<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 28, 1999
REGISTRATION NOS. 33-6745
811-4718
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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. 18 [X]
and
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 19 [X]
</TABLE>
VAN KAMPEN
TAX FREE MONEY 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:
[X] IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (B)
[ ] ON (DATE) PURSUANT TO PARAGRAPH (B)
[ ] 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
VAN KAMPEN
TAX FREE MONEY FUND
Van Kampen Tax Free Money Fund is a mutual fund with an investment objective to
seek to provide investors with 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 twelve months of the date of purchase.
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 OCTOBER 28, 1999.
[VAN KAMPEN FUNDS LOGO]
<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....................... 8
Purchase of Shares................................. 9
Redemption of Shares............................... 11
Distributions from the Fund........................ 12
Shareholder Services............................... 13
Federal Income Taxation............................ 15
Financial Highlights............................... 17
</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 an investment objective to seek to provide
investors with 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 twelve
months of the date of purchase.
INVESTMENT STRATEGIES
The Fund's investment adviser seeks to achieve the Fund's investment objective
by investing primarily in a portfolio of high-quality municipal securities.
Municipal securities generally are issued by state and local governments or
regional governmental authorities to raise money for their daily operations or
special projects and the interest on municipal securities generally is exempt
from federal income tax. Under normal market conditions, the Fund invests
substantially all of the Fund's assets in municipal securities whose interest is
exempt from federal income tax (including the federal alternative minimum tax)
at the time of investment. The Fund seeks to maintain a constant net asset value
of $1.00 per share by investing in money market securities with remaining
maturities of not more than 12 months and with a dollar-weighted average
maturity of not more than 90 days.
The Fund buys and sells securities for investment with a view to seeking a high
level of tax-exempt interest income. In selecting securities for investment, the
Fund's investment adviser seeks those securities that it believes entail
reasonable credit risk considered in relation to the Fund's investment policies.
The Fund's investment adviser may sell such securities to adjust the average
maturity or credit quality of the Fund's investment portfolio. The Fund's
investments are limited to those securities that meet maturity, quality and
diversification standards with which money market funds must comply.
INVESTMENT RISKS
An investment in the Fund is subject to investment risks. An investment in the
Fund is not a deposit of any bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. Although
the Fund seeks to preserve the value of your investment at $1.00 per share, it
is possible to lose money by investing in the Fund. There can be no assurance
that the Fund will achieve its investment objective.
INCOME RISK. The income you receive from the Fund is based primarily on
short-term interest rates, which can vary widely over time. If short-term
interest rates drop, your income from the Fund may drop as well.
CREDIT RISK. Credit risk refers to an issuer's ability to make timely payments
of interest and principal. While credit risk is expected to be low for the Fund
because it invests in high-quality securities, an investment in the Fund is not
risk free. The Fund is still subject to the risk that the issuers of such
securities may experience financial difficulties and, as a result, fail to pay
on their obligations.
MARKET RISK. Market risk is the possibility that the market values of securities
owned by the Fund will decline and adversely affect the Fund's net asset value.
The prices of debt securities tend to fall as interest rates rise. Market risk
is expected to be low for the Fund because it invests in high-quality,
short-term securities.
MUNICIPAL SECURITIES RISK. The Fund invests primarily in municipal securities.
The yields of municipal securities may move differently and adversely compared
to the yields of the overall debt securities markets. While the interest
received from municipal securities generally is exempt from federal income tax,
the Fund may from time to time invest a portion of its net assets in taxable
securities. In addition, there could be changes in applicable tax laws or tax
treatments that reduce or eliminate the current federal income tax exemption on
municipal securities or otherwise adversely affect the current federal or state
tax status of municipal securities.
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:
- - Are in a high federal income tax bracket
- - Seek current tax-exempt income and protection of capital through investments
in municipal money-market securities
ANNUAL PERFORMANCE
One way to measure the risks of investing in the Fund is to look at how its
performance varies from year-to-year. The following chart shows the annual
returns of the Fund's shares 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.
[BAR GRAPH]
<TABLE>
<CAPTION>
ANNUAL RETURN
-------------
<S> <C>
1989 5.91
1990 5.79
1991 4.50
1992 2.46
1993 1.85
1994 1.98
1995 3.15
1996 2.75
1997 2.91
1998 2.82
</TABLE>
The Fund's return for the nine-month period ended September 30, 1999 was 1.78%.
During the ten-year period shown in the bar chart, the highest quarterly return
was 1.48% (for the quarter ended September 30, 1989, and the lowest quarterly
return was 0.37% (for the quarter ended March 31, 1994).
COMPARATIVE PERFORMANCE
As a basis for evaluating the Fund's performance and risks, the table below
shows the Fund's average annual total returns for the periods ended December 31,
1998 (the most recently completed calendar year prior to the date of this
prospectus). 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, 1998 1 Year 5 Years 10 Years
- ------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Van Kampen Tax
Free Money Fund 2.82% 2.72% 3.40%()
......................................................
</TABLE>
Investors can obtain the current 7-day yield of the Fund by calling (800)
341-2911.
4
<PAGE> 6
FEES AND EXPENSES
OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
<S> <C>
- -------------------------------------------
SHAREHOLDER FEES
(fees paid directly from your investment)
- -------------------------------------------
</TABLE>
<TABLE>
<S> <C>
Maximum sales charge (load) None
imposed on purchases
...........................................
Maximum deferred sales charge None
(load)
...........................................
Maximum sales charge (load)
imposed on reinvested dividends
None
...........................................
Redemption fees None
...........................................
Exchange fee None
...........................................
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
<TABLE>
- -----------------------------------------------
<S> <C>
Management Fees(1) 0.50%
...........................................
Distribution and/or Service 0.25%
(12b-1) Fees(2)
...........................................
Other Expenses(1) 0.59%
...........................................
Total Annual Fund Operating 1.34%
Expenses(1)
...........................................
</TABLE>
(1) The Fund's investment adviser is currently waiving or reimbursing a portion
of the Fund's Management Fees or Other Expenses such that actual Total
Annual Fund Operating Expenses for the fiscal year ended June 30, 1999 were
0.84%. The fee waivers or expense reimbursements can be terminated at any
time.
(2) Shares are subject to an annual service fee of up to 0.25% of the Fund's
average daily net assets. See "Purchase of Shares."
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>
Fund Shares $136 $425 $734 $1,613
.........................................................................
</TABLE>
INVESTMENT OBJECTIVE,
POLICIES AND RISKS
The Fund's investment objective is to seek to provide investors with 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 twelve months of the
date of purchase. The Fund's investment objective is a fundamental policy and
may not be changed without the approval of a majority of shareholders of the
Fund's outstanding voting securities, as defined in the Investment Company Act
of 1940, as amended (the "1940 Act"). The Fund seeks to maintain a constant net
asset value of $1.00 per share. There are risks inherent in all investments in
securities; accordingly, there can be no assurance that the Fund's net asset
value will not vary or that the Fund will achieve its investment objective.
The Fund's investment adviser seeks to achieve the Fund's investment objective
by investing primarily in a portfolio of high-quality municipal securities.
Municipal securities 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. Under normal
market conditions, up to 100%, but not less than 80%, of the Fund's net assets
are invested in such securities. All of the Fund's investments are subject 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 foregoing
policies in this paragraph are fundamental policies of the Fund and, like the
Fund's investment objective, cannot be changed without shareholder approval. The
Fund also may invest in obligations issued, guaranteed or insured by the U.S.
government, its agencies or instrumentalities, or securities that are fully
collateralized by such obligations or other securities acceptable to the Fund's
investment adviser. Under normal market conditions, the Fund may from time to
time invest temporarily up to 20% of its net assets in taxable securities (or
municipal securities subject to the federal alternative minimum tax) of at least
comparable quality to the municipal securities in which the Fund invests.
5
<PAGE> 7
The Fund seeks to maintain a constant net asset value of $1.00 per share by
investing in money market securities with remaining maturities of not more than
12 months and with a dollar-weighted average maturity of not more than 90 days.
The Fund invests in "high-quality" municipal securities which are securities (a)
rated in one of the two highest ratings categories by any two nationally
recognized statistical rating organizations ("NRSROs") such as Standard & Poor's
("S&P") or Moody's Investor Services, Inc. ("Moody's") (e.g., at least AA by S&P
or Aa by Moody's for bonds, at least MIG-2 or VMIG-2 by Moody's for short-term
municipal securities or at least A-2 or SP-2 by S&P or P-2 by Moody's for
municipal commercial paper) (or any one NRSRO if the instrument was rated by
only one such organization) or (b) unrated municipal securities, if such
securities are of comparable quality as determined in accordance with procedures
established by the Fund's Board of Trustees or if such securities were long-term
securities at the time of issuance but have remaining lives of 365 days or less
and have received long-term ratings in one of the three highest long-term
ratings categories by any two NRSROs (e.g., A or higher by S&P and Moody's) (or
any one NRSRO if the instrument was rated by only one such organization). Credit
quality at the time of purchase determines which securities may be acquired.
Subsequent downgrades in ratings may require reassessment of the credit risks
presented by such securities and may even require their sale. NRSROs assign
ratings based upon their opinions as to the quality of the debt securities they
undertake to rate, but they do not base their assessment on the market value
risk of such securities. It should be emphasized that ratings are general and
are not absolute standards of quality.
In selecting securities for investment, the Fund's investment adviser seeks to
add value and limit risk through careful security selection and by actively
managing the Fund's portfolio. The Fund focuses on those securities that meet
maturity, quality and diversification standards with which money market funds
must comply. While the Fund intends to hold portfolio securities until maturity,
the Fund's investment adviser from time to time may sell such securities prior
to maturity depending on its assessment of the relative yields available on
securities of different maturities and its expectations of future changes in
interest rates or to maintain a stable share price or average maturity of the
Fund's portfolio.
The Fund's dividend and yield are expected to change daily based upon changes in
interest rates and other market conditions. Although the Fund is managed to
maintain a stable $1.00 share price, there is no guarantee that the Fund will be
able to do so.
MUNICIPAL SECURITIES
The issuers of municipal securities obtain funds for various public purposes,
including the construction of a wide range of public facilities such as
airports, highways, bridges, schools, hospitals, housing, mass transportation,
streets and water and sewer works. Other public purposes for which municipal
securities may be issued include refunding outstanding obligations, obtaining
funds for general operating expenses and obtaining funds to lend to other public
institutions and facilities. Certain types of municipal securities are issued to
obtain funding for privately operated facilities.
The Fund invests in municipal securities scheduled to mature in twelve months or
less, which includes, but is not limited to, tax, revenue, bond and grant
anticipation notes; construction loan notes; tax-exempt commercial paper; and
variable or floating rate demand notes. Anticipation notes generally are sold in
anticipation of receiving future taxes, intergovernmental grants or other types
of revenues such as those under state aid programs and generally are sold to
obtain temporary funds for various public purposes. Construction loan notes
generally are issued to provide short-term construction financing for
multi-family housing projects, and frequently are insured by U.S. governmental
agencies or instrumentalities. Tax-exempt commercial paper is an unsecured
promissory obligation issued or guaranteed by a municipal issuer. Variable rate
instruments provide for adjustment of the interest rates on set dates and upon
such adjustment can reasonably be expected to have market values that
approximate amortized cost. Floating rate instruments provide for adjustment of
the interest rates based on a known lending rate, such as a bank's prime rate,
and may be adjusted when such rate changes, or the interest rate may be a market
rate that is adjusted at specified intervals, and at any time can reasonably be
expected to have a market values that approximate amortized cost. Demand
instruments generally are long-term obligations which allow the purchaser, at
its discretion, to redeem the securities before final maturity (typically 7 to
30 days), which under federal guidelines allow the Fund to consider such
securities as having maturities less than the date on the face of
6
<PAGE> 8
such instrument. Municipal securities may not be backed by the faith, credit and
taxing power of the issuer.
The ability of the Fund to achieve its investment objective is dependent on a
number of factors, including the skills of the Fund's investment adviser in
purchasing municipal securities with higher yields and whose issuers have the
continuing ability to meet their obligations for payment of interest and
principal when due. The ability to achieve a high level of income is dependent
on the yields of the securities in the portfolio. Yields on municipal securities
are the product of a variety of factors, including general money market
conditions, general conditions of the municipal securities market, size of a
particular offering, the maturity of the obligation and rating of the issue.
NRSROs assign ratings based upon their opinions as to the quality of the debt
securities they undertake to rate, but they do not base their assessment on the
market value risk of such securities. It should be emphasized 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
while municipal securities of the same maturity and coupon with different
ratings may have the same yield.
Additionally, from time to time, proposals have been introduced before Congress
that would have the effect of reducing or eliminating the current federal tax
exemption on municipal securities. If such a proposal were enacted, the ability
of the Fund to pay tax-exempt interest dividends might be adversely affected and
the Fund would re-evaluate its investment objective and policies and consider
changes in its structure, including recommending to the shareholders changes in
the Fund's investment objective.
OTHER INVESTMENTS AND RISK FACTORS
For cash management and investment purposes, the Fund may engage in repurchase
agreements collateralized by U.S. government securities. Such transactions are
subject to the risk of default by the counterparty bank or broker-dealer to the
transactions. Investments in repurchase agreements of more than seven days are
limited in conjunction with the Fund's limitation in illiquid securities.
The Fund may purchase and sell securities on a "when-issued" and "delayed
delivery" basis, although no more than 25% of the Fund's total assets will be
invested in such manner. The Fund accrues no income on such transactions until
the Fund actually takes delivery of the securities. These transactions are
subject to market fluctuation; the value of the securities at delivery may be
more or less than their purchase price. The 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 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. The Fund will engage
in when-issued and delayed delivery transactions for the purpose of acquiring
securities consistent with the Fund's investment objective and policies and not
for the purpose of investment leverage.
The Fund also may purchase municipal securities which provide for the right to
resell them back to an 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
such 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. The Fund's policy is to enter into these
transactions only with issuers, banks, or broker-dealers that are determined by
the Fund's investment 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.
The Fund may invest up to 10% of the Fund's net assets in illiquid and certain
restricted securities. Such securities may be difficult or impossible to sell at
the time and the price that the Fund would like. Thus, the Fund may have to sell
such securities at a lower price, sell other securities instead to obtain cash
or forego other investment opportunities.
Further information about these types of investments and other investment
practices that may be used by the Fund is contained in the Fund's Statement of
Additional Information.
7
<PAGE> 9
YEAR 2000 RISKS. Like other mutual funds, financial and business organizations
and individuals around the world, the Fund could be adversely affected if the
computer systems used by the Fund's investment adviser and other service
providers do not properly process and calculate date-related information and
data from and after January 1, 2000. This is commonly known as the "Year 2000
Problem." The Fund's investment adviser is taking steps that it believes are
reasonably designed to address the Year 2000 Problem with respect to computer
systems that it uses and to obtain reasonable assurances that comparable steps
are being taken by the Fund's other major service providers. At this time, there
can be no assurances that these steps will be sufficient to avoid any adverse
impact to the Fund. In addition, the Year 2000 Problem may adversely affect the
markets and the issuers of securities in which the Fund may invest which, in
turn, may adversely affect the net asset value of shares of the Fund. Improperly
functioning trading systems may result in settlement problems and liquidity
issues. In addition, corporate and governmental data processing errors may
result in production problems for individual companies or issuers and overall
economic uncertainty. Earnings of individual issuers will be affected by
remediation costs, which may be substantial and may be reported inconsistently
in U.S. and foreign financial statements. Efforts in foreign countries to
remediate the potential Year 2000 Problem may not be as extensive as those in
the U.S. As a result, the operations of foreign markets and issuers may be
disrupted by the Year 2000 Problem. Accordingly, the Fund's investments may be
adversely affected. The statements above are subject to the Year 2000
Information and Readiness Disclosure Act which may limit the legal rights
regarding the use of such statements in the case of a dispute.
INVESTMENT ADVISORY SERVICES
THE ADVISER. Van Kampen Investment Advisory Corp. is the Fund's investment
adviser (the "Adviser" or "Advisory Corp."). The Adviser is a wholly owned
subsidiary of Van Kampen Investments Inc. ("Van Kampen Investments"). Van Kampen
Investments is a diversified asset management company with more than two million
retail investor accounts, extensive capabilities for managing institutional
portfolios, and more than $79 billion under management or supervision as of
September 30, 1999. Van Kampen Investments' more than 50 open-end and 39
closed-end funds and more than 2,500 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 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 1.00%
................................................
Next $500 million 0.475 of 1.00%
................................................
Next $500 million 0.425 of 1.00%
................................................
Over $1.5 billion 0.375 of 1.00%
................................................
</TABLE>
Applying this fee schedule, the effective advisory fee rate (before fee waivers)
was 0.50% of the Fund's average daily net assets for the Fund's fiscal year
ended June 30, 1999.
