<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 29, 1998
REGISTRATION NOS. 2-33214
811-2424
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
<TABLE>
<S> <C>
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 [X]
POST-EFFECTIVE AMENDMENT NO. 57 [X]
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 27 [X]
</TABLE>
VAN KAMPEN EMERGING GROWTH FUND
(EXACT NAME OF REGISTRANT AS SPECIFIED IN DECLARATION OF TRUST)
ONE PARKVIEW PLAZA, OAKBROOK TERRACE, ILLINOIS 60181
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)(ZIP CODE)
(630) 684-6000
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
RONALD A. NYBERG, ESQ.
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
VAN KAMPEN INVESTMENTS INC.
ONE PARKVIEW PLAZA
OAKBROOK TERRACE, ILLINOIS 60181
(NAME AND ADDRESS OF AGENT FOR SERVICE)
---------------------
COPIES TO:
WAYNE W. WHALEN, ESQ.
THOMAS A. HALE, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 WEST WACKER DRIVE
CHICAGO, ILLINOIS 60606
(313) 407-0700
Approximate Date of Proposed Public Offering: As soon as practicable following
effectiveness of this Registration Statement.
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[X] on December 29, 1998 pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered: Shares of Beneficial Interest, par value
$0.01 per share
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
---------------------------------------------
VAN KAMPEN
EMERGING GROWTH FUND
---------------------------------------------
Van Kampen Emerging Growth Fund is a mutual fund that has an investment
objective of capital appreciation. The Fund's management seeks to achieve the
investment objective by investing primarily in common stocks of small and medium
sized companies considered by the Fund's management to be emerging growth
companies.
---------------------------------------------
Shares of the Fund have not been approved or disapproved by the Securities
and Exchange Commission (SEC) or any state regulators, and neither the SEC nor
any state regulator has ruled on the accuracy or adequacy of this prospectus. It
is a criminal offense to state otherwise.
---------------------------------------------
THIS PROSPECTUS IS DATED DECEMBER , 1998.
<PAGE> 3
---------------------------------------------
TABLE OF CONTENTS
---------------------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Risk/Return Summary......................................... 3
Fees and Expenses of the Fund............................... 6
Investment Objective and Policies........................... 8
Investment Advisory Services................................ 11
Purchase of Shares.......................................... 13
Redemption of Shares........................................ 18
Distributions from the Fund................................. 20
Shareholder Services........................................ 20
Federal Income Taxation..................................... 21
Financial Highlights........................................ 23
</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 Fund's investment adviser or the
Fund's distributor. This prospectus does not constitute an offer by the Fund or
by the Fund's distributor to sell or a solicitation of an offer to buy any of
the securities offered hereby in any jurisdiction to any person to whom it is
unlawful for the Fund to make such an offer in such jurisdiction.
2
<PAGE> 4
---------------------------------------------
RISK/RETURN SUMMARY
---------------------------------------------
INVESTMENT OBJECTIVE
The Fund is a mutual fund that has an investment objective of capital
appreciation. Any ordinary income received from portfolio securities is entirely
incidental to the Fund's investment objective.
INVESTMENT STRATEGIES
The Fund's management seeks to achieve the investment objective by
investing at least 65% of the Fund's total assets in common stocks of small and
medium sized (with market capitalization or annual sales less than $2 billion)
emerging growth companies. Emerging growth companies are those domestic or
foreign companies that the Fund's management believes are in the early stages of
their life cycles and have the potential to become major enterprises. Investing
in such companies involves risks not ordinarily associated with investments in
larger, more established companies.
INVESTMENT RISKS
With its portfolio of common stocks of smaller and medium sized, less
established companies, the Fund has greater risks than a fund that invests only
in larger sized, more seasoned companies. Because of the following risks, you
could lose money on your investment in the Fund over the short or long term:
- - MARKET RISK. Market risk is the possibility that stock prices will decline,
sometimes suddenly and sharply. During an overall market decline, stock
prices of small and medium sized companies (such as those in which the Fund
invests) often fluctuate more and often fall more than the prices of larger
company stocks. It is possible that the stocks of small and medium sized
companies will be more volatile and underperform the overall stock market.
Historically, smaller and medium sized company stocks have sometimes gone
through extended periods when they did not perform as well as larger company
stocks.
- - RISKS OF EMERGING GROWTH COMPANIES. Companies that the Fund's management
believes are emerging growth companies are often companies with limited
product lines, markets, distribution channels or financial resources and the
management of such companies may be dependent upon one or a few key people.
The stocks of emerging growth companies can therefore be subject to more
abrupt or erratic market movements than stocks of larger, more established
companies or the stock market in general.
- - FOREIGN RISKS. Because the Fund may own securities from foreign issuers, it
may be subject to risks not usually associated with owning securities of U.S.
issuers. These risks can include fluctuations in foreign currencies, foreign
currency exchange controls, political and economic instability, differences
in financial reporting and securities regulation and trading, and foreign
taxation issues.
3
<PAGE> 5
- - MANAGER RISK. As with any fund, the Fund's management may not be successful
in selecting the best-performing securities and the Fund's performance may
lag behind that of similar funds.
An investment in the Fund is not a deposit of any bank or other insured
depository institution. Your investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
INVESTOR PROFILE
In light of its objectives and investment strategies, the Fund may be
appropriate for investors who:
- - Seek to grow their capital over the long term.
- - Do not need current income from their investment.
- - Are willing to take on the increased risks of investing in smaller and medium
sized, less established companies in exchange for potentially higher capital
appreciation.
- - Can withstand substantial volatility in the value of their shares of the
Fund.
Investors should consider carefully the additional risks associated with
investment in smaller and medium sized, less established companies. An
investment in the Fund may not be appropriate for all investors. The Fund is not
intended to be a complete investment program, and investors should consider
their long term investment goals and financial needs when making an investment
decision 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.
ANNUAL PERFORMANCE
One way to measure the risks of investing in the Fund is to look at how its
performance varies from year to year. The following chart shows the annual
returns of the Fund's Class A Shares over the past ten calendar years, as well
as its best and worst quarter during that period. Sales loads are not reflected
in this chart. If these sales loads had been included, the returns shown below
would have been lower. Remember that the past performance of the Fund is not
indicative of its future performance.
BAR GRAPH
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) Annual Return
<S> <C>
1989 29.06
1990 1.97
1991 60.43
1992 9.73
1993 23.92
1994 -7.12
1995 44.63
1996 17.91
1997 21.34
1998 6.29
Annual Return for Class A Shares*
*The returns for 1998 are annualized based upon the
three-quarter period ended September 30, 1998.
</TABLE>
4
<PAGE> 6
The variability of the Fund's Class B Shares and Class C Shares would be
substantially similar to that shown for the Class A Shares because all of the
Fund's shares are invested in the same portfolio of securities; however, the
actual annual returns of the Class B Shares and Class C Shares would differ from
the annual returns shown for the Fund's Class A Shares reflecting differences in
the expenses borne by each class of shares.
During the ten-year period shown in the bar chart, the highest quarterly
return was 25.15% (for the quarter ended March 31, 1991) and the lowest
quarterly return was -19.80% (for the quarter ended September 30, 1990).
COMPARATIVE PERFORMANCE
This table shows how the Fund's performance compares with the Russell 2000
Stock Index, a broad-based index that the Fund's management believes is an
applicable benchmark for the Fund. Average annual total returns are shown for
one-, five-, and ten-year periods ended December 31, 1997 (the most recently
completed calendar year). Remember that the past performance of the Fund is not
indicative of its future performance.
---------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS FOR
THE PERIODS ENDED DECEMBER 31, 1997
---------------------------------------------
<TABLE>
<CAPTION>
PAST
10 YEARS
PAST PAST OR SINCE
1 YEAR 5 YEARS INCEPTION
------ ------- ---------
<S> <C> <C> <C>
Van Kampen Emerging Growth Fund
Class A Shares........................... 14.35% 17.55% 18.35%
Class B Shares........................... 20.40% 18.03% 19.16%
Class C Shares........................... 20.44% -- 17.23%(*)
Russell 2000 Stock Index................... 22.36% 16.40% 15.77%
</TABLE>
- ------------------------------------
* Inception Date of 7/6/93.
5
<PAGE> 7
---------------------------------------------
FEES AND EXPENSES OF THE FUND
---------------------------------------------
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
-------- ------------ ------------
<S> <C> <C> <C>
Shareholder Fees
(fees paid directly from your
investment):
Maximum sales charge (load) imposed on
purchases (as a percentage of
offering price)..................... 5.75% (1) None None
Maximum deferred sales charge (load)
(as a percentage of the lesser of
original purchase price or
redemption proceeds)................ None (2) Year Year
1--5.00% 1--1.00%
Year After--None
2--4.00%
Year
3--3.00%
Year
4--2.50%
Year
5--1.50%
After--None
Maximum sales charge (load) imposed
reinvested dividends (as a
percentage of offering price)....... None None None
Redemption fees (as a percentage of
amount redeemed).................... None None None
Exchange fee.......................... None None None
</TABLE>
- ------------------------------------
(1) Reduced for purchases of $50,000 and over. See "Purchase of Shares--Class A
Shares."
(2) Investments of $1 million or more are not subject to any sales charge at the
time of purchase, but a deferred sales charge of 1.00% may be imposed on
redemptions made within one year of the purchase. See "Purchase of
Shares--Class A Shares."
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
-------- -------- --------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund
assets):
Management Fees............................ 0.45% 0.45% 0.45%
Distribution and/or Service (12b-1)
Fees(1).................................. 0.22% 1.00%(2) 1.00%(2)
Other Expenses............................. 0.33% 0.34% 0.34%
----- ----- -----
Total Annual Fund Operating Expenses....... 1.00% 1.79% 1.79%
</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
6
<PAGE> 8
1.00% of the average daily net assets attributable to such class of shares.
See "Distribution and Service Plans."
(2) Because Distribution and/or Service (12b-1) Fees are paid out of the Fund's
assets on an ongoing basis, over time these fees will increase the cost of
your investment and may cost you more than paying other types of sales
charges. Long-term shareholders may pay more than the economic equivalent of
the maximum front-end sales charges permitted by NASD Rules.
Example:
This Example is intended to help you compare the cost of investing in the
Fund with the costs of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% annual return
each year and that the Fund's operating expenses remain the same each year
(except for the ten year amounts for Class B Shares which reflect the conversion
of Class B Shares to Class A Shares after eight years). Although your actual
costs may be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ------ ------
<S> <C> <C> <C> <C>
Class A Shares........................... $671 $875 $1,096 $1,729
Class B Shares........................... $682 $863 $1,120 $1,897*
Class C Shares........................... $282 $563 $ 970 $2,105
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ------ ------
<S> <C> <C> <C> <C>
Class A Shares........................... $671 $875 $1,096 $1,729
Class B Shares........................... $182 $563 $ 970 $1,897*
Class C Shares........................... $182 $563 $ 970 $2,105
</TABLE>
- ------------------------------------
* Based on conversion to Class A shares after eight years.
To facilitate comparison among funds, all funds are required by the SEC to
utilize a 5% annual return assumption. Class B Shares of the Fund acquired
through the exchange privilege are subject to the CDSC schedule of the fund from
which the shareholder's 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 Fund's actual annual return and actual expenses for
future periods may be greater or less than those shown.
7
<PAGE> 9
---------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES
---------------------------------------------
The Fund's investment objective is to provide capital appreciation. Any
ordinary income received from portfolio securities is entirely incidental to the
Fund's investment objective. This objective may be changed by the Fund's Board
of Trustees without shareholder approval, but no change is anticipated. If there
is a change in the investment objective of the Fund, shareholders should
consider whether the Fund remains an appropriate investment in light of their
then current financial positions and needs. There can, of course, be no
assurance that the investment objective of capital appreciation will be realized
and investors should give full consideration to the risks inherent in the
investment techniques that the Fund's investment adviser may use to achieve such
investment objective.
As a fundamental investment policy, the Fund under normal conditions
invests at least 65% of its total assets in common stocks of small and medium
sized companies, both domestic and foreign, in the early stages of their life
cycles that the Fund's investment adviser believes have the potential to become
major enterprises. Investments in such companies may offer greater opportunities
for growth of capital than larger, more established companies, but also may
involve certain special risks. Emerging growth companies often have limited
product lines, markets, distribution channels or financial resources, and they
may be dependent upon one or a few key people for management. The securities of
such companies may be subject to more abrupt or erratic market movements than
securities of larger, more established companies or the market averages in
general. While the Fund will invest primarily in common stocks, it may invest to
a limited extent in other securities such as preferred stocks, convertible
securities and warrants.
The Fund does not limit its investment to any single group or type of
security. The Fund may invest in securities involving special situations, such
as new management, special products and techniques, unusual developments,
mergers or liquidations. Investments in unseasoned companies and special
situations often involve much greater risks than are inherent in other types of
investments, because securities of such companies may be more likely to
experience unexpected fluctuations in price.
The Fund's primary approach is to seek what the Fund's investment adviser
believes to be unusually attractive growth investments on an individual company
basis. The Fund may invest in securities that have above average volatility of
price movement. Because prices of common stocks and other securities fluctuate,
the value of an investment in the Fund will vary based upon the Fund's
investment performance. The Fund attempts to reduce overall exposure to risk
from declines in securities prices by spreading its investments over many
different companies in a variety of industries. There is, however, no assurance
that the Fund will be successful in achieving its objective.
SECURITIES OF FOREIGN ISSUERS
The Fund may invest up to 20% of its assets in securities of foreign
issuers. Such securities may be denominated in U.S. dollars or in currencies
other than U.S. dollars. Investments in foreign securities present certain risks
not ordinarily associated with investments in securities of U.S. issuers. These
risks include fluctuations in foreign
8
<PAGE> 10
exchange rates, political and economic developments (including war or other
instability, expropriation of assets, nationalization and confiscatory
taxation), the imposition of foreign exchange limitations, withholding taxes on
income or capital transactions or other restrictions, higher transaction costs
and difficulty in taking judicial action. In addition, there generally is less
publicly available information about many foreign issuers, and auditing,
accounting and financial reporting requirements are less stringent and less
uniform in many foreign countries. Such securities may be less liquid than the
securities of the U.S. corporations. Such securities may also be subject to
greater fluctuations in price than securities of U.S. corporations. There is
generally less government regulation of stock exchanges, brokers and listed
companies abroad than in the United States, and, with respect to certain foreign
countries, there is a possibility of expropriation or confiscatory taxation, or
diplomatic developments which could affect investment in those countries.
Because there is usually less supervision and governmental regulation of
exchanges, brokers and dealers than there is in the U.S., the Fund may
experience settlement difficulties or delays not usually encountered in the U.S.
The risks of foreign investments should be considered carefully by an investor
in the Fund.
USING OPTIONS, FUTURES CONTRACTS AND RELATED OPTIONS
The Fund expects to utilize options, futures contracts and options on
futures contracts in several different ways, depending upon the status of the
Fund's portfolio and the Adviser's expectations concerning the securities
markets.
In times of stable or rising stock prices, the Fund generally seeks to be
fully invested in equity securities. Even when the Fund is fully invested,
however, prudent management requires that at least a small portion of assets be
available as cash to honor redemption requests and for other short-term needs.
The Fund may also have cash on hand that has not yet been invested. The portion
of the Fund's assets that is invested in cash or cash equivalents does not
fluctuate with stock market prices, so that, in times of rising market prices,
the Fund may underperform the market in proportion to the amount of cash or cash
equivalents in its portfolio. By purchasing stock index futures contracts,
however, the Fund can compensate for the cash portion of its assets and may
obtain performance equivalent to investing 100% of its assets in equity
securities.
If the Adviser forecasts a market decline, the Fund may seek to reduce its
exposure to the securities markets by increasing its cash position. By selling
stock index futures contracts instead of portfolio securities, a similar result
can be achieved to the extent that the performance of the futures contracts
correlates to the performance of the Fund's portfolio securities. Sales of
futures contracts frequently may be accomplished more rapidly and at less cost
than the actual sale of securities. Once the desired hedged position has been
effected, the Fund could then liquidate securities in a more deliberate manner,
reducing its futures position simultaneously to maintain the desired balance, or
it could maintain the hedged position.
As an alternative to stock index futures contracts, the Fund can engage in
stock index options (or stock index futures options) to manage the portfolio's
risk in advancing or declining markets. For example, the value of a put option
generally increases as the underlying security declines below a specified level,
value is protected against a market decline to the degree the performance of the
put correlates with the performance of the Fund's investment portfolio. If the
market remains stable or advances, the Fund can
9
<PAGE> 11
refrain from exercising the put and its portfolio will participate in the
advance, having incurred only the premium cost for the put.
The Fund is authorized to purchase and sell listed and over-the-counter
options ("OTC Options"). OTC Options are subject to certain additional risks
including default by the other party to the transaction and the liquidity of the
transactions.
In certain cases, the options and futures markets provide investment or
risk management opportunities that are not available from direct investments in
securities. In addition, some strategies can be performed with greater ease and
at lower cost by utilizing the options and futures markets rather than
purchasing or selling portfolio securities. However, such transactions involve
risks different from the direct investment in underlying securities such as
imperfect correlation between the value of the instruments and the underlying
assets, risks of default by the other party to certain transactions, risks that
the transactions may incur losses that partially or completely offset gains in
portfolio positions, risks that the transactions may not be liquid and manager
risk. In addition, such transactions may involve commissions and other costs,
which may increase the Fund's expenses and reduce its return. A more complete
discussion of options, futures contracts and related options and their risks is
contained in the Statement of Additional Information.
OTHER INVESTMENTS AND RISK FACTORS
For cash management purposes, the Fund may engage in repurchase agreements
with banks and broker-dealers to earn a return on temporarily available cash.
Such transactions are subject to the risk of default by the other party. It is
currently the policy of the Fund not to invest at the time of purchase more than
25% of its total assets in securities subject to repurchase agreements.
The Fund may invest up to 10% of the Fund's net assets in illiquid and
certain restricted securities. Such securities may be difficult or impossible to
sell at the time and the price that the Fund would like. Thus, the Fund may have
to sell such securities at a lower price, sell other securities instead to
obtain cash or forego other investment opportunities.
Further information about these types of investments and other investment
practices that may be used by the Fund is contained in the Fund's Statement of
Additional Information which can be obtained by investors free of charge as
described on the back cover of this prospectus.
Although the Fund does not intend to engage in substantial short-term
trading, it may sell securities without regard to the length of time they have
been held in order to take advantage of new investment opportunities or when the
Fund's management believes the potential for capital appreciation has lessened
or otherwise. The Fund's portfolio turnover is shown under the heading
"Financial Highlights." The portfolio turnover rate may be expected to vary from
year to year. A high portfolio turnover rate (100% or more) increases the Fund's
transactions costs, including brokerage commissions, and may result in the
realization of more short-term capital gains than if the Fund had a lower
portfolio turnover. The turnover rate will not be a limiting factor, however, if
the Fund's investment adviser considers portfolio changes appropriate.
10
<PAGE> 12
When market conditions dictate a more "defensive" investment strategy, the
Fund may invest on a temporary basis a portion or all of its assets in
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, prime commercial paper, certificates of deposit, bankers'
acceptances and other obligations of domestic banks having total assets of at
least $500 million, and repurchase agreements. Under normal market conditions,
the potential for capital appreciation on these securities will tend to be lower
than the potential for capital appreciation on other securities owned by the
Fund. The effect of taking such a defensive position may be that the Fund does
not achieve its investment objective.
