<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 4, 1998
1933 ACT REGISTRATION NO. 333-47517
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM N-14
<TABLE>
<S> <C>
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. 2 [X]
POST-EFFECTIVE AMENDMENT NO. ____ [ ]
</TABLE>
---------------------
VAN KAMPEN
REAL ESTATE SECURITIES FUND
(Exact Name of Registrant as Specified in Agreement and Declaration of Trust)
1 PARKVIEW PLAZA, OAKBROOK TERRACE, ILLINOIS 60181-5555
(Address of Principal Executive Offices)
TELEPHONE NUMBER: (630) 684-6000
---------------------
<TABLE>
<S> <C>
RONALD A. NYBERG, ESQ. COPIES TO:
EXECUTIVE VICE PRESIDENT, WAYNE W. WHALEN, ESQ.
GENERAL COUNSEL AND SECRETARY THOMAS A. HALE, ESQ.
VAN KAMPEN INVESTMENTS INC. SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
1 PARKVIEW PLAZA 333 WEST WACKER
OAKBROOK TERRACE, ILLINOIS 60181-5555 CHICAGO, ILLINOIS 60606
(Name and Address of Agent for Service)
</TABLE>
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
TITLE OF SECURITIES BEING REGISTERED: COMMON SHARES OF BENEFICIAL INTEREST,
PAR VALUE $0.01 PER SHARE. NO FILING FEE IS DUE HEREWITH BECAUSE OF RELIANCE ON
SECTION 24(F) OF THE INVESTMENT COMPANY ACT OF 1940.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
EXPLANATORY NOTE
This Registration Statement is organized as follows:
-- Cross Reference Sheet with respect to Van Kampen Real Estate Securities
Fund
-- Questions and Answers to Shareholders of Van Kampen U.S. Real Estate
Fund
-- Notice of Special Meeting of Shareholders of Van Kampen U.S. Real Estate
Fund
-- Prospectus/Proxy Statement regarding the proposed Reorganization of Van
Kampen U.S. Real Estate Fund into Van Kampen Real Estate Securities Fund
-- Prospectus of Van Kampen Real Estate Securities Fund, as amended
-- Statement of Additional Information regarding the proposed
Reorganization of Van Kampen U.S. Real Estate Fund into Van Kampen Real
Estate Securities Fund
-- Part C Information
-- Exhibits
<PAGE> 3
VAN KAMPEN REAL ESTATE SECURITIES FUND
CROSS-REFERENCE SHEET PURSUANT TO RULE 481(a) OF REGULATION C
UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
FORM N-14
ITEM NO. PROSPECTUS/PROXY STATEMENT CAPTION*
- --------- -----------------------------------
<S> <C> <C>
PART A INFORMATION REQUIRED IN THE PROSPECTUS/PROXY STATEMENT
Item 1. Beginning of Registration Statement and Outside Front
Cover Page of Prospectus/Proxy Statement........... Outside front cover page of
Prospectus/Proxy Statement
Item 2. Beginning and Outside Back Cover Page of
Prospectus/Proxy Statement......................... Outside back cover page of
Prospectus/Proxy Statement
Item 3. Fee Table, Synopsis Information and Risk Factors..... Summary; Risk Factors
Item 4. Information about the Transaction.................... Summary; The Proposed Reorganization
Item 5. Information about the Registrant..................... Outside front cover page of
Prospectus/Proxy Statement;
Summary; The Proposed
Reorganization; Other Information;
Exhibit A; Prospectus and
Statement of Additional
Information of the Van Kampen Real
Estate Securities Fund
Item 6. Information about the Company Being Acquired......... Outside front cover page of
Prospectus/Proxy Statement;
Summary; Exhibit A; Prospectus and
Statement of Additional
Information of the Van Kampen U.S.
Real Estate Fund
Item 7. Voting Information................................... Other Information; Voting
Information and Requirements
Item 8. Interest of Certain Persons and Experts.............. Summary; The Proposed Reorganization
Item 9. Additional Information Required for Reoffering by
Persons Deemed to be Underwriters.................. Not applicable
PART B INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
Item 10. Cover Page........................................... Cover Page
Item 11. Table of Contents.................................... Table of Contents
Item 12. Additional Information about the Registrant.......... Additional Information about the Van
Kampen Real Estate Securities
Fund; Incorporation of Documents
by Reference
Item 13. Additional Information about the Company Being
Acquired........................................... Additional Information about the Van
Kampen U.S. Real Estate Fund;
Incorporation of Documents by
Reference
Item 14. Financial Statements................................. Financial Statements; Incorporation
of Documents by Reference
PART C OTHER INFORMATION
Items 15-17. Information required to be included in Part C is set forth under the appropriate item, so
numbered, in Part C of this Registration Statement.
</TABLE>
- ---------------
* References are to captions within the part of the registration statement to
which the particular item relates except as otherwise indicated.
<PAGE> 4
- NOVEMBER 1998 -
IMPORTANT NOTICE
TO VAN KAMPEN
U.S. REAL ESTATE
FUND SHAREHOLDERS
QUESTIONS
& ANSWERS
- --------------------------------------------------------------------------------
Although we recommend that you read the
complete prospectus/proxy statement, for
your convenience, we have provided a brief
overview of the issues to be voted on.
- --------------------------------------------------------------------------------
Q WHY IS A SHAREHOLDER MEETING BEING HELD?
A You are being asked to vote on a reorganization (the "Reorganization") of Van
Kampen U.S. Real Estate Fund, formerly known as Morgan Stanley U.S. Real Estate
Fund (the "U.S. Real Estate Fund"), into Van Kampen Real Estate Securities Fund,
formerly known as Van Kampen American Capital Real Estate Securities Fund (the
"VK Real Estate Securities Fund"), a fund that pursues a similar investment
objective.
Q WHY IS THE REORGANIZATiON BEING RECOMMENDED?
A After several transactions in 1996 and 1997, Van Kampen Investments Inc.
("Van Kampen") became an indirect wholly owned subsidiary of Morgan Stanley Dean
Witter &Co. Van Kampen through its subsidiaries acts as the adviser, distributor
and shareholder servicing agent of the Van Kampen-sponsored family of retail
funds. Van Kampen also assumed similar roles for the Morgan Stanley-sponsored
family of retail funds. The purpose of the proposed Reorganization is to permit
the shareholders of the U.S.Real Estate Fund to (i) achieve certain economies of
scale from the VK Real Estate Securities Fund's larger net asset size and the
potentially lower operating expenses associated therewith, (ii) eliminate the
duplication of services and expenses that currently exists as a result of the
separate operations of the funds and (iii) obtain potentially greater portfolio
diversity and potentially lower portfolio transaction costs.
Q HOW WILL THE REORGAnIZATION AFFECT ME?
A Assuming shareholders of the U.S.Real Estate Fund approve the Reorganization,
the assets and liabilities of the U.S.Real Estate Fund will be combined with
those of the VK Real Estate Securities Fund, and you will become a shareholder
of the VKReal Estate Securities Fund. You will receive shares of the VKReal
Estate Securities Fund equal in value at the time of issuance to your shares of
the U.S.Real Estate Fund.
<PAGE> 5
Q WILL I HAVE TO PAY ANY SALES LOAD, COMMISSION OR OTHER SIMILAR FEE IN
CONNECTION WITH THE REORGANIZATION?
A You will pay no sales loads or commissions in connection with the
Reorganization. If the Reorganization is completed, the costs associated with
the proposed Reorganization, including the costs associated with the shareholder
meeting, generally will be borne by the VKReal Estate Securities Fund. As more
fully discussed in the combined Prospectus/Proxy Statement, the holding period
with respect to the contingent deferred sales charge applicable to Class B
shares or Class C shares of the VK Real Estate Securities Fund acquired in the
Reorganization will be measured from the earlier of the time (i) the holder
purchased such Class B shares or Class C shares from the U.S.Real Estate Fund or
(ii) the holder purchased Class B shares or Class C shares of any other Van
Kampen Fund and subsequently exchanged them for shares of the U.S. Real Estate
Fund.
Q HOW DO ADVISORY AND OTHER OPERATING FEES PAID BY THE U.S. REAL ESTATE
FUND COMPARE TO THOSE PAYABLE BY THE VK REAL ESTATE SECURITIES FUND?
A The VK Real Estate Securities Fund is advised by Van Kampen Asset Management
Inc. ("Asset Management"), a subsidiary of Van Kampen. The U.S. Real Estate Fund
is advised by Van Kampen Investment Advisory Corp. ("Advisory Corp."), also a
subsidiary of Van Kampen. Each of the U.S. Real Estate Fund and VK Real Estate
Securities Fund is subadvised by Morgan Stanley Asset Management Inc. ("MSAM" or
the "Subadviser"), an indirect, wholly owned subsidiary of Morgan Stanley Dean
Witter & Co. Management of the funds anticipates that, as a result of the
Reorganization, shareholders of the U.S. Real Estate Fund would be subject to
lower gross total operating expenses as a percentage of net assets. The
contractual advisory fees payable by the U.S.Real Estate Fund are the same as
the contractual advisory fees payable by the VK Real Estate Securities Fund. The
advisory fees and other expenses of the U.S. Real Estate Fund currently are less
than those of the VK Real Estate Securities Fund but only because voluntary fee
waivers and expense reimbursements from Advisory Corp. There can be no assurance
that such waivers or reimbursements will continue for the U.S. Real Estate Fund
if the Reorganization is not completed. Furthermore, if the Reorganization is
completed, it is anticipated that Asset Management voluntarily would waive
advisory fees and/or reimburse other expenses for the surviving VK Real Estate
Securities Fund as necessary so that net operating expenses (after waiver and
reimbursement) are not higher than the current net operating expenses (after
waiver and reimbursement) being paid by the U.S. Real Estate Fund. Management
periodically reviews voluntary fee waivers and expense reimbursements for funds
it advises and there can be no assurance such waivers/reimbursements will
continue.
Q WHAT WILL I HAVE TO DO TO OPEN AN ACCOUNT IN THE VK REAL ESTATE
SECURITIES FUND? WHAT HAPPENS TO MY ACCOUNT IF THE REORGANIZATION IS
APPROVED?
A If the Reorganization is approved, your interest in shares of the U.S. Real
Estate Fund automatically will be converted into shares of the VK Real
<PAGE> 6
Estate Securities Fund, and we will send you written confirmation that this
change has taken place. You will receive the same class of shares of theVK Real
Estate Securities Fund equal in value to your class of shares of the U.S.Real
Estate Fund. No certificates for VKReal Estate Securities Fund shares will be
issued in connection with the Reorganization, although such certificates will be
available upon request. If you currently hold certificates representing your
shares of the U.S.Real Estate Fund, it is not necessary to return such
certificates; however, shareholders may want to present such certificates to
receive certificates of the VKReal Estate Securities Fund (to simplify proof of
and to preserve the tax basis of separate lots of shares).
Q WILL I HAVE TO PAY ANY FEDERAL TAXES AS A RESULT OF THE REORGANIZATION?
A The Reorganization is intended to qualify as a "reorganization" within the
meaning of Section 368(a)(1C), of the Internal Revenue Code of 1986, as amended.
If the Reorganization so qualifies, in general, a shareholder of the U.S.Real
Estate Fund will recognize no gain or loss upon the receipt solely of the shares
of the VKReal Estate Securities Fund in connection with the Reorganization.
Additionally, the U.S. Real Estate Fund would not recognize any gain or loss as
a result of the transfer of all of its assets and liabilities solely in exchange
for the shares of the VKReal Estate Securities Fund or as a result of its
liquidation.
Q WHAT IF I REDEEM OR EXCHANGE MY SHARES OF THE U.S. REAL ESTATE FUND BEFORE
THE REORGANIZATION TAKES PLACE?
A If you choose to redeem or exchange your shares of the U.S. Real Estate Fund
before the Reorganization takes place, the redemption or exchange will be
treated as a normal redemption or exchange of shares and generally will be a
taxable transaction.
Q WHERE DO I CALL FOR fURTHER INFORMATION?
A Please call Investor Services at 1-800-341-2911 (Telecommunications Device
for the Deaf users may call 1-800-772-8889) weekdays from 7:00 a.m. to 7:00 p.m.
Central time.
YOUR VOTE IS IMPORTANT.
VOTING PROMPTLY CAN SAVE THE EXPENSE OF ADDITIONAL MAILINGS.
<PAGE> 7
ABOUT THE PROXY CARD
Please vote on each issue using blue or black ink to mark an X in one of the
boxes provided on the proxy card.
APPROVAL OF REORGANIZATION --
mark "For," "Against" or "Abstain"
Sign, date and return the proxy card in the enclosed postage-paid envelope. All
registered owners of an account, as shown in the address, must sign the card.
When signing as attorney, trustee, executor, administrator, custodian, guardian
or corporate officer, please indicate your full title.
PROXY
VAN KAMPEN U.S. REAL ESTATE FUND
SPECIAL MEETING OF SHAREHOLDERS
SAMPLE
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
1. FOR [ ] AGAINST [ ] ABSTAIN [ ] THE PROPOSAL TO APPROVE THE AGREEMENT
AND PLAN OF REORGANIZATION XXXXXXXX.
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
<PAGE> 8
VAN KAMPEN U.S. REAL ESTATE FUND
ONE PARKVIEW PLAZA
OAKBROOK TERRACE, ILLINOIS 60181
(800) 421-5666
NOTICE OF SPECIAL MEETING
DECEMBER 9, 1998
A Special Meeting of shareholders of Van Kampen U.S. Real Estate Fund,
formerly known as the Morgan Stanley U.S. Real Estate Fund (the "U.S. Real
Estate Fund"), will be held at the offices of Van Kampen Investments Inc., One
Parkview Plaza, Oakbrook Terrace, Illinois 60181, on December 9, 1998 at 1:30
p.m. (the "Special Meeting"), for the following purposes:
(1) To approve an Agreement and Plan of Reorganization pursuant to which the
U.S. Real Estate Fund would (i) transfer all of its assets to the Van Kampen
Real Estate Securities Fund, formerly known as the Van Kampen American Capital
Real Estate Securities Fund (the "VK Real Estate Securities Fund"), in
exchange solely for Class A, B and C shares of beneficial interest of the VK
Real Estate Securities Fund and the VK Real Estate Securities Fund's
assumption of the liabilities of the U.S. Real Estate Fund, (ii) distribute
such shares of the VK Real Estate Securities Fund to the holders of shares of
the U.S. Real Estate Fund and (iii) be dissolved.
(2) To transact such other business as may properly come before the Special
Meeting.
Shareholders of record as of the close of business on October 8, 1998 are
entitled to vote at the Special Meeting or any adjournment thereof.
For the Board of Directors,
Ronald A. Nyberg
Secretary
November 4, 1998
---------------------
PLEASE VOTE PROMPTLY BY SIGNING AND
RETURNING THE ENCLOSED PROXY.
---------------------
<PAGE> 9
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus/Proxy Statement shall not constitute an offer to sell
or the solicitation of an offer to buy nor shall there be any sale of these
securities in any jurisdiction in which such offer, solicitation or sale would
be unlawful prior to registration or qualification under the securities laws of
any such jurisdiction.
SUBJECT TO COMPLETION -- DATED November 4, 1998
PROSPECTUS/PROXY STATEMENT
VAN KAMPEN REAL ESTATE SECURITIES FUND
RELATING TO THE ACQUISITION OF ASSETS AND LIABILITIES OF
VAN KAMPEN U.S. REAL ESTATE FUND
This Prospectus/Proxy Statement is being furnished to shareholders of Van
Kampen U.S. Real Estate Fund, formerly known as Morgan Stanley U.S. Real Estate
Fund (the "U.S. Real Estate Fund"), and relates to the special meeting of
shareholders of the U.S. Real Estate Fund to be held at the offices of Van
Kampen Investments Inc., One Parkview Plaza, Oakbrook Terrace, Illinois 60181 on
December 9, 1998 at 1:30 p.m. and at any and all adjournments thereof (the
"Special Meeting"). Shareholders of record as of the close of business on
October 8, 1998 are entitled to vote at the Special Meeting or any adjournment
thereof. The purpose of the Special Meeting is to approve or disapprove the
proposed reorganization of the U.S. Real Estate Fund (the "Reorganization") into
the Van Kampen Real Estate Securities Fund, formerly known as Van Kampen
American Capital Real Estate Securities Fund (the "VK Real Estate Securities
Fund"). The Reorganization would result in shareholders of the U.S. Real Estate
Fund in effect exchanging their Class A, B and C shares of the U.S. Real Estate
Fund for corresponding Class A, B and C shares of the VK Real Estate Securities
Fund. The purpose of the Reorganization is to permit the shareholders of the
U.S. Real Estate Fund to (i) achieve certain economies of scale from the VK Real
Estate Securities Fund's larger net asset size and the potentially lower
operating expenses associated therewith, (ii) eliminate the duplication of
services and expenses that currently exist as a result of the separate
operations of the funds and (iii) obtain greater portfolio diversity and
potentially lower portfolio transaction costs.
The VK Real Estate Securities Fund is an open-end management investment
company organized as a Delaware business trust. The U.S. Real Estate Fund is a
series of the Van Kampen Series Fund, Inc., an open-end management investment
company organized as a Maryland corporation (the "Series Fund"). The primary
investment objective of the VK Real Estate Securities Fund is to seek long-term
growth of capital, with the secondary investment objective of providing current
income. The investment objective of the U.S. Real Estate Fund is similar to, but
not identical with, the investment objectives of the VK Real Estate Securities
Fund. The investment objective of the U.S. Real Estate Fund is to provide
above-average current income and long-term capital appreciation. There can be no
assurance that either fund will achieve its investment objectives. The address,
principal executive office and telephone number of the VK Real Estate Securities
Fund and the U.S. Real Estate Fund is One Parkview Plaza, Oakbrook Terrace,
Illinois 60181, (630) 684-6000 or (800) 421-5666. The enclosed proxy and this
Prospectus/Proxy Statement are first being sent to U.S. Real Estate Fund
shareholders on or about November 6, 1998.
---------------------
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/PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
---------------------
<PAGE> 10
This Prospectus/Proxy Statement sets forth concisely the information
shareholders of the U.S. Real Estate Fund should know before voting on the
Reorganization (in effect, investing in Class A, B or C shares of the VK Real
Estate Securities Fund) and constitutes an offering of Class A, B and C shares
of beneficial interest, par value $0.01 per share, of the VK Real Estate
Securities Fund only. Please read it carefully and retain it for future
reference. A Statement of Additional Information dated November 4, 1998,
relating to this Prospectus/Proxy Statement (the "Reorganization SAI") has been
filed with the Securities and Exchange Commission (the "SEC") and is
incorporated herein by reference. A Prospectus (the "VK Fund Prospectus") and
Statement of Additional Information containing additional information about the
VK Real Estate Securities Fund, each dated April 30, 1998 (and as currently
supplemented), have been filed with the SEC and are incorporated herein by
reference. A copy of the VK Fund Prospectus accompanies this Prospectus/Proxy
Statement. A Prospectus (the "Series Fund Prospectus") and Statement of
Additional Information containing additional information about the U.S. Real
Estate Fund, each dated September 30, 1998 (and as currently supplemented), have
been filed with the SEC and are incorporated herein by reference. Copies of the
foregoing may be obtained without charge by calling or writing the VK Real
Estate Securities Fund or the U.S. Real Estate Fund at the telephone number or
address shown above. If you wish to request the Reorganization SAI, please ask
for the "Reorganization SAI." IN ADDITION, EACH OF THE VK REAL ESTATE SECURITIES
FUND AND THE U.S. REAL ESTATE FUND WILL FURNISH, WITHOUT CHARGE, A COPY OF ITS
MOST RECENT ANNUAL REPORT AND SUBSEQUENT SEMI-ANNUAL REPORT, IF ANY, TO A
SHAREHOLDER UPON REQUEST. ANY SUCH REQUEST SHOULD BE DIRECTED TO VAN KAMPEN
INVESTOR SERVICES INC. BY CALLING (800) 421-5666 OR BY WRITING THE RESPECTIVE
FUND AT THE ADDRESS SHOWN ABOVE.
---------------------
No person has been authorized to give any information or make any
representation not contained in this Prospectus/Proxy Statement and, if so given
or made, such information or representation must not be relied upon as having
been authorized. This Prospectus/Proxy Statement does not constitute an offer to
sell or a solicitation of an offer to buy any securities in any jurisdiction in
which, or to any person to whom, it is unlawful to make such offer or
solicitation.
---------------------
The VK Real Estate Securities Fund and the Series Fund, on behalf of the U.S.
Real Estate Fund, are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, and the Investment Company Act of
1940, as amended (the "1940 Act"), and in accordance therewith file reports and
other information with the SEC. Such reports, other information and proxy
statements filed by the VK Real Estate Securities Fund and the Series Fund on
behalf of the U.S. Real Estate Fund can be inspected and copied at the public
reference facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at its Regional Office at 500 West Madison Street,
Chicago, Illinois. Copies of such material can also be obtained from the SEC's
Public Reference Branch, Office of Consumer Affairs and Information Services,
Washington, D.C. 20549, at prescribed rates. In addition, the SEC maintains a
web site (http://www.sec.gov) that contains reports, other information and proxy
statements filed by the VK Real Estate Securities Fund and by the Series Fund on
behalf of the U.S. Real Estate Fund. Such information is filed electronically
with the SEC through the SEC's Electronic Data Gathering, Analysis and Retrieval
system (EDGAR).
The date of this Prospectus/Proxy Statement is November 4, 1998.
2
<PAGE> 11
THE PROPOSED REORGANIZATION
A. SUMMARY
The following is a summary of, and is qualified by reference to, the more
complete information contained in this Prospectus/Proxy Statement and the
information attached hereto or incorporated herein by reference. As discussed
more fully below and elsewhere in this Prospectus/Proxy Statement, the Board of
Directors of the Series Fund (the "Board of Directors") believes the proposed
Reorganization (as defined herein) is in the best interests of shareholders of
the U.S. Real Estate Fund. As a result of the Reorganization, shareholders of
the U.S. Real Estate Fund would acquire an interest in the VK Real Estate
Securities Fund.
Shareholders should read the entire Prospectus/Proxy Statement carefully
together with (i) the Series Fund Prospectus incorporated herein by reference
and (ii) the VK Fund Prospectus incorporated herein by reference and
accompanying this Prospectus/Proxy Statement. This Prospectus/Proxy Statement
constitutes an offering of Class A, B and C shares of the VK Real Estate
Securities Fund only.
THE REORGANIZATION
This Prospectus/Proxy Statement is being furnished to shareholders of the U.S.
Real Estate Fund in connection with the proposed combination of the U.S. Real
Estate Fund with and into the VK Real Estate Securities Fund pursuant to the
terms and conditions of the Agreement and Plan of Reorganization between the
Series Fund on behalf of the U.S. Real Estate Fund and the VK Real Estate
Securities Fund (the "Agreement"). The Agreement provides that the U.S. Real
Estate Fund would (i) transfer all of its assets to the VK Real Estate
Securities Fund in exchange solely for Class A, B and C shares of beneficial
interest of the VK Real Estate Securities Fund and the VK Real Estate Securities
Fund's assumption of the liabilities of the U.S. Real Estate Fund, (ii) dissolve
pursuant to a plan of liquidation and dissolution to be adopted by the Board of
Directors promptly following the Closing (as defined herein) and (iii) as part
of such dissolution, distribute to each shareholder of the U.S. Real Estate Fund
shares of the respective class of shares of the VK Real Estate Securities Fund
equal in value to their existing shares of the U.S. Real Estate Fund
(collectively, the "Reorganization").
The Board of Directors has determined that the Reorganization is in the best
interests of shareholders of each class of shares of the U.S. Real Estate Fund
and that the interests of such shareholders will not be diluted as a result of
the Reorganization. Similarly, the Board of Trustees of the VK Real Estate
Securities Fund (the "Board of Trustees") has determined that the Reorganization
is in the best interests of the VK Real Estate Securities Fund and that the
interests of each class of shares of existing shareholders of the VK Real Estate
Securities Fund will not be diluted as a result of the Reorganization. The Board
of Directors and Board
3
<PAGE> 12
of Trustees unanimously approved the Reorganization and the Agreement on
October 23, 1997.
The VK Real Estate Securities Fund, as the primary beneficiary of the
Reorganization, generally will bear the costs of soliciting approval of the
Reorganization in the event the Reorganization is consummated. These costs
include expenses paid by the U.S. Real Estate Fund except that the investment
adviser of the U.S. Real Estate Fund, in its capacity as the investment adviser
of the U.S. Real Estate Fund, will reimburse the U.S. Real Estate Fund for any
remaining unamortized organizational expenses at the time of Closing. If the
Reorganization is not completed, Van Kampen Investments Inc. ("Van Kampen") will
bear all of the costs associated with the Reorganization. See "THE PROPOSED
REORGANIZATION -- Expenses" below.
The Board of Directors is asking shareholders of the U.S. Real Estate Fund to
approve the Reorganization at the Special Meeting to be held on December 9,
1998. If shareholders of the U.S. Real Estate Fund approve the Reorganization,
it is expected that the Closing will be after the close of business on December
18, 1998, but it may be at a different time as described herein.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE REORGANIZATION.
APPROVAL OF THE REORGANIZATION REQUIRES THE FAVORABLE VOTE OF THE HOLDERS OF A
MAJORITY OF THE OUTSTANDING SHARES ENTITLED TO VOTE. SEE "VOTING INFORMATION AND
REQUIREMENTS" BELOW.
REASONS FOR THE PROPOSED REORGANIZATION
After several transactions in 1996 and 1997, Van Kampen became an indirect
wholly owned subsidiary of Morgan Stanley Dean Witter & Co. Van Kampen through
its subsidiaries acts as the adviser, distributor and shareholder servicing
agent of the Van Kampen-sponsored family of retail funds. Van Kampen also
assumed similar roles for the Morgan Stanley-sponsored family of retail funds.
The Board of Directors believes that the proposed Reorganization would be in the
best interests of the shareholders of the U.S. Real Estate Fund because it would
permit the shareholders of the U.S. Real Estate Fund to (i) achieve certain
economies of scale from the VK Real Estate Securities Fund's larger net asset
size and the potentially lower operating expenses associated therewith, (ii)
eliminate the duplication of services and expenses that currently exists as a
result of the separate operations of the funds, and (iii) obtain greater
portfolio diversity and potentially lower portfolio transaction costs.
In determining whether to recommend approval of the Reorganization to
shareholders of the U.S. Real Estate Fund, the Board of Directors considered a
number of factors, including, but not limited to: (i) the capabilities and
resources of the funds' advisers, the funds' subadviser and other service
providers in the areas of marketing, investment and shareholder services; (ii)
the expenses and advisory fees applicable to the U.S. Real Estate Fund and the
VK Real Estate Securities Fund
4
<PAGE> 13
before the Reorganization and the estimated expense ratios of the VK Real Estate
Securities Fund after the Reorganization; (iii) the comparative investment
performance of the U.S. Real Estate Fund and the VK Real Estate Securities Fund;
(iv) the terms and conditions of the Agreement and whether the Reorganization
would result in dilution of U.S. Real Estate Fund or VK Real Estate Securities
Fund shareholder interests; (v) the advantages of eliminating duplication of
effort in marketing funds having similar investment objectives in addition to
the economies of scale potentially realized through the combination of the two
funds; (vi) the compatibility of the funds' investment objectives; (vii) the
compatibility of the funds' service features available to shareholders,
including the retention of applicable holding periods and exchange privileges;
(viii) the costs estimated to be incurred by the respective funds as a result of
the Reorganization; (ix) the future growth prospects of the U.S. Real Estate
Fund; and (x) the anticipated tax consequences of the Reorganization.
In this regard, the Board of Directors reviewed information provided by Van
Kampen Investment Advisory Corp. ("Advisory Corp."), the investment adviser of
the U.S. Real Estate Fund, Van Kampen Asset Management Inc. ("Asset
Management"), the investment adviser of the VK Real Estate Securities Fund, and
Van Kampen, the parent corporation of Advisory Corp. and Asset Management,
relating to the anticipated impact to the shareholders of the U.S. Real Estate
Fund and the VK Real Estate Securities Fund as a result of the Reorganization.
The Board considered the probability that the elimination of duplicative
operations and the increase in asset levels of the combined fund after the
Reorganization would result in the following potential benefits for shareholders
of the U.S. Real Estate Fund, although there can, of course, be no assurances in
this regard:
(1) Achievement of Economies of Scale and Reduced Per Share Expenses.
Combining the net assets of the U.S. Real Estate Fund with the assets of
the VK Real Estate Securities Fund should lead to reduced total operating
expenses for shareholders of the U.S. Real Estate Fund, on a per share
basis, by allowing fixed and relatively fixed costs, such as accounting,
legal and printing expenses, to be spread over a larger asset base. The
contractual advisory fees payable by the U.S. Real Estate Fund are the
same as the contractual advisory fees payable by the VK Real Estate
Securities Fund. The advisory fees and other expenses of the U.S. Real
Estate Fund are currently less than those of the VK Real Estate Securities
Fund but only because of such voluntary fee waivers and expense
reimbursements from Advisory Corp. There can be no assurance that such
waivers or reimbursements will continue for the U.S. Real Estate Fund if
the Reorganization is not completed. Management anticipates that the
Reorganization also should lead to certain economies affecting the total
operating expenses of the VK Real Estate Securities Fund compared to its
current total operating expenses and, if the Reorganization is completed,
it is anticipated that Asset
5
<PAGE> 14
Management voluntarily would waive advisory fees and/or reimburse expenses for
the surviving VK Real Estate Securities Fund as necessary so that net operating
expenses (after waiver and reimbursement) remain the same or less than the
current net operating expenses (after waiver and reimbursement) of the
U.S. Real Estate Fund. Management periodically reviews voluntary fee
waivers and expense reimbursements for funds it advises and there can be
no assurance such waivers/reimbursements will continue.
(2) Elimination of Separate Operations. Consolidating the U.S. Real Estate
Fund and the VK Real Estate Securities Fund should eliminate the
duplication of services and expenses that currently exists as a result of
their separate operations. Consolidating the separate operations of the
U.S. Real Estate Fund with those of the VK Real Estate Securities Fund
should promote more efficient operations on a more cost-effective basis.
(3) Benefits to the Portfolio Management Process. The larger net asset size
of the VK Real Estate Securities Fund generally permits it to purchase
larger individual portfolio investments that may result in reduced
transaction costs or more favorable pricing and provide the opportunity
for greater portfolio diversity.
Based upon these and other factors, the Board of Directors unanimously
determined that the Reorganization is in the best interests of the shareholders
of the U.S. Real Estate Fund.
COMPARISON OF THE VK REAL ESTATE SECURITIES FUND AND THE U.S. REAL ESTATE FUND
GENERAL. The VK Real Estate Securities Fund and the U.S. Real Estate Fund have
similar investment objectives and similar investment policies and practices.
Both funds seek long-term growth of capital and current income and both funds
invest primarily in securities of companies engaged in the real estate industry,
with emphasis on investment in real estate investment trusts ("REITs") in trying
to achieve the investment objectives. Each of the VK Real Estate Securities Fund
and U.S. Real Estate Fund uses Morgan Stanley Asset Management Inc. as
subadviser ("MSAM" or the "Subadviser"). The primary differences between the
funds are as follows: (i) the VK Real Estate Securities Fund places somewhat
less emphasis on achieving current income and has less emphasis on investing in
income-producing securities than the U.S. Real Estate Fund (although the U.S.
Real Estate Fund limits investment in debt securities to 35% of its total assets
while the VK Real Estate Securities Fund has no similar limit on investing in
debt securities); (ii) the VK Real Estate Securities Fund is a diversified fund
whereas the U.S. Real Estate Fund is a non-diversified fund which means that,
although the U.S. Real Estate Fund can invest more of its assets in fewer
issuers, the U.S. Real Estate Fund also bears increased risks associated with
such practice compared to a more diversified portfolio and (iii) the VK Real
Estate Securities Fund allows for broader
6
<PAGE> 15
investment in foreign securities while the U.S. Real Estate Fund focuses
primarily on investments in U.S. issuers or non-U.S. issuers engaged in the U.S.
real estate industry. See further information comparing the funds below and
under the heading "Risk Factors".
INVESTMENT OBJECTIVES AND POLICIES. The primary investment objective of the VK
Real Estate Securities Fund is to provide long-term growth of capital. A
secondary objective of the VK Real Estate Securities Fund is to provide current
income. The VK Real Estate Securities Fund seeks to achieve its investment
objectives by investing principally in a portfolio of securities of companies
operating in the real estate industry. The investment objective of the U.S. Real
Estate Fund is to provide above-average current income and long-term capital
appreciation by investing primarily in equity securities of companies in the
U.S. real estate industry, including REITs. The primary difference between the
two investment objectives is that the objective of the U.S. Real Estate Fund
places somewhat greater emphasis on current income than does the VK Real Estate
Securities Fund.
Both funds use similar definitions of companies in the "real estate industry"
to generally include any 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, the VK Real Estate Securities Fund invests at least 65% of its total
assets in a diversified portfolio of securities of companies operating in the
real estate industry ("Real Estate Securities"). Such securities include equity
securities (common stocks, preferred stocks and convertible securities) and debt
securities. The VK Real Estate Securities Fund may invest up to 25% of its total
assets in securities of foreign issuers, some or all of which may be Real Estate
Securities and may invest in American Depository Receipts ("ADRs"), European
Depository Receipts ("EDRs") or other securities representing underlying shares
of foreign issuers. In connection with investing in securities of foreign
issuers, the VK Real Estate Securities Fund allows for investments in forward
foreign currency exchange contracts. Under normal market conditions, the U.S.
Real Estate Fund invests at least 65% of its total assets in income producing
equity securities (which include common stock, preferred stock, convertible
securities, rights and warrants to purchase common stocks and publicly traded
limited partnership interests in master limited partnerships) of U.S. and
non-U.S. companies principally engaged in the U.S. real estate industry. The
U.S. Real Estate Fund seeks to invest in equity securities of companies that
provide a dividend yield that exceeds the composite dividend yield of securities
comprising the Standard &
7
<PAGE> 16
Poor's Composite Index of 500 Stocks. The U.S. Real Estate Fund may invest in
securities of foreign issuers provided such issuers are principally engaged in
the U.S. real estate industry. The U.S. Real Estate Fund may invest in ADRs,
EDRs and other depositary receipts and in forward foreign currency exchange
contracts. Under normal market conditions, the U.S. Real Estate Fund may invest
up to 35% of its total assets in debt securities. Each fund's investments in
debt securities must be rated, at the time of investment, at least Baa by
Moody's Investor Services Inc. ("Moody's"), BBB by Standard & Poor's Rating
Group ("S&P"), comparably rated by another nationally recognized statistical
rating organization or, if unrated, determined by the respective fund's
investment adviser to be of comparable quality. Each fund may engage in
portfolio management strategies and techniques involving options, futures
contracts and options on futures contracts. Each fund may enter into repurchase
agreements. Each fund may purchase or sell securities on a when-issued or
delayed delivery basis. For temporary defensive purposes, each fund may invest
up to 100% of its total assets in short-term investments, including obligations
issued or guaranteed by the U.S. Government, commercial paper, bankers'
acceptances, certificates of deposit, repurchase agreements collateralized by
these securities, and other short-term evidences of indebtedness and, with
respect to the U.S. Real Estate Fund only, medium-term debt instruments.
Each fund may invest a limited portion of its net assets in restricted
securities and illiquid securities; the VK Real Estate Securities Fund limit on
restricted and illiquid securities is 15% of such Fund's net assets whereas the
U.S. Real Estate Fund limit on illiquid securities is 15% of such Fund's net
assets and the U.S. Real Estate Fund limit on restricted securities is 10% of
such Fund's net assets. Each fund allows for a limited amount of borrowing; the
VK Real Estate Securities Fund limit is 33 1/3% of such Fund's total assets for
temporary borrowing to facilitate payment of redemption requests whereas the
U.S. Real Estate Fund limit is 10% of such Fund's total assets for emergency or
extraordinary purposes. Unlike the VK Real Estate Fund, the U.S. Real Estate
Fund may invest in zero coupon debt securities, payment in kind securities,
deferred payment securities, and certain other derivative transactions such as
structured notes, caps and floors and allows for lending of its portfolio
securities up to 33 1/3% of the U.S. Real Estate Fund's total assets.
INVESTMENT ADVISER AND SUB-ADVISER. The VK Real Estate Securities Fund is
advised by Asset Management, which is a wholly owned subsidiary of Van Kampen.
The U.S. Real Estate Fund is advised by Advisory Corp., which also is a wholly
owned subsidiary of Van Kampen. Van Kampen is a diversified asset management
company with more than two million retail investor accounts, extensive
capabilities for managing institutional portfolios, and more than $50 billion
under management or supervision. Van Kampen's more than 50 open-end and 39
closed-end funds and more than 2,500 unit investment trusts are professionally
distributed by leading financial advisers nationwide. Van Kampen is an indirect
wholly owned subsidiary
8
<PAGE> 17
of Morgan Stanley Dean Witter & Co. ("MSDW"). The principal offices of Asset
Management and Advisory Corp. are located at One Parkview Plaza, Oakbrook
Terrace, Illinois 60181.
MSAM currently is the investment subadviser of the VK Real Estate Securities
Fund and U.S. Real Estate Fund. MSAM is an indirect wholly owned subsidiary of
MSDW. MSAM, with principal offices at 1221 Avenue of the Americas, New York, NY
10020, conducts a worldwide portfolio management business. It provides a broad
range of portfolio management services to customers in the United States and
abroad.
The Funds currently have the same portfolio managers, Russell C. Platt and
Theodore R. Bigman of MSAM. Messrs. Platt and Bigman have served as portfolio
managers of the U.S. Real Estate Fund since its inception. After Van Kampen
became an indirect wholly owned subsidiary of MSDW, Messrs. Platt and Bigman
became dual employees of Asset Management and MSAM and were appointed portfolio
managers of the VK Real Estate Securities Fund effective January 1, 1997.
Effective October 1, 1998, the Board of Trustees of the VK Real Estate
Securities Fund appointed MSAM as the investment subadviser of the VK Real
Estate Securities Fund. The addition of MSAM as Subadviser did not impact the VK
Real Estate Securities Fund's portfolio management team or the day to day
management of the Fund and did not result in any increase in the Fund's
expenses. It did eliminate the need for Messrs. Platt and Bigman to remain as
dual employees of Asset Management and MSAM. Asset Management pays MSAM an
investment subadvisory fee pursuant to the subadvisory agreement described
below.
MSDW and various of its directly or indirectly owned subsidiaries, including
Morgan Stanley & Co. Incorporated, a registered broker-dealer and investment
adviser, and Morgan Stanley International are engaged in a wide range of
financial services. Their principal businesses include securities underwriting,
distribution and trading; merger, acquisition, restructuring and other corporate
finance advisory activities; merchant banking; stock brokerage and research
services; asset management; credit services; trading of futures, options,
foreign exchange, commodities and swaps (involving foreign exchange,
commodities, indices and interest rates); real estate advice, financing and
investing; securities clearance services and securities lending.
ADVISORY AND OTHER FEES. The contractual advisory fees of the VK Real Estate
Securities Fund and the U.S. Real Estate Fund are the same. Each fund is
obligated to pay its respective adviser a monthly fee based on its average daily
net asset value at the annual rate of 1.00%. While the VK Real Estate Securities
Fund currently pays Asset Management at such rate, the U.S. Real Estate Fund
currently pays Advisory Corp. at an annual rate of 0.46% due to a voluntary fee
waiver by Advisory Corp. Each of Asset Management and Advisory Corp. retains the
right from time to time to charge all or a portion of its management fee or to
reimburse the respective fund for all or a portion of its other expenses. For a
complete
9
<PAGE> 18
description of the VK Real Estate Securities Fund's advisory services, see the
sections of the VK Fund Prospectus and Statement of Additional Information
entitled "Investment Advisory Services" and "Investment Advisory and Other
Services -- Investment Advisory Agreement", respectively. For a complete
description of the U.S. Real Estate Fund's advisory services, see the sections
of the Series Fund Prospectus and Statement of Additional Information entitled
"Management of the Company -- Investment Adviser" and "Management of the Company
- --Investment Advisory and Administrative Agreements", respectively.
Subadvisory fees are paid to MSAM on behalf of the U.S. Real Estate Fund by
Advisory Corp. and on behalf of the Real Estate Securities Fund by Asset
Management. The subadvisory fees of the VK U.S. Real Estate Fund are as follows:
if the average daily net assets during the monthly period are less than or equal
to $500 million, then Advisory Corp. shall pay MSAM one-half of the total
investment advisory fee payable to Advisory Corp. by such Fund (after
application of any fee waivers in effect) for such monthly period; and if such
Fund's average daily net assets for the monthly period are greater than $500
million, then Advisory Corp. shall pay MSAM a fee for such monthly period equal
to the greater of (a) one-half of what the total investment advisory fee payable
to Advisory Corp. by such Fund (after application of any fee waivers in effect)
for such monthly period would have been had the Fund's average daily net assets
during such period been equal to $500 million, or (b) forty-five percent of the
total investment advisory fee payable to Advisory Corp. by the Fund (after
application of any fee waivers in effect) for such monthly period. The
subadvisory fees paid to MSAM on behalf of the VK Real Estate Securities Fund on
an annual basis equal 50% of the compensation received by Asset Management from
the VK Real Estate Securities Fund.
The total operating expenses of the VK Real Estate Securities Fund for the 6
month period ended June 30, 1998 (on an annualized basis) were 1.68%, 2.44% and
2.44% of the average daily net assets attributable to Class A, B and C shares,
respectively. No fee waivers or expense reimbursements were in effect with
respect to the VK Real Estate Securities Fund during such period.
The total operating expenses (after fee waiver) of the U.S. Real Estate Fund
for the 12 month period ended June 30, 1998 were 1.55%, 2.30% and 2.30% of
average daily net assets attributable to Class A, B and C shares, respectively.
In the absence of fee waiver, total operating expenses of the U.S. Real Estate
Fund would have been 2.09%, 2.84% and 2.83% of the average daily net assets
attributable to Class A, B and C shares, respectively, for that same period.
The advisory fees and other operating expenses of the U.S. Real Estate Fund
are currently less than that of the VK Real Estate Securities Fund but only
because of voluntary fee waivers from Advisory Corp. There can be no assurance
that such waivers will continue for the U.S. Real Estate Fund if the
Reorganization is not completed. Furthermore, if the Reorganization is
completed, it is anticipated that
10
<PAGE> 19
Asset Management would waive advisory fees and/or reimburse other expenses for
the surviving VK Real Estate Securities Fund as necessary so that net operating
expenses (after waiver and reimbursement) are not higher than the current net
operating expenses (after waiver and reimbursement) being paid by the U.S. Real
Estate Fund. Management periodically reviews voluntary fee waivers and expense
reimbursements for funds it advises and there can be no assurance such waivers/
reimbursements will continue.
Both the VK Real Estate Securities Fund and the U.S. Real Estate Fund have
adopted substantially identical distribution plans (the "Distribution Plans")
pursuant to Rule 12b-1 under the 1940 Act and have adopted substantially
identical service agreements or plans (the "Service Plans"). Both the VK Real
Estate Securities Fund and the U.S. Real Estate Fund can pay up to 0.75% of
their respective average daily net assets attributable to Class B and C shares
for reimbursement of certain distribution-related expenses. In addition, both
the VK Real Estate Securities Fund and the U.S. Real Estate Fund can pay up to
0.25% of the respective average daily net assets attributable to Class A, B and
C shares for the provision of ongoing services to shareholders. The distributor
of both the U.S. Real Estate Fund's shares and the VK Real Estate Securities
Fund's shares is Van Kampen Funds Inc. (the "Distributor"), a subsidiary of Van
Kampen. For a complete description of these arrangements with respect to the VK
Real Estate Securities Fund, see the section of the VK Fund Prospectus entitled
"The Distribution and Service Plans." For a complete description of these
arrangements with respect to the U.S. Real Estate Fund, see the section of the
Series Fund Prospectus entitled "Management of the Company -- Distributor."
11
<PAGE> 20
EXPENSE COMPARISON TABLE
The table below sets forth (i) the annual fees and expenses paid by the VK Real
Estate Securities Fund for the six months ended June 30, 1998 (on an annualized
basis) and the U.S. Real Estate Fund for the fiscal year ended June 30, 1998 and
(ii) pro forma expenses for the combined fund.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
----------------------------------------- -----------------------------------------
VK REAL ESTATE U.S. REAL VK REAL ESTATE U.S. REAL
SECURITIES FUND ESTATE FUND PRO FORMA SECURITIES FUND ESTATE FUND PRO FORMA
--------------- ----------- --------- --------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchase of a Share (as a
percentage of Offering Price).... 4.75%(1) 5.75% 4.75%(1) None None None
Maximum Deferred Sales Charge (as
a percentage of the lower of the
original purchase price or
redemption proceeds)............. None None None 4.00%(2) 5.00%(2) 4.00%(2)
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net
assets)
Management Fees................... 1.00% 0.46%(4) 0.91%(5) 1.00% 0.46%(4) 0.91%(5)
Rule 12b-1 Fees................... 0.25% 0.25% 0.25% 1.00%(6) 1.00%(6) 1.00%(6)
Other Expenses.................... 0.43% 0.84% 0.39% 0.44% 0.84% 0.39%
----- ----- ----- ----- ----- -----
Total Fund Operating Expenses..... 1.68% 1.55%(4) 1.55%(5) 2.44% 2.30%(4) 2.30%(5)
----- ----- ----- ----- ----- -----
Expense Example of Total Operating
Expenses Assuming Redemption at
the End of the Period(7)
One Year......................... $ 64 $ 72 $ 63 $ 65 $ 73 $ 63
Three Years...................... 98 104 94 106 102 102
Five Years....................... 134 137 128 145 138 138
Ten Years........................ 237 231 223 259 245 245
Expense Example of Total Operating
Expenses Assuming No Redemption
at the End of the Period(7)
One Year......................... $ 64 $ 72 $ 63 $ 25 $ 23 $ 23
Three Years...................... 98 104 94 76 72 72
Five Years....................... 134 137 128 130 123 123
Ten Years........................ 237 231 223 259 245 245
<CAPTION>
CLASS C SHARES
-----------------------------------------
VK REAL ESTATE U.S. REAL
SECURITIES FUND ESTATE FUND PRO FORMA
--------------- ----------- ---------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchase of a Share (as a
percentage of Offering Price).... None None None
Maximum Deferred Sales Charge (as
a percentage of the lower of the
original purchase price or
redemption proceeds)............. 1.00%(3) 1.00%(3) 1.00%(3)
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net
assets)
Management Fees................... 1.00% 0.46%(4) 0.91%(5)
Rule 12b-1 Fees................... 1.00%(6) 1.00%(6) 1.00%(6)
Other Expenses.................... 0.44% 0.84% 0.39%
----- ----- -----
Total Fund Operating Expenses..... 2.44% 2.30%(4) 2.30%(5)
----- ----- -----
Expense Example of Total Operating
Expenses Assuming Redemption at
the End of the Period(7)
One Year......................... $ 35 $ 33 $ 33
Three Years...................... 76 72 72
Five Years....................... 130 123 123
Ten Years........................ 278 264 264
Expense Example of Total Operating
Expenses Assuming No Redemption
at the End of the Period(7)
One Year......................... $ 25 $ 23 $ 23
Three Years...................... 76 72 72
Five Years....................... 130 123 123
Ten Years........................ 278 264 264
</TABLE>
(See notes on the following page)
12
<PAGE> 21
Notes to Expense Comparison Table
(1) Class A shares of the VK Real Estate Securities Fund received pursuant to
the Reorganization will not be subject to a sales charge upon purchase.
(2) Class B Shares of the VK Real Estate Securities Fund are subject to a
contingent deferred sales charge equal to 4.00% of the lesser of the then
current net asset value or the original purchase price on Class B Shares
redeemed during the first or second year after purchase, which charge is
reduced to zero after a five year period as follows: Year 1 -- 4.00%; Year
2 -- 4.00%; Year 3 -- 3.00%; Year 4 -- 2.50%; Year 5 -- 1.50%; and Year
6 -- 0.00%. Class B Shares of the U.S. Real Estate Fund are subject to a
contingent deferred sales charge equal to 5.00% of the lesser of the then
current net asset value on the original purchase price on Class B Shares
redeemed during the first year after purchase, which charge is reduced to
zero after a five year period as follows: Year 1 -- 5.00%; Year 2 -- 4.00%;
Year 3 -- 3.00%; Year 4 -- 2.50%; Year 5 -- 1.50%; and Year 6 -- 0.00%.
(3) Class C shares of the VK Real Estate Securities Fund and U.S. Real Estate
Fund are subject to a contingent deferred sales charge equal to 1.00% of
the lesser of the then current net asset value or the original purchase
price on Class C shares redeemed during the first year after purchase,
which charge is reduced to zero thereafter.
(4) After fee waiver. Absent such waiver, "Management Fees" for the U.S. Real
Estate Fund would have been 1.00% with respect to Class A, B and C shares
and "Total Fund Operating Expenses" for the U.S. Real Estate Fund would
have been 2.09%, 2.84% and 2.83% with respect to Class A, B and C shares,
respectively.
(5) Asset Management has agreed to waive a portion of its advisory fees and/or
to reimburse a portion of expenses if the Reorganization is completed so
that total operating expenses do not exceed the current net operating
expenses of the U.S. Real Estate Fund prior to the Reorganization. Asset
Management in its discretion may terminate voluntary fee waivers and/or
reimbursements at any time after the VK Real Estate Securities Fund's
current fiscal year. Absent such waiver/reimbursement, pro forma
"Management Fees" would be 1.00% with respect to Class A, B and C shares,
and pro forma "Total Fund Operating Expenses" would be 1.64%, 2.39% and
2.39%, with respect to Class A, B and C shares, respectively.
(6) Individual long-term shareholders may pay more than the economic equivalent
of the maximum front-end sales charge permitted by NASD Rules.
(7) Expense examples reflect what an investor would pay on a $1,000 investment,
assuming a 5% annual return with either redemption or no redemption at the
end of each time period as noted in the above table. The Pro Forma column
reflects expenses estimated to be paid on new shares purchased from the
combined fund subsequent to the Reorganization. THE EXAMPLES SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY
BE GREATER OR LESSER THAN THOSE SHOWN.
13
<PAGE> 22
DISTRIBUTION, PURCHASE, VALUATION, REDEMPTION AND EXCHANGE OF SHARES. Both the
VK Real Estate Securities Fund and the U.S. Real Estate Fund offer three classes
of shares. The Class A shares of the VK Real Estate Securities Fund and the U.S.
Real Estate Fund are subject to an initial sales charge of up to 4.75% and
5.75%, respectively. The initial sales charge applicable to Class A shares of
the VK Real Estate Securities Fund will be waived for Class A shares acquired in
the Reorganization. Any subsequent purchases of Class A shares of the VK Real
Estate Securities Fund after the Reorganization will be subject to an initial
sales charge of up to 4.75%, excluding Class A shares purchased through the
dividend reinvestment plan. Purchases of Class A shares of the VK Real Estate
Securities Fund or the U.S. Real Estate Fund in amounts of $1,000,000 or more
are not subject to an initial sales charge, but a contingent deferred sales
charge of 1.00% may be imposed on certain redemptions made within the first year
after purchase.
The Class B shares of the VK Real Estate Securities Fund and the U.S. Real
Estate Fund do not incur a sales charge when they are purchased, but generally
are subject to a contingent deferred sales charge of 4.00% and 5.00%,
respectively, if redeemed within the first year after purchase, which charge is
reduced to zero after a five year period. The deferred sales charge schedule
differs between the funds only in year one and is the same in years two through
five.
The Class C shares of both the VK Real Estate Securities Fund and the U.S.
Real Estate Fund do not incur a sales charge when purchased, but generally are
subject to a contingent deferred sales charge of 1.00% if redeemed within the
first year after purchase.
No contingent deferred sales charge will be imposed on Class B shares or Class
C shares of the U.S. Real Estate Fund in connection with the Reorganization. The
holding period and conversion schedule for Class B shares or Class C shares of
the VK Real Estate Securities Fund received in connection with the
Reorganization will be measured from the earlier time (i) the holder purchased
such shares from the U.S. Real Estate Fund or (ii) the holder purchased such
shares from any other Fund advised by Advisory Corp. or Asset Management and
distributed by the Distributor and subsequently exchanged them for shares of the
U.S. Real Estate Fund.
Shares of the VK Real Estate Securities Fund or the U.S. Real Estate Fund may
be purchased by check, by electronic transfer, by bank wire and by exchange from
certain other funds advised by Advisory Corp. or Asset Management and
distributed by the Distributor. For a complete description regarding purchase of
shares and exchange of shares of the VK Real Estate Securities Fund, see the
sections of the VK Fund Prospectus entitled "Purchase of Shares" and
"Shareholder Services--Exchange Privilege." For a complete description regarding
purchase of shares and exchange of shares of the U.S. Real Estate Fund, see the
sections of the
14
<PAGE> 23
Series Fund Prospectus entitled "Purchase of Shares" and "Shareholder Services--
Exchange Privilege".
Shares of the VK Real Estate Securities Fund and the U.S. Real Estate Fund
properly presented for redemption may be redeemed or exchanged at the next
determined net asset value per share (subject to any applicable deferred sales
charge). Shares of either the VK Real Estate Securities Fund or the U.S. Real
Estate Fund may be redeemed or exchanged by mail or by special redemption
privileges (telephone exchange, telephone redemption, by check or electronic
transfer). If a shareholder of either fund attempts to redeem shares within a
short time after they have been purchased by check, the respective fund may
delay payment of the redemption proceeds until such fund can verify that payment
for the purchase of the shares has been (or will be) received, usually a period
of up to 15 days.
No further purchases of the shares of the U.S. Real Estate Fund may be made
after the date on which the shareholders of the U.S. Real Estate Fund approve
the Reorganization, and the stock transfer books of the U.S. Real Estate Fund
will be permanently closed as of the date of Closing. Only redemption requests
and transfer instructions received in proper form by the close of business on
the day prior to the date of Closing will be fulfilled by the U.S. Real Estate
Fund. Redemption requests or transfer instructions received by the U.S. Real
Estate Fund after that date will be treated by the U.S. Real Estate Fund as
requests for the redemption or instructions for transfer of the shares of the VK
Real Estate Securities Fund credited to the accounts of the shareholders of the
U.S. Real Estate Fund. Redemption requests or transfer instructions received by
the U.S. Real Estate Fund after the close of business on the day prior to the
date of Closing will be forwarded to the VK Real Estate Securities Fund. For a
complete description of the redemption arrangements for the VK Real Estate
Securities Fund, see the section of the VK Fund Prospectus entitled "Redemption
of Shares," and, for the U.S. Real Estate Fund, see the section of the Series
Fund Prospectus entitled "Redemption of Shares."
15
<PAGE> 24
CAPITALIZATION. The following table sets forth the capitalization of the VK
Real Estate Securities Fund and the U.S. Real Estate Fund as of June 30, 1998,
and the pro forma capitalization of the combined fund as if the Reorganization
had occurred on that date. These numbers may differ at the time of Closing.
CAPITALIZATION TABLE AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
VK REAL
ESTATE
SECURITIES U.S. REAL
FUND ESTATE FUND PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
NET ASSETS (IN THOUSANDS)
Class A shares.................. $ 51,860 $ 16,873 $ 68,685(1)
Class B shares.................. 76,872 15,197 91,998(1)
Class C shares.................. 18,651 4,187 22,821(1)
---------- ----------- ----------
Total.................... $ 147,383 $ 36,257 $ 183,504(1)
========== =========== ==========
NET ASSET VALUE PER SHARE
Class A shares.................. $ 12.71 $ 15.61 $ 12.70(1)
Class B shares.................. 12.70 15.54 12.69(1)
Class C shares.................. 12.69 15.55 12.68(1)
SHARES OUTSTANDING (IN THOUSANDS)
Class A shares.................. 4,080 1,081 5,409(2)
Class B shares.................. 6,052 978 7,250(2)
Class C shares.................. 1,469 269 1,799(2)
---------- ----------- ----------
Total.................... 11,601 2,328 14,458(2)
========== =========== ==========
SHARES AUTHORIZED
Class A shares.................. Unlimited 375,000,000 Unlimited
Class B shares.................. Unlimited 375,000,000 Unlimited
Class C shares.................. Unlimited 375,000,000 Unlimited
</TABLE>
- ---------------
(1) The pro forma net assets and net asset value per share reflect the payment
of the reorganization expenses of approximately $136,000 by the VK Real
Estate Securities Fund (allocated among the classes of approximately
$48,000, $71,000 and $17,000 for Class A, Class B and Class C shares,
respectively).
(2) The pro forma shares outstanding reflect the issuance by the VK Real Estate
Securities Fund of approximately 1,329,000 Class A shares, 1,198,000 Class B
shares and 330,000 Class C shares reflecting the exchange of the assets and
liabilities of the U.S. Real Estate Fund for newly issued shares of the VK
Real Estate Securities Fund at the pro forma net asset value per share.
PERFORMANCE INFORMATION. The average annual total returns for VK Real Estate
Securities Fund for the one-year and three-year periods ended June 30, 1998 and
for the period beginning June 9, 1994 (the date Class A shares of the VK Real
Estate Securities Fund were first offered for sale to the public) through June
30, 1998 were 2.87%, 18.89% and 14.54% with respect to its Class A shares; for
the one-year and three-year periods ended June 30, 1998 and for the period
beginning June 9, 1994 (the date Class B shares of the VK Real Estate Securities
Fund were first offered for sale to the public) through June 30, 1998 were
3.46%, 19.22%, and
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<PAGE> 25
14.65% with respect to its Class B shares; and for the one-year and three-year
periods ended June 30, 1998 and for the period beginning June 9, 1994 (the date
Class C shares of the VK Real Estate Securities Fund were first offered to the
public) through June 30, 1998 were 6.27%, 19.89% and 15.10% with respect to its
Class C shares.
The average annual total returns for the U.S. Real Estate Fund for the
one-year period ended June 30, 1998, and for the period beginning May 1, 1996
(the date Class A shares of the U.S. Real Estate Fund were first offered for
sale to the public) through June 30, 1998 were 2.04% and 18.66% with respect to
its Class A shares; for the one-year period ended June 30, 1998 and for the
period beginning May 1, 1996 (the date Class B shares of the U.S. Real Estate
Fund were first offered for sale to the public) through June 30, 1998 were 2.48%
and 19.75% with respect to its Class B shares; and for the one-year period ended
June 30, 1998 and for the period beginning May 1, 1996 (the date Class C shares
of the U.S. Real Estate Fund were first offered for sale to the public) through
June 30, 1998 were 6.24% and 20.87% with respect to its Class C shares.
The foregoing total returns include the effect of the maximum sales charge
applicable to sales of shares of both the VK Real Estate Securities Fund and the
U.S. Real Estate Fund. The foregoing total returns also assume reinvestment of
all dividends and distributions.
The VK Real Estate Securities Fund paid income distributions totaling $0.190
per Class A share for the six months ended June 30, 1998, representing an
annualized distribution rate of 2.85% based upon the June 30, 1998 maximum
offering price. The U.S. Real Estate Fund paid income distributions totaling
$0.330 per Class A share for the six months ended June 30, 1998, representing an
annualized distribution rate of 4.03% based upon the June 30, 1998 maximum
offering price. During the year, the U.S. Real Estate Fund had fee waivers and
expense reimbursements in place and in the absence of such waivers and
reimbursements, the U.S. Real Estate Fund's income available for distribution
would have been reduced. As a result, the distribution rate would have been
reduced as well. The Class A share annualized distribution rate assuming no fee
waiver or reimbursement of expenses for the U.S. Real Estate Fund would have
been 3.55% based on the June 30, 1998 maximum offering price.
The total returns, yields and distribution rates are not necessarily
indicative of future results. The performance of an investment company is the
result of conditions in the securities markets, portfolio management and
operating expenses. Although information such as that shown above is useful in
reviewing a fund's performance and in providing some basis for comparison with
other investment alternatives, it should not be used for comparison with other
investments using different reinvestment assumptions or time periods. In the
absence of fee waivers and expense reimbursements, the total returns, yields and
distribution rates would have been reduced.
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<PAGE> 26
Management's discussion of the VK Real Estate Securities Fund's and U.S. Real
Estate Fund's performance as of the end of each fund's last fiscal year are
attached hereto as Exhibit A.
OTHER SERVICE PROVIDERS. The transfer agent for each fund is Van Kampen
Investor Services Inc., a wholly owned subsidiary of Van Kampen. The independent
accountants for each fund is PricewaterhouseCoopers LLP. The U.S. Real Estate
Fund obtains certain administrative services from Chase Global Funds Services
Company, a corporate affiliate of The Chase Manhattan Bank ("Chase"). The VK
Real Estate Securities Fund obtains certain accounting and legal services from
Advisory Corp. and Van Kampen, respectively. The custodians for the U.S. Real
Estate Fund are Chase for domestic securities and cash and Morgan Stanley Trust
Company for foreign assets. The custodian for the VK Real Estate Securities Fund
is State Street Bank and Trust Company.
GOVERNING LAW. The U.S. Real Estate Fund is a series of the Van Kampen Series
Fund, Inc. ("Series Fund") an open-end management investment company organized
as a Maryland corporation. The VK Real Estate Securities Fund is an open-end
management investment company organized as a Delaware business trust. While
Maryland corporate law contains many provisions specifically applicable to
management investment companies and Delaware business trust law is specifically
drafted to accommodate some of the unique corporate governance needs of
management investment companies, certain statutory differences do exist and the
funds' organization documents contain certain differences summarized below. Each
fund is subject to federal securities laws, including the 1940 Act and the rules
and regulations promulgated by SEC thereunder, and applicable state securities
laws.
Consistent with Delaware law, the VK Real Estate Securities Fund has
authorized the issuance of an unlimited number of shares. Consistent with
Maryland law, the Series Fund has authorized a specific number of shares
available for the U.S. Real Estate Fund, however, the Series Fund organizational
documents provide directors with the authority to increase or decrease the
authorized number of shares, from time to time, as they consider necessary. Both
the VK Real Estate Securities Fund and the Series Fund allow the
trustees/directors to create one or more separate investment portfolios and to
establish a separate series of shares for each portfolio and to further
subdivide the shares of a series into one or more classes.
In general, the rights associated with common shares of beneficial interest of
the VK Real Estate Securities Fund are similar to the rights associated with
shares of common stock of the Series Fund. An area of potential difference is
that, although shareholders of a Delaware business trust generally are not
personally liable for obligations of the trust under Delaware law (the Delaware
business trust law provides that shareholders of a Delaware business trust
should be entitled to the same limitation of liability as shareholders of
private, for profit corporations), similar statutory or other authority limiting
business trust shareholder liability does
18
<PAGE> 27
not apply in many other states, and a shareholder subject to proceedings in
courts in other states, which may not apply Delaware law, may be subject to
liability. To guard against this risk, the VK Real Estate Securities Fund
organizational documents (i) contain an express disclaimer of shareholder
liability for acts or obligations of the trust and require notice of such
disclaimer in each agreement, obligation or instrument entered into by the trust
and (ii) provide for shareholder indemnification out of the series or fund
property if any shareholder is held personally liable for the obligations of the
trust. Management of the VK Real Estate Securities Fund believes the risk of
liability to a VK Real Estate Securities Fund shareholder beyond his or her
investment is remote.
Shareholders of a Maryland corporation currently have no personal liability
for the corporation's acts or obligations, except that a shareholder may be
liable to the extent that: (1) the dividends a shareholder receives exceed the
amount which properly could have been paid under Maryland law, (2) the
consideration paid to a shareholder by the Maryland corporation for stock was
paid in violation of Maryland law or (3) a shareholder otherwise receives any
distribution, payment or release which exceeds the amount which a shareholder
could properly receive under Maryland law.
Neither fund is required, and neither fund anticipates, holdings annual
meetings of its shareholders. Both funds do have certain mechanics whereby
shareholders can call a special meeting of the respective fund. Shareholders
generally have the right to approve investment advisory agreements, elect
trustees/directors, change fundamental investment policies, ratify the selection
of independent auditors and vote on other matters required by law or deemed
desirable by trustees/directors.
The business of each of the VK Real Estate Securities Fund and the U.S. Real
Estate Fund is supervised by the same ten trustees. The responsibilities, powers
and fiduciary duties of trustees under Delaware law are substantially the same
as those for directors under Maryland law. For the VK Real Estate Securities
Fund and the Series Fund, trustee/director vacancies may be filled by approval
of a majority of the trustees/directors then in office subject to provisions of
the 1940 Act. Trustees/Directors terms are until the later of the election of
such person's successor or resignation or removal. Each of the funds has
substantially the same mandatory retirement age provisions for
trustees/directors. Trustees of the VK Real Estate Securities Fund may be
removed with or without cause by vote of two-third's of the shares then
outstanding or by vote of two-third's of the number of trustees prior to such
removal. Trustees of the Series Fund may be removed with or without cause by
vote of a majority of the shares present or in person at a meeting.
The foregoing is only a summary of certain differences between the VK Real
Estate Securities Fund under Delaware law and the U.S. Real Estate Fund under
Maryland law. It is not intended to be a complete list of differences and
shareholders should refer to the provisions of each fund's applicable
organizational docu-
19
<PAGE> 28
ments for a more thorough comparison. Such documents are filed as part of each
fund's registration statements with the SEC and shareholders may obtain copies
of such documents as described on page 2 of this prospectus/proxy statement.
B. RISK FACTORS
SIMILARITY OF RISKS
The investment objectives of the VK Real Estate Securities Fund and the U.S.
Real Estate Fund are similar. The investment policies of the VK Real Estate
Securities Fund and the U.S. Real Estate Fund are similar insofar as they each
invest, under normal market conditions, at least 65% of the respective fund's
total assets in securities of companies principally engaged in the real estate
industry. Each of the VK Real Estate Securities Fund and the U.S. Real Estate
Fund also engages in certain common investment practices such as the purchase
and sale of securities on a "when issued" and "delayed delivery" basis, the
ability to borrow up to a certain percentage of its net assets in order to pay
for redemptions, to utilize options, futures and options on futures, to engage
in repurchase agreements and to invest up to a certain percentage of its assets
in restricted securities and illiquid securities. To the extent that the
investment objectives and investment policies and practices of the VK Real
Estate Securities Fund and the U.S. Real Estate Fund are similar, the risks
associated with an investment in the funds are similar.
Investment in either of the VK Real Estate Securities Fund or the U.S. Real
Estate Fund may not be appropriate for all investors. Neither fund is 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 funds. An investment in either fund is intended to
be a long-term investment and should not be used as a trading vehicle.
CONCENTRATION. Although the funds do not invest directly in real estate,
investments in the funds generally will be subject to the risks associated with
real estate because of their 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 funds have rental income or income from
the disposition of real property acquired as a result of a default on securities
the funds own, the receipt of such income may adversely affect their ability to
retain their tax status as regulated investment companies.
20
<PAGE> 29
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"). Real estate investment trusts are not
taxed on income distributed to shareholders provided they comply with several
requirements of the Code. The funds indirectly bear their proportionate share of
any expenses paid by the real estate investment trusts in which they invest.
Because the funds concentrate their investments in securities of real estate
companies the funds may be more susceptible than investment companies without
such a policy to any single economic, political or regulatory occurrence
affecting the real estate industry.
DIFFERENCES IN RISKS
The VK Real Estate Securities Fund and the U.S. Real Estate Fund engage in
some dissimilar investment practices. To the extent that the investment
practices of the funds differ, the risks associated with an investment in the VK
Real Estate Securities Fund are different from the risks associated with an
investment in the U.S. Real Estate Fund. An investment in the VK Real Estate
Securities Fund may not be appropriate for all U.S. Real Estate Fund
shareholders. For a complete description of the risks of an investment in the VK
Real Estate Securities Fund, see the sections in the VK Fund Prospectus entitled
"Investment Objective and Policies," "Risk Factors" and "Investment Practices."
For a complete description of the risks of an investment in the U.S. Real Estate
Fund, see the sections in the Series Fund Prospectus entitled "Investment
Objectives and Policies," "Additional Investment Information" and "Investment
Limitations."
DIVERSIFICATION. The U.S. Real Estate Fund is a non-diversified investment
company. The VK Real Estate Securities Fund is a diversified investment company.
A non-diversified investment company such as the U.S. Real Estate Fund may
invest a greater proportion of its assets in the securities of a smaller number
of issuers and as a result, may be subject to greater risks involving a single
corporate, economic, political or regulatory occurrence than a diversified
investment company such as the VK Real Estate Securities Fund. A diversified
investment company such as the VK Real Estate Securities Fund, however, is less
likely to benefit from a single corporate economic, political or regulatory
event that beneficially affect issuers in which it invests because it generally
invests a smaller percentage of its assets in each issuer in which it invests.
21
<PAGE> 30
C. THE PROPOSED REORGANIZATION
The material features of the Agreement are summarized below. This summary does
not purport to be complete and is subject in all respects to the provisions of,
and is qualified in its entirety by reference to, the Agreement attached as
Appendix A to the Reorganization SAI, a copy of which may be obtained without
charge by calling the VK Real Estate Securities Fund or the U.S. Real Estate
Fund at (800) 421-5666 and asking for the "Reorganization SAI".
TERMS OF THE AGREEMENT
Pursuant to the Agreement, the VK Real Estate Securities Fund would acquire
all of the assets and the liabilities of the U.S. Real Estate Fund portfolio of
the Series Fund on the date of the Closing in consideration for Class A, B and C
shares of the VK Real Estate Securities Fund.
Subject to the U.S. Real Estate Fund's shareholders approving of the
Reorganization, the closing (the "Closing") will occur within 15 business days
after the later of the receipt of all necessary regulatory approvals and the
final adjournment of the Special Meeting or such later date as soon as
practicable thereafter as the VK Real Estate Securities Fund and the U.S. Real
Estate Fund may mutually agree.
On the date of Closing, the U.S. Real Estate Fund will transfer to the VK Real
Estate Securities Fund all of the assets and liabilities of the U.S. Real Estate
Fund. The VK Real Estate Fund will in turn transfer to the U.S. Real Estate Fund
a number of its Class A, B and C shares equal in value to the value of the net
assets of the U.S. Real Estate Fund transferred to the VK Real Estate Securities
Fund as of the date of Closing, as determined in accordance with the valuation
method described in the VK Real Estate Securities Fund's then current
prospectus. In order to minimize any potential for undesirable federal income
and excise tax consequences in connection with the Reorganization, the VK Real
Estate Securities Fund and the U.S. Real Estate Fund may distribute on or before
the Closing all or substantially all of their respective undistributed net
investment income (including net capital gains) as of such date.
The U.S. Real Estate Fund expects to distribute the Class A, B and C shares of
the VK Real Estate Securities Fund to the shareholders of the U.S. Real Estate
Fund promptly after the Closing and then dissolve pursuant to a plan of
dissolution adopted by the Board.
The VK Real Estate Securities Fund and the U.S. Real Estate Fund have made
certain standard representations and warranties to each other regarding their
capitalization, status and conduct of business.
Unless waived in accordance with the Agreement, the obligations of the parties
to the Agreement are conditioned upon, among other things:
1. the approval of the Reorganization by the U.S. Real Estate Fund's
shareholders;
22
<PAGE> 31
2. the absence of any rule, regulation, order, injunction or proceeding
preventing or seeking to prevent the consummation of the transactions
contemplated by the Agreement;
3. the receipt of all necessary approvals, registrations and exemptions
under federal and state laws;
4. the truth in all material respects as of the Closing of the
representations and warranties of the parties and performance and
compliance in all material respects with the parties' agreements,
obligations and covenants required by the Agreement;
5. the effectiveness under applicable law of the registration statement of
the VK Real Estate Securities Fund of which this Prospectus/Proxy
Statement forms a part and the absence of any stop orders under the
Securities Act of 1933, as amended, pertaining thereto; and
6. the receipt of opinions of counsel relating to, among other things, the
tax free nature of the Reorganization.
The Agreement may be terminated or amended by the mutual consent of the
parties either before or after approval thereof by the shareholders of the U.S.
Real Estate Fund, provided that no such amendment after such approval shall be
made if it would have a material adverse affect on the interests of U.S. Real
Estate Fund shareholders. The Agreement also may be terminated by the
non-breaching party if there has been a material misrepresentation, material
breach of any representation or warranty, material breach of contract or failure
of any condition to Closing.
The Board recommends that you vote to approve the Reorganization, as it
believes the Reorganization is in the best interests of the U.S. Real Estate
Fund's shareholders and that the interests of the U.S. Real Estate Fund's
existing shareholders will not be diluted as a result of consummation of the
proposed Reorganization.
DESCRIPTION OF SECURITIES TO BE ISSUED
SHARES OF BENEFICIAL INTEREST. Beneficial interests in the VK Real Estate
Securities Fund being offered hereby are represented by transferable Class A, B
and C shares, par value $0.01 per share.
VOTING RIGHTS OF SHAREHOLDERS. Holders of shares of the VK Real Estate
Securities Fund are entitled to one vote per share on matters as to which they
are entitled to vote.
The VK Real Estate Securities Fund is an open-end management investment
company registered with the SEC under the 1940 Act. The U.S. Real Estate Fund
operates as a series of the Series Fund, also an open-end management investment
company registered with the SEC under the 1940 Act. Therefore, in addition to
the
23
<PAGE> 32
specific voting rights described above, shareholders of the VK Real Estate
Securities Fund, as well as shareholders of the U.S. Real Estate Fund, are
entitled, under current law, to vote with respect to certain other matters,
including changes in fundamental investment policies and restrictions and the
ratification of the selection of independent auditors. Moreover, under the 1940
Act, shareholders owning not less than 10% of the outstanding shares of the U.S.
Real Estate Fund or VK Real Estate Securities Fund may request that the
respective board of trustees/directors call a shareholders' meeting for the
purpose of voting upon the removal of trustees/directors.
CONTINUATION OF SHAREHOLDER ACCOUNTS AND PLANS; SHARE CERTIFICATES
If the Reorganization is approved, the VK Real Estate Securities Fund will
establish an account for each U.S. Real Estate Fund shareholder containing the
appropriate number of shares of the VK Real Estate Securities Fund. The
shareholder services and shareholder programs of the VK Real Estate Securities
Fund and the U.S. Real Estate Fund are substantially identical. Shareholders of
the U.S. Real Estate Fund who are accumulating U.S. Real Estate Fund shares
under the dividend reinvestment plan, or who are receiving payment under the
systematic withdrawal plan with respect to U.S. Real Estate Fund shares, will
retain the same rights and privileges after the Reorganization in connection
with the VK Real Estate Securities Fund Class A, B or C shares received in the
Reorganization through substantially identical plans maintained by the VK Real
Estate Securities Fund. Van Kampen Trust Company will continue to serve as
custodian for the assets of U.S. Real Estate Fund shareholders held in IRA
accounts after the Reorganization. Such IRA investors will be sent appropriate
documentation to confirm Van Kampen Trust Company's custodianship.
It will not be necessary for shareholders of the U.S. Real Estate Fund to whom
certificates have been issued to surrender their certificates. Upon dissolution
of the U.S. Real Estate Fund, such certificates will become null and void.
However, U.S. Real Estate Fund shareholders holding such certificates may want
to present such certificates to receive certificates of the VK Real Estate
Securities Fund (to simplify substantiation of and to preserve the tax basis of
separate lots of shares).
FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the material federal income tax
consequences of the Reorganization to shareholders of the U.S. Real Estate Fund
and shareholders of the VK Real Estate Securities Fund. The discussion set forth
below is for general information only and may not apply to a holder subject to
special treatment under the Internal Revenue Code of 1986, as amended (the
"Code"), such as a holder that is a bank, an insurance company, a dealer in
securities, a tax-exempt organization or that acquired its Class A, B and C
shares of the U.S. Real
24
<PAGE> 33
Estate Fund pursuant to the exercise of employee stock options or otherwise as
compensation. It is based upon the Code, legislative history, Treasury
regulations, judicial authorities, published positions of the Internal Revenue
Service (the "Service") and other relevant authorities, all as in effect on the
date hereof and all of which are subject to change or different interpretations
(possibly on a retroactive basis). This summary is limited to shareholders who
hold their U.S. Real Estate Fund shares as capital assets. No advance rulings
have been or will be sought from the Service regarding any matter discussed in
this Prospectus/Proxy Statement. Accordingly, no assurances can be given that
the Service could not successfully challenge the intended federal income tax
treatment described below. Shareholders should consult their own tax advisers to
determine the specific federal income tax consequences of all transactions
relating to the Reorganization, as well as the effects of state, local and
foreign tax laws and possible changes to the tax laws.
The Reorganization is intended to qualify as a "reorganization" within the
meaning of Section 368(a)(1)(C) of the Code. It is a condition to closing that
the VK Real Estate Securities Fund receives an opinion from Skadden, Arps,
Slate, Meagher & Flom (Illinois) ("Skadden Arps") substantially to the effect
that for federal income tax purposes:
1. The acquisition by the VK Real Estate Securities Fund of the assets of
the U.S. Real Estate Fund in exchange solely for Class A, B and C shares
of the VK Real Estate Securities Fund and the assumption by the VK Real
Estate Securities Fund of the liabilities of the U.S. Real Estate Fund
will qualify as a tax-free reorganization within the meaning of Section
368(a)(1) of the Code.
2. No gain or loss will be recognized by the U.S. Real Estate Fund or the VK
Real Estate Securities Fund upon the transfer to the VK Real Estate
Securities Fund of the assets of the U.S. Real Estate Securities Fund in
exchange solely for the Class A, B and C shares of the VK Real Estate
Securities Fund and the assumption by the VK Real Estate Securities Fund
of the liabilities of the U.S. Real Estate Fund.
3. The VK Real Estate Securities Fund's basis in the U.S. Real Estate Fund
assets received in the Reorganization will, in each instance, equal the
basis of such assets in the hands of the U.S. Real Estate Fund
immediately prior to the transfer, and the VK Real Estate Securities
Fund's holding period of such assets will, in each instance, include the
period during which the assets were held by the U.S. Real Estate Fund.
4. No gain or loss will be recognized by the shareholders of the U.S. Real
Estate Fund upon the exchange of their shares of the U.S. Real Estate
Fund for the Class A, B or C shares of the VK Real Estate Securities
Fund.
5. The aggregate tax basis in the Class A, B and C shares of the VK Real
Estate Securities Fund received by the shareholders of the U.S. Real
Estate
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<PAGE> 34
Fund will be the same as the aggregate tax basis of the shares of the
U.S. Real Estate Fund surrendered in exchange therefor. See "Continuation
of Shareholder Accounts and Plans; Share Certificates" above.
6. The holding period of the Class A, B and C shares of the VK Real Estate
Securities Fund received by the shareholders of the U.S. Real Estate Fund
will include the holding period of the shares of the U.S. Real Estate
Fund surrendered in exchange therefor if such surrendered shares of the
U.S. Real Estate Fund are held as capital assets by such shareholder.
In rendering its opinion, Skadden Arps may rely upon certain representations
of the management of the VK Real Estate Securities Fund and the U.S. Real Estate
Fund and assume that the Reorganization will be consummated as described in the
Agreement and that redemptions of shares of the U.S. Real Estate Fund occurring
prior to the Closing will consist solely of redemptions in the ordinary course
of business.
The VK Real Estate Securities Fund intends to be taxed under the rules
applicable to regulated investment companies as defined in Section 851 of the
Code, which are the same rules currently applicable to the U.S. Real Estate Fund
and its shareholders.
EXPENSES
The expenses of the Reorganization, including expenses incurred by the U.S.
Real Estate Fund, generally will be borne by the VK Real Estate Securities Fund
in the event the Reorganization is completed. Management believes that
shareholders of the VK Real Estate Fund will be the primary beneficiaries of
benefits from the Reorganization due to anticipated decreases in its operating
expenses. See the "Expense Comparison Table" above. Management of the U.S. Real
Estate Fund and the VK Real Estate Securities Fund estimates total
Reorganization costs of approximately $136,000. In addition, as part of the
Reorganization, the U.S. Real Estate Fund will write-off the remaining
unamortized organizational expenses of approximately $7,000, which will be
reimbursed by Advisory Corp., in its capacity as the investment adviser of the
U.S. Real Estate Fund. In the event the Reorganization is not completed, Van
Kampen will bear the costs associated with the Reorganization. The Board of
Trustees and the Board of Directors have reviewed and approved the foregoing
arrangements with respect to expenses and other charges relating to the
Reorganization.
As noted above, shareholders of the U.S. Real Estate Fund may redeem their
shares or exchange their shares for shares of certain other funds distributed by
the Distributor at any time prior to the closing of the Reorganization. See
"Distribution, Purchase, Valuation, Redemption and Exchange of Shares" above.
Redemptions and exchanges of shares generally are taxable transactions, unless
your account is
26
<PAGE> 35
not subject to taxation, such as an individual retirement account or other tax-
qualified retirement plan. Shareholders should consult with their own tax
advisers regarding potential transactions.
RATIFICATION OF INVESTMENT OBJECTIVE, INVESTMENT POLICIES AND INVESTMENT
RESTRICTIONS OF THE VK REAL ESTATE SECURITIES FUND
Approval of the Reorganization will constitute the ratification by U.S. Real
Estate Fund shareholders of the investment objective, investment policies and
investment restrictions, distribution plan and advisory agreement of the VK Real
Estate Securities Fund. Approval of the Reorganization will constitute approval
of amendments to any of the fundamental investment restrictions of the U.S. Real
Estate Fund that might otherwise be interpreted as impeding the Reorganization,
but solely for the purpose of and to the extent necessary for, consummation of
the Reorganization.
LEGAL MATTERS
Certain legal matters concerning the federal income tax consequences of the
Reorganization and issuance of Class A, B and C shares of the VK Real Estate
Securities Fund will be passed on by Skadden Arps, 333 West Wacker Drive,
Chicago, Illinois 60606, which serves as counsel to the VK Real Estate
Securities Fund and the U.S. Real Estate Fund. Wayne W. Whalen, a partner of
Skadden Arps, is a Trustee of the VK Real Estate Securities Fund and a Director
of the U.S. Real Estate Fund.
D. RECOMMENDATION OF THE BOARD
The Board of Directors has unanimously approved the Agreement and has
determined that participation in the Reorganization is in the best interests of
shareholders of each class of shares of the U.S. Real Estate Fund. THE BOARD OF
DIRECTORS RECOMMENDS VOTING "FOR" THE PROPOSED REORGANIZATION.
OTHER INFORMATION
A. SHAREHOLDERS OF THE VK REAL ESTATE SECURITIES FUND AND THE U.S. REAL ESTATE
FUND
At the close of business on October 8, 1998, there were 3,809,941 Class A
shares, 5,785,667 Class B shares and 1,455,135 Class C shares, respectively, of
the VK Real Estate Securities Fund. As of such date, the trustees and officers
of the VK Real Estate Securities Fund as a group own less than 1% of the shares
of the VK Real Estate Securities Fund. As of such date, no person was known by
the VK Real Estate Securities Fund to own beneficially or of record as much as
5% of the Class A, B or C shares or Class B shares of the VK Real Estate
Securities Fund except as follows: Van Kampen Trust Company, 2806 Post Oak
Blvd., Houston, Texas 77056 owns 13.42% of Class A shares, 8.53% of Class B
shares and 6.49% of
27
<PAGE> 36
Class C shares; MLPF&S for the sole benefit of its customers, 4800 Deer Lake Dr.
Jacksonville, FL 32246-6484 owns 9.91% of Class B shares and 6.67% of Class C
shares; and PaineWebber for the sole benefit of Schoellkopf Shenandosh
Partnership, Ltd., 3303 Lee Parkway, Dallas, TX 75218-5109 owns 5.13% of Class C
shares.
At the close of business on October 8, 1998, the record date with respect to
the Special Meeting, there were 1,061,250 Class A shares, 1,039,684 Class B
shares and 249,430 Class C shares, respectively, of the U.S. Real Estate Fund.
As of such date, the trustees and officers of the U.S. Real Estate Fund as a
group own less than 1% of the outstanding shares of the U.S. Real Estate Fund.
As of such date, no person was known by the U.S. Real Estate Fund to own
beneficially or of record as much as 5% of the Class A, B or C shares of the
U.S. Real Estate Fund except as follows: Charles Schwab & Co. Inc., for the
exclusive benefit of its Customers, 101 Montgomery Street, San Francisco, CA
94104-4122 owns 8.77% of Class A shares; PaineWebber for the benefit of Aspire
Partners LP, c/o Global Direct Mail 22 Harbor Drive, Port Washington, NY
11050-2524 owns 36.52% of Class A shares; and Dain Rauscher Inc. FBD Lancaster
Ventures LLC, P.O. Box 6368, Lincoln, NE 68506-0368 owns 10.13% of Class C
shares.
B. SHAREHOLDER PROPOSALS
As a general matter, the VK Real Estate Securities Fund does not intend to
hold future regular annual or special meetings of its shareholders unless
required by the 1940 Act. In the event the Reorganization is not consummated,
the VK Real Estate Securities Fund does not intend to hold future regular annual
or special meetings of its shareholders unless required by the 1940 Act. Any
shareholder who wishes to submit proposals for consideration at a meeting of
shareholders of the VK Real Estate Securities Fund or the U.S. Real Estate Fund
should send such proposal to the respective fund at One Parkview Plaza, Oakbrook
Terrace, Illinois 60181. To be considered for presentation at a shareholders'
meeting, rules promulgated by the SEC require that, among other things, a
shareholder's proposal must be received at the offices of the fund a reasonable
time before a solicitation is made. Timely submission of a proposal does not
necessarily mean that such proposal will be included.
VOTING INFORMATION AND REQUIREMENTS
Holders of shares of the U.S. Real Estate Fund are entitled to one vote per
share on matters as to which they are entitled to vote. The U.S. Real Estate
Fund does not utilize cumulative voting.
Each valid proxy given by a shareholder of the U.S. Real Estate Fund will be
voted by the persons named in the proxy in accordance with the instructions
marked thereon and as the persons named in the proxy may determine on such other
business as may come before the Special Meeting on which shareholders are
entitled to vote. If no designation is made, the proxy will be voted by the
persons named in the proxy as recommended by the Board "FOR" approval of the
28
<PAGE> 37
Reorganization. Abstentions and broker non-votes do not count as votes "FOR" a
proposal and are treated as votes "AGAINST". One-third of the outstanding shares
entitled to vote on a proposal must be present in person or by proxy to have a
quorum to conduct business at the Special Meeting. Abstentions and broker non-
votes will be deemed present for quorum purposes.
Shareholders who execute proxies may revoke them at any time before they are
voted by filing with the U.S. Real Estate Fund a written notice of revocation,
by delivering a duly executed proxy bearing a later date, or by attending the
Special Meeting and voting in person. The giving of a proxy will not affect your
right to vote in person if you attend the Special Meeting and wish to do so.
It is not anticipated that any action will be asked of the shareholders of the
U.S. Real Estate Fund other than as indicated above, but if other matters are
properly brought before the Special Meeting, it is intended that the persons
named in the proxy will vote in accordance with their judgment.
APPROVAL OF THE REORGANIZATION WILL REQUIRE THE FAVORABLE VOTE OF THE HOLDERS
OF A MAJORITY OF THE OUTSTANDING SHARES OF THE U.S. REAL ESTATE FUND ENTITLED TO
VOTE.
In the event that sufficient votes in favor of a proposal are not received by
the scheduled time of the Special Meeting, the persons named in the proxy may
propose and vote in favor of one or more adjournments of the Special Meeting to
permit further solicitation of proxies. If sufficient shares were present to
constitute a quorum, but insufficient votes had been cast in favor of a proposal
to approve it, proxies would be voted in favor of adjournment only if the Board
determined that adjournment and additional solicitation was reasonable and in
the best interest of the shareholders of the U.S. Real Estate Fund, taking into
account the nature of the proposal, the percentage of the votes actually cast,
the percentage of negative votes, the nature of any further solicitation that
might be made and the information provided to shareholders about the reasons for
additional solicitation. Any such adjournment will require the affirmative vote
of the holders of a majority of the outstanding shares voted at the session of
the Special Meeting to be adjourned.
Proxies of shareholders of the U.S. Real Estate Fund are solicited by the
Board. In order to obtain the necessary quorum at the Special Meeting,
additional solicitation may be made by mail, telephone, telegraph or personal
interview by representatives of Advisory Corp., Asset Management, Van Kampen, or
by dealers or their representatives. In addition, such solicitation servicing
may also be provided by First Data Investor Services Group, a solicitation firm
located in Boston, Massachusetts, at a cost estimated to be approximately
$4,500, plus reasonable expenses.
November 4, 1998
PLEASE SIGN AND RETURN YOUR PROXY PROMPTLY.
YOUR VOTE IS IMPORTANT AND YOUR PARTICIPATION
IN THE AFFAIRS OF YOUR FUND DOES MAKE A DIFFERENCE.
29
<PAGE> 38
EXHIBIT A
MANAGEMENT'S DISCUSSION OF
VK REAL ESTATE SECURITIES FUND AND U.S. REAL ESTATE FUND PERFORMANCE
Management's Discussion of the VK Real Estate Securities Fund's Performance as
of the Annual Report dated December 31, 1997.
LETTER TO SHAREHOLDERS
February 1, 1998
Dear Shareholder,
The new year ushers in what promises to be an exciting and challenging time
for investors. The Taxpayer Relief Act of 1997 signed into law by President
Clinton in August creates many new opportunities for you and your family to take
a more active role in achieving your long-term financial goals.
Most Americans will benefit from the bill's $95 billion in tax cuts over five
years. The so-called Kiddie Credit gives parents $400 in immediate tax relief
for every child under age 17, and families will find it easier to save for their
children's college expenses through the new Education IRA. The bill also cuts
capital gains tax rates for the first time in over a decade and loosens
restrictions on tax-deductible IRA contributions. Perhaps the most exciting
feature of all is the new Roth IRA, which allows investment earnings to grow tax
free, not just tax deferred.
This year more than ever, it could be important for you to talk with your
financial adviser about how to make the tax code work to your advantage. At Van
Kampen American Capital, we have prepared a variety of publications to help you
understand your choices under the new tax legislation. And with the help of your
adviser, we'll help you locate the many benefits hidden among the changing tax
landscape.
ECONOMIC OVERVIEW
These continue to be the best of times for the U.S. economy. Growth is strong,
consumers are optimistic, unemployment is low, the budget is headed for surplus,
and our nation's currency is rising around the world.
Despite the strength in the economy, there is no indication of troublesome
inflation. In fact, the producer price index fell by 1.2 percent during the
year, the largest annual decline in wholesale prices since 1986. Inflation at
the consumer level was also virtually nonexistent, with the consumer price index
rising by only
A-1
<PAGE> 39
1.7 percent during 1997. A strong dollar and significant productivity gains
helped offset inflationary pressures caused by rising wages.
After increasing short-term interest rates by 0.25 percent in March, the
Federal Reserve Board left monetary policy unchanged for the remainder of the
year. In addition to signs that the economy was slowing modestly from its
breakneck pace of early 1997, Fed policy-makers were concerned about the impact
that higher U.S. interest rates might have on the struggling economies of
Southeast Asia. Generally, higher U.S. interest rates cause the dollar to rise
relative to other currencies. With nearly all Asian currencies already down
significantly, a hike in U.S. rates would force monetary authorities in Asia to
choose between letting their currencies decline further or matching the rate
increase, thereby slowing their already-sluggish economies.
MARKET OVERVIEW
Bolstered by solid economic growth and low inflation, stock prices continued
their advance during the reporting period. Over the 12 months through December,
the Wilshire 5000 Index, which measures the performance of all publicly traded
U.S. companies, gained 29.17 percent. And with its 22.64 percent advance in
1997, the Dow Jones Industrial Average completed its third consecutive year of
20 percent-plus gains for the first time in the history of the index.
But while U.S. stocks kept rising, volatility also picked up. During the
spring, stronger-than-expected economic growth and a subsequent hike in
short-term interest rates caused stock prices to fall by 10 percent. Later in
the year, investors were unnerved by the spreading economic crisis in Asia.
Between early August and late October, the DJIA fell by 16 percent before
rebounding sharply to close the reporting period near record-high territory.
Within the equity market, large stocks continued to outperform their small-cap
cousins. For the year, the Russell 1000 Index of large-cap companies returned
30.49 percent, compared to 20.52 percent for the Russell 2000 Index of small
stocks. A wave of consolidations helped make Financial Services the
top-performing industry group. The Dow Jones Financial Index soared 48.44
percent during 1997.
OUTLOOK
We expect that the recent upheavals in Southeast Asia will have a mixed impact
on the U.S. economy and financial markets. Sales of American goods overseas are
likely to decline in coming months, and competition from relatively inexpensive
imports could pinch profit margins. However, lower currency values in Asia will
likely result in less inflation in the U.S. and a greater likelihood of stable
or falling interest rates. Such a scenario usually benefits stock prices, and we
believe that a
A-2
<PAGE> 40
portfolio of high-quality domestic stocks should continue to perform well. We
also anticipate that stock selection will play a larger role in generating
investment performance due to the uneven impact of the Asian crisis on
individual companies.
As we noted earlier, the Taxpayer Relief Act of 1997 provides attractive new
vehicles through which investors can save for a variety of goals, including
higher education and retirement. We encourage you to work with your financial
adviser to consider how the tax changes can work to your benefit.
Additional details about your Fund, including a question-and-answer section
with your portfolio management team, are provided in this report. As always, we
are pleased to have the opportunity to serve you and your family through our
diverse menu of quality investments.
Sincerely,
Don G. Powell Dennis J. McDonnell
Chairman President
Van Kampen American Capital Van Kampen American Capital
Asset Management, Inc. Asset Management, Inc.
PERFORMANCE RESULTS FOR THE PERIOD ENDED DECEMBER 31, 1997
VAN KAMPEN AMERICAN CAPITAL REAL ESTATE SECURITIES FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
-------- -------- --------
<S> <C> <C> <C>
Total Returns
One year total return based on
NAV(1)............................ 20.66% 19.76% 19.78%
One-year total return(2)............ 14.91% 15.76% 18.78%
Life-of-Fund average annual total
return(2)*........................ 18.43% 18.71% 19.22%
Commencement Date................... 06/09/94 06/09/94 06/09/94
</TABLE>
- ---------------
(1) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge (4.75% for A shares) or
contingent deferred sales charge for early withdrawal (4% for B shares and
1% for C shares).
(2) Standardized total return. Assumes reinvestment of all distributions for
the period and includes payment of the maximum sales charge (A shares) or
contingent deferred sales charge for early withdrawal (B and C shares).
* Total return is calculated from June 30, 1994 (the date the Fund's
investment strategy was implemented) through the end of the period.
See the Prior Performance section of the current prospectus. Past performance
does not guarantee future results. Investment return and net asset value will
fluctuate with market conditions. This performance was achieved during generally
A-3
<PAGE> 41
rising stock prices. Fund shares, when redeemed, may be worth more or less than
their original cost.
Investing in REITs involves unique risks in addition to those risks associated
with investing in the real estate industry in general. Equity REITs may be
affected by changes in the value of the underlying property owned by the REITs,
while mortgage REITs may be affected by the quality of any credit extended.
REITs are dependent upon management skills, are not diversified and are subject
to the risks of financing projects. REITs are subject to heavy cash flow
dependency, default by borrowers, self-liquidation and the possibilities of
failing to qualify for tax-exempt status under the Internal Revenue Code of
1986, as amended. REITs, especially mortgage REITs, are also subject to some
interest rate risk (e.g., as interest rates rise, the value of REITs may
decline).
Market forecasts provided in this report may not necessarily come to pass.
A-4
<PAGE> 42
PUTTING YOUR FUND'S PERFORMANCE IN PERSPECTIVE
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment portfolio's performance at regular intervals.
A good starting point is a comparison of your investment holdings to an
applicable benchmark, such as a broad-based market index. Such a comparison can:
- Illustrate the general market environment in which your investments
are being managed
- Reflect the impact of favorable market trends or difficult market
conditions
- Help you evaluate the extent to which your Fund's management team has
responded to the opportunities and challenges presented to them over
the period measured
For these reasons, you may find it helpful to review the chart below, which
compares your Fund's performance to that of the Standard & Poor's 500-Stock
Index and the NAREIT Equity REIT Index over time. These indices are unmanaged
statistical composites, and do not reflect any commissions or fees which would
be incurred by an investor purchasing the securities they represent. Similarly,
their performance does not reflect any sales charges or other costs which would
be applicable to an actively managed portfolio, such as that of the Fund.
A-5
<PAGE> 43
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Van Kampen American Capital Real Estate Securities Fund vs. Standard & Poor's
500-Stock Index and the NAREIT Equity REIT Index (June 30, 1994 through December
31, 1997)
[CHART]
The above chart reflects the performance of Class A shares of the Fund. The
performance of Class A shares will differ from that of other share classes of
the Fund because of the difference in sales charges and/or expenses paid by
shareholders investing in the different share classes. The Fund's performance
assumes reinvestment of all distributions and includes payment of the maximum
sales charge (4.75% for A shares).
While past performance is not indicative of future performance, the above
information provides a broader vantage point from which to evaluate the
discussion of the Fund's performance found in the following pages.
A-6
<PAGE> 44
GLOSSARY OF TERMS
DOW JONES INDUSTRIAL AVERAGE:
The oldest and most widely recognized stock market average, which reflects the
performance of 30 actively traded stocks of well-established, blue chip
performance.
FEDERAL RESERVE BOARD (FED):
A seven-member group that oversees the operations of the Federal Reserve
System, the central bank system of the United States. Currently led by Chairman
Alan Greenspan, the Fed meets eight times a year to establish monetary policy
and monitor the country's economic pulse.
GROWTH INVESTING:
An investing strategy that seeks to identify stocks that tend to offer
greater-than-average earnings growth. Growth stocks typically trade at higher
prices than value stocks, due to their expected earnings growth.
NET ASSET VALUE (NAV):
The value of a mutual fund share, calculated by deducting a fund's liabilities
from its total assets and dividing this amount by the number of shares
outstanding. The NAV does not include any initial or contingent deferred sales
charge.
P/E RATIO:
The price-to-earnings ratio shows the "multiple" of earnings at which a stock
is selling. It is calculated by dividing a stock's current price by its current
earnings per share. A high multiple means that investors are optimistic about
future growth and have bid up the stock's price.
REAL ESTATE INVESTMENT TRUSTS (REITS):
Publicly traded companies that own, develop, and operate apartment complexes,
hotels, office buildings, and other commercial properties.
STANDARD AND POOR'S 500-STOCK INDEX:
An index of the 500 largest, most actively traded stocks on the New York Stock
Exchange. It provides a guide to the overall health of the U.S. stock market.
The S&P 500 is a much broader index than the Dow Jones Industrial Average and
reflects the stock market more accurately.
A-7
<PAGE> 45
VALUATION:
The estimated or determined worth of a stock, based on its price relative to
its earnings.
VALUE INVESTING:
A strategy that seeks to identify stocks that are sound investments but are
temporarily out of favor in the marketplace, due to concerns about short-term
performance. As a result, they trade at prices below the value that investors
believe they are actually worth.
A-8
<PAGE> 46
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN AMERICAN CAPITAL REAL ESTATE SECURITIES FUND
We recently spoke with the management team of the Van Kampen American Capital
Real Estate Securities Fund about the key events and economic forces that shaped
the markets during the most recent fiscal year. The team is led by portfolio
managers Russell C. Platt and Theodore R. Bigman. The following excerpts reflect
their views on the Fund's performance during the 12-month period ended December
31, 1997.
Q WHAT WERE THE MARKET CONDITIONS IN WHICH THE FUND OPERATED DURING THE
PAST 12 MONTHS?
A A strong U.S. economy and a cooperative bond market in the past year were
beneficial to the real estate industry, which continues on the path of recovery
that began in 1993. While the total return for the period was not as great as
the one generated a year earlier, it was solid and more in line with the type of
returns that we believe investors can expect at this point in the real estate
cycle. Real estate investments generally tracked the Standard & Poor's 500-Stock
Index, but displayed defensive characteristics during the more volatile periods
in the broader market, particularly in the latter part of the year.
The past 12 months were characterized by numerous mergers and acquisitions in
the real estate market. An impressive total of 15 public transactions occurred,
most notably Equity Office Properties' surprising merger with rival Beacon
Office Properties, and Starwood Lodging's successful bid for ITT Corp. Public
mergers in 1997 totaled $26.7 billion, representing a significant increase from
the year before, in which six public REIT mergers accounted for only $5.0
billion. Companies were able to finance these transactions through an active
issuance market, with an estimated $39 billion in debt and equity capital raised
by the end of the year.
Q HOW DID YOU POSITION THE PORTFOLIO DURING THE REPORTING PERIOD?
A We continued to support the thesis that efficient markets will, over
time, drive values in the public and private markets into equilibrium; in that
environment, understanding asset value is critical. As a result, our
security-selection process is based on finding those stocks that we believe
offer the best value relative to their underlying net property assets. While
real estate cycles in the physical property market can last for long periods of
time, valuations in the public markets can fluctuate quite rapidly. This caused
us to over-and underweight property sectors throughout the year despite
conditions in the physical market. Our investment style led us to overweight
positions in the office and high-end hotel sectors, which contributed handsomely
to the Fund's returns for the year. In addition, our value
A-9
<PAGE> 47
style of investing allowed the Fund to perform particularly well during times of
greatest market volatility.
Q WHAT WAS THE FUND'S PERFORMANCE OVER THE REPORTING PERIOD?
A The Fund achieved a total return of 20.66 percent (Class A shares at net
asset value) for the 12-month period ended December 31, 1997. This performance
compares favorably to the total return of the NAREIT (National Association of
Real Estate Investment Trusts) Equity REIT Index of 10.98 percent over the same
period. The NAREIT Index is an unmanaged index that reflects the performance of
a broad range of equity REITs of all property types. By comparison, the Standard
& Poor's 500-Stock Index registered a total return of 33.31 percent in the 12
months ended December 31, 1997. The S&P 500-Stock Index is a broad-based,
unmanaged index that reflects the general performance of the stock market. Keep
in mind that these indices are unmanaged statistical composites that do not
reflect any commissions, fees, or sales charges that would be incurred by an
investor purchasing the securities they represent. Please refer to the chart on
page three for additional Fund performance results.
Q WHAT FACTORS OR SECTORS CONTRIBUTED TO THE FUND'S SUCCESS OVER ITS FISCAL
YEAR?
A With respect to the overall portfolio, our value style of investing was
beneficial during the period. Recall that the NAREIT Equity REIT Index
registered a total return of 35.5 percent in 1996, of which 19.0 percent
occurred in the fourth quarter (with a 12.2 percent return in the final month
alone). Given that level of performance, many growth and "momentum" companies
sold at significant premiums to underlying real estate values, and thus
experienced a retracement of stock prices in the first six months of this year.
Our value focus allowed us to avoid a number of companies in which the
retrenchment was often significant.
Our sector weightings and stock selection within sectors also contributed to the
Fund's total return in the first half of the year. After last year's outstanding
performance, office and hotel property sectors continued to show above-average
performance during the past six months, and our overweighted positions in these
sectors positively contributed to the total return. Limited new supply in both
sectors has allowed for better returns. We were somewhat surprised by the
above-average performance in the retail sector in the first half of the year,
and our holdings in regional malls added significantly to returns. Our stock
selection in the manufactured-home sector and the industrial sector also
contributed to the Fund's success. For additional Fund portfolio highlights,
please refer to page eight.
A-10
<PAGE> 48
Q WHAT IS YOUR OUTLOOK FOR THE REAL ESTATE MARKET AND FOR THE FUND?
A As we continue to advance in this current real estate recovery cycle, we
see more property sectors approaching equilibrium, or a balanced
supply-and-demand equation. We are also beginning to see greater amounts of
development in many property sectors due to the fact that rental rates have
recovered greatly. In many cases, the new development is justified. We do not
yet feel that we are at a level of development that will bring about the demise
of this cycle; nonetheless, it is incumbent upon us to be alert and increasingly
careful in our company analysis and stock selection. For example, in calculating
the net asset value for some of the Southeastern multi-family companies, we have
computed a greater vacancy rate, because certain markets in this region have
excess supply. In addition, we are attempting to focus our investments in
companies that have a Northeastern or West Coast focus when possible; these are
markets in which is it very difficult to develop, so we believe the
supply-and-demand balance will remain in check.
In conclusion, we believe that, as the real estate cycle ages, understanding the
underlying real estate value of these securities will become increasingly
important. In this environment, we feel strongly that our value style of
investing will prevail.
/s/ RUSSEL C. PLATT /s/ THEODORE R. BIGMAN
Russel C. Platt Theodore R. Bigman
Portfolio Manager Portfolio Manager
A-11
<PAGE> 49
PORTFOLIO HIGHLIGHTS
VAN KAMPEN AMERICAN CAPITAL
REAL ESTATE SECURITIES FUND
TOP TEN HOLDINGS AS A PERCENTAGE OF LONG TERM INVESTMENTS
<TABLE>
<CAPTION>
AS OF AS OF
JUNE 30, 1997 DECEMBER 31, 1997
<S> <C> <C>
Taubman Centers, Inc. ......... 5.5% ................... 1.9%
Chateau Properties, Inc. ...... 4.8% ................... 5.5%
Arden Realty Group, Inc. ...... 4.7% ................... 2.3%
Nationwide Health Properties,
Inc. ........................ 4.7% ................... 4.8%
Bay Apartment Communities,
Inc. ........................ 4.3% ................... 3.5%
Host Marriott Corp. ........... 4.2% ................... 2.1%
Essex Property Trust,
Inc. ........................ 4.0% ................... 4.0%
Pacific Gulf Properties,
Inc. ........................ 3.8% ................... 2.6%
Capstar Hotel Co. ............. 3.7% ................... N/A
Brandywine Realty Trust ....... 3.6% ................... 3.7%
</TABLE>
N/A=Not Applicable
TOP FIVE PORTFOLIO SECTORS AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997 AS OF JUNE 30, 1997
<S> <C> <C> <C>
Office/Industrial.......... 28.9% Office/Industrial.......... 25.2%
Apartments................. 19.5% Apartments................. 19.6%
Hotel & Lodging............ 11.3% Hotel & Lodging............ 13.9%
Shopping Malls............. 10.7% Shopping Malls............. 11.1%
Shopping Centers........... 7.4% Healthcare Facilities...... 10.4%
</TABLE>
A-12
<PAGE> 50
Management's Discussion of the U.S. Real Estate Fund's Performance as of the
Annual Report dated June 30, 1998.
LETTER TO SHAREHOLDERS
VAN KAMPEN
U.S. REAL ESTATE FUND
INVESTMENT OVERVIEW
(UNAUDITED)
COMPOSITION OF NET ASSETS (AT JUNE 30, 1998)
<TABLE>
<S> <C>
DIVERSIFIED 7.5
LAND 0.5
LODGING/RESORTS 8.5
OFFICE/INDUSTRIAL 37.8
RESIDENTIAL 19.5
RETAIL 17.4
SELF STORAGE 4.3
SHORT-TERM INVEST-
MENT 1.5
OTHER 3.0
</TABLE>
A-13
<PAGE> 51
<TABLE>
<CAPTION>
TOTAL RETURNS**
----------------------------------------
AVERAGE ANNUAL
ONE YEAR SINCE INCEPTION
------------------ ------------------
WITH WITHOUT WITH WITHOUT
SALES SALES SALES SALES
CHARGE* CHARGE CHARGE* CHARGE
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares 2.04% 8.27% 18.66% 21.93%
- ------------------------------------------------------------------------------
Class B Shares 2.48% 7.23% 19.75% 20.86%
- ------------------------------------------------------------------------------
Class C Shares 6.24% 7.20% 20.87% 20.87%
- ------------------------------------------------------------------------------
NAREIT Equity Index N/A 8.05% N/A 20.69%
- ------------------------------------------------------------------------------
</TABLE>
* The returns above are calculated using the applicable sales charge for Class
A shares and the applicable deferred sales charge for Class B and Class C
shares.
** Total returns for the Fund reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waivers and reimbursements, total
returns would be lower.
The NAREIT Equity Index is an unmanaged market weighted index of tax qualified
REITs listed on the New York Stock Exchange, American Stock Exchange and the
NASDAQ National Market System, including dividends.
A-14
<PAGE> 52
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
<TABLE>
<CAPTION>
MEASUREMENT
PERIOD
(FISCAL U.S. REAL U.S. REAL U.S. REAL
YEAR ESTATE FUND - ESTATE FUND - ESTATE FUND - NAREIT
COVERED) CLASS A CLASS B CLASS C EQUITY INDEX
<S> <C> <C> <C> <C>
5/1/96 9500 10000 10000 10000
6/30/96 9965 9954 10372 10289
6/30/97 13528 13669 14067 12854
6/30/98 14496 15086 15088 13133
</TABLE>
TOP FIVE HOLDINGS
<TABLE>
<CAPTION>
PERCENT OF
ISSUER INDUSTRY NET ASSETS
- -----------------------------------------------------------------------------
<S> <C> <C>
Arden Realty Group, Inc. Office/Industrial 5.1%
- -----------------------------------------------------------------------------
Chateau Communities, Inc. REIT Residential 5.0%
- -----------------------------------------------------------------------------
CarrAmerica Realty Corp. REIT Office/Industrial 4.9%
- -----------------------------------------------------------------------------
Starwood Lodging Trust REIT Lodging/Resorts 4.6%
- -----------------------------------------------------------------------------
Brookfield Properties Corp. Office 4.4%
- -----------------------------------------------------------------------------
</TABLE>
TOP FIVE SECTORS
<TABLE>
<CAPTION>
PERCENT
OF
VALUE NET
SECTOR (000) ASSETS
- ---------------------------------------------------------------------------
<S> <C> <C>
Office/Industrial $13,718 37.8%
- ---------------------------------------------------------------------------
Residential 7,061 19.5%
- ---------------------------------------------------------------------------
Retail 6,319 17.4%
- ---------------------------------------------------------------------------
Lodging/Resorts 3,071 8.5%
- ---------------------------------------------------------------------------
Diversified 2,716 7.5%
- ---------------------------------------------------------------------------
</TABLE>
In accordance with SEC regulations, Fund performance since inception as shown at
left assumes that: the maximum sales charge was deducted from the initial
investment of $10,000 in Class A shares; the maximum deferred sales charge was
deducted from the value of the investment of $10,000 in Class B and Class C
shares; all recurring fees (including management fees) were deducted; and all
dividends and distributions were reinvested.
Past performance is not predictive of future performance.
A-15
<PAGE> 53
The investment objective of the Van Kampen U.S. Real Estate Fund, formerly the
Morgan Stanley U.S. Real Estate Fund, is to provide above-average current income
and long-term capital appreciation by investing primarily in equity securities
of companies in the U.S. real estate industry, including real estate investment
trusts.
For the year ended June 30, 1998, the Fund had a total return of 8.27 percent
for the Class A shares at net asset value (NAV), as compared to 8.05 percent for
the National Association of Real Estate Investment Trusts (NAREIT) Equity Index.
Following a difficult first quarter, the second quarter provided very little
improvement for REIT investors. The NAREIT Equity Index declined 4.59 percent
for the quarter, and was down 5.03 percent at the end of the reporting period.
This represents the first time that the REIT market provided a negative total
return on a quarterly basis since the first quarter of 1995. As is the pattern
in the REIT market, the second half of the year provides the majority of the
performance; this was true in the second half of 1997, with third and fourth
quarter returns of 11.8 percent and 1.8 percent, respectively.
In the first quarter, the key reason for the difficulties in REIT prices
appeared to be technical -- the continued strength in the U.S. equity market led
many non-dedicated real estate investors to move funds to the broad market from
the REIT sector. In the second quarter, however, the continuation of price
weakness led to a greater focus on real estate fundamentals. As the U.S. real
estate cycle continues to age, the level of new construction has begun to raise
concerns among real estate industry participants. Specifically, markets are
being gauged for a view as to when supply will surpass demand. Since the public
market tends to look to the future, we can expect multiples to contract in
anticipation of a deterioration in fundamentals.
After three years of strong performance, the sector is faced with competing
rallying cries of both REIT bulls and bears. One group of analysts finds value
in the sector by demonstrating the large disparity between the relative average
multiple of the S&P 500 versus REITs. These analysts cite REITs for providing
defensive characteristics and portfolio diversification. The bears point to the
cyclical nature of the real estate asset class and argue that multiples have
begun to contract in anticipation of a slowdown in the rate of return in U.S.
commercial real estate and an eventual downturn in capital values. Other
favorite criticisms advanced by the bears include the notion that the REIT
sector's reliance on raising equity capital to grow creates a supply-demand
imbalance for REIT shares, thus keeping a ceiling on share prices. This opinion
reflects the idea that non-dedicated investors will continue to avoid the
sector; in addition, it is not clear how much demand will be provided by
value-oriented investors or those investors searching for defensive vehicles.
A-16
<PAGE> 54
As we have discussed, the multifamily and industrial markets have already
achieved equilibrium, with limited pockets of current supply problems. Despite a
rapidly accelerating pace of new office development, the potential for
widespread occupancy pressures from this sector does not appear on the horizon
until 1999 or 2000. New development is confined primarily to sunbelt suburban
locations and is only lightly scattered in a number of central business
districts. In the hotel sector, although recent concerns were focused on the
limited service segment of the market, the cautionary yellow flag is now being
waved for each of the categories. The reason that potential oversupply in the
hotel sector creates greater concern than in other sectors is that the typical
lease in a hotel is only one night, creating the potential for a rapid
deterioration of the operating environment. In light of the strong economy,
retail sales have been buoyant, leading to strong results for retailers and
greater demand to open new stores. We expect new development to meet this
demand.
It is not surprising that the equity offering calendar has become very light,
and that the few deals that were completed in the quarter were priced at far
lower levels than were desired by issuers. This is in contrast to 1997, which
featured a record level of new equity issuance. Given current valuations, we
expect that a number of the IPOs that have been filed will be postponed until
the market recovers. In addition, a number of companies that made large
acquisitions and that expected to complete equity follow-on offerings need to
carefully study alternative options. Clearly, if current pricing levels persist,
the rapid pace of equity securitization will slow as companies become reluctant
or unable to raise equity capital to finance their growth. This should apply to
acquisitions financed by cash as well as to the trend of trading property for
shares with institutional investors and private companies. Finally, we expect
that the merger environment may heat up, given that some companies are trading
at or below valuation levels that approximate their private real estate value.
The current market also may require a change of focus by the majority of the
REIT analyst community. The recent focus has been on setting targets for a
company's annual acquisitions pace and utilizing these targets to establish
estimates of funds from operations (FFO) per share. Since this analysis is
highly dependent on projecting future equity issuance and the corresponding
price for that issuance, current FFO estimates have become suspect. Our style of
focusing on NAV per share does not face this issue. However, to the extent that
we have attributed some portion of the NAV to "development value," we must
analyze the feasibility of a REIT completing its identified projects. We have
spent considerable time discussing the attitude of management toward enhancing
shareholder value by focusing on internal growth, development and redevelopment
of assets, stock buybacks, and the sale of non-strategic assets.
A-17
<PAGE> 55
The REIT market has come under pressure by selling from non-dedicated
investors. These investors were heavily concentrated in larger-capitalization
companies, particularly those focusing in the office and hotel sectors (which
were the two best-performing sectors over the last three years). We have
continued to shape the portfolio with companies that we feel offer attractive
fundamental valuations relative to their underlying real estate value. As a
result, we added a number of large-cap companies that have faced the greatest
price compression. From a top-down perspective, we significantly added to the
office sector as a result of price declines. Previously, we attempted to
overweight the office sector due to favorable fundamentals, but lofty prices
caused us to temper that overweighting. High prices in the office sector were
the result of external growth expectations, which are in the process of being
downgraded. Despite price pressure in the hotel sector, we modestly decreased
our exposure due to the concerns discussed above. In order to pay for additions
to the office sector, we decreased our exposure to both multifamily and health
care. These two sectors were modestly valued and did not suffer the same
declines in share price.
IMPORTANT FUND UPDATE
On October 23, 1997, the Trustees of the Fund approved its reorganization into
the Van Kampen Real Estate Securities Fund. Upon shareholder approval, the
reorganization of the Fund is expected to take place prior to December 31, 1998.
More information about the reorganization will be forwarded to you in a proxy
statement in the near future.
Your Fund and the Van Kampen Real Estate Securities Fund have substantially
similar investment objectives, policies and practices, and are managed by the
same portfolio management team. The Van Kampen Fund's investment objective is to
provide shareholders with long-term growth of capital, with current income as a
secondary objective.
Russell Platt
Portfolio Manager
Theodore R. Bigman
Portfolio Manager
A-18
<PAGE> 56
FUND SHAREHOLDERS--
FOR INFORMATION ON YOUR
EXISTING ACCOUNT PLEASE CALL
THE FUND'S TOLL-FREE
NUMBER--(800) 421-5666.
DEALERS--FOR INFORMATION
WITH RESPECT TO THE
REORGANIZATION CALL THE
DISTRIBUTOR'S TOLL-FREE
NUMBER--(800) 421-5666.
FOR SHAREHOLDER AND
DEALER INQUIRIES THROUGH
TELECOMMUNICATIONS
DEVICE FOR THE DEAF (TDD)
DIAL (800) 772-8889.
FOR AUTOMATED TELEPHONE
SERVICES DIAL (800) 421-5684.
VAN KAMPEN
REAL ESTATE SECURITIES FUND
1 Parkview Plaza
Oakbrook Terrace, IL 60181-5555
Investment Adviser of the VK Real Estate Securities Fund
VAN KAMPEN
ASSET MANAGEMENT INC.
1 Parkview Plaza
Oakbrook Terrace, IL 60181-5555
Distributor of the VK Real Estate Securities Fund
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
Oakbrook Terrace, IL 60181-5555
Transfer Agent of the VK Real Estate Fund
VAN KAMPEN INVESTOR SERVICES INC.
P.O. Box 418256
Kansas City, MO 64141-9256
Custodian of the VK Real Estate Securities Fund
STATE STREET BANK AND
TRUST COMPANY
225 Franklin Street, P.O. Box 1713
Boston, MA 02105-1713
Legal Counsel of the VK Real Estate Securities Fund
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
Independent Accountants of the VK Real Estate Securities Fund
PRICEWATERHOUSECOOPERS LLP
200 East Randolph
Chicago, IL 60601
<PAGE> 57
PROSPECTUS/PROXY STATEMENT
VAN KAMPEN REAL ESTATE SECURITIES FUND
RELATING TO THE ACQUISITION OF ASSETS AND LIABILITIES OF
VAN KAMPEN U.S. REAL ESTATE FUND
NOVEMBER 4, 1998
------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PROPOSAL 1: THE PROPOSED REORGANIZATION............................. 3
A. SUMMARY..................................................... 3
The Reorganization........................................ 3
Reasons for the Proposed Reorganization................... 4
Comparison of the VK Real Estate Securities Fund and the
U.S. Real Estate Fund................................... 6
B. RISK FACTORS................................................ 20
Similarity of Risks....................................... 20
Differences in Risks...................................... 21
C. THE PROPOSED REORGANIZATION................................. 22
Terms of the Agreement.................................... 22
Description of Securities to be Issued.................... 23
Continuation of Shareholder Accounts and Plans; Share
Certificates.............................................. 24
Federal Income Tax Consequences........................... 24
Expenses.................................................. 26
Ratification of Investment Objective, Investment Policies
and Investment Restrictions of the VK Real Estate
Securities Fund......................................... 27
Legal Matters............................................. 27
D. RECOMMENDATION OF THE BOARD................................. 27
OTHER INFORMATION................................................... 27
A. SHAREHOLDERS OF THE VK REAL ESTATE SECURITIES FUND AND THE
U.S. REAL ESTATE FUND..................................... 27
B. SHAREHOLDER PROPOSALS....................................... 28
VOTING INFORMATION AND REQUIREMENTS................................. 28
EXHIBIT A: MANAGEMENT'S DISCUSSION OF VK REAL ESTATE SECURITIES FUND
AND U.S. REAL ESTATE FUND PERFORMANCE............................. A-1
</TABLE>
VAN KAMPEN FUNDS LOGO
<PAGE> 58
-----------------------------------------------------------------------------
Real Estate
-----------------------------------------------------------------------------
<PAGE> 59
- --------------------------------------------------------------------------------
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> 60
- ------------------------------------------------------------------------------
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> 61
- ------------------------------------------------------------------------------
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> 62
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> 63
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> 64
- ------------------------------------------------------------------------------
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> 65
- ------------------------------------------------------------------------------
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> 66
<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> 67
- --------------------------------------------------------------------------------
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> 68
- --------------------------------------------------------------------------------
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.
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<PAGE> 69
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THE FUND
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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.
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INVESTMENT OBJECTIVES AND POLICIES
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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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<PAGE> 70
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> 71
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
13
<PAGE> 72
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> 73
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
- ------------------------------------------------------------------------------
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
15
<PAGE> 74
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> 75
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
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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
18
<PAGE> 77
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> 78
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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INVESTMENT ADVISORY SERVICES
- ------------------------------------------------------------------------------
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> 80
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.
- ------------------------------------------------------------------------------
ALTERNATIVE SALES ARRANGEMENTS
- ------------------------------------------------------------------------------
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> 81
$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> 82
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> 83
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
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<PAGE> 84
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> 85
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> 86
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> 87
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> 88
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> 89
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> 90
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> 91
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.
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<PAGE> 92
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
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<PAGE> 93
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.
- ------------------------------------------------------------------------------
SHAREHOLDER SERVICES
- ------------------------------------------------------------------------------
The Fund offers a number of shareholder services designed to facilitate
investment in its shares at little or no extra cost to the investor. 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
35
<PAGE> 94
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
36
<PAGE> 95
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> 96
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> 97
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.
- ------------------------------------------------------------------------------
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> 98
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.
40
<PAGE> 99
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
41
<PAGE> 100
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
42
<PAGE> 101
American Capital Trust Company for repayment of principal, and interest, on
their borrowings on such plans.
- ------------------------------------------------------------------------------
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> 102
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
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<PAGE> 103
Fund would seek alternate providers and expects that shareholders would not
experience any disadvantage.
- ------------------------------------------------------------------------------
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."
- ------------------------------------------------------------------------------
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
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<PAGE> 104
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> 105
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> 106
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> 107
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> 108
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.
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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> 109
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.
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<PAGE> 110
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.
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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.
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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> 113
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> 114
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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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
EXISTING SHAREHOLDERS--
FOR INFORMATION ON YOUR Custodian
EXISTING ACCOUNT PLEASE CALL
THE FUND'S TOLL-FREE STATE STREET BANK AND
NUMBER--(800) 341-2911 TRUST COMPANY
225 West Franklin Street
PROSPECTIVE INVESTORS--CALL P.O. Box 1713
YOUR BROKER OR (800) 421-5666 Boston, MA 02105-1713
Attn: Van Kampen American Capital Real
DEALERS--FOR DEALER Estate Securities Fund
INFORMATION, SELLING
AGREEMENTS, WIRE ORDERS, Legal Counsel
OR REDEMPTIONS CALL THE
DISTRIBUTOR'S TOLL-FREE SKADDEN, ARPS, SLATE
NUMBER--(800) 421-5666 MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
FOR SHAREHOLDER AND Chicago, IL 60606
DEALER INQUIRIES THROUGH
TELECOMMUNICATIONS Independent Accountants
DEVICE FOR THE DEAF (TDD)
DIAL (800) 421-2833 PRICE WATERHOUSE LLP
200 East Randolph Drive
FOR AUTOMATED TELEPHONE Chicago, IL 60601
SERVICES
DIAL (800) 847-2424
<PAGE> 116
------------------------------------------------------------------------------
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> 117
SUPPLEMENT DATED JULY 14, 1998 TO THE
PROSPECTUS DATED SEPTEMBER 28, 1997, AS PREVIOUSLY SUPPLEMENTED ON
JANUARY 2, 1998 AND MARCH 9, 1998
VKAC GLOBAL GOVERNMENT SECURITIES FUND
PROSPECTUS DATED SEPTEMBER 28, 1997, AS PREVIOUSLY SUPPLEMENTED ON
MARCH 9, 1998
VKAC RESERVE FUND
PROSPECTUS DATED OCTOBER 28, 1997, AS PREVIOUSLY SUPPLEMENTED ON
JANUARY 2, 1998 AND MARCH 9, 1998
VKAC SHORT-TERM GLOBAL INCOME FUND
VKAC STRATEGIC INCOME FUND
VKAC UTILITY FUND
VKAC PROSPECTOR FUND
MORGAN STANLEY EMERGING MARKETS DEBT FUND
MORGAN STANLEY GLOBAL FIXED INCOME FUND
MORGAN STANLEY HIGH YIELD FUND
MORGAN STANLEY WORLDWIDE HIGH INCOME FUND
MORGAN STANLEY GROWTH AND INCOME FUND
MORGAN STANLEY EUROPEAN EQUITY FUND
PROSPECTUS DATED OCTOBER 28, 1997, AS PREVIOUSLY SUPPLEMENTED ON
JANUARY 2, 1998, MARCH 9, 1998 AND MARCH 13, 1998
VKAC HIGH YIELD FUND
PROSPECTUS DATED OCTOBER 28, 1997, AS PREVIOUSLY SUPPLEMENTED ON
JANUARY 2, 1998, MARCH 9, 1998 AND MARCH 25, 1998
VKAC AGGRESSIVE GROWTH FUND
PROSPECTUS DATED OCTOBER 28, 1997, AS PREVIOUSLY SUPPLEMENTED ON
JANUARY 2, 1998, MARCH 9, 1998 AND APRIL 21, 1998
MORGAN STANLEY AGGRESSIVE EQUITY FUND
MORGAN STANLEY AMERICAN VALUE FUND
MORGAN STANLEY MID CAP GROWTH FUND
MORGAN STANLEY U.S. REAL ESTATE FUND
MORGAN STANLEY VALUE FUND
MORGAN STANLEY ASIAN GROWTH FUND
MORGAN STANLEY EMERGING MARKETS FUND
MORGAN STANLEY GLOBAL EQUITY FUND
MORGAN STANLEY GLOBAL EQUITY ALLOCATION FUND
MORGAN STANLEY INTERNATIONAL MAGNUM FUND
MORGAN STANLEY JAPANESE EQUITY FUND
MORGAN STANLEY LATIN AMERICAN FUND
<PAGE> 118
PROSPECTUS DATED OCTOBER 28, 1997, AS PREVIOUSLY SUPPLEMENTED ON
JANUARY 2, 1998, MARCH 9, 1998, APRIL 23, 1998 AND MAY 12, 1998
VKAC GREAT AMERICAN COMPANIES FUND
PROSPECTUS DATED OCTOBER 28, 1997, AS PREVIOUSLY SUPPLEMENTED ON
JANUARY 2, 1998, MARCH 9, 1998 AND MAY 12, 1998
VKAC GROWTH FUND
VKAC PACE FUND
PROSPECTUS DATED OCTOBER 28, 1997, AS PREVIOUSLY SUPPLEMENTED ON
MARCH 9, 1998
VKAC TAX FREE MONEY FUND
PROSPECTUS DATED DECEMBER 29, 1997, AS PREVIOUSLY SUPPLEMENTED ON
JANUARY 2, 1998 AND MARCH 9, 1998
VKAC CORPORATE BOND FUND
VKAC EMERGING GROWTH FUND
VKAC HIGH INCOME CORPORATE BOND FUND
PROSPECTUS DATED JANUARY 28, 1998, AS PREVIOUSLY SUPPLEMENTED ON
MARCH 9, 1998
VKAC U.S. GOVERNMENT TRUST FOR INCOME
PROSPECTUS DATED FEBRUARY 17, 1998
VKAC SMALL CAPITALIZATION FUND
PROSPECTUS DATED MARCH 30, 1998
VKAC GROWTH AND INCOME FUND
VKAC HIGH YIELD MUNICIPAL FUND
PROSPECTUS DATED APRIL 27, 1998
VKAC FOREIGN SECURITIES FUND
PROSPECTUS DATED APRIL 30, 1998
VKAC U.S. GOVERNMENT FUND
VKAC INSURED TAX FREE INCOME FUND
VKAC CALIFORNIA INSURED TAX FREE FUND
VKAC TAX FREE HIGH INCOME FUND
VKAC MUNICIPAL INCOME FUND
VKAC INTERMEDIATE TERM MUNICIPAL INCOME FUND
VKAC FLORIDA INSURED TAX FREE INCOME FUND
VKAC NEW YORK TAX FREE INCOME FUND
VKAC PENNSYLVANIA TAX FREE INCOME FUND
VKAC COMSTOCK FUND
VKAC EQUITY INCOME FUND
VKAC GLOBAL MANAGED ASSETS FUND
VKAC GOVERNMENT SECURITIES FUND
VKAC HARBOR FUND
VKAC LIFE INVESTMENT TRUST
<PAGE> 119
VKAC LIMITED MATURITY GOVERNMENT FUND
VKAC REAL ESTATE SECURITIES FUND
PROSPECTUS DATED APRIL 30, 1998, AS PREVIOUSLY SUPPLEMENTED ON
MAY 12, 1998
VKAC ENTERPRISE FUND
VKAC LIFE INVESTMENT TRUST
The Board of Trustees or the Board of Directors, as the case may be (the
"Board"), of each of the funds listed above (the "Funds") recently approved
changing the name of each Fund. The Funds' name changes coincide with recent
name changes affecting the Funds' investment advisers, distributor and
shareholder service/transfer agent as well as the name of the parent corporation
for such entities. As shown below, each of these Van Kampen-related service
providers is truncating or changing its name to coordinate and simplify the
mutual fund operations under the Van Kampen brand name. Likewise, the Board
approved similarly changing the names of the existing Van Kampen American
Capital retail open-end funds and the existing Morgan Stanley retail open-end
funds which are serviced by these Van Kampen-related service providers also to
emphasize the Van Kampen brand name and better coordinate the Van Kampen family
of funds. For Funds organized as business trusts (or series of business trusts)
or corporations (or series of corporations), the Board authorized name changes
to the respective business trust names or corporation names in addition to
changing the Funds' names.