Under the Advisory Agreement, the Adviser furnishes offices, necessary
facilities and equipment, provides administrative services, and permits its
officers and employees to serve without compensation as trustees of the Trust or
officers of the Fund if elected to such positions. The Fund pays all charges and
expenses of its day-to-day operations, including the compensation of trustees of
the Trust (other than those who are affiliated persons of the Adviser,
Distributor or Van Kampen Investments), the charges and expenses of legal
counsel and independent accountants, distribution fees, service fees, custodian
fees, the costs of providing reports to shareholders, 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
8
<PAGE> 10
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 Asset Management
Inc. ("Asset Management").
PERSONAL INVESTMENT POLICIES. The Fund and the Adviser have adopted Codes of
Ethics designed to recognize the fiduciary relationship between the Fund and the
Adviser and its employees. The Codes of Ethics permit directors, trustees,
officers and employees to buy and sell securities for their personal accounts
subject to certain restrictions. Persons with access to certain sensitive
information are subject to pre-clearance and other procedures designed to
prevent conflicts of interest.
PURCHASE OF SHARES
GENERAL
Shares of the Fund are available without a sales charge at the net asset value
per share. The Fund seeks to maintain a constant net asset value of $1.00 per
share. Although such share price is not guaranteed, the Fund is managed and
securities are purchased seeking to maintain a stable $1.00 per share. Initial
investments must be at least $1,000, and subsequent investments must be at least
$25. Both minimums may be waived by the Distributor for plans involving periodic
investments.
The shares are offered to the public on a continuous basis through the
Distributor as principal underwriter, which is located at 1 Parkview Plaza, PO
Box 5555, Oakbrook Terrace, Illinois 60181-5555. Shares also are offered through
members of the National Association of Securities Dealers, Inc. ("NASD") who are
acting as securities dealers ("dealers") and NASD members or eligible non-NASD
members who are acting as brokers or agents for investors ("brokers"). "Dealers"
and "brokers" are sometimes referred to herein as "authorized dealers."
The offering price for shares is based upon the next calculation of net asset
value per share after an order is received by the Fund's shareholder service
agent, Van Kampen Investors Services Inc. ("Investor Services"), a wholly owned
subsidiary of Van Kampen Investments, and becomes effective. An order becomes
effective when Investor Services receives or converts the purchase amount into
federal funds. Payment by check generally will be converted into federal funds
on the second business day following receipt of payment for the order by
Investor Services. Shares may be purchased on any business day by following the
bank wire transfer instructions described below or by completing the application
accompanying this prospectus and forwarding the application, directly or through
an authorized dealer, to Investor Services.
INITIAL INVESTMENT BY BANK WIRE. To open an account by wire an investor should
telephone Investor Services at (800) 421-6714 and provide the account
registration, the address, tax identification number, the amount being wired and
the name of the wiring bank. Investor Services furnishes the investor with an
account number. The investor's bank should wire the specified amount along with
the account number and registration to the Fund's custodian: State Street Bank
and Trust Company ("State Street Bank"), 225 Franklin Street, Boston,
Massachusetts 02102, ABA-011000028, attention Van Kampen Investor Services
Inc./Van Kampen Fund Account No. 9900-446-7. The investor should then
immediately complete and mail the account application form accompanying this
prospectus to Investor Services. To receive same day credit to an account, the
investor must call Investor Services, at the telephone number listed above, by
11:00 a.m. Kansas City time with the intent to wire funds and State Street Bank
must then receive such funds by 4:00 p.m. Boston time.
INITIAL INVESTMENT BY MAIL. To open an account by mail an investor should send a
check payable to the Fund along with a completed account application form to
Investor Services.
SUBSEQUENT INVESTMENTS BY BANK WIRE. The investor's bank should wire the
specified amount along with the account number and registration to State Street
Bank. To receive same day credit to an account, the investor must call Investor
Services at (800) 421-6714 by 11:00 a.m. Kansas City time with the intent to
wire funds and State Street Bank must then receive such funds by 4:00 p.m.
Boston time.
SUBSEQUENT INVESTMENTS BY MAIL. Subsequent investments in the amount of $25 or
more may be sent by
9
<PAGE> 11
mail to Investor Services, indicating the account registration and account
number.
UNIT INVESTMENT TRUST REINVESTMENT PROGRAM. The Fund permits unitholders of unit
investment trusts to reinvest distributions from such trusts in shares of the
Fund at net asset value per share and with no minimum initial or subsequent
investment requirement, if the administrator of an investor's unit investment
trust program meets certain uniform criteria relating to cost savings by the
Fund and the Distributor. Persons desiring more information with respect to this
program, including the terms and conditions that apply to the program, should
contact their authorized dealer or the Distributor.
The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during each distribution period by all investors who choose to invest in
the Fund through the program and (2) provide Investor Services with appropriate
backup data for each investor participating in the program in a computerized
format fully compatible with Investor Services' processing system.
In order to obtain these special benefits, all dividends and capital gain
dividends by the Fund must be reinvested in additional shares and there can not
be any systematic withdrawal program. There will be no minimum for reinvestments
from unit investment trusts. The Fund will send account activity statements to
such participants on a quarterly basis only, even if their investments are made
more frequently. The Fund reserves the right to modify or terminate this program
at any time.
OTHER INFORMATION
The net asset value per share of the Fund is determined twice daily as of 12:00
p.m. and 4:00 p.m. New York 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
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 or less frequently if deemed desirable. Net asset value per share
is determined by dividing the value of the Fund's portfolio securities, cash and
other assets (including accrued interest), less all liabilities (including
accrued expenses), by the total number of shares outstanding. The securities
held by the Fund are valued on the basis of amortized cost, which does not take
into account unrealized capital gains or losses. Amortized cost valuation
involves initially valuing a security at its cost and thereafter, applying a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the security. While
this method provides certainty in valuation, it may result in periods during
which value, as determined by amortized cost, is higher or lower than the price
that the Fund would receive if it sold the security. Further information about
these procedures is contained in the Fund's Statement of Additional Information.
The Fund has adopted a distribution plan (the "Distribution Plan") with respect
to its shares pursuant to Rule 12b-1 under the 1940 Act. The Fund also has
adopted a service plan (the "Service Plan") with respect to its shares. Under
the Distribution Plan and Service Plan, the Fund may spend up to a total of
0.25% per year of the Fund's average daily net assets with respect to the shares
of the Fund. From such amount, under the Service Plan, the Fund may spend up to
0.25% per year of the Fund's average daily net assets for the ongoing provision
of services to shareholders by the Distributor and by brokers, dealers or
financial intermediaries and for the maintenance of such shareholders' accounts.
The distribution and service fees on shares offered by the Fund are paid out of
the Fund's assets on an ongoing basis and will increase the cost of your
investment in the Fund. The net income attributable to shares of the Fund will
be reduced by the amount of the distribution fees and other expenses.
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
10
<PAGE> 12
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 may redeem for cash some or all of their shares without
charge by the Fund at any time. Redemptions completed through an authorized
dealer or a custodian of a retirement plan account may involve 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 which may result in brokerage costs and a gain or loss
for federal income tax purposes when such securities are sold. 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 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 to be in proper form. In some
cases, however, additional documents may be necessary. In the case of
shareholders holding certificates, the certificates for the shares being
redeemed properly endorsed for transfer must accompany the redemption request.
In the event the redemption is requested by a corporation, partnership, trust,
fiduciary, executor or administrator, and the name and title of the
individual(s) authorizing such redemption is not shown in the account
registration, a copy of the corporate resolution or other legal documentation
appointing the authorized signer and certified within the prior 120 days must
accompany the redemption request. IRA redemption requests should be sent to the
IRA custodian to be forwarded to Investor Services. Contact the IRA custodian
for further information.
In the case of written redemption requests sent directly to Investor Services,
the redemption price is the net asset value per share next determined after the
request in proper form is received by Investor Services.
AUTHORIZED DEALER REDEMPTION REQUESTS. Shareholders may place redemption
requests through an authorized dealer. Orders sent through authorized dealers
must be at least $500 (unless transmitted by your authorized dealer via the
FUNDSERV network). 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
11
<PAGE> 13
box on the application form accompanying the prospectus. To redeem shares,
contact the telephone transaction line at (800) 421-5684. Van Kampen
Investments, 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 12:00 p.m., New York time, will be processed that day and
dividends for that day will not be earned. Requests received by Investor
Services after 12:00 p.m., New York time, will be treated as requests to redeem
as of 4:00 p.m., New York time so that the investor will receive that day's
dividend. 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 shares of 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
Shareholders may receive distributions from the Fund of dividends and capital
gain dividends.
DIVIDENDS. Interest earned from investments is the Fund's main source of income.
The Fund's income for dividend purposes is calculated daily and consists of
interest accrued or discount earned, plus or minus any net realized gains or
losses on portfolio securities less any amortization of premium and the expenses
of the Fund. The Fund's present policy, which may be changed at any time by the
Board of Trustees, is to declare and distribute all, or substantially all of
this income, less expenses, daily as dividends to shareholders. All dividends
are automatically applied to purchase additional full and fractional shares of
the Fund at the next determined net asset value. Shareholders may elect to
receive monthly payment of dividends in cash by written instruction to Investor
Services.
Dividends are paid to shareholders of record immediately prior to the
determination of net asset value. Investments begin earning dividends on the day
federal funds are received by the Fund prior to 12:00 p.m., New York time. Any
investments for which federal funds are received after 12:00 p.m. will begin
receiving dividends on the next business day.
CAPITAL GAIN DIVIDENDS. Although the Fund expects that its distributions will
consist primarily of dividends from interest income, the Fund may realize
capital gains or losses when it sells securities, depending on whether the sales
prices for the securities are higher or lower than purchase prices. Net realized
capital gain represents the total profit
12
<PAGE> 14
from sales of securities minus total losses from sales of securities (including
losses carried forward from prior years), other than net short-term capital gain
from sales of securities held less than one year. The Fund distributes any
taxable net realized 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 predetermined amounts in the Fund. Additional
information is available from the Distributor or your authorized dealer.
CHECK WRITING PRIVILEGE. A shareholder holding shares of the Fund for which
certificates have not been issued and which are not in escrow may appoint
Investor Services as agent by completing the Authorization for Redemption by
Check form and the appropriate section of the application and returning the form
and the application to Investor Services. Once the form is properly completed,
signed and returned to the agent, a supply of checks drawn on State Street Bank
and Trust Company (the "Bank") will be sent to the shareholder. These checks may
be made payable by the shareholder to the order of any person in any amount of
$100 or more.
When a check is presented to the Bank for payment, full and fractional shares
required to cover the amount of the check are redeemed from the shareholder's
account by Investor Services at the next determined net asset value per share.
Check writing redemptions represent the sale of shares. Any gain or loss
realized on the redemption of shares is a taxable event.
Checks will not be honored for redemption of shares held less than 15 calendar
days, unless such shares have been paid for by bank wire. Any shares for which
there are outstanding certificates may not be redeemed by check. If the amount
of the check is greater than the proceeds of all uncertificated shares held in
the shareholder's account, the check will be returned and the shareholder may be
subject to additional charges. A shareholder may not liquidate the entire
account by means of a check. The check writing privilege may be terminated or
suspended at any time by the Fund or by the Bank. Retirement plans and accounts
that are subject to backup withholding are not eligible for the privilege.
EXCHANGE PRIVILEGE. Shares of the Fund may be exchanged for shares of any
Participating Fund (defined below) sold subject to an initial sales charge or
for shares without a sales charge of the Van Kampen Reserve Fund (the "Reserve
Fund"), based on the next determined net asset value per share of each fund
after requesting the exchange, subject to certain limitations. Shares of the
Fund may be exchanged for shares of any Participating Fund or the Reserve Fund
only if shares of that fund are available for sale; however, during periods of
suspension of sales, shares of a Participating Fund or the Reserve Fund may be
available for sale only to existing shareholders of a fund. Shares of the Fund
which have not previously been charged a sales charge (except for shares issued
under the reinvestment option) or that have been charged a lower sales charge
than the sales charge applicable of the shares of the Participating Fund being
acquired will have any applicable sales charge differential imposed upon an
exchange into such Participating Fund. Shareholders
13
<PAGE> 15
seeking an exchange into a Participating Fund or the Reserve Fund should obtain
and read the current prospectus for such fund prior to implementing an exchange.
A prospectus of any of the Participating Funds or the Reserve Fund may be
obtained from any authorized dealer or the Distributor.
As used herein, "Participating Funds" refers to certain open-end investment
companies advised by Asset Management or Advisory Corp. and distributed by the
Distributor as determined from time to time by the Fund's Board of Trustees.
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 one Participating Fund and purchases of another
Participating Fund. The sale may result in a gain or loss for federal income tax
purposes. If the shares sold have been held for less than 91 days, the sales
charge paid on such shares is carried over and included in the tax basis of the
shares acquired.
A shareholder wishing to make an exchange may do so by sending a written request
to Investor Services or by contacting the telephone transaction line at (800)
421-5684. A shareholder automatically has telephone exchange privileges unless
the shareholder indicates otherwise by checking the applicable box on the
application form accompanying the prospectus. Van Kampen Investments, 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. 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 privileges
to such shareholders. For further information on these restrictions see the
Statement of Additional Information. The Fund may modify, restrict or terminate
the exchange privilege at any time on 60 days' notice to its shareholders of any
termination or material amendment.
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 new fund that the shareholder
is purchasing will also normally be purchased at the net asset value per share,
plus any applicable sales charge, next determined on the date of receipt.
Exchange requests received on a business day after the time shares of the funds
involved in the request are priced will be processed on the next business day in
the manner described herein.
INTERNET TRANSACTIONS. In addition to performing transactions on your account
through written instruction or by telephone, you may also perform certain
transactions through the internet. Please refer to our web site at
www.vankampen.com for further instruction. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated through the internet are genuine. Such
procedures include requiring use of a personal identification number prior to
acting upon internet instructions and providing written confirmation of
instructions communicated through the internet. If reasonable procedures are
employed, none of Van Kampen Investments, Investor Services or the Fund will be
liable for following instructions received through the internet which it
reasonably believes to be genuine. If an account has multiple owners, Investor
Services may rely on the instructions of any one owner.
14
<PAGE> 16
FEDERAL INCOME TAXATION
The Fund intends to invest in sufficient tax-exempt municipal securities to
permit payment of "exempt-interest dividends" (as defined under applicable
federal income tax law). The aggregate amount of dividends designated as
exempt-interest dividends cannot exceed, however, the excess of the amount of
interest exempt from tax under Section 103 of the Internal Revenue Code of 1986,
as amended (the "Code"), received by the Fund during the year over any amounts
disallowed as deductions under Sections 265 and 171(a)(2) of the Code. Since the
percentage of dividends which are exempt-interest dividends is determined on an
average annual method for the taxable year, the percentage of income designated
as tax-exempt for any particular dividend may be substantially different from
the percentage of the Fund's income that was tax-exempt during the period
covered by the dividend.
Exempt-interest dividends paid to shareholders generally are not includable in
the shareholders' gross income for federal income tax purposes. Exempt-interest
dividends are included 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.
Under applicable federal income tax law, the interest on certain municipal
securities may be an item of tax preference subject to the alternative minimum
tax. The Fund may invest a portion of its assets in municipal securities subject
to this provision so that a portion of its exempt-interest dividends may be an
item of tax preference to the extent such dividends represent interest received
from such municipal securities. Accordingly, investment in the Fund could cause
shareholders to be subject to (or result in an increased liability under) the
alternative minimum tax.
Although exempt-interest dividends from the Fund generally may be treated by
shareholders as interest excluded from their gross income, each shareholder is
advised to consult his or her tax adviser with respect to whether
exempt-interest dividends retain this exclusion given the investor's tax
circumstances. For example, exempt-interest dividends may not be excluded if the
shareholder would be treated as a "substantial user" (or a "related person" of a
substantial user, as each term is defined by applicable federal income tax law)
of the facilities financed with respect to any of the tax-exempt obligations
held by the Fund.
Interest on indebtedness incurred or continued by a shareholder to purchase or
carry shares of the Fund is not deductible for federal income tax purposes if
the Fund distributes exempt-interest dividends during the shareholder's taxable
year. If a shareholder receives an exempt-interest dividend with respect to any
shares and such shares are held for six months or less, any loss on the sale or
exchange of the shares will be disallowed to the extent of the amount of such
exempt-interest dividend.
While the Fund expects that a major portion of its net investment income
(consisting generally of tax-exempt interest, 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) will constitute tax-exempt
interest, a significant portion may consist of taxable income. Distributions of
such taxable 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. Fund distributions generally will not qualify for the
dividends received deductions for corporations.
Distributions of the Fund's net capital gain 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. 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
15
<PAGE> 17
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 the 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, disposing, exchanging
or selling shares, as well as the effects of state, local and foreign tax law
and any proposed tax law changes.
16
<PAGE> 18
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the periods indicated. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by KPMG LLP, independent accountants, whose report,
along with the Fund's financial statements, is included in the Statement of
Additional Information and may be obtained by shareholders without charge by
calling the telephone number on the back cover of this prospectus. This
information should be read in conjunction with the financial statements and
notes thereto included in the Statement of Additional Information.
