Kampen Funds Inc. c/o Investor Services, PO Box 218256, Kansas
City, MO 64121-8256, requesting an "affidavit of loss" and obtain a Surety Bond
in a form acceptable to Investor Services. On the date the letter is received,
Investor Services will calculate a fee for replacing the lost certificate equal
to no more than 2.00% of the net asset value of the issued shares, and bill the
party to whom the replacement certificate was mailed.
RETIREMENT PLANS
Eligible investors may establish individual retirement accounts ("IRAs");
SEP; 401(k) plans; Section 403(b)(7) plans in the case of employees of public
school systems and certain non-profit organizations; or other pension or profit
sharing plans. Documents and forms containing detailed information regarding
these plans are available from the Distributor. Van Kampen Trust Company serves
as custodian under the IRA, 403(b)(7) and Keogh plans. Details regarding fees,
as well as full plan administration for profit sharing, pension and 401(k)
plans, are available from the Distributor.
AUTOMATED CLEARING HOUSE ("ACH") DEPOSITS
Holders of Class A Shares can use ACH to have redemption proceeds deposited
electronically into their bank accounts. Redemptions transferred to a bank
account via the ACH plan are available to be credited to the account on the
second business day following normal payment. In order to utilize this option,
the shareholder's bank must be a member of ACH. In addition, the shareholder
must fill out the appropriate section of the account application. The
shareholder must also include a voided check or deposit slip from the bank
account into which redemptions are to be deposited together with the completed
application. Once Investor Services has received the application and the voided
check or deposit slip, such shareholder's designated bank account, following any
redemption, will be credited with the proceeds of such redemption. Once enrolled
in the ACH plan, a shareholder may terminate participation at any time by
writing Investor Services.
DIVIDEND DIVERSIFICATION
A shareholder may, upon written request or by completing the appropriate
section of the application form accompanying the Prospectus or by calling (800)
341-2911 ((800) 421-2833 for the hearing impaired), elect to have all dividends
and other distributions paid on a class of shares of a Fund invested into shares
of the same class of any Participating Fund so long as the investor has a
pre-existing account for such class of shares of the other fund. Both accounts
must be of the same type, either non-retirement or retirement. If the accounts
are retirement accounts, they must both be for the same class and of the same
type of retirement plan (e.g. IRA, 403(b)(7), 401(k), Keogh) and for the benefit
of the same individual. If a qualified, pre-existing account does not exist, the
shareholder must establish a new account subject to minimum investment and other
requirements of the fund into which distributions would be invested.
Distributions are invested into the selected fund at its net asset value per
share as of the payable date of the distribution.
SYSTEMATIC WITHDRAWAL PLAN
Any investor whose shares in a single account total $10,000 or more at the
next computed net asset value per share after receipt of instructions may
establish a monthly, quarterly, semi-annual or annual withdrawal plan. Any
investor whose shares in a
41
<PAGE>
single account total $5,000 or more at the next computed net asset value per
share after receipt of instructions may establish a quarterly, semiannual or
annual withdrawal plan. This plan provides for the orderly use of the entire
account, not only the income but also the capital, if necessary. Each withdrawal
constitutes a redemption of shares on which any capital gain or loss will be
recognized. The planholder may arrange for monthly, quarterly, semiannual or
annual checks in any amount, not less than $25. Such a systematic withdrawal
plan may also be maintained by an investor purchasing shares for a retirement
plan established on a form made available by such Fund. See "Shareholder
Services -- Retirement Plans."
Class B shareholders and Class C shareholders who establish a withdrawal
plan may redeem up to 12% annually of the shareholder's initial account balance
without incurring a contingent deferred sales charge. Initial account balance
means the amount of the shareholder's investment at the time the election to
participate in the plan is made.
Under the plan, sufficient shares of the applicable Fund are redeemed to
provide the amount of the periodic withdrawal payment. Dividends and capital
gains dividends on shares held under the plans are reinvested in additional
shares at the next determined net asset value per share. If periodic withdrawals
continuously exceed reinvested dividends and capital gains dividends, the
shareholder's original investment will be correspondingly reduced and ultimately
exhausted. Withdrawals made concurrently with the purchase of additional shares
ordinarily will be disadvantageous to the shareholder because of the duplication
of sales charges. Any gain or loss realized by the shareholder upon redemption
of shares is a taxable event. Each Fund reserves the right to amend or terminate
the systematic withdrawal program on 30 days' notice to its shareholders.
EXCHANGE PRIVILEGE
All shareholders are limited to eight (8) exchanges per fund during a
rolling 365-day period.
Exchange privileges will be suspended on a particular fund if more than
eight (8) exchanges out of that fund are made during a rolling 365-day period.
If exchange privileges are suspended, subsequent exchange requests will not be
processed. Exchange privileges will be restored when the account history shows
fewer than eight (8) exchanges in the rolling 365-day period.
This policy change does not apply to money market funds, systematic exchange
plans, or employer-sponsored retirement plans.
REINSTATEMENT PRIVILEGE
A Class A shareholder or Class B shareholder who has redeemed shares of a
Fund may reinstate any portion or all of the net proceeds of such redemption in
Class A Shares of such Fund. A Class C shareholder who has redeemed shares of
the Fund may reinstate any portion or all of the net proceeds of such redemption
in Class C Shares of the Fund with credit given for any contingent deferred
sales charge paid upon such redemption. Such reinstatement is made at the net
asset value per share (without sales charge) next determined after the order is
received, which must be within 180 days after the date of the redemption.
Reinstatement at net asset value per share is also offered to participants in
those eligible retirement plans held or administered by Van Kampen Trust Company
for repayment of principal (and interest) on their borrowings on such plans.
REDEMPTION OF SHARES
Redemptions are not made on days during which the New York Stock Exchange
(the "Exchange") is closed. The right of redemption may be suspended and the
payment therefor may be postponed for more than seven days during any period
when (a) the Exchange is closed for other than customary weekends or holidays;
(b) the SEC determines trading on the Exchange is restricted; (c) the SEC
determines an emergency exists as a result of which disposal by a Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for such Fund to fairly determine the value of its net assets; or
(d) the SEC, by order, so permits.
Additionally, if the Board of Directors determines that payment wholly or
partly in cash would be detrimental to the best interests of the remaining
shareholders of a Fund, such Fund may pay the redemption proceeds in whole or in
part by a distribution-in-kind of portfolio securities held by the Fund in lieu
of cash in conformity with applicable rules of the SEC. Upon the sale of
portfolio securities so received in payment of redemptions, shareholders may
incur brokerage charges and a gain or loss for federal income tax purposes.
CONTINGENT DEFERRED SALES CHARGE -- CLASS A ("CDSC -- CLASS A")
As described in the Company's Prospectuses under "Purchase of Shares --
Class A Shares," there is no sales charge payable on Class A Shares at the time
of purchase on investments of $1 million or more, but a contingent deferred
sales charge ("CDSC -- Class A Shares") may be imposed on certain redemptions
made within one year of purchase. For purposes of the CDSC-Class A, when shares
of one fund are exchanged for shares of another fund, the purchase date for the
shares of the fund exchanged into will be assumed to be the date on which shares
were purchased in the fund from which the exchange was made. If 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 Company's Prospectuses under "Redemption of Shares,"
redemptions of Class B Shares and Class C Shares will be subject to a contingent
deferred sales charge. The CDSC-Class B and C is waived on redemptions of
Class B Shares and Class C Shares in the circumstances described below:
REDEMPTION UPON DEATH OR DISABILITY
A Fund will waive the CDSC-Class B and C on redemptions following the death
or disability of a Class B shareholder and Class C shareholder. An individual
will be considered disabled for this purpose if he or she meets the definition
thereof in Section 72(m)(7) of the Internal Revenue Code of 1986, as amended
(the "Code"), which in pertinent part defines a person as disabled if such
person "is unable to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which can be expected to
result in death or to be of long-continued and indefinite duration." While the
Funds do not specifically adopt the balance of the Code's definition which
pertains to furnishing the Secretary of Treasury with such proof as he or she
may require, the Distributor will require satisfactory proof of death or
disability before it determines to waive the CDSC-Class B and C.
In cases of death or disability, the CDSC-Class B and C will be waived where
the decedent or disabled person is either an individual shareholder or owns the
shares as a joint tenant with right of survivorship or is the beneficial owner
of a custodial or fiduciary account, and where the redemption is made within one
year of the death or initial determination of disability. This waiver of the
CDSC-Class B and C applies to a total or partial redemption, but only to
redemptions of shares held at the time of the death or initial determination of
disability.
