<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1999
REGISTRATION NO. 2-15957
811-919
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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. 76 [X]
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 26 [X]
</TABLE>
VAN KAMPEN EQUITY INCOME FUND
(EXACT NAME OF REGISTRANT AS SPECIFIED IN DECLARATION OF TRUST)
1 PARKVIEW PLAZA, PO BOX 5555, OAKBROOK TERRACE, ILLINOIS 60181-5555
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)(ZIP CODE)
(630) 684-6000
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
A. THOMAS SMITH III
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
VAN KAMPEN INVESTMENTS INC.
1 PARKVIEW PLAZA
PO BOX 5555
OAKBROOK TERRACE, ILLINOIS 60181-5555
(NAME AND ADDRESS OF AGENT FOR SERVICE)
---------------------
Copies to:
WAYNE W. WHALEN, ESQ.
THOMAS A. HALE, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 WEST WACKER DRIVE
CHICAGO, ILLINOIS 60606
(312) 407-0700
---------------------
Approximate Date of Proposed Public Offering: As soon as practicable following
effectiveness of this Registration Statement.
It is proposed that this filing will become effective:
[X] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
TITLE OF SECURITIES BEING REGISTERED: Shares of Beneficial Interest, par value
$0.01 per share.
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<PAGE> 2
[VAN KAMPEN FUNDS LOGO]
VAN KAMPEN
EQUITY INCOME FUND
Van Kampen Equity Income Fund is a mutual fund
with a primary investment objective to seek
the highest possible income consistent with
safety of principal. Long-term growth of
capital is an important secondary investment
objective. The Fund's management seeks 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.
Shares of the Fund have not been approved or
disapproved by the Securities and Exchange
Commission (SEC) or any state regulators, and
neither the SEC nor any state regulator has
passed upon the accuracy or adequacy of this
prospectus. It is a criminal offense to state
otherwise.
This prospectus is dated APRIL 30, 1999.
<PAGE> 3
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations, other than those contained in this
prospectus, in connection with the offer contained in this prospectus and, if
given or made, such other information or representations must not be relied upon
as having been authorized by the Fund, the Fund's investment adviser or the
Fund's distributor. This prospectus does not constitute an offer by the Fund or
by the Fund's distributor to sell or a solicitation of an offer to buy any of
the securities offered hereby in any jurisdiction to any person to whom it is
unlawful for the Fund to make such an offer in such jurisdiction.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Risk/Return Summary................................ 3
Fees and Expenses of the Fund...................... 5
Investment Objectives and Policies................. 6
Investment Advisory Services....................... 10
Purchase of Shares................................. 11
Redemption of Shares............................... 18
Distributions from the Fund........................ 19
Shareholder Services............................... 20
Federal Income Taxation............................ 21
Financial Highlights............................... 23
</TABLE>
<PAGE> 4
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVES
The Fund is a mutual fund with a primary investment objective to seek the
highest possible income consistent with safety of principal. Long-term growth of
capital is an important secondary investment objective. There can be no
assurance that the Fund will achieve its investment objectives.
INVESTMENT STRATEGIES
The Fund's management seeks to achieve the investment objectives by investing
primarily in income-producing equity instruments (including common stocks,
preferred stocks and convertible securities) and investment grade quality debt
securities. The composition of the Fund's portfolio will vary over time based
upon evaluations of economic conditions by the Fund's investment adviser and its
belief about which securities would best accomplish the Fund's investment
objectives. The Fund emphasizes a "value" style of investing, seeking well-
established, undervalued companies believed to possess the potential for income
with safety of principal and long-term growth of capital. Under normal market
conditions, the Fund invests at least 65% of its total assets in
income-producing equity securities. The Fund may invest up to 15% of its total
assets in securities of foreign issuers. The Fund may invest in certain
derivatives, such as options and futures, which may subject the Fund to
additional risks.
INVESTMENT RISKS
An investment in the Fund is subject to investment risks, and you could lose
money on your investment in the Fund.
MARKET RISK. Market risk is the possibility that the market values, of
securities owned by the Fund will decline. Market risk may affect a single
issuer, industry, sector of the economy, or the market as a whole. A "value"
style of investing emphasizes undervalued companies with characteristics for
improved valuations. This style of investing is subject to the risk that the
valuations never improve or that the returns on "value" securities are less than
returns on other styles of investing or the overall markets. Investments in
equity securities generally are affected by changes in the stock markets, which
fluctuate substantially over time, sometimes suddenly and sharply. During an
overall stock market decline, stock prices of small- or medium-sized companies
(in which the Fund may invest) often fluctuate more than prices of larger
companies.
The Fund's investments in debt securities generally are affected by changes in
interest rates and the creditworthiness of the issuer. The market prices of such
securities tend to fall as interest rates rise, and such declines may be greater
among securities with longer duration.
The prices of convertible securities are affected by changes similar to those of
debt and equity securities. The value of a convertible security tends to decline
as interest rates rise and, because of the conversion feature, tends to vary
with fluctuations in the market value of the underlying equity security.
INCOME RISK. The ability of the Fund's equity securities to generate income
generally depends on the earnings and the continuing declaration of dividends by
the issuers of such securities. The interest on debt securities is generally
affected by prevailing interest rates, which can vary widely over the short and
long term. If dividends are reduced or discontinued or interest rates drop, your
income from the Fund may drop as well.
CALL RISK. If interest rates fall, it is possible that issuers of convertible
and nonconvertible debt securities held by the Fund will call or prepay their
securities before their maturity dates. If this happens, the proceeds from the
called or prepaid security would be reinvested by the Fund in securities bearing
the new, lower interest rates, resulting in a possible decline in the Fund's
income and distributions to shareholders and terminating any conversion option
on convertible securities.
CREDIT RISK. Credit risk refers to an issuer's ability to make timely payments
of interest and principal. Because the Fund generally invests only in investment
grade-quality debt securities, it is subject to a lower level of credit risk
than a fund investing in lower-quality securities.
3
<PAGE> 5
FOREIGN RISKS. Because the Fund may own securities from foreign issuers, it may
be subject to risks not usually associated with owning securities of U.S.
issuers. These risks can include fluctuations in foreign currencies, foreign
currency exchange controls, political and economic instability, differences in
financial reporting, differences in securities regulation and trading, and
foreign taxation issues.
RISKS OF USING DERIVATIVE INVESTMENTS. In general terms, a derivative investment
is one whose value depends on (or is derived from) the value of an underlying
asset, interest rate or index. Options and futures are examples of derivatives.
Such transactions involve risks different from the direct investment in
underlying securities such as imperfect correlation between the value of the
instruments and the underlying assets; risks of default by the other party to
certain transactions; risks that the transactions may result in losses that
partially or completely offset gains in portfolio positions; risks that the
transactions may not be liquid; and manager risk.
MANAGER RISK. As with any managed fund, the Fund's management may not be
successful in selecting the best-performing securities and the Fund's
performance may lag behind that of similar funds.
An investment in the Fund is not a deposit of any bank or other insured
depository institution. Your investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
INVESTOR PROFILE
In light of its objectives and investment strategies, the Fund may be
appropriate for investors who:
- - Seek a high level of income.
- - Seek to grow their capital over the long term.
- - Can withstand volatility in the value of their shares of the Fund.
- - Wish to add to their personal investment portfolio a fund that emphasizes a
"value" style of investing and invests primarily in income-producing equity
instruments.
An investment in the Fund may not be appropriate for all investors. The Fund is
not intended to be a complete investment program, and investors should consider
their long-term investment goals and financial needs when making an investment
decision about the Fund. An investment in the Fund is intended to be a long-term
investment, and the Fund should not be used as a trading vehicle.
ANNUAL PERFORMANCE
One way to measure the risks of investing in the Fund is to look at how its
performance varies from year to year. The following chart shows the annual
returns of the Fund's Class A Shares over the past ten calendar years prior to
the date of this prospectus. Sales loads are not reflected in this chart. If
these sales loads had been included, the returns shown below would have been
lower. Remember that the past performance of the Fund is not indicative of its
future performance.
<TABLE>
<CAPTION>
ANNUAL RETURN
-------------
<S> <C>
'1989 21.74
'1990 -4.68
'1991 26.67
'1992 10.72
'1993 16.00
'1994 -1.98
'1995 32.60
'1996 15.55
'1997 24.13
'1998 16.99
</TABLE>
The annual return variability of the Fund's Class B Shares and Class C Shares
would be substantially similar to that shown for the Class A Shares because all
of the Fund's shares are invested in the same portfolio of securities; however,
the actual annual returns of the Class B Shares and Class C Shares would be
lower than the annual returns shown for the Fund's Class A Shares because of
differences in the expenses borne by each class of shares.
During the ten-year period shown in the bar chart, the highest quarterly return
was 12.91% (for the quarter ended June 30, 1997) and the lowest quarterly return
was -12.21% (for the quarter ended September 30, 1990).
COMPARATIVE PERFORMANCE
This table shows how the Fund's performance compares with the Standard & Poor's
500-Stock Index, a broad-based market index that the Fund's management believes
is an applicable benchmark for the Fund, and with the Lipper Equity Income Fund
Index, an index of funds with similar investment objectives. The Fund's
performance figures include the maximum sales charges paid by investors. The
indices' performance figures do not include commissions or sales charges that
would be paid by
4
<PAGE> 6
investors purchasing the securities represented by those indices. Average annual
total returns are shown for the periods ended December 31, 1998 (the most
recently completed calendar year prior to the date of this prospectus). Remember
that the past performance of the Fund is not indicative of its future
performance.
<TABLE>
<CAPTION>
Average Annual
Total Returns Past 10
for the Years
Periods Ended Past Past or Since
December 31, 1998 1 Year 5 Years Inception
- -------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Van Kampen Equity
Income Fund --
Class A Shares 10.29% 15.49% 14.52%
Standard & Poor's
500-Stock Index 28.58% 24.06% 19.21%
Lipper Equity
Income Fund Index 11.78% 16.62% 14.89%
.......................................................
Van Kampen Equity
Income Fund --
Class B Shares 11.17% 15.81% 15.63%(1)
Standard & Poor's
500-Stock Index 28.58% 24.06% 20.61%(1)
Lipper Equity
Income Fund Index 11.78% 16.62% 15.83%(1)
.......................................................
Van Kampen Equity
Income Fund --
Class C Shares 15.17% 15.98% 16.13%(2)
Standard & Poor's
500-Stock Index 28.58% 24.06% 22.90%(3)
Lipper Equity
Income Fund Index 11.78% 16.62% 16.19%(3)
.......................................................
</TABLE>
Inception dates: (1) 5/1/92, (2) 7/6/93, (3) 7/8/93.
FEES AND EXPENSES
OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES
(fees paid directly from your investment)
<TABLE>
<CAPTION>
Class A Class B Class C
Shares Shares Shares
- --------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum sales charge
(load) imposed on
purchases (as a
percentage of
offering price) 5.75%(1) None None
..............................................................
Maximum deferred
sales charge (load)
(as a percentage of
the lesser of
original purchase
price or redemption None(2) 5.00%(3) 1.00%(4)
proceeds)
..............................................................
Maximum sales charge
(load) imposed on
reinvested dividends
(as a percentage of
offering price) None None None
..............................................................
Redemption fees (as a
percentage of amount None None None
redeemed)
..............................................................
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 deferred sales charge of 1.00% may be imposed on
certain redemptions made within one year of the purchase. See "Purchase of
Shares -- Class A Shares."
(3) The maximum deferred sales charge is 5.00% in the first year after purchase
and declining thereafter as follows:
Year 1 -- 5.00%
Year 2 -- 4.00%
Year 3 -- 3.00%
Year 4 -- 2.50%
Year 5 -- 1.50%
After -- None
See "Purchase of Shares -- Class B Shares."
(4) The maximum deferred sales charge is 1.00% in the first year after purchase
and 0.00% thereafter. See "Purchase of Shares -- Class C Shares."
5
<PAGE> 7
ANNUAL FUND
OPERATING EXPENSES
(expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
Class A Class B Class C
Shares Shares Shares
- --------------------------------------------------------------
<S> <C> <C> <C>
Management Fees 0.37% 0.37% 0.37%
..............................................................
Distribution and/or 0.25% 1.00%(2) 1.00%(2)
Service (12b-1) Fees
..............................................................
Other Expenses 0.23% 0.25% 0.25%
..............................................................
Total Annual Fund 0.85% 1.62% 1.62%
Operating Expenses
..............................................................
</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 "Purchase of Shares."
(2) Because Distribution and/or Service (12b-1) Fees are paid out of the Fund's
assets on an ongoing basis, over time these fees will increase the cost of
your investment and may cost you more than paying other types of sales
charges.
Example:
The following example is intended to help you compare the cost of investing in
the Fund with the costs of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% annual return each year and
that the Fund's operating expenses remain the same each year (except for the
ten-year amounts for Class B Shares which reflect the conversion of Class B
Shares to Class A Shares after eight years). Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
One Three Five Ten
Year Years Years Years
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $657 $831 $1,019 $1,564
......................................................................
Class B Shares $665 $811 $1,031 $1,716*
......................................................................
Class C Shares $265 $511 $881 $1,922
......................................................................
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
One Three Five Ten
Year Years Years Years
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $657 $831 $1,019 $1,564
......................................................................
Class B Shares $165 $511 $881 $1,716*
......................................................................
Class C Shares $165 $511 $881 $1,922
......................................................................
</TABLE>
* Based on conversion to Class A Shares after eight years.
INVESTMENT OBJECTIVES
AND POLICIES
The Fund operates under the following four fundamental investment policies which
may not be changed without shareholder approval of the holders of a majority of
the Fund's outstanding voting securities (as defined in the Investment Company
Act of 1940, as amended ("1940 Act")). There are risks inherent in all
investments in securities; accordingly there can be no assurance that the Fund
will achieve its investment objectives.
(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 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).
(3) The Fund may invest in income-producing equity instruments (subject to
number two above), 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
6
<PAGE> 8
or higher by Moody's Investors Service, Inc. ("Moody's") or rated BBB or higher
by Standard & Poor's ("S&P") or in unrated securities considered by the Fund's
investment 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 unrated securities
considered by the Fund's investment 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 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.
(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 securities, the Fund's investment adviser focuses on a security's
potential for income with safety of principal and long-term growth of capital.
The Fund emphasizes a "value" style of investing and seeks income-producing
securities which have attractive growth potential on an individual company
basis. The Fund's investment adviser generally seeks to identify companies that
are undervalued and have identifiable factors that might lead to improved
valuation. This catalyst could come from within the company in the form of new
management, operational enhancements, restructuring or reorganization. It could
also be an external factor, such as an improvement in industry conditions or a
regulatory change. The Fund's style presents the risk that the valuations never
improve or that the returns on "value" securities are less than returns on other
styles of investing or the overall market. The Fund may, however, invest in
securities which do not pay dividends or interest. The Fund may invest in
securities that have above average volatility of price movement including
warrants or rights to acquire securities. Because prices of equity securities
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.
The Fund's investment adviser focuses on larger capitalization companies,
although the Fund may also invest in issuers of small- or medium-capitalization
companies. The securities of small- or medium-sized companies may be subject to
more abrupt or erratic market movements than securities of larger companies or
the market averages in general. In addition, such companies typically are
subject to a greater degree of change in earnings and business prospects than
are larger companies. Thus, the Fund may be subject to greater investment risk
than that assumed through investment in the equity securities of larger-
capitalization companies.
The Fund may dispose of a security whenever, in the opinion of the Fund's
investment adviser, factors indicate it is desirable to do so. Such factors
include change in economic or market factors in general or with respect to a
particular industry, a change in the market trend or other factors affecting an
individual security, changes in the relative market performance or appreciation
possibilities offered by individual securities and other circumstances affecting
the desirability of a given investment.
Income-producing equity securities include common and preferred stocks and
convertible securities. Common stocks are shares of a corporation or other
entity that entitle the holder to a pro rata share of the profits of the
corporation, if any, without preference over any other class of securities,
including such entity's debt securities, preferred stock and other senior equity
securities. Common stock usually carries with it the right to vote and
frequently an exclusive right to do so. Preferred stock generally has a
preference as to dividends and liquidation over an issuer's common stock but
ranks junior to debt securities in an issuer's capital structure. Unlike
interest payments on debt securities, preferred stock dividends are payable only
if declared by the issuer's board of directors. Preferred stock also may be
subject to optional or mandatory redemption provisions. The ability of common
stocks and preferred stocks to generate income is dependent on the
7
<PAGE> 9
earnings and continuing declaration of dividends by the issuers of such
securities. A convertible security is a bond, debenture, note, preferred stock,
warrant or other security that may be converted into or exchanged for a
prescribed amount of common stock or other equity security of the same or
different issuer within a particular period of time at a specified price or
formula. A convertible security generally entitles the holder to receive
interest paid or accrued on debt securities or the dividend paid on preferred
stock until the convertible security matures or is redeemed, converted or
exchanged. Before conversion, convertible securities generally have
characteristics similar to both debt and equity securities. The value of
convertible securities tends to decline as interest rates rise and, because of
the conversion feature, tends to vary with fluctuations in the market value of
the underlying equity security. Convertible securities ordinarily provide a
stream of income with generally higher yields than those of common stock of the
same or similar issuers. Convertible securities generally rank senior to common
stock in a corporation's capital structure but are usually subordinated to
comparable nonconvertible securities. Convertible securities generally do not
participate directly in any dividend increases or decreases of the underlying
equity security although the market prices of convertible securities may be
affected by any such dividend changes or other changes in the underlying equity
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 convertible 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.
While the Fund invests primarily in income-producing equity securities, the Fund
may invest in investment grade quality debt securities. The Fund may invest in
debt securities of various maturities. The Fund invests only in debt securities
rated investment grade at the time of investment and a subsequent reduction in
rating does not require the Fund to dispose of a security. Securities rated BBB
by S&P or Baa by Moody's are in the lowest of the four investment grades and are
considered by the rating agencies to be medium-grade obligations which possess
speculative characteristics so that changes in economic conditions or 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. The market
prices of debt securities generally fluctuate inversely with changes in interest
rates so that the value of investments in such securities can be expected to
decrease as interest rates rise and increase as interest rates fall and such
changes may be greater among debt securities with longer durations.
SECURITIES OF FOREIGN ISSUERS
The Fund may invest up to 15% of its total assets in securities of foreign
issuers. Such securities may be denominated in U.S. dollars or in currencies
other than U.S. dollars. Investments in foreign securities present certain risks
not ordinarily associated with investments in securities of U.S. issuers. These
risks include fluctuations in foreign exchange rates, political and economic
developments (including war or other instability, expropriation of assets,
nationalization and confiscatory taxation), the imposition of foreign exchange
limitations, withholding taxes on income or capital transactions or other
restrictions, higher transaction costs and difficulty in taking judicial action.
In addition, there generally is less publicly available information about many
foreign issuers, and auditing, accounting and financial reporting requirements
are less stringent and less uniform in many foreign countries. Such securities
may be less liquid than the securities of U.S. corporations or the U.S.
government. Such securities may also be subject to greater fluctuations in price
than securities of U.S. corporations or the U.S. government. There is generally
less government regulation of stock exchanges, brokers and listed companies
abroad than in the U. S., and, with respect to certain foreign countries, there
is a possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investment in those countries. Because there is
usually less supervision and governmental regulation of exchanges, brokers and
dealers than there is in the U.S., the Fund may experience settlement
difficulties or delays not usually encountered in the U.S. The risks of foreign
investments should be considered carefully by an investor in the Fund.
8
<PAGE> 10
USING OPTIONS, FUTURES CONTRACTS
AND RELATED OPTIONS
The Fund expects to utilize options, futures contracts and options on futures
contracts in several different ways, depending upon the status of the Fund's
portfolio and the investment adviser's expectations concerning the securities
markets.
In times of stable or rising stock prices, the Fund generally seeks to be fully
invested in income-producing equity and debt securities. Even when the Fund is
fully invested, however, prudent management requires that at least a small
portion of assets be available as cash to honor redemption requests and for
other short-term needs. The Fund may also have cash on hand that has not yet
been invested. The portion of the Fund's assets that is invested in cash or cash
equivalents does not fluctuate with stock market prices, so that, in times of
rising market prices, the Fund may underperform the market in proportion to the
amount of cash or cash equivalents in its portfolio. By purchasing stock index
futures contracts, however, the Fund can compensate for the cash portion of its
assets and may obtain performance equivalent to investing 100% of its assets in
equity securities.
If the Fund's investment adviser forecasts a market decline, the Fund may seek
to reduce its exposure to the securities markets by increasing its cash
position. By selling stock index futures contracts instead of portfolio
securities, a similar result can be achieved to the extent that the performance
of the futures contracts correlates to the performance of the Fund's portfolio
securities. Sales of futures contracts frequently may be accomplished more
rapidly and at less cost than the actual sale of securities. Once the desired
hedged position has been 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.
As an alternative to stock index futures contracts, the Fund can engage in stock
index options (or stock index futures options) to manage the portfolio's risk in
advancing or declining markets. For example, the value of a put option generally
increases as the underlying security declines below a specified level, value is
protected against a market decline to the degree the performance of the put
correlates with the performance of the Fund's investment portfolio. If the
market remains stable or advances, the Fund can refrain from exercising the put
and its portfolio will participate in the advance, having incurred only the
premium cost for the put.
The Fund is authorized to purchase and sell listed and over-the-counter options
("OTC Options"). OTC Options are subject to certain additional risks including
default by the other party to the transaction and the liquidity of the
transactions.
In certain cases, the options and futures markets provide investment or risk
management opportunities that are not available from direct investments in
securities. In addition, some strategies can be performed with greater ease and
at lower cost by utilizing the options and futures markets rather than
purchasing or selling portfolio securities. However, such transactions involve
risks different from the direct investment in underlying securities such as
imperfect correlation between the value of the instruments and the underlying
assets, risks of default by the other party to certain transactions, risks that
the transactions may incur losses that partially or completely offset gains in
portfolio positions, risks that the transactions may not be liquid and manager
risk. In addition, such transactions may involve commissions and other costs,
which may increase the Fund's expenses and reduce its return. A more complete
discussion of options, futures contracts and related options and their risks is
contained in the Fund's Statement of Additional Information which can be
obtained by investors free of charge as described on the back cover of this
prospectus.
OTHER INVESTMENTS AND RISK FACTORS
For cash management purposes, the Fund may engage in repurchase agreements with
banks and broker-dealers to earn a return on temporarily available cash. Such
transactions are subject to the risk of default by the other party.
The Fund may invest up to 10% of its net assets in illiquid securities and
certain restricted securities. Such securities may be difficult or impossible to
sell at the time and the price that the Fund would like. Thus, the Fund may have
to sell such securities at a lower price, sell other securities instead to
obtain cash or forego other investment opportunities.
Further information about these types of investments and other investment
practices that may be used by the Fund is contained in the Statement of
Additional Information.
9
<PAGE> 11
Although the Fund does not intend to engage in substantial short-term trading,
it may sell securities without regard to the length of time they have been held
in order to take advantage of new investment opportunities or when the Fund's
investment adviser believes the potential for income or capital growth has
lessened or otherwise. The Fund's portfolio turnover is shown under the heading
"Financial Highlights." The portfolio turnover rate may be expected to vary from
year to year. A high portfolio turnover rate (100% or more) increases the Fund's
transactions costs, including brokerage commissions or dealer costs, and may
result in the realization of more short-term capital gains than if the Fund had
lower portfolio turnover. The turnover rate will not be a limiting factor,
however, if the Fund's investment adviser considers portfolio changes
appropriate.
When market conditions dictate a more "defensive" investment strategy, the Fund
may invest on a temporary basis a portion or all of its assets in 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. Under normal market conditions, the
potential for income and capital appreciation on these securities will tend to
be lower than the potential for income and capital appreciation on other
securities owned by the Fund. The effect of taking such a defensive position may
be that the Fund does not achieve its investment objectives.
YEAR 2000 RISKS. Like other mutual funds, financial and business organizations
and individuals around the world, the Fund could be adversely affected if the
computer systems used by the Fund's investment adviser and other service
providers do not properly process and calculate date-related information and
data from and after January 1, 2000. This is commonly known as the "Year 2000
Problem." The Fund's investment adviser is taking steps that it believes are
reasonably designed to address the Year 2000 Problem with respect to computer
systems that it uses and to obtain reasonable assurances that comparable steps
are being taken by the Fund's other major service providers. At this time, there
can be no assurances that these steps will be sufficient to avoid any adverse
impact to the Fund. In addition, the Year 2000 Problem may adversely affect the
markets and the issuers of securities in which the Fund may invest which, in
turn, may adversely affect the net asset value of the Fund. Improperly
functioning trading systems may result in settlement problems and liquidity
issues. In addition, corporate and governmental data processing errors may
result in production problems for individual companies or issuers and overall
economic uncertainty. Earnings of individual issuers will be affected by
remediation costs, which may be substantial and may be reported inconsistently
in U.S. and foreign financial statements. Accordingly, the Fund's investments
may be adversely affected. The statements above are subject to the Year 2000
Information and Readiness Disclosure Act which Act may limit the legal rights
regarding the use of such statements in the case of a dispute.