Effective July 14, 1998, all references in the attached prospectus to the
names of Van Kampen-related service providers (and their parent) and the Fund
name and, where applicable, the business trust or corporate name of which the
Fund is a series, will refer to the new names shown in the schedule below.
<TABLE>
<CAPTION>
CURRENT SERVICE PROVIDER NAME NEW SERVICE PROVIDER NAME
----------------------------- -------------------------
<S> <C>
Van Kampen American Capital, Inc. Van Kampen Investments Inc.
Van Kampen American Capital Asset Management, Inc. Van Kampen Asset Management Inc.
Van Kampen American Capital Investment Advisory Corp. Van Kampen Investment Advisory Corp.
Van Kampen American Capital Distributors, Inc. Van Kampen Funds Inc.
ACCESS Investor Services, Inc. Van Kampen Investor Services Inc.
CURRENT NAME NEW NAME
------------ --------
Van Kampen American Capital U.S. Government Trust Van Kampen U.S. Government Trust
Van Kampen American Capital U.S. Government Fund Van Kampen U.S. Government Fund
Van Kampen American Capital Tax Free Trust Van Kampen Tax Free Trust
Van Kampen American Capital Insured Tax Free Income Fund Van Kampen Insured Tax Free Income Fund
Van Kampen American Capital Tax Free High Income Fund Van Kampen Tax Free High Income Fund
Van Kampen American Capital California Insured Tax Free Van Kampen California Insured Tax Free Fund
Fund
Van Kampen American Capital Municipal Income Fund Van Kampen Municipal Income Fund
Van Kampen American Capital Intermediate Term Municipal Van Kampen Intermediate Term Municipal Income Fund
Income Fund
Van Kampen American Capital Florida Insured Tax Free Income Van Kampen Florida Insured Tax Free Income Fund
Fund
Van Kampen American Capital New York Tax Free Income Fund Van Kampen New York Tax Free Income Fund
Van Kampen American Capital Trust Van Kampen Trust
Van Kampen American Capital High Yield Fund Van Kampen High Yield Fund
Van Kampen American Capital Short-Term Global Income Fund Van Kampen Short-Term Global Income Fund
Van Kampen American Capital Strategic Income Fund Van Kampen Strategic Income Fund
Van Kampen American Capital Equity Trust Van Kampen Equity Trust
Van Kampen American Capital Utility Fund Van Kampen Utility Fund
Van Kampen American Capital Great American Companies Fund Van Kampen Great American Companies Fund
Van Kampen American Capital Growth Fund Van Kampen Growth Fund
Van Kampen American Capital Prospector Fund Van Kampen Prospector Fund
Van Kampen American Capital Aggressive Growth Fund Van Kampen Aggressive Growth Fund
Van Kampen American Capital Pennsylvania Tax Free Income Van Kampen Pennsylvania Tax Free Income
Fund Fund
Van Kampen American Capital Tax Free Money Fund Van Kampen Tax Free Money Fund
Van Kampen American Capital Foreign Securities Fund Van Kampen Foreign Securities Fund
Van Kampen American Capital Comstock Fund Van Kampen Comstock Fund
Van Kampen American Capital Corporate Bond Fund Van Kampen Corporate Bond Fund
</TABLE>
<PAGE> 120
<TABLE>
<CAPTION>
CURRENT NAME NEW NAME
------------ --------
<S> <C>
Van Kampen American Capital Emerging Growth Fund Van Kampen Emerging Growth Fund
Van Kampen American Capital Enterprise Fund Van Kampen Enterprise Fund
Van Kampen American Capital Equity Income Fund Van Kampen Equity Income Fund
Van Kampen American Capital Global Managed Assets Fund Van Kampen Global Managed Assets Fund
Van Kampen American Capital Government Securities Fund Van Kampen Government Securities Fund
Van Kampen American Capital Growth and Income Fund Van Kampen Growth and Income Fund
Van Kampen American Capital Harbor Fund Van Kampen Harbor Fund
Van Kampen American Capital High Income Corporate Bond Fund Van Kampen High Income Corporate Bond Fund
Van Kampen American Capital Life Investment Trust Van Kampen Life Investment Trust
Van Kampen American Capital Limited Maturity Government Fund Van Kampen Limited Maturity Government Fund
Van Kampen American Capital Pace Fund Van Kampen Pace Fund
Van Kampen American Capital Real Estate Securities Fund Van Kampen Real Estate Securities Fund
Van Kampen American Capital Reserve Fund Van Kampen Reserve Fund
Van Kampen American Capital Small Capitalization Fund Van Kampen Small Capitalization Fund
Van Kampen American Capital Tax-Exempt Trust Van Kampen Tax-Exempt Trust
Van Kampen American Capital High Yield Municipal Fund Van Kampen High Yield Municipal Fund
Van Kampen American Capital U.S. Government Trust for Income Van Kampen U.S. Government Trust for Income
Van Kampen American Capital World Portfolio Series Trust Van Kampen World Portfolio Series Trust
Van Kampen American Capital Global Government Securities Van Kampen Global Government Securities Fund
Fund
Morgan Stanley Fund, Inc. Van Kampen Series Fund, Inc.
Morgan Stanley Aggressive Equity Fund Van Kampen Aggressive Equity Fund
Morgan Stanley American Value Fund Van Kampen American Value Fund
Morgan Stanley Asian Growth Fund Van Kampen Asian Growth Fund
Morgan Stanley Emerging Markets Fund Van Kampen Emerging Markets Fund
Morgan Stanley Emerging Markets Debt Fund Van Kampen Emerging Markets Debt Fund
Morgan Stanley European Equity Fund Van Kampen European Equity Fund
Morgan Stanley Global Equity Fund Van Kampen Global Equity Fund
Morgan Stanley Global Equity Allocation Fund Van Kampen Global Equity Allocation Fund
Morgan Stanley Global Fixed Income Fund Van Kampen Global Fixed Income Fund
Morgan Stanley Growth and Income Fund Van Kampen Growth and Income Fund II
Morgan Stanley High Yield Fund Van Kampen High Yield & Total Return Fund
Morgan Stanley International Magnum Fund Van Kampen International Magnum Fund
Morgan Stanley Japanese Equity Fund Van Kampen Japanese Equity Fund
Morgan Stanley Latin American Fund Van Kampen Latin American Fund
Morgan Stanley Mid Cap Growth Fund Van Kampen Mid Cap Growth Fund
Morgan Stanley U.S. Real Estate Fund U.S. Real Estate Fund
Morgan Stanley Value Fund Van Kampen Value Fund
Morgan Stanley Worldwide High Income Fund Van Kampen Worldwide High Income Fund
</TABLE>
<PAGE> 121
VAN KAMPEN REAL ESTATE SECURITIES FUND
SUPPLEMENT DATED AUGUST 28, 1998 TO THE PROSPECTUS DATED APRIL 30, 1998,
AS PREVIOUSLY SUPPLEMENTED ON JULY 14, 1998.
The prospectus, as previously supplemented, is being further amended and
supplemented to reflect the Board of Trustees appointment of Morgan Stanley
Asset Management Inc. ("MSAM") as Subadviser to the Fund effective October 1,
1998. The addition of MSAM will not impact the Fund's portfolio management team
or the day to day management of the Fund and will not result in any increase of
the Fund's expenses. The Prospectus is amended and supplemented as follows:
The section of the Prospectus captioned "Prospectus Summary" is hereby
amended with the following:
INVESTMENT ADVISERS. Van Kampen Asset Management Inc. (the "Adviser") is
the Fund's investment adviser. Morgan Stanley Asset Management Inc. (the
"Subadviser") provides sub-advisory services to the Adviser.
The first and second paragraphs of the section of the Prospectus captioned
"INVESTMENT ADVISORY SERVICES" is hereby supplemented with the following:
ADVISORY AGREEMENTS. The Fund retains the Adviser to manage the investment
of its assets and to place orders for the purchase and sale of its portfolio
securities. The Adviser has entered into a sub-advisory agreement (the
"Sub-advisory Agreement") with the Subadviser to assist it in performing its
investment advisory functions. 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 Fund's Trustees believe it is
justified by the special international nature of the Fund and its asset
allocation features and it is not necessarily higher than the fees charged by
certain mutual funds with an investment objective and investment 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 shareholder service
agency fees, 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, Investor Services, Van Kampen or Morgan Stanley Dean
Witter & Co.), and all other business expenses not specifically assumed by the
Adviser. Advisory (management) fees and total operating expense ratios are shown
under the caption "Annual Fund Operating Expenses and Example" herein. Pursuant
to the Sub-advisory Agreement, the Subadvisory receives on an annual basis 50%
of the compensation received by the Adviser.
From time to time as the Adviser, the Subadviser or the Distributor may
deem appropriate, they 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 be established.
The section of the Prospectus captioned "INVESTMENT ADVISORY SERVICES"
hereby is supplemented by adding the following:
THE SUBADVISER. The Subadviser is a wholly-owned subsidiary of Morgan
Stanley Group, Inc. and is an affiliate of the Adviser. The Subadviser provides
portfolio management and named fiduciary services to various closed-end and
open-end investment companies, taxable and nontaxable institutions,
international equities and fixed income securities. At June 30, 1998, the
Subadviser had, together with its affiliated investment management companies,
assets under management (including assets under fiduciary advisory control)
totaling approximately $167 billion. The Subadviser is a leader in the real
estate capital markets with 25 years of real estate financing experience. The
Subadviser has dedicated over 200 employees worldwide to real estate securities
research and market analysis and manages over $4 billion in private real estate
investment partnerships. The Subadviser also draws upon the research
capabilities of Morgan Stanley Group Inc. and its other affiliates as well as
the research and investment ideas of other companies whose brokerage services
the Subadviser utilizes. The address of the Subadviser is 1221 Avenue of the
Americas, New York, New York 10020.
REAL SPT 898
<PAGE> 122
Information contained herein is subject to completion or
amendment. A registration statement relating to these securities
has been filed with the Securities and Exchange Commission. These
securities may not be sold nor may offers to buy be accepted prior
to the time the registration statement becomes effective. This
Statement of Additional Information does not constitute a
prospectus.
SUBJECT TO COMPLETION -- DATED NOVEMBER 4, 1998
VAN KAMPEN REAL ESTATE SECURITIES FUND
1 PARKVIEW PLAZA
OAKBROOK TERRACE, ILLINOIS 60181-5555
(800) 421-5666
---------------------
STATEMENT OF ADDITIONAL INFORMATION
VAN KAMPEN REAL ESTATE SECURITIES FUND
RELATING TO THE ACQUISITION OF ASSETS AND LIABILITIES OF
VAN KAMPEN U.S. REAL ESTATE FUND
DATED NOVEMBER 4, 1998
---------------------
This Statement of Additional Information provides information about the Van
Kampen Real Estate Securities Fund, formerly known as Van Kampen American
Capital Real Estate Securities Fund (the "VK Real Estate Securities Fund"), an
open-end management investment company organized as a Delaware business trust,
in addition to information contained in the Prospectus/Proxy Statement of the VK
Real Estate Securities Fund, dated November 4, 1998, which also serves as the
proxy statement of the Van Kampen U.S. Real Estate Fund, formerly known as
Morgan Stanley U.S. Real Estate Fund (the "U.S. Real Estate Fund"), a series of
the Van Kampen Series Fund, Inc., an open-end management investment company
organized as a Maryland corporation ("Series Fund"), in connection with the
issuance of Class A, B and C shares of the VK Real Estate Securities Fund to
shareholders of the U.S. Real Estate Fund. This Statement of Additional
Information is not a prospectus. It should be read in conjunction with the
Prospectus/Proxy Statement, into which it has been incorporated by reference and
which may be obtained by contacting the VK Real Estate Securities Fund located
at 1 Parkview Plaza, Oakbrook Terrace, Illinois 60181-5555 (telephone no. (630)
684-6000 or (800) 421-5666).
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Proposed Reorganization of the U.S. Real Estate Fund........ 2
Additional Information About the VK Real Estate Securities
Fund...................................................... 2
Additional Information About the U.S. Real Estate Fund...... 2
Financial Statements........................................ 2
</TABLE>
The VK Real Estate Securities Fund will provide, without charge, upon the
written or oral request of any person to whom this Statement of Additional
Information is delivered, a copy of any and all documents that have been
incorporated by reference in the registration statement of which this Statement
of Additional Information is a part.
1
<PAGE> 123
PROPOSED REORGANIZATION OF THE U.S. REAL ESTATE FUND
The shareholders of the U.S. Real Estate Fund are being asked to approve an
acquisition of all the assets of the U.S. Real Estate Fund solely in exchange
for Class A, B and C shares of the VK Real Estate Securities Fund and the VK
Real Estate Securities Fund's assumption of the liabilities of the U.S. Real
Estate Fund (the "Reorganization") pursuant to an Agreement and Plan of
Reorganization by and between the VK Real Estate Securities Fund and the Series
Fund, on behalf of the U.S. Real Estate Fund (the "Agreement"). A copy of the
form of the Agreement is attached hereto as Appendix A.
ADDITIONAL INFORMATION ABOUT THE VK REAL ESTATE SECURITIES FUND
Incorporated herein by reference in its entirety is the Statement of
Additional Information of the VK Real Estate Securities Fund, dated April 30,
1998, as supplemented, attached as Appendix B to this Statement of Additional
Information.
ADDITIONAL INFORMATION ABOUT THE U.S. REAL ESTATE FUND
Incorporated herein by reference in its entirety is the Statement of
Additional Information of the Series Fund, dated September 30, 1998, attached as
Appendix C to this Statement of Additional Information.
FINANCIAL STATEMENTS
Incorporated herein by reference in their respective entireties are (i) the
audited financial statements of the VK Real Estate Securities Fund for the
fiscal year ended December 31, 1997 as included in Appendix B, (ii) the
unaudited financial statements of the VK Real Estate Securities Fund for the
semi-annual period ended June 30, 1998, as included in Appendix D hereto, (iii)
the audited financial statements of the U.S. Real Estate Fund for fiscal year
ended June 30, 1998 as included in Appendix C hereto.
PRO FORMA FINANCIAL STATEMENTS
Set forth in Appendix E hereto are unaudited pro forma financial statements
of the VK Real Estate Securities Fund giving effect to the Reorganization which
include: (i) Pro Forma Condensed Statement of Assets and Liabilities at June 30,
1998, (ii) Pro Forma Condensed Statement of Operations for the six months ended
June 30, 1998 and (iii) Pro Forma Portfolio of Investments at June 30, 1998.
2
<PAGE> 124
APPENDIX A
FORM OF
AGREEMENT AND PLAN OF REORGANIZATION
<PAGE> 125
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") is made as of
, 19 , by and between Van Kampen Real Estate Securities Fund (the
"VK Real Estate Securities Fund"), a Delaware business trust formed under the
laws of the State of Delaware, and Van Kampen U.S. Real Estate Fund (the
"U.S. Real Estate Fund"), a series of Van Kampen Series Fund, Inc., a Maryland
corporation formed under the laws of the State of Maryland (the "Van Kampen
Series Fund").
WITNESSETH:
WHEREAS, the Board of Trustees of the VK Real Estate Securities Fund and
the Board of Directors of the Van Kampen Series Fund, on behalf of the U.S. Real
Estate Fund have determined that entering into this Agreement for the VK Real
Estate Securities Fund to acquire the assets and liabilities of the U.S. Real
Estate Fund is in the best interests of the shareholders of each respective
fund; and
WHEREAS, the parties intend that this transaction qualify as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code");
NOW, THEREFORE, in consideration of the mutual promises contained herein. and
intending to be legally bound hereby, the parties hereto agree as follows:
1. PLAN OF TRANSACTION.
A. TRANSFER OF ASSETS. Upon satisfaction of the conditions precedent set
forth in Sections 7 and 8 hereof, the U.S. Real Estate Fund will convey,
transfer and deliver to the VK Real Estate Securities Fund at the closing,
provided for in Section 2 hereof, all of the existing assets of the U.S. Real
Estate Fund (including accrued interest to the Closing Date) acceptable to the
VK Real Estate Securities Fund as more fully set forth on Schedule I hereto, and
as amended from time to time prior to the Closing Date (as defined below), free
and clear of all liens, encumbrances and claims whatsoever (the assets so
transferred collectively being referred to as the "Assets").
B. CONSIDERATION. In consideration thereof, the VK Real Estate Securities
Fund agrees that on the Closing Date the VK Real Estate Securities Fund will
(i) deliver to the U.S. Real Estate Fund, full and fractional Class A, Class B
and Class C Shares of common stock, par value $0.01 per share, of the VK Real
Estate Securities Fund having net asset values per share in an amount equal to
the aggregate dollar value of the Assets net of any liabilities of the U.S. Real
Estate Fund described in Section 3E hereof (the "Liabilities" determined
pursuant to Section 3A of this Agreement, (collectively, the "VK Real Estate
Securities Fund Shares") and (ii) assume all of
1
<PAGE> 126
the U.S. Real Estate Fund's Liabilities. The calculation of full and
fractional Class A, Class B and Class C Shares of the VK Real Estate Securities
Fund to be exchanged shall be carried out to no less than two (2) decimal
places. All VK Real Estate Securities Fund Shares delivered to the U.S. Real
Estate Fund in exchange for such Assets shall be delivered at net asset value
without sales load, commission or other transactional fee being imposed.
2. CLOSING OF THE TRANSACTION.
CLOSING DATE. The closing shall occur within fifteen (15) business days
after the later of receipt of all necessary regulatory approvals and the final
adjournment of the meeting of shareholders of the U.S. Real Estate Fund at which
this Agreement will be considered and approved or such later date as soon as
practicable thereafter, as the parties may mutually agree (the "Closing Date").
On the Closing Date, the VK Real Estate Securities Fund shall deliver to the
U.S. Real Estate Fund the VK Real Estate Securities Fund Shares in the amount
determined pursuant to Section 1B hereof and the U.S. Real Estate Fund
thereafter shall, in order to effect the distribution of such shares to the
U.S. Real Estate Fund shareholders, instruct the VK Real Estate Securities Fund
to register the pro rata interest in the VK Real Estate Securities Fund Shares
(in full and fractional shares) of each of the holders of record of shares of
the U.S. Real Estate Fund in accordance with their holdings of either Class A,
Class B or Class C shares and shall provide as part of such instruction a
complete and updated list of such holders (including addresses and taxpayer
identification numbers), and the VK Real Estate Securities Fund agrees promptly
to comply with said instruction. The VK Real Estate Securities Fund shall have
no obligation to inquire as to the validity, propriety or correctness of such
instruction, but shall assume that such instruction is valid, proper and
correct.
3. PROCEDURE FOR REORGANIZATION.
A. VALUATION. The value of the Assets and Liabilities of the U.S. Real
Estate Fund to be transferred and assumed, respectively, by the VK Real Estate
Securities Fund shall be computed as of the Closing Date, in the manner set
forth in the most recent Prospectus and Statement of Additional Information of
the VK Real Estate Securities Fund (collectively, the "VK Real Estate Securities
Fund Prospectus"), copies of which have been delivered to the U.S. Real Estate
Fund.
B. DELIVERY OF FUND ASSETS. The Assets shall be delivered to State Street
Bank and Trust Company, 225 Franklin Street Post Office Box 1713, Boston,
Massachusetts 02105-1713, as custodian for the VK Real Estate Securities Fund
(the "Custodian") for the benefit of the VK Real Estate Securities Fund, duly
endorsed in proper form for transfer in such condition as to constitute a good
delivery thereof, free and clear of all liens, encumbrances and claims
whatsoever, in accordance with the custom of brokers, and
2
<PAGE> 127
shall be accompanied by all necessary state stock transfer stamps, the cost of
which shall be borne by the Van Kampen Investment Advisory Corp. (the "U.S.
Real Estate Adviser").
C. FAILURE TO DELIVER SECURITIES. If the U.S. Real Estate Fund is
unable to make delivery pursuant to Section 3B hereof to the Custodian of any of
the U.S. Real Estate Fund's securities for the reason that any of such
securities purchased by the VK Real Estate Securities Fund have not yet been
delivered to it by the U.S. Real Estate Fund's broker or brokers, then, in lieu
of such delivery, the U.S. Real Estate Fund shall deliver to the Custodian, with
respect to said securities, executed copies of an agreement of assignment and
due bills executed on behalf of said broker or brokers, together with such other
documents as may be required by the VK Real Estate Securities Fund or
Custodian, including brokers' confirmation slips.
D. SHAREHOLDER ACCOUNTS. The VK Real Estate Securities Fund, in order
to assist the U.S. Real Estate Fund in the distribution of the VK Real Estate
Securities Fund Shares to the U.S. Real Estate Fund shareholders after delivery
of the VK Real Estate Securities Fund Shares to the U.S. Real Estate Fund, will
establish pursuant to the request of the U.S. Real Estate Fund an open account
with the VK Real Estate Securities Fund for each shareholder of the U.S. Real
Estate Fund and, upon request by the U.S. Real Estate Fund, shall transfer to
such account the exact number of full and fractional Class A, Class B and Class
C shares of the VK Real Estate Securities Fund then held by the U.S. Real
Estate Fund specified in the instruction provided pursuant to Section 2 hereof.
The VK Real Estate Securities Fund is not required to issue certificates
representing VK Real Estate Securities Fund Shares unless requested to do so
by a shareholder. Upon liquidation or dissolution of the U.S. Real Estate
Fund, certificates representing shares of common stock of the U.S. Real Estate
Fund shall become null and void.
E. LIABILITIES. The Liabilities shall include all of U.S. Real
Estate Fund's liabilities, debts, obligations, and duties of whatever kind or
nature, whether absolute, accrued, contingent, or otherwise, whether or not
arising in the ordinary course of business, whether or not determinable at the
Closing Date, and whether or not specifically referred to in this Agreement.
F. EXPENSES. In the event that the transactions contemplated herein
are consummated, the VK Real Estate Securities Fund agrees to pay for the
reasonable outside expenses for the transactions contemplated herein that are
solely and directly related to the reorganization within the meaning of Rev.
Rule 73-54, 1973-1 C.B. 187; including, but not by way of limitation, the
preparation of the VK Real Estate Securities Fund's Registration Statement on
Form N-14 (the "Registration Statement") and the solicitation of the U.S. Real
Estate Fund shareholder proxies; the U.S. Real Estate Fund counsel's reasonable
attorney's fees, which fees shall be payable pursuant to receipt of an itemized
statement; and the cost of rendering the tax opinion, more fully referenced in
Section 7F below. Notwithstanding the foregoing, the U.S. Real Estate Adviser
will reimburse the U.S. Real Estate Fund for any remaining unamortized
organizational costs at the time of closing. In the event that the
transactions contemplated herein are not consummated for any reason, then all
reasonable outside expenses incurred to the date of termination of this
Agreement shall be borne by Van Kampen Investments Inc.
3
<PAGE> 128
G. DISSOLUTION. As soon as practicable after the Closing Date but in
no event later than one year after the Closing Date, the U.S. Real Estate
Fund shall voluntarily dissolve and completely liquidate by taking, in
accordance with the Maryland general corporate law and Federal securities laws,
all steps as shall be necessary and proper to effect a complete liquidation and
dissolution of the U.S. Real Estate Fund. Immediately after the Closing Date,
the share transfer books relating to the U.S. Real Estate Fund shall be
closed and no transfer of shares shall thereafter be made on such books.
4. U.S. REAL ESTATE FUND'S REPRESENTATIONS AND WARRANTIES.
The U.S. Real Estate Fund hereby represents and warrants to the VK Real Estate
Securities Fund, which representations and warranties are true and correct on
the date hereof, and agrees with the VK Real Estate Securities Fund that:
A. ORGANIZATION. The Van Kampen Series Fund is a Maryland corporation
duly formed and in good standing under the laws of the State of Maryland and is
duly authorized to transact business in the State of Maryland. The U.S. Real
Estate Fund is a separate series of the Van Kampen Series Fund duly designated
in accordance with the applicable provisions of the Van Kampen Series Fund's
Articles of Incorporation. The U.S. Real Estate Fund is qualified to do
business in all jurisdictions in which it is required to be so qualified, except
jurisdictions in which the failure to so qualify would not have a material
adverse effect on the U.S. Real Estate Fund. The U.S. Real Estate Fund
has all material federal, state and local authorizations necessary to own all of
the properties and assets and to carry on its business as now being conducted,
except authorizations which the failure to so obtain would not have a material
adverse effect on the U.S. Real Estate Fund.
B. REGISTRATION. The Van Kampen Series Fund is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end,
management investment company and such registration has not been revoked or
rescinded. The U.S. Real Estate Fund is in compliance in all material respects
with the 1940 Act and the rules and regulations thereunder with respect to its
activities. All of the outstanding common shares, par value $0.001 per share,
have been duly authorized and are validly issued, fully paid and non-assessable
and not subject to pre-emptive or dissenters' rights.
C. AUDITED FINANCIAL STATEMENTS. The statement of assets and
liabilities and the portfolio of investments and the related statements of
operations and changes in net assets of the U.S. Real Estate Fund audited as
of and for the year ended June 30, 1998, true and complete copies of which have
been heretofore furnished to the VK Real Estate Securities Fund, fairly
represent the financial condition and the results
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of operations of the U.S. Real Estate Fund as of and for their
respective dates and periods in conformity with generally accepted accounting
principles applied on a consistent basis during the periods involved.
D. FINANCIAL STATEMENTS. The U.S. Real Estate Fund shall furnish to
the VK Real Estate Securities Fund within five (5) business days after the
Closing Date, an unaudited statement of assets and liabilities and the portfolio
of investments and the related statements of operations and changes in net
assets as of and for the interim period ending on the Closing Date; such
financial statements will represent fairly the financial position and portfolio
of investments and the results of its operations as of, and for the period
ending on, the dates of such statements in conformity with generally accepted
accounting principles applied on a consistent basis during the periods involved
and the results of its operations and changes in financial position for the
period then ended; and such financial statements shall be certified by the
Treasurer of the U.S. Real Estate Fund as complying with the requirements
hereof.
E. CONTINGENT LIABILITIES. There are, and as of the Closing Date will
be, no contingent Liabilities of the U.S. Real Estate Fund not disclosed in
the financial statements delivered pursuant to Sections 4C and 4D which would
materially affect the U.S. Real Estate Fund's financial condition, and there
are no legal, administrative, or other proceedings pending or, to its knowledge,
threatened against the U.S. Real Estate Fund which would, if adversely
determined, materially affect the U.S. Real Estate Fund's financial
condition. All liabilities were incurred by the U.S. Real Estate Fund in the
ordinary course of its business.
F. MATERIAL AGREEMENTS. The U.S. Real Estate Fund is in compliance
with all material agreements, rules, laws, statutes, regulations and
administrative orders affecting its operations or its assets; and except as
referred to in the U.S. Real Estate Fund's Prospectus and Statement of
Additional Information, there are no material agreements outstanding relating to
the U.S. Real Estate Fund to which the U.S. Real Estate Fund is a party.
G. STATEMENT OF EARNINGS. As promptly as practicable, but in any case
no later then 30 calendar days after the Closing Date, PricewaterhouseCoopers
LLP, accountants for the U.S. Real Estate Fund, shall furnish the VK Real
Estate Securities Fund with a statement of the earnings and profits of the U.S.
Real Estate Fund within the meaning of the Code as of the Closing Date.
H. RESTRICTED SECURITIES. None of the securities comprising the assets
of the U.S. Real Estate Fund at the date hereof are, or on the Closing Date
or any subsequent delivery date will be, "restricted securities" under the
Securities Act of 1933, (the "Securities Act") or the rules and regulations of
the
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Securities and Exchange Commission (the "SEC") thereunder, or will be securities
for which market quotations are not readily available for purposes of Section
2(a)(41) under the 1940 Act.
I. TAX RETURNS. At the date hereof and on the Closing Date, all
Federal and other material tax returns and reports of the U.S. Real Estate
Fund required by law to have been filed by such dates shall have been filed, and
all Federal and other taxes shown thereon shall have been paid so far as due, or
provision shall have been made for the payment thereof, and to the best of the
U.S. Real Estate Fund's knowledge no such return is currently under audit and no
assessment has been asserted with respect to any such return.
J. CORPORATE AUTHORITY. The Van Kampen Series Fund and the U.S.
Real Estate Fund have the necessary power to enter into this Agreement and to
consummate the transactions contemplated herein. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated herein have been duly authorized by the U.S. Real Estate Fund's
Board of Directors, and, except for obtaining approval of the holders of the
shares of the U.S. Real Estate Fund, no other corporate acts or proceedings
by the U.S. Real Estate Fund are necessary to authorize this Agreement and
the transactions contemplated herein. This Agreement has been duly executed and
delivered by the U.S. Real Estate Fund and constitutes the legal, valid and
binding obligation of U.S. Real Estate Fund enforceable in accordance with
its terms, except as such enforceability may be limited by bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium or similar law
affecting creditors' rights generally, or by general principals of equity
(regardless of whether enforcement is sought in a proceeding at equity or law).
K. NO VIOLATION; CONSENTS AND APPROVALS. The execution, delivery and
performance of this Agreement by the U.S. Real Estate Fund does not and will
not (i) results in a material violation of any provision of the Articles of
Incorporation of the Van Kampen Series Fund, (ii) violate any statute, law,
judgment, writ, decree, order, regulation or rule of any court or governmental
authority applicable to the U.S. Real Estate Fund, or (iii) result in a
material violation or breach of, or constitute a default under any material
contract, indenture, mortgage, loan agreement, note, lease or other instrument
or obligation to which the U.S. Real Estate Fund is subject, or (iv) result in
the creation or imposition or any lien, charge or encumbrance upon any property
or assets of the U.S. Real Estate Fund. Except for a certificate of transfer to
be filed in Maryland, no consent, approval, authorization, order or filing with
or notice to any court or governmental authority or agency is required for the
consummation by the U.S. Real Estate Fund of the transactions contemplated by
this Agreement and no consent of or notice to any third party or entity is
required for the consummation by the U.S. Real Estate Fund of the transactions
contemplated by this Agreement.
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L. ABSENCE OF PROCEEDINGS. There are no legal, administrative or other
proceedings pending or, to its knowledge, threatened against the U.S. Real
Estate Fund which would materially affect its financial condition.
M. ABSENCE OF CHANGES. From the date of this Agreement through the
Closing Date, there shall not have been:
(1) any change in the business, results of operations, assets, or
financial condition or the manner of conducting the business of the U.S. Real
Estate Fund, other than changes in the ordinary course of its business, or any
pending or threatened litigation, which has had or may have a material adverse
effect on such business, results of operations, assets or financial condition;
(2) issued any option to purchase or other right to acquire shares of
the U.S. Real Estate Fund granted by the U.S. Real Estate Fund to any
person other than subscriptions to purchase shares at net asset value in
accordance with terms in the Prospectus for the U.S. Real Estate Fund;
(3) any entering into, amendment or termination of any contract or
agreement by U.S. Real Estate Fund, except as otherwise contemplated by this
Agreement,
(4) any indebtedness incurred, other than in the ordinary course of
business, by the U.S. Real Estate Fund for borrowed money or any commitment
to borrow money entered into by the U.S. Real Estate Fund;
(5) any amendment of the Van Kampen Series Fund's Articles of
Incorporation; or
(6) any grant or imposition of any lien, claim, charge or encumbrance
(other than encumbrances arising in the ordinary course of business with respect
to covered options) upon any asset of the U.S. Real Estate Fund other than a
lien for taxes not yet due and payable.
N. TITLE. On the Closing Date, the U.S. Real Estate Fund will have
good and marketable title to the Assets, free and clear of all liens, mortgages,
pledges, encumbrances, charges, claims and equities whatsoever, other than a
lien for taxes not yet due and payable, and full right, power and authority to
sell, assign, transfer and deliver such Assets; upon delivery of such Assets,
the VK Real Estate Securities Fund will receive good and marketable title to
such Assets, free and clear of all liens, mortgages, pledges, encumbrances,
charges, claims and equities other than a lien for taxes not yet due and
payable.
O. REGISTRATION STATEMENT. The Registration Statement and the
Prospectus/Proxy Statement contained therein as of the effective date of the
Registration Statement and at all times subsequent thereto up to and including
the Closing Date, as amended or as supplemented if it shall have been amended or
supplemented, conforms and will conform, as it relates to the Van Kampen Series
Fund and the U.S. Real Estate Fund, in all material respects, to the applicable
requirements of the applicable Federal
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and state securities laws and the rules and regulations of the SEC thereunder,
and do not and will not include any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading, except that no representations or warranties in this
Section 4N apply to statements or omissions made in reliance upon and in
conformity with written information concerning the VK Real Estate Securities
Fund furnished to the U.S. Real Estate Fund by the VK Real Estate Securities
Fund.
P. TAX QUALIFICATION. The U.S. Real Estate Fund has qualified as a
regulated investment company within the meaning of Section 851 of the Code for
each of its taxable years; and has satisfied the distribution requirements
imposed by Section 852 of the Code for each of its taxable years.
Q. FAIR MARKET VALUE. The fair market value on a going concern basis
of the Assets will equal or exceed the Liabilities to be assumed by the VK Real
Estate Securities Fund and those to which the Assets are subject.
R. U.S. REAL ESTATE FUND LIABILITIES. Except as otherwise provided
for herein, the U.S. Real Estate Fund shall use reasonable efforts,
consistent with its ordinary operating procedures, to repay in full any
indebtedness for borrowed money and have discharged or reserved against all of
the U.S. Real Estate Fund's known debts, liabilities and obligations
including expenses, costs and charges whether absolute or contingent, accrued or
unaccrued.
5. THE VK REAL ESTATE SECURITIES FUND'S REPRESENTATIONS AND WARRANTIES.
The VK Real Estate Securities Fund hereby represents and warrants to the U.S.
Real Estate Fund, which representations and warranties are true and correct on
the date hereof, and agrees with the U.S. Real Estate Fund that:
A. ORGANIZATION. The VK Real Estate Securities Fund is a Delaware
Business Trust duly formed and in good standing under the laws of the State of
Delaware and is duly authorized to transact business in the State of Delaware.
The VK Real Estate Securities Fund is qualified to do business in all
jurisdictions in which they are required to be so qualified, except
jurisdictions in which the failure to so qualify would not have a material
adverse effect on the VK Real Estate Securities Fund. The VK Real Estate
Securities Fund has all material federal, state and local authorizations
necessary to own all of the properties and assets and to carry on its business
and the business thereof as now being conducted, except authorizations which the
failure to so obtain would not have a material adverse effect on the VK Real
Estate Securities Fund.
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B. REGISTRATION. The VK Real Estate Securities Fund is registered
under the 1940 Act as an open-end, management investment company and such
registration has not been revoked or rescinded. The VK Real Estate Securities
Fund is in compliance in all material respects with the 1940 Act and the rules
and regulations thereunder, with respect to its activities. All of the
outstanding shares of beneficial interest, $0.01 par value, of the VK Real
Estate Securities Fund have been duly authorized and are validly issued, fully
paid and non-assessable and not subject to pre-emptive dissenters' rights.
C. AUDITED FINANCIAL STATEMENTS. The statement of assets and
liabilities and the portfolio of investments and the related statements of
operations and changes in net assets of the VK Real Estate Securities Fund
audited as of and for the year ended December 31, 1997, true and complete copies
of which have been heretofore furnished to the U.S. Real Estate Fund, fairly
represent the financial condition and the results of operations of the VK Real
Estate Securities Fund as of and for their respective dates and periods in
conformity with generally accepted accounting principles applied on a consistent
basis during the periods involved.
D. FINANCIAL STATEMENTS. The VK Real Estate Securities Fund shall
furnish to the U.S. Real Estate Fund within five (5) business days after the
Closing Date, an unaudited statement of assets and liabilities and the portfolio
of investments and the related statements of operations and changes in net
assets as of and for the interim period ending on the Closing Date; such
financial statements will represent fairly the financial position and portfolio
of investments and the results of its operations as of, and for the period
ending on, the dates of such statements in conformity with generally accepted
accounting principles applied on a consistent basis during the periods involved
and the results of its operations and changes in financial position for the
period then ended; and such financial statements shall be certified by the
Treasurer of the VK Real Estate Securities Fund as complying with the
requirements hereof.
E. CONTINGENT LIABILITIES. There are, and as of the Closing Date will
be, no contingent liabilities of the VK Real Estate Securities Fund not
disclosed in the financial statements delivered pursuant to Sections 5C and 5D
which would materially affect the VK Real Estate Securities Fund's financial
condition, and there are no legal, administrative, or other proceedings pending
or, to its knowledge, threatened against the VK Real Estate Securities Fund
which would, if adversely determined, materially affect the VK Real Estate
Securities Fund's financial condition. All liabilities were incurred by the VK
Real Estate Securities Fund in the ordinary course of its business.
F. MATERIAL AGREEMENTS. The VK Real Estate Securities Fund is in
compliance with all material agreements, rules, laws, statutes, regulations and
administrative orders affecting its operations or its assets; and except as
referred to in the VK Real Estate Securities Fund Prospectus and Statement of
Additional Information there are no material agreements outstanding to which the
VK Real Estate Securities Fund is a party.
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G. TAX RETURNS. At the date hereof and on the Closing Date, all
Federal and other material tax returns and reports of the VK Real Estate
Securities Fund required by law to have been filed by such dates shall have been
filed, and all Federal and other taxes shown thereon shall have been paid so far
as due, or provision shall have been made for the payment thereof, and to the
best of the VK Real Estate Securities Fund's knowledge no such return is
currently under audit and no assessment has been asserted with respect to any
such return.
H. CORPORATE AUTHORITY. The VK Real Estate Securities Fund has the
necessary power to enter into this Agreement and to consummate the transactions
contemplated herein. The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated herein have been duly
authorized by the VK Real Estate Securities Fund's Board of Trustees, no other
corporate acts or proceedings by the VK Real Estate Securities Fund are
necessary to authorize this Agreement and the transactions contemplated herein.
This Agreement has been duly executed and delivered by the VK Real Estate
Securities Fund and constitutes a legal, valid and binding obligation of the VK
Real Estate Securities Fund enforceable in accordance with its terms, except as
such enforceability may be limited by bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium or similar law affecting creditors' rights
generally, or by general principals of equity (regardless of whether enforcement
is sought in a proceeding at equity or law).
I. NO VIOLATION; CONSENTS AND APPROVALS. The execution, delivery and
performance of this Agreement by the VK Real Estate Securities Fund does not and
will not (i) result in a material violation of any provision of the Declaration
of Trust of the VK Real Estate Securities Fund, (ii) violate any statute, law,
judgment, writ, decree, order, regulation or rule of any court or governmental
authority applicable to the VK Real Estate Securities Fund or (iii) result in a
material violation or breach of, or constitute a default under, any material
contract, indenture, mortgage, loan agreement, note, lease or other instrument
or obligation to which the VK Real Estate Securities Fund is subject, or (iv)
result in the creation or imposition or any lien, charge or encumbrance upon any
property or assets of the VK Real Estate Securities Fund. No consent, approval,
authorization, order or filing with notice to any court or governmental
authority or agency is required for the consummation by the VK Real Estate
Securities Fund of the transactions contemplated by this Agreement and no
consent of or notice to any third party or entity is required for the
consummation by the VK Real Estate Securities Fund of the transactions
contemplated by this Agreement
J. ABSENCE OF PROCEEDINGS. There are no legal, administrative or other
proceedings pending or, to its knowledge, threatened against the VK Real
Estate Securities Fund which would materially affect its financial condition.
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K. SHARES OF THE VK REAL ESTATE SECURITIES FUND: REGISTRATION. The
VK Real Estate Securities Fund Shares to be issued pursuant to Section 1 hereof
will be duly registered under the Securities Act and all applicable state
securities laws.
L. SHARES OF THE VK REAL ESTATE SECURITIES FUND: AUTHORIZATION. The
shares of beneficial interest of the VK Real Estate Securities Fund to be issued
pursuant to Section 1 hereof have been duly authorized and, when issued in
accordance with this Agreement, will be validly issued and fully paid and
non-assessable by the VK Real Estate Securities Fund and conform in all material
respects to the description thereof contained in the VK Real Estate Securities
Fund's Prospectus furnished to the U.S. Real Estate Fund.
M. ABSENCE OF CHANGES. From the date of this Agreement through the
Closing Date, there shall not have been any change in the business, results of
operations, assets or financial condition or the manner of conducting the
business of the VK Real Estate Securities Fund, other than changes in the
ordinary course of its business, which has had a material adverse effect on such
business, or any pending or threatened litigation, results of operations, assets
or financial condition.
N. REGISTRATION STATEMENT The Registration Statement and the
Prospectus/Proxy Statement contained therein as of the effective date of the
Registration Statement, and at all times subsequent thereto up to and including
the Closing Date, as amended or as supplemented if it shall have been amended or
supplemented, conforms and will conform, as it relates to the VK Real Estate
Securities Fund, in all material respects, to the applicable requirements of the
applicable Federal and state securities laws and the rules and regulations of
the SEC thereunder, and do not and will not include any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, except that no representations or
warranties in this Section 5N apply to statements or omissions made in reliance
upon and in conformity with written information concerning the Van Kampen Series
Fund or the U.S. Real Estate Fund furnished to the VK Real Estate Securities
Fund by the Van Kampen Series Fund or the U.S. Real Estate Fund.
O. TAX QUALIFICATION. The VK Real Estate Securities Fund has qualified
as a regulated investment company within the meaning of Section 851 of the Code
for each of its taxable years; and has satisfied the distribution requirements
imposed by Section 852 of the Code for each of its taxable years.
6. COVENANTS.
During the period from the date of this Agreement and continuing until
the Closing Date the U.S. Real Estate Fund and VK Real Estate Securities Fund
each agrees that (except as expressly contemplated or permitted by this
Agreement):
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A. OTHER ACTIONS. The U.S. Real Estate Fund and VK Real Estate
Securities Fund shall operate only in the ordinary course of business consistent
with prior practice. No party shall take any action that would, or reasonably
would be expected to, result in any of its representations and warranties set
forth in this Agreement being or becoming untrue in any material respect.
B. GOVERNMENT FILINGS; CONSENTS. The U.S. Real Estate Fund and VK Real
Estate Securities Fund shall file all reports required to be filed by the U.S.
Real Estate Fund and VK Real Estate Securities Fund with the SEC between the
date of this Agreement and the Closing Date and shall deliver to the other party
copies of all such reports promptly after the same are filed. Except where
prohibited by applicable statutes and regulations, each party shall promptly
provide the other (or its counsel) with copies of all other filings made by such
party with any state, local or federal government agency or entity in connection
with this Agreement or the transactions contemplated hereby. Each of the U.S.
Real Estate Fund and the VK Real Estate Securities Fund shall use all reasonable
efforts to obtain all consents, approvals and authorizations required in
connection with the consummation of the transactions contemplated by this
Agreement and to make all necessary filings with the Secretary of State of the
State of Delaware and the Secretary of the State of the State of Maryland.
C. PREPARATION OF THE REGISTRATION STATEMENT AND THE PROSPECTUS/PROXY
STATEMENT. In connection with the Registration Statement and the
Prospectus/Proxy Statement, each party hereto will cooperate with the other and
furnish to the other the information relating to the U.S. Real Estate Fund or VK
Real Estate Securities Fund, as the case may be, required by the Securities Act
or the Exchange Act and the rules and regulations thereunder, as the case may
be, to be set forth in the Registration Statement or the Prospectus/Proxy
Statement, as the case may be. The U.S. Real Estate Fund shall promptly prepare
and file with the SEC the Prospectus/Proxy Statement and the VK Real Estate
Securities Fund shall promptly prepare and file with the SEC the Registration
Statement, in which the Prospectus/Proxy Statement will be included as a
prospectus. In connection with the Registration Statement, insofar as it relates
to the U.S. Real Estate Fund and its affiliated persons, the VK Real Estate
Securities Fund shall only include such information as is approved by the U.S.
Real Estate Fund for use in the Registration Statement. The VK Real Estate
Securities Fund shall not amend or supplement any such information regarding the
VK Real Estate Securities Fund and such affiliates without the prior written
consent of the U.S. Real Estate Fund which consent shall not unreasonably
withheld or delayed. The VK Real Estate Securities Fund shall promptly notify
and provide the U.S. Real Estate Fund with copies of all amendments or
supplements filed with respect to the Registration Statement. The VK Real Estate
Securities Fund shall use all reasonable efforts to have the Registration
Statement declared effective under the Securities Act as promptly as practicable
after such filing. The VK Real Estate Securities Fund shall also take any action
(other than qualifying to do business in any jurisdiction in which it is now not
so qualified) required to be taken under any applicable state securities laws in
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connection with the issuance of the VK Real Estate Securities Fund's shares of
beneficial interest in the transactions contemplated by this Agreement and the
U.S. Real Estate Fund shall furnish all information concerning the U.S. Real
Estate Fund and the holders of the U.S. Real Estate Fund's shares of common
stock as may be reasonably requested in connection with any such action.
D. ACCESS TO INFORMATION. During the period prior to the Closing Date,
the U.S. Real Estate Fund shall make available to the VK Real Estate Securities
Fund a copy of each report, schedule, registration statement and other document
(the "Documents") filed or received by it during such period pursuant to the
requirements of Federal or state securities laws or Federal or state banking
laws (other than Documents which such party is not permitted to disclose under
applicable law). During the period prior to the Closing Date, the VK Real Estate
Securities Fund shall make available to the U.S. Real Estate Fund each Document
pertaining to the transactions contemplated hereby filed or received by it
during such period pursuant to Federal or state securities laws or Federal or
state banking laws (other than Documents which such party is not permitted to
disclose under applicable law).
E. SHAREHOLDERS MEETING. The U.S. Real Estate Fund shall call a
meeting of the U.S. Real Estate Fund shareholders to be held as promptly as
practicable for the purpose of voting upon the approval of this Agreement and
the transactions contemplated herein, and shall furnish a copy of the
Prospectus/Proxy Statement and form of proxy to each shareholder of the U.S.
Real Estate Fund as of the record date for such meeting of shareholders. The
Board shall recommend to the U.S. Real Estate Fund shareholders approval of
this Agreement and the transactions contemplated herein, subject to fiduciary
obligations under applicable law.
F. COORDINATION OF PORTFOLIOS. The U.S. Real Estate Fund and VK Real
Estate Securities Fund covenant and agree to coordinate the respective
portfolios of the U.S. Real Estate Fund and VK Real Estate Securities Fund from
the date of the Agreement up to and including the Closing Date in order that at
Closing, when the Assets are added to the VK Real Estate Securities Fund's
portfolio, the resulting portfolio will meet the VK Real Estate Securities
Fund's investment objective, policies and restrictions, as set forth in the VK
Real Estate Securities Fund's Prospectus, a copy of which has been delivered to
the U.S. Real Estate Fund.
G. DISTRIBUTION OF THE SHARES. At Closing the U.S. Real Estate Fund
covenants that it shall cause to be distributed the VK Real Estate Securities
Fund Shares in the proper; pro rata amount for the benefit of U.S. Real Estate
Fund's shareholders and such that the U.S. Real Estate Fund shall not continue
to hold amounts of said shares so as to cause a violation of Section 12(d)(1) of
the 1940 Act. The U.S. Real Estate Fund covenants further that, pursuant to
Section 3G, it shall liquidate and dissolve as promptly as practicable after the
Closing Date. The U.S. Real Estate Fund covenants to use all reasonable efforts
to
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cooperate with the VK Real Estate Securities Fund and the VK Real Estate
Securities Fund's transfer agent in the distribution of said shares.
H. BROKERS OR FINDERS. Except as disclosed in writing to the other
party prior to the date hereof, each of the U.S. Real Estate Fund and the VK
Real Estate Securities Fund represents that no agent broker, investment banker,
financial advisor or other firm or person is or will be entitled to any broker's
or finder's fee or any other commission or similar fee in connection with any of
he transactions contemplated by this Agreement, and each party shall hold the
other harmless from and against any and all claims, liabilities or obligations
with respect to any such fees, commissions or expenses asserted by any person to
be due or payable in connection with any of the transactions contemplated by
this Agreement on the basis of any act or statement alleged to have been made by
such first party or its affiliate.
I. ADDITIONAL AGREEMENT. In case at any time after the Closing Date
any further action is necessary or desirable in order to carry out the purposes
of this Agreement the proper officers and trustees of each party to this
Agreement shall take all such necessary action.
J. PUBLIC ANNOUNCEMENTS. For a period of time from the date of this
Agreement to the Closing Date, the U.S. Real Estate Fund and the VK Real Estate
Securities Fund will consult with each other before issuing any press releases
or otherwise making any public statements with respect to this Agreement or the
transactions contemplated herein and shall not issue any press release or make
any public statement prior to such consultation, except as may be required by
law or the rules of any national securities exchange on which such party's
securities are traded.
K. TAX STATUS OF REORGANIZATION. The intention of the parties that the
transaction will qualify as a reorganization within the meaning of Section
368(a) of the Code. Neither the VK Real Estate Securities Fund nor the U.S. Real
Estate Fund shall take any action, or cause any to be taken (including, without
limitation, the filing of any tax return) that is inconsistent with such
treatment or results in the failure of the transaction to qualify as a
reorganization within meaning of Section 368(a) of the Code. At or prior to the
Closing Date, the VK Real Estate Securities Fund and the U.S. Real Estate Fund
will take such action, or cause such action to be taken, as is reasonably
necessary to enable Skadden, Arps, Slate, Meagher & Flom (Illinois), counsel to
the U.S. Real Estate Fund, to render the tax opinion required herein.
L. DECLARATION OF DIVIDEND. At or immediately prior to the Closing
Date, the U.S. Real Estate Fund shall declare and pay to its stockholders a
dividend or other distribution in an amount large enough so that it will have
distributed substantially all (and in any event not less than 98%) of its
investment company taxable income (computed without regard to any deduction for
dividends paid) and realized net capital gain, if any, for the current taxable
year through the Closing Date.
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7. CONDITIONS TO OBLIGATIONS OF THE U.S. REAL ESTATE FUND.
The obligations of the U.S. Real Estate Fund hereunder with respect to the
consummation of the reorganization are subject to the satisfaction, or written
waiver by the U.S. Real Estate Fund, of the following conditions:
A. SHAREHOLDER APPROVAL. This Agreement and the transactions
contemplated herein shall have been approved by the affirmative vote of the
holders of a majority of the outstanding shares of beneficial interest of the
U.S. Real Estate Fund.
B. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. Each of the
representations and warranties of the VK Real Estate Securities Fund contained
herein shall be true in all material respects as of the Closing Date, and as of
the Closing Date there shall have been no material adverse change in the
financial condition, results of operations, business properties or assets of the
VK Real Estate Securities Fund, and the U.S. Real Estate Fund shall have
received a certificate of an authorized officer of the VK Real Estate Securities
Fund satisfactory in form and substance to the U.S. Real Estate Fund so stating.
The VK Real Estate Securities Fund shall have performed and complied in all
material respects with all agreements, obligations and covenants required by
this Agreement to be so performed or complied with by it on or prior to the
Closing Date.
C. REGISTRATION STATEMENT EFFECTIVE. The Registration Statement shall
have become effective and no stop orders under the Securities Act pertaining
thereto shall have been issued.
D. REGULATORY APPROVAL. All necessary approvals, registrations, and
exemptions under federal and state securities laws shall have been obtained.
E. NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent, jurisdiction or other legal restraint or prohibition (an
"Injunction") preventing the consummation of the transactions contemplated by
this Agreement shall be in effect nor shall any proceeding by any state local or
federal government agency or entity seeking any of the foregoing be pending.
There shall not have been any action taken or any statute, rule, regulation or
order enacted, entered, enforced or deemed applicable to the transactions
contemplated by this Agreement which makes the consummation of the transactions
contemplated by this Agreement illegal or which has a material adverse effect on
business operations of the VK Real Estate Securities Fund.
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F. TAX OPINION. The U.S. Real Estate Fund shall have obtained an
opinion from Skadden, Arps, Slate, Meagher & Flom (Illinois), counsel for the
Van Kampen Series Fund and U.S. Real Estate Fund, dated as of the Closing
Date, addressed to the Van Kampen Series Fund and the U.S. Real Estate Fund,
that the consummation of the transactions set forth in this Agreement comply
with the requirements of a reorganization as described in Section 368(a) of the
Code, substantially in the form attached as Annex A.
G. OPINION OF COUNSEL. The U.S. Real Estate Fund shall have received
the opinion of Skadden, Arps, Slate, Meagher & Flom (Illinois), counsel for the
VK Real Estate Securities Fund and U.S. Real Estate Fund, dated as of the
Closing Date, addressed to the U.S. Real Estate Fund substantially in the form
of and to the effect that (i) the VK Real Estate Securities Fund existing in
good standing as a business trust under the laws of the State of Delaware; (ii)
the VK Real Estate Securities Fund is registered as an open-end, management
investment company under the 1940 Act, (iii) this Agreement and the
reorganization provided for herein and the execution of this Agreement have been
duly authorized and approved by all requisite action of the VK Real Estate
Securities Fund and this Agreement has been duly executed and delivered by the
VK Real Estate Securities Fund and (assuming the Agreement is a valid and
binding obligation of the other parties thereto) is a valid and binding
obligation of the VK Real Estate Securities Fund; (iv) neither the execution or
delivery by the VK Real Estate Securities Fund of this Agreement nor the
consummation by the VK Real Estate Securities Fund of the transactions
contemplated thereby contravene the Declaration of Trust or, to their knowledge,
violate any provision of any statute, or any published regulation or any
judgment or order disclosed to counsel by the VK Real Estate Securities Fund as
being applicable to the VK Real Estate Securities Fund; (v) to the knowledge of
such counsel, based solely on the certificate of an appropriate officer of the
VK Real Estate Securities Fund attached thereto, there is no pending or
threatened litigation except as described therein; (vi) the VK Real Estate
Securities Fund shares have been duly authorized and upon issuance thereof in
accordance with this Agreement will, subject to certain matters regarding the
liability of a shareholder of a Delaware business trust, be validly issued,
fully paid and nonassessable, (vii) except as to financial statements and
schedules and other financial and statistical data included or incorporated by
reference therein and subject to usual and customary qualifications with respect
to Rule 10b-5 type opinions, as of the effective date of the Registration
Statement filed pursuant to the Agreement, the portions thereof pertaining to
the VK Real Estate Securities Fund comply as to form in all material respects
with the requirements of the Securities Act, the Securities Exchange Act and the
1940 Act and the rules and regulations of the SEC thereunder and no facts have
come to counsel's attention which would cause them to believe that as of the
effectiveness of the portions of the Registration Statement applicable to VK
Real Estate Securities Fund, the Registration Statement contained any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary to make the statements therein not misleading,
and (viii) to the best of their knowledge and information
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and subject to the qualifications set forth below, the execution and delivery by
the VK Real Estate Securities Fund of the Agreement and the consummation of the
transactions therein contemplated do not require, under the laws of the States
of Delaware or Illinois or the federal laws of the United States, the consent,
approval, authorization, registration, qualification or order of, or filing
with, any court or governmental agency or body (except such as have been
obtained under the Securities Act, the 1940 Act or the rules and regulations
thereunder). Counsel need express no opinion, however, as to any such consent
approval, authorization, registration, qualification, order or filing (a) which
may be required as a result of the involvement of other parties to the Agreement
in the transactions contemplated by the Agreement because of their legal or
regulatory status or because of any other facts specifically pertaining to them,
(b) the absence of which does not deprive the U.S. Real Estate Fund of any
material benefit under the Agreement, or (c) which can be readily obtained
without significant delay or expense to the U.S. Real Estate Fund, without loss
to the U.S. Real Estate Fund of any material benefit under the Agreement and
without any material adverse effect on the U.S. Real Estate Fund during the
period such consent, approval, authorization, registration, qualification or
order was obtained. The foregoing opinion relates only to consents, approvals,
authorizations, registrations, qualifications, orders or filings under (a) laws
which are specifically referred to in this opinion, (b) laws of the States of
Delaware and Illinois and the federal laws of the United States which, in
counsel's experience, are normally applicable to transactions of the type
provided for in the Agreement and (c) court orders and judgments disclosed to
counsel by the VK Real Estate Securities Fund in connection with the opinion. In
addition, although counsel need not specifically considered the possible
applicability to the VK Real Estate Securities Fund of any other laws, orders or
judgments, nothing has come to their attention in connection with their
representation of the VK Real Estate Securities Fund in this transaction that
has caused them to conclude that any other consent, approval, authorization,
registration, qualification, order or filing is required.
H. OFFICER CERTIFICATES. The U.S. Real Estate Fund shall have received
a certificate of an authorized officer of the VK Real Estate Securities Fund,
dated as of the Closing Date, certifying that the representations and warranties
set forth in Section 5 are true and correct on the Closing Date, together with
certified copies of the resolutions adopted by the Board of Trustees shall be
furnished to the U.S. Real Estate Fund.
8. CONDITIONS TO OBLIGATIONS OF VK REAL ESTATE SECURITIES FUND.
The obligations of the VK Real Estate Securities Fund hereunder with respect to
the consummation of the reorganization are subject to the satisfaction, or
written waiver by the VK Real Estate Securities Fund, of the following
conditions:
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A. SHAREHOLDER APPROVAL. This Agreement and the transactions contemplated
herein shall have been approved by the affirmative vote of the holders of a
majority of the outstanding shares of beneficial interest of the U.S. Real
Estate Fund.
B. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. Each of the representations
and warranties of the U.S. Real Estate Fund contained herein shall be true in
all material respects as of the Closing Date, and as of the Closing Date there
shall have been no material adverse change in the financial condition, results
of operations, business, properties or assets of the U.S. Real Estate Fund, and
the VK Real Estate Securities Fund shall have received a certificate of an
authorized officer of the U.S. Real Estate Fund satisfactory in form and
substance to the VK Real Estate Securities Fund so stating. The U.S. Real Estate
Fund shall have performed and complied in all material respects with all
agreements, obligations and covenants required by this Agreement to be so
performed or complied with by it on or prior to the Closing Date.
C. REGISTRATION STATEMENT EFFECTIVE. The Registration Statement shall have
become effective and no stop orders under the Securities Act pertaining thereto
shall have been issued.
D. REGULATORY APPROVAL. All necessary approvals, registrations, and
exemptions under federal and state securities laws shall have been obtained.
E. NO INJUNCTIONS OR RESTRAINTS: ILLEGALITY. No injunction preventing the
consummation of the transactions contemplated by this Agreement shall be in
effect, nor shall any proceeding by any state, local or federal government
agency or entity seeking any of the foregoing be pending. There shall not be any
action taken, or any statute, rule, regulation or order enacted, entered,
enforced or deemed applicable to the transactions contemplated by this Agreement
which makes the consummation of the transactions contemplated by this Agreement
illegal or which has a material adverse effect on business operations of the
U.S. Real Estate Fund.
F. TAX OPINION. The VK Real Estate Securities Fund shall have obtained an
opinion from Skadden, Arps, Slate, Meagher & Flom (Illinois), counsel for the
Van Kampen Series Fund and the U.S. Real Estate Fund, dated as of the Closing
Date, addressed to the VK Real Estate Securities Fund, that the consummation of
the transactions set forth in this Agreement comply with the requirements of a
reorganization as described in Section 368(a) of the Code substantially in the
form attached as Annex A.
G. OPINION OF COUNSEL. The VK Real Estate Securities Fund shall have
received the opinion of Skadden, Arps, Slate, Meagher & Flom (Illinois), counsel
for the Van Kampen Series Fund and U.S. Real Estate Fund, dated as of the
Closing Date, addressed to the VK Real Estate Securities Fund, substantially in
the form and to the effect that (i) the U.S. Real Estate Fund is duly formed and
in good standing existing as a corporation
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under the laws of the State of Maryland; (ii) the Board of Directors has
designated the U.S. Real Estate Fund as a series of the Van Kampen Series
Fund;(iii) the U.S. Real Estate Fund is registered as an open-end, management
investment company under the 1940 Act (iv) this Agreement and the reorganization
provided for herein and the execution of this Agreement have been duly
authorized by all requisite action of the Van Kampen Series Fund on behalf of
the U.S. Real Estate Fund and this Agreement has been duly executed and
delivered by the Van Kampen Series Fund on behalf of the U.S. Real Estate Fund
and (assuming the Agreement is a valid and binding obligation of the other
parties thereto) is a valid and binding obligation of the Van Kampen Series Fund
on behalf of U.S. Real Estate Fund; (v) neither the execution or delivery by the
Van Kampen Series Fund on behalf of the U.S. Real Estate Fund of this Agreement
nor the consummation by the Van Kampen Series Fund or the U.S. Real Estate Fund
of the transactions contemplated thereby contravene the Van Kampen Series Fund's
Articles of Incorporation or, to the best of their knowledge, violate any
provision of any statute, or any published regulation or any judgment or order
disclosed to counsel by the Van Kampen Series Fund as being applicable to the
U.S. Real Estate Fund; (vi) to their knowledge based solely on the certificate
of an appropriate officer of the U.S. Real Estate Fund attached thereto, there
is no pending, or threatened litigation involving the U.S. Real Estate Fund
except as disclosed therein; (vii) except as to financial statements and
schedules and other financial and statistical data included or incorporated by
reference therein and subject to usual and customary qualifications with respect
to Rule 10b-5 type opinions as of the effective date of the Registration
Statement filed pursuant to the Agreement, the portions thereof pertaining to
the U.S. Real Estate Fund comply as to form in all material respects with their
requirements of the Securities Act, the Securities Exchange Act and the 1940 Act
and the rules and regulations of the SEC thereunder and no facts have come to
counsel's attention which would cause them to believe that as of effectiveness
of the portions of the Registration Statement applicable to the Van Kampen
Series Fund and U.S. Real Estate Fund, the Registration Statement contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading, and (viii) to their knowledge and subject to the qualifications set
forth below, the execution and delivery by the Van Kampen Series Fund on behalf
of the U.S. Real Estate Fund of the Agreement and the consummation of the
transactions therein contemplated do not require, under the laws of the States
of Maryland or Illinois, or the federal laws of the United States, the consent.
approval, authorization, registration, qualification or order of, or filing
with, any court or governmental agency or body except such as have been
obtained. Counsel need express no opinion, however, as to any such consent,
approval, authorization, registration, qualification, order or filing: (a) which
may be required as a result of the involvement of their parties to the Agreement
in the transactions contemplated by the Agreement because of their legal or
regulatory status or because of any other facts specifically pertaining to them;
(b) the absence of which does not deprive the VK Real Estate Securities Fund of
any material benefit under the Agreements; or (c) which can be readily obtained
without significant delay or expense to the VK Real Estate Securities Fund,
without loss to the VK Real Estate Securities Fund
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<PAGE> 144
of any material benefit under the Agreement and without any material adverse
effect on the VK Real Estate Securities Fund during the period such consent,
approval, authorization, registration, qualification or order was obtained. The
foregoing opinion relates only to consents, approvals, authorizations,
registrations, qualifications, orders or filings under (a) laws which are
specifically referred to in the opinion, (b) laws of the States of Maryland and
Illinois and the federal laws of the United States which, in counsel experience,
are normally applicable to transactions of the type provided for in the
Agreement and (c) court orders and judgments disclosed to counsel by the U.S.
Real Estate Fund in connection with the opinion. In addition, although counsel
need not specifically have considered the possible applicability to the U.S.
Real Estate Fund of any other laws, orders or judgments, nothing has come to
their attention in connection with their representation of the U.S. Real Estate
Fund in this transaction that has caused them to conclude that any other
consent, approval, authorization, registration, qualification, order or filing
is required.
H. THE ASSETS. The Assets, as set forth in Schedule 1, as amended, shall
consist solely of securities which are in conformity with the VK Real Estate
Securities Fund's investment objectives, policies and restrictions as set forth
in the U.S Real Estate Fund's Prospectus, a copy of which has been delivered to
the U.S. Real Estate Fund.
I. SHAREHOLDER LIST. The U.S. Real Estate Fund shall have delivered to
the VK Real Estate Securities Fund an updated list of all shareholders of the
U.S. Real Estate Fund, as reported by the U.S. Real Estate Fund's
transfer agent, as of one (1) business day prior to the Closing Date with each
shareholder's respective holdings in the U.S. Real Estate Fund, taxpayer
Identification numbers, Form W-9 and last known address.
J. OFFICER CERTIFICATES. The VK Real Estate Securities Fund should have
received a certificate of an authorized officer of the U.S. Real Estate Fund,
dated as of the Closing Date, certifying that the representations and warranties
set forth in Section 4 are true and correct on the Closing Date, together with
certified copies of the resolutions adopted by the Board of Directors and
shareholders shall be furnished to the V.K. Real Estate Securities Fund.
9. AMENDMENT, WAIVER AND TERMINATION.
(A) The parties hereto may, by agreement in writing authorized by the
respective Boards, amend this Agreement at any time before or after approval
thereof by the shareholders of the U.S. Real Estate Fund; provided, however,
that after receipt of U.S. Real Estate Fund shareholder approval, no
amendment shall be made by the parties hereto which substantially changes the
terms of Sections 1, 2 and 3 hereof without obtaining U.S. Real Estate Fund's
shareholder approval thereof.
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(B) At any time prior to the Closing Date, either of the parties may by
written instrument signed by it (i) waive any inaccuracies in the
representations and warranties made to it contained herein and (ii) waive
compliance with any of the covenants or conditions made for its benefit
contained herein. No delay on the part of either party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof, nor shall any
waiver on the part of any party of any such right, power or privilege, or any
single or partial exercise of any such right, power or privilege, preclude any
further exercise thereof or the exercise of any other such right, power or
privilege.
(C) This Agreement may be terminated, and the transactions contemplated
herein may be abandoned at any time prior to the Closing Date:
(i) by the mutual consents of the respective Boards of the U.S. Real
Estate Fund and the VK Real Estate Securities Fund;
(ii) by the U.S. Real Estate Fund, if the VK Real Estate Securities Fund
breaches in any material respect any of its representations, warranties,
covenants or agreements contained in this Agreement;
(iii) by the VK Real Estate Securities Fund, if the U.S. Real Estate Fund
breaches in any material respect any of its representations, warranties,
covenants or agreements contained in this Agreement;
(iv) by either the U.S. Real Estate Fund or VK Real Estate Securities Fund,
if the Closing has not occurred on or prior to December 31, 1998 (provided that
the rights to terminate this Agreement pursuant to this subsection (C)(iv) shall
not be available to any party whose failure to fulfill any of its obligations
under this Agreement has been the cause of or resulted in the failure of the
Closing to occur on or before such date);
(v) by the VK Real Estate Securities Fund in the event that: (a) all the
conditions precedent to the U.S. Real Estate Fund's obligation to close, as set
forth in Section 7 of this Agreement, have been fully satisfied (or can be fully
satisfied at the Closing); (b) the VK Real Estate Securities Fund gives the U.S.
Real Estate Fund written assurance of its intent to close irrespective of the
satisfaction or nonsatisfaction of all conditions precedent to the VK Real
Estate Securities Fund's obligation to close, as set forth in Section 8 of this
Agreement; and (c) the U.S. Real Estate Fund then fails or refuses to close
within the earlier of five (5) business days or December 31, 1998; or
(vi) by the U.S. Real Estate Fund in the event that: (a) all the conditions
precedent to the VK Real Estate Securities Fund's obligation to close, as set
forth in Section 8 of this Agreement, have been fully satisfied (or can be fully
satisfied at the Closing); (b) the U.S. Real Estate Fund gives the VK Real
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<PAGE> 146
Estate Securities Fund written assurance of its intent to close irrespective of
the satisfaction or nonsatisfaction of all the conditions precedent to the U.S.
Real Estate Fund's obligation to close as set forth in Section 7 of this
Agreement; and (c) the VK Real Estate Securities Fund then fails or refuses to
close within the earlier of five (5) business days or December 31, 1998.
10. REMEDIES.
In the event of termination of this Agreement by either or both of the U.S.
Real Estate Fund and VK Real Estate Securities Fund pursuant to Section 9(C),
written notice thereof shall forthwith be given by the terminating party to the
other party hereto, and this Agreement shall therefore terminate and become void
and have no effect, and the transactions contemplated herein and thereby shall
be abandoned, without further action by the parties hereto.
11. SURVIVAL OF WARRANTIES AND INDEMNIFICATION.
A. SURVIVAL. The representations and warranties included or provided for
herein, or in the Schedules or other instruments delivered or to be delivered
pursuant hereto, shall survive the Closing Date for a three year period except
that any representation or warranty with respect to taxes shall survive for the
expiration of the statutory period of limitations for assessments of tax
deficiencies as the same may be extended from time to time by the taxpayer. The
covenants and agreements included or provided for herein shall survive and be
continuing obligations in accordance with their terms. The period for which a
representation, warranty, covenant or agreement survives shall be referred to
hereinafter as the "Survival Period." Notwithstanding anything set forth in the
immediately preceding sentence, the VK Real Estate Securities Fund's and the
U.S. Real Estate Fund's right to seek indemnity pursuant to this Agreement shall
survive for a period of ninety (90) days beyond the expiration of the Survival
Period of the representation, warranty, covenant or agreement upon which
indemnity is sought. In no event shall the VK Real Estate Securities Fund or the
U.S. Real Estate Fund be obligated to indemnify the other if indemnity is not
sought within ninety (90) days of the expiration of the applicable Survival
Period.
B. INDEMNIFICATION. Each party (an "Indemnitor") shall indemnify and hold
the other and its officers, directors, agents and persons controlled by or
controlling any of them (each an "Indemnified Party") harmless from and against
any and all losses, damages, liabilities, claims, demands, judgments,
settlements, deficiencies, taxes, assessments, charges, costs and expenses of
any nature whatsoever (including reasonable attorneys' fees) including amounts
paid in satisfaction of judgments, in compromise or as fines and penalties, and
counsel fees reasonably incurred by such Indemnified Party in connection with
the defense or disposition of any claim, action, suit or other proceeding,
whether civil or criminal, before any court or administrative or investigative
body in which such Indemnified Party may be or may
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<PAGE> 147
have been involved as a party or otherwise or with which such Indemnified Party
may be or may have been threatened, (collectively, the "Losses"): arising out of
or related to any claim of a breach of any representation, warranty or covenant
made herein by the Indemnitor, provided, however, that no Indemnified Party
shall be indemnified hereunder against any Losses arising directly from such
Indemnified Party's (i) willful misfeasance, (ii) bad faith, (iii) gross
negligence or (iv) reckless disregard of the duties involved in the conduct of
such Indemnified Party's position.
C. INDEMNIFICATION PROCEDURE. The Indemnified Party shall use its best
efforts to minimize any liabilities, damages, deficiencies, claims, judgments,
assessments, costs and expenses in respect of which indemnity may be sought
hereunder. The Indemnified Party shall give written notice to Indemnitor within
the earlier of ten (10) days of receipt of written notice to Indemnified Party
or thirty (30) days from discovery by Indemnified Party of any matters which
may give rise to a claim for indemnification or reimbursement under this
Agreement. The failure to give such notice shall not affect the right of
Indemnified Party to indemnity hereunder unless such failure has materially and
adversely affected the rights of the Indemnitor; provided that in any event
such notice shall have been given prior to the expiration of the Survival
Period. At any time after ten (10) days from the giving of such notice,
Indemnified Party may, at its option, resist, settle or otherwise compromise,
or pay such claim unless it shall have received notice from Indemnitor that
Indemnitor intends, at Indemnitor's sole cost and expense, to assume the
defense of any such matter, in which case Indemnified Party shall have the
right, at no cost or expense to Indemnitor, to participate in such defense: If
Indemnitor does not assume the defense of such matter, and in any event until
Indemnitor states in writing that it will assume the defense, Indemnitor shall
pay all costs of Indemnified Party arising out of the defense until the defense
is assumed; provided, however, that Indemnified Party shall consult with
Indemnitor and obtain Indemnitor's prior written consent to any payment or
settlement of any such claim. Indemnitor's shall keep Indemnified Party fully
apprised at all times as to the status of the defense. If Indemnitor does not
assume the defense, Indemnified Party shall keep Indemnitor apprised at all
times as to the status of the defense. Following indemnification as provided
for hereunder, Indemnitor shall be subrogated to all rights of Indemnified
Party with respect to all third parties, firms or corporations relating to the
matter for which indemnification has been made.
12. SURVIVAL.
The provisions set forth in Sections 10, 11 and 16 hereof shall survive the
termination of this Agreement for any cause whatsoever.
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13. NOTICES.
All notices hereunder shall be sufficiently given for all purposes hereunder if
in writing and delivered personally or sent by registered mail or certified
mail, postage prepaid. Notice to the U.S. Real Estate Fund shall be addressed to
the U.S. Real Estate Fund c/o Van Kampen Investment Advisory Corp., One Parkview
Plaza, Oakbrook Terrace, Illinois 60181, Attention: General Counsel, or at such
other address as the U.S. Real Estate Fund may designate by written notice to
the VK Real Estate Securities Fund. Notice to the VK Real Estate Securities Fund
shall be addressed to the VK Real Estate Securities Fund c/o Van Kampen Asset
Management Inc., One Parkview Plaza, Oakbrook Terrace, Illinois 60181,
Attention: General Counsel, or at such other address and to the attention of
such other person as the VK Real Estate Securities Fund may designate by
written notice to the U.S. Real Estate Fund. Any notice shall be deemed to have
been served or given as of the date such notice is delivered personally or
mailed.
14. SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their successors and assigns. This Agreement shall not be assigned
by any party without the prior written consent of the other party hereto.
15. BOOKS AND RECORDS.
The U.S. Real Estate Fund and the VK Real Estate Securities Fund agree that
copies of the books and records of the U.S. Real Estate Fund relating to the
Assets including, but not limited to all files, records, written materials;
e.g., closing transcripts, surveillance files and credit reports shall be
delivered by the U.S. Real Estate Fund to the VK Real Estate Securities Fund at
the Closing Date. In addition to, and without limiting the foregoing, the U.S.
Real Estate Fund and the VK Real Estate Securities Fund agree to take such
action as may be necessary in order that the VK Real Estate Securities Fund
shall have reasonable access to such other books and records as may be
reasonably requested, all for three complete fiscal and tax years after the
Closing Date; namely, general ledger, journal entries, voucher registers;
distribution journal; payroll register, monthly balance owing report; income tax
returns; tax depreciation schedules; and investment tax credit basis schedules.
16. GENERAL.
This Agreement supersedes all prior agreements between the parties (written or
oral), is intended as a complete and exclusive statement of the terms of the
Agreement between the parties and may not be
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amended, modified or changed or terminated orally. This Agreement may be
executed in one or more counterparts, all of which shall be considered one and
the same agreement, and shall become effective when one or more counterparts
have been executed by the Van Kampen Series Fund on behalf of U.S. Real Estate
Fund and VK Real Estate Securities Fund and delivered to each of the parties
hereto. The headings contained in this Agreement are for reference purposes only
and shall not affect in any way the meaning or interpretation of this Agreement
This Agreement is for the sole benefit of the parties thereto, and nothing in
this Agreement, expressed or implied, is intended to confer upon any other
person any rights or remedies under or by reason of this Agreement. This
Agreement shall be governed by and construed in accordance with the laws of the
State of Illinois without regard to principles of conflicts or choice of law.
17. LIMITATION OF LIABILITY.
Consistent with the VK Real Estate Securities Fund's Declaration of Trust,
notice is hereby given and the parties hereto acknowledge and agree that this
instrument is executed by of the Trustees of the VK Real Estate Securities Fund
on behalf of the VK Real Estate Securities Fund as Trustees and not individually
and that the obligations of this instrument are not binding upon any of the
Trustees or shareholders of the VK Real Estate Securities Fund individually but
binding only upon the assets and property of the VK Real Estate Securities Fund.
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IN WITNESS WHEREOF, the parties have hereunto caused this Agreement to be
executed and delivered by their duly authorized officers as of the day and year
first written above.
VAN KAMPEN REAL ESTATE
SECURITIES FUND,
a Delaware business trust
______________________________________
Dennis J. McDonnell
President
Attest:___________________
Nicholas Dalmaso
Assistant Secretary
VAN KAMPEN SERIES FUND, INC.,
a Maryland corporation on behalf of
VAN KAMPEN U.S. REAL ESTATE FUND
______________________________________
Dennis J. McDonnell
President
Attest:___________________
Nicholas Dalmaso
Assistant Secretary
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APPENDIX B
STATEMENT OF ADDITIONAL INFORMATION
OF
VAN KAMPEN
REAL ESTATE SECURITIES FUND
Dated April 30, 1998, as
Supplemented on July 14, 1998 and November 2, 1998
<PAGE> 152
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> 153
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.
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<PAGE> 154
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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<PAGE> 156
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.
B-5
<PAGE> 157
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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<PAGE> 158
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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<PAGE> 160
"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
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<PAGE> 162
(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
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<PAGE> 163
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
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<PAGE> 164
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>
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<PAGE> 165
<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>
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<PAGE> 166
<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> 167
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>
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<PAGE> 168
<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> 169
<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>
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<PAGE> 170
<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> 171
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> 172
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> 173
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> 174
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> 175
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> 176
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> 177
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> 178
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> 179
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> 180
(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> 181
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> 182
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> 183
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> 184
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> 185
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> 186
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> 187
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> 188
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> 189
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> 190
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> 191
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> 192
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> 193
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> 194
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> 195
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> 196
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> 197
SUPPLEMENT DATED NOVEMBER 2, 1998 TO THE
STATEMENT OF ADDITIONAL INFORMATION DATED
DECEMBER 29, 1997, AS PREVIOUSLY
SUPPLEMENTED ON JANUARY 2, 1998 AND
JULY 14, 1998
VAN KAMPEN CORPORATE BOND FUND
VAN KAMPEN EMERGING GROWTH FUND
VAN KAMPEN HIGH INCOME CORPORATE BOND FUND
STATEMENT OF ADDITIONAL INFORMATION DATED JANUARY 28, 1998, AS PREVIOUSLY
SUPPLEMENTED ON JULY 14, 1998
VAN KAMPEN U.S. GOVERNMENT TRUST FOR INCOME
STATEMENT OF ADDITIONAL INFORMATION
DATED FEBRUARY 17, 1998, AS
PREVIOUSLY SUPPLEMENTED ON
JULY 14, 1998
VAN KAMPEN SMALL CAPITALIZATION FUND
STATEMENT OF ADDITIONAL INFORMATION
DATED FEBRUARY 19, 1998, AS
PREVIOUSLY SUPPLEMENTED ON
JULY 14, 1998
VAN KAMPEN SENIOR FLOATING RATE FUND
STATEMENT OF ADDITIONAL INFORMATION DATED MARCH 9, 1998, AS PREVIOUSLY
SUPPLEMENTED ON JULY 14, 1998
VAN KAMPEN PRIME RATE INCOME TRUST
STATEMENT OF ADDITIONAL INFORMATION DATED MARCH 30,
1998, AS PREVIOUSLY SUPPLEMENTED ON JULY 14,
1998 VAN KAMPEN GROWTH AND INCOME FUND
VAN KAMPEN HIGH YIELD MUNICIPAL FUND
STATEMENT OF ADDITIONAL INFORMATION DATED APRIL 27,
1998, AS PREVIOUSLY SUPPLEMENTED ON JULY 14,
1998 VAN KAMPEN FOREIGN SECURITIES FUND
STATEMENT OF ADDITIONAL INFORMATION DATED APRIL 30, 1998, AS PREVIOUSLY
SUPPLEMENTED ON JULY 14, 1998
VAN KAMPEN U. S. GOVERNMENT FUND
VAN KAMPEN INSURED TAX FREE INCOME FUND
VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND
VAN KAMPEN TAX FREE HIGH INCOME FUND
VAN KAMPEN MUNICIPAL INCOME FUND
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND
VAN KAMPEN FLORIDA INSURED TAX FREE INCOME FUND
VAN KAMPEN NEW YORK TAX FREE INCOME FUND
VAN KAMPEN PENNSYLVANIA TAX FREE INCOME FUND
VAN KAMPEN COMSTOCK FUND
VAN KAMPEN EQUITY INCOME FUND
<PAGE> 198
VAN KAMPEN ENTERPRISE FUND
VAN KAMPEN GLOBAL MANAGED ASSETS
VAN KAMPEN GOVERNMENT SECURITIES FUND
VAN KAMPEN HARBOR FUND
VAN KAMPEN LIMITED MATURITY GOVERNMENT FUND
VAN KAMPEN REAL ESTATE SECURITIES FUND
STATEMENT OF ADDITIONAL INFORMATION DATED JUNE 23,
1998, AS PREVIOUSLY SUPPLEMENTED ON JULY
14, 1998 VAN KAMPEN SENIOR INCOME TRUST
STATEMENT OF ADDITIONAL INFORMATION DATED SEPTEMBER 15, 1998
VAN KAMPEN RESERVE FUND
STATEMENT OF ADDITIONAL INFORMATION DATED SEPTEMBER 28, 1998
VAN KAMPEN GLOBAL GOVERNMENT SECURITIES FUND
STATEMENT OF ADDITIONAL INFORMATION DATED SEPTEMBER 29, 1998
VAN KAMPEN TAX FREE MONEY FUND
VAN KAMPEN PACE FUND
STATEMENT OF ADDITIONAL INFORMATION DATED SEPTEMBER 30, 1998
VAN KAMPEN VALUE FUND
VAN KAMPEN UTILITY FUND
VAN KAMPEN GREAT AMERICAN COMPANIES FUND
VAN KAMPEN AGGRESSIVE GROWTH FUND
VAN KAMPEN GROWTH FUND
VAN KAMPEN PROSPECTOR FUND
VAN KAMPEN SERIES FUND, INC.
The section of the Statement of Additional Information entitled the Trustees and
Officers is hereby supplemented by adding Paul G. Yovovich, effective October
22, 1998, as Trustee of the Fund.
Mr. Yovovich is a private investor. Prior to April 1996, he was President of
Advance Ross Corporation. He is a Director of 3Com Corporation, APAC
Teleservices, Inc., COMARCO, Inc., Applied Language Technologies, Focal
Communications, and Lante Corporation. Limited Partner of Evercore Partners,
LLP. Trustee/Director of each of the Funds in the Fund Complex. Mr. Yovovich's
principal business address is the Sears Tower, 233 South Wacker Drive, Suite
9700, Chicago, Illinois 60606, and his date of birth is 10/29/53.
<PAGE> 199
SUPPLEMENT DATED JULY 14, 1998 TO THE
STATEMENT OF ADDITIONAL INFORMATION DATED SEPTEMBER 28, 1997,
AS PREVIOUSLY SUPPLEMENTED ON JANUARY 2, 1998
VKAC GLOBAL GOVERNMENT SECURITIES FUND
STATEMENT OF ADDITIONAL INFORMATION DATED SEPTEMBER 28, 1997
VKAC RESERVE FUND
STATEMENT OF ADDITIONAL INFORMATION DATED OCTOBER 28, 1997,
AS PREVIOUSLY SUPPLEMENTED ON JANUARY 2, 1998
VKAC STRATEGIC INCOME FUND
VKAC UTILITY FUND
VKAC PACE FUND
VKAC AGGRESSIVE GROWTH FUND
STATEMENT OF ADDITIONAL INFORMATION DATED OCTOBER 28, 1997,
AS PREVIOUSLY SUPPLEMENTED ON JANUARY 2, 1998
VKAC HIGH YIELD FUND
STATEMENT OF ADDITIONAL INFORMATION DATED OCTOBER 28, 1997
MORGAN STANLEY AGGRESSIVE EQUITY FUND
MORGAN STANLEY AMERICAN VALUE FUND
MORGAN STANLEY MID CAP GROWTH FUND
MORGAN STANLEY U.S. REAL ESTATE FUND
MORGAN STANLEY VALUE FUND
MORGAN STANLEY ASIAN GROWTH FUND
MORGAN STANLEY EMERGING MARKETS FUND
MORGAN STANLEY GLOBAL EQUITY FUND
MORGAN STANLEY GLOBAL EQUITY ALLOCATION FUND
MORGAN STANLEY INTERNATIONAL MAGNUM FUND
MORGAN STANLEY JAPANESE EQUITY FUND
MORGAN STANLEY LATIN AMERICAN FUND
MORGAN STANLEY EMERGING MARKETS DEBT FUND
MORGAN STANLEY GLOBAL FIXED INCOME FUND
MORGAN STANLEY HIGH YIELD FUND
MORGAN STANLEY WORLDWIDE HIGH INCOME FUND
MORGAN STANLEY GROWTH AND INCOME FUND
MORGAN STANLEY EUROPEAN EQUITY FUND
VKAC GREAT AMERICAN COMPANIES FUND
VKAC GROWTH FUND
VKAC PROSPECTOR FUND
VKAC SHORT-TERM GLOBAL INCOME FUND
VKAC TAX FREE MONEY FUND
STATEMENT OF ADDITIONAL INFORMATION DATED DECEMBER 29, 1997,
AS PREVIOUSLY SUPPLEMENTED ON JANUARY 2, 1998
VKAC CORPORATE BOND FUND
VKAC EMERGING GROWTH FUND
VKAC HIGH INCOME CORPORATE BOND FUND
STATEMENT OF ADDITIONAL INFORMATION DATED JANUARY 28, 1998
VKAC U.S. GOVERNMENT TRUST FOR INCOME
STATEMENT OF ADDITIONAL INFORMATION DATED FEBRUARY 17, 1998
VKAC SMALL CAPITALIZATION FUND
STATEMENT OF ADDITIONAL INFORMATION DATED MARCH 30, 1998
VKAC GROWTH AND INCOME FUND
VKAC HIGH YIELD MUNICIPAL FUND
MFSPTSAIRN 8/98
<PAGE> 200
STATEMENT OF ADDITIONAL INFORMATION DATED APRIL 27, 1998
VKAC FOREIGN SECURITIES FUND
STATEMENT OF ADDITIONAL INFORMATION DATED APRIL 30, 1998
VKAC U.S. GOVERNMENT FUND
VKAC INSURED TAX FREE INCOME FUND
VKAC CALIFORNIA INSURED TAX FREE FUND
VKAC TAX FREE HIGH INCOME FUND
VKAC MUNICIPAL INCOME FUND
VKAC INTERMEDIATE TERM MUNICIPAL INCOME FUND
VKAC FLORIDA INSURED TAX FREE INCOME FUND
VKAC NEW YORK TAX FREE INCOME FUND
VKAC PENNSYLVANIA TAX FREE INCOME FUND
VKAC COMSTOCK FUND
VKAC EQUITY INCOME FUND
VKAC GLOBAL MANAGED ASSETS FUND
VKAC GOVERNMENT SECURITIES FUND
VKAC HARBOR FUND
VKAC LIFE INVESTMENT TRUST
VKAC ENTERPRISE FUND
VKAC LIMITED MATURITY GOVERNMENT FUND
VKAC REAL ESTATE SECURITIES FUND
STATEMENT OF ADDITIONAL INFORMATION DATED MARCH 9, 1998
VKAC PRIME RATE INCOME TRUST
STATEMENT OF ADDITIONAL INFORMATION DATED FEBRUARY 19, 1998
VKAC SENIOR FLOATING RATE FUND
The Board of Trustees or the Board of Directors, as the case may be (the
"Board"), of each of the funds listed above (the "Funds") recently approved
changing the name of each Fund. The Funds' name changes coincide with recent
name changes affecting the Funds' investment advisers, distributor and
shareholder service/transfer agent as well as the name of the parent corporation
for such entities. As shown below, each of these Van Kampen-related service
providers is truncating or changing its name to coordinate and simplify the
mutual fund operations under the Van Kampen brand name. Likewise, the Board
approved similarly changing the names of the existing Van Kampen American
Capital retail open-end funds and the existing Morgan Stanley retail open-end
funds which are serviced by these Van Kampen-related service providers also to
emphasize the Van Kampen brand name and better coordinate the Van Kampen family
of funds. For Funds organized as business trusts (or series of business trusts)
or corporations (or series of corporations), the Board authorized name changes
to the respective business trust names or corporation names in addition to
changing the Funds' names.
Effective July 14, 1998, all references in the attached Statement of
Additional Information to the names of Van Kampen-related service providers (and
their parent) and the Fund name and, where applicable, the business trust or
corporate name of which the Fund is a series, will refer to the new names shown
in the schedule below.
<TABLE>
<CAPTION>
CURRENT SERVICE PROVIDER NAME NEW SERVICE PROVIDER NAME
----------------------------- -------------------------
<S> <C>
Van Kampen American Capital, Inc. Van Kampen Investments Inc.
Van Kampen American Capital Asset Management, Inc. Van Kampen Asset Management Inc.
Van Kampen American Capital Investment Advisory Van Kampen Investment Advisory Corp.
Corp.
Van Kampen American Capital Distributors, Inc. Van Kampen Funds Inc.
ACCESS Investor Services, Inc. Van Kampen Investor Services Inc.
CURRENT NAME NEW NAME
- -------------------------------------------------- --------------------------------------------------
Van Kampen American Capital U.S. Government Trust Van Kampen U.S. Government Trust
Van Kampen American Capital U.S. Government Fund Van Kampen U.S. Government Fund
</TABLE>
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<TABLE>
<CAPTION>
CURRENT NAME NEW NAME
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<S> <C>
Van Kampen American Capital Tax Free Trust Van Kampen Tax Free Trust
Van Kampen American Capital Insured Tax Free Van Kampen Insured Tax Free Income Fund
Income Fund
Van Kampen American Capital Tax Free High Income Van Kampen Tax Free High Income Fund
Fund
Van Kampen American Capital California Insured Van Kampen California Insured Tax Free Fund
Tax Free Fund
Van Kampen American Capital Municipal Income Van Kampen Municipal Income Fund
Fund
Van Kampen American Capital Intermediate Term Van Kampen Intermediate Term Municipal Income
Municipal Income Fund Fund
Van Kampen American Capital Florida Insured Tax Van Kampen Florida Insured Tax Free Income Fund
Free Income Fund
Van Kampen American Capital New York Tax Free Van Kampen New York Tax Free Income Fund
Income Fund
Van Kampen American Capital Trust Van Kampen Trust
Van Kampen American Capital High Yield Fund Van Kampen High Yield Fund
Van Kampen American Capital Short-Term Global Van Kampen Short-Term Global Income Fund
Income Fund
Van Kampen American Capital Strategic Income Van Kampen Strategic Income Fund
Fund
Van Kampen American Capital Equity Trust Van Kampen Equity Trust
Van Kampen American Capital Utility Fund Van Kampen Utility Fund
Van Kampen American Capital Great American Van Kampen Great American Companies Fund
Companies Fund
Van Kampen American Capital Growth Fund Van Kampen Growth Fund
Van Kampen American Capital Prospector Fund Van Kampen Prospector Fund
Van Kampen American Capital Aggressive Growth Van Kampen Aggressive Growth Fund
Fund
Van Kampen American Capital Pennsylvania Tax Free Van Kampen Pennsylvania Tax Free Income Fund
Income Fund
Van Kampen American Capital Tax Free Money Fund Van Kampen Tax Free Money Fund
Van Kampen American Capital Foreign Securities Van Kampen Foreign Securities Fund
Fund
Van Kampen American Capital Comstock Fund Van Kampen Comstock Fund
Van Kampen American Capital Corporate Bond Fund Van Kampen Corporate Bond Fund
Van Kampen American Capital Emerging Growth Fund Van Kampen Emerging Growth Fund
Van Kampen American Capital Enterprise Fund Van Kampen Enterprise Fund
Van Kampen American Capital Equity Income Fund Van Kampen Equity Income Fund
Van Kampen American Capital Global Managed Assets Van Kampen Global Managed Assets Fund
Fund
Van Kampen American Capital Government Securities Van Kampen Government Securities Fund
Fund
Van Kampen American Capital Growth and Income Fund Van Kampen Growth and Income Fund
Van Kampen American Capital Harbor Fund Van Kampen Harbor Fund
Van Kampen American Capital High Income Corporate Van Kampen High Income Corporate Bond Fund
Bond Fund
Van Kampen American Capital Life Investment Trust Van Kampen Life Investment Trust
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<TABLE>
<CAPTION>
CURRENT NAME NEW NAME
------------ --------
<S> <C>
Van Kampen American Capital Limited Maturity Van Kampen Limited Maturity Government Fund
Government Fund
Van Kampen American Capital Pace Fund Van Kampen Pace Fund
Van Kampen American Capital Real Estate Securities Van Kampen Real Estate Securities Fund
Fund
Van Kampen American Capital Reserve Fund Van Kampen Reserve Fund
Van Kampen American Capital Small Capitalization Van Kampen Small Capitalization Fund
Fund
Van Kampen American Capital Tax-Exempt Trust Van Kampen Tax-Exempt Trust
Van Kampen American Capital High Yield Municipal Van Kampen High Yield Municipal Fund
Fund
Van Kampen American Capital U.S. Government Trust Van Kampen U.S. Government Trust for Income
for Income
Van Kampen American Capital World Portfolio Series Van Kampen World Portfolio Series Trust
Trust
Van Kampen American Capital Global Government Van Kampen Global Government Securities Fund
Securities Fund
Morgan Stanley Fund, Inc. Van Kampen Series Fund, Inc.
Morgan Stanley Aggressive Equity Fund Van Kampen Aggressive Equity Fund
Morgan Stanley American Value Fund Van Kampen American Value Fund
Morgan Stanley Asian Growth Fund Van Kampen Asian Growth Fund
Morgan Stanley Emerging Markets Fund Van Kampen Emerging Markets Fund
Morgan Stanley Emerging Markets Debt Fund Van Kampen Emerging Markets Debt Fund
Morgan Stanley European Equity Fund Van Kampen European Equity Fund
Morgan Stanley Global Equity Fund Van Kampen Global Equity Fund
Morgan Stanley Global Equity Allocation Fund Van Kampen Global Equity Allocation Fund
Morgan Stanley Global Fixed Income Fund Van Kampen Global Fixed Income Fund
Morgan Stanley Growth and Income Fund Van Kampen Growth and Income Fund II
Morgan Stanley High Yield Fund Van Kampen High Yield & Total Return Fund
Morgan Stanley International Magnum Fund Van Kampen International Magnum Fund
Morgan Stanley Japanese Equity Fund Van Kampen Japanese Equity Fund
Morgan Stanley Latin American Fund Van Kampen Latin American Fund
Morgan Stanley Mid Cap Growth Fund Van Kampen Mid Cap Growth Fund
Morgan Stanley U.S. Real Estate Fund Van Kampen U.S. Real Estate Fund
Morgan Stanley Value Fund Van Kampen Value Fund
Morgan Stanley Worldwide High Income Fund Van Kampen Worldwide High Income Fund
Van Kampen American Capital Prime Rate Income Van Kampen Prime Rate Income Trust
Trust
Van Kampen American Capital Senior Floating Rate Van Kampen Senior Floating Rate Fund
Fund
</TABLE>
<PAGE> 203
APPENDIX C
STATEMENT OF ADDITIONAL INFORMATION
OF
VAN KAMPEN SERIES FUND, INC.
DATED SEPTEMBER 30, 1998, AS SUPPLEMENTED
ON NOVEMBER 2, 1998
<PAGE> 204
VAN KAMPEN SERIES FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
Van Kampen Series Fund, Inc. (the "Company") is an open-end management
investment company. The Company currently consists of twenty-three investment
portfolios designed to offer a range of investment choices (each, a "Fund" and
collectively, the "Funds"). The Company is designed to make available to
investors the expertise of (i) Van Kampen Investment Advisory Corp. as an
investment adviser (the "Adviser") and administrator (the "Administrator") to
the Funds, (ii) Morgan Stanley Asset Management Inc. ("MSAM"), a sub-adviser (a
"Sub-Adviser") to the Funds, other than the Van Kampen Mid Cap Growth Fund and
Van Kampen Value Fund and (iii) Miller, Anderson & Sherrerd, LLP ("MAS"), a
sub-adviser (a "Sub-Adviser") to the Van Kampen Mid Cap Growth Fund and Van
Kampen Value Fund. As of the date hereof, the Van Kampen Emerging Markets Debt
Fund, Van Kampen European Equity Fund, Van Kampen Growth and Income Fund II, Van
Kampen Japanese Equity Fund, Van Kampen Mid Cap Growth Fund, Morgan Stanley
Tax-Free Money Market Fund and Van Kampen Global Franchise Fund have not
commenced a continuous offering of shares.
This Statement of Additional Information "SAI" is not a prospectus but
should be read in conjunction with the Company's prospectuses dated September
30, 1998, as amended and supplemented from time to time (each a "Prospectus" and
together, the "Prospectuses"). To obtain the Prospectuses, please call the Van
Kampen Series Fund, Inc. at:
1-800-341-2911
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<PAGE> 205
TABLE OF CONTENTS
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INVESTMENT OBJECTIVES AND POLICIES 2
FEDERAL INCOME TAX 15
FEDERAL INCOME TAX TREATMENT OF FORWARD CURRENCY CONTRACTS AND
EXCHANGE RATE CONTRACTS 18
TAXES AND FOREIGN SHAREHOLDERS 19
PURCHASE OF SHARES 19
REDEMPTION OF SHARES 19
INVESTMENT LIMITATIONS 21
DETERMINING MATURITIES OF CERTAIN INSTRUMENTS 26
MANAGEMENT OF THE COMPANY 26
MONEY MARKET FUND NET ASSET VALUE 37
PORTFOLIO TRANSACTIONS 38
PERFORMANCE INFORMATION 38
GENERAL INFORMATION 45
DESCRIPTION OF SECURITIES AND RATINGS 46
FINANCIAL STATEMENTS 48
</TABLE>
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Date: September 30, 1998
INVESTMENT OBJECTIVES AND POLICIES
The following policies (listed in alphabetical order) supplement the
investment objectives and policies set forth in the Company's Prospectuses with
respect to the Company's twenty-three Funds: Van Kampen Global Fixed Income
Fund, Van Kampen Worldwide High Income Fund, Van Kampen High Yield & Total
Return Fund, Van Kampen American Value Fund, Van Kampen Aggressive Equity Fund,
Van Kampen U.S. Real Estate Fund, Van Kampen Global Equity Allocation Fund, Van
Kampen Asian Growth Fund, Van Kampen Emerging Markets Fund, Van Kampen Latin
American Fund, Van Kampen International Magnum Fund, Van Kampen Japanese Equity
Fund, Van Kampen Growth and Income Fund II, Van Kampen European Equity Fund, Van
Kampen Equity Growth Fund, Van Kampen Global Equity Fund, Van Kampen Emerging
Markets Debt Fund, Van Kampen Mid Cap Growth Fund, Van Kampen Value Fund and Van
Kampen Global Franchise Fund (collectively, the "Non-Money Funds") and Morgan
Stanley Money Market Fund, Morgan Stanley Tax-Free Money Market Fund and Morgan
Stanley Government Obligations Money Market Fund (collectively, the "Money
Market Funds"). For ease of reference, the words "Van Kampen" or "Morgan
Stanley," which begin the name of each Fund, are not used hereinafter.
Emerging Country Debt Securities
General. The Emerging Markets Debt and Worldwide High Income Funds' definition
of emerging market country debt securities includes securities of companies that
may have characteristics and business relationships common to companies in a
country or countries other than an emerging market country. As a result, the
value of the securities of such companies may reflect economic and market forces
applicable to other countries, as well as to an emerging market country. The
Adviser believes, however, that investment in such companies will be appropriate
because the Funds will invest in those emerging market companies which, in its
view, have sufficiently strong exposure to economic and market forces in an
emerging market country such that their value will tend to reflect developments
in such emerging market country to a greater extent than developments in another
country or countries. For example, the Funds may invest in companies organized
and located in countries other than an emerging market country, including
companies having their entire production facilities outside of an emerging
market country, when securities of such companies meet one or more elements of
the Funds' definition of an emerging market country debt security and so long as
the Adviser believes at the time of investment that the value of the company's
securities will reflect principally conditions in such emerging market country.
The Emerging Markets Debt Fund and Worldwide High Income Fund are
subject to no restrictions on the maturities of the emerging market country debt
securities they hold; those maturities may range from overnight to 30 years. The
value of debt securities held by a Fund generally will vary inversely to changes
in prevailing interest rates. A Fund's investments in fixed-rated debt
securities with longer terms to maturity are subject to greater volatility than
the Fund's investments in shorter-term obligations. Debt obligations acquired at
a discount are subject to greater fluctuations of market value in response to
changing interest rates than debt obligations of comparable maturities which are
not subject to such discount.
Government, government-related and restructured debt securities in
emerging market countries will consist of (i) debt securities or obligations
issued or guaranteed by governments, governmental agencies or instrumentalities
and political subdivisions located in emerging market countries (including
participations in loans between governments and financial institutions), (ii)
debt securities or obligations issued by government owned, controlled or
sponsored entities located in emerging market countries, and (iii) interests in
issuers organized and operated for the purpose of restructuring the investment
characteristics of instruments issued by any of the entities described above.
Such type of restructuring involves the deposit with or purchase by an entity of
specific instruments and the issuance by that entity of one or more classes of
securities backed by, or representing interests in, the underlying instruments.
Certain issuers of such structured securities may be deemed to be "investment
companies" as defined in the Investment Company Act of 1940, as amended (the
"1940 Act"). As a result, a Fund's investment in such securities may be limited
by certain investment restrictions contained in the 1940 Act.
Investments in emerging market country government debt securities
involve special risks. Certain emerging market countries have historically
experienced, and may continue to experience, high rates of inflation, high
interest rates, exchange rate fluctuations, large amounts of external debt,
balance of payments and trade difficulties and extreme poverty and unemployment.
The issuer or governmental authority that controls the repayment of an emerging
market country's debt may not be able or willing to repay the principal and/or
interest when due in accordance with the terms of such debt. As a result of the
foregoing, a government obligor may default on its obligations. If such an event
occurs, a Fund may have limited legal recourse against the issuer and/or
guarantor. Remedies must, in some cases, be pursued in the courts of the
defaulting party itself, and the ability of the holder of foreign government
debt securities to obtain recourse may be subject to the political climate in
the relevant country. In addition, no assurance can be given that the holders of
commercial bank debt will not contest payments to the holders of other foreign
government debt obligations in the event of default under their commercial bank
loan agreements.
<PAGE> 207
Debt securities of corporate issuers in emerging market countries may
include debt securities or obligations issued (i) by banks located in emerging
market countries or by branches of emerging market country banks located outside
the country or (ii) by companies organized under the laws of an emerging market
country. Determinations as to eligibility will be made by the Adviser based on
publicly available information and inquiries made to the issuer.
Ratings of a non-U.S. debt instrument, to the extent that those ratings
are undertaken, are related to evaluations of the country in which the issuer of
the instrument is located. Ratings generally take into account the currency in
which a non-U.S. debt instrument is denominated. Instruments issued by a foreign
government in other than the local currency, for example, typically have a lower
rating than local currency instruments due to the existence of an additional
risk that the government will be unable to obtain the required foreign currency
to service its foreign currency-denominated debt. In general, the ratings of
debt securities or obligations issued by a non-U.S. public or private entity
will not be higher than the rating of the currency or the foreign currency debt
of the central government of the country in which the issuer is located,
regardless of the intrinsic creditworthiness of the issuer.
The Funds do not intend to invest in any security in a country where
the currency is not freely convertible to U.S. Dollars, unless the Fund has
obtained the necessary governmental licensing to convert such currency or other
appropriately licensed or sanctioned contractual guarantee to protect such
investment against loss of that currency's external value, or the Fund has a
reasonable expectation at the time the investment is made that such governmental
licensing or other appropriately licensed or sanctioned guarantee would be
obtained or that the currency in which the security is quoted would be freely
convertible at the time of any proposed sale of the security by the Fund.
The governments of some countries have been engaged in programs of
selling part or all of their stakes in government owned or controlled
enterprises ("privatization"). The Adviser believes that privatization may offer
investors opportunities for significant capital appreciation and intends to
invest assets of the Fund in privatization in appropriate circumstances. In
certain countries, the ability of foreign entities, such as the Fund, to
participate in privatization may be limited by local law, or the terms on which
the Fund may be permitted to participate may be less advantageous than those for
local investors. There can be no assurance that governments will continue to
sell companies currently owned or controlled by them or that any privatization
programs in which the Fund participates will be successful.
Several Latin American countries have adopted debt conversion programs,
pursuant to which investors may use sovereign debt of a country, directly or
indirectly, to make investments in local companies. The terms of the various
programs vary from country to country although each program includes significant
restrictions on the application of the proceeds received in the conversion and
on the remittance of profits on the investment and of the invested capital. The
Fund may participate in Latin American debt conversion programs. The Adviser
will evaluate opportunities to enter into debt conversion transactions as they
arise.
Brady Bonds. The Emerging Markets Debt Fund and Worldwide High Income Fund may
invest in certain debt obligations customarily referred to as "Brady Bonds,"
which are created through the exchange of existing commercial bank loans to
foreign entities for new obligations in connection with debt restructuring under
a plan introduced by former U.S. Secretary of the Treasury Nicholas F. Brady
(the "Brady Plan"). Brady Bonds may be collateralized or uncollateralized and
issued in various currencies (although most are U.S. dollar-denominated) and
they are actively traded in the over-the-counter secondary market. A Fund may
purchase Brady Bonds either in the primary or secondary markets. The price and
yield of Brady Bonds purchased in the secondary market will reflect the market
conditions at the time of purchase, regardless of the stated face amount and the
stated interest rate. With respect to Brady Bonds with no or limited
collateralization, a Fund will rely for payment of interest and principal
primarily on the willingness and ability of the issuing government to make
payment in accordance with the terms of the bonds.
<PAGE> 208
U.S. Dollar-denominated, collateralized Brady Bonds, which may be fixed
rate par bonds or floating rate discount bonds, are generally collateralized in
full as to principal due at maturity by U.S. Treasury zero coupon obligations
which have the same maturity as the Brady Bonds. Interest payments on these
Brady Bonds generally are collateralized by cash or securities in an amount
that, in the case of fixed rate bonds, is equal to at least one year of rolling
interest payments or, in the case of floating rate bonds, initially is equal to
at least one year's rolling interest payments based on the applicable interest
rate at that time and is adjusted at regular intervals thereafter. Certain Brady
Bonds are entitled to "value recovery payments" in certain circumstances, which
in effect constitute supplemental interest payments but generally are not
collateralized. Brady Bonds are often viewed as having three or four valuation
components: (i) the collateralized repayment of principal at final maturity;
(ii) the collateralized interest payments; (iii) the uncollateralized interest
payments; and (iv) any uncollateralized repayment of principal at maturity
(these uncollateralized amounts constitute the "residual risk"). In the event of
a default with respect to collateralized Brady Bonds as a result of which the
payment obligations of the issuer are accelerated, the U.S. Treasury zero coupon
obligations held as collateral for the payment of principal will not be
distributed to investors, nor will such obligations be sold and the proceeds
distributed. The collateral will be held to the scheduled maturity of the
defaulted Brady Bonds by the collateral agent, at which time the face amount of
the collateral will equal the principal payments which would have then been due
on the Brady Bonds in the normal course. In addition, in light of the residual
risk of the Brady Bonds and, among other factors, the history of defaults with
respect to commercial bank loans by public and private entities of countries
issuing Brady Bonds, investments in Brady Bonds should be viewed as speculative.
Equity-Linked Securities
The Value Fund, Mid Cap Growth Fund, Global Equity Fund, Equity Growth
Fund, European Equity Fund, Growth and Income Fund II, Aggressive Equity Fund
and Global Franchise Fund may invest in equity-linked securities, including,
among others, PERCS, ELKS, or LYONs, which are securities that are convertible
into, or the value of which is based upon the value of, equity securities upon
certain terms and conditions. The amount received by an investor at maturity of
such securities is not fixed but is based on the price of the underlying common
stock. It is not possible to predict how equity-linked securities will trade in
the secondary market or whether such market will be liquid or illiquid. The
following are three examples of equity-linked securities. The Funds may invest
in the securities described below or other similar equity-linked securities.
There are certain risks of loss of principal in connection with investing in
equity-linked securities, as described in the following examples of certain
equity-linked securities.
Preferred Equity Redemption Cumulative Stock ("PERCS") convert into
common stock within three years regardless of the price at which the common
stock trades. If the common stock is trading at a price that is at or below the
cap, a Fund receives one share of common stock for each PERCS share. If the
common stock is trading at a price that is above the cap, the Fund receives less
than one share, with the conversion ratio adjusted so that the market value of
the common stock received by the Fund equals the cap. Accordingly, a Fund is
subject to the risk that if the price of the common stock is above the cap price
at the maturity of the PERCS, the Fund will lose the amount of the difference
between the price of the common stock and the cap. Such a loss could
substantially reduce the Fund's initial investment in the PERCS and any
dividends that were paid on the PERCS. PERCS also present risks based on payment
expectations. If a PERCS issuer redeems the PERCS, the Fund may have to replace
the PERCS with a lower yielding security, resulting in a decreased return for
investors.
The principal amount that Equity-Linked Securities ("ELKS") holders
receive at maturity is based on the price of underlying common stock. If the
common stock is trading at a price that is at or below the cap, a Fund receives
for each ELKS share an amount equal to the average price of the common stock. If
<PAGE> 209
the common stock is trading at a price that is above the cap, the Fund receives
the cap amount. Accordingly, a Fund is subject to the risk that if the price of
the common stock is above the cap price at the maturity of the ELKS, the Fund
will lose the amount of the difference between the price of the common stock and
the cap. Such a loss could substantially reduce the Fund's initial investment in
the ELKS and any dividends that were paid on the ELKS. An additional risk is
that the issuer may "reopen" the issue of ELKS and issue additional ELKS at a
later time or issue additional debt securities or other securities with terms
similar to those of the ELKS, and such issuances may affect the trading value of
the ELKS.
The principal amount that Liquid Yield Option Notes ("LYONs") holders
receive for LYONs, other than the lower-than-market yield at maturity, is based
on the price of underlying common stock. If the common stock is trading at a
price that is at or below the purchase price of the LYONs plus accrued original
issue discount, a Fund receives only the lower-than-market yield, assuming the
LYONs are not in default. If the common stock is trading at a price that is
above the purchase price of the LYON's plus accrued original issue discount, the
Fund will receive an amount above the lower-than-market yield on the LYONs,
based on how well the underlying common stock performs. LYONs also present risks
based on payment expectations. If a LYON's issuer redeems the LYONs, the Fund
may have to replace the LYONs with a lower yielding security, resulting in a
decreased return for investors.
Eurodollar and Yankee Obligations
Eurodollar bank obligations are dollar-denominated certificates of
deposit and time deposits issued outside the U.S. capital markets by foreign
branches of banks and by foreign banks. Yankee bank obligations are
dollar-denominated obligations issued in the U.S. capital markets by foreign
banks.
Eurodollar and Yankee obligations are subject to the same risks that
pertain to domestic issues, notably credit risk, market risk and liquidity risk.
Additionally, Eurodollar (and to a limited extent, Yankee) obligations are
subject to certain sovereign risks. One such risk is the possibility that a
sovereign country might prevent capital, in the form of dollars, from flowing
across its borders. Other risks include: adverse political and economic
developments; the extent and quality of government regulation of financial
markets and institutions; the imposition of foreign withholding taxes, and the
expropriation or nationalization of foreign issuers.
Emergence of Eastern European Economies
In recent years there have been two key issues influencing the
investment environment and economic conditions of Europe: the creation of the
single market and the emergence of Eastern European economies. Both of these
factors have helped European companies by opening up new markets for growth.
In connection with efforts to create a single market, eleven of the
fifteen member countries of the European Union are scheduled to establish fixed
conversion rates between their existing sovereign currencies and a new common
currency, the euro, effective January 1, 1999. The introduction of the euro is
expected to reshape financial markets, banking systems and monetary policies in
Europe and other parts of the world. The participating countries will issue
sovereign debt exclusively in the euro and will redenominate outstanding
sovereign debt. Financial transactions and market information, including share
quotations and company accounts, in participating countries will be denominated
in euros. Monetary policy for participating countries will be uniformly managed
by a new central bank, the European Central Bank (ECB).
The transition to the euro may change the economic environment and
behavior of investors, particularly in European markets. For example, the
process of implementing the euro may adversely affect financial markets
world-wide and may result in changes in the relative strength and value of the
U.S. dollar
<PAGE> 210
or other major currencies, as well as possible adverse tax consequences. The
transition to the euro is likely to have a significant impact on fiscal and
monetary policy in the participating countries and may produce unpredictable
effects on trade and commerce generally. These resulting uncertainties could
create increased volatility in financial markets world-wide.
Governments across Europe have also initiated major privatization
programs shifting a greater share of economic activity into the more efficient
private sector. Private companies have sought quotation, following the need to
compete in the capital markets, as much as in the market place for their
products and services. Those companies already quoted have begun to appreciate
the value of their being listed. To achieve a high rating on their equity,
companies need to produce transparent accounts, communicate effectively with
their shareholders and manage their businesses and assets to their shareholders'
advantage. The restructuring, management incentives and rationalization of
companies has lead to lower wage structures and greater flexibility. This has
enabled European companies to match the competitive cost environment of
developing economies.
Demand for equity will grow hand in hand with supply; driven by pension
fund reform, growth in life insurance, shifts in European investing from fixed
income to equities and the emergence of European mutual funds. All of these
factors together will improve the quality of the markets in which European
equities are traded.
Foreign Currency Exchange-Related Securities
Foreign currency warrants are warrants which entitle the holder to
receive from their issuer an amount of cash (generally, for warrants issued in
the United States, in U.S. Dollars) which is calculated pursuant to a
predetermined formula and based on the exchange rate between a specified foreign
currency and the U.S. Dollar as of the exercise date of the warrant. Foreign
currency warrants generally are exercisable upon their issuance and expire as of
a specified date and time. Foreign currency warrants have been issued in
connection with U.S. Dollar-denominated debt offerings by major corporate
issuers in an attempt to reduce the foreign currency exchange risk which, from
the point of view of prospective purchasers of the securities, is inherent in
the international fixed-income marketplace. Foreign currency warrants may
attempt to reduce the foreign exchange risk assumed by purchasers of a security
by, for example, providing for a supplemental payment in the event that the U.S.
Dollar depreciates against the value of a major foreign currency such as the
Japanese Yen or German Deutschmark. The formula used to determine the amount
payable upon exercise of a foreign currency warrant may make the warrant
worthless unless the applicable foreign currency exchange rate moves in a
particular direction (e.g., unless the U.S. Dollar appreciates or depreciates
against the particular foreign currency to which the warrant is linked or
indexed). Foreign currency warrants are severable from the debt obligations with
which they may be offered, and may be listed on exchanges. Foreign currency
warrants may be exercisable only in certain minimum amounts, and an investor
wishing to exercise warrants who possesses less than the minimum number required
for exercise may be required either to sell the warrants or to purchase
additional warrants, thereby incurring additional transaction costs. In the case
of any exercise of warrants, there may be a time delay between the time a holder
of warrants gives instructions to exercise and the time the exchange rate
relating to exercise is determined, during which time the exchange rate could
change significantly, thereby affecting both the market and cash settlement
values of the warrants being exercised. The expiration date of the warrants may
be accelerated if the warrants should be delisted from an exchange or if their
trading should be suspended permanently, which would result in the loss of any
remaining "time value" of the warrants (i.e., the difference between the current
market value and the exercise value of the warrants), and, in the case where the
warrants were "out-of-the-money," in a total loss of the purchase price of the
warrants. Warrants are generally unsecured obligations of their issuers and are
not standardized foreign currency options issued by the OCC. Unlike foreign
currency options issued by the OCC, the terms of foreign exchange warrants
generally will not be amended in the event of
<PAGE> 211
governmental or regulatory actions affecting exchange rates or in the event of
the imposition of other regulatory controls affecting the international currency
markets. The initial public offering price of foreign currency warrants is
generally considerably in excess of the price that a commercial user of foreign
currencies might pay in the interbank market for a comparable option involving
significantly larger amounts of foreign currencies. Foreign currency warrants
are subject to complex political or economic factors.
Principal exchange rate linked securities are debt obligations the
principal on which is payable at maturity in an amount that may vary based on
the exchange rate between the U.S. Dollar and a particular foreign currency at
or about that time. The return on "standard" principal exchange rate linked
securities is enhanced if the foreign currency to which the security is linked
appreciates against the U.S. Dollar, and is adversely affected by increases in
the foreign exchange value of the U.S. Dollar; "reverse" principal exchange rate
linked securities are like the "standard" securities, except that their return
is enhanced by increases in the value of the U.S. Dollar and adversely impacted
by increases in the value of foreign currency. Interest payments on the
securities are generally made in U.S. Dollars at rates that reflect the degree
of foreign currency risk assumed or given up by the purchaser of the notes
(i.e., at relatively higher interest rates if the purchaser has assumed some of
the foreign exchange risk, or relatively lower interest rates if the issuer has
assumed some of the foreign exchange risk, based on the expectations of the
current market). Principal exchange rate linked securities may in limited cases
be subject to acceleration of maturity (generally, not without the consent of
the holders of the securities), which may have an adverse impact on the value of
the principal payment to be made at maturity.
Performance indexed paper is U.S. Dollar-denominated commercial paper
the yield of which is linked to certain foreign exchange rate movements. The
yield to the investor on performance indexed paper is between the U.S. Dollar
and a designated currency as of or about that time (generally, the index
maturity two days prior to maturity). The yield to the investor will be within a
range stipulated at the time of purchase of the obligation, generally with a
guaranteed minimum rate of return that is below, and a potential maximum rate of
return that is above, market yields on U.S. Dollar-denominated commercial paper,
with both the minimum and maximum rates of return on the investment
corresponding to the minimum and maximum values of the spot exchange rate two
business days prior to maturity.
Forward Foreign Currency Exchange Contracts
The U.S. Dollar value of the assets of the Global Equity Fund, Global
Equity Allocation Fund, Global Fixed Income Fund, Asian Growth Fund, Emerging
Markets Fund, Emerging Markets Debt Fund, Latin American Fund, European Equity
Fund, Japanese Equity Fund, International Magnum and Global Franchise Fund and
to the extent they invest in assets denominated in foreign currencies, the Value
Fund, Mid Cap Growth Fund, American Value Fund, Aggressive Equity Fund, Growth
and Income Fund II, Equity Growth Fund, Worldwide High Income Fund and High
Yield & Total Return Fund may be affected favorably or unfavorably by changes in
foreign currency exchange rates and exchange control regulations, and the Funds
may incur costs in connection with conversions between various currencies. The
Funds will conduct their foreign currency exchange transactions either on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or through entering into forward contracts to purchase or sell foreign
currencies. A forward foreign currency exchange contract (a "forward contract")
involves an obligation to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract. These contracts are
traded in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A forward contract
generally has no deposit requirement, and no commissions are charged at any
stage for such trades.
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The Funds may enter into forward contracts in several circumstances.
When a Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, or when a Fund anticipates the receipt in a
foreign currency of dividends or interest payments on a security which it holds,
the Fund may desire to "lock-in" the U.S. Dollar price of the security or the
U.S. Dollar equivalent of such dividend or interest payment, as the case may be.
By entering into a forward contract for a fixed amount of dollars, for the
purchase or sale of the amount of foreign currency involved in the underlying
transactions, the Fund will be able to protect itself against a possible loss
resulting from an adverse change in the relationship between the U.S. Dollar and
the subject foreign currency during the period between the date on which the
security is purchased or sold, or on which the dividend or interest payment is
declared, and the date on which such payments are made or received.
Additionally, when any of these Funds anticipates that the currency of
a particular foreign country may suffer a substantial decline against the U.S.
Dollar, it may enter into a forward contract for a fixed amount of dollars, to
sell the amount of foreign currency approximating the value of some or all of
such Fund's securities denominated in such foreign currency. The precise
matching of the forward contract amounts and the value of the securities
involved will not generally be possible since the future value of securities in
foreign currencies will change as a consequence of market movements in the value
of these securities between the date on which the forward contract is entered
into and the date it matures. The projection of short-term currency market
movement is extremely difficult, and the successful execution of a short-term
hedging strategy is highly uncertain. A Fund will not enter into such forward
contracts or maintain a net exposure to such contracts where the consummation of
the contracts would obligate such Fund to deliver an amount of foreign currency
in excess of the value of such Fund's securities or other assets denominated in
that currency.
Under normal circumstances, consideration of the prospect for currency
parities will be incorporated into the long-term investment decisions made with
regard to overall diversification strategies. However, the management of the
Company believes that it is important to have the flexibility to enter into such
forward contracts when it determines that the best interests of the performance
of each Fund will thereby be served. Except in circumstances where segregated
accounts are not required by the 1940 Act and the rules adopted thereunder, the
Company's Custodian will place cash or liquid assets into a segregated account
of a Fund in an amount equal to the value of such Fund's total assets committed
to the consummation of forward contracts. If the value of the securities placed
in the segregated account declines, additional cash or assets will be placed in
the account on a daily basis so that the value of the account will be at least
equal to the amount of such Fund's commitments with respect to such contracts.
The Funds generally will not enter into a forward contract with a term
of greater than one year. At the maturity of a forward contract, a Fund may
either accept or make delivery of the currency specified in the contract or,
prior to maturity, enter into a closing purchase transaction involving the
purchase or sale of an offsetting contract. Closing purchase transactions with
respect to forward contracts are usually effected with the currency trader who
is a party to the original forward contract. A Fund will only enter into such a
forward contract if it is expected that there will be a liquid market in which
to close out such contract. There can, however, be no assurance that such a
liquid market will exist in which to close a forward contract, in which case the
Fund may suffer a loss.
It is impossible to forecast with absolute precision the market value
of a particular portfolio security at the expiration of the contract.
Accordingly, it may be necessary for a Fund to purchase additional foreign
currency on the spot market (and bear the expense of such purchase) if the
market value of the security is less than the amount of foreign currency that
such Fund is obligated to deliver and if a decision is made to sell the security
and make delivery of the foreign currency.
If a Fund retains the portfolio security and engages in an offsetting
transaction, such Fund will incur a gain or a loss (as described below) to the
extent that there has been movement in forward contract prices. Should forward
prices decline during the period between a Fund entering into a forward contract
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for the sale of a foreign currency and the date it enters into an offsetting
contract for the purchase of the foreign currency, such Fund will realize a gain
to the extent that the price of the currency it has agreed to sell exceeds the
price of the currency it has agreed to purchase. Should forward prices increase,
such Fund would suffer a loss to the extent that the price of the currency it
has agreed to purchase exceeds the price of the currency it has agreed to sell.
The Funds are not required to enter into such transactions with regard
to their foreign currency-denominated securities. It also should be realized
that this method of protecting the value of portfolio securities against a
decline in the value of a currency does not eliminate fluctuations in the
underlying prices of the securities. It simply establishes a rate of exchange
which one can achieve at some future point in time. Additionally, although such
contracts tend to minimize the risk of loss due to a decline in the value of the
hedged currency, at the same time, they tend to limit any potential gain which
might result should the value of such currency increase.
In addition, Funds may cross-hedge currencies by entering into a
transaction to purchase or sell one or more currencies that are expected to
decline in value relative to other currencies to which a portfolio has or
expects to have portfolio exposure. These Funds may also engage in proxy
hedging, which is defined as entering into positions in one currency to hedge
investments denominated in another currency, where two currencies are
economically linked. A Fund's entry into forward contracts, as well as any use
of proxy or cross hedging techniques, will generally require the Fund to hold
liquid securities or cash equal to the Fund's obligations in a segregated
account throughout the duration of the contract.
Futures Contracts
Futures contracts provide for the future sale by one party and purchase
by another party of a specified amount of a specific security or a specific
currency at a specified future time and at a specified price. Futures contracts,
which are standardized as to maturity date and underlying financial instrument,
index or currency, traded in the United States are traded on national futures
exchanges. Futures exchanges and trading are regulated under the Commodity
Exchange Act by the Commodity Futures Trading Commission ("CFTC"), a U.S.
Government agency.
Although futures contracts by their terms call for actual delivery or
acceptance of the underlying securities or currencies, in most cases the
contracts are closed out before the settlement date without the making or taking
of delivery. Closing out an open futures position is done by taking an opposite
position ("buying" a contract which has previously been "sold" or "selling" a
contract previously "purchased") in an identical contract to terminate the
position. Brokerage commissions are incurred when a futures contract is bought
or sold.
