<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 27, 2000
REGISTRATION NOS. 2-33214
811-2424
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
<TABLE>
<S> <C>
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 [X]
POST-EFFECTIVE AMENDMENT NO. 60 [X]
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 30 [X]
</TABLE>
VAN KAMPEN EMERGING GROWTH FUND
(EXACT NAME OF REGISTRANT AS SPECIFIED IN DECLARATION OF TRUST)
1 PARKVIEW PLAZA, PO BOX 5555, OAKBROOK TERRACE, ILLINOIS 60181-5555
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)(ZIP CODE)
(630) 684-6000
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
A. THOMAS SMITH III
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
VAN KAMPEN INVESTMENTS INC.
1 PARKVIEW PLAZA
PO BOX 5555
OAKBROOK TERRACE, ILLINOIS 60181-5555
(NAME AND ADDRESS OF AGENT FOR SERVICE)
---------------------
COPIES TO:
WAYNE W. WHALEN, ESQ.
THOMAS A. HALE, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 WEST WACKER DRIVE
CHICAGO, ILLINOIS 60606
(312) 407-0700
Approximate Date of Proposed Public Offering: As soon as practicable following
effectiveness of this Registration Statement.
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[X] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered: Shares of Beneficial Interest, par value
$0.01 per share
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 2
*The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with
the Securities and Exchange
[VAN KAMPEN FUNDS LOGO]
Commission is effective. This prospectus is not an offer to sell securities
and is not soliciting an offer to buy these securities in any state where
the offer or sale is not permitted.
SUBJECT TO COMPLETION -- DATED JULY 27, 2000
VAN KAMPEN
EMERGING GROWTH FUND
Van Kampen Emerging Growth Fund is a mutual fund with the investment objective
of capital appreciation. The Fund's investment adviser seeks to achieve the
Fund's investment objective by investing primarily in a portfolio of common
stocks of companies considered by the Fund's investment adviser to be emerging
growth companies.
Shares of the Fund have not been approved or disapproved by the Securities and
Exchange Commission (SEC) or any state regulator, and neither the SEC nor any
state regulator has passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
This prospectus is dated SEPTEMBER , 2000
CLASS D SHARES
PROSPECTUS
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
Risk/Return Summary................................ 3
Fees and Expenses of the Fund...................... 5
Investment Objective, Policies and Risks........... 5
Investment Advisory Services....................... 9
Purchase of Shares................................. 11
Redemption of Shares............................... 12
Distributions from the Fund........................ 13
Shareholder Services............................... 14
Federal Income Taxation............................ 15
</TABLE>
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations, other than those contained in this
prospectus, in connection with the offer contained in this prospectus and, if
given or made, such other information or representations must not be relied upon
as having been authorized by the Fund, the Fund's investment adviser or the
Fund's distributor. This prospectus does not constitute an offer by the Fund or
by the Fund's distributor to sell or a solicitation of an offer to buy any of
the securities offered hereby in any jurisdiction to any person to whom it is
unlawful for the Fund to make such an offer in such jurisdiction.
<PAGE> 4
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The Fund is a mutual fund with the investment objective of capital appreciation.
INVESTMENT STRATEGIES
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 a portfolio of common stocks of emerging growth companies. Emerging
growth companies are those domestic or foreign companies that the Fund's
investment adviser believes are in the early stages of their life cycles and
have the potential to become major enterprises. Investing in such companies
involves risks not ordinarily associated with investments in larger, more
established companies. The Fund's investment adviser uses a "bottom up"
investment strategy in stock selection focusing on those companies that it
believes have rising earnings expectations and rising valuations. The Fund seeks
growth companies with long-term capital appreciation potential. The Fund
generally sells securities when earnings expectations or valuations flatten or
decline. The Fund may invest up to 20% of its total assets in securities of
foreign issuers. The Fund may purchase and sell certain derivative instruments,
such as options, futures and options on futures, which may subject the Fund to
additional risks.
INVESTMENT RISKS
An investment in the Fund is subject to investment risks, and you could lose
money on your investment in the Fund. There can be no assurance that the Fund
will achieve its investment objective.
MARKET RISK. Market risk is the possibility that the market values of securities
owned by the Fund will decline. Market risk may affect a single issuer,
industry, sector of the economy, or the market as a whole. Investments in common
stocks generally are affected by changes in the stock markets, which fluctuate
substantially over time, sometimes suddenly and sharply. The Fund emphasizes a
"growth" style of investing. The market values of such securities may be more
volatile than other types of investments. The returns on "growth" securities may
or may not move in tandem with the returns on other styles of investing or the
overall stock markets. During an overall stock market decline, stock prices of
smaller or unseasoned companies often fluctuate more and may fall more than the
stock prices of larger, more established companies. Historically, smaller and
medium sized company stocks have sometimes gone through extended periods when
they did not perform as well as larger company stocks.
RISKS OF EMERGING GROWTH COMPANIES. Companies that the Fund's investment adviser
believes are emerging growth companies are often companies with limited product
lines, markets, distribution channels or financial resources and the management
of such companies may be dependent upon one or a few key people. The stocks of
emerging growth companies can therefore be subject to more abrupt or erratic
market movements than stocks of larger, more established companies or the stock
market in general.
FOREIGN RISKS. Because the Fund may own securities of foreign issuers, it may be
subject to risks not usually associated with owning securities of U.S. issuers.
These risks can include fluctuations in foreign currencies, foreign currency
exchange controls, political and economic instability, differences in financial
reporting, differences in securities regulation and trading, and foreign
taxation issues.
RISKS OF USING DERIVATIVE INSTRUMENTS. In general terms, a derivative instrument
is one whose value depends on (or is derived from) the value of an underlying
asset, interest rate or index. Options, futures and options on futures are
examples of derivatives. Derivative instruments involve risks different from
direct investment in underlying securities. These risks include imperfect
correlation between the value of the instruments and the underlying assets;
risks of default by the other party to certain transactions; risks that the
transactions may incur losses that partially or completely offset gains in
portfolio positions; risks that the transactions may not be liquid; and manager
risk.
MANAGER RISK. As with any managed fund, the Fund's investment adviser may not be
successful in selecting the best-performing securities or investment techniques,
and the Fund's performance may lag behind that of similar funds.
3
<PAGE> 5
INVESTOR PROFILE
In light of the Fund's investment objective and strategies, the Fund may be
appropriate for investors who:
- Seek capital appreciation over the long term
- Do not seek current income from their investment
- Can withstand substantial volatility in the value of their Fund shares
- Wish to add to their investment portfolio a fund that emphasizes a growth
style of investing in a portfolio of common stocks of emerging growth
companies
An investment in the Fund is not a deposit of any bank or other insured
depository institution. Your investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
An investment in the Fund may not be appropriate for all investors. The Fund is
not intended to be a complete investment program, and investors should consider
their long-term investment goals and financial needs when making an investment
decision about the Fund. An investment in the Fund is intended to be a long-term
investment and the Fund should not be used as a trading vehicle.
ANNUAL PERFORMANCE
One way to measure the risks of investing in the Fund is to look at how its
performance has varied from year-to-year. The following chart shows the annual
returns of the Fund* over the ten calendar years prior to the date of this
prospectus. Remember that the past performance of the Fund is not indicative of
its future performance.
[GRAPH]
<TABLE>
<CAPTION>
ANNUAL RETURN
-------------
<S> <C>
1990 1.97
1991 60.43
1992 9.73
1993 23.92
1994 -7.12
1995 44.63
1996 17.91
1997 21.34
1998 34.73
1999 0.00
</TABLE>
* The Fund commenced offering Class D Shares on , 2000. The returns
shown in the Annual Performance chart above (and in the Comparative
Performance chart below) are for the Class A Shares of the Fund (which are
offered in a separate prospectus). The annual return variability of the Fund's
Class D Shares would be substantially similar to that shown for the Class A
Shares because all of the Fund's shares are invested in the same portfolio of
securities; however, the actual annual returns of the Class D Shares would be
higher than the annual returns shown for the Fund's Class A Shares because of
differences in the expenses borne by each class of shares.
The Fund's return for Class A Shares for the six-month period ended June 30,
2000 was %.
During the ten-year period shown in the bar chart, the highest quarterly return
was % (for the quarter ended ) and the lowest quarterly return
was - % (for the quarter ended ).
COMPARATIVE PERFORMANCE
As a basis for evaluating the Fund's performance and risks, the table below
shows how the Fund's performance compares with two broad-based market indices
that the Fund's investment adviser believes are appropriate benchmarks for the
Fund: the Russell 2000 Stock Index** and the Standard & Poor's Midcap 400
Index***. The Fund's performance figures are for the Fund's Class A Shares and
include the maximum sales charges paid by investors on such Class A Shares*. The
indices' performance figures do not include any commissions or sales charges
that would be paid by investors purchasing the securities represented by the
indices. Average annual total returns are shown for the periods ended December
31, 1999 (the most recently completed calendar year prior to the date of this
prospectus).
-
4
<PAGE> 6
Remember that the past performance of the Fund is not indicative of its future
performance.
<TABLE>
<CAPTION>
Average Annual
Total Returns
for the
Periods Ended Past Past Past
December 31, 1999 1 Year 5 Years 10 Years
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Van Kampen
Emerging Growth
Fund -- Class A
Shares*
Russell 2000
Stock Index**
Standard & Poor's
Midcap 400
Index***
.......................................................
</TABLE>
* The Fund commenced offering Class D Shares on , 2000. The returns
shown in the Comparative Performance chart are for the Class A Shares of the
Fund (which are offered in a separate prospectus). The annual return
variability of the Fund's Class D Shares would be substantially similar to
that shown for the Class A Shares because all of the Fund's shares are
invested in the same portfolio of securities; however the actual annual
returns of the Class D Shares would be higher than the annual returns shown
for the Fund's Class A Shares because of differences in the expenses borne by
each class of shares.
** The Russell 2000 Stock Index measures the general performance of small-cap
stocks and was initially selected as a benchmark for the Fund's performance.
Based upon the Fund's asset composition, the Fund believes the S&P Midcap
400 Index is a more appropriate broad-based benchmark for the Fund.
Therefore the Russell 2000 Index will not be shown in future reports.
*** The Standard & Poor's Midcap 400 Index is an unmanaged market-weighted index
of 400 domestic mid-cap stocks.
FEES AND EXPENSES
OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES
(fees paid directly from your investment)
<TABLE>
<CAPTION>
Class D
Shares
-----------------------------------------------
<S> <C> <C>
Maximum sales charge (load)
imposed on purchases (as a
percentage of offering price) None
...............................................
Maximum deferred sales charge
(load) (as a
percentage of the lesser of
original purchase price or
redemption proceeds)
None
...............................................
Maximum sales charge (load)
imposed on
reinvested dividends
None
...............................................
Redemption fees None
...............................................
Exchange fee None
...............................................
</TABLE>
<TABLE>
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
-----------------------------------------------
Management fees 0.44%
...............................................
Other expenses 0.16%
...............................................
Total annual fund operating 0.60%
expenses
...............................................
</TABLE>
Example:
The following example is intended to help you compare the cost of investing in
the Fund with the costs of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same each year. Although your actual costs
may be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
One Three Five Ten
Year Years Years Years
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class D Shares $61 $192 $335 $750
......................................................................
</TABLE>
INVESTMENT OBJECTIVE,
POLICIES AND RISKS
The Fund's investment objective is to provide capital appreciation. Any income
received from the investment of portfolio securities is incidental to the Fund's
investment objective. The Fund's investment objective may be changed by the
Fund's Board of Trustees without
-
5
<PAGE> 7
shareholder approval, but no change is anticipated. If there is a change in the
investment objective of the Fund, shareholders should consider whether the Fund
remains an appropriate investment in light of their then current financial
positions and needs. There are risks inherent in all investments in securities;
accordingly, there can be no assurance that the Fund will achieve its investment
objective.
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 a portfolio of emerging growth companies. Emerging growth companies
are those domestic or foreign companies that the Fund's investment adviser
believes are in the early stages of their life cycles and have the potential to
become major enterprises. Investments in such companies may offer greater
opportunities for growth of capital than larger, more established companies, but
also may involve certain special risks. Emerging growth companies often have
limited product lines, markets, distribution channels or financial resources,
and they may be dependent upon one or a few key people for management. The
securities of such companies may be subject to more abrupt or erratic market
movements than securities of larger, more established companies or the market
averages in general.
The Fund's primary approach is to seek what the Fund's investment adviser
believes to be unusually attractive growth opportunities on an individual
company basis. The Fund's investment adviser uses a "bottom-up" disciplined
style of investing. The Fund's investment adviser relies on its research
capabilities and company/analyst meetings in reviewing companies. The Fund
focuses on those companies that exhibit rising earnings expectations and rising
valuations. In selecting securities for investment, the Fund generally seeks
companies that appear to be positioned to produce an attractive level of future
earnings through the development of new products, services or markets or as a
result of changing markets or industry conditions. The Fund's investment adviser
expects that many of the companies in which the Fund invests will, at the time
of investment, be experiencing high rates of earnings growth. The securities of
such companies may trade at higher price to earnings ratios relative to more
established companies and rates of earnings growth may be volatile.
The Fund does not limit its investments to any single group or type of security.
The Fund may invest in securities involving special circumstances, such as
initial public offerings, companies with new management or management reliant on
one or a few key people, special products and techniques, limited or cyclical
product lines, markets or resources or unusual developments, such as mergers,
liquidations, bankruptcies or leveraged buyouts. Investments in smaller or
unseasoned companies or companies with special circumstances often involve much
greater risks than are inherent in other types of investments, because
securities of such companies may be more likely to experience unexpected
fluctuations in price.
The Fund may dispose of a security whenever, in the opinion of the Fund's
investment adviser, factors indicate it is advisable to do so. The Fund
generally sells securities when earnings expectations or valuations flatten or
decline. Other factors may include changes in the company's operations or
relative market performance or appreciation possibilities offered by individual
securities, a change in the market trend or other factors affecting an
individual security, a change in economic or market factors in general or with
respect to a particular industry, and other circumstances bearing on the
desirability of a given investment. In addition, if an individual stock position
appreciates to a point where it begins to account for a larger percentage of the
Fund's assets, the Fund's investment adviser may sell a portion of the position
held.
The Fund may invest in securities that have above average volatility of price
movement. Because prices of common stocks and other securities fluctuate, the
value of an investment in the Fund will vary based upon the Fund's investment
performance. The Fund attempts to reduce overall exposure to risk from declines
in securities prices by spreading its investments over many different companies
in a variety of industries. There is, however, no assurance that the Fund will
be successful in achieving its objective.
The Fund invests primarily in common stocks. Common stocks are shares of a
corporation or other entity that entitle the holder to a pro rata share of the
profits of the corporation, if any, without preference over any other class of
securities, including such entity's debt securities, preferred stock and other
senior equity securities. Common stock usually carries with it the right to vote
and frequently an exclusive right to do so.
While the Fund invests primarily in common stocks, it may invest in preferred
stocks, convertible
-
6
<PAGE> 8
securities and rights and warrants to purchase common or preferred stock.
Preferred stock generally has a preference as to dividends and liquidation over
an issuer's common stock but ranks junior to debt securities in an issuer's
capital structure. Unlike interest payments on debt securities, preferred stock
dividends are payable only if declared by the issuer's board of directors.
Preferred stock also may be subject to optional or mandatory redemption
provisions.
A convertible security is a bond, debenture, note, preferred stock or other
security that may be converted into or exchanged for a prescribed amount of
common stock or other equity security of the same or a different issuer or into
cash within a particular period of time at a specified price or formula. A
convertible security generally entitles the holder to receive interest paid or
accrued on debt securities or the dividend paid on preferred stock until the
convertible security matures or is redeemed, converted or exchanged. Before
conversion, convertible securities generally have characteristics similar to
both debt and equity securities. The value of convertible securities tends to
decline as interest rates rise and, because of the conversion feature, tends to
vary with fluctuations in the market value of the underlying equity securities.
Convertible securities ordinarily provide a stream of income with generally
higher yields than those of common stock of the same or similar issuers.
Convertible securities generally rank senior to common stock in a corporation's
capital structure but are usually subordinated to comparable nonconvertible
securities. Convertible securities generally do not participate directly in any
dividend increases or decreases of the underlying equity securities although the
market prices of the convertible securities may be affected by any dividend
changes or other changes in the underlying equity securities.
Rights and warrants entitle the holder to buy equity securities at a specific
price for a specific period of time. Rights typically have a substantially
shorter duration than do warrants. Rights and warrants may be considered more
speculative and less liquid than certain other types of investments in that they
do not entitle a holder to dividends or voting rights with respect to the
underlying securities nor do they represent any rights in the assets of the
issuing company. Rights and warrants may lack a secondary market.
RISKS OF INVESTING IN
SECURITIES OF FOREIGN ISSUERS
The Fund may invest up to 20% of its total assets in securities of foreign
issuers. Securities of foreign issuers may be denominated in U.S. dollars or in
currencies other than U.S. dollars. Investments in foreign securities present
certain risks not ordinarily associated with investments in securities of U.S.
issuers. These risks include fluctuations in foreign currency exchange rates,
political, economic or legal developments (including war or other instability,
expropriation of assets, nationalization and confiscatory taxation), the
imposition of foreign exchange limitations (including currency blockage),
withholding taxes on dividend or interest payments or capital transactions or
other restrictions, higher transaction costs (including higher brokerage,
custodial and settlement costs and currency conversion costs) and possible
difficulty in enforcing contractual obligations or taking judicial action. Also,
foreign securities may not be as liquid and may be more volatile than comparable
domestic securities.
In addition, there often is less publicly available information about many
foreign issuers, and issuers of foreign securities are subject to different,
often less comprehensive, auditing, accounting and financial reporting
disclosure requirements than domestic issuers. There is generally less
government regulation of stock exchanges, brokers and listed companies abroad
than in the U.S., and, with respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investment in those countries. Because there is
usually less supervision and governmental regulation of exchanges, brokers and
dealers than there is in the U.S., the Fund may experience settlement
difficulties or delays not usually encountered in the U.S.
Delays in making trades in foreign securities relating to volume constraints,
limitations or restrictions, clearance or settlement procedures, or otherwise
could impact returns and result in temporary periods when assets of the Fund are
not fully invested or attractive investment opportunities are foregone.
Investments in securities of developing or emerging market countries are subject
to greater risks than investments in securities of developed countries since
emerging market countries tend to have economic structures that are less diverse
and mature and political systems that are less stable than developed countries.
-
7
<PAGE> 9
In addition to the increased risks of investing in foreign securities, there are
often increased transactions costs associated with investing in foreign
securities including the costs incurred in connection with converting
currencies, higher foreign brokerage or dealer costs, and higher settlement
costs or custodial costs.
USING OPTIONS, FUTURES CONTRACTS
AND RELATED OPTIONS
The Fund may, but is not required to, use various investment strategic
transactions, including options, futures contracts and options on futures
contracts, in several different ways depending upon the status of the Fund's
portfolio and the Fund's investment adviser's expectations concerning the
securities markets. Although the Fund's investment adviser seeks to use the
practices to further the Fund's investment objective, no assurance can be given
that the use of these practices will achieve this result.
In times of stable or rising stock prices, the Fund generally seeks to be fully
invested in equity securities. Even when the Fund is fully invested, however,
prudent management requires that at least a small portion of assets be available
as cash to honor redemption requests and for other short-term needs. The Fund
may also have cash on hand that has not yet been invested. The portion of the
Fund's assets that is invested in cash or cash equivalents does not fluctuate
with stock market prices, so that, in times of rising market prices, the Fund
may underperform the market in proportion to the amount of cash or cash
equivalents in its portfolio. By purchasing stock index futures contracts,
however, the Fund can compensate for the cash portion of its assets and may
obtain performance equivalent to investing 100% of its assets in equity
securities.
The Fund can engage in options transactions on securities (or stock index
options or options on futures) to attempt to manage the portfolio's risk in
advancing or declining markets. For example, the value of a put option generally
increases as the value of the underlying security declines below a specified
level. Value is protected against a market decline to the degree the performance
of the put correlates with the performance of the Fund's investment portfolio.
If the market remains stable or advances, the Fund can refrain from exercising
the put and its portfolio will participate in the advance, having incurred only
the premium cost for the put.
Generally, the Fund expects that options will be purchased or sold on securities
exchanges. However, the Fund is authorized to purchase and sell listed and
over-the-counter options ("OTC Options"). OTC Options are subject to certain
additional risks including default by the other party to the transaction and the
liquidity of the transactions.
The Fund may use futures in many ways. For example, if the Fund's investment
adviser forecasts a market decline, the Fund may seek to reduce its exposure to
the securities markets by increasing its cash position. By selling stock index
futures contracts instead of portfolio securities, a similar result can be
achieved to the extent that the performance of the futures contracts correlates
to the performance of the Fund's portfolio securities. Sales of futures
contracts frequently may be accomplished more rapidly and at less cost than the
actual sale of securities. Once the desired hedged position has been reached,
the Fund could then liquidate securities in a more deliberate manner.
In certain cases, the options and futures markets provide investment or risk
management opportunities that are not available from direct investments in
securities. In addition, some strategies can be performed with greater ease and
at lower cost by utilizing the options and futures markets rather than
purchasing or selling portfolio securities. However, such transactions involve
risks different from the direct investment in underlying securities. For
example, there may be imperfect correlation between the value of the instruments
and the underlying assets. In addition, the use of such instruments includes the
risks of default by the other party to certain transactions. The Fund may incur
losses in using these instruments that partially or completely offset gains in
portfolio positions. These transactions may not be liquid and involve manager
risk. In addition, such transactions may involve commissions and other costs,
which may increase the Fund's expenses and reduce its return. A more complete
discussion of options, futures contracts and related options and their risks is
contained in the Fund's Statement of Additional Information. The Statement of
Additional Information can be obtained by investors free of charge as described
on the back cover of this prospectus.
OTHER INVESTMENTS AND RISK FACTORS
For cash management purposes, the Fund may engage in repurchase agreements with
broker-dealers, banks and other financial institutions in order to earn a return
on temporarily available cash. Such
-
8
<PAGE> 10
transactions are subject to the risk of default by the other party. The Fund may
invest up to 25% of the Fund's total assets at the time of purchase in
securities subject to repurchase agreements.
The Fund may invest up to 10% of the Fund's net assets in illiquid securities
and certain restricted securities. Such securities may be difficult or
impossible to sell at the time and the price that the Fund would like. Thus, the
Fund may have to sell such securities at a lower price, sell other securities
instead to obtain cash or forego other investment opportunities.