Like other mutual funds, financial and business organizations and
individuals around the world, the Fund could be adversely affected if the
computer systems used by the Fund's investment adviser and other service
providers do not properly process and calculate date-related information and
data from and after January 1, 2000. This is commonly known as the "Year 2000
Problem." The Fund's investment adviser is taking steps that it believes are
reasonably designed to address the Year 2000 Problem with respect to computer
systems that it uses and to obtain reasonable assurances that comparable steps
are being taken by the Fund's other major service providers. At this time, there
can be no assurances that these steps will be sufficient to avoid any adverse
impact to the Fund. In addition, the Year 2000 Problem may adversely affect the
markets and the issuers of securities in which the Fund may invest which, in
turn, may adversely affect the net asset value of the Fund. Improperly
functioning trading systems may result in settlement problems and liquidity
issues. In addition, corporate and governmental data processing errors may
result in production problems for individual companies and overall economic
uncertainties. Earnings of individual issuers will be affected by remediation
costs, which may be substantial and may be reported inconsistently in U.S. and
foreign financial statements. Accordingly, the Fund's investments may be
adversely affected.
---------------------------------------------
INVESTMENT ADVISORY SERVICES
---------------------------------------------
THE ADVISER. Van Kampen Asset Management Inc. is the Fund's investment
adviser (the "Adviser"). The Adviser is a wholly-owned subsidiary of Van Kampen
Investments Inc. ("Van Kampen Investments"). Van Kampen Investments is a
diversified asset management company with more than two million retail investor
accounts, extensive capabilities for managing institutional portfolios, and more
than $50 billion under management or supervision. Van Kampen Investments' more
than 60 open-end and more than 35 closed-end funds and more than 2,500 unit
investment trusts are professionally distributed by leading financial advisers
nationwide. Van Kampen Funds Inc., the distributor of the Fund (the
"Distributor") and the sponsor of the funds mentioned above, is also a
wholly-owned subsidiary of Van Kampen Investments. Van Kampen Investments is an
indirect wholly-owned subsidiary of Morgan Stanley Dean Witter & Co. The
Adviser's principal office is located at One Parkview Plaza, Oakbrook Terrace,
Illinois 60181.
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
11
<PAGE> 13
"Advisory Agreement"), the Fund pays the Adviser a monthly fee computed based
upon an annual rate applied to average daily net assets of the Fund as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS % PER ANNUM
- -------------------------------------------------------------------------------
<S> <C>
First $350 million..................................... 0.575 of 1.00%
Next $350 million..................................... 0.525 of 1.00%
Over $350 million..................................... 0.475 of 1.00%
Over $1,050 million................................... 0.425 of 1.00%
- -------------------------------------------------------------------------------
</TABLE>
Applying this fee schedule, the Fund paid the Adviser an advisory fee at the
effective rate of % of the Fund's average net assets for the Fund's fiscal
year ended August 31, 1998.
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. Other operating
expenses paid by the Fund include service fees, distribution fees, custodial
fees, legal and accounting fees, the costs of reports and proxies to
shareholders, trustees' fees (other than those who are affiliated persons of the
Adviser, Distributor or Van Kampen Investments) and all other business expenses
not specifically assumed by the Adviser.
From time to time, the Adviser or the Distributor may voluntarily undertake
to reduce the Fund's expenses by reducing the fees payable to them in accordance
with such limitations the Adviser or Distributor may establish.
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen 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 of Ethics permit directors, trustees,
officers and employees to buy and sell securities for their personal accounts
subject to certain restrictions. Persons with access to certain sensitive
information are subject to pre-clearance and other procedures designed to
prevent conflicts of interest.
PORTFOLIO MANAGEMENT. The Fund is managed by a management team headed by
Gary M. Lewis. Mr. Lewis has been Senior Vice President of the Adviser since
October 31, 1995 and Advisory Corp. since June 1995. Prior to that time, Mr.
Lewis was Vice President--Portfolio Manager of the Adviser. Dudley Brickhouse,
David Walker and Janet Willis are responsible as co-managers for the day-to-day
management of the Fund's investment portfolio. Mr. Brickhouse has been an
Associate Portfolio Manager of the Adviser and Advisory Corp. since September
1997. Prior to that time, Mr. Brickhouse was with NationsBank Investment
Management. Mr. Walker has been Assistant Vice President of the Adviser and
Advisory Corp. since June 1995. Prior to that time, Mr. Walker was a
Quantitative Analyst of the Adviser. Ms. Willis has been an Officer of the
Adviser and Advisory Corp since January 1997. Prior to that time, Ms. Willis was
an Associate Portfolio Manager of the Adviser. Prior to that time, Ms. Willis
was with AIM Capital Management, Inc.
12
<PAGE> 14
---------------------------------------------
PURCHASE OF SHARES
---------------------------------------------
GENERAL
The Fund offers three classes of shares designated as Class A Shares, Class
B Shares and Class C Shares. By offering three classes of shares, the Fund
permits each investor to choose the class of shares that is most beneficial
given the amount to be invested and the length of time the investor expects to
hold the shares.
Initial investments must be at least $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.
Each class of shares represents an interest in the same portfolio of
investments of the Fund and has the same rights except that (i) Class A Shares
generally bear the sales charge expenses at the time of purchase while Class B
Shares and Class C Shares bear the sales charge expenses at the time of
redemption and any expenses (including higher distribution fees and transfer
agency costs) resulting from such deferred sales charge arrangement, (ii)
generally, each class of shares has exclusive voting rights with respect to
approvals of the Rule 12b-1 distribution plan 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 con-version feature
and (v) certain classes of shares have different shareholder service options
available.
The price of the Fund's shares is based upon the Fund's net asset value per
share. The net asset values per share of the Class A Shares, Class B Shares and
Class C Shares are generally expected to be substantially the same. In certain
circumstances, however, the per share net asset values of the classes of shares
may differ from one another, reflecting the daily expense accruals of the higher
distribution fees and transfer agency costs applicable to the Class B Shares and
Class C Shares and the differential in the dividends that may be paid on each
class of shares.
The net asset value per share for each class of shares of the Fund is
determined once daily as of the close of trading on the New York Stock Exchange
(the "Exchange") (currently 4:00 p.m., New York time) each day the Exchange is
open for trading. Net asset value per share for each class is determined by
dividing the value of the Fund's portfolio securities, cash and other assets
(including accrued interest) attributable to such class, less all liabilities
(including accrued expenses) attributable to such class, by the total number of
shares of the class outstanding. Such computation is made by using prices as of
the close of trading on the Exchange and (i) valuing securities listed or traded
on a national securities exchange at the last reported sale price, or if there
has been no sale that day, at the mean between the last reported bid and asked
prices, (ii) valuing over-the-counter securities for which the last sale price
is available from the National Association of Securities Dealers Automated
Quotations ("NASDAQ") at that price, and (iii) 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 using methods determined by the
Fund's Trustees. Short-term securities are valued in the manner described in the
notes to the financial statements included in the Statement of Additional
Information.
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<PAGE> 15
The Fund has adopted a distribution plan (the "Distribution Plan") with
respect to each class of its shares pursuant to Rule 12b-1 under the Investment
Company Act of 1940, as amended (the "1940 Act"). The Fund also has adopted a
service plan (the "Service Plan") with respect to each class of its shares. The
Distribution Plan and the Service Plan provide that the Fund may pay
distribution fees in connection with the sale and distribution of its shares and
service fees in connection with the provision of ongoing services to
shareholders of each class.
The amount of distribution and service fees varies among the classes
offered by the Fund. Because these fees are paid out of the Fund's assets on an
ongoing basis, these fees will increase the cost of your investment in the Fund.
By purchasing a class of shares subject to higher distribution and service fees,
you may pay more over time than on a class of shares with other types of sales
charge arrangements. The net income attributable to a class of shares and the
dividends payable on such class of shares will be reduced by the amount of the
distribution fees and other expenses associated with such class of shares. To
assist investors in comparing classes of shares, the tables under "Fees and
Expenses of the Fund" set forth a summary of sales charges and expenses and an
example of the sales charges and expenses applicable to each class of shares.
The shares are offered to the public on a continuous basis through the
Distributor as principal underwriter, which is located at 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 or investors ("brokers"). "Dealers" and
"brokers" are sometimes referred to herein as "authorized dealers."
Shares 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, Van Kampen Investor Services Inc. ("Investor
Services"), a wholly-owned subsidiary of Van Kampen Investments. When purchasing
shares of the Fund, investors must specify whether the purchase is for Class A
Shares, Class B Shares or Class C Shares. Sales personnel of authorized dealers
distributing the Fund's shares 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 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 day
of the next computed net asset value per share 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 generally are mailed by the authorized dealer and processed at the offering
price next calculated after receipt by Investor Services.
Shares of the Fund may be sold in foreign countries where permissible. The
Fund and the Distributor reserve the right to refuse any order for the purchase
of shares. The Fund
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<PAGE> 16
also reserves the right to suspend the sale of the Fund's shares in response to
conditions in the securities markets or for other reasons.
Investor accounts will automatically be credited with additional shares of
the Fund after any Fund distributions, such as dividends and capital gains
distributions, unless the investor instructs the Fund otherwise. Investors
wishing to receive cash instead of additional shares should contact the Fund at
(800) 421-5666 or writing to the Fund, c/o Van Kampen Investors Services Inc.,
PO Box 418256, Kansas City, MO 64141-9256.
CLASS A SHARES
Class A Shares of the Fund are sold at net asset value plus an initial
maximum sales charge of up to 5.75% of the offering price (or 6.10% of the net
amount invested), reduced on investments of $50,000 or more as follows:
Class A Shares Sales Charge Schedule
<TABLE>
<CAPTION>
As % of As % of Net
Size of Offering Amount
Investment Price Invested
- ------------------------------------------------------------------------------------
<S> <C> <C>
Less than $50,000..................................... 5.75% 6.10%
$50,000 but less than $100,000........................ 4.75% 4.99%
$100,000 but less than $250,000....................... 3.75% 3.90%
$250,000 but less than $500,000....................... 2.75% 2.83%
$500,000 but less than $1,000,000..................... 2.00% 2.04%
$1,000,000 or more.................................... * *
- ------------------------------------------------------------------------------------
</TABLE>
* No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the Fund imposes a contingent
deferred sales charge of 1.00% on certain redemptions made within one year of
the purchase. The contingent deferred sales charge is assessed on an amount
equal to the lesser of the then current market value or the cost of the shares
being redeemed. Accordingly, no sales charge is imposed on increases in net
asset value above the initial purchase price.
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's Statement of Additional Information contains more detailed
information about quantity discount options (such as volume discounts,
cumulative discounts and letters of intent) and other purchase programs (such as
unit investment trust reinvestments and net asset value purchase options)
available to purchasers of Class A Shares. Interested investors should contact
their authorized dealers or obtain a copy of the Statement of Additional
Information free of charge as described on the back cover of this prospectus.
15
<PAGE> 17
CLASS B SHARES
Class B Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge if redeemed within five years of purchase as shown in the
table as follows:
Class B Shares Sales Charge Schedule
<TABLE>
<CAPTION>
Contingent Deferred Sales
Charge as a Percentage of
Dollar Amount
Year Since Purchase Subject to Charge
- -----------------------------------------------------------------------------------
<S> <C>
First............................................... 5.00%
Second.............................................. 4.00%
Third............................................... 3.00%
Fourth.............................................. 2.50%
Fifth............................................... 1.50%
Sixth and After..................................... None
- -----------------------------------------------------------------------------------
</TABLE>
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gains distributions.
It is presently the policy of the Distributor not to accept any order for Class
B Shares in an amount of $500,000 or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
The amount of the contingent deferred sales charge, if any, varies
depending on the number of years from the time of payment for the purchase of
Class B Shares until the time of redemption of such shares. Solely for purposes
of determining the number of years from the time of any payment for the purchase
of shares, all payments during a month are aggregated and deemed to have been
made on the last day of the month.
In determining whether a contingent deferred sales charge is applicable to
a redemption, it is assumed that the redemption is first of any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge and then of shares held the longest in the shareholder's account.
The Fund may spend up to 0.75% per year of the average daily net assets
attributable to the Class B Shares of the Fund pursuant to the Distribution
Plan. In addition, the Fund may spend up to 0.25% per year of the Fund's average
daily net assets attributable to the Class B Shares pursuant to the Service Plan
in connection with the ongoing provision of services to holders of such shares
by the Distributor and by brokers, dealers or financial intermediaries and in
connection with the maintenance of such shareholders' accounts.
CLASS C SHARES
Class C Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge of 1.00% of the dollar amount subject to charge if
redeemed within one year of purchase.
16
<PAGE> 18
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gains distributions.
It is presently the policy of the Distributor not to accept any order for Class
C Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
In determining whether a contingent deferred sales charge is applicable to
a redemption, it is assumed that the redemption is first of any shares in the
share holder's Fund account that are not subject to a contingent deferred sales
charge and then of shares held the longest in the shareholder's account.
The Fund may spend up to 0.75% per year of the average daily net assets
attributable to the Class C Shares of the Fund pursuant to the Distribution
Plan. In addition, the Fund may spend up to 0.25% per year of the Fund's average
daily net assets attributable to the Class C Shares pursuant to the Service Plan
in connection with the ongoing provision of services to holders of such shares
by the Distributor and by brokers, dealers or financial intermediaries and in
connection with the maintenance of such shareholders' accounts.
CONVERSION FEATURE
Class B Shares purchased on or after June 1, 1996, and any dividend
reinvestment plan shares received thereon, 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 of the Fund acquired through the
exchange privilege from another Van Kampen fund is determined by reference to
the Van Kampen fund from which such share was originally purchased.
The conversion of such shares to Class A Shares is subject to the
continuing availability of an opinion of counsel to the effect that (i) the
assessment of the higher distribution fee and transfer agency costs with respect
to such shares does not result in the Fund's dividends or distributions
constituting "preferential dividends" under the federal income tax law and (ii)
the conversion of shares does not constitute a taxable event under federal
income tax law. The conversion may be suspended if such an opinion is no longer
available and such shares might continue to be subject to the higher aggregate
fees applicable to such shares for an indefinite period.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge is waived on redemptions of Class B
Shares and Class C Shares (i) within one year following the death or disability
(as disability is defined by federal income tax law) of a shareholder, (ii) in
connection with required
17
<PAGE> 19
minimum distributions from an individual retirement account (IRA) or certain
other retirement plan distributions, (iii) pursuant to the Fund's systematic
withdrawal plan but limited to 12% annually of the initial value of the account,
(iv) in circumstances under which no commission or transaction fee is paid to
authorized dealers at the time of purchase of such shares and (v) effected
pursuant to the right of the Fund to involuntarily liquidate a shareholder's
account as described herein under "Redemption of Shares." The contingent
deferred sales charge also is waived on redemptions of Class C Shares as it
relates to the reinvestment of redemption proceeds in shares of the same class
of the Fund within 180 days after redemption. For a more complete description of
contingent deferred sales charge waivers, please refer to the Statement of
Additional Information or contact your authorized dealer.
---------------------------------------------
REDEMPTION OF SHARES
---------------------------------------------
Generally shareholders may redeem for cash some or all of their shares
without charge by the Fund (other than applicable sales charge) at any time. As
described above under "Purchase of Shares," redemptions of Class B Shares and
Class C Shares may be subject to a contingent deferred sales charge. In
addition, certain redemptions of Class A Shares for shareholder accounts of $1
million or more may be subject to a contingent deferred sales charge.
Redemptions completed though an authorized dealer or a custodian of a retirement
plan account may involve additional fees charged by the dealer or custodian.
Except as specified below under "Telephone Redemptions," payment for shares
redeemed generally will be made by check mailed within seven days after
acceptance by Investor Services of the request and any other necessary documents
in proper order. Such payment may be postponed or the right of redemption
suspended as provided by the rules of the SEC. If the shares to be redeemed have
been recently purchased by check, Investor Services may delay the redemption
until it confirms the purchase check has cleared, which may take up to 15 days.
A taxable gain or loss will be recognized by the shareholder upon redemption of
shares.
WRITTEN REDEMPTION REQUESTS. Shareholders may request a redemption of
shares by written request in proper form sent directly to Van Kampen Investor
Services Inc., P.O. Box 418256, Kansas City, Missouri 64141-9256. The request
for redemption should indicate the number of shares to be redeemed, the class
designation of such shares and the shareholder's account number. The redemption
request must be signed by all persons in whose names the shares are registered.
Signatures must conform exactly to the account registration. If the proceeds of
the redemption exceed $50,000, or if the proceeds are not to be paid to the
record owner at the record address, or if the record address has changed within
the previous 30 days, signature(s) must be guaranteed by one of the following: a
bank or trust company; a broker-dealer; a credit union; a national securities
exchange, registered securities association or clearing agency; a savings and
loan association; or a federal savings bank.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption. In some cases, however,
other documents may be
18
<PAGE> 20
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 Investor
Services. 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 Investor Services. Contact the IRA custodian for further
information.
In the case of written redemption requests sent directly to Investor
Services, the redemption price is the net asset value per share next determined
after the request in proper form is received by Investor Services.
AUTHORIZED DEALER REDEMPTION REQUESTS. Shareholders may place redemption
requests through an authorized dealer. Orders sent through authorized dealers
must be at least $500 unless transmitted via the FUNDSERV network. The
redemption price for such shares is the net asset value next calculated after an
order in proper form is received by an authorized dealer provided such order is
transmitted to the Distributor prior to the Distributor's close of business on
such day. It is the responsibility of authorized dealers to transmit redemption
requests received by them to the Distributor so they will be received prior to
such time. Redemptions completed through an authorized dealer may involve
additional fees charged by the dealer.
TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. To establish
such privilege, a shareholder must complete the appropriate section of the
application form accompanying this Prospectus or call the Fund at (800) 421-5666
to request that a copy of the Telephone Redemption Authorization form be sent to
them for completion. To redeem shares, contact the telephone transaction line at
(800) 421-5684. Van Kampen Investments Inc., Investor Services and the Fund
employ procedures considered by them to be reasonable to confirm that
instructions communicated by telephone are genuine. Such procedures include
requiring certain personal identification information prior to acting upon
telephone instructions, tape recording telephone communications and providing
written confirmation of instructions communicated by telephone. If reasonable
procedures are employed, neither Van Kampen Investments Inc., Investor Services
nor the Fund will be liable for following telephone instructions which it
reasonably believes to be genuine. Telephone redemptions may not be available if
the shareholder cannot reach Investor Services by telephone, whether because all
telephone lines are busy or for any other reason; in such case, a shareholder
would have to use the Fund's other redemption procedure previously described.
Requests received by Investor Services prior to 4:00 p.m., New York time, will
be processed at the next determined net asset value per share. These privileges
are available for all accounts other than retirement accounts or accounts with
shares represented by certificates. If an account has multiple owners, Investor
Services may rely on the instructions of any one owner.
For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check and amounts of at least
$1,000 up
19
<PAGE> 21
to $1 million may be redeemed daily if the proceeds are to be paid by wire. The
proceeds must be payable to the shareholder(s) of record and sent to the address
of record for the account or wired directly to their predesignated bank account.
This privilege is not available if the address of record has been changed within
30 days prior to a telephone redemption request. Proceeds from redemptions
payable by wire transfer are expected to be wired on the next business day
following the date of redemption. The Fund reserves the right at any time to
terminate, limit or otherwise modify this redemption privilege.
OTHER REDEMPTION INFORMATION. The Fund may redeem any shareholder account
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 without sales charge.
Any involuntary redemption may only occur if the shareholder account is less
than the minimum initial investment due to shareholder redemptions.