<TABLE>
<CAPTION>
Year Ended June 30,
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.................... $1.00 $1.00 $1.00 $1.00 $1.00
------ ------ ------ ------
Net Investment Income...................................... .025 0.029 0.028 0.029 0.027
Less Distributions from and in Excess of Net Investment
Income..................................................... .025 (0.029) (0.028) (0.029) (0.027)
------ ------ ------ ------
Net Asset Value, End of the Period.......................... $1.00 $1.00 $1.00 $1.00 $1.00
====== ====== ====== ====== ======
Total Return*............................................... 2.55% 2.9% 2.82 2.93% 2.73%
Net Assets at End of the Period (In millions)............... $33.5 $32.0 $33.1 $35.6 $33.2
Ratio of Expenses to Average Net Assets*.................... .84% 0.83% 0.85% 0.85% 0.89%
Ratio of Net Investment Income to Average Net Assets*....... 2.53% 2.89% 2.78% 2.89% 2.68%
- ----------------
* If certain expenses had not been assumed by the Adviser, total return would have been lower and the ratios
would have been as follows:
Ratio of Expenses to Average Net Assets.................... 1.34% 1.40% 1.45% 1.53% 1.38%
Ratio of Net Investment Income to Average Net Assets....... 2.03% 2.32% 2.17% 2.21% 2.20%
</TABLE>
See Financial Statements and Notes thereto
17
<PAGE> 19
BOARD OF TRUSTEES
AND OFFICERS
BOARD OF TRUSTEES
<TABLE>
<S> <C>
J. Miles Branagan Don G. Powell*
Jerry D. Choate Phillip B. Rooney
Richard M. DeMartini* Fernando Sisto
Linda Hutton Heagy Wayne W. Whalen*
R. Craig Kennedy Suzanne H. Woolsey
Jack E. Nelson Paul G. Yovovich
</TABLE>
OFFICERS
Richard F. Powers, III*
President
Dennis J. McDonnell*
Executive Vice President & Chief Investment Officer
A. Thomas Smith III*
Vice President and Secretary
Edward C. Wood III*
Vice President
Michael H. Santo*
Vice President
Peter W. Hegel*
Vice President
Stephen L. Boyd*
Vice President
John L. Sullivan*
Vice President, Chief Financial Officer & Treasurer
Curtis W. Morell*
Vice President & Chief Accounting Officer
Tanya M. Loden*
Controller
* "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
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call (800) 421-2833
FUNDINFO(R)
For automated telephone services, call (800) 847-2424
WEB SITE
www.vankampen.com
VAN KAMPEN TAX FREE MONEY FUND
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Investment Adviser
VAN KAMPEN INVESTMENT ADVISORY CORP.
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 Tax Free Money Fund
Custodian
STATE STREET BANK AND TRUST COMPANY
225 West Franklin Street, PO Box 1713
Boston, MA 02105-1713
Attn: Van Kampen Tax Free Money Fund
Legal Counsel
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
Independent Accountants
KPMG LLP
303 East Wacker Drive
Chicago, IL 60601
<PAGE> 20
VAN KAMPEN
TAX FREE MONEY FUND
PROSPECTUS
OCTOBER 28, 1999
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.
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.
[VAN KAMPEN FUNDS LOGO]
The Fund's Investment Company Act File No. is 811-4718. TFMM PRO 10/99
<PAGE> 21
STATEMENT OF ADDITIONAL INFORMATION
VAN KAMPEN
TAX FREE MONEY FUND
Van Kampen Tax Free Money Fund (the "Fund") is a mutual fund with an
investment objective to seek to provide investors with 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 twelve months of the date of
purchase.
The Fund is organized as a diversified series of the Van Kampen Tax Free
Money 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 prospectus (the "Prospectus") dated as of the same date as this Statement
of Additional Information. This Statement of Additional Information does not
include all the information 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 and Policies........................... B-3
Investment Restrictions..................................... B-7
Trustees and Officers....................................... B-9
Investment Advisory Agreement............................... B-18
Other Agreements............................................ B-19
Distribution and Service.................................... B-20
Transfer Agent.............................................. B-22
Portfolio Transactions and Brokerage Allocation............. B-22
Shareholder Services........................................ B-23
Redemption of Shares........................................ B-25
Net Asset Value............................................. B-26
Taxation.................................................... B-26
Yield Information........................................... B-31
Other Information........................................... B-33
Description of Securities Ratings........................... B-33
Report of Independent Accountants........................... F-1
Financial Statements........................................ F-2
Notes to Financial Statements............................... F-9
</TABLE>
THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED OCTOBER 28, 1999.
<PAGE> 22
GENERAL INFORMATION
The Fund was originally organized in 1986 as a Massachusetts business trust
under the name Van Kampen Merritt Tax Free Income Fund. As of July 31, 1995, the
Fund was reorganized as a series of the Trust under the name Van Kampen American
Capital Tax Free Money Fund. 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 Investment Advisory Corp. (the "Adviser" or "Advisory Corp."),
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 one class of shares. Other classes may be
established from time to time in accordance with provisions of the Declaration
of Trust. In the event of liquidation, each share 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. Shares of the Trust entitle holders to one vote per share.
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.
The Fund does not contemplate holding regular meetings of shareholders to
elect Trustees or otherwise. However, the holders of 10% or more of the
outstanding shares may by written request require a meeting to consider the
removal of Trustees by a vote of two-thirds of the shares then outstanding cast
in person or by proxy at such meeting. The Fund will assist such holders in
communicating with other shareholders of the Fund to the
B-2
<PAGE> 23
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").
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
present at a meeting of shareholders (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 October 11, 1999 no person was known by the Fund to own beneficially
or to hold of record 5% or more of the outstanding shares of the Fund except as
follows:
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
NAME AND ADDRESS OF HOLDER SHARES HELD OWNERSHIP
-------------------------- ----------- ----------
<S> <C> <C>
Jerome L. Robinson......................... 4,812,555 13.56%
145 Kent Road
Tenafly, NJ 07670-2305
Richard H. Baxter.......................... 3,697,258 10.42%
Baxter Capital Investors LP
812 Goshen Road Apt. A-6
West Chester, PA 19380-4353
</TABLE>
INVESTMENT OBJECTIVE AND POLICIES
The following disclosures supplement disclosures set forth under the same
caption in the Prospectus and do not, standing alone, present a complete or
accurate explanation of the matters disclosed. Readers must refer also to this
caption in the Prospectus for a complete presentation of the matters disclosed
below.
MONEY MARKET SECURITIES
The Fund seeks to maintain a net asset value of $1.00 per share for
purchases and redemptions. To do so, the Fund uses the amortized cost method of
valuing the Fund's securities pursuant to Rule 2a-7 under the 1940 Act, certain
requirements of which are summarized below.
In accordance with Rule 2a-7, the Fund is required to (i) maintain a
dollar-weighted average portfolio maturity of 90 days or less, (ii) purchase
only instruments having remaining maturities of 13 months or less and (iii)
invest only in U.S. dollar denominated securities determined in accordance with
procedures established by the Trustees to present minimal credit risks.
Additionally, securities purchased for investment must be rated in one of the
two highest rating categories for debt obligations by any two nationally
recognized
B-3
<PAGE> 24
statistical rating organizations ("NRSROs") (or any one NRSRO if the instrument
was rated by only one such organization) or, if unrated, are of comparable
quality as determined in accordance with procedures established by the Fund's
Board of Trustees. The NRSROs currently rating instruments of the type the Fund
may purchase are Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
("S & P"), Fitch Investors Services, Inc., Duff and Phelps, Inc. and IBCA
Limited and IBCA Inc.
In addition, the Fund will not invest more than 5% of its total assets in
the securities (including the securities collateralizing a repurchase agreement)
of a single issuer, except that (i) the Fund may invest up to 25% of its total
assets in the "first tier securities" of a single issuer for a period of up to
three business days in certain limited circumstances, (ii) the Fund may invest
in obligations issued or guaranteed by the U.S. government without any such
limitation, and (iii) the Fund may invest, with limitations, more than 5% of its
total assets in securities subject to a guarantee issued by a non-controlled
person. First tier securities are those that have been rated in the highest
rating category for short-term obligations by at least two NRSROs (or one NRSRO
if the instrument was rated by only one such organization), and unrated
securities determined by the Fund's Board of Trustees to be comparable to those
rated in the highest category. The Fund will be limited to 5% of the Fund's
total assets for other permitted investments not in the first tier ("second tier
securities"), with the investment in any one such issuer being limited to no
more than the greater of 1% of the Fund's total assets or $1,000,000. As to each
security, these percentages are measured at the time the Fund purchases the
security.
If a security's rating is downgraded, the Adviser and/or the Fund's Board
of Trustees may have to reassess the security's credit risk. If a security has
ceased to be a first tier security, the Adviser will promptly reassess whether
the security continues to present minimal credit risk. If the Adviser becomes
aware that any NRSRO has downgraded its rating of a second tier security or
rated previously unrated security below its second highest rating category, the
Fund's Board of Trustees shall promptly reassess whether the security presents
minimal credit risk and whether it is in the best interests of the Fund to
dispose of it. If the Fund disposes of the security within five days of the
Adviser learning of the downgrade, the Adviser will provide the Board with
subsequent notice of such downgrade. If a security is in default, ceases to be a
security permitted for investment, is determined no longer to present minimal
credit risks or if an event of insolvency as defined in Rule 2a-7 occurs, the
Fund must dispose of the security as soon as practicable unless the Fund's Board
of Trustees determines it would be in the best interests of the Fund not to
dispose of the security. There can be no assurance that the Fund will be able to
maintain a stable net asset value of $1.00 per share.
REPURCHASE AGREEMENTS
Repurchase agreements are fully collateralized by the underlying debt
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, or its
agencies and instrumentalities) may have maturity dates exceeding one year. The
Fund may engage in repurchase agreements with banks or broker-dealers for
investment purposes
B-4
<PAGE> 25
or in order to earn a return on temporarily available cash. A repurchase
agreement is a short-term investment in which the purchaser (i.e., the Fund)
acquires ownership of a debt security and the seller agrees to repurchase the
obligation at a future time and set price, thereby determining the yield during
the holding period. Repurchase agreements involve certain risks in the event of
default by the other party. The Fund may enter into repurchase agreements with
banks or broker-dealers deemed to be creditworthy by the Adviser under
guidelines approved by the Trustees. The Fund will not invest in repurchase
agreements maturing in more than seven days if any such investment, together
with any other illiquid securities held by the Fund, would exceed the Fund's
limitation on illiquid securities described below. 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.
STAND-BY COMMITMENTS
The Fund may acquire "stand-by commitments" with respect to municipal
securities held by the Fund. Under a stand-by commitment, a bank or dealer from
which municipal securities are acquired agrees to purchase from the Fund, at the
Fund's option, the municipal securities at a specified price. Such commitments
are sometimes called "liquidity puts." The amount payable to the Fund upon its
exercise of a stand-by commitment is normally (i) the Fund's acquisition cost of
the municipal securities (excluding any accrued interest which the Fund paid on
their acquisition), less any amortized market premium or plus any amortized
market or original issue discount during the period the Fund owned the
securities, plus (ii) all interest accrued on the securities since the last
interest payment date during that period. Stand-by commitments generally can be
acquired when the remaining maturity of the underlying municipal securities is
not greater than one year, and are exercisable by the Fund at any time before
the maturity of such obligations. The Fund's right to exercise stand-by
commitments is unconditional and unqualified. A stand-by commitment generally is
not transferable by the Fund, although the Fund can sell the underlying
municipal securities to a third party at any time.
The Fund expects that stand-by commitments will generally be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, the
B-5
<PAGE> 26
Fund may pay for a stand-by commitment either separately in cash or by paying a
higher price for portfolio securities which are acquired subject to the
commitment (thus reducing the yield to maturity otherwise available for the same
securities). The Fund intends to enter into stand-by commitments only with banks
and dealers which, in the opinion of the Fund's investment adviser, present
minimal credit risks.
The acquisition of a stand-by commitment would not affect the valuation of
the underlying municipal securities which would continue to be valued in
accordance with the method of valuation employed for the Fund in which they are
held. Stand-by commitments acquired by the Fund would be valued at zero in
determining net asset value. Where the Fund paid any consideration directly or
indirectly for a stand-by commitment, its costs would be reflected as unrealized
depreciation for the period during which the commitment was held by the Fund.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Fund may purchase and sell municipal securities on a "when-issued" or
"delayed delivery" basis whereby the Fund buys or sells a security with payment
and delivery taking place in the future. The payment obligation and the interest
rate are fixed at the time the Fund enters into the commitment. No income
accrues to the Fund on municipal securities in connection with such transactions
prior to the date the Fund actually takes delivery of such securities. These
transactions are subject to market risk as the value or yield of a municipal
security at delivery may be more or less than the purchase price or the yield
generally available on municipal securities when delivery occurs. In addition,
the Fund is subject to counterparty risk because it relies on the buyer or
seller, as the case may be, to consummate the transaction, and 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. The
Fund will only make commitments to purchase such securities with the intention
of actually acquiring the securities, but the Fund may sell these securities
prior to settlement date if it is deemed advisable. When the Fund is the buyer
in such a transaction, however, it will maintain, in a segregated account with
its custodian, cash or liquid securities having an aggregate value equal to the
amount of such purchase commitments until payment is made. The Fund will make
commitments to purchase municipal 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. 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 objectives and
policies and not for the purposes of investment leverage. 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.
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
B-6
<PAGE> 27
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 which have no ready market are valued
at fair value as determined in good faith by the Adviser in accordance with
procedures approved by the Fund's Trustees. Ordinarily, the Fund would invest in
restricted securities only when it receives the issuer's commitment to register
the securities without expense to the Fund. However, registration and
underwriting expenses (which may range from 7% to 15% of the gross proceeds of
the securities sold) may be paid by the Fund. Restricted securities which can be
offered and sold to qualified institutional buyers under Rule 144A under the
1933 Act ("144A Securities") and are determined to be liquid under guidelines
adopted by and subject to the supervision of the Fund's Board of Trustees are
not subject to the limitation on illiquid securities. Such 144A Securities are
subject to monitoring and may become 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, (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.
INVESTMENT RESTRICTIONS
The Fund has adopted the following fundamental investment restrictions
which may not be changed without approval by the vote of a majority of its
outstanding voting 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. Purchase any securities (other than obligations issued or guaranteed by
the U.S. government or by its agencies or instrumentalities) if, as a
result, more than 5% of the Fund's total assets (taken at current value)
would then be invested in securities of a single issuer or if, as a
result, the Fund would hold more than 10% of the outstanding voting
securities of an issuer except that up to 25% of the Fund's total assets
may be invested without regard to such limitations and except that the
Fund may purchase securities of other investment companies without regard
to such limitation to the extent permitted by (i) the 1940 Act, as amended
from time to time, (ii) the rules and regulations promulgated by the SEC
under the 1940 Act, as amended from time to time, or (iii) an exemption or
other relief from the provisions of the 1940 Act.
B-7
<PAGE> 28
2. Borrow money, except from banks for temporary or emergency purposes or in
reverse repurchase transactions as described in the Prospectus and then
not in amounts in excess of 10% of its net assets at the time of
borrowing. It can mortgage or pledge its assets only in connection with
such borrowing and in amounts not in excess of 20% of the value of its net
assets at the time of such borrowing. The Fund will not purchase any
securities while it has any outstanding borrowings.
3. Buy any securities "on margin" or sell any securities "short."
4. Make investments for the purpose of exercising control or management
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.
5. Purchase any security which is restricted as to disposition under federal
securities laws or by contract or which are not readily marketable, or
enter into a repurchase agreement maturing in more than seven days with
respect to any security if, as a result, more than 10% of the Fund's total
assets would be invested in such securities 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.
6. Investment in securities issued by other investment companies except as
part of a merger, reorganization or other acquisition and 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.
7. Invest in interests in oil, gas or other mineral exploration or
development programs.
8. Make loans, except that the Fund can purchase and hold those publicly
distributed debt securities which it is permitted to buy, and enter into
repurchase agreements.
9. Act as an underwriter of securities, except to the extent the Fund may be
deemed to be an underwriter in connection with the sale of securities held
in its portfolio.
10. Purchase or sell real estate, commodities or commodity contracts.
It is currently the operating policy of the Fund to limit the purchase of
illiquid securities to 10% of the Fund's net assets.
B-8
<PAGE> 29
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).
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, Mr. Choate
held various management positions at
Allstate.
</TABLE>
B-9
<PAGE> 30
<TABLE>
<CAPTION>
Principal Occupations or
Name, Address and Age Employment in Past 5 Years
--------------------- --------------------------
<S> <C>
Richard M. DeMartini*..................... Chairman and Chief Executive Officer of
Two World Trade Center International Private Client Group, a
66th Floor business unit of Morgan Stanley Dean Witter
New York, NY 10048 which encompasses all of the firm's
Date of Birth: 10/12/52 activities relating to the gathering of
investment assets and sale of securities to
individual investors internationally, since
December 1998. President and Chief Operating
Officer Individual Asset Management Group and
Director of Dean Witter Reynolds Inc.
