<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1999
REGISTRATION NO. 33-74024
NO. 811-8286
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
<TABLE>
<S> <C>
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 [X]
POST-EFFECTIVE AMENDMENT NO. 8 [X]
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 10 [X]
</TABLE>
VAN KAMPEN GLOBAL MANAGED ASSETS FUND
(EXACT NAME OF REGISTRANT AS SPECIFIED IN DECLARATION OF TRUST)
1 PARKVIEW PLAZA, PO BOX 5555, OAKBROOK TERRACE, ILLINOIS 60181-5555
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)(ZIP CODE)
(630) 684-6000
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
A. THOMAS SMITH III
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
VAN KAMPEN INVESTMENTS INC.
1 PARKVIEW PLAZA
PO BOX 5555
OAKBROOK TERRACE, ILLINOIS 60181-5555
(NAME AND ADDRESS OF AGENT FOR SERVICE)
---------------------
Copies to:
WAYNE W. WHALEN, ESQ.
THOMAS A. HALE, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 WEST WACKER DRIVE
CHICAGO, ILLINOIS 60606
(312) 407-0700
Approximate Date of Proposed Public Offering: As soon as practicable following
effectiveness of this Registration Statement.
It is proposed that this filing will become effective:
[X] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(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.
TITLE OF SECURITIES BEING REGISTERED: SHARES OF BENEFICIAL INTEREST, PAR VALUE
$0.01 PER SHARE.
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<PAGE> 2
[VAN KAMPEN FUNDS LOGO]
VAN KAMPEN
GLOBAL MANAGED ASSETS FUND
Van Kampen Global Managed Assets Fund is a
mutual fund with an investment objective to
seek to provide total return through a managed
balance of foreign and domestic equity and
debt securities.
Shares of the Fund have not been approved or
disapproved by the Securities and Exchange
Commission (SEC) or any state regulators, and
neither the SEC nor any state regulator has
passed upon the accuracy or adequacy of this
prospectus. It is a criminal offense to state
otherwise.
This prospectus is dated APRIL 30, 1999.
<PAGE> 3
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.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Risk/Return Summary................................ 3
Fees and Expenses of the Fund...................... 5
Investment Objective and Policies.................. 6
Investment Advisory Services....................... 12
Purchase of Shares................................. 13
Redemption of Shares............................... 20
Distributions from the Fund........................ 22
Shareholder Services............................... 22
Federal Income Taxation............................ 24
Financial Highlights............................... 26
</TABLE>
<PAGE> 4
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The Fund is a mutual fund with an investment objective to seek to provide total
return through a managed balance of foreign and domestic equity and debt
securities. Total return consists of current income (including dividends,
interest and discount accruals) and capital appreciation or depreciation. There
can be no assurance that the Fund will achieve its investment objective.
INVESTMENT STRATEGIES
The Fund's management seeks to achieve the investment objective by investing in
equity securities and debt securities of issuers in the U.S. and foreign
countries. The Fund's management uses a "top-down" investment approach that
emphasizes country selection and weighting rather than individual security
selection. Within a particular country, the Fund seeks securities of issuers
that would replicate a broad market index for that country. The composition of
the Fund's portfolio will vary over time based upon the evaluation of economic
and market trends by the Fund's management and the anticipated relative return
available from a particular country and type of security. The Fund may invest in
any country, including developed or undeveloped countries. Under normal market
conditions, the Fund invests at least 65% of its total assets in securities of
issuers located in at least three different countries (including the U.S.).
Under normal market conditions, the Fund invests at least 25% of its total
assets in high-quality debt securities. The Fund may also invest in certain
derivatives, such as options and futures, which may subject the Fund to
additional risks.
INVESTMENT RISKS
An investment in the Fund is subject to investment risks, and you could lose
money on your investment in the Fund.
MARKET RISK. Market risk is the possibility that the market values of securities
owned by the Fund will decline. Market risk may affect a single issuer,
industry, sector of the economy, or the market as a whole. Investments in equity
securities generally are affected by changes in the stock markets, which
fluctuate substantially over time, sometimes suddenly and sharply. Foreign
markets may, but often do not, move in tandem with changes in U.S. markets, and
foreign markets may have more price volatility than U.S. markets. During an
overall stock market decline, stock prices of small or medium-sized companies
(in which the Fund may invest) often fluctuate more than prices of larger
companies.
Investments in debt securities generally are affected by changes in interest
rates and the creditworthiness of the issuer. The market prices of such
securities tend to fall as interest rates rise, and such declines may be greater
among securities with longer duration.
CREDIT RISK. Credit risk refers to an issuer's ability to make timely payments
of interest or principal. Because the Fund invests in high-quality debt
securities, it is subject to a lower level of credit risk than a fund investing
more in medium- or lower-quality securities.
FOREIGN RISKS. Because the Fund will own securities from foreign issuers, it
will be subject to risks not usually associated with owning securities of U.S.
issuers. These risks can include fluctuations in foreign currencies, foreign
currency exchange controls, political and economic instability, differences in
financial reporting, differences in securities regulation and trading, and
foreign taxation issues. The risks of investing in developing or emerging
markets (in which the Fund may invest) are greater than the risks generally
associated with foreign investments including greater political uncertainties,
an economy's dependence on international development assistance, currency
transfer restrictions, and greater delays and disruptions in settlement
transactions.
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 forward contracts are
examples of derivatives. Such transactions involve risks different from the
direct investment in underlying securities, such as imperfect correlation
between the value of the instruments and the underlying assets; risks of default
by the other party to certain transactions; risks that the transactions may
result in losses that partially or completely offset gains in portfolio
positions; risks that the transactions may not be liquid; and manager risk.
3
<PAGE> 5
NON-DIVERSIFICATION RISKS. The Fund is classified as a "non-diversified" fund,
which means the Fund may invest a greater portion of its assets in a more
limited number of issuers than a "diversified" fund. As a result, the Fund may
be subject to greater risk than a diversified fund because changes in the
financial condition or market assessment of a single issuer may cause greater
fluctuations in the value of the Fund's shares.
MANAGER RISK. As with any managed fund, the Fund's management may not be
successful in selecting the best-performing securities and the Fund's
performance may lag behind that of similar funds.
An investment in the Fund is not a deposit of any bank or other insured
depository institution. Your investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
INVESTOR PROFILE
In light of its objective and investment strategies, the Fund may be appropriate
for investors who:
- - Seek total return over the long term.
- - Are willing to take on the increased risks associated with investing in
foreign securities.
- - Can withstand volatility in the value of their shares of the Fund.
- - Wish to add to their personal investment portfolio a fund that invests
primarily in equity and debt securities of issuers in the U.S. and foreign
countries.
An investment in the Fund may not be appropriate for all investors. The Fund is
not intended to be a complete investment program, and investors should consider
their long-term investment goals and financial needs when making an investment
decision about the Fund. An investment in the Fund is intended to be a long-term
investment and the Fund should not be used as a trading vehicle.
ANNUAL PERFORMANCE
One way to measure the risks of investing in the Fund is to look at how its
performance varies from year to year. The following chart shows the annual
returns of the Fund's Class A Shares over the past four calendar years prior to
the date of this prospectus. Sales loads are not reflected in this chart. If
these sales loads had been included, the returns shown below would have been
lower. Remember that the past performance of the Fund is not indicative of its
future performance.
<TABLE>
<CAPTION>
ANNUAL RETURN
-------------
<S> <C>
'1995' 13.30
'1996' 12.44
'1997' 8.94
'1998' 15.84
</TABLE>
The Fund commenced investment operations on May 16, 1994. The return on Class A
Shares from May 16, 1994 to December 31, 1994 was -1.57%.
The annual return variability of the Fund's Class B Shares and Class C Shares
would be substantially similar to that shown for the Class A Shares because all
of the Fund's shares are invested in the same portfolio of securities; however,
the actual annual returns of the Class B Shares and Class C Shares would be
lower than the annual returns shown for the Fund's Class A Shares because of
differences in the expenses borne by each class of shares.
During the four-year period shown in the bar chart, the highest quarterly return
was 10.46% (for the quarter ended March 31, 1998) and the lowest quarterly
return was -6.41% (for the quarter ended September 30, 1998).
4
<PAGE> 6
COMPARATIVE PERFORMANCE
This table shows how the Fund's performance compares with two broad-based market
indices that the Fund's management believes are applicable benchmarks for the
Fund: Morgan Stanley Capital International World Index and J.P. Morgan Global
Traded Government Index. The Fund's performance figures include the maximum
sales charges paid by investors. The indices' performance figures do not include
commissions or sale charges that would be paid by investors purchasing the
securities represented by these indices. Average annual total returns are shown
for the periods ended December 31, 1998 (the most recently completed calendar
year prior to the date of this prospectus). Remember that the past performance
of the Fund is not indicative of its future performance.
<TABLE>
<CAPTION>
Average Annual
Total Returns
for the
Periods Ended Past Since
December 31, 1998 1 Year Inception
- ---------------------------------------------
<S> <C> <C> <C> <C>
Van Kampen Global
Managed Assets
Fund
.............................................
Class A Shares 10.30% 9.27%(1)
.............................................
Class B Shares 10.96% 9.30%(1)
.............................................
Class C Shares 13.93% 9.56%(1)
.............................................
Morgan Stanley
Capital
International
World Index 24.80% 16.72%(2)
.............................................
J.P. Morgan
Global Traded
Government Index 15.31% 9.34%(2)
.............................................
</TABLE>
Inception dates: (1) 5/16/94, (2) 5/31/94.
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.
SHAREHOLDER FEES
(fees paid directly from your investment)
<TABLE>
<CAPTION>
Class A Class B Class C
Shares Shares Shares
- --------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum sales charge
(load) imposed on
purchases (as a
percentage of
offering price) 4.75%(1) None None
..............................................................
Maximum deferred
sales charge (load)
(as a percentage of
the lesser of
original purchase
price or redemption None(2) 4.00%(3) 1.00%(4)
proceeds)
..............................................................
Maximum sales charge
(load) imposed on
reinvested dividends
(as a percentage of
offering price) None None None
..............................................................
Redemption fees (as a
percentage of amount None None None
redeemed)
..............................................................
Exchange fee None None None
..............................................................
</TABLE>
(1) Reduced for purchases of $100,000 and over. See "Purchase of Shares -- Class
A Shares."
(2) Investments of $1 million or more are not subject to any sales charge at the
time of purchase, but a deferred sales charge of 1.00% may be imposed on
certain redemptions made within one year of the purchase. See "Purchase of
Shares -- Class A Shares."
(3) The maximum deferred sales charge is 4.00% in the first year after purchase
and declining thereafter as follows:
Year 1-4.00%
Year 2-4.00%
Year 3-3.00%
Year 4-2.50%
Year 5-1.50%
After-None
See "Purchase of Shares -- Class B Shares."
(4) The maximum deferred sales charge is 1.00% in the first year after purchase
and 0.00% thereafter. See "Purchase of Shares -- Class C Shares."
5
<PAGE> 7
ANNUAL FUND
OPERATING EXPENSES
(expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
Class A Class B Class C
Shares Shares Shares
- --------------------------------------------------------------
<S> <C> <C> <C> <C>
Management Fees 1.00% 1.00% 1.00%
..............................................................
Distribution and/or 0.25% 1.00%(2) 1.00%(2)
Service (12b-1)
Fees(1)
..............................................................
Other Expenses 2.86% 2.89% 2.91%
..............................................................
Total Annual Fund 4.11% 4.89% 4.91%
Operating Expenses
..............................................................
</TABLE>
(1) Class A Shares are subject to an annual service fee of up to 0.25% of the
average daily net assets attributable to such class of shares. Class B
Shares and Class C Shares are each subject to a combined annual distribution
and service fee of up to 1.00% of the average daily net assets attributable
to such class of shares. See "Purchase of Shares."
(2) Because Distribution and/or Service (12b-1) Fees are paid out of the Fund's
assets on an ongoing basis, over time these fees will increase the cost of
your investment and may cost you more than paying other types of sales
charges.
Example:
The following example is intended to help you compare the cost of investing in
the Fund with the costs of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% annual return each year and
that the Fund's operating expenses remain the same each year (except for the
ten-year amounts for Class B Shares which reflect the conversion of Class B
Shares to Class A Shares after eight years). Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
One Three Five Ten
Year Years Years Years
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $868 $1,665 $2,476 $4,568
........................................................................
Class B Shares $889 $1,769 $2,602 $4,766*
........................................................................
Class C Shares $591 $1,475 $2,461 $4,932
........................................................................
</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> <C>
Class A Shares $868 $1,665 $2,476 $4,568
........................................................................
Class B Shares $489 $1,469 $2,452 $4,766*
........................................................................
Class C Shares $491 $1,475 $2,461 $4,932
........................................................................
</TABLE>
* Based on conversion to Class A Shares after eight years.
INVESTMENT OBJECTIVE
AND POLICIES
The Fund's investment objective is to seek to provide total return through a
managed balance of foreign and domestic equity and debt securities. Total return
consists of current income (including dividends, interest and discount accruals)
and capital appreciation or depreciation. The Fund's investment objective may be
changed by the Fund's Board of Trustees without shareholder approval, but no
change is anticipated. If there is a change in the investment objective of the
Fund, shareholders should consider whether the Fund remains an appropriate
investment in light of their then current financial positions and needs. There
are risks inherent in all investments in securities; accordingly there can be no
assurance that the Fund will achieve its investment objective.
The Fund's investment adviser seeks to achieve the investment objective by
investing in equity and debt securities of issuers in the U.S. and foreign
countries based upon the evaluation of economic and market trends by the Fund's
investment adviser and the anticipated relative total return available from a
particular country and type of security. Under normal market conditions, the
Fund invests at least 65% of its total assets in securities of issuers located
in at least three different countries (including the U.S.). Under normal market
conditions, the Fund invests at least 25% of its total assets in high-quality
debt securities.
The Fund's investment adviser, subject to the direction of the Fund's Board of
Trustees, provides the Fund with an overall investment program consistent with
the Fund's objective and policies. The Fund's investments may be shifted among
the world's various capital markets, including developed and
6
<PAGE> 8
undeveloped countries, and among different types of securities in accordance
with the investment adviser's ongoing analysis of economic or market trends,
developments affecting the markets and securities in which the Fund may invest
and the anticipated relative total returns available from particular countries
or securities. Accordingly, the composition of the Fund's portfolio will vary
over time and, at any given time, may be invested substantially in equity or
debt securities. Achieving the Fund's investment objective depends on the
ability of the Fund's investment adviser to assess the effect of such economic
and market trends on different sectors of the market. Because of the managed
approach of the Fund, portfolio turnover of the Fund may be greater than
portfolio turnover of other mutual funds resulting in, among other things,
increased short-term capital gains and increased brokerage charges or other
transaction costs to the Fund.
In selecting non U.S. equity securities for investment, the Fund's investment
adviser utilizes a "top-down" approach that emphasizes country and sector
selection and weighting rather than individual security selection. This approach
reflects the investment adviser's philosophy for this Fund that a broad
selection of securities representing exposure to world markets based upon the
economic outlook and current valuation levels for each country and certain
sectors is an effective way to maximize the return and minimize the risk
associated with global investment.
The Fund's investment adviser determines country and sector allocations for the
Fund on an ongoing basis. The Fund will invest in the U.S. and other
industrialized countries throughout the world that comprise the Morgan Stanley
Capital International World Index. In addition, the Fund may invest a portion of
its assets in securities of developing or emerging markets countries.
By analyzing a variety of macroeconomic and political factors, the Fund's
investment adviser develops fundamental projections on interest rates,
currencies, corporate profits and economic growth for each country. These
country projections are then used to determine what the Fund's investment
adviser believes to be a fair value for the securities market of each country.
Discrepancies between actual value and fair value, as determined by the Fund's
investment adviser, provide an expected return for each securities market. The
expected return is adjusted by currency return expectations derived from the
investment adviser's purchasing-power parity exchange rate model to arrive at an
expected total return in U.S. dollars. The final country and sector allocation
decision is then reached by considering the expected total return in light of
various considerations such as market size, volatility, liquidity and country
risk.
Within a particular country or sector, investments are made through the purchase
of stocks which, in the aggregate, replicate a broad market index for that
particular country or sector, which in most cases will be the Morgan Stanley
Capital International ("MSCI") Index for the particular country or sector. The
MSCI Indices measure the performance of stock markets worldwide and are based on
the share prices of companies listed on the local stock exchange of the
specified country or countries within a specified region. The combined market
capitalization of companies in such indices represent approximately 60% of the
aggregate market value of the covered stock exchanges. Companies included in the
MSCI Index for a country replicate the industry composition of the local market
and are a representative sampling of large, medium and small companies.
Non-domiciled companies traded on the local exchange and companies with
restricted float due to dominant shareholders or cross-ownership are avoided.
The Fund's investment adviser may overweight or underweight an industry segment
of a particular index if it concludes it would be advantageous to the Fund.
The Fund may invest in equity securities including common stocks, preferred
stocks, warrants or options to acquire such securities and depository receipts.
Common stocks are shares of a corporation or other entity that entitle the
holder to a pro rata share of the profits of the corporation, if any, without
preference over any other class of securities, including such entity's debt
securities, preferred stock and other senior equity securities. Common stock
usually carries with it the right to vote and frequently an exclusive right to
do so. Preferred stock generally has a preference as to dividends and
liquidation over an issuer's common stock but ranks junior to debt securities in
an issuer's capital structure. Unlike interest payments on debt securities,
preferred stock dividends are payable only if declared by the issuer's board of
directors. Preferred stock also may be subject to optional or mandatory
redemption provisions. Generally, warrants or options to acquire equity
securities are securities that may be exchanged for a prescribed amount of such
equity security of the issuer within a particular period
7
<PAGE> 9
of time at a specified price or in accordance with a specified formula.
The Fund may invest in issuers of small-, medium- or large-capitalization
companies. The securities of small- or medium-sized companies may be subject to
more abrupt or erratic market movements than securities of larger companies or
the market averages in general. In addition, such companies typically are
subject to a greater degree of change in earnings and business prospects than
are larger companies. Thus, to the extent the Fund invests in small- and
medium-sized companies, the Fund may be subject to greater investment risk than
that assumed through investment in the equity securities of larger-
capitalization companies.
The Fund invests in debt securities issued or guaranteed by the U.S. or foreign
governments or their agencies, authorities or instrumentalities and in
high-quality debt securities of U.S. and foreign corporations. The Fund's
investments in U.S. government securities may include U.S. treasury securities
and securities issued or guaranteed by agencies or instrumentalities of the U.S.
government, such as collateralized mortgage obligations and other
mortgage-related securities. The Fund's foreign investments may include
securities that are issued by the government of one nation but denominated in
the currency of another nation (or in a multinational currency unit). The Fund
may invest up to 25% of its total assets in debt securities issued by certain
"supranational" entities, which include entities designated or supported by
governments to promote economic reconstruction or development, international
banking organizations and related government agencies. An example of a
supranational entity is the International Bank for Reconstruction and
Development (commonly referred to as the "World Bank"). A more complete
description of supranational entities in which the Fund may invest is contained
in the Fund's Statement of Additional Information. The Fund limits its
investments to debt securities which are rated at the time of purchase within
the two highest grades assigned by Standard and Poor's ("S&P") or Moody's
Investors Services, Inc. ("Moody's") or unrated debt securities considered by
the Fund's investment adviser to be of comparable quality.
The Fund may purchase foreign securities in the form of American Depositary
Receipts ("ADRs") and European Depositary Receipts ("EDRs") or other securities
representing underlying shares of foreign companies. These securities are not
necessarily denominated in the same currency as the underlying securities but
generally are denominated in the currency of the market in which they are
traded. ADRs are receipts typically issued by an American bank or trust company
which evidence ownership of underlying securities issued by a foreign
corporation. ADRs are publicly traded on exchanges or over-the-counter in the
United States and are issued through "sponsored" or "unsponsored" arrangements.
In a sponsored ADR arrangement, the foreign issuer assumes the obligation to pay
some or all of the depositary's transaction fees, whereas under an unsponsored
arrangement, the foreign issuer assumes no obligations and the depositary's
transaction fees are paid by the ADR holders. In addition, less information
generally is available for an unsponsored ADR than a sponsored ADR. The Fund may
invest in ADRs through both sponsored and unsponsored arrangements. EDRs are
receipts issued in Europe by banks or depositories which evidence a similar
ownership arrangement.
The Fund is a "non-diversified" investment company, which means the Fund may
invest more of its assets in a smaller number of individual issuers than a
"diversified" investment company, which may result in increased volatility and
greater risk because changes in the financial condition or market assessment of
a single issuer or a few issuers can more substantially impact the Fund.
The Fund generally will not purchase any security (other than obligations of the
United States government, its agencies, or instrumentalities) if more than 25%
of its total assets (taken at current value) would then be invested in a single
industry; however, if the value of debt securities owned by the Fund with
remaining maturities of less than 13 months exceeds 35% of the value of the
Fund's total assets, the Fund will invest at least 25% of its assets in
securities issued by banks. Debt securities issued by government or political
subdivisions are not part of this calculation because such issues are not
considered members of any industry. In this event, the Fund would be subject to
greater risks associated with investment in banks.
RISKS OF INVESTING
IN SECURITIES OF FOREIGN ISSUERS
An investment in the Fund involves risks similar to those of investing in
foreign securities generally. The Fund invests in securities denominated in U.S.
dollars
8
<PAGE> 10
and in currencies other than U.S. dollars. The percentage of assets invested in
securities of a particular country or denominated in a particular currency will
vary in accordance with the investment adviser's assessment of the relative
yield, appreciation potential and the relationship of a country's currency to
the U.S. dollar, which is based upon such factors as fundamental economic
strength, credit quality and interest rate trends. Investments in foreign
securities present certain risks not ordinarily associated with investments in
securities of U.S. issuers. These risks include fluctuations in 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 contracted 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 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.
The Fund's investments in securities of developing or emerging markets are
subject to greater risks than the Fund's investments in securities of developed
markets since emerging markets tend to have economic structures that are less
diverse and mature and political systems that are less stable than developed
countries.
In addition to the increased risks of investing in foreign securities, there are
often increased transactions costs associated with investing in foreign
securities, including the costs incurred in connection with converting
currencies, higher foreign brokerage or dealer costs, and higher settlement
costs or custodial costs.
Since the Fund invests in securities denominated or quoted in currencies other
than the U.S. dollar, the Fund will be affected by changes in foreign currency
exchange rates (and exchange control regulations) which affect the value of
investments in the Fund and the accrued income and 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. In addition, the Fund will
incur costs in connection with conversions between various currencies. The
Fund's foreign currency exchange transactions generally will be conducted on a
spot basis (that is, cash basis) at the spot rate for purchasing or selling
currency prevailing in the foreign currency exchange market. The Fund purchases
and sells foreign currency on a spot basis in connection with the settlement of
transactions in securities traded in such foreign currency. The Fund does not
purchase and sell foreign currencies as an investment.
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 forward contract is a negotiated agreement between the
contracting parties to exchange a specified security or amount of currency at a
specified future time at a specified rate. In a forward foreign currency
contract, 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 hedge against changes in the value of the U.S. dollar in
relation to a foreign currency by entering into a forward contract for the
purchase or sale of the amount of foreign currency invested or to be invested,
or by buying or selling a foreign currency futures contract for such amount.
Futures contracts are described below under the heading "Using Options, Futures
Contracts and Related Options". Such hedging strategies may be employed before
the Fund purchases a foreign security traded in the hedged 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. Hedging
against a change in the value of a foreign currency in the foregoing manner does
not eliminate fluctuations
9
<PAGE> 11
in the prices of portfolio securities or prevent losses if the prices of such
securities decline. Furthermore, such hedging transactions reduce or preclude
the opportunity for gain if the value of the hedged currency should move in the
direction opposite to the hedged position. Unanticipated changes in currency
prices may result in poorer overall performance for the Fund than if it had not
entered into such contracts.
WHEN-ISSUED AND DELAY DELIVERY TRANSACTIONS
The Fund may purchase and sell securities on a "when-issued" or "delayed
delivery" basis whereby the Fund buys or sells a security with payment and
delivery taking place in the future. The payment obligation and the interest
rate are fixed at the time the Fund enters into the commitment. No income
accrues to the Fund on securities in connection with such transactions prior to
the date the Fund actually takes delivery of such securities. These transactions
are subject to market risk as the value or yield of a security at delivery may
be more or less than the purchase price or the yield generally available on
securities when delivery occurs. In addition, the Fund is subject to
counterparty risk because it relies on the buyer or seller, as the case may be,
to consummate the transaction, and failure by the other party to complete the
transaction may result in the Fund missing the opportunity of obtaining a price
or yield considered to be advantageous. The Fund will only make commitments to
purchase such securities with the intention of actually acquiring these
securities, but the Fund may sell these securities prior to settlement if it is
deemed advisable. No specific limitation exists as to the percentage of the
Fund's assets which may be used to acquire securities on a "when-issued" or
"delayed delivery" basis.
USING OPTIONS, FUTURES CONTRACTS
AND RELATED OPTIONS
The Fund expects to utilize options, futures contracts and options on futures
contracts in several different ways, depending upon the status of the Fund's
portfolio and the investment adviser's expectations concerning the securities or
currency markets.
In times of stable or rising stock prices, the Fund generally seeks to be fully
invested in equity and debt securities. Even when the Fund is fully invested,
however, prudent management requires that at least a small portion of assets be
available as cash to honor redemption requests and for other short-term needs.
The Fund may also have cash on hand that has not yet been invested. The portion
of the Fund's assets that is invested in cash or cash equivalents does not
fluctuate with stock market prices, so that, in times of rising market prices,
the Fund may underperform the market in proportion to the amount of cash or cash
equivalents in its portfolio. By purchasing stock index futures contracts,
however, the Fund can compensate for the cash portion of its assets and may
obtain performance equivalent to investing all of its assets in equity
securities.
If the Fund's investment adviser forecasts a market decline, the Fund may seek
to reduce its exposure to the securities markets by increasing its cash
position. By selling stock index futures contracts instead of portfolio
securities, a similar result can be achieved to the extent that the performance
of the futures contracts correlates to the performance of the Fund's portfolio
securities. Sales of futures contracts frequently may be accomplished more
rapidly and at less cost than the actual sale of securities. Once the desired
hedged position has been effected, the Fund could then liquidate securities in a
more deliberate manner, reducing its futures position simultaneously to maintain
the desired balance, or it could maintain the hedged position.
As an alternative to futures contracts, the Fund can engage in options (or stock
index options or stock index futures options) to manage the portfolio's risk in
advancing or declining markets. For example, the value of a put option generally
increases as the underlying security declines below a specified level, value is
protected against a market decline to the degree the performance of the put
correlates with the performance of the Fund's investment portfolio. If the
market remains stable or advances, the Fund can refrain from exercising the put
and its portfolio will participate in the advance, having incurred only the
premium cost for the put.
The Fund is authorized to purchase and sell listed and over-the-counter options
("OTC Options"). OTC Options are subject to certain additional risks including
default by the other party to the transaction and the liquidity of the
transactions.
In addition to futures and options on securities, the Fund may engage in foreign
currency futures and options. The Fund may use currency options to increase its
gross income or to protect it against declines in the U.S. dollar value of
foreign currency denominated securities and against increases in the
10
<PAGE> 12
U.S. dollar cost of such securities to be acquired. As in the case of other
kinds of options, however, the selling of an option on a foreign currency
constitutes only a partial hedge, up to the amount of the premium received, and
the Fund could be required to cover its position by purchasing or selling
foreign currencies at disadvantageous exchange rates, thereby incurring losses.
The purchase of an option on a foreign currency may constitute an effective
hedge against fluctuations in exchange rates although, in the event of rate
movements adverse to the Fund's position, the Fund may forfeit the entire amount
of the premium plus related transaction costs. Options on foreign currencies in
which the Fund invests are traded on U.S. and foreign exchanges or over-the-
counter. There is no specific percentage limitation on the Fund's investments in
options on foreign currencies.
In certain cases, the options and futures markets provide investment or risk
management opportunities that are not available from direct investments in
securities. In addition, some strategies can be performed with greater ease and
at lower cost by utilizing the options and futures markets rather than
purchasing or selling portfolio securities or currencies. However, such
transactions involve risks different from the direct investment in underlying
securities such as imperfect correlation between the value of the instruments
and the underlying assets, risks of default by the other party to certain
transactions, risks that the transactions may incur losses that partially or
completely offset gains in portfolio positions, risks that the transactions may
not be liquid and manager risk. In addition, such transactions may involve
commissions and other costs, which may increase the Fund's expenses and reduce
its return. A more complete discussion of options, futures contracts and related
options and their risks is contained in the Fund's Statement of Additional
Information which can be obtained by investors free of charge as described on
the back cover of this prospectus.
OTHER INVESTMENTS AND RISK FACTORS
For cash management purposes, the Fund may engage in repurchase agreements with
banks and broker-dealers to earn a return on temporarily available cash. Such
transactions are subject to the risk of default by the other party.
The Fund may invest up to 15% of its 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.
The Fund may lend its portfolio securities to brokers/dealers and other
financial institutions in an amount up to 15% of its total assets in order to
generate income on the loaned security and any collateral received. 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.
Further information about these types of investments and other investment
practices that may be used by the Fund is contained in the Statement of
Additional Information.
Because of the Fund's managed approach, the Fund may engage in substantial
short-term trading. The Fund may sell securities without regard to the length of
time they have been held in order to take advantage of new investment
opportunities or when the Fund's investment adviser believes the potential for
total return has lessened or otherwise. The Fund's portfolio turnover is shown
under the heading "Financial Highlights." The portfolio turnover rate may be
expected to vary from year to year. A high portfolio turnover rate (100% or
more) increases the Fund's transactions costs, including brokerage commissions
or dealer costs, and may result in the realization of more short-term capital
gains than if the Fund had lower portfolio turnover. The turnover rate will not
be a limiting factor, however, if the Fund's investment adviser considers
portfolio changes appropriate.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Fund may on a temporary basis hold cash (U.S. dollars
or foreign currencies) or invest a portion or all of its assets in money market
instruments of U.S. or foreign issuers, which include securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities or foreign
governments, prime commercial paper, certificates of deposit, bankers'
acceptances, repurchase agreements. During times of international political or
economic uncertainty, all or a portion of the Fund's assets may be in U.S.
issuers and denominated in U.S. dollars. Under normal market conditions, the
potential for total return on these securities will tend
11
<PAGE> 13
to be lower than the potential for total return on other securities owned by the
Fund. The effect of taking such a defensive position may be that the Fund does
not achieve its investment objective.
YEAR 2000 RISKS. Like other mutual funds, financial and business organizations
and individuals around the world, the Fund could be adversely affected if the
computer systems used by the Fund's investment adviser and other service
providers do not properly process and calculate date-related information and
data from and after January 1, 2000. This is commonly known as the "Year 2000
Problem." The Fund's investment adviser is taking steps that it believes are
reasonably designed to address the Year 2000 Problem with respect to computer
systems that it uses and to obtain reasonable assurances that comparable steps
are being taken by the Fund's other major service providers. At this time, there
can be no assurances that these steps will be sufficient to avoid any adverse
impact to the Fund. In addition, the Year 2000 Problem may adversely affect the
markets and the issuers of securities in which the Fund may invest which, in
turn, may adversely affect the net asset value of the Fund. Improperly
functioning trading systems may result in settlement problems and liquidity
issues. In addition, corporate and governmental data processing errors may
result in production problems for individual companies or issuers and overall
economic uncertainty. Earnings of individual issuers will be affected by
remediation costs, which may be substantial and may be reported inconsistently
in U.S. and foreign financial statements. Accordingly, the Fund's investments
may be adversely affected. The statements above are subject to the Year 2000
Information and Readiness Disclosure Act which Act may limit the legal rights
regarding the use of such statements in the case of a dispute.
INVESTMENT ADVISORY SERVICES
THE ADVISER. Van Kampen Asset Management Inc. is the Fund's investment adviser
(the "Adviser" or "Asset Management"). The Adviser is a wholly owned subsidiary
of Van Kampen Investments Inc. ("Van Kampen Investments"). Van Kampen
Investments is a diversified asset management company with more than two million
retail investor accounts, extensive capabilities for managing institutional
portfolios, and more than $75 billion under management or supervision. Van
Kampen Investments' more than 50 open-end and 39 closed-end funds and more than
2,500 unit investment trusts are professionally distributed by leading financial
advisers nationwide. Van Kampen Funds Inc., the distributor of the Fund (the
"Distributor") and the sponsor of the funds mentioned above, is also a wholly
owned subsidiary of Van Kampen Investments. Van Kampen Investments is an
indirect wholly owned subsidiary of Morgan Stanley Dean Witter & Co. The
Adviser's principal office is located at 1 Parkview Plaza, PO Box 5555, Oakbrook
Terrace, Illinois 60181-5555.
THE SUBADVISER. Morgan Stanley Dean Witter Investment Management Inc. is the
Fund's investment subadviser (the "Subadviser"). The Subadviser is an indirect
wholly owned subsidiary of Morgan Stanley Dean Witter & Co. and an affiliate of
the Adviser. The Subadviser's principal office is located at 1221 Avenue of the
Americas, New York, New York 10020.
ADVISORY AGREEMENTS. The Fund retains the Adviser to manage the investment of
its assets and to place orders for the purchase and sale of its portfolio
securities. Under an investment advisory agreement between the Adviser and the
Fund (the "Advisory Agreement"), the Fund pays the Adviser a monthly fee
computed based upon an annual rate of 1.00% applied to the average daily net
assets of the Fund.
Under the Advisory Agreement, the Fund reimburses the Adviser for the cost of
the Fund's accounting services, which include maintaining its financial books
and records and calculating its daily net asset value. Other operating expenses
paid by the Fund include service fees, distribution fees, custodial fees, legal
and independent accountant fees, the costs of reports and proxies to
shareholders, trustees' fees (other than those who are affiliated persons of the
Adviser, Distributor or Van Kampen Investments) and all other business expenses
not specifically assumed by the Adviser.
The Adviser has entered into a subadvisory agreement (the "Subadvisory
Agreement") with the Subadviser to assist the Adviser in performing its
investment advisory functions. Under the Subadvisory Agreement, the Subadviser
receives on an annual basis, 50% of the net advisory fees received by the
Adviser.
From time to time, the Adviser, the Subadviser or the Distributor may
voluntarily undertake to reduce the
12
<PAGE> 14
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.
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen Investment
Advisory Corp. ("Advisory Corp.").
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. Barton M. Biggs and Ann D. Thivierge have been responsible
for the day-to-day management of the equity portion of the Fund's portfolio
since April 1, 1997.
Mr. Biggs has been Chairman and a director of the Subadviser since 1980. Mr.
Biggs is also a Managing Director of the Subadviser and of Morgan Stanley & Co.
Incorporated and is a director and chairman of various registered investment
companies to which the Subadviser and certain of its affiliates provide
investment advisory services. Mr. Biggs holds a B.A. from Yale University and an
M.B.A. from New York University.
Ms. Thivierge is a Managing Director of the Subadviser and Morgan Stanley & Co.
Incorporated. She is a member of the Subadviser's asset allocation committee.
Ms. Thivierge has been with the Subadviser since 1986. Prior to 1986, Ms.
Thivierge was with Edgewood Management Company. Ms. Thivierge holds a B.A. in
International Relations from James Madison College, Michigan State University,
and an M.B.A. in Finance from New York University.
J. David Germany, Michael B. Kushma and Paul E. O'Brien have been responsible
for the day-to-day management of the fixed income portion of the Fund's
portfolio since April 1, 1997.
J. David Germany joined the Subadviser in 1996 and has been a portfolio manager
with the Adviser's affiliate, Miller Anderson & Sherrerd, LLP ("MAS") since
1991. He was Vice President & Senior Economist for Morgan Stanley & Co.
Incorporated from 1989 to 1991. He assumed responsibility for the Global Fixed
Income and International Fixed Income Portfolios of the MAS-advised MAS Funds in
1993 and the MAS Funds' Multi-Asset-Class Portfolio in 1994. Mr. Germany was
Senior Staff Economist (International Finance and Macroeconomics) to the Council
of Economic Advisors -- Executive Office of the President from 1986 through 1987
and an Economist with the Board of Governors of the Federal Reserve System --
Division of International Finance from 1983 through 1987. He holds an A.B.
degree (Valedictorian) from Princeton University and a Ph.D. in Economics from
the Massachusetts Institute of Technology.
Michael B. Kushma, a Principal at Morgan Stanley & Co. Incorporated, joined the
firm in 1987. He was a member of Morgan Stanley & Co. Incorporated's global
fixed income strategy group in the fixed income division from 1987-1995 where he
became the division's senior government bond strategist. He joined the
Subadviser in 1995 where he took responsibility for the global fixed income
portfolio. Mr. Kushma received an A.B. in economics from Princeton University in
1979, an M. Sc. in economics from the London School of Economics in 1981 and an
M.Phil. in economics from Columbia University in 1983.
Paul F. O'Brien joined the Subadviser and MAS in 1996. He was head of European
Economics from 1993 through 1995 for JP Morgan and as Principal Administrator
from 1991 through 1992 for the Organization for Economic Cooperation and
Development. He assumed responsibility for the MAS-advised MAS Funds' Global
Fixed Income and International Fixed Income Portfolios in 1996. Mr. O'Brien
holds a B.S. degree from the Massachusetts Institute of Technology and a Ph.D.
in Economics from the University of Minnesota.
