<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1998
REGISTRATION NOS. 33-77800
811-8480
================================================================================
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. 7 [X]
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 8 [X]
</TABLE>
VAN KAMPEN AMERICAN CAPITAL REAL ESTATE SECURITIES FUND
(EXACT NAME OF REGISTRANT AS SPECIFIED IN DECLARATION OF TRUST)
ONE PARKVIEW PLAZA, OAKBROOK TERRACE, ILLINOIS 60181
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICERS) (ZIP CODE)
(630) 684-6000
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
RONALD A. NYBERG, ESQ.
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
VAN KAMPEN AMERICAN CAPITAL, INC.
ONE PARKVIEW PLAZA
OAKBROOK TERRACE, ILLINOIS 60181
(NAME AND ADDRESS OF AGENT FOR SERVICE)
---------------------
COPIES TO:
WAYNE W. WHALEN, ESQ.
THOMAS A. HALE, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 WEST WACKER DRIVE
CHICAGO, ILLINOIS 60606
(312) 407-0700
---------------------
Approximate Date of Proposed Public Offering: As soon as practicable following
effectiveness of this Registration Statement.
It is proposed that this filing 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)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of Rule 485
If appropriate check the following:
[ ] 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.
================================================================================
<PAGE> 2
VAN KAMPEN AMERICAN CAPITAL REAL ESTATE SECURITIES FUND
CROSS REFERENCE SHEET
FORM N-1A ITEM
<TABLE>
<CAPTION>
PROSPECTUS CAPTION
PART A ------------------
<C> <S> <C>
1. Cover Page................................. Cover Page
2. Synopsis................................... Prospectus Summary; Shareholder Transaction
Expenses; Annual Fund Operating Expenses
and Example
3. Condensed Financial Information............ Financial Highlights
4. General Description of Registrant.......... The Fund; Investment Objectives and
Policies; Risk Factors; Investment
Practices; Description of Shares of the
Fund
5. Management of the Fund..................... Annual Fund Operating Expenses and Example;
The Fund; Investment Practices;
Investment Advisory Services; Inside Back
Cover
6. Capital Stock and Other Securities......... The Fund; Alternative Sales Arrangements;
Purchase of Shares; Shareholder Services;
Distribution and Service Plans;
Redemption of Shares; Distributions from
the Fund; Tax Status; Description of
Shares of the Fund; Additional
Information; Inside Back Cover
7. Purchase of Securities Being Offered....... Alternative Sales Arrangements; Purchase of
Shares; Shareholder Services;
Distribution and Service Plans
8. Redemption or Repurchase................... Shareholder Services; Redemption of Shares
9. Pending Legal Proceedings.................. Inapplicable
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF ADDITIONAL INFORMATION CAPTION
PART B -------------------------------------------
<C> <S> <C>
10. Cover Page................................. Cover Page
11. Table of Contents.......................... Table of Contents
12. General Information and History............ General Information
13. Investment Objectives and Policies......... Investment Policies and Techniques;
Investment Restrictions
14. Management of the Fund..................... General Information; Trustees and Officers;
Investment Advisory Agreement
15. Control Persons and Principal Holders of
Securities............................... General Information; Trustees and Officers
16. Investment Advisory and Other Services..... General Information; Trustees and Officers;
Investment Advisory Agreement;
Distributor; Distribution and Service
Plans; Transfer Agent; Portfolio
Transactions and Brokerage; Other
Information
17. Brokerage Allocation and Other Practices... Portfolio Transactions and Brokerage
18. Capital Stock and Other Securities......... Purchase and Redemption of Shares
19. Purchase, Redemption and Pricing of
Securities Being Offered................. Determination of Net Asset Value; Purchase
and Redemption of Shares; Exchange
Privilege
20. Tax Status................................. Tax Status of the Fund
21. Underwriters............................... Distributor
22. Calculation of Performance Data............ Fund Performance
23. Financial Statements....................... Report of Independent Accountants;
Financial Statements; Notes to Financial
Statements
PART C
</TABLE>
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of this Registration Statement.
<PAGE> 3
- --------------------------------------------------------------------------------
VAN KAMPEN AMERICAN CAPITAL
REAL ESTATE SECURITIES FUND
- --------------------------------------------------------------------------------
Van Kampen American Capital Real Estate Securities Fund (the "Fund") is a
diversified, open-end investment company, commonly known as a mutual fund. The
Fund's primary investment objective is to seek long-term growth of capital.
Current income is a secondary investment objective. The Fund seeks to achieve
its investment objectives by investing principally in securities of companies
operating in the real estate industry ("Real Estate Securities"). A "real estate
industry" company is a company that derives at least 50% of its assets
(marked-to-market), gross income or net profits from the ownership,
construction, management or sale of residential, commercial or industrial real
estate. Under normal market conditions, at least 65% of the Fund's total assets
will be invested in Real Estate Securities, primarily equity securities of real
estate investment trusts. There is no assurance that the Fund will achieve its
investment objectives.
The Fund's investment adviser is Van Kampen American Capital Asset
Management, Inc. (the "Adviser"). This Prospectus sets forth certain information
that a prospective investor should know before investing in the Fund. Please
read it carefully and retain it for future reference. The address of the Fund is
One Parkview Plaza, Oakbrook Terrace, Illinois 60181, and its telephone number
is (800) 421-5666.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE REGULATORS NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE REGULATORS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR DEPOSITORY INSTITUTION; FURTHER, SUCH SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. SHARES OF THE FUND INVOLVE
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
A Statement of Additional Information, dated April 30, 1998, containing
additional information about the Fund is hereby incorporated by reference in its
entirety into this Prospectus. A copy of the Statement of Additional Information
may be obtained without charge by calling (800) 421-5666 or for
Telecommunications Device for the Deaf at (800) 421-2833. The Statement of
Additional Information has been filed with the Securities and Exchange
Commission ("SEC") and is available along with other related materials at the
SEC's internet web site (http://www.sec.gov).
------------------
VAN KAMPEN AMERICAN CAPITAL (SM)
------------------
THIS PROSPECTUS IS DATED APRIL 30, 1998.
<PAGE> 4
- ------------------------------------------------------------------------------
TABLE OF CONTENTS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 3
Shareholder Transaction Expenses............................ 6
Annual Fund Operating Expenses and Example.................. 7
Financial Highlights........................................ 9
The Fund.................................................... 11
Investment Objectives and Policies.......................... 11
Risk Factors................................................ 15
Investment Practices........................................ 16
Investment Advisory Services................................ 21
Alternative Sales Arrangements.............................. 22
Purchase of Shares.......................................... 25
Shareholder Services........................................ 35
Redemption of Shares........................................ 39
Distribution and Service Plans.............................. 43
Distributions from the Fund................................. 45
Tax Status.................................................. 45
Fund Performance............................................ 50
Description of Shares of the Fund........................... 52
Additional Information...................................... 53
Appendix -- Description of Bond Ratings..................... 54
</TABLE>
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE FUND, THE ADVISER OR THE DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER BY THE FUND OR BY THE DISTRIBUTOR TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL FOR THE FUND TO MAKE
SUCH AN OFFER IN SUCH JURISDICTION.
2
<PAGE> 5
- ------------------------------------------------------------------------------
PROSPECTUS SUMMARY
- ------------------------------------------------------------------------------
THE FUND. Van Kampen American Capital Real Estate Securities Fund (the "Fund")
is a diversified, open-end management investment company organized as a Delaware
business trust.
MINIMUM PURCHASE. $500 minimum initial investment for each class of shares and
$25 minimum for each subsequent investment for each class of shares (or less as
described under "Purchase of Shares").
INVESTMENT OBJECTIVES. The primary investment objective of the Fund is to seek
long-term growth of capital. Current income is a secondary investment objective.
There is no assurance that the Fund will achieve its investment objectives. See
"Investment Objectives and Policies."
INVESTMENT POLICY AND RISKS. The Fund seeks to achieve its investment objectives
by investing principally in a portfolio of securities of companies operating in
the real estate industry ("Real Estate Securities"). Real Estate Securities
include equity securities, including common stocks and convertible securities,
as well as non-convertible preferred stocks and debt securities of real estate
industry companies. A "real estate industry" company is a company that derives
at least 50% of its assets (marked-to-market), gross income or net profits from
the ownership, construction, management or sale of residential, commercial or
industrial real estate. Under normal market conditions, at least 65% of the
Fund's total assets will be invested in Real Estate Securities, primarily equity
securities of real estate investment trusts. The Fund's investments in debt
securities will be rated, at the time of investment, at least Baa by Moody's
Investors Service, Inc. ("Moody's"), BBB by Standard & Poor's Ratings Group
("S&P"), or comparably rated by another nationally recognized statistical rating
organization or, if unrated, determined by Van Kampen American Capital Asset
Management, Inc. to be of comparable quality. Under normal market conditions,
the Fund may invest up to 35% of its total assets in equity and debt securities
of companies outside the real estate industry, U.S. Government securities, cash
and money market instruments. There can be no assurance that the Fund will
achieve its investment objectives.
Because of the Fund's policy of concentrating its investments in Real Estate
Securities, the Fund may be more susceptible than an investment company without
such a policy to any single economic, political or regulatory occurrence
affecting the real estate industry. The Fund will be affected by general changes
in interest rates, which will result in increases or decreases in the market
value of the debt securities (and, to a lesser degree, equity securities) held
by the Fund. The market value of debt securities tends to have an inverse
relationship to the movement of interest
3
<PAGE> 6
rates. For additional information regarding the risks connected with investment
in Real Estate Securities, see "Risk Factors."
The Fund may invest up to 25% of its total assets in securities issued by
foreign issuers, some or all of which may also be Real Estate Securities.
Investments in foreign securities involve certain risks not ordinarily
associated with investments in securities of domestic issuers, including
fluctuations in foreign exchange rates, political and economic developments, and
the possible imposition of exchange controls or other foreign governmental laws
or restrictions. See "Investment Objectives and Policies -- Foreign Securities."
The Fund may purchase or sell debt securities on a forward commitment basis.
See "Investment Practices -- Forward Commitments." The Fund may use portfolio
management techniques and strategies involving options, futures contracts and
options on futures. The utilization of options, futures contracts and options on
futures contracts may involve risks different from those associated with direct
investments in underlying securities. See "Investment Practices -- Using
Options, Futures Contracts and Related Options."
INVESTMENT RESULTS. The investment results of the Fund are shown in the table of
"Financial Highlights."
ALTERNATIVE SALES ARRANGEMENTS. The Fund offers three classes of shares to the
public, each with its own sales charge structure: Class A shares, Class B shares
and Class C shares. Each class has distinct advantages and disadvantages for
different investors, and investors may choose the class of shares that best
suits their circumstances and objectives. Each class of shares represents an
interest in the same portfolio of investments of the Fund. See "Alternative
Sales Arrangements." For information on redeeming shares see "Redemption of
Shares."
Class A Shares. Class A shares are offered at net asset value per share plus a
maximum initial sales charge of 4.75% of the offering price (4.99% of the net
amount invested), reduced on investments of $100,000 or more. Investments of $1
million or more are not subject to any sales charge at the time of purchase, but
a contingent deferred sales charge ("CDSC") of 1.00% may be imposed on
redemptions made within one year of purchase. Class A shares are subject to an
annual service fee of up to 0.25% of the Fund's average daily net assets
attributable to such class of shares. See "Purchase of Shares -- Class A Shares"
and "Distribution and Service Plans."
Class B Shares. Class B shares are offered at net asset value per share and
are subject to a maximum CDSC of 4.00% on redemptions made within the first or
second year after purchase and declining thereafter to 0.00% after the fifth
year. See "Redemption of Shares." Class B shares are subject to a combined
annual distribution fee and service fee of up to 1.00% of the Fund's average
daily net assets attributable to such class of shares. See "Purchase of
Shares -- Class B Shares"
4
<PAGE> 7
and "Distribution and Service Plans." Class B shares convert automatically to
Class A shares eight years after the end of the calendar month in which the
shareholder's order to purchase was accepted. See "Alternative Sales
Arrangements -- Conversion Feature."
Class C Shares. Class C shares are offered at net asset value per share and
are subject to a CDSC of 1.00% on redemptions made within one year of purchase.
See "Redemption of Shares." Class C shares are subject to a combined annual
distribution fee and service fee of up to 1.00% of the Fund's average daily net
assets attributable to such class of shares. See "Purchase of Shares -- Class C
Shares" and "Distribution and Service Plans."
INVESTMENT ADVISER. Van Kampen American Capital Asset Management, Inc. (the
"Adviser") is the Fund's investment adviser.
DISTRIBUTOR. Van Kampen American Capital Distributors, Inc. (the "Distributor")
distributes the Fund's shares.
DISTRIBUTIONS FROM THE FUND. Dividends from net investment income (which
includes 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) are
distributed quarterly. Net capital gains, if any, are distributed at least
annually. Such distributions are automatically reinvested in shares of the Fund
at net asset value per share (without a sales charge) unless payment in cash is
requested. See "Distributions from the Fund."
The foregoing is qualified in its entirety by reference to the more detailed
information appearing elsewhere in this Prospectus.
5
<PAGE> 8
- ------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- ------- -------
<S> <C> <C> <C>
Maximum sales charge imposed on
purchases (as a percentage of
offering price)............... 4.75%(1) None None
Maximum sales charge imposed on
reinvested dividends (as a
percentage of offering
price)........................ None None None
Deferred sales charge (as a
percentage of the lesser of
original purchase price or Year
redemption proceeds).......... None(2) Year 1--4.00% 1--1.00%
Year 2--4.00% After--None
Year 3--3.00%
Year 4--2.50%
Year 5--1.50%
After--None
Redemption fees (as a percentage
of amount redeemed)........... None None None
Exchange 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 CDSC of 1.00% may be imposed on redemptions made
within one year of the purchase. See "Purchase of Shares -- Class A Shares."
6
<PAGE> 9
- ------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES AND EXAMPLE
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
-------- -------- --------
<S> <C> <C> <C>
Management Fees (as a percentage of average
daily net assets)......................... 1.00% 1.00% 1.00%
12b-1 Fees (as a percentage of average daily
net assets)(1)............................ 0.25% 1.00%(2) 1.00%(2)
Other Expenses (as a percentage of average
daily net assets)......................... 0.52% 0.52% 0.52%
Total Fund Operating Expenses (as a
percentage of average daily net assets)... 1.77% 2.52% 2.52%
</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 "Distribution and Service Plans."
(2) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted as a Fund-level expense by NASD
Rules.
7
<PAGE> 10
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
EXAMPLE: YEAR YEARS YEARS YEARS
-------- ---- ----- ----- -----
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming (i) an operating
expense ratio of 1.77% for Class A shares,
2.52% for Class B shares and 2.52% for Class
C shares, (ii) a 5.00% annual return and
(iii) redemption at the end of each time
period:
Class A.................................... $65 $101 $139 $246
Class B.................................... $66 $108 $149 $267*
Class C.................................... $36 $ 78 $134 $286
You would pay the following expenses on the
same $1,000 investment assuming no redemption
at the end of each time period:
Class A.................................... $65 $101 $139 $246
Class B.................................... $26 $ 78 $134 $267*
Class C.................................... $26 $ 78 $134 $286
- -----------------------------------------------------------------------------
</TABLE>
* Based on conversion to Class A shares after eight years.
The purpose of the foregoing table is to assist an investor in understanding
the various costs and expenses that an investor in the Fund will bear directly
or indirectly. The "Example" reflects expenses based on the "Annual Fund
Operating Expenses" table as shown above carried out to future years and are
included to provide a means for the investor to compare expense levels of funds
with different fee structures over varying investment periods. To facilitate
such comparison, all funds are required by the SEC to utilize a 5.00% annual
return assumption. The ten year amount with respect to Class B shares of the
Fund reflects the lower aggregate 12b-1 and service fees applicable to such
shares after conversion to Class A shares. Class B shares acquired through the
exchange privilege are subject to the CDSC schedule relating to the Class B
shares of the fund from which the purchase of Class B shares was originally
made. Accordingly, future expenses as projected could be higher than those
determined in the above table if the investor's Class B shares were exchanged
from a fund with a higher CDSC. THE INFORMATION CONTAINED IN THE ABOVE TABLE
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. For a more complete
description of such costs and expenses, see "Purchase of Shares," "Investment
Advisory Services," "Redemption of Shares" and "Distribution and Service Plans."
8
<PAGE> 11
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (Selected data for a share of beneficial interest
outstanding throughout each of the periods indicated)
- --------------------------------------------------------------------------------
The following financial highlights have been audited by Price Waterhouse LLP,
independent accountants, whose report thereon was unqualified. The most recent
annual report (which contains the financial highlights for the last four fiscal
periods) is included in the Statement of Additional Information and may be
obtained by shareholders without charge by calling the telephone number on the
cover of this Prospectus. This information should be read in conjunction with
the financial statements and notes thereto included in the Statement of
Additional Information.
<TABLE>
<CAPTION>
CLASS A SHARES
-------------------------------------------------
JUNE 9, 1994
(COMMENCEMENT OF
INVESTMENT
YEAR ENDED DECEMBER 31, OPERATIONS) TO
----------------------------- DECEMBER 31,
1997 1996 1995(A) 1994(A)
------- ------- ------- ----------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.................... $13.008 $ 10.00 $ 9.27 $9.43
------- ------- ------ -----
Net Investment Income...................................... .364 .351 .27 .23
Net Realized and Unrealized Gain/Loss...................... 2.220 3.514 .85 (.18)
------- ------- ------ -----
Total from Investment Operations............................ 2.584 3.865 1.12 .05
------- ------- ------ -----
Less:
Distributions from and in Excess of Net Investment
Income................................................... .380 .380 .2456 .153
Return of Capital Distribution............................. -0- -0- .1444 .057
Distributions from Net Realized Gain....................... 1.402 .477 -0- -0-
------- ------- ------ -----
Total Distributions......................................... 1.782 .857 .39 .21
------- ------- ------ -----
Net Asset Value, End of the Period.......................... $13.810 $13.008 $10.00 $9.27
======= ======= ====== =====
Total Return(b)............................................. 20.66% 39.82% 12.39% .24%(c)
Net Assets at End of the Period (In millions)............... $ 51.3 $ 23.3 $ 8.5 $ 4.6
Ratio of Expenses to Average Net Assets**................... 1.77% 2.60% 2.67% 1.26%
Ratio of Net Investment Income to Average Net Assets**...... 2.77% 3.21% 2.92% 4.28%
Portfolio Turnover.......................................... 159% 97% 94% 28%*
Average Commission Paid Per Equity Share Traded(d).......... $ .0594 $ .0486 -- --
*Non-Annualized
**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 2.61% 3.16% 3.03%
Ratio of Net Investment Income to Average Net Assets........ N/A 3.19% 2.44% 2.52%
</TABLE>
(Table and footnotes continued on following page)
9
<PAGE> 12
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B SHARES CLASS C SHARES
------------------------------------------------ ------------------------------------------------
JUNE 9, 1994 JUNE 9, 1994
(COMMENCEMENT OF (COMMENCEMENT OF
INVESTMENT INVESTMENT
YEAR ENDED DECEMBER 31, OPERATIONS) TO YEAR ENDED DECEMBER 31, OPERATIONS) TO
----------------------------- DECEMBER 31, ----------------------------- DECEMBER 31,
1997 1996 1995(A) 1994(A) 1997 1996 1995(A) 1994(A)
------- ------- ------- ---------------- ------- ------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of the Period.............. $13.008 $ 10.00 $ 9.28 $9.43 $12.999 $ 9.99 $ 9.28 $9.43
------- ------- ------ ----- ------- ------- ------ -----
Net Investment Income...... .272 .266 .19 .20 .271 .266 .20 .22
Net Realized and Unrealized
Gain/Loss................ 2.206 3.519 .843 (1.76) 2.206 3.520 .823 (.178)
------- ------- ------ ----- ------- ------- ------ -----
Total from Investment
Operations................. 2.478 3.785 1.033 .024 2.477 3.786 1.023 .042
------- ------- ------ ----- ------- ------- ------ -----
Less:
Distributions from and in
Excess of Net Investment
Income................... .284 .300 .197 .1268 .284 .300 .197 .1399
Return of Capital
Distribution............. -0- -0- .116 .0472 -0- -0- .116 .0521
Distributions from Net
Realized Gain............ 1.402 .477 -0- -0- 1.402 .477 -0- -0-
------- ------- ------ ----- ------- ------- ------ -----
Total Distributions......... 1.686 .777 .313 .174 1.686 .777 .313 .192
------- ------- ------ ----- ------- ------- ------ -----
Net Asset Value, End of the
Period..................... $13.800 $13.008 $10.00 $9.28 $13.790 $12.999 $ 9.99 $9.28
======= ======= ====== ===== ======= ======= ====== =====
Total Return(b)............. 19.76% 38.82% 11.37% (.04%)(c) 19.78% 38.86% 11.26% .15%(c)
Net Assets at End of the
Period (In millions)....... $ 73.2 $ 26.5 $ 12.0 $ 9.1 $ 17.4 $ 7.7 $ 3.1 $ 1.3
Ratio of Expenses to Average
Net Assets**............... 2.52% 3.37% 3.50% 1.84% 2.52% 3.38% 3.54% 1.62%
Ratio of Net Investment
Income to Average Net
Assets**................... 2.03% 2.39% 2.07% 3.81% 2.00% 2.39% 2.11% 3.92%
Portfolio Turnover.......... 159% 97% 94% 28%* 159% 97% 94% 28%*
Average Commission Paid Per
Equity Share Traded(d)..... $ .0594 $ .0486 -- -- $ .0594 $ .0486 -- --
*Non-Annualized
**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 3.39% 3.99% 3.60% N/A 3.40% 4.03% 3.38%
Ratio of Net Investment
Income to Average Net
Assets..................... N/A 2.37% 1.58% 2.05% N/A 2.38% 1.62% 2.15%
</TABLE>
- ------------
N/A = Not applicable.
(a)Based on average shares outstanding.
(b)Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(c)Total Return calculated from June 30, 1994 (date the Fund's investment
strategy was implemented) through December 31, 1994, non-annualized.
(d)Represents the average brokerage commission paid per equity share traded
during the period for trades where commissions were applicable. This
disclosure was not required in fiscal years prior to 1996.
10
<PAGE> 13
- ------------------------------------------------------------------------------
THE FUND
- ------------------------------------------------------------------------------
The Fund is a diversified, open-end management investment company, commonly
known as a mutual fund. A mutual fund provides, for those who have similar
investment goals, a practical and convenient way to invest in a diversified
portfolio of securities by combining their resources in an effort to achieve
such goals.
Van Kampen American Capital Asset Management, Inc. (the "Adviser") provides
investment advisory and administrative services to the Fund. The Adviser or its
affiliates also act as investment adviser to other mutual funds distributed by
Van Kampen American Capital Distributors, Inc. (the "Distributor"). To obtain
prospectuses and other information on any of these other funds, please call the
telephone number on the cover page of the Prospectus.
- ------------------------------------------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES
- ------------------------------------------------------------------------------
GENERAL. The Fund's primary investment objective is to seek to provide
shareholders with long-term growth of capital. Current income is a secondary
objective. The Fund seeks to achieve its investment objectives by investing
principally in a diversified portfolio of Real Estate Securities, which include
equity securities, including common stocks and convertible securities, as well
as non-convertible preferred stocks and debt securities of real estate industry
companies. A "real estate industry" company is a company that derives at least
50% of its assets (marked to market), gross income or net profits from the
ownership, construction, management or sale of residential, commercial or
industrial real estate. Real estate industry companies may include among others:
equity real estate investment trusts, which pool investors' funds for investment
primarily in commercial real estate properties; mortgage real estate investment
trusts, which invest pooled funds in real estate related loans; brokers or real
estate developers; and companies with substantial real estate holdings, such as
paper and lumber producers and hotel and entertainment companies. Under normal
market conditions, at least 65% of the Fund's total assets will be invested in
Real Estate Securities, primarily equity securities of real estate investment
trusts. The Fund's investments in debt securities will be rated, at the time of
investment, at least Baa by Moody's, BBB by S&P, comparably rated by another
nationally recognized statistical rating organization or, if unrated, determined
by the Adviser to be of comparable quality. Ratings at the time of purchase
determine which securities may be acquired, and a subsequent reduction in
ratings does not require the Fund to dispose of a security. Securities rated Baa
by Moody's or BBB by S&P are considered to be medium grade obligations which
possess speculative characteristics so that changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than in the case of higher rated securities. The
ratings assigned by
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the ratings agencies represent their opinions of the quality of the debt
securities they undertake to rate, but not the market value risk of such
securities. It should be emphasized, however, that ratings are general and are
not absolute standards of quality. The Fund may invest more than 25% of its
total assets in the real estate industry.
Under normal market conditions, the Fund may invest up to 35% of its total
assets in equity and debt securities of companies outside the real estate
industry, U.S. Government securities, cash and money market instruments.
The Fund may invest up to 25% of its assets in securities issued by foreign
issuers. See "Investment Objectives and Policies -- Foreign Securities." The
Fund may engage in portfolio management strategies and techniques involving
options, futures contracts and options on futures contracts. Options, futures
contracts and related options are described in "Investment Practices -- Using
Options, Futures Contracts and Related Options" and the Statement of Additional
Information.
For temporary defensive purposes, the Fund may invest up to 100% of its total
assets in short-term investments as described below. The Fund will assume a
temporary defensive posture only when economic and other factors affect the real
estate industry market to such an extent that the Adviser believes there are
extraordinary risks in being invested primarily in Real Estate Securities.
There can be no assurance that the Fund will achieve its investment
objectives.
The investment objectives and policies, the percentage limitations, and the
kinds of securities in which the Fund may invest generally are not fundamental
policies and may be changed by the Trustees. Certain limitations as described
under "Investment Practices -- Investment Restrictions" are fundamental and can
be changed only by action of the shareholders. If there is a change in the
objectives of the Fund, shareholders should consider whether the Fund remains an
appropriate investment in light of their then current financial position and
needs.
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 with respect to the Fund. An investment in the Fund is
intended to be a long-term investment and should not be used as a trading
vehicle.
SHORT-TERM INVESTMENTS. The Fund may invest in obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, commercial
paper, bankers' acceptances, certificates of deposit, repurchase agreements
collateralized by these securities, and other short-term evidences of
indebtedness. The Fund will only purchase commercial paper if it is rated
Prime-1 or Prime-2 by Moody's, A-1 or A-2 by S&P, comparably rated by another
nationally recognized statistical rating organization or, if unrated, determined
by the Adviser to be of comparable quality.
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<PAGE> 15
Such temporary investments may be made either for liquidity purposes, to meet
shareholder redemption requirements or as a temporary defensive measure.
FOREIGN SECURITIES. The Fund may invest up to 25% of its assets in securities
issued by foreign issuers of developed countries of similar quality as the
securities described above as determined by the Adviser. Some of such securities
may also be Real Estate Securities. Investments in securities of foreign
entities and securities denominated in foreign currencies involve risks not
typically involved in domestic investment, including fluctuations in foreign
exchange rates, future foreign political and economic developments, and the
possible imposition of exchange controls or other foreign or United States
governmental laws or restrictions applicable to such investments. Since the Fund
may invest in securities denominated or quoted in currencies other than the
United States dollar, changes in foreign currency exchange rates may affect the
value of investments in the portfolio and the accrued income and unrealized
appreciation or depreciation of investments. Changes in foreign currency
exchange rates 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.
The Fund also 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. 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 obligation and the depositary's transaction fees are
paid by the ADR holders. In addition, less information is available in the
United States about an unsponsored ADR than about a sponsored ADR and the
financial information about a company may not be as reliable for an unsponsored
ADR as it is for a sponsored ADR. The Fund may invest in ADRs through both
sponsored and unsponsored arrangements. For further information on ADRs and
EDRs, investors should refer to the Statement of Additional Information.
With respect to certain foreign countries, there is the possibility of
expropriation of assets, confiscatory taxation, political or social instability
or diplomatic developments which could affect investment in those countries.
There may be less publicly available information about a foreign security than
about a United States security, and foreign entities may not be subject to
accounting, auditing and financial reporting standards and requirements
comparable to those of United States entities. In addition, certain foreign
investments made by the Fund may be subject to foreign withholding taxes, which
would reduce the Fund's total return on such investments and the amounts
available for distributions by the Fund to its shareholders. See "Tax Status."
Foreign financial markets, while growing in volume, generally have
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<PAGE> 16
less trading volume than United States markets, and securities of many foreign
companies are less liquid and their prices more volatile than securities of
comparable domestic companies. The foreign markets also have different clearance
and settlement procedures and in certain markets there have been times when
settlements have been unable to keep pace with the volume of securities
transactions making it difficult to conduct such transactions. Delays in
settlement could have an adverse affect on the Fund's ability to purchase and
sell portfolio securities in a timely fashion. Costs associated with
transactions in foreign securities, including custodial costs and foreign
brokerage commissions, are generally higher than costs associated with
transactions in United States securities. In addition, the Fund will incur costs
in connection with conversions between various currencies. There is generally
less government supervision and regulation of exchanges, financial institutions
and issuers in foreign countries than there is in the United States.
FOREIGN CURRENCY TRANSACTIONS. The value of the Fund's portfolio securities
that are traded in foreign markets may be affected by changes in currency
exchange rates and exchange control regulations. 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 or other foreign currency
brokers and dealers to purchase or sell foreign currencies at a future date
("forward contracts") and purchase and sell foreign currency futures contracts
to hedge against changes in foreign currency exchange rates. A foreign currency
forward contract is a negotiated agreement between the contracting parties to
exchange a specified amount of currency at a specified future time at a
specified rate. The rate can be higher or lower than the spot rate between the
currencies that are the subject of the contract.
