<PAGE> 1
VAN KAMPEN MERRITT
TAX FREE MONEY FUND
Van Kampen Merritt Tax Free Money Fund (the "Fund") is a money market mutual
fund whose investment objective is to provide a high level of current income
exempt from federal income taxes consistent with the preservation of capital and
liquidity through investments in a broad range of municipal securities that will
mature within 12 months of the date of purchase.
The Fund is organized as a Massachusetts business trust. The portfolio of
the Fund is managed by Van Kampen American Capital Investment Advisory Corp.
(the "Adviser").
An investment in the Fund is neither insured nor guaranteed by the U.S.
government. There can be no assurance that the Fund will be able to maintain a
stable net asset value of $1.00 per share.
This Prospectus concisely sets forth the information about the Fund that a
prospective investor should know before investing in the Fund. Please read and
retain this Prospectus for future reference. The address of the Fund is One
Parkview Plaza, Oakbrook Terrace, Illinois 60181, and its telephone number is
(708) 684-6000.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, GUARANTEED OR
ENDORSED BY, ANY BANK OR DEPOSITORY INSTITUTION; FURTHER, SUCH SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. SHARES OF THE FUND INVOLVE
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
A Statement of Additional Information, dated August 24, 1994 containing
additional information about the Fund, has been filed with the Securities and
Exchange Commission and is hereby incorporated by reference in its entirety into
this Prospectus. A copy of the Statement of Additional Information may be
obtained without charge, by calling 1-800-225-2222, ext. 6504.
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VAN KAMPEN AMERICAN CAPITALSM
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THIS PROSPECTUS IS DATED AUGUST 24, 1994,
AS SUPPLEMENTED ON DECEMBER 20, 1994 AND MAY 9, 1995.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES.................................... 3
ANNUAL FUND OPERATING EXPENSES AND EXAMPLE.......................... 3
FINANCIAL HIGHLIGHTS................................................ 5
THE FUND............................................................ 6
INVESTMENT OBJECTIVE AND POLICIES................................... 6
INVESTMENT PRACTICES................................................ 8
PURCHASING SHARES OF THE FUND....................................... 9
DIVIDENDS FROM THE FUND............................................. 11
REDEMPTION OF SHARES................................................ 11
NET ASSET VALUE..................................................... 15
INVESTMENT ADVISORY SERVICES........................................ 16
THE DISTRIBUTION AND SERVICE PLANS.................................. 17
TAX STATUS.......................................................... 18
SHAREHOLDER SERVICES................................................ 20
DESCRIPTION OF SHARES OF THE FUND................................... 21
SHAREHOLDER REPORTS AND INQUIRIES................................... 21
ADDITIONAL INFORMATION.............................................. 22
</TABLE>
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE FUND, THE ADVISER, OR VAN KAMPEN MERRITT THE
DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER BY THE FUND OR BY VAN
KAMPEN MERRITT THE DISTRIBUTOR TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL FOR THE FUND TO MAKE SUCH AN OFFER IN SUCH JURISDICTION.
2
<PAGE> 3
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SHAREHOLDER TRANSACTION EXPENSES
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<TABLE>
<S> <C>
Maximum sales charge imposed on purchases
(as a percentage of the offering price)............................ None
Maximum sales charge imposed on reinvested dividends
(as a percentage of the offering price)............................ None
Deferred sales charge (as a percentage of original purchase price
on redemption proceeds)............................................ None
Redemption fees (as a percentage of amount redeemed)................. None
Exchange fees........................................................ None
</TABLE>
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ANNUAL FUND OPERATING EXPENSES AND EXAMPLE
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<TABLE>
<S> <C>
Management Fees(1) (as a percentage of average daily net assets
net of waiver)................................................... 0.02%
12b-1 Fees(1)(2) (as a percentage of average daily net assets)..... 0.25%
Other Expenses (as a percentage of average daily net assets net of
expense reimbursement)........................................... 0.54%
Total Expenses(1) (as a percentage of average daily net assets
net of waiver and expense reimbursement)......................... 0.81%
</TABLE>
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(1) The expenses indicated above are based on the fiscal year of the Fund, ended
June 30, 1994. "Management Fees" and "Total Expenses" indicated above
reflect waiver of fees by the Adviser. Without waiver, "Management Fees" and
"Total Expenses" were 0.50% and 1.29%, respectively, for the fiscal year
June 30, 1994.
(2) Such fees include a service fee of up to 0.25% paid by the Fund to
investors' broker-dealers as compensation for ongoing services rendered to
investors.
3
<PAGE> 4
EXAMPLE:
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ----- -----
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming a 5% annual
return. The Fund does not charge a fee
for redemptions............................ $8 $26 $45 $ 100
</TABLE>
The purpose of the foregoing tables is to assist an investor in understanding
the various costs and expenses that an investor in the Fund will bear directly
or indirectly. The "Example" reflects expenses based on the "Annual Fund
Operating Expenses" table as shown above carried out to future years. It is
expected that as Fund assets increase, the fees waived or expenses reimbursed by
the Adviser will decrease. Accordingly, it is unlikely that future expenses as
projected will remain consistent with those determined based on the table of the
"Annual Fund Operating Expenses." THE INFORMATION CONTAINED IN THE ABOVE TABLE
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL
EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. For more complete
description of such costs and expenses, see "Investment Advisory Services" and
"The Distribution and Service Plans."
4
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FINANCIAL HIGHLIGHTS
(for one share outstanding throughout the period)
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The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated. The financial highlights have been
audited by KPMG Peat Marwick LLP, independent certified public accountants,
whose report thereon appears in the Statement of Additional Information. This
information should be read in conjunction with the financial statements and
related notes thereto included in the Statement of Additional Information.