REDEMPTION IN CONNECTION WITH CERTAIN DISTRIBUTIONS FROM RETIREMENT PLANS
A Fund will waive the CDSC-Class B and C when a total or partial redemption
is made in connection with certain distributions from retirement plans. The
charge will be waived upon the tax-free rollover or transfer of assets to
another retirement plan invested in one or more Participating Funds; in such
event, as described below, the Fund will "tack" the period for which the
original shares were held on to the holding period of the shares acquired in the
transfer or rollover for purposes of determining what, if any, CDSC-Class B and
C is applicable in the event that such acquired shares are redeemed following
the transfer or rollover. The charge also will be waived on any redemption which
results from the return of an excess contribution pursuant to Section
408(d)(4) or (5) of the Code, the return of excess deferral amounts pursuant to
Code Section 401(k)(8) or 402(g)(2), the financial hardship of the employee
pursuant to Treasury Regulation Section 401(k)-1(d)(2), or from the death or
disability of the employee (see Code Section 72(m)(7) and 72(t)(2)(A)(ii)). In
addition, the charge will be waived on any minimum distribution required to be
distributed in accordance with Code Section 401(a)(9).
The Funds do not intend to waive the CDSC-Class B and C for any
distributions from IRAs or other retirement plans not specifically described
above.
REDEMPTION PURSUANT TO A FUND'S SYSTEMATIC WITHDRAWAL PLAN
A shareholder may elect to participate in a systematic withdrawal plan with
respect to the shareholder's investment in a Fund. Under the plan, a dollar
amount of a participating shareholder's investment in the Fund will be redeemed
systematically by the Fund on a periodic basis, and the proceeds mailed to the
shareholder. The amount to be redeemed and frequency of the systematic
withdrawals will be specified by the shareholder upon his or her election to
participate in the plan. The CDSC-Class B and C will be waived on redemptions
made under the plan.
The amount of the shareholder's investment in a Fund at the time the
election to participate in the plan is made with respect to the Fund is
hereinafter referred to as the "initial account balance." The amount to be
systematically redeemed from the Fund without the imposition of a CDSC-Class B
and C may not exceed a maximum of 12% annually of the shareholder's initial
account balance. The Fund reserves the right to change the terms and conditions
of the plan and the ability to offer the plan.
NO INITIAL COMMISSION OR TRANSACTION FEE
A Fund will waive the CDSC-Class B and C in circumstances under which no
commission or transaction fee is paid to authorized dealers at the time of
purchase of shares.
INVOLUNTARY REDEMPTIONS OF SHARES
Each Fund reserves the right to redeem shareholder accounts with balances of
less than a specified dollar amount as set forth in the Company's Prospectuses.
Prior to such redemptions, shareholders will be notified in writing and allowed
a specified period of time to purchase additional shares to bring the account up
to the required minimum balance. Each Fund will waive the CDSC-Class B and C
upon such involuntary redemption.
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 Internal Revenue Code of 1986, as amended
(the "Code"). To qualify as a regulated investment company, each Fund must
comply with certain requirements of the Code relating to, among other things,
the source of its income and diversification of its assets.
If a Fund so qualifies and distributes each year to its shareholders at
least 90% of its net investment income (including taxable income and net
short-term capital gain, but not net capital gain, which is the excess of net
long-term capital gain over net short-term capital loss), it will not be
required to pay federal income taxes on any income distributed to shareholders.
Each Fund intends to distribute at least the minimum amount of net investment
income necessary to satisfy the 90% distribution requirement. A Fund will not be
subject to federal income tax on any net capital gain distributed to
shareholders.
In order to avoid a 4% excise tax, each Fund will be required to distribute,
by December 31st of each year, at least an amount equal to the sum of (i) 98% of
its ordinary income for such year and (ii) 98% of its capital gain net income
(the latter of which generally is computed on the basis of the one-year period
ending on October 31st of such year), plus any amounts that were not distributed
in previous taxable years. For purposes of the excise tax, any ordinary income
or capital gain net income retained by, and subject to federal income tax in the
hands of, a Fund will be treated as having been distributed.
If a Fund failed to qualify as a regulated investment company or failed to
satisfy the 90% distribution requirement in any taxable year, such Fund would be
taxed as an ordinary corporation on its taxable income (even if such income were
distributed to its shareholders) and all distributions out of earnings and
profits would be taxed to shareholders as ordinary income. To qualify again as a
regulated investment company in a subsequent year, such Fund may be required to
pay an interest charge on 50% of its earnings and profits attributable to
non-regulated investment company years and would be required to distribute such
earnings and profits to shareholders (less any interest charge). In addition, if
the Fund failed to qualify as a regulated investment company for its first
taxable year or, if immediately after qualifying as a regulated investment
company for any taxable year, it failed to qualify for a period greater than one
taxable year, the Fund would be required to recognize any net built-in gains
(the excess of aggregate gains, including items of income, over aggregate losses
that would have been realized if it had been liquidated) in order to qualify as
a regulated investment company in a subsequent year.
Some of the Funds' investment practices are subject to special provisions of
the Code that, among other things, may defer the use of certain losses of a Fund
and affect the holding period of the securities held by such Fund and the
character of the gains or losses realized by the Fund. These provisions may also
require the Fund to recognize income or gain without receiving cash with which
to make distributions in amounts necessary to satisfy the 90% distribution
requirement and the distribution requirements for avoiding income and excise
taxes. Each Fund will monitor its transactions and may make certain tax
elections in order to mitigate the effect of these rules and prevent
disqualification as a regulated investment company.
Investments of a Fund in securities issued at a discount or providing for
deferred interest or payment of interest in kind are subject to special tax
rules that will affect the amount, timing and character of distributions to
shareholders. For example, with respect to securities issued at a discount, a
Fund will be required to accrue as income each year a portion of the discount
and to 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
44
<PAGE>
(i) a portion of any "excess distribution" received on such stock or (ii) any
gain from a sale or disposition of such stock (collectively, "PFIC income"),
plus interest on such amounts, even if the regulated investment company
distributes the PFIC income as a taxable dividend to its shareholders. The
balance of the PFIC income will be included in the regulated investment
company's investment company taxable income and, accordingly, will not be
taxable to it to the extent that income is distributed to its shareholders. If a
Fund invests in a PFIC and elects to treat the PFIC as a "qualified electing
fund," then in lieu of the foregoing tax and interest obligation, such Fund
would be required to include in income each year its pro rata share of the
qualified electing fund's annual ordinary earnings and net capital gain, which
most likely would have to be distributed to satisfy the 90% distribution
requirement and the distribution requirement for avoiding income and excise
taxes. In most instances it will be very difficult to make this election due to
certain requirements imposed with respect to the election.
As an alternative to making the above-described election to treat the PFIC
as a qualified electing fund, a Fund may make an election to annually
mark-to-market PFIC stock that it owns (a "PFIC Mark-to-Market Election").
"Marking-to-market," in this context, means recognizing as ordinary income or
loss each year an amount equal to the difference between such Fund's adjusted
tax basis in such PFIC stock and its fair market value. Losses will be allowed
only to the extent of net mark-to-market gain previously included by the Fund
pursuant to the election for prior taxable years. A Fund may be required to
include in its taxable income for the first taxable year in which it makes a
PFIC Mark-to-Market Election an amount equal to the interest charge that would
otherwise accrue with respect to distributions on, or dispositions of, the PFIC
stock. This amount would not be deductible from the Fund's taxable income. The
PFIC Mark-to-Market Election applies to the taxable year for which made and to
all subsequent taxable years, unless the Internal Revenue Service ("IRS")
consents to revocation of the election. By making the PFIC Mark-to-Market
Election, the Fund could ameliorate the adverse tax consequences arising from
its ownership of PFIC stock, but in any particular year may be required to
recognize income in excess of the distributions it receives from the PFIC and
proceeds from the dispositions of PFIC stock.
DISTRIBUTIONS
Distributions of a Fund's net investment income are taxable to shareholders
as ordinary income to the extent of such Fund's earnings and profits, whether
paid in cash or reinvested in additional shares. Distributions of a Fund's net
capital gain ("capital gain dividends"), if any, are taxable to shareholders as
long-term capital gain regardless of the length of time shares of such Fund have
been held by such shareholders. Distributions in excess of the Fund's earnings
and profits will first reduce the adjusted tax basis of a holder's shares and,
after such adjusted tax basis is reduced to zero, will constitute capital gain
to such holder (assuming such shares are held as a capital asset). For a summary
of the tax rates applicable to capital gains (including capital gain dividends),
see "Capital Gains Rates" below. Tax-exempt shareholders not subject to federal
income tax on their income generally will not be taxed on distributions from a
Fund.