Further information about these types of investments and other investment
practices that may be used by the Fund is contained in the Fund's Statement of
Additional Information.
The Fund may sell securities without regard to the length of time they have been
held in order to take advantage of new investment opportunities, or when the
Fund's investment adviser believes the potential for capital appreciation has
lessened, or for other reasons. The portfolio turnover rate may vary from year
to year. A high portfolio turnover rate (100% or more) increases a fund's
transactions costs (including brokerage commissions or dealer costs) and high
portfolio turnover may result in the realization of more short-term capital
gains than if a fund had lower portfolio turnover. Increases in a fund's
transaction costs would adversely impact that fund's performance. The turnover
rate will not be a limiting factor, however, if the Fund's investment adviser
considers portfolio changes appropriate.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Fund may invest on a temporary basis a portion or all
of its assets in securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities, prime commercial paper, certificates of deposit,
bankers' acceptances and other obligations of domestic banks having total assets
of at least $500 million, and repurchase agreements. Under normal market
conditions, the potential for capital appreciation on these securities will tend
to be lower than the potential for capital appreciation on other securities that
may be owned by the Fund. In taking such a defensive position, the Fund would
not be pursuing and may not achieve its investment objective.
INVESTMENT ADVISORY SERVICES
THE ADVISER. Van Kampen Asset Management Inc. is the Fund's investment adviser
(the "Adviser" or "Asset Management"). The Adviser is a wholly owned subsidiary
of Van Kampen Investments Inc. ("Van Kampen Investments"). Van Kampen
Investments is a diversified asset management company with more than three
million retail investor accounts, extensive capabilities for managing
institutional portfolios, and more than $100 billion under management or
supervision as of June 30, 2000. Van Kampen Investments' more than 50 open-end
and 39 closed-end funds and more than 2,700 unit investment trusts are
professionally distributed by leading authorized dealers nationwide. Van Kampen
Funds Inc., the distributor of the Fund (the "Distributor") and the sponsor of
the funds mentioned above, is also a wholly owned subsidiary of Van Kampen
Investments. Van Kampen Investments is an indirect wholly owned subsidiary of
Morgan Stanley Dean Witter & Co. The Adviser's principal office is located at 1
Parkview Plaza, PO Box 5555, Oakbrook Terrace, Illinois 60181-5555.
ADVISORY AGREEMENT. The Fund retains the Adviser to manage the investment of its
assets and to place orders for the purchase and sale of its portfolio
securities. Under an investment advisory agreement between the Adviser and the
Fund (the "Advisory Agreement"), the Fund pays the Adviser a monthly fee
computed based upon an annual rate applied to the average daily net assets of
the Fund as follows:
<TABLE>
<CAPTION>
Average Daily Net Assets % Per Annum
------------------------------------------------------
<S> <C> <C> <C>
First $350 million 0.575 of 1.00%
......................................................
Next $350 million 0.525 of 1.00%
......................................................
Next $350 million 0.475 of 1.00%
......................................................
Over $1,050 million 0.425 of 1.00%
......................................................
</TABLE>
Applying this fee schedule, the effective advisory fee rate was 0.45% of the
Fund's average daily net assets for the Fund's fiscal year ended August 31,
1999.
Under the Advisory Agreement, the Adviser furnishes offices, necessary
facilities and equipment and provides administrative services to the Fund. The
Fund pays all charges and expenses of its day-to-day operations, including
service fees, distribution fees,
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9
<PAGE> 11
custodial fees, legal and independent accountant fees, the costs of reports and
proxies to shareholders, compensation of trustees of the Trust (other than those
who are affiliated persons of the Adviser, Distributor or Van Kampen
Investments) and all other ordinary business expenses not specifically assumed
by the Adviser.
From time to time, the Adviser or the Distributor may voluntarily undertake to
reduce the Fund's expenses by reducing the fees payable to them or by reducing
other expenses of the Fund in accordance with such limitations as the Adviser or
Distributor may establish.
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen Investment
Advisory Corp. ("Advisory Corp.").
PERSONAL INVESTMENT POLICIES. The Fund, the Adviser and the Distributor have
adopted Codes of Ethics designed to recognize the fiduciary relationship among
the Fund, the Adviser, the Distributor and their respective employees. The Codes
of Ethics permit directors, trustees, officers and employees to buy and sell
securities for their personal accounts subject to certain restrictions. Persons
with access to certain sensitive information are subject to pre-clearance and
other procedures designed to prevent conflicts of interest.
PORTFOLIO MANAGEMENT. The Fund is managed by a team of portfolio managers.
Senior Portfolio Manager Gary M. Lewis is the lead manager of the Fund. Mr.
Lewis has overall responsibility for the team of portfolio managers which
manages the Van Kampen Aggressive Growth, Van Kampen Select Growth and Van
Kampen Technology Funds in addition to the Fund. Mr. Lewis has been a Senior
Vice President of the Adviser and Advisory Corp. since September 1995. Mr. Lewis
became a Vice President and Portfolio Manager of the Adviser in June 1991. Mr.
Lewis has been employed by the Adviser since September 1986. He has been
affiliated with the Fund since April 1989.
Senior Portfolio Managers Dudley Brickhouse, Janet Luby and David Walker and
Portfolio Manager Matthew Hart are responsible as co-managers for the day-to-day
management of the Fund's investment portfolio.
Mr. Brickhouse has been a Senior Portfolio Manager since April 2000, and a
Portfolio Manager and Vice President of the Adviser and Advisory Corp. since
December 1998. Mr. Brickhouse became an Associate Portfolio Manager of the
Adviser and Advisory Corp. in September 1997. Prior to September 1997, Mr.
Brickhouse was a Vice President and Portfolio Manager with NationsBank, where he
had worked since 1985. He has been affiliated with the Fund since September
1997.
Mr. Hart has been a Portfolio Manager since January 1998, and a Vice President
of the Adviser and Advisory Corp. since December 1998. Mr. Hart became an
Associate Portfolio Manager of the Adviser and Advisory Corp. in August 1997.
Prior to August 1997, Mr. Hart held various positions within the portfolio area
of AIM Capital Management, Inc., where he had worked since June 1992. Mr. Hart's
last position in the AIM portfolio area was as a convertible bonds analyst. He
has been affiliated with the Fund since February 2000.
Ms. Luby has been a Senior Portfolio Manager since April 2000, and a Portfolio
Manager and Vice President of the Adviser and Advisory Corp. since December
1998. Ms. Luby became an Assistant Vice President of the Adviser and Advisory
Corp. in December 1997 and an Associate Portfolio Manager of the Adviser in July
1995. Prior to July 1995, Ms. Luby spent eight years at AIM Capital Management,
Inc. where she worked five years in the accounting department and three years in
the investment area. Her last position in the AIM investment area was as a
senior securities analyst. Ms. Luby also has been the portfolio manager for
various unit investment trusts managed by the Adviser or its affiliates since
August 1999. She has been affiliated with the Fund since January 1995.
Mr. Walker has been a Senior Portfolio Manager since April 2000, and a Portfolio
Manager and Vice President of the Adviser and Advisory Corp. since December
1998. Mr. Walker became an Assistant Vice President of the Adviser and Advisory
Corp. in June 1995. Prior to April 1996, Mr. Walker was a Quantitative Analyst
of the Adviser and has worked for the Adviser since October 1990. Mr. Walker
also has been the portfolio manager for various unit investment trusts managed
by the Adviser or its affiliates since September 1997. He has been affiliated
with the Fund since April 1996.
-
10
<PAGE> 12
PURCHASE OF SHARES
GENERAL
This prospectus offers Class D Shares of the Fund. Class D Shares are available
for purchase exclusively by the following categories of institutional investors:
(i) tax-exempt retirement plans (Profit Sharing, 401(k), Money Purchase Pension
and Defined Benefit Plans) of Morgan Stanley Dean Witter & Co. ("Morgan Stanley
Dean Witter") and its affiliates and rollover accounts from those plans; (ii)
the following investment advisory clients of Morgan Stanley Dean Witter and its
investment advisory affiliates that invest at least $1,000,000 in the Fund:
unaffiliated benefit plans, such as qualified retirement plans (other than
individual retirement accounts and self-directed retirement plans); unaffiliated
banks and insurance companies purchasing for their own accounts; and endowment
funds of unaffiliated nonprofit organizations; (iii) investment-only accounts
for large qualified plans with at least $50,000,000 in total plan assets; and,
(iv) trust and fiduciary accounts of trust companies and bank trust departments
providing fee based advisory services that invest at least $1,000,000 in the
Fund on behalf of each trust.
Initial investments must be at least $1,000,000 for Class D Shares, and
subsequent investments must be at least $25 for Class D Shares. Minimum
investment amounts may be waived by the Distributor for plans involving periodic
investments.
Other classes of shares of the Fund may be offered through one or more separate
prospectuses of the Fund. Each class of shares of the Fund represents an
interest in the same portfolio of investments of the Fund and generally has the
same rights, except for the differing sales loads, distribution fees, services
fees and any related expenses associated with each class of shares, the
exclusive voting rights by each class with respect to any distribution plan or
service plan for such class or shares, and some classes may have different
conversion rights or shareholder servicing options.
The offering price of the Fund's Class D Shares is the Fund's net asset value
per share. The net asset value per share is determined once daily as of the
close of trading on the New York Stock Exchange (the "Exchange") (currently 4:00
p.m., New York time) each day the Exchange is open for trading except on any day
on which no purchase or redemption orders are received or there is not a
sufficient degree of trading in the Fund's portfolio securities such that the
Fund's net asset value per share might be materially affected. The Fund's Board
of Trustees reserves the right to calculate the net asset value per share and
adjust the offering price based thereon more frequently than once daily if
deemed desirable. Net asset value per share for each class is determined by
dividing the value of the Fund's portfolio securities, cash and other assets
(including accrued interest) attributable to such class, less all liabilities
(including accrued expenses) attributable to such class, by the total number of
shares of the class outstanding. Such computation is made by using prices as of
the close of trading on the Exchange and (i) valuing securities listed or traded
on a national securities exchange at the last reported sale price, or if there
has been no sale that day, at the mean between the last reported bid and asked
prices, (ii) valuing over-the-counter securities at the mean between the last
reported bid and asked prices available from the National Association of
Securities Dealers Automated Quotations ("NASDAQ") and (iii) valuing any
securities for which market quotations are not readily available and any other
assets at fair value as determined in good faith by the Adviser in accordance
with procedures established by the Fund's Board of Trustees. Short-term
securities are valued in the manner described in the notes to the financial
statements included in the Fund's Statement of Additional Information.
The shares are offered to investors on a continuous basis through the
Distributor as principal underwriter, which is located at 1 Parkview Plaza,
Oakbrook Terrace, Illinois 60181-5555. Shares also are offered through members
of the NASD who are acting as securities dealers ("dealers") and NASD members or
eligible non-NASD members who are acting as brokers or agents for investors
("brokers"). "Dealers" and "brokers" are sometimes referred to herein as
"authorized dealers."
Shares may be purchased on any business day by completing the application
accompanying this prospectus and forwarding the application, directly or through
an authorized dealer, to the Fund's shareholder service agent, Van Kampen
Investor Services Inc. ("Investor Services"), a wholly owned subsidiary of Van
Kampen Investments. When purchasing shares of the Fund through this prospectus,
investors must specify that the purchase is for Class D Shares.
-
11
<PAGE> 13
The offering price for Class D Shares is the next calculation of net asset value
per share after an order is received by Investor Services. Orders received by
authorized dealers prior to the close of the Exchange are priced based on the
date of receipt provided such order is transmitted to Investor Services prior to
Investor Services' close of business on such date. Orders received by authorized
dealers after the close of the Exchange or transmitted to Investor Services
after its close of business are priced based on the date of the next computed
net asset value per share provided they are received by Investor Services prior
to Investor Services' close of business on such date. It is the responsibility
of authorized dealers to transmit orders received by them to Investor Services
so they will be received in a timely manner.
The Fund and the Distributor reserve the right to refuse any order for the
purchase of shares. The Fund also reserves the right to suspend the sale of the
Fund's shares in response to conditions in the securities markets or for other
reasons. Shares of the Fund may be sold in foreign countries where permissible.
Investor accounts will automatically be credited with additional shares of the
Fund after any Fund distributions, such as dividends and capital gain dividends,
unless the investor instructs the Fund otherwise. Investors wishing to receive
cash instead of additional shares should contact the Fund at (800) 341-2911 or
by writing to the Fund, c/o Van Kampen Investors Services Inc., PO Box 218256,
Kansas City, MO 64121-8256.
REDEMPTION OF
SHARES
Generally, shareholders of Class D Shares of the Fund may redeem for cash some
or all of their shares without charge by the Fund at any time. The redemption
price will be the net asset value per share next determined after the receipt of
a request in proper form (see below). Redemptions completed through an
authorized dealer or a custodian of a retirement plan account may involve
additional fees charged by the dealer or custodian.
Except as specified below under "Telephone Redemption Requests," payment for
shares redeemed generally will be made by check mailed within seven days after
receipt by Investor Services of the request and any other necessary documents in
proper form as described below. Such payment may be postponed or the right of
redemption suspended as provided by the rules of the SEC. Such payment may,
under certain circumstances, be paid wholly or in part by a distribution-in-kind
of portfolio securities. A distribution in-kind will result in recognition by
the shareholder of a gain or loss for federal income tax purposes when such
securities are distributed, and the shareholder may have brokerage costs and a
gain or loss for federal income tax purposes upon the shareholder's disposition
of such securities. If the shares to be redeemed have been recently purchased by
check, Investor Services may delay the payment of redemption proceeds until it
confirms the purchase check has cleared, which may take up to 15 days. A taxable
gain or loss will be recognized by the shareholder upon redemption of shares.
WRITTEN REDEMPTION REQUESTS. Shareholders may request a redemption of shares by
written request in proper form sent directly to Van Kampen Investor Services
Inc., PO Box 218256, Kansas City, MO 64121-8256. The request for redemption
should indicate the number of shares to be redeemed, the class designation of
such shares and the shareholder's account number. The redemption request must be
signed by all persons in whose names the shares are registered. Signatures must
conform exactly to the account registration. If the proceeds of the redemption
exceed $50,000, or if the proceeds are not to be paid to the record owner at the
record address, or if the record address has changed within the previous 30
days, signature(s) must be guaranteed by one of the following: a bank or trust
company; a broker-dealer; a credit union; a national securities exchange,
registered securities association or clearing agency; a savings and loan
association; or a federal savings bank.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption request to be in proper form.
In some cases, however, additional documents may be necessary. Certificated
shares may be redeemed only by written request. The certificates for the shares
being redeemed must be properly endorsed for transfer and must accompany the
redemption request.
In the case of written redemption requests sent directly to Investor Services,
the redemption price is the net asset value per share next determined after
-
12
<PAGE> 14
the request in proper form is received by Investor Services.
AUTHORIZED DEALER REDEMPTION REQUESTS. Shareholders may place redemption
requests through an authorized dealer. The redemption price for such shares is
the net asset value per share next calculated after an order in proper form is
received by an authorized dealer provided such order is transmitted to the
Distributor prior to the Distributor's close of business on such day. It is the
responsibility of authorized dealers to transmit redemption requests received by
them to the Distributor so they will be received prior to such time. Redemptions
completed through an authorized dealer may involve additional fees charged by
the dealer.
TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. A shareholder
automatically has telephone redemption privileges unless the shareholder
indicates otherwise by checking the applicable box on the application form
accompanying the prospectus. For accounts that are not established with
telephone redemption privileges, a shareholder may call the Fund at (800)
341-2911 to request that a copy of the Telephone Redemption Authorization form
be sent to the shareholder for completion. To redeem shares, contact the
telephone transaction line at (800) 421-5684. Van Kampen Investments and its
subsidiaries, including Investor Services, and the Fund employ procedures
considered by them to be reasonable to confirm that instructions communicated by
telephone are genuine. Such procedures include requiring certain personal
identification information prior to acting upon telephone instructions, tape
recording telephone communications and providing written confirmation of
instructions communicated by telephone. If reasonable procedures are employed,
none of Van Kampen Investments, Investor Services or the Fund will be liable for
following telephone instructions which it reasonably believes to be genuine.
Telephone redemptions may not be available if the shareholder cannot reach
Investor Services by telephone, whether because all telephone lines are busy or
for any other reason; in such case, a shareholder would have to use the Fund's
other redemption procedure previously described. Requests received by Investor
Services prior to 4:00 p.m., New York time, will be processed at the next
determined net asset value per share. These privileges are available for all
accounts other than retirement accounts or accounts with shares represented by
certificates. If an account has multiple owners, Investor Services may rely on
the instructions of any one owner.
For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check and amounts of at least
$1,000 up to $1 million may be redeemed daily if the proceeds are to be paid by
wire. The proceeds must be payable to the shareholder(s) of record and sent to
the address of record for the account or wired directly to their predesignated
bank account. This privilege is not available if the address of record has been
changed within 30 days prior to a telephone redemption request. Proceeds from
redemptions payable by wire transfer are expected to be wired on the next
business day following the date of redemption. The Fund reserves the right at
any time to terminate, limit or otherwise modify this redemption privilege.
OTHER REDEMPTION INFORMATION. The Fund may redeem any shareholder account that
has a value on the date of the notice of redemption less than the minimum
initial investment as specified in this prospectus. At least 60 days' advance
written notice of any such involuntary redemption will be provided to the
shareholder and such shareholder will be given an opportunity to purchase the
required value of additional shares at the next determined net asset value
without sales charge. Any involuntary redemption may only occur if the
shareholder account is less than the minimum initial investment due to
shareholder redemptions.
DISTRIBUTIONS FROM THE FUND
In addition to any increase in the value of shares which the Fund may achieve,
shareholders may receive distributions from the Fund of dividends and capital
gain dividends.
DIVIDENDS. Dividends from stocks and interest earned from other investments are
the Fund's main sources of income. The Fund's present policy, which may be
changed at any time by the Board of Trustees, is to distribute all, or
substantially all of this income, less expenses, at least annually as dividends
to
-
13
<PAGE> 15
shareholders. Dividends are automatically applied to purchase additional shares
of the Fund at the next determined net asset value unless the shareholder
instructs otherwise.
CAPITAL GAIN DIVIDENDS. The Fund may realize capital gains or losses when it
sells securities, depending on whether the sales prices for the securities are
higher or lower than purchase prices. Net capital gain represents the total
profits from sales of securities minus total losses from sales of securities
(including any losses carried forward from prior years), other than net
short-term capital gain from sales of securities held for one year or less. The
Fund distributes any taxable net capital gain to shareholders as capital gain
dividends at least annually. As in the case of dividends, capital gain dividends
are automatically reinvested in additional shares of the Fund at the next
determined net asset value unless the shareholder instructs otherwise.
SHAREHOLDER SERVICES
Listed below are some of the shareholder services the Fund offers to investors.
For a more complete description of the Fund's shareholder services, such as
investment accounts, share certificates, retirement plans, automated clearing
house deposits, dividend diversification and the systematic withdrawal plan,
please refer to the Statement of Additional Information or contact your
authorized dealer.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gain dividends in shares of the
Fund. Such shares are acquired at net asset value per share on the applicable
payable date of the dividend or capital gain dividend. Unless the shareholder
instructs otherwise, the reinvestment plan is automatic. This instruction may be
made by telephone by calling (800) 341-2911 ((800) 421-2833 for the hearing
impaired) or by writing to Investor Services. The investor may, on the initial
application or prior to any declaration, instruct that dividends be paid in cash
and capital gain dividends be reinvested at net asset value, or that both
dividends and capital gain dividends be paid in cash.
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under which
a shareholder can authorize Investor Services to charge a bank account on a
regular basis to invest pre-determined amounts in the Fund. Additional
information is available from the Distributor or your authorized dealer.
EXCHANGE PRIVILEGE. Shares of the Fund may be exchanged for shares of the same
class of any Participating Fund based on the next computed net asset value per
share of each fund after requesting the exchange without any sales charge,
subject to certain limitations. Shares of the Fund may be exchanged for shares
of any Participating Fund only if shares of that Participating Fund are
available for sale; however, during periods of suspension of sales, shares of a
Participating Fund may be available for sale only to existing shareholders of a
Participating Fund. Shareholders seeking an exchange into a Participating Fund
should obtain and read the current prospectus for such fund prior to
implementing an exchange. A prospectus of any of the Participating Funds may be
obtained from any authorized dealer or the Distributor.
To be eligible for exchange, shares of the Fund must have been registered in the
shareholder's name for at least 30 days prior to an exchange. Shares of the Fund
registered in a shareholder's name for less than 30 days may only be exchanged
upon receipt of prior approval of the Adviser. It is the policy of the Adviser,
under normal circumstances, not to approve such requests.
Exchanges of shares are sales of shares of one Participating Fund and purchases
of shares of another Participating Fund. The sale may result in a gain or loss
for federal income tax purposes.
If the exchanging shareholder does not have an account in the fund whose shares
are being acquired, a new account will be established with the same
registration, dividend and capital gain dividend options (except dividend
diversification) and authorized dealer of record as the account from which
shares are exchanged, unless otherwise specified by the shareholder. In order to
establish a systematic withdrawal plan for the new account or reinvest dividends
from the new account into another fund, however, an exchanging shareholder must
submit a specific request. The Fund reserves the right to reject any order to
acquire its shares through exchange. In addition, the Fund and other
Participating Funds may restrict exchanges by shareholders engaged in excessive
trading by limiting or disallowing the exchange privilege to such shareholders.
For further information on these restrictions, see the Statement of Additional
Information. The Fund may modify,
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14
<PAGE> 16
restrict or terminate the exchange privilege at any time on 60 days' notice to
its shareholders of any termination or material amendment.
Exchange requests received on a business day prior to the time shares of the
funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares of the fund which the
shareholder is redeeming will be redeemed at the net asset value per share next
determined on the date of receipt. Shares of the fund that the shareholder is
purchasing will also normally be purchased at the net asset value per share next
determined on the date of receipt. Exchange requests received on a business day
after the time shares of the funds involved in the request are priced will be
processed on the next business day in the manner described herein.