---------------------------------------------
DISTRIBUTIONS FROM THE FUND
---------------------------------------------
In addition to any increase in the value of shares which the Fund may
achieve, shareholders may receive two kinds of return from the Fund: dividends
and capital gains distributions.
DIVIDENDS. Dividends from stocks and interest earned from other investments
are the Fund's main sources of income. Substantially all of this income, less
expenses, is distributed at least annually as dividends to shareholders.
Dividends are automatically applied to purchase additional shares of the Fund at
the next determined net asset value unless the shareholder instructs otherwise.
The per share dividends on Class B Shares and Class C Shares may be lower
than the per share dividends on Class A Shares as a result of the higher
distribution fees and transfer agency costs applicable to such classes of
shares.
CAPITAL GAINS. The Fund may realize capital gains or losses when it sells
securities, depending on whether the sales prices for the securities are higher
or lower than purchase prices. Net realized capital gains represent the total
profit from sales of securities minus total losses from sales of securities
including losses carried forward from prior years. The Fund distributes any
taxable net realized capital gains to shareholders at least annually. As in the
case of dividends, capital gains distributions are automatically reinvested in
additional shares of the Fund at net asset value unless the shareholder
instructs otherwise.
---------------------------------------------
SHAREHOLDER SERVICES
---------------------------------------------
Listed below are some of the shareholder services the Fund offers to
investors. For a more complete description of the Fund's shareholder services,
such as investment accounts, share certificates, retirement plans, automated
clearing house deposits, dividend
20
<PAGE> 22
diversification, exchange privileges, and the systematic withdrawal plan, please
refer to the Statement of Additional Information or contact your authorized
dealer.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gains distributions in shares of
the Fund. Such shares are acquired at net asset value per share (without sales
charge) on the applicable record date of the dividend or capital gains
distribution. Unless the shareholder instructs otherwise, the reinvestment plan
is automatic. This instruction may be made by telephone by calling (800)
421-5666 ((800) 421-2833 for the hearing impaired) or by writing to Investor
Services. The investor may, on the initial application or prior to any
declaration, instruct that dividends be paid in cash and capital gains
distributions be reinvested at net asset value, or that both dividends and
capital gains distributions be paid in cash.
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under
which a shareholder can authorize Investor Services to charge a bank account on
a regular basis to invest pre-determined amounts in the Fund. Additional
information is available from the Distributor or your authorized dealer.
CHECK WRITING PRIVILEGE. A Class A shareholder holding shares of the Fund
for which certificates have not been issued and which are in a non-escrow status
may appoint Investor Services as agent by completing the Authorization for
Redemption by Check form and the appropriate section of the application and
returning the form and the application to Investor Services. Once the form is
properly completed, signed and returned to the agent, a supply of checks drawn
on State Street Bank and Trust Company (the "Bank") will be sent to the Class A
shareholder. These checks may be made payable by the Class A shareholder to the
order of any person in any amount of $100 or more.
When a check is presented to the Bank for payment, full and fractional
Class A Shares required to cover the amount of the check are redeemed from the
shareholder's Class A account by Investor Services at the next determined net
asset value. Check writing redemptions represent the sale of Class A Shares. Any
gain or loss realized on the sale of shares is a taxable event. See "Redemption
of Shares."
Checks will not be honored for redemption of Class A Shares held less than
15 calendar days, unless such Class A Shares have been paid for by bank wire.
Any Class A Shares for which there are outstanding certificates may not be
redeemed by check. If the amount of the check is greater than the proceeds of
all uncertificated shares held in the shareholder's Class A account, the check
will be returned and the shareholder may be subject to additional charges. A
Class A shareholder may not liquidate the entire account by means of a check.
The check writing privilege may be terminated or suspended at any time by the
Fund or the Bank. Retirement plans and accounts that are subject to backup
withholding are not eligible for the privilege. A "stop payment" system is not
available on these checks.
---------------------------------------------
FEDERAL INCOME TAXATION
---------------------------------------------
Distributions of the Fund's net investment income (consisting generally of
taxable income and net short-term capital gains) are taxable to shareholders as
ordinary income to
21
<PAGE> 23
the extent of the Fund's earnings and profits, whether paid in cash or
reinvested in additional shares. Distributions of the Fund's net capital gains
(which are the excess of net long-term capital gains over net short-term capital
losses), if any, are taxable to shareholders as long-term capital gains, whether
paid in cash or reinvested in additional shares, and regardless of how long the
shares of the Fund have been held by such shareholders. Such capital gain
dividends may be taxed at different rates depending on how long the Fund held
the securities. While the Fund's investment objection is to seek capital
appreciation, The Fund expects that its distributions will consist of ordinary
income and capital gain dividends. Distributions in excess of the Fund's
earnings and profits will first reduce the adjusted tax basis of a holder's
shares and, after such adjusted tax basis is reduced to zero, will constitute
capital gains to such holder (assuming such shares are held as a capital asset).
Although distributions generally are treated as taxable in the year they are
paid, distributions declared in October, November or December, payable to
shareholders of record on a specified date in such month and paid during January
of the following year will be treated as having been distributed by the Fund and
received by the shareholders on the December 31st prior to the date of payment.
The Fund will inform shareholders of the source and tax status of all
distributions promptly after the close of each calendar year.
The sale or exchange of shares is 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. Any capital gains may be taxed at different
rates depending on how long the shareholder held it shares.
The Fund is required, in certain circumstances, to withhold 31% of
dividends and certain other payments, including redemptions, paid to
shareholders who do not furnish to the Fund their correct taxpayer
identification number (in the case of individuals, their social security number)
and certain required certifications or who are otherwise subject to backup
withholding.
Foreign shareholders, including shareholders who are non resident aliens,
may be subject to United States withholding tax on certain distributions
(whether received in cash or in shares) at a rate of 30% or such lower rate as
prescribed by an applicable treaty. Prospective foreign investors should consult
their United States tax advisers concerning the tax consequences to them of an
investment in shares.
The Fund intends to qualify as a regulated investment company under the
federal income tax law. If the Fund qualifies and makes the required amount of
distributions of its net investment income to shareholders, the Fund will not be
required to pay federal income taxes on any income it distributed to
shareholders. If the Fund pays less than 98% of its ordinary income or less than
98% of its capital gain net income, then the Fund will be subject to a 4% excise
tax on such undistributed amounts.
The federal income tax discussion set forth above is for general
information only. Prospective investors should consult their own tax advisers
regarding the specific federal tax consequences of purchasing, holding,
exchanging or selling shares, as well as the effects of state, local and foreign
tax law and any proposed tax law changes.
22
<PAGE> 24
---------------------------------------------
FINANCIAL HIGHLIGHTS
---------------------------------------------
The financial highlights table is intended to help you understand the
Fund's financial performance for the past five years. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by PricewaterhouseCoopers LLP,
independent accountants, whose report, along with the Fund's financial
statements, is included in the Statement of Additional Information and may be
obtained by shareholders without charge by calling the telephone number on the
back cover of this Prospectus. This information should be read in conjunction
with the financial statements and notes thereto included in the Statement of
Additional Information.
23
<PAGE> 25
EXISTING SHAREHOLDERS--
FOR INFORMATION ON YOUR
EXISTING ACCOUNT PLEASE
CALL THE FUND'S TOLL-FREE
NUMBER--(800) 341-2911
PROSPECTIVE INVESTORS--CALL
YOUR BROKER OR (800) 421-5666
DEALERS--FOR DEALER
INFORMATION, SELLING
AGREEMENTS, WIRE ORDERS,
OR REDEMPTIONS CALL THE
DISTRIBUTOR'S TOLL-FREE
NUMBER--(800) 421-5666
FOR SHAREHOLDER AND
DEALER INQUIRIES THROUGH
TELECOMMUNICATIONS
DEVICE FOR THE DEAF (TDD)--
(800) 421-2833
FOR AUTOMATED TELEPHONE
SERVICES--(800) 847-2424
VAN KAMPEN EMERGING
GROWTH FUND
One Parkview Plaza
Oakbrook Terrace, IL 60181
Investment Adviser:
VAN KAMPEN ASSET
MANAGEMENT INC.
One Parkview Plaza
Oakbrook Terrace, IL 60181
Distributor:
VAN KAMPEN FUNDS INC.
One Parkview Plaza
Oakbrook Terrace, IL 60181
Transfer Agent:
VAN KAMPEN INVESTOR
SERVICES INC.
P.O. Box 418256
Kansas City, MO 64141-9256
Attn: Van Kampen Emerging
Growth Fund
Custodian:
STATE STREET BANK AND
TRUST COMPANY
225 West Franklin Street, P.O. Box 1713
Boston, MA 02105-1713
Attn: Van Kampen Emerging
Growth Fund
Legal Counsel:
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
Independent Accountants:
PRICEWATERHOUSECOOPERS LLP
200 East Randolph Drive
Chicago, IL 60601
<PAGE> 26
---------------------------------------------
EMERGING GROWTH FUND
---------------------------------------------
A Statement of Additional Information, which contains more details about
the Fund, is incorporated by reference in its entirety into this prospectus.
You will find additional information about the Fund in its annual and
semiannual reports, which explain the market conditions and investment
strategies affecting the Fund's recent performance.
You can ask questions or obtain a free copy of the Fund's reports or its
Statement of Additional Information by calling 1-800-421-5666 from 7:00 a.m. to
7:00 p.m., Central time, Monday through Friday. Telecommunications Device for
the Deaf users may call 1-800-421-2833. A free copy of the Fund's reports can
also be ordered from our web site at www.vankampen.com.
Information about the Fund, including its reports and Statement of
Additional Information, has been filed with the Securities and Exchange
Commission (SEC). It can be reviewed and copied at the SEC Public Reference Room
in Washington, DC or online at the SEC's web site (http://www.sec.gov). For more
information, please call the SEC at 1-800-SEC-0330. You can also request these
materials by writing the Public Reference Section of the SEC, Washington DC,
20549-6009, and paying a duplication fee.
[VAN KAMPEN FUNDS LOGO]
<PAGE> 27
STATEMENT OF ADDITIONAL INFORMATION
VAN KAMPEN
EMERGING GROWTH FUND
Van Kampen Emerging Growth 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 Funds Inc. at One
Parkview Plaza, Oakbrook Terrace, Illinois 60181 or (800) 421-5666.
---------------------------------------------
TABLE OF CONTENTS
---------------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
General Information......................................... B-2
Investment Objective and Policies........................... B-3
Options, Futures Contracts and Related Options.............. B-6
Investment Restrictions..................................... B-12
Trustees and Officers....................................... B-14
Investment Advisory Agreement............................... B-24
Distribution and Service.................................... B-26
Transfer Agent.............................................. B-30
Portfolio Transactions and Brokerage........................ B-30
Share Purchase Programs..................................... B-32
Shareholder Services........................................ B-36
Redemption of Shares........................................ B-40
Contingent Deferred Sales Charge-Class A.................... B-40
Waiver of Class B And Class C Contingent Deferred Sales
Charge.................................................... B-40
Taxation.................................................... B-42
Fund Performance............................................ B-47
Other Information........................................... B-49
Report of Independent Accountants...........................
Financial Statements........................................
Notes to Financial Statements...............................
</TABLE>
THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED DECEMBER , 1998.
<PAGE> 28
GENERAL INFORMATION
The Fund was originally incorporated in Delaware on January 23, 1969 and
was reincorporated by merger into a Maryland corporation on September 19, 1973.
On July 24, 1990 the Fund changed its name from American Capital Venture Fund,
Inc. to American Capital Emerging Growth Fund, Inc. The Fund was reorganized
under the laws of the State of Delaware as a business trust and adopted the name
Van Kampen American Capital Emerging Growth Fund as of August 5, 1995. On July
14, 1998, the Fund adopted its present name.
Van Kampen Asset Management Inc. (the "Adviser"), Van Kampen Funds Inc.
(the "Distributor"), and Van Kampen Investor Services Inc. ("Investor Services")
are wholly owned subsidiaries of Van Kampen Investments Inc. ("VK"), which is an
indirect wholly-owned subsidiary of Morgan Stanley, Dean Witter & Co. The
principal office of the Fund, the Adviser, the Distributor and VK 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 securities lending.
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. Shares entitle their holders to one vote per share. Except as
otherwise described in the Prospectus or 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 agent costs,
the liquidation proceeds to holders of Class B Shares and Class C Shares are
likely to be lower than to holders of Class A Shares.
The 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.
B-2
<PAGE> 29
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 their private property for the satisfaction of any obligation
or liability of the Fund but the assets of the Fund only shall be liable.
As of December , 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 follows:
<TABLE>
<CAPTION>
Amount of
Ownership at
December Class Percentage
Name and Address of Holder , 1998 of Shares Ownership
-------------------------- ------------ --------- ----------
<S> <C> <C> <C>
Van Kampen Trust Company........................
2800 Post Oak Blvd.
Houston, TX 77056
</TABLE>
Van Kampen Trust Company acts as custodian for certain employee benefit
plans
and independent retirement accounts.
INVESTMENT OBJECTIVE AND POLICIES
The following disclosures supplement disclosures set forth under the same
caption in the Prospectus and do not, standing alone, present a complete or
accurate explanation of the matters disclosed. Readers must refer also to this
caption in the Prospectus for a complete presentation of the matters disclosed
below.
The following investment techniques, subject to the Investment Restrictions
below, may be employed by the Fund. These techniques inherently involve the
assumption of a higher degree of risk than normal and the possibility of more
volatile price fluctuations. Investment in the Fund should not be viewed as a
complete investment program and prospective investors are advised to give full
consideration to the risks inherent in the investment techniques used by the
Fund.
VK equity fund philosophy is to normally remain fully invested and
diversified across many industries to achieve consistent long-term returns.
VK uses an investment process designed to attempt to produce consistently
good short-term results, which should help lead to superior long-term
performance.
Fully Invested: Money invested in a VK stock fund will normally be fully
invested in the market to attempt to maximize the potential for long-term
returns. The importance of being fully invested can be illustrated by the
following comparison. By missing the 30 best months during the past 69 years,
the value of $1.00 invested in 1926 was $19.48 at the end of 1996, compared to
$1,370.95 for $1.00 that was invested for the entire period (Source: Micropal,
Inc.). Of course, past performance is no guarantee of future results.
Broadly Diversified: A broadly diversified portfolio usually reduces risk
and increases relative stability. Since VK's goal is consistency, a broadly
diversified portfolio across industries is emphasized. VK stock funds are varied
both in terms of the number of industries and the number of stocks within each
industry in which they invest. Generally,
B-3
<PAGE> 30
the stock funds invest in 12 broad economic sectors, and in many individual
stocks within each sector.
Clearly Defined: The basic characteristics of VK funds are determined by a
pre-defined profile which remains constant over time.
The Fund invests in small and mid-sized companies which the Adviser expects
to have rising earnings estimates, accelerating growth rates in both revenues
and per-share earnings and rising profit margins. Emerging growth funds may be
an important components of a diversified portfolio. The Fund seeks to remain
fully invested and diversified across many industries to achieve consistent
long-term performance. From time to time marketing materials may provide a
portfolio manager update, an Adviser update or discuss general economic
conditions and outlooks. The top 10 holdings of the Fund may also be listed in
marketing pieces. Materials may also mention how Van Kampen believes the Fund
compares relative to other Van Kampen funds. Materials may also discuss the
Dalbar Financial Services study form 1984 to 1994 which examined investor cash
flow into and out of all types of mutual funds. The ten year study found the
investors who bought mutual fund shares and held such shares outperformed
investors who bought and sold. The Dalbar study conclusions were consistent
regardless if shareholders purchased their funds in direct or sales force
distribution channels. The study showed that investors working with a
professional representative have tended over time to earn higher returns than
those who invested indirectly. The Fund may also be marketed on the internet.
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. It is the current policy of the Fund not to invest at the time of
purchase more than 25% of its assets in securities subject to repurchase
agreements. Repurchase agreements involve certain risks in the event of default
by the other party. The Fund may enter into repurchase agreements with banks or
broker-dealers deemed to be creditworthy by the Adviser under guidelines
approved by the Trustees. The Fund will not invest in repurchase agreements
maturing in more than seven days if any such investment, together with any other
illiquid securities held by the Fund, would exceed the Fund's limitation on
illiquid securities described below. In the event of the bankruptcy or other
default of a seller of a repurchase agreement, the Fund could experience both
delays in liquidating the underlying securities and losses including: (a)
possible decline in the value of the underlying security during the 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
B-4
<PAGE> 31
Fund than would be available to the Fund investing separately. The manner in
which the joint account is managed is subject to conditions set forth in an
exemptive order from the Securities and Exchange Commission ("SEC") authorizing
this practice, which conditions are designed to ensure the fair administration
of the joint account and to protect the amounts in that account.
Repurchase agreements are fully collateralized by the underlying debt
securities and are considered to be loans under the 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 will
be required to maintain the value of the underlying securities marked-to-market
daily at not less than the repurchase price. The underlying securities (normally
securities of the U.S. Government, or its agencies and instrumentalities) may
have maturity dates exceeding one year. The Fund does not bear the risk of a
decline in value of the underlying security unless the seller defaults under its
repurchase obligation.
PORTFOLIO TURNOVER
The Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for a fiscal year by the average
monthly value of the Fund's portfolio securities during such fiscal year. The
turnover rate may vary greatly from year to year as well as within a year. The
Fund's portfolio turnover rate (the lesser of the value of the securities
purchased or securities sold divided by the average value of the securities held
in the Fund's portfolio excluding all securities whose maturities at acquisition
were one year or less) is shown in the table of "Financial Highlights" in the
Prospectus. A high portfolio turnover rate (100% or more) increases the Fund's
transaction costs, including brokerage commissions, and may result in the
realization of more short-term capital gains than if the Fund had a lower
portfolio turnover. The turnover rate will not be a limiting factor, however, if
the Adviser deems portfolio changes appropriate.
ILLIQUID SECURITIES
The Fund may invest up to 10% of its net assets in illiquid securities,
which includes repurchase agreements which have a maturity of longer than seven
days and generally includes securities that are restricted from sale to the
public without registration under the Securities Act of 1933, as amended (the
"1933 Act"). Restricted securities are often purchased at a discount from the
market price of unrestricted securities of the same issuer reflecting the fact
that such securities may not be readily marketable without some time delay.
Investments in securities which have no ready market are valued at fair value as
determined in good faith by the Adviser in accordance with procedures approved
by the Fund's Trustees. Ordinarily, the Fund would invest in restricted
securities only when it receives the issuer's commitment to register the
securities without expense to the Fund. However, registration and underwriting
expenses (which may range from 7% to 15% of the gross proceeds of the securities
sold) may be paid by the Fund. Restricted securities which can be offered and
sold to qualified institutional buyers under Rule 144A under the 1933 Act ("144A
Securities") and are determined to be liquid under guidelines adopted by and
subject to the supervision of the Fund's Board of Trustees are not subject to
the limitation on illiquid securities. Such 144A securities are subject to
monitoring and may become
B-5
<PAGE> 32
illiquid to the extent qualified institutional buyers become, for a time,
uninterested in purchasing such securities. Factors used to determine whether
144A Securities are liquid include, among other things, a security's trading
history, the availability of reliable pricing information, the number of dealers
making quotes or making a market in such security and the number of potential
purchasers in the market for such security. For purposes hereof, investments by
the Fund in securities of other investment companies will not be considered
investments in restricted securities to the extent permitted by (i) the
Investment Company Act of 1940, as amended (the "1940 Act") from time to time,
(ii) the rules and regulations promulgated by the Securities and Exchange
Commission ("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.
