<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 28, 1998
REGISTRATION NO. 2-15957
811-919
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
<TABLE>
<S> <C>
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 [X]
POST-EFFECTIVE AMENDMENT NO. 74 [X]
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 24 [X]
</TABLE>
VAN KAMPEN AMERICAN CAPITAL EQUITY INCOME FUND
(EXACT NAME OF REGISTRANT AS SPECIFIED IN DECLARATION OF TRUST)
ONE PARKVIEW PLAZA, OAKBROOK TERRACE, ILLINOIS 60181
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)(ZIP CODE)
(630) 684-6000
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
RONALD A. NYBERG, ESQ.
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
VAN KAMPEN AMERICAN CAPITAL, INC.
ONE PARKVIEW PLAZA
OAKBROOK TERRACE, IL 60181
(NAME AND ADDRESS OF AGENT FOR SERVICE)
---------------------
Copies to:
WAYNE W. WHALEN, ESQ.
THOMAS A. HALE, ESQ.
Skadden, Arps, Slate, Meagher & Flom (Illinois)
333 West Wacker Drive
Chicago, Illinois 60606
(312) 407-0700
---------------------
Approximate Date of Proposed Public Offering: As soon as practicable following
effectiveness of this Registration Statement.
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b)
[X] on April 30, 1998 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of Rule 485
If appropriate check the following:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
TITLE OF SECURITIES BEING REGISTERED: Shares of Beneficial Interest, par value
$0.01 per share.
================================================================================
<PAGE> 2
VAN KAMPEN AMERICAN CAPITAL EQUITY INCOME FUND
CROSS REFERENCE SHEET
(AS REQUIRED BY ITEM 501(B) OF REGULATION S-K)
<TABLE>
<CAPTION>
FORM N-1A ITEM PROSPECTUS CAPTION
PART A ------------------
<C> <S> <C>
1. Cover Page................................. Cover Page
2. Synopsis................................... Prospectus Summary; Shareholder Transaction
Expenses; Annual Fund Operating Expenses
and Example
3. Condensed Financial Information............ Financial Highlights
4. General Description of Registrant.......... The Fund; Investment Objectives and
Policies; Investment Practices; Description
of Shares of the Fund
5. Management of the Fund..................... Annual Fund Operating Expenses and Example;
The Fund; Investment Practices;
Investment Advisory Services; Inside Back
Cover
6. Capital Stock and Other Securities......... The Fund; Alternative Sales Arrangements;
Purchase of Shares; Shareholder Services;
Distribution and Service Plans;
Redemption of Shares; Distributions from
the Fund; Tax Status; Description of
Shares of the Fund; Additional
Information; Inside Back Cover
7. Purchase of Securities Being Offered....... Alternative Sales Arrangements; Purchase of
Shares; Shareholder Services;
Distribution and Service Plans
8. Redemption or Repurchase................... Shareholder Services; Redemption of Shares
9. Pending Legal Proceedings.................. Inapplicable
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF ADDITIONAL INFORMATION CAPTION
PART B -------------------------------------------
<C> <S> <C>
10. Cover Page................................. Cover Page
11. Table of Contents.......................... Table of Contents
12. General Information and History............ General Information
13. Investment Objectives and Policies......... Investment Restrictions; Repurchase
Agreements; Options, Futures Contracts and
Related Options
14. Management of the Fund..................... General Information; Trustees and Officers;
Investment Advisory Agreement
15. Control Persons and Principal Holders of
Securities............................... General Information; Trustees and Officers
16. Investment Advisory and Other Services..... General Information; Trustees and Officers;
Investment Advisory Agreement;
Distributor; Distribution and Service
Plans; Transfer Agent; Portfolio
Transactions and Brokerage; Other
Information
17. Brokerage Allocation and Other Practices... Portfolio Transactions and Brokerage
</TABLE>
<TABLE>
18. Capital Stock and Other Securities. Purchase and Redemption of Shares
<C> <S> <C>
19. Purchase, Redemption and Pricing of
Securities Being Offered................. Determination of Net Asset Value; Purchase
and Redemption of Shares; Exchange
Privilege
20. Tax Status................................. Tax Status of the Fund
21. Underwriters............................... Distributor
22. Calculation of Performance Data............ Fund Performance
23. Financial Statements....................... Report of Independent Accountants;
Financial Statements; Notes to Financial
Statements
</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.
<PAGE> 3
- --------------------------------------------------------------------------------
VAN KAMPEN AMERICAN CAPITAL
EQUITY INCOME FUND
- --------------------------------------------------------------------------------
Van Kampen American Capital Equity Income Fund (the "Fund") is a
diversified, open-end management investment company, commonly known as a mutual
fund. The Fund's primary investment objective is to seek the highest possible
income consistent with safety of principal. Long-term growth of capital is an
important secondary investment objective. The Fund attempts to achieve these
investment objectives by investing primarily in income-producing equity
instruments and debt securities issued by a wide group of companies in many
different industries. There is no assurance that the Fund will achieve its
investment objectives.
The Fund's investment adviser is Van Kampen American Capital Asset
Management, Inc. (the "Adviser"). This Prospectus sets forth certain information
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.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE REGULATORS NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE REGULATORS 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, OR 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 POSSIBLE LOSS OF PRINCIPAL.
A Statement of Additional Information, dated April 30, 1998, containing
additional information about the Fund is hereby incorporated by reference in its
entirety into this Prospectus. A copy of the Statement of Additional Information
may be obtained without charge by calling (800) 421-5666 or for
Telecommunications Device for the Deaf at (800) 421-2833. The Statement of
Additional Information has been filed with the Securities and Exchange
Commission ("SEC") and is available along with other related materials at the
SEC's internet web site (http://www.sec.gov).
------------------
VAN KAMPEN AMERICAN CAPITAL SM
------------------
THIS PROSPECTUS IS DATED APRIL 30, 1998.
<PAGE> 4
- ------------------------------------------------------------------------------
TABLE OF CONTENTS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 3
Shareholder Transaction Expenses............................ 5
Annual Fund Operating Expenses and Example.................. 6
Financial Highlights........................................ 8
The Fund.................................................... 10
Investment Objectives and Policies.......................... 10
Investment Practices........................................ 12
Investment Advisory Services................................ 17
Alternative Sales Arrangements.............................. 19
Purchase of Shares.......................................... 22
Shareholder Services........................................ 32
Redemption of Shares........................................ 36
Distribution and Service Plans.............................. 40
Distributions from the Fund................................. 42
Tax Status.................................................. 42
Fund Performance............................................ 47
Description of Shares of the Fund........................... 49
Additional Information...................................... 50
</TABLE>
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE FUND, THE 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.
2
<PAGE> 5
- ------------------------------------------------------------------------------
PROSPECTUS SUMMARY
- ------------------------------------------------------------------------------
THE FUND. Van Kampen American Capital Equity Income (the "Fund") is a
diversified, open-end management investment company organized as a Delaware
business trust.
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 OBJECTIVES. The primary investment objective of the Fund is to seek
the highest possible income consistent with safety of principal. Long-term
growth of capital is an important secondary investment objective. There is no
assurance that the Fund will achieve its investment objectives. See "Investment
Objectives and Policies."
INVESTMENT POLICY. The Fund seeks to achieve its investment objectives by
investing primarily in income-producing equity instruments and debt securities
issued by a wide group of companies in many different industries. Because prices
of common stocks and debt securities fluctuate, the value of an investment in
the Fund will vary based upon the Fund's investment performance. The medium
grade debt securities in which the Fund may invest are subject to greater market
risks and less assurance as to the ability of the issuer to meet its principal
and interest obligations than higher rated debt securities. Use of options,
futures contracts and related options may include additional risks. See
"Investment Practices -- Using Options, Futures Contracts and Related Options."
INVESTMENT RESULTS. The investment results of the Fund are shown in the table of
"Financial Highlights."
ALTERNATIVE SALES ARRANGEMENTS. The Fund offers three classes of shares to the
public, each with its own sales charge structure: Class A shares, Class B shares
and Class C shares. Each class has distinct advantages and disadvantages for
different investors, and investors may choose the class of shares that best
suits their circumstances and objectives. Each class of shares represents an
interest in the same portfolio of investments of the Fund. See "Alternative
Sales Arrangements." For information on redeeming shares see "Redemption of
Shares."
Class A Shares. Class A shares are offered at net asset value per share plus a
maximum initial sales charge of 5.75% of the offering price (6.10% of the net
amount invested), reduced on investments of $50,000 or more. Investments of $1
million or more are not subject to any sales charge at the time of purchase, but
a contingent deferred sales charge ("CDSC") of 1.00% may be imposed on
redemptions made within one year of the purchase. Class A shares are subject to
an annual service fee of up to 0.25% of its average daily net assets
attributable to such class of
3
<PAGE> 6
shares. See "Purchase of Shares -- Class A Shares" and "Distribution and Service
Plans."
Class B Shares. Class B shares are offered at net asset value per share and
are subject to a maximum CDSC of 5.00% on redemptions made within the first year
after purchase and declining thereafter to 0.00% after the fifth year. See
"Redemption of Shares." Class B shares are subject to a combined annual
distribution fee and service fee of up to 1.00% of the Fund's average daily net
assets attributable to such class of shares. See "Purchase of Shares -- Class B
Shares" and "Distribution and Service Plans." Class B shares convert
automatically to Class A shares eight years after the end of the calendar month
in which the shareholder's order to purchase was accepted. See "Alternative
Sales Arrangements -- Conversion Feature."
Class C Shares. Class C shares are offered at net asset value per share and
are subject to a CDSC of 1.00% on redemptions made within one year of purchase.
See "Redemption of Shares." Class C shares are subject to a combined annual
distribution fee and service fee of up to 1.00% of the Fund's average daily net
assets attributable to such class of shares. See "Purchase of Shares -- Class C
Shares" and "Distribution and Service Plans."
INVESTMENT ADVISER. Van Kampen American Capital Asset Management, Inc. (the
"Adviser") is the Fund's investment adviser.
DISTRIBUTOR. Van Kampen American Capital Distributors, Inc. (the "Distributor")
distributes the Fund's shares.
DISTRIBUTIONS FROM THE FUND. Dividends from net investment income are
distributed quarterly. Capital gains, if any, are distributed at least annually.
Such distributions are automatically reinvested in shares of the Fund at net
asset value per share (without a sales charge) unless payment in cash is
requested. See "Distributions from the Fund."
The foregoing is qualified in its entirety by reference to the more
detailed information appearing elsewhere in this Prospectus.
4
<PAGE> 7
- ------------------------------------------------------------------------------
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
offering price)............... 5.75%(1) None None
Maximum sales charge imposed on
reinvested dividends (as a
percentage of offering
price)........................ None None None
Deferred sales charge (as a
percentage of the lesser of
original purchase price or Year
redemption proceeds).......... None(2) Year 1--5.00% 1--1.00%
Year 2--4.00% After--None
Year 3--3.00%
Year 4--2.50%
Year 5--1.50%
After--None
Redemption fees (as a percentage
of amount redeemed)........... None None None
Exchange fee.................... None None None
</TABLE>
- ------------------------------------------------------------------------------
(1) Reduced for purchases of $50,000 and over. See "Purchase of Shares -- Class
A Shares."
(2) Investments of $1 million or more are not subject to any sales charge at the
time of purchase, but a CDSC of 1.00% may be imposed on redemptions made
within one year of the purchase. See "Purchase of Shares -- Class A Shares."
5
<PAGE> 8
- ------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES AND EXAMPLE
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- ------- -------
<S> <C> <C> <C>
Management Fees (as a percentage of average
daily net assets)........................ 0.38% 0.38% 0.38%
12b-1 Fees (as a percentage of average
daily net assets)(1)..................... 0.25% 1.00%(2) 1.00%(2)
Other Expenses (as a percentage of average
daily net assets)........................ 0.23% 0.26% 0.26%
Total Fund Operating Expenses (as a
percentage of average daily net
assets).................................. 0.86% 1.64% 1.64%
</TABLE>
- ------------------------------------------------------------------------------
(1) Class A shares are subject to an annual service fee of up to 0.25% of the
average daily net assets attributable to such class of shares. Class B
shares and Class C shares are each subject to a combined annual distribution
and service fee of up to 1.00% of the average daily net assets attributable
to such class of shares. See "Distribution and Service Plans."
(2) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted as a fund-level expense by NASD
Rules.
6
<PAGE> 9
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
EXAMPLE: ---- ----- ----- -----
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (i) an operating expense
ratio of 0.86% for Class A shares, 1.64% for
Class B shares and 1.64% for Class C shares,
(ii) a 5.00% annual return and (iii) redemption
at the end of each time period:
Class A....................................... $66 $83 $102 $157
Class B....................................... $67 $82 $104 $173*
Class C....................................... $27 $52 $ 89 $194
You would pay the following expenses on the same
$1,000 investment assuming no redemption at the
end of each time period:
Class A....................................... $66 $83 $102 $157
Class B....................................... $17 $52 $ 89 $173*
Class C....................................... $17 $52 $ 89 $194
</TABLE>
- ------------------------------------------------------------------------------
* Based on conversion to Class A shares after eight years.
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 and is
included to provide a means for the investor to compare expense levels of funds
with different fee structures over varying investment periods. To facilitate
such comparison, all funds are required by the SEC to utilize a 5.00% annual
return assumption. 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. Class B shares acquired through the
exchange privilege are subject to the CDSC schedule relating to the Class B
shares of the fund from which the purchase of Class B shares was originally
made. Accordingly, future expenses as projected could be higher than those
determined in the above table if the investor's Class B shares were exchanged
from a fund with a higher CDSC. 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 LESS THAN THOSE SHOWN. For a more complete
description of such costs and expenses, see "Purchase of Shares," "Investment
Advisory Services," "Redemption of Shares" and "Distribution and Service Plans."
7
<PAGE> 10
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (Selected data for a share of beneficial interest
outstanding throughout each of the periods indicated)
- --------------------------------------------------------------------------------
The following financial highlights have been audited by Price Waterhouse LLP,
independent accountants, whose report thereon was unqualified. The most recent
annual report (which contains financial highlights for the last five years) is
included in the Statement of Additional Information and may be obtained by
shareholders without charge by calling the telephone number on the cover page of
this Prospectus. This information should be read in conjunction with the
financial statements and notes thereto included in the Statement of Additional
Information.
<TABLE>
<CAPTION>
CLASS A SHARES
------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period.................... $6.740 $6.31 $5.16 $5.55 $5.15 $4.83 $4.00 $4.48 $3.94 $3.92
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Investment Income.......... .152 .158 .20 .21 .19 .205 .215 .22 .26 .30
Net Realized and Unrealized
Gain/Loss..................... 1.435 .796 1.458 (.317) .6055 .31 .83 (.42) .575 .18
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from Investment
Operations.................... 1.587 .954 1.658 (.107) .7955 .515 1.045 (.20) .835 .48
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less:
Distributions from and in
Excess of Net Investment
Income...................... .168 .156 .188 .1855 .168 .195 .215 .235 .295 .30
Distributions from Net
Realized Gain............... .917 .368 .32 .0975 .2275 -- -- .045 -- .16
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Distributions............ 1.085 .524 .508 .283 .3955 .195 .215 .28 .295 .46
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value, End of the
Period........................ $7.242 $6.740 $6.31 $5.16 $5.55 $5.15 $4.83 $4.00 $4.48 $3.94
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total Return (a)............... 24.13% 15.55% 32.57% (1.98%) 16.00% 10.72% 26.67% (4.68%) 21.74% 12.58%
Net Assets at End of the Period
(In millions)................. $638.1 $471.8 $349.9 $240.5 $187.6 $123.8 $103.1 $85.4 $102.4 $94.8
Ratios of Expenses to Average
Net Assets (b)................ .86% .97% .95% 1.02% 1.06% 1.01% 1.02% .89% .83% .79%
Ratio of Net Investment Income
to Average Net Assets (b)... 2.09% 2.50% 3.43% 3.60% 3.33% 3.95% 4.88% 5.39% 6.09% 7.32%
Portfolio Turnover............. 86% 99% 92% 92% 101% 74% 80% 150% 26% 73%
Average Commission Paid Per
Equity Share Traded (c)....... $.0566 $.0582 -- -- -- -- -- -- -- --
</TABLE>
(Table and footnotes continued on following page)
8
<PAGE> 11
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B SHARES
--------------------------------------------------------------
MAY 1, 1992
(COMMENCEMENT
YEAR ENDED DECEMBER 31 OF DISTRIBUTION)
------------------------------------------- TO DECEMBER 31,
1997 1996 1995 1994 1993(a) 1992(d)
------ ------ ------ ------ ------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.......... $6.713 $6.30 $5.16 $5.55 $5.15 $4.83
------ ------ ------ ------ ------ -----
Net Investment Income............................ .100 .113 .15 .13 .14 .10
Net Realized and Unrealized Gain/Loss............ 1.423 .784 1.458 (.277) .6155 .337
------ ------ ------ ------ ------ -----
Total from Investment Operations.................. 1.523 .897 1.608 (.147) .7555 .437
------ ------ ------ ------ ------ -----
Less:
Distributions from and in Excess of Net
Investment Income.............................. .116 .116 .148 .1455 .128 .117
Distributions from Net Realized Gain (Note 1).... .917 .368 .32 .0975 .2275 --
------ ------ ------ ------ ------ -----
Total Distributions............................... 1.033 .484 .468 .243 .3555 .117
------ ------ ------ ------ ------ -----
Net Asset Value, End of the Period................ $7.203 $6.713 $6.30 $5.16 $5.55 $5.15
====== ====== ====== ====== ====== =====
Total Return (a).................................. 23.23% 14.56% 31.51% (2.70%) 14.94% 9.17%*
Net Assets at End of the Period (In millions)..... $908.7 $633.3 $408.9 $242.0 $115.4 $13.3
Ratio of Expenses to Average Net Assets (b)....... 1.64% 1.74% 1.75% 1.82% 1.89% 1.87%
Ratio of Net Investment Income to Average Net
Assets (b)....................................... 1.32% 1.74% 2.62% 2.82% 2.45% 3.06%
Portfolio Turnover................................ 86% 99% 92% 92% 101% 74%
Average Commission Paid Per Equity Share Traded
(c).............................................. $.0566 $.0582 -- -- -- --
<CAPTION>
CLASS C SHARES
-----------------------------------------------------
JULY 6, 1993
(COMMENCEMENT
YEAR ENDED DECEMBER 31 OF DISTRIBUTION)
---------------------------------- TO DECEMBER 31,
1997 1996 1995 1994(d) 1993(d)
------ ------ ------ ------- ----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.......... $6.713 $6.30 $5.16 $5.55 $5.37
------ ------ ------ ------ -----
Net Investment Income............................ .100 .113 .15 .14 .06
Net Realized and Unrealized Gain/Loss............ 1.424 .784 1.458 (.287) .379
------ ------ ------ ------ -----
Total from Investment Operations.................. 1.524 .897 1.608 (.147) .439
------ ------ ------ ------ -----
Less:
Distributions from and in Excess of Net
Investment Income.............................. .116 .116 .148 .1455 .064
Distributions from Net Realized Gain (Note 1).... .917 .368 .32 .0975 .195
------ ------ ------ ------ -----
Total Distributions............................... 1.033 .484 .468 .243 .259
------ ------ ------ ------ -----
Net Asset Value, End of the Period................ $7.204 $6.713 $6.30 $5.16 $5.55
====== ====== ====== ====== =====
Total Return (a).................................. 23.23% 14.56% 31.51% (2.70%) 8.27%*
Net Assets at End of the Period (In millions)..... $75.8 $55.2 $38.3 $26.9 $10.0
Ratio of Expenses to Average Net Assets (b)....... 1.64% 1.74% 1.76% 1.82% 1.98%
Ratio of Net Investment Income to Average Net
Assets (b)....................................... 1.32% 1.73% 2.63% 2.83% 2.27%
Portfolio Turnover................................ 86% 99% 92% 92% 101%
Average Commission Paid Per Equity Share Traded
(c).............................................. $.0566 $.0582 -- -- --
</TABLE>
- ---------------
* Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) For the year ended December 31, 1996, the impact on the Ratios of Expenses
and Net Investment Income to Average Net Assets due to the Adviser's
reimbursement of certain expenses was less than 0.01%.
(c) Represents the average brokerage commission paid per equity share traded
during the period for trades where commissions were applicable. This
disclosure was not required in fiscal years prior to 1996.
(d) Based on average month-end shares outstanding.
9
<PAGE> 12
- ------------------------------------------------------------------------------
THE FUND
- ------------------------------------------------------------------------------
The Fund is a diversified, open-end management investment company, commonly
known as a mutual fund. A mutual fund provides, for those who have similar
investment goals, a practical and convenient way to invest in a diversified
portfolio of securities by combining their resources in an effort to achieve
such goals.
Van Kampen American Capital Asset Management, Inc. (the "Adviser") provides
investment advisory and administrative services to the Fund. The Adviser or its
affiliates also act as investment adviser to 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 OBJECTIVES AND POLICIES
- ------------------------------------------------------------------------------
The Fund operates under the following four fundamental investment policies
which may not be changed without approval by a vote of a majority of the
outstanding voting shares of the Fund (as defined in the Investment Company Act
of 1940, as amended ("1940 Act")).
1. The Fund invests primarily in securities which provide the highest possible
income as is consistent with safety of principal. To the extent possible,
considering its primary investment objective, the Fund seeks long-term
growth of capital as an important secondary objective.
2. The Fund may invest in income-producing equity instruments (subject to
number three below), debt securities and warrants or rights to acquire such
securities, in such proportions as economic conditions indicate would best
accomplish the Fund's objectives. Although the Fund has not adopted any
fundamental investment policies specifying the rating categories for
investment in debt securities, it is the current operating policy of the
Fund to invest in debt securities rated Baa or higher by Moody's Investors
Service, Inc. ("Moody's") or BBB or higher by Standard & Poor's Ratings
Group ("S&P") or in nonrated securities considered by the Adviser to be of
comparable quality. It is also the operating policy of the Fund to invest
not more than 10% of its total assets in debt securities rated Baa by
Moody's or BBB by S&P or in nonrated securities considered by the Adviser
to be of comparable quality. These operating policies do not apply to
convertible securities which are selected primarily on the basis of their
equity characteristics. Ratings at the time of purchase determine which
securities may be acquired, and a subsequent reduction in ratings does not
require the Fund to dispose of a security. Securities rated Baa by Moody's
or BBB by S&P are considered by the rating agencies to be medium grade
obligations which possess speculative characteristics so that changes in
economic conditions or
10
<PAGE> 13
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than in the case of higher rated
securities. Debt securities with longer maturities generally tend to
produce higher yields and are subject to greater market price fluctuations
as a result of changes in interest rates than debt securities with shorter
maturities.
3. The Fund under normal conditions invests at least 65% of its total assets
in income-producing equity investments, which may include without
limitation dividend paying common or preferred stocks, interest paying
convertible debentures or bonds, or zero coupon convertible securities (on
which the Fund accrues income for tax and accounting purposes, but receives
no cash).
4. The Fund intends to diversify its investments among various industries,
although the Fund may invest up to 25% of its total assets in a particular
industry at any one time.
In selecting common stocks, the Adviser seeks attractive growth investments on
an individual company basis which may include common stocks which do not pay
dividends. The Fund may invest in securities that have above average volatility
of price movement including warrants or rights to acquire securities. Because
prices of common stocks and debt securities fluctuate, the value of an
investment in the Fund will vary based upon the Fund's investment performance.
The Fund attempts to reduce overall exposure to risk from declines in securities
prices by spreading its investments over many different companies in a variety
of industries. There is, however, no assurance that the Fund will be successful
in achieving its objectives.
Convertible securities rank senior to common stocks in a corporation's capital
structure. They are consequently of higher quality and entail less risk than the
corporation's common stock, although the extent to which such risk is reduced
depends in large measure upon the degree to which the convertible security sells
above its value as a fixed income security. The Fund may purchase convertible
securities rated Ba or lower by Moody's or BB or lower by S&P. Although the Fund
selects these securities primarily on the basis of their equity characteristics,
investors should be aware that debt securities rated in these categories are
considered high risk securities; the rating agencies consider them speculative,
and payment of interest and principal is not considered well assured. To the
extent that such convertible securities are acquired by the Fund there is a
greater risk as to the timely repayment of the principal of, and timely payment
of interest or dividends on, such securities than in the case of higher rated
convertible securities.
For a discussion of the Fund's practices regarding investments in foreign
securities or investments in investment companies, see "Investment Practices --
Securities of Foreign Issuers" and "Investment Practices -- Investment in
Investment Companies."
11
<PAGE> 14
When, in the opinion of the Adviser, market conditions dictate a temporary
defensive position, the Fund may invest up to 100% of its total assets in cash,
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, prime commercial paper, certificates of deposit, bankers'
acceptances and repurchase agreements. See "Investment Practices -- Repurchase
Agreements."
An investment in the Fund may not be appropriate for all investors. 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 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.
Like other mutual funds, financial and business organizations and individuals
around the world, the Fund could be adversely affected if the computer systems
used by the Fund's Adviser and other service providers do not properly process
and calculate date-related information and data from and after January 1, 2000.
This is commonly known as the "Year 2000 Problem". The Adviser is taking steps
that it believes are reasonably designed to address the Year 2000 Problem with
respect to computer systems that it uses and to obtain reasonable assurances
that comparable steps are being taken by the Fund's other major service
providers. At this time, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund. In addition, the Year 2000
Problem may adversely affect the issuers of securities in which the Fund may
invest which, in turn, may adversely affect the net asset value of the Fund.
- ------------------------------------------------------------------------------
INVESTMENT PRACTICES
- ------------------------------------------------------------------------------
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
banks or broker-dealers in order to earn a return on temporarily available cash.
A repurchase agreement is a short-term investment in which the purchaser (i.e.,
the Fund) acquires ownership of a debt security and the seller agrees to
repurchase the obligation at a future time and set price, thereby determining
the yield during the holding period. Repurchase agreements involve certain risks
in the event of default by the other party. The Fund will not invest in
repurchase agreements that do not mature within seven days if any such
investment, together with any other illiquid securities held by the Fund,
exceeds 10% of the value of its net assets. In the event of a bankruptcy or
other default of a seller of a repurchase agreement, the Fund could experience
both delays in liquidating the underlying securities and loss including: (a)
possible decline in the value of the underlying security during the period while
the Fund seeks to enforce its rights thereto, (b) possible lack of access
12
<PAGE> 15
to income on the underlying security during this period and (c) expenses of
enforcing its rights.
For the purpose of investing in repurchase agreements, the Adviser may
aggregate the cash that certain funds advised or subadvised by the Adviser or
certain of its affiliates would otherwise invest separately into a joint
account. The cash in the joint account is then invested in repurchase agreements
and the funds that contributed to the joint account share pro rata in the net
revenue generated. The Adviser believes that the joint account produces
efficiencies and economies of scale that may contribute to reduced transaction
costs, higher returns, higher quality investments and greater diversity of
investments for the Fund than would be available to the Fund investing
separately. The manner in which the joint account is managed is subject to
conditions set forth in an 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.
USING OPTIONS, FUTURES CONTRACTS AND RELATED OPTIONS. The Fund expects to
utilize options, futures contracts and options thereon in several different
ways, depending upon the status of the Fund's portfolio and the Adviser's
expectations concerning the securities markets.
In times of stable or rising stock prices, the Fund generally seeks to be
fully invested in the equity securities markets. Even when the Fund is fully
invested, however, prudent management requires that at least a small portion of
assets be available as cash to honor redemption requests and for other
short-term needs. The Fund may also have cash on hand that has not yet been
invested. The portion of the Fund's assets that is invested in cash equivalents
does not fluctuate with security market prices, so that, in times of rising
market prices, the Fund may underperform the market in proportion to the amount
of cash equivalents in its portfolio. By purchasing stock index futures
contracts, however, the Fund can compensate for the cash portion of its assets
and may obtain performance equivalent to investing 100% of its assets in equity
securities.
If the Adviser forecasts a market decline, the Fund may seek to reduce its
exposure to the securities markets by increasing its cash position. By selling
stock index futures contracts instead of portfolio securities, a similar result
can be achieved to the extent that the performance of the futures contracts
correlates to the performance of the Fund's portfolio securities. Sales of
futures contracts frequently may be accomplished more rapidly and at less cost
than the actual sale of securities. Once the desired hedged position has been
effected, the Fund could then liquidate securities in a more deliberate manner,
reducing its futures position simultaneously to maintain the desired balance, or
it could maintain the hedged position.
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<PAGE> 16
As an alternative to selling futures contracts, the Fund can purchase puts (or
futures puts) to hedge the portfolio's risk in a declining market. Since the
value of a put increases as the underlying security declines below a specified
level, the value is protected against a market decline to the degree the
performance of the put correlates with the performance of the Fund's investment
portfolio. If the market remains stable or advances, the Fund can refrain from
exercising the put and its portfolio will participate in the advance, having
incurred only the premium cost for the put.
The Fund is authorized to purchase and sell over-the-counter options ("OTC
Options"). OTC Options are purchased from or sold to securities dealers,
financial institutions of other parties ("Counterparties") through direct
bilateral agreement with the Counterparty. The Fund will sell only OTC Options
(other than OTC currency 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 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
OTC Options sold by the Fund, are illiquid securities subject to the Fund's
limitation on investing in illiquid securities as described below.
POTENTIAL RISKS OF OPTIONS, FUTURES CONTRACTS AND RELATED OPTIONS. In certain
cases, the options and futures markets provide investment or risk management
opportunities that are not available from direct investments in securities. In
addition, some strategies can be performed with greater ease and at lower cost
by utilizing the options and futures markets rather than purchasing or selling
portfolio securities. However, the purchase and sale of options, futures
contracts and related options involve risks different from those involved with
direct investments in underlying securities. While utilization of options,
futures contracts and similar instruments may be advantageous to the Fund, if
the Adviser is not successful in employing such instruments in managing the
Fund's investments, the Fund's performance will be worse than if the Fund did
not make such investments. In addition, the Fund would pay commissions and other
costs in connection with such investments, which may increase the Fund's
expenses and reduce its return.
In order to prevent leverage in connection with the purchase of futures
contracts by the Fund, an amount of cash or liquid securities equal to the
market value of the obligation under the futures contracts (less any related
margin deposits) will be maintained in a segregated account with the Custodian.
The Fund may not invest more than 10% of its net assets in illiquid securities,
including certain OTC Options deemed illiquid and repurchase agreements which
have a maturity of longer than seven days. A more complete discussion of the
potential risks involved in transactions in options, futures contracts and
related options is contained in the Statement of Additional Information.
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<PAGE> 17
PORTFOLIO TRANSACTIONS AND BROKERAGE PRACTICES. The Adviser is responsible for
the placement of orders for the purchase and sale of portfolio securities for
the Fund and the negotiation of brokerage commissions on such transactions.
Brokerage firms are selected on the basis of their professional capability for
the type of transaction and the value and quality of execution services rendered
on a continuing basis. The Adviser may place portfolio transactions, to the
extent permitted by law, with brokerage firms affiliated with the Fund, the
Adviser or the Distributor and with Firms participating in the distribution of
shares of the Fund if it reasonably believes that the quality of the execution
and the commission are comparable to that available from other qualified firms.
The Adviser is authorized to pay higher commissions to brokerage firms that
provide it with investment research information than to firms which do not
provide such services if the Adviser determines that such commissions are
reasonable in relation to the overall services provided. The information
received may be used by the Adviser in managing the assets of other advisory
accounts as well as in the management of the assets of the Fund.
The Fund's annual portfolio turnover rate is shown in the table of Financial
Highlights, in the Prospectus. The portfolio turnover rate is calculated by
dividing the lesser of purchases or sales of portfolio securities for a fiscal
year by the average monthly value of the portfolio securities during such fiscal
year. Securities maturing in one year or less at the time of acquisition are not
included in this computation. The portfolio turnover rate may vary greatly from
year to year and within a year. Greater portfolio activity increases the Fund's
transaction costs, including brokerage commissions. To the extent turnover
results in realization of short-term gains on securities, shareholders are
subject to taxes at ordinary income rates. See "Tax Status."
INVESTMENT IN INVESTMENT COMPANIES. The Fund may invest in one or more
investment companies advised by the Adviser and its affiliates, including Van
Kampen American Capital Small Capitalization Fund ("Small Cap Fund") and Van
Kampen American Capital Foreign Securities Fund ("Foreign Securities Fund"). The
shares of the Small Cap Fund and Foreign Securities Fund are available for
investment only by certain Van Kampen American Capital funds. The Adviser
believes that the use of the Small Cap Fund and Foreign Securities Fund may,
from time to time, provide the Fund with the most effective exposure to the
performance of the small capitalization sector of the stock market and to
foreign securities while at the same time minimizing costs. The advisers charge
no advisory fees for managing the Small Cap Fund or Foreign Securities Fund, nor
are there any sales load or other charges associated with distribution of its
shares. Other expenses incurred by the Small Cap Fund and Foreign Securities
Fund are borne by them, and thus indirectly by the Van Kampen American Capital
funds that invest in them. With respect to such other expenses, the Adviser
anticipates that the efficiencies resulting from use of the Small Cap Fund or
the Foreign Securities Fund will result in cost savings for the Fund and other
Van Kampen American
15
<PAGE> 18
Capital funds. In large part, these savings are 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
or foreign securities will need to be performed only once. The Adviser expects
that the Small Cap Fund and Foreign Securities Fund will experience trading
costs that will be substantially less than the trading costs that would be
incurred if small capitalization or foreign securities were purchased separately
for the Fund and other Van Kampen American Capital funds. The Fund's investment
in the Small Cap Fund and the Foreign Securities Fund is subject to the terms
and conditions set forth in the SEC exemptive orders authorizing such
investments.
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 securities of foreign issuers
that the Foreign Securities Fund may invest in are subject to certain risks as
described under "Investment Practices--Foreign Securities."
For purposes of reviewing the Fund's portfolio diversification, the Fund will
be deemed to own a pro rata portion of each investment of the Small Cap Fund and
Foreign Securities Fund. For example, if the Fund's investment in the Small Cap
Fund were $10 million, and the Small Cap Fund had 5% of its assets invested in
the electronics industry, the Fund would be considered to have an investment of
$500,000 in the electronics industry.
FOREIGN SECURITIES. The Fund may invest up to 15% of its total assets in
securities of foreign governments and companies. Such securities may be subject
to foreign government taxes which would reduce the income yield on such
securities. Foreign investments involve certain risks, such as political or
economic instability of the issuer or of the country of issue, the difficulty of
predicting international trade patterns, fluctuating exchange rates and the
possibility of imposition of exchange controls. Such securities may also be
subject to greater fluctuations in price than securities of domestic
corporations or of the United States Government. In addition, there may be less
publicly available information about a foreign company than about a domestic
company. Foreign companies generally are not subject to uniform accounting,
auditing and financial reporting standards comparable to those applicable to
domestic companies. There is generally less government regulation of stock
exchanges, brokers and listed companies abroad than in the United States, and,
with respect to certain foreign countries, there is a possibility of
expropriation
16
<PAGE> 19
or confiscatory taxation, or diplomatic developments which could affect
investment in those countries. Finally, in the event of a default on any such
foreign debt obligations, it may be more difficult for the Fund to obtain or to
enforce a judgment against the issuers of such securities.
INVESTMENT RESTRICTIONS. The Fund has adopted certain fundamental investment
restrictions which, like the investment objective, may not be changed without
approval by a vote of a majority of the outstanding voting shares of the Fund
(as defined in the 1940 Act). These restrictions provide, among other things,
that the Fund may not:
1. Concentrate its assets in any single group or type of security except that
it may, on occasion, invest up to 25% of its assets in any one industry and
except that the Fund may purchase securities of other investment companies
to the extent permitted by (i) the 1940 Act, as amended from time to time,
(ii) the rules and regulations promulgated by the SEC under the 1940 Act,
as amended from time to time, or (iii) an exemption or other relief from
the provisions of the 1940 Act.
2. Purchase a restricted security or a security for which market quotations
are not readily available if as a result of such purchase more than 5% of
the Fund's assets would be invested in such securities, except that the
Fund may purchase securities of other investment companies to the extent
permitted by (i) the 1940 Act, as amended from time to time, (ii) the rules
and regulations promulgated by the SEC under the 1940 Act, as amended from
time to time, or (iii) an exemption or other relief from the provisions of
the 1940 Act.
In addition to the foregoing, the Fund has adopted additional restrictions
which may be changed by the Trustees without a vote of shareholders. These
restrictions provide that the Fund may not:
1. Invest in the securities of a foreign issuer if, at the time of
acquisition, more than 15% of the value of the Fund's total assets would be
invested in securities of foreign securities.
2. Invest more than 10% of its net assets (determined at the time of
investment) in illiquid securities and repurchase agreements that have a
maturity of longer than seven days.
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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,
17
<PAGE> 20
and more than $60 billion under management or supervision. Van Kampen American
Capital's more than 50 open-end and 38 closed-end funds and more than 2,500 unit
investment trusts are professionally distributed by leading financial advisers
nationwide. 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. Van Kampen American Capital is an
indirect wholly-owned subsidiary of Morgan Stanley Dean Witter & Co. The
Adviser's principal office is located at One Parkview Plaza, Oakbrook Terrace,
Illinois 60181.
Morgan Stanley Dean Witter & Co. and various of its directly or indirectly
owned subsidiaries, including Morgan Stanley Asset Management Inc., an
investment adviser, Morgan Stanley & Co. Incorporated, a registered
broker-dealer and investment adviser, and Morgan Stanley International, are
engaged in a wide range of financial services. Their principal businesses
include securities underwriting, distribution and trading; merger, acquisition,
restructuring and other corporate finance advisory activities; merchant banking;
stock brokerage and research services; credit services; asset management;
trading of futures, options, foreign exchange, commodities and swaps (involving
foreign exchange, commodities, indices and interest rates); real estate advice,
financing and investing; and global custody, securities clearance services and
securities lending.
ADVISORY AGREEMENT. The Fund retains the Adviser to manage the investment of
its assets and to place orders for the purchase and sale of its portfolio
securities. Under an investment advisory agreement between the Adviser and the
Fund (the "Advisory Agreement"), the Fund pays the Adviser a monthly fee
computed based upon an annual rate applied to average daily net assets of the
Fund as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET
ASSETS % PER ANNUM
----------------- -----------
<S> <C>
First $150 million....................... 0.50 of 1.00%
Next $100 million........................ 0.45 of 1.00%
Next $100 million........................ 0.40 of 1.00%
Over $350 million........................ 0.35 of 1.00%
</TABLE>
Under the Advisory Agreement, the Fund also reimburses the Adviser for the cost
of the Fund's accounting services, which include maintaining its financial books
and records and calculating its daily net asset value. Operating expenses paid
by the Fund include service fees, distribution fees, custodian fees, legal and
accounting fees, the costs of reports and proxies to shareholders, trustees'
fees (other than those who are affiliated persons, as defined in the 1940 Act,
of the Adviser, Distributor, ACCESS, Van Kampen American Capital or Morgan
Stanley Dean Witter & Co.), and all other business expenses not specifically
assumed by the Adviser.
18
<PAGE> 21
Advisory (management) fee and total operating expense ratios are shown under the
caption "Annual Fund Operating Expenses and Example" herein.
From time to time the Adviser or Distributor may voluntarily undertake to
reduce the Fund's expenses by reducing the fees payable to them to the extent
of, or bearing expenses in excess of, such limitations as they may establish.
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen American Capital
Investment Advisory Corp. ("Advisory Corp.")
PERSONAL INVESTMENT POLICIES. The Fund and the Adviser have adopted codes of
ethics designed to recognize the fiduciary relationship between the Fund and the
Adviser and its employees. The codes permit directors, trustees, officers and
employees to buy and sell securities for their personal accounts subject to
certain restrictions. Persons with access to certain sensitive information are
subject to pre-clearance and other procedures designed to prevent conflicts of
interest.
PORTFOLIO MANAGEMENT. The Fund is managed by a management team headed by James
A. Gilligan. Mr. Gilligan has been primarily responsible for managing the Fund's
investment portfolio since January 1990. Mr. Gilligan has been Senior Vice
President and Portfolio Manager of the Adviser since September 1995 and of
Advisory Corp. since June 1995. Prior to that time, Mr. Gilligan was Vice
President and Portfolio Manager of the Adviser. Bret Stanley and Scott Carroll
are responsible as co-managers for the day-to-day management of the Fund's
investment portfolio. Mr. Stanley has been Assistant Vice President of the
Adviser and Advisory Corp. since January 1995. Prior to that time, Mr. Stanley
was a Portfolio Manager with Gulf Investment Management. Mr. Carroll has been
Associate Portfolio Manager of the Adviser and Advisory Corp. since December
1996. Prior to that time, Mr. Carroll was an Equity Analyst with Lincoln Capital
Management Company. Prior to September 1992, Mr. Carroll was a Senior Internal
Auditor with Pittway Corporation.
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ALTERNATIVE SALES ARRANGEMENTS
- ------------------------------------------------------------------------------
The Alternative Sales Arrangements permits an investor to choose the method of
purchasing shares of the Fund that is most beneficial given the amount of the
purchase and the length of time the investor expects to hold the shares.
CLASS A SHARES. Class A shares are sold at net asset value plus an initial
maximum sales charge of up to 5.75% of the offering price (6.10% of the net
amount invested), reduced on investments of $50,000 or more. Investments of $1
million or more are not subject to any sales charge at the time of purchase, but
a CDSC of 1.00% may be imposed on certain redemptions made within one year of
19
<PAGE> 22
the purchase. Class A shares are subject to an ongoing service fee at an annual
rate of up to 0.25% of the Fund's aggregate average daily net assets
attributable to the Class A shares. Certain purchases of Class A shares qualify
for reduced initial sales charges. See "Purchase of Shares -- Class A Shares."
CLASS B SHARES. Class B shares are sold at net asset value and are subject to
a deferred sales charge if redeemed within five years of purchase. Class B
shares are subject to an ongoing service fee at an annual rate of up to 0.25% of
the Fund's aggregate average daily net assets attributable to the Class B shares
and an ongoing distribution fee at an annual rate of up to 0.75% of the Fund's
aggregate average daily net assets attributable to the Class B shares. Class B
shares enjoy the benefit of permitting all of the investor's dollars to work
from the time the investment is made. The ongoing distribution fee paid by Class
B shares will cause such shares to have a higher expense ratio and to pay lower
dividends than those related to Class A shares. Class B shares convert
automatically to Class A shares eight years after the end of the calendar month
in which the shareholder's order to purchase was accepted. See "Purchase of
Shares -- Class B Shares."
CLASS C SHARES. Class C shares are sold at net asset value and are subject to
a deferred sales charge if redeemed within one year of purchase. Class C shares
are subject to an ongoing service fee at an annual rate of up to 0.25% of the
Fund's aggregate average daily net assets attributable to the Class C shares and
an ongoing distribution fee at an annual rate of up to 0.75% of the Fund's
aggregate average daily net assets attributable to the Class C shares. Class C
shares enjoy the benefit of permitting all of the investor's dollars to work
from the time the investment is made. The ongoing distribution fee paid by Class
C shares will cause such shares to have a higher expense ratio and to pay lower
dividends than those related to Class A shares. See "Purchase of Shares -- Class
C Shares."
CONVERSION FEATURE. Class B shares purchased on or after June 1, 1996, and any
dividend reinvestment plan shares received thereon, automatically convert to
Class A shares eight years after the end of the calendar month in which the
shares were purchased. Class B shares purchased before June 1, 1996, and any
dividend reinvestment plan shares received thereon, automatically convert to
Class A shares six years after the end of the calendar month in which the shares
were purchased. Class C shares purchased before January 1, 1997, and any
dividend reinvestment plan shares received thereon, automatically convert to
Class A shares ten years after the end of the calendar month in which such
shares were purchased. Such conversion will be on the basis of the relative net
asset values per share, without the imposition of any sales load, fee or other
charge. The conversion schedule applicable to a share acquired through the
exchange privilege is determined by reference to the Participating Fund (defined
below) from which such share was originally purchased.