<TABLE>
<CAPTION>
NOVEMBER 5, 1986
(COMMENCEMENT OF
YEAR ENDED JUNE 30, INVESTMENT
----------------------------------------------------- OPERATIONS)
1994 1993 1992 1991 1990 1989 1988 TO JUNE 30, 1987
----- ----- ----- ----- ----- ----- ----- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period............................ $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $ 1.00
----- ----- ----- ----- ----- ----- ----- -----
Net Investment Income............. .017 .019 .035 .052 .057 0.53 .046 .026
----- ----- ----- ----- ----- ----- ----- -----
Total from Investment Operations... .017 .019 .035 .052 .057 0.53 .046 .026
----- ----- ----- ----- ----- ----- ----- -----
Less Distributions from Net
Investment Income................. (.017) (.019) (.035) (.052) (.057) (.053) (.046) (.026)
----- ----- ----- ----- ----- ----- ----- -----
Net Asset Value, End of Period..... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $ 1.00
===== ===== ===== ===== ===== ===== ===== ======
Total Return* (annualized)......... 1.70% 1.93% 3.56% 5.29% 5.93% 5.50% 4.65% 4.35%
Net Assets at End of Period (in
millions)......................... $37.4 $43.1 $70.8 $81.5 $59.8 $43.6 $58.3 $ 30.0
Ratio of Expenses to Average Net
Assets* (annualized).............. .81% .72% .57% .56% .55% .78% .51% .11%
Ratio of Net Investment Income to
Average Net Assets*
(annualized)...................... 1.69% 1.92% 3.56% 5.01% 5.69% 5.34% 4.63% 4.10%
</TABLE>
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* If certain expenses had not been assumed by the investment adviser, total
return would have been lower and the ratios would have been as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ratio of Expenses to Average Net
Assets (annualized).............. 1.29% .97% 1.18% 1.20% 1.25% 1.17% 1.08% 1.17%
Ratio of Net Investment Income to
Average Net Assets
(annualized)..................... 1.20% 1.67% 2.96% 4.37% 4.98% 4.96% 4.06% 3.03%
</TABLE>
See Financial Statements and Notes Thereto.
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The "current yield" of the Fund for the seven days ended June 30, 1994, was
2.12% and its "compounded effective yield" for that period was 2.14%. The method
of calculating these yields is described in the Statement of Additional
Information.
5
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THE FUND
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Van Kampen Merritt Tax Free Money Fund (the "Fund") is a diversified, open-end
management investment company, commonly known as a "mutual fund," and is
organized as a Massachusetts business trust. Mutual funds sell their shares to
investors and invest the proceeds in a portfolio of securities. A mutual fund
allows investors to pool their money with that of other investors in order to
obtain professional investment management. Mutual funds generally make it
possible for investors to obtain greater diversification of their investments
and to simplify their recordkeeping.
Van Kampen American Capital Investment Advisory Corp. (the "Adviser") provides
investment advisory and administrative services to the Fund. See "Investment
Advisory Services." The Adviser and its affiliates also manage other mutual
funds distributed by Van Kampen American Capital Distributors, Inc. To obtain
prospectuses and other information on any of these other funds, please call the
telephone number on the cover page of this Prospectus.
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INVESTMENT OBJECTIVE AND POLICIES
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The Fund's investment objective is to provide a high level of current income
exempt from federal income taxes consistent with the preservation of capital and
liquidity through investments in a diversified portfolio of municipal securities
that will mature within 12 months of the date of purchase. These securities may
not earn as high a level of current income as securities with longer maturities
or lower quality, which may also have less liquidity and greater price
fluctuation. There can be no assurance that the Fund will attain its investment
objective.
The Fund will generally invest its assets in municipal securities, which are
obligations issued by or on behalf of States, territories and possessions of the
United States and the District of Columbia and their political subdivisions,
agencies and instrumentalities, the interest on which, in the opinion of bond
counsel or other counsel to the issuer or the Fund is exempt from federal income
tax at the time of issuance. In normal circumstances, up to 100%, but not less
than 80%, of the Fund's net assets will be invested in such securities. All of
the Fund's investments are subject, however, to the limitation that they mature
within one year of the date of their purchase or are subject to repurchase
agreements maturing within one year. The Fund's investment objective and the
foregoing policies are fundamental and cannot be changed without shareholder
approval. If the tax-exempt status of the municipal securities in which the Fund
may invest changes at some future date, the Trustees of the Fund would consider
what changes if any should be made in the Fund and might recommend to the
shareholders changes in the Fund's fundamental objectives.
The Fund will invest in municipal securities which at the time of purchase:
(a) are rated at least AA by Standard & Poor's Ratings Group ("Standard &
Poor's") or Aa by Moody's Investors Service, Inc. ("Moody's"); (b) have a
Moody's short-term municipal securities rating of at least MIG-2 or VMIG-2, or a
municipal commercial paper rating of
6
<PAGE> 7
at least P-2 by Moody's or A-2 or SP-2 by Standard & Poor's; (c) are guaranteed
or insured by the U.S. government, its agencies or instrumentalities as to the
payment of principal and interest; (d) are fully collateralized by an escrow of
U.S. government securities or other securities acceptable to the Adviser; or (e)
which are unrated but considered by the Adviser to be of comparable quality to
securities having one of the above ratings. Although the Fund may invest in U.S.
government securities or securities collateralized by an escrow of such
securities, an investment in the Fund is neither insured nor guaranteed by the
U.S. government.
Municipal Securities. The Fund may invest in municipal securities which are
scheduled to mature in one year or less. This category includes, but is not
limited to, short-term tax anticipation notes, bond anticipation notes, revenue
anticipation notes, grant anticipation notes, construction loan notes,
tax-exempt commercial paper, and variable rate demand obligations.
Tax anticipation notes are typically sold to finance working capital needs of
municipalities in anticipation of receiving taxes on a future date. Bond
anticipation notes are sold on an interim basis in anticipation of a
municipality issuing a longer term bond in the future. Revenue anticipation
notes are issued in expectation of receipt of other types of revenue such as
those available under state aid programs. Grant anticipation notes are issued in
anticipation of receipt of an intergovernmental grant in the future.
Construction loan notes are issued to provide short-term construction financing
for multi-family housing projects. Frequently construction loan notes are
insured by the Federal Housing Administration with permanent financing by the
Government National Mortgage Association at the end of the project construction
period. Tax exempt commercial paper is an unsecured promissory obligation issued
or guaranteed by a municipal issuer. The Fund may purchase other municipal
securities which have a remaining life of one year or less.
The Fund may invest in certain municipal securities which have rates of
interest that are adjusted periodically according to formulae intended to
minimize fluctuations in values of the instruments. These securities are
commonly known as variable rate demand notes. These variable rate demand
obligations are long-term securities which allow the purchaser, at its
discretion, to redeem the securities before their final maturity at par upon
notice (typically 7 to 30 days). Variable rate instruments with a demand feature
enable the Fund to purchase instruments with a stated maturity in excess of one
year. The Fund determines the maturity of variable rate instruments in
accordance with rules of the Securities and Exchange Commission (the "SEC")
which allow the Fund to consider certain of such instruments as having
maturities that are less than the maturity date on the face of the instrument.
