<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commis-
sion Only (as permitted by Rule 14a-
6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
VAN KAMPEN EMERGING GROWTH FUND (811-2424)
(Name of Registrant as Specified in Its Declaration of Trust)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed per Exchange Act Rules 14a-6(i)(1) and 0-11.
[ ] Fee paid previously with preliminary materials.
<PAGE> 2
- July 1999 -
IMPORTANT NOTICE
TO VAN KAMPEN
EMERGING GROWTH FUND SHAREHOLDERS
QUESTIONS & ANSWERS
- --------------------------------------------------------------------------------
Although we recommend that you read the complete Proxy Statement, for your
convenience, we have provided a brief overview of the issues to be voted on.
- --------------------------------------------------------------------------------
Q Why am I receiving this proxy statement?
A The primary purposes of this proxy statement are to elect trustees, to seek
approval of a new investment advisory agreement, including an increase in
investment advisory fees, and to seek approval of replacing or amending certain
of the Fund's fundamental investment policies. Other proposals also are included
in the Proxy Statement. Please refer to the proxy statement for a detailed
explanation of the proposed items.
Q How will approval of these proposals affect my account?
A You can expect the same level of high-quality management expertise and
shareholder service you've grown accustomed to. The Fund's Board of Trustees has
been considering the possibility of increasing the Fund's advisory fee since
1994 because, among other things, the Fund's current advisory fee is below
market for comparable funds, the Fund has had consistently strong performance
relative to comparable funds, and the investment adviser has had increasing
costs of its operations.
On May 26, 1999, the Fund's investment adviser proposed a fee increase. After
considerable thought and a comprehensive review of many factors, the Fund's
Board of Trustees is recommending approval of a new investment advisory
agreement, including an increase in investment advisory fees, as being fair and
reasonable in light of, among other things, the Fund's history, performance and
the quality of its investment advisory services. The new investment advisory
agreement between your Fund and its investment adviser will result in an
increase in investment advisory fees and certain other expenses and the new
agreement contains certain other provisions added at the request of the Fund's
investment adviser.
The changes to the fundamental investment policies are intended to increase the
flexibility of the Fund's investment adviser in managing your Fund.
<PAGE> 3
Q Will my vote make a difference?
A Yes. Your vote is needed to ensure that the proposals can be acted upon.
Your immediate response will help save on the costs of any further solicitations
for a shareholder vote. We encourage you to participate in the governance of the
Fund.
Q How do the trustees of my Fund suggest that I vote?
A After careful consideration, the trustees of your Fund recommend that you
vote "FOR" each of the items proposed.
Q How can I vote?
A You can vote in one of four ways:
- Internet
- Telephone
- Mail
- In person at the meeting.
Instructions for casting your vote via the internet or telephone are found
in the enclosed proxy voting material. The required control number for either of
these methods is printed on the proxy card. If you choose to cast your vote via
the internet or telephone, there is no need to mail the card.
Whichever method you choose, please take the time to read the entire proxy
statement before you vote.
Q Who is paying for expenses related to the shareholders meeting?
A The Fund and the Fund's investment adviser (or its affiliates) will share
the costs relating to the proxy statement preparation, printing, mailing and
solicitation and the shareholder meeting.
Q Who do I call if I have questions?
We will be happy to answer your questions about the proxy solicitation. Please
call us at 1-800-341-2911 (TDD users call 1-800-421-2833) between 7:00 a.m. and
7:00 p.m. Central time, Monday through Friday.
Q Where do I mail my proxy card if I vote by mail?
A You may use the enclosed postage-paid envelope or mail your proxy card(s)
to:
Proxy Tabulator P.O. Box 9121
Hingham, MA 02043
<PAGE> 4
ABOUT THE PROXY CARD
Please vote on each issue using blue or black ink to mark an X in one of the
boxes provided on the proxy card.
Election of Trustees - mark "For", "Withhold" or "For All Except". To withhold
authority to vote for any individual nominee, mark "For All Except" and write
nominee's name on the line provided.
Approval of New Investment Advisory Agreement - mark "For," "Against" or
"Abstain"
Approval of Replacing the Fund's Fundamental Investing Policy Regarding
investment in Small- and Medium-sized Companies with a Non-Fundamental
Investment Policy - mark "For," "Against" or "Abstain"
Approval of Amending Other Fundamental Investment Restrictions - mark "For,"
"Against" or "Abstain" for each restriction
Ratification of Independent Accountants - mark "For," "Against" or "Abstain"
Please sign, date and return the proxy card in the enclosed postage-paid
envelope. All registered owners of an account, as shown in the address, must
sign the card. When signing as attorney, trustee, executor, administrator,
custodian, guardian or corporate officer, please indicate your full title.
PROXY
VAN KAMPEN EMERGING GROWTH FUND SPECIAL MEETING OF SHAREHOLDERS
PROXY SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
SAMPLE
<TABLE>
<CAPTION>
<S><C>
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
For All 4. The proposal to approve amending other
For All Withhold Except fundamental investment restrictions
for the Fund.
1. Authority to vote for the election [ ] [ ] [ ]
as Trustees the nominees named
below:
For Against Abstain
XXXXXXXXX, XXXXXXXXX, XXXXXXXXXX
4A. Diversification [ ] [ ] [ ]
To withhold authority to vote for any one or more individual 4B: Senior Securities/Borrowing [ ] [ ] [ ]
nominees, check the "For All Except" box and print the nominee's 4C: Underwriting [ ] [ ] [ ]
name on the line below. 4D: Concentration [ ] [ ] [ ]
4E: Real Estate [ ] [ ] [ ]
---------------------------------------------------------------- 4F: Commodities [ ] [ ] [ ]
4G: Making Loans [ ] [ ] [ ]
2. The proposal to approve a new 4H: Control [ ] [ ] [ ]
investment advisory agreement For Against Abstain 4I: Payment for Securities [ ] [ ] [ ]
for the Fund, including an 4J: Investment Companies [ ] [ ] [ ]
increase in investment advisory [ ] [ ] [ ] 4K: Short Sales [ ] [ ] [ ]
fees.
3. The proposal to approve replacing For Against Abstain
the Fund's fundamental investment For Against Abstain 5. The proposal to ratify the [ ] [ ] [ ]
policy regarding investment in selection of PricewaterhouseCoopers
small- and medium-sized companies [ ] [ ] [ ] LLP as the Fund's independent
with a non-fundamental investment accountants.
policy.
6. To transact such other business as
may properly come before the Meeting.
Please be sure to sign and date this Proxy. Date
Shareholder sign here Co-owner sign here
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
</TABLE>
<PAGE> 5
VAN KAMPEN EMERGING GROWTH FUND
1 PARKVIEW PLAZA, P.O. BOX 5555
OAKBROOK TERRACE, ILLINOIS 60181-5555
TELEPHONE (800) 341-2911
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 22, 1999
Notice is hereby given to the holders of shares of beneficial interest, par
value $0.01 per share (collectively, the "Shares"), of Van Kampen Emerging
Growth Fund (the "Fund") that a Special Meeting of the Shareholders of the Fund
(the "Meeting") will be held at the offices of Van Kampen Investments Inc., 1
Parkview Plaza, Oakbrook Terrace, Illinois 60181-5555, on September 22, 1999, at
3:30 p.m., for the following purposes:
1. To elect twelve trustees to serve until their respective successors are duly
elected and qualified.
2. To approve a new investment advisory agreement, including an increase in
investment advisory fees.
3. To approve replacing the Fund's fundamental investment policy regarding
investments in small- and medium-sized companies with a non-fundamental
investment policy.
4. To approve amending other fundamental investment restrictions for the Fund.
5. To ratify the selection of PricewaterhouseCoopers LLP as the Fund's
independent accountants.
6. To transact such other business as may properly come before the Meeting.
Holders of record of the Shares of the Fund at the close of business on July
9, 1999 are entitled to notice of, and to vote at, the Meeting and any
adjournment thereof.
A. THOMAS SMITH III
Vice President and Secretary
July 29, 1999
<PAGE> 6
THE FUND WILL FURNISH, WITHOUT CHARGE, A COPY OF ITS MOST RECENT ANNUAL REPORT
AND THE MOST RECENT SEMIANNUAL REPORT SUCCEEDING THE ANNUAL REPORT TO A
SHAREHOLDER UPON REQUEST. ANY SUCH REQUEST SHOULD BE DIRECTED TO VAN KAMPEN
EMERGING GROWTH FUND BY CALLING (800) 341-2911 OR BY WRITING TO THE FUND AT 1
PARKVIEW PLAZA, P.O. BOX 5555, OAKBROOK TERRACE, ILLINOIS 60181-5555.
SHAREHOLDERS OF THE FUND ARE INVITED TO ATTEND THE MEETING AND VOTE IN PERSON.
IF YOU DO NOT EXPECT TO ATTEND THE MEETING, PLEASE VOTE IN ONE OF THE FOLLOWING
WAYS:
(i) Internet -- Instructions for casting your vote via the internet can be
found in the enclosed proxy voting materials. The required control
number is printed on your enclosed proxy card. If this feature is used,
there is no need to mail the proxy card.
(ii) Telephone -- Instructions for casting your vote via telephone can be
found in the enclosed proxy voting materials. The toll-free 800 number
and required control number are printed on your enclosed proxy card. If
this feature is used, there is no need to mail the proxy card.
(iii) By mail -- If you vote by mail, please indicate your voting instructions
on the enclosed proxy card, date and sign the card and, return it in the
envelope provided, which is addressed for your convenience and needs no
postage if mailed in the United States.
IN ORDER TO AVOID THE ADDITIONAL EXPENSE OF FURTHER SOLICITATION, WE ASK THAT
YOU VOTE PROMPTLY.
The Board of Trustees of the Fund recommends that you cast your vote:
- FOR each of the nominees for the Board of Trustees listed in the Proxy
Statement.
- FOR approval of the new investment advisory agreement, including an increase
in investment advisory fees.
- FOR approval of replacing the Fund's fundamental investment policy regarding
investment in small- and medium-sized companies with a non-fundamental
investment policy.
- FOR approval of amending each fundamental investment restriction of the Fund
listed in the Proxy Statement.
- FOR ratification of PricewaterhouseCoopers LLP as the Fund's independent
accountants.
YOUR VOTE IS IMPORTANT.
PLEASE VOTE YOUR SHARES PROMPTLY
NO MATTER HOW MANY SHARES YOU OWN.
<PAGE> 7
VAN KAMPEN EMERGING GROWTH FUND
1 PARKVIEW PLAZA, P.O. BOX 5555
OAKBROOK TERRACE, ILLINOIS 60181-5555
TELEPHONE (800) 341-2911
PROXY STATEMENT FOR THE
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 22, 1999
This Proxy Statement is furnished in connection with the solicitation by the
Board of Trustees (the "Trustees" or "Board of Trustees") of Van Kampen Emerging
Growth Fund (the "Fund") of proxies to be voted at a Special Meeting of
Shareholders of the Fund, and all adjournments thereof (the "Meeting"), to be
held at the offices of Van Kampen Investments Inc., 1 Parkview Plaza, Oakbrook
Terrace, Illinois 60181-5555, on September 22, 1999, at 3:30 p.m. The
approximate mailing date of this Proxy Statement and accompanying form of proxy
is August 2, 1999.
Participating in the Meeting are the holders of record of shares of beneficial
interest, par value $0.01 per share (collectively, the "Shares"), of the Fund as
of the close of business on July 9, 1999 (the "Record Date"). The number of
issued and outstanding Shares of the Fund as of the Record Date was
125,452,431.522. Shareholders of the Fund on the Record Date are entitled to one
vote per Share with respect to each proposal submitted to the shareholders of
the Fund, with no Share having cumulative voting rights.
THE FUND WILL FURNISH, WITHOUT CHARGE, A COPY OF ITS MOST RECENT ANNUAL REPORT
AND THE MOST RECENT SEMIANNUAL REPORT SUCCEEDING THE ANNUAL REPORT TO A
SHAREHOLDER UPON REQUEST. ANY SUCH REQUEST SHOULD BE DIRECTED TO THE FUND BY
CALLING (800) 341-2911 OR BY WRITING TO THE FUND AT 1 PARKVIEW PLAZA, P.O. BOX
5555, OAKBROOK TERRACE, ILLINOIS 60181-5555.
SUMMARY OF THE PROPOSALS
The primary purposes of the Meeting are to elect trustees of the Fund, to seek
shareholder approval of a new investment advisory agreement, including an
increase in investment advisory fees, and to seek shareholder approval of
replacing or amending certain of the Fund's fundamental investment policies.
The Fund is advised by Van Kampen Asset Management Inc. ("Asset Management").
The Fund is one of more than 50 open-end investment companies advised by Asset
Management or its affiliate, Van Kampen Investment Advisory Corp.
<PAGE> 8
("Advisory Corp."), and distributed by Van Kampen Funds Inc. (the
"Distributor"). The Fund's transfer agent is Van Kampen Investor Services Inc.
("Investor Services"). Asset Management, Advisory Corp., the Distributor and
Investor Services are wholly owned subsidiaries of Van Kampen Investments Inc.
("Van Kampen Investments"). Van Kampen Investments is an indirect wholly owned
subsidiary of Morgan Stanley Dean Witter & Co. ("Morgan Stanley Dean Witter").
The principal business address of Van Kampen Investments, Asset Management,
Advisory Corp. and the Distributor is located at 1 Parkview Plaza, P.O. Box
5555, Oakbrook Terrace, Illinois 60181-5555. The principal business address of
Investor Services is located at P.O. Box 418256, Kansas City, Missouri
64141-9256. The principal business address of Morgan Stanley Dean Witter is
located at Two World Trade Center, New York, New York 10048.
Over the next several months, each of the Van Kampen funds, including the
Fund, is expected to hold a shareholders meeting. Many of the funds may have the
same or similar proposals to proposals 1, 2, 4 and 5 described herein for the
Fund. It is currently contemplated that the shareholders of each of the funds
described above will be asked to elect the same nominees for trustees as
presented below under Proposal 1 for the Fund. Proposal 2 seeks shareholder
approval of a new investment advisory agreement for the Fund. It is currently
contemplated that the shareholders of other funds described above may be asked
to adopt a similar form of investment advisory agreement, and any changes
between the current form of investment advisory agreement and the proposed new
form of investment advisory agreement will be described in the respective proxy
for each fund. The shareholders of the Fund are also being asked to approve a
proposed advisory fee increase for the Fund in connection with approving the new
investment advisory agreement, which is described in more detail below in
Proposal 2. Proposal 3 seeks approval to replace a fundamental investment policy
which is specific to the Fund with a non-fundamental investment policy. It is
currently contemplated that the shareholders of each of the funds described
above will be asked to amend certain other fundamental investment restrictions
that are the same or similar in nature as presented in Proposal 4. It is
currently contemplated that the shareholders of each of the funds described
above will be asked to ratify the selection of such fund's independent
accountants in a manner similar to Proposal 5.
The Board of Trustees of the Fund recommends that you cast your vote:
- FOR each of the nominees for the Board of Trustees listed in the Proxy
Statement.
- FOR approval of the new investment advisory agreement, including an increase
in the investment advisory fees.
2
<PAGE> 9
- FOR approval of replacing the Fund's fundamental investment policy regarding
investment in small- and medium-sized companies with a non-fundamental
investment policy.
- FOR approval of amending each fundamental investment restriction of the Fund
listed in this Proxy Statement.
- FOR ratification of PricewaterhouseCoopers LLP as the Fund's indepen-dent
accountants.
SUMMARY OF VOTING AND MEETING REQUIREMENTS
The voting requirement for passage of a particular proposal depends on the
nature of the particular proposal. With respect to Proposal 1, the affirmative
vote of a plurality of the Shares of the Fund present in person or by proxy at
the Meeting and entitled to vote is required to elect the nominees to the Board
of Trustees of the Fund. Election by plurality means those persons who receive
the highest number of votes cast up to the total number of persons to be elected
as trustees at the Meeting shall be elected. With respect to Proposals 2, 3 and
4, the voting requirement is the "vote of a majority of the outstanding voting
securities" of the Fund, which is defined under the Investment Company Act of
1940, as amended (the "1940 Act"), as the lesser of: (i) 67% or more of the
voting securities of the Fund present in person or by proxy at the Meeting, if
the holders of more than 50% of the outstanding voting securities of the Fund
are present in person or by proxy at the Meeting or (ii) more than 50% of the
outstanding voting securities of the Fund. With respect to Proposal 5, the
affirmative vote of a majority of the Shares of the Fund present in person or by
proxy at the Meeting and entitled to vote is required to ratify the selection of
the Fund's independent accountants.
All Shares of the Fund will vote together as a single class on each proposal.
An unfavorable vote on a proposal by the shareholders of the Fund will not
affect the Fund's implementation of other proposals that receive a favorable
vote. There is no cumulative voting with respect to the election of Trustees.
Shareholders may vote in any one of four ways: (i) via the internet, (ii) by
telephone, (iii) by mail, by returning the enclosed ballot, or (iv) in person at
the meeting. Instructions for internet and telephone voting are included with
the enclosed proxy voting material. The required control number for internet and
telephone voting is printed on the enclosed proxy card. Shareholders who execute
proxies by methods (i), (ii) or (iii) may revoke them at any time prior to the
meeting by filing with the Fund a written notice of revocation, by executing
another proxy bearing a later date or by attending the Meeting and voting in
person.
Van Kampen Investments and the Fund employ procedures for internet and
telephone voting that they consider to be reasonable to confirm that the
instructions received are genuine. If reasonable procedures are employed,
neither Van Kampen
3
<PAGE> 10
Investments nor the Fund will be liable for following internet or telephone
instructions it believes to be genuine.
All properly executed proxies received prior to the Meeting will be voted at
the Meeting in accordance with the instructions marked thereon. Proxies received
prior to the Meeting on which no vote is indicated will be voted "For" each
proposal as to which it is entitled to vote. Abstentions do not constitute votes
"For" a proposal and will have the same effect as votes "Against" a proposal.
Broker non-votes (i.e., where a nominee, such as a broker, holding shares for
beneficial owners votes on certain matters pursuant to discretionary authority
or instructions from beneficial owners but with respect to one or more proposals
does not receive instructions from beneficial owners or does not exercise
discretionary authority) do not constitute votes "For" or "Against" a proposal
and are disregarded in determining the votes cast when the voting requirement
for a proposal is based on achieving a percentage of the voting securities
present in person or by proxy at the Meeting. Broker non-votes do not constitute
votes "For" and will have the same effect as votes "Against" when the voting
requirement for a proposal is based on achieving a percentage of the outstanding
voting securities. A majority of the outstanding Shares entitled to vote must be
present in person or by proxy to have a quorum to conduct business at the
Meeting. Abstentions and broker non-votes will be deemed present for quorum
purposes.
The Fund knows of no business other than that mentioned in Proposals 1 through
5 of the Notice that will be presented for consideration at the Meeting. If any
other matters are properly presented, it is the intention of the persons named
on the enclosed proxy to vote proxies in accordance with their best judgment. In
the event a quorum is present at the Meeting but sufficient votes to approve any
of the proposals are not received, the persons named as proxies may propose one
or more adjournments of the Meeting to permit further solicitation of proxies on
such proposal(s), provided they determine that such an adjournment and
additional solicitation is reasonable and in the interest of shareholders based
on a consideration of all relevant factors, including the nature of the relevant
proposal(s), the percentage of votes then cast, the percentage of negative votes
then cast, the nature of the proposed solicitation activities and the nature of
the reasons for such further solicitation.