PURCHASE OF SHARES
GENERAL
The Fund offers three classes of shares designated as Class A Shares, Class B
Shares and Class C Shares. By
13
<PAGE> 15
offering three classes of shares, the Fund permits each investor to choose the
class of shares that is most beneficial given the amount to be invested and the
length of time the investor expects to hold the shares.
Initial investments must be at least $1,000 for each class of shares, and
subsequent investments must be at least $25 for each class of shares. Both
minimums may be waived by the Distributor for plans involving periodic
investments.
Each class of shares represents an interest in the same portfolio of investments
of the Fund and has the same rights except that (i) Class A Shares generally
bear the sales charge expenses at the time of purchase while Class B Shares and
Class C Shares bear the sales charge expenses at the time of redemption and any
expenses (including higher distribution fees and transfer agency costs)
resulting from such deferred sales charge arrangement, (ii) generally, each
class of shares has exclusive voting rights with respect to approvals of the
Rule 12b-1 distribution plan (described below) pursuant to which its
distribution fee or service fee is paid, (iii) each class of shares has
different exchange privileges, (iv) certain classes of shares are subject to a
conversion feature and (v) certain classes of shares have different shareholder
service options available.
The offering price of the Fund's shares is based upon the Fund's net asset value
per share (plus sales charges, where applicable). The net asset values per share
of the Class A Shares, Class B Shares and Class C Shares are generally expected
to be substantially the same. In certain circumstances, however, the per share
net asset values of the classes of shares may differ from one another,
reflecting the daily expense accruals of the higher distribution fees and
transfer agency costs applicable to the Class B Shares and Class C Shares and
the differential in the dividends that may be paid on each class of shares.
The net asset value per share for each class of shares of the Fund is determined
once daily as of the close of trading on the New York Stock Exchange (the
"Exchange") (currently 4:00 p.m., New York time) each day the Exchange is open
for trading. 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 last reported sale price, (ii) valuing
unlisted and listed securities for which the last sales price is not available
at the mean between the last reported bid and ask prices, (iii) valuing
long-term debt securities at the mean of representative quoted bid and asked
prices for such securities or, if such prices are not available, at prices for
securities of comparable maturity, quality and type, however, when the Adviser
deems it appropriate, prices obtained for the day of valuation from a bond
pricing service will be used, (iv) valuing short-term debt obligations with
remaining maturities in excess of 60 days at the mean of representative quoted
bid and asked prices for such securities or, if such prices are not available,
using the prices for securities of comparable maturity, quality and type, (v)
valuing short-term debt securities with 60 days or less remaining to maturity by
amortizing such securities to maturity based on their cost to the Fund, (vi)
valuing options and futures contracts and options on futures contracts which are
traded on exchanges at their last sale or settlement price as of the close of
such exchanges, or, if no sales are reported, at the mean between the last
reported bid and asked prices, (vii) valuing over-the-counter options at the
average of the last bid prices obtained from dealers and (viii) valuing any
securities for which market quotations are not readily available and 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 Trustees.
Trading in securities on many foreign securities exchanges (including European
and Far Eastern securities exchange) and over-the-counter markets is normally
completed before the close of business on each business day in New York (i.e., a
day on which the Exchange is open). In addition, securities trading in a
particular country or countries may not take place on all business days for the
Exchange or may take place on days which are not business days for the Exchange.
Changes in valuations on certain securities may occur at times or on days on
which the Fund's net asset value is not calculated and on which the Fund does
not effect sales, redemptions and exchanges of its shares. The Fund calculates
net asset value per share, and therefore effects sales, redemptions and
exchanges of its shares, as of the close of trading on the Exchange each day the
Exchange is open for trading. Such calculation does not take place
contemporaneously with the determination of the prices of certain foreign
portfolio securities used in such calculation. If events materially affecting
the value of such securities occur between the time when their price is
determined and the time when the
14
<PAGE> 16
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 Trustees.
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 Investment Company
Act of 1940, as amended (the "1940 Act"). The Fund also has adopted a service
plan (the "Service Plan") with respect to each class of its shares. The
Distribution Plan and the Service Plan provide that the Fund may pay
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 National
Association of Securities Dealers, Inc. rules. The net income attributable to a
class of shares and the dividends payable on such class of shares will be
reduced by the amount of the distribution fees and other expenses associated
with such class of shares. To assist investors in comparing classes of shares,
the tables under the heading "Fees and Expenses of the Fund" provide a summary
of sales charges and expenses and an example of the sales charges and expenses
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 National Association of Securities Dealers, Inc. ("NASD") who are
acting as securities dealers ("dealers") and NASD members or eligible non-NASD
members who are acting as brokers or agents or investors ("brokers"). "Dealers"
and "brokers" are sometimes referred to herein as "authorized dealers."
Shares may be purchased on any business day by completing the application
accompanying this prospectus and forwarding the application, directly or through
an authorized dealer, to the Fund's shareholder service agent, Van Kampen
Investor Services Inc. ("Investor Services"), a wholly owned subsidiary of Van
Kampen Investments. When purchasing shares of the Fund, investors must specify
whether the purchase is for Class A Shares, Class B Shares or Class C Shares.
Sales personnel of authorized dealers distributing the Fund's shares are
entitled to receive compensation for selling such shares and may receive
differing compensation for selling Class A Shares, Class B Shares or Class C
Shares.
The offering price for shares is based on the next calculation of net asset
value per share (plus sales charges, where applicable) after an order is
received by Investor Services. Orders received by authorized dealers prior to
the close of the Exchange are priced based on the date of receipt provided such
order is transmitted to Investor Services prior to Investor Services' close of
business on such date. Orders received by authorized dealers after the close of
the Exchange or transmitted to Investor Services after its close of business are
priced based on the date of the next computed net asset value per share provided
they are received by Investor Services prior to Investor Services' close of
business on such date. It is the responsibility of authorized dealers to
transmit orders received by them to Investor Services so they will be received
in a timely manner. Orders of less than $500 generally are mailed by the
authorized dealer and processed at the offering price next calculated after
receipt by Investor Services.
Shares of the Fund may be sold in foreign countries where permissible. The Fund
and the Distributor reserve the right to refuse any order for the purchase of
shares. The Fund also reserves the right to suspend the sale of the Fund's
shares in response to conditions in the securities markets or for other reasons.
Investor accounts will automatically be credited with additional shares of the
Fund after any Fund distributions, such as dividends and capital gains
distributions, unless the investor instructs the Fund otherwise. Investors
wishing to receive cash instead of additional shares should contact the Fund at
(800) 341-2911 or by writing to the Fund, c/o Van Kampen Investors Services
Inc., PO Box 418256, Kansas City, MO 64141-9256.
15
<PAGE> 17
CLASS A SHARES
Class A Shares of the Fund are sold at net asset value plus an initial maximum
sales charge of up to 4.75% of the offering price (or 4.99% of the net amount
invested), reduced on investments of $100,000 or more as follows:
CLASS A SHARES
SALES CHARGE SCHEDULE
<TABLE>
<CAPTION>
As % of As % of
Size of Offering Net Amount
Investment Price Invested
- ----------------------------------------------------------
<S> <C> <C> <C> <C>
Less than $100,000 4.75% 4.99%
..........................................................
$100,000 but less than
$250,000 3.75% 3.90%
..........................................................
$250,000 but less than
$500,000 2.75% 2.83%
..........................................................
$500,000 but less than
$1,000,000 2.00% 2.04%
..........................................................
$1,000,000 or more * *
..........................................................
</TABLE>
* No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the Fund imposes a contingent
deferred sales charge of 1.00% on certain redemptions made within one year of
the purchase. The contingent deferred sales charge is assessed on an amount
equal to the lesser of the then current market value or the cost of the shares
being redeemed. Accordingly, no sales charge is imposed on increases in net
asset value above the initial purchase price.
The Fund may spend an aggregate amount up to 0.25% per year of the average daily
net assets attributable to the Class A Shares of the Fund pursuant to the
Distribution Plan and Service Plan. From such amount, the Fund may spend up to
0.25% per year of the Fund's average daily net assets attributable to the Class
A Shares pursuant to the Service Plan in connection with the ongoing provision
of services to holders of such shares by the Distributor and by brokers, dealers
or financial intermediaries and in connection with the maintenance of such
shareholders' accounts.
CLASS B SHARES
Class B Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge if redeemed within five years of purchase as shown in the
table as follows:
CLASS B SHARES
SALES CHARGE SCHEDULE
<TABLE>
<CAPTION>
Contingent Deferred
Sales Charge
as a Percentage of
Dollar Amount
Year Since Purchase Subject to Charge
- ------------------------------------------------
<S> <C> <C> <C>
First 4.00%
................................................
Second 4.00%
................................................
Third 3.00%
................................................
Fourth 2.50%
................................................
Fifth 1.50%
................................................
Sixth and After None
................................................
</TABLE>
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gains distributions.
It is presently the policy of the Distributor not to accept any order for Class
B Shares in an amount of $500,000 or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
The amount of the contingent deferred sales charge, if any, varies depending on
the number of years from the time of payment for the purchase of Class B Shares
until the time of redemption of such shares. Solely for purposes of determining
the number of years from the time of any payment for the purchase of shares, all
payments during a month are aggregated and deemed to have been made on the last
day of the month.
In determining whether a contingent deferred sales charge is applicable to a
redemption, it is assumed that the redemption is first of any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge and then of shares held the longest in the shareholder's account.
The Fund may spend up to 0.75% per year of the average daily net assets
attributable to the Class B
16
<PAGE> 18
Shares of the Fund pursuant to the Distribution Plan. In addition, the Fund may
spend up to 0.25% per year of the Fund's average daily net assets attributable
to the Class B Shares pursuant to the Service Plan in connection with the
ongoing provision of services to holders of such shares by the Distributor and
by brokers, dealers or financial intermediaries and in connection with the
maintenance of such shareholders' accounts.
CLASS C SHARES
Class C Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge of 1.00% of the dollar amount subject to charge if
redeemed within one year of purchase.
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gains distributions.
It is presently the policy of the Distributor not to accept any order for Class
C Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
In determining whether a contingent deferred sales charge is applicable to a
redemption, it is assumed that the redemption is first of any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge and then of shares held the longest in the shareholder's account.
The Fund may spend up to 0.75% per year of the average daily net assets
attributable to the Class C Shares of the Fund pursuant to the Distribution
Plan. In addition, the Fund may spend up to 0.25% per year of the Fund's average
daily net assets attributable to the Class C Shares pursuant to the Service Plan
in connection with the ongoing provision of services to holders of such shares
by the Distributor and by brokers, dealers or financial intermediaries and in
connection with the maintenance of such shareholders' accounts. The aggregate
distribution and service fees are currently 1.00% per year of the average daily
net assets attributable to Class C Shares of the Fund. The aggregate
distribution and service fees are 0.90% per year of the average daily net assets
attributable to Class C Shares of the Fund with respect to accounts existing
before April 1, 1995.
CONVERSION FEATURE
Class B Shares purchased on or after June 1, 1996, and any dividend reinvestment
plan Class B Shares received on such shares, automatically convert to Class A
Shares eight years after the end of the calendar month in which the shares were
purchased. Class B Shares purchased before June 1, 1996, and any dividend
reinvestment plan Class B Shares received on such shares, automatically convert
to Class A Shares six years after the end of the calendar month in which the
shares were purchased. Class C Shares purchased before January 1, 1997, and any
dividend reinvestment plan Class C Shares received on such shares, automatically
convert to Class A Shares ten years after the end of the calendar month in which
such shares were purchased. Such conversion will be on the basis of the relative
net asset values per share, without the imposition of any sales load, fee or
other charge. The conversion schedule applicable to a share of the Fund acquired
through the exchange privilege from another Van Kampen fund is determined by
reference to the Van Kampen fund from which such share was originally purchased.
The conversion of such shares to Class A Shares is subject to the continuing
availability of an opinion of counsel to the effect that (i) the assessment of
the higher distribution fee and transfer agency costs with respect to such
shares does not result in the Fund's dividends or distributions constituting
"preferential dividends" under the federal income tax law and (ii) the
conversion of shares does not constitute a taxable event under federal income
tax law. The conversion may be suspended if such an opinion is no longer
available and such shares might continue to be subject to the higher aggregate
fees applicable to such shares for an indefinite period.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge is waived on redemptions of Class B Shares
and Class C Shares (i) within one year following the death or disability (as
disability is defined by federal income tax law) of a shareholder, (ii) in
connection with required minimum distributions from an individual retirement
account ("IRA") or certain other retirement plan distributions, (iii) pursuant
to the Fund's systematic withdrawal plan but limited to 12% annually of the
initial value of the account, (iv) in circumstances under which no commission or
transaction fee is paid to authorized dealers at the time of purchase of such
shares and (v) effected pursuant to the right of the Fund to involuntarily
liquidate a shareholder's account as described under the heading "Redemption
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of Shares." The contingent deferred sales charge also is waived on redemptions
of Class C Shares as it relates to the reinvestment of redemption proceeds in
shares of the same class of the Fund within 180 days after redemption. 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 sales charges. Investors, or their authorized
dealers, must notify the Fund at the time of the purchase order whenever a
quantity discount is applicable to purchases. Upon such notification, an
investor will receive the lowest applicable sales charge. Quantity discounts may
be modified or terminated at any time. For more information about quantity
discounts, investors should contact their authorized dealer or the Distributor.
A person eligible for a reduced sales charge includes an individual, his or her
spouse and children under 21 years of age and any corporation, partnership or
sole proprietorship which is 100% owned, either alone or in combination, by any
of the foregoing; a trustee or other fiduciary purchasing for a single trust or
for a single fiduciary account, or a "company" as defined in Section 2(a)(8) of
the 1940 Act.
As used herein, "Participating Funds" refers to certain open-end investment
companies advised by Asset Management or Advisory Corp. and distributed by the
Distributor as determined from time to time by the Fund's Board of Trustees.
VOLUME DISCOUNTS. The size of investment shown in the Class A Shares sales
charge table applies to the total dollar amount being invested by any person in
shares of the Fund, or in any combination of shares of the Fund and shares of
other Participating Funds, although other Participating Funds may have different
sales charges.
CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the Class A Shares
sales charge table may also be determined by combining the amount being invested
in shares of the Participating Funds plus the current offering price of all
shares of the Participating Funds which have been previously purchased and are
still owned.
LETTER OF INTENT. A Letter of Intent provides an opportunity for an investor to
obtain a reduced sales charge by aggregating the investments over a 13-month
period to determine the sales charge as outlined in the Class A Shares sales
charge table. The size of investment shown in the Class A Shares sales charge
table includes purchases of shares of the Participating Funds over a 13-month
period based on the total amount of intended purchases plus the value of all
shares of the Participating Funds previously purchased and still owned. An
investor may elect to compute the 13-month period starting up to 90 days before
the date of execution of a Letter of Intent. Each investment made during the
period receives the reduced sales charge applicable to the total amount of the
investment goal. The initial purchase must be for an amount equal to at least 5%
of the minimum total purchase amount of the level selected. If trades not
initially made under a Letter of Intent subsequently qualify for a lower sales
charge through the 90-day backdating provisions, an adjustment will be made at
the time of 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 period, the investor
must pay the difference between the sales charge applicable to the purchases
made and the reduced sales charge previously paid. Such payments may be made
directly to the Distributor or, if not paid, the Distributor will liquidate
sufficient escrowed shares to obtain the difference.
OTHER PURCHASE PROGRAMS
Purchasers of Class A Shares may be entitled to reduced 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
18
<PAGE> 20
criteria relating to cost savings by the Fund and the Distributor. The total
sales charge for all other investments made from unit trust distributions will
be 1.00% of the offering price (1.01% of net asset value). Of this amount, the
Distributor will pay to the authorized dealer, if any, through which such
participation in the qualifying program was initiated 0.50% of the offering
price as a dealer concession or agency commission. Persons desiring more
information with respect to this program, including the terms and conditions
that apply to the program, should contact their authorized dealer or the
Distributor.
The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during each distribution period by all investors who choose to invest in
the Fund through the program and (2) provide Investor Services with appropriate
backup data for each investor participating in the program in a computerized
format fully compatible with Investor Services' processing system.
As further requirements for obtaining these special benefits, the Fund also
requires that all dividends and other distributions by the Fund be reinvested in
additional shares without any systematic withdrawal program. There will be no
minimum for reinvestments from unit investment trusts. The Fund will send
account activity statements to such participants on a quarterly basis only, even
if their investments are made more frequently. The Fund reserves the right to
modify or terminate this program at any time.
NET ASSET VALUE PURCHASE OPTIONS. Class A Shares of the Fund may be purchased at
net asset value, upon written assurance that the purchase is made for investment
purposes and that such shares will not be resold except through redemption by
the Fund, by:
(1) Current or retired trustees or directors of funds advised by Asset
Management or Advisory Corp. and such persons' families and their beneficial
accounts.
(2) Current or retired directors, officers and employees of Morgan Stanley Dean
Witter & Co. and any of its subsidiaries, employees of an investment
subadviser to any fund described in (1) above or an affiliate of such
subadviser, and such persons' families and their beneficial accounts.
(3) Directors, officers, employees and, when permitted, registered
representatives, of financial institutions that have a selling group
agreement with the Distributor and their spouses and children under 21 years
of age when purchasing for any accounts they beneficially own, or, in the
case of any such financial institution, when purchasing for retirement plans
for such institution's employees; provided that such purchases are otherwise
permitted by such institutions.
(4) Registered investment advisers who charge a fee for their services, trust
companies and bank trust departments investing on their own behalf or on
behalf of their clients. The Distributor may pay authorized dealers through
which purchases are made an amount up to 0.50% of the amount invested, over
a 12-month period.
(5) Trustees and other fiduciaries purchasing shares for retirement plans which
invest in multiple fund families through broker-dealer retirement plan
alliance programs that have entered into agreements with the Distributor and
which are subject to certain minimum size and operational requirements.
Trustees and other fiduciaries should refer to the Statement of Additional
Information for further details with respect to such alliance programs.
(6) Beneficial owners of shares of Participating Funds held by a retirement plan
or held in a tax-advantaged retirement account who purchase shares of the
Fund with proceeds from distributions from such a plan or retirement account
other than distributions taken to correct an excess contribution.
(7) Accounts as to which a bank or broker-dealer charges an account management
fee ("wrap accounts"), provided the bank or broker-dealer has a separate
agreement with the Distributor.
(8) Trusts created under pension, profit sharing or other employee benefit plans
qualified under Section 401(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), or custodial accounts held by a bank created pursuant
to Section 403(b) of the Code and sponsored by nonprofit organizations
defined under Section 501(c)(3) of the Code and assets held by
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<PAGE> 21
an employer or trustee in connection with an eligible deferred compensation
plan under Section 457 of the Code. Such plans will qualify for purchases at
net asset value provided, for plans initially establishing accounts with the
Distributor in the Participating Funds after February 1, 1997, that (1) the
initial amount invested in the Participating Funds is at least $500,000 or
(2) such shares are purchased by an employer sponsored plan with more than
100 eligible employees. Such plans that have been established with a
Participating Fund or have received proposals from the Distributor prior to
February 1, 1997 based on net asset value purchase privileges previously in
effect will be qualified to purchase shares of the Participating Funds at
net asset value for accounts established on or before May 1, 1997. Section
403(b) and similar accounts for which Van Kampen Trust Company serves as
custodian will not be eligible for net asset value purchases based on the
aggregate investment made by the plan or the number of eligible employees,
except under certain uniform criteria established by the Distributor from
time to time. Prior to February 1, 1997, a commission will be paid to
authorized dealers who initiate and are responsible for such purchases
within a rolling twelve-month period as follows: 1.00% on sales to $5
million, plus 0.50% on the next $5 million, plus 0.25% on the excess over
$10 million. For purchases on February 1, 1997 and thereafter, a commission
will be paid as follows: 1.00% on sales to $2 million, plus 0.80% on the
next $1 million, plus 0.50% on the next $47 million, plus 0.25% on the
excess over $50 million.
(9) Individuals who are members of a "qualified group." For this purpose, a
qualified group is one which (i) has been in existence for more than six
months, (ii) has a purpose other than to acquire shares of the Fund or
similar investments, (iii) has given and continues to give its endorsement
or authorization, on behalf of the group, for purchase of shares of the Fund
and Participating Funds, (iv) has a membership that the authorized dealer
can certify as to the group's members and (v) satisfies other uniform
criteria established by the Distributor for the purpose of realizing
economies of scale in distributing such shares. A qualified group does not
include one whose sole organizational nexus, for example, is that its
participants are credit card holders of the same institution, policy holders
of an insurance company, customers of a bank or broker-dealer, clients of an
investment adviser or other similar groups. Shares purchased in each group's
participants account in connection with this privilege will be subject to a
contingent deferred sales charge of 1.00% in the event of redemption within
one year of purchase, and a commission will be paid to authorized dealers
who initiate and are responsible for such sales to each individual as
follows: 1.00% on sales to $2 million, plus 0.80% on the next $1 million and
0.50% on the excess over $3 million.
The term "families" includes a person's spouse, children under 21 years of age
and grandchildren, parents, and a person's spouse's parents.
Purchase orders made pursuant to clause (4) may be placed either through
authorized dealers as described above or directly with Investor Services by the
investment adviser, trust company or bank trust department, provided that
Investor Services receives federal funds for the purchase by the close of
business on the next business day following acceptance of the order. An
authorized dealer may charge a transaction fee for placing an order to purchase
shares pursuant to this provision or for placing a redemption order with respect
to such shares. Authorized dealers will be paid a service fee as described on
purchases made as described in (3) through (9) above. The Fund may terminate, or
amend the terms of, offering shares of the Fund at net asset value to such
groups at any time.
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
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<PAGE> 22
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
acceptance by Investor Services of the request and any other necessary documents
in proper order. Such payment may be postponed or the right of redemption
suspended as provided by the rules of the SEC. Such payment may, under certain
circumstances, be paid wholly or in part by a distribution-in-kind of portfolio
securities. If the shares to be redeemed have been recently purchased by check,
Investor Services may delay the redemption 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 418256, Kansas City, MO 64141-9256. 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. In some cases, however,
other documents may be necessary. In the case of shareholders holding
certificates, the certificates for the shares being redeemed properly endorsed
for transfer must accompany the redemption request. In the event the redemption
is requested by a corporation, partnership, trust, fiduciary, executor or
administrator, and the name and title of the individual(s) authorizing such
redemption is not shown in the account registration, a copy of the corporate
resolution or other legal documentation appointing the authorized signer and
certified within the prior 120 days must accompany the redemption request. IRA
redemption requests should be sent to the IRA custodian to be forwarded to
Investor Services. Contact the IRA custodian for further information.
In the case of written redemption requests sent directly to Investor Services,
the redemption price is the net asset value per share next determined after the
request in proper form is received by Investor Services.
AUTHORIZED DEALER REDEMPTION REQUESTS. Shareholders may place redemption
requests through an authorized dealer. Orders sent through authorized dealers
must be at least $500 (unless transmitted by your authorized dealer via the
FUNDSERV network). The redemption price for such shares is the net asset value
per share next calculated after an order in proper form is received by an
authorized dealer provided such order is transmitted to the Distributor prior to
the Distributor's close of business on such day. It is the responsibility of
authorized dealers to transmit redemption requests received by them to the
Distributor so they will be received prior to such time. Redemptions completed
through an authorized dealer may involve additional fees charged by the dealer.
TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. To establish
such privilege, a shareholder must complete the appropriate section of the
application form accompanying this prospectus or call the Fund at (800) 341-2911
to request that a copy of the Telephone Redemption Authorization form be sent to
them for completion. To redeem shares, contact the telephone transaction line at
(800) 421-5684. Van Kampen Investments, Investor Services and the Fund employ
procedures considered by them to be reasonable to confirm that instructions
communicated by telephone are genuine. Such procedures include requiring certain
personal identification information prior to acting upon telephone instructions,
tape recording telephone communications and providing written confirmation of
instructions communicated by telephone. If reasonable procedures are employed,
neither Van Kampen Investments, Investor Services nor the Fund will be liable
for following telephone instructions which it reasonably believes to be genuine.
Telephone redemptions may not be available if the shareholder cannot
21
<PAGE> 23
reach Investor Services by telephone, whether because all telephone lines are
busy or for any other reason; in such case, a shareholder would have to use the
Fund's other redemption procedure previously described. Requests received by
Investor Services prior to 4:00 p.m., New York time, will be processed at the
next determined net asset value per share. These privileges are available for
all accounts other than retirement accounts or accounts with shares represented
by certificates. If an account has multiple owners, Investor Services may rely
on the instructions of any one owner.
For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check and amounts of at least
$1,000 up to $1 million may be redeemed daily if the proceeds are to be paid by
wire. The proceeds must be payable to the shareholder(s) of record and sent to
the address of record for the account or wired directly to their predesignated
bank account. This privilege is not available if the address of record has been
changed within 30 days prior to a telephone redemption request. Proceeds from
redemptions payable by wire transfer are expected to be wired on the next
business day following the date of redemption. The Fund reserves the right at
any time to terminate, limit or otherwise modify this redemption privilege.
OTHER REDEMPTION INFORMATION. The Fund may redeem shares of any shareholder
account that has a value on the date of the notice of redemption less than the
minimum initial investment as specified in this prospectus. At least 60 days
advance written notice of any such involuntary redemption will be provided to
the shareholder and such shareholder will be given an opportunity to purchase
the required value of additional shares at the next determined net asset value
without sales charge. Any involuntary redemption may only occur if the
shareholder account is less than the minimum initial investment due to
shareholder redemptions.
DISTRIBUTIONS FROM THE FUND
In addition to any increase in the value of shares which the Fund may achieve,
shareholders may receive two kinds of return from the Fund: dividends and
capital gains distributions. Investors will be entitled to begin receiving
dividends on their shares on the business day after Investor Services receives
payment for such shares. However, shares become entitled to dividends on the day
Investor Services receives payment for the shares either through a fed wire or
NSCC settlement. Shares remain entitled to dividends through the day such shares
are processed for payment on redemption.
DIVIDENDS. Dividends from stocks and interest earned from other investments are
the Fund's main sources of income. Substantially all of this income, less
expenses, is distributed at least annually as dividends to shareholders.
Dividends are automatically applied to purchase additional shares of the Fund at
the next determined net asset value unless the shareholder instructs otherwise.
The per share dividends on Class B Shares and Class C Shares may be lower than
the per share dividends on Class A Shares as a result of the higher distribution
fees and transfer agency costs applicable to such classes of shares.
CAPITAL GAINS. The Fund may realize capital gains or losses when it sells
securities, depending on whether the sales prices for the securities are higher
or lower than purchase prices. Net realized capital gains represent the total
profit from sales of securities minus total losses from sales of securities
including losses carried forward from prior years. The Fund distributes any
taxable net realized capital gains to shareholders at least annually. As in the
case of dividends, capital gains distributions are automatically reinvested in
additional shares of the Fund at net asset value unless the shareholder
instructs otherwise.
SHAREHOLDER SERVICES
Listed below are some of the shareholder services the Fund offers to investors.
For a more complete description of the Fund's shareholder services, such as
investment accounts, share certificates, retirement plans, automated clearing
house deposits, dividend diversification and the systematic withdrawal plan,
please refer to the Statement of Additional Information or contact your
authorized dealer.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting
22
<PAGE> 24
dividends and capital gains distributions in shares of the Fund. Such shares are
acquired at net asset value per share (without sales charge) on the applicable
payable date of the dividend or capital gains distribution. Unless the
shareholder instructs otherwise, the reinvestment plan is automatic. This
instruction may be made by telephone by calling (800) 341-2911 ((800) 421-2833
for the hearing impaired) or by writing to Investor Services. The investor may,
on the initial application or prior to any declaration, instruct that dividends
be paid in cash and capital gains distributions be reinvested at net asset
value, or that both dividends and capital gains distributions be paid in cash.
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under which
a shareholder can authorize Investor Services to charge a bank account on a
regular basis to invest predetermined amounts in the Fund. Additional
information is available from the Distributor or your authorized dealer.
EXCHANGE PRIVILEGE. Shares of the Fund may be exchanged for shares of the same
class of any Participating Fund based on the next computed net asset value per
share of each fund after requesting the exchange without any sales charge,
subject to certain limitations. Shares of the Fund may be exchanged for shares
of any Participating Fund only if shares of that Participating Fund are
available for sale; however, during periods of suspension of sales, shares of a
Participating Fund may be available for sale only to existing shareholders of a
Participating Fund. Shareholders seeking an exchange into a Participating Fund
should obtain and read the current prospectus for such fund.
To be eligible for exchange, shares of the Fund must have been registered in the
shareholder's name for at least 30 days. Shares of the Fund registered in a
shareholder's name for less than 30 days may only be exchanged upon receipt of
prior approval of the Adviser. It is the policy of the Adviser, under normal
circumstances, not to approve such requests.
When Class B Shares and Class C Shares are exchanged among Participating Funds,
the holding period for purposes of computing the contingent deferred sales
charge is based upon the date of the initial purchase of such shares from a
Participating Fund. If such Class B Shares or Class C Shares are redeemed and
not exchanged for shares of another Participating Fund, Class B Shares and Class
C Shares are subject to the contingent deferred sales charge schedule imposed by
the Participating Fund from which such shares were originally purchased.
Exchanges of shares are sales and may result in a gain or loss for federal
income tax purposes. If the shares exchanged have been held for less than 91
days, the sales charge paid on such shares is carried over and included in the
tax basis of the shares acquired.
A shareholder wishing to make an exchange may do so by sending a written request
to Investor Services or by contacting the telephone transaction line at (800)
421-5684. A shareholder automatically has telephone exchange privileges unless
otherwise designated in the application form accompanying the prospectus. Van
Kampen Investments 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, neither Van Kampen Investments, Investor Services nor
the Fund will be liable for following telephone instructions which it reasonably
believes to be genuine. If the exchanging shareholder does not have an account
in the fund whose shares are being acquired, a new account will be established
with the same registration, dividend and capital gains options (except dividend
diversification) and authorized dealer of record as the account from which
shares are exchanged, unless otherwise specified by the shareholder. In order to
establish a systematic withdrawal plan for the new account or reinvest dividends
from the new account into another fund, however, an exchanging shareholder must
submit a specific request. The Fund reserves the right to reject any order to
acquire its shares through exchange. In addition, the Fund 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
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<PAGE> 25
exchanges less than all of such shareholder's securities, the security upon
which the highest sales charge rate was previously paid is deemed exchanged
first.
Exchange requests received on a business day prior to the time shares of the
funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares in the fund from which the
shareholder is withdrawing an investment will be redeemed at the net asset value
per share next determined on the date of receipt. Shares of the new fund into
which the shareholder is investing will also normally be purchased at the net
asset value per share, plus any applicable sales charge, next determined on the
date of receipt. Exchange requests received on a business day after the time
shares of the funds involved in the request are priced will be processed on the
next business day in the manner described herein.
A prospectus of any of these Participating Funds may be obtained from any
authorized dealer or the Distributor. An investor considering an exchange to one
of such funds should refer to the prospectus for additional information
regarding such fund prior to investing.
INTERNET TRANSACTIONS. In addition to performing transactions on your account
through written instruction or by telephone, you may also perform certain
transactions through the internet. Please refer to our web site at
www.vankampen.com for further instruction. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated through the internet are genuine. Such
procedures include requiring use of a personal identification number prior to
acting upon internet instructions and providing written confirmation of
instructions communicated through the internet. If reasonable procedures are
employed, neither Van Kampen Investments, Investor Services nor the Fund will be
liable for following instructions through the internet which it reasonably
believes to be genuine. If an account has multiple owners, Investor Services may
rely on the instructions of any one owner.
FEDERAL INCOME TAXATION
Distributions of the Fund's net investment income (consisting generally of
taxable income and net short-term capital gains) are taxable to shareholders as
ordinary income to the extent of the Fund's earnings and profits, whether paid
in cash or reinvested in additional shares. Distributions of the Fund's net
capital gains (which are the excess of net long-term capital gains over net
short-term capital losses) as capital gains 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. Such capital gains dividends may be taxed at
different rates depending on how long the Fund held the securities. Consistent
with the Fund's investment objective, the Fund expects that its distributions
will consist of ordinary income and capital gains dividends. Distributions in
excess of the Fund's earnings and profits will first reduce the adjusted tax
basis of a holder's shares and, after such adjusted tax basis is reduced to
zero, will constitute capital gains to such holder (assuming such shares are
held as a capital asset). Although distributions generally are treated as
taxable in the year they are paid, distributions declared in October, November
or December, payable to shareholders of record on a specified date in such month
and paid during January of the following year will be treated as having been
distributed by the Fund and received by the shareholders on the December 31st
prior to the date of payment. The Fund will inform shareholders of the source
and tax status of all distributions promptly after the close of each calendar
year.
The sale or exchange of shares is a taxable transaction for federal income tax
purposes. Shareholders who sell their shares will generally recognize gain or
loss in an amount equal to the difference between their adjusted tax basis in
the shares and the amount received. If the shares are held as a capital asset,
the gain or loss will be a capital gain or loss. Any capital gains may be taxed
at different rates depending on how long the shareholder held such shares.
The Fund is required, in certain circumstances, to withhold 31% of dividends and
certain other payments, including redemptions, paid to shareholders who do not
furnish to the Fund their correct taxpayer identification number (in the case of
24
<PAGE> 26
individuals, their social security number) and certain required certifications
or who are otherwise subject to backup withholding.
Foreign shareholders, including shareholders who are nonresident aliens, may be
subject to United States withholding tax on certain distributions (whether
received in cash or in shares) at a rate of 30% or such lower rate as prescribed
by an applicable treaty. Prospective foreign investors should consult their
United States tax advisers concerning the tax consequences to them of an
investment in shares.
The Fund intends to qualify as a regulated investment company under the federal
income tax law. If the Fund so qualifies and distributes each year to its
shareholders at least 90% of its net investment income, the Fund will not be
required to pay federal income taxes on any income it distributed to
shareholders. If the Fund distributes less than the sum of 98% of its ordinary
income and 98% of its capital gains net income, then the Fund will be subject to
a 4% excise tax on the undistributed amounts.
The federal income tax discussion above is for general information only.
Prospective investors should consult their own tax advisers regarding the
specific federal tax consequences of purchasing, holding, exchanging or selling
shares, as well as the effects of state, local and foreign tax law and any
proposed tax law changes.
