<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 13, 1995
REGISTRATION NOS. 33-8122
811-4805
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
<TABLE>
<CAPTION>
<S> <C>
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 /X/
Post-Effective Amendment No. 25 /X/
and
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 26 /X/
</TABLE>
VAN KAMPEN AMERICAN CAPITAL EQUITY TRUST
(Exact Name of Registrant as Specified in the Agreement and Declaration of
Trust)
One Parkview Plaza, Oakbrook Terrace, Illinois 60181
(Address of Principal Executive Offices)
(708) 684-6000
(Registrant's Telephone Number)
Ronald A. Nyberg, Esq.
Executive Vice President, General Counsel and Secretary,
Van Kampen American Capital, Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
(Name and Address of Agent for Service)
Copy to:
Wayne W. Whalen, Esq.
Thomas A. Hale, Esq.
Skadden, Arps, Slate, Meagher & Flom
333 W. Wacker Drive
Chicago, IL 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: (CHECK APPROPRIATE
BOX)
/ / 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)
/X/ 75 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A)(2)
/ / ON (DATE) PURSUANT TO PARAGRAPH (A)(2) OF RULE 485
IF APPROPRIATE CHECK THE FOLLOWING:
/ / THIS POST-EFFECTIVE AMENDMENT DESIGNATES A NEW EFFECTIVE DATE FOR
A PREVIOUSLY FILED POST-EFFECTIVE AMENDMENT.
DECLARATION PURSUANT TO RULE 24F-2
REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF SHARES AND WILL FILE WITH
THE SECURITIES AND EXCHANGE COMMISSION A RULE 24F-2 NOTICE FOR ITS FISCAL YEAR
ENDING JUNE 30, 1996 ON OR ABOUT AUGUST 31, 1996.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
EXPLANATORY NOTE
This Post-Effective Amendment No. 25 to the Registration Statement contains
four Prospectuses and four Statements of Additional Information describing four
of the nine series of the Registrant. The Registration Statement is organized as
follows:
Facing Page
Cross Reference Sheet with respect to Van Kampen American Capital Value
Fund
Cross Reference Sheet with respect to Van Kampen American Capital Great
American Companies Fund
Cross Reference Sheet with respect to Van Kampen American Capital Growth
Fund
Cross Reference Sheet with respect to Van Kampen American Capital
Prospector Fund
Prospectus Relating to Van Kampen American Capital Value Fund
Statement of Additional Information Relating to Van Kampen American Capital
Value Fund
Prospectus Relating to Van Kampen American Capital Great American Companies
Fund
Statement of Additional Information Relating to Van Kampen American Capital
Great American Companies Fund
Prospectus Relating to Van Kampen American Capital Growth Fund
Statement of Additional Information Relating to Van Kampen American Capital
Growth Fund
Prospectus Relating to Van Kampen American Capital Prospector Fund
Statement of Additional Information Relating to Van Kampen American Capital
Prospector Fund
Part C Information
Exhibits
------------------------
Van Kampen American Capital Total Return Fund and Van Kampen American
Capital Growth Fund (collectively, the "Funds") have not commenced investment
operations. The Prospectus and Statement of Additional Information with respect
to each of the Funds accordingly are not being distributed or otherwise used.
The information included in the Prospectus and Statement of Additional
Information of each of the Funds was contained in the Registrant's
Post-Effective Amendment No. 7 filed with the Commission on November 2, 1989
and, to the extent required to be included herein, is hereby incorporated by
reference.
The Prospectus and Statement of Additional Information with respect to each of
Van Kampen American Capital Utility Fund and Van Kampen American Capital
Balanced Fund, two other series of the Registrant, included in Post-Effective
Amendment No. 24 to the Registration Statement of the Registrant are included
herein by reference and no changes thereto are affected hereby.
<PAGE> 3
VAN KAMPEN AMERICAN CAPITAL VALUE FUND
VAN KAMPEN AMERICAN CAPITAL GREAT AMERICAN COMPANIES FUND
VAN KAMPEN AMERICAN CAPITAL GROWTH FUND
VAN KAMPEN AMERICAN CAPITAL PROSPECTOR FUND
CROSS REFERENCE SHEET
(AS REQUIRED BY ITEM 501(B) OF REGULATION S-K)
<TABLE>
<CAPTION>
ITEM NUMBER OF LOCATION OR CAPTION
FORM N-1A IN PROSPECTUS
-------------- -------------------
<S> <C> <C>
PART A INFORMATION REQUIRED IN A PROSPECTUS
Item 1. Cover Page............. Cover Page
Item 2. Synopsis............... PROSPECTUS SUMMARY; SHAREHOLDER TRANSACTION EXPENSES;
ANNUAL FUND OPERATING EXPENSES AND EXAMPLE
Item 3. Condensed Financial
Information.......... SHAREHOLDER TRANSACTION EXPENSES; ANNUAL FUND OPERATING
EXPENSES AND EXAMPLE; FUND PERFORMANCE; ADDITIONAL
INFORMATION
Item 4. General Description of
Registrant........... PROSPECTUS SUMMARY; THE FUND; INVESTMENT OBJECTIVE AND
POLICIES; INVESTMENT PRACTICES; DESCRIPTION OF SHARES OF
THE FUND
Item 5. Management of the
Fund................. ANNUAL FUND OPERATING EXPENSES AND EXAMPLE; INVESTMENT
PRACTICES; INVESTMENT ADVISORY SERVICES; SHAREHOLDER
SERVICES
Item 6. Capital Stock and Other
Securities........... DISTRIBUTIONS FROM THE FUND; REDEMPTION OF SHARES; THE
DISTRIBUTION AND SERVICE PLANS; TAX STATUS; SHAREHOLDER
SERVICES; DESCRIPTION OF SHARES OF THE FUND; ADDITIONAL INFORMATION
Item 7. Purchase of Securities
Being Offered........ SHAREHOLDER TRANSACTION EXPENSES; ALTERNATIVE SALES
ARRANGEMENTS; PURCHASE OF SHARES; THE DISTRIBUTION AND
SERVICE PLANS; SHAREHOLDER SERVICES; FUND PERFORMANCE
Item 8. Redemption or
Repurchase........... PURCHASE OF SHARES; REDEMPTION OF SHARES; SHAREHOLDER
SERVICES
Item 9. Pending Legal
Proceedings.......... Not Applicable
</TABLE>
i
<PAGE> 4
<TABLE>
<CAPTION>
ITEM NUMBER OF LOCATION OR CAPTION
FORM N-1A IN PROSPECTUS
------------- -------------------
<S> <C> <C>
PART B INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
Item 10. Cover Page............. Cover Page
Item 11. Table of Contents...... Table of Contents
Item 12. General Information
and History.......... The Fund and the Trust
Item 13. Investment Objectives
and Policies......... Investment Policies and Restrictions
Item 14. Management of the
Fund................. Officers and Trustees
Item 15. Control Persons and
Principal Holders of
Securities........... Officers and Trustees
Item 16. Investment Advisory and
Other Services....... Contained in Prospectus under captions: PURCHASE OF
SHARES; INVESTMENT ADVISORY SERVICES, THE DISTRIBUTION AND
SERVICE PLANS; Investment Advisory and Other Services;
Legal Counsel; Officers and Trustees; The Distributor
Item 17. Brokerage Allocation... Portfolio Transactions and Brokerage Allocation
Item 18. Capital Stock and
Other Securities..... Contained in the Prospectus under the caption: DESCRIPTION
OF SHARES OF THE FUND
Item 19. Purchase, Redemption
and Pricing of
Securities Being
Offered.............. Contained in the Prospectus under captions: ALTERNATIVE
SALES ARRANGEMENTS; PURCHASE OF SHARES; SHAREHOLDER
SERVICES; REDEMPTION OF SHARES
Item 20. Tax Status............. Contained in Prospectus under captions: TAX STATUS;
PURCHASE OF SHARES; Tax Status of the Fund
Item 21. Underwriters........... The Distributor
Item 22. Calculation of
Performance Data..... Contained in the Prospectus under the caption: FUND
PERFORMANCE; Performance Information
Item 23. Financial Statements... Not Applicable
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of this Registration Statement.
ii
<PAGE> 5
- --------------------------------------------------------------------------------
VAN KAMPEN AMERICAN CAPITAL
VALUE FUND
- --------------------------------------------------------------------------------
Van Kampen American Capital Value Fund (the "Fund") is a separate
diversified series of Van Kampen American Capital Equity Trust, an open-end
management investment company commonly known as a mutual fund. The Fund's
investment objective is to seek long-term growth of capital. The Fund seeks to
achieve its investment objective by investing primarily in a diversified
portfolio of common stocks and other equity securities of medium and larger
capitalization companies that are believed by the Fund's investment adviser to
be selling below their intrinsic value and to offer the opportunity for
significant growth of capital. Any income received on such securities is
incidental to the objective of long-term growth of capital. There is no
assurance that the Fund will achieve its investment objective.
The Fund's investment adviser is Van Kampen American Capital Investment
Advisory Corp. This Prospectus sets forth certain information about the Fund
that a prospective investor should know before investing in the Fund. Please
read it carefully and retain it for future reference. The address of the Fund is
One Parkview Plaza, Oakbrook Terrace, Illinois 60181, and its telephone number
is (800) 421-5666.
The Fund currently offers three classes of its shares (the "Alternative
Sales Arrangements") which may be purchased at a price equal to their net asset
value per share, plus sales charges which, at the election of the investor, may
be imposed (i) at the time of purchase (the "Class A Shares") or (ii) on a
contingent deferred basis (Class A Share purchases over $1 million, "Class B
Shares" and "Class C Shares"). The Alternative Sales Arrangements permit an
investor to choose the method of purchasing shares that is more beneficial to
the investor, taking into account the amount of the purchase, the length of time
the investor expects to hold the shares and other circumstances.
(Continued on next page.)
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, GUARANTEED OR
ENDORSED BY, ANY BANK OR DEPOSITORY INSTITUTION; FURTHER, SUCH SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. SHARES OF THE FUND INVOLVE
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
A Statement of Additional Information, dated , 1995, containing
additional information about the Fund, has been filed with the Securities and
Exchange Commission ("SEC") and is hereby incorporated by reference into this
prospectus. A copy of the Statement of Additional Information may be obtained
without charge by calling (800) 421-5666 or for Telecommunication Device for the
Deaf at (800) 772-8889.
------------------
VAN KAMPEN AMERICAN CAPITAL(SM)
------------------
THIS PROSPECTUS IS DATED , 1995.
<PAGE> 6
(Continued from previous page.)
Each class of shares pays ongoing distribution and service fees at an
aggregate annual rate of (i) for Class A Shares, up to 0.25% of the Fund's
average daily net assets attributable to the Class A Shares, (ii) for Class B
Shares, up to 1.00% of the Fund's average daily net assets attributable to the
Class B Shares and (iii) for Class C Shares up to 1.00% of the Fund's average
daily net assets attributable to the Class C Shares. Investors should understand
that the purpose and function of the deferred sales charge and the distribution
and service fees with respect to the Class A Share purchases over $1 million,
Class B Shares and the Class C Shares are the same as those of the initial sales
charge and the distribution and service fees with respect to the Class A Shares
purchases below $1 million. Each share of the Fund represents an identical
interest in the investment portfolio of the Fund and has the same rights, except
that (i) each class of shares bears those distribution fees, service fees and
administrative expenses applicable to the respective class of shares as a result
of its sales arrangements, which will cause the different classes of shares to
have different expense ratios and to pay different rates of dividends, (ii) each
class has exclusive voting rights with respect to those provisions of the Fund's
Rule 12b-1 distribution plan which relate only to such class and (iii) the
different classes have different exchange privileges. Class B Shares and Class C
Shares automatically will convert to Class A Shares seven years and ten years,
respectively, after the end of the calendar month in which the investor's order
to purchase was accepted, in the circumstances and subject to the qualifications
described in this Prospectus. See "Alternative Sales Arrangements" and "Purchase
of Shares."
2
<PAGE> 7
- ------------------------------------------------------------------------------
TABLE OF CONTENTS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.............................................. 4
Shareholder Transaction Expenses................................ 7
Annual Fund Operating Expenses and Example...................... 8
The Fund........................................................ 9
Investment Objective and Policies............................... 10
Portfolio Securities............................................ 11
Investment Practices............................................ 13
Investment Advisory Services.................................... 19
Alternative Sales Arrangements.................................. 21
Purchase of Shares.............................................. 23
Shareholder Services............................................ 32
Redemption of Shares............................................ 36
The Distribution and Service Plans.............................. 39
Distributions from the Fund..................................... 41
Tax Status...................................................... 42
Fund Performance................................................ 44
Description of Shares of the Fund............................... 44
Additional Information.......................................... 45
</TABLE>
- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE FUND, THE ADVISER, OR THE DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER BY THE FUND OR BY THE DISTRIBUTOR TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL FOR THE FUND TO MAKE
SUCH AN OFFER IN SUCH JURISDICTION.
- --------------------------------------------------------------------------------
3
<PAGE> 8
- ------------------------------------------------------------------------------
PROSPECTUS SUMMARY
- ------------------------------------------------------------------------------
THE FUND. Van Kampen American Capital Value Fund (the "Fund") is a separate
diversified series of Van Kampen American Capital Equity Trust, an open-end
management investment company which is a Delaware business trust. See "The
Fund."
MINIMUM PURCHASE. $500 minimum initial investment for each class of shares and
$25 minimum for each subsequent investment for each class of shares (or less as
described under "Purchase of Shares").
INVESTMENT OBJECTIVE. The investment objective of the Fund is to seek long-term
growth of capital.
INVESTMENT POLICY. The Fund seeks to achieve its investment objective by
investing primarily in a diversified portfolio of common stocks and other equity
securities of medium and larger capitalization companies that are believed by
the Fund's investment adviser to be selling below their intrinsic value and to
offer the opportunity for significant growth of capital. There is no assurance
that the Fund will achieve its investment objective. The net asset value per
share of the Fund may increase or decrease depending on changes in the
securities markets, and other factors affecting the issuers of securities in
which the Fund may invest. See "Investment Objective and Policies."
INVESTMENT PRACTICES. The Fund may invest up to 25% of its assets in foreign
securities. Subject to certain limitations, the Fund may enter into strategic
transactions, lend its portfolio securities, and enter into repurchase
agreements with selected commercial banks and broker-dealers. These investment
practices entail certain risks. See "Investment Practices."
ALTERNATIVE SALES ARRANGEMENTS. The Alternative Sales Arrangements permit an
investor to choose the method of purchasing shares that is more beneficial to
the investor, taking into account the amount of the purchase, the length of time
the investor expects to hold the shares and other circumstances. Investors
should consider such factors together with the amount of sales charges and
accumulated distribution and service fees with respect to each class of shares
that may be incurred over the anticipated duration of their investment in the
Fund. To assist investors in making this determination, the table under the
caption "Annual Fund Operating Expenses and Example" sets forth examples of the
charges applicable to each class of shares.
The Fund currently offers three classes of its shares which may be purchased
at a price equal to their net asset value per share plus sales charges which, at
the election of the investor, may be imposed either (i) at the time of the
purchase ("Class A Shares") or (ii) on a contingent deferred basis (Class A
Share purchases over $1 million, "Class B Shares" and "Class C Shares"). Class A
Share purchases subject to a contingent deferred sales charge ("CDSC"), Class B
Shares
4
<PAGE> 9
and Class C Shares sometimes are referred to herein collectively as "CDSC
Shares".
Class A Shares. Class A Shares are subject to an initial sales charge equal to
5.75% of the public offering price (6.10% of the net amount invested), reduced
on investments of $50,000 or more. Class A Shares are subject to ongoing
distribution and service fees at an aggregate annual rate of up to 0.25% of the
Fund's average daily net assets attributable to the Class A Shares. Certain
purchases of Class A Shares qualify for reduced or no initial sales charges and
may be subject to a CDSC.
Class B Shares. Class B Shares do not incur a sales charge when they are
purchased, but are subject to a sales charge if redeemed within six years of
purchase. Class B Shares are subject to a CDSC equal to 4.00% of the lesser of
the then current net asset value or the original purchase price on Class B
Shares redeemed during the first year after purchase, which charge is reduced
each year thereafter. Class B Shares are subject to ongoing distribution and
service fees at an aggregate annual rate of up to 1.00% of the Fund's average
daily net assets attributable to the Class B Shares. Class B Shares
automatically will convert to Class A Shares seven years after the end of the
calendar month in which the investor's order to purchase was accepted, in the
circumstances and subject to the qualifications described in this Prospectus.
Class C Shares. Class C Shares do not incur a sales charge when they are
purchased, but are subject to a sales charge if redeemed within the first year
after purchase. Class C Shares are subject to a CDSC equal to 1.00% of the
lesser of the then current net asset value or the original purchase price on
Class C Shares redeemed during the first year after purchase. Class C Shares are
subject to ongoing distribution and service fees at an aggregate annual rate of
up to 1.00% of the Fund's average daily net assets attributable to the Class C
Shares. Class C Shares automatically will convert to Class A Shares ten years
after the end of the calendar month in which the investor's order to purchase
was accepted, in the circumstances and subject to the qualifications described
in this Prospectus.
REDEMPTION. Class A Shares may be redeemed at net asset value, without charge,
subject to conditions set forth herein. CDSC Shares may be redeemed at net asset
value less a deferred sales charge which will vary among each class of CDSC
Shares and with the length of time a redeeming shareholder has owned such
shares. CDSC Shares redeemed after the expiration of the CDSC period applicable
to the respective class of CDSC Shares will not be subject to a deferred sales
charge. See "Redemption of Shares."
INVESTMENT ADVISER. Van Kampen American Capital Investment Advisory Corp. is
the Fund's investment adviser. The annual advisory fee for the Fund is 0.75% of
average daily net assets, reduced on net assets over $500 million. See
"Investment Advisory Services."
DISTRIBUTOR. Van Kampen American Capital Distributors, Inc.
5
<PAGE> 10
DISTRIBUTIONS FROM THE FUND. Distributions from net investment income and
realized capital gains, if any, are made annually. Distributions with respect to
each class of shares will be calculated in the same manner on the same day and
will be in the same amount, except that the different distribution and service
fees and administrative expenses relating to each class of shares will be borne
exclusively by the respective class of shares and may cause the distributions
relating to the different classes of shares to differ. See "Distributions from
the Fund."
The above is qualified in its entirety by reference to the more detailed
information appearing elsewhere in this Prospectus.
6
<PAGE> 11
- ------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- ------------ ------------
<S> <C> <C> <C>
Maximum sales charge imposed
on purchases (as a
percentage of the offering
price)..................... 5.75%(1) None None
Maximum sales charge imposed
on reinvested dividends
(as a percentage of the
offering price)............. None None(3) None(3)
Deferred sales charge (as a
percentage of the lesser of
the original purchase price
or redemption proceeds)..... None(2) Year 1--4.00% Year 1--1.00%
Year 2--3.75% After--None
Year 3--3.50%
Year 4--2.50%
Year 5--1.50%
Yea 6--1.00%
After--None
Redemption fees (as a
percentage of amount
redeemed)................... None None None
Exchange fees................. None None None
</TABLE>
- ----------------
(1) Reduced on investments of $50,000 or more. See "Purchase of Shares -- Class
A Shares."
(2) Investments of $1 million or more are not subject to a sales charge at the
time of purchase, but a contingent deferred sales charge of 1.00% may be
imposed on redemptions made within one year of the purchase.
(3) CDSC Shares received as reinvested dividends are subject to a 12b-1 fee, a
portion of which may indirectly pay for the initial sales commission
incurred on behalf of the investor. See "The Distribution and Service
Plans."
7
<PAGE> 12
- ------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES AND EXAMPLE
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- --------- ---------
<S> <C> <C> <C>
Management fees(1) (as a percentage of
average daily net assets)............. 0.00% 0.00% 0.00%
12b-1 fees(2) (as a percentage of
average daily net assets)............. .25% 1.00% 1.00%
Other expenses (as a percentage of
average daily net assets)............. 1.05% 1.05% 1.05%
Total expenses(1) (as a percentage of
average daily net assets)............. 1.30% 2.05% 2.05%
</TABLE>
- ----------------
(1) Absent the Adviser's waiver of its fee and assumption of the expenses of the
Fund, "Management fees" would have been 0.75% for each of the Class A
Shares, Class B Shares and Class C Shares, and "Total expenses" would have
been 1.66% for Class A Shares, 2.41% for Class B Shares and 2.41% for Class
C Shares.
(2) Includes a service fee of up to 0.25% (as a percentage of net asset value)
paid by the Fund to the selling broker as compensation for ongoing services
rendered to investors. With respect to each class of shares, amounts in
excess of 0.25%, if any, represent an asset based sales charge. The asset
based sales charge with respect to Class C Shares includes 0.75% (as a
percentage of net asset value) paid to investors' broker-dealers as sales
compensation.
8
<PAGE> 13
EXAMPLE:
<TABLE>
<CAPTION>
ONE THREE
YEAR YEARS
---- -----
<S> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (i) an operating expense ratio
of 1.30% for Class A Shares, 2.05% for Class B Shares
and 2.05% for Class C Shares, (ii) 5% annual return
and (iii) redemption at the end of each time period:
Class A Shares....................................... $70 $96
Class B Shares....................................... $61 $99
Class C Shares....................................... $31 $64
An investor would pay the following expenses on the
same $1,000 investment assuming no redemption at the
end of each period:
Class A Shares....................................... $70 $96
Class B Shares....................................... $21 $64
Class C Shares....................................... $21 $64
</TABLE>
The purpose of the foregoing table is to assist an investor in understanding
the various costs and expenses that an investor in the Fund will bear directly
or indirectly. The "Example" reflects expenses based on the "Annual Fund
Operating Expenses" table as shown above carried out to future years. The ten
year amount with respect to Class B Shares of the Fund reflects the lower
aggregate 12b-1 and service fees applicable to such shares after conversion to
Class A Shares. THE INFORMATION CONTAINED IN THE ABOVE TABLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY
BE GREATER OR LESSER THAN THOSE SHOWN. For a more complete description of such
costs and expenses, see "Purchase of Shares," "Investment Advisory Services,"
"The Distribution and Service Plans" and "Redemption of Shares."
- ------------------------------------------------------------------------------
THE FUND
- ------------------------------------------------------------------------------
Van Kampen American Capital Value Fund (the "Fund") is a mutual fund, which
pools shareholders' money to seek to achieve a specified investment objective.
In technical terms, the Fund is a separate diversified series of Van Kampen
American Capital Equity Trust (the "Trust"), an open-end management investment
company organized as a Delaware business trust. Mutual funds sell their shares
to investors and invest the proceeds in a portfolio of securities. A mutual fund
allows investors to pool their money with that of other investors in order to
obtain professional investment management. Mutual funds generally make it
possible for investors to obtain greater diversification of their investments
and to simplify their recordkeeping.
Van Kampen American Capital Investment Advisory Corp. (the "Adviser") provides
investment advisory and administrative services to the Fund. The Adviser
9
<PAGE> 14
and its affiliates also manage other mutual funds distributed by Van Kampen
American Capital Distributors, Inc. (the "Distributor"). To obtain prospectuses
and other information on any of these other funds, please call the telephone
number on the cover page of the Prospectus.
- ------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES
- ------------------------------------------------------------------------------
The investment objective of the Fund is to seek long-term growth of capital.
This objective is fundamental and cannot be changed without approval of the
shareholders of the Fund. Any income received by the Fund is incidental to the
objective of long-term growth of capital. There can be no assurance that the
Fund will achieve its investment objective. An investment in the Fund may not be
appropriate for all investors. The Fund is not intended to be a complete
investment program, and investors should consider their long-term investment
goals and financial needs when making an investment decision with respect to the
Fund. An investment in the Fund is intended to be a long-term investment and
should not be used as a trading vehicle.
The Fund seeks to achieve its investment objective by investing primarily in a
diversified portfolio of common stocks and other equity securities of medium and
larger capitalization companies that are believed by the Adviser to be selling
below their intrinsic value and to offer the opportunity for significant growth
of capital. Medium and larger capitalization companies are those companies that
at the time of investment have a market capitalization at least as large as that
of the company having the smallest market capitalization of those companies then
included in the S&P MidCap 400 Index. The Adviser believes that a company's
equity securities have unrecognized intrinsic value when they sell at a
substantial discount to liquidation value, private market value, or going
concern value. Liquidation value is based on the sum of the company's assets,
less the present value of all liabilities. Private market value is determined by
the price at which comparable securities have been sold in arms length
transactions. Going concern value is determined by the present value of all cash
inflows and outflows, discounted at a rate that reflects the expected interest
rate environment and risk profile of the firm. In determining the intrinsic
value and investment suitability of particular issuers, the Adviser may consider
factors such as historical and expected growth rates of earnings, economic
earnings, expected levels of free cash flow, evidence of financial strength,
predictability of future prospects, and quality of management.
The Fund may also invest in investment grade income securities for purposes of
long-term growth of capital, cash management or as a temporary defensive
measure. The Fund may also invest in other investment companies that pursue
investment objectives consistent with that of the Fund, to the extent and
subject to the limitations discussed below. The Fund may invest up to 25% of its
total assets in securities of foreign issuers.
10
<PAGE> 15
- ------------------------------------------------------------------------------
PORTFOLIO SECURITIES
- ------------------------------------------------------------------------------
COMMON STOCK. Common stocks are shares of a corporation or other entity that
entitle the holder to a pro rata share of the profits of the corporation, if
any, without preference over any other shareholder or class of shareholders,
including holders of such entity's debt securities, preferred stock and other
senior equity. Common stock usually carries with it the right to vote and
frequently an exclusive right to do so. In selecting common stocks for
investment, the Fund will focus primarily on the security's potential for
capital growth.
OTHER EQUITY SECURITIES. The Fund may invest in other equity securities,
including convertible securities and preferred stocks. A convertible security is
a bond, debenture, note, preferred stock or other security that may be converted
into or exchanged for a prescribed amount of common stock or other equity
security of the same or a different issuer within a particular period of time at
a specified price or formula. A convertible security entitles the holder to
receive interest paid or accrued on debt or the dividend paid on preferred stock
until the convertible security matures or is redeemed, converted or exchanged.
Before conversion, convertible securities have characteristics similar to
nonconvertible income securities in that they ordinarily provide a stable stream
of income with generally higher yields than those of common stocks of the same
or similar issuers. Convertible securities rank senior to common stock in a
corporation's capital structure but are usually subordinated to comparable
nonconvertible securities. The Fund may invest in adjustable or fixed rate
preferred stock. Preferred stock generally has a preference as to dividends and
upon liquidation over an issuer's common stock but ranks junior to debt
securities in an issuer's capital structure. Unlike interest payments on debt
securities, preferred stock dividends are payable only if declared by the
issuer's board of directors. Preferred stock also may be subject to optional or
mandatory redemption provisions.
INCOME SECURITIES. The Fund may invest its assets in income securities, which
include primarily debt securities of various maturities. The Fund will invest
only in income securities that are investment grade at the time of investment.
Investment grade securities are securities that are rated at least BBB by
Standard & Poor's Ratings Group ("S&P"), or at least Baa by Moody's Investors
Services, Inc. ("Moody's") or comparably rated by any other nationally
recognized rating organization, or, if unrated, considered by the Adviser to be
of comparable quality to securities so rated. Securities in the top categories
(e.g., AAA, AA, and A by S&P or Aaa, Aa, and A by Moody's) are generally
regarded as high grade and have a strong to outstanding capacity to pay interest
or dividends and repay principal or capital. Medium grade securities (e.g., BBB
by S&P or Baa by Moody's) are regarded as having an adequate capacity to pay
interest or dividends, and repay principal, although adverse economic conditions
or changing circumstances are more likely to lead to a weakened capacity to make
such payments. Securities rated Baa are regarded by Moody's as having some
speculative characteristics. For a
11
<PAGE> 16
description of such ratings see the Statement of Additional Information
incorporated by reference into this Prospectus.
The net asset value of the Fund will change with changes in the value of its
portfolio securities. The values of income securities may change as interest
rate levels fluctuate. To the extent that the Fund invests in income securities,
the net asset value of the Fund can be expected to change as general levels of
interest rates fluctuate. When interest rates decline, the value of a portfolio
invested in income securities generally can be expected to rise. Conversely,
when interest rates rise, the value of a portfolio invested in income securities
generally can be expected to decline. Volatility may be greater during periods
of general economic uncertainty.
The foregoing policies with respect to credit quality of portfolio investments
will apply only at the time of purchase of a security, and the Fund will not be
required to dispose of a security in the event that S&P or Moody's (or any other
rating organization) or, in the case of unrated income securities, the Adviser,
downgrades its assessment of the credit characteristics of a particular issuer.
In determining whether the Fund will retain or sell such a security the Adviser
may consider such factors as the Adviser's assessment of the credit quality of
the issuer of such security, the price at which such security could be sold and
the rating, if any, assigned to such security by other nationally recognized
statistical rating organizations.
FOREIGN SECURITIES. The Fund may invest up to 25% of the value of its total
assets in securities of foreign issuers. Investments in securities of foreign
entities and securities denominated in foreign currencies involve risks not
typically involved in domestic investment, including fluctuations in foreign
exchange rates, future foreign political and economic developments, and the
possible imposition of exchange controls or other foreign or United States
governmental laws or restrictions applicable to such investments. Since the Fund
may invest in securities denominated or quoted in currencies other than the
United States dollar, changes in foreign currency exchange rates may affect the
value of investments in the portfolio and the accrued income and unrealized
appreciation or depreciation of investments. Changes in foreign currency
exchange rates relative to the U.S. dollar will affect the U.S. dollar value of
the Fund's assets denominated in that currency and the Fund's yield on such
assets. With respect to certain foreign countries, there is the possibility of
expropriation of assets, confiscatory taxation, political or social instability
or diplomatic developments which could affect investment in those countries.
There may be less publicly available information about a foreign security than
about a United States security, and foreign entities may not be subject to
accounting, auditing and financial reporting standards and requirements
comparable to those of United States entities. In addition, certain foreign
investments made by the Fund may be subject to foreign withholding taxes, which
would reduce the Fund's total return on such investments and the amounts
available for distributions by the Fund to its shareholders. See "Tax Status."
Foreign financial markets, while growing in volume, have, for the most part,
substantially less volume than United
12
<PAGE> 17
States markets, and securities of many foreign companies are less liquid and
their prices more volatile than securities of comparable domestic companies. The
foreign markets also have different clearance and settlement procedures and in
certain markets there have been times when settlements have been unable to keep
pace with the volume of securities transactions making it difficult to conduct
such transactions. Delays in settlement could result in temporary periods when
assets of the Fund are not invested and no return is earned thereon. The
inability of the Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Inability to dispose of portfolio securities due to settlement problems could
result either in losses to the Fund due to subsequent declines in value of the
portfolio security or, if the Fund has entered into a contract to sell the
security, could result in possible liability to the purchaser. Costs associated
with transactions in foreign securities, including custodial costs and foreign
brokerage commissions, are generally higher than with transactions in United
States securities. In addition, the Fund will incur costs in connection with
conversions between various currencies. There is generally less government
supervision and regulation of exchanges, financial institutions and issuers in
foreign countries than there is in the United States.
- ------------------------------------------------------------------------------
INVESTMENT PRACTICES
- ------------------------------------------------------------------------------
In connection with the investment policies described above, the Fund may also
engage in the investment practices described below. These practices entail
risks. The investment practices described below are not fundamental and can be
changed without a vote of the shareholders of the Fund.
LOANS OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements, the Fund may lend its portfolio securities to selected commercial
banks or broker-dealers up to a maximum of 50% of the assets of the Fund. Such
loans must be callable at any time and be continuously secured by collateral
deposited by the borrower in a segregated account with the Fund's custodian
consisting of cash or of securities issued or guaranteed by the U.S. Government
or its agencies, which collateral is equal at all times to at least 100% of the
value of the securities loaned, including accrued interest. The Fund will
receive amounts equal to earned income for having made the loan. Any cash
collateral pursuant to these loans will be invested in short-term instruments.
The Fund is the beneficial owner of the loaned securities in that any gain or
loss in the market price during the loan inures to the Fund and its
shareholders. Thus, when the loan is terminated, the value of the securities may
be more or less than their value at the beginning of the loan. In determining
whether to lend its portfolio securities to a bank or broker-dealer, the Fund
will take into account the credit-worthiness of such borrower and will monitor
such credit-worthiness on an ongoing basis in as much as default by the other
party may cause delays or other collection difficulties. The Fund may pay
finders' fees in connection with loans of its portfolio securities.
13
<PAGE> 18
REPURCHASE AGREEMENTS. The Fund may use up to 20% of its assets to enter into
repurchase agreements with selected commercial banks and broker-dealers, under
which the Fund acquires securities and agrees to resell the securities at an
agreed upon time and at an agreed upon price. The Fund accrues as interest the
difference between the amount it pays for the securities and the amount it
receives upon resale. At the time the Fund enters into a repurchase agreement,
the value of the underlying security including accrued interest will be equal to
or exceed the value of the repurchase agreement and, for repurchase agreements
that mature in more than one day, the seller will agree that the value of the
underlying security including accrued interest will continue to be at least
equal to the value of the repurchase agreement. The Adviser will monitor the
value of the underlying security in this regard. The Fund will enter into
repurchase agreements only with commercial banks whose deposits are insured by
the Federal Deposit Insurance Corporation and whose assets exceed $500 million
or broker-dealers who are registered with the SEC. In determining whether to
enter into a repurchase agreement with a bank or broker-dealer, the Fund will
take into account the credit-worthiness of such party and will monitor its
credit-worthiness on an ongoing basis. In the event of default by such party,
the delays and expenses potentially involved in establishing the Fund's rights
to, and in liquidating, the security may result in loss to the Fund. The Fund's
ability to invest in repurchase agreements that mature in more than seven days
is subject to an investment restriction that limits the Fund's investment in
"illiquid" securities, including such repurchase agreements, to 15% of the
Fund's net assets.
For the purpose of investing in repurchase agreements, the Adviser may
aggregate the cash that substantially all of the funds advised or subadvised by
the Adviser, or an affiliate, would otherwise invest separately into a joint
account. The cash in the joint account is then invested in repurchase agreements
in a manner consistent with the foregoing guidelines 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 greater 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 SEC
exemptive order authorizing this practice, which conditions are designed to
ensure the fair administration of the joint account.
"WHEN ISSUED" AND "DELAYED DELIVERY" TRANSACTIONS. The Fund may also purchase
and sell portfolio securities on a "when issued" and "delayed delivery" basis.
No income accrues to or is earned by the Fund on portfolio securities in
connection with such purchase transactions prior to the date the Fund actually
takes delivery of such securities. These transactions are subject to market
fluctuation; the value of such securities at delivery may be more or less than
their purchase price and yields generally available on such securities when
delivery occurs may be higher or lower than yields on such securities obtained
pursuant to such transactions. Because the Fund relies on the buyer or seller,
as the case may be, to consummate the transaction, failure by the other party to
complete the transaction may result in
14
<PAGE> 19
the Fund missing the opportunity of obtaining a price or yield considered to be
advantageous. When the Fund is the buyer in such a transaction, however, it will
maintain, in a segregated account with its custodian, cash or high-grade
portfolio securities having an aggregate value equal to the amount of such
purchase commitments until payment is made. The Fund will make commitments to
purchase securities on such basis only with the intention of actually acquiring
these securities, but the Fund may sell such securities prior to the settlement
date if such sale is considered to be advisable. To the extent the Fund engages
in "when issued" and "delayed delivery" transactions, it will do so for the
purpose of acquiring securities for the Fund's portfolio consistent with the
Fund's investment objective and policies and not for the purpose of investment
leverage. 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.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest up to 15% of its net
assets in illiquid securities including securities the disposition of which is
subject to substantial legal or contractual restrictions on resale and
securities that are not readily marketable. The sale of restricted and illiquid
securities often requires more time and results in higher brokerage charges or
dealer discounts and other selling expenses than does the sale of securities
eligible for trading on national securities exchanges or in the over-the-counter
markets. Restricted securities may sell at a price lower than similar securities
that are not subject to restrictions on resale. Restricted securities salable
among qualified institutional buyers without restriction pursuant to Rule 144A
under the Securities Act of 1933 that are determined to be liquid by the Adviser
under guidelines adopted by the Board of Trustees of the Trust (under which
guidelines the Adviser will consider factors such as trading activities and the
availability of price quotations), will not be treated as restricted securities
by the Fund pursuant to such rules.
BORROWINGS. The Fund is authorized to borrow money from banks (including
entering into reverse repurchase agreements) in an amount up to 33 1/3% of the
Fund's total assets (after giving effect to any such borrowing) which amount
excludes no more than 5% in borrowings and reverse repurchase agreements from
any entity for temporary purposes, such as clearances of portfolio transactions,
share repurchases and payment of dividends and distributions. The Fund has no
current intention to borrow money other than for such temporary purposes.
Accordingly, the Fund will not acquire additional securities during any period
in which its borrowings exceed 5% of the Fund's total assets. Borrowing by the
Fund creates an opportunity for increased net income but, at the same time,
creates special risk considerations. See the Fund's Statement of Additional
Information for a more complete discussion of borrowings and certain of the
associated risks.
STRATEGIC TRANSACTIONS. The Fund may purchase and sell derivative instruments
such as exchange-listed and over-the-counter put and call options on securities,
financial futures, equity and fixed-income indices and other financial
instruments and purchase and sell financial futures contracts and enter into
various currency
15
<PAGE> 20
transactions such as currency forward contracts, currency future contracts,
currency swaps or options on currencies or currency futures. Collectively, all
of the above are referred to as "Strategic Transactions." The Fund may also
invest in income securities the terms of which include the element of or are
similar in effect to Strategic Transactions in which it may engage. Strategic
Transactions may be used to attempt to protect against possible changes in the
market value of securities held in or to be purchased for the Fund's portfolio
resulting from securities markets, to protect the Fund's unrealized gains in the
value of its portfolio securities, to facilitate the sale of such securities for
investment purposes, to protect against changes in currency exchange rates, or
to establish a position in the derivatives markets as a temporary substitute for
purchasing or selling particular securities. Any or all of these investment
techniques may be used at any time and there is no particular strategy that
dictates the use of one technique rather than another, as use of any Strategic
Transaction is a function of numerous variables including market conditions. The
ability of the Fund to utilize these Strategic Transactions successfully will
depend on the Adviser's ability to predict pertinent market movements, which
cannot be assured. The Fund will comply with applicable regulatory requirements
when implementing these strategies, techniques and instruments.
Strategic Transactions have risks associated with them including possible
default by the other party to the transaction, illiquidity and, to the extent
the Adviser's view as to certain market movements is incorrect, the risk that
the use of such Strategic Transactions could result in losses greater than if
they had not been used. Use of put and call options may result in losses to the
Fund, force the sale of portfolio securities at inopportune times or for prices
other than at current market values, limit the amount of appreciation the Fund
can realize on its investments or cause the Fund to hold a security it might
otherwise sell. The use of currency transactions can result in the Fund
incurring losses as a result of a number of factors including the imposition of
exchange controls, suspension of settlements or the inability to deliver or
receive a specific currency. The use of options and futures transactions entails
certain other risks. In particular, the variable degree of correlation between
price movements of futures contracts and price movements in the related
portfolio position of the Fund creates the possibility that losses on the
hedging instrument may be greater than gains in the value of the Fund's
position. In addition, futures and options markets may not be liquid in all
circumstances and certain over-the-counter options may have no markets. As a
result, in certain markets, the Fund might not be able to close out a
transaction without incurring substantial losses, if at all. Although the
contemplated use of these futures contracts and options thereon should tend to
minimize the risk of loss due to a decline in the value of the hedged position,
at the same time they tend to limit any potential gain which might result from
an increase in value of such position. To the extent that a futures contract or
an option thereon is used to protect against possible changes in the market
value of securities that the Fund anticipates acquiring and the Fund
subsequently does not acquire such securities, the Fund will have incurred the
transactional expenses associated with entering into such transaction and will
be subject to the risks
16
<PAGE> 21
inherent in an unhedged purchase of such futures contract or option. Finally,
the daily variation margin requirements for futures contracts would create a
greater ongoing potential financial risk than would purchases of options, where
the exposure is limited to the cost of the initial premium. Losses resulting
from the use of Strategic Transactions would reduce net asset value, and
possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized. The Strategic Transactions that the Fund may
use and some of their risks are described more fully in the Fund's Statement of
Additional Information.
Income earned or deemed to be earned, if any, by the Fund from its Strategic
Transactions will generally be taxable income of the Fund. See "Tax Status."
DEFENSIVE STRATEGIES. When, in the judgment of the Fund's Adviser, economic
and market conditions warrant, the Fund may invest temporarily for defensive
purposes up to 100% of its total assets in U.S. Government securities of various
maturities, investment grade corporate debt securities, preferred stocks,
convertible bonds, banker's acceptances and certificates of deposit.
INVESTMENT IN INVESTMENT COMPANIES. The Fund may invest in a separate
investment company, Van Kampen American Capital Small Capitalization Fund
("Small Cap Fund"), that invests in a broad selection of small capitalization
securities. The shares of the Small Cap Fund are available only to investment
companies advised by the Adviser, or an affiliate. The Adviser believes that the
use of the Small Cap Fund provides the Fund with the most effective exposure to
the performance of the small capitalization sector of the stock market while at
the same time minimizing costs. The Adviser charges no advisory fee for managing
the Small Cap Fund, nor are there any sales load or other charges associated
with distribution of its shares. Other expenses incurred by the Small Cap Fund
are borne by it, and thus indirectly by the Van Kampen American Capital funds
that invest in it. With respect to such other expenses, the Adviser anticipates
that the efficiencies resulting from use of the Small Cap Fund will result in
cost savings for the Fund and other Van Kampen American Capital funds. In large
part these savings will be attributable to the fact that administrative actions
that would have to be performed multiple times if each Van Kampen American
Capital fund held its own portfolio of small capitalization stocks will need to
be performed only once. The Adviser expects that the Small Cap Fund will
experience trading costs that will be substantially less than the trading costs
that would be incurred if small capitalization stocks were purchased separately
for the Fund and other Van Kampen American Capital funds. The Fund's investment
in Small Cap Fund is subject to the terms and conditions set forth in an SEC
exemption order authorizing this investment.
The securities of small and medium sized companies that the Small Cap Fund may
invest in may be subject to more abrupt or erratic market movements than
securities of larger, more established companies or the market averages in
general. In addition, small capitalization companies typically are subject to a
greater degree of change in earnings and business prospects than are larger,
more established companies. In light of these characteristics of small
capitalization companies and
17
<PAGE> 22
their securities, the Small Cap Fund may be subject to greater investment risk
than that assumed through investment in the equity securities of larger
capitalization companies. Because the Fund intends to invest primarily in common
stocks and other equity securities of medium and larger capitalization
companies, the Fund does not expect to invest a significant portion of its
assets in the Small Cap Fund.
The Fund will be deemed to own a pro rata portion of each investment of the
Small Cap Fund. For example, if the Fund's investment in the Small Cap Fund were
$10 million, and the Small Cap Fund had five percent of its assets invested in
the electronics industry, the Fund would be considered to have an investment of
$500,000 in the electronics industry.
INVESTMENT RESTRICTIONS. The Fund is subject to certain investment
restrictions which constitute fundamental policies. Fundamental policies cannot
be changed without the approval of the holders of a majority of the Fund's
outstanding voting securities, as defined in the Investment Company Act of 1940
(the "1940 Act"). See "Investment Policies and Restrictions" in the Statement of
Additional Information.
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.
The Adviser is responsible for effecting securities transactions of the Fund
and will do so in a manner deemed fair and reasonable to shareholders of the
Fund and not according to any formula. The Adviser's primary considerations in
selecting the manner of executing securities transactions for the Fund will be
prompt execution of orders, the size and breadth of the market for the security,
the reliability, integrity and financial condition and execution capability of
the firm, 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 is given to those firms which supply research and other services
in addition to execution services. However, it is not the policy of the Adviser,
absent special circumstances, to pay higher commissions to a firm because it has
supplied such services.
In effecting purchases and sales of the Fund's portfolio securities, the
Adviser and the Fund may place orders with and pay brokerage commissions to
brokers, including brokers which may be affiliated with the Fund, the Adviser,
the Distributor or dealers participating in the offering of the Fund's shares.
In addition, in selecting among firms to handle a particular transaction, the
Adviser and the Fund may take into account whether the firm has sold or is
selling shares of the Fund. See "Portfolio Transactions and Brokerage
Allocation" in the Statement of Additional Information for more information.
PORTFOLIO TURNOVER. The Fund purchases securities which are believed by the
Adviser to have potential for long-term growth of capital. Common stocks are
18
<PAGE> 23
disposed of in situations where it is believed that potential for such growth
has lessened or that other common stocks have a greater potential. Therefore,
the Fund may purchase and sell securities without regard to the length of time
the security is to be, or has been held. The rate may exceed 100%, which is
higher than that of many other investment companies. A 100% turnover rate
occurs, for example, if all the Fund's portfolio securities are replaced during
one year. High portfolio activity increases the Fund's transaction costs,
including brokerage commissions.
- ------------------------------------------------------------------------------
INVESTMENT ADVISORY SERVICES
- ------------------------------------------------------------------------------
THE ADVISER. The Adviser is a wholly-owned subsidiary of Van Kampen American
Capital, Inc. ("Van Kampen American Capital"). Van Kampen American Capital is a
diversified asset management company with more than two million retail investor
accounts, extensive capabilities for managing institutional portfolios and over
$50 billion under management or supervision. Van Kampen American Capital's more
than 40 open-end and 38 closed-end funds and more than 2,700 unit investment
trusts are professionally distributed by leading financial advisers nationwide.
Van Kampen American Capital is a wholly-owned subsidiary of VK/AC Holding,
Inc. Van Kampen American Capital Distributors, Inc., the distributor of the Fund
and the sponsor of the funds mentioned above, is also a wholly-owned subsidiary
of Van Kampen American Capital. VK/AC Holding, Inc. is controlled, through an
ownership of a substantial majority of its common stock, by The Clayton &
Dubilier Private Equity Fund IV Limited Partnership ("C & D L.P."), a
Connecticut limited partnership. C & D L.P. is managed by Clayton, Dubilier &
Rice, Inc. Clayton & Dubilier Associates IV Limited Partnership ("C & D
Associates L.P.") is the general partner of C & D L.P. The general partners of C
& D Associates L.P. are Joseph L. Rice, III, B. Charles Ames, William A. Barbe,
Alberto Cribiore, Donald J. Gogel, Leon J. Hendrix, Jr., Hubbard C. Howe and
Andrall E. Pearson, each of whom is a principal of Clayton, Dubilier & Rice,
Inc. In addition, certain officers, directors and employees of Van Kampen
American Capital and its subsidiaries (some of whom are officers or trustees of
the Fund) own, in the aggregate, not more than 7% of the common stock of VK/AC
Holding, Inc. and have the right to acquire, upon the exercise of options,
approximately an additional 11% of the common stock of VK/AC Holding, Inc.
Presently, and after giving effect to the exercise of such options, no officer
or trustee of the Fund owns or would own 5% or more of the common stock of VK/AC
Holding, Inc.
ADVISORY AGREEMENT. The business and affairs of the Fund will be managed under
the direction of the Trustees of the Trust, of which the Fund is a series.
Subject to the Trustees' authority, the Adviser and the officers of the Fund
will supervise and implement the Fund's investment activities and will be
responsible for overall management of the Fund's business affairs. The Fund will
pay the Adviser a fee
19
<PAGE> 24
(accrued daily and paid monthly) equal to a percentage of the average daily net
assets of the Fund as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS PERCENTAGE PER ANNUM
- ------------------------ --------------------
<S> <C>
First $500 million.................................. 0.75 of 1%
Next $500 million................................... 0.70 of 1%
Over $1 billion..................................... 0.65 of 1%
</TABLE>
Under its investment advisory agreement, the Adviser has agreed to furnish
without charge all offices, facilities, equipment and personnel necessary to
manage the Fund, and the Fund has agreed to assume and pay the charges and
expenses of the Fund's operations, including: the compensation of the Trustees
of the Trust (other than those who are affiliated persons, as defined in the
1940 Act, of the Adviser, the Distributor or Van Kampen American Capital), the
charges and expenses of independent accountants, legal counsel, transfer and
dividend disbursing agent, and the custodian (including fees for safekeeping of
securities); costs of calculating net asset value; costs of acquiring and
disposing of portfolio securities; interest (if any) on obligations incurred by
the Fund; costs of share certificates; costs of membership dues in the
Investment Company Institute or any similar organization; costs of reports and
notices to shareholders; costs of registering shares of the Fund under federal
securities laws; miscellaneous expenses and all taxes and fees to federal, state
or other governmental agencies, excluding state securities registration
expenses.
The Adviser may utilize at its own expense credit analysis, research and
trading support services provided by its affiliate, Van Kampen American Capital
Asset Management, Inc.
PERSONAL INVESTING 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 permit trustees/directors, officers and
employees to buy and sell securities for their personal accounts subject to
procedures designed to prevent conflicts of interest including, in some
instances, preclearance of trades.
PORTFOLIO MANAGEMENT. James Gilligan and Bret Stanley are co-managers of the
Fund and are primarily responsible for the day-to-day management of the Fund's
investment portfolio. Messrs. Gilligan and Stanley have been primarily
responsible for managing the Fund's investment portfolio since its inception.
Mr. Gilligan has been Vice President -- Portfolio Manager of Van Kampen American
Capital Asset Management, Inc. since March 1990. Prior to that time, he was a
securities analyst with Van Kampen American Capital Asset Management, Inc. Mr.
Stanley has been an associate portfolio manager of Van Kampen American Capital
Asset Management, Inc. since January 1995. Prior to that time, he was a
securities analyst and portfolio manager with Gulf Investment Management. Prior
to that, he
20
<PAGE> 25
was an analyst at Lovett Underwood Neuhaus & Webb, and Rotan Mosle. Each
portfolio manager is an employee of the Adviser.
- ------------------------------------------------------------------------------
ALTERNATIVE SALES ARRANGEMENTS
- ------------------------------------------------------------------------------
The Alternative Sales Arrangements permit an investor to choose the method of
purchasing shares that is more beneficial to the investor, taking into account
the amount of the purchase, the length of time the investor expects to hold the
shares, whether the investor wishes to receive dividends in cash or to reinvest
them in additional shares of the Fund, and other circumstances. Investors should
consider such factors together with the amount of sales charges and aggregate
distribution and service fees with respect to each class of shares that may be
incurred over the anticipated duration of their investment in the Fund.
The Fund currently offers three classes of shares, designated Class A Shares,
Class B Shares and Class C Shares. Shares of each class are offered at a price
equal to their net asset value per share plus a sales charge which, at the
election of the purchaser, may be imposed (a) at the time of purchase (the
"Class A Shares") or (b) on a contingent deferred basis (Class A Share purchases
over $1 million, "Class B Shares" and "Class C Shares"). Shares subject to a
contingent deferred sales charge ("CDSC"), sometimes are referred to herein
collectively as "Contingent Deferred Sales Charge Shares" or "CDSC Shares."
The minimum initial investment with respect to each class of shares is $500.
The minimum subsequent investment with respect to each class of shares is $25.
It is presently the policy of the Distributor not to accept any order for Class
B Shares or Class C Shares in an amount of $1 million or more because it
ordinarily will be more advantageous for an investor making such an investment
to purchase Class A Shares.
An investor should carefully consider the sales charges applicable to each
class of shares and the estimated period of their investment to determine which
class of shares is more beneficial for the investor to purchase. For example,
investors who would qualify for a significant purchase price discount from the
maximum sales charge on Class A Shares may determine that payment of such a
reduced front-end sales charge is superior to electing to purchase Class B
Shares or Class C Shares, each with no front-end sales charge but subject to a
CDSC and a higher aggregate distribution and service fee. However, because
initial sales charges are deducted at the time of purchase of Class A Share
purchases under $1 million, a purchaser of such Class A Shares would not have
all of his or her funds invested initially and, therefore, would initially own
fewer shares than if Class B Shares or Class C Shares had been purchased. On the
other hand, an investor whose purchase would not qualify for price discounts
applicable to Class A Shares and intends to remain invested until after the
expiration of the applicable CDSC period may wish to defer the sales charge and
have all his or her funds initially invested in Class B Shares or Class C
Shares. If such an investor anticipates that he or she will redeem such
21
<PAGE> 26
shares prior to the expiration of the CDSC period applicable to Class B Shares,
the investor may wish to acquire Class C Shares (discussed below). Investors who
intend to hold their shares for a significantly long time may not wish to
continue to bear the ongoing distribution and service expenses of Class C
Shares, which, in the aggregate, eventually would exceed the aggregate amount of
the initial sales charge and distribution and service expenses applicable to
Class A Shares, irrespective of the fact that a CDSC would eventually not apply
to a redemption of such Class C Shares.
Each class of shares represents an interest in the same portfolio of
investments of the Fund and has the same rights, except each class of shares (i)
bears those distribution fees, service fees and administrative expenses
applicable to the respective class of shares as a result of its sales
arrangements, (ii) has exclusive voting rights with respect to those provisions
of the Fund's Rule 12b-1 distribution plan which relate only to such class and
(iii) has a different exchange privilege. The Class B Shares and Class C Shares
are subject to a conversion feature (discussed below). Generally, a class of
shares subject to a higher ongoing distribution fee, service fee or, where
applicable, the conversion feature will have a higher expense ratio and pay
lower dividends than a class of shares subject to a lower ongoing distribution
fee, service fee or not subject to the conversion feature. The per share net
asset values of the different classes of shares are expected to be substantially
the same; from time to time, however, the per share net asset values of the
classes may differ. The net asset value per share of each class of shares of the
Fund will be determined as described in this Prospectus under "Purchase of
Shares -- Net Asset Value."
The administrative expenses that may be allocated to a specific class of
shares may consist of (i) transfer agency expenses attributable to a specific
class of shares, which expenses typically will be higher with respect to classes
of shares subject to the conversion feature; (ii) printing and postage expenses
related to preparing and distributing materials such as shareholder reports,
prospectuses and proxy statements to current shareholders of a specific class;
(iii) SEC registration fees incurred by a class of shares; (iv) the expense of
administrative personnel and services as required to support the shareholders of
a specific class; (v) Trustees' fees or expense incurred as a result of issues
relating to one class of shares; (vi) accounting expenses relating solely to one
class of shares; and (vii) any other incremental expenses subsequently
identified that should be properly allocated to one or more classes of shares
that shall be approved by the SEC pursuant to an amended exemptive order. All
such expenses incurred by a class will be borne on a pro rata basis by the
outstanding shares of such class. All allocations of administrative expenses to
a particular class of shares will be limited to the extent necessary to preserve
the Fund's qualification as a regulated investment company under the Internal
Revenue Code of 1986, as amended (the "Code").
22
<PAGE> 27
- ------------------------------------------------------------------------------
PURCHASE OF SHARES
- ------------------------------------------------------------------------------
The Fund offers shares for sale to the public on a continuous basis through
Van Kampen American Capital Distributors, Inc. (the "Distributor"), as principal
underwriter, which is located at One Parkview Plaza, Oakbrook Terrace, Illinois
60181. Shares also are offered through members of the National Association of
Securities Dealers, Inc. ("NASD") acting as securities dealers ("dealers") and
through NASD members acting as brokers for investors ("brokers") or eligible
non-NASD members acting as agents for investors ("financial intermediaries").
The Fund reserves the right to suspend or terminate the continuous public
offering at any time and without prior notice.
The Fund's shares are offered at net asset value per share next computed after
an investor places an order to purchase with the investor's broker, dealer, or
financial intermediary or directly with the Distributor, plus any applicable
sales charge. Sales personnel or brokers, dealers and financial intermediaries
distributing the Fund's shares may receive differing compensation for selling
different classes of shares. It is the responsibility of the investor's broker,
dealer or financial intermediary to transmit the order to the Distributor.
Because the Fund generally determines net asset value once each business day as
of the close of business, purchase orders placed through an investor's broker,
dealer, or financial intermediary must be transmitted to the Distributor by such
broker, dealer or financial intermediary prior to such time in order for the
investor's order to be fulfilled on the basis of the net asset value to be
determined that day. Any change in the purchase price due to the failure of the
Distributor to receive a purchase order prior to such time must be settled
between the investor and the broker, dealer or financial intermediary submitting
the order.
The Distributor may from time to time implement programs under which a broker,
dealer or financial intermediary's sales force may be eligible to win nominal
awards for certain sales efforts or under which the Distributor will reallow to
any broker, dealer or financial intermediary that sponsors sales contests or
recognition programs conforming to criteria established by the Distributor, or
participates in sales programs sponsored by the Distributor, an amount not
exceeding the total applicable sales charges on the sales generated by the
broker, dealer or financial intermediary at the public offering price during
such programs. Other programs provide, among other things and subject to certain
conditions, for certain favorable distribution arrangements for shares of the
Fund. Also, the Distributor in its discretion may from time to time, pursuant to
objective criteria established by it, pay fees to, and sponsor business seminars
for, qualifying brokers, dealers or financial intermediaries for certain
services or activities which are primarily intended to result in sales of shares
of the Fund. Fees may include payment for travel expenses, including lodging,
incurred in connection with trips taken by invited registered representatives
and members of their families to locations within or outside of the United
States for meetings or seminars of a business nature. Such
23
<PAGE> 28
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. 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. Such payments to
brokers, dealers and financial intermediaries for sales contests, other sales
programs and seminars are made by the Distributor out of its own assets and not
out of the assets of the Fund. These programs will not change the price an
investor pays for shares or the amount that the Fund will receive from such
sale.
CLASS A SHARES
The public offering price of Class A Shares is equal to the net asset value
per share plus an initial sales charge which is a variable percentage of the
offering price depending upon the amount of the sale. The table below shows
total sales charges and dealer concessions reallowed to dealers and agency
commissions paid to brokers with respect to sales of Class A Shares. The sales
charge is allocated between an investor's broker, dealer or financial
intermediary and the Distributor. As indicated previously, at the discretion of
the Distributor, the entire sales charge may be reallowed to such broker, dealer
or financial intermediary. The staff of the SEC has taken the position that
brokers, dealers and financial intermediaries who receive more than 90% or more
of the sales charge may be deemed to be "underwriters" as that term is defined
in the Securities Act of 1933.
SALES CHARGE TABLE
<TABLE>
<CAPTION>
DEALER
CONCESSION
OR AGENCY
COMMISSION
TOTAL SALES CHARGE ----------
-------------------------- PERCENTAGE
PERCENTAGE PERCENTAGE OF
SIZE OF TRANSACTION OF OFFERING OF NET OFFERING
AT OFFERING PRICE PRICE ASSET VALUE PRICE
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000.................... 5.75% 6.10% 5.00%
$50,000 but less than $100,000....... 4.75 4.99 4.00
$100,000 but less than $250,000...... 3.75 3.90 3.00
$250,000 but less than $500,000...... 2.75 2.83 2.25
$500,000 but less than $1,000,000.... 2.00 2.04 1.75
$1,000,000 or more*.................. * * *
</TABLE>
- ------------------------------------------------------------------------------
* No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the Fund imposes a contingent
deferred sales charge of 1.00% on redemptions made within one year of the
purchase. A commission will be paid to dealers who initiate and are
responsible for purchases of $1 million or more as follows: 1.00% on sales to
$2 million, plus 0.80% on the next million, plus 0.20% on the next $2 million
and 0.08% on the excess over $5 million. See "Purchase of Shares -- Deferred
Sales Charge Alternatives" for additional information with respect to
contingent deferred sales charges.
24
<PAGE> 29
QUANTITY DISCOUNTS
Investors purchasing Class A Shares may, under certain circumstances, be
entitled to pay reduced sales charges. The circumstances under which such
investors may pay reduced sales charges are described below.
Investors, or their brokers, dealers or financial intermediaries, must notify
the Fund whenever a quantity discount is applicable to purchases. Upon such
notification, an investor will receive the lowest applicable sales charge.
Quantity discounts may be modified or terminated at any time. For more
information about quantity discounts, investors should contact their broker,
dealer or financial intermediary or the Distributor.
As used herein, "any person" eligible for a reduced sales charge includes an
individual, their spouse and minor children (and any trust or custodial accounts
for their benefit) and any corporation, partnership, or sole proprietorship
which is 100% owned, either alone or in combination, by any of the foregoing; a
trustee or other fiduciary purchasing for a single fiduciary account; or a
"company" as defined is section 2(a)(8) of the 1940 Act.
As used herein, "Participating Funds" refers to all open-end investment
companies distributed by the Distributor other than Van Kampen American Capital
Tax Free Money Fund ("Tax Free Money Fund"), Van Kampen American Capital Reserve
Fund ("Reserve Fund") and The Govett Funds, Inc.
VOLUME DISCOUNTS. The size of investment shown in the preceding table applies
to the total dollar amount being invested by any person at any one time in Class
A Shares of the Fund alone, or in combination with other shares of the Fund and
shares of other Participating Funds although other Participating Funds may have
different sales charges.
CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the preceding
table may also be determined by combining the amount being invested in Class A
Shares of the Fund with other shares of the Fund and shares of Participating
Funds plus the current offering price of all shares of the Fund and other
Participating Funds which have been previously purchased and are still owned.
LETTER OF INTENT. A Letter of Intent provides an opportunity for an investor
to obtain a reduced sales charge by aggregating the amount being invested over a
13-month period to determine the sales charge as outlined in the preceding
table. The size of investment shown in the preceding table includes the amount
of intended purchases of Class A Shares of the Fund with other shares of the
Fund and shares of the Participating Funds plus the value of all shares of the
Fund and other Participating Funds previously purchased during such 13-month
period and still owned. An investor may elect to compute the 13-month period
starting up to 90 days before the date of execution of a Letter of Intent. Each
investment made during the period receives the reduced sales charge applicable
to the total amount of the investment goal. If trades not initially made under a
Letter of Intent subse-
25
<PAGE> 30
quently qualify for a lower sales charge through the 90-day back-dating
provision, an adjustment will be made at the expiration of the Letter of Intent
to give effect to the lower charge. If the goal is not achieved within the
13-month period, the investor must pay the difference between the charges
applicable to the purchases made and the charges previously paid. When an
investor signs a Letter of Intent, shares equal to at least 5% of the total
purchase amount of the level selected will be restricted from sale or redemption
by the investor until the Letter of Intent is satisfied or any additional sales
charges have been paid; if the Letter of Intent is not satisfied by the investor
and any additional sales charges are not paid, sufficient restricted shares will
be redeemed by the Fund to pay such charges. Additional information is contained
in the application accompanying this Prospectus.
OTHER PURCHASE PROGRAMS
Purchasers of Class A Shares may be entitled to reduced initial sales charges
in connection with unit trust reinvestment programs and purchases by registered
representatives of selling firms or purchases by persons affiliated with the
Fund or the Distributor. The Fund reserves the right to modify or terminate
these arrangements at any time.
UNIT TRUST REINVESTMENT PROGRAMS. The Fund permits unitholders of unit
investment trusts to reinvest distributions from such trusts in Class A Shares
of the Fund with no minimum initial or subsequent investment requirement, and
with a lower sales charge if the administrator of an investor's unit investment
trust program meets certain uniform criteria relating to cost savings by the
Fund and the Distributor. The total sales charge for all investments made from
unit trust distributions will be 1.00% of the offering price (1.01% of net asset
value). Of this amount, the Distributor will pay to the broker, dealer or
financial intermediary, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the applicable terms and conditions thereof, should
contact their broker, dealer or financial intermediary 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 the Fund's transfer agent with
appropriate backup data for each participating investor in a computerized format
fully compatible with the transfer agent's processing system.
As further requirements for obtaining these special benefits, the Fund also
requires that all dividends and other distributions by the Fund be reinvested in
additional shares without any systematic withdrawal program. There will be no
minimum for reinvestments from unit investment trusts. The Fund will send
26
<PAGE> 31
account activity statements to such participants on a monthly basis only, even
if their investments are made more frequently.
NAV PURCHASE OPTIONS. Class A Shares of the Fund may be purchased at net asset
value, upon written assurance that the purchase is made for investment purposes
and that the shares will not be resold except through redemption by the Fund,
by:
(1) Current or retired Trustees of funds advised by the Adviser, Van Kampen
American Capital Asset Management, Inc. or John Govett & Co. Limited and
such persons' families and their beneficial accounts.
(2) Current or retired directors, officers and employees of VK/AC Holding,
Inc. and any of its subsidiaries, Clayton, Dubilier & Rice, Inc.,
employees of an investment subadviser to any fund described in (1) above
or an affiliate of such subadviser; and such persons' families and their
beneficial accounts.
(3) Directors, officers, employees and registered representatives of financial
institutions that have a selling group agreement with the Distributor and
their spouses and minor children when purchasing for any accounts they
beneficially own, or, in the case of any such financial institution, when
purchasing for retirement plans for such institution's employees.
(4) Registered investment advisers, trust companies and bank trust departments
investing on their own behalf or on behalf of their clients provided that
the aggregate amount invested in Class A Shares of the Fund alone, or in
any combination of shares of the Fund and shares of other Participating
Funds as described herein under "Purchase of Shares -- Class A Shares --
Quantity Discounts," during the 13-month period commencing with the first
investment pursuant hereto equals at least $1 million. The Distributor may
pay brokers, dealers or financial intermediaries through which purchases
are made an amount up to 0.50% of the amount invested, over a twelve-month
period following such transaction.
(5) Trustees and other fiduciaries purchasing shares for retirement plans of
organizations with retirement plan assets of $10 million or more. The
Distributor may pay commissions of up to 1.00% for such purchases.
(6) Accounts as to which a broker, dealer or financial intermediary charges an
account management fee ("wrap accounts"), provided the broker, dealer or
financial intermediary has a separate agreement with the Distributor.
(7) Investors purchasing shares of the Fund with redemption proceeds from
other mutual fund complexes on which the investor has paid a front-end
sales charge or was subject to a deferred sales charge, whether or not
paid, if such redemption has occurred no more than 30 days prior to such
purchase.
(8) Full service participant directed profit sharing and money purchase plans,
full service 401(k) plans, or similar full service recordkeeping programs
made available through Van Kampen American Capital Trust Company with at
least 50 eligible employees or investing at least $250,000 in the
27
<PAGE> 32
Participating Funds, Tax Free Money Fund or Reserve Fund. For such
investments the Fund imposes a contingent deferred sales charge of 1.00%
in the event of redemptions within one year of the purchase other than
redemptions required to make payments to participants under the terms of
the plan. The contingent deferred sales charge incurred upon certain
redemptions is paid to the Distributor in reimbursement for distribution-
related expenses. A commission will be paid to dealers who initiate and
are responsible for such purchases as follows: 1.00% on sales to $5
million, plus 0.50% on the next $5 million, plus 0.25% on the excess over
$10 million.
The term "families" includes a person's spouse, minor children and
grandchildren, parents, and a person's spouse's parents.
Purchase orders made pursuant to clause (4) may be placed either through
authorized brokers, dealers or financial intermediaries as described above or
directly with the Fund's transfer agent, the investment adviser, trust company
or bank trust department, provided that the Fund's transfer agent receives
federal funds for the purchase by the close of business on the next business day
following acceptance of the order. An authorized broker, dealer or financial
intermediary may charge a transaction fee for placing an order to purchase
shares pursuant to this provision or for placing a redemption order with respect
to such shares. The Fund may terminate, or amend the terms of, offering shares
of the Fund at net asset value to such groups at any time.
DEFERRED SALES CHARGE ALTERNATIVES
Investors choosing the deferred sales charge alternative may purchase Class A
Shares in an amount of $1 million or more, Class B Shares or Class C Shares. The
public offering price of a CDSC Share is equal to the net asset value per share
without the imposition of a sales charge at the time of purchase. CDSC Shares
are sold without an initial sales charge so that the Fund may invest the full
amount of the investor's purchase payment. The Distributor will compensate
brokers, dealers and financial intermediaries participating in the continuous
public offering of the CDSC Shares out of its own assets, and not out of the
assets of the Funds, at a percentage rate of the dollar value of the CDSC Shares
purchased from the Fund by such brokers, dealers and financial intermediaries,
which percentage rate is equal to (i) with respect to Class A Shares, 1.00% on
sales to $2 million, plus 0.80% on the next million, plus 0.20% on the next $2
million and 0.08% on the excess over $5 million; (ii) 4.00% with respect to
Class B Shares; and (iii) 1.00% with respect to Class C Shares. Such
compensation will not change the price an investor will pay for CDSC Shares or
the amount that the Fund will receive from such sale.
CDSC Shares redeemed within a specified period of time generally will be
subject to a contingent deferred sales charge at the rates set forth below. The
amount of the contingent deferred sales charge will vary depending on (i) the
class of CDSC Shares to which such shares belong and (ii) the number of years
from the time of payment for the purchase of the CDSC Shares until the time of
their
28
<PAGE> 33
redemption. The charge will be assessed on an amount equal to the lesser of the
then current market value or the original purchase price of the CDSC Shares
being redeemed. Accordingly, no sales charge will be imposed on increases in net
asset value above the initial purchase price. In addition, no contingent
deferred sales charge will be assessed on CDSC Shares derived from reinvestment
of dividends or capital gains distributions. Solely for purposes of determining
the number of years from the time of any payment for the purchase of CDSC
Shares, all payments during a month will be aggregated and deemed to have been
made on the last day of the month.
Proceeds from the contingent deferred sales charge applicable to a class of
CDSC Shares are paid to the Distributor and are used by the Distributor to
defray its expenses related to providing distribution related services to the
Fund in connection with the sale of shares of such class of CDSC Shares, such as
the payment of compensation to selected dealers and agents for selling such
shares. The combination of the contingent deferred sales charge and the
distribution fee facilitates the ability of the Fund to sell such CDSC Shares
without a sales charge being deducted at the time of purchase.
In determining whether a contingent deferred sales charge is applicable to a
redemption of shares from a class of CDSC Shares, it will be assumed that the
redemption is made first of any CDSC Shares acquired pursuant to reinvestment of
dividends or distributions, second of CDSC Shares that have been held for a
sufficient period of time such that the contingent deferred sales charge no
longer is applicable to such shares, third of Class A Shares in the
shareholder's Fund account that have converted from Class B Shares or Class C
Shares, if any, and fourth of CDSC Shares held longest during the period of time
that a contingent deferred sales charge is applicable to such CDSC Shares. The
charge will not be applied to dollar amounts representing an increase in the net
asset value per share since the time of purchase.
To provide an example, assume an investor purchased 100 Class B Shares (as set
forth below) at $10 per share (at a cost of $1,000) and in the second year after
purchase, the net asset value per share is $12 and, during such time, the
investor has acquired 10 additional Class B Shares upon dividend reinvestment.
If at such time the investor makes his first redemption of 50 shares (proceeds
of $600), 10 shares will not be subject to charge because of dividend
reinvestment. With respect to the remaining 40 shares, the charge is applied
only to the original cost of $10 per share and not to the increase in net asset
value of $2 per share. Therefore, $400 of the $600 redemption proceeds will be
charged at a rate of 3.75% (the applicable rate in the second year after
purchase).
CLASS A SHARE PURCHASES OF $1 MILLION OR MORE. No sales charge is payable at
the time of purchase on investments of $1 million or more, although for such
investments the Fund imposes a contingent deferred sales charge of 1.00% on
redemptions made within one year of the purchase. A commission will be paid to
dealers who initiate and are responsible for purchases of $1 million or more as
29
<PAGE> 34
follows: 1.00% on sales to $2 million, plus 0.80% on the next million, plus
0.20% on the next $2 million and 0.08% on the excess over $5 million.
CLASS B SHARES. Class B Shares redeemed within six years of purchase generally
will be subject to a contingent deferred sales charge at the rates set forth
below, charged as a percentage of the dollar amount subject thereto:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
- ------------------- -------------------
<S> <C>
First................................................. 4.00%
Second................................................ 3.75%
Third................................................. 3.50%
Fourth................................................ 2.50%
Fifth................................................. 1.50%
Sixth................................................. 1.00%
Seventh and after..................................... 0.00%
</TABLE>
The contingent deferred sales charge generally is waived on redemptions of
Class B Shares made pursuant to the Systematic Withdrawal Plan. See "Shareholder
Services -- Systematic Withdrawal Plan."
CLASS C SHARES. Class C Shares redeemed within the first twelve months of
purchase generally will be subject to a contingent deferred sales charge of
1.00% of the dollar amount subject thereto. Class C Shares redeemed thereafter
will not be subject to a contingent deferred sales charge.
CONVERSION FEATURE. Class B Shares and Class C Shares will automatically
convert to Class A Shares seven years or ten years, respectively, after the end
of the month in which a shareholder's order to purchase the shares was accepted
and will no longer be subject to the distribution fees. The purpose of the
conversion feature is to relieve the holders of Class B Shares and Class C
Shares that have been outstanding for a period of time sufficient for the
Distributor to have been compensated for distribution expenses related to the
Class B Shares or Class C Shares from most of the burden of the ongoing
distribution fee. The Fund does not expect to issue any stock certificates upon
conversion.
For purposes of conversion to Class A Shares, Class B Shares or Class C Shares
purchased through the reinvestment of dividends and distributions paid in
respect of Class B Shares and Class C Shares in a shareholder's account will be
considered to be held in a separate sub-account. Each time any Class B Shares or
Class C Shares in the shareholder's account (other than those in the
sub-account) convert to Class A Shares, an equal pro rata portion of the Class B
Shares or Class C Shares in the sub-account also will convert to Class A Shares.
The holding period applicable to a Class B Share or Class C Share acquired
through the use of the exchange privilege (discussed below) shall be the holding
period applicable to the Class B
30
<PAGE> 35
Shares or Class C Shares of such Fund acquired other than through use of the
exchange privilege. For purposes of calculating the holding period applicable to
a Class B Share or Class C Share of the Fund prior to conversion, a Class B
Share or Class C Share of the Fund issued in connection with an exercise of the
exchange privilege, or a series of exchanges, shall be deemed to have been
issued on the date on which the investor's order to purchase the exchanged Class
B Share or Class C Share was accepted or, in the case of a series of exchanges,
when the investor's order to purchase the original Class B Share or Class C
Share was accepted.
The conversion of Class B Shares and Class C Shares to Class A Shares is
subject to the continuing availability of an opinion of counsel to the effect
that (i) the assessment of the distribution fee and higher transfer agency costs
with respect to Class B Shares and Class C Shares does not result in the Fund's
dividends or distributions constituting "preferential dividends" under the Code
and (ii) that the conversion of Class B Shares or Class C Shares does not
constitute a taxable event under federal income tax law. The conversion of Class
B Shares and Class C Shares to Class A Shares may be suspended if such an
opinion is no longer available. In that event, no further conversions of Class B
Shares or Class C Shares would occur, and Class B Shares and Class C Shares
might continue to be subject to the distribution fee for an indefinite period.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE. The contingent deferred sales
charge is waived on redemptions of Class B Shares and Class C Shares (i)
following the death or disability (as defined in the Code) of a shareholder,
(ii) in connection with certain distributions from an IRA or other retirement
plan, (iii) pursuant to the Fund's systematic withdrawal plan but limited to 12%
annually of the initial value of the account, and (iv) effected pursuant to the
right of the Fund to liquidate a shareholder's account as described herein under
"Redemption of Shares." The contingent deferred sales charge is also waived on
redemptions of Class C Shares as it relates to the reinvestment of redemption
proceeds in shares of the same class of the Fund within 120 days after
redemption. See "Shareholder Services" and "Redemption of Shares" for further
discussion of the waiver provisions.
NET ASSET VALUE
The net asset value per share of the Fund will be determined separately for
each class of shares. The net asset value per share of a given class of shares
of the Fund is determined by calculating the total value of the Fund's assets
attributable to such class of shares, deducting its total liabilities
attributable to such class of shares and dividing the result by the number of
shares of such class of the Fund outstanding. The net asset value for the Fund
is computed once daily as of the close of the daily trading session of the New
York Stock Exchange, 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
31
<PAGE> 36
materially affected. The Fund reserves the right to calculate the net asset
value and to adjust the public offering price based thereon more frequently than
once a day if deemed desirable. The net asset value per share of the different
classes of shares are expected to be substantially the same; from time to time,
however, the per share net asset value of the different classes of shares may
differ.
The securities of the Fund that are listed on a securities exchange are valued
at their closing sales price on the day of the valuation. Price valuations for
listed securities are based on market quotations where the security is primarily
traded or, if actual trade information is not available on any valuation date,
are valued at the mean of the bid and asked prices. Unlisted securities in the
portfolio are valued by using market quotations, prices provided by market
makers or estimates of market values obtained from yield data relating to
instruments or securities with similar characteristics in accordance with
procedures established in good faith by the Board of Trustees of the Trust, of
which the Fund is a series. Securities with remaining maturities of 60 days or
less are valued at amortized cost when amortized cost is determined in good
faith by or under the direction of the Board of Trustees of the Trust to be
representative of the fair value at which it is expected such securities may be
resold. Any securities or other assets for which current market quotations are
not readily available are valued at their fair value as determined in good faith
under procedures established by and under the general supervision of the Board
of Trustees.
- ------------------------------------------------------------------------------
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. Unless otherwise described below, each of these
services may be modified or terminated by the Fund at any time.
SHAREHOLDER SERVICES APPLICABLE TO ALL CLASSES
INVESTMENT ACCOUNT. ACCESS Investor Services, Inc. ("ACCESS"), transfer agent
for the Fund and a wholly-owned subsidiary of Van Kampen American Capital,
performs bookkeeping, data processing and administration services related to the
maintenance of shareholder accounts. Each shareholder has an investment account
under which shares are held by ACCESS. Except as described herein, after each
share transaction in an account, the shareholder receives a statement showing
the activity in the account. Each shareholder will receive statements at least
quarterly from ACCESS showing any reinvestments of dividends and capital gains
distributions and any other activity in the account since the preceding
statement. Such shareholders also will receive separate confirmations for each
purchase or sale transaction other than reinvestment of dividends and capital
gains distributions and systematic purchases or redemptions. Additions to an
investment account may be
32
<PAGE> 37
made at any time by purchasing shares through authorized brokers, dealers or
financial intermediaries or by mailing a check directly to ACCESS.
SHARE CERTIFICATES. Generally, the Fund will not issue share certificates.
However, upon written or telephone request to the Fund, a share certificate will
be issued, representing shares (with the exception of fractional shares) of the
Fund. A shareholder will be required to surrender such certificates upon
redemption thereof. In addition, if such certificates are lost the shareholder
must write to Van Kampen American Capital Funds, c/o ACCESS, P.O. Box 418256,
Kansas City, MO 64141-9256, requesting an "affidavit of loss" and to obtain a
Surety Bond in a form acceptable to ACCESS. On the date the letter is received
ACCESS 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.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gains distributions in shares of
the Fund. Such shares are acquired at net asset value (without sales charge) on
the record date of such dividend or distribution. Unless the shareholder
instructs otherwise, the reinvestment plan is automatic. This instruction may be
made by telephone by calling (800) 421-5666 ((800) 772-8889 for the hearing
impaired) or in writing to ACCESS. The investor may, on the initial application
or prior to any declaration, instruct that dividends be paid in cash and capital
gains distributions be reinvested at net asset value, or that both dividends and
capital gains distributions be paid in cash. For further information, see
"Distributions from the Fund."
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under
which a shareholder can authorize ACCESS to charge a bank account on a regular
basis to invest pre-determined amounts in the Fund. Additional information is
available from the Distributor or authorized brokers, dealers or financial
intermediaries.
RETIREMENT PLANS. Eligible investors may establish individual retirement
accounts ("IRAs"); SEP; and pension and profit sharing plans; 401(k) plans; or
Section 403(b)(7) plans in the case of employees of public school systems and
certain non-profit organizations. Documents and forms containing detailed
information regarding these plans are available from the Distributor. Van Kampen
American Capital 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.
DIVIDEND DIVERSIFICATION. A shareholder may, upon written request or by
completing the appropriate section of the application form accompanied by this
Prospectus or by calling (800) 421-5666 ((800) 772-8889 for the hearing
impaired), elect to have all dividends and other distributions paid on either
Class A Shares, Class B Shares or Class C Shares of the Fund invested into
shares of the
33
<PAGE> 38
same class of any other Participating Fund, Tax Free Money Fund or Reserve Fund
so long as a pre-existing account for such class of shares exists for such
shareholder.
If the 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 as of the payable date of the
distribution only if shares of such selected fund have been registered for sale
in the investor's state.
EXCHANGE PRIVILEGE. Shares of the Fund may be exchanged with shares of another
Participating Fund, the Tax Free Money Fund or the Reserve Fund, subject to
certain limitations herein or in such other fund's prospectus. Before effecting
an exchange, shareholders in the Fund should obtain and read a current
prospectus of the fund into which the exchange is to be made. SHAREHOLDERS MAY
ONLY EXCHANGE INTO SUCH OTHER FUNDS AS ARE LEGALLY AVAILABLE FOR SALE IN THEIR
STATE.
Exchanges of Class A Shares of the Fund that have been charged a sales charge
lower than the sales charge applicable to the other fund will have the sales
charge differential imposed upon the exchange into such fund. Similarly,
exchanges of any Class A Shares of other funds that have been charged a sales
charge lower than the sales charge applicable to the Fund will have the sales
charge differential imposed upon exchange into the Fund. Shares of other funds
which have not previously been charged a sales charge (except for shares
purchased via the reinvestment option) will be charged the sales charge
differential applicable to Class A Shares of the Fund upon exchange into the
Fund.
No sales charge is imposed upon the exchange of Class B Shares and Class C
Shares. Upon redemption of Class B Shares and Class C Shares from the Van Kampen
American Capital family of funds, Class B Shares and Class C Shares which have
been exchanged are subject to the contingent deferred sales charge imposed by
the initial Van Kampen American Capital fund purchased by the investor prior to
any exchanges. The holding period requirements for the contingent deferred sales
charge, and the conversion privilege for Class B Shares of the Fund, are
determined by the date of purchase into the initial Van Kampen American Capital
fund purchased by the investor prior to any exchanges.
Exchanges of shares are sales and may result in a gain or loss for federal
income tax purposes. If the shares exchanged have been held for less than 91
days, the sales charge paid on such shares is not included in the tax basis of
the exchanged shares, but 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 ACCESS or by contacting the telephone transaction line at (800)
421-5684 ((800) 772-8889 for the hearing impaired). A shareholder automatically
has telephone exchange privileges unless otherwise designated in the application
form accompanied by this Prospectus. The exchange will take place at the
relative net asset values of the shares next determined after receipt of such
request with adjustment for any additional sales charge. Any shares exchanged
34
<PAGE> 39
begin earning dividends on the next business day after the exchange is affected.
Van Kampen American Capital and its subsidiaries, including ACCESS
(collectively, "VKAC"), 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, a shareholder agrees that
neither VKAC nor the Fund will be liable for following telephone instructions
which it reasonably believes to be genuine. VKAC and the Fund may be liable for
any losses due to unauthorized or fraudulent instructions if reasonable
procedures are not followed. If the exchanging shareholder does not have an
account in the fund whose shares are being acquired, a new account will be
established with the same registration, dividend and capital gains options
(except dividend diversification options) and broker, dealer or financial
intermediary 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 dividend diversification options for the
new account, an exchanging shareholder must file a specific written request. The
Fund reserves the right to reject any order to acquire its shares through
exchange. In addition, the Fund may restrict or terminate the exchange privilege
at any time on 60 days' notice to its shareholders of any termination or
material amendment.
SYSTEMATIC WITHDRAWAL PLAN. Any investor whose shares in a single account
total $10,000 or more at the offering price next computed after receipt of
instructions may establish a monthly, quarterly, semi-annual or annual
withdrawal plan. 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 taxable gain or loss will be
recognized. The plan holder may arrange for monthly, quarterly, semi-annual, or
annual checks in any amount not less than $25. Such a systematic withdrawal plan
may also be maintained by an investor purchasing shares for a retirement plan
established on a form made available by the Fund. See "Shareholder
Services -- Retirement Plans."
Holders of Class B Shares and Class C Shares who establish a withdrawal plan
may redeem up to 12% annually of the shareholder's initial account balance
without incurring a contingent deferred sales charge. Initial account balance
means the amount of the shareholder's investment in the Fund at the time the
election to participate in the plan is made. See "Purchase of Shares -- Deferred
Sales Charge Alternatives -- Waiver of Contingent Deferred Sales Charge."
Under the plan, sufficient shares of the Fund are redeemed to provide the
amount of the periodic withdrawal payment. Dividends and capital gains
distributions on shares held under the plan are reinvested in additional shares
at the next determined net asset value. If periodic withdrawals continuously
exceed reinvested dividends and capital gains distributions, the shareholder's
original investment will be corre-
35
<PAGE> 40
spondingly reduced and ultimately exhausted. Withdrawals made concurrently with
purchases of additional shares ordinarily will be disadvantageous to the
shareholder because of the duplication of sales charges. The Fund reserves the
right to amend or terminate the systematic withdrawal program on thirty days'
notice to its shareholders.
SHAREHOLDER SERVICES APPLICABLE TO CLASS A SHAREHOLDERS ONLY
AUTOMATED CLEARING HOUSE ("ACH") DEPOSITS. Holders of Class A Shares can use
ACH to have redemption proceeds deposited electronically into their bank
accounts. Redemptions transferred to a bank account via the ACH plan are
available to be credited to the account on the second business day following
normal payment. In order to utilize this option, the shareholder's bank must be
a member of Automated Clearing House. 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
ACCESS 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 ACCESS.
- ------------------------------------------------------------------------------
REDEMPTION OF SHARES
- ------------------------------------------------------------------------------
Shareholders may redeem for cash some or all of their shares without charge by
the Fund (other than, with respect to CDSC Shares, the applicable contingent
deferred sales charge) at any time by sending a written request in proper form
directly to ACCESS, P. O. Box 418256, Kansas City, Missouri 64141-9256, by
placing the redemption request through an authorized dealer or by calling the
Fund.
WRITTEN REDEMPTION REQUESTS. In the case of redemption requests sent directly
to ACCESS, the redemption request should indicate the number of shares to be
redeemed, the class designation of such shares, the account number and be signed
exactly as the shares are registered. Signatures must conform exactly to the
account registration. If the proceeds of the redemption would 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. If certificates are held for the shares being redeemed, such
certificates must be endorsed for transfer or accompanied by an endorsed stock
power and sent with 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,
36
<PAGE> 41
a copy of the corporate resolution or other legal documentation appointing the
authorized signer and certified within the prior 60 days must accompany the
redemption request. The redemption price is the net asset value per share next
determined after the request is received by ACCESS in proper form. Payment for
shares redeemed (less any sales charge, if applicable) will ordinarily be made
by check mailed within three business days after acceptance by ACCESS of the
request and any other necessary documents in proper order. Such payments may be
postponed or the right of redemption suspended as provided by the rules of the
SEC. If the shares to be redeemed have been recently purchased by check, ACCESS
may delay mailing a redemption check until it confirms that the purchase check
has cleared, usually a period of up to 15 days. Any gain or loss realized on the
redemption of shares is a taxable event.
DEALER REDEMPTION REQUESTS. Shareholders may sell shares through their
securities dealer, who will telephone the request to the Distributor. Orders
received from dealers must be at least $500 unless transmitted via the FUNDSERV
network. The redemption price for such shares is the net asset value next
calculated after an order is received by a 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 dealers to transmit redemption requests
received by them to the Distributor so they will be received prior to such time.
Any change in the redemption price due to failure of the Distributor to receive
a sell order prior to such time must be settled between the shareholder and
dealer. Shareholders must submit a written redemption request in proper form (as
described above under "Written Redemption Requests") to the dealer within three
business days after calling the dealer with the sell order. Payment for shares
redeemed (less any sales charge, if applicable) will ordinarily be made by check
mailed within three business days to the dealer.
TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. To establish
such privilege, a shareholder must complete the appropriate section of the
application form accompanying this Prospectus or call the Fund at (800) 421-5666
((800) 772-8889 for the hearing impaired) to request that a copy of the
Telephone Redemption Authorization form be sent to them for completion. To
redeem shares, contact the telephone transaction line at (800) 421-5684. VKAC
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, a shareholder agrees that neither VKAC nor the Fund
will be liable for following instructions which it reasonably believes to be
genuine. VKAC and the Fund may be liable for any losses due to unauthorized or
fraudulent instructions if reasonable procedures are not followed. Telephone
redemptions may not be available if the shareholder cannot reach ACCESS by
telephone, whether because all telephone
37
<PAGE> 42
lines are busy or for any other reason; in such case, a shareholder would have
to use the Fund's other redemption procedures previously described. Requests
received by ACCESS prior to 4:00 p.m., New York time, on a regular business day
will be processed at the net asset value per share determined that day. These
privileges are available for all accounts other than retirement accounts. The
telephone redemption privilege is not available for shares represented by
certificates. If the shares to be redeemed have been recently purchased by
check, ACCESS may delay mailing a redemption check or wiring redemption proceeds
until it confirms that the purchase check has cleared, usually a period of up to
15 days. If an account has multiple owners, ACCESS 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 sent to the shareholders'
address of record and amounts of at least $1,000 and up to $1 million may be
redeemed daily if the proceeds are to be paid by wire sent to the shareholder's
bank account of record. The proceeds must be payable to the shareholder(s) of
record. Proceeds from redemptions to be paid by check will ordinarily be mailed
within three business days to the shareholder's address of record. Proceeds from
redemptions to be paid by wire will ordinarily be wired on the next business day
to the shareholder's bank account of record. This privilege is not available if
the address of record has been changed within 30 days prior to a telephone
redemption request. The Fund reserves the right at any time to terminate, limit
or otherwise modify this telephone redemption privilege.
REDEMPTION UPON DISABILITY. The Fund will waive the contingent deferred sales
charge on redemptions following the disability of holders of Class B Shares and
Class C Shares. An individual will be considered disabled for this purpose if he
or she meets the definition thereof in Section 72(m)(7) of the Code, which in
pertinent part defines a person as disabled if such person "is unable to engage
in any substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death or to be
of long-continued and indefinite duration." While the Fund does not specifically
adopt the balance of the Code's definition which pertains to furnishing the
Secretary of Treasury with such proof as he or she may require, the Distributor
will require satisfactory proof of disability before it determines to waive the
contingent deferred sales charge on Class B Shares and Class C Shares.
In cases of disability, the contingent deferred sales charges on Class B
Shares and Class C Shares will be waived where the disabled person is either an
individual shareholder or owns the shares as a joint tenant with right of
survivorship or is the beneficial owner of a custodial or fiduciary account, and
where the redemption is made within one year of the initial determination of
disability. This waiver of the contingent deferred sales charge on Class B
Shares and Class C Shares applies to a total or partial redemption, but only to
redemptions of shares held at the time of the initial determination of
disability.
38
<PAGE> 43
GENERAL REDEMPTION INFORMATION. The Fund may redeem any shareholder account
with a net asset value on the date of the notice of redemption less than the
minimum investment as specified by the Trustees. At least 60 days advance
written notice of any such involuntary redemption is required and the
shareholder is 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 investment due to shareholder redemptions.
REINSTATEMENT PRIVILEGE. Holders of Class A Shares or Class B Shares who have
redeemed shares of the Fund may reinstate any portion or all of the net proceeds
of such redemption in Class A Shares of the Fund. Holders of Class C Shares who
have redeemed shares of the Fund may reinstate any portion or all of the net
proceeds of such redemption in Class C Shares of the Fund with credit given for
any contingent deferred sales charge paid upon such redemption. Such
reinstatement is made at the net asset value next determined after the order is
received, which must be within 120 days after the date of the redemption. See
"Purchase of Shares -- Waiver of Contingent Deferred Sales Charge."
Reinstatement at net asset value is also offered to participants in those
eligible retirement plans held or administered by Van Kampen American Capital
Trust Company for repayment of principal (and interest) on their borrowings on
such plans.
- ------------------------------------------------------------------------------
THE DISTRIBUTION AND SERVICE PLANS
- ------------------------------------------------------------------------------
The Fund has adopted a distribution plan (the "Distribution Plan") with
respect to each class of its shares pursuant to Rule 12b-1 under the 1940 Act.
The Fund also has adopted a service plan (the "Service Plan") with respect to
each class of its shares. The Distribution Plan and the Service Plan provide
that the Fund may spend a portion of the Fund's average daily net assets
attributable to each class of shares in connection with the distribution of the
respective class of shares and in connection with the provision of ongoing
services to shareholders of each class. The Distribution Plan and the Service
Plan are being implemented through an agreement with the Distributor and
sub-agreements between the Distributor and brokers, dealers and financial
intermediaries (collectively, "Selling Agreements") that may provide for their
customers or clients certain services or assistance.
CLASS A SHARES. The Fund may spend an aggregate amount of up to 0.25% per year
of the average daily net assets attributable to the Class A Shares of the Fund
pursuant to the Distribution Plan and the Service Plan. From such amount, the
Fund may spend up to 0.25% per year of the Fund's average daily net assets
attributable to the Class A Shares pursuant to the Service Plan in connection
with the ongoing provision of services to holders of such shares by the
Distributor and by brokers, dealers or financial intermediaries and in
connection with the maintenance of such shareholders' accounts. The Fund pays
the Distributor the lesser of the
39
<PAGE> 44
balance of the 0.25% not paid to such brokers, dealers or financial
intermediaries or the amount of the Distributor's actual distribution related
expense.
CLASS B SHARES. The Fund may spend up to 0.75% per year of the average daily
net assets attributable to the Class B Shares of the Fund pursuant to the
Distribution Plan. In addition, the Fund may spend up to 0.25% per year of the
Fund's average daily net assets attributable to the Class B Shares pursuant to
the Service Plan in connection with the ongoing provision of services to holders
of such shares by the Distributor and by brokers, dealers or financial
intermediaries and in connection with the maintenance of such shareholders'
accounts.
CLASS C SHARES. The Fund may spend up to 0.75% per year of the average daily
net assets attributable to the Class C Shares of the Fund pursuant to the
Distribution Plan. From such amount, the Fund, or the Distributor as agent for
the Fund, pays brokers, dealers or financial intermediaries in connection with
the distribution of the Class C Shares up to 0.75% of the Fund's average daily
net assets attributable to Class C Shares maintained in the Fund more than one
year by such broker's, dealer's or financial intermediary's customers. The Fund
pays the Distributor the lesser of the balance of the 0.75% not paid to such
brokers, dealers or financial intermediaries or the amount of the Distributor's
actual distribution related expense attributable to the Class C Shares. In
addition, the Fund may spend up to 0.25% per year of the Fund's average daily
net assets attributable to the Class C Shares pursuant to the Service Plan in
connection with the ongoing provision of services to holders of such shares by
the Distributor and by brokers, dealers or financial intermediaries and in
connection with the maintenance of such shareholders' accounts.
OTHER INFORMATION. Amounts payable to the Distributor with respect to the
Class A Shares under the Distribution Plan in a given year may not fully
reimburse the Distributor for its actual distribution-related expenses during
such year. In such event, with respect to the Class A Shares, there is no
carryover of such reimbursement obligations to succeeding years.
The Distributor's actual expenses with respect to a class of CDSC Shares for
any given year may exceed the amounts payable to the Distributor with respect to
such class of CDSC Shares under the Distribution Plan, the Service Plan and
payments received pursuant to the contingent deferred sales charge. In such
event, with respect to any such class of CDSC Shares, any unreimbursed expenses
will be carried forward and paid by the Fund (up to the amount of the actual
expenses incurred) in future years so long as such Distribution Plan is in
effect. Except as mandated by applicable law, the Fund does not impose any limit
with respect to the number of years into the future that such unreimbursed
expenses may be carried forward (on a Fund level basis). Because such expenses
are accounted on a Fund level basis, in periods of extreme net asset value
fluctuation such amounts with respect to a particular CDSC Share may be greater
or less than the amount of the initial commission (including carrying cost) paid
by the Distributor with respect to such CDSC Share. In such circumstances, a
shareholder of such CDSC Share may
40
<PAGE> 45
be deemed to incur expenses attributable to other shareholders of such class. If
the Distribution Plan was terminated or not continued, the Fund would not be
contractually obligated to pay the Distributor for any expenses not previously
reimbursed by the Fund or recovered through contingent deferred sales charges.
Because the Fund is a series of the Trust, amounts paid to the Distributor as
reimbursement for expenses of one series of the Trust may indirectly benefit the
other funds which are series of the Trust. The Distributor will endeavor to
allocate such expenses among such funds in an equitable manner. The Distributor
will not use the proceeds from the contingent deferred sales charge applicable
to a particular class of CDSC Shares to defray distribution related expenses
attributable to any other class of CDSC Shares. Various federal and state laws
prohibit national banks and some state-chartered commercial banks from
underwriting or dealing in the Fund's shares. In addition, state securities laws
on this issue may differ from the interpretations of federal law, and banks and
financial institutions may be required to register as dealers pursuant to state
law. In the unlikely event that a court were to find that these laws prevent
such banks from providing such services described above, the Fund would seek
alternate providers and expects that shareholders would not experience any
disadvantage.
- ------------------------------------------------------------------------------
DISTRIBUTIONS FROM THE FUND
- ------------------------------------------------------------------------------
The Fund's present policy, which may be changed at any time by the Board of
Trustees, is to annually declare dividends to holders of each class of shares
from net investment income and net short-term capital gains attributable to each
respective class. The Fund also presently intends to make distributions of net
long-term capital gains, if any, annually. Dividends are composed of all or a
portion of investment income earned by each class of shares of the Fund plus all
or a portion of net short-term capital gains by the Fund on transactions in
securities and futures and options hedging transactions, less the expenses
attributable to the respective class. Long-term capital gains distributions
consist of the Fund's gain on transactions in securities and futures and options
hedging transactions, net of any realized capital losses, less any carryover
capital losses from previous years.
Distributions with respect to each class of shares will be calculated in the
same manner on the same day and will be in the same amount, except that the
different distribution and service fees and any incremental administrative
expenses relating to each class of shares will be borne exclusively by the
respective class and may cause the distributions relating to the different
classes of shares to differ. Generally, distributions with respect to a class of
shares subject to a higher distribution fee, service fee, or where applicable,
the conversion feature will be lower than distributions with respect to a class
of shares subject to a lower distribution fee, service fee, or not subject to
the conversion feature.
Distribution checks may be sent to parties other than the shareholder in whose
name the account is registered. Shareholders wishing to utilize this service
should
41
<PAGE> 46
complete the appropriate section of the account application accompanying this
Prospectus or available from Van Kampen American Capital Funds, c/o ACCESS, P.O.
Box 418256, Kansas City, MO 64141-9256. After ACCESS receives this completed
form, distribution checks will be sent to the bank or other person so designated
by such shareholder.
PURCHASE OF ADDITIONAL SHARES WITH DISTRIBUTIONS. The Fund automatically will
credit distributions to a shareholder's account in additional shares of the Fund
valued at net asset value, without sales charge. Unless the Shareholder
instructs otherwise, the reinvestment plan is automatic. This instruction may be
made by telephone by calling (800) 421-5666 ( (800) 772-8889 for the hearing
impaired) or in writing to ACCESS.
- ------------------------------------------------------------------------------
TAX STATUS
- ------------------------------------------------------------------------------
The Fund intends to qualify as a regulated investment company under Subchapter
M of the Internal Revenue Code of 1986, as amended (the "Code"). To qualify as a
regulated investment company, the Fund must comply with certain requirements of
the Code relating to, among other things, the source of its income and the
diversification of its assets. If the Fund so qualifies and if it distributes to
its shareholders at least 90% of its net investment income (which includes net
short-term capital gains, but not net capital gains, which are the excess of net
long-term capital gains over net short-term capital losses), it will not be
required to pay federal income taxes on any income distributed to shareholders.
The Fund intends to distribute at least the minimum amount of net investment
income required to satisfy the 90% distribution requirement. The Fund will not
be subject to federal income tax on any net capital gains distributed to its
shareholders.
Distributions of the Fund's net investment income are taxable to shareholders
as ordinary income whether received in shares or cash. Shareholders who receive
distributions in the form of additional shares will have a basis for federal
income tax purposes in each share equal to the value thereof on the distribution
date. Distributions of the Fund's net capital gains ("capital gain dividends"),
if any, are taxable to shareholders as long-term capital gains regardless of the
length of time the Fund shares have been held by such shareholders.
Distributions in excess of the Fund's earnings and profits will first reduce the
adjusted tax basis of the shares held by the shareholders and, after such
adjusted tax basis is reduced to zero, will constitute capital gains to such
shareholder (assuming such shares are held as a capital asset). The Fund will
inform shareholders of the source and tax status of such distributions promptly
after the close of each calendar year. Some portion of the distributions made by
the Fund generally will be eligible for the dividends received deduction for
corporations if the Fund receives qualifying dividends during the year and if
certain other requirements of the Code are satisfied.
Redemption or resale of shares of the Fund will be a taxable transaction for
federal income tax purposes. Redeeming shareholders will recognize gain or loss
in
42
<PAGE> 47
an amount equal to the difference between their basis in such redeemed shares of
the Fund and the amount received. If such shares are held as a capital asset,
the gain or loss will be a capital gain or loss and will generally be long-term
if such shareholders have held their shares for more than one year. Any loss
realized upon a taxable disposition of shares held for six months or less will
be treated as 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.
Some of the Fund's investment practices are subject to special provisions of
the Code that may, among other things, defer the use of losses of the Fund and
affect the holding period of securities held by the Fund and the character of
the gains or losses realized by the Fund. These provisions may also require the
Fund to mark-to-market some of the positions in its portfolio (i.e., treat them
as if they were closed out), which may cause the Fund to recognize income
without receiving the cash with which to make distributions in amounts necessary
to satisfy the distribution requirements for avoiding federal income and, as
described below, excise taxes. The Fund will monitor its transactions and may
make certain tax elections in order to mitigate the effect of these rules and
prevent disqualification of the Fund as a regulated investment company.
The Fund's ability to dispose of portfolio securities may be limited by the
requirement for qualification as a regulated investment company that less than
30% of the Fund's annual gross income be derived from the disposition of
securities held for less than three months.
Income from investments in foreign securities may be subject to foreign
taxation imposed by withholding. Shareholders of the Fund will not be able to
claim any deduction or foreign tax credit with respect to such foreign taxes.
In order to avoid a 4% excise tax, the Fund will be required to distribute by
December 31 of each year at least 98% of its ordinary income for such year and
at least 98% of its capital gain net income (computed on the basis of the
one-year period ending on October 31 of such year), plus any amounts that were
not distributed in previous taxable years. For purposes of the excise tax, any
ordinary income or capital gain net income retained by and subject to federal
income tax in the hands of the Fund will be treated as having been distributed.
Although dividends generally will be treated as distributed when paid,
dividends declared in October, November or December, payable to shareholders of
record on a specified date in such a month and paid in January of the following
year, will be treated as having been distributed by the Fund (and received by
the shareholders) on December 31 of the year in which the dividend was declared.
In addition, certain other distributions made after the close of a taxable year
of the Fund may be "spilled back" and treated as having been paid by the Fund
(except for purposes of
43
<PAGE> 48
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 is actually made.
The Fund is required, in certain circumstances, to withhold 31% of dividends
and certain other payments, including redemptions, paid to shareholders who do
not furnish to the Fund their correct taxpayer identification number (in the
case of individuals, their social security number) or who are otherwise subject
to backup withholding. 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 any applicable treaty.
The federal income tax discussion set forth above is for general information
only. Prospective investors should consult their own advisors regarding the
specific federal tax consequences of holding and disposing of shares, as well as
the effects of state, local and foreign tax laws and any proposed tax law
changes.
- ------------------------------------------------------------------------------
FUND PERFORMANCE
- ------------------------------------------------------------------------------
From time to time advertisements and other sales materials for the Fund may
include information concerning the historical performance of the Fund. Any such
information will include the average total return of the Fund calculated on a
compounded basis for specified periods of time. Such total return will be
calculated pursuant to rules established by the SEC and will be computed
separately for each class of the Fund's shares. In lieu of or in addition to
total return calculations, such information may include performance rankings and
similar information from independent organizations such as Lipper Analytical
Services, Inc., Business Week, Forbes or other industry publications. In
addition, from time to time the Fund may compare its performance to certain
securities and unmanaged indices which may have different risk/reward
characteristics than the Fund. Such characteristics may include, but are not
limited to, tax features, guarantees, insurance and the fluctuation of principal
and/or return. In addition, from time to time sales materials and advertisements
for the Fund may include hypothetical information.
Further information about the Fund's performance is contained in its Annual
Report and its Statement of Additional Information each of which can be obtained
without charge by calling (800) 421-5666 ((800) 772-8889 for the hearing
impaired).