- ------------------------------------------------------------------------------
PROPOSAL 1: ELECTION OF TRUSTEES
- ------------------------------------------------------------------------------
Shareholders are being asked to elect each of the twelve nominees described
below as trustees of the Fund. Trustees elected at the Meeting will serve as
trustees until reaching their designated retirement age or until their
successors are duly elected and qualified. The election of the nominees to the
Board of Trustees requires the affirmative vote of a plurality of the Shares of
the Fund present in person or by proxy at the Meeting and entitled to vote. The
shareholders of the
4
<PAGE> 11
Fund will vote together as a single class to elect the trustees. It is the
intention of the persons named in the enclosed proxy to vote the Shares
represented by them for the election of each nominee listed below unless the
proxy is marked otherwise.
Each of the nominees to the Board of Trustees listed below has served as a
member of the Board of Trustees since his or her initial election or appointment
to the Board of Trustees as set forth in the table below, except that Mitchell
M. Merin and Richard F. Powers III have not previously served on the Board of
Trustees. The Board of Trustees has determined that adding Messrs. Merin and
Powers to the Board of Trustees is in the best interest of shareholders of the
Fund. Messrs. Merin and Powers would replace Messrs. DeMartini and Powell as
trustees of the Fund. As described in more detail below, Mr. Merin is now, among
other things, President and Chief Operating Officer of Asset Management at
Morgan Stanley Dean Witter and Mr. Powers is now, among other things, the
President and Chief Executive Officer of Van Kampen Investments. Mr. DeMartini
was formerly the President and Chief Operating Officer of Morgan Stanley Dean
Witter Individual Asset Management. Mr. Powell was formerly the Chairman and
Director of Van Kampen Investments, Asset Management, Advisory Corp. and the
Distributor.
Each nominee named below has consented to being named herein as a nominee and
has agreed to serve as a trustee if elected; however, should any nominee(s)
become unable or unwilling to accept nomination or election, the proxies will be
voted for one or more substitute nominee(s) designated by the present Board of
Trustees.
The following table sets forth the names, addresses, ages, principal
occupations and other information regarding the Trustee nominees and incumbent
trustees not standing for re-election.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE OR EMPLOYMENT IN PAST 5 YEARS
--------------------- -----------------------------
<S> <C>
TRUSTEE NOMINEES:
J. Miles Branagan................. Private investor. Trustee/Director of each
1632 Morning Mountain Road of the funds in the Fund Complex.
Raleigh, NC 27614 Co-founder, and prior to August 1996,
Age: 67 Chairman, Chief Executive Officer and
President, MDT Corporation (now known as
Getinge/Castle, Inc., a subsidiary of
Getinge Industrier AB), a company which
develops, manufactures, markets and services
medical and scientific equipment.
</TABLE>
5
<PAGE> 12
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE OR EMPLOYMENT IN PAST 5 YEARS
--------------------- -----------------------------
<S> <C>
Jerry D. Choate................... Director of Amgen Inc., a biotechnological
Barrington Place, Building 4 company. Trustee/Director of each of the
18 E. Dundee Road, Suite 101 funds in the Fund Complex. Prior to January
Barrington, IL 60010 1999, Chairman and Chief Executive Officer
Age: 60 of The Allstate Corporation ("Allstate") and
Allstate Insurance Company. Prior to January
1995, President and Chief Executive Officer
of Allstate. Prior to August 1994, Mr.
Choate held various management positions at
Allstate.
Linda Hutton Heagy................ Managing Partner of Heidrick & Stuggles, an
Sears Tower executive search firm. Trustee/Director of
233 South Wacker Drive each of the funds in the Fund Complex. Prior
Suite 7000 to 1997, Partner, Ray & Berndtson, Inc., an
Chicago, IL 60606 executive recruiting and management
Age: 51 consulting firm. Formerly, Executive Vice
President of ABN AMRO, N.A., a Dutch bank
holding company. Prior to 1992, Executive
Vice President of La Salle National Bank.
Trustee on the University of Chicago
Hospitals Board, Vice Chair of the Board of
The YMCA of Metropolitan Chicago and a
member of the Women's Board of the
University of Chicago. Prior to 1996,
Trustee of The International House Board.
R. Craig Kennedy.................. President and Director, German Marshall Fund
11 DuPont Circle, N.W of the United States. Trustee/Director of
Washington, DC 20016 each of the funds in the Fund Complex.
Age: 47 Formerly, advisor to the Dennis Trading.
Prior to 1992, President and Chief Executive
Officer, Director and Member of the
Investment Committee of the Joyce
Foundation, a private foundation.
</TABLE>
6
<PAGE> 13
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE OR EMPLOYMENT IN PAST 5 YEARS
--------------------- -----------------------------
<S> <C>
Mitchell M. Merin*................ President and Chief Operating Officer of
Two World Trade Center Asset Management of Morgan Stanley Dean
66th Floor Witter (since December, 1998); President and
New York, NY 10048 Director (since April, 1997) and Chief
Age: 45 Executive Officer (since June, 1998) of
Morgan Stanley Dean Witter Advisors Inc. and
Morgan Stanley Dean Witter Services Company
Inc.; Chairman, Chief Executive Officer and
Director of Morgan Stanley Dean Witter
Distributors Inc. (since June, 1998);
Chairman and Chief Executive Officer (since
June, 1998) and Director (since January,
1998) of Morgan Stanley Dean Witter Trust
FSB; Director of various Morgan Stanley Dean
Witter subsidiaries; President of the Morgan
Stanley Dean Witter Funds and Discover
Brokerage Index Series (since May, 1999);
previously Chief Strategic Officer of Morgan
Stanley Dean Witter Advisors Inc. and Morgan
Stanley Dean Witter Services Company Inc.
and Executive Vice President of Morgan
Stanley Dean Witter Distributors Inc.
(April, 1997-June, 1998), Vice-President of
the Morgan Stanley Dean Witter Funds and
Discover Brokerage Index Series (May, 1997-
April, 1999), and Executive Vice President
of Dean Witter, Discover & Co.
Jack E. Nelson.................... President and owner, Nelson Investment
423 Country Club Drive Planning Services, Inc., a financial
Winter Park, FL 32789 planning company and registered investment
Age: 63 adviser. President and owner, Nelson Ivest
Brokerage Services Inc., a member of the
National Association of Securities Dealers,
Inc. and Securities Investors Protection
Corp. Trustee/ Director of each of the funds
in the Fund Complex.
Richard F. Powers III*............ President of each of the Funds in the Fund
1 Parkview Plaza Complex. President and Chief Executive
P.O. Box 5555 Officer of Van Kampen Investments. Prior to
Oakbrook Terrace, IL 60181 May 1998, Executive Vice President and
Age: 53 Director of Marketing at Morgan Stanley Dean
Witter & Co. and Director of Dean Witter
Discover & Co. and Dean Witter Realty. Prior
to 1996, Director of Dean Witter Reynolds
Inc.
</TABLE>
7
<PAGE> 14
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE OR 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
Age: 55 Illinois Tool Works, Inc., a manufacturing
company, and the Urban Shopping Centers
Inc., a retail mall management company.
Trustee, University of Notre Dame. Trustee/
Director of each of the funds in the Fund
Complex. Prior to 1998, Director of Stone
Smurfit Container Corp., a paper
manufacturing company. Formerly, President,
Chief Executive Officer and Chief Operating
Officer of Waste Management, Inc., an
environmental services company.
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
Age: 74 Princeton, a firm engaged in engineering
research. Trustee/Director of each of the
funds in the Fund Complex.
Wayne W. Whalen*.................. Partner in the law firm of Skadden, Arps,
333 West Wacker Drive Slate, Meagher & Flom (Illinois), legal
Chicago, IL 60606 counsel to the funds in the Fund Complex,
Age: 59 and other open-end and closed-end funds
advised by Asset Management, Advisory Corp.
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 Asset Management, Advisory
Corp. or Van Kampen Management Inc.
Suzanne H. Woolsey, Ph.D.......... Chief Operating Officer of the National
2101 Constitution Avenue, N.W. Academy of Sciences/National Research
Room 206 Council, an independent, federally chartered
Washington, D.C. 20418 policy institution. Director of Neurogen
Age: 57 Corporation, a pharmaceutical company.
Director of the German Marshall Fund of the
United States Trustee of Colorado College,
Vice Chair of the Board of the Council for
Excellence in Government. Trustee/Director
of each of the funds in the Fund Complex.
Prior to 1993, Executive Director of the
Commission on Behavioral and Social Sciences
and Education at the National Academy of
Sciences/National Research Council. Prior to
1989, Partner of Coopers & Lybrand.
</TABLE>
8
<PAGE> 15
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE OR EMPLOYMENT IN PAST 5 YEARS
--------------------- -----------------------------
<S> <C>
Paul G. Yovovich.................. Private investor. Director of 3Com
Sears Tower Corporation, which provides information
233 South Wacker Drive access products and network system
Suite 9700 solutions, COMARCO, Inc., a wireless
Chicago, IL 60606 communications products company, and APAC
Age: 45 Customer Services, Inc., a provider of
outsourced customer contact services.
Trustee/Director of each of the funds in the
Fund Complex. Prior to May 1996, President
of Advance Ross Corporation, an
international transaction services and
pollution control equipment manufacturing
company.
INCUMBENT TRUSTEES NOT STANDING
FOR REELECTION:
Don G. Powell*.................... Currently a member of the Board of Governors
2800 Post Oak Blvd and Executive Committee for the Investment
Houston, TX 77056 Company Institute, and a member of the Board
Age: 59 of Trustees of the Houston Museum of Natural
Science. Trustee/ Director of certain
open-end investment companies and closed-end
investment companies advised by Asset
Management, Advisory Corp. or Van Kampen
Management Inc. Immediate past Chairman of
the Investment Company Institute. Prior to
January 1999, Chairman and Director of Van
Kampen Investments, Asset Management,
Advisory Corp., the Distributor, and
Investor Services and Director or officer of
certain other subsidiaries of Van Kampen
Investments. Prior to July 1998, Director
and Chairman of VK/AC Holding, Inc. Prior to
November 1996, President, Chief Executive
Officer and Director of VK/AC Holding, Inc.
</TABLE>
9
<PAGE> 16
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE OR EMPLOYMENT IN PAST 5 YEARS
--------------------- -----------------------------
<S> <C>
Richard M. DeMartini*............. Chairman and Chief Executive Officer of
Two World Trade Center International Private Client Group, a
66th Floor division of Morgan Stanley Dean Witter & Co.
New York, New York 10048 Director of Dean Witter Reynolds Inc.
Age: 46 Chairman and Director of Dean Witter Capital
Corporation. Chairman, Chief Executive
Officer, President and Director of Dean
Witter Alliance Capital Corporation,
Director of the National Healthcare
Resources, Inc., Dean Witter Realty Inc.,
Dean Witter Reynolds Venture Equities Inc.,
DW Window Covering Holding, Inc., and is a
member of the Morgan Stanley Dean Witter
Management Committee. Trustee of the TCW/DW
Funds, Director of the Morgan Stanley Dean
Witter Funds and Trustee/Director of other
funds in the Fund Complex. Prior to March
1999, Chairman, Chief Executive Officer,
President and Director of Morgan Stanley
Dean Witter Distributors, Inc. Prior to
January 1999, Chairman of Dean Witter
Futures & Currency Management Inc. and
Demeter Management Corporation. Prior to
December 1998, President and Chief Operating
Officer of Morgan Stanley Dean Witter
Individual Asset Management and a Director
of Morgan Stanley Dean Witter Trust FSB.
Formerly Vice Chairman of the Board of the
National Association of Securities Dealers,
Inc. and Chairman of the Board of the Nasdaq
Stock Market, Inc.
</TABLE>
- ------------------------------------------------------------------------------
* Such nominee or 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. Merin and Powers are interested persons of the Fund, Asset Management
and Advisory Corp. by reason of their current or former positions with Morgan
Stanley Dean Witter or its affiliates. Messrs. DeMartini and Powell are
interested persons of the Fund, Asset Management and Advisory Corp. by reason
of their current or former positions with Morgan Stanley Dean Witter or its
affiliates.
As of July 9, 1999, certain nominees and executive officers of the Fund owned,
directly or beneficially, the following number of Shares of the Fund:
J. Miles Branagan.................................................... 43.67
Jerry D. Choate...................................................... 440.76
Linda Hutton Heagy................................................... 92.85
R. Craig Kennedy..................................................... 88.15
Jack E. Nelson....................................................... 283.23
Phillip B. Rooney.................................................... 912.08
Fernando Sisto....................................................... 3,876.42
10
<PAGE> 17
Wayne W. Whalen........................................................1,980.28*
Suzanne H. Woolsey....................................................... 179.53
Paul G. Yovovich....................................................... 372.72
Dennis J. McDonnell...................................................3,183.60
Curtis W. Morell......................................................... 53.92
- ---------------
* Mr. Whalen holds 169.01 Shares of the Fund in an account registered in his
name. The remaining Shares are held in accounts in the names of family
members residing at the same address and Mr. Whalen disclaims beneficial
ownership of such Shares.
In addition, certain nominees defer all or a portion of their compensation
from the Fund. Amounts deferred are retained by the Fund and earn a rate of
return determined by reference to the return on shares of the Fund or other
funds in the Fund Complex as selected by the trustee with the same effect as if
such trustee had invested his or her compensation in the funds in the Fund
Complex. See the "Compensation Table" below.
During the Fund's fiscal year ended August 31, 1998, the Board of Trustees
held 14 meetings for the Fund. All of the incumbent nominees to the Board of
Trustees attended at least 75% of the meetings of the Board of Trustees and all
committee meetings thereof of which such trustee was a member during the period
of such Trustee's service for the Fund's 1998 fiscal year.
During the Fund's fiscal year ended August 31, 1998, the Fund had no standing
committees other than an audit committee, a brokerage and services committee and
a retirement plan committee. The Fund's audit committee currently consists of J.
Miles Branagan, Jerry D. Choate, R. Craig Kennedy and Fernando Sisto. The audit
committee makes recommendations to the Board of Trustees concerning the
selection of the Fund's independent accountants, reviews with such accountants
the scope and results of the Fund's annual audit and considers any comments that
the accountants may have regarding the Fund's financial statements, books of
account or internal controls. The Fund's brokerage and services committee
currently consists of Linda Hutton Heagy, Jack E. Nelson, Phillip B. Rooney,
Suzanne H. Woolsey and Paul G. Yovovich. The brokerage and services committee
reviews the Fund's allocation of brokerage transactions and soft-dollar
practices and reviews the transfer agency and shareholder servicing arrangements
with Investor Services. The Fund's retirement plan committee currently consists
of Linda Hutton Heagy, R. Craig Kennedy and Jack E. Nelson. The retirement plan
committee is responsible for reviewing the terms of the Fund's retirement plan
and reviews any administrative matters that arise with respect thereto. During
the Fund's fiscal year ended August 31, 1998, the audit committee held 2
meetings and the brokerage and services committee of the Fund held 4 meetings.
The retirement plan committee does not meet on a regular basis, but does meet on
an ad hoc basis as necessary to administer the retirement plan.
11
<PAGE> 18
The Trustees of the Fund who are not "interested persons" of the Fund (as
defined by the 1940 Act) are required to select and nominate non-interested
trustees and are prepared to review nominations from shareholders to fill any
vacancies in trusteeships. The Fund has an ad hoc nominating committee currently
consisting of J. Miles Branagan, Linda Hutton Heagy and R. Craig Kennedy.
Nominations from shareholders should be in writing and addressed to the non-
interested Trustees at the Fund's office. The non-interested Trustees of the
Fund expect to be able to identify from their own resources an ample number of
qualified candidates.
Each trustee who is not an affiliated person of Van Kampen Investments, Asset
Management, Advisory Corp. or the Distributor (each a "Non-Affiliated Trustee")
serves as a trustee/director of each of the funds in the Fund Complex (as
defined below). Each of Messrs. Merin and Powers currently is a trustee of one
fund in the Fund Complex. Each of Messrs. DeMartini and Powell currently is a
trustee/director of all but one fund in the Fund Complex. As of the date of this
Proxy Statement, there are 66 operating funds in the Fund Complex. The "Fund
Complex" consists of those open-end investment companies advised by Asset
Management or Advisory Corp. and Distributed by the Distributor with the same
Non-Affiliated Trustees (the "Fund Complex").
Each Non-Affiliated Trustee is compensated by an annual retainer and meeting
fees for services to the funds in the Fund Complex. Each fund in the Fund
Complex (except the money market series of the Van Kampen Series Fund. Inc.)
provides a deferred compensation plan to its NonAffiliated 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
NonAffiliated Trustee reinvested his or her compensation into the funds. Each
fund in the Fund Complex (except the money market series of the Van Kampen
Series Funds, Inc.) provides a retirement plan to its Non-Affiliated Trustees
that provides Non-Affiliated Trustees with compensation after retirement,
provided that certain eligibility requirements are met as more fully described
below.
The compensation of each Non-Affiliated Trustee includes an annual retainer in
an amount equal to $50,000 per calendar year, due in four quarterly installments
on the first business day of each quarter. Payment of the annual retainer is
allocated among the funds in the Fund Complex (except the money market series of
the Van Kampen Series Funds, Inc.) on the basis of the relative net assets of
each fund as of the last business day of the preceding calendar quarter. The
compensation of each Non-Affiliated Trustee includes a per meeting fee from each
fund in the Fund Complex (except the money market series of the Van Kampen
Series Funds, Inc.) in the amount of $200 per quarterly or special meeting
attended by the Non-Affiliated Trustee, due on the date of the meeting, plus
reasonable expenses incurred by the Non-Affiliated Trustee in connection with
his or her services as a
12
<PAGE> 19
trustee, provided that no compensation will be paid in connection with certain
telephonic special meetings.
Under the deferred compensation plan, each Non-Affiliated Trustee generally
can elect to defer receipt of all or a portion of the compensation earned by
such Non-Affiliated Trustee until retirement. Amounts deferred are retained by
the Fund and earn a rate of return determined by reference to the return on the
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 the 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 the 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.
13
<PAGE> 20
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 THE FUND DEFERRAL FROM
ELECTED TO DEFERRAL FROM AS PART OF COMPLEX UPON FUND
NAME(L) THE BOARD THE FUND(2) EXPENSES(3) RETIREMENT(4) COMPLEX(5)
------- ------------ ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
J. Miles Branagan........ 1991 $6,269 $35,691 $60,000 $125,200
Jerry D. Choate.......... 1999 (2) 0 60,000 (5)
Linda Hutton Heagy....... 1995 6,069 3,861 60,000 112,800
R. Craig Kennedy......... 1995 6,269 2,652 60,000 125,200
Jack E. Nelson........... 1995 6,269 18,385 60,000 125,200
Jerome L. Robinson(1).... 1995 800 10,810 15,750 (5)
Phillip B. Rooney........ 1997 6,269 6,002 60,000 125,500
Fernando Sisto........... 1978 6,269 68,615 60,000 125,200
Wayne W. Whalen.......... 1995 6,269 12,658 60,000 125,200
Suzanne H. Woolsey....... 1999 (2) 0 60,000 (5)
Paul G. Yovovich......... 1998 (2) 0 60,000 25,300(5)
</TABLE>
- ---------------
(1) Trustees not eligible for compensation (i.e., trustees affiliated with Van
Kampen Investments, Asset Management, Advisory Corp. or the Distributor) are
not included in the Compensation Table. Mr. Robinson retired from the Board
of Trustees on December 31, 1997. Mr. Robinson, President of Robinson
Technical Products Corporation, a manufacturer and processor of welding
alloys, supplies and equipment, and a Director of Panasia Bank and
Pacesetter Software, a software programming company, is reported in the
compensation table because he was a trustee during a portion of the Fund's
last fiscal year ended August 31, 1998.