WARRANTS
Warrants are in effect longer-term call options. They give the holder the
right to purchase a given number of shares of a particular company at specified
prices within certain periods of time. The purchaser of a warrant expects that
the market price of the security will exceed the purchase price of the warrant
plus the exercise price of the warrant, thus giving him a profit. Of course,
since the market price may never exceed the exercise price before the expiration
date of the warrant, the purchaser of the warrant risks the loss of the entire
purchase price of the warrant. Warrants generally trade in the open market and
may be sold rather than exercised. Warrants are sometimes sold in unit form with
other securities of an issuer. Units of warrants and common stock may be
employed in financing young, unseasoned companies. The purchase price of a
warrant varies with the exercise price of the warrant, the current market value
of the underlying security, the life of the warrant and various other investment
factors.
OPTIONS, FUTURES CONTRACTS AND RELATED OPTIONS
WRITING CALL AND PUT OPTIONS
Purpose. The principal reason for writing options is to obtain, through
receipt of premiums, a greater current return than would be realized on the
underlying securities alone. Such current return could be expected to fluctuate
because premiums earned from an option writing program and dividend or interest
income yields on portfolio securities vary as economic and market conditions
change. Writing options on portfolio securities is likely to result in a higher
portfolio turnover rate.
Writing Options. The purchaser of a call option pays a premium to the
writer (i.e., the seller) for the right to buy the underlying security from the
writer at a specified price during a certain period. The Fund would write call
options only on a covered basis or for cross-hedging purposes. A call option is
covered if, at all times during the option period, the Fund would own or have
the right to acquire securities of the type that it would be obligated to
deliver if any outstanding option were exercised. An option is for cross-hedging
purposes if it is not covered by the security subject to the option, but is
designed to provide a hedge against another security which the Fund owns or has
the right to acquire. In such circumstances, the Fund collateralizes the option
by maintaining in a segregated account with the Fund's custodian, State Street
Bank and Trust Company (the
B-6
<PAGE> 33
"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 writer (i.e., the
seller) for the right to sell the underlying security to the writer at a
specified price during a certain period. The Fund would write put options only
on a secured basis, which means that, at all times during the option period, the
Fund would maintain in a segregated account with its Custodian cash or liquid
securities in an amount of not less than the exercise price of the option, or
would hold a put on the same underlying security at an equal or greater exercise
price.
Closing Purchase Transactions and Offsetting Transactions. In order to
terminate its position as a writer of a call or put option, the Fund could enter
into a "closing purchase transaction," which is the purchase of a call (put) on
the same underlying security and having the same exercise price and expiration
date as the call (put) previously 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 write options that are listed on an exchange as well as
options which are privately negotiated in over-the-counter transactions. A Fund
could close out its position as a writer 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 writer, but would provide an asset of equal value to
its obligation under the option written. If the Fund is not able to enter into a
closing purchase transaction or to purchase an offsetting option with respect to
an option it has 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.
Risks of Writing Options. By writing a call option, the Fund loses the
potential for gain on the underlying security above the exercise price while the
option is outstanding; by writing a put option the Fund might become obligated
to purchase the underlying security at an exercise price that exceeds the then
current market price.
PURCHASING CALL AND PUT OPTIONS
The Fund could purchase call options to protect (i.e., hedge) against
anticipated increases in the prices of securities it wishes to acquire.
Alternatively, call options could be purchased for capital appreciation. Since
the premium paid for a call option is typically a small fraction of the price of
the underlying security, a given amount of funds will purchase call options
covering a much larger quantity of such security than could be 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
B-7
<PAGE> 34
the price of the underlying security did not rise sufficiently, or if it did not
do so before the option expired.
Put options may be purchased to protect (i.e., hedge) against anticipated
declines in the market value of either specific portfolio securities or of the
Fund's assets generally. Alternatively, put options may be purchased for capital
appreciation in anticipation of a price decline in the underlying security and a
corresponding increase in the value of the put option. The purchase of put
options for capital appreciation involves the same significant risk of loss as
described above for call options.
In any case, the purchase of options for capital appreciation would
increase the Fund's volatility by increasing the impact of changes in the market
price of the underlying securities on the Fund's net asset value.
OPTIONS ON STOCK INDICES
Options on stock indices are similar to options on stock, but the delivery
requirements are different. Instead of giving the right to take or make delivery
of stock at a specified price, an option on a stock index gives the holder the
right to receive an amount of cash which amount will depend upon the closing
level of the stock index upon which the option is based being greater than (in
the case of a call) or less than (in the case of a put) the exercise price of
the option. The amount of cash received will be the difference between the
closing price of the index and the exercise price of the option, multiplied by a
specified dollar multiple. The writer of the option is obligated, in return for
the premium received, to make delivery of this amount.
Some stock index options are based on a broad market index such as the
Standard & Poor's 500 or the New York Stock Exchange Composite Index, or a
narrower index such as the Standard & Poor's 100. Indices are also based on an
industry or market segment such as the AMEX Oil and Gas Index or the Computer
and Business Equipment Index. A stock index fluctuates with changes in the
market values of the stocks included in the index. Options are currently traded
on several exchanges.
Gain or loss to the Fund on transactions in stock index options will depend
on price movements in the stock market generally (or in a particular industry or
segment of the market) rather than price movements of individual securities. As
with stock options, the Fund may offset its position in stock index options
prior to expiration by entering into a closing transaction on an exchange, or it
may let the option expire unexercised.
FUTURES CONTRACTS
The Fund may engage in transactions involving futures contracts and related
options in accordance with the rules and interpretations of the Commodity
Futures Trading Commission ("CFTC") under which the Fund would be exempt from
registration as a "commodity pool."
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.
B-8
<PAGE> 35
Currently, stock index futures contracts can be purchased with respect to
several indices on various exchanges. Differences in the stocks included in the
indices may result in differences in correlation of the futures contracts with
movements in the value of the securities being hedged.
An interest rate futures contract is an agreement pursuant to which a party
agrees to take or make delivery of a specified debt security (such as U.S.
Treasury bonds or notes) at a specified future time and at a specified price.
Initial and Variation Margin. In contrast to the purchase or sale of a
security, no price is paid or received upon the purchase or sale of a futures
contract. Initially, the Fund is required to deposit with its Custodian in an
account in the broker's name an amount of cash or liquid securities equal to a
percentage (which will normally range between 2% and 10%) of the contract
amount. This amount is known as initial margin. The nature of initial margin in
futures transactions is different from that of margin in securities transactions
in that futures contract margin does not involve the borrowing of funds by the
customer to 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 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 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 commissions on futures transactions
are lower than transaction costs incurred in the purchase and sale of
securities.
B-9
<PAGE> 36
The Fund also may invest in foreign stock index futures traded outside the
United States which involve additional risks including fluctuations in foreign
exchange rates, foreign currency exchange controls, political and economic
instability, differences in financial reporting and securities regulation and
trading, and foreign taxation issues.
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, the risk of market distortion, the
illiquidity risk and the risk of error in anticipating price movement.
There may be an imperfect correlation (or no correlation) between movements
in the price of the futures contracts and of the securities being hedged. The
risk of imperfect correlation increases as the composition of the securities
being hedged diverges from the securities upon which the futures contract is
based. If the price of the futures contract moves less than the price of the
securities being hedged, the hedge will not be fully effective. To compensate
for the imperfect correlation, the Fund could buy or sell futures contracts in a
greater dollar amount than the dollar amount of securities being hedged if the
historical volatility of the securities being hedged is greater than the
historical volatility of the securities underlying the futures contract.
Conversely, the Fund could buy or sell futures contracts in a lesser dollar
amount than the dollar amount of securities being hedged if the historical
volatility of the securities being hedged is less than the historical volatility
of the securities 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 or index underlying the
futures contract due to certain market distortions. First, all participants in
the futures market are subject to margin depository and maintenance
requirements. Rather than meet additional margin depository requirements,
investors may close futures contracts through offsetting transactions, which
could distort the normal relationship between the futures market and the
securities or index underlying the futures contract. Second, from the point of
view of speculators, the deposit requirements in the futures market are less
onerous than margin requirements in the securities markets. Therefore, increased
participation by speculators in the futures markets may cause temporary price
distortions. Due to the possibility of price distortion in the futures markets
and because of the imperfect correlation between movements in futures contracts
and movements in the securities underlying them, a correct forecast of general
market trends by the Adviser may still not result in a successful hedging
transaction.
There is also the risk that futures markets may not be sufficiently liquid.
Futures contracts may be closed out only on an exchange or board of trade that
provides a market for such futures contracts. Although the Fund intends to
purchase or sell futures only on exchanges and boards of trade where there
appears to be an active secondary market, there can be no assurance that an
active secondary market will exist for any particular contract or at any
particular time. In the event of such illiquidity, it might not be possible to
close a futures position and, in the event of adverse price movement, the Fund
would continue to be required to make daily payments of variation margin. Since
the securities being
B-10
<PAGE> 37
hedged would not be sold until the related futures contract is sold, an
increase, if any, in the price of the securities may to some extent offset
losses on the related futures contract. In such event, the Fund would lose the
benefit of the appreciation in value of the securities.
Successful use of futures is also subject to the Adviser's ability to
correctly predict the direction of movements in the market. For example, if the
Fund hedges against a decline in the market, and market prices instead advance,
the Fund will lose part or all of the benefit of the increase in value of its
securities holdings because it will have offsetting losses in futures contracts.
In such cases, if the Fund has insufficient cash, it may have to sell portfolio
securities at a time when it is disadvantageous to do so in order to meet the
daily variation margin.
Although the Fund intends to enter into futures contracts only if there is
an active market for such contracts, there is no assurance that an active market
will exist for the contracts at any particular time. Most U.S. futures exchanges
and boards of trade limit the amount of fluctuation permitted in futures
contract prices during a single trading day. Once the daily limit has been
reached in a particular contract, no trades may be made that day at a price
beyond that limit. It is possible that futures contract prices would move to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and subjecting some
futures traders to substantial losses. In such event, and in the event of
adverse price movements, the Fund would be required to make daily cash payments
of variation margin. In such circumstances, an increase in the value of the
portion of the portfolio being hedged, if any, may partially or completely
offset losses on the futures contract. However, as described above, there is no
guarantee that the price of the securities being hedged will, in fact, correlate
with the price movements in a futures contract and thus provide an offset to
losses on the futures contract.
The Fund will not enter into futures or options (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 exceed 5% of the fair market value of the Fund's assets; however, in
the case of an option that is in-the-money at the time of purchase, the
in-the-money amount may be excluded in calculating the 5% limitation. In order
to prevent leverage in connection with the purchase of futures contracts by the
Fund, an amount of cash or liquid securities equal to the market value of the
obligation under the futures contracts (less any related margin deposits) will
be maintained in a segregated account with the Custodian.
OPTIONS ON FUTURES CONTRACTS
The Fund could also purchase and write options on futures contracts. An
option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put) at a specified
exercise price at any time during the option period. As a writer of an option on
a futures contract, the Fund would be subject to initial margin and maintenance
requirements similar to those applicable to futures contracts. In addition, net
option premiums received by the Fund are required to be included as initial
margin deposits. When an option on a futures contract is exercised, delivery of
the futures position is accompanied by cash representing the difference between
the current market price of the
B-11
<PAGE> 38
futures contract and the exercise price of the option. The Fund could purchase
put options on futures contracts in lieu of, and for the same purposes as, the
sale of a futures contract; at the same time, it could write put options at a
lower strike price (a "put bear spread") to offset part of the cost of the
strategy to the Fund. The purchase of call options on futures contracts is
intended to serve the same purpose as the actual purchase of the futures
contracts.
Risks of Transactions in Options on Futures Contracts. In addition to the
risks described above which apply to all options transactions, there are several
special risks relating to options on futures. The Adviser will not purchase
options on futures on any exchange unless in the Adviser's opinion, a liquid
secondary exchange market for such options exists. Compared to the use of
futures, the purchase of options on futures involves less potential risk to the
Fund because the maximum amount at risk is the premium paid for the options
(plus transaction costs). However, there may be circumstances, such as when
there is no movement in the 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, FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
TRANSACTIONS
Each of the exchanges has established limitations governing the maximum
number of call or put options on the same underlying security or futures
contract (whether or not covered) which may be written by a single investor,
whether acting alone or in concert with others (regardless of whether such
options are written on the same or different exchanges or are held or written on
one or more accounts or through one or more 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.
INVESTMENT RESTRICTIONS
The Fund has adopted the following restrictions which may not be changed
without approval by the vote of a majority of its outstanding voting shares
which is defined in the 1940 Act as the lesser of (i) 67% or more of the voting
securities present at a meeting, if the holders of more than 50% of the
outstanding voting securities of the Fund are present or represented by proxy;
or (ii) more than 50% of the Fund's outstanding voting securities. The
percentage limitations contained in the restrictions and policies set forth
herein apply at the time of purchase of securities. These restrictions provide
that the Fund shall not:
1. Invest in companies for the purpose of exercising control over or
management of such companies, except that the Fund may purchase
securities of other investment companies to the extent permitted by (i)
the 1940 Act, as amended from time to time, (ii) the rules and
regulations promulgated by the SEC under the 1940 Act, as amended from
time to time, or (iii) an exemption or other relief from the provisions
of the 1940 Act;
B-12
<PAGE> 39
2. Underwrite securities of other issuers, except that the Fund may
acquire restricted securities and other securities which, if sold,
might make the Fund an underwriter for purposes of the Securities Act
of 1933. No more than 10% of the value of the Fund's net assets may be
invested in such securities;
3. Invest directly in real estate interests of any nature, although the
Fund may invest indirectly through media such as real estate investment
trusts;
4. Invest in commodities or commodity contracts, except that the Fund may
enter into transactions in futures contracts or related options;
5. Issue any of its securities for (a) services or (b) property other than
cash or securities (including securities of which the Fund is the
issuer), except as a dividend or distribution to its shareholders in
connection with a reorganization;
6. Issue senior securities and shall not borrow money except from banks as
a temporary measure for extraordinary or emergency purposes and in an
amount not exceeding 5% of the Fund's total assets. Notwithstanding the
foregoing, the Fund may enter into transactions in options, futures
contracts and related options and may make margin deposits and payments
in connection therewith;
7. 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;
8. Invest more than 25% of the value of its assets in any one industry;
9. Invest in securities issued by other investment companies except as
part of a merger, reorganization or other acquisition and except 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;
10. Sell short or borrow for short sales. Short sales "against the box" are
not subject to this limitation; or
11. As to 75% of the Fund's total assets, invest more than 5% of the value
of its total assets in the securities of any one issuer (not including
federal government securities) or acquire more than 10% of any class 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.
Thus the Fund retains the right to invest up to 25% of the value of its
total assets in one company, but intends to do so only if a particular company
is believed to afford better than average prospects for market appreciation at a
time when general business conditions and trends in the market as a whole are
considered to make greater diversification less desirable. Although the Fund may
invest in real estate investment trusts, it does not presently intend to do so.
B-13
<PAGE> 40
TRUSTEES AND OFFICERS
The business and affairs of the Fund are managed under the direction of the
Fund's Board of Trustees and the Fund's officers appointed by the Board of
Trustees. The tables below list the trustees and officers of the Fund and
executive officers of the Fund's investment adviser and their principal
occupations for the last five years and their affiliations, if any, with Van
Kampen Investments Inc. ("VK"), Van Kampen Investment Advisory Corp. ("Advisory
Corp."), Van Kampen Asset Management Inc. ("Asset Management"), Van Kampen Funds
Inc. (the "Distributor"), Van Kampen Management Inc., Van Kampen Advisors 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. ("Investor
Services"). Advisory Corp. and Asset Management sometimes are referred to herein
collectively as the "Advisers". For purposes hereof, the term "Fund Complex"
includes each of the open-end investment companies advised by the Advisers
(excluding Van Kampen 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
1632 Morning Mountain Road August 1996, Chairman, Chief Executive
Raleigh, NC 27614 Officer and President, MDT Corporation (now
Date of Birth: 07/14/32 known as Getinge/Castle, Inc., a subsidiary
of Getinge Industrier AB), a company which
develops, manufactures, markets and services
medical and scientific equipment.
Trustee/Director of each of the funds in the
Fund Complex.
Richard M. DeMartini*..................... President and Chief Operating Officer,
Two World Trade Center Individual Asset Management Group, a division
66th Floor of Morgan Stanley Dean Witter & Co. Mr.
New York, NY 10048 DeMartini is a Director of InterCapital
Date of Birth: 10/12/52 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.
</TABLE>
B-14
<PAGE> 41
<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
Sears Tower executive search firm. Prior to 1997,
233 South Wacker Drive Partner, Ray & Berndtson, Inc., an executive
Suite 7000 recruiting and management consulting firm.
Chicago, IL 60606 Formerly, Executive Vice President of ABN
Date of Birth: 06/03/48 AMRO, N.A., a Dutch bank holding company.
Prior to 1992, Executive Vice President of La
Salle National Bank. Trustee on the
University of Chicago Hospitals Board, 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
11 DuPont Circle, N.W. of the United States. Formerly, advisor to
Washington, D.C. 20036 the Dennis Trading Group Inc. Prior to 1992,
Date of Birth: 02/29/52 President and Chief Executive Officer,
Director and Member of the Investment
Committee of the Joyce Foundation, a private
foundation. Trustee/Director of each of the
funds in the Fund Complex.
Jack E. Nelson............................ President, Nelson Investment Planning
423 Country Club Drive Services, Inc., a financial planning company
Winter Park, FL 32789 and registered investment adviser. President,
Date of Birth: 02/13/36 Nelson Ivest Brokerage Services Inc., a
member of the National Association of
Securities Dealers, Inc. ("NASD") and
Securities Investors Protection Corp.
("SIPC"). Trustee/Director of each of the
funds in the Fund Complex.
Don G. Powell*............................ Chairman and a Director of VK, the Advisers,
2800 Post Oak Blvd. the Distributor and Investor Services.
Houston, TX 77056 Director or officer of certain other
Date of Birth: 10/19/39 subsidiaries of VK. Chairman of River View
International Inc. 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.
</TABLE>
B-15
<PAGE> 42
<TABLE>
<CAPTION>
Principal Occupations or
Name, Address and Age Employment in Past 5 Years
--------------------- --------------------------
<S> <C>
Phillip B. Rooney......................... Vice Chairman and Director of The
One ServiceMaster Way ServiceMaster Company, a business and
Downers Grove, IL 60515 consumer services company. Director of
Date of Birth: 07/08/44 Illinois Tool Works, Inc., a manufacturing
company; 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............................ Professor Emeritus and, prior to 1995, Dean
155 Hickory Lane of the Graduate School, Stevens Institute of
Closter, NJ 07624 Technology. Director, Dynalysis of Princeton,
Date of Birth: 08/02/24 a firm engaged in engineering research.
Trustee/Director of each of the funds in the
Fund Complex.
Paul G. Yovovich.......................... Private investor. Prior to April 1996,
Sears Tower President of Advance Ross Corporation.
233 South Wacker Drive Director of 3Com Corporation, APAC
Suite 9700 Teleservices, Inc., COMARCO, Inc., Applied
Chicago, IL 60606 Language Technologies, Focal Communications,
Date of Birth: 10/29/53 and Lante Corporation. Limited Partner of
Evercore Partners, LLP. Trustee/Director of
each of the Funds in the Fund Complex.
Wayne W. Whalen*.......................... Partner in the law firm of Skadden, Arps,
333 West Wacker Drive Slate, Meagher & Flom (Illinois), legal
Chicago, IL 60606 counsel to the funds in the Fund Complex, and
Date of Birth: 08/22/39 other open-end and closed-end funds advised
by the Advisers or Van Kampen Management Inc.