Yields on municipal securities are dependent on a variety of factors,
including the general conditions of the money market and of the municipal bond
and municipal note markets, income tax rates, and the size, maturity and rating
of the particular offering. The ratings of Moody's and Standard & Poor's
represent their opinions as to the quality of the municipal securities which
they undertake to rate. It should be emphasized, however, that ratings are
general and are not absolute standards of quality. Consequently, municipal
securities with the same maturity, coupon and rating may have different yields.
7
<PAGE> 8
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INVESTMENT PRACTICES
- --------------------------------------------------------------------------------
The Fund may purchase and sell portfolio securities on a "when issued" and
"delayed delivery" basis, although no more than 25% of the Fund's assets will be
invested in such manner. No income accrues to the Fund on securities in
connection with such transactions prior to the date the Fund actually takes
delivery of such securities. These transactions are subject to market
fluctuation, the value of the securities at delivery may be more or less than
their purchase price, and yields generally available on comparable securities
when delivery occurs may be higher than yields on the securities obtained
pursuant to such transactions. Because the Fund relies on the buyer or seller,
as the case may be, to consummate the transaction, failure by the other party to
complete the transaction may result in the Fund missing the opportunity of
obtaining a price or yield considered to be advantageous. When the Fund is the
buyer in such a transaction, however, it will maintain, in a segregated account
with its custodian, cash or portfolio securities having an aggregate value equal
to the amount of such purchase commitments until payment is made. The Fund will
make commitments to purchase securities on such basis only with the intention of
actually acquiring these securities, but the Fund may sell such securities prior
to the settlement date if such sale is considered to be advisable. No specific
limitation exists as to the percentage of the Fund's assets which may be used to
acquire securities on a "when issued" or "delayed delivery" basis. To the extent
the Fund engages in "when issued" and "delayed delivery" transactions, it will
do so for the purpose of acquiring securities for the Fund's portfolio
consistent with the Fund's investment objective and policies and not for the
purpose of investment leverage.
The Fund may also purchase municipal securities which provide for the right to
resell them back to the issuer, a bank, or a broker dealer at an agreed upon
price or yield within a specified period of time prior to the maturity date of
these securities. These securities are known as "Put" securities or securities
with stand-by commitments. The Fund may pay a higher price for such securities
than would otherwise be paid for the same security without a put. The primary
purpose of purchasing these securities is to permit the Fund to be as fully
invested as practicable in municipal securities while at the same time providing
the Fund with greater liquidity. It will be the Fund's policy to enter into
these transactions only with issuers, banks, or broker-dealers that are
determined by the Adviser to present minimal credit risks. If an issuer, bank,
or broker-dealer should default on its obligation to repurchase, the Fund might
be unable to recover all or a portion of any loss sustained from having to sell
the security elsewhere.
Although it is the Fund's intention to provide current income exempt from
federal income taxes, there may be circumstances when the Fund will invest
temporarily in taxable investments, such as repurchase agreements. The Fund may
enter into such agreements with banks and broker-dealers, under which the Fund
purchases securities and agrees to resell the securities at an agreed upon time
and at an agreed upon price. Under the Investment Company Act of 1940 (the
"Investment Company Act"), repurchase agreements may be considered
collateralized loans by the Fund, and the difference between the amount the Fund
pays for the securities and the amount it receives upon
8
<PAGE> 9
resale is accrued as interest and reflected in the Fund's net income. When the
Fund enters into repurchase agreements, it relies on the seller to repurchase
the securities. Failure to do so may result in a loss for the Fund if the market
value of the securities is less than the repurchase price. At the time the Fund
enters into a repurchase agreement, the value of the underlying security
including accrued interest will be equal to or exceed the value of the
repurchase agreement and, for repurchase agreements that mature in more than one
day, the seller will agree that the value of the underlying security including
accrued interest will continue to be at least equal to the value of the
repurchase agreement. In determining whether to enter into a repurchase
agreement with a bank or broker-dealer, the Fund will take into account the
creditworthiness of such party. In the event of default by such party, the Fund
may not have a right to the underlying security and there may be possible delays
and expenses in liquidating the security purchased, resulting in a decline in
its value and loss of interest. The Fund will use repurchase agreements as a
means of making short-term investments, and may invest in repurchase agreements
of duration of seven days or less without limitation. The Fund's ability to
invest in repurchase agreements that mature in more than seven days is subject
to an investment restriction that limits the Fund's investment in "illiquid"
securities, including such repurchase agreements, to 10% of the Fund's net
assets. The Fund's ability to invest in taxable temporary investments is limited
to 20% of the Fund's net assets.
The Fund is subject to certain investment restrictions which constitute
fundamental policies. Fundamental policies cannot be changed without the
approval of the holders of a majority of the Fund's outstanding voting
securities, as defined in the Investment Company Act. See "Investment Policies
and Restrictions" in the Statement of Additional Information.
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PURCHASING SHARES OF THE FUND
- --------------------------------------------------------------------------------
Shares of the Fund are continuously offered through Van Kampen American
Capital Distributors, Inc. (the "Distributor"), as principal underwriter, which
is located at One Parkview Plaza, Oakbrook Terrace, Illinois 60181. Shares are
also offered through members of the National Association of Securities Dealers,
Inc. ("NASD") who are acting as securities dealers ("dealers") and may also be
purchased through NASD members or eligible non-NASD members who are acting as
brokers or agents for investors ("brokers"). The Fund reserves the right to
suspend or terminate the continuous offering at any time and without prior
notice.
Shares of the Fund are available without a sales charge at the net asset value
per share, which will remain fixed at $1.00 per share except in extraordinary
circumstances. Share certificates will not be issued. The Fund has adopted a
distribution plan pursuant to Rule 12b-1 under the Investment Company Act and a
service plan which permit the Fund through the Distributor to compensate
brokers, dealers and financial intermediaries out of the assets of the Fund for
their sales of the shares of the Fund and for shareholder services,
respectively.
9
<PAGE> 10
The minimum initial investment to open an account is $1,000, and the minimum
subsequent investment is $100, except as discussed under "Unit Trust
Reinvestment Programs" hereunder.