20
<PAGE> 23
The conversion of such 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 higher distribution fee and transfer agency costs with respect to such
shares does not result in the Fund's dividends or distributions constituting
"preferential dividends" under the Internal Revenue Code of 1986, as amended
(the "Code") and (ii) the conversion of shares does not constitute a taxable
event under federal income tax law. The conversion may be suspended if such an
opinion is no longer available and such shares might continue to be subject to
the higher aggregate fees applicable to such shares for an indefinite period.
FACTORS FOR CONSIDERATION. In deciding which class of shares to purchase,
investors should take into consideration their investment goals, present and
anticipated purchase amounts, time horizons and temperaments. Investors should
consider whether, during the anticipated life of their investment in the Fund,
the higher aggregate fees and CDSC on Class B shares and Class C shares would be
less than the initial sales charge on Class A shares purchased at the same time,
and to what extent such differential would be offset by the higher dividends per
share on Class A shares. 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. In this regard,
Class A shares may be more beneficial to the investor who qualifies for reduced
initial sales charges or purchases shares at net asset value. It is presently
the policy of the Distributor not to accept any order of $500,000 or more for
Class B shares or any order of $1 million or more for Class C shares as it
ordinarily would be more beneficial for such an investor to purchase Class A
shares.
Class A shares are not subject to an ongoing distribution fee and,
accordingly, receive correspondingly higher dividends per share. However,
because initial sales charges are deducted at the time of purchase for accounts
under $1 million, investors in Class A shares do not have all their funds
invested initially and, therefore, initially own fewer shares. Other investors
might determine that it is more advantageous to purchase either Class B shares
or Class C shares and have all their funds invested initially, although
remaining subject to a CDSC. Ongoing distribution fees on Class B shares and
Class C shares may be offset to the extent of the additional funds originally
invested and any return realized on those funds. However, there can be no
assurance as to the return, if any, which will be realized on such additional
funds. For investments held for ten years or more, the relative value upon
liquidation of the three classes tends to favor Class A shares or Class B
shares, rather than Class C shares.
Class A shares may be appropriate for investors who prefer to pay the sales
charge up front, want to take advantage of the reduced sales charges available
on larger investments, wish to maximize their current income from the start,
prefer not to pay redemption charges or have a longer-term investment horizon.
Class B shares
21
<PAGE> 24
may be appropriate for investors who wish to avoid a front-end sales charge, put
100% of their investment dollars to work immediately or have a longer-term
investment horizon. Class C shares may be appropriate for investors who wish to
avoid a front-end sales charge, put 100% of their investment dollars to work
immediately, have a shorter-term investment horizon or desire a short CDSC
schedule.
The distribution expenses incurred by the Distributor in connection with the
sale of the shares will be reimbursed, in the case of Class A shares, from the
proceeds of the initial sales charge and, in the case of Class B shares and
Class C shares, from the proceeds of the ongoing distribution fee and any CDSC
incurred upon redemption within five years or one year, respectively, of
purchase. Sales personnel of broker-dealers distributing the Fund's shares and
other persons entitled to receive compensation for selling such shares may
receive differing compensation for selling such shares. INVESTORS SHOULD
UNDERSTAND THAT THE PURPOSE AND FUNCTION OF THE CDSC AND ONGOING DISTRIBUTION
FEE WITH RESPECT TO THE CLASS B SHARES AND CLASS C SHARES ARE THE SAME AS THOSE
OF THE INITIAL SALES CHARGE WITH RESPECT TO CLASS A SHARES. See "Distribution
and Service Plans."
GENERAL. Dividends paid by the Fund with respect to Class A shares, Class B
shares and Class C shares will be calculated in the same manner at the same time
on the same day, except that the higher distribution fees and transfer agency
costs relating to Class B shares and Class C shares will be borne by the
respective class. See "Distributions from the Fund." Shares of the Fund may be
exchanged, subject to certain limitations, for shares of the same class of
certain other mutual funds advised by the Adviser and its affiliates and
distributed by the Distributor. See "Shareholder Services -- Exchange
Privilege."
- ------------------------------------------------------------------------------
PURCHASE OF SHARES
- ------------------------------------------------------------------------------
The Fund offers three classes of shares to the public on a continuous basis
through 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")
who are acting as securities dealers ("dealers") and NASD members or eligible
non-NASD members who are acting as brokers or agents for investors ("brokers").
The term "dealers" and "brokers" are sometimes referred to herein as "authorized
dealers."
Initial investments must be at least $500 for each class of shares, and
subsequent investments must be at least $25 for each class of shares. Both
minimums may be waived by the Distributor for plans involving periodic
investments. Shares of the Fund may be sold in foreign countries where
permissible. The Fund and the Distributor reserve the right to refuse any order
for the purchase of shares. The
22
<PAGE> 25
Fund also reserves the right to suspend the sale of the Fund's shares in
response to conditions in the securities markets or for other reasons.
Shares may be purchased on any business day through authorized dealers. Shares
also may be purchased by completing the application accompanying this Prospectus
and forwarding the application, through the authorized dealer, to the
shareholder service agent, ACCESS Investor Services, Inc. ("ACCESS"), a
wholly-owned subsidiary of Van Kampen American Capital. When purchasing shares
of the Fund, investors must specify whether the purchase is for Class A shares,
Class B shares or Class C shares.
Shares are offered at the next determined net asset value per share, plus a
front-end or deferred sales charge depending on the class of shares chosen by
the investor, as shown in the tables herein. Net asset value per share for each
class is determined once daily as of the close of trading on the New York Stock
Exchange (the "Exchange") (currently 4:00 p.m., New York time) each day the
Exchange is open. Net asset value per share for each class is determined by
dividing the value of the Fund's securities, cash and other assets (including
accrued interest) attributable to such class less all liabilities (including
accrued expenses) attributable to such class, by the total number of shares of
the class outstanding. Such computation is made by using prices as of the close
of trading on the Exchange and (i) valuing securities listed or traded on a
national securities exchange at the last reported sale price, or if there has
been no sale that day, at the mean between the last reported bid and asked
prices, (ii) valuing over-the-counter securities for which the last sale price
is available from the National Association of Securities Dealers Automated
Quotations ("NASDAQ") at that price, (iii) valuing all other over-the-counter
securities for which market quotations are available at the mean between the
most recent bid and asked quotations supplied by NASDAQ or broker-dealers and
(iv) valuing any securities for which market quotations are not readily
available, and any other assets, at fair value as determined in good faith by
the Adviser based on procedures approved by the Trustees of the Fund. Short-term
investments are valued in the manner described in the notes to the financial
statements included in the Statement of Additional Information.
Generally, the net asset values per share of the Class A shares, Class B
shares and Class C shares are expected to be substantially the same. Under
certain circumstances, however, the per share net asset values of the Class A
shares, Class B shares and Class C shares may differ from one another,
reflecting the daily expense accruals of the higher distribution fees and
transfer agency costs applicable with respect to the Class B shares and Class C
shares and the differential in the dividends paid on the classes of shares. The
price paid for shares purchased is based on the next calculation of net asset
value (plus sales charges, where applicable) after an order is received by an
authorized dealer provided such order is transmitted to the Distributor prior to
the Distributor's close of business on such day. Orders
23
<PAGE> 26
received by authorized dealers after the close of the Exchange are priced based
on the next close provided they are received by the Distributor prior to the
Distributor's close of business on such day. It is the responsibility of
authorized dealers to transmit orders received by them to the Distributor so
they will be received prior to such time. Orders of less than $500 are mailed by
the authorized dealer and processed at the offering price next calculated after
acceptance by ACCESS.
Each class of shares represents an interest in the same portfolio of
investments of the Fund and, has the same rights, except that (i) Class B shares
and Class C shares bear the expenses of the deferred sales arrangement and any
expenses (including the higher distribution fee and transfer agency costs)
resulting from such sales arrangement, (ii) generally, each class has exclusive
voting rights with respect to approvals of the Rule 12b-1 distribution plan
pursuant to which its distribution fee or service fee is paid, (iii) each class
of shares has different exchange privileges, (iv) certain shares are subject to
a conversion feature and (v) certain classes of shares have different
shareholder service options available. The net income attributable to Class B
shares and Class C shares and the dividends payable on Class B shares and Class
C shares will be reduced by the amount of the distribution fee and other
expenses associated with such shares. Sales personnel of authorized dealers
distributing the Fund's shares and other persons entitled to receive
compensation for selling such shares may receive differing compensation for
selling Class A shares, Class B shares or Class C shares.
The Distributor may from time to time implement programs under which an
authorized dealer's sales force may be eligible to win nominal awards for
certain sales efforts or under which the Distributor will reallow to any
authorized dealer that sponsors sales contests or recognition programs
conforming to criteria established by the Distributor, or participates in sales
programs sponsored by the Distributor, an amount not exceeding the total
applicable sales charges on the sales generated by the authorized dealer at the
public offering price during such programs. Other programs provide, among other
things and subject to certain conditions, for certain favorable distribution
arrangements for shares of the Fund. Also, the Distributor in its discretion may
from time to time, pursuant to objective criteria established by the
Distributor, pay fees to, and sponsor business seminars for, qualifying
authorized dealers for certain services or activities which are primarily
intended to result in sales of shares of the Fund. 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. In some instances additional compensation or promotional incentives may
be offered to brokers, dealers or financial intermediaries that have sold or may
sell significant amounts of shares during specific periods of time. All of the
foregoing payments are made by the Distributor out of its own assets. Such fees
paid for such services and activities with respect to the Fund will not exceed
in the
24
<PAGE> 27
aggregate 1.25% of the average total daily net assets of the Fund on an annual
basis. These programs will not change the price an investor will pay for shares
or the amount that the Fund will receive from such sale.
CLASS A SHARES
The public offering price of Class A shares is the net asset value plus a
sales charge, as set forth below.
SALES CHARGE TABLE
<TABLE>
<CAPTION>
REALLOWED
AS % OF AS % OF TO DEALERS
SIZE OF OFFERING NET AMOUNT (AS A % OF
INVESTMENT PRICE INVESTED OFFERING PRICE)
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------
Less than $50,000............................ 5.75% 6.10% 5.00%
$50,000 but less than $100,000............... 4.75% 4.99% 4.00%
$100,000 but less than $250,000.............. 3.75% 3.90% 3.00%
$250,000 but less than $500,000.............. 2.75% 2.83% 2.25%
$500,000 but less than $1,000,000............ 2.00% 2.04% 1.75%
$1,000,000 or more* * * *
- --------------------------------------------------------------------------------------
</TABLE>
* 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 CDSC of
1.00% on redemptions made within one year of the purchase. A commission
will be paid to authorized 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 $1 million and 0.50% on the excess over $3 million.
In addition to the reallowances from the applicable public offering price
described above, the Distributor may, from time to time, pay or allow additional
reallowances or promotional incentives, in the form of cash or other
compensation, to authorized dealers that sell shares of the Fund. Authorized
dealers which are reallowed all or substantially all of the sales charges may be
deemed to be underwriters for purposes of the Securities Act of 1933, as
amended.
The Distributor may also pay financial institutions (which may include banks)
and other industry professionals that provide services to facilitate
transactions in shares of the Fund for their clients a transaction fee up to the
level of the reallowance allowable to authorized dealers described herein. Such
financial institutions, other industry professionals and authorized dealers are
hereinafter referred to as "Service Organizations." Banks are currently
prohibited from providing certain underwriting or distribution services. If
banking firms were prohibited from acting in any capacity or providing any of
the described services, the Distributor would consider what action, if any,
would be appropriate. The Distributor does not believe
25
<PAGE> 28
that termination of a relationship with a bank would result in any material
adverse consequences to the Fund. State securities laws regarding registration
of banks and other financial institutions may differ from the interpretations of
federal law expressed herein, and banks and other financial institutions may be
required to register as dealers pursuant to certain state laws.
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 authorized dealer, must notify the Fund at the time of the
purchase order 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 authorized
dealer or the Distributor.
A person eligible for a reduced sales charge includes an individual, his or
her spouse and children under 21 years of age 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 trust
or for a single fiduciary account, or a "company" as defined in Section 2(a)(8)
of the 1940 Act.
As used herein, "Participating Funds" refers to certain open-end investment
companies advised by the Adviser or Advisory Corp. and distributed by the
Distributor as determined from time to time by the Fund's Board of Trustees.
Volume Discounts. The size of investment shown in the preceding sales charge
table applies to the total dollar amount being invested by any person in shares
of the Fund, or in any combination of 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
sales charge table may also be determined by combining the amount being invested
in shares of the Participating Funds plus the current offering price of all
shares of the 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 investments over a
thirteen-month period to determine the sales charge as outlined in the preceding
sales charge table. The size of investment shown in the preceding sales charge
table also includes purchases of shares of the Participating Funds over a
thirteen-month period based on the total amount of intended purchases plus the
value of all shares of the Participating Funds previously purchased and still
owned. An investor may elect to
26
<PAGE> 29
compute the thirteen-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 the goal is not achieved within the period, the investor must pay the
difference between the sales charges applicable to the purchases made and the
sales charges previously paid. The initial purchase must be for an amount equal
to at least 5% of the minimum total purchase amount of the level selected. If
trades not initially made under a Letter of Intent subsequently qualify for a
lower sales charge through the 90-day back-dating provisions, an adjustment will
be made at the expiration of the Letter of Intent to give effect to the lower
charge. Such adjustments in sales charge will be used to purchase additional
shares for the shareholder at the applicable discount category. Additional
information is contained in the application form accompanying this Prospectus.
OTHER PURCHASE PROGRAMS
Purchasers of Class A shares may be entitled to reduced initial sales charges
in connection with unit investment 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 Investment Trust Reinvestment Programs. The Fund permits unitholders of
unit investment trusts to reinvest distributions from such trusts in Class A
shares of the Fund at net asset value and with no minimum initial or subsequent
investment requirement if the administrator of an investor's unit investment
trust program meets certain uniform criteria relating to cost savings by the
Fund and the Distributor. The total sales charge for all other 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 authorized dealer,
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 authorized dealer or the
Distributor.
The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during each distribution period by all investors who choose to invest in
the Fund through the program and (2) provide ACCESS with appropriate backup data
for each participating investor in a computerized format fully compatible with
ACCESS' 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
27
<PAGE> 30
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. The Fund reserves the right to
modify or terminate this program at any time.
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 or directors of funds advised by the Adviser
or Advisory Corp. and such persons' families and their beneficial
accounts.
(2) Current or retired directors, officers and employees of Morgan Stanley
Group Inc. and any of its subsidiaries, employees of an investment
subadvisor to any such fund described in (1) above or an affiliate of such
subadvisor, and such persons' families and their beneficial accounts.
(3) Directors, officers, employees and, when permitted, registered
representatives of financial institutions that have a selling group
agreement with the Distributor and their spouses and children under 21
years of age 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, provided that such
purchases are otherwise permitted by such institutions.
(4) Registered investment advisers who charge a fee for their services, trust
companies and bank trust departments investing on their own behalf or on
behalf of their clients. The Distributor may pay authorized dealers
through which purchases are made an amount up to 0.50% of the amount
invested over a twelve-month period.
(5) Trustees and other fiduciaries purchasing shares for retirement plans
which invest in multiple fund families through broker-dealer retirement
plan alliance programs that have entered into agreements with the
Distributor and which are subject to certain minimum size and operational
requirements. Trustees and other fiduciaries should refer to the Statement
of Additional Information for further detail with respect to such alliance
programs.
(6) Beneficial owners of shares of Participating Funds held by a retirement
plan or held in a tax-advantaged retirement account who purchases shares
of the Fund with proceeds from distributions from such a plan or
retirement account other than distributions taken to correct an excess
contribution.
28
<PAGE> 31
(7) Accounts as to which a bank or broker-dealer charges an account management
fee ("wrap accounts"), provided the bank or broker-dealer has a separate
agreement with the Distributor.
(8) Trusts created under pension, profit sharing or other employee benefit
plans qualified under Section 401(a) of the Code, or custodial accounts
held by a bank created pursuant to Section 403(b) of the Code and
sponsored by non-profit organizations defined under Section 501(c)(3) of
the Code and assets held by an employer or trustee in connection with an
eligible deferred compensation plan under Section 457 of the Code. Such
plans will qualify for purchases at net asset value provided, for plans
initially establishing accounts with the Distributor in the Participating
Funds after February 1, 1997, that (1) the initial amount invested in the
Participating Funds is at least $500,000 or (2) such shares are purchased
by an employer sponsored plan with more than 100 eligible employees. Such
plans that have been established with a Participating Fund or have
received proposals from the Distributor prior to February 1, 1997 based on
net asset value purchase privileges previously in effect will be qualified
to purchase shares of the Participating Funds at net asset value for
accounts established on or before May 1, 1997. Section 403(b) and similar
accounts for which Van Kampen American Capital Trust Company served as
custodian will not be eligible for net asset value purchases based on the
aggregate investment made by the plan or the number of eligible employees,
except under certain uniform criteria established by the Distributor from
time to time. Prior to February 1, 1997, a commission will be paid to
authorized dealers who initiate and are responsible for such purchases
within a rolling twelve-month period as follows: 1.00% on sales to $5
million, plus 0.50% on the next $5 million and 0.25% on the excess over
$10 million. For purchases on February 1, 1997 and thereafter, a
commission will be paid as follows: 1.00% on sales to $2 million, plus
0.80% on the next $1 million, plus 0.50% on the next $47 million and 0.25%
on the excess over $50 million.
(9) Individuals who are members of a "qualified group". For this purpose, a
qualified group is one which (i) has been in existence for more than six
months, (ii) has a purpose other than to acquire shares of the Fund or
similar investments, (iii) has given and continues to give its endorsement
or authorization, on behalf of the group, for purchase of shares of the
Fund and Participating Funds, (iv) has a membership that the authorized
dealer can certify as to the group's members and (v) satisfies other
uniform criteria established by the Distributor for the purpose of
realizing economies of scale in distributing such shares. A qualified
group does not include one whose sole organizational nexus, for example,
is that its participants are credit card holders of the same institution,
policy holders of an insurance company, customers of a bank or
broker-dealer, clients of an investment adviser or
29
<PAGE> 32
other similar groups. Shares purchased in each group's participants
account in connection with this privilege will be subject to a CDSC of
1.00% in the event of redemption within one year of purchase, and a
commission will be paid to authorized dealers who initiate and are
responsible for such sales to each individual as follows: 1.00% on sales
to $2 million, plus 0.80% on the next $1 million and 0.50% on the excess
over $3 million.
The term "families" includes a person's spouse, children under 21 years of age
and grandchildren, parents, and a person's spouse's parents.
Purchase orders made pursuant to clause (4) may be placed either through
authorized dealers as described above or directly with ACCESS by the investment
adviser, trust company or bank trust department, provided that ACCESS receives
federal funds for the purchase by the close of business on the next business day
following acceptance of the order. An authorized dealer 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. Authorized dealers will
be paid a service fee as described herein under "Distribution and Service Plans"
on purchases made as described in (3) through (9) above. The Fund may terminate,
or amend the terms of, offering shares of the Fund at net asset value to such
groups at any time.
CLASS B SHARES
Class B shares are offered at net asset value. Class B shares which are
redeemed within five years of purchase are subject to a CDSC at the rates set
forth in the following table charged as a percentage of the dollar amount
subject thereto. The charge is assessed on an amount equal to the lesser of the
then current market value or the cost of the shares being redeemed. Accordingly,
no sales charge is imposed on increases in net asset value above the initial
purchase price. In addition, no charge is assessed on shares derived from
reinvestment of dividends or capital gains distributions. It is presently the
policy of the Distributor not to accept any order for Class B shares in an
amount of $500,000 or more because it ordinarily will be more advantageous for
an investor making such an investment to purchase Class A shares.
30
<PAGE> 33
The amount of the CDSC, if any, varies depending on the number of years from
the time of payment for the purchase of Class B shares until the time of
redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchase of shares, all payments
during a month are aggregated and deemed to have been made on the last day of
the month.
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES CHARGE
AS A PERCENTAGE OF
YEAR SINCE PURCHASE DOLLAR AMOUNT SUBJECT TO CHARGE
- ------------------------------------------------------------------------------
<S> <C>
First.................................................................. 5.00%
Second................................................................. 4.00%
Third.................................................................. 3.00%
Fourth.................................................................. 2.50%
Fifth................................................................... 1.50%
Sixth and after...........................................................None
</TABLE>
- ------------------------------------------------------------------------------
In determining whether a CDSC is applicable to a redemption, it is assumed
that the redemption is first of any shares in the shareholder's Fund account
that are not subject to a CDSC, second of shares held for over five years and
third of shares held longest during the five year period.
To provide an example, assume an investor purchased 100 shares 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 shares upon dividend reinvestment. If at such time the investor makes
his or her 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 is subject to a deferred sales charge at a
rate of 4.00% (the applicable rate in the second year after purchase).
A commission or transaction fee of 4.00% of the purchase amount will be paid
to authorized dealers at the time of purchase. Additionally, the Distributor
may, from time to time, pay additional promotional incentives, in the form of
cash or other compensation, to authorized dealers that sell Class B shares of
the Fund.
CLASS C SHARES
Class C shares are offered at net asset value. Class C shares which are
redeemed within the first year of purchase are subject to a CDSC of 1.00%. The
charge is assessed on an amount equal to the lesser of the then current market
value or the cost of the shares being redeemed. Accordingly, no sales charge is
imposed on increases in net asset value above the initial purchase price. In
addition, no charge is
31
<PAGE> 34
assessed on shares derived from reinvestment of dividends or capital gains
distributions. It is presently the policy of the Distributor not to accept any
order for 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 buy Class A shares.
In determining whether a CDSC is applicable to a redemption, it is assumed
that the redemption is first of any shares in the shareholder's Fund account
that are not subject to a CDSC and second of shares held for more than one year.
A commission or transaction fee of up to 1.00% of the purchase amount will
generally be paid to authorized dealers at the time of purchase. Authorized
dealers also will be paid ongoing commissions and transaction fees of up to
0.75% of the average daily net assets of the Fund's Class C shares annually
commencing in the second year after purchase. Additionally, the Distributor may,
from time to time, pay additional promotional incentives, in the form of cash or
other compensation, to authorized dealers that sell Class C shares of the Fund.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The CDSC is waived on redemption 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 required minimum 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, (iv) in
circumstances under which no commission or transaction fee is paid to authorized
dealers at the time of purchase of such shares; and (v) effected pursuant to the
right of the Fund to liquidate a shareholder's account as described herein under
"Redemption of Shares." The CDSC also is 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 180 days after redemption. See the Statement of
Additional Information for further discussion of waiver provisions.
- ------------------------------------------------------------------------------
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. The
following is a description of such services.
INVESTMENT ACCOUNT. Each shareholder has an investment account under which the
investor's shares of the Fund are held by ACCESS, the Fund's transfer agent.
ACCESS performs bookkeeping, data processing and administration services
relating to the maintenance of shareholder accounts. Except as described in this
Prospectus, after each share transaction in an account, the shareholder receives
a statement showing the activity in the account. Each shareholder who has an
32
<PAGE> 35
account in certain of the Participating Funds will receive statements 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 dealers 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 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 certificates 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 per share (without sales
charge) on the record date. Unless the shareholder instructs otherwise, the
reinvestment plan is automatic. This instruction may be made by telephone by
calling (800) 341-2911 ((800) 421-2833 for the hearing impaired) or 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.
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under
which a shareholder can authorize ACCESS to debit a bank account on a regular
basis to invest predetermined amounts in the Fund. Additional information is
available from the Distributor or authorized dealers.
RETIREMENT PLANS. Eligible investors may establish individual retirement
accounts ("IRAs"); SEP; 401(k) plans; Section 403(b)(7) plans in the case of
employees of public school systems and certain non-profit organizations; or
other pension or profit sharing plans. Documents and forms containing detailed
information regarding these plans are available from the Distributor. Van Kampen
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.
33
<PAGE> 36
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 ACH. In addition, the shareholder must fill out the appropriate
section of the account application. The shareholder must also include a voided
check or deposit slip from the bank account into which redemptions are to be
deposited together with the completed application. Once 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.
DIVIDEND DIVERSIFICATION. A shareholder may, upon written request or by
completing the appropriate section of the application form accompanying this
Prospectus or by calling (800) 341-2911 ((800) 421-2833 for the hearing
impaired), elect to have all dividends and other distributions paid on a class
of shares of the Fund invested into shares of the same class of any
Participating Fund so long as the investor has a pre-existing account for such
class of shares of the other fund. Both accounts must be of the same type,
either non-retirement or retirement. If the accounts are retirement accounts,
they must both be for the same class and of the same type of retirement plan
(e.g., IRA, 403(b)(7), 401(k), Keogh) and for the benefit of the same
individual. If a qualified, pre-existing account does not exist, the shareholder
must establish a new account subject to minimum investment and other
requirements of the fund into which distributions would be invested.
Distributions are invested into the selected fund at its net asset value as of
the payable date of the distribution.
EXCHANGE PRIVILEGE. Shares of the Fund may be exchanged for shares of the same
class of any Participating Fund based on the next computed net asset values of
each fund after requesting the exchange without any sales charge, subject to
certain limitations. Shares of the Fund may be exchanged for shares of any
Participating Fund only if shares of that Participating Fund are available for
sale; however, during periods of suspension of sales, shares of a Participating
Fund may be available for sale only to existing shareholders of the
Participating Fund. Shareholders seeking an exchange into a Participating Fund
should obtain and read the current prospectus for such fund.
To be eligible for exchange, shares of the fund must have been registered in
the shareholder's name for at least 30 days. Shares of the Fund registered in a
shareholder's name for less than 30 days may be exchanged only upon receipt of
prior approval of the Adviser. It is the policy of the Adviser under normal
circumstances not to approve such requests.
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When Class B shares and Class C shares are exchanged among Participating
Funds, the holding period for purposes of computing the CDSC is based upon the
date of the initial purchase of such shares from a Participating Fund. If such
Class B or Class C shares are redeemed and not exchanged for shares of another
Participating Fund, such Class B or Class C shares are subject to the CDSC
schedule imposed by the Participating Fund from which such shares were
originally purchased.
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 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. A shareholder automatically has telephone exchange privileges unless
otherwise designated in the application form accompanying this Prospectus. 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, 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 gain options (except dividend diversification) and authorized dealer
of record as the account from which shares are exchanged, unless otherwise
specified by the shareholder. In order to establish a systematic withdrawal plan
for the new account or reinvest dividends from the new account into another
fund, however, an exchanging shareholder must 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 modify, restrict or terminate the exchange
privilege at any time on 60 days' notice to its shareholders of any termination
or material amendment.
A prospectus of any of these mutual funds may be obtained from any authorized
dealer or the Distributor. An investor considering an exchange to one of such
funds should refer to the prospectus for additional information regarding such
fund prior to investing.
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
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<PAGE> 38
instructions may establish a monthly, quarterly, semi-annual or annual
withdrawal plan. Any investor whose shares in a single account total $5,000 or
more at the offering price next computed after receipt of instructions may
establish a 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 any capital gain or loss will be recognized. The planholder 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."
Class B shareholders and Class C shareholders who established a withdrawal
plan may redeem up to 12% annually of the shareholder's initial account balance
without incurring a CDSC. Initial account balance means the amount of the
shareholder's investment at the time the election to participate in the plan is
made.
Under the plan, sufficient shares of the Fund are redeemed to provide the
amount of the periodic 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 the purchase of additional shares ordinarily
will be disadvantageous to the shareholder because of the duplication of sales
charges. Any gain or loss realized by the shareholder upon redemption of shares
is a taxable event.
INTERNET TRANSACTIONS. In addition to performing transactions on your account
through written instruction or by telephone, you may also perform certain
transactions through the internet. Please refer to our web site at www.vkac.com
for further instruction. VKAC and the Fund employ procedures considered by them
to be reasonable to confirm that instructions communicated through the internet
are genuine. Such procedures include requiring use of a personal identification
number prior to acting upon internet instructions and providing written
confirmation of instructions communicated through the internet. If reasonable
procedures are employed, neither VKAC nor the Fund will be liable for following
instructions through the internet which it reasonably believes to be genuine. If
an account has multiple owners, ACCESS may rely on the instructions of any one
owner.
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REDEMPTION OF SHARES
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REGULAR REDEMPTION. Shareholders may redeem for cash some or all of their
shares of the Fund at any time. To do so, a written request in proper form must
be sent directly to ACCESS at P.O. Box 418256, Kansas City, Missouri 64141-9256.
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<PAGE> 39
Shareholders may also place redemption requests through an authorized dealer.
Orders received from authorized 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 an authorized dealer
provided such order is transmitted to the Distributor prior to the Distributor's
close of business on such day. It is the responsibility of authorized dealers to
transmit redemption requests received by them to the Distributor so they will be
received prior to such time.
As described herein under "Purchase of Shares," redemptions of Class B shares
or Class C shares are subject to a CDSC. In addition, a CDSC of 1.00% may be
imposed on certain redemptions of Class A shares made within one year of
purchase for investments of $1 million or more. The CDSC incurred upon
redemption is paid to the Distributor in reimbursement for distribution-related
expenses. A custodian of a retirement plan account may charge fees based on the
custodian's fee schedule.
The request for redemption must be signed by all persons in whose names the
shares are registered. Signatures must conform exactly to the account
registration. If the proceeds of the redemption exceed $50,000, or if the
proceeds are not to be paid to the record owner at the record address, or if the
record address has changed within the previous 30 days, signature(s) must be
guaranteed by one of the following: a bank or trust company; a broker-dealer; a
credit union; a national securities exchange; registered securities association
or clearing agency; a savings and loan association; or a federal savings bank.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption. In some cases, however,
other documents may be necessary. For example, although the Fund normally does
not issue certificates for shares, it will do so if a special request has been
made to ACCESS. In the case of shareholders holding certificates, the
certificates for the shares being redeemed must accompany the redemption
request. In the event the redemption is requested by a corporation, partnership,
trust, fiduciary, executor or administrator, and the name and title of the
individual(s) authorizing such redemption is not shown in the account
registration, a copy of the corporate resolution or other legal documentation
appointing the authorized signer and certified within the prior 120 days must
accompany the redemption request. IRA redemption requests should be sent to the
IRA custodian to be forwarded to ACCESS. Where Van Kampen American Capital Trust
Company serves as IRA custodian, special IRA, 403(b)(7), or Keogh distribution
forms must be obtained from and be forwarded to Van Kampen American Capital
Trust Company, P. O. Box 944, Houston, Texas 77001-0944. Contact the custodian
for information.
In the case of redemption requests sent directly to ACCESS, the redemption
price is the net asset value per share next determined after the request is
received.
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<PAGE> 40
Payment for shares redeemed will be made by check mailed within seven days after
acceptance by ACCESS of the request and any other necessary documents in proper
order. Such payment 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 the purchase check has cleared, which may take up to fifteen days. A
taxable gain or loss will be recognized by the shareholder upon redemption of
shares.
TELEPHONE REDEMPTIONS. In addition to the regular redemption procedures set
forth above, 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 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, 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. 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
regular redemption procedure 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
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 and amounts of at least
$1,000 up to $1 million may be redeemed daily if the proceeds are to be paid by
wire. The proceeds must be payable to the shareholder(s) of record and sent to
the address of record for the account or wired directly to their predesignated
bank account. This privilege is not available if the address of record has been
changed within 30 days prior to a telephone redemption request. Proceeds from
redemptions are expected to be wired on the next business day following the date
of redemption. This service is also not available with respect to shares held in
an individual
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<PAGE> 41
retirement account (IRA) for which Van Kampen American Capital Trust
Company acts as custodian. The Fund reserves the right at any time to terminate,
limit or otherwise modify this redemption privilege.
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 initial investment as specified in this Prospectus. At least 60 days
advance written notice of any such involuntary redemption will be given and the
shareholder will be given an opportunity to purchase the required value of
additional shares at the next determined net asset value without sales charge.
Any involuntary redemption may only occur if the shareholder account is less
than the minimum initial investment due to shareholder redemptions.
REDEMPTION UPON DEATH OR DISABILITY. The Fund will waive the CDSC on
redemptions following the death or disability of a Class B shareholder or Class
C shareholder. An individual will be considered disabled for this purpose if he
or she meets the definition thereof in Section 72(m)(7) of the 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
CDSC on Class B shares and Class C shares.
In cases of death or disability, the CDSC on Class B shares and Class C shares
will be waived where the decedent or disabled person is either an individual
shareholder or owns the shares as a joint tenant with right of survivorship or
is the beneficial owner of a custodial or fiduciary account, and where the
redemption is made within one year of death or the initial determination of
disability. This waiver of the CDSC 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 death or initial determination of disability.
REINSTATEMENT PRIVILEGE. A Class A shareholder or Class B shareholder who has
redeemed shares of the Fund may reinstate any portion or all of the net proceeds
of such redemption in Class A shares of the Fund. A Class C shareholder who has
redeemed shares of the Fund may reinstate any portion or all of the net proceeds
of such redemption in Class C shares of the Fund with credit given for any CDSC
paid upon such redemption. Such reinstatement is made at the net asset value
(without sales charge except as described under "Shareholder
Services -- Exchange Privilege") next determined after the order is received,
which must be within 180 days after the date of the redemption. Reinstatement at
net asset value is also offered to participants in those eligible retirement
plans held or administered by Van Kampen
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<PAGE> 42
American Capital Trust Company for repayment of principal (and interest) on
their borrowings on such plans.
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DISTRIBUTION AND SERVICE PLANS
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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 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 or 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 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 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
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 0.75% not paid to such
brokers, dealers or financial
40
<PAGE> 43
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 Class B shares or Class C
shares for any given year may exceed the amounts payable to the Distributor with
respect to such class of shares under the Distribution Plan, the Service Plan
and payments received pursuant to the CDSC. In such event, with respect to any
such class of 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 Class B share or Class C share may be greater or less than the amount
of the initial commission (including carrying cost) paid by the Distributor with
respect to such share. In such circumstances, a shareholder of a share may be
deemed to incur expenses attributable to other shareholders of such class. As of
December 31, 1997, there were $27,232,157 and $1,186,999 of unreimbursed
distribution-related expenses with respect to Class B shares and Class C shares,
respectively, representing 2.99% and 1.56% of the Fund's net assets attributable
to Class B shares and Class C shares, respectively. 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 CDSCs.
The Distributor will not use the proceeds from the CDSC applicable to a
particular class of shares to defray distribution-related expenses attributable
to any other class of 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
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<PAGE> 44
Fund would seek alternate providers and expects that shareholders would not
experience any disadvantage.
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DISTRIBUTIONS FROM THE FUND
- ------------------------------------------------------------------------------
In addition to any increase in the value of shares which the Fund may achieve,
shareholders may receive two kinds of return from the Fund: dividends and
capital gains distributions.
DIVIDENDS. Dividends from stocks and interest earned from other investments
are the Fund's main source of income. Substantially all of this income, less
expenses, is distributed quarterly as dividends to shareholders. Unless the
shareholder instructs otherwise, dividends and distributions are automatically
applied to purchase additional shares of the Fund at the next determined net
asset value. See "Shareholder Services -- Reinvestment Plan."
The per share dividends on Class B shares and Class C shares will be lower
than the per share dividends on Class A shares as a result of the higher
distribution fees and transfer agency costs applicable to such classes of
shares.
CAPITAL GAINS. The Fund may realize capital gains or losses when it sells
securities, depending on whether the sales prices for the securities are higher
or lower than their purchase prices. The Fund distributes to shareholders at
least once a year the excess, if any, of its total profits on the sale of
securities during the year over its total losses on the sale of securities,
including capital losses carried forward from prior years under tax laws. As in
the case of dividends, capital gains distributions are automatically reinvested
in additional shares of the Fund at net asset value unless the shareholder
elects otherwise. See "Shareholder Services -- Reinvestment Plan."
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TAX STATUS
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FEDERAL INCOME TAXATION OF THE FUND. The Fund has elected and qualified and
intends to continue to qualify each year to be treated as a regulated investment
company under Subchapter M of the Code. To qualify as a regulated investment
company, the Fund must comply with certain requirements of the Code relating to,
among other things, the source of its income and diversification of its assets.
If the Fund so qualifies and distributes each year to its shareholders at
least 90% of its net investment income (including tax-exempt interest, taxable
income and net short-term capital gain, but not net capital 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 necessary to
42
<PAGE> 45
satisfy the 90% distribution requirement. The Fund will not be subject to
federal income tax on any net capital gains distributed to shareholders.
In order to avoid a 4% excise tax, the Fund will be required to distribute, by
December 31 of each year, at least 98% of its ordinary income (not including
tax-exempt income) for such year and at least 98% of its capital gain net income
(the latter of which generally is computed on the basis of the one-year period
ending on October 31 of such year), plus any amounts that were not distributed
in previous taxable years. For purposes of the excise tax, any ordinary income
or capital gain net income retained by, and subject to federal income tax in the
hands of, the Fund will be treated as having been distributed.
If the Fund failed to qualify as a regulated investment company or failed to
satisfy the 90% distribution requirement in any taxable year, the Fund would be
taxed as an ordinary corporation on its taxable income (even if such income were
distributed to its shareholders) and all distributions out of earnings and
profits would be taxed to shareholders as ordinary income. To qualify again as a
regulated investment company in a subsequent year, the Fund may be required to
pay an interest charge on 50% of its earnings and profits attributable to
non-regulated investment company years and would be required to distribute such
earnings and profits to shareholders (less any interest charge). In addition, if
the Fund failed to qualify as a regulated investment company for its first
taxable year or, if immediately after qualifying as a regulated investment
company for any taxable year, it failed to qualify for a period greater than one
taxable year, the Fund would be required to recognize any net built-in gains
(the excess of aggregate gains, including items of income, over aggregate losses
that would have been realized if it had been liquidated) in order to qualify as
a regulated investment company in a subsequent year.
Some of the Fund's investment practices are subject to special provisions of
the Code that, among other things, may defer the use of certain losses of the
Fund and affect the holding period of the securities held by the Fund and the
character of the gains or losses realized by the Fund. These provisions may also
require the Fund to recognize income or gain without receiving cash with which
to make distributions in amounts necessary to satisfy the 90% distribution
requirement and the distribution requirements for avoiding income and excise
taxes. The Fund will monitor its transactions and may make certain tax elections
in order to mitigate the effect of these rules and prevent disqualification of
the Fund as a regulated investment company.
Investments of the Fund in securities issued at a discount or providing for
deferred interest or payment of interest in kind are subject to special tax
rules that will affect the amount, timing and character of distributions to
shareholders. For example, with respect to securities issued at a discount, the
Fund will be required to accrue as income each year a portion of the discount
and to distribute such income
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<PAGE> 46
each year in order to maintain its qualification as a regulated investment
company and to avoid income and excise taxes. In order to generate sufficient
cash to make distributions necessary to satisfy the 90% distribution requirement
and to avoid income and excise taxes, the Fund may have to dispose of securities
that it would otherwise have continued to hold.
The Fund may invest in the stock of "passive foreign investment companies"
("PFICs"). A PFIC is a foreign corporation that, in general, meets either of the
following tests: (1) at least 75% of its gross income is passive income or (2)
an average of at least 50% of its assets produce, or are held for the production
of, passive income. Under certain circumstances, a regulated investment company
that holds stock of a PFIC will be subject to federal income tax on (i) a
portion of any "excess distribution" received on such stock or (ii) any gain
from a sale or disposition of the stock (collectively, "PFIC income"), plus
interest on such amounts, even if the regulated investment company distributes
the PFIC income as a taxable dividend to its stockholders. The balance of the
PFIC income will be included in the regulated investment company's investment
company taxable income and, accordingly, will not be taxable to it to the extent
that income is distributed to its shareholders. If the Fund invests in a PFIC
and elects to treat the PFIC as a "qualified electing fund," then in lieu of the
foregoing tax and interest obligation, the Fund would be required to include in
income each year its pro rata share of the qualified electing fund's annual
ordinary earnings and net capital gain, which most likely would have to be
distributed to satisfy the 90% distribution requirement and the distribution
requirement for avoiding income and excise taxes. In most instances it may be
very difficult to make this election due to certain requirements imposed with
respect to the election.
As an alternative to making the above-described election to treat the PFIC as
a qualified electing fund, the Fund may make an election to annually
mark-to-market certain publicly traded PFIC stock (a "PFIC Mark-to-Market
Election"). "Marking-to-market," in this context, means recognizing as ordinary
income or loss each year an amount equal to the difference between the Fund's
adjusted tax basis in such PFIC stock and its fair market value. Losses will be
allowed only to the extent of net mark-to-market gain previously included by the
Fund pursuant to the election for prior taxable years. The Fund may be required
to include in its taxable income for the first taxable year in which it makes a
PFIC Mark-to-Market Election an amount equal to the interest charge that would
otherwise accrue with respect to distributions on, or proceeds from dispositions
of, the PFIC stock. This amount would not be deductible from the Fund's taxable
income. The PFIC Mark-to-Market Election generally applies to the taxable year
for which made and to all subsequent taxable years, unless the Internal Revenue
Service consents to revocation of the election. By making the PFIC
Mark-to-Market Election, the Fund could ameliorate the adverse tax consequences
arising from its ownership of PFIC stock, but in any particular year may be
required to recognize income in
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<PAGE> 47
excess of the distributions it receives from the PFIC and proceeds from the
dispositions of PFIC stock.
DISTRIBUTIONS. Distributions of the Fund's net investment income are taxable
to shareholders as ordinary income to the extent of the Fund's earnings and
profits, whether paid in cash or reinvested in additional shares. Distributions
of the Fund's net capital gains ("capital gain dividends"), if any, are taxable
to shareholders as long-term capital gains regardless of the length of time
shares of the Fund have been held by such shareholders. Distributions in excess
of the Fund's earnings and profits will first reduce the adjusted tax basis of a
holder's shares and, after such adjusted tax basis is reduced to zero, will
constitute capital gains to such holder (assuming such shares are held as a
capital asset). For a summary of the tax rates applicable to capital gains
(including capital gain dividends), see "Capital Gains Rates Under the 1997 Tax
Act" below. Tax-exempt shareholders not subject to federal income tax on their
income generally will not be taxed on distributions from the Fund.
Shareholders receiving distributions in the form of additional shares issued
by the Fund will be treated for federal income tax purposes as receiving a
distribution in an amount equal to the fair market value of the shares received,
determined as of the distribution date. The basis of such shares will equal the
fair market value on the distribution date.
The Fund will inform shareholders of the source and tax status of all
distributions promptly after the close of each calendar year. Some portion of
the distributions from the Fund may be eligible for the dividends received
deduction for corporations if the Fund receives qualifying dividends during the
year and if certain other requirements of the Code are satisfied.
Although dividends generally will be treated as distributed when paid,
dividends declared in October, November or December, payable to shareholders of
record on a specified date in such month and paid during January of the
following year will be treated as having been distributed by the Fund and
received by the shareholders on the December 31 prior to the date of payment. In
addition, certain other distributions made after the close of a taxable year of
the Fund may be "spilled back" and treated as paid by the Fund (except for
purposes of the 4% excise tax) during such taxable year. In such case,
shareholders will be treated as having received such dividends in the taxable
year in which the distribution was actually made.
Income from investments in foreign securities received by the Fund may be
subject to income, withholding and other taxes imposed by foreign countries and
U.S. possessions. Such taxes will not be deductible or creditable by
shareholders. Tax conventions between certain countries and the United States
may reduce or eliminate such taxes.
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<PAGE> 48
Under Code Section 988, foreign currency gains or losses from certain forward
contracts not traded in the interbank market as well as certain other gains or
losses attributable to currency exchange rate fluctuations are typically treated
as ordinary income or loss. Such income or loss may increase or decrease (or
possibly eliminate) the Fund's income available for distribution. If, under the
rules governing the tax treatment of foreign currency gains and losses, the
Fund's income available for distribution is decreased or eliminated, all or a
portion of the dividends declared by the Fund may be treated for federal income
tax purposes as a return of capital or, in some circumstances, as capital gain.
Generally, a shareholder's tax basis in Fund shares will be reduced to the
extent that an amount distributed to such shareholder is treated as a return of
capital.