The Fund may attempt to hedge against changes in the value of the United
States dollar in relation to a foreign currency by entering into a forward
contract for the purchase or sale of the amount of foreign currency invested or
to be invested, or by buying or selling a foreign currency futures contract for
such amount. Such 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 for such security is made or received. Hedging against a
change in the value of a foreign currency in the foregoing manner does not
eliminate fluctuations in the price of portfolio securities or prevent losses if
the prices of such securities decline.
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<PAGE> 17
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. The Fund will not speculate in foreign currency forward
or futures contracts or through the purchase and sale of foreign currencies.
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RISK FACTORS
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Although the Fund does not invest directly in real estate, an investment in
the Fund generally will be subject to the risks associated with real estate
because of its policy of concentration in the securities of companies in the
real estate industry. These risks include, among others: declines in the value
of real estate; risks related to general and local economic conditions;
overbuilding and increased competition; increases in property taxes and
operating expenses; changes in zoning laws; casualty or condemnation losses;
variations in rental income; changes in neighborhood values; the appeal of
properties to tenants and changes in interest rates. The value of securities of
companies which service the real estate industry also will be affected by such
risks. If the Fund has rental income or income from the disposition of real
property acquired as a result of a default on securities the Fund owns, the
receipt of such income may adversely affect its ability to retain its tax status
as a regulated investment company.
Equity real estate investment trusts may be affected by changes in the value
of the underlying property owned by the trusts, while mortgage real estate
investment trusts may be affected by the quality of credit extended. Equity and
mortgage real estate investment trusts are dependent upon management skill, may
not be diversified and are subject to the risks of financing projects. Such real
estate investment trusts are also subject to heavy cash flow dependency,
defaults by borrowers, self-liquidation and the possibility of failing to
qualify for tax-free pass-through of income under the Internal Revenue Code of
1986, as amended (the "Code") and to maintain exemption from the Investment
Company Act of 1940, as amended (the "1940 Act"). Changes in interest rates also
may affect the value of the debt securities in the Fund's portfolio. Real estate
investment trusts are not taxed on income distributed to shareholders provided
they comply with several requirements of the Code. The Fund indirectly will bear
its proportionate share of any expenses paid by the real estate investment
trusts in which it invests.
Because of the Fund's policy of concentrating its investments in Real Estate
Securities, the Fund may be more susceptible than an investment company without
such a policy to any single economic, political or regulatory occurrence
affecting the real estate industry.
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 Adviser and other service providers do not properly process
and
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<PAGE> 18
calculate date-related information and data from and after January 1, 2000. This
is commonly known as the "Year 2000 Problem". The Adviser is taking steps that
it believes are reasonably designed to address the Year 2000 Problem with
respect to computer systems that it uses and 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 assurance that these steps will be
sufficient to avoid any adverse impact to the Fund. In addition, the Year 2000
Problem may adversely affect the issuers of securities in which the Fund may
invest which, in turn, may adversely affect the net asset value of the Fund.
Additional information about the Fund's investment practices and the risks
associated with such practices are contained in "Investment Objectives and
Policies" and "Investment Practices" herein and in the Statement of Additional
Information.
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INVESTMENT PRACTICES
- ------------------------------------------------------------------------------
REPURCHASE AGREEMENTS. The Fund may enter into 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 will not invest more than
15% of its net assets in repurchase agreements that do not mature within seven
days and in any other illiquid securities. In the event of a bankruptcy or other
default of a seller of a repurchase agreement, the Fund could experience delays
in liquidating the underlying securities and the Fund would incur losses
including: (a) possible decline in the value of the underlying security during
the period while the Fund seeks to enforce its rights thereto, (b) possible lack
of access to income on the underlying security during this period and (c)
expenses of enforcing its rights.
For the purpose of investing in repurchase agreements, the Adviser may
aggregate the cash that certain funds advised or subadvised by the Adviser or
certain of its affiliates would otherwise invest separately into a joint
account. The cash in the joint account is then invested in repurchase agreements
and the funds that contributed to the joint account share pro rata in the net
revenue generated. The Adviser believes that the joint account produces
efficiencies and economies of scale that may contribute to reduced transaction
costs, higher returns, higher quality investments and greater diversity of
investments for the Fund that would not be available to the Fund if it invested
separately. The manner in which the joint account is managed is subject to
conditions set forth in an SEC exemptive order
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<PAGE> 19
authorizing this practice, which conditions are designed to ensure the fair
administration of the joint account and to protect the amounts in that account.
PORTFOLIO TRANSACTIONS AND BROKERAGE PRACTICES. The Adviser is responsible
for the placement of orders for the purchase and sale of portfolio securities
for the Fund and the negotiation of brokerage commissions on such transactions.
Brokerage firms are selected on the basis of their professional capability for
the type of transaction and the value and quality of execution services rendered
on a continuing basis. The debt securities in the Fund's portfolio generally are
traded in the over-the-counter market through dealers. A dealer is a securities
firm or bank which makes a market for securities by opening a position at one
price and closing the position at a slightly more favorable price. The
difference between the prices is known as a spread. Foreign currency and forward
currency exchange contracts are traded in a similar fashion in a dealer market
maintained primarily by large commercial banks. The Fund will pay brokerage
commissions in connection with transactions in exchange-traded options, futures
contracts and related options. Spreads or commissions for transactions executed
in foreign markets often are higher than in the United States. The Adviser may
place portfolio transactions, to the extent permitted by law, with brokerage
firms which are affiliated with the Fund, the Adviser or the Distributor and
with firms participating in the distribution of shares of the Fund if it
reasonably believes that the quality of the execution and the commission are
comparable to that available from other qualified brokerage firms. 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. The information received may be used
by the Adviser in managing the assets of other advisory accounts as well as in
the management of the assets of the Fund.
PORTFOLIO TURNOVER. The Fund may purchase and sell securities without regard
to the length of time the security will be or has been held. The annual
portfolio turnover rate may exceed 100%, which is higher than that of many other
investment companies. A 100% turnover rate would occur, for example, if all the
securities held by the Fund were replaced in a period of one year. High
portfolio turnover involves correspondingly greater brokerage commissions and
other transaction costs, which are borne directly by the Fund. High portfolio
turnover also may result in realization of short-term capital gains if
securities are held for one year or less which may be subject to applicable
income taxes. See "Tax Status."
RESTRICTED SECURITIES. The Fund generally may invest up to 15% of its net
assets in restricted securities and other illiquid assets. As used herein,
restricted securities are those that have been sold in the United States without
registration under the Securities Act of 1933, as amended ("1933 Act") and are
thus subject to restrictions on resale. Excluded from the limitation, however,
are any restricted
17
<PAGE> 20
securities which are eligible for resale pursuant to Rule 144A under the 1933
Act and which have been determined to be liquid by the Trustees or by the
Adviser pursuant to Trustee-approved guidelines. The determination of liquidity
is based on the volume of reported trading in the institutional secondary market
for each security. Since it is not possible to predict with assurance how the
markets for restricted securities sold and offered under Rule 144A will develop,
the Trustees will carefully monitor the Fund's investment in these securities
focusing on such factors, among others, as valuation, liquidity and availability
of information. This investment practice could have the effect of increasing the
level of illiquidity in the Fund to the extent that qualified institutional
buyers become for a time uninterested in purchasing these restricted securities.
These difficulties and delays could result in the Fund's inability to realize a
favorable price upon disposition of restricted securities, and in some cases
might make disposition of such securities at the time desired by the Fund
impossible. Since market quotations are not readily available for restricted
securities, such securities will be valued by a method that the Fund's Trustees
believe accurately reflects fair value. Also excluded from this limitation on
restricted securities 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) an exemption or other relief from the
provisions of the 1940 Act.
USING OPTIONS, FUTURES CONTRACTS AND RELATED OPTIONS. The Fund expects to
utilize options, futures contracts and related options thereon in several
different ways, depending upon the status of the Fund's portfolio and the
Adviser's expectations concerning the securities markets.
The Fund is authorized to purchase and sell over-the-counter options ("OTC
Options"). OTC Options are purchased from or sold to securities dealers,
financial institutions or other parties ("Counterparty") through direct
bilateral agreement with the Counterparty. The Fund will sell only OTC Options
(other than over-the-counter currency options) that are subject to a buy-back
provision permitting the Fund to require to the Counterparty to sell the option
back to the Fund at a formula price within seven days. The staff of the SEC
currently takes the position that, in general, OTC Options on securities other
than U.S. Government securities purchased by the Fund, and portfolio securities
covering OTC Options sold by the Fund, are illiquid securities subject to the
Fund's limitation on illiquid securities described below. The Fund may not
purchase or sell futures contracts or related options for which the aggregate
initial margin and premiums exceed 5% of the fair market value of the Fund's
assets.
Potential Risks of Options, Futures Contracts and Related Options. In certain
cases, the options and futures markets provide investment or risk management
opportunities that are not available from direct investments in securities. In
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<PAGE> 21
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. However, the purchase and sale of options, futures
contracts and related options involve risks different from those associated with
direct investments in the underlying securities. While utilization of options,
futures contracts and similar instruments may be advantageous to the Fund, if
the Adviser is not successful in employing such instruments in managing the
Fund's investments, the Fund's performance will be worse than if the Fund did
not make such investments. In addition, the Fund will pay commissions and other
costs in connection with such investments, which may increase the Fund's
expenses and reduce its return.
In order to prevent leverage in connection with the purchase of futures
contracts or call options thereon by the Fund, an amount of cash, cash
equivalents or liquid securities equal to the market value of the obligation
under the futures contract or option (less any related margin deposits) will be
maintained in a segregated account with the Custodian. The Fund may not invest
more than 15% of its net assets in illiquid securities, including certain OTC
Options deemed illiquid and repurchase agreements which have a maturity of
longer than seven days. A more complete discussion of the potential risks
involved in transactions in options, futures contracts and related options is
contained in the Statement of Additional Information.
FORWARD COMMITMENTS. The Fund may purchase or sell debt securities on a
"when-issued" or "delayed delivery" basis ("Forward Commitments"). 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 by the Forward
Commitment until delivery and payment take place. At the time of settlement, the
market value of the securities may be more or less than the purchase or sale
price.
The Fund may settle a Forward Commitment by either taking delivery of the
securities or reselling or repurchasing a Forward Commitment on or before the
settlement date in which event the Fund may reinvest the proceeds in another
Forward Commitment. The Fund's use of Forward Commitments may increase its
overall investment exposure and thus its potential for gain or loss. When
engaging in Forward Commitments, 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 Forward Commitment (in
the case of a Forward Commitment sale) with the Fund's Custodian in an aggregate
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<PAGE> 22
amount equal to the amount of its commitment as long as the obligation to
purchase or sell continues.
INVESTMENT RESTRICTIONS. The Fund has adopted certain fundamental investment
restrictions which may not be changed without approval by a vote of a majority
of the outstanding voting shares of the Fund (as defined in the 1940 Act). The
percentage limitations need only be met at the time the investment is made or
other relevant action taken. These restrictions provide, among other things,
that the Fund may not:
1. 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.
2. With respect to 75% of its total assets, invest more than 5% of its assets
in the securities of any one issuer (except the U.S. Government, its
agencies and instrumentalities) or purchase more than 10% of the
outstanding voting securities of any one issuer, 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, and (iii) an exemption or other relief from the provisions
of the 1940 Act.
3. Lend money or securities except by the purchase of a portion of an issue
of bonds, debentures or other obligations of types commonly distributed to
institutional investors publicly or privately (in the latter case the
investment will be subject to the stated limits on investments in
"restricted securities"), and except by the purchase of securities subject
to repurchase agreements.
4. Concentrate its investment in any one industry, except that the Fund will
invest more than 25% of its total assets in the real estate industry 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, and (iii) an 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 restrictions as the Fund.
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<PAGE> 23
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INVESTMENT ADVISORY SERVICES
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THE ADVISER. The Adviser is a wholly-owned subsidiary of Van Kampen American
Capital, Inc. ("Van Kampen American Capital"). Van Kampen American Capital is a
diversified asset management company with more than two million retail investor
accounts, extensive capabilities for managing institutional portfolios, and more
than $60 billion under management or supervision. Van Kampen American Capital's
more than 50 open-end and 38 closed-end funds and more than 2,500 unit
investment trusts are professionally distributed by leading financial advisers
nationwide. Van Kampen American Capital Distributors, Inc., the distributor of
the Fund and the sponsor of the funds mentioned above, is also a wholly-owned
subsidiary of Van Kampen American Capital. Van Kampen American Capital is an
indirect wholly-owned subsidiary of Morgan Stanley Dean Witter & Co. The
Adviser's principal office is located at One Parkview Plaza, Oakbrook Terrace,
Illinois 60181.
Morgan Stanley Dean Witter & Co. and various of its directly or indirectly
owned subsidiaries, including Morgan Stanley Asset Management Inc., 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 global custody, securities clearance services and
securities lending.
ADVISORY AGREEMENT. The Fund retains the Adviser to manage the investment of
its assets and to place orders for the purchase and sale of its portfolio
securities. Under an investment advisory agreement between the Adviser and the
Fund (the "Advisory Agreement"), the Fund pays the Adviser a monthly fee
computed on average daily net assets of the Fund at the annual rate of 1.00% of
the Fund's average daily net assets. This fee is higher than that charged by
most other mutual funds but the Board believes it is justified by the special
nature of the Fund and it is not necessarily higher than the fees charged by
certain mutual funds with investment objectives and policies similar to those of
the Fund. Under the Advisory Agreement, the Fund also 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. Operating
expenses paid by the Fund include service fees, distribution fees, custodian
fees, legal and accounting fees, the costs of reports and proxies to
shareholders, trustees' fees (other than those who are affiliated persons, as
defined in the 1940 Act, of the Adviser, Distributor, ACCESS,
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<PAGE> 24
Van Kampen American Capital or Morgan Stanley Dean Witter & Co.), and all other
business expenses not specifically assumed by the Adviser. Advisory (management)
fee and total operating expense ratios are shown under the caption "Annual Fund
Operating Expenses and Example" herein.
From time to time the Adviser or Distributor may voluntarily undertake to
reduce the Fund's expenses by reducing the fees payable to them to the extent
of, or bearing expenses in excess of, such limitations as they may establish.
The Adviser may utilize at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen American Capital
Investment Advisory Corp. ("Advisory Corp.").
PERSONAL INVESTMENT POLICIES. The Fund and the Adviser have adopted Codes of
Ethics designed to recognize the fiduciary relationship between the Fund and the
Adviser and its employees. The Codes 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. Russell C. Platt and Theodore R. Bigman have been
primarily responsible for the day-to-day management of the Fund's investment
portfolio since January 1, 1997. Mr. Platt became Executive Vice President of
the Adviser on December 31, 1996. Since 1994, Mr. Platt has also been a
Principal, and as of December 1, 1996, a Managing Director of Morgan Stanley
Asset Management Inc. ("MSAM") where he has primary responsibility for managing
the real estate securities investment business for MSAM and serves as a member
of the Investment Committee of The Morgan Stanley Real Estate Fund ("MSREF").
From 1991 to 1993, Mr. Platt was head of Morgan Stanley Realty's Transaction
Development Group. Mr. Bigman became Senior Vice President of the Adviser on
December 31, 1996. Since 1995, Mr. Bigman has also been a Vice President, and as
of December 1, 1996, a Principal of MSAM where, together with Mr. Platt, he is
responsible for MSAM's real estate securities research. Prior to joining MSAM,
he was a Director at CS First Boston, where he worked for eight years in the
Real Estate Group.
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ALTERNATIVE SALES ARRANGEMENTS
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The Alternative Sales Arrangements permit an investor to choose the method of
purchasing shares of the Fund that is most beneficial given the amount of the
purchase and the length of time the investor expects to hold the shares.
CLASS A SHARES. Class A shares are sold at net asset value plus an initial
maximum sales charge of up to 4.75% of the offering price (4.99% of the net
amount invested), reduced on investments of $100,000 or more. Investments of
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<PAGE> 25
$1 million or more are not subject to any sales charge at the time of purchase,
but a CDSC of 1.00% may be imposed on redemptions made within one year of the
purchase. Class A shares are subject to an ongoing service fee at an annual rate
of up to 0.25% of the Fund's aggregate average daily net assets attributable to
the Class A shares. Certain purchases of Class A shares qualify for reduced
initial sales charges. See "Purchase of Shares -- Class A Shares."
CLASS B SHARES. Class B shares are sold at net asset value and are subject to
a deferred sales charge if redeemed within five years of purchase. Class B
shares are subject to an ongoing service fee at an annual rate of up to 0.25% of
the Fund's aggregate average daily net assets attributable to the Class B shares
and an ongoing distribution fee at an annual rate of up to 0.75% of the Fund's
aggregate average daily net assets attributable to the Class B shares. Class B
shares enjoy the benefit of permitting all of the investor's dollars to work
from the time the investment is made. The ongoing distribution fee paid by Class
B shares will cause such shares to have a higher expense ratio and to pay lower
dividends than those related to Class A shares. Class B shares convert
automatically to Class A shares eight years after the end of the calendar month
in which the shareholder's order to purchase was accepted. See "Purchase of
Shares -- Class B Shares."
CLASS C SHARES. Class C shares are sold at net asset value and are subject to
a deferred sales charge if redeemed within one year of purchase. Class C shares
are subject to an ongoing service fee at an annual rate of up to 0.25% of the
Fund's aggregate average daily net assets attributable to the Class C shares and
an ongoing distribution fee at an annual rate of up to 0.75% of the Fund's
aggregate average daily net assets attributable to the Class C shares. Class C
shares enjoy the benefit of permitting all of the investor's dollars to work
from the time the investment is made. The ongoing distribution fee paid by Class
C shares will cause such shares to have a higher expense ratio and to pay lower
dividends than those related to Class A shares. See "Purchase of Shares -- Class
C Shares."
CONVERSION FEATURE. Class B shares purchased on or after June 1, 1996, and any
dividend reinvestment plan shares received thereon, will 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 shares received thereon, 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 shares received thereon, 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 acquired through the
exchange privilege is determined by reference to the Participating Fund (defined
below) from which such share was originally purchased.
23
<PAGE> 26
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 Code 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.
FACTORS FOR CONSIDERATION. In deciding which class of shares to purchase,
investors should take into consideration their investment goals, present and
anticipated purchase amounts, time horizons and temperaments. Investors should
consider whether, during the anticipated life of their investment in the Fund,
the higher aggregate fees and CDSC on Class B shares and Class C shares would be
less than the initial sales charge on Class A shares purchased at the same time,
and to what extent such differential would be offset by the higher dividends per
share on Class A shares. To assist investors in making this determination, the
table under the caption "Annual Fund Operating Expenses and Example" sets forth
examples of the charges applicable to each class of shares. In this regard,
Class A shares may be more beneficial to the investor who qualifies for reduced
initial sales charges or purchases shares at net asset value. It is presently
the policy of the Distributor not to accept any order of $500,000 or more for
Class B shares or any order of $1 million or more for Class C shares as it
ordinarily would be more beneficial for such an investor to purchase Class A
shares.
Class A shares are not subject to an ongoing distribution fee and,
accordingly, receive correspondingly higher dividends per share. However,
because initial sales charges are deducted at the time of purchase for amounts
under $1 million, investors in Class A shares do not have all their funds
invested initially and, therefore, initially own fewer shares. Other investors
might determine that it is more advantageous to purchase either Class B shares
or Class C shares and have all their funds invested initially, although
remaining subject to a CDSC. Ongoing distribution fees on Class B shares and
Class C shares may be offset to the extent of the additional funds originally
invested and any return realized on those funds. However, there can be no
assurance as to the return, if any, which will be realized on such additional
funds. For investments held for ten years or more, the relative value upon
liquidation of the three classes tends to favor Class A shares or Class B shares
rather than Class C shares.
Class A shares may be appropriate for investors who prefer to pay the sales
charge up front, want to take advantage of the reduced sales charges available
on larger investments, wish to maximize their current income from the start,
prefer not to pay redemption charges or have a longer-term investment horizon.
Class B shares may be appropriate for investors who wish to avoid a front-end
sales charge, put
24
<PAGE> 27
100% of their investment dollars to work immediately or have a longer-term
investment horizon. Class C shares may be appropriate for investors who wish to
avoid a front-end sales charge, put 100% of their investment dollars to work
immediately, have a shorter-term investment horizon or desire a short CDSC
schedule.
The distribution expenses incurred by the Distributor in connection with the
sale of the shares will be reimbursed, in the case of Class A shares, from the
proceeds of the initial sales charge and, in the case of Class B shares and
Class C shares, from the proceeds of the ongoing distribution fee and any CDSC
incurred upon redemption within five years or one year, respectively, of
purchase. Sales personnel of broker-dealers distributing the Fund's shares and
other persons entitled to receive compensation for selling such shares may
receive differing compensation for selling such shares. INVESTORS SHOULD
UNDERSTAND THAT THE PURPOSE AND FUNCTION OF THE CDSC AND ONGOING DISTRIBUTION
FEE WITH RESPECT TO THE CLASS B SHARES AND CLASS C SHARES ARE THE SAME AS THOSE
OF THE INITIAL SALES CHARGE WITH RESPECT TO CLASS A SHARES. See "Distribution
and Service Plans."
GENERAL. Dividends paid by the Fund with respect to Class A shares, Class B
shares and Class C shares will be calculated in the same manner at the same time
on the same day except that the higher distribution fees and transfer agency
costs relating to Class B shares or Class C shares will be borne by the
respective class. See "Distributions From the Fund." Shares of the Fund may be
exchanged, subject to certain limitations, for shares of the same class of
certain other mutual funds advised by the Adviser and its affiliates and
distributed by the Distributor. See "Shareholder Services -- Exchange
Privilege."
- ------------------------------------------------------------------------------
PURCHASE OF SHARES
- ------------------------------------------------------------------------------
The Fund offers three classes of shares to the general public on a continuous
basis through the Distributor as principal underwriter, which is located at One
Parkview Plaza, Oakbrook Terrace, Illinois 60181. 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 for investors ("brokers").
The terms "dealers" and "brokers" are sometimes referred to herein as
"authorized dealers."
Initial investments must be at least $500 for each class of shares, and
subsequent investments must be at least $25 for each class of shares. Both
minimums may be waived by the Distributor for plans involving periodic
investments. 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
25
<PAGE> 28
Fund also reserves the right to suspend the sale of the Fund's shares in
response to conditions in the securities markets or for other reasons.
Shares of the Fund may be purchased on any business day through authorized
dealers. Shares also may be purchased by completing the application accompanying
this Prospectus and forwarding the application, through the authorized dealer,
to the shareholder service agent, ACCESS Investor Services, Inc. ("ACCESS"), a
wholly-owned subsidiary of Van Kampen American Capital. When purchasing shares
of the Fund, investors must specify whether the purchase is for Class A shares,
Class B shares or Class C shares.
Shares are offered at the next determined net asset value per share, plus a
front-end or deferred sales charge depending on the class of shares chosen by
the investor, as shown in the tables herein. Net asset value per share for each
class is computed 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.
Net asset value per share for each class is determined by dividing the value of
the Fund's 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
over-the-counter securities for which the last sale price is available from the
National Association of Securities Dealers Automated Quotations ("NASDAQ") at
that price, (iii) unlisted securities and listed securities for which the last
sale price is not available are valued at the last reported bid price, (iv)
options and futures contracts are valued at the last sale price or if no sales
are reported, at the mean between the bid and asked prices, and (v) 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 approved by the Trustees of the Fund. Short-term investments
with a maturity of 60 days or less when purchased are valued at amortized cost,
which approximates market value. Short-term investments with a maturity of more
than 60 days when purchased are valued based on market quotations until the
number of days remaining until maturity becomes less than 61 days. From such
time until maturity, the investments are valued at amortized cost using the
value of the investment on the 61st day.
Generally, the net asset values per share of the Class A shares, Class B
shares and Class C shares are expected to be substantially the same. Under
certain circumstances, however, the per share net asset values of the Class A
shares, Class B shares and Class C shares may differ from one another,
reflecting the daily expense accruals of the higher distribution fees and
transfer agency costs applicable with respect to the Class B shares and Class C
shares and the differential in the
26
<PAGE> 29
dividends paid on the classes of shares. The price paid for shares purchased is
based on the next calculation of net asset value (plus sales charges where
applicable) after an order 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. Orders received by authorized dealers after the close of
the Exchange are priced based on the next close provided they are received by
the Distributor prior to the Distributor's close of business on such day. It is
the responsibility of authorized dealers to transmit orders received by them to
the Distributor so they will be received prior to such time. Orders of less than
$500 are mailed by the authorized dealer and processed at the offering price
next calculated after acceptance by ACCESS.
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 B shares
and Class C shares bear the expenses of the deferred sales arrangement and any
expenses (including the higher distribution fee and transfer agency costs)
resulting from such sales arrangement, (ii) generally, each class has exclusive
voting rights with respect to approvals of the Rule 12b-1 distribution plan
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 net income attributable to Class B
shares and Class C shares and the dividends payable on Class B shares and Class
C shares will be reduced by the amount of the distribution fee and other
expenses associated with such shares. Sales personnel of authorized dealers
distributing the Fund's shares and other persons entitled to receive
compensation for selling such shares may receive differing compensation for
selling Class A shares, Class B shares or Class C shares.
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. Fees may include payment for
travel expenses, including lodging, incurred in connection with trips taken by
invited registered representatives and members of their families to locations
within or outside of the United States for meetings or seminars of a business
nature. In some instances additional compensation or promotional
27
<PAGE> 30
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 the Fund will receive from such sale.
CLASS A SHARES
The public offering price of Class A shares is the next determined net asset
value plus a sales charge, as set forth below.
SALES CHARGE TABLE
<TABLE>
<CAPTION>
REALLOWED TO
AS % OF DEALERS
SIZE OF AS % OF NET AMOUNT (AS % OF
INVESTMENT OFFERING 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 CDSC of
1.00% on redemptions made within one year of the purchase. A commission will
be paid to authorized dealers who initiate and are responsible for purchases
of $1 million or more as follows: 1.00% on sales to $2 million, plus 0.80%
on the next $1 million and 0.50% on the excess over $3 million.
In addition to the reallowances from the applicable public offering price
described herein, the Distributor may, from time to time, pay or allow
additional reallowances or promotional incentives, in the form of cash or other
compensation, to authorized dealers that sell shares of the Fund. Authorized
dealers which are reallowed all or substantially all of the sales charges may be
deemed to be underwriters for purposes of the 1933 Act.
The Distributor may also pay financial institutions (which may include banks)
and other industry professionals that provide services to facilitate
transactions in shares of the Fund for their clients a transaction fee up to the
level of the reallowance allowable to authorized dealers described herein. Such
financial institutions, other industry professionals and authorized dealers are
hereinafter referred to
28
<PAGE> 31
as "Service Organizations." Banks are currently prohibited 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 interpretation of federal law expressed herein and banks and other
financial institutions may be required to register as dealers pursuant to
certain state laws.
QUANTITY DISCOUNTS
Investors purchasing Class A shares may, under certain circumstances, be
entitled to pay reduced sales charges. The circumstances under which such
investors may pay reduced sales charges are described below.
Investors or their 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 the Adviser 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 preceding sales charge
table applies to the total dollar amount being invested by any person in shares
of the Fund, or in any combination of shares of the Fund and shares of other
Participating Funds, although other Participating Funds may have different sales
charges.
Cumulative Purchase Discount. The size of investment shown in the preceding
sales charge table may also be determined by combining the amount being invested
in shares of Participating Funds plus the current offering price of all shares
of the Participating Funds which have been previously purchased and are still
owned.
Letter of Intent. A Letter of Intent provides an opportunity for an investor
to obtain a reduced sales charge by aggregating the investments over a 13-month
period to determine the sales charge as outlined in the preceding sales charge
table. The size of investment shown in the preceding sales charge table also
includes
29
<PAGE> 32
purchases of shares of the Participating Funds over a 13-month period based on
the total amount of intended purchases plus the value of all shares of the
Participating Funds previously purchased and still owned. An investor may elect
to compute the 13-month period starting up to 90 days before the date of
execution of a Letter of Intent. Each investment made during the period receives
the reduced sales charge applicable to the total amount of the investment goal.
If the goal is not achieved within the period, the investor must pay the
difference between the sales charges applicable to the purchases made and the
sales charges previously paid. The initial purchase must be for an amount equal
to at least 5% of the minimum total 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 back-dating provisions, an adjustment will
be made at the expiration of the Letter of Intent to give effect to the lower
charge. Such adjustments in sales charge will be used to purchase additional
shares for the shareholder at the applicable discount category. Additional
information is contained in the application form accompanying this Prospectus.
OTHER PURCHASE PROGRAMS
Purchasers of Class A shares may be entitled to reduced initial sales charges
in connection with unit investment trust reinvestment programs and purchases by
registered representatives of selling firms or purchases by persons affiliated
with the Fund or the Distributor. The Fund reserves the right to modify or
terminate these arrangements at any time.
Unit Investment Trust Reinvestment Programs. 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, and with no minimum initial or subsequent
investment requirement if the administrator of an investor's unit investment
trust program meets certain uniform criteria relating to cost savings by the
Fund and the Distributor. The total sales charge for all other investments made
from unit trust distributions will be 1.00% of the offering price (1.01% of net
asset value). Of this amount, the Distributor will pay to the authorized dealer,
if any, through which such participation in the qualifying program was initiated
0.50% of the offering price as a dealer concession or agency commission. Persons
desiring more information with respect to this program, including the applicable
terms and conditions thereof, 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 ACCESS with appropriate backup data
for each participating investor in a computerized format fully compatible with
ACCESS' processing system.