Investments may be made as follows:
1. By Mail. For initial investments send a check payable to "Van Kampen
Merritt Tax Free Money Fund" along with a completed Account Application to the
transfer agent of the Fund, State Street Bank and Trust Company, c/o National
Financial Data Services, Van Kampen Merritt Funds, P.O. Box 419001, Kansas City,
Missouri 64141-6001 (the "Transfer Agent"). Subsequent investments by mail may
be made directly to the Fund accompanied by either the detachable form which is
part of the Account Statement or by a letter indicating the dollar amount of the
investment, the account number, and registration. Investments made by check will
begin receiving dividends on the next business day after the Fund receives good
funds. For checks drawn on foreign banks, monies must be collected before shares
will be purchased.
2. By Wire. The Fund will also accept investments by wire. An investor must
first telephone the Fund at 1-800-225-2222, ext 5 and provide the account
registration, address, tax identification number, and the amount being wired.
Investors will then be assigned an account number and should instruct their bank
or broker to wire federal funds to State Street Bank and Trust Company, Custody,
ABA-011000028, Re: Van Kampen Merritt Tax Free Money Fund for further credit to
Account Name , Account Number . Investors will be
responsible for the charges, if any, that the bank, broker, dealer or financial
intermediary may make to handle the wire transfer. A completed Account
Application must then be forwarded to the Fund. Subsequent investments by wire
may be made by instructing a bank or broker to wire the specified amount in
accordance with the above instructions. Please call to advise the Fund before
wiring monies.
Investments made by federal funds wire (up to $1,000,000, without approval by
the Fund) received prior to 12:00 p.m. Eastern time will be invested at the next
determined net asset value and begin receiving dividends on that day.
Investments made by federal funds wire received after 12:00 p.m. Eastern time
will be invested at the next determined net asset value and begin receiving
dividends on the next business day.
3. Through Financial Services Representatives. Securities brokers, dealers or
financial intermediaries may purchase, on behalf of investors, shares of the
Fund using either the By Mail or By Wire procedures outlined above. The Fund
does not charge for this transaction.
4. Unit Trust Reinvestment Programs. The Fund will permit unitholders of unit
investment trusts to reinvest distributions from such trusts in shares of the
Fund and other mutual funds distributed by the Distributor with no minimum or
subsequent investment requirement. In order to qualify for this privilege, the
administrator of an investor's unit investment trust must have an agreement with
Van Kampen Merritt pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during each distribution period by all investors who choose to invest in
the Fund through the program and (2) provide the Transfer Agent
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<PAGE> 11
with appropriate backup data for each participating investor in a computerized
format fully compatible with the Transfer Agent's processing system. In
addition, the Fund also requires that all dividends and other distributions by
the Fund be reinvested in additional shares without any systematic withdrawal
program. There will be no minimum for reinvestments from unit investment trusts.
The Fund will send account activity statements to investors on a quarterly basis
only, even if an investor's investment period is more frequent. Persons desiring
more information with respect to this program, including the applicable terms
and conditions thereof, should contact their securities broker, dealer,
financial intermediary or the Distributor. The Fund reserves the right to modify
or terminate this program at any time.
The Fund and the Distributor reserve the right to reject any order for the
purchase of shares. In addition, the offering of shares may be suspended and
resumed at any time thereafter. Shares will not be offered in certificate form.
Account statements are prepared and mailed to you monthly, quarterly in the
case of a participant in a "Unit Trust Reinvestment Program." Account statements
are not mailed to shareholders as a result of individual redemptions by check.
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DIVIDENDS FROM THE FUND
- --------------------------------------------------------------------------------
The Fund's present policy, which may be changed at any time by the Board of
Trustees, is to declare and pay dividends from net investment income on a daily
basis. Investments will begin earning dividends on the day federal funds are
received by the Fund prior to 12:00 p.m. Eastern time. Any investments for which
federal funds are received after 12:00 p.m. will begin receiving dividends on
the next business day. Dividends are automatically reinvested in additional
shares of the Fund and credited to the investors' accounts daily.
If investors request, they may redeem dividends paid on their shares on a
monthly basis. Investors may make such a request by checking the appropriate box
on the Account Application.
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REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
Investors may redeem shares by phone, by writing a check, by mail or, if they
qualify, by establishing a Systematic Withdrawal Plan. The Fund does not charge
for redemptions. Shares purchased by check may not be redeemed until the check
has cleared, which may take 15 days or more. In addition, a completed Account
Application must have been received by the Transfer Agent for the Fund before
any redemption request can be honored.
BY TELEPHONE. Shares may be redeemed by calling the Fund at 1-800-341-2911 and
requesting the proceeds, with a minimum of $500 and a maximum of $1,000,000 per
request (without approval of the Fund, which may be arranged by calling the
Fund) to be mailed. For inquiries through Telecommunications Device for the Deaf
(TDD), dial
11
<PAGE> 12
1-800-772-8889. In addition, a minimum of $5,000 and a maximum of $1,000,000 may
be wired to an investor's bank. An investor must have previously completed the
Expedited Telephone Redemption section of the Account Application or an
Expedited Telephone Redemption and Exchange Form (the "Authorization"), both of
which are available from the Transfer Agent, the Funds, the investor's broker,
dealer, financial intermediary or the Distributor. In addition, signature(s) on
the Authorization must be guaranteed by a member firm of a principal stock
exchange or by a commercial bank or trust company which is a member of the
Federal Deposit Insurance Corporation, a credit union or a savings association,
unless the Authorization is completed at the time an account is originally
established. The guarantee must state the words "Signature Guaranteed" along
with the name of the granting institution. Investors should verify with the
institution that it is an eligible guarantor prior to signing. A guarantee from
a notary public is not acceptable. Once the option is on file with the Fund, an
investor may call the Fund prior to 4:00 p.m. Eastern time and request a
redemption from their account. The redemption will be processed at the net asset
value next determined after receipt of the request, the proceeds will then be
made payable to the registered shareowner(s) and mailed to the address
registered on the account or wired to the investor's bank, as requested on the
Authorization. Requests for the proceeds of a redemption to be "wire
transferred" to an investor's bank account (up to $1,000,000, without approval
from the Fund) which are received by the Transfer Agent prior to 12:00 p.m.
Eastern time will result in shares being redeemed that day and a wire transfer
being sent to the designated bank and dividends for that day will not be earned.
Requests received after 12:00 p.m. Eastern time will be treated as requests to
redeem as of 4:00 p.m., so that an investor will receive that day's dividend and
the wire transfer will be sent on the next day. The Fund cannot be responsible
for the efficiency of the federal wire system or an investor's bank. Investors
are responsible for any bank charges for sending or receiving wires. It is
recommended that investors verify receipt of the Authorization with the Fund
prior to a redemption.