- ------------------------------------------------------------------------------
DESCRIPTION OF SHARES OF THE FUND
- ------------------------------------------------------------------------------
The Fund is a series of the Van Kampen American Capital Equity Trust, a
Delaware business trust organized as of May 10, 1995 (the "Trust"). The Fund was
originally organized in 1986 as a Massachusetts business trust, was reorganized
in
44
<PAGE> 49
1988 as a sub-trust of Van Kampen Merritt Equity Trust, a Massachusetts business
trust, and was reorganized as a series of the Trust as of July 31, 1995. Shares
of the Trust entitle their holders to one vote per share; however, separate
votes are taken by each series on matters affecting an individual series.
The authorized capitalization of the Fund consists of an unlimited number of
shares of beneficial interest, $0.01 par value, divided into classes. The Fund
currently offers three classes, designated Class A Shares, Class B Shares and
Class C Shares. Each class of shares represents an interest in the same assets
of the Fund and are identical in all respects except that each class bears
certain distribution expenses and has exclusive voting rights with respect to
its distribution fee.
Pursuant to an order of the SEC, the Fund is permitted to issue an unlimited
number of classes of shares. Each class of shares is equal as to earnings,
assets and voting privileges, except as noted above, and each class bears the
expenses related to the distribution of its shares. There are no conversion,
preemptive or other subscription rights, except with respect to the conversion
of Class B Shares and Class C Shares into Class A Shares as described above. In
the event of liquidation, each of the shares of the Fund is entitled to its
portion of all of the Fund's net assets after all debt and expenses of the Fund
have been paid. Since Class B Shares and Class C Shares pay higher distribution
expenses, the liquidation proceeds to holders of Class B Shares and Class C
Shares are likely to be lower than to other shareholders.
The Trust does not contemplate holding regular meetings of shareholders to
elect Trustees or otherwise. However, the holders of 10% or more of the
outstanding shares may by written request require a meeting to consider the
removal of Trustees by a vote of a majority of the shares present and voting at
such meeting. The Trust will assist such holders in communicating with other
shareholders of the Fund to the extent required by the 1940 Act. More detailed
information concerning the Trust is set forth in the Statement of Additional
Information.
- ------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- ------------------------------------------------------------------------------
This Prospectus and the Statement of Additional Information do not contain all
the information set forth in the Registration Statement filed by the Fund with
the SEC under the Securities Act of 1933. Copies of the Registration Statement
may be obtained at a reasonable charge from the SEC or may be examined, without
charge, at the office of the SEC in Washington, D.C.
The Fund's fiscal year ends on June 30. The Fund sends to its shareholders at
least semi-annually reports showing the Fund's portfolio and other information.
An annual report, containing financial statements audited by the Fund's
independent auditors, is sent to shareholders each year. After the end of each
year, shareholders
45
<PAGE> 50
will receive federal income tax information regarding dividends and capital
gains distributions.
Shareholder inquiries should be directed to the Van Kampen American Capital
Value Fund, One Parkview Plaza, Oakbrook Terrace, Illinois 60181, Attn:
Correspondence.
For Automated Telephone Service which provides 24-hour direct dial access to
Fund facts and Shareholder account information, dial (800) 421-5666. For
inquiries through Telecommunications Device for the Deaf (TDD) dial (800)
772-8889.
46
<PAGE> 51
<TABLE>
<S> <C>
VAN KAMPEN AMERICAN CAPITAL
VALUE FUND
One Parkview Plaza
Oakbrook Terrace, IL 60181
---------------------------------------
Investment Adviser
VAN KAMPEN AMERICAN CAPITAL
INVESTMENT ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, IL 60181
Distributor
VAN KAMPEN AMERICAN CAPITAL
DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, IL 60181
EXISTING SHAREHOLDERS-- Transfer Agent
FOR INFORMATION ON YOUR ACCESS INVESTOR SERVICES, INC.
EXISTING ACCOUNT PLEASE P.O. Box 418256
CALL THE FUND'S TOLL-FREE Kansas City, MO 64141-9256
NUMBER (800) 421-5666. Attn: Van Kampen American Capital Funds
PROSPECTIVE INVESTORS--CALL Custodian
YOUR BROKER OR (800) 421-5666. STATE STREET BANK AND
TRUST COMPANY
DEALERS--FOR DEALER 225 Franklin Street, P.O. Box 1713
INFORMATION, SELLING Boston, MA 02105
AGREEMENTS, WIRE ORDERS, Attn: Van Kampen American Capital Funds
OR REDEMPTIONS CALL THE
DISTRIBUTOR'S TOLL-FREE Legal Counsel
NUMBER (800) 421-5666. SKADDEN, ARPS, SLATE,
MEAGHER & FLOM
FOR SHAREHOLDER AND 333 West Wacker Drive
DEALER INQUIRIES THROUGH Chicago, IL 60606
TELECOMMUNICATIONS
DEVICE FOR THE DEAF (TDD) Independent Auditors
DIAL (800) 772-8889 KPMG PEAT MARWICK LLP
Peat Marwick Plaza
FOR AUTOMATED TELEPHONE 303 East Wacker Drive
SERVICES DIAL (800) 421-5666 Chicago, IL 60601
</TABLE>
<PAGE> 52
VALUE FUND
------------------------------------------------------------------------------
P R O S P E C T U S
, 1995
------ A WEALTH OF KNOWLEDGE o A KNOWLEDGE OF WEALTH ------
VAN KAMPEN AMERICAN CAPITAL
------------------------------------------------------------------------
<PAGE> 53
STATEMENT OF ADDITIONAL INFORMATION
VAN KAMPEN AMERICAN CAPITAL VALUE FUND
Van Kampen American Capital Value Fund (the "Fund") seeks long-term growth of
capital. The Fund will attempt to achieve this investment objective by investing
primarily in a diversified portfolio of common stocks and other equity
securities of medium and larger capitalization companies that are believed by
the Fund's investment adviser to be selling below their intrinsic value and to
offer the opportunity for significant growth of capital. There is no assurance
that the Fund will achieve its investment objective. The Fund is a mutual fund
whose portfolio is advised by Van Kampen American Capital Investment Advisory
Corp. (the "Adviser"). The Fund is a separate series of Van Kampen American
Capital Equity Trust (the "Trust").
This Statement of Additional Information is not a prospectus but should be
read in conjunction with the Prospectus for the Fund dated , 1995 (the
"Prospectus"). This Statement of Additional Information does not include all of
the information that a prospective investor should consider before purchasing
shares of the Fund, and investors should obtain and read the Prospectus prior to
purchasing shares. A copy of the Prospectus may be obtained without charge by
calling (800) 421-5666. This Statement of Additional Information incorporates by
reference the entire Prospectus.
The Prospectus and this Statement of Additional Information omit certain of
the information contained in the registration statement filed with the
Securities and Exchange Commission, Washington, D.C. These items may be obtained
from the Commission upon payment of the fee prescribed, or inspected at the
Commission's office at no charge.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Fund and the Trust............................................................... B-2
Investment Policies and Restrictions................................................. B-2
Additional Investment Considerations................................................. B-4
Description of Securities Ratings.................................................... B-10
Officers and Trustees................................................................ B-18
Legal Counsel........................................................................ B-23
Investment Advisory and Other Services............................................... B-23
Portfolio Transactions and Brokerage Allocation...................................... B-24
Tax Status of the Fund............................................................... B-25
The Distributor...................................................................... B-25
Performance Information.............................................................. B-26
</TABLE>
THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED , 1995.
B-1
<PAGE> 54
THE FUND AND THE TRUST
The Fund is a separate diversified series of the Trust, an open-end management
investment company. At present, the Fund, Van Kampen American Capital Utility
Fund, Van Kampen American Capital Balanced Fund, Van Kampen American Capital
Value Fund, Van Kampen American Capital Growth Fund, Van Kampen American Capital
Great American Companies Fund, and Van Kampen American Capital Prospector Fund
are the only series of the Trust, although other series may be organized and
offered in the future.
The Trust is an unincorporated business trust established under the laws of
the State of Delaware by an Agreement and Declaration of Trust dated May 10,
1995 (the "Declaration of Trust"). The Declaration of Trust permits the Trustees
to create one or more separate investment portfolios and issue a series of
shares, $0.01 par value, for each portfolio. The Trustees can further sub-divide
each series of shares into one or more classes of shares for each portfolio.
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 Trust was originally organized in
1986 as a Massachusetts business trust and reorganized as a Delaware business
trust on July 31, 1995.
Shares of the Trust entitle their holders to one vote per share; however,
separate votes are taken by each series on matters affecting an individual
series. For example, a change in investment policy for a series would be voted
upon by shareholders of only the series involved. Shares do not have cumulative
voting rights, preemptive rights or any conversion or exchange rights. The Trust
does not contemplate holding regular meetings of shareholders to elect Trustees
or otherwise. However, the holders of 10% or more of the outstanding shares may
by written request require a meeting to consider the removal of Trustees by a
vote of a majority of the shares present and voting at such meeting. The Trust
will assist such holders in communicating with other shareholders of the Fund to
the extent required by the Investment Company Act of 1940 (the "1940 Act").
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.
INVESTMENT POLICIES AND RESTRICTIONS
The investment objective of the Fund is set forth in the Prospectus under the
caption "Investment Objective and Policies." There can be no assurance that the
Fund will achieve its investment objective.
Fundamental investment restrictions limiting the investments of the Fund
provide that the Fund may not:
1. Purchase any securities (other than obligations issued or guaranteed by
the United States Government or by its 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, such 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. Neither limitation
shall apply to the acquisition of shares of other open-end investment
companies to the extent permitted by rule or order of
B-2
<PAGE> 55
the Securities and Exchange Commission exempting the Fund from the
limitations imposed by Section 12(d)(1) of the 1940 Act.
2. Invest more than 25% of its assets in a single industry, provided,
however, that this limitation excludes shares of other open-end investment
companies owned by the Fund but includes the Fund's pro rata portion of
the securities and other assets owned by any such company. (Neither the
U.S. Government nor any of its agencies or instrumentalities will be
considered an industry for purposes of this restriction.)
3. Issue senior securities, borrow money from banks or enter into reverse
repurchase agreements with banks in the aggregate in excess of 33 1/3% of
the Fund's total assets (after giving effect to any such borrowing); which
amount excludes no more than 5% in borrowings and reverse repurchase
agreements with any entity for temporary purposes. The Fund will not
mortgage, pledge or hypothecate any assets other than in connection with
issuances of senior securities, borrowings, delayed delivery and when
issued transactions and strategic transactions techniques.
4. Make loans of money or property to any person, except (i) to the extent
the securities in which the Fund may invest are considered to be loans,
(ii) through the loan of portfolio securities, and (iii) to the extent
that the Fund may lend money or property in connection with maintenance of
the value of, or the Fund's interest with respect to, the securities owned
by the Fund.
5. Sell any securities "short," unless at all times when a short position is
open the Fund owns an equal amount of the securities or of securities
convertible into, or exchangeable without further consideration for,
securities of the same issue as the securities sold short.
6. 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.
7. Make investments for the purpose of exercising control or participation in
management, except to the extent that exercise by the Fund of its rights
under agreements related to portfolio securities would be deemed to
constitute such control or participation.
8. Invest in securities of other investment companies, except as part of a
merger, consolidation or other acquisition, except as permitted under the
1940 Act and except to the extent permitted by order of the Securities and
Exchange Commission exempting the Fund from the limitations imposed by
Section 12(d)(1) of the 1940 Act.
9. Invest in interests in oil, gas, or other mineral exploration or
development programs except pursuant to the exercise by the Fund of its
rights under agreements relating to portfolio securities.
10. Purchase or sell real estate, commodities or commodity contracts, except
to the extent that the securities that the Fund may invest in are
considered to be interests in real estate, commodities or commodity
contracts or to the extent the Fund exercises its rights under agreements
relating to portfolio securities (in which case the Fund may liquidate
real estate acquired as a result of a default on a mortgage), and except
to the extent that Strategic Transactions the Fund may engage in are
considered to be commodities or commodities contracts.
For purposes of the concentration policy of the Fund contained in limitation
(2) above, the Fund intends to comply with the SEC staff position that
securities issued or guaranteed as to principal and interest by any one single
foreign government, or by all supranational organizations in the aggregate, are
considered to be securities of issuers in the same industry.
The Fund may not change any of these investment restrictions nor any other
fundamental policy as they apply to the Fund without the approval of the lesser
of (i) more than 50% of the Fund's outstanding shares or (ii) 67% of the Fund's
shares present at a meeting at which the holders of more than 50% of the
outstanding shares are present in person or by proxy. As long as the percentage
restrictions described above are satisfied at the time of the investment or
borrowing, the Fund will be considered to have abided by those restrictions even
if, at a later time, a change in values or net assets causes an increase or
decrease in percentage beyond that allowed.
B-3
<PAGE> 56
The Fund may invest up to 15% of its total assets in illiquid securities,
securities the disposition of which is subject to substantial legal or
contractual restrictions on resale and securities that are not readily
marketable. The sale of restricted and illiquid securities often requires more
time and results in higher brokerage charges or dealer discounts and other
selling expenses than does the sale of securities eligible for trading on
national securities exchanges or in the over-the-counter markets. Restricted
securities may sell at a price lower than similar securities that are not
subject to restrictions on resale. Restricted securities salable among qualified
institutional buyers without restriction pursuant to Rule 144A under the
Securities Act of 1933 that are determined to be liquid by the Adviser under
guidelines adopted by the Board of Trustees of the Trust (under which guidelines
the Adviser will consider factors such as trading activities and the
availability of price quotations), will not be treated as restricted securities
by the Fund pursuant to such rules. This limitation excludes shares of other
open-end investment companies owned by the Fund but includes the Fund's pro rata
portion of the securities and other assets owned by any such company. The Fund
may, from time to time, adopt a more restrictive limitation with respect to
investment in illiquid and restricted securities in order to comply with the
most restrictive state securities law, currently 10%. This policy does not
include restricted securities eligible for resale pursuant to Rule 144A under
the Securities Act of 1933, as amended, which the Board of Trustees or the
Fund's investment adviser has determined under Board-approved guidelines to be
liquid. The Fund's policy with respect to investment in illiquid and restricted
securities is not a fundamental policy and may be changed by the Board of
Trustees, in consultation with the adviser, without obtaining shareholder
approval.
From time to time the Fund may commit to more stringent restrictions in order
to be able to offer its shares to residents in particular states.
ADDITIONAL INVESTMENT CONSIDERATIONS
BORROWING
The Fund may borrow up to 33 1/3% of the value of its total assets from banks,
(including entering into reverse repurchase agreements) which amount excludes no
more than 5% in borrowings and reverse repurchase agreements with any entity for
temporary purposes. The Fund has no current intention to borrow money other than
for temporary purposes.
Borrowing by the Fund creates an opportunity for increased net income but, at
the same time, creates special risk considerations such as potential changes in
the net asset value of the Shares and in the yield on the Fund's portfolio.
Although the principal of such borrowings will be fixed, the Fund's assets may
change in value during the time the borrowing is outstanding. Borrowing will
create interest expenses for the Fund which can exceed the income from the
assets retained. To the extent the income derived from securities purchased with
borrowed funds exceeds the interest the Fund will have to pay, the Fund's net
income will be greater than if borrowing were not used. Conversely, if the
income from the assets retained with borrowed funds is not sufficient to cover
the cost of borrowing, the net income of the Fund will be less than if borrowing
were not used, and therefore the amount available for distribution to
shareholders as dividends will be reduced.
STRATEGIC TRANSACTIONS
The Fund may, but is not required to, utilize various other investment
strategies as described below. Such strategies are generally accepted by modern
portfolio managers and are regularly utilized by many mutual funds and other
institutional investors. Techniques and instruments may change over time as new
instruments and strategies are developed or regulatory changes occur.
In the course of pursuing these investment strategies, the Fund may purchase
and sell derivative instruments such as exchange-listed and over-the-counter put
and call options on securities, equity and fixed-income indices and other
financial instruments and purchase and sell financial futures contracts and
options thereon and enter into various currency transactions such as currency
forward contracts, currency futures contracts, currency swaps and options on
currencies or currency futures (collectively, all the above are called
"Strategic Transactions"). Strategic Transactions may be used to attempt to
protect against possible changes in the market value of securities held in or to
be purchased for the Fund's portfolio resulting from securities
B-4
<PAGE> 57
markets fluctuations, to protect the Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to protect against changes in currency exchange rates, or to establish
a position in the derivatives markets as a temporary substitute for purchasing
or selling particular securities.
Any or all of these investment techniques may be used at any time and there is
no particular strategy that dictates the use of one technique rather than
another, as use of any Strategic Transaction is a function of numerous variables
including market conditions. The ability of the Fund to utilize these Strategic
Transactions successfully will depend on the Adviser's ability to predict
pertinent market movements, which cannot be assured. The Fund will comply with
applicable regulatory requirements when implementing these strategies,
techniques and instruments.
Strategic Transactions have risks associated with them including possible
default by the other party to the transaction, illiquidity and, to the extent
the Adviser's view as to certain market movements is incorrect, the risk that
the use of such Strategic Transactions could result in losses greater than if
they had not been used. Use of put and call options may result in losses to the
Fund, force the sale or purchase of portfolio securities at inopportune times or
for prices other than current market values, limit the amount of appreciation
the Fund can realize on its investments or cause the Fund to hold a security it
might otherwise sell. The use of currency transactions can result in the Fund
incurring losses as a result of a number of factors including the imposition of
exchange controls, suspension of settlements or the inability to deliver or
receive a specified currency. The use of options and futures transactions
entails certain other risks. In particular, the variable degree of correlation
between price movements of futures contracts and price movements in the related
portfolio position of the Fund creates the possibility that losses on the
hedging instrument may be greater than gains in the value of the Fund's
position. In addition, futures and options markets may not be liquid in all
circumstances and certain over-the-counter options may have no markets. As a
result, in certain markets, the Fund might not be able to close out a
transaction without incurring substantial losses, if at all. Although the use of
futures and options transactions for hedging should tend to minimize the risk of
loss due to a decline in the value of the hedged position, at the same time they
tend to limit any potential gain which might result from an increase in value of
such position. Finally, the daily variation margin requirements for futures
contracts would create a greater ongoing potential financial risk than would
purchases of options, where the exposure is limited to the cost of the initial
premium. Losses resulting from the use of Strategic Transactions would reduce
net asset value, and possibly income, and such losses can be greater than if the
Strategic Transactions had not been utilized. Income earned or deemed to be
earned, if any, by the Fund from its Strategic Transactions will generally be
taxable income of the Fund. See "Tax Status" in the Prospectus.
GENERAL CHARACTERISTICS OF OPTIONS. Put options and call options typically
have similar structural characteristics and operational mechanics regardless of
the underlying instrument on which they are purchased or sold. Thus, the
following general discussion relates to each of the particular types of options
discussed in greater detail below. In addition, many Strategic Transactions
involving options require segregation of Fund assets in special accounts, as
described below under "Use of Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a premium, the
right to sell, and the writer the obligation to buy, the underlying security,
commodity, index, or other instrument at the exercise price. For instance, the
Fund's purchase of a put option on a security might be designed to protect its
holdings in the underlying instrument (or, in some cases, a similar instrument)
against a substantial decline in the market value by giving the Fund the right
to sell such instrument at the option exercise price. A call option, upon
payment of a premium, gives the purchaser of the option the right to buy, and
the seller the obligation to sell, the underlying instrument at the exercise
price. The Fund's purchase of a call option on a security, financial future,
index, or other instrument might be intended to protect the Fund against an
increase in the price of the underlying instrument that it intends to purchase
in the future by fixing the price at which it may purchase such instrument. An
American style put or call option may be exercised at any time during the option
period while a European style put or call option may be exercised only upon
expiration or during a fixed period prior thereto. The Fund is authorized to
purchase and sell exchange listed options and over-the-counter options ("OTC
options"). Exchange listed options are issued by a regulated intermediary such
as the Options Clearing Corporation ("OCC"), which guarantees the performance of
the obligations of the parties to such
B-5
<PAGE> 58
options. The discussion below uses the OCC as a paradigm, but is also applicable
to other financial intermediaries.
With certain exceptions, OCC issued and exchange listed options generally
settle by physical delivery of the underlying security or currency, although in
the future cash settlement may become available. Index options are cash settled
for the net amount, if any, by which the option is "in-the-money" (i.e., where
the value of the underlying instrument exceeds, in the case of a call option, or
is less than, in the case of a put option, the exercise price of the option) at
the time the option is exercised. Frequently, rather than taking or making
delivery of the underlying instrument through the process of exercising the
option, listed options are closed by entering into offsetting purchase or sale
transactions that do not result in ownership of the new option.
The Fund's ability to close out its position as a purchaser or seller of an
OCC or exchange listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the absence of a
liquid option market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the
OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to
handle current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours during
which the underlying financial instruments are traded. To the extent that the
option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Fund will only sell OTC options that are subject to a buy-back provision
permitting the Fund to require the Counterparty to sell the option back to the
Fund at a formula price within seven days. The Fund expects generally to enter
into OTC options that have cash settlement provisions, although it is not
required to do so.
Unless the parties provide for it, there is no central clearing or guaranty
function in an OTC option. As a result, if the Counterparty fails to make or
take delivery of the security, or other instrument underlying an OTC option it
has entered into with the Fund or fails to make a cash settlement payment due in
accordance with the terms of that option, the Fund will lose any premium it paid
for the option as well as any anticipated benefit of the transaction.
Accordingly, the Adviser must assess the creditworthiness of each such
Counterparty or any guarantor or credit enhancement of the Counterparty's credit
to determine the likelihood that the terms of the OTC option will be satisfied.
The Fund will engage in OTC option transactions only with United States
government securities dealers recognized by the Federal Reserve Bank of New York
as "primary dealers", or broker dealers, domestic or foreign banks or other
financial institutions which have received (or the guarantors of the obligation
of which have received) a short-term credit rating of "A-1" from Standard &
Poor's Ratings Group ("S&P") or "P-1" from Moody's Investor Services, Inc.
("Moody's") or an equivalent rating from any other nationally recognized
statistical rating organization ("NRSRO"). The staff of the SEC currently takes
the position that, in general, OTC options on securities other than U.S.
Government securities purchased by the Fund, and portfolio securities "covering"
the amount of the Fund's obligation pursuant to an OTC option sold by it (the
cost of the sell-back plus the in-the-money amount, if any) are illiquid, and
are subject to the Fund's limitation on investing no more than 15% of its assets
in illiquid securities.
If the Fund sells a call option, the premium that it receives may serve as a
partial hedge, to the extent of the option premium, against a decrease in the
value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.
B-6
<PAGE> 59
The Fund may purchase and sell call options on securities, including U.S.
Treasury and agency securities, municipal obligations, mortgage-backed
securities, corporate debt securities, equity securities (including convertible
securities) that are traded on U.S. and foreign securities exchanges and in the
over-the-counter markets. All calls sold by the Fund must be "covered" (i.e.,
the Fund must own the securities or futures contract subject to the call) or
must meet the asset segregation requirements described below as long as the call
is outstanding. Even though the Fund will receive the option premium to help
protect it against loss, a call sold by the Fund exposes the Fund during the
term of the option to possible loss of opportunity to realize appreciation in
the market price of the underlying security or instrument and may require the
Fund to hold a security or instrument which it might otherwise have sold. In
selling calls on securities not owned by the Fund, the Fund may be required to
acquire the underlying security at a disadvantageous price in order to satisfy
its obligations with respect to the call.
The Fund may purchase and sell put options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, municipal
obligations, corporate debt securities, equity securities (including convertible
securities) (whether or not it holds the above securities in its portfolio) and
on securities indices, currencies and futures contracts other than futures or
individual corporate debt and individual equity securities. The Fund will not
sell put options if, as a result, more than 50% of the Fund's assets would be
required to be segregated to cover its potential obligations under such put
options other than those with respect to futures and options thereon. In selling
put options, there is a risk that the Fund may be required to buy the underlying
security at a disadvantageous price above the market price.
GENERAL CHARACTERISTICS OF FUTURES. The Fund may enter into financial futures
contracts or purchase or sell put and call options on such futures as a hedge
against anticipated interest rate, currency, equity or fixed-income market
changes and for risk management purposes. Futures are generally bought and sold
on the commodities exchanges where they are listed with payment of initial and
variation margin as described below. The purchase of a futures contract creates
a firm obligation by the Fund, as purchaser, to take delivery from the seller
the specific type of financial instrument called for in the contract at a
specific future time for a specified price (or, with respect to index futures,
the net cash amount). The sale of a futures contract creates a firm obligation
by the Fund, as seller, to deliver to the buyer the specific type of financial
instrument called for in the contract at a specific future time for a specified
price (or, with respect to index futures, the net cash amount). Options on
futures contracts are similar to options on securities except that an option on
a futures contract gives the purchaser the right in return for the premium paid
to assume a position in a futures contract and obligates the seller to deliver
such option.
The Fund's use of financial futures and options thereon will in all cases be
consistent with applicable regulatory requirements and in particular the rules
and regulations of the Commodity Futures Trading Commission. Typically,
maintaining a futures contract or selling an option thereon requires the Fund to
deposit with a financial intermediary as security for its obligations an amount
of cash or other specified assets (initial margin) which initially is typically
1% to 10% of the face amount of the contract (but may be higher in some
circumstances). Additional cash or assets (variation margin) may be required to
be deposited thereafter on a daily basis as the mark to market value of the
contract fluctuates. The purchase of options on financial futures involves
payment of a premium for the option without any further obligation on the part
of the Fund. If the Fund exercises an option on a futures contract it will be
obligated to post initial margin (and potential subsequent variation margin) for
the resulting futures position just as it would for any position. Futures
contracts and options thereon are generally settled by entering into an
offsetting transaction but there can be no assurance that the position can be
offset prior to settlement at an advantageous price nor that delivery will
occur.
The Fund will not enter into a futures contract or related option (except for
closing transactions) if, immediately thereafter, the sum of the amount of its
initial margin and premiums on open futures contracts and options thereon would
exceed 5% of the Fund's total assets (taken at current value); however, in the
case of an option that is in-the-money at the time of the purchase, the
in-the-money amount may be excluded in calculating the 5% limitation. Certain
state securities laws to which the Fund may be subject may further restrict the
Fund's ability to engage in transactions in futures contracts and related
options. The segregation requirements with respect to futures contracts and
options thereon are described herein.
B-7
<PAGE> 60
OPTIONS ON SECURITIES INDICES AND OTHER FINANCIAL INDICES. The Fund also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement, i.e., an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the index
upon which the option is based exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option (except if, in the case
of an OTC option, physical delivery is specified). This amount of cash is equal
to the excess of the closing price of the index over the exercise price of the
option, which also may be multiplied by a formula value. The seller of the
option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.
The Fund also may invest in foreign stock index futures traded outside the
United States. Foreign stock index futures traded outside the United States
include the Nikkei Index of 225 Japanese stocks traded on the Singapore
International Monetary Exchange ("Nikkei Index"), Osaka Index of 50 Japanese
stocks traded on the Osaka Exchange, Financial Times Stock Exchange Index of the
100 largest stocks on the London Stock Exchange, the All Ordinaries Share Price
Index of 307 stocks on the Sydney, Melbourne Exchanges, Hang Seng Index of 33
stocks on the Hong Kong Stock Exchange, Barclays Share Price Index of 40 stocks
on the New Zealand Stock Exchange and Toronto Index of 35 stocks on the Toronto
Stock Exchange. Futures and futures options on the Nikkei Index are traded on
the Chicago Mercantile Exchange and United States commodity exchanges may
develop futures and futures options on other indices of foreign securities.
Futures and options on United States devised index of foreign stocks are also
being developed. Investments in securities of foreign entities and securities
denominated in foreign currencies involve risks not typically involved in
domestic investment, including fluctuations in foreign exchange rates, future
foreign political and economic developments and the possible imposition of
exchange controls or other foreign or United States governmental laws or
restrictions applicable to such investments.
CURRENCY TRANSACTIONS. The Fund may engage in currency transactions with
Counterparties in order to hedge the value of portfolio holding denominated in
particular currencies against fluctuations in relative value. Currency
transactions include forward currency contracts, exchange listed currency
futures, exchange listed and OTC options on currencies, and currency swaps. A
forward currency contract involves a privately negotiated obligation to purchase
or sell (with delivery generally required) a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract. A currency swap is
an agreement to exchange cash flows based on the notional difference among two
or more currencies and operates similarly to an interest rate swap, which is
described below. The Fund may enter into currency transactions with
Counterparties which have received (or the guarantors of the obligations of such
Counterparties have received) a credit rating of A-1 or P-1 by S&P or Moody's,
respectively, or that have an equivalent rating from an NRSRO or (except for OTC
currency options) are determined to be of equivalent credit quality by the
Adviser.
The Fund's dealings in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps will be
limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is entering into a currency transaction with
respect to specific assets of liabilities of the Fund, which will generally
arise in connection with the purchase or sale of its portfolio securities or the
receipt of income therefrom. Position hedging is entering into a currency
transaction with respect to portfolio security positions denominated or
generally quoted in that currency.
The Fund will not enter into a transaction to hedge currency exposure to an
extent greater, after netting all transactions intended to wholly or partially
offset other transactions, than the aggregate market value (at the time of
entering into the transaction) of the securities held in its portfolio that are
denominated or generally quoted in or currently convertible into such currency
other than with respect to cross hedging and proxy hedging as described below.
B-8
<PAGE> 61
The Fund may cross-hedge currencies by entering into transactions to purchase
or sell one or more currencies that are expected to decline in value relative to
other currencies to which the Fund has or in which the Fund expects to have
portfolio exposure.
To reduce the effect of currency fluctuations on the value of existing or
anticipated holdings of portfolio securities, the Fund may also engage in proxy
hedging. Proxy hedging is often used when the currency to which the Fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering into a forward contract to sell a currency whose
changes in value are generally considered to be linked to a currency or
currencies in which some or all of the Fund's portfolio securities are or are
expected to be denominated, and to buy U.S. dollars. For example, if the Adviser
considers the Austrian schilling is linked to the German deutschemark (the
"D-mark"), the Fund holds securities denominated in schillings and the Adviser
believes that the value of schillings will decline against the U.S. dollar, the
Adviser may enter into a contract to see D-marks and buy dollars. Currency
hedging involves some of the same risks and considerations as other transactions
with similar instruments. Currency transactions can result in losses to the Fund
if the currency being hedged fluctuates in value to a degree or in a direction
that is not anticipated. Further, there is the risk that the perceived linkage
between various currencies may not be present or may not be present during the
particular time that the Fund is engaging in proxy hedging. If the Fund enters
into a currency hedging transaction, the Fund will comply with the asset
segregation requirements described below.
RISK OF CURRENCY TRANSACTIONS. Currency transactions are subject to risks
different from those of other portfolio transactions. Because currency control
is of great importance to the issuing governments and influences economic
planning and policy, purchases and sales of currency and related instruments can
be negatively affected by government exchange controls, blockages, and
manipulations or exchange restrictions imposed by governments. These can result
in losses to the Fund if it is unable to deliver or receive currency or funds in
settlement of obligations and could also cause hedges it has entered into to be
rendered useless, resulting in full currency exposure as well as incurring
transaction costs. Buyers and sellers of currency futures are subject to the
same risks that apply to the use of futures generally. Further, settlement of a
currency futures contract for the purchase of most currencies must occur at a
bank based in the issuing nation. Trading options on currency futures is
relatively new, and the ability to establish and close out positions on such
options is subject to the maintenance of a liquid market which may not always be
available. Currency exchange rates may fluctuate based on factors extrinsic to
that country's economy.
COMBINED TRANSACTIONS. The Fund may enter into multiple transactions,
including multiple options transactions, multiple futures transactions, multiple
currency transactions and multiple interest rate transactions and any
combination of futures, options, currency and interest rate transactions
("component" transactions), instead of a single Strategic Transaction, as part
of a single or combined strategy when, in the opinion of the Adviser, it is in
the best interests of the Fund to do so. A combined transaction will usually
contain elements of risk that are present in each of its component transactions.
Although combined transactions are normally entered into based on the Adviser's
judgment that the combined strategies will reduce risk or otherwise more
effectively achieve the desired portfolio management goal, it is possible that
the combination will instead increase such risks or hinder achievement of the
portfolio management objective.
RISKS OF STRATEGIC TRANSACTIONS OUTSIDE THE UNITED STATES. When conducted
outside the United States, Strategic Transactions may not be regulated as
rigorously as in the United States, may not involve a clearing mechanism and
related guarantee, and are subject to the risk of governmental actions affecting
trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the United States of data on which to make trading
decisions, (iii) delays in the Fund's ability to act upon economic events
occurring in foreign markets during non-business hours in the United States,
(iv) the imposition of different exercise and settlement terms and procedures
and margin requirements than in the United States, and (v) lower trading volume
and liquidity.
USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS. Many Strategic Transactions, in
addition to other requirements, require that the Fund segregate liquid
high-grade assets with its custodian to the extent Fund obligations are not
otherwise "covered" through ownership of the underlying security, financial
instrument or currency. In general, either the full amount of any obligation by
the Fund to pay or deliver securities or assets
B-9
<PAGE> 62
must be covered at all times by the securities, instruments or currency required
to be delivered, or, subject to any regulatory restrictions, an amount of cash
or liquid high-grade securities at least equal to the current amount of the
obligation must be segregated with the custodian. The segregated assets cannot
be sold or transferred unless equivalent assets are substituted in their place
or it is no longer necessary to segregate them. For example, a call option
written by the Fund will require the Fund to hold the securities subject to the
call (or securities convertible into the needed securities without additional
consideration) or to segregate liquid high-grade securities sufficient to
purchase and deliver the securities if the call is exercised. A call option sold
by the Fund on an index will require the Fund to own portfolio securities which
correlate with the index or to segregate liquid high-grade assets equal to the
excess of the index value over the exercise price on a current basis. A put
option written by the Fund requires the Fund to segregate liquid, high-grade
assets equal to the exercise price.
Except when the Fund enters into a forward contract for the purchase or sale
of a security denominated in a particular currency, which requires no
segregation, a currency contract which obligates the Fund to buy or sell
currency will generally require the Fund to hold an amount of that currency or
liquid securities denominated in that currency equal to the Fund's obligations
or to segregate liquid high grade assets equal to the amount of the Fund's
obligation.
OTC options entered into by the Fund, including those on securities,
currencies, financial instruments or indices and OCC issued and exchange listed
index options, will generally provide for cash settlement. As a result, when the
Fund sells these instruments it will only segregate an amount of assets equal to
its accrued net obligations, as there is no requirement for payment or delivery
of amounts in excess of the net amount. These amounts will equal 100% of the
exercise price in the case of a non cash-settled put, the same as an OCC
guaranteed listed option sold by the Fund, or the in-the-money amount plus any
sell-back formula amount in the case of a cash-settled put or call. In addition,
when the Fund sells a call option on an index at a time when the in-the-money
amount exceeds the exercise price, the Fund will segregate, until the option
expires or is closed out, cash or cash equivalents equal in value to such
excess. OCC issued and exchange listed options sold by the Fund other than those
above generally settle with physical delivery, and the Fund will segregate an
amount of assets equal to the full value of the option. OTC options settling
with physical delivery, or with an election of either physical delivery or cash
settlement, will be treated the same as other options settling with physical
delivery.
In the case of a futures contract or an option thereon, the Fund must deposit
initial margin and possible daily variation margin in addition to segregating
assets sufficient to meet its obligation to purchase or provide securities or
currencies, or to pay the amount owed at the expiration of an index- based
futures contract. Such assets may consist of cash, cash equivalents, liquid debt
or equity securities or other acceptable assets. To the extent such assets are
other than cash or cash equivalents, such assets will be marked to market on a
daily basis. To the extent that the Fund segregates assets other than cash or
cash equivalents in connection with the purchase or sale of a futures contract
or the sale of an option thereon, the Fund will be subject to market risks with
respect to the open futures or option position as well as with respect to the
portfolio securities segregated against such position. To the extent that the
market value of such position and of such portfolio securities have a high
degree of positive correlation, market fluctuations may adversely affect both
the value of such position and the value of such portfolio securities, which has
the effect of leveraging the Fund's portfolio assets and increasing the Fund's
investment risk.
Strategic Transactions may be covered by other means when consistent with
applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Strategic
Transactions. For example, the Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund. Moreover, instead of segregating assets if the Fund held a
futures or forward contract, it could purchase a put option on the same futures
or forward contract with a strike price as high or higher than the price of the
contract held. Other Strategic Transactions may also be offset in combinations.
If the offsetting transaction terminates at the time of or after the primary
transaction no segregation is required, but if it terminates prior to such time,
assets equal to any remaining obligation would need to be segregated.
B-10
<PAGE> 63
The Fund's activities involving Strategic Transactions may be limited by the
requirements of Subchapter M of the Code for qualification as a regulated
investment company. See "Tax Status" in the Prospectus.
DESCRIPTION OF SECURITIES RATINGS
STANDARD & POOR'S RATINGS GROUP--A brief description of the applicable
Standard & Poor's Ratings Group (S&P) rating symbols and their meanings (as
published by Standard & Poor's Ratings Group) follows:
1. DEBT
A Standard & Poor's corporate or municipal debt rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. This assessment may take into consideration obligors such as
guarantors, insurers, or lessees.
The debt rating is not a recommendation to purchase, sell, or hold a
security, inasmuch as it does not comment as to market price or suitability
for a particular investor.
The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources it considers reliable. S&P does not perform
an audit in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended, or withdrawn as
a result of changes in, or unavailability of, such information, or based on
other circumstances.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of default--capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with
the terms of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the laws
of bankruptcy and other laws affecting creditor's rights.
INVESTMENT GRADE
AAA: Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A: Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in the higher rated categories.
BBB: Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
SPECULATIVE GRADE
BB, B, CCC, CC, C: Debt rated "BB", "B", "CCC", "CC", and "C" is regarded as
having predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. "BB" indicates the least degree of speculation and
"C" the highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major exposures
to adverse conditions.
BB: Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
B-11
<PAGE> 64
B: Debt rated "B" has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The "B" rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied "BB" or "BB-"
rating.
CCC: Debt rated "CCC" has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The "CCC" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "B" or "B-" rating.
CC: The rating "CC" typically is applied to debt subordinated to senior debt
that is assigned an actual or implied "CCC" rating.
C: The rating "C" typically is applied to debt subordinated to senior debt
which is assigned an actual or implied "CCC-" debt rating. The "C" rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI: The rating "CI" is reserved for income bonds on which no interest is being
paid.
D: Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The "D" rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
C: The letter "c" indicates that the holder's option to tender the security
for purchase may be canceled under certain prestated conditions enumerated in
the tender option documents.
I: The letter "i" indicates the rating is implied. Such ratings are assigned
only on request to entities that do not have specific debt issues to be rated.
In addition, implied ratings are assigned to governments that have not requested
explicit ratings for specific debt issues. Implied ratings on governments
represent the sovereign ceiling or upper limit for ratings on specific debt
issues of entities domiciled in the country.
L: The letter "L" indicates that the rating pertains to the principal amount
of those bonds to the extent that the underlying deposit collateral is federally
insured and interest is adequately collateralized. In the case of certificates
of deposit, the letter "L" indicates that the deposit, combined with other
deposits being held in the same right and capacity, will be honored for
principal and accrued pre-default interest up to the federal insurance limits
within 30 days after closing of the insured institution or, in the event that
the deposit is assumed by a successor insured institution, upon maturity.
P: The letter "p" indicates that the rating is provisional. A provisional
rating assumes the successful completion of the project being financed by the
debt being rated and indicates that payment of debt service requirements is
largely or entirely dependent upon the successful and timely completion of the
project. This rating, however, while addressing credit quality subsequent to
completion of the project, makes no comment on the likelihood of, or the risk of
default upon failure of, such completion. The investor should exercise his own
judgement with respect to such likelihood and risk. The rating is contingent
upon S&P's receipt of an executed copy of the escrow agreement or closing
documents.
NR: Not rated.
DEBT OBLIGATIONS OF ISSUERS OUTSIDE THE UNITED STATES AND ITS TERRITORIES are
rated on the same basis as domestic corporate and municipal issues. The ratings
measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.
BOND INVESTMENT QUALITY STANDARDS: Under present commercial bank regulations
issued by the Comptroller of the Currency, bonds rated in the top four
categories ("AAA", "AA", "A", "BBB", commonly known as "investment grade"
ratings) are generally regarded as eligible for bank investment. In addition,
the laws of
B-12
<PAGE> 65
various states governing legal investments impose certain rating or other
standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.
2. COMMERCIAL PAPER
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt considered short-term in the relevant
market.
Ratings are graded into several categories, ranging from "A-1" for the highest
quality obligations to "D" for the lowest. These categories are as follows:
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+)
designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as
overwhelming as for issues designated "A-1".
A-3 Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher
designations.
B Issues rated "B" are regarded as having only speculative capacity for
timely payment.
C This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date
due, even if the applicable grace period has not expired, unless S&P
believes that such payments will be made during such grace period.
A commercial paper rating is not a recommendation to purchase, sells or hold
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained by S&P from other sources it considers reliable.
S&P does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended or withdrawn as a result of changes in, or unavailability of, such
information, or based on other circumstances.
3. VARIABLE RATE DEMAND BONDS
Standard & Poor's assigns "dual" ratings to all debt issues that have a put or
demand feature as part of their structure.
The first rating addresses the likelihood of repayment of principal and
interest as due, and the second rating addresses only the demand feature. The
long-term debt rating symbols are used for bonds to denote the long-term
maturity and the commercial paper rating symbols for the put option (for
example, "AAA/A-1+"). With short-term demand debt, S&P's note rating symbols are
used with the commercial paper rating symbols (for example, "SP-1+/A-1+").
4. NOTES
An S&P note rating reflects the liquidity factors and market access risks
unique to notes. Notes maturing in three years or less will likely receive a
note rating. Notes maturing beyond three years will most likely receive a
long-term debt rating. The following criteria will be used in making that
assignment:
-- Amortization schedule (the longer the final maturity relative to other
maturities, the more likely the issue is to be treated as a note).
-- Source of payment (the more the issue depends on the market for its
refinancing, the more likely it is to be treated as a note).
B-13
<PAGE> 66
Note rating symbols and definitions are as follows:
SP-1 Strong capacity to pay principal and interest. Issues determined
to possess very strong characteristics will be given a plus (+)
designation.
SP-2 Satisfactory capacity to pay principal and interest with some
vulnerability to adverse financial and economic changes over the
term of the notes.
SP-3 Speculative capacity to pay principal and interest.
5. PREFERRED STOCK
A Standard & Poor's preferred stock rating is an assessment of the capacity
and willingness of an issuer to pay preferred stock dividends and any applicable
sinking fund obligations. A preferred stock rating differs from a bond rating
inasmuch as it is assigned to an equity issue, which issue is intrinsically
different from, and subordinated to, a debt issue. Therefore, to reflect this
difference, the preferred stock rating symbol will normally not be higher than
the debt rating symbol assigned to, or that would be assigned to, the senior
debt of the same issuer.
The preferred stock ratings are based on the following considerations:
1. Likelihood of payment--capacity and willingness of the issuer to meet the
timely payment of preferred stock dividends and any applicable sinking fund
requirements in accordance with the terms of the obligation.
2. Nature of, and provisions of, the issue.
3. Relative position of the issue in the event of bankruptcy, reorganization,
or other arrangements affecting creditors' rights.
<TABLE>
<S> <C>
AAA This is the highest rating that may be assigned by Standard & Poor's to a preferred
stock issue and indicates an extremely strong capacity to pay the preferred stock
obligations.
AA A preferred stock issue rated "AA" also qualifies as a high-quality fixed income
security. The capacity to pay preferred stock obligations is very strong, although
not as overwhelming as for issues rated "AAA".
A An issue rated "A" is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
BBB An issue rated "BBB" is regarded as backed by an adequate capacity to pay the
preferred stock obligations. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity to make payments for a preferred stock in this
category than for issues in the "A" category.
BB Preferred stock rated "BB", "B", and "CCC" are regarded, on balance, as
B predominantly speculative with respect to the issuer's capacity to pay preferred
CCC stock obligations. "BB" indicates the lowest degree of speculation and "CCC" the
highest degree of speculation. While such issues will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
CC The rating "CC" is reserved for a preferred stock issue in arrears on dividends or
sinking fund payments but that is currently paying.
C A preferred stock rated "C" is a non-paying issue.
D A preferred stock rated "D" is a non-paying issue with the issuer in default on
debt instruments.
NR This indicates that no rating has been requested, that there is insufficient
information on which to base a rating or that Standard & Poor's does not rate a
particular type of obligation as a matter of policy.
PLUS (+) or MINUS (-): To provide more detailed indications of preferred stock
quality, the rating from "AA" to "CCC" may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
</TABLE>
B-14
<PAGE> 67
A preferred stock rating is not a recommendation to purchase, sell, or hold a
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the Issuer or obtained by S&P from other sources it considers reliable.
S&P does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended, or withdrawn as a result of changes in, or unavailability of, such
information, or based on other circumstances.
MOODY'S INVESTORS SERVICE -- A brief description of the applicable Moody's
Investors Service rating symbols and their meanings (as published by Moody's
Investor Service) follows:
1. LONG-TERM DEBT
Aaa: Bonds which are rated Aaa are judged to be of 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 position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the 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 fluctuation 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 Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payment and
principal security appear adequate for the present but certain protective
elements may by lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. 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.
ABSENCE OF RATING: Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue.
B-15
<PAGE> 68
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published
in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
2. SHORT-TERM DEBT
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations which have an original maturity not
exceeding one year. Obligations relying upon support mechanisms such as
letters-of-credit and bonds of indemnity are excluded unless explicitly rated.
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:
Issuers rated Prime-1 (or supporting institutions) have a superior ability for
repayment of senior short-term debt obligations. Prime-1 repayment ability will
often be evidenced by many of the following characteristics:
-- Leading market positions in well-established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
-- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability for
repayment of senior short-term debt obligations. This will normally be evidenced
by many of the characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or supporting institutions) have an acceptable ability
for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternative liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
3. PREFERRED STOCK
Preferred stock rating symbols and their definitions are as follows:
aaa: An issue which is rated 'aaa' is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least
risk of dividend impairment within the universe of preferred stocks.
aa: An issue which is rated 'aa' is considered a high-grade preferred stock.
This rating indicates that there is a reasonable assurance the earnings and
asset protection will remain relatively well maintained in the foreseeable
future.
a: An issue which is rated 'a' is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the
'AAA' and 'AA' classifications, earnings and asset protections are,
nevertheless, expected to be maintained at adequate levels.
baa: An issue which is rated 'baa' is considered to be a medium grade
preferred stock, neither highly protected nor poorly secured. Earnings and
asset protection appear adequate at present but may be questionable over any
great length of time.
B-16
<PAGE> 69
ba: An issue which is rated 'ba' is considered to have speculative elements
and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse
periods. Uncertainty of position characterizes preferred stocks in this class.
b: An issue which is rated 'b' generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
caa: An issue which is rated 'caa' is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future
status of payments.
ca: An issue which is rated 'ca' is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of eventual
payment.
c: This is the lowest rated class of preferred or preference stock. Issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Moody's applies numerical modifiers 1, 2 and 3 in each rating classification
from "AA" through "BB" in its preferred stock rating system: 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.
B-17
<PAGE> 70
OFFICERS AND TRUSTEES
The tables below list the trustees and officers of the Trust (of which the
Fund is a separate series) and their principal occupations for the last five
years and their affiliations, if any, with Van Kampen American Capital
Investment Advisory Corp. (the "VK Adviser" or "Adviser"), Van Kampen American
Capital Asset Management, Inc., (the "AC Adviser"), Van Kampen American Capital
Management, Inc., McCarthy, Crisanti & Maffei, Inc., MCM Asia Pacific Company,
Limited, Van Kampen American Capital Distributors, Inc. (the "Distributor"), Van
Kampen American Capital, Inc. ("Van Kampen American Capital") or VK/AC Holding,
Inc. For purposes hereof, the term "Van Kampen American Capital Funds" includes
each of the open-end investment companies advised by the VK Adviser (excluding
the Van Kampen Merritt Series Trust) and each of the open-end investment
companies advised by the AC Adviser.
TRUSTEES
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- ----------------------------------- ---------------------------------------------------------
<S> <C>
J. Miles Branagan.................. Co-founder, Chairman, Chief Executive Officer and
2300 205th Street President of MDT Corporation, a company which develops
Torrance, CA 90501 manufactures, markets and services medical and scientific
Age: 63 equipment. Trustee of each of the Van Kampen American
Capital Funds.
Philip P. Gaughan.................. Prior to February, 1989, Managing Director and Manager of
9615 Torresdale Avenue Municipal Bond Department, W. H. Newbold's Sons & Co.
Philadelphia, PA 19114 Trustee of each of the Van Kampen American Capital Funds.
Age: 66
Linda Hutton Heagy................. Managing Partner, Paul Ray Berndston, an executive
10 South Riverside Plaza recruiting and management consulting firm. Formerly,
Suite 720 Executive Vice President of ABN AMRO, N.A., a Dutch bank
Chicago, IL 60606 holding company. Prior to 1992, Executive Vice President
Age: 46 of La Salle National Bank. A Trustee of each of the Van
Kampen American Capital Funds.
Roger Hilsman...................... Professor of Government and International Affairs
251-1 Hamburg Cove Emeritus, Columbia University. Trustee of each of the Van
Lyme, CT 06371 Kampen American Capital Funds.
Age: 75
R. Craig Kennedy................... President and Director, German Marshall Fund of the
1341 E. 50th Street United States. Formerly, advisor to the Dennis Trading
Chicago, IL 60615 Group Inc. Prior to 1992, President and Chief Executive
Age: 43 Officer, Director and member of the Investment Committee
of the Joyce Foundation, a private foundation. Trustee of
each of the Van Kampen American Capital Funds.
Dennis J. McDonnell*............... President, Chief Operating Officer and a Director of the
One Parkview Plaza VK Adviser, the AC Adviser and Van Kampen American
Oakbrook Terrace, IL 60181 Capital Management, Inc. Director of VK/AC Holding, Inc,
Age: 53 Van Kampen American Capital, and McCarthy, Crisanti &
Maffei, Inc. Chairman and a Director of MCM Asia Pacific
Company, Ltd. President, Chief Executive Officer and
Trustee of each of the funds advised by the VK Adviser.
Prior to December, 1991, Senior Vice President of Van
Kampen Merritt Inc.
</TABLE>
B-18
<PAGE> 71
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- ----------------------------------- ---------------------------------------------------------
<S> <C>
Donald C. Miller................... Prior to 1992, Director of Royal Group, Inc., a company
415 North Adams in insurance related businesses. Formerly Vice Chairman
Hinsdale, IL 60521 and Director of Continental Illinois National Bank and
Age: 75 Trust Company of Chicago and Continental Illinois
Corporation. Trustee of each of the Van Kampen American
Capital Funds and Chairman of the Board of each of the
open-end funds (except the Van Kampen Merritt Series
Trust) advised by the VK Adviser.
Jack E. Nelson..................... President of Nelson Investment Planning Services, Inc., a
423 Country Club Drive financial planning company and registered investment
Winter Park, FL 32789 adviser. President of Nelson Investment Brokerage
Age: 59 Services Inc., a member of the National Association of
Securities Dealers, Inc. (NASD) and Securities Investors
Protection Corp. (SIPC). Trustee of each of the Van
Kampen American Capital Funds.
Don G. Powell*..................... President, Chief Executive Officer and a Director of
2800 Post Oak Blvd. VK/AC Holding, Inc. and Van Kampen American Capital.
Houston, TX 77056 Chairman, Chief Executive Officer and a Director of the
Age: 55 Distributor, the VK Adviser, the AC Adviser and Van
Kampen American Capital Management, Inc. Director,
President and Chief Executive Officer of Van Kampen
American Capital Advisers, Inc. and Van Kampen American
Capital Exchange Corp. Director and Executive Vice
President of Advantage Capital Corporation, ACCESS
Investor Services, Inc., Van Kampen American Capital
Services, Inc. and Van Kampen American Capital Trust
Company. Director of McCarthy, Crisanti & Maffei, Inc.
President and Director, Trustee or Managing General
Partner of each of the funds advised by the AC Adviser
and Trustee of each of the funds advised by the VK
Adviser. He is also Chairman of the Board of the Van
Kampen Merritt Series Trust and closed-end investment
companies advised by the VK Adviser.
David Rees......................... Contributing Columnist and, prior to 1995, Senior Editor
1601 Country Club Drive of Los Angeles Business Journal. A director of Source
Glendale, CA 91208 Capital, Inc., a closed-end investment company
Age: 71 unaffiliated with Van Kampen American Capital, a director
and the second vice president of International Institute
of Los Angeles. Trustee of each of the Van Kampen
American Capital Funds.
Jerome L. Robinson................. President of Robinson Technical Products Corporation, a
115 River Road manufacturer and processor of welding alloys, supplies
Edgewater, NJ 07020 and equipment. Director of Pacesetter Software, a
Age: 72 software programming company specializing in white collar
productivity. Director of Panasia Bank. Trustee of each
of the Van Kampen American Capital Funds.
Lawrence J. Sheehan*............... Of Counsel to and formerly Partner (from 1969 to 1994) of
1999 Avenue of the Stars the law firm of O'Melveny & Myers, legal counsel to the
Suite 700 funds advised by the AC Adviser. Director, FPA Capital
Los Angeles, CA 90067 Fund, Inc.; FPA New Income Fund, Inc.; FPA Perennial
Age: 63 Fund, Inc.; Source Capital, Inc.; and TCW Convertible
Security Fund, Inc. Trustee of each of the Van Kampen
American Capital Funds.
</TABLE>
B-19
<PAGE> 72
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- ----------------------------------- ---------------------------------------------------------
<S> <C>
Fernando Sisto..................... George M. Bond Chaired Professor and, prior to 1995, Dean
Stevens Institute of Graduate School and Chairman, Department of Mechanical
of Technology Engineering, Stevens Institute of Technology. Director of
Castle Point Station Dynalysis of Princeton, a firm engaged in engineering
Hoboken, NJ 07030 research. Trustee of each of the Van Kampen American
Age: 70 Capital Funds and Chairman of the Board of each of the
open-end funds advised by the AC Adviser.
Wayne W. Whalen*................... Partner in the law firm of Skadden, Arps, Slate, Meagher
333 West Wacker Drive & Flom, legal counsel to funds advised by the VK Adviser.
Chicago, IL 60606 Trustee of each of the Van Kampen American Capital Funds.
Age: 55 He also is a Trustee of the Van Kampen Merritt Series
Trust and closed-end investment companies advised by the
VK Adviser.
William S. Woodside................ Vice Chairman of the Board of LSG Sky Chefs, Inc., a
712 Fifth Avenue caterer of airline food. Formerly, Director of Primerica
40th Floor Corporation (currently known as The Traveler's Inc.).
New York, NY 10019 Formerly, Director of James River Corporation, a producer
Age: 73 of paper products. Trustee, and former President of
Whitney Museum of American Art. Formerly, Chairman of
Institute for Educational Leadership, Inc., Board of
Visitors, Graduate School of The City University of New
York, Academy of Political Science. Trustee of Committee
for Economic Development. Director of Public Education
Fund Network, Fund for New York City Public Education.
Trustee of Barnard College. Member of Dean's Council,
Harvard School of Public Health. Member of Mental Health
Task Force, Carter Center. Trustee of each of the Van
Kampen American Capital Funds.
</TABLE>
OFFICERS
<TABLE>
<CAPTION>
POSITIONS AND OTHER PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND IN PAST 5 YEARS
- --------------------- -------------------------- ---------------------------------------------
<S> <C> <C>
Peter W. Hegel....... Vice President Executive Vice President and Portfolio
Age: 39 Manager of the Adviser. Executive Vice
President of the AC Adviser. Vice President
of each of the Van Kampen American Capital
Funds and closed-end funds advised by the VK
Adviser.
Ronald A. Nyberg..... Vice President and Executive Vice President, General Counsel and
Age: 42 Secretary Secretary of Van Kampen American Capital.
Executive Vice President and a Director of
the VK Adviser and the Distributor. Executive
Vice President of the AC Adviser. Vice
President and Secretary of each of the Van
Kampen American Capital Funds and closed-end
funds advised by the VK Adviser. Director of
ICI Mutual Insurance Co., a provider of
insurance to members of the Investment
Company Institute. Prior to March 1990,
Secretary of Van Kampen Merritt Inc., the VK
Adviser and McCarthy, Crisanti & Maffei, Inc.
Edward C. Wood III... Vice President, Treasurer Senior Vice President of the VK Adviser. Vice
Age: 39 and Chief Financial President, Treasurer and Chief Financial
Officer Officer of each of the Van Kampen American
Capital Funds and closed-end funds advised by
the VK Adviser.
</TABLE>
B-20
<PAGE> 73
<TABLE>
<CAPTION>
POSITIONS AND OTHER PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND IN PAST 5 YEARS
- --------------------- -------------------------- ---------------------------------------------
<S> <C> <C>
Nicholas Dalmaso..... Assistant Secretary Assistant Vice President and Attorney of Van
Age: 30 Kampen American Capital. Assistant Secretary
of each of the Van Kampen American Capital
Funds and closed-end funds advised by the VK
Adviser. Prior to May 1992, attorney for
Cantwell & Cantwell, a Chicago law firm.
Scott E. Martin...... Assistant Secretary Senior Vice President, Deputy General Counsel
Age: 38 and Assistant Secretary of Van Kampen
American Capital. Senior Vice President,
Deputy General Counsel and Secretary of the
VK Adviser and the Distributor. Assistant
Secretary of each of the Van Kampen American
Capital Funds and closed-end funds advised by
the VK Adviser.
Weston B. Assistant Secretary Vice President, Associate General Counsel and
Wetherell.......... Assistant Secretary of Van Kampen American
Age: 39 Capital, the VK Adviser and the Distributor.
Assistant Secretary of McCarthy, Crisanti &
Maffei, Inc. Assistant Secretary of each of
the Van Kampen American Capital Funds and
closed-end funds advised by the VK Adviser.
John L. Sullivan..... Controller First Vice President of the VK Adviser.
Age: 39 Controller of each of the Van Kampen American
Capital Funds and closed-end funds advised by
the VK Adviser.
Steven M. Hill....... Assistant Treasurer Assistant Vice President of the VK Adviser.
Age: 30 Assistant Treasurer of each of the Van Kampen
American Capital Funds and closed-end funds
advised by the VK Adviser.
</TABLE>
- ---------------
* Such Trustees are "interested persons" (within the meaning of Section 2(a)(19)
of the 1940 Act). Messrs. Powell and McDonnell are interested persons of the
VK Adviser and the Fund by reason of their positions with the VK Adviser. Mr.
Sheehan is an interested person of the VK Adviser and the Fund by reason of
his firm having acted as legal counsel to the VK Adviser. Mr. Whalen is an
interested person of the Fund by reason of his firm acting as legal counsel
for the Fund.
Messrs. Powell and McDonnell own, or have the opportunity to purchase, an
equity interest in VK/AC Holding, Inc., the parent company of Van Kampen
American Capital, and have entered into employment contracts (for a term of five
years) with Van Kampen American Capital.
The Fund will pay each trustee who is not an affiliated person of the VK
Adviser, the Distributor or Van Kampen American Capital an annual retainer of
$2,500 per year and $250 per meeting of the Fund, plus expenses; except that no
trustee shall receive the annual retainer at any time when the Fund's net assets
are less than $25,000,000. Under the Fund's deferred compensation plan, a
trustee can elect to defer all or a portion of the trustee's fees earned by such
trustee until such trustee's retirement. The deferred compensation earns a rate
of return determined by reference to the Fund or other Van Kampen American
Capital mutual funds advised by the VK Adviser or its affiliates as selected by
the trustee. To the extent permitted by the 1940 Act, the Fund may invest in
securities of such mutual funds selected by the 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 Fund's retirement plan, a trustee who is
receiving trustee's fees from the Fund prior to such trustee's retirement, has
at least ten years of service 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 trustee's retirement. Under certain conditions,
reduced benefits are available for early retirement. Each series of the Trust
has similar trustee compensation, deferred compensation and retirement plan
arrangements.
B-21
<PAGE> 74
COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT TOTAL COMPENSATION
AGGREGATE BENEFITS ACCRUED ESTIMATED ANNUAL FROM REGISTRANT AND
COMPENSATION AS PART OF FUND BENEFITS UPON FUND COMPLEX PAID
NAME FROM REGISTRANT(2) EXPENSES(3) RETIREMENT(4) TO TRUSTEE(5)
- ----------------------------- ------------------ ---------------- ---------------- ---------------------
<S> <C> <C> <C> <C>
R. Craig Kennedy............. $6,581 $ -- $2,500 $62,362
Philip G. Gaughan............ 8,262 -- 2,500 63,250
Donald C. Miller............. 6,414 -- 2,500 62,178
Jack A. Nelson............... 6,581 -- 2,500 62,362
Jerome L. Robinson........... 6,456 -- 2,500 58,475
Wayne W. Whalen.............. 8,143 -- 2,500 49,875
</TABLE>
- ---------------
(1) The Registrant is Van Kampen American Capital Equity Trust (the "Trust")
which currently consists of six operating series, including the Fund. As
indicated in the other explanatory notes, the amounts in the table relate
to the applicable trustees during the Registrant's last fiscal year ended
June 30, 1995 or the Fund Complex' (as defined herein) last calendar year
ended December 31, 1994. Messrs. Powell and McDonnell, Trustees of the
Registrant, are affiliated persons of the Adviser and are not eligible for
compensation or retirement benefits from the Registrant. Messrs. Branagan,
Hilsman, Rees, Sheehan, Sisto and Woodside were elected as trustees of the
Trust at a shareholders meeting held on July 21, 1995 and Ms. Heagy was
appointed a trustee on September 7, 1995, and thus received no
compensation or retirement benefits from the Registrant during its fiscal
year ended June 30, 1995.
(2) The amounts shown in this column are accumulated from the Aggregate
Compensation of each of the series in operation during the Registrant's
fiscal year ended June 30, 1995. In a full fiscal year with all six series
operating throughout the year and all having net assets exceeding
$25,000,000, the estimated aggregate compensation from the Registrant
would be approximately $20,000. Beginning in October 1994, each Trustee
except Messrs. Gaughan and Whalen, began deferring his entire aggregate
compensation paid by the Registrant. The total combined amount of deferred
compensation (including interest) accrued with respect to each Trustee
from the Fund Complex (as defined herein) as of December 31, 1994 is as
follows: Mr. Kennedy, $14,737; Mr. Miller, $14,553; Mr. Nelson, $14,737
and Mr. Robinson, $13,725.
(3) The amounts shown in this column are the estimated Pension or Retirement
Benefit Accruals by the Fund during its fiscal year ending June 30, 1995.
(4) This is the estimated annual benefits payable per year for the 10-year
period commencing in the year of such Trustee's retirement by the Fund
assuming: the Trustee has 10 or more years of service on the Board of the
Fund and retires at or after attaining the age of 60. Trustees retiring
prior to the age of 60 or with fewer than 10 years of service may receive
reduced retirement benefits from the Fund.
(5) As of December 31, 1994, the Fund Complex consisted of 20 mutual funds
advised by the VK Adviser that had the same members on each funds' Board
of Trustees. The amounts shown in this column were accumulated from the
Aggregate Compensation of each of these 20 mutual funds in the Fund
Complex during the calendar year ended December 31, 1994. The VK Adviser
also served as investment adviser for other investment companies; however,
with the exception of Messrs. Powell, McDonnell and Whalen, the Trustees
were not trustees of such investment companies. Combining the Fund Complex
with other investment companies advised by the Adviser, Mr. Whalen
received Total Compensation of $161,850 during the calendar year ended
December 31, 1994.
As of September 29, 1995, 1995, the trustees and officers as a group own less
than 1% of the Shares of the Fund.
No officer or trustee of the Fund owns or would be able to acquire 5% or more
of the common stock of VK/AC Holding, Inc.
To the knowledge of the Fund, as of September 29, 1995, no person owned of
record or beneficially 5% or more of any Fund's Class A Shares, Class B Shares
or Class C Shares.
B-22
<PAGE> 75
LEGAL COUNSEL
Counsel to the Fund is Skadden, Arps, Slate, Meagher & Flom, Chicago,
Illinois.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISORY AGREEMENT
Van Kampen American Capital Investment Advisory Corp. (the "Adviser") is the
Fund's investment adviser. The Adviser was incorporated as a Delaware
corporation in 1982 (and through December 31, 1987 transacted business under the
name of American Portfolio Advisory Service Inc.). The Adviser's principal
office is located at One Parkview Plaza, Oakbrook Terrace, Illinois 60181.
The Adviser is a wholly-owned subsidiary of Van Kampen American Capital, Inc.,
which in turn is a wholly-owned subsidiary of VK/AC Holding, Inc. VK/AC Holding,
Inc. is controlled, through the ownership of a substantial majority of its
common stock by The Clayton & Dubilier Private Equity Fund IV Limited
Partnership ("C&D L.P."), a Connecticut limited partnership. C&D L.P. is managed
by Clayton, Dubilier & Rice, Inc., a New York based private investment firm. The
General Partner of C&D L.P. is Clayton & Dubilier Associates IV Limited
Partnership ("C&D Associates L.P."). The general partners of C&D Associates L.P.
are Joseph L. Rice, III, B. Charles Ames, William A. Barbe, Alberto Cribiore,
Donald J. Gogel, Leon J. Hendrix, Jr., Hubbard C. Howe and Andrall E. Pearson,
each of whom is a principal of Clayton, Dubilier & Rice, Inc. In addition,
certain officers, directors and employees of Van Kampen American Capital, Inc.
own, in the aggregate, not more than 7% of the common stock of VK/AC Holding,
Inc. and have the right to acquire, upon exercise of options, approximately an
additional 11% of the common stock of VK/AC Holding, Inc. Presently, and after
giving effect to the exercise of such options, no officer or trustee owns or
would own 5% or more of VK/AC Holding, Inc.
The investment advisory agreement between the Adviser and the Fund provides
that the Adviser will administer the business affairs of the Fund, supervise the
Fund's overall investment activities in the context of implementing the Fund's
investment objectives, furnish offices, necessary facilities and equipment,
provide administrative services, and permit its officers and employees to serve
without compensation as Trustees of the Trust and officers of the Fund if duly
elected to such positions.
The agreement provides that the Adviser shall not be liable for any error of
judgment or of law, or for any loss suffered by the Fund in connection with the
matters to which the agreement relates, except a loss resulting from willful
misfeasance, bad faith, or gross negligence on the part of the Adviser in the
performance of its obligations and duties, or by reason of its reckless
disregard of its obligations and duties under the agreement.
The Adviser's activities are subject to the review and supervision of the
Trustees to whom the Adviser renders periodic reports of the Fund's investment
activities.
The investment advisory agreement remains in effect from year to year if
specifically approved by the Trustees (including the independent Trustees) on
behalf of the Fund or the Fund's shareholders in compliance with the
requirements of the 1940 Act. The agreement may be terminated without penalty
upon 60 days written notice by either party thereto and will automatically
terminate in the event of assignment.
The Adviser has undertaken to reimburse the Fund for annual expenses of the
Fund which exceed the most stringent limit prescribed by any state in which the
Fund's shares are offered for sale. Currently, the most stringent limit in any
state would require such reimbursement to the extent that aggregate operating
expenses of the Fund (excluding interest, taxes and other expenses which may be
excludable under applicable state law) exceed in any fiscal year 2 1/2% of the
average annual net assets of the Fund up to $30 million, 2% of the average
annual net assets of the Fund of the next $70 million, and 1 1/2% of the
remaining average annual net assets of the Fund. In addition to making any
required reimbursements, the Adviser may in its discretion, but is not obligated
to, waive all or any portion of its fee or assume all or any portion of the
expenses of the Fund.
B-23
<PAGE> 76
OTHER AGREEMENTS
FUND ACCOUNTING AGREEMENT. The Fund has also entered into an accounting
services agreement pursuant to which the VK Adviser provides accounting services
supplementary to those provided by the Custodian. Such services are expected to
enable the Fund to more closely monitor and maintain its accounts and records.
The Fund shares together with the other Van Kampen American Capital mutual funds
advised by the VK Adviser and distributed by the Distributor in the cost of
providing such services, with 25% of such costs shared proportionately based on
the number of outstanding classes of securities per fund and with the remaining
75% of such cost being paid by the Fund and such other Van Kampen American
Capital funds based proportionally on their respective net assets.
LEGAL SERVICES AGREEMENT. The Fund and each of the other Van Kampen American
Capital funds advised by the VK Adviser and distributed by the Distributor have
entered into Legal Services Agreement pursuant to which Van Kampen American
Capital provides legal services, including without limitation: accurate
maintenance of the funds' minute books and records, preparation and oversight of
the funds' regulatory reports, and other information provided to shareholders,
as well as responding to day-to-day legal issues on behalf of the funds. It is
expected that Van Kampen American Capital can render such legal services on a
more cost effective basis than other providers of such services. Payment by the
Fund for such services is made on a cost basis for the employment of personnel
as well as the overhead and the equipment necessary to render such services.
Other funds distributed by the Distributor also receive legal services from Van
Kampen American Capital. 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.
CUSTODIAN AND INDEPENDENT AUDITORS
State Street Bank and Trust Company, 225 Franklin Street, P.O. Box 1713,
Boston, MA 02105-1713, is the custodian of the Fund and has custody of all
securities and cash of the Fund. The custodian, among other things, attends to
the collection of principal and income, and payment for and collection of
proceeds of securities bought and sold by the Fund.
The independent auditors for the Fund are KPMG Peat Marwick LLP, Chicago,
Illinois. The selection of independent auditors will be subject to ratification
by the shareholders of the Fund at any annual meeting of shareholders.
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION
The Adviser will place orders for portfolio transactions for the Fund with
broker-dealer firms giving consideration to the quality, quantity and nature of
each firm's professional services. These services include execution, clearance
procedures, wire service quotations and statistical and other research
information provided to the Fund or the Adviser, including quotations necessary
to determine the value of the Fund's net assets. Any research benefits derived
are available for all clients of 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 materially reduce its
expenses. In selecting among the firms believed to meet the criteria for
handling a particular transaction, the Fund's Adviser may take into
consideration that certain firms have sold or are selling shares of the Fund and
that certain firms provide market, statistical or other research information to
the Fund and the Adviser, and may select firms that are affiliated with the
Fund, its Adviser or its Distributor.
If it is believed to be in the best interests of the Fund, the Adviser may
place portfolio transactions with brokers who provide the types of research
service described above, even if it means the Fund will have to pay a higher
commission (or, if the broker's profit is part of the cost of the security, will
have to pay a higher price for the security) than would be the case if no weight
were given to the broker's furnishing of those research services. This will be
done, however, only if, in the opinion of the Fund's Adviser, the amount of
additional commission or increased cost is reasonable in relation to the value
of such services.
B-24
<PAGE> 77
In selecting among the firms believed to meet the criteria for handling a
particular transaction, the Adviser may take into consideration that certain
firms (i) provide market, statistical or other research information such as that
set forth above to the Fund and the Adviser, (ii) have sold or are selling
shares of the Fund and (iii) may select firms that are affiliated with the Fund,
its investment adviser or its distributor and other principal underwriters. If
purchases or sales of securities of the Fund and of one or more other investment
companies or clients supervised by the Fund's Adviser are considered at or about
the same time, transactions in such securities will be allocated among the
several investment companies and clients in a manner deemed equitable to all by
the Adviser, taking into account the respective size of the Fund and other
investment companies and clients and the amount of securities to be purchased or
sold. Although it is possible that in some cases this procedure could have a
detrimental effect on the price or volume of the security as far as the Fund is
concerned, it is also possible that the ability to participate in volume
transactions and to negotiate lower brokerage commissions will be beneficial to
the Fund.
While the Adviser will be primarily responsible for the placement of the
Fund's business, the policies and practices in this regard must be consistent
with the foregoing and will at all times be subject to review by the trustees of
the Trust, of which the Fund is a separate series.
The Trustees have adopted certain policies incorporating the standards of Rule
17e-1 issued by the Securities and Exchange Commission under the 1940 Act which
requires that the commissions paid to the Distributor and other affiliates of
the Fund must be reasonable and fair compared to the commissions, fees or other
remuneration received or to be received by other brokers in connection with
comparable transactions involving similar securities during a comparable period
of time. The rule and procedures also contain review requirements and require
the Adviser to furnish reports to the Trustees and to maintain records in
connection with such reviews. After consideration of all factors deemed
relevant, the Trustees will consider from time to time whether the advisory fee
for the Fund will be reduced by all or a portion of the brokerage commission
given to affiliated brokers.
Portfolio turnover is calculated by dividing the lesser of purchases or sales
of portfolio securities by the monthly average value of the securities in the
portfolio during the year. Securities, including options, whose maturity or
expiration date at the time of acquisition were one year or less are excluded
from such calculation. The Fund anticipates that the annual portfolio turnover
rate of the Fund's portfolio will generally be less than 100%. If the turnover
rate for the Fund does reach or exceed this percentage, the Fund's brokerage
costs may increase and the Adviser will monitor the Fund's trading practices to
avoid potential adverse tax consequences.
TAX STATUS OF THE FUND
The Trust and any of its series, including the Fund, will be treated as
separate corporations for federal income tax purposes. The Fund will be subject
to tax if it fails to distribute net capital gains, or if its annual
distributions, as a percentage of its income, are less than the distributions
required by tax laws.
THE DISTRIBUTOR
The Distributor offers one of the industry's broadest lines of
investments -- encompassing mutual funds, closed-end funds and unit investment
trusts -- and is currently the nation's 5th largest broker-sold mutual fund
group according to Strategic Insight. Van Kampen American Capital's roots in
money management extend back to 1926. Today, Van Kampen American Capital manages
or supervises more than $50 billion in mutual funds, closed-end funds and unit
investment trusts -- assets which have been entrusted to Van Kampen American
Capital in more than 2 million investor accounts. Van Kampen American Capital
has one of the largest research teams (outside of the rating agencies) in the
country, with 86 analysts devoted to various specializations.
Shares of the Fund are offered continuously through the Distributor, One
Parkview Plaza, Oakbrook Terrace, Illinois 60181. The Distributor is a wholly
owned subsidiary of Van Kampen American Capital, Inc., which is a subsidiary of
VK/AC Holding, Inc., a Delaware corporation that is controlled through an
ownership of a substantial majority of its common stock, by The Clayton &
Dubilier Private Equity Fund IV Limited Partnership ("C & D L.P."), a
Connecticut limited partnership. In addition, certain officers, directors and
B-25
<PAGE> 78
employees of Van Kampen American Capital, Inc., and its subsidiaries own, in the
aggregate not more than 7% of the common stock of VK/AC Holding, Inc. and have
the right to acquire, upon the exercise of options, approximately an additional
11% of the common stock of VK/AC Holding, Inc. C & D L.P. is managed by Clayton,
Dubilier & Rice, Inc. Clayton & Dubilier Associates IV Limited Partnership ("C &
D Associates L.P.") is the general partner of C & D L.P. Pursuant to a
distribution agreement with the Fund, the Distributor will purchase shares of
the Fund for resale to the public, either directly or through securities dealers
and brokers, and is obligated to purchase only those shares for which it has
received purchase orders. A discussion of how to purchase and redeem shares of
the Fund and how such shares are priced is contained in the Prospectus.
The Fund has adopted a distribution plan (the "Distribution Plan") with
respect to each class of its shares pursuant to Rule 12b-1 under the 1940 Act.
The Fund also has adopted a service plan (the "Service Plan") with respect to
each class of its shares. The Distribution Plan and the Service Plan sometimes
are referred to herein as the "Plans." The Plans provide that the Fund may spend
a portion of the Fund's average daily net assets attributable to each class of
shares in connection with distribution of the respective class of shares and in
connection with the provision of ongoing services to shareholders of such class,
respectively. The Plans are being implemented through an agreement (the
"Distribution and Service Agreement") with the Distributor of each class of the
Fund's shares, sub-agreements between the Distributor and members of the NASD
who are acting as securities dealers and NASD members or eligible non-members
who are acting as brokers or agents and similar agreements between the Fund and
financial intermediaries who are acting as brokers (collectively, "Selling
Agreements") that may provide for their customers or clients certain services or
assistance, which may include, but not be limited to, processing purchase and
redemption transactions, establishing and maintaining shareholder accounts
regarding the Fund, and such other services as may be agreed to from time to
time and as may be permitted by applicable statute, rule or regulation. Brokers,
dealers and financial intermediaries that have entered into sub-agreements with
the Distributor and sell shares of the Fund are referred to herein as "financial
intermediaries."
The Distributor must submit quarterly reports to the Board of Trustees of the
Trust, of which the Fund is a series, setting forth separately by class of
shares all amounts paid under the Plans and the purposes for which such
expenditures were made, together with such other information as from time to
time is reasonably requested by the Trustees. The Plans provide that they will
continue in full force and effect from year to year so long as such continuance
is specifically approved by a vote of the Trustees, and also by a vote of the
disinterested Trustees, cast in person at a meeting called for the purpose of
voting on the Plans. Each of the Plans may not be amended to increase materially
the amount to be spent for the services described therein with respect to either
class of shares without approval by a vote of a majority of the outstanding
voting shares of such class, and all material amendments to either of the Plans
must be approved by the Trustees and also by the disinterested Trustees. Each of
the Plans may be terminated with respect to either class of shares at any time
by a vote of a majority of the disinterested Trustees or by a vote of a majority
of the outstanding voting shares of such class.
PERFORMANCE INFORMATION
The Fund's yield quotation is determined on a daily basis with respect to the
immediately preceding 30 day period; yield is computed by first dividing the
Fund's net investment income per share of a given class earned during such
period by the Fund's maximum offering price (including, with respect to the
Class A Shares, the maximum offering price) per share of such class on the last
day of such period. The Fund's net investment income per share is determined by
taking the interest attributable to a given class of shares earned by the Fund
during the period, subtracting the expenses attributable to a given class of
shares accrued for the period (net of any reimbursements), and dividing the
result by the average daily number of shares of each class outstanding during
the period that were entitled to receive dividends. The yield calculation
formula assumes net investment income is earned and reinvested at a constant
rate and annualized at the end of a six month period. Yield will be computed
separately for each class of shares. Class B Shares redeemed during the first
six years after their issuance and Class C Shares redeemed during the first year
after their issuance may be subject to a contingent deferred sales charge in a
maximum amount equal to 4.00% and 1.00%, respectively, of the lesser of the then
current net asset value of the shares redeemed or their initial purchase price
from the Fund. Yield
B-26
<PAGE> 79
quotations do not reflect the imposition of a contingent deferred sales charge,
and if any such contingent deferred sales charge imposed at the time of
redemption were reflected, it would reduce the performance quoted.
The Fund calculates average compounded total return by determining the
redemption value (less any applicable contingent deferred sales charge) at the
end of specified periods (after adding back all dividends and other
distributions made during the period) of a $1,000 investment in a given class of
shares of the Fund (less the maximum sales charge, if any) at the beginning of
the period, annualizing the increase or decrease over the specified period with
respect to such initial investment and expressing the result as a percentage.
Average compounded total return will be computed separately for each class of
shares.
Total return figures utilized by the Fund are based on historical performance
and are not intended to indicate future performance. Total return and net asset
value per share of a given class can be expected to fluctuate over time, and
accordingly upon redemption a shareholder's shares may be worth more or less
than their original cost.
The Fund may, in supplemental sales literature, advertise non-standardized
total return figures representing the cumulative, non-annualized total return of
each class of shares of the Fund from a given date to a subsequent given date.
Cumulative non-standardized total return is calculated by measuring the value of
an initial investment in a given class of shares of the Fund at a given time,
deducting the maximum initial sales charge, if any, determining the value of all
subsequent reinvested distributions, and dividing the net change in the value of
the investment as of the end of the period by the amount of the initial
investment and expressing the result as a percentage. Non-standardized total
return will be calculated separately for each class of shares. Non-standardized
total return calculations do not reflect the imposition of a contingent deferred
sales charge, and if any such contingent deferred sales charge with respect to
the CDSC imposed at the time of redemption were reflected, it would reduce the
performance quoted.
B-27
<PAGE> 80
- --------------------------------------------------------------------------------
VAN KAMPEN AMERICAN CAPITAL
GROWTH FUND
- --------------------------------------------------------------------------------
Van Kampen American Capital Growth Fund (the "Fund") is a separate
diversified series of Van Kampen American Capital Equity Trust, an open-end
management investment company commonly known as a mutual fund. The Fund's
investment objective is to seek capital growth. The Fund will seek to achieve
its investment objective by investing primarily in a diversified portfolio of
common stocks and other equity securities of growth companies. Growth companies
generally include those companies with established records of growth in sales or
earnings and companies with new products, new services or new processes that the
Fund's investment adviser believes offer investors in the equity securities of
such companies above average potential for capital growth. Any income received
on such securities is incidental to the objective of capital growth. There is no
assurance that the Fund will achieve its investment objective.
The Fund's investment adviser is Van Kampen American Capital Investment
Advisory Corp. This Prospectus sets forth certain information about the Fund
that a prospective investor should know before investing in the Fund. Please
read it carefully and retain it for future reference. The address of the Fund is
One Parkview Plaza, Oakbrook Terrace, Illinois 60181, and its telephone number
is (800) 421-5666.
The Fund currently offers three classes of its shares (the "Alternative
Sales Arrangements") which may be purchased at a price equal to their net asset
value per share, plus sales charges which, at the election of the investor, may
be imposed (i) at the time of purchase (the "Class A Shares") or (ii) on a
contingent deferred basis (Class A Share purchases over $1 million, "Class B
Shares" and "Class C Shares"). The Alternative Sales Arrangements permit an
investor to choose the method of purchasing shares that is more beneficial to
the investor, taking into account the amount of the purchase, the length of time
the investor expects to hold the shares and other circumstances.
(Continued on next page.)
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, GUARANTEED OR
ENDORSED BY, ANY BANK OR DEPOSITORY INSTITUTION; FURTHER, SUCH SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. SHARES OF THE FUND INVOLVE
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
A Statement of Additional Information, dated , 1995, containing
additional information about the Fund, has been filed with the Securities and
Exchange Commission ("SEC") and is hereby incorporated by reference into this
prospectus. A copy of the Statement of Additional Information may be obtained
without charge by calling (800) 421-5666 or for Telecommunication Device For the
Deaf at (800) 772-8889.
------------------
VAN KAMPEN AMERICAN CAPITAL(SM)
------------------
THIS PROSPECTUS IS DATED , 1995.
<PAGE> 81
(Continued from previous page.)
Each class of shares pays ongoing distribution and service fees at an
aggregate annual rate of (i) for Class A Shares, up to 0.25% of the Fund's
average daily net assets attributable to the Class A Shares, (ii) for Class B
Shares, up to 1.00% of the Fund's average daily net assets attributable to the
Class B Shares and (iii) for Class C Shares up to 1.00% of the Fund's average
daily net assets attributable to the Class C Shares. Investors should understand
that the purpose and function of the deferred sales charge and the distribution
and service fees with respect to the Class A Share purchases over $1 million,
Class B Shares and the Class C Shares are the same as those of the initial sales
charge and the distribution and service fees with respect to the Class A Shares
purchases below $1 million. Each share of the Fund represents an identical
interest in the investment portfolio of the Fund and has the same rights, except
that (i) each class of shares bears those distribution fees, service fees and
administrative expenses applicable to the respective class of shares as a result
of its sales arrangements, which will cause the different classes of shares to
have different expense ratios and to pay different rates of dividends, (ii) each
class has exclusive voting rights with respect to those provisions of the Fund's
Rule 12b-1 distribution plan which relate only to such class and (iii) the
different classes have different exchange privileges. Class B Shares and Class C
Shares automatically will convert to Class A Shares seven years and ten years,
respectively, after the end of the calendar month in which the investor's order
to purchase was accepted, in the circumstances and subject to the qualifications
described in this Prospectus. See "Alternative Sales Arrangements" and "Purchase
of Shares."
2
<PAGE> 82
- ------------------------------------------------------------------------------
TABLE OF CONTENTS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.............................................. 4
Shareholder Transaction Expenses................................ 7
Annual Fund Operating Expenses and Example...................... 8
The Fund........................................................ 9
Investment Objective and Policies............................... 10
Portfolio Securities............................................ 11
Investment Practices............................................ 14
Investment Advisory Services.................................... 19
Alternative Sales Arrangements.................................. 21
Purchase of Shares.............................................. 23
Shareholder Services............................................ 33
Redemption of Shares............................................ 37
The Distribution and Service Plans.............................. 40
Distributions from the Fund..................................... 42
Tax Status...................................................... 43
Fund Performance................................................ 45
Description of Shares of the Fund............................... 45
Additional Information.......................................... 46
</TABLE>
- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE FUND, THE ADVISER, OR THE DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER BY THE FUND OR BY THE DISTRIBUTOR TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL FOR THE FUND TO MAKE
SUCH AN OFFER IN SUCH JURISDICTION.
- --------------------------------------------------------------------------------
3
<PAGE> 83
- ------------------------------------------------------------------------------
PROSPECTUS SUMMARY
- ------------------------------------------------------------------------------
THE FUND. Van Kampen American Capital Growth Fund (the "Fund") is a separate
diversified series of Van Kampen American Capital Equity Trust, an open-end
management investment company which is a Delaware business trust. See "The
Fund."
MINIMUM PURCHASE. $500 minimum initial investment for each class of shares and
$25 minimum for each subsequent investment for each class of shares (or less as
described under "Purchase of Shares").
INVESTMENT OBJECTIVE. The investment objective of the Fund is to seek capital
growth.
INVESTMENT POLICY. The Fund will attempt to achieve its investment objective by
investing principally in a diversified portfolio of common stocks and other
equity securities of growth companies. Growth companies generally include those
companies with established records of growth in sales or earnings and companies
with new products, new services or new processes that the Fund's investment
adviser believes offer investors in the equity securities of such companies
above average potential for capital growth. There is no assurance that the Fund
will achieve its investment objective. The net asset value per share of the Fund
may increase or decrease depending on changes in the securities markets, and
other factors affecting the issuers of securities in which the Fund may invest.
See "Investment Objective and Policies."
INVESTMENT PRACTICES. The Fund may invest up to 25% of its assets in foreign
securities. Subject to certain limitations, the Fund may enter into strategic
transactions, lend its portfolio securities, and enter into repurchase
agreements with selected commercial banks and broker-dealers. These investment
practices entail certain risks. See "Investment Practices."
ALTERNATIVE SALES ARRANGEMENTS. The Alternative Sales Arrangements permit an
investor to choose the method of purchasing shares that is more beneficial to
the investor, taking into account the amount of the purchase, the length of time
the investor expects to hold the shares and other circumstances. Investors
should consider such factors together with the amount of sales charges and
accumulated distribution and service fees with respect to each class of shares
that may be incurred over the anticipated duration of their investment in the
Fund. To assist investors in making this determination, the table under the
caption "Annual Fund Operating Expenses and Example" sets forth examples of the
charges applicable to each class of shares.
The Fund currently offers three classes of its shares which may be purchased
at a price equal to their net asset value per share plus sales charges which, at
the election of the investor, may be imposed either (i) at the time of the
purchase ("Class A Shares") or (ii) on a contingent deferred basis (Class A
Share
4
<PAGE> 84
purchases over $1 million, "Class B Shares" and "Class C Shares"). Class A Share
purchases subject to a contingent deferred sales charge ("CDSC"), Class B Shares
and Class C Shares sometimes are referred to herein collectively as "CDSC
Shares".
Class A Shares. Class A Shares are subject to an initial sales charge equal to
5.75% of the public offering price (6.10% of the net amount invested), reduced
on investments of $50,000 or more. Class A Shares are subject to ongoing
distribution and service fees at an aggregate annual rate of up to 0.25% of the
Fund's average daily net assets attributable to the Class A Shares. Certain
purchases of Class A Shares qualify for reduced or no initial sales charges and
may be subject to a CDSC.
Class B Shares. Class B Shares do not incur a sales charge when they are
purchased, but are subject to a sales charge if redeemed within six years of
purchase. Class B Shares are subject to a CDSC equal to 4.00% of the lesser of
the then current net asset value or the original purchase price on Class B
Shares redeemed during the first year after purchase, which charge is reduced
each year thereafter. Class B Shares are subject to ongoing distribution and
service fees at an aggregate annual rate of up to 1.00% of the Fund's average
daily net assets attributable to the Class B Shares. Class B Shares
automatically will convert to Class A Shares seven years after the end of the
calendar month in which the investor's order to purchase was accepted, in the
circumstances and subject to the qualifications described in this Prospectus.
Class C Shares. Class C Shares do not incur a sales charge when they are
purchased, but are subject to a sales charge if redeemed within the first year
after purchase. Class C Shares are subject to a CDSC equal to 1.00% of the
lesser of the then current net asset value or the original purchase price on
Class C Shares redeemed during the first year after purchase. Class C Shares are
subject to ongoing distribution and service fees at an aggregate annual rate of
up to 1.00% of the Fund's average daily net assets attributable to the Class C
Shares. Class C Shares automatically will convert to Class A Shares ten years
after the end of the calendar month in which the investor's order to purchase
was accepted, in the circumstances and subject to the qualifications described
in this Prospectus.
REDEMPTION. Class A Shares may be redeemed at net asset value, without charge,
subject to conditions set forth herein. CDSC Shares may be redeemed at net asset
value less a deferred sales charge which will vary among each class of CDSC
Shares and with the length of time a redeeming shareholder has owned such
shares. CDSC Shares redeemed after the expiration of the CDSC period applicable
to the respective class of CDSC Shares will not be subject to a deferred sales
charge. See "Redemption of Shares."
INVESTMENT ADVISER. Van Kampen American Capital Investment Advisory Corp. is
the Fund's investment adviser. The annual advisory fee for the Fund is 0.75% of
5
<PAGE> 85
average daily net assets, reduced on net assets over $500 million. See
"Investment Advisory Services."
DISTRIBUTOR. Van Kampen American Capital Distributors, Inc.
DISTRIBUTIONS FROM THE FUND. Distributions from net investment income and
realized capital gains, if any, are made annually. Distributions with respect to
each class of shares will be calculated in the same manner on the same day and
will be in the same amount except that the different distribution and service
fees and administrative expenses relating to each class of shares will be borne
exclusively by the respective class of shares and may cause the distributions
relating to the different classes of shares to differ. See "Distributions from
the Fund."
The above is qualified in its entirety by reference to the more detailed
information appearing elsewhere in this Prospectus.
6
<PAGE> 86
- ------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- ------------ ------------
<S> <C> <C> <C>
Maximum sales charge imposed
on purchases (as a
percentage of the offering
price)...................... 5.75%(1) None None
Maximum sales charge imposed
on reinvested dividends
(as a percentage of the
offering price)............. None None(3) None(3)
Deferred sales charge (as a
percentage of the lesser of
the original purchase price
or redemption proceeds)..... None(2) Year 1--4.00% Year 1--1.00%
Year 2--3.75% After--None
Year 3--3.50%
Year 4--2.50%
Year 5--1.50%
Year 6--1.00%
After--None
Redemption fees (as a
percentage of amount
redeemed)................... None None None
Exchange fees................. None None None
</TABLE>
- ----------------
(1) Reduced on investments of $50,000 or more. See "Purchase of Shares -- Class
A Shares."
(2) Investments of $1 million or more are not subject to a sales charge at the
time of purchase, but a contingent deferred sales charge of 1.00% may be
imposed on redemptions made within one year of the purchase.
(3) CDSC Shares received as reinvested dividends are subject to a 12b-1 fee, a
portion of which may indirectly pay for the initial sales commission
incurred on behalf of the investor. See "The Distribution and Service
Plans."
7
<PAGE> 87
- ------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES AND EXAMPLE
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- --------- ---------
<S> <C> <C> <C>
Management fees(1) (as a percentage of
average daily net assets)............. 0.00% 0.00% 0.00%
12b-1 fees(2) (as a percentage of
average daily net assets)............. .25% 1.00% 1.00%
Other expenses (as a percentage of
average daily net assets)............. 1.05% 1.05% 1.05%
Total expenses(1) (as a percentage of
average daily net assets)............. 1.30% 2.05% 2.05%
</TABLE>
- ----------------
(1) Absent the Adviser's waiver of its fee and assumption of the expenses of the
Fund, "Management fees" would have been 0.75% for each of the Class A
Shares, Class B Shares and Class C Shares, and "Total expenses" would have
been 1.66% for Class A Shares, 2.41% for Class B Shares and 2.41% for Class
C Shares.
(2) Includes a service fee of up to 0.25% (as a percentage of net asset value)
paid by the Fund to the selling broker as compensation for ongoing services
rendered to investors. With respect to each class of shares, amounts in
excess of 0.25%, if any, represent an asset based sales charge. The asset
based sales charge with respect to Class C Shares includes 0.75% (as a
percentage of net asset value) paid to investors' broker-dealers as sales
compensation.
8
<PAGE> 88
EXAMPLE:
<TABLE>
<CAPTION>
ONE THREE
YEAR YEARS
---- -----
<S> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (i) an operating expense ratio
of 1.30% for Class A Shares, 2.05% for Class B Shares
and 2.05% for Class C Shares, (ii) 5% annual return
and (iii) redemption at the end of each time period:
Class A Shares....................................... $70 $96
Class B Shares....................................... $61 $99
Class C Shares....................................... $31 $64
An investor would pay the following expenses on the
same $1,000 investment assuming no redemption at the
end of each period:
Class A Shares....................................... $70 $96
Class B Shares....................................... $21 $64
Class C Shares....................................... $21 $64
</TABLE>
The purpose of the foregoing table is to assist an investor in understanding
the various costs and expenses that an investor in the Fund will bear directly
or indirectly. The "Example" reflects expenses based on the "Annual Fund
Operating Expenses" table as shown above carried out to future years. The ten
year amount with respect to Class B Shares of the Fund reflects the lower
aggregate 12b-1 and service fees applicable to such shares after conversion to
Class A Shares. THE INFORMATION CONTAINED IN THE ABOVE TABLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY
BE GREATER OR LESSER THAN THOSE SHOWN. For a more complete description of such
costs and expenses, see "Purchase of Shares," "Investment Advisory Services,"
"The Distribution and Service Plans" and "Redemption of Shares."
- ------------------------------------------------------------------------------
THE FUND
- ------------------------------------------------------------------------------
Van Kampen American Capital Growth Fund (the "Fund") is a mutual fund, which
pools shareholders' money to seek to achieve a specified investment objective.
In technical terms, the Fund is a separate diversified series of Van Kampen
American Capital Equity Trust (the "Trust"), an open-end management investment
company organized as a Delaware business trust. Mutual funds sell their shares
to investors and invest the proceeds in a portfolio of securities. A mutual fund
allows investors to pool their money with that of other investors in order to
obtain professional investment management. Mutual funds generally make it
possible for investors to obtain greater diversification of their investments
and to simplify their recordkeeping.
Van Kampen American Capital Investment Advisory Corp. (the "Adviser") provides
investment advisory and administrative services to the Fund. The Adviser
9
<PAGE> 89
and its affiliates also manage other mutual funds distributed by Van Kampen
American Capital Distributors, Inc. (the "Distributor"). To obtain prospectuses
and other information on any of these other funds, please call the telephone
number on the cover page of the Prospectus.
- ------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES
- ------------------------------------------------------------------------------
The investment objective of the Fund is to seek capital growth. This objective
is fundamental and cannot be changed without approval of the shareholders of the
Fund. Any income received on such securities is incidental to the objective of
capital growth. There can be no assurance that the Fund will achieve its
investment objective. An investment in the Fund may not be appropriate for all
investors. The Fund is not intended to be a complete investment program, and
investors should consider their long-term investment goals and financial needs
when making an investment decision with respect to the Fund. An investment in
the Fund is intended to be a long-term investment and should not be used as a
trading vehicle.
The Fund seeks to achieve its investment objective by investing principally in
common stocks and other equity securities of growth companies. Growth companies
generally include those companies with established records of growth in sales or
earnings and companies with new products, new services, or new processes that
the Adviser believes offer investors in the equity securities of such companies
above average potential for capital growth. The Fund may also invest in
companies in cyclical industries during periods when the Adviser believes that
such investments offer an above average potential for capital growth. The Fund
may also invest in investment grade income securities for purposes of capital
growth and cash management or as a temporary defensive measure. The Fund may
also invest in shares of other investment companies that pursue investment
objectives consistent with that of the Fund, to the extent and subject to the
limitations discussed below. The Fund may invest up to 25% of its total assets
in securities of foreign issuers.
The Fund's primary approach is to seek what the Adviser believes to be above
average growth opportunities on an individual company basis. The Fund may invest
in securities that have above average price volatility. Because prices of common
stocks and other securities fluctuate, the value of an investment in the Fund
will vary based upon the Fund's investment performance. The Fund may also invest
in special situations involving new management, special products and techniques,
unusual developments, mergers or liquidations. Investments in special situations
and less seasoned companies often involve much greater risks than are inherent
in more conservative investments. The Fund attempts to reduce overall exposure
to risk from declines in individual security prices by spreading its investments
over many different companies in a variety of industries.
10
<PAGE> 90
- ------------------------------------------------------------------------------
PORTFOLIO SECURITIES
- ------------------------------------------------------------------------------
COMMON STOCK. Common stocks are shares of a corporation or other entity that
entitle the holder to a pro rata share of the profits of the corporation, if
any, without preference over any other shareholder or class of shareholders,
including holders of such entity's debt securities, preferred stock and other
senior equity. Common stock usually carries with it the right to vote and
frequently an exclusive right to do so. In selecting common stocks for
investment, the Fund will focus primarily on the security's potential for
capital growth.
OTHER EQUITY SECURITIES. The Fund may invest in other equity securities,
including convertible securities and preferred stock. A convertible security is
a bond, debenture, note, preferred stock or other security that may be converted
into or exchanged for a prescribed amount of common stock or other equity
security of the same or a different issuer within a particular period of time at
a specified price or formula. A convertible security entitles the holder to
receive interest paid or accrued on debt or the dividend paid on preferred stock
until the convertible security matures or is redeemed, converted or exchanged.
Before conversion, convertible securities have characteristics similar to
nonconvertible income securities in that they ordinarily provide a stable stream
of income with generally higher yields than those of common stocks of the same
or similar issuers. Convertible securities rank senior to common stock in a
corporation's capital structure but are usually subordinated to comparable
nonconvertible securities. The Fund may invest in adjustable or fixed rate
preferred stock. Preferred stock generally has a preference as to dividends and
upon liquidation over an issuer's common stock but ranks junior to debt
securities in an issuer's capital structure. Unlike interest payments on debt
securities, preferred stock dividends are payable only if declared by the
issuer's board of directors. Preferred stock also may be subject to optional or
mandatory redemption provisions.
INCOME SECURITIES. The Fund may invest its assets in income securities, which
include primarily debt securities of various maturities. The Fund will only
invest in income securities that are investment grade at the time of investment.
Investment grade securities are securities that are rated at least BBB by
Standard & Poor's Ratings Group ("S&P"), or at least Baa by Moody's Investors
Services, Inc. ("Moody's") or comparably rated by any nationally recognized
rating organization, or, if unrated, are considered by the Adviser to be of
comparable quality to securities so rated. Securities in the top categories
(e.g., AAA, AA, and A by S&P or Aaa, Aa, and A by Moody's) are generally
regarded as high grade and have a strong to outstanding capacity to pay interest
or dividends and repay principal or capital. Medium grade securities (e.g., BBB
by S&P or Baa by Moody's) are regarded as having an adequate capacity to pay
interest or dividends, and repay principal, although adverse economic conditions
or changing circumstances are more likely to lead to a weakened capacity to make
such payments. Securities rated Baa are regarded by Moody's as having some
speculative characteristics. For a
11
<PAGE> 91
description of such ratings see the Statement of Additional Information
incorporated by reference into this Prospectus.
The net asset value of the Fund will change with changes in the value of its
portfolio securities. The values of income securities may change as interest
rate levels fluctuate. To the extent that the Fund invests in income securities,
the net asset value of the Fund can be expected to change as general levels of
interest rates fluctuate. When interest rates decline, the value of a portfolio
invested in income securities generally can be expected to rise. Conversely,
when interest rates rise, the value of a portfolio invested in income securities
can be expected to decline. Volatility may be greater during periods of general
economic uncertainty.
The foregoing policies with respect to credit quality of portfolio investments
will apply only at the time of purchase of a security, and the Fund will not be
required to dispose of a security in the event that S&P or Moody's (or any other
rating organization) or, in the case of unrated income securities, the Adviser,
downgrades its assessment of the credit characteristics of a particular issuer.
In determining whether the Fund will retain or sell such a security the Adviser
may consider such factors as the Adviser's assessment of the credit quality of
the issuer of such security, the price at which such security could be sold and
the rating, if any, assigned to such security by other nationally recognized
statistical rating organizations.
WARRANTS. The Fund may invest in warrants, which are securities permitting,
but not obligating, their holders to subscribe for other securities. Warrants do
not carry with them the right to dividends or voting rights with respect to the
securities that they entitle their holder to purchase, and they do not represent
any rights in the assets of the issuer. As a result, an investment in warrants
may be considered to be more speculative than most other types of equity
investment. In addition, the value of a warrant does not necessarily change with
the value of the underlying securities and a warrant ceases to have value if it
is not exercised prior to its expiration date. The Fund may retain in its
portfolio any securities received upon the exercise of a warrant.
INVESTMENTS IN SPECIAL SITUATIONS AND LESS SEASONED COMPANIES. Investments in
special situations and securities of less seasoned companies may present greater
opportunities for growth but also involve greater risks than customarily are
associated with investments in securities of more established companies. Special
situations and securities of less seasoned companies may be subject to more
abrupt or erratic market movements than more established companies.
Additionally, these companies may have limited product lines, markets or
financial resources, may be dependent upon a limited management group, may be
subject to a greater degree of change in earnings and business prospects and may
be subject to greater uncertainties generally than are more established
companies. In addition, securities of small capitalization companies are traded
in lower volume than those issued by larger companies.
12
<PAGE> 92
FOREIGN SECURITIES. The Fund may invest up to 25% of the value of its total
assets in securities of foreign issuers. Investments in securities of foreign
entities and securities denominated in foreign currencies involve risks not
typically involved in domestic investment, including fluctuations in foreign
exchange rates, future foreign political and economic developments, and the
possible imposition of exchange controls or other foreign or United States
governmental laws or restrictions applicable to such investments. Since the Fund
may invest in securities denominated or quoted in currencies other than the
United States dollar, changes in foreign currency exchange rates may affect the
value of investments in the portfolio and the accrued income and unrealized
appreciation or depreciation of investments. Changes in foreign currency
exchange rates relative to the U.S. dollar will affect the U.S. dollar value of
the Fund's assets denominated in that currency and the Fund's yield on such
assets. With respect to certain foreign countries, there is the possibility of
expropriation of assets, confiscatory taxation, political or social instability
or diplomatic developments which could affect investment in those countries.
There may be less publicly available information about a foreign security than
about a United States security, and foreign entities may not be subject to
accounting, auditing and financial reporting standards and requirements
comparable to those of the United States entities. In addition, certain foreign
investments made by the Fund may be subject to foreign withholding taxes, which
would reduce the Fund's total return on such investments and the amounts
available for distributions by the Fund to its shareholders. See "Tax Status."
Foreign financial markets, while growing in volume, have, for the most part,
substantially less volume than United States markets, and securities of may
foreign companies are less liquid and their prices more volatile than securities
of comparable domestic companies. The foreign markets also have different
clearance and settlement procedures and in certain markets there have been times
when settlements have been unable to keep pace with the volume of securities
transactions making it difficult to conduct such transactions. Delays in
settlement could result in temporary periods when assets of the Fund are not
invested and no return is earned thereon. The inability of the Fund to make
intended security purchases due to settlement problems could cause the Fund to
miss attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems could result either in losses to the Fund
due to subsequent declines in value of the portfolio security or, if the Fund
has entered into a contract to sell the security, could result in possible
liability to the purchaser. Costs associated with transactions in foreign
securities, including custodial costs and foreign brokerage commissions, are
generally higher than with transactions in United States securities. In
addition, the Fund will incur costs in connection with conversions between
various currencies. There is generally less government supervision and
regulation of exchanges, financial institutions and issuers in foreign countries
than there is in the United States.
13
<PAGE> 93
- ------------------------------------------------------------------------------
INVESTMENT PRACTICES
- ------------------------------------------------------------------------------
In connection with the investment policies described above, the Fund may also
engage in the investment practices described below. These practices entail
risks. The investment practices described below are not fundamental and can be
changed without a vote of the shareholders of the Fund.