Unless otherwise limited herein, the Funds may sell indexed financial
futures contracts in anticipation of or during a market decline to attempt to
offset the decrease in market value of securities in its portfolio that might
otherwise result. An index futures contract is an agreement to take or make
delivery of an amount of cash equal to the difference between the value of the
index at the beginning and at the end of the contract period. Successful use of
index futures will be subject to the Adviser's ability to predict correctly
movements in the direction of the relevant securities market. No assurance can
be given that the Adviser's judgment in this respect will be correct.
Unless otherwise limited herein, the Funds may sell indexed financial
futures contracts in anticipation of or during a market decline to attempt to
offset the decrease in market value of securities in its portfolio that might
otherwise result. If the Adviser believes that a portion of a Fund's assets
should be invested in emerging country securities but such investments have not
been fully made and the Adviser anticipates a significant market advance, the
Fund may purchase index futures in order to gain rapid market exposure that may
in part or entirely offset increases in the cost of securities that it intends
to purchase. In a substantial majority of these transactions, the Fund will
purchase such securities upon
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termination of the futures position but, under unusual market conditions, a
futures position may be terminated without the corresponding purchase of such
securities.
Futures traders are required to make a good faith margin deposit in
cash or liquid securities with a broker or custodian to initiate and maintain
open positions in futures contracts. A margin deposit is intended to assure
completion of the contract (delivery or acceptance of the underlying security)
if it is not terminated prior to the specified delivery date. Minimal initial
margin requirements are established by the futures exchange and may be changed.
Brokers may establish deposit requirements which are higher than the exchange
minimums. Futures contracts are customarily purchased and sold for prices that
may range upward from less than 5% of the value of the contract being traded.
After a futures contract position is opened, the value of the contract
is marked-to-market daily. If the futures contract price changes to the extent
that the margin on deposit does not satisfy margin requirements, payment of an
additional "variation" margin will be required. Conversely, a change in the
contract value may reduce the required margin, resulting in a repayment of
excess margin to the contract holder. Variation margin payments are made to and
from the futures broker for as long as the contract remains open. The Funds
expect to earn interest income on its margin deposits.
Traders in futures contracts may be broadly classified as either
"hedgers" or "speculators." Hedgers use the futures markets primarily to offset
unfavorable changes in the value of securities otherwise held for investment
purposes or expected to be acquired by them. Speculators are less inclined to
own the underlying securities with futures contracts that they trade, and use
futures contracts with the expectation of realizing profits from market
fluctuations. The Funds intend to use futures contracts only for hedging
purposes.
Regulations of the CFTC applicable to the Funds require generally that
all futures transactions constitute bona fide hedging transactions. A Fund may
engage in futures transactions for other purposes so long as the aggregate
initial margin and premiums required for such transaction will not exceed 5% of
the liquidation value of the Fund's portfolio, after taking into account
unrealized profits and unrealized losses on any such contracts it has entered
into. The Funds generally will only sell futures contracts to protect securities
owned against declines in price or purchase contracts to protect against an
increase in the price of securities intended for purchase. As evidence of this
hedging interest, the Funds expect that approximately 75% of their respective
futures contracts will be "completed"; that is, equivalent amounts of related
securities will have been purchased or are being purchased by the Fund upon sale
of open futures contracts.
Although techniques other than the sale and purchase of futures
contracts could be used to control a Fund's exposure to market fluctuations, the
use of futures contracts may be a more effective means of hedging this exposure.
While the Funds will incur commission expenses in both opening and closing out
futures positions, these costs are lower than transaction costs incurred in the
purchase and sale of the underlying securities.
Restrictions on the Use of Futures Contracts. None of the Funds will enter into
futures contract transactions to the extent that, immediately thereafter, the
sum of its initial margin deposits on open contracts exceeds 5% of the market
value of its total assets. In addition, none of the Funds will enter into
futures contracts and options on futures contracts to the extent that the
notional value of its outstanding obligations to purchase securities under such
contracts would exceed 20% (50% for the Mid Cap Growth Fund, Value Fund, Equity
Growth Fund, Emerging Markets Debt Fund and Global Equity Fund) of its total
assets. See also, "Investment Limitations" for further restrictions applicable
to the Funds.
Risk Factors in Futures Transactions. Positions in futures contracts may be
closed out only on an exchange which provides a secondary market for such
futures. However, there can be no assurance that a liquid secondary market will
exist for any particular futures contract at any specific time. Thus, it may not
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be possible to close a futures position. In the event of adverse price
movements, a Fund would continue to be required to make daily cash payments to
maintain its required margin. In such situations, if a Fund has insufficient
cash, it may have to sell portfolio securities to meet its daily margin
requirement at a time when it may be disadvantageous to do so. In addition, the
Fund may be required to make delivery of the instruments underlying futures
contracts it holds. The inability to close options and futures positions also
could have an adverse impact on the Fund's ability to effectively hedge.
The Funds will minimize the risk that they will be unable to close out
a futures contract by generally entering into futures which are traded on
recognized international or national futures exchanges and for which there
appears to be a liquid secondary market, however, the Funds may enter into
over-the-counter futures transactions to the extent permitted by applicable law.
The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required and the extremely high
degree of leverage involved in futures pricing. As a result, a relatively small
price movement in a futures contract may result in immediate and substantial
loss (as well as gain) to the investor. For example, if, at the time of
purchase, 10% of the value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract would result in a
total loss of the margin deposit, before any deduction for the transaction
costs, if the account were then closed out. A 15% decrease would result in a
loss equal to 150% of the original margin deposit if the contract were closed
out. Thus, a purchase or sale of a futures contract may result in losses in
excess of the amount invested in the contract. However, because the Funds engage
in futures strategies only for hedging purposes, the Adviser does not believe
that the Funds are subject to the risks of loss frequently associated with
futures transactions. The Fund would presumably have sustained comparable losses
if, instead of the futures contract, the Fund had invested in the underlying
security or currency and sold it after the decline.
Utilization of futures transactions by a Fund does involve the risk of
imperfect or no correlation where the securities underlying futures contracts
have different maturities than the portfolio securities or currencies being
hedged. It is also possible that a Fund could both lose money on futures
contracts and also experience a decline in value of its portfolio securities.
There is also the risk of loss by a Fund of margin deposits in the event of
bankruptcy of a broker with whom the Fund has an open position in a futures
contract or related option.
Most futures exchanges limit the amount of fluctuation permitted in
futures contract prices during a single trading day. The daily limit establishes
the maximum amount that the price of a futures contract may vary either up or
down from the previous day's settlement price at the end of a trading session.
Once the daily limit has been reached in a particular type of contract, no
trades may be made on that day at a price beyond that limit. The daily limit
governs only price movement during a particular trading day and therefore does
not limit potential losses, because the limit may prevent the liquidation of
unfavorable positions. Futures contract prices have occasionally moved to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and subjecting some
futures traders to substantial losses.
Options on Foreign Currencies
Unless otherwise limited herein, the Funds may attempt to accomplish
objectives similar to those described above with respect to forward foreign
currency exchange contracts and futures contracts for currency by means of
purchasing put or call options on foreign currencies on exchanges. A put option
gives a Fund the right to sell a currency at the exercise price until the
expiration of the option. A call option gives a Fund the right to purchase a
currency at the exercise price until the expiration of the option.
The Funds noted above may purchase and write options on foreign
currencies in a manner similar to that in which futures contracts on foreign
currencies, or forward contracts, will be utilized. For example,
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a decline in the dollar value of a foreign currency in which portfolio
securities are denominated will reduce the dollar value of such securities, even
if their value in the foreign currency remains constant. In order to protect
against such diminution in the value of portfolio securities, the Funds may
purchase put options on the foreign currency. If the value of the currency does
decline, the Funds will have the right to sell such currency for a fixed amount
in dollars and will thereby offset, in whole or in part, the adverse effect on
their portfolios which otherwise would have resulted. Conversely, where a rise
in the dollar value of a currency in which securities to be acquired are
denominated is projected, thereby increasing the cost of such securities, the
Funds may purchase call options thereon. The purchase of such options could
offset, at least partially, the effects of the adverse movements in exchange
rates. As in the case of other types of options, however, the benefit to the
Funds derived from purchases of foreign currency options will be reduced by the
amount of the premium and related transaction costs. In addition, where currency
exchange rates do not move in the direction or to the extent anticipated, the
Funds could sustain losses on transactions in foreign currency options which
would require them to forego a portion or all of the benefits of advantageous
changes in such rates.
Funds may write options on foreign currencies for the same purposes.
For example, where a Fund anticipates a decline in the dollar value of foreign
currency denominated securities due to adverse fluctuations in exchange rates it
could, instead of purchasing a put option, write a call option on the relevant
currency. If the anticipated decline occurs, the option will most likely not be
exercised, and the diminution in value of portfolio securities will be offset by
the amount of the premium received. Similarly, instead of purchasing a call
option to hedge against an anticipated increase in the dollar cost of securities
to be acquired, the Fund could write a put option on the relevant currency
which, if rates move in the manner projected, will expire unexercised and allow
the portfolio to hedge such increased cost up to the amount of the premium. As
in the case of other types of options, however, the writing of a foreign
currency option will constitute only a partial hedge up to the amount of the
premium, and only if rates move in the expected direction. If this does not
occur, the option may be exercised and the Fund would be required to purchase or
sell the underlying currency at a loss which may not be offset by the amount of
the premium. Through the writing of options on foreign currencies, the Fund also
may be required to forego all or a portion of the benefits which might otherwise
have been obtained from favorable movements in exchange rates.
Funds may only write covered call options on foreign currencies. A call
option written on a foreign currency by the portfolio is "covered" if the Fund
owns the underlying foreign currency covered by the call, an absolute and
immediate right to acquire that foreign currency without additional cash
consideration (or for additional cash consideration held in a segregated account
by the Custodian) or upon conversion or exchange of other foreign currency held
in its portfolio. A written call option is also covered if the Fund has a call
on the same foreign currency and in the same principal amount as the call
written where the exercise price of the call held (a) is equal to or less than
the exercise price of the call written or (b) is greater than the exercise price
of the call written if the difference is maintained by the Fund in cash or other
liquid securities in a segregated account with the Custodian, or (c) maintains
in a segregated account cash or other liquid securities in an amount not less
than the value of the underlying foreign currency in U.S. Dollars,
marked-to-market daily.
Funds may also write call options on foreign currencies for
cross-hedging purposes. A call option on a foreign currency is for cross-hedging
purposes if it is designed to provide a hedge against a decline in the U.S.
Dollar value of a security which the portfolio owns or has the right to acquire
due to an adverse change in the exchange rate and which is denominated in the
currency underlying the option. In such circumstances, the Fund will either
"cover" the transaction as described above or collateralize the option by
maintaining in a segregated account with the Custodian, cash or other liquid
securities in an amount not less than the value of the underlying foreign
currency in U.S. Dollars marked-to-market daily.
Funds may combine forward contracts with investments in securities
denominated in other currencies in order to achieve desired credit and currency
exposures. Such combinations are generally
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referred to as synthetic securities. For example, in lieu of purchasing a
foreign bond, a Fund may purchase a U.S. dollar-denominated security and at the
same time enter into a forward contract to exchange U.S. dollars for the
contract's underlying currency at a future date. By matching the amount of U.S.
dollars to be exchanged with the anticipated value of the U.S.
dollar-denominated security, the Fund may be able to lock in the foreign
currency value of the security and adopt a synthetic position reflecting the
credit quality of the U.S. dollar-denominated security.
To the extent required by the rules and regulations of the Securities
and Exchange Commission ("SEC"), the Custodian of the Funds will place cash or
other liquid assets into a segregated account of a Fund in an amount equal to
the value of such Fund's total assets committed to the consummation of forward
foreign currency exchange contracts. If the value of the securities placed in
the segregated account declines, additional cash or liquid assets will be placed
in the account on a daily basis so that the value of the account will be at
least equal to the amount of such Fund's commitments with respect to such
contracts.
Options Transactions
Unless otherwise limited herein, the Funds may write (i.e., sell)
covered call options which give the purchaser the right to buy the underlying
security covered by the option from the Fund at the stated exercise price. A
"covered" call option means that so long as a Fund is obligated as the writer of
the option, it will own (i) the underlying securities subject to the option, or
(ii) securities convertible or exchangeable without the payment of any
consideration into the securities subject to the option.
A Fund will receive a premium from writing call options, which
increases the Fund's return on the underlying security in the event the option
expires unexercised or is closed out at a profit. By writing a call, a Fund will
limit its opportunity to profit from an increase in the market value of the
underlying security above the exercise price of the option for as long as the
Fund's obligation as writer of the option continues. Thus, in some periods a
Fund will receive less total return and in other periods greater total return
from writing covered call options than it would have received from its
underlying securities had it not written call options.
A Fund may sell put options to receive the premiums paid by purchasers
and to close out a long put option position. In addition, when the Adviser
wishes to purchase a security at a price lower than its current market price, a
Fund may write a covered put at an exercise price reflecting the lower purchase
price sought.
A Fund may purchase call options to close out a covered call position
or to protect against an increase in the price of a security it anticipates
purchasing. A Fund may purchase put options on securities which it holds in its
portfolio to protect itself against a decline in the value of the security. If
the value of the underlying security were to fall below the exercise price of
the put purchased in an amount greater than the premium paid for the option, the
Fund would incur no additional loss. A Fund may also purchase put options to
close out written put positions in a manner similar to call option closing
purchase transactions. There are no other limits on a Fund's ability to purchase
call and put options.
Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC Option. As a result, if the counterparty fails to
make or take delivery of the security, currency or other instrument underlying
an OTC Option it has entered into with a Fund or fails to make a cash settlement
payment due in accordance with the terms of that option, the Fund will lose any
premium it paid for the option as well as any anticipated benefit of the
transaction. Accordingly, the Adviser must assess the creditworthiness of each
such counterparty or any guarantor of credit enhancement of the counterparty's
credit to determine the likelihood that the terms of the OTC Options will be
satisfied. The staff of the SEC currently takes the position that OTC Options
purchased by a Fund or sold by it (the cost of the sell-back plus the
in-the-money amount, if any) are illiquid unless the Fund has entered into a
special arrangement to dispose of the security, and are subject to the Fund's
limitation on investing in illiquid securities.
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Investments in options involve some of the same considerations that are
involved in connection with investments in futures contracts (e.g., the
existence of a liquid secondary market). In addition, the purchase of an option
also entails the risk that changes in the value of the underlying security or
contract will not be fully reflected in the value of the option purchased.
Depending on the pricing of the option compared to either the futures contract
or securities, an option may or may not be less risky than ownership of the
futures contract or actual securities. In general, the market prices of options
can be expected to be more volatile than the market prices on the underlying
futures contract or securities. In the opinion of the Adviser, the risk that a
Fund will be unable to close out an options contract will be minimized by only
entering into options transactions for which there appears to be a liquid
secondary market.
Combined Transactions
Unless otherwise limited herein, the Funds may enter into multiples of
the forwards, futures and options transactions described above, including
multiple options transactions, multiple futures transactions, multiple foreign
currency transactions (including forward foreign currency exchange contracts)
and any combination of futures, options and foreign currency transactions,
instead of a single transaction, as part of a single hedging strategy when, in
the opinion of the Adviser, it is in the best interest of the Fund to do so. A
combined transaction, while part of a single strategy, may contain elements of
risk that are present in each of its component transactions and will be
structured in accordance with applicable Securities and Exchange Commission (the
"SEC") regulations and SEC staff guidelines.
Risks of Options on Futures Contracts, Forward Contracts and Options on Foreign
Currencies
Options on foreign currencies and forward contracts are not traded on
contract markets regulated by the CFTC or (with the exception of certain foreign
currency options) by the SEC. To the contrary, such instruments are traded
through financial institutions acting as market-makers, although foreign
currency options are also traded on certain national securities exchanges, such
as the Philadelphia Stock Exchange and the Chicago Board Options Exchange,
subject to SEC regulation. Similarly, options on currencies may be traded
over-the-counter. In an over-the-counter trading environment, many of the
protections afforded to exchange participants will not be available. For
example, there are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a period of time.
Although the purchase of an option cannot lose more than the amount of the
premium plus related transaction costs, this entire amount could be lost.
Moreover, the option writer and a trader of forward contracts could lose amounts
substantially in excess of their initial investments.
Options on foreign currencies traded on national securities exchanges
are within the jurisdiction of the SEC, as are other securities traded on such
exchanges. As a result, many of the protections provided to traders on organized
exchanges will be available with respect to such transactions. In particular,
all foreign currency option positions entered into on a national securities
exchange are cleared and guaranteed by the Options Clearing Corporation ("OCC"),
thereby reducing the risk of counterparty default. Furthermore, a liquid
secondary market in options traded on a national securities exchange may be more
readily available than in the over-the-counter market, potentially permitting a
Fund to liquidate open positions at a profit prior to exercise or expiration, or
to limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options,
however, is subject to the risks of the availability of a liquid secondary
market described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effect of other
political and economic events. In addition, exchange-traded options of foreign
currencies involve certain risks not presented by the
<PAGE> 219
over-the-counter market. For example, exercise and settlement of such options
must be made exclusively through the OCC, which has established banking
relationships in applicable foreign countries for this purpose. As a result, the
OCC may, if it determines that foreign governmental restrictions or taxes would
prevent the orderly settlement of foreign currency option exercises, or would
result in undue burdens on the OCC or its clearing member, impose special
procedures on exercise and settlement, such as technical changes in the
mechanics of delivery of currency, the fixing of dollar settlement prices or
prohibitions, on exercise.
In addition, futures contracts, options on futures contracts, forward
contracts and options on foreign currencies may be traded on foreign exchanges.
Such transactions are subject to the risk of governmental actions affecting
trading in or the prices of foreign currencies or securities. The value of such
positions also could be adversely affected by (i) other complex foreign
political and economic factors, (ii) lesser availability than in the United
States of data on which to make trading decision, (iii) delays in the Fund's
ability to act upon economic events occurring in foreign markets during non
business hours in the United States, (iv) the imposition of different exercise
and settlement terms and procedures and margin requirements than in the United
States, and (v) lesser trading volume.
Global Investing
Investors should recognize that investing in foreign securities
involves special considerations which are not typically associated with
investing in domestic securities. Since the securities of foreign issuers are
frequently denominated in foreign currencies, and since a Fund may temporarily
hold uninvested reserves in bank deposits in foreign currencies, a Fund will be
affected favorably or unfavorably by changes in currency rates and in exchange
control regulations, and may incur costs in connection with conversions between
various currencies. The investment policies of certain Funds permit entering
into forward foreign currency exchange contracts in order to hedge holdings and
commitments against changes in the level of future currency rates. Such
contracts involve an obligation to purchase or sell a specific currency at a
future date at a price set at the time of the contract.
Although the Funds will endeavor to achieve most favorable execution
costs in their portfolio transactions, fixed commissions on many foreign stock
exchanges are generally higher than negotiated commissions on U.S. exchanges. In
addition, it is expected that the expenses for custodian arrangements of a
Fund's foreign securities will be somewhat greater than the expenses for the
custodian arrangements for handling the U.S. securities of equal value.
Certain foreign governments levy withholding taxes against dividend and
interest income. Although in some countries a portion of these taxes are
recoverable, the non-recovered portion of foreign withholding taxes will reduce
the income received from investments in such countries. Additional risks of
foreign investing are set forth in the appropriate Prospectuses.
Illiquid Securities
Illiquid securities are securities that cannot be disposed of within
seven business days at approximately the price they are being carried on a
Fund's books. This lack of a liquid secondary market may have an adverse impact
on the value of such securities and a Fund's ability to dispose of particular
securities when necessary to meet the Fund's liquidity needs or in response to a
specific economic event such as a deterioration in the creditworthiness of the
borrower. The lack of a liquid secondary market for securities also may make it
more difficult for a Fund to assign a value to these securities for purposes of
valuing the Fund's portfolio and calculating its net asset value.
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Investment Company Securities
The 1940 Act generally prohibits a Fund from acquiring more than 3% of
the outstanding voting shares of an investment company and limits such
investments to no more than 5% of the Fund's total assets in any one investment
company and no more than 10% in any combination of investment companies. The
1940 Act also prohibits a Fund from acquiring in the aggregate more than 10% of
the outstanding voting shares of any registered closed-end investment company. A
Fund may not purchase shares of any affiliated investment company except as
permitted by the 1940 Act, an exemption from the 1940 Act or other applicable
law.
Mortgage-Related Debt Securities
Mortgage-related debt securities represent ownership interests in
individual pools of residential mortgage loans. These securities are designed to
provide monthly payments of interest and principal to the investor. Each
mortgagor's monthly payment to his lending institution on his residential
mortgage is "passed-through" to investors. Mortgage pools consist of whole
mortgage loans or participations in loans. The terms and characteristics of the
mortgage instruments are generally uniform within a pool but may vary among
pools. Lending institutions which originate mortgages for the pools are subject
to certain standards, including credit and underwriting criteria for individual
mortgages included in the pools.
The coupon rate of interest on mortgage-related securities is lower
than the interest rates paid on the mortgages included in the underlying pool,
but only by the amount of the fees paid to the mortgage pooler, issuer, and/or
guarantor of payment of the securities for the guarantee of the services of
passing through monthly payments to investors. Actual yield may vary from the
coupon rate, however, if mortgage-related securities are purchased at a premium
or discount, traded in the secondary market at a premium or discount, or to the
extent that mortgages in the underlying pool are prepaid as noted above. In
addition, interest on mortgage-related securities is earned monthly, rather than
semi-annually as is the case for traditional bonds, and monthly compounding may
tend to raise the effective yield earned on such securities.
Morgan Stanley Capital International EAFE Index
The International Magnum Fund seeks to achieve its objective by
investing primarily in equity securities of non-U.S. issuers in accordance with
the EAFE country (defined below) weightings determined by the Adviser. After
establishing regional allocation strategies, the Adviser then selects equity
securities among issuers of a region. The Fund invests in countries (each an
"EAFE country") comprising the Morgan Stanley Capital International EAFE
(Europe, Australia and the Far East) Index (the "EAFE Index") and any countries
which have been publicly announced will be added to the EAFE Index.
The EAFE Index is one of seven International Indices, twenty National
Indices and thirty-eight Industry Indices making up the Morgan Stanley Capital
International Indices. The Morgan Stanley Capital International EAFE Index is
based on the share prices of 1,066 companies listed on the stock exchanges of
Europe, Australia, New Zealand and the Far East. "Europe" includes Austria,
Belgium, Denmark, Finland, France, Germany, Italy, the Netherlands, Norway,
Portugal, Spain, Sweden, Switzerland and the United Kingdom. "Far East" includes
Japan, Hong Kong and Singapore/Malaysia.
Morgan Stanley Capital International World Index
The investment objective of the Global Equity Allocation Fund is to
provide long-term capital appreciation by investing in equity securities of U.S.
and non-U.S. issuers in accordance with country weightings determined by the
Adviser and with stock selection within each country designed to replicate a
broad market index. The Adviser determines country allocations for the Fund on
an ongoing basis within policy ranges dictated by each country's market
capitalization and liquidity. The Fund will invest in the United States and
industrialized countries throughout the world that comprise the Morgan Stanley
Capital International World Index (the "World Index"). The World Index is one of
the indices making up the Morgan Stanley Capital International Indices.
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The World Index is based on the share prices of companies listed on the
stock exchanges of Australia, Austria, Belgium, Canada, Denmark, Finland,
France, Germany, Hong Kong, Italy, Japan, the Netherlands, New Zealand, Norway,
Singapore/ Malaysia, Spain, Sweden, Switzerland, the United Kingdom and the
United States.
Obligations of Domestic Banks, Foreign Banks and Foreign Branches of U.S. Banks
For purposes of the Funds' investment policies with respect to bank
obligations, the assets of a bank or savings institution will be deemed to
include the assets of its domestic and foreign branches. Investments in bank
obligations will include obligations of domestic branches of foreign banks and
foreign branches of domestic banks. Such investments may involve risks that are
different from investments in securities of domestic branches of U.S. banks. See
the Prospectuses for a discussion of the risks of foreign investments. These
institutions may be subject to less stringent reserve requirements and to
different accounting, auditing, reporting and record keeping requirements than
those applicable to domestic branches of U.S. banks. The Money Market Funds will
invest in U.S. Dollar-denominated obligations of domestic branches of foreign
banks and foreign branches of domestic banks only when the Adviser believes that
the risks associated with such investment are minimal and that all applicable
quality standards have been satisfied.
Portfolio Turnover
The portfolio turnover rate for a year is the lesser of the value of
the purchases or sales for the year divided by the average monthly market value
of the Fund for the year, excluding securities with maturities of one year or
less. The rate of portfolio turnover will not be a limiting factor when a Fund
deems it appropriate to purchase or sell securities for the portfolio. High
rates of portfolio turnover necessarily result in correspondingly heavier
brokerage and portfolio trading costs which are paid by the Funds. In addition
to portfolio trading costs, higher rates of portfolio turnover may result in the
realization of capital gains. See "Taxes" in the Prospectus for more information
on taxation.
Repurchase Agreements
The repurchase price under the repurchase agreements described in the
Prospectus generally equals the price paid by a Fund plus interest negotiated on
the basis of current short-term rates (which may be more or less than the rate
on the securities underlying the repurchase agreement). Securities subject to
repurchase agreements will be held by the Custodian in the Federal
Reserve/Treasury book-entry system or by another authorized securities
depository.
Securities Lending
Each Fund may lend its investment securities to qualified institutional
investors who need to borrow securities in order to complete certain
transactions, such as covering short sales, avoiding failures to deliver
securities or completing arbitrage operations. By lending its investment
securities, a Fund attempts to increase its net investment income through the
receipt of interest on the loan. Any gain or loss in the market price of the
securities loaned that might occur during the term of the loan would be for the
account of the Fund. Each Fund may lend its investment securities to qualified
brokers, dealers, domestic and foreign banks or other financial institutions, so
long as the terms, structure and the aggregate amount of such loans are not
inconsistent with the 1940 Act, or the Rules and Regulations or interpretations
of the SEC thereunder, which currently require that (a) the borrower pledge and
maintain with the Fund collateral consisting of cash, an irrevocable letter of
credit issued by a domestic U.S. bank, or liquid securities having a value at
all times not less than 100% of the value of the securities loaned, including
accrued interest, (b) the borrower add to such collateral whenever the price of
<PAGE> 222
the securities loaned rises (i.e., the borrower "marks to the market" on a daily
basis), (c) the loan be made subject to termination by the Fund at any time, and
(d) the Fund receive reasonable interest on the loan (which may include the Fund
investing any cash collateral in interest bearing short-term investments), any
distributions on the loaned securities and any increase in their market value.
There may be risks of delay in recovery of the securities or even loss of rights
in the collateral should the borrower of the securities fail financially.
However, loans will only be made to borrowers deemed by the Adviser to be of
good standing and when, in the judgment of the Adviser, the consideration which
can be earned currently from such securities loans justifies the attendant risk.
All relevant facts and circumstances, including the creditworthiness of the
broker, dealer or institution, will be considered in making decisions with
respect to the lending of securities, subject to review by the Directors.
At the present time, the staff of the SEC does not object if an
investment company pays reasonable negotiated fees in connection with loaned
securities, so long as such fees are set forth in a written contract and
approved by the investment company's Directors. In addition, voting rights may
pass with the loaned securities, but if a material event will occur affecting an
investment on loan, the loan must be called and the securities voted.
Stand-By Commitments
A Fund may enter into stand-by commitments with respect to obligations
issued by or on behalf of states, territories, and possessions of the United
States, the District of Columbia, and their political subdivisions, agencies,
instrumentalities and authorities (collectively, "Municipal Obligations") held
in its portfolio. Under a stand-by commitment, a dealer would agree to purchase,
at a Fund's option, a specified Municipal Obligation at its amortized cost value
to the Fund plus accrued interest, if any. Stand-by commitments may be
exercisable by a Fund at any time before the maturity of the underlying
Municipal Obligations and may be sold, transferred or assigned only with the
instruments involved.
The Funds expect that stand-by commitments will generally be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, a Fund may pay for a stand-by commitment either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities). The total amount paid in either
manner for outstanding stand-by commitments held by a Fund will not exceed 1/2
of 1% of the value of that Fund's total assets calculated immediately after each
stand-by commitment is acquired.
The Funds intend to enter into stand-by commitments only with dealers,
banks and broker-dealers which, in the Adviser's opinion, present minimal credit
risks and otherwise satisfy applicable quality standards. The Funds' reliance
upon the credit of these dealers, banks and broker-dealers will be secured by
the value of the underlying Municipal Obligations that are subject to the
commitment.
The Funds will acquire stand-by commitments solely to facilitate
portfolio liquidity and do not intend to exercise their right thereunder for
trading purposes. The acquisition of a stand-by commitment will not affect the
valuation or assumed maturity of the underlying Municipal Obligation which will
continue to be valued in accordance with the amortized cost method. The actual
stand-by commitment will be valued at zero in determining net asset value.
Accordingly, where a Fund pays directly or indirectly for a stand-by commitment,
its cost will be reflected as an unrealized loss for the period during which the
commitment is held by that Fund and will be reflected in realized gain or loss
when the commitment is exercised or expires.
Stripped Mortgage-Backed Securities
Stripped mortgage-backed securities ("SMBS") are derivative multiclass
mortgage securities. SMBS may be issued by agencies or instrumentalities of the
U.S. Government or by private originators of,
<PAGE> 223
or investors in, mortgage loans, including savings and loan associations,
mortgage banks, commercial banks, investment banks and special purpose entities
of the foregoing.
SMBS are usually structured with two classes that receive different
proportions of the interest and principal distributions on a pool of mortgage
assets. A common type of SMBS will have one class receiving some of the interest
and most of the principal from the mortgage assets, while the other class will
receive most of the interest and the remainder of the principal. In the most
extreme case, one class will receive all of the interest (the interest-only or
"IO" class), while the other class will receive all of the principal (the
principal-only or "PO" class). The yield to maturity on an IO class is extremely
sensitive to the rate of principal payments (including prepayments) on the
related underlying mortgage assets, and a rapid rate of principal payments may
have a material adverse effect on a Fund's yield to maturity from these
securities. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, a Fund may fail to fully recoup its
initial investment in these securities even if the security is in one of the
highest rating categories.
Although SMBS are purchased and sold by institutional investors through
several investment banking firms acting as brokers or dealers, these securities
were only recently developed. As a result, established trading markets have not
yet developed and, accordingly, certain of these securities may be deemed
"illiquid" and subject to a Fund's limitations on investment in illiquid
securities.
Swap Contracts
The Non-Money Market Funds may enter into Swap Contracts. A swap is an
agreement to exchange the return generated by one instrument for the return
generated by another instrument. The payment streams are calculated by reference
to a specified index and agreed upon notional amount. The term "specified index"
includes currencies, fixed interest rates, prices, total return on interest rate
indices, fixed income indices, stock indices and commodity indices (as well as
amounts derived from arithmetic operations on these indices). For example, a
Fund may agree to swap the return generated by a fixed-income index for the
return generated by a second fixed-income index. The currency swaps in which a
Fund may enter will generally involve an agreement to pay interest streams in
one currency based on a specified index in exchange for receiving interest
streams denominated in another currency. Such swaps may involve initial and
final exchanges that correspond to the agreed upon notional amount.
The swaps in which the noted Funds may engage also include rate caps,
floors and collars under which one party pays a single or periodic fixed
amount(s) (or premium), and the other party pays periodic amounts based on the
movement of a specified index. Swaps do not involve the delivery of securities,
other underlying assets, or principal. Accordingly, the risk of loss with
respect to swaps is limited to the net amount of payments that the Fund is
contractually obligated to make. If the other party to a swap defaults, the
Fund's risk of loss consists of the net amount of payments that the Fund is
contractually entitled to receive. Currency swaps usually involve the delivery
of the entire principal value of one designated currency in exchange for the
other designated currency. Therefore, the entire principal value of a currency
swap is subject to the risk that the other party to the swap will default on its
contractual delivery obligations. If there is a default by the counterparty, the
Fund may have contractual remedies pursuant to the agreements related to the
transaction. The swap market has grown substantially in recent years with a
large number of banks and investment banking firms acting both as principals and
as agents utilizing standardized swap documentation. As a result, the swap
market has become relatively liquid. Caps, floors, and collars are more recent
innovations for which standardized documentation has not yet been fully
developed and, accordingly, they are less liquid than swaps.
Funds will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. The Fund's obligations under a swap
agreement will be accrued daily (offset against any amounts owing to the
portfolio) and any accrued
<PAGE> 224
but unpaid net amounts owed to a swap counterparty will be covered by the
maintenance of a segregated account consisting of cash or liquid securities, to
avoid any potential leveraging of the Fund. To the extent that these swaps,
caps, floors, and collars are entered into for hedging purposes, the Adviser
believes such obligations do not constitute "senior securities" under the 1940
Act and, accordingly, will not treat them as being subject to the Fund's
borrowing restrictions. Funds may enter into OTC derivatives transactions
(swaps, caps, floors, puts, etc., but excluding foreign exchange contracts) with
counterparties that are approved by the Adviser in accordance with guidelines
established by the Board of Directors. These guidelines provide for a minimum
credit rating for each counterparty and various credit enhancement techniques
(for example, collateralization of amounts due from counterparties) to limit
exposure to counterparties with ratings below AA.
The use of swaps is a highly specialized activity which involves
investment techniques and risks different from those associated with ordinary
portfolio securities transactions. If the Adviser is incorrect in its forecasts
of market values, interest rates, and currency exchange rates, the investment
performance of the portfolio would be less favorable than it would have been if
this investment technique were not used.
U.S. Government Obligations
Examples of types of U.S. Government obligations include U.S. Treasury
Bills, Treasury Notes and Treasury Bonds and the obligations of Federal Home
Loan Banks, Federal Farm Credit Banks, Federal Land Banks, the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Federal National Mortgage Association,
Government National Mortgage Association, General Services Administration,
Student Loan Marketing Association, Central Bank for Cooperatives, Federal Home
Loan Mortgage Corporation, Federal Intermediate Credit Banks, Maritime
Administration, International Bank for Reconstruction and Development (the
"World Bank"), the Asian-American Development Bank and the Inter-American
Development Bank.
Variable Rate Demand Instruments
Variable rate demand instruments held by each Money Market Fund may
have maturities of more than 397 days, provided: (i) the Fund is entitled to the
payment of principal at any time, or during specified intervals not exceeding
397 days, upon giving the prescribed notice (which may not exceed 30 days), and
(ii) the rate of interest on such instruments is adjusted at periodic intervals
which may extend up to 397 days. In determining the weighted average maturity of
a Fund and whether a variable rate demand instrument has a remaining maturity of
397 days or less, each instrument will be deemed by the Fund to have a maturity
equal to the longer of the period remaining until its next interest rate
adjustment or the period remaining until the principal amount can be recovered
through demand. In determining whether an unrated variable rate demand
instrument is of comparable quality at the time of purchase to instruments rated
"high quality," the Adviser will follow guidelines adopted by the Company's
Board of Directors.
When-Issued and Delayed Delivery Securities
Delivery of and payment for these securities may take as long as a
month or more after the date of the purchase commitment but will take place no
more than 120 days after the trade date. Each Fund will maintain with the
appropriate Custodian a separate account with a segregated portfolio of cash or
liquid securities in an amount at least equal to these commitments. It is
possible that the market value at the time of settlement would be higher or
lower than the purchase price if the general level of interest rates has
changed.
<PAGE> 225
Zero Coupon Bonds
Zero coupon bonds is a term used to describe notes and bonds which have
been stripped of their unmatured interest coupons, or the coupons themselves,
and also receipts or certificates representing interest in such stripped debt
obligations and coupons. The timely payment of coupon interest and principal on
zero coupon bonds issued by the U.S. Treasury remains guaranteed by the "full
faith and credit" of the United States Government.
A zero coupon bond does not pay interest. Instead, it is issued at a
substantial discount to its "face value"_what it will be worth at maturity. The
difference between a security's issue or purchase price and its face value
represents the imputed interest an investor will earn if the security is held
until maturity. For tax purposes, a portion of this imputed interest is deemed
to be income received by zero coupon bondholders each year. Each Fund, which
expects to qualify as a regulated investment company, intends to pass along such
interest as a component of the Fund's distributions of net investment income.
Zero coupon bonds may offer investors the opportunity to earn higher
yields than those available on U.S. Treasury bonds of similar maturity. However,
zero coupon bond prices may also exhibit greater price volatility than ordinary
debt securities because of the manner in which their principal and interest is
returned to the investor.
Zero Coupon Treasury Bonds are sold under a variety of different names,
such as: Certificate of Accrual on Treasury Securities ("CATS"), Treasury
Receipts ("TRs"), Separate Trading of Registered Interest and Principal of
Securities ("STRIPS") and Treasury Investment Growth Receipts ("TIGERS").
FEDERAL INCOME TAX
The following is only a summary of certain additional federal income
tax considerations generally affecting the Company and its shareholders that are
not described in the Company's prospectuses. No attempt is made to present a
detailed explanation of the federal, state or local tax treatment of the Company
or its shareholders, and the discussion here and in the Company's prospectuses
are not intended as tax advice or as a substitute for careful tax planning.
Each Fund is generally treated as a separate corporation for federal
income tax purposes, and thus the provisions of the Code generally will be
applied to each Fund separately, rather than to the Company as a whole. Each
Fund has elected and qualified, and intends to continue to qualify to be treated
for each taxable year, as a regulated investment company ("RIC") under
subchapter M of the Code.
The following discussion of federal income tax consequences is based on
the Code and the regulations issued thereunder as in effect on the date of this
Statement of Additional Information. Legislation and administrative changes or
court decisions may significantly change the conclusions expressed herein, and
may have a retroactive effect with respect to the transactions contemplated
herein.
In order to qualify for the special tax treatment afforded to RICs
under Subchapter M of the Code, each Fund must, among other things, (a) derive
at least 90% of its gross income each taxable year from dividends, interest,
payments with respect to securities loans, gains from the sale or other
disposition of stock, securities or foreign currencies, and certain other
related income, including, generally, gains from options, futures and forward
contracts (the "90% Gross Income Test") and (b) diversify its holdings so that,
at the end of each fiscal quarter of the Fund's taxable year, (i) at least 50%
of the market value of the Fund's total assets is represented by cash, United
States Government securities, securities of other RICs, and other securities and
cash items, with such other securities limited, in respect of any one issuer, to
an amount not greater than 5% of the value of the Fund's total assets and 10% of
the outstanding voting securities of such issuer, and (ii) not more than 25% of
the value of its total assets is invested in the securities of any one issuer or
two or more issuers which the Fund controls and which are engaged in the same,
similar, or related trades or businesses (other than U.S. Government
<PAGE> 226
securities or the securities of other RICs). For purposes of the 90% Gross
Income Test described above, foreign currency gains may be excluded by
regulation from income that qualifies under the 90% Gross Income Test.
In addition to the requirements described above, in order to qualify as
a RIC, a Fund must distribute at least 90% of its net investment income (which
generally includes dividends, taxable interest, and net short-term capital gains
less operating expenses) to shareholders. If a Fund meets all of the
requirements for treatment as a RIC, it will not be subject to federal income
tax on any of its net investment income or net capital gains (i.e., the excess
of net long-term capital gains over net short-term capital losses) that it
distributes to shareholders.
If a Fund fails to qualify as a RIC for any taxable year, it will be
taxable at regular corporate rates. In such case, distributions (including
capital gain dividends, which are distributions of net capital gains) will be
taxable as ordinary dividends to the extent of the Fund's current and
accumulated earnings and profits, and such distributions generally will be
eligible for the corporate dividends received deduction. To qualify again as a
RIC in a subsequent year, the Fund may be required to pay an interest charge on
50% of its earnings and profits attributable to non-RIC years and would be
required to distribute such earnings and profits to its shareholders (less any
interest charge). In addition, if a Fund failed to qualify as a RIC for its
first taxable year or, if immediately after qualifying as a RIC for any taxable
year, it failed to qualify for a period greater than one taxable year, the Fund
would be required to recognize any 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 RIC in a subsequent
year.
Each Fund will decide whether to distribute or to retain for
reinvestment all or part of any net capital gains in any year. If any such gains
are retained, the Fund will pay federal income tax thereon, and, if the Fund
makes the appropriate tax election, the shareholders will include their
proportionate shares of such undistributed gains in their income. Shareholders
subject to tax will be entitled (i) to claim their proportionate shares of the
tax paid by the Fund as a credit against their federal income tax liability and
(ii) to increase their tax basis in their shares by an amount equal to the
difference between the amount of includable gain and their proportionate shares
of the tax paid by the Fund. If a Fund decides to retain any net capital gains,
it will designate such retained amounts in a notice to its shareholders.
A gain or loss recognized by a shareholder on the sale or exchange of
shares of a Fund held as a capital asset will be capital gain or loss. For a
summary of the rates applicable to capital gains (including capital gain
dividends), see "Capital Gains Rates" below. Any loss realized on a sale or
exchange will be disallowed to the extent the shares disposed of are replaced
within the 61-day period beginning 30 days before and ending 30 days after the
disposition of the original shares. Any loss recognized by a shareholder on the
disposition of shares held 6 months or less is treated as a long-term capital
loss to the extent of any capital gain dividends received by the shareholder
with respect to such shares or any inclusion of undistributed capital gain with
respect to such shares.
Each Fund will generally be subject to a nondeductible 4% federal
excise tax to the extent it fails to distribute by the end of any calendar year
at least an amount equal to the sum of (i) 98% of its ordinary income (not
including tax-exempt income), (ii) 98% of its capital gain net income (the
excess of short and long-term capital gains over short and long-term capital
losses) for the one-year period ending on October 31st of that year and (iii)
certain other amounts. For purposes of the excise tax, any ordinary income or
capital gain net income retained by, and subject to federal income tax in the
hands of, a Fund will be treated as having been distributed.
Each Fund is required by federal law to withhold 31% of reportable
payments (which may include dividends, capital gain dividends and redemptions)
paid to shareholders who have not certified on the Account Registration Form or
on a separate form supplied by the Fund, that the Social Security or
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Taxpayer Identification Number provided is correct and that the shareholder is
exempt from backup withholding or is not currently subject to backup
withholding.
Capital Gains Rates
The maximum tax rate applicable to net capital gains recognized by
individuals and other non-corporate taxpayers is (i) the same as the maximum
ordinary income tax rate for capital assets held for one year or less or (ii)
20% for capital assets held for more than one year. The maximum long-term
capital gains rate for corporations is 35%. A special 28% tax rate may apply to
a portion of the capital gain dividends paid by a Fund with respect to its
taxable year ended June 30, 1998.
Additional Considerations for the Tax-Free Money Market Fund
In order for the Tax-Free Money Market Fund to pay exempt-interest
dividends during any taxable year, at the close of each quarter of its taxable
year at least 50% of the value of the Fund's total assets must consist of
certain tax-exempt obligations. Exempt-interest dividends distributed to
shareholders are not included in the shareholder's gross income for regular
federal income tax purposes. Exempt-interest dividends may, however, be subject
to the alternative minimum tax (the "AMT") imposed by Section 55 of the Code
and, in the case of corporate taxpayers, the environmental tax (the
"Environmental Tax") imposed by Section 59A of the Code. The AMT and the
Environmental Tax may be imposed in two circumstances. First, exempt-interest
dividends derived from certain "private activity bonds" issued after August 7,
1986 will generally be an item of tax preference (and therefore potentially
subject to the AMT and/or the Environmental Tax) for both corporate and
non-corporate taxpayers. Second, in the case of exempt-interest dividends
received by corporate shareholders, all exempt-interest dividends, regardless of
when the bonds from which they are derived were issued or whether they are
derived from private activity bonds, will be included in the corporation's
"adjusted current earnings," as defined in Section 56(g) of the Code, in
calculating the corporation's alternative minimum taxable income for purposes of
determining the AMT and the Environmental Tax.
The deduction otherwise allowable to property and casualty insurance
companies for "losses incurred" will be reduced by an amount equal to a portion
of exempt-interest dividends received or accrued during any taxable year.
Foreign corporations engaged in a trade or business in the United States will be
subject to a "branch profits tax" on their "dividend equivalent amount" for the
taxable year, which will include exempt-interest dividends. Certain Subchapter S
corporations may also be subject to taxes on their "passive investment income,"
which could include exempt-interest dividends. A portion of the Social Security
benefits or railroad retirement benefits received by an individual during any
taxable year may be included in the gross income of such individual depending
upon the individual's "modified adjusted gross income" (which includes
exempt-interest dividends).
The Tax-Free Money Market Fund may not be an appropriate investment for
persons (including corporations and other business entities) who are
"substantial users" (or persons related to such users within the meaning of the
applicable Treasury regulations) of facilities financed by industrial
development or private activity bonds. A "substantial user" is generally defined
to include certain persons who regularly use such a facility in their trade or
business. Such entities or persons should consult their tax advisors before
purchasing shares of this Fund.
Issuers of bonds purchased by the Tax-Free Money Market Fund (or the
beneficiary of such bonds) may have made certain representations or covenants in
connection with the issuance of such bonds to satisfy certain requirements of
the Code that must be satisfied subsequent to the issuance of such bonds.
Investors should be aware that exempt-interest dividends derived from such bonds
may become subject to federal income taxation retroactively to the date of
issuance thereof if such representations are determined to have been inaccurate
or if the issuer of such bonds (or the beneficiary of such bonds) fails to
comply with such covenants.
<PAGE> 228
Distributions of net investment income received by the Tax-Free Money
Market Fund from investments in debt securities (other than interest on
tax-exempt Municipal Obligations) and any net short-term capital gains
distributed by the Fund will be taxable to shareholders as ordinary income and
will not be eligible for the dividends received deduction for corporate
shareholders. Although the Tax-Free Money Market Fund generally does not expect
to receive net investment income other than Tax-Exempt Interest, up to 20% of
the net assets of the Fund may be invested in Municipal Obligations that do not
bear Tax-Exempt Interest, and any taxable income recognized by the Fund will be
distributed and taxed to its shareholders.
Passive Foreign Investment Companies
A Fund may invest in the stock of "passive foreign investment
companies" ("PFICs"). A PFIC is a foreign corporation that, in general, meets
either of the following tests: (i) at least 75% of its gross income is passive
income or (ii) an average of at least 50% of its assets produce, or are held for
the production of, passive income. Under certain circumstances, a RIC that holds
stock of a PFIC will be subject to federal income tax on (i) a portion of any
"excess distribution" received on such stock or (ii) any gain from a sale or
disposition of such stock (collectively, "PFIC income"), plus interest on such
amounts, even if the RIC distributes the PFIC income as a taxable dividend to
its shareholders. The balance of the PFIC income will be included in the RIC's
investment company taxable income and, accordingly, will not be taxable to it to
the extent that income is distributed to its shareholders. If a Fund invests in
a PFIC and elects to treat the PFIC as a "qualified electing fund," then in lieu
of the foregoing tax and interest obligation, the Fund would be required to
include in income each year its pro rata share of the qualified electing fund's
annual ordinary earnings and net capital gain, which most likely would have to
be distributed to satisfy the 90% distribution requirement and the distribution
requirement for avoiding income and excise taxes. In most instances it will be
very difficult to make this election due to certain requirements imposed with
respect to the election.
As an alternative to making the above-described election to treat the
PFIC as a qualified electing fund, a Fund that invests in PFIC stock may make an
election to annually mark-to-market such 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 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 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 disposition
of PFIC stock.
Foreign Income Taxes
It is expected that each Fund will be subject to foreign withholding
taxes with respect to its dividend and interest income from foreign countries,
if any, and a Fund may be subject to foreign income or other taxes with respect
to other income. Tax conventions between certain countries and the United States
may reduce or eliminate such taxes. If more than 50% in value of a Fund's total
assets at the close of the taxable year consists of stock or securities of
foreign corporations and the Fund satisfies certain holding period requirements
with respect to such stock or securities, the Fund may elect to treat certain
foreign income taxes imposed on it under U.S. federal income tax law as paid
directly by its shareholders.
<PAGE> 229
A Fund will make such an election only if it deems it to be in the best interest
of its shareholders and will notify shareholders in writing each year if it
makes an election and of the amount of foreign income taxes, if any, to be
treated as paid by the shareholders. If a Fund makes the election, shareholders
will be required to include in income their proportionate shares of the amount
of foreign income taxes treated as imposed on the Fund and will be entitled to
claim either a credit (subject to the limitations discussed below) or, if they
itemize deductions, a deduction for their shares of the foreign income taxes in
computing their federal income tax liability. No deductions will be allowed in
computing alternative minimum tax liability.
Shareholders who choose to utilize a credit (rather than a deduction)
for foreign taxes will be subject to the limitation that the credit may not
exceed the shareholder's U.S. tax (determined without regard to the availability
of the credit) attributable to foreign source taxable income. For this purpose,
the portion of dividends and distributions paid by a Fund from its foreign
source income will be treated as foreign source income. A Fund's gains from the
sale of securities will generally be treated as derived from U.S. sources and
certain foreign currency gains and losses likewise will be treated as derived
from U.S. sources. The limitation on the foreign tax credit is applied
separately to foreign source "passive income," such as the portion of dividends
received from a Fund which qualifies as foreign source income. In addition, the
foreign tax credit is allowed to offset only 90% of the alternative minimum tax
imposed on corporations and individuals. Because of these limitations,
shareholders may be unable to claim a credit for the full amount of their
proportionate shares of the foreign income taxes paid by a Fund.
The foregoing is only a general description of the treatment of foreign
income taxes under the U.S. federal income tax laws. Because the availability of
a credit or deduction depends on the particular circumstances of each
shareholder, shareholders are advised to consult their own tax advisers.
Certain Investment Practices
Some of a Fund's investment practices, including those involving
certain risk management transactions and foreign currency transactions, may be
subject to special provisions of the Code that, among other things, defer the
use of certain losses of the Fund and affect the holding period of securities
held by the Fund and the character of 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 the amounts necessary to
satisfy the distribution requirements for avoiding federal income and excise
taxes. Thus, these provisions could affect the amount, timing and character of
distributions to shareholders. Each Fund engaging in such investment practices
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
RIC.
FEDERAL INCOME TAX TREATMENT OF FORWARD CURRENCY
CONTRACTS AND EXCHANGE RATE CONTRACTS
Except for certain hedging transactions, each Fund is required for
federal income tax purposes to recognize as gain or loss for each taxable year
its net unrealized gains and losses on certain forward currency and futures
contracts as of the end of each taxable year, as well as those actually realized
during the year. In most cases, any such gain or loss recognized with respect to
a regulated futures contract is considered to be 60% long-term capital gain or
loss and 40% short-term capital gain or loss, without regard to the holding
period of the contract. Forward currency futures contracts which are intended to
hedge against a change in the value of securities held by a Fund may affect the
holding period of such securities and, consequently, the nature of the gain or
loss on such securities upon disposition. Any net gain realized from the closing
out of futures contracts will generally be qualifying income for purposes of the
90% Gross Income Test.
<PAGE> 230
Gains or losses attributable to foreign currency contracts, or to
fluctuations in exchange rates that occur between the time the Fund accrues
interest or other receivables or accrues expenses or other liabilities
denominated in a foreign currency and the time the Fund actually collects such
receivables or pays such liabilities are treated as ordinary income or loss.
Similarly, gains or losses on disposition of debt securities denominated in a
foreign currency attributable to fluctuations in the value of the foreign
currency between the date of acquisition of the security and the date of
disposition also are treated as ordinary gain or loss. These gains or losses
increase or decrease the amount of a Fund's net investment income, if any,
available to be distributed to its shareholders as ordinary income.
TAXES AND FOREIGN SHAREHOLDERS
Taxation of a shareholder who, as to the United States, is a
nonresident alien individual, a foreign trust or estate, foreign corporation, or
foreign partnership (a "Foreign Shareholder") depends on whether the income from
the Company is "effectively connected" with a U.S. trade or business carried on
by such shareholder.
If the income from the Company is not effectively connected with a U.S.
trade or business carried on by a Foreign Shareholder, distributions of ordinary
income will be subject to U.S. withholding tax at the rate of 30% (or lower
treaty rate) upon the gross amount of the dividend. Furthermore, Foreign
Shareholders will generally be exempt from United States federal income tax on
gains realized on the sale of shares of the Company, distributions of net
long-term capital gains, and amounts retained by the Company which are
designated as undistributed capital gains.
If the income from the Company is effectively connected with a U.S.
trade or business carried on by a Foreign Shareholder, then distributions of net
investment income and net capital gains, and any gains realized upon the sale of
shares of the Company, will be subject to U.S. federal income tax at the rates
applicable to United States citizens and residents or domestic corporations.
The Company may be required to withhold U.S. federal income tax on
distributions that are otherwise exempt from withholding tax (or taxable at a
reduced treaty rate) unless the Foreign Shareholder complies with Internal
Revenue Service certification requirements.
The tax consequences to a Foreign Shareholder entitled to claim the
benefits of an applicable tax treaty may differ from those described here.
Foreign Shareholders are strongly urged to consult their own tax advisors with
respect to the particular tax consequences to them of an investment in the
Company.
PURCHASE OF SHARES
For Class A shares of the Non-Money Funds, the purchase price of shares
is based upon the net asset value per share plus the applicable sales charge, if
any, next determined after the purchase order is received. Class B shares and
Class C shares of the Non-Money Funds may be purchased at the net asset value
per share next determined after the purchase order is received. For all classes
of such Funds an order received prior to the regular close of the New York Stock
Exchange (the "NYSE") (currently, 4:00 p.m., Eastern Time) will be executed at
the price computed on the date of receipt; and an order received after the
regular close of the NYSE will be executed at the price computed on the next day
the NYSE is open. The purchase price of shares of the Non-Money Funds is based
on such price as further described in the Prospectuses under "Purchase of
Shares."
The purchase price of shares of the Money Market Funds is the net asset
value per share next determined after Federal Funds are available to such Fund.
A purchase of a Money Market Fund's shares by check is credited to the
shareholder's account at the price next determined after receipt of Federal
Funds on the day of receipt and will begin receiving dividends the following
day.
<PAGE> 231
Shares of the Company may be purchased on any day the NYSE is open,
except that shares of the Money Market Funds may be purchased on any day when
both the NYSE and the Federal Reserve Banks are open. The NYSE is closed when
the following holidays are observed: New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day and on the preceding Friday or subsequent
Monday when any of these holidays falls on a Saturday or Sunday, respectively.
Federal Reserve Banks are closed on Columbus Day and Veterans Day, in addition
to such NYSE holidays.
Each Fund reserves the right in its sole discretion (i) to suspend the
offering of its shares, (ii) to reject purchase orders when in the judgment of
management such rejection is in the best interest of the Company, and (iii) to
reduce or waive the minimum for initial and subsequent investments for certain
fiduciary accounts such as employee benefit plans or under circumstances where
certain economies can be achieved in sales of a Fund's shares.
REDEMPTION OF SHARES
Each Fund may suspend redemption privileges or postpone the date of
payment (i) during any period that the NYSE is closed, or trading on the NYSE is
restricted as determined by the SEC, (ii) during any period when an emergency
exists as defined by the rules of the SEC as a result of which it is not
reasonably practicable for a Fund to dispose of securities owned by it, or
fairly to determine the value of its assets, and (iii) for such other periods as
the SEC may permit. Additionally, if the Board of Directors determines that
payment wholly or partly in cash would be detrimental to the best interests of
the remaining shareholders of the Fund, the Company may pay the redemption
proceeds in whole or in part by a distribution-in-kind of readily marketable
securities held by the Funds in lieu of cash in conformity with applicable rules
of the SEC. Shareholders may incur brokerage charges upon the sale of portfolio
securities so received in payment of redemptions.
Any redemption may be more or less than the shareholder's cost
depending on, among other factors, the market value of the securities held by
the Fund(s).
To protect your account and the Company from fraud, signature
guarantees are required for certain redemptions. Signature guarantees enable the
Company to verify the identity of the person who has authorized a redemption
from your account. Signature guarantees are required in connection with: (1) all
redemptions, regardless of the amount involved, when the proceeds are to be paid
to someone other than the registered owner(s) and/or registered address; and (2)
share transfer requests.
Eligible signature guarantor institutions generally include banks,
broker-dealers, credit unions, national securities exchanges, registered
securities associations, clearing agencies and savings associations, provided
that the institution is a member of the Securities Transfer Agents Medallion
Program or another recognized signature guarantee program. Notaries public are
not acceptable guarantors.
The signature guarantees must appear either: (1) on the written request
for redemption; (2) on a separate instrument for assignment ("stock power")
which should specify the total number of shares to be redeemed; or (3) on all
stock certificates tendered for redemption and, if shares held by the Company
are also being redeemed, on the letter or stock power.
Redemption of shares held in broker street name may not be accomplished
by mail or telephone as described above. Shares held in broker street name may
be redeemed only by contacting the investment dealer, bank or financial services
firm ("Participating Dealer") that handles your account.
<PAGE> 232
Contingent Deferred Sales Charge - Class A
For certain full service participant directed profit sharing and money
purchase plans and qualified 401(k) retirement plans and for investments in the
amount of $1,000,000 or more of Class A shares of the Non-Money Funds
("Qualified Purchaser"), the front-end sales charge will be waived and a
contingent deferred sales charge ("CDSC - Class A") of 1.00% is imposed in the
event of certain redemptions within one year of the purchase. If a CDSC - Class
A is imposed upon redemption, the amount of the CDSC - Class A will be equal to
the lesser of 1.00% of the value of the shares at the time of purchase or 1.00%
of the value of the shares at the time of redemption.
The CDSC - Class A will be imposed only if a Qualified Purchaser
redeems an amount which caused the value of the account to fall below the total
dollar amount of purchase payments made by the Qualified Purchaser without an
initial sales charge during the one year period prior to the redemption. The
CDSC - Class A will be waived in connection with redemptions by certain
Qualified Purchasers (e.g., in retirement plans qualified under Section 401(a)
of the Code and deferred compensation plans under Section 457 of the Code)
required to obtain funds to pay distributions to beneficiaries pursuant to the
terms of the plans. Such payments include, but are not limited to, death,
disability, retirement or separation from service. No CDSC - Class A will be
imposed on exchanges between funds. 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.
Cumulative Purchase Discounts and Letters of Intent apply to the net
asset value privilege. Also, in order to establish an amount of $1,000,000 or
more, a Qualified Purchaser may aggregate shares of the Participating Funds
described in the Prospectus.
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 of the Non-Money Funds 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 Death or Disability
The Non-Money Funds 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 Company does not
specifically adopt the balance of the Code's definition which pertains to
furnishing the Secretary of Treasury with such proof as he or she may require,
the Distributor will require satisfactory proof of death or disability before it
determines to waive the CDSC - Class B and C.
In cases of death or disability, the CDSC - Class B and C will be
waived where the decedent or disabled person is either an individual shareholder
or owns the shares as a joint tenant with right of survivorship or is the
beneficial owner of a custodial or fiduciary account, and where the redemption
is made within one year of the death or initial determination of disability.
This waiver of the CDSC - Class B and C applies to a total or partial
redemption, but only to redemptions of shares held at the time of the death or
initial determination of disability.
<PAGE> 233
(b) Redemption in Connection with Certain Distributions from Retirement
Plans
The Company 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 of the Participating
Funds; in such event, as described below, the Non-Money Fund will "tack" the
period for which the original shares were held on to the holding period of the
shares acquired in the transfer or rollover for purposes of determining what, if
any, CDSC - Class B and C is applicable in the event that such acquired shares
are redeemed following the transfer or rollover. The charge also will be waived
on any redemption which results from the return of an excess contribution
pursuant to Section 408(d)(4) or (5) of the Code, the return of excess deferral
amounts pursuant to Code Section 401(k)(8) or 402(g)(2), or from the death or
disability of the employee (see Code Section 72(m)(7) and 72(t)(2)(A)(ii)). In
addition, the charge will be waived on any minimum distribution required to be
distributed in accordance with Code Section 401(a)(9).
The Company 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
("Plan") with respect to the shareholder's investment in a Fund. Under the Plan,
a dollar amount of a participating shareholder's investment in a Fund will be
redeemed systematically by such 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 may be waived on
redemptions made under the Plan.
The amount of the shareholder's investment in a Fund at the time the
election to participate in the Plan is made with respect to the Fund is
hereinafter referred to as the "initial account balance." The amount to be
systematically redeemed from the Fund without the imposition of a CDSC - Class B
and C may not exceed a maximum of 12% annually of the shareholder's initial
account balance. The Fund reserves the right to change the terms and conditions
of the Plan and the ability to offer the Plan.
(d) Involuntary Redemptions of Shares in Accounts That Do Not Have the
Required Minimum Balance
The Funds reserve 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 Funds 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 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.
<PAGE> 234
INVESTMENT LIMITATIONS
Each current Fund of the Company has adopted certain investment
policies which are either fundamental investment limitations or non-fundamental
investment limitations. Fundamental investment limitations may not be changed
without the approval of the lesser of: (1) at least 67% of the voting securities
of the Fund present at a meeting if the holders of more than 50% of the
outstanding voting securities of the Fund are present or represented by proxy,
or (2) more than 50% of the outstanding voting securities of the Fund.
Non-fundamental investment limitations may be changed by the Board of Directors
of the Company.
For the purpose of adopting fundamental investment limitations the
current Funds have been divided into three separate groups, which limitations
apply only to the Funds that form a part of that group. The groups are comprised
as follows:
Category I Funds:
Global Fixed Income Fund, Worldwide High Income Fund, High Yield & Total Return
Fund, American Value Fund, Aggressive Equity Fund, U.S. Real Estate Fund, Global
Equity Allocation Fund, Asian Growth Fund, Emerging Markets Fund, Latin American
Fund, International Magnum Fund, Japanese Equity Fund, Growth and Income Fund II
and European Equity Fund.
Category II Funds:
Equity Growth Fund, Global Equity Fund, Emerging Markets Debt Fund, Mid Cap
Growth Fund, Value Fund and Global Franchise Fund.
Money Market Funds:
Money Market Fund, Tax-Free Money Market Fund and Government Obligations Money
Market Fund.
Category I Funds
The following are fundamental investment limitations with respect to
the Category I Funds. No Category I Fund will:
(1) invest in commodities, except that each of the Emerging Markets
Fund, Latin American Fund, European Equity Fund, American Value Fund, Aggressive
Equity Fund, Growth and Income Fund II and Worldwide High Income Fund may invest
in futures contracts and options to the extent that not more than 5% of its
total assets are required as deposits to secure obligations under futures
contracts and not more than 20% of its total assets are invested in futures
contracts and options at any time;
(2) purchase or sell real estate or real estate limited partnerships,
although it may purchase and sell securities of companies which deal in real
estate and may purchase and sell securities which are secured by interests in
real estate, and except that the U.S. Real Estate Fund may invest in real estate
limited partnership interests, but may not invest in such interests that are not
publicly traded;
(3) underwrite the securities of other issuers;
(4) invest for the purpose of exercising control over management
of any company;
<PAGE> 235
(5) invest more than 5% of its total assets in securities of companies
which have (with predecessors) a record of less than three years' continuous
operation;
(6) except with respect to the Latin American Fund and U.S. Real
Estate Fund, acquire any securities of companies within one industry if, as a
result of such acquisition, more than 25% of the value of the Fund's total
assets would be invested in securities of companies within such industry;
provided, however, that there shall be no limitation on the purchase of
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities;
(7) write or acquire options or interests in oil, gas or other mineral
exploration or development programs or leases;
(8) purchase on margin or sell short except as specified above in (1)
and except that the Emerging Markets Fund, Latin American Fund, European Equity
Fund, Aggressive Equity Fund and Worldwide High Income Fund may enter into short
sales in accordance with its investment objective and policies;
(9) purchase or retain securities of an issuer if those officers and
Directors of the Company or its investment adviser owning more than 1/2 of 1% of
such securities together own more than 5% of such securities;
(10) borrow, except from banks and as a temporary measure for
extraordinary or emergency purposes and then, in no event, in excess of 10% of
the Fund's total assets valued at the lower of market or cost and a Fund may not
purchase additional securities when borrowings exceed 5% of total assets, except
that the Worldwide High Income Fund, Latin American Fund and Growth and Income
Fund II may enter into reverse repurchase agreements in accordance with its
investment objective and policies and except that each of the Latin American
Fund, Aggressive Equity Fund and Worldwide High Income Fund may borrow amounts
up to 33 1/3% of its total assets (including the amount borrowed), less all
liabilities and indebtedness other than the borrowing;
(11) pledge, mortgage, or hypothecate any of its assets to an extent
greater than 10% of its total assets at fair market value, except that each of
the Latin American, Aggressive Equity and Worldwide High Income Funds may
pledge, mortgage or hypothecate its assets to secure borrowings in amounts up to
33 1/3% of its assets (including the amount borrowed);
(12) invest more than an aggregate of 15% of the total assets of the
Fund, determined at the time of investment, in illiquid assets, including
repurchase agreements having maturities of more than seven days or invest in
fixed time deposits with a duration of from two business days to seven calendar
days if more than 10% of the Fund's total assets would be invested in these time
deposits; provided, however, that no Fund shall invest (i) more than 10% of its
total assets in securities subject to legal or contractual restrictions on
resale, except that the High Yield & Total Return Fund may invest up to 20% of
its total assets in 144A Securities (as defined in the High Yield & Total Return
Fund's Prospectus), and (ii) in fixed time deposits with a duration of over
seven calendar days;
(13) invest its assets in securities of any investment company, except
by purchase in the open market involving only customary brokers' commissions or
in connection with mergers, acquisitions of assets or consolidations and except
as may otherwise be permitted by the 1940 Act;
(14) issue senior securities;
(15) make loans except (i) by purchasing bonds, debentures or similar
obligations (including repurchase agreements, subject to the limitation
described in (12) above) which are publicly distributed,
<PAGE> 236
and (ii) by lending its portfolio securities to banks, brokers, dealers and
other financial institutions so long as such loans are not inconsistent with the
1940 Act or the Rules and Regulations or interpretations of the SEC thereunder;
(16) except for the Global Fixed Income Fund, Emerging Markets Fund,
International Magnum Fund, Latin American Fund, Aggressive Equity Fund and U.S.
Real Estate Fund, purchase more than 10% of any class of the outstanding
securities of any issuer; and
(17) except for the Global Fixed Income Fund, Emerging Markets Fund,
International Magnum Fund, Latin American Fund, U.S. Real Estate Fund and
Worldwide High Income Fund, purchase securities of an issuer (except obligations
of the U.S. Government and its instrumentalities) if as the result, with respect
to 75% of its total assets, more than 5% of the Fund's total assets, at market
value, would be invested in the securities of such issuer.
The following are non-fundamental investment limitations with respect
to the Category I Funds. As a matter of non-fundamental policy, no Category I
Fund will:
(1) purchase warrants if, by reason of such purchase, more than 5% of
the value of the Fund's net assets would be invested in warrants valued at the
lower of cost or market. Included in this amount, but not to exceed 2% of the
value of the Fund's net assets, may be warrants that are not listed on a
nationally recognized stock exchange;
(2) invest in oil, gas or other mineral leases; and invest up to 25%
of its total assets in privately placed securities, provided that it may not
invest more than 15% of its total assets in illiquid securities, including
securities for which there is no readily available market, and provided further
that it will not invest more than 10% of its total assets in securities which
are restricted from sale to the public without registration under the Securities
Act of 1933, as amended (the "1933 Act"), except securities that are not
registered under the 1933 Act but that can be offered and sold to qualified
institutional buyers under Rule 144A under the 1933 Act.
The percentage limitations contained in these restrictions apply at the
time of purchase of securities. Future funds of the Company may adopt different
limitations.
Category II Funds
The following are fundamental investment limitations with respect to
the Category II Funds. No Category II Fund will:
(1) invest in physical commodities or contracts on physical
commodities, except that any Fund may acquire physical commodities as a result
of ownership of securities or other instruments and may purchase or sell options
or futures contracts or invest in securities or other instruments backed by
physical commodities;
(2) purchase or sell real estate, although each Fund may purchase and
sell securities of companies which deal in real estate, other than real estate
limited partnerships, and may purchase and sell marketable securities which are
secured by interests in real estate;
(3) make loans except: (i) by purchasing debt securities in accordance
with their respective investment objectives and policies, or entering into
repurchase agreements, subject to the limitations described in non-fundamental
investment limitation (9) below, (ii) by lending their portfolio securities, and
(iii) by lending portfolio assets to other Funds, banks, brokers, dealers and
other financial institutions, so long as such loans are not inconsistent with
the 1940 Act, the rules, regulations, interpretations or orders of the SEC and
its staff thereunder;
<PAGE> 237
(4) except for the Emerging Markets Debt Fund, with respect to 75% of
each Fund's assets, purchase a security if, as a result, the Fund would hold
more than 10% (taken at the time of such investment) of the outstanding voting
securities of any issuer;
(5) except for the Emerging Markets Debt Fund, with respect to 75% of
each Fund's assets, purchase securities of any issuer if, as a result, more than
5% of the Fund's total assets, taken at market value at the time of such
investment, would be invested in the securities of such issuer except that this
restriction does not apply to securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities;
(6) issue any class of senior security or sell any senior security of
which it is the issuer, except that each Fund may borrow money as a temporary
measure for extraordinary or emergency purposes, provided that such borrowings
do not exceed 33 1/3% of the Fund's total assets (including the amount borrowed)
less liabilities (exclusive of borrowings) and except that the Emerging Markets
Debt Fund may borrow from banks in an amount not in excess of 33 1/3% of its
total assets (including the amount borrowed) less liabilities in accordance with
its investment objective and policies. The term "senior security" shall not
include any temporary borrowings that do not exceed 5% of the value of a Fund's
total assets at the time the Fund makes such temporary borrowing.
Notwithstanding the foregoing limitations on issuing or selling senior
securities and borrowing, a Fund may engage in investment strategies that
obligate it either to purchase securities or segregate assets, or enter into
reverse repurchase agreements, provided that it will segregate assets to cover
its obligations pursuant to such transactions in accordance with applicable
rules, orders, or interpretations of the SEC or its staff. This investment
limitation shall not preclude a Fund from issuing multiple classes of shares in
reliance on SEC rules or orders.
(7) underwrite the securities of other issuers (except to the extent
that a Fund may be deemed to be an underwriter within the meaning of the 1933
Act in connection with the disposition of restricted securities);
(8) Acquire any securities of companies within one industry, if as a
result of such acquisition, more than 25% of the value of the Fund's total
assets would be invested in securities of companies within such industry;
provided, however, that there shall be no limitation on the purchase of
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, when any such Fund adopts a temporary defensive position.
The following are non-fundamental investment limitations with respect
to the Category II Funds. As a matter of non-fundamental policy, no Category II
Fund will:
(1) purchase on margin, except for use of short-term credit as may be
necessary for the clearance of purchases and sales of securities, provided that
each Fund may make margin deposits in connection with transactions in options,
futures, and options on futures;
(2) sell short unless the Fund (i) owns the securities sold short,
(ii) by virtue of its ownership of other securities, has the right to obtain
securities equivalent in kind and amount to the securities sold and, if the
right is conditional, the sale is made upon the same conditions, or (ii)
maintains in a segregated account on the books of the Fund's custodian an amount
that, when combined with the amount of collateral deposited with the broker in
connection with the short sale, equals the current market value of the security
sold short or such other amount as the SEC or its staff may permit by rule,
regulation, order, or interpretation, except that the Emerging Markets Debt Fund
may from time to time sell securities short without limitation but consistent
with applicable legal requirements as stated in its Prospectus; provided that
transactions in futures contracts and options are not deemed to constitute
selling securities short;
<PAGE> 238
(3) purchase or retain securities of an issuer if those Officers and
Directors of the Company or any of its investment advisers owning more than 1/2
of 1% of such securities together own more than 5% of such securities;
(4) borrow money other than from banks or other Funds of the Company,
provided that a Fund may borrow from banks or other Funds of the Company so long
as such borrowing is not inconsistent with the 1940 Act or the rules,
regulations, interpretations or orders of the SEC and its staff thereunder; or,
except for the Emerging Markets Debt Fund, purchase additional securities when
borrowings exceed 5% of total assets;
(5) pledge, mortgage or hypothecate assets in an amount greater than
10% of its total assets in the case of the Equity Growth, Global Equity and
Emerging Markets Debt Funds or 50% of its total assets in the case of the Mid
Cap Growth and Value Funds, provided that each Fund may segregate assets without
limit in order to comply with the requirements of Section 18(f) of the 1940 Act
and applicable rules, regulations or interpretations of the SEC and its staff;
(6) invest more than an aggregate of 15% of the net assets of the
Fund, determined at the time of investment, in illiquid securities provided that
this limitation shall not apply to any investment in securities that are not
registered under the 1933 Act but that can be sold to qualified institutional
investors in accordance with Rule 144A under the 1933 Act and are determined to
be liquid securities under guidelines or procedures adopted by the Board of
Directors;
(7) invest for the purpose of exercising control over management of
any company;
(8) invest its assets in securities of any investment company, except
by purchase in the open market involving only customary brokers' commissions or
in connection with mergers, acquisitions of assets or consolidations and except
as may otherwise be permitted by the 1940 Act; and
(9) in the case of the Equity Growth, Global Equity, and Emerging
Markets Debt Funds, make loans as described in fundamental investment
limitations 3(ii) and 3(iii), above, in an amount exceeding 33 1/3% of its total
assets.
Unless otherwise indicated, if a percentage limitation on investment or
utilization of assets as set forth above is adhered to at the time an investment
is made, a later change in percentage resulting from changes in the value or
total cost of the Fund's assets will not be considered a violation of the
restriction, and the sale of securities will not be required.
Money Market Funds
The following are fundamental investment limitations with respect to
the Money Market Funds. No Money Market Fund will:
(1) invest in commodities;
(2) purchase or sell real estate or real estate limited partnerships,
although it may purchase and sell securities of companies which deal in real
estate and may purchase and sell securities which are secured by interests in
real estate;
(3) underwrite the securities of other issuers;
(4) invest for the purpose of exercising control over management of
any company;
(5) invest more than 5% of its total assets in securities of companies
which have (with predecessors) a record of less than three years' continuous
operation, except that the Tax-Free Money
<PAGE> 239
Market Fund may not invest in private activity bonds where the payment of
principal and interest are the responsibility of a company (including its
predecessors) with less than three years of continuous operations;
(6) acquire any securities of companies within one industry if, as a
result of such acquisition, more than 25% of the value of the Fund's total
assets would be invested in securities of companies within such industry;
provided, however, that there shall be no limitation on the purchase of
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, or (in the case of the Money Market Fund) instruments issued
by U.S. banks or their domestic branches;
(7) write or acquire options or interests in oil, gas or other mineral
exploration or development programs or leases;
(8) issue senior securities or borrow money, except for borrowing
money from banks for temporary purposes or (with respect to the Money Market
Fund and Government Obligations Fund) for reverse repurchase agreements, and
then in amounts not in excess of 10% of the value of the Fund's total assets at
the time of such borrowing, and only if after such borrowing there is asset
coverage of at least 300% for all borrowings of the Fund; or mortgage, pledge,
hypothecate or in any manner transfer as security for indebtedness any
securities owned or held by the Fund, any assets except as may be necessary in
connection with permitted borrowings and then, in amounts not in excess of 10%
of the value of the Fund's total assets at the time of the borrowing; or
purchase portfolio securities while borrowings in excess of 5% of the Fund's net
assets are outstanding. (This borrowing provision is not for investment
leverage, but solely to facilitate management of the Fund's securities by
enabling the Fund to meet redemption requests where the liquidation of portfolio
securities is deemed to be disadvantageous or inconvenient.);
(9) purchase securities on margin, except for short-term credit
necessary for clearance of portfolio transactions;
(10) make short sales of securities or maintain a short position or
write or sell puts, calls, straddles, spreads or combinations thereof;
(11) with respect to the Money Market Fund, invest in other investment
companies except to the extent permitted by the 1940 Act, provided that the Fund
may invest only in investment companies that are unaffiliated with the Fund; and
with respect to the Tax-Free Money Market Fund and Government Obligations Money
Market Fund, invest more than 10% of the value of the Fund's assets in other
investment companies that are unaffiliated with the Fund and then no more than
5% of the Fund's assets may be invested in any one money market fund;
(12) with respect to the Money Market Fund, purchase any securities
other than Money-Market Instruments, some of which may be subject to repurchase
agreements, but the Fund may make interest-bearing savings deposits in amounts
not in excess of 5% of the value of the Fund's assets and may make time
deposits;
(13) with respect to the Tax-Free Money Market Fund, under normal
market conditions invest less than 80% of its net assets in securities the
interest on which is exempt from the regular federal income tax and does not
constitute an item of tax preference for purposes of the federal alternative
minimum tax ("Tax-Exempt Interest");
(14) with respect to the Government Obligations Money Market Fund,
purchase securities other than U.S. Treasury bills, notes and other obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities,
and repurchase agreements relating to such obligations. There is no limit on the
amount of the Fund's assets which may be invested in the securities of any one
issuer of obligations that the Fund is permitted to purchase;
<PAGE> 240
(15) purchase the securities of any one issuer (other than securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities,
or securities subject to unconditional demand features issued by a
non-controlled person) if immediately after and as a result at the time of
purchase more than 5% of the Fund's total assets would be invested in the
securities of such issuer; except that, under applicable regulations, the Fund
may invest more than 5% of its total assets in any one issuer for up to three
business days;
(16) enter into repurchase agreements with more than seven days
maturity if, as a result, more than 10% of the value of its net assets would be
invested in these agreements and other investments for which market quotations
are not readily available or which are otherwise illiquid; and
(17) make loans, except that a Fund may purchase or hold debt
obligations in accordance with its investment objectives, policies and
limitations and, with respect to the Money Market and Government Obligations
Money Market Funds, may enter into repurchase agreements for securities, and may
lend portfolio securities against collateral, consisting of cash or securities
which are consistent with the Fund's permitted investments, which is equal at
all times to at least 100% of the value of the securities loaned. There is no
investment restriction on the amount of securities that may be loaned.
With respect to limitation (6) above concerning industry concentration,
the Money Market Fund will consider wholly-owned finance companies to be in the
industries of their parents if their activities are primarily related to
financing the activities of the parents, and will divide utility companies
according to their services. For example, gas, gas transmission, electric and
gas, electric and telephone will each be considered a separate industry.
The following are non-fundamental investment limitations with respect
to the Money Market Funds. As a matter of non-fundamental policy, no Money
Market Fund will:
(1) purchase puts, calls, straddles, spreads and any combination
thereof if by reason thereof the value of its aggregate investment in such
derivative securities will exceed 5% of its respective total assets;
(2) purchase warrants if, by reason of such purchase, more than 5% of
the value of the Fund's net assets would be invested in warrants valued at the
lower of cost or market. Included in this amount, but not to exceed 2% of the
value of the Fund's net assets, may be warrants that are not listed on a
nationally recognized stock exchange; and
(3) invest in oil, gas or other mineral leases.
The percentage limitations contained in these restrictions apply at the
time of purchase of securities. Future funds of the Company may adopt different
limitations.
DETERMINING MATURITIES OF CERTAIN INSTRUMENTS
Generally, the maturity of a portfolio instrument shall be deemed to be
the period remaining until the date noted on the face of the instrument as the
date on which the principal amount must be paid, or in the case of an instrument
called for redemption, the date on which the redemption payment must be made.
However, instruments having variable or floating interest rates or demand
features may be deemed to have remaining maturities as follows: (a) a government
obligation with a variable rate of interest readjusted no less frequently than
annually may be deemed to have a maturity equal to the period remaining until
the next readjustment of the interest rate; (b) an instrument with a variable
rate of interest, the principal amount of which is scheduled on the face of the
instrument to be paid in one year or less,
<PAGE> 241
may be deemed to have a maturity equal to the period remaining until the next
readjustment of the interest rate; (c) an instrument with a variable rate of
interest that is subject to a demand feature may be deemed to have a maturity
equal to the longer of the period remaining until the next readjustment of the
interest rate or the period remaining until the principal amount can be
recovered through demand; (d) an instrument with a floating rate of interest
that is subject to a demand feature may be deemed to have a maturity equal to
the period remaining until the principal amount can be recovered through demand;
and (e) a repurchase agreement may be deemed to have a maturity equal to the
period remaining until the date on which the repurchase of the underlying
securities is scheduled to occur, or where no date is specified, but the
agreement is subject to demand, the notice period applicable to a demand for the
repurchase of the securities.
MANAGEMENT OF THE COMPANY
Directors and Officers
The tables below list the Directors and officers of the Company and
executive officers of the Fund's investment adviser and their principal
occupations for the last five years and their affiliations, if any, with Van
Kampen Investments Inc. ("Van Kampen"), Van Kampen Investment Advisory Corp.
("Advisory Corp."), Van Kampen Asset Management Inc. ("Asset Management"), Van
Kampen Funds Inc., the distributor of the Fund's shares (the "Distributor"), Van
Kampen Management Inc., Van Kampen Advisors Corp., Van Kampen Insurance Agency
of Illinois Inc., Van Kampen Insurance Agency of Texas Inc., Van Kampen System
Inc., Van Kampen Recordkeeping Services Inc., American Capital Contractual
Services Inc., Van Kampen Trust Company, Van Kampen Exchange Corp. and Van
Kampen Investor Services Inc., the Fund's transfer agent ("Investor Services").
Advisory Corp. and Asset Management sometimes are referred to herein
collectively as the "Advisers". For purposes hereof, the term "Fund Complex"
includes each of the open-end investment companies advised by the Advisers
(excluding the Van Kampen Exchange Fund).
Directors
Name, Address and Age
Principal Occupations or Employment in Past 5 Years
Name, Address and Age
Principal Occupations or Employment in Past 5 Years
J. Miles Branagan
1632 Morning Mountain Road
Raleigh, NC 27614
Date of Birth: 07/14/32
Private investor. Co-founder, and prior to August 1996, Chairman, Chief
Executive Officer and President, MDT Corporation (now known as Getinge/Castle,
Inc., a subsidiary of Getinge Industrier AB), a company which develops,
manufactures, markets and services medical and scientific equipment.
Trustee/Director of each of the funds in the Fund Complex.
<PAGE> 242
Richard M. DeMartini*
Two World Trade Center
66th Floor
New York, NY 10048
Date of Birth: 10/12/52
President and Chief Operating Officer, Individual Asset Management Group, a
division of Morgan Stanley Dean Witter & Co. Mr. DeMartini is a Director of
InterCapital Funds, Dean Witter Distributors, Inc., and Dean Witter 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.
Linda Hutton Heagy
Sears Tower
233 South Wacker Drive
Suite 7000
Chicago, IL 60606
Date of Birth: 06/03/48
Managing Partner of Heidrick & Stuggles, an executive search firm. Prior to
1997, Partner, Ray & Berndtson, Inc., an executive recruiting and management
consulting firm. Formerly, Executive Vice President of ABN AMRO, N.A., a Dutch
bank holding company. Prior to 1992, Executive Vice President of La Salle
National Bank. Trustee on the University of Chicago Hospitals Board, 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
11 DuPont Circle, N.W.
Washington, D.C. 20036
Date of Birth: 02/29/52
President and Director, German Marshall Fund of the United States. Formerly,
advisor to the Dennis Trading Group Inc. Prior to 1992, President and Chief
Executive Officer, Director and Member of the Investment Committee of the Joyce
Foundation, a private foundation. Trustee/Director of each of the funds in the
Fund Complex.
Jack E. Nelson
423 Country Club Drive
Winter Park, FL 32789
Date of Birth: 02/13/36
President, Nelson Investment Planning Services, Inc., a financial planning
company and registered investment adviser. President, Nelson Ivest Brokerage
Services Inc., 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*
2800 Post Oak Blvd.
Houston, TX 77056
Date of Birth: 10/19/39
Chairman and a Director of Van Kampen. Chairman and a Director of the Advisers
and the Distributor. Chairman and a Director of Investor Services. Director or
officer of certain other subsidiaries of Van Kampen. Chairman of the Board of
Governors and the Executive Committee of the Investment Company Institute. Prior
to July of 1998, Director and Chairman of VK/AC Holding, Inc. Prior to November
1996, President, Chief Executive Officer and a Director of VK/AC Holding, Inc.
Trustee/Director of each of the funds in the Fund Complex and Trustee of other
funds advised by the Advisers or Van Kampen Management Inc.
<PAGE> 243
Phillip B. Rooney
One ServiceMaster Way
Downers Grove, IL 60515
Date of Birth: 07/08/44
Vice Chairman and Director of The ServiceMaster Company, a business and consumer
services company. Director of Illinois Tool Works, Inc., a manufacturing
company; the 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
155 Hickory Lane
Closter, NJ 07624
Date of Birth: 08/02/24
Professor Emeritus and, prior to 1995, Dean of the Graduate School, Stevens
Institute of Technology. Director, Dynalysis of Princeton, a firm engaged in
engineering research. Trustee/Director of each of the funds in the Fund Complex.
Wayne W. Whalen*
333 West Wacker Drive
Chicago, IL 60606
Date of Birth: 08/22/39
Partner in the law firm of Skadden, Arps, Slate, Meagher & Flom (Illinois),
legal counsel to the funds in the Fund Complex, and other open-end and
closed-end funds advised by the Advisers or Van Kampen Management Inc.
Trustee/Director of each of the funds in the Fund Complex, and Trustee/Managing
Partner of other open-end and closed-end funds advised by the Advisers or Van
Kampen Management Inc.
- -------
* Such director is an "interested person" (within the meaning of
Section 2(a)(19) of the 1940 Act). Mr. Whalen is an interested person of the
Funds by reason of his firm currently acting as legal counsel to the Funds.
Messrs. DeMartini and Powell are interested persons of the Funds and the
Advisers by reason of their positions with Morgan Stanley Dean Witter & Co. or
its affiliates.
Officers
Messrs. McDonnell, Hegel, Nyberg, Wood, Sullivan, Dalmaso, Martin,
Wetherell and Hill are located at One Parkview Plaza, Oakbrook Terrace, IL
60181. Unless otherwise indicated, the Fund's other officers are located at 2800
Post Oak Blvd., Houston, TX 77056.
Name, Age, Positions and
Offices with the Company
Principal Occupations During Past 5 Years
<PAGE> 244
Name, Age, Positions and
Offices with the Company
Principal Occupations During Past 5 Years
Dennis J. McDonnell
Date of Birth: 05/20/42,
President
Executive Vice President and a Director of Van Kampen. President, Chief
Operating Officer and a Director of the Advisers, Van Kampen Advisors Inc., and
Van Kampen Management Inc. Prior to July of 1998, Director and Executive Vice
President of VK/AC Holding, Inc. Prior to April of 1998, President and a
Director of Van Kampen Merritt Equity Advisors Corp. Prior to April of 1997, Mr.
McDonnell 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 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/Managing General Partner of other investment companies
advised by the Advisers or their affiliates.
Peter W. Hegel
Date of Birth: 06/25/56,
Vice President
Executive Vice President of the Advisers, Van Kampen Management Inc. and Van
Kampen 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
Date of Birth: 08/04/46,
Vice President and Chief Accounting Officer
Senior Vice President of the Advisers, Vice 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.
Ronald A. Nyberg
Date of Birth: 07/29/53,
Vice President and Secretary
Executive Vice President, General Counsel, Secretary and Director of Van Kampen.
Mr. Nyberg is Executive Vice President, General Counsel, Assistant Secretary and
a Director of the Advisers and the Distributor, Van Kampen Advisors Inc., Van
Kampen Management Inc., Van Kampen Exchange Corp., American Capital Contractual
Services Inc. and Van Kampen Trust Company. Executive Vice President, General
Counsel and Assistant Secretary of Investor Services. Director or officer of
certain other subsidiaries of Van Kampen. Director of ICI Mutual Insurance Co.,
a provider of insurance to members of the Investment Company Institute. Prior to
July of 1998, Director and Executive Vice President, General Counsel and
Secretary of VK/AC Holding, Inc. Prior to April of 1998, Executive Vice
President, General Counsel and Director of Van Kampen Merritt Equity Advisors
Corp. Prior to April of 1997, he was
<PAGE> 245
Executive Vice President, General Counsel and a Director of Van Kampen Merritt
Equity Holdings Corp. Prior to September of 1996, he was General Counsel of
McCarthy, Crisanti & Maffei, Inc. 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. 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.
Paul R. Wolkenberg
Date of Birth: 11/10/44,
Vice President
Executive Vice President and Director of Van Kampen. Executive Vice President of
the Asset Management and the Distributor. President and a Director of Van Kampen
Investor Services Inc. President and Chief Operating Officer of Van Kampen
Recordkeeping Services Inc. Prior to July of 1998, Director and Executive Vice
President of VK/AC Holding, Inc. Vice President of each of the funds in the Fund
Complex and certain other investment companies advised by the Advisers or their
affiliates.
Edward C. Wood III
Date of Birth: 01/11/56
Vice President and Chief Financial Officer
Senior Vice President of the Advisers, Van Kampen and Van Kampen Management Inc.
Senior Vice President and Chief Operating Officer of the Distributor. 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
Date of Birth: 08/20/55,
Treasurer
First Vice President of Van Kampen and the Advisers. 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
Date of Birth: 11/19/59,
Controller
Vice President of Van Kampen and the Advisers. Controller of each of the funds
in the Fund Complex and other investment companies advised by the Advisers or
their affiliates.
Nicholas Dalmaso
Date of Birth: 03/01/65,
Assistant Secretary
Associate General Counsel and Assistant Secretary of Van Kampen. Vice President,
Associate General Counsel and Assistant Secretary of the Advisers, the
Distributor, Van Kampen Advisors Inc. and Van Kampen Management Inc. Assistant
Secretary of each of the funds in the Fund Complex and other investment
companies advised by the Advisers or their affiliates.
Huey P. Falgout, Jr.
Date of Birth: 11/15/63,
Assistant Secretary
Vice President, Assistant Secretary and Senior Attorney of Van Kampen. Vice
President, Assistant Secretary and Senior Attorney of the Advisers, the
Distributor, Investor Services, Van Kampen Management Inc., American Capital
Contractual Services, Inc., Van Kampen Exchange Corp. and Van Kampen Advisors
Inc. Assistant Secretary of each of the funds in the Fund Complex and other
investment companies advised by the Advisers or their affiliates.
<PAGE> 246
Scott E. Martin
Date of Birth: 08/20/56,
Assistant Secretary
Senior Vice President, Deputy General Counsel and Assistant Secretary of Van
Kampen, Senior Vice President, Deputy General Counsel and Secretary of the
Advisers, the Distributor, Investor Services, American Capital Contractual
Services, Inc., Van Kampen Management Inc., Van Kampen Exchange Corp., Van
Kampen Advisors Inc., Van Kampen Insurance Agency of Illinois Inc., Van Kampen
System Inc. and Van Kampen Recordkeeping Services Inc. Prior to July of 1998,
Senior Vice President, Deputy General Counsel and Assistant Secretary of VK/AC
Holding, Inc. Prior to April of 1998, 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
Date of Birth: 06/15/56,
Assistant Secretary
Vice President, Associate General Counsel and Assistant Secretary of Van Kampen,
the Advisers, the Distributor, Van Kampen Management Inc. and Van Kampen
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.
Joanna Haigney
73 Tremont Street
Boston, MA 02108
Date of Birth: 10/10/66
Assistant Treasurer
Assistant Vice President, Senior Manager of Fund Administration and Compliance
Services, Chase Global Funds Services Company; Officer of various investment
companies advised or subadvised by Morgan Stanley Asset Management Inc.
Previously with Coopers & Lybrand LLP.
Steven M. Hill
Date of Birth: 10/16/64,
Assistant Treasurer
Vice President of Van Kampen and the Advisers. Assistant Treasurer of each of
the funds in the Fund Complex and other investment companies advised by the
Advisers or their affiliates.
Michael Robert Sullivan
Date of Birth: 03/30/33,
Assistant Controller
Assistant Vice President of the Advisers. Assistant Controller of each of the
funds in the Fund Complex and other investment companies advised by the Advisers
or their affiliates.
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
<PAGE> 247
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
Van Kampen Series Fund, Inc. (the "VK Funds") and the funds advised by Advisory
Corp. organized as series of the Van Kampen Series Fund, Inc. (the "MS Funds").
Each trustee/director who is not an affiliated person of the Advisers, the
Distributor, Van Kampen, 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 trustee/directors 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/director, 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/director. 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/directors 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/director, 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/director. 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
<PAGE> 248
such meeting, plus reasonable expenses incurred by the Non-Affiliated Trustee,
in connection with his or her services as a trustee/director, 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.
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 Directors 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 for the Fund Upon from Fund
Name(1) Board Company(2) Expenses(3) Retirement(4) Complex(3)
- --------------------- --------------- ------------------------ ------------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
J. Miles Branagan* 1997 $13,672 $30,328 $60,000 $111,197
Linda Hutton Heagy* 1997 11,072 3,141 60,000 111,197
R. Craig Kennedy* 1997 13,672 2,229 60,000 111,197
Jack E. Nelson* 1997 13,672 15,820 60,000 104,322
Jerome L. Robinson 1997 4,072 32,020 15,750 107,947
Phillip B. Rooney* 1997 13,672 0 60,000 74,697
Dr. Fernando Sisto* 1997 13,672 60,208 60,000 111,197
Wayne W. Whalen* 1997 13,672 10,788 60,000 111,197
</TABLE>
- --------------
<PAGE> 249
(1) Persons not designated by an asterisk are not currently members of the Board
of Directors, but were members of the Board of Directors during the Company's
most recently completed fiscal year. Mr. Robinson retired from the Board of
Directors on December 31, 1997. Directors not eligible for compensation are not
included in the compensation table.
(2) The amounts shown in this column represent the Aggregate Compensation before
Deferral from all operating portfolios of the Company, with respect to the
Fund's fiscal year ended June 30, 1998. The detail of aggregate compensation
before deferral from each operating portfolio (except the Equity Growth Fund
which paid no compensation to trustees/directors for its fiscal year ended June
30, 1998) is shown in Table A below. The following directors deferred
compensation from the operating portfolios of the Company, during the fiscal
year ended June 30, 1998: Mr. Branagan, $9,600; Ms. Heagy, $7,000; Mr. Kennedy,
$4,800; Mr. Nelson, $9,600; Mr. Rooney, $9,600; Dr. Sisto, $4,800; and Mr.
Whalen, $9,600. The details of amounts deferred for each portfolio are shown in
Table B below. Amounts deferred are retained by the Fund and earn a rate of
return determined by reference to either the return on the common shares of the
Fund or other funds in the Fund Complex as selected by the respective
Non-Affiliated Trustee, with the same economic effect as if such Non-Affiliated
Trustee had invested in one or more funds in the Fund Complex. To the extent
permitted by the 1940 Act, each Fund may invest in securities of those funds
selected by the Non-Affiliated Trustees in order to match the deferred
compensation obligation. The cumulative deferred compensation (including
interest) accrued with respect to each director, including former directors,
from the Company as of June 30, 1998 is as follows: Mr. Branagan, $13,179; Ms.
Heagy, $11,180; Mr. Kennedy, $7,606; Mr. Nelson, $15,050; Mr. Robinson, $3,197;
Mr. Rooney, $12,004; Dr. Sisto, $12,233; Mr. Whalen, $14,651; Mr. Miller,
$1,681; and Mr. Gaughan, $431. The details of cumulative deferred compensation
(including interest) for each portfolio are shown in Table C below. The deferred
compensation plan is described above the Compensation Table.
<PAGE> 250
(3) The amounts shown in this column represent the sum of the retirement
benefits accrued by all operating funds in the Fund Complex for each
trustee/director for such a 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 extend
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 September 3, 1998, the Directors and officers of the Fund as a
group owned less than 1% of the shares of each Fund.
FISCAL YEAR 1998 AGGREGATE COMPENSATION FROM THE COMPANY AND EACH PORTFOLIO
TABLE A
<TABLE>
<CAPTION>
Fund Name Branagan Heagy Kennedy Nelson Robinson Rooney Sisto Whalen
- --------- -------- ----- ------- ------ -------- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aggressive Equity Fund................ $ 781 $ 581 $ 781 $ 781 $ 70 $ 781 $ 781 $ 781
American Value Fund................... 1,043 843 1,043 1,043 150 1,043 1,043 1,043
Asian Growth Fund..................... 1,966 1,766 1,966 1,966 1,260 1,966 1,966 1,966
Emerging Markets Fund................. 1,203 1,003 1,203 1,203 460 1,203 1,203 1,203
Global Equity Fund.................... 963 763 963 963 0 963 963 3 963
Global Equity Allocation Fund......... 1,233 1,033 1,233 1,233 454 1,233 1,233 1,233
Global Fixed Income Fund.............. 643 443 643 643 36 643 643 643
Government Obligations Fund........... 358 358 358 358 358 358 358 358
High Yield & Total Return Equity Fund. 661 461 661 661 44 661 661 661
International Magnum Fund............. 732 532 732 732 60 732 732 732
Latin American Fund................... 819 619 819 819 126 819 819 819
Money Market Fund..................... 608 608 608 608 608 608 608 608
U.S. Real Estate Fund................. 669 469 669 669 40 669 669 669
Value Fund............................ 793 593 793 793 0 793 793 793
Worldwide High Income Fund............ 1,200 1,000 1,200 1,200 406 1,200 1,200 1,200
-------- ------- ------- ------- ------ ------- ------- -------
Company Total................ $13,672 $11,072 $13,672 $13,672 $4,072 $13,672 $13,672 $13,672
</TABLE>
<PAGE> 251
1998 AGGREGATE COMPENSATION DEFERRED FROM THE COMPANY AND EACH PORTFOLIO
TABLE B
<TABLE>
<CAPTION>
Fund Name Branagan Heagy Kennedy Nelson Robinson Rooney Sisto Whalen
- --------- -------- ----- ------- ------ -------- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aggressive Equity Fund.................... $ 711 $ 511 $ 356 $ 711 $ 0 $ 711 $ 356 $ 711
American Value Fund....................... 893 693 446 893 0 893 446 893
Asian Growth Fund......................... 706 506 353 706 0 706 353 706
Emerging Markets Fund..................... 743 543 372 743 0 743 372 743
Global Equity Fund........................ 963 763 482 963 0 963 482 963
Global Equity Allocation Fund............. 779 579 390 779 0 779 390 779
Global Fixed Income Fund.................. 607 407 304 607 0 607 304 607
High Yield & Total Return Equity Fund..... 617 417 308 617 0 617 308 617
International Magnum Fund................. 672 472 336 672 0 672 336 672
Latin American Fund....................... 693 493 346 693 0 693 346 693
U.S. Real Estate Fund..................... 629 429 314 629 0 629 314 629
Value Fund................................ 793 593 396 793 0 793 396 793
Worldwide High Income Fund................ 794 594 397 794 0 794 397 794
------ ------ ------ ------ ------ ------ ------ ------
Company Total.................... $9,600 $7,000 $4,800 $9,600 $ 0 $9,600 $4,800 $9,600
</TABLE>
<PAGE> 252
CUMULATIVE COMPENSATION DEFERRED (PLUS INTEREST) FROM THE COMPANY AND EACH
PORTFOLIO
TABLE C
<TABLE>
<CAPTION>
Fund Name Branagan Heagy Kennedy Nelson Robinson Rooney Sisto Whalen Miller Gaughan
- --------- -------- ----- ------- ------ -------- ------ ----- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aggressive Equity Fund............ $ 754 $ 543 $ 382 $ 765 $ 0 $ 763 $ 364 $ 752 $ 0 $ 0
American Value Fund............... 949 734 480 961 0 958 457 945 0 0
Asian Growth Fund................. 751 539 380 761 0 759 362 748 0 0
Emerging Markets Fund............. 791 578 401 801 0 800 381 788 0 0
Global Equity Fund................ 1,174 957 594 1,188 0 1,186 565 1,169 0 0
Global Equity Allocation Fund..... 3,579 4,206 2,780 5,397 3,197 2,374 7,318 5,162 1,681 431
Global Fixed Income Fund.......... 644 433 327 654 0 652 610 642 0 0
High Yield & Total Return Equity
Fund......................... 655 444 332 664 0 662 316 652 0 0
International Magnum Fund......... 714 502 362 724 0 722 344 711 0 0
Latin American Fund............... 737 525 374 747 0 746 355 735 0 0
U.S. Real Estate Fund............. 668 457 339 678 0 676 322 666 0 0
Value Fund........................ 843 630 427 854 0 852 406 840 0 0
Worldwide High Income Fund........ 920 632 428 856 0 854 433 841 0 0
Company Total............ $13,179 $11,180 $7,606 $15,050 $3,197 $12,004 $12,233 $14,651 $1,681 $431
</TABLE>
<PAGE> 253
Investment Advisory and Administrative Agreements
The Adviser is an indirect wholly-owned subsidiary of Morgan Stanley
Dean Witter & Co. ("MSDW"). The Adviser is a registered investment adviser under
the Investment Advisers Act of 1940, as amended, and has its offices at One
Parkview Plaza, Oakbrook Terrace, IL 60181 and 2800 Post Oak Boulevard, Houston,
TX 77056. Pursuant to the advisory agreement (the "Advisory Agreement") between
the Adviser and the Company, the Adviser provides investment services to the
Funds. Additionally, pursuant to the administration agreement (the
"Administration Agreement") between the Adviser and the Company, the Adviser
(the "Administrator") provides administrative services to the Funds. The current
Advisory Agreement and Administration Agreement for each Fund except the Global
Franchise Fund became effective as of July 2, 1997. The Adviser received
compensation for advisory services to the Non-Money Funds of the Company for the
fiscal year ended June 30, 1998 of approximately $21,021,000 (and voluntarily
waived a portion of such fees equal to approximately $2,664,000). The
Administrator received compensation for Administrative Services to the Non-Money
Funds of the Company for the fiscal year ended June 30, 1998 of approximately
$5,956,000. The current Advisory Agreement and Administration Agreement for the
Global Franchise Fund was approved by the Board of Directors on July 30, 1998.
For the fiscal year ended June 30, 1998, the Company paid advisory fees to Van
Kampen for the Money Market Fund of approximately $680,000 (and voluntarily
waived a portion of such fees equal to approximately 195,000). As Adviser for
the Government Obligations Money Market Fund, the Company paid to Van Kampen
approximately $289,000 (and voluntarily waived a portion of such fees equal to
approximately $183,000).
MSAM is an indirect wholly-owned subsidiary of MSDW and currently acts
as sub-adviser pursuant to an investment sub-advisory agreement between MSAM and
the Adviser to each of the
<PAGE> 254
Company's Funds, other than the Mid Cap Growth and Value Funds. The principal
offices of the MSAM are located at 1221 Avenue of the Americas, New York, NY
10020. Prior to July 2, 1997, MSAM served as investment adviser and
administrator for such Funds. As compensation for advisory services to the
non-money Funds of the Company for the fiscal years ended June 30, 1996 and June
30, 1997, MSAM, the prior adviser, earned fees of approximately $7,177,000 (and
voluntarily waived a portion of such fees equal to approximately $1,328,000) and
$10,409,000 (and voluntarily waived a portion of such fees equal to
approximately $1,716,000). Further, for the fiscal years ended June 30, 1996 and
June 30, 1997, MSAM, as adviser for the PCS Money Market Portfolio (the
"Predecessor Money Market Portfolio") the predecessor to the Money Market Fund
received $759,398 and $882,000, respectively (net of voluntary fee waivers of
$153,797 and $579,000,) and as adviser for the PCS Government Obligations Money
Market Portfolio (the "Predecessor Government Obligations Money Market
Portfolio") the predecessor to the Government Obligations Money Market Fund
received $395,312 and $542,000, respectively (net of voluntary fee waivers of $0
and $45,251). For the fiscal years ended June 30, 1996 and June 30, 1997, the
Company paid administrative fees to MSAM, the prior administrator to the Funds,
of approximately $2,273,000 and $3,187,000, respectively. For the fiscal years
ended June 30, 1996 and for the fiscal period from July 1, 1996 to September 26,
1996, PFPC Inc., which served as administrator to the Predecessor Money Market
Portfolio and Predecessor Government Obligations Money Market Portfolio (the
"Predecessor Portfolios"), was paid aggregate administrative fees of $273,252
and $73,440, respectively.
MAS is an indirect wholly-owned subsidiary of MSDW with its principal
offices located at One Tower Bridge, West Conshohocken, PA 19428. Pursuant to an
investment sub-advisory agreement between MAS and the Adviser, MAS currently
provides sub-advisory services to each of the Mid Cap Growth and Value Funds.
Prior to July 2, 1998, MAS served as investment adviser and administrator for
such Funds. MAS did not receive any compensation as an adviser or administrator
for such Funds for the fiscal year ended June 30, 1997 or before as such Funds
had not commenced investment operations during such periods.
Under sub-administration agreements between the Administrator and The
Chase Manhattan Bank ("Chase"), Chase Global Funds Services Company, a corporate
affiliate of Chase, provides certain administrative services to the Company.
CGFSC provides operational and administrative services to investment companies
with approximately $163 billion in assets and having approximately 243,424
shareholder accounts as of June 30, 1998. CGFSC's business address is 73 Tremont
Street, Boston, MA 02108-3913.
Distribution of Fund Shares
Prior to January 1, 1997, Morgan Stanley & Co. Incorporated ("Morgan
Stanley"), a wholly-owned subsidiary of MSDW, served as the distributor of the
Company's shares pursuant to a Distribution Agreement with the Company and a
Plan of Distribution for each Money Market Fund and each class of each Non-Money
Fund pursuant to Rule 12b-1 under the 1940 Act (each, a "Plan" and collectively,
the "Plans"). Subsequent to January 1, 1997, Van Kampen Funds Inc. (the
"Distributor") replaced Morgan Stanley as distributor of the Company's shares
pursuant to a Distribution Agreement with the Company and the Plans. Under each
Plan the Company's distributor is entitled to receive from the Funds a
distribution fee, which is accrued daily and paid monthly, of up to 0.50% for
each of the Money Market Funds and up to 0.75% of the Class B shares and Class C
shares of each of the Non-Money Funds, on an annualized basis, of the average
daily net assets of such Fund or classes. The Distributor expects to allocate
most of its fee to investment dealers, banks or financial service firms that
provide distribution, administrative or shareholder services (a "Participating
Dealer"). The actual amount of such reimbursement is agreed upon by the
Company's Board of Directors and by the Distributor. The Distributor may, in its
discretion, voluntarily waive from time to time all or any portion of its
distribution fee and the Distributor is free to make additional payments out of
its own assets to promote the sale of Fund shares.
<PAGE> 255
Code of Ethics
The Board of Directors of the Company has adopted a Code of Ethics
under Rule 17j-1 of the 1940 Act which incorporates the Code of Ethics of the
Adviser (together, the "Codes"). The Codes require that all employees of the
Adviser and Sub-Advisers preclear any personal securities investment (with
limited exceptions, such as government securities). The preclearance requirement
and associated procedures are designed to identify any substantive prohibition
or limitation applicable to the proposed investment. The substantive
restrictions applicable to all employees of the Adviser include a ban on
acquiring any securities in a "hot" initial public offering and a prohibition
from profiting on short-term trading in securities. In addition, no employee may
purchase or sell any security that at the time is being purchased or sold (as
the case may be), or to the knowledge of the employee is being considered for
purchase or sale, by any fund advised by the Adviser or Sub-Adviser.
Furthermore, the Codes provide for trading "blackout periods" that prohibit
trading by investment personnel of the Company within periods of trading by the
Company in the same (or equivalent) security.
Control Persons and Principal Holders of Securities
The names and addresses of the holders of 5% or more of the outstanding
shares of any class of the Company as of September 3, 1998 and the percentage of
outstanding shares of such classes owned beneficially or of record by such
shareholders as of such date are, to Company management's knowledge, as follows:
Aggressive Equity: Van Kampen Trust Company, 2800 Post Oak Blvd, Houston, TX
77056 owned 5.374% of the total outstanding Class A shares of such Fund.
American Value Fund: Merrill Lynch, Pierce, Fenner & Smith for the Sole Benefit
of its Customers, 4800 Deer Lake Dr. East 3rd Floor, Jacksonville, FL
32246-6484, owned 8.607% and Van Kampen Trust Company, 2800 Post Oak Blvd,
Houston, Texas 77056 owned 6.273% of the total outstanding Class B shares of
such Fund.
Merrill Lynch, Pierce, Fenner & Smith for the Sole Benefit of its
Customers, 4800 Deer Lake Dr. East, 3rd Floor, Jacksonville, FL 32246-6484,
owned 12.432% of the total outstanding Class C shares of such Fund.
Global Equity Allocation Fund: Van Kampen Trust Company, 2800 Post Oak Blvd,
Houston, Texas 77056, owned 17.739% and 21.147% of the outstanding Class A and B
shares, respectively, of such Fund.
Global Fixed Income Fund: The following each held the percentage indicated of
the total outstanding Class A shares of such Fund: MLPF&S, 4800 Deer Lake Dr.,
Jacksonville, FL 32246-6484, 17.923%; LaSalle National Bank Cust FBO Bruce A.
Bendoff & Judith D. Bendoff, P.O. Box 1443, Chicago, IL 60690-1443, 14.121%; FTC
& Co. P.O. Box 173736, Denver, Co. 80217-3736, 11.592%; NFSC FBO Bruce S.
Sperling, 55 W. Monroe St., Chicago, IL 60603-5010, 8.202%; Charles Schwab & Co.
Inc., 101 Montgomery St., San Francisco, CA 94104-4122, 6.415%.
Anna E. Fulmer Trustee for Anna E. Fulmer Trust, U/A/D 8/2/93, 1124
Marine Way West, West Palm Beach, FL, 33408-3630, owned 7.051% of the total
outstanding Class B shares of such Fund.
<PAGE> 256
The following each held the percentage indicated of the total
outstanding Class C shares of such Fund: Esierea Clearing Corp. Geraldine M.
Falkiner 1987 111 East Kilbourn Avenue, Milwaukee, WI 53202-6611, 6.466%;
MLPF&S, 4800 Deer Lake Dr., Jacksonville, FL 32246-6484, 5.007%; and Solomon
Smith Barney, Inc., 333 West 34th Street, New York, NY 10001-2483, 5.855%.
Emerging Markets Fund: Charles Schwab & Co., Inc., Exclusive Benefit of its
Customers, 101 Montgomery Street, San Francisco, CA 94104, owned 36.857% of the
total outstanding Class A shares of such Fund.
High Yield & Total Return Fund: The following each held the percentage
indicated of the total outstanding Class A shares of such Fund: MLPF&S, 4800
Deer Lake Dr., Jacksonville, FL 32246-6484, 28.950%; Charles Schwab & Co. Inc.,
101 Montgomery St., San Francisco, CA 94104-4122, 12.499% and Donaldson Lufkin
Jenrette, P.O. Box 2052, Jersey City, NJ 07303-2052, 5.390%.
MLPF&S, 4800 Deer Lake Dr., Jacksonville, FL 32246-6484, owned 6.004%
and 22.549% of the total outstanding Class B and C shares, respectively, of such
Fund.
Latin American Fund: Charles Schwab for the Sole Benefit of its Customers, 101
Montgomery St., San Francisco, CA 94104-4122, owned 9.873% of the total
outstanding Class A shares of such Fund.
U.S. Real Estate Fund: The following each held the percentage indicated of the
total outstanding Class A shares of such Fund: Charles Schwab & Co. Inc., 101
Montgomery St., San Francisco, CA 94104-4122 owned 36.020% and Painewebber, 22
Harbor Drive, Port Washington, NY 11050-2524 owned 8.777%.
Dain Rauscher Incorporated, P.O. Box 6368, Lincoln, NE 68506-0368 owned
9.926% of the total outstanding Class C shares of such fund.
International Magnum Fund: Wachovia Bank NA Cust, FBO East Carolina University
Endowment and Foundation, 301 N. Main Street, P.O. Box 3073, Winston Salem, NC
27150, owned 6.172% of the total outstanding Class A shares of such Fund and
Charles Schwab & Co. Inc., Exclusive Benefit of its Customers, 101 Montgomery
Street, San Francisco, CA 94104-4122, owned 8.798% of the total outstanding
Class A shares of such Fund.
Van Kampen Trust Company, 2800 Post Oak Blvd, Houston, Texas 77056,
owned 8.842% of the total outstanding Class B shares of such Fund.
MLPF&S, 4800 Deer Lake Dr., Jacksonville, FL 32246-6484, owned 10.533%
and Interstate/Johnson Lane, P.O. Box 1220, Charlotte, NC 28201-1220, owned
8.907% of the total outstanding Class C shares of such Fund.
Money Market Fund: PFPC, Inc., 400 Bellevue Parkway, 2nd Floor, Wilmington, DE
19809, owned 99.514% of the total outstanding shares of the Fund.*
Government Obligations Money Market Fund: PFPC, Inc., 400 Bellevue Parkway, 2nd
Floor, Wilmington, DE 19809, owned 99.975% of the total outstanding shares of
the Fund.*
Worldwide High Income Fund: Charles Schwab & Co., Inc., Exclusive Benefit of its
Customers, 101 Montgomery Street, San Francisco, CA 94104-4122, owned 7.546% of
the total outstanding Class A shares of such Fund.
Asian Growth Fund: MLPF&S, 4800 Deer Lake Dr., Jacksonville, FL 32246-6484 owned
5.245% of the total outstanding Class B shares of such Fund.
<PAGE> 257
Tax-Free Money Market Fund: N/A
Japanese Equity Fund: N/A
European Equity Fund: N/A
Equity Growth Fund: Van Kampen Trust Company, 2800 Post Oak Blvd., Houston,
Texas 77056 owned 13.228% of the total outstanding Class A shares of such Fund.
Van Kampen Trust Company, 2800 Post Oak Blvd., Houston, Texas, 77056
owned 9.515% and Kathleen Hull Trust dtd 12/08/88 11 Sierra Avenue, Piedmont, CA
94611-3815 owned 5.963% of the total outstanding Class B shares of such Fund.
John G. Elkenrode & Deborah J. Elkenrode, 16 Woodward Ln., Lutherville,
MD 21093-3770 owned 14.699% and Concorde Bank Limited P.O. Box 1161, Barbados,
West Indies owns 5.520% of the total outstanding Class C shares of such Fund.
Global Equity Fund: N/A
Emerging Markets Debt Fund: N/A
Mid Cap Growth Fund: N/A
Growth and Income Fund II: N/A
Value Fund: MLPF&S, 4800 Deer Lake Dr., Jacksonville, FL 32246-6484, owned
10.128% and Van Kampen Trust Company, 2800 Post Oak Blvd., Houston, TX 77056
owned 5.681% of the total outstanding Class B shares of such Fund.
MLPF&S, 4800 Deer Lake Dr., Jacksonville, FL 32246-6484, owned 11.149%
and Van Kampen Trust Company, 2800 Post Oak Blvd, Houston, Texas 77056, owned
8.353% of the total outstanding Class C shares of such Fund.
Global Franchise Fund: N/A
*The shareholder may be deemed a "controlling person" of the particular
Fund by virtue of its power to control the voting or disposition of the shares
it owns. As a result of its ownership position, the shareholder may be able to
control the outcome of matters voted on by shareholders of the Fund.
MONEY MARKET FUND NET ASSET VALUE
Each of the Money Market Funds seeks to maintain a stable net asset
value per share of $1.00. Each Fund uses the amortized cost method of valuing
its securities, which does not take into account unrealized gains or losses. The
use of amortized cost and the maintenance of a Fund's per share net asset value
at $1.00 is based on the Fund's election to operate under the provisions of Rule
2a-7 under the 1940 Act. As a condition of operating under that Rule, each of
the Money Market Funds must maintain a dollar-weighted average portfolio
maturity of 90 days or less, purchase only instruments having remaining
maturities of 397 days or less, and invest only in securities which are of
"eligible quality" as determined in accordance with regulations of the SEC.
The Rule also requires that the Directors, as a particular
responsibility within the overall duty of care owed to shareholders, establish
procedures reasonably designed, taking into account current market conditions
and the Funds' investment objectives, to stabilize the net asset value per share
as computed
<PAGE> 258
for the purposes of sales and redemptions at $1.00. These procedures include
periodic review, as the Directors deem appropriate and at such intervals as are
reasonable in light of current market conditions, of the relationship between
the amortized cost value per share and a net asset value per share based upon
available indications of market value. In such review, investments for which
market quotations are readily available are valued at the most recent bid price
or quoted yield available for such securities or for securities of comparable
maturity, quality and type as obtained from one or more of the major market
makers for the securities to be valued. Other investments and assets are valued
at fair value, as determined in good faith by, or under procedures adopted by,
the Directors.
In the event of a deviation of over 1?2 of 1% between a Fund's net
asset value based upon available market quotations or market equivalents and
$1.00 per share based on amortized cost, the Directors will promptly consider
what action, if any, should be taken. The Directors will also take such action
as they deem appropriate to eliminate or to reduce to the extent reasonably
practicable any material dilution or other unfair results which might arise from
differences between the two. Such action may include redemption in kind, selling
instruments prior to maturity to realize capital gains or losses or to shorten
the average maturity, withholding dividends, paying distributions from capital
or capital gains or utilizing a net asset value per share as determined by using
available market quotations.
There are various methods of valuing the assets and of paying dividends
and distributions from a money market fund. Each of the Money Market Funds
values its assets at amortized cost while also monitoring the available market
bid price, or yield equivalents. Since dividends from net investment income will
be declared daily and paid monthly, the net asset value per share of such Funds
will ordinarily remain at $1.00, but the Funds' daily dividends will vary in
amount. Net realized short-term capital gains, if any, less any capital loss
carryforwards, will be distributed whenever the Directors determine that such
distributions would be in the best interest of shareholders, but in any event,
at least once a year. The Money Market Funds do not expect to realize any
long-term capital gains. Should any such gains be realized, they will be
distributed annually, less any capital loss carryforwards.
PORTFOLIO TRANSACTIONS
The Investment Advisory Agreement and Investment Sub-Advisory
Agreements authorize each of the Adviser and Sub-Advisers (collectively for this
discussion only, the "Adviser") to select the brokers or dealers that will
execute the purchases and sales of investment securities for the Funds and
direct the Adviser to use its best efforts to obtain the best available price
and most favorable execution with respect to all transactions for the Funds. The
Company has authorized the Adviser to pay higher commissions in recognition of
brokerage services which, in the opinion of the Adviser, are necessary for the
achievement of better execution, provided the Adviser believes this to be in the
best interest of the Company.
In purchasing and selling securities for the Funds, it is the Company's
policy to seek to obtain quality execution at the most favorable prices, through
responsible broker-dealers. In selecting broker-dealers to execute the
securities transactions for the Funds, consideration will be given to such
factors as the price of the security, the rate of the commission, the size and
difficulty of the order, the reliability, integrity, financial condition,
general execution and operational capabilities of competing broker-dealers, and
the brokerage and research services which they provide to the Company. Some
securities considered for investment by a Fund may also be appropriate for other
clients served by the Adviser. If purchase or sale of securities consistent with
the investment policies of a Fund and one or more of these other clients served
by the Adviser is considered at or about the same time, transactions in such
securities will be allocated among the Fund and clients in a manner deemed fair
and reasonable by the Adviser. Although there is no specified formula for
allocating such transactions, the various allocation methods used by the
Adviser, and the results of such allocations, are subject to periodic review by
the Company's Directors.
<PAGE> 259
Subject to the overriding objective of obtaining the best execution of
orders, the Adviser may allocate a portion of the Company's portfolio brokerage
transactions to Morgan Stanley or broker affiliates of Morgan Stanley under
procedures adopted by the Board of Directors. For the three fiscal years ended
June 30, 1996, June 30, 1997 and June 30, 1998, the Company paid brokerage
commissions of approximately $180,458, $464,192 and $450,000, respectively, to
the Morgan Stanley, an affiliated broker-dealer. For the fiscal years ended June
30, 1996, June 30, 1997 and June 30, 1998, commissions paid to Morgan Stanley
represented approximately 6.00%, 7.98% and 4.83%, respectively, of the total
amount of brokerage commissions paid in such period and which were paid on
transactions that represented 2.00%, 7.10% and 10.78%, respectively, of the
aggregate dollar amount of transactions that incurred commissions paid by the
Company during such period.
Fund securities will not be purchased from, or through, or sold to or
through, the Adviser, the Sub-Advisers or Morgan Stanley or any "affiliated
persons," as defined in the 1940 Act, of Morgan Stanley when such entities are
acting as principals, except to the extent permitted by law.
PERFORMANCE INFORMATION
The Company may from time to time quote various performance figures to
illustrate the Funds' past performance.
Performance quotations by investment companies are subject to rules
adopted by the SEC, which require the use of standardized performance
quotations. In the case of total return, non-standardized performance quotations
may be furnished by the Company but must be accompanied by certain standardized
performance information computed as required by the SEC. Current yield and
average annual compounded total return quotations used by the Company are based
on the standardized methods of computing performance mandated by the SEC. An
explanation of those and other methods used by the Company to compute or express
performance follows.
Total Return
From time to time the Funds may advertise total return. Total return
figures are based on historical earnings and are not intended to indicate future
performance. The average annual total return is determined by finding the
average annual compounded rates of return over 1-, 5-, and 10-year periods (or
over the life of the Fund) that would equate an initial hypothetical $1,000
investment to its ending redeemable value. The calculation assumes that all
dividends and distributions are reinvested when paid. The quotation assumes the
amount was completely redeemed at the end of each 1-, 5-, and 10-year period
(or over the life of the Fund) and the deduction of all applicable Company
expenses on an annual basis.
<PAGE> 260
Total return figures are calculated according to the following formula:
P(1+T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of hypothetical $1,000 payment made at the
beginning of the 1-, 5-, or 10-year periods at the end of the 1-, 5-, or 10-year
periods (or fractional portion thereof).
Calculated using the formula above, the average annualized total
return, exclusive of a sales charge or deferred sales charge, for each of the
Funds that commenced operations prior to June 30, 1998 for the one, three and
five year periods ended June 30, 1998 and for the period from the inception of
each Fund through June 30, 1998 are as follows:
<TABLE>
<CAPTION>
One-Year Three-Year Five-Year Inception
Inception Period Ended Period Ended Period Ended through
Date June 30, 1998 June 30, 1998 June 30, 1998 June 30, 1998
--------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Global Equity Allocation Fund
Class A Shares.............................. 01/04/93 16.17% 20.42% 15.22% 15.94%
Class B Shares(1)........................... 08/01/95 15.33 N/A N/A 18.22
Class C Shares(1)........................... 01/04/93 15.37 19.52 14.38 15.09
Global Fixed Income Fund
Class A Shares.............................. 01/04/93 5.36 4.94 5.27 6.27
Class B Shares(1)........................... 08/01/95 4.65 N/A N/A 4.07
Class C Shares(1)........................... 01/04/93 4.65 4.20 4.46 5.46
Asian Growth Fund
Class A Shares.............................. 06/23/93 (60.57) (25.87) (10.44) (10.40)
Class B Shares(1)........................... 08/01/95 (60.89) N/A N/A (26.66)
Class C Shares(1)........................... 06/23/93 (60.88) (26.43) (11.09) (11.05)
American Value Fund
Class A Shares.............................. 10/18/93 28.26 22.85 N/A 18.69
Class B Shares(1)........................... 08/01/95 27.30 N/A N/A 23.54
Class C Shares(1)........................... 10/18/93 27.28 24.35 N/A 17.77
Worldwide High Income Fund
Class A Shares.............................. 04/21/94 3.40 17.21 N/A 14.60
Class B Shares(1)........................... 08/01/95 2.63 N/A N/A 16.24
Class C Shares(1)........................... 04/21/94 2.55 16.27 N/A 13.71
Emerging Markets Fund
Class A Shares.............................. 07/06/94 (34.31) (7.08) N/A (6.87)
Class B Shares(1)........................... 08/01/95 (34.76) N/A N/A (7.15)
Class C Shares(1)........................... 07/06/94 (34.73) (5.90) N/A (7.55)
Latin American Fund
Class A Shares.............................. 07/06/94 (17.37) 21.90 N/A 8.67
Class B Shares(1)........................... 08/01/95 (17.82) N/A N/A 19.17
Class C Shares(1)........................... 07/06/94 (17.86) 21.04 N/A 7.83
Aggressive Equity Fund
Class A Shares.............................. 01/02/96 30.93 N/A N/A 33.01
Class B Shares.............................. 01/02/96 29.94 N/A N/A 32.07
Class C Shares.............................. 01/02/96 29.90 N/A N/A 32.03
U.S. Real Estate Fund
Class A Shares.............................. 05/01/96 8.27 N/A N/A 21.93
Class B Shares.............................. 05/01/96 7.23 N/A N/A 20.86
Class C Shares.............................. 05/01/96 7.20 N/A N/A 20.87
High Yield & Total Return Fund
Class A Shares.............................. 05/01/96 10.81 N/A N/A 13.32
Class B Shares.............................. 05/01/96 9.86 N/A N/A 12.42
Class C Shares.............................. 05/01/96 9.86 N/A N/A 12.42
International Magnum Fund
Class A Shares.............................. 07/01/96 8.32% N/A N/A 12.72%
Class B Shares.............................. 07/01/96 7.55 N/A N/A 11.88
Class C Shares.............................. 07/01/96 7.55 N/A N/A 11.86
Japanese Equity Fund
Class A Shares.............................. N/A N/A N/A N/A N/A
Class B Shares.............................. N/A N/A N/A N/A N/A
Class C Shares.............................. N/A N/A N/A N/A N/A
Growth and Income Fund II
Class A Shares.............................. N/A N/A N/A N/A N/A
Class B Shares.............................. N/A N/A N/A N/A N/A
Class C Shares.............................. N/A N/A N/A N/A N/A
European Equity Fund
Class A Shares.............................. N/A N/A N/A N/A N/A
Class B Shares.............................. N/A N/A N/A N/A N/A
Class C Shares.............................. N/A N/A N/A N/A N/A
Equity Growth Fund
Class A Shares.............................. 5/29/98 N/A N/A N/A 2.90%
Class B Shares.............................. 5/29/98 N/A N/A N/A 2.80%
Class C Shares.............................. 5/29/98 N/A N/A N/A 2.80%
Global Equity Fund
Class A Shares.............................. 10/29/97 11.38 N/A N/A N/A
Class B Shares.............................. 10/29/97 10.84 N/A N/A
Class C Shares.............................. 10/29/97 10.74 N/A N/A N/A
Emerging Markets Debt Fund
Class A Shares.............................. N/A N/A N/A N/A N/A
Class B Shares.............................. N/A N/A N/A N/A N/A
Class C Shares.............................. N/A N/A N/A N/A N/A
Mid Cap Growth Fund
Class A Shares.............................. N/A N/A N/A N/A N/A
Class B Shares.............................. N/A N/A N/A N/A N/A
Class C Shares.............................. N/A N/A N/A N/A N/A
Value Fund
Class A Shares.............................. 7/7/97 6.74 N/A N/A N/A
Class B Shares.............................. 7/7/97 6.01 N/A N/A N/A
Class C Shares.............................. 7/7/97 5.83 N/A N/A N/A
Global Franchise Fund
Class A Shares.............................. N/A N/A N/A N/A N/A
Class B Shares.............................. N/A N/A N/A N/A N/A
Class C Shares.............................. N/A N/A N/A N/A N/A
Money Market Fund................................ 08/04/89 4.83 14.84 23.06 4.80
Tax-Free Money Market Fund....................... N/A N/A N/A N/A N/A
Government Obligations Money Market Fund......... 03/12/92 4.79 14.72 22.91 3.89
</TABLE>
- -------
The Japanese Equity, Growth and Income II, European Equity, Emerging Markets
Debt, Mid Cap Growth, Global Franchise and Tax-Free Money Market Funds had not
commenced operations in the fiscal year ended June 30, 1998.