Trustee/Director of each of the funds in the
Fund Complex, and Trustee/Managing General
Partner of other open-end and closed-end
funds advised by the Advisers or Van Kampen
Management Inc.
</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-16
<PAGE> 43
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>
Name, Age, Positions and Principal Occupations
Offices with Fund During Past 5 Years
------------------------ ---------------------
<S> <C>
Dennis J. McDonnell.................. Executive Vice President and a Director of VK.
Date of Birth: 05/20/42 President, Chief Operating Officer and a Director
President 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....................... Executive Vice President of the Advisers, Van
Date of Birth: 06/25/56 Kampen Management Inc. and Van Kampen Advisors
Vice President Inc. Prior to 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..................... Senior Vice President of the Advisers, Vice
Date of Birth: 08/04/46 President and Chief Accounting Officer of each of
Vice President and Chief Accounting the funds in the Fund Complex and certain other
Officer investment companies advised by the Advisers or
their affiliates.
</TABLE>
B-17
<PAGE> 44
<TABLE>
<CAPTION>
Name, Age, Positions and Principal Occupations
Offices with Fund During Past 5 Years
------------------------ ---------------------
<S> <C>
Ronald A. Nyberg..................... Executive Vice President, General Counsel,
Date of Birth: 07/29/53 Secretary and Director of VK. Mr. Nyberg is
Vice President and Secretary 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 and
River View International Inc. 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
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................... Executive Vice President and Director of VK.
Date of Birth: 11/10/44 Executive Vice President of Asset Management and
Vice President the Distributor. President and a Director of
Investor Services. 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................... Senior Vice President of the Advisers, VK and Van
Date of Birth: 01/11/56 Kampen Management Inc. Senior Vice President and
Vice President Chief Operating Officer of the Distributor. Vice
President of each of the funds in the Fund
Complex and certain other investment companies
advised by the Advisers or their affiliates.
</TABLE>
B-18
<PAGE> 45
<TABLE>
<CAPTION>
Name, Age, Positions and Principal Occupations
Offices with Fund During Past 5 Years
------------------------ ---------------------
<S> <C>
John L. Sullivan..................... First Vice President of VK and the Advisers.
Date of Birth: 08/20/55 Treasurer, Vice President and Chief Financial
Treasurer, Vice President and Chief Officer of each of the funds in the Fund Complex
Financial Officer and certain other investment companies advised by
the Advisers or their affiliates.
Tanya M. Loden....................... Vice President of VK and the Advisers. Controller
Date of Birth: 11/19/59 of each of the funds in the Fund Complex and
Controller other investment companies advised by the
Advisers or their affiliates.
Nicholas Dalmaso..................... Associate General Counsel and Assistant Secretary
Date of Birth: 03/01/65 of VK. Vice President, Associate General Counsel
Assistant Secretary 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.................. Vice President, Assistant Secretary and Senior
Date of Birth: 11/15/63 Attorney of VK. Vice President, Assistant
Assistant Secretary 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.
</TABLE>
B-19
<PAGE> 46
<TABLE>
<CAPTION>
Name, Age, Positions and Principal Occupations
Offices with Fund During Past 5 Years
------------------------ ---------------------
<S> <C>
Scott E. Martin...................... Senior Vice President, Deputy General Counsel and
Date of Birth: 08/20/56 Assistant Secretary of VK. Senior Vice President,
Assistant Secretary 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.................. Vice President, Associate General Counsel and
Date of Birth: 06/15/56 Assistant Secretary of VK, the Advisers, the
Assistant Secretary 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.
Steven M. Hill....................... Vice President of VK and the Advisers. Assistant
Date of Birth: 10/16/64 Treasurer of each of the funds in the Fund
Assistant Treasurer Complex and other investment companies advised by
the Advisers or their affiliates.
Michael Robert Sullivan.............. Assistant Vice President of the Advisers.
Date of Birth: 03/30/33 Assistant Controller of each of the funds in the
Assistant Controller 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.
B-20
<PAGE> 47
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 VK, the Advisers or the Distributor (each a "Non-Affiliated
Trustee") is compensated by an annual retainer and meeting fees for services to
the funds in the Fund Complex. Each fund in the Fund Complex (except the money
market series of the 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
B-21
<PAGE> 48
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.
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.
B-22
<PAGE> 49
Additional information regarding compensation and benefits for trustees is
set forth below for the periods described in the notes accompanying the table.
COMPENSATION TABLE
<TABLE>
<CAPTION>
Fund Complex
-------------------------------------------
Aggregate
Aggregate Estimated
Pension or Maximum Total
Aggregate Retirement Annual Compensation
Year First Compensation Benefits Benefits from before
Appointed or before Accrued as the Fund Deferral from
Elected to Deferral from Part of Upon Fund
Name(1) the Board the Fund(2) Expenses(3) Retirement(4) Complex(5)
------- ------------ ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
J. Miles Branagan* 1991 $ $30,328 $60,000 $111,197
Linda Hutton Heagy* 1995 3,141 60,000 111,197
R. Craig Kennedy* 1995 2,229 60,000 111,197
Jack E. Nelson* 1995 15,820 60,000 104,322
Jerome L. Robinson 1995 32,020 15,750 107,947
Phillip B. Rooney* 1997 0 60,000 74,697
Dr. Fernando Sisto* 1978 60,208 60,000 111,197
Wayne W. Whalen* 1995 10,788 60,000 111,197
</TABLE>
- ------------------------------------
* Currently a member of the Board of Trustees.
(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 August 31, 1998. The
following trustees deferred compensation from the Fund during the fiscal
year ended August 31, 1998: Mr. Branagan, ; Ms. Heagy, ; Mr.
Kennedy, ; Mr. Nelson, ; Mr. Robinson, ; Mr. Rooney,
; Dr. Sisto, ; and Mr. Whalen, . Amounts deferred are
retained by the Fund and earn a rate of return determined by reference to
either the return on the common shares of the Fund or other funds in the
Fund Complex as selected by the respective Non-Affiliated Trustee, with the
same economic effect as if such Non-Affiliated Trustee had invested in one
or more funds in the Fund Complex. To the extent permitted by the 1940 Act,
each Fund may invest in securities of those funds selected by the
Non-Affiliated Trustees in order to match the deferred compensation
obligation. The cumulative deferred compensation (including interest)
accrued with respect to each trustee, including former trustees, from the
Fund as of August 31, 1998 is as follows: Mr. Branagan, ; Dr.
Caruso, ; Mr. Gaughan, ; Ms. Heagy, ; Mr. Kennedy,
; Mr. Miller, ; Mr. Nelson, ; Mr. Rees, ; Mr.
Robinson, ; Mr. Rooney, ; Dr. Sisto, ; Mr. Vernon,
; and Mr. Whalen, . The deferred compensation plan is
described above the Compensation Table.
B-23
<PAGE> 50
(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 December , 1998, the trustees and officers of the Fund as a group
owned less than 1% of the shares of the Fund.
INVESTMENT ADVISORY AGREEMENT
The Fund and the Adviser are parties to an investment advisory agreement
(the "Advisory Agreement"). Under the Advisory Agreement, the Fund retains the
Adviser to manage the investment of the Fund's assets, including the placing of
orders for the purchase and sale of portfolio securities. The Adviser obtains
and evaluates economic, statistical and financial information to formulate and
implement the Fund's investment objectives. The Adviser also furnishes the
services of the Fund's President and such other executive and clerical personnel
as are necessary to prepare the various reports and statements and conduct the
Fund's day-to-day operations. The Fund, however, bears the cost of its
accounting services, which include maintaining its financial books and records
and calculating its daily net asset value. The costs of such accounting services
include the salaries and overhead expenses of the Fund's Treasurer and the
personnel operating under his direction. Charges are allocated among the
investment companies advised or subadvised by the Adviser. A portion of these
amounts is paid to the Adviser or its parent in
B-24
<PAGE> 51
reimbursement of personnel, office space, facilities and equipment costs
attributable to the provision of accounting services to the Fund. The Fund also
pays distribution fees, service fees, custodian fees, legal and auditing fees,
the costs of reports to shareholders, and all other ordinary business expenses
not specifically assumed by the Adviser. The Advisory Agreement also provides
that the Adviser shall not be liable to the Fund 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: 0.575% on the first $350 million of average net assets; 0.525% on the
next $350 million of average net assets; 0.475% on the next $350 million of
average net assets; and 0.425% on the net assets over $1.05 billion.
The Fund's average net assets are determined by taking the average of all
of the determinations of the net assets during a given calendar month. Such fee
is payable for each calendar month as soon as practicable after the end of that
month. The fee payable to the Adviser is reduced by any commissions, tender
solicitation and other fees, brokerage or similar payments received by the
Adviser or any other direct or indirect majority owned subsidiary of [VK/AC
Holding, Inc.] in connection with the purchase and sale of portfolio investments
less any direct expenses incurred by such subsidiary of [VK/AC Holding, Inc.],
in connection with obtaining such commissions, fees, brokerage or similar
payments. The Adviser agrees to use its best efforts to recapture tender
solicitation fees and exchange offer fees for the Fund's benefit and to advise
the Trustees of the Fund of any other commissions, fees, brokerage or similar
payments which may be possible for the Adviser or any other direct or indirect
majority owned subsidiary of [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 limitation 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 shall terminate
automatically if assigned and that it may be terminated without penalty by
either party on 60 days' written notice.
B-25
<PAGE> 52
During the fiscal years ended August 31, 1996, 1997 and 1998, the Adviser
received $[ ], $[ ] and $[ ], respectively, in advisory fees from
the Fund. For such periods the Fund paid $[ ], $[ ] and $[ ],
respectively, for accounting services.
DISTRIBUTION AND SERVICE
The Distributor acts as the principal underwriter of the Fund's shares
pursuant to a written agreement (the "Distribution and Service Agreement"). The
Distributor has the exclusive right to distribute shares of the Fund through
authorized dealers on a continuous basis. The Distributor's obligation is an
agency or "best efforts" arrangement under which the Distributor is required to
take and pay for only such shares of the Fund as may be sold to the public. The
Distributor is not obligated to sell any stated number of shares. The
Distributor bears the cost of printing (but not typesetting) prospectuses used
in connection with this offering and certain other costs including the cost of
supplemental sales literature and advertising. The Distribution and Service
Agreement is renewable from year to year if approved (a) 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
Received by
Total Amounts Advantage
Underwriting Retained by Capital
Commissions Distributor Corporation
------------ ----------- ------------
<S> <C> <C> <C>
Fiscal Year Ended August 31, 1998.........
Fiscal Year Ended August 31, 1997.........
Fiscal Year Ended August 31, 1996.........
</TABLE>
B-26
<PAGE> 53
With respect to sales of Class A Shares of the Fund, the total sales
charges and concessions reallowed to authorized dealers at the time of purchase
are as follows:
CLASS A SHARES SALES CHARGE TABLE
<TABLE>
<CAPTION>
Total Sales Charge
------------------------- Reallowed
As % of As % of Net To Dealers
Size of Offering Amount As a % of
Investment Price Invested Offering Price
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000........................... 5.75% 6.10% 5.00%
$50,000 but less than $100,000.............. 4.75% 4.99% 4.00%
$100,000 but less than $250,000............. 3.75% 3.90% 3.00%
$250,000 but less than $500,000............. 2.75% 2.83% 2.25%
$500,000 but less than $1,000,000........... 2.00% 2.04% 1.75%
$1,000,000 or more.......................... * * *
- ------------------------------------------------------------------------------------------------
</TABLE>
* No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the Fund imposes a deferred
sales charge of 1.00% on redemptions made within one year of the purchase. A
commission or transaction fee will be paid by the Distributor at the time of
purchase directly out of the Distributor's assets (and not out of the Fund's
assets) to authorized dealers who initiate and are responsible for purchases
of $1 million or more computed based on a percentage of the dollar value of
such shares sold as follows: 1.00% on sales to $2 million, plus 0.80% on the
next $1 million and 0.50% on the excess over $3 million.
With respect to sales of Class B Shares and Class C Shares of the Fund, a
commission or transaction fee generally will be paid by the Distributor at the
time of purchase directly out of the Distributor's assets (and not out of the
Fund's assets) to authorized dealers who initiate and are responsible for such
purchases computed based on a percentage of the dollar value of such shares sold
of 4.00% on Class B Shares and 1.00% on Class C Shares.
Proceeds from any deferred sales charge and any distribution fees on Class
B Shares and Class C Shares of the Fund are paid to the Distributor and are used
by the Distributor to defray its distribution related expenses in connection
with the sale of the Fund's shares, such as the payment to authorized dealers
for selling such shares. With respect to Class C Shares, the authorized dealers
generally are paid the ongoing commission and transaction fees of up to 0.75% of
the average daily net assets of the Fund's Class C Shares annually commencing in
the second year after purchase.
In addition to reallowances or commissions described above, the Distributor
may from time to time implement programs under which an authorized dealer's
sales force may be eligible to win nominal awards for certain sales efforts or
under which the Distributor will reallow to any authorized dealer that sponsors
sales contests or recognition programs conforming to criteria established by the
Distributor, or participates in sales programs sponsored by the Distributor, an
amount not exceeding the total applicable sales charges on the sales generated
by the authorized dealer at the public offering price during such programs.
Other programs provide, among other things and subject to certain conditions,
for certain favorable distribution arrangements for shares of the Fund. Also,
the Distributor in its discretion may from time to time, pursuant to objective
criteria established by the
B-27
<PAGE> 54
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 incentives may
be offered to brokers, dealers or financial intermediaries that have sold or may
sell significant amounts of shares during specified periods of time. The
Distributor may provide additional compensation to Edward D. Jones & Co. or an
affiliate thereof based on a combination of its sales of shares and increases in
assets under management. All of the foregoing payments are made by the
Distributor out of its own assets. Such fees paid for such services and
activities with respect to the Fund will not exceed in the aggregate 1.25% of
the average total daily net assets of the Fund on an annual basis. These
programs will not change the price an investor will pay for shares or the amount
that a Fund will receive from such sale.
Banks are currently prohibited under the Glass-Steagall Act from providing
certain underwriting or distribution services. If banking firms were prohibited
from acting in any capacity or providing any of the described services, the
Distributor would consider what action, if any, would be appropriate. The
Distributor does not believe that termination of a relationship with a bank
would result in any material adverse consequences to the Fund. State securities
laws regarding registration of banks and other financial institutions may differ
from the interpretations of federal law expressed herein, and banks and other
financial institutions may be required to register as dealers pursuant to
certain state laws.
The Fund has adopted a distribution plan (the "Distribution Plan") with
respect to each class of its shares pursuant to Rule 12b-1 under the 1940 Act.
The Fund also has 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
B-28
<PAGE> 55
Trustees. The Plans provide that they will continue in full force and effect
from year to year so long as such continuance is specifically approved by a vote
of the Trustees, and also by a vote of the disinterested Trustees, cast in
person at a meeting called for the purpose of voting on the Plans. Each of the
Plans may not be amended to increase materially the amount to be spent for the
services described therein with respect to any class of shares without approval
by a vote of a majority of the outstanding voting shares of such class, and all
material amendments to either of the Plans must be approved by the Trustees and
also by the disinterested Trustees. Each of the Plans may be terminated with
respect to any class of shares at any time by a vote of a majority of the
disinterested Trustees or by a vote of a majority of the outstanding voting
shares of such class.
The Plans generally provide for the Fund to reimburse the lesser of (i) the
distribution and service fees at the rates specified in the prospectus or (ii)
the amount of the Distributor's actual expenses incurred less any deferred sales
charges it received. For Class A Shares, to the extent the Distributor is not
fully reimbursed in a given year, there is no carryover of such unreimbursed
amounts to succeeding years. For each of the Class B Shares and Class C Shares,
to the extent the Distributor is not fully reimbursed in a given year, any
unreimbursed expenses for such class will be carried forward and paid by the
Fund in future years so long as such Plans are in effect. Except as mandated by
applicable law, the Fund does not impose any limit with respect to the number of
years into the future that such unreimbursed expenses may be carried forward (on
a Fund level basis). Because such expenses are accounted on a Fund level basis,
in periods of extreme net asset value fluctuation such amounts with respect to a
particular Class B Share of 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
August 31, 1998, there were $ and $ of unreimbursed
distribution-related expenses with respect to Class B Shares and Class C Shares,
respectively, representing % and % of the Fund's net assets
attributable to Class B Shares and Class C Shares, respectively. If the Plan
were terminated or not continued, the Fund would not be contractually obligated
to pay the Distributor for any expenses not previously reimbursed by the Fund or
recovered through deferred sales charge.
For the fiscal year ended August 31, 1998, the Fund's aggregate expenses
under the Plans for Class A Shares were $[ ] or [ ]% of the
Class A Shares' average daily net assets. Such expenses were paid to reimburse
the Distributor for payments made to financial intermediaries for servicing Fund
shareholders and for administering the Plans. For the fiscal year ended August
31, 1998, the Fund's aggregate expenses under the Class B Plan were
$[ ] or [ ]% of the Class B Shares' average net assets. Such
expenses were paid to reimburse the Distributor for the following payments:
$[ ] for commissions and transaction fees paid to financial
intermediaries in respect of sales of Class B Shares of the Fund and
$[ ] for fees paid to financial intermediaries for servicing Class B
shareholders and administering the Plans. For the fiscal year ended August 31,
1998, the Fund's aggregate expenses under the Plans for Class C Shares were
$[ ] or [ ]% of the Class C Shares' average net assets. Such
expenses were paid to reimburse the Distributor for the following payments;
$[ ] for commissions and transaction fees paid to financial
intermediaries in respect of sales of Class C Shares of the Fund and
$[ ] for fees
B-29
<PAGE> 56
paid to financial intermediaries for servicing Class C shareholders and
administering the Class C Plan.
TRANSFER AGENT
The Fund's transfer agent is Van Kampen Investor Services Inc., P.O. Box
418256, Kansas City, MO 64141-9256. During the fiscal years ending August 31,
1996, 1997 and 1998, Investor Services, shareholder service agent and dividend
disbursing agent for the Fund, received fees aggregating $[ ],
$[ ] and $[ ], respectively for these services. Prior to 1988,
these services were provided at cost plus a profit. Beginning in 1998, the
transfer agency prices are determined through negotiations with the Fund's Board
of Trustees and are based on competitive benchmarks.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Adviser is responsible for decisions to buy and sell securities for the
Fund, the selection of brokers and dealers to effect the transactions and the
negotiation of prices and any brokerage commissions on such transactions. While
the Adviser will be primarily responsible for the placement of the Fund's
portfolio business, the policies and practices in this regard will at all times
be subject to review by the trustees of the Fund.