LOANS OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements, the Fund may lend its portfolio securities to selected commercial
banks or broker-dealers up to a maximum of 50% of the assets of the Fund. Such
loans must be callable at any time and be continuously secured by collateral
deposited by the borrower in a segregated account with the Fund's custodian
consisting of cash or of securities issued or guaranteed by the U.S. Government
or its agencies, which collateral is equal at all times to at least 100% of the
value of the securities loaned, including accrued interest. The Fund will
receive amounts equal to earned income for having made the loan. Any cash
collateral pursuant to these loans will be invested in short-term instruments.
The Fund is the beneficial owner of the loaned securities in that any gain or
loss in the market price during the loan inures to the Fund and its
shareholders. Thus, when the loan is terminated, the value of the securities may
be more or less than their value at the beginning of the loan. In determining
whether to lend its portfolio securities to a bank or broker-dealer, the Fund
will take into account the credit-worthiness of such borrower and will monitor
such credit-worthiness on an ongoing basis in as much as default by the other
party may cause delays or other collection difficulties. The Fund may pay
finders' fees in connection with loans of its portfolio securities.
REPURCHASE AGREEMENTS. The Fund may use up to 20% of its assets to enter into
repurchase agreements with selected commercial banks and broker-dealers, under
which the Fund acquires securities and agrees to resell the securities at an
agreed upon time and at an agreed upon price. The Fund accrues as interest the
difference between the amount it pays for the securities and the amount it
receives upon resale. At the time the Fund enters into a repurchase agreement,
the value of the underlying security including accrued interest will be equal to
or exceed the value of the repurchase agreement and, for repurchase agreements
that mature in more than one day, the seller will agree that the value of the
underlying security including accrued interest will continue to be at least
equal to the value of the repurchase agreement. The Adviser will monitor the
value of the underlying security in this regard. The Fund will enter into
repurchase agreements only with commercial banks whose deposits are insured by
the Federal Deposit Insurance Corporation and whose assets exceed $500 million
or broker-dealers who are registered with the SEC. In determining whether to
enter into a repurchase agreement with a bank or broker-dealer, the Fund will
take into account the credit-worthiness of such party and will monitor its
credit-worthiness on an ongoing basis. In the event of default by such party,
the delays and expenses potentially involved in establishing the Fund's rights
to, and in liquidating, the security may result in loss to the Fund. The Fund's
14
<PAGE> 94
ability to invest in repurchase agreements that mature in more than seven days
is subject to an investment restriction that limits the Fund's investment in
"illiquid" securities, including such repurchase agreements, to 15% of the
Fund's net assets.
For the purpose of investing in repurchase agreements, the Adviser may
aggregate the cash that substantially all of the funds advised or subadvised by
the Adviser, or an affiliate, would otherwise invest separately into a joint
account. The cash in the joint account is then invested in repurchase agreements
in a manner consistent with the foregoing guidelines 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 greater 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 SEC
exemption order authorizing this practice, which conditions are designed to
ensure the fair administration of the joint account.
"WHEN ISSUED" AND "DELAYED DELIVERY" TRANSACTIONS. The Fund may also purchase
and sell portfolio securities on a "when issued" and "delayed delivery" basis.
No income accrues to or is earned by the Fund on portfolio securities in
connection with such purchase transactions prior to the date the Fund actually
takes delivery of such securities. These transactions are subject to market
fluctuations the value of such securities at delivery may be more or less than
their purchase price, and yields generally available on such securities when
delivery occurs may be higher or lower than yields on such securities obtained
pursuant to such transactions. Because the Fund relies on the buyer or seller,
as the case may be, to consummate the transaction, failure by the other party to
complete the transaction may result in the Fund missing the opportunity of
obtaining a price or yield considered to be advantageous. When the Fund is the
buyer in such a transaction, however, it will maintain, in a segregated account
with its custodian, cash or high-grade portfolio securities having an aggregate
value equal to the account of such purchase commitments until payment is made.
The Fund will make commitments to purchase securities on such basis early 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 objective and
policies and not for the purpose 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.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest up to 15% of its net
assets in illiquid securities including securities the disposition of which is
subject to substantial legal or contractual restrictions on resale and
securities that are not readily marketable. The sale of restricted and illiquid
securities often require more time and results in higher brokerage charges or
dealer discounts and other selling
15
<PAGE> 95
expenses than does the sale of securities eligible for trading on national
securities exchanges or in the over-the-counter markets. Restricted securities
may sell at a price lower than similar securities that are not subject to
restrictions on resale. Restricted securities salable among qualified
institutional buyers without restrictions pursuant to Rule 144A under the
Securities Act of 1933 that are determined to be liquid by the Adviser under
guidelines adopted by the Board of Trustees of the Trust (under which guidelines
the Adviser will consider factors such as trading activities and the
availability of price quotations), will not be treated as restricted securities
by the Fund pursuant to such rules.
BORROWINGS. The Fund is authorized to borrow money from banks (including
entering into reverse repurchase agreements) in an amount up to 33 1/3% of the
Fund's total assets (after giving effect to any such borrowing) which amount
excludes no more than 5% in borrowings and reverse repurchase agreements from
any entity for temporary purposes, such as clearances of portfolio transactions,
share repurchase and payment of dividends and distributions. The Fund has no
current intention to borrow money other than for such temporary purposes.
Accordingly, the Fund will not acquire additional securities during any period
in which its borrowings exceed 5% of the Fund's total assets. Borrowing by the
Fund creates an opportunity for increased net income but, at the same time,
creates special risk considerations. See the Fund's Statement of Additional
Information for a more complete discussion of borrowings and certain of the
associated risks.
STRATEGIC TRANSACTIONS. The Fund may purchase and sell derivative instruments
such as exchange-listed and over-the-counter put and call options on securities,
financial futures, equity and fixed-income indices and other financial
instruments and purchase and sell financial futures contracts and enter into
various currency transactions such as currency forward contracts, currency
futures contracts, currency swaps or options on currencies or currency futures.
Collectively, all of the above are referred to as "Strategic Transactions." The
Fund may also invest in income securities the terms of which include elements of
or are similar in effect to Strategic Transactions in which it may engage.
Strategic Transactions may be used to attempt to protect against possible
changes in the market value of securities held in or to be purchased for the
Fund's portfolio resulting from securities markets, to protect the Fund's
unrealized gains in the value of its portfolio securities, to facilitate the
sale of such securities for investment purposes, to protect against changes in
currency exchange rates, or to establish a position in the derivatives markets
as a temporary substitute for purchasing or selling particular securities. Any
or all of these investment techniques may be used at any time and there is no
particular strategy that dictates the use of one technique rather than another,
as use of any Strategic Transaction is a function of numerous variables
including market conditions. The ability of the Fund to utilize these Strategic
Transactions successfully will depend on the Adviser's ability to predict
pertinent market movements, which cannot be assured. The Fund will comply with
applicable regulatory requirements when implementing these strategies,
techniques and instruments. Strategic Transactions have risks associated with
them including possible default by the other
16
<PAGE> 96
party to the transaction, illiquidity and, to the extent the Adviser's view as
to certain market movements is incorrect, the risk that the use of such
Strategic Transactions could result in losses greater than if they had not been
used. Use of put and call options may result in losses to the Fund, force the
sale of portfolio securities at inopportune times or for prices other than at
current market values, limit the amount of appreciation the Fund can realize on
its investments or cause the Fund to hold a security it might otherwise sell.
The use of currency transactions can result in the Fund incurring losses as a
result of a number of factors including the imposition of exchange controls,
suspension of settlements or the inability to deliver or receive a specified
currency. The use of options and futures transactions entails certain other
risks. In particular, the variable degree of correlation between price movements
of futures contracts and price movements in the related portfolio position of
the Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of the Fund's position. In addition, futures and
options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets,
the Fund might not be able to close out a transaction without incurring
substantial losses, if at all. Although the contemplated use of these futures
contracts and options thereon should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position. To the extent that a futures contract or an option thereon is used to
protect against possible changes in the market value of securities that the Fund
anticipates acquiring and the Fund subsequently does not acquire such
securities, the Fund will have incurred the transactional expenses associated
with entering into such transaction and will be subject to the risks inherent in
an unhedged purchase of such futures contract or option. Finally, the daily
variation margin requirements for futures contracts would create a greater
ongoing potential financial risk than would purchases of options, where the
exposure is limited to the cost of the initial premium. Losses resulting from
the use of Strategic Transactions would reduce net asset value, and possibly
income, and such losses can be greater than if the Strategic Transactions had
not been utilized. The Strategic Transactions that the Fund may use and some of
their risks are described more fully in the Fund's Statement of Additional
Information.
Income earned or deemed to be earned, if any, by the Fund from its Strategic
Transactions will generally be taxable income of the Fund. See "Tax Status."
DEFENSIVE STRATEGIES. When, in the judgment of the Fund's Adviser, economic
and market conditions warrant, the Fund may invest temporarily for defensive
purposes up to 100% of its total assets in U.S. Government securities of various
maturities, investment grade corporate debt securities, preferred stocks,
convertible bonds, banker's acceptances and certificates of deposit.
INVESTMENT IN INVESTMENT COMPANIES. The Fund may invest in a separate
investment company, Van Kampen American Capital Small Capitalization Fund
("Small Cap Fund"), that invests in a broad selection of small capitalization
17
<PAGE> 97
securities. The shares of the Small Cap Fund are available only to investment
companies advised by the Adviser, or an affiliate. The Adviser believes that the
use of the Small Cap Fund provides the Fund with the most effective exposure to
the performance of the small capitalization sector of the stock market while at
the same time minimizing costs. The Adviser charges no advisory fee for managing
the Small Cap Fund, nor are there any sales load or other charges associated
with distribution of its shares. Other expenses incurred by the Small Cap Fund
are borne by it, and thus indirectly by the Van Kampen American Capital funds
that invest in it. With respect to such other expenses, the Adviser anticipates
that the efficiencies resulting from use of the Small Cap Fund will result in
cost savings for the Fund and other Van Kampen American Capital funds. In large
part these savings will be attributable to the fact that administrative actions
that would have to be performed multiple times if each Van Kampen American
Capital fund held its own portfolio of small capitalization stocks will need to
be performed only once. The Adviser expects that the Small Cap Fund will
experience trading costs that will be substantially less than the trading costs
that would be incurred if small capitalization stocks were purchased separately
for the Fund and other Van Kampen American Capital funds. The Fund's investment
in the Small Cap Fund is subject to the terms and conditions set forth in an SEC
exemptive order authorizing this investment.
The securities of small and medium sized companies that the Small Cap Fund may
invest in may be subject to more abrupt or erratic market movements than
securities of larger, more established companies or the market averages in
general. In addition, small capitalization companies typically are subject to a
greater degree of change in earnings and business prospects than are larger,
more established companies. In light of these characteristics of small
capitalization companies and their securities, the Small Cap Fund may be subject
to greater investment risk than that assumed through investment in the equity
securities of larger capitalization companies.
The Fund will be deemed to own a pro rata portion of each investment of the
Small Cap Fund. For example, if the Fund's investment in the Small Cap Fund were
$10 million, and the Small Cap Fund had five percent of its assets invested in
the electronics industry, the Fund would be considered to have an investment of
$500,000 in the electronics industry.
INVESTMENT RESTRICTIONS. The Fund is subject to certain investment
restrictions which constitute fundamental policies. Fundamental policies cannot
be changed without the approval of the holders of a majority of the Fund's
outstanding voting securities, as defined in the Investment Company Act of 1940
(the "1940 Act"). See "Investment Policies and Restrictions" in the Statement of
Additional Information.
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.
18
<PAGE> 98
The Adviser is responsible for effecting securities transactions of the Fund
and will do so in a manner deemed fair and reasonable to shareholders of the
Fund and not according to any formula. The Adviser's primary considerations in
selecting the manner of executing securities transactions for the Fund will be
prompt execution of orders, the size and breadth of the market for the security,
the reliability, integrity and financial condition and execution capability of
the firm, 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 is given to those firms which supply research and other services
in addition to execution services. However, it is not the policy of the Adviser,
absent special circumstances, to pay higher commissions to a firm because it has
supplied such services.
In effecting purchases and sales of the Fund's portfolio securities, the
Adviser and the Fund may place orders with and pay brokerage commissions to
brokers, including brokers which may be affiliated with the Fund, the Adviser,
the Distributor or dealers participating in the offering of the Fund's shares.
In addition, in selecting among firms to handle a particular transaction, the
Adviser and the Fund may take into account whether the firm has sold or is
selling shares of the Fund. See "Portfolio Transactions and Brokerage
Allocation" in the Statement of Additional Information for more information.
Portfolio Turnover. The Fund purchases securities which are believed by the
Adviser to have potential for capital growth. Common stocks are disposed of in
situations where it is believed that potential for such capital growth has
lessened or that other common stocks have a greater potential. Therefore, the
Fund may purchase and sell securities without regard to the length of time the
security is to be, or has been held. The rate may exceed 100%, which is higher
than that of many other investment companies. A 100% turnover rate occurs, for
example, if all the Fund's portfolio securities are replaced during one year.
High portfolio activity increases the Fund's transaction costs, including
brokerage commissions.
- ------------------------------------------------------------------------------
INVESTMENT ADVISORY SERVICES
- ------------------------------------------------------------------------------
THE ADVISER. The Adviser is a wholly-owned subsidiary of Van Kampen American
Capital, Inc. ("Van Kampen American Capital"). Van Kampen American Capital is a
diversified asset management company with more than two million retail investor
accounts, extensive capabilities for managing institutional portfolios and over
$50 billion under management or supervision. Van Kampen American Capital's more
than 40 open-end and 38 closed-end funds and more than 2,700 unit investment
trusts are professionally distributed by leading financial advisers nationwide.
Van Kampen American Capital is a wholly-owned subsidiary of VK/AC Holding,
Inc. Van Kampen American Capital Distributors, Inc., the distributor of the Fund
and the sponsor of the funds mentioned above, is also a wholly-owned
19
<PAGE> 99
subsidiary of Van Kampen American Capital. VK/AC Holding, Inc. is controlled,
through an ownership of a substantial majority of its common stock, by The
Clayton & Dubilier Private Equity Fund IV Limited Partnership ("C & D L.P."), a
Connecticut limited partnership. C & D L.P. is managed by Clayton, Dubilier &
Rice, Inc. Clayton & Dubilier Associates IV Limited Partnership ("C & D
Associates L.P.") is the general partner of C & D L.P. The general partners of C
& D Associates L.P. are Joseph L. Rice, III, B. Charles Ames, William A. Barbe,
Alberto Cribiore, Donald J. Gogel, Leon J. Hendrix, Jr., Hubbard C. Howe and
Andrall E. Pearson, each of whom is a principal of Clayton, Dubilier & Rice,
Inc. In addition, certain officers, directors and employees of Van Kampen
American Capital and its subsidiaries (some of whom are officers or trustees of
the Fund) own, in the aggregate, not more than 7% of the common stock of VK/AC
Holding, Inc. and have the right to acquire, upon the exercise of options,
approximately an additional 11% of the common stock of VK/AC Holding, Inc.
Presently, and after giving effect to the exercise of such options, no officer
or trustee of the Fund owns or would own 5% or more of the common stock of VK/AC
Holding, Inc.
ADVISORY AGREEMENT. The business and affairs of the Fund will be managed under
the direction of the Trustees of the Trust, of which the Fund is a series.
Subject to the Trustees' authority, the Adviser and the officers of the Fund
will supervise and implement the Fund's investment activities and will be
responsible for overall management of the Fund's business affairs. The Fund will
pay the Adviser a fee (accrued daily and paid monthly) equal to a percentage of
the average daily net assets of the Fund as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS PERCENTAGE PER ANNUM
- ------------------------ --------------------
<S> <C>
First $500 million.................................. 0.75 of 1%
Next $500 million................................... 0.70 of 1%
Over $1 billion..................................... 0.65 of 1%
</TABLE>
Under its investment advisory agreement, the Adviser has agreed to furnish
without charge all offices, facilities, equipment and personnel necessary to
manage the Fund, and the Fund has agreed to assume and pay the charges and
expenses of the Fund's operations, including: the compensation of the Trustees
of the Trust (other than those who are affiliated persons, as defined in the
1940 Act of the Adviser, the Distributor or Van Kampen American Capital), the
charges and expenses of independent accountants, legal counsel, transfer and
dividend disbursing agent, and the custodian (including fees for safekeeping of
securities); costs of calculating net asset value; costs of acquiring and
disposing of portfolio securities; interest (if any) on obligations incurred by
the Fund; costs of share certificates; costs of membership dues in the
Investment Company Institute or any similar organization; costs of reports and
notices to shareholders; costs of registering shares of the Fund under federal
securities laws; miscellaneous expenses and all taxes and fees to federal, state
or other governmental agencies, excluding state securities registration
expenses.
20
<PAGE> 100
The Adviser may utilize at its own expense credit analysis, research and
trading support services provided by its affiliate, Van Kampen American Capital
Asset Management, Inc.
PERSONAL INVESTING 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 permit trustees/directors, officers and
employees to buy and sell securities for their personal accounts subject to
procedures designed to prevent conflicts of interest including, in some
instances, preclearance of trades.
PORTFOLIO MANAGEMENT. Jeff New and Chris Perras are co-managers of the Fund
and are primarily responsible for the day-to-day management of the Fund's
investment portfolio. Messrs. New and Perras have been primarily responsible for
managing the Fund's investment portfolio since its inception. Mr. New has been
an associate portfolio manager with Van Kampen American Capital Asset
Management, Inc. since 1994. Since 1991, Mr. New was an associate portfolio
manager with Van Kampen American Capital Asset Management, Inc. Prior to that
time, he was a securities analyst with Texas Commerce Investment Management
Company. Mr. Perras has been an associate portfolio manager with Van Kampen
American Capital Asset Management, Inc. since February 1995. Prior to that time,
he was an assistant portfolio manager and investment analyst with Hellman Jordan
Management Co. Each portfolio manager is an employee of the Adviser.
- ------------------------------------------------------------------------------
ALTERNATIVE SALES ARRANGEMENTS
- ------------------------------------------------------------------------------
The Alternative Sales Arrangements permit an investor to choose the method of
purchasing shares that is more beneficial to the investor, taking into account
the amount of the purchase, the length of time the investor expects to hold the
shares, whether the investor wishes to receive dividends in cash or to reinvest
them in additional shares of the Fund, and other circumstances. Investors should
consider such factors together with the amount of sales charges and aggregate
distribution and service fees with respect to each class of shares that may be
incurred over the anticipated duration of their investment in the Fund.
The Fund currently offers three classes of shares, designated Class A Shares,
Class B Shares and Class C Shares. Shares of each class are offered at a price
equal to their net asset value per share plus a sales charge which, at the
election of the purchaser, may be imposed (a) at the time of purchase (the
"Class A Shares") or (b) on a contingent deferred basis (Class A Share purchases
over $1 million, "Class B Shares" and "Class C Shares"). Shares subject to a
contingent deferred sales charge ("CDSC") sometimes are referred to herein
collectively as "Contingent Deferred Sales Charge Shares" or "CDSC Shares."
The minimum initial investment with respect to each class of shares is $500.
The minimum subsequent investment with respect to each class of shares is $25.
It is
21
<PAGE> 101
presently the policy of the Distributor not to accept any order for Class B
Shares or Class C Shares in an amount of $1 million or more because it
ordinarily will be more advantageous for an investor making such an investment
to purchase Class A Shares.
An investor should carefully consider the sales charges applicable to each
class of shares and the estimated period of their investment to determine which
class of shares is more beneficial for the investor to purchase. For example,
investors who would qualify for a significant purchase price discount from the
maximum sales charge on Class A Shares may determine that payment of such a
reduced front-end sales charge is superior to electing to purchase Class B
Shares or Class C Shares, each with no front-end sales charge but subject to a
CDSC and a higher aggregate distribution and service fee. However, because
initial sales charges are deducted at the time of purchase of Class A Share
purchases under $1 million, a purchaser of such Class A Shares would not have
all of his or her funds invested initially and, therefore, would initially own
fewer shares than if Class B Shares or Class C Shares had been purchased. On the
other hand, an investor whose purchase would not qualify for price discounts
applicable to Class A Shares and intends to remain invested until after the
expiration of the applicable CDSC period may wish to defer the sales charge and
have all his or her funds initially invested in Class B Shares or Class C
Shares. If such an investor anticipates that he or she will redeem such shares
prior to the expiration of the CDSC period applicable to Class B Shares, the
investor may wish to acquire Class C Shares (discussed below). Investors who
intend to hold their shares for a significantly long time may not wish to
continue to bear the ongoing distribution and service expenses of Class C
Shares, which, in the aggregate, eventually would exceed the aggregate amount of
the initial sales charge and distribution and service expenses applicable to
Class A Shares, irrespective of the fact that a CDSC would eventually not apply
to a redemption of such Class C Shares.
Each class of shares represents an interest in the same portfolio of
investments of the Fund and has the same rights, except each class of shares (i)
bears those distribution fees, service fees and administrative expenses
applicable to the respective class of shares as a result of its sales
arrangements, (ii) has exclusive voting rights with respect to those provisions
of the Fund's Rule 12b-1 distribution plan which relate only to such class and
(iii) has a different exchange privilege. The Class B Shares and Class C Shares
are subject to a conversion feature (discussed below). Generally, a class of
shares subject to a higher ongoing distribution fee, service fee or, where
applicable, the conversion feature will have a higher expense ratio and pay
lower dividends than a class of shares subject to a lower ongoing distribution
fee, service fee or not subject to the conversion feature. The per share net
asset values of the different classes of shares are expected to be substantially
the same; from time to time, however, the per share net asset values of the
classes may differ. The net asset value per share of each class of shares of the
Fund will be determined as described in this Prospectus under "Purchase of
Shares -- Net Asset Value."
22
<PAGE> 102
The administrative expenses that may be allocated to a specific class of
shares may consist of (i) transfer agency expenses attributable to a specific
class of shares, which expenses typically will be higher with respect to classes
of shares subject to the conversion feature; (ii) printing and postage expenses
related to preparing and distributing materials such as shareholder reports,
prospectuses and proxy statements to current shareholders of a specific class;
(iii) SEC registration fees incurred by a class of shares; (iv) the expense of
administrative personnel and services as required to support the shareholders of
a specific class; (v) Trustees' fees or expense incurred as a result of issues
relating to one class of shares; (vi) accounting expenses relating solely to one
class of shares; and (vii) any other incremental expenses subsequently
identified that should be properly allocated to one or more classes of shares
that shall be approved by the SEC pursuant to an amended exemptive order. All
such expenses incurred by a class will be borne on a pro rata basis by the
outstanding shares of such class. All allocations of administrative expenses to
a particular class of shares will be limited to the extent necessary to preserve
the Fund's qualification as a regulated investment company under the Internal
Revenue Code of 1986, as amended (the "Code").
- ------------------------------------------------------------------------------
PURCHASE OF SHARES
- ------------------------------------------------------------------------------
The Fund offers shares for sale to the public on a continuous basis through
Van Kampen American Capital Distributors, Inc. (the "Distributor"), as principal
underwriter, which is located at One Parkview Plaza, Oakbrook Terrace, Illinois
60181. Shares also are offered through members of the National Association of
Securities Dealers, Inc. ("NASD") acting as securities dealers ("dealers") and
through NASD members acting as brokers for investors ("brokers") or eligible
non-NASD members acting as agents for investors ("financial intermediaries").
The Fund reserves the right to suspend or terminate the continuous public
offering at any time and without prior notice.
The Fund's shares are offered at net asset value per share next computed after
an investor places an order to purchase with the investor's broker, dealer, or
financial intermediary or directly with the Distributor, plus any applicable
sales charge. Sales personnel or brokers, dealers and financial intermediaries
distributing the Fund's shares may receive differing compensation for selling
different classes of shares. It is the responsibility of the investor's broker,
dealer or financial intermediary to transmit the order to the Distributor.
Because the Fund generally determines net asset value once each business day as
of the close of business, purchase orders placed through an investor's broker,
dealer, or financial intermediary must be transmitted to the Distributor by such
broker, dealer or financial intermediary prior to such time in order for the
investor's order to be fulfilled on the basis of the net asset value to be
determined that day. Any change in the purchase price due to the failure of the
Distributor to receive a purchase order prior to such time must be settled
between the investor and the broker, dealer or financial intermediary submitting
the order.
23
<PAGE> 103
The Distributor may from time to time implement programs under which a broker,
dealer or financial intermediary's sales force may be eligible to win nominal
awards for certain sales efforts or under which the Distributor will reallow to
any broker, dealer or financial intermediary that sponsors sales contests or
recognition programs conforming to criteria established by the Distributor, or
participates in sales programs sponsored by the Distributor, an amount not
exceeding the total applicable sales charges on the sales generated by the
broker, dealer or financial intermediary at the public offering price during
such programs. Other programs provide, among other things and subject to certain
conditions, for certain favorable distribution arrangements for shares of the
Fund. Also, the Distributor in its discretion may from time to time, pursuant to
objective criteria established by it, pay fees to, and sponsor business seminars
for, qualifying brokers, dealers or financial intermediaries for certain
services or activities which are primarily intended to result in sales of shares
of the Fund. Fees may include payment for travel expenses, including lodging,
incurred in connection with trips taken by invited registered representatives
and members of their families to locations within or outside of the United
States for meetings or seminars of a business nature. 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. 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. Such payments to brokers, dealers and
financial intermediaries for sales contests, other sales programs and seminars
are made by the Distributor out of its own assets and not out of the assets of
the Fund. These programs will not change the price an investor pays for shares
or the amount that the Fund will receive from such sale.
24
<PAGE> 104
CLASS A SHARES
The public offering price of Class A Shares is equal to the net asset value
per share plus an initial sales charge which is a variable percentage of the
offering price depending upon the amount of the sale. The table below shows
total sales charges and dealer concessions reallowed to dealers and agency
commissions paid to brokers with respect to sales of Class A Shares. The sales
charge is allocated between an investor's broker, dealer or financial
intermediary and the Distributor. As indicated previously, at the discretion of
the Distributor, the entire sales charge may be reallowed to such broker, dealer
or financial intermediary. The staff of the SEC has taken the position that
brokers, dealers and financial intermediaries who receive more than 90% or more
of the sales charge may be deemed to be "underwriters" as that term is defined
in the Securities Act of 1933.
SALES CHARGE TABLE
<TABLE>
<CAPTION>
DEALER
CONCESSION
OR AGENCY
COMMISSION
TOTAL SALES CHARGE ----------
-------------------------- PERCENTAGE
PERCENTAGE PERCENTAGE OF
SIZE OF TRANSACTION OF OFFERING OF NET OFFERING
AT OFFERING PRICE PRICE ASSET VALUE PRICE
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000.................... 5.75% 6.10% 5.00%
$50,000 but less than $100,000....... 4.75 4.99 4.00
$100,000 but less than $250,000...... 3.75 3.90 3.00
$250,000 but less than $500,000...... 2.75 2.83 2.25
$500,000 but less than $1,000,000.... 2.00 2.04 1.75
$1,000,000 or more*.................. * * *
</TABLE>
- ------------------------------------------------------------------------------
* No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the Fund imposes a contingent
deferred sales charge of 1.00% on redemptions made within one year of the
purchase. A commission will be paid to dealers who initiate and are
responsible for purchases of $1 million or more as follows: 1.00% on sales to
$2 million, plus 0.80% on the next million, plus 0.20% on the next $2 million
and 0.08% on the excess over $5 million. See "Purchase of Shares -- Deferred
Sales Charge Alternatives" for additional information with respect to
contingent deferred sales charges.
QUANTITY DISCOUNTS
Investors purchasing Class A Shares may, under certain circumstances, be
entitled to pay reduced sales charges. The circumstances under which such
investors may pay reduced sales charges are described below.
Investors, or their brokers, dealers or financial intermediaries, must notify
the Fund whenever a quantity discount is applicable to purchases. Upon such
notification, an investor will receive the lowest applicable sales charge.
Quantity discounts
25
<PAGE> 105
may be modified or terminated at any time. For more information about quantity
discounts, investors should contact their broker, dealer or financial
intermediary or the Distributor.
As used herein, "any person" eligible for a reduced sales charge includes an
individual, their spouse and minor children (and any trust or custodial accounts
for their benefit) and any corporation, partnership, or sole proprietorship
which is 100% owned, either alone or in combination, by any of the foregoing; a
trustee or other fiduciary purchasing for a single fiduciary account; or a
"company" as defined is section 2(a)(8) of the 1940 Act.
As used herein, "Participating Funds" refers to all open-end investment
companies distributed by the Distributor other than Van Kampen American Capital
Tax Free Money Fund ("Tax Free Money Fund"), Van Kampen American Capital Reserve
Fund ("Reserve Fund") and The Govett Funds, Inc.
VOLUME DISCOUNTS. The size of investment shown in the preceding table applies
to the total dollar amount being invested by any person at any one time in Class
A Shares of the Fund alone, or in combination with other shares of the Fund and
shares of other Participating Funds although other Participating Funds may have
different sales charges.
CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the preceding
table may also be determined by combining the amount being invested in Class A
Shares of the Fund with other shares of the Fund and shares of Participating
Funds plus the current offering price of all shares of the Fund and other
Participating Funds which have been previously purchased and are still owned.
LETTER OF INTENT. A Letter of Intent provides an opportunity for an investor
to obtain a reduced sales charge by aggregating the amount being invested over a
13-month period to determine the sales charge as outlined in the preceding
table. The size of investment shown in the preceding table includes the amount
of intended purchases of Class A Shares of the Fund with other shares of the
Fund and shares of the Participating Funds plus the value of all shares of the
Fund and other Participating Funds previously purchased during such 13-month
period and still owned. An investor may elect to compute the 13-month period
starting up to 90 days before the date of execution of a Letter of Intent. Each
investment made during the period receives the reduced sales charge applicable
to the total amount of the investment goal. If trades not initially made under a
Letter of Intent subsequently qualify for a lower sales charge through the
90-day back-dating provision, an adjustment will be made at the expiration of
the Letter of Intent to give effect to the lower charge. If the goal is not
achieved within the 13-month period, the investor must pay the difference
between the charges applicable to the purchases made and the charges previously
paid. When an investor signs a Letter of Intent, shares equal to at least 5% of
the total purchase amount of the level selected will be restricted from sale or
redemption by the investor until the Letter of Intent is satisfied or any
additional sales charges have been paid; if the Letter of Intent is not
26
<PAGE> 106
satisfied by the investor and any additional sales charges are not paid,
sufficient restricted shares will be redeemed by the Fund to pay such charges.
Additional information is contained in the application accompanying this
Prospectus.
OTHER PURCHASE PROGRAMS
Purchasers of Class A Shares may be entitled to reduced initial sales charges
in connection with unit trust reinvestment programs and purchases by registered
representatives of selling firms or purchases by persons affiliated with the
Fund or the Distributor. The Fund reserves the right to modify or terminate
these arrangements at any time.
UNIT TRUST REINVESTMENT PROGRAMS. The Fund permits unitholders of unit
investment trusts to reinvest distributions from such trusts in Class A Shares
of the Fund with no minimum initial or subsequent investment requirement, and
with a lower sales charge if the administrator of an investor's unit investment
trust program meets certain uniform criteria relating to cost savings by the
Fund and the Distributor. The total sales charge for all investments made from
unit trust distributions will be 1.00% of the offering price (1.01% of net asset
value). Of this amount, the Distributor will pay to the broker, dealer or
financial intermediary, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the applicable terms and conditions thereof, should
contact their broker, dealer or financial intermediary 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 the Fund's transfer agent with
appropriate backup data for each participating investor in a computerized format
fully compatible with the transfer agent's processing system.
As further requirements for obtaining these special benefits, the Fund also
requires that all dividends and other distributions by the Fund be reinvested in
additional shares without any systematic withdrawal program. There will be no
minimum for reinvestments from unit investment trusts. The Fund will send
account activity statements to such participants on a monthly basis only, even
if their investments are made more frequently.
NAV PURCHASE OPTIONS. Class A Shares of the Fund may be purchased at net asset
value, upon written assurance that the purchase is made for investment
27
<PAGE> 107
purposes and that the shares will not be resold except through redemption by the
Fund, by:
(1) Current or retired Trustees of funds advised by the Adviser, Van Kampen
American Capital Asset Management, Inc. or John Govett & Co. Limited and
such persons' families and their beneficial accounts.
(2) Current or retired directors, officers and employees of VK/AC Holding,
Inc. and any of its subsidiaries, Clayton, Dubilier & Rice, Inc.,
employees of an investment subadviser to any fund described in (1) above
or an affiliate of such subadviser; and such persons' families and their
beneficial accounts.
(3) Directors, officers, employees and registered representatives of financial
institutions that have a selling group agreement with the Distributor and
their spouses and minor children when purchasing for any accounts they
beneficially own, or, in the case of any such financial institution, when
purchasing for retirement plans for such institution's employees.
(4) Registered investment advisers, trust companies and bank trust departments
investing on their own behalf or on behalf of their clients provided that
the aggregate amount invested in Class A Shares of the Fund alone, or in
any combination of shares of the Fund and shares of other Participating
Funds as described herein under "Purchase of Shares -- Class A Shares --
Quantity Discounts," during the 13-month period commencing with the first
investment pursuant hereto equals at least $1 million. The Distributor may
pay brokers, dealers or financial intermediaries through which purchases
are made an amount up to 0.50% of the amount invested, over a twelve-month
period following such transaction.
(5) Trustees and other fiduciaries purchasing shares for retirement plans of
organizations with retirement plan assets of $10 million or more. The
Distributor may pay commissions of up to 1.00% for such purchases.
(6) Accounts as to which a broker, dealer or financial intermediary charges an
account management fee ("wrap accounts"), provided the broker, dealer or
financial intermediary has a separate agreement with the Distributor.
(7) Investors purchasing shares of the Fund with redemption proceeds from
other mutual fund complexes on which the investor has paid a front-end
sales charge or was subject to a deferred sales charge, whether or not
paid, if such redemption has occurred no more than 30 days prior to such
purchase.
(8) Full service participant directed profit sharing and money purchase plans,
full service 401(k) plans, or similar full service recordkeeping programs
made available through Van Kampen American Capital Trust Company with at
least 50 eligible employees or investing at least $250,000 in the
Participating Funds, Tax Free Money Fund or Reserve Fund. For such
investments the Fund imposes a contingent deferred sales charge of 1.00%
in the event of redemptions within one year of the purchase other than
redemptions required to make payments to participants under the terms of
28
<PAGE> 108
the plan. The contingent deferred sales charge incurred upon certain
redemptions is paid to the Distributor in reimbursement for distribution-
related expenses. A commission will be paid to dealers who initiate and
are responsible for such purchases as follows: 1.00% on sales to $5
million, plus 0.50% on the next $5 million, plus 0.25% on the excess over
$10 million.
The term "families" includes a person's spouse, minor children and
grandchildren, parents, and a person's spouse's parents.
Purchase orders made pursuant to clause (4) may be placed either through
authorized brokers, dealers or financial intermediaries as described above or
directly with the Fund's transfer agent, the investment adviser, trust company
or bank trust department, provided that the Fund's transfer agent receives
federal funds for the purchase by the close of business on the next business day
following acceptance of the order. An authorized broker, dealer or financial
intermediary may charge a transaction fee for placing an order to purchase
shares pursuant to this provision or for placing a redemption order with respect
to such shares. The Fund may terminate, or amend the terms of, offering shares
of the Fund at net asset value to such groups at any time.
DEFERRED SALES CHARGE ALTERNATIVES
Investors choosing the deferred sales charge alternative may purchase Class A
Shares in an amount of $1 million or more, Class B Shares or Class C Shares. The
public offering price of a CDSC Share is equal to the net asset value per share
without the imposition of a sales charge at the time of purchase. CDSC Shares
are sold without an initial sales charge so that the Fund may invest the full
amount of the investor's purchase payment. The Distributor will compensate
brokers, dealers and financial intermediaries participating in the continuous
public offering of the CDSC Shares out of its own assets, and not out of the
assets of the Funds, at a percentage rate of the dollar value of the CDSC Shares
purchased from the Fund by such brokers, dealers and financial intermediaries,
which percentage rate is equal to (i) with respect to Class A Shares, 1.00% on
sales to $2 million, plus 0.80% on the next million, plus 0.20% on the next $2
million and 0.08% on the excess over $5 million; (ii) 4.00% with respect to
Class B Shares; and (iii) 1.00% with respect to Class C Shares. Such
compensation will not change the price an investor will pay for CDSC Shares or
the amount that the Fund will receive from such sale.
CDSC Shares redeemed within a specified period of time generally will be
subject to a contingent deferred sales charge at the rates set forth below. The
amount of the contingent deferred sales charge will vary depending on (i) the
class of CDSC Shares to which such shares belong and (ii) the number of years
from the time of payment for the purchase of the CDSC Shares until the time of
their redemption. The charge will be assessed on an amount equal to the lesser
of the then current market value or the original purchase price of the CDSC
Shares being redeemed. Accordingly, no sales charge will be imposed on increases
in net asset value above the initial purchase price. In addition, no contingent
deferred sales
29
<PAGE> 109
charge will be assessed on CDSC Shares derived from reinvestment of dividends or
capital gains distributions. Solely for purposes of determining the number of
years from the time of any payment for the purchase of CDSC Shares, all payments
during a month will be aggregated and deemed to have been made on the last day
of the month.
Proceeds from the contingent deferred sales charge applicable to a class of
CDSC Shares are paid to the Distributor and are used by the Distributor to
defray its expenses related to providing distribution related services to the
Fund in connection with the sale of shares of such class of CDSC Shares, such as
the payment of compensation to selected dealers and agents for selling such
shares. The combination of the contingent deferred sales charge and the
distribution fee facilitates the ability of the Fund to sell such CDSC Shares
without a sales charge being deducted at the time of purchase.
In determining whether a contingent deferred sales charge is applicable to a
redemption of shares from a class of CDSC Shares, it will be assumed that the
redemption is made first of any CDSC Shares acquired pursuant to reinvestment of
dividends or distributions, second of CDSC Shares that have been held for a
sufficient period of time such that the contingent deferred sales charge no
longer is applicable to such shares, third of Class A Shares in the
shareholder's Fund account that have converted from Class B Shares or Class C
Shares, if any, and fourth of CDSC Shares held longest during the period of time
that a contingent deferred sales charge is applicable to such CDSC Shares. The
charge will not be applied to dollar amounts representing an increase in the net
asset value per share since the time of purchase.
To provide an example, assume an investor purchased 100 Class B Shares (as set
forth below) at $10 per share (at a cost of $1,000) and in the second year after
purchase, the net asset value per share is $12 and, during such time, the
investor has acquired 10 additional Class B Shares upon dividend reinvestment.
If at such time the investor makes his first redemption of 50 shares (proceeds
of $600), 10 shares will not be subject to charge because of dividend
reinvestment. With respect to the remaining 40 shares, the charge is applied
only to the original cost of $10 per share and not to the increase in net asset
value of $2 per share. Therefore, $400 of the $600 redemption proceeds will be
charged at a rate of 3.75% (the applicable rate in the second year after
purchase).
CLASS A SHARE PURCHASES OF $1 MILLION OR MORE. No sales charge is payable at
the time of purchase on investments of $1 million or more, although for such
investments the Fund imposes a contingent deferred sales charge of 1.00% on
redemptions made within one year of the purchase. A commission will be paid to
dealers who initiate and are responsible for purchases of $1 million or more as
follows: 1.00% on sales to $2 million, plus 0.80% on the next million, plus
0.20% on the next $2 million and 0.08% on the excess over $5 million.
30
<PAGE> 110
CLASS B SHARES. Class B Shares redeemed within six years of purchase generally
will be subject to a contingent deferred sales charge at the rates set forth
below, charged as a percentage of the dollar amount subject thereto:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
- ------------------- -------------------
<S> <C>
First...................................................... 4.00%
Second..................................................... 3.75%
Third...................................................... 3.50%
Fourth..................................................... 2.50%
Fifth...................................................... 1.50%
Sixth...................................................... 1.00%
Seventh and after.......................................... 0.00%
</TABLE>
The contingent deferred sales charge generally is waived on redemptions of
Class B Shares made pursuant to the Systematic Withdrawal Plan. See "Shareholder
Services -- Systematic Withdrawal Plan."
CLASS C SHARES. Class C Shares redeemed within the first twelve months of
purchase generally will be subject to a contingent deferred sales charge of
1.00% of the dollar amount subject thereto. Class C Shares redeemed thereafter
will not be subject to a contingent deferred sales charge.
CONVERSION FEATURE. Class B Shares and Class C Shares will automatically
convert to Class A Shares seven years or ten years, respectively, after the end
of the month in which a shareholder's order to purchase the shares was accepted
and will no longer be subject to the distribution fees. The purpose of the
conversion feature is to relieve the holders of Class B Shares and Class C
Shares that have been outstanding for a period of time sufficient for the
Distributor to have been compensated for distribution expenses related to the
Class B Shares or Class C Shares from most of the burden of the ongoing
distribution fee. The Fund does not expect to issue any stock certificates upon
conversion.
For purposes of conversion to Class A Shares, Class B Shares or Class C Shares
purchased through the reinvestment of dividends and distributions paid in
respect of Class B Shares and Class C Shares in a shareholder's account will be
considered to be held in a separate sub-account. Each time any Class B Shares or
Class C Shares in the shareholder's account (other than those in the
sub-account) convert to Class A Shares, an equal pro rata portion of the Class B
Shares or Class C Shares in the sub-account also will convert to Class A Shares.
The holding period applicable to a Class B Share or Class C Share acquired
through the use of the exchange privilege (discussed below) shall be the holding
period applicable to the Class B Shares or Class C Shares of such Fund acquired
other than through use of the exchange privilege. For purposes of calculating
the holding period applicable to a Class B Share or Class C Share of the Fund
prior to conversion, a Class B Share or
31
<PAGE> 111
Class C Share of the Fund issued in connection with an exercise of the exchange
privilege, or a series of exchanges, shall be deemed to have been issued on the
date on which the investor's order to purchase the exchanged Class B Share or
Class C Share was accepted or, in the case of a series of exchanges, when the
investor's order to purchase the original Class B Share or Class C Share was
accepted.
The conversion of Class B Shares and Class C Shares to Class A Shares is
subject to the continuing availability of an opinion of counsel to the effect
that (i) the assessment of the distribution fee and higher transfer agency costs
with respect to Class B Shares and Class C Shares does not result in the Fund's
dividends or distributions constituting "preferential dividends" under the Code
and (ii) that the conversion of Class B Shares or Class C Shares does not
constitute a taxable event under federal income tax law. The conversion of Class
B Shares and Class C Shares to Class A Shares may be suspended if such an
opinion is no longer available. In that event, no further conversions of Class B
Shares or Class C Shares would occur, and Class B Shares and Class C Shares
might continue to be subject to the distribution fee for an indefinite period.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE. The contingent deferred sales
charge is waived on redemptions of Class B Shares and Class C Shares (i)
following the death or disability (as defined in the Code) of a shareholder,
(ii) in connection with certain distributions from an IRA or other retirement
plan, (iii) pursuant to the Fund's systematic withdrawal plan but limited to 12%
annually of the initial value of the account, and (iv) effected pursuant to the
right of the Fund to liquidate a shareholder's account as described herein under
"Redemption of Shares." The contingent deferred sales charge is also waived on
redemptions of Class C Shares as it relates to the reinvestment of redemption
proceeds in shares of the same class of the Fund within 120 days after
redemption. See "Shareholder Services" and "Redemption of Shares" for further
discussion of the waiver provisions.
NET ASSET VALUE
The net asset value per share of the Fund will be determined separately for
each class of shares. The net asset value per share of a given class of shares
of the Fund is determined by calculating the total value of the Fund's assets
attributable to such class of shares, deducting its total liabilities
attributable to such class of shares and dividing the result by the number of
shares of such class of the Fund outstanding. The net asset value for the Fund
is computed once daily as of the close of the daily trading session of the New
York Stock Exchange, 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 reserves the right to calculate the net asset value and to
adjust the public offering price based thereon more frequently than once a day
if deemed desirable. The net asset value per share of the different classes of
shares are
32
<PAGE> 112
expected to be substantially the same; from time to time, however, the per share
net asset value of the different classes of shares may differ.
The securities of the Fund that are listed on a securities exchange are valued
at their closing sales price on the day of the valuation. Price valuations for
listed securities are based on market quotations where the security is primarily
traded or, if actual trade information is not available on any valuation date,
are valued at the mean of the bid and asked prices. Unlisted securities in the
portfolio are valued by using market quotations, prices provided by market
makers or estimates of market values obtained from yield data relating to
instruments or securities with similar characteristics in accordance with
procedures established in good faith by the Board of Trustees of the Trust of
which the Fund is a series. Securities with remaining maturities of 60 days or
less are valued at amortized cost when amortized cost is determined in good
faith by or under the direction of the Board of Trustees of the Trust to be
representative of the fair value at which it is expected such securities may be
resold. Any securities or other assets for which current market quotations are
not readily available are valued at their fair value as determined in good faith
under procedures established by and under the general supervision of the Board
of Trustees.
- ------------------------------------------------------------------------------
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. Unless otherwise described below, each of these
services may be modified or terminated by the Fund at any time.
SHAREHOLDER SERVICES APPLICABLE TO ALL CLASSES
INVESTMENT ACCOUNT. ACCESS Investor Services, Inc. ("ACCESS"), transfer agent
for the Fund and a wholly-owned subsidiary of Van Kampen American Capital,
performs bookkeeping, data processing and administration services related to the
maintenance of shareholder accounts. Each shareholder has an investment account
under which shares are held by ACCESS. Except as described herein, after each
share transaction in an account, the shareholder receives a statement showing
the activity in the account. Each shareholder will receive statements at least
quarterly from ACCESS showing any reinvestments of dividends and capital gains
distributions and any other activity in the account since the preceding
statement. Such shareholders also will receive separate confirmations for each
purchase or sale transaction other than reinvestment of dividends and capital
gains distributions and systematic purchases or redemptions. Additions to an
investment account may be made at any time by purchasing shares through
authorized brokers, dealers or financial intermediaries or by mailing a check
directly to ACCESS.
33
<PAGE> 113
SHARE CERTIFICATES. Generally, the Fund will not issue share certificates.
However, upon written or telephone request to the Fund, a share certificate will
be issued, representing shares (with the exception of fractional shares) of the
Fund. A shareholder will be required to surrender such certificates upon
redemption thereof. In addition, if such certificates are lost the shareholder
must write to Van Kampen American Capital Funds, c/o ACCESS, P.O. Box 418256,
Kansas City, MO 64141-9256, requesting an "affidavit of loss" and to obtain a
Surety Bond in a form acceptable to ACCESS. On the date the letter is received
ACCESS 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.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gains distributions in shares of
the Fund. Such shares are acquired at net asset value (without sales charge) on
the record date of such dividend or distribution. Unless the shareholder
instructs otherwise, the reinvestment plan is automatic. This instruction may be
made by telephone by calling (800) 421-5666 ((800) 772-8889 for the hearing
impaired) or in writing to ACCESS. The investor may, on the initial application
or prior to any declaration, instruct that dividends be paid in cash and capital
gains distributions be reinvested at net asset value, or that both dividends and
capital gains distributions be paid in cash. For further information, see
"Distributions from the Fund."
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under
which a shareholder can authorize ACCESS to charge a bank account on a regular
basis to invest pre-determined amounts in the Fund. Additional information is
available from the Distributor or authorized brokers, dealers or financial
intermediaries.
RETIREMENT PLANS. Eligible investors may establish individual retirement
accounts ("IRAs"); SEP; and pension and profit sharing plans; 401(k) plans; or
Section 403(b)(7) plans in the case of employees of public school systems and
certain non-profit organizations. Documents and forms containing detailed
information regarding these plans are available from the Distributor. Van Kampen
American Capital 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.
DIVIDEND DIVERSIFICATION. A shareholder may, upon written request or by
completing the appropriate section of the application form accompanied by this
Prospectus or by calling (800) 421-5666 ((800) 772-8889 for the hearing
impaired), elect to have all dividends and other distributions paid on either
Class A Shares, Class B Shares or Class C Shares of the Fund invested into
shares of the same class of any other Participating Fund, Tax Free Money Fund or
Reserve Fund so long as a pre-existing account for such class of shares exists
for such shareholder.
34
<PAGE> 114
If the 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 as of the payable date of the
distribution only if shares of such selected fund have been registered for sale
in the investor's state.
EXCHANGE PRIVILEGE. Shares of the Fund may be exchanged with shares of another
Participating Fund, the Tax Free Money Fund or the Reserve Fund, subject to
certain limitations herein or in such other fund's prospectus. Before effecting
an exchange, shareholders in the Fund should obtain and read a current
prospectus of the fund into which the exchange is to be made. SHAREHOLDERS MAY
ONLY EXCHANGE INTO SUCH OTHER FUNDS AS ARE LEGALLY AVAILABLE FOR SALE IN THEIR
STATE.
Exchanges of Class A Shares of the Fund that have been charged a sales charge
lower than the sales charge applicable to the other fund will have the sales
charge differential imposed upon the exchange into such fund. Similarly,
exchanges of any Class A Shares of other funds that have been charged a sales
charge lower than the sales charge applicable to the Fund will have the sales
charge differential imposed upon exchange into the Fund. Shares of other funds
which have not previously been charged a sales charge (except for shares
purchased via the reinvestment option) will be charged the sales charge
differential applicable to Class A Shares of the Fund upon exchange into the
Fund.
No sales charge is imposed upon the exchange of Class B Shares and Class C
Shares. Upon redemption of Class B Shares and Class C Shares from the Van Kampen
American Capital family of funds, Class B Shares and Class C Shares which have
been exchanged are subject to the contingent deferred sales charge imposed by
the initial Van Kampen American Capital fund purchased by the investor prior to
any exchanges. The holding period requirements for the contingent deferred sales
charge, and the conversion privilege for Class B Shares of the Fund, are
determined by the date of purchase into the initial Van Kampen American Capital
fund purchased by the investor prior to any exchanges.
Exchanges of shares are sales and may result in a gain or loss for federal
income tax purposes. If the shares exchanged have been held for less than 91
days, the sales charge paid on such shares is not included in the tax basis of
the exchanged shares, but 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 ACCESS or by contacting the telephone transaction line at (800)
421-5684 ((800) 772-8889 for the hearing impaired). A shareholder automatically
has telephone exchange privileges unless otherwise designated in the application
form accompanied by this Prospectus. The exchange will take place at the
relative net asset values of the shares next determined after receipt of such
request with adjustment for any additional sales charge. Any shares exchanged
begin earning dividends on the next business day after the exchange is affected.
Van Kampen American Capital and its subsidiaries, including ACCESS
(collectively,
35
<PAGE> 115
"VKAC"), 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, a shareholder agrees that neither VKAC nor
the Fund will be liable for following telephone instructions which it reasonably
believes to be genuine. VKAC and the Fund may be liable for any losses due to
unauthorized or fraudulent instructions if reasonable procedures are not
followed. If the exchanging shareholder does not have an account in the fund
whose shares are being acquired, a new account will be established with the same
registration, dividend and capital gains options (except dividend
diversification options) and broker, dealer or financial intermediary 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 dividend diversification options for the new account, an exchanging
shareholder must file a specific written request. The Fund reserves the right to
reject any order to acquire its shares through exchange. In addition, the Fund
may restrict or terminate the exchange privilege at any time on 60 days' notice
to its shareholders of any termination or material amendment.
SYSTEMATIC WITHDRAWAL PLAN. Any investor whose shares in a single account
total $10,000 or more at the offering price next computed after receipt of
instructions may establish a monthly, quarterly, semi-annual or annual
withdrawal plan. 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 taxable gain or loss will be
recognized. The plan holder may arrange for monthly, quarterly, semi-annual, or
annual checks in any amount not less than $25. Such a systematic withdrawal plan
may also be maintained by an investor purchasing shares for a retirement plan
established on a form made available by the Fund. See "Shareholder
Services -- Retirement Plans."
Holders of Class B Shares and Class C Shares who establish a withdrawal plan
may redeem up to 12% annually of the shareholder's initial account balance
without incurring a contingent deferred sales charge. Initial account balance
means the amount of the shareholder's investment in the Fund at the time the
election to participate in the plan is made. See "Purchase of Shares -- Deferred
Sales Charge Alternatives -- Waiver of Contingent Deferred Sales Charge."
Under the plan, sufficient shares of the Fund are redeemed to provide the
amount of the periodic withdrawal payment. Dividends and capital gains
distributions on shares held under the plan are reinvested in additional shares
at the next determined net asset value. If periodic withdrawals continuously
exceed reinvested dividends and capital gains distributions, the shareholder's
original investment will be correspondingly reduced and ultimately exhausted.
Withdrawals made concurrently with purchases of additional shares ordinarily
will be disadvantageous to the shareholder
36
<PAGE> 116
because of the duplication of sales charges. The Fund reserves the right to
amend or terminate the systematic withdrawal program on thirty days' notice to
its shareholders.
SHAREHOLDER SERVICES APPLICABLE TO CLASS A SHAREHOLDERS ONLY
AUTOMATED CLEARING HOUSE ("ACH") DEPOSITS. Holders of Class A Shares can use
ACH to have redemption proceeds deposited electronically into their bank
accounts. Redemptions transferred to a bank account via the ACH plan are
available to be credited to the account on the second business day following
normal payment. In order to utilize this option, the shareholder's bank must be
a member of Automated Clearing House. 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
ACCESS 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 ACCESS.
- ------------------------------------------------------------------------------
REDEMPTION OF SHARES
- ------------------------------------------------------------------------------
Shareholders may redeem for cash some or all of their shares without charge by
the Fund (other than, with respect to CDSC Shares, the applicable contingent
deferred sales charge) at any time by sending a written request in proper form
directly to ACCESS, P. O. Box 418256, Kansas City, Missouri 64141-9256, by
placing the redemption request through an authorized dealer or by calling the
Fund.
WRITTEN REDEMPTION REQUESTS. In the case of redemption requests sent directly
to ACCESS, the redemption request should indicate the number of shares to be
redeemed, the class designation of such shares, the account number and be signed
exactly as the shares are registered. Signatures must conform exactly to the
account registration. If the proceeds of the redemption would 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. If certificates are held for the shares being redeemed, such
certificates must be endorsed for transfer or accompanied by an endorsed stock
power and sent with 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 60 days must accompany the
37
<PAGE> 117
redemption request. The redemption price is the net asset value per share next
determined after the request is received by ACCESS in proper form. Payment for
shares redeemed (less any sales charge, if applicable) will ordinarily be made
by check mailed within three business days after acceptance by ACCESS of the
request and any other necessary documents in proper order. Such payments may be
postponed or the right of redemption suspended as provided by the rules of the
SEC. If the shares to be redeemed have been recently purchased by check, ACCESS
may delay mailing a redemption check until it confirms that the purchase check
has cleared, usually a period of up to 15 days. Any gain or loss realized on the
redemption of shares is a taxable event.
DEALER REDEMPTION REQUESTS. Shareholders may sell shares through their
securities dealer, who will telephone the request to the Distributor. Orders
received from dealers must be at least $500 unless transmitted via the FUNDSERV
network. The redemption price for such shares is the net asset value next
calculated after an order is received by a 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 dealers to transmit redemption requests
received by them to the Distributor so they will be received prior to such time.
Any change in the redemption price due to failure of the Distributor to receive
a sell order prior to such time must be settled between the shareholder and
dealer. Shareholders must submit a written redemption request in proper form (as
described above under "Written Redemption Requests") to the dealer within three
business days after calling the dealer with the sell order. Payment for shares
redeemed (less any sales charge, if applicable) will ordinarily be made by check
mailed within three business days to the dealer.
TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. To establish
such privilege, a shareholder must complete the appropriate section of the
application form accompanying this Prospectus or call the Fund at (800) 421-5666
((800) 772-8889 for the hearing impaired) to request that a copy of the
Telephone Redemption Authorization form be sent to them for completion. To
redeem shares, contact the telephone transaction line at (800) 421-5684. VKAC
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, a shareholder agrees that neither VKAC nor the Fund
will be liable for following instructions which it reasonably believes to be
genuine. VKAC and the Fund may be liable for any losses due to unauthorized or
fraudulent instructions if reasonable procedures are not followed. Telephone
redemptions may not be available if the shareholder cannot reach ACCESS 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
procedures previously described. Requests received by
38
<PAGE> 118
ACCESS prior to 4:00 p.m., New York time, on a regular business day will be
processed at the net asset value per share determined that day. These privileges
are available for all accounts other than retirement accounts. The telephone
redemption privilege is not available for shares represented by certificates. If
the shares to be redeemed have been recently purchased by check, ACCESS may
delay mailing a redemption check or wiring redemption proceeds until it confirms
that the purchase check has cleared, usually a period of up to 15 days. If an
account has multiple owners, ACCESS 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 sent to the shareholders'
address of record and amounts of at least $1,000 and up to $1 million may be
redeemed daily if the proceeds are to be paid by wire sent to the shareholder's
bank account of record. The proceeds must be payable to the shareholder(s) of
record. Proceeds from redemptions to be paid by check will ordinarily be mailed
within three business days to the shareholder's address of record. Proceeds from
redemptions to be paid by wire will ordinarily be wired on the next business day
to the shareholder's bank account of record. This privilege is not available if
the address of record has been changed within 30 days prior to a telephone
redemption request. The Fund reserves the right at any time to terminate, limit
or otherwise modify this telephone redemption privilege.
REDEMPTION UPON DISABILITY. The Fund will waive the contingent deferred sales
charge on redemptions following the disability of holders of Class B Shares and
Class C Shares. An individual will be considered disabled for this purpose if he
or she meets the definition thereof in Section 72(m)(7) of the Code, which in
pertinent part defines a person as disabled if such person "is unable to engage
in any substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death or to be
of long-continued and indefinite duration." While the Fund does not specifically
adopt the balance of the Code's definition which pertains to furnishing the
Secretary of Treasury with such proof as he or she may require, the Distributor
will require satisfactory proof of disability before it determines to waive the
contingent deferred sales charge on Class B Shares and Class C Shares.
In cases of disability, the contingent deferred sales charges on Class B
Shares and Class C Shares will be waived where the disabled person is either an
individual shareholder or owns the shares as a joint tenant with right of
survivorship or is the beneficial owner of a custodial or fiduciary account, and
where the redemption is made within one year of the initial determination of
disability. This waiver of the contingent deferred sales charge on Class B
Shares and Class C Shares applies to a total or partial redemption, but only to
redemptions of shares held at the time of the initial determination of
disability.
GENERAL REDEMPTION INFORMATION. The Fund may redeem any shareholder account
with a net asset value on the date of the notice of redemption less than the
minimum investment as specified by the Trustees. At least 60 days advance
written
39
<PAGE> 119
notice of any such involuntary redemption is required and the shareholder is
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 investment
due to shareholder redemptions.
REINSTATEMENT PRIVILEGE. Holders of Class A Shares or Class B Shares who have
redeemed shares of the Fund may reinstate any portion or all of the net proceeds
of such redemption in Class A Shares of the Fund. Holders of Class C Shares who
have redeemed shares of the Fund may reinstate any portion or all of the net
proceeds of such redemption in Class C Shares of the Fund with credit given for
any contingent deferred sales charge paid upon such redemption. Such
reinstatement is made at the net asset value next determined after the order is
received, which must be within 120 days after the date of the redemption. See
"Purchase of Shares -- Waiver of Contingent Deferred Sales Charge."
Reinstatement at net asset value is also offered to participants in those
eligible retirement plans held or administered by Van Kampen American Capital
Trust Company for repayment of principal (and interest) on their borrowings on
such plans.
- ------------------------------------------------------------------------------
THE DISTRIBUTION AND SERVICE PLANS
- ------------------------------------------------------------------------------
The Fund has adopted a distribution plan (the "Distribution Plan") with
respect to each class of its shares pursuant to Rule 12b-1 under the 1940 Act.
The Fund also has adopted a service plan (the "Service Plan") with respect to
each class of its shares. The Distribution Plan and the Service Plan provide
that the Fund may spend a portion of the Fund's average daily net assets
attributable to each class of shares in connection with the distribution of the
respective class of shares and in connection with the provision of ongoing
services to shareholders of each class. The Distribution Plan and the Service
Plan are being implemented through an agreement with the Distributor and
sub-agreements between the Distributor and brokers, dealers and financial
intermediaries (collectively, "Selling Agreements") that may provide for their
customers or clients certain services or assistance.
CLASS A SHARES. The Fund may spend an aggregate amount of up to 0.25% per year
of the average daily net assets attributable to the Class A Shares of the Fund
pursuant to the Distribution Plan and the Service Plan. From such amount, the
Fund may spend up to 0.25% per year of the Fund's average daily net assets
attributable to the Class A Shares pursuant to the Service Plan in connection
with the ongoing provision of services to holders of such shares by the
Distributor and by brokers, dealers or financial intermediaries and in
connection with the maintenance of such shareholders' accounts. The Fund pays
the Distributor the lesser of the balance of the 0.25% not paid to such brokers,
dealers or financial intermediaries or the amount of the Distributor's actual
distribution related expense.
CLASS B SHARES. The Fund may spend up to 0.75% per year of the average daily
net assets attributable to the Class B Shares of the Fund pursuant to the
40
<PAGE> 120
Distribution Plan. In addition, the Fund may spend up to 0.25% per year of the
Fund's average daily net assets attributable to the Class B Shares pursuant to
the Service Plan in connection with the ongoing provision of services to holders
of such shares by the Distributor and by brokers, dealers or financial
intermediaries and in connection with the maintenance of such shareholders'
accounts.
CLASS C SHARES. The Fund may spend up to 0.75% per year of the average daily
net assets attributable to the Class C Shares of the Fund pursuant to the
Distribution Plan. From such amount, the Fund, or the Distributor as agent for
the Fund, pays brokers, dealers or financial intermediaries in connection with
the distribution of the Class C Shares up to 0.75% of the Fund's average daily
net assets attributable to Class C Shares maintained in the Fund more than one
year by such broker's, dealer's or financial intermediary's customers. The Fund
pays the Distributor the lesser of the balance of the 0.75% not paid to such
brokers, dealers or financial intermediaries or the amount of the Distributor's
actual distribution related expense attributable to the Class C Shares. In
addition, the Fund may spend up to 0.25% per year of the Fund's average daily
net assets attributable to the Class C Shares pursuant to the Service Plan in
connection with the ongoing provision of services to holders of such shares by
the Distributor and by brokers, dealers or financial intermediaries and in
connection with the maintenance of such shareholders' accounts.
OTHER INFORMATION. Amounts payable to the Distributor with respect to the
Class A Shares under the Distribution Plan in a given year may not fully
reimburse the Distributor for its actual distribution-related expenses during
such year. In such event, with respect to the Class A Shares, there is no
carryover of such reimbursement obligations to succeeding years.
The Distributor's actual expenses with respect to a class of CDSC Shares for
any given year may exceed the amounts payable to the Distributor with respect to
such class of CDSC Shares under the Distribution Plan, the Service Plan and
payments received pursuant to the contingent deferred sales charge. In such
event, with respect to any such class of CDSC Shares, any unreimbursed expenses
will be carried forward and paid by the Fund (up to the amount of the actual
expenses incurred) in future years so long as such Distribution Plan is in
effect. Except as mandated by applicable law, the Fund does not impose any limit
with respect to the number of years into the future that such unreimbursed
expenses may be carried forward (on a Fund level basis). Because such expenses
are accounted on a Fund level basis, in periods of extreme net asset value
fluctuation such amounts with respect to a particular CDSC Share may be greater
or less than the amount of the initial commission (including carrying cost) paid
by the Distributor with respect to such CDSC Share. In such circumstances, a
shareholder of such CDSC Share may be deemed to incur expenses attributable to
other shareholders of such class. If the Distribution Plan was terminated or not
continued, the Fund would not be contractually obligated to pay the Distributor
for any expenses not previously reimbursed by the Fund or recovered through
contingent deferred sales charges.
41
<PAGE> 121
Because the Fund is a series of the Trust, amounts paid to the Distributor as
reimbursement for expenses of one series of the Trust may indirectly benefit the
other funds which are series of the Trust. The Distributor will endeavor to
allocate such expenses among such funds in an equitable manner. The Distributor
will not use the proceeds from the contingent deferred sales charge applicable
to a particular class of CDSC Shares to defray distribution related expenses
attributable to any other class of CDSC Shares. Various federal and state laws
prohibit national banks and some state-chartered commercial banks from
underwriting or dealing in the Fund's shares. In addition, state securities laws
on this issue may differ from the interpretations of federal law, and banks and
financial institutions may be required to register as dealers pursuant to state
law. In the unlikely event that a court were to find that these laws prevent
such banks from providing such services described above, the Fund would seek
alternate providers and expects that shareholders would not experience any
disadvantage.
- ------------------------------------------------------------------------------
DISTRIBUTIONS FROM THE FUND
- ------------------------------------------------------------------------------
The Fund's present policy, which may be changed at any time by the Board of
Trustees, is to annually declare dividends to holders of each class of shares
from net investment income and net short-term capital gains attributable to each
respective class. The Fund also presently intends to make distributions of net
long-term capital gains, if any, annually. Dividends are composed of all or a
portion of investment income earned by each class of shares of the Fund plus all
or a portion of net short-term capital gains by the Fund on transactions in
securities and futures and options hedging transactions, less the expenses
attributable to the respective class. Long-term capital gains distributions
consist of the Fund's gain on transactions in securities and futures and options
hedging transactions, net of any realized capital losses, less any carryover
capital losses from previous years.
Distributions with respect to each class of shares will be calculated in the
same manner on the same day and will be in the same amount, except that the
different distribution and service fees and any incremental administrative
expenses relating to each class of shares will be borne exclusively by the
respective class and may cause the distributions relating to the different
classes of shares to differ. Generally, distributions with respect to a class of
shares subject to a higher distribution fee, service fee, or where applicable,
the conversion feature will be lower than distributions with respect to a class
of shares subject to a lower distribution fee, service fee, or not subject to
the conversion feature.
Distribution checks may be sent to parties other than the shareholder in whose
name the account is registered. Shareholders wishing to utilize this service
should complete the appropriate section of the account application accompanying
this Prospectus or available from Van Kampen American Capital Funds, c/o ACCESS,
P.O. Box 418256, Kansas City, MO 64141-9256. After ACCESS receives this
42
<PAGE> 122
completed form, distribution checks will be sent to the bank or other person so
designated by such shareholder.
PURCHASE OF ADDITIONAL SHARES WITH DISTRIBUTIONS. The Fund automatically will
credit distributions to a shareholder's account in additional shares of the Fund
valued at net asset value, without sales charge. Unless the Shareholder
instructs otherwise, the reinvestment plan is automatic. This instruction may be
made by telephone by calling (800) 421-5666 ( (800) 772-8889 for the hearing
impaired) or in writing to ACCESS.
- ------------------------------------------------------------------------------
TAX STATUS
- ------------------------------------------------------------------------------
The Fund intends to qualify as a regulated investment company under Subchapter
M of the Internal Revenue Code of 1986, as amended (the "Code"). To qualify as a
regulated investment company, the Fund must comply with certain requirements of
the Code relating to, among other things, the source of its income and the
diversification of its assets. If the Fund so qualifies and if it distributes to
its shareholders at least 90% of its net investment income (which includes net
short-term capital gains, but not net capital gains, which are the excess of net
long-term capital gains over net short-term capital losses), it will not be
required to pay federal income taxes on any income distributed to shareholders.
The Fund intends to distribute at least the minimum amount of net investment
income required to satisfy the 90% distribution requirement. The Fund will not
be subject to federal income tax on any net capital gains distributed to its
shareholders.
Distributions of the Fund's net investment income are taxable to shareholders
as ordinary income whether received in shares or cash. Shareholders who receive
distributions in the form of additional shares will have a basis for federal
income tax purposes in each share equal to the value thereof on the distribution
date. Distributions of the Fund's net capital gains ("capital gain dividends"),
if any, are taxable to shareholders as long-term capital gains regardless of the
length of time the Fund shares have been held by such shareholders.
Distributions in excess of the Fund's earnings and profits will first reduce the
adjusted tax basis of the shares held by the shareholders and, after such
adjusted tax basis is reduced to zero, will constitute capital gains to such
shareholder (assuming such shares are held as a capital asset). The Fund will
inform shareholders of the source and tax status of such distributions promptly
after the close of each calendar year. Some portion of the distributions made by
the Fund generally will be eligible for the dividends received deduction for
corporations if the Fund receives qualifying dividends during the year and if
certain other requirements of the Code are satisfied.
Redemption or resale of shares of the Fund will be a taxable transaction for
federal income tax purposes. Redeeming shareholders will recognize gain or loss
in an amount equal to the difference between their basis in such redeemed shares
of the Fund and the amount received. If such shares are held as a capital asset,
the gain or loss will be a capital gain or loss and will generally be long-term
if such
43
<PAGE> 123
shareholders have held their shares for more than one year. Any loss realized
upon a taxable disposition of shares held for six months or less will be treated
as 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.
Some of the Fund's investment practices are subject to special provisions of
the Code that may, among other things, defer the use of losses of the Fund and
affect the holding period of securities held by the Fund and the character of
the gains or losses realized by the Fund. These provisions may also require the
Fund to mark-to-market some of the positions in its portfolio (i.e., treat them
as if they were closed out), which may cause the Fund to recognize income
without receiving the cash with which to make distributions in amounts necessary
to satisfy the distribution requirements for avoiding federal income and, as
described below, excise taxes. The Fund will monitor its transactions and may
make certain tax elections in order to mitigate the effect of these rules and
prevent disqualification of the Fund as a regulated investment company.
The Fund's ability to dispose of portfolio securities may be limited by the
requirement for qualification as a regulated investment company that less than
30% of the Fund's annual gross income be derived from the disposition of
securities held for less than three months.
Income from investments in foreign securities may be subject to foreign
taxation imposed by withholding. Shareholders of the Fund will not be able to
claim any deduction or foreign tax credit with respect to such foreign taxes.
In order to avoid a 4% excise tax, the Fund will be required to distribute by
December 31 of each year at least 98% of its ordinary income for such year and
at least 98% of its capital gain net income (computed on the basis of the
one-year period ending on October 31 of such year), plus any amounts that were
not distributed in previous taxable years. For purposes of the excise tax, any
ordinary income or capital gain net income retained by and subject to federal
income tax in the hands of the Fund will be treated as having been distributed.
Although dividends generally will be treated as distributed when paid,
dividends declared in October, November or December, payable to shareholders of
record on a specified date in such a month and paid in January of the following
year, will be treated as having been distributed by the Fund (and received by
the shareholders) on December 31 of the year in which the dividend was declared.
In addition, certain other distributions made after the close of a taxable year
of the Fund may be "spilled back" and treated as having been 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 is actually made.
44
<PAGE> 124
The Fund is required, in certain circumstances, to withhold 31% of dividends
and certain other payments, including redemptions, paid to shareholders who do
not furnish to the Fund their correct taxpayer identification number (in the
case of individuals, their social security number) or who are otherwise subject
to backup withholding. 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 any applicable treaty.
The federal income tax discussion set forth above is for general information
only. Prospective investors should consult their own advisors regarding the
specific federal tax consequences of holding and disposing of shares, as well as
the effects of state, local and foreign tax laws and any proposed tax law
changes.
- ------------------------------------------------------------------------------
FUND PERFORMANCE
- ------------------------------------------------------------------------------
From time to time advertisements and other sales materials for the Fund may
include information concerning the historical performance of the Fund. Any such
information will include the average total return of the Fund calculated on a
compounded basis for specified periods of time. Such total return will be
calculated pursuant to rules established by the SEC and will be computed
separately for each class of the Fund's shares. In lieu of or in addition to
total return calculations, such information may include performance rankings and
similar information from independent organizations such as Lipper Analytical
Services, Inc., Business Week, Forbes or other industry publications. In
addition, from time to time the Fund may compare its performance to certain
securities and unmanaged indices which may have different risk/reward
characteristics than the Fund. Such characteristics may include, but are not
limited to, tax features, guarantees, insurance and the fluctuation of principal
and/or return. In addition, from time to time sales materials and advertisements
for the Fund may include hypothetical information.
Further information about the Fund's performance is contained in its Annual
Report and its Statement of Additional Information each of which can be obtained
without charge by calling (800) 421-5666 ((800) 772-8889 for the hearing
impaired).
- ------------------------------------------------------------------------------
DESCRIPTION OF SHARES OF THE FUND
- ------------------------------------------------------------------------------
The Fund is a series of the Van Kampen American Capital Equity Trust, a
Delaware business trust organized as of May 10, 1995 (the "Trust"). The Fund was
originally organized in 1986 as a Massachusetts business trust, was reorganized
in 1988 as a sub-trust of Van Kampen Merritt Equity Trust, a Massachusetts
business trust, and was reorganized as a series of the Trust as of July 31,
1995. Shares of the Trust entitle their holders to one vote per share; however,
separate votes are taken by each series on matters affecting an individual
series.
45
<PAGE> 125
The authorized capitalization of the Fund consists of an unlimited number of
shares of beneficial interest, $0.01 par value, divided into classes. The Fund
currently offers three classes, designated Class A Shares, Class B Shares and
Class C Shares. Each class of shares represents an interest in the same assets
of the Fund and are identical in all respects except that each class bears
certain distribution expenses and has exclusive voting rights with respect to
its distribution fee.
Pursuant to an order of the SEC, the Fund is permitted to issue an unlimited
number of classes of shares. Each class of shares is equal as to earnings,
assets and voting privileges, except as noted above, and each class bears the
expenses related to the distribution of its shares. There are no conversion,
preemptive or other subscription rights, except with respect to the conversion
of Class B Shares and Class C Shares into Class A Shares as described above. In
the event of liquidation, each of the shares of the Fund is entitled to its
portion of all of the Fund's net assets after all debt and expenses of the Fund
have been paid. Since Class B Shares and Class C Shares pay higher distribution
expenses, the liquidation proceeds to holders of Class B Shares and Class C
Shares are likely to be lower than to other shareholders.
The Trust does not contemplate holding regular meetings of shareholders to
elect Trustees or otherwise. However, the holders of 10% or more of the
outstanding shares may by written request require a meeting to consider the
removal of Trustees by a vote of a majority of the shares present and voting at
such meeting. The Trust will assist such holders in communicating with other
shareholders of the Fund to the extent required by the 1940 Act. More detailed
information concerning the Trust is set forth in the Statement of Additional
Information.
- ------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- ------------------------------------------------------------------------------
This Prospectus and the Statement of Additional Information do not contain all
the information set forth in the Registration Statement filed by the Fund with
the SEC under the Securities Act of 1933. Copies of the Registration Statement
may be obtained at a reasonable charge from the SEC or may be examined, without
charge, at the office of the SEC in Washington, D.C.
The Fund's fiscal year ends on June 30. The Fund sends to its shareholders at
least semi-annually reports showing the Fund's portfolio and other information.
An annual report, containing financial statements audited by the Fund's
independent auditors, is sent to shareholders each year. After the end of each
year, shareholders will receive federal income tax information regarding
dividends and capital gains distributions.
Shareholder inquiries should be directed to the Van Kampen American Capital
Growth Fund, One Parkview Plaza, Oakbrook Terrace, Illinois 60181, Attn:
Correspondence.
46
<PAGE> 126
For Automated Telephone Service which provides 24-hour direct dial access to
Fund facts and Shareholder account information, dial (800) 421-5666. For
inquiries through Telecommunications Device for the Deaf (TDD) dial (800)
772-8889.
47
<PAGE> 127
<TABLE>
<S> <C>
VAN KAMPEN AMERICAN CAPITAL
GROWTH FUND
One Parkview Plaza
Oakbrook Terrace, IL 60181
---------------------------------------
Investment Adviser
VAN KAMPEN AMERICAN CAPITAL
INVESTMENT ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, IL 60181
Distributor
VAN KAMPEN AMERICAN CAPITAL
DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, IL 60181
EXISTING SHAREHOLDERS-- Transfer Agent
FOR INFORMATION ON YOUR ACCESS INVESTOR SERVICES, INC.
EXISTING ACCOUNT PLEASE P.O. Box 418256
CALL THE FUND'S TOLL-FREE Kansas City, MO 64141-9256
NUMBER (800) 421-5666. Attn: Van Kampen American Capital Funds
PROSPECTIVE INVESTORS--CALL Custodian
YOUR BROKER OR (800) 421-5666. STATE STREET BANK AND
TRUST COMPANY
DEALERS--FOR DEALER 225 Franklin Street, P.O. Box 1713
INFORMATION, SELLING Boston, MA 02105
AGREEMENTS, WIRE ORDERS, Attn: Van Kampen American Capital Funds
OR REDEMPTIONS CALL THE
DISTRIBUTOR'S TOLL-FREE Legal Counsel
NUMBER (800) 421-5666. SKADDEN, ARPS, SLATE,
MEAGHER & FLOM
FOR SHAREHOLDER AND 333 West Wacker Drive
DEALER INQUIRIES THROUGH Chicago, IL 60606
TELECOMMUNICATIONS
DEVICE FOR THE DEAF (TDD) Independent Auditors
DIAL (800) 772-8889 KPMG PEAT MARWICK LLP
Peat Marwick Plaza
FOR AUTOMATED TELEPHONE 303 East Wacker Drive
SERVICES DIAL (800) 421-5666 Chicago, IL 60601
</TABLE>
<PAGE> 128
GROWTH FUND
------------------------------------------------------------------------------
P R O S P E C T U S
, 1995
------ A WEALTH OF KNOWLEDGE o A KNOWLEDGE OF WEALTH ------
VAN KAMPEN AMERICAN CAPITAL
- ------------------------------------------------------------------------------
<PAGE> 129
STATEMENT OF ADDITIONAL INFORMATION
VAN KAMPEN AMERICAN CAPITAL GROWTH FUND
Van Kampen American Capital Growth Fund (the "Fund") seeks capital growth. The
Fund will attempt to achieve this investment objective by investing primarily in
a diversified portfolio of common stocks and other equity securities of growth
companies. Growth companies generally include those companies with established
records of growth in sales or earnings and companies with new products, new
services or new processes that the Fund's investment adviser believes offer
investors in the equity securities of such companies above average potential for
capital growth. There is no assurance that the Fund will achieve its investment
objective. The Fund is a mutual fund whose portfolio is advised by Van Kampen
American Capital Investment Advisory Corp. (the "Adviser"). The Fund is a
separate series of Van Kampen American Capital Equity Trust (the "Trust").
This Statement of Additional Information is not a prospectus but should be
read in conjunction with the Prospectus for the Fund dated , 1995 (the
"Prospectus"). This Statement of Additional Information does not include all of
the information that a prospective investor should consider before purchasing
shares of the Fund, and investors should obtain and read the Prospectus prior to
purchasing shares. A copy of the Prospectus may be obtained without charge by
calling (800) 421-5666. This Statement of Additional Information incorporates by
reference the entire Prospectus.
The Prospectus and this Statement of Additional Information omit certain of
the information contained in the registration statement filed with the
Securities and Exchange Commission, Washington, D.C. These items may be obtained
from the Commission upon payment of the fee prescribed, or inspected at the
Commission's office at no charge.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Fund and the Trust............................................................... B-2
Investment Policies and Restrictions................................................. B-2
Additional Investment Considerations................................................. B-4
Description of Securities Ratings.................................................... B-11
Officers and Trustees................................................................ B-18
Legal Counsel........................................................................ B-23
Investment Advisory and Other Services............................................... B-23
Portfolio Transactions and Brokerage Allocation...................................... B-24
Tax Status of the Fund............................................................... B-25
The Distributor...................................................................... B-25
Performance Information.............................................................. B-26
</TABLE>
THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED , 1995.
B-1
<PAGE> 130
THE FUND AND THE TRUST
The Fund is a separate diversified series of the Trust, an open-end management
investment company. At present, the Fund, Van Kampen American Capital Utility
Fund, Van Kampen American Capital Balanced Fund, Van Kampen American Capital
Value Fund, Van Kampen American Capital Growth Fund, Van Kampen American Capital
Great American Companies Fund, and Van Kampen American Capital Prospector Fund
are the only series of the Trust, although other series may be organized and
offered in the future.
The Trust is an unincorporated business trust established under the laws of
the State of Delaware by an Agreement and Declaration of Trust dated May 10,
1995 (the "Declaration of Trust"). The Declaration of Trust permits the Trustees
to create one or more separate investment portfolios and issue a series of
shares, $0.01 par value, for each portfolio. The Trustees can further sub-divide
each series of shares into one or more classes of shares for each portfolio.
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 Trust was originally organized in
1986 as a Massachusetts business trust, and reorganized as a Delaware business
trust as of July 31, 1995.
Shares of the Trust entitle their holders to one vote per share; however,
separate votes are taken by each series on matters affecting an individual
series. For example, a change in investment policy for a series would be voted
upon by shareholders of only the series involved. Shares do not have cumulative
voting rights, preemptive rights or any conversion or exchange rights. The Trust
does not contemplate holding regular meetings of shareholders to elect Trustees
or otherwise. However, the holders of 10% or more of the outstanding shares may
by written request require a meeting to consider the removal of Trustees by a
vote of a majority of the shares present and voting at such meeting. The Trust
will assist such holders in communicating with other shareholders of the Fund to
the extent required by the Investment Company Act of 1940 (the "1940 Act").
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.
INVESTMENT POLICIES AND RESTRICTIONS
The investment objective of the Fund is set forth in the Prospectus under the
caption "Investment Objective and Policies." There can be no assurance that the
Fund will achieve its investment objective.
Fundamental investment restrictions limiting the investments of the Fund
provide that the Fund may not:
1. Purchase any securities (other than obligations issued or guaranteed by
the United States Government or by its 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, such 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. Neither limitation
shall apply to the acquisition of shares of other open-end investment
companies to the extent permitted by rule or order of
B-2
<PAGE> 131
the Securities and Exchange Commission exempting the Fund from the
limitations imposed by Section 12(d)(1) of the 1940 Act.
2. Invest more than 25% of its assets in a single industry, provided,
however, that this limitation excludes shares of other open-end investment
companies owned by the Fund but includes the Fund's pro rata portion of
the securities and other assets owned by any such company. (Neither the
U.S. Government nor any of its agencies or instrumentalities will be
considered an industry for purposes of this restriction.)
3. Issue senior securities, borrow money from banks or enter into reverse
repurchase agreements with banks in the aggregate in excess of 33 1/3% of
the Fund's total assets (after giving effect to any such borrowing); which
amount excludes no more than 5% in borrowings and reverse repurchase
agreements with any entity for temporary purposes. The Fund will not
mortgage, pledge or hypothecate any assets other than in connection with
issuances of senior securities, borrowings, delayed delivery and when
issued transactions and strategic transactions.
4. Make loans of money or property to any person, except (i) to the extent
the securities in which the Fund may invest are considered to be loans,
(ii) through the loan of portfolio securities, and (iii) to the extent
that the Fund may lend money or property in connection with maintenance of
the value of, or the Fund's interest with respect to, the securities owned
by the Fund.
5. Sell any securities "short," unless at all times when a short position is
open the Fund owns an equal amount of the securities or of securities
convertible into, or exchangeable without further consideration for,
securities of the same issue as the securities sold short.
6. 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.
7. Make investments for the purpose of exercising control or participation in
management, except to the extent that exercise by the Fund of its rights
under agreements related to portfolio securities would be deemed to
constitute such control or participation.
8. Invest in securities of other investment companies, except as part of a
merger, consolidation or other acquisition, except as permitted under the
1940 Act and except to the extent permitted by rule or order of the
Securities and Exchange Commission exempting the Fund from the limitations
imposed by Section 12(d)(1) of the 1940 Act.
9. Invest in interests in oil, gas, or other mineral exploration or
development programs, except pursuant to the exercise by the Fund of its
rights under agreements relating to portfolio securities.
10. Purchase or sell real estate, commodities or commodity contracts, except
to the extent that the securities that the Fund may invest in are
considered to be interests in real estate, commodities or commodity
contracts or to the extent the Fund exercises its rights under agreements
relating to portfolio securities (in which case the Fund may liquidate
real estate acquired as a result of a default on a mortgage), and except
to the extent that Strategic Transactions the Fund may engage in are
considered to be commodities or commodities contracts.
For purposes of the concentration policy of the Fund contained in limitation
(2) above, the Fund intends to comply with the SEC staff position that
securities issued or guaranteed as to principal and interest by any one single
foreign government, or by all supranational organizations in the aggregate, are
considered to be securities of issuers in the same industry.
The Fund may not change any of these investment restrictions nor any other
fundamental policy as they apply to the Fund without the approval of the lesser
of (i) more than 50% of the Fund's outstanding shares or (ii) 67% of the Fund's
shares present at a meeting at which the holders of more than 50% of the
outstanding shares are present in person or by proxy. As long as the percentage
restrictions described above are satisfied at the time of the investment or
borrowing, the Fund will be considered to have abided by those restrictions even
if, at a later time, a change in values or net assets causes an increase or
decrease in percentage beyond that allowed.
B-3
<PAGE> 132
The Fund may invest up to 15% of its total assets in illiquid securities,
securities the disposition of which is subject to substantial legal or
contractual restrictions on resale and securities that are not readily
marketable. The sale of restricted and illiquid securities often requires more
time and results in higher brokerage charges or dealer discounts and other
selling expenses than does the sale of securities eligible for trading on
national securities exchanges or in the over-the-counter markets. Restricted
securities may sell at a price lower than similar securities that are not
subject to restrictions on resale. Restricted securities salable among qualified
institutional buyers without restriction pursuant to Rule 144A under the
Securities Act of 1933 that are determined to be liquid by the Adviser under
guidelines adopted by the Board of Trustees of the Trust (under which guidelines
the Adviser will consider factors such as trading activities and the
availability of price quotations), will not be treated as restricted securities
by the Fund pursuant to such rules. This limitation excludes shares of other
open-end investment companies owned by the Fund but includes the Fund's pro rata
portion of the securities and other assets owned by any such company. The Fund
may, from time to time, adopt a more restrictive limitation with respect to
investment in illiquid and restricted securities in order to comply with the
most restrictive state securities law, currently 10%. This policy does not
include restricted securities eligible for resale pursuant to Rule 144A under
the Securities Act of 1933, as amended, which the Board of Trustees or the
Fund's investment adviser has determined under Board-approved guidelines to be
liquid. The Fund's policy with respect to investment in illiquid and restricted
securities is not a fundamental policy and may be changed by the Board of
Trustees, in consultation with the adviser, without obtaining shareholder
approval.
From time to time the Fund may commit to more stringent restrictions in order
to be able to offer its shares to residents in particular states.
ADDITIONAL INVESTMENT CONSIDERATIONS
BORROWING
The Fund may borrow up to 33 1/3% of the value of its total assets from banks,
(including entering into reverse repurchase agreements) which amount excludes no
more than 5% in borrowings and reverse repurchase agreements with any entity for
temporary purposes. The Fund has no current intention to borrow money other than
for temporary purposes.
Borrowing by the Fund creates an opportunity for increased net income but, at
the same time, creates special risk considerations such as potential changes in
the net asset value of the Shares and in the yield on the Fund's portfolio.
Although the principal of such borrowings will be fixed, the Fund's assets may
change in value during the time the borrowing is outstanding. Borrowing will
create interest expenses for the Fund which can exceed the income from the
assets retained. To the extent the income derived from securities purchased with
borrowed funds exceeds the interest the Fund will have to pay, the Fund's net
income will be greater than if borrowing were not used. Conversely, if the
income from the assets retained with borrowed funds is not sufficient to cover
the cost of borrowing, the net income of the Fund will be less than if borrowing
were not used, and therefore the amount available for distribution to
shareholders as dividends will be reduced.
STRATEGIC TRANSACTIONS
The Fund may, but is not required to, utilize various other investment
strategies as described below. Such strategies are generally accepted by modern
portfolio managers and are regularly utilized by many mutual funds and other
institutional investors. Techniques and instruments may change over time as new
instruments and strategies are developed or regulatory changes occur.
In the course of pursuing these investment strategies, the Fund may purchase
and sell derivative instruments such as exchange-listed and over-the-counter put
and call options on securities, equity and fixed-income indices and other
financial instruments and purchase and sell financial futures contracts and
options thereon and enter into various currency transactions such as currency
forward contracts, currency futures contracts, currency swaps and options on
currencies or currency futures, (collectively, all the above are called
"Strategic Transactions"). Strategic Transactions may be used to attempt to
protect against possible changes in the market value of securities held in or to
be purchased for the Fund's portfolio resulting from securities
B-4
<PAGE> 133
markets fluctuations, to protect the Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to protest against changes in currency exchange rates, or to establish
a position in the derivatives markets as a temporary substitute for purchasing
or selling particular securities.
Any or all of these investment techniques may be used at any time and there is
no particular strategy that dictates the use of one technique rather than
another, as use of any Strategic Transaction is a function of numerous variables
including market conditions. The ability of the Fund to utilize these Strategic
Transactions successfully will depend on the Adviser's ability to predict
pertinent market movements, which cannot be assured. The Fund will comply with
applicable regulatory requirements when implementing these strategies,
techniques and instruments.
Strategic Transactions have risks associated with them including possible
default by the other party to the transaction, illiquidity and, to the extent
the Adviser's view as to certain market movements is incorrect, the risk that
the use of such Strategic Transactions could result in losses greater than if
they had not been used. Use of put and call options may result in losses to the
Fund, force the sale or purchase of portfolio securities at inopportune times or
for prices other than current market values, limit the amount of appreciation
the Fund can realize on its investments or cause the Fund to hold a security it
might otherwise sell. The use of currency transactions can result in the Fund
incurring losses as a result of a number of factors including the imposition of
exchange controls, suspension of settlements or the inability to deliver or
receive a specified currency. The use of options and futures transactions
entails certain other risks. In particular, the variable degree of correlation
between price movements of futures contracts and price movements in the related
portfolio position of the Fund creates the possibility that losses on the
hedging instrument may be greater than gains in the value of the Fund's
position. In addition, futures and options markets may not be liquid in all
circumstances and certain over-the-counter options may have no markets. As a
result, in certain markets, the Fund might not be able to close out a
transaction without incurring substantial losses, if at all. Although the use of
futures and options transactions for hedging should tend to minimize the risk of
loss due to a decline in the value of the hedged position, at the same time they
tend to limit any potential gain which might result from an increase in value of
such position. Finally, the daily variation margin requirements for futures
contracts would create a greater ongoing potential financial risk than would
purchases of options, where the exposure is limited to the cost of the initial
premium. Losses resulting from the use of Strategic Transactions would reduce
net asset value, and possibly income, and such losses can be greater than if the
Strategic Transactions had not been utilized. Income earned or deemed to be
earned, if any, by the Fund from its Strategic Transactions will generally be
taxable income of the Fund. See "Tax Status" in the Prospectus.
GENERAL CHARACTERISTICS OF OPTIONS. Put options and call options typically
have similar structural characteristics and operational mechanics regardless of
the underlying instrument on which they are purchased or sold. Thus, the
following general discussion relates to each of the particular types of options
discussed in greater detail below. In addition, many Strategic Transactions
involving options require segregation of Fund assets in special accounts, as
described below under "Use of Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a premium, the
right to sell, and the writer the obligation to buy, the underlying security,
commodity, index, or other instrument at the exercise price. For instance, the
Fund's purchase of a put option on a security might be designed to protect its
holdings in the underlying instrument (or, in some cases, a similar instrument)
against a substantial decline in the market value by giving the Fund the right
to sell such instrument at the option exercise price. A call option, upon
payment of a premium, gives the purchaser of the option the right to buy, and
the seller the obligation to sell, the underlying instrument at the exercise
price. The Fund's purchase of a call option on a security, financial future,
index, or other instrument might be intended to protect the Fund against an
increase in the price of the underlying instrument that it intends to purchase
in the future by fixing the price at which it may purchase such instrument. An
American style put or call option may be exercised at any time during the option
period while a European style put or call option may be exercised only upon
expiration or during a fixed period prior thereto. The Fund is authorized to
purchase and sell exchange listed options and over-the-counter options ("OTC
options"). Exchange listed options are issued by a regulated intermediary such
as the Options Clearing Corporation ("OCC"), which guarantees the performance of
the obligations of the parties to such
B-5
<PAGE> 134
options. The discussion below uses the OCC as a paradigm, but is also applicable
to other financial intermediaries.
With certain exceptions, OCC issued and exchange listed options generally
settle by physical delivery of the underlying security or currency, although in
the future cash settlement may become available. Index options are cash settled
for the net amount, if any, by which the option is "in-the-money" (i.e., where
the value of the underlying instrument exceeds, in the case of a call option, or
is less than, in the case of a put option, the exercise price of the option) at
the time the option is exercised. Frequently, rather than taking or making
delivery of the underlying instrument through the process of exercising the
option, listed options are closed by entering into offsetting purchase or sale
transactions that do not result in ownership of the new option.
The Fund's ability to close out its position as a purchaser or seller of an
OCC or exchange listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the absence of a
liquid option market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the
OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to
handle current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours during
which the underlying financial instruments are traded. To the extent that the
option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Fund will only sell OTC options that are subject to a buy-back provision
permitting the Fund to require the Counterparty to sell the option back to the
Fund at a formula price within seven days. The Fund expects generally to enter
into OTC options that have cash settlement provisions, although it is not
required to do so.
Unless the parties provide for it, there is no central clearing or guaranty
function in an OTC option. As a result, if the Counterparty fails to make or
take delivery of the security, or other instrument underlying an OTC option it
has entered into with the Fund or fails to make a cash settlement payment due in
accordance with the terms of that option, the Fund will lose any premium it paid
for the option as well as any anticipated benefit of the transaction.
Accordingly, the Adviser must assess the creditworthiness of each such
Counterparty or any guarantor or credit enhancement of the Counterparty's credit
to determine the likelihood that the terms of the OTC option will be satisfied.
The Fund will engage in OTC option transactions only with United States
government securities dealers recognized by the Federal Reserve Bank of New York
as "primary dealers", or broker dealers, domestic or foreign banks or other
financial institutions which have received (or the guarantors of the obligation
of which have received) a short-term credit rating of "A-1" from Standard &
Poor's Ratings Group ("S&P") or "P-1" from Moody's Investor Services, Inc.
("Moody's") or an equivalent rating from any other nationally recognized
statistical rating organization ("NRSRO"). The staff of the SEC currently takes
the position that, in general, OTC options on securities other than U.S.
Government securities purchased by the Fund, and portfolio securities "covering"
the amount of the Fund's obligation pursuant to an OTC option sold by it (the
cost of the sell-back plus the in-the-money amount, if any) are illiquid, and
are subject to the Fund's limitation on investing no more than 15% of its assets
in illiquid securities.
If the Fund sells a call option, the premium that it receives may serve as a
partial hedge, to the extent of the option premium, against a decrease in the
value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.
B-6
<PAGE> 135
The Fund may purchase and sell call options on securities, including U.S.
Treasury and agency securities, municipal obligations, mortgage-backed
securities, corporate debt securities, equity securities (including convertible
securities) that are traded on U.S. and foreign securities exchanges and in the
over-the-counter markets. All calls sold by the Fund must be "covered" (i.e.,
the Fund must own the securities or futures contract subject to the call) or
must meet the asset segregation requirements described below as long as the call
is outstanding. Even though the Fund will receive the option premium to help
protect it against loss, a call sold by the Fund exposes the Fund during the
term of the option to possible loss of opportunity to realize appreciation in
the market price of the underlying security or instrument and may require the
Fund to hold a security or instrument which it might otherwise have sold. In
selling calls on securities not owned by the Fund, the Fund may be required to
acquire the underlying security at a disadvantageous price in order to satisfy
its obligations with respect to the call.
The Fund may purchase and sell put options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, municipal
obligations, corporate debt securities, equity securities (including convertible
securities) (whether or not it holds the above securities in its portfolio) and
on securities indices, currencies and futures contracts other than futures or
individual corporate debt and individual equity securities. The Fund will not
sell put options if, as a result, more than 50% of the Fund's assets would be
required to be segregated to cover its potential obligations under such put
options other than those with respect to futures and options thereon. In selling
put options, there is a risk that the Fund may be required to buy the underlying
security at a disadvantageous price above the market price.
GENERAL CHARACTERISTICS OF FUTURES. The Fund may enter into financial futures
contracts or purchase or sell put and call options on such futures as a hedge
against anticipated interest rate, currency, equity or fixed-income market
changes and for risk management purposes. Futures are generally bought and sold
on the commodities exchanges where they are listed with payment of initial and
variation margin as described below. The purchase of a futures contract creates
a firm obligation by the Fund, as purchaser, to take delivery from the seller
the specific type of financial instrument called for in the contract at a
specific future time for a specified price (or, with respect to index futures,
the net cash amount). The sale of a futures contract creates a firm obligation
by the Fund, as seller, to deliver to the buyer the specific type of financial
instrument called for in the contract at a specific future time for a specified
price (or, with respect to index futures, the net cash amount). Options on
futures contracts are similar to options on securities except that an option on
a futures contract gives the purchaser the right in return for the premium paid
to assume a position in a futures contract and obligates the seller to deliver
such option.
The Fund's use of financial futures and options thereon will in all cases be
consistent with applicable regulatory requirements and in particular the rules
and regulations of the Commodity Futures Trading Commission. Typically,
maintaining a futures contract or selling an option thereon requires the Fund to
deposit with a financial intermediary as security for its obligations an amount
of cash or other specified assets (initial margin) which initially is typically
1% to 10% of the face amount of the contract (but may be higher in some
circumstances). Additional cash or assets (variation margin) may be required to
be deposited thereafter on a daily basis as the mark to market value of the
contract fluctuates. The purchase of options on financial futures involves
payment of a premium for the option without any further obligation on the part
of the Fund. If the Fund exercises an option on a futures contract it will be
obligated to post initial margin (and potential subsequent variation margin) for
the resulting futures position just as it would for any position. Futures
contracts and options thereon are generally settled by entering into an
offsetting transaction but there can be no assurance that the position can be
offset prior to settlement at an advantageous price nor that delivery will
occur.
The Fund will not enter into a futures contract or related option (except for
closing transactions) if, immediately thereafter, the sum of the amount of its
initial margin and premiums on open futures contracts and options thereon would
exceed 5% of the Fund's total assets (taken at current value); however, in the
case of an option that is in-the-money at the time of the purchase, the
in-the-money amount may be excluded in calculating the 5% limitation. Certain
state securities laws to which the Fund may be subject may further restrict the
Fund's ability to engage in transactions in futures contracts and related
options. The segregation requirements with respect to futures contracts and
options thereon are described herein.
B-7
<PAGE> 136
OPTIONS ON SECURITIES INDICES AND OTHER FINANCIAL INDICES. The Fund also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement, i.e., an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the index
upon which the option is based exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option (except if, in the case
of an OTC option, physical delivery is specified). This amount of cash is equal
to the excess of the closing price of the index over the exercise price of the
option, which also may be multiplied by a formula value. The seller of the
option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.
The Fund also may invest in foreign stock index futures traded outside the
United States. Foreign stock index futures traded outside the United States
include the Nikkei Index of 225 Japanese stocks traded on the Singapore
International Monetary Exchange ("Nikkei Index"), Osaka Index of 50 Japanese
stocks traded on the Osaka Exchange, Financial Times Stock Exchange Index of the
100 largest stocks on the London Stock Exchange, the All Ordinaries Share Price
Index of 307 stocks on the Sydney, Melbourne Exchanges, Hang Seng Index of 33
stocks on the Hong Kong Stock Exchange, Barclays Share Price Index of 40 stocks
on the New Zealand Stock Exchange and Toronto Index of 35 stocks on the Toronto
Stock Exchange. Futures and futures options on the Nikkei Index are traded on
the Chicago Mercantile Exchange and United States commodity exchanges may
develop futures and futures options on other indices of foreign securities.
Futures and options on United States devised index of foreign stocks are also
being developed. Investments in securities of foreign entities and securities
denominated in foreign currencies involve risks not typically involved in
domestic investment, including fluctuations in foreign exchange rates, future
foreign political and economic developments, and the possible imposition of
exchange controls or other foreign or United States governmental laws or
restrictions applicable to such investments.
CURRENCY TRANSACTIONS. The Fund may engage in currency transactions with
Counterparties in order to hedge the value of portfolio holding denominated in
particular currencies against fluctuations in relative value. Currency
transactions include forward currency contracts, exchange listed currency
futures, exchange listed and OTC options on currencies, and currency swaps. A
forward currency contract involves a privately negotiated obligation to purchase
or sell (with delivery generally required) a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract. A currency swap is
an agreement to exchange cash flows based on the notional difference among two
or more currencies and operates similarly to an interest rate swap, which is
described below. The Fund may enter into currency transactions with
Counterparties which have received (or the guarantors of the obligations of such
Counterparties have received) a credit rating of A-1 or P-1 by S&P or Moody's,
respectively, or that have an equivalent rating from an NRSRO or (except for OTC
currency options) are determined to be of equivalent credit quality by the
Adviser.
The Fund's dealings in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps will be
limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is entering into a currency transaction with
respect to specific assets of liabilities of the Fund, which will generally
arise in connection with the purchase or sale of its portfolio securities or the
receipt of income therefrom. Position hedging is entering into a currency
transaction with respect to portfolio security positions denominated or
generally quoted in that currency.
The Fund will not enter into a transaction to hedge currency exposure to an
extent greater, after netting all transactions intended to wholly or partially
offset other transactions, than the aggregate market value (at the time of
entering into the transaction) of the securities held in its portfolio that are
denominated or generally quoted in or currently convertible into such currency
other than with respect to cross hedging and proxy hedging as described below.
B-8
<PAGE> 137
The Fund may cross-hedge currencies by entering into transactions to purchase
or sell one or more currencies that are expected to decline in value relative to
other currencies to which the Fund has or in which the Fund expects to have
portfolio exposure.
To reduce the effect of currency fluctuations on the value of existing or
anticipated holdings of portfolio securities, the Fund may also engage in proxy
hedging. Proxy hedging is often used when the currency to which the Fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering into a forward contract to sell a currency whose
changes in value are generally considered to be linked to a currency or
currencies in which some or all of the Fund's portfolio securities are or are
expected to be denominated, and to buy U.S. dollars. For example, if the Adviser
considers the Austrian schilling is linked to the German deutschemark (the
"D-mark"), the Fund holds securities denominated in schillings and the Adviser
believes that the value of schillings will decline against the U.S. dollar, the
Adviser may enter into a contract to see D-marks and buy dollars. Currency
hedging involves some of the same risks and considerations as other transactions
with similar instruments. Currency transactions can result in losses to the Fund
if the currency being hedged fluctuates in value to a degree or in a direction
that is not anticipated. Further, there is the risk that the perceived linkage
between various currencies may not be present or may not be present during the
particular time that the Fund is engaging in proxy hedging. If the Fund enters
into a currency hedging transaction, the Fund will comply with the asset
segregation requirements described below.
RISK OF CURRENCY TRANSACTIONS. Currency transactions are subject to risks
different from those of other portfolio transactions. Because currency control
is of great importance to the issuing governments and influences economic
planning and policy, purchases and sales of currency and related instruments can
be negatively affected by government exchange controls, blockages, and
manipulations or exchange restrictions imposed by governments. These can result
in losses to the Fund if it is unable to deliver or receive currency or funds in
settlement of obligations and could also cause hedges it has entered into to be
rendered useless, resulting in full currency exposure as well as incurring
transaction costs. Buyers and sellers of currency futures are subject to the
same risks that apply to the use of futures generally. Further, settlement of a
currency futures contract for the purchase of most currencies must occur at a
bank based in the issuing nation. Trading options on currency futures is
relatively new, and the ability to establish and close out positions on such
options is subject to the maintenance of a liquid market which may not always be
available. Currency exchange rates may fluctuate based on factors extrinsic to
that country's economy.
COMBINED TRANSACTIONS. The Fund may enter into multiple transactions,
including multiple options transactions, multiple futures transactions, multiple
currency transactions and multiple interest rate transactions and any
combination of futures, options, currency and interest rate transactions
("component" transactions), instead of a single Strategic Transaction, as part
of a single or combined strategy when, in the opinion of the Adviser, it is in
the best interests of the Fund to do so. A combined transaction will usually
contain elements of risk that are present in each of its component transactions.
Although combined transactions are normally entered into based on the Adviser's
judgment that the combined strategies will reduce risk or otherwise more
effectively achieve the desired portfolio management goal, it is possible that
the combination will instead increase such risks or hinder achievement of the
portfolio management objective.