FEDERAL INCOME TAXATION
Distributions of the Fund's net investment income (consisting generally of
taxable income and net short-term capital gain) are taxable to shareholders as
ordinary income to the extent of the Fund's earnings and profits, whether paid
in cash or reinvested in additional shares. Distributions of the Fund's net
capital gain (which is the excess of net long-term capital gain over net
short-term capital loss) as capital gain dividends, if any, are taxable to
shareholders as long-term capital gains, whether paid in cash or reinvested in
additional shares, and regardless of how long the shares of the Fund have been
held by such shareholders. The Fund expects that its distributions will consist
of ordinary income and capital gain dividends. Distributions in excess of the
Fund's earnings and profits will first reduce the adjusted tax basis of a
holder's shares and, after such adjusted tax basis is reduced to zero, will
constitute capital gains to such holder (assuming such shares are held as a
capital asset). Although distributions generally are treated as taxable in the
year they are paid, distributions declared in October, November or December,
payable to shareholders of record on a specified date in such month and paid
during January of the following year will be treated as having been distributed
by the Fund and received by the shareholders on the December 31st prior to the
date of payment. The Fund will inform shareholders of the source and tax status
of all distributions promptly after the close of each calendar year.
The sale or exchange of shares is a taxable transaction for federal income tax
purposes. Shareholders who sell their shares will generally recognize gain or
loss in an amount equal to the difference between their adjusted tax basis in
the shares sold and the amount received. If the shares are held as a capital
asset, the gain or loss will be a capital gain or loss. Any capital gains may be
taxed at different rates depending on how long the shareholder held such shares.
The Fund is required, in certain circumstances, to withhold 31% of dividends and
certain other payments, including redemptions, paid to shareholders who do not
furnish to the Fund their correct taxpayer identification number (in the case of
individuals, their social security number) and certain required certifications
or who are otherwise subject to backup withholding.
Foreign shareholders, including shareholders who are non-resident aliens, may be
subject to U.S. withholding tax on certain distributions (whether received in
cash or in shares) at a rate of 30% or such lower rate as prescribed by an
applicable treaty. Prospective foreign investors should consult their tax
advisers concerning the tax consequences to them of an investment in shares.
The Fund intends to qualify as a regulated investment company under federal
income tax law. If the Fund so qualifies and distributes each year to its
shareholders at least 90% of its net investment income, the Fund will not be
required to pay federal income taxes on any income it distributes to
shareholders. If the Fund distributes less than an amount equal to the sum of
98% of its ordinary income and 98% of its capital gain net income, then the Fund
will be subject to a 4% excise tax on such undistributed amounts.
The federal income tax discussion set forth above is for general information
only. Prospective investors should consult their own tax advisers regarding the
specific federal tax consequences of purchasing, holding, and disposing of
shares, as well as the effects of state, local and foreign tax law and any
proposed tax law changes.
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15
<PAGE> 17
BOARD OF TRUSTEES
AND OFFICERS
BOARD OF TRUSTEES
<TABLE>
<S> <C>
J. Miles Branagan Richard F. Powers, III*
Jerry D. Choate Phillip B. Rooney
Linda Hutton Heagy Fernando Sisto
R. Craig Kennedy Wayne W. Whalen*
Mitchell M. Merin* Suzanne H. Woolsey
Jack E. Nelson
</TABLE>
OFFICERS
Richard F. Powers, III*
President
Stephen L. Boyd*
Executive Vice President and Chief Investment Officer
A. Thomas Smith III*
Vice President and Secretary
John H. Zimmerman, III
Vice President
Michael H. Santo*
Vice President
Richard A. Ciccarone*
Vice President
John R. Reynoldson*
Vice President
John L. Sullivan*
Vice President, Chief Financial Officer & Treasurer
* "Interested Persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2911
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders, or
redemptions, call the Distributor at (800) 421-5666
WEB SITE
www.vankampen.com
VAN KAMPEN EMERGING GROWTH FUND
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Investment Adviser
VAN KAMPEN ASSET MANAGEMENT INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Distributor
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Transfer Agent
VAN KAMPEN INVESTOR SERVICES INC.
PO Box 218256
Kansas City, MO 64121-8256
Attn: Van Kampen Emerging Growth Fund
Custodian
STATE STREET BANK AND TRUST COMPANY
225 West Franklin Street, PO Box 1713
Boston, MA 02105-1713
Attn: Van Kampen Emerging Growth Fund
Legal Counsel
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
Independent Accountants
ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
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<PAGE> 18
[VAN KAMPEN FUNDS LOGO]
The Fund's Investment Company Act
File No. is 811-2424.
EMG PRO 9/00
VAN KAMPEN
EMERGING GROWTH FUND
PROSPECTUS
SEPTEMBER , 2000
A Statement of Additional Information, which
contains more details about the Fund, is
incorporated by reference in its entirety into
this prospectus.
You will find additional information about the
Fund in its annual and semiannual reports to
shareholders. The annual report explains the
market conditions and investment strategies
affecting the Fund's performance during its
last fiscal year.
You can ask questions or obtain a free copy of
the Fund's reports or its Statement of
Additional Information by calling (800)
341-2911 from 7:00 a.m. to 7:00 p.m., Central
time, Monday through Friday.
Telecommunications Device for the Deaf users
may call (800) 421-2833. A free copy of the
Fund's reports can also be ordered from our
web site at www.vankampen.com.
Information about the Fund, including its
reports and Statement of Additional
Information, has been filed with the
Securities and Exchange Commission (SEC). It
can be reviewed and copied at the SEC's Public
Reference Room in Washington, DC or on the
EDGAR Database on the SEC's internet site
(http://www.sec.gov). Information on the
operation of the SEC's Public Reference Room
may be obtained by calling the SEC at
1-202-942-8090. You can also request copies of
these materials, upon payment of a duplicating
fee, by electronic request at the SEC's e-mail
address ([email protected]) or by writing the
Public Reference Section of the SEC,
Washington, DC 20549-0102.
<PAGE> 19
*THE INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT
COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
IS EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT AN OFFER TO
SELL SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY SECURITIES IN ANY
STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION--DATED JULY 27, 2000*
STATEMENT OF ADDITIONAL INFORMATION
VAN KAMPEN
EMERGING GROWTH FUND
Van Kampen Emerging Growth Fund (the "Fund") is a mutual fund with the
investment objective of capital appreciation. The Fund's investment adviser
seeks to achieve the Fund's investment objective by investing primarily in a
portfolio of common stocks of companies considered by the Fund's investment
adviser to be emerging growth companies.
The Fund is organized as a diversified series of Van Kampen Emerging Growth
Fund, an open-end, management investment company (the "Trust").
This Statement of Additional Information is not a prospectus. This
Statement of Additional Information should be read in conjunction with the
Fund's Class D Share prospectus dated September , 2000 and Class A Share,
Class B Share and Class C Share prospectus dated December 29, 1999, as
supplemented (collectively the "Prospectus"). This Statement of Additional
Information does not include all the information that a prospective investor
should consider before purchasing shares of the Fund. Investors should obtain
and read the Prospectus prior to purchasing shares of the Fund. A Prospectus may
be obtained without charge by writing or calling Van Kampen Funds Inc. at 1
Parkview Plaza, PO Box 5555, Oakbrook Terrace, Illinois 60181-5555 or (800)
341-2911 (or (800) 421-2833 for the hearing impaired).
---------------------------------------------
TABLE OF CONTENTS
---------------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
General Information......................................... B-2
Investment Objective, Policies and Risks.................... B-3
Options, Futures Contracts and Related Options.............. B-7
Investment Restrictions..................................... B-13
Trustees and Officers....................................... B-14
Investment Advisory Agreement............................... B-23
Other Agreements............................................ B-24
Distribution and Service.................................... B-25
Transfer Agent.............................................. B-29
Portfolio Transactions and Brokerage Allocation............. B-29
Shareholder Services........................................ B-31
Redemption of Shares........................................ B-34
Contingent Deferred Sales Charge-Class A.................... B-34
Waiver of Class B and Class C Contingent Deferred Sales
Charges................................................... B-34
Taxation.................................................... B-37
Fund Performance............................................ B-42
Other Information........................................... B-45
Report of Independent Accountants........................... F-1
Financial Statements........................................ F-2
Notes to Financial Statements............................... F-14
</TABLE>
THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED SEPTEMBER , 2000.
<PAGE> 20
GENERAL INFORMATION
The Fund was originally incorporated in Delaware on January 23, 1969 under
the name American Capital Venture Fund, Inc. The Fund was reincorporated by
merger into a Maryland corporation on September 19, 1973 under the same name. On
July 24, 1990 the Fund changed its name from American Capital Venture Fund, Inc.
to American Capital Emerging Growth Fund, Inc. As of August 5, 1995, the Fund
was reorganized under the name Van Kampen American Capital Emerging Growth Fund
as a series of the Trust. The Trust is a business trust organized under the laws
of the State of Delaware. On July 14, 1998, the Fund and the Trust adopted their
present names.
Van Kampen Asset Management Inc. (the "Adviser" or "Asset Management"), Van
Kampen Funds Inc. (the "Distributor"), and Van Kampen Investor Services Inc.
("Investor Services") are wholly owned subsidiaries of Van Kampen Investments
Inc. ("Van Kampen Investments"), which is an indirect wholly owned subsidiary of
Morgan Stanley Dean Witter & Co ("Morgan Stanley Dean Witter"). The principal
office of the Fund, the Adviser, the Distributor and Van Kampen Investments is
located at 1 Parkview Plaza, PO Box 5555, Oakbrook Terrace, Illinois 60181-5555.
Morgan Stanley Dean Witter and various of its directly or indirectly owned
subsidiaries, including Morgan Stanley Dean Witter Investment Management Inc.,
an investment adviser, Morgan Stanley & Co. Incorporated, a registered
broker-dealer and investment adviser, and Morgan Stanley International, are
engaged in a wide range of financial services. Their principal businesses
include securities underwriting, distribution and trading; merger, acquisition,
restructuring and other corporate finance advisory activities; merchant banking;
stock brokerage and research services; credit services; asset management;
trading of futures, options, foreign exchange, commodities and swaps (involving
foreign exchange, commodities, indices and interest rates); real estate advice,
financing and investing; and securities lending.
The authorized capitalization of the Trust consists of an unlimited number
of shares of beneficial interest, par value $0.01 per share, which can be
divided into series, such as the Fund, and further subdivided into classes of
each series. Each share represents an equal proportionate interest in the assets
of the series with each other share in such series and no interest in any other
series. No series is subject to the liabilities of any other series. The
Declaration of Trust provides that shareholders are not liable for any
liabilities of the Trust or any of its series, requires inclusion of a clause to
that effect in every agreement entered into by the Trust or any of its series
and indemnifies shareholders against any such liability.
The Fund currently offers four classes of shares, designated Class A
Shares, Class B Shares, Class C Shares and Class D Shares. Other classes may be
established from time to time in accordance with provisions of the Declaration
of Trust. Each class of shares of the Fund generally are identical in all
respects except that each class bears certain distribution expenses and has
exclusive voting rights with respect to its distribution fee. Shares of the
Trust entitle their holders to one vote per share; however, separate votes are
taken by each series on matters affecting an individual series and separate
votes are taken by each class of a series on matters affecting an individual
class of such series. For example, a change in investment policy for a series
would be voted upon by shareholders of only the series involved and a change in
the distribution fee for a class of a series would be voted upon by shareholders
of only the class of such series involved. Except as otherwise described in the
Prospectus or herein, shares do not have cumulative voting rights, preemptive
rights or any conversion, subscription or exchange rights.
B-2
<PAGE> 21
The Trust does not contemplate holding regular meetings of shareholders to
elect Trustees or otherwise. However, the holders of 10% or more of the
outstanding shares may by written request require a meeting to consider the
removal of Trustees by a vote of a majority of the shares then outstanding cast
in person or by proxy at such meeting. The Fund will assist such holders in
communicating with other shareholders of the Fund to the extent required by the
Investment Company Act of 1940, as amended (the "1940 Act"), or rules or
regulations promulgated by the Securities and Exchange Commission ("SEC").
In the event of liquidation, each of the shares of the Fund is entitled to
its portion of all of the Fund's net assets after all debts and expenses of the
Fund have been paid. Since Class B Shares and Class C Shares have higher
distribution fees and transfer agency costs, the liquidation proceeds to holders
of Class B Shares and Class C Shares are likely to be less than to holders of
Class A Shares and Class D Shares.
The Trustees may amend the Declaration of Trust (including with respect to
any series) in any manner without shareholder approval, except that the Trustees
may not adopt any amendment adversely affecting the rights of shareholders of
any series without approval by a majority of the shares of each affected series
outstanding and entitled to vote (or such higher vote as may be required by the
1940 Act or other applicable law) and except that the Trustees cannot amend the
Declaration of Trust to impose any liability on shareholders, make any
assessment on shares or impose liabilities on the Trustees without approval from
each affected shareholder or Trustee, as the case may be.
Statements contained in this Statement of Additional Information as to the
contents of any contract or other document referred to are not necessarily
complete, and, in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement of which
this Statement of Additional Information forms a part, each such statement being
qualified in all respects by such reference.
As of September , 2000, no person was known by the Fund to own
beneficially or to hold of record 5% or more of the outstanding Class A Shares,
Class B Shares, Class C Shares or Class D Shares of the Fund, except as follows:
<TABLE>
<CAPTION>
Amount of
Ownership at
September , Class Percentage
Name and Address of Holder 2000 of Shares Ownership
-------------------------- ------------- --------- ----------
<S> <C> <C> <C>
</TABLE>
------------------------------------
Van Kampen Trust Company acts as custodian for certain employee benefit
plans
and individual retirement accounts.
INVESTMENT OBJECTIVE, POLICIES AND RISKS
The following disclosures supplement disclosures set forth under the same
caption in the Prospectus and do not, standing alone, present a complete or
accurate explanation of the matters disclosed. Readers must refer also to this
caption in the Prospectus for a complete presentation of the matters disclosed
below.
The following investment techniques, subject to the Investment Restrictions
below, may be employed by the Fund. These techniques inherently involve the
assumption of a higher degree of risk than normal and the possibility of more
volatile price fluctuations. Investment in the Fund should not be viewed as a
complete investment program and
B-3
<PAGE> 22
prospective investors are advised to give full consideration to the risks
inherent in the investment techniques used by the Fund.
REPURCHASE AGREEMENTS
The Fund may engage in repurchase agreements with broker-dealers, banks or
other financial institutions in order to earn a return on temporarily available
cash. A repurchase agreement is a short-term investment in which the purchaser
(i.e., the Fund) acquires ownership of a security and the seller agrees to
repurchase the obligation at a future time and set price, thereby determining
the yield during the holding period. It is the current policy of the Fund not to
invest at the time of purchase more than 25% of its total assets in securities
subject to repurchase agreements. Repurchase agreements involve certain risks in
the event of default by the other party. The Fund may enter into repurchase
agreements with broker-dealers, banks or other financial institutions deemed to
be creditworthy by the Adviser under guidelines approved by the Trustees. The
Fund will not invest in repurchase agreements maturing in more than seven days
if any such investment, together with any other illiquid securities held by the
Fund, would exceed the Fund's limitation on illiquid securities described below.
The Fund does not bear the risk of a decline in value of the underlying security
unless the seller defaults under its repurchase obligation. In the event of the
bankruptcy or other default of a seller of a repurchase agreement, the Fund
could experience both delays in liquidating the underlying securities and losses
including: (a) possible decline in the value of the underlying security during
the period while the Fund seeks to enforce its rights thereto; (b) possible lack
of access to income on the underlying security during this period; and (c)
expenses of enforcing its rights.
For the purpose of investing in repurchase agreements, the Adviser may
aggregate the cash that certain funds advised or subadvised by the Adviser or
certain of its affiliates would otherwise invest separately into a joint
account. The cash in the joint account is then invested in repurchase agreements
and the funds that contributed to the joint account share pro rata in the net
revenue generated. The Adviser believes that the joint account produces
efficiencies and economies of scale that may contribute to reduced transaction
costs, higher returns, higher quality investments and greater diversity of
investments for the Fund than would be available to the Fund investing
separately. The manner in which the joint account is managed is subject to
conditions set forth in an exemptive order from the SEC permitting this
practice, which conditions are designed to ensure the fair administration of the
joint account and to protect the amounts in that account.
Repurchase agreements are fully collateralized by the underlying securities
and are considered to be loans under the 1940 Act. The Fund pays for such
securities only upon physical delivery or evidence of book entry transfer to the
account of a custodian or bank acting as agent. The seller under a repurchase
agreement will be required to maintain the value of the underlying securities
marked-to-market daily at not less than the repurchase price. The underlying
securities (normally securities of the U.S. government, its agencies or
instrumentalities) may have maturity dates exceeding one year.
PORTFOLIO TURNOVER
The Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for a fiscal year by the average
monthly value of the Fund's portfolio securities during such fiscal year. The
turnover rate may vary greatly from year to year as well as within a year. The
Fund's portfolio turnover rate is the lesser of the value of the securities
purchased or securities sold divided by the average value of the securities
B-4
<PAGE> 23
held in the Fund's portfolio excluding all securities whose maturities at
acquisition were one year or less. A high portfolio turnover rate (100% or more)
increases the Fund's transaction costs, including brokerage commissions, and may
result in the realization of more short-term capital gains than if the Fund had
a lower portfolio turnover rate. Increases in the Fund's transaction costs would
adversely impact the Fund's performance. The turnover rate will not be a
limiting factor, however, if the Adviser deems portfolio changes appropriate.
ILLIQUID SECURITIES
The Fund may invest up to 10% of its net assets in illiquid securities,
which includes securities that are not readily marketable, repurchase agreements
which have a maturity of longer than seven days and generally includes
securities that are restricted from sale to the public without registration
under the Securities Act of 1933, as amended (the "1933 Act"). The sale of such
securities often requires more time and results in higher brokerage charges or
dealer discounts and other selling expenses than does the sale of liquid
securities trading on national securities exchanges or in the over-the-counter
markets. Restricted securities are often purchased at a discount from the market
price of unrestricted securities of the same issuer reflecting the fact that
such securities may not be readily marketable without some time delay.
Investments in securities for which market quotations are not readily available
are valued at fair value as determined in good faith by the Adviser in
accordance with procedures approved by the Fund's Trustees. Ordinarily, the Fund
would invest in restricted securities only when it receives the issuer's
commitment to register the securities without expense to the Fund. However,
registration and underwriting expenses (which typically may range from 7% to 15%
of the gross proceeds of the securities sold) may be paid by the Fund.
Restricted securities which can be offered and sold to qualified institutional
buyers under Rule 144A under the 1933 Act ("144A Securities") and are determined
to be liquid under guidelines adopted by and subject to the supervision of the
Fund's Board of Trustees are not subject to the limitation on illiquid
securities. Such 144A Securities are subject to monitoring and may become
illiquid to the extent qualified institutional buyers become, for a time,
uninterested in purchasing such securities. Factors used to determine whether
144A Securities are liquid include, among other things, a security's trading
history, the availability of reliable pricing information, the number of dealers
making quotes or making a market in such security and the number of potential
purchasers in the market for such security. For purposes hereof, investments by
the Fund in securities of other investment companies will not be considered
investments in restricted securities to the extent permitted by (i) the 1940
Act, 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 (such as "no action" letter relief issued by the staff of the
SEC interpreting or providing guidance on the 1940 Act or regulations
thereunder) from the provisions of the 1940 Act, as amended from time to time.
CONVERTIBLE SECURITIES
The Fund's investments in convertible securities may include securities
with enhanced convertible features or "equity-linked" features. These securities
come in many forms and may include features, among others, such as the
following: (i) may be issued by the issuer of the underlying equity security on
its own securities or securities it holds of another company or be issued by a
third party (typically a brokerage firm or other financial entity) on a security
of another company, (ii) may convert into equity securities, such as common
stock, or may be redeemed for cash or some combination of cash and the linked
security at a value based upon the value of the underlying equity security,
(iii) may have various
B-5
<PAGE> 24
conversion features prior to maturity at the option of the holder or the issuer
or both, (iv) may limit the appreciation value with caps or collars of the value
of underlying equity security and (v) may have fixed, variable or no interest
payments during the life of the security which reflect the actual or a
structured return relative to the underlying dividends of the linked equity
security. Generally these securities are designed to give investors enhanced
yield opportunities to the equity securities of an issuer, but these securities
may involve a limited appreciation potential, downside exposure, or a finite
time in which to capture the yield advantage. For example, certain securities
may provide a higher current dividend income than the dividend income on the
underlying security while capping participation in the capital appreciation of
such security. Other securities may involve arrangements with no interest or
dividend payments made until maturity of the security or an enhanced principal
amount received at maturity based on the yield and value of the underlying
equity security during the security's term or at maturity. Besides enhanced
yield opportunities, another advantage of using such securities is that they may
be used for portfolio management or hedging purposes to reduce the risk of
investing in a more volatile underlying equity security. There may be additional
types of convertible securities with features not specifically referred to
herein in which the Fund may invest consistent with its investment objective and
policies.
Investments in enhanced convertible or equity-linked securities may subject
the Fund to additional risks not ordinarily associated with investments in
traditional convertible securities. Particularly when such securities are issued
by a third party on an underlying linked security of another company, the Fund
is subject to risks if the underlying security underperforms or the issuer
defaults on the payment of the dividend or the underlying security at maturity.
Additionally, the trading market for certain securities may be less liquid than
for other convertible securities making it difficult for the Fund to dispose of
a particular security in a timely manner, and reduced liquidity in the secondary
market for any such securities may make it more difficult to obtain market
quotations for valuing the Fund's portfolio.
WARRANTS
Warrants are in effect longer-term call options. They give the holder the
right to purchase a given number of shares of a particular company at specified
prices within certain periods of time. The purchaser of a warrant expects that
the market price of the security will exceed the purchase price of the warrant
plus the exercise price of the warrant, thus giving him a profit. Of course,
since the market price may never exceed the exercise price before the expiration
date of the warrant, the purchaser of the warrant risks the loss of the entire
purchase price of the warrant. Warrants generally trade in the open market and
may be sold rather than exercised. Warrants are sometimes sold in unit form with
other securities of an issuer. Units of warrants and common stock may be
employed in financing young, unseasoned companies. The purchase price of a
warrant varies with the exercise price of the warrant, the current market value
of the underlying security, the life of the warrant and various other investment
factors.