The Adviser is responsible for placing portfolio transactions and does so
in a manner deemed fair and reasonable to the Fund and not according to any
formula. The primary considerations in all portfolio transactions is prompt
execution of orders in an effective manner at the most favorable price. In
selecting broker/dealers and in negotiating commissions, the Adviser considers
the firm's reliability, integrity and financial condition and the firm's
execution capability, the size and breadth of the market for the security, the
size of and difficulty in executing the order, and the best net price. There are
many instances when, in the judgment of the Adviser, more than one firm can
offer comparable execution services. In selecting among such firms,
consideration may be given to those firms which supply research and other
services in addition to execution services. The Adviser is authorized to pay
higher commissions to brokerage firms that provide it with investment and
research information than to firms which do not provide such services if the
Adviser determines that such commissions are reasonable in relation to the
overall services provided. No specific value can be assigned to such research
services which are furnished without cost to the Adviser. Since statistical and
other research information is only supplementary to the research efforts of the
Adviser to the Fund and still must be analyzed and reviewed by its staff, the
receipt of research information is not expected to reduce its expenses
materially. The investment advisory fee is not reduced as a result of the
Adviser's receipt of such research services. Services provided may include (a)
furnishing advice as to the value of securities, the advisability of investing
in, purchasing or selling securities, and the availability of securities or
purchasers or sellers of securities; (b) furnishing analyses and reports
concerning issuers, industries, securities, economic factors and trends,
portfolio strategy, and the performance of accounts; and (c) effecting
securities transactions and performing functions incidental thereto (such as
clearance, settlement and custody). Research services furnished by firms through
which the Fund effects its securities transactions may be used by the Adviser in
servicing all of its advisory accounts; not all of such services may be used by
the Adviser in connection with the Fund.
B-30
<PAGE> 57
The Adviser also may place portfolio transactions, to the extent permitted by
law, with brokerage firms affiliated with the Fund, the Adviser or the
Distributor and with brokerage firms participating in the distribution of the
Fund's shares if it reasonably believes that the quality of execution and the
commission are comparable to that available from other qualified firms.
Similarly, to the extent permitted by law and subject to the same considerations
on quality of execution and comparable commission rates, the Adviser may direct
an executing broker to pay a portion or all of any commissions, concessions or
discounts to a firm supplying research or other services or to a firm
participating in the distribution of the Fund's shares.
The Adviser may place portfolio transactions at or about the same time for
other advisory accounts, including other investment companies. The Adviser seeks
to allocate portfolio transactions equitably whenever concurrent decisions are
made to purchase or sell securities for the Fund and another advisory account.
In some cases, this procedure could have an adverse effect on the price or the
amount of securities available to the Fund. In making such allocations among the
Fund and other advisory accounts, the main factors considered by the Adviser are
the respective sizes of the Fund and other advisory accounts, the respective
investment objectives, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment, the size of
investment commitments generally held and opinions of the persons responsible
for recommending the investment.
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 trustees have
adopted certain policies incorporating the standards of Rule 17e-1 issued by the
SEC under the 1940 Act which requires that the commissions paid to the
Distributor and other affiliates of the Fund must be reasonable and fair
compared to the commissions, fees or other remuneration received or to be
received by other brokers in connection with comparable transactions involving
similar securities during a comparable period of time. The rule and procedures
also contain review requirements and require the Adviser to furnish reports to
the trustees and to maintain records in connection with such reviews. After
consideration of all factors deemed relevant, the trustees will consider from
time to time whether the advisory fee for the Fund will be reduced by all or a
portion of the brokerage commission given to affiliated brokers. The quality of
execution and the negotiated commission paid to an affiliated broker on any
transaction are comparable to that payable to a non-affiliated broker in a
similar transaction.
B-31
<PAGE> 58
The Fund paid the following commissions to all brokers and affiliated
brokers during the periods shown:
Commissions Paid:
<TABLE>
<CAPTION>
Affiliated Brokers
-----------------------
Morgan Dean
Brokers Stanley Witter
------- ------- ------
<S> <C> <C> <C>
Commissions paid:
Fiscal year 1996............................
Fiscal year 1997............................
Fiscal year 1998............................
Fiscal year 1997 Percentages:
Commissions with affiliate to total
commissions............................
Value of brokerage transactions with
affiliate to total transactions........
</TABLE>
SHARE PURCHASE PROGRAMS
The following information supplements the section in the Fund's Prospectus
captioned "Purchase of Shares."
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 herein.
Investors, or their authorized dealers, must notify the Fund at the time of
the purchase order whenever a quantity discount is applicable to purchases. Upon
such notification, an investor will receive the lowest applicable sales charge.
Quantity discounts may be modified or terminated at any time. For more
information about quantity discounts, investors should contact their authorized
dealer or the Distributor.
A person eligible for a reduced sales charge includes an individual, his or
her spouse and children under 21 years of age and any corporation, partnership
or sole proprietorship which is 100% owned, either alone or in combination, by
any of the foregoing; a trustee or other fiduciary purchasing for a single trust
or for a single fiduciary account, or a "company" as defined in Section 2(a)(8)
of the 1940 Act.
As used herein, "Participating Funds" refers to certain open-end investment
companies advised by Asset Management or Advisory Corp. and distributed by the
Distributor as determined from time to time by the Fund's Board of Trustees.
Volume Discounts. The size of investment shown in the Class A Shares sales
charge table applies to the total dollar amount being invested by any person in
shares of the Fund, or in any combination of shares of the Fund and shares of
other Participating Funds, although other Participating Funds may have different
sales charges.
Cumulative Purchase Discount. The size of investment shown in the Class A
Shares sales charge table may also be determined by combining the amount being
invested in
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shares of the Participating Funds plus the current offering price of all shares
of the Participating Funds which have been previously purchased and are still
owned.
Letter of Intent. A Letter of Intent provides an opportunity for an
investor to obtain a reduced sales charge by aggregating the investments over a
13-month period to determine the sales charge as outlined in the Class A Shares
sales charge table. The size of investment shown in the Class A Shares sales
charge table 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. 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 adjustment in sales charge will be used to purchase additional
shares for the shareholder at the applicable discount category. The Fund
initially will escrow shares totaling 5% of the dollar amount of the Letter of
Intent to be held by Investor Services in the name of the shareholder. In the
event the Letter of Intent goal is not achieved within the period, the investor
must pay the difference between the sales charge applicable to the purchases
made and the sales charges previously paid. Such payments may be made directly
to the Distributor or, if not paid, the Distributor will liquidate sufficient
escrowed shares to obtain the difference.
OTHER PURCHASE PROGRAMS
Purchasers of Class A Shares may be entitled to reduced initial sales
charges in connection with 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 Investor Services with
appropriate backup data for each participating
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investor in a computerized format fully compatible with Investor Services'
processing system.
As further requirements for obtaining these special benefits, the Fund also
requires that all dividends and other distributions by the Fund be reinvested in
additional shares without any systematic withdrawal program. There will be no
minimum for reinvestments from unit investment trusts. The Fund will send
account activity statements to such participants on a 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 Asset
Management or Advisory Corp. and such persons' families and their
beneficial accounts.
(2) Current or retired directors, officers and employees of Morgan Stanley
Dean Witter & Co. and any of its subsidiaries, employees of an
investment subadviser to any fund described in (1) above or an
affiliate of such subadviser, and such persons' families and their
beneficial accounts.
(3) Directors, officers, employees and, when permitted, registered
representatives, of financial institutions that have a selling group
agreement with the Distributor and their spouses and children under 21
years of age when purchasing for any accounts they beneficially own,
or, in the case of any such financial institution, when purchasing for
retirement plans for such institution's employees; provided that such
purchases are otherwise permitted by such institutions.
(4) Registered investment advisers who charge a fee for their services,
trust companies and bank trust departments investing on their own
behalf or on behalf of their clients. The Distributor may pay
authorized dealers through which purchases are made an amount up to
0.50% of the amount invested, over a 12-month period.
(5) Trustees and other fiduciaries purchasing shares for retirement plans
which invest in multiple fund families through broker-dealer retirement
plan alliance programs that have entered into agreements with the
Distributor and which are subject to certain minimum size and
operational requirements. [Nick].
(6) Beneficial owners of shares of Participating Funds held by a retirement
plan or held in a tax-advantaged retirement account who purchase shares
of the Fund with proceeds from distributions from such a plan or
retirement account other than distributions taken to correct an excess
contribution.
(7) Accounts as to which a bank or broker-dealer charges an account
management fee ("wrap accounts"), provided the bank or broker-dealer
has a separate agreement with the Distributor.
(8) Trusts created under pension, profit sharing or other employee benefit
plans qualified under Section 401(a) of the Internal Revenue Code of
1986, as amended (the "Code"), or custodial accounts held by a bank
created pursuant to
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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 Trust Company
serves as custodian will not be eligible for net asset value purchases
based on the aggregate investment made by the plan or the number of
eligible employees, except under certain uniform criteria established
by the Distributor from time to time. Prior to February 1, 1997, a
commission will be paid to authorized dealers who initiate and are
responsible for such purchases within a rolling twelve-month period as
follows: 1.00% on sales to $5 million, plus 0.50% on the next $5
million, plus 0.25% on the excess over $10 million. For purchases on
February 1, 1997 and thereafter, a commission will be paid as follows:
1.00% on sales to $2 million, plus 0.80% on the next $1 million, plus
0.50% on the next $47 million, plus 0.25% on the excess over $50
million.
(9) Individuals who are members of a "qualified group". For this purpose, a
qualified group is one which (i) has been in existence for more than
six months, (ii) has a purpose other than to acquire shares of the Fund
or similar investments, (iii) has given and continues to give its
endorsement or authorization, on behalf of the group, for purchase of
shares of the Fund and Participating Funds, (iv) has a membership that
the authorized dealer can certify as to the group's members and (v)
satisfies other uniform criteria established by the Distributor for the
purpose of realizing economies of scale in distributing such shares. A
qualified group does not include one whose sole organizational nexus,
for example, is that its participants are credit card holders of the
same institution, policy holders of an insurance company, customers of
a bank or broker-dealer, clients of an investment adviser or other
similar groups. Shares purchased in each group's participants account
in connection with this privilege will be subject to a contingent
deferred sales charge ("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 Investor Services by the
investment adviser, trust company or bank trust department, provided that
Investor Services receives federal
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funds for the purchase by the close of business on the next business day
following acceptance of the order. An authorized dealer may charge a transaction
fee for placing an order to purchase shares pursuant to this provision or for
placing a redemption order with respect to such shares. Authorized dealers will
be paid a service fee as described on purchases made as described in (3) through
(9) above. The Fund may terminate, or amend the terms of, offering shares of the
Fund at net asset value to such groups at any time.
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services designed to facilitate
investment in its shares at little or no extra cost to the investor. Below is a
description of such services. The following information supplements the section
in the Fund's Prospectus captioned "Shareholder Services."
INVESTMENT ACCOUNT
Each shareholder has an investment account under which the investor's
shares of the Fund are held by Investor Services, the Fund's transfer agent.
Investor Services performs bookkeeping, data processing and administrative
services related to the maintenance of shareholder accounts. Except as described
in the Prospectus and this Statement of Additional Information, after each share
transaction in an account, the shareholder receives a statement showing the
activity in the account. Each shareholder who has an account in any of the
Participating Funds will receive statements quarterly from Investor Services
showing any reinvestments of dividends and capital gains distributions and any
other activity in the account since the preceding statement. Such shareholders
also will receive separate confirmations for each purchase or sale transaction
other than reinvestment of dividends and capital gains distributions and
systematic purchases or redemptions. Additions to an investment account may be
made at any time by purchasing shares through authorized dealers or by mailing a
check directly to Investor Services.
SHARE CERTIFICATES
Generally, the Fund will not issue share certificates. However, upon
written or telephone request to the Fund, a share certificate will be issued
representing shares (with the exception of fractional shares) of the Fund. A
shareholder will be required to surrender such certificates upon redemption
thereof. In addition, if such certificates are lost the shareholder must write
to Van Kampen Funds, c/o Investor Services, P.O. Box 418256, Kansas City, MO
64141-9256, requesting an "affidavit of loss" and obtain a Surety Bond in a form
acceptable to Investor Services. On the date the letter is received, Investor
Services will calculate a fee for replacing the lost certificate equal to no
more than 2.00% of the net asset value of the issued shares, and bill the party
to whom the replacement certificate was mailed.
RETIREMENT PLANS
Eligible investors may establish individual retirement accounts ("IRAs");
SEP; 401(k) plans; Section 403(b)(7) plans in the case of employees of public
school systems and certain non-profit organizations; or other pension or profit
sharing plans. Documents
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and forms containing detailed information regarding these plans are available
from the Distributor. Van Kampen Trust Company serves as custodian under the
IRA, 403(b)(7) and Keogh plans. Details regarding fees, as well as full plan
administration for profit sharing, pension and 401(k) plans, are available from
the Distributor.
AUTOMATED CLEARING HOUSE("ACH") DEPOSITS
Holders of Class A Shares can use ACH to have redemption proceeds deposited
electronically into their bank accounts. Redemptions transferred to a bank
account via the ACH plan are available to be credited to the account on the
second business day following normal payment. In order to utilize this option,
the shareholder's bank must be a member of ACH. In addition, the shareholder
must fill out the appropriate section of the account application. The
shareholder must also include a voided check or deposit slip from the bank
account into which redemptions are to be deposited together with the completed
application. Once Investor Services has received the application and the voided
check or deposit slip, such shareholder's designated bank account, following any
redemption, will be credited with the proceeds of such redemption. Once enrolled
in the ACH plan, a shareholder may terminate participation at any time by
writing Investor Services.
DIVIDEND DIVERSIFICATION
A shareholder may, upon written request or by completing the appropriate
section of the application form accompanying the Prospectus or by calling (800)
421-5666 ((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 type, either non-retirement or retirement. If the accounts
are retirement accounts, they must both be for the same class and of the same
type of retirement plan (e.g. IRA, 403(b)(7), 401(k), Keogh) and for the benefit
of the same individual. If a qualified, pre-existing account does not exist, the
shareholder must establish a new account subject to minimum investment and other
requirements of the fund into which distributions would be invested.
Distributions are invested into the selected fund at its net asset value per
share as of the payable date of the distribution.
EXCHANGE PRIVILEGE
Shares of the Fund may be exchanged for shares of the same class of any
Participating Fund based on the next computed net asset value per share of each
fund after requesting the exchange without any sales charge, subject to certain
limitations. Shares of the Fund may be exchanged for shares of any Participating
Fund only if shares of that Participating Fund are available for sale; however,
during periods of suspension of sales, shares of a Participating Fund may be
available for sale only to existing shareholders of a Participating Fund.
Shareholders seeking an exchange into a Participating Fund should obtain and
read the current prospectus for such fund.
To be eligible for exchange, shares of the Fund must have been registered
in the shareholder's name at least 30 days prior to an exchange. Shares of the
Fund registered in a shareholder's name for less than 30 days may only be
exchanged upon receipt of prior
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approval of the Adviser. Under normal circumstances, it is the policy of the
Adviser not to approve such requests.
When Class B Shares and Class C Shares are exchanged among Participating
Funds, the holding period for purposes of computing the CDSC is based upon the
date of the initial purchase of such shares from a Participating Fund. If such
Class B Shares or Class C Shares are redeemed and not exchanged for shares of
another Participating Fund, Class B shares and Class C shares are subject to the
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 Investor Services or by contacting the telephone transaction line at
(800) 421-5684. A shareholder automatically has telephone exchange privileges
unless otherwise designated in the application form accompanying the Prospectus.
Van Kampen and its subsidiaries, including Investor Services, and the Fund
employ procedures considered by them to be reasonable to confirm that
instructions communicated by telephone are genuine. Such procedures include
requiring certain personal identification information prior to acting upon
telephone instructions, tape recording telephone communications, and providing
written confirmation of instructions communicated by telephone. If reasonable
procedures are employed, neither Van Kampen, Investor Services nor the Fund will
be liable for following telephone instructions which it reasonably believes to
be genuine. If the exchanging shareholder does not have an account in the fund
whose shares are being acquired, a new account will be established with the same
registration, dividend and capital gains options (except dividend
diversification) and authorized dealer of record as the account from which
shares are exchanged, unless otherwise specified by the shareholder. In order to
establish a systematic withdrawal plan for the new account or reinvest dividends
from the new account into another fund, however, an exchanging shareholder must
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.
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,
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next determined on the date of receipt. Exchange requests received on a business
day after the time shares of the funds involved in the request are priced will
be processed on the next business day in the manner described herein.
A prospectus of any of these Participating Funds may be obtained from any
authorized dealer or the Distributor. An investor considering an exchange to one
of such funds should refer to the prospectus for additional information
regarding such fund prior to investing.
SYSTEMATIC WITHDRAWAL PLAN
Any investor whose shares in a single account total $10,000 or more at the
offering price next computed after receipt of instructions may establish a
monthly, quarterly, semi-annual or annual withdrawal plan. Any investor whose
shares in a single account total $5,000 or more at the offering price next
computed after receipt of instructions may establish a quarterly, semiannual or
annual withdrawal plan. This plan provides for the orderly use of the entire
account, not only the income but also the capital, if necessary. Each withdrawal
constitutes a redemption of shares on which any capital gain or loss will be
recognized. The planholder may arrange for monthly, quarterly, 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 plans are reinvested in additional shares
at the next determined net asset value per share. If periodic withdrawals
continuously exceed reinvested dividends and capital gains distributions, the
shareholder's original investment will be correspondingly reduced and ultimately
exhausted. Withdrawals made concurrently with the purchase of additional shares
ordinarily will be disadvantageous to the shareholder because of the duplication
of sales charges. Any gain or loss realized by the shareholder upon redemption
of shares is a taxable event. The Fund reserves the right to amend or terminate
the systematic withdrawal program on 30 days' notice to its shareholders.
REINSTATEMENT PRIVILEGE
A Class A shareholder or Class B shareholder who has redeemed shares of the
Fund may reinstate any portion or all of the net proceeds of such redemption in
Class A Shares of the Fund. A Class C shareholder who has redeemed shares of the
Fund may reinstate any portion or all of the net proceeds of such redemption in
Class C Shares of the Fund with credit given for any CDSC paid upon such
redemption. Such reinstatement is made at the net asset value per share (without
sales charge) next determined after the order is received, which must be within
180 days after the date of the redemption. Reinstatement at net asset value per
share is also offered to participants in those eligible retirement plans
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held or administered by Van Kampen Trust Company for repayment of principal (and
interest) on their borrowings on such plans.
REDEMPTION OF SHARES
Redemptions are not made on days during which the Exchange is closed. The
right of redemption may be suspended and the payment therefor may be postponed
for more than seven days during any period when (a) the Exchange is closed for
other than customary weekends or holidays; (b) trading on the Exchange is
restricted; (c) an emergency exists as a result of which disposal by the Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Fund to fairly determine the value of its net assets; or (d)
the SEC, by order, so permits.
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 "Redemption of Shares," redemptions of
Class B Shares and Class C Shares will be subject to a CDSC. The CDSC-Class B
and C is waived on redemptions of Class B Shares and Class C Shares in the
circumstances described below:
REDEMPTION UPON DEATH OR DISABILITY
The Fund will waive the CDSC-Class B and C on redemptions following the
death or disability of a Class B shareholder and Class C shareholder. An
individual will be considered disabled for this purpose if he or she meets the
definition thereof in Section 72(m)(7) of the Code, which in pertinent part
defines a person as disabled if such person "is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death or to be of
long-continued and indefinite duration." While the Fund does not specifically
adopt the balance of the Code's definition which pertains to furnishing the
Secretary of Treasury with such proof as he or she may require, the Distributor
will require satisfactory proof of death or disability before it determines to
waive the CDSC-Class B and C.
In cases of death or disability, the CDSC-Class B and C will be waived
where the decedent or disabled person is either an individual shareholder or
owns the shares as a joint tenant with right of survivorship or is the
beneficial owner of a custodial or fiduciary account, and where the redemption
is made within one year of the death or initial
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determination of disability. This waiver of the CDSC-Class B and C applies to a
total or partial redemption, but only to redemptions of shares held at the time
of the death or initial determination of disability.