(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. Each
of Jerry D. Choate, Suzanne H. Woolsey and Paul G. Yovovich joined the Board
of Trustees subsequent to the Fund's fiscal year ended on August 31, 1998
and therefore has no historical information to report in the table. The
trustees may defer compensation from the Fund. The following trustees
deferred compensation from the Fund during its fiscal year ended August 31,
1998: Mr. Branagan, $6,269; Ms. Heagy, $6,069; Mr. Kennedy, $3,135; Mr.
Nelson, $6,269; Mr. Robinson, $800; Mr. Rooney, $6,269; Dr. Sisto, $3,135;
and Mr. Whalen, $6,269. Amounts deferred are retained by the Fund and earn a
rate of return determined by reference to either the return on the 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, $9,247; Dr. Caruso, $8,681; Mr. Gaughan, $812; Ms.
Heagy, $12,668; Mr. Kennedy, $7,040; Mr. Miller, $4,465; Mr. Nelson,
14
<PAGE> 21
$13,369; Mr. Rees, $36,006; Mr. Robinson, $8,002; Mr. Rooney, $6,260; Dr.
Sisto, $31,682; Mr. Vernon, $3,427; and Mr. Whalen, $13,361.
(3) The amounts shown in this column represent the sum of the retirement
benefits expected to be accrued by the operating investment companies in the
Fund Complex for each of the trustees for the funds' respective fiscal years
ended in 1998.
(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 ten-year period since his retirement. For
each of 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 ten-year period commencing in the year of such
trustee's anticipated retirement. The retirement plan is described above the
Compensation Table.
(5) The amounts shown in this column represent the aggregate compensation paid
by all operating investment companies in the Fund Complex as of December 31,
1998 before deferral by the trustees under the deferred compensation plan.
Because the funds in the Fund Complex have different fiscal year ends, the
amounts shown in this column are presented on a calendar year basis. Mr.
Robinson retired from the Board of Trustees of funds in the Fund Complex on
December 31, 1997 and therefore does not have any calendar year 1998
information to report. Mr. Yovovich became a member of the Board of Trustees
for funds in the Fund Complex on October 22, 1998 and therefore does not
have a full calendar year of information to report. Mr. Choate and Dr.
Woolsey became members of the Board of Trustees for funds in Fund Complex on
May 26, 1999 and therefore do not have any calendar year 1998 information to
report. Certain trustees deferred all or a portion of their aggregate
compensation from the Fund Complex during the calendar year ended December
31, 1998. The deferred compensation earns a rate of return determined by
reference to the return on the shares of the funds in the Fund Complex as
selected by the respective Non-Affiliated Trustee, with the same economic
effect as if such Non-Affiliated Trustee had invested in one or more funds
in the Fund Complex. To the extent permitted by the 1940 Act, the Fund may
invest in securities of those investment companies selected by the
Non-Affiliated Trustees in order to match the deferred compensation
obligation. Asset Management and Advisory Corp. 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 Asset Management and Advisory Corp. and
their affiliates, Mr. Whalen received Total Compensation of $285,825 during
the calender year ended December 31, 1998.
The Fund is not required under Delaware law to hold and does not contemplate
holding regular meetings of shareholders to elect trustees or otherwise. The
Board of Trustees will be required to promptly call a meeting of shareholders
for the purpose of voting upon the question of removal of any trustee when
requested in writing to do so by the record holders of not less than 10% of the
total outstanding shares of the Fund. In addition, the Board will comply with
the requirements of Section 16(c) of the 1940 Act with respect to communications
with shareholders.
SHAREHOLDER APPROVAL
The affirmative vote of a plurality of the Shares of the Fund present in
person or by proxy at the Meeting and entitled to vote is required to elect the
nominees to the
15
<PAGE> 22
Board of Trustees of the Fund. THE BOARD OF TRUSTEES OF THE FUND RECOMMENDS A
VOTE "FOR" EACH OF THE NOMINEES.
- ------------------------------------------------------------------------------
PROPOSAL 2: APPROVAL OF A NEW ADVISORY AGREEMENT
- ------------------------------------------------------------------------------
Shareholders of the Fund are being asked to approve a new form of investment
advisory agreement between the Fund and Asset Management and an investment
advisory fee increase for the Fund.
The Van Kampen funds currently consist of funds created at various times and
include funds that were originally affiliated only with Advisory Corp. (the "VK
Funds"), funds that joined the fund complex through the purchase of Asset
Management by Van Kampen Investments in 1995 (the "AC Funds") and funds now
advised by Advisory Corp. comprising the Van Kampen Series Fund, Inc., formerly
known as the Morgan Stanley Fund, Inc. ("MS Funds"), which joined the Van Kampen
funds following the 1997 acquisition of Van Kampen Investments by a subsidiary
of Morgan Stanley Dean Witter. Asset Management and Advisory Corp. have
recommended that the Fund and other Van Kampen funds adopt a standardized form
of investment advisory agreement. Over the next several months, each of the Van
Kampen funds advised by Asset Management and Advisory Corp. are expected to hold
a shareholders meeting. It is currently contemplated that the shareholders of
other funds described above may be asked to adopt a similar form of investment
advisory agreement, and any changes between the current form of investment
advisory agreement and the proposed new form of investment advisory agreement
will be described in the respective proxy for each fund. Asset Management and
Advisory Corp. believe that standardization of the investment advisory
agreements would simplify the administration of the Van Kampen funds.
The Board of Trustees has approved a new investment advisory fee structure for
the Fund in addition to adopting the new form of investment advisory agreement.
The new investment advisory fee structure will result in an increase in the
investment advisory fee and certain other expenses paid by the Fund. Asset
Management proposed a fee increase noting, among other things, the Fund's
current advisory fee schedule is below market for comparable funds, the Fund's
consistently strong performance relative to comparable funds and its increasing
costs of operations, including costs associated with retaining or attracting
high-quality professionals and technology-related costs.
The discussion below describes the Fund's current investment advisory
agreement, the proposed investment advisory agreement and the actions and
recommendations of Asset Management and the Fund's Board of Trustees in
connection with the new investment advisory agreement.
16
<PAGE> 23
THE CURRENT INVESTMENT ADVISORY AGREEMENT
Asset Management and its predecessor companies have acted as the investment
adviser for the Fund since the commencement of the Fund's operations in 1969.
The current investment advisory agreement (the "Current Agreement") between the
Fund and Asset Management was last approved by a majority of the trustees and by
a majority of the trustees who are not parties to the agreement or interested
persons of any such party (the "Disinterested Trustees"), voting in person at a
meeting called for that purpose, on May 26, 1999. That action served to continue
the Current Agreement for a period of one year or until a new investment
advisory agreement is approved. The Current Agreement was last approved by the
shareholders of the Fund at a meeting held on May 28, 1997 relating to the
merger of Asset Management's corporate parent with and into a subsidiary of
Morgan Stanley Dean Witter. A copy of the Current Agreement is attached hereto
as Appendix A.
Under the Current Agreement, the Fund retains Asset Management to manage the
investment and reinvestment of the Fund's assets, including the placing of
orders for the purchase and sale of portfolio securities. Asset Management
obtains and evaluates economic, statistical, financial and other information to
formulate and implement the Fund's investment strategy. Asset Management
conducts and manages the day-to-day operations of the Fund, including preparing
the registration statements, prospectuses, reports, proxy solicitation materials
and amendments thereto, furnishing routine legal services, and supervising the
Fund's treasurer and personnel working under the treasurer's supervision. Asset
Management furnishes office space, facilities, equipment and personnel as
necessary to perform the services described above. Except as otherwise agreed to
in the Current Agreement or between Asset Management and the Fund, the Fund pays
all other expenses incurred in the operation of the Fund, including, but not
limited to, interest and taxes, brokerage commissions or other costs in
purchasing and selling portfolio securities, compensation of officers or
trustees (other than those who are affiliated persons of Asset Management), the
compensation of the Fund's treasurer and personnel under the treasurer's
direction as well as office space, facilities and equipment used by such
parties, legal fees of outside counsel and independent accountants, fees and
disbursements of the custodians and sub-custodians, transfer agent and
shareholder servicing agents, cost of share certificates and any other expenses
(including clerical expenses) of issuance, sale or repurchase of the Fund's
shares, expenses in connection with the Fund's dividend reinvestment plan,
expenses of registering and qualifying shares of the Fund for sale under federal
and state securities laws, expenses related to printing and distribution of Fund
materials, insurance premiums, membership dues in trade associations, and all
other business expenses of the Fund not specifically assumed by Asset
Management. The Current Agreement also provides that Asset Management shall not
be liable to the Fund for any action or omission if it acted without willful
misfeasance, bad faith, negligence or reckless disregard of its obligations. The
Current Agreement may be terminated
17
<PAGE> 24
by either party, at any time, without penalty, upon 60 days written notice, and
will automatically terminate in the event of its assignment.
Asset Management's activities are subject to the review and supervision of the
Board of Trustees, to which Asset Management renders regular periodic reports of
the Fund's investment activities.
For the services provided by Asset Management under the Current Agreement, the
Fund pays Asset Management an investment advisory fee (accrued daily and paid
monthly) based upon annual rates applied to the average daily net assets of the
Fund as follows:
<TABLE>
<CAPTION>
FEE AS A
AVERAGE DAILY PERCENTAGE OF
NET ASSETS AVERAGE DAILY
(MILLIONS) NET ASSETS
------------- -------------
<S> <C>
First $ 350 million................ 0.575%
Next $ 350 million................. 0.525%
Next $ 350 million................. 0.475%
Over $1,050 million................ 0.425%
</TABLE>
For the fiscal year ended August 31, 1998, investment advisory fees paid to
Asset Management by the Fund were $17,650,513. For the nine-month fiscal period
ended May 31, 1999, investment advisory fees paid to Asset Management by the
Fund were $17,014,635. The Fund also compensates Asset Management or its
affiliates for certain non-advisory services, including accounting services,
transfer agency services and distribution of the Fund's shares provided pursuant
to agreements described under "Other Information -- Non-Advisory Agreements"
below. The provision of accounting services, transfer agency services and
distribution services to the Fund by Asset Management or its affiliates are not
being changed by the proposed New Agreement; however, unrelated to the Current
Agreement or the New Agreement, it is anticipated that much of the day-to-day
accounting services currently provided by Asset Management or its affiliates may
be outsourced to an accounting services vendor not affiliated with Asset
Management.
THE NEW INVESTMENT ADVISORY AGREEMENT
The Board of Trustees approved a new investment advisory agreement (the "New
Agreement") between the Fund and Asset Management on June 23, 1999, the form of
which is attached hereto as Appendix B. The services from Asset Management under
the New Agreement are substantially similar to the those under the Current
Agreement. The New Agreement includes a new investment advisory fee structure
that will result in an increase in the Fund's investment advisory fee paid to
Asset Management. The New Agreement includes certain changes towards
standardizing the investment advisory contracts among the Van Kampen funds,
which changes also will result in increasing certain other expenses of the Fund.
18
<PAGE> 25
Proposed Advisory Fee Structure. For the services under the New Agreement, the
Fund will pay Asset Management an investment advisory fee (accrued daily and
paid monthly) based upon annual rates applied to the of the average daily net
assets of the Fund as follows:
<TABLE>
<CAPTION>
FEE AS A
AVERAGE DAILY PERCENT OF
NET ASSETS AVERAGE DAILY
(MILLIONS) NET ASSETS
------------- -------------
<S> <C>
First $1 billion................... 0.675%
Next $1 billion.................... 0.625%
Next $1 billion.................... 0.575%
Next $1 billion.................... 0.525%
Over $4 billion.................... 0.475%
</TABLE>
Proposed Standardization Changes. The New Agreement includes changes towards
standardizing the investment advisory arrangements among the Van Kampen funds,
including the Fund. The primary changes in the New Agreement include providing
for the Fund to pay for certain legal services which the Fund does not pay for
under the Current Agreement, simplifying the language relating to the Fund's
accounting services arrangements, deleting the Fund's brokerage commission
recovery language, and standardizing certain other expense provisions.
Under the New Agreement, the Fund may pay certain legal expenses which the
Fund does not pay under the Current Agreement. Each of the funds advised by
Asset Management and Advisory Corp. receive certain legal services provided by
internal personnel of Van Kampen Investments. Currently, many of these funds are
parties to a joint Legal Services Agreement and pay Van Kampen Investments for
such services. Pursuant to language in the Current Agreement, the Fund does not
pay the costs of such legal services provided by Van Kampen Investments to the
Fund. Under language in the New Agreement, the Fund may pay for the costs of
such legal services provided by Van Kampen Investments, and it is anticipated
that the Fund will enter into the joint legal services agreement with other Van
Kampen Funds and Van Kampen Investments if the New Agreement is approved by
shareholders. Under the Current Agreement and the New Agreement, the Fund would
continue to pay for the costs of outside counsel to the Fund.
Under the legal services agreement, Van Kampen Investments would provide
certain legal services to the Fund, including without limitation maintenance of
the Fund's minute books and records, preparation and oversight of the Fund's
regulatory reports, and other information provided to shareholders, as well as
responding to day-to-day legal issues on behalf of the Fund. Payment by the Fund
for such services would be made on a cost basis for the employment of personnel
as well as the overhead and equipment necessary to render such services. Of the
total costs for legal services provided to the Fund and other funds advised by
Asset Management
19
<PAGE> 26
and Advisory Corp. and distributed by the Distributor, 50% of such costs are
allocated equally to each fund and the remaining 50% of such costs are allocated
to specific funds based on specific time allocations, or in the event services
are attributable only to a specific fund or type of fund (e.g., closed-end or
open-end), the relative amount of time spent on each fund or type of fund and
then further allocated, if applicable, among funds of such type based upon their
respective net asset values. It is currently anticipated that the Fund and other
funds advised by Asset Management will enter the joint legal services agreement
with Van Kampen Investments if the new form of investment advisory agreement is
approved by shareholders of such funds so that all Van Kampen funds share the
same legal services arrangement.
Another change in the New Agreement would be to simplify the language relating
to the Fund's accounting services arrangements. The Current Agreement provides
that the Fund pays for compensation of the Fund's treasurer, compensation of
personnel working under the treasurer's direction, and expenses of office space,
facilities, and equipment used by the treasurer and such personnel in the
performance of their normal duties for the Fund, which consist of maintenance of
the accounts, books and other documents which constitute the record forming the
basis for the Fund's financial statements, preparation of such financial
statements and other Fund documents and reports of a financial nature required
by federal and state laws, and participation in the production of the Fund's
registration statement, prospectuses, proxy solicitation materials and reports
to shareholders. The New Agreement simply would provide that the Fund pays for
the maintenance of its accounting books and records and the preparation of its
financial statements and other related Fund documents and reports. Currently,
most of the funds advised by Asset Management and Advisory Corp. are parties to
an accounting services agreement whereby certain accounting services are
provided by Advisory Corp. to such funds. See "Other Information -- Non-Advisory
Agreements" below. This change in the form of New Agreement does not change the
services currently received or amounts paid by the Fund for its accounting
services but deletes more cumbersome language not necessary or required to be in
the investment advisory agreement. Furthermore, as noted previously, unrelated
to the Current Agreement or the New Agreement, it is anticipated that much of
the day-to-day accounting services currently provided by Asset Management or its
affiliates may be outsourced to an accounting services vendor not affiliated
with Asset Management.
Another change in the New Agreement is the deletion of the commission recovery
language from the Current Agreement. The Current Agreement generally provides
that advisory fees payable by the Fund to Asset Management will be reduced by
any commissions, tender solicitation and other fees, brokerage or similar
payments received by Asset Management or Van Kampen Investments or any of its
subsidiaries in connection with the purchase or sale of the Fund's portfolio
securities. Asset Management has informed the Fund that no such commissions,
20
<PAGE> 27
tender solicitation and other fees, brokerage or similar payments have been
received by Asset Management or Van Kampen Investments or any of its
subsidiaries during the Fund's last fiscal year. To the extent the Fund engages
in portfolio securities transactions with Asset Management or Van Kampen
Investments or any of its subsidiaries, the Fund complies with the applicable
provisions of the 1940 Act regarding such affiliated transactions.
The New Agreement and the Current Agreement provide that, except as described
in the agreement or otherwise agreed between the parties, the Fund pays all
other expenses incurred in the operation of the Fund, and each agreement
provides a description of such other expenses that would be paid by the Fund.
Any differences in the descriptions of such expenses to be paid by the Fund
between the Current Agreement and the New Agreement are not intended to result
in any material changes to the type or amount of expenses from that currently
paid or payable for by the Fund.
The information provided herein is intended to be a summary of the material
changes between the Current Agreement and the New Agreement. This summary does
not purport to be complete and is subject in all respects to the provisions of,
and is qualified in its entirety by reference to, the Current Agreement and New
Agreement attached hereto as Appendix A and Appendix B, respectively.
Current and Pro Forma Information. If the investment advisory fee proposed
under the New Agreement had been in effect for the fiscal year ended August 31,
1998 and the nine-month fiscal period ended May 31, 1999, investment advisory
fees paid to Asset Management by the Fund would have been approximately
$23,492,000 and $21,909,000 respectively, which is an increase of 33% and 29%,
respectively, over the amounts actually paid for such periods. If the Legal
Services Agreement had been in effect during the Fund's fiscal year ended August
31, 1998 and the nine-month fiscal period ended May 31, 1999, the Fund would
have paid approximately $33,600 and $34,400, respectively, in fees to Van Kampen
Investments pursuant to Legal Services Agreement. The table below sets forth the
Annual Fund Operating Expenses for the Fund based upon the current nine month
fiscal period ended May 31, 1999 and also sets forth pro forma expenses of the
Fund assuming the New Agreement is approved by shareholders and the Legal
Services Agreement is implemented.
21
<PAGE> 28
ANNUAL FUND OPERATING EXPENSES
<TABLE>
<CAPTION>
CURRENT EXPENSES PRO FORMA EXPENSES
--------------------------- ---------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
SHARES SHARES SHARES SHARES SHARES SHARES
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Management Fees.............. 0.45% 0.45% 0.45% 0.57% 0.57% 0.57%
Distribution and/or Service
(12b-1) Fees............... 0.23% 1.00% 1.00% 0.23% 1.00% 1.00%
Other expenses............... 0.29% 0.29% 0.29% 0.29% 0.29% 0.29%
Total Annual Fund Operating
Expenses................... 0.97% 1.74% 1.74% 1.09% 1.86% 1.86%
</TABLE>
EXAMPLES
The following examples are intended to help shareholders compare the costs of
investing in the Fund under the current annual fund operating expenses and the
pro forma annual fund operating expenses and with the costs of investing in
other mutual funds. The examples assume that a shareholder invests $10,000 in
the Fund for the time periods indicated and then redeems all of the shares at
the end of those periods. The example also assumes that a shareholder's
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 amount for Class B
Shares which reflect the conversion of Class B Shares to Class A Shares after
eight years). Although a shareholder's actual costs may be higher or lower,
based on these assumptions, the shareholder's costs would be:
<TABLE>
<CAPTION>
CURRENT EXAMPLE PRO FORMA EXAMPLE
------------------------------ ------------------------------
ONE THREE FIVE TEN ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS YEAR YEARS YEARS YEARS
---- ----- ------ ------ ---- ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A Shares.......... $668 $866 $1,080 $1,696 $680 $902 $1,141 $1,827
Class B Shares.......... 677 848 1,094 1,848* 689 885 1,156 1,979*
Class C Shares.......... 277 548 944 2,052 289 585 1,006 2,180
</TABLE>
A shareholder would pay the following expenses if you did not redeem your
shares:
<TABLE>
<CAPTION>
CURRENT EXAMPLE PRO FORMA EXAMPLE
------------------------------ ------------------------------
ONE THREE FIVE TEN ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS YEAR YEARS YEARS YEARS
---- ----- ------ ------ ---- ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A Shares.......... $668 $866 $1,080 $1,696 $680 $902 $1,141 $1,827
Class B Shares.......... 177 548 944 1,848* 189 585 1,006 1,979*
Class C Shares.......... 177 548 944 2,052 189 585 1,006 2,180
</TABLE>
- ---------------
* Based on conversion to Class A Shares after eight years.