FOREIGN SECURITIES
The Fund also may purchase foreign securities in the form of American
Depositary Receipts ("ADRs") and European Depositary Receipts ("EDRs") or other
securities representing underlying shares of foreign companies. These securities
may not necessarily be denominated in the same currency as the underlying
securities but generally are denominated in the currency of the market in which
they are traded. ADRs are receipts
B-6
<PAGE> 25
typically issued by an American bank or trust company which evidence ownership
of underlying securities issued by a foreign corporation. ADRs are publicly
traded on exchanges or over-the-counter in the United States and are issued
through "sponsored" or "unsponsored" arrangements. In a sponsored ADR
arrangement, the foreign issuer assumes the obligation to pay some or all of the
depositary's transaction fees, whereas under an unsponsored arrangement, the
foreign issuer assumes no obligations and the depositary's transaction fees are
paid by the ADR holders. In addition, less information generally is available
for an unsponsored ADR than about a sponsored ADR and financial information
about a company may not be as reliable for an unsponsored ADR as it is for a
sponsored ADR. The Fund may invest in ADRs through both sponsored and
unsponsored arrangements. EDRs are receipts issued in Europe by banks or
depositaries which evidence similar ownership arrangement.
OPTIONS, FUTURES CONTRACTS AND RELATED OPTIONS
The Fund may, but is not required to, use various investment strategies as
described below to earn income, facilitate portfolio management, and mitigate
risks. Techniques and instruments may change over time as new instruments and
strategies are developed or regulatory changes occur.
SELLING CALL AND PUT OPTIONS
Purpose. The principal reason for selling options is to obtain, through
receipt of premiums, a greater current return than would be realized on the
underlying securities alone. Such current return could be expected to fluctuate
because premiums earned from an option selling program and dividend or interest
income yields on portfolio securities vary as economic and market conditions
change. Selling options on portfolio securities is likely to result in a higher
portfolio turnover rate.
Selling Options. The purchaser of a call option pays a premium to the
seller (i.e., the writer) for the right to buy the underlying security from the
seller at a specified price during a certain period. The Fund would write call
options only on a covered basis or for cross-hedging purposes. A call option is
covered if, at all times during the option period, the Fund would own or have
the right to acquire securities of the type that it would be obligated to
deliver if any outstanding option were exercised. An option is for cross-hedging
purposes if it is not covered by the security subject to the option, but is
designed to provide a hedge against another security which the Fund owns or has
the right to acquire. In such circumstances, the Fund collateralizes the option
by maintaining in a segregated account with the Fund's custodian cash or liquid
securities in an amount not less than the market value of the underlying
security, marked to market daily, while the option is outstanding.
The purchaser of a put option pays a premium to the seller (i.e., the
writer) for the right to sell the underlying security to the writer at a
specified price during a certain period. The Fund would sell put options only on
a secured basis, which means that, at all times during the option period, the
Fund would maintain in a segregated account with its custodian cash or liquid
securities in an amount of not less than the exercise price of the option, or
would hold a put on the same underlying security at an equal or greater exercise
price.
Closing Purchase Transactions and Offsetting Transactions. In order to
terminate its position as a writer of a call or put option, the Fund could enter
into a "closing purchase transaction," which is the purchase of a call (put) on
the same underlying security and having the same exercise price and expiration
date as the call (put) previously sold by the Fund. The Fund would realize a
gain (loss) if the premium plus commission paid in the
B-7
<PAGE> 26
closing purchase transaction is lesser (greater) than the premium it received on
the sale of the option. The Fund would also realize a gain if an option it has
written lapses unexercised.
The Fund could sell options that are listed on an exchange as well as
options which are privately negotiated in over-the-counter transactions. The
Fund could close out its position as a seller of an option only if a liquid
secondary market exists for options of that series, but there is no assurance
that such a market will exist, particularly in the case of over-the-counter
options, since they can be closed out only with the other party to the
transaction. Alternatively, the Fund could purchase an offsetting option, which
would not close out its position as a seller, but would provide an asset of
equal value to its obligation under the option sold. If the Fund is not able to
enter into a closing purchase transaction or to purchase an offsetting option
with respect to an option it has sold, it will be required to maintain the
securities subject to the call or the collateral securing the option until a
closing purchase transaction can be entered into (or the option is exercised or
expires) even though it might not be advantageous to do so.
Risks of Writing Options. By selling a call option, the Fund loses the
potential for gain on the underlying security above the exercise price while the
option is outstanding; by selling a put option the Fund might become obligated
to purchase the underlying security at an exercise price that exceeds the then
current market price.
PURCHASING CALL AND PUT OPTIONS
The Fund could purchase call options to protect against anticipated
increases in the prices of securities it wishes to acquire. Alternatively, call
options could be purchased for capital appreciation. Since the premium paid for
a call option is typically a small fraction of the price of the underlying
security, a given amount of funds will purchase call options covering a much
larger quantity of such security than could be purchased directly. By purchasing
call options, the Fund could benefit from any significant increase in the price
of the underlying security to a greater extent than had it invested the same
amount in the security directly. However, because of the very high volatility of
option premiums, the Fund would bear a significant risk of losing the entire
premium if the price of the underlying security did not rise sufficiently, or if
it did not do so before the option expired.
Put options may be purchased to protect against anticipated declines in the
market value of either specific portfolio securities or of the Fund's assets
generally. Alternatively, put options may be purchased for capital appreciation
in anticipation of a price decline in the underlying security and a
corresponding increase in the value of the put option. The purchase of put
options for capital appreciation involves the same significant risk of loss as
described above for call options.
In any case, the purchase of options for capital appreciation would
increase the Fund's volatility by increasing the impact of changes in the market
price of the underlying securities on the Fund's net asset value.
OPTIONS ON STOCK INDICES
Options on stock indices are similar to options on stock, but the delivery
requirements are different. Instead of giving the right to take or make delivery
of stock at a specified price, an option on a stock index gives the holder the
right to receive an amount of cash which amount will depend upon the closing
level of the stock index upon which the option is based being greater than (in
the case of a call) or less than (in the case of a put) the exercise price of
the option. The amount of cash received will be the difference between
B-8
<PAGE> 27
the closing price of the index and the exercise price of the option, multiplied
by a specified dollar multiple. The writer of the option is obligated, in return
for the premium received, to make delivery of this amount.
Some stock index options are based on a broad market index such as the
Standard & Poor's 500 or the New York Stock Exchange Composite Index, or a
narrower index such as the Standard & Poor's 100. Indices are also based on an
industry or market segment such as the AMEX Oil and Gas Index or the Computer
and Business Equipment Index. A stock index fluctuates with changes in the
market values of the stocks included in the index. Options are currently traded
on several exchanges.
Gain or loss to the Fund on transactions in stock index options will depend
on price movements in the stock market generally (or in a particular industry or
segment of the market) rather than price movements of individual securities. As
with stock options, the Fund may offset its position in stock index options
prior to expiration by entering into a closing transaction on an exchange, or it
may let the option expire unexercised.
FUTURES CONTRACTS
The Fund may engage in transactions involving futures contracts and related
options in accordance with the rules and interpretations of the Commodity
Futures Trading Commission ("CFTC") under which the Fund would be exempt from
registration as a "commodity pool."
A stock index futures contract is an agreement pursuant to which a party
agrees to take or make delivery of an amount of cash equal to a specified dollar
amount multiplied by the difference between the stock index value at a specified
time and the price at which the futures contract originally was struck. No
physical delivery of the underlying stocks in the index is made.
Currently, stock index futures contracts can be purchased with respect to
several indices on various exchanges. Differences in the stocks included in the
indices may result in differences in correlation of the futures contracts with
movements in the value of the securities being hedged.
An interest rate futures contract is an agreement pursuant to which a party
agrees to take or make delivery of a specified debt security (such as U.S.
Treasury bonds or notes) at a specified future time and at a specified price.
The Fund also may invest in foreign stock index futures traded outside the
United States which involve additional risks including fluctuations in foreign
exchange rates, foreign currency exchange controls, political and economic
instability, differences in financial reporting and securities regulation and
trading, and foreign taxation issues.
Initial and Variation Margin. In contrast to the purchase or sale of a
security, no price is paid or received upon the purchase or sale of a futures
contract. Initially, the Fund is required to deposit with its custodian in an
account in the broker's name an amount of cash or liquid securities equal to a
percentage (which will normally range between 2% and 10%) of the contract
amount. This amount is known as initial margin. The nature of initial margin in
futures transactions is different from that of margin in securities transactions
in that futures contract margin does not involve the borrowing of funds by the
customer to finance the transaction. Rather, the initial margin is in the nature
of a performance bond or good faith deposit on the contract, which is returned
to the Fund upon termination of the futures contract and satisfaction of its
contractual obligations. Subsequent payments to and from the broker, called
variation margin, are made on a daily basis as the price of the
B-9
<PAGE> 28
underlying securities or index fluctuates, making the long and short positions
in the futures contract more or less valuable, a process known as marking to
market.
For example, when the Fund purchases a futures contract and the price of
the underlying security or index rises, that position increases in value, and
the Fund receives from the broker a variation margin payment equal to that
increase in value. Conversely, where the Fund purchases a futures contract and
the value of the underlying security or index declines, the position is less
valuable, and the Fund is required to make a variation margin payment to the
broker.
At any time prior to expiration of the futures contract, the Fund may elect
to terminate the position by taking an opposite position. A final determination
of variation margin is then made, additional cash is required to be paid by or
released to the Fund, and the Fund realizes a loss or a gain.
Futures Strategies. When the Fund anticipates a significant market or
market sector advance, the purchase of a futures contract affords a hedge
against not participating in the advance at a time when the Fund is otherwise
fully invested ("anticipatory hedge"). Such purchase of a futures contract would
serve as a temporary substitute for the purchase of individual securities, which
may be purchased in an orderly fashion once the market has stabilized. As
individual securities are purchased, an equivalent amount of futures contracts
could be terminated by offsetting sales. The Fund may sell futures contracts in
anticipation of or in a general market or market sector decline that may
adversely affect the market value of the Fund's securities ("defensive hedge").
To the extent that the Fund's portfolio of securities changes in value in
correlation with the underlying security or index, the sale of futures contracts
would substantially reduce the risk to the Fund of a market decline and, by so
doing, provides an alternative to the liquidation of securities positions in the
Fund. Ordinarily transaction costs associated with futures transactions are
lower than transaction costs that would be incurred in the purchase and sale of
the underlying securities.
Special Risks Associated with Futures Transactions. There are several risks
connected with the use of futures contracts. These include the risk of imperfect
correlation between movements in the price of the futures contracts and of the
underlying securities or index; the risk of market distortion; the illiquidity
risk; and the risk of error in anticipating price movement.
There may be an imperfect correlation (or no correlation) between movements
in the price of the futures contracts and of the securities being hedged. The
risk of imperfect correlation increases as the composition of the securities
being hedged diverges from the securities upon which the futures contract is
based. If the price of the futures contract moves less than the price of the
securities being hedged, the hedge will not be fully effective. To compensate
for the imperfect correlation, the Fund could buy or sell futures contracts in a
greater dollar amount than the dollar amount of securities being hedged if the
historical volatility of the securities being hedged is greater than the
historical volatility of the securities underlying the futures contract.
Conversely, the Fund could buy or sell futures contracts in a lesser dollar
amount than the dollar amount of securities being hedged if the historical
volatility of the securities being hedged is less than the historical volatility
of the securities underlying the futures contracts. It is also possible that the
value of futures contracts held by the Fund could decline at the same time as
portfolio securities being hedged; if this occurred, the Fund would lose money
on the futures contract in addition to suffering a decline in value in the
portfolio securities being hedged.
There is also the risk that the price of futures contracts may not
correlate perfectly with movements in the securities or index underlying the
futures contract due to certain market distortions. First, all participants in
the futures market are subject to margin depository and
B-10
<PAGE> 29
maintenance requirements. Rather than meet additional margin depository
requirements, investors may close futures contracts through offsetting
transactions, which could distort the normal relationship between the futures
market and the securities or index underlying the futures contract. Second, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities markets. Therefore,
increased participation by speculators in the futures markets may cause
temporary price distortions. Due to the possibility of price distortion in the
futures markets and because of the imperfect correlation between movements in
futures contracts and movements in the securities underlying them, a correct
forecast of general market trends by the Adviser may still not result in a
successful hedging transaction.
There is also the risk that futures markets may not be sufficiently liquid.
Futures contracts may be closed out only on an exchange or board of trade that
provides a market for such futures contracts. Although the Fund intends to
purchase or sell futures only on exchanges and boards of trade where there
appears to be an active secondary market, there can be no assurance that an
active secondary market will exist for any particular contract or at any
particular time. In the event of such illiquidity, it might not be possible to
close a futures position and, in the event of adverse price movement, the Fund
would continue to be required to make daily payments of variation margin. Since
the securities being hedged would not be sold until the related futures contract
is sold, an increase, if any, in the price of the securities may to some extent
offset losses on the related futures contract. In such event, the Fund would
lose the benefit of the appreciation in value of the securities.
Successful use of futures is also subject to the Adviser's ability to
correctly predict the direction of movements in the market. For example, if the
Fund hedges against a decline in the market, and market prices instead advance,
the Fund will lose part or all of the benefit of the increase in value of its
securities holdings because it will have offsetting losses in futures contracts.
In such cases, if the Fund has insufficient cash, it may have to sell portfolio
securities at a time when it is disadvantageous to do so in order to meet the
daily variation margin.
Although the Fund intends to enter into futures contracts only if there is
an active market for such contracts, there is no assurance that an active market
will exist for the contracts at any particular time. Most U.S. futures exchanges
and boards of trade limit the amount of fluctuation permitted in futures
contract prices during a single trading day. Once the daily limit has been
reached in a particular contract, no trades may be made that day at a price
beyond that limit. It is possible that futures contract prices would move to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and subjecting some
futures traders to substantial losses. In such event, and in the event of
adverse price movements, the Fund would be required to make daily cash payments
of variation margin. In such circumstances, an increase in the value of the
portion of the portfolio being hedged, if any, may partially or completely
offset losses on the futures contract. However, as described above, there is no
guarantee that the price of the securities being hedged will, in fact, correlate
with the price movements in a futures contract and thus provide an offset to
losses on the futures contract.
The Fund will not enter into futures contracts or options transactions
(except for closing transactions) other than for bona fide hedging purposes if,
immediately thereafter, the sum of its initial margin and premiums on open
futures contracts and options exceed 5% of the fair market value of the Fund's
assets; however, in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount may be excluded in calculating the 5%
limitation. In order to prevent leverage in connection with the purchase
B-11
<PAGE> 30
of futures contracts by the Fund, an amount of cash or liquid securities equal
to the market value of the obligation under the futures contracts (less any
related margin deposits) will be maintained in a segregated account with the
custodian.
OPTIONS ON FUTURES CONTRACTS
The Fund could also purchase and write options on futures contracts. An
option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put) at a specified
exercise price at any time during the option period. As a writer of an option on
a futures contract, the Fund would be subject to initial margin and maintenance
requirements similar to those applicable to futures contracts. In addition, net
option premiums received by the Fund are required to be included as initial
margin deposits. When an option on a futures contract is exercised, delivery of
the futures position is accompanied by cash representing the difference between
the current market price of the futures contract and the exercise price of the
option. The Fund could purchase put options on futures contracts in lieu of, and
for the same purposes as, the sale of a futures contract; at the same time, it
could write put options at a lower strike price (a "put bear spread") to offset
part of the cost of the strategy to the Fund. The purchase of call options on
futures contracts is intended to serve the same purpose as the actual purchase
of the futures contracts.
Risks of Transactions in Options on Futures Contracts. In addition to the
risks described above which apply to all options transactions, there are several
special risks relating to options on futures. The Adviser will not purchase
options on futures on any exchange unless in the Adviser's opinion, a liquid
secondary exchange market for such options exists. Compared to the use of
futures, the purchase of options on futures involves less potential risk to the
Fund because the maximum amount at risk is the premium paid for the options
(plus transaction costs). However, there may be circumstances, such as when
there is no movement in the price of the underlying security or index, when the
use of an option on a future would result in a loss to the Fund when the use of
a future would not.
ADDITIONAL RISKS OF OPTIONS, FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
Each of the exchanges has established limitations governing the maximum
number of call or put options on the same underlying security or futures
contract (whether or not covered) which may be written by a single investor,
whether acting alone or in concert with others (regardless of whether such
options are written on the same or different exchanges or are held or written on
one or more accounts or through one or more brokers). Option positions of all
investment companies advised by the Adviser are combined for purposes of these
limits. An exchange may order the liquidation of positions found to be in
violation of these limits and it may impose other sanctions or restrictions.
These position limits may restrict the number of listed options which the Fund
may write.
In the event of the bankruptcy of a broker through which the Fund engages
in transactions in options, futures or related options, the Fund could
experience delays or losses in liquidating open positions purchased or incur a
loss of all or part of its margin deposits with the broker. Transactions are
entered into by the Fund only with brokers or financial institutions deemed
creditworthy by the Adviser.
USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS
Many derivative transactions, in addition to other requirements, require
that the Fund segregate cash and liquid securities with its custodian to the
extent the Fund's obligations
B-12
<PAGE> 31
are not otherwise "covered" as described above. In general, either the full
amount of any obligation by the Fund to pay or deliver securities or assets must
be covered at all times by the securities, instruments or currency required to
be delivered (or securities convertible into the needed securities without
additional consideration), or, subject to applicable regulatory restrictions, an
amount of cash or liquid securities at least equal to the current amount of the
obligation must be segregated with the custodian. The segregated assets cannot
be sold or transferred unless equivalent assets are substituted in their place
or it is no longer necessary to segregate the. In the case of a futures contract
or an option thereon, the Fund must deposit initial margin and possible daily
variation margin in addition to segregating cash and liquid securities
sufficient to meet its obligation to purchase or provide securities or
currencies, or to pay the amount owed at the expiration of an index-based
futures contract. Derivative transactions may be covered by other means when
consistent with applicable regulatory policies. The Fund may also enter into
offsetting transactions so that its combined position, coupled with any
segregated cash and liquid securities, equals its net outstanding obligation.
INVESTMENT RESTRICTIONS
The Fund has adopted the following fundamental investment restrictions
which may not be changed without shareholder approval by the vote of a majority
of its outstanding voting securities which is defined by the 1940 Act as the
lesser of (i) 67% or more of the voting securities present at a meeting, if the
holders of more than 50% of the outstanding voting securities of the Fund are
present or represented by proxy; or (ii) more than 50% of the Fund's outstanding
voting securities. The percentage limitations contained in the restrictions and
policies set forth herein apply at the time of purchase of securities. With
respect to the limitations on illiquid securities and borrowings, the percentage
limitations apply at the time of purchase and on an ongoing basis. These
restrictions provide that the Fund shall not:
1. Invest in companies for the purpose of exercising control over or
management of such companies, except that the Fund may purchase
securities of other investment companies to the extent permitted by (i)
the 1940 Act, as amended from time to time, (ii) the rules and
regulations promulgated by the SEC under the 1940 Act, as amended from
time to time, or (iii) an exemption or other relief from the provisions
of the 1940 Act;
2. Underwrite securities of other issuers, except that the Fund may
acquire restricted securities and other securities which, if sold,
might make the Fund an underwriter for purposes of the 1933 Act. No
more than 10% of the value of the Fund's net assets may be invested in
such securities;
3. Invest directly in real estate interests of any nature, although the
Fund may invest indirectly through media such as real estate investment
trusts;
4. Invest in commodities or commodity contracts, except that the Fund may
enter into transactions in futures contracts or related options;
5. Issue any of its securities for (a) services or (b) property other than
cash or securities (including securities of which the Fund is the
issuer), except as a dividend or distribution to its shareholders in
connection with a reorganization;
6. Issue senior securities and shall not borrow money except from banks as
a temporary measure for extraordinary or emergency purposes and in an
amount not exceeding 5% of the Fund's total assets. Notwithstanding the
foregoing, the Fund may enter into transactions in options, futures
contracts and related options and may make margin deposits and payments
in connection therewith;
B-13
<PAGE> 32
7. Lend money or securities except by the purchase of a portion of an
issue of bonds, debentures or other obligations of types commonly
distributed to institutional investors publicly or privately (in the
latter case the investment will be subject to the stated limits on
investments in "restricted securities"), and except by the purchase of
securities subject to repurchase agreements;
8. Invest more than 25% of the value of its assets in any one industry;
9. Invest in securities issued by other investment companies except as
part of a merger, reorganization or other acquisition and except to the
extent permitted by (i) the 1940 Act, as amended from time to time,
(ii) the rules and regulations promulgated by the SEC under the 1940
Act, as amended from time to time, or (iii) an exemption or other
relief from the provisions of the 1940 Act;
10. Sell short or borrow for short sales. Short sales "against the box" are
not subject to this limitation; or
11. As to 75% of the Fund's total assets, invest more than 5% of the value
of its total assets in the securities of any one issuer (not including
federal government securities) or acquire more than 10% of any class of
the outstanding voting securities of any one issuer, except that the
Fund may purchase securities of other investment companies to the
extent permitted by (i) the 1940 Act, as amended from time to time,
(ii) the rules and regulations promulgated by the SEC under the 1940
Act, as amended from time to time, or (iii) an exemption or other
relief from the provisions of the 1940 Act.
Thus the Fund retains the right to invest up to 25% of the value of its
total assets in one company, but intends to do so only if a particular company
is believed to afford better than average prospects for market appreciation at a
time when general business conditions and trends in the market as a whole are
considered to make greater diversification less desirable. Although the Fund may
invest in real estate investment trusts, it does not presently intend to do so.
TRUSTEES AND OFFICERS
The business and affairs of the Fund are managed under the direction of the
Fund's Board of Trustees and the Fund's officers appointed by the Board of
Trustees. The tables below list the trustees and officers of the Fund and
executive officers of the Fund's investment adviser and their principal
occupations for the last five years and their affiliations, if any, with Van
Kampen Investments Inc. ("Van Kampen Investments"), Van Kampen Investment
Advisory Corp. ("Advisory Corp."), Van Kampen Asset Management Inc. ("Asset
Management"), Van Kampen Funds Inc. (the "Distributor"), Van Kampen Management
Inc., Van Kampen Advisors Inc., Van Kampen Insurance Agency of Illinois Inc.,
Van Kampen Insurance Agency of Texas Inc., Van Kampen System Inc., Van Kampen
Recordkeeping Services Inc., American Capital Contractual Services, Inc., Van
Kampen Trust Company, Van Kampen Exchange Corp. and Van Kampen Investor Services
Inc. ("Investor Services"). Advisory Corp. and Asset Management sometimes are
referred to herein collectively as the "Advisers". For purposes hereof, the term
"Fund Complex" includes each of the open-end investment companies advised by the
Advisers (excluding Van Kampen Exchange Fund).
B-14
<PAGE> 33
TRUSTEES
<TABLE>
<CAPTION>
Principal Occupations or
Name, Address and Age Employment in Past 5 Years
--------------------- --------------------------
<S> <C>
J. Miles Branagan......................... Private investor. Trustee/Director of each of
1632 Morning Mountain Road the funds in the Fund Complex. Co-founder,
Raleigh, NC 27614 and prior to August 1996, Chairman, Chief
Date of Birth: 07/14/32 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.