Chairman and Director of Dean Witter Capital
Corporation. Chairman, Chief Executive
Officer, President and Director of Dean
Witter Alliance Capital Corporation. Director
of the National Healthcare Resources, Inc.,
Dean Witter Realty Inc., Dean Witter Reynolds
Venture Equities Inc., DW Window Covering
Holding, Inc., Morgan Stanley Dean Witter
Distributors Inc., Morgan Stanley Dean Witter
Trust FSB and a member of the Morgan Stanley
Dean Witter Management Committee. Trustee of
the TCW/DW Funds, Director of the Morgan
Stanley Dean Witter Funds and
Trustee/Director of other funds in the Fund
Complex. Prior to March 1999, Chairman, Chief
Executive Officer and President of Morgan
Stanley Dean Witter Distributors, Inc. Prior
to January 1999, Chairman of Dean Witter
Futures & Currency Management Inc. and
Demeter Management Corporation. Prior to
December 1998, President and Chief Operating
Officer of Morgan Stanley Dean Witter
Individual Asset Management. Formerly Vice
Chairman of the Board of the National
Association of Securities Dealers, Inc. and
Chairman of the Board of the Nasdaq Stock
Market, Inc.
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.
</TABLE>
B-10
<PAGE> 31
<TABLE>
<CAPTION>
Principal Occupations or
Name, Address and Age Employment in Past 5 Years
--------------------- --------------------------
<S> <C>
R. Craig Kennedy.......................... President and Director, German Marshall Fund
11 DuPont Circle, N.W. of the United States. Trustee/Director of
Washington, D.C. 20016 each of the funds in the Fund Complex.
Date of Birth: 02/29/52 Formerly, advisor to the Dennis Trading Group
Inc. Prior to 1992, President and Chief
Executive Officer, Director and Member of the
Investment Committee of the Joyce Foundation,
a private foundation.
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.
Don G. Powell*............................ Currently a member of the Board of Governors
2800 Post Oak Blvd. and Executive Committee for the Investment
Houston, TX 77056 Company Institute, and a member of the Board
Date of Birth: 10/19/39 of Trustees of the Houston Museum of Natural
Science. Trustee/ Director of certain
open-end investment companies in the Fund
Complex. Immediate past Chairman of the
Investment Company Institute. Prior to
January 1999, Chairman and Director of Van
Kampen Investments, the Advisers, the
Distributor, and Investor Services and
Director or officer of certain other
subsidiaries of Van Kampen Investments. Prior
to July 1998, Director and Chairman of VK/AC
Holding, Inc. (predecessor of Van Kampen
Investments). Prior to November 1996,
President, Chief Executive Officer and
Director of VK/AC Holding, Inc. (predecessor
of Van Kampen Investments).
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.
</TABLE>
B-11
<PAGE> 32
<TABLE>
<CAPTION>
Principal Occupations or
Name, Address and Age Employment in Past 5 Years
--------------------- --------------------------
<S> <C>
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 open-end and closed-end funds advised
by the Advisers or Van Kampen Management Inc.
Trustee/Director of each of the funds in the
Fund Complex, and Trustee/Managing General
Partner of other open-end and closed-end
funds advised by the Advisers or Van Kampen
Management Inc.
Suzanne H. Woolsey, Ph.D.................. 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 and
former Chairman of the German Marshall Fund
of the United States Trustee of Colorado
College, Vice Chair of the Board of the
Council for Excellence in Government.
Trustee/ Director of each of the funds in the
Fund Complex. Prior to 1993, Executive
Director of the Commission on Behavioral and
Social Sciences and Education at the National
Academy of Sciences/ National Research
Council. From 1980 through 1989, Partner of
Coopers & Lybrand.
Paul G. Yovovich.......................... Private investor. Director of 3Com
Sears Tower Corporation, which provides information
233 South Wacker Drive access products and network system solutions,
Suite 9700 COMARCO, Inc., a wireless communications
Chicago, IL 60606 products company and APAC Customer Services,
Date of Birth: 10/29/53 Inc., a provider of outsourced customer
contact services. Trustee/Director of each of
the funds in the Fund Complex. Prior to May
1996, President of Advance Ross Corporation,
an international transaction services and
pollution control equipment manufacturing
company.
</TABLE>
- ------------------------------------
* Such trustee is an "interested person" (within the meaning of Section 2(a)(19)
of the 1940 Act). Mr. Whalen is an interested person of the Fund by reason of
his firm currently acting as legal counsel to the Fund. Messrs. DeMartini and
Powell are interested persons of the Fund and the Advisers by reason of their
current or former positions with Morgan Stanley Dean Witter or its affiliates.
B-12
<PAGE> 33
OFFICERS
Messrs. Powers, McDonnell, Smith, Santo, Hegel, Sullivan, and Wood are
located at 1 Parkview Plaza, PO Box 5555, Oakbrook Terrace, IL 60181-5555. The
Fund's other officers are located at 2800 Post Oak Blvd., Houston, TX 77056.
<TABLE>
<CAPTION>
Name, Age, Positions and Principal Occupations
Offices with Fund During Past 5 Years
------------------------ ---------------------
<S> <C>
Richard F. Powers III................ Chairman, Director, President and Chief Executive
Date of Birth: 02/02/46 Officer of Van Kampen Investments. Chairman,
President Director and Chief Executive Officer of the
Advisers, the Distributor, Van Kampen Advisors
Inc. and Van Kampen Management Inc. Director and
officer of certain other subsidiaries of Van
Kampen Investments. President of each of the
funds in the Fund Complex. 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.
Dennis J. McDonnell.................. Executive Vice President and Director of Van
Date of Birth: 05/20/42 Kampen Investments. President, Chief Operating
Executive Vice President and Chief Officer and Director of the Advisers, Van Kampen
Investment Officer Advisors Inc., and Van Kampen Management Inc.
Executive Vice President and Chief Investment
Officer of each of the funds in the Fund Complex.
Chief Investment Officer, Executive Vice
President and Trustee/Managing General Partner of
other investment companies advised by the
Advisers or Van Kampen Management Inc. Prior to
July 1998, Director and Executive Vice President
of VK/AC Holding, Inc. (predecessor of Van Kampen
Investments). Prior to April 1998, President and
Director of Van Kampen Merritt Equity Advisors
Corp. Prior to April 1997, Mr. McDonnell was
Director of Van Kampen Merritt Equity Holdings
Corp. Prior to September 1996, Mr. McDonnell was
Chief Executive Officer and Director of MCM
Group, Inc. and McCarthy, Crisanti & Maffei, Inc.
a financial research firm, and Chairman and
Director of MCM Asia Pacific Company, Limited and
MCM (Europe) Limited.
</TABLE>
B-13
<PAGE> 34
<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, counsel to New York Life Insurance
Company ("New York Life"), and prior to March
1997, Vice President and Associate General
Counsel of New York Life. Prior to December 1993,
Assistant General Counsel of The Dreyfus
Corporation. Prior to August 1991, Senior
Associate, Willkie Farr & Gallagher. Prior to
January 1989, Mr. Smith was a Staff Attorney at
the Securities and Exchange Commission, Division
of Investment Management, Office of Chief
Counsel.
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. 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.
Peter W. Hegel....................... Executive Vice President of the Advisers, Van
Date of Birth: 06/25/56 Kampen Management Inc. and Van Kampen Advisors
Vice President Inc. Vice President of each of the funds in the
Fund Complex and certain other investment
companies advised by the Advisers or their
affiliates. Prior to September 1996, Director of
McCarthy, Crisanti & Maffei, Inc, a financial
research company.
</TABLE>
B-14
<PAGE> 35
<TABLE>
<CAPTION>
Name, Age, Positions and Principal Occupations
Offices with Fund During Past 5 Years
------------------------ ---------------------
<S> <C>
Stephen L. Boyd...................... Vice President and Chief Investment Officer for
Date of Birth: 11/16/40 equity investments at the Advisers. Vice
Vice President President of each of the funds in the Fund
Complex and certain other investment companies
advised by the Advisers or their affiliates.
Prior to October 1998, Vice President and Senior
Portfolio Manager with AIM Capital Management,
Inc. Prior to February 1998, Senior Vice
President of Van Kampen American Capital Asset
Management, Inc., Van Kampen American Capital
Investment Advisory Corp. and Van Kampen American
Capital Management, Inc.
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.
Curtis W. Morell..................... Senior Vice President of the Advisers, Vice
Date of Birth: 08/04/46 President and Chief Accounting Officer of each of
Vice President and Chief Accounting the funds in the Fund Complex and certain other
Officer investment companies advised by the Advisers or
their affiliates.
Edward C. Wood III................... Senior Vice President of the Advisers, Van Kampen
Date of Birth: 01/11/56 Investments and Van Kampen Management Inc. Senior
Vice President Vice President and Chief Operating Officer of the
Distributor. Vice President of each of the funds
in the Fund Complex and certain other investment
companies advised by the Advisers or their
affiliates.
Tanya M. Loden....................... Vice President of Van Kampen Investments and the
Date of Birth: 11/19/59 Advisers. Controller of each of the funds in the
Controller Fund Complex and other investment companies
advised by the Advisers or their affiliates.
</TABLE>
Each trustee/director who is not an affiliated person of Van Kampen
Investments, the Advisers or the Distributor (each a "Non-Affiliated Trustee")
holds the same position with each of the funds in the Fund Complex. Messrs.
DeMartini and Powell hold the same position with each of the Funds in the Fund
Complex except for the Van Kampen Technology Fund and Van Kampen Emerging Growth
Fund. As of the date of this Statement of Additional Information, there are 64
operating funds in the Fund Complex. Each Non-Affiliated Trustee is compensated
by an annual retainer and meeting fees for services to the funds in the Fund
Complex. Each fund in the Fund Complex 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 compensa-
B-15
<PAGE> 36
tion 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 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.
B-16
<PAGE> 37
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 Trust(2) Expenses(3) Retirement(4) Complex(5)
------- ------------ ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
J. Miles Branagan 1995 $1,252 $35,691 $60,000 $125,200
Jerry D. Choate(1) 1999 213 0 60,000 0
Linda Hutton Heagy 1995 1,252 3,861 60,000 112,800
R. Craig Kennedy 1993 1,252 2,652 60,000 125,200
Jack E. Nelson 1986 1,252 18,385 60,000 125,200
Phillip B. Rooney 1997 1,052 6,002 60,000 125,200
Fernando Sisto 1995 1,252 68,615 60,000 125,200
Wayne W. Whalen 1986 1,252 12,658 60,000 125,200
Suzanne H. Woolsey(1) 1999 213 0 60,000 0
Paul G. Yovovich(1) 1998 840 0 60,000 25,300
</TABLE>
- ------------------------------------
(1) Trustees not eligible for compensation are not included in the Compensation
Table. Mr. Yovovich became a member of the Board of Trustees for the Fund
and other funds in the Fund Complex on October 22, 1998 and therefore does
not have a full year of information to report. Mr. Choate and Ms. Woolsey
became members of the Board of Trustees for the Fund and other funds in the
Fund Complex on May 26, 1999 and therefore do not have a full year
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 June 30, 1999. The
following trustees deferred compensation from the Fund during the fiscal
year ended June 30, 1999: Mr. Branagan, $1,252; Ms. Heagy, $1,252; Mr.
Kennedy, $626; Mr. Nelson, $1,252; Mr. Rooney, $1,052; Mr. Sisto, $626; Mr.
Whalen, $1,252 and Mr. Yovovich, $626. Amounts deferred are retained by the
Fund and earn a rate of return determined by reference to either the return
on the shares of the Fund or other funds in the Fund Complex as selected by
the respective Non-Affiliated Trustee, with the same economic effect as if
such Non-Affiliated Trustee had invested in one or more funds in the Fund
Complex. To the extent permitted by the 1940 Act, each fund may invest in
securities of those funds selected by the Non-Affiliated Trustees in order
to match the deferred compensation obligation. The cumulative deferred
compensation (including interest) accrued with respect to each trustee,
including former trustees, from the Fund as of the Fund's fiscal year ended
June 30, 1999 is as follows: Mr. Branagan, $8,031; Mr. Caruso, $13,502; Mr.
Gaughan, $1,841; Ms. Heagy, $9,923; Mr. Kennedy, $16,951; Mr. Miller,
$10,625; Mr. Nelson, $23,801; Mr. Rooney, $4,170; Mr. Sisto, $2,898; Mr.
Whalen, $19,567; and Mr. Yovovich, $671. The deferred compensation plan is
described above the Compensation Table.
B-17
<PAGE> 38
(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
1998. 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 funds in the Fund Complex as of December 31, 1998 before deferral by
the trustees under the deferred compensation plan. Because the funds in the
Fund Complex have different fiscal year ends, the amounts shown in this
column are presented on a calendar year basis. Certain trustees deferred all
or a portion of their aggregate compensation from the Fund Complex during
the calendar year ended December 31, 1998. The deferred compensation earns a
rate of return determined by reference to the return on the shares of the
funds in the Fund Complex as selected by the respective Non-Affiliated
Trustee, with the same economic effect as if such Non-Affiliated Trustee had
invested in one or more funds in the Fund Complex. To the extent permitted
by the 1940 Act, the Fund may invest in securities of those investment
companies selected by the Non-Affiliated Trustees in order to match the
deferred compensation obligation. 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 $285,825 during the calendar year
ended December 31, 1998.
As of October 11, 1999, the trustees and officers of the Fund as a group
owned less than 1% of the shares of the Fund.
INVESTMENT ADVISORY AGREEMENT
The Fund and the Adviser are parties to an investment advisory agreement
(the "Advisory Agreement"). Under the Advisory Agreement, the Fund retains the
Adviser to manage the investment of the Fund's assets, including the placing of
orders for the purchase and sale of portfolio securities. The Adviser obtains
and evaluates economic, statistical and financial information to formulate and
implement the Fund's investment objectives. The Adviser also furnishes offices,
necessary facilities and equipment, provides administrative services, and
permits its officers and employees to serve without compensation as trustees of
the Trust or officers of the Fund if elected to such positions. The Fund pays
all charges and expenses of its day-to-day operations, including the
compensation of trustees of the Trust (other than those who are affiliated
persons of the Adviser, Distributor or Van Kampen Investments), the charges and
expenses of legal counsel and independent accountants, distribution fees,
service fees, custodian fees, the costs of providing reports to shareholders,
and all other ordinary business expenses not specifically assumed by the
Adviser. The Advisory Agreement also provides that the Adviser shall not be
liable to the Fund for any actions or omissions if it acted without willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations.
B-18
<PAGE> 39
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: 0.500% on the first $500 million of average daily
net assets; 0.475% on the next $500 million of average daily net assets; 0.425%
on the next $500 million of average daily net assets; and 0.375% on the average
daily net assets over $1.5 billion.
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 Advisory Agreement also provides that, in the event the 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.
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 June 30, 1999, 1998 and 1997, the Adviser
received no advisory fees from the Fund after fee waivers.
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, which include, maintaining the books and records of the Fund,
calculating the Fund's net asset value and coordinating tax compliance and other
regulatory issues. 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 the remaining 75% of such costs based proportionally on their
respective net assets per fund.
During the fiscal years ended June 30, 1999, 1998 and 1997, Advisory Corp.
received approximately $26,500, $20,200 and $1,800, respectively, in accounting
service fees from the Fund.
Legal Services Agreement. The Fund and certain of the other Van Kampen
funds advised by the Adviser or it affiliates and distributed by the Distributor
have entered into legal services agreements pursuant to which Van Kampen
Investments provides legal services, including without limitation: accurate
maintenance of the Fund's minute books
B-19
<PAGE> 40
and records, preparation and oversight of the Fund's regulatory reports, and
other information provided to shareholders, as well as responding to day-to-day
legal issues on behalf of the funds. Payment by the Fund for such services is
made on a cost basis for the salary and salary related benefits, including but
not limited to bonuses, group insurance and other regular wages for the
employment of personnel, as well as overhead and the expenses related to the
office space and the equipment necessary to render the legal services. Other
funds distributed by the Distributor also receive legal services from Van Kampen
Investments. Of the total costs for legal services provided to funds distributed
by the Distributor, one half of such costs are allocated equally to each fund
and the remaining one half of such costs are allocated to specific funds based
on monthly time records.
During the fiscal years ended June 30, 1999, 1998 and 1997, Van Kampen
Investments received approximately $7,600, $7,200 and $8,100, respectively, in
legal service 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.
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 combination of its sales of shares and increases in assets under
management. All of the foregoing payments are made by the Distributor out of its
own assets. Such fees paid for such services and activities with respect to the
Fund will not exceed in the aggregate 1.25% of the average total daily net
assets of the Fund on an annual basis. These programs will not change the price
an investor will pay for shares or the amount that a Fund will receive from such
sale.
B-20
<PAGE> 41
Banks are currently prohibited under the Glass-Steagall Act from providing
certain underwriting or distribution services. If banking firms were prohibited
from acting in any capacity or providing any of the described services, the
Distributor would consider what action, if any, would be appropriate. The
Distributor does not believe that termination of a relationship with a bank
would result in any material adverse consequences to the Fund. State securities
laws regarding registration of banks and other financial institutions may differ
from the interpretations of federal law expressed herein, and banks and other
financial institutions may be required to register as dealers pursuant to
certain state laws.