The Fund is required, in certain circumstances, to withhold 31% of dividends
and certain other payments, including redemptions, paid to shareholders who do
not furnish to the Fund their correct taxpayer identification number (in the
case of individuals, their social security number) and certain required
certifications or who are otherwise subject to backup withholding.
SALE OF SHARES. The sale of shares (including transfers in connection with a
redemption or repurchase of shares) will be a taxable transaction for federal
income tax purposes. Selling shareholders will generally recognize gain or loss
in an amount equal to the difference between their adjusted tax basis in the
shares and the amount received. If such shares are held as a capital asset, the
gain or loss will be a capital gain or loss and will be long-term if such shares
have been held for more than one year. For a summary of the tax rates applicable
to capital gains, see "Capital Gains Rates Under the 1997 Tax Act" below. Any
loss recognized upon a taxable disposition of shares held for six months or less
will be treated as a long-term capital loss to the extent of any capital gain
dividends received with respect to such shares. For purposes of determining
whether shares have been held for six months or less, the holding period is
suspended for any periods during which the shareholder's risk of loss is
diminished as a result of holding one or more other positions in substantially
similar or related property or through certain options or short sales.
CAPITAL GAINS RATES UNDER THE 1997 TAX ACT. Under the Taxpayer Relief Act of
1997 (the "1997 Tax Act"), the maximum tax rate applicable to net capital gains
recognized by individuals and other non-corporate taxpayers is (i) the same as
the maximum ordinary income tax rate for capital assets held for one year or
less, (ii) 28% for capital assets held for more than one year but not more than
18 months and (iii) 20% for capital assets held for more than 18 months. The
1997 Tax Act did not affect the maximum net capital gains tax rate for
corporations, which remains at 35%. The new tax rates for capital gains under
the 1997 Tax Act described above will apply to distributions of capital gain
dividends by the Fund (if, as expected, the Fund designates capital gain
dividends as 28% rate gain distributions or 20% rate gain distributions, in
accordance with its holding periods for the
46
<PAGE> 49
securities sold that generated such capital gain dividends) as well as to sales
and exchanges of shares in the Fund. With respect to capital losses recognized
on dispositions of shares held six months or less where such losses are treated
as long-term capital losses to the extent of prior capital gain dividends
received on such shares (see "Sale of Shares" above), it is unclear how such
capital losses offset the capital gains referred to above. Shareholders should
consult their own tax advisors as to the application of the new capital gains
rates to their particular circumstances.
GENERAL. The federal, state and local income tax discussion set forth above
is for general information only. Prospective investors should consult their
advisors regarding the specific federal tax consequences of purchasing, holding
and disposing of shares, as well as the effects of state, local and foreign tax
law and any proposed tax law changes.
- ------------------------------------------------------------------------------
FUND PERFORMANCE
- ------------------------------------------------------------------------------
From time to time, the Fund may advertise its total return for prior periods.
Any such advertisement would include at least average annual total return
quotations for one, five and ten year periods. Other total return quotations,
aggregate or average, over other time periods may also be included.
The total return of the Fund for a particular period represents the increase
(or decrease) in the value of a hypothetical investment in the Fund from the
beginning to the end of the period. Total return is calculated by subtracting
the value of the initial investment from the ending value and showing the
difference as a percentage of the initial investment; the calculation assumes
the initial investment is made at the current maximum public offering price
(which includes a maximum sales charge of 5.75% for Class A shares); that all
income dividends or capital gains distributions during the period are reinvested
in Fund shares at net asset value; and that any applicable CDSC has been paid.
The Fund's total return will vary depending on market conditions, the securities
comprising the Fund's portfolio, the Fund's operating expenses and unrealized
net capital gains or losses during the period. Total return is based on
historical earnings and asset value fluctuations and is not intended to indicate
future performance. No adjustments are made to reflect any income taxes payable
by shareholders on dividends and distributions paid by the Fund.
47
<PAGE> 50
Average annual total return quotations for periods of two or more years are
computed by finding the average annual compounded rate of return over the period
that would equate the initial amount invested to the ending redeemable value.
Total return is calculated separately for Class A shares, Class B shares and
Class C shares. Class A share total return figures include the maximum sales
charge of 5.75%; Class B share and Class C share total return figures include
any applicable CDSC. Because of the differences in sales charges and
distribution fees, the total returns for each of the classes will differ.
From time to time, the Fund may include in its sales literature and
shareholder reports a quotation of the current "distribution rate" for each
class of shares of the Fund. Distribution rate is a measure of the level of
income and short-term capital gain dividends, if any, distributed for a
specified period. Distribution rate differs from yield, which is a measure of
the income actually earned by the Fund's investments, and from total return,
which is a measure of the income actually earned by the Fund's investments plus
the effect of any realized and unrealized appreciation or depreciation of such
investments during a stated period. Distribution rate is, therefore, not
intended to be a complete measure of the Fund's performance. Distribution rate
may sometimes be greater than yield since, for instance, it may not include the
effect of amortization of bond premiums, and may include non-recurring
short-term capital gains and premiums from futures transactions engaged in by
the Fund. Distribution rates will be computed separately for each class of the
Fund's shares.
In reports or other communications to shareholders or in advertising material,
the Fund may compare its performance with that of other mutual funds as listed
in the ratings or rankings prepared by Lipper Analytical Services, Inc., CDA,
Morningstar Mutual Funds or similar independent services which monitor the
performance of mutual funds, with the Consumer Price Index, the Dow Jones
Industrial Average, Standard & Poor's indices or NASDAQ Composite Index, other
appropriate indices of investment securities, or with investment or savings
vehicles. The performance information may also include evaluations of the Fund
published by nationally recognized ranking services and by nationally recognized
financial publications. Such comparative performance information will be stated
in the same terms in which the comparative data or indices are stated. Such
advertisements and sales material may also include a yield quotation as of a
current period. In each case, such total return and yield information, if any,
will be calculated pursuant to rules established by the SEC and will be computed
separately for each class of the Fund's shares. For these purposes, the
performance of the Fund, as well as the performance of other mutual funds or
indices, do not reflect sales charges, the inclusion of which would reduce Fund
performance. The Fund will include performance data for each class of shares of
the Fund in any advertisement or information including performance data of the
Fund.
48
<PAGE> 51
The Fund may also utilize performance information in hypothetical
illustrations provided in narrative form. These hypotheticals will be
accompanied by standard performance information required by the SEC as described
above.
The Fund's Annual Report and Semi-Annual Report contains additional
performance information. A copy of the Annual Report and Semi-Annual Report may
be obtained without charge by calling or writing the Fund at the telephone
number and address printed on the cover of this Prospectus.
- ------------------------------------------------------------------------------
DESCRIPTION OF SHARES OF THE FUND
- ------------------------------------------------------------------------------
The Fund was originally incorporated in Delaware on August 14, 1957 and was
reincorporated by merger into a Maryland corporation on October 22, 1991. The
Fund was reorganized as a business trust under the laws of Delaware as of August
18, 1995 and adopted its current name at that time.
The authorized capitalization of the Fund consists of an unlimited number of
shares of beneficial interest, par value $0.01 per share, divided into classes.
The Fund currently offers three classes of shares, designated Class A shares,
Class B shares and Class C shares. Other classes may be established from time to
time in accordance with provisions of the Fund's Declaration of Trust. Each
class of shares represents an interest in the same assets of the Fund and
generally are identical in all respects except that each class bears certain
distribution expenses and has exclusive voting rights with respect to its
distribution fee. Except as described herein, there are no conversion,
preemptive or other subscription rights. 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 fees and transfer agency
costs, the liquidation proceeds to Class B shareholders and Class C shareholders
are likely to be lower than to other shareholders.
The Fund does not contemplate holding regular meetings of shareholders to
elect Trustees or otherwise. However, the holders of 10% or more of the
outstanding shares may by written request require a meeting to consider the
removal of Trustees by a vote of two-thirds of the shares then outstanding cast
in person or by proxy at such meeting. The Fund will assist such holders in
communicating with other shareholders of the Fund to the extent required by the
1940 Act. More detailed information concerning the Fund is set forth in the
Statement of Additional Information.
The Fund's Declaration of Trust provides that no Trustee, officer or
shareholder of the Fund shall be held to any personal liability, nor shall
resort be had to their private property for the satisfaction of any obligation
or liability of the Fund but the assets of the Fund only shall be liable.
49
<PAGE> 52
- ------------------------------------------------------------------------------
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 fiscal year end of the Fund is December 31. 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 accountants, 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
Equity Income 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) 847-2424. For
inquiries through Telecommunications Device for the Deaf (TDD) dial (800)
421-2833.
50
<PAGE> 53
EXISTING SHAREHOLDERS--
FOR INFORMATION ON YOUR
EXISTING ACCOUNT PLEASE CALL
THE FUND'S TOLL-FREE
NUMBER--(800) 341-2911
PROSPECTIVE INVESTORS--CALL
YOUR BROKER OR (800) 421-5666
DEALERS--FOR DEALER
INFORMATION, SELLING
AGREEMENTS, WIRE ORDERS,
OR REDEMPTIONS CALL THE
DISTRIBUTOR'S TOLL-FREE
NUMBER--(800) 421-5666
FOR SHAREHOLDER AND
DEALER INQUIRIES THROUGH
TELECOMMUNICATIONS
DEVICE FOR THE DEAF (TDD)
DIAL (800) 421-2833
FOR AUTOMATED TELEPHONE
SERVICES DIAL (800) 847-2424
VAN KAMPEN AMERICAN CAPITAL
EQUITY INCOME FUND
One Parkview Plaza
Oakbrook Terrace, IL 60181
Investment Adviser
VAN KAMPEN AMERICAN CAPITAL
ASSET MANAGEMENT, INC.
One Parkview Plaza
Oakbrook Terrace, IL 60181
Distributor
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, IL 60181
Transfer Agent
ACCESS INVESTOR SERVICES, INC.
P.O. Box 418256
Kansas City, MO 64141-9256
Attn: Van Kampen American Capital
Equity Income Fund
Custodian
STATE STREET BANK AND
TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, MA 02105-1713
Attn: Van Kampen American Capital
Equity Income Fund
Legal Counsel
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Dr.
Chicago, IL 60606
Independent Accountants
PRICE WATERHOUSE LLP
200 East Randolph Drive
Chicago, IL 60601
<PAGE> 54
------------------------------------------------------------------------------
EQUITY INCOME FUND
------------------------------------------------------------------------------
P R O S P E C T U S
APRIL 30, 1998
------ A WEALTH OF KNOWLEDGE - A KNOWLEDGE OF WEALTH ------
VAN KAMPEN AMERICAN CAPITAL
------------------------------------------------------------------------
<PAGE> 55
STATEMENT OF ADDITIONAL INFORMATION
VAN KAMPEN AMERICAN CAPITAL EQUITY INCOME FUND
Van Kampen American Capital Equity Income Fund (the "Fund") is a
diversified, open-end management investment company. This Statement of
Additional Information is not a prospectus. This Statement of Additional
Information should be read in conjunction with the Fund's prospectus (the
"Prospectus") dated as of the same date as this Statement of Additional
Information. This Statement of Additional Information does not include all the
information a prospective investor should consider before purchasing shares of
the Fund. Investors should obtain and read the Prospectus prior to purchasing
shares of the Fund. A Prospectus may be obtained without charge by writing or
calling Van Kampen American Capital Distributors, Inc. at One Parkview Plaza,
Oakbrook Terrace, Illinois 60181 at (800) 421-5666.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information......................................... B-2
Repurchase Agreements....................................... B-3
Options, Futures Contracts and Related Options.............. B-3
Investment Restrictions..................................... B-8
Trustees and Officers....................................... B-10
Legal Counsel............................................... B-19
Investment Advisory Agreement............................... B-19
Distributor................................................. B-21
Distribution and Service Plans.............................. B-21
Transfer Agent.............................................. B-22
Portfolio Transactions and Brokerage........................ B-22
Determination of Net Asset Value............................ B-24
Purchase and Redemption of Shares........................... B-24
Exchange Privilege.......................................... B-26
Tax Status of the Fund...................................... B-27
Fund Performance............................................ B-27
Other Information........................................... B-28
Report of Independent Accountants........................... B-29
Financial Statements........................................ B-30
Notes to Financial Statements............................... B-43
</TABLE>
This Statement of Additional Information is dated April 30, 1998.
B-1
<PAGE> 56
GENERAL INFORMATION
The Fund was originally incorporated as the Provident Fund for Income, Inc.
as a Delaware corporation on August 14, 1957. On July 2, 1990, the Fund's name
was changed to American Capital Equity Income Fund, Inc. The Fund was
reincorporated by merger into a Maryland corporation on October 22, 1991. As of
August 18, 1995, the Fund was reorganized as a series of Van Kampen American
Capital Equity Income Fund (the "Trust"), under the laws of the State of
Delaware as a Delaware business trust, and adopted its current name.
Van Kampen American Capital Asset Management, Inc. (the "Adviser"), Van
Kampen American Capital Distributors, Inc. (the "Distributor") and ACCESS
Investor Services, Inc. ("ACCESS") are wholly-owned subsidiaries of Van Kampen
American Capital, Inc. ("VKAC"), which is an indirect wholly-owned subsidiary of
Morgan Stanley Dean Witter & Co. The principal office of the Fund, the Adviser,
the Distributor and VKAC is located at One Parkview Plaza, Oakbrook Terrace,
Illinois 60181.
Morgan Stanley Dean Witter & Co. and various of its directly or indirectly
owned subsidiaries, including Morgan Stanley Asset Management Inc., an
investment adviser, Morgan Stanley & Co. Incorporated, a registered
broker-dealer and investment adviser, and Morgan Stanley International, are
engaged in a wide range of financial services. Their principal businesses
include securities underwriting, distribution and trading; merger, acquisition,
restructuring and other corporate finance advisory activities; merchant banking;
stock brokerage and research services; credit services; asset management;
trading of futures, options, foreign exchange, commodities and swaps (involving
foreign exchange, commodities, indices and interest rates); real estate advice,
financing and investing; and global custody, securities clearance services and
securities lending.
VKAC equity fund philosophy is normally to remain fully invested and
diversified across many industries to achieve consistent long-term returns. VKAC
uses an investment process designed to attempt to produce consistently good
short-term results, which should help lead to superior long-term performance.
Fully Invested: Money invested in a VKAC stock fund will normally be fully
invested in the market to attempt to maximize the potential for long-term
returns. The importance of being fully invested can be illustrated by the
following comparison. By missing the 30 best months during the past 72 years,
the value of $1.00 invested in 1926 was $25.98 at the end of 1997, compared to
$1,828.33 for $1.00 that was invested for the entire period (Source: Micropal,
Inc.). Of course, past performance is no guarantee of future results.
Broadly Diversified: A broadly diversified portfolio usually reduces risk
and increases relative stability. Since VKAC's goal is consistency, a broadly
diversified portfolio across industries is emphasized. VKAC stock funds are
varied both in terms of the number of industries and the number of stocks within
each industry in which they invest. Generally, the stock funds invest in 12
broad economic sectors, and in many individual stocks within each sector.
Clearly Defined: The basic characteristics of VKAC funds are determined by
a pre-defined profile which remains constant over time.
B-2
<PAGE> 57
As of April 3, 1998, no person was known by the Fund to own beneficially or
to hold of record 5% or more of the outstanding Class A shares, Class B shares
or Class C shares of the Fund, except as follows:
<TABLE>
<CAPTION>
AMOUNT
OF OWNERSHIP AT CLASS OF PERCENTAGE OF
NAME AND ADDRESS OF HOLDER* APRIL 3, 1998 SHARES OWNERSHIP
--------------------------- --------------- -------- -------------
<S> <C> <C> <C>
Van Kampen American Capital Trust Company 22,283,540 A 24%
2800 Post Oak Blvd. 35,315,812 B 26.75%
Houston, TX 77056 1,238,495 C 11.40%
Merrill Lynch Pierce 1,016,660 C 9.36%
Fenner & Smith, Inc.
Mutual Fund Operations
Attn Book Entry
4800 Deer Lake Dr. E 3rd Floor
Jacksonville, FL 32246-6484
</TABLE>
- ---------------
*All holders were of record.
Van Kampen American Capital Trust Company acts as custodian for certain
employee benefit plans and individual retirement accounts.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with banks or broker-dealers
deemed to be creditworthy by the Adviser under guidelines approved by the
Trustees. A repurchase agreement is a short-term investment in which the
purchaser (i.e., the Fund) acquires ownership of a debt security and the seller
agrees to repurchase the obligation at a future time and set price, usually not
more than seven days from the date of purchase, thereby determining the yield
during the purchaser's holding period. Repurchase agreements are fully
collateralized by the underlying debt securities and are considered to be loans
under the Investment Company Act of 1940, as amended (the "1940 Act"). The Fund
pays for such securities only upon physical delivery or evidence of book entry
transfer to the account of a custodian or bank acting as agent. The seller under
a repurchase agreement will be required to maintain the value of the underlying
securities marked-to-market daily at not less than the repurchase price. The
underlying securities (normally securities of the U.S. Government, or its
agencies and instrumentalities) may have maturity dates exceeding one year. The
Fund does not bear the risk of a decline in value of the underlying security
unless the seller defaults under its repurchase obligation. In the event of a
bankruptcy or other default of a seller of a repurchase agreement, the Fund
could experience both delays in liquidating the underlying securities and loss
including: (a) possible decline in the value of the underlying security during
the period while the Fund seeks to enforce its rights thereto, (b) possible lack
of access to income on the underlying security during this period and (c)
expenses of enforcing its rights. The Fund will not invest in repurchase
agreements maturing in more than seven days if any such investments, together
with any other illiquid security held by the Fund, exceeds 10% of the value of
its net assets. See "Investment Practices -- Repurchase Agreements" in the
Prospectus for further information.
OPTIONS, FUTURES CONTRACTS AND RELATED OPTIONS
WRITING CALL AND PUT OPTIONS
Purpose. The principal reason for writing options is to obtain, through
receipt of premiums, a greater current return than would be realized on the
underlying securities alone. Such current return could be expected to fluctuate
because premiums earned from an option writing program and dividend or interest
income yields on portfolio securities vary as economic and market conditions
change. Writing options on portfolio securities is likely to result in higher
portfolio turnover.
Writing Options. The purchaser of a call option pays a premium to the
writer (i.e., the seller) for the right to buy the underlying security from the
writer at a specified price during a certain period. The Fund
B-3
<PAGE> 58
would write call options only on a covered basis or for cross-hedging purposes.
A call option is covered if, at all times during the option period, the Fund
would own or have the right to acquire securities of the type that it would be
obligated to deliver if any outstanding option were exercised. An option is for
cross-hedging purposes if it is not covered by the security subject to the
option, but is designed to provide a hedge against another security which the
Fund owns or has the right to acquire. In such circumstances, the Fund
collateralizes the option by maintaining in a segregated account with the Fund's
Custodian cash or liquid securities in an amount not less than the market value
of the underlying security, marked-to-market daily, while the option is
outstanding.
The purchaser of a put option pays a premium to the writer (i.e., the
seller) for the right to sell the underlying security to the writer at a
specified price during a certain period. The Fund would write put options only
on a secured basis, which means that, at all times during the option period, the
Fund would maintain in a segregated account with its Custodian cash or liquid
securities in an amount of not less than the exercise price of the option, or
would hold a put on the same underlying security at an equal or greater exercise
price.
Closing Purchase Transactions and Offsetting Transactions. In order to
terminate its position as a writer of a call or put option, the Fund could enter
into a "closing purchase transaction," which is the purchase of a call (put) on
the same underlying security and having the same exercise price and expiration
date as the call (put) previously written by the Fund. The Fund would realize a
gain (loss) if the premium plus commission paid in the closing purchase
transaction is less (greater) than the premium it received on the sale of the
option. The Fund would also realize a gain if an option it has written lapses
unexercised.
The Fund could write options that are listed on an exchange as well as
options which are privately negotiated in over-the-counter transactions. A Fund
could close out its position as a writer of an option only if a liquid secondary
market exists for options of that series, but there is no assurance that such a
market will exist, particularly in the case of over-the-counter options, since
they can be closed out only with the other party to the transaction.
Alternatively, the Fund could purchase an offsetting option, which would not
close out its position as a writer, but would provide an asset of equal value to
its obligation under the option written. If the Fund is not able to enter into a
closing purchase transaction or to purchase an offsetting option with respect to
an option it has written, it will be required to maintain the securities subject
to the call or the collateral underlying the put until a closing purchase
transaction can be entered into (or the option is exercised or expires) even
though it might not be advantageous to do so.
Risks of Writing Options. By writing a call option, the Fund loses the
potential for gain on the underlying security above the exercise price while the
option is outstanding; by writing a put option the Fund might become obligated
to purchase the underlying security at an exercise price that exceeds the then
current market price.
PURCHASING CALL AND PUT OPTIONS
The Fund could purchase call options to protect (i.e., hedge) against
anticipated increases in the prices of securities it wishes to acquire.
Alternatively, call options could be purchased for capital appreciation. Since
the premium paid for a call option is typically a small fraction of the price of
the underlying security, a given amount of funds will purchase call options
covering a much larger quantity of such security than could be purchased
directly. By purchasing call options, the Fund could benefit from any
significant increase in the price of the underlying security to a greater extent
than had it invested the same amount in the security directly. However, because
of the very high volatility of option premiums, the Fund would bear a
significant risk of losing the entire premium if the price of the underlying
security did not rise sufficiently, or if it did not do so before the option
expired.
Put options may be purchased to protect (i.e., hedge) against anticipated
declines in the market value of either specific portfolio securities or of the
Fund's assets generally. Alternatively, put options may be purchased for capital
appreciation in anticipation of a price decline in the underlying security and a
corresponding increase in the value of the put option. The purchase of put
options for capital appreciation involves the same significant risk of loss as
described above for call options.
B-4
<PAGE> 59
In any case, the purchase of options for capital appreciation would
increase the Fund's volatility by increasing the impact of changes in the market
price of the underlying securities on the Fund's net asset value.
OPTIONS ON STOCK INDEXES
Options on stock indexes are similar to options on stock, but the delivery
requirements are different. Instead of giving the right to take or make delivery
of stock at a specified price, an option on a stock index gives the holder the
right to receive an amount of cash which amount will depend upon the closing
level of the stock index upon which the option is based being greater than (in
the case of a call) or less than (in the case of a put) the exercise price of
the option. The amount of cash received will be the difference between the
closing price of the index and the exercise price of the option, multiplied by a
specified dollar multiple. The writer of the option is obligated, in return for
the premium received, to make delivery of this amount.
Some stock index options are based on a broad market index such as the
Standard & Poor's 500 or the New York Stock Exchange Composite Index, or a
narrower index such as the Standard & Poor's 100. Indexes are also based on an
industry or market segment such as the AMEX Oil and Gas Index or the Computer
and Business Equipment Index. A stock index fluctuates with changes in the
market values of the stocks included in the index. Options are currently traded
on The Chicago Board Options Exchange, the American Stock Exchange and other
exchanges.
Gain or loss to the Fund on transactions in stock index options will depend
on price movements in the stock market generally (or in a particular industry or
segment of the market) rather than price movements of individual securities. As
with stock options, the Fund may offset its position in stock index options
prior to expiration by entering into a closing transaction on an exchange, or it
may let the options expire unexercised.
FUTURES CONTRACTS
The Fund may engage in transactions involving futures contracts and related
options in accordance with the rules and interpretations of the Commodity
Futures Trading Commission ("CFTC") under which the Fund would be exempt from
registration as a "commodity pool."
A stock index futures contract is an agreement pursuant to which a party
agrees to take or make delivery of cash equal to a specified dollar amount times
the difference between the stock index value at a specified time and the price
at which the futures contract is originally struck. No physical delivery of the
underlying stocks in the index is made. Currently, stock index futures contracts
can be purchased with respect to the Standard & Poor's 500 Stock Index on the
Chicago Mercantile Exchange ("CME"), the New York Stock Exchange Composite Index
on the New York Futures Exchange and the Value Line Stock Index on the Kansas
City Board of Trade. Differences in the stocks included in the indices may
result in differences in correlation of the futures contracts with movements in
the value of the securities being hedged. An interest rate futures contract is
an agreement pursuant to which a party agrees to take or make delivery of a
specified debt security (such as U.S. Treasury bonds or notes) at a specified
future time and at a specified price.
The Fund also may invest in foreign stock index futures traded outside the
United States. 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.
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.
B-5
<PAGE> 60
Initial and Variation Margin. In contrast to the purchase or sale of a
security, no price is paid or received upon the purchase or sale of a futures
contract. Initially, the Fund is required to deposit with its Custodian in an
account in the broker's name an amount of cash or liquid securities equal to a
percentage (which will normally range between 2% and 10%) of the contract
amount. This amount is known as initial margin. The nature of initial margin in
futures transactions is different from that of margin in securities transactions
in that futures contract margin does not involve the borrowing of funds by the
customer to finance the transaction. Rather, the initial margin is in the nature
of a performance bond or good faith deposit on the contract, which is returned
to the Fund upon termination of the futures contract and satisfaction of its
contractual obligations. Subsequent payments to and from the broker, called
variation margin, are made on a daily basis as the price of the underlying
securities or index fluctuates, making the long and short positions in the
futures contract more or less valuable, a process known as marking to market.
For example, when the Fund purchases a futures contract and the price of
the underlying security or index rises, that position increases in value, and
the Fund receives from the broker a variation margin payment equal to the
increase in value. Conversely, where the Fund purchases a futures contract and
the value of the underlying security or index declines, the position is less
valuable, and the Fund is required to make a variation margin payment to the
broker.
At any time prior to expiration of the futures contract, the Fund may elect
to terminate the position by taking an opposite position. A final determination
of variation margin is then made, additional cash is required to be paid by or
released to the Fund, and the Fund realizes a loss or a gain.
Futures Strategies. When the Fund anticipates a significant market or
market sector advance, the purchase of a futures contract affords a hedge
against not participating in the advance at a time when the Fund is otherwise
fully invested ("anticipatory hedge"). Such purchase of a futures contract
serves as a temporary substitute for the purchase of individual securities,
which may be purchased in an orderly fashion once the market has stabilized. As
individual securities are purchased, an equivalent amount of futures contracts
could be terminated by offsetting sales. The Fund may sell futures contracts in
anticipation of or in a general market or market sector decline that may
adversely affect the market value of the Fund's securities ("defensive hedge").
To the extent that the Fund's portfolio of securities changes in value in
correlation with the underlying security or index, the sale of futures contracts
substantially reduces the risk to the Fund of a market decline and, by so doing,
provides an alternative to the liquidation of securities positions in the Fund
with attendant transaction costs. Ordinarily transaction costs associated with
futures transactions are lower than the transactions costs which would be
incurred in the purchase or sale of the underlying securities.
Special Risks Associated with Futures Transactions. There are several risks
connected with the use of futures contracts as a hedging device. These include
the risk of imperfect correlation between movements in the price of the futures
contracts and of the underlying securities, the risk of market distortion, the
illiquidity risk and the risk of error in anticipating price movement.
There may be an imperfect correlation (or no correlation) between movements
in the price of the futures contracts and of the securities being hedged. The
risk of imperfect correlation increases as the composition of the securities
being hedged diverges from the securities upon which the futures contract is
based. If the price of the futures contract moves less than the price of the
securities being hedged, the hedge will not be fully effective. To compensate
for the imperfect correlation, the Fund could buy or sell futures contracts in a
greater dollar amount than the dollar amount of securities being hedged if the
historical volatility of the securities being hedged is greater than the
historical volatility of the securities underlying the futures contract.
Conversely, the Fund could buy or sell futures contracts in a lesser dollar
amount than the dollar amount of securities being hedged if the historical
volatility of the securities being hedged is less than the historical volatility
of the securities underlying the futures contract. It is also possible that the
value of futures contracts held by the Fund could decline at the same time as
portfolio securities being hedged; if this occurred, the Fund would lose money
on the futures contract in addition to suffering a decline in value in the
portfolio securities being hedged.
There is also the risk that the price of futures contracts may not
correlate perfectly with movements in the securities or index underlying the
futures contract due to certain market distortions. First, all participants in
B-6
<PAGE> 61
the futures market are subject to margin depository and maintenance
requirements. Rather than meet additional margin depository requirements,
investors may close futures contracts through offsetting transactions, which
could distort the normal relationship between the futures market and the
securities or index underlying the futures contract. Second, from the point of
view of speculators, the deposit requirements in the futures market are less
onerous than margin requirements in the securities markets. Therefore, increased
participation by speculators in the futures markets may cause temporary price
distortions. Due to the possibility of price distortion in the futures markets
and because of the imperfect correlation between movements in futures contracts
and movements in the securities underlying them, a correct forecast of general
market trends by the Adviser may still not result in a successful hedging
transaction.
There is also the risk that futures markets may not be sufficiently liquid.
Futures contracts may be closed out only on an exchange or board of trade that
provides a market for such futures contracts. Although the Fund intends to
purchase or sell futures only on exchanges and boards of trade where there
appears to be an active secondary market, there can be no assurance that an
active secondary market will exist for any particular contract or at any
particular time. In the event of such illiquidity, it might not be possible to
close a futures position and, in the event of adverse price movement, the Fund
would continue to be required to make daily payments of variation margin. Since
the securities being hedged would not be sold until the related futures contract
is sold, an increase, if any, in the price of the securities may to some extent
offset losses on the related futures contract. In such event, the Fund would
lose the benefit of the appreciation in value of the securities.
Successful use of futures is also subject to the Adviser's ability to
predict correctly the direction of movements in the market. For example, if the
Fund hedges against a decline in the market, and market prices instead advance,
the Fund will lose part or all of the benefit of the increase in value of its
securities holdings because it will have offsetting losses in futures contracts.
In such cases, if the Fund has insufficient cash, it may have to sell portfolio
securities at a time when it is disadvantageous to do so in order to meet the
daily variation margin.
Although the Fund intends to enter into futures contracts only if there is
an active market for such contracts, there is no assurance that an active market
will exist for the contracts at any particular time. Most U.S. futures exchanges
and boards of trade limit the amount of fluctuation permitted in futures
contract prices during a single trading day. Once the daily limit has been
reached in a particular contract, no trades may be made that day at a price
beyond that limit. It is possible that futures contract prices would move to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and subjecting some
futures traders to substantial losses. In such event, and in the event of
adverse price movements, the Fund would be required to make daily cash payments
of variation margin. In such circumstances, an increase in the value of the
portion of the portfolio being hedged, if any, may partially or completely
offset losses on the futures contract. However, as described above, there is no
guarantee that the price of the securities being hedged will, in fact, correlate
with the price movements in a futures contract and thus provide an offset to
losses on the futures contract.
The Fund will not enter into futures contracts or option transactions
(except for closing transactions) other than for bona fide hedging purposes if
immediately thereafter, the sum of its initial margin and premiums on open
futures contracts and options exceeds 5% of the fair market value of the Fund's
assets; however, in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount may be excluded in calculating the 5%
limitation. In order to prevent leverage in connection with the purchase of
futures contracts by the Fund, an amount of cash or liquid securities equal to
the market value of the obligation under the futures contracts (less any related
margin deposits) will be maintained in a segregated account with the custodian.
OPTIONS ON FUTURES CONTRACTS
The Fund could also purchase and write options on futures contracts. An
option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put) at a specified
exercise price at any time
B-7
<PAGE> 62
during the option period. As a writer of an option on a futures contract, the
Fund would be subject to initial margin and maintenance requirements similar to
those applicable to futures contracts. In addition, net option premiums received
by the Fund are required to be included as initial margin deposits. When an
option on a futures contract is exercised, delivery of the futures position is
accompanied by cash representing the difference between the current market price
of the futures contract and the exercise price of the option. The Fund could
purchase put options on futures contracts in lieu of, and for the same purpose
as, the sale of a futures contract; at the same time, it could write put options
at a lower strike price (a "put bear spread") to offset part of the cost of the
strategy to the Fund. The purchase of call options on futures contracts is
intended to serve the same purpose as the actual purchase of the futures
contract.
Risks of Transactions in Options on Futures Contracts. In addition to the
risks described above which apply to all options transactions, there are several
special risks relating to options on futures. The Adviser will not purchase
options on futures on any exchange unless in the Adviser's opinion, a liquid
secondary exchange market for such options exists. Compared to the use of
futures, the purchase of options on futures involves less potential risk to the
Fund because the maximum amount at risk is the premium paid for the options
(plus transaction costs). However, there may be circumstances, such as when
there is no movement in the level of the index or in the price of the underlying
security, when the use of an option on a future would result in a loss to the
Fund when the use of a future would not.
ADDITIONAL RISKS OF OPTIONS AND FUTURES TRANSACTIONS
In the event of the bankruptcy of a broker through which the Fund engages
in transactions in options futures or related options, the Fund could experience
delays or losses in liquidating open positions purchased or incur a loss of all
or part of its margin deposits with the broker. Transactions are entered into by
the Fund only with brokers or financial institutions deemed creditworthy by the
Adviser.
Each of the exchanges has established limitations governing the maximum
number of call or put options on the same underlying security or futures
contract (whether or not covered) which may be written by a single investor,
whether acting alone or in concert with others (regardless of whether such
options are written on the same or different exchanges or are held or written on
one or more accounts or through one or more brokers). Option positions of all
investment companies advised by the Adviser are combined for purposes of these
limits. An exchange may order the liquidation of positions found to be in
violation of these limits and it may impose other sanctions or restrictions.
These position limits may restrict the number of listed options which the Fund
may write.
INVESTMENT RESTRICTIONS
The Fund has adopted the following fundamental investment restrictions
which, along with its investment objectives, may not be changed without approval
by the vote of a majority of its outstanding voting shares, which is defined by
the 1940 Act as the lesser of (i) 67% or more of the voting securities present
at the meeting, if the holders of more than 50% of the outstanding voting
securities are present or represented by proxy; or (ii) more than 50% of the
outstanding voting securities. The percentage limitations contained in the
restrictions and policies set forth herein apply at the time of purchase of
securities. These restrictions provide that the Fund shall not:
1. Invest more than 5% of its assets in the securities of any one issuer
(except the United States Government) or purchase more than 10% of the
outstanding voting securities of any one issuer, except that the Fund
may purchase securities of other investment companies to the extent
permitted by (i) the 1940 Act, as amended from time to time, (ii) the
rules and regulations promulgated by the Securities and Exchange
Commission (the "SEC") under the 1940 Act, as amended from time to
time, or (iii) an exemption or other relief from the provisions of the
1940 Act.
2. Borrow money, except for a temporary purpose and then not in excess of
10% of its net assets taken at cost or market, whichever is lower, and
may not pledge more than 15% of gross assets taken at cost to secure
such borrowings; such borrowings in excess of 5% may be made from banks
only. The Fund will not purchase additional securities while any such
borrowings exceed 5% of the Fund's total
B-8
<PAGE> 63
assets. Notwithstanding the foregoing, the Fund may engage in
transactions in options, futures contracts and related options,
segregate or deposit assets to cover or secure options written, and
make margin deposits or payments for futures contracts and related
options.
3. Purchase securities on margin, sell securities short, or act as an
underwriter of securities except to the extent that in selling
restricted securities the Fund may be deemed to be an underwriter for
purposes of the Securities Act of 1933, but the Fund may engage in
transactions in options, futures contracts and related options and make
margin deposits and payments in connection therewith.
As used herein, "restricted securities" means securities acquired under
circumstances in which the Fund might not be free to sell such
securities without being deemed an underwriter for purposes of the
Securities Act of 1933 and without registration of such securities under
that Act. Where registration is required, the Fund may have to bear the
expense of registration and a considerable period may elapse between the
time when a decision is made to sell such securities and the
effectiveness of the Registration Statement. The Fund's position in
restricted securities may adversely affect the liquidity and
marketability of such securities and the Fund may not be able to dispose
of its holding in these securities at reasonable price levels.
4. Purchase or sell commodities or commodities futures, except that the
Fund may enter into transactions in futures contracts or related
options.
5. Make loans to any individual.
6. Invest in securities issued by other investment companies except as
part of a merger, reorganization or other acquisition and extent
permitted by (i) the 1940 Act, as amended from time to time, (ii) the
rules and regulations promulgated by the SEC under the 1940 Act, as
amended from time to time, or (iii) an exemption or other relief from
the provisions of the 1940 Act.
7. Purchase or retain securities of a company if any officer or director
of the Fund or the investment adviser owns beneficially more than 1/2
of 1% of the securities of such company and together own more than 5%
of the securities of such company.
8. Purchase a restricted security or a security for which market
quotations are not readily available if as a result of such purchase
more than 5% of the Fund's assets would be invested in such securities,
except that the Fund may purchase securities of other investment
companies to the extent permitted by (i) the 1940 Act, as amended from
time to time, (ii) the rules and regulations promulgated by the SEC
under the 1940 Act, as amended from time to time, or (iii) an exemption
or other relief from the provisions of the 1940 Act.
9. Invest more than 10% of its net assets in real estate, but the Fund may
purchase securities issued by real estate investment trusts and
corporations engaged primarily in real estate.
10. Invest more than 5% of its assets in companies having a record,
together with predecessors, of less than three years continuous
operation, except that the Fund may purchase securities of other
investment companies to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated
by the SEC under the 1940 Act, as amended from time to time, or (iii)
an exemption or other relief from the provisions of the 1940 Act.
11. Invest in companies for the purpose of exercising control of
management, except that the Fund may purchase securities of other
investment companies to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated
by the SEC under the 1940 Act, as amended from time to time, or (iii)
an exemption or other relief from the provisions of the 1940 Act.
12. Concentrate its investments in any single group or type of securities
except that it may, on occasion, invest up to 25% of its assets in any
one industry and except that the Fund may purchase securities of other
investment companies to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated
by the SEC under the 1940 Act, as amended from time to time, or (iii)
an exemption or other relief from the provisions of the 1940 Act.
B-9
<PAGE> 64
13. Issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit the Fund from (i) making
and collateralizing any permitted borrowings, (ii) making any permitted
loans of its portfolio securities, or (iii) entering into repurchase
agreements, utilizing options, futures contracts, options on futures
contracts, forward commitments and other investment strategies and
instruments that would be considered "senior securities" but for the
maintenance by the Fund of a segregated account with its custodian or
some other form of "cover."
Short-term trading is not the policy of the Fund, although a subsequent
change in the circumstances of a company, an industry, the market or the economy
may indicate that the sale of a security is desirable.
The Fund will not invest more than 10% of its assets in the Van Kampen
American Capital Small Capitalization Fund or the Van Kampen American Capital
Foreign Securities Fund until it complies with certain NASAA regulations. The
Fund does not presently intend to engage in short sales against the box.
Although the Fund has the right to pledge, mortgage or hypothecate its assets,
for purposes of compliance with certain state statutes or investment
restrictions, it will not pledge, mortgage or hypothecate its portfolio
securities to the extent that at any time the percentage of pledged securities
plus the sales load will exceed 10% of the offering price of the Fund's shares.
Consistent with its investment objectives, the Fund may make additional
commitments more restrictive than its fundamental policies.
The Fund has an operating policy, which may be amended by its Trustees,
that the Fund shall not invest more than 10% of its net assets (determined at
the time of investment) in illiquid securities and repurchase agreements that
have a maturity of longer than seven days.
TRUSTEES AND OFFICERS
The tables below list the trustees and officers of the Fund and other
executive officers of the Fund's investment adviser and their principal
occupations for the last five years and their affiliations, if any, with VK/AC
Holding, Inc. ("VKAC Holding"), Van Kampen American Capital, Inc. ("Van Kampen
American Capital" or "VKAC"), Van Kampen American Capital Investment Advisory
Corp. ("Advisory Corp."), Van Kampen American Capital Asset Management, Inc.
("Asset Management"), Van Kampen American Capital Distributors, Inc., the
distributor of the Fund's shares (the "Distributor"), Van Kampen American
Capital Advisors Corp., Van Kampen Merritt Equity Advisors Corp., Van Kampen
American Capital Insurance Agency of Illinois, Inc., VK/AC System, Inc., Van
Kampen American Capital Record Keeping Services, Inc., American Capital
Contractual Services, Inc., Van Kampen American Capital Trust Company, Van
Kampen American Capital Exchange Corporation, and ACCESS Investors Services
Inc., the Fund's transfer agent ("ACCESS"). Advisory Corp. and Asset Management
sometimes are referred to herein collectively as the "Advisers". For purposes
hereof, the term "Fund Complex" includes each of the open-end investment
companies advised by the Advisers (excluding the Van Kampen American Capital
Exchange Fund).
TRUSTEES
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
<S> <C>
J. Miles Branagan......................... Private investor. Co-founder, and prior to August 1996,
1632 Morning Mountain Road Chairman, Chief Executive Officer and President, MDT
Raleigh, NC 27614 Corporation (now known as Getinge/Castle, Inc., a
Date of Birth: 07/14/32 subsidiary of Getinge Industrier AB), a company which
develops, manufactures, markets and services medical and
scientific equipment. Trustee/Director of each of the
funds in the Fund Complex.
</TABLE>
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<PAGE> 65
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
<S> <C>
Richard M. DeMartini*..................... President and Chief Operating Officer, Individual Asset
Two World Trade Center Management Group, a division of Morgan Stanley Dean
66th Floor Witter & Co. Mr. DeMartini is a Director of InterCapital
New York, NY 10048 Funds, Dean Witter Distributors, Inc. and Dean Witter
Date of Birth: 10/12/52 Trust Company. Trustee of the TCW/DW Funds. Director of
the National Healthcare Resources, Inc. Formerly Vice
Chairman of the Board of the National Association of
Securities Dealers, Inc. and Chairman of the Board of the
Nasdaq Stock Market, Inc. Trustee/Director of each of the
funds in the Fund Complex.
Linda Hutton Heagy........................ Managing Partner of Heidrick & Stuggles, an executive
Sears Tower search firm. Prior to 1997, Partner, Ray & Berndtson,
233 South Wacker Drive Inc., an executive recruiting and management consulting
Suite 7000 firm. Formerly, Executive Vice President of ABN AMRO,
Chicago, IL 60606 N.A., a Dutch bank holding company. Prior to 1992,
Date of Birth: 06/03/48 Executive Vice President of La Salle National Bank.
Trustee on the University of Chicago Hospitals Board, The
International House Board and the Women's Board of the
University of Chicago. Trustee/Director of each of the
funds in the Fund Complex.
R. Craig Kennedy.......................... President and Director, German Marshall Fund of the
11 DuPont Circle, N.W. United States. Formerly, advisor to the Dennis Trading
Washington, D.C. 20036 Group Inc. Prior to 1992, President and Chief Executive
Date of Birth: 02/29/52 Officer, Director and Member of the Investment Committee
of the Joyce Foundation, a private foundation.
Trustee/Director of each of the funds in the Fund
Complex.
Don G. Powell*............................ Chairman and a Director of VKAC. Chairman and a Director
2800 Post Oak Blvd. of the Advisers and the Distributor. Chairman and a
Houston, TX 77056 Director of ACCESS. Director or officer of certain other
Date of Birth: 10/19/39 subsidiaries of VKAC. Chairman of the Board of Governors
and the Executive Committee of the Investment Company
Institute. Prior to November 1996, President, Chief
Executive Officer and a Director of VKAC Holding.
Trustee/Director of each of the funds in the Fund Complex
and other funds advised by the Advisers or Van Kampen
American Capital Management, Inc.
Jack E. Nelson............................ President, Nelson Investment Planning Services, Inc., a
423 Country Club Drive financial planning company and registered investment
Winter Park, FL 32789 adviser. President, Nelson Ivest Brokerage Services Inc.,
Date of Birth: 02/13/36 a member of the National Association of Securities
Dealers, Inc. ("NASD") and Securities Investors
Protection Corp. ("SIPC"). Trustee/Director of each of
the funds in the Fund Complex.
</TABLE>
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<PAGE> 66
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
<S> <C>
Phillip B. Rooney......................... Vice Chairman and Director of The ServiceMaster Company,
One ServiceMaster Way a business and consumer services. Director of Illinois
Downers Grove, IL 60515 Tool Works, Inc., a manufacturing company; the Urban
Date of Birth: 07/08/44 Shopping Centers Inc., a retail mall management company;
and Stone Container Corp., a paper manufacturing company.