RISKS OF STRATEGIC TRANSACTIONS OUTSIDE THE UNITED STATES. When conducted
outside the United States, Strategic Transactions may not be regulated as
rigorously as in the United States, may not involve a clearing mechanism and
related guarantee, and are subject to the risk of governmental actions affecting
trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the United States of data on which to make trading
decisions, (iii) delays in the Fund's ability to act upon economic events
occurring in foreign markets during non-business hours in the United States,
(iv) the imposition of different exercise and settlement terms and procedures
and margin requirements than in the United States, and (v) lower trading volume
and liquidity.
USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS. Many Strategic Transactions, in
addition to other requirements, require that the Fund segregate liquid
high-grade assets with its custodian to the extent Fund obligations are not
otherwise "covered" through ownership of the underlying security, financial
instrument or currency. In general, either the full amount of any obligation by
the Fund to pay or deliver securities or assets
B-9
<PAGE> 138
must be covered at all times by the securities, instruments or currency required
to be delivered, or, subject to any regulatory restrictions, an amount of cash
or liquid high-grade securities at least equal to the current amount of the
obligation must be segregated with the custodian. The segregated assets cannot
be sold or transferred unless equivalent assets are substituted in their place
or it is no longer necessary to segregate them. For example, a call option
written by the Fund will require the Fund to hold the securities subject to the
call (or securities convertible into the needed securities without additional
consideration) or to segregate liquid high-grade securities sufficient to
purchase and deliver the securities if the call is exercised. A call option sold
by the Fund on an index will require the Fund to own portfolio securities which
correlate with the index or to segregate liquid high-grade assets equal to the
excess of the index value over the exercise price on a current basis. A put
option written by the Fund requires the Fund to segregate liquid, high-grade
assets equal to the exercise price.
Except when the Fund enters into a forward contract for the purchase or sale
of a security denominated in a particular currency, which requires no
segregation, a currency contract which obligates the Fund to buy or sell
currency will generally require the Fund to hold an amount of that currency or
liquid securities denominated in that currency equal to the Fund's obligations
or to segregate liquid high grade assets equal to the amount of the Fund's
obligation.
OTC options entered into by the Fund, including those on securities,
currencies, financial instruments or indices and OCC issued and exchange listed
index options, will generally provide for cash settlement. As a result, when the
Fund sells these instruments it will only segregate an amount of assets equal to
its accrued net obligations, as there is no requirement for payment or delivery
of amounts in excess of the net amount. These amounts will equal 100% of the
exercise price in the case of a non cash-settled put, the same as an OCC
guaranteed listed option sold by the Fund, or the in-the-money amount plus any
sell-back formula amount in the case of a cash-settled put or call. In addition,
when the Fund sells a call option on an index at a time when the in-the-money
amount exceeds the exercise price, the Fund will segregate, until the option
expires or is closed out, cash or cash equivalents equal in value to such
excess. OCC issued and exchange listed options sold by the Fund other than those
above generally settle with physical delivery, and the Fund will segregate an
amount of assets equal to the full value of the option. OTC options settling
with physical delivery, or with an election of either physical delivery or cash
settlement, will be treated the same as other options settling with physical
delivery.
In the case of a futures contract or an option thereon, the Fund must deposit
initial margin and possible daily variation margin in addition to segregating
assets sufficient to meet its obligation to purchase or provide securities or
currencies, or to pay the amount owed at the expiration of an index-based
futures contract. Such assets may consist of cash, cash equivalents, liquid debt
or equity securities or other acceptable assets. To the extent such assets are
other than cash or cash equivalents, such assets will be marked to market on a
daily basis. To the extent that the Fund segregates assets other than cash or
cash equivalents in connection with the purchase or sale of a futures contract
or the sale of an option thereon, the Fund will be subject to market risks with
respect to the open futures or option position as well as with respect to the
portfolio securities segregated against such position. To the extent that the
market value of such position and of such portfolio securities have a high
degree of positive correlation, market fluctuations may adversely affect both
the value of such position and the value of such portfolio securities, which has
the effect of leveraging the Fund's portfolio assets and increasing the Fund's
investment risk.
Strategic Transactions may be covered by other means when consistent with
applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Strategic
Transactions. For example, the Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund. Moreover, instead of segregating assets if the Fund held a
futures or forward contract, it could purchase a put option on the same futures
or forward contract with a strike price as high or higher than the price of the
contract held. Other Strategic Transactions may also be offset in combinations.
If the offsetting transaction terminates at the time of or after the primary
transaction no segregation is required, but if it terminates prior to such time,
assets equal to any remaining obligation would need to be segregated.
B-10
<PAGE> 139
The Fund's activities involving Strategic Transactions may be limited by the
requirements of Subchapter M of the Code for qualification as a regulated
investment company. See "Tax Status" in the Prospectus.
DESCRIPTION OF SECURITIES RATINGS
STANDARD & POOR'S RATINGS GROUP--A brief description of the applicable
Standard & Poor's Ratings Group (S&P) rating symbols and their meanings (as
published by Standard & Poor's Ratings Group) follows:
1. DEBT
A Standard & Poor's corporate or municipal debt rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. This assessment may take into consideration obligors such as
guarantors, insurers, or lessees.
The debt rating is not a recommendation to purchase, sell, or hold a
security, inasmuch as it does not comment as to market price or suitability
for a particular investor.
The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources it considers reliable. S&P does not perform
an audit in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended, or withdrawn as
a result of changes in, or unavailability of, such information, or based on
other circumstances.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of default--capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with
the terms of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the laws
of bankruptcy and other laws affecting creditor's rights.
INVESTMENT GRADE
AAA: Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A: Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in the higher rated categories.
BBB: Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
SPECULATIVE GRADE
BB, B, CCC, CC, C: Debt rated "BB", "B", "CCC", "CC", and "C" is regarded as
having predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. "BB" indicates the least degree of speculation and
"C" the highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major exposures
to adverse conditions.
BB: Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
B-11
<PAGE> 140
B: Debt rated "B" has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The "B" rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied "BB" or "BB-"
rating.
CCC: Debt rated "CCC" has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The "CCC" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "B" or "B-" rating.
CC: The rating "CC" typically is applied to debt subordinated to senior debt
that is assigned an actual or implied "CCC" rating.
C: The rating "C" typically is applied to debt subordinated to senior debt
which is assigned an actual or implied "CCC-" debt rating. The "C" rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI: The rating "CI" is reserved for income bonds on which no interest is being
paid.
D: Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The "D" rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
c: The letter "c" indicates that the holder's option to tender the security
for purchase may be canceled under certain prestated conditions enumerated in
the tender option documents.
i: The letter "i" indicates the rating is implied. Such ratings are assigned
only on request to entities that do not have specific debt issues to be rated.
In addition, implied ratings are assigned to governments that have not requested
explicit ratings for specific debt issues. Implied ratings on governments
represent the sovereign ceiling or upper limit for ratings on specific debt
issues of entities domiciled in the country.
L: The letter "L" indicates that the rating pertains to the principal amount
of those bonds to the extent that the underlying deposit collateral is federally
insured and interest is adequately collateralized. In the case of certificates
of deposit, the letter "L" indicates that the deposit, combined with other
deposits being held in the same right and capacity, will be honored for
principal and accrued pre-default interest up to the federal insurance limits
within 30 days after closing of the insured institution or, in the event that
the deposit is assumed by a successor insured institution, upon maturity.
p: The letter "p" indicates that the rating is provisional. A provisional
rating assumes the successful completion of the project being financed by the
debt being rated and indicates that payment of debt service requirements is
largely or entirely dependent upon the successful and timely completion of the
project. This rating, however, while addressing credit quality subsequent to
completion of the project, makes no comment on the likelihood of, or the risk of
default upon failure of, such completion. The investor should exercise his own
judgement with respect to such likelihood and risk. The rating is contingent
upon S&P's receipt of an executed copy of the escrow agreement or closing
documents.
NR: Not rated.
DEBT OBLIGATIONS OF ISSUERS OUTSIDE THE UNITED STATES AND ITS TERRITORIES are
rated on the same basis as domestic corporate and municipal issues. The ratings
measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.
BOND INVESTMENT QUALITY STANDARDS: Under present commercial bank regulations
issued by the Comptroller of the Currency, bonds rated in the top four
categories ("AAA", "AA", "A", "BBB", commonly known as "investment grade"
ratings) are generally regarded as eligible for bank investment. In addition,
the laws of
B-12
<PAGE> 141
various states governing legal investments impose certain rating or other
standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.
2. COMMERCIAL PAPER
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt considered short-term in the relevant
market.
Ratings are graded into several categories, ranging from "A-1" for the highest
quality obligations to "D" for the lowest. These categories are as follows:
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+)
designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as
overwhelming as for issues designated "A-1".
A-3 Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher
designations.
B Issues rated "B" are regarded as having only speculative capacity for
timely payment.
C This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date
due, even if the applicable grace period has not expired, unless S&P
believes that such payments will be made during such grace period.
A commercial paper rating is not a recommendation to purchase, sells or hold
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained by S&P from other sources it considers reliable.
S&P does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended or withdrawn as a result of changes in, or unavailability of, such
information, or based on other circumstances.
3. VARIABLE RATE DEMAND BONDS
Standard & Poor's assigns "dual" ratings to all debt issues that have a put or
demand feature as part of their structure.
The first rating addresses the likelihood of repayment of principal and
interest as due, and the second rating addresses only the demand feature. The
long-term debt rating symbols are used for bonds to denote the long-term
maturity and the commercial paper rating symbols for the put option (for
example, "AAA/A-1+"). With short-term demand debt, S&P's note rating symbols are
used with the commercial paper rating symbols (for example, "SP-1+/A-1+").
4. NOTES
An S&P note rating reflects the liquidity factors and market access risks
unique to notes. Notes maturing in three years or less will likely receive a
note rating. Notes maturing beyond three years will most likely receive a
long-term debt rating. The following criteria will be used in making that
assignment:
-- Amortization schedule (the longer the final maturity relative to other
maturities, the more likely the issue is to be treated as a note).
-- Source of payment (the more the issue depends on the market for its
refinancing, the more likely it is to be treated as a note).
B-13
<PAGE> 142
Note rating symbols and definitions are as follows:
SP-1 Strong capacity to pay principal and interest. Issues determined
to possess very strong characteristics will be given a plus (+)
designation.
SP-2 Satisfactory capacity to pay principal and interest with some
vulnerability to adverse financial and economic changes over the
term of the notes.
SP-3 Speculative capacity to pay principal and interest.
5. PREFERRED STOCK
A Standard & Poor's preferred stock rating is an assessment of the capacity
and willingness of an issuer to pay preferred stock dividends and any applicable
sinking fund obligations. A preferred stock rating differs from a bond rating
inasmuch as it is assigned to an equity issue, which issue is intrinsically
different from, and subordinated to, a debt issue. Therefore, to reflect this
difference, the preferred stock rating symbol will normally not be higher than
the debt rating symbol assigned to, or that would be assigned to, the senior
debt of the same issuer.
The preferred stock ratings are based on the following considerations:
1. Likelihood of payment--capacity and willingness of the issuer to meet the
timely payment of preferred stock dividends and any applicable sinking fund
requirements in accordance with the terms of the obligation.
2. Nature of, and provisions of, the issue.
3. Relative position of the issue in the event of bankruptcy, reorganization,
or other arrangements affecting creditors' rights.
<TABLE>
<S> <C>
AAA This is the highest rating that may be assigned by Standard & Poor's to a preferred
stock issue and indicates an extremely strong capacity to pay the preferred stock
obligations.
AA A preferred stock issue rated "AA" also qualifies as a high-quality fixed income
security. The capacity to pay preferred stock obligations is very strong, although
not as overwhelming as for issues rated "AAA".
A An issue rated "A" is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
BBB An issue rated "BBB" is regarded as backed by an adequate capacity to pay the
preferred stock obligations. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity to make payments for a preferred stock in this
category than for issues in the "A" category.
BB Preferred stock rated "BB", "B", and "CCC" are regarded, on balance, as
B predominantly speculative with respect to the issuer's capacity to pay preferred
CCC stock obligations. "BB" indicates the lowest degree of speculation and "CCC" the
highest degree of speculation. While such issues will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
CC The rating "CC" is reserved for a preferred stock issue in arrears on dividends or
sinking fund payments but that is currently paying.
C A preferred stock rated "C" is a non-paying issue.
D A preferred stock rated "D" is a non-paying issue with the issuer in default on
debt instruments.
NR This indicates that no rating has been requested, that there is insufficient
information on which to base a rating or that Standard & Poor's does not rate a
particular type of obligation as a matter of policy.
PLUS (+) or MINUS (-): To provide more detailed indications of preferred stock
quality, the rating from "AA" to "CCC" may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
</TABLE>
B-14
<PAGE> 143
A preferred stock rating is not a recommendation to purchase, sell, or hold a
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the Issuer or obtained by S&P from other sources it considers reliable.
S&P does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended, or withdrawn as a result of changes in, or unavailability of, such
information, or based on other circumstances.
MOODY'S INVESTORS SERVICE -- A brief description of the applicable Moody's
Investors Service rating symbols and their meanings (as published by Moody's
Investor Service) follows:
1. LONG-TERM DEBT
Aaa: Bonds which are rated Aaa are judged to be of 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 position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the 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 fluctuation 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 Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payment and
principal security appear adequate for the present but
certain protective elements may by lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from AA through B in its corporate bond rating system. 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.
ABSENCE OF RATING: Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue.
B-15
<PAGE> 144
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published
in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
2. SHORT-TERM DEBT
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations which have an original maturity not
exceeding one year. Obligations relying upon support mechanisms such as
letters-of-credit and bonds of indemnity are excluded unless explicitly rated.
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:
Issuers rated Prime-1 (or supporting institutions) have a superior ability for
repayment of senior short-term debt obligations. Prime-1 repayment ability will
often be evidenced by many of the following characteristics:
-- Leading market positions in well-established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
-- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability for
repayment of senior short-term debt obligations. This will normally be evidenced
by many of the characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or supporting institutions) have an acceptable ability
for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternative liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
3. PREFERRED STOCK
Preferred stock rating symbols and their definitions are as follows:
aaa: An issue which is rated 'aaa' is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least
risk of dividend impairment within the universe of preferred stocks.
aa: An issue which is rated 'aa' is considered a high-grade preferred stock.
This rating indicates that there is a reasonable assurance the earnings and
asset protection will remain relatively well maintained in the foreseeable
future.
a: An issue which is rated 'a' is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the
'AAA' and 'AA' classifications, earnings and asset protections are,
nevertheless, expected to be maintained at adequate levels.
baa: An issue which is rated 'baa' is considered to be a medium grade
preferred stock, neither highly protected nor poorly secured. Earnings and
asset protection appear adequate at present but may be questionable over any
great length of time.
B-16
<PAGE> 145
ba: An issue which is rated 'ba' is considered to have speculative elements
and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse
periods. Uncertainty of position characterizes preferred stocks in this class.
b: An issue which is rated 'b' generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
caa: An issue which is rated 'caa' is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future
status of payments.
ca: An issue which is rated 'ca' is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of eventual
payment.
c: This is the lowest rated class of preferred or preference stock. Issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Moody's applies numerical modifiers 1, 2 and 3 in each rating classification
from "AA" through "BB" in its preferred stock rating system: 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.
B-17
<PAGE> 146
OFFICERS AND TRUSTEES
The tables below list the trustees and officers of the Trust (of which the
Fund is a separate series) and their principal occupations for the last five
years and their affiliations, if any, with Van Kampen American Capital
Investment Advisory Corp. (the "VK Adviser" or "Adviser"), Van Kampen American
Capital Asset Management, Inc., (the "AC Adviser"), Van Kampen American Capital
Management, Inc., McCarthy, Crisanti & Maffei, Inc., MCM Asia Pacific Company,
Limited, Van Kampen American Capital Distributors, Inc. (the "Distributor"), Van
Kampen American Capital, Inc. ("Van Kampen American Capital") or VK/AC Holding,
Inc. For purposes hereof, the term "Van Kampen American Capital Funds" includes
each of the open-end investment companies advised by the VK Adviser (excluding
the Van Kampen Merritt Series Trust) and each of the open-end investment
companies advised by the AC Adviser.
TRUSTEES
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- ----------------------------------- ---------------------------------------------------------
<S> <C>
J. Miles Branagan.................. Co-founder, Chairman, Chief Executive Officer and
2300 205th Street President of MDT Corporation, a company which develops
Torrance, CA 90501 manufactures, markets and services medical and scientific
Age: 63 equipment. Trustee of each of the Van Kampen American
Capital Funds.
Philip P. Gaughan.................. Prior to February, 1989, Managing Director and Manager of
9615 Torresdale Avenue Municipal Bond Department, W. H. Newbold's Sons & Co.
Philadelphia, PA 19114 Trustee of each of the Van Kampen American Capital Funds.
Age: 66
Linda Hutton Heagy................. Managing Partner, Paul Ray Berndston, as executive
10 South Riverside Plaza recruiting and management consulting firm. Formerly,
Suite 720 Executive Vice President of ABN AMRO, N.A., a Dutch bank
Chicago, IL 60606 holding company. Prior to 1992, Executive Vice President
Age: 46 of La Salle National Bank. A Trustee of each of the Van
Kampen American Capital Funds.
Roger Hilsman...................... Professor of Government and International Affairs
251-1 Hamburg Cove Emeritus, Columbia University. Trustee of each of the Van
Lyme, CT 06371 Kampen American Capital Funds.
Age: 75
R. Craig Kennedy................... President and Director, German Marshall Fund of the
1341 E. 50th Street United States. Formerly, advisor to the Dennis Trading
Chicago, IL 60615 Group Inc. Prior to 1992, President and Chief Executive
Age: 43 Officer, Director and member of the Investment Committee
of the Joyce Foundation, a private foundation. Trustee of
each of the Van Kampen American Capital Funds.
Dennis J. McDonnell*............... President, Chief Operating Officer and a Director of the
One Parkview Plaza VK Adviser, the AC Adviser and Van Kampen American
Oakbrook Terrace, IL 60181 Capital Management, Inc. Director of VK/AC Holding, Inc,
Age: 53 Van Kampen American Capital, and McCarthy, Crisanti &
Maffei, Inc. Chairman and a Director of MCM Asia Pacific
Company, Ltd. President, Chief Executive Officer and
Trustee of each of the funds advised by the VK Adviser.
Prior to December, 1991, Senior Vice President of Van
Kampen Merritt Inc.
</TABLE>
B-18
<PAGE> 147
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- ----------------------------------- ---------------------------------------------------------
<S> <C>
Donald C. Miller................... Prior to 1992, Director of Royal Group, Inc., a company
415 North Adams in insurance related businesses. Formerly Vice Chairman
Hinsdale, IL 60521 and Director of Continental Illinois National Bank and
Age: 75 Trust Company of Chicago and Continental Illinois
Corporation. Trustee of each of the Van Kampen American
Capital Funds and Chairman of the Board of each of the
open-end funds (except the Van Kampen Merritt Series
Trust) advised by the VK Adviser.
Jack E. Nelson..................... President of Nelson Investment Planning Services, Inc., a
423 Country Club Drive financial planning company and registered investment
Winter Park, FL 32789 adviser. President of Nelson Investment Brokerage
Age: 59 Services Inc., a member of the National Association of
Securities Dealers, Inc. (NASD) and Securities Investors
Protection Corp. (SIPC). Trustee of each of the Van
Kampen American Capital Funds.
Don G. Powell*..................... President, Chief Executive Officer and a Director of
2800 Post Oak Blvd. VK/AC Holding, Inc. and Van Kampen American Capital.
Houston, TX 77056 Chairman, Chief Executive Officer and a Director of the
Age: 55 Distributor, the VK Adviser, the AC Adviser and Van
Kampen American Capital Management, Inc. Director,
President and Chief Executive Officer of Van Kampen
American Capital Advisers, Inc. and Van Kampen American
Capital Exchange Corp. Director and Executive Vice
President of Advantage Capital Corporation, ACCESS
Investor Services, Inc., Van Kampen American Capital
Services, Inc. and Van Kampen American Capital Trust
Company. Director of McCarthy, Crisanti & Maffei, Inc.
President and Director, Trustee or Managing General
Partner of each of the funds advised by the AC Adviser
and Trustee of each of the funds advised by the VK
Adviser. He is also Chairman of the Board of the Van
Kampen Merritt Series Trust and closed-end investment
companies advised by the VK Adviser.
David Rees......................... Contributing Columnist and, prior to 1995, Senior Editor
1601 Country Club Drive of Los Angeles Business Journal. A director of Source
Glendale, CA 91208 Capital, Inc., a closed-end investment company
Age: 71 unaffiliated with Van Kampen American Capital, a director
and the second vice president of International Institute
of Los Angeles. Trustee of each of the Van Kampen
American Capital Funds.
Jerome L. Robinson................. President of Robinson Technical Products Corporation, a
115 River Road manufacturer and processor of welding alloys, supplies
Edgewater, NJ 07020 and equipment. Director of Pacesetter Software, a
Age: 72 software programming company specializing in white collar
productivity. Director of Panasia Bank. Trustee of each
of the Van Kampen American Capital Funds.
Lawrence J. Sheehan*............... Of Counsel to and formerly Partner (from 1969 to 1994) of
1999 Avenue of the Stars the law firm of O'Melveny & Myers, legal counsel to the
Suite 700 funds advised by the AC Adviser. Director, FPA Capital
Los Angeles, CA 90067 Fund, Inc.; FPA New Income Fund, Inc.; FPA Perennial
Age: 63 Fund, Inc.; Source Capital, Inc.; and TCW Convertible
Security Fund, Inc. Trustee of each of the Van Kampen
American Capital Funds.
</TABLE>
B-19
<PAGE> 148
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- ----------------------------------- ---------------------------------------------------------
<S> <C>
Fernando Sisto..................... George M. Bond Chaired Professor and, prior to 1995, Dean
Stevens Institute of Graduate School and Chairman, Department of Mechanical
of Technology Engineering, Stevens Institute of Technology. Director of
Castle Point Station Dynalysis of Princeton, a firm engaged in engineering
Hoboken, NJ 07030 research. Trustee of each of the Van Kampen American
Age: 70 Capital Funds and Chairman of the Board of each of the
open-end funds advised by the AC Adviser.
Wayne W. Whalen*................... Partner in the law firm of Skadden, Arps, Slate, Meagher
333 West Wacker Drive & Flom, legal counsel to funds advised by the VK Adviser.
Chicago, IL 60606 Trustee of each of the Van Kampen American Capital Funds.
Age: 55 He also is a Trustee of the Van Kampen Merritt Series
Trust and closed-end investment companies advised by the
VK Adviser.
William S. Woodside................ Vice Chairman of the Board of LSG Sky Chefs, Inc., a
712 Fifth Avenue caterer of airline food. Formerly, Director of Primerica
40th Floor Corporation (currently known as The Traveler's Inc.).
New York, NY 10019 Formerly, Director of James River Corporation, a producer
Age: 73 of paper products. Trustee, and former President of
Whitney Museum of American Art. Formerly, Chairman of
Institute for Educational Leadership, Inc., Board of
Visitors, Graduate School of The City University of New
York, Academy of Political Science. Trustee of Committee
for Economic Development. Director of Public Education
Fund Network, Fund for New York City Public Education.
Trustee of Barnard College. Member of Dean's Council,
Harvard School of Public Health. Member of Mental Health
Task Force, Carter Center. Trustee of each of the Van
Kampen American Capital Funds.
</TABLE>
OFFICERS
<TABLE>
<CAPTION>
POSITIONS AND OTHER PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND IN PAST 5 YEARS
- --------------------- -------------------------- ---------------------------------------------
<S> <C> <C>
Peter W. Hegel....... Vice President Executive Vice President and Portfolio
Age: 39 Manager of the Adviser. Executive Vice
President of the AC Adviser. Vice President
of each of the Van Kampen American Capital
Funds and closed-end funds advised by the VK
Adviser.
Ronald A. Nyberg..... Vice President and Executive Vice President, General Counsel and
Age: 42 Secretary Secretary of Van Kampen American Capital.
Executive Vice President and a Director of
the VK Adviser and the Distributor. Executive
Vice President of the AC Adviser. Vice
President and Secretary of each of the Van
Kampen American Capital Funds and closed-end
funds advised by the VK Adviser. Director of
ICI Mutual Insurance Co., a provider of
insurance to members of the Investment
Company Institute. Prior to March 1990,
Secretary of Van Kampen Merritt Inc., the VK
Adviser and McCarthy, Crisanti & Maffei, Inc.
Edward C. Wood III... Vice President, Treasurer Senior Vice President of the VK Adviser. Vice
Age: 39 and Chief Financial President, Treasurer and Chief Financial
Officer Officer of each of the Van Kampen American
Capital Funds and closed-end funds advised by
the VK Adviser.
</TABLE>
B-20
<PAGE> 149
<TABLE>
<CAPTION>
POSITIONS AND OTHER PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND IN PAST 5 YEARS
- --------------------- -------------------------- ---------------------------------------------
<S> <C> <C>
Nicholas Dalmaso..... Assistant Secretary Assistant Vice President and Attorney of Van
Age: 30 Kampen American Capital. Assistant Secretary
of each of the Van Kampen American Capital
Funds and closed-end funds advised by the VK
Adviser. Prior to May 1992, attorney for
Cantwell & Cantwell, a Chicago law firm.
Scott E. Martin...... Assistant Secretary Senior Vice President, Deputy General Counsel
Age: 38 and Assistant Secretary of Van Kampen
American Capital. Senior Vice President,
Deputy General Counsel and Secretary of the
VK Adviser and the Distributor. Assistant
Secretary of each of the Van Kampen American
Capital Funds and closed-end funds advised by
the VK Adviser.
Weston B. Wetherell... Assistant Secretary Vice President, Associate General Counsel and
Age: 39 Assistant Secretary of Van Kampen American
Capital, the VK Adviser and the Distributor.
Assistant Secretary of McCarthy, Crisanti &
Maffei, Inc. Assistant Secretary of each of
the Van Kampen American Capital Funds and
closed-end funds advised by the VK Adviser.
John L. Sullivan..... Controller First Vice President of the VK Adviser.
Age: 39 Controller of each of the Van Kampen American
Capital Funds and closed-end funds advised by
the VK Adviser.
Steven M. Hill....... Assistant Treasurer Assistant Vice President of the VK Adviser.
Age: 30 Assistant Treasurer of each of the Van Kampen
American Capital Funds and closed-end funds
advised by the VK Adviser.
</TABLE>
- ---------------
* Such Trustees are "interested persons" (within the meaning of Section 2(a)(19)
of the 1940 Act). Messrs. Powell and McDonnell are interested persons of the
VK Adviser and the Fund by reason of their positions with the VK Adviser. Mr.
Sheehan is an interested person of the VK Adviser and the Fund by reason of
his firm having acted as legal counsel to the VK Adviser. Mr. Whalen is an
interested person of the Fund by reason of his firm acting as legal counsel
for the Fund.
Messrs. Powell and McDonnell own, or have the opportunity to purchase, an
equity interest in VK/AC Holding, Inc., the parent company of Van Kampen
American Capital, and have entered into employment contracts (for a term of five
years) with Van Kampen American Capital.
The Fund will pay each trustee who is not an affiliated person of the VK
Adviser, the Distributor or Van Kampen American Capital an annual retainer of
$2,500 per year and $250 per meeting of the Fund, plus expenses; except that no
trustee shall receive the annual retainer at any time when the Fund's net assets
are less than $25,000,000. Under the Fund's deferred compensation plan, a
trustee can elect to defer all or a portion of the trustee's fees earned by such
trustee until such trustee's retirement. The deferred compensation earns a rate
of return determined by reference to the Fund or other Van Kampen American
Capital mutual funds advised by the VK Adviser or its affiliates as selected by
the trustee. To the extent permitted by the 1940 Act, the Fund may invest in
securities of such mutual funds selected by the 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 Fund's retirement plan, a trustee who is
receiving trustee's fees from the Fund prior to such trustee's retirement, has
at least ten years of service 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 trustee's retirement. Under certain conditions,
reduced benefits are available for early retirement. Each series of the Trust
has similar trustee compensation, deferred compensation and retirement plan
arrangements.
B-21
<PAGE> 150
COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT TOTAL COMPENSATION
AGGREGATE BENEFITS ACCRUED ESTIMATED ANNUAL FROM REGISTRANT AND
COMPENSATION AS PART OF FUND BENEFITS UPON FUND COMPLEX PAID
NAME FROM REGISTRANT(2) EXPENSES(3) RETIREMENT(4) TO TRUSTEE(5)
- ----------------------------- ------------------ ---------------- ---------------- ---------------------
<S> <C> <C> <C> <C>
R. Craig Kennedy............. $6,581 $ -- $2,500 $62,362
Philip G. Gaughan............ 8,262 -- 2,500 63,250
Donald C. Miller............. 6,414 -- 2,500 62,178
Jack A. Nelson............... 6,581 -- 2,500 62,362
Jerome L. Robinson........... 6,456 -- 2,500 58,475
Wayne W. Whalen.............. 8,143 -- 2,500 49,875
</TABLE>
- ---------------
(1) The Registrant is Van Kampen American Capital Equity Trust (the "Trust")
which currently consists of six operating series, including the Fund. As
indicated in the other explanatory notes, the amounts in the table relate
to the applicable trustees during the Registrant's last fiscal year ended
June 30, 1995 or the Fund Complex' (as defined herein) last calendar year
ended December 31, 1994. Messrs. Powell and McDonnell, Trustees of the
Registrant, are affiliated persons of the Adviser and are not eligible for
compensation or retirement benefits from the Registrant. Messrs. Branagan,
Hilsman, Rees, Sheehan, Sisto and Woodside were elected as trustees of the
Trust at a shareholders meeting held on July 21, 1995 and Ms. Heagy was
appointed a trustee on September 7, 1995, and thus received no
compensation or retirement benefits from the Registrant during its fiscal
year ended June 30, 1995.
(2) The amounts shown in this column are accumulated from the Aggregate
Compensation of each of the series in operation during the Registrant's
fiscal year ended June 30, 1995. In a full fiscal year with all six series
operating throughout the year and all having net assets exceeding
$25,000,000, the estimated aggregate compensation from the Registrant
would be approximately $20,000. Beginning in October 1994, each Trustee
except Messrs. Gaughan and Whalen, began deferring his entire aggregate
compensation paid by the Registrant. The total combined amount of deferred
compensation (including interest) accrued with respect to each Trustee
from the Fund Complex (as defined herein) as of December 31, 1994 is as
follows: Mr. Kennedy, $14,737; Mr. Miller, $14,553; Mr. Nelson, $14,737
and Mr. Robinson, $13,725.
(3) The amounts shown in this column are the estimated Pension or Retirement
Benefit Accruals by the Fund during its fiscal year ending June 30, 1995.
(4) This is the estimated annual benefits payable per year for the 10-year
period commencing in the year of such Trustee's retirement by the Fund
assuming: the Trustee has 10 or more years of service on the Board of the
Fund and retires at or after attaining the age of 60. Trustees retiring
prior to the age of 60 or with fewer than 10 years of service may receive
reduced retirement benefits from the Fund.
(5) As of December 31, 1994, the Fund Complex consisted of 20 mutual funds
advised by the VK Adviser that had the same members on each funds' Board
of Trustees. The amounts shown in this column were accumulated from the
Aggregate Compensation of each of these 20 mutual funds in the Fund
Complex during the calendar year ended December 31, 1994. The VK Adviser
also served as investment adviser for other investment companies; however,
with the exception of Messrs. Powell, McDonnell and Whalen, the Trustees
were not trustees of such investment companies. Combining the Fund Complex
with other investment companies advised by the Adviser, Mr. Whalen
received Total Compensation of $161,850 during the calendar year ended
December 31, 1994.
As of September 29, 1995, the trustees and officers as a group own less than
1% of the Shares of the Fund.
No officer or trustee of the Fund owns or would be able to acquire 5% or more
of the common stock of VK/AC Holding, Inc.
To the knowledge of the Fund, as of September 29, 1995, no person owned of
record or beneficially 5% or more of any Fund's Class A Shares, Class B Shares
or Class C Shares.
B-22
<PAGE> 151
LEGAL COUNSEL
Counsel to the Fund is Skadden, Arps, Slate, Meagher & Flom, Chicago,
Illinois.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISORY AGREEMENT
Van Kampen American Capital Investment Advisory Corp. (the "Adviser") is the
Fund's investment adviser. The Adviser was incorporated as a Delaware
corporation in 1982 (and through December 31, 1987 transacted business under the
name of American Portfolio Advisory Service Inc.). The Adviser's principal
office is located at One Parkview Plaza, Oakbrook Terrace, Illinois 60181.
The Adviser is a wholly-owned subsidiary of Van Kampen American Capital, Inc.,
which in turn is a wholly-owned subsidiary of VK/AC Holding, Inc. VK/AC Holding,
Inc. is controlled, through the ownership of a substantial majority of its
common stock by The Clayton & Dubilier Private Equity Fund IV Limited
Partnership ("C&D L.P."), a Connecticut limited partnership. C&D L.P. is managed
by Clayton, Dubilier & Rice, Inc., a New York based private investment firm. The
General Partner of C&D L.P. is Clayton & Dubilier Associates IV Limited
Partnership ("C&D Associates L.P."). The general partners of C&D Associates L.P.
are Joseph L. Rice, III, B. Charles Ames, William A. Barbe, Alberto Cribiore,
Donald J. Gogel, Leon J. Hendrix, Jr., Hubbard C. Howe and Andrall E. Pearson,
each of whom is a principal of Clayton, Dubilier & Rice, Inc. In addition,
certain officers, directors and employees of Van Kampen American Capital, Inc.
own, in the aggregate, not more than 7% of the common stock of VK/AC Holding,
Inc. and have the right to acquire, upon exercise of options, approximately an
additional 11% of the common stock of VK/AC Holding, Inc. Presently, and after
giving effect to the exercise of such options, no officer or trustee owns or
would own 5% or more of VK/AC Holding, Inc.
The investment advisory agreement between the Adviser and the Fund provides
that the Adviser will administer the business affairs of the Fund, supervise the
Fund's overall investment activities in the context of implementing the Fund's
investment objectives, furnish offices, necessary facilities and equipment,
provide administrative services, and permit its officers and employees to serve
without compensation as Trustees of the Trust and officers of the Fund if duly
elected to such positions.
The agreement provides that the Adviser shall not be liable for any error of
judgment or of law, or for any loss suffered by the Fund in connection with the
matters to which the agreement relates, except a loss resulting from willful
misfeasance, bad faith, or gross negligence on the part of the Adviser in the
performance of its obligations and duties, or by reason of its reckless
disregard of its obligations and duties under the agreement.
The Adviser's activities are subject to the review and supervision of the
Trustees to whom the Adviser renders periodic reports of the Fund's investment
activities.
The investment advisory agreement remains in effect from year to year if
specifically approved by the Trustees (including the independent Trustees) on
behalf of the Fund or the Fund's shareholders in compliance with the
requirements of the 1940 Act. The agreement may be terminated without penalty
upon 60 days written notice by either party thereto and will automatically
terminate in the event of assignment.
The Adviser has undertaken to reimburse the Fund for annual expenses of the
Fund which exceed the most stringent limit prescribed by any state in which the
Fund's shares are offered for sale. Currently, the most stringent limit in any
state would require such reimbursement to the extent that aggregate operating
expenses of the Fund (excluding interest, taxes and other expenses which may be
excludable under applicable state law) exceed in any fiscal year 2 1/2% of the
average annual net assets of the Fund up to $30 million, 2% of the average
annual net assets of the Fund of the next $70 million, and 1 1/2% of the
remaining average annual net assets of the Fund. In addition to making any
required reimbursements, the Adviser may in its discretion, but is not obligated
to, waive all or any portion of its fee or assume all or any portion of the
expenses of the Fund.
B-23
<PAGE> 152
OTHER AGREEMENTS
FUND ACCOUNTING AGREEMENT. The Fund has also entered into an accounting
services agreement pursuant to which the VK Adviser provides accounting services
supplementary to those provided by the Custodian. Such services are expected to
enable the Fund to more closely monitor and maintain its accounts and records.
The Fund shares together with the other Van Kampen American Capital mutual funds
advised by the VK Adviser and distributed by the Distributor in the cost of
providing such services, with 25% of such costs shared proportionately based on
the number of outstanding classes of securities per fund and with the remaining
75% of such cost being paid by the Fund and such other Van Kampen American
Capital funds based proportionally on their respective net assets.
LEGAL SERVICES AGREEMENT. The Fund and each of the other Van Kampen American
Capital funds advised by the VK Adviser and distributed by the Distributor have
entered into Legal Services Agreement pursuant to which Van Kampen American
Capital provides legal services, including without limitation: accurate
maintenance of the funds' minute books and records, preparation and oversight of
the funds' regulatory reports, and other information provided to shareholders,
as well as responding to day-to-day legal issues on behalf of the funds. It is
expected that Van Kampen American Capital can render such legal services on a
more cost effective basis than other providers of such services. Payment by the
Fund for such services is made on a cost basis for the employment of personnel
as well as the overhead and the equipment necessary to render such services.
Other funds distributed by the Distributor also receive legal services from Van
Kampen American Capital. 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.
CUSTODIAN AND INDEPENDENT AUDITORS
State Street Bank and Trust Company, 225 Franklin Street, P.O. Box 1713,
Boston, MA 02105-1713, is the custodian of the Fund and has custody of all
securities and cash of the Fund. The custodian, among other things, attends to
the collection of principal and income, and payment for and collection of
proceeds of securities bought and sold by the Fund.
The independent auditors for the Fund are KPMG Peat Marwick LLP, Chicago,
Illinois. The selection of independent auditors will be subject to ratification
by the shareholders of the Fund at any annual meeting of shareholders.
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION
The Adviser will place orders for portfolio transactions for the Fund with
broker-dealer firms giving consideration to the quality, quantity and nature of
each firm's professional services. These services include execution, clearance
procedures, wire service quotations and statistical and other research
information provided to the Fund or the Adviser, including quotations necessary
to determine the value of the Fund's net assets. Any research benefits derived
are available for all clients of 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 materially reduce its
expenses. In selecting among the firms believed to meet the criteria for
handling a particular transaction, the Fund's Adviser may take into
consideration that certain firms have sold or are selling shares of the Fund and
that certain firms provide market, statistical or other research information to
the Fund and the Adviser, and may select firms that are affiliated with the
Fund, its Adviser or its Distributor.
If it is believed to be in the best interests of the Fund, the Adviser may
place portfolio transactions with brokers who provide the types of research
service described above, even if it means the Fund will have to pay a higher
commission (or, if the broker's profit is part of the cost of the security, will
have to pay a higher price for the security) than would be the case if no weight
were given to the broker's furnishing of those research services. This will be
done, however, only if, in the opinion of the Fund's Adviser, the amount of
additional commission or increased cost is reasonable in relation to the value
of such services.
B-24
<PAGE> 153
In selecting among the firms believed to meet the criteria for handling a
particular transaction, the Adviser may take into consideration that certain
firms (i) provide market, statistical or other research information such as that
set forth above to the Fund and the Adviser, (ii) have sold or are selling
shares of the Fund and (iii) may select firms that are affiliated with the Fund,
its investment adviser or its distributor and other principal underwriters. If
purchases or sales of securities of the Fund and of one or more other investment
companies or clients supervised by the Fund's Adviser are considered at or about
the same time, transactions in such securities will be allocated among the
several investment companies and clients in a manner deemed equitable to all by
the Adviser, taking into account the respective size of the Fund and other
investment companies and clients and the amount of securities to be purchased or
sold. Although it is possible that in some cases this procedure could have a
detrimental effect on the price or volume of the security as far as the Fund is
concerned, it is also possible that the ability to participate in volume
transactions and to negotiate lower brokerage commissions will be beneficial to
the Fund.
While the Adviser will be primarily responsible for the placement of the
Fund's business, the policies and practices in this regard must be consistent
with the foregoing and will at all times be subject to review by the trustees of
the Trust, of which the Fund is a separate series.
The Trustees have adopted certain policies incorporating the standards of Rule
17e-1 issued by the Securities and Exchange Commission under the 1940 Act which
requires that the commissions paid to the Distributor and other affiliates of
the Fund must be reasonable and fair compared to the commissions, fees or other
remuneration received or to be received by other brokers in connection with
comparable transactions involving similar securities during a comparable period
of time. The rule and procedures also contain review requirements and require
the Adviser to furnish reports to the Trustees and to maintain records in
connection with such reviews. After consideration of all factors deemed
relevant, the Trustees will consider from time to time whether the advisory fee
for the Fund will be reduced by all or a portion of the brokerage commission
given to affiliated brokers.
Portfolio turnover is calculated by dividing the lesser of purchases or sales
of portfolio securities by the monthly average value of the securities in the
portfolio during the year. Securities, including options, whose maturity or
expiration date at the time of acquisition were one year or less are excluded
from such calculation. The Fund anticipates that the annual portfolio turnover
rate of the Fund's portfolio will generally be less than 100%. If the turnover
rate for the Fund does reach or exceed this percentage, the Fund's brokerage
costs may increase and the Adviser will monitor the Fund's trading practices to
avoid potential adverse tax consequences.
TAX STATUS OF THE FUND
The Trust and any of its series, including the Fund, will be treated as
separate corporations for federal income tax purposes. The Fund will be subject
to tax if it fails to distribute net capital gains, or if its annual
distributions, as a percentage of its income, are less than the distributions
required by tax laws.
THE DISTRIBUTOR
The Distributor offers one of the industry's broadest lines of
investments -- encompassing mutual funds, closed-end funds and unit investment
trusts -- and is currently the nation's 5th largest broker-sold mutual fund
group according to Strategic Insight. Van Kampen American Capital's roots in
money management extend back to 1926. Today, Van Kampen American Capital manages
or supervises more than $50 billion in mutual funds, closed-end funds and unit
investment trusts -- assets which have been entrusted to Van Kampen American
Capital in more than 2 million investor accounts. Van Kampen American Capital
has one of the largest research teams (outside of the rating agencies) in the
country, with 86 analysts devoted to various specializations.
Shares of the Fund are offered continuously through the Distributor, One
Parkview Plaza, Oakbrook Terrace, Illinois 60181. The Distributor is a wholly
owned subsidiary of Van Kampen American Capital, Inc., which is a subsidiary of
VK/AC Holding, Inc., a Delaware corporation that is controlled through an
ownership of a substantial majority of its common stock, by The Clayton &
Dubilier Private Equity Fund IV Limited Partnership ("C & D L.P."), a
Connecticut limited partnership. In addition, certain officers, directors and
B-25
<PAGE> 154
employees of Van Kampen American Capital, Inc., and its subsidiaries own, in the
aggregate not more than 7% of the common stock of VK/AC Holding, Inc. and have
the right to acquire, upon the exercise of options, approximately an additional
11% of the common stock of VK/AC Holding, Inc. C & D L.P. is managed by Clayton,
Dubilier & Rice, Inc. Clayton & Dubilier Associates IV Limited Partnership ("C &
D Associates L.P.") is the general partner of C & D L.P. Pursuant to a
distribution agreement with the Fund, the Distributor will purchase shares of
the Fund for resale to the public, either directly or through securities dealers
and brokers, and is obligated to purchase only those shares for which it has
received purchase orders. A discussion of how to purchase and redeem shares of
the Fund and how such shares are priced is contained in the Prospectus.
The Fund has adopted a distribution plan (the "Distribution Plan") with
respect to each class of its shares pursuant to Rule 12b-1 under the 1940 Act.
The Fund also has adopted a service plan (the "Service Plan") with respect to
each class of its shares. The Distribution Plan and the Service Plan sometimes
are referred to herein as the "Plans." The Plans provide that the Fund may spend
a portion of the Fund's average daily net assets attributable to each class of
shares in connection with distribution of the respective class of shares and in
connection with the provision of ongoing services to shareholders of such class,
respectively. The Plans are being implemented through an agreement (the
"Distribution and Service Agreement") with the Distributor of each class of the
Fund's shares, sub-agreements between the Distributor and members of the NASD
who are acting as securities dealers and NASD members or eligible non-members
who are acting as brokers or agents and similar agreements between the Fund and
financial intermediaries who are acting as brokers (collectively, "Selling
Agreements") that may provide for their customers or clients certain services or
assistance, which may include, but not be limited to, processing purchase and
redemption transactions, establishing and maintaining shareholder accounts
regarding the Fund, and such other services as may be agreed to from time to
time and as may be permitted by applicable statute, rule or regulation. Brokers,
dealers and financial intermediaries that have entered into sub-agreements with
the Distributor and sell shares of the Fund are referred to herein as "financial
intermediaries."
The Distributor must submit quarterly reports to the Board of Trustees of the
Trust, of which the Fund is a series, setting forth separately by class of
shares all amounts paid under the Plans and the purposes for which such
expenditures were made, together with such other information as from time to
time is reasonably requested by the Trustees. The Plans provide that they will
continue in full force and effect from year to year so long as such continuance
is specifically approved by a vote of the Trustees, and also by a vote of the
disinterested Trustees, cast in person at a meeting called for the purpose of
voting on the Plans. Each of the Plans may not be amended to increase materially
the amount to be spent for the services described therein with respect to either
class of shares without approval by a vote of a majority of the outstanding
voting shares of such class, and all material amendments to either of the Plans
must be approved by the Trustees and also by the disinterested Trustees. Each of
the Plans may be terminated with respect to either class of shares at any time
by a vote of a majority of the disinterested Trustees or by a vote of a majority
of the outstanding voting shares of such class.
PERFORMANCE INFORMATION
The Fund's yield quotation is determined on a daily basis with respect to the
immediately preceding 30 day period; yield is computed by first dividing the
Fund's net investment income per share of a given class earned during such
period by the Fund's maximum offering price (including, with respect to the
Class A Shares, the maximum offering price) per share of such class on the last
day of such period. The Fund's net investment income per share is determined by
taking the interest attributable to a given class of shares earned by the Fund
during the period, subtracting the expenses attributable to a given class of
shares accrued for the period (net of any reimbursements), and dividing the
result by the average daily number of shares of each class outstanding during
the period that were entitled to receive dividends. The yield calculation
formula assumes net investment income is earned and reinvested at a constant
rate and annualized at the end of a six month period. Yield will be computed
separately for each class of shares. Class B Shares redeemed during the first
six years after their issuance and Class C Shares redeemed during the first year
after their issuance may be subject to a contingent deferred sales charge in a
maximum amount equal to 4.00% and 1.00%, respectively, of the lesser of the then
current net asset value of the shares redeemed or their initial purchase price
from the Fund. Yield
B-26
<PAGE> 155
quotations do not reflect the imposition of a contingent deferred sales charge,
and if any such contingent deferred sales charge imposed at the time of
redemption were reflected, it would reduce the performance quoted.
The Fund calculates average compounded total return by determining the
redemption value (less any applicable contingent deferred sales charge) at the
end of specified periods (after adding back all dividends and other
distributions made during the period) of a $1,000 investment in a given class of
shares of the Fund (less the maximum sales charge, if any) at the beginning of
the period, annualizing the increase or decrease over the specified period with
respect to such initial investment and expressing the result as a percentage.
Average compounded total return will be computed separately for each class of
shares.
Total return figures utilized by the Fund are based on historical performance
and are not intended to indicate future performance. Total return and net asset
value per share of a given class can be expected to fluctuate over time, and
accordingly upon redemption a shareholder's shares may be worth more or less
than their original cost.
The Fund may, in supplemental sales literature, advertise non-standardized
total return figures representing the cumulative, non-annualized total return of
each class of shares of the Fund from a given date to a subsequent given date.
Cumulative non-standardized total return is calculated by measuring the value of
an initial investment in a given class of shares of the Fund at a given time,
deducting the maximum initial sales charge, if any, determining the value of all
subsequent reinvested distributions, and dividing the net change in the value of
the investment as of the end of the period by the amount of the initial
investment and expressing the result as a percentage. Non-standardized total
return will be calculated separately for each class of shares. Non-standardized
total return calculations do not reflect the imposition of a contingent deferred
sales charge, and if any such contingent deferred sales charge with respect to
the CDSC imposed at the time of redemption were reflected, it would reduce the
performance quoted.
B-27
<PAGE> 156
- --------------------------------------------------------------------------------
VAN KAMPEN AMERICAN CAPITAL
GREAT AMERICAN COMPANIES FUND
- --------------------------------------------------------------------------------
Van Kampen American Capital Great American Companies Fund (the "Fund") is a
separate diversified series of Van Kampen American Capital Equity Trust, an
open-end management investment company commonly known as a mutual fund. The
Fund's investment objective is to seek long-term growth of capital. The Fund
seeks to achieve its investment objective by investing primarily in a
diversified portfolio of common stocks and other equity securities of U.S.
companies that, in the investment adviser's view, have achieved leading and
sustainable positions within their U.S. industrial sectors. Any income received
on such securities is incidental to the objective of long-term growth of
capital. There is no assurance that the Fund will achieve its investment
objective.
The Fund's investment adviser is Van Kampen American Capital Investment
Advisory Corp. This Prospectus sets forth certain information about the Fund
that a prospective investor should know before investing in the Fund. Please
read it carefully and retain it for future reference. The address of the Fund is
One Parkview Plaza, Oakbrook Terrace, Illinois 60181, and its telephone number
is (800) 421-5666.
The Fund currently offers three classes of its shares (the "Alternative
Sales Arrangements") which may be purchased at a price equal to their net asset
value per share, plus sales charges which, at the election of the investor, may
be imposed (i) at the time of purchase (the "Class A Shares") or (ii) on a
contingent deferred basis (Class A Share purchases over $1 million, "Class B
Shares" and "Class C Shares"). The Alternative Sales Arrangements permit an
investor to choose the method of purchasing shares that is more beneficial to
the investor, taking into account the amount of the purchase, the length of time
the investor expects to hold the shares and other circumstances.
(Continued on next page.)
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, GUARANTEED OR
ENDORSED BY, ANY BANK OR DEPOSITORY INSTITUTION; FURTHER, SUCH SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. SHARES OF THE FUND INVOLVE
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
A Statement of Additional Information, dated , 1995, containing
additional information about the Fund, has been filed with the Securities and
Exchange Commission ("SEC") and is hereby incorporated by reference into this
prospectus. A copy of the Statement of Additional Information may be obtained
without charge by calling (800) 421-5666 or for Telecommunication Device For the
Deaf at (800) 772-8889.
------------------
VAN KAMPEN AMERICAN CAPITAL(SM)
------------------
THIS PROSPECTUS IS DATED , 1995.
<PAGE> 157
(Continued from previous page.)
Each class of shares pays ongoing distribution and service fees at an
aggregate annual rate of (i) for Class A Shares, up to 0.25% of the Fund's
average daily net assets attributable to the Class A Shares, (ii) for Class B
Shares, up to 1.00% of the Fund's average daily net assets attributable to the
Class B Shares and (iii) for Class C Shares up to 1.00% of the Fund's average
daily net assets attributable to the Class C Shares. Investors should understand
that the purpose and function of the deferred sales charge and the distribution
and service fees with respect to the Class A Share purchases over $1 million,
Class B Shares and the Class C Shares are the same as those of the initial sales
charge and the distribution and service fees with respect to the Class A Shares
purchases below $1 million. Each share of the Fund represents an identical
interest in the investment portfolio of the Fund and has the same rights, except
that (i) each class of shares bears those distribution fees, service fees and
administrative expenses applicable to the respective class of shares as a result
of its sales arrangements, which will cause the different classes of shares to
have different expense ratios and to pay different rates of dividends, (ii) each
class has exclusive voting rights with respect to those provisions of the Fund's
Rule 12b-1 distribution plan which relate only to such class and (iii) the
different classes have different exchange privileges. Class B Shares and Class C
Shares automatically will convert to Class A Shares seven years and ten years,
respectively, after the end of the calendar month in which the investor's order
to purchase was accepted, in the circumstances and subject to the qualifications
described in this Prospectus. See "Alternative Sales Arrangements" and "Purchase
of Shares."
2
<PAGE> 158
- ------------------------------------------------------------------------------
TABLE OF CONTENTS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.............................................. 4
Shareholder Transaction Expenses................................ 7
Annual Fund Operating Expenses and Example...................... 8
The Fund........................................................ 9
Investment Objective and Policies............................... 10
Portfolio Securities............................................ 10
Investment Practices............................................ 12
Investment Advisory Services.................................... 17
Alternative Sales Arrangements.................................. 18
Purchase of Shares.............................................. 20
Shareholder Services............................................ 30
Redemption of Shares............................................ 34
The Distribution and Service Plans.............................. 37
Distributions from the Fund..................................... 39
Tax Status...................................................... 40
Fund Performance................................................ 42
Description of Shares of the Fund............................... 42
Additional Information.......................................... 43
</TABLE>
- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE FUND, THE ADVISER, OR THE DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER BY THE FUND OR BY THE DISTRIBUTOR TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL FOR THE FUND TO MAKE
SUCH AN OFFER IN SUCH JURISDICTION.
- --------------------------------------------------------------------------------
3
<PAGE> 159
- ------------------------------------------------------------------------------
PROSPECTUS SUMMARY
- ------------------------------------------------------------------------------
THE FUND. Van Kampen American Capital Great American Companies Fund (the
"Fund") is a separate diversified series of Van Kampen American Capital Equity
Trust, an open-end management investment company which is a Delaware business
trust. See "The Fund."
MINIMUM PURCHASE. $500 minimum initial investment for each class of shares and
$25 minimum for each subsequent investment for each class of shares (or less as
described under "Purchase of Shares").
INVESTMENT OBJECTIVE. The investment objective of the Fund is to seek long-term
growth of capital.
INVESTMENT POLICY. The Fund seeks to achieve its investment objective by
investing primarily in a diversified portfolio of common stocks and other equity
securities of U.S. companies that, in the investment adviser's view, have
achieved leading and sustainable positions within their U.S. industrial sectors.
There is no assurance that the Fund will achieve its investment objective. The
net asset value per share of the Fund may increase or decrease depending on
changes in the securities markets, and other factors affecting the issuers of
securities in which the Fund may invest. See "Investment Objective and
Policies."
INVESTMENT PRACTICES. Subject to certain limitations, the Fund may enter into
strategic transactions, lend its portfolio securities, and enter into repurchase
agreements with selected commercial banks and broker-dealers. These investment
practices entail certain risks. See "Investment Practices."
ALTERNATIVE SALES ARRANGEMENTS. The Alternative Sales Arrangements permit an
investor to choose the method of purchasing shares that is more beneficial to
the investor, taking into account the amount of the purchase, the length of time
the investor expects to hold the shares and other circumstances. Investors
should consider such factors together with the amount of sales charges and
accumulated distribution and service fees with respect to each class of shares
that may be incurred over the anticipated duration of their investment in the
Fund. To assist investors in making this determination, the table under the
caption "Annual Fund Operating Expenses and Example" sets forth examples of the
charges applicable to each class of shares.
The Fund currently offers three classes of its shares which may be purchased
at a price equal to their net asset value per share plus sales charges which, at
the election of the investor, may be imposed either (i) at the time of the
purchase ("Class A Shares") or (ii) on a contingent deferred basis (Class A
Share purchases over $1 million, "Class B Shares" and "Class C Shares"). Class A
Share purchases over $1 million or otherwise subject to a contingent deferred
sales charge ("CDSC"), Class B Shares and Class C Shares sometimes are referred
to herein collectively as "CDSC Shares."
4
<PAGE> 160
Class A Shares. Class A Shares are subject to an initial sales charge equal to
5.75% of the public offering price (6.10% of the net amount invested), reduced
on investments of $50,000 or more. Class A Shares are subject to ongoing
distribution and service fees at an aggregate annual rate of up to 0.25% of the
Fund's average daily net assets attributable to the Class A Shares. Certain
purchases of Class A Shares qualify for reduced or no initial sales charges and
may be subject to a CDSC.
Class B Shares. Class B Shares do not incur a sales charge when they are
purchased, but are subject to a sales charge if redeemed within six years of
purchase. Class B Shares are subject to a CDSC equal to 4.00% of the lesser of
the then current net asset value or the original purchase price on Class B
Shares redeemed during the first year after purchase, which charge is reduced
each year thereafter. Class B Shares are subject to ongoing distribution and
service fees at an aggregate annual rate of up to 1.00% of the Fund's average
daily net assets attributable to the Class B Shares. Class B Shares
automatically will convert to Class A Shares seven years after the end of the
calendar month in which the investor's order to purchase was accepted, in the
circumstances and subject to the qualifications described in this Prospectus.
Class C Shares. Class C Shares do not incur a sales charge when they are
purchased, but are subject to a sales charge if redeemed within the first year
after purchase. Class C Shares are subject to a CDSC equal to 1.00% of the
lesser of the then current net asset value or the original purchase price on
Class C Shares redeemed during the first year after purchase. Class C Shares are
subject to ongoing distribution and service fees at an aggregate annual rate of
up to 1.00% of the Fund's average daily net assets attributable to the Class C
Shares. Class C Shares automatically will convert to Class A Shares ten years
after the end of the calendar month in which the investor's order to purchase
was accepted, in the circumstances and subject to the qualifications described
in this Prospectus.
REDEMPTION. Class A Shares may be redeemed at net asset value, without charge,
subject to conditions set forth herein. CDSC Shares may be redeemed at net asset
value less a deferred sales charge which will vary among each class of CDSC
Shares and with the length of time a redeeming shareholder has owned such
shares. CDSC Shares redeemed after the expiration of the CDSC period applicable
to the respective class of CDSC Shares will not be subject to a deferred sales
charge. See "Redemption of Shares."
INVESTMENT ADVISER. Van Kampen American Capital Investment Advisory Corp. is
the Fund's investment adviser. The annual advisory fee for the Fund is 0.70% of
average daily net assets, reduced on net assets over $500 million. See
"Investment Advisory Services."
DISTRIBUTOR. Van Kampen American Capital Distributors, Inc.
DISTRIBUTIONS FROM THE FUND. Distributions from net investment income and
realized capital gains, if any, are made annually. Distributions with respect to
each
5
<PAGE> 161
class of shares will be calculated in the same manner on the same day and will
be in the same amount except that the different distribution and service fees
and administrative expenses relating to each class of shares will be borne
exclusively by the respective class of shares and may cause the distributions
relating to the different classes of shares to differ. See "Distributions from
the Fund."
The above is qualified in its entirety by reference to the more detailed
information appearing elsewhere in this Prospectus.
6
<PAGE> 162
- ------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- ------------ ------------
<S> <C> <C> <C>
Maximum sales charge imposed
on purchases (as a
percentage of the offering
price)...................... 5.75%(1) None None
Maximum sales charge imposed
on reinvested dividends
(as a percentage of the
offering price)............. None None(3) None(3)
Deferred sales charge (as a
percentage of the lesser of
the original purchase price
or redemption proceeds)..... None(2) Year 1--4.00% Year 1--1.00%
Year 2--3.75% After--None
Year 3--3.50%
Year 4--2.50%
Year 5--1.50%
Year 6--1.00%
After--None
Redemption fees (as a
percentage of amount
redeemed)................... None None None
Exchange fees................. None None None
</TABLE>
- ----------------
(1) Reduced on investments of $50,000 or more. See "Purchase of Shares -- Class
A Shares."
(2) Investments of $1 million or more are not subject to a sales charge at the
time of purchase, but a contingent deferred sales charge of 1.00% may be
imposed on redemptions made within one year of the purchase.
(3) CDSC Shares received as reinvested dividends are subject to a 12b-1 fee, a
portion of which may indirectly pay for the initial sales commission
incurred on behalf of the investor. See "The Distribution and Service
Plans."
7
<PAGE> 163
- ------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES AND EXAMPLE
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- --------- ---------
<S> <C> <C> <C>
Management fees(1) (as a percentage of
average daily net assets)............. 0.00% 0.00% 0.00%
12b-1 fees(2) (as a percentage of
average daily net assets)............. .25% 1.00% 1.00%
Other expenses (as a percentage of
average daily net assets)............. 1.00% 1.00% 1.00%
Total expenses(1) (as a percentage of
average daily net assets)............. 1.25% 2.00% 2.00%
</TABLE>
- ----------------
(1) Absent the Adviser's waiver of its fee and assumption of the expenses of the
Fund, "Management fees" would have been 0.70% for each of the Class A
Shares, Class B Shares and Class C Shares, and "Total expneses" would have
been 1.61% for Class A Shares, 2.36% for Class B Shares and 2.36% for Class
C Shares.
(2) Includes a service fee of up to 0.25% (as a percentage of net asset value)
paid by the Fund to the selling broker as compensation for ongoing services
rendered to investors. With respect to each class of shares, amounts in
excess of 0.25%, if any, represent an asset based sales charge. The asset
based sales charge with respect to Class C Shares includes 0.75% (as a
percentage of net asset value) paid to investors' broker-dealers as sales
compensation.
8
<PAGE> 164
EXAMPLE:
<TABLE>
<CAPTION>
ONE THREE
YEAR YEARS
---- -----
<S> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (i) an operating expense ratio
of 1.25% for Class A Shares, 2.00% for Class B Shares
and 2.00% for Class C Shares, (ii) 5% annual return
and (iii) redemption at the end of each time period:
Class A Shares....................................... $70 $95
Class B Shares....................................... $60 $98
Class C Shares....................................... $30 $63
An investor would pay the following expenses on the
same $1,000 investment assuming no redemption at the
end of each period:
Class A Shares....................................... $70 $95
Class B Shares....................................... $20 $63
Class C Shares....................................... $20 $63
</TABLE>
The purpose of the foregoing table is to assist an investor in understanding
the various costs and expenses that an investor in the Fund will bear directly
or indirectly. The "Example" reflects expenses based on the "Annual Fund
Operating Expenses" table as shown above carried out to future years. The ten
year amount with respect to Class B Shares of the Fund reflects the lower
aggregate 12b-1 and service fees applicable to such shares after conversion to
Class A Shares. THE INFORMATION CONTAINED IN THE ABOVE TABLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY
BE GREATER OR LESSER THAN THOSE SHOWN. For a more complete description of such
costs and expenses, see "Purchase of Shares," "Investment Advisory Services,"
"The Distribution and Service Plans" and "Redemption of Shares."
- ------------------------------------------------------------------------------
THE FUND
- ------------------------------------------------------------------------------
Van Kampen American Capital Great American Companies Fund (the "Fund") is a
mutual fund, which pools shareholders' money to seek to achieve a specified
investment objective. In technical terms, the Fund is a separate diversified
series of Van Kampen American Capital Equity Trust (the "Trust"), an open-end
management investment company organized as a Delaware business trust. Mutual
funds sell their shares to investors and invest the proceeds in a portfolio of
securities. A mutual fund allows investors to pool their money with that of
other investors in order to obtain professional investment management. Mutual
funds generally make it possible for investors to obtain greater diversification
of their investments and to simplify their recordkeeping.
Van Kampen American Capital Investment Advisory Corp. (the "Adviser") provides
investment advisory and administrative services to the Fund. The Adviser
9
<PAGE> 165
and its affiliates also manage other mutual funds distributed by Van Kampen
American Capital Distributors, Inc. (the "Distributor"). To obtain prospectuses
and other information on any of these other funds, please call the telephone
number on the cover page of the Prospectus.
- ------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES
- ------------------------------------------------------------------------------
The investment objective of the Fund is to seek long-term growth of capital.
This objective is fundamental and cannot be changed without approval of the
shareholders of the Fund. Any income received on such securities is incidental
to the objective of long-term growth of capital. There can be no assurance that
the Fund will achieve its investment objective. An investment in the Fund may
not be appropriate for all investors. The Fund is not intended to be a complete
investment program, and investors should consider their long-term investment
goals and financial needs when making an investment decision with respect to the
Fund. An investment in the Fund is intended to be a long-term investment and
should not be used as a trading vehicle.
The Fund seeks to achieve its investment objective by investing primarily in a
diversified portfolio of common stocks and other equity securities of U.S.
companies that, in the Adviser's view, have achieved leading and sustainable
market positions within their U.S. industrial sectors. The Adviser believes that
leading U.S. companies are identified as those companies who exhibit competitive
and financial superiority. Competitive superiority may be based on factors such
as manufacturing excellence, product innovation, marketing strength, or other
factors. Financial superiority may be seen in superior returns on equity, and
other return measures; or in superior balance sheet measures, and other
financial flexibility measures. There ordinarily is more than one leading
company in an industrial sector. In selecting portfolio investments, the Adviser
will employ traditional valuation measures, such as price/earnings and
price/cash flow ratios to determine whether the equity securities of those
companies with competitive and financial strength have reasonable valuations
relative to the overall market. The Fund ordinarily will not invest in common
stocks or other equity securities that the Adviser believes are overvalued.
The Fund may also invest in investment grade income securities for purposes of
growth of capital and cash management or as a temporary defensive measure. The
Fund may invest up to 5% of its total assets in securities of foreign issuers.
See discussion in the Statement of Additional Information.
- ------------------------------------------------------------------------------
PORTFOLIO SECURITIES
- ------------------------------------------------------------------------------
COMMON STOCK. Common stocks are shares of a corporation or other entity that
entitle the holder to a pro rata share of the profits of the corporation, if
any, without preference over any other shareholder or class of shareholders,
including holders of such entity's, debt securities, preferred stock and other
senior equity. Common
10
<PAGE> 166
stock usually carries with it the right to vote and frequently an exclusive
right to do so. In selecting common stocks for investment, the Fund will focus
primarily on the security's potential for appreciation.
OTHER EQUITY SECURITIES. The Fund may invest in other equity securities,
including convertible securities and preferred stock. A convertible security is
a bond debenture, note, preferred stock or other security that may be converted
into or exchanged for a prescribed amount of common stock or other equity
security of the same or a different issuer within a particular period of time at
a specified price or formula. A convertible security entitles the holder to
receive interest paid or accrued on debt or the dividend paid on preferred stock
until the convertible security matures or is redeemed, converted or exchanged.
Before conversion, convertible securities have characteristics similar to
nonconvertible income securities in that they ordinarily provide a stable stream
of income with generally higher yields than those of common stocks of the same
or similar issuers. Convertible securities rank senior to common stock in a
corporation's capital structure but are usually subordinated to comparable
nonconvertible securities. The Fund may invest in adjustable or fixed rate
preferred stock. Preferred stock generally has a preference as to dividends and
upon liquidation over an issuer's common stock but ranks junior to debt
securities in an issuer's capital structure. Unlike interest payments on debt
securities, preferred stock dividends are payable only if declared by the
issuer's board of directors. Preferred stock also may be subject to optional or
mandatory redemption provisions.
INCOME SECURITIES. The Fund may invest its assets in income securities, which
include primarily debt securities of various maturities. The Fund will invest
only in income securities that are investment grade at the time of investment.
Investment grade securities are securities that are rated at least BBB by
Standard & Poor's Ratings Group ("S&P"), or at least Baa by Moody's Investors
Services, Inc. ("Moody's") or comparably rated by any other nationally
recognized rating organization, or, if unrated, considered by the Adviser to be
of comparable quality to securities so rated. Securities in the top categories
(e.g., AAA, AA, and A by S&P or Aaa, Aa, and A by Moody's) are generally
regarded as high grade and have a strong to outstanding capacity to pay interest
or dividends and repay principal or capital. Medium grade securities (e.g., BBB
by S&P or Baa by Moody's) are regarded as having an adequate capacity to pay
interest or dividends, and repay principal, although adverse economic conditions
or changing circumstances are more likely to lead to a weakened capacity to make
such payments. Securities rated Baa are regarded by Moody's as having some
speculative characteristics. For a description of such ratings see the Statement
of Additional Information incorporated by reference into this Prospectus.
The net asset value of the Fund will change with changes in the value of its
portfolio securities. The values of income securities may change as interest
rate levels increase. To the extent that the Fund invests in income securities,
the net asset value of the Fund can be expected to change as general levels of
interest rates
11
<PAGE> 167
increase. When interest rates decline, the value of a portfolio invested in
income securities generally can be expected to rise. Conversely, when interest
rates rise, the value of a portfolio invested in income securities generally can
be expected to decline. Volatility may be greater during periods of general
economic uncertainty.
The foregoing policies with respect to credit quality of portfolio investments
will apply only at the time of purchase of a security, and the Fund will not be
required to dispose of a security in the event that S&P or Moody's (or any other
rating organization) or, in the case of unrated income securities, the Adviser,
downgrades its assessment of the credit characteristics of a particular issuer.
In determining whether the Fund will retain or sell such a security the Adviser
may consider such factors as the Adviser's assessment of the credit quality of
the issuer of such security, the price at which such security could be sold and
the rating, if any, assigned to such security by other nationally recognized
statistical rating organizations.
- ------------------------------------------------------------------------------
INVESTMENT PRACTICES
- ------------------------------------------------------------------------------
In connection with the investment policies described above, the Fund may also
engage in the investment practices described below. These purchases entail
risks. The investment practices described below are not fundamental and can be
changed without a vote of the shareholders of the Fund.
LOANS OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements, the Fund may lend its portfolio securities to selected commercial
banks or broker-dealers up to a maximum of 50% of the assets of the Fund. Such
loans must be callable at any time and be continuously secured by collateral
deposited by the borrower in a segregated account with the Fund's custodian
consisting of cash or of securities issued or guaranteed by the U.S. Government
or its agencies, which collateral is equal at all times to at least 100% of the
value of the securities loaned, including accrued interest. The Fund will
receive amounts equal to earned income for having made the loan. Any cash
collateral pursuant to these loans will be invested in short-term instruments.
The Fund is the beneficial owner of the loaned securities in that any gain or
loss in the market price during the loan inures to the Fund and its
shareholders. Thus, when the loan is terminated, the value of the securities may
be more or less than their value at the beginning of the loan. In determining
whether to lend its portfolio securities to a bank or broker-dealer, the Fund
will take into account the credit-worthiness of such borrower and will monitor
such credit-worthiness on an ongoing basis in as much as default by the other
party may cause delays or other collection difficulties. The Fund may pay
finders' fees in connection with loans of its portfolio securities.
REPURCHASE AGREEMENTS. The Fund may use up to 20% of its assets to enter into
repurchase agreements with selected commercial banks and broker-dealers, under
which the Fund acquires securities and agrees to resell the securities at an
agreed upon time and at an agreed upon price. The Fund accrues as interest the
difference
12
<PAGE> 168
between the amount it pays for the securities and the amount it receives upon
resale. At the time the Fund enters into a repurchase agreement, the value of
the underlying security including accrued interest will be equal to or exceed
the value of the repurchase agreement and, for repurchase agreements that mature
in more than one day, the seller will agree that the value of the underlying
security including accrued interest will continue to be at least equal to the
value of the repurchase agreement. The Adviser will monitor the value of the
underlying security in this regard. The Fund will enter into repurchase
agreements only with commercial banks whose deposits are insured by the Federal
Deposit Insurance Corporation and whose assets exceed $500 million or
broker-dealers who are registered with the SEC. In determining whether to enter
into a repurchase agreement with a bank or broker-dealer, the Fund will take
into account the credit-worthiness of such party and will monitor its
credit-worthiness on an ongoing basis. In the event of default by such party,
the delays and expenses potentially involved in establishing the Fund's rights
to, and in liquidating, the security may result in loss to the Fund. The Fund's
ability to invest in repurchase agreements that mature in more than seven days
is subject to an investment restriction that limits the Fund's investment in
"illiquid" securities, including such repurchase agreements, to 15% of the
Fund's net assets.
For the purpose of investing in repurchase agreements, the Adviser may
aggregate the cash that substantially all of the funds advised or subadvised by
the Adviser, or an affiliate, would otherwise invest separately into a joint
account. The cash in the joint account is then invested in repurchase agreements
in a manner consistent with the foregoing guidelines 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 greater 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 SEC
exemptive order authorizing this practice, which conditions are designed to
ensure the fair administration of the joint account.
"WHEN ISSUED" AND "DELAYED DELIVERY" TRANSACTIONS. The Fund may also purchase
and sell portfolio securities on a "when issued" and "delayed delivery" basis.
No income accrues to or is earned by the Fund on portfolio securities in
connection with such purchase transactions prior to the date the Fund actually
takes delivery of such securities. These transactions are subject to market
fluctuation; the value of such securities at delivery may be more or less than
their purchase price and yields generally available on such securities when
delivery occurs may be higher or lower than yields on such securities obtained
pursuant to such transactions. Because the Fund relies on the buyer or seller,
as the case may be, to consummate the transaction, failure by the other party to
complete the transaction may result in the Fund missing the opportunity of
obtaining a price or yield considered to be advantageous. When the Fund is the
buyer in such a transaction, however, it will maintain, in a segregated account
with its custodian, cash or high-grade portfolio securities having an aggregate
value equal to the amount of such purchase
13
<PAGE> 169
commitments until payment is made. The Fund will make commitments to purchase
securities on such basis only with the intention of actually acquiring these
securities, but the Fund may sell such securities prior to the settlement date
if such sale is considered to be advisable. To the extent the Fund engages in
"when issued" and "delayed delivery" transactions, it will do so for the purpose
of acquiring securities for the Fund's portfolio consistent with the Fund's
investment objective and policies and not for the purpose of investment
leverage. 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.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest up to 15% of its net
assets in illiquid securities including securities the disposition of which is
subject to substantial legal or contractual restrictions on resale and
securities that are not readily marketable. The sale of restricted and illiquid
securities often requires more time and results in higher brokerage charges or
dealer discounts and other selling expenses than does the sale of securities
eligible for trading on national securities exchanges or in the over-the-counter
markets. Restricted securities may sell at a price lower than similar securities
that are not subject to restrictions on resale. Restricted securities salable
among qualified institutional buyers without restriction pursuant to Rule 144A
under the Securities Act of 1933 that are determined to be liquid by the Adviser
under guidelines adopted by the Board of Trustees of the Trust (under which
guidelines the Adviser will consider factors such as trading activities and the
availability of price quotations), will not be treated as restricted securities
by the Fund pursuant to such rules.
BORROWINGS. The Fund is authorized to borrow money from banks (including
entering into reverse repurchase agreements) in an amount up to 33 1/3% of the
Fund's total assets (after giving effect to any such borrowing) which amount
excludes no more than 5% in borrowings and reverse repurchase agreements from
any entity for temporary purposes, such as clearances of portfolio transactions,
share repurchases and payment of dividends and distributions. The Fund has no
current intention to borrow money other than for such temporary purposes.
Accordingly, the Fund will not acquire additional securities during any period
in which its borrowings exceed 5% of the Fund's total assets. Borrowing by the
Fund creates an opportunity for increased net income but, at the same time,
creates special risk considerations. See the Fund's Statement of Additional
Information for a more complete discussion of borrowings and certain of the
associated risks.
STRATEGIC TRANSACTIONS. The Fund may purchase and sell derivative instruments
such as exchange-listed and over-the-counter put and call options on securities,
financial futures, equity and fixed-income indices and other financial
instruments and purchase and sell financial futures contracts. Collectively, all
of the above are referred to as "Strategic Transactions." The Fund may also
invest in income securities the terms of which include elements of or are
similar in effect to Strategic Transactions in which it may engage. Strategic
Transactions may be used to attempt to protect against possible changes in the
market value of securities held in
14
<PAGE> 170
or to be purchased for the Fund's portfolio resulting from securities markets,
to protect the Fund's unrealized gains in the value of its portfolio securities,
to facilitate the sale of such securities for investment purposes, or to
establish a position in the derivatives markets as a temporary substitute for
purchasing or selling particular securities. Any or all of these investment
techniques may be used at any time and there is no particular strategy that
dictates the use of one technique rather than another, as use of any Strategic
Transaction is a function of numerous variables including market conditions. The
ability of the Fund to utilize these Strategic Transactions successfully will
depend on the Adviser's ability to predict pertinent market movements, which
cannot be assured. The Fund will comply with applicable regulatory requirements
when implementing these strategies, techniques and instruments. Strategic
Transactions involving financial futures and options thereon will be purchased,
sold or entered into only for bona fide hedging, risk management or portfolio
management purposes and not for speculative purposes.
Strategic Transactions have risks associated with them including possible
default by the other party to the transaction, illiquidity and, to the extent
the Adviser's view as to certain market movements is incorrect, the risk that
the use of such Strategic Transactions could result in losses greater than if
they had not been used. Use of put and call options may result in losses to the
Fund, force the sale of portfolio securities at inopportune times or for prices
other than at current market values, limit the amount of appreciation the Fund
can realize on its investments or cause the Fund to hold a security it might
otherwise sell. The use of options and futures transactions entails certain
other risks. In particular, the variable degree of correlation between price
movements of futures contracts and price movements in the related portfolio
position of the Fund creates the possibility that losses on the hedging
instrument may be greater than gains in the value of the Fund's position. In
addition, futures and options markets may not be liquid in all circumstances and
certain over-the-counter options may have no markets. As a result, in certain
markets, the Fund might not be able to close out a transaction without incurring
substantial losses, if at all. Although the contemplated use of these futures
contracts and options thereon should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position. To the extent that a futures contract or an option thereon is used to
protect against possible changes in the market value of securities that the Fund
anticipates acquiring and the Fund subsequently does not acquire such
securities, the Fund will have incurred the transactional expenses associated
with entering into such transaction and will be subject to the risks inherent in
an unhedged purchase of such futures contract or option. Finally, the daily
variation margin requirements for futures contracts would create a greater
ongoing potential financial risk than would purchases of options, where the
exposure is limited to the cost of the initial premium. Losses resulting from
the use of Strategic Transactions would reduce net asset value, and possibly
income, and such losses can be greater than if the Strategic Transactions had
not
15
<PAGE> 171
been utilized. The Strategic Transactions that the Fund may use and some of
their risks are described more fully in the Fund's Statement of Additional
Information.
Income earned or deemed to be earned, if any, by the Fund from its Strategic
Transactions will generally be taxable income of the Fund. See "Tax Status."
DEFENSIVE STRATEGIES. When, in the judgment of the Fund's Adviser, economic
and market conditions warrant, the Fund may invest temporarily for defensive
purposes up to 100% of its total assets in U.S. Government securities of various
maturities, investment grade corporate debt securities, preferred stocks,
convertible bonds, banker's acceptances and certificates of deposit.
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.
The Adviser is responsible for effecting securities transactions of the Fund
and will do so in a manner deemed fair and reasonable to shareholders of the
Fund and not according to any formula. The Adviser's primary considerations in
selecting the manner of executing securities transactions for the Fund will be
prompt execution of orders, the size and breadth of the market for the security,
the reliability, integrity and financial condition and execution capability of
the firm, 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 is given to those firms which supply research and other services
in addition to execution services. However, it is not the policy of the Adviser,
absent special circumstances, to pay higher commissions to a firm because it has
supplied such services.
In effecting purchases and sales of the Fund's portfolio securities, the
Adviser and the Fund may place orders with and pay brokerage commissions to
brokers, including brokers which may be affiliated with the Fund, the Adviser,
the Distributor or dealers participating in the offering of the Fund's shares.
In addition, in selecting among firms to handle a particular transaction, the
Adviser and the Fund may take into account whether the firm has sold or is
selling shares of the Fund. See "Portfolio Transactions and Brokerage
Allocation" in the Statement of Additional Information for more information.
PORTFOLIO TURNOVER. The Fund purchases securities which are believed by the
Adviser to have potential for long-term growth of capital. Common stocks are
disposed of in situations where it is believed that potential for such capital
growth has lessened or that other common stocks have a greater potential.
Therefore, the Fund may purchase and sell securities without regard to the
length of time the security is to be, or has been held. The rate may exceed
100%, which is higher than that of many other investment companies. A 100%
turnover rate occurs, for example, if all the Fund's portfolio securities are
replaced during one year. High
16
<PAGE> 172
portfolio activity increases the Fund's transaction costs, including brokerage
commissions.
- ------------------------------------------------------------------------------
INVESTMENT ADVISORY SERVICES
- ------------------------------------------------------------------------------
THE ADVISER. The Adviser is a wholly-owned subsidiary of Van Kampen American
Capital, Inc. ("Van Kampen American Capital"). Van Kampen American Capital is a
diversified asset management company with more than two million retail investor
accounts, extensive capabilities for managing institutional portfolios and over
$50 billion under management or supervision. Van Kampen American Capital's more
than 40 open-end and 38 closed-end funds and more than 2,700 unit investment
trusts are professionally distributed by leading financial advisers nationwide.
Van Kampen American Capital is a wholly-owned subsidiary of VK/AC Holding,
Inc. Van Kampen American Capital Distributors, Inc., the distributor of the Fund
and the sponsor of the funds mentioned above, is also a wholly-owned subsidiary
of Van Kampen American Capital. VK/AC Holding, Inc. is controlled, through an
ownership of a substantial majority of its common stock, by The Clayton &
Dubilier Private Equity Fund IV Limited Partnership ("C & D L.P."), a
Connecticut limited partnership. C & D L.P. is managed by Clayton, Dubilier &
Rice, Inc. Clayton & Dubilier Associates IV Limited Partnership ("C & D
Associates L.P.") is the general partner of C & D L.P. The general partners of C
& D Associates L.P. are Joseph L. Rice, III, B. Charles Ames, William A. Barbe,
Alberto Cribiore, Donald J. Gogel, Leon J. Hendrix, Jr., Hubbard C. Howe and
Andrall E. Pearson, each of whom is a principal of Clayton, Dubilier & Rice,
Inc. In addition, certain officers, directors and employees of Van Kampen
American Capital and its subsidiaries (some of whom are officers or trustees of
the Fund) own, in the aggregate, not more than 7% of the common stock of VK/AC
Holding, Inc. and have the right to acquire, upon the exercise of options,
approximately an additional 11% of the common stock of VK/AC Holding, Inc.
Presently, and after giving effect to the exercise of such options, no officer
or trustee of the Fund owns or would own 5% or more of the common stock of VK/AC
Holding, Inc.
ADVISORY AGREEMENT. The business and affairs of the Fund will be managed under
the direction of the Trustees of the Trust, of which the Fund is a series.
Subject to the Trustees' authority, the Adviser and the officers of the Fund
will supervise and implement the Fund's investment activities and will be
responsible for overall management of the Fund's business affairs. The Fund will
pay the Adviser a fee (accrued daily and paid monthly) equal to a percentage of
the average daily net assets of the Fund as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS PERCENTAGE PER ANNUM
- ------------------------ --------------------
<S> <C>
First $500 million.................................. 0.70 of 1%
Next $500 million................................... 0.65 of 1%
Over $1 billion..................................... 0.60 of 1%
</TABLE>
17
<PAGE> 173
Under its investment advisory agreement, the Adviser has agreed to furnish
without charge all offices, facilities, equipment and personnel necessary to
manage the Fund, and the Fund has agreed to assume and pay the charges and
expenses of the Fund's operations, including: the compensation of the Trustees
of the Trust (other than those who are affiliated persons, as defined in the
1940 Act, of the Adviser, the Distributor or Van Kampen American Capital), the
charges and expenses of independent accountants, legal counsel, transfer and
dividend disbursing agent, and the custodian (including fees for safekeeping of
securities); costs of calculating net asset value; costs of acquiring and
disposing of portfolio securities; interest (if any) on obligations incurred by
the Fund; costs of share certificates; costs of membership dues in the
Investment Company Institute or any similar organization; costs of reports and
notices to shareholders; costs of registering shares of the Fund under federal
securities laws; miscellaneous expenses and all taxes and fees to federal, state
or other governmental agencies, excluding state securities registration
expenses.
The Adviser may utilize at its own expense credit analysis, research and
trading support services provided by its affiliate, Van Kampen American Capital
Asset Management, Inc.
PERSONAL INVESTING 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 permit trustees/directors, officers and
employees to buy and sell securities for their personal accounts subject to
procedures designed to prevent conflicts of interest including, in some
instances, preclearance of trades.
PORTFOLIO MANAGEMENT. Stephen Boyd and Evan Harrel are co-managers of the Fund
and are primarily responsible for the day-to-day management of the Fund's
investment portfolio. Messrs. Boyd and Harrel have been primarily responsible
for managing the Fund's investment portfolio since its inception. Mr. Boyd has
been Senior Vice President -- Portfolio Manager of Van Kampen American Capital
Asset Management, Inc. since May 1989. Mr. Harrel has been associate portfolio
manager of Van Kampen American Capital Asset Management, Inc. since May 1994.
Prior to that time, he was a vice president with Fayez Sarofim & Co. Each
portfolio manager is an employee of the Adviser.
- ------------------------------------------------------------------------------
ALTERNATIVE SALES ARRANGEMENTS
- ------------------------------------------------------------------------------
The Alternative Sales Arrangements permit an investor to choose the method of
purchasing shares that is more beneficial to the investor, taking into account
the amount of the purchase, the length of time the investor expects to hold the
shares, whether the investor wishes to receive dividends in cash or to reinvest
them in additional shares of the Fund, and other circumstances. Investors should
consider such factors together with the amount of sales charges and aggregate
distribution
18
<PAGE> 174
and service fees with respect to each class of shares that may be incurred over
the anticipated duration of their investment in the Fund.
The Fund currently offers three classes of shares, designated Class A Shares,
Class B Shares and Class C Shares. Shares of each class are offered at a price
equal to their net asset value per share plus a sales charge which, at the
election of the purchaser, may be imposed (a) at the time of purchase (the
"Class A Shares") or (b) on a contingent deferred basis (Class A Share purchases
over $1 million, "Class B Shares" and "Class C Shares"). Shares subject to a
contingent deferred sales charge ("CDSC") sometimes are referred to herein
collectively as "Contingent Deferred Sales Charge Shares" or "CDSC Shares."
The minimum initial investment with respect to each class of shares is $500.
The minimum subsequent investment with respect to each class of shares is $25.
It is presently the policy of the Distributor not to accept any order for Class
B Shares or Class C Shares in an amount of $1 million or more because it
ordinarily will be more advantageous for an investor making such an investment
to purchase Class A Shares.
An investor should carefully consider the sales charges applicable to each
class of shares and the estimated period of their investment to determine which
class of shares is more beneficial for the investor to purchase. For example,
investors who would qualify for a significant purchase price discount from the
maximum sales charge on Class A Shares may determine that payment of such a
reduced front-end sales charge is superior to electing to purchase Class B
Shares or Class C Shares, each with no front-end sales charge but subject to a
CDSC and a higher aggregate distribution and service fee. However, because
initial sales charges are deducted at the time of purchase of Class A Share
purchases under $1 million, a purchaser of such Class A Shares would not have
all of his or her funds invested initially and, therefore, would initially own
fewer shares than if Class B Shares or Class C Shares had been purchased. On the
other hand, an investor whose purchase would not qualify for price discounts
applicable to Class A Shares and intends to remain invested until after the
expiration of the applicable CDSC period may wish to defer the sales charge and
have all his or her funds initially invested in Class B Shares or Class C
Shares. If such an investor anticipates that he or she will redeem such shares
prior to the expiration of the CDSC period applicable to Class B Shares, the
investor may wish to acquire Class C Shares (discussed below). Investors who
intend to hold their shares for a significantly long time may not wish to
continue to bear the ongoing distribution and service expenses of Class C
Shares, which, in the aggregate, eventually would exceed the aggregate amount of
the initial sales charge and distribution and service expenses applicable to
Class A Shares, irrespective of the fact that a CDSC would eventually not apply
to a redemption of such Class C Shares.
Each class of shares represents an interest in the same portfolio of
investments of the Fund and has the same rights, except each class of shares (i)
bears those distribution fees, service fees and administrative expenses
applicable to the respec-
19
<PAGE> 175
tive class of shares as a result of its sales arrangements, (ii) has exclusive
voting rights with respect to those provisions of the Fund's Rule 12b-1
distribution plan which relate only to such class and (iii) has a different
exchange privilege. The Class B Shares and Class C Shares are subject to a
conversion feature (discussed below). Generally, a class of shares subject to a
higher ongoing distribution fee, service fee or, where applicable, the
conversion feature will have a higher expense ratio and pay lower dividends than
a class of shares subject to a lower ongoing distribution fee, service fee or
not subject to the conversion feature. The per share net asset values of the
different classes of shares are expected to be substantially the same; from time
to time, however, the per share net asset values of the classes may differ. The
net asset value per share of each class of shares of the Fund will be determined
as described in this Prospectus under "Purchase of Shares -- Net Asset Value."
The administrative expenses that may be allocated to a specific class of
shares may consist of (i) transfer agency expenses attributable to a specific
class of shares, which expenses typically will be higher with respect to classes
of shares subject to the conversion feature; (ii) printing and postage expenses
related to preparing and distributing materials such as shareholder reports,
prospectuses and proxy statements to current shareholders of a specific class;
(iii) SEC registration fees incurred by a class of shares; (iv) the expense of
administrative personnel and services as required to support the shareholders of
a specific class; (v) Trustees' fees or expense incurred as a result of issues
relating to one class of shares; (vi) accounting expenses relating solely to one
class of shares; and (vii) any other incremental expenses subsequently
identified that should be properly allocated to one or more classes of shares
that shall be approved by the SEC pursuant to an amended exemptive order. All
such expenses incurred by a class will be borne on a pro rata basis by the
outstanding shares of such class. All allocations of administrative expenses to
a particular class of shares will be limited to the extent necessary to preserve
the Fund's qualification as a regulated investment company under the Internal
Revenue Code of 1986, as amended (the "Code").
- ------------------------------------------------------------------------------
PURCHASE OF SHARES
- ------------------------------------------------------------------------------
The Fund offers shares for sale to the public on a continuous basis through
Van Kampen American Capital Distributors, Inc. (the "Distributor"), as principal
underwriter, which is located at One Parkview Plaza, Oakbrook Terrace, Illinois
60181. Shares also are offered through members of the National Association of
Securities Dealers, Inc. ("NASD") acting as securities dealers ("dealers") and
through NASD members acting as brokers for investors ("brokers") or eligible
non-NASD members acting as agents for investors ("financial intermediaries").
The Fund reserves the right to suspend or terminate the continuous public
offering at any time and without prior notice.
20
<PAGE> 176
The Fund's shares are offered at net asset value per share next computed after
an investor places an order to purchase with the investor's broker, dealer, or
financial intermediary or directly with the Distributor, plus any applicable
sales charge. Sales personnel or brokers, dealers and financial intermediaries
distributing the Fund's shares may receive differing compensation for selling
different classes of shares. It is the responsibility of the investor's broker,
dealer or financial intermediary to transmit the order to the Distributor.
Because the Fund generally determines net asset value once each business day as
of the close of business, purchase orders placed through an investor's broker,
dealer, or financial intermediary must be transmitted to the Distributor by such
broker, dealer or financial intermediary prior to such time in order for the
investor's order to be fulfilled on the basis of the net asset value to be
determined that day. Any change in the purchase price due to the failure of the
Distributor to receive a purchase order prior to such time must be settled
between the investor and the broker, dealer or financial intermediary submitting
the order.
The Distributor may from time to time implement programs under which a broker,
dealer or financial intermediary's sales force may be eligible to win nominal
awards for certain sales efforts or under which the Distributor will reallow to
any broker, dealer or financial intermediary that sponsors sales contests or
recognition programs conforming to criteria established by the Distributor, or
participates in sales programs sponsored by the Distributor, an amount not
exceeding the total applicable sales charges on the sales generated by the
broker, dealer or financial intermediary at the public offering price during
such programs. Other programs provide, among other things and subject to certain
conditions, for certain favorable distribution arrangements for shares of the
Fund. Also, the Distributor in its discretion may from time to time, pursuant to
objective criteria established by it, pay fees to, and sponsor business seminars
for, qualifying brokers, dealers or financial intermediaries for certain
services or activities which are primarily intended to result in sales of shares
of the Fund. Fees may include payment for travel expenses, including lodging,
incurred in connection with trips taken by invited registered representatives
and members of their families to locations within or outside of the United
States for meetings or seminars of a business nature. 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. 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. Such payments to brokers, dealers and
financial intermediaries for sales contests, other sales programs and seminars
are made by the Distributor out of its own assets and not out of the assets of
the Fund. These programs will not change the price an investor pays for shares
or the amount that the Fund will receive from such sale.
21
<PAGE> 177
CLASS A SHARES
The public offering price of Class A Shares is equal to the net asset value
per share plus an initial sales charge which is a variable percentage of the
offering price depending upon the amount of the sale. The table below shows
total sales charges and dealer concessions reallowed to dealers and agency
commissions paid to brokers with respect to sales of Class A Shares. The sales
charge is allocated between an investor's broker, dealer or financial
intermediary and the Distributor. As indicated previously, at the discretion of
the Distributor, the entire sales charge may be reallowed to such broker, dealer
or financial intermediary. The staff of the SEC has taken the position that
brokers, dealers and financial intermediaries who receive more than 90% or more
of the sales charge may be deemed to be "underwriters" as that term is defined
in the Securities Act of 1933.
SALES CHARGE TABLE
<TABLE>
<CAPTION>
DEALER
CONCESSION
OR AGENCY
COMMISSION
TOTAL SALES CHARGE ----------
-------------------------- PERCENTAGE
PERCENTAGE PERCENTAGE OF
SIZE OF TRANSACTION OF OFFERING OF NET OFFERING
AT OFFERING PRICE PRICE ASSET VALUE PRICE
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000.................... 5.75% 6.10% 5.00%
$50,000 but less than $100,000....... 4.75 4.99 4.00
$100,000 but less than $250,000...... 3.75 3.90 3.00
$250,000 but less than $500,000...... 2.75 2.83 2.25
$500,000 but less than $1,000,000.... 2.00 2.04 1.75
$1,000,000 or more*.................. * * *
</TABLE>
- ------------------------------------------------------------------------------
* No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the Fund imposes a contingent
deferred sales charge of 1.00% on redemptions made within one year of the
purchase. A commission will be paid to dealers who initiate and are
responsible for purchases of $1 million or more as follows: 1.00% on sales to
$2 million, plus 0.80% on the next million, plus 0.20% on the next $2 million
and 0.08% on the excess over $5 million. See "Purchase of Shares -- Deferred
Sales Charge Alternatives" for additional information with respect to
contingent deferred sales charges.
QUANTITY DISCOUNTS
Investors purchasing Class A Shares may, under certain circumstances, be
entitled to pay reduced sales charges. The circumstances under which such
investors may pay reduced sales charges are described below.
Investors, or their brokers, dealers or financial intermediaries, must notify
the Fund whenever a quantity discount is applicable to purchases. Upon such
notification, an investor will receive the lowest applicable sales charge.
Quantity discounts
22
<PAGE> 178
may be modified or terminated at any time. For more information about quantity
discounts, investors should contact their broker, dealer or financial
intermediary or the Distributor.
As used herein, "any person" eligible for a reduced sales charge includes an
individual, their spouse and minor children (and any trust or custodial accounts
for their benefit) and any corporation, partnership, or sole proprietorship
which is 100% owned, either alone or in combination, by any of the foregoing; a
trustee or other fiduciary purchasing for a single fiduciary account; or a
"company" as defined is section 2(a)(8) of the 1940 Act.
As used herein, "Participating Funds" refers to all open-end investment
companies distributed by the Distributor other than Van Kampen American Capital
Tax Free Money Fund ("Tax Free Money Fund"), Van Kampen American Capital Reserve
Fund ("Reserve Fund") and The Govett Funds, Inc.
VOLUME DISCOUNTS. The size of investment shown in the preceding table applies
to the total dollar amount being invested by any person at any one time in Class
A Shares of the Fund alone, or in combination with other shares of the Fund and
shares of other Participating Funds although other Participating Funds may have
different sales charges.
CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the preceding
table may also be determined by combining the amount being invested in Class A
Shares of the Fund with other shares of the Fund and shares of Participating
Funds plus the current offering price of all shares of the Fund and other
Participating Funds which have been previously purchased and are still owned.
LETTER OF INTENT. A Letter of Intent provides an opportunity for an investor
to obtain a reduced sales charge by aggregating the amount being invested over a
13-month period to determine the sales charge as outlined in the preceding
table. The size of investment shown in the preceding table includes the amount
of intended purchases of Class A Shares of the Fund with other shares of the
Fund and shares of the Participating Funds plus the value of all shares of the
Fund and other Participating Funds previously purchased during such 13-month
period and still owned. An investor may elect to compute the 13-month period
starting up to 90 days before the date of execution of a Letter of Intent. Each
investment made during the period receives the reduced sales charge applicable
to the total amount of the investment goal. If trades not initially made under a
Letter of Intent subsequently qualify for a lower sales charge through the
90-day back-dating provision, an adjustment will be made at the expiration of
the Letter of Intent to give effect to the lower charge. If the goal is not
achieved within the 13-month period, the investor must pay the difference
between the charges applicable to the purchases made and the charges previously
paid. When an investor signs a Letter of Intent, shares equal to at least 5% of
the total purchase amount of the level selected will be restricted from sale or
redemption by the investor until the Letter of Intent is satisfied or any
additional sales charges have been paid; if the Letter of Intent is not
23
<PAGE> 179
satisfied by the investor and any additional sales charges are not paid,
sufficient restricted shares will be redeemed by the Fund to pay such charges.
Additional information is contained in the application accompanying this
Prospectus.
OTHER PURCHASE PROGRAMS
Purchasers of Class A Shares may be entitled to reduced initial sales charges
in connection with unit trust reinvestment programs and purchases by registered
representatives of selling firms or purchases by persons affiliated with the
Fund or the Distributor. The Fund reserves the right to modify or terminate
these arrangements at any time.
UNIT TRUST REINVESTMENT PROGRAMS. The Fund permits unitholders of unit
investment trusts to reinvest distributions from such trusts in Class A Shares
of the Fund with no minimum initial or subsequent investment requirement, and
with a lower sales charge if the administrator of an investor's unit investment
trust program meets certain uniform criteria relating to cost savings by the
Fund and the Distributor. The total sales charge for all investments made from
unit trust distributions will be 1.00% of the offering price (1.01% of net asset
value). Of this amount, the Distributor will pay to the broker, dealer or
financial intermediary, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the applicable terms and conditions thereof, should
contact their broker, dealer or financial intermediary 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 the Fund's transfer agent with
appropriate backup data for each participating investor in a computerized format
fully compatible with the transfer agent's processing system.
As further requirements for obtaining these special benefits, the Fund also
requires that all dividends and other distributions by the Fund be reinvested in
additional shares without any systematic withdrawal program. There will be no
minimum for reinvestments from unit investment trusts. The Fund will send
account activity statements to such participants on a monthly basis only, even
if their investments are made more frequently.
NAV PURCHASE OPTIONS. Class A Shares of the Fund may be purchased at net asset
value, upon written assurance that the purchase is made for investment
24
<PAGE> 180
purposes and that the shares will not be resold except through redemption by the
Fund, by:
(1) Current or retired Trustees of funds advised by the Adviser, Van Kampen
American Capital Asset Management, Inc. or John Govett & Co. Limited and
such persons' families and their beneficial accounts.
(2) Current or retired directors, officers and employees of VK/AC Holding,
Inc. and any of its subsidiaries, Clayton, Dubilier & Rice, Inc.,
employees of an investment subadviser to any fund described in (1) above
or an affiliate of such subadviser; and such persons' families and their
beneficial accounts.
(3) Directors, officers, employees and registered representatives of financial
institutions that have a selling group agreement with the Distributor and
their spouses and minor children when purchasing for any accounts they
beneficially own, or, in the case of any such financial institution, when
purchasing for retirement plans for such institution's employees.
(4) Registered investment advisers, trust companies and bank trust departments
investing on their own behalf or on behalf of their clients provided that
the aggregate amount invested in Class A Shares of the Fund alone, or in
any combination of shares of the Fund and shares of other Participating
Funds as described herein under "Purchase of Shares -- Class A Shares --
Quantity Discounts," during the 13-month period commencing with the first
investment pursuant hereto equals at least $1 million. The Distributor may
pay brokers, dealers or financial intermediaries through which purchases
are made an amount up to 0.50% of the amount invested, over a twelve-month
period following such transaction.
(5) Trustees and other fiduciaries purchasing shares for retirement plans of
organizations with retirement plan assets of $10 million or more. The
Distributor may pay commissions of up to 1.00% for such purchases.
(6) Accounts as to which a broker, dealer or financial intermediary charges an
account management fee ("wrap accounts"), provided the broker, dealer or
financial intermediary has a separate agreement with the Distributor.
(7) Investors purchasing shares of the Fund with redemption proceeds from
other mutual fund complexes on which the investor has paid a front-end
sales charge or was subject to a deferred sales charge, whether or not
paid, if such redemption has occurred no more than 30 days prior to such
purchase.
(8) Full service participant directed profit sharing and money purchase plans,
full service 401(k) plans, or similar full service recordkeeping programs
made available through Van Kampen American Capital Trust Company with at
least 50 eligible employees or investing at least $250,000 in the
Participating Funds, Tax Free Money Fund or Reserve Fund. For such
investments the Fund imposes a contingent deferred sales charge of 1.00%
in the event of redemptions within one year of the purchase other than
redemptions required to make payments to participants under the terms of
25
<PAGE> 181
the plan. The contingent deferred sales charge incurred upon certain
redemptions is paid to the Distributor in reimbursement for distribution-
related expenses. A commission will be paid to dealers who initiate and
are responsible for such purchases as follows: 1.00% on sales to $5
million, plus 0.50% on the next $5 million, plus 0.25% on the excess over
$10 million.
The term "families" includes a person's spouse, minor children and
grandchildren, parents, and a person's spouse's parents.
Purchase orders made pursuant to clause (4) may be placed either through
authorized brokers, dealers or financial intermediaries as described above or
directly with the Fund's transfer agent, the investment adviser, trust company
or bank trust department, provided that the Fund's transfer agent receives
federal funds for the purchase by the close of business on the next business day
following acceptance of the order. An authorized broker, dealer or financial
intermediary may charge a transaction fee for placing an order to purchase
shares pursuant to this provision or for placing a redemption order with respect
to such shares. The Fund may terminate, or amend the terms of, offering shares
of the Fund at net asset value to such groups at any time.
DEFERRED SALES CHARGE ALTERNATIVES
Investors choosing the deferred sales charge alternative may purchase Class A
Shares in an amount of $1 million or more, Class B Shares or Class C Shares. The
public offering price of a CDSC Share is equal to the net asset value per share
without the imposition of a sales charge at the time of purchase. CDSC Shares
are sold without an initial sales charge so that the Fund may invest the full
amount of the investor's purchase payment. The Distributor will compensate
brokers, dealers and financial intermediaries participating in the continuous
public offering of the CDSC Shares out of its own assets, and not out of the
assets of the Funds, at a percentage rate of the dollar value of the CDSC Shares
purchased from the Fund by such brokers, dealers and financial intermediaries,
which percentage rate is equal to (i) with respect to Class A Shares, 1.00% on
sales to $2 million, plus 0.80% on the next million, plus 0.20% on the next $2
million and 0.08% on the excess over $5 million; (ii) 4.00% with respect to
Class B Shares; and (iii) 1.00% with respect to Class C Shares. Such
compensation will not change the price an investor will pay for CDSC Shares or
the amount that the Fund will receive from such sale.
CDSC Shares redeemed within a specified period of time generally will be
subject to a contingent deferred sales charge at the rates set forth below. The
amount of the contingent deferred sales charge will vary depending on (i) the
class of CDSC Shares to which such shares belong and (ii) the number of years
from the time of payment for the purchase of the CDSC Shares until the time of
their redemption. The charge will be assessed on an amount equal to the lesser
of the then current market value or the original purchase price of the CDSC
Shares being redeemed. Accordingly, no sales charge will be imposed on increases
in net asset value above the initial purchase price. In addition, no contingent
deferred sales
26
<PAGE> 182
charge will be assessed on CDSC Shares derived from reinvestment of dividends or
capital gains distributions. Solely for purposes of determining the number of
years from the time of any payment for the purchase of CDSC Shares, all payments
during a month will be aggregated and deemed to have been made on the last day
of the month.
Proceeds from the contingent deferred sales charge applicable to a class of
CDSC Shares are paid to the Distributor and are used by the Distributor to
defray its expenses related to providing distribution related services to the
Fund in connection with the sale of shares of such class of CDSC Shares, such as
the payment of compensation to selected dealers and agents for selling such
shares. The combination of the contingent deferred sales charge and the
distribution fee facilitates the ability of the Fund to sell such CDSC Shares
without a sales charge being deducted at the time of purchase.
In determining whether a contingent deferred sales charge is applicable to a
redemption of shares from a class of CDSC Shares, it will be assumed that the
redemption is made first of any CDSC Shares acquired pursuant to reinvestment of
dividends or distributions, second of CDSC Shares that have been held for a
sufficient period of time such that the contingent deferred sales charge no
longer is applicable to such shares, third of Class A Shares in the
shareholder's Fund account that have converted from Class B Shares or Class C
Shares, if any, and fourth of CDSC Shares held longest during the period of time
that a contingent deferred sales charge is applicable to such CDSC Shares. The
charge will not be applied to dollar amounts representing an increase in the net
asset value per share since the time of purchase.