INVESTMENT ADVISORY SERVICES
THE ADVISER. Van Kampen Asset Management Inc. is the Fund's investment adviser
(the "Adviser" or "Asset Management"). The Adviser is a wholly owned subsidiary
of Van Kampen Investments Inc. ("Van Kampen Investments"). Van Kampen
Investments is a diversified asset management company with more than two million
retail investor accounts, extensive capabilities for managing institutional
portfolios, and more than $75 billion under management or supervision. Van
Kampen Investments' more than 50 open-end and 39 closed-end funds and more than
2,500 unit investment trusts are professionally distributed by leading financial
advisers nationwide. Van Kampen Funds Inc., the distributor of the Fund (the
"Distributor") and the sponsor of the funds mentioned above, is also a wholly
owned subsidiary of Van Kampen Investments. Van Kampen Investments is an
indirect wholly owned subsidiary of Morgan Stanley Dean Witter & Co. The
Adviser's principal office is located at 1 Parkview Plaza, PO Box 5555, Oakbrook
Terrace, Illinois 60181-5555.
ADVISORY AGREEMENT. The Fund retains the Adviser to manage the investment of its
assets and to place orders for the purchase and sale of its portfolio
securities. Under an investment advisory agreement between the Adviser and the
Fund (the "Advisory Agreement"), the Fund pays the Adviser a monthly
10
<PAGE> 12
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>
Applying this fee schedule, the Fund paid the Adviser an advisory fee at the
effective rate of 0.37% of the Fund's average daily net assets for the Fund's
fiscal year ended December 31, 1998.
Under the Advisory Agreement, the Fund 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. Other operating expenses
paid by the Fund include service fees, distribution fees, custodial fees, legal
and independent accountant fees, the costs of reports and proxies to
shareholders, trustees' fees (other than those who are affiliated persons of the
Adviser, Distributor or Van Kampen Investments) and all other business expenses
not specifically assumed by the Adviser.
From time to time, the Adviser or the Distributor may voluntarily undertake to
reduce the Fund's expenses by reducing the fees payable to them or by reducing
other expenses of the Fund in accordance with such limitations as the Adviser or
Distributor may establish.
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen Investment
Advisory Corp. ("Advisory Corp.").
PERSONAL INVESTMENT POLICIES. The Fund and the Adviser have adopted Codes of
Ethics designed to recognize the fiduciary relationship between the Fund and the
Adviser and its employees. The Codes of Ethics permit directors, trustees,
officers and employees to buy and sell securities for their personal accounts
subject to certain restrictions. Persons with access to certain sensitive
information are subject to pre-clearance and other procedures designed to
prevent conflicts of interest.
PORTFOLIO MANAGEMENT. The Fund is managed by a management team headed by James
A. Gilligan, Senior Portfolio Manager. 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 September
1995, Mr. Gilligan was Vice President and Portfolio Manager of the Adviser.
Portfolio Manager Scott Carroll has been responsible as co-manager for the
day-to-day management of the Fund's investment portfolio since July 1997. Mr.
Carroll has been a Vice President of the Adviser and Advisory Corp. since March
1999 and has been Associate Portfolio Manager of the Adviser and Advisory Corp.
since December 1996. Prior to December 1996, Mr. Carroll was an Equity Analyst
with Lincoln Capital Management Company.
PURCHASE OF SHARES
GENERAL
The Fund offers three classes of shares designated as Class A Shares, Class B
Shares and Class C Shares. By offering three classes of shares, the Fund permits
each investor to choose the class of shares that is most beneficial given the
amount to be invested and the length of time the investor expects to hold the
shares.
Initial investments must be at least $1,000 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.
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 A Shares generally
bear the sales charge expenses at the time of purchase while Class B Shares and
Class C Shares bear the sales charge expenses at the time of redemption and any
expenses (including higher distribution fees and transfer agency costs)
resulting from such deferred sales charge arrangement, (ii) generally, each
class of shares has exclusive voting rights with respect to approvals of the
Rule 12b-1 distribution plan (described below) pursuant to which its
distribution fee or service fee is paid, (iii) each class of shares has
different exchange privileges, (iv) certain classes of shares are subject to a
conversion feature and (v) certain classes of shares have different shareholder
service options available.
11
<PAGE> 13
The offering price of the Fund's shares is based upon the Fund's net asset value
per share (plus sales charges, where applicable). The net asset values per share
of the Class A Shares, Class B Shares and Class C Shares are generally expected
to be substantially the same. In certain circumstances, however, the per share
net asset values of the classes of shares may differ from one another,
reflecting the daily expense accruals of the higher distribution fees and
transfer agency costs applicable to the Class B Shares and Class C Shares and
the differential in the dividends that may be paid on each class of shares.
The net asset value per share for each class of shares of the Fund is determined
once daily as of the close of trading on the New York Stock Exchange (the
"Exchange") (currently 4:00 p.m., New York time) each day the Exchange is open
for trading. Net asset value per share for each class is determined by dividing
the value of the Fund's portfolio securities, cash and other assets (including
accrued interest) attributable to such class, less all liabilities (including
accrued expenses) attributable to such class, by the total number of shares of
the class outstanding. Such computation is made by using prices as of the close
of trading on the Exchange and (i) valuing securities listed or traded on a
national securities exchange at the last reported sale price, or if there has
been no sale that day, at the mean between the last reported bid and asked
prices, (ii) valuing over-the-counter securities for which the last sales 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 brokers-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 in accordance with procedures established by the Fund's Board of
Trustees. Short-term securities are valued in the manner described in the notes
to the financial statements included in the Fund's Statement of Additional
Information.
The 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 pay distribution fees in connection with the sale and distribution of its
shares and service fees in connection with the provision of ongoing services to
shareholders of each class.
The amount of distribution and service fees varies among the classes offered by
the Fund. Because these fees are paid out of the Fund's assets on an ongoing
basis, these fees will increase the cost of your investment in the Fund. By
purchasing a class of shares subject to higher distribution and service fees,
you may pay more over time than on a class of shares with other types of sales
charge arrangements. Long-term shareholders may pay more than the economic
equivalent of the maximum front-end sales charges permitted by National
Association of Securities Dealers, Inc. rules. The net income attributable to a
class of shares and the dividends payable on such class of shares will be
reduced by the amount of the distribution fees and other expenses associated
with such class of shares. To assist investors in comparing classes of shares,
the tables under the heading "Fees and Expenses of the Fund" provide a summary
of sales charges and expenses and an example of the sales charges and expenses
applicable to each class of shares.
The shares are offered to the public on a continuous basis through the
Distributor as principal underwriter, which is located at 1 Parkview Plaza, PO
Box 5555, Oakbrook Terrace, Illinois 60181-5555. Shares also are offered through
members of the National Association of Securities Dealers, Inc. ("NASD") who are
acting as securities dealers ("dealers") and NASD members or eligible non-NASD
members who are acting as brokers or agents or investors ("brokers"). "Dealers"
and "brokers" are sometimes referred to herein as "authorized dealers."
Shares may be purchased on any business day by completing the application
accompanying this prospectus and forwarding the application, directly or through
an authorized dealer, to the Fund's shareholder service agent, Van Kampen
Investor Services Inc. ("Investor Services"), a wholly owned subsidiary of Van
Kampen Investments. When purchasing shares of the Fund, investors must specify
whether the purchase is for Class A Shares, Class B Shares or Class C Shares.
Sales personnel of authorized dealers distributing the Fund's shares are
entitled to receive compensation for selling such shares and may receive
differing compensation for selling Class A Shares, Class B Shares or Class C
Shares.
12
<PAGE> 14
The offering price for shares is based on the next calculation of net asset
value per share (plus sales charges, where applicable) after an order is
received by Investor Services. Orders received by authorized dealers prior to
the close of the Exchange are priced based on the date of receipt provided such
order is transmitted to Investor Services prior to Investor Services' close of
business on such date. Orders received by authorized dealers after the close of
the Exchange or transmitted to Investor Services after its close of business are
priced based on the date of the next computed net asset value per share provided
they are received by Investor Services prior to Investor Services' close of
business on such date. It is the responsibility of authorized dealers to
transmit orders received by them to Investor Services so they will be received
in a timely manner. Orders of less than $500 generally are mailed by the
authorized dealer and processed at the offering price next calculated after
receipt by Investor Services.
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 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.
Investor accounts will automatically be credited with additional shares of the
Fund after any Fund distributions, such as dividends and capital gains
distributions, unless the investor instructs the Fund otherwise. Investors
wishing to receive cash instead of additional shares should contact the Fund at
(800) 341-2911 or by writing to the Fund, c/o Van Kampen Investors Services
Inc., PO Box 418256, Kansas City, MO 64141-9256.
CLASS A SHARES
Class A Shares of the Fund are sold at net asset value plus an initial maximum
sales charge of up to 5.75% of the offering price (or 6.10% of the net amount
invested), reduced on investments of $50,000 or more as follows:
CLASS A SHARES
SALES CHARGE SCHEDULE
<TABLE>
<CAPTION>
As % of As % of
Size of Offering Net Amount
Investment Price Invested
- ----------------------------------------------------------
<S> <C> <C>
Less than $50,000 5.75% 6.10%
..........................................................
$50,000 but less than
$100,000 4.75% 4.99%
..........................................................
$100,000 but less than
$250,000 3.75% 3.90%
..........................................................
$250,000 but less than
$500,000 2.75% 2.83%
..........................................................
$500,000 but less than
$1,000,000 2.00% 2.04%
..........................................................
$1,000,000 or more * *
..........................................................
</TABLE>
* No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the Fund imposes a contingent
deferred sales charge of 1.00% on certain redemptions made within one year of
the purchase. The contingent deferred sales 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.
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 rates in this paragraph are 0.15% per year of the
Fund's average daily net assets attributable to Class A Shares with respect to
accounts existing before July 3, 1990.
13
<PAGE> 15
CLASS B SHARES
Class B Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge if redeemed within five years of purchase as shown in the
table as follows:
CLASS B SHARES
SALES CHARGE SCHEDULE
<TABLE>
<CAPTION>
Contingent Deferred
Sales Charge
as a Percentage of
Dollar Amount
Year Since Purchase 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>
The contingent deferred sales 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 sales 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.
The amount of the contingent deferred sales charge, 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.
In determining whether a contingent deferred sales charge 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 contingent deferred sales
charge and then of shares held the longest in the shareholder's account.
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
Class C Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge of 1.00% of the dollar amount subject to charge if
redeemed within one year of purchase.
The contingent deferred sales 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 sales 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
C Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
In determining whether a contingent deferred sales charge 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 contingent deferred sales
charge and then of shares held the longest in the shareholder's account.
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. 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. The aggregate
distribution and service fees are currently 1.00% per year of the average daily
net assets attributable to Class C Shares of the Fund. The aggregate
distribution and service fees are 0.90% per year of the average daily net assets
attributable to Class C Shares of the Fund with respect to accounts existing
before April 1, 1995.
14
<PAGE> 16
CONVERSION FEATURE
Class B Shares purchased on or after June 1, 1996, and any dividend reinvestment
plan Class B Shares received on such shares, 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 Class B Shares received on such shares, 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 Class C Shares received on such shares, 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 of the Fund acquired
through the exchange privilege from another Van Kampen fund is determined by
reference to the Van Kampen fund from which such share was originally purchased.
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 federal income tax law 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.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge is waived on redemptions of Class B Shares
and Class C Shares (i) within one year following the death or disability (as
disability is defined by federal income tax law) of a shareholder, (ii) in
connection with required minimum distributions from an individual retirement
account ("IRA") or certain other retirement plan distributions, (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 involuntarily
liquidate a shareholder's account as described under the heading "Redemption of
Shares." The contingent deferred sales charge 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. For a
more complete description of contingent deferred sales charge waivers, please
refer to the Fund's Statement of Additional Information or contact your
authorized dealer.
QUANTITY DISCOUNTS
Investors purchasing Class A Shares may, under certain circumstances described
below, be entitled to pay reduced sales charges. Investors, or their authorized
dealers, 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 Asset Management 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 Class A Shares 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 Class A Shares
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.
15
<PAGE> 17
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 13-month
period to determine the sales charge as outlined in the Class A Shares sales
charge table. The size of investment shown in the Class A Shares sales charge
table includes purchases of shares of the Participating Funds over a 13-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 compute the 13-month period starting up to 90 days before
the date of execution of a Letter of Intent. Each investment made during the
period receives the reduced sales charge applicable to the total amount of the
investment goal. 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 backdating provisions, an adjustment will be made at
the time of expiration of the Letter of Intent to give effect to the lower
charge. Such adjustment in sales charge will be used to purchase additional
shares for the shareholder at the applicable discount category. The Fund
initially will escrow shares totaling 5% of the dollar amount of the Letter of
Intent to be held by Investor Services in the name of the shareholder. In the
event the Letter of Intent goal is not achieved within the period, the investor
must pay the difference between the sales charge applicable to the purchases
made and the reduced sales charge previously paid. Such payments may be made
directly to the Distributor or, if not paid, the Distributor will liquidate
sufficient escrowed shares to obtain the difference.
OTHER PURCHASE PROGRAMS
Purchasers of Class A Shares may be entitled to reduced initial sales charges in
connection with the unit investment trust reinvestment program 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 PROGRAM. 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 per share and with no minimum initial or
subsequent investment requirement, if the administrator of an investor's unit
investment trust program meets certain uniform criteria relating to cost savings
by the Fund and the Distributor. 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 terms and conditions that apply to the program,
should contact their authorized dealer or the Distributor.
The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during each distribution period by all investors who choose to invest in
the Fund through the program and (2) provide Investor Services with appropriate
backup data for each investor participating in the program in a computerized
format fully compatible with Investor Services' processing system.
As further requirements for obtaining these special benefits, the Fund also
requires that all dividends and other distributions by the Fund be reinvested in
additional shares without any systematic withdrawal program. There will be no
minimum for reinvestments from unit investment trusts. The Fund will send
account activity statements to such participants on a quarterly basis only, even
if their investments are made more frequently. The Fund reserves the right to
modify or terminate this program at any time.
NET ASSET VALUE 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 such shares will not be resold except through redemption by
the Fund, by:
(1) Current or retired trustees or directors of funds advised by Asset
Management or Advisory Corp. and such persons' families and their beneficial
accounts.
(2) Current or retired directors, officers and employees of Morgan Stanley Dean
Witter & Co. and any of its subsidiaries, employees of an investment
subadviser to any fund described in (1) above or an affiliate of such
subadviser, and
16
<PAGE> 18
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 12-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 details 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 purchase shares of the
Fund with proceeds from distributions from such a plan or retirement account
other than distributions taken to correct an excess contribution.
(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 Internal Revenue Code of 1986, as
amended (the "Code"), or custodial accounts held by a bank created pursuant
to Section 403(b) of the Code and sponsored by nonprofit 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 Trust Company serves 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, plus 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, plus 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
17
<PAGE> 19
holders of an insurance company, customers of a bank or broker-dealer,
clients of an investment adviser or other similar groups. Shares purchased
in each group's participants account in connection with this privilege will
be subject to a contingent deferred sales charge 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 Investor Services by the
investment adviser, trust company or bank trust department, provided that
Investor Services 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 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.
REDEMPTION OF
SHARES
Generally shareholders may redeem for cash some or all of their shares without
charge by the Fund (other than applicable sales charge) at any time. As
described under the heading "Purchase of Shares," redemptions of Class B Shares
and Class C Shares may be subject to a contingent deferred sales charge. In
addition, certain redemptions of Class A Shares for shareholder accounts of $1
million or more may be subject to a contingent deferred sales charge.
Redemptions completed through an authorized dealer or a custodian of a
retirement plan account may involve additional fees charged by the dealer or
custodian.
Except as specified below under "Telephone Redemption Requests," payment for
shares redeemed generally will be made by check mailed within seven days after
acceptance by Investor Services 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. Such payment may, under certain
circumstances, be paid wholly or in part by a distribution-in-kind of portfolio
securities. If the shares to be redeemed have been recently purchased by check,
Investor Services may delay the redemption until it confirms the purchase check
has cleared, which may take up to 15 days. A taxable gain or loss will be
recognized by the shareholder upon redemption of shares.
WRITTEN REDEMPTION REQUESTS. Shareholders may request a redemption of shares by
written request in proper form sent directly to Van Kampen Investor Services
Inc., PO Box 418256, Kansas City, MO 64141-9256. The request for redemption
should indicate the number of shares to be redeemed, the class designation of
such shares and the shareholder's account number. The redemption request must be
signed by all persons in whose names the shares are registered. Signatures must
conform exactly to the account registration. If the proceeds of the redemption
exceed $50,000, or if the proceeds are not to be paid to the record owner at the
record address, or if the record address has changed within the previous 30
days, signature(s) must be guaranteed by one of the following: a bank or trust
company; a broker-dealer; a credit union; a national securities exchange,
registered securities association or clearing agency; a savings and loan
association; or a federal savings bank.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption. In some cases, however,
other documents may be necessary. In the case of shareholders holding
certificates, the certificates for the shares being redeemed properly endorsed
for transfer must accompany the redemption request. In the event the redemption
is requested by a corporation, partnership, trust, fiduciary, executor or
administrator, and the name and title of the individual(s) authorizing such
redemption is not shown in the account registration, a copy of the corporate
resolution or other legal documentation appointing the authorized signer and
certified within the prior 120 days must accompany the
18
<PAGE> 20
redemption request. IRA redemption requests should be sent to the IRA custodian
to be forwarded to Investor Services. Contact the IRA custodian for further
information.
In the case of written redemption requests sent directly to Investor Services,
the redemption price is the net asset value per share next determined after the
request in proper form is received by Investor Services.
AUTHORIZED DEALER REDEMPTION REQUESTS. Shareholders may place redemption
requests through an authorized dealer. Orders sent through authorized dealers
must be at least $500 (unless transmitted by your authorized dealer via the
FUNDSERV network). The redemption price for such shares is the net asset value
per share next calculated after an order in proper form is received by an
authorized dealer provided such order is transmitted to the Distributor prior to
the Distributor's close of business on such day. It is the responsibility of
authorized dealers to transmit redemption requests received by them to the
Distributor so they will be received prior to such time. Redemptions completed
through an authorized dealer may involve additional fees charged by the dealer.
TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. To establish
such privilege, a shareholder must complete the appropriate section of the
application form accompanying this prospectus or call the Fund at (800) 341-2911
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. Van Kampen Investments, Investor Services and the Fund employ
procedures considered by them to be reasonable to confirm that instructions
communicated by telephone are genuine. Such procedures include requiring certain
personal identification information prior to acting upon telephone instructions,
tape recording telephone communications and providing written confirmation of
instructions communicated by telephone. If reasonable procedures are employed,
neither Van Kampen Investments, Investor Services nor the Fund will be liable
for following telephone instructions which it reasonably believes to be genuine.
Telephone redemptions may not be available if the shareholder cannot reach
Investor Services by telephone, whether because all telephone lines are busy or
for any other reason; in such case, a shareholder would have to use the Fund's
other redemption procedure previously described. Requests received by Investor
Services prior to 4:00 p.m., New York time, will be processed at the next
determined net asset value per share. These privileges are available for all
accounts other than retirement accounts or accounts with shares represented by
certificates. If an account has multiple owners, Investor Services may rely on
the instructions of any one owner.
For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check and amounts of at least
$1,000 up to $1 million may be redeemed daily if the proceeds are to be paid by
wire. The proceeds must be payable to the shareholder(s) of record and sent to
the address of record for the account or wired directly to their predesignated
bank account. This privilege is not available if the address of record has been
changed within 30 days prior to a telephone redemption request. Proceeds from
redemptions payable by wire transfer are expected to be wired on the next
business day following the date of redemption. The Fund reserves the right at
any time to terminate, limit or otherwise modify this redemption privilege.
OTHER REDEMPTION INFORMATION. The Fund may redeem shares of any shareholder
account that has a value on the date of the notice of redemption less than the
minimum initial investment as specified in this prospectus. At least 60 days
advance written notice of any such involuntary redemption will be provided to
the shareholder and such shareholder will be given an opportunity to purchase
the required value of additional shares at the next determined net asset value
without sales charge. Any involuntary redemption may only occur if the
shareholder account is less than the minimum initial investment due to
shareholder redemptions.
DISTRIBUTIONS FROM THE FUND
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. Investors will be
19
<PAGE> 21
entitled to begin receiving dividends on their shares on the business day after
Investor Services receives payment for such shares. However, shares become
entitled to dividends on the day Investor Services receives payment for the
shares either through a fed wire or NSCC settlement. Shares remain entitled to
dividends through the day such shares are processed for payment on redemption.
DIVIDENDS. Dividends from stocks and interest earned from other investments are
the Fund's main sources of income. Substantially all of this income, less
expenses, is distributed at quarterly as dividends to shareholders. Dividends
are automatically applied to purchase additional shares of the Fund at the next
determined net asset value unless the shareholder instructs otherwise.
The per share dividends on Class B Shares and Class C Shares may 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 purchase prices. Net realized capital gains represent the total
profit from sales of securities minus total losses from sales of securities
including losses carried forward from prior years. The Fund distributes any
taxable net realized capital gains to shareholders at least annually. 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
instructs otherwise.
SHAREHOLDER SERVICES
Listed below are some of the shareholder services the Fund offers to investors.
For a more complete description of the Fund's shareholder services, such as
investment accounts, share certificates, retirement plans, automated clearing
house deposits, dividend diversification and the systematic withdrawal plan,
please refer to the Statement of Additional Information or contact your
authorized dealer.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gains distributions in shares of
the Fund. Such shares are acquired at net asset value per share (without sales
charge) on the applicable payable date of the dividend or capital gains
distribution. Unless the shareholder instructs otherwise, the reinvestment plan
is automatic. This instruction may be made by telephone by calling (800)
341-2911 ((800) 421-2833 for the hearing impaired) or by writing to Investor
Services. The investor may, on the initial application or prior to any
declaration, instruct that dividends be paid in cash and capital 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 Investor Services to charge a bank account on a
regular basis to invest predetermined amounts in the Fund. Additional
information is available from the Distributor or your authorized dealer.
EXCHANGE PRIVILEGE. Shares of the Fund may be exchanged for shares of the same
class of any Participating Fund based on the next computed net asset value per
share of each fund after requesting the exchange without any sales charge,
subject to certain limitations. Shares of the Fund may be exchanged for shares
of any Participating Fund only if shares of that Participating Fund are
available for sale; however, during periods of suspension of sales, shares of a
Participating Fund may be available for sale only to existing shareholders of a
Participating Fund. Shareholders seeking an exchange into a Participating Fund
should obtain and read the current prospectus for such fund.
When Class B Shares and Class C Shares are exchanged among Participating Funds,
the holding period for purposes of computing the contingent deferred sales
charge is based upon the date of the initial purchase of such shares from a
Participating Fund. If such Class B Shares or Class C Shares are redeemed and
not exchanged for shares of another Participating Fund, Class B Shares and Class
C Shares are subject to the contingent deferred sales charge 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 Investor Services or by contacting the telephone transaction line at
20
<PAGE> 22
(800) 421-5684. A shareholder automatically has telephone exchange privileges
unless otherwise designated in the application form accompanying the prospectus.
Van Kampen Investments and its subsidiaries, including Investor Services, and
the Fund employ procedures considered by them to be reasonable to confirm that
instructions communicated by telephone are genuine. Such procedures include
requiring certain personal identification information prior to acting upon
telephone instructions, tape recording telephone communications, and providing
written confirmation of instructions communicated by telephone. If reasonable
procedures are employed, neither Van Kampen Investments, Investor Services nor
the Fund will be liable for following telephone instructions which it reasonably
believes to be genuine. If the exchanging shareholder does not have an account
in the fund whose shares are being acquired, a new account will be established
with the same registration, dividend and capital gains options (except dividend
diversification) and authorized dealer of record as the account from which
shares are exchanged, unless otherwise specified by the shareholder. In order to
establish a systematic withdrawal plan for the new account or reinvest dividends
from the new account into another fund, however, an exchanging shareholder must
submit a specific request. The Fund reserves the right to reject any order to
acquire its shares through exchange. In addition, the Fund may modify, restrict
or terminate the exchange privilege at any time on 60 days' notice to its
shareholders of any termination or material amendment.
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 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 such shareholder's 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 Participating 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.