Trustee, University of Notre Dame. Formerly, President
and Chief Executive Officer, Waste Management, Inc., an
environmental services company, and prior to that
President and Chief Operating Officer, Waste Management,
Inc. Trustee/Director of each of the funds in the Fund
Complex.
Fernando Sisto............................ Professor Emeritus and, prior to 1995, Dean of the
155 Hickory Lane Graduate School, Stevens Institute of Technology.
Closter, NJ 07624 Director, Dynalysis of Princeton, a firm engaged in
Date of Birth: 08/02/24 engineering research. Trustee/Director of each of the
funds in the Fund Complex.
Wayne W. Whalen*.......................... Partner in the law firm of Skadden, Arps, Slate, Meagher
333 West Wacker Drive & Flom (Illinois), legal counsel to the funds in the Fund
Chicago, IL 60606 Complex, and other open-end and closed-end funds advised
Date of Birth: 08/22/39 by the Advisers or Van Kampen American Capital
Management, Inc. Trustee/Director of each of the funds in
the Fund Complex, and other open-end and closed-end funds
advised by the Advisers or Van Kampen American Capital
Management, Inc.
</TABLE>
- ---------------
* Such trustee is an "interested person" (within the meaning of Section 2(a)(19)
of the 1940 Act). Mr. Whalen is an interested person of the Fund by reason of
his firm currently acting as legal counsel to the Fund. Messrs. DeMartini and
Powell are interested persons of the Fund and the Advisers by reason of their
positions with Morgan Stanley Dean Witter & Co. or its affiliates.
B-12
<PAGE> 67
OFFICERS
Messrs. McDonnell, Hegel, Nyberg, Wood, Sullivan, Dalmaso, Martin,
Wetherell and Hill are located at One Parkview Plaza, Oakbrook Terrace, IL
60181. The Fund's other officers are located at 2800 Post Oak Blvd., Houston, TX
77056.
<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
------------ ----------------- ---------------------
<S> <C> <C>
Dennis J. McDonnell......... President Executive Vice President and a Director of
Date of Birth: 05/20/42 VKAC and VK/AC Holding, Inc. President,
Chief Operating Officer and a Director of
the Advisers, Van Kampen American Capital
Advisors, Inc., and Van Kampen American
Capital Management, Inc. President and a
Director of Van Kampen Merritt Equity
Advisors Corp. Prior to April of 1997, he
was a Director of Van Kampen Merritt Equity
Holdings Corp. Prior to September of 1996,
Mr. McDonnell was Chief Executive Officer
and Director of MCM Group, Inc., McCarthy,
Crisanti & Maffei, Inc. and Chairman and
Director of MCM Asia Pacific Company,
Limited and MCM (Europe) Limited. Prior to
November 1996, Executive Vice President and
a Director of VKAC Holding. Prior to July
of 1996, Mr. McDonnell was President, Chief
Operating Officer and Trustee of VSM Inc.
and VCJ Inc. President of each of the funds
in the Fund Complex. President, Chairman of
the Board and Trustee of other investment
companies advised by the Advisers or their
affiliates.
Peter W. Hegel.............. Vice President Executive Vice President of the Advisers,
Date of Birth: 06/25/56 Van Kampen American Capital Management,
Inc. and Van Kampen American Capital
Advisors, Inc. Prior to July of 1996, Mr.
Hegel was a Director of VSM Inc. Prior to
September of 1996, he was a Director of
McCarthy, Crisanti & Maffei, Inc. Vice
President of each of the funds in the Fund
Complex and certain other investment
companies advised by the Advisers or their
affiliates.
Curtis W. Morell............ Vice President and Chief Senior Vice President of the Advisers, Vice
Date of Birth: 08/04/46 Accounting Officer President and Chief Accounting Officer of
each of the funds in the Fund Complex and
certain other investment companies advised
by the Advisers or their affiliates.
</TABLE>
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<PAGE> 68
<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
------------ ----------------- ---------------------
<S> <C> <C>
Ronald A. Nyberg............ Vice President and Secretary Executive Vice President, General Counsel,
Date of Birth: 07/29/53 Secretary and Director of VKAC and VK/AC
Holding, Inc. Mr. Nyberg is also Executive
Vice President, General Counsel and a
Director of Van Kampen Merritt Equity
Holdings Corp. Executive Vice President,
General Counsel, Assistant Secretary and a
Director of the Advisers and the
Distributor, Van Kampen American Capital
Advisors, Inc., Van Kampen American Capital
Management, Inc., Van Kampen American
Capital Exchange Corporation, American
Capital Contractual Services, Inc. and Van
Kampen American Capital Trust Company.
Executive Vice President, General Counsel
and Assistant Secretary of ACCESS. Director
or officer of certain other subsidiaries of
VKAC. Prior to June of 1997, Director of
ICI Mutual Insurance Co., a provider of
insurance to members of the Investment
Company Institute. Prior to April of 1997,
he was Executive Vice President, General
Counsel and Director of Van Kampen Merritt
Equity Advisors Corp. Prior to July of
1996, Mr. Nyberg was Executive Vice
President and General Counsel of VSM Inc.
and Executive Vice President and General
Counsel of VCJ Inc. Prior to September of
1996, he was General Counsel of McCarthy,
Crisanti & Maffei, Inc. Vice President and
Secretary of each of the funds in the Fund
Complex and certain other investment
companies advised by the Advisers or their
affiliates.
Alan T. Sachtleben.......... Vice President Executive Vice President of the Advisers,
Date of Birth: 04/20/42 Van Kampen American Capital Management,
Inc. and Van Kampen American Capital
Advisors, Inc. Vice President of each of
the funds in the Fund Complex and certain
other investment companies advised by the
Advisers or their affiliates.
Paul R. Wolkenberg.......... Vice President Executive Vice President and Director of
Date of Birth: 11/10/44 VKAC, and VK/AC Holding Inc. Executive Vice
President of the AC Adviser and the
Distributor. President and a Director of
ACCESS. President and Chief Operating
Officer of Van Kampen American Capital
Record Keeping Services, Inc. Vice
President of each of the funds in the Fund
Complex and certain other investment
companies advised by the Advisers or their
affiliates.
</TABLE>
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<PAGE> 69
<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
------------ ----------------- ---------------------
<S> <C> <C>
Edward C. Wood III.......... Vice President and Chief Senior Vice President of the Advisers and
Date of Birth: 01/11/56 Financial Officer Van Kampen American Capital Management,
Inc. Vice President and Chief Financial
Officer of each of the funds in the Fund
Complex and certain other investment
companies advised by the Advisers or their
affiliates.
John L. Sullivan............ Treasurer First Vice President of the Advisers.
Date of Birth: 08/20/55 Treasurer of each of the funds in the Fund
Complex and certain other investment
companies advised by the Advisers or their
affiliates.
Tanya M. Loden.............. Controller Vice President of the Advisers. Controller
Date of Birth: 11/19/59 of each of the funds in the Fund Complex
and other investment companies advised by
the Advisers or their affiliates.
Nicholas Dalmaso............ Assistant Secretary Associate General Counsel and Assistant
Date of Birth: 03/01/65 Secretary of VKAC. Vice President,
Associate General Counsel and Assistant
Secretary of the Advisers, the Distributor,
Van Kampen American Capital Advisors, Inc.
and Van Kampen American Capital Management,
Inc. Assistant Secretary of each of the
funds in the Fund Complex and other
investment companies advised by the
Advisers or their affiliates.
Huey P. Falgout, Jr......... Assistant Secretary Vice President and a Senior Attorney of
Date of Birth: 11/15/63 VKAC. Vice President and Assistant
Secretary of the Advisers, the Distributor,
ACCESS, Van Kampen American Capital
Management, Inc., American Capital
Contractual Services, Inc., Van Kampen
American Capital Exchange Corporation and
Van Kampen American Capital Advisors, Inc.
Assistant Secretary of each of the funds in
the Fund Complex and other investment
companies advised by the Advisers or their
affiliates.
</TABLE>
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<PAGE> 70
<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
------------ ----------------- ---------------------
<S> <C> <C>
Scott E. Martin............. Assistant Secretary Senior Vice President, Deputy General
Date of Birth: 08/20/56 Counsel and Assistant Secretary of VKAC and
VKAC Holding, Inc. Senior Vice President,
Deputy General Counsel and Secretary of the
Advisers, the Distributor, ACCESS American
Capital Contractual Services, Inc., Van
Kampen American Capital Management, Inc.,
Van Kampen American Capital Exchange
Corporation, Van Kampen American Capital
Advisors, Inc., Van Kampen American Capital
Insurance Agency of Illinois, Inc., VKAC
System, Inc., Van Kampen American Capital
Record Keeping Services, Inc. and Van
Kampen Merritt Equity Advisors Corp. Prior
to April of 1997, Senior Vice President,
Deputy General Counsel and Secretary of Van
Kampen American Capital Services, Inc. and
Van Kampen Merritt Holdings Corp. Prior to
September of 1996, Mr. Martin was Deputy
General Counsel and Secretary of McCarthy,
Crisanti & Maffei, Inc., and prior to July
of 1996, he was Senior Vice President,
Deputy General Counsel and Secretary of VSM
Inc. and VCJ Inc. Assistant Secretary of
each of the funds in the Fund Complex and
other investment companies advised by the
Advisers or their affiliates.
Weston B. Wetherell......... Assistant Secretary Vice President, Associate General Counsel
Date of Birth: 06/15/56 and Assistant Secretary of VKAC, the
Advisers, the Distributor, Van Kampen
American Capital Management, Inc. and Van
Kampen American Capital Advisors, Inc.
Prior to September of 1996, Mr. Wetherell
was Assistant Secretary of McCarthy,
Crisanti & Maffei, Inc. Assistant Secretary
of each of the funds in the Fund Complex
and other investment companies advised by
the Advisers or their affiliates.
Steven M. Hill.............. Assistant Treasurer Vice President of the Advisers. Assistant
Date of Birth: 10/16/64 Treasurer of each of the funds in the Fund
Complex and other investment companies
advised by the Advisers or their
affiliates.
Michael Robert Sullivan..... Assistant Controller Assistant Vice President of the Advisers.
Date of Birth: 03/30/33 Assistant Controller of each of the funds
in the Fund Complex and other investment
companies advised by the Advisers or their
affiliates.
</TABLE>
Each trustee/director holds the same position with each of the funds in the
Fund Complex. As of the date of this Statement of Additional Information, there
are 64 operating funds in the Fund Complex. For purposes of the following
compensation and benefits discussion, the Fund Complex is divided into the
following three groups: the funds advised by Asset Management (the "AC Funds"),
the funds advised by Advisory Corp. excluding funds organized as series of the
Morgan Stanley Fund, Inc. (the "VK Funds") and the funds advised by Advisory
Corp. organized as series of the Morgan Stanley Fund, Inc. (the "MS Funds").
Each
B-16
<PAGE> 71
trustee/director who is not an affiliated person of VKAC, the Advisers, the
Distributor, ACCESS or Morgan Stanley Dean Witter & Co. (each a "Non-Affiliated
Trustee") is compensated by an annual retainer and meeting fees for services to
the funds in the Fund Complex. Each fund in the Fund Complex (except the money
market series of the MS Funds) provides a deferred compensation plan to its
Non-Affiliated Trustees that allows trustees/directors to defer receipt of their
compensation and earn a return on such deferred amounts. Deferring compensation
has the economic effect as if the Non-Affiliated Trustee reinvested his or her
compensation into the funds. Each fund in the Fund Complex (except the money
market series of the MS Funds) provides a retirement plan to its Non-Affiliated
Trustees that provides Non-Affiliated Trustees with compensation after
retirement, provided that certain eligibility requirements are met as more fully
described below.
The trustees recently reviewed and adopted a standardized compensation and
benefits program for each fund in the Fund Complex. Effective January 1, 1998,
the compensation of each Non-Affiliated Trustee includes an annual retainer in
an amount equal to $50,000 per calendar year, due in four quarterly installments
on the first business day of each quarter. Payment of the annual retainer is
allocated among the funds in the Fund Complex (except the money market series of
the MS Funds) on the basis of the relative net assets of each fund as of the
last business day of the preceding calendar quarter. Effective January 1, 1998,
the compensation of each Non-Affiliated Trustee includes a per meeting fee from
each fund in the Fund Complex (except the money market series of the MS Funds)
in the amount of $200 per quarterly or special meeting attended by the
Non-Affiliated Trustee, due on the date of the meeting, plus reasonable expenses
incurred by the Non-Affiliated Trustee in connection with his or her services as
a trustee, provided that no compensation will be paid in connection with certain
telephonic special meetings.
For each AC Fund's last fiscal year and the period up to and including
December 31, 1997, the compensation of each Non-Affiliated Trustee from the AC
Funds includes an annual retainer in an amount equal to $35,000 per calendar
year, due in four quarterly installments on the first business day of each
calendar quarter. The AC Funds pay each Non-Affiliated Trustee a per meeting fee
in the amount of $2,000 per regular quarterly meeting attended by the
Non-Affiliated Trustee, due on the date of such meeting, plus reasonable
expenses incurred by the Non-Affiliated Trustee in connection with his or her
services as a trustee. Payment of the annual retainer and the regular meeting
fee is allocated among the AC Funds (i) 50% on the basis of the relative net
assets of each AC Fund to the aggregate net assets of all the AC Funds and (ii)
50% equally to each AC Fund, in each case as of the last business day of the
preceding calendar quarter. Each AC Fund which is the subject of a special
meeting of the trustees generally pays each Non-Affiliated Trustee a per meeting
fee in the amount of $125 per special meeting attended by the Non-Affiliated
Trustee, due on the date of such meeting, plus reasonable expenses incurred by
the Non-Affiliated Trustee in connection with his or her services as a trustee,
provided that no compensation will be paid in connection with certain telephonic
special meetings.
For each VK Fund's last fiscal year and the period up to and including
December 31, 1997, the compensation of each Non-Affiliated Trustee from each VK
Fund includes an annual retainer in an amount equal to $2,500 per calendar year,
due in four quarterly installments on the first business day of each calendar
quarter. Each Non-Affiliated Trustee receives a per meeting fee from each VK
Fund in the amount of $125 per regular quarterly meeting attended by the
Non-Affiliated Trustee, due on the date of such meeting, plus reasonable
expenses incurred by the Non-Affiliated Trustee in connection with his or her
services as a trustee. Each Non-Affiliated Trustee receives a per meeting fee
from each VK Fund in the amount of $125 per special meeting attended by the
Non-Affiliated Trustee, due on the date of such meeting, plus reasonable
expenses incurred by the Non-Affiliated Trustee in connection with his or her
services as a trustee, provided that no compensation will be paid in connection
with certain telephonic special meetings.
For the period from July 2, 1997 up to and including December 31, 1997, the
compensation of each Non-Affiliated Trustee from the MS Funds was based
generally on the compensation amounts and methodology used by such funds prior
to their joining the current Fund Complex on July 2, 1997. Each trustee/director
was elected as a director of the MS Funds on July 2, 1997. Prior to July 2,
1997, the MS Funds were part of another fund complex (the "Prior Complex") and
the former directors of the MS Funds were paid an aggregate fee allocated among
the funds in the Prior Complex that resulted in individual directors receiving
B-17
<PAGE> 72
total compensation between approximately $8,000 to $10,000 from the MS Funds
during such funds' last fiscal year.
Under the deferred compensation plan, each Non-Affiliated Trustee generally
can elect to defer receipt of all or a portion of the compensation earned by
such Non-Affiliated Trustee until retirement. Amounts deferred are retained by
the Fund and earn a rate of return determined by reference to the return on the
common shares of such Fund or other funds in the Fund Complex as selected by the
respective Non-Affiliated Trustee, with the same economic effect as if such
Non-Affiliated Trustee had invested in one or more funds in the Fund Complex. To
the extent permitted by the 1940 Act, the Fund may invest in securities of those
funds selected by the Non-Affiliated Trustees in order to match the deferred
compensation obligation. The deferred compensation plan is not funded and
obligations thereunder represent general unsecured claims against the general
assets of the Fund.
Under the retirement plan, a Non-Affiliated Trustee who is receiving
compensation from such Fund prior to such Non-Affiliated Trustee's retirement,
has at least 10 years of service (including years of service prior to adoption
of the retirement plan) and retires at or after attaining the age of 60, is
eligible to receive a retirement benefit equal to $2,500 per year for each of
the ten years following such retirement from such Fund. Non-Affiliated Trustees
retiring prior to the age of 60 or with fewer than 10 years but more than 5
years of service may receive reduced retirement benefits from such Fund. Each
trustee/director has served as a member of the Board of Trustees of the Fund
since he or she was first appointed or elected in the year set forth below. The
retirement plan contains a Fund Complex retirement benefit cap of $60,000 per
year.
Additional information regarding compensation and benefits for trustees is
set forth below for the periods described in the notes accompanying the table.
COMPENSATION TABLE
<TABLE>
<CAPTION>
FUND COMPLEX
----------------------------------------------------------
AGGREGATE AGGREGATE TOTAL
YEAR FIRST PENSION OR ESTIMATED MAXIMUM COMPENSATION
APPOINTED OR AGGREGATE COMPENSATION RETIREMENT BENEFITS ANNUAL BENEFITS BEFORE DEFERRAL
ELECTED TO THE BEFORE DEFERRAL FROM THE ACCRUED AS PART OF FROM THE FUND UPON FROM FUND
NAME(1) BOARD FUND(2) EXPENSES(3) RETIREMENT(4) COMPLEX(5)
------- -------------- ------------------------ ------------------- ------------------ ---------------
<S> <C> <C> <C> <C> <C>
J. Miles Branagan* 1991 1,960 $30,328 $60,000 $111,197
Linda Hutton Heagy* 1995 1,960 3,141 60,000 111,197
R. Craig Kennedy* 1995 1,960 2,229 60,000 111,197
Jack E. Nelson* 1995 1,960 15,820 60,000 104,322
Jerome L. Robinson 1995 1,960 32,020 15,750 107,947
Phillip B. Rooney* 1997 1,470 0 60,000 74,697
Dr. Fernando Sisto* 1973 1,960 60,208 60,000 111,197
Wayne W. Whalen* 1995 1,960 10,788 60,000 111,197
</TABLE>
- ---------------
* Currently a member of the Board of Trustees. Mr. Phillip B. Rooney became a
member of the Board of Trustees effective April 14, 1997 and thus does not
have a full fiscal year of information to report.
(1) Mr. Robinson is not designated by an asterisk because he is currently not a
member of the Board of Trustees, but was a member of the Board of Trustees
during the Fund's most recently completed fiscal year. Mr. Robinson retired
from the Board of Trustees on December 31, 1997. Trustees not eligible for
compensation are not included in the compensation table.
(2) The amounts shown in this column represent the Aggregate Compensation before
Deferral with respect to the Fund's fiscal year ended December 31, 1997. The
following trustees deferred compensation from the Fund during the fiscal
year ended December 31, 1997: Mr. Branagan, $1,960; Ms. Heagy, $1,960; Mr.
Kennedy, $980; Mr. Nelson, $1,960; Mr. Robinson, $1,960; Mr. Rooney, $980;
Dr. Sisto, $980; and Mr. Whalen, $1,960. Amounts deferred are retained by
the Fund and earn a rate of return determined by reference to either the
return on the common shares of the Fund or other funds in the Fund Complex
as selected by the respective Non-Affiliated Trustee, with the same economic
effect as if such Non-Affiliated
B-18
<PAGE> 73
Trustee had invested in one or more funds in the Fund Complex. To the extent
permitted by the 1940 Act, each Fund may invest in securities of those funds
selected by the Non-Affiliated Trustees in order to match the deferred
compensation obligation. The cumulative deferred compensation (including
interest) accrued with respect to each trustee, including former trustees,
from the Fund as of December 31, 1997 is as follows: Mr. Branagan, $3,331;
Dr. Caruso, $7,562; Mr. Gaughan, $1,200; Ms. Heagy, $5,044; Mr. Kennedy,
$5,740; Mr. Lipshie, $2,577; Mr. Miller, $5,532; Mr. Nelson, $8,698; Mr.
Rees, $19,830; Mr. Robinson, $8,719; Mr. Rooney, $988; Dr. Sisto, $16,636;
Mr. Vernon, $3,349; and Mr. Whalen, $8,074. The deferred compensation plan
is described above the Compensation Table.
(3) The amounts shown in this column represent the sum of the retirement
benefits expected to be accrued by the operating investment companies in the
Fund Complex for each of the current trustees for the funds' respective
fiscal years ended in 1997. The retirement plan is described above the
Compensation Table.
(4) For Mr. Robinson, this is the sum of the actual annual benefits payable by
the operating investment companies in the Fund Complex as of the date of his
retirement for each year of the 10-year period since his retirement. For the
remaining trustees, this is the sum of the estimated maximum annual benefits
payable by the operating investment companies in the Fund Complex for each
year of the 10-year period commencing in the year of such trustee's
anticipated retirement. The Retirement Plan is described above the
Compensation Table.
(5) The amounts shown in this column represent the aggregate compensation paid
by all operating investment companies in the Fund Complex as of December 31,
1997 before deferral by the trustees under the deferred compensation plan.
Because the funds in the Fund Complex have different fiscal year ends, the
amounts shown in this column are presented on a calendar year basis. Certain
trustees deferred all or a portion of their aggregate compensation from the
Fund Complex during the calendar year ended December 31, 1997. The deferred
compensation earns a rate of return determined by reference to the return on
the shares of the funds in the Fund Complex as selected by the respective
Non-Affiliated Trustee, with the same economic effect as if such
Non-Affiliated Trustee had invested in one or more funds in the Fund
Complex. To the extent permitted by the 1940 Act, the Fund may invest in
securities of those investment companies selected by the Non-Affiliated
Trustees in order to match the deferred compensation obligation. The
Advisers and their affiliates also serve as investment adviser for other
investment companies; however, with the exception of Mr. Whalen, the
Non-Affiliated Trustees were not trustees of such investment companies.
Combining the Fund Complex with other investment companies advised by the
Advisers and their affiliates, Mr. Whalen received Total Compensation of
$268,447 during the calendar year ended December 31, 1997.
As of April 3, 1998, the trustees and officers of the Fund as a group owned
less than 1% of the Fund's outstanding shares.
LEGAL COUNSEL
Skadden, Arps, Slate, Meagher & Flom (Illinois).
INVESTMENT ADVISORY AGREEMENT
The Fund and the Adviser are parties to an investment advisory agreement
(the "Advisory Agreement"). Under the Advisory Agreement, the Fund retains the
Adviser to manage the investment of its assets and to place orders for the
purchase and sale of its portfolio securities. The Adviser is responsible for
obtaining and evaluating economic, statistical, and financial data and for
formulating and implementing investment programs in furtherance of the Fund's
investment objectives. The Adviser also furnishes at no cost to the Fund (except
as noted herein) the services of sufficient executive and clerical personnel for
the Fund as are necessary to prepare registration statements, prospectuses,
shareholder reports, and notices and proxy solicitation materials. In addition,
the Adviser furnishes at no cost to the Fund the services of a President of the
Fund, one or more Vice Presidents as needed, and a Secretary.
Under the Advisory Agreement, the Fund bears the cost of its accounting
services, which includes maintaining its financial books and records and
calculating its daily net asset value. The costs of such
B-19
<PAGE> 74
accounting services include the salaries and overhead expenses of a Treasurer or
other principal financial officer and the personnel operating under his
direction. Charges are allocated among the investment companies advised or
subadvised by the Adviser based in part on the number of portfolios and in part
on the relative assets of the portfolios. A portion of these amounts are paid to
the Adviser or its parent in reimbursement of personnel, office space facilities
and equipment costs attributable to the provision of accounting services to the
Fund. The services provided by the Adviser are at cost. The Fund also pays
shareholder service agency fees, distribution fees, service fees, custodian
fees, legal and auditing fees, the costs of reports to shareholders and all
other ordinary expenses not specifically assumed by the Adviser.
Under the Advisory Agreement, the Fund pays to the Adviser as compensation
for the services rendered, facilities furnished, and expenses paid by it a fee
payable monthly computed on average daily net assets of the Fund at the annual
rate of: 0.50% on the first $150 million of average net assets; 0.45% on the
next $100 million of average net assets; 0.40% on the next $100 million of
average net assets; and 0.35% on the average net assets in excess of $350
million.
The Fund's average net asset value for purposes of computing the advisory
fees is determined by taking the average of all of the determinations of net
asset value for each business day during a given calendar month. Such fee is
payable for each calendar month as soon as practicable after the end of that
month. The fee payable to the Adviser is reduced by any commissions, tender
solicitation and other fees, brokerage or similar payments received by the
Adviser or any other direct or indirect majority-owned subsidiary of VK/AC
Holding, Inc., in connection with the purchase and sale of portfolio investments
of the Fund, less any direct expenses incurred by such subsidiary of VK/AC
Holding, Inc. in connection with obtaining such payments. The Adviser agrees to
use its best efforts to recapture tender solicitation fees and exchange offer
fees for the Fund's benefit, and to advise the Trustees of the Fund of any other
commissions, fees, brokerage or similar payments which may be possible under
applicable laws for the Adviser or any other direct or indirect majority-owned
subsidiary of VK/AC Holding, Inc., to receive in connection with the Fund's
portfolio transactions or other arrangements which may benefit the Fund.
The Advisory Agreement also provides that, in the event the ordinary
business expenses of the Fund for any fiscal year exceed the most restrictive
expense limitations applicable in the states where the Fund's shares are
qualified for sale, the compensation due the Adviser will be reduced by the
amount of such excess and that, if a reduction in and refund of the advisory fee
is insufficient, the Adviser will pay the Fund monthly an amount sufficient to
make up the deficiency, subject to readjustment during the year. Ordinary
business expenses include the investment advisory fee and other operating costs
paid by the Fund except (1) interest and taxes, (2) brokerage commissions, (3)
certain litigation and indemnification expenses as described in the Advisory
Agreement and (4) payments made by the Fund pursuant to its distribution plans.
The Advisory Agreement also provides that the Adviser shall not be liable to the
Fund for any actions or omissions if it acted in good faith without negligence
or misconduct.
The Advisory Agreement may be continued from year to year if specifically
approved at least annually (a)(i) by the Fund's Trustees or (ii) by vote of a
majority of the Fund's outstanding voting securities and (b) by the affirmative
vote of a majority of the Trustees who are not parties to the agreement or
interested persons of any such party by votes cast in person at a meeting called
for such purpose. The Advisory Agreement provides that it shall terminate
automatically if assigned and that it may be terminated without penalty by
either party on not more than 60 days', nor less than 30 days' written notice.
During the fiscal years ended December 31, 1995, 1996 and 1997, the Adviser
received $2,603,866, $3,774,666 and $5,338,993, respectively, in advisory fees
from the Fund. For such periods the Fund paid $108,597, $185,780 and $180,541,
respectively, for accounting services. A substantial portion of these amounts
was paid to the Adviser in reimbursement of personnel, facilities and equipment
costs attributable to the provision of accounting services to the Fund.
B-20
<PAGE> 75
DISTRIBUTOR
The Distributor acts as the principal underwriter of the Fund's shares
pursuant to a written agreement (the "Distribution and Service Agreement"). The
Distributor has the exclusive right to distribute shares of the Fund through
authorized dealers. The Distributor's obligation is an agency or "best efforts"
arrangement under which the Distributor is required to take and pay for only
such shares of the Fund as may be sold to the public. The Distributor is not
obligated to sell any stated number of shares. The Distributor bears the cost of
printing (but not typesetting) prospectuses used in connection with this
offering and certain other costs including the cost of supplemental sales
literature and advertising. The Distribution and Service Agreement is renewable
from year to year if approved (a) by the Fund's Trustees or by a vote of a
majority of the Fund's outstanding voting securities and (b) by the affirmative
vote of a majority of Trustees who are not parties to the Distribution and
Service Agreement or interested persons of any party, by votes cast in person at
a meeting called for such purpose. The Distribution and Service Agreement
provides that it will terminate if assigned, and that it may be terminated
without penalty by either party on 60 days' written notice. Total underwriting
commissions on the sales of shares of the Fund for the last three fiscal periods
are shown in the chart below. Advantage Capital Corporation is a former
affiliated dealer of the Fund.
<TABLE>
<CAPTION>
DEALER REALLOWANCES
AMOUNTS RECEIVED BY
TOTAL UNDERWRITING RETAINED ADVANTAGE CAPITAL
COMMISSIONS BY DISTRIBUTOR CORPORATION
------------------ -------------- -------------------
<S> <C> <C> <C>
Fiscal Year Ended December 31, 1995............. $2,264,941 $313,394 $96,613
Fiscal Year Ended December 31, 1996............. $4,008,069 $585,526 N/A
Fiscal Year Ended December 31, 1997............. $3,833,492 $567,161 N/A
</TABLE>
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 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 Distribution Plan and the Service Plan 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 Distribution Plan and the purposes for which
such expenditures were made, together with such other information as from time
to time is reasonably requested by the Trustees. The Plans provide that they
will continue in full force and effect from year to year so long as such
continuance is specifically approved by a vote of the Trustees, and also by a
vote of the disinterested Trustees, cast in person at a meeting called for the
purpose of voting on the Plans. Each of the Plans may not be amended to increase
materially the amount to be spent for the services described therein with
respect to any class of shares without approval by a vote of a majority of the
outstanding voting shares of such class, and all material amendments to either
of the Plans must be approved by the Trustees and also by the disinterested
Trustees. Each of the Plans may be terminated with respect to any class of
shares at any time by a vote of a majority of the disinterested Trustees or by a
vote of a majority of the outstanding voting shares of such class.
B-21
<PAGE> 76
The Distributor has entered into agreements with (i) The Prudential
Insurance Company of America ("Prudential") under which the Fund shall be
offered pursuant to the PruArray Programs; (ii) Smith Barney Inc. ("Smith
Barney") under which the Fund shall be offered pursuant to the MultiChoice
Program; and (iii) Merrill Lynch ("Merrill") under which the Fund shall be
offered pursuant to the Merrill Program. Trustees and other fiduciaries of
retirement plans seeking to invest in multiple fund families through
broker-dealer retirement plan alliance programs should contact Prudential, Smith
Barney or Merrill for further information concerning the PruArray, MultiChoice
and Merrill Programs including, but not limited to, minimum size and operational
requirements.
For the fiscal year ended December 31, 1997, the Fund's aggregate expenses
under the Plans for Class A shares were $1,305,402 or 0.25% of the Class A
shares' average daily net assets. Such expenses were paid to reimburse the
Distributor for payments made to financial intermediaries for servicing Fund
shareholders and for administering the Plans. For the fiscal year ended December
31, 1997, the Fund's aggregate expenses under the Plans for Class B shares were
$7,864,110 or 1.00% of the Class B shares' average daily net assets. Such
expenses were paid to reimburse the Distributor for the following payments:
$5,326,440 for commissions and transaction fees paid to financial intermediaries
in respect of sales of Class B shares of the Fund and $1,869,063 for fees paid
to financial intermediaries for servicing Class B shareholders and administering
the Plans. For the fiscal year ended December 31, 1997, the Fund's aggregate
expenses under the Plans for Class C shares were $667,942 or 1.00% of the Class
C shares' average daily net assets. Such expenses were paid to reimburse the
Distributor for the following payments: $31,649 for commissions and transaction
fees paid to financial intermediaries in respect of sales of Class C shares of
the Fund and $402,483 for fees paid to financial intermediaries for servicing
Class B shareholders and administering the Plans.
TRANSFER AGENT
For the fiscal year ended December 31, 1995, 1996 and 1997, ACCESS,
shareholder service agent and dividend disbursing agent for the Fund, received
fees, determined on a cost plus profit basis, aggregating $1,360,426, $895,725
and 1,927,083, respectively, for these services. Beginning in 1998, the transfer
agency fees are determined through negotiations with the Fund's Board of
Trustees and are based on competitive market benchmarks.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Adviser is responsible for decisions to buy and sell securities for the
Fund and for the placement of its portfolio business and the negotiation of the
commissions, if any, paid on such transactions. It is the policy of the Adviser
to seek the best security price available with respect to each transaction. In
over-the-counter transactions, orders are placed directly with a principal
market maker unless it is believed that a better price and execution can be
obtained by using a broker. Except to the extent that the Fund may pay higher
brokerage commissions for brokerage and research services (as described below)
on a portion of its transactions executed on securities exchanges, the Adviser
seeks the best security price at the most favorable commission rate. In
selecting broker-dealers and in negotiating commissions, the Adviser considers
the firm's reliability, the quality of its execution services on a continuing
basis and its financial condition. When more than one firm is believed to meet
these criteria, preference may be given to firms which also provide research
services to the Fund or the Adviser.
Consistent with the Rules of Fair Practice of the NASD and subject to
seeking best execution and such other policies as the Trustees may determine,
the Adviser may consider sales of shares of the Fund and of the other Van Kampen
American Capital mutual funds as a factor in the selection of firms to execute
portfolio transactions for the Fund.
Section 28(e) of the Securities Exchange Act of 1934 ("Section 28(e)")
permits an investment adviser, under certain circumstances, to cause an account
to pay a broker or dealer who supplies brokerage and research services, a
commission for effecting a securities transaction in excess of the amount of
commission another broker or dealer would have charged for effecting the
transaction. Brokerage and research services include (a) furnishing advice as to
the value of securities, the advisability of investing in, purchasing or selling
securities, and the availability of securities or purchasers or sellers of
securities, (b) furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy, and the
B-22
<PAGE> 77
performance of accounts, and (c) effecting securities transactions and
performing functions incidental thereto (such as clearance, settlement and
custody).
Pursuant to provisions of the Advisory Agreement, the Fund's Trustees have
authorized the Adviser to cause the Fund to incur brokerage commissions in an
amount higher than the lowest available rate in return for research services
provided to the Adviser. The Adviser is of the opinion that the continued
receipt of supplemental investment research services from dealers is essential
to its provision of high quality portfolio management services to the Fund. The
Adviser undertakes that such higher commissions will not be paid by the Fund
unless (a) the Adviser determines in good faith that the amount is reasonable in
relation to the services in terms of the particular transaction or in terms of
the Adviser's overall responsibilities with respect to the accounts as to which
it exercises investment discretion, (b) such payment is made in compliance with
the provisions of Section 28(e) and other applicable state and federal laws, and
(c) in the opinion of the Adviser, the total commissions paid by the Fund are
reasonable in relation to the expected benefits to the Fund over the long term.
The investment advisory fee paid by the Fund under the Advisory Agreement is not
reduced as a result of the Adviser's receipt of research services.
The Adviser places portfolio transactions for other advisory accounts
including other investment companies. Research services furnished by firms
through which the Fund effects its securities transactions may be used by the
Adviser in servicing all of its accounts; not all of such services may be used
by the Adviser in connection with the Fund. In the opinion of the Adviser, the
benefits from research services to each of the accounts (including the Fund)
managed by the Adviser cannot be measured separately. Because the volume and
nature of the trading activities of the accounts are not uniform, the amount of
commissions in excess of the lowest available rate paid by each account for
brokerage and research services will vary. However, in the opinion of the
Adviser, such costs to the Fund will not be disproportionate to the benefits
received by the Fund on a continuing basis.
The Adviser seeks to allocate portfolio transactions equitably whenever
concurrent decisions are made to purchase or sell securities by the Fund and
another advisory account. In some cases, this procedure could have an adverse
effect on the price or the amount of securities available to the Fund. In making
such allocations among the Fund and other advisory accounts, the main factors
considered by the Adviser are the relative net assets, respective investment
objectives, the relative size of portfolio holdings of the same or comparable
securities, the availability of cash for investment, the size of investment
commitments generally held, and opinions of the persons responsible for
recommending the investment.
During the year ended December 31, 1997 the Fund paid $647,976 in brokerage
commissions on transactions totalling $642,957,566 to brokers selected primarily
on the basis of research services provided to the Adviser.
Effective October 31, 1996, Morgan Stanley Group Inc. ("Morgan Stanley")
became an affiliate of the Adviser. Effective May 31, 1997, Dean Witter & Co.
("Dean Witter") became an affiliate of the Adviser. The negotiated commission
paid to an affiliated broker on any transaction would be comparable to that
payable to a non-affiliated broker in a similar transaction. The Fund paid the
following commissions to these brokers during the periods shown :
<TABLE>
<CAPTION>
MORGAN DEAN
BROKERS STANLEY WITTER
------- ------- ------
<S> <C> <C> <C>
Commissions Paid:
Fiscal 1995 $1,274,150 $ 98,850 $1,750
Fiscal 1996 $2,045,573 $123,327 $5,142
Fiscal 1997 $2,269,523 $ 1,875 0
Fiscal 1997 Percentages:
Commissions with affiliates to total commissions N/A 0.08% 0%
Value of transactions with affiliates to total
transactions N/A 0% 0%
</TABLE>
B-23
<PAGE> 78
DETERMINATION OF NET ASSET VALUE
The net asset value per share is determined as of the close of the New York
Stock Exchange (the "Exchange") (currently 4:00 p.m. New York time) on each
business day on which the Exchange is open. The net asset value of Fund shares
is computed by dividing the value of all securities plus other assets, less
liabilities, by the number of shares outstanding, and adjusting to the nearest
cent per share.
Such computation is made by using prices as of the close of trading on the
Exchange and (i) valuing securities listed or traded on a national securities
exchange at the last reported sale price, or if there has been no sale that day,
at the mean between the last reported bid and asked prices, (ii) valuing
over-the-counter securities for which the last sale price is available from the
National Association of Securities Dealers Automated Quotations ("NASDAQ") at
that price, (iii) valuing all other over-the-counter securities for which market
quotations are available at the mean between the most recent bid and asked
quotations supplied by NASDAQ or broker-dealers, and (iv) valuing any securities
for which market quotations are not readily available and any other assets at
fair value as determined in good faith by the Adviser based on procedures
approved by Trustees of the Fund. Short-term investments are valued in the
manner described in the notes to the financial statements included in this
Statement of Additional Information.
The assets belonging to the Class A shares, the Class B shares and the
Class C shares will be invested together in a single portfolio. The net asset
value of each class will be determined separately by subtracting the expenses
and liabilities allocated to that class.
PURCHASE AND REDEMPTION OF SHARES
The following information supplements the section in the Fund's Prospectus
captioned "Purchase of Shares."
INVESTMENTS BY MAIL
A shareholder investment account may be opened by completing the
application accompanying the Prospectus and forwarding the application, through
the authorized dealer, to ACCESS, at P.O. Box 419319, Kansas City, Missouri
64141-6319. The account is opened only upon acceptance of the application by
ACCESS. The minimum initial investment of at least $500 per class of shares, in
the form of a check payable to the Fund, must accompany the application. This
minimum may be waived by the Distributor for plans involving continuing
investments. Minimum subsequent investments of at least $25 per class of shares
may be mailed directly to ACCESS. All such investments are made at the public
offering price of Fund shares next computed following receipt of payment by
ACCESS. Confirmations of the opening of an account and of all subsequent
transactions in the account are forwarded by ACCESS to the investor's authorized
dealer.
In processing applications and investments, ACCESS acts as agent for the
investor and for the authorized dealer named thereon, and also as agent for the
Distributor, in accordance with the terms of the Prospectus. If ACCESS ceases to
act as such, a successor company named by the Fund will act in the same
capacities so long as the account remains open.
REDEMPTION OF SHARES
Redemptions are not made on days during which the Exchange is closed. The
right of redemption may be suspended and the payment therefor may be postponed
for more than seven days during any period when (a) the Exchange is closed for
other than customary weekends or holidays; (b) trading on the Exchange is
restricted; (c) an emergency exists as a result of which disposal by the Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Fund to determine fairly the value of its net assets; or (d)
the SEC, by order, so permits.
CONTINGENT DEFERRED SALES CHARGE -- CLASS A
For investments in the amount of $1,000,000 or more of Class A shares of
the Fund ("Qualified Purchaser"), the front-end sales charge will be waived and
a contingent deferred sales charge ("CDSC - Class A") of 1.00% is imposed in the
event of certain redemptions within one year of the purchase. If a CDSC - Class
A is imposed upon redemption, the amount of the CDSC - Class A will be equal to
the lesser of 1.00%
B-24
<PAGE> 79
of the net asset value of the shares at the time of purchase or 1.00% of the net
asset value of the shares at the time of redemption.
The CDSC - Class A will be imposed only if a Qualified Purchaser redeems an
amount which causes the value of the account to fall below the total dollar
amount of purchase payments made by the Qualified Purchaser without an initial
sales charge during the one-year period prior to the redemption. No CDSC - Class
A will be imposed on exchanges between funds. For purposes of the CDSC - Class
A, when shares of one fund are exchanged for shares of another fund, the
purchase date for the shares of the fund exchanged into will be assumed to be
the date on which shares were purchased in the fund from which the exchange was
made. If the exchanged shares themselves are acquired through an exchange, the
purchase date is assumed to carry over from the date of the original election to
purchase shares subject to a CDSC - Class A rather than a front-end load sales
charge. In determining whether a CDSC - Class A is payable, it is assumed that
shares held the longest are the first to be redeemed.
Cumulative Purchase Discounts and Letters of Intent apply to the net asset
value privilege. Also, in order to establish an amount of $1,000,000 or more, a
Qualified Purchaser may aggregate shares of the Participating Funds described in
the Prospectus.
WAIVER OF CLASS B AND CLASS C CONTINGENT DEFERRED SALES CHARGES ("CDSC - CLASS B
AND C")
As described in the Prospectus under "Purchase of Shares," redemption of
Class B shares and Class C shares will be subject to a CDSC. The CDSC - Class B
and C may be waived on redemptions of Class B shares and Class C shares in the
circumstances described below:
(a) Redemption Upon Death or Disability
The Fund will waive the CDSC - Class B and C on redemptions following the
death or disability of a Class B shareholder and Class C shareholder. An
individual will be considered disabled for this purpose if he or she meets the
definition thereof in Section 72(m)(7) of the Code, which in pertinent part
defines a person as disabled if such person "is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death or to be of long-
continued and indefinite duration." While the Fund does not specifically adopt
the balance of the Code's definition which pertains to furnishing the Secretary
of Treasury with such proof as he or she may require, the Distributor will
require satisfactory proof of death or disability before it determines to waive
the CDSC - Class B and C.
In cases of death or disability, the CDSC - Class B and C will be waived
where the decedent or disabled person is either an individual shareholder or
owns the shares as a joint tenant with right of survivorship or is the
beneficial owner of a custodial or fiduciary account, and where the redemption
is made within one year of the death or initial determination of disability.
This waiver of the CDSC - Class B and C applies to a total or partial
redemption, but only to redemptions of shares held at the time of the death or
initial determination of disability.
(b) Redemption in Connection with Certain Distributions from Retirement
Plans
The Fund will waive the CDSC - Class B and C when a total or partial
redemption is made in connection with certain distributions from Retirement
Plans. The charge will be waived upon the tax-free rollover or transfer of
assets to another Retirement Plan invested in one or more of Van Kampen American
Capital funds; in such event, as described below, the Fund will "tack" the
period for which the original shares were held onto the holding period of the
shares acquired in the transfer or rollover for purposes of determining what, if
any, CDSC - Class B and C is applicable in the event that such acquired shares
are redeemed following the transfer or rollover. The charge also will be waived
on any redemption which results from the return of an excess contribution
pursuant to Section 408(d)(4) or (5) of the Code, the return of excess deferral
amounts pursuant to Code Section 401(k)(8) or 402(g)(2), or from the death or
disability of the employee (see Code Section 72(m)(7) and 72(t)(2)(A)(ii)). In
addition, the charge will be waived on any minimum distribution required to be
distributed in accordance with Code Section 401(a)(9).
B-25
<PAGE> 80
The Fund does not intend to waive the CDSC - Class B and C for any
distributions from IRAs or other Retirement Plans not specifically described
above.