30
<PAGE> 33
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 monthly basis only, even
if their investments are made more frequently. The Fund reserves the right to
modify or terminate this program at any time.
NAV Purchase Options Class A shares of the Fund may be purchased at net asset
value, upon written assurance that the purchase is made for investment purposes
and that the shares will not be resold except through redemption by the Fund by:
(1) Current or retired trustees or directors of funds advised by the Adviser
or Advisory Corp. and such persons' families and their beneficial
accounts.
(2) Current or retired directors, officers and employees of Morgan Stanley
Group Inc. and any of its subsidiaries, employees of an investment
subadviser to any fund described in (1) above or an affiliate of such
subadviser, and such persons' families and their beneficial accounts.
(3) Directors, officers, employees and, 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 detail with respect to such alliance
programs.
(6) Beneficial owners of shares of Participating Funds held by a retirement
plan or held in a tax-advantaged retirement account who purchase shares of
the
31
<PAGE> 34
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 Code, or custodial accounts
held by a bank created pursuant to Section 403(b) of the Code and
sponsored by non-profit organizations defined under Section 501(c)(3) of
the Code and assets held by an employer or trustee in connection with an
eligible deferred compensation plan under Section 457 of the Code. Such
plans will qualify for purchases at net asset value provided, 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 American Capital Trust Company served 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 and 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
32
<PAGE> 35
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 CDSC 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 ACCESS by the investment
adviser, trust company or bank trust department, provided that ACCESS receives
federal funds for the purchase by the close of business on the next business day
following acceptance of the order. An authorized dealer may charge a transaction
fee for placing an order to purchase shares pursuant to this provision or for
placing a redemption order with respect to such shares. Authorized dealers will
be paid a service fee as described herein under "Distribution and Service Plans"
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.
CLASS B SHARES
Class B shares are offered at net asset value. Class B shares which are
redeemed within five years of purchase are subject to a CDSC at the rates set
forth in the following table charged as a percentage of the dollar amount
subject thereto. The 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 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.
33
<PAGE> 36
The amount of the CDSC, 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 purchases of shares, all payments
during a month are aggregated and deemed to have been made on the last day of
the month.
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES CHARGE
AS A PERCENTAGE OF
YEAR SINCE PURCHASE DOLLAR AMOUNT SUBJECT TO CHARGE
- -------------------------------------------------------------------------------
<S> <C>
First.....................................................................4.00%
Second....................................................................4.00%
Third.....................................................................3.00%
Fourth....................................................................2.50%
Fifth.....................................................................1.50%
Sixth and after............................................................None
</TABLE>
- ------------------------------------------------------------------------------
In determining whether a CDSC 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 CDSC, second of shares held for over five years and
third of shares held longest during the five year period.
To provide an example, assume an investor purchased 100 shares at $10 per
share (at a cost of $1,000) and in the second year after purchase, the net asset
value per share is $12 and, during such time, the investor has acquired 10
additional shares upon dividend reinvestment. If at such time the investor makes
his or her first redemption of 50 shares (proceeds of $600), 10 shares will not
be subject to charge because of dividend reinvestment. With respect to the
remaining 40 shares, the charge is applied only to the original cost of $10 per
share and not to the increase in net asset value of $2 per share. Therefore,
$400 of the $600 redemption proceeds is subject to a deferred sales charge at a
rate of 4.00% (the applicable rate in the second year after purchase).
A commission or transaction fee of 4.00% of the purchase amount will be paid
to authorized dealers at the time of purchase. Additionally, the Distributor
may, from time to time, pay additional promotional incentives in the form of
cash or other compensation to authorized dealers that sell Class B shares of the
Fund.
CLASS C SHARES
Class C shares are offered at net asset value. Class C shares which are
redeemed within the first year of purchase are subject to a CDSC of 1.00%. The
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 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 in
34
<PAGE> 37
an amount of $1 million or more for Class C shares because it ordinarily will be
more advantageous for an investor making such an investment to buy Class A
shares.
In determining whether a CDSC 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 CDSC and second of shares held for more than one year.
A commission or transaction fee of up to 1.00% of the purchase amount will
generally be paid to authorized dealers at the time of purchase. Authorized
dealers also will be paid ongoing commissions and transaction fees of up to
0.75% of the average daily net assets of the Fund's Class C shares generally
annually commencing in the second year after purchase. Additionally, the
Distributor may, from time to time, pay additional promotional incentives in the
form of cash or other compensation to authorized dealers that sell Class C
shares of the Fund.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The CDSC is waived on redemptions of Class B shares and Class C shares (i)
following the death or disability (as defined in the Code) of a shareholder;
(ii) in connection with required minimum distributions from an IRA or other
retirement plan; (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 liquidate a shareholder's account as described herein under
"Redemption of Shares." The CDSC is also 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. See the Statement of
Additional Information for further discussion of waiver provisions.
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SHAREHOLDER SERVICES
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The Fund offers a number of shareholder services designed to facilitate
investment in its shares at little or no extra cost to the investor. The
following is a description of such services.
INVESTMENT ACCOUNT. ACCESS Investor Services, Inc. ("ACCESS"), transfer agent
for the Fund and a wholly-owned subsidiary of Van Kampen American Capital,
performs bookkeeping, data processing and administration services related to the
maintenance of shareholder accounts. Each shareholder has an investment account
under which the investor's shares of the Fund are held by ACCESS. Except as
described in this Prospectus, 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
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<PAGE> 38
statements quarterly from ACCESS showing any reinvestments of dividends and
capital gains distributions and any other activity in the account since the
preceding statement. Such shareholders also will receive separate confirmations
for each purchase or sale transaction other than reinvestment of dividends and
capital gains distributions and systematic purchases or redemptions. Additions
to an investment account may be made at any time by purchasing shares through
authorized dealers or by mailing a check directly to ACCESS.
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 American Capital Funds, c/o ACCESS, P.O. Box 418256,
Kansas City, MO 64141-9256, requesting an "affidavit of loss" and obtain a
Surety Bond in a form acceptable to ACCESS. On the date the letter is received,
ACCESS will calculate a fee for replacing the lost certificates equal to no more
than 2.00% of the net asset value of the issued shares, and bill the party to
whom the replacement certificate was mailed.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gains distributions in shares of
the Fund. Such shares are acquired at net asset value (without sales charge) on
the record date. 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 in writing to ACCESS. 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 ACCESS to debit a bank account on a regular
basis to invest predetermined amounts in the Fund. Additional information is
available from the Distributor or authorized dealers.
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
American Capital 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
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<PAGE> 39
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 ACCESS 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 ACCESS.
DIVIDEND DIVERSIFICATION. A shareholder may, upon written request or by
completing the appropriate section of the application accompanying this
Prospectus or by calling (800) 341-2911 or ((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 shares of the other fund. Both accounts must be of the same class and
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 as of
the payable date of the distribution.
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 values
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 the
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 be exchanged only upon receipt of
prior approval of the Adviser. It is the policy of the Adviser, under normal
circumstances, not to approve such request.
When Class B shares and Class C shares are exchanged among Participating
Funds, the holding period for purposes of computing the CDSC is based upon the
37
<PAGE> 40
date of the initial purchase of such shares from a Participating Fund. If such
Class B or Class C shares are redeemed and not exchanged for shares of another
Participating Fund, such Class B or Class C shares are subject to the CDSC
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 ACCESS or by contacting the telephone transaction line at (800)
421-5684. A shareholder automatically has telephone exchange privileges unless
otherwise designated in the application form accompanying this Prospectus. Van
Kampen American Capital and its subsidiaries, including ACCESS (collectively,
"VKAC"), 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 VKAC nor the Fund will be liable for
following telephone instructions which it reasonably believes to be genuine.
VKAC and the Fund may be liable for any losses due to unauthorized or fraudulent
instructions if reasonable procedures are not followed. If the exchanging
shareholder does not have an account in the fund whose shares are being
acquired, a new account will be established with the same registration, dividend
and capital gain 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 file a specific written 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.
A prospectus of any of these mutual 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.
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
38
<PAGE> 41
offering price next computed after receipt of instructions may establish a
quarterly, semi-annual or annual withdrawal plan. This plan provides for the
orderly use of the entire account, not only the income but also the 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, semi-annual 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 CDSC. 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 plan are reinvested in additional shares
at the next determined net asset value. If periodic withdrawals continuously
exceed reinvested dividends and capital gains distributions, the shareholder's
original investment will be correspondingly reduced and ultimately exhausted.
Withdrawals made concurrently with 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 the 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.
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.vkac.com
for further instruction. VKAC 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 VKAC 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, ACCESS may rely on the instructions of any one
owner.
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REDEMPTION OF SHARES
- ------------------------------------------------------------------------------
REGULAR REDEMPTIONS. Shareholders may redeem for cash some or all of their
shares of the Fund at any time. To do so, a written request in proper form must
be sent directly to ACCESS, P.O. Box 418256, Kansas City, Missouri 64141-9256.
39
<PAGE> 42
Shareholders may also place redemption requests through an authorized dealer.
Orders received from authorized dealers must be at least $500 unless transmitted
via the FUNDSERV network. The redemption price for such shares is the net asset
value next calculated after an order 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.
As described herein under "Purchase of Shares," redemptions of Class B shares
and Class C shares are subject to a CDSC. In addition, a CDSC of 1.00% may be
imposed on certain redemptions of Class A shares made within one year of
purchase for investments of $1 million or more. The CDSC incurred upon
redemption is paid to the Distributor in reimbursement for distribution-related
expenses. A custodian of a retirement plan account may charge fees based on the
custodian's fee schedule.
The request for redemption 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. For example, although the Fund normally does
not issue certificates for shares, it will do so if a special request has been
made to ACCESS. In the case of shareholders holding certificates, the
certificates for the shares being redeemed 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 ACCESS. Where Van Kampen American Capital Trust
Company serves as IRA custodian, special IRA, 403(b)(7), or Keogh distribution
forms must be obtained from and be forwarded to Van Kampen American Capital
Trust Company, P. O. Box 944, Houston, Texas 77001-0944. Contact the custodian
for information.
In the case of redemption requests sent directly to ACCESS, the redemption
price is the net asset value per share next determined after the request is
received.
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<PAGE> 43
Payment for shares redeemed will be made by check mailed within seven days after
acceptance by ACCESS 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. If the shares to be redeemed have been
recently purchased by check, ACCESS may delay mailing a redemption check 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.
TELEPHONE REDEMPTIONS. In addition to the regular redemption procedures set
forth above, 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 a
bank account of record as described below. To establish such privilege, a
shareholder must complete the appropriate section of the application
accompanying this Prospectus or call the 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. VKAC 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 VKAC nor the Fund
will be liable for following telephone instructions which it reasonably believes
to be genuine. VKAC and the Fund may be liable for any losses due to
unauthorized or fraudulent instructions if reasonable procedures are not
followed. Telephone redemptions may not be available if the shareholder cannot
reach ACCESS 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
regular redemption procedure previously described. Requests received by ACCESS
prior to 4:00 p.m., New York time, on a regular business day will be processed
at the net asset value per share determined that day. These privileges are
available for all accounts other than retirement accounts. The telephone
redemption privilege is not available for shares represented by certificates. If
an account has multiple owners, ACCESS 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 are expected to be wired on the next business day following the date
of redemption. This service is also not available with respect to shares held in
an individual
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<PAGE> 44
retirement account (IRA) for which Van Kampen American Capital Trust Company
acts as custodian. The Fund reserves the right at any time to terminate, limit
or otherwise modify this redemption privilege.
GENERAL REDEMPTION INFORMATION. The Fund may redeem any shareholder account
with a net asset value on the date of the notice of redemption less than the
minimum initial investment as specified in this Prospectus. At least 60 days
advance written notice of any such involuntary redemption will be given, and the
shareholder will be given an opportunity to purchase the required value of
additional shares at the next determined net asset value without sales charge.
Any involuntary redemption may only occur if the shareholder account is less
than the minimum initial investment due to shareholder redemptions.
REDEMPTION UPON DEATH OR DISABILITY. The Fund will waive the CDSC on
redemptions following the death or disability of a Class B shareholder or Class
C shareholder. An individual will be considered disabled for this purpose if he
or she meets the definition thereof in Section 72(m)(7) of the Code, which in
pertinent part defines a person as disabled if such person "is unable to engage
in any substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death or to be
of long-continued and indefinite duration." While the 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 disability before it determines to waive the
CDSC on Class B shares and Class C shares.
In cases of death or disability, the CDSC on Class B shares and Class C shares
will be waived where the decedent or disabled person is either an individual
shareholder or owns the shares as a joint tenant with right of survivorship or
is the beneficial owner of a custodial or fiduciary account, and where the
redemption is made within one year of the death or initial determination of
disability. This waiver of the CDSC on Class B shares and Class C shares applies
to a total or partial redemption, but only to redemptions of shares held at the
time of the death or initial determination of disability.
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 CDSC
paid upon such redemption. Such reinstatement is made at the net asset value
(without sales charge except as described under "Shareholder
Services -- Exchange Privilege") next determined after the order is received,
which must be within 180 days after the date of the redemption. Reinstatement at
net asset value is also offered to participants in those eligible retirement
plans held or administered by Van Kampen
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<PAGE> 45
American Capital Trust Company for repayment of principal, and interest, on
their borrowings on such plans.
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DISTRIBUTION AND SERVICE PLANS
- ------------------------------------------------------------------------------
The Fund has adopted a distribution plan (the "Distribution Plan") with
respect to each class of its shares pursuant to Rule 12b-1 under the 1940 Act.
The Fund also has adopted a service plan (the "Service Plan") with respect to
each class of its shares. The Distribution Plan and the Service Plan 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 each class. The Distribution Plan and the Service
Plan are being implemented through an agreement with the Distributor and
sub-agreements between the Distributor and brokers, dealers or financial
intermediaries (collectively, "Selling Agreements") that may provide for their
customers or clients certain services or assistance.
CLASS A SHARES. 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. The Fund pays
the Distributor the lesser of the balance of the 0.25% not paid to such brokers,
dealers or financial intermediaries or the amount of the Distributor's actual
distribution-related expense.
CLASS B SHARES. The Fund may spend up to 0.75% per year of the average daily
net assets attributable to the Class B 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. 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. From such amount, the Fund, or the Distributor as agent for
the Fund, pays brokers, dealers or financial intermediaries in connection with
the distribution of the Class C shares up to 0.75% of the Fund's average daily
net assets attributable to Class C shares maintained in the Fund more than one
year by such broker's, dealer's or financial intermediary's customers. The Fund
pays the Distributor the lesser of the balance of 0.75% not paid to such
brokers, dealers or financial
43
<PAGE> 46
intermediaries or the amount of the Distributor's actual distribution-related
expense attributable to the Class C shares. 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.
OTHER INFORMATION. Amounts payable to the Distributor with respect to the
Class A shares under the Distribution Plan in a given year may not fully
reimburse the Distributor for its actual distribution-related expenses during
such year. In such event, with respect to the Class A shares, there is no
carryover of such reimbursement obligations to succeeding years.
The Distributor's actual expenses with respect to Class B shares or Class C
shares for any given year may exceed the amounts payable to the Distributor with
respect to such class of shares under the Distribution Plan, the Service Plan
and payments received pursuant to the CDSC. In such event, with respect to any
such class of shares, any unreimbursed expenses will be carried forward and paid
by the Fund (up to the amount of the actual expenses incurred) in future years
so long as such Distribution Plan is 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 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, 1997, there were $2,203,968 and $119,214 of unreimbursed
distribution-related expenses with respect to Class B shares and Class C shares,
respectively, representing 3.01% and 0.68% of the Fund's net assets attributable
to Class B shares and Class C shares, respectively. If the Distribution Plan was
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 CDSCs.
The Distributor will not use the proceeds from the CDSC applicable to a
particular class of shares to defray distribution-related expenses attributable
to any other class of shares. Various federal and state laws prohibit national
banks and some state-chartered commercial banks from underwriting or dealing in
the Fund's shares. In addition, state securities laws on this issue may differ
from the interpretations of federal law, and banks and financial institutions
may be required to register as dealers pursuant to state law. In the unlikely
event that a court were to find that these laws prevent such banks from
providing such services described above, the
44
<PAGE> 47
Fund would seek alternate providers and expects that shareholders would not
experience any disadvantage.
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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.
DIVIDENDS. Dividends from net investment income (including but not limited to
dividends received by the Fund from in its investments in stocks and interest
earned from other investments) are the Fund's main source of income.
Substantially all of this income, less expenses, is distributed quarterly as
dividends to shareholders. Dividends automatically are applied to purchase
additional shares of the Fund at the next determined net asset value. See
"Shareholder Services -- Reinvestment Plan."
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 their purchase prices. The Fund at least annually distributes to
shareholders its net capital gains, which are the excess of the Fund's net
long-term capital gains, if any, on the sale of securities during the year over
its net short-term capital losses on the sale of securities, including capital
losses carried forward from prior years in accordance with tax laws. 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 elects
otherwise. See "Shareholder Services -- Reinvestment Plan."
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TAX STATUS
- ------------------------------------------------------------------------------
FEDERAL INCOME TAXATION OF THE FUND. The Fund has elected and qualified and
intends to continue to qualify each year and to elect 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 tax-exempt interest, taxable
income and net short-term capital gain, but not net capital gains, which are the
excess of net long-term capital gains over net short-term capital losses), it
will not be required to pay
45
<PAGE> 48
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.
In order to avoid a 4% excise tax, the Fund will be required to distribute, by
December 31 of each year, at least 98% of its ordinary income (not including
tax-exempt income) for such year and at least 98% of its capital gain net income
(the latter of which generally is computed on the basis of the one-year period
ending on October 31 of such year), plus any amounts that were not distributed
in previous taxable years. For purposes of the excise tax, any ordinary income
or capital gain net income retained by, and subject to federal income tax in the
hands of, 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
46
<PAGE> 49
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.
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: (1) at least 75% of its gross income is passive or (2) 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 (i) on a portion of
any "excess distribution" received on the stock or (ii) on any gain from a sale
or disposition of the stock (collectively "PFIC income"), plus interest thereon,
even if the regulated investment company distributes the PFIC income as a
taxable dividend to its stockholders. 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 by
the Fund to satisfy the distribution requirement for avoiding income and excise
taxes. In many instances it may 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 certain publicly traded PFIC stock (a "PFIC Mark-to-Market
Election"). "Marking-to-market," in this context, means recognizing as ordinary
income or loss each year an amount equal to the difference between the Fund's
adjusted tax basis in such PFIC stock and its fair market value. Losses will be
allowed only to the extent of net mark-to-market gain previously included by the
Fund pursuant to the election for prior taxable years. The Fund may be required
to include in its taxable income for the first taxable year in which it makes a
PFIC Mark-to-Market Election an amount equal to the interest charge that would
otherwise accrue with respect to distributions on, or dispositions of, the PFIC
stock. This amount would not be deductible from the Fund's taxable income. The
PFIC Mark-to-Market Election applies to the taxable year for which made and to
all subsequent taxable years, unless the PFIC stock ceases to be publicly traded
or the Internal Revenue Service consents to revocation of the election. By
making the PFIC Mark-to-Market Election, the Fund could ameliorate the adverse
tax consequences arising
47
<PAGE> 50
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 gain 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 gain dividends), see "Capital Gains Rates Under the 1997 Tax
Act" 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 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 portion of
the distributions from the Fund will 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 31 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 and other taxes imposed by foreign countries and
U.S. possessions. Such taxes will not be deductible or creditable by
shareholders.
48
<PAGE> 51
Tax conventions between certain countries and the United States may reduce or
eliminate such taxes.
Under Code Section 988, foreign currency gains or losses from certain forward
contracts not traded in the interbank market as well as certain other gains or
losses attributable to currency exchange rate fluctuations are typically treated
as ordinary income or loss. Such income or loss may increase or decrease (or
possibly eliminate) the Fund's 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 gain.
Generally, a shareholder's tax basis in Fund shares will be reduced to the
extent that an amount distributed to such shareholder is treated as a return of
capital.
The Fund is required, in certain circumstances, to withhold 31% of dividends
and certain other payments, including redemptions, paid to shareholders who do
not furnish to the Fund their correct taxpayer identification number (in the
case of individuals, their social security number) and certain required
certifications or who are otherwise subject to backup withholding.
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 and will be long-term if such shares
have been held for more than one year. For a summary of the tax rates applicable
to capital gains, see "Capital Gains Rates Under the 1997 Tax Act" below. Any
loss recognized upon a taxable disposition of shares held for six months or less
will be treated as a long-term capital loss to the extent of any capital gain
dividends received with respect to such shares. For purposes of determining
whether shares have been held for six months or less, the holding period is
suspended for any periods during which the shareholder's risk of loss is
diminished as a result of holding one or more other positions in substantially
similar or related property or through certain options or short sales.
CAPITAL GAINS RATES UNDER THE 1997 TAX ACT. Under the Taxpayer Relief Act of
1997 (the "1997 Tax Act"), 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, (ii) 28% for capital assets held for more than one year but not more than
18 months and (iii) 20% for capital assets held for more than 18 months. The
maximum net capital gains tax rate for corporations remains at 35%. The tax
rates for capital gains described above will apply to distributions of capital
gain dividends by the Fund (if,
49
<PAGE> 52
as expected, the Fund designates capital gain dividends as 28% rate gain
distributions or 20% rate gain distributions, in accordance with its holding
periods for the securities sold that generated such capital gain dividends) as
well as to sales and exchanges of shares in the Fund. With respect to capital
losses recognized on dispositions of shares held six months or less where such
losses are treated as long-term capital losses to the extent of prior capital
gain distributions received on such shares (see "Sale of Shares" above), it is
unclear how such capital losses offset the capital gains referred to above.
Shareholders should consult their own tax advisers as to the application of the
new capital gains rates to their particular circumstances.
GENERAL. The federal, state and local income tax discussion set forth above
is for general information only. Prospective investors should consult their
advisors regarding the specific federal tax consequences of purchasing, holding
and disposing of shares, as well as the effects of state, local and foreign tax
law and any proposed tax law changes.
- ------------------------------------------------------------------------------
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 or for the life of the
Fund. 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 a maximum sales charge of 4.75% 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 CDSC 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.
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.
50
<PAGE> 53
Total return is calculated separately for Class A shares, Class B shares and
Class C shares. Class A shares' total return figures include the maximum sales
charge of 4.75%; Class B shares' and Class C shares' total return figures
include any applicable CDSC. Because of the differences in sales charges and
distribution fees, the total returns for each of the classes will differ.
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 gain 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.
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 Index, NAREIT Equity REIT Index, Lehman Brothers REIT Index,
Salomon Brothers High Grade Bond Index, 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 Fund 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.
51
<PAGE> 54
The Fund may also utilize performance information in hypothetical
illustrations provided in narrative form. These hypotheticals will be
accompanied by standard performance information required by the SEC as described
above.
The Fund's Annual Report and Semi-Annual Report contain additional performance
information. A copy of the Annual Report or Semi-Annual Report may be obtained,
without charge, by calling or writing the Fund at the telephone number and
address printed on the cover of this prospectus.
- ------------------------------------------------------------------------------
DESCRIPTION OF SHARES OF THE FUND
- ------------------------------------------------------------------------------
The Fund was originally incorporated in Maryland on April 14, 1994. The Fund
was reorganized as a business trust under the laws of the State of Delaware as
of August 19, 1995 and adopted its current name at that time.
The authorized capitalization of the Fund consists of an unlimited number of
shares of beneficial interest, par value $0.01 per share, divided into classes.
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 Fund's Declaration of Trust.
Each class of shares represents an interest in the same assets of the Fund and
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. Except as described herein, there are no conversion,
preemptive or other subscription rights. 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 debt and expenses of the Fund have been paid. Since Class B
shares and Class C shares pay higher distribution fees and transfer agency
costs, the liquidation proceeds to Class B shareholders and Class C shareholders
are likely to be lower than to other shareholders.
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 two-thirds 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
1940 Act. More detailed information concerning the Fund is set forth in the
Statement of Additional Information.
The Fund's Declaration of Trust provides that no Trustee, officer or
shareholder of the Fund shall be held to any personal liability, nor shall
resort be had to his or her private property for the satisfaction of any
obligation or liability of the Fund but the assets of the Fund only shall be
liable.
52
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- ------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- ------------------------------------------------------------------------------
This Prospectus and the Statement of Additional Information do not contain all
the information set forth in the Registration Statement filed by the Fund with
the SEC under the 1933 Act. Copies of the Registration Statement may be obtained
at a reasonable charge from the SEC or may be examined, without charge, at the
office of the SEC in Washington, D.C.
The fiscal year end of the Fund is December 31. The Fund sends to its
shareholders at least semi-annually reports showing the Fund's portfolio and
other information. An Annual Report, containing financial statements audited by
the Fund's independent accountants, is sent to shareholders each year. After the
end of each year, shareholders will receive federal income tax information
regarding dividends and capital gains distributions.
53
<PAGE> 56
- ------------------------------------------------------------------------------
APPENDIX--DESCRIPTION OF BOND RATINGS
- ------------------------------------------------------------------------------
MOODY'S INVESTORS SERVICE, INC.
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
54
<PAGE> 57
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Nonrated: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not rated as
a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published
in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa 1,
A 1, Baa 1, Ba 1 and B 1.
STANDARD & POOR'S RATINGS GROUP
AAA: Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in a small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C: Debt rated BB, B, CCC, CC and C is regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
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<PAGE> 58
lowest degree of speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
CI: The rating CI is reserved for income bonds on which no interest is being
paid.
Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
NR: Indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that Standard & Poor's does not rate a
particular type of obligation as a matter of policy.
PREFERRED STOCK RATINGS
Both Moody's and Standard & Poor's use the same designations for corporate
bonds as they do for preferred stock, except in the case of Moody's preferred
stock ratings, the initial letter rating is not capitalized. While the
descriptions are tailored for preferred stocks, the relative quality
distinctions are comparable to those described above for corporate bonds.
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<PAGE> 59
EXISTING SHAREHOLDERS--
FOR INFORMATION ON YOUR
EXISTING ACCOUNT PLEASE CALL
THE FUND'S TOLL-FREE
NUMBER--(800) 341-2911
PROSPECTIVE INVESTORS--CALL
YOUR BROKER OR (800) 421-5666
DEALERS--FOR DEALER
INFORMATION, SELLING
AGREEMENTS, WIRE ORDERS,
OR REDEMPTIONS CALL THE
DISTRIBUTOR'S TOLL-FREE
NUMBER--(800) 421-5666
FOR SHAREHOLDER AND
DEALER INQUIRIES THROUGH
TELECOMMUNICATIONS
DEVICE FOR THE DEAF (TDD)
DIAL (800) 421-2833
FOR AUTOMATED TELEPHONE
SERVICES
DIAL (800) 847-2424
VAN KAMPEN AMERICAN CAPITAL
REAL ESTATE SECURITIES FUND
One Parkview Plaza
Oakbrook Terrace, IL 60181
Investment Adviser
VAN KAMPEN AMERICAN CAPITAL
ASSET MANAGEMENT, INC.
One Parkview Plaza
Oakbrook Terrace, IL 60181
Distributor
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, IL 60181
Transfer Agent
ACCESS INVESTOR SERVICES, INC.
P.O. Box 418256
Kansas City, MO 64141-9256
Attn: Van Kampen American Capital Real Estate Securities Fund
Custodian
STATE STREET BANK AND
TRUST COMPANY
225 West Franklin Street
P.O. Box 1713
Boston, MA 02105-1713
Attn: Van Kampen American Capital Real Estate Securities Fund
Legal Counsel
SKADDEN, ARPS, SLATE
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
Independent Accountants
PRICE WATERHOUSE LLP
200 East Randolph Drive
Chicago, IL 60601
<PAGE> 60
------------------------------------------------------------------------------
REAL ESTATE
SECURITIES FUND
------------------------------------------------------------------------------
P R O S P E C T U S
APRIL 30, 1998
------ A WEALTH OF KNOWLEDGE - A KNOWLEDGE OF WEALTH ------
VAN KAMPEN AMERICAN CAPITAL
------------------------------------------------------------------------
<PAGE> 61
STATEMENT OF ADDITIONAL INFORMATION
VAN KAMPEN AMERICAN CAPITAL REAL ESTATE SECURITIES FUND
Van Kampen American Capital Real Estate Securities Fund (the "Fund") is a
diversified, open-end management investment company. 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 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 American Capital Distributors, Inc. at One Parkview Plaza,
Oakbrook Terrace, Illinois 60181 at (800) 421-5666.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information......................................... B- 2
Investment Policies and Techniques.......................... B- 3
Investment Restrictions..................................... B-11
Trustees and Officers....................................... B-13
Legal Counsel............................................... B-22
Investment Advisory Agreement............................... B-22
Distributor................................................. B-23
Distribution and Service Plans.............................. B-24
Transfer Agent.............................................. B-25
Portfolio Transactions and Brokerage........................ B-25
Determination of Net Asset Value............................ B-26
Purchase and Redemption of Shares........................... B-27
Exchange Privilege.......................................... B-29
Tax Status of the Fund...................................... B-29
Fund Performance............................................ B-29
Other Information........................................... B-30
Report of Independent Accountants........................... B-31
Financial Statements........................................ B-32
Notes to Financial Statements............................... B-41
</TABLE>
THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED APRIL 30, 1998.
B-1
<PAGE> 62
GENERAL INFORMATION
The Fund was incorporated originally in Maryland on April 14, 1994 under
the name American Capital Real Estate Securities Fund, Inc. As of August 19,
1995, the Fund was reorganized as a series of Van Kampen American Capital Real
Estate Securities Fund (the "Trust"), a business trust organized under the laws
of the State of Delaware, and adopted its current name.