22
<PAGE> 29
ACTIONS AND RECOMMENDATIONS OF THE FUND'S BOARD OF TRUSTEES
At meetings of the Boards of Trustees of the Fund and other Van Kampen funds
held on February 4, 1999 and April 7-8, 1999, management of Asset Management and
Advisory Corp. presented their intentions to reassess the investment advisory
fee schedules and investment advisory contracts of the funds advised by Asset
Management and Advisory Corp. Asset Management and Advisory Corp. seek to
propose such changes to investment advisory fee schedules and investment
advisory contracts to standardize and rationalize investment advisory
arrangements, where practicable, across the Van Kampen funds.
At a meeting of the Fund's Board of Trustees held on May 26, 1999, Asset
Management made a presentation to the Board of Trustees regarding reassessing
the Fund's investment advisory fee and certain other provisions of the Current
Agreement. The presentation set forth, among other things, a history of the Fund
and its performance, a review of the Fund's advisory fees over time, potential
alternatives to increase the current advisory fee structure, the proposed legal
services arrangement, information concerning Asset Management and the costs and
profitability of its operations, comparative information with respect to
advisory fees and total expenses paid by other comparable investment companies
over a range of asset sizes, and information with respect to recent developments
and trends with respect to mutual funds with similar investment objectives and
policies. Asset Management discussed a proposal made in 1994 to increase the
advisory fee of the Fund, which proposal had been approved by the Fund's Board
of Trustees but was tabled following the announcement of the purchase of Asset
Management by Van Kampen Investments. The 1994 proposal had been discussed from
time to time by the Fund's Board of Trustees but had remained tabled until the
May 26, 1999 Board of Trustees' meeting. Asset Management stressed that the
current advisory fees are below market averages for comparable funds, noted the
Fund's consistently strong performance relative to comparable funds and reviewed
Asset Management's increasing costs of operations, including among other things
the costs of retaining or attracting high-quality professionals and
technology-related costs.
After considering the factors they deemed appropriate to their deliberations,
the Disinterested Trustees decided to defer any proposal pending further study
and analysis, and decided to retain two nationally recognized analytical
services consultants to prepare reports evaluating the proposed fee increases
based on publicly available industry data as an aid to the Board in its
deliberations. The Disinterested Trustees requested, among other things, actual
and pro forma information regarding other funds' fee increases, performance and
expenses. The Disinterested Trustees also asked that any comparative information
reflect the Fund's current portfolio and any potential changes in the portfolio
in light of Proposal 3 below.
On June 22, 1999, the Disinterested Trustees, together with the Fund's
counsel, reviewed the materials received from the analytical services
consultants and Asset
23
<PAGE> 30
Management with respect to an advisory fee increase and other changes from the
Current Agreement.
The Board of Trustees met on June 23, 1999 in order to consider, among other
things, an advisory fee increase and other changes from the Current Agreement.
Prior to the meeting, Asset Management presented for the Board's consideration
materials including, among other things: conditions and trends relating to the
securities markets; information on other recent advisory fee changes in the
industry; fees and expenses (other than the advisory fee) payable by the Fund to
Asset Management and its affiliates, including distribution expenses and
expenses incurred under the non-advisory agreements discussed below; the
proposed legal services arrangements; an analysis of the Fund's other costs over
time; the profitability of Asset Management's mutual fund operations with
respect to the Fund; the prior actions by the Board of Trustees in considering
and reviewing the Fund's investment advisory fees in 1994; and the rationale
underlying the proposed advisory fee structure, including economies of scale and
breakpoint analysis. Representatives of Asset Management were present at the
meeting to discuss the information provided to the Trustees and answer such
questions as were raised. A schedule of the current investment advisory fees for
the Fund and other funds advised by Asset Management and Advisory Corp. with
investment objectives similar to the Fund is attached hereto as Appendix C.
After the Board discussed the materials provided by Asset Management in response
to the Disinterested Trustees' request, the Disinterested Trustees met to
further consider the proposed advisory fee increase. The Disinterested Trustees
heard presentations and reviewed reports comparing the Fund's current and
historical expenses, advisory fees, performance and other indicia to sets of
mutual funds selected by the analytical services consultants based on their
similarity to the Fund with respect to, among other things, asset size and
portfolio strategy, including sets of funds that could be similar to the Fund in
portfolio strategy after giving effect to the Proposal 3 below. These
comparisons were made based on, among other things, an analysis of the current
advisory fee, other expenses and performance levels of the Fund and on a pro
forma basis.
Trustees' Approval of the New Agreement. Based on, among other things, its
evaluation of the materials presented by Asset Management and the reports of the
independent analytical services consultants, the Trustees, including a separate
vote of the Disinterested Trustees, approved the standardization of the Fund's
investment advisory agreement and a revised fee structure as described above. In
addition, the Trustees, including the Disinterested Trustees, approved the
implementation of the Legal Services Agreement for the Fund if the New Agreement
is approved by the Fund's shareholders. Trustees approved the terms of the New
Agreement and submission of the New Agreement for the consideration of the
shareholders of the Fund.
24
<PAGE> 31
In reaching their decision to approve the New Agreement, the Board considered
many factors including, among others: the findings of the reports from the
independent analytical services consultants regarding the Fund's current and pro
forma management fee structure and total expense ratio compared to similar
funds; an analysis of the Fund's pro forma advisory fee, legal expenses, total
expense ratio and performance data; the complexity and sophistication of the
securities which comprise the Fund's investment portfolio; the nature and
quality of the services received from Asset Management, and the need of Asset
Management to devote additional personnel and resources to managing the Fund and
to retain key personnel currently employed by Asset Management in order to
continue to provide a comparable level of investment management services; the
short and long term record of the Fund's investment performance under Asset
Management; other benefits to Asset Management or its affiliates; and the
potential benefits of standardizing the investment advisory agreements of the
Van Kampen funds.
SHAREHOLDER APPROVAL
To become effective, the New Agreement must be approved by a vote of a
majority of the outstanding voting securities of the Fund. The vote of a
majority of the outstanding voting securities means the lesser of the vote of
(i) 67% or more of the Shares of the Fund present in person or by proxy at the
Meeting, if the holders of more than 50% of the outstanding Shares of the Fund
are present in person or by proxy at the Meeting or (ii) more than 50% of the
outstanding Shares of the Fund. If the New Agreement is approved, it will be
effective as of the date of shareholder approval and will continue for an
initial two-year term from such date and thereafter shall continue on an annual
basis if specifically approved by the Board of Trustees of the Fund or the
shareholders and by the Disinterested Trustees in compliance with the
requirements of the 1940 Act. If the New Agreement is not approved at the
Meeting, the Current Agreement will remain in effect until May 26, 2000 and
thereafter on an annual basis if specifically approved by the Board of Trustees
of the Fund or the shareholders and by the Disinterested Trustees in compliance
with the requirements of the 1940 Act.
The New Agreement was approved by the Board of Trustees after consideration of
all factors which they determined to be relevant to their deliberations,
including those discussed above. The Board of Trustees also determined to submit
the New Agreement for consideration by the Fund's shareholders. THE BOARD OF
TRUSTEES OF THE FUND RECOMMENDS A VOTE "FOR" APPROVAL OF THE NEW AGREEMENT.
25
<PAGE> 32
- ------------------------------------------------------------------------------
PROPOSAL 3: APPROVAL OF REPLACING THE FUND'S
FUNDAMENTAL INVESTMENT POLICY REGARDING
INVESTMENT IN SMALL- AND MEDIUM-SIZED
COMPANIES WITH A NON-FUNDAMENTAL
INVESTMENT POLICY
- ------------------------------------------------------------------------------
The Fund's investment objective is to provide capital appreciation. The Fund
currently has certain fundamental investment policies which may be amended only
with shareholder approval. At meetings of the Board of Trustees on May 26, 1999
and June 23, 1999, Asset Management recommended to the Board of Trustees that
the Fund replace its fundamental investment policy relating to, among other
things, investment in small- and medium-sized companies with a non-fundamental
investment policy. A non-fundamental investment policy may be changed by the
Fund's Board of Trustees without shareholder approval and therefore provides the
Fund with more flexibility to respond efficiently to changing market, legal,
regulatory or industry conditions. Asset Management believes the current
fundamental investment policy regarding investment in small-and medium-sized
companies is not in the best interests of the Fund or its shareholders.
The Fund currently has a fundamental investment policy which provides, among
other things, that the Fund will invest at least 65% of its total assets in
small- and medium-sized companies. The prospectus currently states the
fundamental policy and a related definition of small- and medium-sized companies
as follows:
As a fundamental policy, the Fund under normal conditions invests at
least 65% of its total assets in common stocks of small and medium
sized companies, both foreign and domestic, in the early stages of
their life cycles that the Fund's investment adviser believes have the
potential to become major enterprises. The Fund's investment adviser,
under current market conditions, generally defines small- and
medium-sized companies by reference to the Standard & Poor's Midcap 400
Index (which consists of companies in the capitalization range of
approximately $170 million to $14 billion as of March 31, 1999).
Asset Management has recommended replacing this fundamental investment policy
with a non-fundamental investment policy that deletes the limitation to small-
and medium-sized companies while retaining the Funds emphasis on emerging growth
companies as follows:
Under normal market conditions, the Fund's investment adviser seeks to
achieve the Fund's investment objective by investing at least 65% of
the Fund's total assets in common stocks of emerging growth companies.
Emerging growth companies are those companies in the early stages of
26
<PAGE> 33
their life cycles that the Fund's investment adviser believes have the
potential to become major enterprises.
Asset Management recommends the proposed change to provide the Fund with
greater flexibility in seeking to achieve its investment objective of capital
appreciation. Asset Management intends to continue to invest primarily in
companies in the early stages of their life cycles that are believed to have the
potential to become major enterprises. Asset Management has concluded that
recent market conditions make the policy of investing primarily in small- and
medium-sized companies, based on market capitalization, unnecessarily
restrictive on the Fund. Recent increases in the valuations of companies in
various industries, and in particular in the technology sector, have placed many
companies that are in the early stages of development, and which Asset
Management believes have attractive growth potential, outside of the
capitalization limits placed on the Fund's investments by the current
fundamental investment policy.
Asset Management stated to the Board that, in selecting companies for
investment by the Fund, it employs a disciplined investment approach which
primarily focuses on rising earnings expectations and rising valuations of
companies and other factors believed by Asset Management to be indicative of the
growth potential of such companies, and that it does not emphasize the market
capitalization of such companies in its stock selection process for the Fund. It
is the intention of Asset Management, in recommending the proposed changes, to
provide the Fund with greater flexibility in changing markets to maintain its
disciplined investment approach and allow the Fund to continue to invest in
companies that Asset Management believes are emerging growth companies without
being limited by the market capitalization of such companies. Asset Management
believes that under current market conditions, companies meeting the Fund's
investment criteria cross all capitalization ranges even though historically the
population of companies meeting the Fund's investment criteria may have been
predominantly in the small-or medium-capitalization range. If this proposal is
approved by shareholders, the average capitalization of the Fund's investments
will vary reflecting the companies meeting Asset Management's investment
criteria and investments will not be precluded because of a company's market
capitalization.
Asset Management also discussed other potential impacts on the Fund of the
proposal such as potentially changing the Fund's market position relative to
other Van Kampen funds and the industry. Asset Management discussed the current
style classification of the Fund by industry analysts and the potential to
change style classifications in connection with the proposal. Asset Management
also reviewed similarly situated funds in the industry faced with portfolio
capitalization constraints. Asset Management believes the fundamental investment
policy limitation is not in the best interests of the Fund or its shareholders
as market capitalization is not a controlling indicator of emerging growth
companies.
27
<PAGE> 34
SHAREHOLDER APPROVAL
To become effective, the proposed replacement of the Fund's fundamental
investment policy must be approved by a vote of a majority of the Fund's
outstanding voting securities. The vote of a majority of the outstanding voting
securities means the lesser of the vote of (i) 67% or more of the Shares of the
Fund present in person or by proxy at the Meeting, if the holders of more than
50% of the outstanding Shares of the Fund are present in person or by proxy at
the Meeting or (ii) more than 50% of the outstanding Shares of the Fund. The
proposed deletion and adoption of a non-fundamental investment policy as
described above was approved by the Board of Trustees of the Fund after
consideration of all the factors they determined to be relevant to their
deliberations, including those discussed above. The Board of Trustees also
determined to submit the proposed replacement of the Fund's fundamental
investment policy for consideration by the Fund's shareholders. THE BOARD OF
TRUSTEES OF THE FUND RECOMMENDS A VOTE "FOR" APPROVAL OF REPLACING OF THE FUND'S
FUNDAMENTAL INVESTMENT POLICY REGARDING INVESTMENT IN SMALL- AND MEDIUM-SIZED
COMPANIES WITH A NON-FUNDAMENTAL INVESTMENT POLICY.
------------------------------------------------------------------------------
PROPOSAL 4: APPROVAL OF AMENDING FUNDAMENTAL INVESTMENT RESTRICTIONS FOR THE
FUND
------------------------------------------------------------------------------
The primary purpose of this proposal is to revise the Fund's fundamental
investment restrictions to provide flexibility for the Fund and consistency in
administering investment restrictions among the Fund and other Van Kampen
open-end funds. Generally, the Board of Trustees seeks to simplify, update and
standardize the Fund's investment restrictions and conform the Fund's
restrictions to restrictions that are expected to be standardized for the other
Van Kampen open-end funds advised by Asset Management and Advisory Corp.
The Van Kampen funds consist of funds created at various times and include the
VK Funds that were originally affiliated only with Advisory Corp., the AC Funds
that joined the fund complex following the purchase of Asset Management by Van
Kampen Investments in 1995 and the MS Funds now advised by Advisory Corp.
comprising the Van Kampen Series Fund, Inc., formerly known as the Morgan
Stanley Fund, Inc., which joined the Van Kampen funds following the 1997
acquisition of Van Kampen Investments by a subsidiary of Morgan Stanley Dean
Witter. As described below, fundamental investment restrictions vary in many
instances because of applicable market, legal, regulatory or industry conditions
at the time such restrictions were adopted or last amended and/or because of the
different boards of trustees adopting such restrictions for the funds. The Van
Kampen funds have been reviewing and recommending revisions to their investment
restrictions to provide flexibility and consistency and with the intent of
28
<PAGE> 35
simplifying, updating and standardizing the funds' investment restrictions. Over
the next several months, each of the Van Kampen funds, including the Fund,
intend to hold a shareholder meeting at which shareholders of each fund will be
asked to amend such fund's fundamental investment restrictions, as will be
described in the respective proxy statement for each fund.
Fundamental investment restrictions are policies of a fund that may be amended
only with shareholder approval. The 1940 Act requires that certain investment
policies of a fund be recited in the fund's registration statement and be made
fundamental. Non-fundamental investment restrictions are operating policies of a
fund that may be changed by the fund's board of trustees without shareholder
approval. Non-fundamental operating policies provide a fund with more
flexibility to respond efficiently to changing market, legal, regulatory or
industry practices. A particular fund's fundamental investment restrictions may
have been adopted based on the various federal or state securities laws or
regulations or business or industry conditions at the time of adoption (or last
amendment), and the specific wording of various policies reflects not only the
laws at the time of the policies' adoption (or amendment) but also the
interpretation of the board of trustees that adopted the policies at such times.
Many funds, including many of the Van Kampen funds, have fundamental investment
restrictions that are no longer required to be fundamental under federal or
state securities laws. Similarly, many funds have fundamental investment
restrictions worded in a way that do not reflect developments in market, legal,
regulatory or industry practices and/or do not provide the funds with ample
flexibility to change in accordance with developments in market, legal,
regulatory or industry practices without the delay and expense associated with a
shareholder meeting.
The 1940 Act requires that a fund state its classification as a diversified or
non-diversified investment company; and the 1940 Act provides that a fund
classified as a diversified fund may not change its classification to a
non-diversified fund without shareholder approval. The 1940 Act requires that a
fund state its policies on issuing senior securities, engaging in borrowing
money, engaging in the business of underwriting securities issued by other
persons, concentrating investments in a particular industry, purchasing or
selling real estate or commodities and making loans to other persons; and that a
fund may not change its policies regarding the foregoing without shareholder
approval.
The proposed changes to the Fund's fundamental investment restrictions are
intended to provide flexibility for the Fund and consistency in administering
the investment restrictions among the Fund and other Van Kampen funds. The Fund
generally seeks to simplify, update and standardize those investment policies
that are required to be fundamental under the 1940 Act, convert to
non-fundamental operating policies or eliminate those restrictions not required
to be fundamental, and provide flexibility in the revised restrictions and
policies to allow the Fund's Board of Trustees to respond efficiently to changes
in market, legal, regulatory or
29
<PAGE> 36
industry practices without the delay and expense associated with a shareholder
meeting. Certain of the proposed changes would allow the Fund's policies or
restrictions to automatically change, either expand or restrict, in the future
in connection with changes in applicable law or regulations and without further
shareholder action. Asset Management and Advisory Corp. believe that the
proposed changes and standardization of investment restrictions will promote
operational efficiencies and facilitate monitoring of compliance with both
fundamental and non-fundamental investment restrictions among the Fund and the
other Van Kampen funds. Asset Management and Advisory Corp. intend to propose,
where appropriate, the same or substantially similar changes to the investment
restrictions for the VK Funds, AC Funds and MS Funds (with such modifications,
such as to concentration restrictions, as are necessary to suit a particular
fund's investment characteristics). It is not anticipated that the proposed
changes to the current fundamental investment restrictions of the Fund or any of
the other Van Kampen funds will materially affect the way the Fund or other Van
Kampen funds currently are managed. Some changes, however, do provide greater
flexibility in managing the Fund or other Van Kampen funds as described below
with respect to the Fund and as will be described in the proxy statements for
the other Van Kampen funds.
Set forth below is each of the Fund's current fundamental investment
restrictions as stated in the Fund's current statement of additional
information, the proposed new fundamental or non-fundamental language, as the
case may be, and a description of the proposed change. Each of the current
fundamental investment restrictions to be changed will be voted on separately.
An unfavorable vote by shareholders with respect to a particular fundamental
investment restriction will not impact the implementation of changes to other
investment restrictions that receive a favorable vote.
------------------------------------------------------------------------------
PROPOSAL 4A: TO AMEND THE FUNDAMENTAL INVESTMENT RESTRICTION REGARDING
DIVERSIFICATION
------------------------------------------------------------------------------
The Fund's current fundamental investment restriction regarding
diversification provides that the Fund shall not:
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 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.
30
<PAGE> 37
Because the Fund has elected to be classified as a "diversified" open-end
management investment company, the Fund must operate within the diversification
requirements of the 1940 Act. The current fundamental investment restriction
generally restates the language of the diversification requirement under the
1940 Act.
The proposed fundamental investment restriction provides that the Fund shall
not:
Invest in a manner inconsistent with its classification as a
"diversified company" as provided 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 applicable to the Fund from the provisions of the 1940
Act.
The primary purposes of the proposed change are to provide flexibility for the
Fund and to standardize the language of the fundamental investment restriction
regarding diversification among the Fund and other diversified Van Kampen funds.