(c) Redemption Pursuant to a Fund's Systematic Withdrawal Plan
A shareholder may elect to participate in a systematic withdrawal plan (the
"Plan") with respect to the shareholder's investment in the Fund. Under the
Plan, a dollar amount of a participating shareholder's investment in the Fund
will be redeemed systematically by the Fund on a periodic basis, and the
proceeds mailed to the shareholder. The amount to be redeemed and frequency of
the systematic withdrawals will be specified by the shareholder upon his or her
election to participate in the Plan. The CDSC - Class B and C will be waived on
redemptions made under the Plan.
The amount of the shareholder's investment in the Fund at the time the
election to participate in the Plan is made with respect to the Fund is
hereinafter referred to as the "initial account balance." The amount to be
systematically redeemed from the Fund without the imposition of a CDSC - Class B
and C may not exceed a maximum of 12% annually of the shareholder's initial
account balance. The Fund reserves the right to change the terms and conditions
of the Plan and the ability to offer the Plan.
(d) Involuntary Redemptions of Shares in Accounts that Do Not Have the
Required Minimum Balance
The Fund reserves the right to redeem shareholder accounts with balances of
less than a specified dollar amount as set forth in the Prospectus. Prior to
such redemptions, shareholders will be notified in writing and allowed a
specified period of time to purchase additional shares to bring the account up
to the required minimum balance. The Fund will waive the CDSC - Class B and C
upon such involuntary redemption.
(e) Reinvestment of Redemption Proceeds in Shares of the Same Fund Within
180 Days After Redemption
A shareholder who has redeemed Class C shares of a Fund may reinvest at net
asset value, with credit for any CDSC - Class C paid on the redeemed shares, any
portion or all of his or her redemption proceeds (plus that amount necessary to
acquire a fractional share to round off his or her purchase to the nearest full
share) in Class C shares of the same class of the Fund, provided that the
reinvestment is effected within 180 days after such redemption and the
shareholder has not previously exercised this reinvestment privilege with
respect to Class C shares of the Fund. Shares acquired in this manner will be
deemed to have the original cost and purchase date of the redeemed shares for
purposes of applying the CDSC - Class C to subsequent redemptions.
(f) Redemption by Adviser
The Fund may waive the CDSC - Class B and C when a total or partial
redemption is made by the Adviser with respect to its investments in the Fund.
EXCHANGE PRIVILEGE
The following supplements the discussion of "Shareholder
Services - Exchange Privilege" in the Prospectus:
By use of the exchange privilege, the investor authorizes ACCESS to act on
telephonic, telegraphic or written exchange instructions from any person
representing himself to be the investor or the agent of the investor and
believed by ACCESS to be genuine. Van Kampen American Capital and its
subsidiaries, including ACCESS, 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, neither Van
Kampen American Capital, ACCESS nor the Fund will be liable for following
telephone instructions which it reasonably believes to be genuine. Van Kampen
American Capital, ACCESS and the Fund may be liable for any losses due to
unauthorized or fraudulent instructions if reasonable procedures are not
followed.
For purposes of determining the sales charge rate previously paid on Class
A shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its
B-26
<PAGE> 81
predecessors shall be included. If the exchanged security was acquired through
reinvestment, that security is deemed to have been sold with a sales charge rate
equal to the rate previously paid on the security on which the dividend or
distribution was paid. If a shareholder exchanges less than all of his
securities, the security upon which the highest sales charge rate was previously
paid is deemed exchanged first.
Exchange requests received on a business day prior to the time shares of
the funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares in the fund from which the
shareholder is withdrawing an investment will be redeemed at the net asset value
per share next determined on the date of receipt. Shares of the new fund into
which the shareholder is investing will also normally be purchased at the net
asset value per share, plus any applicable sales charge, next determined on the
date of receipt. Exchange requests received on a business day after the time
shares of the funds involved in the request are priced will be processed on the
next business day in the manner described herein.
A prospectus of any of these mutual funds may be obtained from any
authorized dealer or the Distributor. An investor considering an exchange to one
of such funds should refer to the prospectus for additional information
regarding such fund.
TAX STATUS OF THE FUND
The Trust and each 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, among other things, 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.
FUND PERFORMANCE
The Fund's average annual total return for Class A shares of the Fund
(computed in the manner described in the Prospectus) for (i) the one year period
ended December 31, 1997 was 17.01%; (ii) the five year period ended December 31,
1997 was 15.32%; and (iii) the ten year period ended December 31, 1997 was
14.08%. The average annual total return (computed in the manner described in the
Prospectus) for Class B shares of the Fund for (i) the one year period ended
December 31, 1997 was 18.23%; and (ii) the five year period ended December 31,
1997 was 15.57%; and (iii) the five year and eight month period ended December
31, 1997 was 15.53%. The average annual total return (computed in the manner
described in the Prospectus) for Class C shares of the Fund for (i) the one year
period ended December 31, 1997 was 22.23%; and (ii) the four year and six month
period ended December 31, 1997 was 16.11%. These results are based on historical
earnings and asset value fluctuations and are not intended to indicate future
performance. Such information should be considered in light of the Fund's
investment objectives and policies as well as the risks incurred in the Fund's
investment practices. Future results will be affected by changes in the general
level of prices of common securities available for purchase and sale by the
Fund. The past one-year, five-year, and ten year periods have been ones of
fluctuating common stock prices.
Total return is computed separately for Class A shares, Class B shares and
Class C shares.
The Fund invests primarily in securities which provide the highest possible
income as is consistent with safety of principal. To the extent possible,
considering its primary investment objective, the Fund seeks long-term growth of
capital as a secondary objective. The Fund tries to achieve capital appreciation
by investing primarily in high-dividend paying, blue chip stocks that are
recognized as household names and leaders in American industry. In addition, the
Fund attempts to remain fully invested and diversified across many industries to
achieve consistent long-term performance.
The Fund seeks to remain fully invested and diversified across many
industries to achieve consistent long-term performance. From time to time
marketing materials may provide a portfolio manager update, an Adviser update or
discuss general economic conditions and outlooks. The top 10 holdings of the
Fund may also be listed in marketing pieces. Materials may also mention how Van
Kampen American Capital believes the Fund compares relative to other Van Kampen
American Capital funds. Materials may also discuss the Dalbar Financial Services
study from 1984 to 1994 which examined investor cash flow into and out of all
types of mutual funds. The ten year study found that investors who bought mutual
fund shares and held such shares outperformed investors who bought and sold. The
Dalbar study conclusions were consistent regardless if
B-27
<PAGE> 82
shareholders purchased their funds in direct or sales force distribution
channels. The study showed that investors working with a professional
representative have tended over time to earn higher returns than those who
invested directly. The Fund will also be marketed on the internet.
The Fund may, from time to time: (1) illustrate the benefits of
tax-deferral by comparing taxable investments to investments made through
tax-deferred retirement plans; (2) illustrate in graph or chart form, or
otherwise, the benefits of dollar cost averaging by comparing investments made
pursuant to a systematic investment plan to investments made in a rising market;
(3) illustrate allocations among different types of mutual funds for investors
at different stages of their lives; and (4) in reports or other communications
to shareholders or in advertising material, illustrate the benefits of
compounding at various assumed rates of return. Such illustrations may be in the
form of charts or graphs and will not be based on historical returns experienced
by the Fund.
OTHER INFORMATION
CUSTODY OF ASSETS -- All securities owned by the Fund and all cash, including
proceeds from the sale of shares of the Fund and of securities in the Fund's
investment portfolio, are held by State Street Bank and Trust Company, 225
Franklin Street, Boston, Massachusetts 02110, as Custodian.
SHAREHOLDER REPORTS -- Semi-annual statements are furnished to shareholders, and
annually such statements are audited by the independent accountants.
INDEPENDENT ACCOUNTANTS -- Price Waterhouse LLP, 200 East Randolph Drive,
Chicago, IL 60601, the independent accountants for the Fund, performs an annual
audit of the Fund's financial statements.
B-28
<PAGE> 83
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
VAN KAMPEN AMERICAN CAPITAL EQUITY INCOME FUND
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Van Kampen American Capital Equity
Income Fund (the "Fund") at December 31, 1997, and the results of its
operations, the changes in its net assets and financial highlights for each of
the periods presented, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1997 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Chicago, Illinois
January 29, 1998
B-29
<PAGE> 84
PORTFOLIO OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Security Description Shares Market Value
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON AND PREFERRED STOCKS 68.0%
CONSUMER DISTRIBUTION 1.8%
Federated Department Stores, Inc. (b)..................... 235,200 $ 10,128,300
Gap, Inc.................................................. 271,050 9,605,334
Gymboree Corp. (b)........................................ 376,300 10,301,213
----------
30,034,847
----------
CONSUMER DURABLES 1.1%
Black & Decker Corp....................................... 196,000 7,656,250
Newell Financial Trust 144A--Convertible Preferred (c).... 185,000 9,712,500
----------
17,368,750
----------
CONSUMER NON-DURABLES 5.4%
Adidas--ADR (Germany)..................................... 119,000 7,705,250
Avon Products, Inc........................................ 45,300 2,780,288
Benckiser NV, Class B--ADR (Netherlands).................. 163,600 6,728,050
Colgate-Palmolive Co...................................... 151,200 11,113,200
Nabisco Holdings Corp., Class A........................... 271,300 13,141,094
Philip Morris Cos., Inc................................... 587,000 26,598,437
Ralston Purina Group...................................... 122,600 11,394,137
Tommy Hilfiger Corp. (b).................................. 220,700 7,752,088
----------
87,212,544
----------
CONSUMER SERVICES 3.4%
Bell & Howell Co. (b)..................................... 161,300 3,901,444
Cognizant Corp............................................ 278,300 12,401,744
H & R Block, Inc.......................................... 317,200 14,214,525
Lone Star Steakhouse (b).................................. 217,000 3,797,500
News Corp. Exchange Trust 144A--Convertible Preferred (c). 83,000 7,428,500
Reader's Digest Association, Inc., Class A................ 134,000 3,165,750
Sinclair Broadcast Group--Convertible Preferred........... 82,000 4,704,750
Walt Disney Co............................................ 64,100 6,349,906
----------
55,964,119
----------
</TABLE>
B-30 See Notes to Financial Statements
<PAGE> 85
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Security Description Shares Market Value
- --------------------------------------------------------------------------------
<S> <C> <C>
ENERGY 6.9%
Coastal Corp........................................... 242,100 $ 14,995,069
El Paso Natural Gas Co................................. 146,000 9,709,000
Exxon Corp............................................. 223,200 13,657,050
McDermott International, Inc........................... 175,700 6,435,012
Royal Dutch Petroleum Co.--ADR (Netherlands)........... 269,700 14,614,369
Texaco, Inc............................................ 392,400 21,336,750
USX Marathon Group..................................... 387,500 13,078,125
Valero Energy Corp..................................... 77,000 2,420,688
YPF Sociedad Anonima, Class D--ADR (Argentina)......... 463,000 15,828,812
-----------
112,074,875
-----------
FINANCE 14.4%
Aetna, Inc............................................. 20,350 1,435,947
Allstate Corp.......................................... 259,200 23,554,800
American General Corp.................................. 205,000 11,082,812
BankAmerica Corp....................................... 396,700 28,959,100
BankBoston Corp........................................ 194,000 18,223,875
Bankers Trust New York Corp............................ 17,100 1,922,681
Chase Manhattan Corp................................... 224,900 24,626,550
Conseco, Inc........................................... 215,500 9,791,781
Conseco, Inc.--Convertible Preferred................... 160,000 8,200,000
Equitable Cos., Inc.................................... 315,000 15,671,250
Everest Reinsurance Holdings, Inc...................... 145,300 5,993,625
First Union Corp....................................... 332,000 17,015,000
Golden West Financial Corp............................. 86,200 8,431,438
NationsBank Corp....................................... 175,000 10,642,187
Protective Life Corp.--Convertible Preferred........... 130,000 7,150,000
Provident Cos., Inc.................................... 267,000 10,312,875
Travelers Group, Inc................................... 163,500 8,808,563
Washington Mutual, Inc................................. 147,440 9,408,515
WBK Trust, STRYPES--Convertible Preferred.............. 201,000 6,733,500
Weingarten Reality Investors........................... 50,000 2,240,625
Wells Fargo & Co....................................... 8,200 2,783,388
-----------
232,988,512
-----------
</TABLE>
B-31 See Notes to Financial Statements
<PAGE> 86
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Security Description Shares Market Value
- --------------------------------------------------------------------------------
<S> <C> <C>
HEALTHCARE 7.5%
Alza Corp. (b)......................................... 106,000 $ 3,372,125
American Home Products Corp............................ 165,000 12,622,500
Beckman Instruments, Inc............................... 130,000 5,200,000
MedPartners, Inc., TAPS--Convertible Preferred......... 350,000 7,700,000
Merck & Co., Inc....................................... 85,000 9,031,250
Mylan Laboratories, Inc................................ 328,800 6,884,250
PacifiCare Health Systems, Class B (b)................. 302,500 15,843,437
Pfizer, Inc............................................ 51,000 3,802,688
Pharmacia & Upjohn, Inc................................ 450,700 16,506,887
Rhone-Poulenc, SA, Warrants--ADR (France).............. 243,000 789,750
Rhone-Poulnec, SA, Class A--ADR (France)............... 270,000 11,981,250
SmithKline Beecham PLC--ADR (United Kingdom)........... 365,000 18,774,687
Watson Pharmaceuticals, Inc. (b)....................... 266,600 8,647,838
-----------
121,156,662
-----------
PRODUCER MANUFACTURING 6.0%
AGCO Corp.............................................. 390,600 11,425,050
Allied Signal, Inc..................................... 285,600 11,120,550
Canadian Pacific Ltd................................... 496,800 13,537,800
Flowserve Corp......................................... 286,200 7,995,712
Fluor Corp............................................. 149,000 5,568,875
Ingersoll Rand Co...................................... 392,400 15,892,200
ITT Corp. (b).......................................... 115,000 9,530,625
Johnson Controls, Inc.................................. 214,600 10,247,150
Rockwell International Corp............................ 99,000 5,172,750
Waste Management, Inc.................................. 262,700 7,224,250
-----------
97,714,962
-----------
RAW MATERIALS/PROCESSING INDUSTRIES 3.0%
BetzDearborn, Inc...................................... 105,000 6,411,563
Boise Cascade Corp..................................... 245,000 7,411,250
Crown Cork & Seal Co., Inc............................. 245,200 12,290,650
Fort James Corp........................................ 169,400 6,479,550
Fresenius National Med Care, Inc., Class D--Preferred.. 12,000 840
Reynolds Metals Co..................................... 52,700 3,162,000
Union Camp Corp........................................ 133,400 7,161,912
WR Grace & Co.......................................... 75,200 6,048,900
-----------
48,966,665
-----------
</TABLE>
B-32 See Notes to Financial Statements
<PAGE> 87
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Security Description Shares Market Value
- --------------------------------------------------------------------------------
<S> <C> <C>
TECHNOLOGY 7.6%
3Com Corp. (b)...................................... 189,100 $ 6,606,681
Alcatel Alsthom CGE--ADR (France)................... 528,900 13,387,781
BMC Software, Inc. (b).............................. 106,000 6,956,250
Cabletron Systems, Inc. (b)......................... 213,000 3,195,000
Computer Associates International, Inc.............. 132,500 7,005,937
Creative Technology Ltd. (b)........................ 293,000 6,446,000
Ericsson (L M) Telephone Co., Class B--ADR (Sweden). 195,800 7,305,787
International Business Machines Corp................ 246,000 25,722,375
Microsoft Corp.--Convertible Preferred.............. 85,000 7,639,375
Motorola, Inc....................................... 71,000 4,051,438
Newbridge Networks Corp. (b)........................ 113,100 3,944,363
Nokia Corp.--ADR (Finland).......................... 133,000 9,310,000
Philips Electronics N.V.--ADR (Netherlands)......... 193,400 11,700,700
VLSI Technology, Inc. (b)........................... 242,200 5,721,975
Xerox Corp.......................................... 69,000 5,093,063
-------------
124,086,725
-------------
TRANSPORTATION 0.7%
Canadian National Railway Co........................ 235,100 11,108,475
-------------
UTILITIES 10.2%
AirTouch Communications, Inc. (b)................... 155,000 6,442,188
AT&T Corp........................................... 111,200 6,811,000
BellSouth Corp...................................... 341,300 19,219,456
Boston Edison Co.................................... 304,900 11,548,087
Cincinnati Bell, Inc................................ 248,000 7,688,000
Consolidated Edison Co.............................. 340,000 13,940,000
Edison International................................ 349,400 9,499,313
FPL Group, Inc...................................... 170,000 10,061,875
GPU, Inc............................................ 350,700 14,773,237
GTE Corp............................................ 171,400 8,955,650
Northeast Utilities................................. 1,059,200 12,511,800
PG & E Corp......................................... 469,600 14,293,450
SBC Communications, Inc............................. 133,000 9,742,250
U.S. WEST Communications Group...................... 426,000 19,223,250
-------------
164,709,556
-------------
TOTAL COMMON AND PREFERRED STOCKS 68.0% 1,103,386,692
-------------
</TABLE>
B-33 See Notes to Financial Statements
<PAGE> 88
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1997
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CORPORATE OBLIGATIONS 9.2%
CONSUMER DISTRIBUTION 0.7%
$ 6,000 Gruma SA De Cv (Mexico) 144A (c)............. 7.625% 10/15/07 $ 5,946,000
4,000 May Department Stores Co..................... 8.375 08/01/24 4,411,720
----------
10,357,720
----------
CONSUMER DURABLES 0.6%
3,000 Ford Motor Co................................ 7.250 10/01/08 3,197,430
3,000 Ford Motor Co. Delaware Note................. 9.000 09/15/01 3,275,400
3,000 General Motors Corp.......................... 7.000 06/15/03 3,104,700
----------
9,577,530
----------
CONSUMER NON-DURABLES 0.4%
6,000 Coca Cola Bottling Co........................ 7.200 07/01/09 6,241,260
----------
CONSUMER SERVICES 0.8%
10,000 Cox Communications, Inc...................... 7.250 11/15/15 10,504,000
1,500 Time Warner Entertainment Co. LP............. 9.625 05/01/02 1,678,290
----------
12,182,290
----------
ENERGY 2.0%
5,000 Enron Corp................................... 9.125 04/01/03 5,592,150
5,000 NGC Corp..................................... 6.750 12/15/05 5,092,000
4,000 Occidental Petroleum Corp.................... 10.125 11/15/01 4,532,000
6,000 Sonat, Inc................................... 6.875 06/01/05 6,160,560
2,500 Texaco Capital, Inc.......................... 8.250 10/01/06 2,823,813
5,500 Texas Eastern Transmission Corp.............. 8.250 10/15/04 6,038,010
2,000 Western Atlas, Inc........................... 7.875 06/15/04 2,182,200
----------
32,420,733
----------
FINANCE 0.1%
2,000 General Electric Capital Corp................ 8.900 09/15/04 2,300,660
----------
PRODUCER MANUFACTURING 0.1%
1,500 Reliance Electric Co......................... 6.800 04/15/03 1,537,500
----------
RAW MATERIALS/PROCESSING INDUSTRIES 1.7%
5,000 Crown Cork & Seal Finance PLC................ 7.000 12/15/06 5,159,700
5,000 Crown Cork & Seal, Inc....................... 8.375 01/15/05 5,556,600
5,000 Georgia Pacific Corp......................... 9.500 05/15/22 5,660,400
10,000 ICI North America Inc........................ 8.375 01/15/06 11,599,600
----------
27,976,300
----------
TECHNOLOGY 0.9%
4,000 Philips Electronics N.V.--ADR (Netherlands).. 7.750 04/15/04 4,283,600
10,000 Raytheon Co.................................. 6.750 08/15/07 10,242,700
----------
14,526,300
----------
</TABLE>
B-34 See Notes to Financial Statements
<PAGE> 89
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TRANSPORTATION 0.6%
$ 5,000 Norfolk Southern Corp........................................... 7.350% 05/15/07 $ 5,312,700
5,000 Union Pacific Corp.............................................. 7.000 02/01/16 5,084,050
-------------
10,396,750
-------------
UTILITIES 1.3%
5,000 360 Communications Co........................................... 7.125 03/01/03 5,118,600
4,000 Compania De Telocomunicaciones (Chile).......................... 7.625 07/15/06 4,112,960
1,000 Tennessee Valley Authority, Series G............................ 8.625 11/15/29 1,086,400
10,000 Worldcom, Inc................................................... 7.750 04/01/07 10,775,000
-------------
21,092,960
-------------
TOTAL CORPORATE OBLIGATIONS 9.2%.................................................... 148,610,003
-------------
CONVERTIBLE CORPORATE OBLIGATIONS 7.9%
CONSUMER DURABLES 0.7%
26,000 Deutshce Finance Netherlands 144A (Convertible into
128,778 Daimler Benz common shares) (c)......................... * 02/12/17 11,635,000
-------------
CONSUMER NON-DURABLES 0.6%
7,530 Grand Metropolitan PLC 144A (Convertible into
1,097,671 common shares) (c).................................... 6.500 02/01/98 10,052,550
-------------
CONSUMER SERVICES 1.2%
17,000 ADT Operations, Inc. LYONS (Convertible into 461,992
Tyco International Ltd. common shares).......................... * 07/06/10 19,677,500
-------------
FINANCE 2.0%
5,000 Aegon NV 144A (Convertible into 180,000 common shares) (c)...... 4.750 11/01/04 15,862,500
8,160 Berkshire Hathaway, Inc. (Convertible into 244,121
Travelers Group, Inc. common shares)............................ 1.000 12/02/01 13,198,800
STRYPES Merrill Lynch & Co., Inc., 94,500 shares (Convertible
into 77,452 Cox Communications, Inc. common shares)............. 6.000 06/01/99 3,188,578
-------------
32,249,878
-------------
HEALTHCARE 1.8%
12,000 Alza Corp. LYON (Convertible into 155,844 common shares)........ * 07/14/14 5,550,000
43,500 Roche Holdings, Inc. LYON (Convertible into
206,347 common shares).......................................... * 04/20/10 23,925,000
-------------
29,475,000
-------------
PHARMACEUTICALS 0.2%
2,090 Sandoz, Ltd. 144A (Convertible into 1,958 common shares) (c).... * 10/06/02 3,202,925
-------------
PRODUCER MANUFACTURING 0.4%
6,000 USA Waste Services, Inc. (Convertible into
137,754 common shares).......................................... 4.000 02/01/02 6,660,000
-------------
</TABLE>
B-35 See Notes to Financial Statements
<PAGE> 90
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
RAW MATERIALS/PROCESSING INDUSTRIES 0.2%
$ 7,500 RPM Convertibles, Inc. LYON (Convertible into
228,902 common shares).......................................... * 09/30/12 $ 3,665,625
---------------
TECHNOLOGY 0.8%
24,000 Hewlett Packard Co. 144A LYON (Convertible into
130,320 common shares) (c)...................................... * 10/14/17 12,600,000
---------------
TOTAL CONVERTIBLE CORPORATE OBLIGATIONS 7.9%........................................ 129,218,478
---------------
UNITED STATES OBLIGATIONS 6.6%
90,000 United States Treasury Notes (a)............................... 6.250% 10/31/01 91,560,600
12,000 United States Treasury Notes (a)............................... 6.375 07/15/99 12,121,920
3,000 United States Treasury Notes................................... 6.875 05/15/06 3,210,480
---------------
TOTAL UNITED STATES OBLIGATIONS.................................................... 106,893,000
---------------
TOTAL LONG-TERM INVESTMENTS 91.7% (Cost $1,242,607,784)................................................ 1,488,108,173
---------------
SHORT-TERM INVESTMENTS 8.1%
COMMERCIAL PAPER 2.9%
General Electric Capital Corp. ($47,505,000 par, yielding 6.702%, 01/02/98 maturity)..................... 47,487,318
---------------
UNITED STATES AGENCIES 5.2%
Federal Home Loan Mortgage Discount Notes ($3,000,000 par, yielding 5.612%, 02/23/98 maturity).......... 2,975,115
Federal National Mortgage Association Discount Notes
($25,000,000 par, yielding 5.546%, 01/27/98 maturity)................................................... 24,898,750
Federal National Mortgage Association Discount Notes
($10,000,000 par, yielding 5.559%, 01/22/98 maturity)................................................... 9,966,511
Federal National Mortgage Association Discount Notes
($24,000,000 par, yielding 5.558%, 01/29/98 maturity)................................................... 23,894,053
Federal National Mortgage Association Discount Notes
($13,000,000 par, yielding 5.650%, 03/03/98 maturity)................................................... 12,876,370
Federal National Mortgage Association Discount Notes
($9,000,000 par, yielding 5.639%, 04/24/98 maturity).................................................... 8,843,220
---------------
TOTAL UNITED STATES AGENCIES........................................................ 83,454,019
---------------
TOTAL SHORT-TERM INVESTMENTS (Cost $130,940,006)........................................................ 130,941,337
---------------
TOTAL INVESTMENTS 99.8% (Cost $1,373,547,790)........................................................... 1,619,049,510
OTHER ASSETS IN EXCESS OF OTHER LIABILITIES 0.2%....................................................... 3,605,816
---------------
NET ASSETS 100.0%....................................................................................... $ 1,622,655,326
===============
</TABLE>
*Zero coupon bond
STRYPES--Structured yield product exchangeable for stock, traded in shares
LYON--Liquid yield option note
TAPS--Threshold Appreciation Price Securities
(a) Assets segregated as collateral for open futures transactions
(b) Non-income producing security as this stock currently does not declare
dividends.
(c) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933. These securities may be resold only in
transactions exempt from registration which are normally those transactions
with qualified institutional buyers.
B-36 See Notes to Financial Statements
<PAGE> 91
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Total Investments (Cost $1,373,547,790)................................................................. $ 1,619,049,510
Cash.................................................................................................... 2,011
Receivables:
Fund Shares Sold................................................................................... 5,220,912
Interest........................................................................................... 4,259,357
Investments Sold................................................................................... 2,069,772
Dividends.......................................................................................... 1,447,257
Other................................................................................................... 48,510
---------------
Total Assets..................................................................................... 1,632,097,329
---------------
LIABILITIES:
Payables:
Income Distributions............................................................................... 3,778,774
Fund Shares Repurchased............................................................................ 3,095,884
Distributor and Affiliates......................................................................... 1,606,545
Investment Advisory Fee............................................................................ 507,488
Variation Margin on Futures........................................................................ 6,700
Accrued Expenses........................................................................................ 291,769
Trustees' Deferred Compensation and Retirement Plans.................................................... 154,843
---------------
Total Liabilities................................................................................ 9,442,003
---------------
NET ASSETS.............................................................................................. $ 1,622,655,326
===============
NET ASSETS CONSIST OF:
Capital................................................................................................. $ 1,358,964,817
Net Unrealized Appreciation............................................................................. 245,432,645
Accumulated Net Realized Gain........................................................................... 16,191,940
Accumulated Undistributed Net Investment Income......................................................... 2,065,924
---------------
NET ASSETS.............................................................................................. $ 1,622,655,326
===============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on net assets of $638,092,113
and 88,104,227 shares of beneficial interest issued and outstanding)............................. $ 7.24
Maximum sales charge (5.75%* of offering price).................................................. .44
---------------
Maximum offering price to public................................................................. $ 7.68
===============
Class B Shares:
Net asset value and offering price per share (Based on net assets of $908,715,054
and 126,154,388 shares of beneficial interest issued and outstanding)............................ $ 7.20
===============
Class C Shares:
Net asset value and offering price per share (Based on net assets of $75,848,159
and 10,528,677 shares of beneficial interest issued and outstanding)............................. $ 7.20
===============
</TABLE>
*On sales of $50,000 or more, the sales charge will be reduced.
B-37 See Notes to Financial Statements
<PAGE> 92
STATEMENT OF OPERATIONS
For The Year Ended December 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest.......................................................... $ 22,021,080
Dividends......................................................... 19,877,040
------------
Total Income................................................. 41,898,120
------------
EXPENSES:
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $1,305,402, $7,864,110 and $667,942, respectively). 9,837,454
Investment Advisory Fee........................................... 5,338,993
Shareholder Services.............................................. 2,664,837
Custody........................................................... 88,787
Legal............................................................. 40,198
Trustees' Fees and Expenses....................................... 24,500
Other............................................................. 854,859
------------
Total Expenses............................................... 18,849,628
------------
NET INVESTMENT INCOME............................................. $ 23,048,492
============
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments.................................................. $170,171,955
Futures...................................................... 14,437,957
------------
Net Realized Gain................................................. 184,609,912
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period...................................... 159,606,826
------------
End of the Period:
Investments.............................................. 245,501,720
Futures.................................................. (69,075)
------------
245,432,645
------------
Net Unrealized Appreciation During the Period..................... 85,825,819
------------
NET REALIZED AND UNREALIZED GAIN.................................. $270,435,731
============
NET INCREASE IN NET ASSETS FROM OPERATIONS........................ $293,484,223
============
</TABLE>
B-38 See Notes to Financial Statement
<PAGE> 93
STATEMENT OF CHANGES IN NET ASSETS
For The Years Ended December 31, 1997 And 1996
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.......................................... $ 23,048,492 $ 19,968,031
Net Realized Gain.............................................. 184,609,912 68,950,601
Net Unrealized Appreciation During the Period.................. 85,825,819 52,838,493
-------------- --------------
Change in Net Assets from Operations...................... 293,484,223 141,757,125
-------------- --------------
Distributions from Net Investment Income*...................... (24,018,109) (19,965,051)
Distributions in Excess of Net Investment Income*.............. (2,400,068) -0-
-------------- --------------
Distributions from and in Excess of Net Investment Income*..... (26,418,177) (19,965,051)
Distributions from Net Realized Gain*.......................... (181,941,214) (58,454,770)
-------------- --------------
Total Distributions....................................... (208,359,391) (78,419,821)
-------------- --------------
NET CHANGE IN NET ASSETS
FROM INVESTMENT ACTIVITIES.................................... 85,124,832 63,337,304
-------------- --------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold...................................... 436,926,312 398,265,655
Value Received from Shares Issued in Merger.................... 21,732,117 -0-
Net Asset Value of Shares Issued Through
Dividend Reinvestment......................................... 188,548,998 70,824,847
Cost of Shares Repurchased..................................... (269,846,748) (169,322,567)
-------------- --------------
NET CHANGE IN NET ASSETS
FROM CAPITAL TRANSACTIONS..................................... 377,360,679 299,767,935
-------------- --------------
TOTAL INCREASE IN NET ASSETS................................... 462,485,511 363,105,239
NET ASSETS:
Beginning of the Period........................................ 1,160,169,815 797,064,576
-------------- --------------
End of the Period (Including accumulated undistributed net
investment income of $2,065,924 and $969,617 respectively).... $1,622,655,326 $1,160,169,815
============== ==============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
*DISTRIBUTIONS BY CLASS DECEMBER 31, 1997 DECEMBER 31, 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Distributions from and in Excess of Net Investment Income:
Class A Shares............................................ $ (12,849,167) $ (9,713,457)
Class B Shares............................................ (12,509,687) (9,411,080)
Class C Shares............................................ (1,059,323) (840,514)
-------------- --------------
$ (26,418,177) $ (19,965,051)
============== ==============
Distributions from Net Realized Gain:
Class A Shares............................................ $ (71,711,304) $ (23,861,990)
Class B Shares............................................ (101,660,017) (31,798,200)
Class C Shares............................................ (8,569,893) (2,794,580)
-------------- --------------
$ (181,941,214) $ (58,454,770)
============== ==============
</TABLE>
B-39 See Notes to Financial Statements
<PAGE> 94
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------
CLASS A SHARES 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.................. $6.740 $ 6.31 $ 5.16 $ 5.55 $ 5.15
------ ------ ------ ------ ------
Net Investment Income................................ .152 .158 .20 .21 .19
Net Realized and Unrealized Gain/Loss................ 1.435 .796 1.458 (.317) .6055
------ ------ ------ ------ ------
Total from Investment Operations.......................... 1.587 .954 1.658 (.107) .7955
------ ------ ------ ------ ------
Less:
Distributions from Net Investment Income............. .168 .156 .188 .1855 .168
Distributions from Net Realized Gain................. .917 .368 .32 .0975 .2275
------ ------ ------ ------ ------
Total Distributions....................................... 1.085 .524 .508 .283 .3955
------ ------ ------ ------ ------
Net Asset Value, End of the Period........................ $7.242 $6.740 $ 6.31 $ 5.16 $ 5.55
====== ====== ====== ====== ======
Total Return (a).......................................... 24.13% 15.55% 32.57% (1.98%) 16.00%
Net Assets at End of the Period (In millions)............. $638.1 $471.8 $349.9 $240.5 $187.6
Ratio of Expenses to Average Net Assets (b)............... .86% .97% .95% 1.02% 1.06%
Ratio of Net Investment Income to Average Net Assets (b).. 2.09% 2.50% 3.43% 3.60% 3.33%
Portfolio Turnover........................................ 86% 99% 92% 92% 101%
Average Commission Paid Per Equity Share Traded (c)....... $.0566 $.0582 -- -- --
</TABLE>
(a) Total Return is based upon net asset value which does not include payment
of the maximum sales charge or contingent deferred sales charge.
(b) For the year ended December 31, 1996, the impact on the Ratios of Expenses
and Net Investment Income to Average Net Assets due to VKAC's reimbursement
of certain expenses was less than 0.01%.
(c) Represents the average brokerage commission paid per equity share traded
during the period for trades where commissions were applicable. This
disclosure was not required in fiscal years prior to 1996.
B-40 See Notes to Financial Statements
<PAGE> 95
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
---------------------------------------------
Class B Shares 1997 1996 1995 1994 1993(a)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.............................. $6.713 $ 6.30 $ 5.16 $ 5.55 $ 5.15
------ ------ ------ ------ ------
Net Investment Income............................................ .100 .113 .15 .13 .14
Net Realized and Unrealized Gain/Loss............................ 1.423 .784 1.458 (.277) .6155
------ ------ ------ ------ ------
Total from Investment Operations...................................... 1.523 .897 1.608 (.147) .7555
------ ------ ------ ------ ------
Less:
Distributions from and in Excess of Net Investment Income........ .116 .116 .148 .1455 .128
Distributions from Net Realized Gain............................. .917 .368 .32 .0975 .2275
------ ------ ------ ------ ------
Total Distributions................................................... 1.033 .484 .468 .243 .3555
------ ------ ------ ------ ------
Net Asset Value, End of the Period.................................... $7.203 $6.713 $ 6.30 $ 5.16 $ 5.55
====== ====== ====== ====== ======
Total Return (b)...................................................... 23.23% 14.56% 31.51% (2.70%) 14.94%
Net Assets at End of the Period (In millions)......................... $908.7 $633.3 $408.9 $242.0 $115.4
Ratio of Expenses to Average Net Assets (c)........................... 1.64% 1.74% 1.75% 1.82% 1.89%
Ratio of Net Investment Income to
Average Net Assets (c)........................................... 1.32% 1.74% 2.62% 2.82% 2.45%
Portfolio Turnover.................................................... 86% 99% 92% 92% 101%
Average Commission Paid Per
Equity Share Traded (d).......................................... $.0566 $.0582 -- -- --
</TABLE>
(a) Based on average month-end shares outstanding.
(b) Total Return is based upon net asset value which does not include payment
of the maximum sales charge or contingent deferred sales charge.
(c) For the year ended December 31, 1996, the impact on the Ratios of Expenses
and Net Investment Income to Average Net Assets due to VKAC's reimbursement
of certain expenses was less than 0.01%.
(d) Represents the average brokerage commission paid per equity share traded
during the period for trades where commissions were applicable. This
disclosure was not required in fiscal years prior to 1996.
B-41 See Notes to Financial Statements
<PAGE> 96
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Year Ended July 6, 1993
December 31, (Commencement
---------------------------------- of Distribution) to
Class C Shares 1997 1996 1995 1994(a) December 31, 1993(a)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.................... $6.713 $ 6.30 $ 5.16 $ 5.55 $ 5.37
------ ------ ------ ------ -------
Net Investment Income.................................. .100 .113 .15 .14 .06
Net Realized and Unrealized
Gain/Loss.......................................... 1.424 .784 1.458 (.287) .379
------ ------ ------ ------ -------
Total from Investment Operations............................ 1.524 .897 1.608 (.147) .439
------ ------ ------ ------ -------
Less:
Distributions from and in Excess of
Net Investment Income.............................. .116 .116 .148 .1455 .064
Distributions from Net Realized Gain................... .917 .368 .32 .0975 .195
------ ------ ------ ------ -------
Total Distributions......................................... 1.033 .484 .468 .243 .259
------ ------ ------ ------ -------
Net Asset Value, End of the Period.......................... $7.204 $6.713 $ 6.30 $ 5.16 $ 5.55
------ ------ ------ ------ -------
Total Return (b)............................................ 23.23% 14.56% 31.51% (2.70%) 8.27%*
Net Assets at End of the Period (In millions)............... $ 75.8 $ 55.2 $ 38.3 $ 26.9 $ 10.0
Ratio of Expenses to Average Net Assets (c)................. 1.64% 1.74% 1.76% 1.82% 1.98%
Ratio of Net Investment Income to
Average Net Assets (c)................................. 1.32% 1.73% 2.63% 2.83% 2.27%
Portfolio Turnover.......................................... 86% 99% 92% 92% 101%
Average Commission Paid Per
Equity Share Traded (d)................................ $.0566 $.0582 -- -- --
</TABLE>
* Non-Annualized
(a) Based on average month-end shares outstanding.
(b) Total Return is based upon net asset value which does not include payment
of the maximum sales charge or contingent deferred sales charge.
(c) For the year ended December 31, 1996, the impact on the Ratios of Expenses
and Net Investment Income to Average Net Assets due to VKAC's reimbursement
of certain expenses was less than 0.01%.
(d) Represents the average brokerage commission paid per equity share traded
during the period for trades where commissions were applicable. This
disclosure was not required in fiscal years prior to 1996.
B-42 See Notes to Financial Statements
<PAGE> 97
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital Equity Income Fund (the "Fund") is organized as a
Delaware business trust, and is registered as a diversified open-end management
investment company under the Investment Company Act of 1940, as amended. The
Fund's investment objective is to seek the highest possible income consistent
with safety of principal by investing primarily in income-producing equity
instruments and other debt securities issued by a wide group of companies in
many different industries. The Fund commenced investment operations on August 3,
1960. The distribution of the Fund's Class B and Class C shares commenced on May
1, 1992 and July 6, 1993, respectively.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. SECURITY VALUATION--Investments in securities listed on a securities exchange
are valued at their sale price as of the close of such securities exchange.
Unlisted securities and listed securities for which the last sale price is not
available are valued at the mean of the bid and asked prices. Fixed income
investments are stated at value using market quotations. For those securities
where quotations or prices are not available, valuations are determined in
accordance with procedures established in good faith by the Board of Trustees.
Short-term securities with remaining maturities of 60 days or less are valued at
amortized cost.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund may purchase and sell securities on a "when issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Fund will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made. At December 31, 1997, there were no
when issued or delayed delivery purchase commitments.
The Fund may invest in repurchase agreements, which are short-term
investments in which the Fund acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified price.
The Fund may invest independently in repurchase agreements, or transfer
uninvested cash balances into a pooled cash account along with other investment
companies advised by Van Kampen American Capital Asset Management, Inc. (the
"Adviser") or its affiliates, the daily aggregate of which is invested in
repurchase agreements. Repurchase agreements are fully collateralized by the
underlying debt security. The Fund will make payment for such security only upon
physical delivery or evidence of book entry transfer to the account of the
custodian bank. The seller is required to maintain the value of the underlying
security at not less than the repurchase proceeds due the Fund.
C. INCOME AND EXPENSES--Dividend income is recorded on the ex-dividend date and
interest income is recorded on an accrual basis. Original issue discounts are
amortized over the expected life of each applicable security. Premiums on debt
securities are not amortized. Expenses of the Fund are allocated on a pro rata
basis to each class of shares, except for distribution and service fees and
transfer agency costs which are unique to each class of shares.
D. FEDERAL INCOME TAXES--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
B-43
<PAGE> 98
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
At December 31, 1997, for federal income tax purposes, cost of long- and
short-term investments is $1,375,164,838, the aggregate gross unrealized
appreciation is $276,162,168 and the aggregate gross unrealized depreciation is
$32,277,496, resulting in net unrealized appreciation on investments of
$243,884,672.
Net realized gains or losses may differ for financial and tax reporting
purposes primarily as a result of the deferral of losses for tax purposes
resulting from wash sales and the mark to market of open futures contracts at
December 31, 1997.
E. DISTRIBUTION OF INCOME AND GAINS--The Fund declares and pays dividends
quarterly from net investment income. Net realized gains, if any, are
distributed annually. Distributions from net realized gains for book purposes
may include short-term capital gains and gains on option and futures
transactions. All short-term capital gains and a portion of option and futures
gains are included in ordinary income for tax purposes.
For Federal income tax purposes, the following information is furnished
with respect to the distributions paid by the Fund during its taxable year ended
December 31, 1997. The Fund designated $55,148,836 as a 28% rate capital gain
distribution and $43,135,549 as a 20% rate capital gain distribution.
Shareholders were sent a 1997 Form 1099-DIV in January 1998 representing their
proportionate share of the capital gain distribution to be reported on their
income tax returns. For corporate shareholders 17.8% of the distributions
qualify for the dividend received deductions.
Due to inherent differences in the recognition of income, expenses and
realized gains/losses under generally accepted accounting principles and federal
income tax purposes, permanent differences between book and tax basis reporting
for the 1997 fiscal year have been identified and appropriately reclassified.
Permanent differences totaling $4,477,825 related to market discount recognized
upon sale were reclassified from Accumulated Net Realized Gain to Accumulated
Undistributed Net Investment Income. Amounts were reclassified from Accumulated
Net Investment Income of $11,833 and Accumulated Net Realized Gain of $2,077 to
Capital due to the merger of the funds.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS % PER ANNUM
- --------------------------------------------------------------------------------
<S> <C>
First $150 million................................................. .50 of 1%
Next $100 million.................................................. .45 of 1%
Next $100 million.................................................. .40 of 1%
Over $350 million.................................................. .35 of 1%
</TABLE>
For the year ended December 31, 1997, the Fund recognized expenses of
approximately $37,100 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
For the year ended December 31, 1997, the Fund recognized expenses of
approximately $180,500 representing Van Kampen American Capital Distributors,
Inc.'s or its affiliates' (collectively "VKAC") cost of providing accounting
services to the Fund. These services are provided by VKAC at cost.
ACCESS Investor Services, Inc. ("ACCESS"), an affiliate of the Adviser,
serves as the shareholder servicing agent for the Fund. For the year ended
December 31, 1997, the Fund recognized expenses of approximately $1,927,100,
representing ACCESS cost of providing transfer agency and shareholder services
plus a profit.
Certain officers and trustees of the Fund are also officers and directors
of VKAC. The Fund does not compensate its officers or trustees who are officers
of VKAC.
B-44
<PAGE> 99
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of VKAC. Under the deferred compensation plan,
trustees may elect to defer all or a portion of their compensation to a later
date. Benefits under the retirement plan are payable for a ten-year period and
are based upon each trustee's years of service to the Fund. The maximum annual
benefit per Trustee under the plan is equal to $2,500.
For the year ended December 31, 1997, the Fund paid brokerage commissions
to Morgan Stanley Group, Inc. and Dean Witter, both of which are affiliates of
VKAC, totaling $1,875.
At December 31, 1997, VKAC owned 223 shares of Class A and 224 shares each
of Classes B and C, respectively.
3. CAPITAL TRANSACTIONS
The Fund has outstanding three classes of shares of beneficial interest,
Classes A, B and C, each with a par value of $.01 per share. There are an
unlimited number of shares of each class authorized.