INTERNET TRANSACTIONS. In addition to performing transactions on your account
through written instruction or by telephone, you may also perform certain
transactions through the internet. Please refer to our web site at
www.vankampen.com for further instruction. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated through the internet are genuine. Such
procedures include requiring use of a personal identification number prior to
acting upon internet instructions and providing written confirmation of
instructions communicated through the internet. If reasonable procedures are
employed, neither Van Kampen Investments, Investor Services 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, Investor Services may
rely on the instructions of any one owner.
FEDERAL INCOME TAXATION
Distributions of the Fund's net investment income (consisting generally of
taxable income and net short-term capital gains) 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 (which are the excess of net long-term capital gains over net
short-term capital losses) as capital gains dividends, if any, are taxable to
shareholders as long-term capital gains, whether paid in cash or reinvested in
additional shares, and regardless of how long the shares of the Fund have
21
<PAGE> 23
been held by such shareholders. Such capital gains dividends may be taxed at
different rates depending on how long the Fund held the securities. Consistent
with the Fund's investment objectives, the Fund expects that its distributions
will consist of ordinary income and capital gains dividends. Distributions in
excess of the Fund's earnings and profits will first reduce the adjusted tax
basis of a holder's shares and, after such adjusted tax basis is reduced to
zero, will constitute capital gains to such holder (assuming such shares are
held as a capital asset). Although distributions generally are treated as
taxable in the year they are paid, distributions declared in October, November
or December, payable to shareholders of record on a specified date in such month
and paid during January of the following year will be treated as having been
distributed by the Fund and received by the shareholders on the December 31st
prior to the date of payment. The Fund will inform shareholders of the source
and tax status of all distributions promptly after the close of each calendar
year.
The sale or exchange of shares is a taxable transaction for federal income tax
purposes. Shareholders who sell their shares will generally recognize gain or
loss in an amount equal to the difference between their adjusted tax basis in
the shares and the amount received. If the shares are held as a capital asset,
the gain or loss will be a capital gain or loss. Any capital gains may be taxed
at different rates depending on how long the shareholder held such shares.
The Fund is required, in certain circumstances, to withhold 31% of dividends and
certain other payments, including redemptions, paid to shareholders who do not
furnish to the Fund their correct taxpayer identification number (in the case of
individuals, their social security number) and certain required certifications
or who are otherwise subject to backup withholding.
Foreign shareholders, including shareholders who are nonresident aliens, may be
subject to United States withholding tax on certain distributions (whether
received in cash or in shares) at a rate of 30% or such lower rate as prescribed
by an applicable treaty. Prospective foreign investors should consult their
United States tax advisers concerning the tax consequences to them of an
investment in shares.
The Fund intends to qualify as a regulated investment company under the federal
income tax law. If the Fund so qualifies and distributes each year to its
shareholders at least 90% of its net investment income, the Fund will not be
required to pay federal income taxes on any income it distributed to
shareholders. If the Fund distributes less than the sum of 98% of its ordinary
income and 98% of its capital gains net income, then the Fund will be subject to
a 4% excise tax on the undistributed amounts.
The federal income tax discussion above is for general information only.
Prospective investors should consult their own tax advisers regarding the
specific federal tax consequences of purchasing, holding, exchanging or selling
shares, as well as the effects of state, local and foreign tax law and any
proposed tax law changes.
22
<PAGE> 24
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past five years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report, along with the Fund's financial statements, is
included in the Statement of Additional Information and may be obtained by
shareholders without charge by calling the telephone number on the back cover of
this prospectus. This information should be read in conjunction with the
financial statements and notes thereto included in the Statement of Additional
Information.
<TABLE>
<CAPTION>
Class A Shares Class B Shares
Year Ended December 31, Year Ended December 31,
1998 1997 1996 1995 1994 1998 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period......................... $7.242 $6.740 $6.31 $5.16 $5.55 $7.203 $6.713
------- ------- ------- ------- -------- ------- -------
Net Investment Income.......... .174 .152 .158 .20 .21 .118 .100
Net Realized and Unrealized
Gain/Loss.................... 1.030 1.435 .796 1.458 (.317) 1.019 1.423
------- ------- ------- ------- -------- ------- -------
Total from Investment
Operations..................... 1.204 1.587 .954 1.658 (.107) 1.137 1.523
------- ------- ------- ------- -------- ------- -------
Less:
Distributions from and in
Excess of Net Investment
Income....................... .175 .168 .156 .188 .1855 .123 .116
Distributions from Net Realized
Gain......................... .451 .917 .368 .32 .0975 .451 .917
------- ------- ------- ------- -------- ------- -------
Total Distributions.............. .626 1.085 .524 .508 .283 .574 1.033
------- ------- ------- ------- -------- ------- -------
Net Asset Value, End of the
Period......................... $7.820 $7.242 $6.740 $6.31 $5.16 $7.766 $7.203
======= ======= ======= ======= ======== ======= =======
Total Return(a).................. 16.99% 24.13% 15.55% 32.57% (1.98%) 16.17% 23.23%
Net Assets at End of the Period
(In millions).................. $808.5 $638.1 $471.8 $349.9 $240.5 $1,140.0 $908.7
Ratio of Expenses to Average Net
Assets(b)...................... .85% .86% .97% .95% 1.02% 1.62% 1.64%
Ratio of Net Investment Income to
Average Net Assets(b).......... 2.31% 2.09% 2.50% 3.43% 3.60% 1.55% 1.32%
Portfolio Turnover............... 61% 86% 99% 92% 92% 61% 86%
<CAPTION>
Class B Shares Class C Shares
Year Ended December 31,
1996 1995 1994 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period......................... $6.30 $5.16 $5.55 $7.204 $6.713 $6.30 $5.16 $5.55
------- ------- ------- ------- ------- ------ ------- --------
Net Investment Income.......... .113 .15 .13 .117 .100 .113 .15 .14
Net Realized and Unrealized
Gain/Loss.................... .784 1.458 (.277) 1.020 1.424 .784 1.458 (.287)
------- ------- ------- ------- ------- ------ ------- --------
Total from Investment
Operations..................... .897 1.608 (.147) 1.137 1.524 .897 1.608 (.147)
------- ------- ------- ------- ------- ------ ------- --------
Less:
Distributions from and in
Excess of Net Investment
Income....................... .116 .148 .1455 .123 .116 .116 .148 .1455
Distributions from Net Realized
Gain......................... .368 .32 .0975 .451 .917 .368 .32 .0975
------- ------- ------- ------- ------- ------ ------- --------
Total Distributions.............. .484 .468 .243 .574 1.033 .484 .468 .243
------- ------- ------- ------- ------- ------ ------- --------
Net Asset Value, End of the
Period......................... $6.713 $6.30 $5.16 $7.767 $7.204 $6.713 $6.30 $5.16
======= ======= ======= ======= ======= ====== ======= ========
Total Return(a).................. 14.56% 31.51% (2.70%) 16.17% 23.23% 14.56% 31.51% (2.70%)
Net Assets at End of the Period
(In millions).................. $633.3 $408.9 $242.0 $96.1 $75.8 $55.2 $38.3 $26.9
Ratio of Expenses to Average Net
Assets(b)...................... 1.74% 1.75% 1.82% 1.62% 1.64% 1.74% 1.76% 1.82%
Ratio of Net Investment Income to
Average Net Assets(b).......... 1.74% 2.62% 2.82% 1.55% 1.32% 1.73% 2.63% 2.83%
Portfolio Turnover............... 99% 92% 92% 61% 86% 99% 92% 92%
</TABLE>
(a) Total Return is based upon Net Asset Value which does not include payment of
maximum sales charge or contingent deferred sales charge.
(b) For the years ended December 31, 1994 through 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%.
23
<PAGE> 25
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2911
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders, or redemptions, call
the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call (800) 421-2833
FUND INFO(R)
For automated telephone services, call (800) 847-2424
WEB SITE
www.vankampen.com
VAN KAMPEN EQUITY INCOME FUND
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Investment Adviser
VAN KAMPEN ASSET MANAGEMENT INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Distributor
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Transfer Agent
VAN KAMPEN INVESTOR SERVICES INC.
PO Box 418256
Kansas City, MO 64141-9256
Attn: Van Kampen Equity Income Fund
Custodian
STATE STREET BANK AND TRUST COMPANY
225 West Franklin Street, PO Box 1713
Boston, MA 02105-1713
Attn: Van Kampen Equity Income Fund
Legal Counsel
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
Independent Accountants
PRICEWATERHOUSECOOPERS LLP
200 East Randolph Drive
Chicago, IL 60601
<PAGE> 26
[VAN KAMPEN FUNDS LOGO]
Investment Company Act File No.
811-919.
EQI PRO 4/99
VAN KAMPEN
EQUITY INCOME FUND
PROSPECTUS
APRIL 30, 1999
A Statement of Additional Information, which
contains more details about the Fund, is
incorporated by reference in its entirety into
this prospectus.
You will find additional information about the
Fund in its annual and semiannual reports,
which explain the market conditions and
investment strategies affecting the Fund's
recent performance.
You can ask questions or obtain a free copy of
the Fund's reports or its Statement of
Additional Information by calling (800)
341-2911 from 7:00 a.m. to 7:00 p.m., Central
time, Monday through Friday.
Telecommunications Device for the Deaf users
may call (800) 421-2833. A free copy of the
Fund's reports can also be ordered from our
web site at www.vankampen.com.
Information about the Fund, including its
reports and Statement of Additional
Information, has been filed with the
Securities and Exchange Commission (SEC). It
can be reviewed and copied at the SEC Public
Reference Room in Washington, DC or online at
the SEC's web site (http://www.sec.gov). For
more information, please call the SEC at (800)
SEC-0330. You can also request these materials
by writing the Public Reference Section of the
SEC, Washington DC, 20549-6009, and paying a
duplication fee.
<PAGE> 27
STATEMENT OF ADDITIONAL INFORMATION
VAN KAMPEN
EQUITY INCOME FUND
Van Kampen Equity Income Fund (the "Fund") is a mutual fund with a primary
investment objective to seek the highest possible income consistent with safety
of principal. Long-term growth of capital is an important secondary investment
objective. The Fund's management seeks 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.
The Fund is organized as a diversified series of Van Kampen Equity Income
Fund, an open-end, management investment company (the "Trust").
This Statement of Additional Information is not a prospectus. This
Statement of Additional Information should be read in conjunction with the
Fund's prospectus (the "Prospectus") dated as of the same date as this Statement
of Additional Information. This Statement of Additional Information does not
include all the information that a prospective investor should consider before
purchasing shares of the Fund. Investors should obtain and read the Prospectus
prior to purchasing shares of the Fund. A Prospectus may be obtained without
charge by writing or calling Van Kampen Funds Inc. at 1 Parkview Plaza, PO Box
5555, Oakbrook Terrace, Illinois 60181-5555 or (800) 341-2911 ((800) 421-2833
for the hearing impaired).
---------------------------------------------
TABLE OF CONTENTS
---------------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
General Information......................................... B-2
Investment Objectives and Policies.......................... B-4
Options, Futures Contracts and Related Options.............. B-7
Investment Restrictions..................................... B-13
Trustees and Officers....................................... B-15
Investment Advisory Agreement............................... B-24
Distribution and Service.................................... B-25
Transfer Agent.............................................. B-29
Portfolio Transactions and Brokerage Allocation............. B-30
Shareholder Services........................................ B-31
Redemption of Shares........................................ B-34
Contingent Deferred Sales Charge-Class A.................... B-34
Waiver of Class B and Class C Contingent Deferred Sales
Charge.................................................... B-34
Taxation.................................................... B-36
Fund Performance............................................ B-41
Other Information........................................... B-44
Report of Independent Accountants........................... F-1
Financial Statements........................................ F-2
Notes to Financial Statements............................... F-15
</TABLE>
THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED APRIL 30, 1999.
<PAGE> 28
GENERAL INFORMATION
The Fund was originally incorporated in Delaware on August 14, 1957 under
the name the Provident Fund for Income, Inc. On July 2, 1990, the Fund changed
its name from the Provident Fund for Income, Inc. to American Capital Equity
Income Fund, Inc. The Fund was reincorporated by merger as a Maryland
corporation on October 22, 1991, under the same name. As of August 18, 1995, the
Fund was reorganized under the name Van Kampen American Capital Equity Income
Fund as a series of the Trust. The Trust is organized as a business trust under
the laws of the State of Delaware. On July 14, 1998, the Fund and the Trust
adopted their present names.
Van Kampen Asset Management Inc. (the "Adviser" or "Asset Management"), Van
Kampen Funds Inc. (the "Distributor"), and Van Kampen Investor Services Inc.
("Investor Services") are wholly owned subsidiaries of Van Kampen Investments
Inc. ("Van Kampen Investments"), which is an indirect wholly owned subsidiary of
Morgan Stanley Dean Witter & Co. The principal office of the Fund, the Adviser,
the Distributor and Van Kampen Investments is located at 1 Parkview Plaza, PO
Box 5555, Oakbrook Terrace, Illinois 60181-5555.
Morgan Stanley Dean Witter & Co. and various of its directly or indirectly
owned subsidiaries, including Morgan Stanley Dean Witter Investment Management
Inc., an investment adviser, Morgan Stanley & Co. Incorporated, a registered
broker-dealer and investment adviser, and Morgan Stanley International, are
engaged in a wide range of financial services. Their principal businesses
include securities underwriting, distribution and trading; merger, acquisition,
restructuring and other corporate finance advisory activities; merchant banking;
stock brokerage and research services; credit services; asset management;
trading of futures, options, foreign exchange, commodities and swaps (involving
foreign exchange, commodities, indices and interest rates); real estate advice,
financing and investing; and securities lending.
The authorized capitalization of the Trust consists of an unlimited number
of shares of beneficial interest, par value $0.01 per share, which can be
divided into series, such as the Fund, and further subdivided into classes of
each series. Each share represents an equal proportionate interest in the assets
of the series with each other share in such series and no interest in any other
series. No series is subject to the liabilities of any other series. The
Declaration of Trust provides that shareholders are not liable for any
liabilities of the Trust or any of its series, requires inclusion of a clause to
that effect in every agreement entered into by the Trust or any of its series
and indemnifies shareholders against any such liability.
The Fund currently offers 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 Declaration of Trust. Each
class of shares of the Fund generally are identical in all respects except that
each class bears certain distribution expenses and has exclusive voting rights
with respect to its distribution fee. Shares of the Trust entitle their holders
to one vote per share; however, separate votes are taken by each series on
matters affecting an individual series and separate votes are taken by each
class of a series on matters affecting an individual class of such series. For
example, a change in investment policy for a series would be voted upon by
shareholders of only the series involved and a change in the distribution fee
for a class of a series would be voted upon by shareholders of only the class of
such series involved. Except as otherwise described in the
B-2
<PAGE> 29
Prospectus or herein, shares do not have cumulative voting rights, preemptive
rights or any conversion, subscription or exchange rights.
The Fund does not contemplate holding regular meetings of shareholders to
elect Trustees or otherwise. However, the holders of 10% or more of the
outstanding shares may by written request require a meeting to consider the
removal of Trustees by a vote of majority of the shares then outstanding cast in
person or by proxy at such meeting. The Fund will assist such holders in
communicating with other shareholders of the Fund to the extent required by the
Investment Company Act of 1940 as amended (the "1940 Act"), or rules or
regulations promulgated by the Securities and Exchange Commission ("SEC").
In the event of liquidation, each of the shares of the Fund is entitled to
its portion of all of the Fund's net assets after all debts and expenses of the
Fund have been paid. Since Class B Shares and Class C Shares have higher
distribution fees and transfer agency costs, the liquidation proceeds to holders
of Class B Shares and Class C Shares are likely to be lower than to holders of
Class A Shares.
The Trustees may amend the Declaration of Trust (including with respect to
any series) in any manner without shareholder approval, except that the Trustees
may not adopt any amendment adversely affecting the rights of shareholders of
any series without approval by a majority of the shares of each affected series
present at a meeting of shareholders (or such higher vote as may be required by
the 1940 Act or other applicable law) and except that the Trustees cannot amend
the Declaration of Trust to impose any liability on shareholders, make any
assessment on shares or impose liabilities on the Trustees without approval from
each affected shareholder or Trustee, as the case may be.
Statements contained in this Statement of Additional Information as to the
contents of any contract or other document referred to are not necessarily
complete, and, in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement of which
this Statement of Additional Information forms a part, each such statement being
qualified in all respects by such reference.
As of April 7, 1999, 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
April 7, Class Percentage
Name and Address of Holder 1999 of Shares Ownership
- -------------------------- ------------ --------- ----------
<S> <C> <C> <C>
Van Kampen Trust Company........................ 26,076,782 A 22.31%
2800 Post Oak Blvd. 40,710,898 B 27.28%
Houston, TX 77056 1,789,957 C 13.50%
Merrill Lynch Pierce Fenner & Smith Inc. ....... 9,515,924 A 8.14%
For the Sole Benefit of its Customers 1,246,296 C 9.40%
Attn: Fund Administration
4800 Deer Lake Drive East
2nd Floor
Jacksonville, FL 32246-6484
</TABLE>
- ------------------------------------
Van Kampen Trust Company acts as custodian for certain employee benefit
plans and independent retirement accounts.
B-3
<PAGE> 30
INVESTMENT OBJECTIVES AND POLICIES
The following disclosures supplement disclosures set forth under the same
caption in the Prospectus and do not, standing alone, present a complete or
accurate explanation of the matters disclosed. Readers must refer also to this
caption in the Prospectus for a complete presentation of the matters disclosed
below.
REPURCHASE AGREEMENTS
The Fund may engage in 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 may enter into repurchase agreements with banks or
broker-dealers deemed to be creditworthy by the Adviser under guidelines
approved by the Trustees. The Fund will not invest in repurchase agreements
maturing in more than seven days if any such investment, together with any other
illiquid securities held by the Fund, would exceed the Fund's limitation on
illiquid securities described below. In the event of the bankruptcy or other
default of a seller of a repurchase agreement, the Fund could experience both
delays in liquidating the underlying securities and losses including: (a)
possible decline in the value of the underlying security during the period while
the Fund seeks to enforce its rights thereto; (b) possible lack of access to
income on the underlying security during this period; and (c) expenses of
enforcing its rights.
For the purpose of investing in repurchase agreements, the Adviser may
aggregate the cash that certain funds advised or subadvised by the Adviser or
certain of its affiliates would otherwise invest separately into a joint
account. The cash in the joint account is then invested in repurchase agreements
and the funds that contributed to the joint account share pro rata in the net
revenue generated. The Adviser believes that the joint account produces
efficiencies and economies of scale that may contribute to reduced transaction
costs, higher returns, higher quality investments and greater diversity of
investments for the Fund than would be available to the Fund investing
separately. The manner in which the joint account is managed is subject to
conditions set forth in an exemptive order from the SEC authorizing this
practice, which conditions are designed to ensure the fair administration of the
joint account and to protect the amounts in that account.
Repurchase agreements are fully collateralized by the underlying debt
securities and are considered to be loans under the 1940 Act. The Fund pays for
such securities only upon physical delivery or evidence of book entry transfer
to the account of a custodian or bank acting as agent. The seller under a
repurchase agreement will be required to maintain the value of the underlying
securities marked-to-market daily at not less than the repurchase price. The
underlying securities (normally securities of the U.S. government, or its
agencies and instrumentalities) may have maturity dates exceeding one year. The
Fund does not bear the risk of a decline in value of the underlying security
unless the seller defaults under its repurchase obligation.
PORTFOLIO TURNOVER
The Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for a fiscal year by the average
monthly value of the Fund's
B-4
<PAGE> 31
portfolio securities during such fiscal year. The turnover rate may vary greatly
from year to year as well as within a year. The Fund's portfolio turnover rate
(the lesser of the value of the securities purchased or securities sold divided
by the average value of the securities held in the Fund's portfolio excluding
all securities whose maturities at acquisition were one year or less) is shown
in the table of "Financial Highlights" in the Prospectus. A high portfolio
turnover rate (100% or more) increases the Fund's transaction costs, including
brokerage commissions, and may result in the realization of more short-term
capital gains than if the Fund had a lower portfolio turnover. The turnover rate
will not be a limiting factor, however, if the Adviser deems portfolio changes
appropriate.
ILLIQUID SECURITIES
The Fund may invest up to 10% of its net assets in illiquid securities,
which includes securities that are not readily marketable, repurchase agreements
which have a maturity of longer than seven days, and generally includes
securities that are restricted from sale to the public without registration
under the Securities Act of 1933, as amended (the "1933 Act"). The sale of such
securities often requires more time and results in higher brokerage charges or
dealer discounts and other selling expenses than does the sale of liquid
securities trading on national securities exchanges or in the over-the-counter
markets. Restricted securities are often purchased at a discount from the market
price of unrestricted securities of the same issuer reflecting the fact that
such securities may not be readily marketable without some time delay.
Investments in securities which have no ready market are valued at fair value as
determined in good faith by the Adviser in accordance with procedures approved
by the Fund's Trustees. Ordinarily, the Fund would invest in restricted
securities only when it receives the issuer's commitment to register the
securities without expense to the Fund. However, registration and underwriting
expenses (which may range from 7% to 15% of the gross proceeds of the securities
sold) may be paid by the Fund. Restricted securities which can be offered and
sold to qualified institutional buyers under Rule 144A under the 1933 Act ("144A
Securities") and are determined to be liquid under guidelines adopted by and
subject to the supervision of the Fund's Board of Trustees are not subject to
the limitation on illiquid securities. Such 144A Securities are subject to
monitoring and may become illiquid to the extent qualified institutional buyers
become, for a time, uninterested in purchasing such securities. Factors used to
determine whether 144A Securities are liquid include, among other things, a
security's trading history, the availability of reliable pricing information,
the number of dealers making quotes or making a market in such security and the
number of potential purchasers in the market for such security. For purposes
hereof, investments by the Fund in securities of other investment companies will
not be considered investments in restricted securities to the extent permitted
by (i) the 1940 Act, (ii) the rules and regulations promulgated by the SEC under
the 1940 Act, as amended from time to time, or (iii) an exemption or other
relief from the provisions of the 1940 Act.
CONVERTIBLE SECURITIES
Convertible securities include corporate bonds, notes and preferred stock
that can be converted into or exchanged for a prescribed amount of common stock
of the same or a different issue within a particular period of time at a
specified price or formula. A convertible security entitles the holder to
receive interest paid or accrued on debt or dividends paid on preferred stock
until the convertible stock matures or is redeemed,
B-5
<PAGE> 32
converted or exchanged. Convertible securities combine the fixed-income
characteristics of bonds and capital appreciation potential of preferred stock.
While no securities investment is without some risk, investments in convertible
securities generally entail less risk than the issuer'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 market value of convertible securities tends to decline as
interest rates increase and, conversely, to increase as interest rates decline.
While convertible securities generally offer lower interest or dividends yields
than nonconvertible debt securities of similar quality, they do enable the
investor to benefit from increases in the market price of the underlying common
stock.
WARRANTS AND RIGHTS
Warrants and rights are instruments that permit the holder to acquire, by
subscription, the capital stock of a corporation at a set price, regardless of
the market price for such stock. They give the holder the right to purchase a
given number of shares of a particular company at specified prices within
certain periods of time. The purchaser of a warrant or right expects that the
market price of the security will exceed the purchase price of the warrant plus
the exercise price of the warrant or right, thus giving him a profit. Of course,
since the market price may never exceed the exercise price before the expiration
date of the warrant, the purchaser of the warrant risks the loss of the entire
purchase price of the warrant. Warrants generally trade in the open market and
may be sold rather than exercised. Warrants are sometimes sold in unit form with
other securities of an issuer. Units of warrants and common stock may be
employed in financing young, unseasoned companies. The purchase price of a
warrant or right varies with the exercise price of such security, the current
market value of the underlying security, the life of the warrant or right and
various other investment factors.
SECURITIES OF FOREIGN ISSUERS
The Fund may purchase foreign securities in the form of American Depositary
Receipts ("ADRs") and European Depositary Receipts ("EDRs") or other securities
representing underlying shares of foreign companies. These securities are not
necessarily denominated in the same currency as the underlying securities but
generally are denominated in the currency of the market in which they are
traded. ADRs are receipts typically issued by an American bank or trust company
which evidence ownership of underlying securities issued by a foreign
corporation. ADRs are publicly traded on exchanges or over-the-counter in the
United States and are issued through "sponsored" or "unsponsored" arrangements.
In a sponsored ADR arrangement, the foreign issuer assumes the obligation to pay
some or all of the depositary's transaction fees, whereas under an unsponsored
arrangement, the foreign issuer assumes no obligations and the depositary's
transaction fees are paid by the ADR holders. In addition, less information is
available in the United States about an unsponsored ADR than about a sponsored
ADR and financial information about a company may not be as reliable for an
unsponsored ADR as it is for a sponsored ADR. The Fund may invest in ADRs
through both sponsored and unsponsored arrangements. EDRs are receipts issued in
Europe by banks or depositories which evidence a similar ownership arrangement.