Shareholders receiving distributions in the form of additional shares issued
by a Fund will be treated for federal income tax purposes as receiving a
distribution in an amount equal to the fair market value of the shares received,
determined as of the distribution date. The basis of such shares will equal the
fair market value on the distribution date.
Each Fund will inform shareholders of the source and tax status of all
distributions promptly after the close of each calendar year. Some portion of
the distributions from a Fund may be eligible for the dividends received
deduction for corporations if such Fund receives qualifying dividends during the
year and if certain other requirements of the Code are satisfied.
Although dividends generally will be treated as distributed when paid,
dividends declared in October, November or December, payable to shareholders of
record on a specified date in such month and paid during January of the
following year will be treated as having been distributed by a Fund and received
by the shareholders on the December 31st prior to the date of payment. In
addition, certain other distributions made after the close of a taxable year of
a Fund may be "spilled back" and treated as paid by such Fund (except for
purposes of the 4% excise tax) during such taxable year. In such case,
shareholders will be treated as having received such dividends in the taxable
year in which the distribution was actually made.
Income from investments in foreign securities received by a Fund may be
subject to income, withholding or other taxes imposed by foreign countries and
U.S. possessions. Tax conventions between certain countries and the United
States may reduce or eliminate such taxes. Shareholders of a Fund may be
entitled to claim United States foreign tax credits with respect to such taxes,
subject to certain provisions and limitations contained in the Code. If more
than 50% in value of a Fund's total assets at the close of its fiscal year
consists of securities of foreign issuers and such Fund meets certain holding
period requirements with respect to the securities, the Fund will be eligible to
file, and may file, elections with the IRS pursuant to which shareholders of
such Fund will be required (i) to include their respective pro rata portions of
such taxes in their United States income tax returns as gross income and (ii) to
treat such respective pro rata portions as taxes paid by them. Each shareholder
will be entitled, subject to certain limitations, either to deduct his pro rata
portion of such foreign taxes in computing his taxable income or to credit them
against his United States federal income taxes. No deduction for such foreign
taxes may be claimed by a shareholder who does not itemize deductions. Each
shareholder of a Fund that may be eligible to file the election described in
this paragraph will be notified annually whether the foreign taxes paid by such
Fund will "pass through" for that year and, if so, such notification will
designate (i) the shareholder's portion of the foreign taxes paid to each
country and (ii) the portion of dividends that represent income derived from
sources within each country. The amount of foreign taxes for which a shareholder
may claim a credit in any year will be subject to an overall limitation such
that the credit may not exceed the shareholder's United States federal income
45
<PAGE>
tax attributable to the shareholder's foreign source taxable income. This
limitation generally applies separately to certain specific categories of
foreign source income including "passive income," which includes dividends and
interest. Because application of the foregoing rules depends on the particular
circumstances of each shareholder, shareholders are advised to consult their tax
advisers.
Certain foreign currency gains or losses attributable to currency exchange
rate fluctuations are treated as ordinary income or loss. Such income or loss
may increase or decrease (or possibly eliminate) a Fund's income available for
distribution. If, under the rules governing the tax treatment of foreign
currency gains and losses, such Fund's income available for distribution is
decreased or eliminated, all or a portion of the dividends declared by the Fund
may be treated for federal income tax purposes as a return of capital or, in
some circumstances, as capital gain. Generally, a shareholder's tax basis in
Fund shares will be reduced to the extent that an amount distributed to such
shareholder is treated as a return of capital.
SALE OF SHARES
The sale of shares (including transfers in connection with a redemption or
repurchase of shares) will be a taxable transaction for federal income tax
purposes. Selling shareholders will generally recognize gain or loss in an
amount equal to the difference between their adjusted tax basis in the shares
and the amount received. If such shares are held as a capital asset, the gain or
loss will be a capital gain or loss. For a summary of the tax rates applicable
to capital gains, see "Capital Gains Rates" below. Any loss recognized upon a
taxable disposition of shares held for six months or less will be treated as a
long-term capital loss to the extent of any capital gain dividends received with
respect to such shares. For purposes of determining whether shares have been
held for six months or less, the holding period is suspended for any periods
during which the shareholder's risk of loss is diminished as a result of holding
one or more other positions in substantially similar or related property or
through certain options or short sales.
CAPITAL GAINS RATES
The maximum tax rate applicable to net capital gains recognized by
individuals and other non-corporate taxpayers is (i) the same as the maximum
ordinary income tax rate for capital assets held for one year or less or (ii)
20% for capital assets held for more than one year. The maximum long-term
capital gains rate for corporations is 35%.
NON-U.S. SHAREHOLDERS
A shareholder who is not (i) a citizen or resident of the United States,
(ii) a corporation or partnership created or organized under the laws of the
United States or any state thereof, (iii) an estate, the income of which is
subject to United States federal income taxation regardless of its source or
(iv) a trust whose administration is subject to the primary supervision of a
United States court and which has one or more United States fiduciaries who have
the authority to control all substantial decisions of the trust (a "Non-U.S.
Shareholder") generally will be subject to withholding of United States federal
income tax at a 30% rate (or lower applicable treaty rate) on dividends from the
Fund (other than capital gain dividends) that are not "effectively connected"
with a United States trade or business carried on by such shareholder.
Accordingly, investment in certain Funds that invest primarily in debt
securities or securities of foreign issuers is likely to be appropriate for a
Non-U.S. Shareholder only if such person can utilize a foreign tax credit or
corresponding tax benefit in respect of such United States withholding tax.
Non-effectively connected capital gain dividends and gains realized from the
sale of shares will not be subject to United States federal income tax in the
case of (i) a Non-U.S. Shareholder that is a corporation and (ii) a Non-U.S.
Shareholder that is not present in the United States for more than 182 days
during the taxable year (assuming that certain other conditions are met).
However, certain Non-U.S. Shareholders may nonetheless be subject to backup
withholding on capital gain dividends and gross proceeds paid to them upon the
sale of their shares. See "Backup Withholding" below.
If income from a Fund or gains realized from the sale of shares is
effectively connected with a Non-U.S. Shareholder's United States trade or
business, then such amounts will be subject to United States federal income tax
on a net basis at the tax rates applicable to United States citizens or domestic
corporations. Non-U.S. Shareholders that are corporations may also be subject to
an additional "branch profits tax" with respect to income from the Fund that is
effectively connected with a United States trade or business.
Final United States Treasury Regulations, effective for payments made after
December 31, 2000, modify the withholding, backup withholding and information
reporting rules, including the procedures to be followed by Non-U.S.
Shareholders in establishing foreign status. Prospective investors should
consult their tax advisers concerning the applicability and effect of such
Treasury Regulations on an investment in shares of a Fund.
The tax consequences to a Non-U.S. Shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described in
this section. Non-U.S. Shareholders may be required to provide appropriate
documentation to establish their entitlement to the benefits of such a treaty.
Foreign investors are advised to consult their tax advisers with respect to the
tax implications of purchasing, holding and disposing of shares of a Fund.
46
<PAGE>
BACKUP WITHHOLDING
A Fund may be required to withhold federal income tax at a rate of 31%
("backup withholding") from dividends and redemption proceeds paid to
non-corporate shareholders. This tax may be withheld from dividends if (i) the
shareholder fails to furnish such Fund with its correct taxpayer identification
number, (ii) the IRS notifies the Fund that the shareholder has failed to
properly report certain interest and dividend income to the IRS and to respond
to notices to that effect or (iii) when required to do so, the shareholder fails
to certify that he or she is not subject to backup withholding. Redemption
proceeds may be subject to withholding under the circumstances described in (i)
above.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules from payments made to a Shareholder may be refunded or
credited against such shareholder's United States federal income tax liability,
if any, provided that the required information is furnished to the IRS.
INFORMATION REPORTING
Each Fund must report annually to the IRS and to each shareholder the amount
of dividends paid to such shareholder and the amount, if any, of tax withheld
with respect to such dividends. In the case of a Non-U.S. Shareholder, this
information may also be made available to the tax authorities in such Non-U.S.
Shareholder's country of residence.
GENERAL
The federal income tax discussion set forth above is for general information
only. Prospective investors should consult their advisors regarding the specific
federal tax consequences of purchasing, holding and disposing of shares, as well
as the effects of state, local and foreign tax law and any proposed tax law
changes.