Van Kampen American Capital Asset Management, Inc. (the "Adviser"), Van
Kampen American Capital Distributors, Inc. (the "Distributor"), and ACCESS
Investor Services, Inc. ("ACCESS") are wholly-owned subsidiaries of Van Kampen
American Capital, Inc. ("Van Kampen American Capital" or "VKAC"), which is an
indirect wholly-owned subsidiary of Morgan Stanley Dean Witter & Co. The
principal office of the Fund, the Adviser, the Distributor and VKAC is located
at One Parkview Plaza, Oakbrook Terrace, Illinois 60181.
Morgan Stanley Dean Witter & Co. and various of its directly or indirectly
owned subsidiaries, including Morgan Stanley Asset Management Inc., 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 global custody, securities clearance services and
securities lending.
VKAC's equity fund philosophy is to normally remain fully invested to
achieve consistent long-term returns.
VKAC believes that investment real estate is an asset class that often is
overlooked by investors.
As of April 3, 1998, 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 set forth below.
<TABLE>
<CAPTION>
AMOUNT OF CLASS
NAME AND ADDRESS OWNERSHIP AT OF PERCENTAGE
OF HOLDER APRIL 3, 1998 SHARES OWNERSHIP
---------------- ------------- ------ ----------
<S> <C> <C> <C>
Merrill Lynch Pierce 666,442 shares B 11.41%
Fenner & Smith Inc. 124,316 shares C 9.26%
Mutual Fund Operations
Attn Fund Administration
4800 Deer Lake Dr., E. 3rd FL
Jacksonville, FL 32246-6484
Van Kampen American Capital Trust 544,238 shares A 13.42%
Company 503,052 shares B 8.62%
2800 Post Oak Blvd. 94,254 shares C 7.02%
Houston, Texas 77056
PaineWebber for the Benefit of 74,747 shares C 5.57%
Schoellkopf Shenandoah
Partnership, Ltd.
3303 Lee Parkway
Suite 405
Dallas, TX 75219-5109
</TABLE>
Van Kampen American Capital Trust Company acts as custodian for certain
employee benefits and individual retirement accounts.
B-2
<PAGE> 63
INVESTMENT POLICIES AND TECHNIQUES
The Fund's primary investment objective is to seek to provide long-term
growth of capital. Current income is a secondary investment objective. The
following disclosures supplement disclosures set forth in the Prospectus.
Readers must refer also to the Prospectus for a complete presentation.
DEPOSITARY RECEIPTS
The Fund may invest in the securities of foreign issuers in the form of
American Depositary Receipts (ADRs), European Depositary Receipts (EDRs) or
other securities convertible into securities of foreign issuers. These
securities may not necessarily be denominated in the same currency as the
securities into which they may be converted but rather 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. EDRs are receipts issued in Europe by banks or
depositories which evidence a similar ownership arrangement. Generally, ADRs in
registered form, are designed for use in United States securities markets and
EDRs, in bearer form, are designed for use in European securities markets.
OPTIONS, FUTURES CONTRACTS AND RELATED OPTIONS
The Fund may engage in transactions in options, futures contracts and
options on futures contracts. Set forth below is certain additional information
regarding options, futures contracts and related options. See Prospectus for
further information.
SELLING CALL AND PUT OPTIONS
Purpose. The principal reason for selling options is to obtain, through
receipt of premiums, a greater current return or total return than would be
realized on the underlying securities alone.
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
writer at a specified price during a certain period. The Fund sells call options
either 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 but is designed to provide a hedge against a
security which the Fund owns or has the right to acquire. 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
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 sells 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 seller 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 written 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 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 written. If
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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 written, it will be
required to maintain the securities subject to the call or the collateral
underlying the put 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.
The exercise price of call options may be below ("in-the-money"), equal to
("at-the-money"), or above ("out-of-the-money") the current market value of the
underlying securities or futures contracts at the time the options are written.
The converse applies to put options.
Risks of Selling 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. In
addition, the Fund may purchase call options 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 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 INDEXES
Options on stock indexes 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 seller 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. Indexes 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 The Chicago Board Options Exchange, the American Stock Exchange and other
exchanges. The Fund may sell or purchase options which are listed on an exchange
as well as options which are traded over-the-counter.
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.
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RISK FACTORS APPLICABLE TO OPTIONS ON U.S. GOVERNMENT SECURITIES
Treasury Bonds and Notes. Because trading interest 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 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, sellers 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 seller 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. Should this occur, the
Fund will purchase additional mortgage-related securities from the same pool (if
obtainable) or replacement mortgage-related securities in the cash market in
order to maintain its cover. A mortgage-related security held by the Fund to
cover an option position in any but the nearest expiration month may cease to
represent cover for the option in the event of a decline in the coupon rate at
which new pools are originated under the FHA/VA loan ceiling in effect at any
given time. If this should occur, the Fund will no longer be covered, and the
Fund will either enter into a closing purchase transaction or replace such
mortgage-related security with a mortgage-related security which represents
cover. When the Fund closes its position or replaces such mortgage-related
security, it may realize an unanticipated loss and incur transaction costs.
FOREIGN CURRENCY OPTIONS
The Fund may purchase put and call options on foreign currencies to reduce
the risk of currency exchange fluctuation. Premiums paid for such put and call
options will be limited to no more than 5% of the Fund's net assets at any given
time. Options on foreign currencies operate similarly to options on securities,
and are traded primarily in the over-the-counter market, although options on
foreign currencies are traded on United States and foreign exchanges.
Exchange-traded options are expected to be purchased by the Fund from time to
time and over-the-counter options may also be purchased, but only when the
Adviser believes that a liquid secondary market exists for such options,
although there can be no assurance that a liquid secondary market will exist for
a particular option at any specific time. Options on foreign currencies are
affected by all of those factors which influence foreign exchange rates and
investment generally. See "Investment Practices -- Using Options, Futures
Contracts and Related Options" in the Prospectus.
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.
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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.
FUTURES CONTRACTS
The Fund may engage in transactions involving futures contracts and related
options in accordance with rules and interpretations of the Commodity Futures
Trading Commission ("CFTC") under which the Fund would be exempt from
registration as a "commodity pool."
Types of Contracts. 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, U.S. Treasury notes, U.S. Treasury bills
and GNMA Certificates) at a specified future time and at a specified price.
Interest rate futures contracts also include cash settlement contracts based
upon a specified interest rate such as the London interbank offering rate for
dollar deposits, LIBOR.
A stock index futures contract is an agreement pursuant to which a party
agrees to take or make delivery of cash equal to a specified dollar amount times
the difference between the stock index value at a specified time and the price
at which the futures contract is originally struck. No physical delivery of the
underlying stocks in the index is made.
Currently, stock index futures contracts can be purchased with respect to
the Standard & Poor's 500 Stock Index on the Chicago Mercantile Exchange
("CME"), the New York Stock Exchange Composite Index on the New York Futures
Exchange and the Value Line Stock Index on the Kansas City Board of Trade.
Differences in the stocks included in the indexes may result in differences in
correlation of the futures contracts with movements in the value of the
securities being hedged.
Initial and Variation Margin. In contrast to the purchase or sale of a
security, no purchase 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 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
serves as a temporary
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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 substantially
reduces 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 with
attendant transaction costs. Ordinarily transaction costs associated with
futures transactions are lower than the transaction costs which would be
incurred in the purchase or sale of the underlying securities.
Foreign stock index futures traded outside the United States include the
Nikkei Index of 225 Japanese stocks traded on the Singapore International
Monetary Exchange ("Nikkei Index"), Osaka Index of 50 Japanese stocks traded on
the Osaka Exchange, Financial Times Stock Exchange Index of the 100 largest
stocks on the London Stock Exchange, the All Ordinaries Share Price Index of 307
stocks on the Sydney, Melbourne Exchanges, Hang Seng Index of 33 stocks on the
Hong Kong Stock Exchange, Barclays Share Price Index of 40 stocks on the New
Zealand Stock Exchange and Toronto Index of 35 stocks on the Toronto Stock
Exchange. Futures and futures options on the Nikkei Index are traded on the
Chicago Mercantile Exchange and United States commodity exchanges may develop
futures and futures options on other indices of foreign securities. Futures and
options on United States devised index of foreign stocks are also being
developed. Investments in securities of foreign entities and securities
denominated in foreign currencies involve risks not typically involved in
domestic investment, including fluctuations in foreign exchange rates, future
foreign political and economic developments, and the possible imposition of
exchange controls or other foreign or United States governmental laws or
restrictions applicable to such investments.
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, currency or index 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 this 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, currency or index underlying
the futures contract. Conversely, the Fund could buy or sell futures contracts
in a lesser dollar amount than the dollar amount of the securities being hedged
if the historical volatility of the securities being hedged is less than the
historical volatility of the securities, currency or index underlying the
futures contract. 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, currency 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 depositary
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.
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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
predict correctly 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 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, 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. Option on futures contracts to be sold or purchased by the
Fund will be traded on United States or foreign exchange or over-the-counter.
The Fund will not enter into futures contracts or option transaction
(except for closing transactions) for other than bona fide hedging purposes if,
immediately thereafter, the sum of its initial margin and premiums on open
futures contracts and options exceeds 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 sell options on futures contracts. Options
on futures contracts to be sold or purchased by the Fund will be traded on
United States or foreign exchanges or over-the-counter. 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 is 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 sell put options at a lower strike price (a
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"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 contract.
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 level of the index or in
the price of the underlying security, 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 and Futures Transactions. Each of the United
States 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 sold 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 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.
ADDITIONAL RISKS OF OPTIONS ON FUTURES CONTRACTS, FORWARD CONTRACTS AND OPTIONS
ON FOREIGN CURRENCIES
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 Securities and Exchange Commission ("SEC"). To the contrary,
such instruments are traded through financial institutions acting as
market-makers, although foreign currency options are also traded on certain
national securities exchanges, such as the Philadelphia Stock Exchange and the
Chicago Board Options Exchange, subject to SEC regulation. Similarly, options on
currencies may be traded over-the-counter. In an over-the-counter trading
environment, many of the protections afforded to exchange participants will not
be available. For example, there are no daily price fluctuation limits, and
adverse market movements could, therefore, continue to an unlimited extent over
a period of time. Although the 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 seller 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,
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exercise and settlement of such options must be made exclusively through the
OCC, which has established banking relationships in applicable foreign countries
for this purpose. As a result, the OCC may, if it determines that foreign
governmental restrictions or taxes would prevent the orderly settlement of
foreign currency option exercises, or would result in undue burdens on the OCC
or its clearing member, impose special procedures on exercise and settlement,
such as technical changes in the mechanics of delivery of currency, the fixing
of dollar settlement prices or prohibitions, on exercise.
In addition, futures contracts, options on futures contracts, forward
contracts and options on foreign currencies may be traded on foreign exchanges.
Such transactions are subject to the risk of governmental actions affecting
trading in or the prices of foreign currencies or securities. The value of such
positions also could be adversely affected by (i) other complex foreign
political and economic factors, (ii) lesser availability than in the United
States of data on which to make trading 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.
FORWARD COMMITMENTS
Relative to a Forward Commitment purchase, the Fund maintains a segregated
account (which is marked to market daily) of cash, cash equivalents or liquid
securities (which may have maturities which are longer than the term of the
Forward Commitment) with the Fund's custodian in an aggregate amount equal to
the amount of its commitment as long as the obligation to purchase continues.
Since the market value of both the securities or currency subject to the Forward
Commitment and the securities or currency held in the segregated account may
fluctuate, the use of Forward Commitments may magnify the impact of interest
rate changes on the Fund's net asset value.
A Forward Commitment sale is covered if the Fund owns or has the right to
acquire the underlying securities or currency subject to the Forward Commitment.
A Forward 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. In either
circumstance, the Fund maintains in a segregated account (which is marked to
market daily) either the security or currency covered by the Forward Commitment
or cash, cash equivalents or liquid securities (which may have maturities which
are longer than the term of the Forward Commitment) with the Fund's custodian in
an aggregate amount equal to the amount of its commitment as long as the
obligation to sell continues. 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.
REPURCHASE AGREEMENTS
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. 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, usually not
more than seven days from the date of purchase, thereby determining the yield
during the purchaser's holding period. Repurchase agreements are fully
collateralized by the underlying debt securities and are considered to be loans
under the Investment Company Act of 1940, as amended (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 is 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 securities
unless the seller defaults under its repurchase obligation. In the event of a
bankruptcy or other default of a seller of a repurchase agreement, the Fund
could experience both delays in liquidating the underlying securities and loss
including: (a) possible decline in the value of the underlying security during
the period while the Fund seeks to enforce its rights thereto, (b) possible lack
of access to income on the underlying security during this period, and
B-10
<PAGE> 71
(c) expenses of enforcing its rights. See "Investment Practices -- Repurchase
Agreements" in the Prospectus for further information.
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 shares, which is defined by the 1940 Act as the lesser of (i)
67% or more of the voting securities present at the 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 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. With respect to 75% of its total assets, invest more than 5% of its
assets in the securities of any one issuer (except the U.S. Government,
its agencies and instrumentalities) or purchase more than 10% of the
outstanding voting securities of any one issuer, 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.
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 or securities except by the purchase of a portion of an
issue of bonds, debentures or other obligations of types commonly
distributed to institutional investors publicly or privately (in the
latter case the investment will be subject to the stated limits on
investments in "restricted securities"), and except by the purchase of
securities subject to repurchase agreements.
5. Buy or sell 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 operating in the real estate industry, including real
estate investment trusts. The Fund may hold and sell real estate
acquired as a result of the ownership of its securities.
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."
8. Concentrate its investment in any one industry, except that the Fund
will invest more than 25% of its total assets in the real estate
industry 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.
9. Write, purchase or sell puts, calls or combinations thereof, except
that the Fund may (a) write covered or fully collateralized call
options, write secured put options, and enter into closing or
B-11
<PAGE> 72
offsetting purchase transactions with respect to such options, (b)
purchase and sell options to the extent that the premiums paid for all
such options owned at any time do not exceed 10% of its total assets
and (c) engage in transactions in futures contracts and related options
transactions provided that such transactions are entered into for bona
fide hedging purposes (or meet certain conditions as specified in CFTC
regulations), and provided further that the aggregate initial margin
and premiums do not exceed 5% of the fair market value of the Fund's
total assets.
10. 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.
In addition to the foregoing fundamental investment 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 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.
2. 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.
3. The Fund may not invest in the securities issued by other investment
companies as part of a merger, reorganization or other acquisition,
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.
4. 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 or American Stock Exchange.
Warrants or rights acquired in units or attached to other securities
are not subject to the foregoing limitation.
5. The Fund may not invest in securities of any company if any officer or
trustee/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
trustees/directors who own more than 1/2 of 1% own in the aggregate
more than 5% of the outstanding securities of such issuer.
6. 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.
7. 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.
8. 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 does not apply to restricted
securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 which the Board of Trustees or the Adviser under
Board approved guidelines, may determine are liquid nor does it apply
to other securities for
B-12
<PAGE> 73
which, notwithstanding legal or contractual restrictions on resale, a
liquid market exists. Also excluded from this limitation on restricted
securities 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) an 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 restrictions as the Fund.
TRUSTEES AND OFFICERS
The tables below list the trustees and officers of the Fund and other
executive officers of the Fund's investment adviser and their principal
occupations for the last five years and their affiliations, if any, with VK/AC
Holding, Inc. ("VKAC Holding"), Van Kampen American Capital, Inc. ("Van Kampen
American Capital" or "VKAC"), Van Kampen American Capital Investment Advisory
Corp. ("Advisory Corp."), Van Kampen American Capital Asset Management, Inc.
("Asset Management"), Van Kampen American Capital Distributors, Inc., the
distributor of the Fund's shares (the "Distributor"), Van Kampen American
Capital Advisors Corp., Van Kampen Merritt Equity Advisors Corp., Van Kampen
American Capital Insurance Agency of Illinois, Inc., VK/AC System, Inc., Van
Kampen American Capital Record Keeping Services, Inc., American Capital
Contractual Services, Inc., Van Kampen American Capital Trust Company, Van
Kampen American Capital Exchange Corporation, and ACCESS Investors Services
Inc., the Fund's transfer agent ("ACCESS"). Advisory Corp. and Asset Management
sometimes are referred to herein collectively as the "Advisers". For purposes
hereof, the term "Fund Complex" includes each of the open-end investment
companies advised by the Advisers (excluding the Van Kampen American Capital
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 August 1996,
1632 Morning Mountain Road Chairman, Chief Executive Officer and President, MDT
Raleigh, NC 27614 Corporation (now known as Getinge/Castle, Inc., a
Date of Birth: 07/14/32 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.
Richard M. DeMartini*..................... President and Chief Operating Officer, Individual Asset
Two World Trade Center Management Group, a division of Morgan Stanley Dean
66th Floor Witter & Co. Mr. DeMartini is a Director of InterCapital
New York, NY 10048 Funds, Dean Witter Distributors, Inc. and Dean Witter
Date of Birth: 10/12/52 Trust Company. Trustee of the TCW/DW Funds. Director of
the National Healthcare Resources, Inc. Formerly Vice
Chairman of the Board of the National Association of
Securities Dealers, Inc. and Chairman of the Board of the
Nasdaq Stock Market, Inc. Trustee/Director of each of the
funds in the Fund Complex.
</TABLE>
B-13
<PAGE> 74
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
<S> <C>
Linda Hutton Heagy........................ Managing Partner of Heidrick & Stuggles, an executive
Sears Tower search firm. Prior to 1997, Partner, Ray & Berndtson,
233 South Wacker Drive Inc., an executive recruiting and management consulting
Suite 7000 firm. Formerly, Executive Vice President of ABN AMRO,
Chicago, IL 60606 N.A., a Dutch bank holding company. Prior to 1992,
Date of Birth: 06/03/48 Executive Vice President of La Salle National Bank.
Trustee on the University of Chicago Hospitals Board, The
International House Board and the Women's Board of the
University of Chicago. Trustee/Director of each of the
funds in the Fund Complex.
R. Craig Kennedy.......................... President and Director, German Marshall Fund of the
11 DuPont Circle, N.W. United States. Formerly, advisor to the Dennis Trading
Washington, D.C. 20036 Group Inc. Prior to 1992, President and Chief Executive
Date of Birth: 02/29/52 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.
Jack E. Nelson............................ President, Nelson Investment Planning Services, Inc., a
423 Country Club Drive financial planning company and registered investment
Winter Park, FL 32789 adviser. President, Nelson Ivest Brokerage Services Inc.,
Date of Birth: 02/13/36 a member of the National Association of Securities
Dealers, Inc. ("NASD") and Securities Investors
Protection Corp. ("SIPC"). Trustee/Director of each of
the funds in the Fund Complex.
Don G. Powell*............................ Chairman, President and a Director of VKAC. Chairman and
2800 Post Oak Blvd. a Director of the Advisers and the Distributor. Chairman
Houston, TX 77056 and a Director of ACCESS. Director or officer of certain
Date of Birth: 10/19/39 other subsidiaries of VKAC. Chairman of the Board of
Governors and the Executive Committee of the Investment
Company Institute. Prior to November 1996, President,
Chief Executive Officer and a Director of VKAC Holding.
Trustee/Director of each of the funds in the Fund Complex
and other funds advised by the Advisers or Van Kampen
American Capital Management, Inc.
Phillip B. Rooney......................... Vice Chairman and Director of The ServiceMaster Company,
One ServiceMaster Way a business and consumer services company. Director of
Downers Grove, IL 60515 Illinois Tool Works, Inc., a manufacturing company; the
Date of Birth: 07/08/44 Urban Shopping Centers Inc., a retail mall management
company; and Stone Container Corp., a paper manufacturing
company. Trustee, University of Notre Dame. Formerly,
President and Chief Executive Officer, Waste Management,
Inc., an environmental services company, and prior to
that President and Chief Operating Officer, Waste
Management, Inc. Trustee/Director of each of the funds in
the Fund Complex.
Fernando Sisto............................ Professor Emeritus and, prior to 1995, Dean of the
155 Hickory Lane Graduate School, Stevens Institute of Technology.
Closter, NJ 07624 Director, Dynalysis of Princeton, a firm engaged in
Date of Birth: 08/02/24 engineering research. Trustee/Director of each of the
funds in the Fund Complex.
</TABLE>
B-14
<PAGE> 75
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
<S> <C>
Wayne W. Whalen*.......................... Partner in the law firm of Skadden, Arps, Slate, Meagher
333 West Wacker Drive & Flom (Illinois), legal counsel to the funds in the Fund
Chicago, IL 60606 Complex, and other open-end and closed-end funds advised
Date of Birth: 08/22/39 by the Advisers or Van Kampen American Capital
Management, Inc. Trustee/Director of each of the funds in
the Fund Complex, and other open-end and closed-end funds
advised by the Advisers or Van Kampen American Capital
Management, Inc.
</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
positions with Morgan Stanley Dean Witter & Co. or its affiliates.
B-15
<PAGE> 76
OFFICERS
Messrs. McDonnell, Hegel, Nyberg, Wood, Sullivan, Dalmaso, Martin,
Wetherell and Hill are located at One Parkview Plaza, Oakbrook Terrace, IL
60181. The Fund's other officers are located at 2800 Post Oak Blvd., Houston, TX
77056.
<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
------------ ----------------- ---------------------
<S> <C> <C>
Dennis J. McDonnell......... President Executive Vice President and a Director of
Date of Birth: 05/20/42 VKAC and VK/AC Holding, Inc. President,
Chief Operating Officer and a Director of
the Advisers, Van Kampen American Capital
Advisors, Inc., and Van Kampen American
Capital Management, Inc. President and a
Director of Van Kampen Merritt Equity
Advisors Corp. Prior to April of 1997, he
was a Director of Van Kampen Merritt Equity
Holdings Corp. Prior to September of 1996,
Mr. McDonnell was Chief Executive Officer
and Director of MCM Group, Inc., McCarthy,
Crisanti & Maffei, Inc. and Chairman and
Director of MCM Asia Pacific Company,
Limited and MCM (Europe) Limited. Prior to
November 1996, Executive Vice President and
a Director of VKAC Holding. Prior to July
of 1996, Mr. McDonnell was President, Chief
Operating Officer and Trustee of VSM Inc.
and VCJ Inc. President of each of the funds
in the Fund Complex. President, Chairman of
the Board and Trustee of other investment
companies advised by the Advisers or their
affiliates.
Peter W. Hegel.............. Vice President Executive Vice President of the Advisers,
Date of Birth: 06/25/56 Van Kampen American Capital Management,
Inc. and Van Kampen American Capital
Advisors, Inc. Prior to July of 1996, Mr.
Hegel was a Director of VSM Inc. Prior to
September of 1996, he was a Director of
McCarthy, Crisanti & Maffei, Inc. Vice
President of each of the funds in the Fund
Complex and certain other investment
companies advised by the Advisers or their
affiliates.
Curtis W. Morell............ Vice President and Chief Senior Vice President of the Advisers, Vice
Date of Birth: 08/04/46 Accounting Officer President and Chief Accounting Officer of
each of the funds in the Fund Complex and
certain other investment companies advised
by the Advisers or their affiliates.
</TABLE>
B-16
<PAGE> 77
<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
------------ ----------------- ---------------------
<S> <C> <C>
Ronald A. Nyberg............ Vice President and Secretary Executive Vice President, General Counsel,
Date of Birth: 07/29/53 Secretary and Director of VKAC and VK/AC
Holding, Inc. Mr. Nyberg is also Executive
Vice President, General Counsel and a
Director of Van Kampen Merritt Equity
Holdings Corp. Executive Vice President,
General Counsel, Assistant Secretary and a
Director of the Advisers and the
Distributor, Van Kampen American Capital
Advisors, Inc., Van Kampen American Capital
Management, Inc., Van Kampen American
Capital Exchange Corporation, American
Capital Contractual Services, Inc. and Van
Kampen American Capital Trust Company.
Executive Vice President, General Counsel
and Assistant Secretary of ACCESS. Director
or officer of certain other subsidiaries of
VKAC. Prior to June of 1997, Director of
ICI Mutual Insurance Co., a provider of
insurance to members of the Investment
Company Institute. Prior to April of 1997,
he was Executive Vice President, General
Counsel and Director of Van Kampen Merritt
Equity Advisors Corp. Prior to July of
1996, Mr. Nyberg was Executive Vice
President and General Counsel of VSM Inc.
and Executive Vice President and General
Counsel of VCJ Inc. Prior to September of
1996, he was General Counsel of McCarthy,
Crisanti & Maffei, Inc. Vice President and
Secretary of each of the funds in the Fund
Complex and certain other investment
companies advised by the Advisers or their
affiliates.
Alan T. Sachtleben.......... Vice President Executive Vice President of the Advisers,
Date of Birth: 04/20/42 Van Kampen American Capital Management,
Inc. and Van Kampen American Capital
Advisors, Inc. Vice President of each of
the funds in the Fund Complex and certain
other investment companies advised by the
Advisers or their affiliates.
Paul R. Wolkenberg.......... Vice President Executive Vice President and Director of
Date of Birth: 11/10/44 VKAC, and VK/AC Holding Inc. Executive Vice
President of the AC Adviser and the
Distributor. President and a Director of
ACCESS. President and Chief Operating
Officer of Van Kampen American Capital
Record Keeping Services, Inc. Vice
President of each of the funds in the Fund
Complex and certain other investment
companies advised by the Advisers or their
affiliates.
</TABLE>
B-17
<PAGE> 78
<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
------------ ----------------- ---------------------
<S> <C> <C>
Edward C. Wood III.......... Vice President and Chief Senior Vice President of the Advisers and
Date of Birth: 01/11/56 Financial Officer Van Kampen American Capital Management,
Inc. Vice President and Chief Financial
Officer of each of the funds in the Fund
Complex and certain other investment
companies advised by the Advisers or their
affiliates.
John L. Sullivan............ Treasurer First Vice President of the Advisers.
Date of Birth: 08/20/55 Treasurer of each of the funds in the Fund
Complex and certain other investment
companies advised by the Advisers or their
affiliates.
Tanya M. Loden.............. Controller Vice President of the Advisers. Controller
Date of Birth: 11/19/59 of each of the funds in the Fund Complex
and other investment companies advised by
the Advisers or their affiliates.
Nicholas Dalmaso............ Assistant Secretary Associate General Counsel and Assistant
Date of Birth: 03/01/65 Secretary of VKAC. Vice President,
Associate General Counsel and Assistant
Secretary of the Advisers, the Distributor,
Van Kampen American Capital Advisors, Inc.
and Van Kampen American Capital Management,
Inc. Assistant Secretary of each of the
funds in the Fund Complex and other
investment companies advised by the
Advisers or their affiliates.
Huey P. Falgout, Jr......... Assistant Secretary Vice President and a Senior Attorney of
Date of Birth: 11/15/63 VKAC. Vice President and Assistant
Secretary of the Advisers, the Distributor,
ACCESS, Van Kampen American Capital
Management, Inc., American Capital
Contractual Services, Inc., Van Kampen
American Capital Exchange Corporation and
Van Kampen American Capital Advisors, Inc.
Assistant Secretary of each of the funds in
the Fund Complex and other investment
companies advised by the Advisers or their
affiliates.
</TABLE>
B-18
<PAGE> 79
<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
------------ ----------------- ---------------------
<S> <C> <C>
Scott E. Martin............. Assistant Secretary Senior Vice President, Deputy General
Date of Birth: 08/20/56 Counsel and Assistant Secretary of VKAC and
VKAC Holding, Inc. Senior Vice President,
Deputy General Counsel and Secretary of the
Advisers, the Distributor, ACCESS American
Capital Contractual Services, Inc., Van
Kampen American Capital Management, Inc.,
Van Kampen American Capital Exchange
Corporation, Van Kampen American Capital
Advisors, Inc., Van Kampen American Capital
Insurance Agency of Illinois, Inc., VKAC
System, Inc., Van Kampen American Capital
Record Keeping Services, Inc. and Van
Kampen Merritt Equity Advisors Corp. Prior
to April of 1997, Senior Vice President,
Deputy General Counsel and Secretary of Van
Kampen American Capital Services, Inc. and
Van Kampen Merritt Holdings Corp. Prior to
September of 1996, Mr. Martin was Deputy
General Counsel and Secretary of McCarthy,
Crisanti & Maffei, Inc., and prior to July
of 1996, he was Senior Vice President,
Deputy General Counsel and Secretary of VSM
Inc. and VCJ Inc. Assistant Secretary of
each of the funds in the Fund Complex and
other investment companies advised by the
Advisers or their affiliates.
Weston B. Wetherell......... Assistant Secretary Vice President, Associate General Counsel
Date of Birth: 06/15/56 and Assistant Secretary of VKAC, the
Advisers, the Distributor, Van Kampen
American Capital Management, Inc. and Van
Kampen American Capital Advisors, Inc.
Prior to September of 1996, Mr. Wetherell
was Assistant Secretary of McCarthy,
Crisanti & Maffei, Inc. Assistant Secretary
of each of the funds in the Fund Complex
and other investment companies advised by
the Advisers or their affiliates.
Steven M. Hill.............. Assistant Treasurer Vice President of the Advisers. Assistant
Date of Birth: 10/16/64 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 Controller Assistant Vice President of the Advisers.
Date of Birth: 03/30/33 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 64 operating funds in the Fund Complex. For purposes of the following
compensation and benefits discussion, the Fund Complex is divided into the
following three groups: the funds advised by Asset Management (the "AC Funds"),
the funds advised by Advisory Corp. excluding funds organized as series of the
Morgan Stanley Fund, Inc. (the "VK Funds") and the funds advised by Advisory
Corp. organized as series of the Morgan Stanley Fund, Inc. (the "MS Funds").