The Fund has adopted a distribution plan (the "Distribution Plan") pursuant
to Rule 12b-1 under the 1940 Act. The Fund also has adopted a service plan (the
"Service Plan"). 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 in connection with distribution
of the shares and in connection with the provision of ongoing services to
shareholders. The Distribution Plan and the Service Plan are being implemented
through the Distribution and Service Agreement with the Distributor 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."
The Distributor must submit quarterly reports to the Board of Trustees of
the Trust, of which the Fund is a series, setting forth 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 without approval by a vote of a
majority of the outstanding voting shares 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 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.
The Plans generally provide for the Fund to reimburse the lesser of (i) the
distribution and service fees at the rates specified in the Prospectus or (ii)
the amount of the Distributor's actual expenses incurred. To the extent the
Distributor is not fully reimbursed in a given year, there is no carryover of
such unreimbursed amounts to succeeding years. For the fiscal year ended June
30, 1999, the Fund's aggregate expenses paid under the Plans were $85,344 or
0.25% of the Fund's average daily net assets.
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<PAGE> 42
TRANSFER AGENT
The Fund's transfer agent, shareholder service agent and divided 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.
As most transactions made by the Fund are principal transactions at net
prices, the Fund generally incurs little or no brokerage costs. The portfolio
securities in which the Fund invests are normally purchased directly from the
issuer or in the over-the counter market from an underwriter or market maker for
the securities. Purchases from underwriters of portfolio securities include a
commission or concession paid by the issuer to the underwriter and purchases
from dealers serving as market makers include a spread or markup to the dealer
between the bid and asked price. Sales to dealers are effected at bid prices.
The Fund may also purchase certain of its money market instruments directly from
an issuer, in which case no commissions or discounts are paid, or may purchase
and sell listed securities on an exchange, which are effected through brokers
who charge a commission for their shares.
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)
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and the performance of
accounts; and (c) effecting securities
B-22
<PAGE> 43
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.
During the past three years, the Fund paid no commissions to brokers on the
purchase or sale of portfolio securities.
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
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<PAGE> 44
or redemptions. Additions to an investment account may be made at any time by
wire transfer or by purchasing shares through authorized dealers or by mailing a
check directly to Investor Services.
SHARE CERTIFICATES
Generally, the Fund will not issue share certificates. However, upon
written or telephone request to the Fund, a share certificate will be issued
representing shares (with the exception of fractional shares) of the Fund. A
shareholder will be required to surrender such certificates upon an exchange or
redemption thereof. 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 a fee for replacing the lost
certificate equal to no more than 2.00% of the net asset value of the issued
shares, and bill the party to whom the replacement certificate was mailed.
RETIREMENT PLANS
Eligible investors may establish individual retirement accounts ("IRAs");
SEP; 401(k) plans; Section 403(b)(7) plans in the case of employees of public
school systems and certain non-profit organizations; or other pension or profit
sharing plans. Documents and forms containing detailed information regarding
these plans are available from the Distributor. Van Kampen Trust Company serves
as custodian under the IRA, 403(b)(7) and Keogh plans. Details regarding fees,
as well as full plan administration for profit sharing, pension and 401(k)
plans, are available from the Distributor.
AUTOMATED CLEARING HOUSE("ACH") DEPOSITS
Holders of shares can use ACH to have redemption proceeds deposited
electronically into their bank accounts. Redemptions transferred to a bank
account via the ACH plan are available to be credited to the account on the
second business day following normal payment. In order to utilize this option,
the shareholder's bank must be a member of ACH. In addition, the shareholder
must fill out the appropriate section of the account application. The
shareholder must also include a voided check or deposit slip from the bank
account into which redemptions are to be deposited together with the completed
application. Once Investor Services has received the application and the voided
check or deposit slip, such shareholder's designated bank account, following any
redemption, will be credited with the proceeds of such redemption. Once enrolled
in the ACH plan, a shareholder may terminate participation at any time by
writing Investor Services.
DIVIDEND DIVERSIFICATION
A shareholder may, upon written request or by completing the appropriate
section of the application form accompanying the Prospectus or by calling (800)
341-2911 ((800) 421-2833 for the hearing impaired), elect to have all dividends
and other capital gain dividends paid on shares of the Fund invested into shares
of any Participating Fund or the Van Kampen Reserve Fund so long as the investor
has a pre-existing account for such shares of the other fund. Both accounts must
be of the same type, either non-retirement or
B-24
<PAGE> 45
retirement. If the accounts are retirement accounts, they must both be for 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.
SYSTEMATIC WITHDRAWAL PLAN
Any investor whose shares in a single account total $10,000 or more at the
next determined net asset value per share after receipt of instructions may
establish a monthly, quarterly, semiannual or annual withdrawal plan. Any
investor whose shares in a single account total $5,000 or more at the next
determined net asset value per share after receipt of instructions may establish
a quarterly, semiannual or annual withdrawal plan. This plan provides for the
orderly use of the entire account, not only the income but also the capital, if
necessary. Each withdrawal constitutes a redemption of shares on which any
capital gain or loss will be recognized. The planholder may arrange for monthly,
quarterly, 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.
See "Shareholder Services--Retirement Plans."
Under the plan, sufficient shares of the Fund are redeemed to provide the
amount of the periodic withdrawal payment. Dividends and capital gain dividends
on shares held under the plans are reinvested in additional shares at the next
determined net asset value per share. If periodic withdrawals continuously
exceed reinvested dividends and capital gain dividends, the shareholder's
original investment will be correspondingly reduced and ultimately exhausted.
Withdrawals made concurrently with the purchase of additional shares ordinarily
will be disadvantageous to the shareholder because of the duplication of sales
charges. Any gain or loss realized by the shareholder upon redemption of shares
is a taxable event. The Fund reserves the right to amend or terminate the
systematic withdrawal program upon 30 days' notice to its shareholders.
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.
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<PAGE> 46
NET ASSET VALUE
Calculations are made to compare the amortized cost basis of the portfolio
with current market rates at such intervals as the Fund or the Trustees deem
appropriate, to determine the extent, if any, to which the net asset value per
share calculated by using available market quotations deviates from $1.00 per
share based on amortized cost. Market valuations are obtained using market
quotations provided by market makers, estimates of market values or values
obtained from published yield data of money market instruments. In the event
such deviation should exceed 1/2 of one percent, the Trustees are required to
promptly consider what action, if any, should be initiated. If the Trustees
believe that the extent of any deviation from a $1.00 amortized cost price per
share may result in material dilution or other unfair results to new or existing
shareholders, it will take such steps as it considers appropriate to eliminate
or reduce these consequences to the extent reasonably practicable. Such steps
may include selling Fund securities prior to maturity; shortening the average
maturity of the Fund; withholding or reducing dividends; or utilizing a net
asset value per share determined by using available market quotations.
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 tax-exempt interest, 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 distributed to shareholders. The Fund intends to distribute at
least the minimum amount of net investment income necessary to satisfy the 90%
distribution requirement. The Fund will not be subject to federal income tax on
any net capital 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 (not including tax-exempt 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
B-26
<PAGE> 47
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.
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.
DISTRIBUTIONS TO SHAREHOLDERS
The Fund intends to invest in sufficient tax-exempt municipal securities to
permit payment of "exempt-interest dividends" (as defined in the Code).
Dividends paid by the Fund from the net tax-exempt interest earned from
municipal securities qualify as exempt-interest dividends if, at the close of
each quarter of its taxable year, at least 50% of the value of the total assets
of the Fund consists of such securities.
Certain limitations on the use and investment of the proceeds of state and
local government bonds and other funds must be satisfied in order to maintain
the exclusion from gross income for interest on such bonds. These limitations
generally apply to bonds issued after August 15, 1986. In light of these
requirements, bond counsel qualify their opinions as to the federal tax status
of bonds issued after August 15, 1986 by making them contingent on the issuer's
future compliance with these limitations. Any failure on the part of an issuer
to comply could cause the interest on its bonds to become taxable to investors
retroactive to the date the bonds were issued.
Except as provided below, exempt-interest dividends paid to shareholders
generally are not includable in the shareholders' gross income for federal
income tax purposes. The percentage of the total dividends paid by the Fund
during any taxable year that qualify as exempt-interest dividends will be the
same for all shareholders of the Fund receiving dividends during the year.
Interest on certain "private-activity bonds" is an item of tax preference
subject to the alternative minimum tax on individuals and corporations. The Fund
invests a portion of its assets in municipal securities subject to this
provision so that a portion of its exempt-interest dividends is an item of tax
preference to the extent such dividends represent interest received from these
private-activity bonds. Accordingly, investment in the Fund could cause
shareholders to be subject to (or result in an increased liability under) the
alternative minimum tax. Per capita volume limitations on certain
private-activity bonds could limit the amount of such bonds available for
investment by the Fund.
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<PAGE> 48
Exempt-interest dividends are included 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.
Although exempt-interest dividends generally may be treated by Fund
shareholders as items of interest excluded from their gross income, each
shareholder is advised to consult his tax adviser with respect to whether
exempt-interest dividends retain this exclusion if the shareholder would be
treated as a "substantial user" (or a "related person" of a substantial user) of
the facilities financed with respect to any of the tax-exempt obligations held
by the Fund. "Substantial user" is defined under U.S. Treasury Regulations to
include a non-exempt person who regularly uses in his trade or business a part
of any facilities financed with the tax-exempt obligations and whose gross
revenues derived from such facilities exceed 5% of the total revenues derived
from the facilities by all users, or who occupies more than 5% of the useable
area of the facilities or for whom the facilities or a part thereof were
specifically constructed, reconstructed or acquired. Examples of "related
persons" include certain related natural persons, affiliated corporations, a
partnership and its partners and an S corporation and its shareholders.
While the Fund expects that a major portion of its net investment income
will constitute tax-exempt interest, a significant portion may consist of
investment company taxable income. 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 ("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. Interest on indebtedness which is incurred to purchase or carry shares of
a mutual fund which distributes exempt interest dividends during the year is not
deductible for federal income tax purposes. 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. The aggregate
amount of dividends designated as exempt-interest dividends cannot exceed the
excess of the amount of interest exempt from tax under Section 103 of the Code
received by the Fund during the year over any amounts disallowed as deductions
under Sections 265 and 171(a)(2) of the Code. Since the percentage of dividends
which are exempt-interest dividends is determined on an average annual method
for the taxable year, the percentage of income designated as tax-exempt for any
particular dividend may be substantially different from the percentage of the
Fund's income that was tax exempt during the period covered by the dividend.
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<PAGE> 49
Distributions from the Fund generally will not be eligible for the dividends
received deduction for corporations.
Although dividends generally will be treated as distributed when paid,
dividends declared in October, November or December, payable to shareholders of
record on a specified date in such month and paid during January of the
following year will be treated as having been distributed by the Fund and
received by the shareholders on the 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.
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 disallowed to the extent of any exempt-interest dividends
received with respect to such shares and 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-
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<PAGE> 50
U.S. Shareholder") generally will be subject to withholding of United States
federal income tax at a 30% rate (or lower applicable treaty rate) on dividends
from the Fund (other than capital gain dividends) that are not "effectively
connected" with a United States trade or business carried on by such
shareholder. Accordingly, investment in the Fund is likely to be appropriate for
a Non-U.S. Shareholder only if such person can utilize a foreign tax credit or
corresponding tax benefit in respect of such United States withholding tax.
Non-effectively connected capital gain dividends and gains realized from
the sale of shares will not be subject to United States federal income tax in
the case of (i) a Non-U.S. Shareholder that is a corporation and (ii) a Non-U.S.
Shareholder that is not present in the United States for more than 182 days
during the taxable year (assuming that certain other conditions are met).
However, certain Non-U.S. Shareholders may nonetheless be subject to backup
withholding on capital gain dividends and gross proceeds paid to them upon the
sale of their shares. See "Backup Withholding" below.
If income from the Fund or gains realized from the sale of shares is
effectively connected with a Non-U.S. Shareholder's United States trade or
business, then such amounts will be subject to United States federal income tax
on a net basis at the tax rates applicable to United States citizens or domestic
corporations. Non-U.S. Shareholders that are corporations may also be subject to
an additional "branch profits tax" with respect to income from the Fund that is
effectively connected with a United States trade or business.
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 backup 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
B-30
<PAGE> 51
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 shareholder the amount
of dividends paid to such shareholder and the amount, if any, of tax withheld
with respect to such dividends. In the case of a Non-U.S. shareholder, this
information may also be made available to the tax authorities in such Non-U.S.
Shareholder's country of residence.
GENERAL
The federal income tax discussion set forth above is for general
information only. Prospective investors should consult their advisors regarding
the specific federal tax consequences of purchasing, holding and disposing of
shares, as well as the effects of state, local and foreign tax law and any
proposed tax law changes.
YIELD INFORMATION
From time to time the Fund may advertise its "yield" and "effective yield."
Both yield figures are based on historical earnings and are not intended to
indicate future performance. The "yield" of the Fund refers to the income
generated by an investment in the Fund over a seven-day period (which period
will be stated in the advertisement). This income is then "annualized." That is,
the amount of income generated by the investment during that week is assumed to
be generated each week over a 52-week period and is shown as a percentage of the
investment. The "effective yield" is calculated similarly but, when annualized,
the income earned by an investment in the Fund is assumed to be reinvested. The
"effective yield" will be slightly higher than the "yield" because of the
compounding effect of this assumed reinvestment.
The yield of the Fund is its net income expressed in annualized terms. The
SEC requires by rule that a yield quotation set forth in an advertisement for a
"money market" fund be computed by a standardized method based on a historical
seven-calendar-day period. The standardized yield is computed by determining the
net change (exclusive of realized gains and losses and unrealized appreciation
and depreciation) in the value of a hypothetical pre-existing account having a
balance of one share at the beginning of the period, dividing the net change in
account value by the value of the account at the beginning of the base period to
obtain the base period return, and multiplying the base period return by 365/7.
The determination of net change in account value reflects the value of
additional shares purchased with dividends from the original share, dividends
declared on both the original share and such additional shares, and all fees
that are charged to all shareholder accounts, in proportion to the length of the
base period and the Fund's average account size. The Fund may also calculate its
effective yield by compounding the unannualized base period return (calculated
as described above) by adding 1 to the base period return, raising the sum to a
power equal to 365 divided by 7, and subtracting one.
The yield and effective yield quoted at any time represent the amounts
being earned on a current basis for the indicated period and are a function of
the types of instruments held in the Fund's portfolio, their quality and length
of maturity, and the Fund's operating
B-31
<PAGE> 52
expenses. The length of maturity for the Fund is the average dollar-weighted
maturity of the Fund. This means that the Fund has an average maturity of a
stated number of days for all of its issues. The calculation is weighted by the
relative value of the investment.
The yield and effective yield fluctuate daily as the income earned on the
investments of the Fund fluctuates. Accordingly, there is no assurance that the
yield and effective yield quoted on any given occasion will remain in effect for
any period of time. It should also be emphasized that there is no guarantee that
the net asset value will remain constant. A shareholder's investment in the Fund
is not insured. Investors comparing results of the Fund with investment results
and yields from other sources such as banks or savings and loan associations
should understand this distinction.
Other funds of the money market type as well as banks and savings and loan
associations may calculate their yield on a different basis, and the yield
quoted by the Fund could vary upwards or downwards if another method of
calculation or base period were used.
Additionally, since yield and effective yield fluctuate, yield data cannot
necessarily be used to compare an investment in the Fund's shares with bank
deposits, savings accounts and similar investment alternatives which often
provide an agreed or guaranteed fixed yield for a stated period of time.
Shareholders should remember that yield and effective yield are generally a
function of the types of instruments held in a fund's portfolio, their quality,
and length of maturity, such Fund's operating expenses and market conditions.
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 five sector holdings and ten largest holdings. Materials
may also mention how the Distributor believes the Fund compares relative to
other Van Kampen funds. 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 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 include the yield quotation as of a
current period. Such yield information 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
B-32
<PAGE> 53
comparing taxable investments to investments made through tax-deferred
retirement plans; (2) illustrate in graph or chart form, or otherwise, the
benefits of dollar-cost averaging by comparing investments made pursuant to a
systematic investment plan to investments made in a rising market; (3)
illustrate allocations among different types of mutual funds for investors at
different stages of their lives; and (4) in reports or other communications to
shareholders or in advertising material, illustrate the benefits of compounding
at various assumed yields.
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.
OTHER INFORMATION
CUSTODY OF ASSETS
All securities owned by the Fund and all cash, including proceeds from the
sale of shares of the Fund and of securities in the Fund's investment portfolio,
are held by State Street Bank and Trust Company, 225 West Franklin Street,
Boston, Massachusetts 02110, as Custodian.
SHAREHOLDER REPORTS
Semiannual statements are furnished to shareholders, and annually such
statements are audited by the independent accountants.
INDEPENDENT ACCOUNTANTS
KPMG LLP, 303 East Wacker Drive, Chicago, Illinois 60601, the independent
accountants for the Fund, performs an annual audit of the Fund's financial
statements.