B-6
<PAGE> 33
OPTIONS, FUTURES CONTRACTS AND RELATED OPTIONS
SELLING CALL AND PUT OPTIONS
Purpose. The principal reason for selling options is to obtain, through
receipt of premiums, a greater current return than would be realized on the
underlying securities alone. Such current return could be expected to fluctuate
because premiums earned from an option selling program and dividend or interest
income yields on portfolio securities vary as economic and market conditions
change. Selling options on portfolio securities is likely to result in a higher
portfolio turnover rate.
Selling Options. The purchaser of a call option pays a premium to the
seller (i.e., the writer) for the right to buy the underlying security from the
seller at a specified price during a certain period. The Fund would write call
options only on a covered basis or for cross-hedging purposes. A call option is
covered if, at all times during the option period, the Fund would own or have
the right to acquire securities of the type that it would be obligated to
deliver if any outstanding option were exercised. An option is for cross-hedging
purposes if it is not covered by the security subject to the option, but is
designed to provide a hedge against another security which the Fund owns or has
the right to acquire. In such circumstances, the Fund collateralizes the option
by maintaining in a segregated account with the Fund's custodian cash or liquid
securities in an amount not less than the market value of the underlying
security, marked to market daily, while the option is outstanding.
The purchaser of a put option pays a premium to the seller (i.e., the
writer) for the right to sell the underlying security to the writer at a
specified price during a certain period. The Fund would sell put options only on
a secured basis, which means that, at all times during the option period, the
Fund would maintain in a segregated account with its custodian cash or liquid
securities in an amount of not less than the exercise price of the option, or
would hold a put on the same underlying security at an equal or greater exercise
price.
Closing Purchase Transactions and Offsetting Transactions. In order to
terminate its position as a writer of a call or put option, the Fund could enter
into a "closing purchase transaction," which is the purchase of a call (put) on
the same underlying security and having the same exercise price and expiration
date as the call (put) previously sold by the Fund. The Fund would realize a
gain (loss) if the premium plus commission paid in the 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 sell options that are listed on an exchange as well as
options which are privately negotiated in over-the-counter transactions. The
Fund could close out its position as a seller of an option only if a liquid
secondary market exists for options of that series, but there is no assurance
that such a market will exist, particularly in the case of over-the-counter
options, since they can be closed out only with the other party to the
transaction. Alternatively, the Fund could purchase an offsetting option, which
would not close out its position as a seller, but would provide an asset of
equal value to its obligation under the option sold. The Fund will only enter
into over-the-counter options (other than currency options) that are subject to
a buy-back provision permitting the Fund to require the counterparty to close
out the option at a formula price within seven days. If the Fund is not able to
enter into a closing purchase transaction or to purchase an offsetting option
with respect to an option it has sold, it will be required to maintain the
securities subject to the call or the collateral securing the option until a
closing purchase transaction can be
B-7
<PAGE> 34
entered into (or the option is exercised or expires) even though it might not be
advantageous to do so. Such options may be considered illiquid and subject to
the Fund's limitation on illiquid securities.
Risks of Writing Options. By selling a call option, the Fund loses the
potential for gain on the underlying security above the exercise price while the
option is outstanding; by selling a put option the Fund might become obligated
to purchase the underlying security at an exercise price that exceeds the then
current market price.
PURCHASING CALL AND PUT OPTIONS
The Fund could purchase call options to protect (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.
In any case, the purchase of options for capital appreciation would
increase the Fund's volatility by increasing the impact of changes in the market
price of the underlying securities on the Fund's net asset value.
OPTIONS ON STOCK INDICES
Options on stock indices are similar to options on stock, but the delivery
requirements are different. Instead of giving the right to take or make delivery
of stock at a specified price, an option on a stock index gives the holder the
right to receive an amount of cash which amount will depend upon the closing
level of the stock index upon which the option is based being greater than (in
the case of a call) or less than (in the case of a put) the exercise price of
the option. The amount of cash received will be the difference between the
closing price of the index and the exercise price of the option, multiplied by a
specified dollar multiple. The writer of the option is obligated, in return for
the premium received, to make delivery of this amount.
Some stock index options are based on a broad market index such as the
Standard & Poor's 500 or the New York Stock Exchange Composite Index, or a
narrower index such as the Standard & Poor's 100. Indices are also based on an
industry or market segment such as the AMEX Oil and Gas Index or the Computer
and Business Equipment Index.
B-8
<PAGE> 35
A stock index fluctuates with changes in the market values of the stocks
included in the index. Options are currently traded on several exchanges.
Gain or loss to the Fund on transactions in stock index options will depend
on price movements in the stock market generally (or in a particular industry or
segment of the market) rather than price movements of individual securities. As
with stock options, the Fund may offset its position in stock index options
prior to expiration by entering into a closing transaction on an exchange, or it
may let the option expire unexercised.
FUTURES CONTRACTS
The Fund may engage in transactions involving futures contracts and related
options in accordance with the rules and interpretations of the Commodity
Futures Trading Commission ("CFTC") under which the Fund would be exempt from
registration as a "commodity pool."
A stock index futures contract is an agreement pursuant to which a party
agrees to take or make delivery of an amount of cash equal to a specified dollar
amount multiplied by the difference between the stock index value at a specified
time and the price at which the futures contract originally was struck. No
physical delivery of the underlying stocks in the index is made.
Currently, stock index futures contracts can be purchased with respect to
several indices on various exchanges. Differences in the stocks included in the
indices may result in differences in correlation of the futures contracts with
movements in the value of the securities being hedged.
The Fund also may invest in foreign stock index futures traded outside the
United States which involve additional risks including fluctuations in foreign
exchange rates, foreign currency exchange controls, political and economic
instability, differences in financial reporting and securities regulation and
trading, and foreign taxation issues.
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.
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
B-9
<PAGE> 36
from the broker a variation margin payment equal to that increase in value.
Conversely, where the Fund purchases a futures contract and the value of the
underlying security or index declines, the position is less valuable, and the
Fund is required to make a variation margin payment to the broker.
At any time prior to expiration of the futures contract, the Fund may elect
to terminate the position by taking an opposite position. A final determination
of variation margin is then made, additional cash is required to be paid by or
released to the Fund, and the Fund realizes a loss or a gain.
Futures Strategies. When the Fund anticipates a significant market or
market sector advance, the purchase of a futures contract affords a hedge
against not participating in the advance at a time when the Fund is otherwise
fully invested ("anticipatory hedge"). Such purchase of a futures contract would
serve as a temporary substitute for the purchase of individual securities, which
may be purchased in an orderly fashion once the market has stabilized. As
individual securities are purchased, an equivalent amount of futures contracts
could be terminated by offsetting sales. The Fund may sell futures contracts in
anticipation of or in a general market or market sector decline that may
adversely affect the market value of the Fund's securities ("defensive hedge").
To the extent that the Fund's portfolio of securities changes in value in
correlation with the underlying security or index, the sale of futures contracts
would substantially reduce the risk to the Fund of a market decline and, by so
doing, provides an alternative to the liquidation of securities positions in the
Fund. Ordinarily commissions on futures transactions are lower than transaction
costs incurred in the purchase and sale of 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 contracts. It is also possible that the
value of futures contracts held by the Fund could decline at the same time as
portfolio securities being hedged; if this occurred, the Fund would lose money
on the futures contract in addition to suffering a decline in value in the
portfolio securities being hedged.
There is also the risk that the price of futures contracts may not
correlate perfectly with movements in the securities or index underlying the
futures contract due to certain market distortions. First, all participants in
the futures market are subject to margin depository and maintenance
requirements. Rather than meet additional margin depository requirements,
investors may close futures contracts through offsetting transactions, which
could
B-10
<PAGE> 37
distort the normal relationship between the futures market and the securities or
index underlying the futures contract. Second, from the point of view of
speculators, the deposit requirements in the futures market are less onerous
than margin requirements in the securities markets. Therefore, increased
participation by speculators in the futures markets may cause temporary price
distortions. Due to the possibility of price distortion in the futures markets
and because of the imperfect correlation between movements in futures contracts
and movements in the securities underlying them, a correct forecast of general
market trends by the Adviser may still not result in a successful hedging
transaction.
There is also the risk that futures markets may not be sufficiently liquid.
Futures contracts may be closed out only on an exchange or board of trade that
provides a market for such futures contracts. Although the Fund intends to
purchase or sell futures only on exchanges and boards of trade where there
appears to be an active secondary market, there can be no assurance that an
active secondary market will exist for any particular contract or at any
particular time. In the event of such illiquidity, it might not be possible to
close a futures position and, in the event of adverse price movement, the Fund
would continue to be required to make daily payments of variation margin. Since
the securities being hedged would not be sold until the related futures contract
is sold, an increase, if any, in the price of the securities may to some extent
offset losses on the related futures contract. In such event, the Fund would
lose the benefit of the appreciation in value of the securities.
Successful use of futures is also subject to the Adviser's ability to
correctly predict the direction of movements in the market. For example, if the
Fund hedges against a decline in the market, and market prices instead advance,
the Fund will lose part or all of the benefit of the increase in value of its
securities holdings because it will have offsetting losses in futures contracts.
In such cases, if the Fund has insufficient cash, it may have to sell portfolio
securities at a time when it is disadvantageous to do so in order to meet the
daily variation margin.
Although the Fund intends to enter into futures contracts only if there is
an active market for such contracts, there is no assurance that an active market
will exist for the contracts at any particular time. Most U.S. futures exchanges
and boards of trade limit the amount of fluctuation permitted in futures
contract prices during a single trading day. Once the daily limit has been
reached in a particular contract, no trades may be made that day at a price
beyond that limit. It is possible that futures contract prices would move to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and subjecting some
futures traders to substantial losses. In such event, and in the event of
adverse price movements, the Fund would be required to make daily cash payments
of variation margin. In such circumstances, an increase in the value of the
portion of the portfolio being hedged, if any, may partially or completely
offset losses on the futures contract. However, as described above, there is no
guarantee that the price of the securities being hedged will, in fact, correlate
with the price movements in a futures contract and thus provide an offset to
losses on the futures contract.
The Fund will not enter into futures contracts or options transactions
(except for closing transactions) other than for bona fide hedging purposes if,
immediately thereafter, the sum of its initial margin and premiums on open
futures contracts and options exceed 5% of the fair market value of the Fund's
assets; however, in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount may be excluded in calculating the 5%
limitation. In order to prevent leverage in connection with the purchase
B-11
<PAGE> 38
of futures contracts by the Fund, an amount of cash or liquid securities equal
to the market value of the obligation under the futures contracts (less any
related margin deposits) will be maintained in a segregated account with the
custodian.
OPTIONS ON FUTURES CONTRACTS
The Fund could also purchase and write options on futures contracts. An
option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put) at a specified
exercise price at any time during the option period. As a writer of an option on
a futures contract, the Fund would be subject to initial margin and maintenance
requirements similar to those applicable to futures contracts. In addition, net
option premiums received by the Fund are required to be included as initial
margin deposits. When an option on a futures contract is exercised, delivery of
the futures position is accompanied by cash representing the difference between
the current market price of the futures contract and the exercise price of the
option. The Fund could purchase put options on futures contracts in lieu of, and
for the same purposes as, the sale of a futures contract; at the same time, it
could write put options at a lower strike price (a "put bear spread") to offset
part of the cost of the strategy to the Fund. The purchase of call options on
futures contracts is intended to serve the same purpose as the actual purchase
of the futures contracts.
Risks of Transactions in Options on Futures Contracts. In addition to the
risks described above which apply to all options transactions, there are several
special risks relating to options on futures. The Adviser will not purchase
options on futures on any exchange unless in the Adviser's opinion, a liquid
secondary exchange market for such options exists. Compared to the use of
futures, the purchase of options on futures involves less potential risk to the
Fund because the maximum amount at risk is the premium paid for the options
(plus transaction costs). However, there may be circumstances, such as when
there is no movement in the price of the underlying security or index, when the
use of an option on a future would result in a loss to the Fund when the use of
a future would not.
ADDITIONAL RISKS OF OPTIONS, FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
TRANSACTIONS
Each of the exchanges has established limitations governing the maximum
number of call or put options on the same underlying security or futures
contract (whether or not covered) which may be written by a single investor,
whether acting alone or in concert with others (regardless of whether such
options are written on the same or different exchanges or are held or written on
one or more accounts or through one or more brokers). Option positions of all
investment companies advised by the Adviser are combined for purposes of these
limits. An exchange may order the liquidation of positions found to be in
violation of these limits and it may impose other sanctions or restrictions.
These position limits may restrict the number of listed options which the Fund
may write.
In the event of the bankruptcy of a broker through which the Fund engages
in transactions in options, futures or related options, the Fund could
experience delays or losses in liquidating open positions purchased or incur a
loss of all or part of its margin deposits with the broker. Transactions are
entered into by the Fund only with brokers or financial institutions deemed
creditworthy by the Adviser.
B-12
<PAGE> 39
INVESTMENT RESTRICTIONS
The Fund has adopted the following fundamental investment restrictions
which may not be changed without approval by the vote of a majority of its
outstanding voting securities which is defined by the 1940 Act as the lesser of
(i) 67% or more of the voting securities present at a meeting, if the holders of
more than 50% of the outstanding voting securities of the Fund are present or
represented by proxy; or (ii) more than 50% of the Fund's outstanding voting
securities. The percentage limitations contained in the restrictions and
policies set forth herein apply at the time of purchase of securities. 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 U.S. 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 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 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 1933 Act, 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 1933
Act 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
B-13
<PAGE> 40
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.
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."
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.
B-14
<PAGE> 41
TRUSTEES AND OFFICERS
The business and affairs of the Fund are managed under the direction of the
Fund's Board of Trustees and the Fund's officers appointed by the Board of
Trustees. The tables below list the trustees and officers of the Fund and
executive officers of the Fund's investment adviser and their principal
occupations for the last five years and their affiliations, if any, with Van
Kampen Investments Inc. ("Van Kampen Investments"), Van Kampen Investment
Advisory Corp. ("Advisory Corp."), Van Kampen Asset Management Inc. ("Asset
Management"), Van Kampen Funds Inc. (the "Distributor"), Van Kampen Management
Inc., Van Kampen Advisors Inc., Van Kampen Insurance Agency of Illinois Inc.,
Van Kampen Insurance Agency of Texas Inc., Van Kampen System Inc., Van Kampen
Recordkeeping Services Inc., American Capital Contractual Services, Inc., Van
Kampen Trust Company, Van Kampen Exchange Corp. and Van Kampen Investor Services
Inc. ("Investor Services"). Advisory Corp. and Asset Management sometimes are
referred to herein collectively as the "Advisers". For purposes hereof, the term
"Fund Complex" includes each of the open-end investment companies advised by the
Advisers (excluding Van Kampen Exchange Fund).
TRUSTEES
<TABLE>
<CAPTION>
Principal Occupations or
Name, Address and Age Employment in Past 5 Years
--------------------- --------------------------
<S> <C>
J. Miles Branagan......................... Private investor. Co-founder, and prior to
1632 Morning Mountain Road August 1996, Chairman, Chief Executive
Raleigh, NC 27614 Officer and President, MDT Corporation (now
Date of Birth: 07/14/32 known as Getinge/Castle, Inc., a 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>
B-15
<PAGE> 42
<TABLE>
<CAPTION>
Principal Occupations or
Name, Address and Age Employment in Past 5 Years
- --------------------- --------------------------
<S> <C>
Richard M. DeMartini*..................... Chairman and Chief Executive Officer of
Two World Trade Center International Private Client Group, a
66th Floor division of Morgan Stanley Dean Witter & Co.
New York, NY 10048 Director of Dean Witter Reynolds Inc.
Date of Birth: 10/12/52 Chairman and Director of Dean Witter Capital
Corporation. Chairman, Chief Executive
Officer, President and Director of Dean
Witter Alliance Capital Corporation. Director
of the National Healthcare Resources, Inc.,
Dean Witter Realty Inc., Dean Witter Reynolds
Venture Equities Inc., DW Window Covering
Holding, Inc. and is a member of the Morgan
Stanley Dean Witter Management Committee.
Prior to March of 1999, Director of Morgan
Stanley Dean Witter Distributors, Inc. Prior
to January 1999, Chairman of Dean Witter
Futures & Currency Management Inc. and
Demeter Management Corporation. Prior to
December 1998, Mr. DeMartini was President
and Chief Operating Officer of Morgan Stanley
Dean Witter Individual Asset Management and
Director of Morgan Stanley Dean Witter Trust
FSB. 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 of the
TCW/DW Funds, Director of the Morgan Stanley
Dean Witter Funds and Trustee/ Director of
each of the funds in the Fund Complex.
Linda Hutton Heagy........................ Managing Partner of Heidrick & Stuggles, an
Sears Tower executive search firm. Prior to 1997,
233 South Wacker Drive Partner, Ray & Berndtson, Inc., an executive
Suite 7000 recruiting and management consulting firm.
Chicago, IL 60606 Formerly, Executive Vice President of ABN
Date of Birth: 06/03/48 AMRO, N.A., a Dutch bank holding company.
Prior to 1992, Executive Vice President of La
Salle National Bank. Trustee on the
University of Chicago Hospitals Board, Vice
Chair of the Board of The YMCA of
Metropolitan Chicago and a member of the
Women's Board of the University of Chicago.
Prior to 1996, Trustee of The International
House Board. Trustee/Director of each of the
funds in the Fund Complex.
R. Craig Kennedy.......................... President and Director, German Marshall Fund
11 DuPont Circle, N.W. of the United States. Formerly, advisor to
Washington, D.C. 20036 the Dennis Trading Group Inc. Prior to 1992,
Date of Birth: 02/29/52 President and Chief Executive 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.
</TABLE>
B-16
<PAGE> 43
<TABLE>
<CAPTION>
Principal Occupations or
Name, Address and Age Employment in Past 5 Years
- --------------------- --------------------------
<S> <C>
Jack E. Nelson............................ President, Nelson Investment Planning
423 Country Club Drive Services, Inc., a financial planning company
Winter Park, FL 32789 and registered investment adviser. President,
Date of Birth: 02/13/36 Nelson Ivest Brokerage Services Inc., a
member of the National Association of
Securities Dealers, Inc. and Securities
Investors Protection Corp. ("SIPC").
Trustee/Director of each of the funds in the
Fund Complex.
Don G. Powell*............................ Currently a member of the board of governors
2800 Post Oak Blvd. and executive committee for the Investment
Houston, TX 77056 Company Institute, and a member of the Board
Date of Birth: 10/19/39 of Trustees of the Houston Museum of Natural
Science. Prior to January 1999, Chairman of
the Investment Company Institute and Chairman
and Director of Van Kampen Investments, the
Advisers, the Distributor, Investor Services,
Van Kampen Advisors Inc., Van Kampen
Recordkeeping Services, Inc., American
Capital Contractual Services, Inc., Van
Kampen Merritt Equity Advisors Corp., Van
Kampen Insurance Agency of Illinois Inc., Van
Kampen System Inc., Van Kampen Trust Company,
Van Kampen Services Inc. and Van Kampen
Exchange Corp. Prior to July 1998, Director
and Chairman of VK/AC Holding, Inc. Prior to
1997, Chairman, President and Director of
American Capital Shareholders Corporation.
Prior to April 1997, Chairman, President and
Director of Van Kampen Merritt Equity
Holdings Corp. Prior to November 1996,
President, Chief Executive Officer and
Director of VK/AC Holding, Inc. Prior to
September 1996, Chairman and Director of
McCarthy, Crisanti & Maffei, Inc. and
McCarthy, Crisanti & Maffei Acquisition
Corporation. Prior to July 1996, Chairman and
Director of VSM Inc. and VCJ Inc.
Trustee/Director of each of the funds in the
Fund Complex and Trustee of other funds
advised by the Advisers or Van Kampen
Management Inc.
Phillip B. Rooney......................... Vice Chairman and Director of The
One ServiceMaster Way ServiceMaster Company, a business and
Downers Grove, IL 60515 consumer services company. Director of
Date of Birth: 07/08/44 Illinois Tool Works, Inc., a manufacturing
company, and the Urban Shopping Centers Inc.,
a retail mall management company. Trustee,
University of Notre Dame. Prior to 1998,
Director of Stone Smurfit Container Corp., a
paper manufacturing company. Formerly,
President, Chief Executive Officer and Chief
Operating Officer of Waste Management, Inc.,
an environmental services company.
Trustee/Director of each of the funds in the
Fund Complex.
</TABLE>
B-17
<PAGE> 44
<TABLE>
<CAPTION>
Principal Occupations or
Name, Address and Age Employment in Past 5 Years
- --------------------- --------------------------
<S> <C>
Fernando Sisto............................ Professor Emeritus and, prior to 1995, Dean
155 Hickory Lane of the Graduate School, Stevens Institute of
Closter, NJ 07624 Technology. Director, Dynalysis of Princeton,
Date of Birth: 08/02/24 a firm engaged in engineering research.
Trustee/Director of each of the funds in the
Fund Complex.
Wayne W. Whalen*.......................... Partner in the law firm of Skadden, Arps,
333 West Wacker Drive Slate, Meagher & Flom (Illinois), legal
Chicago, IL 60606 counsel to the funds in the Fund Complex, and
Date of Birth: 08/22/39 other open-end and closed-end funds advised
by the Advisers or Van Kampen Management Inc.
Trustee/Director of each of the funds in the
Fund Complex, and Trustee/Managing General
Partner of other open-end and closed-end
funds advised by the Advisers or Van Kampen
Management Inc.
Paul G. Yovovich.......................... Private investor. Prior to April 1996,
Sears Tower President of Advance Ross Corporation.
233 South Wacker Drive Director of 3Com Corporation, APAC Customer
Suite 9700 Services, Inc. and COMARCO, Inc.
Chicago, IL 60606 Trustee/Director of each of the Funds in the
Date of Birth: 10/29/53 Fund Complex.
</TABLE>
- ------------------------------------
* Such trustee is an "interested person" (within the meaning of Section 2(a)(19)
of the 1940 Act). Mr. Whalen is an interested person of the Fund by reason of
his firm currently acting as legal counsel to the Fund. Messrs. DeMartini and
Powell are interested persons of the Fund and the Advisers by reason of their
current or former positions with Morgan Stanley Dean Witter & Co. or its
affiliates.
B-18
<PAGE> 45
OFFICERS
Messrs. McDonnell, Hegel, Sullivan, Wood, Dalmaso, Martin, Wetherell and
Hill are located at 1 Parkview Plaza, PO Box 5555, Oakbrook Terrace, IL
60181-5555. The Fund's other officers are located at 2800 Post Oak Blvd.,
Houston, TX 77056.
<TABLE>
<CAPTION>
Name, Age, Positions and Principal Occupations
Offices with Fund During Past 5 Years
------------------------ ---------------------
<S> <C>
Dennis J. McDonnell.................. Executive Vice President and Director of Van
Date of Birth: 05/20/42 Kampen Investments. President, Chief Operating
President Officer and a Director of the Advisers, Van
Kampen Advisors Inc., and Van Kampen Management
Inc. Prior to July 1998, Director and Executive
Vice President of VK/AC Holding, Inc. Prior to
April 1998, President and Director of Van Kampen
Merritt Equity Advisors Corp. Prior to April
1997, Mr. McDonnell was Director of Van Kampen
Merritt Equity Holdings Corp. Prior to September
1996, Mr. McDonnell was Chief Executive Officer
and Director of MCM Group, Inc. and McCarthy,
Crisanti & Maffei, Inc. and Chairman and Director
of MCM Asia Pacific Company, Limited and MCM
(Europe) Limited. Prior to July 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/Managing
General Partner of other investment companies
advised by the Advisers or Van Kampen Management
Inc.
Peter W. Hegel....................... Executive Vice President of the Advisers, Van
Date of Birth: 06/25/56 Kampen Management Inc. and Van Kampen Advisors
Vice President Inc. Prior to September 1996, a Director of
McCarthy, Crisanti & Maffei, Inc. Prior to July
1996, Mr. Hegel was Director of VSM Inc. Vice
President of each of the funds in the Fund
Complex and certain other investment companies
advised by the Advisers or their affiliates.
John L. Sullivan..................... Senior Vice President of Van Kampen Investments
Date of Birth: 08/20/55 and the Advisers. Treasurer, Vice President and
Treasurer, Vice President and Chief Chief Financial Officer of each of the funds in
Financial Officer the Fund Complex and certain other investment
companies advised by the Advisers or their
affiliates.