Each trustee/director who is not an affiliated person of VKAC, the Advisers, the
Distributor, ACCESS,
B-19
<PAGE> 80
Van Kampen American Capital or Morgan Stanley Dean Witter & Co. (each a
"Non-Affiliated Trustee") is compensated by an annual retainer and meeting fees
for services to the funds in the Fund Complex. Each fund in the Fund Complex
(except the money market series of the MS Funds) provides a deferred
compensation plan to its Non-Affiliated Trustees that allows trustees/directors
to defer receipt of their compensation and earn a return on such deferred
amounts. Deferring compensation has the economic effect as if the Non-
Affiliated Trustee reinvested his or her compensation into the funds. Each fund
in the Fund Complex (except the money market series of the MS Funds) provides a
retirement plan to its Non-Affiliated Trustees that provides Non-Affiliated
Trustees with compensation after retirement, provided that certain eligibility
requirements are met as more fully described below.
The trustees recently reviewed and adopted a standardized compensation and
benefits program for each fund in the Fund Complex. Effective January 1, 1998,
the compensation of each Non-Affiliated Trustee includes an annual retainer in
an amount equal to $50,000 per calendar year, due in four quarterly installments
on the first business day of each quarter. Payment of the annual retainer is
allocated among the funds in the Fund Complex (except the money market series of
the MS Funds) on the basis of the relative net assets of each fund as of the
last business day of the preceding calendar quarter. Effective January 1, 1998,
the compensation of each Non-Affiliated Trustee includes a per meeting fee from
each fund in the Fund Complex (except the money market series of the MS Funds)
in the amount of $200 per quarterly or special meeting attended by the
Non-Affiliated Trustee, due on the date of the meeting, plus reasonable expenses
incurred by the Non-Affiliated Trustee in connection with his or her services as
a trustee, provided that no compensation will be paid in connection with certain
telephonic special meetings.
For each AC Fund's last fiscal year and the period up to and including
December 31, 1997, the compensation of each Non-Affiliated Trustee from the AC
Funds includes an annual retainer in an amount equal to $35,000 per calendar
year, due in four quarterly installments on the first business day of each
calendar quarter. The AC Funds pay each Non-Affiliated Trustee a per meeting fee
in the amount of $2,000 per regular quarterly meeting attended by the
Non-Affiliated Trustee, due on the date of such meeting, plus reasonable
expenses incurred by the Non-Affiliated Trustee in connection with his or her
services as a trustee. Payment of the annual retainer and the regular meeting
fee is allocated among the AC Funds (i) 50% on the basis of the relative net
assets of each AC Fund to the aggregate net assets of all the AC Funds and (ii)
50% equally to each AC Fund, in each case as of the last business day of the
preceding calendar quarter. Each AC Fund which is the subject of a special
meeting of the trustees generally pays each Non-Affiliated Trustee a per meeting
fee in the amount of $125 per special meeting attended by the Non-Affiliated
Trustee, due on the date of such meeting, plus reasonable expenses incurred by
the Non-Affiliated Trustee in connection with his or her services as a trustee,
provided that no compensation will be paid in connection with certain telephonic
special meetings.
For each VK Fund's last fiscal year and the period up to and including
December 31, 1997, the compensation of each Non-Affiliated Trustee from each VK
Fund includes an annual retainer in an amount equal to $2,500 per calendar year,
due in four quarterly installments on the first business day of each calendar
quarter. Each Non-Affiliated Trustee receives a per meeting fee from each VK
Fund in the amount of $125 per regular quarterly meeting attended by the
Non-Affiliated Trustee, due on the date of such meeting, plus reasonable
expenses incurred by the Non-Affiliated Trustee in connection with his or her
services as a trustee. Each Non-Affiliated Trustee receives a per meeting fee
from each VK Fund in the amount of $125 per special meeting attended by the
Non-Affiliated Trustee, due on the date of such meeting, plus reasonable
expenses incurred by the Non-Affiliated Trustee in connection with his or her
services as a trustee, provided that no compensation will be paid in connection
with certain telephonic special meetings.
For the period from July 2, 1997 up to and including December 31, 1997, the
compensation of each Non-Affiliated Trustee from the MS Funds was based
generally on the compensation amounts and methodology used by such funds prior
to their joining the current Fund Complex on July 2, 1997. Each trustee/director
was elected as a director of the MS Funds on July 2, 1997. Prior to July 2,
1997, the MS Funds were part of another fund complex (the "Prior Complex") and
the former directors of the MS Funds were paid an aggregate fee allocated among
the funds in the Prior Complex that resulted in individual directors receiving
total compensation between approximately $8,000 to $10,000 from the MS Funds
during such funds' last fiscal year.
B-20
<PAGE> 81
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.
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 TOTAL
YEAR FIRST PENSION OR ESTIMATED MAXIMUM COMPENSATION
APPOINTED OR AGGREGATE COMPENSATION RETIREMENT BENEFITS ANNUAL BENEFITS BEFORE DEFERRAL
ELECTED TO THE BEFORE DEFERRAL FROM THE ACCRUED AS PART OF FROM THE FUND UPON FROM FUND
NAME(1) BOARD FUND(2) EXPENSES(3) RETIREMENT(4) COMPLEX(5)
------- -------------- ------------------------ ------------------- ------------------ ---------------
<S> <C> <C> <C> <C> <C>
J. Miles Branagan* 1994 $800 $30,328 $60,000 $111,197
Linda Hutton Heagy* 1995 800 3,141 60,000 111,197
R. Craig Kennedy* 1995 800 2,229 60,000 111,197
Jack E. Nelson* 1995 800 15,820 60,000 104,322
Jerome L. Robinson 1995 800 32,020 15,750 107,947
Phillip B. Rooney* 1997 600 0 60,000 74,697
Dr. Fernando Sisto* 1994 800 60,208 60,000 111,197
Wayne W. Whalen* 1995 800 10,788 60,000 111,197
</TABLE>
- ---------------
* Currently a member of the Board of Trustees. Mr. Phillip B. Rooney became a
member of the Board of Trustees effective April 14, 1997 and thus does not
have a full fiscal year of information to report.
(1) Persons not designated by an asterisk are not currently members of the Board
of Trustees, but were members of the Board of Trustees during the Fund's
most recently completed fiscal year. Mr. Robinson retired from the Board of
Trustees on December 31, 1997. 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, 1997. The
following trustees deferred compensation from the Fund during the fiscal
year ended December 31, 1997: Mr. Branagan, $800; Ms. Heagy, $800; Mr.
Kennedy, $400; Mr. Nelson, $800; Mr. Robinson, $800; Mr. Rooney, $400; Dr.
Sisto, $400; and Mr. Whalen, $800. 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,
B-21
<PAGE> 82
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, 1997 is as follows: Mr. Branagan, $1,423; Dr.
Caruso, $1,730; Mr. Gaughan, $376; Ms. Heagy, $2,225; Mr. Kennedy, $1,504;
Mr. Lipshie, $0; Mr. Miller, $1,509; Mr. Nelson, $2,600; Mr. Rees, $205; Mr.
Robinson, $2,605; Mr. Rooney, $403; Dr. Sisto, $1,654; Mr. Vernon, $0; and
Mr. Whalen, $2,600. 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 current trustees for the Funds' respective
fiscal years ended in 1997. The retirement plan is described above the
Compensation Table.
(4) For Mr. Robinson, this is the sum of the actual annual benefits payable by
the operating investment companies in the Fund Complex as of the date of his
retirement for each year of the 10-year period since his retirement. For the
remaining trustees, this is the sum of the estimated maximum annual benefits
payable by the operating investment companies in the Fund Complex for each
year of the 10-year period commencing in the year of such trustee's
anticipated retirement. The Retirement Plan is described above the
Compensation Table.
(5) The amounts shown in this column represent the aggregate compensation paid
by all operating investment companies in the Fund Complex as of December 31,
1997 before deferral by the trustees under the deferred compensation plan.
Because the funds in the Fund Complex have different fiscal year ends, the
amounts shown in this column are presented on a calendar year basis. Certain
trustees deferred all or a portion of their aggregate compensation from the
Fund Complex during the calendar year ended December 31, 1997. The deferred
compensation earns a rate of return determined by reference to the return on
the shares of the funds in the Fund Complex as selected by the respective
Non-Affiliated Trustee, with the same economic effect as if such
Non-Affiliated Trustee had invested in one or more funds in the Fund
Complex. To the 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
$268,447 during the calendar year ended December 31, 1997.
As of April 3, 1998, the trustees and officers of the Fund as a group owned
less than 1% of the outstanding shares of the Fund.
LEGAL COUNSEL
Skadden, Arps, Slate, Meagher & Flom (Illinois).
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 and to place orders for
the purchase and sale of its portfolio securities. The Adviser obtains and
evaluates economic, statistical, and financial information to formulate and
implement the Fund's investment programs. The Adviser also furnishes at no cost
to the Fund (except as noted herein) the services of sufficient executive and
clerical personnel for the Fund as are necessary to prepare registration
statements, prospectuses, shareholder reports, and notices and proxy
solicitation materials. In addition, the Adviser furnishes at no cost to the
Fund the services of the Fund's President, one or more Vice Presidents as
needed, and a Secretary.
Under the Advisory Agreement, the Fund bears the cost of its accounting
services, which includes 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 a Treasurer or other principal
financial officer and the personnel operating under his direction. Charges are
allocated among the investment
B-22
<PAGE> 83
companies advised or subadvised by the Adviser. A portion of these amounts were
paid to the Adviser or its parent in reimbursement of personnel, office space,
facilities and equipment costs attributable to the provision of accounting
services to the Fund. The services provided by the Adviser are at cost. The Fund
also pays service fees, distribution fees, custodian fees, legal and auditing
fees, the costs of reports to shareholders and all other ordinary expenses not
specifically assumed by the Adviser. The Advisory Agreement also provides that
the Adviser shall not be liable to the company for any actions or 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 fee
payable monthly computed on average daily net assets of the Fund at the annual
rate of 1% of the average daily net assets of the Fund.
The Fund's average net asset value for purposes of computing the advisory
fee is determined by taking the average of all of the determinations of net
asset value for each business day 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 direct or indirect majority owned subsidiary of VK/AC Holding,
Inc., in connection with the purchase and sale of portfolio investments of the
Fund, less any direct expenses incurred by such subsidiary of VK/AC Holding,
Inc. in connection with obtaining such 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 under
applicable laws for the Adviser or any direct or indirect majority owned
subsidiary of VK/AC Holding, Inc. 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 the most restrictive
expense limitations applicable in the states where the Fund's shares are
qualified for sale, the compensation due the Adviser will be reduced by the
amount of such excess and that, if a reduction in and refund of the advisory fee
is insufficient, the Adviser will pay the Fund monthly an amount sufficient to
make up the deficiency, subject to readjustment during the year. 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 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 will 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, 1995, 1996 and 1997, the Adviser
received $98,904, $312,156 and $1,010,205, respectively, in advisory fees from
the Fund. For such period, the Fund paid $48,971, $58,843 and $31,772,
respectively, for accounting services. A substantial portion of these amounts
was paid to the Adviser in reimbursement of personnel, facilities and equipment
costs attributable to the provision of accounting services to the Fund.
DISTRIBUTOR
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. 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
B-23
<PAGE> 84
renewable from year to year if approved (a) by the Fund's Trustees or 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. Advantage Capital Corporation is a
former affiliated dealer of the Fund.
<TABLE>
<CAPTION>
DEALER REALLOWANCES
AMOUNTS RECEIVED BY
TOTAL UNDERWRITING RETAINED ADVANTAGE CAPITAL
COMMISSIONS BY DISTRIBUTOR CORPORATION
------------------ -------------- -------------------
<S> <C> <C> <C>
Fiscal Year Ended December 31, 1995............. $ 68,340 $ 7,152 $ 3,322
Fiscal Year Ended December 31, 1996............. $206,662 $21,129 N/A
Fiscal Year Ended December 31, 1997............. $601,275 $67,390 N/A
</TABLE>
DISTRIBUTION AND SERVICE PLANS
The Fund has adopted a distribution plan (the "Distribution Plan") with
respect to each class of its shares pursuant to Rule 12b-1 under the 1940 Act.
The Fund also has adopted a service plan (the "Service Plan") with respect to
each class of its shares. 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 an agreement (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 Distributor has entered into an agreement with The Prudential Insurance
Company of America under which the Fund shall be offered pursuant to the
PruArray Program. Trustees and other fiduciaries of retirement plans seeking to
invest in multiple fund families through broker-dealer retirement plan alliance
programs should contact Prudential for further information concerning the
PruArray Program including, but not limited to, minimum size and operational
requirements.
For the fiscal year ended December 31, 1997, the Fund's aggregate expenses
under the Plans for Class A shares were $81,025 or 0.25% of the Class A shares'
average net assets. Such expenses were paid to reimburse
B-24
<PAGE> 85
'the Distributor for payments made to financial intermediaries for servicing
Fund shareholders and for administering the Plans. For the fiscal year ended
December 31, 1997, the Fund's aggregate expenses under the Plans for Class B
shares were $488,536 or 1.00% of the Class B shares' average net assets. Such
expenses were paid to reimburse the Distributor for the following payments:
$379,882 for commissions and transaction fees paid to financial intermediaries
in respect of sales of Class B shares of the Fund and $108,654 for fees paid to
financial intermediaries for servicing Class B shareholders and administering
the Plans. For the fiscal year ended December 31, 1997, the Fund's aggregate
expenses under the Plans for Class C shares were $163,967 or 1.00% of the Class
C shares' average net assets. Such expenses were paid to reimburse the
Distributor for the following payments: $124,729 for commissions and transaction
fees paid to financial intermediaries in respect of sales of Class C shares of
the Fund and $39,238 for fees paid to financial intermediaries for servicing
Class C shareholders and administering the Class C Plan.
TRANSFER AGENT
During the fiscal years ended December 31, 1995, 1996 and 1997, ACCESS,
shareholder service agent and dividend disbursing agent for the Fund, received
fees, determined on a cost plus profit basis, aggregating $107,182, $115,264 and
$199,910, respectively, for these services. Beginning in 1998, the transfer
agency prices are determined through negotiations with the Fund's Board of
Trustees and are based on competitive market benchmarks.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Adviser is responsible for decisions to buy and sell securities for the
Fund and for the placement of its portfolio business and the negotiation of the
commissions paid on such transactions. It is the policy of the Adviser to seek
the best security price available with respect to each transaction. In
over-the-counter transactions, orders are placed directly with a principal
market maker unless it is believed that a better price and execution can be
obtained by using a broker. Except to the extent that the Fund may pay higher
brokerage commissions for brokerage and research services (as described herein),
on a portion of its transactions executed on securities exchanges, the Adviser
seeks the best security price at the most favorable commission rate. In
selecting broker-dealers and in negotiating commissions, the Adviser considers
the firm's reliability, the quality of its execution services on a continuing
basis and its financial condition. When more than one firm is believed to meet
these criteria, preference may be given to firms which also provide research
services to the Fund or the Adviser.
Consistent with the Rules of Fair Practice of the NASD and subject to
seeking best execution and such other policies as the Trustees may determine,
the Adviser may consider sales of shares of the Fund as a factor in the
selection of firms to execute portfolio transactions for the Fund.
Section 28(e) of the Securities Exchange Act of 1934 ("Section 28(e)")
permits an investment adviser, under certain circumstances, to cause an account
to pay a broker or dealer who supplies brokerage and research services, a
commission for effecting a securities transaction in excess of the amount of
commission another broker or dealer would have charged for effecting the
transaction. Brokerage and research services 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).
Pursuant to provisions of the Advisory Agreement, the Fund's Trustees have
authorized the Adviser to cause the Fund to incur brokerage commissions in an
amount higher than the lowest available rate in return for research services
provided to the Adviser. The Adviser is of the opinion that the continued
receipt of supplemental investment research services from dealers is essential
to its provision of high quality portfolio management services to the Fund. The
Adviser undertakes that such higher commissions will not be paid by the Fund
unless (a) the Adviser determines in good faith that the amount is reasonable in
relation to the services in terms of the particular transaction or in terms of
the Adviser's overall responsibilities with respect
B-25
<PAGE> 86
to the accounts as to which they exercise investment discretion, (b) such
payment is made in compliance with the provisions of Section 28(e) and other
applicable state and federal laws, and (c) in the opinion of the Adviser, the
total commissions paid by the Fund are reasonable in relation to the expected
benefits to the Fund over the long term. The investment advisory fee paid by the
Fund under the Advisory Agreement is not reduced as a result of the Adviser's
receipt of research services.
The Adviser places portfolio transactions for other advisory accounts
including other investment companies. Research services furnished by firms
through which the Fund effects its securities transactions may be used by the
Adviser in servicing all of its accounts; not all of such services may be used
by the Adviser in connection with the Fund. In the opinion of the Adviser, the
benefits from research services to each of the accounts, including the Fund,
managed by the Adviser cannot be measured separately. Because the volume and
nature of the trading activities of the accounts are not uniform, the amount of
commissions in excess of the lowest available rate paid by each account for
brokerage and research services will vary. However, in the opinion of the
Adviser, such costs to the Fund will not be disproportionate to the benefits
received by the Fund on a continuing basis.
The Adviser seeks to allocate portfolio transactions equitably whenever
concurrent decisions are made to purchase or sell securities by 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 investment objectives, the relative
size of portfolio holdings of the same or comparable securities, the
availability of cash for investment, the size of investment commitments
generally held, and opinions of the persons responsible for recommending the
investment.
During the fiscal year ended December 31, 1997, the Fund paid $582,776 in
brokerage commissions on transactions totalling $253,413,916 to brokers selected
primarily on the basis of research services provided to the Adviser.
Effective October 31, 1996, Morgan Stanley Group Inc. ("Morgan Stanley")
became an affiliate of the Adviser. Effective May 31, 1997, Dean Witter Discover
& Co. ("Dean Witter") became an affiliate of the Adviser. The negotiated
commission paid to an affiliated broker on any transaction would be comparable
to that payable to a non-affiliated broker in a similar transaction.
The Fund paid the following commissions to these brokers during the periods
shown:
<TABLE>
<CAPTION>
AFFILIATED BROKERS
------------------
MORGAN DEAN
BROKERS STANLEY WITTER
-------- -------- -------
<S> <C> <C> <C>
Fiscal year 1995............................................ $ 93,865 N/A N/A
Fiscal year 1996............................................ $138,961 0 N/A
Fiscal year 1997............................................ $777,851 0 $7,608
Fiscal year 1997 Percentage:
Commissions with affiliate to total commissions........... -- N/A 0.98%
Value of brokerage transactions with affiliate to total
transactions........................................... -- N/A 0.07%
</TABLE>
DETERMINATION OF NET ASSET VALUE
The net asset value per share is determined as of the close of the New York
Stock Exchange (the "Exchange") (currently 4:00 p.m. New York time) on each
business day on which the Exchange is open. The net asset value of Fund shares
is computed by dividing the value of all securities plus other assets, less
liabilities, by the number of shares outstanding, and adjusting to the nearest
cent per share.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of business
on each business day in New York (i.e., a day on which the Exchange is open). In
addition, European or Far Eastern securities trading generally or in a
particular country or countries may not take place on all business days in New
York. Furthermore, trading takes place in Japanese markets on certain Saturdays
and in various foreign markets on days which are not business days in
B-26
<PAGE> 87
New York and on which the Fund's net asset value is not calculated and on which
the Fund does not effect sales, redemptions and repurchases of its shares. There
may be significant variations in the net asset value of Fund shares on days when
net asset value is not calculated and on which shareholders cannot redeem on
account of changes in prices of stocks traded in foreign stock markets.
The assets belonging to the Class A shares, the Class B shares and the
Class C shares will be invested together in a single portfolio. The net asset
value of each class will be determined separately by subtracting the expenses
and liabilities allocated to that class.
PURCHASE AND REDEMPTION OF SHARES
The following information supplements the section in the Fund's Prospectus
captioned "Purchase of Shares."
LETTER OF INTENT
The Fund will escrow shares totaling 5% of the dollar amount of the Letter
of Intent to be held by ACCESS in the name of the shareholder. The Letter of
Intent does not obligate the investor to purchase the indicated amount. In the
event the Letter of Intent goal is not achieved within the 13-month period, the
investor is required to pay the difference between sales charges otherwise
applicable to the purchases made during this period and sales charges actually
paid. Such payment may be made directly to the Distributor or, if not paid, the
Distributor will liquidate sufficient escrowed shares to obtain such difference.
If the goal is exceeded in an amount which qualifies for a lower sales charge, a
price adjustment is made by refunding the investor in shares of the Fund the
amount of excess sales charges, if any, paid during the 13-month period.
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.
CONTINGENT DEFERRED SALES CHARGE -- CLASS A
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 "Purchase of Shares," redemptions of
Class B shares and Class C shares will be subject to a CDSC. The CDSC -- Class B
and C may be waived on redemptions of Class B shares and Class C shares in the
circumstances described below:
(a) Redemption Upon Disability or Death
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 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
B-27
<PAGE> 88
Distributor will require satisfactory proof of death or disability before it
determines to waive the CDSC -- Class B and C.
In cases of disability or death, the CDSC -- Class B and C will be waived
where the decedent or disabled person is either an individual shareholder or
owns the shares as a joint tenant with right of survivorship or is the
beneficial owner of a custodial or fiduciary account, and where the redemption
is made within one year of the death or initial determination of disability.
This waiver of the CDSC -- Class B and C applies to a total or partial
redemption, but only to redemptions of shares held at the time of the death or
initial determination of disability.
(b) Redemption in Connection with Certain Distributions from Retirement
Plans
The 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
(as defined in the Prospectus); in such event, as described below, the Fund will
"tack" the period for which the original shares were held onto 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.
(c) Redemption Pursuant to a Fund's Systematic Withdrawal Plan
A shareholder may elect to participate in a systematic withdrawal plan (the
"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 such Fund without the imposition of a CDSC -- Class
B and C may not exceed a maximum of 12% annually of the shareholder's initial
account balance. The Fund reserves the right to change the terms and conditions
of the Plan and the ability to offer the Plan.
(d) Involuntary Redemptions of Shares in Accounts that Do Not Have the
Required Minimum Balance
The 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.
(e) Reinvestment of Redemption Proceeds in Shares of the Same Fund Within
180 Days After Redemption
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.
B-28
<PAGE> 89
(f) 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.
EXCHANGE PRIVILEGE
The following supplements the discussion of "Shareholder
Services -- Exchange Privilege" in the Prospectus:
By use of the exchange privilege, the investor authorizes ACCESS to act on
telephonic, telegraphic or written exchange instructions from any person
representing himself to be the investor or the agent of the investor and
believed by ACCESS to be genuine. Van Kampen American Capital and its
subsidiaries, including ACCESS, 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 American Capital, ACCESS nor the Fund will be liable for following
telephone instructions which it reasonably believes to be genuine. Van Kampen
American Capital, ACCESS and the Fund may be liable for any losses due to
unauthorized or fraudulent instructions if reasonable procedures are not
followed.
For purposes of determining the sales charge rate previously paid on Class
A shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchanged security was acquired through reinvestment, that
security is deemed to have been sold with a sales charge rate equal to the rate
previously paid on the security on which the dividend or distribution was paid.
If a shareholder exchanges less than all of his 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 mutual 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.
TAX STATUS OF THE FUND
The Trust and each of its series, including the Fund, will be treated as
separate corporations for federal income tax purposes. The Fund will be subject
to tax if, among other things, it fails to distribute net capital gains, or if
its annual distributions, as a percentage of its income, are less than the
distributions required by tax laws.
FUND PERFORMANCE
The Fund's average annual total return (computed in the manner described in
the Prospectus) for Class A shares of the Fund for (i) the one year period ended
December 31, 1997 was 14.91% and (ii) the three year and seven month period
ended December 31, 1997 was 18.43%. The Fund's average annual total return
(computed in the manner described in this Prospectus) for Class B shares of the
Fund for (i) the one year period ended December 31, 1997 was 15.76% and (ii) the
three year and seven month period ended December 31, 1997 was 18.71%. The
average annual total return (computed in the manner described in the Prospectus)
for Class C shares of the Fund for (i) the one year period ended December 31,
1997 was 18.78% and (ii) the three year and seven month period ended December
31, 1997 was 19.22%. These results are based on historical earnings and asset
value fluctuations and are not intended to indicate future performance. Such
B-29
<PAGE> 90
information should be considered in light of the Fund's investment objectives
and policies as well as the risks incurred in the Fund's investment practices.
Future results will be affected by changes in the general level of prices of
securities available for purchase and sale by the Fund.
Total return is computed separately for Class A shares, Class B shares and
Class C shares.
From time to time, in reports or other communications, or in advertising or
sales materials the Adviser may graphically illustrate the relative average
annual returns of the following categories for the prior 10-year period:
Inflation, Short-Term Government Securities, Long-Term Government Securities,
Equity REITs and Common Stocks.
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. Such illustrations may be in the
form of charts or graphs and will not be based on historical returns experienced
by the Fund.
The Fund's primary investment objective is to seek to provide long-term
growth of capital. Current income is a secondary investment objective. The Fund
seeks to achieve its investment objectives by investing principally in
securities of companies in the real estate industry. In addition, Fund attempts
to remain fully invested to achieve consistent long-term performance. Investment
real estate is an asset class that often is overlooked by investors. Now, with
many real estate investment trusts being publicly traded, investors have an
opportunity to add this important asset to their portfolios.
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 -- Semi-annual statements are furnished to shareholders, and
annually such statements are audited by the independent accountants.
INDEPENDENT ACCOUNTANTS -- Price Waterhouse LLP, 200 East Randolph Drive,
Chicago, Illinois 60601, the independent accountants for the Fund, performs
annual audits of the Fund's financial statements.
B-30
<PAGE> 91
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
VAN KAMPEN AMERICAN CAPITAL REAL ESTATE SECURITIES FUND
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Van Kampen American Capital Real
Estate Securities Fund (the "Fund") at December 31, 1997, 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, 1997 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
Chicago, Illinois
February 6, 1998
B-31
<PAGE> 92
PORTFOLIO OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
Number
of Shares Description Market Value
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON AND PREFERRED STOCKS 95.6%
APARTMENTS 18.7%
12,600 Amli Residential Properties Trust......................................... $ 280,350
112,800 Avalon Properties, Inc.................................................... 3,489,750
148,900 Bay Apartment Communities, Inc............................................ 5,807,100
155,900 Essex Property Trust, Inc................................................. 5,456,500
21,900 Irvine Apartment Communities, Inc......................................... 696,694
128,100 Oasis Residential, Inc.................................................... 2,858,231
41,100 Pennsylvania Real Estate Investment....................................... 1,009,519
182,458 Security Capital Atlantic, Inc............................................ 3,854,425
122,700 Walden Residential Properties, Inc........................................ 3,128,850
----------
26,581,419
----------
DEVELOPMENT 4.7%
192,680 Atlantic Gulf Communities Corp. (a)....................................... 867,060
24,741 Atlantic Gulf Communities Corp. - Convertible Preferred Ser B (a)......... 247,410
35,402 Atlantic Gulf Communities Corp. - Convertible Preferred Ser B,
144A - Private Placement (a) (b).......................................... 354,020
49,482 Atlantic Gulf Communities Corp. Warrants, 16,494 shares of each
Class A, B and C, expiring 06/23/04 (a)................................... 72,805
100,191 Atlantic Gulf Communities Corp. Warrants, 33,397 shares of each
Class A, B and C, expiring 06/24/01, 144A
- Private Placement (a) (b)............................................... 0
212,500 Brookfield Properties Corp................................................ 3,542,375
85,300 Brookfield Properties Corp. - Common Share Installment Receipts (a)....... 1,013,364
28,400 Catellus Development Corp. (a)............................................ 568,000
----------
6,665,034
----------
HEALTHCARE FACILITIES 6.2%
252,500 Nationwide Health Properties, Inc......................................... 6,438,750
62,690 Omega Healthcare Investors, Inc........................................... 2,421,401
----------
8,860,151
----------
HOTEL & LODGING 10.9%
68,000 American General Hospitality Corp......................................... 1,819,000
147,300 Capstar Hotel Co. (a)..................................................... 5,054,231
122,600 Extended Stay America, Inc. (a)........................................... 1,524,838
</TABLE>
See Notes to Financial statements
B-32
<PAGE> 93
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1997
<TABLE>
<CAPTION>
Number
of Shares Description Market Value
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
HOTEL & LODGING (CONTINUED)
292,600 Host Marriott Corp. (a).............................................. $ 5,742,275
52,500 Suburban Lodges of America, Inc. (a)................................. 698,906
24,900 Vail Resorts, Inc. (a)............................................... 645,844
-----------
15,485,094
-----------
MANUFACTURED HOME COMMUNITIES 6.6%
208,094 Chateau Properties, Inc.............................................. 6,554,961
104,000 Manufactured Home Communities, Inc................................... 2,808,000
-----------
9,362,961
-----------
OFFICE/INDUSTRIAL 27.7%
210,600 Arden Realty Group, Inc.............................................. 6,475,950
156,000 Bedford Property Investors, Inc...................................... 3,412,500
193,600 Brandywine Realty Trust.............................................. 4,864,200
141,000 CarrAmerica Realty Corp.............................................. 4,467,939
63,986 Equity Office Properties Trust....................................... 2,019,558
143,900 Great Lakes REIT, Inc................................................ 2,797,056
219,900 Pacific Gulf Properties, Inc......................................... 5,222,625
174,200 Prime Group Realty Trust............................................. 3,527,550
46,800 Reckson Associates Realty Corp....................................... 1,187,550
97,900 Trizec Hahn Corp..................................................... 2,270,056
199,020 Wellsford Real Properties, Inc., 144A - Private Placement (a) (b).... 3,109,688
-----------
39,354,672
-----------
PRODUCER MANUFACTURING 0.1%
1,300 ITT Corp. (a)........................................................ 107,738
-----------
SELF-STORAGE 3.2%
33,500 Public Storage, Inc.................................................. 984,062
120,900 Shurgard Storage Centers, Inc., Class A.............................. 3,506,100
-----------
4,490,162
-----------
SHOPPING CENTERS 7.2%
160,400 Burnham Pacific Properties, Inc...................................... 2,456,125
179,500 Federal Realty Investment Trust...................................... 4,622,125
22,300 First Washington Realty Trust, Inc. - Preferred Ser A
(Convertible into 28,589 common shares).............................. 747,050
</TABLE>
B-33
<PAGE> 94
Portfolio of Investments (Continued)
December 31, 1997
<TABLE>
<CAPTION>
Number
of Shares Description Market Value
- ---------------------------------------------------------------------------------------------------
<S> <C>................................................................... <C>
SHOPPING CENTERS (CONTINUED)
70,500 Pan Pacific Retail Properties, Inc.................................... $ 1,506,937
800 Ramco-Gershenson Properties Trust..................................... 15,750
59,900 Western Investment Real Estate Trust.................................. 823,625
------------
10,171,612
------------
SHOPPING MALLS 10.3%
137,400 CBL & Associates Properties, Inc...................................... 3,392,062
90,400 First Union Real Estate Investments................................... 1,469,000
572,800 Taubman Centers, Inc.................................................. 7,446,400
65,800 Urban Shopping Centers, Inc........................................... 2,294,775
------------
14,602,237
------------
TOTAL COMMON AND PREFERRED STOCKS 95.6%........................................... 135,681,080
------------
CONVERTIBLE CORPORATE OBLIGATIONS 0.5%
Brookfield Properties Corp. - Installment Receipts
Representing Subordinated Debenture
($868,400 par, 6.00% coupon, 02/14/07 maturity).................................... 698,107
------------
TOTAL LONG-TERM INVESTMENTS 96.1%
(Cost $121,582,426).............................................................. 136,379,187
Repurchase Agreement 5.4%
Swiss Bank Corp. ($7,660,000 par collateralized by U.S.