By establishing the telephone redemption service, investors authorize the Fund
or the Transfer Agent to act upon the instructions of any person by telephone to
redeem shares for any account for which such service has been authorized to the
address of record of such account or such other address as is listed in the
Authorization. The Fund, the Distributor, the Transfer Agent and National
Financial Data Services ("NFDS") seek to employ procedures reasonably believed
to confirm that instructions communicated by telephone are genuine. Such
procedures include requiring a person attempting to redeem shares by telephone
to provide on a recorded line the name on the account, a social security number
or tax identification number and such additional information as may be included
in the Authorization. An investor agrees that no such person will be liable for
any loss, liability, cost or expense arising out of any request reasonably
believed to be genuine, including any fraudulent or unauthorized request. This
service may be amended or terminated at any time by the Transfer Agent or the
Fund. If an investor is unable to reach the Fund by telephone, he or she may
redeem shares pursuant to the procedures set forth below under the caption's "By
Check" and "By Mail." During periods of extreme economic or market changes, it
may be difficult for investors to reach the Fund by telephone and to effect
telephone redemptions.
12
<PAGE> 13
BY CHECK. By completing the appropriate section of the Account Application,
investors may effect redemptions by writing checks drawn on their share account
with the Fund payable in any amount not less than $250. Presently there is no
charge for this service.
When a check is presented for payment, the Fund will redeem a sufficient
number of full and fractional shares from the investors's account to cover the
amount of the check. If a check is presented against an account in which there
are insufficient funds, if shares to be redeemed were purchased by check and
have been on the books of the Fund for less than 15 days, if a check is
presented with an improper signature or if the amount of the check is less than
$250, the check will be returned and there will be a $5 service charge deducted
from the account. A service charge of $10 will be deducted from the account for
each stop payment order requested by an investor. The Fund reserves the right to
terminate or modify this service at any time with respect to a particular
investor or all investors in general.
BY MAIL. Investors may redeem shares by sending to the Fund a written request
for redemption indicating the name of the Fund, the account number, the exact
registration and signed by each registered owner exactly as the shares are
registered. If the amount being redeemed is in excess of $50,000 or if the
redemption proceeds will be sent to an address other than the address of record,
the signature(s) must be guaranteed by a member firm of a principal stock
exchange or by a commercial bank or trust company which is a member of the
Federal Deposit Insurance Corporation, a credit union or a savings association.
The guarantee must state the words "Signature Guaranteed" along with the name of
the granting institution. Investors should verify with the institution that it
is an eligible guarantor prior to signing. A guarantee from a notary public is
not acceptable. Any additional documents required for redemptions by
corporations, executors, administrators, trustees and guardians must also be
included. Redemptions by mail will not become effective until all documents in
proper form have been received by the Fund. Investors having any questions
regarding the requirements for redeeming shares by mail should call the Fund
prior to submitting a redemption request.
Checks for redemption proceeds will normally be mailed within two business
days, but in any event will be mailed within seven days, except that they will
not be mailed until all checks in payment for the shares to be redeemed have
cleared, which may take 15 days or more.
SYSTEMATIC WITHDRAWAL PROGRAM. If an investor's account is valued at $10,000
or more, the investor may provide that a requested dollar amount be paid from
his account to any person monthly, quarterly, semiannually or annually. The
minimum amount that may be withdrawn each period is $50; withdrawals will be
made on the 28th day of the month. If the check is to be mailed other than to
the registered owner, a signature guarantee is required. The guarantee must
state the words "Signature Guaranteed" along with the name of the granting
institution. Shareholders should verify with the institution that it is an
eligible grantor prior to signing. A guarantee from a notary public is not
acceptable. Depending upon the size of the payments requested, redemptions for
the purpose of making such payments may reduce or even exhaust an investor's
account.
13
<PAGE> 14
If any investor's use of these procedures is so frequent that the absorption
of the costs by the Fund associated with that investor's use would discriminate
unfairly against other investors, the Fund reserves the right to impose
reasonable service charges against the shareholder's account. If imposed, the
charges will be deducted from the shareholder's account by redemption of Fund
shares.
If redemptions have caused the value of an investor's account to fall below
$500, the Fund reserves the right to cause the balance of the shares in an
investor's account to be redeemed and the proceeds mailed to the investor as if
a proper written request for redemption had been received. The investor will
first be notified in writing that the value of the account is below $500 and
will be allowed 30 days to make an additional investment or bring the total
value of the account to $500 or more. The Fund reserves the right to amend or
terminate the systematic withdrawal program on thirty days notice, and investors
may withdraw from the program at any time by contacting the Fund in writing.
None of the Fund, the Adviser, the custodian for the Fund, the Transfer Agent
nor National Financial Data Services will be responsible for properly acting
upon instructions reasonably believed by them to be genuine.
EXCHANGE PRIVILEGE. Any shares which have been registered in an investor's
name for at least 15 days may be exchanged for shares of any other Van Kampen
Merritt mutual fund distributed by the Distributor and sold subject to an
initial sales charge or for money market fund shares of other Van Kampen Merritt
mutual funds distributed by the Distributor that offer an exchange privilege.
Under the exchange privilege, the Fund offers to exchange its shares for
shares sold subject to an initial sales charge or for money market fund shares,
as the case may be, of such other funds on the basis of relative net asset value
per share. In addition, shares of the Fund which have not previously been
charged a sales load may be exchanged to another fund which does charge a sales
load. In such instance, any shares of the Fund exchanging to another fund which
have not been previously charged a sales load (with the exception of those
purchased through the Fund's dividend reinvestment program) will be charged the
appropriate sales load on such shares exchanged. In order to qualify for the
exchange privilege it is required that the shares being exchanged have a net
asset value of at least $1,000, but no more than $1,000,000 without approval of
the Fund. Approval may be obtained by calling the Fund at 1-800-341-2911.