Curtis W. Morell..................... Senior Vice President of the Advisers, Vice
Date of Birth: 08/04/46 President and Chief Accounting Officer of each of
Vice President and Chief Accounting the funds in the Fund Complex and certain other
Officer investment companies advised by the Advisers or
their affiliates.
</TABLE>
B-19
<PAGE> 46
<TABLE>
<CAPTION>
Name, Age, Positions and Principal Occupations
Offices with Fund During Past 5 Years
------------------------ ---------------------
<S> <C>
Paul R. Wolkenberg................... Executive Vice President and Director of Van
Date of Birth: 11/10/44 Kampen Investments. Executive Vice President of
Vice President the Advisers and the Distributor. President and
Director of Investor Services. President, Chief
Operating Officer and Director of Van Kampen
Recordkeeping Services Inc. President, Chief
Executive Officer and Director of Van Kampen
Trust Company. Prior to July 1998, Director and
Executive Vice President of VK/AC Holding, Inc.
Vice President of each of the funds in the Fund
Complex and certain other investment companies
advised by the Advisers or their affiliates.
Edward C. Wood III................... Senior Vice President of the Advisers, Van Kampen
Date of Birth: 01/11/56 Investments and Van Kampen Management Inc. Senior
Vice President Vice President and Chief Operating Officer of the
Distributor. Vice President of each of the funds
in the Fund Complex and certain other investment
companies advised by the Advisers or their
affiliates.
Tanya M. Loden....................... Vice President of Van Kampen Investments and the
Date of Birth: 11/19/59 Advisers. Controller of each of the funds in the
Controller Fund Complex and other investment companies
advised by the Advisers or their affiliates.
Nicholas Dalmaso..................... Vice President, Associate General Counsel and
Date of Birth: 03/01/65 Assistant Secretary of Van Kampen Investments,
Assistant Secretary the Advisers, the Distributor, Van Kampen
Advisors Inc. and Van Kampen Management Inc.
Assistant Secretary of each of the funds in the
Fund Complex and other investment companies
advised by the Advisers or their affiliates.
</TABLE>
B-20
<PAGE> 47
<TABLE>
<CAPTION>
Name, Age, Positions and Principal Occupations
Offices with Fund During Past 5 Years
------------------------ ---------------------
<S> <C>
Scott E. Martin...................... Senior Vice President, Deputy General Counsel and
Date of Birth: 08/20/56 Assistant Secretary of Van Kampen Investments,
Assistant Secretary the Advisers, the Distributor, Investor Services,
American Capital Contractual Services, Inc., Van
Kampen Management Inc., Van Kampen Exchange
Corp., Van Kampen Advisors Inc., Van Kampen
Insurance Agency of Illinois Inc., Van Kampen
System Inc. and Van Kampen Recordkeeping Services
Inc. Prior to July 1998, Senior Vice President,
Deputy General Counsel and Assistant Secretary of
VK/AC Holding, Inc. Prior to April 1998, Senior
Vice President, Deputy General Counsel and
Secretary of Van Kampen Merritt Equity Advisors
Corp. Prior to April 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
1996, Deputy General Counsel and Secretary of
McCarthy, Crisanti & Maffei, Inc. Prior to July
1996, 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.................. Vice President, Associate General Counsel and
Date of Birth: 06/15/56 Assistant Secretary of Van Kampen Investments,
Assistant Secretary the Advisers, the Distributor, Van Kampen
Management Inc. and Van Kampen Advisors 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....................... Vice President of Van Kampen Investments, Van
Date of Birth: 10/16/64 Kampen Management Inc. and the Advisers.
Assistant Treasurer Assistant 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 Vice President of Van Kampen
Date of Birth: 03/30/33 Investments, the Advisers and Van Kampen
Assistant Controller Management Inc. 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 63 operating funds in the Fund Complex. Each trustee/director who is not an
affiliated person of Van Kampen Investments, the Advisers or the Distributor
(each a "Non-
B-21
<PAGE> 48
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 Van Kampen Series Fund, Inc.) 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 Van Kampen Series Fund, Inc.)
provides a retirement plan to its Non-Affiliated Trustees that provides
Non-Affiliated Trustees with compensation after retirement, provided that
certain eligibility requirements are met as more fully described below.
The compensation of each Non-Affiliated Trustee includes an annual retainer
in an amount equal to $50,000 per calendar year, due in four quarterly
installments on the first business day of each quarter. Payment of the annual
retainer is allocated among the funds in the Fund Complex (except the money
market series of the Van Kampen Series Fund, Inc.) on the basis of the relative
net assets of each fund as of the last business day of the preceding calendar
quarter. The compensation of each Non-Affiliated Trustee includes a per meeting
fee from each fund in the Fund Complex (except the money market series of the
Van Kampen Series Fund, Inc.) in the amount of $200 per quarterly or special
meeting attended by the Non-Affiliated Trustee, due on the date of the meeting,
plus reasonable expenses incurred by the Non-Affiliated Trustee in connection
with his or her services as a trustee, provided that no compensation will be
paid in connection with certain telephonic special meetings.
Under the deferred compensation plan, each Non-Affiliated Trustee generally
can elect to defer receipt of all or a portion of the compensation earned by
such Non-Affiliated Trustee until retirement. Amounts deferred are retained by
the Fund and earn a rate of return determined by reference to the return on the
common shares of such Fund or other funds in the Fund Complex as selected by the
respective Non-Affiliated Trustee, with the same economic effect as if such
Non-Affiliated Trustee had invested in one or more funds in the Fund Complex. To
the extent permitted by the 1940 Act, the Fund may invest in securities of those
funds selected by the Non-Affiliated Trustees in order to match the deferred
compensation obligation. The deferred compensation plan is not funded and
obligations thereunder represent general unsecured claims against the general
assets of the Fund.
Under the retirement plan, a Non-Affiliated Trustee who is receiving
compensation from such Fund prior to such Non-Affiliated Trustee's retirement,
has at least 10 years of service (including years of service prior to adoption
of the retirement plan) and retires at or after attaining the age of 60, is
eligible to receive a retirement benefit equal to $2,500 per year for each of
the ten years following such retirement from such Fund. Non-Affiliated Trustees
retiring prior to the age of 60 or with fewer than 10 years but more than 5
years of service may receive reduced retirement benefits from such Fund. Each
trustee/director has served as a member of the Board of Trustees of the Fund
since he or she was first appointed or elected in the year set forth below. The
retirement plan contains a Fund Complex retirement benefit cap of $60,000 per
year.
B-22
<PAGE> 49
Additional information regarding compensation and benefits for trustees is
set forth below for the periods described in the notes accompanying the table.
COMPENSATION TABLE
<TABLE>
<CAPTION>
Fund Complex
-------------------------------------------
Aggregate
Aggregate Estimated
Pension or Maximum Total
Aggregate Retirement Annual Compensation
Year First Compensation Benefits Benefits from before
Appointed or before Accrued as the Fund Deferral from
Elected to Deferral from Part of Upon Fund
Name(1) the Board the Fund(2) Expenses(3) Retirement(4) Complex(5)
------- ------------ ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
J. Miles Branagan 1991 $3,984 $35,691 $60,000 $125,200
Linda Hutton Heagy 1995 3,784 3,861 60,000 112,800
R. Craig Kennedy 1995 3,984 2,652 60,000 125,200
Jack E. Nelson 1995 3,984 18,385 60,000 125,200
Phillip B. Rooney 1997 3,984 6,002 60,000 125,200
Dr. Fernando Sisto 1978 3,984 68,615 60,000 125,200
Wayne W. Whalen 1995 3,984 12,658 60,000 125,200
Paul G. Yovovich(1) 1998 913 0 60,000 25,300
</TABLE>
- ------------------------------------
(1) Mr. Yovovich joined the Board of Trustees on October 22, 1998 and therefore
does not have a complete fiscal year of information to report in the table.
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, 1998. The
following trustees deferred compensation from the Fund during the fiscal
year ended December 31, 1998: Mr. Branagan, $3,984; Ms. Heagy, $3,784; Mr.
Kennedy, $1,992; Mr. Nelson, $3,984; Mr. Rooney, $3,984; Dr. Sisto, $1,992;
and Mr. Whalen, $3,984. Amounts deferred are retained by the Fund and earn a
rate of return determined by reference to either the return on the common
shares of the Fund or other funds in the Fund Complex as selected by the
respective Non-Affiliated Trustee, with the same economic effect as if such
Non-Affiliated Trustee had invested in one or more funds in the Fund
Complex. To the extent permitted by the 1940 Act, each Fund may invest in
securities of those funds selected by the Non-Affiliated Trustees in order
to match the deferred compensation obligation. The cumulative deferred
compensation (including interest) accrued with respect to each trustee,
including former trustees, from the Fund as of December 31, 1998 is as
follows: Mr. Branagan, $8,421; Dr. Caruso, $5,898; Mr. Gaughan, $909; Ms.
Heagy, $10,001; Mr. Kennedy, $9,302; Mr. Lipshie, $1,360; Mr. Miller,
$6,080; Mr. Nelson, $15,855; Mr. Rees, $19,481; Mr. Robinson, $10,125; Mr.
Rooney, $5,833; Dr. Sisto, $20,186; Mr. Vernon, $1,768; and Mr. Whalen,
$14,225. 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 trustees for the Funds' respective fiscal years
ended in 1998. The retirement plan is described above the Compensation
Table.
B-23
<PAGE> 50
(4) For each trustee, 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,
1998 before deferral by the trustees under the deferred compensation plan.
Because the funds in the Fund Complex have different fiscal year ends, the
amounts shown in this column are presented on a calendar year basis. Certain
trustees deferred all or a portion of their aggregate compensation from the
Fund Complex during the calendar year ended December 31, 1998. The deferred
compensation earns a rate of return determined by reference to the return on
the shares of the funds in the Fund Complex as selected by the respective
Non-Affiliated Trustee, with the same economic effect as if such
Non-Affiliated Trustee had invested in one or more funds in the Fund
Complex. To the extent permitted by the 1940 Act, the Fund may invest in
securities of those investment companies selected by the Non-Affiliated
Trustees in order to match the deferred compensation obligation. The
Advisers and their affiliates also serve as investment adviser for other
investment companies; however, with the exception of Mr. Whalen, the
Non-Affiliated Trustees were not trustees of such investment companies.
Combining the Fund Complex with other investment companies advised by the
Advisers and their affiliates, Mr. Whalen received Total Compensation of
$285,825 during the calendar year ended December 31, 1998.
As of April 7, 1999, the trustees and officers of the Fund as a group owned
less than 1% of the shares of the Fund.
INVESTMENT ADVISORY AGREEMENT
The Fund and the Adviser are parties to an investment advisory agreement
(the "Advisory Agreement"). Under the Advisory Agreement, the Fund retains the
Adviser to manage the investment of the Fund's assets, including the placing of
orders for the purchase and sale of portfolio securities. The Adviser obtains
and evaluates economic, statistical and financial information to formulate and
implement the Fund's investment objectives. The Adviser also furnishes the
services of the Fund's President and such other executive and clerical personnel
as are necessary to prepare the various reports and statements and conduct the
Fund's day-to-day operations. The Fund, however, bears the cost of its
accounting services, which include maintaining its financial books and records
and calculating its daily net asset value. The costs of such accounting services
include the salaries and overhead expenses of the Fund's Treasurer and the
personnel operating under his direction. Charges are allocated among the
investment companies advised or subadvised by the Adviser or its affiliates. A
portion of these amounts is paid to the Adviser or its affiliates in
reimbursement of personnel, office space, facilities and equipment costs
attributable to the provision of accounting services to the Fund. The Fund also
pays distribution fees, service fees, custodian fees, legal and independent
accountant fees, the costs of reports and proxies to shareholders, and trustees'
fees (other than those who are affiliated persons of the Adviser, Distributor or
Van Kampen Investments) all other ordinary business expenses not specifically
assumed by the Adviser. The Advisory Agreement also provides that the Adviser
shall not be liable to the Fund for any actions or omissions if it acted without
willful misfeasance, bad faith, negligence or reckless disregard of its
obligations.
B-24
<PAGE> 51
Under the Advisory Agreement, the Fund pays to the Adviser, as compensation
for the services rendered, facilities furnished, and expenses paid by it, a
monthly fee payable computed based upon an annual rate applied to the average
daily net assets of the Fund as follows: 0.50% on the first $150 million of
average daily net assets; 0.45% on the next $100 million of average daily net
assets; 0.40% on the next $100 million of average daily net assets; and 0.35% on
the average daily net assets over $350 million.
The Fund's average daily net assets are determined by taking the average of
all of the determinations of the net assets during a given calendar month. Such
fee is payable for each calendar month as soon as practicable after the end of
that month. The fee payable to the Adviser is reduced by any commissions, tender
solicitation and other fees, brokerage or similar payments received by the
Adviser or any other direct or indirect majority owned subsidiary of Van Kampen
Investments in connection with the purchase and sale of portfolio investments
less any direct expenses incurred by such subsidiary of Van Kampen Investments,
in connection with obtaining such commissions, fees, brokerage or similar
payments. The Adviser agrees to use its best efforts to recapture tender
solicitation fees and exchange offer fees for the Fund's benefit and to advise
the Trustees of the Fund of any other commissions, fees, brokerage or similar
payments which may be possible for the Adviser or any other direct or indirect
majority owned subsidiary of Van Kampen Investments to receive in connection
with the Fund's portfolio transactions or other arrangements which may benefit
the Fund.
The Advisory Agreement also provides that, in the event the ordinary
business expenses of the Fund for any fiscal year exceed 1.5% of the first $30
million of the Fund's average daily net assets plus 1% of any excess over $30
million, the compensation due the Adviser will be reduced by the amount of such
excess and that, if a reduction in and refund of the advisory fee is
insufficient, the Adviser will pay the Fund monthly an amount sufficient to make
up the deficiency, subject to readjustment during the year. Ordinary business
expenses include the investment advisory fee and other operating costs paid by
the Fund except (1) interest and taxes, (2) brokerage commissions, (3) certain
litigation and indemnification expenses as described in the Advisory Agreement
and (4) payments made by the Fund pursuant to the distribution plans.
The Advisory Agreement may be continued from year to year if specifically
approved at least annually (a)(i) by the Fund's Trustees or (ii) by a vote of a
majority of the Fund's outstanding voting securities and (b) by the affirmative
vote of a majority of the Trustees who are not parties to the agreement or
interested persons of any such party by votes cast in person at a meeting called
for such purpose. The Advisory Agreement provides that it shall terminate
automatically if assigned and that it may be terminated without penalty by
either party on 60 days' written notice.
During the fiscal years ended December 31, 1998, 1997 and 1996, the Adviser
received approximately $6,877,600, $5,339,000 and $3,774,700, respectively, in
advisory fees from the Fund. For such periods the Fund paid approximately
$423,600, $180,500 and $185,800, respectively, for accounting services.
DISTRIBUTION AND SERVICE
The Distributor acts as the principal underwriter of the Fund's shares
pursuant to a written agreement (the "Distribution and Service Agreement"). The
Distributor has the exclusive right to distribute shares of the Fund through
authorized dealers on a continuous basis. The Distributor's obligation is an
agency or "best efforts" arrangement under which
B-25
<PAGE> 52
the Distributor is required to take and pay for only such shares of the Fund as
may be sold to the public. The Distributor is not obligated to sell any stated
number of shares. The Distributor bears the cost of printing (but not
typesetting) prospectuses used in connection with this offering and certain
other costs including the cost of supplemental sales literature and advertising.
The Distribution and Service Agreement is renewable from year to year if
approved (a)(i) by the Fund's Trustees or (ii) by a vote of a majority of the
Fund's outstanding voting securities and (b) by the affirmative vote of a
majority of Trustees who are not parties to the Distribution and Service
Agreement or interested persons of any party, by votes cast in person at a
meeting called for such purpose. The Distribution and Service Agreement provides
that it will terminate if assigned, and that it may be terminated without
penalty by either party on 90 days' written notice. Total underwriting
commissions on the sale of shares of the Fund for the last three fiscal periods
are shown in the chart below.
<TABLE>
<CAPTION>
Total Amounts
Underwriting Retained by
Commissions Distributor
------------ -----------
<S> <C> <C>
Fiscal year ended December 31, 1998..................... $4,675,252 $639,141
Fiscal year ended December 31, 1997..................... $3,833,492 $567,161
Fiscal year ended December 31, 1996..................... $4,008,069 $585,526
</TABLE>
With respect to sales of Class A Shares of the Fund, the total sales
charges and concessions reallowed to authorized dealers at the time of purchase
are as follows:
CLASS A SHARES SALES CHARGE TABLE
<TABLE>
<CAPTION>
Total Sales Charge
------------------------- Reallowed
As % of As % of Net To Dealers
Size of Offering Amount As a % of
Investment Price Invested Offering Price
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000........................... 5.75% 6.10% 5.00%
$50,000 but less than $100,000.............. 4.75% 4.99% 4.00%
$100,000 but less than $250,000............. 3.75% 3.90% 3.00%
$250,000 but less than $500,000............. 2.75% 2.83% 2.25%
$500,000 but less than $1,000,000........... 2.00% 2.04% 1.75%
$1,000,000 or more.......................... * * *
- ------------------------------------------------------------------------------------------------
</TABLE>
* No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the Fund imposes a contingent
deferred sales charge of 1.00% on certain redemptions made within one year of
the purchase. A commission or transaction fee will be paid by the Distributor
at the time of purchase directly out of the Distributor's assets (and not out
of the Fund's assets) to authorized dealers who initiate and are responsible
for purchases of $1 million or more computed based on a percentage of the
dollar value of such shares sold as follows: 1.00% on sales to $2 million,
plus 0.80% on the next $1 million and 0.50% on the excess over $3 million.
With respect to sales of Class B Shares and Class C Shares of the Fund, a
commission or transaction fee generally will be paid by the Distributor at the
time of purchase directly out of the Distributor's assets (and not out of the
Fund's assets) to authorized dealers who initiate and are responsible for such
purchases computed based on a percentage of the dollar value of such shares sold
of 4.00% on Class B Shares and 1.00% on Class C Shares.
B-26
<PAGE> 53
Proceeds from any contingent deferred sales charge and any distribution
fees on Class B Shares and Class C Shares of the Fund are paid to the
Distributor and are used by the Distributor to defray its distribution related
expenses in connection with the sale of the Fund's shares, such as the payment
to authorized dealers for selling such shares. With respect to Class C Shares,
the authorized dealers generally are paid the ongoing commission and transaction
fees of up to 0.75% of the average daily net assets of the Fund's Class C Shares
annually commencing in the second year after purchase.
In addition to reallowances or commissions described above, the Distributor
may from time to time implement programs under which an authorized dealer's
sales force may be eligible to win nominal awards for certain sales efforts or
under which the Distributor will reallow to any authorized dealer that sponsors
sales contests or recognition programs conforming to criteria established by the
Distributor, or participates in sales programs sponsored by the Distributor, an
amount not exceeding the total applicable sales charges on the sales generated
by the authorized dealer at the public offering price during such programs.
Other programs provide, among other things and subject to certain conditions,
for certain favorable distribution arrangements for shares of the Fund. Also,
the Distributor in its discretion may from time to time, pursuant to objective
criteria established by the Distributor, pay fees to, and sponsor business
seminars for, qualifying authorized dealers for certain services or activities
which are primarily intended to result in sales of shares of the Fund or other
Van Kampen funds. Fees may include payment for travel expenses, including
lodging, incurred in connection with trips taken by invited registered
representatives for meetings or seminars of a business nature. In some instances
additional compensation or promotional incentives may be offered to brokers,
dealers or financial intermediaries that have sold or may sell significant
amounts of shares during specified periods of time. The Distributor may provide
additional compensation to Edward D. Jones & Co. or an affiliate thereof based
on a combination of its sales of shares and increases in assets under
management. All of the foregoing payments are made by the Distributor out of its
own assets. Such fees paid for such services and activities with respect to the
Fund will not exceed in the aggregate 1.25% of the average total daily net
assets of the Fund on an annual basis. These programs will not change the price
an investor will pay for shares or the amount that a Fund will receive from such
sale.
Banks are currently prohibited under the Glass-Steagall Act from providing
certain underwriting or distribution services. If banking firms were prohibited
from acting in any capacity or providing any of the described services, the
Distributor would consider what action, if any, would be appropriate. The
Distributor does not believe that termination of a relationship with a bank
would result in any material adverse consequences to the Fund. State securities
laws regarding registration of banks and other financial institutions may differ
from the interpretations of federal law expressed herein, and banks and other
financial institutions may be required to register as dealers pursuant to
certain state laws.
The Fund has adopted a distribution plan (the "Distribution Plan") 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 the
B-27
<PAGE> 54
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."
For shares sold prior to the implementation date of the Distribution Plan,
the financial intermediary was not eligible to receive compensation pursuant to
such Distribution and Service Agreement or Selling Agreement. To the extent that
there remain outstanding shares of the Fund that were purchased prior to the
implementation date of the Distribution Plan, the percentage of the total
average daily net asset value of a class of shares that may be utilized pursuant
to the Distribution and Service Agreement will be less than the current maximum
percentage amount permissible with respect to such class of shares under the
Distribution and Service Agreement.
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.
The Plans generally provide for the Fund to reimburse the lesser of (i) the
distribution and service fees at the rates specified in the Prospectus or (ii)
the amount of the Distributor's actual expenses incurred less any contingent
deferred sales charges it received. For Class A Shares, to the extent the
Distributor is not fully reimbursed in a given year, there is no carryover of
such unreimbursed amounts to succeeding years. For each of the Class B Shares
and Class C Shares, to the extent the Distributor is not fully reimbursed in a
given year, any unreimbursed expenses for such class will be carried forward and
paid by the Fund in future years so long as such Plans are 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 for
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
B-28
<PAGE> 55
such circumstances, a shareholder of a share may be deemed to incur expenses
attributable to other shareholders of such class. As of December 31, 1998, there
were $33,426,572 and $1,159,996 of unreimbursed distribution-related expenses
with respect to Class B Shares and Class C Shares, respectively, representing
2.93% and 1.21% of the Fund's average daily net assets attributable to Class B
Shares and Class C Shares, respectively. If the Plans were terminated or not
continued, the Fund would not be contractually obligated to pay the Distributor
for any expenses not previously reimbursed by the Fund or recovered through
contingent deferred sales charges.
For the fiscal year ended December 31, 1998, the Fund's aggregate expenses
paid under the Plans for Class A Shares were $1,689,965 or 0.24% 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 Class A Share Plans. For the fiscal year
ended December 31, 1998, the Fund's aggregate expenses paid under the Plans for
Class B Shares were $9,622,894 or 1.00% of the Class B Shares' average daily net
assets. Such expenses were paid to reimburse the Distributor for the following
payments: $7,090,670 for commissions and transaction fees paid to financial
intermediaries in respect of sales of Class B Shares of the Fund and $2,532,224
for fees paid to financial intermediaries for servicing Class B shareholders and
administering the Class B Share Plans. For the fiscal year ended December 31,
1998, the Fund's aggregate expenses paid under the Plans for Class C Shares were
$776,229 or 1.00% of the Class C Shares' average daily net assets. Such expenses
were paid to reimburse the Distributor for the following payments; $283,553 for
commissions and transaction fees paid to financial intermediaries in respect of
sales of Class C Shares of the Fund and $492,676 for fees paid to financial
intermediaries for servicing Class C shareholders and administering the Class C
Share Plans.
The Distributor has entered into agreements with the following firms: (i)
The Prudential Insurance Company of America, (ii) Smith Barney Inc., (iii)
Merrill Lynch, (iv) Fidelity Brokerage Services, Inc. & National Financial
Services Corporation, (v) Hewitt Associates LLC and (vi) Norwest Bank Minnesota,
N.A. Shares of the Fund shall be offered pursuant to such firm's retirement plan
alliance program(s). Trustees and other fiduciaries of retirement plans seeking
to invest in multiple fund families through broker-dealer retirement plan
alliance programs should contact the firms mentioned above for further
information concerning the program(s) including, but not limited to, minimum
size and operational requirements.
TRANSFER AGENT
The Fund's transfer agent, shareholder service agent and dividend
disbursing agent for the Fund is Van Kampen Investor Services Inc., PO Box
418256, Kansas City, MO 64141-9256. During the fiscal years ended December 31,
1998, 1997 and 1996, Investor Services received fees aggregating approximately
$2,489,800, $1,927,100 and $895,700, respectively for these services. Prior to
1998, these services were provided at cost plus a profit. Beginning in 1998, the
transfer agency prices are determined through negotiations with the Fund's Board
of Trustees and are based on competitive benchmarks.