To provide an example, assume an investor purchased 100 Class B Shares (as set
forth below) at $10 per share (at a cost of $1,000) and in the second year after
purchase, the net asset value per share is $12 and, during such time, the
investor has acquired 10 additional Class B Shares upon dividend reinvestment.
If at such time the investor makes his first redemption of 50 shares (proceeds
of $600), 10 shares will not be subject to charge because of dividend
reinvestment. With respect to the remaining 40 shares, the charge is applied
only to the original cost of $10 per share and not to the increase in net asset
value of $2 per share. Therefore, $400 of the $600 redemption proceeds will be
charged at a rate of 3.75% (the applicable rate in the second year after
purchase).
CLASS A SHARE PURCHASES OF $1 MILLION OR MORE. No sales charge is payable at
the time of purchase on investments of $1 million or more, although for such
investments the Fund imposes a contingent deferred sales charge of 1.00% on
redemptions made within one year of the purchase. A commission will be paid to
dealers who initiate and are responsible for purchases of $1 million or more as
follows: 1.00% on sales to $2 million, plus 0.80% on the next million, plus
0.20% on the next $2 million and 0.08% on the excess over $5 million.
27
<PAGE> 183
CLASS B SHARES. Class B Shares redeemed within six years of purchase generally
will be subject to a contingent deferred sales charge at the rates set forth
below, charged as a percentage of the dollar amount subject thereto:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
- ------------------- -------------------
<S> <C>
First...................................................... 4.00%
Second..................................................... 3.75%
Third...................................................... 3.50%
Fourth..................................................... 2.50%
Fifth...................................................... 1.50%
Sixth...................................................... 1.00%
Seventh and after.......................................... 0.00%
</TABLE>
The contingent deferred sales charge generally is waived on redemptions of
Class B Shares made pursuant to the Systematic Withdrawal Plan. See "Shareholder
Services -- Systematic Withdrawal Plan."
CLASS C SHARES. Class C Shares redeemed within the first twelve months of
purchase generally will be subject to a contingent deferred sales charge of
1.00% of the dollar amount subject thereto. Class C Shares redeemed thereafter
will not be subject to a contingent deferred sales charge.
CONVERSION FEATURE. Class B Shares and Class C Shares will automatically
convert to Class A Shares seven years or ten years, respectively, after the end
of the month in which a shareholder's order to purchase the shares was accepted
and will no longer be subject to the distribution fees. The purpose of the
conversion feature is to relieve the holders of Class B Shares and Class C
Shares that have been outstanding for a period of time sufficient for the
Distributor to have been compensated for distribution expenses related to the
Class B Shares or Class C Shares from most of the burden of the ongoing
distribution fee. The Fund does not expect to issue any stock certificates upon
conversion.
For purposes of conversion to Class A Shares, Class B Shares or Class C Shares
purchased through the reinvestment of dividends and distributions paid in
respect of Class B Shares and Class C Shares in a shareholder's account will be
considered to be held in a separate sub-account. Each time any Class B Shares or
Class C Shares in the shareholder's account (other than those in the
sub-account) convert to Class A Shares, an equal pro rata portion of the Class B
Shares or Class C Shares in the sub-account also will convert to Class A Shares.
The holding period applicable to a Class B Share or Class C Share acquired
through the use of the exchange privilege (discussed below) shall be the holding
period applicable to the Class B Shares or Class C Shares of such Fund acquired
other than through use of the exchange privilege. For purposes of calculating
the holding period applicable to a
28
<PAGE> 184
Class B Share or Class C Share of the Fund prior to conversion, a Class B Share
or Class C Share of the Fund issued in connection with an exercise of the
exchange privilege, or a series of exchanges, shall be deemed to have been
issued on the date on which the investor's order to purchase the exchanged Class
B Share or Class C Share was accepted or, in the case of a series of exchanges,
when the investor's order to purchase the original Class B Share or Class C
Share was accepted.
The conversion of Class B Shares and Class C Shares to Class A Shares is
subject to the continuing availability of an opinion of counsel to the effect
that (i) the assessment of the distribution fee and higher transfer agency costs
with respect to Class B Shares and Class C Shares does not result in the Fund's
dividends or distributions constituting "preferential dividends" under the Code
and (ii) that the conversion of Class B Shares or Class C Shares does not
constitute a taxable event under federal income tax law. The conversion of Class
B Shares and Class C Shares to Class A Shares may be suspended if such an
opinion is no longer available. In that event, no further conversions of Class B
Shares or Class C Shares would occur, and Class B Shares and Class C Shares
might continue to be subject to the distribution fee for an indefinite period.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE. The contingent deferred sales
charge is waived on redemptions of Class B Shares and Class C Shares (i)
following the death or disability (as defined in the Code) of a shareholder,
(ii) in connection with certain distributions from an IRA or other retirement
plan, (iii) pursuant to the Fund's systematic withdrawal plan but limited to 12%
annually of the initial value of the account, and (iv) effected pursuant to the
right of the Fund to liquidate a shareholder's account as described herein under
"Redemption of Shares." The contingent deferred sales charge is also waived on
redemptions of Class C Shares as it relates to the reinvestment of redemption
proceeds in shares of the same class of the Fund within 120 days after
redemption. See "Shareholder Services" and "Redemption of Shares" for further
discussion of the waiver provisions.
NET ASSET VALUE
The net asset value per share of the Fund will be determined separately for
each class of shares. The net asset value per share of a given class of shares
of the Fund is determined by calculating the total value of the Fund's assets
attributable to such class of shares, deducting its total liabilities
attributable to such class of shares and dividing the result by the number of
shares of such class of the Fund outstanding. The net asset value for the Fund
is computed once daily as of the close of the daily trading session of the New
York Stock Exchange, 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 reserves the right to calculate the net asset value and to
adjust the public offering price based thereon more frequently than once a day
if
29
<PAGE> 185
deemed desirable. The net asset value per share of the different classes of
shares are expected to be substantially the same; from time to time, however,
the per share net asset value of the different classes of shares may differ.
The securities of the Fund that are listed on a securities exchange are valued
at their closing sales price on the day of the valuation. Price valuations for
listed securities are based on market quotations where the security is primarily
traded or, if actual trade information is not available on any valuation date,
are valued at the mean of the bid and asked prices. Unlisted securities in the
portfolio are valued by using market quotations, prices provided by market
makers or estimates of market values obtained from yield data relating to
instruments or securities with similar characteristics in accordance with
procedures established in good faith by the Board of Trustees of the Trust, of
which the Fund is a series. Securities with remaining maturities of 60 days or
less are valued at amortized cost when amortized cost is determined in good
faith by or under the direction of the Board of Trustees of the Trust to be
representative of the fair value at which it is expected such securities may be
resold. Any securities or other assets for which current market quotations are
not readily available are valued at their fair value as determined in good faith
under procedures established by and under the general supervision of the Board
of Trustees.
- ------------------------------------------------------------------------------
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. Unless otherwise described below, each of these
services may be modified or terminated by the Fund at any time.
SHAREHOLDER SERVICES APPLICABLE TO ALL CLASSES
INVESTMENT ACCOUNT. ACCESS Investor Services, Inc. ("ACCESS"), transfer agent
for the Fund and a wholly-owned subsidiary of Van Kampen American Capital,
performs bookkeeping, data processing and administration services related to the
maintenance of shareholder accounts. Each shareholder has an investment account
under which shares are held by ACCESS. Except as described herein, after each
share transaction in an account, the shareholder receives a statement showing
the activity in the account. Each shareholder will receive statements at least
quarterly from ACCESS showing any reinvestments of dividends and capital gains
distributions and any other activity in the account since the preceding
statement. Such shareholders also will receive separate confirmations for each
purchase or sale transaction other than reinvestment of dividends and capital
gains distributions and systematic purchases or redemptions. Additions to an
investment account may be made at any time by purchasing shares through
authorized brokers, dealers or financial intermediaries or by mailing a check
directly to ACCESS.
30
<PAGE> 186
SHARE CERTIFICATES. Generally, the Fund will not issue share certificates.
However, upon written or telephone request to the Fund, a share certificate will
be issued, representing shares (with the exception of fractional shares) of the
Fund. A shareholder will be required to surrender such certificates upon
redemption thereof. In addition, if such certificates are lost the shareholder
must write to Van Kampen American Capital Funds, c/o ACCESS, P.O. Box 418256,
Kansas City, MO 64141-9256, requesting an "affidavit of loss" and to obtain a
Surety Bond in a form acceptable to ACCESS. On the date the letter is received
ACCESS 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.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gains distributions in shares of
the Fund. Such shares are acquired at net asset value (without sales charge) on
the record date of such dividend or distribution. Unless the shareholder
instructs otherwise, the reinvestment plan is automatic. This instruction may be
made by telephone by calling (800) 421-5666 ((800) 772-8889 for the hearing
impaired) or in writing to ACCESS. The investor may, on the initial application
or prior to any declaration, instruct that dividends be paid in cash and capital
gains distributions be reinvested at net asset value, or that both dividends and
capital gains distributions be paid in cash. For further information, see
"Distributions from the Fund."
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under
which a shareholder can authorize ACCESS to charge a bank account on a regular
basis to invest pre-determined amounts in the Fund. Additional information is
available from the Distributor or authorized brokers, dealers or financial
intermediaries.
RETIREMENT PLANS. Eligible investors may establish individual retirement
accounts ("IRAs"); SEP; and pension and profit sharing plans; 401(k) plans; or
Section 403(b)(7) plans in the case of employees of public school systems and
certain non-profit organizations. Documents and forms containing detailed
information regarding these plans are available from the Distributor. Van Kampen
American Capital 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.
DIVIDEND DIVERSIFICATION. A shareholder may, upon written request or by
completing the appropriate section of the application form accompanied by this
Prospectus or by calling (800) 421-5666 ((800) 772-8889 for the hearing
impaired), elect to have all dividends and other distributions paid on either
Class A Shares, Class B Shares or Class C Shares of the Fund invested into
shares of the same class of any other Participating Fund, Tax Free Money Fund or
Reserve Fund so long as a pre-existing account for such class of shares exists
for such shareholder.
31
<PAGE> 187
If the 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 as of the payable date of the
distribution only if shares of such selected fund have been registered for sale
in the investor's state.
EXCHANGE PRIVILEGE. Shares of the Fund may be exchanged with shares of another
Participating Fund, the Tax Free Money Fund or the Reserve Fund, subject to
certain limitations herein or in such other fund's prospectus. Before effecting
an exchange, shareholders in the Fund should obtain and read a current
prospectus of the fund into which the exchange is to be made. SHAREHOLDERS MAY
ONLY EXCHANGE INTO SUCH OTHER FUNDS AS ARE LEGALLY AVAILABLE FOR SALE IN THEIR
STATE.
Exchanges of Class A Shares of the Fund that have been charged a sales charge
lower than the sales charge applicable to the other fund will have the sales
charge differential imposed upon the exchange into such fund. Similarly,
exchanges of any Class A Shares of other funds that have been charged a sales
charge lower than the sales charge applicable to the Fund will have the sales
charge differential imposed upon exchange into the Fund. Shares of other funds
which have not previously been charged a sales charge (except for shares
purchased via the reinvestment option) will be charged the sales charge
differential applicable to Class A Shares of the Fund upon exchange into the
Fund.
No sales charge is imposed upon the exchange of Class B Shares and Class C
Shares. Upon redemption of Class B Shares and Class C Shares from the Van Kampen
American Capital family of funds, Class B Shares and Class C Shares which have
been exchanged are subject to the contingent deferred sales charge imposed by
the initial Van Kampen American Capital fund purchased by the investor prior to
any exchanges. The holding period requirements for the contingent deferred sales
charge, and the conversion privilege for Class B Shares of the Fund, are
determined by the date of purchase into the initial Van Kampen American Capital
fund purchased by the investor prior to any exchanges.
Exchanges of shares are sales and may result in a gain or loss for federal
income tax purposes. If the shares exchanged have been held for less than 91
days, the sales charge paid on such shares is not included in the tax basis of
the exchanged shares, but 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 ACCESS or by contacting the telephone transaction line at (800)
421-5684 ((800) 772-8889 for the hearing impaired). A shareholder automatically
has telephone exchange privileges unless otherwise designated in the application
form accompanied by this Prospectus. The exchange will take place at the
relative net asset values of the shares next determined after receipt of such
request with adjustment for any additional sales charge. Any shares exchanged
begin earning dividends on the next business day after the exchange is affected.
Van Kampen American Capital and its subsidiaries, including ACCESS
(collectively,
32
<PAGE> 188
"VKAC"), 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, a shareholder agrees that neither VKAC nor
the Fund will be liable for following telephone instructions which it reasonably
believes to be genuine. VKAC and the Fund may be liable for any losses due to
unauthorized or fraudulent instructions if reasonable procedures are not
followed. If the exchanging shareholder does not have an account in the fund
whose shares are being acquired, a new account will be established with the same
registration, dividend and capital gains options (except dividend
diversification options) and broker, dealer or financial intermediary 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 dividend diversification options for the new account, an exchanging
shareholder must file a specific written request. The Fund reserves the right to
reject any order to acquire its shares through exchange. In addition, the Fund
may restrict or terminate the exchange privilege at any time on 60 days' notice
to its shareholders of any termination or material amendment.
SYSTEMATIC WITHDRAWAL PLAN. Any investor whose shares in a single account
total $10,000 or more at the offering price next computed after receipt of
instructions may establish a monthly, quarterly, semi-annual or annual
withdrawal plan. 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 taxable gain or loss will be
recognized. The plan holder may arrange for monthly, quarterly, semi-annual, or
annual checks in any amount not less than $25. Such a systematic withdrawal plan
may also be maintained by an investor purchasing shares for a retirement plan
established on a form made available by the Fund. See "Shareholder
Services -- Retirement Plans."
Holders of Class B Shares and Class C Shares who establish a withdrawal plan
may redeem up to 12% annually of the shareholder's initial account balance
without incurring a contingent deferred sales charge. Initial account balance
means the amount of the shareholder's investment in the Fund at the time the
election to participate in the plan is made. See "Purchase of Shares -- Deferred
Sales Charge Alternatives -- Waiver of Contingent Deferred Sales Charge."
Under the plan, sufficient shares of the Fund are redeemed to provide the
amount of the periodic withdrawal payment. Dividends and capital gains
distributions on shares held under the plan are reinvested in additional shares
at the next determined net asset value. If periodic withdrawals continuously
exceed reinvested dividends and capital gains distributions, the shareholder's
original investment will be correspondingly reduced and ultimately exhausted.
Withdrawals made concurrently with purchases of additional shares ordinarily
will be disadvantageous to the shareholder
33
<PAGE> 189
because of the duplication of sales charges. The Fund reserves the right to
amend or terminate the systematic withdrawal program on thirty days' notice to
its shareholders.
SHAREHOLDER SERVICES APPLICABLE TO CLASS A SHAREHOLDERS ONLY
AUTOMATED CLEARING HOUSE ("ACH") DEPOSITS. Holders of Class A Shares can use
ACH to have redemption proceeds deposited electronically into their bank
accounts. Redemptions transferred to a bank account via the ACH plan are
available to be credited to the account on the second business day following
normal payment. In order to utilize this option, the shareholder's bank must be
a member of Automated Clearing House. 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
ACCESS 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 ACCESS.
- ------------------------------------------------------------------------------
REDEMPTION OF SHARES
- ------------------------------------------------------------------------------
Shareholders may redeem for cash some or all of their shares without charge by
the Fund (other than, with respect to CDSC Shares, the applicable contingent
deferred sales charge) at any time by sending a written request in proper form
directly to ACCESS, P. O. Box 418256, Kansas City, Missouri 64141-9256, by
placing the redemption request through an authorized dealer or by calling the
Fund.
WRITTEN REDEMPTION REQUESTS. In the case of redemption requests sent directly
to ACCESS, the redemption request should indicate the number of shares to be
redeemed, the class designation of such shares, the account number and be signed
exactly as the shares are registered. Signatures must conform exactly to the
account registration. If the proceeds of the redemption would 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. If certificates are held for the shares being redeemed, such
certificates must be endorsed for transfer or accompanied by an endorsed stock
power and sent with 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 60 days must accompany the
34
<PAGE> 190
redemption request. The redemption price is the net asset value per share next
determined after the request is received by ACCESS in proper form. Payment for
shares redeemed (less any sales charge, if applicable) will ordinarily be made
by check mailed within three business days after acceptance by ACCESS of the
request and any other necessary documents in proper order. Such payments may be
postponed or the right of redemption suspended as provided by the rules of the
SEC. If the shares to be redeemed have been recently purchased by check, ACCESS
may delay mailing a redemption check until it confirms that the purchase check
has cleared, usually a period of up to 15 days. Any gain or loss realized on the
redemption of shares is a taxable event.
DEALER REDEMPTION REQUESTS. Shareholders may sell shares through their
securities dealer, who will telephone the request to the Distributor. Orders
received from dealers must be at least $500 unless transmitted via the FUNDSERV
network. The redemption price for such shares is the net asset value next
calculated after an order is received by a 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 dealers to transmit redemption requests
received by them to the Distributor so they will be received prior to such time.
Any change in the redemption price due to failure of the Distributor to receive
a sell order prior to such time must be settled between the shareholder and
dealer. Shareholders must submit a written redemption request in proper form (as
described above under "Written Redemption Requests") to the dealer within three
business days after calling the dealer with the sell order. Payment for shares
redeemed (less any sales charge, if applicable) will ordinarily be made by check
mailed within three business days to the dealer.
TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. To establish
such privilege, a shareholder must complete the appropriate section of the
application form accompanying this Prospectus or call the Fund at (800) 421-5666
((800) 772-8889 for the hearing impaired) to request that a copy of the
Telephone Redemption Authorization form be sent to them for completion. To
redeem shares, contact the telephone transaction line at (800) 421-5684. VKAC
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, a shareholder agrees that neither VKAC nor the Fund
will be liable for following instructions which it reasonably believes to be
genuine. VKAC and the Fund may be liable for any losses due to unauthorized or
fraudulent instructions if reasonable procedures are not followed. Telephone
redemptions may not be available if the shareholder cannot reach ACCESS 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
procedures previously described. Requests received by
35
<PAGE> 191
ACCESS prior to 4:00 p.m., New York time, on a regular business day will be
processed at the net asset value per share determined that day. These privileges
are available for all accounts other than retirement accounts. The telephone
redemption privilege is not available for shares represented by certificates. If
the shares to be redeemed have been recently purchased by check, ACCESS may
delay mailing a redemption check or wiring redemption proceeds until it confirms
that the purchase check has cleared, usually a period of up to 15 days. If an
account has multiple owners, ACCESS 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 sent to the shareholders'
address of record and amounts of at least $1,000 and up to $1 million may be
redeemed daily if the proceeds are to be paid by wire sent to the shareholder's
bank account of record. The proceeds must be payable to the shareholder(s) of
record. Proceeds from redemptions to be paid by check will ordinarily be mailed
within three business days to the shareholder's address of record. Proceeds from
redemptions to be paid by wire will ordinarily be wired on the next business day
to the shareholder's bank account of record. This privilege is not available if
the address of record has been changed within 30 days prior to a telephone
redemption request. The Fund reserves the right at any time to terminate, limit
or otherwise modify this telephone redemption privilege.
REDEMPTION UPON DISABILITY. The Fund will waive the contingent deferred sales
charge on redemptions following the disability of holders of Class B Shares and
Class C Shares. An individual will be considered disabled for this purpose if he
or she meets the definition thereof in Section 72(m)(7) of the Code, which in
pertinent part defines a person as disabled if such person "is unable to engage
in any substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death or to be
of long-continued and indefinite duration." While the Fund does not specifically
adopt the balance of the Code's definition which pertains to furnishing the
Secretary of Treasury with such proof as he or she may require, the Distributor
will require satisfactory proof of disability before it determines to waive the
contingent deferred sales charge on Class B Shares and Class C Shares.
In cases of disability, the contingent deferred sales charges on Class B
Shares and Class C Shares will be waived where the disabled person is either an
individual shareholder or owns the shares as a joint tenant with right of
survivorship or is the beneficial owner of a custodial or fiduciary account, and
where the redemption is made within one year of the initial determination of
disability. This waiver of the contingent deferred sales charge on Class B
Shares and Class C Shares applies to a total or partial redemption, but only to
redemptions of shares held at the time of the initial determination of
disability.
GENERAL REDEMPTION INFORMATION. The Fund may redeem any shareholder account
with a net asset value on the date of the notice of redemption less than the
minimum investment as specified by the Trustees. At least 60 days advance
written
36
<PAGE> 192
notice of any such involuntary redemption is required and the shareholder is
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 investment
due to shareholder redemptions.
REINSTATEMENT PRIVILEGE. Holders of Class A Shares or Class B Shares who have
redeemed shares of the Fund may reinstate any portion or all of the net proceeds
of such redemption in Class A Shares of the Fund. Holders of Class C Shares who
have redeemed shares of the Fund may reinstate any portion or all of the net
proceeds of such redemption in Class C Shares of the Fund with credit given for
any contingent deferred sales charge paid upon such redemption. Such
reinstatement is made at the net asset value next determined after the order is
received, which must be within 120 days after the date of the redemption. See
"Purchase of Shares -- Waiver of Contingent Deferred Sales Charge."
Reinstatement at net asset value is also offered to participants in those
eligible retirement plans held or administered by Van Kampen American Capital
Trust Company for repayment of principal (and interest) on their borrowings on
such plans.
- ------------------------------------------------------------------------------
THE DISTRIBUTION AND SERVICE PLANS
- ------------------------------------------------------------------------------
The Fund has adopted a distribution plan (the "Distribution Plan") with
respect to each class of its shares pursuant to Rule 12b-1 under the 1940 Act.
The Fund also has adopted a service plan (the "Service Plan") with respect to
each class of its shares. The Distribution Plan and the Service Plan provide
that the Fund may spend a portion of the Fund's average daily net assets
attributable to each class of shares in connection with the distribution of the
respective class of shares and in connection with the provision of ongoing
services to shareholders of each class. The Distribution Plan and the Service
Plan are being implemented through an agreement with the Distributor and
sub-agreements between the Distributor and brokers, dealers and financial
intermediaries (collectively, "Selling Agreements") that may provide for their
customers or clients certain services or assistance.
CLASS A SHARES. The Fund may spend an aggregate amount of up to 0.25% per year
of the average daily net assets attributable to the Class A Shares of the Fund
pursuant to the Distribution Plan and the Service Plan. From such amount, the
Fund may spend up to 0.25% per year of the Fund's average daily net assets
attributable to the Class A Shares pursuant to the Service Plan in connection
with the ongoing provision of services to holders of such shares by the
Distributor and by brokers, dealers or financial intermediaries and in
connection with the maintenance of such shareholders' accounts. The Fund pays
the Distributor the lesser of the balance of the 0.25% not paid to such brokers,
dealers or financial intermediaries or the amount of the Distributor's actual
distribution related expense.
CLASS B SHARES. The Fund may spend up to 0.75% per year of the average daily
net assets attributable to the Class B Shares of the Fund pursuant to the
37
<PAGE> 193
Distribution Plan. In addition, the Fund may spend up to 0.25% per year of the
Fund's average daily net assets attributable to the Class B Shares pursuant to
the Service Plan in connection with the ongoing provision of services to holders
of such shares by the Distributor and by brokers, dealers or financial
intermediaries and in connection with the maintenance of such shareholders'
accounts.
CLASS C SHARES. The Fund may spend up to 0.75% per year of the average daily
net assets attributable to the Class C Shares of the Fund pursuant to the
Distribution Plan. From such amount, the Fund, or the Distributor as agent for
the Fund, pays brokers, dealers or financial intermediaries in connection with
the distribution of the Class C Shares up to 0.75% of the Fund's average daily
net assets attributable to Class C Shares maintained in the Fund more than one
year by such broker's, dealer's or financial intermediary's customers. The Fund
pays the Distributor the lesser of the balance of the 0.75% not paid to such
brokers, dealers or financial intermediaries or the amount of the Distributor's
actual distribution related expense attributable to the Class C Shares. In
addition, the Fund may spend up to 0.25% per year of the Fund's average daily
net assets attributable to the Class C Shares pursuant to the Service Plan in
connection with the ongoing provision of services to holders of such shares by
the Distributor and by brokers, dealers or financial intermediaries and in
connection with the maintenance of such shareholders' accounts.
OTHER INFORMATION. Amounts payable to the Distributor with respect to the
Class A Shares under the Distribution Plan in a given year may not fully
reimburse the Distributor for its actual distribution-related expenses during
such year. In such event, with respect to the Class A Shares, there is no
carryover of such reimbursement obligations to succeeding years.
The Distributor's actual expenses with respect to a class of CDSC Shares for
any given year may exceed the amounts payable to the Distributor with respect to
such class of CDSC Shares under the Distribution Plan, the Service Plan and
payments received pursuant to the contingent deferred sales charge. In such
event, with respect to any such class of CDSC Shares, any unreimbursed expenses
will be carried forward and paid by the Fund (up to the amount of the actual
expenses incurred) in future years so long as such Distribution Plan is in
effect. Except as mandated by applicable law, the Fund does not impose any limit
with respect to the number of years into the future that such unreimbursed
expenses may be carried forward (on a Fund level basis). Because such expenses
are accounted on a Fund level basis, in periods of extreme net asset value
fluctuation such amounts with respect to a particular CDSC Share may be greater
or less than the amount of the initial commission (including carrying cost) paid
by the Distributor with respect to such CDSC Share. In such circumstances, a
shareholder of such CDSC Share may be deemed to incur expenses attributable to
other shareholders of such class. If the Distribution Plan was terminated or not
continued, the Fund would not be contractually obligated to pay the Distributor
for any expenses not previously reimbursed by the Fund or recovered through
contingent deferred sales charges.
38
<PAGE> 194
Because the Fund is a series of the Trust, amounts paid to the Distributor as
reimbursement for expenses of one series of the Trust may indirectly benefit the
other funds which are series of the Trust. The Distributor will endeavor to
allocate such expenses among such funds in an equitable manner. The Distributor
will not use the proceeds from the contingent deferred sales charge applicable
to a particular class of CDSC Shares to defray distribution related expenses
attributable to any other class of CDSC Shares. Various federal and state laws
prohibit national banks and some state-chartered commercial banks from
underwriting or dealing in the Fund's shares. In addition, state securities laws
on this issue may differ from the interpretations of federal law, and banks and
financial institutions may be required to register as dealers pursuant to state
law. In the unlikely event that a court were to find that these laws prevent
such banks from providing such services described above, the Fund would seek
alternate providers and expects that shareholders would not experience any
disadvantage.
- ------------------------------------------------------------------------------
DISTRIBUTIONS FROM THE FUND
- ------------------------------------------------------------------------------
The Fund's present policy, which may be changed at any time by the Board of
Trustees, is to annually declare dividends to holders of each class of shares
from net investment income and net short-term capital gains attributable to each
respective class. The Fund also presently intends to make distributions of net
long-term capital gains, if any, annually. Dividends are composed of all or a
portion of investment income earned by each class of shares of the Fund plus all
or a portion of net short-term capital gains by the Fund on transactions in
securities and futures and options hedging transactions, less the expenses
attributable to the respective class. Long-term capital gains distributions
consist of the Fund's gain on transactions in securities and futures and options
hedging transactions, net of any realized capital losses, less any carryover
capital losses from previous years.
Distributions with respect to each class of shares will be calculated in the
same manner on the same day and will be in the same amount, except that the
different distribution and service fees and any incremental administrative
expenses relating to each class of shares will be borne exclusively by the
respective class and may cause the distributions relating to the different
classes of shares to differ. Generally, distributions with respect to a class of
shares subject to a higher distribution fee, service fee, or where applicable,
the conversion feature will be lower than distributions with respect to a class
of shares subject to a lower distribution fee, service fee, or not subject to
the conversion feature.
Distribution checks may be sent to parties other than the shareholder in whose
name the account is registered. Shareholders wishing to utilize this service
should complete the appropriate section of the account application accompanying
this Prospectus or available from Van Kampen American Capital Funds, c/o ACCESS,
P.O. Box 418256, Kansas City, MO 64141-9256. After ACCESS receives this
39
<PAGE> 195
completed form, distribution checks will be sent to the bank or other person so
designated by such shareholder.
PURCHASE OF ADDITIONAL SHARES WITH DISTRIBUTIONS. The Fund automatically will
credit distributions to a shareholder's account in additional shares of the Fund
valued at net asset value, without sales charge. Unless the Shareholder
instructs otherwise, the reinvestment plan is automatic. This instruction may be
made by telephone by calling (800) 421-5666 ( (800) 772-8889 for the hearing
impaired) or in writing to ACCESS.
- ------------------------------------------------------------------------------
TAX STATUS
- ------------------------------------------------------------------------------
The Fund intends to qualify as a regulated investment company under Subchapter
M of the Internal Revenue Code of 1986, as amended (the "Code"). To qualify as a
regulated investment company, the Fund must comply with certain requirements of
the Code relating to, among other things, the source of its income and the
diversification of its assets. If the Fund so qualifies and if it distributes to
its shareholders at least 90% of its net investment income (which includes net
short-term capital gains, but not net capital gains, which are the excess of net
long-term capital gains over net short-term capital losses), it will not be
required to pay federal income taxes on any income distributed to shareholders.
The Fund intends to distribute at least the minimum amount of net investment
income required to satisfy the 90% distribution requirement. The Fund will not
be subject to federal income tax on any net capital gains distributed to its
shareholders.
Distributions of the Fund's net investment income are taxable to shareholders
as ordinary income whether received in shares or cash. Shareholders who receive
distributions in the form of additional shares will have a basis for federal
income tax purposes in each share equal to the value thereof on the distribution
date. Distributions of the Fund's net capital gains ("capital gain dividends"),
if any, are taxable to shareholders as long-term capital gains regardless of the
length of time the Fund shares have been held by such shareholders.
Distributions in excess of the Fund's earnings and profits will first reduce the
adjusted tax basis of the shares held by the shareholders and, after such
adjusted tax basis is reduced to zero, will constitute capital gains to such
shareholder (assuming such shares are held as a capital asset). The Fund will
inform shareholders of the source and tax status of such distributions promptly
after the close of each calendar year. Some portion of the distributions made by
the Fund generally will be eligible for the dividends received deduction for
corporations if the Fund receives qualifying dividends during the year and if
certain other requirements of the Code are satisfied.
Redemption or resale of shares of the Fund will be a taxable transaction for
federal income tax purposes. Redeeming shareholders will recognize gain or loss
in an amount equal to the difference between their basis in such redeemed shares
of the Fund and the amount received. If such shares are held as a capital asset,
the gain or loss will be a capital gain or loss and will generally be long-term
if such
40
<PAGE> 196
shareholders have held their shares for more than one year. Any loss realized
upon a taxable disposition of shares held for six months or less will be treated
as 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.
Some of the Fund's investment practices are subject to special provisions of
the Code that may, among other things, defer the use of losses of the Fund and
affect the holding period of securities held by the Fund and the character of
the gains or losses realized by the Fund. These provisions may also require the
Fund to mark-to-market some of the positions in its portfolio (i.e., treat them
as if they were closed out), which may cause the Fund to recognize income
without receiving the cash with which to make distributions in amounts necessary
to satisfy the distribution requirements for avoiding federal income and, as
described below, excise taxes. The Fund will monitor its transactions and may
make certain tax elections in order to mitigate the effect of these rules and
prevent disqualification of the Fund as a regulated investment company.
The Fund's ability to dispose of portfolio securities may be limited by the
requirement for qualification as a regulated investment company that less than
30% of the Fund's annual gross income be derived from the disposition of
securities held for less than three months.
Income from investments in foreign securities may be subject to foreign
taxation imposed by withholding. Shareholders of the Fund will not be able to
claim any deduction or foreign tax credit with respect to such foreign taxes.
In order to avoid a 4% excise tax, the Fund will be required to distribute by
December 31 of each year at least 98% of its ordinary income for such year and
at least 98% of its capital gain net income (computed on the basis of the
one-year period ending on October 31 of such year), plus any amounts that were
not distributed in previous taxable years. For purposes of the excise tax, any
ordinary income or capital gain net income retained by and subject to federal
income tax in the hands of the Fund will be treated as having been distributed.
Although dividends generally will be treated as distributed when paid,
dividends declared in October, November or December, payable to shareholders of
record on a specified date in such a month and paid in January of the following
year, will be treated as having been distributed by the Fund (and received by
the shareholders) on December 31 of the year in which the dividend was declared.
In addition, certain other distributions made after the close of a taxable year
of the Fund may be "spilled back" and treated as having been 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 is actually made.
41
<PAGE> 197
The Fund is required, in certain circumstances, to withhold 31% of dividends
and certain other payments, including redemptions, paid to shareholders who do
not furnish to the Fund their correct taxpayer identification number (in the
case of individuals, their social security number) or who are otherwise subject
to backup withholding. 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 any applicable treaty.
The federal income tax discussion set forth above is for general information
only. Prospective investors should consult their own advisors regarding the
specific federal tax consequences of holding and disposing of shares, as well as
the effects of state, local and foreign tax laws and any proposed tax law
changes.
- ------------------------------------------------------------------------------
FUND PERFORMANCE
- ------------------------------------------------------------------------------
From time to time advertisements and other sales materials for the Fund may
include information concerning the historical performance of the Fund. Any such
information will include the average total return of the Fund calculated on a
compounded basis for specified periods of time. Such total return will be
calculated pursuant to rules established by the SEC and will be computed
separately for each class of the Fund's shares. In lieu of or in addition to
total return calculations, such information may include performance rankings and
similar information from independent organizations such as Lipper Analytical
Services, Inc., Business Week, Forbes or other industry publications. In
addition, from time to time the Fund may compare its performance to certain
securities and unmanaged indices which may have different risk/reward
characteristics than the Fund. Such characteristics may include, but are not
limited to, tax features, guarantees, insurance and the fluctuation of principal
and/or return. In addition, from time to time sales materials and advertisements
for the Fund may include hypothetical information.
Further information about the Fund's performance is contained in its Annual
Report and its Statement of Additional Information each of which can be obtained
without charge by calling (800) 421-5666 ((800) 772-8889 for the hearing
impaired).
- ------------------------------------------------------------------------------
DESCRIPTION OF SHARES OF THE FUND
- ------------------------------------------------------------------------------
The Fund is a series of the Van Kampen American Capital Equity Trust, a
Delaware business trust organized as of May 10, 1995 (the "Trust"). The Fund was
originally organized in 1986 as a Massachusetts business trust, was reorganized
in 1988 as a sub-trust of Van Kampen Merritt Equity Trust, a Massachusetts
business trust, and was reorganized as a series of the Trust as of July 31,
1995. Shares of the Trust entitle their holders to one vote per share; however,
separate votes are taken by each series on matters affecting an individual
series.
42
<PAGE> 198
The authorized capitalization of the Fund consists of an unlimited number of
shares of beneficial interest, $0.01 par value, divided into classes. The Fund
currently offers three classes, designated Class A Shares, Class B Shares and
Class C Shares. Each class of shares represents an interest in the same assets
of the Fund and are identical in all respects except that each class bears
certain distribution expenses and has exclusive voting rights with respect to
its distribution fee.
Pursuant to an order of the SEC, the Fund is permitted to issue an unlimited
number of classes of shares. Each class of shares is equal as to earnings,
assets and voting privileges, except as noted above, and each class bears the
expenses related to the distribution of its shares. There are no conversion,
preemptive or other subscription rights, except with respect to the conversion
of Class B Shares and Class C Shares into Class A Shares as described above. In
the event of liquidation, each of the shares of the Fund is entitled to its
portion of all of the Fund's net assets after all debt and expenses of the Fund
have been paid. Since Class B Shares and Class C Shares pay higher distribution
expenses, the liquidation proceeds to holders of Class B Shares and Class C
Shares are likely to be lower than to other shareholders.
The Trust does not contemplate holding regular meetings of shareholders to
elect Trustees or otherwise. However, the holders of 10% or more of the
outstanding shares may by written request require a meeting to consider the
removal of Trustees by a vote of a majority of the shares present and voting at
such meeting. The Trust will assist such holders in communicating with other
shareholders of the Fund to the extent required by the 1940 Act. More detailed
information concerning the Trust is set forth in the Statement of Additional
Information.
- ------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- ------------------------------------------------------------------------------
This Prospectus and the Statement of Additional Information do not contain all
the information set forth in the Registration Statement filed by the Fund with
the SEC under the Securities Act of 1933. Copies of the Registration Statement
may be obtained at a reasonable charge from the SEC or may be examined, without
charge, at the office of the SEC in Washington, D.C.
The Fund's fiscal year ends on June 30. The Fund sends to its shareholders at
least semi-annually reports showing the Fund's portfolio and other information.
An annual report, containing financial statements audited by the Fund's
independent auditors, is sent to shareholders each year. After the end of each
year, shareholders will receive federal income tax information regarding
dividends and capital gains distributions.
Shareholder inquiries should be directed to the Van Kampen American Capital
Great American Companies Fund, One Parkview Plaza, Oakbrook Terrace, Illinois
60181, Attn: Correspondence.
43
<PAGE> 199
For Automated Telephone Service which provides 24-hour direct dial access to
Fund facts and Shareholder account information, dial (800) 421-5666. For
inquiries through Telecommunications Device for the Deaf (TDD) dial (800)
772-8889.
44
<PAGE> 200
VAN KAMPEN AMERICAN CAPITAL
GREAT AMERICAN COMPANIES FUND
One Parkview Plaza
Oakbrook Terrace, IL 60181
------------------------------------
Investment Adviser
VAN KAMPEN AMERICAN CAPITAL
INVESTMENT ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, IL 60181
Distributor
VAN KAMPEN AMERICAN CAPITAL
DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, IL 60181
EXISTING SHAREHOLDERS-- Transfer Agent
FOR INFORMATION ON YOUR ACCESS INVESTOR SERVICES, INC.
EXISTING ACCODUNT PLEASE P.O. Box 418256
CALL THE FUND'S TOLL-FREE Kansas City, MO 64141-9256
NUMBER (800) 421-5666. Attn: Van Kampen American Capital Funds
PROSPECTIVE INVESTORS--CALL Custodian
YOUR BROKER OR (800) 421-5666. STATE STREET BANK AND
TRUST COMPANY
DEALERS--FOR DEALER 225 Franklin Street, P.O. Box 1713
INFORMATION, SELLING Boston, MA 02105
AGREEMENTS, WIRE ORDERS, Attn: Van Kampen American Capital Funds
OR REDEMPTIONS CALL THE
DISTRIBUTOR'S TOLL-FREE Legal Counsel
NUMBER (800) 421-5666. SKADDEN, ARPS, SLATE,
MEAGHER & FLOM
FOR SHAREHOLDER AND 333 West Wacker Drive
DEALER INQUIRIES THROUGH Chicago, IL 60606
TELECOMMUNICATIONS
DEVICE FOR THE DEAF (TDD) Independent Auditors
DIAL (800) 772-8889 KPMG PEAT MARWICK LLP
Peat Marwick Plaza
FOR AUTOMATED TELEPHONE 303 East Wacker Drive
SERVICES DIAL (800) 421-5666 Chicago, IL 60601
<PAGE> 201
GREAT AMERICAN
COMPANIES FUND
------------------------------------------------------------------------------
P R O S P E C T U S
, 1995
------ A WEALTH OF KNOWLEDGE o A KNOWLEDGE OF WEALTH ------
VAN KAMPEN AMERICAN CAPITAL
- -------------------------------------------------------------------------------
<PAGE> 202
STATEMENT OF ADDITIONAL INFORMATION
VAN KAMPEN AMERICAN CAPITAL GREAT AMERICAN COMPANIES FUND
Van Kampen American Capital Great American Companies Fund (the "Fund") seeks
long-term growth of capital. The Fund will attempt to achieve this investment
objective by investing primarily in a diversified portfolio of common stocks and
other equity securities of U.S. companies that, in the investment adviser's
view, have achieved leading and sustainable positions within their U.S.
industrial sectors. There is no assurance that the Fund will achieve its
investment objective. The Fund is a mutual fund whose portfolio is advised by
Van Kampen American Capital Investment Advisory Corp. (the "Adviser"). The Fund
is a separate series of Van Kampen American Capital Equity Trust (the "Trust").
This Statement of Additional Information is not a prospectus but should be
read in conjunction with the Prospectus for the Fund dated , 1995 (the
"Prospectus"). This Statement of Additional Information does not include all of
the information that a prospective investor should consider before purchasing
shares of the Fund, and investors should obtain and read the Prospectus prior to
purchasing shares. A copy of the Prospectus may be obtained without charge by
calling (800) 421-5666. This Statement of Additional Information incorporates by
reference the entire Prospectus.
The Prospectus and this Statement of Additional Information omit certain of
the information contained in the registration statement filed with the
Securities and Exchange Commission, Washington, D.C. These items may be obtained
from the Commission upon payment of the fee prescribed, or inspected at the
Commission's office at no charge.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Fund and the Trust............................................................... B-2
Investment Policies and Restrictions................................................. B-2
Additional Investment Considerations................................................. B-4
Description of Securities Ratings.................................................... B-12
Officers and Trustees................................................................ B-19
Legal Counsel........................................................................ B-24
Investment Advisory and Other Services............................................... B-24
Portfolio Transactions and Brokerage Allocation...................................... B-25
Tax Status of the Fund............................................................... B-26
The Distributor...................................................................... B-26
Performance Information.............................................................. B-27
</TABLE>
THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED , 1995.
B-1
<PAGE> 203
THE FUND AND THE TRUST
The Fund is a separate diversified series of the Trust, an open-end management
investment company. At present, the Fund, Van Kampen American Capital Utility
Fund, Van Kampen American Capital Balanced Fund, Van Kampen American Capital
Value Fund, Van Kampen American Capital Growth Fund, Van Kampen American Capital
Great American Companies Fund, and Van Kampen Capital American Prospector Fund
are the only series of the Trust, although other series may be organized and
offered in the future.
The Trust is an unincorporated business trust established under the laws of
the State of Delaware by an Agreement and Declaration of Trust dated May 10,
1995 (the "Declaration of Trust"). The Declaration of Trust permits the Trustees
to create one or more separate investment portfolios and issue a series of
shares, $0.01 par value, for each portfolio. The Trustees can further sub-divide
each series of shares into one or more classes of shares for each portfolio.
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 Trust was originally organized in
1986 as a Massachusetts business trust, and reorganized as a Delaware business
trust as of July 31, 1995.
Shares of the Trust entitle their holders to one vote per share; however,
separate votes are taken by each series on matters affecting an individual
series. For example, a change in investment policy for a series would be voted
upon by shareholders of only the series involved. Shares do not have cumulative
voting rights, preemptive rights or any conversion or exchange rights. The Trust
does not contemplate holding regular meetings of shareholders to elect Trustees
or otherwise. However, the holders of 10% or more of the outstanding shares may
by written request require a meeting to consider the removal of Trustees by a
vote of a majority of the shares present and voting at such meeting. The Trust
will assist such holders in communicating with other shareholders of the Fund to
the extent required by the Investment Company Act of 1940 (the "1940 Act").
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.
INVESTMENT POLICIES AND RESTRICTIONS
The investment objective of the Fund is set forth in the Prospectus under the
caption "Investment Objective and Policies." There can be no assurance that the
Fund will achieve its investment objective.
Fundamental investment restrictions limiting the investments of the Fund
provide that the Fund may not:
1. Purchase any securities (other than obligations issued or guaranteed by
the United States Government or by its 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, such 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. Neither limitation
shall apply to the acquisition of shares of other open-end investment
companies to the extent permitted by rule or order of
B-2
<PAGE> 204
the Securities and Exchange Commission exempting the Fund from the
limitations imposed by Section 12(d)(1) of the 1940 Act.
2. Invest more than 25% of its assets in a single industry, provided,
however, that this limitation excludes shares of other open-end investment
companies owned by the Fund but includes the Fund's pro rata portion of
the securities and other assets owned by any such company. (Neither the
U.S. Government nor any of its agencies or instrumentalities will be
considered an industry for purposes of this restriction.)
3. Issuer senior securities, borrow money from banks or enter into reverse
repurchase agreements with banks in the aggregate in excess of 33 1/3% of
the Fund's total assets (after giving effect to any such borrowing); which
amount excludes no more than 5% in borrowings and reverse repurchase
agreements with any entity for temporary purposes. The Fund will not
mortgage, pledge or hypothecate any assets other than in connection with
issuances of senior securities, borrowings, delayed delivery and when
issued transactions and strategic transactions techniques.
4. Make loans of money or property to any person, except (i) to the extent
the securities in which the Fund may invest are considered to be loans,
(ii) through the loan of portfolio securities, and (iii) to the extent
that the Fund may lend money or property in connection with maintenance of
the value of, or the Fund's interest with respect to, the securities owned
by the Fund.
5. Sell any securities "short," unless at all times when a short position is
open the Fund owns an equal amount of the securities or of securities
convertible into, or exchangeable without further consideration for,
securities of the same issue as the securities sold short.
6. 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.
7. Make investments for the purpose of exercising control or participation in
management, except to the extent that exercise by the Fund of its rights
under agreements related to portfolio securities would be deemed to
constitute such control or participation.
8. Invest in securities of other investment companies, except as part of a
merger, consolidation or other acquisition, except as permitted under the
1940 Act and except to the extent permitted by rule or order of the
Securities and Exchange Commission exempting the Fund from the limitations
imposed by Section 12(d)(1) of the 1940 Act.
9. Invest in interests in oil, gas, or other mineral exploration or
development programs, except pursuant to the exercise by the Fund of its
rights under agreements relating to portfolio securities.
10. Purchase or sell real estate, commodities or commodity contracts, except
to the extent that the securities that the Fund may invest in are
considered to be interests in real estate, commodities or commodity
contracts or to the extent the Fund exercises its rights under agreements
relating to portfolio securities (in which case the Fund may liquidate
real estate acquired as a result of a default on a mortgage), and except
to the extent that Strategic Transactions the Fund may engage in are
considered to be commodities or commodities contracts.
For purposes of the concentration policy of the Fund contained in limitation
(2) above, the Fund intends to comply with the SEC staff position that
securities issued or guaranteed as to principal and interest by any one single
foreign government, or by all supranational organizations in the aggregate, are
considered to be securities of issuers in the same industry.
The Fund may not change any of these investment restrictions nor any other
fundamental policy as they apply to the Fund without the approval of the lesser
of (i) more than 50% of the Fund's outstanding shares or (ii) 67% of the Fund's
shares present at a meeting at which the holders of more than 50% of the
outstanding shares are present in person or by proxy. As long as the percentage
restrictions described above are satisfied at the time of the investment or
borrowing, the Fund will be considered to have abided by those restrictions even
if, at a later time, a change in values or net assets causes an increase or
decrease in percentage beyond that allowed.
B-3
<PAGE> 205
The Fund may invest up to 15% of its total assets in illiquid securities,
securities the disposition of which is subject to substantial legal or
contractual restrictions on resale and securities that are not readily
marketable. The sale of restricted and illiquid securities often requires more
time and results in higher brokerage charges or dealer discounts and other
selling expenses than does the sale of securities eligible for trading on
national securities exchanges or in the over-the-counter markets. Restricted
securities may sell at a price lower than similar securities that are not
subject to restrictions on resale. Restricted securities salable among qualified
institutional buyers without restriction pursuant to Rule 144A under the
Securities Act of 1933 that are determined to be liquid by the Adviser under
guidelines adopted by the Board of Trustees of the Trust (under which guidelines
the Adviser will consider factors such as trading activities and the
availability of price quotations), will not be treated as restricted securities
by the Fund pursuant to such rules. This limitation excludes shares of other
open-end investment companies owned by the Fund but includes the Fund's pro rata
portion of the securities and other assets owned by any such company. The Fund
may, from time to time, adopt a more restrictive limitation with respect to
investment in illiquid and restricted securities in order to comply with the
most restrictive state securities law, currently 10%. This policy does not
include restricted securities eligible for resale pursuant to Rule 144A under
the Securities Act of 1933, as amended, which the Board of Trustees or the
Fund's investment adviser has determined under Board-approved guidelines to be
liquid. The Fund's policy with respect to investment in illiquid and restricted
securities is not a fundamental policy and may be changed by the Board of
Trustees, in consultation with the adviser, without obtaining shareholder
approval.
From time to time the Fund may commit to more stringent restrictions in order
to be able to offer its shares to residents in particular states.
ADDITIONAL INVESTMENT CONSIDERATIONS
FOREIGN SECURITIES
The Fund may invest up to 5% of the value of its total assets in securities of
foreign issuers. Investments in foreign securities will generally be limited to
securities issued by foreign companies in developed countries with at least
three years of operations or by foreign governments. Investments in foreign
securities present certain risks not ordinarily found in investments in
securities of U.S. issuers. These risks include fluctuations in foreign exchange
rates, political and economic developments (including war or other instability,
expropriation of assets, nationalization, and confiscatory taxation), the
imposition of foreign exchange control regulation or a currency blockage which
would prevent cash from being brought back to the United States, withholding
taxes on income or capital transactions or other restrictions, higher
transaction costs and difficulty in taking judicial action. Generally, a
significant factor affecting the performance of the Fund's investments in
foreign securities is fluctuation in values of the currencies in which they are
denominated relative to the U.S. dollar. In addition, there is less publicly
available information about many foreign issuers and auditing, accounting and
financial reporting requirements are less stringent and less uniform in many
foreign countries and their securities markets are less liquid than those in the
U.S. Because there is usually less supervision and governmental regulation of
exchanges, brokers, and dealers than there is in the U.S., the Fund may
experience settlement difficulties or delays not usually encountered in the U.S.
BORROWING
The Fund may borrow up to 33 1/3% of the value of its assets from banks,
(including entering into reverse repurchase agreements) above which amount
excludes no more than 5% in borrowings and reverse repurchase agreements with
any entity for temporary purposes. The Fund has no current intention to
borrowing other than for temporary purposes.
Borrowing by the Fund creates an opportunity for increased net income but, at
the same time, creates special risk considerations such as potential changes in
the net asset value of the Shares and in the yield on the Fund's portfolio.
Although the principal of such borrowings will be fixed, the Fund's assets may
change in value during the time the borrowing is outstanding. Borrowing will
create interest expenses for the Fund which can exceed the income from the
assets retained. To the extent the income derived from securities purchased with
borrowed funds exceeds the interest the Fund will have to pay, the Fund's net
income will be greater than
B-4
<PAGE> 206
if borrowing were not used. Conversely, if the income from the assets retained
with borrowed funds is not sufficient to cover the cost of borrowing, the net
income of the Fund will be less than if borrowing were not used, and therefore
the amount available for distribution to shareholders as dividends will be
reduced.
STRATEGIC TRANSACTIONS
The Fund may, but is not required to, utilize various other investment
strategies as described below. Such strategies are generally accepted by modern
portfolio managers and are regularly utilized by many mutual funds and other
institutional investors. Techniques and instruments may change over time as new
instruments and strategies are developed or regulatory changes occur.
In the course of pursuing these investment strategies, the Fund may purchase
and sell derivative instruments such as exchange-listed and over-the-counter put
and call options on securities, equity and fixed-income indices and other
financial instruments and purchase and sell financial futures contracts and
options thereon and enter into various currency transactions such as currency
forward contracts, currency futures contracts, currency swaps and options on
currencies or currency futures (collectively, all the above are called
"Strategic Transactions"). Strategic Transactions may be used to attempt to
protect against possible changes in the market value of securities held in or to
be purchased for the Fund's portfolio resulting from securities markets
fluctuations, to protect the Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, or to establish a position in the derivatives markets as a temporary
substitute for purchasing or selling particular securities.
Any or all of these investment techniques may be used at any time and there is
no particular strategy that dictates the use of one technique rather than
another, as use of any Strategic Transaction is a function of numerous variables
including market conditions. The ability of the Fund to utilize these Strategic
Transactions successfully will depend on the Adviser's ability to predict
pertinent market movements, which cannot be assured. The Fund will comply with
applicable regulatory requirements when implementing these strategies,
techniques and instruments.
Strategic Transactions have risks associated with them including possible
default by the other party to the transaction, illiquidity and, to the extent
the Adviser's view as to certain market movements is incorrect, the risk that
the use of such Strategic Transactions could result in losses greater than if
they had not been used. Use of put and call options may result in losses to the
Fund, force the sale or purchase of portfolio securities at inopportune times or
for prices other than current market values, limit the amount of appreciation
the Fund can realize on its investments or cause the Fund to hold a security it
might otherwise sell. The use of currency transactions can result in the Fund
incurring losses as a result of a number of factors including the imposition of
exchange controls, suspension of settlements or the inability to deliver or
receive a specified currency. The use of options and futures transactions
entails certain other risks. In particular, the variable degree of correlation
between price movements of futures contracts and price movements in the related
portfolio position of the Fund creates the possibility that losses on the
hedging instrument may be greater than gains in the value of the Fund's
position. In addition, futures and options markets may not be liquid in all
circumstances and certain over-the-counter options may have no markets. As a
result, in certain markets, the Fund might not be able to close out a
transaction without incurring substantial losses, if at all. Although the use of
futures and options transactions for hedging should tend to minimize the risk of
loss due to a decline in the value of the hedged position, at the same time they
tend to limit any potential gain which might result from an increase in value of
such position. Finally, the daily variation margin requirements for futures
contracts would create a greater ongoing potential financial risk than would
purchases of options, where the exposure is limited to the cost of the initial
premium. Losses resulting from the use of Strategic Transactions would reduce
net asset value, and possibly income, and such losses can be greater than if the
Strategic Transactions had not been utilized. Income earned or deemed to be
earned, if any, by the Fund from its Strategic Transactions will generally be
taxable income of the Fund. See "Tax Status" in the Prospectus.
GENERAL CHARACTERISTICS OF OPTIONS. Put options and call options typically
have similar structural characteristics and operational mechanics regardless of
the underlying instrument on which they are purchased or sold. Thus, the
following general discussion relates to each of the particular types of options
discussed in greater detail below. In addition, many Strategic Transactions
involving options require
B-5
<PAGE> 207
segregation of Fund assets in special accounts, as described below under "Use of
Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a premium, the
right to sell, and the writer the obligation to buy, the underlying security,
commodity, index, or other instrument at the exercise price. For instance, the
Fund's purchase of a put option on a security might be designed to protect its
holdings in the underlying instrument (or, in some cases, a similar instrument)
against a substantial decline in the market value by giving the Fund the right
to sell such instrument at the option exercise price. A call option, upon
payment of a premium, gives the purchaser of the option the right to buy, and
the seller the obligation to sell, the underlying instrument at the exercise
price. The Fund's purchase of a call option on a security, financial future,
index, or other instrument might be intended to protect the Fund against an
increase in the price of the underlying instrument that it intends to purchase
in the future by fixing the price at which it may purchase such instrument. An
American style put or call option may be exercised at any time during the option
period while a European style put or call option may be exercised only upon
expiration or during a fixed period prior thereto. The Fund is authorized to
purchase and sell exchange listed options and over-the-counter options ("OTC
options"). Exchange listed options are issued by a regulated intermediary such
as the Options Clearing Corporation ("OCC"), which guarantees the performance of
the obligations of the parties to such options. The discussion below uses the
OCC as a paradigm, but is also applicable to other financial intermediaries.
With certain exceptions, OCC issued and exchange listed options generally
settle by physical delivery of the underlying security or currency, although in
the future cash settlement may become available. Index options are cash settled
for the net amount, if any, by which the option is "in-the-money" (i.e., where
the value of the underlying instrument exceeds, in the case of a call option, or
is less than, in the case of a put option, the exercise price of the option) at
the time the option is exercised. Frequently, rather than taking or making
delivery of the underlying instrument through the process of exercising the
option, listed options are closed by entering into offsetting purchase or sale
transactions that do not result in ownership of the new option.
The Fund's ability to close out its position as a purchaser or seller of an
OCC or exchange listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the absence of a
liquid option market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the
OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to
handle current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours during
which the underlying financial instruments are traded. To the extent that the
option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Fund will only sell OTC options that are subject to a buy-back provision
permitting the Fund to require the Counterparty to sell the option back to the
Fund at a formula price within seven days. The Fund expects generally to enter
into OTC options that have cash settlement provisions, although it is not
required to do so.
Unless the parties provide for it, there is no central clearing or guaranty
function in an OTC option. As a result, if the Counterparty fails to make or
take delivery of the security, or other instrument underlying an OTC option it
has entered into with the Fund or fails to make a cash settlement payment due in
accordance with the terms of that option, the Fund will lose any premium it paid
for the option as well as any anticipated
B-6
<PAGE> 208
benefit of the transaction. Accordingly, the Adviser must assess the
creditworthiness of each such Counterparty or any guarantor or credit
enhancement of the Counterparty's credit to determine the likelihood that the
terms of the OTC option will be satisfied. The Fund will engage in OTC option
transactions only with United States government securities dealers recognized by
the Federal Reserve Bank of New York as "primary dealers", or broker dealers,
domestic or foreign banks or other financial institutions which have received
(or the guarantors of the obligation of which have received) a short-term credit
rating of "A-1" from Standard & Poor's Ratings Group ("S&P") or "P-1" from
Moody's Investor Services, Inc. ("Moody's") or an equivalent rating from any
other nationally recognized statistical rating organization ("NRSRO"). The staff
of the SEC currently takes the position that, in general, OTC options on
securities other than U.S. Government securities purchased by the Fund, and
portfolio securities "covering" the amount of the Fund's obligation pursuant to
an OTC option sold by it (the cost of the sell-back plus the in-the-money
amount, if any) are illiquid, and are subject to the Fund's limitation on
investing no more than 15% of its assets in illiquid securities.
If the Fund sells a call option, the premium that it receives may serve as a
partial hedge, to the extent of the option premium, against a decrease in the
value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.
The Fund may purchase and sell call options on securities, including U.S.
Treasury and agency securities, municipal obligations, mortgage-backed
securities, corporate debt securities, equity securities (including convertible
securities) that are traded on U.S. and foreign securities exchanges and in the
over-the-counter markets. All calls sold by the Fund must be "covered" (i.e.,
the Fund must own the securities or futures contract subject to the call) or
must meet the asset segregation requirements described below as long as the call
is outstanding. Even though the Fund will receive the option premium to help
protect it against loss, a call sold by the Fund exposes the Fund during the
term of the option to possible loss of opportunity to realize appreciation in
the market price of the underlying security or instrument and may require the
Fund to hold a security or instrument which it might otherwise have sold. In
selling calls on securities not owned by the Fund, the Fund may be required to
acquire the underlying security at a disadvantageous price in order to satisfy
its obligations with respect to the call.
The Fund may purchase and sell put options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, municipal
obligations, corporate debt securities, equity securities (including convertible
securities) (whether or not it holds the above securities in its portfolio) and
on securities indices, currencies and futures contracts other than futures or
individual corporate debt and individual equity securities. The Fund will not
sell put options if, as a result, more than 50% of the Fund's assets would be
required to be segregated to cover its potential obligations under such put
options other than those with respect to futures and options thereon. In selling
put options, there is a risk that the Fund may be required to buy the underlying
security at a disadvantageous price above the market price.
GENERAL CHARACTERISTICS OF FUTURES. The Fund may enter into financial futures
contracts or purchase or sell put and call options on such futures as a hedge
against anticipated interest rate, currencies, equity or fixed-income market
changes, and for risk management purposes. Futures are generally bought and sold
on the commodities exchanges where they are listed with payment of initial and
variation margin as described below. The purchase of a futures contract creates
a firm obligation by the Fund, as purchaser, to take delivery from the seller
the specific type of financial instrument called for in the contract at a
specific future time for a specified price (or, with respect to index futures,
the net cash amount). The sale of a futures contract creates a firm obligation
by the Fund, as seller, to deliver to the buyer the specific type of financial
instrument called for in the contract at a specific future time for a specified
price (or, with respect to index futures, the net cash amount). Options on
futures contracts are similar to options on securities except that an option on
a futures contract gives the purchaser the right in return for the premium paid
to assume a position in a futures contract and obligates the seller to deliver
such option.
The Fund's use of financial futures and options thereon will in all cases be
consistent with applicable regulatory requirements and in particular the rules
and regulations of the Commodity Futures Trading Commission. Typically,
maintaining a futures contract or selling an option thereon requires the Fund to
deposit with a financial intermediary as security for its obligations an amount
of cash or other specified assets
B-7
<PAGE> 209
(initial margin) which initially is typically 1% to 10% of the face amount of
the contract (but may be higher in some circumstances). Additional cash or
assets (variation margin) may be required to be deposited thereafter on a daily
basis as the mark to market value of the contract fluctuates. The purchase of
options on financial futures involves payment of a premium for the option
without any further obligation on the part of the Fund. If the Fund exercises an
option on a futures contract it will be obligated to post initial margin (and
potential subsequent variation margin) for the resulting futures position just
as it would for any position. Futures contracts and options thereon are
generally settled by entering into an offsetting transaction but there can be no
assurance that the position can be offset prior to settlement at an advantageous
price nor that delivery will occur.
The Fund will not enter into a futures contract or related option (except for
closing transactions) if, immediately thereafter, the sum of the amount of its
initial margin and premiums on open futures contracts and options thereon would
exceed 5% of the Fund's total assets (taken at current value); however, in the
case of an option that is in-the-money at the time of the purchase, the
in-the-money amount may be excluded in calculating the 5% limitation. Certain
state securities laws to which the Fund may be subject may further restrict the
Fund's ability to engage in transactions in futures contracts and related
options. The segregation requirements with respect to futures contracts and
options thereon are described herein.
The Fund also may invest in foreign stock index futures traded outside the
United States. Foreign stock index futures traded outside the United States
include the Nikkei Index of 225 Japanese stocks traded on the Singapore
International Monetary Exchange ("Nikkei Index"), Osaka Index of 50 Japanese
stocks traded on the Osaka Exchange, Financial Times Stock Exchange Index of the
100 largest stocks on the London Stock Exchange, the All Ordinaries Share Price
Index of 307 stocks on the Sydney, Melbourne Exchanges, Hang Seng Index of 33
stocks on the Hong Kong Stock Exchange, Barclays Share Price Index of 40 stocks
on the New Zealand Stock Exchange and Toronto Index of 35 stocks on the Toronto
Stock Exchange. Futures and futures options on the Nikkei Index are traded on
the Chicago Mercantile Exchange and United States commodity exchanges may
develop futures and futures options on other indices of foreign securities.
Futures and options on United States devised index of foreign stocks are also
being developed. Investments in securities of foreign entities and securities
denominated in foreign currencies involve risks not typically involved in
domestic investment, including fluctuations in foreign exchange rates, future
foreign political and economic developments, and the possible imposition of
exchange controls or other foreign or United States governmental laws or
restrictions applicable to such investments.
OPTIONS ON SECURITIES INDICES AND OTHER FINANCIAL INDICES. The Fund also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement, i.e., an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the index
upon which the option is based exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option (except if, in the case
of an OTC option, physical delivery is specified). This amount of cash is equal
to the excess of the closing price of the index over the exercise price of the
option, which also may be multiplied by a formula value. The seller of the
option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.
CURRENCY TRANSACTIONS. The Fund may engage in currency transactions with
Counterparties in order to hedge the value of portfolio holding denominated in
particular currencies against fluctuations in relative value. Currency
transactions include forward currency contracts, exchange listed currency
futures, exchange listed and OTC options on currencies, and currency swaps. A
forward currency contract involves a privately negotiated obligation to purchase
or sell (with delivery generally required) a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract. A currency swap is
an agreement to exchange cash flows based on the notional difference among two
or more currencies and operates similarly to an interest rate swap, which is
described
B-8
<PAGE> 210
below. The Fund may enter into currency transactions with Counterparties which
have received (or the guarantors of the obligations of such Counterparties have
received) a credit rating of A-1 or P-1 by S&P or Moody's, respectively, or that
have an equivalent rating from an NRSRO or (except for OTC currency options) are
determined to be of equivalent credit quality by the Adviser.
The Fund's dealings in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps will be
limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is entering into a currency transaction with
respect to specific assets of liabilities of the Fund, which will generally
arise in connection with the purchase or sale of its portfolio securities or the
receipt of income therefrom. Position hedging is entering into a currency
transaction with respect to portfolio security positions denominated or
generally quoted in that currency.
The Fund will not enter into a transaction to hedge currency exposure to an
extent greater, after netting all transactions intended to wholly or partially
offset other transactions, than the aggregate market value (at the time of
entering into the transaction) of the securities held in its portfolio that are
denominated or generally quoted in or currently convertible into such currency
other than with respect to cross hedging and proxy hedging as described below.
The Fund may cross-hedge currencies by entering into transactions to purchase
or sell one or more currencies that are expected to decline in value relative to
other currencies to which the Fund has or in which the Fund expects to have
portfolio exposure.
To reduce the effect of currency fluctuations on the value of existing or
anticipated holdings of portfolio securities, the Fund may also engage in proxy
hedging. Proxy hedging is often used when the currency to which the Fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering into a forward contract to sell a currency whose
changes in value are generally considered to be linked to a currency or
currencies in which some or all of the Fund's portfolio securities are or are
expected to be denominated, and to buy U.S. dollars. For example, if the Adviser
considers the Austrian schilling is linked to the German deutschemark (the
"D-mark"), the Fund holds securities denominated in schillings and the Adviser
believes that the value of schillings will decline against the U.S. dollar, the
Adviser may enter into a contract to see D-marks and buy dollars. Currency
hedging involves some of the same risks and considerations as other transactions
with similar instruments. Currency transactions can result in losses to the Fund
if the currency being hedged fluctuates in value to a degree or in a direction
that is not anticipated. Further, there is the risk that the perceived linkage
between various currencies may not be present or may not be present during the
particular time that the Fund is engaging in proxy hedging. If the Fund enters
into a currency hedging transaction, the Fund will comply with the asset
segregation requirements described below.
RISK OF CURRENCY TRANSACTIONS. Currency transactions are subject to risks
different from those of other portfolio transactions. Because currency control
is of great importance to the issuing governments and influences economic
planning and policy, purchases and sales of currency and related instruments can
be negatively affected by government exchange controls, blockages, and
manipulations or exchange restrictions imposed by governments. These can result
in losses to the Fund if it is unable to deliver or receive currency or funds in
settlement of obligations and could also cause hedges it has entered into to be
rendered useless, resulting in full currency exposure as well as incurring
transaction costs. Buyers and sellers of currency futures are subject to the
same risks that apply to the use of futures generally. Further, settlement of a
currency futures contract for the purchase of most currencies must occur at a
bank based in the issuing nation. Trading options on currency futures is
relatively new, and the ability to establish and close out positions on such
options is subject to the maintenance of a liquid market which may not always be
available. Currency exchange rates may fluctuate based on factors extrinsic to
that country's economy.
COMBINED TRANSACTIONS. The Fund may enter into multiple transactions,
including multiple options transactions, multiple futures transactions and
multiple interest rate transactions and any combination of futures, options,
currency and interest rate transactions ("component" transactions), instead of a
single Strategic Transaction, as part of a single or combined strategy when, in
the opinion of the Adviser, it is in the best interests of the Fund to do so. A
combined transaction will usually contain elements of risk that are present in
each of its component transactions. Although combined transactions are normally
entered into based on the Adviser's judgment that the combined strategies will
reduce risk or otherwise more effectively
B-9
<PAGE> 211
achieve the desired portfolio management goal, it is possible that the
combination will instead increase such risks or hinder achievement of the
portfolio management objective.
RISKS OF STRATEGIC TRANSACTIONS OUTSIDE THE UNITED STATES. When conducted
outside the United States, Strategic Transactions may not be regulated as
rigorously as in the United States, may not involve a clearing mechanism and
related guarantee, and are subject to the risk of governmental actions affecting
trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the United States of data on which to make trading
decisions, (iii) delays in the Fund's ability to act upon economic events
occurring in foreign markets during non-business hours in the United States,
(iv) the imposition of different exercise and settlement terms and procedures
and margin requirements than in the United States, and (v) lower trading volume
and liquidity.
USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS. Many Strategic Transactions, in
addition to other requirements, require that the Fund segregate liquid
high-grade assets with its custodian to the extent Fund obligations are not
otherwise "covered" through ownership of the underlying security, financial
instrument or currency. In general, either the full amount of any obligation by
the Fund to pay or deliver securities or assets must be covered at all times by
the securities, instruments or currency required to be delivered, or, subject to
any regulatory restrictions, an amount of cash or liquid high-grade securities
at least equal to the current amount of the obligation must be segregated with
the custodian. The segregated assets cannot be sold or transferred unless
equivalent assets are substituted in their place or it is no longer necessary to
segregate them. For example, a call option written by the Fund will require the
Fund to hold the securities subject to the call (or securities convertible into
the needed securities without additional consideration) or to segregate liquid
high-grade securities sufficient to purchase and deliver the securities if the
call is exercised. A call option sold by the Fund on an index will require the
Fund to own portfolio securities which correlate with the index or to segregate
liquid high-grade assets equal to the excess of the index value over the
exercise price on a current basis. A put option written by the Fund requires the
Fund to segregate liquid, high-grade assets equal to the exercise price.
Except when the Fund enters into a forward contract for the purchase or sale
of a security denominated in a particular currency, which requires no
segregation, a currency contract which obligates the Fund to buy or sell
currency will generally require the Fund to hold an amount of that currency or
liquid securities denominated in that currency equal to the Fund's obligations
or to segregate liquid high grade assets equal to the amount of the Fund's
obligation.
OTC options entered into by the Fund, including those on securities,
currencies, financial instruments or indices and OCC issued and exchange listed
index options, will generally provide for cash settlement. As a result, when the
Fund sells these instruments it will only segregate an amount of assets equal to
its accrued net obligations, as there is no requirement for payment or delivery
of amounts in excess of the net amount. These amounts will equal 100% of the
exercise price in the case of a non cash-settled put, the same as an OCC
guaranteed listed option sold by the Fund, or the in-the-money amount plus any
sell-back formula amount in the case of a cash-settled put or call. In addition,
when the Fund sells a call option on an index at a time when the in-the-money
amount exceeds the exercise price, the Fund will segregate, until the option
expires or is closed out, cash or cash equivalents equal in value to such
excess. OCC issued and exchange listed options sold by the Fund other than those
above generally settle with physical delivery, and the Fund will segregate an
amount of assets equal to the full value of the option. OTC options settling
with physical delivery, or with an election of either physical delivery or cash
settlement, will be treated the same as other options settling with physical
delivery.
In the case of a futures contract or an option thereon, the Fund must deposit
initial margin and possible daily variation margin in addition to segregating
assets sufficient to meet its obligation to purchase or provide securities or
currencies, or to pay the amount owed at the expiration of an index- based
futures contract. Such assets may consist of cash, cash equivalents, liquid debt
or equity securities or other acceptable assets. To the extent such assets are
other than cash or cash equivalents, such assets will be marked to market on a
daily basis. To the extent that the Fund segregates assets other than cash or
cash equivalents in connection with the purchase or sale of a futures contract
or the sale of an option thereon, the Fund will be subject to market risks
B-10
<PAGE> 212
with respect to the open futures or option position as well as with respect to
the portfolio securities segregated against such position. To the extent that
the market value of such position and of such portfolio securities have a high
degree of positive correlation, market fluctuations may adversely affect both
the value of such position and the value of such portfolio securities, which has
the effect of leveraging the Fund's portfolio assets and increasing the Fund's
investment risk.
Strategic Transactions may be covered by other means when consistent with
applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Strategic
Transactions. For example, the Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund. Moreover, instead of segregating assets if the Fund held a
futures or forward contract, it could purchase a put option on the same futures
or forward contract with a strike price as high or higher than the price of the
contract held. Other Strategic Transactions may also be offset in combinations.
If the offsetting transaction terminates at the time of or after the primary
transaction no segregation is required, but if it terminates prior to such time,
assets equal to any remaining obligation would need to be segregated.
The Fund's activities involving Strategic Transactions may be limited by the
requirements of Subchapter M of the Code for qualification as a regulated
investment company. See "Tax Status" in the Prospectus.
B-11
<PAGE> 213
DESCRIPTION OF SECURITIES RATINGS
STANDARD & POOR'S RATINGS GROUP--A brief description of the applicable
Standard & Poor's Ratings Group (S&P) rating symbols and their meanings (as
published by Standard & Poor's Ratings Group) follows:
1. DEBT
A Standard & Poor's corporate or municipal debt rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. This assessment may take into consideration obligors such as
guarantors, insurers, or lessees.
The debt rating is not a recommendation to purchase, sell, or hold a
security, inasmuch as it does not comment as to market price or suitability
for a particular investor.
The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources it considers reliable. S&P does not perform
an audit in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended, or withdrawn as
a result of changes in, or unavailability of, such information, or based on
other circumstances.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of default--capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with
the terms of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the laws
of bankruptcy and other laws affecting creditor's rights.
INVESTMENT GRADE
AAA: Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A: Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in the higher rated categories.
BBB: Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
SPECULATIVE GRADE
BB, B, CCC, CC, C: Debt rated "BB", "B", "CCC", "CC", and "C" is regarded as
having predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. "BB" indicates the least degree of speculation and
"C" the highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major exposures
to adverse conditions.
BB: Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
B: Debt rated "B" has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair
B-12
<PAGE> 214
capacity or willingness to pay interest and repay principal. The "B" rating
category is also used for debt subordinated to senior debt that is assigned an
actual or implied "BB" or "BB-" rating.
CCC: Debt rated "CCC" has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The "CCC" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "B" or "B-" rating.
CC: The rating "CC" typically is applied to debt subordinated to senior debt
that is assigned an actual or implied "CCC" rating.
C: The rating "C" typically is applied to debt subordinated to senior debt
which is assigned an actual or implied "CCC-" debt rating. The "C" rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI: The rating "CI" is reserved for income bonds on which no interest is being
paid.
D: Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The "D" rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
C: The letter "c" indicates that the holder's option to tender the security
for purchase may be canceled under certain prestated conditions enumerated in
the tender option documents.
I: The letter "i" indicates the rating is implied. Such ratings are assigned
only on request to entities that do not have specific debt issues to be rated.
In addition, implied ratings are assigned to governments that have not requested
explicit ratings for specific debt issues. Implied ratings on governments
represent the sovereign ceiling or upper limit for ratings on specific debt
issues of entities domiciled in the country.
L: The letter "L" indicates that the rating pertains to the principal amount
of those bonds to the extent that the underlying deposit collateral is federally
insured and interest is adequately collateralized. In the case of certificates
of deposit, the letter "L" indicates that the deposit, combined with other
deposits being held in the same right and capacity, will be honored for
principal and accrued pre-default interest up to the federal insurance limits
within 30 days after closing of the insured institution or, in the event that
the deposit is assumed by a successor insured institution, upon maturity.
p: The letter "p" indicates that the rating is provisional. A provisional
rating assumes the successful completion of the project being financed by the
debt being rated and indicates that payment of debt service requirements is
largely or entirely dependent upon the successful and timely completion of the
project. This rating, however, while addressing credit quality subsequent to
completion of the project, makes no comment on the likelihood of, or the risk of
default upon failure of, such completion. The investor should exercise his own
judgement with respect to such likelihood and risk. The rating is contingent
upon S&P's receipt of an executed copy of the escrow agreement or closing
documents.
NR: Not rated.
DEBT OBLIGATIONS OF ISSUERS OUTSIDE THE UNITED STATES AND ITS TERRITORIES are
rated on the same basis as domestic corporate and municipal issues. The ratings
measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.
BOND INVESTMENT QUALITY STANDARDS: Under present commercial bank regulations
issued by the Comptroller of the Currency, bonds rated in the top four
categories ("AAA", "AA", "A", "BBB", commonly known as "investment grade"
ratings) are generally regarded as eligible for bank investment. In addition,
the laws of various states governing legal investments impose certain rating or
other standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.
B-13
<PAGE> 215
2. COMMERCIAL PAPER
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt considered short-term in the relevant
market.
Ratings are graded into several categories, ranging from "A-1" for the highest
quality obligations to "D" for the lowest. These categories are as follows:
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+)
designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as
overwhelming as for issues designated "A-1".
A-3 Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher
designations.
B Issues rated "B" are regarded as having only speculative capacity for
timely payment.
C This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date
due, even if the applicable grace period has not expired, unless S&P
believes that such payments will be made during such grace period.
A commercial paper rating is not a recommendation to purchase, sells or hold
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained by S&P from other sources it considers reliable.
S&P does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended or withdrawn as a result of changes in, or unavailability of, such
information, or based on other circumstances.
3. VARIABLE RATE DEMAND BONDS
Standard & Poor's assigns "dual" ratings to all debt issues that have a put or
demand feature as part of their structure.
The first rating addresses the likelihood of repayment of principal and
interest as due, and the second rating addresses only the demand feature. The
long-term debt rating symbols are used for bonds to denote the long-term
maturity and the commercial paper rating symbols for the put option (for
example, "AAA/A-1+"). With short-term demand debt, S&P's note rating symbols are
used with the commercial paper rating symbols (for example, "SP-1+/A-1+").
4. NOTES
An S&P note rating reflects the liquidity factors and market access risks
unique to notes. Notes maturing in three years or less will likely receive a
note rating. Notes maturing beyond three years will most likely receive a
long-term debt rating. The following criteria will be used in making that
assignment:
-- Amortization schedule (the longer the final maturity relative to other
maturities, the more likely the issue is to be treated as a note).
-- Source of payment (the more the issue depends on the market for its
refinancing, the more likely it is to be treated as a note).
Note rating symbols and definitions are as follows:
SP-1 Strong capacity to pay principal and interest. Issues determined
to possess very strong characteristics will be given a plus (+)
designation.
B-14
<PAGE> 216
SP-2 Satisfactory capacity to pay principal and interest with some
vulnerability to adverse financial and economic changes over the
term of the notes.
SP-3 Speculative capacity to pay principal and interest.
5. PREFERRED STOCK
A Standard & Poor's preferred stock rating is an assessment of the capacity
and willingness of an issuer to pay preferred stock dividends and any applicable
sinking fund obligations. A preferred stock rating differs from a bond rating
inasmuch as it is assigned to an equity issue, which issue is intrinsically
different from, and subordinated to, a debt issue. Therefore, to reflect this
difference, the preferred stock rating symbol will normally not be higher than
the debt rating symbol assigned to, or that would be assigned to, the senior
debt of the same issuer.
The preferred stock ratings are based on the following considerations:
1. Likelihood of payment--capacity and willingness of the issuer to meet the
timely payment of preferred stock dividends and any applicable sinking fund
requirements in accordance with the terms of the obligation.
2. Nature of, and provisions of, the issue.
3. Relative position of the issue in the event of bankruptcy, reorganization,
or other arrangements affecting creditors' rights.
<TABLE>
<S> <C>
AAA This is the highest rating that may be assigned by Standard & Poor's to a preferred
stock issue and indicates an extremely strong capacity to pay the preferred stock
obligations.
AA A preferred stock issue rated "AA" also qualifies as a high-quality fixed income
security. The capacity to pay preferred stock obligations is very strong, although
not as overwhelming as for issues rated "AAA".
A An issue rated "A" is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
BBB An issue rated "BBB" is regarded as backed by an adequate capacity to pay the
preferred stock obligations. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity to make payments for a preferred stock in this
category than for issues in the "A" category.
BB Preferred stock rated "BB", "B", and "CCC" are regarded, on balance, as
B predominantly speculative with respect to the issuer's capacity to pay preferred
CCC stock obligations. "BB" indicates the lowest degree of speculation and "CCC" the
highest degree of speculation. While such issues will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
CC The rating "CC" is reserved for a preferred stock issue in arrears on dividends or
sinking fund payments but that is currently paying.
C A preferred stock rated "C" is a non-paying issue.
D A preferred stock rated "D" is a non-paying issue with the issuer in default on
debt instruments.
NR This indicates that no rating has been requested, that there is insufficient
information on which to base a rating or that Standard & Poor's does not rate a
particular type of obligation as a matter of policy.
PLUS (+) or MINUS (-): To provide more detailed indications of preferred stock
quality, the rating from "AA" to "CCC" may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
</TABLE>
A preferred stock rating is not a recommendation to purchase, sell, or hold a
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the Issuer or obtained by S&P from other sources it considers reliable.
S&P
B-15
<PAGE> 217
does not perform an audit in connection with any rating and may, on occasion,
rely on unaudited financial information. The ratings may be changed, suspended,
or withdrawn as a result of changes in, or unavailability of, such information,
or based on other circumstances.
MOODY'S INVESTORS SERVICE -- A brief description of the applicable Moody's
Investors Service rating symbols and their meanings (as published by Moody's
Investor Service) follows:
1. LONG-TERM DEBT
AAA: Bonds which are rated AAA are judged to be of 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 position of such issues.
AA: Bonds which are rated AA are judged to be of high quality by all
standards. Together with the 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 fluctuation 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 AAA securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
BAA: Bonds which are rated BAA are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payment and
principal security appear adequate for the present but certain protective
elements may by lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA: Bonds which are rated BA are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA: Bonds which are rated CAA are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
CA: Bonds which are rated CA represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from AA through B in its corporate bond rating system. 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.
ABSENCE OF RATING: Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.
B-16
<PAGE> 218
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published
in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
2. SHORT-TERM DEBT
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations which have an original maturity not
exceeding one year. Obligations relying upon support mechanisms such as
letters-of-credit and bonds of indemnity are excluded unless explicitly rated.
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:
Issuers rated Prime-1 (or supporting institutions) have a superior ability for
repayment of senior short-term debt obligations. Prime-1 repayment ability will
often be evidenced by many of the following characteristics:
-- Leading market positions in well-established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
-- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability for
repayment of senior short-term debt obligations. This will normally be evidenced
by many of the characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or supporting institutions) have an acceptable ability
for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternative liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
3. PREFERRED STOCK
Preferred stock rating symbols and their definitions are as follows:
AAA: An issue which is rated 'AAA' is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least
risk of dividend impairment within the universe of preferred stocks.
AA: An issue which is rated 'AA' is considered a high-grade preferred stock.
This rating indicates that there is a reasonable assurance the earnings and
asset protection will remain relatively well maintained in the foreseeable
future.
A: An issue which is rated 'A' is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the
'AAA' and 'AA' classifications, earnings and asset protections are,
nevertheless, expected to be maintained at adequate levels.
BAA: An issue which is rated 'BAA' is considered to be a medium grade
preferred stock, neither highly protected nor poorly secured. Earnings and
asset protection appear adequate at present but may be questionable over any
great length of time.
BA: An issue which is rated 'BA' is considered to have speculative elements
and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse
periods. Uncertainty of position characterizes preferred stocks in this class.
B-17
<PAGE> 219
b: An issue which is rated 'b' generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
CAA: An issue which is rated 'CAA' is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future
status of payments.
CA: An issue which is rated 'CA' is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of eventual
payment.
C: This is the lowest rated class of preferred or preference stock. Issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Moody's applies numerical modifiers 1, 2 and 3 in each rating classification
from "AA" through "BB" in its preferred stock rating system: 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.
B-18
<PAGE> 220
OFFICERS AND TRUSTEES
The tables below list the trustees and officers of the Trust (of which the
Fund is a separate series) and their principal occupations for the last five
years and their affiliations, if any, with Van Kampen American Capital
Investment Advisory Corp. (the "VK Adviser" or "Adviser"), Van Kampen American
Capital Asset Management, Inc., (the "AC Adviser"), Van Kampen American Capital
Management, Inc., McCarthy, Crisanti & Maffei, Inc., MCM Asia Pacific Company,
Limited, Van Kampen American Capital Distributors, Inc. (the "Distributor"), Van
Kampen American Capital, Inc. ("Van Kampen American Capital") or VK/AC Holding,
Inc. For purposes hereof, the term "Van Kampen American Capital Funds" includes
each of the open-end investment companies advised by the VK Adviser (excluding
the Van Kampen Merritt Series Trust) and each of the open-end investment
companies advised by the AC Adviser.
TRUSTEES
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- ----------------------------------- ---------------------------------------------------------
<S> <C>
J. Miles Branagan.................. Co-founder, Chairman, Chief Executive Officer and
2300 205th Street President of MDT Corporation, a company which develops
Torrance, CA 90501 manufactures, markets and services medical and scientific
Age: 63 equipment. Trustee of each of the Van Kampen American
Capital Funds.
Philip P. Gaughan.................. Prior to February, 1989, Managing Director and Manager of
9615 Torresdale Avenue Municipal Bond Department, W. H. Newbold's Sons & Co.
Philadelphia, PA 19114 Trustee of each of the Van Kampen American Capital Funds.
Age: 66
Linda Hutton Heagy................. Managing Partner, Paul Ray Berndston, an executive
10 South Riverside Plaza recruiting and managing consulting firm. Formerly,
Suite 720 Executive Vice President of ABN AMRO, N.A., a Dutch bank
Chicago, IL 60606 holding company. Prior to 1992, Executive Vice President
Age: 46 of La Salle National Bank. A Trustee of each of the Van
Kampen American Capital Funds.
Roger Hilsman...................... Professor of Government and International Affairs
251-1 Hamburg Cove Emeritus, Columbia University. Trustee of each of the Van
Lyme, CT 06371 Kampen American Capital Funds.
Age: 75
R. Craig Kennedy................... President and Director, German Marshall Fund of the
1341 E. 50th Street United States. Formerly, advisor to the Dennis Trading
Chicago, IL 60615 Group Inc. Prior to 1992, President and Chief Executive
Age: 43 Officer, Director and member of the Investment Committee
of the Joyce Foundation, a private foundation. Trustee of
each of the Van Kampen American Capital Funds.
Dennis J. McDonnell*............... President, Chief Operating Officer and a Director of the
One Parkview Plaza VK Adviser, the AC Adviser and Van Kampen American
Oakbrook Terrace, IL 60181 Capital Management, Inc. Director of VK/AC Holding, Inc,
Age: 53 Van Kampen American Capital, and McCarthy, Crisanti &
Maffei, Inc. Chairman and a Director of MCM Asia Pacific
Company, Ltd. President, Chief Executive Officer and
Trustee of each of the funds advised by the VK Adviser.
Prior to December, 1991, Senior Vice President of Van
Kampen Merritt Inc.
</TABLE>
B-19
<PAGE> 221
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- ----------------------------------- ---------------------------------------------------------
<S> <C>
Donald C. Miller................... Prior to 1992, Director of Royal Group, Inc., a company
415 North Adams in insurance related businesses. Formerly Vice Chairman
Hinsdale, IL 60521 and Director of Continental Illinois National Bank and
Age: 75 Trust Company of Chicago and Continental Illinois
Corporation. Trustee of each of the Van Kampen American
Capital Funds and Chairman of the Board of each of the
open-end funds (except the Van Kampen Merritt Series
Trust) advised by the VK Adviser.
Jack E. Nelson..................... President of Nelson Investment Planning Services, Inc., a
423 Country Club Drive financial planning company and registered investment
Winter Park, FL 32789 adviser. President of Nelson Investment Brokerage
Age: 59 Services Inc., a member of the National Association of
Securities Dealers, Inc. (NASD) and Securities Investors
Protection Corp. (SIPC). Trustee of each of the Van
Kampen American Capital Funds.
Don G. Powell*..................... President, Chief Executive Officer and a Director of
2800 Post Oak Blvd. VK/AC Holding, Inc. and Van Kampen American Capital.
Houston, TX 77056 Chairman, Chief Executive Officer and a Director of the
Age: 55 Distributor, the VK Adviser, the AC Adviser and Van
Kampen American Capital Management, Inc. Director,
President and Chief Executive Officer of Van Kampen
American Capital Advisers, Inc. and Van Kampen American
Capital Exchange Corp. Director and Executive Vice
President of Advantage Capital Corporation, ACCESS
Investor Services, Inc., Van Kampen American Capital
Services, Inc. and Van Kampen American Capital Trust
Company. Director of McCarthy, Crisanti & Maffei, Inc.
President and Director, Trustee or Managing General
Partner of each of the funds advised by the AC Adviser
and Trustee of each of the funds advised by the VK
Adviser. He is also Chairman of the Board of the Van
Kampen Merritt Series Trust and closed-end investment
companies advised by the VK Adviser.
David Rees......................... Contributing Columnist and, prior to 1995, Senior Editor
1601 Country Club Drive of Los Angeles Business Journal. A director of Source
Glendale, CA 91208 Capital, Inc., a closed-end investment company
Age: 71 unaffiliated with Van Kampen American Capital, a director
and the second vice president of International Institute
of Los Angeles. Trustee of each of the Van Kampen
American Capital Funds.
Jerome L. Robinson................. President of Robinson Technical Products Corporation, a
115 River Road manufacturer and processor of welding alloys, supplies
Edgewater, NJ 07020 and equipment. Director of Pacesetter Software, a
Age: 72 software programming company specializing in white collar
productivity. Director of Panasia Bank. Trustee of each
of the Van Kampen American Capital Funds.
Lawrence J. Sheehan*............... Of Counsel to and formerly Partner (from 1969 to 1994) of
1999 Avenue of the Stars the law firm of O'Melveny & Myers, legal counsel to the
Suite 700 funds advised by the AC Adviser. Director, FPA Capital
Los Angeles, CA 90067 Fund, Inc.; FPA New Income Fund, Inc.; FPA Perennial
Age: 63 Fund, Inc.; Source Capital, Inc.; and TCW Convertible
Security Fund, Inc. Trustee of each of the Van Kampen
American Capital Funds.
</TABLE>
B-20
<PAGE> 222
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- ----------------------------------- ---------------------------------------------------------
<S> <C>
Fernando Sisto..................... George M. Bond Chaired Professor and, prior to 1995, Dean
Stevens Institute of Graduate School and Chairman, Department of Mechanical
of Technology Engineering, Stevens Institute of Technology. Director of
Castle Point Station Dynalysis of Princeton, a firm engaged in engineering
Hoboken, NJ 07030 research. Trustee of each of the Van Kampen American
Age: 70 Capital Funds and Chairman of the Board of each of the
open-end funds advised by the AC Adviser.
Wayne W. Whalen*................... Partner in the law firm of Skadden, Arps, Slate, Meagher
333 West Wacker Drive & Flom, legal counsel to funds advised by the VK Adviser.
Chicago, IL 60606 Trustee of each of the Van Kampen American Capital Funds.
Age: 55 He also is a Trustee of the Van Kampen Merritt Series
Trust and closed-end investment companies advised by the
VK Adviser.
William S. Woodside................ Vice Chairman of the Board of LSG Sky Chefs, Inc., a
712 Fifth Avenue caterer of airline food. Formerly, Director of Primerica
40th Floor Corporation (currently known as The Traveler's Inc.).
New York, NY 10019 Formerly, Director of James River Corporation, a producer
Age: 73 of paper products. Trustee, and former President of
Whitney Museum of American Art. Formerly, Chairman of
Institute for Educational Leadership, Inc., Board of
Visitors, Graduate School of The City University of New
York, Academy of Political Science. Trustee of Committee
for Economic Development. Director of Public Education
Fund Network, Fund for New York City Public Education.
Trustee of Barnard College. Member of Dean's Council,
Harvard School of Public Health. Member of Mental Health
Task Force, Carter Center. Trustee of each of the Van
Kampen American Capital Funds.
</TABLE>
OFFICERS
<TABLE>
<CAPTION>
POSITIONS AND OTHER PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND IN PAST 5 YEARS
- --------------------- -------------------------- ---------------------------------------------
<S> <C> <C>
Peter W. Hegel....... Vice President Executive Vice President and Portfolio
Age: 39 Manager of the Adviser. Executive Vice
President of the AC Adviser. Vice President
of each of the Van Kampen American Capital
Funds and closed-end funds advised by the VK
Adviser.
Ronald A. Nyberg..... Vice President and Executive Vice President, General Counsel and
Age: 42 Secretary Secretary of Van Kampen American Capital.
Executive Vice President and a Director of
the VK Adviser and the Distributor. Executive
Vice President of the AC Adviser. Vice
President and Secretary of each of the Van
Kampen American Capital Funds and closed-end
funds advised by the VK Adviser. Director of
ICI Mutual Insurance Co., a provider of
insurance to members of the Investment
Company Institute. Prior to March 1990,
Secretary of Van Kampen Merritt Inc., the VK
Adviser and McCarthy, Crisanti & Maffei, Inc.
Edward C. Wood III... Vice President, Treasurer Senior Vice President of the VK Adviser. Vice
Age: 39 and Chief Financial President, Treasurer and Chief Financial
Officer Officer of each of the Van Kampen American
Capital Funds and closed-end funds advised by
the VK Adviser.
</TABLE>
B-21
<PAGE> 223
<TABLE>
<CAPTION>
POSITIONS AND OTHER PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND IN PAST 5 YEARS
- --------------------- -------------------------- ---------------------------------------------
<S> <C> <C>
Nicholas Dalmaso..... Assistant Secretary Assistant Vice President and Attorney of Van
Age: 30 Kampen American Capital. Assistant Secretary
of each of the Van Kampen American Capital
Funds and closed-end funds advised by the VK
Adviser. Prior to May 1992, attorney for
Cantwell & Cantwell, a Chicago law firm.
Scott E. Martin...... Assistant Secretary Senior Vice President, Deputy General Counsel
Age: 38 and Assistant Secretary of Van Kampen
American Capital. Senior Vice President,
Deputy General Counsel and Secretary of the
VK Adviser and the Distributor. Assistant
Secretary of each of the Van Kampen American
Capital Funds and closed-end funds advised by
the VK Adviser.
Weston B. Wetherell... Assistant Secretary Vice President, Associate General Counsel and
Age: 39 Assistant Secretary of Van Kampen American
Capital, the VK Adviser and the Distributor.
Assistant Secretary of McCarthy, Crisanti &
Maffei, Inc. Assistant Secretary of each of
the Van Kampen American Capital Funds and
closed-end funds advised by the VK Adviser.
John L. Sullivan..... Controller First Vice President of the VK Adviser.
Age: 39 Controller of each of the Van Kampen American
Capital Funds and closed-end funds advised by
the VK Adviser.
Steven M. Hill....... Assistant Treasurer Assistant Vice President of the VK Adviser.
Age: 30 Assistant Treasurer of each of the Van Kampen
American Capital Funds and closed-end funds
advised by the VK Adviser.
</TABLE>
- ---------------
* Such Trustees are "interested persons" (within the meaning of Section 2(a)(19)
of the 1940 Act). Messrs. Powell and McDonnell are interested persons of the
VK Adviser and the Fund by reason of their positions with the VK Adviser. Mr.
Sheehan is an interested person of the VK Adviser and the Fund by reason of
his firm having acted as legal counsel to the VK Adviser. Mr. Whalen is an
interested person of the Fund by reason of his firm acting as legal counsel
for the Fund.
Messrs. Powell and McDonnell own, or have the opportunity to purchase, an
equity interest in VK/AC Holding, Inc., the parent company of Van Kampen
American Capital, and have entered into employment contracts (for a term of five
years) with Van Kampen American Capital.
The Fund will pay each trustee who is not an affiliated person of the VK
Adviser, the Distributor or Van Kampen American Capital an annual retainer of
$2,500 per year and $250 per meeting of the Fund, plus expenses; except that no
trustee shall receive the annual retainer at any time when the Fund's net assets
are less than $25,000,000. Under the Fund's deferred compensation plan, a
trustee can elect to defer all or a portion of the trustee's fees earned by such
trustee until such trustee's retirement. The deferred compensation earns a rate
of return determined by reference to the Fund or other Van Kampen American
Capital mutual funds advised by the VK Adviser or its affiliates as selected by
the trustee. To the extent permitted by the 1940 Act, the Fund may invest in
securities of such mutual funds selected by the 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 Fund's retirement plan, a trustee who is
receiving trustee's fees from the Fund prior to such trustee's retirement, has
at least ten years of service 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 trustee's retirement. Under certain conditions,
reduced benefits are available for early retirement. Each series of the Trust
has similar trustee compensation, deferred compensation and retirement plan
arrangements.
B-22
<PAGE> 224
COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT TOTAL COMPENSATION
AGGREGATE BENEFITS ACCRUED ESTIMATED ANNUAL FROM REGISTRANT AND
COMPENSATION AS PART OF FUND BENEFITS UPON FUND COMPLEX PAID
NAME FROM REGISTRANT(2) EXPENSES(3) RETIREMENT(4) TO TRUSTEE(5)
- ----------------------------- ------------------ ---------------- ---------------- ---------------------
<S> <C> <C> <C> <C>
R. Craig Kennedy............. $6,581 $ -- $2,500 $62,362
Philip G. Gaughan............ 8,262 -- 2,500 63,250
Donald C. Miller............. 6,414 -- 2,500 62,178
Jack A. Nelson............... 6,581 -- 2,500 62,362
Jerome L. Robinson........... 6,456 -- 2,500 58,475
Wayne W. Whalen.............. 8,143 -- 2,500 49,875
</TABLE>
- ---------------
(1) The Registrant is Van Kampen American Capital Equity Trust (the "Trust")
which currently consists of six operating series, including the Fund. As
indicated in the other explanatory notes, the amounts in the table relate
to the applicable trustees during the Registrant's last fiscal year ended
June 30, 1995 or the Fund Complex' (as defined herein) last calendar year
ended December 31, 1994. Messrs. Powell and McDonnell, Trustees of the
Registrant, are affiliated persons of the Adviser and are not eligible for
compensation or retirement benefits from the Registrant. Messrs. Branagan,
Hilsman, Rees, Sheehan, Sisto and Woodside were elected as trustees of the
Trust at a shareholders meeting held on July 21, 1995 and Ms. Heagy was
appointed a trustee on September 7, 1995, and thus received no
compensation or retirement benefits from the Registrant during its fiscal
year ended June 30, 1975.
(2) The amounts shown in this column are accumulated from the Aggregate
Compensation of each of the series in operation during the Registrant's
fiscal year ended June 30, 1995. In a full fiscal year with all six series
operating throughout the year and all having net assets exceeding
$25,000,000, the estimated aggregate compensation from the Registrant
would be approximately $20,000. Beginning in October 1994, each Trustee
except Messrs. Gaughan and Whalen, began deferring his entire aggregate
compensation paid by the Registrant. The total combined amount of deferred
compensation (including interest) accrued with respect to each Trustee
from the Fund Complex (as defined herein) as of December 31, 1994 is as
follows: Mr. Kennedy, $14,737; Mr. Miller, $14,553; Mr. Nelson, $14,737
and Mr. Robinson, $13,725.
(3) The amounts shown in this column are the estimated Pension or Retirement
Benefit Accruals by the Fund during its fiscal year ending June 30, 1995.
(4) This is the estimated annual benefits payable per year for the 10-year
period commencing in the year of such Trustee's retirement by the Fund
assuming: the Trustee has 10 or more years of service on the Board of the
Fund and retires at or after attaining the age of 60. Trustees retiring
prior to the age of 60 or with fewer than 10 years of service may receive
reduced retirement benefits from the Fund.
(5) As of December 31, 1994, the Fund Complex consisted of 20 mutual funds
advised by the VK Adviser that had the same members on each funds' Board
of Trustees. The amounts shown in this column are accumulated from the
Aggregate Compensation of each of these 20 mutual funds in the Fund
Complex during the calendar year ended December 31, 1994. The VK Adviser
also served as investment adviser for other investment companies; however,
with the exception of Messrs. Powell, McDonnell and Whalen, the Trustees
were not trustees of such investment companies. Combining the Fund Complex
with other investment companies advised by the Adviser, Mr. Whalen
received Total Compensation of $161,850 during the calendar year ended
December 31, 1994.
As of September 29, 1995, the trustees and officers as a group own less than
1% of the Shares of the Fund.
No officer or trustee of the Fund owns or would be able to acquire 5% or more
of the common stock of VK/AC Holding, Inc.
To the knowledge of the Fund, as of September 29, 1995, no person owned of
record or beneficially 5% or more of any Fund's Class A Shares, Class B Shares
or Class C Shares.
B-23
<PAGE> 225
LEGAL COUNSEL
Counsel to the Fund is Skadden, Arps, Slate, Meagher & Flom, Chicago,
Illinois.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISORY AGREEMENT
Van Kampen American Capital Investment Advisory Corp. (the "Adviser") is the
Fund's investment adviser. The Adviser was incorporated as a Delaware
corporation in 1982 (and through December 31, 1987 transacted business under the
name of American Portfolio Advisory Service Inc.). The Adviser's principal
office is located at One Parkview Plaza, Oakbrook Terrace, Illinois 60181.
The Adviser is a wholly-owned subsidiary of Van Kampen American Capital, Inc.,
which in turn is a wholly-owned subsidiary of VK/AC Holding, Inc. VK/AC Holding,
Inc. is controlled, through the ownership of a substantial majority of its
common stock by The Clayton & Dubilier Private Equity Fund IV Limited
Partnership ("C&D L.P."), a Connecticut limited partnership. C&D L.P. is managed
by Clayton, Dubilier & Rice, Inc., a New York based private investment firm. The
General Partner of C&D L.P. is Clayton & Dubilier Associates IV Limited
Partnership ("C&D Associates L.P."). The general partners of C&D Associates L.P.
are Joseph L. Rice, III, B. Charles Ames, William A. Barbe, Alberto Cribiore,
Donald J. Gogel, Leon J. Hendrix, Jr., Hubbard C. Howe and Andrall E. Pearson,
each of whom is a principal of Clayton, Dubilier & Rice, Inc. In addition,
certain officers, directors and employees of Van Kampen American Capital, Inc.
own, in the aggregate, not more than 7% of the common stock of VK/AC Holding,
Inc. and have the right to acquire, upon exercise of options, approximately an
additional 11% of the common stock of VK/AC Holding, Inc. Presently, and after
giving effect to the exercise of such options, no officer or trustee owns or
would own 5% or more of VK/AC Holding, Inc.
The investment advisory agreement between the Adviser and the Fund provides
that the Adviser will administer the business affairs of the Fund, supervise the
Fund's overall investment activities in the context of implementing the Fund's
investment objectives, furnish offices, necessary facilities and equipment,
provide administrative services, and permit its officers and employees to serve
without compensation as Trustees of the Trust and officers of the Fund if duly
elected to such positions.
The agreement provides that the Adviser shall not be liable for any error of
judgment or of law, or for any loss suffered by the Fund in connection with the
matters to which the agreement relates, except a loss resulting from willful
misfeasance, bad faith, or gross negligence on the part of the Adviser in the
performance of its obligations and duties, or by reason of its reckless
disregard of its obligations and duties under the agreement.
The Adviser's activities are subject to the review and supervision of the
Trustees to whom the Adviser renders periodic reports of the Fund's investment
activities.
The investment advisory agreement remains in effect from year to year if
specifically approved by the Trustees (including the independent Trustees) on
behalf of the Fund or the Fund's shareholders in compliance with the
requirements of the 1940 Act. The agreement may be terminated without penalty
upon 60 days written notice by either party thereto and will automatically
terminate in the event of assignment.
The Adviser has undertaken to reimburse the Fund for annual expenses of the
Fund which exceed the most stringent limit prescribed by any state in which the
Fund's shares are offered for sale. Currently, the most stringent limit in any
state would require such reimbursement to the extent that aggregate operating
expenses of the Fund (excluding interest, taxes and other expenses which may be
excludable under applicable state law) exceed in any fiscal year 2 1/2% of the
average annual net assets of the Fund up to $30 million, 2% of the average
annual net assets of the Fund of the next $70 million, and 1 1/2% of the
remaining average annual net assets of the Fund. In addition to making any
required reimbursements, the Adviser may in its discretion, but is not obligated
to, waive all or any portion of its fee or assume all or any portion of the
expenses of the Fund.
B-24
<PAGE> 226
OTHER AGREEMENTS
FUND ACCOUNTING AGREEMENT. The Fund has also entered into an accounting
services agreement pursuant to which the VK Adviser provides accounting services
supplementary to those provided by the Custodian. Such services are expected to
enable the Fund to more closely monitor and maintain its accounts and records.
The Fund shares together with the other Van Kampen American Capital mutual funds
advised by the VK Adviser and distributed by the Distributor in the cost of
providing such services, with 25% of such costs shared proportionately based on
the number of outstanding classes of securities per fund and with the remaining
75% of such cost being paid by the Fund and such other Van Kampen American
Capital funds based proportionally on their respective net assets.