Investors may effect an exchange by sending to the Fund a written request for
exchange indicating the same information required under the section "Redemption
of Shares--By Mail" above. For inquiries through Telecommunications Device for
the Deaf (TDD), dial 1-800-772-8889. The exchange will be processed at the net
asset value next determined after the request is received in good order by the
Fund. In addition, investors may also effect an exchange by the Fund prior to
4:00 p.m. Eastern time and request the exchange, which will be processed at the
net asset value next determined after receipt of the request. By establishing
the telephone exchange service, investors authorize the Fund or its agent to act
upon the instructions of any person by telephone to exchange shares from any
account for which such service has been authorized to any identically registered
account(s) with any fund distributed by the Distributor. The Fund, the
Distributor, the Transfer Agent and
14
<PAGE> 15
NFDS seek to employ procedures reasonably believed to confirm that instructions
communicated by telephone are genuine. Such procedures include requiring a
person attempting to exchange shares by telephone to provide on a recorded line
the name on the account, a social security or tax identification number or such
additional information as may be deemed necessary or appropriate. An investor
agrees that no such person will be liable for any loss, liability, cost or
expense arising out of any request reasonably believed to be genuine, including
any fraudulent or unauthorized request. This service may be amended or
terminated at any time by the Transfer Agent or the Fund. Any shares exchanged
between the Fund and any of the other funds will begin receiving dividends on
the next business day after the exchange is effected. Before effecting an
exchange, investors in the Fund should obtain and read a current prospectus of
the Fund into which the exchange is to be made. INVESTORS IN THE FUND MAY ONLY
EXCHANGE INTO SUCH OTHER FUNDS AS ARE LEGALLY FOR SALE IN ANY STATE.
An exchange between Van Kampen Merritt Funds pursuant to the exchange
privilege is treated as a sale for federal income tax purposes and depending
upon the circumstances, a short or long-term capital gain or loss may be
realized.
The exchange privilege may be modified or terminated at any time, subject to
the requirement that the Fund give prominent notice thereof at least 60 days
prior to the effective date of the modification or termination in certain
circumstances. The Fund reserves the right to limit the number of times an
investor may exercise the exchange privilege.
DIVIDEND DIVERSIFICATION. Monthly distributions and any net long-term capital
gain distributions to a shareholder's account may be invested in shares sold
subject to an initial sales charge or for money market fund shares of any other
Van Kampen Merritt fund distributed by the Distributor at the then current net
asset value, WITHOUT A SALES CHARGE, upon election by a shareholder. This
election may be made by written notice to the Transfer Agent or by calling the
Fund directly at 1-800-225-2222, ext. 5. For inquiries through
Telecommunications Device for the Deaf (TDD), dial 1-800-772-8889. In order to
qualify for this privilege, a shareholder must have established an account in
the other fund prior to electing this privilege. This privilege may be modified
or terminated by each or all of the Funds at any time.
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value per share for the Fund is determined by calculating the
total value of the Fund's assets, deducting its total liabilities, and dividing
the result by the number of its shares outstanding. The net asset value per
share will normally remain fixed at $1.00 per share except in extraordinary
circumstances. The net asset value of the Fund is computed twice daily as of
12:00 p.m. and 4:00 p.m. Eastern time, Monday through Friday, except on
customary business holidays, or 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
15
<PAGE> 16
materially affected. The Fund reserves the right to calculate the net asset
value more or less frequently than daily if deemed desirable.
The Fund values its portfolio on the basis of amortized cost, which means that
securities are valued at their acquisition cost to reflect a constant
amortization rate to maturity of any premium or discount, rather than at current
market value. Calculations are made to compare the amortized cost valuation of
the portfolio with current market values. Money market valuations are obtained
by using market quotations provided by market makers, estimates of market
values, or values obtained from published yield data of money market
instruments. If a deviation of 1/2 of 1% or more were to occur between the net
asset value calculated by reference to market values and the Fund's $1.00 per
share net asset value, or if there were any other deviation which the Trustees
believe would result in a material dilution to investors or purchasers, the
Trustees would promptly consider what action, if any, should be initiated. Other
assets are valued at fair value as determined in good faith by the Trustees of
the Fund. The method of calculating yield is described in the Statement of
Additional Information. There can be no assurance that the Fund will be able to
maintain a net asset value of $1.00 per share.
- --------------------------------------------------------------------------------
INVESTMENT ADVISORY SERVICES
- --------------------------------------------------------------------------------
THE ADVISER. Van Kampen American Capital Investment Advisory Corp. (the
"Adviser") is the investment adviser for the Fund. The Adviser is a wholly-owned
subsidiary of Van Kampen American Capital, Inc. ("Van Kampen American Capital").
Van Kampen American Capital is a diversified asset management company with more
than two million retail investor accounts, extensive capabilities for managing
institutional portfolios, and nearly $50 billion under management or
supervision. Van Kampen American Capital's more than 40 open-end and 38
closed-end funds and more than 2,700 unit investment trusts are professionally
distributed by leading financial advisers nationwide. The Adviser's principal
office is located at One Parkview Plaza, Oakbrook Terrace, Illinois 60181.
Van Kampen American Capital is a wholly-owned subsidiary of VK/AC Holding,
Inc. VK/AC Holding, Inc. is controlled, through the ownership of a substantial
majority of its common stock by The Clayton & Dubilier Private Equity Fund IV
Limited Partnership ("C&D L.P."), a Connecticut limited partnership. C&D L.P. is
managed by Clayton, Dubilier & Rice, Inc. a New York based private investment
firm. The General Partner of C&D L.P. is Clayton & Dubilier Associates IV
Limited Partnership ("C&D Associates L.P."). The general partners of C&D
Associates L.P. are Joseph L. Rice, III, B. Charles Ames, William A. Barbe,
Alberto Cribiore, Donald J. Gogel, Leon J. Hendrix, Jr., Hubbard C. Howe, and
Andrall E. Pearson, each of whom is a principal of Clayton, Dubilier & Rice,
Inc. In addition, certain officers, directors and employees of Van Kampen
American Capital, Inc. own in the aggregate, not more than 6% of the common
stock of VK/AC Holding, Inc. and have the right to acquire, upon the exercise of
options, approximately an additional 10% of the common stock of VK/AC Holding,
Inc. Presently,
16
<PAGE> 17
and after giving effect to the exercise of such options, no officer or trustee
of the Fund owns or would own 5% or more of the common stock of VK/AC Holding,
Inc.
ADVISORY AGREEMENT. The business and affairs of the Fund will be managed under
the direction of the Trustees of the Fund. Subject to the Trustees' authority,
the Adviser and the Fund's officers will supervise and implement the Fund's
investment activities and will be responsible for overall management of the
Fund's business affairs. The Fund will pay the Adviser a fee (accrued daily and
paid monthly) equal to a percentage of the average daily net assets of the Fund
as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS % PER ANNUM
- ------------------------ ------------
<S> <C>
First $500 million............................................. 0.500 of 1%
Next $500 million.............................................. 0.475 of 1%
Next $500 million.............................................. 0.425 of 1%
Over $1.5 billion.............................................. 0.375 of 1%
</TABLE>
The Adviser may from time to time, in its sole discretion, waive a portion of
its fees or assume a portion of the Fund's expenses, and the Adviser in its sole
discretion may discontinue any such waiver of fees or assumption of expenses at
any time.