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 of
Date of Birth: 09/16/38 The Allstate Corporation ("Allstate") and
Allstate Insurance Company. Prior to January
1995, President and Chief Executive Officer
of Allstate. Prior to August 1994, 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
Date of Birth: 06/03/48 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, a fellowship and
housing organization for international
graduate students.
R. Craig Kennedy.......................... President and Director, German Marshall Fund
11 DuPont Circle, N.W. of the United States, an independent U.S.
Washington, D.C. 20016 foundation created to deepen understanding,
Date of Birth: 02/29/52 promote collaboration and stimulate exchanges
of practical experience between Americans and
Europeans. Trustee/Director of each of the
funds in the Fund Complex. Formerly, advisor
to the Dennis Trading Group Inc., a managed
futures and option company that invests money
for individuals and institutions. Prior to
1992, President and Chief Executive Officer,
Director and Member of the Investment
Committee of the Joyce Foundation, a private
foundation.
</TABLE>
B-15
<PAGE> 34
<TABLE>
<CAPTION>
Principal Occupations or
Name, Address and Age 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 Executive
Date of Birth: 08/13/53 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.
Trustee of each of the funds in the Fund
Complex, and Vice President of other
investment companies advised by the Advisers
and their affiliates. 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 planning
Winter Park, FL 32789 company and registered investment adviser in
Date of Birth: 02/13/36 the State of Florida. 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*................... Chairman, President and Chief Executive
1 Parkview Plaza Officer of Van Kampen Investments. Chairman,
P.O. Box 5555 Director and Chief Executive Officer of the
Oakbrook Terrace, IL 60181-5555 Advisers, the Distributor, Van Kampen
Date of Birth: 02/02/46 Advisors Inc. and Van Kampen Management Inc.
Director and officer of certain other
subsidiaries of Van Kampen Investments.
Trustee and President of each of the funds in
the Fund Complex. Trustee, President and
Chairman of the Board of other investment
companies advised by the Advisers and their
affiliates, and Chief Executive Officer of
Van Kampen Exchange Fund. Prior to May 1998,
Executive Vice President and Director of
Marketing at Morgan Stanley Dean Witter and
Director of Dean Witter Discover & Co. and
Dean Witter Realty. Prior to 1996, Director
of Dean Witter Reynolds Inc.
</TABLE>
B-16
<PAGE> 35
<TABLE>
<CAPTION>
Principal Occupations or
Name, Address and Age Employment in Past 5 Years
--------------------- --------------------------
<S> <C>
Phillip B. Rooney......................... Vice Chairman (since April 1997) and Director
One ServiceMaster Way (since 1994) of The ServiceMaster Company, a
Downers Grove, IL 60515 business and consumer services company.
Date of Birth: 07/08/44 Director of 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. From May 1996 through
February 1997 he was President, Chief
Executive Officer and Chief Operating Officer
of Waste Management, Inc., an environmental
services company, and from November 1984
through May 1996 he was President and Chief
Operating Officer of Waste Management, Inc.
Fernando Sisto............................ Professor Emeritus. Prior to August 1996, a
155 Hickory Lane George M. Bond Chaired Professor with Stevens
Closter, NJ 07624 Institute of Technology, and prior to 1995,
Date of Birth: 08/02/24 Dean of the Graduate School, Stevens
Institute of Technology. Director, Dynalysis
of Princeton, a firm engaged in engineering
research. Trustee/Director of each of the
funds in the Fund Complex.
Wayne W. Whalen*.......................... Partner in the law firm of Skadden, Arps,
333 West Wacker Drive Slate, Meagher & Flom (Illinois), legal
Chicago, IL 60606 counsel to the funds in the Fund Complex, and
Date of Birth: 08/22/39 other investment companies advised by the
Advisers or Van Kampen Management Inc.
Trustee/Director of each of the funds in the
Fund Complex, and Trustee/Managing General
Partner of other investment companies advised
by the Advisers or Van Kampen Management Inc.
Suzanne H. Woolsey........................ Chief Operating Officer of the National
2101 Constitution Ave., N.W. Academy of Sciences/National Research
Room 206 Council, an independent, federally chartered
Washington, D.C. 20418 policy institution, since 1993. Director of
Date of Birth: 12/27/41 Neurogen Corporation, a pharmaceutical
company, since January 1998. Director of the
German Marshall Fund of the United States,
Trustee of Colorado College, and 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. From 1980 through 1989,
Partner of Coopers & Lybrand.
</TABLE>
------------------------------------
* Such trustee is an "interested person" (within the meaning of Section 2(a)(19)
of the 1940 Act). Mr. Whalen is an interested person of the Fund by reason of
his firm currently acting as legal counsel to the Fund. Messrs. Merin and
Powers are interested persons of the Fund and the Advisers by reason of their
positions with Morgan Stanley Dean Witter or its affiliates.
B-17
<PAGE> 36
OFFICERS
Messrs. Smith, Santo, Ciccarone, Reynoldson, Sullivan and Zimmerman are
located at 1 Parkview Plaza, Oakbrook Terrace, IL 60181-5555. Mr. Boyd is
located at 2800 Post Oak Blvd., Houston, TX 77056.
<TABLE>
<CAPTION>
Name, Age, Positions and Principal Occupations
Offices with Fund During Past 5 Years
------------------------ ---------------------
<S> <C>
A. Thomas Smith III.................. Executive Vice President, General Counsel,
Date of Birth: 12/14/56 Secretary and Director of Van Kampen Investments,
Vice President and Secretary the Advisers, Van Kampen Advisors Inc., Van
Kampen Management Inc., the 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/Vice President,
Principal Legal Officer and Secretary of other
investment companies advised by the Advisers or
their affiliates. Vice President and Secretary of
each of the funds in the Fund Complex. Prior to
January 1999, Vice President and Associate
General Counsel to New York Life Insurance
Company ("New York Life"), and prior to March
1997, 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, Staff Attorney at the Securities
and Exchange Commission, Division of Investment
Management, Office of Chief Counsel.
</TABLE>
B-18
<PAGE> 37
<TABLE>
<CAPTION>
Name, Age, Positions and Principal Occupations
Offices with Fund During Past 5 Years
------------------------ ---------------------
<S> <C>
Michael H. Santo..................... Executive Vice President, Chief Administrative
Date of Birth: 10/22/55 Officer and Director of Van Kampen Investments,
Vice President the Advisers, the Distributor, Van Kampen
Advisors Inc., Van Kampen Management Inc. and Van
Kampen Investor Services Inc., and serves as a
Director or Officer of certain other subsidiaries
of Van Kampen Investments. Vice President of each
of the funds in the Fund Complex and certain
other investment companies advised by the
Advisers and their affiliates. Prior to 1998,
Senior Vice President and Senior Planning Officer
for Individual Asset Management of Morgan Stanley
Dean Witter and its predecessor since 1994. From
1990-1994, First Vice President and Assistant
Controller in Dean Witter's Controller's
Department.
Stephen L. Boyd...................... Executive Vice President and Chief Investment
Date of Birth: 11/16/40 Officer of Van Kampen Investments, and President
Vice President and Chief Operating Officer of the Advisers.
Executive Vice President and Chief Investment
Officer of each of the funds in the Fund Complex
and certain other investment companies advised by
the Advisers or their affiliates. Prior to April
2000, Vice President and Chief Investment Officer
of the Advisers. Prior to October 1998, Vice
President and Senior Portfolio Manager of Van
Kampen American Capital Management, Inc., Van
Kampen American Capital Investment Advisory,
Corp. and Van Kampen American Capital Management,
Inc.
Richard A. Ciccarone................. Senior Vice President and Co-head of the Fixed
Date of Birth: 06/15/52 Income Department of the Advisers, Van Kampen
Age: 48 Management Inc. and Van Kampen Advisors Inc.
Vice President Prior to May 2000, he served as Co-head of
Municipal Investments and Director of Research of
the Advisers, Van Kampen Management Inc. and Van
Kampen Advisors Inc. Mr. Ciccarone first joined
the Adviser in June 1983, and worked for the
Adviser until May 1989, with his last position
being a Vice President. From June 1989 to April
1996, he worked at EVEREN Securities (formerly
known as Kemper Securities), with his last
position at EVEREN being an Executive Vice
President. Since April 1996, Mr. Ciccarone has
been a Senior Vice President of the Advisers, Van
Kampen Management Inc. and Van Kampen Advisors
Inc.
</TABLE>
B-19
<PAGE> 38
<TABLE>
<CAPTION>
Name, Age, Positions and Principal Occupations
Offices with Fund During Past 5 Years
------------------------ ---------------------
<S> <C>
John R. Reynoldson................... Senior Vice President and Co-head of the Fixed
Birth Date: 05/15/53 Income Department of the Advisers, Van Kampen
Age: 47 Management Inc. and Van Kampen Advisors Inc.
Vice President Prior to May 2000, he managed the investment
grade taxable group for the Adviser since July
1999. From July 1988 to June 1999, he managed the
government securities bond group for Asset
Management. Mr. Reynoldson has been with Asset
Management since April 1987, and has been a
Senior Vice President of Asset Management since
July 1988. He has been a Senior Vice President of
the Adviser and Van Kampen Management Inc. since
June 1995 and Senior Vice President of Van Kampen
Advisors Inc. since June 2000.
John L. Sullivan..................... Senior Vice President of Van Kampen Investments
Date of Birth: 08/20/55 and the Advisers. Vice President, Chief Financial
Vice President, Chief Financial Officer and Treasurer of each of the funds in the
Officer and Treasurer Fund Complex and certain other investment
companies advised by the Advisers or their
affiliates.
John H. Zimmerman, III............... Senior Vice President and Director of Van Kampen
Date of Birth: 11/25/57 Investments, President and Director of the
Vice President Distributor and President of Van Kampen Insurance
Agency of Illinois Inc. Vice President of each of
the funds in the Fund Complex. From November 1992
to December President of the Distributor.
</TABLE>
Each trustee/director holds the same position with each of the funds in the
Fund Complex. As of the date of this Statement of Additional Information, there
are 65 operating funds in the Fund Complex. Each trustee/director who is not an
affiliated person of Van Kampen Investments, the Advisers or the Distributor
(each a "Non-Affiliated Trustee") is compensated by an annual retainer and
meeting fees for services to the funds in the Fund Complex. Each fund in the
Fund Complex provides a deferred compensation plan to its Non-Affiliated
Trustees that allows trustees/directors to defer receipt of their compensation
and earn a return on such deferred amounts. Deferring compensation has the
economic effect as if the Non-Affiliated Trustee reinvested his or her
compensation into the funds. Each fund in the Fund Complex 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 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 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
B-20
<PAGE> 39
connection with his or her services as a trustee, provided that no compensation
will be paid in connection with certain telephonic special meetings.
Under the deferred compensation plan, each Non-Affiliated Trustee generally
can elect to defer receipt of all or a portion of the compensation earned by
such Non-Affiliated Trustee until retirement. Amounts deferred are retained by
the Fund and earn a rate of return determined by reference to the return on the
common shares of such Fund or other funds in the Fund Complex as selected by the
respective Non-Affiliated Trustee, with the same economic effect as if such
Non-Affiliated Trustee had invested in one or more funds in the Fund Complex. To
the extent permitted by the 1940 Act, the Fund may invest in securities of those
funds selected by the Non-Affiliated Trustees in order to match the deferred
compensation obligation. The deferred compensation plan is not funded and
obligations thereunder represent general unsecured claims against the general
assets of the Fund.
Under the retirement plan, a Non-Affiliated Trustee who is receiving
compensation from such Fund prior to such Non-Affiliated Trustee's retirement,
has at least 10 years of service (including years of service prior to adoption
of the retirement plan) and retires at or after attaining the age of 60, is
eligible to receive a retirement benefit equal to $2,500 per year for each of
the ten years following such retirement from such Fund. Non-Affiliated Trustees
retiring prior to the age of 60 or with fewer than 10 years but more than 5
years of service may receive reduced retirement benefits from such Fund. Each
trustee/director has served as a member of the Board of Trustees of the Fund
since he or she was first appointed or elected in the year set forth below. The
retirement plan contains a Fund Complex retirement benefit cap of $60,000 per
year.
Additional information regarding compensation and benefits for trustees is
set forth below for the periods described in the notes accompanying the table.
COMPENSATION TABLE
<TABLE>
<CAPTION>
Fund Complex
-------------------------------------------
Aggregate
Aggregate Estimated
Pension or Maximum Total
Aggregate Retirement Annual Compensation
Year First Compensation Benefits Benefits from before
Appointed or before Accrued as the Fund Deferral from
Elected to Deferral from Part of Upon Fund
Name(1) the Board the Fund(2) Expenses(3) Retirement(4) Complex(5)
------- ------------ ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
J. Miles Branagan 1991 $9,153 $40,303 $60,000 $126,000
Jerry D. Choate(1) 1999 4,976 0 60,000 88,700
Linda Hutton Heagy 1995 9,153 5,045 60,000 126,000
R. Craig Kennedy 1995 8,953 3,571 60,000 125,600
Jack E. Nelson 1995 9,153 21,664 60,000 126,000
Phillip B. Rooney 1997 8,953 7,787 60,000 113,400
Fernando Sisto 1978 9,153 72,060 60,000 126,000
Wayne W. Whalen 1995 9,153 15,189 60,000 126,000
Suzanne H. Woolsey(1) 1999 4,976 0 60,000 88,700
</TABLE>
------------------------------------
(1) Trustees not eligible for compensation are not included in the Compensation
Table. Mr. Choate and Ms. Woolsey became members of the Board of Trustees
for the Fund
B-21
<PAGE> 40
and other funds in the Fund Complex on May 26, 1999 and therefore do not
have a full year of information to report.
(2) The amounts shown in this column represent the Aggregate Compensation before
Deferral with respect to the Fund's fiscal year ended August 31, 1999. The
following trustees deferred compensation from the Fund during the fiscal
year ended August 31, 1999: Mr. Branagan, $9,153; Mr. Choate, $2,681; Ms.
Heagy, $9,153; Mr. Kennedy, $4,477; Mr. Nelson, $9,153; Mr. Rooney, $8,953;
Mr. Sisto, $4,577; and Mr. Whalen, $9,153. Amounts deferred are retained by
the Fund and earn a rate of return determined by reference to either the
return on the common shares of the Fund or other funds in the Fund Complex
as selected by the respective Non-Affiliated Trustee, with the same economic
effect as if such Non-Affiliated Trustee had invested in one or more funds
in the Fund Complex. To the extent permitted by the 1940 Act, each fund may
invest in securities of those funds selected by the Non-Affiliated Trustees
in order to match the deferred compensation obligation. The cumulative
deferred compensation (including interest) accrued with respect to each
trustee, including former trustees, from the Fund as of August 31, 1999 is
as follows: Mr. Branagan, $22,761; Mr. Caruso, $6,664; Mr. Choate, $2,686;
Mr. Gaughan, $711; Ms. Heagy, $25,018; Mr. Kennedy, $15,628; Mr. Miller,
$5,069; Mr. Nelson, $33,850; Mr. Rees, $34,471; Mr. Robinson, $11,064; Mr.
Rooney, $18,668; Mr. Sisto, $44,394; Mr. Whalen, $28,257; and Mr. Yovovich,
$7,580. The deferred compensation plan is described above the Compensation
Table.
(3) The amounts shown in this column represent the sum of the retirement
benefits accrued by the operating investment companies in the Fund Complex
for each of the trustees for the Funds' respective fiscal years ended in
1999. The retirement plan is described above the Compensation Table.
(4) For each trustee, this is the sum of the estimated maximum annual benefits
payable by the funds in the Fund Complex for each year of the 10-year period
commencing in the year of such trustee's anticipated retirement. The
retirement plan is described above the Compensation Table.
(5) The amounts shown in this column represent the aggregate compensation paid
by all operating investment companies in the Fund Complex as of December 31,
1999 before deferral by the trustees under the deferred compensation plan.
Because the funds in the Fund Complex have different fiscal year ends, the
amounts shown in this column are presented on a calendar year basis. Certain
trustees deferred all or a portion of their aggregate compensation from the
Fund Complex during the calendar year ended December 31, 1999. The deferred
compensation earns a rate of return determined by reference to the return on
the shares of the funds in the Fund Complex as selected by the respective
Non-Affiliated Trustee, with the same economic effect as if such
Non-Affiliated Trustee had invested in one or more funds in the Fund
Complex. To the extent permitted by the 1940 Act, the Fund may invest in
securities of those investment companies selected by the Non-Affiliated
Trustees in order to match the deferred compensation obligation. The
Advisers and their affiliates also serve as investment adviser for other
investment companies; however, with the exception of Mr. Whalen, the
Non-Affiliated Trustees were not trustees of such investment companies.
Combining the Fund Complex with other investment companies advised by the
Advisers and their affiliates, Mr. Whalen received Total Compensation of
$279,250 during the calendar year ended December 31, 1999.
B-22
<PAGE> 41
The Fund, the Adviser and the Distributor have adopted Codes of Ethics
(collectively, the "Code of Ethics") that set forth general and specific
standards relating to the securities trading activities of their employees. The
Code of Ethics does not prohibit employees from acquiring securities that may be
purchased or held by the Fund, but is intended to ensure that all employees
conduct their personal transactions in a manner that does not interfere with the
portfolio transactions of the Fund or other Van Kampen funds, or that such
employees take unfair advantage of their relationship with the Fund. Among other
things, the Code of Ethics prohibits certain types of transactions absent prior
approval, imposes various trading restrictions (such as time periods during
which personal transactions may or may not be made) and requires quarterly
reporting of securities transactions and other matters. All reportable
securities transactions and other required reports are to be reviewed by
appropriate personnel for compliance with the Code of Ethics. Additional
restrictions apply to portfolio managers, traders, research analysts and others
who may have access to nonpublic information about the trading activities of the
Fund or other Van Kampen funds or who otherwise are involved in the investment
advisory process. Exceptions to these and other provisions of the Code of Ethics
may be granted in particular circumstances after review by appropriate
personnel.
As of September , 2000, the trustees and officers of the Fund as a group
owned less than 1% of the shares of the Fund.
INVESTMENT ADVISORY AGREEMENT
The Fund and the Adviser are parties to an investment advisory agreement
(the "Advisory Agreement"). Under the Advisory Agreement, the Fund retains the
Adviser to manage the investment of the Fund's assets, including the placing of
orders for the purchase and sale of portfolio securities. The Adviser obtains
and evaluates economic, statistical and financial information to formulate
strategy and implement the Fund's investment objective. The Adviser also
furnishes offices, necessary facilities and equipment, provides administrative
services to the Fund, renders periodic reports to the Board of Trustees and
permits its officers or employees to serve without compensation as trustees of
the Trust or officers of the Fund if elected to such positions. The Fund,
however, bears the cost of its day-to-day operations, including distribution
fees, service fees, custodian fees, legal and auditing fees, the costs of
reports to shareholders, compensation of trustees of the Trust (other than those
who are affiliated persons of the Adviser, Distributor or Van Kampen
Investments), and all other ordinary business expenses not specifically assumed
by the Adviser. The Advisory Agreement also provides that the Adviser shall not
be liable to the Fund for any actions or omissions if it acted without willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations.
Under the Advisory Agreement, the Fund pays to the Adviser, as compensation
for the services rendered, facilities furnished, and expenses paid by it, a
monthly fee computed based upon an annual rate applied to the average daily net
assets of the Fund as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS % PER ANNUM
------------------------ -----------
<S> <C>
First $350 million.......................................... 0.575 of 1.00%
Next $350 million........................................... 0.525 of 1.00%
Next $350 million........................................... 0.475 of 1.00%
Over $1.05 billion.......................................... 0.425 of 1.00%
</TABLE>
B-23
<PAGE> 42
The Fund's average daily net assets are determined by taking the average of
all of the determinations of the net assets during a given calendar month. Such
fee is payable for each calendar month as soon as practicable after the end of
that month.
The fee payable to the Adviser is reduced by any commissions, tender
solicitation and other fees, brokerage or similar payments received by the
Adviser or any other direct or indirect majority owned subsidiary of Van Kampen
Investments in connection with the purchase and sale of portfolio investments
less any direct expenses incurred by such subsidiary of Van Kampen Investments,
in connection with obtaining such commissions, fees, brokerage or similar
payments. The Adviser agrees to use its best efforts to recapture tender
solicitation fees and exchange offer fees for the Fund's benefit and to advise
the Trustees of the Fund of any other commissions, fees, brokerage or similar
payments which may be possible for the Adviser or any other direct or indirect
majority owned subsidiary of Van Kampen Investments to receive in connection
with the Fund's portfolio transactions or other arrangements which may benefit
the Fund.
The Advisory Agreement also provides that, in the event the ordinary
business expenses of the Fund for any fiscal year exceed the most restrictive
expense limitation applicable in the states where the Fund's shares are
qualified for sale, the compensation due the Adviser will be reduced by the
amount of such excess and that, if a reduction in and refund of the advisory fee
is insufficient, the Adviser will pay the Fund monthly an amount sufficient to
make up the deficiency, subject to readjustment during the year. Ordinary
business expenses include the investment advisory fee and other operating costs
paid by the Fund except (1) interest and taxes, (2) brokerage commissions, (3)
certain litigation and indemnification expenses as described in the Advisory
Agreement and (4) payments made by the Fund pursuant to the distribution plans.
The Advisory Agreement may be continued from year to year if specifically
approved at least annually (a)(i) by the Fund's Trustees or (ii) by a vote of a
majority of the Fund's outstanding voting securities and (b) by the affirmative
vote of a majority of the Trustees who are not parties to the agreement or
interested persons of any such party by votes cast in person at a meeting called
for such purpose. The Advisory Agreement provides that it shall terminate
automatically if assigned and that it may be terminated without penalty by
either party on 60 days' written notice.
During the fiscal years ended August 31, 1999, 1998, and 1997, the Adviser
received approximately $24,683,300, $17,650,513 and $12,830,014, respectively,
in advisory fees from the Fund.
OTHER AGREEMENTS
Accounting Services Agreement. The Fund has entered into an accounting
services agreement pursuant to which Advisory Corp. provides accounting services
to the Fund supplementary to those provided by the Custodian. Such services are
expected to enable the Fund to more closely monitor and maintain its accounts
and records. The Fund pays all costs and expenses related to 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 shares together with the other Van Kampen funds in the
cost of providing such services with 25% of such costs shared proportionately
based on the respective number of classes of securities issued per fund and
B-24
<PAGE> 43
the remaining 75% of such costs based proportionally on their respective net
assets per fund.