LEGAL SERVICES AGREEMENT. The Fund and each of the other Van Kampen American
Capital funds advised by the VK Adviser and distributed by the Distributor have
entered into Legal Services Agreement pursuant to which Van Kampen American
Capital provides legal services, including without limitation: accurate
maintenance of the funds' minute books and records, preparation and oversight of
the funds' regulatory reports, and other information provided to shareholders,
as well as responding to day-to-day legal issues on behalf of the funds. It is
expected that Van Kampen American Capital can render such legal services on a
more cost effective basis than other providers of such services. Payment by the
Fund for such services is made on a cost basis for the employment of personnel
as well as the overhead and the equipment necessary to render such services.
Other funds distributed by the Distributor also receive legal services from Van
Kampen American Capital. 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.
CUSTODIAN AND INDEPENDENT AUDITORS
State Street Bank and Trust Company, 225 Franklin Street, P.O. Box 1713,
Boston, MA 02105-1713, is the custodian of the Fund and has custody of all
securities and cash of the Fund. The custodian, among other things, attends to
the collection of principal and income, and payment for and collection of
proceeds of securities bought and sold by the Fund.
The independent auditors for the Fund are KPMG Peat Marwick LLP, Chicago,
Illinois. The selection of independent auditors will be subject to ratification
by the shareholders of the Fund at any annual meeting of shareholders.
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION
The Adviser will place orders for portfolio transactions for the Fund with
broker-dealer firms giving consideration to the quality, quantity and nature of
each firm's professional services. These services include execution, clearance
procedures, wire service quotations and statistical and other research
information provided to the Fund or the Adviser, including quotations necessary
to determine the value of the Fund's net assets. Any research benefits derived
are available for all clients of 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 materially reduce its
expenses. In selecting among the firms believed to meet the criteria for
handling a particular transaction, the Fund's Adviser may take into
consideration that certain firms have sold or are selling shares of the Fund and
that certain firms provide market, statistical or other research information to
the Fund and the Adviser, and may select firms that are affiliated with the
Fund, its Adviser or its Distributor.
If it is believed to be in the best interests of the Fund, the Adviser may
place portfolio transactions with brokers who provide the types of research
service described above, even if it means the Fund will have to pay a higher
commission (or, if the broker's profit is part of the cost of the security, will
have to pay a higher price for the security) than would be the case if no weight
were given to the broker's furnishing of those research services. This will be
done, however, only if, in the opinion of the Fund's Adviser, the amount of
additional commission or increased cost is reasonable in relation to the value
of such services.
B-25
<PAGE> 227
In selecting among the firms believed to meet the criteria for handling a
particular transaction, the Adviser may take into consideration that certain
firms (i) provide market, statistical or other research information such as that
set forth above to the Fund and the Adviser, (ii) have sold or are selling
shares of the Fund and (iii) may select firms that are affiliated with the Fund,
its investment adviser or its distributor and other principal underwriters. If
purchases or sales of securities of the Fund and of one or more other investment
companies or clients supervised by the Fund's Adviser are considered at or about
the same time, transactions in such securities will be allocated among the
several investment companies and clients in a manner deemed equitable to all by
the Adviser, taking into account the respective size of the Fund and other
investment companies and clients and the amount of securities to be purchased or
sold. Although it is possible that in some cases this procedure could have a
detrimental effect on the price or volume of the security as far as the Fund is
concerned, it is also possible that the ability to participate in volume
transactions and to negotiate lower brokerage commissions will be beneficial to
the Fund.
While the Adviser will be primarily responsible for the placement of the
Fund's business, the policies and practices in this regard must be consistent
with the foregoing and will at all times be subject to review by the trustees of
the Trust, of which the Fund is a separate series.
The Trustees have adopted certain policies incorporating the standards of Rule
17e-1 issued by the Securities and Exchange Commission under the 1940 Act which
requires that the commissions paid to the Distributor and other affiliates of
the Fund must be reasonable and fair compared to the commissions, fees or other
remuneration received or to be received by other brokers in connection with
comparable transactions involving similar securities during a comparable period
of time. The rule and procedures also contain review requirements and require
the Adviser to furnish reports to the Trustees and to maintain records in
connection with such reviews. After consideration of all factors deemed
relevant, the Trustees will consider from time to time whether the advisory fee
for the Fund will be reduced by all or a portion of the brokerage commission
given to affiliated brokers.
Portfolio turnover is calculated by dividing the lesser of purchases or sales
of portfolio securities by the monthly average value of the securities in the
portfolio during the year. Securities, including options, whose maturity or
expiration date at the time of acquisition were one year or less are excluded
from such calculation. The Fund anticipates that the annual portfolio turnover
rate of the Fund's portfolio will generally be less than 100%. If the turnover
rate for the Fund does reach or exceed this percentage, the Fund's brokerage
costs may increase and the Adviser will monitor the Fund's trading practices to
avoid potential adverse tax consequences.
TAX STATUS OF THE FUND
The Trust and any of its series, including the Fund, will be treated as
separate corporations for federal income tax purposes. The Fund will be subject
to tax if it fails to distribute net capital gains, or if its annual
distributions, as a percentage of its income, are less than the distributions
required by tax laws.
THE DISTRIBUTOR
The Distributor offers one of the industry's broadest lines of
investments -- encompassing mutual funds, closed-end funds and unit investment
trusts -- and is currently the nation's 5th largest broker-sold mutual fund
group according to Strategic Insight. Van Kampen American Capital's roots in
money management extend back to 1926. Today, Van Kampen American Capital manages
or supervises more than $50 billion in mutual funds, closed-end funds and unit
investment trusts -- assets which have been entrusted to Van Kampen American
Capital in more than 2 million investor accounts. Van Kampen American Capital
has one of the largest research teams (outside of the rating agencies) in the
country, with 86 analysts devoted to various specializations.
Shares of the Fund are offered continuously through the Distributor, One
Parkview Plaza, Oakbrook Terrace, Illinois 60181. The Distributor is a wholly
owned subsidiary of Van Kampen American Capital, Inc., which is a subsidiary of
VK/AC Holding, Inc., a Delaware corporation that is controlled through an
ownership of a substantial majority of its common stock, by The Clayton &
Dubilier Private Equity Fund IV Limited Partnership ("C & D L.P."), a
Connecticut limited partnership. In addition, certain officers, directors and
B-26
<PAGE> 228
employees of Van Kampen American Capital, Inc., and its subsidiaries own, in the
aggregate not more than 7% of the common stock of VK/AC Holding, Inc. and have
the right to acquire, upon the exercise of options, approximately an additional
11% of the common stock of VK/AC Holding, Inc. C & D L.P. is managed by Clayton,
Dubilier & Rice, Inc. Clayton & Dubilier Associates IV Limited Partnership ("C &
D Associates L.P.") is the general partner of C & D L.P. Pursuant to a
distribution agreement with the Fund, the Distributor will purchase shares of
the Fund for resale to the public, either directly or through securities dealers
and brokers, and is obligated to purchase only those shares for which it has
received purchase orders. A discussion of how to purchase and redeem shares of
the Fund and how such shares are priced is contained in the Prospectus.
The Fund has adopted a distribution plan (the "Distribution Plan") with
respect to each class of its shares pursuant to Rule 12b-1 under the 1940 Act.
The Fund also has adopted a service plan (the "Service Plan") with respect to
each class of its shares. The Distribution Plan and the Service Plan sometimes
are referred to herein as the "Plans." The Plans provide that the Fund may spend
a portion of the Fund's average daily net assets attributable to each class of
shares in connection with distribution of the respective class of shares and in
connection with the provision of ongoing services to shareholders of such class,
respectively. The Plans are being implemented through an agreement (the
"Distribution and Service Agreement") with the Distributor of each class of the
Fund's shares, sub-agreements between the Distributor and members of the NASD
who are acting as securities dealers and NASD members or eligible non-members
who are acting as brokers or agents and similar agreements between the Fund and
financial intermediaries who are acting as brokers (collectively, "Selling
Agreements") that may provide for their customers or clients certain services or
assistance, which may include, but not be limited to, processing purchase and
redemption transactions, establishing and maintaining shareholder accounts
regarding the Fund, and such other services as may be agreed to from time to
time and as may be permitted by applicable statute, rule or regulation. Brokers,
dealers and financial intermediaries that have entered into sub-agreements with
the Distributor and sell shares of the Fund are referred to herein as "financial
intermediaries."
The Distributor must submit quarterly reports to the Board of Trustees of the
Trust, of which the Fund is a series, setting forth separately by class of
shares all amounts paid under the Plans and the purposes for which such
expenditures were made, together with such other information as from time to
time is reasonably requested by the Trustees. The Plans provide that they will
continue in full force and effect from year to year so long as such continuance
is specifically approved by a vote of the Trustees, and also by a vote of the
disinterested Trustees, cast in person at a meeting called for the purpose of
voting on the Plans. Each of the Plans may not be amended to increase materially
the amount to be spent for the services described therein with respect to either
class of shares without approval by a vote of a majority of the outstanding
voting shares of such class, and all material amendments to either of the Plans
must be approved by the Trustees and also by the disinterested Trustees. Each of
the Plans may be terminated with respect to either class of shares at any time
by a vote of a majority of the disinterested Trustees or by a vote of a majority
of the outstanding voting shares of such class.
PERFORMANCE INFORMATION
The Fund's yield quotation is determined on a daily basis with respect to the
immediately preceding 30 day period; yield is computed by first dividing the
Fund's net investment income per share of a given class earned during such
period by the Fund's maximum offering price (including, with respect to the
Class A Shares, the maximum offering price) per share of such class on the last
day of such period. The Fund's net investment income per share is determined by
taking the interest attributable to a given class of shares earned by the Fund
during the period, subtracting the expenses attributable to a given class of
shares accrued for the period (net of any reimbursements), and dividing the
result by the average daily number of shares of each class outstanding during
the period that were entitled to receive dividends. The yield calculation
formula assumes net investment income is earned and reinvested at a constant
rate and annualized at the end of a six month period. Yield will be computed
separately for each class of shares. Class B Shares redeemed during the first
six years after their issuance and Class C Shares redeemed during the first year
after their issuance may be subject to a contingent deferred sales charge in a
maximum amount equal to 4.00% and 1.00%, respectively, of the lesser of the then
current net asset value of the shares redeemed or their initial purchase price
from the Fund. Yield
B-27
<PAGE> 229
quotations do not reflect the imposition of a contingent deferred sales charge,
and if any such contingent deferred sales charge imposed at the time of
redemption were reflected, it would reduce the performance quoted.
The Fund calculates average compounded total return by determining the
redemption value (less any applicable contingent deferred sales charge) at the
end of specified periods (after adding back all dividends and other
distributions made during the period) of a $1,000 investment in a given class of
shares of the Fund (less the maximum sales charge, if any) at the beginning of
the period, annualizing the increase or decrease over the specified period with
respect to such initial investment and expressing the result as a percentage.
Average compounded total return will be computed separately for each class of
shares.
Total return figures utilized by the Fund are based on historical performance
and are not intended to indicate future performance. Total return and net asset
value per share of a given class can be expected to fluctuate over time, and
accordingly upon redemption a shareholder's shares may be worth more or less
than their original cost.
The Fund may, in supplemental sales literature, advertise non-standardized
total return figures representing the cumulative, non-annualized total return of
each class of shares of the Fund from a given date to a subsequent given date.
Cumulative non-standardized total return is calculated by measuring the value of
an initial investment in a given class of shares of the Fund at a given time,
deducting the maximum initial sales charge, if any, determining the value of all
subsequent reinvested distributions, and dividing the net change in the value of
the investment as of the end of the period by the amount of the initial
investment and expressing the result as a percentage. Non-standardized total
return will be calculated separately for each class of shares. Non-standardized
total return calculations do not reflect the imposition of a contingent deferred
sales charge, and if any such contingent deferred sales charge with respect to
the CDSC imposed at the time of redemption were reflected, it would reduce the
performance quoted.
B-28
<PAGE> 230
- --------------------------------------------------------------------------------
VAN KAMPEN AMERICAN CAPITAL
PROSPECTOR FUND
- --------------------------------------------------------------------------------
Van Kampen American Capital Prospector Fund (the "Fund") is a separate
diversified series of Van Kampen American Capital Equity Trust, an open-end
management investment company commonly known as a mutual fund. The Fund's
investment objective is to seek capital growth and income. The Fund will seek to
achieve its investment objective by investing primarily in a diversified
portfolio of income producing equity securities, including dividend paying
common and preferred stocks and income securities convertible into common or
preferred stock. There is no assurance that the Fund will achieve its investment
objective.
The Fund's investment adviser is Van Kampen American Capital Investment
Advisory Corp. This Prospectus sets forth certain information about the Fund
that a prospective investor should know before investing in the Fund. Please
read it carefully and retain it for future reference. The address of the Fund is
One Parkview Plaza, Oakbrook Terrace, Illinois 60181, and its telephone number
is (800) 421-5666.
The Fund currently offers three classes of its shares (the "Alternative
Sales Arrangements") which may be purchased at a price equal to their net asset
value per share, plus sales charges which, at the election of the investor, may
be imposed (i) at the time of purchase (the "Class A Shares") or (ii) on a
contingent deferred basis (Class A Share purchases over $1 million, "Class B
Shares" and "Class C Shares"). The Alternative Sales Arrangements permit an
investor to choose the method of purchasing shares that is more beneficial to
the investor, taking into account the amount of the purchase, the length of time
the investor expects to hold the shares and other circumstances.
(Continued on next page.)
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, GUARANTEED OR
ENDORSED BY, ANY BANK OR DEPOSITORY INSTITUTION; FURTHER, SUCH SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. SHARES OF THE FUND INVOLVE
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
A Statement of Additional Information, dated , 1995, containing
additional information about the Fund, has been filed with the Securities and
Exchange Commission ("SEC") and is hereby incorporated by reference into this
prospectus. A copy of the Statement of Additional Information may be obtained
without charge by calling (800) 421-5666 or for Telecommunication Device For the
Deaf at (800) 772-8889.
------------------
VAN KAMPEN AMERICAN CAPITAL(SM)
------------------
THIS PROSPECTUS IS DATED , 1995.
<PAGE> 231
(Continued from previous page.)
Each class of shares pays ongoing distribution and service fees at an
aggregate annual rate of (i) for Class A Shares, up to 0.25% of the Fund's
average daily net assets attributable to the Class A Shares, (ii) for Class B
Shares, up to 1.00% of the Fund's average daily net assets attributable to the
Class B Shares and (iii) for Class C Shares up to 1.00% of the Fund's average
daily net assets attributable to the Class C Shares. Investors should understand
that the purpose and function of the deferred sales charge and the distribution
and service fees with respect to the Class A Share purchases over $1 million,
Class B Shares and the Class C Shares are the same as those of the initial sales
charge and the distribution and service fees with respect to the Class A Shares
purchases below $1 million. Each share of the Fund represents an identical
interest in the investment portfolio of the Fund and has the same rights, except
that (i) each class of shares bears those distribution fees, service fees and
administrative expenses applicable to the respective class of shares as a result
of its sales arrangements, which will cause the different classes of shares to
have different expense ratios and to pay different rates of dividends, (ii) each
class has exclusive voting rights with respect to those provisions of the Fund's
Rule 12b-1 distribution plan which relate only to such class and (iii) the
different classes have different exchange privileges. Class B Shares and Class C
Shares automatically will convert to Class A Shares seven years and ten years,
respectively, after the end of the calendar month in which the investor's order
to purchase was accepted, in the circumstances and subject to the qualifications
described in this Prospectus. See "Alternative Sales Arrangements" and "Purchase
of Shares."
2
<PAGE> 232
- ------------------------------------------------------------------------------
TABLE OF CONTENTS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.............................................. 4
Shareholder Transaction Expenses................................ 7
Annual Fund Operating Expenses and Example...................... 8
The Fund........................................................ 9
Investment Objective and Policies............................... 10
Portfolio Securities............................................ 10
Investment Practices............................................ 13
Investment Advisory Services.................................... 19
Alternative Sales Arrangements.................................. 20
Purchase of Shares.............................................. 22
Shareholder Services............................................ 32
Redemption of Shares............................................ 36
The Distribution and Service Plans.............................. 39
Distributions from the Fund..................................... 41
Tax Status...................................................... 42
Fund Performance................................................ 44
Description of Shares of the Fund............................... 44
Additional Information.......................................... 45
</TABLE>
- -------------------------------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE FUND, THE ADVISER, OR THE DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER BY THE FUND OR BY THE DISTRIBUTOR TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL FOR THE FUND TO MAKE
SUCH AN OFFER IN SUCH JURISDICTION.
- -------------------------------------------------------------------------------
3
<PAGE> 233
- ------------------------------------------------------------------------------
PROSPECTUS SUMMARY
- ------------------------------------------------------------------------------
THE FUND. Van Kampen American Capital Prospector Fund (the "Fund") is a
separate diversified series of Van Kampen American Capital Equity Trust, an
open-end management investment company which is a Delaware business trust. See
"The Fund."
MINIMUM PURCHASE. $500 minimum initial investment for each class of shares and
$25 minimum for each subsequent investment for each class of shares (or less as
described under "Purchase of Shares").
INVESTMENT OBJECTIVE. The investment objective of the Fund is to seek capital
growth and income.
INVESTMENT POLICY. The Fund will seek to achieve its investment objective by
investing primarily in a diversified portfolio of income producing equity
securities, including dividend paying common and preferred stocks and income
securities convertible into common or preferred stock. There is no assurance
that the Fund will achieve its investment objective. The net asset value per
share of the Fund may increase or decrease depending on changes in the
securities markets, and other factors affecting the issuers of securities in
which the Fund may invest. See "Investment Objective and Policies."
INVESTMENT PRACTICES. The Fund may invest up to 25% of its assets in foreign
securities. Subject to certain limitations, the Fund may enter into strategic
transactions, lend its portfolio securities, and enter into repurchase
agreements with selected commercial banks and broker-dealers. These investment
practices entail certain risks. See "Investment Practices."
ALTERNATIVE SALES ARRANGEMENTS. The Alternative Sales Arrangements permit an
investor to choose the method of purchasing shares that is more beneficial to
the investor, taking into account the amount of the purchase, the length of time
the investor expects to hold the shares and other circumstances. Investors
should consider such factors together with the amount of sales charges and
accumulated distribution and service fees with respect to each class of shares
that may be incurred over the anticipated duration of their investment in the
Fund. To assist investors in making this determination, the table under the
caption "Annual Fund Operating Expenses and Example" sets forth examples of the
charges applicable to each class of shares.
The Fund currently offers three classes of its shares which may be purchased
at a price equal to their net asset value per share plus sales charges which, at
the election of the investor, may be imposed either (i) at the time of the
purchase ("Class A Shares") or (ii) on a contingent deferred basis (Class A
Share purchases, "Class B Shares" and "Class C Shares"). Class A Share purchases
over $1 million or otherwise subject to a contingent deferred sales charge
("CDSC"),
4
<PAGE> 234
Class B Shares and Class C Shares sometimes are referred to herein collectively
as "CDSC Shares."
Class A Shares. Class A Shares are subject to an initial sales charge equal to
5.75% of the public offering price (6.10% of the net amount invested), reduced
on investments of $50,000 or more. Class A Shares are subject to ongoing
distribution and service fees at an aggregate annual rate of up to 0.25% of the
Fund's average daily net assets attributable to the Class A Shares. Certain
purchases of Class A Shares qualify for reduced or no initial sales charges and
may be subject to a CDSC.
Class B Shares. Class B Shares do not incur a sales charge when they are
purchased, but are subject to a sales charge if redeemed within six years of
purchase. Class B Shares are subject to a CDSC equal to 4.00% of the lesser of
the then current net asset value or the original purchase price on Class B
Shares redeemed during the first year after purchase, which charge is reduced
each year thereafter. Class B Shares are subject to ongoing distribution and
service fees at an aggregate annual rate of up to 1.00% of the Fund's average
daily net assets attributable to the Class B Shares. Class B Shares
automatically will convert to Class A Shares seven years after the end of the
calendar month in which the investor's order to purchase was accepted, in the
circumstances and subject to the qualifications described in this Prospectus.
Class C Shares. Class C Shares do not incur a sales charge when they are
purchased, but are subject to a sales charge if redeemed within the first year
after purchase. Class C Shares are subject to a CDSC equal to 1.00% of the
lesser of the then current net asset value or the original purchase price on
Class C Shares redeemed during the first year after purchase. Class C Shares are
subject to ongoing distribution and service fees at an aggregate annual rate of
up to 1.00% of the Fund's average daily net assets attributable to the Class C
Shares. Class C Shares automatically will convert to Class A Shares ten years
after the end of the calendar month in which the investor's order to purchase
was accepted, in the circumstances and subject to the qualifications described
in this Prospectus.
REDEMPTION. Class A Shares may be redeemed at net asset value, without charge,
subject to conditions set forth herein. CDSC Shares may be redeemed at net asset
value less a deferred sales charge which will vary among each class of CDSC
Shares and with the length of time a redeeming shareholder has owned such
shares. CDSC Shares redeemed after the expiration of the CDSC period applicable
to the respective class of CDSC Shares will not be subject to a deferred sales
charge. See "Redemption of Shares."
INVESTMENT ADVISER. Van Kampen American Capital Investment Advisory Corp. is
the Fund's investment adviser. The annual advisory fee for the Fund is 0.70% of
average daily net assets, reduced on net assets over $500 million. See
"Investment Advisory Services."
DISTRIBUTOR. Van Kampen American Capital Distributors, Inc.
5
<PAGE> 235
DISTRIBUTIONS FROM THE FUND. Dividends from net investment income are
distributed quarterly. Realized capital gains, if any, are made annually.
Distributions with respect to each class of shares will be calculated in the
same manner on the same day and will be in the same amount except that the
different distribution and service fees and administrative expenses relating to
each class of shares will be borne exclusively by the respective class of shares
and may cause the distributions relating to the different classes of shares to
differ. See "Distributions from the Fund."
The above is qualified in its entirety by reference to the more detailed
information appearing elsewhere in this Prospectus.
6
<PAGE> 236
- ------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- ------------ ------------
<S> <C> <C> <C>
Maximum sales charge imposed
on purchases (as a
percentage of the offering
price)...................... 5.75%(1) None None
Maximum sales charge imposed
on reinvested dividends
(as a percentage of the
offering price)............. None None(3) None(3)
Deferred sales charge (as a
percentage of the lesser of
the original purchase price
or redemption proceeds)..... None(2) Year 1--4.00% Year 1--1.00%
Year 2--3.75% After--None
Year 3--3.50%
Year 4--2.50%
Year 5--1.50%
Year 6--1.00%
After--None
Redemption fees (as a
percentage of amount
redeemed)................... None None None
Exchange fees................. None None None
</TABLE>
- ----------------
(1) Reduced on investments of $50,000 or more. See "Purchase of Shares -- Class
A Shares."
(2) Investments of $1 million or more are not subject to a sales charge at the
time of purchase, but a contingent deferred sales charge of 1.00% may be
imposed on redemptions made within one year of the purchase.
(3) CDSC Shares received as reinvested dividends are subject to a 12b-1 fee, a
portion of which may indirectly pay for the initial sales commission
incurred on behalf of the investor. See "The Distribution and Service
Plans."
7
<PAGE> 237
- ------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES AND EXAMPLE
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- --------- ---------
<S> <C> <C> <C>
Management fees(1) (as a percentage of
average daily net assets)............. 0.00% 0.00% 0.00%
12b-1 fees(2) (as a percentage of
average daily net assets)............. .25% 1.00% 1.00%
Other expenses (as a percentage of
average daily net assets)............. 1.00% 1.00% 1.00%
Total expenses(1) (as a percentage of
average daily net assets)............. 1.25% 2.00% 2.00%
</TABLE>
- ----------------
(1) Absent the Adviser's waiver of its fee and assumption of the expenses of the
Fund, "Management fees" would have been 0.70% for each of the Class A
Shares, Class B Shares and Class C Shares, and "Total expenses" would have
been 1.61% for Class A Shares, 2.36% for Class B Shares and 2.36% for Class
C Shares.
(2) Includes a service fee of up to 0.25% (as a percentage of net asset value)
paid by the Fund to the selling broker as compensation for ongoing services
rendered to investors. With respect to each class of shares, amounts in
excess of 0.25%, if any, represent an asset based sales charge. The asset
based sales charge with respect to Class C Shares includes 0.75% (as a
percentage of net asset value) paid to investors' broker-dealers as sales
compensation.
8
<PAGE> 238
EXAMPLE:
<TABLE>
<CAPTION>
ONE THREE
YEAR YEARS
---- -----
<S> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (i) an operating expense ratio
of 1.25% for Class A Shares, 2.00% for Class B Shares
and 2.00% for Class C Shares, (ii) 5% annual return
and (iii) redemption at the end of each time period:
Class A Shares....................................... $70 $95
Class B Shares....................................... $60 $98
Class C Shares....................................... $30 $63
An investor would pay the following expenses on the
same $1,000 investment assuming no redemption at the
end of each period:
Class A Shares....................................... $70 $95
Class B Shares....................................... $20 $63
Class C Shares....................................... $20 $63
</TABLE>
The purpose of the foregoing table is to assist an investor in understanding
the various costs and expenses that an investor in the Fund will bear directly
or indirectly. The "Example" reflects expenses based on the "Annual Fund
Operating Expenses" table as shown above carried out to future years. The ten
year amount with respect to Class B Shares of the Fund reflects the lower
aggregate 12b-1 and service fees applicable to such shares after conversion to
Class A Shares. THE INFORMATION CONTAINED IN THE ABOVE TABLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY
BE GREATER OR LESSER THAN THOSE SHOWN. For a more complete description of such
costs and expenses, see "Purchase of Shares," "Investment Advisory Services,"
"The Distribution and Service Plans" and "Redemption of Shares."
- ------------------------------------------------------------------------------
THE FUND
- ------------------------------------------------------------------------------
Van Kampen American Capital Prospector Fund (the "Fund") is a mutual fund,
which pools shareholders' money to seek to achieve a specified investment
objective. In technical terms, the Fund is a separate diversified series of Van
Kampen American Capital Equity Trust (the "Trust"), an open-end management
investment company organized as a Delaware business trust. Mutual funds sell
their shares to investors and invest the proceeds in a portfolio of securities.
A mutual fund allows investors to pool their money with that of other investors
in order to obtain professional investment management. Mutual funds generally
make it possible for investors to obtain greater diversification of their
investments and to simplify their recordkeeping.
Van Kampen American Capital Investment Advisory Corp. (the "Adviser") provides
investment advisory and administrative services to the Fund. The Adviser
9
<PAGE> 239
and its affiliates also manage other mutual funds distributed by Van Kampen
American Capital Distributors, Inc. (the "Distributor"). To obtain prospectuses
and other information on any of these other funds, please call the telephone
number on the cover page of the Prospectus.
- ------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES
- ------------------------------------------------------------------------------
The investment objective of the Fund is to seek [long-term] capital growth and
income. This objective is fundamental and cannot be changed without approval of
the shareholders of the Fund. There can be no assurance that the Fund will
achieve its investment objective. An investment in the Fund may not be
appropriate for all investors. The Fund is not intended to be a complete
investment program, and investors should consider their long-term investment
goals and financial needs when making an investment decision with respect to the
Fund. An investment in the Fund is intended to be a long-term investment and
should not be used as a trading vehicle.
The Fund will seek to achieve its investment objective by investing primarily
in a diversified portfolio of income producing equity securities, including
dividend paying common and preferred stocks and income securities convertible
into common or preferred stock. The Fund may also invest in investment grade
income securities for purposes of growth or income, cash management or as a
temporary defensive measure. The Fund may also invest in shares of other
investment companies that pursue investment objectives consistent with that of
the Fund, to the extent and subject to the limitations discussed below. The Fund
may invest up to 25% of its total assets in securities of foreign issuers.
The Fund's approach is to invest primarily in dividend paying common stocks or
other equity securities of larger capitalization companies that are believed by
the Adviser to be selling at low valuations relative to historical norms, and to
future earnings prospects. Larger capitalization companies are those companies
consisting of the 500 largest capitalization companies listed on a national
securities exchange or automated system.
- ------------------------------------------------------------------------------
PORTFOLIO SECURITIES
- ------------------------------------------------------------------------------
COMMON STOCK. Common stocks are shares of a corporation or other entity that
entitle the holder to a pro rata share of the profits of the corporation, if
any, without preference over any other shareholder or class of shareholders,
including holders of such entity's debt securities, preferred stock and other
senior equity. Common stock usually carries with it the right to vote and
frequently an exclusive right to do so. In selecting common stocks for
investment, the Fund will focus primarily on the security's potential for
appreciation and on its dividend paying capacity.
10
<PAGE> 240
OTHER EQUITY SECURITIES. The Fund may invest in other equity securities,
including convertible securities and preferred stocks. A convertible security is
a bond, debenture, note, preferred stock or other security that may be converted
into or exchanged for a prescribed amount of common stock or other equity
security of the same or a different issuer within a particular period of time at
a specified price or formula. A convertible security entitles the holder to
receive interest paid or accrued on debt or the dividend paid on preferred stock
until the convertible security matures or is redeemed, converted or exchanged.
Before conversion, convertible securities have characteristics similar to
nonconvertible income securities in that they ordinarily provide a stable stream
of income with generally higher yields than those of common stocks of the same
or similar issuers. Convertible securities rank senior to common stock in a
corporation's capital structure but are usually subordinated to comparable
nonconvertible securities. The Fund may invest in adjustable or fixed rate
preferred stock. Preferred stock generally has a preference as to dividends and
upon liquidation over an issuer's common stock but ranks junior to debt
securities in an issuer's capital structure. Unlike interest payments on debt
securities, preferred stock dividends are payable only if declared by the
issuer's board of directors. Preferred stock also may be subject to optional or
mandatory redemption provisions.
INCOME SECURITIES. The Fund may invest its assets in fixed-income securities,
which include preferred stocks and debt securities of various maturities. The
Fund will make these investments in investment grade securities, that is,
securities which, at the time of purchase, are rated at least BBB by Standard &
Poor's Ratings Group ("S&P"), or at least Baa by Moody's Investors Services,
Inc. ("Moody's") or comparably rated by a nationally recognized statistical
rating organization, or if unrated, are considered by the Adviser to be of
comparable quality to securities so rated. Securities in the top categories
(e.g., AAA, AA, and A by S&P or Aaa, Aa, and A by Moody's) are generally
regarded as high grade and have a strong to outstanding capacity to pay interest
or dividends and repay principal or capital. Medium grade securities (e.g., BBB
by S&P or Baa by Moody's) are regarded as having an adequate capacity to pay
interest or dividends, and repay principal, although adverse economic conditions
or changing circumstances are more likely to lead to a weakened capacity to make
such payments. Securities rated Baa are regarded by Moody's as having some
speculative characteristics. For a description of such ratings see the Statement
of Additional Information incorporated by reference into this Prospectus.
The net asset value of the Fund will change with changes in the value of its
portfolio securities. The values of income securities may change as interest
rate levels fluctuate. To the extent that the Fund invests in income securities,
the net asset value of the Fund can be expected to change as general levels of
interest rates fluctuate. When interest rates decline, the value of a portfolio
invested in income securities generally can be expected to rise. Conversely,
when interest rates rise, the value of a portfolio invested in income securities
can be expected to decline. Volatility may be greater during periods of general
economic uncertainty.
11
<PAGE> 241
The foregoing policies with respect to credit quality of portfolio investments
will apply only at the time of purchase of a security, and the Fund will not be
required to dispose of a security in the event that S&P or Moody's (or any other
rating organization) or, in the case of unrated income securities, the Adviser,
downgrades its assessment of the credit characteristics of a particular issuer.
In determining whether the Fund will retain or sell such a security the Adviser
may consider such factors as the Adviser's assessment of the credit quality of
the issuer of such security, the price at which such security could be sold and
the rating, if any, assigned to such security by other nationally recognized
statistical rating organizations.
FOREIGN SECURITIES. The Fund may invest up to 25% of the value of its total
assets in securities of foreign issuers. Investments in securities of foreign
entities and securities denominated in foreign currencies involve risks not
typically involved in domestic investment, including fluctuations in foreign
exchange rates, future foreign political and economic developments, and the
possible imposition of exchange controls or other foreign or United States
governmental laws or restrictions applicable to such investments. Since the Fund
may invest in securities denominated or quoted in currencies other than the
United States dollar, changes in foreign currency exchange rates may affect the
value of investments in the portfolio and the accrued income and unrealized
appreciation or depreciation of investments. Changes in foreign currency
exchange rates relative to the U.S. dollar will affect the U.S. dollar value of
the Fund's assets denominated in that currency and the Fund's yield on such
assets. With respect to certain foreign countries, there is the possibility of
expropriation of assets, confiscatory taxation, political or social instability
or diplomatic developments which could affect investment in those countries.
There may be less publicly available information about a foreign security than
about a United States security, and foreign entities may not be subject to
accounting, auditing and financial reporting standards and requirements
comparable to those of the United States entities. In addition, certain foreign
investments made by the Fund may be subject to foreign withholding taxes, which
would reduce the Fund's total return on such investments and the amounts
available for distributions by the Fund to its shareholders. See "Tax Status."
Foreign financial markets, while growing in volume, have, for the most part,
substantially less volume than United States markets, and securities of many
foreign companies are less liquid and their prices more volatile than securities
of comparable domestic companies. The foreign markets also have different
clearance and settlement procedures and in certain markets there have been times
when settlements have been unable to keep pace with the volume of securities
transactions making it difficult to conduct such transactions. Delays in
settlement could result in temporary periods when assets of the Fund are not
invested and no return is earned thereon. The inability of the Fund to make
intended security purchases due to settlement problems could cause the Fund to
miss attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems could result either in losses to the Fund
due to subsequent declines in value of the portfolio security or, if the Fund
has entered into
12
<PAGE> 242
a contract to sell the security, could result in possible liability to the
purchaser. Costs associated with transactions in foreign securities, including
custodial costs and foreign brokerage commissions, are generally higher than
with transactions in United States securities. In addition, the Fund will incur
costs in connection with conversions between various currencies. There is
generally less government supervision and regulation of exchanges, financial
institutions and issuers in foreign countries than there is in the United
States.
- ------------------------------------------------------------------------------
INVESTMENT PRACTICES
- ------------------------------------------------------------------------------
In connection with the investment policies described above, the Fund may also
engage in the investment practices described below. These practices entail
risks. The investment practices described below are not fundamental and can be
changed without a vote of the shareholders of the Fund.
LOANS OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements, the Fund may lend its portfolio securities to selected commercial
banks or broker-dealers up to a maximum of 50% of the assets of the Fund. Such
loans must be callable at any time and be continuously secured by collateral
deposited by the borrower in a segregated account with the Fund's custodian
consisting of cash or of securities issued or guaranteed by the U.S. Government
or its agencies, which collateral is equal at all times to at least 100% of the
value of the securities loaned, including accrued interest. The Fund will
receive amounts equal to earned income for having made the loan. Any cash
collateral pursuant to these loans will be invested in short-term instruments.
The Fund is the beneficial owner of the loaned securities in that any gain or
loss in the market price during the loan inures to the Fund and its
shareholders. Thus, when the loan is terminated, the value of the securities may
be more or less than their value at the beginning of the loan. In determining
whether to lend its portfolio securities to a bank or broker-dealer, the Fund
will take into account the credit-worthiness of such borrower and will monitor
such credit-worthiness on an ongoing basis in as much as default by the other
party may cause delays or other collection difficulties. The Fund may pay
finders' fees in connection with loans of its portfolio securities.
REPURCHASE AGREEMENTS. The Fund may use up to 20% of its assets to enter into
repurchase agreements with selected commercial banks and broker-dealers, under
which the Fund acquires securities and agrees to resell the securities at an
agreed upon time and at an agreed upon price. The Fund accrues as interest the
difference between the amount it pays for the securities and the amount it
receives upon resale. At the time the Fund enters into a repurchase agreement,
the value of the underlying security including accrued interest will be equal to
or exceed the value of the repurchase agreement and, for repurchase agreements
that mature in more than one day, the seller will agree that the value of the
underlying security including accrued interest will continue to be at least
equal to the value of the repurchase agreement. The Adviser will monitor the
value of the underlying security in this
13
<PAGE> 243
regard. The Fund will enter into repurchase agreements only with commercial
banks whose deposits are insured by the Federal Deposit Insurance Corporation
and whose assets exceed $500 million or broker-dealers who are registered with
the SEC. In determining whether to enter into a repurchase agreement with a bank
or broker-dealer, the Fund will take into account the credit-worthiness of such
party and will monitor its credit-worthiness on an ongoing basis. In the event
of default by such party, the delays and expenses potentially involved in
establishing the Fund's rights to, and in liquidating, the security may result
in loss to the Fund. The Fund's ability to invest in repurchase agreements that
mature in more than seven days is subject to an investment restriction that
limits the Fund's investment in "illiquid" securities, including such repurchase
agreements, to 15% of the Fund's net assets.
For the purpose of investing in repurchase agreements, the Adviser may
aggregate the cash that substantially all of the funds advised or subadvised by
the Adviser, or an affiliate, would otherwise invest separately into a joint
account. The cash in the joint account is then invested in repurchase agreements
in a manner consistent with the foregoing guidelines 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 greater 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 SEC
exemptive order authorizing this practice, which conditions are designed to
ensure the fair administration of the joint account and to protect the amounts
in that account.
"WHEN ISSUED" AND "DELAYED DELIVERY" TRANSACTIONS. The Fund may also purchase
and sell portfolio securities on a "when issued" and "delayed delivery" basis.
No income accrues to or is earned by the Fund on portfolio securities in
connection with such purchase transactions prior to the date the Fund actually
takes delivery of such securities. These transactions are subject to market
fluctuation, the value of such securities at delivery may be more or less than
their purchase price and yields generally available on such securities when
delivery occurs may be higher or lower than yields on such securities obtained
pursuant to such transactions. Because the Fund relies on the buyer or seller,
as the case may be, to consummate the transaction, failure by the other party to
complete the transaction may result in the Fund missing the opportunity of
obtaining a price or yield considered to be advantageous. When the Fund is the
buyer in such a transaction, however, it will maintain, in a segregated account
with its custodian, cash or high-grade portfolio securities having an aggregate
value equal to the amount of such purchase commitments until payment is made.
The Fund will make commitments to purchase securities on such basis only with
the intention of actually acquiring these securities, but the Fund may sell such
securities prior to the settlement date if such sale is considered to be
advisable. To the extent the Fund engages in "when issued" and "delayed
delivery" transactions, it will do so for the purpose of acquiring securities
for the Fund's portfolio consistent with the Fund's investment objective
14
<PAGE> 244
and policies and not for the purpose 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.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest up to 15% of its net
assets in illiquid securities including securities the disposition of which is
subject to substantial legal or contractual restrictions on resale and
securities that are not readily marketable. The sale of restricted and illiquid
securities often requires more time and results in higher brokerage charges or
dealer discounts and other selling expenses than does the sale of securities
eligible for trading on national securities exchanges or in the over-the-counter
markets. Restricted securities may sell at a price lower than similar securities
that are not subject to restrictions on resale. Restricted securities salable
among qualified institutional buyers without restriction pursuant to Rule 144A
under the Securities Act of 1933 that are determined to be liquid by the Adviser
under guidelines adopted by the Board of Trustees of the Trust (under which
guidelines the Adviser will consider factors such as trading activities and the
availability of price quotations), will not be treated as restricted securities
by the Fund pursuant to such rules.
BORROWINGS. The Fund is authorized to borrow money from banks (including
entering into reverse repurchase agreements) in an amount up to 33 1/3% of the
Fund's total assets (after giving effect to any such borrowing) which amount
excludes no more than 5% in borrowings and reverse repurchase agreements from
any entity for temporary purposes, such as clearances of portfolio transactions,
share repurchases and payment of dividends and distributions. The Fund has no
current intention to borrow money other than for such temporary purposes.
Accordingly, the Fund will not acquire additional securities during any period
in which its borrowings exceed 5% of the Fund's total assets. Borrowing by the
Fund creates an opportunity for increased net income but, at the same time,
creates special risk considerations. See the Fund's Statement of Additional
Information for a more complete discussion of borrowings and certain of the
associated risks.
STRATEGIC TRANSACTIONS. The Fund may purchase and sell derivative instruments
such as exchange-listed and over-the-counter put and call options on securities,
financial futures, equity and fixed-income indices and other financial
instruments and purchase and sell financial futures contracts and enter into
various currency transactions such as currency forward contracts, currency
futures contracts, currency swaps or options or currencies or currencies
futures. Collectively, all of the above are referred to as "Strategic
Transactions." The Fund may also invest in income securities the form of which
include the elements of or are similar in effect to Strategic Transactions in
which it may engage. Strategic Transactions may be used to attempt to protect
against possible changes in the market value of securities held in or to be
purchased for the Fund's portfolio resulting from securities markets, to protect
the Fund's unrealized gains in the value of its portfolio securities, to
facilitate the sale of such securities for investment purposes to protect
against changes in currency or exchange rates for investment purposes, or to
establish a
15
<PAGE> 245
position in the derivatives markets as a temporary substitute for purchasing or
selling particular securities. Any or all of these investment techniques may be
used at any time and there is no particular strategy that dictates the use of
one technique rather than another, as use of any Strategic Transaction is a
function of numerous variables including market conditions. The ability of the
Fund to utilize these Strategic Transactions successfully will depend on the
Adviser's ability to predict pertinent market movements, which cannot be
assured. The Fund will comply with applicable regulatory requirements when
implementing these strategies, techniques and instruments.
Strategic Transactions have risks associated with them including possible
default by the other party to the transaction, illiquidity and, to the extent
the Adviser's view as to certain market movements is incorrect, the risk that
the use of such Strategic Transactions could result in losses greater than if
they had not been used. Use of put and call options may result in losses to the
Fund, force the sale of portfolio securities at inopportune times or for prices
other than at current market values, limit the amount of appreciation the Fund
can realize on its investments or cause the Fund to hold a security it might
otherwise sell. The use of currency transactions can result in the Fund
incurring losses as a result of a number of factors including the imposition of
exchange controls, suspension of settlements or the inability to deliver a
specific currency. The use of options and futures transactions entails certain
other risks. In particular, the variable degree of correlation between price
movements of futures contracts and price movements in the related portfolio
position of the Fund creates the possibility that losses on the hedging
instrument may be greater than gains in the value of the Fund's position. In
addition, futures and options markets may not be liquid in all circumstances and
certain over-the-counter options may have no markets. As a result, in certain
markets, the Fund might not be able to close out a transaction without incurring
substantial losses, if at all. Although the contemplated use of these futures
contracts and options thereon should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position. To the extent that a futures contract or an option thereon is used to
protect against possible changes in the market value of securities that the Fund
anticipates acquiring and the Fund subsequently does not acquire such
securities, the Fund will have incurred the transactional expenses associated
with entering into such transaction and will be subject to the risks inherent in
an unhedged purchase of such futures contract or option. Finally, the daily
variation margin requirements for futures contracts would create a greater
ongoing potential financial risk than would purchases of options, where the
exposure is limited to the cost of the initial premium. Losses resulting from
the use of Strategic Transactions would reduce net asset value, and possibly
income, and such losses can be greater than if the Strategic Transactions had
not been utilized. The Strategic Transactions that the Fund may use and some of
their risks are described more fully in the Fund's Statement of Additional
Information.
16
<PAGE> 246
Income earned or deemed to be earned, if any, by the Fund from its Strategic
Transactions will generally be taxable income of the Fund. See "Tax Status."
DEFENSIVE STRATEGIES. When, in the judgment of the Fund's Adviser, economic
and market conditions warrant, the Fund may invest temporarily for defensive
purposes up to 100% of its total assets in U.S. Government securities of various
maturities, investment grade corporate debt securities, preferred stocks,
convertible bonds, banker's acceptances and certificates of deposit.
INVESTMENT IN INVESTMENT COMPANIES. The Fund may invest in a separate
investment company, Van Kampen American Capital Small Capitalization Fund
("Small Cap Fund"), that invests in a broad selection of small capitalization
securities. The shares of the Small Cap Fund are available only to investment
companies advised by the Adviser, or an affiliate. The Adviser believes that the
use of the Small Cap Fund provides the Fund with the most effective exposure to
the performance of the small capitalization sector of the stock market while at
the same time minimizing costs. The Adviser charges no advisory fee for managing
the Small Cap Fund, nor are there any sales load or other charges associated
with distribution of its shares. Other expenses incurred by the Small Cap Fund
are borne by it, and thus indirectly by the Van Kampen American Capital funds
that invest in it. With respect to such other expenses, the Adviser anticipates
that the efficiencies resulting from use of the Small Cap Fund will result in
cost savings for the Fund and other Van Kampen American Capital funds. In large
part these savings will be attributable to the fact that administrative actions
that would have to be performed multiple times if each Van Kampen American
Capital fund held its own portfolio of small capitalization stocks will need to
be performed only once. The Adviser expects that the Small Cap Fund will
experience trading costs that will be substantially less than the trading costs
that would be incurred if small capitalization stocks were purchased separately
for the Fund and other Van Kampen American Capital funds. The Fund's investment
in the Small Cap Fund is subject to the terms and conditions set forth in an SEC
exemption order authorizing their investment.
The securities of small and medium sized companies that the Small Cap Fund may
invest in may be subject to more abrupt or erratic market movements than
securities of larger, more established companies or the market averages in
general. In addition, small capitalization companies typically are subject to a
greater degree of change in earnings and business prospects than are larger,
more established companies. In light of these characteristics of small
capitalization companies and their securities, the Small Cap Fund may be subject
to greater investment risk than that assumed through investment in the equity
securities of larger capitalization companies.
The Fund will be deemed to own a pro rata portion of each investment of the
Small Cap Fund. For example, if the Fund's investment in the Small Cap Fund were
$10 million, and the Small Cap Fund had five percent of its assets invested in
the electronics industry, the Fund would be considered to have an investment of
$500,000 in the electronics industry.
17
<PAGE> 247
INVESTMENT RESTRICTIONS. The Fund is subject to certain investment
restrictions which constitute fundamental policies. Fundamental policies cannot
be changed without the approval of the holders of a majority of the Fund's
outstanding voting securities, as defined in the Investment Company Act of 1940
(the "1940 Act"). See "Investment Policies and Restrictions" in the Statement of
Additional Information.
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.
The Adviser is responsible for effecting securities transactions of the Fund
and will do so in a manner deemed fair and reasonable to shareholders of the
Fund and not according to any formula. The Adviser's primary considerations in
selecting the manner of executing securities transactions for the Fund will be
prompt execution of orders, the size and breadth of the market for the security,
the reliability, integrity and financial condition and execution capability of
the firm, 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 is given to those firms which supply research and other services
in addition to execution services. However, it is not the policy of the Adviser,
absent special circumstances, to pay higher commissions to a firm because it has
supplied such services.
In effecting purchases and sales of the Fund's portfolio securities, the
Adviser and the Fund may place orders with and pay brokerage commissions to
brokers, including brokers which may be affiliated with the Fund, the Adviser,
the Distributor or dealers participating in the offering of the Fund's shares.
In addition, in selecting among firms to handle a particular transaction, the
Adviser and the Fund may take into account whether the firm has sold or is
selling shares of the Fund. See "Portfolio Transactions and Brokerage
Allocation" in the Statement of Additional Information for more information.
PORTFOLIO TURNOVER. The Fund purchases securities which are believed by the
Adviser to have potential for capital growth. Common stocks are disposed of in
situations where it is believed that potential for such capital growth has
lessened or that other common stocks have a greater potential. Therefore, the
Fund may purchase and sell securities without regard to the length of time the
security is to be, or has been held. The rate may exceed 100%, which is higher
than that of many other investment companies. A 100% turnover rate occurs, for
example, if all the Fund's portfolio securities are replaced during one year.
High portfolio activity increases the Fund's transaction costs, including
brokerage commissions.
18
<PAGE> 248
- ------------------------------------------------------------------------------
INVESTMENT ADVISORY SERVICES
- ------------------------------------------------------------------------------
THE ADVISER. The Adviser is a wholly-owned subsidiary of Van Kampen American
Capital, Inc. ("Van Kampen American Capital"). Van Kampen American Capital is a
diversified asset management company with more than two million retail investor
accounts, extensive capabilities for managing institutional portfolios and over
$50 billion under management or supervision. Van Kampen American Capital's more
than 40 open-end and 38 closed-end funds and more than 2,700 unit investment
trusts are professionally distributed by leading financial advisers nationwide.
Van Kampen American Capital is a wholly-owned subsidiary of VK/AC Holding,
Inc. Van Kampen American Capital Distributors, Inc., the distributor of the Fund
and the sponsor of the funds mentioned above, is also a wholly-owned subsidiary
of Van Kampen American Capital. VK/AC Holding, Inc. is controlled, through an
ownership of a substantial majority of its common stock, by The Clayton &
Dubilier Private Equity Fund IV Limited Partnership ("C & D L.P."), a
Connecticut limited partnership. C & D L.P. is managed by Clayton, Dubilier &
Rice, Inc. Clayton & Dubilier Associates IV Limited Partnership ("C & D
Associates L.P.") is the general partner of C & D L.P. The general partners of C
& D Associates L.P. are Joseph L. Rice, III, B. Charles Ames, William A. Barbe,
Alberto Cribiore, Donald J. Gogel, Leon J. Hendrix, Jr., Hubbard C. Howe and
Andrall E. Pearson, each of whom is a principal of Clayton, Dubilier & Rice,
Inc. In addition, certain officers, directors and employees of Van Kampen
American Capital and its subsidiaries (some of whom are officers or trustees of
the Fund) own, in the aggregate, not more than 7% of the common stock of VK/AC
Holding, Inc. and have the right to acquire, upon the exercise of options,
approximately an additional 11% of the common stock of VK/AC Holding, Inc.
Presently, and after giving effect to the exercise of such options, no officer
or trustee of the Fund owns or would own 5% or more of the common stock of VK/AC
Holding, Inc.
ADVISORY AGREEMENT. The business and affairs of the Fund will be managed under
the direction of the Trustees of the Trust, of which the Fund is a series.
Subject to the Trustees' authority, the Adviser and the officers of the Fund
will supervise and implement the Fund's investment activities and will be
responsible for overall management of the Fund's business affairs. The Fund will
pay the Adviser a fee (accrued daily and paid monthly) equal to a percentage of
the average daily net assets of the Fund as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS PERCENTAGE PER ANNUM
- ---------------------------------------------------- --------------------
<S> <C>
First $500 million.................................. 0.70 of 1%
Next $500 million................................... 0.65 of 1%
Over $1 billion..................................... 0.60 of 1%
</TABLE>
Under its investment advisory agreement, the Adviser has agreed to furnish
without charge all offices, facilities, equipment and personnel necessary to
manage
19
<PAGE> 249
the Fund, and the Fund has agreed to assume and pay the charges and expenses of
the Fund's operations, including: the compensation of the Trustees of the Trust
(other than those who are affiliated persons, as defined in the Investment
Company 1940 Act, of the Adviser, the Distributor or Van Kampen American
Capital), the charges and expenses of independent accountants, legal counsel,
transfer and dividend disbursing agent, and the custodian (including fees for
safekeeping of securities); costs of calculating net asset value; costs of
acquiring and disposing of portfolio securities; interest (if any) on
obligations incurred by the Fund; costs of share certificates; costs of
membership dues in the Investment Company Institute or any similar organization;
costs of reports and notices to shareholders; costs of registering shares of the
Fund under federal securities laws; miscellaneous expenses and all taxes and
fees to federal, state or other governmental agencies, excluding state
securities registration expenses.
The Adviser may utilize at its own expense credit analysis, research and
trading support services provided by its affiliate, Van Kampen American Capital
Asset Management, Inc.
PERSONAL INVESTING 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 permit trustees/directors, officers and
employees to buy and sell securities for their personal accounts subject to
procedures designed to prevent conflicts of interest including, in some
instances, preclearance of trades.
PORTFOLIO MANAGEMENT. B. Robert Baker and Jason Leder are co-managers to the
Fund and are primarily responsible for the day-to-day management of the Fund's
investment portfolio. Messrs. Baker and Leder have been primarily responsible
for managing the Fund's investment portfolio since its inception. Mr. Baker has
been portfolio manager of Van Kampen American Capital Asset Management, Inc.
since 1994. From 1991 to 1994, Mr. Baker was an associate portfolio manager of
Van Kampen American Capital Asset Management, Inc. Prior to that time, he was
vice president-portfolio manager with Variable Annuity Life Insurance Co. Mr.
Leder has been an associate portfolio manager of Van Kampen American Capital
Asset Management, Inc. since April 1995. Prior to that time, he was a securities
analyst with Salomon Brothers, Inc., Fidelity Management and Research, Gabrelli
and Company, and Austin, Calvert and Flavin. Each portfolio manager is an
employee of the Adviser.
- ------------------------------------------------------------------------------
ALTERNATIVE SALES ARRANGEMENTS
- ------------------------------------------------------------------------------
The Alternative Sales Arrangements permit an investor to choose the method of
purchasing shares that is more beneficial to the investor, taking into account
the amount of the purchase, the length of time the investor expects to hold the
shares, whether the investor wishes to receive dividends in cash or to reinvest
them in additional shares of the Fund, and other circumstances. Investors should
consider
20
<PAGE> 250
such factors together with the amount of sales charges and aggregate
distribution and service fees with respect to each class of shares that may be
incurred over the anticipated duration of their investment in the Fund.
The Fund currently offers three classes of shares, designated Class A Shares,
Class B Shares and Class C Shares. Shares of each class are offered at a price
equal to their net asset value per share plus a sales charge which, at the
election of the purchaser, may be imposed (a) at the time of purchase (the
"Class A Shares") or (b) on a contingent deferred basis (Class A Share purchases
over $1 million, "Class B Shares" and "Class C Shares"). Class A Share purchases
subject to a contingent deferred sales charge ("CDSC") sometimes are referred to
herein collectively as "Contingent Deferred Sales Charge Shares" or "CDSC
Shares."
The minimum initial investment with respect to each class of shares is $500.
The minimum subsequent investment with respect to each class of shares is $25.
It is presently the policy of the Distributor not to accept any order for Class
B Shares or Class C Shares in an amount of $1 million or more because it
ordinarily will be more advantageous for an investor making such an investment
to purchase Class A Shares.
An investor should carefully consider the sales charges applicable to each
class of shares and the estimated period of their investment to determine which
class of shares is more beneficial for the investor to purchase. For example,
investors who would qualify for a significant purchase price discount from the
maximum sales charge on Class A Shares may determine that payment of such a
reduced front-end sales charge is superior to electing to purchase Class B
Shares or Class C Shares, each with no front-end sales charge but subject to a
CDSC and a higher aggregate distribution and service fee. However, because
initial sales charges are deducted at the time of purchase of Class A Share
purchases under $1 million, a purchaser of such Class A Shares would not have
all of his or her funds invested initially and, therefore, would initially own
fewer shares than if Class B Shares or Class C Shares had been purchased. On the
other hand, an investor whose purchase would not qualify for price discounts
applicable to Class A Shares and intends to remain invested until after the
expiration of the applicable CDSC period may wish to defer the sales charge and
have all his or her funds initially invested in Class B Shares or Class C
Shares. If such an investor anticipates that he or she will redeem such shares
prior to the expiration of the CDSC period applicable to Class B Shares, the
investor may wish to acquire Class C Shares (discussed below). Investors who
intend to hold their shares for a significantly long time may not wish to
continue to bear the ongoing distribution and service expenses of Class C
Shares, which, in the aggregate, eventually would exceed the aggregate amount of
the initial sales charge and distribution and service expenses applicable to
Class A Shares, irrespective of the fact that a CDSC would eventually not apply
to a redemption of such Class C Shares.
Each class of shares represents an interest in the same portfolio of
investments of the Fund and has the same rights, except each class of shares (i)
bears those
21
<PAGE> 251
distribution fees, service fees and administrative expenses applicable to the
respective class of shares as a result of its sales arrangements, (ii) has
exclusive voting rights with respect to those provisions of the Fund's Rule
12b-1 distribution plan which relate only to such class and (iii) has a
different exchange privilege. The Class B Shares and Class C Shares are subject
to a conversion feature (discussed below). Generally, a class of shares subject
to a higher ongoing distribution fee, service fee or, where applicable, the
conversion feature will have a higher expense ratio and pay lower dividends than
a class of shares subject to a lower ongoing distribution fee, service fee or
not subject to the conversion feature. The per share net asset values of the
different classes of shares are expected to be substantially the same; from time
to time, however, the per share net asset values of the classes may differ. The
net asset value per share of each class of shares of the Fund will be determined
as described in this Prospectus under "Purchase of Shares -- Net Asset Value."
The administrative expenses that may be allocated to a specific class of
shares may consist of (i) transfer agency expenses attributable to a specific
class of shares, which expenses typically will be higher with respect to classes
of shares subject to the conversion feature; (ii) printing and postage expenses
related to preparing and distributing materials such as shareholder reports,
prospectuses and proxy statements to current shareholders of a specific class;
(iii) SEC registration fees incurred by a class of shares; (iv) the expense of
administrative personnel and services as required to support the shareholders of
a specific class; (v) Trustees' fees or expense incurred as a result of issues
relating to one class of shares; (vi) accounting expenses relating solely to one
class of shares; and (vii) any other incremental expenses subsequently
identified that should be properly allocated to one or more classes of shares
that shall be approved by the SEC pursuant to an amended exemptive order. All
such expenses incurred by a class will be borne on a pro rata basis by the
outstanding shares of such class. All allocations of administrative expenses to
a particular class of shares will be limited to the extent necessary to preserve
the Fund's qualification as a regulated investment company under the Internal
Revenue Code of 1986, as amended (the "Code").
- ------------------------------------------------------------------------------
PURCHASE OF SHARES
- ------------------------------------------------------------------------------
The Fund offers shares for sale to the public on a continuous basis through
Van Kampen American Capital Distributors, Inc. (the "Distributor"), as principal
underwriter, which is located at One Parkview Plaza, Oakbrook Terrace, Illinois
60181. Shares also are offered through members of the National Association of
Securities Dealers, Inc. ("NASD") acting as securities dealers ("dealers") and
through NASD members acting as brokers for investors ("brokers") or eligible
non-NASD members acting as agents for investors ("financial intermediaries").
The Fund reserves the right to suspend or terminate the continuous public
offering at any time and without prior notice.
22
<PAGE> 252
The Fund's shares are offered at net asset value per share next computed after
an investor places an order to purchase with the investor's broker, dealer, or
financial intermediary or directly with the Distributor, plus any applicable
sales charge. Sales personnel or brokers, dealers and financial intermediaries
distributing the Fund's shares may receive differing compensation for selling
different classes of shares. It is the responsibility of the investor's broker,
dealer or financial intermediary to transmit the order to the Distributor.
Because the Fund generally determines net asset value once each business day as
of the close of business, purchase orders placed through an investor's broker,
dealer, or financial intermediary must be transmitted to the Distributor by such
broker, dealer or financial intermediary prior to such time in order for the
investor's order to be fulfilled on the basis of the net asset value to be
determined that day. Any change in the purchase price due to the failure of the
Distributor to receive a purchase order prior to such time must be settled
between the investor and the broker, dealer or financial intermediary submitting
the order.
The Distributor may from time to time implement programs under which a broker,
dealer or financial intermediary's sales force may be eligible to win nominal
awards for certain sales efforts or under which the Distributor will reallow to
any broker, dealer or financial intermediary that sponsors sales contests or
recognition programs conforming to criteria established by the Distributor, or
participates in sales programs sponsored by the Distributor, an amount not
exceeding the total applicable sales charges on the sales generated by the
broker, dealer or financial intermediary at the public offering price during
such programs. Other programs provide, among other things and subject to certain
conditions, for certain favorable distribution arrangements for shares of the
Fund. Also, the Distributor in its discretion may from time to time, pursuant to
objective criteria established by it, pay fees to, and sponsor business seminars
for, qualifying brokers, dealers or financial intermediaries for certain
services or activities which are primarily intended to result in sales of shares
of the Fund. Fees may include payment for travel expenses, including lodging,
incurred in connection with trips taken by invited registered representatives
and members of their families to locations within or outside of the United
States for meetings or seminars of a business nature. 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. 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. Such payments to brokers, dealers and
financial intermediaries for sales contests, other sales programs and seminars
are made by the Distributor out of its own assets and not out of the assets of
the Fund. These programs will not change the price an investor pays for shares
or the amount that the Fund will receive from such sale.
23
<PAGE> 253
CLASS A SHARES
The public offering price of Class A Shares is equal to the net asset value
per share plus an initial sales charge which is a variable percentage of the
offering price depending upon the amount of the sale. The table below shows
total sales charges and dealer concessions reallowed to dealers and agency
commissions paid to brokers with respect to sales of Class A Shares. The sales
charge is allocated between an investor's broker, dealer or financial
intermediary and the Distributor. As indicated previously, at the discretion of
the Distributor, the entire sales charge may be reallowed to such broker, dealer
or financial intermediary. The staff of the SEC has taken the position that
brokers, dealers and financial intermediaries who receive more than 90% or more
of the sales charge may be deemed to be "underwriters" as that term is defined
in the Securities Act of 1933.
SALES CHARGE TABLE
<TABLE>
<CAPTION>
DEALER
CONCESSION
OR AGENCY
COMMISSION
TOTAL SALES CHARGE ----------
-------------------------- PERCENTAGE
PERCENTAGE PERCENTAGE OF
SIZE OF TRANSACTION OF OFFERING OF NET OFFERING
AT OFFERING PRICE PRICE ASSET VALUE PRICE
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000.................... 5.75% 6.10% 5.00%
$50,000 but less than $100,000....... 4.75 4.99 4.00
$100,000 but less than $250,000...... 3.75 3.90 3.00
$250,000 but less than $500,000...... 2.75 2.83 2.25
$500,000 but less than $1,000,000.... 2.00 2.04 1.75
$1,000,000 or more*.................. * * *
- ------------------------------------------------------------------------------
</TABLE>
* No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the Fund imposes a contingent
deferred sales charge of 1.00% on redemptions made within one year of the
purchase. A commission will be paid to dealers who initiate and are
responsible for purchases of $1 million or more as follows: 1.00% on sales to
$2 million, plus 0.80% on the next million, plus 0.20% on the next $2 million
and 0.08% on the excess over $5 million. See "Purchase of Shares -- Deferred
Sales Charge Alternatives" for additional information with respect to
contingent deferred sales charges.
QUANTITY DISCOUNTS
Investors purchasing Class A Shares may, under certain circumstances, be
entitled to pay reduced sales charges. The circumstances under which such
investors may pay reduced sales charges are described below.
Investors, or their brokers, dealers or financial intermediaries, must notify
the Fund whenever a quantity discount is applicable to purchases. Upon such
notification, an investor will receive the lowest applicable sales charge.
Quantity discounts may be modified or terminated at any time. For more
information about quantity
24
<PAGE> 254
discounts, investors should contact their broker, dealer or financial
intermediary or the Distributor.
As used herein, "any person" eligible for a reduced sales charge includes an
individual, their spouse and minor children (and any trust or custodial accounts
for their benefit) and any corporation, partnership, or sole proprietorship
which is 100% owned, either alone or in combination, by any of the foregoing; a
trustee or other fiduciary purchasing for a single fiduciary account; or a
"company" as defined is section 2(a)(8) of the 1940 Act.
As used herein, "Participating Funds" refers to all open-end investment
companies distributed by the Distributor other than Van Kampen American Capital
Tax Free Money Fund ("Tax Free Money Fund"), Van Kampen American Capital Reserve
Fund ("Reserve Fund") and The Govett Funds, Inc.
VOLUME DISCOUNTS. The size of investment shown in the preceding table applies
to the total dollar amount being invested by any person at any one time in Class
A Shares of the Fund alone, or in combination with other shares of the Fund and
shares of other Participating Funds although other Participating Funds may have
different sales charges.
CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the preceding
table may also be determined by combining the amount being invested in Class A
Shares of the Fund with other shares of the Fund and shares of Participating
Funds plus the current offering price of all shares of the Fund and other
Participating Funds which have been previously purchased and are still owned.
LETTER OF INTENT. A Letter of Intent provides an opportunity for an investor
to obtain a reduced sales charge by aggregating the amount being invested over a
13-month period to determine the sales charge as outlined in the preceding
table. The size of investment shown in the preceding table includes the amount
of intended purchases of Class A Shares of the Fund with other shares of the
Fund and shares of the Participating Funds plus the value of all shares of the
Fund and other Participating Funds previously purchased during such 13-month
period and still owned. An investor may elect to compute the 13-month period
starting up to 90 days before the date of execution of a Letter of Intent. Each
investment made during the period receives the reduced sales charge applicable
to the total amount of the investment goal. If trades not initially made under a
Letter of Intent subsequently qualify for a lower sales charge through the
90-day back-dating provision, an adjustment will be made at the expiration of
the Letter of Intent to give effect to the lower charge. If the goal is not
achieved within the 13-month period, the investor must pay the difference
between the charges applicable to the purchases made and the charges previously
paid. When an investor signs a Letter of Intent, shares equal to at least 5% of
the total purchase amount of the level selected will be restricted from sale or
redemption by the investor until the Letter of Intent is satisfied or any
additional sales charges have been paid; if the Letter of Intent is not
satisfied by the investor and any additional sales charges are not paid,
sufficient
25
<PAGE> 255
restricted shares will be redeemed by the Fund to pay such charges. Additional
information is contained in the application accompanying this Prospectus.
OTHER PURCHASE PROGRAMS
Purchasers of Class A Shares may be entitled to reduced initial sales charges
in connection with unit trust reinvestment programs and purchases by registered
representatives of selling firms or purchases by persons affiliated with the
Fund or the Distributor. The Fund reserves the right to modify or terminate
these arrangements at any time.
UNIT TRUST REINVESTMENT PROGRAMS. The Fund permits unitholders of unit
investment trusts to reinvest distributions from such trusts in Class A Shares
of the Fund with no minimum initial or subsequent investment requirement, and
with a lower sales charge if the administrator of an investor's unit investment
trust program meets certain uniform criteria relating to cost savings by the
Fund and the Distributor. The total sales charge for all investments made from
unit trust distributions will be 1.00% of the offering price (1.01% of net asset
value). Of this amount, the Distributor will pay to the broker, dealer or
financial intermediary, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the applicable terms and conditions thereof, should
contact their broker, dealer or financial intermediary 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 the Fund's transfer agent with
appropriate backup data for each participating investor in a computerized format
fully compatible with the transfer agent's processing system.
As further requirements for obtaining these special benefits, the Fund also
requires that all dividends and other distributions by the Fund be reinvested in
additional shares without any systematic withdrawal program. There will be no
minimum for reinvestments from unit investment trusts. The Fund will send
account activity statements to such participants on a monthly basis only, even
if their investments are made more frequently.
NAV PURCHASE OPTIONS. Class A Shares of the Fund may be purchased at net asset
value, upon written assurance that the purchase is made for investment purposes
and that the shares will not be resold except through redemption by the Fund,
by:
(1) Current or retired Trustees of funds advised by the Adviser, Van Kampen
American Capital Asset Management, Inc. or John Govett & Co. Limited and
such persons' families and their beneficial accounts.
26
<PAGE> 256
(2) Current or retired directors, officers and employees of VK/AC Holding,
Inc. and any of its subsidiaries, Clayton, Dubilier & Rice, Inc.,
employees of an investment subadviser to any fund described in (1) above
or an affiliate of such subadviser; and such persons' families and their
beneficial accounts.
(3) Directors, officers, employees and registered representatives of financial
institutions that have a selling group agreement with the Distributor and
their spouses and minor children when purchasing for any accounts they
beneficially own, or, in the case of any such financial institution, when
purchasing for retirement plans for such institution's employees.
(4) Registered investment advisers, trust companies and bank trust departments
investing on their own behalf or on behalf of their clients provided that
the aggregate amount invested in Class A Shares of the Fund alone, or in
any combination of shares of the Fund and shares of other Participating
Funds as described herein under "Purchase of Shares -- Class A Shares --
Quantity Discounts," during the 13-month period commencing with the first
investment pursuant hereto equals at least $1 million. The Distributor may
pay brokers, dealers or financial intermediaries through which purchases
are made an amount up to 0.50% of the amount invested, over a twelve-month
period following such transaction.
(5) Trustees and other fiduciaries purchasing shares for retirement plans of
organizations with retirement plan assets of $10 million or more. The
Distributor may pay commissions of up to 1.00% for such purchases.
(6) Accounts as to which a broker, dealer or financial intermediary charges an
account management fee ("wrap accounts"), provided the broker, dealer or
financial intermediary has a separate agreement with the Distributor.
(7) Investors purchasing shares of the Fund with redemption proceeds from
other mutual fund complexes on which the investor has paid a front-end
sales charge or was subject to a deferred sales charge, whether or not
paid, if such redemption has occurred no more than 30 days prior to such
purchase.
(8) Full service participant directed profit sharing and money purchase plans,
full service 401(k) plans, or similar full service recordkeeping programs
made available through Van Kampen American Capital Trust Company with at
least 50 eligible employees or investing at least $250,000 in the
Participating Funds, Tax Free Money Fund or Reserve Fund. For such
investments the Fund imposes a contingent deferred sales charge of 1.00%
in the event of redemptions within one year of the purchase other than
redemptions required to make payments to participants under the terms of
the plan. The contingent deferred sales charge incurred upon certain
redemptions is paid to the Distributor in reimbursement for distribution-
related expenses. A commission will be paid to dealers who initiate and
are responsible for such purchases as follows: 1.00% on sales to $5
million, plus 0.50% on the next $5 million, plus 0.25% on the excess over
$10 million.
27
<PAGE> 257
The term "families" includes a person's spouse, minor children and
grandchildren, parents, and a person's spouse's parents.
Purchase orders made pursuant to clause (4) may be placed either through
authorized brokers, dealers or financial intermediaries as described above or
directly with the Fund's transfer agent, the investment adviser, trust company
or bank trust department, provided that the Fund's transfer agent receives
federal funds for the purchase by the close of business on the next business day
following acceptance of the order. An authorized broker, dealer or financial
intermediary may charge a transaction fee for placing an order to purchase
shares pursuant to this provision or for placing a redemption order with respect
to such shares. The Fund may terminate, or amend the terms of, offering shares
of the Fund at net asset value to such groups at any time.
DEFERRED SALES CHARGE ALTERNATIVES
Investors choosing the deferred sales charge alternative may purchase Class A
Shares in an amount of $1 million or more, Class B Shares or Class C Shares. The
public offering price of a CDSC Share is equal to the net asset value per share
without the imposition of a sales charge at the time of purchase. CDSC Shares
are sold without an initial sales charge so that the Fund may invest the full
amount of the investor's purchase payment. The Distributor will compensate
brokers, dealers and financial intermediaries participating in the continuous
public offering of the CDSC Shares out of its own assets, and not out of the
assets of the Funds, at a percentage rate of the dollar value of the CDSC Shares
purchased from the Fund by such brokers, dealers and financial intermediaries,
which percentage rate is equal to (i) with respect to Class A Shares, 1.00% on
sales to $2 million, plus 0.80% on the next million, plus 0.20% on the next $2
million and 0.08% on the excess over $5 million; (ii) 4.00% with respect to
Class B Shares; and (iii) 1.00% with respect to Class C Shares. Such
compensation will not change the price an investor will pay for CDSC Shares or
the amount that the Fund will receive from such sale.
CDSC Shares redeemed within a specified period of time generally will be
subject to a contingent deferred sales charge at the rates set forth below. The
amount of the contingent deferred sales charge will vary depending on (i) the
class of CDSC Shares to which such shares belong and (ii) the number of years
from the time of payment for the purchase of the CDSC Shares until the time of
their redemption. The charge will be assessed on an amount equal to the lesser
of the then current market value or the original purchase price of the CDSC
Shares being redeemed. Accordingly, no sales charge will be imposed on increases
in net asset value above the initial purchase price. In addition, no contingent
deferred sales charge will be assessed on CDSC Shares derived from reinvestment
of dividends or capital gains distributions. Solely for purposes of determining
the number of years from the time of any payment for the purchase of CDSC
Shares, all payments during a month will be aggregated and deemed to have been
made on the last day of the month.
28
<PAGE> 258
Proceeds from the contingent deferred sales charge applicable to a class of
CDSC Shares are paid to the Distributor and are used by the Distributor to
defray its expenses related to providing distribution related services to the
Fund in connection with the sale of shares of such class of CDSC Shares, such as
the payment of compensation to selected dealers and agents for selling such
shares. The combination of the contingent deferred sales charge and the
distribution fee facilitates the ability of the Fund to sell such CDSC Shares
without a sales charge being deducted at the time of purchase.
In determining whether a contingent deferred sales charge is applicable to a
redemption of shares from a class of CDSC Shares, it will be assumed that the
redemption is made first of any CDSC Shares acquired pursuant to reinvestment of
dividends or distributions, second of CDSC Shares that have been held for a
sufficient period of time such that the contingent deferred sales charge no
longer is applicable to such shares, third of Class A Shares in the
shareholder's Fund account that have converted from Class B Shares or Class C
Shares, if any, and fourth of CDSC Shares held longest during the period of time
that a contingent deferred sales charge is applicable to such CDSC Shares. The
charge will not be applied to dollar amounts representing an increase in the net
asset value per share since the time of purchase.
To provide an example, assume an investor purchased 100 Class B Shares (as set
forth below) at $10 per share (at a cost of $1,000) and in the second year after
purchase, the net asset value per share is $12 and, during such time, the
investor has acquired 10 additional Class B Shares upon dividend reinvestment.
If at such time the investor makes his first redemption of 50 shares (proceeds
of $600), 10 shares will not be subject to charge because of dividend
reinvestment. With respect to the remaining 40 shares, the charge is applied
only to the original cost of $10 per share and not to the increase in net asset
value of $2 per share. Therefore, $400 of the $600 redemption proceeds will be
charged at a rate of 3.75% (the applicable rate in the second year after
purchase).
CLASS A SHARE PURCHASES OF $1 MILLION OR MORE. No sales charge is payable at
the time of purchase on investments of $1 million or more, although for such
investments the Fund imposes a contingent deferred sales charge of 1.00% on
redemptions made within one year of the purchase. A commission will be paid to
dealers who initiate and are responsible for purchases of $1 million or more as
follows: 1.00% on sales to $2 million, plus 0.80% on the next million, plus
0.20% on the next $2 million and 0.08% on the excess over $5 million.
29
<PAGE> 259
CLASS B SHARES. Class B Shares redeemed within six years of purchase generally
will be subject to a contingent deferred sales charge at the rates set forth
below, charged as a percentage of the dollar amount subject thereto:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
- ------------------- -----------------
<S> <C>
First...................................................... 4.00%
Second..................................................... 3.75%
Third...................................................... 3.50%
Fourth..................................................... 2.50%
Fifth...................................................... 1.50%
Sixth...................................................... 1.00%
Seventh and after.......................................... 0.00%
</TABLE>
The contingent deferred sales charge generally is waived on redemptions of
Class B Shares made pursuant to the Systematic Withdrawal Plan. See "Shareholder
Services -- Systematic Withdrawal Plan."
CLASS C SHARES. Class C Shares redeemed within the first twelve months of
purchase generally will be subject to a contingent deferred sales charge of
1.00% of the dollar amount subject thereto. Class C Shares redeemed thereafter
will not be subject to a contingent deferred sales charge.
CONVERSION FEATURE. Class B Shares and Class C Shares will automatically
convert to Class A Shares seven years or ten years, respectively after the end
of the month in which a shareholder's order to purchase the shares was accepted
and will no longer be subject to the distribution fees. The purpose of the
conversion feature is to relieve the holders of Class B Shares and Class C
Shares that have been outstanding for a period of time sufficient for the
Distributor to have been compensated for distribution expenses related to the
Class B Shares or Class C Shares from most of the burden of the ongoing
distribution fee. The Fund does not expect to issue any stock certificates upon
conversion.
For purposes of conversion to Class A Shares, Class B Shares or Class C Shares
purchased through the reinvestment of dividends and distributions paid in
respect of Class B Shares and Class C Shares in a shareholder's account will be
considered to be held in a separate sub-account. Each time any Class B Shares or
Class C Shares in the shareholder's account (other than those in the
sub-account) convert to Class A Shares, an equal pro rata portion of the Class B
Shares or Class C Shares in the sub-account also will convert to Class A Shares.
The holding period applicable to a Class B Share or Class C Share acquired
through the use of the exchange privilege (discussed below) shall be the holding
period applicable to the Class B Shares or Class C Shares of such Fund acquired
other than through use of the exchange privilege. For purposes of calculating
the holding period applicable to a Class B Share or Class C Share of the Fund
prior to conversion, a Class B Share or
30
<PAGE> 260
Class C Share of the Fund issued in connection with an exercise of the exchange
privilege, or a series of exchanges, shall be deemed to have been issued on the
date on which the investor's order to purchase the exchanged Class B Share or
Class C Share was accepted or, in the case of a series of exchanges, when the
investor's order to purchase the original Class B Share or Class C Share was
accepted.
The conversion of Class B Shares and Class C Shares to Class A Shares is
subject to the continuing availability of an opinion of counsel to the effect
that (i) the assessment of the distribution fee and higher transfer agency costs
with respect to Class B Shares and Class C shares does not result in the Fund's
dividends or distributions constituting "preferential dividends" under the Code
and (ii) that the conversion of Class B Shares or Class C Shares does not
constitute a taxable event under federal income tax law. The conversion of Class
B Shares and Class C Shares to Class A Shares may be suspended if such an
opinion is no longer available. In that event, no further conversions of Class B
Shares or Class C Shares would occur, and Class B Shares and Class C Shares
might continue to be subject to the distribution fee for an indefinite period.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE. The contingent deferred sales
charge is waived on redemptions of Class B Shares and Class C Shares (i)
following the death or disability (as defined in the Code) of a shareholder,
(ii) in connection with certain distributions from an IRA or other retirement
plan, (iii) pursuant to the Fund's systematic withdrawal plan but limited to 12%
annually of the initial value of the account, and (iv) effected pursuant to the
right of the Fund to liquidate a shareholder's account as described herein under
"Redemption of Shares." The contingent deferred sales charge is also waived on
redemptions of Class C Shares as it relates to the reinvestment of redemption
proceeds in shares of the same class of the Fund within 120 days after
redemption. See "Shareholder Services" and "Redemption of Shares" for further
discussion of the waiver provisions.
NET ASSET VALUE
The net asset value per share of the Fund will be determined separately for
each class of shares. The net asset value per share of a given class of shares
of the Fund is determined by calculating the total value of the Fund's assets
attributable to such class of shares, deducting its total liabilities
attributable to such class of shares and dividing the result by the number of
shares of such class of the Fund outstanding. The net asset value for the Fund
is computed once daily as of the close of the daily trading session of the New
York Stock Exchange, 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 reserves the right to calculate the net asset value and to
adjust the public offering price based thereon more frequently than once a day
if deemed desirable. The net asset value per share of the different classes of
shares are
31
<PAGE> 261
expected to be substantially the same; from time to time, however, the per share
net asset value of the different classes of shares may differ.
The securities of the Fund that are listed on a securities exchange are valued
at their closing sales price on the day of the valuation. Price valuations for
listed securities are based on market quotations where the security is primarily
traded or, if actual trade information is not available on any valuation date,
are valued at the mean of the bid and asked prices. Unlisted securities in the
portfolio are valued by using market quotations, prices provided by market
makers or estimates of market values obtained from yield data relating to
instruments or securities with similar characteristics in accordance with
procedures established in good faith by the Board of Trustees of the Trust, of
which the Fund is a series. Securities with remaining maturities of 60 days or
less are valued at amortized cost when amortized cost is determined in good
faith by or under the direction of the Board of Trustees of the Trust to be
representative of the fair value at which it is expected such securities may be
resold. Any securities or other assets for which current market quotations are
not readily available are valued at their fair value as determined in good faith
under procedures established by and under the general supervision of the Board
of Trustees.
- ------------------------------------------------------------------------------
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. Unless otherwise described below, each of these
services may be modified or terminated by the Fund at any time.
SHAREHOLDER SERVICES APPLICABLE TO ALL CLASSES
INVESTMENT ACCOUNT. ACCESS Investor Services, Inc. ("ACCESS"), transfer agent
for the Fund and a wholly-owned subsidiary of Van Kampen American Capital,
performs bookkeeping, data processing and administration services related to the
maintenance of shareholder accounts. Each shareholder has an investment account
under which shares are held by ACCESS. Except as described herein, after each
share transaction in an account, the shareholder receives a statement showing
the activity in the account. Each shareholder will receive statements at least
quarterly from ACCESS showing any reinvestments of dividends and capital gains
distributions and any other activity in the account since the preceding
statement. Such shareholders also will receive separate confirmations for each
purchase or sale transaction other than reinvestment of dividends and capital
gains distributions and systematic purchases or redemptions. Additions to an
investment account may be made at any time by purchasing shares through
authorized brokers, dealers or financial intermediaries or by mailing a check
directly to ACCESS.
32
<PAGE> 262
SHARE CERTIFICATES. Generally, the Fund will not issue share certificates.
However, upon written or telephone request to the Fund, a share certificate will
be issued, representing shares (with the exception of fractional shares) of the
Fund. A shareholder will be required to surrender such certificates upon
redemption thereof. In addition, if such certificates are lost the shareholder
must write to Van Kampen American Capital Funds, c/o ACCESS, P.O. Box 418256,
Kansas City, MO 64141-9256, requesting an "affidavit of loss" and to obtain a
Surety Bond in a form acceptable to ACCESS. On the date the letter is received
ACCESS 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.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gains distributions in shares of
the Fund. Such shares are acquired at net asset value (without sales charge) on
the record date of such dividend or distribution. Unless the shareholder
instructs otherwise, the reinvestment plan is automatic. This instruction may be
made by telephone by calling (800) 421-5666 ((800) 772-8889 for the hearing
impaired) or in writing to ACCESS. The investor may, on the initial application
or prior to any declaration, instruct that dividends be paid in cash and capital
gains distributions be reinvested at net asset value, or that both dividends and
capital gains distributions be paid in cash. For further information, see
"Distributions from the Fund."
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under
which a shareholder can authorize ACCESS to charge a bank account on a regular
basis to invest pre-determined amounts in the Fund. Additional information is
available from the Distributor or authorized brokers, dealers or financial
intermediaries.
RETIREMENT PLANS. Eligible investors may establish individual retirement
accounts ("IRAs"); SEP; and pension and profit sharing plans; 401(k) plans; or
Section 403(b)(7) plans in the case of employees of public school systems and
certain non-profit organizations. Documents and forms containing detailed
information regarding these plans are available from the Distributor. Van Kampen
American Capital 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.
DIVIDEND DIVERSIFICATION. A shareholder may, upon written request or by
completing the appropriate section of the application form accompanied by this
Prospectus or by calling (800) 421-5666 ((800) 772-8889 for the hearing
impaired), elect to have all dividends and other distributions paid on either
Class A Shares, Class B Shares or Class C Shares of the Fund invested into
shares of the same class of any other Participating Fund, Tax Free Money Fund or
Reserve Fund so long as a pre-existing account for such class of shares exists
for such shareholder.
33
<PAGE> 263
If the 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 as of the payable date of the
distribution only if shares of such selected fund have been registered for sale
in the investor's state.
EXCHANGE PRIVILEGE. Shares of the Fund may be exchanged with shares of another
Participating Fund, the Tax Free Money Fund or the Reserve Fund, subject to
certain limitations herein or in such other fund's prospectus. Before effecting
an exchange, shareholders in the Fund should obtain and read a current
prospectus of the fund into which the exchange is to be made. SHAREHOLDERS MAY
ONLY EXCHANGE INTO SUCH OTHER FUNDS AS ARE LEGALLY AVAILABLE FOR SALE IN THEIR
STATE.
Exchanges of Class A Shares of the Fund that have been charged a sales charge
lower than the sales charge applicable to the other fund will have the sales
charge differential imposed upon the exchange into such fund. Similarly,
exchanges of any Class A Shares of other funds that have been charged a sales
charge lower than the sales charge applicable to the Fund will have the sales
charge differential imposed upon exchange into the Fund. Shares of other funds
which have not previously been charged a sales charge (except for shares
purchased via the reinvestment option) will be charged the sales charge
differential applicable to Class A Shares of the Fund upon exchange into the
Fund.
No sales charge is imposed upon the exchange of Class B Shares and Class C
Shares. Upon redemption of Class B Shares and Class C Shares from the Van Kampen
American Capital family of funds, Class B Shares and Class C Shares which have
been exchanged are subject to the contingent deferred sales charge imposed by
the initial Van Kampen American Capital fund purchased by the investor prior to
any exchanges. The holding period requirements for the contingent deferred sales
charge, and the conversion privilege for Class B Shares of the Fund, are
determined by the date of purchase into the initial Van Kampen American Capital
fund purchased by the investor prior to any exchanges.
Exchanges of shares are sales and may result in a gain or loss for federal
income tax purposes. If the shares exchanged have been held for less than 91
days, the sales charge paid on such shares is not included in the tax basis of
the exchanged shares, but 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 ACCESS or by contacting the telephone transaction line at (800)
421-5684 ((800) 772-8889 for the hearing impaired). A shareholder automatically
has telephone exchange privileges unless otherwise designated in the application
form accompanied by this Prospectus. The exchange will take place at the
relative net asset values of the shares next determined after receipt of such
request with adjustment for any additional sales charge. Any shares exchanged
begin earning dividends on the next business day after the exchange is affected.
Van Kampen American Capital and its subsidiaries, including ACCESS
(collectively,
34
<PAGE> 264
"VKAC"), 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, a shareholder agrees that neither VKAC nor
the Fund will be liable for following telephone instructions which it reasonably
believes to be genuine. VKAC and the Fund may be liable for any losses due to
unauthorized or fraudulent instructions if reasonable procedures are not
followed. If the exchanging shareholder does not have an account in the fund
whose shares are being acquired, a new account will be established with the same
registration, dividend and capital gains options (except dividend
diversification options) and broker, dealer or financial intermediary 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 dividend diversification options for the new account, an exchanging
shareholder must file a specific written request. The Fund reserves the right to
reject any order to acquire its shares through exchange. In addition, the Fund
may restrict or terminate the exchange privilege at any time on 60 days' notice
to its shareholders of any termination or material amendment.
SYSTEMATIC WITHDRAWAL PLAN. Any investor whose shares in a single account
total $10,000 or more at the offering price next computed after receipt of
instructions may establish a monthly, quarterly, semi-annual or annual
withdrawal plan. 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 taxable gain or loss will be
recognized. The plan holder may arrange for monthly, quarterly, semi-annual, or
annual checks in any amount not less than $25. Such a systematic withdrawal plan
may also be maintained by an investor purchasing shares for a retirement plan
established on a form made available by the Fund. See "Shareholder
Services -- Retirement Plans."
Holders of Class B Shares and Class C Shares who establish a withdrawal plan
may redeem up to 12% annually of the shareholder's initial account balance
without incurring a contingent deferred sales charge. Initial account balance
means the amount of the shareholder's investment in the Fund at the time the
election to participate in the plan is made. See "Purchase of Shares -- Deferred
Sales Charge Alternatives -- Waiver of Contingent Deferred Sales Charge."
Under the plan, sufficient shares of the Fund are redeemed to provide the
amount of the periodic withdrawal payment. Dividends and capital gains
distributions on shares held under the plan are reinvested in additional shares
at the next determined net asset value. If periodic withdrawals continuously
exceed reinvested dividends and capital gains distributions, the shareholder's
original investment will be correspondingly reduced and ultimately exhausted.
Withdrawals made concurrently with purchases of additional shares ordinarily
will be disadvantageous to the shareholder
35
<PAGE> 265
because of the duplication of sales charges. The Fund reserves the right to
amend or terminate the systematic withdrawal program on thirty days' notice to
its shareholders.
SHAREHOLDER SERVICES APPLICABLE TO CLASS A SHAREHOLDERS ONLY
AUTOMATED CLEARING HOUSE ("ACH") DEPOSITS. Holders of Class A Shares can use
ACH to have redemption proceeds deposited electronically into their bank
accounts. Redemptions transferred to a bank account via the ACH plan are
available to be credited to the account on the second business day following
normal payment. In order to utilize this option, the shareholder's bank must be
a member of Automated Clearing House. 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
ACCESS 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 ACCESS.
- ------------------------------------------------------------------------------
REDEMPTION OF SHARES
- ------------------------------------------------------------------------------
Shareholders may redeem for cash some or all of their shares without charge by
the Fund (other than, with respect to CDSC Shares, the applicable contingent
deferred sales charge) at any time by sending a written request in proper form
directly to ACCESS, P. O. Box 418256, Kansas City, Missouri 64141-9256, by
placing the redemption request through an authorized dealer or by calling the
Fund.
WRITTEN REDEMPTION REQUESTS. In the case of redemption requests sent directly
to ACCESS, the redemption request should indicate the number of shares to be
redeemed, the class designation of such shares, the account number and be signed
exactly as the shares are registered. Signatures must conform exactly to the
account registration. If the proceeds of the redemption would 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. If certificates are held for the shares being redeemed, such
certificates must be endorsed for transfer or accompanied by an endorsed stock
power and sent with 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 60 days must accompany the
36
<PAGE> 266
redemption request. The redemption price is the net asset value per share next
determined after the request is received by ACCESS in proper form. Payment for
shares redeemed (less any sales charge, if applicable) will ordinarily be made
by check mailed within three business days after acceptance by ACCESS of the
request and any other necessary documents in proper order. Such payments may be
postponed or the right of redemption suspended as provided by the rules of the
SEC. If the shares to be redeemed have been recently purchased by check, ACCESS
may delay mailing a redemption check until it confirms that the purchase check
has cleared, usually a period of up to 15 days. Any gain or loss realized on the
redemption of shares is a taxable event.
DEALER REDEMPTION REQUESTS. Shareholders may sell shares through their
securities dealer, who will telephone the request to the Distributor. Orders
received from dealers must be at least $500 unless transmitted via the FUNDSERV
network. The redemption price for such shares is the net asset value next
calculated after an order is received by a 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 dealers to transmit redemption requests
received by them to the Distributor so they will be received prior to such time.
Any change in the redemption price due to failure of the Distributor to receive
a sell order prior to such time must be settled between the shareholder and
dealer. Shareholders must submit a written redemption request in proper form (as
described above under "Written Redemption Requests") to the dealer within three
business days after calling the dealer with the sell order. Payment for shares
redeemed (less any sales charge, if applicable) will ordinarily be made by check
mailed within three business days to the dealer.
TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. To establish
such privilege, a shareholder must complete the appropriate section of the
application form accompanying this Prospectus or call the Fund at (800) 421-5666
((800) 772-8889 for the hearing impaired) to request that a copy of the
Telephone Redemption Authorization form be sent to them for completion. To
redeem shares, contact the telephone transaction line at (800) 421-5684. VKAC
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, a shareholder agrees that neither VKAC nor the Fund
will be liable for following instructions which it reasonably believes to be
genuine. VKAC and the Fund may be liable for any losses due to unauthorized or
fraudulent instructions if reasonable procedures are not followed. Telephone
redemptions may not be available if the shareholder cannot reach ACCESS 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
procedures previously described. Requests received by
37
<PAGE> 267
ACCESS prior to 4:00 p.m., New York time, on a regular business day will be
processed at the net asset value per share determined that day. These privileges
are available for all accounts other than retirement accounts. The telephone
redemption privilege is not available for shares represented by certificates. If
the shares to be redeemed have been recently purchased by check, ACCESS may
delay mailing a redemption check or wiring redemption proceeds until it confirms
that the purchase check has cleared, usually a period of up to 15 days. If an
account has multiple owners, ACCESS 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 sent to the shareholders'
address of record and amounts of at least $1,000 and up to $1 million may be
redeemed daily if the proceeds are to be paid by wire sent to the shareholder's
bank account of record. The proceeds must be payable to the shareholder(s) of
record. Proceeds from redemptions to be paid by check will ordinarily be mailed
within three business days to the shareholder's address of record. Proceeds from
redemptions to be paid by wire will ordinarily be wired on the next business day
to the shareholder's bank account of record. This privilege is not available if
the address of record has been changed within 30 days prior to a telephone
redemption request. The Fund reserves the right at any time to terminate, limit
or otherwise modify this telephone redemption privilege.
REDEMPTION UPON DISABILITY. The Fund will waive the contingent deferred sales
charge on redemptions following the disability of holders of Class B Shares and
Class C Shares. An individual will be considered disabled for this purpose if he
or she meets the definition thereof in Section 72(m)(7) of the Code, which in
pertinent part defines a person as disabled if such person "is unable to engage
in any substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death or to be
of long-continued and indefinite duration." While the Fund does not specifically
adopt the balance of the Code's definition which pertains to furnishing the
Secretary of Treasury with such proof as he or she may require, the Distributor
will require satisfactory proof of disability before it determines to waive the
contingent deferred sales charge on Class B Shares and Class C Shares.
In cases of disability, the contingent deferred sales charges on Class B
Shares and Class C Shares will be waived where the disabled person is either an
individual shareholder or owns the shares as a joint tenant with right of
survivorship or is the beneficial owner of a custodial or fiduciary account, and
where the redemption is made within one year of the initial determination of
disability. This waiver of the contingent deferred sales charge on Class B
Shares and Class C Shares applies to a total or partial redemption, but only to
redemptions of shares held at the time of the initial determination of
disability.
GENERAL REDEMPTION INFORMATION. The Fund may redeem any shareholder account
with a net asset value on the date of the notice of redemption less than the
minimum investment as specified by the Trustees. At least 60 days advance
written
38
<PAGE> 268
notice of any such involuntary redemption is required and the shareholder is
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 investment
due to shareholder redemptions.
REINSTATEMENT PRIVILEGE. Holders of Class A Shares or Class B Shares who have
redeemed shares of the Fund may reinstate any portion or all of the net proceeds
of such redemption in Class A Shares of the Fund. Holders of Class C Shares who
have redeemed shares of the Fund may reinstate any portion or all of the net
proceeds of such redemption in Class C Shares of the Fund with credit given for
any contingent deferred sales charge paid upon such redemption. Such
reinstatement is made at the net asset value next determined after the order is
received, which must be within 120 days after the date of the redemption. See
"Purchase of Shares -- Waiver of Contingent Deferred Sales Charge."
Reinstatement at net asset value is also offered to participants in those
eligible retirement plans held or administered by Van Kampen American Capital
Trust Company for repayment of principal (and interest) on their borrowings on
such plans.
- ------------------------------------------------------------------------------
THE DISTRIBUTION AND SERVICE PLANS
- ------------------------------------------------------------------------------
The Fund has adopted a distribution plan (the "Distribution Plan") with
respect to each class of its shares pursuant to Rule 12b-1 under the 1940 Act.
The Fund also has adopted a service plan (the "Service Plan") with respect to
each class of its shares. The Distribution Plan and the Service Plan provide
that the Fund may spend a portion of the Fund's average daily net assets
attributable to each class of shares in connection with the distribution of the
respective class of shares and in connection with the provision of ongoing
services to shareholders of each class. The Distribution Plan and the Service
Plan are being implemented through an agreement with the Distributor and
sub-agreements between the Distributor and brokers, dealers and financial
intermediaries (collectively, "Selling Agreements") that may provide for their
customers or clients certain services or assistance.
CLASS A SHARES. The Fund may spend an aggregate amount of up to 0.25% per year
of the average daily net assets attributable to the Class A Shares of the Fund
pursuant to the Distribution Plan and the Service Plan. From such amount, the
Fund may spend up to 0.25% per year of the Fund's average daily net assets
attributable to the Class A Shares pursuant to the Service Plan in connection
with the ongoing provision of services to holders of such shares by the
Distributor and by brokers, dealers or financial intermediaries and in
connection with the maintenance of such shareholders' accounts. The Fund pays
the Distributor the lesser of the balance of the 0.25% not paid to such brokers,
dealers or financial intermediaries or the amount of the Distributor's actual
distribution related expense.
CLASS B SHARES. The Fund may spend up to 0.75% per year of the average daily
net assets attributable to the Class B Shares of the Fund pursuant to the
39
<PAGE> 269
Distribution Plan. In addition, the Fund may spend up to 0.25% per year of the
Fund's average daily net assets attributable to the Class B Shares pursuant to
the Service Plan in connection with the ongoing provision of services to holders
of such shares by the Distributor and by brokers, dealers or financial
intermediaries and in connection with the maintenance of such shareholders'
accounts.
CLASS C SHARES. The Fund may spend up to 0.75% per year of the average daily
net assets attributable to the Class C Shares of the Fund pursuant to the
Distribution Plan. From such amount, the Fund, or the Distributor as agent for
the Fund, pays brokers, dealers or financial intermediaries in connection with
the distribution of the Class C Shares up to 0.75% of the Fund's average daily
net assets attributable to Class C Shares maintained in the Fund more than one
year by such broker's, dealer's or financial intermediary's customers. The Fund
pays the Distributor the lesser of the balance of the 0.75% not paid to such
brokers, dealers or financial intermediaries or the amount of the Distributor's
actual distribution related expense attributable to the Class C Shares. In
addition, the Fund may spend up to 0.25% per year of the Fund's average daily
net assets attributable to the Class C Shares pursuant to the Service Plan in
connection with the ongoing provision of services to holders of such shares by
the Distributor and by brokers, dealers or financial intermediaries and in
connection with the maintenance of such shareholders' accounts.
OTHER INFORMATION. Amounts payable to the Distributor with respect to the
Class A Shares under the Distribution Plan in a given year may not fully
reimburse the Distributor for its actual distribution-related expenses during
such year. In such event, with respect to the Class A Shares, there is no
carryover of such reimbursement obligations to succeeding years.
The Distributor's actual expenses with respect to a class of CDSC Shares for
any given year may exceed the amounts payable to the Distributor with respect to
such class of CDSC Shares under the Distribution Plan, the Service Plan and
payments received pursuant to the contingent deferred sales charge. In such
event, with respect to any such class of CDSC Shares, any unreimbursed expenses
will be carried forward and paid by the Fund (up to the amount of the actual
expenses incurred) in future years so long as such Distribution Plan is in
effect. Except as mandated by applicable law, the Fund does not impose any limit
with respect to the number of years into the future that such unreimbursed
expenses may be carried forward (on a Fund level basis). Because such expenses
are accounted on a Fund level basis, in periods of extreme net asset value
fluctuation such amounts with respect to a particular CDSC Share may be greater
or less than the amount of the initial commission (including carrying cost) paid
by the Distributor with respect to such CDSC Share. In such circumstances, a
shareholder of such CDSC Share may be deemed to incur expenses attributable to
other shareholders of such class. If the Distribution Plan was terminated or not
continued, the Fund would not be contractually obligated to pay the Distributor
for any expenses not previously reimbursed by the Fund or recovered through
contingent deferred sales charges.
40
<PAGE> 270
Because the Fund is a series of the Trust, amounts paid to the Distributor as
reimbursement for expenses of one series of the Trust may indirectly benefit the
other funds which are series of the Trust. The Distributor will endeavor to
allocate such expenses among such funds in an equitable manner. The Distributor
will not use the proceeds from the contingent deferred sales charge applicable
to a particular class of CDSC Shares to defray distribution related expenses
attributable to any other class of CDSC Shares. Various federal and state laws
prohibit national banks and some state-chartered commercial banks from
underwriting or dealing in the Fund's shares. In addition, state securities laws
on this issue may differ from the interpretations of federal law, and banks and
financial institutions may be required to register as dealers pursuant to state
law. In the unlikely event that a court were to find that these laws prevent
such banks from providing such services described above, the Fund would seek
alternate providers and expects that shareholders would not experience any
disadvantage.
- ------------------------------------------------------------------------------
DISTRIBUTIONS FROM THE FUND
- ------------------------------------------------------------------------------
The Fund's present policy, which may be changed at any time by the Board of
Trustees, is to declare dividends quarterly to holders of each class of shares
from net investment income and net short-term capital gains attributable to each
respective class. The Fund also presently intends to make distributions of net
long-term capital gains, if any, annually. Dividends are composed of all or a
portion of investment income earned by each class of shares of the Fund plus all
or a portion of net short-term capital gains by the Fund on transactions in
securities and futures and options hedging transactions, less the expenses
attributable to the respective class. Long-term capital gains distributions
consist of the Fund's gain on transactions in securities and futures and options
hedging transactions, net of any realized capital losses, less any carryover
capital losses from previous years.
Distributions with respect to each class of shares will be calculated in the
same manner on the same day and will be in the same amount, except that the
different distribution and service fees and any incremental administrative
expenses relating to each class of shares will be borne exclusively by the
respective class and may cause the distributions relating to the different
classes of shares to differ. Generally, distributions with respect to a class of
shares subject to a higher distribution fee, service fee, or where applicable,
the conversion feature will be lower than distributions with respect to a class
of shares subject to a lower distribution fee, service fee, or not subject to
the conversion feature.
Distribution checks may be sent to parties other than the shareholder in whose
name the account is registered. Shareholders wishing to utilize this service
should complete the appropriate section of the account application accompanying
this Prospectus or available from Van Kampen American Capital Funds, c/o ACCESS,
P.O. Box 418256, Kansas City, MO 64141-9256. After ACCESS receives this
41
<PAGE> 271
completed form, distribution checks will be sent to the bank or other person so
designated by such shareholder.
PURCHASE OF ADDITIONAL SHARES WITH DISTRIBUTIONS. The Fund automatically will
credit distributions to a shareholder's account in additional shares of the Fund
valued at net asset value, without sales charge. Unless the Shareholder
instructs otherwise, the reinvestment plan is automatic. This instruction may be
made by telephone by calling (800) 421-5666 ( (800) 772-8889 for the hearing
impaired) or in writing to ACCESS.
- ------------------------------------------------------------------------------
TAX STATUS
- ------------------------------------------------------------------------------
The Fund intends to qualify as a regulated investment company under Subchapter
M of the Internal Revenue Code of 1986, as amended (the "Code"). To qualify as a
regulated investment company, the Fund must comply with certain requirements of
the Code relating to, among other things, the source of its income and the
diversification of its assets. If the Fund so qualifies and if it distributes to
its shareholders at least 90% of its net investment income (which includes net
short-term capital gains, but not net capital gains, which are the excess of net
long-term capital gains over net short-term capital losses), it will not be
required to pay federal income taxes on any income distributed to shareholders.
The Fund intends to distribute at least the minimum amount of net investment
income required to satisfy the 90% distribution requirement. The Fund will not
be subject to federal income tax on any net capital gains distributed to its
shareholders.
Distributions of the Fund's net investment income are taxable to shareholders
as ordinary income whether received in shares or cash. Shareholders who receive
distributions in the form of additional shares will have a basis for federal
income tax purposes in each share equal to the value thereof on the distribution
date. Distributions of the Fund's net capital gains ("capital gain dividends"),
if any, are taxable to shareholders as long-term capital gains regardless of the
length of time the Fund shares have been held by such shareholders.
Distributions in excess of the Fund's earnings and profits will first reduce the
adjusted tax basis of the shares held by the shareholders and, after such
adjusted tax basis is reduced to zero, will constitute capital gains to such
shareholder (assuming such shares are held as a capital asset). The Fund will
inform shareholders of the source and tax status of such distributions promptly
after the close of each calendar year. Some portion of the distributions made by
the Fund generally will be eligible for the dividends received deduction for
corporations if the Fund receives qualifying dividends during the year and if
certain other requirements of the Code are satisfied.
Redemption or resale of shares of the Fund will be a taxable transaction for
federal income tax purposes. Redeeming shareholders will recognize gain or loss
in an amount equal to the difference between their basis in such redeemed shares
of the Fund and the amount received. If such shares are held as a capital asset,
the gain or loss will be a capital gain or loss and will generally be long-term
if such
42
<PAGE> 272
shareholders have held their shares for more than one year. Any loss realized
upon a taxable disposition of shares held for six months or less will be treated
as 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.
Some of the Fund's investment practices are subject to special provisions of
the Code that may, among other things, defer the use of losses of the Fund and
affect the holding period of securities held by the Fund and the character of
the gains or losses realized by the Fund. These provisions may also require the
Fund to mark-to-market some of the positions in its portfolio (i.e., treat them
as if they were closed out), which may cause the Fund to recognize income
without receiving the cash with which to make distributions in amounts necessary
to satisfy the distribution requirements for avoiding federal income and, as
described below, excise taxes. The Fund will monitor its transactions and may
make certain tax elections in order to mitigate the effect of these rules and
prevent disqualification of the Fund as a regulated investment company.
The Fund's ability to dispose of portfolio securities may be limited by the
requirement for qualification as a regulated investment company that less than
30% of the Fund's annual gross income be derived from the disposition of
securities held for less than three months.