Government obligations in a pooled cash account, dated 12/31/97,
to be sold on 01/02/98 at $7,662,596) (Cost $7,660,000)............................ 7,660,000
------------
TOTAL INVESTMENTS 101.5%
(Cost $129,242,426).............................................................. 144,039,187
LIABILITIES IN EXCESS OF OTHER ASSETS (1.5%)....................................... (2,091,581)
------------
NET ASSETS 100.0%................................................................. $141,947,606
============
</TABLE>
(a) Non-income producing security as this stock does not declare dividends.
(b) 144A securities are those which are exempt from registration under Rule
144A of the Securities Act of 1933. These securities may only be resold in
transactions exempt from registration which are normally transactions with
qualified institutional buyers.
See Notes to Financial Statements
B-34
<PAGE> 95
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $129,242,426).............................................. $144,039,187
Receivables:
Fund Shares Sold.................................................................. 1,060,434
Dividends......................................................................... 887,143
Investments Sold.................................................................. 320,287
Interest.......................................................................... 17,416
Unamortized Organizational Costs................................................... 4,403
Other.............................................................................. 977
------------
Total Assets...................................................................... 146,329,847
------------
LIABILITIES:
Payables:
Investments Purchased............................................................. 3,881,015
Distributor and Affiliates........................................................ 126,860
Investment Advisory Fee........................................................... 114,763
Income Distributions.............................................................. 91,318
Fund Shares Repurchased........................................................... 69,474
Custodian Bank.................................................................... 10,660
Trustees' Deferred Compensation and Retirement Plans............................... 22,858
Accrued Expenses................................................................... 65,293
------------
Total Liabilities................................................................. 4,382,241
------------
NET ASSETS......................................................................... $141,947,606
============
NET ASSETS CONSIST OF:
Capital............................................................................ $124,906,541
Net Unrealized Appreciation........................................................ 14,796,761
Accumulated Net Realized Gain...................................................... 2,266,205
Accumulated Distributions in Excess of Net Investment Income....................... (21,901)
------------
NET ASSETS......................................................................... $141,947,606
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on net assets of
$51,313,568 and 3,715,666 shares of beneficial interest issued and
outstanding)................................................................... $13.81
Maximum sales charge (4.75%* of offering price).................................. .69
------------
Maximum offering price to public................................................. $14.50
============
Class B Shares:
Net asset value and offering price per share (Based on net assets of
$73,198,558 and 5,304,248 shares of beneficial interest issued and
outstanding)................................................................... $13.80
============
Class C Shares:
Net asset value and offering price per share (Based on net assets of
$17,435,480 and 1,264,396 shares of beneficial interest issued and
outstanding)................................................................... $13.79
============
</TABLE>
*On sales of $100,000 or more, the sales charge will be reduced.
B-35
<PAGE> 96
STATEMENT OF OPERATIONS
For the Year ended December 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends............................................................................ $ 4,183,631
Interest............................................................................. 406,183
------------
Total Income........................................................................ 4,589,814
------------
EXPENSES:
Investment Advisory Fee.............................................................. 1,010,205
Distribution (12b-1) and Service Fees (Attributed to Classes A, B and C of $93,668,
$506,509 and $130,234, respectively).............................................. 730,411
Shareholder Services................................................................. 268,613
Registration and Filing Fees......................................................... 80,023
Trustees' Fees and Expenses.......................................................... 13,143
Legal................................................................................ 4,517
Amortization of Organizational Costs................................................. 3,397
Other................................................................................ 155,948
------------
Total Expenses...................................................................... 2,266,257
------------
NET INVESTMENT INCOME................................................................ $ 2,323,557
============
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain.................................................................... $ 15,177,147
------------
Unrealized Appreciation/Depreciation
Beginning of the Period............................................................. 11,896,592
End of the Period................................................................... 14,796,761
------------
Net Unrealized Appreciation During the Period........................................ 2,900,169
------------
NET REALIZED AND UNREALIZED GAIN..................................................... $ 18,077,316
============
NET INCREASE IN NET ASSETS FROM OPERATIONS........................................... $ 20,400,873
============
</TABLE>
See Notes to Financial Statements
B-36
<PAGE> 97
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1997 December 31, 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income............................................ $ 2,323,557 $ 842,531
Net Realized Gain................................................ 15,177,147 2,148,797
Net Unrealized Appreciation During the Period.................... 2,900,169 9,735,736
------------ -----------
Change in Net Assets from Operations............................. 20,400,873 12,727,064
------------ -----------
Distributions from Net Investment Income......................... (2,323,557) (842,531)
Distributions in Excess of Net Investment Income................. (152,383) (144,086)
------------ -----------
Distributions from and in Excess of Net Investment Income*....... (2,475,940) (986,617)
Distributions from Net Realized Gain*............................ (12,883,431) (1,848,388)
------------ -----------
Total Distributions.............................................. (15,359,371) (2,835,005)
------------ -----------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES.............. 5,041,502 9,892,059
------------ -----------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold........................................ 130,239,448 28,516,882
Net Asset Value of Shares Issued Through
Dividend Reinvestment......................................... 12,862,961 2,353,502
Cost of Shares Repurchased....................................... (63,666,603) (6,887,785)
------------ -----------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS............... 79,435,806 23,982,599
------------ -----------
TOTAL INCREASE IN NET ASSETS..................................... 84,477,308 33,874,658
NET ASSETS:
Beginning of the Period.......................................... 57,470,298 23,595,640
------------ -----------
End of the Period
(Including accumulated distributions in excess of net
investment income of $21,901 and $7,420 respectively)........... $141,947,606 $57,470,298
============ ===========
</TABLE>
<TABLE>
<CAPTION>
Year Ended Year Ended
*Distributions by Class December 31, 1997 December 31, 1996
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Distributions from and in Excess of
Net Investment Income:
Class A Shares.......................................... $ (1,094,042) $ (433,206)
Class B Shares.......................................... (1,102,759) (431,231)
Class C Shares.......................................... (279,139) (122,180)
------------ -----------
$ (2,475,940) $ (986,617)
============ ===========
Distributions from Net Realized Gain:
Class A Shares.......................................... $ (4,664,049) $ (717,981)
Class B Shares.......................................... (6,626,846) (877,571)
Class C Shares.......................................... (1,592,536) (252,836)
------------ -----------
$(12,883,431) $(1,848,388)
============ ===========
</TABLE>
See Notes to Financial Statements
B-37
<PAGE> 98
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated.
<TABLE>
<CAPTION>
June 9, 1994
(Commencement of
Investment
Operations) to
Year Ended December 31, December 31,
Class A Shares 1997 1996 1995 (a) 1994 (a)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.......................................... $13.008 $ 10.00 $ 9.27 $9.43
------- ------- ------ -----
Net Investment Income.......................................................... .364 .351 .27 .23
Net Realized and Unrealized Gain/Loss.......................................... 2.220 3.514 .85 (.18)
------- ------- ------ -----
Total from Investment Operations.................................................. 2.584 3.865 1.12 .05
------- ------- ------ -----
Less:
Distributions from and in Excess of
Net Investment Income......................................................... .380 .380 .2456 .153
Return of Capital Distribution................................................. -0- -0- .1444 .057
Distributions from Net Realized Gain........................................... 1.402 .477 -0- -0-
------- ------- ------ -----
Total Distributions............................................................... 1.782 .857 .39 .21
------- ------- ------ -----
Net Asset Value, End of the Period................................................ $13.810 $13.008 $10.00 $9.27
======= ======= ====== =====
Total Return (b).................................................................. 20.66% 39.82% 12.39% .24%(c)
Net Assets at End of the Period (In millions)..................................... $ 51.3 $ 23.3 $ 8.5 $ 4.6
Ratio of Expenses to Average Net Assets**......................................... 1.77% 2.60% 2.67% 1.26%
Ratio of Net Investment Income to Average Net Assets**............................ 2.77% 3.21% 2.92% 4.28%
Portfolio Turnover................................................................ 159% 97% 94% 28%*
Average Commission Paid Per Equity Share Traded (d)............................... $ .0594 $ .0486 - -
*Non-Annualized
**If certain expenses had not been assumed by VKAC, total return would
have been lower and the ratios would have been
as follows:
Ratio of Expenses to Average Net Assets........................................... N/A 2.61% 3.16% 3.03%
Ratio of Net Investment Income to Average Net Assets.............................. N/A 3.19% 2.44% 2.52%
</TABLE>
N/A = Not Applicable
(a) Based on average shares outstanding.
(b) Total Return is based upon net asset value which does not include payment
of the maximum sales charge or contingent deferred sales charge.
(c) Total return calculated from June 30, 1994 (date the Fund's investment
strategy was implemented) through December 31, 1994, non-annualized.
(d) Represents the average brokerage commission paid per equity share traded
during the period for trades where commissions were applicable. This
disclosure was not required in fiscal periods prior to 1996.
See Notes to Financial Statements
B-38
<PAGE> 99
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated.
<TABLE>
<CAPTION>
June 9, 1994
(Commencement of
Investment
Operations) to
Year Ended December 31, December 31,
Class B Shares 1997 1996 1995 (a) 1994 (a)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period........................................ $13.008 $ 10.00 $ 9.28 $ 9.43
------- ------- ------ ------
Net Investment Income........................................................ .272 .266 .19 .20
Net Realized and Unrealized Gain/Loss........................................ 2.206 3.519 .843 (.176)
------- ------- ------ ------
Total from Investment Operations................................................ 2.478 3.785 1.033 .024
Less: ------- ------- ------ ------
Distributions from and in Excess of
Net Investment Income....................................................... .284 .300 .197 .1268
Return of Capital Distribution............................................... -0- -0- .116 .0472
Distributions from Net Realized Gain......................................... 1.402 .477 -0- -0-
------- ------- ------ ------
Total Distributions............................................................. 1.686 .777 .313 .174
------- ------- ------ ------
Net Asset Value, End of the Period.............................................. $13.800 $13.008 $10.00 $ 9.28
======= ======= ====== ======
Total Return (b)................................................................ 19.76% 38.82% 11.37% (.04%)(c)
Net Assets at End of the Period (In millions)................................... $ 73.2 $ 26.5 $ 12.0 $ 9.1
Ratio of Expenses to Average Net Assets**....................................... 2.52% 3.37% 3.50% 1.84%
Ratio of Net Investment Income to Average Net Assets**.......................... 2.03% 2.39% 2.07% 3.81%
Portfolio Turnover.............................................................. 159% 97% 94% 28%*
Average Commission Paid Per Equity Share Traded (d)............................. $ .0594 $ .0486 - -
*Non-Annualized
**If certain expenses had not been assumed by VKAC, total return would
have been lower and the ratios would have been
as follows:
Ratio of Expenses to Average Net Assets......................................... N/A 3.39% 3.99% 3.60%
Ratio of Net Investment Income to Average Net Assets............................ N/A 2.37% 1.58% 2.05%
</TABLE>
N/A = Not Applicable
(a) Based on average shares outstanding.
(b) Total Return is based upon net asset value which does not include payment
of the maximum sales charge or contingent deferred sales charge.
(c) Total return calculated from June 30, 1994 (date the Fund's investment
strategy was implemented) through December 31, 1994, non-annualized.
(d) Represents the average brokerage commission paid per equity share traded
during the period for trades where commissions were applicable. This
disclosure was not required in fiscal periods prior to 1996.
See Notes to Financial Statements
B-39
<PAGE> 100
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated.
<TABLE>
<CAPTION>
June 9, 1994
(Commencement of
Investment
Operations) to
Year Ended December 31, December 31,
Class C Shares 1997 1996 1995 (a) 1994 (a)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period........................................... $12.999 $ 9.99 $ 9.28 $ 9.43
------- ------- ------ ------
Net Investment Income............................................................ .271 .266 .20 .22
Net Realized and Unrealized Gain/Loss............................................ 2.206 3.520 .823 (.178)
------- ------- ------ ------
Total from Investment Operations................................................... 2.477 3.786 1.023 .042
------- ------- ------ ------
Less:
Distributions from and in Excess of
Net Investment Income........................................................... .284 .300 .197 .1399
Return of Capital Distribution.................................................. -0- -0- .116 .0521
Distributions from Net Realized Gain............................................ 1.402 .477 -0- -0-
------- ------- ------ ------
Total Distribution................................................................. 1.686 .777 .313 .192
------- ------- ------ ------
Net Asset Value, End of the Period................................................. $13.790 $12.999 $ 9.99 $ 9.28
======= ======= ====== ======
Total Return (b)................................................................... 19.78% 38.86% 11.26% .15%(c)
Net Assets at End of the Period (In millions)...................................... $ 17.4 $ 7.7 $ 3.1 $ 1.3
Ratio of Expenses to Average Net Assets**.......................................... 2.52% 3.38% 3.54% 1.62%
Ratio of Net Investment Income to
Average Net Assets**............................................................. 2.00% 2.39% 2.11% 3.92%
Portfolio Turnover................................................................. 159% 97% 94% 28%*
Average Commission Paid Per Equity Share Traded (d)................................ $ .0594 $ .0486 - -
*Non-Annualized.
**If certain expenses had not been assumed by VKAC, total return would
have been lower and the ratios would have been
as follows:
Ratio of Expenses to Average Net Assets............................................ N/A 3.40% 4.03% 3.38%
Ratio of Net Investment Income to Average Net Assets............................... N/A 2.38% 1.62% 2.15%
</TABLE>
N/A = Not Applicable
(a) Based on average shares outstanding
(b) Total Return is based upon net asset value which does not include payment
of the maximum sales charge or contingent deferred sales charge.
(c) Total return calculated from June 30, 1994 (date the Fund's investment
strategy was implemented) through December 31, 1994, non-annualized.
(d) Represents the average brokerage commission paid per equity share traded
during the period for trades where commissions were applicable. This
disclosure was not required in fiscal periods prior to 1996.
See Notes to Financial Statements
B-40
<PAGE> 101
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital Real Estate Securities Fund (the "Fund") is
organized as a Delaware business trust, and is registered as a diversified open-
end management investment company under the Investment Company Act of 1940, as
amended. The Fund's primary investment objective is to seek long-term growth of
capital by investing principally in securities of companies operating in the
real estate industry. The Fund commenced investment operations on June 9, 1994.
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.
Unlisted securities and listed securities for which the last sales price is not
available are valued at the last bid price. 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 American Capital Asset Management, Inc. (the "Adviser") or
its affiliates, the daily aggregate of which is invested in repurchase
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. 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.
B-41
<PAGE> 102
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1997
D. ORGANIZATIONAL COSTS-The Fund has reimbursed Van Kampen American Capital
Distributors, Inc. or its affiliates (collectively "VKAC") for costs incurred in
connection with the Fund's organization in the amount of $16,000. These costs
are being amortized on a straight line basis over the 60 month period ending May
31, 1999. The Adviser has agreed that in the event any of the initial shares of
the Fund originally purchased by VKAC are redeemed by the Fund during the
amortization period, the Fund will be reimbursed for any unamortized
organizational costs in the same proportion as the number of shares redeemed
bears to the number of initial shares held at the time of redemption.
E. 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 substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
Net realized gains or losses may differ for financial reporting and tax
purposes primarily as a result of the deferral of losses for tax purposes
resulting from wash sales.
At December 31, 1997, for federal income tax purposes cost of long- and short-
term investments is $129,401,768; the aggregate gross unrealized appreciation is
$15,544,158 and the aggregate gross unrealized depreciation is $906,739,
resulting in net unrealized appreciation of $14,637,419.
F. DISTRIBUTION OF INCOME AND GAINS-The Fund declares and pays dividends
quarterly from net investment income. Net realized gains, if any, are
distributed annually. Distributions from net realized gains for book purposes
may include short-term capital gains. All short-term capital gains are included
in ordinary income for tax purposes.
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, 1997. The Fund designated $3,828,135 as a 28% rate capital gain
distribution and $545,346 as a 20% rate capital gain distribution. Shareholders
were sent a 1997 Form 1099-DIV in January 1998 representing their proportionate
share of the capital gain distribution to be reported on their income tax
returns.
The Fund distributes the return of capital it receives from the Real Estate
Investment Trusts (the "REITs") in which the Fund invests. The REITs pay
distributions based on cash flow, without regard to depreciation and
amortization. As a result, a portion of the distributions paid to the Fund and
subsequently distributed to shareholders may be a return of capital.
Due to inherent differences in the recognition of income, expenses and
realized gains/losses under generally accepted accounting principles and federal
income tax purposes, permanent differences between book and tax basis reporting
for the 1997 fiscal year have been identified and appropriately reclassified. As
a result, permanent differences relating to the characterization of
distributions for tax purposes totaling $134,781 were reclassified from
accumulated undistributed net investment income to accumulated net realized
gain/loss. Additionally, permanent book and tax differences relating to the
recognition of certain expenses which are not deductible for tax purposes
totaling $3,121 were reclassified from accumulated undistributed net investment
income to capital.
B-42
<PAGE> 103
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997
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 equal to
1.00% of the average net assets of the Fund. This fee is payable monthly.
For the year ended December 31, 1997, the Fund recognized expenses of
approximately $3,700 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, 1997, the Fund recognized expenses of
approximately $31,800 representing VKAC's cost of providing accounting services
to the Fund. These services are provided by VKAC at cost.
ACCESS Investor Services, Inc. ("ACCESS"), an affiliate of the Adviser, serves
as the shareholder servicing agent for the Fund. For the year ended December 31,
1997, the Fund recognized expenses of approximately $199,900, representing
ACCESS' cost of providing transfer agency and shareholder services plus a
profit.
For the year ended December 31, 1997, the Fund reimbursed VKAC approximately
$2,000 related to the direct cost of consolidating the VKAC open-end fund
complex. Payment was contingent upon the realization by the Fund of cost
efficiencies in shareholder services resulting from the consolidation.
Certain officers and trustees of the Fund are also officers and directors of
VKAC. The Fund does not compensate its officers or trustees who are officers of
VKAC.
The Fund provides deferred compensation and retirement plans for its trustees
who are not officers of VKAC. 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 equal to $2,500.
For the year ended December 31, 1997, the Fund paid brokerage commissions to
Dean Witter, an affiliate of VKAC, totaling $7,608.
At December 31,1997, VKAC owned 10,605 and 53 shares of Classes A and B,
respectively.
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, 1997, capital aggregated $44,679,411, $65,025,381 and
$15,201,749 for Classes A, B, and C, respectively. For the year ended December
31, 1997, transactions were as follows:
B-43
<PAGE> 104
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A....................................... 5,170,889 $ 72,826,990
Class B....................................... 3,529,184 48,022,266
Class C....................................... 692,679 9,390,192
---------- ------------
Total Sales..................................... 9,392,752 $130,239,448
========== ============
Dividend Reinvestment:
Class A....................................... 393,875 $ 5,266,583
Class B....................................... 458,508 6,117,855
Class C....................................... 110,872 1,478,523
---------- ------------
Total Dividend Reinvestment..................... 963,255 $ 12,862,961
========== ============
Repurchases:
Class A....................................... (3,640,808) $(52,082,516)
Class B....................................... (721,539) (9,824,495)
Class C....................................... (127,832) (1,759,592)
---------- ------------
Total Repurchases............................... (4,490,179) $(63,666,603)
========== ============
</TABLE>
At December 31, 1996, capital aggregated $18,669,483, $20,711,364 and
$6,093,009 for Classes A, B, and C, respectively. For the year ended December
31, 1996, transactions were as follow:
<TABLE>
<CAPTION>
SHARES VALUE
- -----------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.......................................... 1,142,133 $13,064,447
Class B.......................................... 1,012,720 11,615,644
Class C.......................................... 336,995 3,836,791
--------- -----------
Total Sales........................................ 2,491,848 $28,516,882
========= ===========
Dividend Reinvestment:
Class A.......................................... 89,245 $ 1,046,880
Class B.......................................... 86,852 1,022,967
Class C.......................................... 24,037 283,655
--------- -----------
Total Dividend Reinvestment........................ 200,134 $ 2,353,502
========= ===========
Repurchases:
Class A.......................................... (289,138) $(3,174,901)
Class B.......................................... (265,477) (2,844,469)
Class C.......................................... (78,881) (868,415)
--------- -----------
Total Repurchases.................................. (633,496) $(6,887,785)
========= ===========
</TABLE>
B-44
<PAGE> 105
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). The CDSC for Class B and C
shares 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.
CONTINGENT DEFERRED
SALES CHARGE
YEAR OF REDEMPTION CLASS B CLASS 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
For the year ended December 31, 1997, VKAC, as Distributor for the Fund,
received net commissions on sales of the Fund's Class A shares of approximately
$67,200 and CDSC on the redeemed shares of approximately $116,400. 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, were $214,589,921 and $149,389,626,
respectively.
5. 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% of Class A net assets and 1.00% each
of Class B and Class C net assets are accrued daily. Included in these fees for
the year ended December 31, 1997, are payments retained by VKAC of approximately
$509,300.
B-45
<PAGE> 106
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
List of all financial statements and exhibits as part of the Registration
Statement.
(a) Financial Statements
Included in Part A of Registration Statement:
Financial Highlights
Included in Part B of Registration Statement:
Report of Independent Accountants
Financial Statements
Notes to Financial Statements
(b) Exhibits
<TABLE>
<C> <S>
(1)(a) First Amended and Restated Agreement and Declaration of
Trust(8)
(b) Certificate of Amendment(8)
(c) Amended and Restated Certificate of Designation+
(2) Amended and Restated Bylaws(8)
(4)(a) Specimen Class A Share Certificate(9)
(b) Specimen Class B Share Certificate(9)
(c) Specimen Class C Share Certificate(9)
(5) Investment Advisory Agreement+
(6)(a) Distribution and Service Agreement+
(b) Form of Dealer Agreement(9)
(c) Form of Broker Agreement(9)
(d) Form of Bank Agreement(9)
(8)(a) Custodian Contract (10)
(b) Transfer Agency and Service Agreement(11)
(9)(a) Data Access Services Agreement(9)
(b) Fund Accounting Agreement(11)
(10) Opinion of Counsel(9)
(11) Consent of Independent Accountants+
(13) Investment Letter(7)
(14)(a) Individual Retirement Account Brochure with Application(4)
(b) 403(b)(7) Custodial Account(2)
(c) ORP 403(b)(7) Custodial Account(2)
(d) Retirement Plans for the Small Business -- Forms Package and
Plan Documents(5)
(e) Prototype Profit Sharing/Money Purchase Plan and Trust(1)
(f) Prototype 401(k) Plan and Trust(1)
(g) Salary Reduction Simplified Employee Pension Plan(3)
(h) Simplified Employee Pension Plan Brochure with
Application(6)
(15)(a) Plan of Distribution pursuant to 12b-1(9)
(b) Form of Shareholder Assistance Agreement(9)
(c) Form of Administrative Service Agreement(9)
(d) Service Plan(9)
</TABLE>
C-1
<PAGE> 107
<TABLE>
<C> <S>
(16) Computation of Performance Information+
(17)(a) List of certain investment companies in response to Item
29(a)(10)
(b) List of officers and directors of Van Kampen American
Capital Distributors, Inc. in response to Item 29(b)(10)
(18) Amended Multiple Class Plan(9)
(24) Power of Attorney+
(27) Financial Data Schedules+
</TABLE>
- ---------------
(1) Incorporated herein by reference to Post-Effective Amendment No. 61 to
Registration Statement on Form N-1A of Van Kampen American Capital Growth
and Income Fund, File Number 2-21657, filed March 26, 1991.
(2) Incorporated herein by reference to Post-Effective Amendment No. 30 to
Registration Statement on Form N-1A of Van Kampen American Capital Reserve
Fund, File Number 2-50870, filed September 24, 1992.
(3) Incorporated herein by reference to Post-Effective Amendment No. 9 to
Registration Statement on Form N-1A of Van Kampen American Capital World
Portfolio Series Trust, File Number 33-37879, filed September 24, 1993.
(4) Incorporated herein by reference to Post-Effective Amendment No. 31 to
Registration Statement on Form N-1A of Van Kampen American Capital Reserve
Fund, File Number 2-50870, filed September 24, 1993.
(5) Incorporated herein by reference to Post-Effective Amendment No. 18 to
Registration Statement on Form N-1A of Van Kampen American Capital
Government Securities Fund, File Number 2-90482, filed February 25, 1994.
(6) Incorporated herein by reference to Post-Effective Amendment No. 69 to
Registration Statement on Form N-1A of Van Kampen American Capital Growth
and Income Fund, File Number 2-21657, filed March 24, 1994.
(7) Incorporated herein by reference to Post-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A, File Number 33-77800,
filed June 2, 1994.
(8) Incorporated herein by reference to Post-Effective Amendment No. 5 to
Registrant's Registration Statement on Form N-1A, File Number 33-77800,
filed April 22, 1996.
(9) Incorporated herein by reference to Post-Effective Amendment No. 6 to
Registrant's Registration Statement on Form N-1A, File Number 33-77800,
filed April 29, 1997.
(10) Incorporated herein by reference to Post-Effective Amendment No. 75 to the
Registration Statement on Form N-1A of Van Kampen American Growth and
Income Fund, File Number 2-21657, filed March 27, 1998.
(11) Incorporated herein by reference to Post-Effective Amendment No. 50 to the
Registration Statement on Form N-1A of Van Kampen American Capital Comstock
Fund, File Number 2-27778 filed April 27, 1998.
+ Filed herewith.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
See "General Information" in the Statement of Additional Information.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
AS OF APRIL 3, 1998
<TABLE>
<CAPTION>
(1) (2)
NUMBER OF RECORD HOLDERS
-----------------------------
TITLE OF CLASS CLASS A CLASS B CLASS C
-------------- ------- ------- -------
<S> <C> <C> <C>
Shares of Beneficial Interest, $0.01 par
value 4,989 6,331 1,712
----- ----- -----
</TABLE>
C-2
<PAGE> 108
ITEM 27. INDEMNIFICATION.
Reference is made to Article 8, Section 8.4 of the Registrant's Amended and
Restated Agreement and Declaration of Trust.
Article 8; Section 8.4 of the Amended and Restated 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 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 28. 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 American Capital 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.
C-3
<PAGE> 109
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) The sole principal underwriter is Van Kampen American Capital
Distributors, Inc., (the "Distributor"), which acts as principal underwriter for
certain investment companies and unit investment trusts set forth in Exhibit
17(a) incorporated by reference herein.
(b) Van Kampen American Capital Distributors, Inc. which is an affiliated
person of an affiliated person of Registrant, is the sole principal underwriter
for Registrant. The name, principal business address and positions and offices
with Van Kampen American Capital Distributors, Inc. of each of the directors and
officers thereof are set forth in Exhibit 17(b) incorporated by reference
herein. 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 30. 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 One Parkview Plaza,
Oakbrook Terrace, Illinois 60181, ACCESS 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 One Parkview Plaza, Oakbrook Terrace,
Illinois 60181; and (iii) by the Distributor, the principal underwriter, will be
maintained at its offices located at One Parkview Plaza, Oakbrook Terrace,
Illinois 60181.
ITEM 31. MANAGEMENT SERVICES.
Not applicable.
ITEM 32. UNDERTAKINGS.
Registrant hereby undertakes to furnish to each person to whom a prospectus
is delivered a copy of the Registrant's latest annual report to shareholders,
upon request and without charge.