During the fiscal years ended August 31, 1999, 1998 and 1997, Advisory
Corp. received approximately $1,083,500, $761,115 and $359,930, respectively, in
accounting services fees from the Fund.
DISTRIBUTION AND SERVICE
The Distributor acts as the principal underwriter of the Fund's shares
pursuant to a written agreement (the "Distribution and Service Agreement"). The
Distributor has the exclusive right to distribute shares of the Fund through
authorized dealers on a continuous basis. The Distributor's obligation is an
agency or "best efforts" arrangement under which the Distributor is required to
take and pay for only such shares of the Fund as may be sold to the public. The
Distributor is not obligated to sell any stated number of shares. The
Distributor bears the cost of printing (but not typesetting) prospectuses used
in connection with this offering and certain other costs including the cost of
supplemental sales literature and advertising. The Distribution and Service
Agreement is renewable from year to year if approved (a)(i) by the Fund's
Trustees or (ii) by a vote of a majority of the Fund's outstanding voting
securities and (b) by the affirmative vote of a majority of Trustees who are not
parties to the Distribution and Service Agreement or interested persons of any
party, by votes cast in person at a meeting called for such purpose. The
Distribution and Service Agreement provides that it will terminate if assigned,
and that it may be terminated without penalty by either party on 90 days'
written notice. Total underwriting commissions on the sale of shares of the Fund
for the last three fiscal periods are shown in the chart below.
<TABLE>
<CAPTION>
Total Amounts
Underwriting Retained by
Commissions Distributor
------------ -----------
<S> <C> <C>
Fiscal Year Ended August 31, 1999....................... 17,992,432 2,327,888
Fiscal Year Ended August 31, 1998....................... 10,514,502 1,579,902
Fiscal Year Ended August 31, 1997....................... 9,199,563 1,405,408
</TABLE>
With respect to sales of Class A Shares of the Fund, the total sales
charges and concessions reallowed to authorized dealers at the time of purchase
are as follows:
CLASS A SHARES SALES CHARGE TABLE
<TABLE>
<CAPTION>
Total Sales Charge
------------------------- Reallowed
As % of As % of Net To Dealers
Size of Offering Amount As a % of
Investment Price Invested Offering Price
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000........................... 5.75% 6.10% 5.00%
$50,000 but less than $100,000.............. 4.75% 4.99% 4.00%
$100,000 but less than $250,000............. 3.75% 3.90% 3.00%
$250,000 but less than $500,000............. 2.75% 2.83% 2.25%
$500,000 but less than $1,000,000........... 2.00% 2.04% 1.75%
$1,000,000 or more.......................... * * *
------------------------------------------------------------------------------------------------
</TABLE>
B-25
<PAGE> 44
* No sales charge is payable at the time of purchase on investments of $1
million or more, although the Fund may impose a contingent deferred sales
charge of 1.00% on certain redemptions made within one year of the purchase. A
commission or transaction fee will be paid by the Distributor at the time of
purchase directly out of the Distributor's assets (and not out of the Fund's
assets) to authorized dealers who initiate and are responsible for purchases
of $1 million or more computed on a percentage of the dollar value of such
shares sold as follows: 1.00% on sales to $2 million, plus 0.80% on the next
$1 million and 0.50% on the excess over $3 million. For single purchases of
$20 million or more by an individual retail investor, the Distributor will
pay, at the time of purchase and directly out of the Distributor's assets (and
not out of the Fund's assets), a commission or transaction fee of 1.00% to
authorized dealers who initiate and are responsible for such purchases. The
commission or transaction fee of 1.00% will be computed on a percentage of the
dollar value of such shares sold.
With respect to sales of Class B Shares and Class C Shares of the Fund, a
commission or transaction fee generally will be paid by the Distributor at the
time of purchase directly out of the Distributor's assets (and not out of the
Fund's assets) to authorized dealers who initiate and are responsible for such
purchases computed based on a percentage of the dollar value of such shares sold
of 4.00% on Class B Shares and 1.00% on Class C Shares.
Proceeds from any contingent deferred sales charge and any distribution
fees on Class B Shares and Class C Shares of the Fund are paid to the
Distributor and are used by the Distributor to defray its distribution related
expenses in connection with the sale of the Fund's shares, such as the payment
to authorized dealers for selling such shares. With respect to Class C Shares,
the authorized dealers generally are paid the ongoing commission and transaction
fees of up to 0.75% of the average daily net assets of the Fund's Class C Shares
annually commencing in the second year after purchase.
With respect to Class D Shares, there are no sales charges paid by
investors and no commissions or transaction fees to authorized dealers.
In addition to reallowances or commissions described above, the Distributor
may from time to time implement programs under which an authorized dealer's
sales force may be eligible to win nominal awards for certain sales efforts or
under which the Distributor will reallow to any authorized dealer that sponsors
sales contests or recognition programs conforming to criteria established by the
Distributor, or participates in sales programs sponsored by the Distributor, an
amount not exceeding the total applicable sales charges on the sales generated
by the authorized dealer at the public offering price during such programs.
Other programs provide, among other things and subject to certain conditions,
for certain favorable distribution arrangements for shares of the Fund. Also,
the Distributor in its discretion may from time to time, pursuant to objective
criteria established by the Distributor, pay fees to, and sponsor business
seminars for, qualifying authorized dealers for certain services or activities
which are primarily intended to result in sales of shares of the Fund or other
Van Kampen Funds. Fees may include payment for travel expenses, including
lodging, incurred in connection with trips taken by invited registered
representatives for meetings or seminars of a business nature. In some instances
additional compensation or promotional incentives may be offered to brokers,
dealers or financial intermediaries that have sold or may sell significant
amounts of shares during specified periods of time. The Distributor may provide
additional compensation to Edward D. Jones & Co. or an affiliate thereof based
on a
B-26
<PAGE> 45
combination of its quarterly sales of shares of the Fund and other Van Kampen
Funds and increases in net assets of the Fund and other Van Kampen Funds over
specified thresholds. All of the foregoing payments are made by the Distributor
out of its own assets. Such fees paid for such services and activities with
respect to the Fund will not exceed in the aggregate 1.25% of the average total
daily net assets of the Fund on an annual basis. These programs will not change
the price an investor will pay for shares or the amount that a Fund will receive
from such sale.
The Fund has adopted a distribution plan (the "Distribution Plan") with
respect to Class A Shares, Class B Shares and Class C Shares pursuant to Rule
12b-1 under the 1940 Act. The Fund also has adopted a service plan (the "Service
Plan") with respect to Class A Shares, Class B Shares and Class C Shares. There
is no distribution plan or service plan in effect for Class D Shares. The
Distribution Plan and the Service Plan sometimes are referred to herein as the
"Plans". The Plans provide that the Fund may spend a portion of the Fund's
average daily net assets attributable to each such class of shares in connection
with distribution of the respective class of shares and in connection with the
provision of ongoing services to shareholders of such class, respectively. The
Distribution Plan and the Service Plan are being implemented through the
Distribution and Service Agreement with the Distributor of each such class of
the Fund's shares and sub-agreements between the Distributor and members of the
NASD who are acting as securities dealers and NASD members or eligible
non-members who are acting as brokers or agents and similar agreements between
the Fund and financial intermediaries who are acting as brokers (collectively,
"Selling Agreements") that may provide for their customers or clients certain
services or assistance, which may include, but not be limited to, processing
purchase and redemption transactions, establishing and maintaining shareholder
accounts regarding the Fund, and such other services as may be agreed to from
time to time and as may be permitted by applicable statute, rule or regulation.
Brokers, dealers and financial intermediaries that have entered into
sub-agreements with the Distributor and sell shares of the Fund are referred to
herein as "financial intermediaries."
Certain financial intermediaries may be prohibited under the law from
providing certain underwriting or distribution services. If a financial
intermediary was prohibited from acting in any capacity or providing any of the
described services, the Distributor would consider what action, if any, would be
appropriate. The Distributor does not believe that termination of a relationship
with a financial intermediary would result in any material adverse consequences
to the Fund.
The Distributor must submit quarterly reports to the Board of Trustees of
the Trust, of which the Fund is a series, setting forth separately by class of
shares all amounts paid under the Distribution Plan and the purposes for which
such expenditures were made, together with such other information as from time
to time is reasonably requested by the Trustees. The Plans provide that they
will continue in full force and effect from year to year so long as such
continuance is specifically approved by a vote of the Trustees, and also by a
vote of the disinterested Trustees, cast in person at a meeting called for the
purpose of voting on the Plans. Each of the Plans may not be amended to increase
materially the amount to be spent for the services described therein with
respect to any class of shares without approval by a vote of a majority of the
outstanding voting shares of such class, and all material amendments to either
of the Plans must be approved by the Trustees and also by the disinterested
Trustees. Each of the Plans may be terminated with respect to any class of
shares at any time by a vote of a majority of the disinterested Trustees or by a
vote of a majority of the outstanding voting shares of such class.
B-27
<PAGE> 46
For Class A Shares in any given year in which the Plans are in effect, the
Plans generally provide for the Fund to pay the Distributor the lesser of (i)
the amount of the Distributor's actual expenses incurred during such year less
any deferred sales charges (if any) it received during such year (the "actual
net expenses") or (ii) the distribution and service fees at the rates specified
in the Prospectus (the "plan fees"). Therefore, to the extent the Distributor's
actual net expenses in a given year are less than the plan fees for such year,
the Fund only pays the actual net expenses. Alternatively, to the extent the
Distributor's actual net expenses in a given year exceed the plan fees for such
year, the Fund only pays the plan fees for such year. For Class A Shares, there
is no carryover of any unreimbursed actual net expenses to succeeding years.
The Plans for Class B Shares and Class C Shares are similar to the Plans
for Class A Shares, except that any actual net expenses which exceed plan fees
for a given year are carried forward and are eligible for payment in future
years by the Fund so long as the Plans remain in effect. Thus, for each of the
Class B Shares and Class C Shares, in any given year in which the Plans are in
effect, the Plans generally provide for the Fund to pay the Distributor the
lesser of (i) the applicable amount of the Distributor's actual net expenses
incurred during such year for such class of shares plus any actual net expenses
from prior years that are still unpaid by the Fund for such class of shares or
(ii) the applicable plan fees for such class of shares. Except as may be
mandated by applicable law, the Fund does not impose any limit with respect to
the number of years into the future that such unreimbursed actual net expenses
may be carried forward (on a Fund level basis). These unreimbursed actual net
expenses may or may not be recovered through plan fees or contingent deferred
sales charges in future years.
Because of fluctuation in net asset value, the plan fees with respect to a
particular Class B Share or Class C Share may be greater or less than the amount
of the initial commission (including carrying cost) paid by the Distributor with
respect to such share. In such circumstances, a shareholder of a share may be
deemed to incur expenses attributable to other shareholders of such class. As of
August 31, 1999, there were $61,457,324 and $2,328,762 of unreimbursed
distribution-related expenses with respect to Class B Shares and Class C Shares,
respectively, representing 2.86% and 0.79% of the Fund's net assets attributable
to Class B Shares and Class C Shares, respectively. If the Plans were terminated
or not continued, the Fund would not be contractually obligated to pay the
Distributor for any expenses not previously reimbursed by the Fund or recovered
through contingent deferred sales charges.
For the fiscal year ended August 31, 1999, the Fund's aggregate expenses
paid under the Plans for Class A Shares was $6,604,997 or 0.25% of the Class A
Shares' average daily net assets. Such expenses were paid to reimburse the
Distributor for payments made to financial intermediaries for servicing Class A
shareholders and for administering the Class A Share Plans. For the fiscal year
ended August 31, 1999, the Fund's aggregate expenses paid under the Plan for
Class B Shares was $20,633,446 or 1.00% of the Class B Shares' average daily net
assets. Such expenses were paid to reimburse the Distributor for the following
payments: $15,405,181 for commissions and transaction fees paid to financial
intermediaries in respect of sales of Class B Shares of the Fund and $5,228,265
for fees paid to financial intermediaries for servicing Class B shareholders and
administering the Class B Share Plans. For the fiscal year ended August 31,
1999, the Fund's aggregate expenses paid under the Plans for Class C Shares was
$2,738,314 or 1.00% of the Class C
B-28
<PAGE> 47
Shares' average daily net assets. Such expenses were paid to reimburse the
Distributor for the following payments: $1,337,803 for commissions and
transaction fees paid to financial intermediaries in respect of sales of Class C
Shares of the Fund and $1,400,511 for fees paid to financial intermediaries for
servicing Class C shareholders and administering the Class C Share Plans.
The Distributor has entered into agreements with (i) The Prudential
Insurance Company of America ("Prudential") under which the Fund shall be
offered pursuant to the PruArray Programs; (ii) Smith Barney Inc. ("Smith
Barney") under which the Fund shall be offered pursuant to the MultiChoice
Program; and (iii) Merrill Lynch ("Merrill") under which the Fund shall be
offered pursuant to the Merrill Program. Trustees and other fiduciaries of
retirement plans seeking to invest in multiple fund families through
broker-dealer retirement plan alliance programs should contact Prudential, Smith
Barney or Merrill for further information concerning the PruArray, MultiChoice
and Merrill Programs including, but not limited to, minimum investment and
operational requirements.
TRANSFER AGENT
The Fund's transfer agent, shareholder service agent and dividend
disbursing agent is Van Kampen Investor Services Inc., PO Box 218256, Kansas
City, MO 64121-8256. The transfer agency prices are determined through
negotiations with the Fund's Board of Trustees and are based on competitive
benchmarks.
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION
The Adviser is responsible for decisions to buy and sell securities for the
Fund, the selection of brokers and dealers to effect the transactions and the
negotiation of prices and any brokerage commissions on such transactions. While
the Adviser will be primarily responsible for the placement of the Fund's
portfolio business, the policies and practices in this regard will at all times
be subject to review by the Trustees of the Fund.
The Adviser is responsible for placing portfolio transactions and does so
in a manner deemed fair and reasonable to the Fund and not according to any
formula. The primary consideration in all portfolio transactions is prompt
execution of orders in an effective manner at the most favorable price. In
selecting broker-dealers and in negotiating prices and any brokerage commissions
on such transactions, the Adviser considers the firm's reliability, integrity
and financial condition and the firm's execution capability, the size and
breadth of the market for the security, the size of and difficulty in executing
the order, and the best net price. There are many instances when, in the
judgment of the Adviser, more than one firm can offer comparable execution
services. In selecting among such firms, consideration may be given to those
firms which supply research and other services in addition to execution
services. The Adviser is authorized to pay higher commissions to brokerage firms
that provide it with investment and research information than to firms which do
not provide such services if the Adviser determines that such commissions are
reasonable in relation to the overall services provided. No specific value can
be assigned to such research services which are furnished without cost to the
Adviser. Since statistical and other research information is only supplementary
to the research efforts of the Adviser to the Fund and still must be analyzed
and reviewed by its staff, the receipt of research information is not expected
to reduce its expenses materially. The investment advisory fee is not reduced as
a result of the Adviser's receipt of such research services. Services provided
may include (a) furnishing advice as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities;
B-29
<PAGE> 48
(b) furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and the performance of
accounts; and (c) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement and custody). Research
services furnished by firms through which the Fund effects its securities
transactions may be used by the Adviser in servicing all of its advisory
accounts; not all of such services may be used by the Adviser in connection with
the Fund. The Adviser also may place portfolio transactions, to the extent
permitted by law, with brokerage firms affiliated with the Fund, the Adviser or
the Distributor and with brokerage firms participating in the distribution of
the Fund's shares if it reasonably believes that the quality of execution and
the commission are comparable to that available from other qualified firms.
Similarly, to the extent permitted by law and subject to the same considerations
on quality of execution and comparable commission rates, the Adviser may direct
an executing broker to pay a portion or all of any commissions, concessions or
discounts to a firm supplying research or other services or to a firm
participating in the distribution of the Fund's shares.
The Adviser may place portfolio transactions at or about the same time for
other advisory accounts, including other investment companies. The Adviser seeks
to allocate portfolio transactions equitably whenever concurrent decisions are
made to purchase or sell securities for the Fund and another advisory account.
In some cases, this procedure could have an adverse effect on the price or the
amount of securities available to the Fund. In making such allocations among the
Fund and other advisory accounts, the main factors considered by the Adviser are
the respective sizes of the Fund and other advisory accounts, the respective
investment objectives, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment, the size of
investment commitments generally held and opinions of the persons responsible
for recommending the investment.
Effective October 31, 1996, Morgan Stanley & Co. Incorporated ("Morgan
Stanley") became an affiliate of the Adviser. Effective May 31, 1997, Dean
Witter Reynolds, Inc. ("Dean Witter") became an affiliate of the Adviser. The
Trustees have adopted certain policies incorporating the standards of Rule 17e-1
issued by the SEC under the 1940 Act which require that the commissions paid to
affiliates of the Fund must be reasonable and fair compared to the commissions,
fees or other remuneration received or to be received by other brokers in
connection with comparable transactions involving similar securities during a
comparable period of time. The rule and procedures also contain review
requirements and require the Adviser to furnish reports to the Trustees and to
maintain records in connection with such reviews. After consideration of all
factors deemed relevant, the Trustees will consider from time to time whether
the advisory fee for the Fund will be reduced by all or a portion of the
brokerage commission given to affiliated brokers.
B-30
<PAGE> 49
The Fund paid the following commissions to all brokers and affiliated
brokers during the periods shown:
Commissions Paid:
<TABLE>
<CAPTION>
Affiliated Brokers
--------------------
All Morgan Dean
Brokers Stanley Witter
------- ------- ------
<S> <C> <C> <C>
Commissions paid:
Fiscal year August 31, 1999....................... $7,260,010 $25,886 $ --
Fiscal year August 31, 1998....................... $5,315,617 $ -- $ --
Fiscal year August 31, 1997....................... $3,352,010 $32,244 $ --
Fiscal year 1999 Percentages:
Commissions with affiliate to total
commissions.................................. 0.36% 0%
Value of brokerage transactions with affiliate
to total transactions........................ 0% 0%
</TABLE>
During the fiscal year ended August 31, 1999, the Fund paid $4,509,501 in
brokerage commissions on transactions totaling $4,464,136,717 to brokers
selected primarily on the basis of research services provided to the Adviser.
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services designed to facilitate
investment in its shares at little or no extra cost to the investor. Below is a
description of such services. The following information supplements the section
in the Fund's Prospectus captioned "Shareholder Services."
INVESTMENT ACCOUNT
Each shareholder has an investment account under which the investor's
shares of the Fund are held by Investor Services, the Fund's transfer agent.
Investor Services performs bookkeeping, data processing and administrative
services related to the maintenance of shareholder accounts. Except as described
in the Prospectus and this Statement of Additional Information, after each share
transaction in an account, the shareholder receives a statement showing the
activity in the account. Each shareholder who has an account in any of the
Participating Funds (as defined in the Prospectus) will receive statements
quarterly from Investor Services showing any reinvestments of dividends and
capital gain dividends and any other activity in the account since the preceding
statement. Such shareholders also will receive separate confirmations for each
purchase or sale transaction other than reinvestment of dividends and capital
gain dividends and systematic purchases or redemptions. Additional shares may be
purchased at any time through authorized dealers or by mailing a check directly
to Investor Services.
SHARE CERTIFICATES
Generally, the Fund will not issue share certificates. However, upon
written or telephone request to the Fund, a share certificate will be issued
representing shares (with the exception of fractional shares) of the Fund. A
shareholder will be required to surrender such certificates upon an exchange or
redemption of the shares represented by the
B-31
<PAGE> 50
certificate. In addition, if such certificates are lost the shareholder must
write to Van Kampen Funds Inc., c/o Investor Services, PO Box 218256, Kansas
City, MO 64121-8256, requesting an "Affidavit of Loss" and obtain a Surety Bond
in a form acceptable to Investor Services. On the date the letter is received,
Investor Services will calculate the fee for replacing the lost certificate
equal to no more than 2.00% of the net asset value of the issued shares, and
bill the party to whom the replacement certificate was mailed.
RETIREMENT PLANS
Eligible investors may establish individual retirement accounts ("IRAs");
SEP; 401(k) plans; Section 403(b)(7) plans in the case of employees of public
school systems and certain non-profit organizations; or other pension or profit
sharing plans. Documents and forms containing detailed information regarding
these plans are available from the Distributor. Van Kampen Trust Company serves
as custodian under the IRA, 403(b)(7) and Keogh plans.
AUTOMATED CLEARING HOUSE("ACH") DEPOSITS
Shareholders can use ACH to have redemption proceeds deposited
electronically into their bank accounts. Redemption proceeds transferred to a
bank account via the ACH plan are available to be credited to the account on the
second business day following normal payment. In order to utilize this option,
the shareholder's bank must be a member of ACH. In addition, the shareholder
must fill out the appropriate section of the account application. The
shareholder must also include a voided check or deposit slip from the bank
account into which redemption proceeds are to be deposited together with the
completed application. Once Investor Services has received the application and
the voided check or deposit slip, such shareholder's designated bank account,
following any redemption, will be credited with the proceeds of such redemption.
Once enrolled in the ACH plan, a shareholder may terminate participation at any
time by writing Investor Services.
DIVIDEND DIVERSIFICATION
A shareholder may upon written request, by completing the appropriate
section of the application form accompanying the Prospectus or by calling (800)
341-2911 ((800) 421-2833 for the hearing impaired), elect to have all dividends
and capital gain dividends paid on a class of shares of the Fund invested into
shares of the same class of any Participating Fund so long as the investor has a
pre-existing account for such class of shares of the other fund. Both accounts
must be of the same type, either non-retirement or retirement. If the accounts
are retirement accounts, they must both be for the same class and of the same
type of retirement plan (e.g. IRA, 403(b)(7), 401(k), Keogh) and for the benefit
of the same individual. If a qualified, pre-existing account does not exist, the
shareholder must establish a new account subject to minimum investment and other
requirements of the fund into which distributions would be invested.
Distributions are invested into the selected fund at its net asset value per
share as of the payable date of the distribution.
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<PAGE> 51
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may establish a monthly, quarterly, semiannual or annual
withdrawal plan if the shareholder owns shares in a single account valued at
$10,000 or more at the next determined net asset value per share at the time the
plan is established. If a shareholder owns shares in a single account valued at
$5,000 or more at the next determined net asset value per share at the time the
plan is established, the shareholder may establish a quarterly, semiannual or
annual withdrawal plan. This plan provides for the orderly use of the entire
account, not only the income but also the capital, if necessary. Each payment
represents the proceeds of a redemption of shares on which any capital gain or
loss will be recognized. The planholder may arrange for monthly, quarterly,
semiannual or annual checks in any amount, not less than $25. Such a systematic
withdrawal plan may also be maintained by an investor purchasing shares for a
retirement plan established on a form made available by the Fund.