Under its investment advisory agreement with the Adviser dated February 17,
1993, and approved by shareholders of the Fund at a meeting held on January 14,
1993, the Fund has agreed to assume and pay the charges and expenses of the
Fund's operation, including the compensation of the Trustees of the Fund (other
than those who are affiliated persons, as defined in the Investment Company Act,
of the Adviser, the Distributor or Van Kampen American Capital, Inc.), the
charges and expenses of independent accountants, legal counsel, any transfer or
dividend disbursing agent and the custodian (including fees for safekeeping of
securities), costs of calculating net asset value, costs of acquiring and
disposing of portfolio securities, interest (if any) on obligations incurred by
the Fund, costs of share certificates, membership dues in the Investment Company
Institute or any similar organization, reports and notices to shareholders,
costs of registering shares of the Fund under the federal securities laws,
miscellaneous expenses and all taxes and fees to federal, state or other
governmental agencies, excluding state securities registration expenses.
The Fund and the Adviser have adopted Codes of Ethics designed to recognize
the fiduciary relationship between the Fund and the Adviser and its employees.
The Codes permit trustees/directors, officers and employees to buy and sell
securities for their personal accounts subject to procedures designed to prevent
conflicts of interest including, in some instances, preclearance of trades.
- --------------------------------------------------------------------------------
THE DISTRIBUTION AND SERVICE PLANS
- --------------------------------------------------------------------------------
The Fund has adopted a distribution plan (the "Distribution Plan") pursuant to
Rule 12b-1 under the Investment Company Act. The Fund has also adopted a service
plan
17
<PAGE> 18
(the "Service Plan"). The Distribution Plan and the Service Plan provide that
the Fund may spend a portion of the Fund's average daily net assets in
connection with the distribution of shares and in connection with the provision
of ongoing services to shareholders. The Distribution Plan and the Service Plan
are being implemented through an agreement with the Distributor, sub-agreements
between the Distributor and members of the 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 banks who are acting as
brokers (collectively, "Selling Agreements") that may provide for their
customers or clients certain services or assistance. Brokers, dealers and banks
that have entered into Selling Agreements with the Distributor and sell shares
of the Fund are referred to herein as "financial intermediaries."
The Fund may spend an aggregate amount of up to 0.25% per year of its average
daily net assets pursuant to the Distribution Plan and the Service Plan. From
such amount, the Fund may spend up to the full 0.25% per year of its average
daily net assets pursuant to the Service Plan in connection with the ongoing
provision of services to holders of the Fund's shares by the Distributor and by
financial intermediaries and in connection with the maintenance of Shareholder
accounts. The Fund pays the Distributor the lesser of the balance, if any, of
the 0.25% not paid to such financial intermediaries or the amount of the
Distributor's actual distribution related expense.
Accounts payable to the Distributor under the Distribution Plan in a given
year may not fully reimburse the Distributor for its actual distribution-related
expenses during such year. In such event, there is no carryover of such
reimbursement obligations to succeeding years.
Various federal and state laws prohibit national banks and some
state-chartered commercial banks from underwriting or dealing in the Fund's
shares. In addition, state securities laws on this issue may differ from the
interpretations of federal law, and banks and financial institutions may be
required to register as dealers pursuant to state law. In the unlikely event
that a court were to find that these laws prevent such banks from providing such
services described above, the Fund would seek alternative providers and expects
that shareholders would not experience any disadvantage.
- --------------------------------------------------------------------------------
TAX STATUS
- --------------------------------------------------------------------------------
The Fund has qualified and intends to continue to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (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 sources of its income and the diversification of its assets. If the
Fund so qualifies and distributes at least 90% of its net investment income
(including tax-exempt interest 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) in each year, it will not be required to pay federal income
taxes on any income distributed to shareholders. The Fund intends to distribute
at least the minimum
18
<PAGE> 19
amount of net investment income to satisfy the 90% distribution requirement. The
Fund will not be subject to federal income tax on any net capital gains
distributed to its shareholders. As a Massachusetts business trust, the Fund
will not be subject to any excise or income taxes in Massachusetts as long as it
qualifies as a regulated investment company for federal income tax purposes.
In order to avoid a 4% excise tax the Fund will be required to distribute by
December 31 of each year, at least 98% of its ordinary income (not including
tax-exempt income) for such year and at least 98% of its capital gain net income
(the latter of which generally is computed on the basis of the one-year period
ending on October 31 of such year), plus any amounts that were not distributed
in previous taxable years. For purposes of the excise tax, any ordinary income
or capital gain net income retained by, and subject to federal income tax in the
hands of, the Fund will be treated as having been distributed.
If the Fund qualifies as a regulated investment company and satisfies the 90%
distribution requirement, and if, at the close of each quarter of the Fund's
taxable year, at least 50% of the total value of the Fund's total assets
consists of obligations the interest on which is exempt from federal income tax
("tax-exempt obligations"), the Fund will be qualified to pay exempt-interest
dividends to its shareholders to the extent of its tax-exempt interest income
(less expenses properly applicable thereto). Exempt-interest dividends are
excludable from a shareholder's income for federal income tax purposes, but may
be taxable distributions for state, local and other tax purposes.
Exempt-interest dividends are included, however, in determining what portion, if
any, of a person's social security and railroad retirement benefits will be
includable in gross income subject to federal income tax. Interest expense with
respect to indebtedness incurred or continued by a shareholder to purchase or
carry shares of the Fund is not deductible to the extent that such interest
relates to exempt-interest dividends received from the Fund.
Distributions of the Fund's investment company taxable income (which does not
include tax-exempt interest income) are taxable to shareholders as ordinary
income, whether received in shares or in cash. Shareholders who receive
distributions in the form of additional shares will have a basis for federal
income tax purposes in each such share equal to the value thereof on the
reinvestment date. Distributions in excess of the Fund's earnings and profits
will first reduce the adjusted tax basis of 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). The Fund will inform
shareholders of the source and tax status of such distributions promptly after
the close of each taxable year. Distributions from the Fund will not be eligible
for the dividends received deduction for corporations.