LEGAL COUNSEL
Counsel to the Fund is Skadden, Arps, Slate, Meagher & Flom (Illinois).
DESCRIPTION OF SECURITIES RATINGS
Below is a description of the two highest rating categories for short-term
debt obligations and long-term debt obligations by the "nationally recognized
statistical rating organizations." The ratings descriptions are based on
information supplied by the ratings organizations to subscribers.
SHORT-TERM DEBT RATINGS
MOODY'S INVESTORS SERVICE, INC. ("Moody's"): The following rating
designations for commercial paper (defined by Moody's as promissory obligations
not having original
B-33
<PAGE> 54
maturity in excess of nine months), are judged by Moody's to be investment
grade, and indicate the relative repayment capacity of rated issuers:
<TABLE>
<S> <C>
PRIME-1: Superior capacity for repayment. Capacity will normally
be evidenced by the following characteristics: (a)
leveling market positions in well-established industries;
(b) high rates of return on funds employed; (c)
conservative capitalization structures with moderate
reliance on debt and ample asset protection; (d) broad
margins in earning coverage of fixed financial charges
and high internal cash generation; and (e) well
established access to a range of financial markets and
assured sources of alternate liquidity.
PRIME-2: Strong capacity for repayment. This will normally be
evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios,
while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample
alternate liquidity is maintained.
</TABLE>
The following rating designations for state and municipal notes, are judged
by Moody's to be investment grade, and indicate the relative repayment capacity
of rated issuers:
<TABLE>
<S> <C>
MIG-1/
VMIG-1: Notes rated MIG-1/VMIG-1 are of the best quality. There
is present strong protection by established cash flows,
superior liquidity support or broad-based access to the
market for refinancing.
MIG-2/
VMIG-2: Notes which are rated MIG-2/VMIG-2 are of high quality.
Margins of protection are ample though not so large as in
the preceding group.
</TABLE>
STANDARD & POOR'S ("S&P"): The following ratings by S&P for commercial
paper (defined by S&P as debt having an original maturity of no more than 365
days) assess the likelihood of payment:
<TABLE>
<C> <S>
A-1: Strong capacity for timely payment. Those issues
determined to possess extremely strong safety
characteristics are denoted with a plus sign (+)
designation.
A-2: Satisfactory capacity for timely payment. However, the
relative degree of safety is not as high as for issues
designated "A-1."
</TABLE>
The following ratings by S&P for state and municipal notes assess the
likelihood of payment:
<TABLE>
<C> <S>
SP-1: Notes which are rated SP-1 have a very strong capacity to
pay principal and interest. Those issues determined to
possess overwhelming safety characteristics will be give
a plus (+) designation.
SP-2: Notes which are rated SP-2 have a satisfactory capacity
to pay principal and interest.
</TABLE>
B-34
<PAGE> 55
IBCA FITCH ("Fitch"): Fitch assigns the following short-term ratings to
debt obligations that are payable on demand or have original maturities of
generally up to three years, including commercial paper, certificates of
deposit, medium-term notes, and municipal and investment notes:
<TABLE>
<C> <S>
F-1+: Exceptionally strong credit quality; the strongest degree
of assurance for timely payment.
F-1: Very strong credit quality; assurance of timely payment
is only slightly less in degree than issues rated "F-1+."
F-2: Good credit quality; satisfactory degree of assurance for
timely payment, but the margin of safety is not as great
as for issues assigned "F-1+" or "F-1" ratings.
</TABLE>
DUFF & PHELPS, INC. ("Duff & Phelps"): The following ratings are for
commercial paper (defined by Duff & Phelps as obligations with maturities, when
issued, of under one year), asset-backed commercial paper, and certificates of
deposit (the ratings cover all obligations of the institution with maturities,
when issued, of under one year, including bankers' acceptance and letters of
credit):
<TABLE>
<C> <S>
D-1+: Highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or
access to alternative sources of funds, is outstanding,
and safety is just below risk-free U.S. Treasury
short-term obligations.
D-1: Very high certainty of timely payment. Liquidity factors
are excellent and supported by good fundamental
protection factors. Risk factors are minor.
D-1-: High certainty of timely payment. Liquidity factors are
strong and supported by good fundamental protection
factors. Risk factors are very small.
D-2: Good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to
capital markets is good. Risk factors are small.
</TABLE>
LONG-TERM DEBT RATINGS
These ratings are relevant for securities purchased by the Fund with a
remaining maturity of 397 days or less, or for rating issuers of short-term
obligations. Bonds (including municipal bonds) are rated as follows:
MOODY'S INVESTORS SERVICE, INC.:
<TABLE>
<C> <S>
AAA: Judged to be the best quality. They carry the smallest
degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a
large or by an exceptionally stable margin, and principal
is secure. While the various protective elements are
likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong
positions of such issues.
</TABLE>
B-35
<PAGE> 56
<TABLE>
<C> <S>
AA: Judged to be of high quality by all standards. Together
with "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large
as in "Aaa" securities or fluctuations of protective
elements may be of greater amplitude or there may be
other elements present which make the long-term risks
appear somewhat larger than in "Aaa" securities.
</TABLE>
Moody's applies numerical modifiers "1", "2" and "3" in its "Aa" rating
classification. The modifier "1" indicates that the security ranks in the higher
end of its generic rating category; the modifier "2" indicates a mid-range
ranking; and the modifier "3" indicates that the issue ranks in the lower end of
its generic rating category.
STANDARD & POOR'S:
<TABLE>
<C> <S>
AAA: The highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: A strong capacity to pay interest and repay principal and
differ from "AAA" rated issues only in small degree.
</TABLE>
IBCA FITCH:
<TABLE>
<C> <S>
AAA: Bonds rated AAA by Fitch are considered to be investment
grade and of the highest credit quality. The obligor has
an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably
foreseeable events.
AA: Bonds rated AA by Fitch are considered to be investment
grade and of very high credit quality. The obligor's
ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA.
Because bonds rated in the AAA and AA categories are not
significantly vulnerable to foreseeable future
developments, short-term debt of these issues is generally
rate F-1+ by Fitch.
</TABLE>
Plus and minus signs are used by Fitch to indicate the relative position of
a
credit within a rating category. Plus and minus signs, however, are not used in
the AAA category.
DUFF & PHELPS:
<TABLE>
<C> <S>
AAA: The highest credit quality. The risk factors are
negligible, being only slightly more than for risk-free
U.S. Treasury debt.
AA: High credit quality. Protection factors are strong. Risk
is modest but may vary slightly from time to time because
of economic conditions. Plus (+) and minus (-) signs are
used in the "AA" category to indicate the relative
position of a credit within that category.
</TABLE>
B-36
<PAGE> 57
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of
Van Kampen Tax Free Money Fund:
We have audited the accompanying statement of assets and liabilities of Van
Kampen Tax Free Money Fund (the "Fund"), including the portfolio of investments,
as of June 30, 1999, and the related statement of operations for the year then
ended, the statement of changes in net assets for the two years in the period
then ended, and the financial highlights for each of the periods presented.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1999, by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen Tax Free Money Fund as of June 30, 1999, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and the financial highlights for each of the periods
presented, in conformity with generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
August 5, 1999
F-1
<PAGE> 58
PORTFOLIO OF INVESTMENTS
June 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Discount
Par Yield on
Amount Maturity Date of Amortized
(000) Description Date Purchase Cost
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS
DATES 11.2%
$ 300 Brazos River Auth TX Utils Elec Co Proj
Ser 1996 B (AMBAC Insd)................ 07/01/99 3.650% $ 300,000
1,550 New York City Muni Wtr Fin Auth Wtr Swr
Sys Ser 1995 A (FGIC Insd)............. 07/01/99 3.550 1,550,000
1,200 New York City Ser B (FGIC Insd)........ 07/01/99 4.000 1,200,000
200 Perry Cnty, MS Pollutn Ctl Rev Ser 1992
Rfdg (LOC: Wachovia Bank).............. 07/01/99 3.400 200,000
500 Sullivan Cnty, TN Indl Dev Brd Pollutn
Ctrl Rev (LOC: Union Bank of
Switzerland)........................... 07/01/99 3.800 500,000
-----------
TOTAL DATES.................................................. 3,750,000
-----------
7 DAY FLOATERS 48.6%
600 Calhoun Cnty, MI Econ Dev Corp Rev
(LOC: Comerica Bank)................... 07/01/99 3.550 600,000
1,235 City of Sterling Heights, MI Econ Dev
Corp Rev Rfdg (LOC: First Chicago/NBD
Corp).................................. 07/01/99 3.650 1,235,000
1,500 Floyd Cnty, GA Dev Auth Rev Berry
College Inc Proj (LOC: Suntrust
Bank).................................. 07/07/99 3.750 1,500,000
1,110 Fort Bend Cnty, TX Indl Dev Corp Indl
Dev Rev W.W. Grainger Proj Rfdg (LOC:
The Northern Trust Company)............ 07/07/99 3.600 1,110,000
1,400 Georgia Muni Gas Auth Gas Rev Adj Agy
Proj Ser C (LOC: Morgan Guaranty)...... 07/07/99 3.500 1,400,000
1,500 Illinois Dev Fin Auth Rev American
Osteopathic Associates (LOC: Harris
Trust & Savings Bank).................. 07/01/99 3.200 1,500,000
1,000 Illinois Dev Fin Auth Rev Roosevelt
Univ Ser 1995 (LOC: Amer Nat'l Bank &
Trust of Chicago)...................... 07/07/99 3.550 1,000,000
1,500 Iowa Fin Auth Rev Burlington Med Cent
(FSA Insd)............................. 07/01/99 3.050 1,500,000
1,000 Montgomery Cnty, MD Hsg Oppntys Comm
Hsg Rev (LOC: Keybank N.A.)............ 07/07/99 3.400 1,000,000
1,300 Quad Cities, IL Reg Econ Dev Auth
Seaberg Indl Inc Proj (LOC: Norwest
Bank).................................. 07/01/99 3.750 1,300,000
</TABLE>
See Notes to Financial Statements
F-2
<PAGE> 59
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Discount
Par Yield on
Amount Maturity Date of Amortized
(000) Description Date Purchase Cost
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
7 DAY FLOATERS (CONTINUED)
$1,150 Virginia Small Business Fin Auth Rev
Indl Dev Coral Graphic (LOC: Chemical
Bank).................................. 07/01/99 3.850% $ 1,150,000
1,500 Washington St Hsg Fin Comm Multi-Family
Mtg Rev Rfdg (LOC: Harris Trust &
Savings Bank).......................... 07/06/99 3.550 1,500,000
500 Wisconsin St Hlth Fac Auth Rev
Franciscan Hlthcare A-1 (LOC: Toronto
Dominion).............................. 07/07/99 3.300 500,000
1,000 Wisconsin St Hlth Fac Auth Rev
Franciscan Hlthcare A-2 (LOC: Toronto
Dominion).............................. 07/07/99 3.300 1,000,000
-----------
TOTAL 7 DAY FLOATERS 48.6%.................................. 16,295,000
-----------
BONDS/NOTES 39.8%
720 Clark Cnty, NV Indl Dev Rev Southwest
Gas Corp Proj Ser A (AMBAC Insd)....... 11/01/99 3.600 720,000
425 Clark Cnty, NV Regl Tran Comm Medium
Term Bonds (AMBAC Insd)................ 07/01/99 4.250 425,000
300 DuPage Cnty, IL Forest Presv Dist Ser A
Rfdg................................... 11/01/99 5.000 301,775
1,000 Greater TX Student Ln Corp Ser 1996 A
Rfdg (Gtd: Student Ln Marketing
Assn).................................. 03/01/00 3.700 1,000,000
1,500 Hawaii St Arpt Sys Rev Rfdg Ser 1993
(MBIA Insd)............................ 07/01/99 5.400 1,500,000
1,000 Intermountain Pwr Agy UT Pwr Supply Rev
Ser A (b).............................. 07/01/99 7.200 1,020,094
250 King Cnty, WA Ser D.................... 12/01/99 4.600 251,116
650 Laredo, TX Intl Toll Brdg Rev Ser A
(MBIA Insd)............................ 10/01/99 3.500 650,000
1,000 Maine St Genl Purp..................... 07/01/99 6.100 1,000,000
800 Milwaukee, WI Met Sewage Dist Ser A.... 10/01/99 6.600 806,705
1,000 Minnesota St Rfdg...................... 08/01/99 4.800 1,001,276
1,500 Missouri Rural Wtr Fin Corp Pub Projs
Constr Nts............................. 11/15/99 4.500 1,506,862
855 Missouri St Hlth & Edl Facs Auth Edl
Washington Univ Ser A.................. 06/15/00 3.350 855,000
550 Rankin Cnty, MS Sch Dist Rfdg (MBIA
Insd).................................. 02/01/00 4.000 552,526
</TABLE>
See Notes to Financial Statements
F-3
<PAGE> 60
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Discount
Par Yield on
Amount Maturity Date of Amortized
(000) Description Date Purchase Cost
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
BONDS/NOTES (CONTINUED)
$ 875 Regional Waste Sys, Inc. ME Solid Waste
Res Recovery Rev Ser Q................. 07/01/99 3.600% $ 875,000
900 Seattle, WA Wtr Sys Rev................ 08/01/99 5.375 901,614
-----------
TOTAL BONDS/NOTES 39.8%..................................... 13,366,968
-----------
TOTAL INVESTMENTS 99.6% (A).......................................... 33,411,968
OTHER ASSETS IN EXCESS OF LIABILITIES 0.4%........................... 120,866
-----------
NET ASSETS 100.0%.................................................... $33,532,834
===========
</TABLE>
(a) At June 30, 1999, cost is identical for both book and federal income tax
purposes.
(b) Prerefunded date shown, stated maturity 07/01/11.
AMBAC--AMBAC Indemnity Corporation
FGIC--Financial Guaranty Insurance Company
FSA--Financial Security Assurance Inc.
LOC--Letter of Credit
MBIA--Municipal Bond Investors Assurance Corp.
See Notes to Financial Statements
F-4
<PAGE> 61
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at Amortized Cost which Approximates Market.... $33,411,968
Cash........................................................ 118,605
Receivables:
Interest.................................................. 292,652
Fund Shares Sold.......................................... 8,275
Other....................................................... 13,475
-----------
Total Assets.......................................... 33,844,975
-----------
LIABILITIES:
Payables:
Fund Shares Repurchased................................... 52,735
Distributor and Affiliates................................ 30,789
Income Distributions...................................... 13,347
Trustees' Deferred Compensation and Retirement Plans........ 133,152
Accrued Expenses............................................ 82,118
-----------
Total Liabilities..................................... 312,141
-----------
NET ASSETS.................................................. $33,532,834
===========
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an
unlimited number of shares authorized).................... $33,546,624
Accumulated Distributions in Excess of Net Investment
Income.................................................... (31)
Accumulated Net Realized Loss............................... (13,759)
-----------
NET ASSETS (Equivalent to $1.00 per share for 33,550,784
shares outstanding)....................................... $33,532,834
===========
</TABLE>
See Notes to Financial Statements
F-5
<PAGE> 62
STATEMENT OF OPERATIONS
For the Year Ended June 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $1,166,174
----------
EXPENSES:
Investment Advisory Fee..................................... 173,708
Distribution (12b-1) and Service Fees....................... 86,720
Shareholder Services........................................ 72,095
Shareholder Reports......................................... 26,883
Accounting.................................................. 26,464
Trustees' Fees and Related Expenses......................... 26,371
Registration and Filing Fees................................ 18,868
Legal....................................................... 9,354
Custody..................................................... 5,403
Other....................................................... 17,569
----------
Total Expenses.......................................... 463,435
Investment Advisory Fee Reduction....................... 173,708
----------
Net Expenses............................................ 289,727
----------
NET INVESTMENT INCOME....................................... $ 876,447
==========
NET REALIZED GAIN........................................... $ 3,512
==========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 879,959
==========
</TABLE>
See Notes to Financial Statements
F-6
<PAGE> 63
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended June 30, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, 1999 June 30, 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income............................ $ 876,447 $ 940,491
Net Realized Gain................................ 3,512 60
------------- -------------
Change in Net Assets from Operations............. 879,959 940,551
------------- -------------
Distributions from Net Investment Income......... (876,415) (940,618)
Distributions in Excess of Net Investment
Income......................................... (31) (32)
------------- -------------
Distributions from and in Excess of Net
Investment Income.............................. (876,446) (940,650)
------------- -------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES..................................... 3,513 (99)
------------- -------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold........................ 203,834,945 112,337,824
Net Asset Value of Shares Issued Through Dividend
Reinvestment................................... 876,446 940,650
Cost of Shares Repurchased....................... (203,186,961) (114,337,910)
------------- -------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS................................... 1,524,430 (1,059,436)
------------- -------------
TOTAL INCREASE/DECREASE IN NET ASSETS............ 1,527,943 (1,059,535)
NET ASSETS:
Beginning of the Period.......................... 32,004,891 33,064,426
------------- -------------
End of the Period (Including accumulated
distributions in excess of net investment
income of ($31) and ($32), respectively)....... $ 33,532,834 $ 32,004,891
============= =============
</TABLE>
See Notes to Financial Statements
F-7
<PAGE> 64
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------------------------
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period................................ $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- -----
Net Investment Income................. .025 .029 .028 .029 .027
Less Distributions from and in Excess
of Net Investment Income............ .025 .029 .028 .029 .027
----- ----- ----- ----- -----
Net Asset Value, End of Period........ $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== =====
Total Return*......................... 2.55% 2.93% 2.82% 2.93% 2.73%
Net Assets at End of Period (In
millions)........................... $33.5 $32.0 $33.1 $35.6 $33.2
Ratio of Expenses to Average Net
Assets*............................. .84% .83% .85% .85% .89%
Ratio of Net Investment Income to
Average Net Assets*................. 2.53% 2.89% 2.78% 2.89% 2.68%
* If certain expenses had not been
assumed by Van Kampen, total return
would have been lower and the ratios
would have been as follows:
Ratio of Expenses to Average Net
Assets.............................. 1.34% 1.40% 1.45% 1.53% 1.38%
Ratio of Net Investment Income to
Average Net Assets.................. 2.03% 2.32% 2.17% 2.21% 2.20%
</TABLE>
See Notes to Financial Statements
F-8
<PAGE> 65
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Tax Free Money Fund (the "Fund") is organized as a Delaware business
trust. The Fund is an open-end diversified management investment company
registered under the Investment Company Act of 1940, as amended. 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 investment in a broad range of municipal securities that will mature
within 12 months of the date of purchase. The Fund commenced investment
operations on November 5, 1986.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. SECURITY VALUATION--Investments are valued at amortized cost, which
approximates market. Under this valuation method, a portfolio instrument is
valued at cost and any discount or premium is amortized on a straight-line basis
to the maturity of the instrument.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
Interest income is recorded on an accrual basis.