B-29
<PAGE> 56
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION
The Adviser is responsible for decisions to buy and sell securities for the
Fund, the selection of brokers and dealers to effect the transactions and the
negotiation of prices and any brokerage commissions on such transactions. While
the Adviser will be primarily responsible for the placement of the Fund's
portfolio business, the policies and practices in this regard will at all times
be subject to review by the Trustees of the Fund.
The Adviser is responsible for placing portfolio transactions and does so
in a manner deemed fair and reasonable to the Fund and not according to any
formula. The primary consideration in all portfolio transactions is prompt
execution of orders in an effective manner at the most favorable price. In
selecting broker/dealers and in negotiating prices and any brokerage commissions
on such transactions, the Adviser considers the firm's reliability, integrity
and financial condition and the firm's execution capability, the size and
breadth of the market for the security, the size of and difficulty in executing
the order, and the best net price. There are many instances when, in the
judgment of the Adviser, more than one firm can offer comparable execution
services. In selecting among such firms, consideration may be given to those
firms which supply research and other services in addition to execution
services. The Adviser is authorized to pay higher commissions to brokerage firms
that provide it with investment and research information than to firms which do
not provide such services if the Adviser determines that such commissions are
reasonable in relation to the overall services provided. No specific value can
be assigned to such research services which are furnished without cost to the
Adviser. Since statistical and other research information is only supplementary
to the research efforts of the Adviser to the Fund and still must be analyzed
and reviewed by its staff, the receipt of research information is not expected
to reduce its expenses materially. The investment advisory fee is not reduced as
a result of the Adviser's receipt of such research services. Services provided
may include (a) furnishing advice as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities; (b)
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and the performance of
accounts; and (c) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement and custody). Research
services furnished by firms through which the Fund effects its securities
transactions may be used by the Adviser in servicing all of its advisory
accounts; not all of such services may be used by the Adviser in connection with
the Fund. The Adviser also may place portfolio transactions, to the extent
permitted by law, with brokerage firms affiliated with the Fund, the Adviser or
the Distributor and with brokerage firms participating in the distribution of
the Fund's shares if it reasonably believes that the quality of execution and
the commission are comparable to that available from other qualified firms.
Similarly, to the extent permitted by law and subject to the same considerations
on quality of execution and comparable commission rates, the Adviser may direct
an executing broker to pay a portion or all of any commissions, concessions or
discounts to a firm supplying research or other services or to a firm
participating in the distribution of the Fund's shares.
The Adviser may place portfolio transactions at or about the same time for
other advisory accounts, including other investment companies. The Adviser seeks
to allocate portfolio transactions equitably whenever concurrent decisions are
made to purchase or sell securities for the Fund and another advisory account.
In some cases, this procedure could have an adverse effect on the price or the
amount of securities available to the Fund. In
B-30
<PAGE> 57
making such allocations among the Fund and other advisory accounts, the main
factors considered by the Adviser are the respective sizes of the Fund and other
advisory accounts, the respective investment objectives, the relative size of
portfolio holdings of the same or comparable securities, the availability of
cash for investment, the size of investment commitments generally held and
opinions of the persons responsible for recommending the investment.
Effective October 31, 1996, Morgan Stanley & Co. Incorporated ("Morgan
Stanley") became an affiliate of the Adviser. Effective May 31, 1997, Dean
Witter Reynolds, Inc. ("Dean Witter") became an affiliate of the Adviser. The
Trustees have adopted certain policies incorporating the standards of Rule 17e-1
issued by the SEC under the 1940 Act which requires that the commissions paid to
affiliates of the Fund must be reasonable and fair compared to the commissions,
fees or other remuneration received or to be received by other brokers in
connection with comparable transactions involving similar securities during a
comparable period of time. The rule and procedures also contain review
requirements and require the Adviser to furnish reports to the Trustees and to
maintain records in connection with such reviews. After consideration of all
factors deemed relevant, the Trustees will consider from time to time whether
the advisory fee for the Fund will be reduced by all or a portion of the
brokerage commission given to affiliated brokers.
The Fund paid the following commissions to all brokers and affiliated
brokers during the periods shown:
Commissions Paid:
<TABLE>
<CAPTION>
Affiliated Brokers
All -----------------------------
Brokers Morgan Stanley Dean Witter
------- -------------- -----------
<S> <C> <C> <C>
Fiscal year ended December 31, 1998....... $2,120,029 $ -0- $ -0-
Fiscal year ended December 31, 1997....... 2,269,523 1,875 -0-
Fiscal year ended December 31, 1996....... 2,045,573 123,327 5,142
Fiscal year 1998 Percentages:
Commissions with affiliate to total
commissions............................ -0- -0-
Value of brokerage transactions with
affiliate to total transactions........ -0- -0-
</TABLE>
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services designed to facilitate
investment in its shares at little or no extra cost to the investor. Below is a
description of such services. The following information supplements the section
in the Fund's Prospectus captioned "Shareholder Services."
INVESTMENT ACCOUNT
Each shareholder has an investment account under which the investor's
shares of the Fund are held by Investor Services, the Fund's transfer agent.
Investor Services performs bookkeeping, data processing and administrative
services related to the maintenance of shareholder accounts. Except as described
in the Prospectus and this Statement of Additional Information, after each share
transaction in an account, the shareholder receives a statement showing the
activity in the account. Each shareholder who has an account in any of the
Participating Funds will receive statements quarterly from Investor Services
showing any reinvestments of dividends and capital gains distributions and any
other
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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 Investor Services.
SHARE CERTIFICATES
Generally, the Fund will not issue share certificates. However, upon
written or telephone request to the Fund, a share certificate will be issued
representing shares (with the exception of fractional shares) of the Fund. A
shareholder will be required to surrender such certificates upon redemption
thereof. In addition, if such certificates are lost the shareholder must write
to Van Kampen Funds, c/o Investor Services, PO Box 418256, Kansas City, MO
64141-9256, requesting an "affidavit of loss" and obtain a Surety Bond in a form
acceptable to Investor Services. On the date the letter is received, Investor
Services will calculate a fee for replacing the lost certificate equal to no
more than 2.00% of the net asset value of the issued shares, and bill the party
to whom the replacement certificate was mailed.
RETIREMENT PLANS
Eligible investors may establish individual retirement accounts ("IRAs");
SEP; 401(k) plans; Section 403(b)(7) plans in the case of employees of public
school systems and certain non-profit organizations; or other pension or profit
sharing plans. Documents and forms containing detailed information regarding
these plans are available from the Distributor. Van Kampen Trust Company serves
as custodian under the IRA, 403(b)(7) and Keogh plans. Details regarding fees,
as well as full plan administration for profit sharing, pension and 401(k)
plans, are available from the Distributor.
AUTOMATED CLEARING HOUSE("ACH") DEPOSITS
Holders of 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 Investor Services has received the application and the voided
check or deposit slip, such shareholder's designated bank account, following any
redemption, will be credited with the proceeds of such redemption. Once enrolled
in the ACH plan, a shareholder may terminate participation at any time by
writing Investor Services.
DIVIDEND DIVERSIFICATION
A shareholder may, upon written request or by completing the appropriate
section of the application form accompanying the Prospectus or by calling (800)
341-2911 ((800) 421-2833 for the hearing impaired), elect to have all dividends
and other 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
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retirement. If the accounts are retirement accounts, they must both be for the
same class and of the same type of retirement plan (e.g. IRA, 403(b)(7), 401(k),
Keogh) and for the benefit of the same individual. If a qualified, pre-existing
account does not exist, the shareholder must establish a new account subject to
minimum investment and other requirements of the fund into which distributions
would be invested. Distributions are invested into the selected fund at its net
asset value per share as of the payable date of the distribution.
SYSTEMATIC WITHDRAWAL PLAN
Any investor whose shares in a single account total $10,000 or more at the
offering price next computed after receipt of instructions may establish a
monthly, quarterly, semiannual 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, semiannual or
annual withdrawal plan. This plan provides for the orderly use of the entire
account, not only the income but also the capital, if necessary. Each withdrawal
constitutes a redemption of shares on which any capital gain or loss will be
recognized. The planholder may arrange for monthly, quarterly, semiannual or
annual checks in any amount, not less than $25. Such a systematic withdrawal
plan may also be maintained by an investor purchasing shares for a retirement
plan established on a form made available by the Fund. See "Shareholder
Services -- Retirement Plans."
Class B shareholders and Class C shareholders who establish a withdrawal
plan may redeem up to 12% annually of the shareholder's initial account balance
without incurring a contingent deferred sales charge. Initial account balance
means the amount of the shareholder's investment 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 plans are reinvested in additional shares
at the next determined net asset value per share. 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. The Fund reserves the right to amend or terminate
the systematic withdrawal program on 30 days' notice to its shareholders.
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 contingent deferred sales
charge paid upon such redemption. Such reinstatement is made at the net asset
value per share (without sales charge) next determined after the order is
received, which must be within 180 days after the date of the redemption.
Reinstatement at net asset value per share is also offered to participants in
those eligible retirement plans held or administered by Van Kampen Trust Company
for repayment of principal (and interest) on their borrowings on such plans.
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REDEMPTION OF SHARES
Redemptions are not made on days during which the New York Stock Exchange
(the "Exchange") is closed. The right of redemption may be suspended and the
payment therefor may be postponed for more than seven days during any period
when (a) the Exchange is closed for other than customary weekends or holidays;
(b) 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 fairly determine
the value of its net assets; or (d) the SEC, by order, so permits.
Additionally, if the Board of Trustees determines that payment wholly or
partly in cash would be detrimental to the best interests of the remaining
shareholders of the Fund, the Fund may pay the redemption proceeds in whole or
in part by a distribution-in-kind of portfolio securities held by the Fund in
lieu of cash in conformity with applicable rules of the SEC. Shareholders may
incur brokerage charges upon the sale of portfolio securities so received in
payment of redemptions.
CONTINGENT DEFERRED SALES CHARGE-CLASS A ("CDSC-CLASS A")
As described in the Prospectus under "Purchase of Shares -- Class A
Shares," there is no sales charge payable on Class A Shares at the time of
purchase on investments of $1 million or more, but a CDSC-Class A may be imposed
on certain redemptions made within one year of purchase. For purposes of the
CDSC-Class A, when shares of one fund are exchanged for shares of another fund,
the purchase date for the shares of the fund exchanged into will be assumed to
be the date on which shares were purchased in the fund from which the exchange
was made. If the exchanged shares themselves are acquired through an exchange,
the purchase date is assumed to carry over from the date of the original
election to purchase shares subject to a CDSC-Class A rather than a front-end
load sales charge. In determining whether a CDSC-Class A is payable, it is
assumed that shares held the longest are the first to be redeemed.
WAIVER OF CLASS B AND CLASS C CONTINGENT DEFERRED SALES CHARGE ("CDSC-CLASS B
AND C")
As described in the Prospectus under "Redemption of Shares," redemptions of
Class B Shares and Class C Shares will be subject to a contingent deferred sales
charge. The CDSC-Class B and C is waived on redemptions of Class B Shares and
Class C Shares in the circumstances described below:
REDEMPTION UPON DEATH OR DISABILITY
The Fund will waive the CDSC-Class B and C on redemptions following the
death or disability of a Class B shareholder and Class C shareholder. An
individual will be considered disabled for this purpose if he or she meets the
definition thereof in Section 72(m)(7) of the Internal Revenue Code of 1986, as
amended (the "Code"), which in pertinent part defines a person as disabled if
such person "is unable to engage in any substantial gainful activity by reason
of any medically determinable physical or mental impairment which can be
expected to result in death or to be of long-continued and indefinite duration."
While the Fund does not specifically adopt the balance of the Code's definition
which pertains to furnishing the Secretary of Treasury with such proof as he or
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she may require, the Distributor will require satisfactory proof of death or
disability before it determines to waive the CDSC-Class B and C.
In cases of death or disability, the CDSC-Class B and C will be waived
where the decedent or disabled person is either an individual shareholder or
owns the shares as a joint tenant with right of survivorship or is the
beneficial owner of a custodial or fiduciary account, and where the redemption
is made within one year of the death or initial determination of disability.
This waiver of the CDSC-Class B and C applies to a total or partial redemption,
but only to redemptions of shares held at the time of the death or initial
determination of disability.
REDEMPTION IN CONNECTION WITH CERTAIN DISTRIBUTIONS FROM RETIREMENT PLANS
The Fund will waive the CDSC-Class B and C when a total or partial
redemption is made in connection with certain distributions from retirement
plans. The charge will be waived upon the tax-free rollover or transfer of
assets to another retirement plan invested in one or more Participating Funds;
in such event, as described below, the Fund will "tack" the period for which the
original shares were held on to the holding period of the shares acquired in the
transfer or rollover for purposes of determining what, if any, CDSC-Class B and
C is applicable in the event that such acquired shares are redeemed following
the transfer or rollover. The charge also will be waived on any redemption which
results from the return of an excess contribution pursuant to Section 408(d)(4)
or (5) of the Code, the return of excess deferral amounts pursuant to Code
Section 401(k)(8) or 402(g)(2), or from the death or disability of the employee
(see Code Section 72(m)(7) and 72(t)(2)(A)(ii)). In addition, the charge will be
waived on any minimum distribution required to be distributed in accordance with
Code Section 401(a)(9).
The Fund does not intend to waive the CDSC-Class B and C for any
distributions from IRAs or other retirement plans not specifically described
above.
REDEMPTION PURSUANT TO A FUND'S SYSTEMATIC WITHDRAWAL PLAN
A shareholder may elect to participate in a systematic withdrawal plan with
respect to the shareholder's investment in the Fund. Under the 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 a 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.
NO INITIAL COMMISSION OR TRANSACTION FEE
The Fund will waive the CDSC-Class B and C in circumstances under which no
commission or transaction fee is paid to authorized dealers at the time of
purchase of shares.
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INVOLUNTARY REDEMPTIONS OF SHARES
The Fund reserves the right to redeem shareholder accounts with balances of
less than a specified dollar amount as set forth in the Prospectus. Prior to
such redemptions, shareholders will be notified in writing and allowed a
specified period of time to purchase additional shares to bring the account up
to the required minimum balance. The Fund will waive the CDSC-Class B and C upon
such involuntary redemption.
REINVESTMENT OF REDEMPTION PROCEEDS
A shareholder who has redeemed Class C Shares of a Fund may reinvest at net
asset value, with credit for any CDSC-Class C paid on the redeemed shares, any
portion or all of his or her redemption proceeds (plus that amount necessary to
acquire a fractional share to round off his or her purchase to the nearest full
share) in Class C Shares of the Fund, provided that the reinvestment is effected
within 180 days after such redemption and the shareholder has not previously
exercised this reinvestment privilege with respect to Class C Shares of the
Fund. Shares acquired in this manner will be deemed to have the original cost
and purchase date of the redeemed shares for purposes of applying the CDSC-Class
C to subsequent redemptions.
REDEMPTION BY ADVISER
The Fund may waive the CDSC-Class B and C when a total or partial
redemption is made by the Adviser with respect to its investments in the Fund.
TAXATION
FEDERAL INCOME TAXATION
The Fund has elected and qualified, and intends to continue to qualify each
year, to be treated as a regulated investment company under Subchapter M of the
Code. To qualify as a regulated investment company, the Fund must comply with
certain requirements of the Code relating to, among other things, the source of
its income and diversification of its assets.
If the Fund so qualifies and distributes each year to its shareholders at
least 90% of its net investment income (including taxable income and net
short-term capital gains, but not net capital gains, which are the excess of net
long-term capital gains over net short-term capital losses), it will not be
required to pay federal income taxes on any income distributed to shareholders.
The Fund intends to distribute at least the minimum amount of net investment
income necessary to 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 31st of each year, at least an amount equal to the sum of (i) 98% of
its ordinary income for such year and (ii) 98% of its capital gains net income
(the latter of which generally is computed on the basis of the one-year period
ending on October 31st of such year), plus any amounts that were not distributed
in previous taxable years. For purposes of the excise tax, any ordinary income
or capital gains net income retained by, and subject to federal income tax in
the hands of, the Fund will be treated as having been distributed.
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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 each year in order to maintain its qualification
as a regulated investment company and to avoid income and excise taxes. In order
to generate sufficient cash to make distributions necessary to satisfy the 90%
distribution requirement and to avoid income and excise taxes, the Fund may have
to dispose of securities that it would otherwise have continued to hold.
PASSIVE FOREIGN INVESTMENT COMPANIES. The Fund may invest in the stock of
"passive foreign investment companies" ("PFICs"). A PFIC is a foreign
corporation that, in general, meets either of the following tests: (i) at least
75% of its gross income is passive income or (ii) an average of at least 50% of
its assets produce, or are held for the production of, passive income. Under
certain circumstances, a regulated investment company that holds stock of a PFIC
will be subject to federal income tax on (i) a portion of any "excess
distribution" received on such stock or (ii) any gain from a sale or disposition
of such stock (collectively, "PFIC income"), plus interest on such amounts, even
if the regulated investment company distributes the PFIC income as a taxable
dividend to its shareholders. The balance of the PFIC income will be included in
the regulated investment company's investment company taxable income and,
accordingly, will not be taxable to it to the extent that income is distributed
to its shareholders. If the Fund invests in a PFIC and elects to treat the PFIC
as a "qualified electing fund," then in lieu of the foregoing tax and interest
obligation, the Fund would be required to include in income each year its pro
rata share of the qualified electing fund's annual ordinary
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earnings and net capital gain, which most likely would have to be distributed to
satisfy the 90% distribution requirement and the distribution requirement for
avoiding income and excise taxes. In most instances it will be very difficult to
make this election due to certain requirements imposed with respect to the
election.
As an alternative to making the above-described election to treat the PFIC
as a qualified electing fund, the Fund may make an election to annually
mark-to-market PFIC stock that it owns (a "PFIC Mark-to-Market Election").
"Marking-to-market," in this context, means recognizing as ordinary income or
loss each year an amount equal to the difference between the Fund's adjusted tax
basis in such PFIC stock and its fair market value. Losses will be allowed only
to the extent of net mark-to-market gain previously included by the Fund
pursuant to the election for prior taxable years. The Fund may be required to
include in its taxable income for the first taxable year in which it makes a
PFIC Mark-to-Market Election an amount equal to the interest charge that would
otherwise accrue with respect to distributions on, or dispositions of, the PFIC
stock. This amount would not be deductible from the Fund's taxable income. The
PFIC Mark-to-Market Election applies to the taxable year for which made and to
all subsequent taxable years, unless the Internal Revenue Service (the "IRS")
consents to revocation of the election. By making the PFIC Mark-to-Market
Election, the Fund could ameliorate the adverse tax consequences arising from
its ownership of PFIC stock, but in any particular year may be required to
recognize income in 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 gains 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 gains dividends), see "Capital Gains Rates" below. Tax-exempt
shareholders not subject to federal income tax on their income generally will
not be taxed on distributions from the Fund.
Shareholders receiving distributions in the form of additional shares
issued by the Fund will be treated for federal income tax purposes as receiving
a distribution in an amount equal to the fair market value of the shares
received, determined as of the distribution date. The basis of such shares will
equal the fair market value on the distribution date.
The Fund will inform shareholders of the source and tax status of all
distributions promptly after the close of each calendar year. 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
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specified date in such month and paid during January of the following year will
be treated as having been distributed by the Fund and received by the
shareholders on the December 31st prior to the date of payment. In addition,
certain other distributions made after the close of a taxable year of the Fund
may be "spilled back" and treated as paid by the Fund (except for purposes of
the 4% excise tax) during such taxable year. In such case, shareholders will be
treated as having received such dividends in the taxable year in which the
distribution was actually made.
Income from investments in foreign securities received by the Fund may be
subject to income, withholding or other taxes imposed by foreign countries and
U.S. possessions. Such taxes will not be deductible or creditable by
shareholders. Tax conventions between certain countries and the United States
may reduce or eliminate such taxes.
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 gains. 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.
SALE OF SHARES
The sale of shares (including transfers in connection with a redemption or
repurchase of shares) will be a taxable transaction for federal income tax
purposes. Selling shareholders will generally recognize gain or loss in an
amount equal to the difference between their adjusted tax basis in the shares
and the amount received. If such shares are held as a capital asset, the gain or
loss will be a capital gain or loss. For a summary of the tax rates applicable
to capital gains, see "Capital Gains Rates" below. Any loss recognized upon a
taxable disposition of shares held for six months or less will be treated as a
long-term capital loss to the extent of any capital gains dividends received
with respect to such shares. For purposes of determining whether shares have
been held for six months or less, the holding period is suspended for any
periods during which the shareholder's risk of loss is diminished as a result of
holding one or more other positions in substantially similar or related property
or through certain options or short sales.
CAPITAL GAINS RATES
The maximum tax rate applicable to net capital gains recognized by
individuals and other non-corporate taxpayers is (i) the same as the maximum
ordinary income tax rate for capital assets held for one year or less or (ii)
20% for capital assets held for more than one year. The maximum long-term
capital gains rate for corporations is 35%.
Non-U.S. Shareholders. A shareholder who is not (i) a citizen or resident
of the United States, (ii) a corporation or partnership created or organized
under the laws of the United States or any state thereof, (iii) an estate, the
income of which is subject to United States federal income taxation regardless
of its source or (iv) a trust whose administration is subject to the primary
supervision of a United States court and which has
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one or more United States fiduciaries who have the authority to control all
substantial decisions of the trust (a "Non-U.S. Shareholder") generally will be
subject to withholding of United States federal income tax at a 30% rate (or
lower applicable treaty rate) on dividends from the Fund (other than capital
gains dividends) that are not "effectively connected" with a United States trade
or business carried on by such shareholder.
Non-effectively connected capital gains dividends and gains realized from
the sale of shares will not be subject to United States federal income tax in
the case of (i) a Non-U.S. Shareholder that is a corporation and (ii) a Non-U.S.
Shareholder that is not present in the United States for more than 182 days
during the taxable year (assuming that certain other conditions are met).
However, certain Non-U.S. Shareholders may nonetheless be subject to backup
withholding on capital gains dividends and gross proceeds paid to them upon the
sale of their shares. See "Backup Withholding" below.
If income from the Fund or gains realized from the sale of shares is
effectively connected with a Non-U.S. Shareholder's United States trade or
business, then such amounts will be subject to United States federal income tax
on a net basis at the tax rates applicable to United States citizens or domestic
corporations. Non-U.S. Shareholders that are corporations may also be subject to
an additional "branch profits tax" with respect to income from the Fund that is
effectively connected with a United States trade or business.
The United States Treasury Department has issued Treasury regulations
generally effective for payments made after December 31, 1999 concerning the
withholding of tax and reporting for certain amounts paid to nonresident alien
individuals and foreign corporations (the "Final Withholding Regulations").
Among other things, the Final Withholding Regulations may require Non-U.S.
Shareholders to furnish new certification of their foreign status after December
31, 1999. Prospective investors should consult their tax advisors concerning the
applicability and effect of the Final Withholding Regulations on an investment
in shares of the Fund.
The tax consequences to a Non-U.S. Shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described in
this section. Non-U.S. Shareholders may be required to provide appropriate
documentation to establish their entitlement to the benefits of such a treaty.
Foreign investors are advised to consult their tax advisers with respect to the
tax implications of purchasing, holding and disposing of shares of the Fund.
Backup Withholding. The Fund may be required to withhold federal income tax
at a rate of 31% ("backup withholding") from dividends and redemption proceeds
paid to non-corporate shareholders. This tax may be withheld from dividends if
(i) the shareholder fails to furnish the Fund with its correct taxpayer
identification number, (ii) the IRS notifies the Fund that the shareholder has
failed to properly report certain interest and dividend income to the IRS and to
respond to notices to that effect or (iii) when required to do so, the
shareholder fails to certify that he or she is not subject to backup
withholding. Redemption proceeds may be subject to withholding under the
circumstances described in (i) above.
The Fund must report annually to the IRS and to each Non-U.S. Shareholder
the amount of dividends paid to such shareholder and the amount, if any, of tax
withheld pursuant to backup withholding rules with respect to such dividends.
This information may also be made available to the tax authorities in the
Non-U.S. Shareholder's country of residence.
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Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules from payments made to a Shareholder may be refunded or
credited against such shareholder's United States federal income tax liability,
if any, provided that the required information is furnished to the IRS.
GENERAL
The federal income tax discussion set forth above is for general
information only. Prospective investors should consult their advisors regarding
the specific federal tax consequences of purchasing, holding and disposing of
shares, as well as the effects of state, local and foreign tax law and any
proposed tax law changes.
FUND PERFORMANCE
From time to time the Fund may advertise its total return for prior
periods. Any such advertisement would include at least average annual total
return quotations for one year, five-year and ten-year periods. Other total
return quotations, aggregate or average, over other time periods may also be
included.