Class B Shareholders and Class C Shareholders who establish a systematic
withdrawal plan may redeem up to 12% annually of the shareholder's initial
account balance without incurring a contingent deferred sales charge. Initial
account balance means the amount of the shareholder's investment at the time the
election to participate in the plan is made.
Under the plan, sufficient shares of the Fund are redeemed to provide the
amount of the periodic payment. Dividends and capital gain dividends on shares
held in accounts with systematic withdrawal plans are reinvested in additional
shares at the next determined net asset value per share. If periodic withdrawals
continuously exceed reinvested dividends and capital gain dividends, the
shareholder's original investment will be correspondingly reduced and ultimately
exhausted. Redemptions made concurrently with the purchase of additional shares
ordinarily will be disadvantageous to the shareholder because of the duplication
of sales charges. Any gain or loss realized by the shareholder upon redemption
of shares is a taxable event. The Fund reserves the right to amend or terminate
the systematic withdrawal program upon 30 days' notice to its shareholders.
EXCHANGE PRIVILEGE
All shareholders are limited to eight exchanges per fund during a rolling
365-day period.
Exchange privileges will be suspended on a particular fund if more than
eight exchanges out of that fund are made by a shareholder during a rolling
365-day period. If exchange privileges are suspended, subsequent exchange
requests for redemptions out of that fund during the stated period will not be
processed. Exchange privileges will be restored when the account history shows
fewer than eight exchanges in the rolling 365-day period.
This policy change does not apply to money market funds, systematic
exchange plans, or employer-sponsored retirement plans.
REINSTATEMENT PRIVILEGE
A Class A Shareholder or Class B Shareholder who has redeemed shares of the
Fund may reinstate any portion or all of the net proceeds of such redemption in
Class A Shares of the Fund. A Class C Shareholder who has redeemed shares of the
Fund may reinstate
B-33
<PAGE> 52
any portion or all of the net proceeds of such redemption in Class C Shares of
the Fund with credit given for any contingent deferred sales charge paid upon
such redemption. Such reinstatement is made at the net asset value per share
(without sales charge) next determined after the order is received, which must
be made within 180 days after the date of the redemption. Reinstatement at net
asset value per share is also offered to participants in those eligible
retirement plans held or administered by Van Kampen Trust Company for repayment
of principal (and interest) on their borrowings on such plans. There is no
reinstatement privilege for Class D Shares.
REDEMPTION OF SHARES
Redemptions are not made on days during which the New York Stock Exchange
(the "Exchange") is closed. The right of redemption may be suspended and the
payment therefor may be postponed for more than seven days during any period
when (a) the Exchange is closed for other than customary weekends or holidays;
(b) the SEC determines trading on the Exchange is restricted; (c) the SEC
determines an emergency exists as a result of which disposal by the Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Fund to fairly determine the value of its net assets; or (d)
the SEC, by order, so permits.
Additionally, if the Board of Trustees determines that payment wholly or
partly in cash would be detrimental to the best interests of the remaining
shareholders of the Fund, the Fund may pay the redemption proceeds in whole or
in part by a distribution-in-kind of portfolio securities held by the Fund in
lieu of cash in conformity with applicable rules of the SEC. Shareholders may
incur brokerage charges and a gain or loss for federal income tax purposes upon
the sale of portfolio securities so received in payment of redemptions.
CONTINGENT DEFERRED SALES CHARGE-CLASS A ("CDSC-CLASS A")
As described in the Prospectus under "Purchase of Shares -- Class A
Shares," there is no sales charge payable on Class A Shares at the time of
purchase on investments of $1 million or more, but a contingent deferred sales
charge ("CDSC -- Class A") may be imposed on certain redemptions made within one
year of purchase. For purposes of the CDSC-Class A, when shares of one fund are
exchanged for shares of another fund, the purchase date for the shares of the
fund exchanged into will be assumed to be the date on which shares were
purchased in the fund from which the exchange was made. If the exchanged shares
themselves are acquired through an exchange, the purchase date is assumed to
carry over from the date of the original election to purchase shares subject to
a CDSC-Class A rather than a front-end load sales charge. In determining whether
a CDSC-Class A is payable, it is assumed that shares being redeemed first are
any shares in the shareholder's account not subject to a contingent deferred
sales charge followed by shares held the longest in the shareholder's account.
WAIVER OF CLASS B AND CLASS C CONTINGENT DEFERRED SALES
CHARGES ("CDSC-CLASS B AND C")
As described in the Prospectus under "Redemption of Shares," redemptions of
Class B Shares and Class C Shares will be subject to a contingent deferred sales
charge.
B-34
<PAGE> 53
The CDSC-Class B and C is waived on redemptions of Class B Shares and Class C
Shares in the circumstances described below:
REDEMPTION UPON DEATH OR DISABILITY
The Fund will waive the CDSC-Class B and C on redemptions following the
death or disability of a Class B shareholder and Class C shareholder. An
individual will be considered disabled for this purpose if he or she meets the
definition thereof in Section 72(m)(7) of the Internal Revenue Code of 1986, as
amended (the "Code"), which in pertinent part defines a person as disabled if
such person "is unable to engage in any substantial gainful activity by reason
of any medically determinable physical or mental impairment which can be
expected to result in death or to be of long-continued and indefinite duration."
While the Fund does not specifically adopt the balance of the Code's definition
which pertains to furnishing the Secretary of Treasury with such proof as he or
she may require, the Distributor will require satisfactory proof of death or
disability before it determines to waive the CDSC-Class B and C.
In cases of death or disability, the CDSC-Class B and C will be waived
where the decedent or disabled person is either an individual shareholder or
owns the shares as a joint tenant with right of survivorship or is the
beneficial owner of a custodial or fiduciary account, and where the redemption
is made within one year of the death or initial determination of disability.
This waiver of the CDSC-Class B and C applies to a total or partial redemption,
but only to redemptions of shares held at the time of the death or initial
determination of disability.
REDEMPTION IN CONNECTION WITH CERTAIN DISTRIBUTIONS FROM RETIREMENT PLANS
The Fund will waive the CDSC-Class B and C when a total or partial
redemption is made in connection with certain distributions from retirement
plans. The CDSC -- Class B and C will be waived upon the tax-free rollover or
transfer of assets to another retirement plan invested in one or more
Participating Funds; in such event, as described below, the Fund will "tack" the
period for which the original shares were held on to the holding period of the
shares acquired in the transfer or rollover for purposes of determining what, if
any, CDSC-Class B and C is applicable in the event that such acquired shares are
redeemed following the transfer or rollover. The charge also will be waived on
any redemption which results from the return of an excess contribution pursuant
to Section 408(d)(4) or (5) of the Code, the return of excess deferral amounts
pursuant to Code Section 401(k)(8) or 402(g)(2), the financial hardship of the
employee pursuant to Code Section 401(k)-1(d)(2), or from the death or
disability of the employee (see Code Section 72(m)(7) and 72(t)(2)(A)(ii)). In
addition, the charge will be waived on any minimum distribution required to be
distributed in accordance with Code Section 401(a)(9).
The Fund does not intend to waive the CDSC-Class B and C for any
distributions from IRAs or other retirement plans not specifically described
above.
REDEMPTION PURSUANT TO THE FUND'S SYSTEMATIC WITHDRAWAL PLAN
A shareholder may elect to participate in a systematic withdrawal plan with
respect to the shareholder's investment in the Fund. Under the systematic
withdrawal plan, a dollar
B-35
<PAGE> 54
amount of a participating shareholder's investment in the Fund will be redeemed
systematically by the Fund on a periodic basis, and the proceeds mailed to the
shareholder. The amount to be redeemed and frequency of the systematic
withdrawals will be specified by the shareholder upon his or her election to
participate in the systematic withdrawal plan. The CDSC-Class B and C will be
waived on redemptions made under the systematic withdrawal plan.
The amount of the shareholder's investment in a Fund at the time the
election to participate in the systematic withdrawal plan is made with respect
to the Fund is hereinafter referred to as the "initial account balance." The
amount to be systematically redeemed from the Fund without the imposition of a
CDSC-Class B and C may not exceed a maximum of 12% annually of the shareholder's
initial account balance. The Fund reserves the right to change the terms and
conditions of the systematic withdrawal plan and the ability to offer the
systematic withdrawal plan.
NO INITIAL COMMISSION OR TRANSACTION FEE
The Fund will waive the CDSC-Class B and C in circumstances under which no
commission or transaction fee is paid to authorized dealers at the time of
purchase of shares. See "Purchase of Shares-Waiver of Contingent Deferred Sales
Charge" in the Prospectus.
INVOLUNTARY REDEMPTIONS OF SHARES
The Fund reserves the right to redeem shareholder accounts with balances of
less than a specified dollar amount as set forth in the Prospectus. Prior to
such redemptions, shareholders will be notified in writing and allowed a
specified period of time to purchase additional shares to bring the value of the
account up to the required minimum balance. The Fund will waive the CDSC-Class B
and C upon such involuntary redemption.
REINVESTMENT OF REDEMPTION PROCEEDS
A shareholder who has redeemed Class C Shares of a Fund may reinvest at net
asset value, with credit for any CDSC-Class C paid on the redeemed shares, any
portion or all of his or her redemption proceeds (plus that amount necessary to
acquire a fractional share to round off his or her purchase to the nearest full
share) in Class C Shares of the Fund, provided that the reinvestment is effected
within 180 days after such redemption and the shareholder has not previously
exercised this reinvestment privilege with respect to Class C Shares of the
Fund. Shares acquired in this manner will be deemed to have the original cost
and purchase date of the redeemed shares for purposes of applying the CDSC-Class
C to subsequent redemptions.
REDEMPTION BY ADVISER
The Fund may waive the CDSC-Class B and C when a total or partial
redemption is made by the Adviser with respect to its investments in the Fund.
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<PAGE> 55
TAXATION
FEDERAL INCOME TAXATION OF THE FUND
The Fund has elected and qualified, and intends to continue to qualify each
year, to be treated as a regulated investment company under Subchapter M of the
Code. To qualify as a regulated investment company, the Fund must comply with
certain requirements of the Code relating to, among other things, the source of
its income and diversification of its assets.
If the Fund so qualifies and distributes each year to its shareholders at
least 90% of its net investment income (including taxable income and net
short-term capital gain, but not net capital gain, which is the excess of net
long-term capital gain over net short-term capital loss) and meets certain other
requirements, it will not be required to pay federal income taxes on any income
it distributes to shareholders. The Fund intends to distribute at least the
minimum amount of net investment income necessary to satisfy the 90%
distribution requirement. The Fund will not be subject to federal income tax on
any net capital gain distributed to shareholders.
In order to avoid a 4% excise tax, the Fund will be required to distribute,
by December 31st of each year, at least an amount equal to the sum of (i) 98% of
its ordinary income for such year and (ii) 98% of its capital gain net income
(the latter of which generally is computed on the basis of the one-year period
ending on October 31st of such year), plus any amounts that were not distributed
in previous taxable years. For purposes of the excise tax, any ordinary income
or capital gain net income retained by, and subject to federal income tax in the
hands of, the Fund will be treated as having been distributed.
If the Fund failed to qualify as a regulated investment company or failed
to satisfy the 90% distribution requirement in any taxable year, the Fund would
be taxed as an ordinary corporation on its taxable income (even if such income
were distributed to its shareholders) and all distributions out of earnings and
profits would be taxed to shareholders as ordinary income. To qualify again as a
regulated investment company in a subsequent year, the Fund may be required to
pay an interest charge on 50% of its earnings and profits attributable to
non-regulated investment company years and would be required to distribute such
earnings and profits to shareholders (less any interest charge). In addition, if
the Fund failed to qualify as a regulated investment company for its first
taxable year or, if immediately after qualifying as a regulated investment
company for any taxable year, it failed to qualify for a period greater than one
taxable year, the Fund would be required to recognize any net built-in gains
(the excess of aggregate gains, including items of income, over aggregate losses
that would have been realized if it had been liquidated) in order to qualify as
a regulated investment company in a subsequent year.
Some of the Fund's investment practices are subject to special provisions
of the Code that, among other things, may defer the use of certain losses of the
Fund and affect the holding period of the securities held by the Fund and the
character of the gains or losses realized by the Fund. These provisions may also
require the Fund to recognize income or gain without receiving cash with which
to make distributions in amounts necessary to satisfy the 90% distribution
requirement and the distribution requirements for avoiding income and excise
taxes. The Fund will monitor its transactions and may make certain tax
B-37
<PAGE> 56
elections in order to mitigate the effect of these rules and prevent
disqualification of the Fund as a regulated investment company.
Investments of the Fund in securities issued at a discount or providing for
deferred interest or payment of interest in kind are subject to special tax
rules that will affect the amount, timing and character of distributions to
shareholders. For example, with respect to securities issued at a discount, the
Fund will be required to accrue as income each year a portion of the discount
and to distribute such income each year in order to maintain its qualification
as a regulated investment company and to avoid income and excise taxes. In order
to generate sufficient cash to make distributions necessary to satisfy the 90%
distribution requirement and to avoid income and excise taxes, the Fund may have
to dispose of securities that it would otherwise have continued to hold.
PASSIVE FOREIGN INVESTMENT COMPANIES. The Fund may invest in the stock of
"passive foreign investment companies" ("PFICs"). A PFIC is a foreign
corporation that, in general, meets either of the following tests: (i) at least
75% of its gross income is passive income or (ii) an average of at least 50% of
its assets produce, or are held for the production of, passive income. Under
certain circumstances, a regulated investment company that holds stock of a PFIC
will be subject to federal income tax on (i) a portion of any "excess
distribution" received on such stock or (ii) any gain from a sale or disposition
of such stock (collectively, "PFIC income"), plus interest on such amounts, even
if the regulated investment company distributes the PFIC income as a taxable
dividend to its shareholders. The balance of the PFIC income will be included in
the regulated investment company's investment company taxable income and,
accordingly, will not be taxable to it to the extent that income is distributed
to its shareholders. If the Fund invests in a PFIC and elects to treat the PFIC
as a "qualified electing fund," then in lieu of the foregoing tax and interest
obligation, the Fund would be required to include in income each year its pro
rata share of the qualified electing fund's annual ordinary earnings and net
capital gain, which most likely would have to be distributed to satisfy the 90%
distribution requirement and the distribution requirement for avoiding income
and excise taxes. In most instances it will be very difficult to make this
election due to certain requirements imposed with respect to the election.
As an alternative to making the above-described election to treat the PFIC
as a qualified electing fund, the Fund may make an election to annually
mark-to-market PFIC stock that it owns (a "PFIC Mark-to-Market Election").
"Marking-to-market," in this context, means recognizing as ordinary income or
loss each year an amount equal to the difference between the Fund's adjusted tax
basis in such PFIC stock and its fair market value. Losses will be allowed only
to the extent of net mark-to-market gain previously included by the Fund
pursuant to the election for prior taxable years. The Fund may be required to
include in its taxable income for the first taxable year in which it makes a
PFIC Mark-to-Market Election an amount equal to the interest charge that would
otherwise accrue with respect to distributions on, or dispositions of, the PFIC
stock. This amount would not be deductible from the Fund's taxable income. The
PFIC Mark-to-Market Election applies to the taxable year for which made and to
all subsequent taxable years, unless the Internal Revenue Service ("IRS")
consents to revocation of the election. By making the PFIC Mark-to-Market
Election, the Fund could ameliorate the adverse tax consequences arising from
its ownership of PFIC stock, but in any particular year may be
B-38
<PAGE> 57
required to recognize income in excess of the distributions it receives from the
PFIC and proceeds from the dispositions of PFIC stock.
DISTRIBUTIONS TO SHAREHOLDERS
Distributions of the Fund's net investment income are taxable to
shareholders as ordinary income to the extent of the Fund's earnings and
profits, whether paid in cash or reinvested in additional shares. Distributions
of the Fund's net capital gain as capital gain dividends, if any, are taxable to
shareholders as long-term capital gains regardless of the length of time shares
of the Fund have been held by such shareholders. Distributions in excess of the
Fund's earnings and profits will first reduce the adjusted tax basis of a
holder's shares and, after such adjusted tax basis is reduced to zero, will
constitute capital gains to such holder (assuming such shares are held as a
capital asset). For a summary of the tax rates applicable to capital gains
(including capital gain dividends), see "Capital Gains Rates" below. Tax-exempt
shareholders not subject to federal income tax on their income generally will
not be taxed on distributions from the Fund.
Shareholders receiving distributions in the form of additional shares
issued by the Fund will be treated for federal income tax purposes as receiving
a distribution in an amount equal to the fair market value of the shares
received, determined as of the distribution date. The basis of such shares will
equal the fair market value on the distribution date.
The Fund will inform shareholders of the source and tax status of all
distributions promptly after the close of each calendar year. Distributions from
the Fund may be eligible for the dividends received deduction for corporations
if the Fund receives qualifying dividends during the year and if certain other
requirements of the Code are satisfied.
Although dividends generally will be treated as distributed when paid,
dividends declared in October, November or December, payable to shareholders of
record on a specified date in such month and paid during January of the
following year will be treated as having been distributed by the Fund and
received by the shareholders on the December 31st prior to the date of payment.
In addition, certain other distributions made after the close of a taxable year
of the Fund may be "spilled back" and treated as paid by the Fund (except for
purposes of the 4% excise tax) during such taxable year. In such case,
shareholders will be treated as having received such dividends in the taxable
year in which the distribution was actually made.
Income from investments in foreign securities received by the Fund may be
subject to income, withholding or other taxes imposed by foreign countries and
U.S. possessions. Such taxes will not be deductible or creditable by
shareholders. Tax conventions between certain countries and the United States
may reduce or eliminate such taxes.
Certain foreign currency gains or losses attributable to currency exchange
rate fluctuations are treated as ordinary income or loss. Such income or loss
may increase or decrease (or possibly eliminate) the Fund's income available for
distribution. If, under the rules governing the tax treatment of foreign
currency gains and losses, the Fund's income available for distribution is
decreased or eliminated, all or a portion of the dividends declared by the Fund
may be treated for federal income tax purposes as a return of capital or, in
some circumstances, as capital gains. Generally, a shareholder's tax basis in
Fund
B-39
<PAGE> 58
shares will be reduced to the extent that an amount distributed to such
shareholder is treated as a return of capital.
SALE OF SHARES
The sale of shares (including transfers in connection with a redemption or
repurchase of shares) will be a taxable transaction for federal income tax
purposes. Selling shareholders will generally recognize gain or loss in an
amount equal to the difference between their adjusted tax basis in the shares
and the amount received. If such shares are held as a capital asset, the gain or
loss will be a capital gain or loss. For a summary of the tax rates applicable
to capital gains (including capital gain dividends), see "Capital Gains Rates"
below. Any loss recognized upon a taxable disposition of shares held for six
months or less will be treated as a long-term capital loss to the extent of any
capital gain dividends received with respect to such shares. For purposes of
determining whether shares have been held for six months or less, the holding
period is suspended for any periods during which the shareholder's risk of loss
is diminished as a result of holding one or more other positions in
substantially similar or related property or through certain options or short
sales.
CAPITAL GAINS RATES
The maximum tax rate applicable to net capital gains recognized by
individuals and other non-corporate taxpayers is (i) the same as the maximum
ordinary income tax rate for capital assets held for one year or less or (ii)
20% for capital assets held for more than one year. The maximum long-term
capital gains rate for corporations is 35%.
NON-U.S. SHAREHOLDERS
A shareholder who is not (i) a citizen or resident of the United States,
(ii) a corporation or partnership created or organized under the laws of the
United States or any state thereof, (iii) an estate, the income of which is
subject to United States federal income taxation regardless of its source or
(iv) a trust whose administration is subject to the primary supervision of a
United States court and which has one or more United States fiduciaries who have
the authority to control all substantial decisions of the trust (a "Non-U.S.
Shareholder") generally will be subject to withholding of United States federal
income tax at a 30% rate (or lower applicable treaty rate) on dividends from the
Fund (other than capital gain dividends) that are not "effectively connected"
with a United States trade or business carried on by such shareholder.
Non-effectively connected capital gain dividends and gains realized from
the sale of shares will not be subject to United States federal income tax in
the case of (i) a Non-U.S. Shareholder that is a corporation and (ii) a Non-U.S.
Shareholder that is not present in the United States for more than 182 days
during the taxable year (assuming that certain other conditions are met).
However, certain Non-U.S. Shareholders may nonetheless be subject to backup
withholding on capital gain dividends and gross proceeds paid to them upon the
sale of their shares. See "Backup Withholding" below.
If income from the Fund or gains realized from the sale of shares is
effectively connected with a Non-U.S. Shareholder's United States trade or
business, then such amounts will be subject to United States federal income tax
on a net basis at the tax rates
B-40
<PAGE> 59
applicable to United States citizens or domestic corporations. Non-U.S.
Shareholders that are corporations may also be subject to an additional "branch
profits tax" with respect to income from the Fund that is effectively connected
with a United States trade or business.
Final United States Treasury regulations, effective for payments made after
December 31, 2000, modify the withholding, backup withholding and information
reporting rules, including the procedures to be followed by Non-U.S.
Shareholders in establishing foreign status. Prospective investors should
consult their tax advisors concerning the applicability and effect of such
Treasury regulations on an investment in shares of the Fund.
The tax consequences to a Non-U.S. Shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described in
this section. Non-U.S. Shareholders may be required to provide appropriate
documentation to establish their entitlement to the benefits of such a treaty.
Foreign investors are advised to consult their tax advisers with respect to the
tax implications of purchasing, holding and disposing of shares of the Fund.
BACKUP WITHHOLDING
The Fund may be required to withhold federal income tax at a rate of 31%
("backup withholding") from dividends and redemption proceeds paid to
non-corporate shareholders. This tax may be withheld from dividends if (i) the
shareholder fails to furnish the Fund with its correct taxpayer identification
number, (ii) the IRS notifies the Fund that the shareholder has failed to
properly report certain interest and dividend income to the IRS and to respond
to notices to that effect or (iii) when required to do so, the shareholder fails
to certify that he or she is not subject to backup withholding. Redemption
proceeds may be subject to withholding under the circumstances described in (i)
above.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules from payments made to a Shareholder may be refunded or
credited against such shareholder's United States federal income tax liability,
if any, provided that the required information is furnished to the IRS.