Income from investments in foreign securities may be subject to foreign
taxation imposed by withholding. Shareholders of the Fund will not be able to
claim any deduction or foreign tax credit with respect to such foreign taxes.
In order to avoid a 4% excise tax, the Fund will be required to distribute by
December 31 of each year at least 98% of its ordinary income for such year and
at least 98% of its capital gain net income (computed on the basis of the
one-year period ending on October 31 of such year), plus any amounts that were
not distributed in previous taxable years. For purposes of the excise tax, any
ordinary income or capital gain net income retained by and subject to federal
income tax in the hands of the Fund will be treated as having been distributed.
Although dividends generally will be treated as distributed when paid,
dividends declared in October, November or December, payable to shareholders of
record on a specified date in such a month and paid in January of the following
year, will be treated as having been distributed by the Fund (and received by
the shareholders) on December 31 of the year in which the dividend was declared.
In addition, certain other distributions made after the close of a taxable year
of the Fund may be "spilled back" and treated as having been 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 is actually made.
43
<PAGE> 273
The Fund is required, in certain circumstances, to withhold 31% of dividends
and certain other payments, including redemptions, paid to shareholders who do
not furnish to the Fund their correct taxpayer identification number (in the
case of individuals, their social security number) or who are otherwise subject
to backup withholding. 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 any applicable treaty.
The federal income tax discussion set forth above is for general information
only. Prospective investors should consult their own advisors regarding the
specific federal tax consequences of holding and disposing of shares, as well as
the effects of state, local and foreign tax laws and any proposed tax law
changes.
- ------------------------------------------------------------------------------
FUND PERFORMANCE
- ------------------------------------------------------------------------------
From time to time advertisements and other sales materials for the Fund may
include information concerning the historical performance of the Fund. Any such
information will include the average total return of the Fund calculated on a
compounded basis for specified periods of time. Such total return will be
calculated pursuant to rules established by the SEC and will be computed
separately for each class of the Fund's shares. In lieu of or in addition to
total return calculations, such information may include performance rankings and
similar information from independent organizations such as Lipper Analytical
Services, Inc., Business Week, Forbes or other industry publications. In
addition, from time to time the Fund may compare its performance to certain
securities and unmanaged indices which may have different risk/reward
characteristics than the Fund. Such characteristics may include, but are not
limited to, tax features, guarantees, insurance and the fluctuation of principal
and/or return. In addition, from time to time sales materials and advertisements
for the Fund may include hypothetical information.
Further information about the Fund's performance is contained in its Annual
Report and its Statement of Additional Information each of which can be obtained
without charge by calling (800) 421-5666 ((800) 772-8889 for the hearing
impaired).
- ------------------------------------------------------------------------------
DESCRIPTION OF SHARES OF THE FUND
- ------------------------------------------------------------------------------
The Fund is a series of the Van Kampen American Capital Equity Trust, a
Delaware business trust organized as of May 10, 1995 (the "Trust"). The Fund was
originally organized in 1986 as a Massachusetts business trust, was reorganized
in 1988 as a sub-trust of Van Kampen Merritt Equity Trust, a Massachusetts
business trust, and was reorganized as a series of the Trust as of July 31,
1995. Shares of the Trust entitle their holders to one vote per share; however,
separate votes are taken by each series on matters affecting an individual
series.
44
<PAGE> 274
The authorized capitalization of the Fund consists of an unlimited number of
shares of beneficial interest, $0.01 par value, divided into classes. The Fund
currently offers three classes, designated Class A Shares, Class B Shares and
Class C Shares. Each class of shares represents an interest in the same assets
of the Fund and are identical in all respects except that each class bears
certain distribution expenses and has exclusive voting rights with respect to
its distribution fee.
Pursuant to an order of the SEC, the Fund is permitted to issue an unlimited
number of classes of shares. Each class of shares is equal as to earnings,
assets and voting privileges, except as noted above, and each class bears the
expenses related to the distribution of its shares. There are no conversion,
preemptive or other subscription rights, except with respect to the conversion
of Class B Shares and Class C Shares into Class A Shares as described above. In
the event of liquidation, each of the shares of the Fund is entitled to its
portion of all of the Fund's net assets after all debt and expenses of the Fund
have been paid. Since Class B Shares and Class C Shares pay higher distribution
expenses, the liquidation proceeds to holders of Class B Shares and Class C
Shares are likely to be lower than to other shareholders.
The Trust does not contemplate holding regular meetings of shareholders to
elect Trustees or otherwise. However, the holders of 10% or more of the
outstanding shares may by written request require a meeting to consider the
removal of Trustees by a vote of a majority of the shares present and voting at
such meeting. The Trust will assist such holders in communicating with other
shareholders of the Fund to the extent required by the 1940 Act. More detailed
information concerning the Trust is set forth in the Statement of Additional
Information.
- ------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- ------------------------------------------------------------------------------
This Prospectus and the Statement of Additional Information do not contain all
the information set forth in the Registration Statement filed by the Fund with
the SEC under the Securities Act of 1933. Copies of the Registration Statement
may be obtained at a reasonable charge from the SEC or may be examined, without
charge, at the office of the SEC in Washington, D.C.
The Fund's fiscal year ends on June 30. The Fund sends to its shareholders at
least semi-annually reports showing the Fund's portfolio and other information.
An annual report, containing financial statements audited by the Fund's
independent auditors, is sent to shareholders each year. After the end of each
year, shareholders will receive federal income tax information regarding
dividends and capital gains distributions.
Shareholder inquiries should be directed to the Van Kampen American Capital
Prospector Fund, One Parkview Plaza, Oakbrook Terrace, Illinois 60181, Attn:
Correspondence.
45
<PAGE> 275
For Automated Telephone Service which provides 24-hour direct dial access to
Fund facts and Shareholder account information, dial (800) 421-5666. For
inquiries through Telecommunications Device for the Deaf (TDD) dial (800)
772-8889.
46
<PAGE> 276
VAN KAMPEN AMERICAN CAPITAL
PROSPECTOR FUND
One Parkview Plaza
Oakbrook Terrace, IL 60181
-----------------------------------
Investment Adviser
VAN KAMPEN AMERICAN CAPITAL
INVESTMENT ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, IL 60181
Distributor
VAN KAMPEN AMERICAN CAPITAL
DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, IL 60181
EXISTING SHAREHOLDERS-- Transfer Agent
FOR INFORMATION ON YOUR ACCESS INVESTOR SERVICES, INC.
EXISTING ACCOUNT PLEASE P.O. Box 418256
CALL THE FUND'S TOLL-FREE Kansas City, MO 64141-9256
NUMBER (800) 421-5666. Attn: Van Kampen American Capital Funds
PROSPECTIVE INVESTORS--CALL Custodian
YOUR BROKER OR (800) 421-5666. STATE STREET BANK AND
TRUST COMPANY
DEALERS--FOR DEALER 225 Franklin Street, P.O. Box 1713
INFORMATION, SELLING Boston, MA 02105
AGREEMENTS, WIRE ORDERS, Attn: Van Kampen American Capital Funds
OR REDEMPTIONS CALL THE
DISTRIBUTOR'S TOLL-FREE Legal Counsel
NUMBER (800) 421-5666. SKADDEN, ARPS, SLATE,
MEAGHER & FLOM
FOR SHAREHOLDER AND 333 West Wacker Drive
DEALER INQUIRIES THROUGH Chicago, IL 60606
TELECOMMUNICATIONS
DEVICE FOR THE DEAF (TDD) Independent Auditors
DIAL (800) 772-8889 KPMG PEAT MARWICK LLP
Peat Marwick Plaza
FOR AUTOMATED TELEPHONE 303 East Wacker Drive
SERVICES DIAL (800) 421-5666 Chicago, IL 60601
<PAGE> 277
PROSPECTOR FUND
------------------------------------------------------------------------------
P R O S P E C T U S
, 1995
------ A WEALTH OF KNOWLEDGE o A KNOWLEDGE OF WEALTH ------
VAN KAMPEN AMERICAN CAPITAL
- -------------------------------------------------------------------------------
<PAGE> 278
STATEMENT OF ADDITIONAL INFORMATION
VAN KAMPEN AMERICAN CAPITAL PROSPECTOR FUND
Van Kampen American Capital Prospector Fund (the "Fund") seeks capital growth
and income. The Fund will attempt to achieve this investment objective by
investing primarily in a diversified portfolio of income producing equity
securities, including dividend paying common and preferred stocks and income
securities convertible into common or preferred stock. There is no assurance
that the Fund will achieve its investment objective. The Fund is a mutual fund
whose portfolio is advised by Van Kampen American Capital Investment Advisory
Corp. (the "Adviser"). The Fund is a separate series of Van Kampen American
Capital Equity Trust (the "Trust").
This Statement of Additional Information is not a prospectus but should be
read in conjunction with the Prospectus for the Fund dated , 1995 (the
"Prospectus"). This Statement of Additional Information does not include all of
the information that a prospective investor should consider before purchasing
shares of the Fund, and investors should obtain and read the Prospectus prior to
purchasing shares. A copy of the Prospectus may be obtained without charge by
calling (800) 421-5666. This Statement of Additional Information incorporates by
reference the entire Prospectus.
The Prospectus and this Statement of Additional Information omit certain of
the information contained in the registration statement filed with the
Securities and Exchange Commission, Washington, D.C. These items may be obtained
from the Commission upon payment of the fee prescribed, or inspected at the
Commission's office at no charge.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Fund and the Trust............................................................... B-2
Investment Policies and Restrictions................................................. B-2
Additional Investment Considerations................................................. B-4
Description of Securities Ratings.................................................... B-11
Officers and Trustees................................................................ B-18
Legal Counsel........................................................................ B-23
Investment Advisory and Other Services............................................... B-23
Portfolio Transactions and Brokerage Allocation...................................... B-24
Tax Status of the Fund............................................................... B-25
The Distributor...................................................................... B-25
Performance Information.............................................................. B-26
</TABLE>
THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED , 1995.
B-1
<PAGE> 279
THE FUND AND THE TRUST
The Fund is a separate diversified series of the Trust, an open-end management
investment company. At present, the Fund, Van Kampen American Capital Utility
Fund, Van Kampen American Capital Balanced Fund, Van Kampen American Capital
Value Fund, Van Kampen American Capital Growth Fund, Van Kampen American Capital
Great American Companies Fund, and Van Kampen American Capital Prospector Fund
are the only series of the Trust, although other series may be organized and
offered in the future.
The Trust is an unincorporated business trust established under the laws of
the State of Delaware by an Agreement and Declaration of Trust dated May 10,
1995 (the "Declaration of Trust"). The Declaration of Trust permits the Trustees
to create one or more separate investment portfolios and issue a series of
shares, $0.01 per value, for each portfolio. The Trustees can further sub-divide
each series of shares into one or more classes of shares for each portfolio.
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 Trust was originally organized in
1986 as a Massachusetts business trust and was reorganized as a Delaware
business trust on July 31, 1995.
Shares of the Trust entitle their holders to one vote per share; however,
separate votes are taken by each series on matters affecting an individual
series. For example, a change in investment policy for a series would be voted
upon by shareholders of only the series involved. Shares do not have cumulative
voting rights, preemptive rights or any conversion or exchange rights. The Trust
does not contemplate holding regular meetings of shareholders to elect Trustees
or otherwise. However, the holders of 10% or more of the outstanding shares may
by written request require a meeting to consider the removal of Trustees by a
vote of a majority of the shares present and voting at such meeting. The Trust
will assist such holders in communicating with other shareholders of the Fund to
the extent required by the Investment Company Act of 1940 (the "1940 Act").
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.
INVESTMENT POLICIES AND RESTRICTIONS
The investment objective of the Fund is set forth in the Prospectus under the
caption "Investment Objective and Policies." There can be no assurance that the
Fund will achieve its investment objective.
Fundamental investment restrictions limiting the investments of the Fund
provide that the Fund may not:
1. Purchase any securities (other than obligations issued or guaranteed by
the United States Government or by its 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, such 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. Neither limitation
shall apply to the acquisition of shares of other open-end investment
companies to the extent permitted by rule or order of
B-2
<PAGE> 280
the Securities and Exchange Commission exempting the Fund from the
limitations imposed by Section 12(d)(1) of the 1940 Act.
2. Invest more than 25% of its assets in a single industry, provided,
however, that this limitation excludes shares of other open-end investment
companies owned by the Fund but includes the Fund's pro rata portion of
the securities and other assets owned by any such company. (Neither the
U.S. Government nor any of its agencies or instrumentalities will be
considered an industry for purposes of this restriction.)
3. Issue senior securities, borrow money from banks or enter into reverse
repurchase agreements with banks in the aggregate in excess of 33 1/3% of
the Fund's total assets (after giving effect to any such borrowing); which
amount excludes no more than 5% in borrowings and reverse repurchase
agreements with any entity for temporary purposes. The Fund will not
mortgage, pledge or hypothecate any assets other than in connection with
issuances of senior securities, borrowings, delayed delivery and when
issued transactions and strategic transactions.
4. Make loans of money or property to any person, except (i) to the extent
the securities in which the Fund may invest are considered to be loans,
(ii) through the loan of portfolio securities, and (iii) to the extent
that the Fund may lend money or property in connection with maintenance of
the value of, or the Fund's interest with respect to, the securities owned
by the Fund.
5. Sell any securities "short," unless at all times when a short position is
open the Fund owns an equal amount of the securities or of securities
convertible into, or exchangeable without further consideration for,
securities of the same issue as the securities sold short.
6. 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.
7. Make investments for the purpose of exercising control or participation in
management, except to the extent that exercise by the Fund of its rights
under agreements related to portfolio securities would be deemed to
constitute such control or participation.
8. Invest in securities of other investment companies, except as part of a
merger, consolidation or other acquisition, except as permitted under the
1940 Act and except to the extent permitted by order of the Securities and
Exchange Commission exempting the Fund from the limitations imposed by
Section 12(d)(1) of the 1940 Act.
9. Invest in interests in oil, gas, or other mineral exploration or
development programs except pursuant to the exercise by the Fund of its
right under agreements relating to portfolio securities.
10. Purchase or sell real estate, commodities or commodity contracts, except
to the extent that the securities that the Fund may invest in are
considered to be interests in real estate, commodities or commodity
contracts or to the extent the Fund exercises its rights under agreements
relating to portfolio securities (in which case the Fund may liquidate
real estate acquired as a result of a default on a mortgage), and except
to the extent that Strategic Transactions the Fund may engage in are
considered to be commodities or commodities contracts.
For purposes of the concentration policy of the Fund contained in limitation
(2) above, the Fund intends to comply with the SEC staff position that
securities issued or guaranteed as to principal and interest by any one single
foreign government, or by all supranational organizations in the aggregate, are
considered to be securities of issuers in the same industry.
The Fund may not change any of these investment restrictions nor any other
fundamental policy as they apply to the Fund without the approval of the lesser
of (i) more than 50% of the Fund's outstanding shares or (ii) 67% of the Fund's
shares present at a meeting at which the holders of more than 50% of the
outstanding shares are present in person or by proxy. As long as the percentage
restrictions described above are satisfied at the time of the investment or
borrowing, the Fund will be considered to have abided by those restrictions even
if, at a later time, a change in values or net assets causes an increase or
decrease in percentage beyond that allowed.
B-3
<PAGE> 281
The Fund may invest up to 15% of its total assets in illiquid securities,
securities the disposition of which is subject to substantial legal or
contractual restrictions on resale and securities that are not readily
marketable. The sale of restricted and illiquid securities often requires more
time and results in higher brokerage charges or dealer discounts and other
selling expenses than does the sale of securities eligible for trading on
national securities exchanges or in the over-the-counter markets. Restricted
securities may sell at a price lower than similar securities that are not
subject to restrictions on resale. Restricted securities salable among qualified
institutional buyers without restriction pursuant to Rule 144A under the
Securities Act of 1933 that are determined to be liquid by the Adviser under
guidelines adopted by the Board of Trustees of the Trust (under which guidelines
the Adviser will consider factors such as trading activities and the
availability of price quotations), will not be treated as restricted securities
by the Fund pursuant to such rules. This limitation excludes shares of other
open-end investment companies owned by the Fund but includes the Fund's pro rata
portion of the securities and other assets owned by any such company. The Fund
may, from time to time, adopt a more restrictive limitation with respect to
investment in illiquid and restricted securities in order to comply with the
most restrictive state securities law, currently 10%. This policy does not
include restricted securities eligible for resale pursuant to Rule 144A under
the Securities Act of 1933, as amended, which the Board of Trustees or the
Fund's investment adviser has determined under Board-approved guidelines to be
liquid. The Fund's policy with respect to investment in illiquid and restricted
securities is not a fundamental policy and may be changed by the Board of
Trustees, in consultation with the adviser, without obtaining shareholder
approval.
From time to time the Fund may commit to more stringent restrictions in order
to be able to offer its shares to residents in particular states.
ADDITIONAL INVESTMENT CONSIDERATIONS
BORROWING
The Fund may borrow up to 33 1/3% of the value of its assets from banks,
(including entering into reverse repurchase agreements), which amount excludes
no more than 5% in borrowings and reverse repurchase agreements with any entity
for temporary purposes. The Fund has no current intention to borrow money other
than for temporary purposes.
Borrowing by the Fund creates an opportunity for increased net income but, at
the same time, creates special risk considerations such as potential changes in
the net asset value of the Shares and in the yield on the Fund's portfolio.
Although the principal of such borrowings will be fixed, the Fund's assets may
change in value during the time the borrowing is outstanding. Borrowing will
create interest expenses for the Fund which can exceed the income from the
assets retained. To the extent the income derived from securities purchased with
borrowed funds exceeds the interest the Fund will have to pay, the Fund's net
income will be greater than if borrowing were not used. Conversely, if the
income from the assets retained with borrowed funds is not sufficient to cover
the cost of borrowing, the net income of the Fund will be less than if borrowing
were not used, and therefore the amount available for distribution to
shareholders as dividends will be reduced.
STRATEGIC TRANSACTIONS
The Fund may, but is not required to, utilize various other investment
strategies as described below. Such strategies are generally accepted by modern
portfolio managers and are regularly utilized by many mutual funds and other
institutional investors. Techniques and instruments may change over time as new
instruments and strategies are developed or regulatory changes occur.
In the course of pursuing these investment strategies, the Fund may purchase
and sell derivative instruments such as exchange-listed and over-the-counter put
and call options on securities, equity and fixed-income indices and other
financial instruments and purchase and sell financial futures contracts and
options thereon and enter into various currency transactions such as currency
forward contracts, currency futures contracts, currency swaps and options on
currencies or currency futures (collectively, all the above are called
"Strategic Transactions"). Strategic Transactions may be used to attempt to
protect against possible changes in the market value of securities held in or to
be purchased for the Fund's portfolio resulting from securities
B-4
<PAGE> 282
markets fluctuations, to protect the Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to protect against changes in currency exchange rates or to establish
a position in the derivatives markets as a temporary substitute for purchasing
or selling particular securities.
Any or all of these investment techniques may be used at any time and there is
no particular strategy that dictates the use of one technique rather than
another, as use of any Strategic Transaction is a function of numerous variables
including market conditions. The ability of the Fund to utilize these Strategic
Transactions successfully will depend on the Adviser's ability to predict
pertinent market movements, which cannot be assured. The Fund will comply with
applicable regulatory requirements when implementing these strategies,
techniques and instruments.
Strategic Transactions have risks associated with them including possible
default by the other party to the transaction, illiquidity and, to the extent
the Adviser's view as to certain market movements is incorrect, the risk that
the use of such Strategic Transactions could result in losses greater than if
they had not been used. Use of put and call options may result in losses to the
Fund, force the sale or purchase of portfolio securities at inopportune times or
for prices other than current market values, limit the amount of appreciation
the Fund can realize on its investments or cause the Fund to hold a security it
might otherwise sell. The use of currency transactions can result in the Fund
incurring losses as a result of a number of factors including the imposition of
exchange controls, suspension of settlements or the inability to deliver or
receive a specified currency. The use of options and futures transactions
entails certain other risks. In particular, the variable degree of correlation
between price movements of futures contracts and price movements in the related
portfolio position of the Fund creates the possibility that losses on the
hedging instrument may be greater than gains in the value of the Fund's
position. In addition, futures and options markets may not be liquid in all
circumstances and certain over-the-counter options may have no markets. As a
result, in certain markets, the Fund might not be able to close out a
transaction without incurring substantial losses, if at all. Although the use of
futures and options transactions for hedging should tend to minimize the risk of
loss due to a decline in the value of the hedged position, at the same time they
tend to limit any potential gain which might result from an increase in value of
such position. Finally, the daily variation margin requirements for futures
contracts would create a greater ongoing potential financial risk than would
purchases of options, where the exposure is limited to the cost of the initial
premium. Losses resulting from the use of Strategic Transactions would reduce
net asset value, and possibly income, and such losses can be greater than if the
Strategic Transactions had not been utilized. Income earned or deemed to be
earned, if any, by the Fund from its Strategic Transactions will generally be
taxable income of the Fund. See "Tax Status" in the Prospectus.
GENERAL CHARACTERISTICS OF OPTIONS. Put options and call options typically
have similar structural characteristics and operational mechanics regardless of
the underlying instrument on which they are purchased or sold. Thus, the
following general discussion relates to each of the particular types of options
discussed in greater detail below. In addition, many Strategic Transactions
involving options require segregation of Fund assets in special accounts, as
described below under "Use of Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a premium, the
right to sell, and the writer the obligation to buy, the underlying security,
commodity, index, or other instrument at the exercise price. For instance, the
Fund's purchase of a put option on a security might be designed to protect its
holdings in the underlying instrument (or, in some cases, a similar instrument)
against a substantial decline in the market value by giving the Fund the right
to sell such instrument at the option exercise price. A call option, upon
payment of a premium, gives the purchaser of the option the right to buy, and
the seller the obligation to sell, the underlying instrument at the exercise
price. The Fund's purchase of a call option on a security, financial future,
index, or other instrument might be intended to protect the Fund against an
increase in the price of the underlying instrument that it intends to purchase
in the future by fixing the price at which it may purchase such instrument. An
American style put or call option may be exercised at any time during the option
period while a European style put or call option may be exercised only upon
expiration or during a fixed period prior thereto. The Fund is authorized to
purchase and sell exchange listed options and over-the-counter options ("OTC
options"). Exchange listed options are issued by a regulated intermediary such
as the Options Clearing Corporation ("OCC"), which guarantees the performance of
the obligations of the parties to such
B-5
<PAGE> 283
options. The discussion below uses the OCC as a paradigm, but is also applicable
to other financial intermediaries.
With certain exceptions, OCC issued and exchange listed options generally
settle by physical delivery of the underlying security or currency, although in
the future cash settlement may become available. Index options are cash settled
for the net amount, if any, by which the option is "in-the-money" (i.e., where
the value of the underlying instrument exceeds, in the case of a call option, or
is less than, in the case of a put option, the exercise price of the option) at
the time the option is exercised. Frequently, rather than taking or making
delivery of the underlying instrument through the process of exercising the
option, listed options are closed by entering into offsetting purchase or sale
transactions that do not result in ownership of the new option.
The Fund's ability to close out its position as a purchaser or seller of an
OCC or exchange listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the absence of a
liquid option market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the
OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to
handle current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours during
which the underlying financial instruments are traded. To the extent that the
option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Fund will only sell OTC options that are subject to a buy-back provision
permitting the Fund to require the Counterparty to sell the option back to the
Fund at a formula price within seven days. The Fund expects generally to enter
into OTC options that have cash settlement provisions, although it is not
required to do so.
Unless the parties provide for it, there is no central clearing or guaranty
function in an OTC option. As a result, if the Counterparty fails to make or
take delivery of the security, or other instrument underlying an OTC option it
has entered into with the Fund or fails to make a cash settlement payment due in
accordance with the terms of that option, the Fund will lose any premium it paid
for the option as well as any anticipated benefit of the transaction.
Accordingly, the Adviser must assess the creditworthiness of each such
Counterparty or any guarantor or credit enhancement of the Counterparty's credit
to determine the likelihood that the terms of the OTC option will be satisfied.
The Fund will engage in OTC option transactions only with United States
government securities dealers recognized by the Federal Reserve Bank of New York
as "primary dealers", or broker dealers, domestic or foreign banks or other
financial institutions which have received (or the guarantors of the obligation
of which have received) a short-term credit rating of "A-1" from Standard &
Poor's Ratings Group ("S&P") or "P-1" from Moody's Investor Services, Inc.
("Moody's") or an equivalent rating from any other nationally recognized
statistical rating organization ("NRSRO"). The staff of the SEC currently takes
the position that, in general, OTC options on securities other than U.S.
Government securities purchased by the Fund, and portfolio securities "covering"
the amount of the Fund's obligation pursuant to an OTC option sold by it (the
cost of the sell-back plus the in-the-money amount, if any) are illiquid, and
are subject to the Fund's limitation on investing no more than 15% of its assets
in illiquid securities.
If the Fund sells a call option, the premium that it receives may serve as a
partial hedge, to the extent of the option premium, against a decrease in the
value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.
B-6
<PAGE> 284
The Fund may purchase and sell call options on securities, including U.S.
Treasury and agency securities, municipal obligations, mortgage-backed
securities, corporate debt securities, equity securities (including convertible
securities) that are traded on U.S. and foreign securities exchanges and in the
over-the-counter markets. All calls sold by the Fund must be "covered" (i.e.,
the Fund must own the securities or futures contract subject to the call) or
must meet the asset segregation requirements described below as long as the call
is outstanding. Even though the Fund will receive the option premium to help
protect it against loss, a call sold by the Fund exposes the Fund during the
term of the option to possible loss of opportunity to realize appreciation in
the market price of the underlying security or instrument and may require the
Fund to hold a security or instrument which it might otherwise have sold. In
selling calls on securities not owned by the Fund, the Fund may be required to
acquire the underlying security at a disadvantageous price in order to satisfy
its obligations with respect to the call.
The Fund may purchase and sell put options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, municipal
obligations, corporate debt securities, equity securities (including convertible
securities) (whether or not it holds the above securities in its portfolio) and
on securities indices, currencies and futures contracts other than futures or
individual corporate debt and individual equity securities. The Fund will not
sell put options if, as a result, more than 50% of the Fund's assets would be
required to be segregated to cover its potential obligations under such put
options other than those with respect to futures and options thereon. In selling
put options, there is a risk that the Fund may be required to buy the underlying
security at a disadvantageous price above the market price.
GENERAL CHARACTERISTICS OF FUTURES. The Fund may enter into financial futures
contracts or purchase or sell put and call options on such futures as a hedge
against anticipated interest rate, currency, equity or fixed-income market
changes and for risk management purposes. Futures are generally bought and sold
on the commodities exchanges where they are listed with payment of initial and
variation margin as described below. The purchase of a futures contract creates
a firm obligation by the Fund, as purchaser, to take delivery from the seller
the specific type of financial instrument called for in the contract at a
specific future time for a specified price (or, with respect to index futures,
the net cash amount). The sale of a futures contract creates a firm obligation
by the Fund, as seller, to deliver to the buyer the specific type of financial
instrument called for in the contract at a specific future time for a specified
price (or, with respect to index futures, the net cash amount). Options on
futures contracts are similar to options on securities except that an option on
a futures contract gives the purchaser the right in return for the premium paid
to assume a position in a futures contract and obligates the seller to deliver
such option.
The Fund's use of financial futures and options thereon will in all cases be
consistent with applicable regulatory requirements and in particular the rules
and regulations of the Commodity Futures Trading Commission. Typically,
maintaining a futures contract or selling an option thereon requires the Fund to
deposit with a financial intermediary as security for its obligations an amount
of cash or other specified assets (initial margin) which initially is typically
1% to 10% of the face amount of the contract (but may be higher in some
circumstances). Additional cash or assets (variation margin) may be required to
be deposited thereafter on a daily basis as the mark to market value of the
contract fluctuates. The purchase of options on financial futures involves
payment of a premium for the option without any further obligation on the part
of the Fund. If the Fund exercises an option on a futures contract it will be
obligated to post initial margin (and potential subsequent variation margin) for
the resulting futures position just as it would for any position. Futures
contracts and options thereon are generally settled by entering into an
offsetting transaction but there can be no assurance that the position can be
offset prior to settlement at an advantageous price nor that delivery will
occur.
The Fund will not enter into a futures contract or related option (except for
closing transactions) if, immediately thereafter, the sum of the amount of its
initial margin and premiums on open futures contracts and options thereon would
exceed 5% of the Fund's total assets (taken at current value); however, in the
case of an option that is in-the-money at the time of the purchase, the
in-the-money amount may be excluded in calculating the 5% limitation. Certain
state securities laws to which the Fund may be subject may further restrict the
Fund's ability to engage in transactions in futures contracts and related
options. The segregation requirements with respect to futures contracts and
options thereon are described herein.
B-7
<PAGE> 285
OPTIONS ON SECURITIES INDICES AND OTHER FINANCIAL INDICES. The Fund also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement, i.e., an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the index
upon which the option is based exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option (except if, in the case
of an OTC option, physical delivery is specified). This amount of cash is equal
to the excess of the closing price of the index over the exercise price of the
option, which also may be multiplied by a formula value. The seller of the
option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.
The Fund also may invest in foreign stock index futures traded outside the
United States. Foreign stock index futures traded outside the United States
include the Nikkei Index of 225 Japanese stocks traded on the Singapore
International Exchange ("Nikkei Index"), Osaka Index of 50 Japanese stocks
traded on the Osaka Exchange, Financial Times Stock Exchange Index of the 100
largest stocks on the London Stock Exchange, the All Ordinaries Share Price
Index of 307 stocks on the Sydney, Melbourne Exchanges, Hang Seng Index of 33
stocks on the Hong Kong Stock Exchange, Barclays Share Price Index of 40 stocks
on the New Zealand Stock Exchange and Toronto Index of 35 stocks on the Toronto
Exchange. Futures and futures options on the Nikkei Index are traded on the
Chicago Mercantile Exchange and United States commodity exchanges may develop
futures and futures options on other indices of foreign securities. Futures and
options on United States devised index of foreign stocks are also being
developed. Investments in securities of foreign entities and securities
denominated in foreign currencies involve risks not typically involved in
domestic investment, including fluctuations in foreign exchange rates, future
foreign political and economic developments, and the possible imposition of
exchange controls or other foreign or United States governmental laws or
restrictions applicable to such investments.
CURRENCY TRANSACTIONS. The Fund may engage in currency transactions with
Counterparties in order to hedge the value of portfolio holding denominated in
particular currencies against fluctuations in relative value. Currency
transactions include forward currency contracts, exchange listed currency
futures, exchange listed and OTC options on currencies, and currency swaps. A
forward currency contract involves a privately negotiated obligation to purchase
or sell (with delivery generally required) a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract. A currency swap is
an agreement to exchange cash flows based on the notional difference among two
or more currencies and operates similarly to an interest rate swap, which is
described below. The Fund may enter into currency transactions with
Counterparties which have received (or the guarantors of the obligations of such
Counterparties have received) a credit rating of A-1 or P-1 by S&P or Moody's,
respectively, or that have an equivalent rating from an NRSRO or (except for OTC
currency options) are determined to be of equivalent credit quality by the
Adviser.
The Fund's dealings in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps will be
limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is entering into a currency transaction with
respect to specific assets of liabilities of the Fund, which will generally
arise in connection with the purchase or sale of its portfolio securities or the
receipt of income therefrom. Position hedging is entering into a currency
transaction with respect to portfolio security positions denominated or
generally quoted in that currency.
The Fund will not enter into a transaction to hedge currency exposure to an
extent greater, after netting all transactions intended to wholly or partially
offset other transactions, than the aggregate market value (at the time of
entering into the transaction) of the securities held in its portfolio that are
denominated or generally quoted in or currently convertible into such currency
other than with respect to cross hedging and proxy hedging as described below.
B-8
<PAGE> 286
The Fund may cross-hedge currencies by entering into transactions to purchase
or sell one or more currencies that are expected to decline in value relative to
other currencies to which the Fund has or in which the Fund expects to have
portfolio exposure.
To reduce the effect of currency fluctuations on the value of existing or
anticipated holdings of portfolio securities, the Fund may also engage in proxy
hedging. Proxy hedging is often used when the currency to which the Fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering into a forward contract to sell a currency whose
changes in value are generally considered to be linked to a currency or
currencies in which some or all of the Fund's portfolio securities are or are
expected to be denominated, and to buy U.S. dollars. For example, if the Adviser
considers the Austrian schilling is linked to the German deutschemark (the
"D-mark"), the Fund holds securities denominated in schillings and the Adviser
believes that the value of schillings will decline against the U.S. dollar, the
Adviser may enter into a contract to see D-marks and buy dollars. Currency
hedging involves some of the same risks and considerations as other transactions
with similar instruments. Currency transactions can result in losses to the Fund
if the currency being hedged fluctuates in value to a degree or in a direction
that is not anticipated. Further, there is the risk that the perceived linkage
between various currencies may not be present or may not be present during the
particular time that the Fund is engaging in proxy hedging. If the Fund enters
into a currency hedging transaction, the Fund will comply with the asset
segregation requirements described below.
RISK OF CURRENCY TRANSACTIONS. Currency transactions are subject to risks
different from those of other portfolio transactions. Because currency controls
is of great importance to the issuing governments and influences economic
planning and policy, purchases and sales of currency and related instruments can
be negatively affected by government exchange controls, blockages, and
manipulations or exchange restrictions imposed by governments. These can result
in losses to the Fund if it is unable to deliver or receive currency or funds in
settlement of obligations and could also cause hedges it has entered into to be
rendered useless, resulting in full currency exposure as well as incurring
transaction costs. Buyers and sellers of currency futures are subject to the
same risks that apply to the use of futures generally. Further, settlement of a
currency futures contract for the purchase of most currencies must occur at a
bank based in the issuing nation. Trading options on currency futures is
relatively new, and the ability to establish and close out positions on such
options is subject to the maintenance of a liquid market which may not always be
available. Currency exchange rates may fluctuate based on factors extrinsic to
that country's economy.
COMBINED TRANSACTIONS. The Fund may enter into multiple transactions,
including multiple options transactions, multiple futures transactions, multiple
currency transactions and multiple interest rate transactions and any
combination of futures, options, currency and interest rate transactions
("component" transactions), instead of a single Strategic Transaction, as part
of a single or combined strategy when, in the opinion of the Adviser, it is in
the best interests of the Fund to do so. A combined transaction will usually
contain elements of risk that are present in each of its component transactions.
Although combined transactions are normally entered into based on the Adviser's
judgment that the combined strategies will reduce risk or otherwise more
effectively achieve the desired portfolio management goal, it is possible that
the combination will instead increase such risks or hinder achievement of the
portfolio management objective.
RISKS OF STRATEGIC TRANSACTIONS OUTSIDE THE UNITED STATES. When conducted
outside the United States, Strategic Transactions may not be regulated as
rigorously as in the United States, may not involve a clearing mechanism and
related guarantee, and are subject to the risk of governmental actions affecting
trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the United States of data on which to make trading
decisions, (iii) delays in the Fund's ability to act upon economic events
occurring in foreign markets during non-business hours in the United States,
(iv) the imposition of different exercise and settlement terms and procedures
and margin requirements than in the United States, and (v) lower trading volume
and liquidity.
USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS. Many Strategic Transactions, in
addition to other requirements, require that the Fund segregate liquid
high-grade assets with its custodian to the extent Fund obligations are not
otherwise "covered" through ownership of the underlying security, financial
instrument or currency. In general, either the full amount of any obligation by
the Fund to pay or deliver securities or assets
B-9
<PAGE> 287
must be covered at all times by the securities, instruments or currency required
to be delivered, or, subject to any regulatory restrictions, an amount of cash
or liquid high-grade securities at least equal to the current amount of the
obligation must be segregated with the custodian. The segregated assets cannot
be sold or transferred unless equivalent assets are substituted in their place
or it is no longer necessary to segregate them. For example, a call option
written by the Fund will require the Fund to hold the securities subject to the
call (or securities convertible into the needed securities without additional
consideration) or to segregate liquid high-grade securities sufficient to
purchase and deliver the securities if the call is exercised. A call option sold
by the Fund on an index will require the Fund to own portfolio securities which
correlate with the index or to segregate liquid high-grade assets equal to the
excess of the index value over the exercise price on a current basis. A put
option written by the Fund requires the Fund to segregate liquid, high-grade
assets equal to the exercise price.
Except when the Fund enters into a forward contract for the purchase or sale
of a security denominated in a particular currency, which requires no
segregation, a currency contract which obligates the Fund to buy or sell
currency will generally require the Fund to hold an amount of that currency or
liquid securities denominated in that currency equal to the Fund's obligations
or to segregate liquid high grade assets equal to the amount of the Fund's
obligation.
OTC options entered into by the Fund, including those on securities,
currencies, financial instruments or indices and OCC issued and exchange listed
index options, will generally provide for cash settlement. As a result, when the
Fund sells these instruments it will only segregate an amount of assets equal to
its accrued net obligations, as there is no requirement for payment or delivery
of amounts in excess of the net amount. These amounts will equal 100% of the
exercise price in the case of a non cash-settled put, the same as an OCC
guaranteed listed option sold by the Fund, or the in-the-money amount plus any
sell-back formula amount in the case of a cash-settled put or call. In addition,
when the Fund sells a call option on an index at a time when the in-the-money
amount exceeds the exercise price, the Fund will segregate, until the option
expires or is closed out, cash or cash equivalents equal in value to such
excess. OCC issued and exchange listed options sold by the Fund other than those
above generally settle with physical delivery, and the Fund will segregate an
amount of assets equal to the full value of the option. OTC options settling
with physical delivery, or with an election of either physical delivery or cash
settlement, will be treated the same as other options settling with physical
delivery.
In the case of a futures contract or an option thereon, the Fund must deposit
initial margin and possible daily variation margin in addition to segregating
assets sufficient to meet its obligation to purchase or provide securities or
currencies, or to pay the amount owed at the expiration of an index- based
futures contract. Such assets may consist of cash, cash equivalents, liquid debt
or equity securities or other acceptable assets. To the extent such assets are
other than cash or cash equivalents, such assets will be marked to market on a
daily basis. To the extent that the Fund segregates assets other than cash or
cash equivalents in connection with the purchase or sale of a futures contract
or the sale of an option thereon, the Fund will be subject to market risks with
respect to the open futures or option position as well as with respect to the
portfolio securities segregated against such position. To the extent that the
market value of such position and of such portfolio securities have a high
degree of positive correlation, market fluctuations may adversely affect both
the value of such position and the value of such portfolio securities, which has
the effect of leveraging the Fund's portfolio assets and increasing the Fund's
investment risk.
Strategic Transactions may be covered by other means when consistent with
applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Strategic
Transactions. For example, the Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund. Moreover, instead of segregating assets if the Fund held a
futures or forward contract, it could purchase a put option on the same futures
or forward contract with a strike price as high or higher than the price of the
contract held. Other Strategic Transactions may also be offset in combinations.
If the offsetting transaction terminates at the time of or after the primary
transaction no segregation is required, but if it terminates prior to such time,
assets equal to any remaining obligation would need to be segregated.
B-10
<PAGE> 288
The Fund's activities involving Strategic Transactions may be limited by the
requirements of Subchapter M of the Code for qualification as a regulated
investment company. See "Tax Status" in the Prospectus.
DESCRIPTION OF SECURITIES RATINGS
STANDARD & POOR'S RATINGS GROUP--A brief description of the applicable
Standard & Poor's Ratings Group (S&P) rating symbols and their meanings (as
published by Standard & Poor's Ratings Group) follows:
1. DEBT
A Standard & Poor's corporate or municipal debt rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. This assessment may take into consideration obligors such as
guarantors, insurers, or lessees.
The debt rating is not a recommendation to purchase, sell, or hold a
security, inasmuch as it does not comment as to market price or suitability
for a particular investor.
The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources it considers reliable. S&P does not perform
an audit in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended, or withdrawn as
a result of changes in, or unavailability of, such information, or based on
other circumstances.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of default--capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with
the terms of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the laws
of bankruptcy and other laws affecting creditor's rights.
INVESTMENT GRADE
AAA: Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A: Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in the higher rated categories.
BBB: Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
SPECULATIVE GRADE
BB, B, CCC, CC, C: Debt rated "BB", "B", "CCC", "CC", and "C" is regarded as
having predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. "BB" indicates the least degree of speculation and
"C" the highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major exposures
to adverse conditions.
BB: Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
B-11
<PAGE> 289
B: Debt rated "B" has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The "B" rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied "BB" or "BB-"
rating.
CCC: Debt rated "CCC" has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The "CCC" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "B" or "B-" rating.
CC: The rating "CC" typically is applied to debt subordinated to senior debt
that is assigned an actual or implied "CCC" rating.
C: The rating "C" typically is applied to debt subordinated to senior debt
which is assigned an actual or implied "CCC-" debt rating. The "C" rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI: The rating "CI" is reserved for income bonds on which no interest is being
paid.
D: Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The "D" rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
C: The letter "c" indicates that the holder's option to tender the security
for purchase may be canceled under certain prestated conditions enumerated in
the tender option documents.
I: The letter "i" indicates the rating is implied. Such ratings are assigned
only on request to entities that do not have specific debt issues to be rated.
In addition, implied ratings are assigned to governments that have not requested
explicit ratings for specific debt issues. Implied ratings on governments
represent the sovereign ceiling or upper limit for ratings on specific debt
issues of entities domiciled in the country.
L: The letter "L" indicates that the rating pertains to the principal amount
of those bonds to the extent that the underlying deposit collateral is federally
insured and interest is adequately collateralized. In the case of certificates
of deposit, the letter "L" indicates that the deposit, combined with other
deposits being held in the same right and capacity, will be honored for
principal and accrued pre-default interest up to the federal insurance limits
within 30 days after closing of the insured institution or, in the event that
the deposit is assumed by a successor insured institution, upon maturity.
p: The letter "p" indicates that the rating is provisional. A provisional
rating assumes the successful completion of the project being financed by the
debt being rated and indicates that payment of debt service requirements is
largely or entirely dependent upon the successful and timely completion of the
project. This rating, however, while addressing credit quality subsequent to
completion of the project, makes no comment on the likelihood of, or the risk of
default upon failure of, such completion. The investor should exercise his own
judgement with respect to such likelihood and risk. The rating is contingent
upon S&P's receipt of an executed copy of the escrow agreement or closing
documents.
NR: Not rated.
DEBT OBLIGATIONS OF ISSUERS OUTSIDE THE UNITED STATES AND ITS TERRITORIES are
rated on the same basis as domestic corporate and municipal issues. The ratings
measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.
BOND INVESTMENT QUALITY STANDARDS: Under present commercial bank regulations
issued by the Comptroller of the Currency, bonds rated in the top four
categories ("AAA", "AA", "A", "BBB", commonly known as "investment grade"
ratings) are generally regarded as eligible for bank investment. In addition,
the laws of
B-12
<PAGE> 290
various states governing legal investments impose certain rating or other
standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.
2. COMMERCIAL PAPER
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt considered short-term in the relevant
market.
Ratings are graded into several categories, ranging from "A-1" for the highest
quality obligations to "D" for the lowest. These categories are as follows:
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+)
designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as
overwhelming as for issues designated "A-1".
A-3 Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher
designations.
B Issues rated "B" are regarded as having only speculative capacity for
timely payment.
C This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date
due, even if the applicable grace period has not expired, unless S&P
believes that such payments will be made during such grace period.
A commercial paper rating is not a recommendation to purchase, sells or hold
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained by S&P from other sources it considers reliable.
S&P does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended or withdrawn as a result of changes in, or unavailability of, such
information, or based on other circumstances.
3. VARIABLE RATE DEMAND BONDS
Standard & Poor's assigns "dual" ratings to all debt issues that have a put or
demand feature as part of their structure.
The first rating addresses the likelihood of repayment of principal and
interest as due, and the second rating addresses only the demand feature. The
long-term debt rating symbols are used for bonds to denote the long-term
maturity and the commercial paper rating symbols for the put option (for
example, "AAA/A-1+"). With short-term demand debt, S&P's note rating symbols are
used with the commercial paper rating symbols (for example, "SP-1+/A-1+").
4. NOTES
An S&P note rating reflects the liquidity factors and market access risks
unique to notes. Notes maturing in three years or less will likely receive a
note rating. Notes maturing beyond three years will most likely receive a
long-term debt rating. The following criteria will be used in making that
assignment:
-- Amortization schedule (the longer the final maturity relative to other
maturities, the more likely the issue is to be treated as a note).
-- Source of payment (the more the issue depends on the market for its
refinancing, the more likely it is to be treated as a note).
B-13
<PAGE> 291
Note rating symbols and definitions are as follows:
SP-1 Strong capacity to pay principal and interest. Issues determined
to possess very strong characteristics will be given a plus (+)
designation.
SP-2 Satisfactory capacity to pay principal and interest with some
vulnerability to adverse financial and economic changes over the
term of the notes.
SP-3 Speculative capacity to pay principal and interest.
5. PREFERRED STOCK
A Standard & Poor's preferred stock rating is an assessment of the capacity
and willingness of an issuer to pay preferred stock dividends and any applicable
sinking fund obligations. A preferred stock rating differs from a bond rating
inasmuch as it is assigned to an equity issue, which issue is intrinsically
different from, and subordinated to, a debt issue. Therefore, to reflect this
difference, the preferred stock rating symbol will normally not be higher than
the debt rating symbol assigned to, or that would be assigned to, the senior
debt of the same issuer.
The preferred stock ratings are based on the following considerations:
1. Likelihood of payment--capacity and willingness of the issuer to meet the
timely payment of preferred stock dividends and any applicable sinking fund
requirements in accordance with the terms of the obligation.
2. Nature of, and provisions of, the issue.
3. Relative position of the issue in the event of bankruptcy, reorganization,
or other arrangements affecting creditors' rights.
<TABLE>
<S> <C>
AAA This is the highest rating that may be assigned by Standard & Poor's to a preferred
stock issue and indicates an extremely strong capacity to pay the preferred stock
obligations.
AA A preferred stock issue rated "AA" also qualifies as a high-quality fixed income
security. The capacity to pay preferred stock obligations is very strong, although
not as overwhelming as for issues rated "AAA".
A An issue rated "A" is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
BBB An issue rated "BBB" is regarded as backed by an adequate capacity to pay the
preferred stock obligations. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity to make payments for a preferred stock in this
category than for issues in the "A" category.
BB Preferred stock rated "BB", "B", and "CCC" are regarded, on balance, as
B predominantly speculative with respect to the issuer's capacity to pay preferred
CCC stock obligations. "BB" indicates the lowest degree of speculation and "CCC" the
highest degree of speculation. While such issues will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
CC The rating "CC" is reserved for a preferred stock issue in arrears on dividends or
sinking fund payments but that is currently paying.
C A preferred stock rated "C" is a non-paying issue.
D A preferred stock rated "D" is a non-paying issue with the issuer in default on
debt instruments.
NR This indicates that no rating has been requested, that there is insufficient
information on which to base a rating or that Standard & Poor's does not rate a
particular type of obligation as a matter of policy.
PLUS (+) or MINUS (-): To provide more detailed indications of preferred stock
quality, the rating from "AA" to "CCC" may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
</TABLE>
B-14
<PAGE> 292
A preferred stock rating is not a recommendation to purchase, sell, or hold a
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the Issuer or obtained by S&P from other sources it considers reliable.
S&P does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended, or withdrawn as a result of changes in, or unavailability of, such
information, or based on other circumstances.
MOODY'S INVESTORS SERVICE -- A brief description of the applicable Moody's
Investors Service rating symbols and their meanings (as published by Moody's
Investor Service) follows:
1. LONG-TERM DEBT
AAA: Bonds which are rated AAA are judged to be of 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 position of such issues.
AA: Bonds which are rated AA are judged to be of high quality by all
standards. Together with the 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 fluctuation 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 AAA securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
BAA: Bonds which are rated BAA are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payment and
principal security appear adequate for the present but certain protective
elements may by lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA: Bonds which are rated BA are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA: Bonds which are rated CAA are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
CA: Bonds which are rated CA represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from AA through B in its corporate bond rating system. 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.
ABSENCE OF RATING: Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue.
B-15
<PAGE> 293
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published
in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
2. SHORT-TERM DEBT
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations which have an original maturity not
exceeding one year. Obligations relying upon support mechanisms such as
letters-of-credit and bonds of indemnity are excluded unless explicitly rated.
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:
Issuers rated Prime-1 (or supporting institutions) have a superior ability for
repayment of senior short-term debt obligations. Prime-1 repayment ability will
often be evidenced by many of the following characteristics:
-- Leading market positions in well-established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
-- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability for
repayment of senior short-term debt obligations. This will normally be evidenced
by many of the characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or supporting institutions) have an acceptable ability
for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternative liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
3. PREFERRED STOCK
Preferred stock rating symbols and their definitions are as follows:
aaa: An issue which is rated 'aaa' is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least
risk of dividend impairment within the universe of preferred stocks.
aa: An issue which is rated 'aa' is considered a high-grade preferred stock.
This rating indicates that there is a reasonable assurance the earnings and
asset protection will remain relatively well maintained in the foreseeable
future.
a: An issue which is rated 'a' is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the
'aaa' and 'aa' classifications, earnings and asset protections are,
nevertheless, expected to be maintained at adequate levels.
baa: An issue which is rated 'baa' is considered to be a medium grade
preferred stock, neither highly protected nor poorly secured. Earnings and
asset protection appear adequate at present but may be questionable over any
great length of time.
B-16
<PAGE> 294
ba: An issue which is rated 'ba' is considered to have speculative elements
and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse
periods. Uncertainty of position characterizes preferred stocks in this class.
b: An issue which is rated 'b' generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
caa: An issue which is rated 'caa' is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future
status of payments.
ca: An issue which is rated 'ca' is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of eventual
payment.
C: This is the lowest rated class of preferred or preference stock. Issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Moody's applies numerical modifiers 1, 2 and 3 in each rating classification
from "AA" through "BB" in its preferred stock rating system: 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.
B-17
<PAGE> 295
OFFICERS AND TRUSTEES
The tables below list the trustees and officers of the Trust (of which the
Fund is a separate series) and their principal occupations for the last five
years and their affiliations, if any, with Van Kampen American Capital
Investment Advisory Corp. (the "VK Adviser" or "Adviser"), Van Kampen American
Capital Asset Management, Inc., (the "AC Adviser"), Van Kampen American Capital
Management, Inc., McCarthy, Crisanti & Maffei, Inc., MCM Asia Pacific Company,
Limited, Van Kampen American Capital Distributors, Inc. (the "Distributor"), Van
Kampen American Capital, Inc. ("Van Kampen American Capital") or VK/AC Holding,
Inc. For purposes hereof, the term "Van Kampen American Capital Funds" includes
each of the open-end investment companies advised by the VK Adviser (excluding
the Van Kampen Merritt Series Trust) and each of the open-end investment
companies advised by the AC Adviser.
TRUSTEES
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- ----------------------------------- ---------------------------------------------------------
<S> <C>
J. Miles Branagan.................. Co-founder, Chairman, Chief Executive Officer and
2300 205th Street President of MDT Corporation, a company which develops
Torrance, CA 90501 manufactures, markets and services medical and scientific
Age: 63 equipment. Trustee of each of the Van Kampen American
Capital Funds.
Philip P. Gaughan.................. Prior to February, 1989, Managing Director and Manager of
9615 Torresdale Avenue Municipal Bond Department, W. H. Newbold's Sons & Co.
Philadelphia, PA 19114 Trustee of each of the Van Kampen American Capital Funds.
Age: 66
Linda Hutton Heagy................. Managing Partner, Paul Ray Berndston, an executive
10 South Riverside Plaza recruiting and management consulting firm. Formerly,
Suite 720 Executive Vice President of ABN AMRO, N.A., a Dutch bank
Chicago, IL 60606 holding company. Prior to 1992, Executive Vice President
Age: 46 of La Salle National Bank. A Trustee of each of the Van
Kampen American Capital Funds.
Roger Hilsman...................... Professor of Government and International Affairs
251-1 Hamburg Cove Emeritus, Columbia University. Trustee of each of the Van
Lyme, CT 06371 Kampen American Capital Funds.
Age: 75
R. Craig Kennedy................... President and Director, German Marshall Fund of the
1341 E. 50th Street United States. Formerly, advisor to the Dennis Trading
Chicago, IL 60615 Group Inc. Prior to 1992, President and Chief Executive
Age: 43 Officer, Director and member of the Investment Committee
of the Joyce Foundation, a private foundation. Trustee of
each of the Van Kampen American Capital Funds.
Dennis J. McDonnell*............... President, Chief Operating Officer and a Director of the
One Parkview Plaza VK Adviser, the AC Adviser and Van Kampen American
Oakbrook Terrace, IL 60181 Capital Management, Inc. Director of VK/AC Holding, Inc,
Age: 53 Van Kampen American Capital, and McCarthy, Crisanti &
Maffei, Inc. Chairman and a Director of MCM Asia Pacific
Company, Ltd. President, Chief Executive Officer and
Trustee of each of the funds advised by the VK Adviser.
Prior to December, 1991, Senior Vice President of Van
Kampen Merritt Inc.
</TABLE>
B-18
<PAGE> 296
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- ----------------------------------- ---------------------------------------------------------
<S> <C>
Donald C. Miller................... Prior to 1992, Director of Royal Group, Inc., a company
415 North Adams in insurance related businesses. Formerly Vice Chairman
Hinsdale, IL 60521 and Director of Continental Illinois National Bank and
Age: 75 Trust Company of Chicago and Continental Illinois
Corporation. Trustee of each of the Van Kampen American
Capital Funds and Chairman of the Board of each of the
open-end funds (except the Van Kampen Merritt Series
Trust) advised by the VK Adviser.
Jack E. Nelson..................... President of Nelson Investment Planning Services, Inc., a
423 Country Club Drive financial planning company and registered investment
Winter Park, FL 32789 adviser. President of Nelson Investment Brokerage
Age: 59 Services Inc., a member of the National Association of
Securities Dealers, Inc. (NASD) and Securities Investors
Protection Corp. (SIPC). Trustee of each of the Van
Kampen American Capital Funds.
Don G. Powell*..................... President, Chief Executive Officer and a Director of
2800 Post Oak Blvd. VK/AC Holding, Inc. and Van Kampen American Capital.
Houston, TX 77056 Chairman, Chief Executive Officer and a Director of the
Age: 55 Distributor, the VK Adviser, the AC Adviser and Van
Kampen American Capital Management, Inc. Director,
President and Chief Executive Officer of Van Kampen
American Capital Advisers, Inc. and Van Kampen American
Capital Exchange Corp. Director and Executive Vice
President of Advantage Capital Corporation, ACCESS
Investor Services, Inc., Van Kampen American Capital
Services, Inc. and Van Kampen American Capital Trust
Company. Director of McCarthy, Crisanti & Maffei, Inc.
President and Director, Trustee or Managing General
Partner of each of the funds advised by the AC Adviser
and Trustee of each of the funds advised by the VK
Adviser. He is also Chairman of the Board of the Van
Kampen Merritt Series Trust and closed-end investment
companies advised by the VK Adviser.
David Rees......................... Contributing Columnist and, prior to 1995, Senior Editor
1601 Country Club Drive of Los Angeles Business Journal. A director of Source
Glendale, CA 91208 Capital, Inc., a closed-end investment company
Age: 71 unaffiliated with Van Kampen American Capital, a director
and the second vice president of International Institute
of Los Angeles. Trustee of each of the Van Kampen
American Capital Funds.
Jerome L. Robinson................. President of Robinson Technical Products Corporation, a
115 River Road manufacturer and processor of welding alloys, supplies
Edgewater, NJ 07020 and equipment. Director of Pacesetter Software, a
Age: 72 software programming company specializing in white collar
productivity. Director of Panasia Bank. Trustee of each
of the Van Kampen American Capital Funds.
Lawrence J. Sheehan*............... Of Counsel to and formerly Partner (from 1969 to 1994) of
1999 Avenue of the Stars the law firm of O'Melveny & Myers, legal counsel to the
Suite 700 funds advised by the AC Adviser. Director, FPA Capital
Los Angeles, CA 90067 Fund, Inc.; FPA New Income Fund, Inc.; FPA Perennial
Age: 63 Fund, Inc.; Source Capital, Inc.; and TCW Convertible
Security Fund, Inc. Trustee of each of the Van Kampen
American Capital Funds.
</TABLE>
B-19
<PAGE> 297
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- ----------------------------------- ---------------------------------------------------------
<S> <C>
Fernando Sisto..................... George M. Bond Chaired Professor and, prior to 1995, Dean
Stevens Institute of Graduate School and Chairman, Department of Mechanical
of Technology Engineering, Stevens Institute of Technology. Director of
Castle Point Station Dynalysis of Princeton, a firm engaged in engineering
Hoboken, NJ 07030 research. Trustee of each of the Van Kampen American
Age: 70 Capital Funds and Chairman of the Board of each of the
open-end funds advised by the AC Adviser.
Wayne W. Whalen*................... Partner in the law firm of Skadden, Arps, Slate, Meagher
333 West Wacker Drive & Flom, legal counsel to funds advised by the VK Adviser.
Chicago, IL 60606 Trustee of each of the Van Kampen American Capital Funds.
Age: 55 He also is a Trustee of the Van Kampen Merritt Series
Trust and closed-end investment companies advised by the
VK Adviser.
William S. Woodside................ Vice Chairman of the Board of LSG Sky Chefs, Inc., a
712 Fifth Avenue caterer of airline food. Formerly, Director of Primerica
40th Floor Corporation (currently known as The Traveler's Inc.).
New York, NY 10019 Formerly, Director of James River Corporation, a producer
Age: 73 of paper products. Trustee, and former President of
Whitney Museum of American Art. Formerly, Chairman of
Institute for Educational Leadership, Inc., Board of
Visitors, Graduate School of The City University of New
York, Academy of Political Science. Trustee of Committee
for Economic Development. Director of Public Education
Fund Network, Fund for New York City Public Education.
Trustee of Barnard College. Member of Dean's Council,
Harvard School of Public Health. Member of Mental Health
Task Force, Carter Center. Trustee of each of the Van
Kampen American Capital Funds.
</TABLE>
OFFICERS
<TABLE>
<CAPTION>
POSITIONS AND OTHER PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND IN PAST 5 YEARS
- --------------------- -------------------------- ---------------------------------------------
<S> <C> <C>
Peter W. Hegel....... Vice President Executive Vice President and Portfolio
Age: 39 Manager of the Adviser. Executive Vice
President of the AC Adviser. Vice President
of each of the Van Kampen American Capital
Funds and closed-end funds advised by the VK
Adviser.
Ronald A. Nyberg..... Vice President and Executive Vice President, General Counsel and
Age: 42 Secretary Secretary of Van Kampen American Capital.
Executive Vice President and a Director of
the VK Adviser and the Distributor. Executive
Vice President of the AC Adviser. Vice
President and Secretary of each of the Van
Kampen American Capital Funds and closed-end
funds advised by the VK Adviser. Director of
ICI Mutual Insurance Co., a provider of
insurance to members of the Investment
Company Institute. Prior to March 1990,
Secretary of Van Kampen Merritt Inc., the VK
Adviser and McCarthy, Crisanti & Maffei, Inc.
Edward C. Wood III... Vice President, Treasurer Senior Vice President of the VK Adviser. Vice
Age: 39 and Chief Financial President, Treasurer and Chief Financial
Officer Officer of each of the Van Kampen American
Capital Funds and closed-end funds advised by
the VK Adviser.
</TABLE>
B-20
<PAGE> 298
<TABLE>
<CAPTION>
POSITIONS AND OTHER PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND IN PAST 5 YEARS
- --------------------- -------------------------- ---------------------------------------------
<S> <C> <C>
Nicholas Dalmaso..... Assistant Secretary Assistant Vice President and Attorney of Van
Age: 30 Kampen American Capital. Assistant Secretary
of each of the Van Kampen American Capital
Funds and closed-end funds advised by the VK
Adviser. Prior to May 1992, attorney for
Cantwell & Cantwell, a Chicago law firm.
Scott E. Martin...... Assistant Secretary Senior Vice President, Deputy General Counsel
Age: 38 and Assistant Secretary of Van Kampen
American Capital. Senior Vice President,
Deputy General Counsel and Secretary of the
VK Adviser and the Distributor. Assistant
Secretary of each of the Van Kampen American
Capital Funds and closed-end funds advised by
the VK Adviser.
Weston B. Wetherell... Assistant Secretary Vice President, Associate General Counsel and
Age: 39 Assistant Secretary of Van Kampen American
Capital, the VK Adviser and the Distributor.
Assistant Secretary of McCarthy, Crisanti &
Maffei, Inc. Assistant Secretary of each of
the Van Kampen American Capital Funds and
closed-end funds advised by the VK Adviser.
John L. Sullivan..... Controller First Vice President of the VK Adviser.
Age: 39 Controller of each of the Van Kampen American
Capital Funds and closed-end funds advised by
the VK Adviser.
Steven M. Hill....... Assistant Treasurer Assistant Vice President of the VK Adviser.
Age: 30 Assistant Treasurer of each of the Van Kampen
American Capital Funds and closed-end funds
advised by the VK Adviser.
</TABLE>
- ---------------
* Such Trustees are "interested persons" (within the meaning of Section 2(a)(19)
of the 1940 Act). Messrs. Powell and McDonnell are interested persons of the
VK Adviser and the Fund by reason of their positions with the VK Adviser. Mr.
Sheehan is an interested person of the VK Adviser and the Fund by reason of
his firm having acted as legal counsel to the VK Adviser. Mr. Whalen is an
interested person of the Fund by reason of his firm acting as legal counsel
for the Fund.
Messrs. Powell and McDonnell own, or have the opportunity to purchase, an
equity interest in VK/AC Holding, Inc., the parent company of Van Kampen
American Capital, and have entered into employment contracts (for a term of five
years) with Van Kampen American Capital.
The Fund will pay each trustee who is not an affiliated person of the VK
Adviser, the Distributor or Van Kampen American Capital an annual retainer of
$2,500 per year and $250 per meeting of the Fund, plus expenses; except that no
trustee shall receive the annual retainer at any time when the Fund's net assets
are less than $25,000,000. Under the Fund's deferred compensation plan, a
trustee can elect to defer all or a portion of the trustee's fees earned by such
trustee until such trustee's retirement. The deferred compensation earns a rate
of return determined by reference to the Fund or other Van Kampen American
Capital mutual funds advised by the VK Adviser or its affiliates as selected by
the trustee. To the extent permitted by the 1940 Act, the Fund may invest in
securities of such mutual funds selected by the 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 Fund's retirement plan, a trustee who is
receiving trustee's fees from the Fund prior to such trustee's retirement, has
at least ten years of service 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 trustee's retirement. Under certain conditions,
reduced benefits are available for early retirement. Each series of the Trust
has similar trustee compensation, deferred compensation and retirement plan
arrangements.
B-21
<PAGE> 299
COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT TOTAL COMPENSATION
AGGREGATE BENEFITS ACCRUED ESTIMATED ANNUAL FROM REGISTRANT AND
COMPENSATION AS PART OF FUND BENEFITS UPON FUND COMPLEX PAID
NAME FROM REGISTRANT(2) EXPENSES(3) RETIREMENT(4) TO TRUSTEE(5)
- ----------------------------- ------------------ ---------------- ---------------- ---------------------
<S> <C> <C> <C> <C>
R. Craig Kennedy............. $7,620 $0 $2,500 $62,362
Philip G. Gaughan............ 7,192 0 2,500 63,250
Donald C. Miller............. 9,841 0 2,500 62,178
Jack A. Nelson............... 9,875 0 2,500 62,362
Jerome L. Robinson........... 9,231 0 2,500 58,475
Wayne W. Whalen.............. 2,031 0 2,500 49,875
</TABLE>
- ---------------
(1) The Registrant is Van Kampen American Capital Equity Trust (the "Trust")
which currently consists of six operating series, including the Fund. As
indicated in the other explanatory notes, the amounts in the table relate
to the applicable trustees during the Registrant's last fiscal year ended
June 30, 1995 or the Fund Complex' (as defined herein) last calendar year
ended December 31, 1994. Messrs. Powell and McDonnell, Trustees of the
Registrant, are affiliated persons of the Adviser and are not eligible for
compensation or retirement benefits from the Registrant. Messrs. Branagan,
Hilsman, Rees, Sheehan, Sisto and Woodside were elected as trustees of the
Trust at a shareholders meeting held on July 21, 1995 and Ms. Heagy was
appointed a trustee on September 7, 1995, and thus received no
compensation or retirement benefits from the Registrant during its fiscal
year ended June 30, 1995.
(2) The amounts shown in this column are accumulated from the Aggregate
Compensation of each of the series in operation during the Registrant's
fiscal year ended June 30, 1995. In a full fiscal year with all six series
operating throughout the year and all having net assets exceeding
$25,000,000, the estimated aggregate compensation from the Registrant
would be approximately $20,000. Beginning in October 1994, each Trustee
except Messrs. Gaughan and Whalen, began deferring his entire aggregate
compensation paid by the Registrant. The total combined amount of deferred
compensation (including interest) accrued with respect to each Trustee
from the Fund Complex (as defined herein) as of December 31, 1994 is as
follows: Mr. Kennedy, $14,737; Mr. Miller, $14,553; Mr. Nelson, $14,737
and Mr. Robinson, $13,725.
(3) The amounts shown in this column are the estimated Pension or Retirement
Benefit Accruals by the Fund during its fiscal year ending June 30, 1995.
(4) This is the estimated annual benefits payable per year for the 10-year
period commencing in the year of such Trustee's retirement by the Fund
assuming: the Trustee has 10 or more years of service on the Board of the
Fund and retires at or after attaining the age of 60. Trustees retiring
prior to the age of 60 or with fewer than 10 years of service may receive
reduced retirement benefits from the Fund.
(5) As of December 31, 1994, the Fund Complex consisted of 20 mutual funds
advised by the VK Adviser that had the same members on each funds' Board
of Trustees. The amounts shown in this column were accumulated from the
Aggregate Compensation of each of these 20 mutual funds in the Fund
Complex during the calendar year ended December 31, 1994. The VK Adviser
also served as investment adviser for other investment companies; however,
with the exception of Messrs. Powell, McDonnell and Whalen, the Trustees
were not trustees of such investment companies. Combining the Fund Complex
with other investment companies advised by the Adviser, Mr. Whalen
received Total Compensation of $161,850 during the calendar year ended
December 31, 1994.
As of September 29, 1995, the trustees and officers as a group own less than
1% of the Shares of the Fund.
No officer or trustee of the Fund owns or would be able to acquire 5% or more
of the common stock of VK/AC Holding, Inc.
To the knowledge of the Fund, as of September 29, 1995, no person owned of
record or beneficially 5% or more of any Fund's Class A Shares, Class B Shares
or Class C Shares.
B-22
<PAGE> 300
LEGAL COUNSEL
Counsel to the Fund is Skadden, Arps, Slate, Meagher & Flom, Chicago,
Illinois.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISORY AGREEMENT
Van Kampen American Capital Investment Advisory Corp. (the "Adviser") is the
Fund's investment adviser. The Adviser was incorporated as a Delaware
corporation in 1982 (and through December 31, 1987 transacted business under the
name of American Portfolio Advisory Service Inc.). The Adviser's principal
office is located at One Parkview Plaza, Oakbrook Terrace, Illinois 60181.
The Adviser is a wholly-owned subsidiary of Van Kampen American Capital, Inc.,
which in turn is a wholly-owned subsidiary of VK/AC Holding, Inc. VK/AC Holding,
Inc. is controlled, through the ownership of a substantial majority of its
common stock by The Clayton & Dubilier Private Equity Fund IV Limited
Partnership ("C&D L.P."), a Connecticut limited partnership. C&D L.P. is managed
by Clayton, Dubilier & Rice, Inc., a New York based private investment firm. The
General Partner of C&D L.P. is Clayton & Dubilier Associates IV Limited
Partnership ("C&D Associates L.P."). The general partners of C&D Associates L.P.
are Joseph L. Rice, III, B. Charles Ames, William A. Barbe, Alberto Cribiore,
Donald J. Gogel, Leon J. Hendrix, Jr., Hubbard C. Howe and Andrall E. Pearson,
each of whom is a principal of Clayton, Dubilier & Rice, Inc. In addition,
certain officers, directors and employees of Van Kampen American Capital, Inc.
own, in the aggregate, not more than 7% of the common stock of VK/AC Holding,
Inc. and have the right to acquire, upon exercise of options, approximately an
additional 11% of the common stock of VK/AC Holding, Inc. Presently, and after
giving effect to the exercise of such options, no officer or trustee owns or
would own 5% or more of VK/AC Holding, Inc.
The investment advisory agreement between the Adviser and the Fund provides
that the Adviser will administer the business affairs of the Fund, supervise the
Fund's overall investment activities in the context of implementing the Fund's
investment objectives, furnish offices, necessary facilities and equipment,
provide administrative services, and permit its officers and employees to serve
without compensation as Trustees of the Trust and officers of the Fund if duly
elected to such positions.
The agreement provides that the Adviser shall not be liable for any error of
judgment or of law, or for any loss suffered by the Fund in connection with the
matters to which the agreement relates, except a loss resulting from willful
misfeasance, bad faith, or gross negligence on the part of the Adviser in the
performance of its obligations and duties, or by reason of its reckless
disregard of its obligations and duties under the agreement.
The Adviser's activities are subject to the review and supervision of the
Trustees to whom the Adviser renders periodic reports of the Fund's investment
activities.
The investment advisory agreement remains in effect from year to year if
specifically approved by the Trustees (including the independent Trustees) on
behalf of the Fund or the Fund's shareholders in compliance with the
requirements of the 1940 Act. The agreement may be terminated without penalty
upon 60 days written notice by either party thereto and will automatically
terminate in the event of assignment.
The Adviser has undertaken to reimburse the Fund for annual expenses of the
Fund which exceed the most stringent limit prescribed by any state in which the
Fund's shares are offered for sale. Currently, the most stringent limit in any
state would require such reimbursement to the extent that aggregate operating
expenses of the Fund (excluding interest, taxes and other expenses which may be
excludable under applicable state law) exceed in any fiscal year 2 1/2% of the
average annual net assets of the Fund up to $30 million, 2% of the average
annual net assets of the Fund of the next $70 million, and 1 1/2% of the
remaining average annual net assets of the Fund. In addition to making any
required reimbursements, the Adviser may in its discretion, but is not obligated
to, waive all or any portion of its fee or assume all or any portion of the
expenses of the Fund.
B-23
<PAGE> 301
OTHER AGREEMENTS
FUND ACCOUNTING AGREEMENT. The Fund has also entered into an accounting
services agreement pursuant to which the VK Adviser provides accounting services
supplementary to those provided by the Custodian. Such services are expected to
enable the Fund to more closely monitor and maintain its accounts and records.
The Fund shares together with the other Van Kampen American Capital mutual funds
advised by the VK Adviser and distributed by the Distributor in the cost of
providing such services, with 25% of such costs shared proportionately based on
the number of outstanding classes of securities per fund and with the remaining
75% of such cost being paid by the Fund and such other Van Kampen American
Capital funds based proportionally on their respective net assets.
LEGAL SERVICES AGREEMENT. The Fund and each of the other Van Kampen American
Capital funds advised by the VK Adviser and distributed by the Distributor have
entered into Legal Services Agreement pursuant to which Van Kampen American
Capital provides legal services, including without limitation: accurate
maintenance of the funds' minute books and records, preparation and oversight of
the funds' regulatory reports, and other information provided to shareholders,
as well as responding to day-to-day legal issues on behalf of the funds. It is
expected that Van Kampen American Capital can render such legal services on a
more cost effective basis than other providers of such services. Payment by the
Fund for such services is made on a cost basis for the employment of personnel
as well as the overhead and the equipment necessary to render such services.
Other funds distributed by the Distributor also receive legal services from Van
Kampen American Capital. 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.
CUSTODIAN AND INDEPENDENT AUDITORS
State Street Bank and Trust Company, 225 Franklin Street, P.O. Box 1713,
Boston, MA 02105-1713, is the custodian of the Fund and has custody of all
securities and cash of the Fund. The custodian, among other things, attends to
the collection of principal and income, and payment for and collection of
proceeds of securities bought and sold by the Fund.
The independent auditors for the Fund are KPMG Peat Marwick LLP, Chicago,
Illinois. The selection of independent auditors will be subject to ratification
by the shareholders of the Fund at any annual meeting of shareholders.
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION
The Adviser will place orders for portfolio transactions for the Fund with
broker-dealer firms giving consideration to the quality, quantity and nature of
each firm's professional services. These services include execution, clearance
procedures, wire service quotations and statistical and other research
information provided to the Fund or the Adviser, including quotations necessary
to determine the value of the Fund's net assets. Any research benefits derived
are available for all clients of 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 materially reduce its
expenses. In selecting among the firms believed to meet the criteria for
handling a particular transaction, the Fund's Adviser may take into
consideration that certain firms have sold or are selling shares of the Fund and
that certain firms provide market, statistical or other research information to
the Fund and the Adviser, and may select firms that are affiliated with the
Fund, its Adviser or its Distributor.
If it is believed to be in the best interests of the Fund, the Adviser may
place portfolio transactions with brokers who provide the types of research
service described above, even if it means the Fund will have to pay a higher
commission (or, if the broker's profit is part of the cost of the security, will
have to pay a higher price for the security) than would be the case if no weight
were given to the broker's furnishing of those research services. This will be
done, however, only if, in the opinion of the Fund's Adviser, the amount of
additional commission or increased cost is reasonable in relation to the value
of such services.
B-24
<PAGE> 302
In selecting among the firms believed to meet the criteria for handling a
particular transaction, the Adviser may take into consideration that certain
firms (i) provide market, statistical or other research information such as that
set forth above to the Fund and the Adviser, (ii) have sold or are selling
shares of the Fund and (iii) may select firms that are affiliated with the Fund,
its investment adviser or its distributor and other principal underwriters. If
purchases or sales of securities of the Fund and of one or more other investment
companies or clients supervised by the Fund's Adviser are considered at or about
the same time, transactions in such securities will be allocated among the
several investment companies and clients in a manner deemed equitable to all by
the Adviser, taking into account the respective size of the Fund and other
investment companies and clients and the amount of securities to be purchased or
sold. Although it is possible that in some cases this procedure could have a
detrimental effect on the price or volume of the security as far as the Fund is
concerned, it is also possible that the ability to participate in volume
transactions and to negotiate lower brokerage commissions will be beneficial to
the Fund.
While the Adviser will be primarily responsible for the placement of the
Fund's business, the policies and practices in this regard must be consistent
with the foregoing and will at all times be subject to review by the trustees of
the Trust, of which the Fund is a separate series.
The Trustees have adopted certain policies incorporating the standards of Rule
17e-1 issued by the Securities and Exchange Commission under the 1940 Act which
requires that the commissions paid to the Distributor and other affiliates of
the Fund must be reasonable and fair compared to the commissions, fees or other
remuneration received or to be received by other brokers in connection with
comparable transactions involving similar securities during a comparable period
of time. The rule and procedures also contain review requirements and require
the Adviser to furnish reports to the Trustees and to maintain records in
connection with such reviews. After consideration of all factors deemed
relevant, the Trustees will consider from time to time whether the advisory fee
for the Fund will be reduced by all or a portion of the brokerage commission
given to affiliated brokers.
Portfolio turnover is calculated by dividing the lesser of purchases or sales
of portfolio securities by the monthly average value of the securities in the
portfolio during the year. Securities, including options, whose maturity or
expiration date at the time of acquisition were one year or less are excluded
from such calculation. The Fund anticipates that the annual portfolio turnover
rate of the Fund's portfolio will generally be less than 100%. If the turnover
rate for the Fund does reach or exceed this percentage, the Fund's brokerage
costs may increase and the Adviser will monitor the Fund's trading practices to
avoid potential adverse tax consequences.
TAX STATUS OF THE FUND
The Trust and any of its series, including the Fund, will be treated as
separate corporations for federal income tax purposes. The Fund will be subject
to tax if it fails to distribute net capital gains, or if its annual
distributions, as a percentage of its income, are less than the distributions
required by tax laws.
THE DISTRIBUTOR
The Distributor offers one of the industry's broadest lines of
investments -- encompassing mutual funds, closed-end funds and unit investment
trusts -- and is currently the nation's 5th largest broker-sold mutual fund
group according to Strategic Insight. Van Kampen American Capital's roots in
money management extend back to 1926. Today, Van Kampen American Capital manages
or supervises more than $50 billion in mutual funds, closed-end funds and unit
investment trusts -- assets which have been entrusted to Van Kampen American
Capital in more than 2 million investor accounts. Van Kampen American Capital
has one of the largest research teams (outside of the rating agencies) in the
country, with 86 analysts devoted to various specializations.
Shares of the Fund are offered continuously through the Distributor, One
Parkview Plaza, Oakbrook Terrace, Illinois 60181. The Distributor is a wholly
owned subsidiary of Van Kampen American Capital, Inc., which is a subsidiary of
VK/AC Holding, Inc., a Delaware corporation that is controlled through an
ownership of a substantial majority of its common stock, by The Clayton &
Dubilier Private Equity Fund IV Limited Partnership ("C & D L.P."), a
Connecticut limited partnership. In addition, certain officers, directors and
B-25
<PAGE> 303
employees of Van Kampen American Capital, Inc., and its subsidiaries own, in the
aggregate not more than 7% of the common stock of VK/AC Holding, Inc. and have
the right to acquire, upon the exercise of options, approximately an additional
11% of the common stock of VK/AC Holding, Inc. C & D L.P. is managed by Clayton,
Dubilier & Rice, Inc. Clayton & Dubilier Associates IV Limited Partnership ("C &
D Associates L.P.") is the general partner of C & D L.P. Pursuant to a
distribution agreement with the Fund, the Distributor will purchase shares of
the Fund for resale to the public, either directly or through securities dealers
and brokers, and is obligated to purchase only those shares for which it has
received purchase orders. A discussion of how to purchase and redeem shares of
the Fund and how such shares are priced is contained in the Prospectus.
The Fund has adopted a distribution plan (the "Distribution Plan") with
respect to each class of its shares pursuant to Rule 12b-1 under the 1940 Act.
The Fund also has adopted a service plan (the "Service Plan") with respect to
each class of its shares. The Distribution Plan and the Service Plan sometimes
are referred to herein as the "Plans." The Plans provide that the Fund may spend
a portion of the Fund's average daily net assets attributable to each class of
shares in connection with distribution of the respective class of shares and in
connection with the provision of ongoing services to shareholders of such class,
respectively. The Plans are being implemented through an agreement (the
"Distribution and Service Agreement") with the Distributor of each class of the
Fund's shares, sub-agreements between the Distributor and members of the NASD
who are acting as securities dealers and NASD members or eligible non-members
who are acting as brokers or agents and similar agreements between the Fund and
financial intermediaries who are acting as brokers (collectively, "Selling
Agreements") that may provide for their customers or clients certain services or
assistance, which may include, but not be limited to, processing purchase and
redemption transactions, establishing and maintaining shareholder accounts
regarding the Fund, and such other services as may be agreed to from time to
time and as may be permitted by applicable statute, rule or regulation. Brokers,
dealers and financial intermediaries that have entered into sub-agreements with
the Distributor and sell shares of the Fund are referred to herein as "financial
intermediaries."
The Distributor must submit quarterly reports to the Board of Trustees of the
Trust, of which the Fund is a series, setting forth separately by class of
shares all amounts paid under the Plans and the purposes for which such
expenditures were made, together with such other information as from time to
time is reasonably requested by the Trustees. The Plans provide that they will
continue in full force and effect from year to year so long as such continuance
is specifically approved by a vote of the Trustees, and also by a vote of the
disinterested Trustees, cast in person at a meeting called for the purpose of
voting on the Plans. Each of the Plans may not be amended to increase materially
the amount to be spent for the services described therein with respect to either
class of shares without approval by a vote of a majority of the outstanding
voting shares of such class, and all material amendments to either of the Plans
must be approved by the Trustees and also by the disinterested Trustees. Each of
the Plans may be terminated with respect to either class of shares at any time
by a vote of a majority of the disinterested Trustees or by a vote of a majority
of the outstanding voting shares of such class.
PERFORMANCE INFORMATION
The Fund's yield quotation is determined on a daily basis with respect to the
immediately preceding 30 day period; yield is computed by first dividing the
Fund's net investment income per share of a given class earned during such
period by the Fund's maximum offering price (including, with respect to the
Class A Shares, the maximum offering price) per share of such class on the last
day of such period. The Fund's net investment income per share is determined by
taking the interest attributable to a given class of shares earned by the Fund
during the period, subtracting the expenses attributable to a given class of
shares accrued for the period (net of any reimbursements), and dividing the
result by the average daily number of shares of each class outstanding during
the period that were entitled to receive dividends. The yield calculation
formula assumes net investment income is earned and reinvested at a constant
rate and annualized at the end of a six month period. Yield will be computed
separately for each class of shares. Class B Shares redeemed during the first
six years after their issuance and Class C Shares redeemed during the first year
after their issuance may be subject to a contingent deferred sales charge in a
maximum amount equal to 4.00% and 1.00%, respectively, of the lesser of the then
current net asset value of the shares redeemed or their initial purchase price
from the Fund. Yield
B-26
<PAGE> 304
quotations do not reflect the imposition of a contingent deferred sales charge,
and if any such contingent deferred sales charge imposed at the time of
redemption were reflected, it would reduce the performance quoted.
The Fund calculates average compounded total return by determining the
redemption value (less any applicable contingent deferred sales charge) at the
end of specified periods (after adding back all dividends and other
distributions made during the period) of a $1,000 investment in a given class of
shares of the Fund (less the maximum sales charge, if any) at the beginning of
the period, annualizing the increase or decrease over the specified period with
respect to such initial investment and expressing the result as a percentage.
Average compounded total return will be computed separately for each class of
shares.
Total return figures utilized by the Fund are based on historical performance
and are not intended to indicate future performance. Total return and net asset
value per share of a given class can be expected to fluctuate over time, and
accordingly upon redemption a shareholder's shares may be worth more or less
than their original cost.
The Fund may, in supplemental sales literature, advertise non-standardized
total return figures representing the cumulative, non-annualized total return of
each class of shares of the Fund from a given date to a subsequent given date.
Cumulative non-standardized total return is calculated by measuring the value of
an initial investment in a given class of shares of the Fund at a given time,
deducting the maximum initial sales charge, if any, determining the value of all
subsequent reinvested distributions, and dividing the net change in the value of
the investment as of the end of the period by the amount of the initial
investment and expressing the result as a percentage. Non-standardized total
return will be calculated separately for each class of shares. Non-standardized
total return calculations do not reflect the imposition of a contingent deferred
sales charge, and if any such contingent deferred sales charge with respect to
the CDSC imposed at the time of redemption were reflected, it would reduce the
performance quoted.
B-27
<PAGE> 305
PART C: OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
List all financial statements and exhibits as part of the Registration
Statement.
(A) FINANCIAL STATEMENTS:
Included in Part A of the Registration Statement:
GROWTH FUND, GREAT AMERICAN FUND, PROSPECTOR FUND AND VALUE FUND:
Not applicable
Included in Part B of the Registration Statement:
GROWTH AND INCOME FUND:
Refer to Post-Effective Amendment No. 23 to the Registration
Statement of the Registrant.
UTILITY FUND AND BALANCED FUND:
Refer to Post-Effective Amendment No. 24 to the Registration
Statement of the Registrant.
BALANCED FUND:
Refer to Post-Effective Amendment No. 22 to the Registration
Statement of the Registrant.
GROWTH FUND AND TOTAL RETURN FUND:
Not applicable
VALUE FUND, GREAT AMERICAN COMPANIES FUND, GROWTH FUND AND PROSPECTOR
FUND:
Not applicable
(B) EXHIBITS:
(1)(a) Form of Agreement and Declaration of Trust(23)
(b) Form of Certificate of Designation For:
(i) Van Kampen American Capital Utility Fund(23)
(ii) Van Kampen American Capital Balanced Fund(24)
(iii) Van Kampen American Capital Growth Fund+
(iv) Van Kampen American Capital Value Fund+
(v) Van Kampen American Capital Great American Companies
Fund+
(vi) Van Kampen American Capital Prospector Fund+
(2) Form of By-Laws(23)
(4) Form of Specimen Certificate of share of beneficial interest in
(a) Van Kampen American Capital Utility Fund
(i) Class A Shares(23)
(ii) Class B Shares(23)
(iii) Class C Shares(23)
(b) Van Kampen American Capital Balanced Fund
(i) Class A Shares(18)
(ii) Class B Shares(18)
(iii) Class C Shares(18)
(c) Van Kampen American Capital Value Fund
(i) Class A Shares+
(ii) Class B Shares+
(iii) Class C Shares+
(d) Van Kampen American Capital Great American Companies Fund
(i) Class A Shares+
(ii) Class B Shares+
(iii) Class C Shares+
(e) Van Kampen American Capital Growth Fund
(i) Class A Shares+
(ii) Class B Shares+
(iii) Class C Shares+
C-1
<PAGE> 306
(f) Van Kampen American Capital Prospector Fund
(i) Class A Shares+
(ii) Class B Shares+
(iii) Class C Shares+
(5) Form of Investment Advisory Agreement for
(i) Van Kampen American Capital Utility Fund(23)
(ii) Van Kampen American Capital Balanced Fund(24)
(iii) Van Kampen American Capital Value Fund+
(iv) Van Kampen American Capital Great American Companies
Fund+
(v) Van Kampen American Capital Growth Fund+
(vi) Van Kampen American Capital Prospector Fund+
(6)(a) Form of Distribution and Service Agreement(23)
(b) Form of Dealer Agreement(23)
(c) Form of Broker Agreement(23)
(d) Form of Bank Agreement(23)
(8)(a) Form of Custodian Agreement(13)
(b) Form of Transfer Agency Agreement(23)
(9)(a) Form of Fund Accounting Agreement(23)
(b) Form of Legal Services Agreement(23)
(10) Opinion and Consent of Skadden, Arps, Slate, Meagher & Flom
(i) Van Kampen American Capital Utility Fund(23)
(ii) Van Kampen American Capital Balanced Fund(24)
(iii) Van Kampen American Capital Value Fund+
(iv) Van Kampen American Capital Great American Companies Fund+
(v) Van Kampen American Capital Growth Fund+
(vi) Van Kampen American Capital Prospector Fund+
(11) Consents of KPMG Peat Marwick LLP
(i) Van Kampen American Capital Utility Fund(24)
(ii) Van Kampen American Capital Balanced Fund(24)
(13) Letter of Understanding relating to initial capital(1)
(15)(a) Form of Distribution Plan pursuant to Rule 12b-1(23)
(b) Form of Shareholder Assistance Agreement(23)
(c) Form of Administrative Services Agreement(23)
(d) Form of Service Plan(23)
(17)(a) List of certain investment companies in response to Item
29(a)+
(b) List of Officers and Directors of Van Kampen American Capital
Distributors, Inc. in response to Item 29(b)+
(24) Power of attorney(24)
(27) Financial Data Schedules++
- ---------------
(1) Incorporated herein by reference to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A, File Number 33-8122,
filed October 29, 1986.
(3) Incorporated by reference to Post-Effective Amendment No. 3 to Registrant's
Registration Statement on Form N-1A, File Number 33-8122, filed April 19,
1988.
(13) Incorporated by reference to Post-Effective Amendment No. 13 to
Registrant's Registration Statement on Form N-1A, File Number 33-8122,
filed June 8, 1993.
(18) Incorporated herein by reference to Post-Effective Amendment No. 18 to
Registrant's Registration Statement, File No. 33-8122, filed on March 18,
1994.
(22) Incorporated herein by reference to Post-Effective Amendment No. 22 to
Registrant's Registration Statement, File No. 33-8122, filed on April 28,
1995.
(23) Incorporated herein by reference to Post-Effective Amendment No. 23 to
Registrant's Registration Statement, File No. 33-8122, filed on August 1,
1995.
C-2
<PAGE> 307
(24) Incorporated herein by reference to Post-Effective Amendment No. 24 to
Registrant's Registration Statement, File No. 33-8122, filed on August 29,
1995.
+ Filed herewith.
++ To be filed by amendment.
C-3
<PAGE> 308
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
To the best knowledge of Registrant, no person is controlled by or under
common control with the Registrant.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
As of September 29, 1995:
<TABLE>
<CAPTION>
(1) (2)
NUMBER OF
TITLE OF CLASS RECORD HOLDERS
----------------------------------------------------------------- --------------
<S> <C>
Shares of Beneficial Interest of Van Kampen American Capital
Utility Fund, $0.01 par value*
Class A Shares.............................................. 5,467
Class B Shares.............................................. 7968
Class C Shares.............................................. 300
Shares of Beneficial Interest of Van Kampen American Capital
Balanced Fund, $0.01 par value*
Class A Shares.............................................. 353
Class B Shares.............................................. 443
Class C Shares.............................................. 22
Shares of Beneficial Interest of Van Kampen American Capital
Value Fund, without par value.................................. 0
Shares of Beneficial Interest of Van Kampen American Capital
Great American Companies Fund, without par value............... 0
Shares of Beneficial Interest of Van Kampen American Capital
Value Fund, without par value.................................. 0
Shares of Beneficial Interest of Van Kampen American Capital
Prospector Fund, without par value............................. 0
</TABLE>
- ---------------
* Prior to May 1, 1995, the Fund offered Class D Shares.
ITEM 27. INDEMNIFICATION.
Reference is made to Article 8, Section 8.4 of the Registrant's Agreement
and Declaration of Trust.
Article 8: Section 8.4 of the Agreement and Declaration of Trust provides
that each officer and trustee of the Registrant shall be indemnified by the
Registrant against all liabilities incurred in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or criminal,
in which the officer or trustee may be or may have been involved by reason of
being or having been an officer or trustee, except that such indemnity shall not
protect any such person against a liability to the Registrant or any shareholder
thereof to which such person would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office. Absent a court determination that
an officer or trustee seeking indemnification was not liable on the merits or
guilty of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved 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 willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved 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.
C-4
<PAGE> 309
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 "Act") may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by the trustee, officer, or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such trustee, officer or controlling person in connection with the
shares being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER:
See "Investment Advisory Services" in the Prospectus and "Investment
Advisory and Other Services" and "Officers and Trustees" in the Statement of
Additional Information for information regarding the business of the Adviser.
For information as to the business, profession, vocation or employment of a
substantial nature of each of the officers and Directors of Van Kampen American
Capital Investment Advisory Corp., reference is made to the Adviser's current
Form ADV filed under the Investment Advisers Act of 1940, incorporated herein by
reference.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) The sole principal underwriter is Van Kampen American Capital
Distributors, Inc., which acts as principal underwriter for certain investment
companies and unit investment trusts set forth in Exhibit 17(a) incorporated by
reference herein.
(b) Van Kampen American Capital Distributors, Inc., the only principal
underwriter for Registrant, is an affiliated person of an affiliated person of
the Fund. The name, principal business address and positions and offices with
Van Kampen American Capital Distributors, Inc. of each of the officers thereof
are set forth in Exhibit 17(b). Except as disclosed under the heading, "Officers
and Trustees" in Part B of this Registration Statement, none of such persons has
any position or office with Registrant.
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required by Section 31(a) of the
Investment Company Act of 1940 and the Rules thereunder to be maintained (i) by
the Registrant will be maintained at its offices located at One Parkview Plaza,
Oakbrook Terrace, Illinois 60181, Access 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 One Parkview Plaza,
Oakbrook Terrace, Illinois 60181, and (iii) by Van Kampen American Capital
Distributors, Inc., the principal underwriter, will be maintained at its offices
located at One Parkview Plaza, Oakbrook Terrace, Illinois 60181.
C-5
<PAGE> 310
ITEM 31. MANAGEMENT SERVICES.
Not applicable.
ITEM 32. UNDERTAKINGS.
(a) Registrant hereby undertakes to file an amendment to Registration
Statement, using financial statements for Van Kampen American Capital Growth
Fund, Van Kampen American Capital Great American Companies Fund, Van Kampen
American Capital Prospector Fund and Van Kampen American Capital Value Fund,
which financial statements need not be certified, within four to six months from
the commencement of investment operations of each such Fund.
(b) Not applicable.
C-6
<PAGE> 311
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE
INVESTMENT COMPANY ACT OF 1940, THE REGISTRANT, VAN KAMPEN AMERICAN CAPITAL
EQUITY TRUST, CERTIFIES THAT IT MEETS ALL THE REQUIREMENTS FOR EFFECTIVENESS OF
THIS REGISTRATION STATEMENT PURSUANT TO RULE 485(B) UNDER THE SECURITIES ACT OF
1933, HAS DULY CAUSED THIS AMENDMENT TO THIS REGISTRATION STATEMENT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED IN THE CITY OF
OAKBROOK TERRACE, AND THE STATE OF ILLINOIS ON THE DAY OF OCTOBER, 1995.
VAN KAMPEN AMERICAN CAPITAL
EQUITY TRUST
By: /s/ RONALD A. NYBERG
----------------------------------
Ronald A. Nyberg, Vice President
and Secretary
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THIS REGISTRATION STATEMENT HAS BEEN SIGNED ON OCTOBER , 1995, BY THE
FOLLOWING PERSONS IN THE CAPACITIES INDICATED.
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<C> <S>
/s/ DONALD C. MILLER* Chairman of the Board and Trustee
- ---------------------------------------------
Donald C. Miller
Chief Executive Officer:
/s/ DENNIS J. McDONNELL* President and Trustee
- ---------------------------------------------
Dennis J. McDonnell
Chief Financial and Accounting Officer:
/s/ EDWARD C. WOOD, III* Vice President and Treasurer
- ---------------------------------------------
Edward C. Wood, III
Trustees:
/s/ J. MILES BRANAGAN* Trustee
- ---------------------------------------------
J. Miles Branagan
/s/ PHILIP P. GAUGHAN* Trustee
- ---------------------------------------------
Philip P. Gaughan
Trustee
- ---------------------------------------------
Linda Hutten Heagy
/s/ ROGER HILSMAN* Trustee
- ---------------------------------------------
Roger Hilsman
/s/ R. CRAIG KENNEDY* Trustee
- ---------------------------------------------
R. Craig Kennedy
/s/ JACK E. NELSON* Trustee
- ---------------------------------------------
Jack E. Nelson
/s/ DON G. POWELL* Trustee
- ---------------------------------------------
Don G. Powell
</TABLE>
C-7
<PAGE> 312
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<C> <S>
/s/ DAVID REES* Trustee
- ---------------------------------------------
David Rees
/s/ JEROME L. ROBINSON* Trustee
- ---------------------------------------------
Jerome L. Robinson
/s/ LAWRENCE J. SHEEHAN* Trustee
- ---------------------------------------------
Lawrence J. Sheehan
/s/ FERNANDO SISTO* Trustee
- ---------------------------------------------
Fernando Sisto
/s/ WAYNE W. WHALEN* Trustee
- ---------------------------------------------
Wayne W. Whalen
/s/ WILLIAM S. WOODSIDE* Trustee
- ---------------------------------------------
William S. Woodside
</TABLE>
- ---------------
* Signed by Ronald A. Nyberg pursuant to a power of attorney previously filed.
<TABLE>
<C> <S>
/s/ RONALD A. NYBERG
- ---------------------------------------------
Ronald A. Nyberg
Attorney-in-Fact
</TABLE>
October , 1995
C-8
<PAGE> 313
SCHEDULE OF EXHIBITS TO
POST-EFFECTIVE AMENDMENT 25 TO FORM N-1A
SUBMITTED TO THE SECURITIES AND EXCHANGE
COMMISSION ON OCTOBER , 1995
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT PAGE NUMBER
------- ------- -----------
<S> <C> <C> <C> <C>
(1) (a) Form of Agreement and Declaration of Trust(23)
(b) Form of Certificate of Designation For:
(i) Van Kampen American Capital Utility Fund(23)
(ii) Van Kampen American Capital Balanced Fund(24)
(iii) Van Kampen American Capital Growth Fund+
(iv) Van Kampen American Capital Value Fund+
(v) Van Kampen American Capital Great American Companies Fund+
(vi) Van Kampen American Capital Prospector Fund+
(2) Form of By-Laws(23)
(4) Form of Specimen Certificate of share of beneficial interest in
(a) Van Kampen American Capital Utility Fund
(i) Class A Shares(23)
(ii) Class B Shares(23)
(iii) Class C Shares(23)
(b) Van Kampen American Capital Balanced Fund
(i) Class A Shares(18)
(ii) Class B Shares(18)
(iii) Class C Shares(18)
(c) Van Kampen American Capital Value Fund
(i) Class A Shares+
(ii) Class B Shares+
(iii) Class C Shares+
(d) Van Kampen American Capital Great American Companies Fund
(i) Class A Shares+
(ii) Class B Shares+
(iii) Class C Shares+
(e) Van Kampen American Capital Growth Fund
(i) Class A Shares+
(ii) Class B Shares+
(iii) Class C Shares+
(f) Van Kampen American Capital Prospector Fund
(i) Class A Shares+
(ii) Class B Shares+
(iii) Class C Shares+
(5) Form of Investment Advisory Agreement for
(i) Van Kampen American Capital Utility Fund(23)
(ii) Van Kampen American Capital Balanced Fund(24)
(iii) Van Kampen American Capital Value Fund+
(iv) Van Kampen American Capital Great American Companies Fund+
(v) Van Kampen American Capital Growth Fund+
(vi) Van Kampen American Capital Prospector Fund+
(6) (a) Form of Distribution and Service Agreement(23)
(b) Form of Dealer Agreement(23)
(c) Form of Broker Agreement(23)
(d) Form of Bank Agreement(23)
(8) (a) Form of Custodian Agreement(13)
(b) Form of Transfer Agency Agreement(23)
(9) (a) Form of Fund Accounting Agreement(23)
(b) Form of Legal Services Agreement(23)
</TABLE>
<PAGE> 314
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT PAGE NUMBER
------- ------- -----------
<S> <C> <C> <C> <C>
(10) Opinion and consent of Skadden, Arps, Slate, Meagher & Flom
(i) Van Kampen American Capital Utility Fund(23)
(ii) Van Kampen American Capital Balanced Fund(24)
(iii) Van Kampen American Capital Value Fund+
(iv) Van Kampen American Capital Great American Companies Fund+
(v) Van Kampen American Capital Growth Fund+
(vi) Van Kampen American Capital Prospector Fund+
(11) Consents of KPMG Peat Marwick LLP
(i) Van Kampen American Capital Utility Fund(24)
(ii) Van Kampen American Capital Balanced Fund(24)
(13) Letter of Understanding relating to initial capital(1)
(15) (a) Form of Distribution Plan pursuant to Rule 12b-1(23)
(b) Form of Shareholder Assistance Agreement(23)
(c) Form of Administrative Services Agreement(23)
(d) Form of Service Plan(23)
(17) (a) List of certain investment companies in response to Item 29(a)+
(b) List of Officers and Directors of Van Kampen American Capital
Distributors, Inc. in response to Item 29(b)+
(24) Power of attorney(24)
(27) Financial Data Schedules++
</TABLE>
<PAGE> 1
EXHIBIT 1(b)(iii)
VAN KAMPEN AMERICAN CAPITAL EQUITY TRUST
Certificate of Designation
of
Van Kampen American Capital Growth Fund
The undersigned, being the Secretary of Van Kampen American Capital Equity
Trust, a Delaware business trust (the "Trust"), pursuant to the authority
conferred upon the Trustees of the Trust by Section 6.1 of the Trust's
Agreement and Declaration of Trust ("Declaration"), and by the affirmative vote
of a Majority of the Trustees does hereby establish and designate as a Series
of the Trust the Van Kampen American Capital Growth Fund (the "Fund") with the
following rights, preferences and characteristics:
1. Shares. The beneficial interest in the Fund shall be divided into Shares
having a nominal or par value of $0.01 per Share, of which an unlimited number
may be issued, which Shares shall represent interests only in the Fund. The
Trustees shall have the authority from time to time to authorize separate
Series of Shares for the Trust as they deem necessary or desirable.
2. Classes of Shares. The Shares of the Fund shall be initially divided into
three classes--Class A, Class B and Class C. The Trustees shall have the
authority from time to time to authorize additional Classes of Shares of the
Fund
3. Sales Charges. Each Class A, Class B and Class C Share shall be subject to
such sales charges, if any, as may be established from time to time by the
Trustees in accordance with the Investment Company Act of 1940 (the "1940 Act")
and applicable rules and regulations of the National Association of Securities
Dealers, Inc., all as set forth in the Fund's prospectus.
4. Conversion. Each Class B Share of the Fund shall be converted
automatically, and without any action or choice on the part of the Shareholder
thereof, into Class A Shares of the Fund at such times and pursuant to such
terms, conditions and restrictions as may be established by the Trustees and as
set forth in the Fund's Prospectus.
5. Allocation of Expenses Among Classes. Expenses related solely to a
particular Class (including, without limitation, distribution expenses under an
administrative or service agreement, plan or other arrangement, however
designated) shall be borne by that Class and shall be appropriately reflected
(in a manner determined by the Trustees) in the net asset value, dividends,
distribution and liquidation rights of the Shares of that Class.
6. Special Meetings. A special meeting of Shareholders of a Class of the Fund
may be called with respect to the Rule 12b-1 distribution plan applicable to
such Class or with respect to any other proper purpose affecting only holders
of shares of such Class
1
<PAGE> 2
at any time by a Majority of the Trustees.
7. Other Rights Governed by Declaration. All other rights, preferences,
qualifications, limitations and restrictions with respect to Shares of any
Series of the Trust or with respect to any Class of Shares set forth in the
Declaration shall apply to Shares of the Fund unless otherwise specified in
this Certificate of Designation, in which case this Certificate of Designation
shall govern.
8. Amendments, etc. Subject to the provisions and limitations of Section 9.5
of the Declaration and applicable law, this Certificate of Designation may be
amended by an instrument signed in writing by a Majority of the Trustees (or by
and officer of the Trust pursuant to the vote of a Majority of the Trustees) or
when authorized to do so by the vote in accordance with the Declaration of the
holders of a majority of all the Shares of the Fund outstanding and entitled to
vote or, if such amendment affects the Shares of one or more but not all of the
Classes of the Fund, the holders of a majority of all the Shares of the
affected Classes outstanding and entitled to vote.
9. Incorporation of Defined Terms. All capitalized terms which are not
defined herein shall have the same meaning as ascribed to those terms in the
Declaration.
____________, 1995
- ----------------------
Ronald A. Nyberg,
Secretary
2
<PAGE> 1
EXHIBIT 1(b)(iv)
VAN KAMPEN AMERICAN CAPITAL EQUITY TRUST
Certificate of Designation
of
Van Kampen American Capital Value Fund
The undersigned, being the Secretary of Van Kampen American Capital Equity
Trust, a Delaware business trust (the "Trust"), pursuant to the authority
conferred upon the Trustees of the Trust by Section 6.1 of the Trust's
Agreement and Declaration of Trust ("Declaration"), and by the affirmative vote
of a Majority of the Trustees does hereby establish and designate as a Series
of the Trust the Van Kampen American Capital Value Fund (the "Fund") with the
following rights, preferences and characteristics:
1. Shares. The beneficial interest in the Fund shall be divided into Shares
having a nominal or par value of $0.01 per Share, of which an unlimited number
may be issued, which Shares shall represent interests only in the Fund. The
Trustees shall have the authority from time to time to authorize separate
Series of Shares for the Trust as they deem necessary or desirable.
2. Classes of Shares. The Shares of the Fund shall be initially divided into
three classes--Class A, Class B and Class C. The Trustees shall have the
authority from time to time to authorize additional Classes of Shares of the
Fund
3. Sales Charges. Each Class A, Class B and Class C Share shall be subject to
such sales charges, if any, as may be established from time to time by the
Trustees in accordance with the Investment Company Act of 1940 (the "1940 Act")
and applicable rules and regulations of the National Association of Securities
Dealers, Inc., all as set forth in the Fund's prospectus.
4. Conversion. Each Class B Share of the Fund shall be converted
automatically, and without any action or choice on the part of the Shareholder
thereof, into Class A Shares of the Fund at such times and pursuant to such
terms, conditions and restrictions as may be established by the Trustees and as
set forth in the Fund's Prospectus.
5. Allocation of Expenses Among Classes. Expenses related solely to a
particular Class (including, without limitation, distribution expenses under an
administrative or service agreement, plan or other arrangement, however
designated) shall be borne by that Class and shall be appropriately reflected
(in a manner determined by the Trustees) in the net asset value, dividends,
distribution and liquidation rights of the Shares of that Class.