REDEMPTION IN CONNECTION WITH CERTAIN DISTRIBUTIONS FROM RETIREMENT PLANS
The Fund will waive the CDSC-Class B and C when a total or partial
redemption is made in connection with certain distributions from Retirement
Plans. The charge will be waived upon the tax-free rollover or transfer of
assets to another Retirement Plan invested in one or more Participating Funds;
in such event, as described below, the Fund will "tack" the period for which the
original shares were held on to the holding period of the shares acquired in the
transfer or rollover for purposes of determining what, if any, CDSC-Class B and
C is applicable in the event that such acquired shares are redeemed following
the transfer or rollover. The charge also will be waived on any redemption which
results from the return of an excess contribution pursuant to Section 408(d)(4)
or (5) of the Code, the return of excess deferral amounts pursuant to Code
Section 401(k)(8) or 402(g)(2), or from the death or disability of the employee
(see Code Section 72(m)(7) and 72(t)(2)(A)(ii)). In addition, the charge will be
waived on any minimum distribution required to be distributed in accordance with
Code Section 401(a)(9).
The Fund does not intend to waive the CDSC-Class B and C for any
distributions from IRAs or other Retirement Plans not specifically described
above.
REDEMPTION PURSUANT TO A FUND'S SYSTEMATIC WITHDRAWAL PLAN
A shareholder may elect to participate in a systematic withdrawal plan
("Plan") with respect to the shareholder's investment in the Fund. Under the
Plan, a dollar amount of a participating shareholder's investment in the Fund
will be redeemed systematically by the Fund on a periodic basis, and the
proceeds mailed to the shareholder. The amount to be redeemed and frequency of
the systematic withdrawals will be specified by the shareholder upon his or her
election to participate in the Plan.The CDSC-Class B and C will be waived on
redemptions made under the Plan.
The amount of the shareholder's investment in a Fund at the time the
election to participate in the Plan is made with respect to the Fund is
hereinafter referred to as the "initial account balance." The amount to be
systematically redeemed from the Fund without the imposition of a CDSC-Class B
and C may not exceed a maximum of 12% annually of the shareholder's initial
account balance. The Fund reserves the right to change the terms and conditions
of the Plan and the ability to offer the Plan.
NO INITIAL COMMISSION OR TRANSACTION FEE
The Fund will waive the CDSC-Class B and C in circumstances under which no
commission or transaction fee is paid to authorized dealers at the time of
purchase of shares.
INVOLUNTARY REDEMPTIONS OF SHARES
The Fund reserves the right to redeem shareholder accounts with balances of
less than a specified dollar amount as set forth in the Prospectus. Prior to
such redemptions,
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shareholders will be notified in writing and allowed a specified period of time
to purchase additional shares to bring the account up to the required minimum
balance. The Fund will waive the CDSC-Class B and C upon such involuntary
redemption.
REINVESTMENT OF REDEMPTION PROCEEDS
A shareholder who has redeemed Class C Shares of a Fund may reinvest at net
asset value, with credit for any CDSC-Class C paid on the redeemed shares, any
portion or all of his or her redemption proceeds (plus that amount necessary to
acquire a fractional share to round off his or her purchase to the nearest full
share) in Class C Shares of the Fund, provided that the reinvestment is effected
within 180 days after such redemption and the shareholder has not previously
exercised this reinvestment privilege with respect to Class C Shares of the
Fund. Shares acquired in this manner will be deemed to have the original cost
and purchase date of the redeemed shares for purposes of applying the CDSC-Class
C to subsequent redemptions.
REDEMPTION BY ADVISER
The Fund may waive the CDSC-Class B and C when a total or partial
redemption is made by the Adviser with respect to its investments in the Fund.
TAXATION
FEDERAL INCOME TAXATION
The Fund has elected and qualified, and intends to continue to qualify each
year, to be treated as a regulated investment company under Subchapter M of the
Code. To qualify as a regulated investment company, the Fund must comply with
certain requirements of the Code relating to, among other things, the source of
its income and diversification of its assets.
If the Fund so qualifies and distributes each year to its shareholders at
least 90% of its net investment income (including taxable income and net
short-term capital gain, but not net capital gains, which are the excess of net
long-term capital gains over net short-term capital losses), it will not be
required to pay federal income taxes on any income distributed to shareholders.
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 31st of each year, at least an amount equal to the sum of (i) 98% of
its ordinary income for such year and (ii) 98% of its capital gain net income
(the latter of which generally is computed on the basis of the one-year period
ending on October 31st of such year), plus any amounts that were not distributed
in previous taxable years. For purposes of the excise tax, any ordinary income
or capital gain net income retained by, and subject to federal income tax in the
hands of, 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
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corporation on its taxable income (even if such income were distributed to its
shareholders) and all distributions out of earnings and profits would be taxed
to shareholders as ordinary income. To qualify again as a regulated investment
company in a subsequent year, the Fund may be required to pay an interest charge
on 50% of its earnings and profits attributable to non-regulated investment
company years and would be required to distribute such earnings and profits to
shareholders (less any interest charge). In addition, if the Fund failed to
qualify as a regulated investment company for its first taxable year or, if
immediately after qualifying as a regulated investment company for any taxable
year, it failed to qualify for a period greater than one taxable year, the Fund
would be required to recognize any net built-in gains (the excess of aggregate
gains, including items of income, over aggregate losses that would have been
realized if it had been liquidated) in order to qualify as a regulated
investment company in a subsequent year.
Some of the Fund's investment practices are subject to special provisions
of the Code that, among other things, may defer the use of certain losses of the
Fund and affect the holding period of the securities held by the Fund and the
character of the gains or losses realized by the Fund. These provisions may also
require the Fund to recognize income or gain without receiving cash with which
to make distributions in amounts necessary to satisfy the 90% distribution
requirement and the distribution requirements for avoiding income and excise
taxes. The Fund will monitor its transactions and may make certain tax elections
in order to mitigate the effect of these rules and prevent disqualification of
the Fund as a regulated investment company.
Investments of the Fund in securities issued at a discount or providing for
deferred interest or payment of interest in kind are subject to special tax
rules that will affect the amount, timing and character of distributions to
shareholders. For example, with respect to securities issued at a discount, the
Fund will be required to accrue as income each year a portion of the discount
and to distribute such income each year in order to maintain its qualification
as a regulated investment company and to avoid income and excise taxes. In order
to generate sufficient cash to make distributions necessary to satisfy the 90%
distribution requirement and to avoid income and excise taxes, the Fund may have
to dispose of securities that it would otherwise have continued to hold.
PASSIVE FOREIGN INVESTMENT COMPANIES. The Fund may invest in the stock of
"passive foreign investment companies" ("PFICs"). A PFIC is a foreign
corporation that, in general, meets either of the following tests: (i) at least
75% of its gross income is passive income or (ii) an average of at least 50% of
its assets produce, or are held for the production of, passive income. Under
certain circumstances, a regulated investment company that holds stock of a PFIC
will be subject to federal income tax on (i) a portion of any "excess
distribution" received on such stock or (ii) any gain from a sale or disposition
of such stock (collectively, "PFIC income"), plus interest on such amounts, even
if the regulated investment company distributes the PFIC income as a taxable
dividend to its shareholders. The balance of the PFIC income will be included in
the regulated investment company's investment company taxable income and,
accordingly, will not be taxable to it to the extent that income is distributed
to its shareholders. If the Fund invests in a PFIC and elects to treat the PFIC
as a "qualified electing fund," then in lieu of the foregoing tax and interest
obligation, the Fund would be required to include in income each year its pro
rata share of the qualified electing fund's annual ordinary earnings and net
capital gain, which most likely would have to be distributed to satisfy the
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90% distribution requirement and the distribution requirement for avoiding
income and excise taxes. In most instances it will be very difficult to make
this election due to certain requirements imposed with respect to the election.
As an alternative to making the above-described election to treat the PFIC
as a qualified electing fund, the Fund may make an election to annually
mark-to-market PFIC stock that it owns (a "PFIC Mark-to-Market Election").
"Marking-to-market," in this context, means recognizing as ordinary income or
loss each year an amount equal to the difference between the Fund's adjusted tax
basis in such PFIC stock and its fair market value. Losses will be allowed only
to the extent of net mark-to-market gain previously included by the Fund
pursuant to the election for prior taxable years. The Fund may be required to
include in its taxable income for the first taxable year in which it makes a
PFIC Mark-to-Market Election an amount equal to the interest charge that would
otherwise accrue with respect to distributions on, or dispositions of, the PFIC
stock. This amount would not be deductible from the Fund's taxable income. The
PFIC Mark-to-Market Election applies to the taxable year for which made and to
all subsequent taxable years, unless the Internal Revenue Service consents to
revocation of the election. By making the PFIC Mark-to-Market Election, the Fund
could ameliorate the adverse tax consequences arising from its ownership of PFIC
stock, but in any particular year may be required to recognize income in excess
of the distributions it receives from the PFIC and proceeds from the
dispositions of PFIC stock.
DISTRIBUTIONS
Distributions of the Fund's net investment income are taxable to
shareholders as ordinary income to the extent of the Fund's earnings and
profits, whether paid in cash or reinvested in additional shares. Distributions
of the Fund's net capital gains ("capital 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 gains dividends), see "Capital Gains Rates" below. Tax-exempt
shareholders not subject to federal income tax on their income generally will
not be taxed on distributions from the Fund.
Shareholders receiving distributions in the form of additional shares
issued by the Fund will be treated for federal income tax purposes as receiving
a distribution in an amount equal to the fair market value of the shares
received, determined as of the 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. Fund distributions
generally will not qualify for the dividends received deduction for
corporations.
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
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December 31st prior to the date of payment. In addition, certain other
distributions made after the close of a taxable year of the Fund may be "spilled
back" and treated as paid by the Fund (except for purposes of the 4% excise tax)
during such taxable year. In such case, shareholders will be treated as having
received such dividends in the taxable year in which the distribution was
actually made.
Income from investments in foreign securities received by the Fund may be
subject to income, withholding or other taxes imposed by foreign countries and
U.S. possessions. Such taxes will not be deductible or creditable by
shareholders. Tax conventions between certain countries and the United States
may reduce or eliminate such taxes.
Under Code Section 988, foreign currency gains or losses from certain
forward contracts not traded in the interbank market as well as certain other
gains or losses attributable to currency exchange rate fluctuations are
typically treated as ordinary income or loss. Such income or loss may increase
or decrease (or possibly eliminate) 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.
SALE OF SHARES
The sale of shares (including transfers in connection with a redemption or
repurchase of shares) will be a taxable transaction for federal income tax
purposes. Selling shareholders will generally recognize gain or loss in an
amount equal to the difference between their adjusted tax basis in the shares
and the amount received. If such shares are held as a capital asset, the gain or
loss will be a capital gain or loss. For a summary of the tax rates applicable
to capital gains, see "Capital Gains Rates" below. Any loss recognized upon a
taxable disposition of shares held for six months or less will be treated as a
long-term capital loss to the extent of any capital gain dividends received with
respect to such shares. For purposes of determining whether shares have been
held for six months or less, the holding period is suspended for any periods
during which the shareholder's risk of loss is diminished as a result of holding
one or more other positions in substantially similar or related property or
through certain options or short sales.
CAPITAL GAINS RATES
The maximum tax rate applicable to net capital gains recognized by
individuals and other non-corporate taxpayers is (i) the same as the maximum
ordinary income tax rate for capital assets held for one year or less or (ii)
20% for capital assets held for more than one year. 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 August 31, 1998. The maximum long-term capital gains
rate for corporations is 35%.
Non-U.S. Shareholders. A shareholder who is not (i) a citizen or resident
of the United States, (ii) a corporation or partnership created or organized
under the laws of the United States or any state thereof, (iii) an estate, the
income of which is subject to United States federal income taxation regardless
of its source or (iv) a trust whose
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administration is subject to the primary supervision of a United States court
and which has one or more United States fiduciaries who have the authority to
control all substantial decisions of the trust (a "Non-U.S. Shareholder")
generally will be subject to withholding of United States federal income tax at
a 30% rate (or lower applicable treaty rate) on dividends from the Fund (other
than capital gain dividends) that are not "effectively connected" with a United
States trade or business carried on by such shareholder. Accordingly, investment
in the Fund is likely to be appropriate for a Non-U.S. Shareholder only if such
person can utilize a foreign tax credit or corresponding tax benefit in respect
of such United States withholding tax.
Non-effectively connected capital gain dividends and gains realized from
the sale of shares will not be subject to United States federal income tax in
the case of (i) a Non-U.S. Shareholder that is a corporation and (ii) a Non-U.S.
Shareholder that is not present in the United States for more than 182 days
during the taxable year (assuming that certain other conditions are met).
However, certain Non-U.S. Shareholders may nonetheless be subject to backup
withholding on capital gain dividends and gross proceeds paid to them upon the
sale of their shares. See "Backup Withholding" below.
If income from the Fund or gains realized from the sale of shares is
effectively connected with a Non-U.S. Shareholder's United States trade or
business, then such amounts will be subject to United States federal income tax
at the tax rates applicable to United States citizens or domestic corporations.
Non-U.S. Shareholders that are corporations may also be subject to an additional
"branch profits tax" with respect to income from the Fund that is effectively
connected with a United States trade or business.
The United States Treasury Department recently issued Treasury regulations
generally effective for payments made after December 31, 1999 concerning the
withholding of tax and reporting for certain amounts paid to nonresident alien
individuals and foreign corporations (the "Final Withholding Regulations").
Among other things, the Final Withholding Regulations may require Non-U.S.
Shareholders to furnish new certification of their foreign status after December
31, 1999. Prospective investors should consult their tax advisors concerning the
applicability and effect of the Final Withholding Regulations on an investment
in shares.
The tax consequences to a Non-U.S. Shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described in
this section. Non-U.S. Shareholders may be required to provide appropriate
documentation to establish their entitlement to the benefits of such a treaty.
Foreign investors are advised to consult their tax advisers with respect to the
tax implications of purchasing, holding and disposing of shares.
Backup Withholding. The Fund may be required to withhold federal income tax
at a rate of 31% ("backup withholding") from dividends and redemption proceeds
paid to non-corporate shareholders. This tax may be withheld from dividends if
(i) the shareholder fails to furnish the Fund with its correct taxpayer
identification number, (ii) the IRS notifies the Fund that the shareholder has
failed to properly report certain interest and dividend income to the IRS and to
respond to notices to that effect or (iii) when required to do so, the
shareholder fails to certify that he or she is not subject to backup
withholding. Redemption proceeds may be subject to withholding under the
circumstances described in (i) above.
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The Fund must report annually to the IRS and to each Non-U.S. Shareholder
the amount of dividends paid to such shareholder and the amount, if any, of tax
withheld pursuant to backup withholding rules with respect to such dividends.
This information may also be made available to the tax authorities in the
Non-U.S. Shareholder's country of residence.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules from payments made to a Shareholder may be refunded or
credited against such shareholder's United States federal income tax liability,
if any, provided that the required information is furnished to the IRS.
GENERAL
The federal income tax discussion set forth above is for general
information only. Prospective investors should consult their advisors regarding
the specific federal tax consequences of purchasing, holding and disposing of
shares, as well as the effects of state, local and foreign tax law and any
proposed tax law changes.
FUND PERFORMANCE
From time to time the Fund may advertise its total return for prior
periods. Any such advertisement would include at least average annual total
return quotations for one year, five year and ten year periods. Other total
return quotations, aggregate or average, over other time periods may also be
included.
The total return of the Fund for a particular period represents the
increase (or decrease) in the value of a hypothetical investment in the Fund
from the beginning to the end of the period. Total return is calculated by
subtracting the value of the initial investment from the ending value and
showing the difference as a percentage of the initial investment; the
calculation assumes the initial investment is made at the current maximum public
offering price (which includes a maximum sales charge of 5.75% 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. Since
Class A Shares of the Fund were offered at a maximum sales charge of 8.50% prior
to June 12, 1989, actual Fund total return would have been somewhat less than
that computed on the basis of the current maximum sales charge. Total return is
based on historical earnings and asset value fluctuations and is not intended to
indicate future performance. No adjustments are made to reflect any income taxes
payable by shareholders on dividends and distributions paid by the Fund or to
reflect the fact no 12b-1 fees were incurred prior to October 1, 1989.
Average annual total return quotations for periods of two or more years are
computed by finding the average annual compounded rate of return over the period
that would equate the initial amount invested to the ending redeemable value.
Total return is calculated separately for Class A Shares, Class B Shares
and Class C Shares. Total return figures for Class A Shares include the maximum
sales charge of 5.75%; total return figures for Class B Shares and Class C
Shares include any applicable
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CDSC. Because of the differences in sales charges and distribution fees, the
total returns for each of the class of shares 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, Standard & Poor's indices, 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.
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 back cover of the Prospectus.
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
August 31, 1998 was [ ]%, (ii) the five year period ended August 31, 1997 was
[ ]% and (iii) the ten year period ended August 31, 1997 was [ ]%. The Fund's
average annual total return (computed in the manner described in the Prospectus)
for Class B Shares of the Fund for (i) the one year period ended August 31, 1997
was [ ]%, (ii) the five year period ended August 31, 1998 was [ ]% and (iii)
the six year, four month period since August 31,
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1992, the commencement of distribution for Class B Shares of the Fund, through
August 31, 1998 was [ ]%. 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 August 31, 1998 was [ ]% (ii) the five year period ended
August 31, 1998 was [ ]% and (iii) the five year, two month period since July
6, 1993, the commencement of distribution for Class C Shares of the Fund,
through August 31, 1998 was [ ]%. These results are based on historical
earnings and asset value fluctuations and are not intended to indicate future
performance. Such information should be considered in light of the Fund's
investment objectives and policies as well as the risks incurred in the Fund's
investment practices.
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;
and (3) 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.
OTHER INFORMATION
CUSTODY OF ASSETS
All securities owned by the Fund and all cash, including proceeds from the
sale of shares of the Fund and of securities in the Fund's investment portfolio,
are held by State Street Bank and Trust Company, 225 West Franklin Street,
Boston, Massachusetts 02110, as Custodian.
SHAREHOLDER REPORTS
Semiannual statements are furnished to shareholders, and annually such
statements are audited by the independent accountants.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 200 East Randolph Drive, Chicago, Illinois
60601, the independent accountants for the Fund, performs an annual audit of the
Fund's financial statements.
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PART C: OTHER INFORMATION
ITEM 23. EXHIBITS.
<TABLE>
<S> <C>
(a)(1) -- First Amended and Restated Agreement and Declaration of
Trust (7)
(2) -- Second Certificate of Amendment +
(3) -- Second Amended and Restated Certificate of Designation+
(b) -- Amended and Restated Bylaws (7)
(c)(1) -- Specimen Class A Share Certificate(9)
(2) -- Specimen Class B Share Certificate(9)
(3) -- Specimen Class C Share Certificate(9)
(d) -- Investment Advisory Agreement(9)
(e)(1) -- Distribution and Service Agreement(9)
(2) -- Form of Dealer Agreement (8)
(3) -- Form of Broker Fully Disclosed Selling Agreement (8)
(4) -- Form of Bank Fully Disclosed Selling Agreement (8)
(f)(1) -- Individual Retirement Account Brochure with Application
(4)
(2) -- 403(b)(7) Custodial Account (3)
(3) -- ORP 403(b)(7) Custodial Account (3)
(4) -- Retirement Plans for the Small Business-Forms Package and
Plan Documents (1)
(5) -- Prototype Profit Sharing/Money Purchase Plan and Trust
(2)
(6) -- Prototype 401(k) Plan and Trust (2)
(7) -- Salary Reduction Simplified Employee Pension Plan (5)
(g)(1) -- Custodian Contract(9)
(2) -- Transfer Agency and Service Agreement(9)
(h)(1) -- Data Access Services Agreement (8)
(2) -- Fund Accounting Agreement(9)
(i) -- Opinion and Consent of Skadden, Arps, Slate, Meagher &
Flom (Illinois) (8)
(j) -- Consent of PricewaterhouseCoopers LLP++
(k) -- Computation of Performance Quotations++
(l) -- Not applicable.