The total return of the Fund for a particular period represents the
increase (or decrease) in the value of a hypothetical investment in the Fund
from the beginning to the end of the period. Total return is calculated by
subtracting the value of the initial investment from the ending value and
showing the difference as a percentage of the initial investment; the
calculation assumes the initial investment is made at the current maximum public
offering price (which includes the maximum sales charge 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 contingent
deferred sales charge has been paid. The Fund's total return will vary depending
on market conditions, the securities comprising the Fund's portfolio, the Fund's
operating expenses and unrealized net capital gains or losses during the period.
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 or to reflect the fact 12b-1 fees previously may have been less than
the current 12b-1 fees for certain classes of shares as specified in the
Prospectus were incurred prior to October 1, 1989.
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. Total return figures for Class A Shares include the maximum
sales charge; total return figures for Class B Shares and Class C Shares include
any applicable contingent deferred sales charge. Because of the differences in
sales charges and distribution fees, the total returns for each class of shares
will differ.
The Fund may, in supplemental sales literature, advertise non-standardized
total return figures representing the cumulative, non-annualized total return of
each class of shares of the Fund from a given date to a subsequent given date.
Cumulative non-standardized total return is calculated by measuring the value of
an initial investment in a given class of shares of the Fund at a given time,
deducting the maximum initial sales charge, if any, determining the value of all
subsequent reinvested distributions, and dividing
B-41
<PAGE> 68
the net change in the value of the investment as of the end of the period by the
amount of the initial investment and expressing the result as a percentage.
Non-standardized total return will be calculated separately for each class of
shares. Non-standardized total return calculations do not reflect the imposition
of a contingent deferred sales charge, and if any such contingent deferred sales
charge imposed at the time of redemption were reflected, it would reduce the
performance quoted.
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 gains 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.
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 Fund's marketing materials
may also show the Fund's asset class diversification, top five sectors, ten
largest holdings and other Fund asset structures. The top 10 holdings of the
Fund may also be listed in marketing pieces. Materials may also mention how Van
Kampen Investments believes the Fund compares relative to other Van Kampen
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 the investors who bought mutual fund shares and
held such shares outperformed investors who bought and sold. The Dalbar study
conclusions were consistent regardless if 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 other than with a professional representative.
The Fund may also be marketed on the internet.
In reports or other communications to shareholders or in advertising
material, the Fund may compare its performance with that of other mutual funds
as listed in the rankings or ratings prepared by Lipper Analytical Services,
Inc., CDA, Morningstar Mutual Funds or similar independent services which
monitor the performance of mutual funds with the Consumer Price Index, the Dow
Jones Industrial Average, Standard & Poor's indices, NASDAQ Composite Index,
other appropriate indices of investment securities, or with investment or
savings vehicles. The performance information may also include evaluations of
the Fund published by nationally recognized ranking services and by nationally
recognized financial publications. Such comparative performance information will
be stated in the same terms in which the comparative data or indices are stated.
Such advertisements and sales material may 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
B-42
<PAGE> 69
shares. For these purposes, the performance of the Fund, as well as the
performance of other mutual funds or indices, do not reflect sales charges, the
inclusion of which would reduce the Fund's performance. The Fund will include
performance data for each class of shares of the Fund in any advertisement or
information including performance data of the Fund.
The Fund may also utilize performance information in hypothetical
illustrations. For example, the Fund may, from time to time: (1) illustrate the
benefits of tax-deferral by comparing taxable investments to investments made
through tax-deferred retirement plans; (2) illustrate in graph or chart form, or
otherwise, the benefits of dollar cost averaging by comparing investments made
pursuant to a systematic investment plan to investments made in a rising market;
(3) illustrate allocations among different types of mutual funds for investors
at different stages of their lives; and (4) in reports or other communications
to shareholders or in advertising material, illustrate the benefits of
compounding at various assumed rates of return.
The Fund's Annual Report and Semiannual Report contain additional
performance information. A copy of the Annual Report or Semiannual Report may be
obtained without charge by calling or writing the Fund at the telephone number
and address printed on the back cover of the Prospectus.
CLASS A SHARES
The Fund's average annual total return, assuming payment of the maximum
sales charge, for Class A Shares of the Fund for (i) the one-year period ended
December 31, 1998 was 10.29%, (ii) the five-year period ended December 31, 1998
was 15.49% and (iii) the ten-year period ended December 31, 1998 was 14.52%. The
Fund's cumulative non-standardized total return, including payment of the
maximum sales charge, with respect to the Class A Shares from its inception to
December 31, 1998 was 6,359.68%. The Fund's cumulative non-standardized total
return, excluding payment of the maximum sales charge, with respect to the Class
A Shares from its inception to December 31, 1998 was 6,760.52%.
CLASS B SHARES
The Fund's average annual total return, assuming payment of the maximum
deferred maximum sales charge, for Class B Shares of the Fund for (i) the
one-year period ended December 31, 1998 was 11.17%, (ii) the five-year period
ended December 31, 1998 was 15.81% and (iii) the approximately six year,
seven-month period since May 1, 1992, the commencement of distribution for Class
B Shares of the Fund, through December 31, 1998 was 15.63%. The Fund's
cumulative non-standardized total return, including payment of the maximum
deferred sales charge, with respect to the Class B Shares from its inception to
December 31, 1998 was 163.32%. The Fund's cumulative non-standardized total
return, excluding payment of the maximum deferred sales charge, with respect to
the Class B Shares from its inception to December 31, 1998 was 163.32%.
CLASS C SHARES
The average annual total return, assuming payment of the maximum deferred
sales charge, for Class C Shares of the Fund for (i) the one-year period ended
December 31, 1998 was 15.17%, (ii) the five-year period ended December 31, 1998
was 15.98% and (iii) the approximately five-year, five month period since July
6, 1993, the commencement
B-43
<PAGE> 70
of distribution for Class C Shares of the Fund, through December 31, 1998 was
16.13%. The Fund's cumulative non-standardized total return, including payment
of the maximum deferred sales charge, with respect to the Class C Shares from
its inception to December 31, 1998 was 127.22%. The Fund's cumulative
non-standardized total return, excluding payment of the maximum deferred sales
charge, with respect to the Class C Shares from its inception to December 31,
1998 was 127.22%.
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.
OTHER INFORMATION
CUSTODY OF ASSETS
All securities owned by the Fund and all cash, including proceeds from the
sale of shares of the Fund and of securities in the Fund's investment portfolio,
are held by State Street Bank and Trust Company, 225 West Franklin Street,
Boston, Massachusetts 02110, as Custodian.
SHAREHOLDER REPORTS
Semiannual statements are furnished to shareholders, and annually such
statements are audited by the independent accountants.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 200 East Randolph Drive, Chicago, Illinois
60601, the independent accountants for the Fund, performs an annual audit of the
Fund's financial statements.
LEGAL COUNSEL
Counsel to the Fund is Skadden, Arps, Slate, Meagher & Flom (Illinois).
B-44
<PAGE> 71
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Van Kampen 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 Equity Income Fund (the
"Fund") at December 31, 1998, and the results of its operations, the changes in
its net assets and the 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, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
February 3, 1999
F-1
<PAGE> 72
PORTFOLIO OF INVESTMENTS
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
- -----------------------------------------------------------------------------------------
<S> <C> <C>
COMMON AND PREFERRED STOCKS 67.9%
CONSUMER DISTRIBUTION 1.8%
Federated Department Stores, Inc. (a)....................... 337,400 $ 14,697,988
Gap, Inc. .................................................. 261,675 14,719,219
SYSCO Corp.................................................. 248,600 6,820,963
--------------
36,238,170
--------------
CONSUMER DURABLES 0.4%
Black & Decker Corp. ....................................... 143,600 8,050,575
--------------
CONSUMER NON-DURABLES 7.1%
Anheuser-Busch Cos., Inc.................................... 198,600 13,033,125
Benckiser NV, Class B -- ADR (Netherlands) (a).............. 155,200 9,913,400
Colgate-Palmolive Co........................................ 161,830 15,029,961
Hershey Foods Corp.......................................... 206,400 12,835,500
Philip Morris Cos., Inc..................................... 792,000 42,371,988
Ralston Purina Group........................................ 524,600 16,983,925
Tommy Hilfiger Corp. (a).................................... 212,700 12,762,000
Unilever NV-ADR (Netherlands)............................... 138,200 11,461,963
Whitman Corp................................................ 456,100 11,573,538
--------------
145,965,400
--------------
CONSUMER SERVICES 1.2%
H & R Block, Inc............................................ 269,900 12,145,500
News Corp., 144A -- Convertible Preferred (b)............... 83,000 7,283,250
Sinclair Broadcasting Group -- Convertible Preferred........ 82,000 4,120,500
--------------
23,549,250
--------------
ENERGY 6.6%
Atlantic Richfield Co....................................... 348,000 22,707,000
Coastal Corp................................................ 615,700 21,511,019
El Paso Energy Corp......................................... 414,000 14,412,375
Exxon Corp.................................................. 171,500 12,540,938
Mobil Corp.................................................. 227,750 19,842,719
Texaco, Inc................................................. 410,410 21,700,429
Valero Energy Corp.......................................... 290,700 6,177,375
YPF Sociedad Anonima, Class D -- ADR (Argentina)............ 554,200 15,482,963
--------------
134,374,818
--------------
FINANCE 10.6%
Aetna, Inc.................................................. 166,800 13,114,650
Allstate Corp............................................... 152,010 5,871,386
American General Corp....................................... 293,000 22,854,000
Arden Realty Group, Inc..................................... 344,500 7,988,094
Bank of Tokyo-Mitsubishi, Ltd. -- ADR (Japan)............... 982,400 10,315,200
Chase Manhattan Corp........................................ 394,600 26,857,463
</TABLE>
See Notes to Financial Statements
F-2
<PAGE> 73
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
- -----------------------------------------------------------------------------------------
<S> <C> <C>
FINANCE (CONTINUED)
Citigroup, Inc.............................................. 275,500 $ 13,637,250
Equitable Cos., Inc......................................... 502,000 29,053,250
Exel Ltd., Class A.......................................... 146,600 10,995,000
First Union Corp............................................ 282,000 17,149,125
Fleet Financial Group, Inc.................................. 343,400 15,345,688
PLC Capital Trust II, PRIDES -- Convertible Preferred....... 130,000 8,482,500
PNC Bank Corp............................................... 302,100 16,351,163
Washington Mutual, Inc...................................... 328,560 12,546,885
WBK Trust, STRYPES -- Convertible Preferred................. 201,000 6,344,063
--------------
216,905,717
--------------
HEALTHCARE 10.7%
Alza Corp. (a).............................................. 154,000 8,046,500
American Home Products Corp................................. 452,600 25,487,038
Beckman Coulter, Inc........................................ 260,900 14,153,825
Columbia/HCA Healthcare Corp................................ 330,500 8,179,875
IMS Health, Inc............................................. 123,900 9,346,706
Laboratory Corp. -- Convertible Preferred................... 300,000 12,600,000
Merck & Co., Inc............................................ 127,600 18,844,925
Mylan Laboratories, Inc..................................... 482,200 15,189,300
Pharmacia & Upjohn, Inc..................................... 464,300 26,290,988
Rhodia, SA -- ADR (France) (a).............................. 417,200 6,258,000
Rhone-Poulenc, SA, Class A -- ADR (France).................. 492,500 24,748,125
Rhone-Poulenc, SA, Warrants -- ADR (France) (a)............. 248,000 930,000
St. Jude Medical, Inc....................................... 313,700 8,685,569
Teva Pharmaceutical Industries Ltd. -- ADR (Israel)......... 238,000 9,683,625
United HealthCare Corp...................................... 452,600 19,490,088
Watson Pharmaceuticals, Inc. (a)............................ 186,000 11,694,750
--------------
219,629,314
--------------
PRODUCER MANUFACTURING 2.7%
Allied Signal, Inc.......................................... 160,000 7,090,000
Ingersol Rand Co............................................ 394,400 18,512,150
Philips Electronics NV -- ADR (Netherlands)................. 103,000 6,971,813
Waste Management, Inc....................................... 491,047 22,895,066
--------------
55,469,029
--------------
RAW MATERIALS/PROCESSING INDUSTRIES 3.8%
Boise Cascade Corp.......................................... 303,700 9,414,700
Crown Cork & Seal Co., Inc.................................. 395,000 12,170,938
Fort James Corp............................................. 104,480 4,179,200
Fresenius Med Care Holdings, Inc., Class D -- Preferred 12,000 360
(a).......................................................
Imperial Chemical Industries Plc. -- ADR (United Kingdom)... 273,500 9,555,406
</TABLE>
See Notes to Financial Statements
F-3
<PAGE> 74
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
- -----------------------------------------------------------------------------------------
<S> <C> <C>
RAW MATERIALS/PROCESSING INDUSTRIES (CONTINUED)
Monsanto Co................................................. 171,000 $ 8,122,500
Monsanto Co., ACES -- Convertible Preferred................. 360,800 17,679,200
Raychem Corp................................................ 517,100 16,708,794
--------------
77,831,098
--------------
TECHNOLOGY 10.0%
Adobe Systems, Inc.......................................... 431,000 20,149,250
BMC Software, Inc. (a)...................................... 85,000 3,787,813
Compaq Computer Corp........................................ 177,000 7,422,938
Electronic Data Systems Corp................................ 255,600 12,843,900
First Data Corp............................................. 251,100 7,956,731
International Business Machines Corp........................ 222,800 41,162,300
Micron Technology, Inc...................................... 223,110 11,280,999
Microsoft Corp. -- Convertible Preferred.................... 85,000 8,308,750
Motorola, Inc............................................... 100,000 6,106,250
Oracle Corp. (a)............................................ 296,000 12,765,000
Quantum Corp. (a)........................................... 584,400 12,418,500
Texas Instruments, Inc...................................... 192,700 16,487,894
Unisys Corp. -- Convertible Preferred....................... 200,000 11,750,000
Xerox Corp.................................................. 160,800 18,974,400
Xilinx, Inc. (a)............................................ 202,300 13,174,788
--------------
204,589,513
--------------
UTILITIES 13.0%
BEC Energy.................................................. 517,500 21,314,531
BellSouth Corp.............................................. 587,400 29,296,575
Consolidated Edison, Inc.................................... 576,800 30,498,300
DQE, Inc.................................................... 5,000 219,688
Edison International........................................ 629,600 17,550,100
GPU, Inc.................................................... 495,300 21,886,069
GTE Corp.................................................... 280,600 18,922,963
Illinova Corp............................................... 218,100 5,452,500
Niagara Mohawk Power Corp................................... 1,212,800 19,556,400
Northeast Utilities......................................... 1,581,401 25,302,416
PECO Energy Co.............................................. 145,600 6,060,600
SBC Communications, Inc..................................... 137,500 7,373,438
Sprint Corp................................................. 178,300 14,999,488
U.S. WEST Communications Group.............................. 576,500 37,256,313
Washington Water Power Co. -- Convertible Preferred......... 537,000 10,404,375
--------------
266,093,756
--------------
TOTAL COMMON AND PREFERRED STOCKS 67.9%............................... 1,388,696,640
--------------
</TABLE>
See Notes to Financial Statements
F-4
<PAGE> 75
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE OBLIGATIONS 7.5%
CONSUMER DISTRIBUTION 0.3%
$ 6,000 Gruma SA De Cv (Mexico), 144A (b).............. 7.625% 10/15/07 $ 5,356,200
--------------
CONSUMER DURABLES 0.5%
3,000 Ford Motor Co.................................. 7.250 10/01/08 3,353,910
3,000 Ford Motor Co. Delaware Note................... 9.000 09/15/01 3,271,350
3,000 General Motors Corp............................ 7.000 06/15/03 3,172,620
--------------
9,797,880
--------------
CONSUMER SERVICES 1.0%
10,000 Clear Channel Communications................... 6.625 06/15/08 10,185,100
10,000 Cox Communications, Inc........................ 7.250 11/15/15 11,060,000
--------------
21,245,100
--------------
ENERGY 1.0%
5,000 Enron Corp..................................... 9.125 04/01/03 5,531,950
4,000 Occidental Petroleum Corp...................... 10.125 11/15/01 4,373,480
2,500 Texaco Capital, Inc............................ 8.250 10/01/06 2,933,875
5,500 Texas Eastern Transmission Corp. .............. 8.250 10/15/04 6,222,095
2,000 Western Atlas, Inc. ........................... 7.875 06/15/04 2,209,200
--------------
21,270,600
--------------
FINANCE 0.1%
2,000 General Electric Capital Corp.................. 8.900 09/15/04 2,330,940
--------------
PRODUCER MANUFACTURING 0.4%
1,500 Reliance Electric Co........................... 6.800 04/15/03 1,586,370
6,000 USA Waste Services, Inc........................ 7.000 07/15/28 6,219,000
--------------
7,805,370
--------------
RAW MATERIALS/PROCESSING INDUSTRIES 1.4%
5,000 Crown Cork & Seal Finance Plc.................. 7.000 12/15/06 5,115,800
5,000 Crown Cork & Seal, Inc......................... 8.375 01/15/05 5,465,400
5,000 Georgia Pacific Corp........................... 9.500 05/15/22 5,729,900
10,000 ICI North America, Inc......................... 8.875 11/15/06 12,016,300
--------------
28,327,400
--------------
RETAIL 0.2%
4,000 May Department Stores Co....................... 8.375 08/01/24 4,608,360
--------------
TECHNOLOGY 0.7%
4,000 Philips Electronics NV-ADR (Netherlands)....... 7.750 04/15/04 4,366,120
10,000 Raytheon Co.................................... 6.750 08/15/07 10,615,400
--------------
14,981,520
--------------
TRANSPORTATION 0.3%
5,000 Norfolk Southern Corp.......................... 7.350 05/15/07 5,504,775
--------------
</TABLE>
See Notes to Financial Statements
F-5
<PAGE> 76
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
UTILITIES 1.6%
$ 5,000 360 Communications Co.......................... 7.125% 03/01/03 $ 5,320,850
10,000 Century Telephone Enterprises, Inc............. 6.300 01/15/08 10,363,850
4,000 Compania De Telocomunicaciones (Chile)......... 7.625 07/15/06 3,871,680
1,000 Tennessee Valley Authority, Series G........... 8.625 11/15/29 1,087,785
10,000 Worldcom, Inc.................................. 7.750 04/01/07 11,295,750
--------------
31,939,915
--------------
TOTAL CORPORATE OBLIGATIONS 7.5%.................................. 153,168,060
--------------
CONVERTIBLE CORPORATE OBLIGATIONS 10.5%
CONSUMER DURABLES 1.2%
26,000 Deutsche Bank Finance (Netherlands), 144A
(Convertible into 135,226 DaimlerChrysler AG
common shares) (b)............................. * 02/12/17 14,885,000
185 Newell Financial Trust, 144A (Convertible into
182,503 common shares) (a) (b)................. 5.250 12/01/27 9,851,250
--------------
24,736,250
--------------
CONSUMER SERVICES 0.4%
3,500 ADT Operations, Inc., LYON (Convertible into
95,116 Tyco International Ltd. common
shares)........................................ * 07/06/10 7,188,125
--------------
FINANCE 2.4%
5,000 Aegon NV, 144A (Convertible into 1,800,000
common shares) (b)............................. 4.750 11/01/04 43,650,000
STRYPES Merrill Lynch & Co., Inc., 94,500 shares
(Convertible into Cox Communications, Inc.
common shares)................................. 6.000 06/01/99 5,398,313
--------------
49,048,313
--------------
HEALTHCARE 2.8%
20,000 Alza Corp., LYON (Convertible into 259,740
common shares)................................. * 07/14/14 13,700,000
43,500 Roche Holdings, Inc., LYON (Convertible into
206,347 common shares)......................... * 04/20/10 28,111,875
14,246 Total Renal Care, 144A (Convertible into
434,197 common shares) (b)..................... 7.000 05/15/09 15,492,525
--------------
57,304,400
--------------
PHARMACEUTICALS 0.9%
20,000 Dura Pharmaceuticals (Convertible into 394,984
common shares)................................. 3.500 07/15/02 14,700,000
2,090 Sandoz, Ltd., 144A (Convertible into 1,958
common shares) (b)............................. 2.000 10/06/02 3,903,075
--------------
18,603,075
--------------
</TABLE>
See Notes to Financial Statements
F-6
<PAGE> 77
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PRODUCER MANUFACTURING 1.3%
$20,000 U.S. Filter Corp. (Convertible into 506,328
common shares)................................. 4.500% 12/15/01 $ 18,725,000
8,000 WMX Technologies, Inc. (Convertible into
151,252 Waste Management, Inc. common
shares)........................................ 2.000 01/24/05 7,830,000
--------------
26,555,000
--------------
RAW MATERIALS/PROCESSING INDUSTRIES 0.5%
18,401 APP Finance VII, 144A (Convertible into
1,071,188 common shares) (b)................... 3.500 04/30/03 10,534,573
--------------
10,534,573
--------------
TECHNOLOGY 1.0%
24,000 Hewlett Packard Co., LYON, 144A (Convertible
into 130,320 common shares) (b)................ * 10/14/17 13,350,000
12,000 Hewlett Packard Co., LYON (Convertible into
65,160 common shares).......................... * 10/14/17 6,675,000
--------------
20,025,000
--------------
TOTAL CONVERTIBLE CORPORATE OBLIGATIONS 10.5%..................... 213,994,736
--------------
UNITED STATES OBLIGATIONS 9.3%
12,000 United States Treasury Notes................... 6.375 07/15/99 12,116,160
130,000 United States Treasury Notes (c)............... 6.250 10/31/01 135,595,200
38,000 United States Treasury Notes................... 6.875 05/15/06 42,956,340
--------------
TOTAL UNITED STATES OBLIGATIONS.................................... 190,667,700
--------------
TOTAL LONG-TERM INVESTMENTS 95.2%
(Cost $1,570,088,976)...................................................... 1,946,527,136
--------------
</TABLE>
See Notes to Financial Statements
F-7
<PAGE> 78
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Market Value
- ----------------------------------------------------------------------------
<S> <C>
SHORT-TERM INVESTMENTS 5.2%
COMMERCIAL PAPER 1.2%
General Electric Capital Corp. ($24,235,000 par, yielding
5.003%, 01/04/99 maturity)................................
$ 24,221,536
--------------
UNITED STATES AGENCIES 4.0%
Federal Home Loan Mortgage Discount Notes
($20,000,000 par, yielding 4.956%, 04/09/99 maturity).....
19,736,000
Federal Home Loan Mortgage Discount Notes
($20,000,000 par, yielding 5.045%, 03/11/99 maturity).....
19,812,000
Federal Home Loan Mortgage Discount Notes
($25,000,000 par, yielding 5.046%, 03/05/99 maturity).....
24,785,000
Federal Home Loan Mortgage Discount Notes
($18,190,000 par, yielding 5.075%, 02/17/99 maturity).....
18,070,547
--------------
TOTAL UNITED STATES AGENCIES..............................
82,403,547
--------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $106,617,400).......................................
106,625,083
--------------
TOTAL INVESTMENTS 100.4%
(Cost $1,676,706,376).....................................
2,053,152,219
LIABILITIES IN EXCESS OF OTHER ASSETS (0.4%)...............
(8,510,526)
--------------
NET ASSETS 100.0%..........................................
$2,044,641,693
==============
</TABLE>
*Zero coupon bond
(a) Non-income producing security as this security currently does not declare
dividends or pay interest.
(b) 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.
(c) Assets segregated as collateral for open futures transactions.
LYON -- Liquid yield option note.
PRIDES -- Preferred redeemable interest dividend equity security, traded in
shares.
STRYPES -- Structured yield product exchangeable for stock, traded in shares.