6. Special Meetings. A special meeting of Shareholders of a Class of the Fund
may be called with respect to the Rule 12b-1 distribution plan applicable to
such Class or with respect to any other proper purpose affecting only holders
of shares of such Class
1
<PAGE> 2
at any time by a Majority of the Trustees.
7. Other Rights Governed by Declaration. All other rights, preferences,
qualifications, limitations and restrictions with respect to Shares of any
Series of the Trust or with respect to any Class of Shares set forth in the
Declaration shall apply to Shares of the Fund unless otherwise specified in
this Certificate of Designation, in which case this Certificate of Designation
shall govern.
8. Amendments, etc. Subject to the provisions and limitations of Section 9.5
of the Declaration and applicable law, this Certificate of Designation may be
amended by an instrument signed in writing by a Majority of the Trustees (or by
and officer of the Trust pursuant to the vote of a Majority of the Trustees) or
when authorized to do so by the vote in accordance with the Declaration of the
holders of a majority of all the Shares of the Fund outstanding and entitled to
vote or, if such amendment affects the Shares of one or more but not all of the
Classes of the Fund, the holders of a majority of all the Shares of the
affected Classes outstanding and entitled to vote.
9. Incorporation of Defined Terms. All capitalized terms which are not
defined herein shall have the same meaning as ascribed to those terms in the
Declaration.
____________, 1995
- ----------------------
Ronald A. Nyberg,
Secretary
2
<PAGE> 1
EXHIBIT 1(b)(v)
VAN KAMPEN AMERICAN CAPITAL EQUITY TRUST
Certificate of Designation
of
Van Kampen American Capital Great American Companies Fund
The undersigned, being the Secretary of Van Kampen American Capital Equity
Trust, a Delaware business trust (the "Trust"), pursuant to the authority
conferred upon the Trustees of the Trust by Section 6.1 of the Trust's
Agreement and Declaration of Trust ("Declaration"), and by the affirmative vote
of a Majority of the Trustees does hereby establish and designate as a Series
of the Trust the Van Kampen American Capital Great American Companies Fund (the
"Fund") with the following rights, preferences and characteristics:
1. Shares. The beneficial interest in the Fund shall be divided into Shares
having a nominal or par value of $0.01 per Share, of which an unlimited number
may be issued, which Shares shall represent interests only in the Fund. The
Trustees shall have the authority from time to time to authorize separate
Series of Shares for the Trust as they deem necessary or desirable.
2. Classes of Shares. The Shares of the Fund shall be initially divided into
three classes--Class A, Class B and Class C. The Trustees shall have the
authority from time to time to authorize additional Classes of Shares of the
Fund
3. Sales Charges. Each Class A, Class B and Class C Share shall be subject to
such sales charges, if any, as may be established from time to time by the
Trustees in accordance with the Investment Company Act of 1940 (the "1940 Act")
and applicable rules and regulations of the National Association of Securities
Dealers, Inc., all as set forth in the Fund's prospectus.
4. Conversion. Each Class B Share of the Fund shall be converted
automatically, and without any action or choice on the part of the Shareholder
thereof, into Class A Shares of the Fund at such times and pursuant to such
terms, conditions and restrictions as may be established by the Trustees and as
set forth in the Fund's Prospectus.
5. Allocation of Expenses Among Classes. Expenses related solely to a
particular Class (including, without limitation, distribution expenses under an
administrative or service agreement, plan or other arrangement, however
designated) shall be borne by that Class and shall be appropriately reflected
(in a manner determined by the Trustees) in the net asset value, dividends,
distribution and liquidation rights of the Shares of that Class.
6. Special Meetings. A special meeting of Shareholders of a Class of the Fund
may be called with respect to the Rule 12b-1 distribution plan applicable to
such Class or with respect to any other proper purpose affecting only holders
of shares of such Class
1
<PAGE> 2
at any time by a Majority of the Trustees.
7. Other Rights Governed by Declaration. All other rights, preferences,
qualifications, limitations and restrictions with respect to Shares of any
Series of the Trust or with respect to any Class of Shares set forth in the
Declaration shall apply to Shares of the Fund unless otherwise specified in
this Certificate of Designation, in which case this Certificate of Designation
shall govern.
8. Amendments, etc. Subject to the provisions and limitations of Section 9.5
of the Declaration and applicable law, this Certificate of Designation may be
amended by an instrument signed in writing by a Majority of the Trustees (or by
and officer of the Trust pursuant to the vote of a Majority of the Trustees) or
when authorized to do so by the vote in accordance with the Declaration of the
holders of a majority of all the Shares of the Fund outstanding and entitled to
vote or, if such amendment affects the Shares of one or more but not all of the
Classes of the Fund, the holders of a majority of all the Shares of the
affected Classes outstanding and entitled to vote.
9. Incorporation of Defined Terms. All capitalized terms which are not
defined herein shall have the same meaning as ascribed to those terms in the
Declaration.
__________, 1995
- ----------------------
Ronald A. Nyberg,
Secretary
2
<PAGE> 1
EXHIBIT 1(b)(vi)
VAN KAMPEN AMERICAN CAPITAL EQUITY TRUST
Certificate of Designation
of
Van Kampen American Capital Prospector Fund
The undersigned, being the Secretary of Van Kampen American Capital Equity
Trust, a Delaware business trust (the "Trust"), pursuant to the authority
conferred upon the Trustees of the Trust by Section 6.1 of the Trust's
Agreement and Declaration of Trust ("Declaration"), and by the affirmative vote
of a Majority of the Trustees does hereby establish and designate as a Series
of the Trust the Van Kampen American Capital Prospector Fund (the "Fund") with
the following rights, preferences and characteristics:
1. Shares. The beneficial interest in the Fund shall be divided into Shares
having a nominal or par value of $0.01 per Share, of which an unlimited number
may be issued, which Shares shall represent interests only in the Fund. The
Trustees shall have the authority from time to time to authorize separate
Series of Shares for the Trust as they deem necessary or desirable.
2. Classes of Shares. The Shares of the Fund shall be initially divided into
three classes--Class A, Class B and Class C. The Trustees shall have the
authority from time to time to authorize additional Classes of Shares of the
Fund
3. Sales Charges. Each Class A, Class B and Class C Share shall be subject to
such sales charges, if any, as may be established from time to time by the
Trustees in accordance with the Investment Company Act of 1940 (the "1940 Act")
and applicable rules and regulations of the National Association of Securities
Dealers, Inc., all as set forth in the Fund's prospectus.
4. Conversion. Each Class B Share of the Fund shall be converted
automatically, and without any action or choice on the part of the Shareholder
thereof, into Class A Shares of the Fund at such times and pursuant to such
terms, conditions and restrictions as may be established by the Trustees and as
set forth in the Fund's Prospectus.
5. Allocation of Expenses Among Classes. Expenses related solely to a
particular Class (including, without limitation, distribution expenses under an
administrative or service agreement, plan or other arrangement, however
designated) shall be borne by that Class and shall be appropriately reflected
(in a manner determined by the Trustees) in the net asset value, dividends,
distribution and liquidation rights of the Shares of that Class.
6. Special Meetings. A special meeting of Shareholders of a Class of the Fund
may be called with respect to the Rule 12b-1 distribution plan applicable to
such Class or with respect to any other proper purpose affecting only holders
of shares of such Class
1
<PAGE> 2
at any time by a Majority of the Trustees.
7. Other Rights Governed by Declaration. All other rights, preferences,
qualifications, limitations and restrictions with respect to Shares of any
Series of the Trust or with respect to any Class of Shares set forth in the
Declaration shall apply to Shares of the Fund unless otherwise specified in
this Certificate of Designation, in which case this Certificate of Designation
shall govern.
8. Amendments, etc. Subject to the provisions and limitations of Section 9.5
of the Declaration and applicable law, this Certificate of Designation may be
amended by an instrument signed in writing by a Majority of the Trustees (or by
and officer of the Trust pursuant to the vote of a Majority of the Trustees) or
when authorized to do so by the vote in accordance with the Declaration of the
holders of a majority of all the Shares of the Fund outstanding and entitled to
vote or, if such amendment affects the Shares of one or more but not all of the
Classes of the Fund, the holders of a majority of all the Shares of the
affected Classes outstanding and entitled to vote.
9. Incorporation of Defined Terms. All capitalized terms which are not
defined herein shall have the same meaning as ascribed to those terms in the
Declaration.
_____________, 1995
- ----------------------
Ronald A. Nyberg,
Secretary
2
<PAGE> 1
EXHIBIT 4(c)(i)
NUMBER SHARES
__________ __________
VAN KAMPEN AMERICAN CAPITAL VALUE FUND, a series of
VAN KAMPEN AMERICAN CAPITAL EQUITY TRUST
CLASS A
ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES that is the owner of
*SEE REVERSE FOR CERTAIN DEFINITIONS
_________________
CUSIP
_________________
fully paid and nonassessable shares of beneficial interest of the par value of
$0.01 per share of Van Kampen American Capital Value Fund, transferable on
the books of the Fund by the holder thereof in person or by duly authorized
attorney upon surrender of this certificate properly endorsed. This certificate
is not valid unless countersigned by the Transfer Agent.
WITNESS THE FACSIMILE SEAL OF THE FUND AND THE FACSIMILE SIGNATURES OF
ITS DULY AUTHORIZED OFFICERS.
Dated
[VAN KAMPEN AMERICAN CAPITAL
VALUE FUND
DELAWARE SEAL]
RONALD A. NYBERG DENNIS J. MCDONNELL
SECRETARY PRESIDENT
KC 002717
- --------------------------------------------------------------------------------
COUNTERSIGNED by ACCESS INVESTOR SERVICES, INC.
P.O. BOX 418256, KANSAS CITY, MO 64141-9256
TRANSFER AGENT
By
----------------------------------------------------
AUTHORIZED OFFICER
- --------------------------------------------------------------------------------
PLEASE DETACH AND DISCARD UNLESS CHANGES ARE REQUIRED
VAN KAMPEN AMERICAN CAPITAL VALUE FUND
NUMBER CLASS A SHARES
KC
ACCOUNT NO. ALPHA CODE DEALER NO. CONFIRM NO.
TRADE DATE CONFIRM DATE BATCH I.D. NO.
CHANGE NOTICE: IF THE ABOVE INFORMATION
IS INCORRECT OR MISSING, PLEASE PRINT
THE CORRECT INFORMATION BELOW, AND RETURN
TO:
ACCESS
P.O. BOX 418256
KANSAS CITY, MISSOURI 64141-9256
----------------------------------------
----------------------------------------
----------------------------------------
<PAGE> 2
- --------------------------------------------------------------------------------
REQUIREMENTS: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
THE 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.
- --------------------------------------------------------------------------------
For value received, hereby sell, assign and transfer unto
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)
________________________________________________________________________________
_________________________________________________________________________ Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________________________________
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated, _________________________________________ 19 ______
__________________________________________________________________
Owner
__________________________________________________________________
Signature of Co-Owner, if any
IMPORTANT { BEFORE SIGNING, READ AND COMPLY CAREFULLY
{ WITH REQUIREMENTS PRINTED ABOVE.
SIGNATURE(S) guaranteed by:
________________________________________________________________________________
- --------------------------------------------------------------------------------
*The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants UNIF GIFT MIN. ACT - ________ Custodian _________
in common (Cust) (Minor)
under Uniform Gifts to
TEN ENT - as tenants by Minors Act
the entireties
____________________________
JT TEN - as joint tenants (State)
with right of sur-
vivorship and not
as tenants in common
Additional abbreviations may also be used though not in the above list
- --------------------------------------------------------------------------------
________________________________________________________________________________
THIS SPACE MUST NOT BE COVERED IN ANY WAY
<PAGE> 1
EXHIBIT 4(c)(ii)
NUMBER SHARES
__________ __________
VAN KAMPEN AMERICAN CAPITAL VALUE FUND, a series of
VAN KAMPEN AMERICAN CAPITAL EQUITY TRUST
CLASS B
ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES that is the owner of
*SEE REVERSE FOR CERTAIN DEFINITIONS
_________________
CUSIP
_________________
fully paid and nonassessable shares of beneficial interest of the par value of
$0.01 per share of Van Kampen American Capital Value Fund, transferable on
the books of the Fund by the holder thereof in person or by duly authorized
attorney upon surrender of this certificate properly endorsed. This certificate
is not valid unless countersigned by the Transfer Agent.
WITNESS THE FACSIMILE SEAL OF THE FUND AND THE FACSIMILE SIGNATURES OF
ITS DULY AUTHORIZED OFFICERS.
Dated
[VAN KAMPEN AMERICAN CAPITAL
VALUE FUND
DELAWARE SEAL]
RONALD A. NYBERG DENNIS J. MCDONNELL
SECRETARY PRESIDENT
KC 002717
- --------------------------------------------------------------------------------
COUNTERSIGNED by ACCESS INVESTOR SERVICES, INC.
P.O. BOX 418256, KANSAS CITY, MO 64141-9256
TRANSFER AGENT
By
----------------------------------------------------
AUTHORIZED OFFICER
- --------------------------------------------------------------------------------
PLEASE DETACH AND DISCARD UNLESS CHANGES ARE REQUIRED
VAN KAMPEN AMERICAN CAPITAL VALUE FUND
NUMBER CLASS B SHARES
KC
ACCOUNT NO. ALPHA CODE DEALER NO. CONFIRM NO.
TRADE DATE CONFIRM DATE BATCH I.D. NO.
CHANGE NOTICE: IF THE ABOVE INFORMATION
IS INCORRECT OR MISSING, PLEASE PRINT
THE CORRECT INFORMATION BELOW, AND RETURN
TO:
ACCESS
P.O. BOX 418256
KANSAS CITY, MISSOURI 64141-9256
----------------------------------------
----------------------------------------
----------------------------------------
<PAGE> 2
- --------------------------------------------------------------------------------
REQUIREMENTS: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
THE 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.
- --------------------------------------------------------------------------------
For value received, hereby sell, assign and transfer unto
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)
________________________________________________________________________________
_________________________________________________________________________ Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________________________________
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated, _________________________________________ 19 ______
__________________________________________________________________
Owner
__________________________________________________________________
Signature of Co-Owner, if any
IMPORTANT { BEFORE SIGNING, READ AND COMPLY CAREFULLY
{ WITH REQUIREMENTS PRINTED ABOVE.
SIGNATURE(S) guaranteed by:
________________________________________________________________________________
- --------------------------------------------------------------------------------
*The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants UNIF GIFT MIN. ACT - ________ Custodian _________
in common (Cust) (Minor)
under Uniform Gifts to
TEN ENT - as tenants by Minors Act
the entireties
____________________________
JT TEN - as joint tenants (State)
with right of sur-
vivorship and not
as tenants in common
Additional abbreviations may also be used though not in the above list
- --------------------------------------------------------------------------------
________________________________________________________________________________
THIS SPACE MUST NOT BE COVERED IN ANY WAY
<PAGE> 1
EXHIBIT 4(c)(iii)
NUMBER SHARES
__________ __________
VAN KAMPEN AMERICAN CAPITAL VALUE FUND, a series of
VAN KAMPEN AMERICAN CAPITAL EQUITY TRUST
CLASS C
ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES that is the owner of
*SEE REVERSE FOR CERTAIN DEFINITIONS
_________________
CUSIP
_________________
fully paid and nonassessable shares of beneficial interest of the par value of
$0.01 per share of Van Kampen American Capital Value Fund, transferable on
the books of the Fund by the holder thereof in person or by duly authorized
attorney upon surrender of this certificate properly endorsed. This certificate
is not valid unless countersigned by the Transfer Agent.
WITNESS THE FACSIMILE SEAL OF THE FUND AND THE FACSIMILE SIGNATURES OF
ITS DULY AUTHORIZED OFFICERS.
Dated
[VAN KAMPEN AMERICAN CAPITAL
VALUE FUND
DELAWARE SEAL]
RONALD A. NYBERG DENNIS J. MCDONNELL
SECRETARY PRESIDENT
KC 002717
- --------------------------------------------------------------------------------
COUNTERSIGNED by ACCESS INVESTOR SERVICES, INC.
P.O. BOX 418256, KANSAS CITY, MO 64141-9256
TRANSFER AGENT
By
----------------------------------------------------
AUTHORIZED OFFICER
- --------------------------------------------------------------------------------
PLEASE DETACH AND DISCARD UNLESS CHANGES ARE REQUIRED
VAN KAMPEN AMERICAN CAPITAL VALUE FUND
NUMBER CLASS C SHARES
KC
ACCOUNT NO. ALPHA CODE DEALER NO. CONFIRM NO.
TRADE DATE CONFIRM DATE BATCH I.D. NO.
CHANGE NOTICE: IF THE ABOVE INFORMATION
IS INCORRECT OR MISSING, PLEASE PRINT
THE CORRECT INFORMATION BELOW, AND RETURN
TO:
ACCESS
P.O. BOX 418256
KANSAS CITY, MISSOURI 64141-9256
----------------------------------------
----------------------------------------
----------------------------------------
<PAGE> 2
- --------------------------------------------------------------------------------
REQUIREMENTS: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
THE 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.
- --------------------------------------------------------------------------------
For value received, hereby sell, assign and transfer unto
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)
________________________________________________________________________________
_________________________________________________________________________ Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________________________________
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated, _________________________________________ 19 ______
__________________________________________________________________
Owner
__________________________________________________________________
Signature of Co-Owner, if any
IMPORTANT { BEFORE SIGNING, READ AND COMPLY CAREFULLY
{ WITH REQUIREMENTS PRINTED ABOVE.
SIGNATURE(S) guaranteed by:
________________________________________________________________________________
- --------------------------------------------------------------------------------
*The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants UNIF GIFT MIN. ACT - ________ Custodian _________
in common (Cust) (Minor)
under Uniform Gifts to
TEN ENT - as tenants by Minors Act
the entireties
____________________________
JT TEN - as joint tenants (State)
with right of sur-
vivorship and not
as tenants in common
Additional abbreviations may also be used though not in the above list
- --------------------------------------------------------------------------------
________________________________________________________________________________
THIS SPACE MUST NOT BE COVERED IN ANY WAY
<PAGE> 1
EXHIBIT 4(d)(i)
NUMBER SHARES
__________ __________
VAN KAMPEN AMERICAN CAPITAL GREAT AMERICAN COMPANIES FUND, a series of
VAN KAMPEN AMERICAN CAPITAL EQUITY TRUST
CLASS A
ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES that is the owner of
*SEE REVERSE FOR CERTAIN DEFINITIONS
_________________
CUSIP
_________________
fully paid and nonassessable shares of beneficial interest of the par value of
$0.01 per share of Van Kampen American Capital Great American Companies Fund,
transferable on the books of the Fund by the holder thereof in person or by
duly authorized attorney upon surrender of this certificate properly endorsed.
This certificate is not valid unless countersigned by the Transfer Agent.
WITNESS THE FACSIMILE SEAL OF THE FUND AND THE FACSIMILE SIGNATURES OF
ITS DULY AUTHORIZED OFFICERS.
Dated
[VAN KAMPEN AMERICAN CAPITAL
GREAT AMERICAN COMPANIES FUND
DELAWARE SEAL]
RONALD A. NYBERG DENNIS J. MCDONNELL
SECRETARY PRESIDENT
KC 002717
- --------------------------------------------------------------------------------
COUNTERSIGNED by ACCESS INVESTOR SERVICES, INC.
P.O. BOX 418256, KANSAS CITY, MO 64141-9256
TRANSFER AGENT
By
----------------------------------------------------
AUTHORIZED OFFICER
- --------------------------------------------------------------------------------
PLEASE DETACH AND DISCARD UNLESS CHANGES ARE REQUIRED
VAN KAMPEN AMERICAN CAPITAL GREAT AMERICAN COMPANIES FUND
NUMBER CLASS A SHARES
KC
ACCOUNT NO. ALPHA CODE DEALER NO. CONFIRM NO.
TRADE DATE CONFIRM DATE BATCH I.D. NO.
CHANGE NOTICE: IF THE ABOVE INFORMATION
IS INCORRECT OR MISSING, PLEASE PRINT
THE CORRECT INFORMATION BELOW, AND RETURN
TO:
ACCESS
P.O. BOX 418256
KANSAS CITY, MISSOURI 64141-9256
----------------------------------------
----------------------------------------
----------------------------------------
<PAGE> 2
- --------------------------------------------------------------------------------
REQUIREMENTS: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
THE 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.
- --------------------------------------------------------------------------------
For value received, hereby sell, assign and transfer unto
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)
________________________________________________________________________________
_________________________________________________________________________ Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________________________________
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated, _________________________________________ 19 ______
__________________________________________________________________
Owner
__________________________________________________________________
Signature of Co-Owner, if any
IMPORTANT { BEFORE SIGNING, READ AND COMPLY CAREFULLY
{ WITH REQUIREMENTS PRINTED ABOVE.
SIGNATURE(S) guaranteed by:
________________________________________________________________________________
- --------------------------------------------------------------------------------
*The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants UNIF GIFT MIN. ACT - ________ Custodian _________
in common (Cust) (Minor)
under Uniform Gifts to
TEN ENT - as tenants by Minors Act
the entireties
____________________________
JT TEN - as joint tenants (State)
with right of sur-
vivorship and not
as tenants in common
Additional abbreviations may also be used though not in the above list
- --------------------------------------------------------------------------------
________________________________________________________________________________
THIS SPACE MUST NOT BE COVERED IN ANY WAY
<PAGE> 1
EXHIBIT 4(d)(ii)
NUMBER SHARES
__________ __________
VAN KAMPEN AMERICAN CAPITAL GREAT AMERICAN COMPANIES FUND, a series of
VAN KAMPEN AMERICAN CAPITAL EQUITY TRUST
CLASS B
ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES that is the owner of
*SEE REVERSE FOR CERTAIN DEFINITIONS
_________________
CUSIP
_________________
fully paid and nonassessable shares of beneficial interest of the par value of
$0.01 per share of Van Kampen American Capital Great American Companies
Fund, transferable on the books of the Fund by the holder thereof in person or
by duly authorized attorney upon surrender of this certificate properly
endorsed. This certificate is not valid unless countersigned by the Transfer
Agent.
WITNESS THE FACSIMILE SEAL OF THE FUND AND THE FACSIMILE SIGNATURES OF
ITS DULY AUTHORIZED OFFICERS.
Dated
[VAN KAMPEN AMERICAN CAPITAL
GREAT AMERICAN COMPANIES FUND
DELAWARE SEAL]
RONALD A. NYBERG DENNIS J. MCDONNELL
SECRETARY PRESIDENT
KC 002717
- --------------------------------------------------------------------------------
COUNTERSIGNED by ACCESS INVESTOR SERVICES, INC.
P.O. BOX 418256, KANSAS CITY, MO 64141-9256
TRANSFER AGENT
By
----------------------------------------------------
AUTHORIZED OFFICER
- --------------------------------------------------------------------------------
PLEASE DETACH AND DISCARD UNLESS CHANGES ARE REQUIRED
VAN KAMPEN AMERICAN CAPITAL GREAT AMERICAN COMPANIES FUND
NUMBER CLASS B SHARES
KC
ACCOUNT NO. ALPHA CODE DEALER NO. CONFIRM NO.
TRADE DATE CONFIRM DATE BATCH I.D. NO.
CHANGE NOTICE: IF THE ABOVE INFORMATION
IS INCORRECT OR MISSING, PLEASE PRINT
THE CORRECT INFORMATION BELOW, AND RETURN
TO:
ACCESS
P.O. BOX 418256
KANSAS CITY, MISSOURI 64141-9256
----------------------------------------
----------------------------------------
----------------------------------------
<PAGE> 2
- --------------------------------------------------------------------------------
REQUIREMENTS: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
THE 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.
- --------------------------------------------------------------------------------
For value received, hereby sell, assign and transfer unto
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)
________________________________________________________________________________
_________________________________________________________________________ Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________________________________
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated, _________________________________________ 19 ______
__________________________________________________________________
Owner
__________________________________________________________________
Signature of Co-Owner, if any
IMPORTANT { BEFORE SIGNING, READ AND COMPLY CAREFULLY
{ WITH REQUIREMENTS PRINTED ABOVE.
SIGNATURE(S) guaranteed by:
________________________________________________________________________________
- --------------------------------------------------------------------------------
*The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants UNIF GIFT MIN. ACT - ________ Custodian _________
in common (Cust) (Minor)
under Uniform Gifts to
TEN ENT - as tenants by Minors Act
the entireties
____________________________
JT TEN - as joint tenants (State)
with right of sur-
vivorship and not
as tenants in common
Additional abbreviations may also be used though not in the above list
- --------------------------------------------------------------------------------
________________________________________________________________________________
THIS SPACE MUST NOT BE COVERED IN ANY WAY
<PAGE> 1
EXHIBIT 4(d)(iii)
NUMBER SHARES
__________ __________
VAN KAMPEN AMERICAN CAPITAL GREAT AMERICAN COMPANIES FUND, a series of
VAN KAMPEN AMERICAN CAPITAL EQUITY TRUST
CLASS C
ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES that is the owner of
*SEE REVERSE FOR CERTAIN DEFINITIONS
_________________
CUSIP
_________________
fully paid and nonassessable shares of beneficial interest of the par value of
$0.01 per share of Van Kampen American Capital Great American Companies Fund,
transferable on the books of the Fund by the holder thereof in person or by
duly authorized attorney upon surrender of this certificate properly endorsed.
This certificate is not valid unless countersigned by the Transfer Agent.
WITNESS THE FACSIMILE SEAL OF THE FUND AND THE FACSIMILE SIGNATURES OF
ITS DULY AUTHORIZED OFFICERS.
Dated
[VAN KAMPEN AMERICAN CAPITAL
GREAT AMERICAN COMPANIES FUND
DELAWARE SEAL]
RONALD A. NYBERG DENNIS J. MCDONNELL
SECRETARY PRESIDENT
KC 002717
- --------------------------------------------------------------------------------
COUNTERSIGNED by ACCESS INVESTOR SERVICES, INC.
P.O. BOX 418256, KANSAS CITY, MO 64141-9256
TRANSFER AGENT
By
----------------------------------------------------
AUTHORIZED OFFICER
- --------------------------------------------------------------------------------
PLEASE DETACH AND DISCARD UNLESS CHANGES ARE REQUIRED
VAN KAMPEN AMERICAN CAPITAL GREAT AMERICAN COMPANIES FUND
NUMBER CLASS C SHARES
KC
ACCOUNT NO. ALPHA CODE DEALER NO. CONFIRM NO.
TRADE DATE CONFIRM DATE BATCH I.D. NO.
CHANGE NOTICE: IF THE ABOVE INFORMATION
IS INCORRECT OR MISSING, PLEASE PRINT
THE CORRECT INFORMATION BELOW, AND RETURN
TO:
ACCESS
P.O. BOX 418256
KANSAS CITY, MISSOURI 64141-9256
----------------------------------------
----------------------------------------
----------------------------------------
<PAGE> 2
- --------------------------------------------------------------------------------
REQUIREMENTS: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
THE 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.
- --------------------------------------------------------------------------------
For value received, hereby sell, assign and transfer unto
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)
________________________________________________________________________________
_________________________________________________________________________ Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________________________________
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated, _________________________________________ 19 ______
__________________________________________________________________
Owner
__________________________________________________________________
Signature of Co-Owner, if any
IMPORTANT { BEFORE SIGNING, READ AND COMPLY CAREFULLY
{ WITH REQUIREMENTS PRINTED ABOVE.
SIGNATURE(S) guaranteed by:
________________________________________________________________________________
- --------------------------------------------------------------------------------
*The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants UNIF GIFT MIN. ACT - ________ Custodian _________
in common (Cust) (Minor)
under Uniform Gifts to
TEN ENT - as tenants by Minors Act
the entireties
____________________________
JT TEN - as joint tenants (State)
with right of sur-
vivorship and not
as tenants in common
Additional abbreviations may also be used though not in the above list
- --------------------------------------------------------------------------------
________________________________________________________________________________
THIS SPACE MUST NOT BE COVERED IN ANY WAY
<PAGE> 1
EXHIBIT 4(e)(i)
NUMBER SHARES
__________ __________
VAN KAMPEN AMERICAN CAPITAL GROWTH FUND, a series of
VAN KAMPEN AMERICAN CAPITAL EQUITY TRUST
CLASS A
ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES that is the owner of
*SEE REVERSE FOR CERTAIN DEFINITIONS
_________________
CUSIP
_________________
fully paid and nonassessable shares of beneficial interest of the par value of
$0.01 per share of Van Kampen American Capital Growth Fund, transferable on
the books of the Fund by the holder thereof in person or by duly authorized
attorney upon surrender of this certificate properly endorsed. This certificate
is not valid unless countersigned by the Transfer Agent.
WITNESS THE FACSIMILE SEAL OF THE FUND AND THE FACSIMILE SIGNATURES OF
ITS DULY AUTHORIZED OFFICERS.
Dated
[VAN KAMPEN AMERICAN CAPITAL
GROWTH FUND
DELAWARE SEAL]
RONALD A. NYBERG DENNIS J. MCDONNELL
SECRETARY PRESIDENT
KC 002717
- --------------------------------------------------------------------------------
COUNTERSIGNED by ACCESS INVESTOR SERVICES, INC.
P.O. BOX 418256, KANSAS CITY, MO 64141-9256
TRANSFER AGENT
By
----------------------------------------------------
AUTHORIZED OFFICER
- --------------------------------------------------------------------------------
PLEASE DETACH AND DISCARD UNLESS CHANGES ARE REQUIRED
VAN KAMPEN AMERICAN CAPITAL GROWTH FUND
NUMBER CLASS A SHARES
KC
ACCOUNT NO. ALPHA CODE DEALER NO. CONFIRM NO.
TRADE DATE CONFIRM DATE BATCH I.D. NO.
CHANGE NOTICE: IF THE ABOVE INFORMATION
IS INCORRECT OR MISSING, PLEASE PRINT
THE CORRECT INFORMATION BELOW, AND RETURN
TO:
ACCESS
P.O. BOX 418256
KANSAS CITY, MISSOURI 64141-9256
----------------------------------------
----------------------------------------
----------------------------------------
<PAGE> 2
- --------------------------------------------------------------------------------
REQUIREMENTS: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
THE 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.
- --------------------------------------------------------------------------------
For value received, hereby sell, assign and transfer unto
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)
________________________________________________________________________________
_________________________________________________________________________ Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________________________________
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated, _________________________________________ 19 ______
__________________________________________________________________
Owner
__________________________________________________________________
Signature of Co-Owner, if any
IMPORTANT { BEFORE SIGNING, READ AND COMPLY CAREFULLY
{ WITH REQUIREMENTS PRINTED ABOVE.
SIGNATURE(S) guaranteed by:
________________________________________________________________________________
- --------------------------------------------------------------------------------
*The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants UNIF GIFT MIN. ACT - ________ Custodian _________
in common (Cust) (Minor)
under Uniform Gifts to
TEN ENT - as tenants by Minors Act
the entireties
____________________________
JT TEN - as joint tenants (State)
with right of sur-
vivorship and not
as tenants in common
Additional abbreviations may also be used though not in the above list
- --------------------------------------------------------------------------------
________________________________________________________________________________
THIS SPACE MUST NOT BE COVERED IN ANY WAY
<PAGE> 1
EXHIBIT 4(e)(ii)
NUMBER SHARES
__________ __________
VAN KAMPEN AMERICAN CAPITAL GROWTH FUND, a series of
VAN KAMPEN AMERICAN CAPITAL EQUITY TRUST
CLASS B
ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES that is the owner of
*SEE REVERSE FOR CERTAIN DEFINITIONS
_________________
CUSIP
_________________
fully paid and nonassessable shares of beneficial interest of the par value of
$0.01 per share of Van Kampen American Capital Growth Fund, transferable on
the books of the Fund by the holder thereof in person or by duly authorized
attorney upon surrender of this certificate properly endorsed. This certificate
is not valid unless countersigned by the Transfer Agent.
WITNESS THE FACSIMILE SEAL OF THE FUND AND THE FACSIMILE SIGNATURES OF
ITS DULY AUTHORIZED OFFICERS.
Dated
[VAN KAMPEN AMERICAN CAPITAL
GROWTH FUND
DELAWARE SEAL]
RONALD A. NYBERG DENNIS J. MCDONNELL
SECRETARY PRESIDENT
KC 002717
- --------------------------------------------------------------------------------
COUNTERSIGNED by ACCESS INVESTOR SERVICES, INC.
P.O. BOX 418256, KANSAS CITY, MO 64141-9256
TRANSFER AGENT
By
----------------------------------------------------
AUTHORIZED OFFICER
- --------------------------------------------------------------------------------
PLEASE DETACH AND DISCARD UNLESS CHANGES ARE REQUIRED
VAN KAMPEN AMERICAN CAPITAL GROWTH FUND
NUMBER CLASS B SHARES
KC
ACCOUNT NO. ALPHA CODE DEALER NO. CONFIRM NO.
TRADE DATE CONFIRM DATE BATCH I.D. NO.
CHANGE NOTICE: IF THE ABOVE INFORMATION
IS INCORRECT OR MISSING, PLEASE PRINT
THE CORRECT INFORMATION BELOW, AND RETURN
TO:
ACCESS
P.O. BOX 418256
KANSAS CITY, MISSOURI 64141-9256
----------------------------------------
----------------------------------------
----------------------------------------
<PAGE> 2
- --------------------------------------------------------------------------------
REQUIREMENTS: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
THE 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.
- --------------------------------------------------------------------------------
For value received, hereby sell, assign and transfer unto
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)
________________________________________________________________________________
_________________________________________________________________________ Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________________________________
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated, _________________________________________ 19 ______
__________________________________________________________________
Owner
__________________________________________________________________
Signature of Co-Owner, if any
IMPORTANT { BEFORE SIGNING, READ AND COMPLY CAREFULLY
{ WITH REQUIREMENTS PRINTED ABOVE.
SIGNATURE(S) guaranteed by:
________________________________________________________________________________
- --------------------------------------------------------------------------------
*The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants UNIF GIFT MIN. ACT - ________ Custodian _________
in common (Cust) (Minor)
under Uniform Gifts to
TEN ENT - as tenants by Minors Act
the entireties
____________________________
JT TEN - as joint tenants (State)
with right of sur-
vivorship and not
as tenants in common
Additional abbreviations may also be used though not in the above list
- --------------------------------------------------------------------------------
________________________________________________________________________________
THIS SPACE MUST NOT BE COVERED IN ANY WAY
<PAGE> 1
EXHIBIT 4(e)(iii)
NUMBER SHARES
__________ __________
VAN KAMPEN AMERICAN CAPITAL GROWTH FUND, a series of
VAN KAMPEN AMERICAN CAPITAL EQUITY TRUST
CLASS C
ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES that is the owner of
*SEE REVERSE FOR CERTAIN DEFINITIONS
_________________
CUSIP
_________________
fully paid and nonassessable shares of beneficial interest of the par value of
$0.01 per share of Van Kampen American Capital Growth Fund, transferable on
the books of the Fund by the holder thereof in person or by duly authorized
attorney upon surrender of this certificate properly endorsed. This certificate
is not valid unless countersigned by the Transfer Agent.
WITNESS THE FACSIMILE SEAL OF THE FUND AND THE FACSIMILE SIGNATURES OF
ITS DULY AUTHORIZED OFFICERS.
Dated
[VAN KAMPEN AMERICAN CAPITAL
GROWTH FUND
DELAWARE SEAL]
RONALD A. NYBERG DENNIS J. MCDONNELL
SECRETARY PRESIDENT
KC 002717
- --------------------------------------------------------------------------------
COUNTERSIGNED by ACCESS INVESTOR SERVICES, INC.
P.O. BOX 418256, KANSAS CITY, MO 64141-9256
TRANSFER AGENT
By
----------------------------------------------------
AUTHORIZED OFFICER
- --------------------------------------------------------------------------------
PLEASE DETACH AND DISCARD UNLESS CHANGES ARE REQUIRED
VAN KAMPEN AMERICAN CAPITAL GROWTH FUND
NUMBER CLASS C SHARES
KC
ACCOUNT NO. ALPHA CODE DEALER NO. CONFIRM NO.
TRADE DATE CONFIRM DATE BATCH I.D. NO.
CHANGE NOTICE: IF THE ABOVE INFORMATION
IS INCORRECT OR MISSING, PLEASE PRINT
THE CORRECT INFORMATION BELOW, AND RETURN
TO:
ACCESS
P.O. BOX 418256
KANSAS CITY, MISSOURI 64141-9256
----------------------------------------
----------------------------------------
----------------------------------------
<PAGE> 2
- --------------------------------------------------------------------------------
REQUIREMENTS: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
THE 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.
- --------------------------------------------------------------------------------
For value received, hereby sell, assign and transfer unto
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)
________________________________________________________________________________
_________________________________________________________________________ Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________________________________
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated, _________________________________________ 19 ______
__________________________________________________________________
Owner
__________________________________________________________________
Signature of Co-Owner, if any
IMPORTANT { BEFORE SIGNING, READ AND COMPLY CAREFULLY
{ WITH REQUIREMENTS PRINTED ABOVE.
SIGNATURE(S) guaranteed by:
________________________________________________________________________________
- --------------------------------------------------------------------------------
*The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants UNIF GIFT MIN. ACT - ________ Custodian _________
in common (Cust) (Minor)
under Uniform Gifts to
TEN ENT - as tenants by Minors Act
the entireties
____________________________
JT TEN - as joint tenants (State)
with right of sur-
vivorship and not
as tenants in common
Additional abbreviations may also be used though not in the above list
- --------------------------------------------------------------------------------
________________________________________________________________________________
THIS SPACE MUST NOT BE COVERED IN ANY WAY
<PAGE> 1
EXHIBIT 4(f)(i)
NUMBER SHARES
__________ __________
VAN KAMPEN AMERICAN CAPITAL PROSPECTOR FUND, a series of
VAN KAMPEN AMERICAN CAPITAL EQUITY TRUST
CLASS A
ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES that is the owner of
*SEE REVERSE FOR CERTAIN DEFINITIONS
_________________
CUSIP
_________________
fully paid and nonassessable shares of beneficial interest of the par value of
$0.01 per share of Van Kampen American Capital Prospector Fund, transferable
on the books of the Fund by the holder thereof in person or by duly authorized
attorney upon surrender of this certificate properly endorsed. This certificate
is not valid unless countersigned by the Transfer Agent.
WITNESS THE FACSIMILE SEAL OF THE FUND AND THE FACSIMILE SIGNATURES OF
ITS DULY AUTHORIZED OFFICERS.
Dated
[VAN KAMPEN AMERICAN CAPITAL
PROSPECTOR FUND
DELAWARE SEAL]
RONALD A. NYBERG DENNIS J. MCDONNELL
SECRETARY PRESIDENT
KC 002717
- --------------------------------------------------------------------------------
COUNTERSIGNED by ACCESS INVESTOR SERVICES, INC.
P.O. BOX 418256, KANSAS CITY, MO 64141-9256
TRANSFER AGENT
By
----------------------------------------------------
AUTHORIZED OFFICER
- --------------------------------------------------------------------------------
PLEASE DETACH AND DISCARD UNLESS CHANGES ARE REQUIRED
VAN KAMPEN AMERICAN CAPITAL PROSPECTOR FUND
NUMBER CLASS A SHARES
KC
ACCOUNT NO. ALPHA CODE DEALER NO. CONFIRM NO.
TRADE DATE CONFIRM DATE BATCH I.D. NO.
CHANGE NOTICE: IF THE ABOVE INFORMATION
IS INCORRECT OR MISSING, PLEASE PRINT
THE CORRECT INFORMATION BELOW, AND RETURN
TO:
ACCESS
P.O. BOX 418256
KANSAS CITY, MISSOURI 64141-9256
----------------------------------------
----------------------------------------
----------------------------------------
<PAGE> 2
- --------------------------------------------------------------------------------
REQUIREMENTS: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
THE 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.
- --------------------------------------------------------------------------------
For value received, hereby sell, assign and transfer unto
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)
________________________________________________________________________________
_________________________________________________________________________ Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________________________________
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated, _________________________________________ 19 ______
__________________________________________________________________
Owner
__________________________________________________________________
Signature of Co-Owner, if any
IMPORTANT { BEFORE SIGNING, READ AND COMPLY CAREFULLY
{ WITH REQUIREMENTS PRINTED ABOVE.
SIGNATURE(S) guaranteed by:
________________________________________________________________________________
- --------------------------------------------------------------------------------
*The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants UNIF GIFT MIN. ACT - ________ Custodian _________
in common (Cust) (Minor)
under Uniform Gifts to
TEN ENT - as tenants by Minors Act
the entireties
____________________________
JT TEN - as joint tenants (State)
with right of sur-
vivorship and not
as tenants in common
Additional abbreviations may also be used though not in the above list
- --------------------------------------------------------------------------------
________________________________________________________________________________
THIS SPACE MUST NOT BE COVERED IN ANY WAY
<PAGE> 1
EXHIBIT 4(f)(ii)
NUMBER SHARES
__________ __________
VAN KAMPEN AMERICAN CAPITAL PROSPECTOR FUND, a series of
VAN KAMPEN AMERICAN CAPITAL EQUITY TRUST
CLASS B
ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES that is the owner of
*SEE REVERSE FOR CERTAIN DEFINITIONS
_________________
CUSIP
_________________
fully paid and nonassessable shares of beneficial interest of the par
value of $0.01 per share of Van Kampen American Capital Prospecter
Fund, transferable on the books of the Fund by the holder thereof in person or
by duly authorized attorney upon surrender of this certificate properly
endorsed. This certificate is not valid unless countersigned by the Transfer
Agent.
WITNESS THE FACSIMILE SEAL OF THE FUND AND THE FACSIMILE SIGNATURES OF
ITS DULY AUTHORIZED OFFICERS.
Dated
[VAN KAMPEN AMERICAN CAPITAL
PROSPECTOR FUND
DELAWARE SEAL]
RONALD A. NYBERG DENNIS J. MCDONNELL
SECRETARY PRESIDENT
KC 002717
- --------------------------------------------------------------------------------
COUNTERSIGNED by ACCESS INVESTOR SERVICES, INC.
P.O. BOX 418256, KANSAS CITY, MO 64141-9256
TRANSFER AGENT
By
----------------------------------------------------
AUTHORIZED OFFICER
- --------------------------------------------------------------------------------
PLEASE DETACH AND DISCARD UNLESS CHANGES ARE REQUIRED
VAN KAMPEN AMERICAN CAPITAL PROSPECTOR FUND
NUMBER CLASS B SHARES
KC
ACCOUNT NO. ALPHA CODE DEALER NO. CONFIRM NO.
TRADE DATE CONFIRM DATE BATCH I.D. NO.
CHANGE NOTICE: IF THE ABOVE INFORMATION
IS INCORRECT OR MISSING, PLEASE PRINT
THE CORRECT INFORMATION BELOW, AND RETURN
TO:
ACCESS
P.O. BOX 418256
KANSAS CITY, MISSOURI 64141-9256
----------------------------------------
----------------------------------------
----------------------------------------
<PAGE> 2
- --------------------------------------------------------------------------------
REQUIREMENTS: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
THE 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.
- --------------------------------------------------------------------------------
For value received, hereby sell, assign and transfer unto
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)
________________________________________________________________________________
_________________________________________________________________________ Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________________________________
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated, _________________________________________ 19 ______
__________________________________________________________________
Owner
__________________________________________________________________
Signature of Co-Owner, if any
IMPORTANT { BEFORE SIGNING, READ AND COMPLY CAREFULLY
{ WITH REQUIREMENTS PRINTED ABOVE.
SIGNATURE(S) guaranteed by:
________________________________________________________________________________
- --------------------------------------------------------------------------------
*The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants UNIF GIFT MIN. ACT - ________ Custodian _________
in common (Cust) (Minor)
under Uniform Gifts to
TEN ENT - as tenants by Minors Act
the entireties
____________________________
JT TEN - as joint tenants (State)
with right of sur-
vivorship and not
as tenants in common
Additional abbreviations may also be used though not in the above list
- --------------------------------------------------------------------------------
________________________________________________________________________________
THIS SPACE MUST NOT BE COVERED IN ANY WAY
<PAGE> 1
EXHIBIT 4(f)(iii)
NUMBER SHARES
__________ __________
VAN KAMPEN AMERICAN CAPITAL PROSPECTOR FUND, a series of
VAN KAMPEN AMERICAN CAPITAL EQUITY TRUST
CLASS C
ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES that is the owner of
*SEE REVERSE FOR CERTAIN DEFINITIONS
_________________
CUSIP
_________________
fully paid and nonassessable shares of beneficial interest of the par value of
$0.01 per share of Van Kampen American Capital Prospector Fund, transferable on
the books of the Fund by the holder thereof in person or by duly authorized
attorney upon surrender of this certificate properly endorsed. This certificate
is not valid unless countersigned by the Transfer Agent.
WITNESS THE FACSIMILE SEAL OF THE FUND AND THE FACSIMILE SIGNATURES OF
ITS DULY AUTHORIZED OFFICERS.
Dated
[VAN KAMPEN AMERICAN CAPITAL
PROSPECTOR FUND
DELAWARE SEAL]
RONALD A. NYBERG DENNIS J. MCDONNELL
SECRETARY PRESIDENT
KC 002717
- --------------------------------------------------------------------------------
COUNTERSIGNED by ACCESS INVESTOR SERVICES, INC.
P.O. BOX 418256, KANSAS CITY, MO 64141-9256
TRANSFER AGENT
By
----------------------------------------------------
AUTHORIZED OFFICER
- --------------------------------------------------------------------------------
PLEASE DETACH AND DISCARD UNLESS CHANGES ARE REQUIRED
VAN KAMPEN AMERICAN CAPITAL PROSPECTOR FUND
NUMBER CLASS C SHARES
KC
ACCOUNT NO. ALPHA CODE DEALER NO. CONFIRM NO.
TRADE DATE CONFIRM DATE BATCH I.D. NO.
CHANGE NOTICE: IF THE ABOVE INFORMATION
IS INCORRECT OR MISSING, PLEASE PRINT
THE CORRECT INFORMATION BELOW, AND RETURN
TO:
ACCESS
P.O. BOX 418256
KANSAS CITY, MISSOURI 64141-9256
----------------------------------------
----------------------------------------
----------------------------------------
<PAGE> 2
- --------------------------------------------------------------------------------
REQUIREMENTS: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
THE 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.
- --------------------------------------------------------------------------------
For value received, hereby sell, assign and transfer unto
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)
________________________________________________________________________________
_________________________________________________________________________ Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________________________________
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated, _________________________________________ 19 ______
__________________________________________________________________
Owner
__________________________________________________________________
Signature of Co-Owner, if any
IMPORTANT { BEFORE SIGNING, READ AND COMPLY CAREFULLY
{ WITH REQUIREMENTS PRINTED ABOVE.
SIGNATURE(S) guaranteed by:
________________________________________________________________________________
- --------------------------------------------------------------------------------
*The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants UNIF GIFT MIN. ACT - ________ Custodian _________
in common (Cust) (Minor)
under Uniform Gifts to
TEN ENT - as tenants by Minors Act
the entireties
____________________________
JT TEN - as joint tenants (State)
with right of sur-
vivorship and not
as tenants in common
Additional abbreviations may also be used though not in the above list
- --------------------------------------------------------------------------------
________________________________________________________________________________
THIS SPACE MUST NOT BE COVERED IN ANY WAY
<PAGE> 1
EXHIBIT 5(iii)
FORM OF
INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT dated as of _________, 199_, by and
between VAN KAMPEN AMERICAN CAPITAL VALUE FUND (the "Fund"), a series of VAN
KAMPEN AMERICAN CAPITAL EQUITY TRUST, a Delaware business trust (the "Trust"),
and VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP. (the "Adviser"), a
Delaware corporation.
1. (a) Retention of Adviser by Fund. The Fund hereby employs
the Adviser to act as the investment adviser for and to manage
the investment and reinvestment of the assets of the Fund in
accordance with the Fund's investment objective and policies and
limitations, and to administer its affairs to the extent
requested by, and subject to the review and supervision of, the
Board of Trustees of the Fund for the period and upon the terms
herein set forth. The investment of funds shall be subject to
all applicable restrictions of applicable law and of the
Declaration of Trust and By-Laws of the Trust, and resolutions
of the Board of Trustees of the Fund as may from time to time be
in force and delivered or made available to the Adviser.
(b) Adviser's Acceptance of Employment. The Adviser accepts
such employment and agrees during such period to render such
services, to supply investment research and portfolio management
(including without limitation the selection of securities for
the Fund to purchase, hold or sell and the selection of brokers
through whom the Fund's portfolio transactions are executed, in
accordance with the policies adopted by the Fund and its Board
of Trustees), to administer the business affairs of the Fund, to
furnish offices and necessary facilities and equipment to the
Fund, to provide administrative services for the Fund, to render
periodic reports to the Board of Trustees of the Fund, and to
permit any of its officers or employees to serve without
compensation as trustees or officers of the Fund if elected to
such positions.
(c) Independent Contractor. The Adviser shall be deemed
to be an independent contractor under this Agreement and, unless
otherwise expressly provided or authorized, shall have no
authority to act for or represent the Fund in any way or
otherwise be deemed as agent of the Fund.
(d) Non-Exclusive Agreement. The services of the Adviser to
the Fund under this Agreement are not to be deemed exclusive,
and the Adviser shall be free to render similar services or
other services to others so long as its services hereunder are
not impaired thereby.
1
<PAGE> 2
2. (a) Fee. For the services and facilities described in
Section 1, the Fund will accrue daily and pay to the Adviser at
the end of each calendar month an investment management fee
equal to a percentage of the average daily net assets of the
Fund as follows:
FEE PERCENT OF
AVERAGE DAILY AVERAGE DAILY
NET ASSETS NET ASSETS
____________________ ____________________
____________________ ____________________
(b) Expense Limitation. The Adviser's compensation for any
fiscal year of the Fund shall be reduced by the amount, if any,
by which the Fund's expense for such fiscal year exceeds the
most restrictive applicable expense jurisdiction in which the
Fund's shares are qualified for offer and sale, as such
limitations set forth in the most recent notice thereof
furnished by the Adviser to the Fund. For purposes of this
paragraph there shall be excluded from computation of the Fund's
expenses any amount borne directly or indirectly by the Fund
which is permitted to be excluded from the computation of such
limitation by such statute or regulatory authority. If for any
month expenses of the Fund properly included in such calculation
exceed 1/12 of the amount permitted annually by the most
restrictive applicable expense limitation, the payment to the
Adviser for that month shall be reduced, and, if necessary, the
Adviser shall make a refund payment to the Fund, so that the
total net expense for the month will not exceed 1/12 of such
amount. As of the end of the Fund's fiscal year, however, the
computations and payments shall be readjusted so that the
aggregate compensation payable to the Adviser for the year is
equal to the fee set forth in subsection (a) of this Section 2,
diminished to the extent necessary so that the expenses for the
year do not exceed those permitted by the applicable expense
limitation.
(c) Determination of Net Asset Value. The net asset value of
the Fund shall be calculated as of the close of the New York
Stock Exchange on each day the Exchange is open for trading or
such other time or times as the trustees may determine in
accordance with the provisions of applicable law and of the
Declaration of Trust and By-Laws of the Trust, and resolutions
of the Board of Trustees of the Fund as from time to time in
force. For the purpose of the foregoing computations, on each
such day when net asset value is not calculated, the net asset
value of a share of beneficial interest of the Fund shall be
deemed to be the net asset value of such share as of the close
of business of the last day on which such calculation was made.
2
<PAGE> 3
(d) Proration. For the month and year in which this Agreement
becomes effective or terminates, there shall be an appropriate
proration of the Adviser's fee on the basis of the number of
days that the Agreement is in effect during such month and year,
respectively.
3. Expenses. In addition to the fee of the Adviser, the Fund
shall assume and pay any expenses for services rendered by a
custodian for the safekeeping of the Fund's securities or other
property, for keeping its books of account, for any other
charges of the custodian and for calculating the net asset value
of the Fund as provided above. The Adviser shall not be
required to pay, and the Fund shall assume and pay, the charges
and expenses of its operations, including compensation of the
trustees (other than those who are interested persons of the
Adviser and other than those who are interested persons of the
distributor of the Fund but not of the Adviser, if the
distributor has agreed to pay such compensation), charges and
expenses of independent accountants, of legal counsel and of any
transfer or dividend disbursing agent, costs of acquiring and
disposing of portfolio securities, cost of listing shares of the
New York Stock Exchange or other exchange interest (if any) on
obligations incurred by the Fund, costs of share certificates,
membership dues in the Investment Company Institute or any
similar organization, costs of reports and notices to
shareholders, costs of registering shares of the Fund under the
federal securities laws, miscellaneous expenses and all taxes
and fees to federal, state or other governmental agencies on
account of the registration of securities issued by the Fund,
filing of corporate documents or otherwise. The Fund shall not
pay or incur any obligation for any management or administrative
expenses for which the Fund intends to seek reimbursement from
the Adviser without first obtaining the written approval of the
Adviser. The Adviser shall arrange, if desired by the Fund, for
officers or employees of the Adviser to serve, without
compensation from the Fund, as trustees, officers or agents of
the Fund if duly elected or appointed to such positions and
subject to their individual consent and to any limitations
imposed by law.
4. Interested Persons. Subject to applicable statutes and
regulations, it is understood that trustees, officers,
shareholders and agents of the Fund are or may be interested in
the Adviser as directors, officers, shareholders, agents or
otherwise and that the directors, officers, shareholders and
agents of the Adviser may be interest in the Fund as trustees,
officers, shareholders, agents or otherwise.
5. Liability. The Adviser shall not be liable for any error of
judgment or of law, or for any loss suffered by the Fund in
connection with the matters to which this Agreement relates,
except a loss resulting from willful misfeasance, bad faith or
gross negligence on the part of the Adviser in the performance
of its obligations and duties, or by reason of its reckless
disregard of its obligations and duties under this Agreement.
6. (a) Term. This Agreement shall become effective on the
date hereof and shall remain in full force until the second
anniversary of the date hereof unless sooner terminated as
hereinafter provided. This Agreement shall continue in force
3
<PAGE> 4
from year to year thereafter, but only as long as such
continuance is specifically approved as least annually in the
manner required by the Investment Company Act of 1940, as
amended.
(b) Termination. This Agreement shall automatically
terminate in the event of its assignment. This Agreement may be
terminated at any time without the payment of any penalty by the
Fund or by the Adviser on sixty (60) days written notice to the
other party. The Fund may effect termination by action of the
Board of Trustees or by vote of a majority of the outstanding
shares of stock of the Fund, accompanied by appropriate notice.
This Agreement may be terminated at any time without the payment
of any penalty and without advance notice by the Board of
Trustees or by vote of a majority of the outstanding shares of
the Fund in the event that it shall have been established by a
court of competent jurisdiction that the Adviser or any officer
or director of the Adviser has taken any action which results in
a breach of the covenants of the Adviser set forth herein.
(c) Payment upon Termination. Termination of this Agreement
shall not affect the right of the Adviser to receive payment on
any unpaid balance of the compensation described in Section 2
earned prior to such termination.
7. Severability. If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or
otherwise, the remainder shall not thereby affected.
8. Notices. Any notice under this Agreement shall be in
writing, addressed and delivered or mailed, postage prepaid, to
the other party at such address as such other party may
designate for the receipt of such notice.
9. Disclaimer. The Adviser acknowledges and agrees that, as
provided by Article 8, Section 8.1 of the Agreement and Declaration of Trust of
the Trust, the shareholders, trustees, officers, employees and other agents of
the Trust and the Fund shall not personally be bound by or liable hereunder,
nor shall resort be had to their private property for the satisfaction of any
obligation or claim hereunder.
10. Governing Law. All questions concerning the validity,
meaning and effect of this Agreement shall be determined in
accordance with the laws (without giving effect to the
conflict-of-law principles thereof) of the State of Delaware
applicable to contracts made and to be performed in that state.
4
<PAGE> 5
IN WITNESS WHEREOF, the Fund and the Adviser have caused this
Agreement to be executed on the day and year first above written.
VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP.
By:_____________________________________________
Dennis J. McDonnell, President
VAN KAMPEN AMERICAN CAPITAL VALUE
FUND, a series of VAN KAMPEN AMERICAN CAPITAL EQUITY
TRUST
By:_____________________________________________
Dennis J. McDonnell, President
5
<PAGE> 1
EXHIBIT 5(iv)
FORM OF
INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT dated as of _________, 199_, by and
between VAN KAMPEN AMERICAN CAPITAL GREAT AMERICAN COMPANIES FUND (the "Fund"),
a series of VAN KAMPEN AMERICAN CAPITAL EQUITY TRUST, a Delaware business trust
(the "Trust"), and VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP. (the
"Adviser"), a Delaware corporation.
1. (a) Retention of Adviser by Fund. The Fund hereby employs
the Adviser to act as the investment adviser for and to manage
the investment and reinvestment of the assets of the Fund in
accordance with the Fund's investment objective and policies and
limitations, and to administer its affairs to the extent
requested by, and subject to the review and supervision of, the
Board of Trustees of the Fund for the period and upon the terms
herein set forth. The investment of funds shall be subject to
all applicable restrictions of applicable law and of the
Declaration of Trust and By-Laws of the Trust, and resolutions
of the Board of Trustees of the Fund as may from time to time be
in force and delivered or made available to the Adviser.
(b) Adviser's Acceptance of Employment. The Adviser accepts
such employment and agrees during such period to render such
services, to supply investment research and portfolio management
(including without limitation the selection of securities for
the Fund to purchase, hold or sell and the selection of brokers
through whom the Fund's portfolio transactions are executed, in
accordance with the policies adopted by the Fund and its Board
of Trustees), to administer the business affairs of the Fund, to
furnish offices and necessary facilities and equipment to the
Fund, to provide administrative services for the Fund, to render
periodic reports to the Board of Trustees of the Fund, and to
permit any of its officers or employees to serve without
compensation as trustees or officers of the Fund if elected to
such positions.
(c) Independent Contractor. The Adviser shall be deemed
to be an independent contractor under this Agreement and, unless
otherwise expressly provided or authorized, shall have no
authority to act for or represent the Fund in any way or
otherwise be deemed as agent of the Fund.
(d) Non-Exclusive Agreement. The services of the Adviser to
the Fund under this Agreement are not to be deemed exclusive,
and the Adviser shall be free to render similar services or
other services to others so long as its services hereunder are
not impaired thereby.
1
<PAGE> 2
2. (a) Fee. For the services and facilities described in
Section 1, the Fund will accrue daily and pay to the Adviser at
the end of each calendar month an investment management fee
equal to a percentage of the average daily net assets of the
Fund as follows:
FEE PERCENT OF
AVERAGE DAILY AVERAGE DAILY
NET ASSETS NET ASSETS
____________________ ____________________
____________________ ____________________
(b) Expense Limitation. The Adviser's compensation for any
fiscal year of the Fund shall be reduced by the amount, if any,
by which the Fund's expense for such fiscal year exceeds the
most restrictive applicable expense jurisdiction in which the
Fund's shares are qualified for offer and sale, as such
limitations set forth in the most recent notice thereof
furnished by the Adviser to the Fund. For purposes of this
paragraph there shall be excluded from computation of the Fund's
expenses any amount borne directly or indirectly by the Fund
which is permitted to be excluded from the computation of such
limitation by such statute or regulatory authority. If for any
month expenses of the Fund properly included in such calculation
exceed 1/12 of the amount permitted annually by the most
restrictive applicable expense limitation, the payment to the
Adviser for that month shall be reduced, and, if necessary, the
Adviser shall make a refund payment to the Fund, so that the
total net expense for the month will not exceed 1/12 of such
amount. As of the end of the Fund's fiscal year, however, the
computations and payments shall be readjusted so that the
aggregate compensation payable to the Adviser for the year is
equal to the fee set forth in subsection (a) of this Section 2,
diminished to the extent necessary so that the expenses for the
year do not exceed those permitted by the applicable expense
limitation.
(c) Determination of Net Asset Value. The net asset value of
the Fund shall be calculated as of the close of the New York
Stock Exchange on each day the Exchange is open for trading or
such other time or times as the trustees may determine in
accordance with the provisions of applicable law and of the
Declaration of Trust and By-Laws of the Trust, and resolutions
of the Board of Trustees of the Fund as from time to time in
force. For the purpose of the foregoing computations, on each
such day when net asset value is not calculated, the net asset
value of a share of beneficial interest of the Fund shall be
deemed to be the net asset value of such share as of the close
of business of the last day on which such calculation was made.
2
<PAGE> 3
(d) Proration. For the month and year in which this Agreement
becomes effective or terminates, there shall be an appropriate
proration of the Adviser's fee on the basis of the number of
days that the Agreement is in effect during such month and year,
respectively.
3. Expenses. In addition to the fee of the Adviser, the Fund
shall assume and pay any expenses for services rendered by a
custodian for the safekeeping of the Fund's securities or other
property, for keeping its books of account, for any other
charges of the custodian and for calculating the net asset value
of the Fund as provided above. The Adviser shall not be
required to pay, and the Fund shall assume and pay, the charges
and expenses of its operations, including compensation of the
trustees (other than those who are interested persons of the
Adviser and other than those who are interested persons of the
distributor of the Fund but not of the Adviser, if the
distributor has agreed to pay such compensation), charges and
expenses of independent accountants, of legal counsel and of any
transfer or dividend disbursing agent, costs of acquiring and
disposing of portfolio securities, cost of listing shares of the
New York Stock Exchange or other exchange interest (if any) on
obligations incurred by the Fund, costs of share certificates,
membership dues in the Investment Company Institute or any
similar organization, costs of reports and notices to
shareholders, costs of registering shares of the Fund under the
federal securities laws, miscellaneous expenses and all taxes
and fees to federal, state or other governmental agencies on
account of the registration of securities issued by the Fund,
filing of corporate documents or otherwise. The Fund shall not
pay or incur any obligation for any management or administrative
expenses for which the Fund intends to seek reimbursement from
the Adviser without first obtaining the written approval of the
Adviser. The Adviser shall arrange, if desired by the Fund, for
officers or employees of the Adviser to serve, without
compensation from the Fund, as trustees, officers or agents of
the Fund if duly elected or appointed to such positions and
subject to their individual consent and to any limitations
imposed by law.
4. Interested Persons. Subject to applicable statutes and
regulations, it is understood that trustees, officers,
shareholders and agents of the Fund are or may be interested in
the Adviser as directors, officers, shareholders, agents or
otherwise and that the directors, officers, shareholders and
agents of the Adviser may be interest in the Fund as trustees,
officers, shareholders, agents or otherwise.
5. Liability. The Adviser shall not be liable for any error of
judgment or of law, or for any loss suffered by the Fund in
connection with the matters to which this Agreement relates,
except a loss resulting from willful misfeasance, bad faith or
gross negligence on the part of the Adviser in the performance
of its obligations and duties, or by reason of its reckless
disregard of its obligations and duties under this Agreement.
6. (a) Term. This Agreement shall become effective on the
date hereof and shall remain in full force until the second
anniversary of the date hereof unless sooner terminated as
hereinafter provided. This Agreement shall continue in force
3
<PAGE> 4
from year to year thereafter, but only as long as such
continuance is specifically approved as least annually in the
manner required by the Investment Company Act of 1940, as
amended.
(b) Termination. This Agreement shall automatically
terminate in the event of its assignment. This Agreement may be
terminated at any time without the payment of any penalty by the
Fund or by the Adviser on sixty (60) days written notice to the
other party. The Fund may effect termination by action of the
Board of Trustees or by vote of a majority of the outstanding
shares of stock of the Fund, accompanied by appropriate notice.
This Agreement may be terminated at any time without the payment
of any penalty and without advance notice by the Board of
Trustees or by vote of a majority of the outstanding shares of
the Fund in the event that it shall have been established by a
court of competent jurisdiction that the Adviser or any officer
or director of the Adviser has taken any action which results in
a breach of the covenants of the Adviser set forth herein.
(c) Payment upon Termination. Termination of this Agreement
shall not affect the right of the Adviser to receive payment on
any unpaid balance of the compensation described in Section 2
earned prior to such termination.
7. Severability. If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or
otherwise, the remainder shall not thereby affected.
8. Notices. Any notice under this Agreement shall be in
writing, addressed and delivered or mailed, postage prepaid, to
the other party at such address as such other party may
designate for the receipt of such notice.
9. Disclaimer. The Adviser acknowledges and agrees that, as
provided by Article 8, Section 8.1 of the Agreement and Declaration of Trust of
the Trust, the shareholders, trustees, officers, employees and other agents of
the Trust and the Fund shall not personally be bound by or liable hereunder,
nor shall resort be had to their private property for the satisfaction of any
obligation or claim hereunder.
10. Governing Law. All questions concerning the validity,
meaning and effect of this Agreement shall be determined in
accordance with the laws (without giving effect to the
conflict-of-law principles thereof) of the State of Delaware
applicable to contracts made and to be performed in that state.
4
<PAGE> 5
IN WITNESS WHEREOF, the Fund and the Adviser have caused this
Agreement to be executed on the day and year first above written.
VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP.
By:_____________________________________________
Dennis J. McDonnell, President
VAN KAMPEN AMERICAN CAPITAL GREAT AMERICAN COMPANIES
FUND, a series of VAN KAMPEN AMERICAN CAPITAL EQUITY
TRUST
By:_____________________________________________
Dennis J. McDonnell, President
5
<PAGE> 1
EXHIBIT 5(v)
FORM OF
INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT dated as of _________, 199_, by and
between VAN KAMPEN AMERICAN CAPITAL GROWTH FUND (the "Fund"), a series of VAN
KAMPEN AMERICAN CAPITAL EQUITY TRUST, a Delaware business trust (the "Trust"),
and VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP. (the "Adviser"), a
Delaware corporation.
1. (a) Retention of Adviser by Fund. The Fund hereby employs
the Adviser to act as the investment adviser for and to manage
the investment and reinvestment of the assets of the Fund in
accordance with the Fund's investment objective and policies and
limitations, and to administer its affairs to the extent
requested by, and subject to the review and supervision of, the
Board of Trustees of the Fund for the period and upon the terms
herein set forth. The investment of funds shall be subject to
all applicable restrictions of applicable law and of the
Declaration of Trust and By-Laws of the Trust, and resolutions
of the Board of Trustees of the Fund as may from time to time be
in force and delivered or made available to the Adviser.
(b) Adviser's Acceptance of Employment. The Adviser accepts
such employment and agrees during such period to render such
services, to supply investment research and portfolio management
(including without limitation the selection of securities for
the Fund to purchase, hold or sell and the selection of brokers
through whom the Fund's portfolio transactions are executed, in
accordance with the policies adopted by the Fund and its Board
of Trustees), to administer the business affairs of the Fund, to
furnish offices and necessary facilities and equipment to the
Fund, to provide administrative services for the Fund, to render
periodic reports to the Board of Trustees of the Fund, and to
permit any of its officers or employees to serve without
compensation as trustees or officers of the Fund if elected to
such positions.
(c) Independent Contractor. The Adviser shall be deemed
to be an independent contractor under this Agreement and, unless
otherwise expressly provided or authorized, shall have no
authority to act for or represent the Fund in any way or
otherwise be deemed as agent of the Fund.
(d) Non-Exclusive Agreement. The services of the Adviser to
the Fund under this Agreement are not to be deemed exclusive,
and the Adviser shall be free to render similar services or
other services to others so long as its services hereunder are
not impaired thereby.
1
<PAGE> 2
2. (a) Fee. For the services and facilities described in
Section 1, the Fund will accrue daily and pay to the Adviser at
the end of each calendar month an investment management fee
equal to a percentage of the average daily net assets of the
Fund as follows:
FEE PERCENT OF
AVERAGE DAILY AVERAGE DAILY
NET ASSETS NET ASSETS
____________________ ____________________
____________________ ____________________
(b) Expense Limitation. The Adviser's compensation for any
fiscal year of the Fund shall be reduced by the amount, if any,
by which the Fund's expense for such fiscal year exceeds the
most restrictive applicable expense jurisdiction in which the
Fund's shares are qualified for offer and sale, as such
limitations set forth in the most recent notice thereof
furnished by the Adviser to the Fund. For purposes of this
paragraph there shall be excluded from computation of the Fund's
expenses any amount borne directly or indirectly by the Fund
which is permitted to be excluded from the computation of such
limitation by such statute or regulatory authority. If for any
month expenses of the Fund properly included in such calculation
exceed 1/12 of the amount permitted annually by the most
restrictive applicable expense limitation, the payment to the
Adviser for that month shall be reduced, and, if necessary, the
Adviser shall make a refund payment to the Fund, so that the
total net expense for the month will not exceed 1/12 of such
amount. As of the end of the Fund's fiscal year, however, the
computations and payments shall be readjusted so that the
aggregate compensation payable to the Adviser for the year is
equal to the fee set forth in subsection (a) of this Section 2,
diminished to the extent necessary so that the expenses for the
year do not exceed those permitted by the applicable expense
limitation.
(c) Determination of Net Asset Value. The net asset value of
the Fund shall be calculated as of the close of the New York
Stock Exchange on each day the Exchange is open for trading or
such other time or times as the trustees may determine in
accordance with the provisions of applicable law and of the
Declaration of Trust and By-Laws of the Trust, and resolutions
of the Board of Trustees of the Fund as from time to time in
force. For the purpose of the foregoing computations, on each
such day when net asset value is not calculated, the net asset
value of a share of beneficial interest of the Fund shall be
deemed to be the net asset value of such share as of the close
of business of the last day on which such calculation was made.
2
<PAGE> 3
(d) Proration. For the month and year in which this Agreement
becomes effective or terminates, there shall be an appropriate
proration of the Adviser's fee on the basis of the number of
days that the Agreement is in effect during such month and year,
respectively.
3. Expenses. In addition to the fee of the Adviser, the Fund
shall assume and pay any expenses for services rendered by a
custodian for the safekeeping of the Fund's securities or other
property, for keeping its books of account, for any other
charges of the custodian and for calculating the net asset value
of the Fund as provided above. The Adviser shall not be
required to pay, and the Fund shall assume and pay, the charges
and expenses of its operations, including compensation of the
trustees (other than those who are interested persons of the
Adviser and other than those who are interested persons of the
distributor of the Fund but not of the Adviser, if the
distributor has agreed to pay such compensation), charges and
expenses of independent accountants, of legal counsel and of any
transfer or dividend disbursing agent, costs of acquiring and
disposing of portfolio securities, cost of listing shares of the
New York Stock Exchange or other exchange interest (if any) on
obligations incurred by the Fund, costs of share certificates,
membership dues in the Investment Company Institute or any
similar organization, costs of reports and notices to
shareholders, costs of registering shares of the Fund under the
federal securities laws, miscellaneous expenses and all taxes
and fees to federal, state or other governmental agencies on
account of the registration of securities issued by the Fund,
filing of corporate documents or otherwise. The Fund shall not
pay or incur any obligation for any management or administrative
expenses for which the Fund intends to seek reimbursement from
the Adviser without first obtaining the written approval of the
Adviser. The Adviser shall arrange, if desired by the Fund, for
officers or employees of the Adviser to serve, without
compensation from the Fund, as trustees, officers or agents of
the Fund if duly elected or appointed to such positions and
subject to their individual consent and to any limitations
imposed by law.
4. Interested Persons. Subject to applicable statutes and
regulations, it is understood that trustees, officers,
shareholders and agents of the Fund are or may be interested in
the Adviser as directors, officers, shareholders, agents or
otherwise and that the directors, officers, shareholders and
agents of the Adviser may be interest in the Fund as trustees,
officers, shareholders, agents or otherwise.
5. Liability. The Adviser shall not be liable for any error of
judgment or of law, or for any loss suffered by the Fund in
connection with the matters to which this Agreement relates,
except a loss resulting from willful misfeasance, bad faith or
gross negligence on the part of the Adviser in the performance
of its obligations and duties, or by reason of its reckless
disregard of its obligations and duties under this Agreement.
6. (a) Term. This Agreement shall become effective on the
date hereof and shall remain in full force until the second
anniversary of the date hereof unless sooner terminated as
hereinafter provided. This Agreement shall continue in force
3
<PAGE> 4
from year to year thereafter, but only as long as such
continuance is specifically approved as least annually in the
manner required by the Investment Company Act of 1940, as
amended.
(b) Termination. This Agreement shall automatically
terminate in the event of its assignment. This Agreement may be
terminated at any time without the payment of any penalty by the
Fund or by the Adviser on sixty (60) days written notice to the
other party. The Fund may effect termination by action of the
Board of Trustees or by vote of a majority of the outstanding
shares of stock of the Fund, accompanied by appropriate notice.
This Agreement may be terminated at any time without the payment
of any penalty and without advance notice by the Board of
Trustees or by vote of a majority of the outstanding shares of
the Fund in the event that it shall have been established by a
court of competent jurisdiction that the Adviser or any officer
or director of the Adviser has taken any action which results in
a breach of the covenants of the Adviser set forth herein.
(c) Payment upon Termination. Termination of this Agreement
shall not affect the right of the Adviser to receive payment on
any unpaid balance of the compensation described in Section 2
earned prior to such termination.
7. Severability. If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or
otherwise, the remainder shall not thereby affected.
8. Notices. Any notice under this Agreement shall be in
writing, addressed and delivered or mailed, postage prepaid, to
the other party at such address as such other party may
designate for the receipt of such notice.
9. Disclaimer. The Adviser acknowledges and agrees that, as
provided by Article 8, Section 8.1 of the Agreement and Declaration of Trust of
the Trust, the shareholders, trustees, officers, employees and other agents of
the Trust and the Fund shall not personally be bound by or liable hereunder,
nor shall resort be had to their private property for the satisfaction of any
obligation or claim hereunder.
10. Governing Law. All questions concerning the validity,
meaning and effect of this Agreement shall be determined in
accordance with the laws (without giving effect to the
conflict-of-law principles thereof) of the State of Delaware
applicable to contracts made and to be performed in that state.
4
<PAGE> 5
IN WITNESS WHEREOF, the Fund and the Adviser have caused this
Agreement to be executed on the day and year first above written.
VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP.
By:_____________________________________________
Dennis J. McDonnell, President
VAN KAMPEN AMERICAN CAPITAL GROWTH FUND, a series of
VAN KAMPEN AMERICAN CAPITAL EQUITY TRUST
By:_____________________________________________
Dennis J. McDonnell, President
5
<PAGE> 1
EXHIBIT 5(vi)
FORM OF
INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT dated as of _________, 199_, by and
between VAN KAMPEN AMERICAN CAPITAL PROSPECTOR FUND (the "Fund"), a series of
VAN KAMPEN AMERICAN CAPITAL EQUITY TRUST, a Delaware business trust (the
"Trust"), and VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP. (the
"Adviser"), a Delaware corporation.
1. (a) Retention of Adviser by Fund. The Fund hereby employs
the Adviser to act as the investment adviser for and to manage
the investment and reinvestment of the assets of the Fund in
accordance with the Fund's investment objective and policies and
limitations, and to administer its affairs to the extent
requested by, and subject to the review and supervision of, the
Board of Trustees of the Fund for the period and upon the terms
herein set forth. The investment of funds shall be subject to
all applicable restrictions of applicable law and of the
Declaration of Trust and By-Laws of the Trust, and resolutions
of the Board of Trustees of the Fund as may from time to time be
in force and delivered or made available to the Adviser.
(b) Adviser's Acceptance of Employment. The Adviser accepts
such employment and agrees during such period to render such
services, to supply investment research and portfolio management
(including without limitation the selection of securities for
the Fund to purchase, hold or sell and the selection of brokers
through whom the Fund's portfolio transactions are executed, in
accordance with the policies adopted by the Fund and its Board
of Trustees), to administer the business affairs of the Fund, to
furnish offices and necessary facilities and equipment to the
Fund, to provide administrative services for the Fund, to render
periodic reports to the Board of Trustees of the Fund, and to
permit any of its officers or employees to serve without
compensation as trustees or officers of the Fund if elected to
such positions.
(c) Independent Contractor. The Adviser shall be deemed
to be an independent contractor under this Agreement and, unless
otherwise expressly provided or authorized, shall have no
authority to act for or represent the Fund in any way or
otherwise be deemed as agent of the Fund.
(d) Non-Exclusive Agreement. The services of the Adviser to
the Fund under this Agreement are not to be deemed exclusive,
and the Adviser shall be free to render similar services or
other services to others so long as its services hereunder are
not impaired thereby.
1
<PAGE> 2
2. (a) Fee. For the services and facilities described in
Section 1, the Fund will accrue daily and pay to the Adviser at
the end of each calendar month an investment management fee
equal to a percentage of the average daily net assets of the
Fund as follows:
FEE PERCENT OF
AVERAGE DAILY AVERAGE DAILY
NET ASSETS NET ASSETS
____________________ ____________________
____________________ ____________________
(b) Expense Limitation. The Adviser's compensation for any
fiscal year of the Fund shall be reduced by the amount, if any,
by which the Fund's expense for such fiscal year exceeds the
most restrictive applicable expense jurisdiction in which the
Fund's shares are qualified for offer and sale, as such
limitations set forth in the most recent notice thereof
furnished by the Adviser to the Fund. For purposes of this
paragraph there shall be excluded from computation of the Fund's
expenses any amount borne directly or indirectly by the Fund
which is permitted to be excluded from the computation of such
limitation by such statute or regulatory authority. If for any
month expenses of the Fund properly included in such calculation
exceed 1/12 of the amount permitted annually by the most
restrictive applicable expense limitation, the payment to the
Adviser for that month shall be reduced, and, if necessary, the
Adviser shall make a refund payment to the Fund, so that the
total net expense for the month will not exceed 1/12 of such
amount. As of the end of the Fund's fiscal year, however, the
computations and payments shall be readjusted so that the
aggregate compensation payable to the Adviser for the year is
equal to the fee set forth in subsection (a) of this Section 2,
diminished to the extent necessary so that the expenses for the
year do not exceed those permitted by the applicable expense
limitation.
(c) Determination of Net Asset Value. The net asset value of
the Fund shall be calculated as of the close of the New York
Stock Exchange on each day the Exchange is open for trading or
such other time or times as the trustees may determine in
accordance with the provisions of applicable law and of the
Declaration of Trust and By-Laws of the Trust, and resolutions
of the Board of Trustees of the Fund as from time to time in
force. For the purpose of the foregoing computations, on each
such day when net asset value is not calculated, the net asset
value of a share of beneficial interest of the Fund shall be
deemed to be the net asset value of such share as of the close
of business of the last day on which such calculation was made.
2
<PAGE> 3
(d) Proration. For the month and year in which this Agreement
becomes effective or terminates, there shall be an appropriate
proration of the Adviser's fee on the basis of the number of
days that the Agreement is in effect during such month and year,
respectively.
3. Expenses. In addition to the fee of the Adviser, the Fund
shall assume and pay any expenses for services rendered by a
custodian for the safekeeping of the Fund's securities or other
property, for keeping its books of account, for any other
charges of the custodian and for calculating the net asset value
of the Fund as provided above. The Adviser shall not be
required to pay, and the Fund shall assume and pay, the charges
and expenses of its operations, including compensation of the
trustees (other than those who are interested persons of the
Adviser and other than those who are interested persons of the
distributor of the Fund but not of the Adviser, if the
distributor has agreed to pay such compensation), charges and
expenses of independent accountants, of legal counsel and of any
transfer or dividend disbursing agent, costs of acquiring and
disposing of portfolio securities, cost of listing shares of the
New York Stock Exchange or other exchange interest (if any) on
obligations incurred by the Fund, costs of share certificates,
membership dues in the Investment Company Institute or any
similar organization, costs of reports and notices to
shareholders, costs of registering shares of the Fund under the
federal securities laws, miscellaneous expenses and all taxes
and fees to federal, state or other governmental agencies on
account of the registration of securities issued by the Fund,
filing of corporate documents or otherwise. The Fund shall not
pay or incur any obligation for any management or administrative
expenses for which the Fund intends to seek reimbursement from
the Adviser without first obtaining the written approval of the
Adviser. The Adviser shall arrange, if desired by the Fund, for
officers or employees of the Adviser to serve, without
compensation from the Fund, as trustees, officers or agents of
the Fund if duly elected or appointed to such positions and
subject to their individual consent and to any limitations
imposed by law.
4. Interested Persons. Subject to applicable statutes and
regulations, it is understood that trustees, officers,
shareholders and agents of the Fund are or may be interested in
the Adviser as directors, officers, shareholders, agents or
otherwise and that the directors, officers, shareholders and
agents of the Adviser may be interest in the Fund as trustees,
officers, shareholders, agents or otherwise.
5. Liability. The Adviser shall not be liable for any error of
judgment or of law, or for any loss suffered by the Fund in
connection with the matters to which this Agreement relates,
except a loss resulting from willful misfeasance, bad faith or
gross negligence on the part of the Adviser in the performance
of its obligations and duties, or by reason of its reckless
disregard of its obligations and duties under this Agreement.
6. (a) Term. This Agreement shall become effective on the
date hereof and shall remain in full force until the second
anniversary of the date hereof unless sooner terminated as
hereinafter provided. This Agreement shall continue in force
3
<PAGE> 4
from year to year thereafter, but only as long as such
continuance is specifically approved as least annually in the
manner required by the Investment Company Act of 1940, as
amended.
(b) Termination. This Agreement shall automatically
terminate in the event of its assignment. This Agreement may be
terminated at any time without the payment of any penalty by the
Fund or by the Adviser on sixty (60) days written notice to the
other party. The Fund may effect termination by action of the
Board of Trustees or by vote of a majority of the outstanding
shares of stock of the Fund, accompanied by appropriate notice.
This Agreement may be terminated at any time without the payment
of any penalty and without advance notice by the Board of
Trustees or by vote of a majority of the outstanding shares of
the Fund in the event that it shall have been established by a
court of competent jurisdiction that the Adviser or any officer
or director of the Adviser has taken any action which results in
a breach of the covenants of the Adviser set forth herein.
(c) Payment upon Termination. Termination of this Agreement
shall not affect the right of the Adviser to receive payment on
any unpaid balance of the compensation described in Section 2
earned prior to such termination.
7. Severability. If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or
otherwise, the remainder shall not thereby affected.
8. Notices. Any notice under this Agreement shall be in
writing, addressed and delivered or mailed, postage prepaid, to
the other party at such address as such other party may
designate for the receipt of such notice.
9. Disclaimer. The Adviser acknowledges and agrees that, as
provided by Article 8, Section 8.1 of the Agreement and Declaration of Trust of
the Trust, the shareholders, trustees, officers, employees and other agents of
the Trust and the Fund shall not personally be bound by or liable hereunder,
nor shall resort be had to their private property for the satisfaction of any
obligation or claim hereunder.
10. Governing Law. All questions concerning the validity,
meaning and effect of this Agreement shall be determined in
accordance with the laws (without giving effect to the
conflict-of-law principles thereof) of the State of Delaware
applicable to contracts made and to be performed in that state.
4
<PAGE> 5
IN WITNESS WHEREOF, the Fund and the Adviser have caused this
Agreement to be executed on the day and year first above written.
VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP.
By:_____________________________________________
Dennis J. McDonnell, President
VAN KAMPEN AMERICAN CAPITAL PROSPECTOR FUND, a series
of VAN KAMPEN AMERICAN CAPITAL EQUITY TRUST
By:_____________________________________________
Dennis J. McDonnell, President
5
<PAGE> 1
Exhibit 10
October 13, 1995
Van Kampen American Capital
Equity Trust
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Re: Van Kampen American Capital Equity Trust --
Registration Statement on Form N-1A
(File Nos. 33-8122 and 811-4805)
Ladies and Gentlemen:
We have acted as counsel to each series listed on Schedule A attached
hereto (each a "Fund" or collectively the "Funds") of Van Kampen American
Capital Equity Trust (the "Trust"), a voluntary association with transferable
shares organized and existing under and by virtue of the laws of the State of
Delaware, in connection with the preparation of Post-Effective Amendment No. 25
to the Trust's Registration Statement on Form N1-A (as so amended, the
"Registration Statement") to be filed under the Securities Act of 1933, as
amended (the "1933 Act"), and the Investment Company Act of 1940, as amended
(the "1940 Act"), with the Securities and Exchange Commission (the
"Commission") on October 13, 1995. The Registration Statement relates to the
registration under the 1933 Act and 1940 Act of an indefinite number of each of
Class A Shares of beneficial interest, $.01 par value per share, Class B Shares
of beneficial interest, $.01 par value per share, and Class C Shares of
beneficial interest, $.01 par value per share, of each Fund (collectively, the
"Shares"). The Trust has stated in Post-Effective Amendment No. 23 to the
Registration Statement that it is adopting the Registration Statement of Van
Kampen Merritt Equity Trust, a Massachusetts business trust (the "Old Trust"),
which was reorganized into the Trust as of July 31, 1995.
<PAGE> 2
Van Kampen American Capital
Equity Trust
October 13, 1994
Page 2
The Shares will be sold pursuant to a distribution and service agreement
to be entered into among the Trust, on behalf of each Fund, and Van Kampen
American Capital Distributors, Inc. (the "Distribution Agreement").
The Old Trust is a party to an "Order Pursuant to Section 6(c) of the
Investment Company Act for an Exemption from the Provisions of Sections
2(a)(32), 2(a)(35), 18(f), 18(g), 18(i), 22(c) and 22(9d) of such Act and Rule
22c-1 thereunder" (the "Exemptive Order"), issued by the Commission on July 28,
1993, allowing registered investment companies party thereto to issue an
unlimited number of classes of securities (including the Class A Shares, Class
B Shares and Class C Shares) with varying combinations of sales charges,
distribution fees and service fees, the application for which Exemptive Order
requested that such order apply to entities organized for the purpose of
changing the state of domicile of the original parties to such Order.
This opinion is delivered in accordance with the requirements of Item
24(b)(10) of Form N-1A under the 1933 Act and the 1940 Act.
In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of (i) the Registration
Statement, (ii) the Agreement and Declaration of Trust and By-Laws of the
Trust, each as amended to date (the "Declaration of Trust" and "By-Laws",
respectively), (iii) the designations of series with respect to each Fund, (iv)
copies of the resolutions adopted by the Board of Trustees of the Trust
relating to the authorization, issuance and sale of the shares, the filing of
the Registration Statement and any amendments or supplements thereto and
related matters, (v) the form of Distribution Agreement, (vi) the Exemptive
Order and (vii) such other documents as we have deemed necessary or appropriate
as a basis for the opinions set forth herein. In such examination, we have
assumed the genuineness of all signatures, the legal capacity of all natural
persons, the
<PAGE> 3
Van Kampen American Capital
Equity Trust
October 13, 1994
Page 3
authenticity of all documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as certified, conformed or
photostatic copies and the authenticity of the originals of such copies. We
have also assumed that the Distribution Agreement, when executed and delivered
by the parties thereto, will be in the form reviewed by us in connection with
this opinion and that each Fund will be entitled to rely on the Exemptive Order
as if it were a party thereto. As to any facts material to the opinions
expressed herein which we have not independently established or verified, we
have relied upon statements and representations of officers and other
representatives of the Trust and others.
Members of our firm are admitted to the practice of law in the State of
Delaware, and we express no opinion as to the laws of any other jurisdiction.
Based upon and subject to the foregoing, we are of the opinion that
when (i) the Registration Statement (and such other Post-Effective Amendments,
if any, to the Registration Statement relating to the public offering of the
Shares) shall have become effective under the 1933 Act, (ii) the Distribution
Agreement is duly executed and delivered by the trust and the other respective
parties thereto and (iii) certificates representing the Shares are duly
executed, countersigned, registered and duly delivered and paid for in
accordance with the Distribution Agreement, the Shares will be validly issued,
fully paid and nonassessable.
We hereby consent to the filing of this opinion with the Commission as
Exhibit 10 to the Registration Statement. We also 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 1933 Act or the rules
and regulations of the Commission.
Very truly yours,
<PAGE> 4
SCHEDULE A
Van Kampen American Capital Value Fund
Van Kampen American Capital Great American Companies Fund
Van Kampen American Capital Growth Fund
Van Kampen American Capital Prospector Fund
<PAGE> 1
EXHIBIT 17(a)
INVESTMENT COMPANIES FOR WHICH
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
ACTS AS PRINCIPAL UNDERWRITER OR DEPOSITOR
SEPTEMBER 29, 1995
Van Kampen American Capital U.S. Government Trust
Van Kampen American Capital Tax Free Fund
Van Kampen American Capital Insured Tax Free Income Fund
Van Kampen American Capital Tax Free High Income Fund
Van Kampen American Capital California Insured Tax Free Fund
Van Kampen American Capital Municipal Income Fund
Van Kampen American Capital Limited Term Municipal Income Fund
Van Kampen American Capital Florida Insured Tax Free Income Fund
Van Kampen American Capital New Jersey Tax Free Income Fund
Van Kampen American Capital New York Tax Free Income Fund
Van Kampen American Capital Trust
Van Kampen American Capital High Yield Fund
Van Kampen American Capital Short-Term Global Income Fund
Van Kampen American Capital Strategic Income Fund
Van Kampen American Capital Emerging Markets Income Fund
Van Kampen American Capital Growth Fund
Van Kampen American Capital Equity Trust
Van Kampen American Capital Utility Fund
Van Kampen American Capital Balanced Fund
Van Kampen American Capital Total Return Fund
Van Kampen American Capital Pennsylvania Tax Free Income Fund
Van Kampen American Capital Tax Free Money Fund
Van Kampen American Capital Prime Rate Income Trust
Van Kampen American Capital Series Trust
Van Kampen American Capital Comstock Fund
Van Kampen American Capital Corporate Bond Fund
Van Kampen American Capital Emerging Growth Fund
Van Kampen American Capital Enterprise Fund
Van Kampen American Capital Equity Income Fund
Van Kampen American Capital Limited Maturity Government Fund
Van Kampen American Capital Global Managed Assets Fund
Van Kampen American Capital Government Securities fund
Van Kampen American Capital Government Target Fund
Van Kampen American Capital Growth and Income Fund
Van Kampen American Capital Harbor Fund
Van Kampen American Capital High Income Corporate Bond Fund
Van Kampen American Capital Life Investment Trust
Van Kampen American Capital Pace Fund
Van Kampen American Capital Real Estate Securities Fund
Van Kampen American Capital Reserve Fund
Van Kampen American Capital Tax-Exempt Trust
Van Kampen American Capital Texas Tax Free Fund
Van Kampen American Capital U.S. Government Trust for Income
Van Kampen American Capital World Portfolio Series Trust
The Govett Funds, Inc.
<PAGE> 2
<TABLE>
<S> <C>
Emerging Markets Municipal Income Trust . . . . . . . . . . . . . . . . . . . . . . . Series 1
Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 352
Insured Municipals Income Trust (Discount) . . . . . . . . . . . . . . . . . . . . Series 5 through 13
Insured Municipals Income Trust (Short Intermediate Term) . . . . . . . . . . . . . Series 1 through
1009 Insured Municipals Income Trust (Intermediate Term) . . . . . . . . . . . . . . Series 5 through 84
Insured Municipals Income Trust (Limited Term) . . . . . . . . . . . . . . . . . . . Series 9 through 80
Insured Municipals Income Trust (Premium Bond Series) . . . . . . . . . . . . . . . Series 1 through 3
Insured Municipals Income Trust (Intermediate Laddered Maturity) . . . . . . . . . . Series 1 and 2
Insured Tax Free Bond Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 6
Insured Tax Free Bond Trust (Limited Term) . . . . . . . . . . . . . . . . . . . . . Series 1
Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through
Investors' Quality Tax-Exempt Trust-Intermediate . . . . . . . . . . . . . . . . . . Series 1
Investors' Corporate Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 12
Investors' Governmental Securities Income Trust . . . . . . . . . . . . . . . . . . Series 1 through 7
Van Kampen Merritt International Bond Income Trust . . . . . . . . . . . . . . . . . Series 1 through 21
Alabama Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . Series 1
Alabama Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 9
Arizona Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . Series 1 through 16
Arizona Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . Series 1 through 12
Arkansas Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . Series 1 through 2
Arkansas Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . Series 1
California Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . Series 1 through 142
California Insured Municipals Income Trust (Premium Bond Series) . . . . . . . . . . Series 1
California Insured Municipals Income Trust (1st Intermediate Series) . . . . . . . . Series 1 through 3
California Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . Series 1 through 21
California Insured Municipals Income Trust (Intermediate Laddered) . . . . . . . . . Series 1 through 20
Colorado Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . Series 1 through 74
Colorado Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . Series 1 through 18
Connecticut Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . Series 1 through 27
Connecticut Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . Series 1
Delaware Investor's Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . Series 1 and 2
Florida Insured Municipal Income Trust - Intermediate . . . . . . . . . . . . . . . . Series 1 and 2
Florida Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 95
Florida Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . Series 1 and 2
Florida Insured Municipals Income Trust (Intermediate Laddered) . . . . . . . . . . . Series 1 through 12
Georgia Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 76
Georgia Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . Series 1 through 16
Hawaii Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . Series 1
Investors' Quality Municipals Trust (AMT) . . . . . . . . . . . . . . . . . . . . . . Series 1 through 9
Kansas Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . Series 1 through 11
Kentucky Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . Series 1 through 55
Louisiana Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . Series 1 through 13
Maine Investor's Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . Series 1
Maryland Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . Series 1 through 72
Massachusetts Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . Series 1 through 31
Massachusetts Insured Municipals Income Trust (Premium Bond Series) . . . . . . . . Series 1
Michigan Financial Institutions Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1
Michigan Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . Series 1 through 130
Michigan Insured Municipals Income Trust (Premium Bond Series) . . . . . . . . . . . Series 1
Michigan Insured Municipals Income Trust (1st Intermediate Series) . . . . . . . . . Series 1 through 3
Michigan Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . Series 1 through 30
Minnesota Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . Series 1 through 55
Minnesota Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . Series 1 through 21
Missouri Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . Series 1 through 90
Missouri Insured Municipals Income Trust (Premium Bond Series) . . . . . . . . . . . Series 1
Missouri Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . Series 1 through 15
Missouri Insured Municipals Income Trust
(Intermediate Laddered Maturity) . . . . . . . . . . . . . . . . . . . . . . . . . Series 1
Nebraska Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . Series 1 through 9
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
New Mexico Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . Series 1 through 17
New Jersey Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . Series 1 through 104
New Jersey Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . Series 1 through 22
New Jersey Insured Municipals Income Trust
(Intermediate Laddered Maturity) . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 and 4
New York Insured Municipals Income Trust-Intermediate . . . . . . . . . . . . . . . . Series 1 through 6
New York Insured Municipals Income Trust (Limited Term) . . . . . . . . . . . . . . . Series 1
New York Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . Series 1 through 127
New York Insured Tax-Free Bond Trust . . . . . . . . . . . . . . . . . . . . . . . Series 1
New York Insured Municipals Income Trust
(Intermediate Laddered Maturity) . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 15
New York Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . Series 1
North Carolina Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . Series 1 through 81
Ohio Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 97
Ohio Insured Municipals Income Trust (Premium Bond Series) . . . . . . . . . . . . . Series 1 and 2
Ohio Insured Municipals Income Trust (Intermediate Term) . . . . . . . . . . . . . . Series 1
Ohio Insured Municipals Income Trust
(Intermediate Laddered Maturity) . . . . . . . . . . . . . . . . . . . . . . . . . . Series 3 through 6
Ohio Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . Series 1 through 16
Oklahoma Insured Municipal Income Trust . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 16
Oregon Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . Series 1 through 53
Pennsylvania Insured Municipals Income Trust - Intermediate . . . . . . . . . . . . . Series 1 through 6
Pennsylvania Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . Series 1 through 204
Pennsylvania Insured Municipals Income Trust (Premium Bond Series) . . . . . . . . . Series 1
Pennsylvania Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . Series 1 through 14
South Carolina Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . Series 1 through 79
Tennessee Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . Series 1-3 and 5-31
Texas Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 40
Texas Insured Municipal Income Trust (Intermediate Ladder) . . . . . . . . . . . . . Series 1
Virginia Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . Series 1 through 65
Van Kampen Merritt Utility Income Trust . . . . . . . . . . . . . . . . . . . . . . Series 1 through 6
Van Kampen Merritt Insured Income Trust . . . . . . . . . . . . . . . . . . . . . . Series 1 through 45
Van Kampen Merritt Insured Income Trust (Intermediate Term) . . . . . . . . . . . . . Series 1 through 44
Van Kampen Merritt Select Equity Trust . . . . . . . . . . . . . . . . . . . . . . . Series 1
Van Kampen Merritt Select Equity and Treasury Trust . . . . . . . . . . . . . . . . . Series 1
Washington Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . Series 1
West Virginia Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . Series 1 through 5
</TABLE>
<PAGE> 1
EXHIBIT 17(b)
OFFICERS
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
<TABLE>
<CAPTION>
NAME OFFICE LOCATION
- ---- ------ --------
<S> <C> <C>
Don G. Powell Chairman & Chief Executive Officer Houston, TX
William R. Molinari President & Chief Operating Oakbrook Terrace, IL
Officer
Ronald A. Nyberg Executive Vice President & General Oakbrook Terrace, IL
Counsel
William R. Rybak Executive Vice President & Chief Oakbrook Terrace, IL
Financial Officer
Robert A. Broman Sr. Vice President Oakbrook Terrace, IL
Gary R. DeMoss Sr. Vice President Oakbrook Terrace, IL
Robert J. Froehlich Sr. Vice President Oakbrook Terrace, IL
Keith K. Furlong Sr. Vice President Oakbrook Terrace, IL
Richard D. Humphrey Sr. Vice President Houston, TX
Scott E. Martin Sr. Vice President, Deputy General Oakbrook Terrace, IL
Counsel & Secretary
Charles G. Millington Sr. Vice President & Treasurer Oakbrook Terrace, IL
Robert S. West Sr. Vice President Oakbrook Terrace, IL
John H. Zimmermann, III Sr. Vice President Oakbrook Terrace, IL
Timothy K. Brown 1st Vice President Laguna Niguel, CA
James S. Fosdick 1st Vice President Oakbrook Terrace, IL
Edward F. Lynch 1st Vice President Oakbrook Terrace, IL
Mark R. McClure 1st Vice President Oakbrook Terrace, IL
Mark T. McGannon 1st Vice President Oakbrook Terrace, IL
James J. Ryan 1st Vice President Oakbrook Terrace, IL
Michael L. Stallard 1st Vice President Oakbrook Terrace, IL
David M. Swanson 1st Vice President Oakbrook Terrace, IL
Laurence J. Althoff Vice President & Controller Oakbrook Terrace, IL
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C>
James K. Ambrosio Vice President Massapequa, NY
Patricia A. Bettlach Vice President St. Louis, MO
Carol S. Biegel Vice President Oakbrook Terrace, IL
Linda Mae Brown Vice President Oakbrook Terrace, IL
William F. Burke, Jr. Vice President Mendham, NJ
Thomas M. Byron Vice President Oakbrook Terrace, IL
Glenn M. Cackovic Vice President Laguna Niguel, CA
Joseph N. Caggiano Vice President New York, NY
Richard J. Charlino Vice President Oakbrook Terrace, IL
Eleanor M. Cloud Vice President Oakbrook Terrace, IL
Dominick Cogliandro Vice President & Asst. Treasurer New York, NY
Suzanne Cummings Vice President Houston, TX
David B. Dibo Vice President Oakbrook Terrace, IL
Howard A. Doss Vice President Tampa, FL
Charles Edward Fisher Vice President Oakbrook Terrace, IL
William J. Fow Vice President Redding, CT
Erich P. Gerth Vice President Dallas, TX
John A. Hanhauser Vice President Philadelphia, PA
Eric J. Hargens Vice President Orlando, FL
J. Christopher Jackson Vice President, Assoc. General Oakbrook Terrace, IL
Counsel & Asst. Secretary
Dana R. Klein Vice President Oakbrook Terrace, IL
Ann Marie Klingenhagen Vice President Oakbrook Terrace, IL
David R. Kowalski Vice President & Director Oakbrook Terrace, IL
of Compliance
S. William Lehew III Vice President Charlotte, NC
Robert C. Lodge Vice President Philadelphia, PA
Walter Lynn Vice President Flower Mound, TX
Michele L. Manley Vice President Oakbrook Terrace, IL
Kevin S. Marsh Vice President Bellevue, WA
Ruth L. McKeel Vice President Oakbrook Terrace, IL
Ronald E. Pratt Vice President Marietta, GA
Craig S. Prichard Vice President Oakbrook Terrace, IL
Walter E. Rein Vice President Oakbrook Terrace, IL
Michael W. Rohr Vice President Oakbrook Terrace, IL
James B. Ross Vice President Oakbrook Terrace, IL
Heather R. Sabo Vice President Richmond, VA
Colette Saucedo Vice President Houston, TX
Lisa A. Schomer Vice President Oakbrook Terrace, IL
Ronald J. Schuster Vice President Tampa, FL
Kimberly M. Spangler Vice President Atlanta, GA
Darren D. Stabler Vice President Phoenix, AZ
Christopher J. Staniforth Vice President Leawood, KS
William C. Strafford Vice President Granger, IN
James C. Taylor Vice President Oakbrook Terrace, IL
John F. Tierney Vice President Oakbrook Terrace, IL
Curtis L. Ulvestad Vice President Red Wing, MN
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
Jeffrey A. Urbina Vice President Oakbrook Terrace, IL
Sandra A. Waterworth Vice President and Assistant Oakbrook Terrace, IL
Secretary
Steven T. West Vice President Wayne, PA
Weston B. Wetherell Vice President, Assoc. General Oakbrook Terrace, IL
Counsel & Asst. Secretary
James R. Yount Vice President Seattle, WA
Richard P. Zgonina Vice President Oakbrook Terrace, IL
Eric J. Bridges Asst. Vice President Oakbrook Terrace, IL
Richard B. Callaghan Asst. Vice President Oakbrook Terrace, IL
Stephen M. Cutka Asst. Vice President Oakbrook Terrace, IL
Gerald A. Davis Asst. Vice President Oakbrook Terrace, IL
Jeanette M. Dierkes Asst. Vice President Oakbrook Terrace, IL
Jerome M. Dybzinski Asst. Vice President Oakbrook Terrace, IL
Melissa B. Epstein Asst. Vice President Houston, TX
Robert D. Gorski Asst. Vice President Oakbrook Terrace, IL
Joseph Hays Asst. Vice President Philadelphia, PA
Susan J. Hill Asst. Vice President Oakbrook Terrace, IL
Natalie N. Hurdle Asst. Vice President New York, NY
Laurie L. Jones Asst. Vice President Houston, TX
Brian T. Levinson Asst. Vice President Houston, TX
Peggy E. Moro Asst. Vice President Oakbrook Terrace, IL
David R. Niemi Asst. Vice President Oakbrook Terrace, IL
Daniel J. O'Keefe Asst. Vice President Oakbrook Terrace, IL
Allison Okun Asst. Vice President Oakbrook Terrace, IL
David B. Partain Asst. Vice President Oakbrook Terrace, IL
Scott M. Pulkrabek Asst. Vice President Oakbrook Terrace, IL
Christine K. Putong Asst. Vice President & Asst. Secretary Oakbrook Terrace, IL
Michael Quinn Asst. Vice President Oakbrook Terrace, IL
David P. Robbins Asst. Vice President Oakbrook Terrace, IL
Thomas J. Sauerborn Asst. Vice President New York, NY
Andrew J. Scherer Asst. Vice President Oakbrook Terrace, IL
Jeffrey C. Shirk Asst. Vice President Philadelphia, PA
Traci T. Sorensen Asst. Vice President Oakbrook Terrace, IL
David H. Villarreal Asst. Vice President Oakbrook Terrace, IL
Kathleen M. Wennerstrum Asst. Vice President Oakbrook Terrace, IL
Barbara A. Withers Asst. Vice President Oakbrook Terrace, IL
Melinda K. Yeager Asst. Vice President Houston, TX
Huey P. Falgout, Jr. Asst. Secretary Houston, TX
Nori L. Gabert Asst. Secretary Houston, TX
David C. Goodwin Asst. Secretary Oakbrook Terrace, IL
Gina M. Scumaci Asst. Secretary Oakbrook Terrace, IL
</TABLE>
<PAGE> 4
DIRECTORS
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
<TABLE>
<CAPTION>
NAME OFFICE LOCATION
- ---- ------ --------
<S> <C> <C>
Don G. Powell Chairman & CEO 2800 Post Oak Blvd.Houston, TX 77056
William R. Molinari President & COO One Parkview Plaza
Oakbrook Terrace, IL 60181
Ronald A. Nyberg Executive Vice President One Parkview Plaza
& General Counsel Oakbrook Terrace, IL 60181
William R. Rybak Executive Vice President One Parkview Plaza
& CFO Oakbrook Terrace, IL 60181
</TABLE>