C. FEDERAL INCOME TAXES--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income, if any, to its shareholders.
Therefore, no provision for federal income taxes is required.
The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At June 30, 1999, the Fund had an accumulated capital loss carryforward
for tax purposes of $13,759 which will expire on June 30, 2001.
F-9
<PAGE> 66
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999
- --------------------------------------------------------------------------------
D. DISTRIBUTION OF INCOME AND GAINS--The Fund declares dividends from net
investment income daily and automatically reinvests such dividends daily. Net
realized gains, if any, are distributed annually. Shareholders can elect to
receive the cash equivalent of their daily dividends at each month end.
Due to inherent differences in the recognition of certain expenses under
generally accepted accounting principles and federal income tax purposes, the
amount of distributed net investment income may differ for a particular period.
These differences are temporary in nature, but may result in book basis
distribution in excess of net investment income for certain periods. For the
year ended June 30, 1999, permanent book and tax differences related to the
expiration of $1,030 of the tax basis capital loss carryforward during 1999 have
been reclassified from accumulated net realized loss to capital.
2. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, Van Kampen
Investment Advisory Corp. (the "Adviser") will provide investment advice and
facilities to the Fund for an annual fee payable monthly as follows:
<TABLE>
<CAPTION>
AVERAGE NET ASSETS % PER ANNUM
- ---------------------------------------------------------------------
<S> <C>
First $500 million.................................... .500 of 1%
Next $500 million..................................... .475 of 1%
Next $500 million..................................... .425 of 1%
Over $1.5 billion..................................... .375 of 1%
</TABLE>
For the year ended June 30, 1999, the Adviser voluntarily waived $173,708 of
its investment advisory fees. This waiver is voluntary in nature and can be
discontinued at the Adviser's discretion.
For the year ended June 30, 1999, the Fund recognized expenses of
approximately $1,700, representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
For the year ended June 30, 1999, the Fund recognized expenses of
approximately $34,100 representing Van Kampen Funds Inc's. or its affiliates'
(collectively "Van Kampen") cost of providing accounting and legal services to
the Fund.
Van Kampen Investor Services Inc., an affiliate of the Adviser, serves as
the shareholder servicing agent for the Fund. For the year ended June 30, 1999,
the Fund recognized expenses of approximately $45,600. Transfer agency fees are
determined
F-10
<PAGE> 67
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999
- --------------------------------------------------------------------------------
through negotiations with the Fund's Board of Trustees and are based on
competitive market benchmarks.
Certain officers and trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Fund. The maximum
annual benefit per trustee under the plan is $2,500.
3. CAPITAL TRANSACTIONS
At June 30, 1999 and June 30, 1998, capital aggregated $33,546,624 and
$32,023,224, respectively. Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1999 JUNE 30, 1998
- ----------------------------------------------------------------------------
<S> <C> <C>
Beginning Shares.......................... 32,026,330 33,085,766
------------- -------------
Shares Sold............................... 203,834,945 112,337,824
Shares Issued Through Dividend
Reinvestment............................ 876,446 940,650
Shares Repurchased........................ (203,186,937) (114,337,910)
------------- -------------
Net Change in Shares Outstanding.......... 1,524,454 (1,059,436)
------------- -------------
Ending Shares............................. 33,550,784 32,026,330
============= =============
</TABLE>
4. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% of the Fund's average net assets are
accrued daily. Included in these fees for the year ended June 30, 1999, are
payments retained by Van Kampen of approximately $31,800.
F-11
<PAGE> 68
PART C. OTHER INFORMATION
ITEM 23. EXHIBITS.
<TABLE>
<C> <S>
(a)(1) Declaration of Trust(2)
(2) Certificate of Amendment(4)
(b) Bylaws(2)
(d) Investment Advisory Agreement(3)
(e)(1) Distribution and Service Agreement(3)
(2) Form of Dealer Agreement(1)
(3) Form of Broker Fully Disclosed Clearing Agreement(1)
(4) Form of Bank Fully Disclosed Clearing Agreement(1)
(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) Fund Accounting Agreement(3)
(2) Amended and Restated Legal Services Agreement(3)
(i)(1) Opinion of Skadden, Arps, Slate, Meagher & Flom
(Illinois)(1)
(i)(2) Consent of Skadden, Arps, Slate, Meagher & Flom (Illinois)+
(j) Consent of KPMG 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)
(p) Power of Attorney+
(z)(1) List of certain 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. 12 to
Registrant's Registration Statement on Form N-1A, File No. 33-6745, filed
August 3, 1995.
(2) Incorporated herein by reference to Post-Effective Amendment No. 14 to
Registrant's Registration Statement on Form N-1A, File No. 33-6745, filed
October 28, 1996.
(3) Incorporated herein by reference to Post-Effective Amendment No. 15 to
Registrant's Registration Statement on Form N-1A, File No. 33-6745, filed
October 27, 1997.
(4) Incorporated herein by reference to Post-Effective Amendment No. 16 to
Registrant's Registration Statement on Form N-1A, File No. 33-6745, filed
September 29, 1998.
(5) Incorporated herein by reference to Post-Effective Amendment No. 81 to Van
Kampen Harbor Fund's Registration Statement on Form N-1A, File Nos. 2-12685
and 811-739, filed April 29, 1999.
+ Filed herewith.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
See the Statement of Additional Information.
C-1
<PAGE> 69
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 Agreement
and Declaration of Trust. Article 8; Section 8.4 of the Agreement and
Declaration of Trust provides that each officer and trustee of the Registrant
shall be indemnified by the Registrant against all liabilities incurred in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, in which the officer or trustee may be or
may have been involved by reason of being or having been an officer or trustee,
except that such indemnity shall not protect any such person against a liability
to the Registrant or any shareholder thereof to which such person would
otherwise be subject by reason of (i) not acting in good faith in the reasonable
belief that such person's actions were not in the best interest 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 officers or trustee would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of their office.
Conditional advancing of indemnification monies may be made if the trustee
or officer undertakes to repay the advance unless it is ultimately determined
that he or she is entitled to the indemnification and only if the following
conditions are met: (1) the trustee or officer provides a security for the
undertaking; (2) the Registrant is insured against losses arising from lawful
advances; or (3) a majority of a quorum of the Registrant's disinterested,
non-party trustees, or an independent legal counsel in a written opinion, shall
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, 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
C-2
<PAGE> 70
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 Investment Advisory Corp. (the "Adviser"). For information as to the
business, profession, vocation and employment of a substantial nature of each of
the officers and directors of the Adviser, reference is made to the Adviser's
current Form ADV (File No. 801-18161) 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. is an affiliated person of the Registrant and 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 the
trustees and officers thereof 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 the
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, PO Box 5555, Oakbrook
Terrace, Illinois 60181-5555; Van Kampen Investor Services Inc., 7501 Tiffany
Springs Parkway, Kansas City, Missouri 64153; or at State Street Bank and Trust
Company, 1776 Heritage Drive, North Quincy, Massachusetts 02171, (ii) by the
Adviser, will be maintained at its offices located at 1 Parkview Plaza, PO Box
5555, 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, PO Box 5555, Oakbrook Terrace, Illinois 60181-5555.
ITEM 29. MANAGEMENT SERVICES.
Not applicable.
ITEM 30. UNDERTAKINGS.
Not applicable.
C-3
<PAGE> 71
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended (the
"1933 Act"), and the Investment Company Act of 1940, as amended, the Registrant,
VAN KAMPEN TAX FREE MONEY FUND, certifies that it meets all of the requirements
for effectiveness of this Amendment to the Registration Statement pursuant to
Rule 485(b) under the 1933 Act and 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
28th day of October, 1999.
VAN KAMPEN TAX FREE MONEY 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 October 28, 1999, by the following
persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<S> <C>
Principal Executive Officer:
/s/ RICHARD F. POWERS, III* 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/ RICHARD M. DeMARTINI* Trustee
- ---------------------------------------------------
Richard M. DeMartini
/s/ LINDA HUTTON HEAGY* Trustee
- ---------------------------------------------------
Linda Hutton Heagy
/s/ R. CRAIG KENNEDY* Trustee
- ---------------------------------------------------
R. Craig Kennedy
/s/ JACK E. NELSON* Trustee
- ---------------------------------------------------
Jack E. Nelson
/s/ DON G. POWELL* Trustee
- ---------------------------------------------------
Don G. Powell
/s/ PHILLIP B. ROONEY* Trustee
- ---------------------------------------------------
Phillip B. Rooney
/s/ FERNANDO SISTO* Trustee
- ---------------------------------------------------
Fernando Sisto
/s/ WAYNE W. WHALEN* Trustee
- ---------------------------------------------------
Wayne W. Whalen
/s/ SUZANNE H. WOOLSEY* Trustee
- ---------------------------------------------------
Suzanne H. Woolsey
/s/ PAUL G. YOVOVICH* Trustee
- ---------------------------------------------------
Paul G. Yovovich
- ---------------
* Signed by A. Thomas Smith III pursuant to a power of attorney filed herewith.
/s/ A. THOMAS SMITH III October 28, 1999
------------------------------------------------
A. Thomas Smith III
Attorney-in-Fact
</TABLE>
C-4
<PAGE> 72
SCHEDULE OF EXHIBITS TO
POST-EFFECTIVE AMENDMENT 18 TO FORM N-1A
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------- -------
<C> <S>
(i)(2) Consent of Skadden, Arps, Slate, Meagher & Flom (Illinois)
(j) Consent of KPMG LLP
(p) Power of Attorney
(z)(1) List of certain 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>
<PAGE> 1
EXHIBIT (i)(2)
[LETTERHEAD OF SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)]
October 28, 1999
Van Kampen Tax Free Money Fund
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
Re: Post-Effective Amendment No. 18 to the
Registration Statement on Form N-1A
for the Van Kampen Tax Free Money Fund
(the "Registration Statement")
(File Nos. 33-6745 and 811-4718)
--------------------------------
We hereby consent to the reference to our firm under the heading
"Legal Counsel" in the Registration Statement. In giving this consent, we do not
hereby admit that we are in the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations promulgated thereunder.
Very truly yours,
/s/ SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
<PAGE> 1
EXHIBIT (J)
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders
Van Kampen Tax-Free Money Fund
We consent to the use of our report included in the Statement of Additional
Information which is incorporated by reference into the Prospectus and to the
reference to our Firm under the headings "Financial Highlights" in the
Prospectus and "Other Information" in the Statement of Additional Information.
KPMG LLP
Chicago, Illinois
October 22, 1999
<PAGE> 1
EXHIBIT (p)
POWER OF ATTORNEY
The undersigned, being Officers and Trustees of each of the Van Kampen
Open End Trusts (individually, a "Trust") as indicated on Schedule 1 attached
hereto and incorporated by reference, each a Delaware business trust except for
the Van Kampen Pennsylvania Tax Free Income Fund being a Pennsylvania trust, and
being Officers and Directors of the Van Kampen Series Fund, Inc. (the
"Corporation"), a Maryland corporation, do hereby, in the capacities shown
below, appoint Richard F. Powers, III, Dennis J. McDonnell and A. Thomas Smith
III, each of Oakbrook Terrace, Illinois, as agents and attorneys-in-fact with
full power of substitution and resubstitution, for each of the undersigned, to
execute and deliver, for and on behalf of the undersigned, any and all
amendments to the Registration Statement filed by each Trust or the Corporation
with the Securities and Exchange Commission pursuant to the provisions of the
Securities Act of 1933 and the Investment Company Act of 1940.
This Power of Attorney may be executed in multiple counterparts, each
of which shall be deemed an original, but which taken together shall constitute
one instrument.
Dated: June 23, 1999
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ RICHARD F. POWERS III President
--------------------------
Richard F. Powers III
/s/ JOHN L. SULLIVAN Vice President, Chief Financial Officer
-------------------------- and Treasurer
John L. Sullivan
/s/ J. MILES BRANAGAN Trustee/Director
--------------------------
J. Miles Branagan
/s/ JERRY D. CHOATE Trustee/Director
--------------------------
Jerry D. Choate
/s/ RICHARD M. DeMARTINI Trustee/Director
--------------------------
Richard M. DeMartini
/s/ LINDA HUTTON HEAGY Trustee/Director
--------------------------
Linda Hutton Heagy
/s/ R. CRAIG KENNEDY Trustee/Director
--------------------------
R. Craig Kennedy
/s/ JACK E. NELSON Trustee/Director
--------------------------
Jack E. Nelson
/s/ DON G. POWELL Trustee/Director
--------------------------
Don G. Powell
/s/ PHILLIP B. ROONEY Trustee/Director
--------------------------
Phillip B. Rooney
/s/ FERNANDO SISTO, SC.D. Trustee/Director
--------------------------
Fernando Sisto, Sc. D.
/s/ WAYNE W. WHALEN Trustee/Director and Chairman
--------------------------
Wayne W. Whalen
/s/ SUZANNE H. WOOLSEY Trustee/Director
--------------------------
Suzanne H. Woolsey
/s/ PAUL G. YOVOVICH Trustee/Director
--------------------------
Paul G. Yovovich
</TABLE>
<PAGE> 2
SCHEDULE 1
VAN KAMPEN U.S. GOVERNMENT TRUST
VAN KAMPEN TAX FREE TRUST
VAN KAMPEN TRUST
VAN KAMPEN EQUITY TRUST
VAN KAMPEN PENNSYLVANIA TAX FREE INCOME FUND
VAN KAMPEN TAX FREE MONEY FUND
VAN KAMPEN COMSTOCK FUND
VAN KAMPEN CORPORATE BOND FUND
VAN KAMPEN EMERGING GROWTH FUND
VAN KAMPEN ENTERPRISE FUND
VAN KAMPEN EQUITY INCOME FUND
VAN KAMPEN GLOBAL MANAGED ASSETS FUND
VAN KAMPEN GOVERNMENT SECURITIES FUND
VAN KAMPEN GROWTH AND INCOME FUND
VAN KAMPEN HARBOR FUND
VAN KAMPEN HIGH INCOME CORPORATE BOND FUND
VAN KAMPEN LIFE INVESTMENT TRUST
VAN KAMPEN LIMITED MATURITY GOVERNMENT FUND
VAN KAMPEN PACE FUND
VAN KAMPEN REAL ESTATE SECURITIES FUND
VAN KAMPEN RESERVE FUND
VAN KAMPEN TAX-EXEMPT TRUST
VAN KAMPEN U.S. GOVERNMENT TRUST FOR INCOME
VAN KAMPEN WORLD PORTFOLIO SERIES TRUST
<PAGE> 1
EXHIBIT (z)(1)
Item 27(a)
- ----------
Van Kampen U.S. Government Trust
Van Kampen U.S. Government Fund
Van Kampen Tax Free Trust
Van Kampen Insured Tax Free Income Fund
Van Kampen Tax Free High Income Fund
Van Kampen California Insured Tax Free Fund
Van Kampen Municipal Income Fund
Van Kampen Intermediate Term Municipal Income Fund
Van Kampen Florida Insured Tax Free Income Fund
Van Kampen New York Tax Free Income Fund
Van Kampen California Tax Free Income Fund*
Van Kampen Michigan Tax Free Income Fund*
Van Kampen Missouri Tax Free Income Fund*
Van Kampen Ohio Tax Free Income Fund*
Van Kampen Trust
Van Kampen High Yield Fund
Van Kampen Short-Term Global Income Fund
Van Kampen Strategic Income Fund
Van Kampen Equity Trust
Van Kampen Aggressive Growth Fund
Van Kampen Great American Companies Fund
Van Kampen Growth Fund
Van Kampen Mid Cap Value Fund
Van Kampen Prospector Fund
Van Kampen Small Cap Value Fund
Van Kampen Utility Fund
Van Kampen Equity Trust II
Van Kampen Technology Fund
Van Kampen Pennsylvania Tax Free Income Fund
Van Kampen Tax Free Money Fund
Van Kampen Prime Rate Income Trust
Van Kampen Senior Floating Rate Fund
Van Kampen Comstock Fund
Van Kampen Corporate Bond Fund
Van Kampen Emerging Growth Fund
Van Kampen Enterprise Fund
Van Kampen Equity Income Fund
Van Kampen Exchange Fund
The Explorer Institutional Trust
Explorer Institutional Active Core Fund
Explorer Institutional Limited Duration Fund
<PAGE> 2
Van Kampen Limited Maturity Government Fund
Van Kampen Global Managed Assets Fund
Van Kampen Government Securities Fund
Van Kampen Growth and Income Fund
Van Kampen Harbor Fund
Van Kampen High Income Corporate Bond Fund
Van Kampen Life Investment Trust on behalf of its series
Asset Allocation Portfolio
Comstock Portfolio
Domestic Income Portfolio
Emerging Growth Portfolio
Enterprise Portfolio
Global Equity Portfolio
Government Portfolio
Growth and Income Portfolio
Money Market Portfolio
Strategic Stock Portfolio
Morgan Stanley Real Estate Securities Portfolio
Van Kampen Pace Fund
Van Kampen Real Estate Securities Fund
Van Kampen Reserve Fund
Van Kampen Tax Exempt Trust
Van Kampen High Yield Municipal Fund
Van Kampen U.S. Government Trust for Income
Van Kampen World Portfolio Series Trust
Van Kampen Global Government Securities Fund
Van Kampen Series Fund, Inc.