The new restriction would give the Fund the flexibility to respond to any future
changes in the diversification requirements under the 1940 Act without the delay
and expense of a shareholder vote. The Fund is not aware of any proposed changes
to the diversification requirements under the 1940 Act. The Fund has no current
intention to change its investment practices with regard to diversification if
the proposal is adopted.
------------------------------------------------------------------------------
PROPOSAL 4B: TO AMEND THE FUNDAMENTAL INVESTMENT
RESTRICTION REGARDING ISSUING SENIOR
SECURITIES AND BORROWING MONEY
------------------------------------------------------------------------------
The Fund's current fundamental investment restriction regarding issuing senior
securities and borrowing money provides that the Fund shall not:
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.
The proposed fundamental investment restriction provides that the Fund shall
not:
Issue senior securities nor borrow money, except the Fund may issue
senior securities or borrow money 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
31
<PAGE> 38
exemption or other relief applicable to the Fund from the provisions of
the 1940 Act.
In addition, the Board of Trustees proposes adopting a non-fundamental
operating policy of the Fund, which could be changed without a shareholder vote
but only with the approval of the Board of Trustees, that provides that Fund
shall not:
Borrow money except for temporary purposes only and in an amount not
exceeding 5% of the value of the Fund's total assets at the time when
the loan is made.
The 1940 Act provides that an open-end fund may not issue a class of senior
securities or sell any class of a senior security of which it is the issuer,
except that an open-end fund may borrow money from a bank up to 33 1/3% of the
fund's assets (including the amount borrowed). The 1940 Act definition of senior
security is a complex statutory concept but generally includes any obligation of
a fund that would take precedence over the claims of a fund's shareholders. The
1940 Act definition of senior security excludes from the definition a loan for
temporary purposes only and in an amount not exceeding 5% of the value of the
fund's total assets at the time when the loan is made.
The primary purposes of the proposed changes are to: provide flexibility for
the Fund; standardize the language of the fundamental investment restriction
regarding issuing senior securities and borrowing money among the Fund and the
other Van Kampen funds; and provide for a non-fundamental operating policy on
senior securities and borrowing to suit the Fund's current practices and align
that language with applicable 1940 Act language.
The Fund has no current intention to change its investment practices with
regard to issuing senior securities or borrowing if the proposal is adopted.
However, the proposed changes would provide the Fund with flexibility to issue
senior securities or borrow money up to applicable 1940 Act limits with the
approval of the Fund's Board of Trustees. To the extent the Fund issued senior
securities or borrowed money for non-temporary purposes or in an amount
exceeding 5% of its total assets, the Fund would be subject to increased risks
as compared with the Fund under its current fundamental investment restriction.
Borrowing money for investment purposes, which is known as leverage, can be used
to seek to enhance the income to shareholders, but the use of leverage creates
the likelihood of greater volatility in the net asset value of the Fund's
shares. Leverage also creates the risk that fluctuations in interest rates on
leverage may adversely affect the return to shareholders as income from
investments made with such borrowed money might not exceed the interest payable
and other expenses of the leverage. While the Fund currently has no intention of
issuing senior securities or borrowing money except for temporary purposes and
in an amount not exceeding 5% of the value of the Fund's total assets at the
time when the loan is made, the Board of Trustees believes that
32
<PAGE> 39
the flexibility to do so in the future up to the limits of the 1940 Act could be
beneficial to the Fund.
------------------------------------------------------------------------------
PROPOSAL 4C: TO AMEND THE FUNDAMENTAL INVESTMENT RESTRICTION REGARDING
UNDERWRITING
------------------------------------------------------------------------------
The Fund's current fundamental investment restriction regarding underwriting
securities issued by others provides that the Fund shall not:
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.
The proposed fundamental investment restriction provides that the Fund shall
not:
Act as an underwriter of securities issued by others, except to the
extent that, in connection with the disposition of portfolio
securities, it may be deemed to be an underwriter under applicable
securities laws.
In addition, the Board of Trustees would adopt a non-fundamental operating
policy of the Fund, which could be changed without a shareholder vote but only
with the approval of the Board of Trustees, that provides that Fund shall not:
Invest in an illiquid security if, as a result, more than 15% of the
value of the Fund's net assets, taken at market value at the time of
each investment, are invested in illiquid securities.
The primary purposes of the proposed changes are to: provide flexibility for
the Fund; standardize the language of the fundamental investment restriction
regarding underwriting among the Fund and the other Van Kampen funds; and
reflect current market, legal, regulatory and industry practice regarding
restricted securities. The proposed fundamental investment restriction would
standardize the Fund's policy on underwriting without any material substantive
change from the Fund's current fundamental investment restriction on
underwriting. The proposed fundamental investment restriction would no longer
contain a restriction on investing in restricted securities, and instead the
Fund would adopt a non-fundamental operating policy reflecting current market,
legal, regulatory and industry practice regarding restricted securities.
Historically, there has been regulatory and industry concern about the liquidity
of restricted securities and an industry practice to place a percentage limit on
a fund's investment in restricted securities. In recent years, there has been
significant development and increased liquidity in the markets for many
restricted securities and, under current regulatory practice, restricted
securities are not limited but a restricted security not considered to be liquid
is subject to a fund's limitation on illiquid securities. Factors used to
determine whether a restricted security is
33
<PAGE> 40
liquid include the security's trading history, availability of reliable pricing
information and other relevant information. Current regulatory guidelines allow
open-end funds, such as the Fund, to invest up to 15% of their net assets in
illiquid securities. The Fund has no current intention to change its investment
practices with regard to underwriting securities or investing in restricted or
illiquid securities if the proposal is adopted, although the Board of Trustees
believes the added flexibility to invest in restricted securities as described
above could be beneficial to the Fund.
------------------------------------------------------------------------------
PROPOSAL 4D: TO AMEND THE FUNDAMENTAL INVESTMENT RESTRICTION REGARDING
CONCENTRATION
------------------------------------------------------------------------------
The Fund's current fundamental investment restriction regarding concentrating
investments in a particular industry provides that the Fund shall not:
Invest more than 25% of the value of its assets in any one industry.
The proposed fundamental investment restriction provides that the Fund shall
not:
Invest in any security if, as a result, more than 25% of the value of
the Fund's total assets, taken at market value at the time of each
investment, are in the securities of issuers in any particular industry
(excluding securities issued or guaranteed by the U.S. Government and
its agencies or instrumentalities, or securities of state and municipal
governments or their political subdivisions, or when the Fund has taken
a temporary defensive position, or as otherwise provided 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 applicable to the Fund from
the provisions of the 1940 Act).
The primary purposes of the proposed change are to clarify and standardize the
language of the fundamental investment restriction regarding concentrating
investments in a particular industry among the Fund and the other Van Kampen
funds and provide flexibility to the Fund. The proposed fundamental investment
restriction clarifies, consistent with applicable market, legal, regulatory and
industry practice, that the concentration limitation does not apply to
investments in securities issued by the U.S. Government and its agencies or
instrumentalities or securities of state and municipal governments or their
political subdivisions, and that the Fund may deviate from its concentration
policy during periods when it is taking a temporary defensive position. The
proposed fundamental investment restriction also adds flexibility for changes in
the 1940 Act. The Fund has no current intention to change its investment
practices with regard to concentration if the proposal is adopted although the
Board of Trustees believes the flexibility of the proposed change could be
beneficial to the Fund.
34
<PAGE> 41
------------------------------------------------------------------------------
PROPOSAL 4E: TO AMEND THE FUNDAMENTAL INVESTMENT
RESTRICTION REGARDING INVESTMENTS
IN REAL ESTATE
------------------------------------------------------------------------------
The Fund's current fundamental investment restriction regarding purchasing and
selling real estate provides that the Fund shall not:
Invest directly in real estate interests of any nature, although the
Fund may invest indirectly through media such as real estate investment
trusts.
The proposed fundamental investment restriction provides that the Fund shall
not:
Purchase or sell real estate except that the Fund may: (i) acquire or
lease office space for its own use, (ii) invest in securities of
issuers that invest in real estate or interests therein or that are
engaged in or operate in the real estate industry, (iii) invest in
securities that are secured by real estate or interests therein, (iv)
purchase and sell mortgage-related securities, (v) hold and sell real
estate acquired by the Fund as a result of the ownership of securities
and (vi) as otherwise permitted by the 1940 Act, as amended from time
to time, the rules and regulations promulgated by the SEC under the
1940 Act, as amended from time to time, or an exemption or other relief
applicable to the Fund from the provisions of the 1940 Act.
The primary purposes of the proposed changes are to clarify the Fund's current
fundamental investment restriction, to standardize the language of the
fundamental investment restriction regarding purchasing and selling real estate
among the Fund and the other Van Kampen funds, and to provide flexibility for
the Fund. The proposed fundamental investment restriction clarifies that
investments in securities secured by real estate or of issuers that invest in
real estate or the holding of real estate acquired as a result of owning
securities do not constitute an impermissible investment in real estate by the
Fund. The proposed fundamental investment restriction also adds flexibility for
changes in the 1940 Act. Any Fund investments in real estate are subject to the
Fund's fundamental diversification requirements (see Proposal 4A), the Fund's
fundamental concentration limitation (see Proposal 4D) and the Fund's
non-fundamental operating policy regarding illiquid securities (see Proposal
4C). The Fund has no current intention to change its investment practices with
regard to purchasing and selling real estate if the proposal is adopted.
35
<PAGE> 42
------------------------------------------------------------------------------
PROPOSAL 4F: TO AMEND THE FUNDAMENTAL INVESTMENT RESTRICTION REGARDING
INVESTMENTS IN COMMODITIES
------------------------------------------------------------------------------
The Fund's current fundamental investment restriction regarding purchasing or
selling commodities provides that the Fund shall not:
Invest in commodities or commodity contracts, except that the Fund may
enter into transactions in futures contracts or related options.
The proposed fundamental investment restriction provides that the Fund shall
not:
Purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments; provided that this
restriction shall not prohibit the Fund from purchasing or selling
options, futures contracts and related options thereon, forward
contracts, swaps, caps, floors, collars and any other financial
instruments or from investing in securities or other instruments backed
by physical commodities or as otherwise 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 applicable to the Fund from
the provisions of the 1940 Act.
The primary purposes of the proposed changes are to clarify the Fund's current
fundamental investment restriction, to standardize the language of the
fundamental investment restriction regarding purchasing and selling commodities
among the Fund and the other Van Kampen funds, and to provide flexibility to the
Fund. The Fund does not intend to change its current investment practices with
regard to purchasing and selling commodities if the proposal is adopted;
however, the proposed fundamental investment restriction seeks to provide the
Fund with maximum flexibility in using financial contracts, instruments backed
by physical commodities and derivatives products as deemed appropriate by Asset
Management and the Fund's Board of Trustees and as consistent with applicable
law.
- ------------------------------------------------------------------------------
PROPOSAL 4G: TO AMEND THE FUNDAMENTAL INVESTMENT RESTRICTION REGARDING MAKING
LOANS
- ------------------------------------------------------------------------------
The Fund's current fundamental investment restriction regarding making loans
provides that the Fund shall not:
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
36
<PAGE> 43
securities"), and except by the purchase of securities subject to
repurchase agreements.
The proposed fundamental investment restriction provides that the Fund shall
not:
Make loans of money or property to any person, except (i) to the extent
that securities or interests in which the Fund may invest are
considered to be loans, (ii) through the loan of portfolio securities,
(iii) to the extent that the Fund may lend money or property in
connection with the maintenance of the value of, or the Fund's interest
with respect to, the securities owned by the Fund, (iv) by engaging in
repurchase agreements or (v) as may otherwise be permitted by the 1940
Act, as amended from time to time, the rules and regulations
promulgated by the SEC under the 1940 Act, as amended from time to
time, or an exemption or other relief applicable to the Fund from the
provisions of the 1940 Act.
The primary purposes of the proposed changes are to provide flexibility for
the Fund, standardize the language of the fundamental investment restriction
regarding making loans among the Fund and the other Van Kampen funds, and
reflect current market, legal, regulatory and industry practice on restricted
securities. The proposed fundamental investment restriction clarifies and
continues the Fund's current fundamental language that neither debt instruments
purchased by the Fund for investment nor repurchase agreements entered into by
the Fund are to be characterized as impermissible loans of money or property.
The proposed fundamental investment restriction also provides that the Fund may
lend portfolio securities and otherwise lend money or securities to the extent
permissible under applicable 1940 Act language. Were the Fund to engage in any
portfolio securities lending, there could be risks of delay in recovery and in
some cases even loss of the collateral should the borrower fail financially.
While the Fund currently has no intention of lending portfolio securities, the
Board of Trustees believes that the flexibility to do so in the future could be
beneficial to the Fund. Finally, the proposed fundamental investment restriction
deletes references to a restricted securities' limitation. Historically,
purchases or loans for non-publicly offered debt instruments of an issuer raised
concerns about a fund owning restricted securities and the liquidity of such
securities. As described in Proposal 4C, the Fund seeks to remove this
limitation on its investments in restricted securities, but the Fund will
subject any restricted securities which are not considered to be liquid to the
Fund's new non-fundamental operating policy limiting investments in illiquid
securities.
37
<PAGE> 44
------------------------------------------------------------------------------
PROPOSAL 4H: TO REPLACE THE FUNDAMENTAL INVESTMENT RESTRICTION REGARDING
INVESTMENT IN COMPANIES FOR THE PURPOSE OF EXERCISING CONTROL WITH
A NON-FUNDAMENTAL POLICY
------------------------------------------------------------------------------
The Fund currently has a fundamental investment restriction that provides that
the Fund shall not:
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.
This investment restriction is not required to be fundamental under the 1940
Act. The Board of Trustees has accordingly proposed that this fundamental
investment restriction be deleted and replaced by a non-fundamental operating
policy with substantially the same language. Such a non-fundamental policy could
be changed without a shareholder vote, but would require the approval of the
Board of Trustees. By changing this investment restriction to a non-fundamental
operating policy, the Fund and other Van Kampen funds are able to adopt a
substantially similar set of fundamental investment restrictions while also
adopting non-fundamental operating policies to suit their current practices.
The primary purposes for this proposed change are to provide the Fund with
flexibility and to standardize the fundamental investment restrictions among the
Fund and the other Van Kampen funds. The proposed change could provide the Fund
with the flexibility to make investments for the purposes of exercising control
with the approval of the Fund's Board of Trustees. Any such investments also are
subject to the Fund's fundamental diversification requirements (see Proposal
4A), the Fund's fundamental concentration limitation (see Proposal 4D) and the
Fund's non-fundamental operating policy on illiquid securities (see Proposal
4C). The Fund has no current intention to change its investment practices with
regard to investment in companies for the purpose of exercising control if the
proposal is adopted; however, the Board of Trustees believes that the
flexibility to do so in the future could be beneficial to the Fund.
38
<PAGE> 45
- ------------------------------------------------------------------------------
PROPOSAL 4I: TO ELIMINATE THE FUNDAMENTAL INVESTMENT RESTRICTION REGARDING
PAYMENT FOR SECURITIES
- ------------------------------------------------------------------------------
The Fund currently has a fundamental investment restriction that provides that
the Fund shall not:
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.
This investment restriction is not required to be fundamental under the 1940
Act. This Fundamental investment restriction restates Section 23(a) of the 1940
Act. The Board of Trustees has proposed eliminating this unnecessary fundamental
investment restriction.
The primary purposes of the proposed change are to provide flexibility for the
Fund (in the event the 1940 Act is amended in the future regarding payments for
securities) and to standardize the fundamental investment restrictions among the
Fund and the other Van Kampen funds. The Fund will continue to be governed by
the same restriction pursuant to the 1940 Act, unless Section 23(a) of the 1940
Act is amended in the future. While the Fund has no current intention to change
its practices with regard to payment for securities if the proposal is adopted,
the Board of Trustees believes that the flexibility to do so in the future could
be beneficial to the Fund.
- ------------------------------------------------------------------------------
PROPOSAL 4J: TO ELIMINATE THE FUNDAMENTAL INVESTMENT RESTRICTION REGARDING
INVESTMENT IN OTHER INVESTMENT COMPANIES
- ------------------------------------------------------------------------------
The Fund currently has a fundamental investment restriction that provides that
the Fund shall not:
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.
This investment restriction is not required to be fundamental under the 1940
Act. The ability of an investment company, such as the Fund, to invest in
securities issued by other investment companies is regulated by the 1940 Act and
the rules and regulations thereunder. Among other restrictions, the 1940 Act
prohibits an acquiring fund, absent exemptive or other relief from the SEC, from
owning more
39
<PAGE> 46
than 3% of the outstanding voting stock of an acquired investment company,
investing more than 5% of its assets in an acquired investment company, or
investing more than 10% of its assets in acquired investment companies. These
1940 Act restrictions remain applicable to the Fund regardless of whether they
are recited in a fundamental investment policy or non-fundamental operating
policy. The Board of Trustees has proposed eliminating this investment
restriction.
The primary purposes of the proposed change are to provide flexibility for the
Fund (in the event the 1940 Act is amended in the future regarding investments
in other investment companies) and to standardize the fundamental investment
restrictions among the Fund and the other Van Kampen funds. While the Fund has
no current intention to change its investment practices with regard to
investment in other investment companies if the proposal is adopted, the Board
of Trustees believes the added flexibility to do so in the future could be
beneficial to the Fund.
- ------------------------------------------------------------------------------
PROPOSAL 4K: TO REPLACE THE FUNDAMENTAL INVESTMENT RESTRICTION REGARDING SHORT
SALES WITH A NON-FUNDAMENTAL POLICY
- ------------------------------------------------------------------------------
The Fund currently has a fundamental investment restriction that provides that
the Fund shall not:
Sell short or borrow for short sales. Short sales "against the box" are
not subject to this limitation.
The Fund proposes a non-fundamental operating policy of the Fund, which could
be changed without a shareholder vote but only with the approval of the Board of
Trustees, that provides that Fund shall not:
Sell short or borrow for short sales; provided that this restriction
shall not prohibit the Fund from short sales "against the box" or from
purchasing or selling options, futures contracts and related options
thereon, forward contracts, swaps, caps, floors, collars and other
financial instruments.
The Fund's current fundamental investment restriction regarding short sales is
not required to be fundamental under the 1940 Act. The Board of Trustees has
accordingly proposed that this fundamental investment restriction be deleted and
replaced by the non-fundamental operating policy described above. Such a non-
fundamental policy could be changed without a shareholder vote, but would
require the approval of the Board of Trustees. By changing this investment
restriction to a non-fundamental operating policy, the Fund and other Van Kampen
funds are able to adopt a substantially similar set of fundamental investment
restrictions while adopting non-fundamental operating policies to suit their
current practices.
The primary purposes for this proposed change are to provide the Fund with
flexibility and to standardize the fundamental investment restrictions among the
40
<PAGE> 47
Fund and the other Van Kampen funds. The proposed change would provide the Fund
with the flexibility to engage in short sales with the approval of the Fund's
Board of Trustees. To the extent the Fund engages in short sales, the Fund would
be subject to certain risks, including the risk that the Fund could lose money
if the price of a security sold short increases, as compared to the Fund under
its current fundamental investment restriction. The Fund has no current
intention to change its investment practices with regard to short sales if the
proposal is adopted, although the Board of Trustees believes the added
flexibility to engage in short sales may be beneficial to the Fund.