At December 31, 1997, capital aggregated $509,445,943, $784,786,712 and
$64,732,162 for Classes A, B, and C, respectively. For the year ended December
31, 1997, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................... 25,583,186 $ 191,217,108
Class B.................................... 29,915,227 221,594,137
Class C.................................... 3,239,213 24,115,067
----------- -------------
Total Sales..................................... 58,737,626 $ 436,926,312
=========== =============
Shares Issued in Merger:
Class A.................................... 1,531,079 $ 10,227,602
Class B.................................... 1,542,761 10,259,360
Class C.................................... 187,242 1,245,155
----------- -------------
Total Shares Issued in Merger................... 3,261,082 $ 21,732,117
=========== =============
Dividend Reinvestment:
Class A.................................... 10,787,829 $ 77,160,579
Class B.................................... 14,561,001 103,558,871
Class C.................................... 1,100,953 7,829,548
----------- -------------
Total Dividend Reinvestment..................... 26,449,783 $ 188,548,998
=========== =============
Repurchases:
Class A.................................... (19,786,873) $(147,745,099)
Class B.................................... (14,197,582) (105,642,498)
Class C.................................... (2,216,230) (16,459,151)
----------- -------------
Total Repurchases............................... (36,200,685) $(269,846,748)
=========== =============
</TABLE>
B-45
<PAGE> 100
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
At December 31, 1996, capital aggregated $378,580,283, $555,009,052 and
$48,000,893 for Classes A, B, and C, respectively. For the year ended December
31, 1996, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................... 23,837,337 $ 156,204,412
Class B.................................... 34,033,201 221,511,042
Class C.................................... 3,157,673 20,550,201
----------- -------------
Total Sales..................................... 61,028,211 $ 398,265,655
=========== =============
Dividend Reinvestment:
Class A.................................... 4,571,980 $ 29,903,434
Class B.................................... 5,828,833 37,983,943
Class C.................................... 450,818 2,937,470
----------- -------------
Total Dividend Reinvestment..................... 10,851,631 $ 70,824,847
=========== =============
Repurchases:
Class A.................................... (13,879,242) $ (91,378,219)
Class B.................................... (10,471,038) (68,387,863)
Class C.................................... (1,465,191) (9,556,485)
----------- -------------
Total Repurchases............................... (25,815,471) $(169,322,567)
=========== =============
</TABLE>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). The CDSC will be imposed
on most redemptions made within five years of the purchase for Class B and one
year of the purchase for Class C as detailed in the following schedule.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
-------------------
YEAR OF REDEMPTION CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C>
First..................................................... 5.00% 1.00%
Second.................................................... 4.00% None
Third..................................................... 3.00% None
Fourth.................................................... 2.50% None
Fifth..................................................... 1.50% None
Sixth and Thereafter...................................... None None
</TABLE>
For the year ended December 31, 1997, VKAC, as Distributor for the Fund,
received net commissions on sales of the Fund's Class A shares of approximately
$564,800 and CDSC on redeemed shares of approximately $1,308,100. Sales change
do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $1,279,521,013 and $1,106,102,323,
respectively.
B-46
<PAGE> 101
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
5. DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio or generate potential gain. All of the Fund's portfolio holdings,
including derivative instruments, are marked to market each day with the change
in value reflected in the unrealized appreciation/depreciation. Upon
disposition, a realized gain or loss is recognized accordingly, except when
exercising a call option contract or taking delivery of a security underlying a
futures contract. In these instances, the recognition of gain or loss is
postponed until the disposal of the security underlying the option or futures
contract.
Summarized below are the specific types of derivative financial instruments
used by the Fund.
A. OPTION CONTRACTS--An option contract gives the buyer the right, but not the
obligation to buy (call) or sell (put) an underlying item at a fixed exercise
price during a specified period. These contracts are generally used by the Fund
to provide the return of an index without purchasing all of the securities
underlying the index or as a substitute for purchasing or selling specific
securities.
B. FUTURES CONTRACTS--A futures contract is an agreement involving the delivery
of a particular asset on a specified future date at an agreed upon price. The
Fund generally invests in stock index futures. These contracts are generally
used to provide the return of an index without purchasing all of the securities
underlying the index or to manage the Fund's overall exposure to the equity
markets. Upon entering into futures contracts, the Fund maintains, in a
segregated account with its custodian, securities with a value equal to its
obligation under the futures contracts. During the period the futures contract
is open, payments are received from or made to the broker based upon changes in
the value of the contract (the variation margin). The risk of loss associated
with a futures contract is in excess of the variation margin reflected on the
Statement of Assets and Liabilities.
Transactions in futures contracts for the year ended December 31, 1997,
were as follows:
<TABLE>
<CAPTION>
CONTRACTS
- --------------------------------------------------------------------------------
<S> <C>
Outstanding at December 31, 1996................................. 152
Futures Opened................................................... 545
Futures Closed................................................... (630)
Futures Split (S&P 500 Futures 2-for-1).......................... 67
-----
Outstanding at December 31, 1997................................. 134
=====
</TABLE>
The futures contracts outstanding at December 31, 1997, and the description
and unrealized depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS DEPRECIATION
- --------------------------------------------------------------------------------
<S> <C> <C>
Long Contracts -- March 1998 S&P 500 Index Futures
(Current Notional Value of $244,775 per contract)..... 134 $(69,075)
======= =========
</TABLE>
B-47
<PAGE> 102
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
6. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% of Class A net assets and 1.00%
each of Class B and Class C net assets are accrued daily. Included in these fees
for the year ended December 31, 1997, are payments retained by VKAC of
approximately $5,345,000.
7. FUND MERGER
On April 4, 1997, the Fund acquired all of the assets and liabilities of the Van
Kampen American Capital Balanced Fund (the "Balanced Fund"), through a tax free
reorganization approved by the Balanced Fund shareholders on March 27, 1997. The
Fund issued 1,531,079, 1,542,761 and 187,242 shares of Classes A, B and C in
exchange for 685,634, 687,703 and 83,476 shares, representing net assets of
$21,732,117, including $249,434 of accumulated depreciation of investments.
Prior to the acquisition, the Fund's net assets were $1,212,920,035. Combined
net assets on the day of the acquisition were $1,234,652,152.
B-48
<PAGE> 103
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements
Included in the Prospectus:
Financial Highlights
Included in the Statement of Additional Information:
Report of Independent Accountants
Financial Statements
Notes to Financial Statements
(b) Exhibits
<TABLE>
<S> <C> <C>
(1) (a) First Amended and Restated Agreement and Declaration of
Trust(7)
(b) Certificate of Amendment(7)
(c) Amended and Restated Certificate of Designation+
(2) Amended and Restated Bylaws(7)
(4) (a) Specimen Class A Share Certificate(8)
(b) Specimen Class B Share Certificate(8)
(c) Specimen Class C Share Certificate(8)
(5) Investment Advisory Agreement+
(6) (a) Distribution and Service Agreement+
(b) Form of Dealer Agreement(8)
(c) Form of Broker Agreement(8)
(d) Form of Bank Agreement(8)
(8) (a) Custodian Agreement(9)
(b) Transfer Agency and Service Agreement+
(9) (a) Data Access Services Agreement(8)
(b) Fund Accounting Agreement+
(10) Opinion of Skadden, Arps, Slate, Meagher & Flom
(Illinois)(8)
(11) Consent of Price Waterhouse LLP+
(14) (a) Individual Retirement Account Brochure with Application(4)
(b) 403(b)(7) Custodial Account(2)
(c) ORP 403(b)(7) Custodial Account(2)
(d) Retirement Plans for the Small Business-Forms Package and
Plan Documents(5)
(e) Prototype Profit Sharing/Money Purchase Plan and Trust(1)
(f) Prototype 401(k) Plan and Trust(1)
(g) Salary Reduction Simplified Employee Pension Plan(3)
(h) Simplified Employee Pension Plan Brochure with
Application(6)
(15) (a) Plan of Distribution Pursuant to 12b-1(8)
(b) Form of Shareholder Assistance Agreement(8)
(c) Form of Administrative Service Agreement(8)
(d) Service Plan(8)
(16) Computation Measure for Performance Information+
(17) (a) List of Certain Investment Companies in Response to Item
29(a)(9)
(b) List of Officers and Directors of Van Kampen American
Capital Distributors, Inc. in Response to Item 29(b)(9)
(18) Amended Multiple Class Plan(8)
(24) Power of Attorney+
(27) Financial Data Schedules+
</TABLE>
C-1
<PAGE> 104
- ---------------
(1) Incorporated herein by reference to Post-Effective Amendment No. 61 to
Registrant's Registration Statement on Form N-1A of Van Kampen American
Capital Growth and Income Fund, File Number 2-21657, filed March 26, 1991.
(2) Incorporated herein by reference to Post-Effective Amendment No. 30 to
Registrant's Registration Statement on Form N-1A of Van Kampen American
Capital Reserve Fund, File Number 2-50870, filed September 24, 1992.
(3) Incorporated herein by reference to Post-Effective Amendment No. 9 to
Registrant's Registration Statement on Form N-1A of Van Kampen American
Capital World Portfolio Series Trust, File Number 33-37879, filed September
24, 1993.
(4) Incorporated herein by reference to Post-Effective Amendment No. 31 to
Registrant's Registration Statement on Form N-1A of Van Kampen American
Capital Reserve Fund, File Number 2-50870, filed September 24, 1993.
(5) Incorporated herein by reference to Post-Effective Amendment No. 18 to
Registrant's Registration Statement on Form N-1A of Van Kampen American
Capital Government Securities Fund, File Number 2-90482, filed February 25,
1994.
(6) Incorporated herein by reference to Post-Effective Amendment No. 69 to
Registrant's Registration Statement on Form N-1A of Van Kampen American
Capital Growth and Income Fund, File Number 2-21657, filed March 24, 1994.
(7) Incorporated herein by reference to Post-Effective Amendment No. 72 to
Registrant's Registration Statement on Form N-1A, File Number 2-15957, filed
April 19, 1996.
(8) Incorporated herein by reference to Post-Effective Amendment No. 73 to
Registrant's Registration Statement on Form N-1A, File Number 2-15957, filed
April 28, 1997.
(9) Incorporated herein by reference to Post-Effective Amendment 79 to Van
Kampen American Capital Growth and Income Fund's Registration Statement on
Form N-1A, File Number 2-21657 filed March 30, 1998.
+ Filed herewith.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
See "General Information" in the Statement of Additional Information.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
AS OF APRIL 3, 1998
<TABLE>
<CAPTION>
(1) (2)
TITLE OF CLASS NUMBER OF RECORD HOLDERS
-------------- ---------------------------
CLASS A CLASS B CLASS C
------ ------ -----
<S> <C> <C> <C>
Shares of Beneficial Interest, $0.01 par value 41,343 57,832 5,823
</TABLE>
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 (i) not
acting in good faith in the reasonable belief that such person's actions were
not in the best interest of the Trust, (ii) willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his or her office or (iii) for a criminal proceeding, not having a reasonable
cause to believe that such conduct was unlawful (collectively, "Disabling
Conduct"). Absent a court determination that an officer or trustee seeking
C-2
<PAGE> 105
indemnification was not liable on the merits or guilty of Disabling Conduct in
the conduct of his or her office, the decision by the Registrant to indemnify
such person must be based upon the reasonable determination of independent
counsel or non-party independent trustees, after review of the facts, that such
officer or trustee is not guilty of Disabling Conduct in the conduct of his or
her office.
The Registrant has purchased insurance on behalf of its officers and
trustees protecting such persons from liability arising from their activities as
officers or trustees of the Registrant. The insurance does not protect or
purport to protect such persons from liability to the Registrant or to its
shareholders to which such officers or trustee would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of their office.
Conditional advancing of indemnification monies may be made if the trustee
or officer undertakes to repay the advance unless it is ultimately determined
that he or she is entitled to the indemnification and only if the following
conditions are met: (1) the trustee or officer provides a security for the
undertaking; (2) the Registrant is insured against losses arising from lawful
advances; or (3) a majority of a quorum of the Registrant's disinterested,
non-party trustees, or an independent legal counsel in a written opinion, shall
determine, based upon a review of readily available facts, that a recipient of
the advance ultimately will be found entitled to indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "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 "Trustees and
Officers" in the Statement of Additional Information for information regarding
the business of the Adviser. For information as to the business, profession,
vocation and employment of a substantial nature of directors and officers of the
Adviser, reference is made to the Adviser's current Form ADV (File No. 801-1669)
filed under the Investment Advisers Act of 1940, as amended, incorporated herein
by reference.
ITEM 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. is an affiliated person
of an affiliated person of Registrant and is the only principal underwriter for
Registrant. The name, principal business address and positions and offices with
Van Kampen American Capital Distributors, Inc. of each of the directors and
officers thereof are set forth in Exhibit 17(b). Except as disclosed under the
heading, "Trustees and Officers" in Part B of this Registration Statement, none
of such persons has any position or office with Registrant.
(c) Not applicable.
C-3
<PAGE> 106
ITEM 30. LOCATION OF BOOKS 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
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 the State Street Bank and
Trust Company, 1776 Heritage Drive, North Quincy, MA; (ii) by the Adviser, will
be maintained at its offices, located at One Parkview Plaza, Oakbrook Terrace,
Illinois 60181; and (iii) by the Distributor, the principal underwriter, will be
maintained at its offices located at One Parkview Plaza, Oakbrook Terrace,
Illinois 60181.
ITEM 31. MANAGEMENT SERVICES.
Not applicable.
ITEM 32. UNDERTAKINGS.
Registrant hereby undertakes to furnish to each person to whom a Prospectus
is delivered a copy of the Registrant's latest annual report to shareholders,
upon request and without charge.
Registrant hereby undertakes, if requested to do so by the holders of at
least 10% of the Registrant's outstanding shares, to call a meeting of
shareholders for the purpose of voting upon the question of removal of a trustee
or trustees and to assist in communications with other shareholders as required
by Section 16(c) of the Investment Company Act of 1940.
C-4
<PAGE> 107
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 INCOME FUND, certifies that it meets all of the requirements for
effectiveness of this Amendment to the Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Amendment to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of Oakbrook Terrace, and the State of
Illinois, on the 24th day of April, 1998.
VAN KAMPEN AMERICAN CAPITAL
EQUITY INCOME FUND
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 April 24, 1998 by the
following persons in the capacities indicated:
<TABLE>
<C> <S> <C>
Principal Executive Officer:
/s/ DENNIS J. McDONNELL* President
- -----------------------------------------------------
Dennis J. McDonnell
Principal Financial Officer:
/s/ EDWARD C. WOOD III* Vice President and Chief Financial
- ----------------------------------------------------- Officer
Edward C. Wood III
Trustees:
/s/ J. MILES BRANAGAN* Trustee
- -----------------------------------------------------
J. Miles Branagan
/s/ RICHARD M. DEMARTINI* Trustee
- -----------------------------------------------------
Richard M. DeMartini
/s/ LINDA HUTTON HEAGY* Trustee
- -----------------------------------------------------
Linda Hutton Heagy
/s/ R. CRAIG KENNEDY* Trustee
- -----------------------------------------------------
R. Craig Kennedy
/s/ JACK E. NELSON* Trustee
- -----------------------------------------------------
Jack E. Nelson
/s/ DON G. POWELL* Trustee
- -----------------------------------------------------
Don G. Powell
/s/ PHILLIP B. ROONEY* Trustee
- -----------------------------------------------------
Phillip B. Rooney
/s/ FERNANDO SISTO* Trustee
- -----------------------------------------------------
Fernando Sisto
/s/ WAYNE W. WHALEN* Trustee
- -----------------------------------------------------
Wayne W. Whalen
* Signed by Ronald A. Nyberg pursuant to a power of attorney filed herewith.
/s/ RONALD A. NYBERG April 24, 1998
- -----------------------------------------------------
Ronald A. Nyberg
Attorney-in-Fact
</TABLE>
<PAGE> 108
VAN KAMPEN AMERICAN CAPITAL EQUITY INCOME FUND
INDEX TO EXHIBITS TO AMENDMENT NO. 74 TO FORM N-1A
AS SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION
ON APRIL 28, 1998
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C> <C>
(1) (c) Amended and Restated Certificate of Designation
(5) Investment Advisory Agreement
(6) (a) Distribution and Service Agreement
(8) (b) Transfer Agency and Service Agreement
(9) (b) Fund Accounting Agreement
(11) Consent of Price Waterhouse LLP
(16) Computation Measure for Performance Information
(24) Power of Attorney
(27) Financial Data Schedules
</TABLE>
<PAGE> 1
Exhibit (1)(c)
VAN KAMPEN AMERICAN CAPITAL EQUITY INCOME FUND
Amended and Restated Certificate of Designation
of
Van Kampen American Capital Equity Income Fund
The undersigned, being the Secretary of Van Kampen American Capital Equity
Income Fund, 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 First
Amended and Restated Agreement and Declaration of Trust ("Declaration"), and by
the affirmative vote of a Majority of the Trustees does hereby amend and restate
in its entirety the Certificate of Designation of the Van Kampen American
Capital Equity Income Fund Series of the Trust dated June 21, 1995 by
redesignating the following classes of Shares of the Trust with the following
rights, preferences and characteristics:
1. SHARES. The beneficial interest in the Trust 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 Trust. 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 Trust 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
Trust.
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 Trust's Prospectus.
4. CONVERSION. Each Class B Share and certain Class C Shares of the Trust
shall be converted automatically, and without any action or choice on the part
of the Shareholder thereof, into Class A Shares of the Trust at such times and
pursuant to such terms, conditions and restrictions as may be established by the
Trustees and as set forth in the Trust'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.
<PAGE> 2
6. SPECIAL MEETINGS. A special meeting of Shareholders of a Class of the Trust
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 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 Trust 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
any 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 Trust outstanding and entitled
to vote or, if such amendment affects the Shares of one or more but not all of
the Classes of the Trust, 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.
December 12, 1996
/s/ RONALD A. NYBERG
---------------------------
Ronald A. Nyberg, Secretary
<PAGE> 1
Exhibit (5)
INVESTMENT ADVISORY AGREEMENT
AGREEMENT (herein so called) made this May 31, 1997, by and between VAN KAMPEN
AMERICAN CAPITAL EQUITY INCOME FUND, a Delaware business trust (hereinafter
referred to as the "FUND"), and VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT,
INC., a Delaware corporation (hereinafter referred to as the "ADVISER").
The FUND and the ADVISER agree as follows:
(1) SERVICES RENDERED AND EXPENSES PAID BY ADVISER
The ADVISER, subject to the control, direction and supervision of the
FUND's Trustees and in conformity with applicable laws, the FUND's Agreement and
Declaration of Trust ("Declaration of Trust"), By-laws, registration statements,
prospectus and stated investment objectives, policies and restrictions, shall:
a. manage the investment and reinvestment of the FUND's assets
including, by way of illustration, the evaluation of pertinent economic,
statistical, financial and other data, determination of the industries and
companies to be represented in the FUND's portfolio, and formulation and
implementation of investment programs;
b. maintain a trading desk and place all orders for the purchase and
sale of portfolio investments for the FUND's account with brokers or dealers
selected by the ADVISER;
c. conduct and manage the day-to-day operations of the FUND including,
by way of illustration, the preparation of registration statements,
prospectuses, reports, proxy solicitation materials and amendments thereto, the
furnishing of routine legal services except for services provided by outside
counsel to the FUND selected by the Trustees, and the supervision of the FUND's
Treasurer and the personnel working under his direction; and
d. furnish to the FUND office space, facilities, equipment and personnel
adequate to provide the services described in paragraphs a., b., and c. above
and pay the compensation of each FUND trustee and Fund officer who is an
affiliated person of the ADVISER, except the compensation of the FUND's
Treasurer and related expenses as provided below.
In performing the services described in paragraph b. above, the ADVISER
shall use its best efforts to obtain for the FUND the most favorable price and
execution available and shall maintain records adequate to demonstrate
compliance with this requirement. Subject to prior authorization by the FUND's
Trustees of appropriate policies and procedures, the ADVISER may, to the extent
authorized by law, cause the FUND to pay a broker or dealer that provides
brokerage and research services to the ADVISER an amount of commission for
effecting a portfolio investment transaction in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction. In the event of such authorization and to the extent authorized by
law, the ADVISER shall not be deemed to have acted unlawfully or to have
breached any duty created by this Agreement or otherwise solely by reason of
such action.
Except as otherwise agreed, or as otherwise provided herein, the FUND
shall pay, or arrange for others to pay, all its expenses other than those
expressly stated to be payable by the ADVISER hereunder, which expenses payable
by the FUND shall include (i) interest and taxes; (ii) brokerage commissions
and other costs in connection with the purchase and sale of portfolio
investments; (iii) compensation of its trustees and officers other than those
who are affiliated persons of the ADVISER; (iv) compensation of its Treasurer,
compensation of personnel working under the Treasurer's direction, and expenses
of office space, facilities, and equipment used by the Treasurer and such
personnel in the performance of their normal duties for the FUND which consist
of maintenance of the accounts, books and other documents which constitute the
record forming the basis for the FUND's financial statements, preparation of
such
<PAGE> 2
financial statements and other FUND documents and reports of a financial nature
required by federal and state laws, and participation in the production of the
FUND's registration statement, prospectuses, proxy solicitation materials and
reports to shareholders; (v) fees of outside counsel to and of independent
accountants of the FUND selected by the Trustees; (vi) custodian, registrar and
shareholder service agent fees and expenses; (vii) expenses related to the
repurchase or redemption of its shares including expenses related to a program
of periodic repurchases or redemptions; (viii) expenses related to the issuance
of its shares against payment therefor by or on behalf of the subscribers
thereto; (ix) fees and related expenses of registering and qualifying the FUND
and its shares for distribution under state and federal securities laws; (x)
expenses of printing and mailing of registration statements, prospectuses,
reports, notices and proxy solicitation materials of the FUND; (xi) all other
expenses incidental to holding meetings of the FUND's shareholders including
proxy solicitations therefor, (xii) expenses for servicing shareholder
accounts; (xiii) insurance premiums for fidelity coverage and errors and
omissions insurance; (xiv) dues for the FUND's membership in trade associations
approved by the Trustees; and (xv) such nonrecurring expenses as may arise,
including those associated with actions, suits or proceedings to which the FUND
is a party and the legal obligation which the FUND may have to indemnify its
officers and trustees with respect thereto. To the extent that any of the
foregoing expenses are allocated between the FUND and any other party, such
allocations shall be pursuant to methods approved by the Trustees.
For a period of one year commencing on the effective date of this
Agreement, the ADVISER and the FUND agree that the retention of (i) the chief
executive officer, president, chief financial officer and secretary of the
ADVISER and (ii) each director, officer and employee of the ADVISER or any of
its Affiliates (as defined in the Investment Company Act of 1940, as amended
(the "1940 Act")) who serves as an officer of the FUND (each person referred to
in (i) or (ii) hereinafter being referred to as an "Essential Person"), in his
or her current capacities, is in the best interest of the FUND and the FUND's
shareholders. In connection with the ADVISER's acceptance of employment
hereunder, the ADVISER hereby agrees and covenants for itself and on behalf of
its Affiliates that neither the ADVISER nor any of its Affiliates shall make any
material or significant personnel changes or replace or seek to replace any
Essential Person or cause to be replaced any Essential Person, in each case
without first informing the Board of Trustees of the FUND in a timely manner.
In addition, neither the ADVISER nor any Affiliate of the ADVISER shall change
or seek to change or cause to be changed, in any material respect, the duties
and responsibilities of any Essential Person, in each case without first
informing the Board of Trustees of the FUND in a timely manner.
(2) ROLE OF ADVISER
The ADVISER, and any person controlled by or under common control
with the ADVISER, shall be free to render similar services to others and engage
in other activities, so long as the services rendered to the FUND are not
impaired.
Except as otherwise required by the Investment Company Act of 1940 (the
"1940 Act"), any of the shareholders, trustees, officers and employees of the
FUND may be a shareholder, trustee, director, officer or employee of, or be
otherwise interested in, the ADVISER, and in any person controlled by or under
common control with the ADVISER, and the ADVISER, and any person controlled by
or under common control with the ADVISER, may have an interest in the FUND.
Except as otherwise agreed, in the absence of willful misfeasance, bad
faith, negligence or reckless disregard of obligations or duties hereunder on
the part of the ADVISER, neither the ADVISER nor any subadviser shall be
subject to liability to the FUND, or to any shareholder of the FUND, for any
act or omission in the course of, or connected with, rendering services
hereunder or for any losses that may be sustained in the purchase, holding or
sale of any security.
<PAGE> 3
(3) COMPENSATION PAYABLE TO THE ADVISER
The FUND shall pay to the ADVISER, as compensation for the services
rendered, facilities furnished and expenses paid by the ADVISER, a monthly fee
computed at the following annual rate:
.50% on the first $150 million of the FUND's average daily net assets;
.45% on the next $100 million of the FUND's average daily net assets; .40% on
the next $100 million of the FUND's average daily net assets; and .35% of any
excess over $350 million.
Average daily net assets shall be determined by taking the average of the
net assets for each business day during a given calendar month calculated in
the manner provided in the FUND's Declaration of Trust. Such fee shall be
payable for each calendar month as soon as practicable after the end of that
month.
The fees payable to the ADVISER by the FUND pursuant to this Section 3
shall be reduced by any commissions, tender solicitation and other fees,
brokerage or similar payments received by the ADVISER, or any other direct or
indirect majority owned subsidiary of VK/AC Holding, Inc., in connection with
the purchase and sale of portfolio investments of the FUND, less any direct
expenses incurred by such person, in connection with obtaining such
commissions, fees, brokerage or similar payments. The ADVISER shall use its
best efforts to recapture all available tender offer solicitation fees and
exchange offer fees in connection with the FUND's portfolio transactions and
shall advise the Trustees of any other commissions, fees, brokerage or similar
payments which may be possible for the ADVISER or any other direct or indirect
majority owned subsidiary of VK/AC Holding, Inc. to receive in connection with
FUND's portfolio transactions or other arrangements which may benefit the FUND.
In the event that the ordinary business expenses of the FUND for any
fiscal year should exceed 1.5% of the first $30 million of the FUND's average
daily assets plus 1% of any excess over $30 million, the compensation due the
ADVISER for such fiscal year shall be reduced by the amount of such excess. The
Adviser's compensation shall be so reduced by a reduction or a refund thereof,
at the time such compensation is payable after the end of each calendar month
during such fiscal year of the FUND, and if such amount should exceed such
monthly compensation, the ADVISER shall pay the FUND an amount sufficient to
make up the deficiency, subject to readjustment during the FUND's fiscal year.
For purposes of this paragraph, all ordinary business expenses of the FUND
shall include the investment advisory fee and other operating expenses paid by
the FUND except (i) for interest and taxes; (ii) brokerage commissions; (iii)
as a result of litigation in connection with a suit involving a claim for
recovery by the FUND; (iv) as a result of litigation involving a defense
against a liability asserted against the FUND, provided that, if the ADVISER
made the decision or took the actions which resulted in such claim, it acted in
good faith without negligence or misconduct; (v) any indemnification paid by
the FUND to its officers and trustees and the ADVISER in accordance with
applicable state and federal laws as a result of such litigation; and (vi)
amounts paid to Van Kampen American Capital Distributors, Inc., the distributor
of the FUND's shares, in connection with a distribution plan adopted by the
FUND's Trustees pursuant to Rule 12b-1 under the Investment Company Act of 1940.
If the ADVISER shall serve for less than the whole of any month, the
foregoing compensation shall be prorated.
(4) BOOKS AND RECORDS
In compliance with the requirements of Rule 31a-3 under the 1940 Act, the
ADVISER hereby agrees that all records which it maintains for the FUND are the
property of the FUND and further agrees to surrender promptly to the FUND any
of such records upon the FUND's request. The ADVISER further agrees to preserve
for the periods prescribed by Rule 31a-2 under the 1940 Act the records
required to be maintained by Rule 31a-1 under the Act.
<PAGE> 4
(5) DURATION OF AGREEMENT
This Agreement shall become effective on the date hereof, and shall remain
in full force until May 31, 1999 unless sooner terminated as hereinafter
provided. This Agreement shall continue in force from year to year thereafter,
but only so long as such continuance is approved at least annually by the vote
of a majority of the FUND's Trustees who are not parties to this Agreement or
interested persons of any such parties, cast in person at a meeting called for
the purpose of voting on such approval, and by a vote of a majority of the
FUND's Trustees or a majority of the FUND's outstanding voting securities.
This Agreement shall terminate automatically in the event of its
assignment. The Agreement may be terminated at any time by the FUND's Trustees,
by vote of a majority of the FUND's outstanding voting securities, or by the
ADVISER, on 60 days' written notice, or upon such shorter notice as may be
mutually agreed upon. Such termination shall be without payment of any penalty.
(6) MISCELLANEOUS PROVISIONS
For the purposes of this Agreement, the terms "affiliated person,"
"assignment," "interested person," and "majority of the outstanding voting
securities" shall have their respective meanings defined in the 1940 Act and the
Rules and Regulations thereunder, subject, however, to such exemptions as may be
granted to either the ADVISER or the FUND by the Securities and Exchange
Commission (the "Commission"), or such interpretive positions as may be taken by
the Commission or its staff, under the 1940 Act, and the term "brokerage and
research services" shall have the meaning given in the Securities Exchange Act
of 1934 and the Rules and Regulations thereunder.
The execution of this Agreement has been authorized by the FUND's Trustees
and by the sole shareholder. This Agreement is executed on behalf of the FUND or
the Trustees of the FUND as Trustees and not individually and that the
obligations of this Agreement are not binding upon any of the Trustees, officers
or shareholders of the FUND individually but are binding only upon the assets
and property of the FUND. A Certificate of Trust in respect of the FUND is on
file with the Secretary of State of Delaware.
All questions concerning the validity, meaning and effect of this Agreement
shall be determined in accordance with the laws (without giving effect to the
conflict-of-law principles thereof) of the State of Delaware applicable to
contracts made and to be performed in that state.
In connection with its employment hereunder, the ADVISER hereby agrees and
covenants not to change its name without the prior consent of the Board of
Trustees of the FUND.
The parties hereto each have caused this Agreement to be signed in
duplicate on its behalf by its duly authorized officer on the above date.
VAN KAMPEN AMERICAN CAPITAL VAN KAMPEN AMERICAN CAPITAL
ASSET MANAGEMENT, INC. EQUITY INCOME FUND
By: /s/ DENNIS J. MCDONNELL By: /s/ PETER W. HEGEL
----------------------- --------------------------
Name: Dennis J. McDonnell Name: Peter W. Hegel
Its: President Its: Executive Vice President
<PAGE> 1
EXHIBIT 6(a)
DISTRIBUTION AND SERVICE AGREEMENT
THIS DISTRIBUTION AND SERVICE AGREEMENT dated as of May 31, 1997 (the
"Agreement") by and between VAN KAMPEN AMERICAN CAPITAL EQUITY INCOME FUND (the
"Fund"), and VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC., a Delaware
corporation (the "Distributor").
1. (a) APPOINTMENT OF DISTRIBUTOR. The Fund appoints the Distributor as
a principal underwriter and exclusive distributor of each class of its shares of
beneficial interest (the "Shares") offered for sale from time to time pursuant
to the then current prospectus of the Fund, subject to different combinations of
front-end sales charges, distribution fees, service fees and contingent deferred
sales charges. Classes of shares, if any, subject to a front-end sales charge
and a distribution and/or service fee are referred to herein as "FESC Classes"
and the Shares of such classes are referred to herein as "FESC Shares." Classes
of shares, if any, subject to a contingent-deferred sales charge and a
distribution and/or a service fee are referred to herein as "CDSC Classes" and
Shares of such classes are referred to herein as "CDSC Shares." Classes of
shares, if any, subject to a front-end sales charge, a contingent-deferred sales
charge and a distribution and/or service fee are referred to herein as
"Combination Classes" and Shares of such class are referred to herein as
"Combination Shares." The Fund reserves the right to refuse at any time or
times to sell Shares hereunder for any reason deemed adequate by the Board of
Trustees of the Fund.
(b) BEST EFFORTS. The Distributor shall use its best efforts to
sell, through its organization and through other dealers and agents, the Shares
which the Distributor has the right to purchase under Section 2 hereof, but the
Distributor does not undertake to sell any specific number of Shares. Without
the prior approval of the Board of Trustees, the Distributor shall not, directly
or indirectly, distribute, sell or market, through its organization or other
brokers, dealers or agents, shares of any investment companies unless the Board
of Trustees of the Fund determines that such companies do not compete, or
potentially compete, with the Fund.
(c) POSITIONS IN THE SHARES. The Distributor agrees that it will
not take any long or short positions in the Shares, except for long positions
in those Shares purchased by the Distributor in accordance with any systematic
sales plan described in the then current Prospectus of the Fund and except
as permitted by Section 2 hereof, and that so far as it can control the
situation, it will prevent any of its trustees, officers or shareholders from
taking any long or short positions in the Shares, except for legitimate
investment purposes.
(d) ESSENTIAL PERSONNEL. The Distributor and the Fund agree that
the retention of (i) the chief executive officer, president, treasurer and
secretary of the Distributor, and (ii) each director, officer and employee of
the Distributor or any of its affiliates (as defined in the Investment Company
Act of 1940, as amended (the "1940 Act")) who serves as an officer of the Fund
(each person referred to in (i) or (ii) hereinafter being referred to as an
"Essential Person "), in his or her current capacities, is in the best
interest of the Fund and the Fund's shareholders. In connection with the
Distributor's acceptance of employment hereunder, the Distributor hereby agrees
and covenants for itself and on behalf of its Affiliates that neither the
Distributor nor any of its Affiliates shall replace or seek to replace any
Essential Person or cause to be replaced any Essential Person, in each case
without first consulting with the Board of Trustees of the Fund in a timely
manner. In addition, neither the Distributor nor any Affiliate of the
Distributor shall change or seek to change or cause to be changed, in any
material respect, the duties and responsibilities of any Essential Person, in
each case without first consulting with the Board of Trustees of the Fund in a
timely manner.
2. SALE OF SHARES TO DISTRIBUTOR. The Fund hereby grants to the
Distributor the exclusive right, except as herein otherwise provided, to
purchase Shares directly from the Fund upon the terms herein set forth. Such
exclusive right hereby granted shall not apply to Shares issued or transferred
or sold at net asset value: (a) in connection with the merger or consolidation
of the Fund with any other investment company or the acquisition by the Fund of
all or substantially all of the assets of or the outstanding Shares of any
investment company; (b) in connection with a pro rata distribution directly to
the holders of
<PAGE> 2
Shares in the nature of a stock dividend or stock split or in connection with
any other recapitalization approved by the Board of Trustees; (c) upon the
exercise of purchase or subscription rights granted to the holders of Shares on
a pro rata basis; (d) in connection with the automatic reinvestment of dividends
and distributions from the Fund; or (e) in connection with the issue and sale of
Shares to trustees, officers and employees of the Fund, to directors, officers
and employees of the investment adviser of the Fund or any principal underwriter
(including the Distributor) of the Fund, to retirees of the Distributor that
purchased shares of any mutual fund distributed by the Distributor prior to
retirement, to directors, officers and employees of Van Kampen American Capital,
Inc. (the parent company of the Distributor), VK/AC Holding, Inc. (the parent
company of The Van Kampen American Capital, Inc.), Morgan Stanley, Dean Witter,
Discover & Co. (the parent company of VK/AC Holding, Inc.) and to the
subsidiaries of Van Kampen American Capital, Inc.; (f) to any trust, pension,
profit-sharing or other benefit plan for any of the aforesaid persons; and (g)
to any group of persons as permitted by Rule 22d-1 under the 1940 Act approved
from time to time by the Board of Trustees and set forth in the then current
Prospectus of the Fund.
The Distributor shall have the right to buy from the Fund the Shares
needed, but not more than the Shares needed (except for reasonable allowances
for clerical errors, delays and errors of transmission and cancellation of
orders) to fill unconditional orders for Shares received by the Distributor from
dealers, agents and investors during each period when particular net asset
values and public offering prices are in effect as provided in Section 3 hereof;
and the price which the Distributor shall pay for the Shares so purchased shall
be the respective net asset value used in determining the public offering price
on which such orders were based. The Distributor shall notify the Fund at the
end of each such period, or as soon thereafter on that business day as the
orders received in such period have been compiled, of the number of Shares of
each class that the Distributor elects to purchase hereunder.
3. (a) PUBLIC OFFERING PRICE. The public offering price per Share shall
be determined in accordance with the then current Prospectus of the Fund. In no
event shall the public offering price exceed the net asset value per Share,
plus, with respect to the FESC Shares, a front-end sales charge not in excess
of the applicable maximum sales charge permitted under the Rules of Fair
Practice of the National Association of Securities Dealers, Inc., as in effect
from time to time. The net asset value per share for each class of Shares,
respectively, shall be determined in the manner provided in the Declaration of
Trust and By-Laws of the Trust as then amended, the Certificate of Designation
with respect to the Fund, as amended, and in accordance with the then current
Prospectus of the Fund consistent with the terms and conditions of the Fund's
Multiple Class Plan adopted by the Board of Trustees in accordance with Section
18 of the 1940 Act and Rule 18f-3 thereunder. The Fund will cause immediate
notice to be given to the Distributor of each change in net asset value as soon
as it is determined.
(b) DISCOUNTS TO DEALERS. Discounts to dealers purchasing FESC
Shares from the Distributor for resale and to brokers and other eligible agents
making sales of FESC Shares to investors and compensation payable from the
Distributor to dealers, brokers and other eligible agents making sales of CDSC
Shares and Combination Shares shall be set forth in the selling agreements
between the Distributor and such dealers or agents, respectively, as from time
to time amended, and, if such discounts and compensation are described in the
then current Prospectus for the Fund, shall be as so set forth. In connection
with the Distributor's employment hereunder, the Distributor hereby agrees to
distribute the Shares through brokers, dealers and other agents of Dean Witter
Distributors, Inc. on a "proprietary basis" substantially identical to the
distribution of shares of proprietary open-end investment companies distributed
by Dean Witter Distributors, Inc.
4. COMPLIANCE WITH NASD RULES, SEC ORDERS, ETC. In selling Fund Shares,
the Distributor will in all respects duly comply with all state and federal laws
relating to the sale of such securities and with all applicable rules and
regulations of all regulatory bodies, including without limitation, the Rules of
Fair Practice of the National Association of Securities Dealers, Inc., and all
applicable rules and regulations of the Securities and Exchange Commission under
the 1940 Act, and will indemnify and save the Fund harmless from any damage or
expense on account of any unlawful act by the Distributor or its agents or
employees. The Distributor is not, however, to be responsible for the acts of
other dealers or agents,
2
<PAGE> 3
except to the extent that they shall be acting for the Distributor or under its
direction or authority. None of the Distributor, any dealer, any agent or any
other person is authorized by the Fund to give any information or to make any
representations, other than those contained in the Registration Statement or
Prospectus heretofore or hereafter filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "1933 Act") (as any
such Registration Statement and Prospectus may have been or may be amended from
time to time), covering the Shares, and in any supplemental information to any
such Prospectus approved by the Fund in connection with the offer or sale of
Shares. None of the Distributor, any dealer, any broker or any other person is
authorized to act as agent for the Fund in connection with the offering or sale
of Shares to the public or otherwise. All such sales shall be made by the
Distributor as principal for its own account.
In selling Shares to investors, the Distributor will adopt and comply with
certain standards, as set forth in Exhibit III attached hereto as to when each
respective class of Shares may appropriately be sold to particular investors.
The Distributor will require every broker, dealer and other eligible agent
participating in the offering of the Shares to agree to adopt and comply with
such standards as a condition precedent to their participation in the offering.
5. EXPENSES.
(a) The Fund will pay or cause to be paid:
(i) all expenses in connection with the registration of
Shares under the federal securities laws, and the Fund will
exercise its best efforts to obtain said registration and
qualification;
(ii) all expenses in connection with the printing of any notices
of shareholders' meetings, proxy and proxy statements and
enclosures therewith, as well as any other notice or
communication sent to shareholders in connection with any
meeting of the shareholders or otherwise, any annual,
semiannual or other reports or communications sent to the
shareholders, and the expenses of sending prospectuses
relating to the Shares to existing shareholders;
(iii)all expenses of any federal or state original-issue tax
or transfer tax payable upon the issuance, transfer or
delivery of Shares from the Fund to the Distributor; and
(iv) the cost of preparing and issuing any Share certificates
which may be issued to represent Shares.
(b) The Distributor will pay the costs and expenses of qualifying and
maintaining qualification of the Shares for sale under the securities laws of
the various states. The Distributor will also permit its officers and employees
to serve without compensation as trustees and officers of the Fund if duly
elected to such positions.
(c) The Fund shall reimburse the Distributor for out-of-pocket costs
and expenses actually incurred by it in connection with distribution of each
class of Shares respectively in accordance with and subject to the terms of a
plan (the "12b-1 Plan") adopted by the Fund pursuant to Rule 12b-1 under the
1940 Act as such 12b-1 Plan may be in effect from time to time; provided,
however, that no payments shall be due or paid to the Distributor hereunder
with respect to a class of Shares unless and until this Agreement shall have
been approved for each such class by a majority of the Board of Trustees of the
Fund and by a majority of the "Disinterested Trustees" (as such term is defined
in such 12b-1 Plan) by vote cast in person at a meeting called for the purpose
of voting on this Agreement. A copy of such 12b-1 Plan as in effect on the
date of this Agreement is attached as Exhibit I hereto. The Fund reserves the
right to terminate such 12b-1 Plan with respect to a class of Shares at any
time, as specified in the Plan. The persons authorized to direct the payment
of funds pursuant to this Agreement and the 12b-1 Plan shall provide to the
Fund's Board of Trustees, and the Trustees shall review, at least quarterly, a
3
<PAGE> 4
written report with respect to each class of Shares setting forth the amounts
so paid, the purposes for which such expenditures were made for each such class
of Shares, comparing the amounts paid by such class of Shares with amounts paid
by classes of shares issued by investment companies not governed by the Board
of Trustees and distributed by the Distributor or by direct or indirect
Affiliates of the Distributor and such other information as the Board of
Trustees may from time to time request.
(d) The Fund shall compensate the Distributor for providing
services to, and the maintenance of, shareholder accounts in the Fund
(including prepaying service fees to eligible brokers, dealers and financial
intermediaries and expenses incurred in connection therewith) and the
Distributor may pay as agent for and on behalf of the Fund a service fee with
respect to each class of Shares to brokers, dealers and financial
intermediaries for the provision of shareholder services and the maintenance of
shareholder accounts in the Fund in the amount with respect to each class of
Shares set forth from time to time in the Fund's prospectus. The Fund shall
compensate the Distributor for such expenses in accordance with the terms of a
service plan (the "Service Plan"), as such Service Plan may be in effect from
time to time; provided, however, that no service fee payments shall be due or
paid to the Distributor hereunder with respect to a class of Shares unless and
until this Agreement shall have been approved for each such class by a majority
of the Board of Trustees of the Fund and by a majority of the Disinterested
Trustees by vote cast in person at a meeting called for the purpose of voting
on this Agreement. A copy of such Service Plan as in effect on the date of
this Agreement is attached as Exhibit II hereto. The Fund reserves the right
to terminate such Service Plan with respect to a class of Shares at any time,
as specified in the Plan. The persons authorized to direct the payment of
funds pursuant to this Agreement and the Service Plan shall provide to the
Fund's Board of Trustees, and the Trustees shall review, at least quarterly, a
written report with respect to each class of Shares setting forth the amounts
paid as service fees for each such class of Shares comparing the amounts paid
as service fees by such class of Shares with amounts paid by classes of shares
issued by investment companies not governed by the Board of Trustees and
distributed by the Distributor or by direct or indirect Affiliates of the
Distributor and such other information as the Board of Trustees may from time
to time request.
6. REDEMPTION OF SHARES. In connection with the Fund's redemption of
its Shares, the Fund hereby authorizes the Distributor to repurchase, upon the
terms and conditions hereinafter set forth, as the Fund's agent and for the
Fund's account, such Shares as may be offered for sale to the Fund from time to
time by holders of such Shares or their agents.
(a) Subject to and in conformity with all applicable federal
and state legislation, any applicable rules of the National Association of
Securities Dealers, Inc., and any applicable rules and regulations of the
Securities and Exchange Commission under the 1940 Act, the Distributor may
accept offers of holders of Shares to resell such Shares to the Fund on such
terms and conditions and at such prices as described and provided for in the
then current Prospectus of the Fund.