See Notes to Financial Statements
F-8
<PAGE> 79
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $1,676,706,376)..................... $2,053,152,219
Cash........................................................ 18,503
Receivables:
Fund Shares Sold.......................................... 6,639,980
Interest.................................................. 5,468,748
Dividends................................................. 1,660,722
Variation Margin on Futures............................... 136,850
Other....................................................... 48,818
--------------
Total Assets.......................................... 2,067,125,840
--------------
LIABILITIES:
Payables:
Fund Shares Repurchased................................... 17,642,707
Distributor and Affiliates................................ 2,327,572
Investments Purchased..................................... 879,147
Investment Advisory Fee................................... 626,063
Income Distributions...................................... 531,152
Accrued Expenses............................................ 289,415
Trustees' Deferred Compensation and Retirement Plans........ 188,091
--------------
Total Liabilities..................................... 22,484,147
--------------
NET ASSETS.................................................. $2,044,641,693
==============
NET ASSETS CONSIST OF:
Capital..................................................... $1,646,782,277
Net Unrealized Appreciation................................. 378,269,769
Accumulated Net Realized Gain............................... 18,064,329
Accumulated Undistributed Net Investment Income............. 1,525,318
--------------
NET ASSETS.................................................. $2,044,641,693
==============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $808,454,528 and 103,389,230 shares of
beneficial interest issued and outstanding)........... $ 7.82
Maximum sales charge (5.75%* of offering price)......... .48
--------------
Maximum offering price to public........................ $ 8.30
==============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $1,140,042,881 and 146,793,491 shares of
beneficial interest issued and outstanding)........... $ 7.77
==============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $96,144,284 and 12,377,821 shares of
beneficial interest issued and outstanding)........... $ 7.77
==============
</TABLE>
*On sales of $50,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
F-9
<PAGE> 80
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 36,284,890
Dividends................................................... 22,536,245
------------
Total Income............................................ 58,821,135
------------
EXPENSES:
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $1,739,846, $10,399,790 and $853,421,
respectively)............................................. 12,993,057
Investment Advisory Fee..................................... 6,877,625
Shareholder Services........................................ 3,201,480
Custody..................................................... 103,474
Legal....................................................... 72,012
Trustees' Fees and Expenses................................. 43,145
Other....................................................... 1,123,726
------------
Total Expenses.......................................... 24,414,519
------------
NET INVESTMENT INCOME....................................... $ 34,406,616
============
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $107,209,364
Futures................................................... 5,217,669
------------
Net Realized Gain........................................... 112,427,033
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 245,432,645
------------
End of the Period:
Investments............................................... 376,445,843
Futures................................................... 1,823,926
------------
378,269,769
------------
Net Unrealized Appreciation During the Period............... 132,837,124
------------
NET REALIZED AND UNREALIZED GAIN............................ $245,264,157
============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $279,670,773
============
</TABLE>
See Notes to Financial Statements
F-10
<PAGE> 81
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................. $ 34,406,616 $ 23,048,492
Net Realized Gain..................................... 112,427,033 184,609,912
Net Unrealized Appreciation During the Period......... 132,837,124 85,825,819
-------------- --------------
Change in Net Assets from Operations.................. 279,670,773 293,484,223
-------------- --------------
Distributions from Net Investment Income.............. (34,947,222) (24,018,109)
Distributions in Excess of Net Investment Income...... -0- (2,400,068)
-------------- --------------
Distributions from and in Excess of Net Investment
Income*............................................. (34,947,222) (26,418,177)
Distributions from Net Realized Gain*................. (110,554,644) (181,941,214)
-------------- --------------
Total Distributions................................... (145,501,866) (208,359,391)
-------------- --------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES... 134,168,907 85,124,832
-------------- --------------
FROM CAPITAL TRANSACTIONS
Proceeds from Shares Sold............................. 1,143,314,008 436,926,312
Value Received from Shares Issued in Merger........... -0- 21,732,117
Net Asset Value of Shares Issued Through Dividend
Reinvestment........................................ 132,142,154 188,548,998
Cost of Shares Repurchased............................ (987,638,702) (269,846,748)
-------------- --------------
Net Change in Net Assets from Capital Transactions.... 287,817,460 377,360,679
-------------- --------------
TOTAL INCREASE IN NET ASSETS.......................... 421,986,367 462,485,511
NET ASSETS:
Beginning of the Period............................... 1,622,655,326 1,160,169,815
-------------- --------------
End of the Period (Including accumulated undistributed
net investment income of $1,525,318 and $2,065,924
respectively)....................................... $2,044,641,693 $1,622,655,326
============== ==============
</TABLE>
<TABLE>
<CAPTION>
Year Ended Year Ended
*Distributions by Class December 31, 1998 December 31, 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Distributions from and in Excess of Net
Investment Income:
Class A Shares.......................... $(16,719,601) $(12,849,167)
Class B Shares.......................... (16,833,408) (12,509,687)
Class C Shares.......................... (1,394,213) (1,059,323)
------------- -------------
$(34,947,222) $(26,418,177)
============= =============
Distributions from Net Realized Gain:
Class A Shares.......................... $(43,282,677) $(71,711,304)
Class B Shares.......................... (62,071,749) (101,660,017)
Class C Shares.......................... (5,200,218) (8,569,893)
------------- -------------
($110,554,644) ($181,941,214)
============= =============
</TABLE>
See Notes to Financial Statements
F-11
<PAGE> 82
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 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period................................. $7.242 $6.740 $ 6.31 $ 5.16 $ 5.55
------ ------ ------ ------ ------
Net Investment Income.................. .174 .152 .158 .20 .21
Net Realized and Unrealized
Gain/Loss............................ 1.030 1.435 .796 1.458 (.317)
------ ------ ------ ------ ------
Total from Investment Operations......... 1.204 1.587 .954 1.658 (.107)
------ ------ ------ ------ ------
Less:
Distributions from and in Excess of Net
Investment Income.................... .175 .168 .156 .188 .1855
Distributions from Net Realized Gain... .451 .917 .368 .32 .0975
------ ------ ------ ------ ------
Total Distributions...................... .626 1.085 .524 .508 .283
------ ------ ------ ------ ------
Net Asset Value, End of the Period....... $7.820 $7.242 $6.740 $ 6.31 $ 5.16
====== ====== ====== ====== ======
Total Return (a)......................... 16.99% 24.13% 15.55% 32.57% (1.98%)
Net Assets at End of the Period (In
millions).............................. $808.5 $638.1 $471.8 $349.9 $240.5
Ratio of Expenses to Average Net Assets
(b).................................... .85% .86% .97% .95% 1.02%
Ratio of Net Investment Income to Average
Net Assets (b)......................... 2.31% 2.09% 2.50% 3.43% 3.60%
Portfolio Turnover....................... 61% 86% 99% 92% 92%
</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 years ended December 31, 1994 through 1996, the impact on the Ratios
of Expenses and Net Investment Income to Average Net Assets due to Van
Kampen's reimbursement of certain expenses was less than 0.01%.
See Notes to Financial Statements
F-12
<PAGE> 83
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 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.... $ 7.203 $ 6.713 $ 6.30 $ 5.16 $ 5.55
-------- ------- ------- ------- -------
Net Investment Income....................... .118 .100 .113 .15 .13
Net Realized and Unrealized Gain/Loss....... 1.019 1.423 .784 1.458 (.277)
-------- ------- ------- ------- -------
Total from Investment Operations............ 1.137 1.523 .897 1.608 (.147)
-------- ------- ------- ------- -------
Less:
Distributions from and in Excess of Net
Investment Income....................... .123 .116 .116 .148 .1455
Distributions from Net Realized Gain...... .451 .917 .368 .32 .0975
-------- ------- ------- ------- -------
Total Distributions......................... .574 1.033 .484 .468 .243
-------- ------- ------- ------- -------
Net Asset Value, End of the Period.......... $ 7.766 $ 7.203 $ 6.713 $ 6.30 $ 5.16
======== ======= ======= ======= =======
Total Return (a)............................ 16.17% 23.23% 14.56% 31.51% (2.70%)
Net Assets at End of the Period (In
millions)................................. $1,140.0 $ 908.7 $ 633.3 $ 408.9 $ 242.0
Ratio of Expenses to Average Net Assets
(b)....................................... 1.62% 1.64% 1.74% 1.75% 1.82%
Ratio of Net Investment Income to Average
Net Assets (b)............................ 1.55% 1.32% 1.74% 2.62% 2.82%
Portfolio Turnover.......................... 61% 86% 99% 92% 92%
</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 years ended December 31, 1994 through 1996, the impact on the Ratios
of Expenses and Net Investment Income to Average Net Assets due to Van
Kampen's reimbursement of certain expenses was less than 0.01%.
See Notes to Financial Statements
F-13
<PAGE> 84
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 C Shares 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.... $7.204 $6.713 $ 6.30 $ 5.16 $ 5.55
------ ------ ------ ------ -------
Net Investment Income....................... .117 .100 .113 .15 .14
Net Realized and Unrealized Gain/Loss....... 1.020 1.424 .784 1.458 (.287)
------ ------ ------ ------ -------
Total from Investment Operations............ 1.137 1.524 .897 1.608 (.147)
------ ------ ------ ------ -------
Less:
Distributions from and in Excess of Net
Investment Income....................... .123 .116 .116 .148 .1455
Distributions from Net Realized Gain...... .451 .917 .368 .32 .0975
------ ------ ------ ------ -------
Total Distributions......................... .574 1.033 .484 .468 .243
------ ------ ------ ------ -------
Net Asset Value, End of the Period.......... $7.767 $7.204 $6.713 $ 6.30 $ 5.16
====== ====== ====== ====== =======
Total Return (a)............................ 16.17% 23.23% 14.56% 31.51% (2.70%)
Net Assets at End of the Period (In
millions)................................. $ 96.1 $ 75.8 $ 55.2 $ 38.3 $ 26.9
Ratio of Expenses to Average Net Assets
(b)....................................... 1.62% 1.64% 1.74% 1.76% 1.82%
Ratio of Net Investment Income to Average
Net Assets (b)............................ 1.55% 1.32% 1.73% 2.63% 2.83%
Portfolio Turnover.......................... 61% 86% 99% 92% 92%
</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 years ended December 31, 1994 through 1996, the impact on the Ratios
of Expenses and Net Investment Income to Average Net Assets due to Van
Kampen's reimbursement of certain expenses was less than 0.01%.
See Notes to Financial Statements
F-14
<PAGE> 85
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen 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 or indications of value
obtained from an independent pricing service. 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, 1998, there were no
when issued or delayed delivery purchase commitments.
F-15
<PAGE> 86
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
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 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. 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.
At December 31, 1998, for federal income tax purposes, cost of long- and
short-term investments is $1,679,036,296, the aggregate gross unrealized
appreciation is $415,270,963 and the aggregate gross unrealized depreciation is
$41,155,040, resulting in net unrealized appreciation on long- and short-term
investments of $374,115,923.
Net realized gains or losses may differ for financial reporting and tax
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, 1998.
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.
F-16
<PAGE> 87
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
For federal income tax purposes, the following is furnished with respect to
the distributions paid by the Fund during its taxable year ended December 31,
1998. The Fund designated and paid $106,506,788 as a 20% rate gain distribution.
In January 1999, the Fund provided tax information to shareholders for the 1998
calendar year.
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, 1998, the Fund recognized expenses of
approximately $72,000 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, 1998, the Fund recognized expenses of
approximately $423,600 representing Van Kampen Funds Inc.'s or its affiliates'
(collectively "Van Kampen") cost of providing accounting services to the Fund.
Van Kampen Investor Services Inc., an affiliate of the Adviser, serves as
the shareholder servicing agent for the Fund. For the year ended December 31,
1998, the Fund recognized expenses of approximately $2,489,800. 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.
Certain officers and trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Fund. The maximum
annual benefit per trustee under the plan is $2,500.
At December 31, 1998, Van Kampen owned 223 shares of Class A and 224 shares
each of Classes B and C, respectively.
F-17
<PAGE> 88
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
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, 1998, capital aggregated $624,072,653, $943,694,748 and
$79,014,876 for Classes A, B, and C, respectively. For the year ended December
31, 1998, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................. 108,360,203 $ 836,859,216
Class B.................................. 36,029,610 276,860,624
Class C.................................. 3,865,558 29,594,168
------------ --------------
Total Sales................................ 148,255,371 $1,143,314,008
============ ==============
Dividend Reinvestment:
Class A.................................. 7,130,348 $ 54,671,876
Class B.................................. 9,437,571 71,897,500
Class C.................................. 731,441 5,572,778
------------ --------------
Total Dividend Reinvestment................ 17,299,360 $ 132,142,154
============ ==============
Repurchases:
Class A.................................. (100,205,548) $ (776,904,382)
Class B.................................. (24,828,078) (189,850,088)
Class C.................................. (2,747,855) (20,884,232)
------------ --------------
Total Repurchases.......................... (127,781,481) $ (987,638,702)
============ ==============
</TABLE>
F-18
<PAGE> 89
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
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>
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.
F-19
<PAGE> 90
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). Class B shares will
automatically convert to Class A shares after the eighth year following
purchase. 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, 1998, Van Kampen, as Distributor for the
Fund, received net commissions on sales of the Fund's Class A shares of
approximately $1,031,600 and CDSC on redeemed shares of approximately
$2,437,600. Sales charges 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 $1,248,372,470 and $1,031,813,396,
respectively.
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 to 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.
F-20
<PAGE> 91
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
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, 1998, were
as follows:
<TABLE>
<CAPTION>
CONTRACTS
- ----------------------------------------------------------------------
<S> <C>
Outstanding at December 31, 1997............................ 134
Futures Opened.............................................. 1,101
Futures Closed.............................................. (1,074)
------
Outstanding at December 31, 1998............................ 161
======
</TABLE>
The futures contracts outstanding at December 31, 1998, and the description
and unrealized appreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS APPRECIATION
- --------------------------------------------------------------------------
<S> <C> <C>
Long Contracts--March 1999 S&P 500 Index Futures
(Current Notional Value of $311,375 per
contract)..................................... 161 $1,823,926
=== ==========
</TABLE>
F-21
<PAGE> 92
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
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, 1998, are payments retained by Van Kampen of
approximately $7,436,000.
F-22
<PAGE> 93
PART C. OTHER INFORMATION
ITEM 23. EXHIBITS.
<TABLE>
<S> <C> <C>
(a) (1) First Amended and Restated Agreement and Declaration of
Trust(1)
(2) Certificate of Amendment(1)
(3) Second Certificate of Amendment(5)
(4) Amended and Restated Certificate of Designation(4)
(5) Second Amended and Restated Certificate of Designation(5)
(b) Amended and Restated Bylaws(1)
(c) (1) Specimen Class A Share Certificate(2)
(2) Specimen Class B Share Certificate(2)
(3) Specimen Class C Share Certificate(2)
(d) Investment Advisory Agreement(4)
(e) (1) Distribution and Service Agreement(4)
(2) Form of Dealer Agreement(2)
(3) Form of Broker Fully Disclosed Selling Agreement(2)
(4) Form of Bank Fully Disclosed Selling Agreement(2)
(f) (1) Form of Trustee Deferred Compensation Plan(6)
(2) Form of Trustee Retirement Plan(6)
(g) (1) Custodian Agreement(3)
(2) Transfer Agency and Service Agreement(4)
(h) (1) Data Services Agreement(2)
(2) Fund Accounting Agreement(4)
(i) Opinion and Consent of Skadden, Arps, Slate, Meagher & Flom
(Illinois)(2)
(j) Consent of PricewaterhouseCoopers LLP+
(k) Not applicable
(1) Not applicable
(m) (1) Plan of Distribution Pursuant to Rule 12b-1(2)
(2) Form of Shareholder Assistance Agreement(2)
(3) Form of Administrative Services Agreement(2)
(4) Service Plan(2)
(n) Financial Data Schedules+
(o) Amended Multiple Class Plan(2)
(p) Power of Attorney(5)
(z) (1) List of Certain Investment Companies in Response to Item
27(a)(6)
(2) List of Officers and Directors of Van Kampen Funds Inc. in
Response to Item 27(b)(6)
</TABLE>
- ---------------
(1) 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.
(2) 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.
(3) 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.
(4) Incorporated herein by reference to Post-Effective Amendment No. 74 to
Registrant's Registration Statement on Form N-1A, File Number 2-15957,
filed April 28, 1998.
(5) Incorporated herein by reference to Post-Effective Amendment No. 75 to
Registrant's Registration Statement on Form N-1A, File Number 2-15957,
filed February 25, 1999.
(6) Incorporated herein by reference to Post-Effective Amendment No. 81 to Van
Kampen Harbor Fund's Registration Statement on Form N-1A, File Numbers
811-734 and 2-12685, filed April 29, 1999.
+ Filed herewith.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
C-1
<PAGE> 94
ITEM 25. 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
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 trustees 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 26. 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 Van Kampen Asset Management Inc. (the "Adviser"). For
information as to the business, profession, vocation and employment of a
substantial nature of directors and officers of the Adviser, reference is made
to the Adviser's current Form ADV (File No. 801-1669) filed under the Investment
Advisers Act of 1940, as amended, incorporated herein by reference.
ITEM 27. PRINCIPAL UNDERWRITERS.
(a) The sole principal underwriter is Van Kampen Funds Inc., which acts as
principal underwriter for certain investment companies and unit investment
trusts. See Exhibit (z)(1).
C-2
<PAGE> 95
(b) Van Kampen Funds Inc. is an affiliated person of an affiliated person
of Registrant and is the sole principal underwriter for Registrant. The name,
principal business address and positions and offices with Van Kampen Funds Inc.
of each of the directors and officers are disclosed in Exhibit (z)(2). Except as
disclosed under the heading, "Trustees and Officers" in Part B of this
Registration Statement, none of such persons has any position or office with
Registrant.
(c) Not applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents 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 1 Parkview Plaza, PO
Box 5555, Oakbrook Terrace, Illinois 60181-5555, Van Kampen Investor Services
Inc., 7501 Tiffany Springs Parkway, Kansas City, Missouri 64153, or at 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 1 Parkview Plaza, PO
Box 5555, Oakbrook Terrace, Illinois 60181-5555; and (iii) by Van Kampen Funds
Inc., the principal underwriter, will be maintained at its offices located at 1
Parkview Plaza, PO Box 5555, Oakbrook Terrace, Illinois 60181-5555.
ITEM 29. MANAGEMENT SERVICES.
Not applicable.
ITEM 30 UNDERTAKINGS.
Not applicable.
C-3
<PAGE> 96
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, VAN KAMPEN 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 State of Illinois, on the 30th
day of April, 1999.
VAN KAMPEN EQUITY INCOME FUND
By: /s/ DENNIS J. McDONNELL
Dennis J. McDonnell, President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed on April 30, 1999 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/ JOHN L. SULLIVAN* Vice President, Chief Financial
- ----------------------------------------------------- Officer and Treasurer
John L. Sullivan
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
/s/ PAUL G. YOVOVICH* Trustee
- -----------------------------------------------------
Paul G. Yovovich
* Signed by Dennis J. McDonnell pursuant to a power of attorney.
/s/ DENNIS J. McDONNELL April 30, 1999
- -----------------------------------------------------
Dennis J. McDonnell
Attorney-in-Fact
</TABLE>
<PAGE> 97
VAN KAMPEN EQUITY INCOME FUND
INDEX TO EXHIBITS TO POST-EFFECTIVE AMENDMENT NO. 76 TO FORM N-1A
AS SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION
ON APRIL 30, 1999
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C> <C>
(j) Consent of PricewaterhouseCoopers LLP
(n) Financial Data Schedules
</TABLE>
<PAGE> 1
EXHIBIT (j)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 76 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
February 3, 1999, relating to the financial statements and financial highlights
of Van Kampen 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/ PRICEWATERHOUSECOOPERS LLP
PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
April 26, 1999
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> EQUITY INCOME CLASS A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 1,676,706,376<F1>
<INVESTMENTS-AT-VALUE> 2,053,152,219<F1>
<RECEIVABLES> 13,906,300<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 67,321<F1>
<TOTAL-ASSETS> 2,067,125,840<F1>
<PAYABLE-FOR-SECURITIES> 879,147<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 21,605,000<F1>
<TOTAL-LIABILITIES> 22,484,147<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 624,072,653
<SHARES-COMMON-STOCK> 103,389,230
<SHARES-COMMON-PRIOR> 88,104,227
<ACCUMULATED-NII-CURRENT> 1,525,318<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 18,064,329<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 378,269,769<F1>
<NET-ASSETS> 808,454,528
<DIVIDEND-INCOME> 22,536,245<F1>
<INTEREST-INCOME> 36,284,890<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (24,414,519)<F1>
<NET-INVESTMENT-INCOME> 34,406,616<F1>
<REALIZED-GAINS-CURRENT> 112,427,033<F1>
<APPREC-INCREASE-CURRENT> 132,837,124<F1>
<NET-CHANGE-FROM-OPS> 279,670,773<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (16,719,601)
<DISTRIBUTIONS-OF-GAINS> (43,282,677)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 108,360,203
<NUMBER-OF-SHARES-REDEEMED> (100,205,548)
<SHARES-REINVESTED> 7,130,348
<NET-CHANGE-IN-ASSETS> 170,362,415
<ACCUMULATED-NII-PRIOR> 2,065,924<F1>
<ACCUMULATED-GAINS-PRIOR> 16,191,940<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 6,877,625<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 24,414,519<F1>
<AVERAGE-NET-ASSETS> 733,663,823
<PER-SHARE-NAV-BEGIN> 7.242
<PER-SHARE-NII> 0.174
<PER-SHARE-GAIN-APPREC> 1.030
<PER-SHARE-DIVIDEND> (0.175)
<PER-SHARE-DISTRIBUTIONS> (0.451)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 7.820
<EXPENSE-RATIO> 0.85
<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> 12
<NAME> EQUITY INCOME CLASS B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 1,676,706,376<F1>
<INVESTMENTS-AT-VALUE> 2,053,152,219<F1>
<RECEIVABLES> 13,906,300<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 67,321<F1>
<TOTAL-ASSETS> 2,067,125,840<F1>
<PAYABLE-FOR-SECURITIES> 879,147<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 21,605,000<F1>
<TOTAL-LIABILITIES> 22,484,147<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 943,694,748
<SHARES-COMMON-STOCK> 146,793,491
<SHARES-COMMON-PRIOR> 126,154,388
<ACCUMULATED-NII-CURRENT> 1,525,318<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 18,064,329<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 378,269,769<F1>
<NET-ASSETS> 1,140,042,881
<DIVIDEND-INCOME> 22,536,245<F1>
<INTEREST-INCOME> 36,284,890<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (24,414,519)<F1>
<NET-INVESTMENT-INCOME> 34,406,616<F1>
<REALIZED-GAINS-CURRENT> 112,427,033<F1>
<APPREC-INCREASE-CURRENT> 132,837,124<F1>
<NET-CHANGE-FROM-OPS> 279,670,773<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (16,833,408)
<DISTRIBUTIONS-OF-GAINS> (62,071,749)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 36,029,610
<NUMBER-OF-SHARES-REDEEMED> (24,828,078)
<SHARES-REINVESTED> 9,437,571
<NET-CHANGE-IN-ASSETS> 231,327,827
<ACCUMULATED-NII-PRIOR> 2,065,924<F1>
<ACCUMULATED-GAINS-PRIOR> 16,191,940<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 6,877,625<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 24,414,519<F1>
<AVERAGE-NET-ASSETS> 1,040,661,916
<PER-SHARE-NAV-BEGIN> 7.203
<PER-SHARE-NII> 0.118
<PER-SHARE-GAIN-APPREC> 1.019
<PER-SHARE-DIVIDEND> (0.123)
<PER-SHARE-DISTRIBUTIONS> (0.451)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 7.766
<EXPENSE-RATIO> 1.62
<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> 13
<NAME> EQUITY INCOME CLASS C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 1,676,706,376<F1>
<INVESTMENTS-AT-VALUE> 2,053,152,219<F1>
<RECEIVABLES> 13,906,300<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 67,321<F1>
<TOTAL-ASSETS> 2,067,125,840<F1>
<PAYABLE-FOR-SECURITIES> 879,147<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 21,605,000<F1>
<TOTAL-LIABILITIES> 22,484,147<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 79,014,876
<SHARES-COMMON-STOCK> 12,377,821
<SHARES-COMMON-PRIOR> 10,528,677
<ACCUMULATED-NII-CURRENT> 1,525,318<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 18,064,329<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 378,269,769<F1>
<NET-ASSETS> 96,144,284
<DIVIDEND-INCOME> 22,536,245<F1>
<INTEREST-INCOME> 36,284,890<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (24,414,519)<F1>
<NET-INVESTMENT-INCOME> 34,406,616<F1>
<REALIZED-GAINS-CURRENT> 112,427,033<F1>
<APPREC-INCREASE-CURRENT> 132,837,124<F1>
<NET-CHANGE-FROM-OPS> 279,670,773<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (1,394,213)
<DISTRIBUTIONS-OF-GAINS> (5,200,218)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,865,558
<NUMBER-OF-SHARES-REDEEMED> (2,747,855)
<SHARES-REINVESTED> 731,441
<NET-CHANGE-IN-ASSETS> 20,296,125
<ACCUMULATED-NII-PRIOR> 2,065,924<F1>
<ACCUMULATED-GAINS-PRIOR> 16,191,940<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 6,877,625<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 24,414,519<F1>
<AVERAGE-NET-ASSETS> 85,399,596
<PER-SHARE-NAV-BEGIN> 7.204
<PER-SHARE-NII> 0.117
<PER-SHARE-GAIN-APPREC> 1.020
<PER-SHARE-DIVIDEND> (0.123)
<PER-SHARE-DISTRIBUTIONS> (0.451)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 7.767
<EXPENSE-RATIO> 1.62
<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>