- ------------------------------------------------------------------------------
PROPOSALS 4A-4K: SHAREHOLDER VOTING REQUIREMENTS
- ------------------------------------------------------------------------------
To become effective, Proposals 4A through 4K must be approved by a vote of a
majority of the outstanding voting securities of the Fund. Each fundamental
investment restriction to be changed will be voted on separately. An unfavorable
vote by shareholders with respect to a particular investment restriction will
not impact the implementation of changes to other restrictions that receive a
favorable vote. The vote of a majority of the outstanding voting securities
means the lesser of the vote of (i) 67% or more of the Shares of the Fund
present in person or by proxy at the Meeting, if the holders of more than 50% of
the outstanding Shares of the Fund are present in person or by proxy at the
Meeting or (ii) more than 50% of the outstanding Shares of the Fund. The
proposed amendments were each approved by the Board of Trustees of the Fund
after consideration of all the factors they determined to be relevant to their
deliberations, including those discussed above. The Board of Trustees also
determined to submit the proposed changes to the shareholders of the Fund. THE
BOARD OF TRUSTEES OF THE FUND RECOMMENDS A VOTE "FOR" APPROVAL OF THE CHANGES
DISCUSSED ABOVE FOR EACH FUNDAMENTAL INVESTMENT RESTRICTION.
- ------------------------------------------------------------------------------
PROPOSAL 5: RATIFICATION OF PRICEWATERHOUSECOOPERS LLP AS THE FUND'S INDEPENDENT
ACCOUNTANTS
- ------------------------------------------------------------------------------
The Board of Trustees of the Fund, including a majority of the Trustees who
are not "interested persons" of the Fund (as defined by the 1940 Act), has
selected the firm of PricewaterhouseCoopers LLP, independent public accountants,
to serve as the Fund's independent accountants and to examine the Fund's
financial statements. The Fund knows of no direct or indirect financial interest
of such firm in the Fund. The appointment is subject to ratification or
rejection by the shareholders of the Fund.
Representatives of PricewaterhouseCoopers LLP are expected to be present at
the Meeting and will be available to respond to questions from shareholders and
will have the opportunity to make a statement if they so desire.
41
<PAGE> 48
SHAREHOLDER APPROVAL
The shareholders of the Fund, voting as a single class, are entitled to vote
on this proposal. An affirmative vote of a majority of the Shares of the Fund
present in person or by proxy at the Meeting and voting is required to ratify
the selection of the independent public accountants for such Fund. THE BOARD OF
TRUSTEES OF THE FUND RECOMMENDS A VOTE "FOR" RATIFICATION OF
PRICEWATERHOUSECOOPERS LLP AS THE FUND'S INDEPENDENT ACCOUNTANTS.
- ------------------------------------------------------------------------------
OTHER INFORMATION
- ------------------------------------------------------------------------------
NON-ADVISORY AGREEMENTS
The Fund has entered into certain other agreements with Asset Management or
its affiliates, including Advisory Corp., the Distributor or Investor Services,
as the case may be, for accounting services, distribution and
distribution-related services, and transfer agency and shareholder
servicing-related services. As described in Proposal 2, the Fund intends to
enter into an agreement for certain legal services to be provided by Van Kampen
Investments if the New Agreement is approved by shareholders. Generally, Asset
Management and Advisory Corp. are in the process of seeking to standardize and
rationalize the providers of such services to the Van Kampen funds and the
agreements governing such services. The Fund's current agreements with Asset
Management or its affiliates for non-advisory services are as follows:
Fund Accounting Agreement. The Fund has entered into an accounting services
agreement with Advisory Corp. pursuant to which Advisory Corp. provides
accounting services to the Fund which include maintaining the books and records
of the Fund, calculating the Fund's net asset value and coordinating tax
compliance and other regulatory matters. The Fund pays the costs and expenses
associated with such services, including all salary and related benefits of
accounting personnel, as well as the overhead and expenses of office space and
the equipment necessary to render such services. The Fund participates together
with other Van Kampen funds in the cost of providing such services with 25% of
such costs shared based proportionally on the respective number of classes of
securities issued per fund and the remaining 75% of such costs shared based
proportionally on the respective net assets per fund. Under the Fund accounting
agreement, the Fund paid Advisory Corp. approximately $761,000 for the fiscal
year ended August 31, 1998 and approximately $661,000 for the nine-month fiscal
period ended May 31, 1999. It is currently anticipated that much of the
day-to-day accounting services currently provided by Advisory Corp. may be
outsourced to an accounting services vendor not affiliated with Asset Management
or Advisory Corp.
Distribution Agreement, Distribution Plan and Service Plan. The Fund has
executed a distribution agreement with the Distributor pursuant to which the
42
<PAGE> 49
Distributor, as principal underwriter, purchases shares of the Fund for resale
to the public, either directly or through securities dealers. The Distributor is
obligated to purchase only those shares for which it has received purchase
orders. Under the distribution agreement, the Fund paid approximately
$10,515,000 to the Distributor in underwriting commissions, of which
approximately $1,580,000 was retained by the Distributor and the remainder was
reallowed to securities dealers, for the Fund's fiscal year ended August 31,
1998. Under the distribution agreement, the Fund paid approximately $10,810,000
to the Distributor in underwriting commissions, of which approximately
$1,562,000 was retained by the Distributor and the remainder was reallowed to
securities dealers, for the nine-month fiscal period ended May 31, 1999. The
Fund has adopted a distribution plan (the "Distribution Plan") with respect to
each class of its shares pursuant to Rule l2b-1 under the 1940 Act. The Fund
also has adopted a service plan (the "Service Plan") with respect to each class
of its shares. The Distribution Plan and the Service Plan provide that the Fund
may spend a portion of the Fund's average daily net assets attributable to each
class of shares in connection with distribution of the respective class of
shares and in connection with the provision of ongoing services to shareholders
of each class. The Distribution Plan and the Service Plan are being implemented
through an agreement with the Distributor, sub-agreements between the
Distributor and members of the National Association of Securities Dealers, Inc.
("NASD") who are acting as securities dealers, 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") who may provide for their customers or clients certain
services or assistance. Brokers, dealers and financial intermediaries who have
entered into Selling Agreements with the Distributor and sell shares of the Fund
are referred to herein as "financial intermediaries."
The Fund may spend an aggregate amount of up to 0.25% per year of its average
daily net assets attributable to the Class A Shares pursuant to the Distribution
Plan and the Service Plan. From such amount, the Fund may spend up to 0.25% per
year of its 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 financial intermediaries and in
connection with the maintenance of shareholders' accounts. The Fund pays the
Distributor the lesser of the balance of the 0.25% not paid to such financial
intermediaries or the amount of the Distributor's actual distribution-related
expenses.
The Fund may spend up to 0.75% per year of its average daily net assets
attributable to the Class B Shares pursuant to the Distribution Plan. In
addition, the Fund may spend up to 0.25% per year of its 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 financial
43
<PAGE> 50
intermediaries and in connection with the maintenance of such shareholders'
accounts.
The Fund may spend up to 0.75% per year of its average daily net assets
attributable to the Class C Shares pursuant to the Distribution Plan. From such
amount, the Fund, or the Distributor as agent for the Fund, pays financial
intermediaries in connection with the distribution of the Class C Shares up to
0.75% of the Fund's average daily net assets attributable to Class C Shares
maintained in the Fund more than one year by such financial intermediaries'
customers. 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 financial intermediaries and in connection
with the maintenance of such shareholders' accounts.
Amounts payable to the Distributor with respect to the Class A Shares under
the Distribution Plan in a given year may not fully reimburse the Distributor
for its actual distribution-related expenses during such year. In such event,
with respect to the Class A Shares, there is no carryover of such reimbursement
obligations to succeeding years.
The Distributor's actual expenses with respect to Class B Shares and Class C
Shares sold subject to a contingent deferred sales charge ("CDSC Shares") for
any given year may exceed the amounts payable to the Distributor with respect to
the CDSC Shares under the Distribution Plan, the Service Plan and payments
received pursuant to the contingent deferred sales charge. In such event, with
respect to the CDSC Shares, any unreimbursed expenses will be carried forward
and paid by the Fund (up to the amount of the actual expenses incurred) in
future years so long as such Distribution Plan is in effect. Except as mandated
by applicable law, the Fund does not impose any limit with respect to the number
of years into the future that such unreimbursed distribution expenses may be
carried forward.
Transfer Agency and Service Agreement. The Fund has entered into a transfer
agency and service agreement with Investor Services pursuant to which Investor
Services provides transfer agency, dividend disbursing agent and shareholder
servicing agent services to the Fund. The Fund pays prices for such services
determined through negotiations with the Fund's Board of Trustees and based on
competitive market benchmarks. Under the transfer agency and service agreement,
the Fund paid Investor Services approximately $8,454,000 for transfer agency
services for the fiscal year ended August 31, 1998 and approximately $7,056,000
for the nine-month fiscal period ended May 31, 1999.
44
<PAGE> 51
DIRECTORS AND OFFICERS OF ASSET MANAGEMENT
The following table sets forth certain information concerning the principal
executive officers and directors of Asset Management other than those persons
who are also trustee nominees of the Fund and previously described under
Proposal 1.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME AND ADDRESS EMPLOYMENT IN PAST 5 YEARS
- ---------------- -----------------------------------
<S> <C>
Dennis J. McDonnell Executive Vice President and a
1 Parkview Plaza, Director of Van Kampen Investments.
P.O. Box 5555 President, Chief Operating Officer
Oakbrook Terrace, IL and Director of Asset Management,
60181-5555 Advisory Corp., Van Kampen
Management Inc. ("Management Inc.")
and Van Kampen Advisors Inc.
("Advisors Inc."). Chief Investment
Officer and Executive Vice
President of each the funds in the
Fund Complex. President, Chairman
of the Board and Trustee/Managing
General Partner of other investment
companies advised by Asset
Management, Advisory Corp. and
Management Inc. Prior to July 1988,
Executive Vice President and a
Director of VK/AC Holding, Inc.
("VK/AC Holding") Prior to April
1998, President and a Director Van
Kampen Merritt Equity Advisors
Corp. Prior to April 1997, Director
of Van Kampen Merritt Equity
Holdings Inc. Prior to September
1996, Chief Executive Officer and a
Director of MCM Group, Inc. and
McCarthy, Crisanti & Maffei, Inc.,
a financial research firm, and
Chairman and a Director of MCM Asia
Pacific Company, Limited and MCM
(Europe) Limited.
</TABLE>
45
<PAGE> 52
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME AND ADDRESS EMPLOYMENT IN PAST 5 YEARS
- ---------------- -----------------------------------
<S> <C>
A. Thomas Smith III Executive Vice President, General
1 Parkview Plaza, Counsel, Secretary and Director of
P.O. Box 5555 Asset Management, Advisory Corp.,
Oakbrook Terrace, IL Management Inc., Advisors Inc., the
60181-5555 Distributor, American Capital
Contractual Services, Inc., Van
Kampen Exchange Corp., Van Kampen
Recordkeeping Services Inc.,
Investor Services, Van Kampen
Insurance Agency of Illinois Inc.
and Van Kampen System Inc. Vice
President and Secretary of each of
the funds in the Fund Complex and
certain other investment companies
advised by the Asset Management,
Advisory Corp., and Management Inc.
Prior to January 1999, counsel to
New York Life Insurance Company
("New York Life"), and prior to
March 1997, Vice President and
Associate General Counsel of New
York Life. Prior to December 1993,
Assistant General Counsel of The
Dreyfus Corporation. Prior to
August 1991, Senior Associate,
Willkie Farr & Gallagher. Prior to
January 1989, Mr. Smith was a Staff
Attorney at the Securities and
Exchange Commission, Division of
Investment Management, Office of
Chief Counsel.
</TABLE>
46
<PAGE> 53
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME AND ADDRESS EMPLOYMENT IN PAST 5 YEARS
- ---------------- -----------------------------------
<S> <C>
William R. Rybak Executive Vice President, Chief
1 Parkview Plaza, Financial Officer, Treasurer and a
P.O. Box 5555 Director of Van Kampen Investments,
Oakbrook Terrace, IL the Distributor, Asset Management,
60181-5555 Advisory Corp., Management Inc.,
Advisors Inc., Van Kampen Exchange
Corp., American Capital Contractual
Services, Inc., Van Kampen Trust
Company, Van Kampen System Inc.,
Van Kampen Insurance Agency of
Illinois Inc., Van Kampen
Recordkeeping Services Inc. and
Riverview International Inc.
Executive Vice President, Chief
Financial Officer and Treasurer of
Investor Services and Van Kampen
Contractual Services, Inc. Director
of Alliance Bancorp, a savings and
loan holding company, and prior to
February 1997, Chairman of the
Board of Hinsdale Financial Corp.,
a savings and loan holding company.
Prior to February 1997, Chairman of
the Board of Hinsdale Financial
Corp., a savings and loan holding
company. Prior to August 1996,
Chief Financial Officer and
Treasurer of McCarthy, Crisanti &
Maffei, Inc., a financial research
company, and McCarthy, Crisanti &
Maffei Acquisition Corporation. Mr.
Rybak has held various management
positions at other subsidiaries of
Van Kampen Investments or its
predecessor.
</TABLE>
47
<PAGE> 54
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME AND ADDRESS EMPLOYMENT IN PAST 5 YEARS
- ---------------- -----------------------------------
<S> <C>
Peter W. Hegel Executive Vice President of Asset
1 Parkview Plaza, Management, Advisory Corp.,
P.O. Box 5555 Management Inc. and Advisors Inc.
Oakbrook Terrace, IL Vice President of each of the funds
60181-5555 in the Fund Complex and certain
other investment companies advised
by Asset Management, Advisory Corp.
and Management Inc. Prior to
September 1996, a Director of
McCarthy, Crisanti & Maffei, Inc.,
a financial research company.
Michael H. Santo Executive Vice President, Chief
1 Parkview Plaza, Administrative Officer and Director
P.O. Box 5555 of Van Kampen Investments, Advisory
Oakbrook Terrace, IL Corp., Management Inc., Asset
60181-5555 Management, the Distributor,
Advisors Inc. and Investor
Services. Director of Van Kampen
Trust Company, Van Kampen Exchange
Corp., Van Kampen Insurance Agency
of Illinois Inc., Van Kampen
Systems Inc., Van Kampen
Recordkeeping Services Inc. and Van
Kampen Contractual Services, Inc.
Prior to 1998, Mr. Santo was Senior
Vice President and Senior Planning
Officer for Individual Asset
Management of Morgan Stanley Dean
Witter and its predecessor.
</TABLE>
48
<PAGE> 55
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME AND ADDRESS EMPLOYMENT IN PAST 5 YEARS
- ---------------- -----------------------------------
<S> <C>
Stephen L. Boyd Executive Vice President of Asset
1 Parkview Plaza, Management, Advisory Corp. and
P.O. Box 5555 Management Inc. Vice President of
Oakbrook Terrace, IL each of the funds in the Fund
60181-5555 Complex and certain other
investment companies advised by the
Asset Management, Advisory Corp.
and Management Inc. Prior to
October 1998, Vice President,
Senior Portfolio Manager with AIM
Capital Management, Inc. Prior to
February 1998, Senior Vice
President of Asset Management,
Advisory Corp. and Management Inc.
</TABLE>
The following table sets forth the officers of the Fund:
<TABLE>
<CAPTION>
NAME POSITIONS WITH THE FUNDS
- ---- -----------------------------------
<S> <C>
Richard F. Powers III.......... President
Dennis J. McDonnell............ Chief Investment Officer and
Executive Vice President
A. Thomas Smith III............ Vice President and Secretary
Edward C. Wood III............. Vice President
Weston B. Wetherell............ Assistant Secretary
Peter W. Hegel................. Vice President
Stephen L. Boyd................ Vice President
John L. Sullivan............... Vice President, Chief Financial
Officer and Treasurer
Curtis W. Morell............... Vice President and Chief Accounting
Officer
Tanya M. Loden................. Controller
M. Robert Sullivan............. Assistant Controller
</TABLE>
The officers of the Funds serve for one year or until their respective
successors are chosen and qualified. The Funds' officers receive no compensation
from the Funds, but are all officers of the Asset Management, Advisory Corp.,
the Distributor, Investor Services, Van Kampen Investments or their affiliates
and receive compensation in such capacities.
49
<PAGE> 56
SHAREHOLDER INFORMATION
The persons who, to the knowledge of the Fund, owned beneficially more than 5%
of a class of a Fund's outstanding Shares as of July 9, 1999 are set forth
below:
<TABLE>
<CAPTION>
AMOUNT OF
OWNERSHIP AT PERCENTAGE
NAME AND ADDRESS OF HOLDER JULY 9, 1999 CLASS OF SHARES OWNERSHIP
- -------------------------- --------------- --------------- ----------
<S> <C> <C> <C>
State Street Bank and Trust 4,023,957.12 A 5.915%
Custodian Travelers Group
401K Savings Plan
225 Franklin Street
Boston, MA 02110-2804
MLPF&S For the Sole Benefit 6,179,838.42 A 9.084%
of its Customers 1,012,469.50 C 13.830%
4800 Deer Lake Dr. E. 2nd
Fl.
Jacksonville, Fl
32246-6484
</TABLE>
As of July 9, 1999, the trustees and officers as a group owned less than 1% of
the outstanding shares of the Fund.
- ------------------------------------------------------------------------------
EXPENSES
- ------------------------------------------------------------------------------
The Fund and Asset Management (or its affiliates) will share equally the costs
of preparing, printing, mailing and soliciting the enclosed form of proxy, the
accompanying Notice and this Proxy Statement and the Meeting. In order to obtain
the necessary quorum at the Meeting, additional solicitation may be made by
mail, telephone, telegraph, facsimile or personal interview by representatives
of the Fund or Asset Management (or its affiliates), or by dealers or their
representatives, or by First Data Investor Services Group ("First Data"), a
solicitation firm located in Boston, Massachusetts that has been engaged to
assist in proxy solicitations. The estimated costs of First Data for mailing,
solicitation and tabulation of shareholder votes are approximately $800,000.
- ------------------------------------------------------------------------------
SHAREHOLDER PROPOSALS
- ------------------------------------------------------------------------------
As a general matter, the Fund does not hold regular annual meetings of
shareholders. Any shareholder who wishes to submit proposals for consideration
at a meeting of the Fund should send such proposal to the Fund at 1 Parkview
Plaza, P.O. Box 5555, Oakbrook Terrace, Illinois 60181-5555. To be considered
for presentation at a shareholders' meeting, rules promulgated by the Securities
and Exchange Commission require that, among other things, a shareholder's
proposal must be received at the offices of the Fund a reasonable time before a
solicitation is
50
<PAGE> 57
made. Timely submission of a proposal does not necessarily mean that such
proposal will be included.
- ------------------------------------------------------------------------------
GENERAL
- ------------------------------------------------------------------------------
Management of the Fund does not intend to present and does not have reason to
believe that others will present any other items of business at the Meeting.
However, if other matters are properly presented to the Meeting for a vote, the
proxies will be voted upon such matters in accordance with the judgment of the
persons acting under the proxies.
A list of shareholders of the Fund entitled to be present and vote at the
Meeting will be available at the offices of the Fund, 1 Parkview Plaza, P.O. Box
5555, Oakbrook Terrace, Illinois 60181-5555, for inspection by any shareholder
during regular business hours for ten days prior to the date of the Meeting.
Failure of a quorum to be present at the Meeting may necessitate adjournment
and may subject the Fund to additional expense.
IF YOU CANNOT BE PRESENT IN PERSON, YOU ARE REQUESTED TO FILL IN, SIGN AND
RETURN THE ENCLOSED PROXY PROMPTLY. NO POSTAGE IS REQUIRED IF MAILED IN THE
UNITED STATES.