(b) The Distributor agrees to notify the Fund at such times as
the Fund may specify of the number of each class of Shares, respectively,
repurchased for the Fund's account and the time or times of such repurchases,
and the Fund shall notify the Distributor of the prices and, in the case of a
class of CDSC Shares or Combination Shares, of the deferred sales charge as
described below, if any, applicable to repurchases of Shares of such class.
(c) The Fund shall have the right to suspend or revoke the
foregoing authorization at any time; unless otherwise stated, any such
suspension or revocation shall be effective forthwith upon receipt of notice
thereof by telegraph or by written instrument from any of the Fund's officers.
In the event that the Distributor's authorization is, by the terms of such
notice, suspended for more than twenty-four hours or until further notice, the
authorization given by this Section 6 shall not be revived except by vote of
the Board of Trustees of the Fund.
(d) The Distributor agrees that all repurchases of Shares made
by the Distributor shall be made only as agent for the Fund's account and
pursuant to the terms and conditions herein set forth.
(e) The Fund agrees to authorize and direct its Custodian to
pay, for the Fund's account, the repurchase price (together with any applicable
contingent deferred sales charge) of any Shares so
4
<PAGE> 5
repurchased for the Fund against the authorized transfer of book shares from an
open account and against delivery of any other documentation required by the
Board of Trustees of the Fund or, in the case of certificated Shares, against
delivery of the certificates representing such Shares in proper form for
transfer to the Fund.
(f) The Distributor shall receive no commissions or other
compensation in respect of any repurchases of FESC Shares for the Fund under the
foregoing authorization and appointment as agent. With respect to any
repurchase of CDSC Shares or Combination Shares, the Distributor shall receive
the deferred sales charge, if any, applicable to the respective class of Shares
that have been held for less than a specified period of time with respect to
such class as set forth from time to time in the Fund's Prospectus. The
Distributor shall receive no other commission or other compensation in respect
of any repurchases of CDSC Shares or Combination Shares for the Fund under the
foregoing authorization and appointment as agent.
(g) If any FESC Shares sold to the Distributor under the terms of
this Agreement are redeemed or repurchased by the Fund or by the Distributor as
agent or are tendered for redemption within seven business days after the date
of the Distributor's confirmation of the original purchase by the Distributor,
the Distributor shall forfeit the amount above the net asset value received by
it in respect of such Shares, provided that the portion, if any, of such amount
re-allowed by the Distributor to dealers or agents shall be repayable to the
Fund only to the extent recovered by the Distributor from the dealer or agent
concerned. The Distributor shall include in agreements with such dealers and
agents a corresponding provision for the forfeiture by them of their concession
with respect to FESC Shares purchased by them or their principals and redeemed
or repurchased by the Fund or by the Distributor as agent within seven business
days after the date of the Distributor's confirmation of such initial purchases.
7. INDEMNIFICATION. The Fund agrees to indemnify and hold harmless the
Distributor and each of its trustees and officers and each person, if any, who
controls the Distributor within the meaning of Section 15 of the 1933 Act
against any loss, liability, claim, damage or expense (including the reasonable
cost of investigating or defending any alleged loss, liability, claim, damage,
or expense and reasonable counsel fees incurred in connection therewith),
arising by reason of any person acquiring any Shares, based upon the ground that
the registration statement, Prospectus, shareholder reports or other information
filed or made public by the Fund (as from time to time amended) included an
untrue statement of a material fact or omitted to state a material fact required
to be stated or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading under the 1933 Act
or any other statute or the common law. However, the Fund does not agree to
indemnify the Distributor or hold it harmless to the extent that the statement
or omission was made in reliance upon, and in conformity with, information
furnished to the Fund by or on behalf of the Distributor. In no case (i) is the
indemnity of the Fund in favor of the Distributor or any person indemnified to
be deemed to protect the Distributor or any person against any liability to the
Fund or its securityholders to which the Distributor or such person would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of its reckless
disregard of its obligations and duties under this Agreement, or (ii) is the
Fund to be liable under its indemnity agreement contained in this Section with
respect to any claim made against the Distributor or any person indemnified
unless the Distributor or any such person shall have notified the Fund in
writing of the claim within a reasonable time after the summons or other first
written notification giving information of the nature of the claim shall have
been served upon the Distributor or any such person (or after the Distributor or
the person shall have received notice of service on any designated agent).
However, failure to notify the Fund of any claim shall not relieve the Fund from
any liability which it may have to the Distributor or any person against whom
such action is brought otherwise than on account of its indemnity agreement
contained in this paragraph. The Fund shall be entitled to participate at its
own expense in the defense, or, if it so elects, to assume the defense, of any
suit brought to enforce any claims, but if the Fund elects to assume the
defense, the defense shall be conducted by counsel chosen by it and satisfactory
to the Distributor or person or persons, defendant or defendants in the suit.
In the event the Fund elects to assume the defense of any suit and retain
counsel, the Distributor, officers or trustees or controlling person or persons,
defendant or defendants in the suit, shall bear the fees and expenses of any
additional counsel retained by them. If the Fund does not elect to assume the
defense of any suit, it will reimburse the Distributor, officers or trustees or
controlling person or persons, defendant or defendants in
5
<PAGE> 6
the suit for the reasonable fees and expenses of any counsel retained by them.
The Fund agrees to notify the Distributor promptly of the commencement of any
litigation or proceedings against it or any of its officers or directors in
connection with the issuance or sale of any of the Shares.
The Distributor also covenants and agrees that it will indemnify and hold
harmless the Fund and each of its trustees and officers and each person, if any,
who controls the Fund within the meaning of Section 15 of the 1933 Act against
any loss, liability, damage, claim or expense (including the reasonable cost of
investigating or defending any alleged loss, liability, damage, claim or expense
and reasonable counsel fees incurred in connection therewith) arising by reason
of any person acquiring any Shares, based upon the 1933 Act or any other statute
or common law, alleging any wrongful act of the Distributor or any of its
employees or alleging that the registration statement, Prospectus, shareholder
reports or other information filed or made public by the Fund (as from time to
time amended) included an untrue statement of a material fact or omitted to
state a material fact required to be stated or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, insofar as the statement or omission was made in reliance upon,
and in conformity with, information furnished to the Fund by or on behalf of the
Distributor. In no case (i) is the indemnity of the Distributor in favor of the
Fund or any person indemnified to be deemed to protect the Fund or any such
person against any liability to which the Fund or such person would otherwise be
subject by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties or by reason of its reckless disregard of its
obligation and duties under this Amended Agreement, or (ii) is the Distributor
to be liable under its indemnity agreement contained in this paragraph with
respect to any claim made against the Fund or any person indemnified unless the
Fund or person, as the case may be, shall have notified the Distributor in
writing of the claim within a reasonable time after the summons or other first
written notification giving information of the nature of the claim shall have
been served upon the Fund or person (or after the Fund or such person shall have
received notice of service on any designated agent). However, failure to notify
the Distributor of any claim shall not relieve the Distributor from any
liability which it may have to the Fund or any person against whom the action is
brought otherwise than on account of its indemnity agreement contained in this
paragraph. In the case of any notice to the Distributor, it shall be entitled
to participate, at its own expense, in the defense, or, if it so elects, to
assume the defense, of any suit brought to enforce the claim, but if the
Distributor elects to assume the defense, the defense shall be conducted by
counsel chosen by it and satisfactory to the Fund, to its officers and trustees
and to any controlling person or persons, defendant or defendants in the suit.
In the event that the Distributor elects to assume the defense of any suit and
retain counsel, the Fund or controlling persons, defendants in the suit, shall
bear the fees and expenses of any additional counsel retained by them. If the
Distributor does not elect to assume the defense of any suit, it will reimburse
the Fund, officers and trustees or controlling person or persons, defendant or
defendants in the suit, for the reasonable fees and expenses of any counsel
retained by them. The Distributor agrees to notify the Fund promptly of the
commencement of any litigation or proceedings against it in connection with the
issue and sale of any of the Shares.
8. CONTINUATION, AMENDMENT OR TERMINATION OF THIS AGREEMENT. This
Agreement shall become effective on the Effective Date and thereafter shall
continue in full force and effect year to year with respect to each class of
Shares so long as such continuance is approved at least annually (i) by the
Board of Trustees of the Fund or by a vote of a majority of the outstanding
voting securities of the respective class of Shares of the Fund, and (ii) by
vote of a majority of the Trustees who are not parties to this Agreement or
interested persons in any such party (the "Independent Trustee") cast in person
at a meeting called for the purpose of voting on such approval, provided,
however, that (a) this Agreement may at any time be terminated with respect to
either class of Shares of the Fund without the payment of any penalty either by
vote of a majority of the Disinterested Trustees, or by vote of a majority of
the outstanding voting securities of the respective class of Shares of the Fund,
on written notice to the Distributor; (b) this Agreement shall immediately
terminate in the event of its assignment; and (c) this Agreement may be
terminated by the Distributor on ninety (90) days' written notice to the Fund.
Upon termination of this Agreement with respect to either class of Shares of the
Fund, the obligations of the parties hereunder shall cease and terminate with
respect to such class of Shares as of the date of such termination, except for
any obligation to respond for a breach of this Agreement committed prior to such
termination.
6
<PAGE> 7
This Agreement may be amended with respect to either class of Shares at any
time by mutual consent of the parties, provided that such consent on the part of
the Fund shall have been approved (i) by the Board of Trustees of the Fund, or
by a vote of the majority of the outstanding voting securities of the respective
class of Shares of the Fund, and (ii) by vote of a majority of the Independent
Trustees cast in person at a meeting called for the purpose of voting on such
amendment.
For the purpose of this section, the terms "vote of a majority of the
outstanding voting securities", "interested persons" and "assignment" shall have
the meanings defined in the 1940 Act, as amended.
9. LIMITED LIABILITY OF SHAREHOLDER. Notwithstanding anything to the
contrary contained in this Agreement, you acknowledge and agree that, as
provided by Section 8.1 of the Agreement and Declaration of Trust of the Trust,
this Agreement is executed by the Trustees of the Trust and/or Officers of the
Fund by them not individually but as such Trustees and/or Officers, and the
obligations of the Fund hereunder are not binding upon any of the Trustees,
Officers or Shareholders individually, but bind only the trust estate.
10. NOTICE. Any notice under this Agreement shall be given in writing,
addressed and delivered, or mailed postpaid, to the other party at any office of
such party or at such other address as such party shall have designated in
writing.
11. NAME. In connection with its employment hereunder, the Distributor
hereby agrees and covenants not to change its name without the prior consent of
the Board of Trustees.
12. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES HERETO SHALL BE GOVERNED BY, THE
LAW OF THE STATE OF ILLINOIS WITHOUT REFERENCE TO PRINCIPLES OF CONFLICT OF
LAWS.
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.
VAN KAMPEN AMERICAN CAPITAL
EQUITY INCOME FUND
By: /s/ DENNIS J. MCDONNELL
---------------------------------
Name: Dennis J. McDonnell
Title: President
VAN KAMPEN AMERICAN CAPITAL
DISTRIBUTORS, INC.
By: /s/ RONALD A. NYBERG
---------------------------------
Name: Ronald A. Nyberg
Title: Executive Vice President
8
<PAGE> 1
EXHIBIT (8)(b)
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the 31st day of May, 1997 by and between each of the
VAN KAMPEN AMERICAN CAPITAL OPEN END FUNDS set forth on Schedule "A" hereto,
which are organized under the laws of the state and as the entities set forth
in Schedule "A" hereto (collectively, the "Funds"), and ACCESS INVESTOR
SERVICES, INC., a Delaware corporation ("ACCESS").
R E C I T A L:
-------------
WHEREAS, each of the Funds desires to appoint ACCESS as its transfer
agent, dividend disbursing agent and shareholder service agent and ACCESS
desires to accept such appointments;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
Article 1. Terms of Appointment; Duties of ACCESS.
---------------------------------------
1.01 Subject to the terms and conditions set forth in this Agreement, each
of the Funds hereby employs and appoints ACCESS as its transfer agent, dividend
disbursing agent and shareholder service agent.
1.02 ACCESS hereby accepts such employment and appointments and agrees
that on and after the effective date of this Agreement it will act as the
transfer agent, dividend disbursing agent and shareholder service agent for
each of the Funds on the terms and conditions set forth herein.
1.03 ACCESS agrees that its duties and obligations hereunder will be
performed in a competent, efficient and workmanlike manner with due diligence
in accordance with reasonable industry practice, and that the necessary
facilities, equipment and personnel for such performance will be provided.
1.04 For a period of one year commencing on the effective date of this
Agreement, ACCESS and each of the Funds agree that the retention of (i) the
chief executive officer, president, chief financial officer, chief operating
officer and secretary of ACCESS and (ii) each director, officer and employee of
ACCESS or any of its Affiliates (as defined in the Investment Company Act of
1940, as amended (the "1940 Act")) who serves as an officer of the Funds (each
person referred to in (i) or (ii) hereinafter being referred to as an
"Essential Person"), in his or her current capacities, is in the best interest
<PAGE> 2
of the Funds and the Funds' shareholders. In connection with ACCESS's
acceptance of employment hereunder, ACCESS hereby agrees and covenants for
itself and on behalf of its Affiliates that neither ACCESS nor any of its
Affiliates shall make any material or significant personnel changes or replace
or seek to replace any Essential Person or cause to be replaced any Essential
Person, in each case without first informing the Board of Trustees of the Funds
in a timely manner. In addition, neither ACCESS nor any Affiliate of ACCESS
shall change or seek to change or cause to be changed, in any material
respect, the duties and responsibilities of any Essential Person, in each case
without first informing the Board of Trustees of the Funds in a timely
manner.
1.05 In order to assure compliance with section 1.03 and to implement a
cooperative effort to improve and maintain the quality of transfer agency,
dividend disbursing and shareholder services received by each of the Funds and
their shareholders, ACCESS agrees to provide and maintain quantitative
performance objectives, including maximum target turn-around times and maximum
target error rates, for the various services provided hereunder. ACCESS also
agrees to provide a reporting system designed to provide the Board of Trustees
of each of the Funds (the "Board") on a quarterly basis with quantitative data
comparing actual performance for the period with the performance objectives.
The foregoing procedures are designed to provide a basis for continuing
monitoring by the Board of the quality of services rendered hereunder.
Article 2. Fees and Expenses.
------------------
2.01 For the services to be performed by ACCESS pursuant to this
Agreement, each of the Funds agrees to pay ACCESS the fees provided in the fee
schedules agreed upon from time to time by each of the Funds and ACCESS.
2.02 In addition to the amounts paid under section 2.01 above, each of the
Funds agrees to reimburse ACCESS promptly for such Fund's reasonable
out-of-pocket expenses or advances paid on its behalf by ACCESS in connection
with its performance under this Agreement for postage, freight, envelopes,
checks, drafts, continuous forms, reports and statements, telephone, telegraph,
costs of outside mailing firms, necessary outside record storage costs, media
for storage of records (e.g., microfilm, microfiche and computer tapes) and
printing costs incurred due to special requirements of such Fund. In addition,
any other special out-of-pocket expenses paid by ACCESS at the specific request
of any of the Funds will be promptly reimbursed by the requesting Fund.
Postage for mailings of dividends, proxies, Fund reports and other mailings
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<PAGE> 3
to all shareholder accounts shall be advanced to ACCESS by the concerned Fund
three business days prior to the mailing date of such materials.
Article 3. Representations and Warranties of Access.
-----------------------------------------
ACCESS represents and warrants to each of the Funds that:
3.01 It is a corporation duly organized and existing and in good standing
under the laws of the State of Delaware.
3.02 It is duly qualified to carry on its business in each jurisdiction in
which the nature of its business requires it to be so qualified.
3.03 It is empowered under applicable laws and regulations and by its
charter and bylaws to enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken to authorize it
to enter into and perform this Agreement.
3.05 It has and will continue to have during the term of this Agreement
access to the necessary facilities, equipment and personnel to perform its
duties and obligations hereunder.
3.06 It will maintain a system regarding "as of" transactions as follows:
(a) Each "as of" transaction effected at a price other than that in
effect on the day of processing for which an estimate has not been given
to any of the affected Funds and which is necessitated by ACCESS' error,
or delay for which ACCESS is responsible or which could have been avoided
through the exercise of reasonable care, will be identified, and the net
effect of such transactions determined, on a daily basis for each such
Fund.
(b) The cumulative net effect of the transactions included in
paragraph (a) above will be determined each day throughout each month.
If, on any day during the month, the cumulative net effect upon any Fund
is negative and exceeds an amount equivalent to 1/2 of 1 cent per share
of such Fund, ACCESS shall promptly make a payment to such Fund (in cash
or through use of a credit as described in paragraph (c) below) in such
amount as necessary to reduce the negative cumulative net effect to less
than 1/2 of 1 cent per share of such Fund. If on the last business day
of the month the cumulative net effect (adjusted by the amount of any
payments or credits used pursuant to the preceding sentence) upon any
Fund is negative, such Fund shall be entitled to a reduction in the
monthly transfer agency fee next payable by an equivalent amount, except
as provided in paragraph (c) below. If on the last
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<PAGE> 4
business day of the month the cumulative net effect (similarly adjusted)
upon any Fund is positive, ACCESS shall be entitled to recover certain
past payments, credits used and reductions in fees, and to a credit
against all future payments and fee reductions made under this paragraph
to such Fund, as described in paragraph (c) below.
(c) At the end of each month, any positive cumulative net effect
upon any Fund shall be deemed to be a credit to ACCESS which shall first
be applied to recover any payments, credits used and fee reductions made
by ACCESS to such Fund under paragraph (b) above during the calendar year
by increasing the amount of the monthly transfer agency fee next payable
in an amount equal to prior payments, credits used and fee reductions
made during such year, but not exceeding the sum of that month's credit
and credits arising in prior months during such year to the extent such
prior credits have not previously been utilized as contemplated by this
paragraph (c). Any portion of a credit to ACCESS not so used shall
remain as a credit to be used as payment against the amount of any future
negative cumulative net effects which would otherwise require a payment,
use of a credit or fee reduction to such Fund pursuant to paragraph (b)
above.
Article 4. Representations and Warranties of the Funds.
--------------------------------------------
Each of the Funds hereby represents and warrants on behalf of itself
only and not on behalf of any other Funds which are a party to this Agreement
that:
4.01 It is duly organized and existing and in good standing under the laws
of the commonwealth or state set forth in Schedule "A" hereto.
4.02 It is empowered under applicable laws and regulations and by its
Declaration of Trust and by-laws to enter into and perform this Agreement.
4.03 All requisite proceedings have been taken by its Board to authorize
it to enter into and perform this Agreement.
4.04 It is an open-end, management investment company registered under the
Investment Company Act of 1940, as amended.
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<PAGE> 5
4.05 A registration statement under the Securities Act of 1933, as
amended, is currently effective and will remain effective, and appropriate
state securities laws filings have been made and will continue to be made, with
respect to all of its shares being offered for sale.
Article 5. Indemnification.
---------------
5.01 ACCESS shall not be responsible for and each of the Funds shall
indemnify and hold ACCESS harmless from and against any and all losses,
damages, costs, charges, reasonable counsel fees, payments, expenses and
liabilities (collectively, "Losses") arising out of or attributable to:
(a) All actions of ACCESS required to be taken by ACCESS for the
benefit of such Fund pursuant to this Agreement, provided that ACCESS has
acted in good faith with due diligence and without negligence or willful
misconduct.
(b) The reasonable reliance by ACCESS on, or reasonable use by
ACCESS of, information, records and documents which have been prepared or
maintained by or on behalf of such Fund or have been furnished to ACCESS
by or on behalf of such Fund.
(c) The reasonable reliance by ACCESS on, or the carrying out by
ACCESS of, any instructions or requests of such Fund.
(d) The offer or sale of such Fund's shares in violation of any
requirement under the federal securities laws or regulations or the
securities laws or regulations of any state or in violation of any stop
order or other determination or ruling by any federal agency or any state
with respect to the offer or sale of such shares in such state unless
such violation results from any failure by ACCESS to comply with written
instructions of such Fund that no offers or sales of such Fund's shares
be made in general or to the residents of a particular state.
(e) Such Fund's refusal or failure to comply with the terms of this
Agreement, or such Fund's lack of good faith, negligence or willful
misconduct or the breach of any representation or warranty of such Fund
hereunder. Notwithstanding the foregoing, no Fund shall be required to
indemnify or hold ACCESS harmless from and against any Losses arising out
of or attributable to any action or failure to take action, or any
information, records or
Page 5
<PAGE> 6
documents prepared or maintained, on behalf of
the Fund by the Fund's investment adviser or distributor, or any person
providing fund accounting or legal services to the Fund that is also an
officer or employee of Van Kampen American Capital, Inc. or its
subsidiaries unless such person or entity is otherwise entitled to
indemnification from the Fund.
5.02 ACCESS shall indemnify and hold harmless each of the Funds from and
against any and all Losses arising out of or attributable to ACCESS' refusal or
failure to comply with the terms of this Agreement, or ACCESS' lack of good
faith, or its negligence or willful misconduct, or the breach of any
representation or warranty of ACCESS hereunder.
5.03 At any time ACCESS may apply to any authorized officer of any of the
Funds for instructions, and may consult with any of the Funds' legal counsel,
at the expense of such concerned Fund, with respect to any matter arising in
connection with the services to be performed by ACCESS under this Agreement,
and ACCESS shall not be liable and shall be indemnified by such concerned Fund
for any action taken or omitted by it in good faith in reasonable reliance upon
such instructions or upon the opinion of such counsel. ACCESS shall be
protected and indemnified in acting upon any paper or document reasonably
believed by ACCESS to be genuine and to have been signed by the proper person
or persons and shall not be held to have notice of any change of authority of
any person, until receipt of written notice thereof from the concerned Fund.
ACCESS shall also be protected and indemnified in recognizing stock
certificates which ACCESS reasonably believes to bear the proper manual or
facsimile signatures of the officers of the concerned Fund, and the proper
countersignature of any former transfer agent or registrar, or of a
co-transfer agent or co-registrar.
5.04 In the event that any party is unable to perform its obligations
under the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage, or other causes reasonably beyond its control,
such party shall not be liable to the other for any damages resulting from such
failure to perform or otherwise from such causes.
5.05 In no event and under no circumstances shall any party to this
Agreement be liable to another party for consequential damages under any
provision of this Agreement or for any act or failure to act hereunder.
5.06 In order that the indemnification provisions contained in this
Article 5 shall apply, upon the assertion of a claim for which one party may be
required to indemnify another, the party seeking indemnification shall promptly
notify the other party of such assertion, and shall keep the other party
advised with respect to all developments concerning such claim.
Page 6
<PAGE> 7
The party who may be required to indemnify shall have the option to participate
with the party seeking indemnification in the defense of such claim. The party
seeking indemnification shall in no case confess any claim or make any
compromise in any case in which the other party may be required to indemnify it
except with the other party's prior written consent.
Article 6. Covenants of Each of the Funds and ACCESS.
------------------------------------------
6.01 Each of the Funds shall promptly furnish to ACCESS the following:
(a) Certified copies of the resolution of its Board authorizing the
appointment of ACCESS and the execution and delivery of this Agreement.
(b) Certified copies of its Declaration of Trust or Articles of
Incorporation and by-laws and all amendments thereto.
6.02 ACCESS hereby agrees to maintain facilities and procedures
reasonably acceptable to each of the Funds for safekeeping of share
certificates, check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of, such
certificates, forms and devices.
6.03 ACCESS shall keep records relating to the services to be
performed hereunder in the form and manner as it may deem advisable; provided,
however, that all accounts, books and other records of each of the Funds
(hereinafter referred to as "Fund Records") prepared or maintained by ACCESS
hereunder shall be maintained and kept current in compliance with Section 31 of
the Investment Company Act of 1940 and the Rules thereunder (such Section and
Rules being hereinafter referred to as the "1940 Act Requirements"). To the
extent required by the 1940 Act Requirements, ACCESS agrees that all Fund
Records prepared or maintained by ACCESS hereunder are the property of the
concerned Fund and shall be preserved and made available in accordance with the
1940 Act Requirements, and shall be surrendered promptly to the concerned Fund
on its request. ACCESS agrees at such reasonable times as may be requested by
the Board and at least quarterly to provide (i) written confirmation to the
Board that all Fund Records are maintained and kept current in accordance with
the 1940 Act Requirements, and (ii) such other reports regarding its
performance hereunder as may be reasonably requested by the Board.
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<PAGE> 8
6.04 ACCESS and each of the Funds agree that all books, records,
information and data pertaining to the business of the other party which are
exchanged or received pursuant to the negotiation or the carrying out of this
Agreement shall remain confidential, and shall not be voluntarily
disclosed to any other person, except as may be required by law.
6.05 In case of any requests or demands for the inspection of any of
the Fund Records, ACCESS will endeavor to notify each of the concerned
Funds and to secure instructions from an authorized officer of each of the
concerned Funds as to such inspection. ACCESS reserves the right, however, to
exhibit such Fund Records to any person whenever it is advised by its counsel
that it may be held liable for the failure to exhibit such Fund records to such
person.
Article 7. Term and Termination Of Agreement.
----------------------------------
7.01 The initial term of this Agreement shall expire May 31, 1999,
and thereafter this Agreement shall automatically be renewed for
successive one year periods to begin on June 1 of each year unless any party
provides notice to the other party at least 120 days in advance of that date
that this Agreement is not to be renewed.
7.02 Notwithstanding the foregoing, any party may terminate this
Agreement for good and reasonable cause at any time by giving written
notice to the other party at least 60 days prior to the date on which such
termination is to be effective or such shorter period as may be required by
law.
7.03 Any unpaid fees or reimbursable expenses payable to ACCESS at
the termination date of this Agreement shall be due on that termination date.
ACCESS agrees to use its best efforts to cooperate with the Funds and the
successor transfer, dividend disbursement, or shareholder servicing agent
or agents in accomplishing an orderly transition.
Article 8. Miscellaneous.
--------------
8.01 Except as provided in section 8.03 below, neither this
Agreement nor any rights or obligations hereunder may be assigned by any party
without the written consent of ACCESS or the concerned Fund, as the case may
be; provided, however, that no consent shall be required for any merger of any
of the Funds with, or any sale of all or substantially all the assets of
any of the Funds to, another investment company.
8.02 This Agreement shall inure to the benefit of and be binding
upon the parties and their respective permitted successors and assigns.
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8.03 ACCESS may, without further consent on the part of any of the
Funds, subcontract with DST, Inc., a Missouri corporation, or any other
qualified servicer, for the performance of data processing activities;
provided, however, that ACCESS shall be as fully responsible to each of
the Funds for the acts and omissions of DST, Inc. or other qualified
servicer as it is for its own acts and omissions.
8.04 Without the prior approval of the Boards of Trustees of the
Funds, ACCESS shall not, directly or indirectly, provide services,
including services such as transfer agent, dividend disbursing agent or
shareholder service agent, to any investment companies.
8.05 This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof, and supersedes
any prior agreement with respect thereto, whether oral or written, and
this Agreement may not be modified except by written instrument executed
by the affected parties.
8.06 The execution of this Agreement has been authorized by the
Funds' Trustees. This Plan is executed on behalf of the Funds or the
Trustees of the Funds as Trustees and not individually and the
obligations of this Agreement are not binding upon any of the Trustees,
officers or shareholders of the Funds individually but are binding only
upon the assets and property of the Funds. A Certificate of Trust in
respect of each of the Funds is on file with the appropriate state
agency.
8.07 For each of those Funds which have one or more portfolios as
set forth in Schedule "A" hereto, all obligations of those Funds under
this Agreement shall apply only on a portfolio-by-portfolio basis and the
assets of one portfolio shall not be liable for the obligations of any
other.
8.08 In the event of a change in the business or regulatory
environment affecting all or any portion of this Agreement, the parties
hereto agree to renegotiate such affected portions in good faith.
8.09 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.
8.10 (a) Any dispute, controversy, or claim arising out of or
relating to this Agreement, or the breach, termination or validity
thereof, shall be finally settled by arbitration in accordance with
the Expedited Procedures
Page 9
<PAGE> 10
of the commercial arbitration Rules of the American Arbitration
Association (the "AAA") then in effect (the "Rules"). The
arbitration shall be held in Chicago, Illinois.
(b) There shall be one arbitrator who shall be selected jointly by
the parties. If the parties are unable to agree on an arbitrator
within 15 days after a demand for arbitration is made by a party,
the arbitrator shall be appointed by the AAA in accordance with the
Rules. The hearing shall be held within 90 days of the appointment
of the arbitrator. Notwithstanding the Expedited Procedures
of the Rules, the arbitrator, at his discretion, may schedule
additional days of hearings.
(c) Either party may, without inconsistency with this Agreement,
seek from a court any interim or provisional relief in aid of
arbitration, pending the establishment of the arbitral tribunal.
The parties hereby submit to the exclusive jurisdiction of the
federal and state courts located in the northern district of the
state of Illinois for any such relief in aid of arbitration, or for
any relief relating to arbitration, except for the enforcement of an
arbitral award which may be enforced in any court having
jurisdiction.
(d) Any arbitration proceedings or award rendered hereunder and the
validity, effect and interpretation of Section 8.10 shall be
governed by the Federal Arbitration Act (9 U.S.C. Sections 1 et
--
seq.) The award shall be final and binding upon the parties.
---
Judgment upon any award may be entered in any court having
jurisdiction.
(e) This Agreement and the rights and obligations of the Parties
shall remain in full force and effect pending the award in any
arbitration proceeding hereunder.
Page 10
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf and through their duly authorized
officers, as of the date first above written.
EACH OF THE VAN KAMPEN AMERICAN CAPITAL
OPEN END FUNDS LISTED ON SCHEDULE
"A" HERETO
BY: /s/ Ronald A. Nyberg
----------------------------------
Vice President
ATTEST:
/s/ Nicholas Dalmaso
- ----------------------------------
Assistant Secretary
ACCESS INVESTOR SERVICES, INC.
BY: /s/ Paul R. Wolkenberg
---------------------------------
President and Chief Executive Officer
ATTEST:
/s/ Huey P. Falgout
- ---------------------------------
Assistant Secretary
Page 11
<PAGE> 12
SCHEDULE "A"
------------
VAN KAMPEN AMERICAN CAPITAL OPEN-END FUNDS
<TABLE>
<CAPTION>
Organization Type
Fund Name State of [Business Trust
(including Portfolios) Organization "T"]
=====================================================================================================
<S> <C> <C>
Van Kampen American Capital Aggressive Growth Fund DE T
Van Kampen American Capital California Insured Tax Free Fund DE T
Van Kampen American Capital Comstock Fund DE T
Van Kampen American Capital Corporate Bond Fund DE T
Van Kampen American Capital Emerging Growth Fund DE T
Van Kampen American Capital Enterprise Fund DE T
Van Kampen American Capital Equity Income Fund DE T
Van Kampen American Capital Florida Insured Tax Free Income Fund DE T
Van Kampen American Capital Foreign Securities Fund DE T
Van Kampen American Capital Global Managed Assets Fund DE T
Van Kampen American Capital Government Securities Fund DE T
Van Kampen American Capital Government Target Fund DE T
Van Kampen American Capital Great American Companies Fund DE T
Van Kampen American Capital Growth Fund DE T
Van Kampen American Capital Growth and Income Fund DE T
Van Kampen American Capital Harbor Fund DE T
Van Kampen American Capital High Income Corporate Bond Fund DE T
Van Kampen American Capital High Yield Fund DE T
Van Kampen American Capital Insured Tax Free Income Fund DE T
Van Kampen American Capital Intermediate Term Municipal Income Fund DE T
</TABLE>
Page 12
<PAGE> 13
<TABLE>
<CAPTION>
Organization Type
Fund Name State of [Business Trust
(including Portfolios) Organization "T"]
=====================================================================================================
<S> <C> <C>
Van Kampen American Capital Life Investment Trust DE T
Asset Allocation Portfolio
Domestic Income Portfolio
Emerging Growth Portfolio
Enterprise Portfolio
Global Equity Portfolio
Government Portfolio
Growth and Income Portfolio
Money Market Portfolio
Morgan Stanley Real Estate Securities Portfolio
Strategic Stock Portfolio
Van Kampen American Capital Limited Maturity Government Fund DE T
Van Kampen American Capital Municipal Income Fund DE T
Van Kampen American Capital New Jersey Tax Free Income Fund DE T
Van Kampen American Capital New York Tax Free Income Fund DE T
Van Kampen American Capital Pace Fund DE T
Van Kampen American Capital Pennsylvania Tax Free Income Fund PA T
Van Kampen American Capital Prospector Fund DE T
Van Kampen American Capital Real Estate Securities Fund DE T
Van Kampen American Capital Reserve Fund DE T
Van Kampen American Capital Short-Term Global Income Fund DE T
Van Kampen American Capital Small Capitalization Fund DE T
Van Kampen American Capital Strategic Income Fund DE T
Van Kampen American Capital Tax-Exempt Trust DE T
Van Kampen American Capital High Yield Municipal Fund
Van Kampen American Capital Tax Free High Income Fund DE T
Van Kampen American Capital Tax Free Money Fund DE T
Van Kampen American Capital U.S. Government Fund DE T
Van Kampen American Capital U.S. Government Trust for Income DE T
Van Kampen American Capital Utility Fund DE T
Van Kampen American Capital Value Fund DE T
</TABLE>
PAGE 13
<PAGE> 14
<TABLE>
<CAPTION>
Organization Type
Fund Name State of [Business Trust
(including Portfolios) Organization "T"]
=====================================================================================================
<S> <C> <C>
Van Kampen American Capital World Portfolio Series Trust DE T
Van Kampen American Capital Global Equity Fund
Van Kampen American Capital Global Government Securities
Fund
</TABLE>
PAGE 14
<PAGE> 1
EXHIBIT (9)(b)
FUND ACCOUNTING AGREEMENT
THIS AGREEMENT, dated May 31, 1997, by and between the parties set
forth in Schedule A hereto (designated collectively hereafter as the "Funds")
and VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP., a Delaware
corporation ("Advisory Corp.").
W I T N E S S E T H:
WHEREAS, each of the Funds is registered as a management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, Advisory Corp. has the capability of providing certain
accounting services to the Funds; and
WHEREAS, each desires to utilized Advisory Corp. in the provision of
such accounting services; and
WHEREAS, Advisory Corp. intends to maintain its staff in order to
accommodate the provision of all such services.
NOW THEREFORE, in consideration of the premises and the mutual
covenants spelled out herein, it is agreed between the parties hereto as
follows:
1. Appointment of Advisory Corp.. As agent, Advisory Corp. shall provide
each of the Funds the accounting services ("Accounting Services") as set forth
in Paragraph 2 of this Agreement. Advisory Corp. accepts such appointment and
agrees to furnish the Accounting Services in return for the compensation
provided in Paragraph 3 of this Agreement.
2. Accounting Services to be Provided. Advisory Corp. will provide to each
respective Fund accounting related services in connection with the maintenance
of the financial records of such Fund, including without limitation: (i)
maintenance of the general ledger and other financial books and records; (ii)
processing of portfolio transactions; (iii) coordination of the valuation of
portfolio securities; (iv) calculation of the Fund's net asset value; (v)
coordination of financial and regulatory reporting; (vi) preparation of
financial reports for each Fund's Board of Trustees; (vii) coordination of tax
and financial compliance issues; (viii) the establishment and maintenance of
accounting policies; (ix) recommendations with respect to dividend policies; (x)
preparation of each Fund's financial reports and other accounting and tax
related notice information to shareholders; and (xi) the assimilation and
interpretation of accounting data for meaningful management review. Advisory
Corp. shall provide accurate maintenance of each Fund's financial books and
records as required by the applicable securities statutes and regulations, and
shall hire persons (collectively the "Accounting Service Group") as needed to
provide such Accounting Services.
<PAGE> 2
3. Expenses and Reimbursements. Advisory Corp. shall be reimbursed by the
Funds for all costs and services incurred in connection with the provision of
the aforementioned Accounting Services ("Accounting Service Expenses"),
including but not limited to all salary and related benefits paid to the
personnel of the Accounting Service Group, overhead and expenses related to
office space and related equipment and out-of-pocket expenses.
The Accounting Services Expenses will be paid by Advisory Corp. and
reimbursed by the Funds. Advisory Corp. will tender to each Fund a monthly
invoice as of the last business day of each month which shall certify the total
support service expenses expended. Except as provided herein, Advisory Corp.
will receive no other compensation in connection with Accounting Services
rendered in accordance with this Agreement.
4. Payment for Accounting Service Expenses Among the Funds. As to one
quarter (25%) of the Accounting Service Expenses incurred under the Agreement,
the expense shall be allocated between all Funds based on the number of classes
of shares of beneficial interest that each respective Fund has issued. As to the
remaining three quarters (75%) of the Accounting Service Expenses incurred under
the Agreement, the expense shall be allocated between all Funds based on their
relative net assets. For purposes of determining the percentage of expenses to
be allocated to any Fund, the liquidation preference of any preferred shares
issued by any such Fund shall not be considered a liability of such Fund for the
purposes of calculating relative net assets of such Fund.
5. Maintenance of Records. All records maintained by Advisory Corp. in
connection with the performance of its duties under this Agreement will remain
the property of each respective Fund and will be preserved by Advisory Corp. for
the periods prescribed in Section 31 of the 1940 Act and the rules thereunder or
such other applicable rules that may be adopted from time to time under the act.
In the event of termination of the Agreement, such records will be promptly
delivered to the respective Funds. Such records may be inspected by the
respective Funds at reasonable times.
6. Liability of Advisory Corp. Advisory Corp. shall not be liable to any
Fund for any action taken or thing done by it or its agents or contractors on
behalf of the fund in carrying out the terms and provisions of the Agreement if
done in good faith and without gross negligence or misconduct on the part of
Advisory Corp., its agents or contractors.
7. Indemnification By Funds. Each Fund will indemnify and hold Advisory
Corp. harmless from all lost, cost, damage and expense, including reasonable
expenses for legal counsel, incurred by Advisory Corp. resulting from: (a) any
claim, demand, action or suit in connection with Advisory Corp.'s acceptance of
this Agreement; (b) any action or omission by Advisory Corp. in the performance
of its duties hereunder; (c) Advisory Corp.'s acting upon instructions believed
by it to have been executed by a duly authorized officer of the Fund; or (d)
Advisory Corp.'s acting upon information provided by the Fund in form and under
policies agreed to by Advisory Corp. and the Fund. Advisory Corp. shall not be
entitled to such indemnification in respect of actions or omissions constituting
gross negligence or willful misconduct of Advisory Corp. or its agents or
contractors. Prior to confessing any claim against it which may be subject to
this indemnification, Advisory Corp. shall give the Fund reasonable opportunity
to defend against said claim in its own name or in the name of Advisory Corp.
8. Indemnification By Advisory Corp. Advisory Corp. will indemnify and
hold harmless each Fund from all loss, cost, damage and expense, including
reasonable expenses for legal counsel, incurred by the Fund resulting from any
claim, demand, action or suit arising out of Advisory Corp.'s failure to comply
with the terms of this Agreement or which arises out of the gross negligence or
willful misconduct of Advisory Corp. or its agents or contractors; provided that
such negligence or misconduct is not attributable to the Funds, their agents or
contractors. Prior to confessing any claim against it which may be subject to
this indemnification, the Fund shall give Advisory Corp. reasonable opportunity
to defend against said claim in its own name or in the name of such Fund.
<PAGE> 3
9. Further Assurances. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
10. Dual Interests. It is understood that some person or persons may be
directors, trustees, officers or shareholders of both the Funds and Advisory
Corp. (including Advisory Corp.'s affiliates), and that the existence of any
such dual interest shall not affect the validity hereof or of any transactions
hereunder except as otherwise provided by a specific provision of applicable
law.
11. Execution, Amendment and Termination. The term of this Agreement shall
begin as of the date first above written, and unless sooner terminated as herein
provided, this Agreement shall remain in effect through May, 1998, and
thereafter from year to year, if such continuation is specifically approved at
least annually by the Board of Trustees of each Fund, including a majority of
the independent Trustees of each Fund. This Agreement may be modified or amended
from time to time by mutual agreement between the parties hereto and may be
terminated after May, 1998, by at least sixty (60) days' written notice given by
one party to the others. Upon termination hereof, each Fund shall pay to
Advisory Corp. such compensation as may be due as of the date of such
termination and shall likewise reimburse Advisory Corp. for its costs, expenses
and disbursements payable under this Agreement to such date. This Agreement may
be amended in the future to include as additional parties to the Agreement other
investment companies for with Advisory Corp., any subsidiary or affiliate serves
as investment advisor or distributor if such amendment is approved by the
President of each Fund.
12. Assignment. Any interest of Advisory Corp. under this Agreement shall
not be assigned or transferred, either voluntarily or involuntarily, by
operation of law or otherwise, without the prior written consent of the Funds.
This Agreement shall automatically and immediately terminate in the event of its
assignment without the prior written consent of the Funds.
13. Notice. Any notice under this Agreement shall be in writing, addressed
and delivered or sent by registered or certified mail, postage prepaid, to the
other party at such address as such other party may designate for the receipt of
such notices. Until further notice to the other parties, it is agreed that for
this purpose the address of each Fund is One Parkview Plaza, Oakbrook Terrace,
Illinois 60181, Attention: President and that of Advisory Corp. for this purpose
is One Parkview Plaza, Oakbrook Terrace, Illinois 60181, Attention: President.
14. Personal Liability. As provided for in the Agreement and Declaration of
Trust of the various Funds, under which the Funds are organized as
unincorporated trusts, the shareholders, trustees, officers, employees and other
agents of the Fund shall not personally be found by or liable for the matters
set forth hereto, nor shall resort be had to their private property for the
satisfaction of any obligation or claim hereunder.
15. Interpretative Provisions. In connection with the operation of this
Agreement, Advisory Corp. and the Funds may agree from time to time on such
provisions interpretative of or in addition to the provisions of this Agreement
as may in their joint opinion be consistent with the general tenor of this
Agreement.
16. State Law. This Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of Illinois.
17. Captions. The captions in this Agreement are included for convenience
of reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
<PAGE> 4
IN WITNESS WHEREOF, the parties have caused this amended and restated
Agreement to be executed as of the day and year first above written.
ALL OF THE PARTIES SET FORTH IN SCHEDULE A
By: /s/ Ronald A. Nyberg
---------------------------------------
Ronald A. Nyberg, Vice President
VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP.