(m)(1) -- Plan of Distribution pursuant to Rule 12b-1 (8)
(2) -- Form of Shareholder Assistance Agreement (8)
(3) -- Form of Administrative Services Agreement (8)
(4) -- Service Plan (8)
(n) -- Financial Data Schedules++
(o) -- Amended Multi-Class Plan(9)
(p) -- Power of Attorney+
</TABLE>
- -------------------------
(1) Incorporated herein by reference to Post-Effective Amendment No. 44 to
Registrant's Registration Statement on Form N-1A, File No. 2-33214, filed
December 21, 1990.
(2) Incorporated herein by reference to Post-Effective Amendment No. 61 to Van
Kampen American Capital Growth and Income Fund's Registration Statement on
Form N-1A, File No. 2-21657, filed March 26, 1991.
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(3) Incorporated herein by reference to Post-Effective Amendment No. 30 to Van
Kampen American Capital Reserve Fund's Registration Statement on Form N-1A,
File No. 2-50870, filed September 24, 1992.
(4) Incorporated herein by reference to Post-Effective Amendment No. 31 to Van
Kampen American Capital Reserve Fund's Registration Statement on Form N-1A,
File No. 2-50870, filed September 24, 1993.
(5) Incorporated by reference to Post-Effective Amendment No. 9 to Van Kampen
American Capital World Portfolio Series Trust's Registration Statement on
Form N-1A, File No. 33-37879, filed September 24, 1993.
(6) Incorporated herein by reference to Post-Effective Amendment No. 52 to
Registrant's Registration Statement on Form N-1A, File No. 2-33214, filed
July 19, 1995.
(7) Incorporated herein by reference to Post-Effective Amendment No. 53 to
Registrant's Registration Statement on Form N-1A, File No. 2-33214, filed
December 22, 1995.
(8) Incorporated herein by reference to Post-Effective Amendment No. 55 to
Registrant's Registration Statement on Form N-1A, File No. 2-33214, filed
December 26, 1996.
(9) Incorporated herein by reference to Post-Effective Amendment No. 56 to
Registrant's Registration Statement on N-1A, File No. 2-33214, filed
December 24, 1997.
+ Filed herewith.
++ To be filed by further amendment.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
See the Statement of Additional Information.
ITEM 25. INDEMNIFICATION.
Reference is made to Article 8, Section 8.4 of the Registrant's Agreement
and Declaration of Trust.
Article 8; Section 8.4 of the Agreement and Declaration of Trust provides
that each officer and trustee of the Registrant shall be indemnified by the
Registrant against all liabilities incurred in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or criminal,
in which the officer or trustee may be or may have been involved by reason of
being or having been an officer or trustee, except that such indemnity shall not
protect any such person against a liability to the Registrant or any shareholder
thereof to which such person would otherwise be subject by reason of (i) not
acting in good faith in the reasonable belief that such person's actions were
not in the best interests of the Trust, (ii) willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his or her office (iii) for a criminal proceeding, not having a reasonable cause
to believe that such conduct was unlawful (collectively, "Disabling Conduct").
Absent a court determination that an officer or trustee seeking indemnification
was not liable on the merits or guilty of Disabling Conduct in the conduct of
his or her office, the decision by the Registrant to indemnify such person must
be based upon the reasonable determination of independent counsel or non-party
independent trustees, after review of the facts, that such officer or trustee is
not guilty of Disabling Conduct in the conduct of his or her office.
The Registrant has purchased insurance on behalf of its officers and
trustees protecting such persons from liability arising from their activities as
officers or trustees of the Registrant. The insurance does not protect or
purport to protect such persons from liability to the Registrant or to its
shareholders to which such officer or trustee would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of their office.
Conditional advancing of indemnification monies may be made if the trustee
or officer undertakes to repay the advance unless it is ultimately determined
that he or she is entitled to the indemnification and only if the following
conditions are met: (1) the trustee or officer provides a security for the
undertaking; (2) the Registrant is insured against losses arising from lawful
advances; or (3) a majority of a quorum of the Registrant's disinterested,
non-party trustees, or an independent legal counsel in a written opinion, shall
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<PAGE> 78
determine, based upon a review of readily available facts, that a recipient of
the advance ultimately will be found entitled to indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by the trustee, officer, or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such trustee, officer or controlling person in connection with the
shares being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
See "Investment Advisory Services" in the Prospectus and "Trustees and
Officers" in the Statement of Additional Information for information regarding
the business of the Adviser. For information as to the business, profession,
vocation and employment of a substantial nature of directors and officers of Van
Kampen Asset Management Inc., reference is made to the Adviser's current Form
ADV (File No. 801-1669) filed under the Investment Advisers Act of 1940, as
amended, incorporated herein by reference.
ITEM 27. PRINCIPAL UNDERWRITERS.
(a) The sole principal underwriter is Van Kampen Funds Inc., which acts as
principal underwriter for certain investment companies and unit
investment trusts to be filed by further amendment.
(b) Van Kampen Funds Inc., which is an affiliated person of an affiliated
person of Registrant, is the sole principal underwriter for Registrant.
The name, principal business address and positions and offices with Van
Kampen Funds Inc. of each of the directors and officers will be filed by
further amendment. Except as disclosed under the heading, "Trustees and
Officers" in Part B of this Registration Statement, none of such persons
has any position or office with Registrant.
(c) Not applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required by Section 31(a) of the
Investment Company Act of 1940 and the Rules thereunder to be maintained (i) by
Registrant will be maintained at its offices, located at One Parkview Plaza,
Oakbrook Terrace, Illinois 60181. Van Kampen Investor Services Inc., 7501
Tiffany Springs Parkway, Kansas City, Missouri 64153, or at the State Street
Bank and Trust Company, 1776 Heritage Drive, North Quincy, MA; (ii) by the
Adviser, will be maintained at its offices, located at One Parkview Plaza,
Oakbrook Terrace, Illinois 60181; and (iii) by Van Kampen Funds Inc., the
principal underwriter, will be maintained at its offices located at One Parkview
Plaza, Oakbrook Terrace, Illinois 60181.
ITEM 29. MANAGEMENT SERVICES.
Not applicable.
ITEM 30. UNDERTAKINGS.
Registrant hereby undertakes to furnish to each person to whom a prospectus
is delivered a copy of the Registrant's latest annual report to shareholders,
upon request and without charge.
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<PAGE> 79
Registrant hereby undertakes, if requested to do so by the holders of at
least 10% of the Registrant's outstanding shares, to call a meeting of
shareholders for the purpose of voting upon the question of removal of a trustee
or trustees and to assist in communications with other shareholders as required
by Section 16(c) of the Investment Company Act of 1940.
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<PAGE> 80
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, VAN KAMPEN EMERGING GROWTH FUND,
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Oakbrook
Terrace and State of Illinois, on the 29th day of October, 1998.
VAN KAMPEN
EMERGING GROWTH FUND
By: /s/ RONALD A. NYBERG
------------------------------------
Ronald A. Nyberg, Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed on October 29, 1998 by the
following persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLES
---------- ------
<C> <S>
Principal Executive Officer:
/s/ DENNIS J. McDONNELL* President
- -----------------------------------------------------
Dennis J. McDonnell
Principal Financial Officer:
/s/ JOHN L. SULLIVAN Vice President, Chief Financial Officer and
- ----------------------------------------------------- Treasurer
John L. Sullivan
Trustees:
/s/ J. MILES BRANAGAN* Trustee
- -----------------------------------------------------
J. Miles Branagan
/s/ RICHARD M. DEMARTINI* Trustee
- -----------------------------------------------------
Richard M. DeMartini
/s/ LINDA H. HEAGY* Trustee
- -----------------------------------------------------
Linda H. Heagy
/s/ R. CRAIG KENNEDY* Trustee
- -----------------------------------------------------
R. Craig Kennedy
/s/ JACK E. NELSON* Trustee
- -----------------------------------------------------
Jack E. Nelson
/s/ DON G. POWELL* Trustee
- -----------------------------------------------------
Don G. Powell
/s/ PHILLIP B. ROONEY* Trustee
- -----------------------------------------------------
Phillip B. Rooney
/s/ FERNANDO SISTO* Trustee
- -----------------------------------------------------
Fernando Sisto
/s/ WAYNE W. WHALEN* Trustee
- -----------------------------------------------------
Wayne W. Whalen
Trustee
- -----------------------------------------------------
Paul G. Yovovich
- ---------------
* Signed by Ronald A. Nyberg pursuant to a power of attorney.
/s/ RONALD A. NYBERG
- -----------------------------------------------------
Ronald A. Nyberg
Attorney-in-Fact
</TABLE>
October 29, 1998
<PAGE> 81
SCHEDULE OF EXHIBITS TO POST-EFFECTIVE AMENDMENT NO. 57 TO FORM N-1A
AS SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION
ON OCTOBER 29, 1998
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------- -------
<C> <C> <S>
(a)(2) -- Second Certificate of Amendment
(a)(3) -- Second Amended and Restated Certificate of Designation
(p) -- Power of Attorney
</TABLE>
<PAGE> 1
EXHIBIT a(2)
---------------------------------------------
SECOND CERTIFICATE OF AMENDMENT DATED JULY 14, 1998
TO
FIRST AMENDED AND RESTATED AGREEMENT
AND DECLARATION OF TRUST DATED JUNE 21, 1995
---------------------------------------------
WHEREAS, the Trustees of Van Kampen American Capital Emerging Growth Fund,
a Delaware business trust (the "Trust") have approved the amendment of the
Trust's First Amended and Restated Agreement and Declaration of Trust dated June
21, 1995 ("Declaration of Trust") in accordance with Section 9.5 thereof;
WHEREAS, the Trustees have authorized the proper officers of the Trust,
including the officer whose name appears below, to effect such amendment;
NOW, THEREFORE, the Declaration of Trust is amended as follows:
1. The first sentence of Section 1.1 is amended and restated in its entirety to
read as follows:
1.1 Name. The name of the Trust shall be
"VAN KAMPEN EMERGING GROWTH FUND"
and so far as may be practicable, the Trustees shall conduct the Trust's
activities, execute all documents and sue or be sued under that name, which
name (and the word "Trust" wherever used in this Agreement and Declaration
of Trust, except where the context otherwise requires) shall refer to the
Trustees in their capacity as Trustees, and not individually or personally,
and shall not refer to the officers, agents or employees of the Trust or of
such Trustees, or to the holders of the Shares of the Trust or any Series.
If the Trustees determine that the use of such name is not practicable,
legal or convenient at any time or in any jurisdiction, or if the Trust is
required to discontinue the use of such name pursuant to Section 10.7
hereof, then subject to that Section, the Trustees may use such other
designation, or they may adopt such other name for the Trust as they deem
proper, and the Trust may hold property and conduct its activities under
such designation or name.
EXECUTED, to be effective as of July 14, 1998
/s/ Ronald A. Nyberg
--------------------------------------
Ronald A. Nyberg,
Secretary
9
<PAGE> 1
EXHIBIT a(3)
---------------------------------------------
VAN KAMPEN EMERGING GROWTH FUND
Second Amended and Restated Certificate of Designation
of
Van Kampen Emerging Growth Fund
---------------------------------------------
The undersigned, being the Secretary of Van Kampen Emerging Growth Fund, a
Delaware business trust (the "Trust"), pursuant to the authority conferred upon
the Trustees of the Trust by Section 6.1 of the Trust's First Amended and
Restated Agreement and Declaration of Trust ("Declaration"), and by the
affirmative vote of a Majority of the Trustees does hereby amend and restate in
its entirety the Amended and Restated Certificate of Designation of the Van
Kampen American Capital Emerging Growth Fund Series of the Trust dated December
12, 1996 by redesignating such Series as the Van Kampen Emerging Growth Fund
Series with the following rights, preferences and characteristics:
1. Shares. The beneficial interest in the Trust shall be divided into Shares
having a nominal or par value of $0.01 per Share, of which an unlimited number
may be issued, which Shares shall represent interests only in the Trust. The
Trustees shall have the authority from time to time to authorize separate Series
of Shares for the Trust as they deem necessary or desirable.
2. Classes of Shares. The Shares of the Trust shall be initially divided into
three classes--Class A, Class B and Class C. The Trustees shall have the
authority from time to time to authorize additional Classes of Shares of the
Trust.
3. Sales Charges. Each Class A, Class B and Class C Share shall be subject to
such sales charges, if any, as may be established from time to time by the
Trustees in accordance with the Investment Company Act of 1940 (the "1940 Act")
and applicable rules and regulations of the National Association of Securities
Dealers, Inc., all as set forth in the Trust's prospectus.
4. Conversion. Each Class B Share and certain Class C Shares of the Trust shall
be converted automatically, and without any action or choice on the part of the
Shareholder thereof, into Class A Shares of the Trust at such times and pursuant
to such terms, conditions and restrictions as may be established by the Trustees
and as set forth in the Trust's Prospectus.
5. Allocation of Expenses Among Classes. Expenses related solely to a particular
Class (including, without limitation, distribution expenses under an
administrative or service agreement, plan or other arrangement, however
designated) shall be borne by that Class and shall be appropriately reflected
(in a manner determined by the Trustees) in the net asset value, dividends,
distribution and liquidation rights of the Shares of that Class.
6. Special Meetings. A special meeting of Shareholders of a Class of the Trust
may be called with respect to the Rule 12b-1 distribution plan applicable to
such Class or with respect to any other proper purpose affecting only holders of
shares of such Class at any time by a Majority of the Trustees.
10
<PAGE> 2
7. Other Rights Governed by Declaration. All other rights, preferences,
qualifications, limitations and restrictions with respect to Shares of any
Series of the Trust or with respect to any Class of Shares set forth in the
Declaration shall apply to Shares of the Trust unless otherwise specified in
this Certificate of Designation, in which case this Certificate of Designation
shall govern.
8. Amendments, etc. Subject to the provisions and limitations of Section 9.5 of
the Declaration and applicable law, this Certificate of Designation may be
amended by an instrument signed in writing by a Majority of the Trustees (or by
any officer of the Trust pursuant to the vote of a Majority of the Trustees) or
when authorized to do so by the vote in accordance with the Declaration of the
holders of a majority of all the Shares of the Trust outstanding and entitled to
vote or, if such amendment affects the Shares of one or more but not all of the
Classes of the Trust, the holders of a majority of all the Shares of the
affected Classes outstanding and entitled to vote.
9. Incorporation of Defined Terms. All capitalized terms which are not defined
herein shall have the same meaning as ascribed to those terms in the
Declaration.
July 14, 1998
/s/ Ronald A. Nyberg
--------------------------------------
Ronald A. Nyberg, Secretary
<PAGE> 1
EXHIBIT(p)
POWER OF ATTORNEY
The undersigned, being officers and trustees of each of the Van Kampen
American capital Open End Trusts (individually, a "Trust") as indicated on
Schedule 1 attached hereto and incorporated by reference, each a Delaware
business trust except for the Van Kampen American Capital Pennsylvania Tax Free
Income Fund being a Pennsylvania business trust, and being officers and
directors of the Morgan Stanley Fund, Inc. (the "Corporation"), a Maryland
corporation, do hereby, in the capacities shown below, individually appoint
Dennis J. McDonnell and Ronald A. Nyberg, each of Oakbrook Terrace, Illinois,
and each of them, as the agents and attorneys-in-fact with full power of
substitution and resubstitution, for each of the undersigned, to execute and
deliver, for and on behalf of the undersigned, any and all amendments to the
Registration Statement filed by each Trust or the Corporation with the
Securities and Exchange Commission pursuant to the provisions of the Securities
Act of 1933 and the Investment Company Act of 1940.
This Power of Attorney may be executed in multiple counterparts, each of
which shall be deemed an original, but which taken together shall constitute
one instrument.
Dated: April 24, 1998
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Dennis J. McDonnell President and Trustee/Director
- --------------------------------
Dennis J. McDonnell
/s/ Edward C. Wood III Vice President and Chief Financial Officer
- --------------------------------
Edward C. Wood III
/s/ J. Miles Branagan Trustee/Director
- --------------------------------
J. Miles Branagan
/s/ Richard M. DeMartini Trustee/Director
- --------------------------------
Richard M. DeMartini
/s/ Linda Hutton Heagy Trustee/Director
- --------------------------------
Linda Hutton Heagy
/s/ R. Craig Kennedy Trustee/Director
- --------------------------------
R. Craig Kennedy
/s/ Jack E. Nelson Trustee/Director
- --------------------------------
Jack E. Nelson
/s/ Don G. Powell Trustee/Director
- --------------------------------
Don G. Powell
/s/ Phillip B. Rooney Trustee/Director
- --------------------------------
Phillip B. Rooney
/s/ Fernando Sisto, Sc.D. Trustee/Director
- --------------------------------
Fernando Sisto, Sc.D.
/s/ Wayne W. Whalen Trustee/Director and Chairman
- --------------------------------
Wayne W. Whalen
</TABLE>
11
<PAGE> 2
SCHEDULE 1
VAN KAMPEN AMERICAN CAPITAL U.S. GOVERNMENT TRUST
VAN KAMPEN AMERICAN CAPITAL TAX FREE TRUST
VAN KAMPEN AMERICAN CAPITAL TRUST
VAN KAMPEN AMERICAN CAPITAL EQUITY TRUST
VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA TAX FREE INCOME FUND
VAN KAMPEN AMERICAN CAPITAL TAX FREE MONEY FUND
VAN KAMPEN AMERICAN CAPITAL COMSTOCK FUND
VAN KAMPEN AMERICAN CAPITAL CORPORATE BOND FUND
VAN KAMPEN AMERICAN CAPITAL EMREGING GROWTH FUND
VAN KAMPEN AMERICAN CAPITAL ENTERPRISE FUND
VAN KAMPEN AMERICAN CAPITAL EQUITY INCOME FUND
VAN KAMPEN AMERICAN CAPITAL LIMITED MATURITY GOVERNMENT FUND
VAN KAMPEN AMERICAN CAPITAL GLOBAL MANAGED ASSETS FUND
VAN KAMPEN AMERICAN CAPITAL GOVERNMENT SECURITIES FUND
VAN KAMPEN AMERICAN CAPITAL GROWTH AND INCOME FUND
VAN KAMPEN AMERICAN CAPITAL HARBOR FUND
VAN KAMPEN AMERICAN CAPITAL HIGH INCOME CORPORATE BOND FUND
VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST
VAN KAMPEN AMERICAN CAPITAL PACE FUND
VAN KAMPEN AMERICAN CAPITAL REAL ESTATE SECURITIES FUND
VAN KAMPEN AMERICAN CAPITAL RESERVE FUND
VAN KAMPEN AMERICAN CAPITAL SMALL CAPITALIZATION FUND
VAN KAMPEN AMERICAN CAPITAL TAX-EXEMPT TRUST
VAN KAMPEN AMERICAN CAPITAL U.S. GOVERNMENT TRUST FOR INCOME
VAN KAMPEN AMERICAN CAPITAL WORLD PORTFOLIO SERIES TRUST
VAN KAMPEN AMERICAN CAPITAL FOREIGN SECURITIES FUND