A. THOMAS SMITH III
Vice President and Secretary
July 29, 1999
51
<PAGE> 58
APPENDIX A
INVESTMENT ADVISORY AGREEMENT
AGREEMENT (herein so called) made this May 31, 1997, by and between VAN KAMPEN
AMERICAN CAPITAL EMERGING GROWTH FUND, a Delaware business trust (hereinafter
referred to as the "FUND"), and VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT,
INC., a Delaware corporation (hereinafter referred to as the "ADVISER").
The FUND and the ADVISER agree as follows:
(1) SERVICES RENDERED AND EXPENSES PAID BY ADVISER
The ADVISER, subject to the control, direction and supervision of the FUND's
Trustees and in conformity with applicable laws, the FUND's Agreement and
Declaration of Trust ("Declaration of Trust"), By-laws, registration statements,
prospectus and stated investment objectives, policies and restrictions, shall:
a. manage the investment and reinvestment of the FUND's assets including, by
way of illustration, the evaluation of pertinent economic, statistical,
financial and other data, determination of the industries and companies to
be represented in the FUND's portfolio, and formulation and implementation
of investment programs;
b. maintain a trading desk and place all orders for the purchase and sale of
portfolio investments for the FUND's account with brokers or dealers
selected by the ADVISER;
c. conduct and manage the day-to-day operations of the FUND including, by way
of illustration, the preparation of registration statements, prospectuses,
reports, proxy solicitation materials and amendments thereto, the furnishing
of routine legal services except for services provided by outside counsel to
the FUND selected by the Trustees, and the supervision of the FUND's
Treasurer and the personnel working under his direction; and
d. furnish to the FUND office space, facilities, equipment and personnel
adequate to provide the services described in paragraphs a., b., and c.
above and pay the compensation of each FUND trustee and Fund officer who is
an affiliated person of the ADVISER, except the compensation of the FUND's
Treasurer and related expenses as provided below.
In performing the services described in paragraph b. above, the ADVISER shall
use its best efforts to obtain for the FUND the most favorable price and
execution available and shall maintain records adequate to demonstrate
compliance with this requirement. Subject to prior authorization by the FUND's
Trustees of appropriate policies and procedures, the ADVISER may, to the extent
authorized by law, cause
A-1
<PAGE> 59
the FUND to pay a broker or dealer that provides brokerage and research services
to the ADVISER an amount of commission for effecting a portfolio investment
transaction in excess of the amount of commission another broker or dealer would
have charged for effecting that transaction. In the event of such authorization
and to the extent authorized by law, the ADVISER shall not be deemed to have
acted unlawfully or to have breached any duty created by this Agreement or
otherwise solely by reason of such action.
Except as otherwise agreed, or as otherwise provided herein, the FUND shall
pay, or arrange for others to pay, all its expenses other than those expressly
stated to be payable by the ADVISER hereunder, which expenses payable by the
FUND shall include (i) interest and taxes; (ii) brokerage commissions and other
costs in connection with the purchase and sale of portfolio investments; (iii)
compensation of its trustees and officers other than those who are affiliated
persons of the ADVISER; (iv) compensation of its Treasurer, compensation of
personnel working under the Treasurer's direction, and expenses of office space,
facilities, and equipment used by the Treasurer and such personnel in the
performance of their normal duties for the FUND which consist of maintenance of
the accounts, books and other documents which constitute the record forming the
basis for the FUND's financial statements, preparation of such financial
statements and other FUND documents and reports of a financial nature required
by federal and state laws, and participation in the production of the FUND's
registration statement, prospectuses, proxy solicitation materials and reports
to shareholders; (v) fees of outside counsel to and of independent accountants
of the FUND selected by the Trustees; (vi) custodian, registrar and shareholder
service agent fees and expenses; (vii) expenses related to the repurchase or
redemption of its shares including expenses related to a program of periodic
repurchases or redemptions; (viii) expenses related to the issuance of its
shares against payment therefor by or on behalf of the subscribers thereto; (ix)
fees and related expenses of registering and qualifying the FUND and its shares
for distribution under state and federal securities laws; (x) expenses of
printing and mailing of registration statements, prospectuses, reports, notices
and proxy solicitation materials of the FUND; (xi) all other expenses incidental
to holding meetings of the FUND's shareholders including proxy solicitations
therefor; (xii) expenses for servicing shareholder accounts; (xiii) insurance
premiums for fidelity coverage and errors and omissions insurance; (xiv) dues
for the FUND's membership in trade associations approved by the Trustees; and
(xv) such nonrecurring expenses as may arise, including those associated with
actions, suits or proceedings to which the FUND is a party and the legal
obligation which the FUND may have to indemnify its officers and trustees with
respect thereto. To the extent that any of the foregoing expenses are allocated
between the FUND and any other party, such allocations shall be pursuant to
methods approved by the Trustees.
A-2
<PAGE> 60
For a period of one year commencing on the effective date of this Agreement,
the ADVISER and the FUND agree that the retention of (i) the chief executive
officer, president, chief financial officer and secretary of the ADVISER and
(ii) each director, officer and employee of the ADVISER or any of its Affiliates
(as defined in the Investment Company Act of 1940, as amended (the "1940 Act"))
who serves as an officer of the FUND (each person referred to in (i) or (ii)
hereinafter being referred to as an "Essential Person"), in his or her current
capacities, is in the best interest of the FUND and the FUND's shareholders. In
connection with the ADVISER's acceptance of employment hereunder, the ADVISER
hereby agrees and covenants for itself and on behalf of its Affiliates that
neither the ADVISER nor any of its Affiliates shall make any material or
significant personnel changes or replace or seek to replace any Essential Person
or cause to be replaced any Essential Person, in each case without first
informing the Board of Trustees of the FUND in a timely manner. In addition,
neither the ADVISER nor any Affiliate of the ADVISER shall change or seek to
change or cause to be changed, in any material respect, the duties and
responsibilities of any Essential Person, in each case without first informing
the Board of Trustees of the FUND in a timely manner.
(2) ROLE OF ADVISER
The ADVISER, and any person controlled by or under common control with the
ADVISER, shall be free to render similar services to others and engage in other
activities, so long as the services rendered to the FUND are not impaired.
Except as otherwise required by the Investment Company Act of 1940 (the "1940
Act"), any of the shareholders, trustees, officers and employees of the FUND may
be a shareholder, trustee, director, officer or employee of, or be otherwise
interested in, the ADVISER, and in any person controlled by or under common
control with the ADVISER, and the ADVISER, and any person controlled by or under
common control with the ADVISER, may have an interest in the FUND.
Except as otherwise agreed, in the absence of willful misfeasance, bad faith,
negligence or reckless disregard of obligations or duties hereunder on the part
of the ADVISER, neither the ADVISER nor any subadviser shall be subject to
liability to the FUND, or to any shareholder of the FUND, for any act or
omission in the course of, or connected with, rendering services hereunder or
for any losses that may be sustained in the purchase, holding or sale of any
security.
A-3
<PAGE> 61
(3) COMPENSATION PAYABLE TO THE ADVISER
The FUND shall pay to the ADVISER, as compensation for the services rendered,
facilities furnished and expenses paid by the ADVISER, a monthly fee computed at
the following annual rate:
.575% on the first $350 million of the FUND's average daily net assets; .525%
on the next $350 million of the FUND's average daily net assets; .475% on the
next $350 million of the FUND's average daily net assets; and .425% of any
excess over $1.05 billion.
Average daily net assets shall be determined by taking the average of the net
assets for each business day during a given calendar month calculated in the
manner provided in the FUND's Declaration of Trust. Such fee shall be payable
for each calendar month as soon as practicable after the end of that month.
The fees payable to the ADVISER by the FUND pursuant to this Section 3 shall
be reduced by any commissions, tender solicitation and other fees, brokerage or
similar payments received by the ADVISER, or any other direct or indirect
majority owned subsidiary of VK/AC Holding, Inc., in connection with the
purchase and sale of portfolio investments of the FUND, less any direct expenses
incurred by such person, in connection with obtaining such commissions, fees,
brokerage or similar payments. The ADVISER shall use its best efforts to
recapture all available tender offer solicitation fees and exchange offer fees
in connection with the FUND's portfolio transactions and shall advise the
Trustees of any other commissions, fees, brokerage or similar payments which may
be possible for the ADVISER or any other direct or indirect majority owned
subsidiary of VK/AC Holding, Inc. to receive in connection with FUND's portfolio
transactions or other arrangements which may benefit the FUND.
In the event that the ordinary business expenses of the FUND for any fiscal
year should exceed the most restrictive expense limitation applicable in the
states where the FUND's shares are qualified for sale, the compensation due the
ADVISER for such fiscal year shall be reduced by the amount of such excess. The
Adviser's compensation shall be so reduced by a reduction or a refund thereof,
at the time such compensation is payable after the end of each calendar month
during such fiscal year of the FUND, and if such amount should exceed such
monthly compensation, the ADVISER shall pay the FUND an amount sufficient to
make up the deficiency, subject to readjustment during the FUND's fiscal year.
For purposes of this paragraph, all ordinary business expenses of the FUND shall
include the investment advisory fee and other operating expenses paid by the
FUND except (i) for interest and taxes; (ii) brokerage commissions; (iii) as a
result of litigation in connection with a suit involving a claim for recovery by
the FUND; (iv) as a result of litigation involving a defense against a liability
asserted against the FUND, provided that, if the ADVISER made the decision or
took the
A-4
<PAGE> 62
actions which resulted in such claim, it acted in good faith without negligence
or misconduct; (v) any indemnification paid by the FUND to its officers and
trustees and the ADVISER in accordance with applicable state and federal laws as
a result of such litigation; and (vi) amounts paid to Van Kampen American
Capital Distributors, Inc., the distributor of the FUND's shares, in connection
with a distribution plan adopted by the FUND's Trustees pursuant to Rule 12b-1
under the Investment Company Act of 1940.
If the ADVISER shall serve for less than the whole of any month, the foregoing
compensation shall be prorated.
(4) BOOKS AND RECORDS
In compliance with the requirements of Rule 31a-3 under the 1940 Act, the
ADVISER hereby agrees that all records which it maintains for the FUND are the
property of the FUND and further agrees to surrender promptly to the FUND any of
such records upon the FUND's request. The ADVISER further agrees to preserve for
the periods prescribed by Rule 31a-2 under the 1940 Act the records required to
be maintained by Rule 31a-1 under the Act.
(5) DURATION OF AGREEMENT
This Agreement shall become effective on the date hereof, and shall remain in
full force until May 31, 1999 unless sooner terminated as hereinafter provided.
This Agreement shall continue in force from year to year thereafter, but only so
long as such continuance is approved at least annually by the vote of a majority
of the FUND's Trustees who are not parties to this Agreement or interested
persons of any such parties, cast in person at a meeting called for the purpose
of voting on such approval, and by a vote of a majority of the FUND's Trustees
or a majority of the FUND's outstanding voting securities.
This Agreement shall terminate automatically in the event of its assignment.
The Agreement may be terminated at any time by the FUND's Trustees, by vote of a
majority of the FUND's outstanding voting securities, or by the ADVISER, on 60
days' written notice, or upon such shorter notice as may be mutually agreed
upon. Such termination shall be without payment of any penalty.
(6) MISCELLANEOUS PROVISIONS
For the purposes of this Agreement, the terms "affiliated person,"
"assignment," "interested person," and "majority of the outstanding voting
securities" shall have their respective meanings defined in the 1940 Act and the
Rules and Regulations thereunder, subject, however, to such exemptions as may be
granted to either the ADVISER or the FUND by the Securities and Exchange
Commission (the "Commission"), or such interpretive positions as may be taken by
the Commission
A-5
<PAGE> 63
or its staff, under the 1940 Act, and the term "brokerage and research services"
shall have the meaning given in the Securities Exchange Act of 1934 and the
Rules and Regulations thereunder.
The execution of this Agreement has been authorized by the FUND's Trustees and
by the sole shareholder. This Agreement is executed on behalf of the FUND or the
Trustees of the FUND as Trustees and not individually and that the obligations
of this Agreement are not binding upon any of the Trustees, officers or
shareholders of the FUND individually but are binding only upon the assets and
property of the FUND. A Certificate of Trust in respect of the FUND is on file
with the Secretary of State of Delaware.
All questions concerning the validity, meaning and effect of this Agreement
shall be determined in accordance with the laws (without giving effect to the
conflict-of-law principles thereof) of the State of Delaware applicable to
contracts made and to be performed in that state.
In connection with its employment hereunder, the ADVISER hereby agrees and
covenants not to change its name without the prior consent of the Board of
Trustees of the FUND.
The parties hereto each have caused this Agreement to be signed in duplicate
on its behalf by its duly authorized officer on the above date.
<TABLE>
<S> <C>
VAN KAMPEN AMERICAN CAPITAL ASSET VAN KAMPEN AMERICAN CAPITAL
MANAGEMENT, INC. EMERGING GROWTH FUND
By: /s/ DENNIS J. MCDONNELL By: /s/ PETER W. HEGEL
------------------------------------ ------------------------------
Name: Dennis J. McDonnell Its: Name: Peter W. Hegel Its:
President Executive Vice President
</TABLE>
A-6
<PAGE> 64
APPENDIX B
FORM OF NEW INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT, dated as of August ,1999 (the
"Agreement"), by and between VAN KAMPEN EMERGING GROWTH FUND, a Delaware
business trust (the"Trust"), on behalf of the VAN KAMPEN EMERGING GROWTH FUND
(the "Fund"), and VAN KAMPEN ASSET MANAGEMENT INC. (the "Adviser"), a Delaware
corporation.
1. Adviser's Retention:
(a)Retention of Adviser by Fund. Subject to the terms and conditions set forth
herein, the Fund hereby employs the Adviser to act as the investment
adviser for and to manage the investment and reinvestment of the assets of
the Fund in accordance with the Fund's investment objectives and policies
and limitations, and to administer its affairs to the extent requested by,
and subject to the review and supervision of, the Board of Trustees of the
Fund for the period and upon the terms herein set forth. The investment of
funds shall be subject to all applicable restrictions of applicable law and
of the Declaration of Trust and By-Laws of the Trust, and resolutions of
the Board of Trustees of the Fund as may from time to time be in force and
delivered or made available to the Adviser.
(b)Adviser's Acceptance of Employment. The Adviser accepts such employment and
agrees during such period to render such services, to supply investment
research and portfolio management (including without limitation the
selection of securities for the Fund to purchase, hold or sell and the
selection of brokers through whom the Fund's portfolio transactions are
executed, in accordance with the policies adopted by the Fund and its Board
of Trustees), to administer the business affairs of the Fund, to furnish
offices and necessary facilities and equipment to the Fund, to provide
administrative services for the Fund, to render periodic reports to the
Board of Trustees of the Fund, and to permit any of its officers or
employees to serve without compensation as trustees or officers of the Fund
if elected to such positions.
(c)Essential Personnel. The Adviser and the Fund agree that the retention of
(i) the chief executive officer, president, chief financial officer and
secretary of the Adviser and (ii) each director, officer and employee of
the Adviser or any of its Affiliates (as defined in the Investment Company
Act of 1940, as amended (the "1940 Act")) who serves as an officer of the
Fund (each person referred to in (i) or (ii) hereinafter being referred to
as an "Essential Person"), in his or her current capacities, is in the best
interest of the Fund and the Fund's shareholders. In connection with the
Adviser's acceptance of employment hereunder, the Adviser hereby agrees and
covenants for itself
B-1
<PAGE> 65
and on behalf of its Affiliates that neither the Adviser nor any of its
Affiliates shall make any material or significant personnel changes or
replace or seek to replace any Essential Person or cause to be replaced any
Essential Person, in each case without first informing the Board of
Trustees of the Fund in a timely manner. In addition, neither the Adviser
nor any Affiliate of the Adviser shall change or seek to change or cause to
be changed, in any material respect, the duties and responsibilities of any
Essential Person, in each case without first informing the Board of
Trustees of the Fund in a timely manner.
(d)Independent Contractor. The Adviser shall be deemed to be an independent
contractor under this Agreement and, unless otherwise expressly provided or
authorized, shall have no authority to act for or represent the Fund in any
way or otherwise be deemed as agent of the Fund.
(e)Non-exclusive Agreement. The services of the Adviser to the Fund under this
Agreement are not to be deemed exclusive, and the Adviser shall be free to
render similar services or other services to others so long as its services
hereunder are not impaired thereby.
2. Advisory Fee:
(a)Advisory Fee. For the services and facilities described in Section 1, the
Fund will accrue daily and pay to the Adviser at the end of each calendar
month an investment advisory fee computed based upon a fee rate (expressed
as a percentage per annum) applied to the average daily net assets of the
Fund as follows:
FEE PERCENT PER ANNUM OF
<TABLE>
<CAPTION>
AVERAGE DAILY AVERAGE DAILY
NET ASSETS NET ASSETS
- ------------- -------------
<S> <C>
First $1 billion................ 0.675%
Next $1 billion................. 0.625%
Next $1 billion................. 0.575%
Next $1 billion................. 0.525%
Over $4 billion................. 0.475%
</TABLE>
(b)Expense Limitation. The Adviser's compensation for any fiscal year of the
Fund shall be reduced by the amount, if any, by which the Fund's expense
for such fiscal year exceeds the most restrictive applicable expense
limitation in any jurisdiction in which the Fund's shares are qualified for
offer and sale, as such limitations set forth in the most recent notice
thereof furnished by the Adviser to the Fund. For purposes of this
paragraph there shall be excluded from computation of the Fund's expenses
any amount borne directly or indirectly by the Fund which is permitted to
be excluded from the computation of such limitation by such statue or
regulatory authority. If, for
B-2
<PAGE> 66
any month, expenses of the Fund properly included in such calculation
exceed 1/12 of the amount permitted annually by the most restrictive
applicable expense limitation, the payment to the Adviser for that month
shall be reduced, and, if necessary, the Adviser shall make a refund
payment to the Fund, so that the total net expense for the month will not
exceed 1/12 of such amount. As of the end of the Fund's fiscal year,
however, the computations and payments shall be readjusted so that the
aggregate compensation payable to the Adviser for the year is equal to the
fee set forth in subsection (a) of this Section 2, diminished to the extent
necessary so that the expenses for the year do not exceed those permitted
by the applicable expense limitation.
(c) Determination of Net Asset Value. The net asset value of the Fund shall be
calculated as of the close of the New York Stock Exchange on each day the
Exchange is open for trading or such other time or times as the trustees
may determine in accordance with the provisions of applicable law and the
Declaration of Trust and By-Laws of the Trust, and resolutions of the
Board of Trustees of the Fund as from time to time in force. For the
purpose of the foregoing computations, on each such day when net asset
value is not calculated, the net asset value of a share of beneficial
interest of the Fund shall be deemed to be the net asset value of such
share as of the close of business of the last day on which such
calculation was made.