(1) The Class B shares listed above were created on May 1, 1995. The original
Class B shares were renamed Class C shares, as listed above, on May 1,
1995. The Class B shares commenced operations on August 1, 1995.
<PAGE> 261
(1) The Class B shares listed above were created on May 1, 1995. The original
Class B shares were renamed Class C shares, as listed above, on May 1, 1995. The
Class B shares commenced operations on August 1, 1995.
Yield for Certain Funds
From time to time certain of the Funds may advertise yield.
Current yield reflects the income per share earned by a Fund's
investments.
Current yield is determined by dividing the net investment income per
share earned during a 30-day base period by the maximum offering price per share
on the last day of the period and annualizing the result. Expenses accrued for
the period include any fees charged to all shareholders during the base period.
Current yield figures are obtained using the following formula:
Yield = 2[(a - b + 1) - 1]
cd
where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that were
entitled to receive income distributions
d = the maximum offering price per share on the last day of the period
The respective current yields for the following Funds 30-day period
ended June 30, 1998 were as follows:
Fund Name
Class A Shares
Class B Shares
Class C Shares
<PAGE> 262
Global Fixed Income Fund
3.18
2.59
2.59
Worldwide High Income Fund
9.18
8.85
8.86
High Yield & Total Return Fund
7.06
6.65
6.65
CALCULATION OF YIELD FOR MONEY MARKET FUNDS
The current yield of the Money Market, Tax-Free Money Market and
Government Obligations Money Market Funds are calculated daily on a base period
return for a hypothetical account having a beginning balance of one share for a
particular period of time (generally 7 days). The return is determined by
dividing the net change (exclusive of any capital changes in such account) by
its average net asset value for the period, and then multiplying it by 365/7 to
determine the annualized current yield. The calculation of net change reflects
the value of additional shares purchased with the dividends by the Fund,
including dividends on both the original share and on such additional shares.
The yields of the Money Market Fund and Government Obligations Money Market Fund
for the 7-day period ended June 30, 1998 were 4.67% and 4.19% respectively. An
effective yield, which reflects the effects of compounding and represents an
annualization of the current yield with all dividends reinvested, may also be
calculated for each Fund by dividing the base period return by 7, adding 1 to
the quotient, raising the sum to the 365th power, and subtracting 1 from the
result. The effective yields of the Money Market Fund and Government Obligations
Money Market Fund for the 7-day period ended June 30, 1998 were 4.77% and 4.28%,
respectively.
The yield of a Fund will fluctuate. The annualization of a week's
dividend is not a representation by the Fund to what an investment in the Fund
will actually yield in the future. Actual yields will depend on such variables
as investment quality, average maturity, the type of instruments the Fund
invests in, changes in interest rates on instruments, changes in the expenses of
the Fund and other factors. Yields are one basis investors may use to analyze
the Funds, and other investment vehicles; however, yields of other investment
vehicles may not be comparable because of the factors set forth in the preceding
sentence, differences in the time periods compared, and differences in the
methods used in valuing fund instruments, computing net asset value and
calculating yield.
TAXABLE EQUIVALENT YIELD
It is easy to calculate your own taxable equivalent yield if you know
your tax bracket. The formula is:
Tax Free Yield
1 - Your Tax Bracket = Your Taxable Equivalent Yield
<PAGE> 263
For example, if you are in the 28% tax bracket and can earn a tax-free
yield of 7.5%, the taxable equivalent yield would be 10.42%. The table below
indicates the advantages of investments in Municipal Bonds for certain
investors. Tax-exempt rates of interest payable on a Municipal Bond (shown at
the top of each column) are equivalent to the taxable yields set forth opposite
the respective income tax levels, based on income tax rates effective for the
tax year 1997 under the Code. There can, of course, be no guarantee that the
Tax-Free Money Market Fund will achieve a specific yield. Also, it is possible
that some portion of the Fund's dividends may be subject to federal income
taxes. A substantial portion, if not all, of such dividends may be subject to
state and local taxes.
TAXABLE EQUIVALENT YIELD TABLE
Single Return
Joint Return
Federal Income Tax Brackets
3%
4%
5%
6%
7%
8%
9%
10%
11%
Sample Level of
Taxable Income
Taxable Equivalent Rates Based on Tax-Exempt Yield of:
$0-$24,650
$0-$41,200
15%
3.53%
4.71%
5.88%
7.06%
8.24%
9.41%
10.59%
11.76%
12.94%
<PAGE> 264
$24,650-$59,750
$41,200-$99,600
28%
4.17%
5.56%
6.94%
8.33%
9.72%
11.11%
12.50%
13.89%
15.28%
$59,750-$124,650
$99,600-$151,750
31%
4.35%
5.80%
7.25%
8.70%
10.14%
11.59%
13.04%
14.49%
15.94%
$124,650-$271,050
$151,750-$271,050
36%
4.69%
6.25%
7.81%
9.38%
10.94%
12.50%
14.06%
15.63%
17.19%
$271,050 and up
$271,050 and up
39.6%
4.97%
6.62%
8.28%
9.93%
11.59%
13.23%
14.90%
16.56%
18.21%
<PAGE> 265
- -------
* Net amount subject to 1997 federal income tax after deductions and
exemptions, not indexed for 1997 income tax rates.
Comparisons
To help investors better evaluate how an investment in a Fund of Morgan
Stanley Fund, Inc. might satisfy their investment objective, advertisements
regarding the Company may discuss various measures of Fund performance as
reported by various financial publications. Advertisements may also compare
performance (as calculated above) to performance as reported by other
investments, indices and averages. The following publications may be used:
(a) Dow Jones Composite Average or its component averages - an
unmanaged index composed of 30 blue-chip industrial corporation stocks (Dow
Jones Industrial Average), 15 utilities company stocks and 20 transportation
stocks. Comparisons of performance assume reinvestment of dividends.
(b) Standard & Poor's 500 Stock Index or its component indices -
unmanaged index composed of 400 industrial stocks, 40 financial stocks, 40
utilities company stocks and 20 transportation stocks. Comparisons of
performance assume reinvestment of dividends.
(c) The New York Stock Exchange composite or component indices -
unmanaged indices of all industrial, utilities, transportation and finance
company stocks listed on the New York Stock Exchange.
(d) Wilshire 5000 Equity Index or its component indices - represents
the return on the market value of all common equity securities for which daily
pricing is available. Comparisons of performance assume reinvestment of
dividends.
(e) Lipper - Capital Appreciation Index - a composite of mutual
funds managed for maximum capital gains.
(f) Lipper - Mutual Fund Performance Analysis and Lipper - Fixed Income
Fund Performance Analysis - measures total return and average current yield for
the mutual fund industry. Ranks individual mutual fund performance over
specified time periods, assuming reinvestment of all distributions, exclusive of
any applicable sales charges.
(g) Morgan Stanley Capital International EAFE Index - an arithmetic,
market value-weighted average of the performance of over 1,000 securities on the
stock exchanges of countries in Europe, Australia and the Far East.
(h) Goldman Sachs 100 Convertible Bond Index - currently includes 67
bonds and 33 preferred. The original list of names was generated by screening
for convertible issues of $100 million or greater in market capitalization. The
index is priced monthly.
(i) Salomon Smith Barney GNMA Index - includes pools of mortgages
originated by private lenders and guaranteed by the mortgage pools of the
Government National Association.
(j) Salomon Smith Barney High Grade Corporate Bond Index - consists of
publicly issued, non-convertible corporate bonds rated AA or AAA. It is
value-weighted, total return index, including approximately 800 issues with
maturities of 12 years or greater.
<PAGE> 266
(k) Salomon Smith Barney Broad Investment Grade Bond Index - is a
market-weighted index that contains approximately 4700 individually priced
investment grade corporate bonds rated BBB or better, United States
Treasury/agency issues and mortgage pass-through securities.
(l) Salomon Brothers World Bond Index - measures the total return
performance of high-quality securities in major sectors of the international
bond market. The index covers approximately 600 bonds from 10 currencies:
Australian Dollars
Netherlands Guilder
Canadian Dollars
Swiss Francs
European Currency Units
UK Pounds Sterling
French Francs
U.S. Dollars
Japanese Yen
German Deutsche Marks
(m) J.P. Morgan Traded Global Bond Index - is an unmanaged index of
government bond issues and includes Australia, Belgium, Canada, Denmark, France,
Germany, Italy, Japan, the Netherlands, Spain, Sweden, United Kingdom and United
States gross of withholding tax.
(n) Lehman LONG-TERM Treasury Bond Index - is composed of all bonds
covered by the Lehman Treasury Bond Index with maturities of 10 years or
greater.
(o) Lehman Aggregate Bond Index - is an unmanaged index made up of the
Government/Corporate Index, the Mortgage-Backed Securities Index and the
Asset-Backed Securities Index.
(p) NASDAQ Industrial Index is composed of more than 3,000 industrial
issues. Ifmis a value-weighted index calculated on price change only and does
not include income.
(q) Composite Indices - 70% Standard & Poor's 500 Stock Index and 30%
NASDAQ Industrial Index; 36% Standard & Poor's 500 Stock Index and 65% Salomon
Brothers High Grade Bond Index; and 65% Standard & Poor's 500 Stock Index and
35% Salomon Brothers High Grade Bond Index.
(r) CDA Mutual Fund Report, published by CDA Investment Technologies,
Inc. - analyzes price, current yield, risk, total return and average rate of
return (average annual compounded growth rate) over specified time periods for
the mutual fund industry.
(s) Mutual Fund Source Book, published by Morningstar, Inc. - analyzes
price, yield, risk and total return for equity funds.
(t) Financial publications: Business Week, Changing Times, Financial
World, Forbes, Fortune, Money, Barron's, Consumer's Digest, Financial Times,
Global Investor, Investor's Daily, Lipper
<PAGE> 267
Analytical Services, Inc., Morningstar, Inc., New York Times, Personal Investor,
Wall Street Journal and Weisenberger Investment Companies Service - publications
that rate fund performance over specified time periods.
(u) Consumer Price Index (or cost of Living Index), published by the
United States Bureau of Labor Statistics - a statistical measure of change, over
time, in the price of goods and services in major expenditure groups. (v)
Stocks, Bonds, Bills and Inflation, published by Hobson Associates - historical
measure of yield, price and total return for common and small company stock,
long-term government bonds, Treasury bills and inflation.
(w) Savings and Loan Historical Interest Rates - as published in the
United States Savings & Loan League Fact Book.
(x) Historical data supplied by the research departments of First
Boston Corporation, the J.P. Morgan companies, Salomon Brothers, Merrill Lynch,
Pierce, Fenner & Smith, Lehman Brothers Inc. and Bloomberg L.P.
(y) The MSCI Combined Far East Free ex-Japan Index - a
market-capitalization weighted index comprising stocks in Hong Kong, Indonesia,
Korea, Malaysia, Philippines, Taiwan and Thailand. Korea is included in the MSCI
Combined Far East Free ex-Japan Index at 20% of its market capitalization.
(z) CS First Boston High Yield Index - generally includes over 180
issues with an average maturity range of seven to ten years with a minimum
capitalization of $100 million. All issues are individually trader-priced
monthly.
(bb) Morgan Stanley Capital International World Index - An arithmetic,
market value-weighted average of the performance of over 1,470 securities listed
on the stock exchanges of countries in Europe, Australia, New Zealand, the Far
East, Canada and the United States.
(cc) Morgan Stanley Capital International Emerging Markets Global Latin
American Index - An unmanaged, arithmetic market value weighted average of the
performance of over 196 securities on the stock exchanges of Argentina, Brazil,
Chile, Colombia, Mexico, Peru and Venezuela. (Assumes reinvestment of
dividends.)
(dd) IFC Global Total Return Composite Index - An unmanaged index of
common stocks and includes developing countries in Latin America, East and South
Asia, Europe, the Middle East and Africa (net of dividends reinvested).
(ee) EMBI+ - Expanding on the EMBI, which includes only Bradys, the
EMBI+ includes a broader group of Brady Bonds, loans, Eurobonds and U.S. Dollar
local markets instruments. A more comprehensive benchmark than EMBI, the EMBI+
covers 49 instruments from 14 countries. At $98 billion, its market cap is
nearly 50% higher than the EMBI's. The EMBI+ is not, however, intended to
replace the EMBI but rather to complement it. The EMBI continues to represent
the most liquid, most easily traded segment of the market, while the EMBI+
represents the broader market, including more of the assets that investors
typically hold in their portfolios. Both of these indices are published daily.
(ff) The MSCI Latin America Global Index - is a broad-based market cap
weighted composite index covering at least 60% of markets in Mexico, Argentina,
Brazil, Chile, Colombia, Peru and Venezuela (Assumes reinvestment of dividends).
(gg) Morgan Stanley Capital International Japan Index - An unmanaged
index of common stocks (assumes dividends reinvested).
<PAGE> 268
(hh) NAREIT Index - An unmanaged market weighted index of tax qualified
REITs (excluding healthcare REITs) listed on the New York Stock Exchange,
American Stock Exchange and the NASDAQ National Market System, including
dividends.
(ii) Standard & Poor's 400 Mid Cap Index - The Standard and Poor's
Midcap 400 is a capitalization-weighted index that measures the performance of
the mid-range sector of the U.S. stock market where the medium market
capitalization is approximately $700 million.
(jj) Russell 2500 Index - comprised of the bottom 500 stocks in the
Russell 1000 Index which represents the universe of stocks from which most
active money managers typically select; and all the stocks in the Russell 2000
Index. The largest security in the index has a market capitalization of
approximately $1.3 billion.
(kk) The Worldwide High Income Blended Index - is an unmanaged index
comprised of 50% CS First Boston High Yield Index, 25% J.P. Morgan Latin
Eurobond Index and 25% J.P. Morgan Emerging Markets Bond Index Plus.
In assessing such comparisons of performance an investor should keep in
mind that the composition of the investments in the reported indices and
averages is not identical to the composition of investments in the Company's
Funds, that the averages are generally unmanaged, and that the items included in
the calculations of such averages may not be identical to the formula used by
the Company to calculate its performance. In addition, there can be no assurance
that the Company will continue this performance as compared to such other
averages.
General Performance Information
Each Fund's performance will fluctuate, unlike bank deposits or other
investments which pay a fixed yield for a stated period of time. Past
performance is not necessarily indicative of future return. Actual performance
will depend on such variables as portfolio quality, average portfolio maturity,
the type of portfolio instruments acquired, changes in interest rates, portfolio
expenses and other factors. Performance is one basis investors may use to
analyze a Fund as compared to other funds and other investment vehicles.
However, performance of other funds and other investment vehicles may not be
comparable because of the foregoing variables, and differences in the methods
used in valuing their portfolio instruments, computing net asset value and
determining performance.
From time to time, a Fund's performance may be compared to other mutual
funds tracked by financial or business publications and periodicals. For
example, a Fund may quote Morningstar, Inc. in its advertising materials.
Morningstar, Inc. is a mutual fund rating service that rates mutual funds on the
basis of risk-adjusted performance. Rankings that compare the performance of the
Funds to one another in appropriate categories over specific periods of time may
also be quoted in advertising.
Fund advertising may include data on historical returns of the capital
markets in the United States compiled or published by Ibbotson Associates of
Chicago, Illinois ("Ibbotson"), including returns on common stocks, small
capitalization stocks, long-term corporate bonds, intermediate-term government
bonds, long-term government bonds, Treasury bills, the U.S. rate of inflation
(based on the Consumer Price Index), and combinations of various capital
markets. The performance of these capital markets is based on the returns of
different indices. The Funds may use the performance of these capital markets in
order to demonstrate general risk-versus-reward investment scenarios.
Performance comparisons may also include the value of a hypothetical investment
in any of these capital markets. The risks associated with the security types in
any capital market may or may not correspond directly to those of the Funds. The
Funds may also compare their performance to that of other compilations or
indices that may be developed and made available in the future.
<PAGE> 269
The Funds may include in advertisements, charts, graphs or drawings
which illustrate the potential risks and rewards of investment in various
investment vehicles, including but not limited to, foreign securities, stocks,
bonds, treasury bills and shares of a Fund. In addition, advertisements may
include a discussion of certain attributes or benefits to be derived by an
investment in a Fund and/or other mutual funds, shareholder profiles and
hypothetical investor scenarios, timely information on financial management, tax
and retirement planning and various investment alternatives. Advertisements may
include lists of representative Morgan Stanley clients. The Funds may also from
time to time include discussions or illustrations of the effects of compounding
in advertisements. "Compounding" refers to the fact that, if dividends or other
distributions on a Fund investment are reinvested by being paid in additional
Fund shares, any future income or capital appreciation of a Fund would increase
the value, not only of the original investment in the Fund, but also of the
additional Fund shares received through reinvestment.
The Funds may include in its advertisements, discussions or
illustrations of the potential investment goals of a prospective investor
(including materials that describe general principles of investing, such as
asset allocation, diversification, risk tolerance, goal setting, questionnaires
designed to help create a personal financial profile, worksheets used to project
savings needs based on assumed rates of inflation and hypothetical rates of
return and action plans offering investment alternatives), investment management
techniques, policies or investment suitability of a Fund (such as value
investing, market timing, dollar cost averaging, asset allocation, constant
ratio transfer, automatic account rebalancing, the advantages and disadvantages
of investing in tax-deferred and taxable investments). Advertisements and sales
materials relating to a Fund may include information regarding the background
and experience of its portfolio managers; the resources, expertise and support
made available to the portfolio managers by Morgan Stanley or its affiliates;
and the portfolio managers' goals, strategies and investment techniques.
The Funds' advertisements may discuss economic and political conditions
of the United States and foreign countries, the relationship between sectors of
the U.S., a foreign, or the global economy and the U.S., a foreign, or the
global economy as a whole and the effects of inflation. The Funds may include
discussions and illustrations of the growth potential of various global markets
including, but not limited to, Africa, Asia, Europe, Latin America, North
America, South America, Emerging Markets and individual countries. These
discussions may include the past performance of the various markets or market
sectors; forecasts of population, gross national product and market performance;
and the underlying data which supports such forecasts. From time to time,
advertisements, sales literature, communications to shareholders or other
materials may summarize the substance of information contained in the Funds'
shareholder reports (including the investment composition of a Fund), as well as
the views of Morgan Stanley as to current market, economic, trade and interest
rate trends, legislative, regulatory and monetary developments, investment
strategies and related matters believed to be of relevance to a Fund.
The Funds may quote various measures of volatility and benchmark
correlation in advertising. The Funds may compare these measures to those of
other funds. Measures of volatility seek to compare the historical share price
fluctuations or total returns to those of a benchmark. Measures of benchmark
correlation indicate how valid a comparative benchmark may be. Measures of
volatility and correlation may be calculated using averages of historical data.
A Fund may also advertise its current interest rate sensitivity, duration,
weighted average maturity or similar maturity characteristics.
The Funds may advertise examples of the effects of periodic investment
plans, including the principle of dollar cost averaging. In such a program, an
investor invests a fixed dollar amount in a Fund at periodic intervals, thereby
purchasing fewer shares when prices are high and more shares when prices are
low. While such a strategy does not assure a profit or guard against loss in a
declining market, the
<PAGE> 270
investor's average cost per share can be lower than if fixed numbers of shares
are purchased at the same intervals. In evaluating such a plan, investors should
consider their ability to continue purchasing shares during periods of low price
levels.
From time to time marketing materials may provide a portfolio manager
update, an adviser update and discuss general economic conditions and outlooks.
The Funds' marketing materials may also show each Fund's asset class
diversification, top five sector holdings and ten largest holdings. Materials
may also mention how the Adviser believes the Fund compares relative to other
funds advised by the Adviser or distributed by the Distributor. Materials may
also discuss the Dalbar Financial Services study from 1984 to 1994 which
examined investor cash flow into and out of all types of mutual funds. The ten
year study found that investors who bought mutual fund shares and held such
shares outperformed investors who bought and sold. The Dalbar study conclusions
were consistent regardless if shareholders purchased their fund in direct or
sales force distribution channels. The study showed that investors working with
a professional representative have tended over time to earn higher returns than
those who invested directly. The Funds will also be marketed on the Internet.
GENERAL INFORMATION
Description of Shares and Voting Rights
The Company's Articles of Incorporation permit the Directors to issue
28.5 billion shares of common stock, par value $.001 per share, from an
unlimited number of Funds. Currently the Company is authorized to offer shares
of twenty-three Funds, twenty of which have Class A, Class B and Class C shares.
The shares of each Fund of the Company are fully paid and
non-assessable, and, except as described in the Prospectuses, have no preference
as to conversion, exchange, dividends, retirement or other features. The shares
of each Fund of the Company have no pre-emptive rights. The shares of the
Company have non-cumulative voting rights, which means that the holders of more
than 50% of the shares voting for the election of Directors can elect 100% of
the Directors if they choose to do so. A shareholder is entitled to one vote for
each full share owned (and a fractional vote for each fractional share owned),
then standing in his name on the books of the Company.
Dividends and Distributions
The Company's policy is to distribute substantially all of each Fund's
net investment income, if any. Each Fund may choose to make sufficient
distributions of net capital gains to avoid liability for federal excise tax. A
Fund will not be subject to federal income tax on capital gains or ordinary
income distributed to shareholders so long as it qualifies as a RIC (see
discussion under "Dividends and Distributions" and "Taxes" in the Prospectus).
However, the Company may also choose to retain net realized capital gains and
pay taxes on such gains. The amounts of any income dividends or distributions
cannot be predicted.
Any dividend or distribution paid shortly after an investor purchases
shares of an Non-Money Market Fund will reduce the per share net asset value of
that Fund by the per share amount of the dividend or distribution. Furthermore,
such dividends or distributions, although in effect a return of capital, are
subject to income taxes to shareholders subject to taxes as set forth in the
Prospectus.
As set forth in the Prospectus, unless the shareholder elects otherwise
in writing, all dividends and distributions of a Fund are automatically
reinvested in additional shares of that Fund at net asset value as of the
business day following the record date. This reinvestment policy will remain in
effect until the shareholder notifies the Transfer Agent in writing at least
three days prior to a record date that the shareholder has elected either the
Income Option (income dividends in cash and distributions in additional shares
at net asset value) or the Cash Option (both income dividends and distributions
in cash). No initial
<PAGE> 271
sales charge or CDSC is imposed on shares of any of the Funds, including the
Non-Money Funds, that are purchased through the automatic reinvestment of
dividends and distributions of a Fund.
Each Fund generally will be treated as a separate corporation (and
hence as a separate "regulated investment company") for federal tax purposes.
Any net capital gains of any Fund, whether or not distributed to investors,
cannot be offset against net capital losses of any other Fund.
Custody Arrangements
Chase serves as the Company's domestic custodian except with respect to
the Money Market Funds. Morgan Stanley Trust Company, Brooklyn, NY, acts as the
Company's custodian for foreign assets held outside the United States and
employs subcustodians who were approved by the Directors of the Company in
accordance with Rule 17f-5 adopted by the SEC under the 1940 Act. Morgan Stanley
Trust Company is an affiliate of Morgan Stanley Dean Witter & Co. In the
selection of foreign subcustodians, the Directors consider a number of factors,
including, but not limited to, the reliability and financial stability of the
institution, the ability of the institution to provide efficiently the custodial
services required for the Company, and the reputation of the institution in the
particular country or region. PNC Bank, N.A. serves as the Company's custodian
for each of the Money Market Funds.
DESCRIPTION OF SECURITIES AND RATINGS
I. Description of Commercial Paper and Bond Ratings
Excerpts from Moody's Investors Service, Inc. ("Moody's") Description
of Bond Ratings:
- Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or by an exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
AA - Bonds which are rated AA are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
Moody's applies numerical modifiers 1, 2 and 3 in the Aa and A rating
categories. The modifier 1 indicates that the security ranks at a higher end of
the rating category, modifier 2 indicates a mid-range rating and the modifier 3
indicates that the issue ranks at the lower end of the rating category.
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.
- 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.
- 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
<PAGE> 272
moderate, and thereby not well safeguarded during both good and bad times over
the future. Uncertainty of position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
- 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.
- 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.
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.
Excerpts from Standard & Poor's Corporation ("S&P") Description of Bond
Ratings:
AAA - Bonds rated AAA have the highest rating assigned by Standard &
Poor's to a debt obligation and indicate an extremely strong capacity to pay
principal and interest.
AA - Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only to a small degree.
A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds 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 for debt in higher rated categories.
BB, B, CCC, CC - Debt rated BB, B, CCC and CC 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
lowest degree of speculation and CC 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.
C - The rating C is reserved for income bonds on which no interest is
being paid.
D - Debt rated D is in default, and payment of interest and/or
repayment of principal is in arrears.
Description of Moody's Ratings of State and Municipal Notes: Moody's ratings for
state and municipal notes and other short-term obligations are designated
Moody's Investment Grade ("MIG"). Symbols used are as follows: MIG-1 - best
quality, enjoying strong protection from established cash flows of funds for
their servicing or from established broad-based access to the market for
refinancing, or both; MIG-2 - high quality with margins of protection ample
although not so large as in the preceding group.
Description of Moody's Highest Commercial Paper Rating: Prime-1 ("P1") - Judged
to be of the best quality. Their short-term debt obligations carry the smallest
degree of investment risk.
Excerpt from S&P's Rating of Municipal Notes Issues: S-1+ - very strong capacity
to pay principal and interest; SP-1 - strong capacity to pay principal and
interest.
<PAGE> 273
Description of S&P's Highest Commercial Paper Rating: A-1+ - this designation
indicates the degree of safety regarding timely payment is overwhelming. A-1 -
this designation indicates the degree of safety regarding timely payment is very
strong.
With Respect to Ratings by IBCA Ltd., the designation A1 by IBCA, Ltd. indicates
that the obligation is supported by a very strong capacity for timely repayment.
Those obligations rated A1+ are supported by the highest capacity for timely
repayment. Obligations rated A2 are supported by a strong capacity for timely
repayment, although such capacity may be susceptible to adverse changes in
business, economic or financial conditions.
II. Description of United States Government Securities
The term "United States Government securities" refers to a variety of
securities which are issued or guaranteed by the United States Government, and
by various instrumentalities which have been established or sponsored by the
United States Government.
United States Treasury securities are backed by the "full faith and
credit" of the United States. Securities issued or guaranteed by federal
agencies and United States Government sponsored instrumentalities may or may not
be backed by the full faith and credit of the United States. In the case of
securities not backed by the full faith and credit of the United States, the
investor must look principally to the agency or instrumentality issuing or
guaranteeing the obligation for ultimate repayment, and may not be able to
assert a claim against the United States itself in the event the agency or
instrumentality does not meet its commitment. Agencies which are backed by the
full faith and credit of the United States include the Export-Import Bank,
Farmers Home Administration, Federal Financing Bank, and others. Certain
agencies and instrumentalities, such as the Government National Mortgage
Associates, are, in effect, backed by the full faith and credit of the United
States through provisions in their charters that they may make "indefinite and
unlimited" drawings on the Treasury, if needed to service debt. Debt from
certain other agencies and instrumentalities, including the Federal Home Loan
Bank and Federal National Mortgage Association, are not guaranteed by the United
States, but those institutions are protected by the discretionary authority for
the United States Treasury to purchase certain amounts of their securities to
assist the institution in meeting its debt obligations. Finally, other agencies
and instrumentalities, such as the Farm Credit System and the Federal Home Loan
Mortgage Corporation, are federally chartered institutions under Government
supervision, but their debt securities are backed only by the creditworthiness
of those institutions, not the United States Government.
Some of the United States Government agencies that issue or guarantee
securities include the Export-Import Bank of the United States, Farmers Home
Administration, Federal Housing Administration, Maritime Administration, Small
Business Administration, and the Tennessee Valley Authority.
An instrumentality of the United States Government is a Government
agency organized under federal charter with Government supervision.
Instrumentalities issuing or guaranteeing securities include, among others,
Federal Home Loan Banks, the Federal Land Banks, Central Bank for Cooperatives,
Federal Immediate Credit Banks, and the Federal National Mortgage Association.
<PAGE> 274
VAN KAMPEN
AGGRESSIVE EQUITY FUND
PORTFOLIO OF INVESTMENTS
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ----------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (95.0%)
BASIC MATERIALS (1.7%)
CHEMICALS (1.2%)
36,900 Du Pont (EI) de Nemours Co....................... $ 2,754
--------
CHEMICALS (DIVERSIFIED) (0.5%)
18,700 Monsanto......................................... 1,045
--------
TOTAL BASIC MATERIALS........................................... 3,799
--------
CAPITAL GOODS (18.5%)
AEROSPACE/DEFENSE (5.6%)
87,500 Cordant Technologies, Inc........................ 4,036
(a)66,600 Gulfstream Aerospace Corp........................ 3,097
50,800 Northrop Grumman Corp............................ 5,239
--------
12,372
--------
MACHINERY (DIVERSIFIED) (1.9%)
84,900 Case Corp........................................ 4,096
--------
MANUFACTURING (DIVERSIFIED) (6.9%)
43,600 Tyco International Ltd........................... 2,747
132,800 United Technologies Corp......................... 12,284
--------
15,031
--------
OFFICE EQUIPMENT & SUPPLIES (4.1%)
(a)159,400 Knoll, Inc....................................... 4,702
35,300 Pitney Bowes, Inc................................ 1,699
26,600 Xerox Corp....................................... 2,703
--------
9,104
--------
TOTAL CAPITAL GOODS............................................. 40,603
--------
COMMUNICATION SERVICES (0.1%)
TELECOMMUNICATIONS (CELLULAR/WIRELESS) (0.1%)
(a)5,500 Associated Group, Inc., `B'...................... 219
--------
CONSUMER CYCLICALS (8.6%)
AUTOMOBILES (2.2%)
72,300 General Motors Corp.............................. 4,830
--------
GAMING--LOTTERY (0.4%)
34,100 International Game Technology.................... 827
--------
LODGING--HOTELS (0.6%)
48,200 Hilton Hotels Corp. ............................. 1,374
--------
PUBLISHING (NEWSPAPERS) (1.0%)
24,600 Pulitzer Publishing Co........................... 2,196
--------
RETAIL (SPECIALTY) (0.4%)
(a)32,600 Staples, Inc..................................... 943
--------
SERVICES (ADVERTISING/MARKETING) (0.4%)
(a)28,900 Young & Rubicam, Inc............................. 925
--------
SERVICES (COMMERCIAL & CONSUMER) (3.6%)
(a)249,391 Cendant Corp..................................... 5,206
551,800 Neilsen Media Research........................... 2,552
--------
7,758
--------
TOTAL CONSUMER CYCLICALS........................................ 18,853
--------
CONSUMER STAPLES (16.0%)
BEVERAGES (NON-ALCOHOLIC) (2.4%)
23,900 Coca-Cola Co..................................... 2,043
80,400 Coca-Cola Enterprises, Inc....................... 3,156
--------
5,199
--------
</TABLE>
<PAGE> 275
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ----------------------------------------------------------------------------
<S> <C>
BROADCASTING (TV, RADIO, CABLE) (9.7%)
(a)195,500 Clear Channel Communications, Inc................ $ 21,334
--------
ENTERTAINMENT (1.4%)
(a)66,300 SFX Entertainment, Inc. `A'...................... 3,041
--------
FOODS (2.1%)
19,000 Quaker Oats, Co.................................. 1,044
17,600 Ralston-Ralston Purina Group..................... 2,056
16,400 WM. Wrigley Jr. Co............................... 1,607
--------
4,707
--------
TOBACCO (0.4%)
22,600 Philip Morris Cos., Inc.......................... 890
--------
TOTAL CONSUMER STAPLES.......................................... 35,171
--------
FINANCIAL (25.6%)
BANKS (MAJOR REGIONAL) (0.7%)
3,833 Wells Fargo Co................................... 1,414
--------
BANKS (MONEY CENTER) (5.1%)
27,700 BankAmerica Corp................................. 2,394
50,300 Citicorp......................................... 7,507
11,600 Morgan (J.P.) & Co., Inc......................... 1,359
--------
11,260
--------
FINANCIAL (DIVERSIFIED) (3.1%)
60,300 American Express Co.............................. 6,874
--------
INSURANCE (LIFE & HEALTH) (1.0%)
43,600 Reinsurance Group of America, Inc................ 2,237
--------
INSURANCE (MULTI-LINE) (9.0%)
226,500 Loews Corp....................................... 19,734
--------
INSURANCE (PROPERTY--CASUALTY) (6.0%)
50,900 Allstate Corp.................................... 4,661
33,600 General RE Corp.................................. 8,518
--------
13,179
--------
INVESTMENT BANKING & BROKERAGE (0.7%)
15,600 Merrill Lynch & Co., Inc......................... 1,439
--------
TOTAL FINANCIAL................................................. 56,137
--------
TECHNOLOGY (6.0%)
COMMUNICATION EQUIPMENT (0.3%)
(a)9,600 ADC Telecom, Inc................................. 351
(a)7,700 L-3 Communications Holdings, Inc................. 251
--------
602
--------
COMPUTERS (SOFTWARE & SERVICES) (2.9%)
(a)57,300 Microsoft Corp................................... 6,210
--------
ELECTRONICS (COMPONENT DISTRIBUTORS) (0.0%)
(a)4,000 Celestia, Inc.................................... 75
--------
ELECTRONICS (DEFENSE) (2.8%)
(a)105,000 Litton Industries, Inc........................... 6,195
--------
TOTAL TECHNOLOGY................................................ 13,082
--------
TRANSPORTATION (18.5%)
AIRLINES (18.5%)
(a)666,100 Continental Airlines, `B'........................ 40,549
--------
TOTAL COMMON STOCKS (COST $202,290)............................... 208,413
--------
</TABLE>
<PAGE> 276
VAN KAMPEN
AGGRESSIVE EQUITY FUND
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ----------------------------------------------------------------------------
<S> <C>
SHORT-TERM INVESTMENT (4.8%)
REPURCHASE AGREEMENT (4.8%)
$ 10,586 Chase Securities, Inc., 5.40%, dated 6/30/98, due
7/1/98, to be repurchased at $10,588,
collateralized by $10,565 U.S. Treasury Notes,
5.625%, due 2/15/06, valued at $10,830 (COST
$10,586)....................................... $ 10,586
--------
TOTAL INVESTMENTS (99.8%) (COST $212,876)......................... 218,999
OTHER ASSETS IN EXCESS OF LIABILITIES (0.2%)...................... 405
--------
NET ASSETS (100%)................................................. $219,404
========
</TABLE>
- ---------------
(a) -- Non-income producing security
The accompanying notes are an integral part of the financial statements.
<PAGE> 277
VAN KAMPEN
AMERICAN VALUE FUND
PORTFOLIO OF INVESTMENTS
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (88.6%)
AEROSPACE (0.2%)
(a)6,700 Coltec Industries, Inc........................... $ 133
(a)5,300 Doncasters plc ADR............................... 147
(a)36,300 Hexcel Corp...................................... 821
(a)2,700 Triumph Group, Inc............................... 113
--------
1,214
--------
BANKING (8.3%)
100,650 AmSouth Bancorp.................................. 3,957
(a)21,700 Cadillac Fairview Corp........................... 499
16,800 City National Corp............................... 621
151,800 Colonial BancGroup, Inc.......................... 4,896
29,450 Comerica, Inc.................................... 1,951
112,200 Community First Bankshares, Inc.................. 2,938
76,000 Compass Bancshares, Inc.......................... 3,430
145,900 Dime Bancorp, Inc................................ 4,368
38,400 First American Corp., Tennessee.................. 1,848
81,500 First Tennessee National Corp.................... 2,572
(a)12,400 Franchise Mortgage Acceptance Co., L.L.C......... 323
(a)19,700 Hawk Corp., `A'.................................. 347
55,300 Hubco, Inc....................................... 1,980
(a)40,300 Imperial Bancorp, Inc............................ 1,209
24,900 Investors Financial Services Corp................ 1,320
53,500 Mellon Bank Corp................................. 3,725
44,600 Mercantile Bankshares Corp....................... 1,553
39,800 New England Community Bancorp, Inc., `A'......... 915
34,638 Peoples Heritage Financial Group, Inc............ 818
117,200 Prime Bancshares, Inc............................ 2,974
35,500 Queens County Bancorp, Inc....................... 1,549
101,300 Regions Financial Corp........................... 4,160
28,100 Southtrust Corp.................................. 1,222
87,000 Sovereign Bancorp, Inc........................... 1,422
10,000 Western Bancorp.................................. 422
--------
51,019
--------
BUILDING (3.2%)
(a)191,100 AFC Cable Systems, Inc........................... 6,784
167,900 Southdown, Inc................................... 11,984
7,400 Vulcan Materials Co.............................. 789
--------
19,557
--------
CAPITAL GOODS (1.5%)
72,600 AGCO Corp........................................ 1,493
25,300 Case Corp........................................ 1,221
12,800 Cincinnati Milacron, Inc......................... 311
29,100 Cummins Engine................................... 1,491
140,500 Flowserve Corp................................... 3,460
27,700 Manitowoc Co., Inc............................... 1,117
(a)12,500 Stoneridge, Inc.................................. 228
--------
9,321
--------
CHEMICALS (1.9%)
121,000 Crompton & Knowles Corp.......................... 3,048
17,400 Quaker Chemical Corp............................. 330
293,200 Solutia, Inc..................................... 8,411
--------
11,789
--------
COMMUNICATIONS (4.0%)
(a)79,700 ANTEC Corp....................................... 1,848
(a)48,700 FORE Systems, Inc................................ 1,291
</TABLE>
<PAGE> 278
VALUE
SHARES (000)
- --------------------------------------------------------------------------
[S] [C]
(a)159,500 General Instrument Corp.......................... $ 4,336
(a)50,800 Glenayre Technologies, Inc....................... 546
(a)56,400 Journal Register Co.............................. 945
(a)86,100 Paging Network, Inc.............................. 1,205
(a)31,800 SmarTalk Teleservices, Inc....................... 463
(a)206,900 Telco Systems, Inc............................... 2,935
(a)77,300 United Video Satellite Group..................... 3,063
(a)132,100 Valassis Communications, Inc..................... 5,094
(a)160,000 Xircom, Inc...................................... 2,490
(a)34,300 Ziff-Davis, Inc.................................. 476
--------
24,692
--------
COMPUTERS (3.2%)
(a)40,600 Apple Computer, Inc.............................. 1,165
(a)82,900 Computer Horizons Corp........................... 3,072
(a)108,600 Electronics Arts, Inc............................ 5,864
(a)46,200 Quantum Corp..................................... 959
(a)145,000 Splash Technology Holdings, Inc.................. 2,492
(a)35,400 Storage Technology Corp.......................... 1,535
(a)222,000 Sybase, Inc...................................... 1,547
(a)235,200 Transwitch Corp.................................. 3,234
--------
19,868
--------
CONSUMER--DURABLES (2.6%)
215,000 Arvin Industries, Inc............................ 7,807
(a)19,900 Dan River, Inc. `A'.............................. 338
(a)22,300 Datascope Corp................................... 592
39,000 Kaufman and Broad Home Corp...................... 1,238
(a)1,278,600 Laidlaw Environmental Services................... 4,635
16,000 Lone Star Industries, Inc........................ 1,233
--------
15,843
--------
CONSUMER--RETAIL (5.4%)
(a)191,100 BJ's Wholesale Club, Inc......................... 7,763
(a)59,900 Brylane, Inc..................................... 2,755
82,400 CVS Corp......................................... 3,208
(a)233,100 Office Depot, Inc................................ 7,357
173,400 Ross Stores, Inc................................. 7,456
(a)27,800 Stage Stores, Inc................................ 1,258
116,600 TJX Companies, Inc............................... 2,813
16,200 VF Corp.......................................... 834
--------
33,444
--------
CONSUMER--SERVICE & GROWTH (0.8%)
(a)31,900 Chancellor Media Corp., `A'...................... 1,584
(a)21,900 Jacor Communications, Inc........................ 1,292
(a)105,200 Prime Hospitality Corp........................... 1,834
--------
4,710
--------
CONSUMER--STAPLES (5.0%)
(a)259,900 Blyth Industries, Inc............................ 8,642
(a)202,000 Consolidated Cigar Holdings, Inc................. 2,475
71,700 Dial Corp........................................ 1,860
49,500 DIMON, Inc....................................... 557
(a)225,300 Fresh Del Monte Produce, Inc..................... 4,267
(a)121,400 General Cigar Holdings, Inc...................... 1,199
40,400 Interstate Bakeries Corp......................... 1,341
36,200 Michael Foods, Inc............................... 1,063
(a)152,500 Omega Protein Corp............................... 2,345
(a)16,000 Standard Commercial Corp......................... 176
The accompanying notes are an integral part of the financial statements.
<PAGE> 279
VAN KAMPEN
AMERICAN VALUE FUND
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<S> <C>
CONSUMER--STAPLES (CONT.)
(a)92,900 Suiza Foods Corp................................. $ 5,545
35,700 Universal Corp................................... 1,334
--------
30,804
--------
ELECTRIC (1.0%)
152,600 Dpl, Inc......................................... 2,766
39,900 DQE, Inc......................................... 1,436
26,900 Florida Progress Corp............................ 1,106
37,000 SCANA Corp....................................... 1,103
--------
6,411
--------
ENERGY (5.6%)
(a)29,300 BJ Services Co................................... 852
2,700 Black Hills Corp................................. 62
41,900 Camco International, Inc......................... 3,263
(a)41,800 Cooper Cameron Corp.............................. 2,132
21,200 Energy East Corp................................. 882
173,000 Enron Oil & Gas Co............................... 3,503
(a)29,800 Horizon Offshore, Inc............................ 292
33,700 MCN Corp......................................... 838
(a)538,424 Ocean Energy, Inc................................ 10,533
14,700 Nicor, Inc....................................... 590
23,400 Noble Affiliates, Inc............................ 889
(a)253,800 R & B Falcon Corp................................ 5,742
(a)38,000 Suburban Propane Partners........................ 734
38,800 Sun Co., Inc..................................... 1,506
33,400 Transocean Offshore, Inc......................... 1,486
8,900 Ultramar Diamond Shamrock Corp................... 281
(a)1,800 Veritas DGC, Inc................................. 90
44,700 Vintage Petroleum, Inc........................... 844
--------
34,519
--------
ENTERTAINMENT (0.8%)
(a)734,900 Acclaim Entertainment, Inc....................... 4,363
(a)9,300 Imax Corp........................................ 212
(a)105,000 The 3DO Company.................................. 331
--------
4,906
--------
FINANCE (1.7%)
(a)36,000 Heller Financial, Inc............................ 1,080
16,300 Nationwide Health Properties, Inc................ 389
(a)19,400 Security Capital Group, Inc. `B'................. 517
12,400 SL Green Realty Corp............................. 279
72,800 T. Rowe Price Associates, Inc.................... 2,735
242,700 Waddell & Reed Financial, Inc., `A'.............. 5,810
--------
10,810
--------
FINANCIAL--DIVERSIFIED (6.9%)
27,300 A.G. Edwards, Inc................................ 1,165
20,200 Capital One Financial Corp....................... 2,509
82,200 CMAC Investment Corp............................. 5,055
43,400 Cousins Properties, Inc.......................... 1,297
181,100 Crescent Real Estate Equities Co. REIT........... 6,089
35,600 Developers Diversified Realty Corp............... 1,395
54,300 Duke Realty Investment, Inc. REIT................ 1,286
13,125 Equity Residential Properties Trust.............. 623
46,400 Felcor Suite Hotels, Inc. REIT................... 1,456
35,000 First Washington Realty Trust, Inc............... 814
26,500 Glenborough Realty Trust, Inc.................... 699
(a)36,500 Innotrac Corp.................................... 347
</TABLE>
<PAGE> 280
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<S> <C>
12,900 Irvine Apartment Communities, Inc. REIT.......... $ 373
38,000 JDN Realty Corp.................................. 1,211
(a)36,100 Lasalle Hotel Properties REIT.................... 611
21,600 Legg Mason, Inc.................................. 1,243
48,600 Liberty Property Trust, REIT..................... 1,242
58,500 Manufactured Home Communities, Inc. REIT......... 1,411
3,400 Post Properties, Inc............................. 131
(a)23,800 Promus Company, Inc.............................. 916
117,600 Providian Financial Corp......................... 9,239
9,600 Security Capital Industrial Trust................ 240
17,400 The CIT Group, Inc. `A'.......................... 653
(a)106,900 Unicapital Corp.................................. 2,044
(a)22,600 United Panam Financial Corp...................... 232
(a)5,250 Wellsford Properties, Inc........................ 74
--------
42,355
--------
HEALTH CARE (6.7%)
(a)75,400 Adac Laboratories................................ 1,697
(a)43,800 Agouron Pharmaceuticals, Inc..................... 1,328
168,000 Alpharma, Inc.................................... 3,696
(a)5,100 Amerisource Health Corp., `A'.................... 335
(a)21,000 Arterial Vascular Engineering, Inc............... 751
(a)21,500 Biogen, Inc...................................... 1,054
(a)108,700 Coventry Health Care, Inc........................ 1,617
(a)444,900 Del Global Technologies Corp..................... 4,449
(a)4,000 Dental Care Alliance, Inc........................ 46
(a)181,000 Guilford Pharmaceuticals, Inc.................... 3,190
(a)3,700 Manhattan Associates, Inc........................ 77
(a)33,800 Pacificare Health Systems........................ 2,987
(a)65,700 PSS World Medical, Inc........................... 961
(a)103,037 Respironics, Inc................................. 1,604
(a)48,100 Transkaryotic Therapies, Inc..................... 1,239
(a)9,000 Trex Medical Corp................................ 149
(a)49,100 Trigon Healthcare, Inc........................... 1,777
75,100 United Wisconsin Services, Inc................... 2,131
(a)13,600 Universal Health Services, Inc................... 794
220,300 Ventas, Inc...................................... 3,043
(a)84,200 Wellpoint Health Networks, Inc................... 6,231
(a)66,100 Wesley Jessen Visioncare, Inc.................... 1,529
(a)35,300 Zonagen, Inc..................................... 774
--------
41,459
--------
INDUSTRIAL (0.4%)
(a)232,400 Philip Services Corp............................. 959
15,900 Steelcase, Inc................................... 413
48,200 Wabash National Corp............................. 1,241
--------
2,613
--------
INSURANCE (5.2%)
117,600 Allmerica Financial Corp......................... 7,644
58,758 AmerUs Life Holdings, Inc. `A'................... 1,902
(a)17,100 Annuity & Life Re Holdings Ltd................... 378
156,600 Everest Reinsurance Holdings, Inc................ 6,019
42,600 EXEL Ltd......................................... 3,315
86,300 Nationwide Financial Services, Inc., `A'......... 4,401
195,600 Old Republic International Corp.................. 5,734
50,100 Reliastar Financial Corp......................... 2,405
--------
31,798
--------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 281
VAN KAMPEN
AMERICAN VALUE FUND
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<S> <C>
METALS (1.7%)
169,600 Agnico-Eagle Mines Ltd........................... $ 933
209,200 AK Steel Holding Corp............................ 3,739
259,200 Barrick Gold Corp................................ 4,973
22,700 USX-U.S. Steel Group, Inc........................ 749
--------
10,394
--------
MISCELLANEOUS (1.1%)
95,300 S & P Mid Cap 400 Depositary Receipts............ 6,635
--------
PAPER & PACKAGING (0.7%)
79,900 Bowater, Inc..................................... 3,775
(a)7,500 Owens-Illinois, Inc.............................. 336
--------
4,111
--------
RESTAURANTS (0.4%)
(a)152,700 Friendly Ice Cream Corp.......................... 2,577
--------
RETAIL (2.9%)
(a)125,300 800-JR Cigar, Inc................................ 2,475
6,200 Claire's Stores, Inc............................. 127
(a)7,600 Columbia Sportswear Co........................... 144
34,300 Consolidated Stores Corp......................... 1,243
(a)142,200 Dress Barn, Inc.................................. 3,537
(a)12,600 Gadzooks, Inc.................................... 347
(a)38,200 Goody's Family Clothing, Inc..................... 2,096
(a)21,500 I.C. Isaacs & Co., Inc........................... 75
(a)119,100 Maxwell Shoe Co., Inc., `A'...................... 2,367
(a)219,500 Novel Denim Holdings Ltd......................... 5,707
--------
18,118
--------
SERVICES (2.2%)
(a)20,100 CDI Corp......................................... 538
19,600 Danka Business Systems plc ADR................... 232
(a)5,300 Data Processing Resources Corp................... 165
(a)78,450 FISERV, Inc...................................... 3,332
(a)138,100 Interim Services, Inc............................ 4,436
26,800 Ogden Corp....................................... 742
41,200 Select Appointments Holdings Public Ltd., Co.
ADR............................................ 1,215
(a)8,100 USA Waste Services, Inc.......................... 400
(a)22,600 Veterinary Centers Of America, Inc............... 425
71,500 Viad Corp........................................ 1,984
--------
13,469
--------
TECHNOLOGY (5.5%)
(a)189,100 Artesyn Technologies, Inc........................ 3,026
(a)29,100 Avid Technology, Inc............................. 975
(a)84,090 Comverse Technology, Inc......................... 4,362
(a)25,800 General Scanning Inc............................. 231
(a)23,300 Keane, Inc....................................... 1,305
(a)47,600 KLA-Tencor Corp.................................. 1,318
(a)133,000 Mentor Graphics Corp............................. 1,405
(a)145,500 Networks Associates, Inc......................... 6,966
(a)788,000 Novell, Inc...................................... 10,047
(a)100,800 Synopsys, Inc.................................... 4,612
--------
34,247
--------
TRANSPORTATION (5.6%)
35,700 Air Express International Corp................... 955
(a)258,400 Atlas Air, Inc................................... 8,737
</TABLE>
<PAGE> 282
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<S> <C>
(a)10,900 Avis Rent A Car, Inc............................. $ 270
(a)159,200 Budget Group, Inc., `A'.......................... 5,084
20,200 Canadian National Railway Co..................... 1,073
67,000 CNF Transportation, Inc.......................... 2,848
117,400 Hertz Corp. `A'.................................. 5,202
(a)15,000 Jevic Transportation, Inc........................ 171
(a)8,900 Midway Airlines Corp............................. 170
(a)49,500 Midwest Express Holdings......................... 1,791
81,300 Teekay Shipping Corp............................. 2,038
(a)90,000 U.S. Xpress Enterprises, Inc., `A'............... 1,508
261,850 Werner Enterprises, Inc.......................... 4,992
--------
34,839
--------
UTILITIES (4.1%)
84,100 Allegheny Energy, Inc............................ 2,534
(a)196,200 CalEnergy Co., Inc............................... 5,898
15,500 Eastern Enterprises.............................. 665
59,100 Minnesota Power & Light Co....................... 2,349
146,400 New Century Energies, Inc........................ 6,652
101,100 Pinnacle West Capital Corp....................... 4,550
45,200 Public Service Co. of New Mexico................. 1,025
5,300 SJW Corp......................................... 313
19,600 Washington Water Power Co........................ 440
36,400 Wisconsin Energy................................. 1,106
--------
25,532
--------
TOTAL COMMON STOCKS (COST $530,306)............................. 547,054
--------
NO. OF
WARRANTS
- ------------
WARRANTS (0.0%)
BANKING (0.0%)
(a)37,800 Golden State Bancorp, Inc., expiring 1/1/01
(COST $203)..................................... 201
--------
FACE
AMOUNT
(000)
- ------------
SHORT-TERM INVESTMENT (11.0%)
REPURCHASE AGREEMENT (11.0%)
$ 67,722 Chase Securities, Inc., 5.40%, dated 6/30/98, due
7/1/98, to be repurchased at $67,732,
collateralized by various U.S. Treasury
Obligations 6.25%-6.50%, due 8/31/01-10/31/01,
valued at $69,164. (COST $67,722).............. 67,722
--------
TOTAL INVESTMENTS (99.6%) (COST $598,231)....................... 614,977
OTHER ASSETS IN EXCESS OF LIABILITIES (0.4%).................... 2,360
--------
NET ASSETS (100%)............................................... $617,337
========
</TABLE>
- ---------------
(a) -- Non-income producing security
ADR -- American Depositary Receipt
REIT -- Real Estate Investment Trust
The accompanying notes are an integral part of the financial statements.
<PAGE> 283
VAN KAMPEN
ASIAN GROWTH FUND
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ----------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (89.7%)
HONG KONG (31.1%)
1,395,500 CLP Holdings Ltd................................. $ 6,358
3,576,430 Hong Kong & China Gas Co., Ltd................... 4,062
241,200 Hong Kong & Shanghai Bank Holdings plc........... 5,899
970,000 Hong Kong Electric Holdings Ltd.................. 3,005
3,172,800 Hong Kong Telecommunications Ltd................. 5,958
710,600 Hutchison Whampoa Ltd............................ 3,751
1,016,000 Li & Fung Ltd.................................... 1,639
75,700 Ng Fung Hong Ltd................................. 52
396,000 Television Broadcasting Ltd...................... 1,048
--------
31,772
--------
INDIA (7.3%)
110,000 Ashok Leyland Ltd................................ 112
163,700 Bharat Heavy Electricals Ltd..................... 950
200 Castrol Ltd...................................... 3
55,100 Container Corp. of India Ltd..................... 594
42,200 Hero Honda Motors Ltd............................ 871
34,700 Housing Development Finance Corp., Ltd........... 2,449
62,500 Nestle India Ltd................................. 543
1,700 SmithKline Beecham Consumer Healthcare Ltd....... 15
211,450 State Bank of India.............................. 1,054
135,000 Tata Engineering & Locomotive Co., Ltd........... 530
32,000 T.V.S. Suzuki Ltd................................ 336
--------
7,457
--------
INDONESIA (1.5%)
93,000 Bat Indonesia (Foreign).......................... 164
(a)605,000 Gudang Garam (Foreign)........................... 357
1,395,000 Indofood Sukses Makmur Tbk....................... 137
4,240,000 Mayora Indah..................................... 172
385,700 Unilever Indonesia (Foreign)..................... 732
--------
1,562
--------
KOREA (5.4%)
12,900 Hankuk Glass Industry Co., Ltd................... 141
(d)206 S.K. Telecom (Foreign)........................... 93
49,010 Nong Shim Co..................................... 2,120
(d)15,572 Pohang Iron & Steel Ltd. (Foreign)............... 511
8,370 S1 Corp.......................................... 847
58,791 Samsung Electronics Co. (Foreign)................ 1,820
(a)148 Samsung Electronics Co. GDS (New)................ 2
--------
5,534
--------
MALAYSIA (9.1%)
367,000 Amway Holdings Bhd............................... 601
491,000 Carlsberg Brewery Malaysia Bhd................... 1,491
134,000 Esso Malaysia Bhd................................ 112
943,000 Guiness Anchor Bhd............................... 1,000
322,000 Hap Seng Consolidated Bhd........................ 171
440,000 Nestle Bhd....................................... 1,993
1,209,000 R.J. Reynolds Bhd................................ 1,675
193,000 Rothmans of Pall Mall Bhd........................ 1,337
204,000 Shell Refining Co. Bhd........................... 290
314,000 Sime Darby Bhd................................... 216
214,000 Telekom Malaysia Bhd............................. 361
--------
9,247
--------
</TABLE>
<PAGE> 284
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ----------------------------------------------------------------------------
<S> <C>
PAKISTAN (1.2%)
55,900 Lever Brothers Pakistan Ltd...................... $ 1,054
47,700 Shell Pakistan Ltd............................... 153
--------
1,207
--------
PHILIPPINES (3.9%)
473,800 La Tondena Distillers, Inc....................... 239
(a)5,303,300 Music Corp....................................... 470
28,650 Philippine Long Distance Telephone ADR........... 653
980,200 San Miguel Corp. `B'............................. 1,293
8,158,180 SM Prime Holdings, Inc........................... 1,291
--------
3,946
--------
SINGAPORE (7.9%)
(a)116,700 Creative Technology Ltd.......................... 1,444
1,312,000 NatSteel Ltd..................................... 2,198
(a)487,000 Singapore Technology Engineering Ltd............. 343
1,064,000 Singapore Telecommunications Ltd................. 1,511
483,000 United Overseas Bank Ltd. (Foreign).............. 1,501
571,000 Venture Manufacturing Ltd........................ 1,082
--------
8,079
--------
TAIWAN (19.1%)
(a)555,750 Asustek Computer, Inc............................ 4,545
(a)218,950 China Development Corp........................... 507
(a)1,222,035 Compal Electronics, Inc.......................... 3,290
(a)116,200 Compeq Manufacturing Co., Ltd.................... 619
(a)977,500 Delpha Construction Co., Ltd..................... 1,280
2,935,841 Far Eastern Textile Ltd.......................... 2,273
(a)535,000 Hon Hai Precision Industry....................... 2,709
(a)425,750 Kuoyang Construction............................. 669
(a)1,514,224 Siliconware Precision Industries Co.............. 2,199
(a)677,150 Taiwan Semiconductor Co.......................... 1,399
--------
19,490
--------
THAILAND (3.2%)
275,000 BEC World Public Co., Ltd........................ 1,049
89,100 Delta Electronics Public Co., Ltd. (Foreign)..... 507
(d)947,700 Eastern Water Resources Development Public Co.,
Ltd. (Foreign)................................. 1,303
(d)56,900 Grammy Entertainment Public Co., Ltd. plc
(Foreign)...................................... 132
(a,d)125,800 GSS Array Technology Public Co., Ltd.
(Foreign)...................................... 298
--------
3,289
--------
TOTAL COMMON STOCKS (COST $114,971)............................... 91,583
--------
NO. OF
WARRANTS
- --------------
WARRANTS (0.0%)
HONG KONG (0.0%)
(a)162,565 Hong Kong and China Gas Co., Ltd. (expiring
9/30/99) (COST $0)............................. 11
--------
TOTAL FOREIGN SECURITIES (89.7%) (COST $114,971).................. 91,594
--------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 285
VAN KAMPEN
ASIAN GROWTH FUND
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ----------------------------------------------------------------------------
<S> <C>
SHORT TERM INVESTMENT (5.9%)
REPURCHASE AGREEMENT (5.9%)
$ 5,971 Chase Securities, Inc., 5.40%, dated 6/30/98, due
7/1/98, to be repurchased at $5,972,
collateralized by $5,300 U.S. Treasury Bonds,
6.625%, due 2/15/27, valued at $6,115 (COST
$5,971)........................................ $ 5,971
--------
TOTAL INVESTMENTS IN SECURITIES (95.6%) (COST $120,942)........... 97,565
--------
FOREIGN CURRENCY (6.1%)
HKD 2,419 Hong Kong Dollar................................. 312
IDR 1,297 Indonesian Rupiah................................ --
INR 17,796 Indian Rupee..................................... 420
KRW 71,443 South Korean Won................................. 52
MYR 2,239 Malaysian Ringgit................................ 540
PHP 367 Philippine Peso.................................. 9
PKR 421 Pakistani Rupee.................................. 9
SGD 36 Singapore Dollar................................. 21
THB 179 Thai Baht........................................ 4
TWD 167,138 Taiwan Dollar.................................... 4,864
--------
TOTAL FOREIGN CURRENCY (COST $6,351).............................. 6,231
--------
TOTAL INVESTMENTS (101.7%) (COST $127,293)........................ 103,796
OTHER LIABILITIES IN EXCESS OF ASSETS (-1.7%)..................... (1,719)
--------
NET ASSETS (100%)................................................. $102,077
========
</TABLE>
- ---------------
(a) -- Non-income producing security
(d) -- Securities valued at fair value -- see note A-1 to financial
statements.
ADR -- American Depositary Receipt
GDS -- Global Depositary Shares
The accompanying notes are an integral part of the financial statements.
<PAGE> 286
VAN KAMPEN
ASIAN GROWTH FUND
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
- --------------------------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE INFORMATION:
Under the terms of foreign currency contracts open at June 30, 1998, the
Portfolio is obligated to deliver or is to receive foreign currency in exchange
for U.S. dollars as indicated below:
<TABLE>
<CAPTION>
CURRENCY IN EXCHANGE
TO DELIVER VALUE SETTLEMENT FOR NET UNREALIZED GAIN
(000) (000) DATE (000) VALUE (000) (LOSS) (000)
- ----------- ----- ----------- ----------- ---------- -------------------
<S> <C> <C> <C> <C> <C>
$ 194 $ 194 7/1/98 SGD 326 $ 193 $ (1)
HKD 800 103 7/2/98 $ 103 103 --
$ 96 96 7/2/98 MYR 397 96 --
$ 66 66 7/2/98 PHP 2,786 66 --
--------- --------- ---------
$ 459 $ 458 $ (1)
========= ========= =========
</TABLE>
- ---------------
HKD -- Hong Kong Dollar
MYR -- Malaysian Ringgit
PHP -- Philippine Peso
SGD -- Singapore Dollar
- --------------------------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION (UNAUDITED)
<TABLE>
<CAPTION>
PERCENT
OF
VALUE NET
INDUSTRY (000) ASSETS
- ---------------------------------------- -------- --------
<S> <C> <C>
Capital Equipment....................... $ 23,753 23.3%
Consumer Goods.......................... 22,749 22.3
Services................................ 14,952 14.6
Finance................................. 13,370 13.1
Energy.................................. 12,289 12.0
Multi-Industry.......................... 4,481 4.4
-------- ----
$ 91,594 89.7%
======== ====
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 287
VAN KAMPEN
EMERGING MARKETS FUND
PORTFOLIO OF INVESTMENTS
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (87.6%)
ARGENTINA (4.7%)
12,405 Nortel ADR....................................... $ 308
66,534 Telecom Argentina ADR............................ 1,984
110,297 Telefonica de Argentina ADR...................... 3,578
24,035 YPF ADR.......................................... 723
--------
6,593
--------
BRAZIL (7.7%)
19,393 Brahma ADR....................................... 242
22,397 CEMIG ADR........................................ 693
1,384,100 Coteminas........................................ 377
(e)12,645 Coteminas ADR.................................... 172
23,359 CVRD ADR......................................... 494
1,256,000 Encorpar ADR..................................... 3
85,000 Lightpar......................................... --
(a,d,e)14,225 Lojas Arupua ADR................................. 8
4,660,000 Pao de Acucar.................................... 105
12,056 Pao de Acucar ADR................................ 273
(e)12,340 Petrobras ADR.................................... 230
58,865 Telebras ADR..................................... 6,427
6,659,000 Telebras S.A..................................... 530
43,075 Unibanco GDR..................................... 1,271
--------
10,825
--------
CHILE (0.8%)
18,300 CCU ADR.......................................... 386
15,030 ENDESA ADR....................................... 214
18,030 Enersis S.A. ADR................................. 441
7,629 Santa Isabel ADR................................. 84
--------
1,125
--------
CHINA (0.9%)
(a)25,845 Huaneng Power International, Inc. ADR............ 347
281,000 Qingling Motors Co., `H'......................... 78
(a)38,150 Yanzhou Coal ADR................................. 372
2,135,000 Zhenhai Refining & Chemical Co................... 276
996,000 Zhehuang Expressway Co., Ltd. `H'................ 167
--------
1,240
--------
EGYPT (1.7%)
8,400 Al-Ahram Beverages Co. S.A.E. GDR................ 264
7,916 Ameriyah Cement Co............................... 137
26,764 Commercial International Bank.................... 295
5,157 Commercial International Bank GDR................ 56
19,920 Eastern Tobacco.................................. 357
2,000 Egypt Gas........................................ 192
11,550 Egyptian Finance & Industrial.................... 247
10,475 Helwan Portland Cement........................... 158
6,377 Industrial & Engine.............................. 104
3,200 Madinet Housing & Development.................... 153
500 Paints & Chemical Industries Co.................. 14
34,800 Paints & Chemical Industries Co. GDR............. 308
8,575 Tora H. Portland Cement.......................... 148
--------
2,433
--------
GREECE (2.1%)
(a)29,680 Hellenic Petroleum S.A........................... 243
77,096 Hellenic Telecommunication Organization S.A...... 1,979
</TABLE>
<PAGE> 288
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -------------------------------------------------------------------------------
<S> <C>
2,520 National Bank of Greece.......................... $ 323
(a)8,000 STAT Hellas Telcommunications S.A. ADR........... 332
--------
2,877
--------
HONG KONG (1.5%)
147,000 China Resources Enterprises Ltd.................. 152
182,000 CLP Holdings Ltd................................. 829
646,000 Ng Fung Hong Ltd................................. 446
38,000 Shanghai Industrial Holdings Ltd................. 90
440,000 South China Morning Post......................... 212
78,000 Sun Hung Kai Properties Ltd...................... 331
--------
2,060
--------
HUNGARY (3.1%)
6,046 Gedeon Richter Ltd............................... 487
(a)3,200 Gedeon Richter Ltd. GDR.......................... 262
13,340 Matav ADR........................................ 393
67,780 Matav Rt......................................... 393
(a)85,036 MOL Magyar Olaj-es Gazipari Rt. GDR.............. 2,292
9,700 OPT Bank Rt...................................... 477
--------
4,304
--------
INDIA (7.5%)
22,000 Bajaj Auto Ltd................................... 297
199,700 Bharat Heavy Electricals Ltd..................... 1,158
12,000 Bharat Petroleum Corp., Ltd...................... 99
125,000 Container Corp. of India Ltd..................... 1,347
(e)150,000 E.I.D. Parry Ltd. GDR............................ 244
40,930 Hero Honda Motors Ltd............................ 845
504,000 Hindustan Development Corp., Ltd. GDR............ 78
16,000 Hindustan Petroleum Corp., Ltd................... 147
24,400 Hoechstshering Agrero Ltd........................ 426
29,954 Housing Development Finance Corp., Ltd........... 2,115
(e)108,750 Indo Rama Synthetics Ltd. GDR.................... 326
41,800 Infosys Technologies Ltd......................... 2,191
19,800 ITC Ltd.......................................... 304
79,200 ITW Signode India Ltd............................ 105
23,500 Larson & Tourbo Ltd., `A'........................ 127
184,150 LG Balakrishnan Bros............................. 162
3,300 Mahanagar Telephone Nigam Ltd.................... 14
5,000 MRF Ltd.......................................... 228
(a)317,000 SIV Industries GDR............................... 127
50 State Bank of India.............................. --
302,600 Tube Investments of India Ltd. GDR............... 182
--------
10,522
--------
INDONESIA (1.0%)
(a)464,325 Gudang Garam (Foreign)........................... 274
(a)8,100 Gulf Indonesia Resources Ltd..................... 93
1,812,380 Indah Kiat Pulp & Paper Corp. Tbk................ 347
101,000 Semen Gresik..................................... 58
1,637,200 Telekomunikasi................................... 463
19,590 Telekomunikasi Indonesia ADR..................... 114
--------
1,349
--------
ISRAEL (4.8%)
(a)273,200 Bank Hapoalim Ltd................................ 826
(a)22,900 DOR Energy....................................... 165
1 Elbit Systems Ltd................................ --
68,000 First International Bank of Israel Ltd.`1'....... 106
</TABLE>
- --------------
The accompanying notes are an integral part of the financial statements.
<PAGE> 289
VAN KAMPEN
EMERGING MARKETS FUND
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -------------------------------------------------------------------------------
<S> <C>
ISRAEL (CONT.)
109,700 First International Bank of Israel Ltd.`5'....... $ 858
17,333 Koor Industries Ltd.............................. 2,003
16,500 Koor Industries Ltd. ADR......................... 386
(a)16,712 Orbotech Ltd..................................... 608
530,700 Super Sol Ltd.................................... 1,748
--------
6,700
--------
KOREA (4.3%)
22,700 Hankuk Glass Industry Co., Ltd................... 248
(d)889 S.K. Telecom Corp................................ 402
(d)67,756 Pohang Iron & Steel Ltd. (Foreign)............... 2,221
4,340 S1 Corp.......................................... 439
85,518 Samsung Electronics Co. (Foreign)................ 2,647
(a)2,040 Samsung Electronics Co. GDS (New)................ 29
230 Samsung Fire & Marine Insurance.................. 38
--------
6,024
--------
MALAYSIA (2.8%)
20,000 Carlsberg Brewery Malaysia Bhd................... 61
257,000 Genting Bhd...................................... 464
242,000 Golden Hope Plantations Bhd...................... 222
150,000 Kuala Lumpur Kepong Bhd.......................... 242
(a)166,000 Magnum Corp. Bhd................................. 62
349,600 Malayan Banking Bhd.............................. 352
59,000 Malaysian International Shipping (Foreign)....... 86
46,000 Nestle Bhd....................................... 208
193,000 Petronas Gas Bhd................................. 358
52,000 R.J. Reynolds Bhd................................ 72
62,000 Rothmans of Pall Mall Bhd........................ 430
220,000 Technology Resources Industries.................. 151
421,000 Telekom Malaysia Bhd............................. 710
368,000 Tenaga Nasional Bhd.............................. 443
--------
3,861
--------
MEXICO (9.9%)
(a)182,279 Banacci `B'...................................... 355
(a)193,888 Banacci `L'...................................... 313
116,450 Bancomer `B'..................................... 43
(a,e)16,880 Bancomer `B' ADR................................. 124
19,527 Cemex `B' ADR.................................... 172
307,499 Cemex CPO........................................ 1,153
39,504 Cemex CPO ADR.................................... 296
5,080 Cemex S.A. de C.V. `B'........................... 22
(a)70,035 FEMSA............................................ 2,181
35,831 FEMSA ADR........................................ 1,129
320,177 Kimberly Clarke de Mexico `A'.................... 1,131
97,284 Telemex ADR...................................... 4,676
(a)54,961 Televisa CPO GDR................................. 2,068
21,082 TV Azteca ADR.................................... 228
--------
13,891
--------
MOROCCO (0.1%)
2,076 Sni Maroc........................................ 199
--------
PAKISTAN (2.1%)
725,500 Fauji Fertilizer Co., Ltd........................ 783
341,000 Hub Power........................................ 93
104,644 Pakistan State Oil Co., Ltd...................... 166
</TABLE>
<PAGE> 290
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -------------------------------------------------------------------------------
<S> <C>
4,778,000 Pakistan Telecommunication Co.................... $ 1,679
(a)887,397 Sui Northern Gas Pipelines....................... 167
--------
2,888
--------
PHILIPPINES (2.1%)
2,083,560 Ayala Corp....................................... 537
41,572 Ayala Land, Inc. `B'............................. 12
173,680 Manila Electric `B'.............................. 458
42,170 Philippine Long Distance Telephone Co............ 961
3,200 Philippine Long Distance Telephone Co. ADR....... 72
359,720 San Miguel Corp. `B'............................. 475
2,400,940 SM Prime Holdings, Inc........................... 380
--------
2,895
--------
POLAND (2.9%)
(a)21,511 Agros Holdings S.A. `C'.......................... 315
15,100 Bank Rozwoju Eksportu S.A........................ 409
4,836 Bank Slaski S.A.................................. 325
10,587 Bank of Handlowy W Warszawie S.A................. 202
13,000 BIG Bank Gdanski S.A. GDR........................ 253
588,000 Big Bank Inicjatyw............................... 784
(a)14,250 Debica S.A....................................... 286
(a)106,590 Elektrim S.A..................................... 1,299
(a)7,340 Exbud S.A........................................ 88
(a)71,261 Polifarb Cieszyn-Wroclaw S.A..................... 184
--------
4,145
--------
RUSSIA (5.5%)
1,040 A O Tatneft ADR.................................. 8
(a)45,838 Lukoil Holdings.................................. 392
4,760 Lukoil Oil Co. ADR............................... 158
1,184,103 Moscow Energy (Mosenergo)........................ 59
(a,d)4,570,885 Mustcom.......................................... 1,576
(e)13,260 Pliva d.d........................................ 216
(a,d)600 Storyfirst Communications........................ 1,716
62,110 Surgutneftegaz ADR............................... 248
(a,e)2,684,488 Svyaz Finance.................................... 2,148
28,160 Tatneft ADR...................................... 218
2,679,200 Unified Energy Systems........................... 347
(a)14,487 Vimpel-Communications ADR........................ 648
--------
7,734
--------
SOUTH AFRICA (7.4%)
71,950 Amalgamated Banks of South Africa................ 450
40,106 Barlow Ltd....................................... 212
50,023 Bidvest Group Ltd................................ 382
8,400 Coronation Holdings Ltd. `N'..................... 126
130,110 Ellerine Holdings Ltd............................ 714
66,200 Forbes Group Ltd................................. 131
217,000 Illovo Sugar Ltd................................. 271
51,978 Liberty Life Association of Africa Ltd........... 1,015
113,275 Malbak Ltd....................................... 77
548,470 NBS Boland Group Ltd............................. 714
(a)864,300 New Africa Investments Ltd. `N'.................. 927
251,540 Orion Selections Holdings Ltd.................... 425
180,390 Orion Selections Ltd............................. 224
82,400 Persetel Holdings Ltd............................ 738
57,700 Primedia Ltd..................................... 379
359,035 Protea Furnishers Ltd............................ 255
88,810 Rembrant Group Ltd............................... 555
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 291
VAN KAMPEN
EMERGING MARKETS FUND
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -------------------------------------------------------------------------------
<S> <C>
SOUTH AFRICA (CONT.)
183,020 Sasol Ltd........................................ $ 1,062
41,760 South African Breweries Ltd...................... 861
278,962 The Education Investment Corp., Ltd.............. 507
371,600 Woolworths Holdings Ltd.......................... 276
--------
10,301
--------
TAIWAN (5.6%)
(a)140,750 Asustek Computer, Inc............................ 1,151
(a)678,000 Chinatrust Commercial Bank....................... 669
(a)411,600 Compal Electronics, Inc.......................... 1,108
1,477,469 Far Eastern Textile Ltd.......................... 1,144
(a)211,000 Hon Hai Precision Industry....................... 1,068
(a)234,000 Kuoyang Construction............................. 368
162,000 Pesident Chain Store Corp........................ 516
(a)757,520 Siliconware Precision Industries Co.............. 1,100
(a)374,000 Taiwan Semiconductor Co.......................... 773
--------
7,897
--------
THAILAND (1.7%)
100,400 Advanced Information Services Co., Ltd.
(Foreign)...................................... 428
503,800 Bangkok Bank Co., Ltd. (Foreign)................. 621
38,200 BEC World Public Co., Ltd........................ 146
73,350 Delta Electronics Public Co., Ltd. (Foreign)..... 417
(a)75,600 Exploration & Production Public Co., Ltd.
(Foreign)...................................... 573
22,000 Lanna Lignite Public Co., Ltd.................... 15
9 National Petrochemical Public Co., Ltd........... --
55,540 Shinawatra Computer Co., Ltd. (Foreign).......... 203
(a)4,200 Siam City Cement Public Co., Ltd. (Foreign)...... 3
(a)30,300 Thai Engine Manufacturing Public Co., Ltd.
(Foreign)...................................... 11
--------
2,417
--------
TURKEY (6.7%)
3,689,600 Akbank T.A.S..................................... 119
(e)17,600 Akbank T.A.S. ADR................................ 114
10,599,494 Arcelik A.S...................................... 498
5,059,500 Ege Biracilik Ve Malt Sanayii.................... 598
2,268,000 Erciyas Biracilik Ve Malt Sanayii................ 345
(a)8,136,000 Eregli Demir Ve Celik Fabrikalari A.S............ 1,268
201,000 Migros Turk...................................... 196
1,236,000 Petrol Ofisi A.S................................. 316
3,001,000 Turk Sise ve Cam Fabrikalari A.S................. 99
8,962,500 Turkiye Is Bankasi, Class C...................... 362
(a)7,819,000 Vestel Elektronik Sanayii ve Ticaret A.S......... 1,042
171,678,821 Yapi Ve Kredi Bankasi............................ 4,384
--------
9,341
--------
VENEZUELA (0.0%)
110,412 Electricidad de Caracas.......................... 50
--------
ZIMBABWE (0.7%)
718,517 Delta Corp....................................... 471
374,200 Meikles Africa Ltd............................... 458
</TABLE>
<PAGE> 292
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -------------------------------------------------------------------------------
<S> <C>
(e)327,000 Trans Zambesi Industries Ltd..................... $ 41
270,000 Trans Zambesi Industries Ltd..................... 34
--------
1,004
--------
TOTAL COMMON STOCKS (COST $156,635)..................................
122,675
--------
PREFERRED STOCKS (9.4%)
BRAZIL (NON-VOTING STOCKS) (9.4%)
105,926,574 Banco Bradesco................................... 889
(a,d,e)11,156 Banco Nacional................................... --
2,025,099 Brahma........................................... 1,261
66,941,161 CEMIG............................................ 2,084
4,646,590 CRT.............................................. 5,066
10,173 CVRD............................................. 202
(a)144,500 EBE S.A.......................................... 2
144,500 Electropaulo Metropolitana....................... 11
(a)144,500 EMAE S.A......................................... --
(a)144,500 EPTE S.A......................................... --
(a)12,437 Lojas Arapua S.A................................. 8
6,448,000 Lojas Renner S.A................................. 190
3,335,000 Petrobras........................................ 620
17,480,390 Telebras......................................... 1,901
(a)1,755,000 Telerj Celular S.A............................... 103
(d)53,661 TELESP........................................... 13
(a)8,972,661 TELESP Cellular.................................. 745
--------
13,095
--------
COLOMBIA (0.0%)
7,150 BanColombia...................................... 13
--------
TOTAL PREFERRED STOCKS (COST $16,158)................................ 13,108
--------
INVESTMENT COMPANY (0.3%)
UNITED STATES (0.3%)
(g)34,265 Morgan Stanley Africa Investment Fund, Inc.
(COST $414).................................... 407
--------
NO. OF
RIGHTS
- -----------------
RIGHTS (0.1%)
BRAZIL (0.0%)
(a)2,521,000 TELESP........................................... --
--------
POLAND (0.0%)
(a)15,100 Bank Rozwoju Eksportu S.A........................ 4
--------
TURKEY (0.1%)
(a,d)2,306,000 Akbank........................................... 60
(a,d)3,001,000 Turk Sise ve Cam Fabrikalari A.S................. 22
--------
82
--------
TOTAL RIGHTS (COST $155)............................................. 86
--------
NO. OF
WARRANTS
- -----------------
WARRANTS (0.0%)
THAILAND
(a,d)111,466 Siam Commercial Bank, expiring 12/31/02 (COST
$0)............................................ --
--------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 293
VAN KAMPEN
EMERGING MARKETS FUND
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- -------------------------------------------------------------------------------
<S> <C>
CONVERTIBLE DEBENTURE (0.0%)
SOUTH AFRICA (0.0%)
$ (a)15 Sasol Ltd. 8.50%, 12/15/2049 (COST $182)......... $ 81
--------
TOTAL FOREIGN SECURITIES (97.4%) (COST $173,544)..................... 136,357
--------
SHORT-TERM INVESTMENT (3.5%)
REPURCHASE AGREEMENT (3.5%)
4,983 Chase Securities, Inc., 5.40%, dated 6/30/98, due
7/1/98, to be repurchased at $4,984,
collateralized by $3,100 U.S. Treasury Bonds,
11.25%, due 2/15/15, valued at $5,097 (COST
$4,983)........................................ 4,983
--------
TOTAL INVESTMENTS IN SECURITIES (100.9%) (COST $178,527)............. 141,340
--------
FOREIGN CURRENCY (1.5%)
ARP 14 Argentine Peso................................... 14
BRL 221 Brazilian Real................................... 191
COP 359 Colombian Peso................................... --
HKD 180 Hong Kong Dollar................................. 23
HUF 424 Hungarian Forint................................. 2
INR 32,015 Indian Rupee..................................... 755
IDR 295,984 Indonesian Rupiah................................ 20
MYR 420 Malaysian Ringgit................................ 101
PKR 7,716 Pakistani Rupee.................................. 167
PHP 108 Philippine Peso.................................. 3
PLN 379 Polish Zloty..................................... 109
ZAR 3,141 South African Rand............................... 531
KRW 38,859 South Korean Won................................. 28
TWD 4,362 Taiwan Dollar.................................... 127
VEB 1,041 Venezuelan Bolivar............................... 2
--------
TOTAL FOREIGN CURRENCY (COST $2,088)................................. 2,073
--------
</TABLE>
<PAGE> 294
<TABLE>
<CAPTION>
VALUE
(000)
- -------------------------------------------------------------------------------
<S> <C>
TOTAL INVESTMENTS (102.4%) (COST $180,615)........................... $143,413
OTHER LIABILITIES IN EXCESS OF ASSETS (-2.4%)........................ (3,351)
--------
NET ASSETS (100%).................................................... $140,062
========
</TABLE>
- ---------------
(a) -- Non-income producing security
(d) -- Security valued at fair value--see note A-1 to financial statements.
(e) -- 144A Security - Certain conditions for public sale may exist.
(g) -- The Fund is advised by an affiliate which earns a management fee as
advisor to the Fund.
ADR -- American Depositary Receipt
CPO -- Certificate of Participation
GDR -- Global Depositary Receipt
GDS -- Global Depositary Shares
The accompanying notes are an integral part of the financial statements.
<PAGE> 295
VAN KAMPEN
EMERGING MARKETS FUND
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
- --------------------------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE INFORMATION:
Under the terms of foreign currency contracts open at June 30, 1998, the
Portfolio is obligated to deliver or is to receive foreign currency in exchange
for U.S. dollars as indicated below:
<TABLE>
<CAPTION>
CURRENCY IN EXCHANGE NET UNREALIZED
TO DELIVER VALUE SETTLEMENT FOR VALUE GAIN (LOSS)
(000) (000) DATE (000) (000) (000)
- -------------- --------- ----------- ------------ --------- ---------------
<S> <C> <C> <C> <C> <C>
$ 191 $ 191 7/1/98 BRL 221 $ 191 $ --
$ 8 8 7/2/98 IDR 120,595 8 --
$ 46 46 7/2/98 MYR 189 46 --
MYR 8,795 2,071 8/11/98 $ 2,307 2,307 236
MYR 1,170 276 8/11/98 $ 330 330 54
ZAR 11,980 1,956 9/18/98 $ 2,159 2,159 203
ZAR 1,829 291 12/23/98 $ 313 313 22
ZAR 7,388 1,174 12/24/98 $ 1,253 1,253 79
ZAR 9,156 1,463 12/28/98 $ 1,566 1,566 103
KRW 468,930 342 12/29/98 $ 308 308 (34)
ZAR 1,145 183 12/31/98 $ 188 188 5
KRW 1,196,213 865 1/4/99 $ 775 775 (90)
$ 63 63 6/21/99 ZAR 410 63 --
ZAR 11,048 1,695 6/21/99 $ 1,880 1,880 185
--------- --------- ---------
$ 10,624 $ 11,387 $ 763
========= ========= =========
</TABLE>
- ---------------
BRL -- Brazilian Real
IDR -- Indonesian Rupiah
INR -- Indian Rupee
KRW -- South Korean Won
MYR -- Malaysian Ringgit
ZAR -- South African Rand
- --------------------------------------------------------------------------------
SWAP AGREEMENTS:
The Portfolio had the following Total Return Swap Agreements open at June 30,
1998:
<TABLE>
<CAPTION>
NOTIONAL UNREALIZED
AMOUNT DEPRECIATION
(000) DESCRIPTION (000)
- --------- ----------------------------------------------------------------------------- -------------
<S> <C> <C>
$ 2,000 Agreement with Goldman Sachs International terminating November 3, 1998 to
pay 12 month USD-LIBOR minus 4.00% and to pay or receive the return of the
Thailand SET Index converted into USD at the mid-market rate on October 30,
1998......................................................................... $ (837)
624 Agreement with Goldman Sachs International terminating March 8, 1999 to make
quarterly payments equal to 3 month USD-LIBOR plus 2.00% and to pay or
receive quarterly payments equal to the return of the Thailand SET Index
converted into USD at the mid-market rate.................................... (95)
-------------
$ (932)
============
</TABLE>
- ---------------
LIBOR -- London Interbank Offer Rate
THB -- Thai Baht
USD -- U.S. Dollar
- --------------------------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION (UNAUDITED)
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
- ----------------------------------------------------------------------------- --------- -------------
<S> <C> <C>
Services $ 50,255 35.9%
Finance 22,073 15.8
Consumer Goods 20,565 14.7
Energy 14,128 10.1
Materials 12,368 8.8
Capital Equipment 12,036 8.6
Multi-Industry 4,932 3.5
--------- ----
$ 136,357 97.4%
========= ====
</TABLE>
The accompanying notes are an integral part of the financial statements
<PAGE> 296
VAN KAMPEN
GLOBAL EQUITY FUND
PORTFOLIO OF INVESTMENTS
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (93.7%)
AUSTRALIA (1.3%)
2,586,000 CSR Ltd.......................................... $ 7,471
893,600 Telstra Corp., Ltd............................... 2,294
--------
9,765
--------
BELGIUM (0.2%)
30,858 G.I.B. Holdings Ltd.............................. 1,741
--------
CANADA (2.6%)
94,600 Potash Corp. of Saskatchewan, Inc................ 7,123
(a)130,000 Renaissance Energy Ltd........................... 1,948
439,600 TELUS Corp....................................... 11,367
--------
20,438
--------
FINLAND (0.5%)
210,000 Valmet Oyj....................................... 3,623
--------
FRANCE (7.0%)
5,987 Bongrain S.A..................................... 3,006
62,300 Elf Aquitaine.................................... 8,757
149,900 France Telecom S.A............................... 10,336
63,600 Groupe Danone RFD................................ 17,531
166,000 Scor............................................. 10,527
(a)55,600 SGS-Thomson Microelectronics N.V................. 3,940
--------
54,097
--------
GERMANY (5.0%)
223,400 BASF AG.......................................... 10,591
215,000 Bayer AG......................................... 11,099
133,400 Veba AG.......................................... 9,098
11,000 Viag AG.......................................... 7,441
--------
38,229
--------
HONG KONG (1.0%)
2,800,000 Hysan Development Co............................. 2,313
2,808,000 Jardine Strategic Holdings Ltd................... 5,335
--------
7,648
--------
IRELAND (2.0%)
609,166 Bank of Ireland.................................. 12,461
470,000 Green Property plc............................... 3,281
--------
15,742
--------
ITALY (2.6%)
1,700,000 Mediaset S.p.A................................... 10,854
1,823,000 Telecom Italia S.p.A............................. 8,829
--------
19,683
--------
JAPAN (6.9%)
142,000 Fuji Photo Film Co............................... 4,948
911,000 Fujisawa Pharmaceutical Co., Ltd................. 8,530
335,000 Hitachi Ltd...................................... 2,187
600 Japan Tobacco, Inc............................... 4,064
260,000 KAO Corp......................................... 4,014
590,000 Matsushita Electric Industrial Co., Ltd.......... 9,492
1,320,000 Shionogi & Co.................................... 7,618
773,000 Sumitomo Marine & Fire Insurance Co.............. 4,327
110,000 TDK Corp......................................... 8,134
--------
53,314
--------
</TABLE>
<PAGE> 297
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<S> <C>
NETHERLANDS (3.2%)
(a)189,800 Benckiser N.V. `B'............................... $ 11,678
201,980 ING Groep N.V.................................... 13,232
--------
24,910
--------
NEW ZEALAND (0.4%)
1,538,300 Lion Nathan Ltd.................................. 3,421
--------
PORTUGAL (0.9%)
203,500 Cimpor-Cimentos de Portugal S.A.................. 7,153
--------
SOUTH AFRICA (0.0%)
48,200 Sasol Ltd........................................ 280
--------
SPAIN (2.5%)
610,400 Iberdrola S.A.................................... 9,911
205,745 Telefonica de Espana............................. 9,512
--------
19,423
--------
SWEDEN (1.6%)
1,722,700 Nordbanken Holding AB............................ 12,633
--------
SWITZERLAND (8.4%)
6,000 ABB AG (Bearer).................................. 8,867
1,800 Ascom Holding AG (Bearer)........................ 3,325
(a)7,890 Cie Financiere Richemont AG, Class A............. 10,333
13,100 Forbo Holdings AG (Registered)................... 6,673
9,900 Holderbank Financiere Glaris AG `B' (Bearer)..... 12,606
10,700 Nestle S.A. (Registered)......................... 22,915
--------
64,719
--------
UNITED KINGDOM (11.9%)
1,836,700 Aegis Group plc.................................. 2,975
589,700 BG plc........................................... 3,412
(a)2,746,980 BTR plc, Class B................................. 7,799
304,800 Burmah Castrol plc............................... 5,446
365,000 Danka Business Systems plc ADR................... 4,312
1,255,900 English China Clays plc.......................... 4,300
838,300 Imperial Tobacco Group plc....................... 6,188
722,500 Peninsular & Oriental Steam Navigation Co........ 10,413
811,800 Premier Farnell plc.............................. 4,121
915,500 Reckitt & Colman plc............................. 17,491
628,800 Royal & Sun Alliance Insurance Group plc......... 6,505
998,100 Wolseley plc..................................... 5,867
1,961,100 WPP Group plc.................................... 12,863
--------
91,692
--------
UNITED STATES (35.7%)
279,400 Albertson's, Inc................................. 14,476
135,900 Aluminum Co. of America.......................... 8,961
522,800 American Stores Co............................... 12,645
189,500 B.F. Goodrich Co................................. 9,404
286,200 Boise Cascade Corp............................... 9,373
239,300 Borg-Warner Automotive, Inc...................... 11,501
(a)334,998 Cadiz Land Co., Inc.............................. 3,873
220,800 Chase Manhattan Corp............................. 16,670
337,900 COMSAT Corp...................................... 9,567
(a)901,600 Data General Corp................................ 13,468
(a)535,300 Egghead, Inc..................................... 4,517
146,600 Enhance Financial Services Group, Inc............ 4,948
117,300 FINOVA Group, Inc................................ 6,642
(a)456,900 GenRad, Inc...................................... 9,024
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 298
VAN KAMPEN
GLOBAL EQUITY FUND
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<S> <C>
UNITED STATES (CONT.)
128,400 General Signal Corp.............................. $ 4,622
121,500 Georgia-Pacific Corp............................. 7,161
121,500 Georgia-Pacific Corp. (Timber Group)............. 2,802
385,800 Houghton Mifflin Co.............................. 12,249
200,000 IBP, Inc......................................... 3,625
182,400 MBIA, Inc........................................ 13,657
(a)255,000 NCR Corp......................................... 8,287
(a)200,900 Noble Drilling Corp.............................. 4,834
(a)201,370 Ocean Energy, Inc................................ 3,939
368,600 Penncorp Financial Group, Inc.................... 7,556
324,500 Pharmacia & Upjohn, Inc.......................... 14,968
422,700 Philip Morris Cos., Inc.......................... 16,644
99,300 Tecumseh Products Co. `A'........................ 5,244
178,600 Tenneco, Inc..................................... 6,798
199,100 Terra Nova (Bermuda) Holdings Ltd. `A'........... 6,247
233,500 Tupperware Corp.................................. 6,567
117,100 Unicom Corp...................................... 4,106
197,200 United Dominion Industries....................... 6,582
199,100 UST Corp......................................... 5,276
--------
276,233
--------
TOTAL COMMON STOCKS (COST $663,297)............................. 724,744
--------
FACE
AMOUNT
(000)
- ------------
SHORT-TERM INVESTMENTS (6.0%)
REPURCHASE AGREEMENT (6.0%)
$ 46,443 Chase Securities, Inc., 5.40%, dated 6/30/98, due
7/1/98, to be repurchased at $46,450,
collateralized by $48,898 U.S. Treasury Notes,
5.50%, due 12/31/00 valued at $48,398 (COST
$46,443)....................................... 46,443
--------
TOTAL INVESTMENT IN SECURITIES (99.7%) (COST $709,740).......... 771,187
--------
</TABLE>
<PAGE> 299
<TABLE>
<CAPTION>
AMOUNT VALUE
(000) (000)
- -------------------------------------------------------------------------------
<S> <C>
FOREIGN CURRENCY (0.3%)
BEF 1,049 Belgian Franc.................................... $ 28
GBP 219 British Pound.................................... 366
FRF 1,437 French Franc..................................... 238
DEM 837 German Mark...................................... 464
HKD 2 Hong Kong Dollar................................. --
IEP 7 Irish Punt....................................... 10
ITL 403,375 Italian Lira..................................... 227
JPY 53,660 Japanese Yen..................................... 387
NLG 2 Netherlands Guilder.............................. 1
NZD 105 New Zealand Dollar............................... 55
ESP 1,175 Spanish Peseta................................... 8
SEK 1 Swedish Krona.................................... --
CHF 569 Swiss Franc...................................... 375
--------
TOTAL FOREIGN CURRENCY (COST $2,174)................................ 2,159
--------
TOTAL INVESTMENTS (100.0%) (COST $711,914)......................... 773,346
LIABILITIES IN EXCESS OF OTHER ASSETS (0.0%)....................... (37)
--------
NET ASSETS (100%)............................................... $773,309
========
</TABLE>
- ---------------
(a) -- Non-income producing security
RFD -- Ranked for Dividend
ADR -- American Depositary Receipt
The accompanying notes are an integral part of the financial statements.
<PAGE> 300
VAN KAMPEN
GLOBAL EQUITY FUND
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
- --------------------------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE INFORMATION:
Under the terms of foreign currency contracts open at June 30, 1998, the
Portfolio is obligated to deliver or is to receive foreign currency in exchange
for U.S. dollars as indicated below:
<TABLE>
<CAPTION>
CURRENCY IN EXCHANGE
TO DELIVER VALUE SETTLEMENT FOR VALUE NET UNREALIZED
(000) (000) DATE (000) (000) GAIN (LOSS) (000)
- ----------- --------- ----------- ------------ --------- -----------------
<S> <C> <C> <C> <C> <C>
$ 752 $ 752 7/1/98 GBP 451 $ 754 $ 2
$ 244 243 7/1/98 ZAR 1,435 242 (1)
GBP 6,600 10,915 12/16/98 $ 10,850 10,850 (65)
--------- --------- ------
$ 11,910 $ 11,846 $ (64)
========= ========= ======
</TABLE>
- ---------------
GBP -- British Pounds
ZAR -- South African Rand
- --------------------------------------------------------------------------------
SUMMARY OF FOREIGN & U.S. SECURITIES BY INDUSTRY CLASSIFICATION (UNAUDITED)
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
- --------------------------------------------------------------------------------- --------- -------------
<S> <C> <C>
Capital Equipment................................................................ $ 177,354 22.9%
Services......................................................................... 140,324 18.2
Consumer Products................................................................ 139,424 18.0
Finance.......................................................................... 126,276 16.3
Materials........................................................................ 68,631 8.9
Energy........................................................................... 35,397 4.6
Diversified Operations........................................................... 30,762 4.0
Gold Mines....................................................................... 3,874 0.5
Consumer Staples................................................................. 2,702 0.3
--------- ----
$ 724,744 93.7%
========= ====
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 301
VAN KAMPEN
GLOBAL EQUITY ALLOCATION FUND
PORTFOLIO OF INVESTMENTS
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (80.1%)
AUSTRALIA (0.0%)
1,698 Broken Hill Proprietary Ltd...................... $ 14
460 Coles Myer Ltd................................... 2
595 Gio Australia Holdings Ltd....................... 2
651 MIM Holdings Ltd................................. --
16 Westfield Trust.................................. --
(a)755 Westfield Trust (New)............................ 1
--------
19
--------
AUSTRIA (0.8%)
600 Austria Mikro Systems International AG........... 41
2,900 Austrian Airlines Osterreichische Luftverkehrs
AG............................................. 96
13,128 Bank Austria AG.................................. 1,068
800 Bau Holdings AG.................................. 45
2,100 Boehler-Udderholm AG............................. 139
300 BWT AG........................................... 64
2,000 Creditanstalt-Bankverein......................... 213
1,100 Creditanstalt-Bankverein: Vorzu.................. 119
4,600 Flughafen Wein AG................................ 221
1,000 Generali AG...................................... 294
(a)700 Lenzing AG....................................... 54
2,300 Mayr-Melnhof Karton AG........................... 150
1,100 Oesterreichische Brau-Beteiligungs AG............ 65
5,600 Oesterreichish Elektrizitaets, `A'............... 670
4,300 OMV AG........................................... 576
2,600 Radex-Heraklith Industriebet AG.................. 126
1,900 Steyr-Daimler-Puch AG............................ 52
2,300 VA Technologies AG............................... 286
1,600 Wienerberger Baustoffindustrie AG................ 387
--------
4,666
--------
BELGIUM (0.1%)
6,000 Kredietbank N.V.................................. 537
--------
CANADA (2.8%)
9,800 Abitibi-Consolidated, Inc........................ 126
8,000 Agrium, Inc...................................... 100
(a)8,100 Air Canada....................................... 72
13,900 Alcan Aluminum Ltd............................... 383
3,700 Avenor, Inc...................................... 86
14,300 Bank of Montreal................................. 787
26,000 Bank of Nova Scotia.............................. 643
22,900 Barrick Gold Corp................................ 436
8,500 Barrick Gold Corp................................ 163
34,000 BCE, Inc......................................... 1,441
17,500 Bombardier, Inc., `A'............................ 476
7,400 CAE, Inc......................................... 63
3,100 Cameco Corp...................................... 86
22,400 Canadian Imperial Bank of Commerce............... 720
1,976 Canadian National Railway Co..................... 105
5,600 Canadian Natural Resources Ltd................... 96
8,600 Canadian Occidental Petroleum Ltd................ 183
18,800 Canadian Pacific Ltd............................. 529
5,000 Canadian Tire Corp., `A'......................... 145
4,500 Cominco Ltd...................................... 67
(a)4,000 Corel Corp....................................... 8
3,200 Cott Corp........................................ 23
5,500 Dofasco, Inc..................................... 90
8,800 Domtar, Inc...................................... 59
</TABLE>
<PAGE> 302
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<S> <C>
(a)8,600 Echo Bay Mines Ltd............................... $ 18
7,500 George Weston Ltd................................ 265
(a)13,400 Gulf Canada Resources Ltd........................ 66
23,200 Imasco Ltd....................................... 428
27,300 Imperial Oil Ltd................................. 477
8,600 Inco Ltd......................................... 117
3,200 IPL Energy, Inc.................................. 144
11,500 Laidlaw, Inc..................................... 140
15,800 Laidlaw, Inc. `B'................................ 191
3,800 Loewen Group, Inc................................ 102
8,500 MacMillan Bloedel Ltd............................ 91
3,900 Magna International, Inc., `A'................... 267
(a)9,500 Methanex Corp.................................... 83
4,400 Molson Companies Ltd., `A'....................... 80
6,100 Moore Corp., Ltd................................. 81
(a)8,200 Newbridge Networks Corp.......................... 196
13,300 Noranda, Inc..................................... 230
25,600 Northern Telecom Ltd............................. 1,451
29,700 Nova Corp........................................ 340
16,000 Petro............................................ 257
11,600 Placer Dome, Inc................................. 135
3,000 Potash Corp. of Saskatchewan, Inc................ 226
7,100 Power Corp. of Canada............................ 333
(a)7,200 Provigo, Inc..................................... 44
(a)7,400 Ranger Oil Ltd................................... 53
(a)7,100 Renaissance Energy Ltd........................... 106
(a)9,600 Rogers Communication, Inc., `B'.................. 85
16,900 Royal Bank of Canada............................. 1,016
19,300 Seagram Co., Ltd................................. 786
(a)4,400 Suncor, Inc...................................... 149
(a)7,200 Talisman Energy, Inc............................. 206
4,700 Teck Corp., `B'.................................. 51
5,800 TELUS Corp....................................... 150
31,500 Thomson Corp..................................... 914
13,100 Transcanada Pipelines Ltd........................ 290
6,700 Westcoast Energy, Inc............................ 149
--------
16,604
--------
DENMARK (0.2%)
2,000 BG Bank A/S...................................... 124
3,800 Den Danske Bank Corp............................. 456
600 Jyske Bank A/S (Registered)...................... 71
3,800 Unidanmark A/S `A' (Registered).................. 342
--------
993
--------
FRANCE (3.0%)
2,677 Accor S.A........................................ 749
3,406 Alcatel Alsthom.................................. 693
7,182 AXA S.A.......................................... 808
6,925 Banque Nationale de Paris........................ 566
4,591 Banque Paribas................................... 491
1,337 BIC Corp......................................... 95
613 Bouygues......................................... 111
761 Canal Plus....................................... 142
4,763 Cap Gemini S.A................................... 748
875 Carrefour S.A.................................... 554
1,948 Cie de Saint-Gobain.............................. 361
751 Credit Commercial de France...................... 63
383 Dexia France..................................... 52
5,759 Elf Aquitaine.................................... 810
2,474 Elf Sanofi S.A................................... 291
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 303
VAN KAMPEN
GLOBAL EQUITY ALLOCATION FUND
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<S> <C>
FRANCE (CONT.)
697 Eridania Beghin-Say S.A.......................... $ 154
256 Essilor International............................ 108
3,633 Etablissements Economiques du Casino
Guichard-Perrachon............................. 290
18,547 France Telecom S.A............................... 1,279
1,768 Groupe Danone RFD................................ 487
1,650 Havas S.A........................................ 140
375 Imetal S.A....................................... 52
2,430 Klepierre........................................ 472
2,167 L'air Liquide.................................... 358
1,441 L'Oreal.......................................... 801
2,277 Lafarge S.A...................................... 235
(a)71 Lafarge S.A...................................... 7
2,484 Lagardere S.C.A.................................. 103
698 Legrand S.A...................................... 185
1,965 LVMH Moet Hennessy Louis Vuitton................. 393
2,807 Lyonnaise des Eaux S.A........................... 462
2,750 Michelin (C.G.D.E.) `B'.......................... 159
193 Pathe S.A........................................ 38
1,540 Pernod-Ricard.................................... 107
486 Pinault S.A...................................... 407
434 Promodes......................................... 240
1,176 PSA Peugeot Citroen S.A.......................... 253
7,548 Rhone-Poulenc S.A. `A'........................... 426
111 Sagem............................................ 86
2,989 Schneider S.A.................................... 238
(a)1,917 Silic............................................ 349
6,256 Simco S.A. (Registered).......................... 513
88 Societe Eurafrance S.A........................... 55
3,218 Societe Generale................................. 669
13 Sodexho Alliance S.A............................. 3
(a)676 Sodexho S.A...................................... 128
6,120 Sophia S.A....................................... 283
2,745 Thomson CSF S.A.................................. 104
5,431 Total S.A. `B'................................... 706
3,620 Unibail.......................................... 468
5,699 Usinor Sacilor................................... 88
1,494 Valeo S.A........................................ 153
2,822 Vivendi.......................................... 602
--------
18,135
--------
GERMANY (3.3%)
1,183 Adidas AG........................................ 205
(a)900 Agiv AG.......................................... 25
(a)292 Allianz AG....................................... 95
5,550 Allianz AG....................................... 1,831
483 AMB Aachener & Muenchener Beteiligungs AG........ 56
2,000 Bankgesellschaft Berlin AG....................... 42
14,150 BASF AG.......................................... 671
17,550 Bayer AG......................................... 906
8,100 Bayer Hypothecen-und Wechsel-Bank AG............. 514
9,550 Bayer Vereinsbank AG............................. 813
533 Beiersdorf AG.................................... 34
800 BHF-Bank AG...................................... 30
2,400 Bilfinger & Berger Bau AG........................ 82
183 Brau und Brunnen AG.............................. 24
967 CKAG Colonia Konzern AG.......................... 120
3,900 Commerzbank AG................................... 149
2,033 Continental AG................................... 63
</TABLE>
<PAGE> 304
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<S> <C>
16,100 Daimler-Benz AG.................................. $ 1,580
2,383 Degussa AG....................................... 147
18,450 Deutsche Bank AG................................. 1,564
55,187 Deutsche Telekom AG.............................. 1,490
15,167 Dresdner Bank AG................................. 818
1,253 Heidelberger Zement AG........................... 119
2,433 Hochtief AG...................................... 117
800 IKB Deutsche Industriebank AG.................... 16
250 Karstadt AG...................................... 121
1,267 Kloeckner-Humboldt-Deutz AG...................... 15
283 Linde AG......................................... 198
8,700 Lufthansa AG..................................... 219
350 MAN AG........................................... 136
9,170 Mannesmann AG.................................... 931
4,290 Merck KGAA....................................... 192
5,557 Metro AG......................................... 337
1,947 Muenchener Rueckversicherungs-Gesellschaft AG
(Registered)................................... 966
450 Preussag AG...................................... 161
12,204 RWE AG........................................... 724
1,477 SAP AG........................................... 897
1,900 Schering AG...................................... 224
13,233 Siemens AG....................................... 806
100 STRABAG AG....................................... 9
867 Thyssen AG....................................... 220
12,283 VEBA AG.......................................... 838
695 Viag AG.......................................... 470
748 Volkswagen AG.................................... 719
--------
19,694
--------
HONG KONG (0.0%)
139 Bank of East Asia................................ --
700 Cathay Pacific Airways Ltd....................... --
1,600 Hong Kong & China Gas Co., Ltd................... 2
12,643 Hong Kong Land Holdings Ltd...................... 16
500 Hong Kong Shanghai Hotels........................ --
200 Hopewell Holdings Ltd............................ --
1,400 Hutchison Whampoa Ltd............................ 7
400 Johnson Electric Holdings Ltd.................... 1
1,300 New World Development Co., Ltd................... 3
1,000 Regal Hotel International........................ --
7,593 Sino Land Co..................................... 3
2,400 South China Morning Post......................... 1
1,340 Sun Hung Kai Properties Ltd...................... 6
200 Swire Pacific Ltd. `A'........................... 1
500 Television Broadcasting Ltd...................... 1
800 Varitronix International Ltd..................... 2
--------
43
--------
IRELAND (0.1%)
46,700 Allied Irish Banks plc........................... 676
--------
ITALY (4.0%)
76,176 Assicurazioni Generali S.p.A..................... 2,478
128,300 Banca Commerciale Italiana....................... 768
20,000 Banca Fideuram................................... 114
10,000 Banca Intesa S.p.A............................... 29
1,000 Banca Popolare di Bergamo Credito Varesino
S.p.A.......................................... 21
75,000 Banca di Roma.................................... 156
60,900 Banco Ambrosiano Veneto.......................... 341
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 305
VAN KAMPEN
GLOBAL EQUITY ALLOCATION FUND
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<S> <C>
ITALY (CONT.)
4,000 Banco Popolare Milano............................ $ 32
40,000 Banco di Napoli.................................. 51
133,800 Benetton Group S.p.A............................. 278
11,700 Burgo Cartiere S.p.A............................. 94
(a)418,700 Ciga Spa......................................... 487
218,500 Credito Italiano S.p.A........................... 1,144
48,000 Edison S.p.A..................................... 385
568,000 Ente Nazionale Idrocarburi S.p.A................. 3,724
9,500 Falck Acciaierie & Ferriere Lombarde............. 61
239,630 Fiat S.p.A....................................... 1,049
52,970 Fiat S.p.A. Di Risp NCS.......................... 131
85,200 Immobiliare Metanopoli S.p.A..................... 94
(a)26,000 Impreglio S.p.A.................................. 23
74,600 Istituto Bancario San Paolo di Torina S.p.A...... 1,077
53,950 Istituto Mobiliare Italiano S.p.A................ 850
500,720 Istituto Nazionale delle Assicurazioni (INA)..... 1,423
11,650 Italcementi S.p.A. RNC........................... 51
17,300 Italcementi S.p.A................................ 156
49,400 Italgas.......................................... 201
16,878 La Rinascente S.p.A.............................. 168
36,500 Magneti Marelli S.p.A............................ 80
86,000 Mediaset S.p.A................................... 549
51,260 Mediobanca S.p.A................................. 651
208,108 Montedison S.p.A................................. 258
68,900 Montedison S.p.A. Di Risp NCS.................... 53
(a)252,880 Olivetti Group................................... 376
114,640 Parmalat Finanziaria S.p.A....................... 234
115,000 Pirelli S.p.A.................................... 359
22,269 R.A.S............................................ 290
462 R.A.S. di Risp................................... 4
250 S.A.I............................................ 2
10,100 S.A.I............................................ 129
(a)12,000 Sasib S.p.A...................................... 54
22,000 Sirti S.p.A...................................... 120
51,000 Snia BPD S.p.A................................... 63
470,300 Telecom Italia Mobile S.p.A...................... 2,877
110,000 Telecom Italia Mobile S.p.A. RNC................. 371
68,663 Telecom Italia S.p.A. RNC........................ 333
255,388 Telecom Italia S.p.A............................. 1,881
--------
24,070
--------
JAPAN (4.8%)
28,800 Ajinomoto Co., Inc............................... 252
(a)30,800 Aoki Corp........................................ 15
500 Asahi Bank Ltd................................... 2
19,000 Asahi Breweries Ltd.............................. 240
59,400 Asahi Chemical Industry Co., Ltd................. 214
53,600 Asahi Glass Co................................... 290
91,600 Bank of Tokyo-Mitsubishi Ltd..................... 971
500 Bank of Yokohama................................. 1
19,000 Bridgestone Corp................................. 450
23,800 Canon, Inc....................................... 541
11,000 Casio Computer Co., Ltd.......................... 102
800 Chiba Bank Ltd................................... 3
18,800 Chugai Pharmaceutical Ltd........................ 123
23,800 Dai Nippon Printing Co., Ltd..................... 380
18,800 Daiei, Inc....................................... 44
18,800 Daikin Industries Ltd............................ 121
18,800 Daiwa House Industry............................. 166
20,600 Denso Corp....................................... 342
</TABLE>
<PAGE> 306
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<S> <C>
114 East Japan Railway Co............................ $ 536
13,800 Ebara Corp....................................... 123
8,300 Fanuc Co......................................... 287
11,000 Fuji Photo Film Co............................... 383
45,600 Fujitsu Ltd...................................... 480
13,800 Furukawa Electric................................ 46
23,000 Hankyu Corp...................................... 94
(a)18,000 Hazama-Gumi...................................... 10
98,000 Hitachi Ltd...................................... 640
23,000 Honda Motor Co................................... 820
12,000 Ito-Yokado Co., Ltd.............................. 565
(a)61,000 Japan Airlines Co., Ltd.......................... 170
43,600 Japan Energy Corp................................ 46
800 Joyo Bank........................................ 3
8,800 Jusco Co......................................... 162
23,800 KAO Corp......................................... 367
35,600 Kajima Corp...................................... 98
25,900 Kansai Electric Power Co......................... 450
28,600 Kawasaki Steel Corp.............................. 52
41,600 Kinki Nippon Railway............................. 195
38,600 Kirin Brewery Co., Ltd........................... 365
34,600 Komatsu Ltd...................................... 168
51,400 Kubota Corp...................................... 119
(a)60,600 Kumagai Gumi Co., Ltd............................ 44
5,500 Kyocera Corp..................................... 269
16,800 Kyowa Hakko Kogyo................................ 67
46,000 Long-Term Credit Bank of Japan Ltd............... 27
50,200 Marubeni Corp.................................... 100
4,800 Marui Co., Ltd................................... 72
51,400 Matsushita Electric Industrial Co., Ltd.......... 827
59,000 Mitsubishi Chemical Corp......................... 107
51,000 Mitsubishi Corp.................................. 316
67,400 Mitsubishi Electric Corp......................... 155
106,000 Mitsubishi Heavy Industries Ltd.................. 401
34,600 Mitsubishi Materials Corp........................ 71
26,000 Mitsubishi Trust and Banking Corp................ 221
51,200 Mitsui & Co...................................... 277
(a)37,600 Mitsui Engineering & Shipbuilding Co., Ltd....... 29
400 Mitsui Trust & Banking Co., Ltd.................. 1
17,800 Mitsukoshi....................................... 51
12,800 Mycal Corp....................................... 81
32,600 NEC Corp......................................... 304
38,600 New OJI Paper Co., Ltd........................... 168
18,800 NGK Insulators Ltd............................... 163
15,000 Nippon Express Co., Ltd.......................... 81
16,800 Nippon Fire & Marine Insurance Co................ 69
16,800 Nippon Light Metal Co............................ 19
16,800 Nippon Meat Packers, Inc......................... 206
54,600 Nippon Oil Co.................................... 177
216,000 Nippon Steel Corp................................ 380
292 Nippon Telegraph & Telephone Corp. ADR........... 2,423
51,400 Nippon Yusen Kabushiki Kaisha.................... 174
350 Nissan Fire & Marine Insurance Co., Ltd.......... 1
65,400 Nissan Motor Co., Ltd............................ 206
114,000 NKK Corp......................................... 109
20,800 Odakyu Electric Railway Co....................... 64
82,200 Osaka Gas Co..................................... 211
16,800 Penta-Ocean Construction......................... 39
5,000 Pioneer Electronic Corp.......................... 96
2,000 Rohm Co.......................................... 206
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 307
VAN KAMPEN
GLOBAL EQUITY ALLOCATION FUND
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<S> <C>
JAPAN (CONT.)
66,200 Sakura Bank Ltd.................................. $ 172
14,800 Sankyo Co., Ltd.................................. 337
61,000 Sanwa Bank Ltd................................... 546
51,400 Sanyo Electric Co., Ltd.......................... 156
4,800 Secom Co......................................... 277
3,900 Sega Enterprises Ltd............................. 67
18,800 Sekisui House Ltd................................ 146
34,600 Sharp Corp....................................... 281
5,000 Shimano, Inc..................................... 127
27,800 Shimizu Corp..................................... 80
7,000 Shin-Etsu Chemical Co............................ 121
7,000 Shiseido Co., Ltd................................ 80
800 Shizuoka Bank.................................... 9
34,600 Showa Denko K.K.................................. 35
700 Softbank Corp.................................... 27
8,900 Sony Corp........................................ 767
69,200 Sumitomo Chemical Co............................. 214
36,400 Sumitomo Corp.................................... 175
25,800 Sumitomo Electric Industries..................... 261
70,400 Sumitomo Metal Industries........................ 113
18,000 Sumitomo Metal Mining Co......................... 73
17,800 Sumitomo Osaka Cement Co., Ltd................... 23
38,600 Taisei Corp., Ltd................................ 84
11,000 Taisho Pharmaceutical Co......................... 206
21,000 Taiyo Yuden Co., Ltd............................. 224
23,800 Takeda Chemical Industries....................... 634
38,600 Teijin Ltd....................................... 117
23,800 Tobu Railway Co.................................. 63
13,500 Tohoku Electric Power............................ 199
600 Tokai Bank....................................... 3
59,400 Tokio Marine & Fire Insurance Co................. 611
32,500 Tokyo Electric Power Co.......................... 638
2,000 Tokyo Electron Ltd............................... 61
77,200 Tokyo Gas Co..................................... 172
28,800 Tokyu Corp....................................... 87
23,800 Toppan Printing Co., Ltd......................... 255
58,500 Toray Industries, Inc............................ 304
17,800 Toto Ltd......................................... 108
38,600 Toyobo Ltd....................................... 51
77,000 Toyota Motor Corp................................ 1,994
34,600 Ube Industries Ltd............................... 45
300 Yamaichi Securities.............................. --
19,000 Yokogawa Electric Corp........................... 101
--------
28,692
--------
NETHERLANDS (4.1%)
83,307 ABN Amro Holding N.V............................. 1,950
4,200 Akzo Nobel N.V................................... 934
29,800 Elsevier N.V..................................... 450
4,106 Getronics........................................ 213
15,313 Heineken N.V..................................... 602
57,176 ING Groep N.V.................................... 3,746
4,039 KLM Royal Dutch Airlines N.V..................... 164
25,874 Koninklijke Ahold N.V............................ 831
287 Koninklijke Hoogovens............................ 12
5,300 Koninklijke KNP BT N.V........................... 137
27,847 Koninklijke PTT Nederland N.V.................... 1,072
1,200 Nedlloyd Groep N.V............................... 24
1,656 Oce N.V.......................................... 71
(a)1,100 Oce N.V.......................................... 47
</TABLE>
<PAGE> 308
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<S> <C>
17,600 Phillips Electronics N.V......................... $ 1,480
(a)22,700 Rodamco N.V...................................... 623
107,400 Royal Dutch Petroleum............................ 5,958
33,600 Royal Dutch Petroleum Co., New York Shares....... 1,842
2,318 Stork N.V........................................ 74
(a)27,847 TNT Post Group N.V............................... 712
32,900 Uni-Invest N.V................................... 477
32,100 Unilever N.V..................................... 2,548
3,664 Wolters Kluwer N.V............................... 503
--------
24,470
--------
NORWAY (0.3%)
(a)121,900 Choice Hotels Scandinavia S.A.................... 366
64,000 Christiania Bank OG Kreditkasse.................. 268
74,100 Den Norske Bank ASA.............................. 389
100 Hafslund ASA `A'................................. --
(a)68,540 Linstow ASA...................................... 492
(a)33 NCL Holdings ASA................................. --
100 Norsk Hydro ASA.................................. 4
(a)200 Storebrand ASA................................... 2
--------
1,521
--------
PORTUGAL (1.3%)
38,742 Banco Comercial (Registered)..................... 1,101
18,620 Banco Espirito Santo............................. 559
12,300 Banco Totta & Acores `B' (Registered)............ 373
16,300 BPI-SGPS S.A. (Registered)....................... 526
1,300 Cia de Seguros Tranquilidade (Registered)........ 35
13,500 Cimpor-Cimentos de Portugal S.A.................. 474
700 CIN S.A.......................................... 52
3,100 Corticeira Amorim, S.A........................... 60
59,500 EDP-Electricidade de Portugal, S.A............... 1,384
1,000 Engil-SGPS....................................... 11
2,600 INAPA, S.A....................................... 34
(a)18,450 Jeronimo Martins, SGPS, S.A...................... 887
14,600 Portucel Industrial-Empresa Produtora de Celulose
S.A............................................ 116
30,500 Portugal Telecom S.A............................. 1,617
(a)2,000 Sociedade de Construcoes Soares da Costa S.A..... 17
6,700 Sonae Investimentos S.A.......................... 366
1,900 UNICER-Uniao Cervejeira S.A...................... 42
--------
7,654
--------
SPAIN (3.2%)
840 Acerinox S.A..................................... 112
(a)297 ACS S.A.......................................... 9
(a)41 Aguas de Barcelona............................... 2
45,280 Argentaria S.A................................... 1,016
16,742 Autopistas Concesionaria Espanola S.A............ 259
3,300 Azucarere Ebro Agricolas S.A..................... 98
59,200 Banco Bilbao Vizcaya, S.A. (Registered).......... 3,038
(a)7,200 Banco Espanol de Credito S.A..................... 86
1,400 Banco Popolar Espanol S.A........................ 120
94,000 Banco Santander S.A.............................. 2,406
400 Bankinter S.A.................................... 26
29,800 BCH S.A.......................................... 937
1,000 Corporacion Financiera Alba S.A.................. 110
3,898 Corporacion Mapfre............................... 137
3,850 Dragados y Construcciones S.A.................... 123
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 309
VAN KAMPEN
GLOBAL EQUITY ALLOCATION FUND
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<S> <C>
SPAIN (CONT.)
1,450 Empresa Nacional de Cellulosas S.A............... $ 26
81,600 Endesa S.A....................................... 1,785
317 Energia y Industrias Aragonesas.................. 3
(a)11,600 Ercros S.A....................................... 15
4,000 Fomento de Construcciones y Contratas S.A........ 206
11,200 Gas Natural SDG S.A. `E'......................... 809
3,335 General de Aguas De Barcelona S.A................ 186
73,000 Iberdrola S.A.................................... 1,185
3,202 Immobiliaria Metropolitana Vasco Central S.A..... 94
500 Portland Valderrivas S.A......................... 61
23,800 Repsol S.A....................................... 1,312
(a)12,500 Tabacalera S.A. `A'.............................. 256
76,054 Telefonica de Espana............................. 3,516
(a)3,145 Telefonica de Espana............................. 146
19,900 Union Electrica Fenosa S.A....................... 256
4,500 Uralita S.A...................................... 64
15,396 Vallehermoso S.A................................. 566
1,550 Viscofan Industria Navarra de Envolturas
Celulosicas S.A................................ 72
4,363 Zardoya-Otis S.A................................. 130
--------
19,167
--------
SWEDEN (1.6%)
21,300 ABB AB `A'....................................... 302
8,900 ABB AB `B'....................................... 124
5,100 AGA AB `A'....................................... 80
(a)45,600 Asticus AB....................................... 503
42,366 Astra AB `A'..................................... 866
10,300 Astra AB `B'..................................... 205
4,250 Atlas Copco AB `A'............................... 116
2,100 Atlas Copco AB `B'............................... 57
14,000 Castellum AB..................................... 165
55,400 Diligentia AB.................................... 479
12,500 Electrolux AB `B'................................ 215
600 Esselte AB `B'................................... 14
10,900 Fastighets AB Tornet............................. 175
100 Granges AB....................................... 2
6,700 Hennes & Mauritz AB `B'.......................... 427
(a)3,500 NetCom Systems AB `B'............................ 134
37,100 Nordbanken Holding AB............................ 272
14,800 Piren AB......................................... 117
6,000 Sandvik AB `A'................................... 166
2,500 Sandvik AB `B'................................... 69
8,100 SCA AB `B'....................................... 210
2,900 Securitas AB `B'................................. 142
(a)17,000 Skandia Forsakrings AB........................... 243
36,200 Skandinaviska Enskilda Banken `A'................ 619
4,000 Skanska AB `B'................................... 179
3,000 SKF AB `B'....................................... 55
20,700 Sparbanken Sverige AB `A'........................ 623
10,450 Stora Kopparbergs Bergslags Aktiebolag........... 164
13,400 Svenska Handelsbanken `A'........................ 622
600 Svenska Handelsbanken `B'........................ 26
3,400 Svenskt Stal AB `A'.............................. 52
60,400 Telefonaktiebolaget LM Ericsson.................. 1,764
4,500 Trelleborg AB `B'................................ 59
500 Volvo AB `A'..................................... 15
</TABLE>
<PAGE> 310
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<S> <C>
14,000 Volvo AB `B'..................................... $ 417
2,400 Wm-Data Ab `B'................................... 83
--------
9,761
--------
SWITZERLAND (3.9%)
415 ABB AG (Bearer).................................. 613
770 Adecco S.A. (Bearer)............................. 348
240 Alusuisse-Lonza Holding AG (Registered).......... 305
80 Banca del Gottardo `B'........................... 58
40 Banque Cantonale Vaudoise........................ 16
10,450 CS Holding AG (Registered)....................... 2,327
225 Georg Fischer AG (Registered).................... 88
285 Holderbank Financiere Glarus AG (Bearer)......... 363
1,655 Nestle S.A. (Registered)......................... 3,544
2,696 Novartis AG (Registered)......................... 4,489
69 Roche Holding AG (Bearer)........................ 1,023
293 Roche Holding AG-Genusshein...................... 2,879
325 Sairgroup (Registered)........................... 107
610 Schweizerische Rueckver (Registered)............. 1,544
80 SGS Societe Generale de Surveillance Holding S.A.
(Bearer)....................................... 136
215 SMH AG (Bearer).................................. 166
170 Sulzer AG (Registered)........................... 134
450 SwissAir AG (Registered)......................... 148
(a)8,594 UBS AG (Registered).............................. 3,198
1,070 Union Bank of Switzerland (Registered)........... 386
275 Valora Holding AG (Registered)................... 73
60 Vontobel Holding AG `B'.......................... 87
2,005 Zuerich Versicherungs-Gesellschaft
(Registered)................................... 1,280
--------
23,312
--------
UNITED KINGDOM (9.1%)
52,400 Abbey National plc............................... 932
26,150 Arjo Wiggins Appleton plc........................ 88
18,725 Associated British Foods plc..................... 177
70,289 Barclays plc..................................... 2,028
36,717 Bass plc......................................... 689
115,891 B.A.T Industries plc............................. 1,161
145,190 BG plc........................................... 840
26,177 BICC plc......................................... 56
49,451 Blue Circle Industries plc....................... 280
26,105 BOC Group plc.................................... 356
41,125 Boots Co. plc.................................... 682
26,150 BPB Industries plc............................... 159
74,772 British Aerospace plc............................ 573
44,903 British Airways plc.............................. 486
59,930 British Land Co. plc............................. 616
218,658 British Petroleum Co. plc........................ 3,192
59,825 British Sky Broadcasting Group plc............... 430
74,800 British Steel plc................................ 165
216,950 British Telecommunications plc................... 2,681
127,648 BTR plc, `B'..................................... 362
11,156 Burmah Castrol plc............................... 199
93,487 Cable & Wireless plc............................. 1,137
41,160 Cadbury Schweppes plc............................ 638
72,300 Capital Shopping Centers plc..................... 487
28,530 Caradon plc...................................... 88
(a)164,550 Centrica plc..................................... 278
33,646 Coats Viyella plc................................ 41
26,106 Commercial Union plc............................. 487
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 311
VAN KAMPEN
GLOBAL EQUITY ALLOCATION FUND
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<S> <C>
UNITED KINGDOM (CONT.)