Van Kampen Focus Equity Fund
Van Kampen American Value Fund
Van Kampen Asian Growth Fund
Van Kampen Emerging Markets Debt Fund*
Van Kampen Emerging Markets Fund
Van Kampen Equity Growth Fund
Van Kampen European Equity Fund
Van Kampen Global Equity Allocation Fund
Van Kampen Global Equity Fund
Van Kampen Global Fixed Income Fund
Van Kampen Global Franchise Fund
Van Kampen Growth and Income Fund II*
Van Kampen High Yield & Total Return Fund
Van Kampen International Magnum Fund
Van Kampen Japanese Equity Fund*
Van Kampen Latin American Fund
Van Kampen Mid Cap Growth Fund
Van Kampen Value Fund
Van Kampen Worldwide High Income Fund
<PAGE> 3
<TABLE>
<S> <C>
Insured Municipals Income Trust Series 414
Strategic Municipal Trust, Intermediate Series 2
California Insured Municipals Income Trust Series 182
FLORIDA INSURED MUNICIPALS INCOME TRUST SERIES 127
MICHIGAN INSURED MUNICIPALS INCOME TRUST SERIES 159
Missouri Insured Municipals Income Trust Series 113
PENNSYLVANIA INSURED MUNICIPALS INCOME TRUST SERIES 245
Virginia Investors' Quality Tax-Exempt Trust Series 86
THE DOW(SM) STRATEGIC 10 TRUST OCTOBER 1999
SERIES
THE DOW(SM) STRATEGIC 10 TRUST OCTOBER 1999
TRADITIONAL
SERIES
THE DOW(SM) STRATEGIC 5 TRUST OCTOBER 1999
SERIES
THE DOW(SM) STRATEGIC 5 TRUST OCTOBER 1999
TRADITIONAL
SERIES
EAFE STRATEGIC 20 TRUST OCTOBER 1999
SERIES
STRATEGIC PICKS OPPORTUNITY TRUST OCTOBER 1999
SERIES
Great International Firms Trust Series 9
Brand Name Equity Trust Series 10
Dow 30 Index Trust Series 8
Dow 30 Index and Treasury Trust Series 10
Global Energy Trust Series 10
Financial Institutions Trust Series 1
Edward Jones Select Growth Trust August 1999
Series
Internet Trust Series 16A
Internet Trust Series 16B
Morgan Stanley High-Technology 35 Index Trust Series 8A
Morgan Stanley High-Technology 35 Index Trust Series 8B
Pharmaceutical Trust Series 7A
Pharmaceutical Trust Series 7B
Telecommunications & Bandwidth Trust Series 7A
Telecommunications and Bandwidth Trust Series 7B
New Frontier Utility Trust Series 7A
New Frontier Utility Trust Series 7B
Roaring 2000s Trust Series 3
Roaring 2000s Trust Traditional Series 3
Robert Baird - Utility & Communications Trust Series 1
Josephthal - Small Cap Focus Portfolio Series 1
Morgan Stanley Multinational Index Trust Series 1A
Morgan Stanley Multinational Index Trust Series 1B
Software Trust Series 1A
Software Trust Series 1B
Gruntal - E-Commerce Software Growth Trust Series 1
Wheat First Union - Mid-Cap Banking Opportunity Trust Series 1
</TABLE>
<PAGE> 4
* Funds that have not commenced investment operations.
<PAGE> 1
EXHIBIT (z)(2)
Item 27(b)
- ----------
<TABLE>
<S> <C> <C>
Richard F. Powers III Chairman & Chief Executive Officer Oakbrook Terrace, IL
John H. Zimmerman III President Oakbrook Terrace, IL
A. Thomas Smith III Executive Vice President, General Oakbrook Terrace, IL
Counsel & Secretary;
Vice President and Secretary of the Funds
William R. Rybak Executive Vice President, Chief
Financial Officer & Treasurer Oakbrook Terrace, IL
Michael H. Santo Executive Vice President & Chief
Operations & Technology Officer Oakbrook Terrace, IL
Colette M. Saucedo Executive Vice President & Houston, TX
Chief Administrative Officer
A. Thomas Smith III Executive Vice President, General Oakbrook Terrace, IL
Counsel & Secretary; Vice President
and Secretary of the Funds
Laurence J. Althoff Sr. Vice President & Controller Oakbrook Terrace, IL
Don J. Andrews Sr. Vice President & Chief Compliance Oakbrook Terrace, IL
Officer
Sara L. Badler Sr. Vice President, Deputy Oakbrook Terrace, IL
General Counsel & Assistant Secretary;
Assistant Secretary of the Funds
James J. Boyne Sr. Vice President, Deputy General Oakbrook Terrace, IL
Counsel & Assistant Secretary
Gary R. DeMoss Sr. Vice President Oakbrook Terrace, IL
John E. Doyle Sr. Vice President Oakbrook Terrace, IL
Richard G. Golod Sr. Vice President Annapolis, MD
Steven T. Johnson Sr. Vice President Oakbrook Terrace, IL
Walter E. Rein Sr. Vice President Oakbrook Terrace, IL
James J. Ryan Sr. Vice President Oakbrook Terrace, IL
Frederick Shepherd Sr. Vice President Houston, TX
Robert S. West Sr. Vice President Oakbrook Terrace, IL
Patrick J. Woelfel Sr. Vice President Oakbrook Terrace, IL
Edward G. Wood, III Sr. Vice President,
Chief Operating Officer; Oakbrook Terrace. IL
Vice President of the Funds
Patricia A. Bettlach 1st Vice President Chesterfield, MO
Glenn M. Cackovic 1st Vice President Laguna Niguel, CA
Eric J. Hargens 1st Vice President Orlando, FL
Gregory Heffington 1st Vice President Ft. Collins, CO
David S. Hogaboom 1st Vice President Oakbrook Terrace, IL
Dominic C. Martellaro 1st Vice President Danville, CA
Carl Mayfield 1st Vice President Lakewood, CO
Mark R. McClure 1st Vice President Oakbrook Terrace, IL
Maura A. McGrath 1st Vice President New York, NY
Robert F. Muller, Jr. 1st Vice President Oakbrook Terrace, IL
Thomas Rowley 1st Vice President St. Louis, MO
Andrew J. Scherer 1st Vice President Oakbrook Terrace, IL
James D. Stevens 1st Vice President North Andover, MA
</TABLE>
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<TABLE>
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James R. Yount 1st Vice President Mercer Island, WA
James K. Ambrosio Vice President Massapequa, NY
Brian P. Arcara Vice President Buffalo, NY
Timothy R. Armstrong Vice President Wellington, FL
Shakeel Anwar Barkat Vice President Annapolis, MD
Scott C. Bernstiel Vice President Plainsboro, NJ
Carol S. Biegel Vice President Oakbrook Terrace, IL
Christopher M. Bisaillon Vice President Oakbrook Terrace, IL
William Edwin Bond Vice President New York, NY
Michael P. Boos Vice President Oakbrook Terrace, IL
Robert C. Brooks Vice President Oakbrook Terrace, IL
Elizabeth M. Brown Vice President Houston, TX
William F. Burke, Jr. Vice President Mendham, NJ
Loren Burket Vice President Plymouth, MN
Juanita E. Buss Vice President Kennesaw, GA
Christine Cleary Byrum Vice President Tampa, FL
Richard J. Charlino Vice President Oakbrook Terrace, IL
Deanne Margaret Chiaro Vice President Oakbrook Terrace, IL
Scott A. Chriske Vice President Plano, TX
German Clavijo Vice President Atlanta, GA
Eleanor M. Cloud Vice President Oakbrook Terrace, IL
Dominick Cogliandro Vice President & Asst. Treasurer New York, NY
Michael Colston Vice President Louisville, KY
Kevin J. Connors Vice President Oakbrook Terrace, IL
Suzanne Cummings Vice President Oakbrook Terrace, IL
Michael E. Eccleston Vice President Oakbrook Terrace, IL
William J. Fow Vice President Redding, CT
Nicholas J. Foxhoven Vice President Englewood, CO
Charles Friday Vice President Gibsonia, PA
Timothy D. Griffith Vice President Kirkland, WA
Kyle D. Haas Vice President Oakbrook Terrace, IL
Daniel Hamilton Vice President Austin, TX
John G. Hansen Vice President Oakbrook Terrace, IL
Joseph Hays Vice President Cherry Hill, NJ
Michael D. Hibsch Vice President Oakbrook Terrace, IL
Susan J. Hill Vice President Oakbrook Terrace, IL
Thomas R. Hindelang Vice President Gilbert, AZ
Bryn M. Hoggard Vice President Houston, TX
Michelle Huber Vice President Oakbrook Terrace, IL
Michael B. Hughes Vice President Oakbrook Terrace, IL
Lowell Jackson Vice President Norcross, GA
Kevin G. Jajuga Vice President Baltimore, MD
Dana R. Klein Vice President Oakbrook Terrace, IL
Frederick Kohly Vice President Miami, FL
Paul Koleda Vice President Denver, CO
David R. Kowalski Vice President & Senior Compliance Director Oakbrook Terrace, IL
Richard D. Kozlowski Vice President Atlanta, GA
Patricia D. Lathrop Vice President Tampa, FL
Brian Laux Vice President Staten Island, NY
Tony E. Leal Vice President Daphne, AL
</TABLE>
<PAGE> 3
<TABLE>
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S. William Lehew III Vice President Charlotte, NC
Jonathan Linstra Vice President Oakbrook Terrace, IL
Richard M. Lundgren Vice President Oakbrook Terrace, IL
Walter Lynn Vice President Flower Mound, TX
Linda S. MacAyeal Vice President Oakbrook Terrace, IL
Kevin S. Marsh Vice President Bellevue, WA
Brooks D. McCartney Vice President Puyallup, WA
Anne Therese McGrath Vice President Los Gatos, CA
John Mills Vice President Kenner, LA
Stuart R. Moehlman Vice President Houston, TX
Ted Morrow Vice President Plano, TX
Peter Nicholas Vice President Beverly, MA
Steven R. Norvid Vice President Oakbrook Terrace, IL
Allyn O' Connor Vice President & Assoc. General Counsel Oakbrook Terrace, IL
Gregory S. Parker Vice President Houston, TX
Christopher Petrungaro Vice President Oakbrook Terrace, IL
Richard J. Poli Vice President Philadelphia, PA
Ronald E. Pratt Vice President Marietta, GA
Daniel D. Reams Vice President Royal Oak, MI
Kevin Wayne Reszel Vice President Oakbrook Terrace, IL
Michael W. Rohr Vice President Oakbrook Terrace. IL
Jeffrey L. Rose Vice President Houston, TX
Suzette N. Rothberg Vice President Plymouth, MN
Jeffrey Rourke Vice President Oakbrook Terrace, IL
Heather R. Sabo Vice President Richmond, VA
Diane Saxon Vice President & Assistant Treasurer Oakbrook Terrace, IL
Stephanie Scarlata Vice President Bedford Corners, NY
Christina L. Schmieder Vice President Oakbrook Terrace, IL
Timothy M. Scholten Vice President Oakbrook Terrace, IL
Ronald J. Schuster Vice President Tampa, FL
Gwen L. Shaneyfalt Vice President Oakbrook Terrace, IL
Jeffrey C. Shirk Vice President Swampscott, MA
Traci T. Sorenson Vice President Oakbrook Terrace, IL
Darren D. Stabler Vice President Phoenix, AZ
Christopher J. Staniforth Vice President Leawood, KS
Richard Stefanec Vice President Los Angles, CA
William C. Strafford Vice President Granger, IN
Mark A. Syswerda Vice President Oakbrook Terrace, IL
Charles S. Thompson Vice President Oakbrook Terrace, IL
John F. Tierney Vice President Oakbrook Terrace, IL
Curtis L. Ulvestad Vice President Red Wing, MN
Daniel B. Waldron Vice President Oakbrook Terrace, IL
Jeff Warland Vice President Oakbrook Terrace, IL
Weston B. Wetherell Vice President, Deputy General Oakbrook Terrace, IL
Counsel & Asst. Secretary;
Assistant Secretary of the Funds
Frank L. Wheeler Vice President Oakbrook Terrace, IL
Harold Whitworth, III Vice President Oakbrook Terrace, IL
Joel John Wilczewski Vice President Oakbrook Terrace, IL
Thomas M. Wilson Vice President Oakbrook Terrace, IL
Barbara A. Withers Vice President Oakbrook Terrace, IL
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
David M. Wynn Vice President Phoenix, AZ
Patrick M. Zacchea Vice President Oakbrook Terrace, IL
Scott F. Becker Asst. Vice President Oakbrook Terrace, IL
Brian E. Binder Asst. Vice President Oakbrook Terrace, IL
Billie J. Bronaugh Asst. Vice President Houston, TX
Lynn Chadderton Asst. Vice President Oakbrook Terrace, IL
Amy Cooper Asst. Vice President Oakbrook Terrace, IL
Sarah K. Geiser Asst. Vice President Oakbrook Terrace, IL
Walter C. Gray Asst. Vice President Oakbrook Terrace, IL
Laurie L. Jones Asst. Vice President Houston, TX
Robin R. Jordan Asst. Vice President Oakbrook Terrace, IL
Anne S. Kochevar Asst. Vice President Oakbrook Terrace, IL
Ivan R. Lowe Asst. Vice President Houston, TX
Christine K. Putong Asst. Vice President & Asst. Secretary Oakbrook Terrace, IL
Leah Richardson Asst. Vice President Oakbrook Terrace, IL
David P. Robbins Asst. Vice President Oakbrook Terrace, IL
Regina Rosen Asst. Vice President Oakbrook Terrace, IL
Pamela S. Salley Asst. Vice President Houston, TX
Thomas J. Sauerborn Asst. Vice President New York, NY
David T. Saylor Asst. Vice President Oakbrook Terrace, IL
Lisa Schultz Asst. Vice President Oakbrook Terrace, IL
Lauren B. Sinai Asst. Vice President Oakbrook Terrace, IL
Scott Stevens Asst. Vice President Oakbrook Terrace, IL
Kristen L. Transier Asst. Vice President Houston, TX
Michael Trizil Asst. Vice President Oakbrook Terrace, IL
David H. Villarreal Asst. Vice President Oakbrook Terrace, IL
Sharon M. C. Wells Asst. Vice President Oakbrook Terrace, IL
Cathy Napoli Assistant Secretary Oakbrook Terrace, IL
William R. Rybak Treasurer Oakbrook Terrace, IL
John Browning Officer Oakbrook Terrace, IL
Leticia George Officer Houston, TX
William D. McLaughlin Officer Houston, TX
Rebecca Newman Officer Houston, TX
Theresa M. Renn Officer Oakbrook Terrace, IL
Larry Vickrey Officer Houston, TX
John Yovanovic Officer Houston, TX
Richard F. Powers III Director Oakbrook Terrace, IL
Michael H. Santo Director Oakbrook Terrace, IL
A. Thomas Smith III Director Oakbrook Terrace, IL
William R. Rybak Director Oakbrook Terrace, IL
John H. Zimmerman III Director Oakbrook Terrace, IL
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