Exempt-interest dividends allocable to interest received by the Fund on
certain "private activity" obligations issued after August 7, 1986 will be
treated as interest on such obligations and thus will give rise to an item of
tax preference that will increase a shareholder's alternative minimum taxable
income. In addition, for corporations, alternative minimum taxable income will
be increased by a percentage of the amount by which a measure of income that
includes interest on tax-exempt obligations exceeds the amount otherwise
determined to be the alternative minimum taxable income. Accordingly,
19
<PAGE> 20
investment in the Fund may cause shareholders to be subject to (or result in an
increased liability under) the alternative minimum tax.
Exempt-interest dividends will not be tax-exempt to the extent made to any
shareholder who is a "substantial user" of the facilities financed by tax-exempt
obligations held by the Fund or "related persons" of such substantial users.
Redemption or resale of shares of the Fund will be a taxable transaction for
federal income tax purposes. Redeeming shareholders will recognize gain or loss
in an amount equal to the difference between their basis in such redeemed shares
of the Fund and the amount received. Assuming that such shares are held as
capital assets, the gain or loss will be a capital gain or loss and will
generally be long-term if such shareholders have held their shares for more than
one year. Any loss realized on a taxable disposition of shares held for six
months or less will be disallowed to the extent of any exempt-interest dividends
received with respect to such shares.
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 a month and paid in January of the following
year, will be treated as having been distributed by the Fund (and received by
the shareholders) on the December 31 of the year in which the dividend was
declared. 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
during such taxable year. In such case, shareholders will be treated as having
received such dividends in the taxable year in which the distribution is
actually made.
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) or who are otherwise subject
to backup withholding.
The federal income tax discussion set forth above is for general information
only. Prospective shareholders should consult their tax advisors regarding the
specific federal income tax consequences of holding and disposing of shares, as
well as the effects of state, local and foreign tax laws and any proposed tax
law changes.
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
State Street Bank and Trust Company, c/o National Financial Data Services,
P.O. Box 419001, Kansas City, Missouri 64141-6001, transfer agent for the Fund,
performs bookkeeping, data processing and administrative services related to the
maintenance of shareholder accounts. When an initial investment is made in the
Fund, an account will be opened for each investor on the Fund's books and
investors will receive a confirmation of the opening of the account. Investors
will receive monthly statements giving details of all activity in their account
during the quarter and will also receive a statement whenever an investment or
withdrawal is made in or from their account (except for reinvestment of
20
<PAGE> 21
distributions, systematic withdrawals and investments through special programs).
Information for federal income tax purposes will be provided at the end of the
year.
- --------------------------------------------------------------------------------
DESCRIPTION OF SHARES OF THE FUND
- --------------------------------------------------------------------------------
The Fund was organized as a Massachusetts business trust on June 16, 1986. The
Fund is registered under the Investment Company Act as an open-end, diversified
management investment company. The Fund's Declaration of Trust permits the
Trustees to issue an unlimited number of full and fractional shares in an
unlimited number of classes or series. The authorized capitalization of the Fund
consists of an unlimited number of shares of beneficial interest, without par
value. Each share represents an equal proportionate interest in the assets of
the Fund. The Declaration of Trust provides that shareholders are not liable for
any liabilities of the Fund or any of its series, requires inclusion of a clause
to that effect in every agreement entered into by the Fund or any of its series
and indemnifies shareholders against any such liability.
Shares of the Fund entitle their holders to one vote per share. The Fund does
not contemplate holding regular meetings of shareholders to elect Trustees or
otherwise. However, the holders of 10% or more of the outstanding shares may by
written request require a meeting to consider the removal of Trustees by a vote
of a majority of the shares present and voting 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. More detailed information
concerning the Fund is set forth in the Statement of Additional Information.
- --------------------------------------------------------------------------------
SHAREHOLDER REPORTS AND INQUIRIES
- --------------------------------------------------------------------------------
The Fund's fiscal year ends on June 30. The Fund sends to its shareholders at
least semi-annually reports showing the Fund's portfolio and other information.
An annual report, containing financial statements audited by Independent
Auditors, is sent to shareholders each year. After the end of each year,
shareholders will receive federal income tax information regarding dividends and
capital gains distributions.
Shareholder inquiries should be directed to Van Kampen Merritt Family of
Funds, One Parkview Plaza, Oakbrook Terrace, Illinois 60181, Attn:
Correspondence. Its telephone number is 1-800-341-2911.
For inquiries through Telecommunications Device for the Deaf (TDD), dial
1-800-772-8889.
For Automated Telephone Service which provides 24-hour direct dial access to
Fund facts and Shareholder account information, dial 1-800-542-4344.
21
<PAGE> 22
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
This prospectus and the Statement of Additional Information do not contain all
the information set forth in the Registration Statement filed by the Fund with
the SEC under the Securities Act of 1933. Copies of the Registration Statement
may be obtained at a reasonable charge from the SEC or may be examined, without
charge, at the office of the SEC in Washington, D.C.
22
<PAGE> 23
EXISTING SHAREHOLDERS--
FOR INFORMATION ON YOUR
EXISTING ACCOUNT PLEASE CALL
THE FUND'S TOLL-FREE
NUMBER--1-800-341-2911.
PROSPECTIVE INVESTORS--CALL
YOUR BROKER OR 1-800-225-2222.
DEALERS--FOR DEALER
INFORMATION, SELLING
AGREEMENTS, WIRE ORDERS,
OR REDEMPTIONS CALL THE
DISTRIBUTOR'S TOLL-FREE
NUMBER--1-800-225-2222.
FOR SHAREHOLDER AND
DEALER INQUIRIES THROUGH
TELECOMMUNICATIONS
DEVICE FOR THE DEAF (TDD)
DIAL 1-800-772-8889
FOR AUTOMATED TELEPHONE
SERVICES DIAL 1-800-542-4344
VAN KAMPEN MERRITT
TAX FREE MONEY FUND
One Parkview Plaza
Oakbrook Terrace, IL 60181
- ------------------
Investment Adviser
VAN KAMPEN
AMERICAN CAPITAL
INVESTMENT ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, IL 60181
Distributor
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, IL 60181
Transfer Agent
STATE STREET BANK AND
TRUST COMPANY
c/o National Financial Data Services
Van Kampen Merritt Funds
P.O. Box 419001
Kansas City, MO 64141-6001
Custodian
STATE STREET BANK AND
TRUST COMPANY
225 Franklin Street, P.O. Box 1912
Boston, MA 02105
Attn: Van Kampen Merritt Funds
Legal Counsel
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM
333 West Wacker Drive
Chicago, IL 60606
Independent Auditors
KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, IL 60601