18,725 Courtaulds plc................................... $ 139
3,722 De La Rue plc.................................... 18
126,724 Diageo plc....................................... 1,503
19,947 Diageo plc, `B'.................................. 167
(a)29,175 Elementis plc.................................... 74
24,590 EMI Group plc.................................... 215
1 Energy Group plc................................. --
108,475 General Electric plc............................. 936
(a)44,734 GKN plc.......................................... 570
119,675 Glaxo Wellcome plc............................... 3,595
26,140 Granada Group plc................................ 481
158,400 Grantchester Holdings plc........................ 452
44,875 Great Universal Stores plc....................... 592
(a)28,470 Guardian Royal Exchange plc...................... 167
22,443 Hanson plc....................................... 137
89,470 HSBC Holdings plc................................ 2,170
3,400 HSBC Holdings plc................................ 86
33,675 Imperial Chemical Industries plc................. 541
44,888 Ladbroke Group plc............................... 247
70,325 Land Securities plc.............................. 1,088
29,925 Lasmo plc........................................ 120
44,875 Legal & General Group plc........................ 479
227,075 Lloyds TSB Group plc............................. 3,180
(a)7,485 Lonrho Africa plc................................ 9
(a)7,485 Lonrho Africa plc................................ 35
130,875 Marks & Spencer plc.............................. 1,192
22,475 MEPC plc......................................... 198
52,400 National Power plc............................... 494
6,800 National Westminster Bank plc.................... 122
30,693 Peninsular & Oriental Steam Navigation Co........ 442
56,053 Pilkington plc................................... 103
74,809 Prudential Corp. plc............................. 986
34,463 Rank Group plc................................... 189
51,925 Reed International plc........................... 470
55,120 Reuters Holdings plc............................. 631
22,475 Rexam plc........................................ 98
45,035 Rio Tinto Corp. plc (Registered)................. 508
11,200 RMC Group plc.................................... 194
52,412 Royal & Sun Alliance Insurance Group plc......... 542
4,800 Royal Bank of Scotland Group plc................. 54
22,079 Royal Bank of Scotland plc....................... 383
33,640 Safeway plc...................................... 220
59,797 Sainsbury (J) plc................................ 533
11,175 Schroders plc.................................... 289
37,418 Scottish Power plc............................... 328
74,800 Sears plc........................................ 66
22,726 Sedgwick Group plc............................... 49
18,725 Slough Estates plc............................... 107
192,871 SmithKline Beecham plc........................... 2,356
18,701 Southern Electric plc............................ 169
3,900 Standard Chartered plc........................... 44
52,385 Tarmac plc....................................... 94
29,879 Taylor Woodrow plc............................... 100
71,067 Tesco plc........................................ 694
26,194 Thames Water plc................................. 477
17,463 Thorn plc........................................ 71
18,691 TI Group plc..................................... 142
2,000 Unilever N.V. - New York Shares.................. 158
107,150 Unilever plc..................................... 1,142
</TABLE>
<PAGE> 312
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<S> <C>
26,148 United Utilities plc............................. $ 381
123,417 Vodafone Group plc............................... 1,567
382,300 Wates City of London Properties plc.............. 626
33,675 Zeneca Group plc................................. 1,446
--------
53,974
--------
UNITED STATES (37.5%)
100 AAR Corp......................................... 3
12,600 Abbott Laboratories.............................. 515
(a)1,000 Access Health, Inc............................... 25
(a)1,900 AccuStaff, Inc................................... 59
(a)900 Action Performance Cos., Inc..................... 29
(a)1,300 ACX Technologies, Inc............................ 28
4,300 Adobe Systems, Inc............................... 182
(a)1,700 Advanced Fibre Communications, Inc............... 68
(a)2,400 Advanced Lighting Technologies, Inc.............. 56
6,500 Aeroquip-Vickers, Inc............................ 379
(a)1,500 Affiliated Computer Services, Inc., `A'.......... 58
1,700 A.H. Ahmanson & Co............................... 121
3,500 A.H. Belo Corp., `A'............................. 85
100 Air Express International Corp................... 3
3,200 Air Products & Chemicals, Inc.................... 128
3,000 Airborne Freight Corp............................ 105
(a)7,300 Airtouch Communications, Inc..................... 427
2,200 Albany International Corp,. `A'.................. 53
1,300 Albertson's, Inc................................. 67
500 Alcan Aluminum Ltd............................... 14
12,700 Allegheny Teledyne, Inc.......................... 291
12,000 Allied Signal, Inc............................... 532
(a)1,700 Allied Waste Industries, Inc..................... 41
2,000 Allmerica Financial Corp......................... 130
15,800 Allstate Corp.................................... 1,447
15,900 Alltel Corp...................................... 739
1,400 Alumax, Inc...................................... 65
8,500 Aluminum Co. of America.......................... 560
(a)2,300 Alza Corp., `A'.................................. 99
3,300 AMBAC Financial Group, Inc....................... 193
800 AmerUs Life Holdings, Inc. `A'................... 26
(a)3,200 AmeriCredit Corp................................. 114
(a)2,300 America West Holdings Corp., `B'................. 66
15,500 American Express Co.............................. 1,767
500 American General Corp............................ 36
6,600 American Greeting Corp., `A'..................... 336
37,300 American Home Products Corp...................... 1,930
13,000 American International Group, Inc................ 1,898
(a)1,700 American Power Conversion Corp................... 51
47,700 American Telephone & Telegraph Co................ 2,725
4,800 American Water Works, Inc........................ 149
(a)400 Amerisource Health Corp., `A'.................... 26
21,400 Ameritech Corp................................... 960
(a)2,200 Amgen, Inc....................................... 144
22,500 Amoco Corp....................................... 937
8,000 AMP, Inc......................................... 275
(a)400 Amphenol Corp, `A'............................... 16
(a)6,000 AMR Corp......................................... 499
2,400 Anadarko Petroleum Corp.......................... 161
(a)6,200 Andrew Corp...................................... 112
2,700 Anheuser-Busch Cos., Inc., `A'................... 127
(a)4,800 Anixter International, Inc....................... 91
1,200 Apache Corp...................................... 38
(a)500 Apollo Group, Inc., `A'.......................... 17
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 313
VAN KAMPEN
GLOBAL EQUITY ALLOCATION FUND
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<S> <C>
UNITED STATES (CONT.)
(a)5,300 Apple Computer, Inc.............................. $ 152
(a)1,000 Applied Graphics Technologies, Inc............... 46
(a)11,400 Applied Material, Inc............................ 336
1,900 Applied Power, Inc., `A'......................... 65
(a)59,800 Armco, Inc....................................... 381
5,300 Armstrong World Industries, Inc., `B'............ 357
1,900 Arrow International, Inc......................... 52
(a)1,400 ATMI, Inc........................................ 21
(a)1,200 Arterial Vascular Engineering, Inc............... 43
1,600 Arvin Industries, Inc............................ 58
(a)700 Aspect Development, Inc.......................... 53
(a)1,100 Aspen Technologies, Inc.......................... 56
7,296 Associates First Capital Corp., `A'.............. 561
6,900 Autodesk, Inc.................................... 267
1,500 Automatic Data Processing, Inc................... 109
(a)200 Autozone, Inc.................................... 6
4,800 Avon Products, Inc............................... 372
9,700 Baker Hughes, Inc................................ 335
22,700 Banc One Corp.................................... 1,267
400 Bandag, Inc...................................... 16
5,800 Bank of New York Co., Inc........................ 352
24,200 BankAmerica Corp................................. 2,092
12,600 BankBoston Corp.................................. 701
200 Bankers Trust New York Corp...................... 23
2,000 Banta Corp....................................... 62
2,900 Bausch & Lomb, Inc............................... 145
12,500 Baxter International, Inc........................ 673
(a)2,600 BEC Energy....................................... 108
15,600 Becton & Dickinson & Co.......................... 1,211
9,400 Bell Atlantic Corp............................... 429
24,000 BellSouth Corp................................... 1,611
6,800 Bemis Co., Inc................................... 278
(a)2,500 Berg Electronics Corp............................ 49
1,100 Bergen Brunswig Corp., `A'....................... 51
(a)2,300 Best Buy Co., Inc................................ 83
8,400 Bestfoods........................................ 488
(a)35,200 Bethlehem Steel Corp............................. 438
(a)4,600 Beverly Enterprises, Inc......................... 64
(a)1,800 Billing Concepts Corp............................ 28
2,400 Bindley Western Industries, Inc.................. 79
(a)1,100 Biogen, Inc...................................... 54
1,800 Biomet, Inc...................................... 60
(a)1,300 BISYS Group, Inc................................. 53
(a)3,400 BJ Services Co................................... 99
1,100 Black & Decker Corp.............................. 67
(a)1,100 Blyth Industries, Inc............................ 37
21,900 Boeing Co........................................ 976
(a)2,000 Borders Group, Inc............................... 74
2,000 Borg-Warner Automotive, Inc...................... 96
1,800 Boston Edison Co................................. 75
(a)1,600 Boston Scientific Corp........................... 115
1,900 Briggs & Stratton Corp........................... 71
(a)3,000 Brightpoint, Inc................................. 43
(a)5,700 Brinker International, Inc....................... 110
31,200 Bristol-Myers Squibb Co.......................... 3,586
(a)2,700 Broderbund Software, Inc......................... 62
3,400 Brown-Forman Corp., `B'.......................... 218
2,700 Brunswick Corp................................... 67
(a)1,200 Budget Group, Inc., `A'.......................... 38
</TABLE>
<PAGE> 314
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<S> <C>
(a)6,000 Buffets, Inc..................................... $ 94
(a)7,000 Burlington Industries, Inc....................... 98
8,600 Burlington Northern Railroad Co.................. 844
2,200 Burlington Resources, Inc........................ 95
1,100 C&D Technology, Inc.............................. 64
(a)1,400 CACI International, Inc., `A'.................... 29
(a)5,400 California Energy Company, Inc................... 162
(a)1,700 California Microwave, Inc........................ 30
(a)900 Cambridge Tech Partner, Inc...................... 49
6,600 Campbell Soup Co................................. 351
(a)900 Canandaigua Brands, Inc., `A'.................... 44
2,700 Capital One Financial Corp....................... 335
1,700 Cardinal Health, Inc............................. 159
4,200 Carlisle Cos., Inc............................... 181
3,700 Case Corp........................................ 179
17,200 Caterpillar, Inc................................. 909
3,600 CBS, Inc......................................... 114
(a)600 CDW Computer Centers, Inc........................ 30
(a)1,800 Cendant Corp..................................... 38
1,100 Centex Construction Products, Inc................ 42
3,000 Centex Corp...................................... 113
(a)300 Centocor, Inc.................................... 11
700 Central & South West Corp........................ 19
1,700 Central Parking Corp............................. 79
2,400 Centura Banks, Inc............................... 150
(a)1,600 Chancellor Media Corp., `A'...................... 79
35,000 Chase Manhattan Corp............................. 2,642
22,000 Chevron Corp..................................... 1,827
37,000 Chrysler Corp.................................... 2,086
(a)2,700 CHS Electronics, Inc............................. 48
6,700 Chubb Corp....................................... 539
(a)1,400 CIBER, Inc....................................... 53
10,200 CIGNA Corp....................................... 704
9,800 Cincinnati Milacron, Inc......................... 238
300 Cincinnati Financial Corp........................ 12
10,700 Cinergy Corp..................................... 374
3,200 Cintas Corp...................................... 163
1,000 Circuit City Stores-Circuit City Group........... 47
(a)13,300 Cisco Systems, Inc............................... 1,224
(a)2,100 Citation Corp.................................... 42
13,200 Citicorp......................................... 1,970
(a)1,000 Citrix Systems, Inc.............................. 68
700 CKE Restaurants, Inc............................. 29
(a)500 Clear Channel Communications, Inc................ 55
2,000 Clorox Co........................................ 191
700 CMAC Investment Corp............................. 43
5,000 Coastal Corp..................................... 349
59,600 Coca-Cola Co..................................... 5,096
2,600 Colgate Palmolive Co............................. 229
(a)4,600 Coltec Industries, Inc........................... 91
5,550 Columbia Energy Group............................ 309
7,000 Columbia HCA/Healthcare Corp..................... 204
1,100 Comair Holdings, Inc............................. 34
10,800 Comdisco, Inc.................................... 205
3,000 Comerica, Inc.................................... 199
2,100 Commercial Federal Corp.......................... 66
1,000 Commercial Metals Co............................. 31
(a)1,700 CompUSA, Inc..................................... 31
42,417 Compaq Computer Corp............................. 1,204
17,300 Computer Associates International, Inc........... 961
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 315
VAN KAMPEN
GLOBAL EQUITY ALLOCATION FUND
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<S> <C>
UNITED STATES (CONT.)
2,300 Computer Sciences Corp........................... $ 147
(a)2,700 Comverse Technology, Inc......................... 140
(a)1,900 Concord EFS, Inc................................. 50
1,500 Conseco, Inc..................................... 70
4,700 Consolidated, Inc................................ 128
(a)1,100 Consolidated Graphics, Inc....................... 65
(a)300 Consolidated Stores Corp......................... 11
5,100 Cooper Industries, Inc........................... 280
1,400 Cordant Technologies, Inc........................ 65
1,300 Corning, Inc..................................... 45
(a)1,400 Cort Business Services Corp...................... 44
(a)2,800 Costco Cos., Inc................................. 177
3,800 Countrywide Credit Industries, Inc............... 193
1,300 C.R. Bard, Inc................................... 50
1,700 Crompton & Knowles Corp.......................... 43
2,000 Crown Cork & Seal, Inc........................... 95
3,100 CSX Corp......................................... 141
1,100 Cullen/Frost Bankers, Inc........................ 60
300 Cummins Engine................................... 15
1,600 CVS Corp......................................... 62
(a)2,000 Cytec Industries, Inc............................ 88
1,100 Dallas Semiconductor Corp........................ 34
4,900 Dana Corp........................................ 262
800 Danaher Corp..................................... 29
12,000 Darden Restaurants, Inc.......................... 190
12,000 Dayton Hudson Corp............................... 582
1,600 Dean Foods Co.................................... 88
20,400 Deere & Co....................................... 1,079
3,400 Del Webb Corp.................................... 88
(a)10,900 Dell Computer Corp............................... 1,012
(a)1,326 Delphi Financial Group, Inc., `A'................ 75
4,000 Delta Airlines, Inc.............................. 517
15,400 Deluxe Corp...................................... 552
400 Diebold, Inc..................................... 12
1,600 Digital Microwave Corp........................... 12
1,300 Dillards, Inc. `A'............................... 54
12,800 Dime Bancorp, Inc................................ 383
(a)1,650 Dollar Tree Stores, Inc.......................... 67
7,000 Dominion Resources, Inc.......................... 285
4,800 Dow Jones & Co., Inc............................. 268
18,200 DPL, Inc......................................... 330
3,800 D.R. Horton, Inc................................. 79
(a)2,500 Dress Barn, Inc.................................. 62
12,700 Dresser Industries, Inc.......................... 560
(a)1,700 DST Systems, Inc................................. 95
25,500 Du Pont (EI) de Nemours Co....................... 1,903
(a)1,100 DuPont Photomasks, Inc........................... 38
5,200 Duke Power Co.................................... 308
11,600 Dun & Bradstreet Corp............................ 419
(a)1,000 Dura Pharmaceuticals, Inc........................ 22
4,900 Eastern Enterprises.............................. 210
800 Eastman Chemical Co.............................. 50
2,600 Eastman Kodak Co................................. 190
200 Eaton Corp....................................... 16
3,300 Ecolab, Inc...................................... 102
9,900 Edison International............................. 293
2,400 Electronics for Imaging, Inc..................... 130
19,800 Eli Lilly & Co................................... 1,308
(a)18,100 EMC Corp......................................... 811
</TABLE>
<PAGE> 316
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<S> <C>
8,400 Emerson Electric Co.............................. $ 507
1,700 Energen Corp..................................... 34
2,500 Energy East Corp................................. 104
8,600 Engelhard Corp................................... 174
6,000 Enron Corp....................................... 324
8,800 Entergy Corp..................................... 253
(a)900 Etec Systems, Inc................................ 32
2,700 Ethan Allen Interiors, Inc....................... 135
(a)900 Extended Stay America, Inc....................... 10
15,600 Exxon Corp....................................... 1,112
(a)1,255 EVI Weatherford, Inc............................. 47
1,500 E.W. Blanch Holdings, Inc........................ 55
(a)2,500 Fairfield Communities, Inc....................... 48
9,800 Family Dollar Stores, Inc........................ 181
20,900 Fannie Mae....................................... 1,270
(a)1,500 FDX Corp......................................... 94
(a)900 Federated Department Stores...................... 48
3,200 Fingerhut Cos., Inc.............................. 106
3,100 FINOVA Group, Inc................................ 176
1,100 First Chicago NBD Corp........................... 97
1,800 First Colorado Bancorp, Inc...................... 50
300 First Commercial Corp............................ 21
1,900 First Security Corp.............................. 41
32,900 First Union Corp. (N.C.)......................... 1,916
(a)1,400 FirstFed Financial Corp.......................... 73
3,900 FirstEnergy Corp................................. 120
10,700 Fleet Financial Group, Inc....................... 893
1,400 Fleetwood Enterprises, Inc....................... 56
6,400 Florida Progress Corp............................ 263
4,500 Flowers Industries, Inc.......................... 92
1,400 Flowserve Corp................................... 34
6,600 Fluor Corp....................................... 337
(a)3,100 Foodmaker, Inc................................... 52
(a)3,500 FORE Systems, Inc................................ 93
27,500 Ford Motor Co.................................... 1,623
(a)1,200 Forest Laboratories, Inc. `A'.................... 43
5,800 Fort James Corp.................................. 258
12,800 Fortune Brands, Inc.............................. 492
11,200 Foster Wheeler Corp.............................. 240
10,400 FPL Group, Inc................................... 655
300 Franklin Resources, Inc.......................... 16
(a)900 Fred Meyer, Inc.................................. 38
11,100 Freddie Mac...................................... 522
8,500 Freeport McMoran Copper Corp., `B'............... 129
800 Fremont General Corp............................. 43
(a)2,400 Fruit of the Loom................................ 80
(a)2,100 Furniture Brands International, Inc.............. 59
12,300 Gannett Co., Inc................................. 874
7,200 Gap, Inc......................................... 444
(a)1,800 Gateway 2000, Inc................................ 91
2,800 General Cable Corp............................... 81
(a)2,000 General Cigar Holdings, Inc...................... 20
1,600 General Dynamics Corp............................ 74
63,400 General Electric Co.............................. 5,769
500 General Mills, Inc............................... 34
10,700 General Motors Corp.............................. 715
(a)1,700 General Nutrition Cos., Inc...................... 53
2,300 General RE Corp.................................. 583
1,500 General Signal Corp.............................. 54
(a)1,300 Genesis Health Ventures, Inc..................... 33
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 317
VAN KAMPEN
GLOBAL EQUITY ALLOCATION FUND
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<S> <C>
UNITED STATES (CONT.)
(a)3,800 Gentex Corp...................................... $ 69
2,000 Genzyme Corp..................................... 51
3,500 Georgia Gulf Corp................................ 80
1,100 Georgia-Pacific Corp............................. 65
12,300 Gillette Co...................................... 697
3,200 Gleason Corp..................................... 90
(a)1,600 Golden State Bancorp, Inc........................ 48
500 Golden West Financial Corp....................... 53
21,100 Goodrich (B.F.) Co............................... 1,047
(a)1,300 Goody's Family Clothing, Inc..................... 71
4,200 Goodyear Tire & Rubber Co........................ 271
13,500 GPU, Inc......................................... 510
1,400 Graco, Inc....................................... 49
1,200 Great Lakes Chemical Corp........................ 47
32,900 GTE Corp......................................... 1,830
2,100 Guidant Corp..................................... 150
2,500 Guilford Mills, Inc.............................. 50
(a)1,000 Ha-Lo Industries, Inc............................ 31
12,200 Halliburton Co................................... 544
3,100 Hannaford Brothers Co............................ 136
(a)700 Harrah's Entertainment, Inc...................... 16
11,100 Harris Corp...................................... 496
5,900 Harte-Hanks Communications, Inc.................. 152
11,700 Hartford Financial Services Group................ 1,338
600 Hartford Life, Inc. `A'.......................... 34
2,400 HBO & Co......................................... 85
(a)1,800 Heartland Express, Inc........................... 36
8,200 Helmerich & Payne, Inc........................... 182
10,500 Hercules, Inc.................................... 432
4,200 Herman Miller, Inc............................... 102
5,300 Hershey Foods Corp............................... 366
1,000 Hertz Corp. `A'.................................. 44
26,500 Hewlett-Packard Co............................... 1,587
3,300 Hibernia Corp., `A'.............................. 67
5,400 Hilton Hotels Corp............................... 154
25,700 Home Depot, Inc.................................. 2,135
100 Honeywell, Inc................................... 8
800 Household International, Inc,.................... 40
4,300 Houston Industries, Inc.......................... 133
1,200 Hubco, Inc....................................... 43
4,800 Huntington Bancshares, Inc....................... 161
(a)1,100 Hyperion Software Corp........................... 31
2,200 IKON Office Solutions, Inc....................... 32
(a)1,000 Imation Corp..................................... 17
4,100 Impac Mortgage Holdings, Inc..................... 64
2,300 Inland Steel Industries, Inc..................... 65
4,700 INMC Mortgage Holdings, Inc...................... 107
(a)1,900 Input/Output, Inc................................ 34
37,900 Intel Corp....................................... 2,809
4,200 Interface, Inc................................... 85
(a)3,300 Interim Services, Inc............................ 106
22,800 International Business Machines Corp............. 2,618
(a)700 International Network Services................... 29
9,600 Interpublic Group of Cos., Inc................... 583
1,300 Interstate Bakeries Corp......................... 43
(a)2,000 Intuit, Inc...................................... 122
4,300 IPALCO Enterprises, Inc.......................... 191
4,700 ITT Industries, Inc.............................. 176
8,500 J.C. Penney Co., Inc............................. 615
</TABLE>
<PAGE> 318
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<S> <C>
2,100 Jefferson-Pilot Corp............................. $ 122
34,500 John H. Harland Co............................... 584
37,600 Johnson & Johnson................................ 2,773
11,400 Johnson Controls, Inc............................ 652
(a)4,200 Jones Apparel Group, Inc......................... 154
22,500 Jostens, Inc..................................... 537
2,000 Kansas City Southern Industries, Inc............. 99
4,000 Kaufman and Broad Home Corp...................... 127
1,800 Kaydon Corp...................................... 64
(a)1,100 Keane, Inc....................................... 62
800 Kerr-McGee Corp.................................. 46
19,600 KeyCorp.......................................... 698
13,100 Kimberly-Clark Corp.............................. 601
(a)5,200 King World Productions, Inc...................... 133
(a)100 KLA-Tencor Corp.................................. 3
(a)4,900 Kmart Corp....................................... 94
8,500 Knight Ridder, Inc............................... 468
5,300 Kuhlman Corp..................................... 210
1,700 La Quinta Inns, Inc.............................. 36
(a)1,800 Legato Systems, Inc.............................. 70
4,700 Lehman Brothers Holdings, Inc.................... 365
4,200 Lennar Corp...................................... 124
(a)1,400 Level One Communications, Inc.................... 33
(a)2,800 Lexmark International Group, Inc................. 171
(a)2,300 Linens `n Things, Inc............................ 70
(a)500 Litton Industries, Inc........................... 29
5,800 Lockheed Martin Corp............................. 614
3,200 Longs Drug Stores, Inc........................... 92
7,400 Lowe's Cos., Inc................................. 300
(a)1,400 LSI Logic Corp................................... 32
8,100 LTV Corp......................................... 77
1,800 Lubrizol Corp.................................... 54
21,000 Lucent Technologies, Inc......................... 1,747
4,200 Lyondell Petrochemical Co........................ 128
1,000 Magna Group, Inc................................. 56
6,000 Mallinckrodt, Inc................................ 178
20,600 Manor Care, Inc.................................. 792
2,550 Marsh & McLennan Cos., Inc....................... 154
400 Martin Marietta Corp............................. 18
3,300 MascoTech, Inc................................... 79
900 Mattel, Inc...................................... 38
3,800 May Department Stores Co......................... 249
8,300 Maytag Corp...................................... 410
6,200 MBIA, Inc........................................ 464
2,200 MBNA Corp........................................ 73
900 McClatchy Newspapers, Inc........................ 31
6,600 McDermott International, Inc..................... 227
32,800 McDonald's Corp.................................. 2,263
6,900 McGraw-Hill Cos., Inc............................ 563
2,500 MCI Communications Corp.......................... 145
4,200 MCN Corp......................................... 104
2,100 MDU Resources Group.............................. 75
6,100 Mead Corp........................................ 194
(a)3,000 Medquist, Inc.................................... 87
6,900 Medtronic, Inc................................... 440
2,000 Mellon Bank Corp................................. 139
300 Mercantile Stores Co., Inc....................... 24
22,000 Merck & Co., Inc................................. 2,942
7,000 Mercury General Corp............................. 451
5,500 Meredith Corp.................................... 258
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 319
VAN KAMPEN
GLOBAL EQUITY ALLOCATION FUND
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<S> <C>
UNITED STATES (CONT.)
2,366 Meritor Automotive, Inc.......................... $ 57
14,000 Merrill Lynch & Co., Inc......................... 1,291
1,200 Metris Cos., Inc................................. 76
(a)62,400 Microsoft Corp................................... 6,763
1 Midas, Inc....................................... --
(a)1,500 Midway Games, Inc................................ 23
(a)2,350 Midwest Express Holdings......................... 85
3,000 Millenium Chemicals, Inc......................... 102
4,300 Minnesota Mining & Manufacturing Co.............. 353
19,300 Mobil Corp....................................... 1,479
7,900 Monsanto......................................... 441
8,500 Montana Power Co................................. 295
7,600 Motorola, Inc.................................... 399
4,700 Mylan Laboratories, Inc.......................... 141
(a)3,100 Nabors Industries, Inc........................... 61
10,200 National City Corp............................... 724
5,500 National Commerce Bancorp........................ 230
1,000 National Data Corp............................... 44
2,200 National Service Industries, Inc................. 112
28,300 NationsBank Corp................................. 2,165
1,800 Nationwide Financial Services, Inc., Class A..... 92
(a)2,400 Nautica Enterprises, Inc......................... 64
(a)13,800 Navistar International Corp...................... 398
(a)1,200 NBTY, Inc........................................ 22
(a)1,600 Neiman Marcus Group, Inc......................... 69
2,200 New Century Energies, Inc........................ 100
700 New York State Electric & Gas Corp............... 29
3,100 New York Times Co., `A'.......................... 246
1,100 Newell Co........................................ 55
5,400 Newmont Mining Corp.............................. 128
(a)4,500 Newpark Resources, Inc........................... 50
800 Newport News Shipbuilding, Inc................... 21
1,800 Nicor, Inc....................................... 72
(a)1,800 Nine West Group, Inc............................. 48
6,800 Nipsco Industries, Inc........................... 190
(a)3,000 Noble Drilling Corp.............................. 72
400 Nordstrom, Inc................................... 31
8,800 Northern Telecom Ltd............................. 499
1,300 Northrop Grumman Corp............................ 134
6,100 Norwest Corp..................................... 228
(a)6,800 Novacare Corp.................................... 80
(a)10,900 Novell, Inc...................................... 139
(a)1,000 Nu Skin Enterprises, Inc......................... 20
1,900 Nucor Corp....................................... 87
8,400 Occidental Petroleum Corp........................ 227
(a)1,700 Ocean Energy, Inc................................ 33
(a)4,900 Office Depot, Inc................................ 155
(a)3,400 OfficeMax, Inc................................... 56
2,520 Old Kent Financial Corp.......................... 91
7,050 Old Republic International Corp.................. 207
2,400 Olin Corp........................................ 100
800 Omnicon Group, Inc............................... 40
(a)18,400 Oracle System Corp............................... 452
(a)1,100 Orbital Sciences Corp............................ 41
(a)100 O'Reilly Automotive, Inc......................... 4
2,700 Orion Capital Corp............................... 151
(a)1,900 Owens-Illinois, Inc.............................. 85
2,600 PACCAR, Inc...................................... 136
800 PacifiCorp....................................... 18
</TABLE>
<PAGE> 320
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<S> <C>
(a)600 Palm Harbor Homes, Inc........................... $ 26
(a)300 Parametric Technology Co......................... 8
670 Patriot American Hospitality, Inc. REIT.......... 16
(a)4,900 Patterson Energy, Inc............................ 48
(a)1,100 Payless ShoeSource, Inc.......................... 81
53,200 Peco Energy Co................................... 1,553
9,500 Pennzoil Co...................................... 481
1,200 Peoples Energy Corp.............................. 46
30,700 PepsiCo, Inc..................................... 1,264
2,300 Perkin-Elmer Corp................................ 143
37,400 Pfizer, Inc...................................... 4,065
3,400 PG&E Corp........................................ 107
1,300 Pharmacia & Upjohn, Inc.......................... 60
91,900 Philip Morris Cos., Inc.......................... 3,619
3,400 Phillips-Van Heusen Corp......................... 50
2,700 Pier 1 Imports, Inc.............................. 64
9,600 Pinnacle West Capital Corp....................... 432
(a)1,700 Platinum Technology, Inc......................... 49
(a)1,100 PMC-Sierra, Inc.................................. 52
2,700 Polaroid Corp.................................... 96
(a)1,600 Policy Management Systems Corp................... 63
7,200 PP&L Resources, Inc.............................. 163
(a)1,900 Premiere Technologies, Inc....................... 16
(a)700 Primark Corp..................................... 22
(a)5,200 Prime Hospitality Corp........................... 91
45,500 Procter & Gamble Co.............................. 4,143
(a)1,700 Profitt's Inc.................................... 69
300 Progressive Corp................................. 42
(a)2,690 Promus Company, Inc.............................. 104
2,100 Protective Life Corp............................. 77
2,100 Provident Companies, Inc......................... 72
3,800 Providian Financial Corp......................... 299
3,800 Public Service Co. of New Mexico................. 86
10,000 Public Service Enterprise Group, Inc............. 344
8,800 Pulte Corp....................................... 263
(a)3,100 Quintiles Transnational Corp..................... 152
(a)3,000 Quorum Health Group, Inc......................... 80
(a)3,400 R & B Falcon Corp................................ 77
3,400 Ralston-Ralston Purina Group..................... 397
12,400 Raychem Corp..................................... 367
3,800 Rayonier, Inc.................................... 175
5,300 Raytheon Co., `B'................................ 313
3,700 Readers Digest Association, Inc., `A'............ 100
(a)3,800 Reebok International Ltd......................... 105
3,700 Regis Corp....................................... 109
8,600 Reliastar Financial Corp......................... 413
5,800 Republic New York Corp........................... 365
2,100 Resource Bancshares Mortgage Group, Inc.......... 39
(a)800 Rexall Sundown, Inc.............................. 28
3,100 Reynolds & Reynolds Co. `A'...................... 56
(a)3,200 Rio Hotel & Casino, Inc.......................... 60
(a)2,900 Robert Half International, Inc................... 162
4,100 Rochester Gas & Electric Corp.................... 131
4,700 Rockwell International Corp...................... 226
2,700 Rohm & Haas Co................................... 281
3,700 Rollins Truck Leasing Corp....................... 46
(a)2,300 Romac International, Inc......................... 70
2,200 Roper Industries, Inc............................ 57
2,000 Ross Stores, Inc................................. 86
(a)5,400 Rowan Cos., Inc.................................. 105
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 321
VAN KAMPEN
GLOBAL EQUITY ALLOCATION FUND
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<S> <C>
UNITED STATES (CONT.)
3,400 Rubbermaid, Inc.................................. $ 113
2,700 Ruby Tuesday, Inc................................ 42
(a)1,300 Rural/Metro Corp................................. 17
2,000 Russell Corp..................................... 60
1,900 Ryder Systems, Inc............................... 60
1,700 Ryland Group, Inc................................ 45
4,200 SAFECO Corp...................................... 191
(a)900 Sapient Corp..................................... 47
20,300 Sara Lee Corp.................................... 1,136
20,398 SBC Communications, Inc.......................... 816
5,500 Schering-Plough Corp............................. 504
4,600 Schlumberger Ltd................................. 314
200 Schwab (Charles) Corp............................ 7
5,600 Scientific-Atlanta, Inc.......................... 142
(a)1,000 Seagate Technology, Inc.......................... 24
(a)1,200 Sealed Air Corp.................................. 44
15,400 Sears, Roebuck & Co.............................. 940
(a)7,368 Sempra Energy.................................... 204
2,100 Service Corp. International...................... 90
2,100 Shared Medical Systems Corp...................... 154
(a)1,600 Showbiz Pizza Time, Inc.......................... 65
(a)2,000 Siebel Systems, Inc.............................. 65
(a)4,000 Silicon Valley Bancshares........................ 142
(a)1,100 Smith International, Inc......................... 38
2,700 Snap-On, Inc..................................... 98
(a)800 Snyder Communications, Inc....................... 35
(a)900 Sofamor Danek Group, Inc......................... 78
(a)4,350 Sonic Corp....................................... 97
4,750 Sonoco Products Co............................... 144
2,500 Sotheby's Holdings, Inc. `A'..................... 56
21,800 Southern Co...................................... 604
3,200 Southern New England Telecommunications Corp..... 210
800 Southwest Airlines Co............................ 24
300 Springs Industries, Inc. `A'..................... 14
3,900 Sprint Corp...................................... 275
(a)300 SPX Corp......................................... 19
3,966 St. Paul Cos., Inc............................... 167
1,400 St. John Knits, Inc.............................. 54
(a)1,100 St. Jude Medical, Inc............................ 41
(a)1,900 Staffmark, Inc................................... 70
(a)900 Starbucks Corp................................... 48
1,300 State Auto Financial Corp........................ 41
1,300 StateStreet Corp................................. 90
(a)3,100 Station Casinos, Inc............................. 46
(a)900 Steris Corp...................................... 57
(a)1,400 Sterling Commerce, Inc........................... 68
(a)3,200 Sterling Software, Inc........................... 95
2,900 Stewart Enterprises, Inc. `A'.................... 77
(a)1,200 Storage Technology Corp.......................... 52
(a)900 Stratus Computer, Inc............................ 23
(a)1,200 Suburban Lodges of America....................... 18
(a)500 Suiza Foods Corp................................. 30
28,800 Sun Co., Inc..................................... 1,118
(a)15,400 Sun Microsystems, Inc............................ 669
12,000 SunAmerica, Inc.................................. 689
4,600 Suntrust Banks, Inc.............................. 374
13,700 SUPERVALU Inc.................................... 608
2,400 Superior Industries International................ 68
</TABLE>
<PAGE> 322
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<S> <C>
1,700 Superior TeleCom, Inc............................ $ 71
(a)2,000 Sybron International Corp........................ 51
(a)3,800 Symantec Corp.................................... 99
1,300 Symbol Technologies, Inc......................... 49
(a)1,700 Synopsys, Inc.................................... 78
(a)2,800 Systems & Computer Technology Corp............... 76
700 Tandy Corp....................................... 37
1,400 TCA Cable TV, Inc................................ 84
(a)1,000 Tech Data Corp................................... 43
6,600 Tektronix, Inc................................... 233
(a)200 Tele-Communications, Inc., `A'................... 8
(a)11,132 Tele-Communications-TCI Ventures Group `A'....... 223
(a)900 Tellabs, Inc..................................... 64
2,400 Telxon Corp...................................... 78
(a)400 Tenet Healthcare Corp............................ 13
4,500 Tenneco, Inc..................................... 171
5,200 Texaco, Inc...................................... 310
9,200 Texas Instruments, Inc........................... 536
10,900 Texas Utilities Co............................... 454
5,400 Textron, Inc..................................... 387
(a)1,750 The Buckle, Inc.................................. 52
900 Thiokol Corp..................................... 42
11,000 Thomas & Betts Corp.............................. 542
(a)200 3Com Corp........................................ 6
(a)2,800 360 Communications Co............................ 90
1,300 Tidewater, Inc................................... 43
1,800 Tiffany & Co..................................... 86
4,700 TIG Holdings, Inc................................ 108
3,800 Time Warner, Inc................................. 325
5,200 Timken Co........................................ 160
16,200 TJX Companies, Inc............................... 391
10,000 Torchmark Corp................................... 458
(a)1,300 Total Renal Care Holdings, Inc................... 45
(a)500 Toys `R' Us, Inc................................. 12
3,800 Trans Financial, Inc............................. 218
(a)900 Transactions Systems Architects, Inc............. 35
900 Transatlantic Holdings, Inc...................... 70
32,100 Travelers, Inc................................... 1,946
(a)1,500 Triad Guaranty, Inc.............................. 51
100 Tribune Co....................................... 7
(a)400 Tricon Global Restaurants, Inc................... 13
(a)1,900 Trigon Healthcare, Inc........................... 69
5,100 Trinity Industries, Inc.......................... 212
(a)1,100 Triumph Group, Inc............................... 46
7,600 Trustmark Corp................................... 167
5,100 TRW, Inc......................................... 279
3,000 Tupperware Corp.................................. 84
22,800 Tyco International Ltd........................... 1,436
11,400 Unicom Corp...................................... 400
3,700 Union Carbide Corp............................... 197
3,500 Union Pacific Corp............................... 154
800 Union Pacific Resources Group, Inc............... 14
(a)1,300 Uniphase Corp.................................... 82
(a)8,600 Unisys Corp...................................... 243
6,100 United Asset Management Co....................... 159
2,200 United Illuminating Co........................... 111
(a)1,100 United Stationers, Inc........................... 71
14,800 United Technologies Corp......................... 1,369
3,000 Universal Foods Corp............................. 67
(a)2,300 Universal Health Services, Inc................... 134
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 323
VAN KAMPEN
GLOBAL EQUITY ALLOCATION FUND
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<S> <C>
UNITED STATES (CONT.)
(a)900 U.S. Airways Group, Inc.......................... $ 71
5,200 U.S. Bancorp..................................... 224
(a)300 U.S. Filter Corp................................. 8
(a)300 U.S. Foodservice, Inc............................ 11
1,700 U.S. Freightways Corp............................ 56
1,000 U.S. Industries, Inc............................. 25
4,200 U.S. Surgical Corp............................... 192
(a)11,200 U.S. West Communications Group................... 526
1,900 U.S. West Media Group............................ 83
2,600 USG Corp......................................... 141
23,300 UST, Inc......................................... 629
18,900 USX-Marathon Group............................... 649
31,400 USX-U.S. Steel Group, Inc........................ 1,036
4,400 UtliCorp United, Inc............................. 166
2,100 Valspar Corp..................................... 83
(a)3,200 Varco International, Inc......................... 63
(a)1,300 Vencor, Inc...................................... 9
2,000 Ventas, Inc...................................... 28
(a)600 Veritas DGC, Inc................................. 30
(a)3,600 Viacom, Inc., Class B............................ 210
(a)3,600 Viking Office Products, Inc...................... 113
(a)600 Visio Corp....................................... 29
(a)1,900 Vitesse Semiconductor............................ 59
(a)480 Vlasic Foods International, Inc.................. 10
1,900 Vulcan Materials Co.............................. 203
2,500 Wabash National Corp............................. 64
51,600 Wal-Mart Stores, Inc............................. 3,135
1,100 Walgreen Co...................................... 45
15,200 Walt Disney Co................................... 1,597
11,400 Warner-Lambert Co................................ 791
2,600 Washington Gas Light Co.......................... 70
10,500 Washington Mutual, Inc........................... 456
(a)1,900 Waters Corp...................................... 112
(a)1,700 Watson Pharmaceuticals, Inc...................... 79
5,400 Webster Financial Corp........................... 180
4,000 Wendy's International, Inc....................... 94
(a)2,700 Western Digital Corp............................. 32
(a)1,500 Westpoint Stevens, Inc........................... 50
3,900 Weyerhaeuser Co.................................. 180
3,500 Whitman Corp..................................... 80
(a)700 Whole Foods Market, Inc.......................... 42
2,800 Wicor, Inc....................................... 65
2,100 Williams Cos., Inc............................... 71
(a)500 Williams-Sonoma, Inc............................. 16
1,200 Wolverine World Wide, Inc........................ 26
(a)6,900 Woolworth Corp................................... 132
(a)8,300 Worldcom, Inc.................................... 402
(a)800 World Access, Inc................................ 24
3,600 Worthington Industries, Inc...................... 54
(a)8,400 W.R. Grace & Co.................................. 143
9,900 Xerox Corp....................................... 1,006
(a)600 Yahoo!, Inc...................................... 95
3,100 York International Corp.......................... 135
(a)4,300 Zale Corp........................................ 137
--------
223,557
--------
TOTAL COMMON STOCKS (COST $396,708)............................. 477,545
--------
</TABLE>
<PAGE> 324
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<S> <C>
PREFERRED STOCKS (0.3%)
AUSTRIA ( 0.1%)
(a)5,528 Bank Austria AG.................................. $ 449
(a)300 Bank Austria AG.................................. 14
(a)200 EA-Generali AG................................... 40
--------
503
--------
GERMANY (0.2%)
(a)1,076 SAP AG-Vorzug.................................... 732
(a)150 Volkswagen AG.................................... 102
--------
834
--------
ITALY (0.0%)
(a)81,550 Fiat S.p.A. (Privilegiate)....................... 203
--------
TOTAL PREFERRED STOCKS (COST $622).............................. 1,540
--------
INVESTMENT COMPANIES (0.9%)
UNITED STATES (0.9%)
(g)381,900 Latin American Discovery Fund, Inc............... 3,628
(g)70,000 Morgan Stanley Africa Investment Fund, Inc....... 831
(g)124,800 Morgan Stanley Asia-Pacific Fund, Inc............ 803
--------
TOTAL INVESTMENT COMPANIES (COST $8,048)........................ 5,262
--------
NO. OF
RIGHTS
- ------------
RIGHTS (0.0%)
GERMANY (0.0%)
(a)9,200 Daimler-Benz AG.................................. 10
(a)5,557 Metro AG, expiring 7/24/98....................... --
--------
10
--------
PORTUGAL (0.0%)
(a)10,100 Banco Espirito Santo............................. 64
(a)7,100 Banco Espirito Santo (Registered)................ 5
--------
69
--------
SPAIN (0.0%)
(a)8,610 Autopistas Concesionaria Espanola S.A., expiring
7/10/98........................................ --
--------
SWITZERLAND (0.0%)
(a)3,850 Adecco S.A., expiring 7/15/98.................... --
--------
TOTAL RIGHTS (COST $0).......................................... 79
--------
NO. OF
WARRANTS
- ------------
WARRANTS (0.0%)
FRANCE (0.0%)
(a)5,623 Cie Generale des Eaux, expiring 5/2/01........... 11
(a)5 Sodexho S.A., expiring 6/7/04.................... 2
--------
13
--------
HONG KONG (0.0%)
(a)8,950 Hong Kong and China Gas Co., Ltd., expiring
9/30/99........................................ 1
(a)8,400 Hysan Development Co., Ltd., expiring 4/30/99.... --
--------
1
--------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 325
VAN KAMPEN
GLOBAL EQUITY ALLOCATION FUND
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
<TABLE>
<CAPTION>
NO. OF VALUE
WARRANTS (000)
- --------------------------------------------------------------------------
<S> <C>
ITALY (0.0%)
(a)2,891 La Rinascente S.p.A., expiring 12/31/99.......... $ 6
(a)913 La Rinascente S.p.A., expiring 12/31/99.......... 1
(a)7,210 Mediobanca S.p.A................................. 34
--------
41
--------
TOTAL WARRANTS (COST $0)........................................ 55
--------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------------------
<S> <C>
CONVERTIBLE DEBENTURES (0.0%)
FRANCE (0.0%)
FRF 32 Casino Guichard Perrachon 4.50%, 7/12/01......... 26
29 Sanofi S.A. 4.00%, 1/1/00........................ 39
53 Simco S.A. 3.25%, 1/1/06......................... 52
25 Sodexho S.A. 6.00%, 6/7/04....................... 4
--------
121
--------
ITALY (0.0%)
ITL 18,504 Mediobanca S.p.A. 4.50%, 1/1/00.................. 10
--------
PORTUGAL (0.0%)
$ 3,403 Jeronimo Martins................................. 20
--------
TOTAL CONVERTIBLE DEBENTURES (COST $72)......................... 151
--------
TOTAL FOREIGN & U.S. SECURITIES (81.3%) (COST $405,450)......... 484,632
--------
SHORT-TERM INVESTMENT (21.0%)
REPURCHASE AGREEMENT (21.0%)
125,328 Chase Securities, Inc., 5.40%, dated 6/30/98, due
7/1/98, to be repurchased at $125,347,
collateralized by $95,580 U.S. Treasury Bonds,
10.75%, due 8/15/05, valued at $128,255 (COST
$125,328)...................................... 125,328
--------
TOTAL INVESTMENT IN SECURITIES (102.3%) (COST $530,778)......... 609,960
--------
</TABLE>
<PAGE> 326
<TABLE>
<CAPTION>
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------------------
<S> <C>
FOREIGN CURRENCY (0.3%)
AUD 2 Australian Dollar................................ $ 1
ATS 231 Austrian Schilling............................... 18
GBP 1 British Pound.................................... 2
CAD 28 Canadian Dollar.................................. 19
FRF 1,844 French Franc..................................... 305
DEM 41 German Mark...................................... 23
HKD 127 Hong Kong Dollar................................. 17
HUF 1,105 Hungarian Forint................................. 5
ITL 1,599,098 Italian Lira..................................... 900
JPY 8,624 Japanese Yen..................................... 62
NOK 101 Norwegian Krone.................................. 13
PTE 65 Portuguese Escudo................................ 1
KRW 73 South Korean Won................................. --
ESP 186 Spanish Peseta................................... 1
SEK 1,099 Swedish Krona.................................... 138
CHF 9 Swiss Franc...................................... 6
THB 1,370 Thai Baht........................................ 32
--------
TOTAL FOREIGN CURRENCY (COST $1,554)............................ 1,543
--------
TOTAL INVESTMENTS (102.6%) (COST $532,332)...................... 611,503
LIABILITIES IN EXCESS OF OTHER ASSETS (-2.6%)................... (15,423)
--------
NET ASSETS (100%)............................................... $596,080
========
</TABLE>
- ---------------
(a) -- Non-income producing security
(g) -- The Fund is advised by an affiliate which earns a management fee as
advisor to the Fund.
ADR -- American Depositary Receipt
NCS -- Non Convertible Shares
REIT -- Real Estate Investment Trust
The accompanying notes are an integral part of the financial statements.
<PAGE> 327
VAN KAMPEN
GLOBAL EQUITY ALLOCATION FUND
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
- --------------------------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE INFORMATION:
Under the terms of foreign currency contracts open at June 30, 1998, the
Portfolio is obligated to deliver or is to receive foreign currency in exchange
for U.S. dollars as indicated below:
<TABLE>
<CAPTION>
CURRENCY IN EXCHANGE
TO DELIVER VALUE SETTLEMENT FOR VALUE NET UNREALIZED
(000) (000) DATE (000) (000) GAIN (LOSS) (000)
- ------------- --------- ----------- --------------- --------- -----------------
<S> <C> <C> <C> <C> <C>
$ 133 $ 133 7/1/98 ITL 235,733 $ 132 $ (1)
$ 100 100 7/1/98 NLG 204 100 --
$ 448 448 7/1/98 SEK 3,573 448 --
$ 21 21 7/1/98 GBP 13 21 --
$ 81 81 7/2/98 GBP 49 81 --
JPY 8,664 63 7/2/98 $ 63 63 --
$ 54 54 7/2/98 NLG 110 54 --
$ 160 160 7/3/98 ITL 286,262 161 1
$ 116 116 7/3/98 GBP 69 116 --
$ 11 11 7/6/98 GBP 7 11 --
$ 84 84 7/6/98 GBP 51 84 --
$ 2,379 2,379 7/9/98 DEM 4,266 2,366 (13)
$ 2,374 2,374 7/9/98 DEM 4,174 2,316 (58)
$ 12,903 12,903 7/9/98 DEM 22,924 12,718 (185)
DEM 1,046 580 7/9/98 $ 572 572 (8)
DEM 22,924 12,718 7/9/98 $ 12,892 12,892 174
$ 5,906 5,906 7/15/98 ITL 10,412,222 5,861 (45)
$ 5,205 5,205 7/15/98 ITL 9,216,913 5,188 (17)
ITL 1,252,034 705 7/15/98 $ 696 696 (9)
ITL 1,995,313 1,123 7/15/98 $ 1,109 1,109 (14)
$ 258 258 7/29/98 GBP 157 262 4
$ 11,855 11,855 7/29/98 GBP 7,108 11,852 (3)
GBP 7,108 11,852 7/29/98 $ 11,596 11,596 (256)
$ 553 553 7/31/98 FRF 3,351 555 2
$ 2,526 2,526 8/4/98 MYR 10,391 2,463 (63)
MYR 4,297 1,019 8/4/98 $ 953 953 (66)
MYR 6,094 1,445 8/4/98 $ 1,335 1,335 (110)
$ 3,528 3,528 8/6/98 ITL 6,183,349 3,482 (46)
$ 2,460 2,460 8/12/98 HKD 19,142 2,461 1
$ 3,459 3,459 8/12/98 HKD 26,904 3,459 --
HKD 19,142 2,461 8/12/98 $ 2,464 2,464 3
HKD 26,904 3,459 8/12/98 $ 3,463 3,463 4
ITL 907,150 511 8/12/98 $ 509 509 (2)
$ 11,158 11,158 8/14/98 DEM 19,770 10,992 (166)
DEM 19,770 10,992 8/14/98 $ 11,158 11,158 166
DEM 184 102 8/14/98 $ 102 102 --
$ 7,067 7,067 8/17/98 FRF 41,533 6,888 (179)
$ 16,387 16,387 8/17/98 GBP 10,077 16,783 396
$ 4,869 4,869 8/17/98 GBP 2,987 4,975 106
FRF 41,533 6,888 8/17/98 $ 6,981 6,981 93
GBP 2,987 4,975 8/17/98 $ 4,902 4,902 (73)
$ 1,270 1,270 8/19/98 JPY 166,805 1,212 (58)
$ 1,784 1,784 8/19/98 JPY 234,221 1,702 (82)
JPY 234,221 1,702 8/19/98 $ 1,687 1,687 (15)
$ 631 631 8/26/98 JPY 87,474 637 6
JPY 70,206 511 8/26/98 $ 526 526 15
JPY 87,474 636 8/26/98 $ 654 654 18
$ 2 2 8/31/98 JPY 333 2 --
$ 3,127 3,127 8/31/98 JPY 437,245 3,154 27
JPY 437,245 3,154 8/31/98 $ 3,440 3,440 286
JPY 323 2 8/31/98 $ 2 2 --
$ 10 10 9/10/98 CAD 15 10 --
$ 3,483 3,483 9/10/98 JPY 481,948 3,514 31
JPY 331,541 2,417 9/10/98 $ 2,427 2,427 10
JPY 481,948 3,514 9/10/98 $ 3,531 3,531 17
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 328
VAN KAMPEN
GLOBAL EQUITY ALLOCATION FUND
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
<TABLE>
<CAPTION>
CURRENCY IN EXCHANGE
TO DELIVER VALUE SETTLEMENT FOR VALUE NET UNREALIZED
(000) (000) DATE (000) (000) GAIN (LOSS) (000)
- ------------- --------- ----------- --------------- --------- -----------------
<S> <C> <C> <C> <C> <C>
JPY 898,977 $ 6,554 9/10/98 $ 6,220 $ 6,220 $ (334)
$ 5,055 5,055 9/14/98 DEM 9,100 5,069 14
$ 10,350 10,350 9/16/98 FRF 62,412 10,368 18
DEM 9,916 5,524 9/18/98 $ 5,542 5,542 18
JPY 828,783 6,053 9/21/98 $ 6,088 6,088 35
JPY 615,727 4,502 9/28/98 $ 4,505 4,505 3
JPY 106,298 777 9/28/98 $ 754 754 (23)
DEM 9,911 5,526 10/2/98 $ 5,542 5,542 16
DEM 9,856 5,500 10/16/98 $ 5,542 5,542 42
CAD 1,630 1,110 10/19/98 $ 1,112 1,112 2
JPY 690,663 5,065 10/19/98 $ 4,870 4,870 (195)
--------- --------- -----
$ 231,247 $ 230,734 $ (513)
========= ========= =========
</TABLE>
- --------------------------------------------------------------------------------
FUTURES CONTRACTS: At June 30, 1998, the Portfolio had futures contracts open:
<TABLE>
<CAPTION>
UNREALIZED
AGGREGATE APPRECIATION
NUMBER OF FACE VALUE EXPIRATION (DEPRECIATION)
CONTRACTS (000) DATE (000)
------------- ----------- ---------- ---------------
<S> <C> <C> <C> <C>
PURCHASES:
DAX Index 29 DEM 9,004 Sep-98 $ 471
CAC 40 Index 130 FRF 17,873 Sep-98 476
FTSE 100 Index 175 GBP 17,174 Sep-98 (291)
MIB 30 Index 64 ITL 12,016 Sep-98 280
S&P 500 Index 55 $ 15,813 Sep-98 (92)
SALES:
TOPIX Index 25 JPY 2,118 Sep-98 (89)
Toronto Index 8 CAD 1,073 Sep-98 (31)
---------
$ 724
=========
</TABLE>
- ---------------
CAD -- Canadian Dollar
FRF -- French Franc
DEM -- German Mark
GBP -- British Pound
HKD -- Hong Kong Dollar
ITL -- Italian Lira
JPY -- Japanese Yen
MYR -- Malaysian Ringgit
NLG -- Netherlands Guilder
SEK -- Swedish Krona
- --------------------------------------------------------------------------------
SUMMARY OF FOREIGN & U.S. SECURITIES BY INDUSTRY CLASSIFICATION (UNAUDITED)
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
- -------- --------- -------------
<S> <C> <C>
Finance........................................................... $ 120,588 20.2%
Consumer Products................................................. 106,881 17.9
Services.......................................................... 85,785 14.4
Capital Goods & Equipment......................................... 71,102 11.9
Energy............................................................ 49,310 8.3
Materials......................................................... 32,151 5.4
Multi-Industry.................................................... 6,517 1.1
Technology........................................................ 5,854 1.0
Investment Companies.............................................. 5,263 0.9
Gold Mines........................................................ 1,181 0.2
--------- ----
$ 484,632 81.3%
========= ====
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 329
VAN KAMPEN
GLOBAL FIXED INCOME FUND
PORTFOLIO OF INVESTMENTS
JUNE 30, 1998
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- -----------------------------------------------------------------------
<S> <C>
FIXED INCOME SECURITIES (93.3%)
AUSTRALIAN DOLLAR (7.1%)
GOVERNMENT BONDS
AUD 200 Government of Australia 12.00%, 11/15/01......... $ 149
200 Government of Australia 10.00%, 2/15/06.......... 158
------
307
------
U.S. GOVERNMENT & AGENCY OBLIGATIONS--GLOBAL
200 Federal National Mortgage Association 6.50%,
7/10/02........................................ 127
180 Federal National Mortgage Association 6.375%,
8/15/07........................................ 116
------
243
------
TOTAL AUSTRALIAN DOLLAR...................................... 550
------
BRITISH POUND (7.4%)
GOVERNMENT BOND
GBP 290 United Kingdom 8.50%, 7/16/07.................... 570
------
CANADIAN DOLLAR (4.4%)
GOVERNMENT BONDS
CAD 330 Government of Canada 8.75%, 12/1/05.............. 270
80 Government of Canada 8.00%, 6/1/23............... 73
------
343
------
DANISH KRONE (4.9%)
GOVERNMENT BONDS
DKK 800 Kingdom of Denmark 9.00%, 11/15/00............... 128
1,500 Kingdom of Denmark 8.00%, 5/15/03................ 250
------
378
------
FRENCH FRANC (3.5%)
GOVERNMENT BOND
FRF 1,400 Government of France 7.25%, 4/25/06.............. 270
------
GERMAN MARK (20.2%)
GOVERNMENT BONDS
DEM 500 Deutschland Republic, 6.50%, 10/14/05............ 308
200 Deutschland Republic, 6.00%, 1/4/07.............. 120
200 Deutschland Republic, 6.25%, 1/4/24.............. 125
450 German Unity Bond 8.00%, 1/21/02................. 279
810 Treuhandanstalt 7.50%, 9/9/04.................... 519
------
1,351
------
CORPORATE BONDS
150 KFW International Finance, Inc. 7.50%, 1/24/00... 87
200 Landeskreditbank Baden-Wuerttemberg Financial
6.63%, 8/20/03................................. 121
------
208
------
TOTAL GERMAN MARK............................................ 1,559
------
</TABLE>
<PAGE> 330
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- -----------------------------------------------------------------------
<S> <C>
ITALIAN LIRA (7.1%)
GOVERNMENT BONDS
ITL 400,000 Buoni Poliennali Del Tesoro 10.00%, 8/1/03....... $ 278
150,000 Buoni Poliennali Del Tesoro 9.50%, 1/1/05........ 106
230,000 Buoni Poliennali Del Tesoro 9.50%, 2/1/06........ 166
------
TOTAL ITALIAN LIRA........................................... 550
------
JAPANESE YEN (5.2%)
EUROBONDS
JPY 27,000 Japan Development Bank 6.50%, 9/20/01............ 230
20,000 World Bank 4.75%, 12/20/04....................... 175
------
TOTAL JAPANESE YEN........................................... 405
------
SWEDISH KRONA (5.4%)
GOVERNMENT BOND
SEK 3,100 Swedish Government 6.00%, 2/9/05................. 415
------
UNITED STATES DOLLAR (28.1%)
U.S. TREASURY BONDS
$ 400 8.125%, 8/15/19.................................. 516
300 6.25%, 8/15/23................................... 321
40 7.625%, 2/15/25.................................. 51
------
888
------
U.S. TREASURY NOTES
1,000 7.25%, 5/15/04................................... 1,085
201 3.625%, 1/15/08.................................. 199
------
1,284
------
TOTAL UNITED STATES DOLLAR................................... 2,172
------
TOTAL FIXED INCOME SECURITIES (COST $7,162).................... 7,212
------
SHORT-TERM INVESTMENT (5.1%)
REPURCHASE AGREEMENT (5.1%)
UNITED STATES DOLLAR
390 Chase Securities, Inc., 5.40%, dated 6/30/98 due
7/1/98, to be repurchased at $390,
collateralized by $305 U.S. Treasury Bonds,
8.125%, due 5/15/21, valued at $400 (COST
$390).......................................... 390
------
TOTAL INVESTMENTS IN SECURITIES (98.4%) (COST $7,552).......... 7,602
------
FOREIGN CURRENCY (0.1%)
ITL 40 Italian Lira..................................... --
JPY 713 Japanese Yen..................................... 5
------
TOTAL FOREIGN CURRENCY (COST $5)............................... 5
------
TOTAL INVESTMENTS (98.5%) (COST $7,557)........................ 7,607
OTHER ASSETS IN EXCESS OF LIABILITIES (1.5%)................... 119
------
NET ASSETS (100%).............................................. $7,726
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 331
VAN KAMPEN
GLOBAL FIXED INCOME FUND
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
- --------------------------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE INFORMATION:
Under the terms of foreign currency contracts open at June 30, 1998, the
Portfolio is obligated to deliver or is to receive foreign currency in exchange
for U.S. dollars as indicated below:
<TABLE>
<CAPTION>
CURRENCY IN EXCHANGE
TO DELIVER VALUE SETTLEMENT FOR VALUE NET UNREALIZED
(000) (000) DATE (000) (000) GAIN (LOSS) (000)
- ------------- --------- ----------- ------------- --------- -----------------
<S> <C> <C> <C> <C> <C>
DEM 450 $ 250 7/13/98 $ 255 $ 255 $ 5
DEM 115 64 7/13/98 $ 65 65 1
SEK 1,040 130 7/14/98 $ 137 137 7
$ 269 269 7/16/98 JPY 37,000 268 (1)
$ 38 38 7/17/98 CAD 55 37 (1)
$ 20 20 7/17/98 CAD 30 20 --
CAD 200 136 7/17/98 $ 136 136 --
ATS 500 310 7/21/98 $ 312 312 2
ATS 240 149 7/21/98 $ 147 147 (2)
--------- --------- ---------
$ 1,366 $ 1,377 $ 11
========= ========= =========
</TABLE>
- ---------------
ATS -- Austrian Schilling
CAD -- Canadian Dollar
DEM -- German Mark
DKK -- Danish Krone
FRF -- French Franc
JPY -- Japanese Yen
SEK -- Swedish Krona
The accompanying notes are an integral part of the financial statements.
<PAGE> 332
MORGAN STANLEY
GOVERNMENT OBLIGATIONS MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
JUNE 30, 1998
<TABLE>
<CAPTION>
FACE AMORTIZED
AMOUNT COST
(000) (000)
- ---------------------------------------------------------------------------
<S> <C>
U.S. TREASURY & AGENCY OBLIGATIONS (78.9%)
FEDERAL HOME LOAN MORTGAGE ASSOCIATION DISCOUNT NOTES
(71.8%)
$ 5,650 5.45%, 8/7/98.................................... $ 5,618
15,000 5.46%, 4/21/99................................... 14,993
20,000 5.42%, 9/4/98.................................... 19,804
-------
40,415
-------
FEDERAL FARM CREDIT BANK (3.5%)
2,000 5.50%, 4/1/99.................................... 1,999
-------
U.S. TREASURY NOTES (3.6%)
2,000 5.875%, 1/31/99.................................. 2,005
-------
TOTAL U.S. TREASURY & AGENCY OBLIGATIONS (COST $44,419)....... 44,419
-------
VARIABLE RATE OBLIGATIONS (4.4%)
FEDERAL HOME LOAN BANK (4.4%)
2,500 5.43%, 8/18/98 (COST $2,500)..................... 2,500
-------
SHORT-TERM INVESTMENT (16.7%)
REPURCHASE AGREEMENT (16.7%)
9,398 J.P. Morgan Securities, Inc., 5.50%, dated
6/30/98, due 7/1/98, to be repurchased at
$9,399, collateralized by $9,623 U.S. Treasury
Notes, 5.375%, 6/30/00, valued at $9,811 (COST
$9,398)........................................ 9,398
-------
TOTAL INVESTMENTS (100.0%) (COST $56,317)..................... 56,317
OTHER LIABILITIES IN EXCESS OF ASSETS (0.0%).................. (15)
-------
NET ASSETS (100%)............................................. $56,302
=======
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 333
VAN KAMPEN
HIGH YIELD & TOTAL RETURN FUND
PORTFOLIO OF INVESTMENTS
JUNE 30, 1998
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- -----------------------------------------------------------------------
<S> <C>
CORPORATE BONDS AND NOTES (69.9%)
AEROSPACE & DEFENSE (2.0%)
$ (e)200 Jet Equipment Trust, Series C-1, 11.79%,
6/15/13........................................ $ 272
(e)300 Jet Equipment Trust, Series 1995-D, 11.44%,
11/1/14........................................ 406
-------
678
-------
BROADCAST--RADIO & TELEVISION (6.3%)
(e)300 AMSC Acquisition Co., Units 12.25%, 4/1/08....... 282
530 Lenfest Communications 8.375%, 11/1/05........... 563
350 Paramount Communications 8.25%, 8/1/22........... 370
60 Rogers Communications, Inc. 9.125%, 1/15/06...... 61
650 Rogers Communications, Inc. 8.875%, 7/15/07...... 654
(n)335 TCI Satellite Entertainment 0.00%, 2/15/07....... 226
-------
2,156
-------
BUILDING MATERIALS & COMPONENTS (1.4%)
490 American Standard Cos., Inc. 7.375%, 2/1/08...... 481
-------
CAPITAL GOODS/CONSTRUCTION (1.6%)
540 Murrin Murrin Holdings 9.375%, 8/31/07........... 532
-------
CHEMICALS (1.8%)
600 ISP Holdings, Inc., Series B, 9.00%, 10/15/03.... 626
-------
COMPUTERS (0.9%)
275 Advanced Micro Devices 11.00%, 8/1/03............ 291
-------
DIVERSIFIED (1.1%)
375 Kmart Funding Corp. 8.80%, 7/1/10................ 388
-------
ELECTRICAL EQUIPMENT (1.8%)
360 AES Corp. 8.50%, 11/1/07......................... 365
(e)325 Hyundai Semiconductor 8.625%, 5/15/07............ 252
-------
617
-------
ENERGY (1.9%)
325 Quezon Power Ltd. 8.86%, 6/15/17................. 274
380 Snyder Oil Corp. 8.75%, 6/15/07.................. 384
-------
658
-------
ENTERTAINMENT & LEISURE (1.2%)
400 Musicland Group, Inc. 9.875%, 3/15/08............ 398
-------
ENVIRONMENTAL CONTROLS (2.0%)
(n)600 Norcal Waste Systems 13.50%, 11/15/05............ 690
-------
FINANCE (3.9%)
410 CSC Holdings, Inc. 9.875%, 5/15/06............... 450
275 CSC Holdings, Inc. 7.875%, 12/15/07.............. 290
(e)190 Flag Ltd. 8.25%, 1/30/08......................... 192
(e,n)180 Fuji JGB Investments LLC 9.87%, 12/31/49......... 160
(e,n)235 SB Treasury Co. LLC 9.40%, 12/29/49.............. 234
-------
1,326
-------
FINANCIAL SERVICES (2.5%)
(e)100 CEX Holdings, Inc. 9.625%, 6/1/08................ 101
150 HMC Acquisition Properties 9.00%, 12/15/07....... 165
(n)425 PTC International Finance BV 0.00%, 7/1/07....... 292
140 Pindo Deli Fin Mauritius 10.75%, 10/1/07......... 97
225 Western Financial Bank 8.875%, 8/1/07............ 211
-------
866
-------
FOOD (0.7%)
94 Fleming Cos., Inc., Series B 10.50%, 12/1/04..... 98
(e)150 Smithfield Foods, Inc. 7.625%, 2/15/08........... 150
-------
248
-------
</TABLE>
<PAGE> 334
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- -----------------------------------------------------------------------
<S> <C>
FOOD SERVICE & LODGING (1.0%)
$ 335 Host Marriott Travel Plaza, `B', 9.50%,
5/15/05........................................ $ 357
-------
FOREST PRODUCTS & PAPER (1.4%)
215 Asia Pulp & Paper Co., Ltd. 12.00%, 2/15/04...... 150
305 SD Warren Co., Series B, 12.00%, 12/15/04........ 338
-------
488
-------
GAMING & LODGING (2.4%)
445 Grand Casinos, Inc. 10.125%, 12/1/03............. 481
320 Station Casinos, Inc. 10.125%, 3/15/06........... 357
-------
838
-------
HEALTH CARE SUPPLIES & SERVICES (5.1%)
30 Columbia/HCA Healthcare, 8.125%, 8/4/03.......... 31
540 Columbia/HCA Healthcare, 6.91%, 6/15/05.......... 522
275 Columbia/HCA Healthcare, 7.69%, 6/15/25.......... 264
920 Tenet Healthcare Corp. 8.625%, 1/15/07........... 949
-------
1,766
-------
MULTI-INDUSTRY (9.1%)
(e)150 AST Research, Inc. 7.45%, 10/1/02................ 124
410 Comcast Cellular Holdings 9.50%, 5/1/07.......... 427
210 Globalstar LP/Capital 11.375%, 2/15/04........... 204
275 Hermes Europe Railtel BV 11.50%, 8/15/07......... 311
(e)200 Hylsa SA de CV 9.25%, 9/15/07.................... 188
235 Multicanal S.A. 10.50%, 2/1/07................... 235
325 Navistar Financial Corp., Series B, 9.00%,
6/1/02......................................... 340
355 Outdoor Systems, Inc., 8.875%, 6/15/07........... 370
(e)240 RBS Participacoes S.A. 11.00%, 4/1/07............ 217
(e)200 Samsonite Corp. 10.75%, 6/15/08.................. 199
325 TV Azteca S.A. de CV, Series B 10.50%, 2/15/07... 327
(e)200 Vencor, Inc. 9.875%, 5/1/05...................... 197
-------
3,139
-------
PAPER (1.5%)
500 Indah Kiat Financial Mauritius 10.00%, 7/1/07.... 355
(e)170 Norampac, Inc. 9.50%, 2/1/08..................... 173
-------
528
-------
PERSONAL CARE PRODUCTS (0.8%)
260 Revlon Consumer Products 8.125%, 2/1/06.......... 260
-------
RETAIL--GENERAL (2.9%)
500 Fred Meyer, Inc. 7.375%, 3/1/05.................. 503
550 Southland Corp. 5.00%, 12/15/03.................. 478
-------
981
-------
SERVICES (0.7%)
255 CB Richard Ellis Service 8.875%, 6/1/06.......... 253
-------
TECHNOLOGY (0.2%)
(e,n)160 Rhythms Netconnections 0.00%, 5/15/08............ 78
-------
TELECOMMUNICATIONS (15.0%)
(e)145 American Cellular Corp. 10.50%, 5/15/08.......... 146
(n)190 Dial Call Communications, Series B, 0.00%,
12/15/05....................................... 188
(e,n)255 Dolphin Telecommunication plc 0.00%, 6/1/08...... 145
(e)200 Globo Communications 10.50%, 12/20/06............ 182
(e)195 IXC Communications, Inc. 9.00%, 4/15/08.......... 195
(n)810 Intermedia Communications, Series B, 0.00%,
7/15/07........................................ 591
100 Iridium LLC/Capital Corp., Series A 13.00%,
7/15/05........................................ 107
(e)150 Lenfest Communications 7.625%, 2/15/08........... 154
(e)155 Level 3 Communications, Inc. 9.125%, 5/1/08...... 150
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 335
VAN KAMPEN
HIGH YIELD & TOTAL RETURN FUND
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- -----------------------------------------------------------------------
<S> <C>
TELECOMMUNICATIONS (CONT.)
$ (e,n)425 NEXTLINK Communications, Inc. 0.00%, 4/15/08..... $ 260
(n)440 Nextel Communications 0.00%, 8/15/04............. 427
(n)900 Nextel Communications 0.00%, 9/15/07............. 603
(n)400 Occidente Y Caribe 0.00%, 3/15/04................ 348
(e)195 Onepoint Communications Corp., 14.50%, 6/1/08.... 183
215 Philippine Long Distance Telephone 7.85%,
3/6/07......................................... 193
(e)260 Primus Telecommunications Group 9.875%, 5/15/08.. 255
100 Qwest Communications International, Series B,
10.875%, 4/1/07................................ 115
(e,n)150 Qwest Communications International 0.00%,
2/1/08......................................... 108
(n)155 RCN Corp. 0.00%, 10/15/07........................ 100
(n)370 RCN Corp 0.00%, 2/15/08.......................... 225
17 RSL Communications plc 12.25%, 11/15/06.......... 19
(e)115 RSL Communications plc 9.125%, 3/1/08............ 112
150 Rogers Cantel, Inc. 8.30%, 10/1/07............... 147
(e)55 Satelites Mexicanos S.A. 10.125%, 11/1/04........ 53
(e)180 Total Access Communications 2.00%, 5/31/06....... 140
-------
5,146
-------
UTILITIES (0.7%)
65 Korea Electric Power 7.75%, 4/1/13............... 48
90 Niagara Mohawk Power `G' 7.75%, 10/1/08.......... 92
(n)163 Niagara Mohawk Power `H' 0.00%, 7/1/10........... 112
-------
252
-------
TOTAL CORPORATE BONDS AND NOTES (COST $24,029)................ 24,041
-------
ASSET BACKED SECURITIES (4.8%)
AEROSPACE & DEFENSE (0.5%)
175 Aircraft Lease Portfolio Securitization Ltd.,
Series 1996-1, Class D 12.75%, 6/15/06......... 174
-------
FINANCIAL SERVICES (4.3%)
(e)241 CA FM Lease Trust 8.50%, 7/15/17................. 253
(e)235 Commercial Financial Services, Inc., Series
1997-5, Class A1 7.72%, 6/15/05................ 237
(e,h)315 DLJ Mortgage Acceptance Corp., Series 1996-CF2,
Class S, IO, 1.64%, 11/12/21................... 25
150 DR Securitized Lease Trust, Series 1993-K1, Class
A2 7.43%, 8/15/18.............................. 139
471 DR Securitized Lease Trust, Series 1994-K1, Class
A1, 7.60%, 8/15/07............................. 466
100 DR Securitized Lease Trust, Series 1994-K1, Class
A2, 8.375%, 8/15/15............................ 100
(e)122 First Home Mortgage Acceptance Corp., Series
1996-B, Class C, 7.93%, 11/1/18................ 110
(e)167 Long Beach Acceptance Auto Grantor Trust 1997-1,
Class B, 14.22%, 10/26/03...................... 166
-------
1,496
-------
TOTAL ASSET BACKED SECURITIES (COST $1,578)................... 1,670
-------
FOREIGN GOVERNMENT BONDS (1.2%)
BONDS (1.2%)
(n)90 Republic of Argentina BOCON, Series 2, PIK,
0.00%, 9/1/02.................................. 110
(h)328 Republic of Argentina, Series L, Floating Rate,
6.625%, 3/31/05................................ 290
-------
TOTAL FOREIGN GOVERNMENT BONDS (COST $394).................... 400
-------
</TABLE>
<PAGE> 336
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -----------------------------------------------------------------------
<S> <C>
PREFERRED STOCKS (3.5%)
ENTERTAINMENT AND LEISURE (2.5%)
773 Time Warner, Inc., Series M, 10.25%.............. $ 860
-------
TELECOMMUNICATIONS (0.3%)
(e)1,000 Concentric Network Corp., 13.50%................. 100
4 IXC Communications, Inc. PIK 9.50%............... 5
-------
105
-------
MULTI-INDUSTRY ( 0.7%)
2,150 Sinclair Capital, 11.625%........................ 238
-------
TOTAL PREFERRED STOCKS (COST $1,123).......................... 1,203
-------
NO. OF
UNITS
- ----------
UNITS (0.3%)
TELECOMMUNICATIONS (0.3%)
(e,n)170 Viatel, Inc, 0.00%, 4/15/08 (COST $108).......... 102
-------
NO. OF
WARRANTS
- ----------
WARRANTS (0.1%)
TELECOMMUNICATIONS (0.1%)
(a,e)100 Concentric Network Corp., expiring 12/15/07...... --
(a,e)210 Globalstar Telecom, expiring 2/15/04............. 26
(a,e)1,600 Occidente Y Caribe, expiring 3/15/04............. --
-------
TOTAL WARRANTS (COST $0)...................................... 26
-------
FACE
AMOUNT
(000)
- ----------
SHORT-TERM INVESTMENTS (18.7%)
DISCOUNT NOTES (14.5%)
$ 1,000 Federal Home Mortgage Corp., 5.46%, 7/10/98...... 999
2,000 Federal Home Mortgage Corp., 5.43%, 7/14/98...... 1,996
2,000 Federal Home Mortgage Corp., 5.45%, 7/20/98...... 1,994
-------
4,989
-------
REPURCHASE AGREEMENT (4.2%)
1,424 Chase Securities, Inc., 5.40%, dated 6/30/98, due
7/1/98, to be repurchased at $1,424,
collateralized by $885 U.S. Treasury Bonds,
11.25%, due 2/15/15, valued at $1,455.......... 1,424
-------
TOTAL SHORT-TERM INVESTMENTS (COST $6,413).................... 6,413
-------
TOTAL INVESTMENTS (98.5%) (COST $33,645)...................... 33,855
OTHER ASSETS IN EXCESS OF LIABILITIES (1.5%).................. 523
-------
NET ASSETS (100%)............................................. $34,378
=======
</TABLE>
- ---------------
(a) -- Non-income producing security
(e) -- 144A Security -- Certain conditions for public sale may exist.
(h) -- Variable/Floating rate securities -- rate disclosed is as of June 30,
1998.
(n) -- Step Bond -- coupon rate increases in increments to maturity. Rate
disclosed is as of June 30, 1998. Maturity date disclosed is the
ultimate maturity date.
IO -- Interest Only
PIK -- Payment-In-Kind. Income may be received in additional securities or
cash at the discretion of the issuer.
The accompanying notes are an integral part of the financial statements.
<PAGE> 337
VAN KAMPEN
HIGH YIELD & TOTAL RETURN FUND
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
SUMMARY OF SECURITIES BY COUNTRY (UNAUDITED)
<TABLE>
<CAPTION>
VALUE PERCENT OF
COUNTRY (000) NET ASSETS
- ---------------------------------------------- ---------- -------------
<S> <C> <C>
United States................................. $ 28,038 81.5%
Canada........................................ 1,035 3.0
Argentina..................................... 635 1.9
Netherlands................................... 603 1.8
Mexico........................................ 568 1.6
Australia..................................... 533 1.5
Philippines................................... 467 1.4
Brazil........................................ 399 1.2
Indonesia..................................... 355 1.0
Colombia...................................... 348 1.0
Korea......................................... 300 0.9
Bermuda....................................... 192 0.6
United Kingdom................................ 145 0.4
Thailand...................................... 140 0.4
Mauritius..................................... 97 0.3
---------- ----
$ 33,855 98.5%
========== ====
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 338
VAN KAMPEN
INTERNATIONAL MAGNUM FUND
PORTFOLIO OF INVESTMENTS
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (85.8%)
AUSTRALIA (1.2%)
35,000 Australia & New Zealand Banking Group Ltd........ $ 242
9,150 Brambles Industries Ltd.......................... 180
18,600 Commonwealth Bank of Australia................... 217
6,200 Lend Lease Corp. Ltd............................. 125
14,500 National Australia Bank Ltd...................... 191
40,240 News Corp., Ltd.................................. 329
33,200 Seven Network Ltd................................ 100
112,500 Telstra Corp., Ltd............................... 289
--------
1,673
--------
AUSTRIA (0.6%)
12,000 Boehler-Udderholm AG............................. 793
--------
BELGIUM (0.6%)
14,430 G.I.B. Holdings Ltd.............................. 814
--------
DENMARK (3.5%)
56,900 BG Bank A/S...................................... 3,527
12,500 Unidanmark A/S `A' (Registered).................. 1,124
--------
4,651
--------
FINLAND (4.9%)
11,500 Huhtamaki Oyj `I'................................ 658
6,675 Kone Oyj `B'..................................... 937
113,900 Merita Ltd. `A'.................................. 752
32,399 Metra Oyj `B'.................................... 1,064
19,800 Partek Oyj Abp................................... 343
77,900 Rautaruukki Oyj.................................. 597
11,450 Sampo Insurance Co., Ltd., Class A............... 543
40,050 The Rauma Group.................................. 822
50,000 Valmet Oyj....................................... 863
--------
6,579
--------
FRANCE (8.9%)
2,200 Alcatel Alsthom.................................. 448
1,139 Bongrain S.A..................................... 572
6,642 Cie de Saint-Gobain.............................. 1,231
10,670 Elf Aquitaine S.A................................ 1,500
10,900 France Telecom S.A............................... 752
5,300 Groupe Danone RFD................................ 1,461
8,700 Lafarge S.A...................................... 899
18,988 Legris Industries S.A............................ 889
7,770 Michelin (C.G.D.E.) `B'.......................... 448
10,400 Rhone-Poulenc S.A. `A'........................... 586
4,600 Scor............................................. 292
(a)8,400 SGS-Thomson Microelectronics N.V................. 595
11,600 Total S.A. `B'................................... 1,508
3,270 Union des Assurances Federales................... 515
16,450 Usinor Sacilor................................... 254
--------
11,950
--------
GERMANY (10.8%)
31,800 BASF AG.......................................... 1,508
19,900 Bayer AG......................................... 1,027
8,300 Bayer Vereinsbank AG............................. 706
2,660 Buderus AG....................................... 1,327
2,780 Dyckerhoff AG.................................... 1,107
25,110 Gerresheimer Glas AG............................. 377
6,000 Hornbach Holding AG.............................. 551
14,020 Metro AG......................................... 851
</TABLE>
<PAGE> 339
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ------------------------------------------------------------------------
<S> <C>
(a)4,040 Philip Holzmann AG............................... $ 968
6,260 Plettac AG....................................... 875
2,320 Suedzucker AG.................................... 1,411
15,000 Veba AG.......................................... 1,023
1,790 Viag AG.......................................... 1,211
1,583 Volkswagen AG.................................... 1,523
--------
14,465
--------
HONG KONG (0.7%)
28,400 CLP Holdings Ltd................................. 129
134,600 Hong Kong & China Gas Co., Ltd................... 153
5,500 Hong Kong & Shanghai Bank Holdings plc........... 135
55,500 Hong Kong Electric Holdings Ltd.................. 172
63,200 Hong Kong Telecommunications Ltd................. 119
22,600 Hutchison Whampoa Ltd............................ 119
49,000 Li & Fung Ltd.................................... 79
25,000 Television Broadcasting Ltd...................... 66
--------
972
--------
ITALY (3.7%)
275,000 Magneti Marelli S.p.A............................ 604
55,400 Marzotto (Gaetano) & Figli S.p.A................. 845
111,600 Mediaset S.p.A................................... 712
255,800 Sogefi S.p.A..................................... 857
388,224 Telecom Italia S.p.A............................. 1,880
--------
4,898
--------
JAPAN (11.8%)
47,000 Amada Co., Ltd................................... 229
4,000 Autobacs Seven Co., Ltd.......................... 115
21,000 Canon, Inc....................................... 477
31,000 Casio Computer Co., Ltd.......................... 288
21,000 Dai Nippon Printing Co., Ltd..................... 336
85,000 Daicel Chemical Industries Ltd................... 180
45,000 Daifuku Co., Ltd................................. 168
41,000 Daikin Industries Ltd............................ 264
4,100 Family Mart...................................... 156
17,000 Fuji Machine Manufacturing Co.................... 451
13,000 Fuji Photo Film Co............................... 453
28,000 Fujitec Co., Ltd................................. 170
49,000 Fujitsu Ltd...................................... 516
68,000 Furukawa Electric................................ 229
14,000 Hitachi Credit Corp.............................. 236
72,000 Hitachi Ltd...................................... 470
13,000 Inabata & Co..................................... 40
50,000 Kaneka Corp...................................... 263
17,000 Kurita Water Industries.......................... 201
7,700 Kyocera Corp..................................... 377
18,000 Kyudenko Co., Ltd................................ 118
18,000 Lintec Corp...................................... 157
32,000 Matsushita Electric Industrial Co., Ltd.......... 515
92,000 Mitsubishi Chemical Corp......................... 167
26,000 Mitsubishi Estate Co., Ltd....................... 229
85,000 Mitsubishi Heavy Industries Ltd.................. 321
22,000 Mitsumi Electric Co., Ltd........................ 389
8,000 Murata Manufacturing Co., Inc.................... 260
51,000 NEC Corp......................................... 476
23,000 Nifco, Inc....................................... 182
6,000 Nintendo Corp., Ltd.............................. 556
1,000 Nippon Pillar Packing............................ 4
56 Nippon Telephone & Telegraph Corp................ 465
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 340
VAN KAMPEN
INTERNATIONAL MAGNUM FUND
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ------------------------------------------------------------------------
<S> <C>
JAPAN (CONT.)
101,000 Nissan Motor Co., Ltd............................ $ 318
17,000 Nissha Printing Co., Ltd......................... 104
9,000 Ono Pharmaceutical Co., Ltd...................... 215
45,000 Ricoh Co., Ltd................................... 474
12,000 Rinnai........................................... 182
9,000 Sangetsu Co., Ltd................................ 116
21,000 Sankyo Co., Ltd.................................. 479
30,000 Sanwa Shutter Corp............................... 132
28,000 Sekisui Chemical Co.............................. 143
22,000 Sekisui House Ltd................................ 171
6,000 Shimamura Co., Ltd............................... 162
38,000 Shin-Etsu Polymer Co., Ltd....................... 153
6,900 Sony Corp........................................ 595
12,000 Sumitomo Marine & Fire Insurance Co.............. 67
28,000 Suzuki Motor Co., Ltd............................ 254
7,000 TDK Corp......................................... 518
12,000 Tokyo Electron Ltd............................... 368
117,000 Toshiba Corp..................................... 479
19,000 Toyota Motor Corp................................ 492
67,000 Tsubakimoto Chain Co............................. 225
23,000 Yamaha Corp...................................... 224
22,000 Yamanuchi Pharmaceutical Co...................... 459
--------
15,788
--------
MALAYSIA (0.1%)
5,000 Carlsberg Brewery Malaysia Bhd................... 15
25,000 Guiness Anchor Bhd............................... 27
8,000 Nestle Bhd....................................... 36
7,600 Rothmans of Pall Mall Bhd........................ 53
--------
131
--------
NETHERLANDS (4.4%)
29,600 ABN Amro Holding N.V............................. 693
6,300 Akzo Nobel N.V................................... 1,401
28,943 ING Groep N.V.................................... 1,896
2,400 Koninklijke Bijenkorf Beheer..................... 168
34,900 Koninklijke KNP BT N.V........................... 901
9,600 Phillips Electronics N.V......................... 808
--------
5,867
--------
NEW ZEALAND (0.1%)
56,000 AMP NZ Office Trust.............................. 26
1,840 Fletcher Challenge Forests....................... 1
4,000 Telecom Corp. of New Zealand Ltd. IR............. 9
8,800 Telecom Corp. of New Zealand Ltd................. 36
--------
72
--------
NORWAY (1.1%)
67,800 Saga Petroleum ASA `B'........................... 960
15,600 Sparebanken NOR.................................. 448
--------
1,408
--------
SINGAPORE (0.2%)
(a)6,200 Creative Technology Ltd.......................... 75
45,000 NatSteel Ltd..................................... 75
21,000 United Overseas Bank Ltd. (Foreign).............. 65
23,000 Venture Manufacturing Ltd........................ 44
--------
259
--------
</TABLE>
<PAGE> 341
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ------------------------------------------------------------------------
<S> <C>
SPAIN (3.5%)
27,800 Banco Bilbao Vizcaya, S.A. (Registered).......... $ 1,427
100,100 Iberdrola S.A.................................... 1,625
13,050 Telefonica de Espana............................. 603
(a)1,386 Telefonica de Espana............................. 64
69,100 Uralita S.A...................................... 985
--------
4,704
--------
SWEDEN (6.1%)
31,700 Autoliv Inc., Swedish Depository Receipt......... 1,013
27,600 BT Industries AB................................. 557
41,600 Esselte AB `B'................................... 965
1,810 Fastighets AB Balder............................. 18
214,900 Nordbanken Holding AB............................ 1,576
16,300 Pharmicia & Upjohn, Inc. Depository Shares....... 750
56,300 PLM AB........................................... 889
2,200 S.K.F. AB `B'.................................... 40
20,300 Spectra-Physics AB `A'........................... 325
40,200 Svedala Industries AB............................ 932
23,500 Svenska Handelsbanken `A'........................ 1,090
--------
8,155
--------
SWITZERLAND (6.8%)
30 Ascom Holding AG (Bearer)........................ 56
470 Bobst AG (Bearer)................................ 865
824 Cie Financiere Richemont AG, Class A............. 1,079
1,910 Forbo Holding AG (Registered).................... 973
1,245 Holderbank Financiere Glarus AG `B' (Bearer)..... 1,585
970 Nestle S.A. (Registered)......................... 2,077
80 Schindler Holding AG (Participating
Certificates).................................. 122
434 Schindler Holding AG (Registered)................ 673
830 Schweizerische Industrie-Gesellschaft Holding AG
(Registered)................................... 676
3,530 Valora Holding AG (Registered)................... 932
--------
9,038
--------
UNITED KINGDOM (16.8%)
327,000 Aegis Group plc.................................. 530
50,689 Bank of Ireland.................................. 1,040
69,762 Bank of Scotland................................. 782
195,611 BG plc........................................... 1,132
85,500 British Telecommunications plc................... 1,057
134,988 BTR plc, Class B................................. 383
101,100 Bunzl plc........................................ 474
67,450 Burmah Castrol plc............................... 1,205
55,100 Capital Radio plc................................ 654
134,100 Charter plc...................................... 1,401
28,375 Commercial Union plc............................. 530
700 Danka Business Systems plc....................... 2
48,983 Diageo plc....................................... 581
104,900 Glynwed International plc........................ 432
66,700 Great Universal Stores plc....................... 880
25,200 Halma plc........................................ 52
148,200 Imperial Tobacco Group plc....................... 1,094
38,898 John Mowlem & Co. plc............................ 94
78,425 Lonrho Africa plc................................ 368
(a)58,425 Lonrho Africa plc................................ 70
320,700 Medeva plc....................................... 910
29,500 Peninsular & Oriental Steam Navigation Co........ 425
126,000 Premier Farnell plc.............................. 640
1,804,100 Premier Oil plc.................................. 1,273
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 342
VAN KAMPEN
INTERNATIONAL MAGNUM FUND
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ------------------------------------------------------------------------
<S> <C>
UNITED KINGDOM (CONT.)
84,768 Reckitt & Colman plc............................. $ 1,619
14,500 RMC Group plc.................................... 252
98,882 Royal & Sun Alliance Insurance Group plc......... 1,023
347,300 Scapa Group plc.................................. 1,102
107,100 SIG plc.......................................... 402
36,350 Tate & Lyle plc.................................. 288
33,600 Unilever plc..................................... 358
35,500 Westminster Health Care Holdings plc............. 189
204,100 WPP Group plc.................................... 1,339
--------
22,581
--------
TOTAL COMMON STOCKS (COST $104,799)........................... 114,798
--------
FACE
AMOUNT
(000)
- ----------
CONVERTIBLE DEBENTURE (0.0%)
NEW ZEALAND (0.0%)
$ (a)56 AMP Office Trust, 7.50%, 6/30/03 (COST $33)...... 25
--------
NO. OF
RIGHTS
- ----------
RIGHTS (0.0%)
GERMANY (0.0%)
(a)14,020 Metro AG (COST $0)............................... 1
--------
NO. OF
WARRANTS
- ----------
WARRANTS (0.0%)
HONG KONG (0.0%)
(a)5,300 Hong Kong and China Gas Co., Ltd. (expiring
9/30/99) (COST $0)............................. --
--------
TOTAL FOREIGN SECURITIES (85.8%) (COST $104,832).............. 114,824
--------
</TABLE>
<PAGE> 343
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ------------------------------------------------------------------------
<S> <C>
SHORT-TERM INVESTMENT (14.0%)
REPURCHASE AGREEMENT (14.0%)
$ 18,731 Chase Securities, Inc., 5.40%, dated 6/30/98, due
7/1/98, to be repurchased at $18,734,
collateralized by $18,690 U.S. Treasury Notes,
5.625%, due 2/15/06, valued at $19,163 (COST
$18,731)....................................... $ 18,731
--------
TOTAL INVESTMENTS IN SECURITIES (99.8%) (COST $123,563)....... 133,555
--------
FOREIGN CURRENCY (0.5%)
BEF 491 Belgian Franc.................................... 13
GBP 116 British Pound.................................... 193
DKK 1 Danish Krone..................................... --
FIM 718 Finnish Marka.................................... 131
FRF 657 French Franc..................................... 109
DEM 52 German Mark...................................... 29
HKD 672 Hong Kong Dollar................................. 87
ITL 71,350 Italian Lira..................................... 40
JPY 9,579 Japanese Yen..................................... 69
MYR 8 Malaysian Ringgit................................ 2
NZD 3 New Zealand Dollar............................... 2
SGD 2 Singapore Dollar................................. 1
ESP 73 Spanish Peseta................................... --
CHF 35 Swiss Franc...................................... 23
--------
TOTAL FOREIGN CURRENCY (COST $698)............................ 699
--------
TOTAL INVESTMENTS (100.3%) (COST $124,261).................... 134,254
LIABILITIES IN EXCESS OF OTHER ASSETS (-0.3%)................. (376)
--------
NET ASSETS (100%)............................................. $133,878
========
</TABLE>
- ---------------
(a) -- Non-income producing security
RFD -- Ranked for Dividend
The accompanying notes are an integral part of the financial statements.
<PAGE> 344
VAN KAMPEN
INTERNATIONAL MAGNUM FUND
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
- --------------------------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE INFORMATION:
Under the terms of foreign currency contracts open at June 30, 1998, the
Portfolio is obligated to deliver or is to receive foreign currency in exchange
for U.S. dollars as indicated below:
<TABLE>
<CAPTION>
CURRENCY IN EXCHANGE
TO DELIVER VALUE SETTLEMENT FOR VALUE NET UNREALIZED
(000) (000) DATE (000) (000) GAIN (LOSS) (000)
- ------------- --------- ----------- ------------ --------- -----------------
<S> <C> <C> <C> <C> <C>
$ 62 $ 62 7/1/98 FIM 343 $ 62 $ --
$ 76 76 7/1/98 DEM 138 76 --
$ 112 112 7/1/98 SEK 895 112 --
$ 15 15 7/2/98 MYR 64 15 --
BEF 491 13 7/2/98 $ 13 13 --
HKD 619 80 7/2/98 $ 80 80 --
ITL 71,336 40 7/2/98 $ 40 40 --
$ 295 295 7/7/98 SGD 503 298 3
SGD 503 298 7/7/98 $ 285 285 (13)
DEM 1,714 951 7/14/98 $ 942 942 (9)
$ 1,647 1,647 7/16/98 JPY 226,434 1,638 (9)
JPY 226,434 1,638 7/16/98 $ 1,768 1,768 130
CHF 1,286 850 7/21/98 $ 868 868 18
$ 2,513 2,513 7/29/98 JPY 344,961 2,500 (13)
JPY 344,961 2,500 7/29/98 $ 2,685 2,685 185
DEM 1,714 953 8/14/98 $ 972 972 19
$ 301 301 8/19/98 JPY 41,135 299 (2)
JPY 259,357 1,885 8/19/98 $ 1,962 1,962 77
JPY 320,073 2,334 9/10/98 $ 2,343 2,343 9
DEM 317 177 9/14/98 $ 176 176 (1)
DEM 1,323 737 9/14/98 $ 734 734 (3)
JPY 376,055 2,749 9/28/98 $ 2,761 2,761 12
JPY 506,990 3,722 10/26/98 $ 3,587 3,587 (135)
--------- --------- -----
$ 23,948 $ 24,216 $ 268
========= ========= =========
</TABLE>
- ---------------
BEF -- Belgian Franc
CHF -- Swiss Franc
DEM -- German Mark
FIM -- Finnish Markka
HKD -- Hong Kong Dollar
ITL -- Italian Lira
JPY -- Japanese Yen
MYR -- Malaysian Ringgit
SEK -- Swedish Krona
SGD -- Singapore Dollars
- --------------------------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION (UNAUDITED)
<TABLE>
<CAPTION>
MARKET PERCENT OF
INDUSTRY VALUE NET ASSETS
- ---------------------------------------------- --------- -------------
<S> <C> <C>
Capital Equipment............................. $ 28,326 21.2%
Consumer Goods................................ 23,891 17.8
Finance....................................... 19,770 14.8
Materials..................................... 17,121 12.8
Services...................................... 11,767 8.8
Energy........................................ 8,400 6.3
Multi-Industry................................ 5,549 4.1
--------- ----
$ 114,824 85.8%
========= ====
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 345
VAN KAMPEN
LATIN AMERICAN FUND
PORTFOLIO OF INVESTMENTS
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -----------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (65.6%)
ARGENTINA (9.6%)
125,350 Telecom Argentina S.A. ADR....................... $ 3,737
105,508 Telefonica de Argentina ADR...................... 3,423
27,410 YPF ADR.......................................... 824
-------
7,984
-------
BRAZIL (15.1%)
48,643 CEMIG ADR........................................ 1,506
(e)835 CEMIG ADR........................................ 26
49,950 CVRD ADR......................................... 1,056
(a)2,289,172 Companhia de Electricidade do Estado do Rio de
Janeiro........................................ 1,128
201,955 Copel............................................ 1,886
(e)31,925 Coteminas ADR.................................... 435
(a)600,500 Iven............................................. 301
(a,e)10,410 Lojas Arapua ADR................................. 6
(e)44,275 Petrobras ADR.................................... 826
187,805 Rossi Residencial S.A. GDS....................... 939
(e)60,287 Rossi Residencial S.A............................ 301
26,491 Telebras ADR..................................... 2,892
43,762 Unibanco GDR..................................... 1,291
-------
12,593
-------
CHILE (6.9%)
5,440 Banco Edwards ADR................................ 77
10,475 Banco Santander ADR.............................. 135
10,060 Banco Santiago ADR............................... 168
35,150 CCU ADR.......................................... 743
66,060 Chilectra ADR.................................... 1,404
19,606 Cia Telecom ADR.................................. 398
24,110 D & S ADR........................................ 362
64,153 Empressa Nacional de Electricidad S.A. ADR....... 914
30,245 Enersis S.A. ADR................................. 739
9,460 Gener ADR........................................ 173
32,200 Quinenco ADR..................................... 290
28,582 Santa Isabel S.A. ADR............................ 314
-------
5,717
-------
COLOMBIA (0.7%)
575 BanColombia...................................... 1
60,609 Bavaria.......................................... 354
110,584 Valores Bavaria SA............................... 190
-------
545
-------
MEXICO (33.3%)
(a)466,867 Banacci `B'...................................... 909
(a)166,310 Banacci `L'...................................... 268
2,801,313 Bancomer `B'..................................... 1,044
92,140 Carso `A1'....................................... 379
70,254 Cemex `B' ADR.................................... 620
588,061 Cemex `CPO'...................................... 2,204
16,110 Cemex ADR........................................ 121
152,600 Cemex S.A. de C.V. `B'........................... 673
520,115 Cifra `B'........................................ 773
75,850 Cifra `C'........................................ 105
3,522 Cifra ADR........................................ 52
58,253 FEMSA ADR........................................ 1,835
(a)138,292 FEMSA............................................ 4,307
64,630 Groupo Modelo `C'................................ 543
205,270 Grupo Industrial Bimbo S.A. de CV `A'............ 406
574,974 Kimberly `A'..................................... 2,030
461,233 Soriana `B'...................................... 1,324
</TABLE>
<PAGE> 346
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -----------------------------------------------------------------------------
<S> <C>
126,698 Telemex ADR...................................... $ 6,089
(a)100,258 Televisa CPO ADR................................. 3,772
27,190 TV Azteca ADR.................................... 294
-------
27,748
-------
TOTAL COMMON STOCKS (COST $62,319).................................. 54,587
-------
PREFERRED STOCKS (29.5%)
BRAZIL (NON-VOTING STOCKS) (29.5%)
(a,d)8,115,000 Banco Nacional................................... --
126,469,735 CEMIG............................................ 3,937
9,617,022 CRT.............................................. 10,486
18,500 CVRD............................................. 368
(a)44,859 Centrais Geradoras do Sul do Brasil S.A.......... 61
1,689,000 Cia Cimento Portland Itau........................ 299
2,492,000 Coteminas........................................ 679
2,961,000 Encorpar ADR..................................... 7
64,912,167 Gerdau........................................... 898
8,000 Globex Utilidades S.A............................ 69
(a)19,195,300 Lojas Arapua S.A................................. 12
21,326,700 Lojas Renner S.A................................. 627
(a)11,891 TELESP Class B................................... 987
48,604,783 Telebras......................................... 5,287
(a)14,670 Telerj Celular S.A............................... 863
(a)31,997 Vale Do Rio Doce ADR............................. --
-------
TOTAL PREFERRED STOCKS (COST $30,177)............................... 24,580
-------
TOTAL FOREIGN SECURITIES (95.1%) (COST $92,496)..................... 79,167
-------
FACE
AMOUNT
(000)
- ----------------
SHORT-TERM INVESTMENT (3.3%)
REPURCHASE AGREEMENT (3.3%)
$ 2,772 Chase Securities, Inc., 5.40%, dated 6/30/98, due
7/1/98, to be repurchased at $2,772,
collateralized by $1,725 U.S. Treasury Bonds,
11.25%, due 2/15/15, valued at $2,836 (COST
$2,772)........................................ 2,772
-------
TOTAL INVESTMENT IN SECURITIES (98.4%) (COST $95,268)............... 81,939
-------
FOREIGN CURRENCY (1.4%)
ARP 482 Argentine Peso................................... 482
BRL 267 Brazilian Real................................... 231
COP 6,920 Colombian Peso................................... 5
MXP 3,465 Mexican Peso..................................... 385
PSS 3 Peruvian New Sol................................. 1
VEB 10,387 Venezuelan Bolivar............................... 19
-------
TOTAL FOREIGN CURRENCY (COST $1,126)................................ 1,123
-------
TOTAL INVESTMENTS (99.8%) (COST $96,394)............................ 83,062
OTHER ASSETS IN EXCESS OF LIABILITIES (0.2%)........................ 160
-------
NET ASSETS (100%)................................................... $83,222
=======
</TABLE>
- ---------------
(a) -- Non-income producing security
(d) -- Security valued at fair value--see note A-1 to financial statements
(e) -- 144A Security--certain conditions for public sale may exist
ADR -- American Depositary Receipt
CPO -- Certificate of Participation
GDR -- Global Depositary Receipt
GDS -- Global Depositary Shares
The accompanying notes are an integral part of the financial statements.
<PAGE> 347
VAN KAMPEN
LATIN AMERICAN FUND
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
- --------------------------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE INFORMATION:
Under the terms of foreign currency contracts open at June 30, 1998, the
Portfolio is obligated to deliver or is to receive foreign currency in exchange
for U.S. dollars as indicated below:
<TABLE>
<CAPTION>
CURRENCY IN EXCHANGE NET UNREALIZED
TO DELIVER VALUE SETTLEMENT FOR VALUE GAIN (LOSS)
(000) (000) DATE (000) (000) (000)
- ---------- ----- ------------- --------------- ----- -----------------
<S> <C> <C> <C> <C> <C>
MXP 2,158 $ 240 7/1/98 $ 240 $ 240 $ --
</TABLE>
- ---------------
MXP -- Mexican Peso
- --------------------------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION (UNAUDITED)
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
- ------------------------------------------------- --------- -------------
<S> <C> <C>
Services......................................... $ 41,509 49.9%
Energy........................................... 13,424 16.1
Consumer Goods................................... 11,891 14.3
Materials........................................ 6,239 7.5
Finance.......................................... 5,134 6.2
Multi-Industry................................... 970 1.1
--------- ----
$ 79,167 95.1%
========= ====
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 348
MORGAN STANLEY
MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
JUNE 30, 1998
<TABLE>
<CAPTION>
FACE AMORTIZED
AMOUNT COST
(000) (000)
- ------------------------------------------------------------------------
<S> <C>
U.S. GOVERNMENT & AGENCY OBLIGATIONS (4.2%)
FEDERAL HOME LOAN MORTGAGE CORP. DISCOUNT NOTES (4.2%)
$ 5,000 5.46%, 4/21/99 (COST $4,998)..................... $ 4,998
--------
COMMERCIAL PAPER (47.2%)
AUTOMOBILES (5.8%)
4,000 Daimler-Benz 5.57%, 8/12/98...................... 3,974
3,000 Ford Motor Credit Corp. 5.48%, 7/16/98........... 2,993
--------
6,967
--------
CONSUMER STAPLES (7.8%)
3,000 Eastman Kodak Co. 5.55%, 8/25/98................. 2,975
3,000 H.J. Heinz Co. 5.49%, 7/22/98.................... 2,990
3,300 Monsanto Co. 5.50%, 7/9/98....................... 3,296
--------
9,261
--------
FINANCIAL SERVICES (11.6%)
3,000 American Express Credit Corp. 5.51%, 8/28/98..... 2,973
3,000 General Electric 5.50%, 9/15/98.................. 2,965
2,000 International Lease Finance 5.54%, 7/16/98....... 1,995
3,000 Merrill Lynch 5.54%, 7/30/98..................... 2,987
3,000 Metlife Funding 5.54%, 9/9/98.................... 2,968
--------
13,888
--------
SPECIAL PURPOSE ENTITY (7.5%)
3,000 Atlantic Asset Security 5.54%, 7/10/98........... 2,996
3,000 Citation Capital 5.55%, 7/27/98.................. 2,988
3,000 Greenwich Funding 5.53%, 7/20/98................. 2,991
--------
8,975
--------
TELECOMMUNICATIONS (2.0%)
2,340 SBC Communication 5.50%, 8/6/98.................. 2,327
--------
U.S. BANKS (5.0%)
3,000 Bank of America 5.52%, 8/21/98................... 2,977
3,000 J.P. Morgan & Co. 5.47%, 7/16/98................. 2,993
--------
5,970
--------
UTILITIES (2.5%)
3,000 National Rural 5.50%, 8/7/98..................... 2,983
--------
INSURANCE (5.0%)
3,000 General RE Insurance 5.51%, 9/3/98............... 2,971
3,000 USAA Capital Corp. 5.47%, 7/10/98................ 2,996
--------
5,967
--------
TOTAL COMMERCIAL PAPER (COST $56,338)........................ 56,338
--------
</TABLE>
<PAGE> 349
<TABLE>
<CAPTION>
FACE AMORTIZED
AMOUNT COST
(000) (000)
- ------------------------------------------------------------------------
<S> <C>
CERTIFICATES OF DEPOSIT (25.1%)
NON U.S. BANKS (10.0%)
$ 3,000 Canadian Imperial Bank (Yankee) 5.94%, 10/23/98.. $ 3,000
3,000 Credit Agricole (Yankee) 5.66%, 3/29/99.......... 2,998
2,000 National Westminster Bank 5.53%, 8/5/98.......... 2,000
4,000 Swiss Bank, New York 5.83%, 12/16/98............. 3,999
--------
11,997
--------
U.S. BANKS (10.0%)
1,000 ABN-AMRO Bank N.V., Chicago (Yankee) 5.65%,
3/22/99........................................ 1,000
2,000 ABN-AMRO Bank N.V., Chicago (Yankee) 5.75%,
3/31/99........................................ 1,999
3,000 Bank of Austria, New York (Yankee) 5.74%,
4/26/99........................................ 2,999
3,000 Bank of Montreal, Chicago (Yankee) 5.80%,
11/6/98........................................ 2,999
(h)3,000 Societe Generale Bank, New York (Yankee) 5.59%,
1/19/99........................................ 2,999
--------
11,996
--------
FOREIGN BONDS (5.1%)
(h)3,000 Bayerische Landesbank 5.52%, 6/29/99............. 2,998
(h)3,000 Royal Bank of Canada, New York 5.53%, 6/29/99.... 2,998
--------
5,996
--------
TOTAL CERTIFICATES OF DEPOSIT (COST $29,989)................. 29,989
--------
CORPORATE FLOATING RATE NOTES (6.7%)
BANKS (4.2%)
(h)3,000 Banc One, Dayton 5.84%, 8/21/98.................. 3,000
(h)2,000 First Union National Bank 5.79%, 5/17/99......... 2,000
--------
5,000
--------
TECHNOLOGY (2.5%)
(h)3,000 IBM Credit Corp. 5.66%, 11/20/98................. 3,000
--------
TOTAL CORPORATE FLOATING RATE NOTES (COST $8,000)............ 8,000
--------
REPURCHASE AGREEMENT (16.4%)
19,615 J.P. Morgan Securities, Inc., 5.50%, dated
6/30/98, due 7/1/98, to be repurchased at
$19,618, collateralized by U.S. Treasury Notes,
5.375%, 6/30/00, valued at $20,048 (COST
$19,615)....................................... 19,615
--------
TOTAL INVESTMENTS (99.6%) (COST $118,940).................... 118,940
OTHER ASSETS IN EXCESS OF LIABILITIES (0.4%)................. 436
--------
NET ASSETS (100%)............................................ $119,376
========
</TABLE>
- ---------------
(h) -- Variable/floating rate security -- rate disclosed is as of June 30,
1998.
<PAGE> 350
The accompanying notes are an integral part of the financial statements.
<PAGE> 351
VAN KAMPEN
U.S. REAL ESTATE FUND
PORTFOLIO OF INVESTMENTS
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (94.2%)
DIVERSIFIED (7.5%)
6,900 Capital Automotive REIT.......................... $ 98
1,400 Crescent Real Estate Equities Co. REIT........... 47
41,400 Pacific Gulf Properties, Inc. REIT............... 895
26,800 Pennsylvania Real Estate Investment Trust........ 595
11,100 Vornado Realty Trust............................. 440
(a)45,351 Wellsford Properties, Inc........................ 641
-------
2,716
-------
LAND (0.2%)
(a)45,224 Atlantic Gulf Communities Corp................... 93
-------
LODGING/RESORTS (8.5%)
(a)18,800 Capstar Hotel Co................................. 526
(a)34,400 Host Marriott Corp............................... 613
(a)12,200 John Q. Hammons Hotels, Inc...................... 86
34,251 Starwood Lodging Trust REIT...................... 1,655
(a)13,000 Station Casinos, Inc............................. 191
-------
3,071
-------
OFFICE/INDUSTRIAL (37.2%)
INDUSTRIAL (2.4%)
8,200 Meridian Industrial Trust REIT................... 189
41,200 Prime Group Realty Trust......................... 705
-------
894
-------
OFFICE/INDUSTRIAL MIXED (3.5%)
6,500 Bedford Property Investors, Inc. REIT............ 119
19,100 Reckson Associates Realty Corporation REIT....... 451
3,056 Reckson Service Industries, Inc.................. 10
17,500 Spieker Properties, Inc. REIT.................... 678
-------
1,258
-------
OFFICE (31.3%)
70,800 Arden Realty Group, Inc.......................... 1,832
(e,d)37,100 Beacon Capital Partners, Inc..................... 742
60,766 Brandywine Realty Trust REIT..................... 1,360
99,700 Brookfield Properties Corp....................... 1,372
62,700 CarrAmerica Realty Corp. REIT.................... 1,779
43,706 Equity Office Properties Trust REIT.............. 1,240
48,000 Great Lakes Inc. REIT............................ 837
17,600 Kilroy Realty Corp. REIT......................... 440
16,300 Mack-Cali Realty Corp............................ 560
28,600 SL Green Realty Corp............................. 644
25,200 Trizec Hahn Corp................................. 540
-------
11,346
-------
TOTAL OFFICE/INDUSTRIAL........................................ 13,498
-------
RESIDENTIAL (19.5%)
APARTMENTS (13.8%)
38,300 Avalon Bay Communities, Inc. REIT................ 1,455
2,300 Charles E. Smith Residential Realty, Inc......... 74
10,800 Equity Residential Properties Trust.............. 512
40,000 Essex Property Trust, Inc. REIT.................. 1,240
19,900 Irvine Apartment Communities, Inc. REIT.......... 576
47,032 Security Capital Atlantic, Inc................... 1,050
3,700 Security Capital Pacific Trust REIT.............. 83
-------
4,990
-------
</TABLE>
<PAGE> 352
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ------------------------------------------------------------------------
<S> <C>
MANUFACTURED HOMES (5.7%)
63,148 Chateau Communities, Inc. REIT................... $ 1,815
3,300 Manufactured Home Communities, Inc. REIT......... 80
5,300 Sun Communities, Inc............................. 176
-------
2,071
-------
TOTAL RESIDENTIAL.............................................. 7,061
-------
RETAIL (17.0%)
REGIONAL MALLS (7.1%)
18,100 CBL & Associates Properties, Inc. REIT........... 439
103,000 Taubman Center, Inc. REIT........................ 1,468
21,500 Urban Shopping Centers, Inc. REIT................ 677
-------
2,584
-------
STRIP CENTERS (9.9%)
79,600 Burnham Pacific Property Trust REIT.............. 1,129
61,000 Federal Realty Investment Trust REIT............. 1,468
22,200 Pan Pacific Retail Properties, Inc. REIT......... 430
200 Ramco-Gershenson Properties Trust REIT........... 4
21,700 Regency Realty Corp. REIT........................ 545
-------
3,576
-------
TOTAL RETAIL................................................... 6,160
-------
SELF STORAGE (4.3%)
9,379 PS Business Parks, Inc. `A' REIT................. 220
25,788 PS Business Parks, Inc........................... 606
11,100 Public Storage, Inc. REIT........................ 311
15,300 Shurgard Storage Centers, Inc. `A' REIT.......... 425
-------
TOTAL SELF STORAGE............................................. 1,562
-------
TOTAL COMMON STOCKS (COST $34,037)............................. 34,161
-------
PREFERRED STOCKS (0.7%)
LAND (0.3%)
(a,f)5,829 Atlantic Gulf Communities Corp................... 41
(a,f)8,207 Atlantic Gulf Communities Corp................... 57
-------
98
-------
RETAIL (0.4%)
STRIP CENTER (0.4%)
5,500 First Washington Realty Trust, Inc. `A'.......... 159
-------
TOTAL PREFERRED STOCKS (COST $294)............................. 257
-------
FACE
AMOUNT
(000)
- -----------
CONVERTIBLE BONDS (0.6%)
OFFICE/INDUSTRIAL (0.6%)
$ (a)224 Brookfield Properties Corp. 6.00%, 2/14/07
(COST $173).................................... 220
-------
NO. OF
WARRANTS
- -----------
WARRANTS (0.0%)
LAND (0.0%)
(a,f)9,609 Atlantic Gulf Communities Corp., Class A,
expiring 6/23/04............................... 5
(a,f)9,609 Atlantic Gulf Communities Corp., Class B,
expiring 6/23/04............................... 5
(a,f)9,609 Atlantic Gulf Communities Corp., Class C,
expiring 6/23/04............................... 5
-------
TOTAL WARRANTS (COST $0)....................................... 15
-------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 353
VAN KAMPEN
U.S. REAL ESTATE FUND
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ------------------------------------------------------------------------
<S> <C>
SHORT-TERM INVESTMENT (1.5%)
REPURCHASE AGREEMENT (1.5%)
$ 537 Chase Securities, Inc., 5.40%, dated 6/30/98, due
7/1/98, to be repurchased at $537,
collateralized by $335, U.S. Treasury Bonds,
11.25%, due 2/15/15, valued at $551 (COST
$537).......................................... $ 537
-------
TOTAL INVESTMENTS (97.0%) (COST $35,041)....................... 35,190
OTHER ASSETS IN EXCESS OF LIABILITIES (3.0%)................... 1,067
-------
NET ASSETS (100%).............................................. $36,257
=======
</TABLE>
- ---------------
(a) -- Non-income producing security
(e) -- 144A Security--certain conditions for public sale may exist.
(d) -- Security valued at fair value--see note A-1 to financial statements.
(f) -- Restricted as to public resale. Total value of restricted securities
at June 30, 1998 was $113 or 0.31% of net assets (Total cost $140).
REIT -- Real Estate Investment Trust
The accompanying notes are an integral part of the financial statements.
<PAGE> 354
VAN KAMPEN
VALUE FUND
PORTFOLIO OF INVESTMENTS
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (86.0%)
CAPITAL EQUIPMENT (22.9%)
CHEMICALS--DIVERSIFIED (3.4%)
29,700 Dow Chemical Co.................................. $ 2,872
40,710 Du Pont (EI) de Nemours Co....................... 3,038
31,560 Rohm & Haas Co................................... 3,280
52,000 The Lubrizol Corp................................ 1,573
--------
10,763
--------
CONSTRUCTION & HOUSING (1.5%)
110,420 Owens Corning.................................... 4,507
--------
ELECTRICAL & ELECTRONICS (0.8%)
64,400 Electronic Data Systems Corp..................... 2,576
--------
ELECTRIC UTILITIES (1.2%)
53,580 DTE Energy Co.................................... 2,163
54,690 Entergy Corp..................................... 1,572
--------
3,735
--------
ELECTRONIC COMPONENTS--MISCELLANEOUS (2.5%)
(a)76,560 Arrow Electronics, Inc........................... 1,665
51,300 Avnet, Inc....................................... 2,806
96,110 Tektronix, Inc................................... 3,400
--------
7,871
--------
HEALTHCARE--MEDICAL DEVICE (1.5%)
83,330 Beckman Coulter, Inc............................. 4,854
--------
INDUSTRIAL COMPONENTS (2.0%)
106,990 Aeroquip-Vickers, Inc............................ 6,245
--------
MACHINERY & ENGINEERING (7.4%)
158,300 Case Corp........................................ 7,638
37,900 Caterpillar, Inc................................. 2,004
106,700 Cummins Engine................................... 5,468
300 Deere & Co....................................... 16
115,660 Harnischfeger Industries, Inc.................... 3,275
65,950 Kennametal, Inc.................................. 2,753
56,725 Parker-Hannifin Corp............................. 2,163
--------
23,317
--------
MANUFACTURING (2.0%)
20,000 Eaton Corp....................................... 1,555
(a)31,510 FMC Corp......................................... 2,148
51,670 Tecumseh Products Co. `A'........................ 2,729
--------
6,432
--------
PROFESSIONAL SERVICES (0.6%)
175,470 Olsten Corp...................................... 1,963
--------
TOTAL CAPITAL EQUIPMENT........................................... 72,263
--------
CONSUMER PRODUCTS--MISCELLANEOUS (28.1%)
AUTOMOBILES (9.6%)
56,690 Dana Corp........................................ 3,033
157,930 Ford Motor Co.................................... 9,318
127,180 General Motors Corp.............................. 8,497
95,900 Goodyear Tire & Rubber Co........................ 6,180
57,860 TRW, Inc......................................... 3,161
--------
30,189
--------
CONSUMER SERVICES (0.4%)
32,970 Standard Register Co............................. 1,166
--------
</TABLE>
<PAGE> 355
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ------------------------------------------------------------------------------
<S> <C>
COMPUTERS/SOFTWARE (3.5%)
76,900 International Business Machines Corp............. $ 8,829
(a)86,300 Stratus Computer, Inc............................ 2,184
--------
11,013
--------
CONSUMER PRODUCTS--MISCELLANEOUS (0.5%)
59,910 Tupperware Corp.................................. 1,685
--------
HEALTHCARE SUPPLIES & SERVICES (3.2%)
112,070 Columbia HCA/Healthcare Corp..................... 3,264
(a)127,400 Foundation Health Systems `A'.................... 3,360
34,410 Mallinckrodt, Inc................................ 1,022
(a)60,310 Maxicare Health Plans, Inc....................... 407
(a)51,100 Tenet Healthcare Corp............................ 1,597
(a)20,900 Vencor, Inc...................................... 151
16,600 Ventas, Inc...................................... 229
--------
10,030
--------
RETAIL--GENERAL (0.7%)
(a)118,100 Venator Group, Inc............................... 2,259
--------
RETAIL--MAJOR DEPARTMENT STORES (4.5%)
93,420 Dillards, Inc. `A'............................... 3,871
(a)39,310 Federated Department Stores...................... 2,115
59,300 Sears, Roebuck & Co.............................. 3,621
(a)191,640 Toys `R' Us, Inc................................. 4,516
--------
14,123
--------
TEXTILES & APPAREL (2.8%)
63,230 Russell Corp..................................... 1,909
48,520 Springs Industries, Inc. `A'..................... 2,238
90,940 VF Corp.......................................... 4,683
--------
8,830
--------
TOBACCO (2.9%)
143,240 Philip Morris Cos., Inc.......................... 5,640
153,340 RJR Nabisco Holdings Corp........................ 3,642
--------
9,282
--------
TOTAL CONSUMER PRODUCTS--MISCELLANEOUS............................ 88,577
--------
ENERGY (4.4%)
ELECTRIC--INTEGRATED (1.4%)
32,970 Cinergy Corp..................................... 1,154
27,400 Duke Power Co.................................... 1,623
43,340 GPU, Inc......................................... 1,639
--------
4,416
--------
OIL & GAS (3.0%)
(a)83,000 Nabors Industries, Inc........................... 1,645
49,660 Phillips Petroleum Co............................ 2,393
75,070 Ultramar Diamond Shamrock Corp................... 2,369
103,400 YPF ADR.......................................... 3,108
--------
9,515
--------
TOTAL ENERGY...................................................... 13,931
--------
FINANCE (18.9%)
BANKING (4.9%)
108,840 Chase Manhattan Corp............................. 8,218
24,330 Citicorp......................................... 3,631
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 356
VAN KAMPEN
VALUE FUND
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ------------------------------------------------------------------------------
<S> <C>
BANKING (CONT.)
14,050 Crestar Financial Corp........................... $ 767
46,640 Republic New York Corp........................... 2,935
--------
15,551
--------
INSURANCE (4.8%)
45,440 Allstate Corp.................................... 4,161
35,020 Hartford Financial Services Group................ 4,006
21,100 Loews Corp....................................... 1,838
106,805 Old Republic International Corp.................. 3,131
46,850 Washington Mutual, Inc........................... 2,035
--------
15,171
--------
LIFE INSURANCE (1.0%)
46,040 American General Corp............................ 3,277
--------
LIFE/HEALTH INSURANCE (1.5%)
69,200 CIGNA Corp....................................... 4,775
--------
REINSURANCE (2.9%)
78,710 Everest Reinsurance Holdings, Inc................ 3,025
71,980 Reliastar Financial Corp......................... 3,455
32,965 Transatlantic Holdings, Inc...................... 2,549
--------
9,029
--------
SUPER-REGIONAL BANKS--U.S. (3.8%)
57,100 Banc One Corp.................................... 3,187
112,889 First Union Corp. (N.C.)......................... 6,576
30,600 NationsBank Corp................................. 2,341
--------
12,104
--------
TOTAL FINANCE..................................................... 59,907
--------
MATERIALS (6.3%)
CHEMICALS (4.1%)
44,400 Air Products & Chemicals, Inc.................... 1,776
40,130 British Petroleum ADR............................ 3,541
36,110 Cabot Corp....................................... 1,167
75,230 Great Lakes Chemical Corp........................ 2,967
73,200 IMC Global, Inc.................................. 2,205
(a)87,400 W.R. Grace & Co.................................. 1,491
--------
13,147
--------
ENERGY (1.0%)
40,610 Atlantic Richfield Co............................ 3,173
--------
FOREST PRODUCTS & PAPER (0.4%)
41,820 Westvaco Corp.................................... 1,181
--------
</TABLE>
<PAGE> 357
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ------------------------------------------------------------------------------
<S> <C>
METALS--STEEL (0.8%)
89,700 Inland Steel Industries, Inc..................... $ 2,528
--------
TOTAL MATERIALS................................................... 20,029
--------
SERVICES (5.4%)
FOOD--MISCELLANEOUS (1.4%)
78,410 IBP, Inc......................................... 1,421
138,820 Universal Foods Corp............................. 3,080
--------
4,501
--------
TELECOMMUNICATIONS EQUIPMENT (1.2%)
82,700 Bell Atlantic Corp............................... 3,773
--------
TRANSPORTATION--AIRLINES (2.0%)
(a)31,180 AMR Corp......................................... 2,596
26,800 Delta Airlines, Inc.............................. 3,464
--------
6,060
--------
TRANSPORTATION--RAIL (0.8%)
6,200 Burlington Northern Railroad Co.................. 609
44,280 CSX Corp......................................... 2,015
--------
2,624
--------
TOTAL SERVICES.................................................... 16,958
--------
TOTAL COMMON STOCKS (COST $270,443)................................. 271,665
--------
FACE
AMOUNT
(000)
- ----------------
SHORT-TERM INVESTMENT (13.6%)
REPURCHASE AGREEMENT (13.6%)
$ 42,983 Chase Securities, Inc., 5.40%, dated 6/30/98, due
7/1/98, to be repurchased at $42,989,
collateralized by $43,900 U.S. Treasury Notes,
5.50%, due 12/31/00, valued at $45,087 (COST
$42,983)....................................... 42,983
--------
TOTAL INVESTMENTS (99.6%) (COST $313,426)........................... 314,648
OTHER ASSETS IN EXCESS OF LIABILITIES (0.4%)........................ 1,104
--------
NET ASSETS (100%)................................................... $315,752
========
</TABLE>
- ---------------
(a) -- Non-income producing security
ADR -- American Depositary Receipt
The accompanying notes are an integral part of the financial statements.
<PAGE> 358
VAN KAMPEN
WORLDWIDE HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS
JUNE 30, 1998
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------------------
<S> <C>
CORPORATE BONDS & NOTES (37.7%)
ARGENTINA (2.4%)
ARP(e)8,500 CIA International Telecommunication 10.375%,
8/1/04......................................... $ 7,013
--------
AUSTRALIA (0.5%)
$ 1,500 Murrin Murrin Holdings 9.375%, 8/31/07........... 1,479
--------
BRAZIL (1.5%)
(h)4,500 Banco Nacional Desenv Econ 10.30%, 6/16/08....... 4,493
--------
CANADA (0.9%)
400 Rogers Cablesystems Ltd. 10.125%, 9/1/12......... 436
865 Rogers Cablesystems Ltd., Series B, 10.00%,
3/15/05........................................ 961
1,080 Rogers Cantel, Inc. 8.30%, 10/1/07............... 1,056
250 Rogers Communications, Inc. 9.125%, 1/15/06...... 253
100 Rogers Communications, Inc. 8.875%, 7/15/07...... 101
--------
2,807
--------
KOREA (2.6%)
(e)3,200 Export-Import Bank of Korea, 6.50%, 10/6/99...... 3,020
5,900 Korea Electric Power 6.375%, 12/1/03............. 4,651
--------
7,671
--------
MEXICO (1.4%)
4,200 TV Azteca S.A. 10.125%, 2/15/04.................. 4,211
--------
NETHERLANDS (3.0%)
475 Hermes Europe Railtel BV 11.50%, 8/15/07......... 537
(n)1,500 PTC International Finance BV 0.00%, 7/1/07....... 1,031
6,100 SBS Argo Finance BV 10.25%, 7/21/00.............. 4,636
3,375 Tjiwi Kimia International B.V. 13.25%, 8/1/01.... 2,684
--------
8,888
--------
TURKEY (1.9%)
ZAR(e)2,500 Pera Financial Services 9.375%, 10/15/02......... 2,231
$ 500 Pera Financial Services 9.375%, 10/15/02......... 446
3,150 Yapi Kredi Finance Co. 10.00%, 8/19/02........... 3,095
--------
5,772
--------
UNITED KINGDOM (0.3%)
(e,n)1,000 Dolphin Telecommunication plc 0.00%, 6/1/08...... 570
DEM (e)625 Esprit Telecommunication Group plc 11.00%,
6/15/08........................................ 347
--------
917
--------
UNITED STATES (23.2%)
$ 1,025 AES Corp. 8.50%, 11/1/07......................... 1,038
2,930 American Standard Cos., Inc. 7.375%, 2/1/08...... 2,878
625 Advanced Micro Devices 11.00%, 8/1/03............ 661
(e)964 CA FM Lease Trust 8.50%, 7/15/17................. 1,012
700 CB Richard Ellis Service 8.875%, 6/1/06.......... 695
(e)600 CEX Holdings, Inc. 9.625%, 6/1/08................ 606
(e)2,060 Chesapeake Energy Corp., 9.625%, 5/1/05.......... 2,070
85 Columbia/HCA Healthcare 8.125%, 8/4/03........... 87
425 Columbia/HCA Healthcare 6.91%, 6/15/05........... 410
790 Columbia/HCA Healthcare, 7.00%, 7/1/07........... 758
2,500 Columbia/HCA Healthcare, 7.69%, 6/15/25.......... 2,403
2,945 Comcast Cellular Holdings, Series B 9.50%,
5/1/07......................................... 3,070
3,105 CSC Holdings, Inc. 9.875%, 5/15/06............... 3,412
150 CSC Holdings, Inc. 7.875%, 12/15/07.............. 158
</TABLE>
<PAGE> 359
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------------------
<S> <C>
805 DR Securitized Lease Trust, Series 1993-K1, Class
A1, 6.66%, 8/15/10............................. $ 752
963 DR Securitized Lease Trust, Series 1994-K1, Class
A1, 7.60%, 8/15/07............................. 952
250 DR Securitized Lease Trust, Series 1994-K1, Class
A2, 8.375%, 8/15/15............................ 250
150 DR Structured Finance, Series 1994-K2, CMO,
9.35%, 8/15/19................................. 159
(n)1,025 Dial Call Communications, Series B, 0.00%,
12/15/05....................................... 1,015
(e)300 EES Coke Battery Co., Inc. 9.382%, 4/15/07....... 314
49 Fleming Cos., Inc., Series B 10.50%, 12/1/04..... 51
(e)900 Fresenius Medical Capital Trust II 7.875%,
2/1/08......................................... 877
200 Globalstar LP/Capital 11.375%, 2/15/04........... 195
1,610 Grand Casinos, Inc. 10.125%, 12/1/03............. 1,739
625 HMC Acquisition Properties 9.00%, 12/15/07....... 689
950 Host Marriott Travel Plaza, Series B, 9.50%,
5/15/05........................................ 1,012
1,970 ISP Holdings, Inc., Series B, 9.00%, 10/15/03.... 2,054
(e)735 IXC Communications, Inc. 9.00%, 4/15/08.......... 737
(e,n)2,765 Intermedia Communications, Series B, 0.00%,
7/15/07........................................ 2,018
320 Iridium LLC/Capital Corp., Series A 13.00%,
7/15/05........................................ 342
(e)300 Jet Equipment Trust, Series 1995-D, 11.44%,
11/1/14........................................ 406
(e)300 Jet Equipment Trust, Series C-1, 11.79%,
6/15/13........................................ 409
1,150 Kmart Funding Corp. 8.80%, 7/1/10................ 1,190
1,425 Lenfest Communications 8.375%, 11/1/05........... 1,514
(e)70 Lenfest Communications 7.625%, 2/15/08........... 72
950 Musicland Group, Inc. 9.875%, 3/15/08............ 945
(e,n)1,760 NEXTLINK Communications, Inc. 0.00%, 4/15/08..... 1,078
(e)525 NSM Steel Lts. Units 12.25%, 2/1/08.............. 462
200 Navistar Financial Corp., Series B, 9.00%,
6/1/02......................................... 209
(n)565 Nextel Communications 0.00%, 8/15/04............. 548
(n)2,775 Nextel Communications 0.00%, 9/15/07............. 1,859
256 Niagara Mohawk Power Series G 7.75%, 10/1/08..... 262
(n)442 Niagara Mohawk Power Series H 0.00%, 7/1/10...... 304
(n)990 Norcal Waste Systems 13.50%, 11/15/05............ 1,139
(e)735 Onepoint Communications Corp., Units 14.50%,
6/1/08......................................... 691
1,020 Outdoor Systems, Inc., 8.875%, 6/15/07........... 1,063
2,400 Paramount Communications 8.25%, 8/1/22........... 2,537
(e)325 Primus Telecommunications Group 9.875%,
5/15/08........................................ 318
(e)165 Psinet, Inc. 10.00%, 2/15/05..................... 168
320 Qwest Communications International, Series B,
10.875%, 4/1/07................................ 369
(n)2,305 Qwest Communications International 0.00%,
10/15/07....................................... 1,729
(e,n)440 Qwest Communications International 0.00%,
2/1/08......................................... 317
(n)3,465 RCN Corp. 0.00%, 10/15/07........................ 2,235
35 RSL Communications Ltd. 12.25%, 11/15/06......... 39
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 360
VAN KAMPEN
WORLDWIDE HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------------------
<S> <C>
UNITED STATES (CONT.)