PERFORMANCE INFORMATION
The Company may from time to time quote various performance figures to
illustrate the Funds' past performance.
Performance quotations by investment companies are subject to rules adopted
by the SEC, which require the use of standardized performance quotations. In the
case of total return, non-standardized performance quotations may be furnished
by the Company but must be accompanied by certain standardized performance
information computed as required by the SEC. Current yield and average annual
compounded total return quotations used by the Company are based on the
standardized methods of computing performance mandated by the SEC. An
explanation of those and other methods used by the Company to compute or express
performance follows.
TOTAL RETURN
From time to time the Funds may advertise total return. Total return figures
are based on historical earnings and are not intended to indicate future
performance. The average annual total return is determined by finding the
average annual compounded rates of return over 1-, 5-, and 10-year periods (or
over the life of the Fund) that would equate an initial hypothetical $1,000
investment to its ending redeemable value. The calculation assumes that all
dividends and distributions are reinvested when paid. The quotation assumes the
amount was completely redeemed at the end of each 1-, 5-, and 10- year period
(or over the life of the Fund) and the deduction of all applicable Company
expenses on an annual basis.
Total return figures are calculated according to the following formula:
<TABLE>
<C> <C> <S>
n
P(1+T) = ERV
</TABLE>
where:
<TABLE>
<C> <C> <S>
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of hypothetical $1,000 payment made
at the beginning of the 1-, 5-, or 10-year periods at the
end of the 1-, 5-, or 10-year periods (or fractional portion
thereof).
</TABLE>
Calculated using the formula above, the average annualized total return,
exclusive of a sales charge or deferred sales charge, for each of the Funds that
commenced operations prior to June 30, 1999 for the one, three and five year
periods ended June 30, 1999 and for the period from the inception of each Fund
through June 30, 1999 are as follows:
<TABLE>
<CAPTION>
ONE-YEAR FIVE-YEAR INCEPTION
INCEPTION PERIOD ENDED PERIOD ENDED THROUGH
DATE JUNE 30, 1999 JUNE 30, 1999 JUNE 30, 1999
--------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Global Equity Allocation Fund
Class A Shares.......................................... 01/04/93 8.41% 15.09% 14.76%
Class B Shares(1)....................................... 08/01/95 7.50 N/A 15.41
Class C Shares(1)....................................... 01/04/93 7.61 14.23 13.92
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
ONE-YEAR FIVE-YEAR INCEPTION
INCEPTION PERIOD ENDED PERIOD ENDED THROUGH
DATE JUNE 30, 1999 JUNE 30, 1999 JUNE 30, 1999
--------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Global Fixed Income Fund
Class A Shares.......................................... 01/04/93 0.95 5.38 5.44
Class B Shares(1)....................................... 08/01/95 .05 N/A 3.04
Class C Shares(1)....................................... 01/04/93 .05 4.53 4.61
Asian Growth Fund
Class A Shares.......................................... 06/23/93 75.69 (4.76) 0.20
Class B Shares(1)....................................... 08/01/95 74.48 N/A (8.57)
Class C Shares(1)....................................... 06/23/93 74.13 (5.50) (.55)
American Value Fund
Class A Shares.......................................... 10/18/93 17.41 21.59 18.47
Class B Shares(1)....................................... 08/01/95 16.50 N/A 21.74
Class C Shares(1)....................................... 10/18/93 16.55 20.66 17.56
Worldwide High Income Fund
Class A Shares.......................................... 04/21/94 (11.14) 8.87 9.12
Class B Shares(1)....................................... 08/01/95 (11.82) N/A 8.34
Class C Shares(1)....................................... 04/21/94 (11.83) 8.04 8.27
Emerging Markets Fund
Class A Shares.......................................... 07/06/94 23.92 N/A (1.39)
Class B Shares(1)....................................... 08/01/95 22.99 N/A (0.25)
Class C Shares(1)....................................... 07/06/94 23.09 N/A (2.09)
Latin American Fund
Class A Shares.......................................... 07/06/94 3.00 N/A 7.52
Class B Shares(1)....................................... 08/01/95 2.47 N/A 14.69
Class C Shares(1)....................................... 07/06/94 2.28 N/A 6.70
Aggressive Equity Fund
Class A Shares.......................................... 01/02/96 25.57 N/A 30.80
Class B Shares.......................................... 01/02/96 24.59 N/A 29.85
Class C Shares.......................................... 01/02/96 24.67 N/A 29.85
High Yield & Total Return Fund
Class A Shares.......................................... 05/01/96 1.90 N/A 9.60
Class B Shares.......................................... 05/01/96 1.28 N/A 8.80
Class C Shares.......................................... 05/01/96 1.28 N/A 8.80
International Magnum Fund
Class A Shares.......................................... 07/01/96 (5.54) N/A 6.28
Class B Shares.......................................... 07/01/96 (6.28) N/A 5.48
Class C Shares.......................................... 07/01/96 (6.25) N/A 5.47
Japanese Equity Fund
Class A Shares.......................................... N/A -- -- --
Class B Shares.......................................... N/A -- -- --
Class C Shares.......................................... N/A -- -- --
Growth and Income Fund II
Class A Shares.......................................... N/A -- -- --
Class B Shares.......................................... N/A -- -- --
Class C Shares.......................................... N/A -- -- --
European Equity Fund
Class A Shares.......................................... 9/25/98 N/A N/A 6.75
Class B Shares.......................................... 9/25/98 N/A N/A 6.26
Class C Shares.......................................... 9/25/98 N/A N/A 5.96
Equity Growth Fund
Class A Shares.......................................... 5/29/98 21.90 N/A 23.10
Class B Shares.......................................... 5/29/98 21.14 N/A 22.29
Class C Shares.......................................... 5/29/98 21.04 N/A 22.20
Global Equity Fund
Class A Shares.......................................... 10/29/97 4.05% N/A 9.24%
Class B Shares.......................................... 10/29/97 3.29 N/A 8.45
Class C Shares.......................................... 10/29/97 3.39 N/A 8.45
Emerging Markets Debt Fund
Class A Shares.......................................... N/A -- -- --
Class B Shares.......................................... N/A -- -- --
Class C Shares.......................................... N/A -- -- --
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
ONE-YEAR FIVE-YEAR INCEPTION
INCEPTION PERIOD ENDED PERIOD ENDED THROUGH
DATE JUNE 30, 1999 JUNE 30, 1999 JUNE 30, 1999
--------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Mid Cap Growth Fund
Class A Shares.......................................... N/A -- -- --
Class B Shares.......................................... N/A -- -- --
Class C Shares.......................................... N/A -- -- --
Value Fund
Class A Shares.......................................... 7/7/97 5.83 N/A 6.34
Class B Shares.......................................... 7/7/97 5.02 N/A 5.57
Class C Shares.......................................... 7/7/97 5.13 N/A 5.53
Tax Managed Global Franchise Fund
Class A Shares.......................................... 9/25/98 N/A N/A 21.22
Class B Shares.......................................... 9/25/98 N/A N/A 20.40
Class C Shares.......................................... 9/25/98 N/A N/A 21.40
</TABLE>
- ------------------
The Emerging Markets Debt, Growth and Income II, Japanese Equity and Mid Cap
Growth Funds had not commenced operations in the fiscal year ended June 30,
1999.
(1) The Class B shares listed above were created on May 1, 1995. The original
Class B shares were renamed Class C shares, as listed above, on May 1, 1995.
The Class B shares commenced operations on August 1, 1995.
YIELD FOR CERTAIN FUNDS
From time to time certain of the Funds may advertise yield.
Current yield reflects the income per share earned by a Fund's investments.
Current yield is determined by dividing the net investment income per share
earned during a 30-day base period by the maximum offering price per share on
the last day of the period and annualizing the result. Expenses accrued for the
period include any fees charged to all shareholders during the base period.
Current yield figures are obtained using the following formula:
<TABLE>
<S> <C> <C>
2[(a - b + 1) - 1]
Yield = ------------------
cd
</TABLE>
where:
<TABLE>
<C> <C> <S>
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the
period that were entitled to receive income distributions
d = the maximum offering price per share on the last day of the
period
</TABLE>
The respective current yields for the following Funds 30-day period ended
June 30, 1999 were as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
FUND NAME SHARES SHARES SHARES
- --------- -------- -------- --------
<S> <C> <C> <C>
Global Fixed Income Fund 2.76% 2.14% 2.14%
Worldwide High Income Fund 11.18% 10.97% 10.97%
High Yield & Total Return Fund 8.52% 8.18% 8.18%
</TABLE>
COMPARISONS
To help investors better evaluate how an investment in a Fund might satisfy
their investment objective, advertisements regarding the Company may discuss
various measures of Fund performance as reported by various financial
publications. Advertisements may also compare performance (as calculated above)
to performance as reported by other investments, indices and averages.