By: /s/ Dennis J. McDonnell
---------------------------------------
Dennis J. McDonnell, President
<PAGE> 5
SCHEDULE A
I. FUNDS ADVISED BY VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP.
("INVESTMENT ADVISORY CORP.") (COLLECTIVELY, THE "FORMER VAN KAMPEN
FUNDS"):
CLOSED END FUNDS
Van Kampen American Capital Municipal Income Trust
Van Kampen American Capital California Municipal Trust
Van Kampen American Capital High Income Trust
Van Kampen American Capital High Income Trust II
Van Kampen American Capital Investment Grade Municipal Trust
Van Kampen American Capital Municipal Trust
Van Kampen American Capital California Quality Municipal Trust
Van Kampen American Capital Florida Quality Municipal Trust
Van Kampen American Capital New York Quality Municipal Trust
Van Kampen American Capital Ohio Quality Municipal Trust
Van Kampen American Capital Pennsylvania Quality Municipal Trust
Van Kampen American Capital Trust For Insured Municipals
Van Kampen American Capital Trust For Investment Grade Municipals
Van Kampen American Capital Trust For Investment Grade California Municipals
Van Kampen American Capital Trust For Investment Grade Florida Municipals
Van Kampen American Capital Trust For Investment Grade New Jersey Municipals
Van Kampen American Capital Trust For Investment Grade New York Municipals
Van Kampen American Capital Trust For Investment Grade Pennsylvania Municipals
Van Kampen American Capital Municipal Opportunity Trust
Van Kampen American Capital Advantage Municipal Income Trust
Van Kampen American Capital Advantage Pennsylvania Municipal Income Trust
Van Kampen American Capital Strategic Sector Municipal Trust
Van Kampen American Capital Value Municipal Income Trust
Van Kampen American Capital California Value Municipal Income Trust
Van Kampen American Capital Massachusetts Value Municipal Income Trust
Van Kampen American Capital New Jersey Value Municipal Income Trust
Van Kampen American Capital New York Value Municipal Income Trust
Van Kampen American Capital Ohio Value Municipal Income Trust
Van Kampen American Capital Pennsylvania Value Municipal Income Trust
Van Kampen American Capital Municipal Opportunity Trust II
Van Kampen American Capital Florida Municipal Opportunity Trust
Van Kampen American Capital Advantage Municipal Income Trust II
Van Kampen American Capital Select Sector Municipal Trust
INSTITUTIONAL FUNDS
II. FUNDS ADVISED BY VAN KAMPEN AMERICAN CAPITAL MANAGEMENT, INC.
("MANAGEMENT, INC.") (COLLECTIVELY, THE "FORMER VAN KAMPEN FUNDS"):
The Explorer Institutional Trust
on behalf of its series
Explorer Institutional Active Core Fund
Explorer Institutional Limited Duration Fund
<PAGE> 6
OPEN END FUNDS
III. FUNDS ADVISED BY VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT, INC.
("ASSET MANAGEMENT, INC.") (COLLECTIVELY, THE "FORMER AMERICAN CAPITAL
FUNDS"):
Van Kampen American Capital Comstock Fund ("Comstock Fund")
Van Kampen American Capital Corporate Bond Fund ("Corporate Bond Fund")
Van Kampen American Capital Emerging Growth Fund ("Emerging Growth Fund")
Van Kampen American Capital Enterprise Fund ("Enterprise Fund")
Van Kampen American Capital Equity Income Fund ("Equity Income Fund")
Van Kampen American Capital Global Managed Assets Fund ("Global Managed
Assets Funds")
Van Kampen American Capital Government Securities Fund ("Government
Securities Fund")
Van Kampen American Capital Government Target Fund ("Government Target
Fund")
Van Kampen American Capital Growth and Income Fund ("Growth and Income
Fund")
Van Kampen American Capital Harbor Fund ("Harbor Fund")
Van Kampen American Capital High Income Corporate Bond Fund ("High Income
Corporate Bond Fund")
Van Kampen American Capital Life Investment Trust ("Life Investment Trust"
or "LIT") on behalf of its Series
Enterprise Portfolio ("LIT Enterprise Portfolio")
Domestic Income Portfolio ("LIT Domestic Income Portfolio")
Emerging Growth Portfolio ("LIT Emerging Growth Portfolio")
Government Portfolio ("LIT Government Portfolio")
Asset Allocation Portfolio ("LIT Asset Allocation Portfolio")
Money Market Portfolio ("LIT Money Market Portfolio")
Real Estate Securities Portfolio ("LIT Real Estate Securities
Portfolio")
Growth and Income Portfolio ("LIT Growth and Income Portfolio")
Van Kampen American Capital Limited Maturity Government Fund ("Limited
Maturity Government Fund")
Van Kampen American Capital Pace Fund ("Pace Fund")
Van Kampen American Capital Real Estate Securities Fund ("Real Estate
Securities Fund")
Van Kampen American Capital Reserve Fund ("Reserve Fund")
Van Kampen American Capital Small Capitalization Fund ("Small
Capitalization Fund")
Van Kampen American Capital Tax-Exempt Trust ("Tax-Exempt Trust")
on behalf of its Series
Van Kampen American Capital High Yield Municipal Fund ("High Yield
Municipal Fund")
Van Kampen American Capital U.S. Government Trust for Income ("U.S.
Government Trust for Income")
<PAGE> 7
IV. FUNDS ADVISED BY VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP.
("INVESTMENT ADVISORY CORP.") (COLLECTIVELY, THE "FORMER VAN KAMPEN
FUNDS"):
Van Kampen American Capital U.S. Government Trust ("U.S. Government Trust")
on behalf of its series
Van Kampen American Capital U.S. Government Fund ("U.S. Government Fund")
Van Kampen American Capital Tax Free Trust ("Tax Free Trust") on behalf of
its series
Van Kampen American Capital Insured Tax Free Income Fund ("Insured Tax Free
Income Fund")
Van Kampen American Capital Tax Free High Income Fund ("Tax Free High
Income Fund")
Van Kampen American Capital California Insured Tax Free Fund ("California
Insured Tax Free Fund")
Van Kampen American Capital Municipal Income Fund ("Municipal Income Fund")
Van Kampen American Capital Intermediate Term Municipal Income Fund
(Intermediate Term Municipal Income Fund")
Van Kampen American Capital Florida Insured Tax Free Income Fund ("Florida
Insured Tax Free Income Fund")
Van Kampen American Capital New Jersey Tax Free Income Fund ("New Jersey
Tax Free Income Fund")
Van Kampen American Capital New York Tax Free Income Fund ("New York Tax
Free Income Fund")
Van Kampen American Capital California Tax Free Income Fund ("California
Tax Free Income Fund")
Van Kampen American Capital Michigan Tax Free Income Fund ("Michigan Tax
Free Income Fund")
Van Kampen American Capital Missouri Tax Free Income Fund ("Missouri Tax
Free Income Fund")
Van Kampen American Capital Ohio Tax Free Income Fund ("Ohio Tax Free
Income Fund")
Van Kampen American Capital Trust ("VKAC Trust")
Van Kampen American Capital High Yield Fund ("High Yield Fund")
Van Kampen American Capital Short-Term Global Income Fund ("Short-Term
Global Income Fund")
Van Kampen American Capital Strategic Income Fund ("Strategic Income Fund")
Van Kampen American Capital Equity Trust ("Equity Trust") on behalf of its
series
Van Kampen American Capital Utility Fund ("Utility Fund")
Van Kampen American Capital Growth Fund ("Growth Fund")
Van Kampen American Capital Value Fund ("Value Fund")
Van Kampen American Capital Great American Companies Fund ("Great American
Companies Fund")
Van Kampen American Capital Prospector Fund ("Prospector Fund")
Van Kampen American Capital Aggressive Growth Fund ("Aggressive Growth
Fund")
Van Kampen American Capital Foreign Securities Fund ("Foreign Securities
Fund")
Van Kampen American Capital Pennsylvania Tax Free Income Fund
("Pennsylvania Tax Free Income Fund")
Van Kampen American Capital Tax Free Money Fund ("Tax Free Money Fund")
<PAGE> 8
AMENDMENT NUMBER ONE
TO THE
FUND ACCOUNTING AGREEMENT
THIS AMENDMENT NUMBER ONE, dated July 24, 1997, to the Fund Accounting
Agreement dated May 31, 1997 (the "Agreement") by and between the parties set
forth in Schedule A, attached hereto and incorporated by reference and VAN
KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP., a Delaware corporation
("Advisory Corp.").
W I T N E S S E T H
WHEREAS, the following party, being an open-end management investment
company as that term is defined in the Investment Company Act of 1940, as
amended, wishes to become party to the Agreement:
ADVISED BY VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT, INC. ("ASSET
MANAGEMENT, INC.") (COLLECTIVELY, THE "FORMER AMERICAN CAPITAL FUNDS"):
Van Kampen American Capital Life Investment Trust ("Life Investment
Trust" or "LIT") on behalf of its Series
Strategic Stock Portfolio ("LIT Strategic Stock Portfolio")
WHEREAS, the original parties desire to add the aforementioned
additional entity as party to the Agreement;
NOW, THEREFORE, in consideration of the promises and mutual covenants
spelled out in the Agreement and herein, it is hereby agreed that Schedule A of
the Agreement be amended to add the party mentioned above as party to the
Agreement.
<PAGE> 9
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the day and year first above written.
ALL OF THE PARTIES SET FORTH IN SCHEDULE A
By: /s/ Ronald A. Nyberg
-----------------------------------------
Ronald A. Nyberg, Vice President
VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP.
By: /s/ Dennis J. McDonnell
-----------------------------------------
Dennis J. McDonnell, President
<PAGE> 10
SCHEDULE A
I. FUNDS ADVISED BY VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP.
("INVESTMENT ADVISORY CORP.") (COLLECTIVELY, THE "FORMER VAN KAMPEN
FUNDS"):
CLOSED END FUNDS
Van Kampen American Capital Municipal Income Trust
Van Kampen American Capital California Municipal Trust
Van Kampen American Capital High Income Trust
Van Kampen American Capital High Income Trust II
Van Kampen American Capital Investment Grade Municipal Trust
Van Kampen American Capital Municipal Trust
Van Kampen American Capital California Quality Municipal Trust
Van Kampen American Capital Florida Quality Municipal Trust
Van Kampen American Capital New York Quality Municipal Trust
Van Kampen American Capital Ohio Quality Municipal Trust
Van Kampen American Capital Pennsylvania Quality Municipal Trust
Van Kampen American Capital Trust For Insured Municipals
Van Kampen American Capital Trust For Investment Grade Municipals
Van Kampen American Capital Trust For Investment Grade California
Municipals
Van Kampen American Capital Trust For Investment Grade Florida Municipals
Van Kampen American Capital Trust For Investment Grade New Jersey
Municipals
Van Kampen American Capital Trust For Investment Grade New York Municipals
Van Kampen American Capital Trust For Investment Grade Pennsylvania
Municipals
Van Kampen American Capital Municipal Opportunity Trust
Van Kampen American Capital Advantage Municipal Income Trust
Van Kampen American Capital Advantage Pennsylvania Municipal Income Trust
Van Kampen American Capital Strategic Sector Municipal Trust
Van Kampen American Capital Value Municipal Income Trust
Van Kampen American Capital California Value Municipal Income Trust
Van Kampen American Capital Massachusetts Value Municipal Income Trust
Van Kampen American Capital New Jersey Value Municipal Income Trust
Van Kampen American Capital New York Value Municipal Income Trust
Van Kampen American Capital Ohio Value Municipal Income Trust
Van Kampen American Capital Pennsylvania Value Municipal Income Trust
Van Kampen American Capital Municipal Opportunity Trust II
Van Kampen American Capital Florida Municipal Opportunity Trust
Van Kampen American Capital Advantage Municipal Income Trust II
Van Kampen American Capital Select Sector Municipal Trust
INSTITUTIONAL FUNDS
II. FUNDS ADVISED BY VAN KAMPEN AMERICAN CAPITAL MANAGEMENT, INC.
("MANAGEMENT, INC.") (COLLECTIVELY, THE "FORMER VAN KAMPEN FUNDS"):
The Explorer Institutional Trust
on behalf of its series
Explorer Institutional Active Core Fund
Explorer Institutional Limited Duration Fund
<PAGE> 11
OPEN END FUNDS
III. FUNDS ADVISED BY VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT, INC.
("ASSET MANAGEMENT, INC.") (COLLECTIVELY, THE "FORMER AMERICAN CAPITAL
FUNDS"):
Van Kampen American Capital Comstock Fund ("Comstock Fund")
Van Kampen American Capital Corporate Bond Fund ("Corporate Bond Fund")
Van Kampen American Capital Emerging Growth Fund ("Emerging Growth Fund")
Van Kampen American Capital Enterprise Fund ("Enterprise Fund")
Van Kampen American Capital Equity Income Fund ("Equity Income Fund")
Van Kampen American Capital Global Managed Assets Fund ("Global Managed
Assets Funds")
Van Kampen American Capital Government Securities Fund ("Government
Securities Fund")
Van Kampen American Capital Government Target Fund ("Government Target
Fund")
Van Kampen American Capital Growth and Income Fund ("Growth and Income
Fund")
Van Kampen American Capital Harbor Fund ("Harbor Fund")
Van Kampen American Capital High Income Corporate Bond Fund ("High Income
Corporate Bond Fund")
Van Kampen American Capital Life Investment Trust ("Life Investment Trust"
or "LIT") on behalf of its Series
Enterprise Portfolio ("LIT Enterprise Portfolio")
Domestic Income Portfolio ("LIT Domestic Income Portfolio")
Emerging Growth Portfolio ("LIT Emerging Growth Portfolio")
Government Portfolio ("LIT Government Portfolio")
Asset Allocation Portfolio ("LIT Asset Allocation Portfolio")
Money Market Portfolio ("LIT Money Market Portfolio")
Real Estate Securities Portfolio ("LIT Real Estate Securities
Portfolio")
Growth and Income Portfolio ("LIT Growth and Income Portfolio")
Van Kampen American Capital Limited Maturity Government Fund ("Limited
Maturity Government Fund")
Van Kampen American Capital Pace Fund ("Pace Fund")
Van Kampen American Capital Real Estate Securities Fund ("Real Estate
Securities Fund")
Van Kampen American Capital Reserve Fund ("Reserve Fund")
Van Kampen American Capital Small Capitalization Fund ("Small
Capitalization Fund")
Van Kampen American Capital Tax-Exempt Trust ("Tax-Exempt Trust") on behalf
of its Series
Van Kampen American Capital High Yield Municipal Fund ("High Yield
Municipal Fund")
Van Kampen American Capital U.S. Government Trust for Income ("U.S.
Government Trust for Income")
<PAGE> 12
IV. FUNDS ADVISED BY VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP.
("INVESTMENT ADVISORY CORP.") (COLLECTIVELY, THE "FORMER VAN KAMPEN
FUNDS"):
Van Kampen American Capital U.S. Government Trust ("U.S. Government Trust")
on behalf of its series
Van Kampen American Capital U.S. Government Fund ("U.S. Government Fund")
Van Kampen American Capital Tax Free Trust ("Tax Free Trust") on behalf of
its series
Van Kampen American Capital Insured Tax Free Income Fund ("Insured Tax Free
Income Fund")
Van Kampen American Capital Tax Free High Income Fund ("Tax Free High
Income Fund")
Van Kampen American Capital California Insured Tax Free Fund ("California
Insured Tax Free Fund")
Van Kampen American Capital Municipal Income Fund ("Municipal Income Fund")
Van Kampen American Capital Intermediate Term Municipal Income Fund
(Intermediate Term Municipal Income Fund")
Van Kampen American Capital Florida Insured Tax Free Income Fund ("Florida
Insured Tax Free Income Fund")
Van Kampen American Capital New Jersey Tax Free Income Fund ("New Jersey
Tax Free Income Fund")
Van Kampen American Capital New York Tax Free Income Fund ("New York Tax
Free Income Fund")
Van Kampen American Capital California Tax Free Income Fund ("California
Tax Free Income Fund")
Van Kampen American Capital Michigan Tax Free Income Fund ("Michigan Tax
Free Income Fund")
Van Kampen American Capital Missouri Tax Free Income Fund ("Missouri Tax
Free Income Fund")
Van Kampen American Capital Ohio Tax Free Income Fund ("Ohio Tax Free
Income Fund")
Van Kampen American Capital Trust ("VKAC Trust")
Van Kampen American Capital High Yield Fund ("High Yield Fund")
Van Kampen American Capital Short-Term Global Income Fund ("Short-Term
Global Income Fund")
Van Kampen American Capital Strategic Income Fund ("Strategic Income Fund")
Van Kampen American Capital Equity Trust ("Equity Trust") on behalf of its
series
Van Kampen American Capital Utility Fund ("Utility Fund")
Van Kampen American Capital Growth Fund ("Growth Fund")
Van Kampen American Capital Value Fund ("Value Fund")
Van Kampen American Capital Great American Companies Fund ("Great American
Companies Fund")
Van Kampen American Capital Prospector Fund ("Prospector Fund")
Van Kampen American Capital Aggressive Growth Fund ("Aggressive Growth
Fund")
Van Kampen American Capital Foreign Securities Fund ("Foreign Securities
Fund")
Van Kampen American Capital Pennsylvania Tax Free Income Fund
("Pennsylvania Tax Free Income Fund")
Van Kampen American Capital Tax Free Money Fund ("Tax Free Money Fund")
<PAGE> 13
AMENDMENT NUMBER TWO
TO THE
FUND ACCOUNTING AGREEMENT
THIS AMENDMENT NUMBER TWO, dated April 23, 1998, to the Fund Accounting
Agreement dated May 31, 1997 (the "Agreement") by and between the parties set
forth in Schedule A, attached hereto and incorporated by reference and VAN
KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP., a Delaware corporation
("Advisory Corp.").
W I T N E S S E T H
WHEREAS, the following party, being an open-end management investment
company as that term is defined in the Investment Company Act of 1940, as
amended, wishes to become party to the Agreement:
ADVISED BY VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT, INC.
("ASSET MANAGEMENT, INC."):
Van Kampen American Capital Life Investment Trust ("Life Investment
Trust" or "LIT") on behalf of its Series
Comstock Portfolio ("LIT Comstock Portfolio")
WHEREAS, the original parties desire to add the aforementioned
additional entity as party to the Agreement;
NOW, THEREFORE, in consideration of the promises and mutual covenants
spelled out in the Agreement and herein, it is hereby agreed that Schedule A of
the Agreement be amended to add the party mentioned above as party to the
Agreement.
<PAGE> 14
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the day and year first above written.
ALL OF THE PARTIES SET FORTH IN SCHEDULE A
By: /s/ Ronald A. Nyberg
---------------------------------------
Ronald A. Nyberg, Vice President
VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP.
By: /s/ Dennis J. McDonnell
---------------------------------------
Dennis J. McDonnell, President
<PAGE> 15
SCHEDULE A
I. FUNDS ADVISED BY VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP.
("INVESTMENT ADVISORY CORP.") (COLLECTIVELY, THE "FORMER VAN KAMPEN
FUNDS"):
CLOSED END FUNDS
Van Kampen American Capital Municipal Income Trust
Van Kampen American Capital California Municipal Trust
Van Kampen American Capital High Income Trust
Van Kampen American Capital High Income Trust II
Van Kampen American Capital Investment Grade Municipal Trust
Van Kampen American Capital Municipal Trust
Van Kampen American Capital California Quality Municipal Trust
Van Kampen American Capital Florida Quality Municipal Trust
Van Kampen American Capital New York Quality Municipal Trust
Van Kampen American Capital Ohio Quality Municipal Trust
Van Kampen American Capital Pennsylvania Quality Municipal Trust
Van Kampen American Capital Trust For Insured Municipals
Van Kampen American Capital Trust For Investment Grade Municipals
Van Kampen American Capital Trust For Investment Grade California
Municipals
Van Kampen American Capital Trust For Investment Grade Florida Municipals
Van Kampen American Capital Trust For Investment Grade New Jersey
Municipals
Van Kampen American Capital Trust For Investment Grade New York Municipals
Van Kampen American Capital Trust For Investment Grade Pennsylvania
Municipals
Van Kampen American Capital Municipal Opportunity Trust
Van Kampen American Capital Advantage Municipal Income Trust
Van Kampen American Capital Advantage Pennsylvania Municipal Income Trust
Van Kampen American Capital Strategic Sector Municipal Trust
Van Kampen American Capital Value Municipal Income Trust
Van Kampen American Capital California Value Municipal Income Trust
Van Kampen American Capital Massachusetts Value Municipal Income Trust
Van Kampen American Capital New Jersey Value Municipal Income Trust
Van Kampen American Capital New York Value Municipal Income Trust
Van Kampen American Capital Ohio Value Municipal Income Trust
Van Kampen American Capital Pennsylvania Value Municipal Income Trust
Van Kampen American Capital Municipal Opportunity Trust II
Van Kampen American Capital Florida Municipal Opportunity Trust
Van Kampen American Capital Advantage Municipal Income Trust II
Van Kampen American Capital Select Sector Municipal Trust
Van Kampen American Capital Senior Income Trust
INSTITUTIONAL FUNDS
II. FUNDS ADVISED BY VAN KAMPEN AMERICAN CAPITAL MANAGEMENT, INC.
("MANAGEMENT, INC.") (COLLECTIVELY, THE "FORMER VAN KAMPEN FUNDS"):
The Explorer Institutional Trust
on behalf of its series
Explorer Institutional Active Core Fund
Explorer Institutional Limited Duration Fund
<PAGE> 16
OPEN END FUNDS
III. FUNDS ADVISED BY VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT, INC.
("ASSET MANAGEMENT, INC.") (COLLECTIVELY, THE "FORMER AMERICAN CAPITAL
FUNDS"):
Van Kampen American Capital Comstock Fund ("Comstock Fund")
Van Kampen American Capital Corporate Bond Fund ("Corporate Bond Fund")
Van Kampen American Capital Emerging Growth Fund ("Emerging Growth Fund")
Van Kampen American Capital Enterprise Fund ("Enterprise Fund")
Van Kampen American Capital Equity Income Fund ("Equity Income Fund")
Van Kampen American Capital Global Managed Assets Fund ("Global Managed
Assets Funds")
Van Kampen American Capital Government Securities Fund ("Government
Securities Fund")
Van Kampen American Capital Government Target Fund ("Government Target
Fund")
Van Kampen American Capital Growth and Income Fund ("Growth and Income
Fund")
Van Kampen American Capital Harbor Fund ("Harbor Fund")
Van Kampen American Capital High Income Corporate Bond Fund ("High Income
Corporate Bond Fund")
Van Kampen American Capital Life Investment Trust ("Life Investment Trust"
or "LIT") on behalf of its Series
Enterprise Portfolio ("LIT Enterprise Portfolio")
Domestic Income Portfolio ("LIT Domestic Income Portfolio")
Emerging Growth Portfolio ("LIT Emerging Growth Portfolio")
Government Portfolio ("LIT Government Portfolio")
Asset Allocation Portfolio ("LIT Asset Allocation Portfolio")
Money Market Portfolio ("LIT Money Market Portfolio")
Morgan Stanley Real Estate Securities Portfolio ("LIT Morgan Stanley
Real Estate Securities Portfolio")
Growth and Income Portfolio ("LIT Growth and Income Portfolio")
Strategic Stock Portfolio ("LIT Strategic Stock Portfolio")
Van Kampen American Capital Limited Maturity Government Fund ("Limited
Maturity Government Fund")
Van Kampen American Capital Pace Fund ("Pace Fund")
Van Kampen American Capital Real Estate Securities Fund ("Real Estate
Securities Fund")
Van Kampen American Capital Reserve Fund ("Reserve Fund")
Van Kampen American Capital Small Capitalization Fund ("Small
Capitalization Fund")
Van Kampen American Capital Tax-Exempt Trust ("Tax-Exempt Trust") on behalf
of its Series
Van Kampen American Capital High Yield Municipal Fund ("High Yield
Municipal Fund")
Van Kampen American Capital U.S. Government Trust for Income ("U.S.
Government Trust for Income")
<PAGE> 17
IV. FUNDS ADVISED BY VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP.
("INVESTMENT ADVISORY CORP.") (COLLECTIVELY, THE "FORMER VAN KAMPEN
FUNDS"):
Van Kampen American Capital U.S. Government Trust ("U.S. Government Trust")
on behalf of its series
Van Kampen American Capital U.S. Government Fund ("U.S. Government Fund")
Van Kampen American Capital Tax Free Trust ("Tax Free Trust") on behalf of
its series
Van Kampen American Capital Insured Tax Free Income Fund ("Insured Tax Free
Income Fund")
Van Kampen American Capital Tax Free High Income Fund ("Tax Free High
Income Fund")
Van Kampen American Capital California Insured Tax Free Fund ("California
Insured Tax Free Fund")
Van Kampen American Capital Municipal Income Fund ("Municipal Income Fund")
Van Kampen American Capital Intermediate Term Municipal Income Fund
(Intermediate Term Municipal Income Fund")
Van Kampen American Capital Florida Insured Tax Free Income Fund ("Florida
Insured Tax Free Income Fund")
Van Kampen American Capital New Jersey Tax Free Income Fund ("New Jersey
Tax Free Income Fund")
Van Kampen American Capital New York Tax Free Income Fund ("New York Tax
Free Income Fund")
Van Kampen American Capital California Tax Free Income Fund ("California
Tax Free Income Fund")
Van Kampen American Capital Michigan Tax Free Income Fund ("Michigan Tax
Free Income Fund")
Van Kampen American Capital Missouri Tax Free Income Fund ("Missouri Tax
Free Income Fund")
Van Kampen American Capital Ohio Tax Free Income Fund ("Ohio Tax Free
Income Fund")
Van Kampen American Capital Trust ("VKAC Trust")
Van Kampen American Capital High Yield Fund ("High Yield Fund")
Van Kampen American Capital Short-Term Global Income Fund ("Short-Term
Global Income Fund")
Van Kampen American Capital Strategic Income Fund ("Strategic Income Fund")
Van Kampen American Capital Equity Trust ("Equity Trust") on behalf of its
series
Van Kampen American Capital Utility Fund ("Utility Fund")
Van Kampen American Capital Growth Fund ("Growth Fund")
Van Kampen American Capital Value Fund ("Value Fund")
Van Kampen American Capital Great American Companies Fund ("Great American
Companies Fund")
Van Kampen American Capital Prospector Fund ("Prospector Fund")
Van Kampen American Capital Aggressive Growth Fund ("Aggressive Growth
Fund")
Van Kampen American Capital Foreign Securities Fund ("Foreign Securities
Fund")
Van Kampen American Capital Pennsylvania Tax Free Income Fund
("Pennsylvania Tax Free Income Fund")
Van Kampen American Capital Tax Free Money Fund ("Tax Free Money Fund")
<PAGE> 1
EXHIBIT (11)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post Effective Amendment No. 74, to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
January 29, 1998, relating to the financial statements and financial highlights
of Van Kampen American Capital Equity Income Fund, which appears in such
Statement of Additional Information, and to the incorporation by reference of
our report into the Prospectus which constitutes part of this Registration
Statement. We also consent to the references to us under the headings "Financial
Highlights" and "Independent Accountants" in such Prospectus and to the
reference to us under the heading "Independent Accountants" in such Statement of
Additional Information.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Chicago, Illinois
April 27, 1998
<PAGE> 1
EXHIBIT (16)
EQUITY INCOME FUND - CLASS A SHARES
TOTAL RETURN CALCULATION ONE YEAR PERIOD ENDED DECEMBER 31, 1997
<TABLE>
<S> <C> <C> <C>
Formula P(1+T)n = ERV
Including Payment of the Sales Charge
Net Asset Value $7.24
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,170.13 = ERV
One year period ended 12/31/97 1 = n
TOTAL RETURN FOR THE PERIOD 17.01% = T
Excluding Payment of the Sales Charge
Net Asset Value $7.24
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,241.28 = ERV
One year period ended 12/31/97 1 = n
TOTAL RETURN FOR THE PERIOD 24.13% = T
</TABLE>
EQUITY INCOME FUND - CLASS A SHARES
TOTAL RETURN CALCULATION FIVE YEAR PERIOD ENDED DECEMBER 31, 1997
<TABLE>
<S> <C> <C> <C>
Formula P(1+T)n = ERV
Including Payment of the Sales Charge
Net Asset Value $7.24
Initial Investment $1,000.00 = P
Ending Redeemable Value $2,039.12 = ERV
One year period ended 12/31/97 5 = n
TOTAL RETURN FOR THE PERIOD 15.32% = T
Excluding Payment of the Sales Charge
Net Asset Value $7.24
Initial Investment $1,000.00 = P
Ending Redeemable Value $2,162.11 = ERV
One year period ended 12/31/97 5 = n
TOTAL RETURN FOR THE PERIOD 16.67% = T
</TABLE>
<PAGE> 2
EQUITY INCOME FUND - CLASS A SHARES
TOTAL RETURN CALCULATION TEN YEAR PERIOD ENDED DECEMBER 31, 1997
<TABLE>
<S> <C> <C> <C>
Formula P(1+T)n = ERV
Including Payment of the Sales Charge
Net Asset Value $7.24
Initial Investment $1,000.00 = P
Ending Redeemable Value $3,733.60 = ERV
One year period ended 12/31/97 10 = n
TOTAL RETURN FOR THE PERIOD 14.08% = T
Excluding Payment of the Sales Charge
Net Asset Value $7.24
Initial Investment $1,000.00 = P
Ending Redeemable Value $3,962.15 = ERV
One year period ended 12/31/97 10 = n
TOTAL RETURN FOR THE PERIOD 14.76% = T
</TABLE>
TOTAL RETURN CALCULATION INCEPTION THROUGH DECEMBER 31, 1997
<TABLE>
<S> <C> <C> <C>
Formula P(1+T)n = ERV
Including Payment of the Sales Charge
Net Asset Value $7.24
Initial Investment $1,000.00 = P
Ending Redeemable Value $55,220.65 = ERV
Inception through 12/31/97 37.41 = n
TOTAL RETURN FOR THE PERIOD 11.32% = T
Excluding Payment of the Sales Charge
Net Asset Value $7.24
Initial Investment $1,000.00 = P
Ending Redeemable Value $58,647.61 = ERV
Inception through 12/31/97 37.41 = n
TOTAL RETURN FOR THE PERIOD 11.50% = T
</TABLE>
<PAGE> 3
EQUITY INCOME FUND - CLASS A SHARES
NON-STANDARDIZED CUMULATIVE TOTAL RETURN CALCULATION
INCEPTION THROUGH DECEMBER 31, 1997
<TABLE>
<S> <C> <C> <C>
Formula ERV - P
------- = T
P
Including Payment of the Sales Charge
Net Asset Value $7.24
Initial Investment $1,000.00 = P
Ending Redeemable Value $55,220.65 = ERV
TOTAL RETURN FOR THE PERIOD 5,422.07% = T
Excluding Payment of the Sales Charge
Net Asset Value $7.24
Initial Investment $1,000.00 = P
Ending Redeemable Value $58,647.61 = ERV
TOTAL RETURN FOR THE PERIOD 5,764.76% = T
</TABLE>
<PAGE> 4
EQUITY INCOME FUND - CLASS B SHARES
TOTAL RETURN CALCULATION ONE YEAR PERIOD ENDED DECEMBER 31, 1997
<TABLE>
<S> <C> <C> <C>
Formula P(1+T)n = ERV
Including Payment of the CDSC
Net Asset Value $7.20
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,182.26 = ERV
One year period ended 12/31/97 1 = n
TOTAL RETURN FOR THE PERIOD 18.23% = T
Excluding Payment of the CDSC
Net Asset Value $7.20
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,232.26 = ERV
One year period ended 12/31/97 1 = n
TOTAL RETURN FOR THE PERIOD 23.23% = T
</TABLE>
TOTAL RETURN CALCULATION FIVE YEARS ENDED DECEMBER 31, 1997
<TABLE>
<S> <C> <C> <C>
Formula P(1+T)n = ERV
Including Payment of the CDSC
Net Asset Value $7.20
Initial Investment $1,000.00 = P
Ending Redeemable Value $2,061.35 = ERV
Five Years Ended 12/31/97 5.00 = n
TOTAL RETURN FOR THE PERIOD 15.57% = T
Excluding Payment of the CDSC
Net Asset Value $7.20
Initial Investment $1,000.00 = P
Ending Redeemable Value $2,076.35 = ERV
Five Years Ended 12/31/97 5.00 = n
TOTAL RETURN FOR THE PERIOD 15.73% = T
</TABLE>
<PAGE> 5
EQUITY INCOME FUND - CLASS B SHARES
TOTAL RETURN CALCULATION INCEPTION THROUGH DECEMBER 31, 1997
<TABLE>
<S> <C> <C> <C>
Formula P(1+T)n = ERV
Including Payment of the CDSC
Net Asset Value $7.20
Initial Investment 1,000.00 = P
Ending Redeemable Value 2,266.74 = ERV
Inception through 12/31/97 5.67 = n
TOTAL RETURN FOR THE PERIOD 15.53% = T
Excluding Payment of the CDSC
Net Asset Value $7.20
Initial Investment $1,000.00 = P
Ending Redeemable Value $2,266.74 = ERV
Inception through 12/31/97 5.67 = n
TOTAL RETURN FOR THE PERIOD 15.53% = T
</TABLE>
NON-STANDARDIZED CUMULATIVE TOTAL RETURN CALCULATION
INCEPTION THROUGH DECEMBER 31, 1997
<TABLE>
<S> <C> <C> <C>
Formula ERV - P
------- = T
P
Including Payment of the CDSC
Net Asset Value $7.20
Initial Investment $1,000.00 = P
Ending Redeemable Value $2,266.74 = ERV
TOTAL RETURN FOR THE PERIOD 126.67% = T
Excluding Payment of the CDSC
Net Asset Value $7.20
Initial Investment $1,000.00 = P
Ending Redeemable Value $2,266.74 = ERV
TOTAL RETURN FOR THE PERIOD 126.67% = T
</TABLE>
<PAGE> 6
EQUITY INCOME FUND - CLASS C SHARES
TOTAL RETURN CALCULATION ONE YEAR PERIOD ENDED DECEMBER 31, 1997
<TABLE>
<S> <C> <C> <C>
Formula P(1+T)n = ERV
Including Payment of the CDSC
Net Asset Value $7.20
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,222.26 = ERV
One year period ended 12/31/97 1 = n
TOTAL RETURN FOR THE PERIOD 22.23% = T
Excluding Payment of the CDSC
Net Asset Value $7.20
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,232.26 = ERV
One year period ended 12/31/97 1 = n
TOTAL RETURN FOR THE PERIOD 23.23% = T
</TABLE>
TOTAL RETURN CALCULATION INCEPTION THROUGH DECEMBER 31, 1997
<TABLE>
<S> <C> <C> <C>
Formula P(1+T)n = ERV
Including Payment of the CDSC
Net Asset Value $7.20
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,955.67 = ERV
Inception through 12/31/97 4.49 = n
TOTAL RETURN FOR THE PERIOD 16.11% = T
Excluding Payment of the CDSC
Net Asset Value $7.20
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,955.67 = ERV
Inception through 12/31/97 4.49 = n
TOTAL RETURN FOR THE PERIOD 16.11% = T
</TABLE>
<PAGE> 7
EQUITY INCOME FUND - CLASS C SHARES
NON-STANDARDIZED CUMULATIVE TOTAL RETURN CALCULATION
INCEPTION THROUGH DECEMBER 31, 1997
<TABLE>
<S> <C> <C> <C>
Formula ERV - P
------- = T
P
Including Payment of the CDSC
Net Asset Value $7.20
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,955.67 = ERV
TOTAL RETURN FOR THE PERIOD 95.57% = T
Excluding Payment of the CDSC
Net Asset Value $7.20
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,955.67 = ERV
TOTAL RETURN FOR THE PERIOD 95.57% = T
</TABLE>
<PAGE> 8
EQUITY INCOME FUND - CLASS C SHARES
Non-Standardized Cumulative Total Return Calculation
Inception Through December 31, 1997
Formula ERV - P
P = T
Including Payment of the CDSC
Net Asset Value $7.20
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,955.67 = ERV
TOTAL RETURN FOR THE PERIOD 95.57% = T
Excluding Payment of the CDSC
Net Asset Value $7.20
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,955.67 = ERV
TOTAL RETURN FOR THE PERIOD 95.57% = T
<PAGE> 1
EXHIBIT (24)
POWER OF ATTORNEY
The undersigned, being officers and trustees of each of the Van Kampen
American Capital Open End Trusts (individually, a "Trust") as indicated on
Schedule 1 attached hereto and incorporated by reference, each a Delaware
business trust except for the Van Kampen American Capital Pennsylvania Tax Free
Income Fund being a Pennsylvania business trust, and being officers and
directors of the Morgan Stanley Fund, Inc. (the "Corporation"), a Maryland
corporation, do hereby, in the capacities shown below, individually appoint
Dennis J. McDonnell and Ronald A. Nyberg, each of Oakbrook Terrace, Illinois,
and each of them, as the agents and attorneys-in-fact with full power of
substitution and resubstitution, for each of the undersigned, to execute and
deliver, for and on behalf of the undersigned, any and all amendments to the
Registration Statement filed by each Trust or the Corporation with the
Securities and Exchange Commission pursuant to the provisions of the Securities
Act of 1933 and the Investment Company Act of 1940.
This Power of Attorney may be executed in multiple counterparts, each
of which shall be deemed an original, but which taken together shall constitute
one instrument.
Dated: April 24, 1998
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ DENNIS J. MCDONNELL President and Trustee/Director
----------------------------------
Dennis J. McDonnell
/s/ EDWARD C. WOOD III Vice President and Chief Financial Officer
----------------------------------
Edward C. Wood III
/s/ J. MILES BRANAGAN Trustee/Director
----------------------------------
J. Miles Branagan
/s/ RICHARD M. DEMARTINI Trustee/Director
----------------------------------
Richard M. DeMartini
/s/ LINDA HUTTON HEAGY Trustee/Director
----------------------------------
Linda Hutton Heagy
/s/ R. CRAIG KENNEDY Trustee/Director
----------------------------------
R. Craig Kennedy
/s/ JACK E. NELSON Trustee/Director
----------------------------------
Jack E. Nelson
/s/ DON G. POWELL Trustee/Director
----------------------------------
Don G. Powell
/s/ PHILLIP B. ROONEY Trustee/Director
----------------------------------
Phillip B. Rooney
/s/ FERNANDO SISTO, SC.D. Trustee/Director
----------------------------------
Fernando Sisto, Sc. D.
/s/ WAYNE W. WHALEN Trustee/Director and Chairman
----------------------------------
Wayne W. Whalen
</TABLE>
<PAGE> 2
SCHEDULE 1
VAN KAMPEN AMERICAN CAPITAL U.S. GOVERNMENT TRUST
VAN KAMPEN AMERICAN CAPITAL TAX FREE TRUST
VAN KAMPEN AMERICAN CAPITAL TRUST
VAN KAMPEN AMERICAN CAPITAL EQUITY TRUST
VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA TAX FREE INCOME FUND
VAN KAMPEN AMERICAN CAPITAL TAX FREE MONEY FUND
VAN KAMPEN AMERICAN CAPITAL COMSTOCK FUND
VAN KAMPEN AMERICAN CAPITAL CORPORATE BOND FUND
VAN KAMPEN AMERICAN CAPITAL EMREGING 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 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 SMALL CAPITALIZATION FUND
VAN KAMPEN AMERICAN CAPITAL TAX-EXEMPT TRUST
VAN KAMPEN AMERICAN CAPITAL U.S. GOVERNMENT TRUST FOR INCOME
VAN KAMPEN AMERICAN CAPITAL WORLD PORTFOLIO SERIES TRUST
VAN KAMPEN AMERICAN CAPITAL FOREIGN SECURITIES FUND
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> EQUITY INCOME CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 1,373,547,790<F1>
<INVESTMENTS-AT-VALUE> 1,619,049,510<F1>
<RECEIVABLES> 12,997,298<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 50,521<F1>
<TOTAL-ASSETS> 1,632,097,329<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 9,442,003<F1>
<TOTAL-LIABILITIES> 9,442,003<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 509,445,943
<SHARES-COMMON-STOCK> 88,104,227
<SHARES-COMMON-PRIOR> 69,989,006
<ACCUMULATED-NII-CURRENT> 2,065,924<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 16,191,940<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 245,432,645<F1>
<NET-ASSETS> 638,092,113
<DIVIDEND-INCOME> 19,877,040<F1>
<INTEREST-INCOME> 22,021,080<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (18,849,628)<F1>
<NET-INVESTMENT-INCOME> 23,048,492<F1>
<REALIZED-GAINS-CURRENT> 184,609,912<F1>
<APPREC-INCREASE-CURRENT> 85,825,819<F1>
<NET-CHANGE-FROM-OPS> 293,484,223<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (12,849,167)
<DISTRIBUTIONS-OF-GAINS> (71,711,304)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 27,114,265
<NUMBER-OF-SHARES-REDEEMED> (19,786,873)
<SHARES-REINVESTED> 10,787,829
<NET-CHANGE-IN-ASSETS> 166,336,244
<ACCUMULATED-NII-PRIOR> 969,617<F1>
<ACCUMULATED-GAINS-PRIOR> 18,003,144<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 5,338,993<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 18,849,628<F1>
<AVERAGE-NET-ASSETS> 565,886,511
<PER-SHARE-NAV-BEGIN> 6.740
<PER-SHARE-NII> 0.152
<PER-SHARE-GAIN-APPREC> 1.435
<PER-SHARE-DIVIDEND> (0.168)
<PER-SHARE-DISTRIBUTIONS> (0.917)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 7.242
<EXPENSE-RATIO> 0.86
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 012
<NAME> EQUITY INCOME CLASS B
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 1,373,547,790<F1>
<INVESTMENTS-AT-VALUE> 1,619,049,510<F1>
<RECEIVABLES> 12,997,298<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 50,521<F1>
<TOTAL-ASSETS> 1,632,097,329<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 9,442,003<F1>
<TOTAL-LIABILITIES> 9,442,003<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 784,786,712
<SHARES-COMMON-STOCK> 126,154,388
<SHARES-COMMON-PRIOR> 94,332,981
<ACCUMULATED-NII-CURRENT> 2,065,924<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 16,191,940<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 245,432,645<F1>
<NET-ASSETS> 908,715,054
<DIVIDEND-INCOME> 19,877,040<F1>
<INTEREST-INCOME> 22,021,080<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (18,849,628)<F1>
<NET-INVESTMENT-INCOME> 23,048,492<F1>
<REALIZED-GAINS-CURRENT> 184,609,912<F1>
<APPREC-INCREASE-CURRENT> 85,825,819<F1>
<NET-CHANGE-FROM-OPS> 293,484,223<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (12,509,687)
<DISTRIBUTIONS-OF-GAINS> (101,660,017)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 31,457,988
<NUMBER-OF-SHARES-REDEEMED> (14,197,582)
<SHARES-REINVESTED> 14,561,001
<NET-CHANGE-IN-ASSETS> 275,464,597
<ACCUMULATED-NII-PRIOR> 969,617<F1>
<ACCUMULATED-GAINS-PRIOR> 18,003,144<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 5,338,993<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 18,849,628<F1>
<AVERAGE-NET-ASSETS> 785,928,930
<PER-SHARE-NAV-BEGIN> 6.713
<PER-SHARE-NII> 0.100
<PER-SHARE-GAIN-APPREC> 1.423
<PER-SHARE-DIVIDEND> (0.116)
<PER-SHARE-DISTRIBUTIONS> (0.917)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 7.203
<EXPENSE-RATIO> 1.64
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 013
<NAME> EQUITY INCOME CLASS C
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 1,373,547,790<F1>
<INVESTMENTS-AT-VALUE> 1,619,049,510<F1>
<RECEIVABLES> 12,997,298<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 50,521<F1>
<TOTAL-ASSETS> 1,632,097,329<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 9,442,003<F1>
<TOTAL-LIABILITIES> 9,442,003<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 64,732,162
<SHARES-COMMON-STOCK> 10,528,677
<SHARES-COMMON-PRIOR> 8,217,499
<ACCUMULATED-NII-CURRENT> 2,065,924<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 16,191,940<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 245,432,645<F1>
<NET-ASSETS> 75,848,159
<DIVIDEND-INCOME> 19,877,040<F1>
<INTEREST-INCOME> 22,021,080<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (18,849,628)<F1>
<NET-INVESTMENT-INCOME> 23,048,492<F1>
<REALIZED-GAINS-CURRENT> 184,609,912<F1>
<APPREC-INCREASE-CURRENT> 85,825,819<F1>
<NET-CHANGE-FROM-OPS> 293,484,223<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (1,059,323)
<DISTRIBUTIONS-OF-GAINS> (8,569,893)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,426,455
<NUMBER-OF-SHARES-REDEEMED> (2,216,230)
<SHARES-REINVESTED> 1,100,953
<NET-CHANGE-IN-ASSETS> 20,684,670
<ACCUMULATED-NII-PRIOR> 969,617<F1>
<ACCUMULATED-GAINS-PRIOR> 18,003,144<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 5,338,993<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 18,849,628<F1>
<AVERAGE-NET-ASSETS> 66,770,065
<PER-SHARE-NAV-BEGIN> 6.713
<PER-SHARE-NII> 0.100
<PER-SHARE-GAIN-APPREC> 1.424
<PER-SHARE-DIVIDEND> (0.116)
<PER-SHARE-DISTRIBUTIONS> (0.917)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 7.204
<EXPENSE-RATIO> 1.64
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