25
<PAGE> 27
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past five years. 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>
May 16, 1994
(Commencement of
Class A Shares Investment Operations) Class B Shares
Year Ended December 31, to December 31, Year Ended December 31,
1998(b) 1997 1996(b) 1995 1994 1998(b) 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period........ $10.162 $10.530 $10.15 $9.19 $9.44 $9.911 $10.379
------- ------- ------ ------ ------- ------- -------
Net Investment Income/Loss..................... (.066) (0.088) -0- .08 .10 (.151) (.146)
Net Realized and Unrealized Gain/Loss........... 1.643 1.014 1.242 1.1375 (.2475) 1.606 .972
------- ------- ------ ------ ------- ------- -------
Total from Investment Operations................ 1.577 .926 1.242 1.2175 (.1475) 1.455 .826
------- ------- ------ ------ ------- ------- -------
Less:
Distributions from and in Excess of Net
Investment Income............................ .072 -0- -0- .0775 .075 -0- -0-
Distributions from and in Excess of Net
Realized Gain................................ 1.328 1.294 .862 .1800 .0275 1.328 1.294
------- ------- ------ ------ ------- ------- -------
Total Distributions............................. 1.400 1.294 .862 .2575 .1025 1.328 1.294
------- ------- ------ ------ ------- ------- -------
Net Asset Value, End of the Period.............. $10.339 $10.162 $10.530 $10.15 $9.19 $10.038 $9.911
======= ======= ====== ====== ======= ======= =======
Total Return*(a)................................ 15.84% 8.94% 12.44% 13.30% (1.57%)** 14.96% 8.10%
Net Assets at End of the Period (In millions)... $8.5 $11.2 $8.5 $15.5 $11.5 $9.6 $10.0
Ratio of Expenses to Average Net Assets*........ 4.11% 3.66% 2.87% 2.79% 2.75% 4.89% 4.42%
Ratio of Net Investment Income/Loss to Average
Net Assets*.................................... (.60%) (.67%) .00% .81% 1.54% (1.42%) (1.45%)
Portfolio Turnover.............................. 222% 231% 91% 135% 50%** 222% 231%
*If certain expenses had not been assumed by the
Adviser, total return would have been lower and
the ratios would have been as follows:
Ratio of Expenses to Average Net Assets......... N/A N/A 3.17% 3.68% 2.76% N/A N/A
Ratio of Net Investment Income/Loss to Average
Net Assets..................................... N/A N/A (.30%) (.07%) 1.53% N/A N/A
<CAPTION>
May 16, 1994
(Commencement of
Class B Shares Investment Operations)
Ended December 31,
1996(b) 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of the Period........ $10.10 $9.17 $9.44
------- ------ -------
Net Investment Income/Loss..................... (.106) (.01) .01
Net Realized and Unrealized Gain/Loss........... 1.247 1.1375 (.2065)
------- ------ -------
Total from Investment Operations................ 1.141 1.1275 (.1965)
------- ------ -------
Less:
Distributions from and in Excess of Net
Investment Income............................ -0- .0175 .046
Distributions from and in Excess of Net
Realized Gain................................ .862 .1800 .0275
------- ------ -------
Total Distributions............................. .862 .1975 .0735
------- ------ -------
Net Asset Value, End of the Period.............. $10.379 $10.10 $9.17
======= ====== =======
Total Return*(a)................................ 11.51% 12.31% (2.09%)**
Net Assets at End of the Period (In millions)... $9.9 $8.1 $7.4
Ratio of Expenses to Average Net Assets*........ 3.76% 3.73% 3.92%
Ratio of Net Investment Income/Loss to Average
Net Assets*.................................... (1.01%) (.09%) .13%
Portfolio Turnover.............................. 91% 135% 50%**
*If certain expenses had not been assumed by the
Adviser, total return would have been lower and
the ratios would have been as follows:
Ratio of Expenses to Average Net Assets......... 4.06% 4.61% 3.93%
Ratio of Net Investment Income/Loss to Average
Net Assets..................................... (1.30%) (.97%) .12%
<CAPTION>
May 16, 1994
(Commencement of
Class C Shares Investment Operations)
Year Ended December 31, to December 31,
1998(b) 1997 1996(b) 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period........ $9.927 $10.395 $10.12 $9.20 $9.44
------- ------- ------- ------ -------
Net Investment Income/Loss..................... (.147) (0.139) (.104) (.02) .05
Net Realized and Unrealized Gain/Loss........... 1.605 .965 1.241 1.1375 (.2165)
------- ------- ------- ------ -------
Total from Investment Operations................ 1.458 .826 1.137 1.1175 (.1665)
------- ------- ------- ------ -------
Less:
Distributions from and in Excess of Net
Investment Income............................ -0- -0- -0- .0175 .046
Distributions from and in Excess of Net
Realized Gain................................ 1.328 1.294 .862 .1800 .0275
------- ------- ------- ------ -------
Total Distributions............................. 1.328 1.294 .862 .1975 .0735
------- ------- ------- ------ -------
Net Asset Value, End of the Period.............. $10.057 $9.927 $10.395 $10.12 $9.20
======= ======= ======= ====== =======
Total Return*(a)................................ 14.93% 8.09% 11.49% 12.16% (1.77%)**
Net Assets at End of the Period (In millions)... $1.4 $1.7 $1.7 $1.9 $1.3
Ratio of Expenses to Average Net Assets*........ 4.91% 4.46% 3.78% 3.79% 3.36%
Ratio of Net Investment Income/Loss to Average
Net Assets*.................................... (1.38%) (1.50%) (.99%) (.18%) .80%
Portfolio Turnover.............................. 222% 231% 91% 135% 50%**
*If certain expenses had not been assumed by the
Adviser, total return would have been lower and
the ratios would have been as follows:
Ratio of Expenses to Average Net Assets......... N/A N/A 4.07% 4.67% 3.38%
Ratio of Net Investment Income/Loss to Average
Net Assets..................................... N/A N/A (1.28%) (1.06%) .78%
</TABLE>
(a) Total Return is based upon Net Asset Value which does not include payment of
maximum sales charge or contingent deferred sales charge.
(b) Based on average shares outstanding.
** Non Annualized
N/A -- Not Applicable
26
<PAGE> 28
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2911
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders, or redemptions, call
the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call (800) 421-2833
FUND INFO(R)
For automated telephone services, call (800) 847-2424
WEB SITE
www.vankampen.com
VAN KAMPEN GLOBAL MANAGED ASSETS FUND
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Investment Adviser
VAN KAMPEN ASSET MANAGEMENT INC.
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, New York 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 418256
Kansas City, MO 64141-9256
Attn: Van Kampen Global Managed Assets Fund
Custodian
STATE STREET BANK AND TRUST COMPANY
225 West Franklin Street, PO Box 1713
Boston, MA 02105-1713
Attn: Van Kampen Global Managed Assets 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> 29
VAN KAMPEN
GLOBAL MANAGED ASSETS FUND
PROSPECTUS
APRIL 30, 1999
A Statement of Additional Information, which
contains more details about the Fund, is
incorporated by reference in its entirety into
this prospectus.
You will find additional information about the
Fund in its annual and semiannual reports,
which explain the market conditions and
investment strategies affecting the Fund's
recent performance.
You can ask questions or obtain a free copy of
the Fund's reports or its Statement of
Additional Information by calling (800)
341-2911 from 7:00 a.m. to 7:00 p.m., Central
time, Monday through Friday.
Telecommunications Device for the Deaf users
may call (800) 421-2833. A free copy of the
Fund's reports can also be ordered from our
web site at www.vankampen.com.
Information about the Fund, including its
reports and Statement of Additional
Information, has been filed with the
Securities and Exchange Commission (SEC). It
can be reviewed and copied at the SEC Public
Reference Room in Washington, DC or online at
the SEC's web site (http://www.sec.gov). For
more information, please call the SEC at (800)
SEC-0330. You can also request these materials
by writing the Public Reference Section of the
SEC, Washington DC, 20549-6009, and paying a
duplication fee.
[VAN KAMPEN FUNDS LOGO]
Investment Company Act File No. 811-8286. GMAPRO 4/99
<PAGE> 30
STATEMENT OF ADDITIONAL INFORMATION
VAN KAMPEN
GLOBAL MANAGED ASSETS FUND
Van Kampen Global Managed Assets Fund is a mutual fund (the "Fund") with an
investment objective to seek to provide total return through a managed balance
of foreign and domestic equity and debt securities.
The Fund is organized as a non-diversified series of Van Kampen Global
Managed Assets Fund, an open-end, management investment company (the "Trust").
This Statement of Additional Information is not a prospectus. This
Statement of Additional Information should be read in conjunction with the
Fund's prospectus (the "Prospectus") dated as of the same date as this Statement
of Additional Information. This Statement of Additional Information does not
include all the information that a prospective investor should consider before
purchasing shares of the Fund. Investors should obtain and read the Prospectus
prior to purchasing shares of the Fund. A Prospectus may be obtained without
charge by writing or calling Van Kampen Funds Inc. at 1 Parkview Plaza, PO Box
5555, Oakbrook Terrace, Illinois 60181-5555 or (800) 341-2911 ((800) 421-2833
for the hearing impaired).
---------------------------------------------
TABLE OF CONTENTS
---------------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
General Information......................................... B-2
Investment Objective and Policies........................... B-4
Options, Futures Contracts and Related Options.............. B-9
Investment Restrictions..................................... B-19
Trustees and Officers....................................... B-22
Investment Advisory Agreement............................... B-31
Distribution and Service.................................... B-33
Transfer Agent.............................................. B-36
Portfolio Transactions and Brokerage Allocation............. B-36
Shareholder Services........................................ B-38
Redemption of Shares........................................ B-41
Contingent Deferred Sales Charge-Class A.................... B-41
Waiver of Class B and Class C Contingent Deferred Sales
Charge.................................................... B-41
Taxation.................................................... B-43
Fund Performance............................................ B-49
Other Information........................................... B-52
Securities Ratings.......................................... B-52
Report of Independent Accountants........................... F-1
Financial Statements........................................ F-2
Notes to Financial Statements............................... F-33
</TABLE>
THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED APRIL 30, 1999.
<PAGE> 31
GENERAL INFORMATION
The Fund was originally incorporated in Maryland on November 24, 1993 under
the name American Capital Global Managed Assets Fund, Inc. As of August 5, 1995,
the Fund was reorganized under the name Van Kampen American Capital Global
Managed Assets Fund as a series of the Trust. The Trust is organized as a
business trust under the laws of the State of Delaware. On July 14, 1998, the
Fund and the Trust adopted their present names.
Van Kampen Asset Management Inc. (the "Adviser" or "Asset Management"), Van
Kampen Funds Inc. (the "Distributor"), and Van Kampen Investor Services Inc.
("Investor Services") are wholly owned subsidiaries of Van Kampen Investments
Inc. ("Van Kampen Investments"), which is an indirect wholly owned subsidiary of
Morgan Stanley Dean Witter & Co. The principal office of the Fund, the Adviser,
the Distributor and Van Kampen Investments is located at 1 Parkview Plaza, PO
Box 5555, Oakbrook Terrace, Illinois 60181-5555.
Morgan Stanley Dean Witter & Co. and various of its directly or indirectly
owned subsidiaries, including Morgan Stanley Dean Witter Investment Management
Inc. (the "Subadviser"), an investment adviser, Morgan Stanley & Co.
Incorporated, a registered broker-dealer and investment adviser, and Morgan
Stanley International, are engaged in a wide range of financial services. Their
principal businesses include securities underwriting, distribution and trading;
merger, acquisition, restructuring and other corporate finance advisory
activities; merchant banking; stock brokerage and research services; credit
services; asset management; trading of futures, options, foreign exchange,
commodities and swaps (involving foreign exchange, commodities, indices and
interest rates); real estate advice, financing and investing; and securities
lending.
The authorized capitalization of the Trust consists of an unlimited number
of shares of beneficial interest, par value $0.01 per share, which can be
divided into series, such as the Fund, 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. The
Declaration of Trust provides that shareholders are not liable for any
liabilities of the Trust or any of its series, requires inclusion of a clause to
that effect in every agreement entered into by the Trust or any of its series
and indemnifies shareholders against any such liability.
The Fund currently offers three classes of shares, designated Class A
Shares, Class B Shares and Class C Shares. Other classes may be established from
time to time in accordance with provisions of the Declaration of Trust. Each
class of shares of the Fund generally are identical in all respects except that
each class bears certain distribution expenses and has exclusive voting rights
with respect to its distribution fee. Shares of the Trust 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
B-2
<PAGE> 32
Prospectus or herein, shares do not have cumulative voting rights, preemptive
rights or any conversion, subscription or exchange rights.
The Fund does not contemplate holding regular meetings of shareholders to
elect Trustees or otherwise. However, the holders of 10% or more of the
outstanding shares may by written request require a meeting to consider the
removal of Trustees by a vote of majority of the shares then outstanding cast in
person or by proxy at such meeting. The Fund will assist such holders in
communicating with other shareholders of the 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 the Fund is entitled to
its portion of all of the 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.
The Trustees may amend the Declaration of Trust (including with respect to
any series) in any manner without shareholder approval, except that the Trustees
may not adopt any amendment adversely affecting the rights of shareholders of
any series without approval by a majority of the shares of each affected series
present at a meeting of shareholders (or such higher vote as may be required by
the 1940 Act or other applicable law) and except that the Trustees cannot amend
the Declaration of Trust to impose any liability on shareholders, make any
assessment on shares or impose liabilities on the Trustees without approval from
each affected shareholder or Trustee, as the case may be.
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.
B-3
<PAGE> 33
As of April 6, 1999, no person was known by the Fund to own beneficially or
to hold of record 5% or more of the outstanding Class A Shares, Class B Shares
or Class C Shares of the Fund, except as follows:
<TABLE>
<CAPTION>
Amount of
Ownership at Class Percentage
Name and Address of Holder April 6, 1999 of Shares Ownership
-------------------------- ------------- --------- ----------
<S> <C> <C> <C>
Van Kampen Trust Company........................ 267,073 A 39.89%
2800 Post Oak Blvd. 294,289 B 31.36%
Houston, TX 77056 20,532 C 13.78%
Merrill Lynch Pierce Fenner & Smith Inc.........
For the Sole Benefit of its Customers 64,331 B 6.86%
Attn: Fund Administration 28,867 C 19.37%
4800 Deer Lake Drive East
2nd Floor
Jacksonville, FL 32246-6484
Roselle V. Anderson, Trustee.................... 8,613 C 5.78%
Anderson Trust
3234 Rossmoor Parkway #3
Walnut Creek, CA 94595-3838
Van Kampen Trust Company Custodian.............. 7,594 C 5.10%
IRA R/O Susan M. Brothers
3638 W. Berry Avenue
Littleton, Colorado 80123-2812
</TABLE>
- ------------------------------------
Van Kampen Trust Company acts as custodian for certain employee benefit
plans and independent retirement accounts.
INVESTMENT OBJECTIVE AND POLICIES
The following disclosures supplement disclosures set forth under the same
caption in the Prospectus and do not, standing alone, present a complete or
accurate explanation of the matters disclosed. Readers must refer also to this
caption in the Prospectus for a complete presentation of the matters disclosed
below.
REPURCHASE AGREEMENTS
The Fund 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 debt security and the seller agrees to repurchase the obligation
at a future time and set price, thereby determining the yield during the holding
period. Repurchase agreements involve certain risks in the event of default by
the other party. The Fund may enter into repurchase agreements with banks or
broker-dealers deemed to be creditworthy by the Adviser under guidelines
approved by the Trustees. The Fund will not invest in repurchase agreements
maturing in more than seven days if any such investment, together with any other
illiquid securities held by the Fund, would exceed the Fund's limitation on
illiquid securities described below. In the event of the bankruptcy or other
default of a seller of a repurchase agreement, the 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
B-4
<PAGE> 34
period while the Fund seeks to enforce its rights thereto; (b) possible lack of
access to income on the underlying security during this period; and (c) expenses
of enforcing its rights.
For the purpose of investing in repurchase agreements, the Adviser may
aggregate the cash that certain funds advised or subadvised by the Adviser or
certain of its affiliates would otherwise invest separately into a joint
account. The cash in the joint account is then invested in repurchase agreements
and the funds that contributed to the joint account share pro rata in the net
revenue generated. The Adviser believes that the joint account produces
efficiencies and economies of scale that may contribute to reduced transaction
costs, higher returns, higher quality investments and greater diversity of
investments for the Fund than would be available to the Fund investing
separately. The manner in which the joint account is managed is subject to
conditions set forth in an 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 debt
securities and are considered to be loans under the 1940 Act. The Fund pays for
such securities only upon physical delivery or evidence of book entry transfer
to the account of a custodian or bank acting as agent. The seller under a
repurchase agreement will be required to maintain the value of the underlying
securities marked-to-market daily at not less than the repurchase price. The
underlying securities (normally securities of the U.S. government, or its
agencies and instrumentalities) may have maturity dates exceeding one year. The
Fund does not bear the risk of a decline in value of the underlying security
unless the seller defaults under its repurchase obligation.
ILLIQUID SECURITIES
The Fund may invest up to 15% of its net 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 Trustees. Ordinarily, the 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 the 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 Trustees are not subject to
the limitation on illiquid securities. Such 144A Securities are subject to
monitoring and may become illiquid to the extent qualified institutional buyers
become, for a time, uninterested in purchasing such securities. Factors used to
determine whether 144A
B-5
<PAGE> 35
Securities are liquid include, among other things, a security's trading history,
the availability of reliable pricing information, the number of dealers making
quotes or making a market in such security and the number of potential
purchasers in the market for such security. For purposes hereof, investments by
the Fund in securities of other investment companies will not be considered
investments in restricted securities to the extent permitted by (i) the 1940
Act, (ii) the rules and regulations promulgated by the SEC under the 1940 Act,
as amended from time to time, or (iii) an exemption or other relief from the
provisions of the 1940 Act.
LENDING OF SECURITIES
Consistent with applicable regulatory requirements, the Fund may lend an
amount up to 15% of the value of its total assets to broker-dealers and other
financial institutions provided that such loans are at all times secured by cash
collateral that is at least equal to the market value, determined daily, of the
loaned securities. The advantage of such loans is that the Fund continues to
receive the interest or dividends on the loaned securities, while at the same
time earning interest on the collateral which is invested in short-term
obligations. The Fund may pay reasonable finders', administrative and custodial
fees in connection with loans of its securities. There is no assurance as to the
extent to which securities loans can be effected.
A loan may be terminated by the borrower on one business day's notice, or
by the Fund within five business days. If the borrower fails to maintain the
requisite amount of collateral, the loan automatically terminates, and the Fund
could use the collateral to replace the securities while holding the borrower
liable for any excess of replacement cost over collateral. As with any
extensions of credit, there are risks of delay in recovery and in some cases
even loss of rights in the collateral should the borrower of the securities fail
financially. However, these loans of portfolio securities will only be made to
firms deemed by the Fund's investment adviser to be creditworthy and when the
consideration which can be earned from such loans is believed to justify the
attendant risks. On termination of the loan, the borrower is required to return
the securities to the Fund; any gain or loss in the market price during the loan
would inure to the Fund.
When voting or consent rights which accompany loaned securities pass to the
borrower, the Fund will follow the policy of calling the loan, in whole or in
part as may be appropriate, to permit the exercise of such rights if the matters
involved would have a material effect on the Fund's investment in the securities
which are the subject of the loan.
FOREIGN SECURITIES TRANSACTIONS
The Fund's investments in supranational entities may include, but are not
limited to, the following: International Bank for Reconstruction and Development
(World Bank) established to promote reconstruction and economic development in
its member nations; European Coal and Steel Community, a partnership of 12
European countries created to establish a common market for coal and steel and
to further the economic development in its member countries; European Investment
Bank, established to finance investment projects that contribute to the balanced
development of the European Economic Community; European Bank for Reconstruction
& Development, whose objectives are to
B-6
<PAGE> 36
foster the transition toward open market economies and to promote private and
entrepreneurial initiative in countries of central and eastern Europe;
Inter-American Development Bank, established to further the development of its
Latin American member countries; African Development Bank, established to
contribute to the economic development and social progress of its African member
countries; Asian Development Bank, established to promote economic growth and
cooperation in Asia and the Far East.
FORWARD FOREIGN CURRENCY CONTRACT
The Fund may enter into a forward foreign currency contract, for example,
when it enters into a contract for the purchase or sale of a security
denominated in a foreign currency in order to "lock in" the United States dollar
price of the security ("transaction hedge"). Additionally, for example, when the
Fund believes that a foreign currency may suffer a substantial decline against
the United States dollar, it may enter into a forward sale contract to sell an
amount of that foreign currency approximating the value of some or all of the
Fund's portfolio securities denominated in such foreign currency, or when the
Fund believes that the United States dollar may suffer a substantial decline
against a foreign currency, it may enter into a forward purchase contract to buy
that foreign currency for a fixed dollar amount ("position hedge"). In this
situation, the Fund may, in the alternative, enter into a forward contract to
sell a different foreign currency for a fixed United States dollar amount where
the Fund believes that the United States dollar value of the currency to be sold
pursuant to the forward contract will fall whenever there is a decline in the
United States dollar value of the currency in which portfolio securities of the
Fund are denominated ("cross-hedge").
The Fund's custodian will place cash or liquid securities in a segregated
account having a value equal to the aggregate amount of the Fund's commitments
under forward contracts. If the value of the securities placed in the segregated
account declines, additional cash or liquid securities are placed in the account
on a daily basis so that the value of the account equals the amount of the
Fund's commitments with respect to such contracts. As an alternative to
maintaining all or part of the segregated account, the Fund may purchase a call
option permitting the Fund to purchase the amount of foreign currency being
hedged by a forward sale contract at a price no higher than the forward contract
price, or the Fund may purchase a put option permitting the Fund to sell the
amount to foreign currency subject to a forward purchase contract at a price as
high or higher than the forward contract price. Unanticipated changes in
currency prices may result in poorer overall performance for the Fund than if it
had not entered into such contracts.
WHEN-ISSUED AND DELAYED DELIVERY
The Fund may purchase or sell debt securities on a "when-issued" or
"delayed delivery" basis. These transactions occur when securities are purchased
or sold by the Fund with payment and delivery taking place in the future,
frequently a month or more after such transaction. This price is fixed on the
date of the commitment, and the seller continues to accrue interest on the
securities covered until delivery and payment take place. No income accrues to
the Fund on securities in connection with such transactions prior to the date
the Fund actually takes delivery of such securities. These transactions are
subject to market fluctuation; the value of the securities at delivery may be
more or less
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than their purchase price, and yields generally available on securities when
delivery occurs may be higher or lower than yields on the securities obtained
pursuant to such transactions. The Fund may either settle a commitment by taking
delivery of the securities or may either resell or repurchase a commitment on or
before the settlement date in which event the Fund may reinvest the proceeds in
another when-issued commitment. The Fund's use of when-issued and delayed
delivery transactions may increase its overall investment exposure and thus its
potential for gain or loss. When engaging in such transactions, the Fund relies
on the other party to complete the transaction; should the other party fail to
do so, the Fund might lose a purchase or sale opportunity that could be more
advantageous than alternative opportunities at the time of the failure. The Fund
maintains a segregated account (which is marked to market daily) of cash, liquid
securities or the security covered by the commitment (in the case of a sale)
with the Fund's custodian in an aggregate amount equal to the amount of its
commitment as long as the obligation to purchase or sell continues.
Since the market value of both the securities or currency subject to the
commitment and the securities or currency held in the segregated account may
fluctuate, the use of commitments may magnify the impact of interest rate
changes on the Fund's net asset value.
A commitment sale is covered if the Fund owns or has the right to acquire
the underlying securities or currency subject to the commitment. A commitment
sale is for cross-hedging purposes if it is not covered, but is designed to
provide a hedge against a decline in value of a security or currency which the
Fund owns or has the right to acquire. By entering into a Forward Commitment
sale transaction, the Fund foregoes or reduces the potential for both gain and
loss in the security which is being hedged by the Forward Commitment sale. See
the Prospectus for further information.
SHORT SALES AGAINST THE BOX
The Fund may from time to time make short sales of securities it owns or
has the right to acquire. A short sale is "against the box" to the extent that
the Fund contemporaneously owns or has the right to obtain at no added cost
securities identical to those sold short. In a short sale, the Fund does not
immediately deliver the securities sold and does not receive the proceeds from
the sale. The Fund is required to recognize gain from the short sale for federal
income tax purposes at the time it enters into the short sale, even though it
does not receive the sales proceeds until it delivers the securities. The Fund
is said to have a short position in the securities sold until it delivers such
securities at which time it receives the proceeds of the sale. The Fund may not
make short sales or maintain a short position if to do so would cause more than
25% of its total assets, taken at market value, to be involved in such sales.
The Fund may close out a short position by purchasing and delivering an equal
amount of the securities sold short, rather than by delivering securities
already held by the Fund, because the Fund may want to continue to receive
interest and dividend payments on securities in its portfolio.
NON-DIVERSIFICATION
The Fund is a "non-diversified" investment company, which means the Fund is
not limited in the proportion of its assets that may be invested in the
securities of a single issuer. However, the Fund intends to conduct its
operations so as to qualify as a "regulated
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investment company" for purposes of the Internal Revenue Code of 1986, as
amended (the "Code"). If the Fund qualifies as a regulated investment company
under the Code, it will be relieved of any liability for federal income tax to
the extent its earnings are distributed to shareholders. In order to qualify,
among other requirements, the Fund must limit its investments so that, at the
close of each calendar quarter, (i) not more than 25% of the market value of the
Fund's total assets are invested in securities of a single issuer (other than
the U.S. government, its agencies and instrumentalities), and (ii) at least 50%
of the market value of its total assets is invested in cash, securities of the
U.S. government, its agencies and instrumentalities and other securities limited
in respect of any one issuer to an amount not greater than 5% of the market
value of the Fund's total assets and not more than 10% of the outstanding voting
securities of such issuer. Since the Fund, as a non-diversified investment
company, may invest in a smaller number of individual issuers than a diversified
investment company, an investment in the Fund may, under certain circumstances,
present greater risks to an investor than an investment in a diversified
company.
PORTFOLIO TURNOVER
The Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for a fiscal year by the average
monthly value of the Fund's portfolio securities during such fiscal year. The
turnover rate may vary greatly from year to year as well as within a year. The
Fund's portfolio turnover rate (the lesser of the value of the securities
purchased or securities sold divided by the average value of the securities held
in the Fund's portfolio excluding all securities whose maturities at acquisition
were one year or less) is shown in the table of "Financial Highlights" in the
Prospectus. A high portfolio turnover rate (100% or more) increases the Fund's
transaction costs, including brokerage commissions, and may result in the
realization of more short-term capital gains than if the Fund had a lower
portfolio turnover. The turnover rate will not be a limiting factor, however, if
the Adviser deems portfolio changes appropriate.
OPTIONS, FUTURES CONTRACTS AND RELATED OPTIONS
SELLING CALL AND PUT OPTIONS
Purpose. The principal reason for selling options is to obtain, through
receipt of premiums, a greater current return than would be realized on the
underlying securities alone. Such current return could be expected to fluctuate
because premiums earned from an option selling program and dividend or interest
income yields on portfolio securities vary as economic and market conditions
change. Selling options on portfolio securities is likely to result in a higher
portfolio turnover rate.
Selling Options. The purchaser of a call option pays a premium to the
seller (i.e., the writer) for the right to buy the underlying security from the
seller at a specified price during a certain period. The Fund would write call
options only on a covered basis or for cross-hedging purposes. A call option is
covered if, at all times during the option period, the Fund would own or have
the right to acquire securities of the type that it would be obligated to
deliver if any outstanding option were exercised. An option is for cross-hedging
purposes if it is not covered by the security subject to the option, but is
designed to provide a hedge against another security which the Fund owns or has
the right to acquire. In such circumstances, the Fund collateralizes the option
by maintaining in a segregated
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account with the Fund's custodian cash or liquid securities in an amount not
less than the market value of the underlying security, marked to market daily,
while the option is outstanding.
The purchaser of a put option pays a premium to the seller (i.e., the
writer) for the right to sell the underlying security to the writer at a
specified price during a certain period. The Fund would sell put options only on
a secured basis, which means that, at all times during the option period, the
Fund would maintain in a segregated account with its custodian cash or liquid
securities in an amount of not less than the exercise price of the option, or
would hold a put on the same underlying security at an equal or greater exercise
price.
Closing Purchase Transactions and Offsetting Transactions. In order to
terminate its position as a writer of a call or put option, the Fund could enter
into a "closing purchase transaction," which is the purchase of a call (put) on
the same underlying security and having the same exercise price and expiration
date as the call (put) previously sold by the Fund. The Fund would realize a
gain (loss) if the premium plus commission paid in the closing purchase
transaction is less (greater) than the premium it received on the sale of the
option. The Fund would also realize a gain if an option it has written lapses
unexercised.
The Fund could sell options that are listed on an exchange as well as
options which are privately negotiated in over-the-counter transactions. The
Fund could close out its position as a seller of an option only if a liquid
secondary market exists for options of that series, but there is no assurance
that such a market will exist, particularly in the case of over-the-counter
options, since they can be closed out only with the other party to the
transaction. Alternatively, the Fund could purchase an offsetting option, which
would not close out its position as a seller, but would provide an asset of
equal value to its obligation under the option sold. The Fund will only enter
into over-the-counter options (other than currency options) that are subject to
a buy-back provision permitting the Fund to require the counterparty to close
out the option at a formula price within seven days. If the Fund is not able to
enter into a closing purchase transaction or to purchase an offsetting option
with respect to an option it has sold, it will be required to maintain the
securities subject to the call or the collateral securing the option until a
closing purchase transaction can be entered into (or the option is exercised or
expires) even though it might not be advantageous to do so. Such options may be
considered illiquid and subject to the Fund's limitation on illiquid securities.
Risks of Writing Options. By selling a call option, the Fund loses the
potential for gain on the underlying security above the exercise price while the
option is outstanding; by selling a put option the Fund might become obligated
to purchase the underlying security at an exercise price that exceeds the then
current market price.
PURCHASING CALL AND PUT OPTIONS
The Fund could purchase call options to protect (i.e., hedge) against
anticipated increases in the prices of securities it wishes to acquire.
Alternatively, call options could be purchased for capital appreciation. Since
the premium paid for a call option is typically a small fraction of the price of
the underlying security, a given amount of funds will purchase call options
covering a much larger quantity of such security than could be
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purchased directly. By purchasing call options, the Fund could benefit from any
significant increase in the price of the underlying security to a greater extent
than had it invested the same amount in the security directly. However, because
of the very high volatility of option premiums, the Fund would bear a
significant risk of losing the entire premium if the price of the underlying
security did not rise sufficiently, or if it did not do so before the option
expired.
Put options may be purchased to protect (i.e., hedge) against anticipated
declines in the market value of either specific portfolio securities or of the
Fund's assets generally. Alternatively, put options may be purchased for capital
appreciation in anticipation of a price decline in the underlying security and a
corresponding increase in the value of the put option. The purchase of put
options for capital appreciation involves the same significant risk of loss as
described above for call options.
In any case, the purchase of options for capital appreciation would
increase the Fund's volatility by increasing the impact of changes in the market
price of the underlying securities on the Fund's net asset value.
OPTIONS ON STOCK INDICES
Options on stock indices are similar to options on stock, but the delivery
requirements are different. Instead of giving the right to take or make delivery
of stock at a specified price, an option on a stock index gives the holder the
right to receive an amount of cash which amount will depend upon the closing
level of the stock index upon which the option is based being greater than (in
the case of a call) or less than (in the case of a put) the exercise price of
the option. The amount of cash received will be the difference between the
closing price of the index and the exercise price of the option, multiplied by a
specified dollar multiple. The writer of the option is obligated, in return for
the premium received, to make delivery of this amount.
Some stock index options are based on a broad market index such as the
Standard & Poor's 500 or the New York Stock Exchange Composite Index, or a
narrower index such as the Standard & Poor's 100. Indices are also based on an
industry or market segment such as the AMEX Oil and Gas Index or the Computer
and Business Equipment Index. A stock index fluctuates with changes in the
market values of the stocks included in the index. Options are currently traded
on several exchanges.
Gain or loss to the Fund on transactions in stock index options will depend
on price movements in the stock market generally (or in a particular industry or
segment of the market) rather than price movements of individual securities. As
with stock options, the Fund may offset its position in stock index options
prior to expiration by entering into a closing transaction on an exchange, or it
may let the option expire unexercised.
SPECIAL RISKS ASSOCIATED WITH U.S. GOVERNMENT SECURITIES OPTIONS
Treasury Bonds and Notes. Because trading interests in options written on
Treasury bonds and notes tends to center on the most recently auctioned issues,
the exchanges will not continue indefinitely to introduce options with new
expirations to replace expiring options on particular issues. Instead, the
expirations introduced at the commencement of options trading on a particular
issue will be allowed to run their course, with the possible
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addition of a limited number of new expirations as the original ones expire.
Options trading on each issue of bonds or notes will thus be phased out as new
options are listed on more recent issues, and options representing a full range
of expirations will not ordinarily be available for every issue on which options
are traded.
Treasury Bills. Because the deliverable Treasury bill changes from week to
week, writers of Treasury bill calls cannot provide in advance for their
potential exercise settlement obligations by acquiring and holding the
underlying security. However, if the Fund holds a long position in Treasury
bills with a principal amount of the securities deliverable upon exercise of the
option, the position may be hedged from a risk standpoint by the writing of a
call option. For so long as the call option is outstanding, the Fund will hold
the Treasury bills in a segregated account with its custodian so that it will be
treated as being covered.
Mortgage-Related Securities. The following special considerations will be
applicable to options on mortgage-related securities. Currently such options are
only traded over-the-counter. Since the remaining principal balance of a
mortgage-related security declines each month as a result of mortgage payments,
the Fund as a writer of a mortgage-related call holding mortgage-related
securities as "cover" to satisfy its delivery obligation in the event of
exercise may find that the mortgage-related securities it holds no longer have a
sufficient remaining principal balance for this purpose.
OPTIONS ON FOREIGN CURRENCIES
The Fund may purchase and write options on foreign currencies for hedging
purposes in a manner similar to that in which forward contracts or futures
contracts on foreign currencies will be utilized. For example, a decline in the
dollar value of a foreign currency in which the portfolio 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 diminutions in the value of
portfolio securities, the Fund may purchase put options on the foreign currency.
If the value of the currency does decline, the Fund 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 its portfolio 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 Fund 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 Fund deriving 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 Fund could sustain losses on transactions in
foreign currency options which would require it to forego a portion or all of
the benefits of advantageous changes in such rates.
The Fund may write options on foreign currencies for the same types of
hedging purposes. For example, where the 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
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expected 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 Fund 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.
The Fund intends to write covered call options on foreign currencies. A
call option written on a foreign currency by the Fund is "covered" if the Fund
owns the underlying foreign currency covered by the call or has 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 its custodian) upon conversion or exchange of other foreign currency held in
its portfolio. A 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 liquid securities
in a segregated account with its Custodian.
The value of a foreign currency option is dependent upon the value of the
underlying foreign currency relative to the U.S. dollar. As a result, the price
of the option position may vary with changes in the value of either or both
currencies and has no relationship to the investment merits of a foreign
security. Because foreign currency transactions occurring in the interbank
market (conducted directly between currency traders, usually large commercial
banks, and their customers) involve substantially larger amounts than those that
may be involved in the use of foreign currency options, investors may be
disadvantaged by having to deal in an odd lot market (generally consisting of
transactions of less than $1 million) for the underlying foreign currencies at
prices that are less favorable than for round lots.
There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Quotation information available is generally representative of very large
transactions in the interbank market and thus may not reflect relatively smaller
transactions (i.e., less than $1 million) where rates may be less favorable. The
interbank market in foreign currencies is a global, around-the-clock market. To
the extent that the U.S. options markets are closed while the markets for the
underlying currencies remain open, significant price and rate movements may take
place in the underlying markets that cannot be reflected in the options markets.
The Fund also intends to 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 not covered, but is designed to provide a hedge against a
decline in the U.S. dollar value of a
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security which the Fund owns or has the right to acquire and which is
denominated in the currency underlying the option due to an adverse change in
the exchange rate. In such circumstances, the Fund collateralizes the option by
maintaining in a segregated account with the Fund's custodian, cash or liquid
securities in an amount not less than the value of the underlying foreign
currency in U.S. dollars marked to market daily.
FUTURES CONTRACTS
The Fund may engage in transactions involving futures contracts and related
options in accordance with the rules and interpretations of the Commodity
Futures Trading Commission ("CFTC") under which the Fund would be exempt from
registration as a "commodity pool."
The Fund may enter into contracts for the purchase or sale for future
delivery of securities or foreign currencies, or contracts based on financial
indices including any stock index or index of U.S. government securities,
foreign government securities or corporate debt securities. A stock index
futures contract is an agreement pursuant to which a party agrees to take or
make delivery of an amount of cash equal to a specified dollar amount multiplied
by the difference between the stock index value at a specified time and the
price at which the futures contract originally was struck. No physical delivery
of the underlying stocks in the index is made. U.S. futures contracts have been
designed by exchanges which have been designated "contracts markets" by the
CFTC, and must be executed through a futures commission merchant, or brokerage
firm, which is a member of the relevant contract market. Futures contracts trade
on a number of exchange markets, and, through their clearing corporations, the
exchanges guarantee performance of the contracts as between the clearing members
of the exchange. The Fund may enter into futures contracts which are based on
debt securities that are backed by the full faith and credit of the U.S.
government, such as long-term U.S. Treasury Bonds, Treasury Notes, Government
National Mortgage Association modified pass-through mortgage-related securities
and three-month U.S. Treasury Bills. The Fund may also enter into futures
contracts which are based on bonds issued by entities other than the U.S.
government.
Currently, stock index futures contracts can be purchased with respect to
several indices on various exchanges. Differences in the stocks included in the
indices may result in differences in correlation of the futures contracts with
movements in the value of the securities being hedged. An interest rate futures
contract is an agreement pursuant to which a party agrees to take or make
delivery of a specified debt security (such as U.S. Treasury bonds or notes) at
a specified future time and at a specified price. The Fund also may invest in
foreign stock index futures traded outside the United States which involve
additional risks including fluctuations in foreign exchange rates, foreign
currency exchange controls, political and economic instability, differences in
financial reporting and securities regulation and trading, and foreign taxation
issues.
Initial and Variation Margin. In contrast to the purchase or sale of a
security, no price is paid or received upon the purchase or sale of a futures
contract. Initially, the Fund is required to deposit with its custodian in an
account in the broker's name an amount of cash or liquid securities equal to a
percentage (which will normally range between 2% and 10%) of the contract
amount. This amount is known as initial margin. The nature of initial margin in
futures transactions is different from that of margin in securities transactions
in that futures contract margin does not involve the borrowing of funds by the
customer to
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finance the transaction. Rather, the initial margin is in the nature of a
performance bond or good faith deposit on the contract, which is returned to the
Fund upon termination of the futures contract and satisfaction of its
contractual obligations. Subsequent payments to and from the broker, called
variation margin, are made on a daily basis as the price of the underlying
securities or index fluctuates, making the long and short positions in the
futures contract more or less valuable, a process known as marking to market.
For example, when the Fund purchases a futures contract and the price of
the underlying security or index rises, that position increases in value, and
the Fund receives from the broker a variation margin payment equal to that
increase in value. Conversely, where the Fund purchases a futures contract and
the value of the underlying security or index declines, the position is less
valuable, and the Fund is required to make a variation margin payment to the
broker.
At any time prior to expiration of the futures contract, the Fund may elect
to terminate the position by taking an opposite position. A final determination
of variation margin is then made, additional cash is required to be paid by or
released to the Fund, and the Fund realizes a loss or a gain.