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.
49
<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 research firms such as
Ibbotson Associates of Chicago, Illinois ("Ibbotson"), including returns on
common stocks, small capitalization stocks, long-term corporate bonds,
intermediate-term government bonds, long-term government bonds, Treasury bills,
the U.S. rate of inflation (based on the Consumer Price Index), and combinations
of various capital markets. The performance of these capital markets is based on
the returns of different indices. The Funds may use the performance of these
capital markets in order to demonstrate general risk-versus-reward investment
scenarios. Performance comparisons may also include the value of a hypothetical
investment in any of these capital markets. The risks associated with the
security types in any capital market may or may not correspond directly to those
of the Funds. The Funds may also compare their performance to that of other
compilations or indices that may be developed and made available in the future.
The Funds may include in advertisements, charts, graphs or drawings which
illustrate the potential risks and rewards of investment in various investment
vehicles, including but not limited to, foreign securities, stocks, bonds,
treasury bills and shares of a Fund. In addition, advertisements may include a
discussion of certain attributes or benefits to be derived by an investment in a
Fund and/or other mutual funds, shareholder profiles and hypothetical investor
scenarios, timely information on financial management, tax and retirement
planning and various investment alternatives. The Funds may also from time to
time include discussions or illustrations of the effects of compounding in
advertisements. "Compounding" refers to the fact that, if dividends or other
distributions on a Fund investment are reinvested by being paid in additional
Fund shares, any future income or capital appreciation of a Fund would increase
the value, not only of the original investment in the Fund, but also of the
additional Fund shares received through reinvestment.
The Funds may include in its advertisements, discussions or illustrations of
the potential investment goals of a prospective investor (including materials
that describe general principles of investing, such as asset allocation,
diversification, risk tolerance, goal setting, questionnaires designed to help
create a personal financial profile, worksheets used to project savings needs
based on assumed rates of inflation and hypothetical rates of return and action
plans offering investment alternatives), investment management techniques,
policies or investment suitability of a Fund (such as value investing, market
timing, dollar cost averaging, asset allocation, constant ratio transfer,
automatic account rebalancing, the advantages and disadvantages of investing in
tax-deferred and taxable investments). Advertisements and sales materials
relating to a Fund may include information regarding the background and
experience of its portfolio managers; the resources, expertise and support made
available to the portfolio managers and the portfolio managers' goals,
strategies and investment techniques.
The Funds' advertisements may discuss economic and political conditions of
the United States and foreign countries, the relationship between sectors of the
U.S., a foreign, or the global economy and the U.S., a foreign, or the global
economy as a whole and the effects of inflation. The Funds may include
discussions and illustrations of the growth potential of various global markets
including, but not limited to, Africa, Asia, Europe, Latin America, North
America, South America, Emerging Markets and individual countries. These
discussions may include the past performance of the various markets or market
sectors; forecasts of population, gross national product and market performance;
and the underlying data which supports such forecasts. From time to time,
advertisements, sales literature, communications to shareholders or other
materials may summarize the substance of information contained in the Funds'
shareholder reports (including the investment composition of a Fund), as well as
views as to current market, economic, trade and interest rate trends,
legislative, regulatory and monetary developments, investment strategies and
related matters believed to be of relevance to a Fund.
The Funds may quote various measures of volatility and benchmark correlation
in advertising. The Funds may compare these measures to those of other funds.
Measures of volatility seek to compare the historical share price fluctuations
or total 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
50
<PAGE>
shares when prices are high and more shares when prices are low. While such a
strategy does not assure a profit or guard against loss in a declining market,
the investor's average cost per share can be lower than if fixed numbers of
shares are purchased at the same intervals. In evaluating such a plan, investors
should consider their ability to continue purchasing shares during periods of
low price levels.
From time to time marketing materials may provide a portfolio manager
update, an adviser update and discuss general economic conditions and outlooks.
The Funds' marketing materials may also show each Fund's asset class
diversification, top five sector holdings and ten largest holdings. Materials
may also mention how the Adviser believes a Fund compares relative to other
funds advised by the Adviser or distributed by the Distributor. Materials may
also discuss the Dalbar Financial Services study from 1984 to 1994 which
examined investor cash flow into and out of all types of mutual funds. The ten
year study found that investors who bought mutual fund shares and held such
shares outperformed investors who bought and sold. The Dalbar study conclusions
were consistent regardless if shareholders purchased their fund in direct or
sales force distribution channels. The study showed that investors working with
a professional representative have tended over time to earn higher returns than
those who invested directly. The Funds will also be marketed on the Internet.
OTHER INFORMATION
CUSTODY OF ASSETS
Chase serves as the Company's custodian.
SHAREHOLDER REPORTS
Semiannual statements are furnished to shareholders, and annually such
statements are audited by the independent accountants.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 200 E. Randolph Street, Chicago, Illinois 60601,
the independent accountants for the Funds, performs an annual audit of each
Fund's financial statements.
LEGAL COUNSEL
Counsel to the Funds is Skadden, Arps, Slate, Meagher & Flom (Illinois).
51
<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>
PART C: OTHER INFORMATION
ITEM 23. EXHIBITS
<TABLE>
<C> <S> <C>
(a) (1) Articles of Amendment and Restatement(1)
(2) Articles Supplementary (adding Registrant's High Yield & Total
Return (formerly, High Yield) and Japanese Equity Funds) to the
Amended and Restated Articles of Incorporation(2)
(3) Articles Supplementary (adding Registrant's Global Equity, Emerging
Market Debt, Mid Cap Growth, Equity Growth and Value Funds) to the
Amended and Restated Articles of Incorporation(3)
(4) Articles Supplementary (changing the name of Morgan Stanley Equity
Growth to Van Kampen Equity Growth) to the Amended and Restated
Articles of Incorporation(7)
(5) Articles Supplementary (adding Registrant's Global Franchise Fund)
to the Amended and Restated Articles of Incorporation(7)
(6) Articles of Amendment (changing the corporate name from Morgan
Stanley Fund, Inc. to Van Kampen Series Fund, Inc.)(8)
(7) Articles Supplementary (changing the name of each fund (except the
money market funds))(8)
(8) Articles Supplementary (changing the name of Van Kampen Aggressive
Equity Fund to Van Kampen Focus Equity Fund)(10)
(9) Articles Supplementary (changing the name of Van Kampen Global
Franchise Fund to Van Kampen Tax Managed Global Franchise Fund)+
(b) Amended and Restated By-Laws(1)
(c) Specimen stock certificates relating to all of the Funds of the
Registrant(5)
(d) (1) Investment Advisory Agreement(8)
(2) Investment Sub-Advisory Agreement, Morgan Stanley Dean Witter
Investment Management Inc., formerly, Morgan Stanley Asset
Management Inc.(5)
(3) Investment Sub-Advisory Agreement, Miller Anderson & Sherrerd,
LLP(5)
(e) (1) Distribution Agreement(3)
(2) Form of Dealer Agreement(9)
(3) Form of Broker Fully Disclosed Clearing Agreement(9)
(4) Form of Bank Fully Disclosed Clearing Agreement(9)