$ (e)1,540 RSL Communications Ltd. 9.125%, 3/1/08........... $ 1,494
1,000 Revlon Consumer Products 8.125%, 2/1/06.......... 999
(e,n)425 SB Treasury Co. LLC 9.40%, 12/29/49.............. 423
800 SD Warren Co., Series B, 12.00%, 12/15/04........ 886
(e)2,000 Samsung Electronics Co. 9.75%, 5/1/03............ 1,797
900 Sinclair Broadcast Group 9.00%, 7/15/07.......... 927
(e)530 Smithfield Foods, Inc. 7.625%, 2/15/08........... 529
1,360 Snyder Oil Corp. 8.75%, 6/15/07.................. 1,374
2,232 Southland Corp. 5.00%, 12/15/03.................. 1,939
825 Station Casinos, Inc. 9.75%, 4/15/07............. 931
(n)1,475 TCI Satellite Entertainment 0.00%, 2/15/07....... 996
(n)1,075 Teleport Communications 0.00%, 7/1/07............ 926
1,980 Tenet Healthcare Corp. 8.625%, 1/15/07........... 2,042
500 Tenet Healthcare Corp. 8.125%, 12/1/08........... 503
(e,n)750 Wam!Net, Inc. 0.00%, 3/1/05...................... 476
595 Western Financial Bank 8.875%, 8/1/07............ 558
--------
69,077
--------
TOTAL CORPORATE BONDS & NOTES (COST $114,989)................. 112,328
--------
ASSET BACKED SECURITIES (0.7%)
UNITED STATES (0.7%)
(e)698 Aircraft Lease Portfolio Securitization Ltd.,
Series 1996-1, Class D 12.75%, 6/15/06......... 698
(e)894 Commercial Financial Services, Inc., Series
1997-5, Class A1 7.72%, 6/15/05................ 900
(e)633 Long Beach Acceptance Auto Grantor Trust 1997-1,
Class B, 14.22%, 10/26/03...................... 632
--------
TOTAL ASSET BACKED SECURITIES (COST $2,235)................... 2,230
--------
COLLATERALIZED MORTGAGE OBLIGATIONS (0.9%)
UNITED STATES (0.9%)
36,916 DLJ Mortgage Acceptance Corp., Series 1997-CF2,
Class S, IO, 0.36%, 10/15/30................... 958
(e,h)1,016 DLJ Mortgage Acceptance Corp., Series 1996-CF2,
Class S, IO, 1.64%, 11/12/21................... 83
(e)535 First Home Mortgage Acceptance Corp., Series
1996-B, Class C, 7.93%, 11/1/18................ 483
1,137 OHA Grantor Trust, 11.00%, 9/15/03............... 1,120
--------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (COST $2,568)....... 2,644
--------
EUROBONDS (5.2%)
ARGENTINA (2.8%)
(e,h)2,500 Acindar Industria Argentina 11.55%, 11/12/98..... 2,523
(h)6,470 Republic of Argentina, Series L, 6.625%,
3/31/05........................................ 5,722
--------
8,245
--------
RUSSIA (1.2%)
(e)5,050 Mosenergo Finance BV 8.375%, 10/9/02............. 3,529
--------
TURKEY (1.2%)
3,750 Export Credit Bank of Turkey 9.00%, 8/18/00...... 3,713
--------
TOTAL EUROBONDS (COST $17,021)................................ 15,487
--------
FOREIGN GOVERNMENT & AGENCY OBLIGATIONS (41.5%)
ARGENTINA (3.5%)
11,400 Republic of Argentina 9.75%, 9/19/27............. 10,568
--------
</TABLE>
<PAGE> 361
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------------------
<S> <C>
BRAZIL (10.6%)
$ 12,100 Federative Republic of Brazil, 9.375%, 4/7/08.... $ 10,878
(h)14,793 Federative Republic of Brazil, Series EI-L,
Floating Rate 6.625%, 4/15/06.................. 12,181
11,718 Republic of Brazil "C" PIK 8.00%, 4/15/14........ 8,635
--------
31,694
--------
BULGARIA (1.1%)
(n)5,500 Bulgaria Front Loaded Interest Reduction Bond
2.25%, 7/28/12................................. 3,407
--------
COLOMBIA (0.9%)
(h)2,778 Republic of Colombia Hercules 6.875%, 12/15/03... 2,598
--------
ECUADOR (1.0%)
(e)3,000 Conecel 14.00%, 5/1/02........................... 3,000
--------
JAMAICA (1.7%)
3,000 Government of Jamaica 12.00%, 7/19/99............ 3,090
(e)300 Government of Jamaica 10.875%, 6/10/05........... 300
2,000 Mechala Group Jamaica Ltd., Series B 12.75%,
12/30/99....................................... 1,840
--------
5,230
--------
MEXICO (9.5%)
ZAR 8,000 National Financiera 17.00%, 2/26/99.............. 1,325
$ 7,700 United Mexican States 9.875%, 1/15/07............ 8,014
3,500 United Mexican States 8.625%, 3/12/08............ 3,397
8,950 United Mexican States 11.375%, 9/15/16........... 9,979
4,900 United Mexican States 11.50%, 5/15/26............ 5,570
--------
28,285
--------
PERU (0.9%)
(e,n)3,950 Republic of Peru Front Loaded Interest Reduction
Bond 3.25%, 3/7/17............................. 2,207
700 Republic of Peru Front Loaded Interest Reduction
Bond 3.25%, 3/7/17............................. 391
--------
2,598
--------
RUSSIA (11.1%)
6,000 Ministry of Finance 14.00%, 5/19/99.............. 5,078
(e)8,050 Ministry of Finance 11.75%, 6/10/03.............. 7,124
13,950 Ministry of Finance 10.00%, 6/26/07.............. 10,550
(e)7,400 Ministry of Finance 12.75%, 6/24/28.............. 6,614
208 Republic of Russia 6.625%, 12/15/15.............. 116
4 Ministry of Finance Tranche VI GDR 3.00%,
5/14/03........................................ 2
(e)3,800 Unexim International Finance BV 9.875%, 8/1/00... 2,893
900 Unexim International Finance BV 9.875%, 8/1/00... 685
--------
33,062
--------
THAILAND (0.8%)
2,290 Kingdom of Thailand 8.70%, 8/1/99................ 2,297
--------
VENEZUELA (0.4%)
(h)1,357 Republic of Venezuela Discount Bond, Series L,
6.625%, 12/18/07............................... 1,111
--------
TOTAL FOREIGN GOVERNMENT & AGENCY OBLIGATIONS
(COST $133,981)............................................. 123,850
--------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 362
VAN KAMPEN
WORLDWIDE HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
FACE
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------------------
LOAN AGREEMENTS (2.5%)
GABON (1.1%)
$ (h)4,376 Republic of Gabon Syndicated Loan, 6.69%,
4/1/04......................................... $ 3,479
--------
JAMAICA (0.3%)
(h)938 Republic of Jamaica Syndicated Loan, 6.44%,
12/1/05........................................ 858
--------
RUSSIA (1.1%)
(h)6,750 Republic of Russia Syndicated Loan, 3.31%,
12/15/20....................................... 3,206
--------
TOTAL LOAN AGREEMENTS (COST $8,080)............................. 7,543
--------
SHARES
------------
PREFERRED STOCKS (1.1% )
UNITED STATES (1.1%)
(a)3,250 Concentric Network Corp. 13.50%.................. 323
(a)17 IXC Communications, Inc. PIK 9.50%............... 20
3 Time Warner, Inc., Series M, 10.25%.............. 2,986
--------
TOTAL PREFERRED STOCKS (COST $3,298)............................ 3,329
--------
UNITS (0.4%)
UNITED STATES (0.4%)
(e)885 AMSC Acquisition Co. 12.25%, 4/1/08.............. 832
(e,n)500 Viatel, Inc. 0.00%, 4/15/08...................... 301
--------
TOTAL UNITS (COST $1,216)....................................... 1,133
--------
NO. OF
WARRANTS
- ------------
WARRANTS (0.0%)
UNITED STATES (0.0%)
(a)325 Concentric Network Corp. (COST $0)............... --
--------
TOTAL FOREIGN & U.S. SECURITIES (90.0%) (COST $283,388)......... 268,544
--------
FACE
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------------------
SHORT-TERM INVESTMENT (3.9%)
REPURCHASE AGREEMENT (3.9% )
$ 11,543 Chase Securities, Inc., 5.40%, dated 6/30/98, due
7/1/98, to be repurchased at $11,545,
collateralized by $10,410 U.S. Treasury Notes,
7.875%, due 11/15/04, valued at $11,799.
(COST $11,543)................................. $ 11,543
--------
TOTAL INVESTMENTS IN SECURITIES (93.9%) (COST $294,931)......... 280,087
--------
FOREIGN CURRENCY (0.2%)
FRF 3,213 French Franc (COST $569)......................... 531
--------
TOTAL INVESTMENTS (94.1%) (COST $295,500)....................... 280,618
OTHER ASSETS IN EXCESS OF LIABILITIES (5.9%).................... 17,559
--------
NET ASSETS (100%)............................................... $298,177
========
- ---------------
(a) -- Non-income producing security
(e) -- 144A Security - certain conditions for public sale may exist.
(h) -- Variable/floating rate security - rate disclosed is as of June 30,
1998.
(n) -- Step Bond - coupon rate increases in increments to maturity. Rate
disclosed is as of June 30, 1998. Maturity date disclosed is the
ultimate maturity date.
ARP -- Argentine Peso
DEM -- German Mark
FRF -- French Franc
GDR -- Global Depositary Receipt
PIK -- Payment-In-Kind. Income may be received in additional securities or
cash at the discretion of the issuer.
IO -- Interest only
ZAR -- South African Rand
- --------------------------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE INFORMATION:
Under the terms of forward foreign currency contracts open at June 30, 1998, the
Fund is obligated to deliver or is to receive foreign currency in exchange for
U.S. dollars as indicated below:
CURRENCY IN EXCHANGE NET UNREALIZED
TO DELIVER VALUE SETTLEMENT FOR VALUE GAIN (LOSS)
(000) (000) DATE (000) (000) (000)
- ---------- ------ ---------- ----------- ------ --------------
DEM 625 $ 348 9/25/98 $ 351 $ 351 $ 4
ZAR 8,226 1,384 7/7/98 $1,600 1,600 215
------ ------ -----
$1,732 $1,951 $219
====== ====== =====
- ---------------
DEM -- German Mark
ZAR -- South African Rand
- --------------------------------------------------------------------------------
SUMMARY OF FOREIGN & U.S. SECURITIES
BY INDUSTRY CLASSIFICATION (UNAUDITED)
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
- ----------------------------------------------------------------------- --------- -------------
<S> <C> <C>
Foreign Government & Agency Obligations................................ $ 123,850 41.6%
Multi-Industry......................................................... 38,210 12.8
Telecommunications..................................................... 27,121 9.1
Finance................................................................ 23,958 8.0
Eurobonds.............................................................. 15,487 5.2
Services............................................................... 11,322 3.8
Loan Agreements........................................................ 7,543 2.5
Collateralized Mortgage Obligations & Asset Backed Securities.......... 4,874 1.6
Consumer Goods......................................................... 4,074 1.4
Broadcast--Radio & Television.......................................... 3,265 1.1
Technology............................................................. 2,458 0.8
Materials.............................................................. 2,054 0.7
Utilities.............................................................. 1,604 0.6
Energy................................................................. 1,374 0.4
Transportation......................................................... 1,350 0.4
--------- ---
$ 268,544 90.0%
========= ====
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 363
VAN KAMPEN SERIES FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
JUNE 30, 1998
<TABLE>
<CAPTION>
GOVERNMENT
GLOBAL GLOBAL OBLIGATIONS
AGGRESSIVE AMERICAN ASIAN EMERGING GLOBAL EQUITY FIXED MONEY
EQUITY VALUE GROWTH MARKETS EQUITY ALLOCATION INCOME MARKET
FUND FUND FUND FUND FUND FUND FUND FUND
(000) (000) (000) (000) (000) (000) (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments in Securities, at Value
See accompanying portfolios $218,999 $614,977 $97,565 $141,340 $771,187 $609,960 $7,602 $56,317
Foreign Currency -- -- 6,231 2,073 2,159 1,543 5 --
Cash -- -- -- -- 1 -- -- --
Margin Deposit on Futures -- -- -- -- -- 4,224 -- --
Receivable for:
Investments Sold 3,422 8,168 385 1,148 -- 99 -- --
Variation of Futures Contracts -- -- -- -- -- 518 -- --
Fund Shares Sold 1,715 7,810 177 408 3,166 1,902 14 --
Dividends 86 324 348 429 1,672 1,374 -- --
Interest 2 10 1 377 7 19 180 102
Security Lending Income -- -- -- -- -- 13 -- --
Foreign Withholding Tax Reclaim -- -- 24 41 342 301 -- --
Net Unrealized Gain on Foreign
Currency Exchange Contracts -- -- -- 763 -- -- 11 --
Deferred Organizational Costs 26 1 -- 3 35 -- -- --
Receivable from Investment Adviser -- -- 26 -- -- -- 16 --
Securities, at Value, Held as
Collateral for Securities Loaned -- -- -- -- -- 21,788 -- --
Other 1 3 53 2 5 56 -- 7
---------- -------- -------- -------- -------- ---------- ------ ----------
Total Assets 224,251 631,293 104,810 146,584 778,574 641,797 7,828 56,426
---------- -------- -------- -------- -------- ---------- ------ ----------
LIABILITIES:
Payable for:
Investments Purchased 4,001 11,702 955 723 2,321 3,890 -- --
Fund Shares Redeemed 338 930 1,247 1,844 447 17,200 31 --
Bank Overdraft -- -- -- 2,218 -- 6 -- 2
Dividends Declared 6 -- -- -- -- 54 23 58
Investment Advisory Fees 82 255 -- 38 625 384 -- 18
Administrative Fees 43 119 23 35 158 109 2 2
Custody Fees 4 1 233 394 83 346 3 1
Professional Fees 18 18 40 43 49 70 20 17
Distribution Fees 262 684 127 178 1,175 554 6 20
Shareholder Reporting Expenses 24 52 29 18 71 94 6 --
Transfer Agent Fees 23 46 36 20 61 244 6
Directors' Fees and Expenses 5 8 16 10 9 49 5 6
Securities Lending Expense -- -- -- -- -- 15 -- --
Filing and Registration Fees 40 141 -- 9 202 19 -- --
Deferred Country Tax -- -- 21 27 -- -- -- --
Collateral on Securities Loaned -- -- -- -- -- 21,788 -- --
Net Unrealized Loss on Foreign
Currency Exchange Contracts -- -- 1 -- 64 513 -- --
Unrealized Loss on Swap Agreements -- -- -- 932 -- -- -- --
Other 1 -- 5 33 -- 382 -- --
---------- -------- -------- -------- -------- ---------- ------ ----------
Total Liabilities 4,847 13,956 2,733 6,522 5,265 45,717 102 124
---------- -------- -------- -------- -------- ---------- ------ ----------
NET ASSETS $219,404 $617,337 $102,077 $140,062 $773,309 $596,080 $7,726 $56,302
========== ======== ======== ======== ======== ========== ====== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 364
VAN KAMPEN SERIES FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998 (CONT.)
<TABLE>
<CAPTION>
HIGH
YIELD WORLDWIDE
& TOTAL INTERNATIONAL LATIN MONEY U.S. REAL HIGH
RETURN MAGNUM AMERICAN MARKET ESTATE VALUE INCOME
FUND FUND FUND FUND FUND FUND FUND
(000) (000) (000) (000) (000) (000) (000)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments in Securities, at Value
See accompanying portfolios $33,855 $133,555 $81,939 $118,940 $35,190 $314,648 $280,087
Foreign Currency -- 699 1,123 -- -- -- 531
Cash -- -- 66 -- 5 69 1,878
Receivable for:
Investments Sold -- 419 336 -- 1,045 1,714 12,012
Fund Shares Sold 360 1,928 266 -- 145 2,067 2,617
Dividends -- 309 230 -- 298 378 1
Interest 470 3 -- 657 5 6 6,707
Security Lending Income -- -- -- -- -- -- --
Foreign Withholding Tax Reclaim -- 105 -- -- -- -- --
Net Unrealized Gain on Foreign
Currency Exchange Contracts -- 268 -- -- -- -- 219
Deferred Organizational Costs 14 22 3 -- 11 6 3
Other -- 1 3 41 13 2 2
-------- --------- --------- --------- ---------- ---------- ----------
Total Assets 34,699 137,309 83,966 119,638 36,712 318,890 304,057
-------- --------- --------- --------- ---------- ---------- ----------
LIABILITIES:
Payable for:
Investments Purchased -- 2,716 -- -- 249 1,488 2,408
Fund Shares Redeemed 31 358 356 -- 106 836 609
Bank Overdraft 7 6 -- 156 -- -- --
Dividends Declared 192 -- -- 40 6 -- 2,070
Investment Advisory Fees 6 45 116 35 6 195 183
Administrative Fees 7 28 24 1 8 65 62
Custody Fees 2 69 73 -- 9 35 24
Professional Fees 15 19 21 17 15 36 35
Distribution Fees 44 131 99 1 37 346 388
Shareholder Reporting Expenses 6 13 12 -- 4 26 17
Transfer Agent Fees 4 19 26 1 6 16 28
Directors' Fees and Expenses 4 5 6 11 5 6 9
Filing and Registration Fees 3 22 5 -- 4 89 39
Country Tax -- -- 5 -- -- -- --
Other -- -- 1 -- -- -- 8
-------- --------- --------- --------- ---------- ---------- ----------
Total Liabilities 321 3,431 744 262 455 3,138 5,880
-------- --------- --------- --------- ---------- ---------- ----------
NET ASSETS $34,378 $133,878 $83,222 $119,376 $36,257 $315,752 $298,177
======== ========= ========= ========= ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 365
VAN KAMPEN SERIES FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998 (CONT.)
<TABLE>
<CAPTION>
GLOBAL GLOBAL OBLIGATIONS
AGGRESSIVE AMERICAN ASIAN EMERGING GLOBAL EQUITY FIXED MONEY
EQUITY VALUE GROWTH MARKETS EQUITY ALLOCATION INCOME MARKET
FUND FUND FUND FUND FUND FUND FUND FUND
(000) (000) (000) (000) (000) (000) (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSETS CONSIST OF:
Capital Stock at Par $ 11 $ 21 $ 16 $ 18 $ 70 $ 233 $ 1 $ 62
Paid in Capital in Excess of Par 198,527 565,577 253,634 206,540 709,605 500,322 7,794 56,291
Undistributed (Distributions in
Excess of) Net Investment Income (4) (6) (1,200) (1,090) 1,301 4,082 (150) 38
Accumulated (Distributions in
Excess of) Net Realized Gain
(Loss) 14,747 34,999 (126,890) (28,054) 978 12,058 21 (89)
Unrealized Appreciation
(Depreciation) on Investments and
Foreign Currency Translations** 6,123 16,746 (23,483) (37,352) 61,355 79,385 60 --
---------- -------- -------- -------- -------- ---------- ------ ----------
NET ASSETS $ 219,404 $617,337 $102,077 $140,062 $773,309 $ 596,080 $7,726 $ 56,302
========== ======== ======== ======== ======== ========== ====== ==========
CLASS A SHARES:
Net Assets $ 64,035 $220,100 $ 47,128 $ 74,959 $ 80,508 $ 261,633 $4,413 $ 56,302
Shares Issued and Outstanding
($.001 par value)
(Authorized 2,625,000,000) 3,200 10,315 7,218 9,388 7,239 15,695 440 56,414
Net Asset Value and Redemption
Price Per Share $ 20.01 $ 21.34 $ 6.53 $ 7.98 $ 11.12 $ 16.67 $10.02 $ 1.00
========== ======== ======== ======== ======== ========== ====== ==========
Maximum Sales Charge 5.75% 5.75% 5.75% 5.75% 5.75% 5.75% 4.75% --
Maximum Offering Price Per Share
(Net Asset Value Per Share X
100/(100 - maximum sales charge)) $ 21.23 $ 22.64 $ 6.93 $ 8.38 $ 11.80 $ 17.69 $10.52 --
========== ======== ======== ======== ======== ========== ====== ==========
CLASS B SHARES:
Net Assets $ 130,497 $269,836 $ 26,126 $ 36,423 $623,229 $ 225,797 $1,425 --
Shares Issued and Outstanding
($.001 par value)
(Authorized 2,625,000,000) 6,634 12,730 4,143 4,679 56,269 13,987 143 --
Net Asset Value and Offering Price
Per Share*** $ 19.67 $ 21.20 $ 6.31 $ 7.78 $ 11.08 $ 16.14 $ 9.97 --
========== ======== ======== ======== ======== ========== ====== ==========
CLASS C SHARES:
Net Assets $ 24,872 $127,401 $ 28,823 $ 28,680 $ 69,572 $ 108,650 $1,888 --
Shares Issued and Outstanding
($.001 par value)
(Authorized 2,625,000,000) 1,265 6,008 4,583 3,681 6,282 6,666 190 --
Net Asset Value and Offering Price
Per Share*** $ 19.66 $ 21.20 $ 6.29 $ 7.79 $ 11.07 $ 16.30 $ 9.96 --
========== ======== ======== ======== ======== ========== ====== ==========
Investments at Cost, Including
Foreign Currency $ 212,876 $598,231 $127,293 $180,615 $711,914 $ 532,332 $7,557 $ 56,317
========== ======== ======== ======== ======== ========== ====== ==========
</TABLE>
- ---------------
* Includes repurchase agreements aggregating $10,586,000, $67,722,000,
$5,971,000, $4,983,000, $46,443,000, $125,328,000, $390,000,
$9,398,000, $1,424,000, $18,731,000 $2,772,000, $19,615,000, $537,000,
$42,983,000 and $11,543,000 for Aggressive Equity Fund, American Value
Fund, Asian Growth Fund, Emerging Markets Fund, Global Equity Fund,
Global Equity Allocation Fund, Global Fixed Income Fund, Government
Obligations Money Market Fund, High Yield & Total Return Fund,
International Magnum Fund, Latin American Fund, Money Market Fund,
U.S. Real Estate Fund, Value Fund, and Worldwide High Income Fund,
respectively.
** Net of accrual for country tax of U.S. $8,000 for Asian Growth Fund
and $26,000 for Emerging Markets Fund.
*** Redemption price may be subject to a contingent deferred sales charge.
The accompanying notes are an integral part of the financial statements.
<PAGE> 366
VAN KAMPEN SERIES FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998 (CONT.)
<TABLE>
<CAPTION>
HIGH
YIELD WORLDWIDE
& TOTAL INTERNATIONAL LATIN MONEY U.S. REAL HIGH
RETURN MAGNUM AMERICAN MARKET ESTATE VALUE INCOME
FUND FUND FUND FUND FUND FUND FUND
(000) (000) (000) (000) (000) (000) (000)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSETS CONSIST OF:
Capital Stock at Par $ 27 $ 9 $ 7 $ 119 $ 2 $ 30 $ 24
Paid in Capital in Excess of Par 33,531 121,221 106,175 119,334 34,797 309,683 310,969
Undistributed (Distributions in
Excess of) Net Investment
Income 36 1,524 (95) (6) 4 (45) 781
Accumulated (Distributions in
Excess of) Net Realized
Gain (Loss) 574 874 (9,525) (71) 1,305 4,863 1,096
Unrealized Appreciation
(Depreciation) on Investments and
Foreign Currency Translations** 210 10,250 (13,340) -- 149 1,221 (14,693)
------- ------------- -------- -------- --------- --------- ---------
NET ASSETS $34,378 $ 133,878 $ 83,222 $119,376 $ 36,257 $ 315,752 $ 298,177
======= ============= ======== ======== ========= ========= =========
CLASS A SHARES:
Net Assets $ 7,814 $ 66,817 $ 44,439 $119,376 $ 16,873 $ 137,447 $ 91,579
Shares Issued and Outstanding
($.001 par value)
(Authorized 2,625,000,000) 617 4,501 3,890 119,514 1,081 13,057 7,347
Net Asset Value and Redemption
Price Per Share $ 12.66 $ 14.85 $ 11.42 $ 1.00 $ 15.61 $ 10.53 $ 12.46
======= ============= ======== ======== ========= ========= =========
Maximum Sales Charge 4.75% 5.75% 5.75% -- 5.75% 5.75% 4.75%
Maximum Offering Price Per Share
(Net Asset Value Per Share X
100 / (100 - maximum sales charge)) $ 13.43 $ 15.76 $ 12.12 -- $ 16.39 $ 11.17 $ 13.08
======= ============= ======== ======== ========= ========= =========
CLASS B SHARES:
Net Assets $18,419 $ 51,541 $ 24,206 -- $ 15,197 $ 142,741 $ 146,401
Shares Issued and Outstanding
($.001 par value)
(Authorized 2,625,000,000) 1,458 3,500 2,195 -- 978 13,576 11,810
Net Asset Value and Offering Price
Per Share*** $ 12.63 $ 14.72 $ 11.03 -- $ 15.54 $ 10.51 $ 12.40
======= ============= ======== ======== ========= ========= =========
CLASS C SHARES:
Net Assets $ 8,145 $ 15,520 $ 14,577 -- $ 4,187 $ 35,564 $ 60,197
Shares Issued and Outstanding
($.001 par value)
(Authorized 2,625,000,000) 645 1,050 1,321 -- 269 3,386 4,854
Net Asset Value and Offering Price
Per Share*** $ 12.63 $ 14.78 $ 11.04 -- $ 15.55 $ 10.50 $ 12.40
======= ============= ======== ======== ========= ========= =========
Investments at Cost, Including
Foreign Currency $33,645 $ 124,261 $ 96,394 $118,940 $ 35,041 $ 313,426 $ 295,500
======= ============= ======== ======== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 367
VAN KAMPEN SERIES FUND, INC.
STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
GOVERNMENT
GLOBAL GLOBAL OBLIGATIONS
AGGRESSIVE AMERICAN ASIAN EMERGING GLOBAL* EQUITY FIXED MONEY
EQUITY VALUE GROWTH MARKETS EQUITY ALLOCATION INCOME MARKET
FUND FUND FUND FUND FUND FUND FUND FUND
(000) (000) (000) (000) (000) (000) (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 1,061 $ 3,096 $ 2,836 $ 3,788 $ 9,475 $ 5,332 $ -- $ --
Interest 350 1,345 519 1,019 2,619 2,018 502 3,830
Security Lending -- -- -- -- -- 152 -- --
Less Foreign Taxes Withheld -- -- (266) (183) (885) (311) (4) --
---------- -------- --------- -------- ------- ---------- ------ ----------
Total Income 1,411 4,441 3,089 4,624 11,209 7,191 498 3,830
---------- -------- --------- -------- ------- ---------- ------ ----------
EXPENSES:
Investment Advisory Fees 1,127 2,691 1,823 2,462 4,344 2,399 69 289
Less: Fees Waived (279) (267) (266) (553) -- (292) (69) (183)
---------- -------- --------- -------- ------- ---------- ------ ----------
Net Investment Advisory Fees 848 2,424 1,557 1,909 4,344 2,107 -- 106
Administrative Fees 316 799 463 522 1,089 657 27 70
Custodian Fees 55 68 650 912 150 271 14 17
Filing and Registration Fees 39 141 -- 8 -- -- -- --
Directors' Fees and Expenses 7 9 12 26 12 13 6 7
Professional Fees 32 33 39 66 52 50 29 4
Shareholder Reports 79 121 109 100 141 103 39 37
Transfer Agent Fees 102 189 270 141 274 148 22 --
Dividend Expense for Securities
Sold Short 1
Distribution Fees
Class A 100 289 224 263 108 219 14 343
Class B 706 1,232 379 452 3,543 673 15 --
Class C 141 766 558 465 368 843 21 --
Amortization of Organizational
Costs 11 4 5 3 44 6 6 --
Blue Sky Fees 67 123 81 84 232 67 37 64
Country Tax Expense -- -- 108 231 -- -- -- --
Security Lending Expense -- -- -- -- -- 28 -- --
Other 4 34 13 59 8 13 4 2
Expenses Reimbursed by Adviser -- -- -- -- -- -- (72) --
---------- -------- --------- -------- ------- ---------- ------ ----------
Net Expenses 2,508 6,232 4,468 5,241 10,365 5,198 162 650
---------- -------- --------- -------- ------- ---------- ------ ----------
Net Investment Income (Loss) (1,097) (1,791) (1,379) (617) 844 1,993 336 3,180
---------- -------- --------- -------- ------- ---------- ------ ----------
NET REALIZED GAIN (LOSS) ON:
Investments 23,535 45,496 (116,787) (22,635) 978 23,954 (104) 2
Foreign Currency Transactions -- -- (408) (225) 711 3,262 45 --
Futures and Swaps -- -- -- (376) -- 6,360 -- --
Securities Sold Short (506) -- -- -- -- -- --
---------- -------- --------- -------- ------- ---------- ------ ----------
Net Realized Gain (Loss) 23,029 45,496 (117,195) (23,236) 1,689 33,576 (59) 2
---------- -------- --------- -------- ------- ---------- ------ ----------
CHANGE IN UNREALIZED
APPRECIATION/DEPRECIATION ON:
Investments 2,407 4,044 (58,679) (57,931) 61,447 47,367 145 --
Foreign Currency Translations -- -- 67 1,186 (92) (793) 33 --
Futures and Swaps -- -- -- (932) -- 724 -- --
Securities Sold Short 237 -- -- -- -- -- -- --
---------- -------- --------- -------- ------- ---------- ------ ----------
Change in Unrealized
Appreciation/Depreciation 2,644 4,044 (58,612) (57,677) 61,355 47,298 178 --
---------- -------- --------- -------- ------- ---------- ------ ----------
Net Realized Gain (Loss) and Change
in Unrealized
Appreciation/Depreciation 25,673 49,540 (175,807) (80,913) 63,044 80,874 119 2
---------- -------- --------- -------- ------- ---------- ------ ----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 24,576 $ 47,749 $(177,186) $(81,530) $63,888 $ 82,867 $ 455 $ 3,182
========== ======== ========= ======== ======= ========== ====== ==========
</TABLE>
- ---------------
* Commencement of operations was October 29, 1997.
The accompanying notes are an integral part of the financial statements.
<PAGE> 368
VAN KAMPEN SERIES FUND, INC.
STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1998 (CONT.)
<TABLE>
<CAPTION>
HIGH
YIELD
& WORLDWIDE
TOTAL INTERNATIONAL LATIN MONEY U.S. REAL HIGH
RETURN MAGNUM AMERICAN MARKET ESTATE VALUE* INCOME
FUND FUND FUND FUND FUND FUND FUND
(000) (000) (000) (000) (000) (000) (000)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 93 $ 2,088 $ 2,387 $ -- $ 1,461 $3,434 $ 214
Interest 2,046 661 203 9,435 115 1,511 24,212
Security Lending -- -- -- -- -- -- --
Less Foreign Taxes Withheld -- (261) (52) -- -- -- --
------ ------ -------- ------ --------- ------ ---------
Total Income 2,139 2,488 2,538 9,435 1,576 4,945 24,426
------ ------ -------- ------ --------- ------ ---------
EXPENSES:
Investment Advisory Fees 185 709 1,416 680 343 1,589 1,864
Less: Fees Waived (158) (148) (169) (195) (185) (278) --
------ ------ -------- ------ --------- ------ ---------
Net Investment Advisory Fees 27 561 1,247 485 158 1,311 1,864
Administrative Fees 64 237 335 162 89 500 626
Custodian Fees 13 152 208 31 44 116 59
Filing and Registration Fees 3 22 3 -- 4 89 42
Directors' Fees and Expenses 6 7 9 7 6 8 9
Professional Fees 27 42 49 -- 23 31 54
Shareholder Reports 41 56 74 51 35 80 112
Transfer Agent Fees 20 81 101 31 104 135
Distribution Fees
Class A 18 104 164 825 45 236 216
Class B 123 356 264 -- 120 845 1,101
Class C 50 112 214 -- 37 194 517
Amortization of Organizational
Costs 5 7 4 -- 10 63 4
Blue Sky Fees 36 69 75 56 46 104 72
Country Tax Expense -- -- 162 -- -- -- --
Other 5 3 9 4 3 4 24
------ ------ -------- ------ --------- ------ ---------
Net Expenses 438 1,809 2,918 1,621 651 3,685 4,835
------ ------ -------- ------ --------- ------ ---------
Net Investment Income (Loss) 1,701 679 (380) 7,814 925 1,260 19,591
------ ------ -------- ------ --------- ------ ---------
NET REALIZED GAIN (LOSS) ON:
Investments 1,119 927 4,800 28 2,646 5,893 11,805
Foreign Currency Transactions -- 948 (224) -- -- -- 213
------ ------ -------- ------ --------- ------ ---------
Net Realized Gain 1,119 1,875 4,576 28 2,646 5,893 12,018
------ ------ -------- ------ --------- ------ ---------
CHANGE IN UNREALIZED
APPRECIATION/DEPRECIATION ON:
Investments (585) 5,933 (27,218) -- (1,683) 1,221 (28,594)
Foreign Currency Translations -- 133 12 -- -- -- 159
------ ------ -------- ------ --------- ------ ---------
Change in Unrealized
Appreciation/Depreciation (585) 6,066 (27,206) -- (1,683) 1,221 (28,435)
------ ------ -------- ------ --------- ------ ---------
Net Realized Gain (Loss) and Change
in Unrealized
Appreciation/Depreciation 534 7,941 (22,630) 28 963 7,114 (16,417)
------ ------ -------- ------ --------- ------ ---------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $2,235 $ 8,620 $(23,010) $7,842 $ 1,888 $8,374 $ 3,174
====== ============= ======== ====== ========= ====== =========
</TABLE>
- ---------------
* Commencement of operations was July 7, 1997.
The accompanying notes are an integral part of the financial statements.
<PAGE> 369
VAN KAMPEN FUNDS
STATEMENT OF CHANGES IN NET ASSETS
AGGRESSIVE EQUITY FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997
(000) (000)
- ---------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment (Loss) $ (1,097) $ (135)
Net Realized Gain 23,029 3,674
Change in Unrealized Appreciation/Depreciation 2,644 3,205
---------- -------
Net Increase in Net Assets Resulting from
Operations 24,576 6,744
---------- -------
DISTRIBUTIONS:
Net Investment Income:
Class A -- (16)
Class B -- (5)
Class C -- (5)
---------- -------
-- (26)
---------- -------
Net Realized Gain:
Class A (3,187) (711)
Class B (5,696) (452)
Class C (1,157) (439)
---------- -------
(10,040) (1,602)
---------- -------
Net Decrease in Net Assets Resulting from
Distributions (10,040) (1,628)
---------- -------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 171,376 57,588
Distributions Reinvested 9,563 1,037
Redeemed (42,384) (7,818)
---------- -------
Net Increase in Net Assets Resulting from
Capital Share Transactions 138,555 50,807
---------- -------
Total Increase in Net Assets 153,091 55,923
NET ASSETS--Beginning of Year 66,313 10,390
---------- -------
NET ASSETS--End of Year (Including undistributed
net investment loss of $(4) and $(0),
respectively) $ 219,404 $ 66,313
=========== ========
- ---------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
---------------------
Shares:
Subscribed 3,038 1,309
Distributions Reinvested 177 35
Redeemed (1,340) (392)
---------- -------
Net Increase in Class A Shares Outstanding 1,875 952
=========== ========
Dollars:
Subscribed $ 59,406 $ 20,966
Distributions Reinvested 3,064 522
Redeemed (26,003) (6,373)
---------- -------
Net Increase $ 36,467 $ 15,115
=========== ========
Ending Paid in Capital $ 56,463 $ 19,996
=========== ========
Class B:
---------------------
Shares:
Subscribed 4,818 1,905
Distributions Reinvested 314 18
Redeemed (539) (51)
---------- -------
Net Increase in Class B Shares Outstanding 4,593 1,872
=========== ========
Dollars:
Subscribed $ 92,956 $ 30,344
Distributions Reinvested 5,363 262
Redeemed (10,091) (818)
---------- -------
Net Increase $ 88,228 $ 29,788
=========== ========
Ending Paid in Capital $ 120,092 $ 31,863
=========== ========
Class C:
---------------------
Shares:
Subscribed 982 404
Distributions Reinvested 67 17
Redeemed (343) (42)
---------- -------
Net Increase in Class C Shares Outstanding 706 379
=========== ========
Dollars:
Subscribed $ 19,014 $ 6,278
Distributions Reinvested 1,136 252
Redeemed (6,290) (626)
---------- -------
Net Increase $ 13,860 $ 5,904
=========== ========
Ending Paid in Capital $ 21,983 $ 8,124
=========== ========
- ---------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 370
VAN KAMPEN FUNDS
STATEMENT OF CHANGES IN NET ASSETS
AMERICAN VALUE FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997
(000) (000)
- ---------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income (Loss) $ (1,791) $ 424
Net Realized Gain 45,496 6,719
Change in Unrealized Appreciation/Depreciation 4,044 7,544
---------- --------
Net Increase in Net Assets Resulting from
Operations 47,749 14,687
---------- --------
DISTRIBUTIONS:
Net Investment Income:
Class A -- (309)
Class B -- (25)
Class C -- (133)
In Excess of Net Investment Income:
Class A (122) (1)
Class B (29) --
Class C (25) --
---------- --------
(176) (468)
---------- --------
Net Realized Gain:
Class A (5,303) (1,555)
Class B (5,203) (209)
Class C (3,629) (1,482)
---------- --------
(14,135) (3,246)
---------- --------
Net Decrease in Net Assets Resulting from
Distributions (14,311) (3,714)
---------- --------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 558,778 38,027
Distributions Reinvested 12,507 3,292
Redeemed (69,473) (13,557)
---------- --------
Net Increase in Net Assets Resulting from
Capital Share Transactions 501,812 27,762
---------- --------
Total Increase in Net Assets 535,250 38,735
NET ASSETS--Beginning of Year 82,087 43,352
---------- --------
NET ASSETS--End of Year (Including distributions
in excess of net investment income of $(6) and
$(1), respectively) $ 617,337 $ 82,087
=========== ========
- ---------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
---------------------
Shares:
Subscribed 9,937 1,025
Distributions Reinvested 269 119
Redeemed (1,843) (538)
---------- --------
Net Increase in Class A Shares Outstanding 8,363 606
=========== ========
Dollars:
Subscribed $ 205,042 $ 16,463
Distributions Reinvested 5,049 1,785
Redeemed (37,455) (8,501)
---------- --------
Net Increase $ 172,636 $ 9,747
=========== ========
Ending Paid in Capital $ 197,990 $ 25,289
=========== ========
Class B:
---------------------
Shares:
Subscribed 12,495 714
Distributions Reinvested 239 15
Redeemed (875) (27)
---------- --------
Net Increase in Class B Shares Outstanding 11,859 702
=========== ========
Dollars:
Subscribed $ 257,479 $ 11,773
Distributions Reinvested 4,461 228
Redeemed (18,025) (420)
---------- --------
Net Increase $ 243,915 $ 11,581
=========== ========
Ending Paid in Capital $ 257,889 $ 13,891
=========== ========
Class C:
---------------------
Shares:
Subscribed 4,675 623
Distributions Reinvested 160 85
Redeemed (671) (312)
---------- --------
Net Increase in Class C Shares Outstanding 4,164 396
=========== ========
Dollars:
Subscribed $ 96,257 $ 9,791
Distributions Reinvested 2,997 1,279
Redeemed (13,993) (4,636)
---------- --------
Net Increase $ 85,261 $ 6,434
=========== ========
Ending Paid in Capital $ 109,719 $ 24,423
=========== ========
- ---------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 371
VAN KAMPEN FUNDS
STATEMENT OF CHANGES IN NET ASSETS
ASIAN GROWTH FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997
(000) (000)
- ---------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment (Loss) $ (1,379) $ (2,748)
Net Realized (Loss) (117,195) (4,804)
Change in Unrealized Appreciation/Depreciation (58,612) (2,619)
---------- ---------------
Net Decrease in Net Assets Resulting from
Operations (177,186) (10,171)
---------- ---------------
DISTRIBUTIONS:
Net Realized Gain:
Class A -- (33)
Class B -- (10)
Class C -- (24)
In Excess of Net Realized Gain:
Class A (135) (4,110)
Class B (60) (1,274)
Class C (84) (3,072)
---------- ---------------
Net Decrease in Net Assets Resulting from
Distributions (279) (8,523)
---------- ---------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 114,898 114,562
Distributions Reinvested 258 8,035
Redeemed (188,300) (220,149)
---------- ---------------
Net Decrease in Net Assets Resulting from
Capital Share Transactions (73,144) (97,552)
---------- ---------------
Total Decrease in Net Assets (250,609) (116,246)
NET ASSETS--Beginning of Year 352,686 468,932
---------- ---------------
NET ASSETS--End of Year (Including net investment
loss of $(1,200) and $(1,153), respectively) $ 102,077 $352,686
=========== ===============
- ---------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
---------------------
Shares:
Subscribed 9,205 4,724
Distributions Reinvested 15 243
Redeemed (12,556) (8,877)
---------- ---------------
Net Decrease in Class A Shares Outstanding (3,336) (3,910)
=========== ===============
Dollars:
Subscribed $ 80,960 $ 77,015
Distributions Reinvested 125 3,930
Redeemed (123,834) (144,501)
---------- ---------------
Net Decrease $ (42,749) $(63,556)
=========== ===============
Ending Paid in Capital $ 76,638 $155,944
=========== ===============
Class B:
---------------------
Shares:
Subscribed 2,181 1,466
Distributions Reinvested 7 77
Redeemed (1,929) (803)
---------- ---------------
Net Increase in Class B Shares Outstanding 259 740
=========== ===============
Dollars:
Subscribed $ 19,723 $ 23,406
Distributions Reinvested 55 1,210
Redeemed (19,925) (12,628)
---------- ---------------
Net Increase (Decrease) $ (147) $ 11,988
=========== ===============
Ending Paid in Capital $ 63,990 $ 64,231
=========== ===============
Class C:
---------------------
Shares:
Subscribed 1,702 883
Distributions Reinvested 10 184
Redeemed (4,222) (3,989)
---------- ---------------
Net Decrease in Class C Shares Outstanding (2,510) (2,922)
=========== ===============
Dollars:
Subscribed $ 14,215 $ 14,140
Distributions Reinvested 78 2,895
Redeemed (44,541) (63,019)
---------- ---------------
Net Decrease $ (30,248) $(45,984)
=========== ===============
Ending Paid in Capital $ 113,022 $106,991
=========== ===============
- ---------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 372
VAN KAMPEN FUNDS
STATEMENT OF CHANGES IN NET ASSETS
EMERGING MARKETS FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997
(000) (000)
- ---------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment (Loss) $ (617) $ (538)
Net Realized Gain (Loss) (23,236) 14,993
Change in Unrealized Appreciation/Depreciation (57,677) 7,475
---------- ---------------
Net Increase (Decrease) in Net Assets Resulting
from Operations (81,530) 21,930
---------- ---------------
DISTRIBUTIONS:
In Excess of Net Investment Income:
Class A -- (291)
Class B -- (52)
Class C -- (44)
---------- ---------------
-- (387)
---------- ---------------
Net Realized Gain:
Class A (6,225) (871)
Class B (3,112) (182)
Class C (2,878) (503)
In Excess of Net Realized Gain:
Class A (2,361) --
Class B (1,180) --
Class C (1,091) --
---------- ---------------
(16,847) (1,556)
---------- ---------------
Net Decrease in Net Assets Resulting from
Distributions (16,847) (1,943)
---------- ---------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 160,772 133,953
Distributions Reinvested 15,915 1,855
Redeemed (151,194) (111,716)
---------- ---------------
Net Increase in Net Assets Resulting from
Capital Share Transactions 25,493 24,092
---------- ---------------
Total Increase (Decrease) in Net Assets (72,884) 44,079
NET ASSETS--Beginning of Year 212,946 168,867
---------- ---------------
NET ASSETS--End of Year (Including net investment loss
and distributions in excess of net investment income
of $(1,090) and $(659), respectively) $ 140,062 $212,946
=========== ===============
- ---------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
---------------------
Shares:
Subscribed 10,304 7,637
Distributions Reinvested 891 104
Redeemed (10,645) (8,424)
---------- ---------------
Net Increase (Decrease) in Class A Shares
Outstanding 550 (683)
=========== ===============
Dollars:
Subscribed $ 114,410 $ 89,680
Distributions Reinvested 8,101 1,103
Redeemed (115,555) (96,827)
---------- ---------------
Net Increase (Decrease) $ 6,956 $ (6,044)
=========== ===============
Ending Paid in Capital $ 107,744 $100,788
=========== ===============
Class B:
---------------------
Shares:
Subscribed 2,827 2,028
Distributions Reinvested 457 20
Redeemed (1,321) (205)
---------- ---------------
Net Increase in Class B Shares Outstanding 1,963 1,843
=========== ===============
Dollars:
Subscribed $ 33,891 $ 23,982
Distributions Reinvested 4,064 223
Redeemed (13,053) (2,355)
---------- ---------------
Net Increase $ 24,902 $ 21,850
=========== ===============
Ending Paid in Capital $ 56,453 $ 31,551
=========== ===============
Class C
---------------------
Shares:
Subscribed 1,061 1,753
Distributions Reinvested 421 51
Redeemed (2,173) (1,086)
---------- ---------------
Net Increase (Decrease) in Class C Shares
Outstanding (691) 718
=========== ===============
Dollars:
Subscribed $ 12,471 $ 20,292
Distributions Reinvested 3,750 528
Redeemed (22,586) (12,534)
---------- ---------------
Net Increase (Decrease) $ (6,365) $ 8,286
=========== ===============
Ending Paid in Capital $ 42,361 $ 48,726
=========== ===============
- ---------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 373
VAN KAMPEN FUNDS
STATEMENT OF CHANGES IN NET ASSETS
GLOBAL EQUITY FUND
<TABLE>
<CAPTION>
OCTOBER 29, 1997* TO
JUNE 30, 1998
(000)
- ---------------------------------------------------------------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 844
Net Realized Gain 1,689
Change in Unrealized Appreciation/Depreciation 61,355
----------
Net Increase in Net Assets Resulting from
Operations 63,888
----------
DISTRIBUTIONS:
Net Investment Income:
Class A (88)
Class B (188)
Class C (18)
----------
Net Decrease in Net Assets Resulting from
Distributions (294)
----------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 739,265
Distributions Reinvested 276
Redeemed (29,826)
----------
Net Increase in Net Assets Resulting from
Capital Share Transactions 709,715
----------
Total Increase in Net Assets 773,309
NET ASSETS--Beginning of Period --
----------
NET ASSETS--End of Period (Including undistributed
net investment income of $1,301) $ 773,309
=============
- ---------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
---------------------
Shares:
Subscribed 7,876
Distributions Reinvested 8
Redeemed (645)
----------
Net Increase in Class A Shares Outstanding 7,239
==========
Dollars:
Subscribed $ 81,031
Distributions Reinvested 78
Redeemed (7,009)
----------
Net Increase $ 74,100
=============
Ending Paid in Capital $ 74,096
=============
Class B:
---------------------
Shares:
Subscribed 57,900
Distributions Reinvested 19
Redeemed (1,650)
----------
Net Increase in Class B Shares Outstanding 56,269
=============
Dollars:
Subscribed $ 588,891
Distributions Reinvested 180
Redeemed (17,780)
----------
Net Increase $ 571,291
=============
Ending Paid in Capital $ 571,259
=============
Class C:
---------------------
Shares:
Subscribed 6,752
Distributions Reinvested 2
Redeemed (472)
----------
Net Increase in Class C Shares Outstanding 6,282
==========
Dollars:
Subscribed $ 69,343
Distributions Reinvested 18
Redeemed (5,037)
----------
Net Increase $ 64,324
==========
Ending Paid in Capital $ 64,320
==========
- ---------------------------------------------------------------------------
</TABLE>
* Commencement of operations
The accompanying notes are an integral part of the financial statements.
<PAGE> 374
VAN KAMPEN FUNDS
STATEMENT OF CHANGES IN NET ASSETS
GLOBAL EQUITY ALLOCATION FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997
(000) (000)
- ------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 1,993 $ 245
Net Realized Gain 33,576 13,170
Change in Unrealized Appreciation/Depreciation 47,298 17,251
---------- ----------
Net Increase in Net Assets Resulting from
Operations 82,867 30,666
---------- ----------
DISTRIBUTIONS:
Net Investment Income:
Class A (1,628) (2,358)
Class B (1,028) (759)
Class C (1,187) (2,093)
---------- ----------
(3,843) (5,210)
---------- ----------
Net Realized Gain:
Class A (8,369) (2,101)
Class B (6,610) (751)
Class C (9,026) (2,262)
---------- ----------
(24,005) (5,114)
---------- ----------
Net Decrease in Net Assets Resulting from
Distributions (27,848) (10,324)
---------- ----------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 399,475 54,525
Distributions Reinvested 26,341 9,826
Redeemed (74,620) (36,345)
---------- ----------
Net Increase in Net Assets Resulting from
Capital Share Transactions 351,196 28,006
---------- ----------
Total Increase in Net Assets 406,215 48,348
NET ASSETS--Beginning of Year 189,865 141,517
---------- ----------
NET ASSETS--End of Year (Including undistributed
net investment income of $82 and $2,666,
respectively) $ 596,080 $ 189,865
========== ===========
- ------------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
---------------------
Shares:
Subscribed 13,220 1,091
Distributions Reinvested 658 293
Redeemed (2,571) (1,314)
---------- ----------
Net Increase in Class A Shares Outstanding 11,307 70
========== ==========
Dollars:
Subscribed $ 193,752 $ 16,569
Distributions Reinvested 9,235 4,157
Redeemed (41,983) (19,605)
---------- ----------
Net Increase $ 161,004 $ 1,121
========== ==========
Ending Paid in Capital $ 215,278 $ 53,342
========== ==========
Class B:
---------------------
Shares:
Subscribed 11,944 1,444
Distributions Reinvested 533 106
Redeemed (902) (160)
---------- ----------
Net Increase in Class B Shares Outstanding 11,575 1,390
========== ==========
Dollars:
Subscribed $ 170,660 $ 21,138
Distributions Reinvested 7,277 1,475
Redeemed (14,280) (2,336)
---------- ----------
Net Increase $ 163,657 $ 20,277
========== ==========
Ending Paid in Capital $ 198,908 $ 34,446
=========== ==========
Class C:
---------------------
Shares:
Subscribed 2,310 1,160
Distributions Reinvested 713 300
Redeemed (1,171) (995)
---------- ----------
Net Increase in Class C Shares Outstanding 1,852 465
=========== ==========
Dollars:
Subscribed $ 35,063 $ 16,818
Distributions Reinvested 9,829 4,194
Redeemed (18,357) (14,404)
---------- ----------
Net Increase $ 26,535 $ 6,608
=========== ==========
Ending Paid in Capital $ 86,368 $ 59,446
=========== ==========
- ------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 375
VAN KAMPEN FUNDS
STATEMENT OF CHANGES IN NET ASSETS
GLOBAL FIXED INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997
(000) (000)
- ---------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 336 $ 436
Net Realized Gain (Loss) (59) 111
Change in Unrealized Appreciation/Depreciation 178 (84)
------- -------
Net Increase in Net Assets Resulting from
Operations 455 463
------- -------
DISTRIBUTIONS:
Net Investment Income:
Class A (219) (218)
Class B (49) (46)
Class C (68) (74)
In Excess of Net Investment Income:
Class A (4) (41)
Class B (1) (9)
Class C (1) (14)
------- -------
(342) (402)
------- -------
Net Realized Gain:
Class A (30) --
Class B (8) --
Class C (11) --
------- -------
(49) --
------- -------
Net Decrease in Net Assets Resulting from
Distributions (391) (402)
------- -------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 1,701 4,760
Distributions Reinvested 329 335
Redeemed (4,936) (6,304)
------- -------
Net Decrease in Net Assets Resulting from
Capital Share Transactions (2,906) (1,209)
------- -------
Total Decrease in Net Assets (2,842) (1,148)
NET ASSETS--Beginning of Year 10,568 11,716
------- -------
NET ASSETS--End of Year (Including distributions
in excess of net investment income of $(150) and
$(63), respectively) $ 7,726 $10,568
======= =======
- ---------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
--------------------
Shares:
Subscribed 72 256
Distributions Reinvested 22 22
Redeemed (298) (382)
------- -------
Net Decrease in Class A Shares Outstanding (204) (104)
======= ========
Dollars:
Subscribed $ 714 $ 2,529
Distributions Reinvested 226 225
Redeemed (2,981) (3,839)
------- -------
Net Decrease $(2,041) $(1,085)
======= =======
Ending Paid in Capital $ 4,452 $ 6,492
======= =======
Class B:
--------------------
Shares:
Subscribed 58 100
Distributions Reinvested 4 4
Redeemed (92) (76)
------- -------
Net Increase (Decrease) in Class B Shares
Outstanding (30) 28
======= =======
Dollars:
Subscribed $ 572 $ 999
Distributions Reinvested 42 41
Redeemed (909) (758)
------- -------
Net Increase (Decrease) $ (295) $ 282
======= =======
Ending Paid in Capital $ 1,434 $ 1,730
======= =======
Class C:
--------------------
Shares:
Subscribed 42 123
Distributions Reinvested 6 7
Redeemed (105) (170)
------- -------
Net Decrease in Class C Shares Outstanding (57) (40)
======= =======
Dollars:
Subscribed $ 415 $ 1,232
Distributions Reinvested 61 69
Redeemed (1,046) (1,707)
------- -------
Net Decrease $ (570) $ (406)
======= =======
Ending Paid in Capital $ 1,909 $ 2,479
======= =======
- ---------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 376
VAN KAMPEN SERIES FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
GOVERNMENT OBLIGATIONS MONEY MARKET FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997
(000) (000)
- ---------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 3,180 $ 5,375
Net Realized Gain 2 8
---------- --------
Net Increase in Net Assets Resulting from
Operations 3,182 5,383
---------- --------
DISTRIBUTIONS:
Net Investment Income: (3,204) (5,375)
---------- --------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 290,344 359,068
Distributions Reinvested 3,076 4,349
Redeemed (331,864) (414,635)
---------- --------
Net Decrease in Net Assets Resulting from
Capital Share Transactions (38,444) (51,218)
---------- --------
Total Decrease in Net Assets (38,466) (51,210)
NET ASSETS--Beginning of Year 94,768 145,978
---------- --------
NET ASSETS--End of Year $ 56,302 $ 94,768
========== ========
- ---------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Shares
Subscribed 290,344 359,068
Distributions Reinvested 3,076 4,349
Redeemed (331,864) (414,635)
---------- --------
Net Decrease in Shares Outstanding (38,444) (51,218)
========== ========
Ending Paid in Capital $ 56,353 $ 94,859
========== ========
- ---------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 377
VAN KAMPEN FUNDS
STATEMENT OF CHANGES IN NET ASSETS
HIGH YIELD & TOTAL RETURN FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997
(000) (000)
- ---------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 1,701 $ 1,246
Net Realized Gain 1,119 312
Change in Unrealized Appreciation/Depreciation (585) 881
-------- ---------------
Net Increase in Net Assets Resulting from
Operations 2,235 2,439
-------- ---------------
DISTRIBUTIONS:
Net Investment Income:
Class A (525) (434)
Class B (854) (454)
Class C (343) (338)
-------- ---------------
(1,722) (1,226)
-------- ---------------
Net Realized Gain:
Class A (236) (20)
Class B (415) (24)
Class C (120) (20)
-------- ---------------
(771) (64)
-------- ---------------
Net Decrease in Net Assets Resulting from
Distributions (2,493) (1,290)
-------- ---------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 32,419 12,562
Distributions Reinvested 1,273 237
Redeemed (21,623) (2,025)
-------- ---------------
Net Increase in Net Assets Resulting from
Capital Share Transactions 12,069 10,774
-------- ---------------
Total Increase in Net Assets 11,811 11,923
NET ASSETS--Beginning of Year 22,567 10,644
-------- ---------------
NET ASSETS--End of Year (Including undistributed
net investment income of $36 and $38,
respectively.) $ 34,378 $ 22,567
========== ===============
- ---------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
---------------------
Shares:
Subscribed 786 461
Distributions Reinvested 33 10
Redeemed (900) (101)
-------- ---------------
Net Increase (Decrease) in Class A Shares
Outstanding (81) 370
======== ===============
Dollars:
Subscribed $ 10,149 $ 5,790
Distributions Reinvested 420 131
Redeemed (11,731) (1,282)
-------- ---------------
Net Increase (Decrease) $ (1,162) $ 4,639
Ending Paid in Capital $ 7,412 $ 8,574
======== ===============
Class B:
---------------------
Shares:
Subscribed 1,167 397
Distributions Reinvested 48 6
Redeemed (427) (20)
-------- ---------------
Net Increase in Class B Shares Outstanding 788 383
======== ===============
Dollars:
Subscribed $ 15,056 $ 4,971
Distributions Reinvested 615 72
Redeemed (5,588) (249)
-------- ---------------
Net Increase $ 10,083 $ 4,794
======== ===============
Ending Paid in Capital $ 18,320 $ 8,237
======== ===============
Class C:
---------------------
Shares:
Subscribed 562 144
Distributions Reinvested 19 3
Redeemed (323) (39)
-------- ---------------
Net Increase in Class C Shares Outstanding 258 108
======== ===============
Dollars:
Subscribed $ 7,214 $ 1,800
Distributions Reinvested 238 35
Redeemed (4,304) (494)
-------- ---------------
Net Increase $ 3,148 $ 1,341
======== ===============
Ending Paid in Capital $ 7,826 $ 4,678
======== ===============
- ---------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 378
VAN KAMPEN FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
INTERNATIONAL MAGNUM FUND
<TABLE>
<CAPTION>
YEAR ENDED JULY 1, 1996* TO
JUNE 30, 1998 JUNE 30, 1997
(000) (000)
- ----------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 679 $ 170
Net Realized Gain 1,875 770
Change in Unrealized Appreciation /Depreciation 6,066 4,184
---------- -------
Net Increase in Net Assets Resulting from
Operations 8,620 5,124
---------- -------
DISTRIBUTIONS:
Net Investment Income:
Class A (488) (52)
Class B (330) (45)
Class C (53) (43)
---------- -------
(871) (140)
---------- -------
Net Realized Gain:
Class A (33) (4)
Class B (31) (4)
Class C (9) (4)
---------- -------
(73) (12)
---------- -------
Net Decrease in Net Assets Resulting from
Distributions (944) (152)
---------- -------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 106,801 47,034
Distributions Reinvested 850 50
Redeemed (30,781) (2,724)
---------- -------
Net Increase in Net Assets Resulting from
Capital Share Transactions 76,870 44,360
---------- -------
Total Increase in Net Assets 84,546 49,332
NET ASSETS--Beginning of Year 49,332 --
---------- -------
NET ASSETS--End of Year (Including undistributed
net investment income of $1,524 and $767,
respectively) $ 133,878 $ 49,332
========== ======
- ----------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
---------------------
Shares:
Subscribed 4,160 1,722
Distributions Reinvested 38 1
Redeemed (1,276) (144)
---------- -------
Net Increase in Class A Shares Outstanding 2,922 1,579
========== ======
Dollars:
Subscribed $ 58,246 $ 21,512
Distributions Reinvested 473 14
Redeemed (17,581) (1,786)
---------- -------
Net Increase $ 41,138 $ 19,740
========== ======
Ending Paid in Capital $ 60,878 $ 19,740
========== ======
Class B:
---------------------
Shares:
Subscribed 2,713 1,321
Distributions Reinvested 26 2
Redeemed (556) (6)
---------- -------
Net Increase in Class B Shares Outstanding 2,183 1,317
========== ======
Dollars:
Subscribed $ 37,386 $ 16,670
Distributions Reinvested 322 18
Redeemed (7,487) (73)
---------- -------
Net Increase $ 30,221 $ 16,615
========== ======
Ending Paid in Capital $ 46,836 $ 16,615
========== ======
Class C:
---------------------
Shares:
Subscribed 809 728
Distributions Reinvested 4 1
Redeemed (425) (67)
---------- -------
Net Increase in Class C Shares Outstanding 388 662
========== ======
Dollars:
Subscribed $ 11,169 $ 8,852
Distributions Reinvested 55 18
Redeemed (5,713) (865)
---------- -------
Net Increase $ 5,511 $ 8,005
========== ======
Ending Paid in Capital $ 13,516 $ 8,005
========== ======
- ----------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
The accompanying notes are an integral part of the financial statements.
<PAGE> 379
VAN KAMPEN FUNDS
STATEMENT OF CHANGES IN NET ASSETS
LATIN AMERICAN FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997
(000) (000)
- ---------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment (Loss) $ (380) $ (131)
Net Realized Gain 4,576 13,981
Change in Unrealized Appreciation/Depreciation (27,206) 10,200
-------- ---------------
Net Increase (Decrease) in Net Assets Resulting
from Operations (23,010) 24,050
-------- ---------------
DISTRIBUTIONS:
In Excess of Net Investment Income:
Class A -- (117)
Class B -- (17)
Class C -- (13)
-------- ---------------
-- (147)
-------- ---------------
Net Realized Gain:
Class A (7,513) (2,192)
Class B (3,444) (359)
Class C (2,645) (727)
In Excess of Net Realized Gain:
Class A (5,098) --
Class B (2,337) --
Class C (1,795) --
-------- ---------------
(22,832) (3,278)
-------- ---------------
Net Decrease in Net Assets Resulting from
Distributions (22,832) (3,425)
-------- ---------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 115,672 114,111
Distributions Reinvested 20,476 3,304
Redeemed (126,144) (46,502)
-------- ---------------
Net Increase in Net Assets Resulting from
Capital Share Transactions 10,004 70,913
-------- ---------------
Total Increase (Decrease) in Net Assets (35,838) 91,538
NET ASSETS--Beginning of Year 119,060 27,522
-------- ---------------
NET ASSETS--End of Year (Including net investment
loss (distributions in excess of net investment
income) of $(95) and $(11), respectively) $ 83,222 $119,060
======== ===============
- ---------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
---------------------
Shares:
Subscribed 4,455 6,162
Distributions Reinvested 920 187
Redeemed (6,340) (2,975)
-------- ---------------
Net Increase (Decrease) in Class A Shares (965) (3,374)
======== ===============
Outstanding
Dollars:
Subscribed $ 72,239 $ 90,337
Distributions Reinvested 11,506 2,243
Redeemed (98,189) (41,558)
-------- ---------------
Net Increase (Decrease) $ (14,444) $ 51,022
======== ===============
Ending Paid in Capital $ 54,118 $ 68,562
======== ===============
Class B:
---------------------
Shares:
Subscribed 1,661 752
Distributions Reinvested 443 30
Redeemed (752) (104)
-------- ---------------
Net Increase in Class B Shares Outstanding 1,352 678
======== ===============
Dollars:
Subscribed $ 26,168 $ 11,139
Distributions Reinvested 5,380 353
Redeemed (10,163) (1,385)
-------- ---------------
Net Increase $ 21,385 $ 10,107
======== ===============
Ending Paid in Capital $ 33,297 $ 11,912
Class C: ======== ===============
---------------------
Shares:
Subscribed 1,071 856
Distributions Reinvested 296 60
Redeemed (1,242) (266)
-------- ---------------
Net Increase in Class C Shares Outstanding 125 650
======== ===============
Dollars:
Subscribed $ 17,265 $ 12,635
Distributions Reinvested 3,590 708
Redeemed (17,792) (3,559)
-------- ---------------
Net Increase $ 3,063 $ 9,784
======== ===============
Ending Paid in Capital $ 18,767 $ 15,704
======== ===============
- ---------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 380
VAN KAMPEN SERIES FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
MONEY MARKET FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997
(000) (000)
- ---------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 7,814 $ 8,859
Net Realized Gain 28 13
---------- ---------------
Net Increase in Net Assets Resulting from Operations 7,842 8,872
---------- ---------------
DISTRIBUTIONS:
Net Investment Income (7,882) (8,859)
---------- ---------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 921,486 677,641
Distributions Reinvested 7,384 7,110
Redeemed (947,876) (717,315)
---------- ---------------
Net Decrease in Net Assets Resulting from
Capital Share Transactions (19,006) (32,564)
---------- ---------------
Total Decrease in Net Assets (19,046) (32,551)
NET ASSETS--Beginning of Year 138,422 170,973
---------- ---------------
NET ASSETS--End of Year $ 119,376 $138,422
========== ===============
- ---------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Shares:
Subscribed 921,486 677,641
Distributions Reinvested 7,384 7,110
Redeemed (947,876) (717,315)
---------- ---------------
Net Decrease in Shares Outstanding (19,006) (32,564)
========== ===============
Ending Paid in Capital $ 119,453 $138,521
========== ===============
- ---------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 381
VAN KAMPEN FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
U.S. REAL ESTATE FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997
(000) (000)
- ---------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 925 $ 280
Net Realized Gain 2,646 2,077
Change in Unrealized Appreciation/Depreciation (1,683) 1,622
-------- -------
Net Increase in Net Assets Resulting from Operations 1,888 3,979
-------- -------
DISTRIBUTIONS:
Net Investment Income:
Class A (558) (162)
Class B (328) (57)
Class C (94) (31)
In Excess of Net Investment Income:
Class A (52) --
Class B (30) --
Class C (9) --
-------- -------
(1,071) (250)
-------- -------
Net Realized Gain:
Class A (1,796) (100)
Class B (1,083) (71)
Class C (334) (48)
-------- -------
(3,213) (219)
-------- -------
Net Decrease in Net Assets Resulting from
Distributions (4,284) (469)
-------- -------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 28,564 23,984
Distributions Reinvested 3,942 268
Redeemed (18,169) (9,254)
-------- -------
Net Increase in Net Assets Resulting from
Capital Share Transactions 14,337 14,998
-------- -------
Total Increase in Net Assets 11,941 18,508
NET ASSETS--Beginning of Year 24,316 5,808
-------- -------
NET ASSETS--End of Year (Including undistributed
(distributions in excess of) net investment
income of $4 and $55, respectively.) $ 36,257 $ 24,316
======== ========
- ---------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
---------------------
Shares:
Subscribed 856 1,003
Distributions Reinvested 140 13
Redeemed (820) (257)
-------- -------
Net Increase in Class A Shares Outstanding 176 759
======== ========
Dollars:
Subscribed $ 14,430 $ 15,148
Distributions Reinvested 2,255 187
Redeemed (13,538) (3,998)
-------- -------
Net Increase $ 3,147 $ 11,337
======== =======
Ending Paid in Capital $ 16,184 $ 13,087
======== ========
Class B:
---------------------
Shares:
Subscribed 665 441
Distributions Reinvested 80 4
Redeemed (202) (185)
-------- -------
Net Increase in Class B Shares Outstanding 543 260
======== ========
Dollars:
Subscribed $ 11,167 $ 6,607
Distributions Reinvested 1,279 54
Redeemed (3,346) (2,916)
-------- -------
Net Increase $ 9,100 $ 3,745
======== ========
Ending Paid In Capital $ 14,914 $ 5,860
======== ========
Class C:
---------------------
Shares:
Subscribed 175 150
Distributions Reinvested 25 2
Redeemed (76) (149)
-------- -------
Net Increase in Class C Shares Outstanding 124 3
======== ========
Dollars:
Subscribed $ 2,967 $ 2,229
Distributions Reinvested 408 26
Redeemed (1,285) (2,339)
-------- -------
Net Increase (Decrease) $ 2,090 $ (84)
======== ========
Ending Paid in Capital $ 3,701 $ 1,624
======== ========
- ---------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 382
VAN KAMPEN FUNDS
STATEMENT OF CHANGES IN NET ASSETS
VALUE FUND
<TABLE>
<CAPTION>
JULY 7, 1997* TO
JUNE 30, 1998
(000)
- ----------------------------------------------------------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 1,260
Net Realized Gain 5,893
Change in Unrealized Appreciation/Depreciation 1,221
----------
Net Increase in Net Assets Resulting from
Operations 8,374
----------
DISTRIBUTIONS:
Net Investment Income:
Class A (930)
Class B (264)
Class C (66)
In Excess of Net Investment Income:
Class A (77)
Class B (22)
Class C (6)
----------
(1,365)
----------
Net Realized Gain:
Class A (502)
Class B (431)
Class C (95)
----------
(1,028)
----------
Net Decrease in Net Assets Resulting from
Distributions (2,393)
----------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 354,369
Distributions Reinvested 2,140
Redeemed (49,738)
----------
Net Increase in Net Assets Resulting from
Capital Share Transactions 306,771
----------
Total Increase in Net Assets 312,752
NET ASSETS--Beginning of Period 3,000
----------
NET ASSETS--End of Period (Including distributions
in excess of net investment income of $(45)) $ 315,752
========
- ----------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
---------------------
Shares:
Subscribed 16,264
Distributions Reinvested 136
Redeemed (3,343)
----------
Net Increase in Class A Shares Outstanding 13,057
==========
Dollars:
Subscribed $ 167,353
Distributions Reinvested 1,393
Redeemed (35,499)
----------
Net Increase $ 133,247
==========
Ending Paid in Capital $ 134,222
==========
Class B:
---------------------
Shares:
Subscribed 14,654
Distributions Reinvested 60
Redeemed (1,138)
----------
Net Increase in Class B Shares Outstanding 13,576
==========
Dollars:
Subscribed $ 150,818
Distributions Reinvested 607
Redeemed (12,023)
----------
Net Increase $ 139,402
==========
Ending Paid in Capital $ 140,375
==========
Class C:
---------------------
Shares:
Subscribed 3,584
Distributions Reinvested 14
Redeemed (212)
----------
Net Increase in Class C Shares Outstanding 3,386
==========
Dollars:
Subscribed $ 36,198
Distributions Reinvested 140
Redeemed (2,216)
----------
Net Increase $ 34,122
==========
Ending Paid in Capital $ 35,116
==========
- ----------------------------------------------------------------------
</TABLE>
* Commencement of operations
The accompanying notes are an integral part of the financial statements.
<PAGE> 383
VAN KAMPEN FUNDS
STATEMENT OF CHANGES IN NET ASSETS
WORLDWIDE HIGH INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997
(000) (000)
- ---------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 19,591 $ 13,435
Net Realized Gain 12,018 9,362
Change in Unrealized Appreciation/Depreciation (28,435) 14,412
---------- ---------------
Net Increase in Net Assets Resulting from
Operations 3,174 37,209
---------- ---------------
DISTRIBUTIONS:
Net Investment Income:
Class A (6,930) (5,678)
Class B (8,313) (4,269)
Class C (3,852) (3,020)
---------- ---------------
(19,095) (12,967)
---------- ---------------
Realized Gain:
Class A (6,907) (2,320)
Class B (8,787) (1,708)
Class C (4,230) (1,293)
---------- ---------------
(19,924) (5,321)
---------- ---------------
Net Decrease in Net Assets Resulting from
Distributions (39,019) (18,288)
---------- ---------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 226,529 133,028
Distributions Reinvested 25,615 11,818
Redeemed (114,610) (63,040)
---------- ---------------
Net Increase in Net Assets Resulting from
Capital Share Transactions 137,534 81,806
---------- ---------------
Total Increase in Net Assets 101,689 100,727
NET ASSETS--Beginning of Year 196,488 95,761
---------- ---------------
NET ASSETS--End of Year (Including undistributed
net investment income of $781 and $311,
respectively) $ 298,177 $196,488
========== ===============
- ---------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
---------------------
Shares:
Subscribed 6,811 5,082
Distributions Reinvested 743 423
Redeemed (5,569) (3,469)
---------- ---------------
Net Increase in Class A Shares Outstanding 1,985 2,036
========== ===============
Dollars:
Subscribed $ 93,959 $ 67,886
Distributions Reinvested 9,850 5,651
Redeemed (77,161) (46,537)
---------- ---------------
Net Increase $ 26,648 $ 27,000
========== ===============
Ending Paid in Capital $ 92,892 $ 66,246
========== ===============
Class B:
---------------------
Shares:
Subscribed 7,464 3,787
Distributions Reinvested 770 246
Redeemed (1,939) (622)
---------- ---------------
Net Increase in Class B Shares Outstanding 6,295 3,411
========== ===============
Dollars:
Subscribed $ 101,066 $ 50,939
Distributions Reinvested 10,086 3,287
Redeemed (26,325) (8,415)
---------- ---------------
Net Increase $ 84,827 $ 45,811
========== ===============
Ending Paid in Capital $ 156,092 $ 71,297
========== ===============
Class C:
---------------------
Shares:
Subscribed 2,312 1,057
Distributions Reinvested 432 217
Redeemed (825) (596)
---------- ---------------
Net Increase in Class C Shares Outstanding 1,919 678
========== ===============
Dollars:
Subscribed $ 31,504 $ 14,203
Distributions Reinvested 5,679 2,880
Redeemed (11,124) (8,088)
---------- ---------------
Net Increase $ 26,059 $ 8,995
========== ===============
Ending Paid in Capital $ 62,009 $ 35,964
========== ===============
- ---------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 384
VAN KAMPEN FUNDS
FINANCIAL HIGHLIGHTS
AGGRESSIVE EQUITY FUND
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------
YEAR ENDED YEAR ENDED JANUARY 2, 1996* TO
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1998# JUNE 30, 1997 JUNE 30, 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.98 $ 14.40 $ 12.00
------- ------------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.07) 0.01 0.06
Net Realized and Unrealized Gain 5.03 3.95 2.40
------- ------------- ------
Total From Investment Operations 4.96 3.96 2.46
------- ------------- ------
DISTRIBUTIONS
Net Investment Income -- (0.03) (0.06)
Net Realized Gain (1.93) (1.35) --
------- ------------- ------
Total Distributions (1.93) (1.38) (0.06)
------- ------------- ------
NET ASSET VALUE, END OF PERIOD $ 20.01 $ 16.98 $ 14.40
======= ============= ======
TOTAL RETURN (1) 30.93% 28.93% 20.52%
======= ============= ======
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 64,035 $ 22,521 $ 5,382
Ratio of Expenses to Average Net
Assets 1.50% 1.57% 2.03%**
Ratio of Net Investment Income (Loss)
to Average Net Assets (0.37)% (0.04)% 1.22%**
Portfolio Turnover Rate 308% 241% 204%
- --------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net Investment
Income $ 0.04 $ 0.22 $ 0.06
Ratios Before Expense Limitation:
Expenses to Average Net Assets 1.71% 2.38% 3.26%**
Net Investment Income (Loss) to
Average Net Assets (0.59)% (0.85)% (0.01)%**
Ratio of Expenses to Average Net
Assets excluding dividend expense
on securities sold short 1.50% 1.50% 1.50%**
- --------------------------------------------------------------------------------------------------
CLASS B
--------------------------------------------------------
YEAR ENDED YEAR ENDED JANUARY 2, 1996* TO
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1998# JUNE 30, 1997 JUNE 30, 1996
- --------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.85 $ 14.38 $ 12.00
-------------- ------------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.21) (0.02) 0.03
Net Realized and Unrealized Gain 4.96 3.86 2.39
-------------- ------------- ------
Total From Investment Operations 4.75 3.84 2.42
-------------- ------------- ------
DISTRIBUTIONS
Net Investment Income -- (0.02) (0.04)
Net Realized Gain (1.93) (1.35) --
-------------- ------------- ------
Total Distributions (1.93) (1.37) (0.04)
-------------- ------------- ------
NET ASSET VALUE, END OF PERIOD $ 19.67 $ 16.85 $ 14.38
============== ============= ======
TOTAL RETURN (1) 29.94% 28.01% 20.18%
============== ============= ======
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 130,497 $ 34,382 $ 2,426
Ratio of Expenses to Average Net
Assets 2.25% 2.32% 2.67%**
Ratio of Net Investment Income (Loss)
to Average Net Assets (1.11)% (0.83)% 0.43%**
Portfolio Turnover Rate 308% 241% 204%
- --------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net Investment
Income $ 0.04 $ 0.02 $ 0.07
Ratios Before Expense Limitation:
Expenses to Average Net Assets 2.47% 2.88% 3.79%**
Net Investment Income (Loss) to
Average Net Assets (1.34)% (1.43)% (0.69)%**
Ratio of Expenses to Average Net
Assets excluding dividend expense
on securities sold short 2.25% 2.25% 2.25%**
- --------------------------------------------------------------------------------------------------
CLASS C
--------------------------------------------------------
YEAR ENDED YEAR ENDED JANUARY 2, 1996* TO
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1998# JUNE 30, 1997 JUNE 30, 1996
- --------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.83 $ 14.37 $ 12.00
------- ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.21) (0.06) 0.03
Net Realized and Unrealized Gain 4.97 3.89 2.38
------- ------ ------
Total From Investment Operations 4.76 3.83 2.41
------- ------ ------
DISTRIBUTIONS
Net Investment Income -- (0.02) (0.04)
Net Realized Gain (1.93) (1.35) --
------- ------ ------
Total Distributions (1.93) (1.37) (0.04)
------- ------ ------
NET ASSET VALUE, END OF PERIOD $ 19.66 $ 16.83 $ 14.37
======= ===== =====
TOTAL RETURN (1) 29.90% 28.04% 20.10%
======= ===== =====
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 24,872 $ 9,410 $ 2,582
Ratio of Expenses to Average Net
Assets 2.25% 2.32% 2.67%**
Ratio of Net Investment Income (Loss)
to Average Net Assets (1.13)% (0.77)% 0.44%**
Portfolio Turnover Rate 308% 241% 204%
- --------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net Investment
Income $ 0.04 $ 0.07 $ 0.07
Ratios Before Expense Limitation:
Expenses to Average Net Assets 2.25% 3.23% 3.80%**
Net Investment Income (Loss) to
Average Net Assets (1.35)% (1.67)% (0.69)%**
Ratio of Expenses to Average Net
Assets excluding dividend expense
on securities sold short 2.25% 2.25% 2.25%**
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of operations
** Annualized
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not
annualized.
# Net investment income and capital changes per share are based upon monthly
average shares outstanding.
The accompanying notes are an integral part of the financial statements.
<PAGE> 385
VAN KAMPEN FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
AMERICAN VALUE FUND
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------------------
OCTOBER 18,
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 1993*
SELECTED PER SHARE DATA JUNE 30, JUNE 30, JUNE 30, JUNE 30, TO JUNE 30,
AND RATIOS 1998# 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 17.59 $ 14.63 $ 12.89 $ 11.70 $ 12.00
------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(Loss) (0.02) 0.20 0.27 0.27 0.17
Net Realized and
Unrealized Gain
(Loss) 4.84 4.05 1.94 1.44 (0.30)
------------ ------------ ------------ ------------ ------------
Total from Investment
Operations 4.82 4.25 2.21 1.71 (0.13)
------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS
Net Investment Income (0.03) (0.20) (0.27) (0.28) (0.17)
In Excess of Net
Investment Income (0.00)++ (0.00)++ (0.01) -- --
Net Realized Gain (1.04) (1.09) (0.19) (0.24) --
------------ ------------ ------------ ------------ ------------
Total Distributions (1.07) (1.29) (0.47) (0.52) (0.17)
------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF
PERIOD $ 21.34 $ 17.59 $ 14.63 $ 12.89 $ 11.70
============ ============ ============ ============ ============
TOTAL RETURN (1) 28.26% 30.68% 17.41% 15.01% (1.12)%
============ ============ ============ ============ ============
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 220,100 $ 34,331 $ 19,674 $ 20,675 $ 10,717
Ratio of Expenses to
Average Net Assets 1.50% 1.50% 1.50% 1.50% 1.50%**
Ratio of Net Investment
Income (Loss) to
Average Net Assets (0.09)% 1.25% 1.90% 2.29% 2.14%**
Portfolio Turnover Rate 207% 73% 41% 23% 17%
- ---------------------------------------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation During
the Period
Per Share Benefit to
Net Investment Income $ 0.02 $ 0.04 $ 0.04 $ 0.05 $ 0.08
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 1.58% 1.76% 1.81% 1.96% 2.48%**
Net Investment Income
(Loss) to Average Net
Assets (0.18)% 0.98% 1.59% 1.83% 1.16%**
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
--------------------------------------------
AUGUST 1,
YEAR ENDED YEAR ENDED 1995+ TO
SELECTED PER SHARE DATA JUNE 30, JUNE 30, JUNE 30,
AND RATIOS 1998# 1997 1996
- -------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 17.59 $ 14.63 $ 13.37
------------ ------------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(Loss) (0.17) 0.09 0.15
Net Realized and
Unrealized Gain
(Loss) 4.83 4.05 1.46
------------ ------------ ------
Total from Investment
Operations 4.66 4.14 1.61
------------ ------------ ------
DISTRIBUTIONS
Net Investment Income (0.01) (0.09) (0.15)
In Excess of Net
Investment Income (0.00)++ (0.00)++ (0.01)
Net Realized Gain (1.04) (1.09) (0.19)
------------ ------------ ------
Total Distributions (1.05) (1.18) (0.35)
------------ ------------ ------
NET ASSET VALUE, END OF
PERIOD $ 21.20 $ 17.59 $ 14.63
============ ============ ======
TOTAL RETURN (1) 27.30% 29.77% 12.29%
============ ============ ======
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 269,836 $ 15,331 $ 2,485
Ratio of Expenses to
Average Net Assets 2.25% 2.25% 2.25%**
Ratio of Net Investment
Income (Loss) to
Average Net Assets (0.84)% 0.40% 1.18%**
Portfolio Turnover Rate 207% 73% 41%
- ------------------------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation During
the Period
Per Share Benefit to
Net Investment Income $ 0.02 $ 0.06 $ 0.04
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 2.33% 2.48% 2.61%**
Net Investment Income
(Loss) to Average Net
Assets (0.93)% 0.14% 0.82%**
- --------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS C
----------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED OCTOBER 18, 1993*
SELECTED PER SHARE DATA JUNE 30, JUNE 30, JUNE 30, JUNE 30, TO JUNE 30,
AND RATIOS 1998# 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 17.59 $ 14.64 $ 12.89 $ 11.69 $ 12.00
------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(Loss) (0.17) 0.08 0.16 0.17 0.11
Net Realized and
Unrealized Gain
(Loss) 4.83 4.05 1.94 1.44 (0.31)
------------ ------------ ------------ ------------ ------------
Total from Investment
Operations 4.66 4.13 2.10 1.61 (0.20)
------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS
Net Investment Income (0.01) (0.09) (0.15) (0.17) (0.11)
In Excess of Net
Investment Income (0.00)++ (0.00)++ (0.01) -- --
Net Realized Gain (1.04) (1.09) (0.19) (0.24) --
------------ ------------ ------------ ------------ ------------
Total Distributions (1.05) (1.18) (0.35) (0.41) (0.11)
------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF
PERIOD $ 21.20 $ 17.59 $ 14.64 $ 12.89 $ 11.69
============ ============ ============ ============ ============
TOTAL RETURN (1) 27.28% 29.67% 16.50% 14.13% (1.70)%
============ ============ ============ ============ ============
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 127,401 $ 32,425 $ 21,193 $ 13,867 $ 7,237
Ratio of Expenses to
Average Net Assets 2.25% 2.25% 2.25% 2.25% 2.25%**
Ratio of Net Investment
Income (Loss) to
Average Net Assets (0.84)% 0.49% 1.17% 1.54% 1.39%**
Portfolio Turnover Rate 207% 73% 41% 23% 17%
- ---------------------------------------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation During
the Period
Per Share Benefit to
Net Investment Income $ 0.02 $ 0.04 $ 0.04 $ 0.05 $ 0.08
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 2.33% 2.47% 2.58% 2.71% 3.28%**
Net Investment Income
(Loss) to Average Net
Assets (0.92)% 0.22% 0.84% 1.08% 0.36%**
- ---------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
+ The Fund began offering Class B shares on August 1, 1995.
++ Amount is less than $0.01 per share.
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not
annualized.
# Net investment income and capital changes per share are based upon monthly
average shares outstanding.
The accompanying notes are an integral part of the financial statements.
<PAGE> 386
VAN KAMPEN FUNDS
FINANCIAL HIGHLIGHTS
ASIAN GROWTH FUND
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1998# JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.62 $ 17.15 $ 16.42 $ 15.50 $ 12.00
------- ------------- ------------- ------------- -------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment (Loss) (0.04) (0.06) (0.04) -- (0.03)
Net Realized and Unrealized Gain
(Loss) (10.03) (0.14) 0.77 1.43 3.53
------- ------------- ------------- ------------- -------------
Total From Investment Operations (10.07) (0.20) 0.73 1.43 3.50
------- ------------- ------------- ------------- -------------
DISTRIBUTIONS
Net Realized Gain -- -- -- (0.49) --
In Excess of Net Realized Gain (0.02) (0.33) -- (0.02) --
------- ------------- ------------- ------------- -------------
Total Distributions (0.02) (0.33) -- (0.51) --
------- ------------- ------------- ------------- -------------
NET ASSET VALUE, END OF PERIOD $ 6.53 $ 16.62 $ 17.15 $ 16.42 $ 15.50
======= ============= ============= ============= =============
TOTAL RETURN (1) (60.57)% (1.10)% 4.45% 9.50% 29.17%
======= ============= ============= ============= =============
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 47,128 $ 175,440 $ 248,009 $ 178,667 $ 138,212
Ratio of Expenses to Average Net
Assets 1.90% 1.84% 1.88% 1.90% 1.90%
Ratio of Net Investment Income (Loss)
to Average Net Assets (0.39)% (0.31)% (0.16)% 0.04% (0.24)%
Portfolio Turnover Rate 130% 74% 38% 34% 34%
- --------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During
the Period
Per Share Benefit to Net Investment
Loss $ 0.01 $ -- $ -- $ -- $ 0.03
Ratios Before Expense Limitation:
Expenses to Average Net Assets 2.21% -- -- -- 2.17%
Net Investment Loss to Average Net
Assets (0.53)% -- -- -- (0.51)%
Ratio of Expenses to Average Net
Assets excluding country tax
expense 1.90% -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
-------------------------------------------------------
YEAR ENDED YEAR ENDED AUGUST 1, 1995+ TO
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1998# JUNE 30, 1997 JUNE 30, 1996
- ----------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.17 $ 16.81 $ 16.51
------- ------------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment (Loss) (0.10) (0.16) (0.03)
Net Realized and Unrealized Gain
(Loss) (9.74) (0.15) 0.33
------- ------------- -------
Total From Investment Operations (9.84) (0.31) 0.30
------- ------------- -------
DISTRIBUTIONS
Net Realized Gain -- -- --
In Excess of Net Realized Gain (0.02) (0.33) --
------- ------------- -------
Total Distributions (0.02) (0.33) --
------- ------------- -------
NET ASSET VALUE, END OF PERIOD $ 6.31 $ 16.17 $ 16.81
======= ============= =======
TOTAL RETURN (1) $ (60.89)% (1.79)% 1.82%
======= ============= =======
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 26,126 $ 62,786 $ 52,853
Ratio of Expenses to Average Net
Assets 2.65% 2.59% 2.61%**
Ratio of Net Investment Income (Loss)
to Average Net Assets (1.01)% (1.04)% (0.52)%**
Portfolio Turnover Rate 130% 74% 38%
-------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net Investment
Loss $ 0.02 $ -- $ --
Ratios Before Expense Limitation:
Expenses to Average Net Assets 2.96 -- --
Net Investment Loss to Average Net
Assets (1.15)% -- --
Ratio of Expenses to Average Net
Assets excluding country tax
expense 2.65% -- --
--------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS C
--------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1998# JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1994
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.14 $ 16.78 $ 16.19 $ 15.40 $ 12.00
------- ------------- ------------- ------------- -------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Loss (0.12) (0.21) (0.13) (0.12) (0.10)
Net Realized and Unrealized Gain
(Loss) (9.71) (0.10) 0.72 1.42 3.50
------- ------------- ------------- ------------- -------------
Total From Investment Operations (9.83) (0.31) 0.59 1.30 3.40
------- ------------- ------------- ------------- -------------
DISTRIBUTIONS
Net Realized Gain -- -- -- (0.49) --
In Excess of Net Realized Gain (0.02) (0.33) -- (0.02) --
------- ------------- ------------- ------------- -------------
Total Distributions (0.02) (0.33) -- (0.51) --
------- ------------- ------------- ------------- -------------
NET ASSET VALUE, END OF PERIOD $ 6.29 $ 16.14 $ 16.78 $ 16.19 $ 15.40
======= ============= ============= ============= =============
TOTAL RETURN (1) (60.88)% (1.79)% 3.64% 8.71% 28.33%
======= ============= ============= ============= =============
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 28,823 $ 114,460 $ 168,070 $ 139,497 $ 116,889
Ratio of Expenses to Average Net
Assets 2.65% 2.59% 2.63% 2.63% 2.65%
Ratio of Net Investment Loss to
Average Net Assets (1.17)% (1.06)% (0.94)% (0.77)% (0.99)%
Portfolio Turnover Rate 130% 74% 38% 34% 34%
- --------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net Investment
Loss $ 0.01 $ -- $ -- $ -- $ 0.03
Ratios Before Expense Limitation:
Expenses to Average Net Assets 2.96% -- -- -- 2.92%
Net Investment Loss to Average Net
Assets (1.31)% -- -- -- (1.26)%
Ratio of Expenses to Average Net
Assets excluding country tax
expense 2.65% -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
** Annualized
+ The Fund began offering Class B shares on August 1, 1995.
(1) Total return is calculated exclusive of sales charges or deferred
sales charges. Total returns for periods of less than one year are not
annualized.
# Net investment income and capital changes per share are based upon monthly
average shares outstanding.
The accompanying notes are an integral part of the financial statements.
<PAGE> 387
VAN KAMPEN FUNDS
FINANCIAL HIGHLIGHTS
EMERGING MARKETS FUND
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------
JULY 6,
YEAR ENDED YEAR ENDED YEAR ENDED 1994* TO
SELECTED PER SHARE DATA JUNE 30, JUNE 30, JUNE 30, JUNE 30,
AND RATIOS 1998# 1997 1996 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 13.47 $ 12.06 $ 10.61 $ 12.00
------------ ------------ ------------ ------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(Loss) -- 0.01 0.05 0.05
Net Realized and
Unrealized Gain
(Loss) (4.49) 1.57 1.44 (1.44)
------------ ------------ ------------ ------------
Total From Investment
Operations (4.49) 1.58 1.49 (1.39)
------------ ------------ ------------ ------------
DISTRIBUTIONS
Net Investment Income -- -- (0.04) --
In Excess of Net
Investment Income -- (0.04) -- --
Net Realized Gain (0.73) (0.13) -- --
In Excess of Net
Realized Gain (0.27) -- -- --
------------ ------------ ------------ ------------
Total Distributions (1.00) (0.17) (0.04) --
------------ ------------ ------------ ------------
NET ASSET VALUE, END OF
PERIOD $ 7.98 $ 13.47 $ 12.06 $ 10.61
============ ============ ============ ============
TOTAL RETURN (1) (34.31)% 13.54% 14.16% (11.58)%
============ ============ ============ ============
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 74,959 $ 119,022 $ 114,850 $ 26,091
Ratio of Expenses to
Average Net Assets 2.27% 2.21% 2.16% 2.33%**
Ratio of Net Investment
Income (Loss) to
Average Net Assets 0.04% (0.06)% 0.93% 0.81%**
Portfolio Turnover Rate 99% 82% 42% 32%
- ---------------------------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During the Period
Per Share Benefit to
Net Investment Income $ 0.03 $ 0.03 $ 0.02 $ 0.04
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 2.60% 2.41% 2.56% 3.10%**
Net Investment Income
(Loss) to Average Net
Assets (0.24)% (0.27)% 0.53% 0.04%**
Ratio of Expenses to
Average Net Assets
excluding country tax
expense. 2.15% 2.15% 2.15% 2.15%**
- ---------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
----------------------------------------------
AUGUST 1,
YEAR ENDED YEAR ENDED 1995+ TO
SELECTED PER SHARE DATA JUNE 30, JUNE 30, JUNE 30,
AND RATIOS 1998# 1997 1996
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 13.24 $ 11.94 $ 10.91
------------ ------------ ------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(Loss) (0.07) (0.03) 0.01
Net Realized and
Unrealized Gain
(Loss) (4.39) 1.50 1.02
------------ ------------ ------------
Total From Investment
Operations (4.46) 1.47 1.03
------------ ------------ ------------
DISTRIBUTIONS
Net Investment Income -- -- --
In Excess of Net
Investment Income -- (0.04)
Net Realized Gain (0.73) (0.13) --
In Excess of Net
Realized Gain (0.27) -- --
------------ ------------ ------------
Total Distributions (1.00) (0.17) --
------------ ------------ ------------
NET ASSET VALUE, END OF
PERIOD $ 7.78 $ 13.24 $ 11.94
============ ============ ============
TOTAL RETURN (1) (34.76)% 12.67% 9.45%
============ ============ ============
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 36,423 $ 35,966 $ 10,416
Ratio of Expenses to
Average Net Assets 3.02% 2.96% 2.91%**
Ratio of Net Investment
Income (Loss) to
Average Net Assets (0.67)% (0.64)% 0.30%**
Portfolio Turnover Rate 99% 82% 42%
- --------------------------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During the Period
Per Share Benefit to
Net Investment Income $ 0.03 $ 0.01 $ 0.02
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 3.35% 3.17% 3.31%**
Net Investment Income
(Loss) to Average Net
Assets (0.97)% (0.87)% (0.10)%**
Ratio of Expenses to
Average Net Assets
excluding country tax
expense. 2.90% 2.90% 2.90%**
- ---------------------------------------------------------------------------------------------
<CAPTION>
CLASS C
------------------------------------------------------------
JULY 6,
YEAR ENDED YEAR ENDED YEAR ENDED 1994* TO
SELECTED PER SHARE DATA JUNE 30, JUNE 30, JUNE 30, JUNE 30,
AND RATIOS 1998# 1997 1996 1995
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 13.26 $ 11.93 $ 10.53 $ 12.00
------------ ------------ ------------ ------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(Loss) (0.08) (0.08) (0.01) --
Net Realized and
Unrealized Gain
(Loss) (4.39) 1.55 1.41 (1.47)
------------ ------------ ------------ ------------
Total From Investment
Operations (4.47) 1.47 1.40 (1.47)
------------ ------------ ------------ ------------
DISTRIBUTIONS
Net Investment Income -- -- -- --
In Excess of Net
Investment Income -- (0.01) -- --
Net Realized Gain (0.73) (0.13) -- --
In Excess of Net
Realized Gain (0.27) -- -- --
------------ ------------ ------------ ------------
Total Distributions (1.00) (0.14) -- --
------------ ------------ ------------ ------------
NET ASSET VALUE, END OF
PERIOD $ 7.79 $ 13.26 $ 11.93 $ 10.53
============ ============ ============ ============
TOTAL RETURN (1) (34.73)% 12.66% 13.30% (12.25)%
============ ============ ============ ============
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 28,680 $ 57,958 $ 43,601 $ 22,245
Ratio of Expenses to
Average Net Assets 3.01% 2.96% 2.91% 3.08%**
Ratio of Net Investment
Income (Loss) to
Average Net Assets (0.76)% (0.79)% (0.11)% 0.06%**
Portfolio Turnover Rate 99% 82% 42% 32%
- -----------------------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation During
the Period
Per Share Benefit to
Net Investment Income $ 0.03 $ 0.02 $ 0.03 $ 0.04
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 3.34% 3.17% 3.34% 3.90%**
Net Investment (Loss)
to Average Net Assets (1.03)% (1.00)% (0.54)% (0.76)%**
Ratio of Expenses to
Average Net Assets
excluding country tax
expense. 2.90% 2.90% 2.90% 2.90%**
- -----------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
+ The Fund began offering Class B shares on August 1, 1995.
(1) Total return is calculated exclusive of sales charges or deferred
sales charges. Total return for periods of less than one year are not
annualized.
# Net investment income and capital changes per share are based upon monthly
average shares outstanding.
The accompanying notes are an integral part of the financial statements.
<PAGE> 388
VAN KAMPEN FUNDS
FINANCIAL HIGHLIGHTS
GLOBAL EQUITY FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
----------------- ----------------- -----------------
OCTOBER 29, 1997* OCTOBER 29, 1997* OCTOBER 29, 1997*
SELECTED PER SHARE DATA AND RATIOS TO JUNE 30, 1998 TO JUNE 30, 1998 TO JUNE 30, 1998
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 10.00 $ 10.00
------- --------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.06 0.01 0.01
Net Realized and Unrealized Gain 1.08 1.07 1.06
------- --------- -------
Total From Investment Operations 1.14 1.08 1.07
------- --------- -------
DISTRIBUTIONS
Net Investment Income (0.02) -- --
Net Realized Gain -- -- --
------- --------- -------
Total Distributions (0.02) -- --
------- --------- -------
NET ASSET VALUE, END OF PERIOD $ 11.12 $ 11.08 $ 11.07
======= ========= =======
TOTAL RETURN (1) 11.38% 10.84% 10.74%
======= ========= =======
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $80,508 $ 623,229 $69,572
Ratio of Expenses to Average Net Assets 1.70%** 2.45%** 2.45%**
Ratio of Net Investment Income to
Average Net Assets 0.88%** 0.12%** 0.13%**
Portfolio Turnover Rate 4% 4% 4%
- -------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not
annualized.
The accompanying notes are an integral part of the financial statements.
<PAGE> 389
VAN KAMPEN FUNDS
FINANCIAL HIGHLIGHTS
GLOBAL EQUITY ALLOCATION FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
-------------------------------------------------------- --------------------------------
YEAR YEAR YEAR YEAR YEAR YEAR YEAR AUGUST
ENDED ENDED ENDED ENDED ENDED ENDED ENDED 1, 1995+
SELECTED PER SHARE DATA JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, TO JUNE
AND RATIOS 1998# 1997 1996 1995 1994 1998# 1997 30, 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 16.57 $ 14.75 $ 12.60 $ 11.99 $ 11.09 $ 16.15 $ 14.46 $ 13.01
-------- -------- -------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(Loss) 0.21 0.10 0.19 0.12 0.10 0.09 (0.05) 0.30
Net Realized and
Unrealized Gain 2.07 2.76 2.82 0.67 0.90 2.01 2.73 1.98
-------- -------- -------- -------- -------- -------- -------- --------
Total From Investment
Operations 2.28 2.86 3.01 0.79 1.00 2.10 2.68 2.28
-------- -------- -------- -------- -------- -------- -------- --------
DISTRIBUTIONS
Net Investment Income (0.35) (0.55) (0.39) -- (0.03) (0.28) (0.50) (0.35)
In Excess of Net
Investment Income -- -- -- (0.05) -- -- -- --
Net Realized Gain (1.83) (0.49) (0.47) (0.13) (0.07) (1.83) (0.49) (0.48)
-------- -------- -------- -------- -------- -------- -------- --------
Total Distributions (2.18) (1.04) (0.86) (0.18) (0.10) (2.11) (0.99) (0.83)
-------- -------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF
PERIOD $ 16.67 $ 16.57 $ 14.75 $ 12.60 $ 11.99 $ 16.14 $ 16.15 $ 14.46
======== ======== ======== ======== ======== ======== ======== ========
TOTAL RETURN (1) 16.17% 20.61% 24.62% 6.69% 9.02% 15.33% 19.64% 18.08%
======== ======== ======== ======== ======== ======== ======== ========
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $261,633 $ 72,704 $ 63,706 $ 42,586 $ 33,425 $225,797 $ 38,962 $ 14,786
Ratio of Expenses to
Average Net Assets 1.61% 1.70% 1.70% 1.70% 1.70% 2.35% 2.45% 2.45%**
Ratio of Net Investment
Income (Loss) to
Average Net Assets 1.30% 0.59% 0.71% 1.01% 0.98% 0.60% (0.11)% 0.45%**
Portfolio Turnover Rate 108% 45% 44% 39% 30% 108% 45% 44%
- -------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During the Period
Per Share Benefit to
Net Investment Income $ 0.02 $ 0.03 $ 0.10 $ 0.04 $ 0.09 $ 0.02 $ 0.09 $ 0.22
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 1.62% 1.90% 2.06% 2.03% 2.58% 2.36% 2.65% 2.81%**
Net Investment Income
(Loss) to Average Net
Assets 1.30% 0.40% 0.35% 0.68% 0.10% 0.60% (0.30)% 0.09%**
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS C
--------------------------------------------------------
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
SELECTED PER SHARE DATA AND JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
RATIOS 1998# 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 16.24 $ 14.49 $ 12.43 $ 11.90 $ 11.05
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income (Loss) 0.08 (0.03) 0.12 0.04 0.06
Net Realized and Unrealized
Gain 2.05 2.73 2.75 0.65 0.86
-------- -------- -------- -------- --------
Total From Investment
Operations 2.13 2.70 2.87 0.69 0.92
-------- -------- -------- -------- --------
DISTRIBUTIONS
Net Investment Income (0.24) (0.46) (0.33) -- --
In Excess of Net Investment
Income -- -- -- (0.03) --
Net Realized Gain (1.83) (0.49) (0.48) (0.13) (0.07)
-------- -------- -------- -------- --------
Total Distributions (2.07) (0.95) (0.81) (0.16) (0.07)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 16.30 $ 16.24 $ 14.49 $ 12.43 $ 11.90
======== ======== ======== ======== ========
TOTAL RETURN (1) 15.37% 19.69% 23.65% 5.84% 8.34%
======== ======== ======== ======== ========
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's) $108,650 $ 78,199 $ 63,025 $ 40,460 $ 29,892
Ratio of Expenses to Average
Net Assets 2.55% 2.45% 2.45% 2.45% 2.45%
Ratio of Net Investment Income
(Loss) to Average Net Assets 0.52% (0.16)% (0.04)% 0.25% 0.23%
Portfolio Turnover Rate 108% 45% 44% 39% 30%
- ------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income $ 0.02 $ 0.03 $ 1.16 $ 0.05 $ 0.12
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 2.56% 2.65% 2.81% 2.78% 3.34%
Net Investment Income (Loss)
to Average Net Assets 0.52% (0.34)% (0.40)% (0.08)% (0.66)%
</TABLE>
- --------------------------------------------------------------------------------
** Annualized
+ The Fund began offering Class B shares on August 1, 1995.
(1) Total return is calculated exclusive sale charges or deferred sales
charges. Total return for periods of less than one year are not
annualized.
# Net investment income and capital changes per share are based upon monthly
average shares outstanding.
The accompanying notes are an integral part of the financial statements.
<PAGE> 390
VAN KAMPEN FUNDS
FINANCIAL HIGHLIGHTS
GLOBAL FIXED INCOME FUND
<TABLE>
<CAPTION>
CLASS B
CLASS A --------------------------------
-------------------------------------------------------- AUGUST
YEAR YEAR YEAR YEAR YEAR YEAR YEAR 1, 1995+
ENDED ENDED ENDED ENDED ENDED ENDED ENDED TO
SELECTED PER SHARE DATA JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
AND RATIOS 1998# 1997 1996 1995 1994 1998# 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 9.95 $ 9.94 $ 10.23 $ 9.53 $ 10.55 $ 9.91 $ 9.91 $ 10.24
-------- -------- -------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.39 0.44 0.53 0.56 0.52 0.32 0.41 0.64
Net Realized and
Unrealized Gain
(Loss) 0.13 (0.02) (0.01) 0.50 (0.42) 0.13 (0.07) (0.26)
-------- -------- -------- -------- -------- -------- -------- --------
Total From Investment
Operations 0.52 0.42 0.52 1.06 0.10 0.45 0.34 0.38
-------- -------- -------- -------- -------- -------- -------- --------
DISTRIBUTIONS
Net Investment Income (0.39) (0.35) (0.79) (0.36) (0.50) (0.33) (0.29) (0.69)
In Excess of Net
Investment Income (0.01) (0.06) (0.02) -- (0.12) (0.01) (0.05) (0.02)
Net Realized Gain (0.05) -- -- -- (0.47) (0.05) -- --
In Excess of Net
Realized Gain -- -- -- -- (0.03) -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Total Distributions (0.45) (0.41) (0.81) (0.36) (1.12) (0.39) (0.34) (0.71)
-------- -------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF
PERIOD $ 10.02 $ 9.95 $ 9.94 $ 10.23 $ 9.53 $ 9.97 $ 9.91 $ 9.91
======== ======== ======== ======== ======== ======== ======== ========
TOTAL RETURN (1) 5.36% 4.27% 5.20% 11.41% 0.41% 4.65% 3.48% 3.76%
======== ======== ======== ======== ======== ======== ======== ========
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 4,413 $ 6,407 $ 7,432 $ 11,092 $ 10,369 $ 1,425 $ 1,716 $ 1,440
Ratio of Expenses to
Average Net Assets 1.45% 1.45% 1.45% 1.45% 1.45% 2.20% 2.20% 2.20%**
Ratio of Net Investment
Income to Average Net
Assets 3.94% 4.40% 5.02% 5.84% 4.70% 3.21% 3.65% 3.38%**
Portfolio Turnover Rate 78% 170% 223% 169% 168% 78% 170% 223%
- -------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During the Period
Per Share Benefit to
Net Investment Income $ 0.15 $ 0.12 $ 0.07 $ 0.07 $ 0.11 $ 0.15 $ 0.13 $ 0.12
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 3.00% 2.57% 2.16% 2.22% 2.48% 3.75% 3.37% 3.57%**
Net Investment Income
to Average Net Assets 2.42% 3.25% 4.31% 5.07% 3.67% 1.65% 2.45% 2.01%**
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS C
--------------------------------------------------------
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
SELECTED PER SHARE DATA JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
AND RATIOS 1998# 1997 1996 1995 1994
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 9.90 $ 9.90 $ 10.20 $ 9.54 $ 10.56
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.32 0.39 0.37 0.49 0.43
Net Realized and
Unrealized Gain
(Loss) 0.13 (0.05) 0.08 0.47 (0.40)
-------- -------- -------- -------- --------
Total From Investment
Operations 0.45 0.34 0.45 0.96 0.03
-------- -------- -------- -------- --------
DISTRIBUTIONS
Net Investment Income (0.33) (0.29) (0.73) (0.30) (0.44)
In Excess of Net
Investment Income (0.01) (0.05) (0.02) -- (0.11)
Net Realized Gain (0.05) -- -- -- (0.47)
In Excess of Net
Realized Gain -- -- -- -- (0.03)
-------- -------- -------- -------- --------
Total Distributions (0.39) (0.34) (0.75) (0.30) (1.05)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF
PERIOD $ 9.96 $ 9.90 $ 9.90 $ 10.20 $ 9.54
======== ======== ======== ======== ========
TOTAL RETURN (1) 4.65% 3.48% 4.47% 10.24% (0.25)%
======== ======== ======== ======== ========
RATIOS AND SUPPLEMENTAL
DATA
Net Asets, End of Period
(000's) $ 1,888 $ 2,445 $ 2,844 $ 5,965 $ 5,407
Ratio of Expenses to
Average Net Assets 2.20% 2.20% 2.20% 2.20% 2.20%
Ratio of Net Investment
Income to Average Net
Assets 3.21% 3.65% 4.35% 5.09% 3.95%
Portfolio Turnover Rate 78% 170% 223% 169% 168%
- -------------------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation During
the Period
Per Share Benefit to
Net Investment Income $ 0.15 $ 0.12 $ 0.06 $ 0.08 $ 0.12
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 3.75% 3.35% 2.87% 2.97% 3.29%
Net Investment Income
to Average Net Assets 1.67% 2.48% 3.68% 4.32% 2.86%
- -------------------------------------------------------------------------------------
</TABLE>
** Annualized
+ The Fund began offering Class B shares on August 1, 1995.
(1) Total return is calculated exclusive of sales charges or deferred
sales charges. Total returns for periods of less than one year are not
annualized.
# Net investment income and capital changes per share are based upon monthly
average shares outstanding.
The accompanying notes are an integral part of the financial statements.
<PAGE> 391
VAN KAMPEN SERIES FUND, INC.
FINANCIAL HIGHLIGHTS
GOVERNMENT OBLIGATIONS MONEY MARKET FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SELECTED PER SHARE DATA JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
AND RATIOS 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.0469 0.0443 0.0464 0.0448 0.0243
Net Realized and
Unrealized Gain
(Loss) -- -- (0.0011) -- 0.0011
------------ ------------ ------------ ------------ ------------
Total From Investment
Operations 0.0469 0.0443 0.0453 0.0448 0.0254
------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS
Net Investment Income (0.0469) (0.0443) (0.0464) (0.0448) (0.0243)
Net Realized Gain -- -- (0.0001) -- (0.0011)
------------ ------------ ------------ ------------ ------------
Total Distributions (0.0469) (0.0443) (0.0465) (0.0448) (0.0254)
------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============= =========== ============ ============ ============
TOTAL RETURN 4.79% 4.53% 4.72% 4.58% 2.45%
============= =========== ============ ============ ============
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 56,302 $ 94,768 $ 145,978 $ 67,505 $ 102,551
Ratio of Expenses to
Average Net Assets 0.95% 0.95% 0.95% 0.95% 0.95%
Ratio of Net Investment
Income to Average Net
Assets 4.64% 4.43% 4.68% 4.61% 2.40%
- ---------------------------------------------------------------------------------------------------------
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 1.22% 1.27% 1.24% 1.12% 1.22%
Net Investment Income
to Average Net Assets 4.38% 4.10% 4.39% 4.44% 2.13%
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 392
VAN KAMPEN FUNDS
FINANCIAL HIGHLIGHTS
HIGH YIELD & TOTAL RETURN FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
-------------------------------- --------------------------------
YEAR YEAR MAY 1, YEAR YEAR MAY 1,
ENDED ENDED 1996* TO ENDED ENDED 1996* TO
SELECTED PER SHARE DATA JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
AND RATIOS 1998# 1997 1996 1998# 1997 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 12.86 $ 11.92 $ 12.00 $ 12.86 $ 11.93 $ 12.00
-------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.97 1.07 0.13 0.87 0.98 0.12
Net Realized and
Unrealized Gain
(Loss) 0.35 0.99 (0.09) 0.34 0.99 (0.09)
-------- -------- -------- -------- -------- --------
Total From Investment
Operations 1.32 2.06 0.04 1.21 1.97 0.03
-------- -------- -------- -------- -------- --------
DISTRIBUTION:
Net Investment Income (0.97) (1.07) (0.12) (0.89) (0.99) (0.10)
Net Realized Gain (0.55) (0.05) -- (0.55) (0.05) --
-------- -------- -------- -------- -------- --------
Total Distributions (1.52) (1.12) (0.12) (1.44) (1.04) (0.10)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF
PERIOD $ 12.66 $ 12.86 $ 11.92 $ 12.63 $ 12.86 $ 11.93
======== ======== ======== ======== ======== ========
TOTAL RETURN (1) 10.81% 18.12% 0.29% 9.86% 17.22% 0.21%
======== ======== ======== ======== ======== ========
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 7,813 $ 8,980 $ 3,907 $ 18,420 $ 8,617 $ 3,421
Ratio of Expenses to
Average Net Assets 1.25% 1.25% 1.25%** 2.00% 2.00% 2.00%**
Ratio of Net Investment
Income to Average Net
Assets 7.42% 8.83% 6.85%** 6.70% 7.99% 6.08%**
Portfolio Turnover Rate 81% 104% 10% 81% 104% 10%
- -------------------------------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During the Period Per
Share Benefit to Net
Investment Income $ 0.08 $ 0.10 $ 0.04 $ 0.08 $ 0.10 $ 0.04
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 1.89% 2.04% 3.51%** 2.64% 2.82% 4.25%**
Net Investment Income
to Average Net Assets 6.78% 8.04% 4.59%** 6.04% 7.17% 3.83%**
- -------------------------------------------------------------------------------------------------
<CAPTION>
CLASS C
--------------------------------
YEAR YEAR MAY 1,
ENDED ENDED 1996* TO
SELECTED PER SHARE DATA JUNE 30, JUNE 30, JUNE 30,
AND RATIOS 1998# 1997 1996
- -------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 12.86 $ 11.93 $ 12.00
-------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.86 0.99 0.12
Net Realized and
Unrealized Gain
(Loss) 0.35 0.98 (0.09)
-------- -------- --------
Total From Investment
Operations 1.21 1.97 0.03
-------- -------- --------
DISTRIBUTION:
Net Investment Income (0.89) (0.99) (0.10)
Net Realized Gain (0.55) (0.05) --
-------- -------- --------
Total Distributions (1.44) (1.04) (0.10)
-------- -------- --------
NET ASSET VALUE, END OF
PERIOD $ 12.63 $ 12.86 $ 11.93
======== ======== ========
TOTAL RETURN (1) 9.86% 17.21% 0.21%
======== ======== ========
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 8,145 $ 4,970 $ 3,316
Ratio of Expenses to
Average Net Assets 2.00% 2.00% 2.00%**
Ratio of Net Investment
Income to Average Net
Assets 6.63% 8.03% 6.07%**
Portfolio Turnover Rate 81% 104% 10%
- --------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During the Period Per
Share Benefit to Net
Investment Income $ 0.08 $ 0.11 $ 0.04
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 2.64% 2.88% 4.25%**
Net Investment Income
to Average Net Assets 6.01% 7.15% 3.82%**
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of operations
** Annualized
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not
annualized.
# Net investment income and capital changes per share are based upon monthly
average shares outstanding.
The accompanying notes are an integral part of the financial statements.
<PAGE> 393
VAN KAMPEN FUNDS
FINANCIAL HIGHLIGHTS
INTERNATIONAL MAGNUM FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
---------------------------- ---------------------------- ----------------------------
JULY 1, JULY 1, JULY 1,
YEAR ENDED 1996* TO YEAR ENDED 1996* TO YEAR ENDED 1996* TO
SELECTED PER SHARE DATA JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
AND RATIOS 1998# 1997 1998# 1997 1998# 1997
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 13.91 $ 12.00 $ 13.84 $ 12.00 $ 13.83 $ 12.00
------------ ------------ ------------ ------------ ------------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.17 0.17 0.05 0.10 0.05 0.06
Net Realized and
Unrealized Gain 0.96 1.88 0.97 1.85 0.99 1.88
------------ ------------ ------------ ------------ ------------ ------
Total From Investment
Operations 1.13 2.05 1.02 1.95 1.04 1.94
------------ ------------ ------------ ------------ ------------ ------
DISTRIBUTIONS
Net Investment Income (0.18) (0.13) (0.13) (0.10) (0.08) (0.10)
Net Realized Gain (0.01) (0.01) (0.01) (0.01) (0.01) (0.01)
------------ ------------ ------------ ------------ ------------ ------
Total Distributions (0.19) (0.14) (0.14) (0.11) (0.09) (0.11)
------------ ------------ ------------ ------------ ------------ ------
NET ASSET VALUE, END OF
PERIOD $ 14.85 $ 13.91 $ 14.72 $ 13.84 $ 14.78 $ 13.83
============ ============ ============ ============ ============ ======
TOTAL RETURN (1) 8.32% 17.30% 7.55% 16.40% 7.55% 16.27%
============ ============ ============ ============ ============ ======
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 66,817 $ 21,961 $ 51,541 $ 18,215 $ 15,520 $ 9,156
Ratio of Expenses to
Average Net Assets 1.65% 1.65%** 2.40% 2.40%** 2.40% 2.40%**
Ratio of Net Investment
Income to Average Net
Assets 1.19% 1.39%** 0.40% 0.54%** 0.36% 0.29%**
Portfolio Turnover Rate 35% 22% 35% 22% 35% 22%
- -------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During the Period
Per Share Benefit to
Net Investment Income $ 0.02 $ 0.11 $ 0.02 $ 0.17 $ 0.02 $ 0.21
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 1.82% 2.50%** 2.57% 3.34%** 2.56% 3.45%**
Net Investment Income
(Loss) to Average Net
Assets 1.02% 0.52%** 0.23% (0.42)%** 0.20%** (0.77)%**
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not
annualized.
# Net investment income and capital changes per share are based upon monthly
average shares outstanding.
The accompanying notes are an integral part of the financial statements.
<PAGE> 394
VAN KAMPEN FUNDS
FINANCIAL HIGHLIGHTS
LATIN AMERICAN FUND
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED JULY 6, 1994*
SELECTED PER SHARE DATA JUNE 30, JUNE 30, JUNE 30, JUNE 30,
AND RATIOS 1998# 1997 1996 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 17.39 $ 12.63 $ 9.08 $ 12.00
------------ ------------ ------------ ------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(Loss) (0.01) 0.02 0.10 (0.02)
Net Realized and
Unrealized Gain
(Loss) (2.73) 6.46 3.47 (2.70)
------------ ------------ ------------ ------------
Total From Investment
Operations (2.74) 6.48 3.57 (2.72)
------------ ------------ ------------ ------------
DISTRIBUTIONS
Net Investment Income -- -- (0.02) --
In Excess of Net
Investment Income -- (0.09) -- --
Net Realized Gain (1.92) (1.63) -- --
In Excess of Net
Realized Gain (1.31) -- -- --
Return of Capital -- -- -- (0.20)
------------ ------------ ------------ ------------
Total Distributions (3.23) (1.72) (0.02) (0.20)
------------ ------------ ------------ ------------
NET ASSET VALUE, END OF
PERIOD $ 11.42 $ 17.39 $ 12.63 $ 9.08
============ ============ ============ ============
TOTAL RETURN (1) (17.37)% 57.32% 39.35% (23.07)%
============ ============ ============ ============
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 44,439 $ 84,401 $ 18,701 $ 7,658
Ratio of Expenses to
Average Net Assets 2.25% 2.24% 2.11% 2.46%**
Ratio of Net Investment
Income (Loss) to
Average Net Assets (0.09)% (0.08)% 1.18% (0.44)%**
Portfolio Turnover Rate 249% 241% 131% 107%
- ---------------------------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During the Period
Per Share Benefit to
Net Investment Income $ 0.02 $ 0.10 $ 0.09 $ 0.13
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 2.41% 2.77% 3.28% 4.30%**
Net Investment Income
(Loss) to Average Net
Assets (0.24)% (0.61)% 0.01% (2.26)%**
Ratio of Expenses to
Average Net Assets
excluding country tax
expense 2.10% 2.10% 2.10% 2.10%**
- ---------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
----------------------------------------------
AUGUST 1,
YEAR ENDED YEAR ENDED 1995+ TO
SELECTED PER SHARE DATA JUNE 30, JUNE 30, JUNE 30,
AND RATIOS 1998# 1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 16.99 $ 12.45 $ 9.58
------------ ------------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(Loss) (0.08) (0.03) 0.03
Net Realized and
Unrealized Gain
(Loss) (2.65) 6.28 2.84
------------ ------------ ------
Total From Investment
Operations (2.73) 6.25 2.87
------------ ------------ ------
DISTRIBUTIONS
Net Investment Income -- -- --
In Excess of Net
Investment Income -- (0.08) --
Net Realized Gain (1.92) (1.63) --
In Excess of Net
Realized Gain (1.31) -- --
Return of Capital -- -- --
------------ ------------ ------
Total Distributions (3.23) (1.71) --
------------ ------------ ------
NET ASSET VALUE, END OF
PERIOD $ 11.03 $ 16.99 $ 12.45
TOTAL RETURN (1) (17.82)% 56.17% 29.26%
============ ============ ======
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 24,206 $ 14,314 $ 2,041
Ratio of Expenses to
Average Net Assets 2.99% 2.99% 2.87%**
Ratio of Net Investment
Income (Loss) to
Average Net Assets (0.58)% (0.78)% 0.88%**
Portfolio Turnover Rate 249% 241% 131%
- ---------------------------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During the Period
Per Share Benefit to
Net Investment Income $ 0.02 $ 0.02 $ 0.04
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 3.16% 3.55% 3.89%**
Net Investment Income
(Loss) to Average Net
Assets (0.73)% (1.34)% (0.14)%**
Ratio of Expenses to
Average Net Assets
excluding country tax
expense 2.85% 2.85% 2.85%**
- ---------------------------------------------------------------------------------------------
<CAPTION>
CLASS C
------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED JULY 6, 1994*
SELECTED PER SHARE DATA JUNE 30, JUNE 30, JUNE 30, JUNE 30,
AND RATIOS 1998# 1997 1996 1995
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 17.01 $ 12.43 $ 8.99 $ 12.00
------------ ------------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(Loss) (0.11) (0.07) 0.04 (0.08)
Net Realized and
Unrealized Gain
(Loss) (2.63) 6.31 3.40 (2.73)
------------ ------------ ------ ------
Total From Investment
Operations (2.74) 6.24 3.44 (2.81)
------------ ------------ ------ ------
DISTRIBUTIONS
In Excess of Net
Investment Income -- (0.03) -- --
Net Realized Gain (1.92) (1.63) -- --
In Excess of Net
Realized Gain (1.31) -- -- --
Return of Capital -- -- -- (0.20)
------------ ------------ ------ ------
Total Distributions (3.23) (1.66) -- (0.20)
------------ ------------ ------ ------
NET ASSET VALUE, END OF
PERIOD $ 11.04 $ 17.01 $ 12.43 $ 8.99
============ ============ ====== ======
TOTAL RETURN (1) (17.86)% 56.04% 38.26% (23.83)%
============ ============ ====== ======
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 14,577 $ 20,345 $ 6,780 $ 4,085
Ratio of Expenses to
Average Net Assets 3.00% 2.99% 2.86% 3.20%**
Ratio of Net Investment
Income (Loss) to
Average Net Assets (0.77)% (0.79)% 0.42% (1.16)%**
Portfolio Turnover Rate 249% 241% 131% 107%
- -----------------------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During the Period
Per Share Benefit to
Net Investment Income $ 0.02 $ 0.05 $ 0.12 $ 0.12
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 3.16% 3.56% 4.06% 5.20%**
Net Investment Income
(Loss) to Average Net
Assets (0.93)% (1.36)% (0.78)% (3.16)%**
Ratio of Expenses to
Average Net Assets
excluding country tax
expense 2.85% 2.85% 2.85% 2.85%**
- -----------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations.
** Annualized
+ The Fund began offering Class B shares on August 1, 1995 (1) Total return is
calculated exclusive of sales charges or deferred
sales charges. Total return for periods of less than one year are not
annualized.
# Net investment income and capital changes per share are based upon monthly
average shares outstanding.
The accompanying notes are an integral part of the financial statements.
<PAGE> 395
VAN KAMPEN SERIES FUND, INC.
FINANCIAL HIGHLIGHTS
MONEY MARKET FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SELECTED PER SHARE DATA AND JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
RATIOS 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.0472 0.0450 0.0463 0.0446 0.0246
Net Realized and Unrealized
Gain (Loss) -- -- (0.0006) 0.0001 --
---------- ---------- ---------- ---------- ----------
Total From Investment
Operations 0.0472 0.0450 0.0457 0.0447 0.0246
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS:
Net Investment Income (0.0472) (0.0450) (0.0463) (0.0446) (0.0246)
Net Realized Gain -- -- -- (0.0001) --
---------- ---------- ---------- ---------- ----------
Total Distributions (0.0472) (0.0450) (0.0463) (0.0447) (0.0246)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ==========
TOTAL RETURN (1) 4.83% 4.60% 4.72% 4.55% 2.49%
========== ========== ========== ========== ==========
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's) $ 119,376 $ 138,422 $ 170,973 $ 171,515 $ 176,599
Ratio of Expenses to Average
Net Assets 0.98% 0.98% 0.98% 0.98% 0.98%
Ratio of Net Investment Income
to Average Net Assets 4.72% 4.50% 4.65% 4.45% 2.45%
- -----------------------------------------------------------------------------------------------
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 1.10% 1.27% 1.22% 1.18% 1.19%
Net Investment Income to
Average Net Assets 4.61% 4.20% 4.41% 4.25% 2.24%
- -----------------------------------------------------------------------------------------------
</TABLE>
(1) Total returns for periods of less than one year are not annualized.
The accompanying notes are an integral part of the financial statements.