Futures Strategies. When the Fund anticipates a significant market or
market sector advance, the purchase of a futures contract affords a hedge
against not participating in the advance at a time when the Fund is otherwise
fully invested ("anticipatory hedge"). Such purchase of a futures contract would
serve as a temporary substitute for the purchase of individual securities, which
may be purchased in an orderly fashion once the market has stabilized. As
individual securities are purchased, an equivalent amount of futures contracts
could be terminated by offsetting sales. The Fund may sell futures contracts in
anticipation of or in a general market or market sector decline that may
adversely affect the market value of the Fund's securities ("defensive hedge").
To the extent that the Fund's portfolio of securities changes in value in
correlation with the underlying security or index, the sale of futures contracts
would substantially reduce the risk to the Fund of a market decline and, by so
doing, provides an alternative to the liquidation of securities positions in the
Fund. Ordinarily transaction costs associated with futures transactions are
lower than transaction costs that would be incurred in the purchase and sale of
the underlying securities.
Special Risks Associated with Futures Transactions. There are several risks
connected with the use of futures contracts as a hedging device. These include
the risk of imperfect correlation between movements in the price of the futures
contracts and of the underlying securities, currency or index; the risk of
market distortion; the illiquidity risk; and the risk of error in anticipating
price movement.
There may be an imperfect correlation (or no correlation) between movements
in the price of the futures contracts and of the securities being hedged. The
risk of imperfect correlation increases as the composition of the securities
being hedged diverges from the securities upon which the futures contract is
based. If the price of the futures contract moves less than the price of the
securities being hedged, the hedge will not be fully effective. To compensate
for the imperfect correlation, the Fund could buy or sell futures contracts in a
greater dollar amount than the dollar amount of securities being hedged if the
historical volatility of the securities being hedged is greater than the
historical volatility of the securities underlying the futures contract.
Conversely, the Fund could buy or sell futures contracts in a lesser dollar
amount than the dollar amount of securities being hedged if the historical
volatility of the securities being hedged is less than the historical
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volatility of the securities underlying the futures contracts. It is also
possible that the value of futures contracts held by the Fund could decline at
the same time as portfolio securities being hedged; if this occurred, the Fund
would lose money on the futures contract in addition to suffering a decline in
value in the portfolio securities being hedged.
There is also the risk that the price of futures contracts may not
correlate perfectly with movements in the securities or index underlying the
futures contract due to certain market distortions. First, all participants in
the futures market are subject to margin depository and maintenance
requirements. Rather than meet additional margin depository requirements,
investors may close futures contracts through offsetting transactions, which
could distort the normal relationship between the futures market and the
securities or index underlying the futures contract. Second, from the point of
view of speculators, the deposit requirements in the futures market are less
onerous than margin requirements in the securities markets. Therefore, increased
participation by speculators in the futures markets may cause temporary price
distortions. Due to the possibility of price distortion in the futures markets
and because of the imperfect correlation between movements in futures contracts
and movements in the securities underlying them, a correct forecast of general
market trends by the Adviser may still not result in a successful hedging
transaction.
There is also the risk that futures markets may not be sufficiently liquid.
Futures contracts may be closed out only on an exchange or board of trade that
provides a market for such futures contracts. Although the Fund intends to
purchase or sell futures only on exchanges and boards of trade where there
appears to be an active secondary market, there can be no assurance that an
active secondary market will exist for any particular contract or at any
particular time. In the event of such illiquidity, it might not be possible to
close a futures position and, in the event of adverse price movement, the Fund
would continue to be required to make daily payments of variation margin. Since
the securities being hedged would not be sold until the related futures contract
is sold, an increase, if any, in the price of the securities may to some extent
offset losses on the related futures contract. In such event, the Fund would
lose the benefit of the appreciation in value of the securities.
Successful use of futures is also subject to the Adviser's ability to
correctly predict the direction of movements in the market. For example, if the
Fund hedges against a decline in the market, and market prices instead advance,
the Fund will lose part or all of the benefit of the increase in value of its
securities holdings because it will have offsetting losses in futures contracts.
In such cases, if the Fund has insufficient cash, it may have to sell portfolio
securities at a time when it is disadvantageous to do so in order to meet the
daily variation margin.
Although the Fund intends to enter into futures contracts only if there is
an active market for such contracts, there is no assurance that an active market
will exist for the contracts at any particular time. Most U.S. futures exchanges
and boards of trade limit the amount of fluctuation permitted in futures
contract prices during a single trading day. Once the daily limit has been
reached in a particular contract, no trades may be made that day at a price
beyond that limit. It is possible that futures contract prices would move to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and subjecting some
futures traders to substantial losses. In such event, and in the event of
adverse price movements, the Fund would be required to make daily cash payments
of variation margin. In such
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circumstances, an increase in the value of the portion of the portfolio being
hedged, if any, may partially or completely offset losses on the futures
contract. However, as described above, there is no guarantee that the price of
the securities being hedged will, in fact, correlate with the price movements in
a futures contract and thus provide an offset to losses on the futures contract.
The Fund will not enter into futures contracts or options transactions
(except for closing transactions) other than for bona fide hedging purposes if,
immediately thereafter, the sum of its initial margin and premiums on open
futures contracts and options exceed 5% of the fair market value of the Fund's
assets; however, in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount may be excluded in calculating the 5%
limitation. In order to prevent leverage in connection with the purchase of
futures contracts by the Fund, an amount of cash or liquid securities equal to
the market value of the obligation under the futures contracts (less any related
margin deposits) will be maintained in a segregated account with the custodian.
OPTIONS ON FUTURES CONTRACTS
The Fund could also purchase and write options on futures contracts. An
option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put) at a specified
exercise price at any time during the option period. As a writer of an option on
a futures contract, the Fund would be subject to initial margin and maintenance
requirements similar to those applicable to futures contracts. In addition, net
option premiums received by the Fund are required to be included as initial
margin deposits. When an option on a futures contract is exercised, delivery of
the futures position is accompanied by cash representing the difference between
the current market price of the futures contract and the exercise price of the
option. The Fund could purchase put options on futures contracts in lieu of, and
for the same purposes as, the sale of a futures contract; at the same time, it
could write put options at a lower strike price (a "put bear spread") to offset
part of the cost of the strategy to the Fund. The purchase of call options on
futures contracts is intended to serve the same purpose as the actual purchase
of the futures contracts.
Risks of Transactions in Options on Futures Contracts. In addition to the
risks described above which apply to all options transactions, there are several
special risks relating to options on futures. The Adviser will not purchase
options on futures on any exchange unless in the Adviser's opinion, a liquid
secondary exchange market for such options exists. Compared to the use of
futures, the purchase of options on futures involves less potential risk to the
Fund because the maximum amount at risk is the premium paid for the options
(plus transaction costs). However, there may be circumstances, such as when
there is no movement in the price of the underlying security or index, when the
use of an option on a future would result in a loss to the Fund when the use of
a future would not.
ADDITIONAL RISKS OF OPTIONS, FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
Each of the exchanges has established limitations governing the maximum
number of call or put options on the same underlying security or futures
contract (whether or not covered) which may be written by a single investor,
whether acting alone or in concert with others (regardless of whether such
options are written on the same or different exchanges or are held or written on
one or more accounts or through one or more
B-17
<PAGE> 47
brokers). Option positions of all investment companies advised by the Adviser
are combined for purposes of these limits. An exchange may order the liquidation
of positions found to be in violation of these limits and it may impose other
sanctions or restrictions. These position limits may restrict the number of
listed options which the Fund may write.
In the event of the bankruptcy of a broker through which the Fund engages
in transactions in options, futures or related options, the Fund could
experience delays or losses in liquidating open positions purchased or incur a
loss of all or part of its margin deposits with the broker. Transactions are
entered into by the Fund only with brokers or financial institutions deemed
creditworthy by the Adviser.
Unlike transactions entered into by the Fund in futures contracts, 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, 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 purchaser 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, due to the margin and collateral requirements
associated with such positions.
Options on foreign currencies traded on national securities exchanges are
within the jurisdiction of the SEC, as are other securities traded on such
exchanges. As a result, many of the protections provided to traders on organized
exchanges will be available with respect to such transactions. In particular,
all foreign currency option positions entered into on a national securities
exchange are cleared and guaranteed by the Options Clearing Corporation ("OCC"),
thereby reducing the risk of counterparty default. Further, 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 the 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 effects of other
political and economic events. In addition, exchange-traded options on 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.
B-18
<PAGE> 48
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 decisions, (iii) delays in the Fund's
ability to act upon economic events occurring in foreign markets during
nonbusiness 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.
INVESTMENT RESTRICTIONS
The Fund has adopted the following fundamental investment restrictions
which 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
(i) 67% or more of the voting securities 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 (ii) more than 50% of the Fund's outstanding voting
securities. The percentage limitations contained in the restrictions and
policies set forth herein apply at the time of purchase of securities. These
restrictions provide that the Fund shall not:
1. Engage in the underwriting of securities of other issuers, except that
the Fund may sell an investment position even though it may be deemed to
be an underwriter under the federal securities laws.
2. Purchase any security (other than obligations of the U.S. government,
its agencies, or instrumentalities) if more than 25% of its total assets
(taken at current value) would then be invested in a single industry
except that, if the value of debt securities owned by the Fund with
remaining maturities of less than 13 months exceeds 35% of the value of
the Fund's total assets, the Fund will invest at least 25% of its assets
in securities issued by banks. Although this policy is not applicable to
debt securities issued by government or political subdivisions because
such issues are not members of any industry, the Fund does not intend to
invest more than 25% of its total assets in the debt securities issued
or guaranteed by any government (except U.S. government, its agencies or
instrumentalities).
3. Borrow money except temporarily from banks to facilitate payment of
redemption requests and then only in amounts not exceeding 33 1/3% of
its net assets, or pledge more than 10% of its net assets in connection
with permissible borrowings or purchase additional securities when money
borrowed exceeds 5% of its net assets. Margin deposits or payments in
connection with the writing of options, or in connection with the
purchase or sale of forward contracts, futures, foreign currency futures
and related options, are not deemed to be a pledge or other encumbrance.
4. Lend money except through the purchase of (i) U.S. and foreign
government securities, commercial paper, bankers' acceptances,
certificates of deposit and similar evidences of indebtedness, both
foreign and domestic, and (ii) repurchase agreements; or lend securities
in an amount exceeding 15% of the total assets of the Fund. The purchase
of a portion of an issue of securities described under (i) above
distributed publicly, whether or not the purchase is made on the
original issuance, is not considered the making of a loan.
B-19
<PAGE> 49
5. Buy or sell real estate or interests in real estate including real
estate limited partnerships, provided that the foregoing prohibition
does not apply to a purchase and sale of (i) securities which are
secured by real estate, (ii) securities representing interests in real
estate, and (iii) securities of companies principally engaged in
investing or dealing in real estate, including real estate investment
trusts.
6. Invest in commodities or commodity contracts, except that the Fund may
enter into transactions in options, futures contracts or related options
including foreign currency futures contracts and related options and
forward contracts.
7. Issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit the Fund from (i) making and
collateralizing any permitted borrowings, (ii) making any permitted
loans of its portfolio securities or (iii) entering into repurchase
agreements, utilizing options, futures contracts, options on futures
contracts, forward contracts, forward commitments and other investment
strategies and instruments that would be considered "senior securities"
but for the maintenance by the Fund of a segregated account with its
custodian or some other form of "cover."
In addition to the foregoing fundamental policies which may not be changed
without shareholder approval, the Fund is subject to the following policies
which may be amended by the Fund's Trustees and which apply at the time of
purchase of portfolio securities.
1. The Fund may not make investments for the purpose of exercising control
or management although the Fund retains the right to vote securities
held by it, except that the Fund may purchase securities of other
investment companies to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated
by the SEC under the 1940 Act, as amended from time to time, or (iii)
an exemption or other relief from the provisions of the 1940 Act.
2. The Fund may not make short sales of securities, unless at the time of
the sale it owns or has the right to acquire an equal amount of such
securities; provided that this prohibition does not apply to the
writing of options or the sale of forward contracts, futures, foreign
currency futures or related options.
3. The Fund may not purchase securities on margin but the Fund may obtain
such short-term credits as may be necessary for the clearance of
purchases and sales of securities. The deposit or payment by the Fund
of initial or maintenance margin in connection with forward contracts,
futures, foreign currency futures or related options is not considered
the purchase of a security on margin.
4. The Fund may not invest in securities of other investment companies
except as part of a merger, reorganization or other acquisition and
except that the Fund may purchase securities of other investment
companies to the extent permitted by (i) the 1940 Act, as amended from
time to time, (ii) the rules and regulations promulgated by the SEC
under the 1940 Act, as amended from time to time, or (iii) an exemption
or other relief from the provisions of the 1940 Act.
B-20
<PAGE> 50
5. The Fund may not invest more than 5% of its net assets in warrants or
rights valued at the lower of cost or market, nor more than 2% of its
net assets in warrants or rights (valued on such basis) which are not
listed on the New York Stock Exchange (the "Exchange") or American
Stock Exchange. Warrants or rights acquired in units or attached to
other securities are not subject to the foregoing limitation.
6. The Fund may not invest in securities of any company if any officer or
director of the Fund or of the Adviser owns more than 1/2 of 1% of the
outstanding securities of such company, and such officers and directors
who own more than 1/2 of 1% own in the aggregate more than 5% of the
outstanding securities of such issuer.
7. The Fund may not invest in interests in oil, gas, or other mineral
exploration or development programs or invest in oil, gas, or mineral
leases, except that the Fund may acquire securities of public companies
which themselves are engaged in such activities.
8. The Fund may not invest more than 5% of its total assets in securities
of unseasoned issuers which have been in operation directly or through
predecessors for less than three years, except that the fund may
purchase securities of other investment companies to the extent
permitted by (i) the 1940 Act, as amended from time to time, (ii) the
rules and regulations promulgated by the SEC under the 1940 Act, as
amended from time to time, or (iii) an exemption or other relief from
the provisions of the 1940 Act.
9. The Fund may not purchase or otherwise acquire any security if, as a
result, more than 15% of its net assets (taken at current value) would
be invested in securities that are illiquid by virtue of the absence of
a readily available market. This policy includes repurchase agreements
maturing in more than seven days and that portion of over-the-counter
options held by the Fund required to be treated as illiquid under
applicable law and that portion of assets used to cover such options.
This policy does not apply to restricted securities eligible for resale
pursuant to Rule 144A under the 1933 Act which the Trustees or the
Adviser under Trustee-approved guidelines, may determine are liquid nor
does it apply to other securities for which, notwithstanding legal or
contractual restrictions on resale, a liquid market exists. Excluded
from this limitation are securities purchased by the Fund of other
investment companies to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated
by the SEC under the 1940 Act, as amended from time to time, or (iii)
on exemption or other relief from the provisions of the 1940 Act.
The Fund may, notwithstanding any other fundamental investment policy or
limitation, invest all of its assets in the securities of a single open-end
management investment company with substantially the same fundamental investment
objectives, policies and limitations as the Fund.
B-21
<PAGE> 51
TRUSTEES AND OFFICERS
The business and affairs of the Fund are managed under the direction of the
Fund's Board of Trustees and the Fund's officers appointed by the Board of
Trustees. The tables below list the trustees and officers of the Fund and
executive officers of the Fund's investment adviser and their principal
occupations for the last five years and their affiliations, if any, with Van
Kampen Investments Inc. ("Van Kampen 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).
TRUSTEES
<TABLE>
<CAPTION>
Principal Occupations or
Name, Address and Age Employment in Past 5 Years
--------------------- --------------------------
<S> <C>
J. Miles Branagan......................... Private investor. Co-founder, and prior to
1632 Morning Mountain Road August 1996, Chairman, Chief Executive
Raleigh, NC 27614 Officer and President, MDT Corporation (now
Date of Birth: 07/14/32 known as Getinge/Castle, Inc., a subsidiary
of Getinge Industrier AB), a company which
develops, manufactures, markets and services
medical and scientific equipment.
Trustee/Director of each of the funds in the
Fund Complex.
</TABLE>
B-22
<PAGE> 52
<TABLE>
<CAPTION>
Principal Occupations or
Name, Address and Age Employment in Past 5 Years
--------------------- --------------------------
<S> <C>
Richard M. DeMartini*..................... Chairman and Chief Executive Officer of
Two World Trade Center International Private Client Group, a
66th Floor division of Morgan Stanley Dean Witter & Co.
New York, NY 10048 Director of Dean Witter Reynolds Inc.
Date of Birth: 10/12/52 Chairman and Director of Dean Witter Capital
Corporation. Chairman, Chief Executive
Officer, President and Director of Dean
Witter Alliance Capital Corporation. Director
of the National Healthcare Resources, Inc.,
Dean Witter Realty Inc., Dean Witter Reynolds
Venture Equities Inc., DW Window Covering
Holding, Inc. and is a member of the Morgan
Stanley Dean Witter Management Committee.
Prior to March of 1999, Director of Morgan
Stanley Dean Witter Distributors, Inc. Prior
to January 1999, Chairman of Dean Witter
Futures & Currency Management Inc. and
Demeter Management Corporation. Prior to
December 1998, Mr. DeMartini was President
and Chief Operating Officer of Morgan Stanley
Dean Witter Individual Asset Management and
Director of Morgan Stanley Dean Witter Trust
FSB. Formerly Vice Chairman of the Board of
the National Association of Securities
Dealers, Inc. and Chairman of the Board of
the Nasdaq Stock Market, Inc. Trustee of the
TCW/DW Funds, Director of the Morgan Stanley
Dean Witter Funds and Trustee/ Director of
each of the funds in the Fund Complex.
Linda Hutton Heagy........................ Managing Partner of Heidrick & Stuggles, an
Sears Tower executive search firm. Prior to 1997,
233 South Wacker Drive Partner, Ray & Berndtson, Inc., an executive
Suite 7000 recruiting and management consulting firm.
Chicago, IL 60606 Formerly, Executive Vice President of ABN
Date of Birth: 06/03/48 AMRO, N.A., a Dutch bank holding company.
Prior to 1992, Executive Vice President of La
Salle National Bank. Trustee on the
University of Chicago Hospitals Board, Vice
Chair of the Board of The YMCA of
Metropolitan Chicago and a member of the
Women's Board of the University of Chicago.
Prior to 1996, Trustee of The International
House Board. Trustee/Director of each of the
funds in the Fund Complex.
R. Craig Kennedy.......................... President and Director, German Marshall Fund
11 DuPont Circle, N.W. of the United States. Formerly, advisor to
Washington, D.C. 20036 the Dennis Trading Group Inc. Prior to 1992,
Date of Birth: 02/29/52 President and Chief Executive Officer,
Director and Member of the Investment
Committee of the Joyce Foundation, a private
foundation. Trustee/Director of each of the
funds in the Fund Complex.
</TABLE>
B-23
<PAGE> 53
<TABLE>
<CAPTION>
Principal Occupations or
Name, Address and Age Employment in Past 5 Years
--------------------- --------------------------
<S> <C>
Jack E. Nelson............................ President, Nelson Investment Planning
423 Country Club Drive Services, Inc., a financial planning company
Winter Park, FL 32789 and registered investment adviser. President,
Date of Birth: 02/13/36 Nelson Ivest Brokerage Services Inc., a
member of the National Association of
Securities Dealers, Inc. and Securities
Investors Protection Corp. ("SIPC").
Trustee/Director of each of the funds in the
Fund Complex.
Don G. Powell*............................ Currently a member of the board of governors
2800 Post Oak Blvd. and executive committee for the Investment
Houston, TX 77056 Company Institute, and a member of the Board
Date of Birth: 10/19/39 of Trustees of the Houston Museum of Natural
Science. Prior to January 1999, Chairman of
the Investment Company Institute and Chairman
and Director of Van Kampen Investments, the
Advisers, the Distributor, Investor Services,
Van Kampen Advisors Inc., Van Kampen
Recordkeeping Services, Inc., American
Capital Contractual Services, Inc., Van
Kampen Merritt Equity Advisors Corp., Van
Kampen Insurance Agency of Illinois Inc., Van
Kampen System Inc., Van Kampen Trust Company,
Van Kampen Services Inc. and Van Kampen
Exchange Corp. Prior to July 1998, Director
and Chairman of VK/AC Holding, Inc. Prior to
1997, Chairman, President and Director of
American Capital Shareholders Corporation.
Prior to April 1997, Chairman, President and
Director of Van Kampen Merritt Equity
Holdings Corp. Prior to November 1996,
President, Chief Executive Officer and
Director of VK/AC Holding, Inc. Prior to
September 1996, Chairman and Director of
McCarthy, Crisanti & Maffei, Inc. and
McCarthy, Crisanti & Maffei Acquisition
Corporation. Prior to July 1996, Chairman and
Director of VSM Inc. and VCJ Inc.
Trustee/Director of each of the funds in the
Fund Complex and Trustee of other funds
advised by the Advisers or Van Kampen
Management Inc.
Phillip B. Rooney......................... Vice Chairman and Director of The
One ServiceMaster Way ServiceMaster Company, a business and
Downers Grove, IL 60515 consumer services company. Director of
Date of Birth: 07/08/44 Illinois Tool Works, Inc., a manufacturing
company, and the Urban Shopping Centers Inc.,
a retail mall management company. Trustee,
University of Notre Dame. Prior to 1998,
Director of Stone Smurfit Container Corp., a
paper manufacturing company. Formerly,
President, Chief Executive Officer and Chief
Operating Officer of Waste Management, Inc.,
an environmental services company.
Trustee/Director of each of the funds in the
Fund Complex.
</TABLE>
B-24
<PAGE> 54
<TABLE>
<CAPTION>
Principal Occupations or
Name, Address and Age Employment in Past 5 Years
--------------------- --------------------------
<S> <C>
Fernando Sisto............................ Professor Emeritus and, prior to 1995, Dean
155 Hickory Lane of the Graduate School, Stevens Institute of
Closter, NJ 07624 Technology. Director, Dynalysis of Princeton,
Date of Birth: 08/02/24 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,
333 West Wacker Drive Slate, Meagher & Flom (Illinois), legal
Chicago, IL 60606 counsel to the funds in the Fund Complex, and
Date of Birth: 08/22/39 other open-end and closed-end funds advised
by the Advisers or Van Kampen Management Inc.
Trustee/Director of each of the funds in the
Fund Complex, and Trustee/Managing General
Partner of other open-end and closed-end
funds advised by the Advisers or Van Kampen
Management Inc.
Paul G. Yovovich.......................... Private investor. Prior to April 1996,
Sears Tower President of Advance Ross Corporation.
233 South Wacker Drive Director of 3Com Corporation, APAC Customer
Suite 9700 Services, Inc. and COMARCO, Inc.
Chicago, IL 60606 Trustee/Director of each of the Funds in the
Date of Birth: 10/29/53 Fund Complex.
</TABLE>
- ------------------------------------
* Such trustee is an "interested person" (within the meaning of Section 2(a)(19)
of the 1940 Act). Mr. Whalen is an interested person of the Fund by reason of
his firm currently acting as legal counsel to the Fund. Messrs. DeMartini and
Powell are interested persons of the Fund and the Advisers by reason of their
current or former positions with Morgan Stanley Dean Witter & Co. or its
affiliates.
B-25
<PAGE> 55
OFFICERS
Messrs. McDonnell, Hegel, Sullivan, Wood, Dalmaso, Martin, Wetherell and
Hill are located at 1 Parkview Plaza, PO Box 5555, Oakbrook Terrace, IL
60181-5555. The Fund's other officers are located at 2800 Post Oak Blvd.,
Houston, TX 77056.
<TABLE>
<CAPTION>
Name, Age, Positions and Principal Occupations
Offices with Fund During Past 5 Years
------------------------ ---------------------
<S> <C>
Dennis J. McDonnell.................. Executive Vice President and Director of Van
Date of Birth: 05/20/42 Kampen Investments. President, Chief Operating
President Officer and a Director of the Advisers, Van
Kampen Advisors Inc., and Van Kampen Management
Inc. Prior to July 1998, Director and Executive
Vice President of VK/AC Holding, Inc. Prior to
April 1998, President and Director of Van Kampen
Merritt Equity Advisors Corp. Prior to April
1997, Mr. McDonnell was Director of Van Kampen
Merritt Equity Holdings Corp. Prior to September
1996, Mr. McDonnell was Chief Executive Officer
and Director of MCM Group, Inc. and McCarthy,
Crisanti & Maffei, Inc. and Chairman and Director
of MCM Asia Pacific Company, Limited and MCM
(Europe) Limited. Prior to July 1996, Mr.
McDonnell was President, Chief Operating Officer
and Trustee of VSM Inc. and VCJ Inc. President of
each of the funds in the Fund Complex. President,
Chairman of the Board and Trustee/Managing
General Partner of other investment companies
advised by the Advisers or Van Kampen Management
Inc.
Peter W. Hegel....................... Executive Vice President of the Advisers, Van
Date of Birth: 06/25/56 Kampen Management Inc. and Van Kampen Advisors
Vice President Inc. Prior to September 1996, a Director of
McCarthy, Crisanti & Maffei, Inc. Prior to July
1996, Mr. Hegel was Director of VSM Inc. Vice
President of each of the funds in the Fund
Complex and certain other investment companies
advised by the Advisers or their affiliates.
John L. Sullivan..................... Senior Vice President of Van Kampen Investments
Date of Birth: 08/20/55 and the Advisers. Treasurer, Vice President and
Treasurer, Vice President and Chief Chief Financial Officer of each of the funds in
Financial Officer the Fund Complex and certain other investment
companies advised by the Advisers or their
affiliates.
Curtis W. Morell..................... Senior Vice President of the Advisers, Vice
Date of Birth: 08/04/46 President and Chief Accounting Officer of each of
Vice President and Chief Accounting the funds in the Fund Complex and certain other
Officer investment companies advised by the Advisers or
their affiliates.
</TABLE>
B-26
<PAGE> 56
<TABLE>
<CAPTION>
Name, Age, Positions and Principal Occupations
Offices with Fund During Past 5 Years
------------------------ ---------------------
<S> <C>
Paul R. Wolkenberg................... Executive Vice President and Director of Van
Date of Birth: 11/10/44 Kampen Investments. Executive Vice President of
Vice President the Advisers and the Distributor. President and
Director of Investor Services. President, Chief
Operating Officer and Director of Van Kampen
Recordkeeping Services Inc. President, Chief
Executive Officer and Director of Van Kampen
Trust Company. Prior to July 1998, Director and
Executive Vice President of VK/AC Holding, Inc.
Vice President of each of the funds in the Fund
Complex and certain other investment companies
advised by the Advisers or their affiliates.
Edward C. Wood III................... Senior Vice President of the Advisers, Van Kampen
Date of Birth: 01/11/56 Investments and Van Kampen Management Inc. Senior
Vice President Vice 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
Date of Birth: 11/19/59 Advisers. Controller of each of the funds in the
Controller Fund Complex and other investment companies
advised by the Advisers or their affiliates.
Nicholas Dalmaso..................... Vice President, Associate General Counsel and
Date of Birth: 03/01/65 Assistant Secretary of Van Kampen Investments,
Assistant Secretary the Advisers, the Distributor, Van Kampen
Advisors Inc. and Van Kampen Management Inc.
Assistant Secretary of each of the funds in the
Fund Complex and other investment companies
advised by the Advisers or their affiliates.
</TABLE>
B-27
<PAGE> 57
<TABLE>
<CAPTION>
Name, Age, Positions and Principal Occupations
Offices with Fund During Past 5 Years
------------------------ ---------------------
<S> <C>
Scott E. Martin...................... Senior Vice President, Deputy General Counsel and
Date of Birth: 08/20/56 Assistant Secretary of Van Kampen Investments,
Assistant Secretary the Advisers, the Distributor, Investor Services,
American Capital Contractual Services, Inc., Van
Kampen Management Inc., Van Kampen Exchange
Corp., Van Kampen Advisors Inc., Van Kampen
Insurance Agency of Illinois Inc., Van Kampen
System Inc. and Van Kampen Recordkeeping Services
Inc. Prior to July 1998, Senior Vice President,
Deputy General Counsel and Assistant Secretary of
VK/AC Holding, Inc. Prior to April 1998, Senior
Vice President, Deputy General Counsel and
Secretary of Van Kampen Merritt Equity Advisors
Corp. Prior to April 1997, Senior Vice President,
Deputy General Counsel and Secretary of Van
Kampen American Capital Services, Inc. and Van
Kampen Merritt Holdings Corp. Prior to September
1996, Deputy General Counsel and Secretary of
McCarthy, Crisanti & Maffei, Inc. Prior to July
1996, Senior Vice President, Deputy General
Counsel and Secretary of VSM Inc. and VCJ Inc.
Assistant Secretary of each of the funds in the
Fund Complex and other investment companies
advised by the Advisers or their affiliates.
Weston B. Wetherell.................. Vice President, Associate General Counsel and
Date of Birth: 06/15/56 Assistant Secretary of Van Kampen Investments,
Assistant Secretary the Advisers, the Distributor, Van Kampen
Management Inc. and Van Kampen Advisors Inc.
Assistant Secretary of each of the funds in the
Fund Complex and other investment companies
advised by the Advisers or their affiliates.
Steven M. Hill....................... Vice President of Van Kampen Investments, Van
Date of Birth: 10/16/64 Kampen Management Inc. and the Advisers.
Assistant Treasurer Assistant Treasurer of each of the funds in the
Fund Complex and other investment companies
advised by the Advisers or their affiliates.
Michael Robert Sullivan.............. Assistant Vice President of Van Kampen
Date of Birth: 03/30/33 Investments, the Advisers and Van Kampen
Assistant Controller Management Inc. Assistant Controller of each of
the funds in the Fund Complex and other
investment companies advised by the Advisers or
their affiliates.
</TABLE>
Each trustee/director holds the same position with each of the funds in the
Fund Complex. As of the date of this Statement of Additional Information, there
are 63 operating funds in the Fund Complex. Each trustee/director who is not an
affiliated
B-28
<PAGE> 58
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 (except
the money market series of the Van Kampen Series Fund, Inc.) provides a deferred
compensation plan to its Non-Affiliated Trustees that allows trustees/directors
to defer receipt of their compensation and earn a return on such deferred
amounts. Deferring compensation has the economic effect as if the Non-Affiliated
Trustee reinvested his or her compensation into the funds. Each fund in the Fund
Complex (except the money market series of the Van Kampen Series Fund, Inc.)
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 (except the money
market series of the Van Kampen Series Fund, Inc.) 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 (except the money market series of the
Van Kampen Series Fund, Inc.) 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 Fund and earn a rate of return determined by reference to the return on the
common shares of such Fund or other funds in the Fund Complex as selected by the
respective Non-Affiliated Trustee, with the same economic effect as if such
Non-Affiliated Trustee had invested in one or more funds in the Fund Complex. To
the extent permitted by the 1940 Act, the Fund may invest in securities of those
funds selected by the Non-Affiliated Trustees in order to match the deferred
compensation obligation. The deferred compensation plan is not funded and
obligations thereunder represent general unsecured claims against the general
assets of the Fund.
Under the retirement plan, a Non-Affiliated Trustee who is receiving
compensation from such Fund prior to such Non-Affiliated Trustee's retirement,
has at least 10 years of service (including years of service prior to adoption
of the retirement plan) and retires at or after attaining the age of 60, is
eligible to receive a retirement benefit equal to $2,500 per year for each of
the ten years following such retirement from such Fund. Non-Affiliated Trustees
retiring prior to the age of 60 or with fewer than 10 years but more than 5
years of service may receive reduced retirement benefits from such Fund. Each
trustee/director has served as a member of the Board of Trustees of the Fund
since he or she was first appointed or elected in the year set forth below. The
retirement plan contains a Fund Complex retirement benefit cap of $60,000 per
year.
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<PAGE> 59
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
Pension or Maximum Total
Aggregate Retirement Annual Compensation
Year First Compensation Benefits Benefits from before
Appointed or before Accrued as the Fund Deferral from
Elected to Deferral from Part of Upon Fund
Name(1) the Board the Fund(2) Expenses(3) Retirement(4) Complex(5)
------- ------------ ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
J. Miles Branagan 1993 $1,236 $35,691 $60,000 $125,200
Linda Hutton Heagy 1995 1,036 3,861 60,000 112,800
R. Craig Kennedy 1995 1,236 2,652 60,000 125,200
Jack E. Nelson 1995 1,236 18,385 60,000 125,200
Phillip B. Rooney 1997 1,236 6,002 60,000 125,200
Dr. Fernando Sisto 1993 1,236 68,615 60,000 125,200
Wayne W. Whalen 1995 1,236 12,658 60,000 125,200
Paul G. Yovovich(1) 1998 209 0 60,000 25,300
</TABLE>
- ------------------------------------
(1) Mr. Yovovich joined the Board of Trustees on October 22, 1998 and therefore
does not have a complete fiscal year of information to report in the table.
Trustees not eligible for compensation are not included in the Compensation
Table.
(2) The amounts shown in this column represent the Aggregate Compensation before
Deferral with respect to the Fund's fiscal year ended December 31, 1998. The
following trustees deferred compensation from the Fund during the fiscal
year ended December 31, 1998: Mr. Branagan, $1,236; Ms. Heagy, $1,036; Mr.
Kennedy, $618; Mr. Nelson, $1,236; Mr. Rooney, $1,236; Dr. Sisto, $618; and
Mr. Whalen, $1,236. Amounts deferred are retained by the Fund and earn a
rate of return determined by reference to either the return on the common
shares of the Fund or other funds in the Fund Complex as selected by the
respective Non-Affiliated Trustee, with the same economic effect as if such
Non-Affiliated Trustee had invested in one or more funds in the Fund
Complex. To the extent permitted by the 1940 Act, each Fund may invest in
securities of those funds selected by the Non-Affiliated Trustees in order
to match the deferred compensation obligation. The cumulative deferred
compensation (including interest) accrued with respect to each trustee,
including former trustees, from the Fund as of December 31, 1998 is as
follows: Mr. Branagan, $2,949; Dr. Caruso, $945; Mr. Gaughan, $207; Ms.
Heagy, $3,487; Mr. Kennedy, $2,289; Mr. Miller, $1,436; Mr. Nelson, $4,669;
Mr. Rees, $402; Mr. Robinson, $2,733; Mr. Rooney, $1,956; Dr. Sisto, $2,176;
and Mr. Whalen, $4,302. The deferred compensation plan is described above
the Compensation Table.
(3) The amounts shown in this column represent the sum of the retirement
benefits expected to be accrued by the operating investment companies in the
Fund Complex for each of the trustees for the Funds' respective fiscal years
ended in 1998. The retirement plan is described above the Compensation
Table.
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<PAGE> 60
(4) For each trustee, this is the sum of the estimated maximum annual benefits
payable by the operating investment companies in the Fund Complex for each
year of the 10-year period commencing in the year of such trustee's
anticipated retirement. The Retirement Plan is described above the
Compensation Table.
(5) The amounts shown in this column represent the aggregate compensation paid
by all operating investment companies in the Fund Complex as of December 31,
1998 before deferral by the trustees under the deferred compensation plan.
Because the funds in the Fund Complex have different fiscal year ends, the
amounts shown in this column are presented on a calendar year basis. Certain
trustees deferred all or a portion of their aggregate compensation from the
Fund Complex during the calendar year ended December 31, 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 Fund may invest in
securities of those investment companies selected by the Non-Affiliated
Trustees in order to match the deferred compensation obligation. The
Advisers and their affiliates also serve as investment adviser for other
investment companies; however, with the exception of Mr. Whalen, the
Non-Affiliated Trustees were not trustees of such investment companies.
Combining the Fund Complex with other investment companies advised by the
Advisers and their affiliates, Mr. Whalen received Total Compensation of
$285,825 during the calendar year ended December 31, 1998.
As of April 6, 1999, the trustees and officers of the Fund as a group owned
less than 1% of the shares of the Fund.
INVESTMENT ADVISORY AGREEMENT
The Fund and the Adviser are parties to an investment advisory agreement
(the "Advisory Agreement"). Under the Advisory Agreement, the Fund retains the
Adviser to manage the investment of the Fund's 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 the
services of the Fund's President and such other executive and clerical personnel
as are necessary to prepare the various reports and statements and conduct the
Fund's day-to-day operations. The Fund, however, bears the cost of its
accounting services, which include maintaining its financial books and records
and calculating its daily net asset value. The costs of such accounting services
include the salaries and overhead expenses of the Fund's Treasurer and the
personnel operating under his direction. Charges are allocated among the
investment companies advised or subadvised by the Adviser or its affiliates. A
portion of these amounts is paid to the Adviser or its affiliates in
reimbursement of personnel, office space, facilities and equipment costs
attributable to the provision of accounting services to the Fund. The Fund also
pays distribution fees, service fees, custodian fees, legal and independent
accountant fees, the costs of reports and proxies to shareholders, trustees'
fees (other than those who are affiliated persons of the Adviser, Distributor or
Van Kampen Investments) and all other ordinary business expenses not
specifically assumed by the Adviser. The Advisory Agreement also provides that
the Adviser shall not be liable to the Fund for any actions or
B-31
<PAGE> 61
omissions if it acted without willful misfeasance, bad faith, negligence or
reckless disregard of its obligations.
Under the Advisory Agreement, the Fund pays to the Adviser, as compensation
for the services rendered, facilities furnished, and expenses paid by it, a
monthly fee computed based upon an annual rate of 1.00% applied to the average
daily net assets of the Fund.