(f) (1) Form of Trustee Deferred Compensation Agreement(6)
(2) Form of Trustee Retirement Plan(6)
(g) Custody Agreement, The Chase Manhattan Bank, N.A.(4)
(h) (1) Transfer Agency and Service Agreements:
(i) Sub-Transfer Agency Agreement between Morgan Stanley Dean
Witter Investment Management Inc., formerly, Morgan Stanley
Asset Management Inc. and Van Kampen Investor
Services Inc.(3)
(ii) Assignment and Assumption Agreement for Sub-Transfer Agency
Agreement between Van Kampen Investment Advisory Corp. and
Morgan Stanley Dean Witter Investment Management Inc.,
formerly, Morgan Stanley Asset Management Inc.(5)
</TABLE>
C-1
<PAGE>
<TABLE>
<C> <S> <C>
(iii) Sub-Transfer Agency Agreement between Miller Anderson &
Sherrerd, LLP and Van Kampen Investor Services Inc.(3)
(iv) Assignment and Assumption Agreement (Sub-Transfer Agency
Agreement) between Van Kampen Investment Advisory Corp. and
Miller Anderson & Sherrerd, LLP(5)
(v) Amended Schedule for Sub-Transfer Agency Agreement between
Morgan Stanley Dean Witter Investment Management Inc.,
formerly, Morgan Stanley Asset Management Inc., and Van
Kampen Investor Services Inc. (Global Franchise Fund)(8)
(2) Administration Agreements:
(i) Administration Agreement between Registrant and Morgan
Stanley Dean Witter Investment Management Inc., formerly,
Morgan Stanley Asset Management Inc.(4) and as amended by
Addendum to such Agreement(1)
(ii) Assignment and Assumption Agreement (Administration
Agreement) between Van Kampen Investment Advisory Inc. and
Morgan Stanley Dean Witter Investment Management Inc.,
formerly, Morgan Stanley Asset Management Inc.(5)
(iii) Administration Agreement between Registrant and Miller
Anderson & Sherrerd, LLP(3)
(iv) Assignment and Assumption Agreement (Administration
Agreement) between Van Kampen Investment Advisory Corp. and
Miller Anderson & Sherrerd, LLP(5)
(v) Sub-Administration Agreement between Morgan Stanley Dean
Witter Investment Management Inc., formerly, Morgan Stanley
Asset Management Inc. and The Chase Manhattan Bank(3)
(vi) Assignment and Assumption Agreement (Sub-Administration
Agreement) between Van Kampen Investment Advisory Corp. and
Morgan Stanley Dean Witter Investment Management Inc.,
formerly, Morgan Stanley Asset Management Inc.(5)
(vii) Sub-Administration Agreement between Miller Anderson &
Sherrerd, LLP and The Chase Manhattan Bank(3)
(viii) Assignment and Assumption Agreement (Sub-Administration
Agreement) between Van Kampen Investment Advisory Corp. and
Miller Anderson & Sherrerd, LLP(5)
(ix) Amended Administration Agreement between Registrant and
Morgan Stanley Dean Witter Investment Management Inc.,
formerly, Morgan Stanley Asset Management Inc.(4)
(3) Amended and Restated Legal Services Agreement(8)
(i) (1) Opinion of Skadden, Arps, Slate, Meagher & Flom (Illinois)(8)
(2) Consent of Skadden, Arps, Slate, Meagher & Flom (Illinois)+
(j) Consent of Independent Accountants(10)
(k) Not applicable
(l) Purchase Agreement(4)
(m) (1) Distribution Plan Pursuant to Rule 12b-1:
(i) Plan of Distribution for Class A Shares of the Global Fixed
Income, Asian Growth, American Value, Worldwide High Income,
Emerging Markets, Latin American, Global Equity Allocation,
High Yield & Total Return (formerly High Yield),
International Magnum and Focus Equity (formerly Aggressive
Equity) Funds(3)
</TABLE>
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<PAGE>
<TABLE>
<C> <S> <C>
(ii) Plan of Distribution of the Japanese Equity, European
Equity, Growth and Income II, Global Equity, Emerging
Markets Debt, Mid Cap Growth, Equity Growth, Value and Tax
Managed Global Franchise Funds(3)
(iii) Amended and Restated Plan of Distribution for Class B and
Class C Shares of the Global Fixed Income, Asian Growth,
American Value, Worldwide High Income, Emerging Markets,
Latin American, Global Equity Allocation, High Yield & Total
Return (formerly High Yield), International Magnum, Focus
Equity (formerly Aggressive Equity), Japanese Equity, Global
Equity, Emerging Markets Debt, Mid Cap Growth, Equity
Growth, Value and Tax Managed Global Franchise Funds(3)
(iv) Plan of Distribution for Class B and Class C Shares of the
Japanese Equity, European Equity and Growth and Income II
Funds(3)
(2) Service Plans for each fund in the Series(10)
(o) Multiple Class Plan(3)
(p) Power of Attorney++
(z) (1) List of certain investment companies in response to Item 27(a)++
(2) List of officers and directors of Van Kampen Funds Inc. in response
to Item 27(b)++
</TABLE>
- ------------------------
(1) Incorporated herein by reference to Post-Effective Amendment No. 10 to
Registrant's Registration Statement on Form N-1A (File Nos. 33-51294 and
811-7140), as filed with the SEC via EDGAR on October 4, 1995.
(2) Incorporated herein by reference to Post-Effective Amendment No. 16 to
Registrant's Registration Statement on Form N-1A (File Nos. 33-51294 and
811-7140), as filed with the SEC via EDGAR on October 18, 1996.
(3) Incorporated herein by reference to Post-Effective Amendment No. 18 to
Registrant's Registration Statement on Form N-1A (File Nos. 33-51294 and
811-7140), as filed with the SEC via EDGAR on December 31, 1996.
(4) Incorporated herein by reference to Post-Effective Amendment No. 11 to
Registrant's Registration Statement on Form N-1A (File Nos. 33-51294 and
811-7140), as filed with the SEC via EDGAR on October 30, 1995.
(5) Incorporated herein by reference to Post-Effective Amendment No. 20 to
Registrant's Registration statement on Form N-1A (File Nos. 33-51294 and
811-7140), as filed with the SEC via EDGAR on August 29, 1997.
(6) Incorporated herein by reference to Post-Effective 81 to Van Kampen Harbor
Fund's Registration Statement on Form N-1A (File Nos. 2-12685 and 811-734),
as filed with the SEC via EDGAR on April 29, 1999.
(7) Incorporated herein by reference to Post-Effective Amendment No. 24 to
Registrant's Registration Statement on Form N-1A (File Nos. 33-51294 and
811-7140), as filed with the SEC via EDGAR on July 1, 1998.
(8) Incorporated herein by reference to Post-Effective Amendment No. 25 to
Registrant's Registration Statement on Form N-1A (File Nos. 33-51294 and
811-7140) as filed with the SEC via EDGAR on September 28, 1998.
(9) Incorporated herein by reference to Pre-Effective Amendment No. 1 to Van
Kampen Equity Trust II Registration Statement on Form N-1A (File Nos.
333-75493 and 811-9279), as filed with the SEC via EDGAR on June 4, 1999.
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<PAGE>
(10) Incorporated herein by reference to Post-Effective Amendment No. 27 to
Registrant's Registration Statement on Form N-1A (File No. 33-51294 and
811-7140), as filed with the SEC via EDGAR on October 28, 1999
+ To be filed by amendment.
++ Filed herewith.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
See the Statement of Additional Information
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.
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<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
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<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 7th of January, 2000.
<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 January 7, 2000 by
the following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S> <C>
Principal Executive Officer:
/s/ RICHARD F. POWERS, III* President and Trustee
--------------------------------------
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/ LINDA HUTTON HEAGY* Director
--------------------------------------
Linda Hutton Heagy
/s/ R. CRAIG KENNEDY* Director
--------------------------------------
R. Craig Kennedy
/s/ MITCHELL M. MERIN* Director
--------------------------------------
Mitchell M. Merin
/s/ JACK E. NELSON* Director
--------------------------------------
Jack E. Nelson
/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 January 7, 2000.
ATTORNEY-IN-FACT
</TABLE>
<PAGE>
SCHEDULE OF EXHIBITS TO
POST-EFFECTIVE AMENDMENT 28 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 A. Thomas Smith
III, each of Oakbrook Terrace, Illinois, as agents and attorneys-in-fact with
full power of substitution and resubstitution, for each of the undersigned, to
execute and deliver, for and on behalf of the undersigned, any and all
amendments to the Registration Statement filed by each Trust or the Corporation
with the Securities and Exchange Commission pursuant to the provisions of the
Securities Act of 1933 and the Investment Company Act of 1940.
This Power of Attorney may be executed in multiple counterparts, each
of which shall be deemed an original, but which taken together shall constitute
one instrument.