Registrant hereby undertakes, if requested to do so by the holders of at
least 10% of the Registrant's outstanding shares, to call a meeting of
shareholders for the purpose of voting upon the question of removal of a trustee
or trustees and to assist in communications with other shareholders as required
by Section 16(c) of the Investment Company Act of 1940.
C-4
<PAGE> 110
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, VAN KAMPEN AMERICAN CAPITAL REAL
ESTATE SECURITIES 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 the State of
Illinois, on the 24th day of April, 1998.
VAN KAMPEN AMERICAN CAPITAL
REAL ESTATE SECURITIES FUND
By: /s/ RONALD A. NYBERG
---------------------------------------
Ronald A. Nyberg, Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to this Registration Statement has been signed on April 24, 1998 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/ EDWARD C. WOOD III* Vice President and Chief Financial Officer
- ---------------------------------------------------
Edward C. Wood III
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
</TABLE>
- ---------------
* Signed by Ronald A. Nyberg pursuant to a power of attorney filed herewith.
<TABLE>
<S> <C>
/s/ RONALD A. NYBERG
- ---------------------------------------------------
Ronald A. Nyberg
Attorney-in-Fact April 24, 1998
</TABLE>
<PAGE> 111
SCHEDULE OF EXHIBITS TO POST-EFFECTIVE AMENDMENT NO. 7 TO FORM N-1A
AS SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION
ON APRIL 30, 1998
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------- -------
<S> <C> <C>
(1) (c) Amended and Restated Certificate of Designation
(5) Investment Advisory Agreement
(6) (a) Distribution and Service Agreement
(11) Consent of Independent Accountants
(16) Computation of Performance Information
(24) Power of Attorney
(27) Financial Data Schedules
</TABLE>
<PAGE> 1
EXHIBIT (1)(c)
VAN KAMPEN AMERICAN CAPITAL REAL ESTATE SECURITIES FUND
Amended and Restated Certificate of Designation
of
Van Kampen American Capital Real Estate Securities Fund
The undersigned, being the Secretary of Van Kampen American Capital Real Estate
Securities Fund, a Delaware business trust (the "Trust"), pursuant to the
authority conferred upon the Trustees of the Trust by Section 6.1 of the Trust's
First Amended and Restated Agreement and Declaration of Trust ("Declaration"),
and by the affirmative vote of a Majority of the Trustees does hereby amend and
restate in its entirety the Certificate of Designation of the Van Kampen
American Capital Real Estate Securities Fund Series of the Trust dated June 21,
1995 by redesignating the following classes of Shares of the Trust with the
following rights, preferences and characteristics:
1. Shares. The beneficial interest in the Trust shall be divided into Shares
having a nominal or par value of $0.01 per Share, of which an unlimited number
may be issued, which Shares shall represent interests only in the Trust. The
Trustees shall have the authority from time to time to authorize separate Series
of Shares for the Trust as they deem necessary or desirable.
2. Classes of Shares. The Shares of the Trust shall be initially divided into
three classes--Class A, Class B and Class C. The Trustees shall have the
authority from time to time to authorize additional Classes of Shares of the
Trust.
3. Sales Charges. Each Class A, Class B and Class C Share shall be subject to
such sales charges, if any, as may be established from time to time by the
Trustees in accordance with the Investment Company Act of 1940 (the "1940 Act")
and applicable rules and regulations of the National Association of Securities
Dealers, Inc., all as set forth in the Trust's prospectus.
4. Conversion. Each Class B Share and certain Class C Shares of the Trust shall
be converted automatically, and without any action or choice on the part of the
Shareholder thereof, into Class A Shares of the Trust at such times and pursuant
to such terms, conditions and restrictions as may be established by the Trustees
and as set forth in the Trust's Prospectus.
5. Allocation of Expenses Among Classes. Expenses related solely to a particular
Class (including, without limitation, distribution expenses under an
administrative or service agreement, plan or other arrangement, however
designated) shall be borne by that Class and shall be appropriately reflected
(in a manner determined by the Trustees) in the net asset value, dividends,
distribution and liquidation rights of the Shares of that Class.
<PAGE> 2
6. Special Meetings. A special meeting of Shareholders of a Class of the Trust
may be called with respect to the Rule 12b-1 distribution plan applicable to
such Class or with respect to any other proper purpose affecting only holders of
shares of such Class at any time by a Majority of the Trustees.
7. Other Rights Governed by Declaration. All other rights, preferences,
qualifications, limitations and restrictions with respect to Shares of any
Series of the Trust or with respect to any Class of Shares set forth in the
Declaration shall apply to Shares of the Trust unless otherwise specified in
this Certificate of Designation, in which case this Certificate of Designation
shall govern.
8. Amendments, etc. Subject to the provisions and limitations of Section 9.5 of
the Declaration and applicable law, this Certificate of Designation may be
amended by an instrument signed in writing by a Majority of the Trustees (or by
any officer of the Trust pursuant to the vote of a Majority of the Trustees) or
when authorized to do so by the vote in accordance with the Declaration of the
holders of a majority of all the Shares of the Trust outstanding and entitled to
vote or, if such amendment affects the Shares of one or more but not all of the
Classes of the Trust, the holders of a majority of all the Shares of the
affected Classes outstanding and entitled to vote.
9. Incorporation of Defined Terms. All capitalized terms which are not defined
herein shall have the same meaning as ascribed to those terms in the
Declaration.
December 12, 1996
/s/ RONALD A. NYBERG
-------------------------
Ronald A. Nyberg, Secretary
2
<PAGE> 1
EXHIBIT (5)
INVESTMENT ADVISORY AGREEMENT
AGREEMENT (herein so called) made this May 31, 1997, by and between VAN KAMPEN
AMERICAN CAPITAL REAL ESTATE SECURITIES FUND, a Delaware business trust
(hereinafter referred to as the "FUND"), and VAN KAMPEN AMERICAN CAPITAL ASSET
MANAGEMENT, INC., a Delaware corporation (hereinafter referred to as the
"ADVISER").
The FUND and the ADVISER agree as follows:
(1) SERVICES RENDERED AND EXPENSES PAID BY ADVISER
The ADVISER, subject to the control, direction and supervision of the FUND's
Trustees and in conformity with applicable laws, the FUND's Agreement and
Declaration of Trust ("Declaration of Trust"), By-laws, registration statements,
prospectus and stated investment objectives, policies and restrictions, shall:
a. manage the investment and reinvestment of the FUND's assets
including, by way of illustration, the evaluation of pertinent economic,
statistical, financial and other data, determination of the industries and
companies to be represented in the FUND's portfolio, and formulation and
implementation of investment programs;
b. maintain a trading desk and place all orders for the purchase and
sale of portfolio investments for the FUND's account with brokers or dealers
selected by the ADVISER;
c. conduct and manage the day-to-day operations of the FUND including,
by way of illustration, the preparation of registration statements,
prospectuses, reports, proxy solicitation materials and amendments thereto, the
furnishing of routine legal services except for services provided by outside
counsel to the FUND selected by the Trustees, and the supervision of the FUND's
Treasurer and the personnel working under his direction; and
d. furnish to the FUND office space, facilities, equipment and personnel
adequate to provide the services described in paragraphs a., b., and c. above
and pay the compensation of each FUND trustee and Fund officer who is an
affiliated person of the ADVISER, except the compensation of the FUND's
Treasurer and related expenses as provided below.
In performing the services described in paragraph b. above, the ADVISER shall
use its best efforts to obtain for the FUND the most favorable price and
execution available and shall maintain records adequate to demonstrate
compliance with this requirement. Subject to prior authorization by the FUND's
Trustees of appropriate policies and procedures, the ADVISER may, to the extent
authorized by law, cause the FUND to pay a broker or dealer that provides
brokerage and research services to the ADVISER an amount of commission for
effecting a portfolio investment transaction in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction. In the event of such authorization and to the extent authorized by
law, the ADVISER shall not be deemed to have acted unlawfully or to have
breached any duty created by this Agreement or otherwise solely by reason of
such action.
Except as otherwise agreed, or as otherwise provided herein, the FUND shall
pay, or arrange for others to pay, all its expenses other than those expressly
stated to be payable by the ADVISER hereunder, which expenses payable by the
FUND shall include (i) interest and taxes; (ii) brokerage commissions and other
costs in connection with the purchase and sale of portfolio investments; (iii)
compensation of its trustees and officers other than those who are affiliated
persons of the ADVISER; (iv) compensation of its Treasurer, compensation of
personnel working under the Treasurer's direction, and expenses of office space,
facilities, and equipment used by the Treasurer and such personnel in the
performance of their normal duties for the FUND which consist of maintenance of
the accounts, books and other documents which constitute the record forming the
basis for the FUND's financial statements, preparation of such financial
statements and other FUND documents and reports of a financial nature required
by federal and
<PAGE> 2
state laws, and participation in the production of the FUND's registration
statement, prospectuses, proxy solicitation materials and reports to
shareholders; (v) fees of outside counsel to and of independent accountants of
the FUND selected by the Trustees; (vi) custodian, registrar and shareholder
service agent fees and expenses; (vii) expenses related to the repurchase or
redemption of its shares including expenses related to a program of periodic
repurchases or redemptions; (viii) expenses related to the issuance of its
shares against payment therefor by or on behalf of the subscribers thereto; (ix)
fees and related expenses of registering and qualifying the FUND and its shares
for distribution under state and federal securities laws; (x) expenses of
printing and mailing of registration statements, prospectuses, reports, notices
and proxy solicitation materials of the FUND; (xi) all other expenses incidental
to holding meetings of the FUND's shareholders including proxy solicitations
therefor; (xii) expenses for servicing shareholder accounts; (xiii) insurance
premiums for fidelity coverage and errors and omissions insurance; (xiv) dues
for the FUND's membership in trade associations approved by the Trustees; and
(xv) such nonrecurring expenses as may arise, including those associated with
actions, suits or proceedings to which the FUND is a party and the legal
obligation which the FUND may have to indemnify its officers and trustees with
respect thereto. To the extent that any of the foregoing expenses are allocated
between the FUND and any other party, such allocations shall be pursuant to
methods approved by the Trustees.
For a period of one year commencing on the effective date of this Agreement,
the ADVISER and the FUND agree that the retention of (i) the chief executive
officer, president, chief financial officer and secretary of the ADVISER and
(ii) each director, officer and employee of the ADVISER or any of its Affiliates
(as defined in the Investment Company Act of 1940, as amended (the "1940 Act"))
who serves as an officer of the FUND (each person referred to in (i) or (ii)
hereinafter being referred to as an "Essential Person"), in his or her current
capacities, is in the best interest of the FUND and the FUND's shareholders. In
connection with the ADVISER's acceptance of employment hereunder, the ADVISER
hereby agrees and covenants for itself and on behalf of its Affiliates that
neither the ADVISER nor any of its Affiliates shall make any material or
significant personnel changes or replace or seek to replace any Essential Person
or cause to be replaced any Essential Person, in each case without first
informing the Board of Trustees of the FUND in a timely manner. In addition,
neither the ADVISER nor any Affiliate of the ADVISER shall change or seek to
change or cause to be changed, in any material respect, the duties and
responsibilities of any Essential Person, in each case without first informing
the Board of Trustees of the FUND in a timely manner.
(2) ROLE OF ADVISER
The ADVISER, and any person controlled by or under common control with the
ADVISER, shall be free to render similar services to others and engage in other
activities, so long as the services rendered to the FUND are not impaired.
Except as otherwise required by the Investment Company Act of 1940 (the "1940
Act"), any of the shareholders, trustees, officers and employees of the FUND may
be a shareholder, trustee, director, officer or employee of, or be otherwise
interested in, the ADVISER, and in any person controlled by or under common
control with the ADVISER, and the ADVISER, and any person controlled by or under
common control with the ADVISER, may have an interest in the FUND.
Except as otherwise agreed, in the absence of willful misfeasance, bad faith,
negligence or reckless disregard of obligations or duties hereunder on the part
of the ADVISER, neither the ADVISER nor any subadviser shall be subject to
liability to the FUND, or to any shareholder of the FUND, for any act or
omission in the course of, or connected with, rendering services hereunder or
for any losses that may be sustained in the purchase, holding or sale of any
security.
2
<PAGE> 3
(3) COMPENSATION PAYABLE TO THE ADVISER
The FUND shall pay to the ADVISER, as compensation for the services rendered,
facilities furnished and expenses paid by the ADVISER, a monthly fee computed at
the following annual rate:
1.00% of average daily net assets.
Average daily net assets shall be determined by taking the average of the net
assets for each business day during a given calendar month calculated in the
manner provided in the FUND's Declaration of Trust. Such fee shall be payable
for each calendar month as soon as practicable after the end of that month.
The fees payable to the ADVISER by the FUND pursuant to this Section 3 shall
be 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 VK/AC Holding, Inc., in connection with the
purchase and sale of portfolio investments of the FUND, less any direct expenses
incurred by such person, in connection with obtaining such commissions, fees,
brokerage or similar payments. The ADVISER shall use its best efforts to
recapture all available tender offer solicitation fees and exchange offer fees
in connection with the FUND's portfolio transactions and shall advise the
Trustees 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 VK/AC Holding, Inc. to receive in connection with FUND's portfolio
transactions or other arrangements which may benefit the FUND.
In the event that the ordinary business expenses of the FUND for any fiscal
year should exceed the most restrictive expense limitation applicable in the
states where the FUND's shares are qualified for sale, the compensation due the
ADVISER for such fiscal year shall be reduced by the amount of such excess. The
Adviser's compensation shall be so reduced by a reduction or a refund thereof,
at the time such compensation is payable after the end of each calendar month
during such fiscal year of the FUND, and if such amount should exceed such
monthly compensation, the ADVISER shall pay the FUND an amount sufficient to
make up the deficiency, subject to readjustment during the FUND's fiscal year.
For purposes of this paragraph, all ordinary business expenses of the FUND shall
include the investment advisory fee and other operating expenses paid by the
FUND except (i) for interest and taxes; (ii) brokerage commissions; (iii) as a
result of litigation in connection with a suit involving a claim for recovery by
the FUND; (iv) as a result of litigation involving a defense against a liability
asserted against the FUND, provided that, if the ADVISER made the decision or
took the actions which resulted in such claim, it acted in good faith without
negligence or misconduct; (v) any indemnification paid by the FUND to its
officers and trustees and the ADVISER in accordance with applicable state and
federal laws as a result of such litigation; and (vi) amounts paid to Van Kampen
American Capital Distributors, Inc., the distributor of the FUND's shares, in
connection with a distribution plan adopted by the FUND's Trustees pursuant to
Rule 12b-1 under the Investment Company Act of 1940.
If the ADVISER shall serve for less than the whole of any month, the foregoing
compensation shall be prorated.
(4) BOOKS AND RECORDS
In compliance with the requirements of Rule 31a-3 under the 1940 Act, the
ADVISER hereby agrees that all records which it maintains for the FUND are the
property of the FUND and further agrees to surrender promptly to the FUND any of
such records upon the FUND's request. The ADVISER further agrees to preserve for
the periods prescribed by Rule 31a-2 under the 1940 Act the records required to
be maintained by Rule 31a-1 under the Act.
(5) DURATION OF AGREEMENT
This Agreement shall become effective on the date hereof, and shall remain in
full force until May 31, 1999 unless sooner terminated as hereinafter provided.
This Agreement shall continue in force from year to year thereafter, but only so
long as such continuance is approved at least annually by the vote of a
3
<PAGE> 4
majority of the FUND's Trustees who are not parties to this Agreement or
interested persons of any such parties, cast in person at a meeting called for
the purpose of voting on such approval , and by a vote of a majority of the
FUND's Trustees or a majority of the FUND's outstanding voting securities.
This Agreement shall terminate automatically in the event of its assignment.
The Agreement may be terminated at any time by the FUND's Trustees, by vote of a
majority of the FUND's outstanding voting securities, or by the ADVISER, on 60
days' written notice, or upon such shorter notice as may be mutually agreed
upon. Such termination shall be without payment of any penalty.
(6) MISCELLANEOUS PROVISIONS
For the purposes of this Agreement, the terms "affiliated person, "
"assignment," "interested person," and "majority of the outstanding voting
securities" shall have their respective meanings defined in the 1940 Act and the
Rules and Regulations thereunder, subject, however, to such exemptions as may be
granted to either the ADVISER or the FUND by the Securities and Exchange
Commission (the "Commission"), or such interpretive positions as may be taken by
the Commission or its staff, under the 1940 Act, and the term "brokerage and
research services" shall have the meaning given in the Securities Exchange Act
of 1934 and the Rules and Regulations thereunder.
The execution of this Agreement has been authorized by the FUND's Trustees and
by the sole shareholder. This Agreement is executed on behalf of the FUND or the
Trustees of the FUND as Trustees and not individually and that the obligations
of this Agreement are not binding upon any of the Trustees, officers or
shareholders of the FUND individually but are binding only upon the assets and
property of the FUND. A Certificate of Trust in respect of the FUND is on file
with the Secretary of State of Delaware.
All questions concerning the validity, meaning and effect of this Agreement
shall be determined in accordance with the laws (without giving effect to the
conflict-of-law principles thereof) of the State of Delaware applicable to
contracts made and to be performed in that state.
In connection with its employment hereunder, the ADVISER hereby agrees and
covenants not to change its name without the prior consent of the Board of
Trustees of the FUND.
The parties hereto each have caused this Agreement to be signed in duplicate
on its behalf by its duly authorized officer on the above date.
VAN KAMPEN AMERICAN CAPITAL VAN KAMPEN AMERICAN CAPITAL
ASSET MANAGEMENT, INC. REAL ESTATE SECURITIES FUND
By: /s/ DENNIS J. MCDONNELL By: /s/ PETER W. HEGEL
----------------------------- -----------------------------
Name: Dennis J. McDonnell Name: Peter W. Hegel
Its: President Its: Executive Vice President
4
<PAGE> 1
Exhibit (6)(a)
DISTRIBUTION AND SERVICE AGREEMENT
THIS DISTRIBUTION AND SERVICE AGREEMENT dated as of May 31, 1997 (the
"Agreement") by and between VAN KAMPEN AMERICAN CAPITAL REAL ESTATE SECURITIES
FUND (the "Fund") and VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC., a Delaware
corporation (the "Distributor").
1. (a) Appointment of Distributor. The Fund appoints the Distributor as
a principal underwriter and exclusive distributor of each class of its shares
of beneficial interest (the "Shares") offered for sale from time to time
pursuant to the then current prospectus of the Fund, subject to different
combinations of front-end sales charges, distribution fees, service fees and
contingent deferred sales charges. Classes of shares, if any, subject to a
front-end sales charge and a distribution and/or service fee are referred to
herein as "FESC Classes" and the Shares of such classes are referred to herein
as "FESC Shares." Classes of shares, if any, subject to a contingent-deferred
sales charge and a distribution and/or a service fee are referred to herein as
"CDSC Classes" and Shares of such classes are referred to herein as "CDSC
Shares." Classes of shares, if any, subject to a front-end sales charge, a
contingent-deferred sales charge and a distribution and/or service fee are
referred to herein as "Combination Classes" and Shares of such class are
referred to herein as "Combination Shares." The Fund reserves the right to
refuse at any time or times to sell Shares hereunder for any reason deemed
adequate by the Board of Trustees of the Fund.
(b) Best Efforts. The Distributor shall use its best efforts to sell,
through its organization and through other dealers and agents, the Shares which
the Distributor has the right to purchase under Section 2 hereof, but the
Distributor does not undertake to sell any specific number of Shares. Without
the prior approval of the Board of Trustees, the Distributor shall not,
directly or indirectly, distribute, sell or market, through its organization or
other brokers, dealers or agents, shares of any investment companies unless the
Board of Trustees of the Fund determines that such companies do not compete, or
potentially compete, with the Fund.
(c) Positions in the Shares. The Distributor agrees that it will not
take any long or short positions in the Shares, except for long positions in
those Shares purchased by the Distributor in accordance with any systematic
sales plan described in the then current Prospectus of the Fund and except as
permitted by Section 2 hereof, and that so far as it can control the situation,
it will prevent any of its trustees, officers or shareholders from taking any
long or short positions in the Shares, except for legitimate investment
purposes.
(d) Essential Personnel. The Distributor and the Fund agree that the
retention of (i) the chief executive officer, president, treasurer and
secretary of the Distributor, and (ii) each director, officer and employee of
the Distributor or any of its affiliates (as defined in the Investment Company
Act of 1940, as amended (the "1940 Act")) who serves as an officer of the Fund
(each person referred to in (i) or (ii) hereinafter being referred to as an
"Essential Person "), in his or her current capacities, is in the best interest
of the Fund and the Fund's shareholders. In connection with the Distributor's
acceptance of employment hereunder, the Distributor hereby agrees and covenants
for itself and on behalf of its Affiliates that neither the Distributor nor any
of its Affiliates shall replace or seek to replace any Essential Person or
cause to be replaced any Essential Person, in each case without first
consulting with the Board of Trustees of the Fund in a timely manner. In
addition, neither the Distributor nor any Affiliate of the Distributor shall
change or seek to change or cause to be changed, in any material respect, the
duties and responsibilities of any Essential Person, in each case without first
consulting with the Board of Trustees of the Fund in a timely manner.
2. Sale of Shares to Distributor. The Fund hereby grants to the
Distributor the exclusive right, except as herein otherwise provided, to
purchase Shares directly from the Fund upon the terms herein set forth. Such
exclusive right hereby granted shall not apply to Shares issued or transferred
or sold at
1
<PAGE> 2
net asset value: (a) in connection with the merger or consolidation of the
Fund with any other investment company or the acquisition by the Fund of
all or substantially all of the assets of or the outstanding Shares of any
investment company; (b) in connection with a pro rata distribution directly to
the holders of Shares in the nature of a stock dividend or stock split or in
connection with any other recapitalization approved by the Board of Trustees;
(c) upon the exercise of purchase or subscription rights granted to the holders
of Shares on a pro rata basis; (d) in connection with the automatic
reinvestment of dividends and distributions from the Fund; or (e) in connection
with the issue and sale of Shares to trustees, officers and employees of the
Fund, to directors, officers and employees of the investment adviser of the
Fund or any principal underwriter (including the Distributor) of the Fund, to
retirees of the Distributor that purchased shares of any mutual fund
distributed by the Distributor prior to retirement, to directors, officers and
employees of Van Kampen American Capital, Inc. (the parent company of the
Distributor), VK/AC Holding, Inc. (the parent company of The Van Kampen
American Capital, Inc.), Morgan Stanley, Dean Witter, Discover & Co. (the
parent company of VK/AC Holding, Inc.) and to the subsidiaries of Van Kampen
American Capital, Inc.; (f) to any trust, pension, profit-sharing or other
benefit plan for any of the aforesaid persons; and (g) to any group of persons
as permitted by Rule 22d-1 under the 1940 Act approved from time to time by the
Board of Trustees and set forth in the then current Prospectus of the Fund.
The Distributor shall have the right to buy from the Fund the Shares
needed, but not more than the Shares needed (except for reasonable allowances
for clerical errors, delays and errors of transmission and cancellation of
orders) to fill unconditional orders for Shares received by the Distributor
from dealers, agents and investors during each period when particular net asset
values and public offering prices are in effect as provided in Section 3
hereof; and the price which the Distributor shall pay for the Shares so
purchased shall be the respective net asset value used in determining the
public offering price on which such orders were based. The Distributor shall
notify the Fund at the end of each such period, or as soon thereafter on that
business day as the orders received in such period have been compiled, of the
number of Shares of each class that the Distributor elects to purchase
hereunder.
3. (a) Public Offering Price. The public offering price per Share shall
be determined in accordance with the then current Prospectus of the Fund. In
no event shall the public offering price exceed the net asset value per Share,
plus, with respect to the FESC Shares, a front-end sales charge
not in excess of the applicable maximum sales charge permitted under the Rules
of Fair Practice of the National Association of Securities Dealers, Inc., as in
effect from time to time. The net asset value per share for each class of
Shares, respectively, shall be determined in the manner provided in the
Declaration of Trust and By-Laws of the Trust as then amended, the Certificate
of Designation with respect to the Fund, as amended, and in accordance with the
then current Prospectus of the Fund consistent with the terms and conditions of
the Fund's Multiple Class Plan adopted by the Board of Trustees in accordance
with Section 18 of the 1940 Act and Rule 18f-3 thereunder. The Fund will cause
immediate notice to be given to the Distributor of each change in net asset
value as soon as it is determined.
(b) Discounts to Dealers. Discounts to dealers purchasing FESC Shares
from the Distributor for resale and to brokers and other eligible agents making
sales of FESC Shares to investors and compensation payable from the Distributor
to dealers, brokers and other eligible agents making sales of CDSC Shares and
Combination Shares shall be set forth in the selling agreements between the
Distributor and such dealers or agents, respectively, as from time to time
amended, and, if such discounts and compensation are described in the then
current Prospectus for the Fund, shall be as so set forth. In connection with
the Distributor's employment hereunder, the Distributor hereby agrees to
distribute the Shares through brokers, dealers and other agents of Dean Witter
Distributors, Inc. on a "proprietary basis" substantially identical to the
distribution of shares of proprietary open-end investment companies distributed
by Dean Witter Distributors, Inc.
4. Compliance with NASD Rules, SEC Orders, etc. In selling Fund Shares,
the Distributor will in all respects duly comply with all state and federal
laws relating to the sale of such securities and with all applicable rules and
regulations of all regulatory bodies, including without limitation, the Rules
of Fair Practice of the National Association of Securities Dealers, Inc., and
all applicable rules and regulations of
2
<PAGE> 3
the Securities and Exchange Commission under the 1940 Act, and will indemnify
and save the Fund harmless from any damage or expense on account of any
unlawful act by the Distributor or its agents or employees. The Distributor is
not, however, to be responsible for the acts of other dealers or agents, except
to the extent that they shall be acting for the Distributor or under its
direction or authority. None of the Distributor, any dealer, any agent or any
other person is authorized by the Fund to give any information or to make any
representations, other than those contained in the Registration Statement or
Prospectus heretofore or hereafter filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "1933 Act") (as
any such Registration Statement and Prospectus may have been or may be amended
from time to time), covering the Shares, and in any supplemental information to
any such Prospectus approved by the Fund in connection with the offer or sale
of Shares. None of the Distributor, any dealer, any broker or any other person
is authorized to act as agent for the Fund in connection with the offering or
sale of Shares to the public or otherwise. All such sales shall be made by the
Distributor as principal for its own account.
In selling Shares to investors, the Distributor will adopt and comply with
certain standards, as set forth in Exhibit III attached hereto as to when each
respective class of Shares may appropriately be sold to particular investors.
The Distributor will require every broker, dealer and other eligible agent
participating in the offering of the Shares to agree to adopt and comply with
such standards as a condition precedent to their participation in the offering.
5. Expenses.
(a) The Fund will pay or cause to be paid:
(i) all expenses in connection with the registration of
Shares under the federal securities laws, and the Fund will
exercise its best efforts to obtain said registration and
qualification;
(ii) all expenses in connection with the printing of any
notices of shareholders' meetings, proxy and proxy statements
and enclosures therewith, as well as any other notice or
communication sent to shareholders in connection with any
meeting of the shareholders or otherwise, any annual,
semiannual or other reports or communications sent to the
shareholders, and the expenses of sending prospectuses
relating to the Shares to existing shareholders;
(iii) all expenses of any federal or state
original-issue tax or transfer tax payable upon the issuance,
transfer or delivery of Shares from the Fund to the
Distributor; and
(iv) the cost of preparing and issuing any Share
certificates which may be issued to represent Shares.
(b) The Distributor will pay the costs and expenses of qualifying and
maintaining qualification of the Shares for sale under the securities laws of
the various states. The Distributor will also permit its officers and
employees to serve without compensation as trustees and officers of the Fund if
duly elected to such positions.
(c) The Fund shall reimburse the Distributor for out-of-pocket costs
and expenses actually incurred by it in connection with distribution of each
class of Shares respectively in accordance with and subject to the terms of a
plan (the "12b-1 Plan") adopted by the Fund pursuant to Rule 12b-1 under the
1940 Act as such 12b-1 Plan may be in effect from time to time; provided,
however, that no payments shall be due or paid to the Distributor hereunder
with respect to a class of Shares unless and until this Agreement shall have
been approved for each such class by a majority of the Board of Trustees of the
Fund and by a majority of the "Disinterested Trustees" (as such term is defined
in such 12b-1 Plan) by vote cast in person at a meeting called for the purpose
of voting on this Agreement. A copy of such 12b-1 Plan as in effect on the
date of this Agreement is attached as Exhibit I hereto. The Fund reserves the
right to terminate such 12b-1 Plan with respect to a class of Shares at any
time, as specified in the
3
<PAGE> 4
Plan. The persons authorized to direct the payment of funds pursuant to this
Agreement and the 12b-1 Plan shall provide to the Fund's Board of Trustees, and
the Trustees shall review, at least quarterly, a written report with respect to
each class of Shares setting forth the amounts so paid, the purposes for which
such expenditures were made for each such class of Shares, comparing the
amounts paid by such class of Shares with amounts paid by classes of shares
issued by investment companies not governed by the Board of Trustees and
distributed by the Distributor or by direct or indirect Affiliates of the
Distributor and such other information as the Board of Trustees may from time
to time request.