The Adviser has entered into a subadvisory agreement (the "Subadvisory
Agreement") with the Subadviser to assist it in performing its investment
advisory functions. Under the Subadvisory Agreement the Subadviser receives a
fee at the annual rate of 50% of the net compensation received by the Adviser.
The 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 fee payable to the Adviser is reduced by any commissions, tender
solicitation and other fees, brokerage or similar payments received by the
Adviser or any other direct or indirect majority owned subsidiary of Van Kampen
Investments in connection with the purchase and sale of portfolio investments
less any direct expenses incurred by such subsidiary of Van Kampen Investments,
in connection with obtaining such commissions, fees, brokerage or similar
payments. The Adviser agrees to use its best efforts to recapture tender
solicitation fees and exchange offer fees for the Fund's benefit and to advise
the Trustees of the Fund of any other commissions, fees, brokerage or similar
payments which may be possible for the Adviser or any other direct or indirect
majority owned subsidiary of Van Kampen Investments to receive in connection
with the Fund's portfolio transactions or other arrangements which may benefit
the Fund.
The Advisory Agreement also provides that, in the event the ordinary
business expenses of the Fund for any fiscal year exceed 1.5% of the first $30
million of the Fund's average daily net assets plus 1% of any excess over $30
million, 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. Ordinary business
expenses include the investment advisory fee and other operating costs paid by
the Fund except (1) interest and taxes, (2) brokerage commissions, (3) certain
litigation and indemnification expenses as described in the Advisory Agreement
and (4) payments made by the Fund pursuant to the distribution plans.
The Advisory Agreement may be continued from year to year if specifically
approved at least annually (a)(i) by the Fund's Trustees or (ii) by a vote of a
majority of the Fund's outstanding voting securities and (b) by the affirmative
vote of a majority of the Trustees who are not parties to the agreement or
interested persons of any such party by votes cast in person at a meeting called
for such purpose. The Advisory Agreement provides that it shall terminate
automatically if assigned and that it may be terminated without penalty by
either party on 60 days' written notice.
During the fiscal years ended December 31, 1998, 1997 and 1996, the Adviser
received approximately $227,000, $225,800 and $250,400, respectively, in
advisory fees from the Fund. For such periods the Fund paid approximately
$39,700, $21,500 and $29,600, respectively, for accounting services.
B-32
<PAGE> 62
DISTRIBUTION AND SERVICE
The Distributor acts as the principal underwriter of the Fund's shares
pursuant to a written agreement (the "Distribution and Service Agreement"). The
Distributor has the exclusive right to distribute shares of the Fund through
authorized dealers 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 the Fund as may be sold to the public. The
Distributor is not obligated to sell any stated number of shares. The
Distributor bears the cost of printing (but not typesetting) prospectuses used
in connection with this offering and certain other costs including the cost of
supplemental sales literature and advertising. The Distribution and Service
Agreement is renewable from year to year if approved (a)(i) by the Fund's
Trustees or (ii) by a vote of a majority of the Fund's outstanding voting
securities and (b) by the affirmative vote of a majority of Trustees who are not
parties to the Distribution and Service Agreement or interested persons of any
party, by votes cast in person at a meeting called for such purpose. The
Distribution and Service Agreement provides that it will terminate if assigned,
and that it may be terminated without penalty by either party on 90 days'
written notice. Total underwriting commissions on the sale of shares of the Fund
for the last three fiscal periods are shown in the chart below.
<TABLE>
<CAPTION>
Total Amounts
Underwriting Retained by
Commissions Distributor
------------ -----------
<S> <C> <C>
Fiscal year ended December 31, 1998..................... $ 32,675 $ 2,507
Fiscal year ended December 31, 1997..................... $ 45,169 $ 3,483
Fiscal year ended December 31, 1996..................... $ 51,459 $ 3,550
</TABLE>
With respect to sales of Class A Shares of the Fund, the total sales
charges and concessions reallowed to authorized dealers at the time of purchase
are as follows:
CLASS A SHARES SALES CHARGE TABLE
<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>
* No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the Fund imposes a contingent
deferred sales charge of 1.00% on certain redemptions made within one year of
the purchase. A commission or transaction fee will be paid by the Distributor
at the time of purchase directly out of the Distributor's assets (and not out
of the Fund's assets) to authorized dealers who initiate and are responsible
for purchases of $1 million or more computed based on a percentage of the
dollar value of such shares sold as follows: 1.00% on sales to $2 million,
plus 0.80% on the next $1 million and 0.50% on the excess over $3 million.
B-33
<PAGE> 63
With respect to sales of Class B Shares and Class C Shares of the Fund, 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 of the Fund 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 the 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 the
Fund will not exceed in the aggregate 1.25% of the average total daily net
assets of the Fund on an annual basis. These programs will not change the price
an investor will pay for shares or the amount that a Fund will receive from such
sale.
Banks are currently prohibited under the Glass-Steagall Act from providing
certain underwriting or distribution services. If banking firms were prohibited
from acting in any capacity or providing any of the described services, the
Distributor would consider what action, if any, would be appropriate. The
Distributor does not believe that termination of a relationship with a bank
would result in any material adverse consequences to the Fund. State securities
laws regarding registration of banks and other financial institutions may differ
from the interpretations of federal law expressed herein, and banks and other
financial institutions may be required to register as dealers pursuant to
certain state laws.
The 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
B-34
<PAGE> 64
adopted a service plan (the "Service Plan") with respect to each class of its
shares. The Distribution Plan and the Service Plan sometimes are referred to
herein as the "Plans". The Plans provide that the Fund may spend a portion of
the Fund's average daily net assets attributable to each class of shares in
connection with distribution of the respective class of shares and in connection
with the provision of ongoing services to shareholders of such class,
respectively. The Distribution Plan and the Service Plan are being implemented
through the Distribution and Service Agreement with the Distributor of each
class of the Fund's shares, sub-agreements between the Distributor and members
of the NASD who are acting as securities dealers and NASD members or eligible
non-members who are acting as brokers or agents and similar agreements between
the Fund and financial intermediaries who are acting as brokers (collectively,
"Selling Agreements") that may provide for their customers or clients certain
services or assistance, which may include, but not be limited to, processing
purchase and redemption transactions, establishing and maintaining shareholder
accounts regarding the Fund, and such other services as may be agreed to from
time to time and as may be permitted by applicable statute, rule or regulation.
Brokers, dealers and financial intermediaries that have entered into
sub-agreements with the Distributor and sell shares of the Fund are referred to
herein as "financial intermediaries."
The Distributor must submit quarterly reports to the Board of Trustees of
the Trust, of which the Fund is a series, setting forth separately by class of
shares all amounts paid under the Distribution Plan and the purposes for which
such expenditures were made, together with such other information as from time
to time is reasonably requested by the Trustees. The Plans provide that they
will continue in full force and effect from year to year so long as such
continuance is specifically approved by a vote of the Trustees, and also by a
vote of the disinterested Trustees, cast in person at a meeting called for the
purpose of voting on the Plans. Each of the Plans may not be amended to increase
materially the amount to be spent for the services described therein with
respect to any class of shares without approval by a vote of a majority of the
outstanding voting shares of such class, and all material amendments to either
of the Plans must be approved by the Trustees and also by the disinterested
Trustees. Each of the Plans may be terminated with respect to any class of
shares at any time by a vote of a majority of the disinterested Trustees or by a
vote of a majority of the outstanding voting shares of such class.
The Plans generally provide for the Fund to reimburse the lesser of (i) the
distribution and service fees at the rates specified in the Prospectus or (ii)
the amount of the Distributor's actual expenses incurred less any contingent
deferred sales charges it received. For Class A Shares, to the extent the
Distributor is not fully reimbursed in a given year, there is no carryover of
such unreimbursed amounts to succeeding years. For each of the Class B Shares
and Class C Shares, to the extent the Distributor is not fully reimbursed in a
given year, any unreimbursed expenses for such class will be carried forward and
paid by the Fund in future years so long as such Plans are in effect. Except as
mandated by applicable law, the Fund does not impose any limit with respect to
the number of years into the future that such unreimbursed expenses may be
carried forward (on a Fund level basis). Because such expenses are accounted for
on a Fund level basis, in periods of extreme net asset value fluctuation such
amounts with respect to a particular Class B Share or Class C Share may be
greater or less than the amount of the initial commission (including carrying
cost) paid by the Distributor with respect to such share. In such circumstances,
a shareholder of a share may be deemed to incur expenses attributable to other
shareholders of such class. As of December 31, 1998, there were
B-35
<PAGE> 65
$695,694 and $32,626 of unreimbursed distribution-related expenses with respect
to Class B Shares and Class C Shares, respectively, representing 7.25% and 2.33%
of the Fund's average daily net assets attributable to Class B Shares and Class
C Shares, respectively. If the Plans were terminated or not continued, the Fund
would not be contractually obligated to pay the Distributor for any expenses not
previously reimbursed by the Fund or recovered through contingent deferred sales
charges.
For the fiscal year ended December 31, 1998, the Fund's aggregate expenses
paid under the Plans for Class A Shares were $28,908 or 0.25% of the Class A
Shares' average daily net assets. Such expenses were paid to reimburse the
Distributor for payments made to financial intermediaries for servicing Fund
shareholders and for administering the Class A Share Plans. For the fiscal year
ended December 31, 1998, the Fund's aggregate expenses paid under the Plans for
Class B Shares were $64,029 or 1.00% of the Class B Shares' average daily net
assets. Such expenses were paid to reimburse the Distributor for the following
payments: $38,502 for commissions and transaction fees paid to financial
intermediaries in respect of sales of Class B Shares of the Fund and $25,527 for
fees paid to financial intermediaries for servicing Class B shareholders and
administering the Class B Share Plans. For the fiscal year ended December 31,
1998, the Fund's aggregate expenses paid under the Plans for Class C Shares were
$17,119 or 1.00% of the Class C Shares' average daily net assets. Such expenses
were paid to reimburse the Distributor for the following payments; $7,351 for
commissions and transaction fees paid to financial intermediaries in respect of
sales of Class C Shares of the Fund and $9,768 for fees paid to financial
intermediaries for servicing Class C shareholders and administering the Class C
Share Plans.
The Distributor has entered into agreements with the following firms: (i)
Merrill Lynch and (ii) Norwest Bank Minnesota, N.A. Shares of the Fund shall be
offered pursuant to such firm's retirement plan alliance program(s). Trustees
and other fiduciaries of retirement plans seeking to invest in multiple fund
families through broker-dealer retirement plan alliance programs should contact
the firms mentioned above for further information concerning the program(s)
including, but not limited to, minimum size and operational requirements.
TRANSFER AGENT
The Fund's transfer agent, shareholder service agent and dividend
disbursing agent for the Fund is Van Kampen Investor Services Inc., PO Box
418256, Kansas City, MO 64141-9256. During the fiscal years ended December 31,
1998, 1997 and 1996, Investor Services received fees aggregating approximately
$107,400, $99,400 and $106,100, respectively for these services. Prior to 1998,
these services were provided at cost plus a profit. Beginning in 1998, the
transfer agency prices are determined through negotiations with the Fund's Board
of Trustees and are based on competitive benchmarks.
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION
The Adviser is responsible for decisions to buy and sell securities for the
Fund, the selection of brokers and dealers to effect the transactions and the
negotiation of prices and any brokerage commissions on such transactions. While
the Adviser will be primarily
B-36
<PAGE> 66
responsible for the placement of the Fund's portfolio business, the policies and
practices in this regard will at all times be subject to review by the Trustees
of the Fund.
The Adviser is responsible for placing portfolio transactions and does so
in a manner deemed fair and reasonable to the Fund 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 Fund. The Adviser also may place portfolio transactions, to the extent
permitted by law, with brokerage firms affiliated with the Fund, the Adviser or
the Distributor and with brokerage firms participating in the distribution of
the Fund's 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 Fund's 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 the Fund and another advisory account.
In some cases, this procedure could have an adverse effect on the price or the
amount of securities available to the Fund. In making such allocations among the
Fund and other advisory accounts, the main factors considered by the Adviser are
the respective 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
B-37
<PAGE> 67
commitments generally held and opinions of the persons responsible for
recommending the investment.
Effective October 31, 1996, Morgan Stanley & Co. Incorporated ("Morgan
Stanley") became an affiliate of the Adviser. Effective May 31, 1997, Dean
Witter Reynolds, Inc. ("Dean Witter") became an affiliate of the Adviser. The
Trustees have adopted certain policies incorporating the standards of Rule 17e-1
issued by the SEC under the 1940 Act which requires that the commissions paid to
affiliates of the Fund must be reasonable and fair compared to the commissions,
fees or other remuneration received or to be received by other brokers in
connection with comparable transactions involving similar securities during a
comparable period of time. The rule and procedures also contain review
requirements and require the Adviser to furnish reports to the Trustees and to
maintain records in connection with such reviews. After consideration of all
factors deemed relevant, the Trustees will consider from time to time whether
the advisory fee for the Fund will be reduced by all or a portion of the
brokerage commission given to affiliated brokers.
The Fund paid the following commissions to all brokers and affiliated
brokers during the periods shown:
Commissions Paid:
<TABLE>
<CAPTION>
Affiliated Brokers
--------------------
All Morgan Dean
Brokers Stanley Witter
------- ------- ------
<S> <C> <C> <C>
Fiscal year ended December 31, 1998............... $29,314 $ 20 $ -0-
Fiscal year ended December 31, 1997............... $41,941 $ -0- $ -0-
Fiscal year ended December 31, 1996............... $94,286 $1,981 $ 30
Fiscal year 1998 Percentages:
Commissions with affiliate to total commissions... 0.07% -0-
Value of brokerage transactions with affiliate to
total transactions............................. 0.003% -0-
</TABLE>
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services designed to facilitate
investment in its shares at little or no extra cost to the investor. Below is a
description of such services. The following information supplements the section
in the Fund's Prospectus captioned "Shareholder Services."
INVESTMENT ACCOUNT
Each shareholder has an investment account under which the investor's
shares of the Fund are held by Investor Services, the Fund's transfer agent.
Investor Services performs bookkeeping, data processing and administrative
services related to the maintenance of shareholder accounts. Except as described
in the Prospectus and this Statement of Additional Information, after each share
transaction in an account, the shareholder receives a statement showing the
activity in the account. Each shareholder who has an account in any of the
Participating Funds will receive statements quarterly from Investor Services
showing any reinvestments of dividends and capital gains distributions and any
other activity in the account since the preceding statement. Such shareholders
also will receive
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separate confirmations for each purchase or sale transaction other than
reinvestment of dividends and capital gains distributions and systematic
purchases or redemptions. Additions to an investment account may be made at any
time by purchasing shares through authorized dealers or by mailing a check
directly to Investor Services.
SHARE CERTIFICATES
Generally, the Fund will not issue share certificates. However, upon
written or telephone request to the Fund, a share certificate will be issued
representing shares (with the exception of fractional shares) of the Fund. A
shareholder will be required to surrender such certificates upon redemption
thereof. In addition, if such certificates are lost the shareholder must write
to Van Kampen Funds, c/o Investor Services, PO Box 418256, Kansas City, MO
64141-9256, requesting an "affidavit of loss" and obtain a Surety Bond in a form
acceptable to Investor Services. On the date the letter is received, Investor
Services will calculate a fee for replacing the lost certificate equal to no
more than 2.00% of the net asset value of the issued shares, and bill the party
to whom the replacement certificate was mailed.
RETIREMENT PLANS
Eligible investors may establish individual retirement accounts ("IRAs");
SEP; 401(k) plans; Section 403(b)(7) plans in the case of employees of public
school systems and certain non-profit organizations; or other pension or profit
sharing plans. Documents and forms containing detailed information regarding
these plans are available from the Distributor. Van Kampen Trust Company serves
as custodian under the IRA, 403(b)(7) and Keogh plans. Details regarding fees,
as well as full plan administration for profit sharing, pension and 401(k)
plans, are available from the Distributor.
AUTOMATED CLEARING HOUSE("ACH") DEPOSITS
Holders of Class A Shares can use ACH to have redemption proceeds deposited
electronically into their bank accounts. Redemptions transferred to a bank
account via the ACH plan are available to be credited to the account on the
second business day following normal payment. In order to utilize this option,
the shareholder's bank must be a member of ACH. In addition, the shareholder
must fill out the appropriate section of the account application. The
shareholder must also include a voided check or deposit slip from the bank
account into which redemptions are to be deposited together with the completed
application. Once Investor Services has received the application and the voided
check or deposit slip, such shareholder's designated bank account, following any
redemption, will be credited with the proceeds of such redemption. Once enrolled
in the ACH plan, a shareholder may terminate participation at any time by
writing Investor Services.
DIVIDEND DIVERSIFICATION
A shareholder may, upon written request or by completing the appropriate
section of the application form accompanying the Prospectus or by calling (800)
341-2911 ((800) 421-2833 for the hearing impaired), elect to have all dividends
and other distributions paid on a class of shares of the 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
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shares of the other fund. Both accounts must be of the same type, either
non-retirement or retirement. If the accounts are retirement accounts, they must
both be for the same class and of the same type of retirement plan (e.g. IRA,
403(b)(7), 401(k), Keogh) and for the benefit of the same individual. If a
qualified, pre-existing account does not exist, the shareholder must establish a
new account subject to minimum investment and other requirements of the fund
into which distributions would be invested. Distributions are invested into the
selected fund at its net asset value per share as of the payable date of the
distribution.
SYSTEMATIC WITHDRAWAL PLAN
Any investor whose shares in a single account total $10,000 or more at the
offering price next computed after receipt of instructions may establish a
monthly, quarterly, semi annual or annual withdrawal plan. Any investor whose
shares in a single account total $5,000 or more at the offering price next
computed after receipt of instructions may establish a quarterly, 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 the Fund. See "Shareholder
Services -- Retirement Plans."
Class B shareholders and Class C shareholders who establish a withdrawal
plan may redeem up to 12% annually of the shareholder's initial account balance
without incurring a 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 Fund are redeemed to provide the
amount of the periodic withdrawal payment. Dividends and capital gains
distributions on shares held under the plans are reinvested in additional shares
at the next determined net asset value per share. If periodic withdrawals
continuously exceed reinvested dividends and capital gains distributions, the
shareholder's original investment will be correspondingly reduced and ultimately
exhausted. Withdrawals made concurrently with the purchase of additional shares
ordinarily will be disadvantageous to the shareholder because of the duplication
of sales charges. Any gain or loss realized by the shareholder upon redemption
of shares is a taxable event. The Fund reserves the right to amend or terminate
the systematic withdrawal program on 30 days' notice to its shareholders.
REINSTATEMENT PRIVILEGE
A Class A shareholder or Class B shareholder who has redeemed shares of the
Fund may reinstate any portion or all of the net proceeds of such redemption in
Class A Shares of the Fund. A Class C shareholder who has redeemed shares of the
Fund may reinstate any portion or all of the net proceeds of such redemption in
Class C Shares of the Fund with credit given for any 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
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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 Exchange is closed. The
right of redemption may be suspended and the payment therefor may be postponed
for more than seven days during any period when (a) the Exchange is closed for
other than customary weekends or holidays; (b) trading on the Exchange is
restricted; (c) an emergency exists as a result of which disposal by the Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Fund to fairly determine the value of its net assets; or (d)
the SEC, by order, so permits.
Additionally, if the Board of Trustees determines that payment wholly or
partly in cash would be detrimental to the best interests of the remaining
shareholders of the Fund, the Fund may pay the redemption proceeds in whole or
in part by a distribution-in-kind of portfolio securities held by the Fund in
lieu of cash in conformity with applicable rules of the SEC. Shareholders may
incur brokerage charges upon the sale of portfolio securities so received in
payment of redemptions.
CONTINGENT DEFERRED SALES CHARGE-CLASS A ("CDSC-CLASS A")
As described in the Prospectus under "Purchase of Shares -- Class A
Shares," there is no sales charge payable on Class A Shares at the time of
purchase on investments of $1 million or more, but a CDSC-Class A 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.
WAIVER OF CLASS B AND CLASS C CONTINGENT DEFERRED SALES CHARGE ("CDSC-CLASS B
AND C")
As described in the Prospectus under "Redemption of Shares," redemptions of
Class B Shares and Class C Shares will be subject to a contingent deferred sales
charge. The CDSC-Class B and C is waived on redemptions of Class B Shares and
Class C Shares in the circumstances described below:
REDEMPTION UPON DEATH OR DISABILITY
The 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 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
B-41
<PAGE> 71
be of long-continued and indefinite duration." While the Fund does not
specifically adopt the balance of the Code's definition which pertains to
furnishing the Secretary of Treasury with such proof as he or she may require,
the Distributor will require satisfactory proof of death or disability before it
determines to waive the CDSC-Class B and C.
In cases of 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
The Fund will waive the CDSC-Class B and C when a total or partial
redemption is made in connection with certain distributions from retirement
plans. The charge 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), or from the death or disability of the employee
(see Code Section 72(m)(7) and 72(t)(2)(A)(ii)). In addition, the charge will be
waived on any minimum distribution required to be distributed in accordance with
Code Section 401(a)(9).
The Fund does not intend to waive the CDSC-Class B and C for any
distributions from IRAs or other retirement plans not specifically described
above.
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 the Fund. Under the plan, a dollar
amount of a participating shareholder's investment in the Fund will be redeemed
systematically by the Fund on a periodic basis, and the proceeds mailed to the
shareholder. The amount to be redeemed and frequency of the systematic
withdrawals will be specified by the shareholder upon his or her election to
participate in the plan. The CDSC-Class B and C will be waived on redemptions
made under the plan.
The amount of the shareholder's investment in a Fund at the time the
election to participate in the plan is made with respect to the Fund is
hereinafter referred to as the "initial account balance." The amount to be
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.
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<PAGE> 72
NO INITIAL COMMISSION OR TRANSACTION FEE
The 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
The Fund reserves the right to redeem shareholder accounts with balances of
less than a specified dollar amount as set forth in the Prospectus. Prior to
such redemptions, shareholders will be notified in writing and allowed a
specified period of time to purchase additional shares to bring the account up
to the required minimum balance. The Fund will waive the CDSC-Class B and C upon
such involuntary redemption.
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
The Fund may waive the CDSC-Class B and C when a total or partial
redemption is made by the Adviser with respect to its investments in the Fund.
TAXATION
FEDERAL INCOME TAXATION
The Fund has elected and qualified, and intends to continue to qualify each
year, to be treated as a regulated investment company under Subchapter M of the
Code. To qualify as a regulated investment company, the Fund must comply with
certain requirements of the Code relating to, among other things, the source of
its income and diversification of its assets.
If the Fund so qualifies and distributes each year to its shareholders at
least 90% of its net investment income (including taxable income and net
short-term capital gains, but not net capital gains, which are the excess of net
long-term capital gains over net short-term capital losses), it will not be
required to pay federal income taxes on any income distributed to shareholders.
The Fund intends to distribute at least the minimum amount of net investment
income necessary to satisfy the 90% distribution requirement. The Fund will not
be subject to federal income tax on any net capital gains distributed to
shareholders.
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In order to avoid a 4% excise tax, the 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 gains 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 gains net income retained by, and subject to federal income tax in
the hands of, the Fund will be treated as having been distributed.
If the Fund failed to qualify as a regulated investment company or failed
to satisfy the 90% distribution requirement in any taxable year, the Fund would
be taxed as an ordinary corporation on its taxable income (even if such income
were distributed to its shareholders) and all distributions out of earnings and
profits would be taxed to shareholders as ordinary income. To qualify again as a
regulated investment company in a subsequent year, the Fund may be required to
pay an interest charge on 50% of its earnings and profits attributable to
non-regulated investment company years and would be required to distribute such
earnings and profits to shareholders (less any interest charge). In addition, if
the Fund failed to qualify as a regulated investment company for its first
taxable year or, if immediately after qualifying as a regulated investment
company for any taxable year, it failed to qualify for a period greater than one
taxable year, the Fund would be required to recognize any net built-in gains
(the excess of aggregate gains, including items of income, over aggregate losses
that would have been realized if it had been liquidated) in order to qualify as
a regulated investment company in a subsequent year.
Some of the Fund's investment practices are subject to special provisions
of the Code that, among other things, may defer the use of certain losses of the
Fund and affect the holding period of the securities held by the Fund and the
character of the gains or losses realized by the Fund. These provisions may also
require the Fund to recognize income or gain without receiving cash with which
to make distributions in amounts necessary to satisfy the 90% distribution
requirement and the distribution requirements for avoiding income and excise
taxes. The Fund will monitor its transactions and may make certain tax elections
in order to mitigate the effect of these rules and prevent disqualification of
the Fund as a regulated investment company.
Investments of the Fund in securities issued at a discount or providing for
deferred interest or payment of interest in kind are subject to special tax
rules that will affect the amount, timing and character of distributions to
shareholders. For example, with respect to securities issued at a discount, the
Fund will be required to accrue as income each year a portion of the discount
and to distribute such income each year in order to maintain its qualification
as a regulated investment company and to avoid income and excise taxes. In order
to generate sufficient cash to make distributions necessary to satisfy the 90%
distribution requirement and to avoid income and excise taxes, the Fund may have
to dispose of securities that it would otherwise have continued to hold.
PASSIVE FOREIGN INVESTMENT COMPANIES. The Fund may invest in the stock of
"passive foreign investment companies" ("PFICs"). A PFIC is a foreign
corporation that, in general, meets either of the following tests: (i) at least
75% of its gross income is passive income or (ii) an average of at least 50% of
its assets produce, or are held for the production of, passive income. Under
certain circumstances, a regulated investment company that holds stock of a PFIC
will be subject to federal income tax on (i) a portion
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<PAGE> 74
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 the Fund invests in a PFIC and
elects to treat the PFIC as a "qualified electing fund," then in lieu of the
foregoing tax and interest obligation, the Fund would be required to include in
income each year its pro rata share of the qualified electing fund's annual
ordinary earnings and net capital gain, which most likely would have to be
distributed to satisfy the 90% distribution requirement and the distribution
requirement for avoiding income and excise taxes. In most instances it will be
very difficult to make this election due to certain requirements imposed with
respect to the election.
As an alternative to making the above-described election to treat the PFIC
as a qualified electing fund, the 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 the Fund's adjusted tax
basis in such PFIC stock and its fair market value. Losses will be allowed only
to the extent of net mark-to-market gain previously included by the Fund
pursuant to the election for prior taxable years. The Fund may be required to
include in its taxable income for the first taxable year in which it makes a
PFIC Mark-to-Market Election an amount equal to the interest charge that would
otherwise accrue with respect to distributions on, or dispositions of, the PFIC
stock. This amount would not be deductible from the Fund's taxable income. The
PFIC Mark-to-Market Election applies to the taxable year for which made and to
all subsequent taxable years, unless the Internal Revenue Service (the "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 the Fund's net investment income are taxable to
shareholders as ordinary income to the extent of the Fund's earnings and
profits, whether paid in cash or reinvested in additional shares. Distributions
of the Fund's net capital gains ("capital gains dividends"), if any, are taxable
to shareholders as long-term capital gains regardless of the length of time
shares of the Fund have been held by such shareholders. Distributions in excess
of the Fund's earnings and profits will first reduce the adjusted tax basis of a
holder's shares and, after such adjusted tax basis is reduced to zero, will
constitute capital gains to such holder (assuming such shares are held as a
capital asset). For a summary of the tax rates applicable to capital gains
(including capital gains 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 the Fund.
Shareholders receiving distributions in the form of additional shares
issued by the Fund will be treated for federal income tax purposes as receiving
a distribution in an amount equal to the fair market value of the shares
received, determined as of the
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distribution date. The basis of such shares will equal the fair market value on
the distribution date.
The Fund will inform shareholders of the source and tax status of all
distributions promptly after the close of each calendar year. Some portions of
the distributions from the Fund may be eligible for the dividends received
deduction for corporations if the 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 the 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 the Fund may be "spilled back" and treated as paid by the Fund (except for
purposes of the 4% excise tax) during such taxable year. In such case,
shareholders will be treated as having received such dividends in the taxable
year in which the distribution was actually made.
Income from investments in foreign securities received by the Fund may be
subject to income, withholding or other taxes imposed by foreign countries and
U.S. possessions. Tax conventions between certain countries and the United
States may reduce or eliminate such taxes. Investors may be entitled to claim
U.S. 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
the Fund's total assets at the close of its fiscal year consists of securities
of foreign issuers, the Fund will be eligible to, and may, file elections with
the IRS pursuant to which shareholders of the Fund will be required to (i)
include their respective pro rata portions of such taxes in their U.S. income
tax returns as gross income, and (ii) treat such respective pro rata portions as
taxes paid by them. Shareholders will be entitled, subject to certain
limitations, to either deduct their respective pro rata portions of such foreign
taxes in computing their taxable incomes or use them as foreign tax credits
against their U.S. federal income taxes. No deduction for such foreign taxes may
be claimed by a shareholder who does not itemize deductions. Each shareholder
will be notified annually whether the foreign taxes paid by the 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 U.S. federal income tax attributable to the
shareholder's foreign source taxable income. This limitation generally applies
separately to certain specific categories of foreign source income including
"passive income" which includes, among other types of income, dividends and
interest. The foregoing is only a general description of the foreign tax credit
under current law. Because application of the rules described above depends on
the particular circumstances of each shareholder, shareholders are advised to
consult their own tax advisers.
Under Code Section 988, foreign currency gains or losses from certain
forward contracts not traded in the interbank market as well as certain other
gains or losses attributable to currency exchange rate fluctuations are
typically treated as ordinary income or loss. Such income or loss may increase
or decrease (or possibly eliminate) the Fund's
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<PAGE> 76
income available for distribution. If, under the rules governing the tax
treatment of foreign currency gains and losses, the Fund's income available for
distribution is decreased or eliminated, all or a portion of the dividends
declared by the Fund may be treated for federal income tax purposes as a return
of capital or, in some circumstances, as capital gains. 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 gains dividends received
with respect to such shares. For purposes of determining whether shares have
been held for six months or less, the holding period is suspended for any
periods during which the shareholder's risk of loss is diminished as a result of
holding one or more other positions in substantially similar or related property
or through certain options or short sales.
CAPITAL GAINS RATES
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 gains dividends) that are not
"effectively connected" with a United States trade or business carried on by
such shareholder. Accordingly, investment in the Fund is likely to be
appropriate for a Non-U.S. Shareholder only if such person can utilize a foreign
tax credit or corresponding tax benefit in respect of such United States
withholding tax.
Non-effectively connected capital gains 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
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nonetheless be subject to backup withholding on capital gains dividends and
gross proceeds paid to them upon the sale of their shares. See "Backup
Withholding" below.
If income from the 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.
The United States Treasury Department has issued Treasury regulations
generally effective for payments made after December 31, 1999 concerning the
withholding of tax and reporting for certain amounts paid to nonresident alien
individuals and foreign corporations (the "Final Withholding Regulations").
Among other things, the Final Withholding Regulations may require Non-U.S.
Shareholders to furnish new certification of their foreign status after December
31, 1999. Prospective investors should consult their tax advisors concerning the
applicability and effect of the Final Withholding Regulations on an investment
in shares of the 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 the Fund.
Backup Withholding. The 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 the 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.
The Fund must report annually to the IRS and to each Non-U.S. Shareholder
the amount of dividends paid to such shareholder and the amount, if any, of tax
withheld pursuant to backup withholding rules with respect to such dividends.
This information may also be made available to the tax authorities in the
Non-U.S. Shareholder's country of residence.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules from payments made to a Shareholder may be refunded or
credited against such shareholder's United States federal income tax liability,
if any, provided that the required information is furnished to the IRS.
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
B-48
<PAGE> 78
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.
FUND PERFORMANCE
From time to time the Fund may advertise its total return for prior
periods. Any such advertisement would include at least average annual total
return quotations for one-year, five-year and ten-year periods. Other total
return quotations, aggregate or average, over other time periods may also be
included.
The total return of the Fund for a particular period represents the
increase (or decrease) in the value of a hypothetical investment in the Fund
from the beginning to the end of the period. Total return is calculated by
subtracting the value of the initial investment from the ending value and
showing the difference as a percentage of the initial investment; the
calculation assumes the initial investment is made at the current maximum public
offering price (which includes the maximum sales charge for Class A Shares);
that all income dividends or capital gains distributions during the period are
reinvested in Fund shares at net asset value; and that any applicable contingent
deferred sales charge has been paid. The Fund's total return will vary depending
on market conditions, the securities comprising the Fund's portfolio, the Fund's
operating expenses and unrealized net capital gains or losses during the period.
Total return is based on historical earnings and asset value fluctuations and is
not intended to indicate future performance. No adjustments are made to reflect
any income taxes payable by shareholders on dividends and distributions paid by
the Fund or to reflect the fact 12b-1 fees previously may have been less than
the current 12b-1 fees for certain classes of shares as specified in the
Prospectus.
Average annual total return quotations for periods of two or more years are
computed by finding the average annual compounded rate of return over the period
that would equate the initial amount invested to the ending redeemable value.
Total return is calculated separately for Class A Shares, Class B Shares
and Class C Shares. Total return figures for Class A Shares include the maximum
sales charge; total return figures for Class B Shares and Class C Shares include
any applicable contingent deferred sales charge. Because of the differences in
sales charges and distribution fees, the total returns for each class of shares
will differ.
The Fund may, in supplemental sales literature, advertise non-standardized
total return figures representing the cumulative, non-annualized total return of
each class of shares of the Fund from a given date to a subsequent given date.
Cumulative non-standardized total return is calculated by measuring the value of
an initial investment in a given class of shares of the Fund at a given time,
deducting the maximum initial sales charge, if any, determining the value of all
subsequent reinvested distributions, and dividing the net change in the value of
the investment as of the end of the period by the amount of the initial
investment and expressing the result as a percentage. Non-standardized total
return will be calculated separately for each class of shares. Non-standardized
total return calculations do not reflect the imposition of a contingent deferred
sales charge, and if any such contingent deferred sales charge imposed at the
time of redemption were reflected, it would reduce the performance quoted.
B-49
<PAGE> 79
From time to time, the Fund may include in its sales literature and
shareholder reports a quotation of the current "distribution rate" for each
class of shares of the Fund. Distribution rate is a measure of the level of
income and short-term capital gains dividends, if any, distributed for a
specified period. Distribution rate differs from yield, which is a measure of
the income actually earned by the Fund's investments, and from total return
which is a measure of the income actually earned by the Fund's investments plus
the effect of any realized and unrealized appreciation or depreciation of such
investments during a stated period. Distribution rate is, therefore, not
intended to be a complete measure of the Fund's performance. Distribution rate
may sometimes be greater than yield since, for instance, it may not include the
effect of amortization of bond premiums, and may include non-recurring
short-term capital gains and premiums from futures transactions engaged in by
the Fund. Distribution rates will be computed separately for each class of the
Fund's shares.
The Fund seeks to remain fully invested and diversified across many
industries to achieve consistent long-term performance. From time to time
marketing materials may provide a portfolio manager update, an adviser update or
discuss general economic conditions and outlooks. The Fund's marketing materials
may also show the Fund's asset class diversification, top five sectors, ten
largest holdings and other Fund asset structures. The top 10 holdings of the
Fund may also be listed in marketing pieces. Materials may also mention how Van
Kampen Investments believes the Fund compares relative to other Van Kampen
funds. 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 the 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 funds 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 other than with a professional representative.
The Fund may also be marketed on the internet.
In reports or other communications to shareholders or in advertising
material, the Fund may compare its performance with that of other mutual funds
as listed in the rankings or ratings prepared by Lipper Analytical Services,
Inc., CDA, Morningstar Mutual Funds or similar independent services which
monitor the performance of mutual funds with the Consumer Price Index, the Dow
Jones Industrial Average, Standard & Poor's indices, NASDAQ Composite Index,
other appropriate indices of investment securities, or with investment or
savings vehicles. The performance information may also include evaluations of
the Fund published by nationally recognized ranking services and by nationally
recognized financial publications. Such comparative performance information will
be stated in the same terms in which the comparative data or indices are stated.
Such advertisements and sales material may also include a yield quotation as of
a current period. In each case, such total return and yield information, if any,
will be calculated pursuant to rules established by the SEC and will be computed
separately for each class of the Fund's shares. For these purposes, the
performance of the Fund, as well as the performance of other mutual funds or
indices, do not reflect sales charges, the inclusion of which would reduce the
Fund's performance. The Fund will include performance data for each class of
shares of the Fund in any advertisement or information including performance
data of the Fund.
B-50
<PAGE> 80
The Fund may also utilize performance information in hypothetical
illustrations. For example, the Fund may, from time to time: (1) illustrate the
benefits of tax-deferral by comparing taxable investments to investments made
through tax-deferred retirement plans; (2) illustrate in graph or chart form, or
otherwise, the benefits of dollar cost averaging by comparing investments made
pursuant to a systematic investment plan to investments made in a rising market;
(3) illustrate allocations among different types of mutual funds for investors
at different stages of their lives; and (4) in reports or other communications
to shareholders or in advertising material, illustrate the benefits of
compounding at various assumed rates of return.
The Fund's Annual Report and Semiannual Report contain additional
performance information. A copy of the Annual Report or Semiannual Report may be
obtained without charge by calling or writing the Fund at the telephone number
and address printed on the back cover of the Prospectus.