Dated: December 15, 1999
Signature Title
--------- -----
/s/ Richard F. Powers, III President, Trustee/Director
- ------------------------------------
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/ Linda Hutton Heagy Trustee/Director
- ------------------------------------
Linda Hutton Heagy
/s/ R. Craig Kennedy Trustee/Director
- ------------------------------------
R. Craig Kennedy
/s/ Mitchell M. Merin Trustee/Director
- ------------------------------------
Mitchell M. Merin
/s/ Jack E. Nelson Trustee/Director
- ------------------------------------
Jack E. Nelson
/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
- ------------------------------------
Suzanne H. Woolsey
/s/ Paul G. Yovovich Trustee/Director
- ------------------------------------
Paul G. Yovovich
<PAGE>
SCHEDULE 1
VAN KAMPEN U.S. GOVERNMENT TRUST
VAN KAMPEN TAX FREE TRUST
VAN KAMPEN TRUST
VAN KAMPEN EQUITY TRUST
VAN KAMPEN EQUITY TRUST II
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)
Item 27(a)
- ----------
Van Kampen U.S. Government Trust
Van Kampen U.S. Government Fund
Van Kampen Tax Free Trust
Van Kampen Insured Tax Free Income Fund
Van Kampen Tax Free High Income Fund
Van Kampen California Insured Tax Free Fund
Van Kampen Municipal Income Fund
Van Kampen Intermediate Term Municipal Income Fund
Van Kampen Florida Insured Tax Free Income Fund
Van Kampen New York Tax Free Income Fund
Van Kampen California Tax Free Income Fund*
Van Kampen Michigan Tax Free Income Fund*
Van Kampen Missouri Tax Free Income Fund*
Van Kampen Ohio Tax Free Income Fund*
Van Kampen Trust
Van Kampen High Yield Fund
Van Kampen Short-Term Global Income Fund
Van Kampen Strategic Income Fund
Van Kampen Equity Trust
Van Kampen Aggressive Growth Fund
Van Kampen Great American Companies Fund
Van Kampen Growth Fund
Van Kampen Mid Cap Value Fund
Van Kampen Prospector Fund
Van Kampen Small Cap Value Fund
Van Kampen Utility Fund
Van Kampen Equity Trust II
Van Kampen Technology Fund
Van Kampen Pennsylvania Tax Free Income Fund
Van Kampen Tax Free Money Fund
Van Kampen Prime Rate Income Trust
Van Kampen Senior Floating Rate Fund
Van Kampen Comstock Fund
Van Kampen Corporate Bond Fund
Van Kampen Emerging Growth Fund
Van Kampen Enterprise Fund
Van Kampen Equity Income Fund
Van Kampen Exchange Fund
The Explorer Institutional Trust
Explorer Institutional Active Core Fund
Explorer Institutional Limited Duration Fund
<PAGE>
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
Van Kampen Global Government Securities Fund
Van Kampen Series Fund, Inc.
Van Kampen American Value Fund
Van Kampen Asian Growth Fund
Van Kampen Emerging Markets Debt Fund*
Van Kampen Emerging Markets Fund
Van Kampen Equity Growth Fund
Van Kampen European Equity Fund
Van Kampen Focus Equity Fund
Van Kampen Global Equity Allocation Fund
Van Kampen Global Equity Fund
Van Kampen Global Fixed Income Fund
Van Kampen Global Franchise Fund
Van Kampen Growth and Income Fund II*
Van Kampen High Yield & Total Return Fund
Van Kampen International Magnum Fund
Van Kampen Japanese Equity Fund*
Van Kampen Latin American Fund
Van Kampen Mid Cap Growth Fund
Van Kampen Value Fund
Van Kampen Worldwide High Income Fund
<PAGE>
<TABLE>
<S> <C>
Insured Municipals Income Trust Series 414
Strategic Municipal Trust, Intermediate Series 2
California Insured Municipals Income Trust Series 182
FLORIDA INSURED MUNICIPALS INCOME TRUST SERIES 127
MICHIGAN INSURED MUNICIPALS INCOME TRUST SERIES 159
Missouri Insured Municipals Income Trust Series 113
PENNSYLVANIA INSURED MUNICIPALS INCOME TRUST SERIES 245
Virginia Investors' Quality Tax-Exempt Trust Series 86
THE DOW(SM) STRATEGIC 10 TRUST OCTOBER 1999
SERIES
THE DOW(SM) STRATEGIC 10 TRUST OCTOBER 1999
TRADITIONAL
SERIES
THE DOW(SM) STRATEGIC 5 TRUST OCTOBER 1999
SERIES
THE DOW(SM) STRATEGIC 5 TRUST OCTOBER 1999
TRADITIONAL
SERIES
EAFE STRATEGIC 20 TRUST OCTOBER 1999
SERIES
STRATEGIC PICKS OPPORTUNITY TRUST OCTOBER 1999
SERIES
Great International Firms Trust Series 9
Brand Name Equity Trust Series 10
Dow 30 Index Trust Series 8
Dow 30 Index and Treasury Trust Series 10
Global Energy Trust Series 10
Financial Institutions Trust Series 1
Edward Jones Select Growth Trust August 1999
Series
Internet Trust Series 16A
Internet Trust Series 16B
Morgan Stanley High-Technology 35 Index Trust Series 8A
Morgan Stanley High-Technology 35 Index Trust Series 8B
Pharmaceutical Trust Series 7A
Pharmaceutical Trust Series 7B
Telecommunications & Bandwidth Trust Series 7A
Telecommunications and Bandwidth Trust Series 7B
New Frontier Utility Trust Series 7A
New Frontier Utility Trust Series 7B
Roaring 2000s Trust Series 3
Roaring 2000s Trust Traditional Series 3
Robert Baird - Utility & Communications Trust Series 1
Josephthal - Small Cap Focus Portfolio Series 1
Morgan Stanley Multinational Index Trust Series 1A
Morgan Stanley Multinational Index Trust Series 1B
Software Trust Series 1A
Software Trust Series 1B
Gruntal - E-Commerce Software Growth Trust Series 1
Wheat First Union - Mid-Cap Banking Opportunity Trust Series 1
</TABLE>
* Funds that have not commenced investment operations.
<PAGE>
EXHIBIT (z)(2)
Item 27(b)
- ----------
<TABLE>
<S> <C> <C>
Richard F. Powers III Chairman & Chief Executive Officer Oakbrook Terrace, IL
John H. Zimmerman III President Oakbrook Terrace, IL
A. Thomas Smith III Executive Vice President, General Oakbrook Terrace, IL
Counsel & Secretary;
Vice President and Secretary of the Funds
William R. Rybak Executive Vice President, Chief
Financial Officer & Treasurer Oakbrook Terrace, IL
Michael H. Santo Executive Vice President & Chief
Operations & Technology Officer Oakbrook Terrace, IL
Colette M. Saucedo Executive Vice President & Houston, TX
Chief Administrative Officer
A. Thomas Smith III Executive Vice President, General Oakbrook Terrace, IL
Counsel & Secretary; Vice President
and Secretary of the Funds
Laurence J. Althoff Sr. Vice President & Controller Oakbrook Terrace, IL
Don J. Andrews Sr. Vice President & Chief Compliance Oakbrook Terrace, IL
Officer
Sara L. Badler Sr. Vice President, Deputy Oakbrook Terrace, IL
General Counsel & Assistant Secretary;
Assistant Secretary of the Funds
James J. Boyne Sr. Vice President, Deputy General Oakbrook Terrace, IL
Counsel & Assistant Secretary
Gary R. DeMoss Sr. Vice President Oakbrook Terrace, IL
John E. Doyle Sr. Vice President Oakbrook Terrace, IL
Richard G. Golod Sr. Vice President Annapolis, MD
Steven T. Johnson Sr. Vice President Oakbrook Terrace, IL
Walter E. Rein Sr. Vice President Oakbrook Terrace, IL
James J. Ryan Sr. Vice President Oakbrook Terrace, IL
Frederick Shepherd Sr. Vice President Houston, TX
Robert S. West Sr. Vice President Oakbrook Terrace, IL
Patrick J. Woelfel Sr. Vice President Oakbrook Terrace, IL
Edward G. Wood, III Sr. Vice President,
Chief Operating Officer; Oakbrook Terrace. IL
Vice President of the Funds
Patricia A. Bettlach 1st Vice President Chesterfield, MO
Glenn M. Cackovic 1st Vice President Laguna Niguel, CA
Eric J. Hargens 1st Vice President Orlando, FL
Gregory Heffington 1st Vice President Ft. Collins, CO
David S. Hogaboom 1st Vice President Oakbrook Terrace, IL
Dominic C. Martellaro 1st Vice President Danville, CA
Carl Mayfield 1st Vice President Lakewood, CO
Mark R. McClure 1st Vice President Oakbrook Terrace, IL
Maura A. McGrath 1st Vice President New York, NY