(d) Proration. For the month and year in which this Agreement becomes
effective or terminates, there shall be an appropriate proration of the
Adviser's fee on the basis of the number of days that the Agreement is in
effect during such month and year, respectively,
3. Expenses:
In addition to the fee of the Adviser, the Fund shall assume and pay any
expenses for services rendered by a custodian for the safekeeping of the
Fund's securities or other property, for keeping its books of account, for
any other charges of the custodian and for calculating the net asset value
of the Fund as provided above. The Adviser shall not be required to pay, and
the Fund shall assume and pay, the charges and expenses of its operations,
including compensation of its trustees (other than those who are affiliated
persons of the Adviser and other than those who are affiliated persons of
the distributor of the Fund but not of the Adviser, if the distributor has
agreed to pay such compensation), charges and expenses of independent
accountants, of legal counsel and of any transfer or dividend disbursing
agent, costs of acquiring and disposing of portfolio securities, cost of
listing shares on the New York Stock Exchange or other exchange, interest
(if any) on obligations incurred by the Fund, costs of shares certificates,
membership dues in the Investment Company Institute or any similar
organization, costs of registration statements, prospectuses, state-
B-3
<PAGE> 67
ments of additional information, reports and notices to shareholders, cost
of registering shares of the Fund under the federal and state securities
laws, miscellaneous expenses and all taxes and fees to federal, state or
other governmental agencies on account of the registration of securities
issued by the Fund, filing of corporate documents or otherwise, other taxes
imposed by federal, state or other governmental agencies in connection with
the Fund's operations, distribution-related or shareholder servicing
expenses, other expenses related to the issuance, sale or redemption of
shares, insurance premiums and other operating expenses of the Fund. The
Fund shall not pay or incur any obligation for any management or
administrative expenses for which the Fund intends to seek reimbursement
from the Adviser without first obtaining the written approval of the
Adviser. The Adviser shall arrange, if desired by the Fund, for officers or
employees of the Adviser to serve, without compensation from the Fund, as
trustees, officers or agents of the Fund if duly elected or appointed to
such positions and subject to their individual consent and to any
limitations imposed by the law.
4. Interested Persons:
Subject to applicable statutes and regulations, it is understood that
trustees, officers, shareholders and agents of the Fund are or may be
interested in the Adviser as directors, officers, shareholders, agents or
otherwise and that the directors, officers, shareholders and agents of the
Adviser may be interested in the Fund as trustees, officers, shareholders,
agents or otherwise.
5. Liability:
The Adviser shall not be liable for any error of judgment or of law, or for
any loss suffered by the Fund in connection with the matters to which this
Agreement relates, except a loss resulting from willful misfeasance, bad
faith or gross negligence on the part of the Adviser in the performance of
its obligations and duties, or by reason of its reckless disregard of its
obligations and duties under this Agreement.
6. Term and Termination:
(a) Term. This Agreement shall become effective on the date hereof and shall
remain in full force until September , 2001 unless sooner terminated
as hereinafter provided. This Agreement shall continue in force from
year to year thereafter, but only for so long as such continuance is
specifically approved as least annually, in the manner required by the
1940 Act.
(b) Termination. This Agreement shall terminate automatically in the event
of its assignment. This Agreement may be terminated at any time without
the payment of any penalty by the Fund or by the Adviser on sixty
B-4
<PAGE> 68
(60) days written notice to the other party. The Fund may effect
termination by action of the Board of Trustees or by vote of a majority
of the outstanding voting securities of the Fund, accompanied by
appropriate notice. This Agreement may be terminated at any time without
the payment of any penalty and without advance notice by the Board of
Trustees or by vote of a majority of the outstanding voting securities
of the Fund in the event that it shall have been established by a court
of competent jurisdiction that the Adviser or any officer or director of
the Adviser has taken any action which results in a breach of the
covenants of the Adviser set forth herein.
(c) Payment upon Termination. Termination of this Agreement shall not affect
the right of the Adviser to receive payment on any unpaid balance of the
compensation described in Section 2 earned prior to such termination.
7. Severability:
If any provision of this Agreement shall be held or made invalid by a court
decision, statue, rule or otherwise, the remainder shall not thereby be
affected.
8. Notices:
Any notice under this Agreement shall be in writing, addressed and delivered
or mailed, postage prepaid, to the other party at such address as such other
party may designate for the receipt of such notice.
9. Disclaimer:
The Adviser acknowledges and agrees that, as provided by Section 8.1 of the
Declaration of Trust of the Fund, (i) this Agreement has been executed by
officers of the Fund in their capacity as officers, and not individually,
and (ii) the shareholders, trustees, officers, employees and other agents of
the Trust and the Fund shall not personally be bound by or liable hereunder,
nor shall resort be had to their private property for the satisfaction of
any obligation or claim hereunder and that any such resort may only be had
upon the assets and property of the Fund.
10. Governing Law:
All questions concerning the validity, meaning and effect of this Agreement
shall be determined in accordance with the laws (without giving effect to
the conflict-of-law principles thereof) of the State of Delaware applicable
to contracts made and to be performed in that state.
B-5
<PAGE> 69
11. Name:
In connection with its employment hereunder, the Adviser hereby agrees and
covenants not to change its name without the prior consent of the Board of
Trustees of the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.
VAN KAMPEN ASSET
MANAGEMENT INC.
By: ------------------------------
Name: -------------------------
Title: ------------------------
VAN KAMPEN EMERGING GROWTH FUND,
on behalf of the VAN KAMPEN
EMERGING GROWTH FUND
By: ------------------------------
Name: -------------------------
Title: ------------------------
B-6
<PAGE> 70
APPENDIX C
INVESTMENT ADVISORY FEES OF OTHER FUNDS ADVISED BY
ASSET MANAGEMENT OR ADVISORY CORP.
The table below sets forth, for each investment company advised by Advisory
Corp. and Asset Management, the investment company's net assets as of June 30,
1999 and the rate at which it compensates Advisory Corp. or Asset Management for
investment advisory services. Each fund for which Advisory Corp. or Asset
Management has waived or reduced its compensation are marked by an "*". There
can be no assurance that Advisory Corp. or Asset Management will continue such
waiver or reduction.
I. ADVISORY AGREEMENTS BETWEEN ADVISORY CORP. AND THE VK FUNDS
<TABLE>
<CAPTION>
NET ASSETS ANNUAL
AS OF ADVISORY FEE
FUNDS JUNE 30, 1999 SCHEDULE
----- ------------- ------------
<S> <C> <C> <C>
A. Van Kampen California Insured Tax Free Fund................. 211,182,751 First $100 Million
.500%
Next $150 Million .450%
Next $250 Million .425%
Over $500 Million .400%
B. Van Kampen Insured Tax Free Income Fund..................... 1,271,701,465 First $500 Million
.525%
Next $500 Million .500%
First $500 Million
.475%
Over $1.5 Billion .450%
C. Van Kampen Tax Free High Income Fund........................ 1,137,326,723 First $500 Million
.500%
Van Kampen Municipal Income Fund............................ 923,629,410 Over $500 Million .450%
Van Kampen Intermediate Term Municipal Income Fund.......... 45,311,796
Van Kampen Florida Insured Tax Free Income Fund*............ 70,009,110
D. Van Kampen New York Tax Free Income Fund*................... 68,261,587 First $500 Million
.600%
Van Kampen Pennsylvania Tax Free Income Fund................ 268,536,069 Over $500 Million .500%
</TABLE>
C-1
<PAGE> 71
<TABLE>
<CAPTION>
NET ASSETS ANNUAL
AS OF ADVISORY FEE
FUNDS JUNE 30, 1999 SCHEDULE
----- ------------- ------------
<S> <C> <C> <C>
E. Van Kampen High Yield Fund*................................. 399,842,408 First $500 Million
.750%
Over $500 Million .650%
F. Van Kampen Short-Term Global Income Fund.................... 51,892,877 .550%
G. Van Kampen Strategic Income Fund*........................... 99,293,715 First $500 Million
.750%
Van Kampen Growth Fund...................................... 140,087,872 Next $500 Million .700%
Van Kampen Mid-Cap Value Fund*.............................. 1,903,568 Over $1 Billion .650%
Van Kampen Aggressive Growth Fund........................... 683,651,499
</TABLE>
C-2
<PAGE> 72
<TABLE>
<CAPTION>
NET ASSETS ANNUAL
AS OF ADVISORY FEE
FUNDS JUNE 30, 1999 SCHEDULE
----- ------------- ------------
<S> <C> <C> <C>
H. Van Kampen Utility Fund..................................... 169,794,233 First $500 Million .650%
Next $500 Million .600%
Over $1 Billion .550%
I. Van Kampen U.S. Government Fund............................. 2,196,354,829 First $500 Million .550%
Next $500 Million .525%
Next $2 Billion .500%
Next $2 Billion .475%
Next $2 Billion .450%
Next $2 Billion .425%
Over $9 Billion .400%
J. Van Kampen Tax Free Money Fund*............................. 33,587,326 First $500 Million .500%
Next $500 Million .475%
Next $500 Million .425%
Over $1.5 Billion .375%
K. Van Kampen Great American Companies Fund*................... 2,237,079 First $500 Million .700%
Van Kampen Prospector Fund*................................. 2,344,757 Next $500 Million .650%
Over $1 Billion .600%
</TABLE>
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<PAGE> 73
II. ADVISORY AGREEMENTS BETWEEN ASSET MANAGEMENT AND THE AC FUNDS
<TABLE>
<CAPTION>
NET ASSETS ANNUAL
AS OF ADVISORY FEE
FUNDS JUNE 30, 1999 SCHEDULE
----- ------------- ------------
<S> <C> <C> <C>
First $150 Million
A. Van Kampen Corporate Bond Fund.............................. 266,295,685 .500%
Van Kampen Equity Income Fund............................... 2,319,734,420 Next $100 Million .450%
Van Kampen Growth and Income Fund........................... 1,568,227,804 Next $100 Million .400%
Van Kampen Reserve Fund..................................... 767,199,604 Over $350 Million .350%
B. Van Kampen Limited Maturity Government Fund................. 48,387,731 First $1 Billion .500%
Next $1 Billion .475%
Next $1 Billion .450%
Next $1 Billion .400%
Over $4 Billion .350%
C. Van Kampen Government Securities Fund....................... 1,849,776,895 First $1 Billion .540%
Next $1 Billion .515%
Next $1 Billion .490%
Next $1 Billion .440%
Next $1 Billion .390%
Next $1 Billion .340%
Next $1 Billion .290%
Over $7 Billion .240%
Van Kampen Life Investment Trust Asset Allocation First $500 Million
D. Portfolio*.................................................. 56,249,634 .500%
Van Kampen Life Investment Trust Domestic Income
Portfolio*.................................................. 17,319,485 Next $500 Million .450%
Van Kampen Life Investment Trust Enterprise Portfolio*...... 140,947,465 Over $1 Billion .400%
Van Kampen Life Investment Trust Government Portfolio*...... 54,987,961
Van Kampen Life Investment Trust Money Market Portfolio*.... 25,577,283
E. Van Kampen Comstock Fund.................................... 2,286,089,384 First $1 Billion .500%
Van Kampen Enterprise Fund.................................. 3,295,795,730 Next $1 Billion .450%
Van Kampen Pace Fund........................................ 4,135,044,101 Next $1 Billion .400%
Over $3 Billion .350%
</TABLE>
C-4
<PAGE> 74
<TABLE>
<CAPTION>
NET ASSETS ANNUAL
AS OF ADVISORY FEE
FUNDS JUNE 30, 1999 SCHEDULE
----- -------------- -------------------------
<S> <C> <C> <C>
F. Van Kampen U.S. Government Trust for Income................. .600%
G. Van Kampen Emerging Growth Fund............................. 127,334,603 First $350 Million .575%
7,009,933,820 Next $350 Million .525%
Next $350 Million .475%
Over $1.05 Billion .425%
H. Van Kampen Life Investment Trust Emerging Growth
Portfolio*................................................. 81,873,956 .700%
I. Van Kampen Real Estate Securities Fund*..................... 152,088,465 1.00%
Van Kampen Life Investment Trust Morgan Stanley Real Estate
Securities Portfolio*...................................... 190,027,378
Van Kampen Life Investment Trust Global Equity Portfolio*... 3,490,448
Van Kampen Global Managed Assets Fund....................... 17,218,027
J. Van Kampen Life Investment Trust Growth & Income
Portfolio*................................................. 45,090,219 First $500 million .600%
Over $500 million .550%
K. Van Kampen Life Investment Trust Strategic Stock
Portfolio*................................................. 29,479,933 First $500 million .500%
Over $500 million .450%
L. Van Kampen Harbor Fund...................................... 470,215,724 First $350 million .550%
Next $350 million .500%
Next $350 million .450%
Over $1.05 billion .400%
M. Van Kampen High Income Corporate Bond Fund.................. 884,808,890 First $150 million .625%
Next $150 million .550%
Over $300 million .500%
N. Van Kampen High Yield Municipal Fund........................ 1,443,791,010 First $300 million .600%
Next $300 million .550%
Over $600 million .500%
O. Van Kampen Global Government Securities Fund................ 51,925,780 .750%
P. Van Kampen Exchange Fund.................................... 91,803,181 .500%
</TABLE>
C-5
<PAGE> 75
III. ADVISORY AGREEMENTS BETWEEN ADVISORY CORP. AND MS FUNDS
<TABLE>
<CAPTION>
NET ASSETS ANNUAL
AS OF ADVISORY FEE
FUNDS JUNE 30, 1999 SCHEDULE
----- ------------- ------------
<S> <C> <C> <C>
A. Van Kampen Aggressive Equity Fund*.......................... 277,270,195 0.90%
B. Van Kampen American Value Fund*............................. 849,213,263 0.85%
C. Van Kampen Asian Growth Fund................................ 172,350,941 1.00%
Van Kampen European Equity Fund*............................ 6,559,512
Van Kampen Global Equity Fund............................... 736,132,780
Van Kampen Global Equity Allocation Fund*................... 571,680,922
D. Van Kampen Emerging Markets Fund*........................... 123,344,949 1.25%
Van Kampen Latin American Fund*............................. 63,188,154
E. Van Kampen International Magnum Fund*....................... 107,987,953 0.80%
F. Van Kampen Global Fixed Income Fund*........................ 6,437,212 0.75%
Van Kampen High Yield & Total Return Fund*.................. 88,681,669
Van Kampen Worldwide High Income Fund....................... 206,119,975
G. Morgan Stanley Government Obligations Money Market Fund*.... 88,873,035 First $250 million 0.45%
Morgan Stanley Money Market Fund............................ 31,934,690 Next $250 million 0.40%
Over $500 million 0.35%
H. Van Kampen Value Fund....................................... 252,684,291 First $500 million .800%
Van Kampen Equity Growth Fund*.............................. 48,557,398 Next $500 million .750%
Over $1 billion .700%
I. Van Kampen Global Franchise Fund*........................... 2,283,174 First $500 million 1.00%
Next $500 million 0.950%
Over $1 billion 0.900%
</TABLE>
C-6
<PAGE> 76
LOGO
<PAGE> 77
PROXY
VAN KAMPEN EMERGING GROWTH FUND
SPECIAL MEETING OF SHAREHOLDERS
PROXY SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
The undersigned holder of Shares of VAN KAMPEN EMERGING GROWTH
FUND (the "Fund") hereby appoints Dennis J. McDonnell and A.
Thomas Smith, III, and each of them, with full power of
substitution and revocation, as proxies to represent the
undersigned at the Meeting of Shareholders to be held at the
offices of Van Kampen Investments Inc., 1 Parkview Plaza,
Oakbrook Terrace, Illinois 60181-5555, on September 22, 1999 at
3:30 p.m., and any and all adjournments thereof (the "Meeting"),
and thereat to vote all Shares which the undersigned would be
entitled to vote, with all powers the undersigned would possess
if personally present, in accordance with the following
instructions.
If more than one of the proxies, or their substitutes, are
present at the Meeting or any adjournment thereof, they jointly
(or, if only one is present and voting then that one) shall have
authority and may exercise all powers granted hereby. This Proxy,
when properly executed, will be voted in accordance with the
instructions marked hereon by the undersigned. IF NO
SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED "FOR" EACH OF THE
PROPOSALS DESCRIBED HEREIN AND IN THE DISCRETION OF THE PROXIES
UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE ACCOMPANYING
NOTICE OF MEETING AND PROXY STATEMENT FOR THE MEETING TO BE HELD
ON SEPTEMBER 22, 1999.
Date , 1999
PLEASE SIGN IN BOX BELOW
Please sign this Proxy
exactly as your name or
names appear on the books of
the Fund. When signing as
attorney, trustee, executor,
administrator, custodian,
guardian or corporate
officer, please give full
title. If shares are held
jointly, each holder should
sign.
Signature(s) Title(s) if
applicable
<PAGE> 78
<TABLE>
<S> <C> <C> <C> <C>
1. Authority to vote for the election as Trustees the nominees FOR ALL
named below: FOR WITHHOLD EXCEPT
[ ] [ ] [ ]
J. Mile Branagan, Jerry D. Choate, Mitchell M. Merin, Linda
Hutton Heagy, R. Craig Kennedy, Jack E. Nelson, Richard F.
Powers III, Phillip B. Rooney, Fernando Sisto, Wayne W.
Whalen, Suzanne H. Woolsey and Paul G. Yovovich.
TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
CHECK "FOR ALL EXCEPT" AND WRITE THE NOMINEE'S NAME ON THE
LINE BELOW.
------------------------------------------------------------
The proposal to approve a new investment advisory agreement
2. for the Fund including an increase in investment advisory FOR AGAINST ABSTAIN
fees. [ ] [ ] [ ]
The proposal to approve replacing the Fund's fundamental
3. investment policy regarding investment in small- and FOR AGAINST ABSTAIN
medium-sized companies with a non-fundamental investment [ ] [ ] [ ]
policy.
The proposal to approve amending other the fundamental
4. investment restrictions of the Fund.
FOR AGAINST ABSTAIN FOR
4A. Diversification [ ] [ ] [ ] 4G. Making Loans [ ]
4B. Senior Securities/Borrowing [ ] [ ] [ ] 4H. Control [ ]
4C. Underwriting [ ] [ ] [ ] 4I. Payment for Securities [ ]
4D. Concentration [ ] [ ] [ ] 4J. Investment Companies [ ]
4E. Real Estate [ ] [ ] [ ] 4K. Short Sales [ ]
4F. Commodities [ ] [ ] [ ]
AGAINST ABSTAIN
4A. [ ] [ ]
4B. [ ] [ ]
4C. [ ] [ ]
4D. [ ] [ ]
4E. [ ] [ ]
4F.
5. The proposal ratify the selection of PricewaterhouseCoopers FOR AGAINST ABSTAIN
LLP to act as the Fund's independent accountants. [ ] [ ] [ ]
6. To transact such other business as may properly come before
the Meeting.
</TABLE>
<PAGE> 79
THREE EASY WAYS TO VOTE YOUR PROXY.
CHOOSE THE METHOD THAT'S MOST CONVENIENT FOR YOU
AND VOTE YOUR PROXY TODAY!
1. VOTE BY TELEPHONE. JUST CALL OUR DEDICATED TOLL-FREE PROXY VOTING
NUMBER.
1-888-221-0697
ENTER THE CONTROL NUMBER THAT APPEARS ON THE FRONT OF YOUR PROXY CARD AND
FOLLOW THE VOICE PROMPTS TO RECORD YOUR VOTE. TELEPHONE VOTING IS
AVAILABLE 24 HOURS A DAY, 7 DAYS A WEEK. IF YOU HAVE RECEIVED MORE THAN
ONE PROXY CARD, EACH CARD HAS A DIFFERENT CONTROL NUMBER AND MUST BE VOTED
SEPARATELY. YOU CAN VOTE ALL OF YOUR CARDS ON THE SAME PHONE CALL.
2. VOTE ON THE INTERNET. LOG ON TO OUR PROXY VOTING WEBSITE.
WWW.PROXYWEB.COM
ENTER THE CONTROL NUMBER THAT APPEARS ON THE FRONT OF YOUR PROXY CARD AND
FOLLOW THE INSTRUCTIONS ON THE SCREEN. AGAIN, YOU MUST VOTE EACH CARD
SEPARATELY. YOU CAN VOTE ALL CARDS IN THE SAME SESSION.
3. VOTE BY MAIL. SIGN YOUR PROXY CARD(S) AND RETURN THEM IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
NOTE: IF YOU VOTE BY TELEPHONE OR INTERNET, PLEASE DO NOT RETURN YOUR
PROXY CARD(S).