CLASS A SHARES
The Fund's average annual total return, assuming payment of the maximum
sales charge, for Class A Shares of the Fund for (i) the one-year period ended
December 31, 1998 was 10.30% and (ii) the approximately four-year, five-month
period since May 16, 1994, the commencement of distribution for Class A Shares
of the Fund, through December 31, 1998 was 9.27%. The Fund's cumulative
non-standardized total return, including payment of the maximum sales charge,
with respect to the Class A Shares from its inception to December 31, 1998 was
50.73%. The Fund's cumulative non-standardized total return, excluding payment
of the maximum sales charge, with respect to the Class A Shares from its
inception to December 31, 1998 was 58.24%.
CLASS B SHARES
The Fund's average annual total return, assuming payment of the maximum
deferred sales charge, for Class B Shares of the Fund for (i) the one-year
period ended December 31, 1998 was 10.96% and (ii) the approximately four-year,
five-month period since May 16, 1994 the commencement of distribution for Class
B Shares of the Fund, through December 31, 1998 was 9.30%. The Fund's cumulative
non-standardized total return, including payment of the maximum deferred sales
charge, with respect to the Class B Shares from its inception to December 31,
1998 was 50.88%. The Fund's cumulative non-standardized total return, excluding
payment of the maximum deferred sales charge, with respect to the Class B Shares
from its inception to December 31, 1998 was 52.38%.
CLASS C SHARES
The average annual total return, assuming payment of the maximum deferred
sales charge, for Class C Shares of the Fund for (i) the one-year period ended
December 31, 1998 was 13.93% and (ii) the approximately four-year, five-month
period since May 16, 1994, the commencement of distribution for Class C Shares
of the Fund, through December 31, 1998 was 9.56%. The Fund's cumulative
non-standardized total return, including payment of the maximum deferred sales
charge, with respect to the Class C Shares from its inception to December 31,
1998 was 52.58%. The Fund's cumulative non-
B-51
<PAGE> 81
standardized total return, excluding payment of the maximum deferred sales
charge, with respect at the Class C Shares from its inception to December 31,
1998 was 52.58%.
These results are based on historical earnings and asset value fluctuations
and are not intended to indicate future performance. Such information should be
considered in light of the Fund's investment objective and policies as well as
the risks incurred in the Fund's investment practices.
OTHER INFORMATION
CUSTODY OF ASSETS
All securities owned by the Fund and all cash, including proceeds from the
sale of shares of the Fund and of securities in the Fund's investment portfolio,
are held by State Street Bank and Trust Company, 225 West Franklin Street,
Boston, Massachusetts 02110, as Custodian.
SHAREHOLDER REPORTS
Semiannual statements are furnished to shareholders, and annually such
statements are audited by the independent accountants.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 200 East Randolph Drive, Chicago, Illinois
60601, the independent accountants for the Fund, performs an annual audit of the
Fund's financial statements.
LEGAL COUNSEL
Counsel to the Fund is Skadden, Arps, Slate, Meagher & Flom (Illinois).
SECURITIES RATINGS
DESCRIPTION OF BOND RATINGS
Moody's Investors Service, Inc. ("Moody's") rates the long-term debt
securities issued by various entities from "Aaa" to "C". High quality ratings
are as follows:
Aaa -- Best quality. These securities carry the smallest degree of
investment risk and are generally referred to as "gilt edge." Interest
payments are protected by a large or 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 -- High quality by all standards. They are rated lower than the
best bond because margins of protection may not be as large as in Aaa
securities, fluctuation of protective elements may be of greater amplitude,
or there may be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
B-52
<PAGE> 82
Standard & Poor's ("S&P") rates the long-term debt securities of various
entities in categories ranging from "AAA" to "D" according to quality. High
quality ratings are as follows:
AAA -- Highest rating. Capacity to pay interest and repay principal is
extremely strong.
AA -- High grade. Very strong capacity to pay interest and repay
principal. Generally, these bonds differ from AAA issues only in a small
degree.
COMMERCIAL PAPER RATINGS
Moody's employs the designations "Prime-1," "Prime-2" and "Prime-3" to
indicate commercial paper having the highest capacity for timely repayment.
Issuers rated Prime-1 have a superior capacity for repayment of short-term
promissory obligations. Prime-1 repayment capacity will normally be evidenced by
the following characteristics: leading market positions in well-established
industries; high rates of return on funds employed; conservative capitalization
structures with moderate reliance on debt and ample asset protections; broad
margins in earnings coverage of fixed financial charges and high internal cash
generation; and well-established access to a range of financial markets and
assured sources of alternate liquidity. Issues rated Prime-2 have a strong
capacity for repayment of short-term promissory 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, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
S&P ratings of commercial paper are graded into four categories ranging
from "A" for the highest quality obligations to "D" for the lowest. A -- Issues
assigned its highest rating are regarded as having the greatest capacity for
timely payment. Issues in this category are delineated with numbers 1, 2, and 3
to indicate the relative degree of safety. A-1 -- This designation indicates
that the degree of safety regarding timely payment is either overwhelming or
very strong. Those issues determined to possess overwhelming safety
characteristics will be denoted with a plus (+) sign designation.
A-2 -- Capacity for timely payments on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
"A-1".
B-53
<PAGE> 83
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Van Kampen Global Managed Assets Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Van Kampen Global Managed Assets
Fund (the "Fund") at December 31, 1998, and the results of its operations, the
changes in its net assets and the financial highlights for each of the periods
presented, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1998 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
February 11, 1999
F-1
<PAGE> 84
PORTFOLIO OF INVESTMENTS
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Description Shares Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
COMMON AND PREFERRED STOCKS AND EQUIVALENTS 67.5%
AUSTRALIA 1.1%
Amcor, Ltd. ................................................ 817 $ 3,491
AMP, Ltd. .................................................. 1,058 13,404
Australian Gas & Light Co., Ltd. ........................... 419 3,018
Boral, Ltd. ................................................ 1,364 1,939
Brambles Industries, Ltd. .................................. 260 6,333
Broken Hill Proprietary Co., Ltd. .......................... 2,497 18,390
Coca-Cola Amati, Ltd. ...................................... 925 3,446
Coles Myer, Ltd. ........................................... 1,329 6,963
Crown, Ltd. ................................................ 1,801 673
CSR, Ltd. .................................................. 1,316 3,218
Email, Ltd. ................................................ 425 607
FH Faulding & Co., Ltd. .................................... 160 755
Fosters Brewing Group, Ltd. ................................ 2,116 5,731
General Property Trust...................................... 1,595 2,982
GIO Australia Holding....................................... 774 2,542
Goodman Fielder, Ltd. ...................................... 1,564 1,581
Leighton Holdings, Ltd. .................................... 377 1,617
Lend Lease Corp. ........................................... 660 8,898
M.I.M. Holdings, Ltd. ...................................... 2,625 1,158
National Australia Bank, Ltd. .............................. 1,719 25,913
News Corp., Ltd. ........................................... 2,248 14,850
News Corp., Ltd. - Preferred Shares......................... 2,033 12,371
Normandy Mining, Ltd. ...................................... 2,835 2,623
North, Ltd. ................................................ 1,236 2,015
Orica, Ltd. ................................................ 360 1,873
Pacific Dunlop, Ltd. ....................................... 1,272 2,058
Pioneer International, Ltd. ................................ 1,075 2,273
QBE Insurance Group, Ltd. .................................. 486 2,010
Rio Tinto, Ltd. ............................................ 326 3,866
Santos, Ltd. ............................................... 726 1,949
Schroders Property Fund..................................... 673 1,097
Smith Howard................................................ 226 1,495
Southcorp Holdings, Ltd. ................................... 747 2,383
Stockland Trust Group....................................... 366 911
TAB Corp. Holdings, Ltd. ................................... 408 2,500
Telstra Corp., Ltd. ........................................ 6,153 28,768
</TABLE>
See Notes to Financial Statements
F-2
<PAGE> 85
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Description Shares Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
AUSTRALIA (CONTINUED)
Westfield Trust............................................. 1,303 $ 2,874
Westpac Banking Corp., Ltd. ................................ 2,293 15,344
WMC, Ltd. .................................................. 1,652 4,981
-----------
218,900
-----------
AUSTRIA 0.8%
Austria Tabakwerke, AG (d).................................. 149 11,425
Austrian Airlines (d)....................................... 199 7,128
Bank Austria, AG (d)........................................ 711 36,155
Bau Holdings, AG (d)........................................ 31 1,428
BBAG Oest Brau-Beteiligungs, AG (d)......................... 59 3,371
Bohler-Uddeholm, AG - ADR (d)............................... 73 3,398
BWT, AG (d)................................................. 11 2,438
Flughafen Wien, AG (d)...................................... 142 6,968
Generali, AG (d)............................................ 47 11,545
Lenzing, AG (a) (d)......................................... 26 1,619
Mayr Melnhof Karton, AG (d)................................. 80 3,739
Oest Elektrizitats, Class A (d)............................. 204 31,180
OMV, AG (d)................................................. 174 16,399
RHI, AG (d)................................................. 93 2,423
VA Technologie, AG (d)...................................... 94 8,146
Wienerberger Baustoffindustrie, AG (d)...................... 57 11,337
-----------
158,699
-----------
CANADA 1.0%
Abitibi Consolidated, Inc. ................................. 200 1,858
Agnico-Eagle Mines, Ltd. ................................... 700 2,885
Alberta Energy Co., Ltd. ................................... 100 2,159
Alcan Aluminum.............................................. 200 5,430
Bank of Montreal............................................ 200 8,073
Bank of Nova Scotia......................................... 300 6,624
Barrick Gold Corp. ......................................... 200 3,899
Barrick Gold Corp. - US$.................................... 300 5,850
BCE, Inc. .................................................. 400 15,139
Bombardier, Inc., Class B................................... 500 7,197
Canadian Hunter Exploration, Ltd. (a)....................... 50 327
Canadian Imperial Bank of Commerce.......................... 200 4,972
Canadian Occidental Petroleum............................... 100 1,040
Canadian Pacific............................................ 200 3,762
Gulf Canada Resource (a).................................... 500 1,466
</TABLE>
See Notes to Financial Statements
F-3
<PAGE> 86
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Description Shares Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
CANADA (CONTINUED)
Imasco, Ltd. ............................................... 300 $ 6,418
Imperial Oil, Ltd. ......................................... 400 6,425
International Forest Products, Ltd., Class A (a)............ 500 1,178
Laidlaw, Inc. .............................................. 200 2,022
National Bank of Canada..................................... 100 1,623
Newbridge Networks Corp. (a)................................ 100 3,049
Nexfor, Inc. (a)............................................ 87 344
Noranda, Inc. .............................................. 200 1,995
Northern Telecom, Ltd. ..................................... 400 20,046
Northern Telecom, Ltd. - US$................................ 300 15,038
Nova Corp. ................................................. 52 680
Petro CDA................................................... 300 3,189
Placer Dome, Inc. .......................................... 200 2,296
Power Corp. of Canada....................................... 200 4,344
Royal Bank of Canada........................................ 200 10,016
Seagram Co., Ltd. .......................................... 200 7,622
Seagram Co., Ltd. - US$..................................... 200 7,600
Suncor Energy, Inc. ........................................ 100 3,010
Talisman Energy, Inc. (a)................................... 100 1,763
TELUS Corp. ................................................ 100 2,126
Thomson Corp. .............................................. 400 9,395
TransCanada PipeLines, Ltd. ................................ 564 8,284
Weston George, Ltd. ........................................ 100 3,827
-----------
192,971
-----------
FRANCE 4.9%
Accor, SA (d)............................................... 133 28,784
Air Liquide (d)............................................. 123 22,550
Alcatel Alsthom, SA (d)..................................... 207 25,324
AXA-UAP (d)................................................. 417 60,413
Banque Nationale de Paris (d)............................... 306 25,187
Banque Paribas (d).......................................... 96 8,340
Canal Plus (d).............................................. 45 12,274
Cap Gemini (d).............................................. 85 13,637
Carrefour, SA (d)........................................... 51 38,485
Casino-Guichard-Perrachon, SA (d)........................... 150 15,614
Cie Fonciere Klepierre (a) (d).............................. 288 29,361
Compagnie de Saint Gobain (d)............................... 136 19,192
Elf Aquitaine, SA (d)....................................... 316 36,512
</TABLE>
See Notes to Financial Statements
F-4
<PAGE> 87
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Description Shares Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
FRANCE (CONTINUED)
France Telecom, SA (d)...................................... 940 $ 74,649
Groupe Danone (d)........................................... 125 35,772
L'Oreal (d)................................................. 93 67,201
Lafarge, SA (d)............................................. 170 16,146
Legrand, SA (d)............................................. 40 10,596
LVMH (Moet Hennessy Louis Vuitton) (d)...................... 131 25,914
Michelin (CGDE), Class B (d)................................ 239 9,554
Pernod Ricard (d)........................................... 94 6,103
Peugeot Citroen (d)......................................... 83 12,841
Pinault-Printemps-Redoute, SA (d)........................... 145 27,698
Promodes (d)................................................ 34 24,714
Rhone-Poulenc, SA (d)....................................... 466 23,971
Sagem, SA (d)............................................... 7 4,632
Sanofi, SA (d).............................................. 145 23,860
Schneider, SA (d)........................................... 194 11,763
Silic (d)................................................... 96 17,840
Simco (d)................................................... 218 19,769
Societe Generale (d)........................................ 126 20,395
Sodexho Alliance (d)........................................ 44 9,837
Sophia (d).................................................. 358 15,207
Suez Lyonnaise des Eaux (d)................................. 196 40,245
Thomson CSF (d)............................................. 211 9,057
Total, SA, Class B (d)...................................... 316 31,990
Unibail, SA (d)............................................. 213 31,049
Vivendi (d)................................................. 181 46,942
-----------
953,418
-----------
GERMANY 2.5%
Adidas Salomon, AG (d)...................................... 17 1,846
AGIV, AG (d)................................................ 67 1,729
Allianz, AG (Vinkulierte Regd) (d).......................... 208 76,256
AMB AACH & Mun Bet (Vinkulierte Regd) (d)................... 50 5,883
AXA Colonia Konzern (d)..................................... 33 3,742
BASF, AG (d)................................................ 367 14,005
Bayer Hypo Vereinsbank, AG (d).............................. 265 20,750
Bayer, AG (d)............................................... 500 20,866
Bilfinger & Berger (d)...................................... 17 434
Continental, AG (d)......................................... 17 469
DaimlerChrysler, AG (d)..................................... 752 74,225
</TABLE>
See Notes to Financial Statements
F-5
<PAGE> 88
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Description Shares Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
GERMANY (CONTINUED)
Degussa, AG (d)............................................. 17 $ 934
Deutz, AG (d)............................................... 33 307
Deutsche Bank, AG (d)....................................... 350 20,591
Deutsche Telekom, AG (d).................................... 1,350 44,390
Dresdner Bank, AG (d)....................................... 333 13,987
Fag Kugelfischer (d)........................................ 17 144
Heidelberg Zement (d)....................................... 33 2,574
Hochtief, AG (d)............................................ 83 3,237
Lufthansa, AG (Vinkulierte Regd) (d)........................ 133 2,937
Man, AG - Preferred Shares (d).............................. 50 10,111
Mannesmann, AG (d).......................................... 250 28,651
Merck KGaA (d).............................................. 100 4,500
Metro, AG (d)............................................... 167 13,327
Preussag, AG (d)............................................ 17 7,681
RWE, AG (d)................................................. 347 18,999
SAP, AG (d)................................................. 67 28,945
Schering, AG (d)............................................ 67 8,412
Siemens, AG (d)............................................. 367 23,673
Veba, AG (d)................................................ 333 19,921
Viag, AG (d)................................................ 17 9,966
Volkswagen, AG (d).......................................... 100 7,980
-----------
491,472
-----------
HONG KONG 1.8%
Bank of East Asia........................................... 3,600 6,273
Cathay Pacific Air.......................................... 8,000 7,951
Cheung Kong Holdings, Ltd. ................................. 5,000 35,979
CLP Holdings, Ltd. ......................................... 6,500 32,384
Hang Lung Development Co. .................................. 2,992 3,205
Hang Seng Bank, Ltd. ....................................... 4,700 42,010
Hong Kong & China Gas Co. .................................. 10,000 12,714
Hong Kong & China Gas Co. - Warrants........................ 600 40
Hong Kong & Shanghai Hotels................................. 1,500 1,065
Hong Kong Land Holding - US$................................ 1,264 1,492
Hong Kong Telecommunications, Ltd. ......................... 29,400 51,418
Hopewell Holdings........................................... 3,000 1,636
Hutchison Whampoa........................................... 9,000 63,600
Hysan Development........................................... 2,992 4,460
Hysan Development - Warrants................................ 300 6
</TABLE>
See Notes to Financial Statements
F-6
<PAGE> 89
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Description Shares Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
HONG KONG (CONTINUED)
Johnson Electric Holdings................................... 500 $ 1,284
New World Development Co. .................................. 5,000 12,585
Shangri-La Asia, Ltd. ...................................... 3,000 2,556
Sino Land Co. .............................................. 12,078 6,470
South China Morning Post.................................... 1,992 1,022
Sun Hung Kai Properties..................................... 6,000 43,755
Swire Pacific, Class A...................................... 4,000 17,915
Television Broadcast........................................ 996 2,571
Wharf Holdings, Ltd. ....................................... 6,000 8,751
-----------
361,142
-----------
ITALY 2.5%
Assicurazioni Generali (d).................................. 1,190 49,660
Banca Commerciale Italiana (d).............................. 2,000 13,789
BCA Intesa, SpA (d)......................................... 2,000 11,993
Benetton Group, SpA (d)..................................... 2,500 5,035
Ciga Hotels (d)............................................. 16,270 13,284
Ente Nazionale Idrocarburi, SpA (d)......................... 10,000 65,318
Fiat, Di Risp, SpA (d)...................................... 1,300 2,595
Fiat, Priv, SpA (d)......................................... 1,400 2,697
Fiat, SpA (d)............................................... 5,200 18,052
Immobil Metanopoli (d)...................................... 2,570 3,147
Instituto Nazionale delle Assicurazioni (INA) (d)........... 5,390 14,229
Mediaset, SpA (d)........................................... 1,500 12,156
Mediobanca, SpA (d)......................................... 700 9,716
Montedison, SpA (d)......................................... 5,000 6,638
Olivetti, SpA (d)........................................... 8,000 27,821
Pirelli, SpA (d)............................................ 5,000 16,012
Riunione Adriatica di Sicurta, SpA (d)...................... 500 7,242
Sao Paolo Imi, SpA (a) (d).................................. 2,283 40,318
Sirti, SpA (d).............................................. 500 3,015
Telecom Italia, Di Risp, SpA (d)............................ 2,906 18,278
Telecom Italia, SpA (d)..................................... 5,500 46,902
Telecom Italia Mob, SpA (d)................................. 7,500 55,339
Unicredito Italiano (d)..................................... 5,000 29,620
Unione Immobiliare, SpA (a) (d)............................. 21,240 11,073
-----------
483,929
-----------
</TABLE>
See Notes to Financial Statements
F-7
<PAGE> 90
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Description Shares Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
JAPAN 6.0%
Ajinomoto Co., Inc. ........................................ 1,000 $ 10,615
Asahi Bank, Ltd. ........................................... 1,900 6,958
Asahi Chemical Industry Co. ................................ 2,800 13,350
Asahi Glass Co. ............................................ 3,800 23,563
Bank of Tokyo............................................... 5,200 53,817
Bridgestone Corp. .......................................... 1,000 22,689
Dai Nippon Printing......................................... 1,800 28,692
Daiei, Inc. ................................................ 2,000 5,431
Daiwa House Industries...................................... 1,000 10,641
Daiwa Securities............................................ 2,400 8,195
Fanuc....................................................... 600 20,540
Fuji Bank................................................... 2,600 9,567
Fujitsu..................................................... 3,000 39,938
Hitachi..................................................... 4,800 29,721
Honda Motor Co. ............................................ 1,000 32,817
Japan Air Lines Co. ........................................ 2,000 5,272
Japan Energy Corp. ......................................... 1,000 947
Kajima Corp. ............................................... 1,000 2,609
Kansai Electric Power....................................... 1,500 32,839
Kao Corp. .................................................. 1,000 22,556
Kawasaki Steel Corp. ....................................... 1,000 1,495
Kirin Brewery Co. .......................................... 2,800 35,666
Kubota Corp. ............................................... 2,800 8,347
Kumagai Gumi Co. ........................................... 1,000 770
Kyocera Corp. .............................................. 400 21,123
Marubeni Corp. ............................................. 8,800 15,101
Matsushita Electric Industries.............................. 3,000 53,047
Mitsubishi Chemical......................................... 2,800 5,895
Mitsubishi Corp. ........................................... 1,000 5,750
Mitsubishi Electric Corp. .................................. 4,800 15,073
Mitsubishi Estate........................................... 2,800 25,090
Mitsubishi Heavy Industries................................. 3,000 11,676
Mitsubishi Trust & Banking Corp. ........................... 1,000 6,431
Mitsui Fudosan Co., Ltd. ................................... 2,000 15,126
Mitsui Trust & Banking Co. ................................. 4,800 5,477
Mitsukoshi.................................................. 2,000 5,307
NEC Corp. .................................................. 2,000 18,399
Nippon Express Co. ......................................... 1,800 10,127
</TABLE>
See Notes to Financial Statements
F-8
<PAGE> 91
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Description Shares Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
JAPAN (CONTINUED)
Nippon Oil Co. ............................................. 1,000 $ 3,485
Nippon Steel Corp. ......................................... 4,800 8,704
Nippon Telegraph & Telephone Corp. ......................... 11 84,847
Nissan Fire & Marine Insurance.............................. 700 2,105
Nissan Motor Co. ........................................... 800 2,449
NKK Corp. .................................................. 6,000 4,087
Nomura Securities........................................... 2,400 20,911
Odakyu Electric Railway..................................... 6,000 20,964
Osaka Gas Co. .............................................. 4,000 13,764
Sakura Bank................................................. 1,800 4,124
Sanwa Bank.................................................. 1,000 7,705
Sega Enterprises............................................ 400 8,863
Sekisui Chemical Co. ....................................... 1,000 6,723
Sekisui House............................................... 800 8,456
Shimizu Corp. .............................................. 2,800 9,387
Softbank Corp. ............................................. 10 602
Sony Corp. ................................................. 400 29,120
Sumitomo Bank, Ltd. ........................................ 2,000 20,522
Sumitomo Chemical........................................... 2,000 7,784
Sumitomo Corp. ............................................. 1,000 4,865
Sumitomo Metal Mining Co.................................... 1,000 3,246
Taisei Corp. ............................................... 4,800 9,214
Takeda Chemical Industries.................................. 2,000 76,957
Tobu Railway Co. ........................................... 2,800 8,173
Tokyo Electric Power........................................ 1,700 41,955
Tokyo Gas Co. .............................................. 4,800 12,610
Tokyo Marine & Fire Insurance Co. .......................... 2,800 33,437
Tokyu Corp. ................................................ 2,000 5,254
Toray Industries, Inc. ..................................... 2,000 10,438
Tostem Corp. ............................................... 500 9,907
Toyota Motor Corp. ......................................... 1,800 48,881
Yasuda Trust & Banking...................................... 700 539
-----------
1,170,735
-----------
NETHERLANDS 2.2%
ABN AMRO Holdings, NV (d)................................... 1,090 22,917
AEGON, NV (d)............................................... 400 49,098
Ahold Koninklijke, NV (d)................................... 427 15,774
Akzo Nobel, NV (d).......................................... 100 4,551
</TABLE>
See Notes to Financial Statements
F-9
<PAGE> 92
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Description Shares Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
NETHERLANDS (CONTINUED)
Buhrmann, NV (d)............................................ 260 $ 4,650
Elsevier, NV (d)............................................ 200 2,800
Hagemeyer, NV (d)........................................... 100 3,651
Heineken, NV (d)............................................ 200 12,030
ING Groep, NV (d)........................................... 773 47,112
KLM Royal Dutch Air Lines, NV (d)........................... 108 3,265
Kon KPN, NV (d)............................................. 432 21,615
Philips Electronics, NV (d)................................. 300 20,120
Rodamco (d)................................................. 615 15,615
Royal Dutch Petroleum Co. (d)............................... 1,700 84,606
TNT Post Groep, NV (d)...................................... 428 13,783
Uni-Invest, NV (d).......................................... 850 13,347
Unilever, NV (d)............................................ 500 42,716
Unilever, NV - ADR - US$.................................... 300 24,881
Vedior, NV (d).............................................. 100 1,969
Wolters Kluwer, NV (d)...................................... 102 21,815
-----------
426,315
-----------
NORWAY 0.1%
Choice Hotels............................................... 4,270 6,013
Linstow ASA................................................. 2,023 9,585
-----------
15,598
-----------
PORTUGAL 1.4%
BCO Comercial Portugues, SA (d)............................. 1,197 36,817
BCO Espirito Santo e Comercial de Lisboa (d)................ 500 15,526
BPI-SGPS, SA (d)............................................ 500 16,976
Brisa-Auto Estradas de Portugal, SA (d)..................... 300 17,667
Cimpor-Cimentos de Portugal (d)............................. 500 15,968
Corticeira Amorim, SGPS, SA (d)............................. 100 1,436
Elec De Portugal (d)........................................ 3,100 68,283
Jeronimo Martins, SGPS, SA (d).............................. 400 21,904
Portucel Industrial-Empresa Produtora de Celulose (d)....... 500 3,281
Portugal Telecom, SA (d).................................... 1,100 50,457
Soares Da Costa, SA (d)..................................... 100 340
Sonae Investimentos (d)..................................... 300 14,591
UNICER-Uniao Cervejeira, SA (d)............................. 300 7,162
-----------
270,408
-----------
SINGAPORE 0.7%
City Developments, Ltd. .................................... 2,000 8,661
Creative Technologies Corp. ................................ 150 2,117
</TABLE>
See Notes to Financial Statements
F-10
<PAGE> 93
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Description Shares Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
SINGAPORE (CONTINUED)
Cycle & Carriage, Ltd. ..................................... 1,000 $ 3,422
DBS Land, Ltd. ............................................. 2,000 2,944
Development Bank of Singapore............................... 1,000 9,025
Fraser & Neave, Ltd. ....................................... 1,000 2,919
Keppel Corp., Ltd. ......................................... 2,000 5,354
NatSteel, Ltd. ............................................. 1,000 1,096
Neptune Orient Lines, Ltd. ................................. 2,000 642
Overseas Chinese Bank....................................... 2,000 13,568
Parkway Holdings, Ltd. ..................................... 1,000 1,781
Sembcorp Industries, Ltd. (a)............................... 18,000 20,497
Singapore Airlines, Ltd. ................................... 2,000 14,658
Singapore Press Holdings, Ltd. ............................. 900 9,812
Singapore Tech Engineering.................................. 6,000 5,597
Singapore Telecommunications................................ 12,000 18,316
United Industrial Corp., Ltd. .............................. 3,000 1,199
United Overseas Bank, Ltd. ................................. 2,000 12,841
United Overseas Land, Ltd. ................................. 1,000 678
-----------
135,127
-----------
SPAIN 2.5%
Acerinox, SA (d)............................................ 100 2,325
Argentaria Corp. (d)........................................ 1,000 25,858
Autopistas Cesa (d)......................................... 824 13,683
Azucarera Ebro Agr (d)...................................... 200 4,405
BCO Bilbao Vizcaya, SA (d).................................. 3,600 56,361
BCO Central Hispanoamericano (d)............................ 2,600 30,826
BCO Santander, SA (d)....................................... 1,698 33,692
Corporacion Mapfre, SA (d).................................. 400 10,836
Empresa Nacional de Celulosas, SA (d)....................... 100 1,675
Endesa, SA (d).............................................. 1,900 50,267
Fomento Construcciones y Contratas, SA (d).................. 200 14,847
Gas Natural SDG, SA (d)..................................... 100 10,871
Iberdrola, SA (d)........................................... 2,000 37,363
Metrovacesa, SA (d)......................................... 210 6,295
Repsol, SA (d).............................................. 700 37,285
Tabacalera, SA, Class A (d)................................. 600 15,114
Telefonica, SA (d).......................................... 1,809 80,318
Telefonica, SA - Rights (d)................................. 1,809 1,604
TelePizza, SA (a) (d)....................................... 675 6,412
</TABLE>
See Notes to Financial Statements
F-11
<PAGE> 94
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Description Shares Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
SPAIN (CONTINUED)
Union Electrica Fenosa, SA (d).............................. 800 $ 13,819
Vallehermoso, SA (d)........................................ 2,020 28,853
Viscofan Industria Navarra De Envolturas Celulosicas, SA
(d)....................................................... 100 3,230
-----------
485,939
-----------
SWEDEN 1.2%
ABB, AB, Class B............................................ 200 2,117
ABB, AB, Class A............................................ 600 6,388
AGA, AB, Class B............................................ 100 1,311
Asticus, AB (a)............................................. 1,185 11,595
Astra, AB................................................... 300 6,092
Astra, AB, Class A.......................................... 1,133 23,079
Atlas Copco, AB, Class A.................................... 100 2,191
Castellum, AB............................................... 2,150 23,287
Diligentia.................................................. 1,900 13,329
Electrolux, AB (a).......................................... 300 5,151
Ericsson Telefon LM, Class B................................ 1,700 40,382
Foreningssparbk............................................. 300 7,754
Hennes & Mauritz, AB, Class B............................... 200 16,296
Netcom Systems, AB.......................................... 100 4,062
OM Gruppen, AB.............................................. 100 1,255
Piren, AB (a)............................................... 640 4,057
Sandvik, AB................................................. 200 3,471
Securitas, AB, Class B (a).................................. 200 3,102
Skandia Forsakrings, AB..................................... 400 6,105
Skandinaviska Enskilda Banken, Class A...................... 500 5,262
Skanska, AB, Class B........................................ 100 2,769
SKF, AB, Class B............................................ 100 1,163
SSAB Svenska Stal, Class A.................................. 100 954
Svenska Cellulosa, AB, Class B.............................. 200 4,357
Svenska Handelsbkn, Class A................................. 200 8,419
Tornet Fastighet............................................ 935 13,637
Trelleborg, AB, Class B..................................... 100 812
Volvo, AB, Class A.......................................... 100 2,234
Volvo, AB, Class B.......................................... 300 6,868
WM-Data, AB................................................. 100 4,258
-----------
231,757
-----------
</TABLE>
See Notes to Financial Statements
F-12
<PAGE> 95
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Description Shares Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
SWITZERLAND 2.2%
ABB, AG..................................................... 10 $ 11,720
Credit Suisse Group......................................... 200 31,302
Holderbank Financiere Glarus, AG............................ 10 11,837
Nestle, SA.................................................. 30 65,298
Novartis, AG................................................ 50 98,275
Roche Holdings Bearer, AG................................... 1 18,108
Roche Holdings Genusscheine, AG............................. 5 61,003
SCHW Ruckversicher.......................................... 10 26,068
SGS Holdings................................................ 5 4,896
Sulzer, AG.................................................. 10 6,086
Swatch Group, AG............................................ 10 6,188
Swisscom, AG (a)............................................ 50 20,929
UBS, AG (a)................................................. 157 48,230
Zurich Allied, AG........................................... 40 29,613
-----------
439,553
-----------
UNITED KINGDOM 9.8%
Abbey National.............................................. 1,586 33,754
Albert Fisher Group......................................... 809 76
Alldays..................................................... 29 84
Allders..................................................... 38 81
Allied Zurich............................................... 2,359 35,450
AMEC........................................................ 113 333
Anglian Water............................................... 587 8,151
Arjo Wiggins Apple.......................................... 1,642 3,083
Associated British Ports Holdings........................... 2,175 10,118
Barclays.................................................... 1,432 31,048
Barratt Developments........................................ 277 1,063
Bass........................................................ 1,231 17,814
BBA Group................................................... 19 118
Beazer Group................................................ 936 2,379
Berisford................................................... 502 1,501
Berkeley Group.............................................. 204 1,496
BG, Class B................................................. 3,272 21,038
BICC Group.................................................. 115 134
Blue Circle Industries...................................... 4,647 24,320
BOC Group................................................... 1,073 15,385
Boots Co. .................................................. 1,211 20,703
British Petroleum........................................... 6,538 97,326
</TABLE>
See Notes to Financial Statements
F-13
<PAGE> 96
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Description Shares Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
UNITED KINGDOM (CONTINUED)
BPB......................................................... 1,000 $ 3,655
British Aerospace........................................... 2,325 19,816
British Airways............................................. 2,423 16,666
British American Tobacco.................................... 2,262 19,918
British Land Co. ........................................... 3,380 25,045
British Sky Broadcast....................................... 2,313 17,523
British Telecommunications.................................. 6,745 102,088
BTR......................................................... 8,796 18,048
Burford Holdings............................................ 7,220 11,755
Burmah Castrol.............................................. 617 8,816
Cable & Wireless............................................ 1,570 19,198
Capital Corp. .............................................. 74 77
Capital Shop Centers........................................ 4,810 26,771
Caradon..................................................... 1,305 2,233
Carpetright................................................. 351 1,312
Centrica.................................................... 5,897 12,100
Cobham Plc.................................................. 431 4,991
Commercial Union............................................ 1,339 21,112
Delta....................................................... 64 118
Diageo...................................................... 4,693 52,045
Dialog Corp. ............................................... 70 63
Emap........................................................ 122 2,331
EMI Group................................................... 2,482 16,618
Enterprise Oil.............................................. 752 3,686
FirstGroup.................................................. 726 4,795
FKI......................................................... 635 1,414
General Electric............................................ 4,321 39,125
Glaxo Wellcome.............................................. 3,487 120,038
Granada Group............................................... 834 14,618
Grantchester Holdings....................................... 10,130 23,562
Great Universal Stores...................................... 1,465 15,456
Greycoat.................................................... 6 16
Hammerson Plc............................................... 2,680 15,228
Hanson...................................................... 1,888 15,025
House Of Fraser............................................. 218 192
HSBC Holdings............................................... 1,991 50,445
Hyder....................................................... 1,080 13,637
IMI......................................................... 699 2,741
</TABLE>
See Notes to Financial Statements
F-14
<PAGE> 97
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Description Shares Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
UNITED KINGDOM (CONTINUED)
Imperial Chemical Industries................................ 1,148 $ 9,946
Jarvis...................................................... 437 4,850
JBA Holdings................................................ 3 9
Johnson Matthey............................................. 837 5,646
Kingfisher.................................................. 2,476 26,821
Ladbroke Group.............................................. 1,686 6,779
Laird Group................................................. 49 133
Land Securities............................................. 1,339 17,130
Lasmo....................................................... 1,975 3,281
Lex Service................................................. 783 5,008
LIMIT....................................................... 1,752 4,774
Lloyds TSB Group............................................ 7,083 100,849
London Clubs International.................................. 616 1,678
London Forfaiting........................................... 113 216
Lonrho...................................................... 516 2,812
Low & Bonar................................................. 10 26
LucasVarity................................................. 2,162 7,220
Marks & Spencer............................................. 3,395 23,352
Marley...................................................... 1,144 2,319
Mayflower Corp. ............................................ 3 6
Meggitt..................................................... 14 29
MEPC........................................................ 1,252 8,320
Mirror Group................................................ 657 1,640
Misys....................................................... 1,050 7,711
National Power.............................................. 1,249 10,770
Next........................................................ 456 3,735
NFC......................................................... 1,159 2,291
Ocean Group................................................. 13 163
P & O Finance............................................... 1,456 17,223
Parity...................................................... 272 2,598
Pennon Group................................................ 440 8,509
Pilkington.................................................. 3,266 3,256
Powerscreen International................................... 31 58
Prudential Corp. ........................................... 3,664 55,893
Racal Electronics........................................... 315 1,821
Railtrack Group............................................. 635 16,563
Rank Group.................................................. 805 3,077
Reed International.......................................... 1,804 14,326
</TABLE>
See Notes to Financial Statements
F-15
<PAGE> 98
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Description Shares Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
UNITED KINGDOM (CONTINUED)
Rentokil Initial............................................ 3,235 $ 24,455
Reuters Group............................................... 2,255 23,790
Rexam....................................................... 35 97
Rio Tinto................................................... 1,704 19,817
RMC Group................................................... 1,061 14,507
Rolls Royce................................................. 1,073 4,457
Royal Bank Scotland Group................................... 1,122 18,343
Royal Sun Alliance.......................................... 2,122 17,275
Rugby Group................................................. 388 599
Safeway..................................................... 1,339 6,718
Sainsbury J Finance......................................... 2,019 16,336
Schlumberger, Ltd. - US$.................................... 300 13,837
Scotia Holdings............................................. 90 96
Scottish & Southern Energy.................................. 651 7,338