Robert F. Muller, Jr. 1st Vice President Oakbrook Terrace, IL
Thomas Rowley 1st Vice President St. Louis, MO
Andrew J. Scherer 1st Vice President Oakbrook Terrace, IL
James D. Stevens 1st Vice President North Andover, MA
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
James R. Yount 1st Vice President Mercer Island, WA
James K. Ambrosio Vice President Massapequa, NY
Brian P. Arcara Vice President Buffalo, NY
Timothy R. Armstrong Vice President Wellington, FL
Shakeel Anwar Barkat Vice President Annapolis, MD
Scott C. Bernstiel Vice President Plainsboro, NJ
Carol S. Biegel Vice President Oakbrook Terrace, IL
Christopher M. Bisaillon Vice President Oakbrook Terrace, IL
William Edwin Bond Vice President New York, NY
Michael P. Boos Vice President Oakbrook Terrace, IL
Robert C. Brooks Vice President Oakbrook Terrace, IL
Elizabeth M. Brown Vice President Houston, TX
William F. Burke, Jr. Vice President Mendham, NJ
Loren Burket Vice President Plymouth, MN
Juanita E. Buss Vice President Kennesaw, GA
Christine Cleary Byrum Vice President Tampa, FL
Richard J. Charlino Vice President Oakbrook Terrace, IL
Deanne Margaret Chiaro Vice President Oakbrook Terrace, IL
Scott A. Chriske Vice President Plano, TX
German Clavijo Vice President Atlanta, GA
Eleanor M. Cloud Vice President Oakbrook Terrace, IL
Dominick Cogliandro Vice President & Asst. Treasurer New York, NY
Michael Colston Vice President Louisville, KY
Kevin J. Connors Vice President Oakbrook Terrace, IL
Suzanne Cummings Vice President Oakbrook Terrace, IL
Michael E. Eccleston Vice President Oakbrook Terrace, IL
William J. Fow Vice President Redding, CT
Nicholas J. Foxhoven Vice President Englewood, CO
Charles Friday Vice President Gibsonia, PA
Timothy D. Griffith Vice President Kirkland, WA
Kyle D. Haas Vice President Oakbrook Terrace, IL
Daniel Hamilton Vice President Austin, TX
John G. Hansen Vice President Oakbrook Terrace, IL
Joseph Hays Vice President Cherry Hill, NJ
Michael D. Hibsch Vice President Oakbrook Terrace, IL
Susan J. Hill Vice President Oakbrook Terrace, IL
Thomas R. Hindelang Vice President Gilbert, AZ
Bryn M. Hoggard Vice President Houston, TX
Michelle Huber Vice President Oakbrook Terrace, IL
Michael B. Hughes Vice President Oakbrook Terrace, IL
Lowell Jackson Vice President Norcross, GA
Kevin G. Jajuga Vice President Baltimore, MD
Dana R. Klein Vice President Oakbrook Terrace, IL
Frederick Kohly Vice President Miami, FL
David R. Kowalski Vice President & Senior Compliance Director Oakbrook Terrace, IL
Richard D. Kozlowski Vice President Atlanta, GA
Patricia D. Lathrop Vice President Tampa, FL
Brian Laux Vice President Staten Island, NY
Tony E. Leal Vice President Daphne, AL
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
S. William Lehew III Vice President Charlotte, NC
Jonathan Linstra Vice President Oakbrook Terrace, IL
Richard M. Lundgren Vice President Oakbrook Terrace, IL
Walter Lynn Vice President Flower Mound, TX
Linda S. MacAyeal Vice President Oakbrook Terrace, IL
Kevin S. Marsh Vice President Bellevue, WA
Brooks D. McCartney Vice President Puyallup, WA
Anne Therese McGrath Vice President Los Gatos, CA
John Mills Vice President Kenner, LA
Stuart R. Moehlman Vice President Houston, TX
Ted Morrow Vice President Plano, TX
Peter Nicholas Vice President Beverly, MA
Steven R. Norvid Vice President Oakbrook Terrace, IL
Allyn O' Connor Vice President & Assoc. General Counsel Oakbrook Terrace, IL
Gregory S. Parker Vice President Houston, TX
Christopher Petrungaro Vice President Oakbrook Terrace, IL
Richard J. Poli Vice President Philadelphia, PA
Ronald E. Pratt Vice President Marietta, GA
Daniel D. Reams Vice President Royal Oak, MI
Kevin Wayne Reszel Vice President Oakbrook Terrace, IL
Michael W. Rohr Vice President Oakbrook Terrace. IL
Jeffrey L. Rose Vice President Houston, TX
Suzette N. Rothberg Vice President Plymouth, MN
Jeffrey Rourke Vice President Oakbrook Terrace, IL
Heather R. Sabo Vice President Richmond, VA
Diane Saxon Vice President & Assistant Treasurer Oakbrook Terrace, IL
Stephanie Scarlata Vice President Bedford Corners, NY
Christina L. Schmieder Vice President Oakbrook Terrace, IL
Timothy M. Scholten Vice President Oakbrook Terrace, IL
Ronald J. Schuster Vice President Tampa, FL
Gwen L. Shaneyfalt Vice President Oakbrook Terrace, IL
Jeffrey C. Shirk Vice President Swampscott, MA
Traci T. Sorenson Vice President Oakbrook Terrace, IL
Darren D. Stabler Vice President Phoenix, AZ
Christopher J. Staniforth Vice President Leawood, KS
Richard Stefanec Vice President Los Angles, CA
William C. Strafford Vice President Granger, IN
Mark A. Syswerda Vice President Oakbrook Terrace, IL
Charles S. Thompson Vice President Oakbrook Terrace, IL
John F. Tierney Vice President Oakbrook Terrace, IL
Curtis L. Ulvestad Vice President Red Wing, MN
Daniel B. Waldron Vice President Oakbrook Terrace, IL
Jeff Warland Vice President Oakbrook Terrace, IL
Robert A. Watson Vice President Oakbrook Terrace, IL
Weston B. Wetherell Senior Vice President, Deputy General Oakbrook Terrace, IL
Counsel & Asst. Secretary;
Assistant Secretary of the Funds
Frank L. Wheeler Vice President Oakbrook Terrace, IL
Harold Whitworth, III Vice President Oakbrook Terrace, IL
Joel John Wilczewski Vice President Oakbrook Terrace, IL
Thomas M. Wilson Vice President Oakbrook Terrace, IL
Barbara A. Withers Vice President Oakbrook Terrace, IL
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
David M. Wynn Vice President Phoenix, AZ
Patrick M. Zacchea Vice President Oakbrook Terrace, IL
Scott F. Becker Asst. Vice President Oakbrook Terrace, IL
Brian E. Binder Asst. Vice President Oakbrook Terrace, IL
Billie J. Bronaugh Asst. Vice President Houston, TX
Lynn Chadderton Asst. Vice President Oakbrook Terrace, IL
Amy Cooper Asst. Vice President Oakbrook Terrace, IL
Sarah K. Geiser Asst. Vice President Oakbrook Terrace, IL
Walter C. Gray Asst. Vice President Oakbrook Terrace, IL
Laurie L. Jones Asst. Vice President Houston, TX
Robin R. Jordan Asst. Vice President Oakbrook Terrace, IL
Anne S. Kochevar Asst. Vice President Oakbrook Terrace, IL
Ivan R. Lowe Asst. Vice President Houston, TX
Christine K. Putong Asst. Vice President & Asst. Secretary Oakbrook Terrace, IL
Leah Richardson Asst. Vice President Oakbrook Terrace, IL
David P. Robbins Asst. Vice President Oakbrook Terrace, IL
Regina Rosen Asst. Vice President Oakbrook Terrace, IL
Pamela S. Salley Asst. Vice President Houston, TX
Thomas J. Sauerborn Asst. Vice President New York, NY
David T. Saylor Asst. Vice President Oakbrook Terrace, IL
Lisa Schultz Asst. Vice President Oakbrook Terrace, IL
Lauren B. Sinai Asst. Vice President Oakbrook Terrace, IL
Scott Stevens Asst. Vice President Oakbrook Terrace, IL
Kristen L. Transier Asst. Vice President Houston, TX
Michael Trizil Asst. Vice President Oakbrook Terrace, IL
David H. Villarreal Asst. Vice President Oakbrook Terrace, IL
Sharon M. C. Wells Asst. Vice President Oakbrook Terrace, IL
Cathy Napoli Assistant Secretary Oakbrook Terrace, IL
William R. Rybak 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
Richard F. Powers III Director Oakbrook Terrace, IL
Michael H. Santo Director Oakbrook Terrace, IL
A. Thomas Smith III Director Oakbrook Terrace, IL
William R. Rybak Director Oakbrook Terrace, IL
John H. Zimmerman III Director Oakbrook Terrace, IL
</TABLE>