<PAGE> 396
VAN KAMPEN FUNDS
FINANCIAL HIGHLIGHTS
U.S. REAL ESTATE FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
-------------------------------- --------------------------------
YEAR YEAR MAY 1, YEAR YEAR MAY 1,
ENDED ENDED 1996* TO ENDED ENDED 1996* TO
SELECTED PER SHARE DATA JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
AND RATIOS 1998# 1997 1996 1998# 1997 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 16.39 $ 12.52 $ 12.00 $ 16.36 $ 12.52 $ 12.00
-------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.50 0.37 0.08 0.39 0.15 0.07
Net Realized and
Unrealized Gain 0.88 4.03 0.48 0.82 4.12 0.48
-------- -------- -------- -------- -------- --------
Total From Investment
Operations 1.38 4.40 0.56 1.21 4.27 0.55
-------- -------- -------- -------- -------- --------
DISTRIBUTIONS:
Net Investment Income (0.51) (0.29) (0.04) (0.39) (0.19) (0.03)
In Excess of Net
Investment Income (0.05) -- -- (0.04) -- --
Net Realized Gain (1.60) (0.24) -- (1.60) (0.24) --
-------- -------- -------- -------- -------- --------
Total Distributions (2.16) (0.53) (0.04) (2.03) (0.43) (0.03)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF
PERIOD $ 15.61 $ 16.39 $ 12.52 $ 15.54 $ 16.36 $ 12.52
======== ======== ======== ======== ======== ========
TOTAL RETURN (1) 8.27% 35.75% 4.63% 7.23% 34.58% 4.54%
======== ======== ======== ======== ======== ========
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 16,873 $ 14,827 $ 1,829 $ 15,197 $ 7,120 $ 2,197
Ratio of Expenses to
Average Net Assets 1.55% 1.55% 1.55%** 2.30% 2.30% 2.30%**
Ratio of Net Investment
Income to Average Net
Assets 2.99% 2.33% 4.11%** 2.36% 1.49% 3.35%**
Portfolio Turnover Rate 130% 143% 0% 130% 143% 0%
- -------------------------------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During the Period
Per Share Benefit to
Net Investment Income $ 0.09 $ 0.16 $ 0.08 $ 0.09 $ 0.11 $ 0.07
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 2.09% 2.51% 5.58%** 2.84% 3.39% 6.34%**
Net Investment Income
(Loss) to Average Net
Assets 2.45% 1.36% 0.08%** 1.82% 0.39% (0.69)%**
<CAPTION>
CLASS C
--------------------------------
YEAR YEAR MAY 1,
ENDED ENDED 1996* TO
SELECTED PER SHARE DATA JUNE 30, JUNE 30, JUNE 30,
AND RATIOS 1998# 1997 1996
- -------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 16.36 $ 12.52 $ 12.00
-------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.39 0.20 0.07
Net Realized and
Unrealized Gain 0.83 4.07 0.48
-------- -------- --------
Total From Investment
Operations 1.22 4.27 0.55
-------- -------- --------
DISTRIBUTIONS:
Net Investment Income (0.39) (0.19) (0.03)
In Excess of Net
Investment Income (0.04) -- --
Net Realized Gain (1.60) (0.24) --
-------- -------- --------
Total Distributions (2.03) (0.43) (0.03)
-------- -------- --------
NET ASSET VALUE, END OF
PERIOD $ 15.55 $ 16.36 $ 12.52
======== ======== ========
TOTAL RETURN (1) 7.20% 34.56% 4.54%
======== ======== ========
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 4,187 $ 2,369 $ 1,782
Ratio of Expenses to
Average Net Assets 2.30% 2.30% 2.30%**
Ratio of Net Investment
Income to Average Net
Assets 2.31% 1.46% 3.39%**
Portfolio Turnover Rate 130% 143% 0%
- --------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During the Period
Per Share Benefit to
Net Investment Income $ 0.09 $ 0.17 $ 0.08
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 2.83% 3.58% 6.32%**
Net Investment Income
(Loss) to Average Net
Assets 1.78% 0.16% (0.63)%**
- --------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not
annualized.
# Net investment income and capital changes per share are based upon monthly
average shares outstanding.
The accompanying notes are an integral part of the financial statements.
<PAGE> 397
VAN KAMPEN FUNDS
FINANCIAL HIGHLIGHTS
VALUE FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------------ ------------ ------------
JULY 7, JULY 7, JULY 7,
1997* 1997* 1997*
JUNE 30, JUNE 30, JUNE 30,
SELECTED PER SHARE DATA AND RATIOS 1998# 1998# 1998#
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 10.00 $ 10.00
------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.11 0.03 0.03
Net Realized and Unrealized Gain 0.56 0.56 0.55
------------ ------------ ------------
Total From Investment Operations 0.67 0.59 0.58
------------ ------------ ------------
DISTRIBUTIONS
Net Investment Income (0.08) (0.03) (0.03)
In Excess of Net Investment Income (0.01) (0.00)++ (0.00)++
Net Realized Gain (0.05) (0.05) (0.05)
------------ ------------ ------------
Total Distributions (0.14) (0.08) (0.08)
------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD $ 10.53 $ 10.51 $ 10.50
============ ============ ============
TOTAL RETURN (1) 6.74% 6.01% 5.83%
============ ============ ============
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 137,447 $ 142,741 $ 35,564
Ratio of Expenses to Average Net Assets 1.45%** 2.20%** 2.20%**
Ratio of Net Investment Income to
Average Net Assets 1.02%** 0.28%** 0.29%**
Portfolio Turnover Rate 38% 38% 38%
- ----------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation
During the Period
Per Share Benefit to Net Investment
Income $ 0.01 $ 0.01 $ 0.01
Ratios Before Expense Limitation:
Expenses to Average Net Assets 1.60%** 2.35%** 2.35%**
Net Investment Income to Average Net
Assets 0.88%** 0.14%** 0.15%**
- ----------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
++ Amount is less than $0.01 per share
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not
annualized.
# Net investment income and capital changes per share are based upon monthly
average shares outstanding.
The accompanying notes are an integral part of the financial statements.
<PAGE> 398
VAN KAMPEN FUNDS
FINANCIAL HIGHLIGHTS
WORLDWIDE HIGH INCOME FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
-------------------------------------------------------- --------------------------------
YEAR YEAR YEAR YEAR April 21, YEAR YEAR AUGUST
ENDED ENDED ENDED ENDED 1994* ENDED ENDED 1, 1995+
SELECTED PER SHARE DATA JUNE 30, JUNE 30, JUNE 30, JUNE 30, TO JUNE JUNE 30, JUNE 30, TO JUNE
AND RATIOS 1998# 1997 1996 1995 30, 1994 1998# 1997 30, 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 14.26 $ 12.47 $ 11.57 $ 12.17 $ 12.00 $ 14.20 $ 12.44 $ 11.63
-------- -------- -------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 1.15 1.25 1.36 1.26 0.18 1.04 1.07 1.18
Net Realized and
Unrealized Gain
(Loss) (0.67) 2.30 0.80 (0.52) 0.16 (0.65) 2.35 0.72
-------- -------- -------- -------- -------- -------- -------- --------
Total From Investment
Operations 0.48 3.55 2.16 0.74 0.34 0.39 3.42 1.90
-------- -------- -------- -------- -------- -------- -------- --------
DISTRIBUTIONS
Net Investment Income (1.09) (1.25) (1.26) (1.22) (0.17) (1.00) (1.15) (1.09)
Net Realized Gain (1.19) (0.51) -- (0.12) -- (1.19) (0.51) --
-------- -------- -------- -------- -------- -------- -------- --------
Total Distributions (2.28) (1.76) (1.26) (1.34) (0.17) (2.19) (1.66) (1.09)
-------- -------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF
PERIOD $ 12.46 $ 14.26 $ 12.47 $ 11.57 $ 12.17 $ 12.40 $ 14.20 $ 12.44
======== ======== ======== ======== ======== ======== ======== ========
TOTAL RETURN (1) 3.40% 30.29% 19.61% 6.87% 2.86% 2.63% 29.14% 17.07%
======== ======== ======== ======== ======== ======== ======== ========
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 91,579 $ 76,439 $ 41,493 $ 14,819 $ 6,857 $146,401 $ 78,340 $ 26,174
Ratio of Expenses to
Average Net Assets 1.45% 1.52% 1.55% 1.55% 1.55%** 2.20% 2.27% 2.30%**
Ratio of Net Investment
Income to Average Net
Assets 8.36% 9.73% 11.95% 11.53% 8.29%** 7.64% 8.86% 12.06%**
Portfolio Turnover Rate 156% 157% 220% 178% 19% 156% 157% 220%
- -------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During the Period
Per Share Benefit to
Net Investment Income $ -- $ -- $ 0.02 $ 0.05 $ 0.02 $ -- $ -- $ 0.02
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets -- -- 1.69% 1.97% 3.23%** -- -- 2.47%**
Net Investment Income
to Average Net Assets -- -- 11.81% 11.11% 6.61%** -- -- 11.89%**
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS C
--------------------------------------------------------
APRIL
YEAR YEAR YEAR YEAR 21,
ENDED ENDED ENDED ENDED 1994*
SELECTED PER SHARE DATA JUNE 30, JUNE 30, JUNE 30, JUNE 30, TO JUNE
AND RATIOS 1998# 1997 1996 1995 30, 1994
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 14.21 $ 12.45 $ 11.58 $ 12.16 $ 12.00
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 1.04 1.16 1.30 1.17 0.17
Net Realized and
Unrealized Gain
(Loss) (0.66) 2.26 0.77 (0.50) 0.15
-------- -------- -------- -------- --------
Total From Investment
Operations 0.38 3.42 2.07 0.67 0.32
-------- -------- -------- -------- --------
DISTRIBUTIONS
Net Investment Income (1.00) (1.15) (1.20) (1.13) (0.16)
Net Realized Gain (1.19) (0.51) -- (0.12) --
-------- -------- -------- -------- --------
Total Distributions (2.19) (1.66) (1.20) (1.25) (0.16)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF
PERIOD $ 12.40 $ 14.21 $ 12.45 $ 11.58 $ 12.16
======== ======== ======== ======== ========
TOTAL RETURN (1) 2.55% 29.12% 18.71% 6.20% 2.62%
======== ======== ======== ======== ========
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 60,197 $ 41,709 $ 28,094 $ 11,880 $ 6,081
Ratio of Expenses to
Average Net Assets 2.20% 2.27% 2.30% 2.30% 2.30%**
Ratio of Net Investment
Income to Average Net
Assets 7.62% 9.04% 11.40% 10.72% 7.54%**
Portfolio Turnover Rate 156% 157% 220% 178% 19%
- -------------------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During the Period
Per Share Benefit to
Net Investment Income $ -- $ -- $ 0.04 $ 0.05 $ 0.06
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets -- -- 2.44% 2.74% 4.00%**
Net Investment Income
to Average Net Assets -- -- 11.26% 10.28% 5.84%**
- -------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
+ The Fund began offering Class B shares on August 1, 1995.
(1) Total return is calculated exclusive of sales charges or deferred
sales charges. Total return for periods of less than one year are not
annualized.
# Net investment income and capital charges per share are based upon monthly
average shares outstanding.
The accompanying notes are an integral part of the financial statements.
<PAGE> 399
VAN KAMPEN SERIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
Van Kampen Series Fund, Inc. (formerly Morgan Stanley Fund, Inc.) (the "Fund")
was incorporated under the laws of Maryland on August 14, 1992 and commenced
operations on January 4, 1993. The Fund is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment company
which offers redeemable shares of diversified and non-diversified investment
portfolios.
As of June 30, 1998, the Fund had sixteen separate active investment portfolios:
Van Kampen Aggressive Equity Fund (formerly Morgan Stanley Aggressive Equity
Fund), Van Kampen American Value Fund (formerly Morgan Stanley American Value
Fund), Van Kampen Asian Growth Fund (formerly Morgan Stanley Asian Growth Fund),
Van Kampen Emerging Markets Fund (formerly Morgan Stanley Emerging Markets
Fund), Van Kampen Equity Growth Fund, Van Kampen Global Equity Fund (formerly
Morgan Stanley Global Equity Fund), Van Kampen Global Equity Allocation Fund
(formerly Morgan Stanley Global Equity Allocation Fund), Van Kampen Global Fixed
Income Fund (formerly Morgan Stanley Global Fixed Income Fund), Morgan Stanley
Government Obligations Money Market Fund, Van Kampen High Yield & Total Return
Fund (formerly Morgan Stanley High Yield Fund), Van Kampen International Magnum
Fund (formerly Morgan Stanley International Magnum Fund), Van Kampen Latin
American Fund (formerly Morgan Stanley Latin American Fund), Morgan Stanley
Money Market Fund, Van Kampen U.S. Real Estate Fund (formerly Morgan Stanley
U.S. Real Estate Fund), Van Kampen Value Fund (formerly Morgan Stanley Value
Fund), and Van Kampen Worldwide High Income Fund (formerly Morgan Stanley
Worldwide High Income Fund) (referred to herein respectively as "Aggressive
Equity Fund," "American Value Fund," "Asian Growth Fund," "Emerging Markets
Fund," "Equity Growth Fund," "Global Equity Fund", "Global Equity Allocation
Fund," "Global Fixed Income Fund," "Government Obligations Money Market Fund"
"High Yield & Total Return Fund," "International Magnum Fund," "Latin American
Fund," "Money Market Fund," "U.S. Real Estate Fund," "Value Fund," "Worldwide
High Income Fund," and individually a "Portfolio" and collectively as the
"Portfolios"). The financial statements of the Equity Growth Fund are presented
separately.
The Fund currently offers three classes of shares, Class A, Class B, and Class C
Shares (with the exception of the Government Obligations Money Market and Money
Market Funds). Class A shares are sold with a front-end sales charge of up to
5.75% (4.75% for shares sold in the Global Fixed Income Fund, High Yield & Total
Return Fund and the Worldwide High Income Fund). For certain purchases of Class
A shares, the front-end sales charge may be waived and a contingent deferred
sales charge of 1.00% imposed in the event of certain redemptions within one
year of the purchase. Class B shares are sold with a contingent deferred sales
<PAGE> 400
charge on redemptions made within 5 years of purchase which declines annually
from 5% for redemptions made in year one, down to 1.50% in year five. The
contingent deferred sales charge is based on the lesser of the current market
value of the shares redeemed or the total cost of such shares. Class B shares
will automatically convert to Class A shares after the eighth year following
purchase. Class C shares are sold with a contingent deferred sales charge of 1%
for shares that are redeemed within one year of purchase, based on the lesser of
the current market value of the shares redeemed or the total cost of such
shares. All three classes of shares have identical voting, dividend, liquidation
and other rights. The Fund began offering the current Class B shares on August
1, 1995. Class B shares held prior to May 1, 1995 were renamed Class C shares.
The Global Equity Fund, and Value Fund commenced operations on October 29, 1997
and July 7, 1997 respectively.
A. ACCOUNTING POLICIES: The following significant accounting policies are in
conformity with generally accepted accounting principles for investment
companies. Such policies are consistently followed by the Fund in the
preparation of the financial statements. Generally accepted accounting
principles require management to make estimates and assumptions that affect the
reported amounts and disclosures in the financial statements. Actual results may
differ from those estimates.
1. SECURITY VALUATION: Equity securities listed on a U.S. exchange and equity
securities traded on NASDAQ are valued at the latest quoted sales price on the
valuation date. Securities listed on a foreign exchange are valued at their
closing price. Unlisted securities and listed securities not traded on the
valuation date for which market quotations are readily available are valued at
the average of the current bid and asked prices obtained from reputable brokers.
Bonds and other fixed income securities may be valued according to the broadest
and most representative market. In addition, bonds and other fixed income
securities may be valued on the basis of prices provided by a pricing service
which take into account institutional size trading in similar groups of
securities. Debt securities purchased with remaining maturities of 60 days or
less are valued at amortized cost, if it approximates market value. Securities
owned by the Government Obligations Money Market and Money Market Funds are
stated at amortized cost, which approximates market value. All other securities
and assets for which market values are not readily available are valued at fair
value as determined in good faith by the Board of Directors, although the actual
calculations may be done by others.
At June 30, 1998, approximately 93% and 91% of the net assets of the High Yield
& Total Return Fund and the Worldwide High Income Fund, respectively, consisted
of high yield securities rated below investment grade. Investments in high yield
securities are accompanied by a greater degree of credit risk and the risk tends
to be more
<PAGE> 401
VAN KAMPEN SERIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 1998
sensitive to economic conditions than higher rated securities. Certain
securities may be valued on the basis of bid prices provided by one principal
market maker.
2. TAXES: It is each portfolio's intention to qualify as a regulated investment
company and distribute all of its taxable income. Accordingly, no provision for
Federal income taxes is required in the financial statements. A portfolio may be
subject to taxes imposed by countries in which it invests. Such taxes are
generally based on income earned or gains realized or repatriated. Taxes are
accrued and applied to net investment income, net realized capital gains and net
unrealized appreciation, as applicable, as the income is earned or capital gains
are recorded.
At June 30, 1998, the following Portfolios had available capital loss
carryforwards to offset future net capital gains, to the extent provided by U.S.
Federal income tax regulations, through the indicated expiration dates:
<TABLE>
<CAPTION>
EXPIRATION DATE EXPIRATION DATE
JUNE 30, 2004 JUNE 30, 2006
PORTFOLIOS (000) (000)
- ------------------------------------- ----------------------- -----------------------
<S> <C> <C>
Asian Growth......................... -- $ 53,293
Government Obligations Money
Market............................. $ 88 --
Money Market......................... $ 70 --
</TABLE>
To the extent that capital loss carryforwards are used to offset any future net
capital gains realized during the carryforward period as provided by U.S.
Federal income tax regulations, no capital gains tax liability will be incurred
by a Portfolio for gains realized and not distributed. To the extent that
capital gains are so offset, such gains will not be distributed to shareholders.
Net capital and net currency losses incurred after October 31 and within the
taxable year are deemed to arise on the first business day of the Portfolio's
next taxable year. For the period from November 1, 1997 to June 30, 1998 certain
Portfolios incurred and elected to defer until July 1, 1998, for U.S. Federal
income tax purposes, net currency and capital losses of approximately:
<TABLE>
<CAPTION>
CURRENCY
AND CAPITAL
LOSSES
PORTFOLIOS (000)
- ------------------------------------- -------------------
<S> <C>
Asian Growth......................... $ 71,758
Global Fixed Income.................. 89
Emerging Markets..................... 26,330
Latin American....................... 6,468
</TABLE>
3. REPURCHASE AGREEMENTS: In connection with transactions in repurchase
agreements, a bank as custodian for the Fund takes possession of the underlying
securities, with a market value at least equal to the amount of the repurchase
transaction, including principal and accrued interest. To the extent that any
repurchase transaction exceeds one business day, the value of the collateral is
marked-to-market on a daily basis to determine the adequacy of the collateral.
In the event of default on the obligation to repurchase, the Fund has the
<PAGE> 402
right to liquidate the collateral and apply the proceeds in satisfaction of the
obligation. In the event of default or bankruptcy by the counterparty to the
agreement, realization and/or retention of the collateral or proceeds may be
subject to legal proceedings.
4. FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS: The books and records
of the Fund are maintained in U.S. dollars. Foreign currency amounts are
translated into U.S. dollars at the mean of the bid and asked prices of such
currencies against U.S. dollars last quoted by a major bank as follows:
- investments, other assets and liabilities at the prevailing rates of
exchange on the valuation date;
- investment transactions and investment income at the prevailing rates of
exchange on the dates of such transactions.
Although the net assets of the Fund are presented at the foreign exchange rates
and market values at the close of the period, the Fund does not isolate that
portion of the results of operations arising as a result of changes in the
foreign exchange rates from the fluctuations arising from changes in the market
prices of the securities held at period end. Similarly, the Fund does not
isolate the effect of changes in foreign exchange rates from the fluctuations
arising from changes in the market prices of securities sold during the period.
Accordingly, realized and unrealized foreign currency gains (losses) on
investments are included in the reported net realized and unrealized gains
(losses) on investments. However, pursuant to U.S. Federal income tax
regulations, the foreign currency portion of gains and losses realized on sales
and maturities of foreign denominated debt securities is treated as ordinary
income for U.S. Federal income tax purposes.
Net realized gains (losses) on foreign currency transactions represent net
foreign exchange gains (losses) from forward foreign currency exchange
contracts, disposition of foreign currencies, currency gains or losses realized
between the trade and settlement dates on securities transactions, and the
difference between the amount of investment income and foreign withholding taxes
recorded on the Fund's books and the U.S. dollar equivalent amounts actually
received or paid. Net unrealized currency gains (losses) from valuing foreign
currency denominated assets and liabilities at period end exchange rates are
reflected as a component of unrealized appreciation (depreciation) on
investments and foreign currency translations in the Statement of Assets and
Liabilities. The change in net unrealized currency gains (losses) for the period
is reflected on the Statement of Operations.
The net assets of certain Portfolios include issuers located in emerging
markets. There will be certain considerations and risks of these investments not
typically associated with investments in the United States. Changes in currency
<PAGE> 403
VAN KAMPEN SERIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 1998
exchange rates will affect the value of and investment income from such
securities. The smaller size of the markets themselves, lesser liquidity and
greater volatility contribute to risks in valuation as compared with the U.S.
securities markets. Also there is often substantially less publicly available
information about these issuers. Emerging markets may be subject to a greater
degree of governmental involvement in the economy and greater economic and
political uncertainty. Accordingly the price which the Fund realizes upon the
sale of securities in such markets may not be equal to its value as presented
in the financial statements.
Prior governmental approval for foreign investments may be required under
certain circumstances in some countries, and the extent of foreign investment in
domestic companies may be subject to limitations in other countries. Foreign
ownership limitations also may be imposed by the charters of individual
companies to prevent, among other concerns, violation of foreign investment
limitations. As a result, an additional class of shares (identified as "Foreign"
in the Portfolio of Investments) may be created and offered for investment. The
"local" and "foreign" shares' market values may vary.
5. FOREIGN CURRENCY EXCHANGE CONTRACTS: Certain Portfolios may enter into
foreign currency exchange contracts to attempt to protect securities and related
receivables and payables against changes in future foreign currency exchange
rates. A currency exchange contract is an agreement between two parties to buy
or sell currency at a set price on a future date. The market value of the
contract will fluctuate with changes in currency exchange rates. The contract is
marked-to-market daily and the change in market value is recorded by the
Portfolio as unrealized gain or loss on foreign currency translation. The
Portfolio records realized gains or losses on foreign translation when the
contract is closed, equal to the difference between the value of the contract at
the time it was opened and the value of the contract at the time it was closed.
Risks may arise upon entering into these contracts from the potential inability
of counterparties to meet the terms of their contracts but is generally limited
to the amount of unrealized gain on the contracts, if any, at the date of
default. Risks may also arise from the unanticipated movements in the value of a
foreign currency relative to the U.S. dollar.
6. SHORT SALES: Certain Portfolios may sell securities short. A short sale is a
transaction in which the Portfolios sell securities it may or may not own, but
has borrowed, in anticipation of a decline in the market price of the
securities. The Portfolios are obligated to purchase securities at the market
price to replace the borrowed securities at the time of replacement. The
Portfolios may have to pay a premium to borrow the securities as well as pay
dividends or interests payable on the securities until they are replaced. The
Portfolios' obligation to replace the securities borrowed in connection with a
short sale will generally be secured by
<PAGE> 404
collateral deposited with the broker that consists of cash, U.S. government
securities or other liquid, high grade debt obligations. In addition, the
Portfolios will place in a segregated account with its Custodian an amount of
cash, U.S. government securities or other liquid high grade debt obligations
equal to the difference, if any, between (1) the market value of the securities
sold at the time they were sold short, and (2) any cash, U.S. government
securities, or other liquid high grade debt obligations deposited as collateral
with the broker in connection with the short sale (not including the proceeds of
the short sale). Short sales by the Portfolios involve certain risks and special
considerations. Possible losses from short sales differ from losses that could
be incurred from the purchase of a security, because losses from short sales may
be unlimited, whereas losses from purchases cannot exceed the total amount
invested.
7. PURCHASED OPTIONS: Certain Portfolios may purchase call or put options on
their portfolio securities. A Portfolio may purchase call options to protect
against an increase in the price of a security it anticipates purchasing. A
Portfolio may purchase put options on securities which it holds to protect
against a decline in the value of the security. Risks may arise from an
imperfect correlation between the change in market value of the securities held
by the Portfolio and the prices of options relating to the securities purchased
or sold by the Portfolio and from the possible lack of a liquid secondary market
for an option. The maximum exposure to loss for any purchased option is limited
to the premium initially paid for the option.
8. SECURITY LENDING: Certain Portfolios may lend investment securities to
qualified institutional investors who borrow securities in order to complete
certain transactions. By lending its investment securities, a Portfolio attempts
to increase its net investment income through the receipt of interest on the
loan. Any gain or loss in the market price of the securities loaned that might
occur and any interest earned or dividends declared during the term of the loan
would accrue to the account of the Portfolio. Risks of delay in recovery of the
securities or even loss of rights in the collateral may occur should the
borrower of the securities fail financially. Risks may also arise to the extent
that the value of the collateral decreases below the value of the securities
loaned.
Portfolios that lend securities receive cash, securities issued or guaranteed by
the U.S. Government or letters of credit as collateral in an amount equal to or
exceeding 100% of the current market value of the loaned securities. Any cash
received as collateral is invested in interest bearing repurchase agreements
with approved counterparties. A portion of the interest received on the
repurchase agreements is retained by the Fund and the remainder is rebated to
the borrower of the securities. The net amount of interest earned and interest
rebated is included in the
<PAGE> 405
VAN KAMPEN SERIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 1998
Statement of Operations as interest income. The value of loaned securities and
related collateral outstanding at June 30, 1998 is as follows:
<TABLE>
<CAPTION>
VALUE OF LOANED VALUE OF
SECURITIES COLLATERAL
PORTFOLIO (000) (000)
- -------------------------------- --------------- -----------
<S> <C> <C>
Global Equity Allocation........ $ 19,776 $ 21,788
</TABLE>
At June 30, 1998, the Fund had invested the cash collateral in a repurchase
agreement with Goldman Sachs. Such repurchase agreement was collateralized by
U.S. Treasury obligations.
Morgan Stanley Trust Company, an affiliate of the Investment Sub-Adviser,
administers the security lending program and for its services the Fund incurred
fees in the amount of $29,000 for the year ended June 30, 1998.
9. FORWARD COMMITMENTS AND WHEN-ISSUED/DELAYED DELIVERY SECURITIES: Each
Portfolio may make forward commitments to purchase or sell securities. Payment
and delivery for securities which have been purchased or sold on a forward
commitment basis can take place a month or more (not exceeding 120 days) after
the date of the transaction. Additionally each Portfolio may purchase securities
on a when-issued or delayed delivery basis. Securities purchased on a
when-issued or delayed delivery basis are purchased for delivery beyond the
normal settlement date at a stated price and no income accrues to the Portfolio
on such securities prior to delivery. When the Portfolio enters into a purchase
transaction on a when-issued or delayed basis, it establishes a segregated
account in which it maintains liquid assets in an amount at least equal in value
to the Portfolio's commitments to purchase such securities. Purchasing
securities on a forward commitment or when-issued or delayed delivery basis may
involve a risk that the market price at the time of delivery may be lower than
the agreed upon purchase price, in which case there could be an unrealized loss
at the time of delivery.
10. STRUCTURED SECURITIES: The Worldwide High Income Fund may invest in
interests in entities organized and operated solely for the purpose of
restructuring the investment characteristics of sovereign debt obligations. This
type of restructuring involves the deposit with or purchase by an entity of
specified instruments and the issuance by that entity of one or more classes of
securities ("Structured Securities") backed by, or representing interests in,
the underlying instruments. Structured Securities generally will expose the
Portfolio to credit risks equivalent to that of the underlying instruments.
Structured Securities are typically sold in private placement transactions with
no active trading market. Investments in Structured Securities may be more
volatile than their underlying instruments, however, any loss is limited to the
amount of the original investment.
11. ORGANIZATIONAL COSTS: The organizational costs of the Portfolios are being
amortized on a straight line basis over a
<PAGE> 406
period of five years beginning with each respective Portfolio's commencement of
operations. Van Kampen Investments Inc. has agreed that in the event any of its
initial shares in a Portfolio which comprised the Fund at its inception are
redeemed, the proceeds on redemption will be reduced by the pro-rata portion of
any unamortized organizational costs in the same proportion as the number of
shares redeemed bears to the initial shares held at the same time of redemption.
12. FUTURES CONTRACTS: Certain Portfolios may purchase and sell futures
contracts. Future contracts provide for the sale by one party and purchase by
another party of a specified amount of a specified security, instrument or
basket of instruments. Futures contracts (secured by cash and securities
deposited with brokers as "initial margin") are valued based upon their quoted
daily settlement prices; changes in initial settlement value (represented by
cash paid to or received from brokers as "variation margin") are accounted for
as unrealized appreciation (depreciation). When futures contracts are closed,
the difference between the opening value at the date of purchase and the value
at closing is recorded as realized gains or losses in the Statement of
Operations.
Certain Portfolios may use futures contracts in order to hedge against
unfavorable changes in the value of securities or to remain fully invested and
to reduce transaction costs. Futures contracts involve market risk in excess of
the amounts recognized in the Statement of Assets and Liabilities. Risks arise
from the possible movements in security values underlying these instruments
applied to the notional value of the contract. The change in value of futures
contracts primarily corresponds with the value of their underlying instruments,
which may not correlate with the change in value of the hedged investments. In
addition, there is the risk that a Portfolio may not be able to enter into a
closing transaction because of an illiquid secondary market.
13. SWAP AGREEMENTS: Certain Portfolios may enter into swap agreements to
exchange the return generated by one security, instrument or basket of
instruments for the return generated by another security, instrument or basket
of instruments. The following summarizes swaps which may be entered into by the
Portfolios:
Interest Rate Swaps: Interest rate swaps involve the exchange of commitments to
pay and receive interest based on a notional principal amount. Net periodic
interest payments to be received or paid are accrued daily and are recorded in
the Statement of Operations as an adjustment to interest income. Interest rate
swaps are marked-to-market daily based upon quotations from market makers and
the change, if any, is recorded as unrealized appreciation or depreciation in
the Statement of Operations.
Total Return Swaps: Total return swaps involve commitments to pay interest in
exchange for a market-linked
<PAGE> 407
VAN KAMPEN SERIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 1998
return based on a notional amount. To the extent the total return of the
security or index underlying the transaction exceeds or falls short of the
offsetting interest obligation, the Portfolio will receive a payment from or
make a payment to the counterparty, respectively. Total return swaps are
marked-to-market daily based upon quotations from market makers and the change,
if any, is recorded as unrealized gains or losses in the Statement of
Operations. Periodic payments received or made at the end of each measurement
period, but prior to termination, are recorded as realized gains or losses in
the Statement of Operations.
Realized gains or losses on maturity or termination of interest rate and total
return swaps are presented in the Statement of Operations. Because there is no
organized market for these swap agreements, the value reported in the Statement
of Net Assets may differ from that which would be realized in the event the
Portfolio terminated its position in the agreement. Risks may arise upon
entering into these agreements from the potential inability of the
counterparties to meet the terms of the agreements and are generally limited to
the amount of net interest payments to be received and/or favorable movements in
the value of the underlying security, if any, at the date of default. Swap
contracts involve market risks in excess of the amounts recognized in the
Statement of Assets and Liabilities.
14. OTHER: Security transactions are accounted for on the date the securities
are purchased or sold. Realized gains and losses on the sale of investment
securities are determined on the specific identified cost basis. Dividend income
is recorded on the ex-dividend date (except for certain foreign dividends which
may be recorded as soon as the Portfolio is informed of such dividends), net of
applicable withholding taxes where recovery of such taxes is not reasonably
assured. Interest income is recognized on the accrual basis except where
collection is in doubt. Discounts and premiums on securities purchased are
amortized according to the effective yield method over their respective lives.
Most expenses of the Fund can be directly attributed to a particular Portfolio.
Expenses which cannot be directly attributed are apportioned among the
Portfolios based upon relative net assets. Income, expenses (other than class
specific expenses) and realized and unrealized gains or losses are allocated to
each class of shares based upon their relative net assets. Distributions from
the Portfolios are recorded on the ex-distribution date.
Certain Portfolios own shares of real estate investment trusts ("REITs") which
report information on the source of their distributions annually. A portion of
distributions received from REITs during the year is estimated to be a return of
capital and is recorded as a reduction of the cost of those securities.
The amount and the character of income and capital gain distributions to be paid
by the Fund are determined in
<PAGE> 408
accordance with Federal income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to differing
book and tax treatment for foreign currency transactions, net operating losses,
foreign taxes on net realized gains, deductibility of interest expense on short
sales and gains on certain securities of corporations designated as "passive
foreign investment companies."
Permanent book and tax basis differences relating to shareholder distributions
may result in reclassification among undistributed net investment income (loss),
accumulated net realized gain (loss) and paid in capital.
Permanent book and tax basis differences, if any, are not included in ending
undistributed (distributions in excess of) net investment income for the purpose
of presenting net investment income (loss) per share in the Financial
Highlights.
The reclassifications arising from current book/tax differences resulted in
increases (decreases) to the components of net assets as follows:
<TABLE>
<CAPTION>
ACCUMULATED
NET
UNDISTRIBUTED REALIZED
NET INVESTMENT GAIN PAID IN
INCOME (LOSS) CAPITAL
PORTFOLIO (000) (000) (000)
- ------------------------------------- -------------- ----------- --------
<S> <C> <C> <C>
Aggressive Equity.................... $1,093 $(1,093) $--
American Value....................... 1,962 (2,145) 183
Asian Growth......................... 1,332 (960) (372)
Emerging Markets..................... 186 (186) --
Global Equity........................ 751 (711) (40)
Global Equity Allocation............. 3,267 (5,391) 2,124
Global Fixed Income.................. (81) 81 --
Government Obligations
Money Market......................... 62 -- (62)
High Yield & Total Return............ 19 (19) --
International Magnum................. 949 (949) --
Latin American....................... 296 (296) --
Money Market......................... 62 -- (62)
U.S. Real Estate..................... 95 14 (109)
Value................................ 60 (2) (58)
Worldwide High Income................ (26) 74 (48)
</TABLE>
B. ADVISER: Van Kampen Investment Advisory Corp., (the "Adviser") a wholly owned
subsidiary of Van Kampen Funds Inc. (an indirect wholly owned subsidiary of
Morgan Stanley Dean Witter & Co.), Morgan Stanley Asset Management, Inc. ("MSAM"
or a "Sub-Adviser") and Miller Anderson & Sherred, LLP (a Sub-Adviser) wholly
owned subsidiaries of Morgan Stanley Dean Witter & Co., provide the Fund with
investment advisory services at a fee paid monthly and calculated at the annual
rates based on average daily net assets as indicated below. The Adviser has
agreed to reduce advisory fees payable to it and to reimburse the
<PAGE> 409
VAN KAMPEN SERIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 1998
Portfolios, if necessary, if the annual operating expenses, as defined,
expressed as a percentage of average daily net assets, exceed the maximum
ratios indicated as follows:
<TABLE>
<CAPTION>
CLASS B
CLASS A AND CLASS C
MAX. OPERATING MAX. OPERATING
PORTFOLIO ADVISORY FEE EXPENSE RATIO EXPENSE RATIO
- -------------------------------------- ------------ -------------- --------------
<S> <C> <C> <C>
Aggressive Equity..................... 0.90% 1.50% 2.25%
American Value........................ 0.85% 1.50% 2.25%
Asian Growth.......................... 1.00% 1.90% 2.65%
Emerging Markets...................... 1.25% 2.15% 2.90%
Global Equity......................... 1.00% 1.80% 2.55%
Global Equity Allocation.............. 1.00% 1.70% 2.45%
Global Fixed Income................... 0.75% 1.45% 2.20%
Government Obligations Money Market... 0.45% 0.95% N/A
High Yield & Total Return............. 0.75% 1.25% 2.00%
International Magnum.................. 1.00% 1.65% 2.40%
Latin American........................ 1.25% 2.10% 2.85%
Money Market.......................... 0.45% 0.98% N/A
U.S. Real Estate...................... 1.00% 1.55% 2.30%
Value................................. 0.80% 1.45% 2.20%
Worldwide High Income................. 0.75% 1.55% 2.30%
</TABLE>
C. ADMINISTRATOR: Van Kampen Investment Advisory Corp. (the "Administrator")
also provides the Fund with administrative services pursuant to an
administrative agreement for a monthly fee which on an annual basis equals 0.25%
of the average daily net assets of each portfolio, plus reimbursement of
out-of-pocket expenses. Under an agreement between the Administrator and The
Chase Manhattan Bank ("Chase"), through its corporate affiliate Chase Global
Funds Services Company ("CGFSC"), Chase provides certain administrative services
to the Fund. Chase is compensated for such services by the Administrator from
the fee it receives from the Fund. Transfer Agency services are provided to the
Fund by Van Kampen Investor Services Inc., an affiliate of the advisor. The
Government Obligations Money Market Fund and the Money Market Fund have an
agreement with the Administrator to provide Transfer Agent services for its
shareholders. In addition, the Latin American Fund incurs local administration
fees in connection with doing business with certain emerging market countries.
D. DISTRIBUTOR: Van Kampen Funds Inc. the ("Distributor") a wholly owned
subsidiary of Morgan Stanley Dean Witter & Co., serves as the Distributor of the
Fund's shares. The Distributor is entitled to receive from most Portfolios a
distribution fee, which is accrued daily and paid quarterly, of
<PAGE> 410
an amount up to 0.25% of the Class A shares and up to 1.00%, on an annualized
basis, of the average daily net assets attributable to the Class B and Class C
shares of each Portfolio. The Government Obligations Money Market and Money
Market Funds pay the Distributor a fee which is accrued daily and paid monthly,
up to 0.50%, on an annualized basis, of the average daily net assets of those
Portfolios.
The Distributor may receive a front end sales charge for purchases of Class A
shares. In addition, the Distributor may receive a contingent deferred sales
charge for certain redemptions of Class B and Class C shares of each Portfolio
redeemed within one to five years following such purchase. For the year ended
June 30, 1998, the Distributor has advised the Fund that it earned initial sales
charges of $2,944,039 for Class A shares and deferred sales charges of $88,616,
$289,912 and $2,958,940 for Class A shares, Class B shares and Class C shares,
respectively.
E. CUSTODIAN: Morgan Stanley Trust Company ("MSTC"), a wholly owned subsidiary
of Morgan Stanley Dean Witter & Co., acts as custodian for the Fund's assets
held outside the United States in accordance with a custodian agreement.
Custodian fees are computed and payable monthly based on assets held, investment
purchase and sales activity, an account maintenance fee, plus reimbursement for
certain out-of-pocket expenses.
For the year ended June 30, 1998, the following Portfolios incurred custody fees
and had amounts payable to MSTC at June 30, 1998:
<TABLE>
<CAPTION>
MSTC CUSTODY CUSTODY FEES
FEES INCURRED PAYABLE TO MSTC
FUND (000) (000)
- ------------------------------------- ------------- ---------------
<S> <C> <C>
Asian Growth......................... $ 414 $ 197
Emerging Markets..................... 746 361
Global Equity........................ 115 78
Global Equity Allocation............. 251 160
Global Fixed Income.................. 8 2
International Magnum................. 140 65
Latin American....................... 188 70
Worldwide High Income................ 11 18
</TABLE>
In addition, a Portfolio may earn interest income or incur interest expense
relating to cash balances with MSTC.
F. DIRECTORS' FEES: The Fund provides deferred compensation and retirement plans
for its trustees who are not officers of Van Kampen. Under the deferred
compensation plan, trustees may elect to defer all or a portion of their
compensation to a later date. Benefits under the retirement plan are payable for
a ten-year period and are based upon each trustee's years of service to the
Fund.
<PAGE> 411
VAN KAMPEN SERIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 1998
G. PURCHASES AND SALES: For the year ended June 30, 1998, purchases and sales of
investment securities other than long-term U.S. Government securities and
short-term investments were:
<TABLE>
<CAPTION>
PURCHASES SALES
FUND (000) (000)
- ------------------------------------- ---------- --------
<S> <C> <C>
Aggressive Equity.................... $ 486,812 $366,496
American Value....................... 1,023,729 607,244
Asian Growth......................... 224,566 296,738
Emerging Markets..................... 191,844 178,043
Global Equity........................ 681,648 19,628
Global Equity Allocation............. 224,465 223,907
Global Fixed Income.................. 5,843 6,860
High Yield & Total Return............ 24,676 17,005
International Magnum................. 88,678 25,857
Latin American....................... 265,425 278,789
U.S. Real Estate..................... 54,250 41,923
Value................................ 328,003 63,695
Worldwide High Income................ 453,341 362,384
</TABLE>
Purchases and sales of long term U.S. Government securities during the year
ended June 30, 1998 occurred in the Global Fixed Income Fund and totaled
approximately $763,000 and $2,031,000, respectively.
H. OTHER: At June 30, 1998, the net assets of certain Portfolios were
substantially comprised of foreign denominated securities and currency. Changes
in currency exchange rates will affect the U.S. dollar value of and investment
income from such securities.
During the year ended June 30, 1998, the Asian Growth Fund, Emerging Markets
Fund, Global Equity Fund, Global Equity Allocation Fund, International Magnum
Fund and Latin American Fund, incurred approximately $157,000, $42,000,
$189,000, $1,000, $8,000 and $53,000, respectively, as brokerage commissions
with Morgan Stanley & Co. Incorporated, an affiliated broker/dealer.
At June 30, 1998, the Emerging Markets Fund and the Global Equity Allocation
Fund owned shares of affiliated funds for which the Funds earned dividend income
of approximately $87,400 and $1,298,000 and incurred losses of approximately
$468,000 and $519,000, respectively, on sales of shares in affiliated funds
during the period.
At June 30, 1998, two record shareholders owned 31% of the total shares
outstanding of the Global Fixed Income Fund and Van Kampen Funds Inc. owned 100
shares of each Class A, B, and C in the Van Kampen Value Fund.
<PAGE> 412
At June 30, 1998, cost and unrealized appreciation (depreciation) for U.S.
Federal income tax purposes of the investments of each Portfolio were:
<TABLE>
<CAPTION>
NET
APPRECIATION
COST APPREC. (DEPREC.) (DEPRECIATION)
FUND (000) (000) (000) (000)
- ------------------------- -------- -------- ---------- ---------------
<S> <C> <C> <C> <C>
Aggressive Equity........ $216,709 $ 13,977 $ (11,687) $ 2,290
American Value........... 600,531 39,577 (25,131) 14,446
Asian Growth............. 123,952 3,965 (30,352) (26,387)
Emerging Markets......... 180,545 8,129 (47,334) (39,205)
Global Equity............ 709,740 104,349 (42,902) 61,447
Global Equity
Allocation............. 534,277 94,958 (19,275) 75,683
Global Fixed Income...... 7,552 221 (171) 50
Government Obligations
Money Market........... 56,317 -- -- --
High Yield & Total
Return................. 33,650 834 (629) 205
International Magnum..... 124,130 16,692 (7,319) 9,425
Latin American........... 98,724 -- (16,785) (16,785)
Money Market............. 118,940 -- -- --
U.S. Real Estate......... 35,219 695 (724) (29)
Value.................... 313,647 20,350 (19,349) 1,001
Worldwide High Income.... 294,931 2,691 (17,535) (14,844)
</TABLE>
I. PLAN OF REORGANIZATION: On June 12, 1998, the Global Equity Allocation Fund
acquired all of the assets and liabilities of the Van Kampen American Capital
Global Equity Fund (the "VK Fund"), through a tax-free reorganization approved
by the VK Fund shareholders on June 12, 1998. The Global Equity Allocation Fund
issued the following shares valued at the corresponding net assets in exchange
for VK Fund's net assets.
<TABLE>
<CAPTION>
CLASS NUMBER OF SHARES NET ASSETS
- ------------------------------------- ---------------- ----------
<S> <C> <C>
A.................................... 10,988,132 $178,667,033
B.................................... 9,310,869 146,646,183
C.................................... 1,045,761 16,627,602
</TABLE>
Included in these net assets were unrealized appreciation of $41,291,000, and
cumulative book and tax basis differences related to expenses not yet deductible
for tax purposes of $34,540 as a result of timing differences related to the
directors deferred compensation plan which is a component of undistributed net
investment income. Combined net assets on the date of acquisition were
$595,637,112.
<PAGE> 413
VAN KAMPEN SERIES FUND, INC.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Van Kampen Series Fund Inc.
In our opinion, the accompanying statements 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 the Aggressive Equity Fund,
American Value Fund, Asian Growth Fund, Emerging Markets Fund, Global Equity
Fund, Global Equity Allocation Fund, Global Fixed Income Fund, Government
Obligations Money Market Fund, High Yield & Total Return Fund, International
Magnum Fund, Latin American Fund, Money Market Fund, U.S. Real Estate Fund,
Value Fund and the Worldwide High Income Fund (portfolios of the Van Kampen
Series Fund Inc. hereafter referred to as the "Fund") at June 30, 1998, the
results of each of their operations, the changes in each of their net assets and
the financial highlights for each of the periods presented, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at June 30, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
200 E. Randolph St.
Chicago, Illinois 60601
August 11, 1998
<PAGE> 414
SUPPLEMENT DATED NOVEMBER 2, 1998 TO THE
STATEMENT OF ADDITIONAL INFORMATION DATED
DECEMBER 29, 1997, AS PREVIOUSLY
SUPPLEMENTED ON JANUARY 2, 1998 AND
JULY 14, 1998
VAN KAMPEN CORPORATE BOND FUND
VAN KAMPEN EMERGING GROWTH FUND
VAN KAMPEN HIGH INCOME CORPORATE BOND FUND
STATEMENT OF ADDITIONAL INFORMATION DATED JANUARY 28, 1998, AS PREVIOUSLY
SUPPLEMENTED ON JULY 14, 1998
VAN KAMPEN U.S. GOVERNMENT TRUST FOR INCOME
STATEMENT OF ADDITIONAL INFORMATION
DATED FEBRUARY 17, 1998, AS
PREVIOUSLY SUPPLEMENTED ON
JULY 14, 1998
VAN KAMPEN SMALL CAPITALIZATION FUND
STATEMENT OF ADDITIONAL INFORMATION
DATED FEBRUARY 19, 1998, AS
PREVIOUSLY SUPPLEMENTED ON
JULY 14, 1998
VAN KAMPEN SENIOR FLOATING RATE FUND
STATEMENT OF ADDITIONAL INFORMATION DATED MARCH 9, 1998, AS PREVIOUSLY
SUPPLEMENTED ON JULY 14, 1998
VAN KAMPEN PRIME RATE INCOME TRUST
STATEMENT OF ADDITIONAL INFORMATION DATED MARCH 30,
1998, AS PREVIOUSLY SUPPLEMENTED ON JULY 14,
1998 VAN KAMPEN GROWTH AND INCOME FUND
VAN KAMPEN HIGH YIELD MUNICIPAL FUND
STATEMENT OF ADDITIONAL INFORMATION DATED APRIL 27,
1998, AS PREVIOUSLY SUPPLEMENTED ON JULY 14,
1998 VAN KAMPEN FOREIGN SECURITIES FUND
STATEMENT OF ADDITIONAL INFORMATION DATED APRIL 30, 1998, AS PREVIOUSLY
SUPPLEMENTED ON JULY 14, 1998
VAN KAMPEN U. S. GOVERNMENT FUND
VAN KAMPEN INSURED TAX FREE INCOME FUND
VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND
VAN KAMPEN TAX FREE HIGH INCOME FUND
VAN KAMPEN MUNICIPAL INCOME FUND
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND
VAN KAMPEN FLORIDA INSURED TAX FREE INCOME FUND
VAN KAMPEN NEW YORK TAX FREE INCOME FUND
VAN KAMPEN PENNSYLVANIA TAX FREE INCOME FUND
VAN KAMPEN COMSTOCK FUND
VAN KAMPEN EQUITY INCOME FUND
<PAGE> 415
VAN KAMPEN ENTERPRISE FUND
VAN KAMPEN GLOBAL MANAGED ASSETS
VAN KAMPEN GOVERNMENT SECURITIES FUND
VAN KAMPEN HARBOR FUND
VAN KAMPEN LIMITED MATURITY GOVERNMENT FUND
VAN KAMPEN REAL ESTATE SECURITIES FUND
STATEMENT OF ADDITIONAL INFORMATION DATED JUNE 23,
1998, AS PREVIOUSLY SUPPLEMENTED ON JULY
14, 1998 VAN KAMPEN SENIOR INCOME TRUST
STATEMENT OF ADDITIONAL INFORMATION DATED SEPTEMBER 15, 1998
VAN KAMPEN RESERVE FUND
STATEMENT OF ADDITIONAL INFORMATION DATED SEPTEMBER 28, 1998
VAN KAMPEN GLOBAL GOVERNMENT SECURITIES FUND
STATEMENT OF ADDITIONAL INFORMATION DATED SEPTEMBER 29, 1998
VAN KAMPEN TAX FREE MONEY FUND
VAN KAMPEN PACE FUND
STATEMENT OF ADDITIONAL INFORMATION DATED SEPTEMBER 30, 1998
VAN KAMPEN VALUE FUND
VAN KAMPEN UTILITY FUND
VAN KAMPEN GREAT AMERICAN COMPANIES FUND
VAN KAMPEN AGGRESSIVE GROWTH FUND
VAN KAMPEN GROWTH FUND
VAN KAMPEN PROSPECTOR FUND
VAN KAMPEN SERIES FUND, INC.
The section of the Statement of Additional Information entitled the Trustees and
Officers is hereby supplemented by adding Paul G. Yovovich, effective October
22, 1998, as Trustee of the Fund.
Mr. Yovovich is a private investor. Prior to April 1996, he was President of
Advance Ross Corporation. He is a Director of 3Com Corporation, APAC
Teleservices, Inc., COMARCO, Inc., Applied Language Technologies, Focal
Communications, and Lante Corporation. Limited Partner of Evercore Partners,
LLP. Trustee/Director of each of the Funds in the Fund Complex. Mr. Yovovich's
principal business address is the Sears Tower, 233 South Wacker Drive, Suite
9700, Chicago, Illinois 60606, and his date of birth is 10/29/53.
<PAGE> 416
APPENDIX D
VAN KAMPEN REAL ESTATE SECURITIES FUND
UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 1998
<PAGE> 417
Portfolio of Investments
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
===============================================================================================
Description Shares Market Value
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Common and Preferred Stocks 93.8%
Apartments 15.1%
Avalon Bay Community Inc............................................... 154,100 $ 5,855,800
Equity Residential Properties Trust.................................... 38,700 1,835,830
Essex Property Trust, Inc.............................................. 162,400 5,034,400
Irvine Apartment Communities, Inc...................................... 81,500 2,358,406
Pennsylvania Real Estate Investment.................................... 104,600 2,320,813
Security Capital Atlantic, Inc......................................... 190,058 4,240,669
Security Capital Pacific Trust......................................... 14,300 321,750
Smith (Charles E.) Residential Realty.................................. 7,100 227,200
------------
22,194,868
------------
Casino Operators 0.5%
Station Casinos Inc.................................................... 53,400 784,313
------------
Development 4.2%
Atlantic Gulf Communities Corp. (a)................................... 188,680 389,152
Atlantic Gulf Communities Corp. - Convertible
Preferred Ser B (a).................................................... 24,741 167,002
Atlantic Gulf Communities Corp. - Convertible
Preferred Ser B, 144A - Private Placement (a) (b)...................... 35,402 238,964
Atlantic Gulf Communities Corp. Warrants, 16,494 shares of each
Classes A, B and C, expiring 06/23/04 (a).............................. 49,482 24,741
Atlantic Gulf Communities Corp. Warrants, 33,397 shares of each
Classes A, B and C, expiring 06/24/01 144A - Private Placement (a) (b). 100,191 50,097
Brookfield Properties Corp............................................. 388,700 5,367,947
------------
6,237,903
------------
Hotel & Lodging 7.6%
Capstar Hotel Co. (a).................................................. 76,300 2,136,400
Host Marriott Corp. (a)................................................ 136,800 2,436,750
Starwood Hotels and Resorts............................................ 137,830 6,658,911
------------
11,232,061
------------
Manufactured Home Communities 5.8%
Chateau Properties, Inc................................................ 228,994 6,583,578
Manufactured Home Communities, Inc..................................... 10,400 250,900
Sun Communties, Inc.................................................... 52,500 1,739,062
------------
8,573,540
------------
</TABLE>
8 See Notes to Financial Statements
<PAGE> 418
Portfolio of Investments (Continued)
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
==============================================================================================
Description Shares Market Value
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Motor Vehicle Facilities 0.3%
Capital Automotive.................................................. 28,000 $ 397,250
-----------
Office/Industrial 37.9%
Arden Realty Group, Inc............................................. 284,900 7,371,788
Beacon Capital Partners Inc., 144A - Private Placement (b).......... 140,800 2,816,000
Bedford Property Investors, Inc..................................... 36,000 657,000
Brandywine Realty Trust............................................. 252,700 5,654,162
CarrAmerica Realty Corp............................................. 252,700 7,170,362
Crescent Real Estate Equities Trust................................. 5,600 188,300
Equity Office Properties Trust...................................... 175,986 4,993,603
Great Lakes REIT, Inc............................................... 187,200 3,264,300
Kilroy Realty Corp.................................................. 69,000 1,725,000
Mack California Realty Corp......................................... 65,000 2,234,375
Meridan Industrial Trust, Inc....................................... 32,800 754,400
Pacific Gulf Properties, Inc........................................ 182,000 3,935,750
Prime Group Realty Trust............................................ 182,100 3,118,463
Reckson Associates Realty Corp...................................... 72,500 1,712,813
Reckson Service Inds Inc. (a)....................................... 11,600 38,425
SL Green Realty Corp................................................ 115,900 2,607,750
Spieker Properties, Inc............................................. 70,400 2,728,000
Trizec Hahn Corp.................................................... 98,100 2,103,018
Wellsford Real Properties, Inc., 144A - Private Placement (a) (b)... 199,020 2,811,157
-----------
55,884,666
-----------
Self-Storage 4.0%
PS Business Parks Inc. California................................... 132,674 3,117,839
Public Storage, Inc................................................. 44,700 1,251,600
Shurgard Storage Centers, Inc., Class A............................. 57,300 1,590,075
-----------
5,959,514
-----------
Shopping Centers 11.5%
Burnham Pacific Properties, Inc..................................... 323,600 4,591,075
Federal Realty Investment Trust..................................... 246,400 5,929,000
First Washington Realty Trust, Inc. - Preferred Ser A
(Convertible into 28,589 common shares)............................. 22,300 642,519
Pan Pacific Retail Properties, Inc.................................. 90,000 1,743,750
</TABLE>
9 See Notes to Financial Statements
<PAGE> 419
Portfolio of Investments (Continued)
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
================================================================================================
Description Shares Market Value
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Shopping Centers (Continued)
Ramco-Gershenson Properties Trust ................................... 800 $ 15,200
Regency Realty Corp. ................................................ 87,400 2,195,925
Vornado Realty Trust ................................................ 46,200 1,833,563
------------
16,951,032
------------
Shopping Malls 6.9%
CBL & Associates Properties, Inc. ................................... 68,700 1,665,975
Taubman Centers, Inc. ............................................... 422,900 6,026,325
Urban Shopping Centers, Inc. ........................................ 76,300 2,403,450
------------
10,095,750
------------
Total Common and Preferred Stocks 93.8% ........................................ 138,310,897
------------
Convertible Corporate Obligations 0.6%
Brookfield Properties Corp. - Installment Receipts Representing
Subordinated Debenture ($868,400 par, 6.00% coupon, 02/14/07 maturity)
Convertible to 57,893 common shares ............................................ 858,413
------------
Total Long-Term Investments 94.4%
(Cost $137,229,235) .......................................................... 139,169,310
Repurchase Agreement 1.9%
BA Securities ($2,730,000 par, collateralized by U.S. Government obligations in
a pooled cash account, dated 06/30/98, to be sold on 07/01/98 at $2,730,459)
(Cost $2,730,000) ............................................................ 2,730,000
------------
Total Investments 96.3%
(Cost $139,959,235) .......................................................... 141,899,310
Other Assets in Excess of Liabilities 3.7% ..................................... 5,483,405
------------
Net Assets 100.0% .............................................................. $147,382,715
============
</TABLE>
(a) Non-income producing security as this stock currently 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.
10 See Notes to Financial Statements
<PAGE> 420
Statement of Assets and Liabilities
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
================================================================================================
Assets:
<S> <C>
Total Investments (Cost $139,959,235)............................................ $141,899,310
Cash............................................................................. 4,646
Receivables:
Investments Sold............................................................ 4,438,161
Dividends................................................................... 1,225,088
Fund Shares Sold............................................................ 1,115,593
Interest.................................................................... 17,463
Unamortized Organizational Costs................................................. 2,861
Other............................................................................ 13,612
------------
Total Assets................................................................ 148,716,734
------------
Liabilities:
Payables:
Investments Purchased....................................................... 806,035
Fund Shares Repurchased..................................................... 259,972
Investment Advisory Fee..................................................... 120,033
Distributor and Affiliates.................................................. 106,102
Income Distributions........................................................ 8,933
Trustees' Deferred Compensation and Retirement Plans............................. 28,819
Accrued Expenses................................................................. 4,125
------------
Total Liabilities........................................................... 1,334,019
------------
Net Assets....................................................................... $147,382,715
============
Net Assets Consist of:
Capital.......................................................................... $142,327,931
Accumulated Net Realized Gain.................................................... 2,370,319
Net Unrealized Appreciation...................................................... 1,940,075
Accumulated Undistributed Net Investment Income.................................. 744,390
------------
Net Assets....................................................................... $147,382,715
============
Maximum Offering Price Per Share:
Class A Shares:
Net asset value and redemption price per share (Based on net assets of
$51,860,346 and 4,079,655 shares of beneficial interest issued and
outstanding)........................................................... $ 12.71
Maximum sales charge (4.75%* of offering price)........................ .63
------------
Maximum offering price to public....................................... $ 13.34
============
Class B Shares:
Net asset value and offering price per share (Based on net assets of
$76,871,703 and 6,051,600 shares of beneficial interest issued and
outstanding)........................................................... $ 12.70
============
Class C Shares:
Net asset value and offering price per share (Based on net assets of
$18,650,666 and 1,469,322 shares of beneficial interest issued and
outstanding)........................................................... $ 12.69
============
</TABLE>
*On sales of $100,000 or more, the sales charge will be reduced.
11 See Notes to Financial Statements
<PAGE> 421
Statement of Operations
For the Six Months Ended June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
==================================================================================================
Investment Income:
<S> <C>
Dividends.......................................................................... $ 3,855,914
Interest........................................................................... 191,931
-------------
Total Income.................................................................. 4,047,845
-------------
Expenses:
Investment Advisory Fee............................................................ 725,689
Distribution (12b-1) and Service Fees (Attributed to Classes A, B and C of $64,710,
$378,152 and $88,122, respectively)........................................... 530,984
Shareholder Services............................................................... 125,837
Registration and Filing Fees....................................................... 33,517
Trustees' Fees and Expenses........................................................ 7,509
Legal.............................................................................. 2,353
Amortization of Organizational Costs............................................... 1,542
Other.............................................................................. 74,528
-------------
Total Expenses................................................................ 1,501,959
-------------
Net Investment Income.............................................................. $ 2,545,886
=============
Realized and Unrealized Gain/Loss:
Net Realized Gain.................................................................. $ 2,529,165
-------------
Unrealized Appreciation/Depreciation
Beginning of the Period....................................................... 14,796,761
End of the Period............................................................. 1,940,075
-------------
Net Unrealized Depreciation During the Period...................................... (12,856,686)
-------------
Net Realized and Unrealized Loss................................................... $(10,327,521)
=============
Net Decrease in Net Assets From Operations......................................... $ (7,781,635)
=============
</TABLE>
12 See Notes to Financial Statements
<PAGE> 422
Statement of Operations
For the Six Months Ended June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
=================================================================================================
Six Months Ended Year Ended
June 30, 1998 December 31, 1997
- -----------------------------------------------+---------------------------------------------------
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income......................................... $ 2,545,886 $ 2,323,557
Net Realized Gain............................................. 2,529,165 15,177,147
Net Unrealized Appreciation/Depreciation During the Period.... (12,856,686) 2,900,169
------------- -------------
Change in Net Assets from Operations.......................... (7,781,635) 20,400,873
------------- -------------
Distributions from Net Investment Income...................... (1,779,595) (2,323,557)
Distributions in Excess of Net Investment Income.............. -0- (152,383)
------------- -------------
Distributions from and in Excess of Net Investment Income*.... (1,779,595) (2,475,940)
Distributions from Net Realized Gain*......................... (2,425,051) (12,883,431)
------------- -------------
Total Distributions........................................... (4,204,646) (15,359,371)
------------- -------------
Net Change in Net Assets from Investment Activities........... (11,986,281) 5,041,502
------------- -------------
From Capital Transactions:
Proceeds from Shares Sold..................................... 85,374,574 130,239,448
Net Asset Value of Shares Issued Through
Dividend Reinvestment....................................... 3,504,224 12,862,961
Cost of Shares Repurchased.................................... (71,457,408) (63,666,603)
------------- -------------
Net Change in Net Assets from Capital Transactions............ 17,421,390 79,435,806
------------- -------------
Total Increase in Net Assets.................................. 5,435,109 84,477,308
Net Assets:
Beginning of the Period....................................... 141,947,606 57,470,298
------------- -------------
End of the Period
(Including accumulated undistributed net investment
income of $744,390 and ($21,901) respectively)............ $ 147,382,715 $ 141,947,606
============= =============
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Year Ended
*Distributions by Class June 30, 1998 December 31, 1997
=====================================================================================
<S> <C> <C>
Distributions from and in Excess of
Net Investment Income:
Class A Shares............................. $ (754,964) $ (1,094,042)
Class B Shares............................. (829,394) (1,102,759)
Class C Shares............................. (195,237) (279,139)
------------ ------------
$ (1,779,595) $ (2,475,940)
============ ============
Distributions from Net Realized Gain:
Class A Shares............................. $ (868,204) $ (4,664,049)
Class B Shares............................. (1,263,468) (6,626,846)
Class C Shares............................. (293,379) (1,592,536)
------------ ------------
$ (2,425,051) $(12,883,431)
============ ============
</TABLE>
13 See Notes to Financial Statements
<PAGE> 423
Financial Highlights
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated. (Unaudited)
<TABLE>
<CAPTION>
====================================================================================================================
June 9, 1994
(Commencement of
Six Months Investment
Ended Year Ended December 31, Operations) to
June 30, ------------------------------ December 31,
Class A Shares 1998 1997 1996 1995 (a) 1994 (a)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period..... $ 13.810 $13.008 $ 10.00 $ 9.27 $ 9.43
--------- ------- ------- ------ ------
Net Investment Income.................... .258 .364 .351 .27 .23
Net Realized and Unrealized Gain/Loss.... (.944) 2.220 3.514 .85 (.18)
--------- ------- ------- ------ ------
Total from Investment Operations............. (.686) 2.584 3.865 1.12 .05
--------- ------- ------- ------ ------
Less:
Distributions from and in Excess of Net
Investment Income...................... .190 .380 .380 .2456 .153
Return of Capital Distribution........... -0- -0- -0- .1444 .057
Distributions from Net Realized Gain..... .222 1.402 .477 -0- -0-
--------- ------- ------- ------ ------
Total Distributions.......................... .412 1.782 .857 .39 .21
--------- ------- ------- ------ ------
Net Asset Value, End of the Period........... $ 12.712 $13.810 $13.008 $10.00 $ 9.27
========= ======= ======= ====== ======
Total Return (b)............................. (4.93%)* 20.66% 39.82% 12.39% .24%(c)
Net Assets at End of the Period (In millions) $ 51.9 $ 51.3 $ 23.3 $ 8.5 $ 4.6
Ratio of Expenses to Average Net Assets** 1.58% 1.77% 2.60% 2.67% 1.26%
Ratio of Net Investment Income to Average
Net Assets**............................... 3.98% 2.77% 3.21% 2.92% 4.28%
Portfolio Turnover........................... 65%* 159% 97% 94% 28%*
</TABLE>
*Non-Annualized
**If certain expenses had not been assumed by Van Kampen, total return would
have been lower and the ratios would have been as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
Ratio of Expenses to Average Net Assets N/A N/A 2.61% 3.16% 3.03%
Ratio of Net Investment Income to Average
Net Assets................................. N/A 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.
14 See Notes to Financial Statements
<PAGE> 424
Financial Highlights (Continued)
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated. (Unaudited)
<TABLE>
<CAPTION>
============================================================================================================================
June 9, 1994
(Commencement of
Six Months Year Ended Investment
Ended December 31, Operations) to
June 30, ---------------------------------- December 31,
Class B Shares 1998 1997 1996 1995 (a) 1994 (a)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period........... $ 13.800 $13.008 $ 10.00 $ 9.28 $ 9.43
--------- ------- ------- ------ ------
Net Investment Income............................ .208 .272 .266 .19 .20
Net Realized and Unrealized Gain/Loss............ (.941) 2.206 3.519 .843 (.176)
--------- ------- ------- ------ ------
Total from Investment Operations.................. (.733) 2.478 3.785 1.033 .024
--------- ------- ------- ------ ------
Less:
Distributions from and in Excess of
Net Investment Income.......................... .142 .284 .300 .197 .1268
Return of Capital Distribution.................. -0- -0- -0- .116 .0472
Distributions from Net Realized Gain............ .222 1.402 .477 -0- -0-
--------- ------- ------- ------ ------
Total Distributions............................... .364 1.686 .777 .313 .174
--------- ------- ------- ------ ------
Net Asset Value, End of the Period................ $ 12.703 $13.800 $13.008 $10.00 $ 9.28
========= ======= ======= ====== ======
Total Return (b).................................. (5.29%)* 19.76% 38.82% 11.37% (.04%)(c)
Net Assets at End of the Period (In millions)..... $ 76.9 $ 73.2 $ 26.5 $ 12.0 $ 9.1
Ratio of Expenses to Average Net Assets**......... 2.34% 2.52% 3.37% 3.50% 1.84%
Ratio of Net Investment Income to
Average Net Assets**............................ 3.25% 2.03% 2.39% 2.07% 3.81%
Portfolio Turnover................................ 65%* 159% 97% 94% 28%*
</TABLE>
*Non-Annualized
**If certain expenses had not been assumed by Van Kampen, total return would
have been lower and the ratios would have been as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
Ratio of Expenses to Average Net Assets............ N/A N/A 3.39% 3.99% 3.60%
Ratio of Net Investment Income to
Average Net Assets............................... N/A 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.
15 See Notes to Financial Statements
<PAGE> 425
Financial Highlights (Continued)
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated. (Unaudited)
<TABLE>
<CAPTION>
==================================================================================================================
June 9, 1994
(Commencement of
Six Months Investment
Ended Year Ended Operations) to
June 30, December 31, December 31,
Class C Shares 1998 1997 1996 1995 (a) 1994 (a)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period..... $13.790 $12.999 $ 9.99 $ 9.28 $ 9.43
------- ------- ------ ------ -------
Net Investment Income................... .206 .271 .266 .20 .22
Net Realized and Unrealized Gain/Loss... (.939) 2.206 3.520 .823 (.178)
------- ------- ------ ------ -------
Total from Investment Operations............. (.733) 2.477 3.786 1.023 .042
------- ------- ------ ------ -------
Less:
Distributions from and in Excess of
Net Investment Income.............. .142 .284 .300 .197 .1399
Return of Capital Distribution.......... -0- -0- -0- .116 .0521
Distributions from Net Realized Gain.... .222 1.402 .477 -0- -0-
------- ------- ------ ------ -------
Total Distribution........................... .364 1.686 .777 .313 .192
------- ------- ------ ------ -------
Net Asset Value, End of the Period........... $12.693 $13.790 $12.999 $ 9.99 $ 9.28
======= ======= ======= ====== =======
Total Return (b)............................. (5.29%)/*/ 19.78% 38.86% 11.26% .15%(c)
Net Assets at End of the Period (In
millions)............................... $ 18.6 $ 17.4 $ 7.7 $ 3.1 $ 1.3
Ratio of Expenses to Average Net Assets/**/.. 2.34% 2.52% 3.38% 3.54% 1.62%
Ratio of Net Investment Income to
Average Net Assets/**/.................. 3.27% 2.00% 2.39% 2.11% 3.92%
Portfolio Turnover........................... 65%/*/ 159% 97% 94% 28%/*/
</TABLE>
/*/ Non-Annualized.
/**/ If certain expenses had not been assumed by Van Kampen, total return would
have been lower and the ratios would have been as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
Ratio of Expenses to Average Net Assets...... N/A N/A 3.40% 4.03% 3.38%
Ratio of Net Investment Income to
Average Net Assets...................... N/A 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 FundOs investment
strategy was implemented) through December 31, 1994, non-annualized.
16 See Notes to Financial Statements
<PAGE> 426
Notes to Financial Statements
June 30, 1998 (Unaudited)
================================================================================
1. Significant Accounting Policies
Van Kampen Real Estate Securities Fund, formerly known as 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 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.
17
<PAGE> 427
Notes to Financial Statements (Continued)
June 30, 1998 (Unaudited)
================================================================================
D. Organizational Costs-The Fund has reimbursed Van Kampen Funds Inc. or its
affiliates (collectively "Van Kampen") for costs incurred in connection with the
Fund's organization in the amount of $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 Van Kampen are redeemed by the Fund during the amortization period,
the Fund will be reimbursed for any unamortized organizational costs in the same
proportion as the number of shares redeemed bears to the number of initial
shares held at the time of redemption.
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 June 30, 1998, for federal income tax purposes cost of long- and short-term
investments is $140,070,146; the aggregate gross unrealized appreciation is
$6,215,988 and the aggregate gross unrealized depreciation is $4,386,824,
resulting in net unrealized appreciation of $1,829,164.
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.
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.
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. On
April 23, 1998, the Board of Trustees approved a subadvisory agreement with
Morgan Stanley Asset Management Inc. (the "Subadviser") to provide advisory
services to the Fund and the Adviser with respect to the Fund's investments. The
Adviser will pay 50% of its advisory fee to the Subadviser. This subadvisory
agreement will become effective October 1, 1998.
For the six months ended June 30, 1998, the Fund recognized expenses of
approximately $2,400 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 six months ended June 30, 1998, the Fund recognized expenses of
approximately $36,800 representing Van Kampen's cost of providing accounting
services to the Fund.
18
<PAGE> 428
Notes to Financial Statements (Continued)
June 30, 1998 (Unaudited)
================================================================================
Van Kampen Investor Services Inc. ("VKIS"), an affiliate of the Adviser,
serves as the shareholder servicing agent for the Fund. For the six months ended
June 30, 1998, the Fund recognized expenses of approximately $91,100. Beginning
in 1998, the transfer agency fees are determined through negotiations with the
Fund's Board of Trustees and are based on competetive market benchmarks.
Certain officers and trustees of the Fund are also officers and directors
of Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Fund. The maximum
annual benefit per trustee under the plan is $2,500.
At June 30, 1998, Van Kampen owned 10,605 Class A shares and 53 Class B
shares, 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 June 30, 1998, capital aggregated $49,501,666, $74,950,271 and $17,875,994
for Classes A, B, and C, respectively. For the six months ended June 30, 1998,
transactions were as follows:
<TABLE>
<CAPTION>
Shares Value
=======================================================================================
<S> <C> <C>
Sales:
Class A............................................. 4,792,340 $ 63,229,710
Class B............................................. 1,367,088 18,125,621
Class C............................................. 306,062 4,019,243
----------- ------------
Total Sales........................................... 6,465,490 $ 85,374,574
=========== ============
Dividend Reinvestment:
Class A............................................. 109,654 $ 1,412,368
Class B............................................. 131,823 1,699,964
Class C............................................. 30,418 391,892
----------- ------------
Total Dividend Reinvestment........................... 271,895 $ 3,504,224
=========== ============
Repurchases:
Class A............................................. (4,538,005) $(59,819,823)
Class B............................................. (751,559) (9,900,695)
Class C............................................. (131,554) (1,736,890)
----------- ------------
Total Repurchases..................................... (5,421,118) $(71,457,408)
=========== ============
</TABLE>
19
<PAGE> 429
Notes to Financial Statements (Continued)
June 30, 1998 (Unaudited)
================================================================================
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:
<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>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). Class B shares will
automatically convert to Class A shares after the eighth year following
purchase. The CDSC 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.
<TABLE>
<CAPTION>
Contingent Deferred
Sales Charge
-----------------------
Year of Redemption Class B Class C
================================================================================
<S> <C> <C>
First.................................................. 4.00% 1.00%
Second................................................. 4.00% None
Third.................................................. 3.00% None
Fourth................................................. 2.50% None
Fifth.................................................. 1.50% None
Sixth and Thereafter................................... None None
</TABLE>
20
<PAGE> 430
Notes to Financial Statements (Continued)
June 30, 1998 (Unaudited)
================================================================================
For the six month ended June 30, 1998, Van Kampen, as Distributor for the
Fund, received net commissions on sales of the Fund's Class A shares of
approximately $29,500 and CDSC on the redeemed shares of approximately $97,600.
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 $103,839,058 and $90,892,291,
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 six month ended June 30, 1998, are payments retained by Van Kampen of
approximately $336,100.
21
<PAGE> 431
APPENDIX E
VK REAL ESTATE SECURITIES FUND
U.S. REAL ESTATE FUND
PRO FORMA FINANCIAL STATEMENTS
June 30, 1998 (Unaudited)
<PAGE> 432
VK REAL ESTATE SECURITIES FUND - U.S. REAL ESTATE FUND
PROFORMA PORTFOLIO OF INVESTMENTS
June 30, 1998
<TABLE>
<CAPTION>
(Unaudited) VK Real US Real Proforma
Estate Shr Estate Shr Shares Value (000)
-------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stocks and Equivalents 94.1%
Apartments 15.1%
Avalon Bay Community, Inc. 154,100 38,300 192,400 $ 7,311
Equity Residential Properties Trust 38,700 10,800 49,500 2,348
Essex Property Trust, Inc. 162,400 40,000 202,400 6,274
Irvine Apartment Communities, Inc. 81,500 19,900 101,400 2,934
Pennsylvania Real Estate Investment Trust 104,600 26,800 131,400 2,915
Security Capital Atlantic, Inc. 190,058 47,032 237,090 5,290
Security Capital Pacific Trust 14,300 3,700 18,000 405
Smith, Charles E Residential Realty, Inc. 7,100 2,300 9,400 301
-----------------
27,778
-----------------
Casino Operators 0.5%
Station Casinos Inc. (a) 53,400 13,000 66,400 975
-----------------
Development 4.3%
Atlantic Gulf Communities Corp. (a) 188,680 45,224 233,904 482
Atlantic Gulf Communities Corp. - Convertible
Preferred Series B (a) 24,741 5,829 30,570 206
Atlantic Gulf Communities Corp. - Preferred Shares,
144A - Private Placement (a) (b) 35,402 8,207 43,609 294
Atlantic Gulf Communities Corp. Warrants
16,494 VKAC, 9,609 MS, 26,103 total shares
each of Classes A, B and C, expiring 06/23/04(a) 49,482 28,827 78,309 39
Atlantic Gulf Communities Corp. Warrants, 33,397
shares Class A, B and C, expiring 06/24/01, 144A -
Private Placement(a) (b) 100,191 0 100,191 50
Brookfield Properties Corp. 388,700 99,700 488,400 6,745
-----------------
7,816
-----------------
Hotel & Lodging 7.7%
Capstar Hotel Co. (a) 76,300 18,800 95,100 2,663
Hammons, John Q. Hotels, Inc. (a) 0 12,200 12,200 86
Host Marriott Corp. (a) 136,800 34,400 171,200 3,050
Starwood Hotels and Resorts 137,830 34,251 172,081 8,314
-----------------
14,113
-----------------
Manufactured Home Communities 5.8%
Chateau Properties, Inc. 228,994 63,148 292,142 8,399
Manufactured Home Communities, Inc. 10,400 3,300 13,700 331
Sun Communities, Inc. 52,500 5,300 57,800 1,915
-----------------
10,645
-----------------
</TABLE>
<PAGE> 433
VK REAL ESTATE SECURITIES FUND - U.S. REAL ESTATE FUND
PROFORMA PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998
<TABLE>
<CAPTION>
(Unaudited) VK Real US Real Proforma
Estate Shr Estate Shr Shares Value (000)
-----------------------------------------------------
<S> <C> <C> <C> <C>
Motor Vehicle Facilities 0.3%
Capital Automotive 28,000 6,900 34,900 $ 495
-----------------
Office/Industrial 37.9%
Arden Realty Group, Inc. 284,900 70,800 355,700 9,205
Beacon Capital Partners Inc. - 144A (b) 140,800 37,100 177,900 3,558
Bedford Property Investors, Inc. 36,000 6,500 42,500 776
Brandywine Realty Trust 252,700 60,766 313,466 7,014
CarrAmerica Realty Corp. 252,700 62,700 315,400 8,949
Crescent Real Estate Equities Trust 5,600 1,400 7,000 235
Equity Office Properties Trust 175,986 43,706 219,692 6,234
Great Lakes REIT, Inc. 187,200 48,000 235,200 4,101
Kilroy Realty Corp. 69,000 17,600 86,600 2,165
Mack California Realty Corp. 65,000 16,300 81,300 2,795
Meridan Industrial Trust, Inc. 32,800 8,200 41,000 943
Pacific Gulf Porperties, Inc. 182,000 41,400 223,400 4,831
Prime Group Realty Trust 182,100 41,200 223,300 3,824
Reckson Associates Realty Corp. 72,500 19,100 91,600 2,164
Reckson Service Inds Inc. (a) 11,600 3,056 14,656 49
SL Green Reality Corp 115,900 28,600 144,500 3,251
Spieker Properties, Inc. 70,400 17,500 87,900 3,406
Trizec Hahn Corp 98,100 25,200 123,300 2,643
Wellsford Real Properties, Inc., 144A - Private
Placement (a) (b) 199,020 45,351 244,371 3,452
-----------------
69,595
-----------------
Self-Storage 4.1%
PS Business Parks Inc. Class A 132,674 9,379 142,053 3,338
PS Business Parks Inc. 0 25,788 25,788 606
Public Storage, Inc. 44,700 11,100 55,800 1,562
Shurgard Storage Centers, Inc., Class A 57,300 15,300 72,600 2,015
-----------------
7,521
-----------------
Shopping Centers 11.5%
Burnham Pacific Properties, Inc. 323,600 79,600 403,200 5,720
Federal Realty Investment Trust 246,400 61,000 307,400 7,397
First Washington Realty Trust, Inc. - Preferred Ser A 22,300 5,500 27,800 801
Pan Pacific Retail Properties, Inc. 90,000 22,200 112,200 2,174
Ramco-Gershenson Properties Trust 800 200 1,000 19
Regency Realty Corp. 87,400 21,700 109,100 2,741
Vornado Realty Trust 46,200 11,100 57,300 2,274
-----------------
21,126
-----------------
</TABLE>
<PAGE> 434
VK REAL ESTATE SECURITIES FUND - U.S. REAL ESTATE FUND
PROFORMA PORTFOLIO OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
(Unaudited) VK Real US Real Proforma
Estate Shr Estate Shr Shares Value (000)
-----------------------------------------------------
<S> <C> <C> <C> <C>
Shopping Malls 6.9%
CBL & Associates Properties, Inc. 68,700 18,100 86,800 $ 2,105
Taubman Centers, Inc. 422,900 103,000 525,900 7,494
Urban Shopping Centers, Inc. 76,300 21,500 97,800 3,081
-----------------
12,680
-----------------
Total Common Stocks and Equivalents 94.1% 172,744
-----------------
Convertible Corporate Obligations 0.6%
Brookfield Properties Corp. - Installment Receipts representing
Subordinated Debenture ($868 VKAC par, $224 MS par, totaling
$1,092 par, 6.00% coupon, 02/14/07 maturity) 1,078
-----------------
Total Long-Term Investments (94.7%) 173,822
-----------------
Repurchase Agreements 1.8%
BA Securities ($2,730 par, collateralized by U.S. Government
obligations in a pooled cash account, dated 06/30/98,
to be sold on 07/01/98 at $2,730) 2,730
Chase Securities ($537 par, dated 06/30/98, to be sold on 0701/98
at $537, collateralized by $335 par of U.S. Treasury Bonds, 11.25%
coupon, due 02/15/15) 537
-----------------
Total Repurchase Agreements 3,267
-----------------
Total Investments 96.5%
(Cost $139,959) 177,089
Other Assets in Excess of Liabilities 3.5% 6,415
-----------------
Net Assets 100.0% $183,504
=================
</TABLE>
(a) Non-income producing security as this stock currently 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.
The VK Real Estate Securities Fund has no plan or intention to sell or
otherwise dispose of any of the assets of the U.S. Real Estate Fund acquired
in the Acquisition, except for dispositions made in the ordinary course of
business. The VK Real Estate Securities Fund has no present plan or intention
to liquidate or to merge or combine with and into any other entity following the
Acquisition.
<PAGE> 435
VK REAL ESTATE SECURITIES FUND - U.S. REAL ESTATE FUND
PROFORMA CONDENSED STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998
(Unaudited)
Amounts in thousands
<TABLE>
<CAPTION>
VK Real
Estate Securities US Real
Fund Estate Fund Adjustments Proforma
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Investments (Cost of $139,959,
$35,041, and $175,000, respectively) $141,899 $35,190 $177,089
Other Assets Less Liabilities 5,484 1,067 (136)(3) 6,415
-------------------------------------------------------------------
Net Assets $147,383 $36,257 (136) $183,504
===================================================================
Net Assets Consist of:
Capital $142,328 $34,799 $177,127
Accumulated Undistributed Net Investment
Income 745 4 (136)(3) 613
Net Unrealized Appreciation/Depreciation
on Investments 1,940 149 2,089
Accumulated Net Realized Gain/Loss
on Investments 2,370 1,305 3,675
-------------------------------------------------------------------
Net Assets $147,383 $36,257 (136) $183,504
===================================================================
Class A Shares:
Net Assets $51,860 $16,873 (48)(3) $68,685
Shares Outstanding 4,080 1,081 5,409(2)
---------------------------- ------------
Net Asset Value per Share $12.71 $15.61 $12.70
============================ ============
Class B Shares:
Net Assets $76,872 $15,197 (71)(3) $91,998
Shares Outstanding 6,052 978 7,250(2)
---------------------------- ------------
Net Asset Value per Share $12.70 $15.54 $12.69
============================ ============
Class C Shares:
Net Assets $18,651 $4,187 (17)(3) $22,821
Shares Outstanding 1,469 269 1,799(2)
---------------------------- ------------
Net Asset Value per Share $12.69 $15.55 $12.68
============================ ============
(1) The pro forma statements are presented as if the Reorganization was
effective June 30, 1998. The pro forma statements give effect to the
proposed exchange of shares for assets and liabilities with the VK Real Estate
Securities Fund being the surviving entity. The proposed transaction
will be accounted for in accordance with generally accepted accounting
principles as a tax-free reorganization. The historical cost basis of the
investments is carried over to the surviving entity.
(2) The pro forma shares outstanding reflect the issuance by the VK Real Estate
Securities Fund of approximately 1,329,000 Class A shares, 1,198,000 Class B
shares and 330,000 Class C shares reflecting the exchange of the assets and
liabilities of the U.S. Real Estate Fund for newly issued shares of the VK Real
Estate Securities Fund at the pro forma net asset value per share.
(3) In connection with this transaction, the VK Real Estate Securities Fund
will incur a non-recurring cost associated with the transaction of
approximately $136,000, or $0.012 per share (allocated among the classes at
approximately $48,000, $71,000 and $17,000 for Class A, Class B, and Class C
shares respectively).
(4) In connection with this transaction, the Adviser will reimburse the U.S.
Real Estate Fund for approximately $7,000 representing the unamortized
organizational costs remaining on the Fund's books at the time of the
transaction.
</TABLE>
<PAGE> 436
VK REAL ESTATE SECURITIES FUND - U.S. REAL ESTATE FUND
PROFORMA CONDENSED STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998
(Unaudited)
Amounts in thousands
<TABLE>
<CAPTION>
VK Real
Estate US Real
Securities Fund Estate Fund Adjustments Proforma
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income:
Dividends $3,856 $893 $4,749
Interest 192 48 240
------------------------------------------------------------------------
Total Income 4,048 941 0 4,989
------------------------------------------------------------------------
Expenses:
Investment Advisory Fees 726 185 911
Fees Waived (2) 0 (89) 7 (82)
Distribution (12b-1) and Service Fees 531 109 640
All Other Expenses (1) 245 151 (13) 383
------------------------------------------------------------------------
Total Expenses 1,502 356 (6) 1,852
------------------------------------------------------------------------
Net Investment Income $2,546 $585 $6 $3,137
========================================================================
Realized and Unrealized Gain/Loss on Investments:
Realized Gain/Loss on Investments $2,529 $953 $3,482
Net Change in Unrealized Appreciation/
Depreciation During the Period (12,857) (3,544) (16,401)
------------------------------------------------------------------------
Net Realized and Unrealized Gain/Loss
on Investments ($10,328) ($2,591) $0 ($12,919)
========================================================================
Net Increase/Decrease in Net Assets
from Operations ($7,782) ($2,006) $6 ($9,794)
========================================================================
</TABLE>
(1) Reflects the reduction of other operating expenses as a result of the
elimination of certain duplicative expenses and the results of operating a
larger, more efficient fund rather than two smaller funds.
(2) Reflects the waiver of expenses associated with the expense cap of the
combined fund.
<PAGE> 437
PART C: OTHER INFORMATION
ITEM 15. INDEMNIFICATION
Reference is made to Article 8, Section 8.4 of the Registrant's Agreement
and Declaration of Trust.
Article 8, Section 8.4 of the Agreement and Declaration of Trust provides
that each officer and trustee of the Registrant shall be indemnified by the
Registrant against all liabilities incurred in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or criminal,
in which the officer or trustee may be or may have been involved by reason of
being or having been an officer or trustee, except that such indemnity shall not
protect any such person against a liability to the Registrant or any shareholder
thereof to which such person would otherwise be subject by reason of (i) not
acting in good faith in the reasonable belief that such person's actions were
not in the best interests of the Trust, (ii) having acted with 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
had reasonable cause to believe the 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 purchase 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 officers 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 that he or
she is entitled to the indemnification and only if the following conditions are
met: (1) the trustee or officer provides 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 "Securities 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 Securities 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 Securities
Act and will be governed by the final adjudication of such issue.
ITEM 16. EXHIBITS
<TABLE>
<S> <C> <C> <C>
(1) -- (a) First Amended and Restated Agreement and Declaration of
Trust(1)
-- (b) Certificate of Amendment(1)
-- (c) Amended and Restated Certificate of Designation(2)
(2) -- Amended and Restated Bylaws(1)
(4) -- Agreement and Plan of Reorganization for Van Kampen U.S. Real
Estate Fund into Van Kampen Real Estate Securities Fund(3)
(5) -- Specimen Stock Certificate for:
-- (a) Class A Shares(2)
-- (b) Class B Shares(2)
</TABLE>
C-1
<PAGE> 438
<TABLE>
<S> <C> <C> <C>
-- (c) Class C Shares(2)
(6) -- Investment Advisory Agreement(2)
(7) -- (a) Distribution and Service Agreement(2)
-- (b) Dealer Agreement(2)
-- (c) Form of Broker Agreement(2)
-- (d) Form of Bank Agreement(2)
(9) -- (a) Custodian Agreement(2)
-- (b) Data Access Services Agreement(2)
(10) -- (a) Plan of Distribution Pursuant to Rule 12b-1(2)
-- (b) Service Plan(2)
-- (c) Amended Multi-Class Plan(2)
(11) -- Opinion of Skadden, Arps, Slate, Meagher & Flom (Illinois)
relating to Van Kampen Real Estate Securities Fund(2)
(12) -- Tax Opinion of Skadden, Arps, Slate, Meagher & Flom (Illinois)
relating to the Reorganization++
(13) -- (a) Fund Accounting Agreement(2)
(14) -- (a) Consent of PricewaterhouseCoopers LLP relating to Van Kampen
U.S. Real Estate Fund+
-- (b) Consent of PricewaterhouseCoopers LLP relating to Van Kampen
Real Estate Securities Fund+
(16) -- Power of Attorney(2)
(17) -- (a) Copy of 24f-2 Election of Registrant(2)
-- (b) Form of proxy card for Van Kampen U.S. Real Estate Fund+
-- (c) Prospectus of Van Kampen U.S. Real Estate Fund dated
September 30, 1998.+
</TABLE>
- ---------------
+ Filed herein.
++ To be filed by amendment. See undertaking 3 under Item 17 as it relates to
Exhibit 12.
(1) Incorporated herein by reference to Post-Effective Amendment No. 5 to
Registrant's Registration Statement on Form N-1A, File Number 33-77800,
filed on April 22, 1996.
(2) Incorporated herein by reference to Post-Effective Amendment No. 6 to
Registrant's Registration Statement on Form N-1A, File Number 33-77800,
filed on April 29, 1997.
(3) Included as Appendix A to the Statement of Additional Information.
ITEM 17. UNDERTAKINGS.
(1) The undersigned registrant agrees that prior to any public re-offering
of the securities registered through the use of a prospectus which is a part of
this registration statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act, the
re-offering prospectus will contain the information called for by the applicable
registration form for re-offerings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(2) The undersigned registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to the
registration statement and will not be used until the amendment is effective,
and that, in determining any liability under the 1933 Act, each post-effective
amendment shall be deemed to be a new registration statement for the securities
offered therein, and the offering of the securities at that time shall be deemed
to be the initial bona fide offering of them.
(3) The undersigned registrant agrees that, if the Reorganization discussed
in the registration statement closes, the registrant shall file with the
Securities and Exchange Commission by post-effective amendment an opinion of
counsel supporting the tax matters discussed in the registration statement.
C-2
<PAGE> 439
SIGNATURES
AS REQUIRED BY THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT HAS
BEEN SIGNED ON BEHALF OF THE REGISTRANT IN THE CITY OF OAKBROOK TERRACE AND
STATE OF ILLINOIS, ON THE 3RD DAY OF NOVEMBER, 1998.
VAN KAMPEN 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
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED, ON NOVEMBER 3, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
Principal Executive Officer:
/s/ DENNIS J. MCDONNELL* President
- -----------------------------------------------------
Dennis J. McDonnell
Principal Financial Officer:
/s/ JOHN L. SULLIVAN Vice President, Treasurer and Chief Financial
- ----------------------------------------------------- Officer
John L. Sullivan
Trustees:
/s/ J. MILES BRANAGAN* Trustee
- -----------------------------------------------------
J. Miles Branagan
/s/ RICHARD M. DeMARTINI* Trustee
- -----------------------------------------------------
Richard M. DeMartini
/s/ LINDA HUTTON HEAGY* Trustee
- -----------------------------------------------------
Linda Hutton Heagy
/s/ R. CRAIG KENNEDY* Trustee
- -----------------------------------------------------
R. Craig Kennedy
/s/ JACK E. NELSON* Trustee
- -----------------------------------------------------
Jack E. Nelson
/s/ DON G. POWELL* Trustee
- -----------------------------------------------------
Don. G. Powell
/s/ PHILLIP B. ROONEY* Trustee
- -----------------------------------------------------
Phillip B. Rooney
/s/ FERNANDO SISTO Sc.D.* Trustee
- -----------------------------------------------------
Fernando Sisto
Trustee
- -----------------------------------------------------
Paul G. Yovovich
/s/ WAYNE W. WHALEN* Trustee and Chairman
- -----------------------------------------------------
Wayne W. Whalen
- ------------
* Signed by Ronald A. Nyberg pursuant to a power of attorney.
/s/ RONALD A. NYBERG
- -----------------------------------------------------
Ronald A. Nyberg
Attorney-in-Fact
</TABLE>
C-3
<PAGE> 440
SCHEDULE OF EXHIBITS TO FORM N-14
VAN KAMPEN REAL ESTATE SECURITIES FUND
AS FILED ON NOVEMBER 4, 1998
<TABLE>
<CAPTION>
EXHIBIT
- -------
<C> <C> <S> <C> <C>
(14) -- (a) Consent of PricewaterhouseCoopers LLP relating to Van Kampen
U.S. Real Estate Fund
(14) -- (b) Consent of PricewaterhouseCoopers LLP relating to Van Kampen
Real Estate Securities Fund
(17) -- (b) Form of proxy card for Van Kampen U.S. Real Estate Fund
(17) -- (c) Prospectus of Van Kampen U.S. Real Estate Fund dated
September 30, 1998
</TABLE>
<PAGE> 1
EXHIBIT (14)(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Statement of
Additional Information of Van Kampen Series Fund, Inc. dated September 30, 1998
constituting part of this registration statement on Form N-14 of Van Kampen Real
Estate Securities Fund (the "Registration Statement") of our report dated August
11, 1998, relating to the financial statements and financial highlights of Van
Kampen Series Fund, Inc. appearing in the June 30, 1998 Annual Report to
Shareholders of Van Kampen Series Fund, Inc. which are also incorporated by
reference into the Registration Statement. We also consent to the reference to
us under the heading "Other Service Providers" in the Prospectus/Proxy
Statement.
/S/ PRICEWATERHOUSECOOPERS LLP
200 E. Randolph Drive
Chicago, Illinois 60601
November 2, 1998
<PAGE> 1
EXHIBIT (14)(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Statement of
Additional Information dated April 30, 1998 constituting part of this
registration statement on Form N-14 of Van Kampen Real Estate Securities Fund
(the "Registration Statement") of our report dated February 6, 1998, relating to
the financial statements and financial highlights appearing in the December 31,
1997 Annual Report to Shareholders of Van Kampen Real Estate Securities Fund
which are also incorporated by reference into the Registration Statement. We
also consent to the references to us under the headings "Financial Highlights"
and "Independent Accountants" in the Prospectus and/or Statement of Additional
Information dated April 30, 1998 which is also incorporated in the Registration
Statement and to the reference to us under the heading "Other Service Providers"
in the Registration Statement.
/S/ PRICEWATERHOUSECOOPERS LLP
200 E. Randolph Drive
Chicago, Illinois 60601
November 2, 1998
<PAGE> 1
EXHIBIT (17)(b)
PROXY
VAN KAMPEN U.S. REAL ESTATE FUND
SPECIAL MEETING OF SHAREHOLDERS
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned holder of the VAN KAMPEN U.S. REAL ESTATE FUND,
formerly known as Morgan Stanley U.S. Real Estate Fund, hereby appoints Dennis
J. McDonnell, Ronald A. Nyberg, Weston B. Wetherell and Nicholas Dalmaso, and
each of them (with full power of substitution and revocation, as the proxies of
the undersigned to attend the Special Meeting of Shareholders of the Van Kampen
U.S. Real Estate Fund to be held at the offices of Van Kampen Investments Inc.,
1 Parkview Plaza, Oakbrook Terrace, Illinois 60181-5555, on Wednesday,
December 9, 1998 at 1:30 p.m., and any adjournments thereof (the "Special
Meeting"), to vote all Shares of the Van Kampen U.S. Real Estate Fund which the
undersigned would be entitled to vote, if personally present, at the Special
Meeting on the Proposal listed on the reverse side and on any other matter
brought before the Special Meeting, as set forth in the Notice of Special of
Shareholders and Proxy Statement of the Board of Directors. Said proxies are
directed to vote or refrain from voting pursuant to the Proxy Statement as
indicated on the reverse side.
If more than one of the proxies, or their substitutes, are present at
the Special Meeting or any adjournment thereof, they jointly (or, if only one is
present and voting then that one) shall have authority and may exercise all
powers granted hereby. This Proxy, when properly executed, will be voted in
accordance with the instructions marked hereon by the undersigned. IF NO
SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED "FOR" THE PROPOSAL DESCRIBED
HEREIN AND IN THE DISCRETION OF THE PROXIES UPON SUCH OTHER BUSINESS AS MAY
PROPERLY COME BEFORE THE MEETING.
Account No. No. of Shares Class of Shares Proxy No.
<TABLE>
<S> <C> <C> <C> <C> <C>
1. FOR AGAINST ABSTAIN
--- ------- ------- The proposal to approve the Agreement and Plan of Reorganization pursuant to which
the Van Kampen U.S. Real Estate Fund, formerly known as Morgan Stanley U.S. Real
--- ------- ------- Fund, (the "U.S. Real Estate Fund") would (i) transfer all of its assets to the Van
Kampen Real Estate Securities Fund, formerly known as the Van Kampen American
Capital Real Estate Securities Fund (the "VK Real Estate Securities Fund") in
exchange solely for Class A, B, and C shares of beneficial interest of the VK Real
Estate Securities Fund and VK Real Estate Securities Fund's assumption of the
liabilities of the U.S. Real Estate Fund, (ii) distribute such shares of the VK Real
Estate Securities Fund to the holders of shares of the U.S. Real Estate Fund and
(iii) be dissolved.
To exact such other business as may properly come before the special meeting.
</TABLE>
The undersigned hereby acknowledges receipt of the accompanying Notice
of Special Meeting and Prospectus/Proxy Statement for the Special Meeting to be
held on December 9, 1998 at 1:30 p.m.
Please sign this Proxy exactly as your name or names appear on this
proxy. If signing is by an attorney, trustee, executor, administrator,
custodian, guardian or corporate officer, please print your full title below
your signature. If shares are held jointly, each holder should sign.
<TABLE>
<S> <C>
- ------------------------------------ ----------------------------------------
Shareholder signature 1998
Date
- ------------------------------------ ----------------------------------------
Co-owner signature (if applicable) 1998
Date
</TABLE>
<PAGE> 1
EXHIBIT (17)(c)
- --------------------------------------------------------------------------------
P R O S P E C T U S
----------------------------------------------------------------------
VAN KAMPEN AGGRESSIVE EQUITY FUND
VAN KAMPEN AMERICAN VALUE FUND
VAN KAMPEN EQUITY GROWTH FUND
VAN KAMPEN MID CAP GROWTH FUND
VAN KAMPEN U.S. REAL ESTATE FUND
VAN KAMPEN VALUE FUND
PORTFOLIOS OF THE
VAN KAMPEN SERIES FUND, INC.
P.O. BOX 418256, KANSAS CITY, MISSOURI 64141
FOR INFORMATION CALL 1-800-282-4404
------------------
Van Kampen Series Fund, Inc. (the "Company") is an open-end management
investment company, or mutual fund, which consists of twenty-three investment
portfolios. This prospectus (the "Prospectus") describes the Class A, Class B
and Class C shares of six portfolios listed above (each a "Fund," and together,
the "Funds").
The Funds are designed to make available to retail investors the expertise
of Van Kampen Investment Advisory Corp. as an investment adviser (the "Adviser")
and administrator (the "Administrator") and the Adviser's affiliates, including
Morgan Stanley Asset Management Inc. as a sub-adviser ("MSAM" or a "Sub-
Adviser"), Miller Anderson & Sherrerd, LLP as a sub-adviser ("MAS" or a
"Sub-Adviser") and Van Kampen Funds Inc. as the Funds' distributor (the
"Distributor"). Shares are available through the Distributor and investment
dealers, banks and financial services firms that provide distribution,
administrative or shareholder services ("Participating Dealers"). As of the date
of this Prospectus, the Van Kampen Mid Cap Growth Fund is not offering shares.
This Prospectus is designed to set forth concisely the information about the
Funds that a prospective investor should know before investing and it should be
retained for future reference. Additional information about the Company is
contained in a "Statement of Additional Information," dated September 30, 1998,
which is incorporated herein by reference. The Company offers other portfolios
which are described in other prospectuses. The Statement of Additional
Information and the prospectuses pertaining to the other portfolios of the
Company are available upon request and without charge by writing or calling the
Company at the address and telephone number set forth above. The Statement of
Additional Information and other materials regarding the Company have been filed
with the Securities and Exchange Commission and are available at the
Commission's internet web site (http://www.sec.gov).
THE COMPANY'S SHARES ARE NOT OBLIGATIONS, DEPOSITS OR ACCOUNTS OF, OR
ENDORSED OR GUARANTEED BY, ANY BANK OR DEPOSITORY INSTITUTION, OR ANY OF ITS
AFFILIATES OR CORRESPONDENTS. THE COMPANY'S SHARES ARE NOT FEDERALLY INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
OTHER AGENCY. SHARES OF THE COMPANY INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS SEPTEMBER 30, 1998.
MS PRO EQTY 10/98
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary......................................................................................... 3
Fund Expenses.............................................................................................. 5
Financial Highlights....................................................................................... 8
Investment Objectives and Policies......................................................................... 15
Additional Investment Information.......................................................................... 21
Investment Limitations..................................................................................... 28
Management of the Company.................................................................................. 29
Purchase of Shares......................................................................................... 33
Shareholder Services....................................................................................... 40
Redemption of Shares....................................................................................... 43
Valuation of Shares........................................................................................ 45
Portfolio Transactions..................................................................................... 45
Performance Information.................................................................................... 46
Dividends and Distributions................................................................................ 47
Taxes...................................................................................................... 47
General Information........................................................................................ 48
Appendix A -- Description of Corporate Bond Ratings........................................................ A-1
</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 FUNDS, THE ADVISER OR THE DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER BY THE FUNDS 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 FUNDS TO MAKE
SUCH AN OFFER IN SUCH JURISDICTION.
2
<PAGE> 3
PROSPECTUS SUMMARY
THE COMPANY
The Company currently consists of twenty-three portfolios which are designed
to offer investors a range of investment choices with Van Kampen Investment
Advisory Corp. (the "Adviser") providing services as adviser and administrator
and its affiliates, Morgan Stanley Asset Management Inc. ("MSAM" or a
"Sub-Adviser") and Miller Anderson & Sherrerd, LLP ("MAS" or a "Sub-Adviser"),
providing services as sub-advisers. Van Kampen Funds Inc. (the "Distributor")
provides services as Distributor. MAS serves as the Sub-Adviser for the Mid Cap
Growth Fund and the Value Fund. MSAM serves as the Sub-Adviser for all of the
other Funds.
This Prospectus describes Class A, Class B and Class C shares of the six
portfolios shown below. For ease of reference, the words "Van Kampen," which
begin the name of each portfolio are not used throughout this Prospectus. The
investment objective of each Fund is as follows:
- The AGGRESSIVE EQUITY FUND seeks capital appreciation by investing
primarily in a non-diversified portfolio of corporate equity and
equity-linked securities.
- The AMERICAN VALUE FUND seeks high total return by investing in equity
securities of small- to medium-sized corporations. Effective August 31,
1998, the American Value Fund suspended the continuous offering of its
shares to new investors.
- The EQUITY GROWTH FUND seeks long-term capital appreciation by investing
primarily in growth-oriented equity securities of medium and large
capitalization companies.
- The MID CAP GROWTH FUND seeks to achieve long-term growth by investing
primarily in common stocks and other equity securities of smaller and
medium size companies which are deemed by the Adviser to offer long-term
growth potential. As of the date of this Prospectus, the Mid Cap Growth
Fund is not offering shares.
- The U.S. REAL ESTATE FUND seeks to provide above-average current income
and long-term capital appreciation by investing primarily in equity
securities of companies in the U.S. real estate industry, including real
estate investment trusts.
- The VALUE FUND seeks to achieve above-average total return over a market
cycle of three to five years, consistent with reasonable risk, by
investing primarily in a diversified portfolio of common stocks and other
equity securities which are deemed by the Adviser to be relatively
undervalued based on various measures such as price/earnings ratios and
price/book ratios.
There can be no assurance a Fund will achieve its investment objective.
RISK FACTORS
The investment policies of each Fund entail certain risks and considerations
of which an investor should be aware. The Funds described herein invest in
common stocks, which are subject to market risks that may cause their prices to
fluctuate over time. Changes in the value of portfolio securities will not
necessarily affect cash income derived from these securities, but will affect a
Fund's net asset value. The Funds, and in particular, the Aggressive Equity,
American Value, Mid Cap Growth and Value Funds, invest in small- to medium-sized
companies, which are more vulnerable to financial risks and other risks than
larger companies, and therefore may involve a higher degree of risk and price
volatility than investments in the securities of larger corporations. Each Fund
described herein may invest in securities that are neither listed on stock
exchanges nor traded over-the-counter, including private placement securities
and restricted securities. Such securities may be less liquid than publicly
traded securities. The Funds may invest in securities of foreign issuers which
are subject to certain risks not typically associated with domestic securities.
See "Additional Investment Information -- Foreign Investment" for more
information. Some Funds may invest in forward foreign currency exchange
contracts, and may invest in foreign currency exchange futures and options. In
addition, the Funds may invest in derivatives, which include options, futures
and options on futures and swaps, and each Fund may invest in repurchase
agreements, borrow money, lend its portfolio securities and purchase securities
on a when-issued or delayed delivery basis. Certain Funds may invest in
securities which are convertible upon various terms and conditions into equity
securities, borrow for purposes of leverage, invest in reverse repurchase
agreements and engage in short selling.
3
<PAGE> 4
Because the U.S. Real Estate Fund invests primarily in the securities of
companies principally engaged in the real estate industry, its investments may
be subject to the risks associated with real estate. Because it is expected that
the U.S. Real Estate Fund will invest a substantial portion of its assets in
real estate investment trusts ("REITs"), the U.S. Real Estate Fund may also be
subject to certain risks and costs associated with the direct investments of
REITs.
Because the U.S. Real Estate Fund and Aggressive Equity Fund are
non-diversified portfolios, each of these Funds may invest a greater proportion
of its assets in the securities of a smaller number of issuers and, as a result,
will be subject to a greater risk resulting from such practice than a portfolio
which is diversified.
Each Fund's share price and investment return fluctuate, and a shareholder's
investment when redeemed may be worth more or less than his original cost. Each
of these investment strategies involves specific risks which are described under
"Investment Objectives and Policies" and "Additional Investment Information"
herein and under "Investment Objectives and Policies" in the Statement of
Additional Information.
HOW TO INVEST
The Class A, Class B and Class C shares of the Funds are designed to provide
investors a choice of three ways to pay distribution costs. Class A shares of
the Funds are offered at net asset value per share plus a maximum initial sales
charge of 5.75%, which initial sales charge may be reduced on certain larger
purchases or when combining purchases with the investor's aggregate investments
in the Participating Funds (as defined within the Prospectus). Class B and Class
C shares of the Funds are offered at net asset value per share. Class B shares
are subject to a contingent deferred sales charge ("CDSC") for redemptions
within five years of purchase and are subject to higher annual
distribution-related expenses than the Class A shares. Class C shares are also
subject to a CDSC for redemptions within one year of purchase and are subject to
higher annual distribution-related expenses than the Class A shares. See
"Purchase of Shares" for a discussion of reduction or waiver of sales charges,
which are available for certain investors. Share purchases may be made through
the Distributor, through Participating Dealers or by sending payments directly
to the Company. The minimum initial investment is $500 for each class of a Fund,
except that the minimum initial investment amount is reduced for certain
categories of investors. The minimum for subsequent investments is $25 for each
class of a Fund, except that there is no minimum for automatic reinvestment of
dividends and distributions. See "Purchase of Shares."
HOW TO REDEEM
Shares of each Fund may be redeemed at any time at the net asset value per
share (less any applicable CDSC) of the Fund next determined after receipt of
the redemption request. The redemption price may be more or less than the
purchase price. See "Redemption of Shares."
4
<PAGE> 5
FUND EXPENSES
The following table illustrates all expenses and fees that a shareholder of
a Fund may incur:
<TABLE>
<CAPTION>
AGGRESSIVE EQUITY MID CAP U.S. REAL
EQUITY AMERICAN GROWTH GROWTH ESTATE
SHAREHOLDER TRANSACTION EXPENSES FUND VALUE FUND FUND FUND FUND VALUE FUND
- -------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price)
Class A..................... 5.75%(1) 5.75%(1) 5.75%(1) 5.75%(1) 5.75%(1) 5.75%(1)
Class B..................... None None None None None None
Class C..................... None None None None None None
Maximum Deferred Sales Load (as
a percentage of the lesser of
initial purchase price or
current market value)
Class A
For Purchases up to
$999,999................ None None None None None None
For Purchases of
$1,000,000 or more...... 1.00%(2) 1.00%(2) 1.00%(2) 1.00%(2) 1.00%(2) 1.00%(2)
Class B..................... 5.00%(3) 5.00%(3) 5.00%(3) 5.00%(3) 5.00%(3) 5.00%(3)
Class C..................... 1.00%(4) 1.00%(4) 1.00%(4) 1.00%(4) 1.00%(4) 1.00%(4)
Maximum Sales Load Imposed on
Reinvested Dividends
Class A..................... None None None None None None
Class B..................... None None None None None None
Class C..................... None None None None None None
Redemption Fees
Class A..................... None None None None None None
Class B..................... None None None None None None
Class C..................... None None None None None None
Exchange Fees
Class A..................... None None None None None None
Class B..................... None None None None None None
Class C..................... None None None None None None
</TABLE>
- ------------------
(1) Percentage shown is the maximum sales load. Certain large purchases may be
subject to a reduced sales load. See "Purchase of Shares."
(2) Purchases of Class A shares of the Funds which, when combined with the net
asset value of the purchaser's existing investments in Class A shares of the
Participating Funds (as defined under "Purchase of Shares -- Quantity
Discounts"), aggregate to $1 million or more are not subject to an initial
sales load (an "initial sales charge"). A contingent deferred sales charge
("CDSC") of 1.00% will be imposed, however, on shares from any such purchase
that are redeemed within one year following such purchase. Certain other
purchases are not subject to an initial sales charge. See "Purchase of
Shares."
(3) Percentage shown is the maximum CDSC. Purchases of Class B shares of the
Funds are subject to a maximum CDSC of 5.00% which decreases in steps to
0.00% after five years. See "Purchase of Shares."
(4) Purchases of Class C shares of the Funds are subject to a CDSC of 1.00% for
redemptions made within one year of purchase. See "Purchase of Shares."
5
<PAGE> 6
<TABLE>
<CAPTION>
AGGRESSIVE EQUITY MID CAP U.S. REAL
EQUITY AMERICAN GROWTH GROWTH ESTATE
ANNUAL FUND OPERATING EXPENSES FUND VALUE FUND FUND FUND FUND VALUE FUND
- --------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
(AS A PERCENTAGE OF AVERAGE DAILY
NET ASSETS)
<S> <C> <C> <C> <C> <C> <C>
Investment Advisory Fee (after fee
waiver) (5)
Class A........................ 0.69% 0.77% 0.72% 0.67% 0.46% 0.65%
Class B........................ 0.69% 0.77% 0.72% 0.67% 0.46% 0.65%
Class C........................ 0.69% 0.77% 0.72% 0.67% 0.46% 0.65%
12b-1 Distribution and Service Fees
Class A (6).................... 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Class B (6).................... 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
Class C (6).................... 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
Other Expenses (after expense
reimbursement) (5)
Class A........................ 0.56% 0.48% 0.53% 0.48% 0.84% 0.55%
Class B........................ 0.56% 0.48% 0.53% 0.48% 0.84% 0.55%
Class C........................ 0.56% 0.48% 0.53% 0.48% 0.84% 0.55%
Total Operating Expenses (after
expense reimbursement and/or fee
waiver) (5)
Class A........................ 1.50% 1.50% 1.50% 1.40% 1.55% 1.45%
Class B........................ 2.25% 2.25% 2.25% 2.15% 2.30% 2.20%
Class C........................ 2.25% 2.25% 2.25% 2.15% 2.30% 2.20%
</TABLE>
- ------------------
(5) The Adviser has agreed to waive a portion of its advisory fees and/or to
reimburse a portion of expenses of the Funds listed above, if necessary, if
the total annual operating expenses of the Funds, as a percentage of average
daily net assets, would exceed the percentages set forth in the table above.
The following table sets forth for each Fund investment advisory fees and
expected total operating expenses absent fee waivers and/or expense
reimbursements. The Adviser in its discretion may terminate voluntary fee
waivers and/or reimbursements at any time. Absent the waiver of fees or
reimbursement of expenses, the amounts in the examples below would be
greater.
<TABLE>
<CAPTION>
AGGRESSIVE EQUITY MID CAP U.S. REAL
EQUITY AMERICAN GROWTH GROWTH ESTATE
FUND VALUE FUND FUND FUND FUND VALUE FUND
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Investment Advisory Fees
(All Classes)............. 0.90% 0.85% 0.80% 0.75% 1.00% 0.80%
Total Operating Expenses
Class A................... 1.71% 1.58% 4.06% 1.48% 2.09% 1.60%
Class B................... 2.47% 2.33% 4.81% 2.23% 2.84% 2.35%
Class C................... 2.47% 2.33% 4.81% 2.23% 2.83% 2.35%
</TABLE>
For further information on Fund expenses, see "Management of the Company."
(6) Of the 12b-1 distribution and service fees for the Class A shares, 0.25%
represents a shareholder services fee, and for the Class B shares and the
Class C shares, 0.75% represents a distribution fee and 0.25% represents a
shareholder services fee. See "Management of the Company -- Distributor."
Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by the Conduct Rules of the
National Association of Securities Dealers, Inc. ("NASD").
The purpose of the above table is to assist the investor in understanding
the various expenses that an investor in any of the Funds will bear directly or
indirectly. The expenses and fees for the Aggressive Equity, American Value,
U.S. Real Estate and Value Funds are based on actual figures for the fiscal year
ended June 30, 1998. The expenses and fees for the Equity Growth Fund are based
on advisory agreements, 12b-1 plans and estimates of other expenses for the
current fiscal year because the Fund commenced investment operations on May 29,
1998. The expenses and fees for the Mid Cap Growth Fund are based on advisory
agreements, 12b-1 plans and estimates of other expenses for the current fiscal
year because such Fund had not commenced investment operations as of the date of
this Prospectus.
6
<PAGE> 7
The following examples illustrate the expenses that you would pay on a
$1,000 investment, assuming a 5% annual rate of return, reinvestment of all
dividends and distributions, and redemption at the end of each time period as
indicated, in (i) Class A shares of each Fund, including the maximum 5.75%
initial sales charge, (ii) Class B shares of each Fund, which have a CDSC, but
no initial sales charge and (iii) Class C shares of each Fund, which have a
CDSC, but no initial sales charge.
<TABLE>
<CAPTION>
AGGRESSIVE EQUITY MID CAP U.S. REAL
EQUITY AMERICAN GROWTH GROWTH ESTATE
FUND VALUE FUND FUND FUND FUND VALUE FUND
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Class A shares
1 Year.................... $ 72(1) $ 72(1) $ 72 $ 71(1) $ 72(1) $ 71(1)
3 Years................... 102 102 102 99 104 101
5 Years................... 135 135 135 * 137 132
10 Years.................. 226 226 226 * 231 221
Class B shares
(Assuming complete redemption
at end of period)
1 Year.................... 73 73 73 72 73 72
3 Years................... 100 100 100 97 102 99
5 Years................... 135 135 135 * 138 133
10 Years (2).............. 239 239 237 * 244 234
(Assuming no redemption)
1 Year.................... 23 23 23 22 23 22
3 Years................... 70 70 70 67 72 69
5 Years................... 120 120 120 * 123 133
10 Years (2).............. 239 239 237 * 244 234
Class C shares
(Assuming complete redemption
immediately prior to the end
of period)
1 Year.................... 33 33 33 32 33 32
3 Years................... 70 70 70 67 72 69
5 Years................... 120 120 120 * 123 118
10 Years.................. 258 258 258 * 264 253
(Assuming no redemption)
1 Year.................... 23 23 23 22 23 22
3 Years................... 70 70 70 67 72 69
5 Years................... 120 120 120 * 123 118
10 Years.................. 258 258 258 * 264 253
</TABLE>
- ------------------
* Because the Mid Cap Growth Fund had not commenced investment operations as
of the date of this Prospectus, the Company has not projected expenses
beyond the three-year period shown. Because the Equity Growth recently
commenced investment operations as of May 29, 1998, the Company has not
projected expenses beyond the three-year period shown.
(1) The example reflects Class A shares sold subject to the maximum 5.75%
initial sales charge. Certain large purchases may be subject to a reduced
initial sales charge. Purchases of Class A shares of the Funds which, when
combined with the value of the purchaser's existing investments in Class A
shares of the Participating Funds, aggregate to $1 million or more are not
subject to an initial sales charge but a CDSC of 1.00% will be imposed on
such shares that are redeemed within one year following such purchase.
(2) The expenses shown reflect that Class B shares automatically convert to
Class A shares after eight years.
THE FOREGOING EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN.
7
<PAGE> 8
FINANCIAL HIGHLIGHTS
The following tables provide financial highlights for the Class A, Class B
and Class C shares of the Aggressive Equity, American Value, Equity Growth, U.S.
Real Estate and Value Funds for each of the periods presented. The financial
highlights are part of the Company's financial statements, which appear in the
Company's June 30, 1998 Annual Report to Shareholders. The financial statements
are incorporated into the Company's Statement of Additional Information. The
foregoing Funds' financial highlights for each of the periods presented have
been audited by PricewaterhouseCoopers LLP, whose report thereon (which was
unqualified) is also incorporated into the Statement of Additional Information.
Additional performance information about the Company is contained in the
Company's Annual Report and Semi-Annual Report. The Annual Report, Semi-Annual
Report and the Statement of Additional Information are available at no cost from
the Company at the address and telephone number noted on the cover page of this
Prospectus. The following information should be read in conjunction with the
financial statements and notes thereto. Financial highlights are not presented
for the Mid Cap Growth Fund because it had not commenced investment operations
as of June 30, 1998.
8
<PAGE> 9
FINANCIAL HIGHLIGHTS
AGGRESSIVE EQUITY FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
---------------------------------------- -------------------------------------
JANUARY 2, JANUARY 2,
YEAR ENDED YEAR ENDED 2 1996* YEAR ENDED YEAR ENDED 1996* TO
SELECTED PER SHARE DATA AND JUNE 30, JUNE 30, TO JUNE 30, JUNE 30, JUNE 30, JUNE 30,
RATIOS 1998# 1997 1996 1998# 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 16.98 $ 14.40 $ 12.00 $ 16.85 $ 14.38 $ 12.00
----------- ----------- ------------ ----------- ---------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income (Loss) (0.07) 0.01 0.06 (0.21) (0.02) 0.03
Net Realized and Unrealized
Gain 5.03 3.95 2.40 4.96 3.86 2.39
----------- ----------- ------------ ----------- ---------- --------
Total From Investment
Operations 4.96 3.96 2.46 4.75 3.84 2.42
----------- ----------- ------------ ----------- ---------- --------
DISTRIBUTION:
Net Investment Income -- (0.03) (0.06) -- (0.02) (0.04)
Net Realized Gain (1.93) (1.35) -- (1.93) (1.35) --
----------- ----------- ------------ ----------- ---------- --------
Total Distributions (1.93) (1.38) (0.06) (1.93) (1.37) (0.04)
----------- ----------- ------------ ----------- ---------- --------
NET ASSET VALUE, END OF PERIOD $ 20.01 $ 16.98 $ 14.40 $ 19.67 $ 16.85 $ 14.38
=========== =========== ============ =========== ========== ========
TOTAL RETURN (1) 30.93% 28.93% 20.52% 29.44% 28.01% 20.18%
=========== =========== ============ =========== ========== ========
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's) $ 64,035 $ 22,521 $ 5,382 $ 130,497 $ 34,382 $ 2,426
Ratio of Expenses to Average
Net Assets 1.50% 1.57% 2.03%** 2.25% 2.32% 2.67%**
Ratio of Net Investment Income
(Loss) to Average Net Assets (0.37)% (0.04)% 1.22%** (1.11)% (0.83)% 0.43%**
Portfolio Turnover Rate 308% 241% 204% 308% 241% 204%
- -------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income $ 0.04 $ 0.22 $ 0.06 $ 0.04 $ 0.02 $ 0.07
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 1.71% 2.38% 3.26%** 2.47% 2.88% 3.79%**
Net Investment Income (Loss)
to Average Net Assets (0.59)% (0.85)% (0.01)%** (1.34)% (1.43)% (0.69)%**
Ratio of Expenses to Average
Net Assets excluding dividend
expense on securities sold short 1.50% 1.50% 1.50%** 2.25% 2.25% 2.25%**
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS C
----------------------------------------
JANUARY 2,
YEAR ENDED YEAR ENDED 1996* TO
SELECTED PER SHARE DATA AND JUNE 30, JUNE 30, JUNE 30,
RATIOS 1998# 1997 1996
- ------------------------------ ----------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 16.83 $ 14.37 $ 12.00
----------- ----------- ------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income (Loss) (0.21) (0.06) 0.03
Net Realized and Unrealized
Gain 4.97 3.89 2.38
----------- ----------- ------------
Total From Investment
Operations 4.76 3.83 2.41
----------- ----------- ------------
DISTRIBUTION:
Net Investment Income -- (0.02) (0.04)
Net Realized Gain (1.93) (1.35) --
----------- ----------- ------------
Total Distributions (1.93) (1.37) (0.04)
----------- ----------- ------------
NET ASSET VALUE, END OF PERIOD $ 19.66 $ 16.83 $ 14.37
=========== =========== ============
TOTAL RETURN (1) 29.90% 28.04% 20.10%
=========== =========== ============
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's) $ 24,872 $ 9,410 $ 2,582
Ratio of Expenses to Average
Net Assets 2.25% 2.32% 2.67%**
Ratio of Net Investment Income
(Loss) to
Average Net Assets (1.13)% (0.77)% 0.44%**
Portfolio Turnover Rate 308% 241% 204%
- ------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income $ 0.04 $ 0.07 $ 0.07
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 2.25% 3.23% 3.80%**
Net Investment Income (Loss)
to Average Net Assets (1.35)% (1.67)% (0.69)%**
Ratio of Expenses to Average
Net Assets
excluding dividend expense
on securities sold short 2.25% 2.25% 2.25%**
- ------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not
annualized.
# Net investment income and capital charges per share are based upon monthly
average shares outstanding.
9
<PAGE> 10
FINANCIAL HIGHLIGHTS CONTINUED
AMERICAN VALUE FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
-------------------------------------------------------- --------------------------------
YEAR YEAR OCTOBER
YEAR ENDED ENDED 18, YEAR YEAR AUGUST
YEAR ENDED ENDED JUNE JUNE 1993* ENDED ENDED 1, 1995+
SELECTED PER SHARE DATA AND JUNE 30, JUNE 30, 30, 30, TO JUNE JUNE 30, JUNE 30, TO JUNE
RATIOS 1998# 1997 1996 1995 30, 1994 1998# 1997 30, 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 17.59 $ 14.63 $ 12.89 $ 11.70 $ 12.00 $ 17.59 $ 14.63 $ 13.37
---------- -------- ------- ------- -------- ---------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(Loss) (0.02) 0.20 0.27 0.27 0.17 (0.17) 0.09 0.15
Net Realized and
Unrealized Gain (Loss) 4.84 4.05 1.94 1.44 (0.30) 4.83 4.05 1.46
---------- -------- ------- ------- -------- --------- -------- -------
Total from Investment
Operations 4.82 4.25 2.21 1.71 (0.13) 4.66 4.14 1.61
---------- -------- ------- ------- -------- --------- -------- -------
DISTRIBUTIONS
Net Investment Income (0.03) (0.20) (0.27) (0.28) (0.17) (0.01) (0.09) (0.15)
In Excess of Net
Investment Income (0.00)++ (0.00)++ (0.01) -- -- (0.00)++ (0.00)++ (0.01)
Net Realized Gain (1.04) (1.09) (0.19) (0.24) -- (1.09) (1.04) (0.19)
---------- -------- ------- ------- -------- --------- -------- -------
Total Distributions (1.07) (1.29) (0.47) (0.52) (0.17) (1.05) (1.18) (0.35)
---------- -------- ------- ------- -------- --------- -------- -------
NET ASSET VALUE, END OF
PERIOD $ 21.34 $ 17.59 $ 14.63 $ 12.89 $ 11.70 $ 21.20 $ 17.59 $ 14.63
========== ======== ======= ======= ======== ========= ======== =======
TOTAL RETURN (1) 28.26% 30.68% 17.41% 15.01% (1.12)% 27.30% 29.77% 12.29%
========== ======== ======= ======= ======== ========= ======== =======
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's) $ 220,100 $ 34,331 $19,674 $20,675 $ 10,717 $ 269,836 $ 15,331 $ 2,485
Ratio of Expenses to Average
Net Assets 1.50% 1.50% 1.50% 1.50% 1.50%** 2.25% 2.25% 2.25%**
Ratio of Net Investment
Income to Average Net
Assets (0.09)% 1.25% 1.90% 2.29% 2.14%** (0.84)% 0.40% 1.18%**
Portfolio Turnover Rate 207% 73% 41% 23% 17% 207% 73% 41%
- --------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the
Period
Per Share Benefit to Net
Investment Income $ 0.02 $ 0.04 $ 0.04 $ 0.05 $ 0.08 $ 0.02 $ 0.06 $ 0.04
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 1.58% 1.76% 1.81% 1.96% 2.48%** 2.33% 2.48% 2.61%**
Net Investment Income to
Average Net Assets (0.18)% 0.98% 1.59% 1.83% 1.16%** (0.93)% 0.14% 0.82%**
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
+ The Fund began offering Class B shares on August 1, 1995.
++ Amount is less than $0.01 per share
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not
annualized.
# Net investment income and capital charges per share are based upon monthly
average shares outstanding.
10
<PAGE> 11
FINANCIAL HIGHLIGHTS CONTINUED
AMERICAN VALUE FUND
<TABLE>
<CAPTION>
CLASS C
-------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED OCTOBER 18,
JUNE 30, JUNE 30, JUNE 30, JUNE 30, 1993* TO
SELECTED PER SHARE DATA AND RATIOS 1998# 1997 1996 1995 JUNE 30, 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 17.59 $ 14.64 $ 12.89 $ 11.69 $ 12.00
------------ --------- ---------- -------- -----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.17) 0.08 0.16 0.17 0.11
Net Realized and Unrealized Gain
(Loss) 4.83 4.05 1.94 1.44 (0.31)
------------ --------- ---------- -------- -----------
Total from Investment Operations 4.66 4.13 2.10 1.61 (0.20)
------------ --------- ---------- -------- -----------
DISTRIBUTIONS
Net Investment Income (0.01) (0.09) (0.15) (0.17) (0.11)
In Excess of Net Investment Income (0.00)++ (0.00)++ (0.01) -- --
Net Realized Gain (1.04) (1.09) (0.19) (0.24) --
------------ --------- ---------- -------- -----------
Total Distributions (1.05) (1.18) (0.35) (0.41) (0.11)
------------ --------- ---------- -------- -----------
NET ASSET VALUE, END OF PERIOD $ 21.20 $ 17.59 $ 14.64 $ 12.89 $ 11.69
============ ========= ========== ======== ===========
TOTAL RETURN (1) 27.28% 29.67% 16.50% 14.13% (1.70)%
============ ========= ========== ======== ===========
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 127,401 $ 32,425 $ 21,193 $ 13,867 $ 7,237
Ratio of Expenses to Average Net
Assets 2.25% 2.25% 2.25% 2.25% 2.25%**
Ratio of Net Investment Income to
Average Net Assets (0.84)% 0.49% 1.17% 1.54% 1.39%**
Portfolio Turnover Rate 207% 73% 41% 23% 17%
- ----------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net Investment
Income $ 0.02 $ 0.04 $ 0.04 $ 0.05 $ 0.08
Ratios Before Expense Limitation:
Expenses to Average Net Assets 2.33% 2.47% 2.58% 2.71% 3.28%**
Net Investment Income to Average
Net Assets (0.92)% 0.22% 0.84% 1.08% 0.36%**
- ----------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
+ The Fund began offering Class B shares on August 1, 1995.