Scottish Power.............................................. 1,360 14,009
Sears....................................................... 888 3,806
Sedgwick Group.............................................. 58 215
Skillsgroup................................................. 45 137
Smithkline Beecham.......................................... 5,383 74,604
Smiths Industries........................................... 160 2,294
Stagecoach Holdings......................................... 1,292 5,173
Tesco....................................................... 7,124 20,713
Thames Water................................................ 756 14,570
Torotrak.................................................... 15 22
Unilever.................................................... 4,144 46,610
Vickers Group............................................... 42 125
Vodafone Group.............................................. 4,347 70,632
Wates C Of L Properties..................................... 11,540 13,613
Wickes...................................................... 17 71
William Baird............................................... 669 1,134
WPP Group................................................... 860 5,215
Yorkshire Water............................................. 545 4,980
Zeneca Group................................................ 1,089 47,439
-----------
1,921,597
-----------
UNITED STATES 26.8%
3Com Corp. (a).............................................. 200 8,962
Abbott Laboratories, Inc. .................................. 800 39,200
AES Corp. .................................................. 100 4,738
</TABLE>
See Notes to Financial Statements
F-16
<PAGE> 99
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Description Shares Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
UNITED STATES (CONTINUED)
Aetna, Inc. ................................................ 100 $ 7,863
Air Products & Chemicals, Inc. ............................. 200 8,000
AirTouch Communications, Inc. (a)........................... 300 21,637
Albertsons, Inc. ........................................... 100 6,369
AlliedSignal, Inc. ......................................... 300 13,294
Allstate Corp. ............................................. 400 15,450
ALLTEL Corp. ............................................... 100 5,981
Aluminum Co. of America..................................... 200 14,912
Amerada Hess Corp. ......................................... 100 4,975
American Electric Power, Inc. .............................. 100 4,706
American Express Co. ....................................... 300 30,675
American General Corp. ..................................... 200 15,600
American Home Products Corp. ............................... 700 39,419
American International Group, Inc. (b)...................... 500 48,312
American Stores Co. ........................................ 100 3,694
Ameritech Corp. ............................................ 600 38,025
Amgen, Inc. (a)............................................. 200 20,912
Amoco Corp. ................................................ 500 29,500
AMP, Inc. .................................................. 200 10,412
AMR Corp. .................................................. 100 5,938
Anheuser-Busch Cos., Inc. .................................. 300 19,687
Aon Corp. .................................................. 100 5,538
Applied Materials, Inc. .................................... 200 8,538
Archer-Daniels-Midland Co. ................................. 300 5,156
Ascend Communications, Inc. (a)............................. 100 6,575
Associates First Capital Corp., Class A..................... 400 16,950
AT&T Corp. (b).............................................. 900 67,725
Atlantic Richfield Co. ..................................... 200 13,050
Automatic Data Processing, Inc. ............................ 200 16,037
Avery Dennison Corp. ....................................... 100 4,506
Avon Products, Inc. ........................................ 200 8,850
Baker Hughes, Inc. ......................................... 200 3,538
Bank of New York Co., Inc. ................................. 300 12,075
Bank One Corp. ............................................. 600 30,637
BankAmerica Corp. (b)....................................... 800 48,100
BankBoston Corp. ........................................... 200 7,788
Bankers Trust New York Corp. ............................... 100 8,544
Baxter International, Inc. ................................. 200 12,862
</TABLE>
See Notes to Financial Statements
F-17
<PAGE> 100
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Description Shares Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
UNITED STATES (CONTINUED)
BB&T Corp. ................................................. 200 $ 8,063
Becton, Dickinson & Co. .................................... 200 8,538
Bell Atlantic Corp. ........................................ 800 42,400
BellSouth Corp. (b)......................................... 1,000 49,875
Berkshire Hathaway, Inc., Class B (a)....................... 11 24,675
Bestfoods................................................... 200 10,650
Black & Decker Corp. ....................................... 100 5,606
BMC Software, Inc. ......................................... 100 4,456
Boeing Co. ................................................. 500 16,312
Boston Scientific Corp. (a)................................. 200 5,363
Bristol-Myers Squibb Co. (b)................................ 500 66,906
Browning Ferris Industries, Inc. ........................... 100 2,844
Burlington Northern Santa Fe Corp. ......................... 200 6,750
Burlington Resources, Inc. ................................. 100 3,581
Campbell Soup Co. .......................................... 200 11,000
Capital One Financial Corp. ................................ 100 11,500
Cardinal Health, Inc. ...................................... 100 7,588
Carolina Power & Light Co. ................................. 100 4,706
Case Corp. ................................................. 300 6,544
Caterpillar, Inc. .......................................... 200 9,200
CBS Corp. .................................................. 400 13,100
Cendant Corp. (a)........................................... 500 9,531
Central & South West Corp. ................................. 100 2,744
Charles Schwab Corp. ....................................... 300 16,856
Chase Manhattan Corp. ...................................... 500 34,031
Chevron Corp. .............................................. 400 33,175
Chubb Corp. ................................................ 100 6,488
CIGNA Corp. ................................................ 100 7,731
Cincinnati Financial Corp. ................................. 100 3,663
Cinergy Corp. .............................................. 100 3,438
Cisco Systems, Inc. (a) (b)................................. 800 74,250
Citigroup, Inc. (b)......................................... 1,100 54,450
Clear Channel Communications, Inc. (a)...................... 100 5,450
Clorox Co. ................................................. 100 11,681
Coastal Corp. .............................................. 200 6,988
Coca-Cola Co. (b)........................................... 1,200 80,250
Coca-Cola Enterprises, Inc. ................................ 200 7,150
Colgate - Palmolive Co. .................................... 200 18,575
</TABLE>
See Notes to Financial Statements
F-18
<PAGE> 101
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Description Shares Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
UNITED STATES (CONTINUED)
Columbia/HCA Healthcare Corp. .............................. 400 $ 9,900
Comcast Corp., Class A...................................... 200 11,737
Comerica, Inc. ............................................. 100 6,819
Compaq Computer Corp. ...................................... 900 37,744
Computer Associates International, Inc. .................... 300 12,787
Computer Sciences Corp. (a)................................. 100 6,444
ConAgra, Inc. .............................................. 200 6,300
Conseco, Inc. .............................................. 100 3,056
Consolidated Edison, Inc. .................................. 100 5,288
Cooper Industries, Inc. .................................... 100 4,769
Corning, Inc. .............................................. 100 4,500
Costco Cos., Inc. (a)....................................... 100 7,219
Countrywide Credit Industries, Inc. ........................ 100 5,019
CSX Corp. .................................................. 100 4,150
CVS Corp. .................................................. 200 11,000
DaimlerChrysler, AG Stuttgart............................... 249 23,920
Dana Corp. ................................................. 100 4,088
Dayton Hudson Corp. ........................................ 300 16,275
Deere & Co. ................................................ 100 3,313
Dell Computer Corp. (a) (b)................................. 700 51,231
Delta Air Lines, Inc. ...................................... 200 10,400
Dominion Resources, Inc. ................................... 100 4,675
Dover Corp. ................................................ 100 3,663
Dow Chemical Co. ........................................... 200 18,187
DTE Energy Co. ............................................. 100 4,288
Duke Power Co. ............................................. 200 12,812
Dun & Bradstreet Corp. ..................................... 100 3,156
E. I. Du Pont de Nemours & Co. ............................. 600 31,837
Eastman Kodak Co. .......................................... 200 14,400
Edison International........................................ 200 5,575
Electronic Data Systems Corp. .............................. 300 15,075
Eli Lilly & Co. (b)......................................... 500 44,437
EMC Corp. (a)............................................... 300 25,500
Emerson Electric Co. ....................................... 200 12,100
Enron Corp. ................................................ 200 11,412
Entergy Corp. .............................................. 100 3,113
Equifax, Inc. .............................................. 100 3,419
Exxon Corp. (b)............................................. 1,200 87,750
</TABLE>
See Notes to Financial Statements
F-19
<PAGE> 102
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Description Shares Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
UNITED STATES (CONTINUED)
FDX Corp. (a)............................................... 100 $ 8,900
Federal Home Loan Mortgage Corp. ........................... 300 19,331
Federal National Mortgage Assn. (b)......................... 600 44,400
Federated Department Stores, Inc. (a)....................... 100 4,356
Fifth Third Bancorp......................................... 200 14,262
First Data Corp. ........................................... 200 6,338
First Union Corp. .......................................... 500 30,406
FirstEnergy Corp. .......................................... 100 3,256
Fleet Financial Group, Inc. ................................ 300 13,406
Ford Motor Co. (b).......................................... 700 41,081
Fort James Corp. ........................................... 100 4,000
Fortune Brands, Inc. ....................................... 100 3,163
FPL Group, Inc. ............................................ 100 6,163
Franklin Resources, Inc. ................................... 100 3,200
Fred Meyer, Inc. ........................................... 100 6,025
Frontier Corp. ............................................. 100 3,400
Gannett, Inc. .............................................. 200 12,900
Gap, Inc. .................................................. 300 16,875
Gateway 2000, Inc. (a)...................................... 100 5,119
General Dynamics Corp. ..................................... 100 5,863
General Electric Co. (b).................................... 1,700 173,506
General Mills, Inc. ........................................ 100 7,775
General Motors Corp. ....................................... 400 28,625
Georgia-Pacific Corp. ...................................... 100 5,856
Gillette Co. ............................................... 600 28,987
Golden West Financial Corp. ................................ 100 9,169
Goodyear Tire & Rubber Co. ................................. 200 10,087
GPU, Inc. .................................................. 100 4,419
GTE Corp. .................................................. 500 32,500
Guidant Corp. .............................................. 100 11,025
H. J. Heinz & Co. .......................................... 200 11,325
Halliburton Co. ............................................ 200 5,925
Hartford Financial Services Group, Inc. .................... 100 5,488
HBO & Co. .................................................. 200 5,738
HEALTHSOUTH Corp. (a)....................................... 300 4,631
Hershey Foods Corp. ........................................ 100 6,219
Hewlett-Packard Co. ........................................ 600 40,987
Hilton Hotels Corp. ........................................ 100 1,913
</TABLE>
See Notes to Financial Statements
F-20
<PAGE> 103
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Description Shares Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
UNITED STATES (CONTINUED)
Home Depot, Inc. (b)........................................ 800 $ 48,950
Honeywell, Inc. ............................................ 100 7,531
Household International, Inc. .............................. 200 7,925
Houston Industries, Inc. ................................... 100 3,213
Huntington Bancshares, Inc. ................................ 100 3,006
Illinois Tool Works, Inc. .................................. 200 11,600
IMS Health, Inc. ........................................... 100 7,544
Ingersoll-Rand Co. ......................................... 100 4,694
Intel Corp. (b)............................................. 800 94,850
International Business Machines Corp. (b)................... 400 73,900
International Paper Co. .................................... 200 8,963
Interpublic Group of Cos., Inc. ............................ 100 7,975
ITT Industries, Inc. ....................................... 100 3,975
J.C. Penney, Inc. .......................................... 200 9,375
Jefferson-Pilot Corp. ...................................... 100 7,500
Johnson & Johnson, Inc. (b)................................. 600 50,325
JP Morgan & Co., Inc. ...................................... 100 10,506
Kellogg Co. ................................................ 200 6,825
Keycorp..................................................... 200 6,400
Kimberly-Clark Corp. ....................................... 300 16,350
Kmart Corp. (a)............................................. 300 4,594
Kohl's Corp. (a)............................................ 100 6,144
Kroger Co. (a).............................................. 200 12,100
Latin American Discovery Fund, Inc. (c) .................... 12,800 79,200
Lehman Brothers Holdings, Inc. ............................. 100 4,406
Limited, Inc. .............................................. 100 2,913
Lincoln National Corp. ..................................... 100 8,181
Lockheed Martin Corp. ...................................... 100 8,475
Loews Corp. ................................................ 100 9,825
Lowe's Cos., Inc. .......................................... 200 10,237
Lucent Technologies, Inc. (b)............................... 600 66,000
Marriott International, Inc., Class A....................... 100 2,900
Marsh & McLennan Cos., Inc.................................. 100 5,844
Masco Corp. ................................................ 200 5,750
Mattel, Inc. ............................................... 100 2,281
May Department Stores Co. .................................. 200 12,075
Maytag Corp. ............................................... 100 6,225
MBIA, Inc. ................................................. 100 6,556
</TABLE>
See Notes to Financial Statements
F-21
<PAGE> 104
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Description Shares Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
UNITED STATES (CONTINUED)
MBNA Corp. ................................................. 400 $ 9,975
McDonald's Corp. ........................................... 400 30,650
McGraw-Hill, Inc. .......................................... 100 10,187
MCI Worldcom, Inc. (a) (b).................................. 900 64,575
MediaOne Group, Inc. ....................................... 300 14,100
Medtronic, Inc. ............................................ 300 22,275
Mellon Bank Corp. .......................................... 200 13,750
Mercantile Bancorporation, Inc. ............................ 100 4,613
Merck & Co., Inc. (b)....................................... 600 88,612
Merrill Lynch & Co., Inc. .................................. 200 13,350
MGIC Investment Corp. ...................................... 100 3,981
Micron Technology, Inc. (a)................................. 100 5,056
Microsoft Corp. (a) (b)..................................... 1,300 180,294
Minnesota Mining & Manufacturing Co. ....................... 300 21,337
Mobil Corp. ................................................ 400 34,850
Monsanto Co. ............................................... 300 14,250
Morgan Stanley Asia Pacific Fund, Inc. (c).................. 6,200 43,400
Motorola, Inc. ............................................. 400 24,425
National City Corp. ........................................ 200 14,500
New York Times Co., Class A................................. 100 3,469
Newell Co. ................................................. 100 4,125
Nextel Communications, Inc. (a)............................. 200 4,725
Nike, Inc., Class B......................................... 200 8,113
Norfolk Southern Corp. ..................................... 200 6,338
Northern Trust Corp. ....................................... 100 8,731
Novell, Inc. (a)............................................ 200 3,625
Occidental Petroleum Corp. ................................. 200 3,375
Omnicom Group, Inc. ........................................ 100 5,800
Oracle Corp. (a)............................................ 500 21,562
Owens Illinois, Inc. (a).................................... 100 3,063
PacifiCorp.................................................. 100 2,106
Paychex, Inc. .............................................. 100 5,144
PECO Energy Co. ............................................ 100 4,163
PepsiCo, Inc. .............................................. 800 32,750
Pfizer, Inc. (b)............................................ 600 75,262
PG&E Corp. ................................................. 200 6,300
Pharmacia & Upjohn, Inc. ................................... 300 16,987
Philip Morris Cos., Inc. (b)................................ 1,200 64,200
</TABLE>
See Notes to Financial Statements
F-22
<PAGE> 105
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Description Shares Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
UNITED STATES (CONTINUED)
Phillips Petroleum Co. ..................................... 200 $ 8,525
Pioneer Hi-Bred International, Inc. ........................ 100 2,700
Pitney Bowes, Inc. ......................................... 200 13,212
PNC Bank Corp. ............................................. 200 10,825
PPG Industries, Inc. ....................................... 200 11,650
Praxair, Inc. .............................................. 100 3,525
Procter & Gamble Co. (b) ................................... 600 54,787
Progressive Corp. .......................................... 100 16,937
Providian Financial Corp. .................................. 150 11,250
Public Service Enterprise Group............................. 100 4,000
Quaker Oats Co. ............................................ 100 5,950
Ralston Purina Group........................................ 200 6,475
Raytheon Co., Class B....................................... 200 10,650
Regions Financial Corp. .................................... 100 4,031
Republic New York Corp. .................................... 100 4,556
Rite Aid Corp. ............................................. 100 4,956
RJR Nabisco Holdings Corp. ................................. 100 2,969
Rockwell International Corp. ............................... 100 4,856
Rohm & Haas Co. ............................................ 200 6,025
Royal Dutch Petroleum Co. - ADR (Netherlands) (b)........... 1,100 52,662
Rubbermaid, Inc. ........................................... 100 3,144
SAFECO Corp. ............................................... 100 4,294
Sara Lee Corp. ............................................. 600 16,912
SBC Communications, Inc. (b) ............................... 1,000 53,625
Schering-Plough Corp. ...................................... 700 38,675
Seagate Technology, Inc. (a)................................ 100 3,025
Sears, Roebuck & Co. ....................................... 200 8,500
Sempra Energy............................................... 100 2,538
Service Corp. International................................. 100 3,806
Sherwin-Williams Co. ....................................... 100 2,938
SLM Holding Corp. .......................................... 100 4,800
Southern Co. ............................................... 400 11,625
Southwest Airlines Co. ..................................... 100 2,244
Sprint Corp. ............................................... 300 25,237
Sprint Corp. (PCS Group) ................................... 150 3,469
St. Paul Cos., Inc. ........................................ 200 6,950
Staples, Inc. .............................................. 200 8,738
State Street Corp. ......................................... 100 6,956
</TABLE>
See Notes to Financial Statements
F-23
<PAGE> 106
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Description Shares Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
UNITED STATES (CONTINUED)
Summit Bancorp.............................................. 100 $ 4,369
Sun Microsystems, Inc. (a).................................. 200 17,125
SunAmerica, Inc. ........................................... 200 16,225
SunTrust Banks, Inc. ....................................... 100 7,650
Synovus Financial Corp. .................................... 100 2,438
SYSCO Corp. ................................................ 200 5,488
Tele-Communications, Inc., Class A (a)...................... 300 16,594
Tellabs, Inc. (a)........................................... 200 13,712
Tenet Healthcare Corp. (a).................................. 200 5,250
Texaco, Inc. ............................................... 300 15,862
Texas Instruments, Inc. .................................... 200 17,112
Texas Utilities Co. ........................................ 100 4,669
Textron, Inc. .............................................. 100 7,594
Time Warner, Inc. .......................................... 600 37,237
Times Mirror Co., Class A................................... 100 5,600
TJX Cos., Inc. ............................................. 200 5,800
Torchmark, Inc. ............................................ 100 3,531
Transamerica Corp. ......................................... 100 11,550
Tribune Co. ................................................ 100 6,600
Tricon Global Restaurants, Inc. (a)......................... 100 5,013
TRW, Inc. .................................................. 100 5,619
Tyco International Ltd. .................................... 400 30,175
Unicom Corp. ............................................... 100 3,856
Union Carbide Corp. ........................................ 100 4,250
Union Pacific Corp. ........................................ 100 4,506
Union Planters Corp. - Rights............................... 100 4,531
Unisys Corp. (a)............................................ 100 3,444
United HealthCare Corp. .................................... 100 4,306
United Technologies Corp. .................................. 200 21,750
Unocal Corp. ............................................... 200 5,838
UNUM Corp. ................................................. 100 5,838
US Airways Group, Inc. (a).................................. 100 5,200
US Bancorp.................................................. 400 14,200
US West, Inc. .............................................. 300 19,387
UST, Inc. .................................................. 100 3,488
USX - Marathon Group........................................ 200 6,025
Viacom, Inc., Class B (a)................................... 200 14,800
Wachovia Corp. ............................................. 100 8,744
</TABLE>
See Notes to Financial Statements
F-24
<PAGE> 107
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Description Shares Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
UNITED STATES (CONTINUED)
Waddell & Reed Financial, Inc., Class A (a)................. 5 $ 118
Waddell & Reed Financial, Inc., Class B..................... 24 558
Wal-Mart Stores, Inc. (b) .................................. 1,100 89,581
Walgreen Co. ............................................... 300 17,569
Walt Disney Co. ............................................ 1,100 33,000
Warner-Lambert Co. ......................................... 500 37,594
Washington Mutual, Inc. .................................... 300 11,456
Waste Management, Inc. ..................................... 300 13,987
Wells Fargo & Co. (a)....................................... 800 31,950
Weyerhaeuser Co. ........................................... 200 10,162
Williams Cos., Inc. ........................................ 200 6,238
Winn-Dixie Stores, Inc. .................................... 100 4,488
Wm Wrigley Jr. Co. ......................................... 100 8,956
Xerox Corp. ................................................ 200 23,600
-----------
5,236,596
-----------
TOTAL COMMON AND PREFERRED STOCKS AND EQUIVALENTS 67.5%.......... 13,194,156
-----------
GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS 10.5%
New Zealand Bonds - NZ$ (200,000 par, 8.000% coupon, 04/15/04
maturity)......................................................... 117,668
U.S. Treasury Bonds - US$ (250,000 par, 12.000% coupon, 05/15/05
maturity) (b)..................................................... 347,814
U.S. Treasury Bonds - US$ (100,000 par, 8.125% coupon, 08/15/19
maturity) (b)..................................................... 133,547
U.S. Treasury Bonds - US$ (700,000 par, 6.250% coupon, 08/15/23
maturity) (b)..................................................... 782,362
U.S. Treasury Notes - US$ (350,000 par, 6.250% coupon, 10/31/01
maturity) (b)..................................................... 364,654
U.S. Treasury Notes - US$ (100,000 par, 7.250% coupon, 05/15/04
maturity) (b)..................................................... 112,078
U.S. Treasury Notes - US$ (210,000 par, 3.625% coupon, 01/15/08
maturity) (b)..................................................... 205,997
-----------
TOTAL GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS................ 2,064,120
-----------
TOTAL LONG-TERM INVESTMENTS 78.0%
(Cost $13,143,808)................................................ 15,258,276
-----------
SHORT-TERM INVESTMENTS 25.0%
COMMERCIAL PAPER 1.3%
Motorola, Inc. - US$ (250,000 par, 5.300% coupon, 01/26/99 maturity)
(b)............................................................... 249,089
-----------
REPURCHASE AGREEMENT 7.4%
State Street Bank & Trust Co. - US$ (1,441,000 par collateralized by
U.S. Government Obligations in a pooled cash account, dated
12/31/98, to be sold on 01/04/99 at $1,441,640) (b)............... 1,441,000
-----------
GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS 16.3%
Japan Treasury Bill - JPY (40,000,000 par, .061% yield, 02/22/99
maturity)......................................................... 353,794
Canada Government - CA$ (300,000 par, 4.695% yield, 01/11/99
maturity) (b)....................................................... 299,576
Federal Farm Credit Bank Discount Note - US$ (250,000 par, 4.322%
yield, 01/08/99 maturity) (b)....................................... 249,763
</TABLE>
See Notes to Financial Statements
F-25
<PAGE> 108
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Description Value
- ---------------------------------------------------------------------------
<S> <C>
GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS (CONTINUED)
Federal Home Loan Bank Consolidated Discount Note - US$
(300,000 par, 4.919% yield, 01/20/99 maturity).............. $ 299,193
Federal Home Loan Mortgage Discount Note - US$ (250,000 par,
4.720% yield, 01/22/99 maturity) (b)........................ 249,290
Federal National Mortgage Association Discount Note - US$
(350,000 par, 4.527% yield, 01/08/99 maturity).............. 349,653
Federal National Mortgage Association Discount Note - US$
(400,000 par, 4.756% yield, 01/26/99 maturity) (b).......... 398,647
U.S. Treasury Bills - US$ (1,000,000 par, 3.451% yield,
01/07/99 maturity) (b)...................................... 999,338
-----------
TOTAL GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS 16.3%.. 3,199,254
-----------
TOTAL SHORT-TERM INVESTMENTS 25.0%
(Cost $4,870,107)......................................... 4,889,343
-----------
TOTAL INVESTMENTS 103.0%
(Cost $18,013,915)........................................ 20,147,619
FOREIGN CURRENCY 0.2% (VARIOUS DENOMINATIONS)
(Cost $33,506)............................................ 33,427
LIABILITIES IN EXCESS OF OTHER ASSETS (3.2%)............... (620,607)
-----------
NET ASSETS 100.0%.......................................... $19,560,439
===========
</TABLE>
(a) Non-income producing security as this stock currently does not declare
dividends.
(b) Assets segregated as collateral for open futures transactions and forward
commitments.
(c) Related party security. See Notes to Financial Statements.
(d) European assets as of December 31, 1998 were valued based on
country-specific currencies. On January 1, 1999, the currencies of countries
participating in the European economic and monetary union converted to the
euro.
ADR - American Depository Receipt
See Notes to Financial Statements
F-26
<PAGE> 109
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $18,013,915)........................ $20,147,619
Foreign Currency (Cost $33,506)............................. 33,427
Cash........................................................ 632
Deposit on Variation Margin................................. 69,393
Receivables:
Fund Shares Sold.......................................... 1,472,104
Variation Margin on Futures............................... 108,140
Interest.................................................. 31,738
Dividends................................................. 22,975
Investments Sold.......................................... 3,051
Forward Commitments and Foreign Currency Contracts.......... 86,016
Unamortized Organizational Costs............................ 1,040
Other....................................................... 2,655
-----------
Total Assets.......................................... 21,978,790
-----------
LIABILITIES:
Payables:
Fund Shares Repurchased................................... 2,199,760
Distributor and Affiliates................................ 44,844
Investments Purchased..................................... 29,830
Investment Advisory Fee................................... 16,774
Accrued Expenses............................................ 95,737
Trustees' Deferred Compensation and Retirement Plans........ 31,406
-----------
Total Liabilities..................................... 2,418,351
-----------
NET ASSETS.................................................. $19,560,439
===========
NET ASSETS CONSIST OF:
Capital..................................................... $17,041,996
Net Unrealized Appreciation................................. 2,216,687
Accumulated Net Realized Gain............................... 324,917
Accumulated Net Investment Loss............................. (23,161)
-----------
NET ASSETS.................................................. $19,560,439
===========
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $8,483,190 and 820,473 shares of
beneficial interest issued and outstanding)............. $ 10.34
Maximum sales charge (4.75%* of offering price)......... .52
-----------
Maximum offering price to public........................ $ 10.86
===========
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $9,629,470 and 959,264 shares of
beneficial interest issued and outstanding)............. $ 10.04
===========
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $1,447,779 and 143,961 shares of
beneficial interest issued and outstanding)............. $ 10.06
===========
</TABLE>
*On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
F-27
<PAGE> 110
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 457,179
Dividends (Net of foreign withholding taxes of $19,297)..... 332,951
----------
Total Income............................................ 790,130
----------
EXPENSES:
Custody..................................................... 300,620
Investment Advisory Fee..................................... 226,999
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $27,721, $99,562 and $16,491,
respectively)............................................. 143,774
Shareholder Services........................................ 142,503
Reports to Shareholders..................................... 72,412
Registration and Filing Fees................................ 42,700
Audit....................................................... 29,524
Trustees' Fees and Expenses................................. 12,441
Amortization of Organizational Costs........................ 3,289
Other....................................................... 46,420
----------
Total Expenses.......................................... 1,020,682
----------
NET INVESTMENT LOSS......................................... $ (230,552)
==========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $2,308,819
Futures................................................... 442,145
Forward Commitments....................................... 291,512
Foreign Currency Transactions............................. 176,099
----------
Net Realized Gain........................................... 3,218,575
----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 2,108,124
----------
End of the Period:
Investments............................................. 2,133,704
Futures................................................. (14,007)
Forward Commitments..................................... 67,630
Forward Currency Contracts.............................. 28,841
Foreign Currency Translation............................ 519
----------
2,216,687
----------
Net Unrealized Appreciation During the Period............... 108,563
----------
NET REALIZED AND UNREALIZED GAIN............................ $3,327,138
==========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $3,096,586
==========
</TABLE>
See Notes to Financial Statements
F-28
<PAGE> 111
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Loss................................... $ (230,552) $ (247,078)
Net Realized Gain..................................... 3,218,575 2,539,774
Net Unrealized Appreciation/Depreciation During the
Period.............................................. 108,563 (471,761)
----------- -----------
Change in Net Assets from Operations.................. 3,096,586 1,820,935
----------- -----------
Distributions in Excess of Net Investment Income*..... (76,480) -0-
Distributions from Net Realized Gain*................. (2,388,475) (2,665,787)
----------- -----------
Total Distributions................................... (2,464,955) (2,665,787)
----------- -----------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES... 631,631 (844,852)
----------- -----------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold............................. 6,233,096 6,116,272
Net Asset Value of Shares Issued Through Dividend
Reinvestment........................................ 2,280,988 2,487,060
Cost of Shares Repurchased............................ (12,579,170) (4,866,248)
----------- -----------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.... (4,065,086) 3,737,084
----------- -----------
TOTAL INCREASE/DECREASE IN NET ASSETS................. (3,433,455) 2,892,232
NET ASSETS:
Beginning of the Period............................... 22,993,894 20,101,662
----------- -----------
End of the Period (Including accumulated net
investment loss of $23,161 and $229,219,
respectively)....................................... $19,560,439 $22,993,894
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Year Ended Year Ended
*Distributions by Class December 31, 1998 December 31, 1997
- --------------------------------------------------------------------------
<S> <C> <C>
Distributions in Excess of
Net Investment Income:
Class A Shares.................... $ (76,480) $ -0-
Class B Shares.................... -0- -0-
Class C Shares.................... -0- -0-
----------- -----------
$ (76,480) $ -0-
=========== ===========
Distributions from Net Realized
Gain:
Class A Shares.................... $(1,080,329) $(1,273,008)
Class B Shares.................... (1,144,103) (1,192,389)
Class C Shares.................... (164,043) (200,390)
----------- -----------
$(2,388,475) $(2,665,787)
=========== ===========
</TABLE>
See Notes to Financial Statements
F-29
<PAGE> 112
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
May 16, 1994
(Commencement
Year Ended December 31, of Investment
------------------------------------- Operations) to
Class A Shares 1998(b) 1997 1996(b) 1995 December 31, 1994
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period.................. $10.162 $10.530 $ 10.15 $ 9.19 $ 9.44
------- ------- ------- ------- -------
Net Investment Income/Loss.... (.066) (.088) -0- .08 .10
Net Realized and Unrealized
Gain/Loss................... 1.643 1.014 1.242 1.1375 (.2475)
------- ------- ------- ------- -------
Total from Investment
Operations.................. 1.577 .926 1.242 1.2175 (.1475)
------- ------- ------- ------- -------
Less:
Distributions from and in
Excess of Net Investment
Income.................... .072 -0- -0- .0775 .075
Distributions from and in
Excess of Net Realized
Gain...................... 1.328 1.294 .862 .18 .0275
------- ------- ------- ------- -------
Total Distributions........... 1.400 1.294 .862 .2575 .1025
------- ------- ------- ------- -------
Net Asset Value, End of the
Period...................... $10.339 $10.162 $10.530 $ 10.15 $ 9.19
======= ======= ======= ======= =======
Total Return* (a)............. 15.84% 8.94% 12.44% 13.30% (1.57%)**
Net Assets at End of the
Period (In millions)........ $ 8.5 $ 11.2 $ 8.5 $ 15.5 $ 11.5
Ratio of Expenses to Average
Net Assets*................. 4.11% 3.66% 2.87% 2.79% 2.75%
Ratio of Net Investment
Income/Loss to Average Net
Assets*..................... (.60%) (.67%) .00% .81% 1.54%
Portfolio Turnover............ 222% 231% 91% 135% 50%**
* If certain expenses had not been assumed by Van Kampen, total return would have been
lower and the ratios would have been as follows:
Ratio of Expenses to Average
Net Assets.................. N/A N/A 3.17% 3.68% 2.76%
Ratio of Net Investment
Income/Loss to Average Net
Assets...................... N/A N/A (.30%) (.07%) 1.53%
</TABLE>
** Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) Based on average shares outstanding.
N/A -- Not Applicable.
See Notes to Financial Statements
F-30
<PAGE> 113
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
May 16, 1994
(Commencement
Year Ended December 31, of Investment
------------------------------------- Operations) to
Class B Shares 1998(b) 1997 1996(b) 1995 December 31, 1994
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period.................. $ 9.911 $10.379 $ 10.10 $ 9.17 $ 9.44
------- ------- ------- ------- -------
Net Investment Income/Loss.... (.151) (.146) (.106) (.01) .01
Net Realized and Unrealized
Gain/Loss................... 1.606 .972 1.247 1.1375 (.2065)
------- ------- ------- ------- -------
Total from Investment
Operations.................. 1.455 .826 1.141 1.1275 (.1965)
------- ------- ------- ------- -------
Less:
Distributions from and in
Excess of Net Investment
Income...................... -0- -0- -0- .0175 .046
Distributions from and in
Excess of Net Realized
Gain...................... 1.328 1.294 .862 .18 .0275
------- ------- ------- ------- -------
Total Distributions........... 1.328 1.294 .862 .1975 .0735
------- ------- ------- ------- -------
Net Asset Value, End of the
Period...................... $10.038 $ 9.911 $10.379 $ 10.10 $ 9.17
======= ======= ======= ======= =======
Total Return* (a)............. 14.96% 8.10% 11.51% 12.31% (2.09%)**
Net Assets at End of the
Period
(In millions)............... $ 9.6 $ 10.0 $ 9.9 $ 8.1 $ 7.4
Ratio of Expenses to Average
Net Assets*................. 4.89% 4.42% 3.76% 3.73% 3.92%
Ratio of Net Investment
Income/Loss to Average Net
Assets*..................... (1.42%) (1.45%) (1.01%) (.09%) .13%
Portfolio Turnover............ 222% 231% 91% 135% 50%**
*If certain expenses had not been assumed by Van Kampen, total return would have been
lower and the ratios would have been as follows:
Ratio of Expenses to Average
Net Assets.................. N/A N/A 4.06% 4.61% 3.93%
Ratio of Net Investment
Income/Loss to Average Net
Assets...................... N/A N/A (1.30%) (.97%) .12%
</TABLE>
** Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) Based on average shares outstanding.
N/A -- Not Applicable.
See Notes to Financial Statements
F-31
<PAGE> 114
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
May 16, 1994
(Commencement
Year Ended December 31, of Investment
------------------------------------- Operations) to
Class C Shares 1998(b) 1997 1996(b) 1995 December 31, 1994
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period.................. $ 9.927 $10.395 $ 10.12 $ 9.20 $ 9.44
------- ------- ------- ------- -------
Net Investment Income/Loss.... (.147) (.139) (.104) (.02) .05
Net Realized and Unrealized
Gain/Loss................... 1.605 .965 1.241 1.1375 (.2165)
------- ------- ------- ------- -------
Total from Investment
Operations.................. 1.458 .826 1.137 1.1175 (.1665)
------- ------- ------- ------- -------
Less:
Distributions from and in
Excess of Net Investment
Income.................... -0- -0- -0- .0175 .046
Distributions from and in
Excess of Net Realized
Gain...................... 1.328 1.294 .862 .18 .0275
------- ------- ------- ------- -------
Total Distributions........... 1.328 1.294 .862 .1975 .0735
------- ------- ------- ------- -------
Net Asset Value, End of the
Period...................... $10.057 $ 9.927 $10.395 $ 10.12 $ 9.20
======= ======= ======= ======= =======
Total Return* (a)............. 14.93% 8.09% 11.49% 12.16% (1.77%)**
Net Assets at End of the
Period (In millions)........ $ 1.4 $ 1.7 $ 1.7 $ 1.9 $ 1.3
Ratio of Expenses to Average
Net Assets*................. 4.91% 4.46% 3.78% 3.79% 3.36%
Ratio of Net Investment
Income/Loss to Average Net
Assets*..................... (1.38%) (1.50%) (.99%) (.18%) .80%
Portfolio Turnover............ 222% 231% 91% 135% 50%**
* If certain expenses had not been assumed by Van Kampen, total return would have been
lower and the ratios would have been as follows:
Ratio of Expenses to Average
Net Assets.................. N/A N/A 4.07% 4.67% 3.38%
Ratio of Net Investment
Income/Loss to Average Net
Assets...................... N/A N/A (1.28%) (1.06%) .78%
</TABLE>
** Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) Based on average shares outstanding.
N/A -- Not Applicable.
See Notes to Financial Statements
F-32
<PAGE> 115
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Global Managed Assets Fund (the "Fund") is organized as a Delaware
business trust, and is registered as a non-diversified open-end management
investment company under the Investment Company Act of 1940, as amended. The
Fund's investment objective is to seek total return through a managed balance of
foreign and domestic equity and debt securities. The Fund commenced investment
operations on May 16, 1994, with three classes of beneficial interest, Class A,
Class B and Class C shares.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. SECURITY VALUATION--Investments in securities listed on a securities exchange
are valued at their sale price as of the close of such securities exchange. The
Fund's security valuation methodology, for unlisted securities and listed
securities for which the last sale price is not available, was changed in 1998
from bid side pricing to the mean of the bid and asked prices. The impact of
this change, which was not material, is included as a component of the change in
unrealized appreciation/depreciation for the year ended December 31, 1998. Fixed
income securities are stated at value using market quotations or indications of
value obtained from an independent pricing service. For those securities where
quotations or prices are not available, valuations are determined in accordance
with procedures established in good faith by the Board of Trustees. Short-term
securities with remaining maturities of 60 days or less are valued at amortized
cost.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements, which are short-term
investments in which the Fund acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified price.
The Fund may invest independently in repurchase agreements, or transfer
uninvested cash balances into a pooled cash account along with other investment
companies advised by Van Kampen Asset Management Inc. (the "Adviser") or its
affiliates, the daily aggregate of which is invested in repurchase
F-33
<PAGE> 116
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
agreements. Repurchase agreements are fully collateralized by the underlying
debt security. The Fund will make payment for such securities only upon physical
delivery or evidence of book entry transfer to the account of the custodian
bank. The seller is required to maintain the value of the underlying security at
not less than the repurchase proceeds due the Fund.
C. INCOME AND EXPENSES--Dividend income is recorded on the ex-dividend date and
interest income is recorded on an accrual basis. Original issue discounts on
debt securities purchased are amortized over the life of the security. Premiums
on debt securities are not amortized. Market discounts are recognized at the
time of sale as realized gains for book purposes and ordinary income for tax
purposes. Expenses of the Fund are allocated on a pro rata basis to each class
of shares, except for distribution and service fees and transfer agency costs
which are unique to each class of shares.