(d) The Fund shall compensate the Distributor for providing services
to, and the maintenance of, shareholder accounts in the Fund (including
prepaying service fees to eligible brokers, dealers and financial
intermediaries and expenses incurred in connection therewith) and the
Distributor may pay as agent for and on behalf of the Fund a service fee with
respect to each class of Shares to brokers, dealers and financial
intermediaries for the provision of shareholder services and the maintenance of
shareholder accounts in the Fund in the amount with respect to each class of
Shares set forth from time to time in the Fund's prospectus. The Fund shall
compensate the Distributor for such expenses in accordance with the terms of a
service plan (the "Service Plan"), as such Service Plan may be in effect from
time to time; provided, however, that no service fee payments shall be due or
paid to the Distributor hereunder with respect to a class of Shares unless and
until this Agreement shall have been approved for each such class by a majority
of the Board of Trustees of the Fund and by a majority of the Disinterested
Trustees by vote cast in person at a meeting called for the purpose of voting
on this Agreement. A copy of such Service Plan as in effect on the date of
this Agreement is attached as Exhibit II hereto. The Fund reserves the right
to terminate such Service Plan with respect to a class of Shares at any time,
as specified in the Plan. The persons authorized to direct the payment of
funds pursuant to this Agreement and the Service Plan shall provide to the
Fund's Board of Trustees, and the Trustees shall review, at least quarterly, a
written report with respect to each class of Shares setting forth the amounts
paid as service fees for each such class of Shares comparing the amounts paid
as service fees by such class of Shares with amounts paid by classes of shares
issued by investment companies not governed by the Board of Trustees and
distributed by the Distributor or by direct or indirect Affiliates of the
Distributor and such other information as the Board of Trustees may from time
to time request.
6. Redemption of Shares. In connection with the Fund's redemption of its
Shares, the Fund hereby authorizes the Distributor to repurchase, upon the
terms and conditions hereinafter set forth, as the Fund's agent and for the
Fund's account, such Shares as may be offered for sale to the Fund from time to
time by holders of such Shares or their agents.
(a) Subject to and in conformity with all applicable federal and state
legislation, any applicable rules of the National Association of Securities
Dealers, Inc., and any applicable rules and regulations of the Securities and
Exchange Commission under the 1940 Act, the Distributor may accept offers of
holders of Shares to resell such Shares to the Fund on such terms and
conditions and at such prices as described and provided for in the then current
Prospectus of the Fund.
(b) The Distributor agrees to notify the Fund at such times as the
Fund may specify of the number of each class of Shares, respectively,
repurchased for the Fund's account and the time or times of such repurchases,
and the Fund shall notify the Distributor of the prices and, in the case of a
class of CDSC Shares or Combination Shares, of the deferred sales charge as
described below, if any, applicable to repurchases of Shares of such class.
(c) The Fund shall have the right to suspend or revoke the foregoing
authorization at any time; unless otherwise stated, any such suspension or
revocation shall be effective forthwith upon receipt of notice thereof by
telegraph or by written instrument from any of the Fund's officers. In the
event that the Distributor's authorization is, by the terms of such notice,
suspended for more than twenty-four hours or until further notice, the
authorization given by this Section 6 shall not be revived except by vote of
the Board of Trustees of the Fund.
(d) The Distributor agrees that all repurchases of Shares made by the
Distributor shall be
4
<PAGE> 5
made only as agent for the Fund's account and pursuant to the terms and
conditions herein set forth.
(e) The Fund agrees to authorize and direct its Custodian to pay, for the
Fund's account, the repurchase price (together with any applicable contingent
deferred sales charge) of any Shares so repurchased for the Fund against the
authorized transfer of book shares from an open account and against delivery of
any other documentation required by the Board of Trustees of the Fund or, in
the case of certificated Shares, against delivery of the certificates
representing such Shares in proper form for transfer to the Fund.
(f) The Distributor shall receive no commissions or other compensation in
respect of any repurchases of FESC Shares for the Fund under the foregoing
authorization and appointment as agent. With respect to any repurchase of CDSC
Shares or Combination Shares, the Distributor shall receive the deferred sales
charge, if any, applicable to the respective class of Shares that have been
held for less than a specified period of time with respect to such class as set
forth from time to time in the Fund's Prospectus. The Distributor shall
receive no other commission or other compensation in respect of any repurchases
of CDSC Shares or Combination Shares for the Fund under the foregoing
authorization and appointment as agent.
(g) If any FESC Shares sold to the Distributor under the terms of this
Agreement are redeemed or repurchased by the Fund or by the Distributor as
agent or are tendered for redemption within seven business days after the date
of the Distributor's confirmation of the original purchase by the Distributor,
the Distributor shall forfeit the amount above the net asset value received by
it in respect of such Shares, provided that the portion, if any, of such amount
re-allowed by the Distributor to dealers or agents shall be repayable to the
Fund only to the extent recovered by the Distributor from the dealer or agent
concerned. The Distributor shall include in agreements with such dealers and
agents a corresponding provision for the forfeiture by them of their concession
with respect to FESC Shares purchased by them or their principals and redeemed
or repurchased by the Fund or by the Distributor as agent within seven business
days after the date of the Distributor's confirmation of such initial
purchases.
7. Indemnification. The Fund agrees to indemnify and hold harmless the
Distributor and each of its trustees and officers and each person, if any, who
controls the Distributor within the meaning of Section 15 of the 1933 Act
against any loss, liability, claim, damage or expense (including the reasonable
cost of investigating or defending any alleged loss, liability, claim, damage,
or expense and reasonable counsel fees incurred in connection therewith),
arising by reason of any person acquiring any Shares, based upon the ground
that the registration statement, Prospectus, shareholder reports or other
information filed or made public by the Fund (as from time to time amended)
included an untrue statement of a material fact or omitted to state a material
fact required to be stated or necessary in order to make the statements
therein, in light of the circumstances under which they were made,
not misleading under the 1933 Act or any other statute or the common law.
However, the Fund does not agree to indemnify the Distributor or hold it
harmless to the extent that the statement or omission was made in reliance
upon, and in conformity with, information furnished to the Fund by or on behalf
of the Distributor. In no case (i) is the indemnity of the Fund in favor of
the Distributor or any person indemnified to be deemed to protect the
Distributor or any person against any liability to the Fund or its
securityholders to which the Distributor or such person would otherwise be
subject by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties or by reason of its reckless disregard of its
obligations and duties under this Agreement, or (ii) is the Fund to be liable
under its indemnity agreement contained in this Section with respect to any
claim made against the Distributor or any person indemnified unless the
Distributor or any such person shall have notified the Fund in writing of the
claim within a reasonable time after the summons or other first written
notification giving information of the nature of the claim shall have been
served upon the Distributor or any such person (or after the Distributor or the
person shall have received notice of service on any designated agent). However,
failure to notify the Fund of any claim shall not relieve the Fund from any
liability which it may have to the Distributor or any person against whom such
action is brought otherwise than on account of its indemnity agreement
contained in this paragraph. The Fund shall be entitled to participate at its
own expense in the defense, or, if it so elects, to assume the defense, of any
suit brought to enforce any claims, but if the Fund elects to assume the
defense, the defense shall be conducted by counsel chosen by it and
satisfactory to the Distributor or person or persons, defendant or defendants
in the suit. In the event the
5
<PAGE> 6
Fund elects to assume the defense of any suit and retain counsel, the
Distributor, officers or trustees or controlling person or persons, defendant
or defendants in the suit, shall bear the fees and expenses of any additional
counsel retained by them. If the Fund does not elect to assume the defense of
any suit, it will reimburse the Distributor, officers or trustees or
controlling person or persons, defendant or defendants in the suit for the
reasonable fees and expenses of any counsel retained by them. The Fund agrees
to notify the Distributor promptly of the commencement of any litigation or
proceedings against it or any of its officers or directors in connection with
the issuance or sale of any of the Shares.
The Distributor also covenants and agrees that it will indemnify and hold
harmless the Fund and each of its trustees and officers and each person, if
any, who controls the Fund within the meaning of Section 15 of the 1933 Act
against any loss, liability, damage, claim or expense (including the reasonable
cost of investigating or defending any alleged loss, liability, damage, claim
or expense and reasonable counsel fees incurred in connection therewith)
arising by reason of any person acquiring any Shares, based upon the 1933 Act
or any other statute or common law, alleging any wrongful act of the
Distributor or any of its employees or alleging that the registration
statement, Prospectus, shareholder reports or other information filed or made
public by the Fund (as from time to time amended) included an untrue statement
of a material fact or omitted to state a material fact required to be stated or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, insofar as the
statement or omission was made in reliance upon, and in conformity with,
information furnished to the Fund by or on behalf of the Distributor. In no
case (i) is the indemnity of the Distributor in favor of the Fund or any person
indemnified to be deemed to protect the Fund or any such person against
any liability to which the Fund or such person would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence in the performance
of its duties or by reason of its reckless disregard of its obligation and
duties under this Amended Agreement, or (ii) is the Distributor to be liable
under its indemnity agreement contained in this paragraph with respect to any
claim made against the Fund or any person indemnified unless the Fund or
person, as the case may be, shall have notified the Distributor in writing of
the claim within a reasonable time after the summons or other first written
notification giving information of the nature of the claim shall have been
served upon the Fund or person (or after the Fund or such person shall have
received notice of service on any designated agent). However, failure to
notify the Distributor of any claim shall not relieve the Distributor from any
liability which it may have to the Fund or any person against whom the action
is brought otherwise than on account of its indemnity agreement contained in
this paragraph. In the case of any notice to the Distributor, it shall be
entitled to participate, at its own expense, in the defense, or, if it so
elects, to assume the defense, of any suit brought to enforce the claim, but if
the Distributor elects to assume the defense, the defense shall be conducted by
counsel chosen by it and satisfactory to the Fund, to its officers and trustees
and to any controlling person or persons, defendant or defendants in the suit.
In the event that the Distributor elects to assume the defense of any suit and
retain counsel, the Fund or controlling persons, defendants in the suit, shall
bear the fees and expenses of any additional counsel retained by them. If the
Distributor does not elect to assume the defense of any suit, it will reimburse
the Fund, officers and trustees or controlling person or persons, defendant or
defendants in the suit, for the reasonable fees and expenses of any counsel
retained by them. The Distributor agrees to notify the Fund promptly of the
commencement of any litigation or proceedings against it in connection with the
issue and sale of any of the Shares.
8. Continuation, Amendment or Termination of This Agreement. This
Agreement shall become effective on the Effective Date and thereafter shall
continue in full force and effect year to year with respect to each class of
Shares so long as such continuance is approved at least annually (i) by the
Board of Trustees of the Fund or by a vote of a majority of the outstanding
voting securities of the respective class of Shares of the Fund, and (ii) by
vote of a majority of the Trustees who are not parties to this Agreement or
interested persons in any such party (the "Independent Trustee") cast in person
at a meeting called for the purpose of voting on such approval, provided,
however, that (a) this Agreement may at any time be terminated with respect to
either class of Shares of the Fund without the payment of any penalty either by
vote of a majority of the Disinterested Trustees, or by vote of a majority of
the outstanding voting securities of the respective class of Shares of the
Fund, on written notice to the Distributor; (b) this Agreement shall
immediately terminate in the event of its assignment; and (c) this Agreement
may be terminated by the Distributor on ninety (90) days' written notice to the
Fund. Upon
6
<PAGE> 7
termination of this Agreement with respect to either class of Shares of the
Fund, the obligations of the parties hereunder shall cease and terminate with
respect to such class of Shares as of the date of such termination, except for
any obligation to respond for a breach of this Agreement committed prior to
such termination.
This Agreement may be amended with respect to either class of Shares at
any time by mutual consent of the parties, provided that such consent on the
part of the Fund shall have been approved (i) by the Board of Trustees of the
Fund, or by a vote of the majority of the outstanding voting securities of the
respective class of Shares of the Fund, and (ii) by vote of a majority of the
Independent Trustees cast in person at a meeting called for the purpose of
voting on such amendment.
For the purpose of this section, the terms "vote of a majority of the
outstanding voting securities", "interested persons" and "assignment" shall
have the meanings defined in the 1940 Act, as amended.
9. Limited Liability of Shareholder. Notwithstanding anything to the
contrary contained in this Agreement, you acknowledge and agree that, as
provided by Section 8.1 of the Agreement and Declaration of Trust of the Trust,
this Agreement is executed by the Trustees of the Trust and/or Officers of the
Fund by them not individually but as such Trustees and/or Officers, and the
obligations of the Fund hereunder are not binding upon any of the Trustees,
Officers or Shareholders individually, but bind only the trust estate.
10. Notice. Any notice under this Agreement shall be given in writing,
addressed and delivered, or mailed postpaid, to the other party at any office
of such party or at such other address as such party shall have designated in
writing.
11. Name. In connection with its employment hereunder, the Distributor
hereby agrees and covenants not to change its name without the prior consent of
the Board of Trustees.
12. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES HERETO SHALL BE GOVERNED BY, THE
LAW OF THE STATE OF ILLINOIS WITHOUT REFERENCE TO PRINCIPLES OF CONFLICT OF
LAWS.
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.
VAN KAMPEN AMERICAN CAPITAL REAL ESTATE
SECURITIES FUND
By: /s/ Dennis J. McDonnell
-----------------------------
Name: Dennis J. McDonnell
Title: President
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS,
INC.
By: /s/ Ronald A. Nyberg
-----------------------------
Name: Ronald A. Nyberg
Title: Executive Vice President
8
<PAGE> 1
EXHIBIT (11)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 7 to the
registration statement on Form N-1A (the "Registration Statement") of our report
dated February 6, 1998, relating to the financial statements and financial
highlights of Van Kampen American Capital Real Estate Securities 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/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Chicago, Illinois
April 29, 1998
<PAGE> 1
EXHIBIT (16)
REAL ESTATE SECURITIES FUND - CLASS A SHARES
TOTAL RETURN CALCULATION ONE YEAR PERIOD ENDED DECEMBER 31, 1997
<TABLE>
<S> <C> <C> <C>
Formula P(1+T)n = ERV
Including Payment of the Sales Charge
Net Asset Value $13.81
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,149.14 = ERV
One year period ended 12/31/97 1 = n
TOTAL RETURN FOR THE PERIOD 14.91% = T
Excluding Payment of the Sales Charge
Net Asset Value $13.81
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,206.59 = ERV
One year period ended 12/31/97 1 = n
TOTAL RETURN FOR THE PERIOD 20.66% = T
TOTAL RETURN CALCULATION INCEPTION THROUGH DECEMBER 31, 1997
Formula P(1+T)n = ERV
Including Payment of the Sales Charge
Net Asset Value $13.81
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,810.71 = ERV
Inception through 12/31/97 3.51 = n
TOTAL RETURN FOR THE PERIOD 18.43% = T
Excluding Payment of the Sales Charge
Net Asset Value $13.81
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,900.66 = ERV
Inception through 12/31/97 3.51 = n
TOTAL RETURN FOR THE PERIOD 20.08% = T
</TABLE>
<PAGE> 2
REAL ESTATE SECURITIES FUND - CLASS A SHARES
NON-STANDARDIZED CUMULATIVE TOTAL RETURN CALCULATION
INCEPTION THROUGH DECEMBER 31, 1997
<TABLE>
<S> <C> <C> <C> <C>
Formula ERV - P
-------
P = T
Including Payment of the Sales Charge
Net Asset Value $13.81
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,810.71 = ERV
TOTAL RETURN FOR THE PERIOD 81.07% = T
Excluding Payment of the Sales Charge
Net Asset Value $13.81
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,900.66 = ERV
TOTAL RETURN FOR THE PERIOD 90.07% = T
</TABLE>
<PAGE> 3
REAL ESTATE SECURITIES FUND - CLASS B SHARES
TOTAL RETURN CALCULATION ONE YEAR PERIOD ENDED DECEMBER 31, 1997
<TABLE>
<S> <C> <C> <C>
Formula P(1+T)n = ERV
Including Payment of the CDSC
Net Asset Value $13.80
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,157.62 = ERV
One year period ended 12/31/97 1 = n
TOTAL RETURN FOR THE PERIOD 15.76% = T
Excluding Payment of the CDSC
Net Asset Value $13.80
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,197.62 = ERV
One year period ended 12/31/97 1 = n
TOTAL RETURN FOR THE PERIOD 19.76% = T
TOTAL RETURN CALCULATION INCEPTION THROUGH DECEMBER 31, 1997
Formula P(1+T)n = ERV
Including Payment of the CDSC
Net Asset Value $13.80
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,825.73 = ERV
Inception through 12/31/97 3.51 = n
TOTAL RETURN FOR THE PERIOD 18.71% = T
Excluding Payment of the CDSC
Net Asset Value $13.80
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,850.73 = ERV
Inception through 12/31/97 3.51 = n
TOTAL RETURN FOR THE PERIOD 19.17% = T
</TABLE>
<PAGE> 4
REAL ESTATE SECURITIES FUND - CLASS B SHARES
NON-STANDARDIZED CUMULATIVE TOTAL RETURN CALCULATION
INCEPTION THROUGH DECEMBER 31, 1997
<TABLE>
<S> <C> <C> <C> <C>
Formula ERV - P
-------
P = T
Including Payment of the CDSC
Net Asset Value $13.80
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,825.73 = ERV
TOTAL RETURN FOR THE PERIOD 82.57% = T
Excluding Payment of the CDSC
Net Asset Value $13.80
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,850.73 = ERV
TOTAL RETURN FOR THE PERIOD 85.07% = T
</TABLE>
<PAGE> 5
REAL ESTATE SECURITIES FUND - CLASS C SHARES
TOTAL RETURN CALCULATION ONE YEAR PERIOD ENDED DECEMBER 31, 1997
<TABLE>
<S> <C> <C> <C>
Formula P(1+T)n = ERV
Including Payment of the CDSC
Net Asset Value $13.79
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,187.77 = ERV
One year period ended 12/31/97 1 = n
TOTAL RETURN FOR THE PERIOD 18.78% = T
Excluding Payment of the CDSC
Net Asset Value $13.79
Initial Investment $1000.00 = P
Ending Redeemable Value $1,197.77 = ERV
One year period ended 12/31/97 1 = n
TOTAL RETURN FOR THE PERIOD 19.78% = T
TOTAL RETURN CALCULATION INCEPTION THROUGH DECEMBER 31, 1997
Formula P(1+T)n = ERV
Including Payment of the CDSC
Net Asset Value $13.79
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,853.25 = ERV
Inception through 12/31/97 3.51 = n
TOTAL RETURN FOR THE PERIOD 19.22% = T
Excluding Payment of the CDSC
Net Asset Value $13.79
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,853.25 = ERV
Inception through 12/31/97 3.51 = n
TOTAL RETURN FOR THE PERIOD 19.22% = T
</TABLE>
<PAGE> 6
REAL ESTATE SECURITIES FUND - CLASS C SHARES
NON-STANDARDIZED CUMULATIVE TOTAL RETURN CALCULATION
INCEPTION THROUGH DECEMBER 31, 1997
<TABLE>
<S> <C> <C> <C> <C>
Formula ERV - P
-------
P = T
Including Payment of the CDSC
Net Asset Value $13.79
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,853.24 = ERV
TOTAL RETURN FOR THE PERIOD 85.32% = T
Excluding Payment of the CDSC
Net Asset Value $13.79
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,853.24 = ERV
TOTAL RETURN FOR THE PERIOD 85.32% = T
</TABLE>
<PAGE> 1
EXHIBIT (24)
POWER OF ATTORNEY
The undersigned, being officers and trustees of each of the Van Kampen
American Capital Open End Trusts (individually, a "Trust") as indicated on
Schedule 1 attached hereto and incorporated by reference, each a Delaware
business trust except for the Van Kampen American Capital Pennsylvania Tax Free
Income Fund being a Pennsylvania business trust, and being officers and
directors of the Morgan Stanley Fund, Inc. (the "Corporation"), a Maryland
corporation, do hereby, in the capacities shown below, individually appoint
Dennis J. McDonnell and Ronald A. Nyberg, each of Oakbrook Terrace, Illinois,
and each of them, as the agents and attorneys-in-fact with full power of
substitution and resubstitution, for each of the undersigned, to execute and
deliver, for and on behalf of the undersigned, any and all amendments to the
Registration Statement filed by each Trust or the Corporation with the
Securities and Exchange Commission pursuant to the provisions of the Securities
Act of 1933 and the Investment Company Act of 1940.
This Power of Attorney may be executed in multiple counterparts, each
of which shall be deemed an original, but which taken together shall constitute
one instrument.
Dated: April 24, 1998
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ DENNIS J. MCDONNELL President and Trustee/Director
----------------------------------
Dennis J. McDonnell
/s/ EDWARD C. WOOD III Vice President and Chief Financial Officer
----------------------------------
Edward C. Wood III
/s/ J. MILES BRANAGAN Trustee/Director
----------------------------------
J. Miles Branagan
/s/ RICHARD M. DEMARTINI Trustee/Director
----------------------------------
Richard M. DeMartini
/s/ LINDA HUTTON HEAGY Trustee/Director
----------------------------------
Linda Hutton Heagy
/s/ R. CRAIG KENNEDY Trustee/Director
----------------------------------
R. Craig Kennedy
/s/ JACK E. NELSON Trustee/Director
----------------------------------
Jack E. Nelson
/s/ DON G. POWELL Trustee/Director
----------------------------------
Don G. Powell
/s/ PHILLIP B. ROONEY Trustee/Director
----------------------------------
Phillip B. Rooney
/s/ FERNANDO SISTO, SC.D. Trustee/Director
----------------------------------
Fernando Sisto, Sc. D.
/s/ WAYNE W. WHALEN Trustee/Director and Chairman
----------------------------------
Wayne W. Whalen
</TABLE>
<PAGE> 2
SCHEDULE 1
VAN KAMPEN AMERICAN CAPITAL U.S. GOVERNMENT TRUST
VAN KAMPEN AMERICAN CAPITAL TAX FREE TRUST
VAN KAMPEN AMERICAN CAPITAL TRUST
VAN KAMPEN AMERICAN CAPITAL EQUITY TRUST
VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA TAX FREE INCOME FUND
VAN KAMPEN AMERICAN CAPITAL TAX FREE MONEY FUND
VAN KAMPEN AMERICAN CAPITAL COMSTOCK FUND
VAN KAMPEN AMERICAN CAPITAL CORPORATE BOND FUND
VAN KAMPEN AMERICAN CAPITAL EMREGING GROWTH FUND
VAN KAMPEN AMERICAN CAPITAL ENTERPRISE FUND
VAN KAMPEN AMERICAN CAPITAL EQUITY INCOME FUND
VAN KAMPEN AMERICAN CAPITAL LIMITED MATURITY GOVERNMENT FUND
VAN KAMPEN AMERICAN CAPITAL GLOBAL MANAGED ASSETS FUND
VAN KAMPEN AMERICAN CAPITAL GOVERNMENT SECURITIES FUND
VAN KAMPEN AMERICAN CAPITAL GROWTH AND INCOME FUND
VAN KAMPEN AMERICAN CAPITAL HARBOR FUND
VAN KAMPEN AMERICAN CAPITAL HIGH INCOME CORPORATE BOND FUND
VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST
VAN KAMPEN AMERICAN CAPITAL PACE FUND
VAN KAMPEN AMERICAN CAPITAL REAL ESTATE SECURITIES FUND
VAN KAMPEN AMERICAN CAPITAL RESERVE FUND
VAN KAMPEN AMERICAN CAPITAL SMALL CAPITALIZATION FUND
VAN KAMPEN AMERICAN CAPITAL TAX-EXEMPT TRUST
VAN KAMPEN AMERICAN CAPITAL U.S. GOVERNMENT TRUST FOR INCOME
VAN KAMPEN AMERICAN CAPITAL WORLD PORTFOLIO SERIES TRUST
VAN KAMPEN AMERICAN CAPITAL FOREIGN SECURITIES FUND
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> REAL ESTATE A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 129,242,426<F1>
<INVESTMENTS-AT-VALUE> 144,039,187<F1>
<RECEIVABLES> 2,285,280<F1>
<ASSETS-OTHER> 4,403<F1>
<OTHER-ITEMS-ASSETS> 977<F1>
<TOTAL-ASSETS> 146,329,847<F1>
<PAYABLE-FOR-SECURITIES> 3,881,015<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 501,226<F1>
<TOTAL-LIABILITIES> 4,382,241<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 44,679,411
<SHARES-COMMON-STOCK> 3,715,666
<SHARES-COMMON-PRIOR> 1,791,710
<ACCUMULATED-NII-CURRENT> (21,901)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 2,266,205<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 14,796,761<F1>
<NET-ASSETS> 51,313,568
<DIVIDEND-INCOME> 4,183,631<F1>
<INTEREST-INCOME> 406,183<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (2,266,257)<F1>
<NET-INVESTMENT-INCOME> 2,323,557<F1>
<REALIZED-GAINS-CURRENT> 15,177,147<F1>
<APPREC-INCREASE-CURRENT> 2,900,169<F1>
<NET-CHANGE-FROM-OPS> 20,400,873<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (1,094,042)
<DISTRIBUTIONS-OF-GAINS> (4,664,049)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,170,889
<NUMBER-OF-SHARES-REDEEMED> (3,640,808)
<SHARES-REINVESTED> 393,875
<NET-CHANGE-IN-ASSETS> 28,006,815
<ACCUMULATED-NII-PRIOR> (7,420)<F1>
<ACCUMULATED-GAINS-PRIOR> 107,270<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 1,010,205<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 2,266,257<F1>
<AVERAGE-NET-ASSETS> 37,527,037
<PER-SHARE-NAV-BEGIN> 13.008
<PER-SHARE-NII> 0.364
<PER-SHARE-GAIN-APPREC> 2.220
<PER-SHARE-DIVIDEND> (0.380)
<PER-SHARE-DISTRIBUTIONS> (1.402)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 13.810
<EXPENSE-RATIO> 1.77
<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> 012
<NAME> REAL ESTATE B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 129,242,426<F1>
<INVESTMENTS-AT-VALUE> 144,039,187<F1>
<RECEIVABLES> 2,285,280<F1>
<ASSETS-OTHER> 4,403<F1>
<OTHER-ITEMS-ASSETS> 977<F1>
<TOTAL-ASSETS> 146,329,847<F1>
<PAYABLE-FOR-SECURITIES> 3,881,015<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 501,226<F1>
<TOTAL-LIABILITIES> 4,382,241<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 65,025,381
<SHARES-COMMON-STOCK> 5,304,248
<SHARES-COMMON-PRIOR> 2,038,095
<ACCUMULATED-NII-CURRENT> (21,901)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 2,266,205<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 14,796,761<F1>
<NET-ASSETS> 73,198,558
<DIVIDEND-INCOME> 4,183,631<F1>
<INTEREST-INCOME> 406,183<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (2,266,257)<F1>
<NET-INVESTMENT-INCOME> 2,323,557<F1>
<REALIZED-GAINS-CURRENT> 15,177,147<F1>
<APPREC-INCREASE-CURRENT> 2,900,169<F1>
<NET-CHANGE-FROM-OPS> 20,400,873<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (1,102,759)
<DISTRIBUTIONS-OF-GAINS> (6,626,846)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,529,184
<NUMBER-OF-SHARES-REDEEMED> (721,539)
<SHARES-REINVESTED> 458,508
<NET-CHANGE-IN-ASSETS> 46,687,138
<ACCUMULATED-NII-PRIOR> (7,420)<F1>
<ACCUMULATED-GAINS-PRIOR> 107,270<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 1,010,205<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 2,266,257<F1>
<AVERAGE-NET-ASSETS> 50,584,864
<PER-SHARE-NAV-BEGIN> 13.008
<PER-SHARE-NII> 0.272
<PER-SHARE-GAIN-APPREC> 2.206
<PER-SHARE-DIVIDEND> (0.284)
<PER-SHARE-DISTRIBUTIONS> (1.402)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 13.800
<EXPENSE-RATIO> 2.52
<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> 013
<NAME> REAL ESTATE C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 129,242,426<F1>
<INVESTMENTS-AT-VALUE> 144,039,187<F1>
<RECEIVABLES> 2,285,280<F1>
<ASSETS-OTHER> 4,403<F1>
<OTHER-ITEMS-ASSETS> 977<F1>
<TOTAL-ASSETS> 146,329,847<F1>
<PAYABLE-FOR-SECURITIES> 3,881,015<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 501,226<F1>
<TOTAL-LIABILITIES> 4,382,241<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 15,201,749
<SHARES-COMMON-STOCK> 1,264,396
<SHARES-COMMON-PRIOR> 588,677
<ACCUMULATED-NII-CURRENT> (21,901)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 2,266,205<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 14,796,761<F1>
<NET-ASSETS> 17,435,480
<DIVIDEND-INCOME> 4,183,631<F1>
<INTEREST-INCOME> 406,183<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (2,266,257)<F1>
<NET-INVESTMENT-INCOME> 2,323,557<F1>
<REALIZED-GAINS-CURRENT> 15,177,147<F1>
<APPREC-INCREASE-CURRENT> 2,900,169<F1>
<NET-CHANGE-FROM-OPS> 20,400,873<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (279,139)
<DISTRIBUTIONS-OF-GAINS> (1,592,536)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 692,679
<NUMBER-OF-SHARES-REDEEMED> (127,832)
<SHARES-REINVESTED> 110,872
<NET-CHANGE-IN-ASSETS> 9,783,355
<ACCUMULATED-NII-PRIOR> (7,420)<F1>
<ACCUMULATED-GAINS-PRIOR> 107,270<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 1,010,205<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 2,266,257<F1>
<AVERAGE-NET-ASSETS> 13,009,155
<PER-SHARE-NAV-BEGIN> 12.999
<PER-SHARE-NII> 0.271
<PER-SHARE-GAIN-APPREC> 2.206
<PER-SHARE-DIVIDEND> (0.284)
<PER-SHARE-DISTRIBUTIONS> (1.402)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 13.790
<EXPENSE-RATIO> 2.52
<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>