++ Amount is less than $0.01 per share
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not
annualized.
# Net investment income and capital charges per share are based on monthly
average shares outstanding.
11
<PAGE> 12
FINANCIAL HIGHLIGHTS
EQUITY GROWTH FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
--------- --------- ---------
MAY 29, MAY 29, MAY 29,
1998* 1998* 1998*
TO JUNE TO JUNE TO JUNE
SELECTED PER SHARE DATA AND RATIOS 30, 1998 30, 1998 30, 1998
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 10.00 $ 10.00
--------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Realized Gain 0.29 0.28 0.28
--------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 10.29 $ 10.28 $ 10.28
=======================================
TOTAL RETURN (1) 2.90% 2.80% 2.80%
=======================================
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 2,057 $ 1,543 $ 1,543
Ratio of Expenses to Average Net Assets 1.50%** 2.25%** 2.25%**
Ratio of Net Investment Income to
Average Net Assets 0.51%** (0.25)%** (0.25)%**
Portfolio Turnover Rate 19% 19% 19%
- ---------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation
During the Period
Per Share Benefit to Net Investment
Income $ 0.02 $ 0.02 $ 0.02
Ratios Before Expense Limitation:
Expenses to Average Net Assets 4.06%** 4.81%** 4.81%**
Net Investment Income to Average Net
Assets (2.05)%** (2.81)%** (2.81)%**
- ---------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not annualized.
12
<PAGE> 13
FINANCIAL HIGHLIGHTS CONTINUED
U.S. REAL ESTATE FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------------------------------ ------------------------------ ------------------------------
YEAR YEAR MAY 1, YEAR YEAR MAY 1, YEAR YEAR MAY 1,
ENDED ENDED 1996* TO ENDED ENDED 1996* TO ENDED ENDED 1996* TO
SELECTED PER SHARE DATA AND JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
RATIOS 1998# 1997 1996 1998# 1997 1996 1998# 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 16.39 $ 12.52 $ 12.00 $ 16.36 $ 12.52 $ 12.00 $ 16.36 $ 12.52 $ 12.00
-------- -------- -------- -------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.50 0.37 0.08 0.39 0.15 0.07 0.39 0.20 0.07
Net Realized and
Unrealized Gain 0.88 4.03 0.48 0.82 4.12 0.48 0.83 4.07 0.48
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total From Investment
Operations 1.38 4.40 0.56 1.21 4.27 0.55 1.22 4.27 0.55
-------- -------- -------- -------- -------- -------- -------- -------- --------
DISTRIBUTION:
Net Investment Income (0.51) (0.29) (0.04) (0.39) (0.19) (0.03) (0.39) (0.19) (0.03)
In excess of Net
Investment Income (0.05) -- -- (0.04) -- -- (0.04) -- --
Net Realized Gain (1.60) (0.24) -- (1.60) (0.24) -- (1.60) (0.24) --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total Distributions (2.16) (0.53) (0.04) (2.03) (0.43) (0.03) (2.03) (0.43) (0.03)
-------- -------- -------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF
PERIOD $ 15.61 $ 16.39 $ 12.52 $ 15.54 $ 16.36 $ 12.52 $ 15.55 $ 16.36 $ 12.52
======== ======== ======== ======== ======== ======== ======== ======== ========
TOTAL RETURN (1) 8.27% 35.75% 4.63% 7.23% 34.58% 4.54% 7.20% 34.56% 4.54%
======== ======== ======== ======== ======== ======== ======== ======== ========
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's) $ 16,873 $ 14,827 $ 1,829 $ 15,197 $ 7,120 $ 2,197 $ 4,187 $ 2,369 $ 1,782
Ratio of Expenses to Average
Net Assets 1.55% 1.55% 1.55%** 2.30% 2.30% 2.30%** 2.30% 2.30% 2.30%**
Ratio of Net Investment
Income to Average Net
Assets 2.99% 2.33% 4.11%** 2.36% 1.49% 3.35%** 2.31% 1.46% 3.39%**
Portfolio Turnover Rate 130% 143% 0% 130% 143% 0% 130% 143% 0%
- ------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the
Period
Per Share Benefit to Net
Investment Income $ 0.09 $ 0.16 $ 0.08 $ 0.09 $ 0.11 $ 0.07 $ 0.09 $ 0.17 $ 0.08
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 2.09% 2.51% 5.58%** 2.84% 3.39% 6.34%** 2.83% 3.58% 6.32%**
Net Investment Income
(Loss) to Average Net
Assets 2.45% 1.36% 0.08%** 1.82% 0.39% (0.69)%** 1.78% 0.16% (0.63)%**
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not
annualized.
# Net investment income and capital charges per share are based upon monthly
average shares outstanding.
13
<PAGE> 14
FINANCIAL HIGHLIGHTS CONTINUED
VALUE FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
--------- --------- ---------
JULY 7, JULY 7, JULY 7,
1997* 1997* 1997*
TO JUNE TO JUNE TO JUNE
SELECTED PER SHARE DATA AND RATIOS 30, 1998# 30, 1998# 30, 1998
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 10.00 $ 10.00
-------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.11 0.03 0.03
Net Realized and Unrealized Gain 0.56 0.56 0.55
-------- -------- --------
Total From Investment Operations 0.67 0.59 0.58
-------- -------- --------
DISTRIBUTIONS:
Net Investment Income (0.08) (0.03) (0.03)
In Excess of Net Investment Income (0.01) (0.00)++ (0.00)++
Net Realized Gain (0.05) (0.05) (0.05)
-------- -------- --------
Total Distributions (0.14) (0.08) (0.08)
-------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 10.53 $ 10.51 $ 10.50
======== ======== ========
TOTAL RETURN (1) 6.74% 6.01% 5.83%
======== ======== ========
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $137,447 $142,741 $ 35,564
Ratio of Expenses to Average Net Assets 1.45%** 2.20%** 2.20%**
Ratio of Net Investment Income to
Average Net Assets 1.02%** 0.28%** 0.29%**
Portfolio Turnover Rate 38% 38% 38%
- ---------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation
During the Period
Per Share Benefit to Net Investment
Income $ 0.01 $ 0.01 $ 0.01
Ratios Before Expense Limitation:
Expenses to Average Net Assets 1.60%** 2.35%** 2.35%**
Net Investment Income to Average Net
Assets 0.88%** 0.14%** 0.15%**
- ---------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
++ Amount is less than $0.01 per share.
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not annualized.
# Net investment income and capital changes per share are based upon monthly
average shares outstanding.
14
<PAGE> 15
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of each Fund is described below, together with the
policies the Fund employs in its efforts to achieve its objective. Each Fund's
investment objective is a fundamental policy which may not be changed by the
Fund without the approval of a majority of the Fund's outstanding voting
securities. There can be no assurance that a Fund will attain its investment
objective. The investment policies described below are not fundamental policies
and may be changed without shareholder approval. For more information about
certain investment practices of the Funds, see "Additional Investment
Information" below and "Investment Objectives and Policies" in the Statement of
Additional Information.
THE AGGRESSIVE EQUITY FUND
The Aggressive Equity Fund's investment objective is to provide capital
appreciation by investing primarily in a non-diversified portfolio of corporate
equity and equity-linked securities. With respect to this Fund, equity and
equity-linked securities include common and preferred stock, convertible
securities and rights and warrants to purchase common stocks, as well as equity
related options and futures and specialty securities, such as ELKS, LYONs and
PERCS, of U.S. and foreign issuers. Under normal circumstances, the Fund will
invest at least 65% of the value of its total assets in equity and equity-linked
securities. Equity-linked securities are derivatives, which are financial
instruments that derive their value from the value of an underlying asset,
reference rate or index. As a non-diversified portfolio, the Fund can be more
heavily weighted in fewer stocks than a diversified portfolio. See "Investment
Limitations."
The Fund's Adviser employs a flexible and eclectic investment process in
pursuit of the Aggressive Equity Fund's investment objective. In selecting
securities for the Fund, the Adviser concentrates on a universe of rapidly
growing, high quality companies and on companies in lower, but accelerating,
earnings growth situations. The Adviser's universe of potential investments
generally comprises companies with market capitalizations of $500 million or
more but smaller market capitalization securities may be purchased from time to
time. The Fund is not restricted to investments in specific market sectors. The
Adviser uses its research capabilities, analytical resources and judgment to
assess economic, industry and market trends, as well as individual company
developments, to select promising investments for the Fund. The Adviser
concentrates on companies with strong, communicative management and clearly
defined strategies for growth. In addition, the Adviser rigorously assesses
earnings results. The Adviser seeks companies that will deliver surprisingly
strong earnings growth. Valuation is of secondary importance to the Sub-Adviser
and is viewed in the context of prospects for sustainable earnings growth and
the potential for positive earnings surprises in relation to consensus
expectations. The Fund is free to invest in any equity or equity-linked security
that, in the Adviser's judgment, provides above-average potential for capital
appreciation.
In selecting investments for the Aggressive Equity Fund, the Adviser
emphasizes individual security selection. Overweighted sector positions and
issuer positions may result from the investment process. The Fund has a
long-term investment perspective; however, the Adviser may take advantage of
short-term opportunities that are consistent with the Fund's objective by
selling recently purchased securities which have increased in value.
The Aggressive Equity Fund may invest in equity and equity-linked securities
of domestic and foreign corporations. However, the Fund does not expect to
invest more than 25% of its total assets at the time of purchase in securities
of foreign companies. The Fund may invest in securities of foreign issuers
directly or in the form of depositary receipts. The Fund may invest in forward
foreign currency exchange contracts, and may invest in foreign currency exchange
futures and options. The Fund may from time to time and consistent with
applicable legal requirements sell securities short that it owns (i.e., "against
the box") or borrows. The Fund may, to a limited extent, invest in non-publicly
traded securities, private placements and restricted securities. The Fund may
invest in derivatives, which include options, futures and options on futures and
swaps, and the Fund may lend its portfolio securities and purchase securities on
a when-issued or delayed delivery basis.
The Aggressive Equity Fund is authorized to borrow up to 33 1/3% of its
total assets (including the amount borrowed), less all liabilities and
indebtedness other than the borrowing, for investment purposes to increase the
opportunity for greater return and for payment of dividends. Such borrowings
would constitute leverage, which
15
<PAGE> 16
is a speculative characteristic. Leveraging will magnify declines as well as
increases in the net asset value of the Fund's shares and in the yield on the
Fund's investments. Although the Fund is authorized to borrow, it will do so
only when the Adviser believes that borrowing will benefit the Fund after taking
into account considerations such as the costs of borrowing and the likely
investment returns on securities purchased with borrowed monies. The extent to
which a Fund will borrow will also depend upon the availability of credit. No
assurance can be given that the Funds will be able to borrow on terms acceptable
to the Funds and the Adviser. Borrowing by the Fund will create the opportunity
for increased net income but, at the same time, will involve special risk
considerations. The Aggressive Equity Fund expects that any borrowing, for other
than temporary purposes, will be made on a secured basis. The Fund's Custodian
will either segregate the assets securing the borrowing for the benefit of the
lenders or arrangements will be made with a suitable sub-custodian. If assets
used to secure the borrowing decrease in value, the Fund may be required to
pledge additional collateral to the lender in the form of cash or securities to
avoid liquidation of those assets. The rights of any lenders to the Fund to
receive payments of interest on and repayments of principal of borrowings will
be senior to the rights of the Fund's shareholders, and the terms of the Fund's
borrowings may contain provisions that limit certain activities of the Fund and
could result in precluding the purchase of securities and instruments that a
Fund would otherwise purchase.
For temporary defensive purposes, the Aggressive Equity Fund may invest a
portion or all of its assets in money market instruments and short- and
medium-term debt securities that the Adviser believes to be of high quality or
hold cash.
For further information about the foregoing and certain additional
investment practices of the Aggressive Equity Fund, see "Additional Investment
Information" below.
THE AMERICAN VALUE FUND
The American Value Fund's investment objective is to provide high total
return by investing in equity securities of small- to medium-sized corporations.
The Fund's Adviser seeks securities which it believes to be undervalued relative
to the stock market in general at the time of purchase. The Fund invests
primarily in corporations domiciled in the United States with equity market
capitalizations in the range of the companies represented in the Russell 2500
Small Company Index, but may invest in similar sized foreign companies. Under
normal circumstances, the Fund will invest at least 65% of the value of its
total assets in equity securities whose market capitalization is up to the top
of the range represented in the Index. The Fund may also invest in equity
securities of other corporations but will generally not invest in the 500
largest corporations in the United States. With respect to the Fund, equity
securities include common and preferred stocks, convertible securities and
rights and warrants to purchase common stock, as well as other equity interests,
such as trusts or partnership interests. Debt securities convertible into common
stocks purchased by the Fund will, at the time of purchase, be rated as
investment grade (rated in one of the four highest rating categories by a
nationally recognized statistical rating organization (an "NRSRO")) or, if
unrated, will be of comparable quality as determined by the Adviser under the
supervision of the Board of Directors. These investments may or may not carry
voting rights. The Fund may invest in non-publicly traded securities, private
placements and restricted securities. The Fund may on occasion invest in equity
securities of foreign issuers that trade on a United States exchange or
over-the-counter either directly or in the form of depositary receipts. The Fund
may invest in forward foreign currency exchange contracts, and may invest in
foreign currency exchange futures and options. The Fund may invest in
derivatives, which include options, futures and options on futures and swaps,
and the Fund may lend its portfolio securities and purchase securities on a
when-issued or delayed delivery basis.
The Adviser invests with the philosophy that a diversified portfolio of
undervalued, small- to medium-sized companies will provide high total return in
the long run. Companies considered attractive will have the following
characteristics:
1. Stocks will most often have yields distinctly above the average of
companies with similar capitalizations.
2. The market prices of the stocks will be undervalued relative to the
normal earning power of the companies.
16
<PAGE> 17
3. Stock prices will be low relative to the intrinsic value of the
companies' assets.
4. Stocks will be of high quality, in the Adviser's judgment, as
evaluated by the companies' balance sheets, income statements,
franchises and product competitiveness.
The thrust of this approach is to seek investments in stocks for which
investor enthusiasm is currently low, as reflected in their valuation, but which
have the financial and fundamental features which, according to the Adviser's
assessment, will allow the stocks to achieve a higher valuation. Value is
achieved and exposure is reduced for the American Value Fund when the investment
community's perceptions improve and the stocks approach what the Adviser
believes is fair valuation. The Fund will invest in equity securities of smaller
capitalized companies, which are more vulnerable to financial and other risks
than larger companies. Investment in securities of smaller companies may involve
a higher degree of risk and price volatility than in securities of larger
companies.
The Adviser takes a long-term approach by placing a strong emphasis on its
ability to identify attractive values. The Adviser does not intend to respond to
short-term market fluctuations or to acquire securities for the purpose of
short-term trading. The Adviser may take advantage of short-term opportunities,
however, that are consistent with its objective of high total return. The Fund
will maintain diversity among industries and will not invest more than 25% of
its total assets in the stocks of issuers in any one industry.
For temporary defensive purposes, the American Value Fund may invest a
portion or all of its assets in money market instruments and short- and
medium-term debt securities that the Adviser believes to be of high-quality or
hold cash.
In order to facilitate the management of the American Value Fund's
portfolio, effective August 31, 1998, the Fund suspended the continuous offering
of its shares to new investors. However, existing shareholders as of August 31,
1998 may continue to purchase additional shares, as well as those in retirement
plans and certain distribution programs as determined from time to time by the
Distributor and as listed in the Company's Statement of Additional Information.
As market conditions permit, the American Value Fund may reopen sales of the
Fund's shares to new investors. Any such offerings of the American Value Fund
may be limited in amount and may commence and terminate without any prior
notice.
For further information about the foregoing and certain additional
investment practices of the American Value Fund, see "Additional Investment
Information" below.
THE EQUITY GROWTH FUND
The Equity Growth Fund's investment objective is to provide long-term
capital appreciation by investing primarily in growth-oriented equity securities
of medium and large capitalization companies. Under normal circumstances, the
Fund will invest at least 65% of the value of its total assets in equity
securities. With respect to this Fund, equity securities include common and
preferred stocks, convertible securities and rights and warrants to purchase
common stocks.
The Adviser employs a flexible and eclectic investment process in pursuit of
the Equity Growth Fund's investment objective. In selecting securities for the
Fund, the Adviser concentrates on a universe of rapidly growing, high quality
companies and lower, but accelerating, earnings growth situations. The Adviser's
universe of potential investments generally comprises companies with market
capitalizations of $500 million or more. The Fund is not restricted to
investments in specific market sectors. The Adviser uses its research
capabilities, analytical resources and judgment to assess economic, industry and
market trends, as well as individual company developments, to select promising
growth investments for the Fund. The Adviser concentrates on companies with
strong, communicative management and clearly defined strategies for growth. In
addition, the Adviser rigorously assesses company developments, including
changes in strategic direction, management focus and current and likely future
earnings results. Valuation is important to the Adviser but is viewed in the
context of prospects for sustainable earnings growth and the potential for
positive earnings surprises vis-a-vis consensus expectations. The Fund is free
to invest in any equity security that, in the Adviser's judgment, provides above
average potential for capital appreciation.
17
<PAGE> 18
In selecting investments for the Equity Growth Fund, the Adviser emphasizes
individual security selection. While the Fund's investments generally will be
diversified among a number of issuers, the Fund may, subject to certain
limitations, invest between 5% and 10% of its total assets in selected issuers
as a result of the Adviser's investment process. See "Investment Limitations."
Investing more of the Fund's assets in selected issuers may subject the Fund to
greater risks impacting individual securities than a fund which does not employ
such a practice. The Fund has a long-term investment perspective; however, the
Adviser may take advantage of short-term opportunities that are consistent with
the Fund's objective by selling recently purchased securities which have
increased in value.
The Equity Growth Fund may invest up to 25% of its total assets at the time
of purchase in securities of foreign companies. The Fund may invest in
securities of foreign issuers directly or in the form of depositary receipts.
The Fund may invest in forward foreign currency exchange contracts, and may
invest in foreign currency exchange futures and options. The Equity Growth Fund
may invest in convertible securities of domestic and, subject to the above
restrictions, foreign issuers on occasions when, due to market conditions, it is
more advantageous to purchase such securities than to purchase common stock.
Since the Fund invests in both common stocks and convertible securities, the
risks of investing in the general equity markets may be tempered to a degree by
the Fund's investments in convertible securities which are often not as volatile
as common stock. The Equity Growth Fund may invest in derivatives, when-issued
and delayed delivery securities and non-publicly traded securities, including
private placements and restricted securities. The Fund may from time to time and
consistent with applicable legal requirements sell securities short, lend
portfolio securities and engage in reverse repurchase agreements.
For temporary defensive purposes, the Equity Growth Fund may invest a
portion or all of its assets in money market instruments and short- and
medium-term debt securities that the Adviser believes to be of high quality or
hold cash.
For further information about the foregoing and certain additional
investment practices of the Fund, see "Additional Investment Information" below.
THE MID CAP GROWTH FUND
The Mid Cap Growth Fund's investment objective is to achieve long-term
growth by investing primarily in common stocks and other equity securities of
small and medium size companies which are deemed by the Fund's Adviser to offer
long-term growth potential.
The Mid Cap Growth Fund generally will invest at least 65% of its total
assets in equity securities issued by companies offering long term growth
potential which have market capitalizations in the range of the companies
represented in the S&P Mid Cap 400 Index. With respect to this Fund, equity
securities include common and preferred stocks, convertible securities and
rights and warrants to purchase common stock, as well as depositary receipts. Up
to 5% of the Fund's assets may be invested in foreign equity securities,
excluding American Depositary Receipts ("ADRs"). The Fund may invest in forward
foreign currency exchange contracts, and may invest in foreign currency exchange
futures and options.
The Adviser manages the Mid Cap Growth Fund using a four-part process
combining quantitative, fundamental and valuation analysis with a strict sales
discipline. Stocks that pass an initial screen based on estimate revisions
undergo detailed fundamental research. The Adviser uses valuation analysis to
eliminate the most overvalued securities. The Fund sells holdings when the
Adviser's estimate revision scores fall to unacceptable levels, when its
fundamental research uncovers unfavorable trends or when the securities'
valuations exceed the level that the Adviser believes is reasonable given their
growth prospects.
The Mid Cap Growth Fund may invest in derivatives, when-issued and delayed
delivery securities and non-publicly traded securities, including private
placements and restricted securities. The Fund may from time to time and
consistent with applicable legal requirements sell securities short, lend
portfolio securities and engage in reverse repurchase agreements. For temporary
defensive purposes, the Mid Cap Growth Fund may invest a portion or all of its
assets in money market instruments and short- and medium-term debt securities
that the Adviser believes to be of high quality or hold cash.
As of the date of this Prospectus, the Mid Cap Growth Fund is not offering
shares.
18
<PAGE> 19
For further information about the foregoing and certain additional
investment practices of the Fund, see "Additional Investment Information" below.
THE U.S. REAL ESTATE FUND
The investment objective of the U.S. Real Estate Fund is to provide
above-average current income and long-term capital appreciation by investing
primarily in equity securities of companies in the U.S. real estate industry,
including real estate investment trusts ("REITs"). With respect to this Fund,
equity securities include common and preferred stocks, convertible securities,
and rights and warrants to purchase common stock, as well as shares or units of
beneficial interest of REITs and limited partnership interests in master limited
partnerships.
Under normal circumstances, at least 65% of the U.S. Real Estate Fund's
total assets will be invested in income producing equity securities of U.S. and
non-U.S. companies principally engaged in the U.S. real estate industry. For
purposes of the Fund's investment policies, a company is "principally engaged"
in the real estate industry if, as determined by the Adviser, (i) it derives at
least 50% of its revenues or profits from the ownership, construction,
management, financing or sale of residential, commercial or industrial real
estate or (ii) it has at least 50% of the fair market value of its assets
invested in residential, commercial or industrial real estate. Companies in the
real estate industry may include, among others: REITs, master limited
partnerships that invest in interests in real estate, real estate operating
companies, and companies with substantial real estate holdings, such as hotel
companies, residential builders and land-rich companies. The Fund seeks to
invest in equity securities of companies that provide a dividend yield that
exceeds the composite dividend yield of securities comprising the Standard &
Poor's Composite Index of 500 Stocks (the "S&P 500").
A substantial portion of the U.S. Real Estate Fund's total assets will be
invested in securities of REITs. REITs pool investors' funds for investment
primarily in income producing real estate or real estate related loans or
interests. Generally, REITs can be classified as Equity REITs, Mortgage REITs or
Hybrid REITs. Equity REITs invest the majority of their assets directly in real
property and derive their income primarily from rents and capital gains from
appreciation realized through property sales. Equity REITs are further
categorized according to the types of real estate securities they own, e.g.,
apartment properties, retail shopping centers, office and industrial properties,
hotels, health-care facilities, manufactured housing and mixed-property types.
Mortgage REITs invest the majority of their assets in real estate mortgages and
derive their income primarily from interest payments on the credit they have
extended. Hybrid REITs combine the characteristics of both Equity and Mortgage
REITs. The Fund will invest primarily in Equity REITs. A REIT is not taxed at
the federal level on income distributed to its shareholders or unitholders if it
complies with certain requirements relating to its organization, ownership,
assets and income, and with the requirement that it distribute to its
shareholders or unitholders at least 95% of its taxable income for each taxable
year. A shareholder in the Fund should realize that by investing in REITs
indirectly through the Fund, he will bear not only his proportionate share of
the expenses of the Fund, but also indirectly, the management expenses of
underlying REITs.
The U.S. Real Estate Fund will concentrate in the U.S. real estate industry
and may not invest more than 25% of its total assets in securities of companies
in any one other industry (for these purposes the U.S. Government, its agencies
and instrumentalities are not considered an industry). Under normal
circumstances, the Fund may invest up to 35% of its total assets in debt
securities issued or guaranteed by real estate companies or secured by real
estate assets and rated, at time of purchase, in one of the four highest rating
categories by an NRSRO or determined by the Adviser to be of comparable quality
at the time of purchase; high quality money market instruments; or debt
securities rated in one of the two highest ratings categories by an NRSRO,
consisting of corporate debt securities and U.S. Government securities.
Investment grade securities are securities that are rated in one of the four
highest rating categories by an NRSRO. Securities rated in the lowest category
of investment grade securities have speculative characteristics. The Fund may
also, to a limited extent, invest in non-publicly traded securities, private
placements and restricted securities.
The Fund may be subject to the risks associated with the direct ownership of
real estate because of its policy of concentrating in the securities of
companies principally engaged in the real estate industry. For example, real
estate values may fluctuate as a result of general and local economic
conditions, overbuilding and increased competition, increases in property taxes
and operating expenses, demographic trends and variations in rental income,
changes in zoning laws, casualty or condemnation losses, environmental risks,
regulatory limitations on rents, changes in neighborhood values, related party
risks, changes in the appeal of properties to tenants,
19
<PAGE> 20
changes in interest rates and other real estate capital market influences.
Generally, increases in interest rates will increase the costs of obtaining
financing, which could directly and indirectly decrease the value of the Fund's
investments.
Because the U.S. Real Estate Fund may invest a substantial portion of its
assets in REITs, the Fund may also be subject to certain risks associated with
the direct investments of REITs. REITs may be affected by changes in the value
of their underlying properties and by defaults by borrowers or tenants. Mortgage
REITs may be affected by the quality of the credit extended. Furthermore, REITs
are dependent on specialized management skills. Some REITs may have limited
diversification and may be subject to risks inherent in investments in a limited
number of properties, in a narrow geographic area, or in a single property type.
REITs depend generally on their ability to generate cash flow to make
distributions to shareholders or unitholders, and may be subject to defaults by
borrowers and to self-liquidations. In addition, the performance of a REIT may
be affected by its failure to qualify for tax-free pass-through of income under
the Internal Revenue Code of 1986, as amended (the "Code"), or its failure to
maintain exemption from registration under the Investment Company Act of 1940,
as amended (the "1940 Act"). Rising interest rates may cause the value of the
debt securities in which the Fund will invest to fall. Conversely, falling
interest rates may cause their value to rise. Changes in the value of portfolio
securities will not necessarily affect cash income derived from these securities
but will affect the Fund's net asset value.
For temporary defensive purposes, the Fund may invest a portion or all of
its assets in money market instruments and short- and medium-term debt
securities that the Sub-Adviser believes to be of high-quality or hold cash.
The Board of Directors of the U.S. Real Estate Fund has approved an
Agreement and Plan of Reorganization between the Fund and Van Kampen Real Estate
Securities Fund (the "Real Estate Securities Fund"), advised by Van Kampen Asset
Management Inc., providing for the transfer of assets and liabilities of the
Fund to the Real Estate Securities Fund in exchange for shares of beneficial
interest of the Real Estate Securities Fund at its net asset value per share
(the "Reorganization").
The Reorganization is subject to approval by the shareholders of the U.S.
Real Estate Fund. Further details of the proposed Reorganization will be
contained in the proxy statement/prospectus expected to be mailed to
shareholders in 1998.
The Real Estate Securities Fund's net assets as of June 30, 1998 were
approximately $146.7 million. Its investment objective is to seek to provide
shareholders with long-term growth of capital, and a secondary objective is to
seek current income. The U.S. Real Estate Fund and the Real Estate Securities
Fund have similar investment objectives, policies and practices, and are managed
by the same portfolio management team.
The U.S. Real Estate Fund will continue its normal operations prior to the
Reorganization.
For further information about the foregoing and certain additional
investment practices of the U.S. Real Estate Fund, see "Additional Investment
Information" below.
THE VALUE FUND
The Value Fund's investment objective is to achieve above-average total
return over a market cycle of three to five years, consistent with reasonable
risk, by investing in a diversified portfolio of common stocks and other equity
securities that are deemed by the Fund's Adviser to be relatively undervalued
based on various measures such as price/earnings ratios and price/book ratios.
The Value Fund generally will invest at least 65% of its assets in equity
securities which are deemed to be undervalued. For purposes of this Fund, equity
securities include common and preferred stocks, convertible securities, and
warrants and rights to purchase common stock, as well as depositary receipts. Up
to 5% of the Fund's assets may be invested in foreign equity securities,
excluding ADRs. The Fund may invest in forward foreign currency exchange
contracts, and may invest in foreign currency exchange futures and options. The
Fund generally will invest in equity securities of companies with equity
capitalization greater than $300 million.
The Adviser selects common stocks which are deemed to be undervalued
relative to the stock market in general as measured by the S&P 500, based on the
value measures such as price/earnings ratios and price/book
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ratios, as well as fundamental research. While capital return will be emphasized
somewhat more than income return, the Value Fund's total return will consist of
both capital and income returns. Stocks which are deemed to be undervalued in
the marketplace have, under most market conditions, higher dividend income
returns than stocks which are deemed to have long-term earnings growth potential
which normally sell at higher price/ earnings ratios. However, the Adviser may
select non-dividend paying stocks for their value characteristics.
The Value Fund may invest in derivatives, when-issued and delayed delivery
securities and non-publicly traded securities, including private placements and
restricted securities. The Fund may from time to time and consistent with
applicable legal requirements sell securities short, lend portfolio securities
and engage in reverse repurchase agreements. For temporary defensive purposes,
the Value Fund may invest a portion or all of its assets in money market
instruments and medium-term debt securities that the Adviser believes to be of
high quality or hold cash.
For further information about the foregoing and certain additional
investment practices of the Fund, see "Additional Investment Information" below.
ADDITIONAL INVESTMENT INFORMATION
BORROWING AND OTHER FORMS OF LEVERAGE
The American Value and U.S. Real Estate Funds may borrow up to 10% of their
total assets as a temporary measure for extraordinary or emergency purposes.
These Funds may not purchase additional securities when borrowings exceed 5% of
total assets.
The Equity Growth, Mid Cap Growth and Value Funds may borrow money (i) as a
temporary measure for extraordinary or emergency purposes, and (ii) in
connection with reverse repurchase agreements, provided that (i) and (ii) in
combination do not exceed 33 1/3% of such Fund's total assets (including the
amount borrowed) less liabilities (exclusive of borrowings). These Funds may not
purchase additional securities when borrowings exceed 5% of total assets.
The Aggressive Equity Fund may borrow for investment purposes amounts up to
33 1/3% of its total assets (including the amount borrowed), less all
liabilities and indebtedness other than the borrowing. See "Investment
Objectives and Policies -- The Aggressive Equity Fund" for further information.
CONVERTIBLE SECURITIES, WARRANTS AND EQUITY-LINKED SECURITIES
Each Fund may invest in convertible securities, preferred stock, warrants or
other securities exchangeable under certain circumstances for shares of common
stock. Warrants are instruments giving holders the right, but not the
obligation, to buy shares of a company at a given price during a specified
period.
The Aggressive Equity, Equity Growth, Mid Cap Growth and Value Funds may
invest in equity-linked securities, which are securities that are convertible
into, or the value of which is based upon the value of, equity securities upon
certain terms and conditions. The amount received by an investor at maturity of
such securities is not fixed but is based on the price of the underlying common
stock. Trading prices of the underlying common stock will be influenced by the
issuer's operational results, by complex, interrelated political, economic,
financial or other factors affecting the capital markets, the stock exchanges on
which the underlying common stock is traded and the market segment of which the
issuer is a part. In addition, it is not possible to predict how equity-linked
securities will trade in the secondary market which is fairly developed and
liquid. The market for such securities may be shallow, however, and high volume
trades may be possible only with discounting. In addition to the foregoing
risks, the return on such securities depends on the creditworthiness of the
issuer of the securities, which may be the issuer of the underlying securities
or a third party investment banker or other lender. The creditworthiness of such
third party issuer of equity-linked securities may, and often does, exceed the
creditworthiness of the issuer of the underlying securities. The advantage of
using equity-linked securities over traditional equity and debt securities is
that the former are income producing vehicles that may provide a higher income
than the dividend income on the underlying equity securities while allowing some
participation in the capital appreciation of the underlying equity securities.
Another advantage of using equity-linked securities is that they may be used for
hedging to reduce the risk of investing in the generally more volatile
underlying equity securities.
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DEPOSITARY RECEIPTS
Depositary receipts include American Depositary Receipts ("ADRs"), Global
Depositary Receipts ("GDRs"), European Depositary Receipts ("EDRs") and other
depositary receipts, to the extent that such depositary receipts become
available. ADRs are securities, typically issued by a U.S. financial institution
(a "depositary"), that evidence ownership interests in a security or a pool of
securities issued by a foreign issuer (the "underlying issuer") and deposited
with the depositary. Each of the Funds, other than the U.S. Real Estate Fund,
may invest in ADRs and the Funds, other than the American Value and U.S. Real
Estate Funds, may invest in other depository receipts. ADRs include American
Depositary Shares and New York Shares and may be "sponsored" or "unsponsored."
Sponsored ADRs are established jointly by a depositary and the underlying
issuer, whereas unsponsored ADRs may be established by a depositary without
participation by the underlying issuer. GDRs, EDRs and other types of depositary
receipts are typically issued by foreign depositaries, although they may also be
issued by U.S. depositaries, and evidence ownership interests in a security or
pool of securities issued by either a foreign or a U.S. corporation.
Holders of unsponsored depositary receipts generally bear all the costs
associated with establishing the unsponsored depositary receipt. The depositary
of an unsponsored depositary receipt is under no obligation to distribute
shareholder communications received from the underlying issuer or to pass
through to the holders of the unsponsored depositary receipt voting rights with
respect to the deposited securities or pool of securities. Depositary receipts
are not necessarily denominated in the same currency as the underlying
securities to which they may be connected. Generally, depositary receipts in
registered form are designed for use in the U.S. securities market and
depositary receipts in bearer form are designed for use in securities markets
outside the United States. For purposes of the Funds' investment policies,
investments in depositary receipts will be deemed to be investments in the
underlying securities.
FOREIGN BONDS
The Value and Mid Cap Growth Funds may invest in foreign bonds. Foreign
bonds are fixed income securities denominated in foreign currency and issued and
traded primarily outside the United States, including: (1) obligations issued or
guaranteed by foreign national governments, their agencies, instrumentalities,
or political subdivisions; (2) fixed income securities issued, guaranteed or
sponsored by supranational organizations established or supported by several
national governments, including the World Bank, the European Community, the
Asian Development Bank and others; and (3) non-government foreign corporate debt
securities. Investing in foreign companies involves certain special
considerations that are not typically associated with investing in U.S.
companies. See "Foreign Investment" below.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Each Fund, other than the U.S. Real Estate Fund, may enter into forward
foreign currency exchange contracts ("forward contracts"). Forward contracts
provide for the purchase or sale of an amount of a specified foreign currency at
a future date. Purposes for which such contracts may be used include protecting
against a decline in a foreign currency against the U.S. Dollar between the
trade date and settlement date when a Fund purchases or sells securities,
locking in the U.S. Dollar value of dividends declared on securities held by the
Fund and generally protecting the U.S. Dollar value of securities held by the
Fund against exchange rate fluctuations. While such forward contracts may limit
losses to a Fund as a result of exchange rate fluctuations, they will also limit
any exchange rate gains that might otherwise have been realized.
FOREIGN INVESTMENT
Each Fund may invest in securities of foreign issuers. Investment in
securities of foreign issuers, especially in securities of issuers in emerging
countries, involves somewhat different investment risks from those affecting
securities of U.S. issuers. There may be limited publicly available information
with respect to foreign issuers, and foreign issuers are not generally subject
to uniform accounting, auditing, and financial and other reporting standards and
requirements comparable to those applicable to domestic companies. Therefore,
disclosure of certain material information may not be made and less information
may be available to investors investing in foreign countries than in the United
States. There may also be less government supervision and regulation of foreign
securities exchanges, brokers and listed companies than in the United States.
Many foreign securities markets have substantially less volume than United
States national securities exchanges, and securities of some foreign issuers are
less liquid and subject to greater price volatility than securities of
comparable domestic
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issuers. Brokerage commissions and other transaction costs on foreign securities
exchanges are generally higher than in the United States. Dividends and interest
paid by foreign issuers may be subject to withholding and other foreign taxes,
which may decrease the net return on foreign investments as compared to
dividends and interest paid to the Funds by domestic companies. Additional risks
include future adverse political and economic developments, the possibility that
a foreign jurisdiction might impose or change withholding taxes on income
payable with respect to foreign securities, possible seizure, nationalization or
expropriation of the foreign issuer or foreign deposits, and the possible
adoption of foreign governmental restrictions such as exchange controls.
Emerging countries may have less stable political environments than more
developed countries. Also, it may be more difficult to obtain a judgment in a
court outside the United States.
Investments in securities of foreign issuers are frequently denominated in
foreign currencies, and a Fund may temporarily hold uninvested reserves in bank
deposits in foreign currencies. Therefore, the value of a Fund's assets measured
in U.S. Dollars may be affected favorably or unfavorably by changes in currency
exchange rates and exchange control regulations. Each Fund will also incur
certain costs in connection with conversions between various currencies.
INVESTMENT COMPANY SECURITIES
Each Fund may invest in securities of another open-end or closed-end
investment company, by purchase in the open market involving only customary
brokers' commissions or in connection with mergers, acquisitions of assets or
consolidations or as may otherwise be permitted by the Investment Company Act of
1940, as amended (the "1940 Act"). To the extent a Fund invests a portion of its
assets in investment company securities, those assets will be subject to the
expenses of the purchased investment company as well as to the expenses of the
Fund itself.
LOANS OF PORTFOLIO SECURITIES
Each Fund may lend its portfolio securities to brokers, dealers, domestic
and foreign banks or other financial institutions for the purpose of increasing
its net investment income. These loans must be secured continuously by cash or
equivalent collateral or by a letter of credit at least equal to the market
value of the securities loaned plus accrued interest. The Aggressive Equity,
American Value, Equity Growth and U.S Real Estate Funds will not enter into
securities loan transactions exceeding in the aggregate 33 1/3% of the market
value of the Fund's total assets. As with other extensions of credit, there are
risks of delay in recovery or even loss of rights in collateral should the
borrower of the portfolio securities fail financially.
MONEY MARKET INSTRUMENTS
Each Fund is permitted to invest in money market instruments pending other
investment, prior to settlement of portfolio transactions, for liquidity and for
temporary defensive purposes. The money market investments permitted for the
Funds include obligations of the U.S. Government, its agencies and
instrumentalities, obligations of foreign sovereignties, other debt securities,
including high-grade commercial paper, repurchase agreements and bank
obligations, such as bankers' acceptances and certificates of deposit (including
Eurodollar certificates of deposit).
NON-PUBLICLY TRADED SECURITIES, PRIVATE PLACEMENTS AND RESTRICTED SECURITIES
Each Fund may invest in securities that are neither listed on a stock
exchange nor traded over the counter. Such unlisted securities may involve a
higher degree of business and financial risk that can result in substantial
losses. As a result of the absence of a public trading market for these
securities, they may be less liquid than publicly traded securities. Although
these securities may be resold in privately negotiated transactions, the prices
realized from these sales could be less than those originally paid by the Fund
or less than what may be considered the fair value of such securities.
Furthermore, companies whose securities are not publicly traded may not be
subject to the disclosure and other investor protection requirements which might
be applicable if their securities were publicly traded. If such securities are
required to be registered under the securities laws of one or more jurisdictions
before being resold, a Fund may be required to bear the expenses of
registration. No Fund may invest more than 15% of its net assets in illiquid
securities which generally includes securities that are restricted from sale to
the public without registration under the Securities Act of 1933, as amended
(the "1933 Act"); however, securities which can be offered and sold to qualified
institutional buyers under Rule 144A under the 1933 Act ("144A Securities") and
are determined to be liquid under guidelines adopted by, and subject to the
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supervision of, the Board of Directors are not subject to the limitation on
illiquid securities. Factors used to determine whether 144A Securities are
liquid include, among other things, a security's trading history, availability
of reliable pricing information, the number of dealers making quotes or making a
market in the security and the number of potential purchases in the market for
the security. To the extent that qualified institutional buyers become
uninterested in buying 144A Securities, then such securities in a Fund's
portfolio could increase a Fund's level of illiquidity. Notwithstanding the
above none of the Aggressive Equity, American Value and U.S. Real Estate Funds
may invest more than 10% of its total assets in securities subject to legal or
contractual restrictions on resale.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements with brokers, dealers, banks
or other financial institutions that meet the credit guidelines set by the
Company's Board of Directors. In a repurchase agreement, a Fund buys a security
from a seller that has agreed to repurchase it at a mutually agreed upon date
and price, reflecting the interest rate effective for the term of the agreement.
The term of these agreements is usually from overnight to one week and never
exceeds one year. A repurchase agreement may be viewed as a fully collateralized
loan of money by the Fund to the seller. The Fund always receives securities as
collateral with a market value at least equal to the purchase price, including
accrued interest, and this value is maintained during the term of the agreement.
If the seller defaults and the collateral value declines, a Fund might incur a
loss. If bankruptcy proceedings are commenced with respect to the seller, the
Fund's realization upon the collateral may be delayed or limited. Repurchase
agreements with durations (or maturities) over seven days in length are
considered to be illiquid securities.
REVERSE REPURCHASE AGREEMENTS
The Equity Growth, Mid Cap Growth and Value Funds may enter into reverse
repurchase agreements with brokers, dealers, banks or other financial
institutions that meet credit guidelines set by the Fund's Board of Directors.
In a reverse repurchase agreement, a Fund sells a security and agrees to
repurchase it at a mutually agreed upon date and price, reflecting the interest
rate effective for the term of the agreement. It may also be viewed as the
borrowing of money by a Fund. A Fund's investment of the proceeds of a reverse
repurchase agreement is the speculative factor known as leverage. A Fund will
enter into a reverse repurchase agreement only if the interest income from
investment of the proceeds is expected to be greater than the interest expense
of the transaction and the proceeds are invested for a period no longer than the
term of the agreement. A Fund will maintain with an appropriate custodian a
separate account with a segregated portfolio of cash or liquid assets in an
amount at least equal to its purchase obligations under these agreements
(including accrued interest). If interest rates rise during a reverse repurchase
agreement, it may adversely affect a Fund's net asset value. In the event that
the buyer of securities under a reverse repurchase agreement files for
bankruptcy or becomes insolvent, the buyer or its trustee or receiver may
receive an extension of time to determine whether to enforce the Fund's
repurchase obligation, and the Fund's use of proceeds of the agreement may
effectively be restricted pending such decision.
SHORT SALES
The Aggressive Equity, Equity Growth, Mid Cap Growth and Value Funds may
from time to time sell securities short without limitation, although they do not
intend to sell securities short on a regular basis. A short sale is a
transaction in which a Fund sells securities it either owns or has the right to
acquire at no added cost (i.e., "against the box") or it does not own (but has
borrowed) in anticipation of a decline in the market price of the securities.
When a Fund makes a short sale of borrowed securities, the proceeds it receives
from the sale will be held on behalf of a broker until the Fund replaces the
borrowed securities. To deliver the securities to the buyer, a Fund will need to
arrange through a broker to borrow the securities and, in so doing, the Fund
will become obligated to replace the securities borrowed at their market price
at the time of replacement, whatever that price may be. A Fund may have to pay a
premium to borrow the securities and must pay any dividends or interest payable
on the securities until they are replaced.
A Fund's obligation to replace the securities borrowed in connection with a
short sale will be secured by collateral deposited with the broker that consists
of cash or liquid assets. In addition, the Fund will place in a segregated
account with an appropriate custodian an amount of cash or liquid assets equal
to the difference, if any, between (1) the market value of the securities sold
and (2) any cash or liquid securities deposited as
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collateral with the broker in connection with the short sale (not including the
proceeds of the short sale). Possible losses from short sales differ from losses
that could be incurred from a purchase of a security, because losses from short
sales may be unlimited, whereas losses from purchases can equal only the total
amount invested.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
Each Fund may purchase securities on a when-issued or delayed delivery
basis. In such transactions, instruments are bought with payment and delivery
taking place in the future in order to secure what is considered to be an
advantageous yield or price at the time of the transaction. The payment
obligation and the interest rates that will be received are each fixed at the
time a Fund enters into the commitment, and no interest accrues to the Fund
until settlement. Thus, it is possible that the market value at the time of
settlement could be higher or lower than the purchase price if the general level
of interest rates has changed. It is the current policy of the Aggressive
Equity, American Value and U.S. Real Estate Funds not to enter into when-issued
commitments or delayed delivery securities exceeding, in the aggregate, 15% of
the Fund's net assets other than obligations created by these commitments.
ZERO COUPONS; PAY-IN-KIND; DEFERRED PAYMENT SECURITIES
The Funds may invest in zero coupon securities, which are securities that
are sold at a discount to par value and on which interest payments are not made
during the life of the security. Upon maturity, the holder is entitled to
receive the par value of the security. While interest payments are not made on
such securities, holders of such securities are deemed to have received annually
"phantom income." Because a Fund will distribute its "phantom income" to
shareholders, to the extent that shareholders elect to receive dividends in cash
rather than reinvesting such dividends in additional shares, the Fund will have
fewer assets with which to purchase income producing securities. A Fund accrues
income with respect to these securities prior to the receipt of cash payments.
Pay-in-kind securities are securities that have interest payable by delivery of
additional securities. Upon maturity, the holder is entitled to receive the
aggregate par value of the securities. Deferred payment securities are
securities that remain zero coupon securities until a predetermined date, at
which time the stated coupon rate becomes effective and interest becomes payable
at regular intervals. Zero coupon, pay-in-kind and deferred payment securities
may be subject to greater fluctuation in value and lesser liquidity in the event
of adverse market conditions than comparably rated securities paying cash
interest at regular interest payment periods.
DERIVATIVE INSTRUMENTS
The Funds are permitted to invest in various derivative instruments for both
hedging and non-hedging purposes. Derivative instruments include options,
futures and options on futures, structured notes, caps, floors, collars and
swaps. Additionally, the Funds may invest in other derivative instruments that
are developed over time if their use would be consistent with the objectives of
the Funds. Each of the Funds, other than (to the extent described below) the
Equity Growth, Mid Cap Growth and Value Funds, will limit its use of the
foregoing derivative instruments for non-hedging purposes to 33 1/3% of its
total assets measured by the aggregate notional amount of outstanding derivative
instruments. In addition, none of the Aggressive Equity, American Value and U.S.
Real Estate Funds will enter into futures contracts and options on futures
contracts to the extent that the notional value of its outstanding obligations
to purchase securities under such contracts would exceed 20% of its total
assets. The Equity Growth Fund will limit its use of derivative instruments to
50% of its total assets measured by the aggregate notional amount of outstanding
derivative instruments, provided that no more than 33 1/3% of its total assets
are invested, for non-hedging purposes, in derivatives other than futures and
options on futures. The Mid Cap Growth and Value Funds will not enter into
futures contracts to the extent that each Fund's outstanding obligations to
purchase securities under these contracts, in combination with its outstanding
obligations with respect to options transactions, would exceed 50% of its total
assets. The Funds' investments in forward foreign currency contracts and
derivatives used for hedging purposes are not subject to the limits described
above.
The Funds may use derivative instruments under a number of different
circumstances to further their investment objectives. The Funds may use
derivatives when doing so provides more liquidity than the direct purchase of
the securities underlying such derivatives. For example, a Fund may purchase
derivatives to quickly gain exposure to a market in response to changes in the
Fund's investment strategy, or upon the inflow of investable cash or when the
derivative provides greater liquidity than the underlying securities market. A
Fund may also use derivatives when it is restricted from directly owning the
underlying securities due to foreign
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investment restrictions or other reasons or when doing so provides a price
advantage over purchasing the underlying securities directly, either because of
a pricing differential between the derivatives and securities markets or because
of lower transaction costs associated with the derivatives transaction.
Derivatives may also be used by a Fund for hedging purposes and in other
circumstances when a Fund's Adviser believes it advantageous to do so consistent
with the Fund's investment objective. The Funds will not, however, use
derivatives in a manner that creates leverage, except to the extent that the use
of leverage is expressly permitted by a particular Fund's investment policies,
and then only in a manner consistent with such policies.
Some of the derivative instruments in which the Funds may invest and the
risks related thereto are described in more detail below.
CAPS, FLOORS AND COLLARS. The Funds may invest in caps, floors and collars,
which are instruments analogous to options transactions described below. In
particular, a cap is the right to receive the excess of a reference rate over a
given rate and is analogous to a put option. A floor is the right to receive the
excess of a given rate over a reference rate and is analogous to a call option.
Finally, a collar is an instrument that combines a cap and a floor. That is, the
buyer of a collar buys a cap and writes a floor, and the writer of a collar
writes a cap and buys a floor. The risks associated with caps, floors and
collars are similar to those associated with options. In addition, caps, floors
and collars are subject to risk of default by the counterparty because they are
privately negotiated instruments.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Funds may purchase
and sell futures contracts and options on futures contracts, including, but not
limited to, securities index futures, foreign currency exchange futures,
interest rate futures and other financial futures. Futures contracts provide for
the sale by one party and purchase by another party of a specified amount of a
specific security, instrument or basket thereof, at a specific future date and
at a specified price. An option on a futures contract is a legal contract that
gives the holder the right to buy or sell a specified amount of futures
contracts at a fixed or determinable price upon the exercise of the option.
The Funds may sell securities index futures contracts and/or options thereon
in anticipation of or during a market decline to attempt to offset the decrease
in market value of investments in its portfolio, or purchase securities index
futures in order to gain market exposure. Subject to applicable laws, the Funds
may engage in transactions in securities index futures contracts (and options
thereon) which are traded on a recognized securities or futures exchange, or may
purchase or sell such instruments in the over-the-counter market. There
currently are limited securities index futures and options on such futures in
many countries, particularly emerging markets countries. The nature of the
strategies adopted by the Adviser, and the extent to which those strategies are
used, may depend on the development of such markets.
The Funds may engage in transactions involving foreign currency exchange
futures contracts. Such contracts involve an obligation to purchase or sell a
specific currency at a specified future date and at a specified price. The Funds
may engage in such transactions to hedge their respective holdings and
commitments against changes in the level of future currency rates or to adjust
their exposure to a particular currency.
The Funds may engage in transactions in interest rate futures transactions.
Interest rate futures contracts involve an obligation to purchase or sell a
specific debt security, instrument or basket thereof at a specified future date
at a specified price. The value of the contract rises and falls inversely with
changes in interest rates. The Funds may engage in such transactions to hedge
their holdings of debt instruments against future changes in interest rates.
Financial futures are futures contracts relating to financial instruments,
such as U.S. Government securities, foreign currencies and certificates of
deposit. Such contracts involve an obligation to purchase or sell a specific
security, instrument or basket thereof at a specified future date at a specified
price. Like interest rate futures contracts, the value of financial futures
contracts rises and falls inversely with changes in interest rates. The Funds
may engage in financial futures contracts for hedging and non-hedging purposes.
Under rules adopted by the Commodity Futures Trading Commission, each Fund
may enter into futures contracts and options thereon for both hedging and
non-hedging purposes, provided that not more than 5% of such Fund's total assets
at the time of entering the transaction are required as margin and option
premiums to secure obligations under such contracts relating to non-hedging
activities.
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Gains and losses on futures contracts and options thereon depend on the
Adviser's ability to predict correctly the direction of securities prices,
interest rates and other economic factors. Other risks associated with the use
of futures and options are (i) imperfect correlation between the change in
market value of investments held by a Fund and the prices of futures and options
relating to investments purchased or sold by the Fund, and (ii) possible lack of
a liquid secondary market for a futures contract and the resulting inability to
close a futures position. The risk that a Fund will be unable to close out a
futures position or options contract will be minimized by entering into futures
contracts or options transactions for which there appears to be a liquid
exchange or secondary market. The risk of loss in trading on futures contracts
in some strategies can be substantial, due both to the low margin deposits
required and the extremely high degree of leverage involved in futures pricing.
OPTIONS TRANSACTIONS. The Funds may seek to increase their returns or may
hedge their portfolio investments through options transactions with respect to
(i) securities, instruments, indices or baskets thereof in which such Funds may
invest and (ii) foreign currencies. Purchasing a put option gives a Fund the
right to sell a specified security, currency or basket of securities or
currencies at the exercise price until the expiration of the
option. Purchasing a call option gives a Fund the right to purchase a specified
security, currency or basket of securities or currencies at the exercise price
until the expiration of the option.
Each Fund also may write (i.e., sell) put and call options on investments
held in its portfolio, as well as with respect to a foreign currency. A Fund
that has written an option receives a premium, which increases the Fund's return
on the underlying security or instrument in the event the option expires
unexercised or is closed out at a profit. However, by writing a call option, a
Fund will limit its opportunity to profit from an increase in the market value
of the underlying security or instrument above the exercise price of the option
for as long as the Fund's obligation as writer of the option continues. The
Funds may only write options that are "covered." A covered call option means
that so long as the Fund is obligated as the writer of the option, it will
earmark or segregate sufficient liquid assets to cover its obligations under the
option or own (i) the underlying security or instrument subject to the option,
(ii) securities or instruments convertible or exchangeable without the payment
of any consideration into the security or instrument subject to the option, or
(iii) a call option on the same underlying security with a strike price no
higher than the price at which the underlying instrument was sold pursuant to a
short option position.
By writing (or selling) a put option, a Fund incurs an obligation to buy the
security or instrument underlying the option from the purchaser of the put at
the option's exercise price at any time during the option period, at the
purchaser's election. The Funds may also write options that may be exercisable
by the purchaser only on a specific date. A Fund that has written a put option
will earmark or segregate sufficient liquid assets to cover its obligations
under the option or will own a put option on the same underlying security with
an equal or higher strike price.
The Funds may engage in transactions in options which are traded on
recognized exchanges or over-the-counter. There currently are limited options
markets in many countries, particularly emerging markets countries, and the
nature of the strategies adopted by the Adviser and the extent to which those
strategies are used will depend on the development of such option markets. The
primary risks associated with the use of options are (i) imperfect correlation
between the change in market value of investments held, purchased or sold by a
Fund and the prices of options relating to such investments; and (ii) possible
lack of a liquid secondary market for an option.
STRUCTURED NOTES. Structured Notes are derivatives on which the amount of
principal repayment and/or interest payments is based upon the movement of one
or more factors. These factors include, but are not limited to, currency
exchange rates, interest rates (such as the prime lending rate and LIBOR) and
stock indices such as the S&P 500 Index. In some cases, the impact of the
movements of these factors may increase or decrease through the use of
multipliers or deflators. The Funds may use structured notes to tailor their
investments to the specific risks and returns the Adviser is willing to accept
while avoiding or reducing certain other risks.
SWAPS -- SWAP CONTRACTS. Swaps and Swap Contracts are derivatives in the
form of a contract or other similar instrument in which two parties agree to
exchange the returns generated by a security, instrument, basket thereof or
index for the returns generated by another security, instrument, basket thereof
or index. The payment streams are calculated by reference to a specific
security, instrument, basket thereof or index and an agreed upon notional
amount. The relevant indices include but are not limited to, currencies, fixed
interest
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rates, prices and total return on interest rate indices, fixed income indices,
stock indices and commodity indices (as well as amounts derived from arithmetic
operations on these indices). For example, a Fund may agree to swap the return
generated by a fixed income index for the return generated by a second fixed
income index. The currency swaps in which the Funds may enter will generally
involve an agreement to pay interest streams in one currency based on a
specified index in exchange for receiving interest streams denominated in
another currency. Such swaps may involve initial and final exchanges that
correspond to the agreed upon notional amount.
A Fund will usually enter into swaps on a net basis, i.e., the two return
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with a Fund receiving or paying, as the case may
be, only the net amount of the two returns. A Fund's obligations under a swap
agreement will be accrued daily (offset against any amounts owing to the Fund)
and any accrued, but unpaid, net amounts owed to a swap counterparty will be
covered by the maintenance of a segregated account consisting of cash or liquid
securities. A Fund will not enter into any swap agreement unless the
counterparty meets the rating requirements set forth in guidelines established
by the Company's Board of Directors.
Interest rate and total rate of return swaps do not involve the delivery of
securities, other underlying assets, or principal. Accordingly, the risk of loss
with respect to interest rate and total rate of return swaps is limited to the
net amount of payments that a Fund is contractually obligated to make. If the
other party to an interest rate or total rate of return swap defaults, a Fund's
risk of loss consists of the net amount of payments that the Fund is
contractually entitled to receive. In contrast, currency swaps may involve the
delivery of the entire principal value of one designated currency in exchange
for the other designated currency. Therefore, the entire principal value of a
currency swap may be subject to the risk that the other party to the swap will
default on its contractual delivery obligations. If there is a default by the
counterparty, a Fund may have contractual remedies pursuant to the agreements
related to the transaction. The swaps market has grown substantially in recent
years with a large number of banks and investment banking firms acting both as
principals and as agents utilizing standardized swap documentation. As a result,
the swaps market has become relatively liquid. Swaps that include caps, floors
and collars are more recent innovations for which standardized documentation has
not yet been fully developed and, accordingly, they are less liquid than
"traditional" swaps.
The use of swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. If the Adviser is incorrect in its forecasts of market
values, interest rates and currency exchange rates, the investment performance
of the Funds would be less favorable than it would have been if this investment
technique were not used.
YEAR 2000 RISKS.
Like other mutual funds, financial and business organizations and
individuals around the world, the Funds could be adversely affected if the
computer systems used by the Adviser and other service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. This is commonly known as the "Year 2000 Problem". The Adviser is
taking steps that they believe are reasonably designed to address the Year 2000
Problem with respect to computer systems that it uses and obtain reasonable
assurances that comparable steps are being taken by the Funds' other major
service providers. At this time, there can be no assurance that these steps will
be sufficient to avoid any adverse impact upon the Funds. In addition, the Year
2000 Problem may adversely affect the issuers of securities in which the Funds
may invest which, in turn, may adversely affect the net asset value of the
Funds.
INVESTMENT LIMITATIONS
Each Fund, except the Aggressive Equity and U.S. Real Estate Funds, is a
diversified investment company under the 1940 Act, and, therefore, with respect
to 75% of its total assets, such Fund may not (a) invest more than 5% of its
total assets in the securities of any one issuer, except obligations of the U.S.
Government, its agencies and instrumentalities and (b) own more than 10% of the
outstanding voting securities of any one issuer. The Aggressive Equity and U.S.
Real Estate Funds are non-diversified investment companies under the 1940 Act,
which means that each such Fund is not limited by the 1940 Act in the proportion
of its total assets that may be invested in the obligations of a single issuer.
Thus, each such Fund may invest a greater proportion of its total assets in the
securities of a smaller number of issuers and, as a result, will be subject to
greater risk resulting from such practice than a portfolio which is diversified.
Each such Fund, however, intends to comply with the diversification requirements
imposed by the Code for qualification as a regulated investment company.
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<PAGE> 29
Each Fund also operates under certain investment restrictions that are
deemed fundamental policies and may be changed only with the approval of the
holders of a majority of the Fund's outstanding shares. See "Investment
Limitations" in the Statement of Additional Information. In addition, each Fund
operates under certain non-fundamental investment limitations as described in
the Statement of Additional Information.
MANAGEMENT OF THE COMPANY
INVESTMENT ADVISER. Van Kampen Investment Advisory Corp. is the investment
adviser (the "Adviser") and administrator (the "Administrator") of the Funds.
The Adviser provides investment advice and portfolio management services
pursuant to an advisory agreement (the "Advisory Agreement") and, subject to the
supervision of the Company's Board of Directors, makes the Funds' investment
decisions, arranges for the execution of portfolio transactions and generally
manages the Funds' investments. The Advisory Agreement also provides that the
Adviser may appoint sub-advisers to perform these portfolio management
responsibilities. See "Investment Sub-Advisers" below. The Adviser is entitled
to receive an aggregate advisory fee computed daily and paid monthly at the
following annual rates applied to the average daily net assets for each Fund:
<TABLE>
<S> <C> <C>
Aggressive Equity Fund.................. 0.90%
American Value Fund..................... 0.85%
Equity Growth Fund...................... 0.80%
Mid Cap Growth Fund..................... 0.75%
U.S. Real Estate Fund................... 1.00%
Value Fund.............................. 0.80% First $500 million;
0.75% Next $500 million;
and 0.70% Over $1
billion
</TABLE>
The Adviser reserves the right in its sole discretion from time to time to
waive all or a portion of its management fee or to reimburse the Funds for all
or a portion of the Funds' other expenses.
The Adviser is a wholly-owned subsidiary of Van Kampen Investments Inc.
("Van Kampen"). Van Kampen is a diversified asset management company with more
than two million retail investor accounts, extensive capabilities for managing
institutional portfolios, and more than $65 billion under management or
supervision. Van Kampen's more than 50 open-end and 39 closed-end funds and more
than 2,500 unit investment trusts are professionally distributed by leading
financial advisers nationwide. The Distributor of the Company and the sponsor of
the funds mentioned above is also a wholly-owned subsidiary of Van Kampen. The
Adviser's principal office is located at One Parkview Plaza, Oakbrook Terrace,
Illinois 60181.
Van Kampen is an indirect wholly-owned subsidiary of Morgan Stanley Dean
Witter & Co. Morgan Stanley Dean Witter & Co. and various of its directly or
indirectly owned subsidiaries, including Morgan Stanley & Co. Incorporated, a
registered broker-dealer and investment adviser, and Morgan Stanley
International are engaged in a wide range of financial services. Their principal
businesses include securities underwriting, distribution and trading; merger,
acquisition, restructuring and other corporate finance advisory activities;
merchant banking, stock brokerage and research services; 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; and credit services.
INVESTMENT SUB-ADVISERS. Morgan Stanley Asset Management Inc. ("MSAM," or a
"Sub-Adviser") is the investment sub-adviser of the Aggressive Equity, American
Value, Equity Growth and U.S. Real Estate Funds and Miller Anderson & Sherrerd,
LLP ("MAS," or a "Sub-Adviser") is the investment sub-adviser of the Mid Cap
Growth and Value Funds. The Sub-Advisers provide investment advice and portfolio
management services pursuant to investment sub-advisory agreements and, subject
to the supervision of the Adviser and the Company's Board of Directors, make the
Funds' investment decisions, arrange for the execution of portfolio transactions
and generally manage the Funds' investments.
The Sub-Advisers are entitled to receive sub-advisory fees computed daily
and paid monthly. If the average daily net assets of a Fund during the monthly
period are less than or equal to $500 million, the Adviser shall pay MSAM or
MAS, as appropriate, one-half of the total investment advisory fee payable to
the Adviser by the Fund (after application of any fee waivers in effect) for
such monthly period. If a Fund's average daily net assets for the monthly period
are greater than $500 million, the Adviser shall pay MSAM or MAS, as
appropriate, a fee for
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<PAGE> 30
such monthly period equal to the greater of (a) one-half of what the total
investment advisory fee payable to the Adviser by the Fund (after application of
any fee waivers in effect) for such monthly period would have been had the
Fund's average daily net assets during such period been equal to $500 million,
or (b) forty-five percent of the total investment advisory fee payable to the
Adviser by the Fund (after application of any fee waivers in effect) for such
monthly period.
MSAM, with principal offices at 1221 Avenue of the Americas, New York, NY
10020, conducts a worldwide portfolio management business. It provides a broad
range of portfolio management services to customers in the United States and
abroad. At June 30, 1998, MSAM had together with its affiliated institutional
investment management companies, assets under management (including assets under
fiduciary advisory control) totaling approximately $169 billion in assets under
management. MAS is a Pennsylvania limited liability partnership founded in 1969
with its principal offices at One Tower Bridge, West Conshohocken, Pennsylvania
19428. MAS provides investment services to employee benefit plans, endowment
funds, foundations and other institutional investors and has served as an
investment adviser to several open-end investment companies since 1984. As of
June 30, 1998, MAS had approximately $67 billion in assets under management.
PORTFOLIO MANAGERS. The following individuals have primary portfolio
management responsibility for the Funds noted below:
AGGRESSIVE EQUITY FUND -- PHILIP W. FRIEDMAN, WILLIAM S. AUSLANDER AND KENNY
RADER. Messrs. Friedman, Auslander and Rader have shared responsibility for
managing Aggressive Equity Fund since September 23, 1998. Philip W. Friedman is
a Managing Director of MSAM and Morgan Stanley and is a member of MSAM's
investment management team. In addition to portfolio management, his equity
research responsibilities include business equipment and services, capital
goods, consumer durables, multi-industry and transportation. Prior to joining
MSAM in 1997, he was the North American Director of Equity Research at Morgan
Stanley. From 1990 to 1995, he was a member of Morgan Stanley's Equity Research
team. Mr. Friedman graduated from Rutgers University with a B.A. (Phi Beta Kappa
and Summa Cum Laude) in Economics. He also holds an M.B.A. from J.L. Kellogg
School of Management at Northwestern University. William S. Auslander is a Vice
President of MSAM. He joined the Firm in 1995 as an equity analyst in the
Institutional Equity Group. Prior to joining MSAM he worked at Icahn & Co. for
nine years as an equity analyst. He graduated from the University of Wisconsin
at Madison with a B.A. in Economics and received an M.B.A. from Columbia
University in 1993. Kenny Rader is a Vice President of MSAM. He joined the Firm
in 1998 and is a portfolio manager in the Domestic Equity Group. Prior to
joining Morgan Stanley Dean Witter & Co., he worked for various hedge funds
including BEM Management and Odyssey Partners. He holds a B.S. degree from the
University of Pennsylvania and is a Chartered Financial Analyst.
AMERICAN VALUE FUND -- GARY G. SCHLARBAUM, WILLIAM B. GERLACH, BRADLEY S.
DANIELS AND CHRIS LEAVY. Messrs. Schlarbaum, Gerlach and Daniels share primary
responsibility for managing the American Value Fund. Gary G. Schlarbaum, a
Managing Director of Morgan Stanley, joined MAS in 1987. He assumed
responsibility for the MAS Funds' Equity and Small Cap Value Portfolios in 1987,
the MAS Funds' Balanced Portfolio in 1992 and the MAS Funds' Multi-Asset-Class
and Mid Cap Value Portfolios in 1994. Mr. Schlarbaum also is a Director of MAS
Fund Distribution, Inc. He previously was with First Chicago Investment Advisers
and was a Professor at the Krannert Graduate School at Purdue University. Mr.
Schlarbaum holds a B.A. in Economics from Coe College and a Ph.D. in Applied
Economics from University of Pennsylvania. Mr. Schlarbaum assumed primary
responsibility for managing the Fund's assets in January, 1997. Mr. Gerlach
joined MSAM in July, 1996 and has worked with the Adviser's affiliate, MAS for
the past five years. He became a portfolio manager of the Fund in November,
1996. Mr. Gerlach also became a portfolio manager of the MAS Funds' Small Cap
Value and Mid Cap Value Portfolios in 1996. Previously, he was with Alphametrics
Corporation and Wharton Econometric Forecasting Associates. Mr. Gerlach holds a
B.A. in Economics from Haverford College. Bradley S. Daniels, a Vice President
of Morgan Stanley, joined MAS in 1985. He assumed responsibility for the MAS
Funds' Small Cap Value Portfolio in 1986 and the MAS Funds' Mid Cap Value
Portfolio in 1994. Mr. Daniels has shared
responsibility for managing the Fund since 1996. Chris Leavy joined MAS in 1997.
He served as a Portfolio Manager for Capitoline Investment Services from
1995-1997; a Portfolio Manager for Premier Trust Company from 1994 to 1995; and
as a Research Analyst for Leavy Investment Management from 1993-1994. He assumed
responsibility for the American Value Fund in 1998. Mr. Leavy holds a B.A. in
Economics from Trinity University.
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<PAGE> 31
EQUITY GROWTH FUND -- PHILIP W. FRIEDMAN, MARGARET K. JOHNSON AND WILLIAM S.
AUSLANDER. Ms. Johnson has had primary responsibility for managing the Equity
Growth Fund since May 29, 1998 and Mr. Friedman and Mr. Auslander have shared
primary responsibility for managing the Equity Growth Fund since September 23,
1998. Margaret Johnson is a Principal of MSAM and Morgan Stanley and a Portfolio
Manager in the Institutional Equity Group. She joined MSAM in 1984 and worked as
an Analyst in the Marketing and Fiduciary Advisor areas. Ms. Johnson became a
Equity Analyst in 1986 and a Portfolio Manager in 1989. She holds a B.A. degree
from Yale College and is a Chartered Financial Analyst. For a description of the
business experience of Messrs. Friedman and Auslander, see "Aggressive Equity
Fund" above.
MID CAP GROWTH FUND -- ARDEN C. ARMSTRONG AND DAVID P. CHU. Ms. Armstrong
and Mr. Chu will share primary responsibility for managing the Fund's assets
upon commencement of operations. Arden Armstrong, a Managing Director of Morgan
Stanley, joined MAS in 1986. She assumed responsibility for the MAS Funds Mid
Cap Growth Portfolio in 1990, the MAS Funds Growth Portfolio in 1993 and the MAS
Funds Equity Portfolio in 1994. Ms. Armstrong holds a B.A. (Magna Cum Laude) in
Economics from Brown University, an M.B.A. from the University of Pennsylvania
- -- Wharton School and is a Chartered Financial Analyst. David P. Chu, Vice
President, Morgan Stanley, joined MAS in 1998. He served as Senior Equity
Analyst from 1992 to 1997 and as Co-Portfolio Manager in 1997 for NationsBank
and its subsidiary. TradeStreet Investment Associates. He assumed responsibility
for the Mid Cap Growth Fund in 1998. Mr. Chu earned a B.S. degree from
University of Michigan and an MBA from University of Pennsylvania-Wharton
School.
U.S. REAL ESTATE FUND -- RUSSELL PLATT AND THEODORE R. BIGMAN. Messrs. Platt
and Bigman have shared primary responsibility for managing the Fund since its
inception. Mr. Platt joined MSAM and Morgan Stanley in 1982 and currently is a
Managing Director of MSAM and Morgan Stanley. 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"). Previously, Mr. Platt served as a Director of MSREF, where he was
involved in capital raising, acquisitions, oversight of investments and investor
relations. From 1991 to 1993, Mr. Platt was head of Morgan Stanley's Transaction
Development Group, which was responsible for identifying and structuring real
estate investment opportunities for MSAM and its clients worldwide. Mr. Platt
graduated from Williams College in 1982 with a B.A. in Economics and received
his M.B.A. from Harvard Business School in 1986. Mr. Bigman joined MSAM and
Morgan Stanley in 1995 and currently is a Principal of MSAM and Morgan Stanley.
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. Since 1992, Mr. Bigman
established and managed the REIT effort at CS First Boston including primary
responsibility for $2.5 billion of initial public offerings by real estate
investment trusts. Mr. Bigman graduated from Brandeis University with a B.A. in
Economics and received his M.B.A. from Harvard University.
VALUE FUND -- ROBERT J. MARCIN, RICHARD M. BEHLER AND NICHOLAS J. KOVICH.
Messrs. Marcin, Behler and Kovich have shared primary responsibility for
managing the Value Fund since its inception. Robert J. Marcin, a Managing
Director of Morgan Stanley, joined MAS in 1988. He assumed responsibility for
the MAS Funds' Value Portfolio in 1990 and the MAS Funds' Equity Portfolio in
1994. Mr. Marcin holds a B.A. (Cum Laude) from Dartmouth College and is a
Chartered Financial Analyst. Richard M. Behler, a Principal of Morgan Stanley,
joined MAS in 1995. He served as a Portfolio Manager from 1992 through 1995 for
Moore Capital Management. He assumed responsibility for the MAS Funds' Value
Portfolio in 1996. Mr. Behler holds a B.A. (Cum Laude) in Economics from
Villanova University and an M.A. and Ph.D. in Economics from University of Notre
Dame. Nicholas J. Kovich, a Managing Director of Morgan Stanley, joined MAS in
1988. He assumed responsibility for the MAS Funds' Equity Portfolio in 1994 and
the MAS Funds' Value Portfolio in 1997. Mr. Kovich received a B.S. in Chemical
Engineering and an M.B.A. from University of Kansas.
ADMINISTRATOR. The Administrator provides the Company with administrative
services pursuant to an administration agreement (the "Administration
Agreement"). The services provided under the Administration Agreement are
subject to the supervision of the officers and Board of Directors of the Company
and include day-to-day administration of matters related to the corporate
existence of the Company, maintenance of its records, preparation of reports,
supervision of the Company's arrangements with its custodian and assistance in
the preparation of the Company's registration statements under federal and state
laws. The Administration Agreement also provides that the Administrator through
its agents will provide the Company dividend disbursing and
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<PAGE> 32
transfer agent services. For its services under the Administration Agreement,
the Company pays the Administrator a monthly fee which on an annual basis equals
0.25% of the average daily net assets of the Funds.
Under sub-administration agreements between the Administrator and The Chase
Manhattan Bank ("Chase"), Chase Global Funds Services Company ("CGFSC"), a
corporate affiliate of Chase, provides certain administrative services to the
Company. The Administrator supervises and monitors such administrative services
provided by CGFSC. The services provided under the sub-administration agreement
are subject to the supervision of the Board of Directors of the Company. The
Board of Directors of the Company has approved the provision of services
described above pursuant to the sub-administration agreement as being in the
best interests of the Company. CGFSC's business address is 73 Tremont Street,
Boston, Massachusetts 02108-3913. For additional information on the
Administration Agreement, see "Management of the Company" in the Statement of
Additional Information.
DIRECTORS AND OFFICERS. Pursuant to the Company's Articles of
Incorporation, the Board of Directors decides upon matters of general policy and
reviews the actions of the Adviser, Sub-Advisers, Administrator and the
Company's Distributor. The officers of the Company conduct and supervise its
daily business operations.
DISTRIBUTOR. Van Kampen Funds Inc. (the "Distributor") serves as the
distributor of the shares of the Company. Under its distribution agreement (the
"Distribution Agreement") with the Company, the Distributor sells shares of the
Company upon the terms and at the current offering price described in this
Prospectus. The Distributor is not obligated to sell any specific number of
shares of the Company.
The Company currently offers Class A shares, Class B shares and Class C
shares of the Funds. The Company may in the future offer one or more classes of
shares for each Fund that may have sales charges or other distribution charges
or a combination thereof different from those of the classes currently offered.
The Board of Directors of the Company has approved and adopted the
Distribution Agreement for the Company and a plan for each class of the Funds
pursuant to Rule 12b-1 under the 1940 Act (each a "Plan" and together, the
"Plans"). Under each Plan, the Distributor is entitled to receive from each Fund
a distribution fee, which is accrued daily and paid no more frequently than
monthly, at a maximum rate of up to 0.75% of the Class B shares and Class C
shares of each Fund, on an annualized basis of the average daily net assets of
such classes. The actual amount of such compensation is based upon the expenses
incurred by the Distributor. With respect to Class B shares, the Distributor
expects to utilize substantially all of its fee to reimburse itself for
commissions paid to investment dealers, banks or financial services firms that
provide distribution services ("Participating Dealers"). With respect to Class C
shares, the Distributor expects to reallocate substantially all of its fee to
such Participating Dealers. The Distributor may, in its discretion, voluntarily
waive from time to time all or any portion of its distribution fee and the
Distributor is free to make additional payments out of its own assets to promote
the sale of Fund shares. Class A shares, Class B shares and Class C shares are
subject to a service fee at an annual rate of 0.25% on an annualized basis of
the average daily net assets of such class of shares of a Fund. In addition to
such payments, the Adviser or its affiliates may pay certain expenses associated
with activities which might be construed to be financing the sale of these
Funds' shares including payments to third parties that provide assistance in the
distribution effort (in addition to selling shares and providing shareholder
services). Any payments by the Adviser or its affiliates will be made directly
from their assets and will not be made from the assets of the Company or by the
assessment of a charge on shares.
The Plans obligate the Funds to accrue and pay to the Distributor the fee
agreed to under its Distribution Agreement. The Plans do not obligate the Funds
to reimburse the Distributor for the actual expenses the Distributor may incur
in fulfilling its obligations under the Plan. Thus, under each Plan, even if the
Distributor's actual expenses exceed the fee payable to it thereunder at any
given time, the Funds will not be obligated to pay more than that fee.
Each Plan for a class of Company shares, under the terms of Rule 12b-1, will
remain in effect only if approved at least annually by the Company's Board of
Directors, including those directors who are not "interested persons" of the
Company as that term is defined in the 1940 Act and who have no direct or
indirect financial interest in the operation of a Plan or in any agreements
related thereto ("12b-1 Directors"). Each Plan
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<PAGE> 33
may be terminated at any time by a vote of a majority of the 12b-1 Directors or
by a vote of a majority of the outstanding voting securities of the applicable
class of such Fund. The fee set forth above will be paid by the appropriate
class to the Distributor unless and until a Plan is terminated or not renewed.
The Company intends to operate each Plan in accordance with its terms and the
NASD Conduct Rules concerning sales charges.
PAYMENTS TO FINANCIAL INSTITUTIONS. The Adviser or its affiliates may
compensate certain financial institutions for the continued investment of their
customers' assets in the Funds pursuant to the advice of such financial
institutions. These payments will be made directly by the Adviser or its
affiliates from their assets, and will not be made from the assets of the
Company or by the assessment of a sales charge on shares. Such financial
institutions may also perform certain shareholder or recordkeeping services that
would otherwise be performed by Investor Services (defined below). The Adviser
may elect to enter into a contract to pay the financial institutions for such
services.
EXPENSES. Each Fund is responsible for payment of certain other fees and
expenses (including professional fees, custodial fees and printing and mailing
costs) specified in the Administration and Distribution Agreements.
PURCHASE OF SHARES
GENERAL
The Company offers three classes of shares to the public on a continuous
basis through the Distributor as principal underwriter, which is located at One
Parkview Plaza, Oakbrook Terrace, Illinois 60181. Shares are also offered
through members of the NASD who are acting as securities dealers ("dealers") and
NASD members or eligible non-NASD members who are acting as brokers or agents
for investors ("brokers"). The term "dealers" and "brokers" are sometimes
referred to herein as "Participating Dealers."
As of the date of this Prospectus the Mid Cap Growth Fund is not offering
shares. As of the date of this Prospectus, the American Value Fund has suspended
the continuous offering of its shares to new investors. However, existing
shareholders may continue to purchase additional shares, as well as those in
retirement plan and certain distribution programs as determined from time to
time by the Distributor and as listed in the Company's Statement of Additional
Information.
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. The $500
minimum may be waived by the Distributor for plans involving periodic
investments. Shares of the Company may be sold in foreign countries where
permissible. The Company and the Distributor reserve the right to refuse any
order for the purchase of shares. The Company also reserves the right to suspend
the sale of the Company's shares in response to conditions in the securities
markets or for other reasons.
Shares of the Funds available for sale may be purchased on any business day
through Participating Dealers. Shares may also be purchased by completing the
application accompanying this Prospectus and forwarding the application, through
the Participating Dealer, to the shareholder service agent, Van Kampen Investor
Services Inc. ("Investor Services"), a wholly-owned subsidiary of Van Kampen.
When purchasing shares of the Company, investors must specify the Fund and
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 an
initial or contingent deferred sales charge depending on the class of shares
chosen by the investor, as shown in the tables herein. See "Valuation of Shares"
for a further description of net asset value computations.
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 classes of
shares may differ from one another, reflecting the daily expense accruals of the
higher distribution fees applicable with respect to the Class B shares and Class
C shares and the differential in the dividends paid on the classes of shares.
The price paid for shares purchased is based on the next calculation of net
asset value per share (plus sales charges, where applicable) after an order is
received by a Participating Dealer provided such
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<PAGE> 34
order is transmitted to the Distributor prior to the Distributor's close of
business on such day. Orders received by Participating Dealers after the close
of the New York Stock Exchange (the "NYSE") are priced based on the net asset
value per share calculated after the next day's close provided they are received
by the Distributor prior to the Distributor's close of business on such day. It
is the responsibility of Participating Dealers to transmit orders received by
them to the Distributor so they will be received prior to such time.
Each class of shares represents an interest in the same portfolio of
investments, has the same rights and is identical in all respects, except that
(i) Class B shares and Class C shares bear the expenses of the deferred sales
arrangement and any expenses (including higher distribution fees) resulting from
such sales arrangement, (ii) generally, each class has exclusive voting rights
with respect to approvals of the Rule 12b-1 distribution plan to which its
distribution fee or service fee is paid, (iii) certain shares are subject to a
conversion feature, (iv) each class has different exchange privileges and (v)
each class has 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 higher
distribution fees associated with such class of shares. Sales personnel of
Participating Dealers distributing the Company'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.
In deciding which class of shares to purchase, investors should take into
consideration their investment goals, present and anticipated purchase amounts,
time horizons and temperments. Investors should consider whether, during the
anticipated life of their investment in a Fund, the accumulated distribution
fees and contingent deferred sales charges on Class B shares prior to conversion
or 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 "Fund Expenses" 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, as
described herein under "Purchase of Shares -- Class A Shares." For these
reasons, 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 most
accounts 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 contingent deferred sales charge. Ongoing distribution
fees on Class B shares and Class C shares will 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
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, prefer not to pay redemption charges and/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 100% of their investment dollars
to work immediately, and/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 and/ or desire a short contingent deferred sales
charge 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. Investors should understand that the
34
<PAGE> 35
purpose and function of the CDSC and ongoing distribution fee with respect to
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 Plans."
The Distributor may from time to time implement programs under which a
Participating Dealer's sales force may be eligible to win nominal awards for
certain sales efforts or under which the Distributor will reallow to any
Participating 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 Participating 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 Company. 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 Company. 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 incentives may
be offered to Participating Dealers that have sold or may sell significant
amounts of shares during specified periods of time. Such fees paid for such
services and activities with respect to a Fund will not exceed in the aggregate
1.25% of the average total daily net assets of the Fund on an annual basis. All
of the foregoing payments are made by the Distributor out of its own assets.
These programs will not change the price an investor will pay for shares or the
amount that a Fund will receive from such sale.
CLASS A SHARES
The public offering price of Class A shares is the next determined net asset
value per share plus a sales charge, as set forth herein.
SALES CHARGE TABLE
<TABLE>
<CAPTION>
REALLOWED TO DEALERS
------------------------------------------------------
AS % OF AS % OF NET (AS % OF
SIZE OF INVESTMENT OFFERING PRICE AMOUNT INVESTED OFFERING PRICE)
- ------------------------------ --------------- ----------------- ----------------
<S> <C> <C> <C>
Less than $50,000............. 5.75 6.10 5.00
$50,000 but less than
$100,000..................... 4.75 4.99 4.00
$100,000 but less than
$250,000..................... 3.75 3.90 3.00
$250,000 but less than
$500,000..................... 2.75 2.83 2.25
$500,000 but less than
$1,000,000................... 2.00 2.04 1.75
$1,000,000 or more*........... * * *
</TABLE>
- --------------
* No initial sales charge is payable at the time of purchase on investments of
$1 million or more, although for such investments the Fund imposes a
contingent deferred sales charge of 1.00% in the event of certain redemptions
within one year of the purchase. A commission will be paid to brokers, dealers
or financial intermediaries 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, plus 0.50% on the excess over $3 million. See "Purchase of
Shares -- Purchase of Class B Shares" and "-- Purchase of Class C Shares" for
additional information with respect to contingent deferred sales charges.
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 Participating Dealers that sell shares of the Company.
Participating 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 Company for their clients a transaction fee up to
the level of the reallowance allowable to Participating Dealers described
herein. Such financial institutions, other industry professionals and
Participating Dealers are hereinafter referred to as "Service Organizations."
Banks are currently prohibited under the Glass-Steagall Act from providing
certain underwriting or distribution services. If banking firms were prohibited
from acting in any capacity or providing any of the
35
<PAGE> 36
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 Company.
State securities laws regarding registration of banks and other financial
institutions may differ from the interpretations of federal law expressed herein
and banks and other financial institutions may be required to register as
dealers pursuant to certain state laws.
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 Participating Dealers must notify the Company 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 Participating Dealer or the
Distributor.
A person eligible for a reduced sales charge includes an individual, their
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
estate or single fiduciary account, or a "company" as defined in Section 2(a)(8)
of the 1940 Act.
The phrase "Participating Funds," as used herein, refers to certain open-end
investment companies advised by the Adviser or Van Kampen Asset Management Inc.
("Asset Management") and distributed by the Distributor as determined from time
to time by the Company's Board of Directors.
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 a 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 the Participating Funds plus the current offering price of all
shares of the Participating Funds which have been previously purchased and are
still owned.
LETTER OF INTENT. A Letter of Intent provides an opportunity for an
investor to obtain a reduced sales charge by aggregating the investments over a
13-month period to determine the sales charge as outlined in the preceding
table. The size of investment shown in the preceding table also includes
purchases of shares of the Participating Funds over a 13-month period based on
the total amount of intended purchases plus the value of all shares of the
Participating Funds previously purchased and still owned. An investor may elect
to compute the 13-month period starting up to 90 days before the date of
execution of a Letter of Intent. Each investment made during the period receives
the reduced sales charge applicable to the total amount of the investment goal.
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 purchased 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 Company or the Distributor. The Company reserves the right
to modify or terminate these arrangements at any time.
UNIT INVESTMENT TRUST REINVESTMENT PROGRAMS. The Company permits
unitholders of unit investment trusts to reinvest distributions from such trusts
in Class A shares of the Company at net asset value with no minimum initial or
subsequent investment requirement if the administrator of an investor's unit
investment
36
<PAGE> 37
trust program meets certain uniform criteria relating to cost savings by the
Company 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 Participating
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
Participating 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 a Fund during each distribution period by all investors who choose to invest
in the Fund through the program and (2) provide Investor Services with
appropriate backup data for each participating investor in a computerized format
fully compatible with Investor Services' processing system.
As further requirements for obtaining these special benefits, the Company
also requires that all dividends and other distributions by a Fund be reinvested
in additional shares without any systematic withdrawal program. There will be no
minimum for reinvestments from unit investment trusts. The Company will send
account activity statements to such participants on a monthly basis only, even
if their investments are made more frequently. The Company reserves the right to
modify or terminate this program at any time.
NAV PURCHASE OPTIONS. Class A shares of a Fund may be purchased at net
asset value per share without an initial sales charge, 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/directors of funds advised by the
Adviser or Asset Management 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 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 institution.
(4) Registered investments 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 Participating 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 national wirehouse
alliance programs subject to certain minimum size and operational
requirements. Directors 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 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 broker, dealer or financial intermediary
charges an account management fee ("wrap accounts"), provided the broker,
dealer or financial intermediary 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
37
<PAGE> 38
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 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. Section 403(b)
and similar accounts for which Van Kampen Trust Company ("Van Kampen Trust")
serves as custodian will not be eligible for net asset value purchases based on
the aggregate investment made by the plan or the number of eligible employees,
except under certain uniform criteria established by the Distributor from time
to time. A commission will be paid to dealers who initiate and are responsible
for such purchases within a rolling twelve month period as follows: 1.00% on
sales up 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 a 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 a Fund and other Participating Funds, (iv) has a membership that the
authorized dealer can certify as to the group's members, and (v) satisfies
other uniform criteria established by the Distributor for the purpose of
realizing economies of scale in distributing such shares. A qualified group
does not include one whose sole organizational nexus, for example, is that
its participants are credit card holders of the same institution, policy
holders of an insurance company, customers of a bank or broker-dealer,
clients of an investment adviser or other similar groups. Shares purchased
in each group's participant's account in connection with this privilege will
be subject to a contingent deferred sales charge of one percent 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 and grandchildren
under 21 years of age, parents and a person's spouse's parents.
Purchase orders made pursuant to clause (4) may be placed either through
authorized dealers as described above or directly with Investor Services by the
investment adviser, trust company or bank trust department, provided that
Investor Services receives federal funds for the purchase by the close of
business on the next business day following acceptance of the order. An
authorized dealer may charge a transaction fee for placing an order to purchase
shares pursuant to this provision or for placing a redemption order with respect
to such shares. Authorized dealers will be paid a service fee as described
herein under "Distribution Plans" on purchases made as described in (3) through
(9) above.
The Company may terminate, or amend the terms of, offering shares of the
Funds at net asset value to the foregoing groups at any time.
PURCHASE OF CLASS B SHARES
Class B shares of the Funds may be purchased at net asset value without an
initial sales charge. However, a CDSC will be imposed on certain Class B shares
redeemed within five years of purchase. The charge is assessed on an amount
equal to the lesser of the then-current market value of the Class B shares
redeemed or the total cost of such shares. Accordingly, the CDSC will not be
applied to dollar amounts representing an increase in the net asset values above
the initial purchase price of the shares being redeemed. In addition, no charge
is assessed on redemptions of Class B shares derived from reinvestment of
dividends or capital gains distributions.
In determining whether the CDSC is applicable to a redemption, the
calculation is made in the manner that results in the lowest possible rate.
Therefore, it is assumed that the redemption is first of any Class B shares in
the shareholder's account that represent reinvested dividends and/or
distributions, and/or of Class B shares held longer than five years after
purchase, and next of Class B shares held the longest during the initial
five-year period after purchase. The amount of the CDSC, if any, will vary
depending on the number of years from the time of purchase of Class B shares
until the redemption of such shares (the "holding period"). The following table
sets forth the rates of the CDSC.
38
<PAGE> 39
CONTINGENT DEFERRED SALES CHARGE
<TABLE>
<CAPTION>
SALES CHARGE AS
PERCENTAGE OF
THE
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO
PAYMENT WAS MADE CHARGE
- ------------------------------ ----------------
<S> <C>
First......................... 5.00%
Second........................ 4.00%
Third......................... 3.00%
Fourth........................ 2.50%
Fifth......................... 1.50%
Thereafter.................... None*
</TABLE>
- --------------
* As described more fully below, Class B shares automatically convert to Class A
shares after the eighth year following purchase.
Proceeds from any CDSC are paid to the Distributor and are used by the
Distributor to defray its expenses related to providing distribution-related
services to the Company in connection with the sale of the Class B shares. The
Distributor will make payments to the Participating Dealers that handle the
purchases of such shares at a rate not in excess of 4.00% of the purchase price
of such shares at the time of purchase and expects to pay to Participating
Dealers a portion of its distribution fee under the Rule 12b-1 Plan as described
under "Management of the Company -- Distributor" above. Additionally, the
Distributor may pay additional promotional incentives in the form of cash or
other compensation to authorized dealers that sell Class B shares of the Funds.
The combination of the CDSC and the distribution fee facilitates the ability of
the Company to sell the Class B shares without a sales charge being deducted at
the time of purchase.
AUTOMATIC CONVERSION TO CLASS A SHARES. After the eighth year following
purchase, Class B shares will automatically convert to Class A shares and will
no longer be subject to the higher distribution fees. Such conversion will be on
the basis of the relative net asset values of the two classes, without the
imposition of any sales load, fee or other charge. Under current tax law, the
conversion is not a taxable event to the shareholder.
PURCHASE OF CLASS C SHARES
Class C shares of the Funds may be purchased at the net asset value per
share and such shares are subject to a CDSC at the rate of 1.00% of the lesser
of the current market value of the shares redeemed or the total cost of such
shares for shares that are redeemed within one year of purchase. The Distributor
will generally make payments to the Participating Dealers that handle the
purchases of such shares at the rate of up to 1.00% of the purchase price of
such shares at the time of purchase and expects to pay to Participating Dealers
most of its distribution fee, with respect to such shares, under the Rule 12b-1
Plan for such class of shares, as described under "Management of the Company --
Distributor" above. In determining whether a CDSC is payable, and, if so, the
amount of the fee or charge, it is assumed that shares not subject to such fee
or charge are the first redeemed.
WAIVER OF CDSC
The CDSC will be waived on the redemption of Class B or Class C shares (i)
following the death or initial determination of disability (as defined in the
Code) of a shareholder; (ii) certain distributions from an IRA or other
retirement plan; (iii) to the extent that shares redeemed have been withdrawn
from a Systematic Withdrawal Plan, up to a maximum amount of 12% per year from a
shareholder account based on the value of the account at the time the Withdrawal
Plan is established; (iv) in circumstances under which no commission or
transaction fee is paid to authorized dealers at the time of purchase of such
shares; or (v) effected pursuant to the right of the Company to liquidate a
shareholder's account as described under "Redemption of Shares". A shareholder,
or their representative, must notify the Company's Transfer Agent prior to the
time of redemption if such circumstances exist and the shareholder is eligible
for this waiver. The shareholder is responsible for providing sufficient
documentation to the Transfer Agent to verify the existence of such
circumstances. For information on the imposition and waiver of the CDSC, contact
Investor Services at 1-800-282-4404.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
No initial sales charge or CDSC will be payable on the shares of the Funds
or classes thereof purchased through the automatic reinvestment of dividends and
distributions on shares of the Funds.
39
<PAGE> 40
REINSTATEMENT PRIVILEGE OF EACH CLASS
A shareholder who has redeemed Class A shares of a Participating Fund may
reinvest up to the full amount received at net asset value per share at the time
of the reinvestment in Class A shares of the Funds without payment of a sales
charge. A shareholder who has redeemed Class B shares of a Participating Fund
and paid a CDSC upon such redemption may reinvest up to the full amount received
upon redemption in Class A shares of a Fund at net asset value per share with no
initial sales charge. A Class C shareholder who has redeemed shares of a
Participating Fund may reinstate any portion or all of the net proceeds of such
redemption in Class C shares of a Fund with credit given for any CDSC paid upon
such redemption. The reinstatement privilege as to any specific Class A, Class B
or Class C shares must be exercised within 180 days of the redemption. The
Transfer Agent must receive from the shareholder or the shareholder's
Participating Dealer both a written request for reinstatement and a check or
wire which does not exceed the redemption proceeds. The written request must
state that the reinvestment is made pursuant to this reinstatement privilege. If
a loss is realized on the redemption of Class A shares, the reinvestment may be
subject to the "wash sale" rules if made within 30 days of the redemption,
resulting in a postponement of the recognition of such loss for federal income
tax purposes. The reinstatement privilege may be terminated or modified at any
time. Reinstatement at net asset value per share is also offered to participants
in those eligible retirement plans held or administered by Van Kampen Trust for
repayment of principal (and interest) on their borrowings on such plan. See the
Statement of Additional Information for further discussion of waiver provisions.
SHAREHOLDER SERVICES
The Company offers a number of shareholder services designed to facilitate
investment in its shares at little or no extra cost to the investor. Below is a
description of such services. Unless otherwise described below, each of these
services may be modified or terminated by the Company at any time.
INVESTMENT ACCOUNT. Each shareholder has an investment account under which
shares are held by Investor Services. Investor Services acts as transfer agent
for the Company and performs bookkeeping, data processing and administration
services related to the maintenance of shareholder accounts. Except as described
herein, after each share transaction in an account, the shareholder receives a
statement showing the activity in the account. Each shareholder will receive
statements at least quarterly from Investor Services showing any reinvestments
of dividends and capital gains distributions and any other activity in the
account since the preceding statement. Such shareholders also will receive
separate confirmations for each purchase or sale transaction other than
reinvestment of dividends and capital gains distributions and systematic
purchases or redemptions. Additions to an investment account may be made at any
time by purchasing shares through authorized brokers, dealers or financial
intermediaries or by mailing a check directly to Investor Services.
SHARE CERTIFICATES. Generally, the Company will not issue share
certificates. However, upon written or telephone request to the Company, a share
certificate will be issued, representing shares (with the exception of
fractional shares) of the Company. A shareholder will be required to surrender
such certificates upon redemption or transfer thereof. In addition, if such
certificates are lost the shareholder must write to Van Kampen Series Fund, Inc.
c/o Van Kampen Investor Services Inc., P.O. Box 418256, Kansas City, MO
64141-9256, requesting an "affidavit of loss" and to obtain a Surety Bond in a
form acceptable to Investor Services. On the date the letter is received,
Investor Services will calculate a fee for replacing the lost certificate equal
to no more than 2.00% of the 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 applicable Fund. Such shares are acquired at net asset value (without sales
charge) on the record date of such dividend or distribution. Unless the
shareholder instructs otherwise, the reinvestment plan is automatic. This
instruction may be made by telephone by calling (800) 282-4404 or (800) 772-8889
for the hearing impaired, or in writing to Investor Services. The investor may,
on the initial application or prior to any declaration, instruct that dividends
be paid in cash and capital gains distributions be reinvested at net asset
value, or that both dividends and capital gains distributions be paid in cash.
For further information, see "Dividends and Distributions."
40
<PAGE> 41
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under
which a shareholder can authorize Investor Services to charge a bank account on
a regular basis to invest pre-determined amounts in the Fund. Additional
information is available from the Distributor or authorized brokers, dealers or
financial intermediaries.
DIVIDEND DIVERSIFICATION. A shareholder may, upon written request or by
completing the appropriate section of the application form accompanying this
Prospectus or by calling (800) 282-4404 or (800) 772-8889 for the hearing
impaired, elect to have all dividends and other distributions paid on a class of
shares of the Company invested in shares of the same class of any Participating
Fund, so long as a pre-existing account for such class of shares exists for such
shareholder. Both accounts must also be of the same type, either non-retirement
or retirement. Any two non-retirement accounts can be used. If the accounts are
retirement accounts, they must both be for the same 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 the 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 portfolio at its net asset value as of the payable date of the
distribution only if shares of such selected portfolio have been registered for
sale in the investor's state and are currently available for sale.
RETIREMENT PLANS. Eligible investors may establish IRAs; SEP; pension and
profit sharing plans; 401(k) plans; or Section 403(b)(7) plans in the case of
employees of public school systems and certain non-profit organizations.
Documents and forms containing detailed information regarding these plans are
available from the Distributor. Van Kampen Trust serves as custodian under the
IRA, 403(b)(7) and Keogh plans. Details regarding fees, as well as full plan
administration for profit sharing, pension and 401(k) plans, are available from
the Distributor.
EXCHANGE PRIVILEGE. Shares of the Funds may be exchanged for shares of the
same class of another Participating Fund based on the net asset value per share
of each Fund on the date of exchange, subject to certain limitations. Before
effecting an exchange, shareholders in the Company should obtain and read a
current prospectus of the Participating Funds into which the exchange is to be
made. SHAREHOLDERS MAY ONLY EXCHANGE INTO SUCH OTHER PARTICIPATING FUNDS AS ARE
LEGALLY AVAILABLE FOR SALE IN THEIR STATE AND ARE CURRENTLY AVAILABLE FOR SALE.
To be eligible for exchange, shares of a Fund generally must have been
registered in the shareholder's name for at least 30 days prior to an exchange.
Shares of a Fund registered in a shareholder's name for less than 30 days may
only be exchanged upon receipt of prior approval of the Adviser. Under normal
circumstances, it is the policy of the Adviser not to approve such requests.
Class A shares of a Participating Fund that generally imposes an initial
sales charge are not subject to any sales charge upon exchange into another
Participating Fund. Class A shares of a Participating Fund that does not impose
an initial sales charge will be subject to the applicable sales charge of the
Participating Fund being obtained in the exchange.
No sales charge is imposed upon the exchange of a Class B share or a Class C
share. The CDSC schedule, conversion schedule and holding period applicable to a
Class B share or a Class C share acquired through the exchange privilege is
determined by reference to the Participating Fund from which such share
originally was 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 not included in the tax basis of
the exchanged shares, but is carried over and included in the tax basis of the
shares acquired.
A shareholder wishing to make an exchange may do so by sending a written
request to Investor Services or by contacting the telephone transaction line at
(800) 421-5684. A shareholder automatically has telephone exchange privileges
unless otherwise designated in the application form accompanying this
Prospectus. See "Redemption of Shares -- Telephone Transaction Procedures" for
more information. The exchange will take
41
<PAGE> 42
place at the relative net asset value per share of the shares next determined
after receipt of such request with adjustment for any additional sales charge.
Any shares exchanged begin earning dividends on the next business day after the
exchange is affected. If the exchanging shareholder does not have an account in
the Participating Fund whose shares are being acquired, a new account will be
established with the same registration, dividend and capital gains options
(except dividend diversification options) and broker, dealer or financial
intermediary of record as the account from which shares are exchanged, unless
otherwise specified by the shareholder. In order to establish a systematic
withdrawal plan for the new account or dividend diversification options for the
new account, an exchanging shareholder must file a specific written request. The
Company reserves the right to reject any order to acquire its shares through
exchange. In addition, the Company may restrict or terminate the exchange
privilege at any time on 60 days' notice to its shareholders of any termination
or material amendment. If an account has multiple owners, Investor Services may
rely on the instructions of any one owner.
SYSTEMATIC WITHDRAWAL PLAN. Any investor whose shares in a single account
total $5,000 or more at the offering price next computed after receipt of
instructions may establish a quarterly, semi-annual or annual withdrawal plan.
Investors whose shares in a single account total $10,000 or more at the offering
price next computed after receipt of instructions may establish a monthly,
quarterly, semi-annual or annual withdrawal plan. This plan provides for the
orderly use of the entire account, not only the income but also the principal,
if necessary. Each withdrawal constitutes a redemption of shares on which
taxable gain or loss will be recognized. The plan holder may arrange for
monthly, quarterly, semi-annual, or annual checks in any amount not less than
$25.
The CDSC on Class B and Class C shares is waived for withdrawals under the
Systematic Withdrawal Plan of a maximum of 1% per month, 3% per quarter, 6%
semiannually or 12% annually, of the value of a shareholder's account at the
time the Systematic Withdrawal Plan is commenced. Under this CDSC waiver policy,
amounts withdrawn each period will be paid by redeeming first shares not subject
to a CDSC because the shares were purchased by the reinvestment of dividends or
capital gains distributions, the CDSC period has elapsed or some other waiver of
the CDSC applies. If shares subject to a CDSC must be redeemed, shares held for
the longest period of time will be redeemed first and continuing with shares
held the next longest period of time until shares held the shortest period of
time are redeemed.
Under the plan, sufficient shares of the Company are redeemed to provide the
amount of the periodic withdrawal payment. Dividends and capital gains
distributions on shares held under the plan are reinvested in additional shares
at the next determined net asset value. If periodic withdrawals continuously
exceed reinvested dividends and capital gains distributions, the shareholder's
original investment will be correspondingly reduced and ultimately exhausted.
Withdrawals made concurrently with purchases of additional shares ordinarily
will be disadvantageous to the shareholder because of the duplication of sales
charges. The Company reserves the right to amend or terminate the systematic
withdrawal program on 30 days' notice to its shareholders.
AUTOMATED CLEARING HOUSE ("ACH") DEPOSITS. Holders of Class A shares can
use ACH to have redemption proceeds deposited electronically into their bank
accounts. Redemptions transferred to a bank account via the ACH plan are
available to be credited to the account on the second business day following
normal payment. In order to utilize this option, the shareholder's bank must be
a member of ACH. In addition, the shareholder must fill out the appropriate
section of the account application. The shareholder must also include a voided
check or deposit slip from the bank account into which redemptions are to be
deposited together with the completed application. Once Investor Services has
received the application and the voided check or deposit slip, such
shareholder's designated bank account, following any redemption, will be
credited with the proceeds of such redemption. Once enrolled in the ACH plan, a
shareholder may terminate participation at any time by writing to Investor
Services or by calling 1-800-282-4404. A shareholder's bank may charge a fee for
ACH transfers.
TRANSFER OF REGISTRATION. You may transfer the registration of any of your
Company shares to another person by writing to the Company c/o Van Kampen
Investor Services Inc., P.O. Box 418256, Kansas City, Missouri 64141-9256. As in
the case of redemptions, the written request must be received in "good order"
before any transfer can be made. Shares held in broker street name may be
transferred only by contacting your Participating Dealer.
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<PAGE> 43
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.van-kampen.com for further instruction. Van Kampen and its subsidiaries,
including Investor Services (collectively "VK"), and the Funds 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 VK nor the Funds will
be liable for following instructions through the internet which it reasonably
believes to be genuine. If an account has multiple owners, Investor Services may
rely on the instructions of any one owner.
REDEMPTION OF SHARES
Shareholders may redeem for cash some or all of their shares without charge
by the Company (other than any applicable CDSC) at any time by sending a written
request in proper form directly to the Company c/o Van Kampen Investor Services
Inc., P.O. Box 418256, Kansas City, Missouri 64141-9256, by placing the
redemption request through a Participating Dealer or by calling the Company. See
"Purchase of Shares" for a discussion of applicable CDSC levels.
WRITTEN REDEMPTION REQUESTS. In the case of redemption requests sent
directly to Investor Services, the redemption request should indicate the number
of shares or dollars to be redeemed, the class designation of such shares, the
account number and be signed exactly as the shares are registered. Signatures
must conform exactly to the account registration. If the proceeds of the
redemption would exceed $50,000, or if the proceeds are not to be paid to the
record owner at the record address, or if the record address has changed within
the previous 30 days, signature(s) must be guaranteed by one of the following: a
bank or trust company; a broker-dealer; a credit union; a national securities
exchange, registered securities association or clearing agency; a savings and
loan association; or a federal savings bank. If certificates are held for the
shares being redeemed, such certificates must be endorsed for transfer or
accompanied by an endorsed stock power and sent with the redemption request. In
the event the redemption is requested by a corporation, partnership, trust,
fiduciary, executor or administrator, additional documents may be necessary. The
redemption price is the net asset value per share next determined after the
request is received by Investor Services in proper form. Payment for shares
redeemed will ordinarily be made by check mailed within seven business days
after acceptance by Investor Services of the request and any other necessary
documents in proper order.
DEALER REDEMPTION REQUESTS. Shareholders may redeem shares through their
securities dealer, who will submit the request to the Distributor. Orders
received from dealers must be at least $500 unless transmitted via the FUNDSERV
network. The redemption price for such shares is the net asset value per share
next calculated after an order is received (less any applicable CDSC) by a
dealer provided such order is transmitted to the Distributor prior to the
Distributor's close of business on such day. It is the responsibility of dealers
to transmit redemption requests received by them to the Distributor so they will
be received prior to such time. Any change in the redemption price due to
failure of the Distributor to receive a redemption request prior to such time
must be settled between the shareholder and dealer. Shareholders must submit a
written redemption request in proper form (as described above under "Written
Redemption Requests") to the dealer within three business days after calling the
dealer with the redemption request. Payment for shares redeemed (less any sales
charges, if applicable) will ordinarily be made by check mailed within three
business days to the dealer.
TELEPHONE REDEMPTION REQUESTS. The Company permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. To establish
such privilege, a shareholder must complete the appropriate section of the
application accompanying this Prospectus or call the Company at (800) 282-4404,
or (800) 772-8889 for the hearing impaired, to request that a copy of the
Telephone Redemption Authorization form be sent to them for completion. To
redeem shares, contact the telephone transaction line at (800) 421-5684. See
"Telephone Transaction Procedures" for more information. Telephone redemptions
may not be available if the shareholder cannot reach Investor Services by
telephone, whether because all telephone lines are busy or for any other reason,
in such case, a shareholder would have to use the Company's other redemption
procedures previously described. Requests received by Investor Services prior to
4:00 p.m., Eastern 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
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<PAGE> 44
accounts other than retirement accounts. The telephone redemption privilege is
not available for shares represented by certificates. If an account has multiple
owners, Investor Services may rely on the instructions of any one owner.
For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check sent to the shareholders'
address of record and amounts of at least $1,000 and up to $1 million may be
redeemed daily if the proceeds are to be paid by wire sent to the shareholder's
bank account of record. The proceeds must be payable to the shareholder(s) of
record. Proceeds from redemptions to be paid by check will ordinarily be mailed
within three business days to the shareholder's address of record. Proceeds from
redemptions to be paid by wire will ordinarily be wired on the next business day
to the shareholder's bank account of record. This privilege is not available if
the address or bank account of record has been changed within 30 days prior to a
telephone redemption request. The Company reserves the right at any time to
terminate, limit or otherwise modify this telephone redemption privilege.
REDEMPTION UPON DEATH OR DISABILITY. The Company will waive the CDSC on
redemptions following the death or disability of holders of Class B shares and
Class C shares. 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 Company 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 contingent deferred sales charge 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.
GENERAL REDEMPTION INFORMATION. If the shares to be redeemed have been
recently purchased by check, Investor Services may delay mailing a redemption
check or wiring redemption proceeds until it confirms that the purchase check
has cleared, usually a period of up to 15 days. In addition, the redemption
payment may be delayed or the right of redemption suspended by the Fund pursuant
to rules of the SEC.
The Company may redeem any shareholder account with a value on the date of
the notice of redemption less than the minimum initial investment as specified
in this Prospectus. At least 60 days' advance written notice of any such
involuntary redemption will be given and the shareholder will be given an
opportunity to purchase the required value of additional shares at the next
determined net asset value per share without sales charge. Any involuntary
redemption may only occur if the shareholder account is less than the minimum
initial investment due to shareholder redemptions.
A custodian of a retirement plan account may charge fees based on the
custodian's fee schedule. IRA redemption requests should be sent to the IRA
custodian to be forwarded to Investor Services. Where Van Kampen Trust serves as
IRA custodian, special IRA, 403(b)(7), or Keogh redemption forms must be
obtained from and be forwarded to Van Kampen Trust Company, P.O. Box 944,
Houston, Texas 77001-0944. Contact the custodian for information. Reinstatement
privileges (as otherwise described under "Purchase of Shares -- Reinstatement
Privilege of Each Class" above) also extend to participants in eligible
retirement plans held or administered by Van Kampen Trust who repay the
principal and interest on their borrowings from such plans.
FOR SHARES HELD IN BROKER STREET NAME, YOU CANNOT REQUEST REDEMPTION BY
TELEPHONE OR BY MAIL; SUCH SHARES MAY BE REDEEMED ONLY BY CONTACTING YOUR
PARTICIPATING DEALER.
TELEPHONE TRANSACTION PROCEDURES. Van Kampen and its subsidiaries,
including Investor Services (collectively, "VK") and the Company employ
procedures considered by them to be reasonable to confirm that instructions
communicated by telephone are genuine. Such procedures include requiring certain
personal
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<PAGE> 45
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 VK nor the Company will be liable for following instructions which it
reasonably believes to be genuine. VK and the Company may be liable for any
losses due to unauthorized or fraudulent instructions if reasonable procedures
are not followed.
VALUATION OF SHARES
Net asset value is calculated separately for each class of each Fund. The
net asset value per share of each class of shares of a Fund is determined by
dividing the total fair market value of the investments and other assets
attributable to such class of shares, less all liabilities attributable to such
class of shares, by the total number of outstanding shares of such class of
shares. Net asset value per share of a Fund is determined as of the regular
close of the NYSE (currently 4:00 p.m., Eastern Time) on each day that the NYSE
is open for business. Securities listed on a securities exchange for which
market quotations are available are valued at their closing price. If no closing
price is available, such securities will be valued at the last quoted sale price
on the day the valuation is made. Price information on listed securities is
taken from the exchange where the security is primarily traded. Unlisted
securities and listed securities not traded on the valuation date for which
market quotations are readily available are valued at the average of the mean
between the current bid and asked prices obtained from reputable brokers.
Bonds and other fixed income securities are valued according to the broadest
and most representative market, which will ordinarily be the over-the-counter
market. Net asset value includes interest on fixed income securities, which is
accrued daily. In addition, bonds and other fixed income securities may be
valued on the basis of prices provided by a pricing service when such prices are
believed to reflect the fair market value of such securities. The prices
provided by a pricing service are determined without regard to bid or last sale
prices but take into account institutional size trading in similar groups of
securities and any developments related to the specific securities. Securities
not priced in this manner are valued at the most recent quoted bid price, or,
when stock exchange valuations are used, at the latest quoted sale price on the
day of valuation. If there is no such reported sale, the latest quoted bid price
will be used. Debt securities purchased with remaining maturities of 60 days or
less are valued at amortized cost, if it approximates market value. In the event
that amortized cost does not approximate market value, market prices as
determined above will be used. The "amortized cost" method of valuation does not
take into account unrealized gains or losses. This method involves valuing an
instrument at its cost and thereafter assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. While this method provides
certainty in valuation, it may result in periods during which value, as
determined by amortized cost, is higher or lower than the price each Fund would
receive if it sold the instrument.
The value of other assets and securities for which no quotations are readily
available (including illiquid and unlisted foreign securities) and those
securities for which it is inappropriate to determine prices in accordance with
the above procedures are determined in good faith at fair value using methods
determined by the Board of Directors. For purposes of calculating net asset
value per share, all assets and liabilities initially expressed in foreign
currencies will be converted into U.S. Dollars at the mean of the bid price and
asked price of such currencies against the U.S. Dollar as quoted by a major
bank.
PORTFOLIO TRANSACTIONS
The Adviser and the applicable Sub-Adviser select the brokers or dealers
that will execute the purchases and sales of investment securities for the
applicable Fund. The Adviser and the applicable Sub-Adviser may, consistent with
NASD rules, place portfolio orders with qualified broker-dealers who recommend
the applicable Fund to their clients or who act as agents in the purchase of
shares of the Fund for their clients.
Subject to the overriding objective of obtaining the best execution of
orders, the Adviser and the applicable Sub-Adviser may allocate a portion of the
Company's portfolio brokerage transactions to Morgan Stanley & Co. Incorporated
("Morgan Stanley") and affiliates of the Adviser and the Sub-Advisers or broker
affiliates of Morgan Stanley under procedures adopted by the Board of Directors.
For such portfolio transactions, the commissions, fees or other remuneration
received by Morgan Stanley or such affiliates must be reasonable and fair
compared to the commissions, fees or other remuneration paid to other brokers
for comparable transactions involving similar securities being purchased or sold
during a comparable period of time.
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<PAGE> 46
Although the objective of each Fund is not to invest for short-term trading,
each Fund will seek to take advantage of trading opportunities as they arise to
the extent they are consistent with the Fund's objective. Accordingly,
investment securities may be sold from time to time without regard to the length
of time they have been held. High portfolio turnover (i.e. 100% or more)
involves correspondingly greater transaction costs which will be borne directly
by a Fund. In addition, high portfolio turnover may result in more capital gains
which would be taxable to the shareholders of the Fund. See "Financial
Highlights" above for the Funds' historical portfolio turnover rates.
PERFORMANCE INFORMATION
The Company may from time to time advertise total return of the Funds. THESE
FIGURES WILL BE BASED ON HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE
FUTURE PERFORMANCE. The "total return" shows what an investment in a Fund would
have earned over a specified period of time (such as one, three, five or ten
years) assuming that all distributions and dividends by the Fund were reinvested
on the reinvestment dates during the period. Total return does not take into
account any federal or state income taxes consequences to shareholders subject
to tax. The Company may also include comparative performance information in
advertising or marketing the Fund's shares. Such performance information may
include data from Lipper Analytical Services, Inc. and Morgan Stanley Capital
International.
PERFORMANCE OF INVESTMENT SUB-ADVISERS
The Mid Cap Growth Fund was modeled after a portfolio of the MAS Funds,
which is currently managed by MAS. The MAS Portfolio has substantially the same
investment objective, policies and strategies as the Mid Cap Growth Fund. In
addition, the Adviser and MAS intend the Mid Cap Growth Fund to be managed by
the same personnel and to continue to have closely similar investment
strategies, techniques and characteristics as the corresponding MAS Portfolio.
Past investment performance of the MAS Portfolio, as shown in the table below,
may be relevant to your consideration of investment in the Mid Cap Growth Fund.
The investment performance of the MAS Portfolio is not necessarily indicative of
future performance of the Mid Cap Growth Fund. Also, the operating expenses of
the Mid Cap Growth Fund will be different from, and may be higher than, the
operating expenses of the MAS Portfolio. The investment performance of the MAS
Portfolio is provided merely to indicate the experience of MAS in managing a
similar investment portfolio.
The data set forth below under the heading "Return With Sales Charge" is
adjusted to reflect the Mid Cap Growth Fund's projected operating expenses and
(i) with respect to the Class A shares, to take into account a maximum 5.75%
initial sales charge applicable to purchases of Class A shares of the Mid Cap
Growth Fund, (ii) with respect to Class B shares, to take into account the
applicable CDSC that is imposed if Class B shares of the Mid Cap Growth Fund are
redeemed within the year of their purchase indicated and (iii) with respect to
the Class C shares, to take into account a 1.00% CDSC that is imposed if Class C
shares of the Mid Cap Growth Fund are redeemed within one year of their
purchase. The data set forth below under the heading "Return Without Sales
Charge" is adjusted to reflect the Mid Cap Growth Fund's projected operating
expenses and not adjusted to take into account such sales charges.
TOTAL RETURN FOR THE MAS PORTFOLIO FOR GROWTH INSTITUTIONAL CLASS
(A SEPARATE MUTUAL FUND FROM THE MID CAP GROWTH FUND)
FOR THE PERIOD ENDED JUNE 30, 1998
(ADJUSTED TO REFLECT PROJECTED OPERATING EXPENSES AND, WHERE INDICATED, THE
SALES CHARGES OF THE FUND)
<TABLE>
<CAPTION>
RETURN WITH
SALES CHARGE 1 YEAR 5 YEARS SINCE INCEPTION(1)
- ---------------------------------------------------------- --------- ----------- -------------------
<S> <C> <C> <C>
Class A (of 5.75%)........................................ 42.53% 22.61% 21.65%
Class B (of 5.00%)........................................ 45.48% 23.60% 22.34%
Class C (of 1.00%)........................................ 49.48% 23.73% 22.34%
<CAPTION>
RETURN WITHOUT
SALES CHARGE
- ----------------------------------------------------------
<S> <C> <C> <C>
Class A................................................... 51.23% 24.07% 22.53%
Class B................................................... 50.48% 23.73% 22.34%
Class C................................................... 50.48% 23.73% 22.34%
</TABLE>
- --------------
(1) Commenced Operations on March 30, 1990.
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<PAGE> 47
The past performance of the MAS Portfolio for Growth Institutional Class is
no guarantee of the future performance of the Mid Cap Growth Fund.
DIVIDENDS AND DISTRIBUTIONS
Shareholders will automatically be credited with all dividends and
distributions in additional shares at net asset value, without payment of any
sales charge of the Funds, except that, upon written notice to the Company or by
checking off the appropriate box in the account application form, a shareholder
may elect to receive dividends and/or distributions in cash.
Each of the Equity Growth and Mid Cap Growth Funds expects to distribute
substantially all of its net investment income in the form of annual dividends
and each of the Aggressive Equity, American Value, U.S. Real Estate and Value
Funds expects to distribute substantially all of its net investment income in
the form of quarterly dividends. Each of the Funds expects to distribute net
realized gains, if any, annually. Confirmations of the purchase of shares of a
Fund through the automatic reinvestment of income dividends and capital gains
distributions will be provided, pursuant to Rule 10b-10(b) under the Securities
Exchange Act of 1934, as amended, on the next quarterly client statement
following such purchase of shares. Consequently, confirmations of such purchases
will not be provided at the time of completion of such purchases, as might
otherwise be required by Rule 10b-10.
Any undistributed net investment income and undistributed realized gains
increase a Fund's net assets for the purpose of calculating net asset value per
share. Therefore, on the "ex-dividend" or "ex-distribution" date, the net asset
value per share excludes the dividend or distribution (i.e., is reduced by the
per share amount of the dividend or distribution). Dividends and distributions
paid shortly after the purchase of shares by an investor, although in effect a
return of capital, are taxable to shareholders subject to tax.
Expenses of the Company allocated to a particular class of shares of a Fund
will be borne on a pro rata basis by each outstanding share of that class.
TAXES
TAX STATUS OF THE FUNDS
The following summary of certain federal income tax consequences is based on
current federal income tax laws and regulations, which may be changed by
legislative, judicial or administrative action, possibly with retroactive
effect. See also the tax sections in the Statement of Additional Information.
No attempt has been made to present a detailed explanation of the federal,
state or local income tax treatment of the Funds or their shareholders.
Accordingly, shareholders are urged to consult their tax advisors regarding
specific questions as to federal, state and local income taxes.
Each of the Funds is generally treated as a separate entity for federal
income tax purposes, and thus the provisions of the Code generally will be
applied to each Fund separately, rather than to the Company as a whole.
Accordingly, net long-term and short-term capital gains, net income and
operating expenses will be determined separately for each Fund.
Each Fund has elected and qualified, and intends to continue to qualify each
year, for the special tax treatment afforded "regulated investment companies"
("RICs") under Subchapter M of the Code so that each will be relieved of federal
income tax on that part of its net investment income and net capital gain (the
excess of net long-term capital gain over net short-term capital loss, less any
available capital loss carryforward) which is distributed to its shareholders.
DISTRIBUTIONS AND DISPOSITIONS
Each Fund distributes substantially all of its net investment income
(including, for this purpose, net short-term capital gain) to its shareholders.
Dividends paid by a Fund from its net investment income will be taxable to the
shareholders of the Fund as ordinary income, whether received in cash or in
additional shares, if the shareholder is subject to tax. Dividends paid by a
Fund attributable to dividends received with respect to shares of domestic
corporations may qualify for the dividends-received deduction for corporations.
Distributions of net capital gains ("capital gain dividends") are taxable to
shareholders subject to tax as long-term capital gains, regardless of how long
the shareholder has held a Fund's shares. Capital gain dividends are not
eligible for the corporate dividends-received deduction. Each Fund will make
annual reports to
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<PAGE> 48
shareholders of the federal income tax status of all distributions. See the
discussion below for a summary of the tax rates applicable to capital gains
(including capital gain dividends).
Each Fund intends to make sufficient distributions or deemed distributions
of its ordinary income and net capital gains prior to the end of each calendar
year to continue to qualify as a RIC under the Code and to avoid liability for
federal income and excise taxes.
Dividends and other distributions declared by a Fund in October, November or
December that are payable as of a record date in such month and are paid at any
time during January of the following year are treated as having been paid by the
Fund and received by the shareholders on December 31st of the year in which they
are declared.
The sale, exchange or redemption of shares may result in taxable gain or
loss to the selling, exchanging or redeeming shareholder, depending upon whether
the fair market value of the sale, exchange or redemption proceeds exceeds or is
less than the shareholder's adjusted tax basis in the sold, exchanged or
redeemed shares. If capital gain dividends have been paid with respect to shares
that are sold at a loss after being held for six months or less, then the loss
is treated as a long-term capital loss to the extent of such capital gain
dividends. Shareholders may also be subject to state and local taxes on
distributions from the Funds.
The maximum tax rate applicable to net capital gains recognized by
individuals and other non-corporate taxpayers is (i) the same as the maximum
ordinary income tax rate for capital assets held for one year or less, or (ii)
20% for capital assets held for more than one year. The maximum long-term
capital gains rate for corporations is at 35%. A special 28% tax rate may apply
to a portion of the capital gain dividends paid by the Fund with respect to its
taxable year ended June 30, 1998.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED HEREIN FOR GENERAL
INFORMATION ONLY. PROSPECTIVE INVESTORS AND SHAREHOLDERS SHOULD CONSULT THEIR
OWN TAX ADVISERS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF AN INVESTMENT
IN THE FUNDS.
GENERAL INFORMATION
DESCRIPTION OF COMMON STOCK
The Company was organized as a Maryland corporation on August 14, 1992 under
the name Morgan Stanley Fund, Inc. On July 14, 1998 the Company adopted its
current name. The Amended Articles of Incorporation currently permit the Company
to issue 28.5 billion shares of common stock, par value $.001 per share.
Pursuant to the Company's By-Laws, the Board of Directors may increase the
number of shares the Company is authorized to issue without the approval of the
shareholders of the Company. The Board of Directors has the power to designate
one or more classes of shares of common stock and to classify and reclassify any
unissued shares with respect to such classes.
The shares of each Fund, when issued, will be fully paid, nonassessable,
fully transferable and redeemable at the option of the holder. Except as
described herein, the shares have no preference as to conversion, exchange,
dividends, retirement or other features and have no preemptive rights. The
shares of the Funds have non-cumulative voting rights, which means that the
holders of more than 50% of the shares voting for the election of Directors can
elect 100% of the Directors if they choose to do so. Under Maryland law, the
Company is not required to hold an annual meeting of its shareholders unless
required to do so under the 1940 Act. Any person or organization owning 25% or
more of the outstanding shares of a Fund may be presumed to "control" (as that
term is defined in the 1940 Act) such Fund. As of September 3, 1998, no person
or organization owned 25% or more of the outstanding voting shares of any Fund.
REPORTS TO SHAREHOLDERS
The Company will send to its shareholders annual and semi-annual reports;
the financial statements appearing in annual reports are audited by independent
accountants.
In addition, the Company or Investor Services will send to each shareholder
having an account directly with the Company a quarterly statement showing
transactions in the account, the total number of shares owned, and any dividends
or distributions paid. In addition, when a transaction occurs in a shareholder's
account, the Company or Investor Services will send the shareholder a
confirmation statement showing the same information.
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<PAGE> 49
CUSTODIAN
Domestic securities and cash are held by Chase, which is not an affiliate of
the Adviser, the Sub-Adviser or the Distributor. Morgan Stanley Trust Company,
Brooklyn, New York ("Morgan Stanley Trust"), acts as the Company's custodian for
foreign assets held outside the United States and employs subcustodians who were
approved by the Directors of the Company in accordance with regulations of the
SEC for the purpose of providing custodial services for such assets. Morgan
Stanley Trust may also hold certain domestic assets for the Company. Morgan
Stanley Trust is an affiliate of the Adviser, the Sub-Adviser and the
Distributor. For more information on the custodians, see "General Information --
Custody Arrangements" in the Statement of Additional Information.
DIVIDEND DISBURSING AND TRANSFER AGENT
Van Kampen Investor Services Inc., P.O. Box 418256, Kansas City, Missouri
64141-9256, acts as dividend disbursing and transfer agent for the Company.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 200 East Randolph Street, Chicago, Illinois
60601, serves as independent accountants for the Company and audits its annual
financial statements.
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<PAGE> 50
APPENDIX A
DESCRIPTION OF CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC. -- CORPORATE BOND RATINGS:
Aaa -- Bonds which are rated Aaa are judged to be 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.
Moody's applies numerical modifiers 1, 2 and 3 in the Aa and A rating
categories. The modifier 1 indicates that the security ranks at a higher end of
the rating category, modifier 2 indicates a mid-range rating and the modifier 3
indicates that the issue ranks at the lower end of the rating category.
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 both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
STANDARD & POOR'S RATINGS GROUP CORPORATE BOND RATINGS:
AAA -- Bonds rated AAA have the highest rating assigned by Standard & Poor's
to a debt obligation and indicate an extremely strong capacity to pay principal
and interest.
AA -- Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only to a small degree.
A -- Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
A-1
<PAGE> 51
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 for debt in higher rated categories.
BB, B, CCC, CC -- Debt rated BB, B, CCC and CC 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
lowest degree of speculation and CC 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.
C -- The rating C is reserved for income bonds on which no interest is being
paid.
D -- Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
A-2
<PAGE> 52
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VAN KAMPEN
AGGRESSIVE EQUITY FUND
AMERICAN VALUE FUND
EQUITY GROWTH FUND
MID CAP GROWTH FUND
U.S. REAL ESTATE FUND
VALUE FUND
PORTFOLIOS OF
VAN KAMPEN SERIES FUND, INC.
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PROSPECTUS
SEPTEMBER 30, 1998
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