D. FOREIGN CURRENCY TRANSLATION--Assets and liabilities denominated in foreign
currencies and commitments under forward contracts are translated into U.S.
dollars based on quoted exchange rates as of noon Eastern Time. Purchases and
sales of portfolio securities are translated at the rate of exchange prevailing
when such securities were acquired or sold. Income and expenses are translated
at rates prevailing when accrued. Realized and unrealized gains and losses on
securities are not segregated for financial reporting purposes between amounts
arising from changes in exchange rates and amounts arising from changes in the
market prices of securities. Realized gain and loss on foreign currency includes
the net realized amount from the sale of currency and the amount realized
between trade date and settlement date on security transactions.
E. ORGANIZATIONAL COSTS--The Fund has reimbursed Van Kampen Funds Inc. or its
affiliates (collectively "Van Kampen") for costs incurred in connection with the
Fund's organization in the amount of $15,000. These costs are being amortized on
a straight line basis over the 60-month period ending May 15, 1999. The Adviser
has agreed that in the event any of the initial shares of the Fund originally
purchased by Van Kampen are redeemed during the amortization period, the Fund
will be reimbursed for any unamortized organizational costs in the same
proportion as the number of shares redeemed bears to the number of initial
shares held at the time of redemption.
F. FEDERAL INCOME TAXES--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute
F-34
<PAGE> 117
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
substantially all of its taxable income to its shareholders. Therefore, no
provision for federal income taxes is required.
At December 31, 1998, for federal income tax purposes cost of long- and
short-term investments, including foreign currencies, is $18,173,307, the
aggregate gross unrealized appreciation is $2,714,081 and the aggregate gross
unrealized depreciation is $706,342, resulting in net unrealized appreciation on
long- and short-term investments, including foreign currencies of $2,007,739.
Net realized gains or losses may differ for financial reporting and tax
purposes primarily as a result of the timing of gain/loss recognition on wash
sales, straddle losses and unsettled forward contracts and the mark to market of
passive foreign investment companies and open forward currency contracts at
December 31, 1998.
G. DISTRIBUTION OF INCOME AND GAINS--The Fund declares and pays dividends
annually from net investment income and from net realized gains on securities,
if any. Net investment income for federal income tax purposes includes gains and
losses realized on certain transactions in foreign currencies. These realized
gains and losses are included as net realized gains or losses for financial
reporting purposes.
Due to inherent differences in the recognition of income, expenses and
realized gains/losses under generally accepted accounting principles and for
federal income tax purposes, permanent differences between book and tax basis
reporting have been identified and appropriately reclassified. As a result,
permanent differences of $513,090 related to net realized foreign currency gains
have been reclassified from accumulated net realized gain to accumulated net
investment loss.
For federal income tax purposes, the following information is furnished with
respect to the distributions paid by the Fund during its taxable year ended
December 31, 1998. The Fund designated and paid $1,481,637 as a 20% rate gain
distribution. Shareholders were sent a 1998 Form 1099-DIV in January 1999
representing their proportionate share of the capital gain distribution to be
reported on their income tax returns.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly. The Adviser has entered into a subadvisory agreement with Morgan
Stanley Dean Witter Investment Management Inc. (the "Subadviser"), who provides
advisory services to the Fund and the Adviser with respect to the Fund's
investment in foreign securities.
F-35
<PAGE> 118
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
Investment advisory fees are calculated monthly, based on the average daily net
assets of the Fund at the annual rate of 1.00%. The Adviser pays 50% of its
investment advisory fee to the Subadviser.
For the year ended December 31, 1998, the Fund recognized expenses of
approximately $1,800 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
For the year ended December 31, 1998, the Fund recognized expenses of
approximately $39,700 representing Van Kampen's cost of providing accounting
services to the Fund.
Van Kampen Investor Services Inc., an affiliate of the Adviser, serves as
the shareholder servicing agent for the Fund. For the year ended December 31,
1998, the Fund recognized expenses of approximately $107,400. Beginning in 1998,
the transfer agency fees are determined through negotiations with the Fund's
Board of Trustees and are based on competitive market benchmarks.
Certain officers and trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Fund. The maximum
annual benefit per trustee under the plan is $2,500.
During the period, the Fund owned shares of the following Morgan Stanley
Funds which are managed by the Subadviser:
<TABLE>
<CAPTION>
TRANSACTIONS
DURING THE PERIOD
---------------------
% OF NET ASSETS COST OF PROCEEDS
AT DECEMBER 31, 1998 PURCHASES OF SALES
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Latin American Discovery Fund... .41% -0- -0-
Morgan Stanley Asia Pacific
Fund.......................... .22% -0- -0-
</TABLE>
At December 31, 1998, Van Kampen owned 10,604, 53 and 53 shares of Classes
A, B and C of the Fund, respectively.
F-36
<PAGE> 119
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
3. CAPITAL TRANSACTIONS
The Fund has outstanding three classes of shares of beneficial interest, Classes
A, B and C, each with a par value of $.01 per share. There are an unlimited
number of shares of each class authorized.
At December 31, 1998, capital aggregated $6,809,856, $8,959,090 and
$1,273,050 for Classes A, B and C, respectively. For the year ended December 31,
1998, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................... 425,556 $ 4,563,674
Class B.................................... 85,315 901,857
Class C.................................... 73,498 767,565
---------- ------------
Total Sales.................................. 584,369 $ 6,233,096
========== ============
Dividend Reinvestment:
Class A.................................... 108,757 $ 1,109,902
Class B.................................... 105,262 1,037,178
Class C.................................... 13,537 133,908
---------- ------------
Total Dividend Reinvestment.................. 227,556 $ 2,280,988
========== ============
Repurchases:
Class A.................................... (819,174) $ (8,755,915)
Class B.................................... (244,540) (2,594,678)
Class C.................................... (116,317) (1,228,577)
---------- ------------
Total Repurchases............................ (1,180,031) $(12,579,170)
========== ============
</TABLE>
F-37
<PAGE> 120
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
At December 31, 1997, capital aggregated $9,892,195, $9,614,733 and
$1,600,154 for Classes A, B and C, respectively. For the year ended December 31,
1997, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A......................................... 326,563 $ 3,557,326
Class B......................................... 182,617 1,967,735
Class C......................................... 54,786 591,211
-------- -----------
Total Sales....................................... 563,966 $ 6,116,272
======== ===========
Dividend Reinvestment:
Class A......................................... 122,002 $ 1,233,093
Class B......................................... 110,121 1,086,423
Class C......................................... 16,955 167,544
-------- -----------
Total Dividend Reinvestment....................... 249,078 $ 2,487,060
======== ===========
Repurchases:
Class A......................................... (151,742) $(1,673,088)
Class B......................................... (233,838) (2,537,474)
Class C......................................... (60,449) (655,686)
-------- -----------
Total Repurchases................................. (446,029) $(4,866,248)
======== ===========
</TABLE>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). Class B shares will
automatically convert to Class A shares after the eighth year following
purchase. The CDSC will be imposed on most redemptions made within five years of
the purchase for Class B and one year of the purchase for Class C as detailed in
the following schedule.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
-----------------------
YEAR OF REDEMPTION CLASS B CLASS C
- -------------------------------------------------------------------------
<S> <C> <C>
First............................................ 4.00% 1.00%
Second........................................... 4.00% None
Third............................................ 3.00% None
Fourth........................................... 2.50% None
Fifth............................................ 1.50% None
Sixth and Thereafter............................. None None
</TABLE>
F-38
<PAGE> 121
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
For the year ended December 31, 1998, Van Kampen, as Distributor for the
Fund, received net commissions on sales of the Fund's Class A shares of
approximately $4,200 and CDSC on the redeemed shares of approximately $33,900.
Sales charges do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments and forward commitments, were $35,690,982 and
$39,588,566, respectively.
5. DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio, manage the portfolio's effective yield, foreign currency exposure, or
generate potential gain. All of the Fund's portfolio holdings, including
derivative instruments, are marked to market each day with the change in value
reflected in unrealized appreciation/depreciation. Upon disposition, a realized
gain or loss is recognized accordingly, except when exercising a call option
contract or taking delivery of a security underlying a futures or forward
contract. In these instances, the recognition of gain or loss is postponed until
the disposal of the security underlying the contract. Forward commitments are
privately negotiated transactions between the Fund and dealers. Purchasing
securities on a forward basis involves a risk that the market value at the time
of delivery may be lower than the agreed upon purchase price resulting in an
unrealized loss. Selling securities on a forward basis involves different risks
and can result in losses more significant than those arising from the purchase
of such securities. Risks may arise as a result of the potential inability of
the counterparties to meet the terms of their commitments. While forward
commitments are outstanding, the Fund maintains sufficient collateral of cash or
securities in a segregated account with its custodian.
Summarized on the following pages are the specific types of derivative
financial instruments used by the Fund.
A. FORWARD PURCHASE COMMITMENTS--The Fund trades certain securities under the
terms of forward commitments, whereby the settlement occurs at a specific future
date. The commitments are marked to market on a daily basis with changes in
value reflected as a component of unrealized appreciation or depreciation on
forward commitments.
F-39
<PAGE> 122
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
The following forward purchase commitments were outstanding as of December 31,
1998:
<TABLE>
<CAPTION>
PAR AMOUNT
IN LOCAL UNREALIZED
CURRENCY APPRECIATION/
(000) DESCRIPTION COUPON MATURITY DEPRECIATION
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CANADA (GOVERNMENT OF)
150-CA$ Settlement 01/14/99.......... 8.750% 12/01/05 $ 2,313
200-CA$ Settlement 03/25/99.......... 5.250 09/01/03 (374)
DENMARK (KINGDOM OF)
700-DKK Settlement 02/26/99.......... 8.000 05/15/03 827
FRANCE (REPUBLIC OF)
250-ECU Settlement 01/14/99.......... 5.250 04/25/08 7,179
350-ECU Settlement 02/12/99.......... 4.500 07/12/03 4,151
FRANCE (GOVERNMENT OF)
200-ECU Settlement 02/19/99.......... 8.250 04/25/22 19,646
JAPAN
25,000-JPY Settlement 02/26/99.......... 3.400 03/22/04 (10,602)
SPAIN (GOVERNMENT OF)
300-ECU Settlement 02/19/99.......... 5.150 07/30/09 18,301
SWEDEN (KINGDOM OF)
700-SEK Settlement 02/26/99.......... 6.000 02/09/05 1,380
UNITED KINGDOM
330-GBP Settlement 02/19/99.......... 7.750 09/08/06 23,061
450-ECU Settlement 02/12/99.......... 4.250 01/29/01 1,748
-------
Total Forward Purchase Commitments
(Cost $3,331,365).................................... $67,630
=======
</TABLE>
B. CLOSED BUT UNSETTLED FORWARD COMMITMENTS--In certain situations, the Fund has
entered into closing transactions for outstanding forward commitments prior to
settlement of the obligation. In doing so, the Fund realizes a gain or loss on
the transaction at the time the forward commitment is closed. However,
settlement of both the purchase and sale is still scheduled to occur in the
denominated foreign currency at a future date. The net foreign currency
difference on the trade is marked to market daily and included as a component of
unrealized appreciation/depreciation on foreign currency translation.
F-40
<PAGE> 123
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
The following closed but unsettled forward transactions were still
outstanding as of December 31, 1998.
<TABLE>
<CAPTION>
LOCAL CURRENCY US$ NET
-------------------- UNREALIZED RECEIVABLE
DESCRIPTION/CURRENCY RECEIVABLE PAYABLE GAIN/LOSS (PAYABLE)
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AUSTRALIA (COMMONWEALTH) -- Australian Dollar
(70,000 par, 7.500%, 07/15/05,
settlement 01/21/99)......... 80,364 81,107 $ 15 $ (455)
FRANCE (REPUBLIC OF) -- ECU
(50,000 par, 4.500%, 07/12/03,
settlement 02/12/99)......... 53,376 52,990 (2) 452
FRANCE (GOVERNMENT OF) -- ECU
(450,000 par, 7.500%, 04/25/05,
settlement 01/28/99)......... 563,305 568,026 (46) (5,540)
(600,000 par, 8.250%, 04/25/22,
settlement 02/19/99)......... 883,746 887,703 18 (4,642)
UNITED KINGDOM -- British Pound
(100,000 par, 4.250%, 01/29/01,
settlement 02/12/99)......... 101,733 101,963 1 (270)
---- --------
$(14) $(10,455)
==== ========
</TABLE>
C. FORWARD CURRENCY CONTRACTS--A forward currency contract is a commitment to
purchase or sell a foreign currency at a future date at a negotiated forward
rate. Upon the settlement of the contract, a realized gain or loss is recognized
and is included as a component of realized gain/loss on forwards.
F-41
<PAGE> 124
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
The following forward currency contracts were outstanding as of December 31,
1998:
<TABLE>
<CAPTION>
UNREALIZED
CURRENT APPRECIATION/
DESCRIPTION VALUE DEPRECIATION
- -------------------------------------------------------------------------
<S> <C> <C>
LONG CONTRACTS
Australian Dollar,
130,000 expiring 01/12/99................. $ 79,672 $ 2,813
British Pound Sterling,
145,000 expiring 01/08/99................. 240,840 (2,079)
90,000 expiring 01/14/99.................. 149,457 (550)
Canadian Dollar,
150,000 expiring 01/08/99................. 98,137 392
105,000 expiring 01/13/99................. 68,697 828
Danish Krone,
1,535,000 expiring 01/11/99............... 241,260 8,966
350,000 expiring 01/11/99................. 55,011 19
Deutsche Mark,
182,780 expiring 01/15/99................. 109,751 99
182,624 expiring 01/15/99................. 109,658 1,513
1,295,000 expiring 01/19/99............... 777,742 8,100
1,225,000 expiring 01/19/99............... 735,702 8,928
European Currency Unit,
180,000 expiring 01/19/99................. 211,395 1,609
190,000 expiring 01/19/99................. 223,139 426
375,000 expiring 01/19/99................. 440,407 (3,091)
Japanese Yen,
10,771,500 expiring 01/11/99.............. 95,420 2,562
28,000,000 expiring 01/21/99.............. 248,370 15,009
39,000,000 expiring 01/21/99.............. 345,944 19,207
1,094,000 expiring 01/29/99............... 9,715 165
24,848,590 expiring 02/04/99.............. 220,826 3,817
1,199,272 expiring 02/08/99............... 10,663 184
15,902,128 expiring 02/08/99.............. 141,394 3,575
5,134,415 expiring 02/26/99............... 45,761 2,788
25,604,850 expiring 03/10/99.............. 228,584 5,804
7,607,160 expiring 03/10/99............... 67,912 1,912
Singapore Dollar,
47,386 expiring 03/03/99.................. 28,864 (84)
65,000 expiring 03/08/99.................. 39,606 (120)
</TABLE>
F-42
<PAGE> 125
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNREALIZED
CURRENT APPRECIATION/
DESCRIPTION VALUE DEPRECIATION
- -------------------------------------------------------------------------
<S> <C> <C>
Swedish Krona,
850,000 expiring 01/15/99................. $ 104,686 $ 244
Swiss Franc,
50,000 expiring 01/15/99.................. 36,457 509
---------- --------
5,165,070 83,545
---------- --------
SHORT CONTRACTS
Australian Dollar,
40,000 expiring 01/12/99.................. 24,514 (882)
British Pound Sterling,
30,000 expiring 01/08/99.................. 49,829 249
Danish Krone,
1,100,000 expiring 01/11/99............... 172,890 (1,577)
Deutsche Mark,
60,776 expiring 01/15/99.................. 36,493 (545)
French Franc,
262,000 expiring 02/04/99................. 46,941 (992)
Japanese Yen,
7,221,000 expiring 01/11/99............... 63,968 (3,968)
3,550,500 expiring 01/11/99............... 31,452 (1,452)
4,000,000 expiring 01/21/99............... 35,481 (2,039)
1,094,000 expiring 01/29/99............... 9,715 (362)
9,126,000 expiring 02/04/99............... 81,101 (455)
15,722,590 expiring 02/04/99.............. 139,724 (9,724)
8,518,140 expiring 02/08/99............... 75,739 (1,739)
8,583,260 expiring 02/08/99............... 76,318 (2,318)
40,000,000 expiring 02/22/99.............. 356,319 (15,314)
5,134,415 expiring 02/26/99............... 45,761 (1,162)
26,694,000 expiring 03/10/99.............. 238,307 (12,073)
New Zealand Dollar,
110,000 expiring 03/02/99................. 57,927 439
115,000 expiring 03/02/99................. 60,560 (254)
Singapore Dollar,
47,386 expiring 03/03/99.................. 28,864 136
65,000 expiring 03/08/99.................. 39,606 271
</TABLE>
F-43
<PAGE> 126
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNREALIZED
CURRENT APPRECIATION/
DESCRIPTION VALUE DEPRECIATION
- -------------------------------------------------------------------------
<S> <C> <C>
Swiss Franc,
150,000 expiring 01/15/99................. $ 109,370 $ 282
150,000 expiring 01/15/99................. 109,370 (1,225)
---------- --------
$1,890,249 (54,704)
---------- --------
$ 28,841
========
</TABLE>
D. FUTURES CONTRACTS--A futures contract is an agreement involving the delivery
of a particular asset on a specified future date at an agreed upon price. The
Fund generally invests in stock index futures as a substitute for purchasing and
selling specific securities. Upon entering into futures contracts, the Fund
maintains, in a segregated account with its custodian, securities with a value
equal to its obligation under the futures contracts. During the period the
futures contract is open, payments are periodically received from or made to the
broker based upon changes in the value of the contract (the variation margin).
The risk of loss associated with a futures contract is in excess of the
variation margin reflected on the Statement of Assets and Liabilities.
Transactions in futures contracts for the year ended December 31, 1998, were
as follows:
<TABLE>
<CAPTION>
CONTRACTS
- ----------------------------------------------------------------------
<S> <C>
Outstanding at December 31, 1997............................ 19
Futures Opened.............................................. 116
Futures Closed.............................................. (133)
Futures Split (Matif CAC 40 4-for-1)........................ 3
----
Outstanding at December 31, 1998............................ 5
====
</TABLE>
F-44
<PAGE> 127
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
The futures contracts outstanding as of December 31, 1998, and the
descriptions and unrealized appreciation/depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION/
CONTRACTS DEPRECIATION
- -------------------------------------------------------------------------
<S> <C> <C>
OSA NIKKEI 225
March 1999--Long Contracts
(Current Notional Value of 13,700,000 JPY
per contract)........................... 2 $ (20,548)
TSE TOPIX
March 1999--Short Contracts
(Current Notional Value of 10,760,000 JPY
per contract)........................... 2 8,446
Matif CAC 40
March 1999--Short Contracts
(Current Notional Value of 197,175 FFR per
contract)............................... 1 (1,905)
- -----------
5 $ (14,007)
= ===========
</TABLE>
6. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% for Class A and 1.00% each for
Class B and Class C shares are accrued daily. Included in these fees for the
year ended December 31, 1998, are payments retained by Van Kampen of
approximately $47,800.
F-45
<PAGE> 128
PART C. OTHER INFORMATION
ITEM 23. EXHIBITS.
<TABLE>
<C> <S> <C>
(a) (1) First Amended and Restated Agreement and Declaration of
Trust(2)
(2) Certificate of Amendment(2)
(3) Second Certificate of Amendment(6)
(4) Amended and Restated Certificate of Designation(5)
(5) Second Amended and Restated Certificate of Designation(6)
(b) Amended and Restated Bylaws(2)
(c) (1) Specimen Class A Share Certificate(3)
(2) Specimen Class B Share Certificate(3)
(3) Specimen Class C Share Certificate(3)
(d) (1) Investment Advisory Agreement(5)
(2) Investment Sub-Advisory Agreement(5)
(e) (1) Distribution and Service Agreement(5)
(2) Form of Dealer Agreement(3)
(3) Form of Broker Fully Disclosed Selling Agreement(3)
(4) Form of Bank Fully Disclosed Selling Agreement(3)
(f) (1) Form of Trustee Deferred Compensation Plan(7)
(2) Form of Trustee Retirement Plan(7)
(g) (1) Custodian Agreement(4)
(2) Transfer Agency and Service Agreement(5)
(h) (1) Data Services Agreement(3)
(2) Fund Accounting Agreement(5)
(i) Opinion and Consent of Skadden, Arps, Slate, Meagher & Flom
(Illinois)(3)
(j) (1) Consent of PricewaterhouseCoopers LLP+
(2) Consent of Trustees(1)
(k) Not applicable
(l) Investment Letter+
(m) (1) Plan of Distribution Pursuant to Rule 12b-1(3)
(2) Form of Shareholder Assistance Agreement(3)
(3) Form of Administrative Services Agreement(3)
(4) Service Plan(3)
(n) Financial Data Schedules+
(o) Amended Multiple Class Plan(3)
(p) Power of Attorney(6)
(z) (1) List of Certain Investment Companies in Response to Item
27(a)(7)
(2) List of Officers and Directors of Van Kampen Funds Inc. in
Response to Item 27(b)(7)
</TABLE>
- ---------------
(1) Incorporated herein by reference to Post-Effective Amendment No. 3 to
Registrant's Registration Statement on Form N-1A, File Number 33-74024,
filed July 19, 1995.
(2) Incorporated herein by reference to Post-Effective Amendment No. 4 to
Registrant's Registration Statement on Form N-1A, File Number 33-74024,
filed April 22, 1996.
(3) Incorporated herein by reference to Post-Effective Amendment No. 5 to
Registrant's Registration Statement on Form N-1A, File Number 33-74024,
filed April 30, 1997.
C-1
<PAGE> 129
(4) Incorporated herein by reference to Post-Effective Amendment No. 75 to Van
Kampen American Capital Growth and Income Fund's Registration Statement on
Form N-1A, File Number 2-21657, filed March 27, 1997.
(5) Incorporated herein by reference to Post-Effective Amendment No. 6 to
Registrant's Registration Statement on Form N-1A, File Number 33-74024,
filed April 27, 1998.
(6) Incorporated herein by reference to Post-Effective Amendment No. 7 to
Registrant's Registration Statement on Form N-1A, File Number 33-74024,
filed February 25, 1999.
(7) Incorporated herein by reference to Post-Effective Amendment No. 81 to Van
Kampen Harbor Fund's Registration Statement on Form N-1A, File Numbers
2-12685 and 811-734, filed April 29, 1999.
+ Filed herewith.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
See the Statement of Additional Information.
ITEM 25. INDEMNIFICATION.
Reference is made to Article 8, Section 8.4 of the Registrant's Agreement
and Declaration of Trust.
Article 8; Section 8.4 of the Agreement and Declaration of Trust provides
that each officer and trustee of the Registrant shall be indemnified by the
Registrant against all liabilities incurred in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or criminal,
in which the officer or trustee may be or may have been involved by reason of
being or having been an officer or trustee, except that such indemnity shall not
protect any such person against a liability to the Registrant or any shareholder
thereof to which such person would otherwise be subject by reason of (i) not
acting in good faith in the reasonable belief that such person's actions were
not in the best interest of the Trust, (ii) willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his or her office, or (iii) for a criminal proceeding, not having a reasonable
cause to believe that such conduct was unlawful (collectively "Disabling
Conduct"). Absent a court determination that an officer or trustee seeking
indemnification was not liable on the merits or guilty of Disabling Conduct in
the conduct of his or her office, the decision by the Registrant to indemnify
such person must be based upon the reasonable determination of independent
counsel or non-party independent trustees, after review of the facts, that such
officer or trustee is not guilty of Disabling Conduct in the conduct of his or
her office.
The Registrant has purchased insurance on behalf of its officers and
trustees protecting such persons from liability arising from their activities as
officers or trustees of the Registrant. The insurance does not protect or
purport to protect such persons from liability to the Registrant or to its
shareholders to which such officer or trustee would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of their office.
Conditional advancing of indemnification monies may be made if the trustee
or officer undertakes to repay the advance unless it is ultimately determined
that he or she is entitled to the indemnification and only if the following
conditions are met: (1) the trustee or officer provides a security for the
undertaking; (2) the Registrant is insured against losses arising from lawful
advances; or (3) a majority of a quorum of the Registrant's disinterested,
non-party trustees, or an independent legal counsel in a written opinion, shall
determine, based upon a review of readily available facts, that a recipient of
the advance ultimately will be found entitled to indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by the trustee, officer, or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such trustee, officer or controlling person in
C-2
<PAGE> 130
connection with the shares being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
See "Investment Advisory Services" in the Prospectus and "Trustees and
Officers" in the Statement of Additional Information for information regarding
the business of Van Kampen Asset Management Inc. (the "Adviser"). For
information as to the business, profession, vocation and employment of a
substantial nature of directors and officers of the Adviser, reference is made
to the Adviser's current Form ADV (File No. 801-1669) filed under the Investment
Advisers Act of 1940, as amended, incorporated herein by reference.
ITEM 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).
(b) Van Kampen Funds Inc. is an affiliated person of an affiliated person
of Registrant and is the sole principal underwriter for Registrant. The name,
principal business address and positions and offices with Van Kampen Funds Inc.
of each of the directors and officers are disclosed in Exhibit (z)(2). Except as
disclosed under the heading, "Trustees and Officers" in Part B of this
Registration Statement, none of such persons has any position or office with
Registrant.
(c) Not applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required by Section 31(a) of the
Investment Company Act of 1940 and the Rules thereunder to be maintained (i) by
Registrant will be maintained at its offices, located at 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 at the State
Street Bank and Trust Company, 1776 Heritage Drive, North Quincy, MA; (ii) by
the Adviser, will be maintained at its offices, located at 1 Parkview Plaza, PO
Box 5555, Oakbrook Terrace, Illinois 60181-5555; and (iii) by Van Kampen Funds
Inc., the principal underwriter, will be maintained at its offices located at 1
Parkview Plaza, PO Box 5555, Oakbrook Terrace, Illinois 60181-5555.
ITEM 29. MANAGEMENT SERVICES.
Not applicable.
ITEM 30. UNDERTAKINGS.
Not applicable.
C-3
<PAGE> 131
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, VAN KAMPEN GLOBAL MANAGED ASSETS
FUND, certifies that it meets all of the requirements for effectiveness of this
Amendment to the Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Amendment to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Oakbrook Terrace and State of Illinois, on the 30th
day of April, 1999.
VAN KAMPEN GLOBAL
MANAGED ASSETS FUND
By: /s/ DENNIS J. MCDONNELL
---------------------------------------
Dennis J. McDonnell, President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed on April 30, 1999 by the following
persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<C> <S>
Principal Executive Officer:
/s/ DENNIS J. MCDONNELL President
- -----------------------------------------------------
Dennis J. McDonnell
Principal Financial Officer:
/s/ JOHN L. SULLIVAN* Vice President, Chief Financial Officer and
- ----------------------------------------------------- Treasurer
John L. Sullivan
Trustees:
/s/ J. MILES BRANAGAN* Trustee
- -----------------------------------------------------
J. Miles Branagan
/s/ RICHARD M. DEMARTINI* Trustee
- -----------------------------------------------------
Richard M. DeMartini
/s/ LINDA HUTTON HEAGY* Trustee
- -----------------------------------------------------
Linda Hutton Heagy
/s/ R. CRAIG KENNEDY* Trustee
- -----------------------------------------------------
R. Craig Kennedy
/s/ JACK E. NELSON* Trustee
- -----------------------------------------------------
Jack E. Nelson
/s/ DON G. POWELL* Trustee
- -----------------------------------------------------
Don G. Powell
/s/ PHILLIP B. ROONEY* Trustee
- -----------------------------------------------------
Phillip B. Rooney
/s/ FERNANDO SISTO* Trustee
- -----------------------------------------------------
Fernando Sisto
/s/ WAYNE W. WHALEN* Trustee
- -----------------------------------------------------
Wayne W. Whalen
/s/ PAUL G. YOVOVICH* Trustee
- -----------------------------------------------------
Paul G. Yovovich
- ------------
* Signed by Dennis J. McDonnell pursuant to a power of attorney.
/s/ DENNIS J. MCDONNELL April 30, 1999
- -----------------------------------------------------
Dennis J. McDonnell
Attorney-in-Fact
</TABLE>
<PAGE> 132
VAN KAMPEN GLOBAL MANAGED ASSETS FUND
INDEX TO EXHIBITS TO POST-EFFECTIVE AMENDMENT NO. 8 TO FORM N-1A
AS SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION
ON APRIL 30, 1999
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C> <C>
(j) Consent of PricewaterhouseCoopers LLP
(l) Investment Letter
(n) Financial Data Schedules
</TABLE>
<PAGE> 1
EXHIBIT (j)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 8 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
February 11, 1999, relating to the financial statements and financial highlights
of Van Kampen Global Managed Assets Fund, which appears in such Statement of
Additional Information, and to the incorporation by reference of our report into
the Prospectus which constitutes part of this Registration Statement. We also
consent to the references to us under the headings "Financial Highlights" and
"Independent Accountants" in such Prospectus and to the reference to us under
the heading "Independent Accountants" in such Statement of Additional
Information.
/s/ PRICEWATERHOUSECOOPERS LLP
PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
April 26, 1999
<PAGE> 1
EXHIBIT (l)
[AMERICAN CAPITAL ASSET MANAGEMENT, INC. LETTERHEAD]
May 6, 1994
American Capital Global Managed
Assets Fund, Inc.
2800 Post Oak Blvd.
Houston, TX 77056
Re: Investment Letter
Gentlemen:
We are purchasing 10,718.114 Class A shares, 53.591 Class B shares and
53.591 Class C shares of beneficial interest of American Capital Global Mananged
Assets Fund, Inc. (the "Fund"), $0.01 par value per share, (the "Shares") at a
price of $9.43 per share upon the terms and conditions set forth below.
We understand that the Shares have not been registered under any state
or federal securities laws and that the Fund is relying on certain exemptions
from such registration requirements including exemptions dependent upon our
intent in acquiring the Shares. We also understand that any resale of the Shares
or any portion thereof may be subject to restrictions under state and federal
securities laws. Thus we may be required to bear the economic risk of
an investment in the Shares for an indefinite period of time.
We hereby represent and warrant that we are acquiring the Shares solely
for our own account and solely for investment purposes and not with a view to
the resale, redemption or disposition of all or any part thereof and that we
have no present plan or intention to sell, redeem or otherwise dispose of the
Shares or any part thereof. We also represent that the Shares will not be
resold except through redemption or repurchase.
We understand that your organizational expenses will be capitalized
and charged to operations over a period of five years from the date of
commencement of operations. In the event that we redeem any of the Shares within
such five-year amortization period, we understand that the proceeds payable to
us will be reduced by the pro rata share (based upon the proportion of the
Shares redeemed to the total number of the remaining Shares purchased by us)
of the then
<PAGE> 2
May 6, 1994
Page 2
unamortized deferred organizational expenses as of the date of any such
redemption. We further understand that in the event you liquidate before the
deferred organizational expenses are fully amortized, then the Shares shall bear
their pro rata share (as described above) of such unamortized deferred
organizational expenses.
Very truly yours,
AMERICAN CAPITAL ASSET
MANAGEMENT, INC.
By /s/ Nori L. Gabert
----------------------------
Nori L. Gabert,
Vice President, Associate
General Counsel and Secretary
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> GLOBAL MANAGED CLASS A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 18,047,421<F1>
<INVESTMENTS-AT-VALUE> 20,181,046<F1>
<RECEIVABLES> 1,638,008<F1>
<ASSETS-OTHER> 1,040<F1>
<OTHER-ITEMS-ASSETS> 158,696<F1>
<TOTAL-ASSETS> 21,978,790<F1>
<PAYABLE-FOR-SECURITIES> 29,830<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 2,388,521<F1>
<TOTAL-LIABILITIES> 2,418,351<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6,809,856
<SHARES-COMMON-STOCK> 820,473
<SHARES-COMMON-PRIOR> 1,105,334
<ACCUMULATED-NII-CURRENT> (23,161)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 324,917<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 2,216,687<F1>
<NET-ASSETS> 8,483,190
<DIVIDEND-INCOME> 332,951<F1>
<INTEREST-INCOME> 457,179<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (1,020,682)<F1>
<NET-INVESTMENT-INCOME> (230,552)<F1>
<REALIZED-GAINS-CURRENT> 3,218,575<F1>
<APPREC-INCREASE-CURRENT> 108,563<F1>
<NET-CHANGE-FROM-OPS> 3,096,586<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (76,480)
<DISTRIBUTIONS-OF-GAINS> (1,080,329)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 425,556
<NUMBER-OF-SHARES-REDEEMED> (819,174)
<SHARES-REINVESTED> 108,757
<NET-CHANGE-IN-ASSETS> (2,749,148)
<ACCUMULATED-NII-PRIOR> (229,219)<F1>
<ACCUMULATED-GAINS-PRIOR> 7,907<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 226,999<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 1,020,682<F1>
<AVERAGE-NET-ASSETS> 11,049,722
<PER-SHARE-NAV-BEGIN> 10.162
<PER-SHARE-NII> (0.066)
<PER-SHARE-GAIN-APPREC> 1.643
<PER-SHARE-DIVIDEND> (0.072)
<PER-SHARE-DISTRIBUTIONS> (1.328)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.339
<EXPENSE-RATIO> 4.11
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>THIS ITEM RELATES TO THE FUND ON A COMPOSITE BASIS AND NOT ON A CLASS BASIS
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 12
<NAME> GLOBAL MANAGED CLASS B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 18,047,421<F1>
<INVESTMENTS-AT-VALUE> 20,181,046<F1>
<RECEIVABLES> 1,638,008<F1>
<ASSETS-OTHER> 1,040<F1>
<OTHER-ITEMS-ASSETS> 158,696<F1>
<TOTAL-ASSETS> 21,978,790<F1>
<PAYABLE-FOR-SECURITIES> 29,830<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 2,388,521<F1>
<TOTAL-LIABILITIES> 2,418,351<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 8,959,090
<SHARES-COMMON-STOCK> 959,264
<SHARES-COMMON-PRIOR> 1,013,227
<ACCUMULATED-NII-CURRENT> (23,161)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 324,917<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 2,216,687<F1>
<NET-ASSETS> 9,629,470
<DIVIDEND-INCOME> 332,951<F1>
<INTEREST-INCOME> 457,179<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (1,020,682)<F1>
<NET-INVESTMENT-INCOME> (230,552)<F1>
<REALIZED-GAINS-CURRENT> 3,218,575<F1>
<APPREC-INCREASE-CURRENT> 108,563<F1>
<NET-CHANGE-FROM-OPS> 3,096,586<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (1,144,103)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 85,315
<NUMBER-OF-SHARES-REDEEMED> (244,540)
<SHARES-REINVESTED> 105,262
<NET-CHANGE-IN-ASSETS> (412,245)
<ACCUMULATED-NII-PRIOR> (229,219)<F1>
<ACCUMULATED-GAINS-PRIOR> 7,907<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 226,999<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 1,020,682<F1>
<AVERAGE-NET-ASSETS> 9,921,270
<PER-SHARE-NAV-BEGIN> 9.911
<PER-SHARE-NII> (0.151)
<PER-SHARE-GAIN-APPREC> 1.606
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> (1.328)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.038
<EXPENSE-RATIO> 4.89
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>THIS ITEM RELATES TO THE FUND ON A COMPOSITE BASIS AND NOT ON A CLASS BASIS
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 13
<NAME> GLOBAL MANAGED CLASS C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 18,047,421<F1>
<INVESTMENTS-AT-VALUE> 20,181,046<F1>
<RECEIVABLES> 1,638,008<F1>
<ASSETS-OTHER> 1,040<F1>
<OTHER-ITEMS-ASSETS> 158,696<F1>
<TOTAL-ASSETS> 21,978,790<F1>
<PAYABLE-FOR-SECURITIES> 29,830<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 2,388,521<F1>
<TOTAL-LIABILITIES> 2,418,351<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,273,050
<SHARES-COMMON-STOCK> 143,961
<SHARES-COMMON-PRIOR> 173,243
<ACCUMULATED-NII-CURRENT> (23,161)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 324,917<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 2,216,687<F1>
<NET-ASSETS> 1,447,779
<DIVIDEND-INCOME> 332,951<F1>
<INTEREST-INCOME> 457,179<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (1,020,682)<F1>
<NET-INVESTMENT-INCOME> (230,552)<F1>
<REALIZED-GAINS-CURRENT> 3,218,575<F1>
<APPREC-INCREASE-CURRENT> 108,563<F1>
<NET-CHANGE-FROM-OPS> 3,096,586<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (164,043)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 73,498
<NUMBER-OF-SHARES-REDEEMED> (116,317)
<SHARES-REINVESTED> 13,537
<NET-CHANGE-IN-ASSETS> (272,062)
<ACCUMULATED-NII-PRIOR> (229,219)<F1>
<ACCUMULATED-GAINS-PRIOR> 7,907<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 226,999<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 1,020,682<F1>
<AVERAGE-NET-ASSETS> 1,649,192
<PER-SHARE-NAV-BEGIN> 9.927
<PER-SHARE-NII> (0.147)
<PER-SHARE-GAIN-APPREC> 1.605
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> (1.328)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.057
<EXPENSE-RATIO> 4.91
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>THIS ITEM RELATES TO THE FUND ON A COMPOSITE BASIS AND NOT ON A CLASS BASIS
</FN>
</TABLE>