INFORMATION REPORTING
The Fund must report annually to the IRS and to each Non-U.S. Shareholder
the amount of dividends paid to such shareholder and the amount, if any, of tax
withheld pursuant to backup withholding rules with respect to such dividends.
This information may also be made available to the tax authorities in the
Non-U.S. Shareholder's country of residence.
GENERAL
The federal income tax discussion set forth above is for general
information only. Prospective investors and shareholders should consult their
advisors regarding the specific federal tax consequences of purchasing, holding
and disposing of shares, as well as the effects of state, local and foreign tax
law and any proposed tax law changes.
B-41
<PAGE> 60
FUND PERFORMANCE
From time to time the Fund may advertise its total return for prior
periods. Any such advertisement would include at least average annual total
return quotations for one year, five year and ten year periods. Other total
return quotations, aggregate or average, over other time periods may also be
included.
The total return of the Fund for a particular period represents the
increase (or decrease) in the value of a hypothetical investment in the Fund
from the beginning to the end of the period. Total return is calculated by
subtracting the value of the initial investment from the ending value and
showing the difference as a percentage of the initial investment; the
calculation assumes the initial investment is made at the current maximum public
offering price (which includes a maximum sales charge for Class A Shares); that
all income dividends or capital gain dividends during the period are reinvested
in Fund shares at net asset value; and that any applicable contingent deferred
sales charge has been paid. The Fund's total return will vary depending on
market conditions, the securities comprising the Fund's portfolio, the Fund's
operating expenses and unrealized net capital gains or losses during the period.
Since Class A Shares of the Fund were offered at a maximum sales charge of 8.50%
prior to June 12, 1989, actual Fund total return for shares purchased prior to
such date would have been somewhat less than that computed on the basis of the
current maximum sales charge. Total return is based on historical earnings and
asset value fluctuations and is not intended to indicate future performance. No
adjustments are made to reflect any income taxes payable by shareholders on
dividends and capital gain dividends paid by the Fund or to reflect the fact
that no 12b-1 fees were incurred prior to October 1, 1989.
Average annual total return quotations are computed by finding the average
annual compounded rate of return over the period that would equate the initial
amount invested to the ending redeemable value.
The Fund may, in supplemental sales literature, advertise non-standardized
total return figures representing the cumulative, non-annualized total return of
each class of shares of the Fund from a given date to a subsequent given date.
Cumulative non-standardized total return is calculated by measuring the value of
an initial investment in a given class of shares of the Fund at a given time,
deducting the maximum initial sales charge, if any, determining the value of all
subsequent reinvested distributions, and dividing the net change in the value of
the investment as of the end of the period by the amount of the initial
investment and expressing the result as a percentage. Non-standardized total
return will be calculated separately for each class of shares.
Non-standardized total return calculations do not reflect the imposition of
a contingent deferred sales charge, and if any such contingent deferred sales
charge imposed at the time of redemption were reflected, it would reduce the
performance quoted.
Total return is calculated separately for Class A Shares, Class B Shares,
Class C Shares and Class D Shares. Total return figures for Class A Shares
include the maximum sales charge; total return figures for Class B Shares and
Class C Shares include any applicable contingent deferred sales charge. Because
of the differences in sales charges and distribution fees, the total returns for
each class of shares will differ.
B-42
<PAGE> 61
From time to time, the Fund may include in its sales literature and
shareholder reports a quotation of the current "distribution rate" for each
class of shares of the Fund. Distribution rate is a measure of the level of
income and short-term capital gain dividends, if any, distributed for a
specified period. Distribution rate differs from yield, which is a measure of
the income actually earned by the Fund's investments, and from total return
which is a measure of the income actually earned by the Fund's investments plus
the effect of any realized and unrealized appreciation or depreciation of such
investments during a stated period. Distribution rate is, therefore, not
intended to be a complete measure of the Fund's performance. Distribution rate
may sometimes be greater than yield since, for instance, it may not include the
effect of amortization of bond premiums, and may include non-recurring
short-term capital gains and premiums from futures transactions engaged in by
the Fund. Distribution rates will be computed separately for each class of the
Fund's shares.
From time to time marketing materials may provide a portfolio manager
update, an Adviser update and discuss general economic conditions and outlooks.
The Fund's marketing materials may also show the Fund's asset class
diversification, top sector holdings and largest holdings. Materials may also
mention how the Distributor believes the Fund compares relative to other Van
Kampen funds. Materials may also discuss the Dalbar Financial Services study
from 1984 to 1994 which studied investor cash flow into and out of all types of
mutual funds. The ten year study found that investors who bought mutual fund
shares and held such shares outperformed investors who bought and sold. The
Dalbar study conclusions were consistent regardless of whether shareholders
purchased their funds in direct or sales force distribution channels. The study
showed that investors working with a professional representative have tended
over time to earn higher returns than those who invested directly. The Fund may
also be marketed on the internet.
In reports or other communications to shareholders or in advertising
material, the Fund may compare its performance with that of other mutual funds
as listed in the rankings or ratings prepared by Lipper Analytical Services,
Inc., CDA, Morningstar Mutual Funds or similar independent services which
monitor the performance of mutual funds with the Consumer Price Index, the Dow
Jones Industrial Average, Standard & Poor's indices, NASDAQ Composite Index,
other appropriate indices of investment securities, or with investment or
savings vehicles. The performance information may also include evaluations of
the Fund published by nationally recognized ranking or rating services and by
nationally recognized financial publications. Such comparative performance
information will be stated in the same terms in which the comparative data or
indices are stated. Such advertisements and sales material may also include a
yield quotation as of a current period. In each case, such total return and
yield information, if any, will be calculated pursuant to rules established by
the SEC and will be computed separately for each class of the Fund's shares. For
these purposes, the performance of the Fund, as well as the performance of other
mutual funds or indices, do not reflect sales charges, the inclusion of which
would reduce the Fund's performance. The Fund will include performance data for
each class of shares of the Fund in any advertisement or information including
performance data of the Fund.
The Fund may also utilize performance information in hypothetical
illustrations. For example, the Fund may, from time to time: (1) illustrate the
benefits of tax-deferral by comparing taxable investments to investments made
through tax-deferred retirement plans;
B-43
<PAGE> 62
(2) illustrate in graph or chart form, or otherwise, the benefits of dollar cost
averaging by comparing investments made pursuant to a systematic investment plan
to investments made in a rising market; (3) illustrate allocations among
different types of mutual funds for investors at different stages of their
lives; and (4) in reports or other communications to shareholders or in
advertising material, illustrate the benefits of compounding at various assumed
rates of return.
The Fund's Annual Report and Semiannual Report contain additional
performance information. A copy of the Annual Report or Semiannual Report may be
obtained without charge by calling or writing the Fund at the telephone number
and address printed on the back cover of the Prospectus.
The Fund invests in small and mid-sized companies which the Adviser expects
to have rising earnings estimates, accelerating growth rates in both revenues
and per-share earnings and rising profit margins. Emerging growth funds may be
important components of a diversified portfolio. The Fund seeks to remain fully
invested and diversified across many industries to achieve consistent long-term
performance.
CLASS A SHARES
The Fund's average annual total return assuming payment of the maximum
sales charge, for Class A Shares of the Fund for (i) the one-year period ended
August 31, 1999 was 65.05%, (ii) the five-year period ended August 31, 1999 was
26.37% and (iii) the ten-year period ended August 31, 1999 was 20.99%.
The Fund's cumulative non-standardized total return, including payment of
the maximum sales charge, with respect to the Class A Shares from its inception
to August 31, 1999 was 12,725.34%.
The Fund's cumulative non-standardized total return, excluding payment of
the maximum sales charge, with respect to the Class A Shares from its inception
to August 31, 1999 was 13,506.81%.
CLASS B SHARES
The Fund's average annual total return, assuming payment of the contingent
deferred sales charge, for Class B Shares of the Fund for (i) the one-year
period ended August 31, 1999 was 68.78%, (ii) the five-year period ended August
31, 1999 was 26.76% and (iii) the approximately seven-year, five-month period
since April 20, 1992, the commencement of distribution for Class B Shares of the
Fund, through August 31, 1999 was 22.76%.
The Fund's cumulative non-standardized total return, including payment of
the contingent deferred sales charge, with respect to the Class B Shares from
April 20, 1992 (commencement of distribution of Class B Shares) to August 31,
1999 was 349.98%.
The Fund's cumulative non-standardized total return, excluding payment of
the contingent deferred sales charge, with respect to the Class B Shares from
April 20, 1992 (commencement of distribution of Class B Shares) to August 31,
1999 was 349.98%.
B-44
<PAGE> 63
CLASS C SHARES
The Fund's average annual total return, assuming payment of the contingent
deferred sales charge, for Class C Shares of the Fund for (i) the one-year
period ended August 31, 1999 was 72.79%, (ii) the five-year period ended August
31, 1999 was 26.89% and (iii) the approximately six-year, one-month period since
July 6, 1993, the commencement of distribution for Class C Shares of the Fund,
through August 31, 1999 was 21.90%.
The Fund's cumulative non-standardized total return, including payment of
the contingent deferred sales charge, with respect to the Class C Shares from
July 6, 1993 (commencement of distribution of Class C Shares) to August 31, 1999
was 238.26%.
The Fund's cumulative non-standardized total return, excluding payment of
the contingent deferred sales charge, with respect to the Class C Shares from
July 6, 1993 (commencement of distribution of Class C Shares) to August 31, 1999
was 238.26%.
These results are based on historical earnings and asset value fluctuations
and are not intended to indicate future performance. Such information should be
considered in light of the Fund's investment objective and policies as well as
the risks incurred in the Fund's investment practices.
CLASS D SHARES
Class D shares have not been offered prior to the date of this Statement of
Additional Information and have no historical performance information to report.
OTHER INFORMATION
CUSTODY OF ASSETS
All securities owned by the Fund and all cash, including proceeds from the
sale of shares of the Fund and of securities in the Fund's investment portfolio,
are held by State Street Bank and Trust Company, 225 West Franklin Street,
Boston, Massachusetts 02110, as Custodian. The Custodian also provides
accounting services to the Fund.
SHAREHOLDER REPORTS
Semiannual statements are furnished to shareholders, and annually such
statements are audited by the independent accountants.
INDEPENDENT AUDITORS
Independent auditors for the Fund perform an annual audit of the Fund's
financial statements. The Fund's Board of Trustees has engaged Ernst & Young
LLP, located at 233 South Wacker Drive, Chicago, Illinois 60606, to be the
Fund's independent auditors. The change in independent auditors was approved by
the Fund's audit committee and the Fund's Board of Trustees, including Trustees
who are not "interested persons" of the Fund (as defined in the 1940 Act).
PricewaterhouseCoopers LLP, located at 200 East Randolph Drive, Chicago,
Illinois 60601 ("PWC"), ceased being the Fund's independent auditors effective
May 25, 2000. The cessation of the client-auditor relationship between the Fund
and PWC was based solely on a possible future business relationship by PWC with
an affiliate of the Fund's investment adviser. The change in independent
auditors was approved by the Fund's audit committee and the Fund's Board of
Trustees, including Trustees who are not "interested persons" of the Fund (as
defined in the 1940 Act).
LEGAL COUNSEL
Counsel to the Fund is Skadden, Arps, Slate, Meagher & Flom (Illinois).
B-45
<PAGE> 64
PART C: OTHER INFORMATION
ITEM 23. EXHIBITS.
<TABLE>
<S> <C>
(a)(1) -- First Amended and Restated Agreement and Declaration of
Trust (1)
(2) -- Second Certificate of Amendment (4)
(3) -- Third Amended and Restated Certificate of Designation++
(b) -- Amended and Restated Bylaws (1)
(c)(1) -- Specimen Class A Share Certificate (3)
(2) -- Specimen Class B Share Certificate (3)
(3) -- Specimen Class C Share Certificate (3)
(4) -- Specimen Class D Share Certificate++
(d) -- Investment Advisory Agreement (3)
(e)(1) -- Distribution and Service Agreement (3)
(2) -- Form of Dealer Agreement (2)
(3) -- Form of Broker Fully Disclosed Selling Agreement (2)
(4) -- Form of Bank Fully Disclosed Selling Agreement (2)
(f)(1) -- Form of Trustee Deferred Compensation Plan (5)
(2) -- Form of Trustee Retirement Plan (5)
(g)(1) -- Custodian Contract (3)
(2) -- Transfer Agency and Service Agreement (3)
(h)(1) -- Data Access Services Agreement (2)
(2) -- Fund Accounting Agreement (3)
(i)(1) -- Opinion and Consent of Skadden, Arps, Slate, Meagher &
Flom (Illinois) (2)
(2) -- Consent of Skadden, Arps, Slate, Meagher & Flom
(Illinois)++
(j)(1) -- Consent of Ernst & Young LLP++
(2) -- Consent of PricewaterhouseCoopers LLP++
(k) -- Not applicable
(l) -- Not applicable.
(m)(1) -- Plan of Distribution pursuant to Rule 12b-1 (2)
(2) -- Form of Shareholder Assistance Agreement (2)
(3) -- Form of Administrative Services Agreement (2)
(4) -- Service Plan (2)
(n) -- Not applicable
(o) -- Amended Multi-Class Plan++
(p) -- Code of Ethics++
(q) -- Power of Attorney+
(z)(1) -- List of Investment Companies in response to Item 27(a)++
(2) -- List of Officers and Directors of Van Kampen Funds Inc.
in response to Item 27(b)++
</TABLE>
-------------------------
(1) Incorporated herein by reference to Post-Effective Amendment No. 53 to
Registrant's Registration Statement on Form N-1A, File No. 2-33214, filed
December 22, 1995.
(2) Incorporated herein by reference to Post-Effective Amendment No. 55 to
Registrant's Registration Statement on Form N-1A, File No. 2-33214, filed
December 26, 1996.
(3) Incorporated herein by reference to Post-Effective Amendment No. 56 to
Registrant's Registration Statement on N-1A, File No. 2-33214, filed
December 24, 1997.
(4) Incorporated herein by reference to Post-Effective Amendment No. 57 to
Registrant's Registration Statement on Form N-1A, File No. 2-33214, filed
October 29, 1998.
(5) Incorporated herein by reference to Post-Effective Amendment No. 59 to
Registrant's Registration Statement on Form N-1A, File No. 2-33214, filed
December 23, 1999.
+ Filed herewith.
++ To be filed by further amendment.
C-1
<PAGE> 65
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
See the Statement of Additional Information.
ITEM 25. INDEMNIFICATION.
Pursuant to Del. Code Ann. Title 12 Section 3817, a Delaware business trust
may provide in its governing instrument for the indemnification of its officers'
and trustees from and against any and all claims and demands whatsoever.
Reference is made to Article 8, Section 8.4 of the Registrant's First
Amended and Restated Agreement and Declaration of Trust. Article 8, Section 8.4
of the First Amended and Restated Agreement and Declaration of Trust provides
that each officer and trustee of the Registrant shall be indemnified by the
Registrant against all liabilities incurred in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or criminal,
in which the officer or trustee may be or may have been involved by reason of
being or having been an officer or trustee, except that such indemnity shall not
protect any such person against a liability to the Registrant or any shareholder
thereof to which such person would otherwise be subject by reason of (i) not
acting in good faith in the reasonable belief that such person's actions were
not in the best interests of the Trust, (ii) willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his or her office or (iii) for a criminal proceeding, not having a reasonable
cause to believe that such conduct was unlawful (collectively, "Disabling
Conduct"). Absent a court determination that an officer or trustee seeking
indemnification was not liable on the merits or guilty of Disabling Conduct in
the conduct of his or her office, the decision by the Registrant to indemnify
such person must be based upon the reasonable determination of independent
counsel or non-party independent trustees, after review of the facts, that such
officer or trustee is not guilty of Disabling Conduct in the conduct of his or
her office.
The Registrant has purchased insurance on behalf of its officers and
trustees protecting such persons from liability arising from their activities as
officers or trustees of the Registrant. The insurance does not protect or
purport to protect such persons from liability to the Registrant or to its
shareholders to which such officer or trustee would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of their office.
Conditional advancing of indemnification monies may be made if the trustee
or officer undertakes to repay the advance and only if the following conditions
are met: (1) the trustee or officer provides a security for the undertaking; (2)
the Registrant is insured against losses arising from lawful advances; or (3) a
majority of a quorum of the Registrant's disinterested, non-party trustees, or
an independent legal counsel in a written opinion, shall determine, based upon a
review of readily available facts, that a recipient of the advance ultimately
will be found entitled to indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "1933 Act") may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
1933 Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by the trustee, officer, or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer or controlling person in
connection with the shares being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the 1933 Act and
will be governed by the final adjudication of such issue.
Pursuant to Section 7 of the Distribution and Service Agreement, the
Registrant agrees to indemnify and hold harmless Van Kampen Funds Inc. (the
"Distributor") and each of its trustees and officers and each person if any, who
controls the Distributor within the meaning of Section 15 of the 1933 Act
against any loss,
C-2
<PAGE> 66
liability, claim, damages or expense (including the reasonable cost of
investigating or defending any alleged loss, liability, claim, damages, or
expense and reasonable counsel fees) arising by reason of any person acquiring
any shares, based upon the ground that the Registration Statement, prospectus,
shareholder reports or other information filed or made public by the Registrant
(as from time to time amended) included an untrue statement of a material fact
or omitted to state a material fact required to be stated or necessary in order
to make the statements not misleading under the 1933 Act, or any other statute
or the common law. The Registrant does not agree to indemnify the Distributor or
hold it harmless to the extent that the statement or omission was made in
reliance upon, and in conformity with, information furnished to the Registrant
by or on behalf of the Distributor. In no case is the indemnity of the
Registrant in favor of the Distributor or any person indemnified to be deemed to
protect the Distributor or any person against any liability to the Fund or its
security holders to which the Distributor or such person would otherwise be
subject by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties or by reason of its reckless disregard of its
obligations and duties under the agreement.
See also "Investment Advisory Agreement" in the Statement of Additional
Information.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
See "Investment Advisory Services" in the Prospectus and "Investment
Advisory Agreement", "Other Agreements" and "Trustees and Officers" in the
Statement of Additional Information for information regarding the business of
Van Kampen Asset Management Inc. (the "Adviser"). For information as to the
business, profession, vocation and employment of a substantial nature of
directors and officers of the Adviser, reference is made to the Adviser's
current Form ADV (File No. 801-1669) filed under the Investment Advisers Act of
1940, as amended, incorporated herein by reference.
ITEM 27. PRINCIPAL UNDERWRITERS.
(a) The sole principal underwriter is Van Kampen Funds Inc., which acts as
principal underwriter for certain investment companies and unit
investment trusts. See Exhibit (z)(1).
(b) Van Kampen Funds Inc., which is an affiliated person of the
Registrant, is the only principal underwriter for the Registrant. The
name, principal business address and positions and offices with Van
Kampen Funds Inc. of each of its directors and officers are disclosed
in Exhibit (z)(2). Except as disclosed under the heading, "Trustees
and Officers" in Part B of this Registration Statement, none of such
persons has any position or office with Registrant.
(c) Not applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents of the Registrant required by
Section 31(a) of the Investment Company Act of 1940, as amended, and the rules
promulgated thereunder to be maintained (i) by the Registrant will be maintained
at its offices, located at 1 Parkview Plaza, Oakbrook Terrace, Illinois
60181-5555, or at Van Kampen Investor Services Inc., 7501 Tiffany Springs
Parkway, Kansas City, Missouri 64153, or at the State Street Bank and Trust
Company, 1776 Heritage Drive, North Quincy, MA 02171; (ii) by the Adviser will
be maintained at its offices, located at 1 Parkview Plaza, Oakbrook Terrace,
Illinois 60181-5555; and (iii) by Van Kampen Funds Inc., the principal
underwriter, will be maintained at its offices located at 1 Parkview Plaza,
Oakbrook Terrace, Illinois 60181-5555.
ITEM 29. MANAGEMENT SERVICES.
Not applicable.
ITEM 30. UNDERTAKINGS.
Not applicable.
C-3
<PAGE> 67
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended (the
"1993 Act"), and the Investment Company Act of 1940, as amended, the Registrant,
VAN KAMPEN EMERGING GROWTH FUND, has duly caused this Amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Oakbrook Terrace and State of Illinois, on the
27th day of July, 2000.
VAN KAMPEN
EMERGING GROWTH FUND
By: /s/ A. THOMAS SMITH III
------------------------------------
A. Thomas Smith III Secretary
Pursuant to the requirements of the 1933 Act, this Amendment to the
Registration Statement has been signed on July 27, 2000 by the following persons
in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLES
---------- ------
<C> <S>
Principal Executive Officer:
/s/ RICHARD F. POWERS, III* Trustee and President
-----------------------------------------------------
Richard F. Powers, III
Principal Financial Officer:
/s/ JOHN L. SULLIVAN* Vice President, Chief Financial Officer and Treasurer
-----------------------------------------------------
John L. Sullivan
Trustees:
/s/ J. MILES BRANAGAN* Trustee
-----------------------------------------------------
J. Miles Branagan
/s/ JERRY D. CHOATE* Trustee
-----------------------------------------------------
Jerry D. Choate
/s/ LINDA HUTTON HEAGY* Trustee
-----------------------------------------------------
Linda Hutton Heagy
/s/ R. CRAIG KENNEDY* Trustee
-----------------------------------------------------
R. Craig Kennedy
/s/ MITCHELL M. MERIN* Trustee
-----------------------------------------------------
Mitchell M. Merin
/s/ JACK E. NELSON* Trustee
-----------------------------------------------------
Jack E. Nelson
/s/ PHILLIP B. ROONEY* Trustee
-----------------------------------------------------
Phillip B. Rooney
/s/ FERNANDO SISTO* Trustee
-----------------------------------------------------
Fernando Sisto
/s/ WAYNE W. WHALEN* Trustee
-----------------------------------------------------
Wayne W. Whalen
/s/ SUZANNE H. WOOLSEY* Trustee
-----------------------------------------------------
Suzanne H. Woolsey
---------------
* Signed by A. Thomas Smith III pursuant to a power of attorney filed herewith.
/s/ A. THOMAS SMITH III
-----------------------------------------------------
A. Thomas Smith III
Attorney-in-Fact
</TABLE>
July 27, 2000
<PAGE> 68
SCHEDULE OF EXHIBITS TO POST-EFFECTIVE AMENDMENT NO. 60 TO FORM N-1A
AS SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<S> <C> <C>
(q) -- Power of Attorney
</TABLE>
